A JOLT TO NATIONAL ENERGY SECURITY

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The Finance Minister announced the reform of power tariff policy — announced as part of the stimulus package following the pandemic.

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 World Bank.
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.
Due to the CEA’s overestimates, the all-India plant load factor of coal power plants is at an abysmal 56% even before COVID-19.

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 generation to accommodate all available green power, entailing further idle fixed costs payable on account of two-part tariff PPAs.
Since the power demand peaks after sunset, in the absence of viable storage, every megawatt of renewable power requires twice as much spinning reserves to keep lights on after sunset.
The Centre announced an ambitious target of 175 gigawatts of renewable power by 2022, offering a slew of concessions to renewable energy developers, and aggravating the burden of DISCOMs.

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 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 Amendment 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. Rural consumers requiring long lines and numerous step-down transformers and the attendant higher line losses will pay the steepest tariffs.
State regulators will henceforth be appointed by a central selection committee, the composition of which inspires little confidence in its objectivity, jeopardising not only regulatory autonomy and independence but also the concurrent status of the electricity sector.
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.

-Source: The Hindu