The regulatory process after the power crisis shock

Contact Counsellor

The regulatory process after the power crisis shock

  • The power crisis took everyone by surprise.
  • The robust economic recovery after two waves of COVID-19 and the unexpected heatwave have brought back power cuts.
  • The Government is undertaking emergency measures such as canceling passenger trains to get the Indian Railways to transport more coal to power plants and issuing directives to use more imported coal to tide over the supply shortfall.

Nature of consumer demand

  • Under the Electricity Act, it is the responsibility of the Distribution Licensee/Company (Discom) to provide reliable quality and round-the-clock electricity to all consumers to meet full demand.
  • To do so, they enter into contracts with a number of generating companies in order to ensure adequate supply.
  • These Discoms work under the oversight of the State Electricity Regulatory Commissions.
  • With higher incomes and the consequent increase in the use of air-conditioners and other electrical appliances, the nature of electricity demand is rising daily and there are seasonal peaks, and spikes on very hot or cold days.
  • This will only increase in the years ahead.

Towards reliable supply

  • Ensuring reliable supply to meet unanticipated peaks, requires making supply arrangements with reserve margins that are adequate.
  • Regulatory Commissions need to provide for such expensive peaking power arrangements in the tariffs they approve.
  • It is time to move towards separate peaking power procurement contracts in addition to the present system of long-term thermal power contracts.
  • There may be a case for tightening their contractual terms with enforceable financial penalties.
  • A transition to a demand-based time of day rate of electricity for generators as well as consumers would help.
    • These should be brought in by the Regulatory Commissions.
  • Peak demand moderation and flattening of the demand curve through a change in consumer behavior are feasible with smart meters.
    • But this would take place only with a strong price signal, and a large differential in peak and off-peak rates.
  • The requirement for backup power will keep rising as the share of uncertain renewable generation grows.
  • The consumer, the political class, and the Regulatory Commissions have the collective responsibility for optimal decisions for reliable supply.

Subsidies and politics

  • Free supply of electricity to farmers and households up to a specified level is not a problem as long as State governments pay for it as provided in the Act, and the Regulatory Commissions do not act from a political point of view.
  • The problem is the absence of meaningful political discussion on the relative benefits of subsidies in different areas and their affordability.
  • Problem of delayed payments by Discoms needs to be resolved with urgency, the coal supply problem is not due to this.
  • Coal India is not short of cash to be able to increase production. It needs to create capacities to increase production, and Railways need to carry larger quantities of coal when demand surges.

Way forward

  • Buying electricity: from imported liquefied natural gas and thermal plants which can run on imported coal plants and have no power cuts would provide immediate relief.
  • ** Consumers who can pay:** They can be kept free of power cuts with the purchase and supply of more expensive electricity generated from imported coal and gas.
    • It can be conveyed through resident welfare/ industries associations.
    • They could pay through a peak demand surcharge on their bills.
  • Scrutiny: Regulatory Commission could undertake subsequent scrutiny to see that the surcharge has been computed correctly.
  • Storage: To improve reliability, Discoms, with the approval of the Regulatory Commissions, need to go in for bids for storage.
    • It may even turn out to be the cheaper option in the short run to meet peaking power needs.
    • Large-scale grid storage: It is essential to achieve the goals for 2030 — of creating 500 GW of non-fossil fuel capacity including 450 GW of renewables.

Exam track

Prelims take away

  • Power sector in India
  • Conventional and non-conventional sources of energy