DISCOM Load Shedding

In an effort to ensure reliable electricity services for all Indians, Power Minister Raj Kumar Singh announced a plan to penalize distribution companies (DISCOMs) if they indulge in “gratuitous load-shedding.”

The plan was announced at a conference held on Thursday, December 7, 2017, between R.K. Singh, and power and energy ministers from 17 states and one union territory. There was consensus among states to bring down DISCOM losses to below 15 percent by end of March 2019.

“The devil will be in the details and implementation. What does penalization look like? Unless electricity prices are increased to reflect current costs, DISCOMs will not be able to fix their finances. Will states raise electricity prices and be willing to pay a political price? These are the details that we need to watch out for,” said Raj Prabhu, CEO of Mercom Capital Group.

Singh called 24×7 power a fundamental right for every Indian citizen and emphasized that it is at the core of the country’s economic growth.

“There can be no justification to pass on the burden of our inefficiency to the consumer and this will not be allowed post March 2019. It is for the power utilities to devise a strategy to reduce their losses, the consumer must not be burdened with high power tariffs irrationally,” Singh said.

Singh went on to add that India’s power demand is on track to increase greatly with the expected addition of 40 million new electric consumers by December 2018, and the country’s projected economic growth of 8 to 9 percent in the next five years.

“The power demand and supply situation has been a mystery for a few years now. The government keeps touting that power shortage is a thing of the past, yet power cuts continue throughout the year in most parts of the country. DISCOMs due to their poor financial condition, have chosen to cut power instead of buying power with money that they don’t have.” said Prabhu.

To make DISCOMs viable and decrease their losses, the union government has proposed doing away with the human aspect of meter reading and billing for power consumption. The mandatory installation of prepaid meters for small consumers and smart meters for large ones was cited as a solution for preventing corruption and increasing bill payment compliance.

Singh said the separation of carriage and content in the distribution sector is being proposed in an amendment to the Electricity Act. The amendment is also expected to introduce multiple supply licensees for content, based on market principles, and keep carriage as a regulated activity. Singh added that it is also proposed to create special police stations and courts to settle cases in the power sector as early as possible.

Talking about the reforms in the renewable energy sector, Singh said that India has pledged to achieve 175 GW of renewable energy by 2022 and have 40 percent of its installed power capacity come from renewable energy by 2030 as part of an action plan to fight climate change. To ensure the achievement of this goal, it is also mandatory that state governments ensure that the renewable purchase obligations (RPOs) are fulfilled.

“Low power demand has affected wind and solar industries for some time now. Due to lack of power demand, some states have flouted ‘must run’ status of renewables, project developers have struggled to get payments on time from several states that are cash strapped. Tenders and auctions have slowed down in various states due to lack of power demand. Lack of demand stemming from poor financial condition of DISCOMs are behind most of the problems which are faced by the renewable industry which is turn is making it hard to reach the installation goal of 175 GW of renewables by 2022.” added Prabhu.

In order to give a push to the Make in India initiative and domestic industrialization, Singh said that affordable and quality power must be available for all and all states must ensure that power purchase agreements are honored, tariffs are sustainable, and the element of cross subsidization remains below 20 percent.

To help poor power consumers, the government is pushing for a Direct Benefit Transfer (DBT) subsidy in the power sector. This would make the industry more competitive and remove the burden of excessively high tariffs from consumers.

Key Highlights

At the conference, the states agreed to:

  • Electrify all remaining census inhabited un-electrified villages by December 2017.
  • Provide electricity connections to all willing households by December 2018.
  • Provide infrastructure for seamless power supply to consumers by March 2019.
  • Clear all current year’s government dues of DISCOMs along with 25 percent of arrears so that entire old dues are paid by March 2019.
  • Provide continued support to resolve Right of Way issues for seamless power transfer.
  • Improve the quality of power supply and minimize load shedding for non-technical reasons.
  • Prepare a roadmap for reducing cross subsidies as per the Tariff Policy by March 2018 and bring in tariff reforms by simplifying consumer tariff categories and rationalizing electricity tariffs.
  • Ensure that DISCOMs enter into PPAs and honor PPAs, particularly for wind and solar sector, where tariffs have been discovered through a transparent and competitive bidding process.
  • Ensure RPO compliance, including compliance through a mechanism of purchase of renewable energy certificates (RECs), as per the revised tariff policy and the RPO trajectory notification by the Ministry of Power.
  • Send suggestions on the future RPO trajectory from 2019-20 to 2021-22.
  • Submit proposals for solar parks under additional 20,000 MW capacity.
  • Promote solar rooftops and ensure hassle free grid connectivity.
  • Promote solar pumps to replace diesel pumps.

The proposed reforms demonstrate how policy makers are climbing the learning curve. Slowly yet steadily, the government is taking note of current challenges and trying to address them which is a positive development for industry. However, effective implementation of these policies is another matter altogether.

Image credit: flickr