New interpretation brings sigh of relief

Expertspeak: New interpretation brings sigh of relief

The new open access will encourage private players to enter the power generation segment, says Jayant Deo.

The Electricity Act 2003 (EA) had given a five-year notice in 2004 to stakeholders for imple­menting open access (OA). For over three years, we have been working on propagating the new inter­pretation in Open Access, and on 30 November 2011, the Power Ministry removed all ambiguity and has asked all parties concerned to implement it immediately. The circular says that all consumers of 1 MW and above are deemed to be OA consumers and that the regulator has no jurisdiction over fixing the energy charges for them.

The EA removes the responsibility of power supply from the government and casts it on the society (users, generators and traders). It de-licenses the generation, makes wire business public and encourages captive power along with choice of supplier to bulk consumers. The bulk consumers are required to make arrangements for their own power through captive or group captive, or pay negotiated or market determined rates to discom or IPP or any generator either directly or through trader or on an Exchange. Discoms need to procure sufficient power for retail consumption, and the cost of power procurement for OA consumers, if any, has to be a pass-through under Section 49.

Lower Retail Tariff

Experience from developed countries suggests that OA results in lower tariffs. The Act prescribes that bulk consumers will be out of the regu­lated tariff regime in phases, thereby effectively insulating retail consumers from marginal cost of incre­mental energy. This would ensure inherited power to retail con­sumers at affordable tariff, particularly for lifeline and living purposes.
Due to lack of clarity on the interpretation of rele­vant sections, bulk consumers continued to be in­cluded in tariff determination process even after January 2009—the timeline prescribed by EA.

On account of inclusion of power required by bulk users coupled with economic growth, the average cost of power procurement went up, pushing up retail tariff. Hence, OA imple­mentation will make retail tariff more rational and affordable (see graph).

Boosted Private Participation

Private players wishing to invest in generation would now have access to more than 15,000 bulk consumers through OA. The power market will open up in a big way, offering transparency and flexibility, and boosting investor confidence.

Power Purchase Agreements (PPAs) by themselves cannot ensure financial stability for any project: On the one hand, there are huge fuel shortages, and on the other, the tariffs proposed by discoms are not ‘cost-refle­ctive’—not rationalised according to cost of supply—due to political compulsions. Hence they resort to load shedding or default on payments. All these issues coupled with high levels of Aggregate Technical and Commercial (AT&C) losses can make any investment unviable.

If India has to maintain its growth trajectory of GDP in the future, the need of the hour is to open up its power sector.

The author is Managing Director and CEO, India Energy Exchange.