A jolt to national energy security
Mains Paper 3: Economy
Prelims level: Electric Power Survey
Mains level: Energy requirement in India
Finance Minister Nirmala Sitharaman’s proposal for reform of power
tariff policy — announced as part of the stimulus package following the
pandemic — is of a piece with the recent comprehensive proposal to amend the
Electricity Act 2003; put together, they erode the concurrent status
accorded to electricity in the Constitution.
If implemented, they will not only weaken the control of States over an
industry supplying a basic human necessity such as electricity but also arm
the Centre with a weapon which could choke the distribution
utilities/companies (DISCOM) and jeopardise the country’s energy security.
These proposals have to be seen in the context of a continuing
centralisation of control over the sector whose main impact in the last 25
years has been to drive up the cost of power purchase to 80% of the total
costs of State DISCOMs. At the core of DISCOM woes is the two-part tariff
policy, mandated by the Ministry of Power in the 1990s at the behest of the
As more private developers came forward to invest in generation, DISCOMs
were required to sign long-term power purchase agreements (PPA), committing
to pay a fixed cost to the power generator, irrespective of whether the
State draws the power or not, and a variable charge for fuel when it does.
The PPAs signed by DISCOMs were based on over-optimistic projection of
power demand estimated by the Central Electricity Authority (CEA), a central
agency. The 18th Electric Power Survey (EPS) overestimated peak electricity
demand for 2019-2020 by 70 GW. The 19th EPS published in 2017, by 25 GW,
both pre-Covid 19. In the event, DISCOMs locked into long-term contracts end
up servicing perpetual fixed costs for power not drawn.
Factor of renewable energy:
From 2010, solar and wind power plants were declared as “must-run”,
requiring DISCOMs to absorb all renewable power as long as there was sun or
wind, in excess of mandatory renewable purchase obligations.
This means backing down thermal
Sub-franchising is the term used to describe the relationship between a
master franchisee and the unit franchisee in those systems that are the
overseas operations of a franchisor that has decided to expand
The fine print:
It is against this backdrop that we must examine the proposals in the
Electricity Act 2020.
First, the amendment proposes sub-franchisees, presumably private, in an
attempt to usher in markets through the back door. Going by past
privatisation experiments, private sub-franchisees are likely to cherry-pick
the more profitable segments of the DISCOM’s jurisdiction.
The Electricity Bill 2020 containing the proposed amendments is silent
on whether a private sub-franchisee would be required to buy the expensive
power from the DISCOM or procure cheaper power directly from power
If it is the first, the gains from the move are doubtful since the room
for efficiency improvements is rather restricted in the already profitable
regions attractive to sub-franchisees. If it is the second, DISCOMs will
then be saddled with costly power purchase from locked-in PPAs and fewer
profitable areas from which to recover it.
The amendment proposes even greater concessions to renewable power
developers, with its cascading impact on idling fixed charges, impacting the
viability of DISCOMs even more.
The most controversial amendment proposed, seeks to eliminate in one
stroke, the cross-subsidies in retail power tariff. This means each consumer
category would be charged what it costs to service that category.
State regulators will henceforth be appointed by a central selection
committee, the composition of which inspires little confidence in its
objectivity, jeopardizing not only regulatory autonomy and independence but
also the concurrent status of the electricity sector.
The last claw in this multipronged pincer is the establishment of a
centralised Electricity Contract Enforcement Authority whose members and
chairman will again be selected by the same selection committee referred to
above. The power to adjudicate upon disputes relating to contracts will be
taken away from State Electricity Regulatory Commissions and vested in this
new authority, ostensibly to protect and foster the sanctity of contracts.
This is to ensure that States saddled with high-priced PPAs and idling
fixed costs, yet forced to keep increasing the share of renewables in their
basket, have no room for manoeuvre.
When the country is reeling under the economic impact of the novel
coronavirus crisis, the Electricity Bill 2020 is indeed a disingenuous
document drafted to shift the burden imposed by the short-sighted policies
of the Centre onto hapless States, with serious consequences for the
nation’s energy security.
Q1. With reference to the Force majeure, consider the following
statements: 1. Union Finance Minister recently informed that the deadline for completion
of real estate projects will be extended by up to six months, treating the
coronavirus outbreak as an event of 'force majeure' under the realty law RERA.
2. A ‘force majeure’ situation refers to extraordinary events and circumstances
beyond human control.
Which of the statements given above is/are correct? (a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2