National Electricity Policy-Revision

GS-Paper-3: Economic reform – UPSC PRELIMS – Mains Application

The government has decided to revise the National Electricity Policy-NEP by invoking Section 3 of the Electricity Act, 2003. The 2003 Act mandates that the central government shall prepare the NEP in consultation with the state governments and the Central Electricity Authority.

The government has constituted a committee now. It would finalise the draft NEP which has been circulated, after seeking views of stakeholders. The first NEP was formulated in 2005.

Progress since 2005:

• Between 2005 and 2021, generation capacity (inclusive of renewable capacity) has gone up by about 251 GW.
• The renewable generating capacity has gone up to 94 GW (from wind, solar, small hydro and biomass) from almost nothing.
• This led to about 10% of generation from renewable sources.
• An additional 2.5 lakh circuit-km of transmission lines (above 220 kV) were added during this time.
• Per capita consumption has almost doubled from 630 units to approximately 1,200 units today.
• Besides, peak and energy shortages have come down from double digit figures to about half a percentage point.
• Rural electrification is almost complete with near 100% electricity access to households (not necessarily 24 hours supply).

Electricity (Amendment) Bill 2020

Recently, the Central government has introduced the Electricity (Amendment) Bill 2020 to amend various provisions in the Electricity Act 2003.

Why?
To address critical issues weakening the commercial and investment activities in the electricity sector.

The current challenges plaguing the Indian power sector is derived from negligence in addressing the structural issues. These include operational and financial inefficiencies of power generation, transmission and distribution utilities, access and quality of power supply, political interference, lack of private investments, inadequate public infrastructure and lack of consumer participation. Bringing transparency and accountability to protect the interest of consumers and ensuring healthy growth of the power sector.

Objectives:

1. Ensure consumer centricity,
2. Promote Ease of Doing Business,
3. Enhance sustainability of the power sector,
4. Promote green power.

Amendments:
National Selection Committee: Instead of the separate Selection Committee (for appointment of Chairperson and members of State Electricity Regulatory Commissions-SERCs), there is a proposal to set up a National Selection Committee. However, the Central Government is also considering to continue with the existing separate Selection Committees for each state – but make them Standing Selection Committees so that there is no need for constituting them afresh every time a vacancy occurs.

The only difference is that it will now be proposed to be presided by the Chief Justice of the High Court of the state.

Introduction of Direct Benefit Transfer: Direct Benefit Transfer will be beneficial for both the State Governments and as well as Distribution Companies. It will be beneficial for the State Government because it will ensure that the subsidy reaches the people who are actually entitled and the State Government gets clear accounts of the amount given as subsidy. It will benefit the distribution company by making sure that the subsidies due are received as per the number of beneficiaries.

National Renewable Energy Policy: India is a signatory to the Paris Climate Agreement. It is therefore proposed to have a separate policy for the development and promotion of generation of electricity from renewable sources of energy. The policy prescribes a minimum percentage of purchase of electricity from renewable sources of production. It seeks to give special attention to hydro power.

Sustainability: Cost Reflective Tariff-There had been the issue of lazy attempts from the commissions in adopting the tariffs determined, causing issues of cost escalation. To address this problem, the Amendment has prescribed a period of 60 days to adopt the determined tariffs. Failing such a timeline of 60 days, the tariff would be deemed to be accepted.

Payment Security: It is proposed to empower Load Dispatch Centres to oversee the establishment of adequate payment security mechanisms before dispatch of electricity, as per contracts. Late payment of dues of generating and transmission companies have reached unsustainable levels. This impairs the finances of the Gencos and Transcos and also increases the Non Performing Assets of the Banks.

Ease of Doing Business:

Establishment of Electricity Contract Enforcement Authority (ECEA): It is an Authority headed by a retired Judge of the High Court with powers to execute their orders as decree of a civil court. The Authority will enforce performance of contracts related to purchase or sale or transmission of power between a generating company, distribution licensee or transmission licensee.

Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERCs) do not have powers to execute their orders as decree of a civil court.

Cross Subsidy: The Bill provides for the SERCs to reduce cross subsidies as per the provisions of the Tariff Policy.

Strengthening of the Appellate Tribunal (APTEL): It is proposed to increase the strength of APTEL to at least seven to facilitate quick disposal of cases. To be able to effectively enforce its orders, it is also proposed to give it the powers of the High Court under the provisions of the Contempt of Courts Act.

Penalties: In order to ensure compliance of the provisions of the Electricity Act and orders of the Commission, section 142 and section 146 of the Electricity Act are proposed to be amended to provide for higher penalties.

Cross Border Trade in Electricity: Provisions have been added to facilitate and develop trade in electricity with other countries.

Distribution sub-licensees: To improve quality of supply, an option is proposed to be provided to Discoms to authorise another person as a sub-license to supply electricity in any particular part of its area, with the permission of the State Electricity Regulatory Commission.

Shortfalls to be addressed in the new policy?

• Policy statements - Our policy statements are too verbose and lengthy. The first NEP as also the draft circulated now run into several pages, and are not incisive enough or reader-friendly. Ideally, policy statements should be crisp and pithy, and should be able to hold on to readers’ interest.
• Effectiveness – Another issue is regarding the effectiveness of the policy.
• The draft policy has a lot to say on renewable generation, and rightly so, but what is the guarantee that it would be followed.
• While the central government may fix targets on renewable generation capacity, the implementation will mainly be done by private enterprises.
• Now, private enterprises will move according to the investment climate as it exists in states.
• All stakeholders should treat the NEP as mandatory and act accordingly.
• Problems have arisen in the case of the National Tariff Policy (NTP) in the past.
• Certain states have expressed unwillingness to comply with certain sections of this document.
• Incidentally, both the NEP and the NTP emanate from Section 3 of the Act.
• NEP and NTP – A fundamental issue is whether there is a need for two separate policy statements, the NEP and the NTP.
• The first NTP was formulated in 2006 with some minor amendments carried out in 2008, 2011 and 2016.
• Both these documents exist concurrently, but they practically run into each other’s domain.
• It is not really possible to segregate tariff-related issues from electricity policy in general since they are all interlinked.
• Thus, it would be appropriate to subsume the NTP into the NEP, and tariff would be one of the several issues which would be a matter of electricity policy.
• It will have the benefit of a single holistic policy statement that would take into account all the interlinkages. This will not entail an amendment to the Act.