The Ministry of Power on the 24th of August 2017 released a consultation paper to discuss issues pertaining to open access. This is a welcome initiative and provides a framework to all actors for a way forward to address issues with sales migration. In this context, Prayas (Energy Group) submitted comments and suggestions to the Ministry. Some comments and suggestions include:
Please find below Ministry of Power's consultation paper and Prayas (Energy Group)'s comments on the same.
NITI Aayog published a Draft National Energy Policy in June 2017 and invited comments. Following are the comments submitted by PEG for the same.
The Government of India announced a new policy called SHAKTI to allocate coal to power sector consumers in May 2017. This article analysing SHAKTI and its impact on the power and coal sectors was published in Business Standard of 25th June 2017. It concludes that, while the policy announcement will bring in short-term relief, it is unlikely to contribute to the long-term goals of the sector which requires efficient thermal generation, competitive markets and flexible contracts. Instead, it could fragment coal and power generation along public and private sector lines, with consumers having to bear the costs of the resultant inefficiencies.
The MERC in its Orders in Case Nos. 103 of 2010, 71 of 2011 and 78 of 2013 had approved 21 upcoming projects with installed capacity of 11320 MW. Out of these, Projects of 2000 MW capacity are operational and 3230 MW capacity Projects have recently achieved COD.
In MYT Order dated 30 August, 2016 in Case No. 46 of 2016 the Commission had directed MSPGCL to review the financial viability of those Generation Projects which are at early stages of planning considering the alternative sources and modalities that may be available to MSEDCL and its demand-supply position, the proposed retirement plan of the old Units and macro-level developments which could have adverse financial implications before pursuing them further.
In view of the above, the Commission has initiated a suo moto proceeding on the determination of Capital Cost and Final Tariff for New Units and cancellation of certain other upcoming Units and their consequent removal from the PPA’s.
In this regard the first hearing was conducted on 20th April 2017. The submission made by Prayas in this context is attached below.
On 19th April 2017 Prayas made a presentation to the energy sector team of NITI Aayog on the challenges and options for reforms in electricity distribution sector.
The presentation can be downloaded using the link below.
Mumbai’s electricity distribution companies (DISCOMs) - Tata Power, BEST and Reliance Infrastructure- have approached the Maharashtra Electricity Regulatory Commission (MERC) for the renewal of their Power Purchase Agreements (PPAs). Three PPAs, between BEST-Tata Trombay, Tata Distribution- Tata Trombay and Reliance Distribution – Reliance Dahanu, are expiring.
The companies are seeking renewal on three main grounds: the constraint of importing power (“transmission constraint”), the islanding requirement for Mumbai, and the claimed competitiveness of their tariff. This article published in the DNA on 6th May 2017 analyses these claims and argues for competitive bidding as a better mechanism for power procurement.
The full-day event "Reflections on contemporary issues in the electricity sector" consisted of three sessions, with each session focusing on one recent publication from Prayas. The event was well attended with each session having between 20 and 30 participants from across a wide spectrum consisting of regulators, senior bureaucrats, utility representatives, trade union representatives, civil society organisations, consultants, energy and environment researchers and think tanks.
In the first session, PEG presented its report Price of plenty analysing the "surplus" power situation in the country, its causes, implications and possible solutions. The report presentation was followed by remarks from Mr. Anish De (KPMG) as a discussant. This was followed by a robust discussion among participants sharing their perspectives on the topic.
In the second session, discussion revolved around the PEG report In the name of competition which analyses the saga of retail electricity competition in Mumbai. The analysis looks at the history of evolution of retail competition in Mumbai, the roles of various players involved and lessons for future reforms in this direction. Daljit Singh (independent researcher) and Geeta Gouri (former Member, Competition Commission of India) shared their views as discussants, following which participants shared and discussed their ideas on this issue.
The last session was based on a recent book published by PEG reviewing India's electricity sector reforms over the last 25 years. PEG made a presentation on the book titled Many sparks but little light which covers thermal, hydro and renewable generation, electricity distribution and associated fuel sectors of coal and gas. After PEG presented the motivation for the book and its major conclusions, Srinivasa Murthy (former Chair, Karnataka ERC) and Mahesh Rangarajan (Professor, Ashoka University) complimented PEG for publishing the book and shared their thoughts on it. Participants in the session also shared their views on the book as well as the future of the sector.
The event agenda and presentations made at the event can be accessed below.
On 11th April 2017, the Supreme Court of India delivered a landmark judgement on the appeals relating to crucial matters of ‘compensatory tariff’ granted by Central Electricity Regulatory Commission. The judgement holds important implications and lessons for vital issues such as sanctity of contracts, strengthening competition, distribution company finances, generation capacity addition, regulatory governance, public policy, and consumer interest.
Through this judgement the apex Court has rejected the use of regulatory powers to grant relief to generation projects beyond the contract provisions. The Court has also ruled that the promulgation of the Indonesian regulation and the resultant coal price rise experienced by projects based on imported coal does not constitute as either a ‘change of law’ or ‘a force majeure event’ as per the power purchase agreement and hence no relief in the form of compensatory tariff is applicable for projects on this ground. The Court has however held that change in domestic coal policy should be treated as ‘change in law’ and has allowed relief to this limited extent. As per our preliminary macro analysis, the total relief applicable on this count would only be around 20-25% of the ‘compensatory tariff’ granted by the regulatory commissions.
In this context, this article published in The Wire on 20th April 2017, presents a brief history and background of the events leading up to the Supreme Court’s verdict and highlights the key aspects of the judgement along with its implications for the sector.
Prayas (Energy Group), one of the authorised consumer representatives before the Central Electricity Regulatory Commission (CERC), has been involved in the entire process pertaining to the grant of compensatory tariff by CERC, including proceedings before the APTEL and the SC, which culminated in the Supreme Court judgment dated 11th April 2017.
Reliance Infrastructure Limited (Generation) (RInfra-G) and Reliance Infrastructure Limited –Distribution (RInfra-D) have filed a petition before MERC seeking approval for Power Purchase Arrangement (PPA) relating to supply of 500 MW from RInfra-G’s Dahanu Thermal Power Station (DTPS) for the period 23-02-2018 to 15-08-2036.
However, the power sector is in a state of flux and this is particularly true in case of Mumbai. The prices of renewable energy (both wind and solar) are rapidly falling making renewable energy based open access a highly lucrative option. In case of Mumbai, the network rollout plan is yet to be finalized and that will also affect consumer migration. Additionally, issues such as transmission constraints may need some time to be fully resolved. Given all this uncertainty, Prayas (Energy Group) has submitted that signing a cost-plus PPA for such a long duration is not be advisable at this point of time. In stead, Prayas has proposed an interim arrangement which allows RInfra-D to continue the existing cost-plus PPA (which is valid till February 2018) with RInfra-G at the existing tariff decided by the commission, only for the next three years, i.e. till the end of the current MYT period. This would ensure continuity of supply till there is better clarity on the many issues enumerated in the submission.
Pursuant to this, the commission vide its daily order dated dated 28th February 2017 directed the State Transmission Utility (STU), the Maharashtra State Transmission Company Ltd. (MSETCL), to “…furnish different realistic scenarios of the possible transmission capacity enhancement, which could cater to the load of Mumbai with lower levels of embedded power generation in Mumbai, and the time required for augmentation of such transmission capacity in such scenarios.” Accordingly, the STU made a presentation on 10th April 2017. PEG's submission in response to the STU presentation is also attached below.
Both the submissions made by PEG can be downloaded using the links below.
The submissions draw from the analysis report “In the Name of Competition: The annals of ‘cost-plus competition’ in the electricity sector in Mumbai” published by Prayas (Energy Group) in February 2017 and the submission made by Prayas regarding TPC's network rollout plan.
With significant capacity addition in the past decade, many states in India have transitioned from having chronic power shortages to having sustained power surplus. The growing volume of surplus capacity in various states is a matter of concern as it implies rising fixed-cost payments for the non-requisitioned or backed down power. This scenario may continue for a few more years with less than anticipated growth in demand, significant capacity in the pipeline, the decreasing costs and increasing addition of renewable capacity, as well as migration of DISCOM consumers due to increased open access and captive options. In this context, the report traces the status of surplus power at the state level and capacity addition planning across states. This is to understand causes for such surplus capacity and various efforts to manage the situation. The analysis also presents suggestions for a way forward to prevent such a predicament in the future. The report covers insights from states such as Madhya Pradesh, Gujarat, Punjab, Haryana, Rajasthan, Maharashtra, Andhra Pradesh and Telangana. The study shows that with the given capacity addition planned, DISCOMs will be facing sustained surplus and backing down in foreseeable future.
For over two decades, the sector has been struggling to address the two crucial issues of excessive transmission and distribution losses (including commercial losses) and excessive cross-subsidy in tariffs. This has severely affected financial viability of the entire sector. Unless urgent attention is given to the management of surplus power and more importantly, preventing build-up of more surplus capacity, this would become an equally significant challenge to the financial viability of the sector. The issue of surplus capacity would be more difficult to address as it involves huge capital investments, lock-in of scarce resources and long term legal contracts, often with private sector developers.
In the same context, two articles were published in scroll.in. The one published on 31st May 2017, discusses the financial impact of surplus power and the other, published on 2nd June 2017, discusses capacity addition in the context of surplus power.