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Q 61-Examine the centre’s recently suggested measures aimed at establishing a strong power sector to aid post-pandemic economic recovery. (250 words)

Paper & Topic: GS II à Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

 

  • Model Answer:

 

  • Introduction:

 

  • Unlike cars or microwaves, electricity, like water and air, is a necessary commodity.
  • India's ongoing economic growth requires universal and round-the-clock access to affordable electricity.
  • Peak electricity consumption has decreased as a result of the statewide lockdown, with commercial and industrial power demand suffering as a result of numerous factories shutting down.
  • The Ministry of Power has suggested dramatic changes to the Electricity Act of 2003, which was groundbreaking when it was first passed in 2003.

 

  • Body:

 

  • Reforms that have been proposed:

 

  • A Rs 90,000-crore cash injection into electricity distribution companies was part of the economic package unveiled by Finance Minister (or DISCOMS).
  • The measure is intended to assist DISCOMs in settling their debts with GENCOS (electricity generation firms), which can then settle their outstanding debts with suppliers, such as coal miners, relieving some of Coal India Ltd's and contract miners' working capital problems.
  • This is contingent on the Centre acting as a guarantee for loans made to DISCOMS by state-owned power financing businesses such as PFC and REC Ltd.

 

  • Electricity Act (Amendment) Bill 2020 (Draft):

 

  • After the new administrations in Andhra Pradesh and Maharashtra failed to honor power purchase agreements, investors became concerned.
  • It aims to privatize discoms through sub-licensing and franchisees.
  • According to the draft, state commissions would set tariffs for the retail sale of energy without any subsidies under Section 65 of the Act, and the tariffs will reflect the cost of electricity supply and cross-subsidies that will be decreased.
  • It promotes more favorable terms for renewable energy developers.
  • A central selection committee will now be in charge of appointing state regulators.
  • The creation of a centralised Electricity Contract Enforcement Authority, whose members and chairperson will be chosen by the same selection committee that was mentioned previously.
  • Reforms in distribution:
  • Because electricity must travel through the supply chains of generation, transmission, and distribution to reach the customer, any inefficiency in any of these areas will have an impact on the consumer.
  • Under the distribution changes, one of the phases in the Electricity (Amendment) Bill 2020 is the substitution of cross-subsidy with a direct subsidy to the consumer, without interfering with the tariff, which would be cost reflective.
  • This is the single most critical power sector reform that will result in a drastic shift and propel the country forward.
  • The average technical and commercial loss in India is currently 21.4 percent.
  • Prepaid smart meters will be required throughout the power distribution network, which will affect 250 million people.

 

 

  • The following are some of the Bill's key favorable features:

 

  • It intends to assist cash-strapped discoms by requiring tariffs to be determined only on the basis of expenses, without taking into account subsidies that would be provided directly to customers.
  • This might alleviate discoms' persistent cash-flow problems, allowing them to invest in infrastructure improvements and pay off existing debts.
  • Discoms will no longer be able to hide their inefficiencies, which will increase openness.
  • Tariff rationalization will reduce the burden on industries, allowing them to compete more effectively and supporting the Aatmanirbhar Bharat initiative.
  • This should also ensure financial discipline throughout the electricity sector's value chain.
  • It's also a good thing that the regulatory ecology for dispute resolution is getting stronger. The proposal to strengthen the appellate tribunal will aid in the expeditious resolution of cases.
  • A 60-day window for applying tariffs after bidding is also a positive move toward avoiding inconvenient delays for investors.
  • With civil court powers, the Electricity Contract Enforcement Authority (ECEA) will help uphold contract sanctity and inspire confidence among private investors who have been hamstrung by late payments, unilateral tariff and renegotiations on power purchase agreements, and random offtake curtailments.
  • Allowing sub-licensees to participate in the distribution industry will help to attract capital, increase efficiency, and improve service delivery. In Delhi and Mumbai, public-private partnership models have already proven to be successful.
  • By fostering a favorable investment climate and allowing market mechanisms, the National Renewable Energy Policy will help accelerate the clean energy transition.
  • This would bring in a consistent, clear regulatory environment across the country for boosting renewables at the state level, which is entirely aligned with the Centre's vision.
  • High penalties for non-compliance with Renewable Purchase Obligations should promote compliance and speed up the uptake of renewables.

 

  • Challenges:

 

  • State governments are opposed to some of the proposed distribution reforms because they believe it will result in them ceding power to the federal government.
  • Some states have highlighted concerns about centralization of power, increased privatization, and the viability of the direct benefit transfer model for consumer subsidies.
  • The proposed bill lacks clarity on the structure, responsibilities, and compensation mechanisms for private participation.
  • There are insufficient mechanisms for resolving grievances arising from potential rent-seeking behavior.

 

  • Conclusion:

 

  • If effectively implemented, the proposed reforms can provide the electricity industry a much-needed boost, but this will require coordination between the federal government and the states.
  • This is an opportunity for the federal and state governments to put their political differences aside and work together for the greater good of the country's power sector.
  • In the spirit of cooperative federalism, the center must gain the trust of all stakeholders in order to identify a fair path for much-needed power sector reforms.
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