Long Term Viability of

Power Sector
Raj Pratap Singh
Chairman, UPERC
Background
 Power sector in India has evolved over the
last 2 decades from a power deficit / energy
deficit one to surplus.
 National Grid is in place and now power can

flow from one region to another.

 Electricity Act 2003 has been a major catalyst,

however, it has lived its life and now is

overdue for replacement.
Power Panorama of India
 Accessibility- a social & political theme- has
been a major achievement on equity front
courtesy “Saubhagya”
 Availability- Surplus Capacity (around 400 GW

capacity against peak demand of around

205GW)
 Affordability- The main reason affecting the

financial viability of power sector

 Acceptability – Demand has not picked up as

anticipated owing to various economic factors

including affordability
Current Challenges
 Discom finances, the fulcrum of power sector
in country, have become disastrous adversely
affecting the sectoral viability & sustainability.
 Mounting arrear of payment to Gencos

affecting banking sector & public finances

 Increase in number of litigations chocking the

power supply & investment.

 Frequent use of “Free Power” slogan in

elections leading to non-payment by

consumers.
RCA for financial stress of Discoms
All Stakeholder are responsible to some extent.

1. Central & State Govt. policies & actions

2. Governance deficit of discoms
3. Regulatory issues
4. Consumer’s actions
Central & State Govt. policies & actions

 Supply side focus of policies- relied mainly

on capacity addition-Power at all cost
through RTM/ High RoE
 Top down planning approach by planning

bodies leading to ambitious economic

forecast to justify investments.
 Policy capture by CPSU, in-efficiencies of

unregulated coal sector and railways passed

on to power sector.
 Introduction of steep RPO & stringent

environmental rules without assessing

financial impact on rate payers.
Central & State Govt. policies &
actions
 Non-responsive to the need of timely change to a new
Electricity Act. (still engaged with different versions of draft law
for the last 8 years.
 Imposed double whammy of Clean energy cess and also FGD

on TPP.
 Trying to address discoms solvency issues through liquidity

measures. (FRP/UDAY/Atma-nirbhar Bharat etc.)

 Inadequate provision of subsidy especially in low income

states due to limited state finances (low tax/GSDP & low per
capita income)
 Frequent policy & non-policy interventions by Central Govt.

including for tariff matters.

(“Milton Friedman “--Corruption is government intrusion into
market efficiencies in the form of regulations)
 Confusion between social/political cost vs. economic cost of

power in tariff policy.

Governance deficit of discoms

 Unacceptably High level of AT&C losses:

◦ Power theft & corruption
◦ Increase in network length ( low/high voltage ratio)
◦ Poor quality/old conductors, transformers & S/S
◦ No segregation of Feeders
◦ Inadequate metering of S/S, feeders & DTs
◦ Low metering coverage of consumers
◦ Poor Billing & collection efficiencies
Governance deficit of discoms
 Not filing tariff revision timely & delay in true
up of accounts
 Inadequate subsidy from Govt. leading to

higher cross-subsidization by C&I resulting

into their migration to Open Access- vicious
circle.
 Absence of technological interventions like

smart meters, ERP etc.

 Higher Power Purchase cost through MoU

route
Governance deficit of discoms
 High stranded capacity due to ambitious
demand projections and imposition of steep
RPO.
 Other reasons including

◦ Financial cost of Change in Law like FGD, coal-cess,

ISTS etc.
Regulatory Deficits
 Delayed tariff settings & truing up of
accounts
 Delay in adjudication of disputes leading to

backlog of arrears with carrying cost

 Delay in updating regulations
 Unable to exercise full independence
Corrective Measures
 In order to make Discom finances viable, the
tariff should be affordable so that the
consumer has the capacity & willingness to
pay timely. To make it affordable, a multi-
pronged approach is required:
◦ Reduce the input cost by way of reduction in
unregulated coal and railway freight which
constitutes more than 70% of the tariff.
◦ Gradually shift to market based mechanism from
high cost RTM framework to reduce power purchase
cost
◦ Reduce AT&C losses
Corrective Measures
(Legislative, Policy & Regulatory Framework)
Amend the Indian Electricity Act/Rules/Tariff-Policy/ Regulations
for:-
◦ Higher RoE made sense in the era of high interest rate and power
shortage. Now time to Rationalize high RoE (15%) of legacy RTM
projects by linking with G-Sec & risk weighted cost of capital.
(CPSU influence?)
◦ Limiting RTM only to new Hydro & Nuclear, rest all procurements
on competitive bidding.
◦ Focus on energy transition to Net Zero Carbon led by Solar & Wind
and supported by Hydro, Bio-mass & SMR.
◦ States to have their own RPO trajectory depending upon geo-
climatic condition , load profile, consumer mix, economic
condition etc.
◦ Un-bundle the Distribution sector into Carrier & Content
businesses with carrier remain with incumbent discoms and
content business open to competition for private & public sectors.
Corrective Measures
(Legislative, Policy & Regulatory Framework)
 Necessary conditions for distribution un-
bundling:-
◦ 100% metering from S/S, feeder, DT to consumer
level.
◦ Consolidating legacy PPA’s to “an authority” which
will compulsorily allocate & sell power to all
participating carrier entities at a weighted average
rate.
◦ Carrier entities may procure power from new sources
only after the legacy power of “authority”.
◦ Metering & Billing to be done by carrier entities
◦ Roadmap for Carriage & Content Segregation.pptx
Corrective Measures
(State Actions)
 Adequate provision of subsidy for targeted
consumers (Tax-payers money)
 Distance from independent regulation framing

business- No Policy directives in tariff matters

 No cross-subsidization by way of ISTS for

RE/GH or EV tariff etc. Incentives should be

funded by tax payers and not rate payers.
 Regulating coal sector and railway freight so

that their in-efficiencies do not pass to

regulated power sector.
Emerging Role of Regulators
 (i) ensuring reduced environmental impact of power on health by following
NZC trajectory led by Solar & Wind and supported by SMC, Hydro, Bio-mass
and storage (PHP / BES) .
 (ii) focus on De-carbonization, Decentralization & Digitization with
integration of DERs, demand side management & smart metering & smart
grid technologies, cyber security etc.
 (iii) with power exchanges coming into play, there is greater need to move
to market based tariff for at least in the generation, therefore no new
generation PP should be permitted on RTM basis except for those coming
under Hydro, Nuclear and regulatory sandbox (innovative technologies).
 (iv) In selection of new project, regulator should be technology neutral and
should not allow any price distortion and cross-subsidization (ISTS waiver
for RE /GH /Storage) to save tax payer and burden rate payers.
 (v) Introduce technological innovations like IoT, block-chain technology etc.
 (vi) exercise authority & responsibility as per law and resist encroachment
over its domain by State & Central Government.
 (vii) encourage deepening of power market
THANKS