The new Electricity (Amendment) Bill, 2020 has significant features to restructure the sector, but not all agree.
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Problems in energy sector, and Electricity (Amendment) Bill, 2020
- Reforming the power sector: With new and increasing problems in India’s energy sector, the Electricity (Amendment) Bill, 2020 aims to drive the long pending reforms in the power sector. Electricity is a subject in the concurrent list of the Constitution.
- India's electricity sector: The sector is classified into three segments: generation, transmission, and distribution. Generation is the process of producing power using different sources of energy. High voltage power is carried from the generation plants to the distribution sub-stations through a transmission grid. Electricity is finally transferred from the sub-stations to individual consumers through a distribution network.
- In this chain, Distribution companies (or discoms) have been the weakest link for last three decades. India has over 30 Discoms and they run deep losses each year (loss of ₹ 90,000 crore in FY 2021). Thus, the Discoms are unable to pay to Generation companies (such as NTPC, Power Grid, Jsw Energy) on time with outstanding dues of ₹ 67,917 cr at Mar-21. This in-turn impacts modernation and new capacity creation.
- India’s is the third largest consumer of electricity. But also one of the most inefficient (measured via Aggregate Technical & Commercial (AT&C) losses, i.e. electricity that is generated but does not reach intended customers. AT&C for India stands at 22% vs global average of 8%. Peers such as China, Japan and US are at 4-6% AT&C losses indicating a clear need for efficiency to attain our manufacturing and export goals.
- The Electricity Act, 2003 is the central law regulating the electricity sector. A major concern in the sector is the financial health of the distribution companies (discoms), which are mostly state-owned. These have a high level of debt and are running losses for the past several years. The Ujwal Discom Assurance Yojana (UDAY) was launched in 2015 to bring financial and operational turnaround of discoms.
- Problems: India's power sector is facing several problems, related to leakages and poor infrastructure. These are -
- Weak distribution sector with aggregate technical and commercial losses (AT&C) hovering around 20%
- Inefficiency of Regulatory Commissions in many states
- Expensive long-term power purchase agreements
- Weaknesses in State-level tariff policies
- Electricity (Amendment) Bill, 2020: The bill is an amendment to the earlier 2003 version of the Act that aims to transform the power sector.
- De-licensing - It de-licenses power distribution and increase competition, thereby unleashing next-generation power sector reforms in India. It provides the consumers with an option of choosing the service provider and to switch their power supplier.
- State monopoly ends - Union Finance Minister has proposed to open up the distribution sector to end the monopoly of state-run distribution companies.
- Tariffs - Cost reflective tariffs are to be provided that will facilitate reduction in cross subsidies. Electrical energy should be covered under GST, with a lower rate of GST, as this will make it possible for power generator/transmission/distribution utilities to get a refund of input credit, which in turn will reduce the cost of power.
- Technological upgrades - Smart metering and infrastructure advancements will reduce the huge AT&C losses the industry is currently suffering from.
- DBT of power subsidies - Introduction of DBT of power subsidies will ensure greater transparency and accountability and ensure that the subsidy reaches people who are entitled to it.
- Strengthening regulatory regime - Appointing a member with a legal background in every electricity regulatory commission and strengthening the Appellate Tribunal for Electricity will ensure faster resolution of long-pending issues.
- Renewable Energy – The bill encourages roof-top solar plants and imposes penalty for not meeting renewable energy purchase obligations thus stressing the importance of green energy adoption in mitigating climate change.
- Enforcement Authority - Creation of an Electricity Contract Enforcement Authority ensures the supervision of the fulfillment of contractual obligations.
- History: In 2014, a Bill to amend the 2003 Act was introduced in Lok Sabha but lapsed with the dissolution of 16th Lok Sabha. The 2014 Bill sought to: (i) increase competition in the sector by segregating the distribution segment into distribution and supply, (ii) rationalise tariff determination, and (iii) promote renewable energy. The Bill was examined by the Standing Committee on Energy (Chair: Dr Kirit Somaiya). In 2018, based on the Committee’s recommendations and other stakeholder consultations, the Ministry proposed draft amendments to the 2003 Act. The Draft Amendments sought to: (i) introduce direct benefit transfer mechanism for the transfer of subsidy directly to consumers, and (ii) define renewable generation and purchase obligations, among others. In April 2020, the Ministry of Power released the Draft Electricity (Amendment) Bill, 2020 proposing amendments to the 2003 Act. As per the Ministry, the Draft Bill seeks to address critical issues which have weakened commercial and investment activities in the electricity sector.
- States' opposition: Terming the provisions of the draft Bill as "anti-people", West Bengal Mamata Banerjee wrote that she was shocked that states' recommendations were rejected. As per Ms Mamata, power was too important a sector for such unilateral interferences, especially when 'electricity' as a subject is in the Concurrent List of the serious prior consultation with the States. She argued that such an approach will result in the concentration of private profit-focused utility players in the lucrative urban industrial segments, while poor and rural consumers will be left to public sector DISCOMs. The dilution of the role of State Electricity Regulatory Commission and the State Distribution Companies implies a political design to demolish state bodies and domestic industries.
- EXAM QUESTIONS: (1) Explain the goals of the Electricity (Amendment) Bill, 2020. (2) Why are some states opposing the Electricity (Amendment) Bill, 2020? Explain.
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