NITI Aayog and RMI Release a Report on Power Distribution Sector
Recently, the NITI Aayog has released a report titled 'Turning Around the Power Distribution Sector' that presents reform pathways.
Status of Power Distribution Companies
- Operational Performance: The continuous improvement in billing and collection efficiency has gradually helped in reducing Aggregate Technical and Commercial (AT&C) losses across the country.
- The overall AT&C loss has come down to 22 percent but when compared at the global level, losses are still high, and much is to be done.
- In 2018–19, distribution utilities incurred a total expenditure of ₹ 712,610 crore against a total revenue of ₹ 663,093 crore.
- Subsidy Dependence: Apart from straining a state’s finances, continued reliance on subsidies disincentivises DISCOMS from making serious structural improvements.
- Role of Taxes: The discoms have little control over bulk supply tariff and are engaged in long-term PPAs with generating companies, these taxes get transferred via tariffs to end consumers.
Concerns associated with Power Distribution Sector
- Cost optimization: It continues to be difficult to achieve due to factors such as legacy Power Purchase Agreements (PPAs) and poor investment in distribution infrastructure.
- Liquidity stresses of DISCOMS: It is added due to delays in receiving subsidy reimbursements from the government because the discoms in the north-eastern states and agrarian states are especially dependent on government subsidies.
- Outstanding Dues: The systemic shortcomings ultimately result in a high level of debt and payments owed to generation companies (gencos) because the overdue amount to gencos stood at ₹67,917 crore in March 2021.
- Electricity does not come under GST: The states charge electricity duty based on consumption. This may differ from state to state and can go up to 20 percent in some cases.
- It may be noted that while coal is under GST, the end product, electricity, is not which prevents utilities from accessing the input tax credit mechanism, leading to a cascading effect where the taxes that are levied on utilities are added to the cost of power.
- Fuel Security Concerns: The thermal capacity addition is plagued by the growing fuel availability concerns faced by the Industry.
- The coal supplies by CIL is restricted to around 65% of actual coal requirement by coal based thermal plants, leading to increased dependence on imported coal with the cascading result of high power generation costs.
Measures for reforming Power Distribution Sector
- Upgrading Distribution Infrastructure: Many loss-making discoms are unable to invest in the upgradation and maintenance of their equipment due to lack of resources.
- Metering and Billing: Smart and prepaid meters can be an important component of the solution to billing and collection challenges.
- Smart meters increase the efficiency of the billing and collection process by reducing human intervention and consequently empowering both consumers and discoms.
- Improving Collection Efficiency: The Discoms require the support of government machinery, in the form of police and courts, to settle legal and administrative disputes.
- Renewable Purchase Obligations (RPOs): They are a policy instrument to ensure the uptake of renewable energy which requires discoms, energy producers and certain consumers to obtain a share of their electricity from renewable sources.
- Decentralised Renewable Energy: There is a renewed interest in decentralized renewable energy (DRE) systems today due to the sharp fall in prices, the imperative of decarbonization, the continuing shortage or unreliability of electricity in many parts of the country, and the desire for greater resilience.
Recommendations for revamping Power Distribution Sector
Structural Reforms
- Greater autonomy for state-owned discoms: For a state-owned utility to succeed, there should be a clear separation between utility and state and it should have operational and financial autonomy.
- The performance of state-owned discoms is also determined by the ability of the respective SERC to revise tariff frequently and adequately.
- Distribution franchisee: There can be a variety of distribution franchisees, from models that are essentially outsourcing revenue collection to taking care of all distribution functions.
- Increasing competition: Discoms have a monopoly in their area of functioning and delicensing distribution can introduce competition and enable retail choice for customers.
- Vertical unbundling: Even where there has been de jure unbundling of state-owned power utilities, they may continue to act as de facto integrated utilities.
- Vertical unbundling enables transparency in operations of the discom and it can focus attention to the parts of the utility (generation, transmission or distribution) that require reform.
Regulatory Reforms
- The state governments should promote autonomy, competence, and transparency of the SERC.
- The tariffs should be regularly revised to ensure that they fairly reflect the actual fixed and variable costs.
- The DBT scheme could be structured such that consumers do not stand to lose their current benefits but are paid more for efficient use of electricity.
Operational Reforms
- Reducing power procurement costs: Discoms should optimize their power purchase by procuring from the markets as suitable, and they should be rewarded for efficiency gains from the use of the market.
- Reduce technical losses: Discoms may reduce their technical losses through investment by improving their grid (including upgrading conductors, high-tension lines, and right-sizing transformers) and through the implementation of appropriate monitoring technologies.
Road ahead
- The private sector has been playing a key role in generating power and a more supportive environment will help in bridging the energy deficit of the country.
- The history of power sector reforms tells us that India is too large and diverse for a one-size-fits-all approach and importing external expertise, structural frameworks, and new technology will be required.
- A flexible and home-grown approach to reform, which is supported by states and the Centre, and allows for ‘learning by doing’, will be instrumental in determining the success of reforms.
- The need for a low-carbon and climate-resilient future, makes it crucial for the Indian electricity distribution sector to achieve operational efficiency, profitability, and a readiness for emerging and future demand as well as technological changes.
Next
previous
Latest News
General Studies