UPSC CSE Mains Syllabus: GS-3- Infrastructure: Energy, Ports, Roads, Airports, Railways etc.
Draft Electricity Amendment Bill (2020)
Energy scenario in India:
- Universal and round-the-clock access to affordable electricity is a prerequisite for India’s sustained economic growth.
- India is currently the world’s third-largest producer of electricity with an installed capacity of 371 GW.
- Going ahead, rapid growth and urbanisation will drive up the demand for electricity manifold, necessitating a healthy, efficient and consumer-centric power sector. It is in this light that an overhaul of The Electricity Act 2003 has been proposed.
- Many provisions of the 2003 Act are now archaic, given the sector’s rapid evolution, and this has resulted in several inefficiencies and challenges creeping in, hampering further growth.
- A cash-strapped distribution sector, the weakest link in the value chain.
- Operational inefficiencies
- Acute financial crunch
- High Aggregate Technical and Commercial (AT&C) losses (averaging around 22%)
- Unsustainably designed tariff structures
- Collection inefficiencies have played havoc with discoms’ cash flows
- Delaying payments to generators
- Curtailing power purchase
- All these dampening investments in the sector.
Draft Electricity Amendment Bill (2020):
The government’s draft Electricity Amendment Bill (2020) that has generated maximum interest, as it promises sweeping structural reforms to fix the health of distribution companies, boost investor sentiments and ensure the long-term sustainability of the power sector. The amendments proposed are forward-looking and impactful, which should pave the way for a thriving power sector.
Some of the key positive tenets of the Bill include the following:
Rationalisation of tariff:
- One, it aims to help liquidity-starved discoms by mandating determination of tariffs purely on costs basis, without taking into account subsidies, which would be directly paid to consumers.
- This could solve discoms’ chronic cash-flow woes, enabling them to invest in improving infrastructure and clear outstanding dues.
- This will also boost transparency, as discoms will no longer be able to mask their inefficiencies.
- In parallel, rationalisation of tariff will ease the burden on industries making them competitive and support the atma nirbhar Bharat (self-reliant India) initiative.
- This should also ensure financial discipline across the value chain of the power sector.
Regulatory ecosystem for dispute resolution:
- The strengthening of the regulatory ecosystem for dispute resolution is also a welcome step.
- The proposal to bolster the strength of the appellate tribunal will help in speedy resolution of cases.
- A 60-day window for adopting tariffs post bidding is also a positive step to check unnecessary delays that bother investors.
- The Electricity Contract Enforcement Authority (ECEA) with civil court powers will help uphold contract sanctity, and should inspire confidence among private investors hamstrung by delayed payments, unilateral tariff and renegotiations on power purchase agreements, and random curtailments in offtake.
- However, to avoid complexities, the jurisdictional boundaries of Electricity Regulatory Commission and the proposed Electricity Contract Enforcement Authority need to be clearly defined.
Private sector participation:
- Enhancing private sector participation in the distribution sector by allowing sub-licensees will help attract capital, boost efficiency and improve service delivery.
- Already public-private partnership models are running successfully in Delhi and Mumbai.
- However, further clarity is required on structure, responsibilities and compensation mechanisms, and there must be adequate grievance redressal avenues to handle friction arising from possible rent-seeking behaviour.
National Renewable Energy Policy:
- The National Renewable Energy Policy will provide impetus to clean energy transition by creating a conducive investment climate and enabling market mechanisms.
- This will usher in a uniform, unambiguous regulatory ecosystem across the nation for promoting renewables at the state-level that is fully aligned to the Centre’s vision.
- High penalties for dishonouring Renewable Purchase Obligations should improve compliance and accelerate renewables’ adoption.
- As a next step, the government should consider an integrated National Clean Energy Policy focusing on resources and technologies including storage, energy efficiency, EVs and grid integration.
- The proposed reforms can infuse much-needed momentum into the power sector if properly implemented and this needs the Centre and states to work in unison. This is an opportunity for the central and state governments to bury political motives and cooperate in the larger national interest for a vibrant power sector.
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