Policy Wise: India’s Power Sector

Electricity (Amendment) Bill 2020

Note4Students

From UPSC perspective, the following things are important :

Prelims level : AT and C losses

Mains level : Paper 3- Salient features of Electricity (Amendment) Bill 2020

Context

Most discoms are deep into the red as high aggregate technical and commercial (AT&C) losses are chipping into their revenues. Against this backdrop, the Electricity (Amendment) Bill of 2020 is a game-changing reform.

Why the Electricity (Amendment) Bill of 2020 is a game-changing reform

  • De-licensing power distribution: This will provide the consumers with an option of choosing the service provider, switch their power supplier and enable the entry of private companies in distribution, thereby resulting in increased competition.
  • In fact, privatisation of discoms in Delhi has reduced AT&C losses significantly from 55% in 2002 to 9% in 2020.
  • Open access for purchasing power: Open access for purchasing power from the open market should be implemented across States and barriers in the form of cross-subsidy surcharge, additional surcharge and electricity duty being applied by States should be reviewed.
  • Issue of tariff revision: The question of tariffs needs to be revisited if the power sector is to be strengthened.
  • Tariffs ought to be reflective of the average cost of supply to begin with and eventually move to customer category-wise cost of supply in a defined time frame.
  • This will facilitate a reduction in cross-subsidies.
  • Inclusion in GST: 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.
  • Use of smart meters: Technology solutions such as installation of smart meters and smart grids which will reduce AT&C losses and restore financial viability of the sector.
  • The impetus to renewable energy: The impetus to renewable energy, which will help us mitigate the impact of climate change, is much needed.
  • Despite its inherent benefits, the segment has shown relatively slow progress with an estimated installed capacity of 5-6 GW as on date, well short of the 2022 target.
  • The Bill also underpins the importance of green energy by proposing a penalty for non-compliance with the renewable energy purchase obligations which mandate States and power distribution companies to purchase a specified quantity of electricity from renewable and hydro sources
  • Strengthening the regulatory architecture: This will be done by appointing a member with a legal background in every electricity regulatory commission and strengthening the Appellate Tribunal for Electricity.
  • This will ensure faster resolution of long-pending issues and reduce legal hassles.
  • Authority for contractual obligation: Provision in the Bill such as the creation of an Electricity Contract Enforcement Authority to supervise the fulfillment of contractual obligations under power purchase agreement, cost reflective tariffs and provision of subsidy through DBT are commendable.

Conclusion

Early passage of the Bill is critical as it will help unleash a path-breaking reform for bringing efficiency and profitability to the distribution sector.

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