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The Gazette of
RESOLUTION No.
23/40/2004-R&R (Vol.II) 1.0 INTRODUCTION 1.1 In compliance
with section 3 of the Electricity Act 2003 the Central Government hereby
notifies the National Electricity Policy. 1.2 Electricity is
an essential requirement for all facets of our life. It has been recognized
as a basic human need. It is a critical infrastructure on which the
socio-economic development of the country depends. Supply of electricity at
reasonable rate to rural 1.3 Recognizing
that electricity is one of the key drivers for rapid economic growth and
poverty alleviation, the nation has set itself the target of providing access
to all households in next five years. As per Census 2001, about 44% of the
households do not have access to electricity. Hence meeting the target of
providing universal access is a daunting task requiring significant addition
to generation capacity and expansion of the transmission and distribution
network. 1.4 Indian Power
sector is witnessing major changes. Growth of Power Sector in 1.5 Electricity
industry is capital-intensive having long gestation period. Resources of
power generation are unevenly dispersed across the country. Electricity is a
commodity that can not be stored in the grid where demand and supply have to
be continuously balanced. The widely distributed and rapidly increasing
demand requirements of the country need to be met in an optimum manner. 1.6 Electricity
Act, 2003 provides an enabling framework for accelerated and more efficient
development of the power sector. The Act seeks to encourage competition with
appropriate regulatory intervention. Competition is expected to yield
efficiency gains and in turn result in availability of quality supply of
electricity to consumers at competitive rates. 1.7 Section 3 (1)
of the Electricity Act 2003 requires the Central Government to formulate,
inter alia, the National Electricity Policy in
consultation with Central Electricity Authority (CEA) and State Governments.
The provision is quoted below: "The
Central Government shall, from time to time, prepare the National Electricity
Policy and tariff policy, in consultation with the State Governments and the
Authority for development of the power system based on optimal utilization of
resources such as coal, natural gas, nuclear substances or materials, hydro
and renewable sources of energy". Section
3 (3) of the Act enables the Central Government to review or revise the
National Electricity Policy from time to time. 1.8
The National Electricity Policy aims at laying guidelines for accelerated
development of the power sector, providing supply of electricity to all areas
and protecting interests of consumers and other stakeholders keeping in view
availability of energy resources, technology available to exploit these
resources, economics of generation using different resources, and energy
security issues. 1.9
The National Electricity Policy has been evolved in consultation with and
taking into account views of the State Governments, Central Electricity
Authority (CEA), Central Electricity Regulatory Commission (CERC) and other
stakeholders. 2.0
AIMS & OBJECTIVES The
National Electricity Policy aims at achieving the following objectives:
3.
NATIONAL ELECTRICITY PLAN 3.1
Assessment of demand is an important pre-requisite for planning capacity
addition. Section 3 (4) of the Act requires the Central Electricity Authority
(CEA) to frame a National Electricity Plan once in five years and revise the
same from time to time in accordance with the National Electricity Policy.
Also, section 73 (a) provides that formulation of short-term and perspective
plans for development of the electricity system and coordinating the activities
of various planning agencies for the optimal utilization of resources to subserve the interests of the national economy shall be
one of the functions of the CEA. The Plan prepared by CEA and approved by the
Central Government can be used by prospective generating companies,
transmission utilities and transmission/distribution licensees as reference
document. 3.2
Accordingly, the CEA shall prepare short-term and perspective plan. The
National Electricity Plan would be for a short-term framework of five years
while giving a 15 year perspective and would include:
3.3
While evolving the National Electricity Plan, CEA will consult all the
stakeholders including state governments and the state governments would, at
state level, undertake this exercise in coordination with stakeholders
including distribution licensees and STUs. While
conducting studies periodically to assess short-term and long-term demand,
projections made by distribution utilities would be given due weightage. CEA will also interact with institutions and
agencies having economic expertise, particularly in the field of demand
forecasting. Projected growth rates for different sectors of the economy will
also be taken into account in the exercise of demand forecasting. 3.4
The National Electricity Plan for the ongoing 10th Plan period and 11th Plan
and perspective Plan for the 10th, 11th & 12th Plan periods would be
prepared and notified after reviewing and revising the existing Power Plan
prepared by CEA. This will be done within six months. 4.0
ISSUES ADDRESSED The
policy seeks to address the following issues:
5.1
RURAL ELECTRIFICATION 5.1.1
The key development objective of the power sector is supply of electricity to
all areas including rural areas as mandated in section 6 of the Electricity
Act. Both the central government and state governments would jointly endeavour to achieve this objective at the earliest.
Consumers, particularly those who are ready to pay a tariff which reflects
efficient costs have the right to get uninterrupted twenty four hours supply
of quality power. About 56% of rural households have not yet been electrified
even though many of these households are willing to pay for electricity.
Determined efforts should be made to ensure that the task of rural
electrification for securing electricity access to all households and also
ensuring that electricity reaches poor and marginal sections of the society
at reasonable rates is completed within the next five years. 5.1.2
Reliable rural electrification system will aim at creating the following: (a) Rural
Electrification Distribution Backbone (REDB) with at least one 33/11 kv (or 66/11 kv) substation in
every Block and more if required as per load, networked and connected
appropriately to the state transmission system (b)
Emanating from REDB would be supply feeders and one distribution transformer
at least in every village settlement. (c)
Household Electrification from distribution transformer to connect every
household on demand. (d)
Wherever above is not feasible (it is neither cost effective nor the optimal
solution to provide grid connectivity) decentralized distributed generation
facilities together with local distribution network would be provided so that
every household gets access to electricity. This would be done either through
conventional or non-conventional methods of electricity generation whichever
is more suitable and economical. Non-conventional sources of energy could be
utilized even where grid connectivity exists provided it is found to be cost
effective. (e)
Development of infrastructure would also cater for requirement of agriculture
& other economic activities including irrigation pump sets, small and
medium industries, khadi and village industries,
cold chain and social services like health and education. 5.1.3
Particular attention would be given in household electrification to dalit bastis, tribal areas and
other weaker sections. 5.1.4
Rural Electrification Corporation of
5.1.6
Necessary institutional framework would need to be put in place not only to
ensure creation of rural electrification infrastructure but also to operate
and maintain supply system for securing reliable power supply to consumers.
Responsibility of operation & maintenance and cost recovery could be
discharged by utilities through appropriate arrangements with Panchayats, local authorities, NGOs and other franchisees
etc. 5.1.7
The gigantic task of rural electrification requires appropriate cooperation
among various agencies of the State Governments, Central Government and
participation of the community. Education and awareness programmes
would be essential for creating demand for electricity and for achieving the
objective of effective community participation. 5.2
GENERATION 5.2.1
Inadequacy of generation has characterized power sector operation in 5.2.2
The Government of 5.2.3
In order to fully meet both energy and peak demand by 2012, there is a need
to create adequate reserve capacity margin. In addition to enhancing the
overall availability of installed capacity to 85%, a spinning reserve of at
least 5%, at national level, would need to be created to ensure grid security
and quality and reliability of power supply. 5.2.4
The progress of implementation of capacity addition plans and growth of
demand would need to be constantly monitored and necessary adjustments made
from time to time. In creating new generation capacities, appropriate
technology may be considered keeping in view the likely widening of the
difference between peak demand and the base load. Hydro
Generation 5.2.5
Hydroelectricity is a clean and renewable source of energy. Maximum emphasis
would be laid on the full development of the feasible hydro potential in the
country. The 50,000 MW hydro initiative has been
already launched and is being vigorously pursued with DPRs
for projects of 33,000 MW capacity already under preparation. 5.2.6
Harnessing hydro potential speedily will also facilitate economic development
of States, particularly 5.2.7
Hydel projects call for comparatively larger
capital investment. Therefore, debt financing of longer tenure would need to
be made available for hydro projects. Central Government is committed to
policies that ensure financing of viable hydro projects. 5.2.9
The Central Government will support the State Governments for expeditious
development of their hydroelectric projects by offering services of Central
Public Sector Undertakings like National Hydroelectric Power Corporation
(NHPC). 5.2.10
Proper implementation of National Policy on Rehabilitation and Resettlement
(R&R) would be essential in this regard so as to ensure that the concerns
of project-affected families are addressed adequately. 5.2.11
Adequate safeguards for environmental protection with suitable mechanism for
monitoring of implementation of Environmental Action Plan and R&R Schemes
will be put in place. Thermal
Generation 5.2.12
Even with full development of the feasible hydro potential in the country,
coal would necessarily continue to remain the primary fuel for meeting future
electricity demand. 5.2.13
Imported coal based thermal power stations, particularly at coastal
locations, would be encouraged based on their economic viability. Use of low
ash content coal would also help in reducing the problem of fly ash
emissions. 5.2.14
Significant Lignite resources in the country are located in Tamil Nadu, 5.2.15
Use of gas as a fuel for power generation would depend upon its availability
at reasonable prices. Natural gas is being used in Gas Turbine /Combined
Cycle Gas Turbine (GT/CCGT) stations, which currently accounts for about 10 %
of total capacity. Power sector consumes about 40% of the total gas in the
country. New power generation capacity could come up based on indigenous gas
findings, which can emerge as a major source of power generation if prices
are reasonable. A national gas grid covering various parts of the country
could facilitate development of such capacities. 5.2.16
Imported LNG based power plants are also a potential source of electricity
and the pace of their development would depend on their commercial viability.
The existing power plants using liquid fuels should shift to use of Natural
Gas/LNG at the earliest to reduce the cost of generation. 5.2.17
For thermal power, economics of generation and supply of electricity should
be the basis for choice of fuel from among the options available. It would be
economical for new generating stations to be located either near the fuel
sources e.g. pithead locations or load centres. 5.2.18
Generating companies may enter into medium to long-term fuel supply
agreements specially with respect to imported fuels
for commercial viability and security of supply. Nuclear
Power 5.2.19
Nuclear power is an established source of energy to meet base load demand.
Nuclear power plants are being set up at locations away from coalmines. Share
of nuclear power in the overall capacity profile will need to be increased
significantly. Economics of generation and resultant tariff will be, among
others, important considerations. Public sector investments to create nuclear
generation capacity will need to be stepped up. Private sector partnership
would also be facilitated to see that not only targets are achieved but
exceeded. Non-conventional
Energy Sources 5.2.20
Feasible potential of non-conventional energy resources, mainly small hydro, wind and bio-mass would also need to be exploited fully to
create additional power generation capacity. With a view to increase the
overall share of non-conventional energy sources in the electricity mix,
efforts will be made to encourage private sector participation through
suitable promotional measures. Renovation
and Modernization (R&M) 5.2.21
One of the major achievements of the power sector has been a significant
increase in availability and plant load factor of thermal power stations specially over the last few years. Renovation and
modernization for achieving higher efficiency levels needs to be pursued
vigorously and all existing generation capacity should be brought to minimum
acceptable standards. The Govt. of India is providing financial support for
this purpose. 5.2.22
For projects performing below acceptable standards, R&M should be
undertaken as per well-defined plans featuring necessary cost-benefit
analysis. If economic operation does not appear feasible through R&M,
then there may be no alternative to closure of such plants as the last
resort. 5.2.23
In cases of plants with poor O&M record and persisting operational
problems, alternative strategies including change of management may need to
be considered so as to improve the efficiency to acceptable levels of these
power stations. Captive
Generation 5.2.24
The liberal provision in the Electricity Act, 2003 with respect to setting up
of captive power plant has been made with a view to not only securing
reliable, quality and cost effective power but also to facilitate creation of
employment opportunities through speedy and efficient growth of industry. 5.2.25
The provision relating to captive power plants to be set up by group of
consumers is primarily aimed at enabling small and medium industries or other
consumers that may not individually be in a position to set up plant of
optimal size in a cost effective manner. It needs to be noted that efficient
expansion of small and medium industries across the country would lead to
creation of enormous employment opportunities. 5.2.26
A large number of captive and standby generating stations in 5.3
TRANSMISSION 5.3.1
The Transmission System requires adequate and timely investments and also
efficient and coordinated action to develop a robust and integrated power
system for the country. 5.3.2
Keeping in view the massive increase planned in generation and also for
development of power market, there is need for adequately augmenting
transmission capacity. While planning new generation capacities, requirement
of associated transmission capacity would need to be worked out
simultaneously in order to avoid mismatch between generation capacity and
transmission facilities. The policy emphasizes the following to meet the
above objective:
5.3.3
Open access in transmission has been introduced to promote competition
amongst the generating companies who can now sell to different distribution
licensees across the country. This should lead to availability of cheaper
power. The Act mandates non-discriminatory open access in transmission from
the very beginning. When open access to distribution networks is introduced
by the respective State Commissions for enabling bulk consumers to buy
directly from competing generators, competition in the market would increase
the availability of cheaper and reliable power supply. The Regulatory
Commissions need to provide facilitative framework for non-discriminatory
open access. This requires load dispatch facilities with state-of-the art
communication and data acquisition capability on a real time basis. While
this is the case currently at the regional load dispatch centers, appropriate
State Commissions must ensure that matching facilities with technology
upgrades are provided at the State level, where necessary and realized not
later than June 2006. 5.3.4
The Act prohibits the State transmission utilities/transmission licensees
from engaging in trading in electricity. Power purchase agreements (PPAs) with the generating companies would need to be
suitably assigned to the Distribution Companies, subject to mutual agreement.
To the extent necessary, such assignments can be done in a manner to take
care of different load profiles of the Distribution Companies.
Non-discriminatory open access shall be provided to competing generators
supplying power to licensees upon payment of transmission charge to be
determined by the appropriate Commission. The appropriate Commissions shall
establish such transmission charges no later than June 2005. 5.3.5
To facilitate orderly growth and development of the power sector and also for
secure and reliable operation of the grid, adequate margins in transmission
system should be created. The transmission capacity would be planned and
built to cater to both the redundancy levels and margins keeping in view
international standards and practices. A well planned and strong transmission
system will ensure not only optimal utilization of transmission capacities but
also of generation facilities and would facilitate achieving ultimate
objective of cost effective delivery of power. To facilitate cost effective
transmission of power across the region, a national transmission tariff
framework needs to be implemented by CERC. The tariff mechanism would be
sensitive to distance, direction and related to quantum of flow. As far as
possible, consistency needs to be maintained in transmission pricing
framework in inter-State and intra-State systems. Further it should be ensured
that the present network deficiencies do not result in unreasonable
transmission loss compensation requirements. 5.3.6
The necessary regulatory framework for providing non-discriminatory open
access in transmission as mandated in the Electricity Act 2003 is essential
for signalling efficient choice in locating
generation capacity and for encouraging trading in electricity for optimum
utilization of generation resources and consequently for reducing the cost of
supply. 5.3.7
The spirit of the provisions of the Act is to ensure independent system
operation through NLDC, RLDCs and SLDCs. These dispatch centers, as per the provisions of
the Act, are to be operated by a Government company or authority as notified
by the appropriate Government. However, till such time these
agencies/authorities are established the Act mandates that the CTU or STU, as
the case may be, shall operate the RLDCs or SLDC.
The arrangement of CTU operating the RLDCs would be
reviewed by the Central Government based on experience of working with the
existing arrangement. A view on this aspect would be taken by the Central
Government by December 2005. 5.3.8
The Regional Power Committees as envisaged in section section
2(55) would be constituted by the Government of India within two months with
representation from various stakeholders. 5.3.9
The National Load Despatch Centre (NLDC) along with
its constitution and functions as envisaged in Section 26 of the Electricity
Act 2003 would be notified within three months. RLDCs
and NLDC will have complete responsibility and commensurate authority for
smooth operation of the grid irrespective of the ownership of the
transmission system, be it under CPSUs, State
Utility or private sector. 5.3.10
Special mechanisms would be created to encourage private investment in
transmission sector so that sufficient investments are made for achieving the
objective of demand to be fully met by 2012. 5.4
DISTRIBUTION 5.4.1
Distribution is the most critical segment of the electricity business chain.
The real challenge of reforms in the power sector lies in efficient
management of the distribution sector. 5.4.2
The Act provides for a robust regulatory framework for distribution licensees
to safeguard consumer interests. It also creates a competitive framework for
the distribution business, offering options to consumers, through the
concepts of open access and multiple licensees in the same area of supply. 5.4.3
For achieving efficiency gains proper restructuring of distribution utilities
is essential. Adequate transition financing support would also be necessary
for these utilities. Such support should be arranged linked to attainment of
predetermined efficiency improvements and reduction in cash losses and
putting in place appropriate governance structure for insulating the service
providers from extraneous interference while at the same time ensuring
transparency and accountability. For ensuring financial viability and
sustainability, State Governments would need to restructure the liabilities
of the State Electricity Boards to ensure that the successor companies are
not burdened with past liabilities. The Central Government would also assist
the States, which develop a clear roadmap for turnaround, in arranging
transition financing from various sources which shall be linked to
predetermined improvements and efficiency gains aimed at attaining financial
viability and also putting in place appropriate governance structures. 5.4.4
Conducive business environment in terms of adequate returns and suitable
transitional model with predetermined improvements in efficiency parameters
in distribution business would be necessary for facilitating funding and
attracting investments in distribution. Multi-Year Tariff (MYT) framework is
an important structural incentive to minimize risks for utilities and
consumers, promote efficiency and rapid reduction of system losses. It would
serve public interest through economic efficiency and improved service
quality. It would also bring greater predictability to consumer tariffs by
restricting tariff adjustments to known indicators such as power purchase
prices and inflation indices. Private sector participation in distribution
needs to be encouraged for achieving the requisite reduction in transmission
and distribution losses and improving the quality of service to the
consumers. 5.4.5
The Electricity Act 2003 enables competing generating companies and trading
licensees, besides the area distribution licensees, to sell electricity to
consumers when open access in distribution is introduced by the State
Electricity Regulatory Commissions. As required by the Act, the SERCs shall notify regulations by June 2005 that would
enable open access to distribution networks in terms of sub-section 2 of
section 42 which stipulates that such open access would be allowed, not later
than five years from 27th January 2004 to consumers who require a supply of
electricity where the maximum power to be made available at any time exceeds
one mega watt. Section 49 of the Act provides that such consumers who have
been allowed open access under section 42 may enter into agreement with any
person for supply of electricity on such terms and conditions, including
tariff, as may be agreed upon by them. While making regulations for open
access in distribution, the SERCs will also
determine wheeling charges and cross-subsidy surcharge as required under
section 42 of the Act. 5.4.6
A time-bound programme should be drawn up by the
State Electricity Regulatory Commissions (SERC) for segregation of technical
and commercial losses through energy audits. Energy accounting and
declaration of its results in each defined unit, as determined by SERCs, should be mandatory not later than March 2007. An
action plan for reduction of the losses with adequate investments and
suitable improvements in governance should be drawn up. Standards for
reliability and quality of supply as well as for loss levels shall also be specified ,from time to time, so as to bring these in line
with international practices by year 2012. 5.4.7
One of the key provisions of the Act on competition in distribution is the
concept of multiple licensees in the same area of supply through their
independent distribution systems. State Governments have full flexibility in
carving out distribution zones while restructuring the Government utilities.
For grant of second and subsequent distribution licence
within the area of an incumbent distribution licensee, a revenue district, a
Municipal Council for a smaller urban area or a Municipal Corporation for a
larger urban area as defined in the Article 243(Q) of Constitution of India
(74th Amendment) may be considered as the minimum area. The Government of
India would notify within three months, the requirements for compliance by
applicant for second and subsequent distribution licence
as envisaged in Section 14 of the Act. With a view to provide benefits of
competition to all section of consumers, the second and subsequent licensee
for distribution in the same area shall have obligation to supply to all
consumers in accordance with provisions of section 43 of the Electricity Act
2003. The SERCs are required to regulate the tariff
including connection charges to be recovered by a distribution licensee under
the provisions of the Act. This will ensure that second distribution licensee
does not resort to cherry picking by demanding unreasonable connection
charges from consumers. 5.4.8
The Act mandates supply of electricity through a correct meter within a
stipulated period. The Authority should develop regulations as required under
Section 55 of the Act within three months. 5.4.9
The Act requires all consumers to be metered within two years. The SERCs may obtain from the Distribution Licensees their
metering plans, approve these, and monitor the same. The SERCs
should encourage use of pre-paid meters. In the first instance, TOD meters
for large consumers with a minimum load of one MVA are also to be encouraged.
The SERCs should also put in place independent
third-party meter testing arrangements. 5.4.10
Modern information technology systems may be implemented by the utilities on
a priority basis, after considering cost and benefits, to facilitate creation
of network information and customer data base which will help in management
of load, improvement in quality, detection of theft and tampering, customer
information and prompt and correct billing and collection . Special emphasis
should be placed on consumer indexing and mapping in a time bound manner.
Support is being provided for information technology based systems under the
Accelerated Power Development and Reforms Programme
(APDRP). 5.4.11
High Voltage Distribution System is an effective method for reduction of
technical losses, prevention of theft, improved voltage profile and better
consumer service. It should be promoted to reduce LT/HT ratio keeping in view
the techno economic considerations. 5.4.12
SCADA and data management systems are useful for efficient working of
Distribution Systems. A time bound programme for
implementation of SCADA and data management system should be obtained from
Distribution Licensees and approved by the SERCs
keeping in view the techno economic considerations. Efforts should be made to
install substation automation equipment in a phased manner. 5.5
RECOVERY OF COST OF SERVICES & TARGETTED SUBSIDIES 5.5.1
There is an urgent need for ensuring recovery of cost of service from
consumers to make the power sector sustainable. 5.5.2
A minimum level of support may be required to make the electricity affordable
for consumers of very poor category. Consumers below poverty line who consume
below a specified level, say 30 units per month, may receive special support
in terms of tariff which are cross-subsidized. Tariffs for such designated
group of consumers will be at least 50 % of the average (overall) cost of
supply. This provision will be further re-examined after five years. 5.5.4
The State Governments may give advance subsidy to the extent they consider
appropriate in terms of section 65 of the Act in which case necessary budget
provision would be required to be made in advance so that the utility does
not suffer financial problems that may affect its operations. Efforts would
be made to ensure that the subsidies reach the targeted beneficiaries in the
most transparent and efficient way. 5.6
TECHNOLOGY DEVELOPMENT AND R&D 5.6.1
Effective utilization of all available resources for generation, transmission
and distribution of electricity using efficient and cost effective
technologies is of paramount importance. Operations and management of vast
and complex power systems require coordination among the multiple agencies
involved. Effective control of power system at state, regional and national
level can be achieved only through use of Information Technology. Application
of IT has great potential in reducing technical & commercial losses in
distribution and providing consumer friendly services. Integrated resource
planning and demand side management would also require adopting state of the
art technologies. Special
efforts would be made for research, development demonstration and
commercialization of non-conventional energy systems. Such systems would need
to meet international standards, specifications and performance parameters. 5.6.2
Efficient technologies, like super critical technology, IGCC etc and large
size units would be gradually introduced for generation of electricity as
their cost effectiveness is established. Simultaneously, development and deployment
of technologies for productive use of fly ash would be given priority and
encouragement. 5.6.3
Similarly, cost effective technologies would require to be developed for high
voltage power flows over long distances with minimum possible losses. Specific
information technology tools need to be developed for meeting the
requirements of the electricity industry including highly sophisticated
control systems for complex generation and transmission operations, efficient
distribution business and user friendly consumer interface. 5.6.4
The country has a strong research and development base in the electricity
sector which would be further augmented. R&D activities would be further
intensified and Missions will be constituted for achieving desired results in
identified priority areas. A suitable funding mechanism would be evolved for
promoting R& D in the Power Sector. Large power companies should set
aside a portion of their profits for support to R&D. 5.7
COMPETITION AIMED AT CONSUMER BENEFITS 5.7.1
To promote market development, a part of new generating capacities, say 15%
may be sold outside long-term PPAs . As the power markets develop, it would be feasible to
finance projects with competitive generation costs outside the long-term
power purchase agreement framework. In the coming years, a significant
portion of the installed capacity of new generating stations could
participate in competitive power markets. This will increase the depth of the
power markets and provide alternatives for both generators and
licensees/consumers and in long run would lead to reduction in tariff. a. It is the function
of the Central Electricity Regulatory Commission to issue license for
inter-state trading which would include authorization for trading throughout
the country. b. The ABT regime
introduced by CERC at the national level has had a positive impact. It has
also enabled a credible settlement mechanism for intra-day power transfers
from licenses with surpluses to licenses experiencing deficits. SERCs are advised to introduce the ABT regime at the
State level within one year. c. Captive generating
plants should be permitted to sell electricity to licensees and consumers
when they are allowed open access by SERCs under section
42 of the Act . d. Development of
power market would need to be undertaken by the Appropriate Commission in
consultation with all concerned. e. The Central
Commission and the State Commissions are empowered to make regulations under
section 178 and section 181 of the Act respectively. These regulations will
ensure implementation of various provisions of the Act regarding
encouragement to competition and also consumer protection. The Regulatory
Commissions are advised to notify various regulations expeditiously. f.
Enabling regulations for inter and intra State trading and
also regulations on power exchange shall be notified by the appropriate
Commissions within six months. 5.8
FINANCING POWER SECTOR PROGRAMMES INCLUDING PRIVATE SECTOR PARTICIPATION 5.8.1
To meet the objective of rapid economic growth and “power for all” including
household electrification, it is estimated that an investment of the order of
Rs.9,00,000 crores at 2002-03 price level would be
required to finance generation, transmission, sub-transmission, distribution
and rural electrification projects. Power being most crucial infrastructure,
public sector investments, both at the Central Government and State
Governments, will have to be stepped up. Considering the magnitude of the
expansion of the sector required, a sizeable part of
the investments will also need to be brought in from the private sector. The
Act creates a conducive environment for investments
in all segments of the industry, both for public sector and private sector,
by removing barrier to entry in different segments. Section 63 of the Act
provides for participation of suppliers on competitive basis in different
segments which will further encourage private sector investment. Public
service obligations like increasing access to electricity to rural households
and small and marginal farmers have highest priority over public finances. 5.8.2
The public sector should be able to raise internal resources so as to at
least meet the equity requirement of investments even after suitable gross
budgetary support from the Government at the Centre and in the states in
order to complete their on-going projects in a time-bound manner. Expansion
of public sector investments would be dependent on the financial viability of
the proposed projects. It would, therefore, be imperative that an appropriate
surplus is generated through return on investments and, at the same time,
depreciation reserve created so as to fully meet the debt service obligation.
This will not only enable financial closure but also bankability
of the project would be improved for expansion programmes,
with the Central and State level public sector organizations, as also private
sector projects, being in a position to fulfil
their obligations toward equity funding and debt repayments. 5.8.3
Under sub-section (2) of Section 42 of the Act, a surcharge is to be levied
by the respective State Commissions on consumers switching to alternate
supplies under open access. This is to compensate the host distribution
licensee serving such consumers who are permitted open access under section
42(2), for loss of the cross-subsidy element built into the tariff of such
consumers. An additional surcharge may also be levied under sub-section (4)
of Section 42 for meeting the fixed cost of the distribution licensee arising
out of his obligation to supply in cases where consumers are allowed open
access. The amount of surcharge and additional surcharge levied from
consumers who are permitted open access should not become so onerous that it
eliminates competition that is intended to be fostered in generation and
supply of power directly to consumers through the provision of Open Access
under Section 42(2) of the Act. Further it is essential that the Surcharge be
reduced progressively in step with the reduction of cross-subsidies as
foreseen in Section 42(2) of the Electricity Act 2003. 5.8.4
Capital is scarce. Private sector will have multiple options for investments.
Return on investment will, therefore, need to be
provided in a manner that the sector is able to attract adequate investments
at par with, if not in preference to, investment opportunities in other
sectors. This would obviously be based on a clear understanding and
evaluation of opportunities and risks. An appropriate balance will have to be
maintained between the interests of consumers and the need for investments. 5.8.5
All efforts will have to be made to improve the efficiency of operations in
all the segments of the industry. Suitable performance norms of operations
together with incentives and disincentives will need to be evolved along with
appropriate arrangement for sharing the gains of efficient operations with
the consumers . This will ensure protection of
consumers’ interests on the one hand and provide motivation for improving the
efficiency of operations on the other. 5.8.6
Competition will bring significant benefits to consumers ,
in which case, it is competition which will determine the price rather than
any cost plus exercise on the basis of operating norms and parameters. All
efforts will need to be made to bring the power industry to this situation as
early as possible, in the overall interest of consumers. Detailed guidelines
for competitive bidding as stipulated in section 63 of the Act have been
issued by the Central Government. 5.8.8
Steps would also be taken to address the need for regulatory certainty based
on independence of the regulatory commissions and transparency in their
functioning to generate investor’s confidence. 5.8.9
Role of private participation in generation, transmission and distribution
would become increasingly critical in view of the rapidly growing investment
needs of the sector. The Central Government and the State Governments need to
develop workable and successful models for public private partnership. This
would also enable leveraging private investment with the public sector
finances. Mechanisms for continuous dialogue with industry for streamlining
procedures for encouraging private participation in power sector need to be
put in place. Transmission
& Distribution Losses 5.8.10
It would have to be clearly recognized that Power Sector will remain unviable
until T&D losses are brought down significantly and rapidly. A large
number of States have been reporting losses of over 40% in the recent years.
By any standards, these are unsustainable and imply a steady decline of power
sector operations. Continuation of the present level of losses would not only
pose a threat to the power sector operations but also jeopardize the growth
prospects of the economy as a whole. No reforms can succeed in the midst of
such large pilferages on a continuing basis. The
State Governments would prepare a Five Year Plan with annual milestones to
bring down these losses expeditiously. Community participation, effective
enforcement, incentives for entities, staff and consumers, and technological upgradation should form part of campaign efforts for
reducing these losses. The Central Government will provide incentive based
assistance to States that are able to reduce losses as per agreed programmes. 5.9
ENERGY CONSERVATION 5.9.1
There is a significant potential of energy savings through energy efficiency
and demand side management measures. In order to minimize the overall
requirement, energy conservation and demand side management (DSM) is being
accorded high priority. The Energy Conservation Act has been enacted and the
Bureau of Energy Efficiency has been setup. 5.9.2
The potential number of installations where demand side management and energy
conservation measures are to be carried out is very large. Bureau of Energy
Efficiency (BEE) shall initiate action in this regard. BEE would also make
available the estimated conservation and DSM potential, its staged
implementation along with cost estimates for consideration in the planning
process for National Electricity Plan. 5.9.3
Periodic energy audits have been made compulsory for power intensive
industries under the Energy Conservation Act. Other industries may also be
encouraged to adopt energy audits and energy conservation measures. Energy
conservation measures shall be adopted in all Government buildings for which
saving potential has been estimated to be about 30% energy. Solar water
heating systems and solar passive architecture can contribute significantly
to this effort. 5.9.4
In the field of energy conservation initial approach would be voluntary and
self-regulating with emphasis on labelling of
appliances. Gradually as awareness increases, a more regulatory approach of
setting standards would be followed. 5.9.5
In the agriculture sector, the pump sets and the water delivery system
engineered for high efficiency would be promoted. In the industrial sector,
energy efficient technologies should be used and energy audits carried out to
indicate scope for energy conservation measures. Motors and drive system are
the major source of high consumption in Agricultural and Industrial Sector.
These need to be addressed. Energy efficient lighting technologies should
also be adopted in industries, commercial and domestic establishments. 5.9.6
In order to reduce the requirements for capacity additions, the difference
between electrical power demand during peak periods and off-peak periods
would have to be reduced. Suitable load management techniques should be
adopted for this purpose. Differential tariff structure for peak and off peak
supply and metering arrangements (Time of Day metering) should be conducive
to load management objectives. Regulatory Commissions should ensure adherence
to energy efficiency standards by utilities. 5.9.7
For effective implementation of energy conservation measures, role of Energy
Service Companies would be enlarged. Steps would be taken to encourage and incentivise emergence of such companies. 5.9.8
A national campaign for bringing about awareness about energy conservation
would be essential to achieve efficient consumption of electricity. 5.9.9.
A National Action Plan has been developed. Progress on all the proposed
measures will be monitored with reference to the specific plans of action. 5.10
ENVIRONMENTAL ISSUES 5.10.1
Environmental concerns would be suitably addressed through appropriate advance
action by way of comprehensive Environmental Impact Assessment and
implementation of Environment Action Plan (EAP). 5.10.2
Steps would be taken for coordinating the efforts for streamlining the
procedures in regard to grant of environmental clearances including setting
up of ‘Land Bank’ and ‘Forest Bank’. 5.10.3
Appropriate catchment area treatment for hydro
projects would also be ensured and monitored. 5.10.4
Setting up of coal washeries will be encouraged.
Suitable steps would also be taken so that utilization of fly ash is ensured
as per environmental guidelines. 5.10.5
Setting up of municipal solid waste energy projects in urban areas and
recovery of energy from industrial effluents will also be encouraged with a
view to reducing environmental pollution apart from generating additional
energy. 5.10.6
Full compliance with prescribed environmental norms and standards must be
achieved in operations of all generating plants. 5.11
TRAINING AND HUMAN RESOURCE DEVELOPMENT In
the new reforms framework ushered by Electricity Act 2003, it is particularly
important that the electricity industry has access to properly trained human
resource. Therefore, concerted action would be taken for augmenting training
infrastructure so that adequate well-trained human resource is made available
as per the need of the industry. Special attention would need to be paid by
the industry for establishing training infrastructure in the field of
electricity distribution, regulation, trading and power markets. Efforts
should be made so that personnel of electricity supply industry both in the
private and public sector become more cost-conscious and consumer-friendly. 5.12
COGENERATION AND NON-CONVENTIONAL ENERGY SOURCES 5.12.1
Non-conventional sources of energy being the most environment friendly there
is an urgent need to promote generation of electricity based on such sources
of energy. For this purpose, efforts need to be made to reduce the capital
cost of projects based on non-conventional and renewable sources of energy.
Cost of energy can also be reduced by promoting competition within such
projects. At the same time, adequate promotional measures would also have to
be taken for development of technologies and a sustained growth of these
sources. 5.12.2
The Electricity Act 2003 provides that co-generation and generation of
electricity from non-conventional sources would be promoted by the SERCs by providing suitable measures for connectivity
with grid and sale of electricity to any person and also by specifying, for
purchase of electricity from such sources, a percentage of the total
consumption of electricity in the area of a distribution licensee. Such
percentage for purchase of power from non-conventional sources should be made
applicable for the tariffs to be determined by the SERCs
at the earliest. Progressively the share of electricity from non-conventional
sources would need to be increased as prescribed by State Electricity
Regulatory Commissions. Such purchase by distribution companies shall be
through competitive bidding process. Considering the fact that it will take
some time before non-conventional technologies compete, in terms of cost,
with conventional sources, the Commission may determine an appropriate
differential in prices to promote these technologies. 5.12.3
Industries in which both process heat and electricity are needed are well
suited for cogeneration of electricity. A significant potential for
cogeneration exists in the country, particularly in the sugar industry. SERCs may promote arrangements between the co-generator
and the concerned distribution licensee for purchase of surplus power from
such plants. Cogeneration system also needs to be encouraged in the overall
interest of energy efficiency and also grid stability. 5.13
PROTECTION OF CONSUMER INTERESTS AND QUALITY STANDARDS 5.13.1
Appropriate Commission should regulate utilities based on pre-determined
indices on quality of power supply. Parameters should include, amongst
others, frequency and duration of interruption, voltage parameters,
harmonics, transformer failure rates, waiting time for restoration of supply,
percentage defective meters and waiting list of new connections. The
Appropriate Commissions would specify expected standards of performance. 5.13.2
Reliability Index (RI) of supply of power to consumers should be indicated by
the distribution licensee. A road map for declaration of RI for all cities
and towns up to the District Headquarter towns as also for rural areas, should be drawn by up SERCs.
The data of RI should be compiled and published by CEA. 5.13.3
It is advised that all State Commissions should formulate the guidelines
regarding setting up of grievance redressal forum
by the licensees as also the regulations regarding the Ombudsman and also
appoint/designate the Ombudsman within six months. 5.13.4
The Central Government, the State Governments and Electricity Regulatory
Commissions should facilitate capacity building of consumer groups and their
effective representation before the Regulatory Commissions. This will enhance
the efficacy of regulatory process. 6.0
COORDINATED DEVELOPMENT 6.1
Electricity being a concurrent subject, a well-coordinated approach would be
necessary for development of the power sector. This is essential for the
attainment of the objective of providing electricity-access to all households
in next five years and providing reliable uninterrupted quality power supply
to all consumers. The State Governments have a major role, particularly in
creation of generation capacity, state level transmission and distribution.
The Central Government would assist the States in the attainment of this
objective. It would be playing a supportive role in fresh capacity addition
and a major role in development of the National Grid. The State Governments
need to ensure the success of reforms and restoration of financial health in
distribution, which alone can enable the creation of requisite generation
capacity. The Regulatory Commissions have the responsibility of ensuring that
the regulatory processes facilitate the attainment of this objective. They
also have a developmental role whose fulfillment would need a less formal and
a consultative process. The
Electricity Act, 2003 also provides for mechanisms like “Coordination forum”
and “Advisory Committees” to facilitate consultative process. The Act also
requires the Regulatory Commissions to ensure transparency in exercise of
their powers and in discharge of their functions. This in no way means that
the Regulatory Commissions should follow formal judicial approach. In fact,
quick disposal of matters would require an approach involving consultations
with stakeholders. 6.2
Under the Act, the Regulatory Commissions are required to perform
wide-ranging responsibilities. The appropriate Governments need to take steps
to attract regulatory personnel with required background. The Govt. of India
would promote the institutional capability to provide training to raise
regulatory capacity in terms of the required expertise and skill sets. The
appropriate Governments should provide financial autonomy to the Regulatory
Commissions. The Act provides that the appropriate Government shall
constitute a Fund under section 99 or section 103 of the Act, as the case may
be, to be called as Regulatory Commission Fund. The State Governments are
advised to establish this Fund expeditiously. (Ajay Shankar) |
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