Committee on Energy Expresses Disappointment Over Budgetary Cuts for Ministry of Power

The Standing Committee on Energy recently presented its fourth report on the Demands for Grants of the Ministry of Power for the year 2020-21.

The report shows a budgetary provision of ₹158.7 billion ($2.1 billion). The central plan outlay, including IEBR (Internal and extra-budgetary resources), which stands at ₹498.8 billion ($6.7 billion), totals to ₹657.6 billion ($8.9 billion). The committee noted that the gross budgetary support (GBS) of the Ministry of Power (MoP) for the year 2020-21 is ₹158.7 billion ($2.1 billion). However, the Ministry of Power had proposed ₹333.66 billion (~$4.49 billion). Similarly, for the year 2019-20, the ministry was only allocated ₹158.7 billion ($2.1 billion) against the demand of ₹320 billion ($4.3 billion).

According to the committee, “The electricity sector is passing through a turbulent phase and witnessing the changes of unprecedented nature. We have more than adequate generation capacity, one unified synchronous grid, and a huge consumer base.”

However, the committee has pointed out that issues like quality and affordable electricity to consumers, low per capita electricity consumption, and distressed distribution companies (DISCOMs) are also haunting the sector.


The committee has suggested that instead of an “eye-wash measure,” a long-term, thoughtful and efficient planning is the need of the hour to make the sector healthy, competitive, sustainable, and vibrant.

Considering the available resources in the country, the committee has recommended some suggestions.

It states that there’s a need to give priority to some programs and sectors which are not only necessary for the socio-economic upliftment of the people but also play an essential role in the economic growth of the country.

Like Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and SAUBHAGYA programs provide electricity access to every household in the country and increase the demand for electricity. Similarly, Integrated Power Development Scheme (IPDS) would help in making the distribution sector economically viable.

Budgetary Allocation:

The committee has commented that this year as well, the Ministry of Finance “resorted to a budgetary cut of more than 50%.” It has also pointed out that the projection of the Ministry of Power for raising extra-budgetary resources (EBR) for DDUGJY has also been curtailed. It has noted that against the demanded EBR of ₹104 billion ($1.40 billion), only ₹55 billion ($0.74 billion) was approved by the Ministry of Finance. Likewise, a budgetary allocation of only ₹53 billion (~$712 million) has been approved against the projection of ₹70 billion (~$0.94 billion) for DDUGJY.

Considering the importance of various flagship programs of the Ministry of Power and their financial performance in the recent years, the committee said it was disappointed by the budgetary cut made by the Ministry of Finance as it may adversely affect the progress of these programs.

“The committee, therefore, strongly recommends that adequate funds should be provided to the Ministry of Power at the stage of revised estimate so that timely implementation of important programs can be ensured. The committee also expects that the Ministry of Power will not slow down their pace of work because of the budgetary cut. The committee recommends the Ministry of Power to utilize whatever funds they have been allocated as a budgetary estimate so that they can post demands for more funds at the time of revised estimate,” added the report.

UDAY

Under the Ujwal DISCOM Assurance Yojana (UDAY), the committee noted that there has been a reduction in the average cost of supply (ACS) and average revenue realized (ARR) gap, as it has come down to ₹0.27 (~$0.004)/kWh in the financial year (FY) 2019 from ₹0.60 (~$0.01)/ kWh in FY 2016.

The UDAY states have showcased an improvement in annual book losses from ₹515.6 billion ($6.95 billion) in FY-2016 to ₹272.5 million (~$3.67 million) in FY-2019.

Though the committee feels that the UDAY program has been successful in improving the situation to some extent, it has not been able to adequately address the problem as the losses of DISCOMs, after showing a dip in the initial years, have once again started to rise.

The committee expects that the new program in this matter would soon be formulated and announced.

Development of the Power Sector

According to the committee, the total installed generation capacity in the country is of 3,67,280 MW. It further noted that as per the National Electricity Plan for Generation, it is estimated that there would be a generation capacity to the tune of 6,19,066 MW by the end of 2026-27.

However, the committee felt that even though generation is a de-licensed activity, it is an obligation on the part of the ministry and Central Electricity Authority (CEA) to ensure that the power sector is developed in a balanced manner.

The committee has recommended that in the future while making plans to meet future power generation requirements, it should be taken into account that the demand has to be met by an optimum energy mix comprising hydro, nuclear, thermal, and renewable in the right proportion.

The committee noted that there was a gap of 7.1 billion units in energy requirement and the energy supplies in the year 2018-19. The committee also noted that India has the generation capacity to the tune of 3,67,280 MW while the peak demand was only 1,77,022.

The ministry, however, stated that the gaps are due to the constraints in sub-transmission and distribution network, commercial reasons, and financial constraints of state utilities.

To this, the committee recommended removing all the constraints to fully meet the demand of power in the country and prepare a detailed road map of the constraints at the time of furnishing the action taken notes.

Power Purchase Agreements (PPAs)

The committee observed that the issue of long-term power purchase agreement has become a puzzle.

“Since the advent of solar power, its tariff is on a constant decline. In recent years, solar power tariff has aggressively been quoted, making the DISCOMs reluctant into enter any long-term PPA. This situation is causing disruption as long term PPA is a pre-requisite for the financing of any new power project,” it stated.

It also observed that on the other hand, in the absence of long-term PPAs, it might be challenging to attract investment in the power sector.

To this issue, the ministry apprised the committee that it is looking for a possible solution to the problem and will release a policy paper.

Meanwhile, the committee recommended the ministry to make a provision for review of such PPAs, where the tariff has been increased for cost overruns due to delays in the development of a power project.

Bureau of Energy Efficiency (BEE)

The committee noted that the country has benefited from the energy efficiency program. It noted that there had been nearly 7% of total electricity consumption, which has led to a cost saving of nearly ₹547.7 billion (~$7.4 billion) including oil, and reduction in carbon dioxide emission.

Considering the benefits derived from such energy efficiency programs, the committee feels that there is still more potential in the field of energy efficiency.

So, the committee has recommended that institutional capacities of state-designated agencies should be strengthened to make them capable of enforcing various provisions of the EC Act in their respective states. The committee expects the ministry to provide all necessary financial assistance to these agencies.

Smart Grid

The committee noted that for the Smart Grid Mission, there had been an allocation of ₹690 million (~$9.31 million), ₹1,470 million (~$19.8 million), and ₹960 million (~$13 million) for the year 2017 18, 2018-19 and 2019-20, however, their actual utilization has been only ₹30.5 million (~$411,325), ₹71.3 million ($0.96 million), ₹46.3 million (~$0.62 million) (until Dec.2019), respectively.

However, the ministry said that the progress as envisaged had not been achieved primarily due to the funding arrangement by the implementing utilities and other factors such as lack of skilled professionals and utility management reluctance.

Considering the importance of the smart grid in the integration and optimization of renewable power, the committee underlined that the work related to the smart grid should be expedited and implemented in a time-bound manner.

Smart Meters

As there is a need to augment the manufacturing base of the smart meters to ensure the supply of, it should be ensured that there are multiple players in the field to rule out monopoly or any other related constraints, the committee recommended.

Besides this, the ministry should encourage states to submit their plans for their complete switchover to smart meters. The committee also added that the ministry should also ensure that going forward, only smart meters are installed under the SAUBHAGYA program to avoid duplicity of work.

In December 2019, Mercom reported that the Parliamentary Standing Committee on Energy had expressed its concerns about the performance of the Ministry of new and Renewable Energy and the country’s ability to achieve its 100 GW solar target by 2022.

The committee raised concerns about the ministry’s underutilization of allocated budgets. It stated that only 89.88%, 92.37%, and 86.97% of the overall allotted budgets in the last three years have been used and that the explanations given by the ministry for the shortfall have been the same each time.

In February 2020, Finance Minister Nirmala Sitharaman presented the Union Budget 2020-21 in Parliament with a focus on three main points: Aspiration India, Economic Development for all, and Building a Caring Society. The finance minister announced that for the year 2020-21, ₹220 billion (~$3.08 billion) had been allocated for the power and renewable sectors.

In 2019-20, the budget outlay was ₹9.20 billion ($130 million) for wind power, ₹30.05 billion ($440 million) for solar (both grid-connected and off-grid) and ₹5 billion ($73 million) for green energy corridor, ₹40.66 billion ($590 million) was toward the power supply program of Deendayal Upadhyay Gram Jyoti Yojana, and ₹10.35 billion (~$150 million) for the power system development fund.

Image credit: Nikhil B/Wikimedia Commons / CC BY-SA