Power Sector in India

WHY IN NEWS?

• Recently, the part of the package announced by the Finance Minister was 90,000 crores INR liquidity injection into power distribution companies (discoms).
• This is the subject to the condition that Center will act as a guarantor of the loans given by State-owned power finance companies such as PFC and REC Ltd. To the discoms.

KEY POINTS

With a generation of 1561 terawatt-hours (TWh), India is the third-largest producer and consumer as well of electricity in the world.

• India is ranked fourth in wind power, fifth in solar power and fifth on renewable power installed capacity as of 2018.
• The Government of India has set a target to achieve 175 GW installed capacity of renewable energy by FY22.

THE MAJOR SOURCES OF POWER IN INDIA

• Currently, India produces a majority of its energy from thermal sources.
• However, with the commitment to the Paris Agreement (on climate change), there has been a push towards increasing the renewable generation capacity in the country.

STAKEHOLDERS OF THE PUBLIC SECTOR

• Producer: Electricity is generated at thermal, hydro and renewable energy power plants, which are operated by either state-owned companies such as NTPC Ltd, NHPC Ltd, or private companies such as TATA Powers or Adani Powers.
• State Government: The generated then moves through a transmission grid system that connects electricity producers and ends consumers who are mainly dominated by State-owned companies such as Powergrid Corp.
• Distribution Companies (Discoms): Distribution includes maintenance of the distribution network and retail supply of electricity to the consumers mostly carried out by state-owned distribution companies. However, in cities like Delhi, Mumbai, Ahmedabad and Kolkata, private entities own the entire distribution business or parts of it. For example, BSES Rajdhani Power is a private discom Delhi.

ACTS AND POLICIES

• ELECTRICITY ACT 2003: It was introduced to introduce competition, consumers’ interest and provide power for all. The act offers National Electricity Policy, Rural Electrification, Open access in transmission, phased open access in distribution, Etc.
• POWER PURCHASE AGREEMENTS: As per Act 2003, distribution licensees enter into PPAs with generation companies for the retail sale of electricity. PPAs are bilateral contracts between the procurers and the generators.

AUTHORITIES

• Bureau of Energy Efficiency: It assists in developing policies and strategies with the primary objective of reducing energy intensity within the overall framework of the Energy Conservation Act 2001.
• Power Finance Corporation: It functions to introduce reforms in the Indian power sector and enhancing value to its stakeholders; by promoting efficient investment in the power and allied industry in India and abroad.
• Rural Electrification Corporation: The company is a Public Sector Undertaking that provides loans to Center/State Power Utilities in the country. State Electricity Board, Rural Electric Cooperatives, NGOs and Private Power Developers.
• Power Grid Corporation: It is a State-owned Maharatna Company engaged mainly in Transmission of power and transmits about 50% of the power generated in India on its transmission network.
• Central Electricity Regulatory Commission: CERC is a statutory body working under Electricity Act 2003. Its function includes levying various fees, tariffs, license issues to generation companies, etc. And also has an advisory role for Government of India.

CHALLENGES FACED BY THE POWER SECTOR

• Competitiveness: Electricity price for specific segments such as agriculture and the domestic category (what we use in our homes) is cross-subsidized by the industries and the commercial sector. This affects the competitiveness of the sector.
• Discoms: The poor financial situations of state discoms and consequently, this impacts the quality of electricity that consumers receive.
• Aggregate technical and distribution process from end consumers: It stands for the gap between the costs of the electricity that discoms gets from the generating company, the bills that it raises the final realisation from the collection process from end consumers. This leads to the mismatch in the electricity supplied and the value received.
• NPAs in the sector: As per the RBI, public sector banks have the highest NPAs, most of which are in the power and the telecom sector. Absence of enough coal for efficient production delayed payment by discoms, and higher cost of power purchase agreements leads to an increase in NPAs in the sector.
• The renewable market is still developing: An insufficient transmission network and non-synchronized generation cause issues with renewable energy. Poor states relatively are less willing to purchase renewable electricity due to their higher costs than conventional sources as renewable electricity has significantly less production and is not evenly spread about the country.
• Environmental concerns: The majority of the energy in India is generated from thermal sources and increasing levels of emission, consumption and environmental sustainability have become some issues associated with it.

WAY FORWARD

• Smart metering and smart grid: Smart grid is an electricity network that uses information and communication technology to gather information and act to improve the efficiency, reliability, economic, and distribution of electricity that can get be supplemented and consumer- level smart metering.
• Strengthening Electricity Regulators: This is to be done to bring in transparency, accountability and a professional approach to regulate the sector and also to balance the interests of investors as well as consumers impartially.
• Checking theft: Making suitable measures to check theft and pilferage of power using smart meters and consumer awareness.
• Rationalising generation cost: Generation cost can be reduced by improving the availability of lower indigenous price, rationalising coal supply sources, and adopting new technology as per indigenous price.
• Removing cross-subsidies in the sector: This is within the distribution area need not exceed 20% and can be progressively reduced and eliminated within three years to enhance overall revenue realisation to meet the total cost of supply.