Energy security and capacity expansion are top goals for power sector
Energy security and capacity expansion are top goals for power sector
February 3, 2023 11:56 am
There has been a push to transition away from this reliance on fossil fuels and toward energy security, which in the long run would facilitate energy tariff stability, says Prabhajit Sarkar, MD & CEO of PXIL. How do you rate the performance of the power sector in 2022?
Performance index 2022 has been significant for India’s electricity sector, with several new initiatives being taken to strengthen the finances in the sector as well as accelerate the transition towards sustainable and environmentally benign growth.
Pending dues for DISCOMs have become a concurrent concern over the last few years. In January 2022, the total dues to power generators were around ₹1.21 lakh crores. To surmount this issue, the Ministry of Power implemented the Late Payment Surcharge and Related Rules 2022, which has led to the reduction of the overdue payments to half, i.e., ₹0.62 lakh crores, by January 2023.
This year also saw a renewed focus on energy security and a need to set priorities for the nation, including updating the Nationally Determined Contributions, which have now been restated to target 50 percent of all incremental capacity from renewable energy by 2030. What are the ongoing trends in India’s power trading and exchange business?
The purchase of power through power exchanges through all types of contracts, including DAM, RTM, and TAM, has reached 7.7 percent of the total electricity consumption. This growth has mostly been on the back of transparency in the pricing of power as well as a payments framework that has ensured payments are made and received daily without any defaults.
There is a strong impetus to utilise the Exchange platform, through the introduction of more contracts of various tenures and segments. The Draft National Electricity Policy has already mentioned the need to enhance exchange-based transactions to 25 percent of the total electricity consumption from the present levels.
New contracts that are in regulatory consultations are ancillary services market contracts, capacity contracts, and increased tenure with longer tenure. contracts up to 11 months ahead to meet the transaction requirements of market participants.
We believe all these efforts will soon translate into an overall improvement in the utilisation of power exchange platforms in the country.
What major challenges does the Indian power sector face?
Transition to clean energy usage and energy security are the two main drivers for policy measures in the Indian power sector. In India, there has been a continuous transition in primary energy usage from wood to coal to oil and gas and now to renewables over the last few decades.
During this period of the energy transition, which may take the better part of the coming decade, coal and gas will remain relevant even though the share of renewables will have an upward trend. Fuel supply management for generating plants and access to markets for the transaction of power would play a crucial role in ensuring that the increasing demand of a growing economy is met without much volatility.
The other big challenge is trying to ensure the continued financial viability of the distribution companies. This would require a combination of efforts across the spectrum, including improvements to the tariff setting process to reflect the actual cost of power, mechanisms to improve AT&C losses with specific improvements in metering, billing, and collection, access to a vibrant power market to meet their short- and long-term power requirements; CAPEX in their power networks and systems to improve technical parameters and reduce technical losses; etc. Initiatives like the Revamped Distribution Sector Scheme (RDSS), which includes large-scale prepaid smart meters along with the implementation of a market mechanism like Market Based Economic Dispatch (MBED), would be truly beneficial for the sector.
What impact does the geopolitical situation have on the power tariffs?
The Ukraine crisis has taught us that geopolitical events can have a significant impact on the energy security of a nation. For a country like India, despite being geographically distant from the flashpoint of the war and without being dependent on either country for meeting energy needs, this war has shown that no large country can be immune from the depredations of a large-scale conflict.
With several coal-generating plants in India dependent on imported coal, the hike in international prices of coal led to reduced generation, which in turn led to high demand chasing low supplies, especially during the summer months of April, May, and June last year. This led to high prices in the power markets.
To move away from this dependence on fossil fuels and pave the way for energy security, which in the long run would facilitate stability in energy tariffs, there has been an impetus to shift to cleaner energy sources. How do you look at the financial viability of DISCOMs in India?
The issue of Discoms’ financial viability requires a set of measures to deal with a wide spectrum of issues, ranging from technical loss reduction measures that need CAPEX at all levels for strengthening the distribution networks, substations, feeders, and distribution transformers to even the meters.
Tariffs need to be regularly enhanced to ensure recovery of the cost of power and service. This needs to be done across consumer classes, and all cases of declared subsidies need to be paid on time to the Discoms.
Finally, Discoms need to get access to a deeper power market so that they can manage their power requirements better without getting stuck with high-cost power-generating assets for too long.
We feel that power market restructuring through MBED would also need to be implemented, as it would have the twin benefits of providing a deep and liquid power market on the one hand, where assets would be optimally available on a national basis to all Discoms equally, and on the other hand, instilling the financial discipline of making payments daily on the Discoms, leading to better financial management of their resources. What financial assistance is required to stabilise the Indian energy sector?
The implementation of the Revamped Distribution Sector Scheme (RDSS), a reform-based and results-driven scheme, has received widespread support from all states, with all states on board for the second-generation reforms envisaged under RDSS for the turnaround of the Discoms. The RDSS scheme has an outlay of over ₹3 lakh crore for a period of five years, from FY2021–22 to FY2025-26. The scheme aims to provide financial assistance to Discoms for the modernization and strengthening of distribution infrastructure, with a focus on improving end-consumer supply reliability and quality.
The implementation of the Late Payment Surcharge Rules in July 2022 is another flagship intervention by the Ministry of Power for enforcing payment discipline in the value chain.
Further, there’s a focused drive to enhance the efficiencies of the sector by utilising market frameworks, the power markets, and especially power exchanges, are an important instrument in this drive towards enhancing efficiency for all consumers in the country.
In terms of financial support, in addition to the steps already being taken, it would be important to provide dedicated working capital support to Discoms for transactions conducted on the power exchanges, so that greater financial discipline can be inculcated in them and the power generators get paid for their supplies on time.
It is also time to plan for transitional funding of renewable energy projects and new technologies through market-based mechanisms, where transactions may be concluded on the power exchanges at prices discovered for the market and an additional incentive may be given to power generators based on the technology.
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