Indian electricity sector structural reforms get underway!

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The Ministry of Power (MOP) has proposed electricity restructuring reform by way of Electricity Amendment Bill 2020. Is this (let us call this the Amendment Bill, or simply Bill) the reform which was the talk of the town in the power industry? Does this Bill bring the long-awaited electrons-wire separation? The honest response would be, “no, we are not there yet.”

The next question to ask is, what reforms does it propose, and whether it addresses some of the industry’s current concerns and future apprehensions? After going through it, one can vouch for the fact that it surely addresses the concern and paves the way forward for sustainable sectoral growth. 

The draft Electricity Bill 2020 moves us with a toolbox of structural reforms, towards not only efficient but also a progressive electricity market. From a macro-deregulation perspective, one may consider this Amendment Bill as opening the door for the underlying structural reforms needed to develop a deregulated electricity framework. The proposed amendment is the right step towards realizing a dream of a strengthened energy market as well as decarbonized grid. 

Looking deeper, the Bill’s primary new tools include stronger contract enforcement, payment security leading to lesser commercial risks, and a sub-licensee system. The enhancements include a deeper empowering of the open-access framework and a strengthening of the statutory framework from existing quasi-judicial to judicial status. The underlying provisions enable an independent electricity legal framework that is self-sufficient and enforceable, and mitigates political, commercial and regulatory risks. 

Provisions relating to Cross Border Trading were already in place as Central Electricity Regulatory Commission (CERC) framed regulations in line with MOP guidelines for cross border trade. However, inclusion into the Amendment Bill provides necessary legal backing to such transactions. Empowering the National Load Dispatch Centre (NLDC) by way of amendment streamlines the hierarchy of our system operators and transitions towards greater autonomy to state load despatch agencies which currently operate either within Transmission Licensee or under existing holding company structures of distribution utilities with hazy lines of command. 

The Bill also takes open access out of the shadow of non-uniform regulatory practices. Cross-subsidy and other surcharges, thus far determined by respective State Electricity Regulatory Commissions (SERCs), will now be decided by the central government, determined in accordance with tariff policy directives with predefined reduction trajectory and the SERCs would bear the responsibility of allowing open access in a transparent way. 

Another incremental reform is a sub-category under distribution licensees, known as ‘distribution sub-licensee’. This paves the road for envisaged public-private partnership (PPP) framework wherein distribution licensees can enter into sub-licensee distribution activities, without diluting their licensee status or narrowing down their jurisdictional domain. On the other hand, distribution sub-licensees may get the status identical to the licensee, helping them deploy capex; for example, for efficiency improvements, while relieving them of the responsibility of periodic tariff filings, etc. 

This creates a win-win situation for both licensees and sub-licensees. Currently, distribution licensees are constrained to raise finance for capex and operational excellence, while private players having capital and technology do not have a status allowing them to deploy these capabilities. This opens up an entire business segment for new entrants with the right competencies and credentials.

The Amendment Bill proposes the most robust legal and commercial framework yet. First, it envisages the establishment of an Electricity Contract Enforcement Authority with powers equivalent to High Court, equivalent or slightly better than electricity regulatory commissions (ERCs) but specialised to deal with electricity contracts, requiring members to have sound legal, technical and economic understanding. 

Next, the mandated presence of legal members in ERCs also moves them towards a consistent and correct legal interpretation of statutory provisions. 

The Bill’s enhancement of pecuniary judicial powers of The Appellate Tribunal for Electricity (APTEL) strengthens and underlines control of APTEL over ERCs and Contract Enforcement Authority, while simultaneously reducing their workload.

Finally, the payment security mechanism is made a pre-requisite for scheduling and despatch, strengthening the contractual framework for the electricity sector. 

The passage of this amendment will be a positive step forward. It will enable the industry contribute towards the Prime Minister’s dream of attracting investments which could enable deployment of solar capacity to the tune of 300 GW in the Indian grid by 2030.

 

The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.