|
||||||
|
The Gazette of
RESOLUTION No. 23/40/2004-R&R (Vol.II) 1.0 INTRODUCTION 1.1 In compliance with section 3 of the Electricity Act 2003 the Central
Government hereby notifies the National Electricity Policy. 1.2 Electricity is an essential requirement for all facets of our life.
It has been recognized as a basic human need. It is a critical infrastructure
on which the socio-economic development of the country depends. Supply of
electricity at reasonable rate to rural 1.3 Recognizing that electricity is one of the key drivers for rapid
economic growth and poverty alleviation, the nation has set itself the target
of providing access to all households in next five years. As per Census 2001,
about 44% of the households do not have access to electricity. Hence meeting
the target of providing universal access is a daunting task requiring
significant addition to generation capacity and expansion of the transmission
and distribution network. 1.4 Indian Power sector is witnessing major changes. Growth of Power
Sector in 1.5 Electricity industry is capital-intensive having long gestation
period. Resources of power generation are unevenly dispersed across the
country. Electricity is a commodity that can not be stored in the grid where
demand and supply have to be continuously balanced. The widely distributed
and rapidly increasing demand requirements of the country need to be met in
an optimum manner. 1.6 Electricity Act, 2003 provides an enabling framework for accelerated
and more efficient development of the power sector. The Act seeks to encourage
competition with appropriate regulatory intervention. Competition is expected
to yield efficiency gains and in turn result in availability of quality
supply of electricity to consumers at competitive rates. 1.7 Section 3 (1) of the Electricity Act 2003 requires the Central
Government to formulate, inter alia, the National
Electricity Policy in consultation with Central Electricity Authority (CEA)
and State Governments. The provision is quoted below: "The Central Government shall, from time to time,
prepare the National Electricity Policy and tariff policy, in consultation
with the State Governments and the Authority for development of the power
system based on optimal utilization of resources such as coal, natural gas,
nuclear substances or materials, hydro and renewable sources of energy".
Section 3 (3) of the Act enables the Central Government
to review or revise the National Electricity Policy from time to time. 1.8 The National Electricity Policy aims at laying
guidelines for accelerated development of the power sector, providing supply
of electricity to all areas and protecting interests of consumers and other
stakeholders keeping in view availability of energy resources, technology
available to exploit these resources, economics of generation using different
resources, and energy security issues. 1.9 The National Electricity Policy has been evolved in
consultation with and taking into account views of the State Governments,
Central Electricity Authority (CEA), Central Electricity Regulatory
Commission (CERC) and other stakeholders. 2.0 AIMS & OBJECTIVES The National Electricity Policy aims at achieving the
following objectives:
3. NATIONAL ELECTRICITY PLAN 3.1 Assessment of demand is an important pre-requisite
for planning capacity addition. Section 3 (4) of the Act requires the Central
Electricity Authority (CEA) to frame a National Electricity Plan once in five
years and revise the same from time to time in accordance with the National
Electricity Policy. Also, section 73 (a) provides that formulation of
short-term and perspective plans for development of the electricity system
and coordinating the activities of various planning agencies for the optimal
utilization of resources to subserve the interests
of the national economy shall be one of the functions of the CEA. The Plan
prepared by CEA and approved by the Central Government can be used by
prospective generating companies, transmission utilities and
transmission/distribution licensees as reference document. 3.2 Accordingly, the CEA shall prepare short-term and
perspective plan. The National Electricity Plan would be for a short-term
framework of five years while giving a 15 year perspective and would include:
3.3 While evolving the National Electricity Plan, CEA
will consult all the stakeholders including state governments and the state
governments would, at state level, undertake this exercise in coordination
with stakeholders including distribution licensees and STUs.
While conducting studies periodically to assess short-term and long-term
demand, projections made by distribution utilities would be given due weightage. CEA will also interact with institutions and
agencies having economic expertise, particularly in the field of demand
forecasting. Projected growth rates for different sectors of the economy will
also be taken into account in the exercise of demand forecasting. 3.4 The National Electricity Plan for the ongoing 10th
Plan period and 11th Plan and perspective Plan for the 10th, 11th & 12th
Plan periods would be prepared and notified after reviewing and revising the
existing Power Plan prepared by CEA. This will be done within six months. 4.0 ISSUES ADDRESSED The policy seeks to address the following issues:
5.1 RURAL ELECTRIFICATION 5.1.1 The key development objective of the power sector
is supply of electricity to all areas including rural areas as mandated in
section 6 of the Electricity Act. Both the central government and state
governments would jointly endeavour to achieve this
objective at the earliest. Consumers, particularly those who are ready to pay
a tariff which reflects efficient costs have the right to get uninterrupted
twenty four hours supply of quality power. About 56% of rural households have
not yet been electrified even though many of these households are willing to
pay for electricity. Determined efforts should be made to ensure that the
task of rural electrification for securing electricity access to all
households and also ensuring that electricity reaches poor and marginal
sections of the society at reasonable rates is completed within the next five
years. 5.1.2 Reliable rural electrification system will aim at
creating the following: (a) Rural Electrification Distribution Backbone (REDB)
with at least one 33/11 kv (or 66/11 kv) substation in every Block and more if required as per
load, networked and connected appropriately to the state transmission system (b) Emanating from REDB would be supply feeders and one
distribution transformer at least in every village settlement. (c) Household Electrification from distribution
transformer to connect every household on demand. (d) Wherever above is not feasible (it is neither cost
effective nor the optimal solution to provide grid connectivity)
decentralized distributed generation facilities together with local
distribution network would be provided so that every household gets access to
electricity. This would be done either through conventional or
non-conventional methods of electricity generation whichever is more suitable
and economical. Non-conventional sources of energy could be utilized even
where grid connectivity exists provided it is found to be cost effective. (e) Development of infrastructure would also cater for
requirement of agriculture & other economic activities including
irrigation pump sets, small and medium industries, khadi
and village industries, cold chain and social services like health and
education. 5.1.3 Particular attention would be given in household
electrification to dalit bastis,
tribal areas and other weaker sections. 5.1.4 Rural Electrification Corporation of
5.1.6 Necessary institutional framework would need to
be put in place not only to ensure creation of rural electrification
infrastructure but also to operate and maintain supply system for securing
reliable power supply to consumers. Responsibility of operation &
maintenance and cost recovery could be discharged by utilities through
appropriate arrangements with Panchayats, local
authorities, NGOs and other franchisees etc. 5.1.7 The gigantic task of rural electrification
requires appropriate cooperation among various agencies of the State
Governments, Central Government and participation of the community. Education
and awareness programmes would be essential for
creating demand for electricity and for achieving the objective of effective
community participation. 5.2 GENERATION 5.2.1 Inadequacy of generation has characterized power
sector operation in 5.2.2 The Government of 5.2.3 In order to fully meet both energy and peak
demand by 2012, there is a need to create adequate reserve capacity margin.
In addition to enhancing the overall availability of installed capacity to
85%, a spinning reserve of at least 5%, at national level, would need to be
created to ensure grid security and quality and reliability of power supply. 5.2.4 The progress of implementation of capacity
addition plans and growth of demand would need to be constantly monitored and
necessary adjustments made from time to time. In creating new generation
capacities, appropriate technology may be considered keeping in view the
likely widening of the difference between peak demand and the base load. Hydro Generation 5.2.5 Hydroelectricity is a clean and renewable source
of energy. Maximum emphasis would be laid on the full development of the
feasible hydro potential in the country. The 50,000 MW hydro initiative has been already launched and is being
vigorously pursued with DPRs for projects of 33,000
MW capacity already under preparation. 5.2.6 Harnessing hydro potential speedily will also
facilitate economic development of States, particularly 5.2.7 Hydel projects call for
comparatively larger capital investment. Therefore, debt financing of longer
tenure would need to be made available for hydro projects. Central Government
is committed to policies that ensure financing of viable hydro projects. 5.2.9 The Central Government will support the State
Governments for expeditious development of their hydroelectric projects by
offering services of Central Public Sector Undertakings like National Hydroelectric
Power Corporation (NHPC). 5.2.10 Proper implementation of National Policy on
Rehabilitation and Resettlement (R&R) would be essential in this regard
so as to ensure that the concerns of project-affected families are addressed
adequately. 5.2.11 Adequate safeguards for environmental protection
with suitable mechanism for monitoring of implementation of Environmental
Action Plan and R&R Schemes will be put in place. Thermal Generation 5.2.12 Even with full development of the feasible hydro
potential in the country, coal would necessarily continue to remain the
primary fuel for meeting future electricity demand. 5.2.13 Imported coal based thermal power stations,
particularly at coastal locations, would be encouraged based on their
economic viability. Use of low ash content coal would also help in reducing
the problem of fly ash emissions. 5.2.14 Significant Lignite resources in the country are
located in Tamil Nadu, 5.2.15 Use of gas as a fuel for power generation would
depend upon its availability at reasonable prices. Natural gas is being used
in Gas Turbine /Combined Cycle Gas Turbine (GT/CCGT) stations, which
currently accounts for about 10 % of total capacity. Power sector consumes
about 40% of the total gas in the country. New power generation capacity
could come up based on indigenous gas findings, which can emerge as a major
source of power generation if prices are reasonable. A national gas grid
covering various parts of the country could facilitate development of such
capacities. 5.2.16 Imported LNG based power plants are also a
potential source of electricity and the pace of their development would
depend on their commercial viability. The existing power plants using liquid
fuels should shift to use of Natural Gas/LNG at the earliest to reduce the
cost of generation. 5.2.17 For thermal power, economics of generation and
supply of electricity should be the basis for choice of fuel from among the
options available. It would be economical for new generating stations to be
located either near the fuel sources e.g. pithead locations or load centres. 5.2.18 Generating companies may enter into medium to long-term
fuel supply agreements specially with respect to
imported fuels for commercial viability and security of supply. Nuclear Power 5.2.19 Nuclear power is an established source of energy
to meet base load demand. Nuclear power plants are being set up at locations
away from coalmines. Share of nuclear power in the overall capacity profile
will need to be increased significantly. Economics of generation and
resultant tariff will be, among others, important considerations. Public
sector investments to create nuclear generation capacity will need to be
stepped up. Private sector partnership would also be facilitated to see that
not only targets are achieved but exceeded. Non-conventional Energy Sources 5.2.20 Feasible potential of non-conventional energy
resources, mainly small hydro, wind and bio-mass
would also need to be exploited fully to create additional power generation
capacity. With a view to increase the overall share of non-conventional
energy sources in the electricity mix, efforts will be made to encourage
private sector participation through suitable promotional measures. Renovation and Modernization (R&M) 5.2.21 One of the major achievements of the power
sector has been a significant increase in availability and plant load factor
of thermal power stations specially over the last
few years. Renovation and modernization for achieving higher efficiency
levels needs to be pursued vigorously and all existing generation capacity
should be brought to minimum acceptable standards. The Govt. of India is
providing financial support for this purpose. 5.2.22 For projects performing below acceptable
standards, R&M should be undertaken as per well-defined plans featuring
necessary cost-benefit analysis. If economic operation does not appear
feasible through R&M, then there may be no alternative to closure of such
plants as the last resort. 5.2.23 In cases of plants with poor O&M record and
persisting operational problems, alternative strategies including change of
management may need to be considered so as to improve the efficiency to
acceptable levels of these power stations. Captive Generation 5.2.24 The liberal provision in the Electricity Act,
2003 with respect to setting up of captive power plant has been made with a
view to not only securing reliable, quality and cost effective power but also
to facilitate creation of employment opportunities through speedy and
efficient growth of industry. 5.2.25 The provision relating to captive power plants
to be set up by group of consumers is primarily aimed at enabling small and
medium industries or other consumers that may not individually be in a
position to set up plant of optimal size in a cost effective manner. It needs
to be noted that efficient expansion of small and medium industries across
the country would lead to creation of enormous employment opportunities. 5.2.26 A large number of captive and standby generating
stations in 5.3 TRANSMISSION 5.3.1 The Transmission System requires adequate and
timely investments and also efficient and coordinated action to develop a
robust and integrated power system for the country. 5.3.2 Keeping in view the massive increase planned in
generation and also for development of power market, there is need for
adequately augmenting transmission capacity. While planning new generation
capacities, requirement of associated transmission capacity would need to be
worked out simultaneously in order to avoid mismatch between generation
capacity and transmission facilities. The policy emphasizes the following to
meet the above objective:
5.3.3 Open access in transmission has been introduced
to promote competition amongst the generating companies who can now sell to
different distribution licensees across the country. This should lead to
availability of cheaper power. The Act mandates non-discriminatory open
access in transmission from the very beginning. When open access to
distribution networks is introduced by the respective State Commissions for
enabling bulk consumers to buy directly from competing generators,
competition in the market would increase the availability of cheaper and
reliable power supply. The Regulatory Commissions need to provide
facilitative framework for non-discriminatory open access. This requires load
dispatch facilities with state-of-the art communication and data acquisition
capability on a real time basis. While this is the case currently at the
regional load dispatch centers, appropriate State Commissions must ensure
that matching facilities with technology upgrades are provided at the State
level, where necessary and realized not later than June 2006. 5.3.4 The Act prohibits the State transmission
utilities/transmission licensees from engaging in trading in electricity.
Power purchase agreements (PPAs) with the
generating companies would need to be suitably assigned to the Distribution
Companies, subject to mutual agreement. To the extent necessary, such
assignments can be done in a manner to take care of different load profiles
of the Distribution Companies. Non-discriminatory open access shall be
provided to competing generators supplying power to licensees upon payment of
transmission charge to be determined by the appropriate Commission. The
appropriate Commissions shall establish such transmission charges no later
than June 2005. 5.3.5 To facilitate orderly growth and development of
the power sector and also for secure and reliable operation of the grid,
adequate margins in transmission system should be created. The transmission
capacity would be planned and built to cater to both the redundancy levels
and margins keeping in view international standards and practices. A well
planned and strong transmission system will ensure not only optimal
utilization of transmission capacities but also of generation facilities and
would facilitate achieving ultimate objective of cost effective delivery of
power. To facilitate cost effective transmission of power across the region,
a national transmission tariff framework needs to be implemented by CERC. The
tariff mechanism would be sensitive to distance, direction and related to
quantum of flow. As far as possible, consistency needs to be maintained in
transmission pricing framework in inter-State and intra-State systems.
Further it should be ensured that the present network deficiencies do not
result in unreasonable transmission loss compensation requirements. 5.3.6 The necessary regulatory framework for providing
non-discriminatory open access in transmission as mandated in the Electricity
Act 2003 is essential for signalling efficient
choice in locating generation capacity and for encouraging trading in
electricity for optimum utilization of generation resources and consequently
for reducing the cost of supply. 5.3.7 The spirit of the provisions of the Act is to ensure
independent system operation through NLDC, RLDCs
and SLDCs. These dispatch centers, as per the
provisions of the Act, are to be operated by a Government company or
authority as notified by the appropriate Government. However, till such time
these agencies/authorities are established the Act mandates that the CTU or
STU, as the case may be, shall operate the RLDCs or
SLDC. The arrangement of CTU operating the RLDCs
would be reviewed by the Central Government based on experience of working
with the existing arrangement. A view on this aspect would be taken by the
Central Government by December 2005. 5.3.8 The Regional Power Committees as envisaged in
section section 2(55) would be constituted by the
Government of India within two months with representation from various
stakeholders. 5.3.9 The National Load Despatch
Centre (NLDC) along with its constitution and functions as envisaged in
Section 26 of the Electricity Act 2003 would be notified within three months.
RLDCs and NLDC will have complete responsibility
and commensurate authority for smooth operation of the grid irrespective of
the ownership of the transmission system, be it under CPSUs,
State Utility or private sector. 5.3.10 Special mechanisms would be created to encourage
private investment in transmission sector so that sufficient investments are
made for achieving the objective of demand to be fully met by 2012. 5.4 DISTRIBUTION 5.4.1 Distribution is the most critical segment of the
electricity business chain. The real challenge of reforms in the power sector
lies in efficient management of the distribution sector. 5.4.2 The Act provides for a robust regulatory
framework for distribution licensees to safeguard consumer interests. It also
creates a competitive framework for the distribution business, offering
options to consumers, through the concepts of open access and multiple
licensees in the same area of supply. 5.4.3 For achieving efficiency gains proper
restructuring of distribution utilities is essential. Adequate transition
financing support would also be necessary for these utilities. Such support
should be arranged linked to attainment of predetermined efficiency
improvements and reduction in cash losses and putting in place appropriate
governance structure for insulating the service providers from extraneous
interference while at the same time ensuring transparency and accountability.
For ensuring financial viability and sustainability, State Governments would
need to restructure the liabilities of the State Electricity Boards to ensure
that the successor companies are not burdened with past liabilities. The
Central Government would also assist the States, which develop a clear
roadmap for turnaround, in arranging transition financing from various sources
which shall be linked to predetermined improvements and efficiency gains
aimed at attaining financial viability and also putting in place appropriate
governance structures. 5.4.4 Conducive business environment in terms of
adequate returns and suitable transitional model with predetermined
improvements in efficiency parameters in distribution business would be
necessary for facilitating funding and attracting investments in
distribution. Multi-Year Tariff (MYT) framework is an important structural incentive
to minimize risks for utilities and consumers, promote efficiency and rapid
reduction of system losses. It would serve public interest through economic
efficiency and improved service quality. It would also bring greater
predictability to consumer tariffs by restricting tariff adjustments to known
indicators such as power purchase prices and inflation indices. Private
sector participation in distribution needs to be encouraged for achieving the
requisite reduction in transmission and distribution losses and improving the
quality of service to the consumers. 5.4.5 The Electricity Act 2003 enables competing
generating companies and trading licensees, besides the area distribution
licensees, to sell electricity to consumers when open access in distribution
is introduced by the State Electricity Regulatory Commissions. As required by
the Act, the SERCs shall notify regulations by June
2005 that would enable open access to distribution networks in terms of
sub-section 2 of section 42 which stipulates that such open access would be
allowed, not later than five years from 27th January 2004 to consumers who
require a supply of electricity where the maximum power to be made available
at any time exceeds one mega watt. Section 49 of the Act provides that such
consumers who have been allowed open access under section 42 may enter into
agreement with any person for supply of electricity on such terms and
conditions, including tariff, as may be agreed upon by them. While making
regulations for open access in distribution, the SERCs
will also determine wheeling charges and cross-subsidy surcharge as required
under section 42 of the Act. 5.4.6 A time-bound programme
should be drawn up by the State Electricity Regulatory Commissions (SERC) for
segregation of technical and commercial losses through energy audits. Energy
accounting and declaration of its results in each defined unit, as determined
by SERCs, should be mandatory not later than March
2007. An action plan for reduction of the losses with adequate investments
and suitable improvements in governance should be drawn up. Standards for
reliability and quality of supply as well as for loss levels shall also be specified ,from time to time, so as to bring these in line
with international practices by year 2012. 5.4.7 One of the key provisions of the Act on
competition in distribution is the concept of multiple licensees in the same
area of supply through their independent distribution systems. State
Governments have full flexibility in carving out distribution zones while
restructuring the Government utilities. For grant of second and subsequent
distribution licence within the area of an
incumbent distribution licensee, a revenue district, a Municipal Council for
a smaller urban area or a Municipal Corporation for a larger urban area as
defined in the Article 243(Q) of Constitution of India (74th Amendment) may
be considered as the minimum area. The Government of India would notify
within three months, the requirements for compliance by applicant for second
and subsequent distribution licence as envisaged in
Section 14 of the Act. With a view to provide benefits of competition to all
section of consumers, the second and subsequent licensee for distribution in
the same area shall have obligation to supply to all consumers in accordance
with provisions of section 43 of the Electricity Act 2003. The SERCs are required to regulate the tariff including
connection charges to be recovered by a distribution licensee under the
provisions of the Act. This will ensure that second distribution licensee
does not resort to cherry picking by demanding unreasonable connection
charges from consumers. 5.4.8 The Act mandates supply of electricity through a
correct meter within a stipulated period. The Authority should develop
regulations as required under Section 55 of the Act within three months. 5.4.9 The Act requires all consumers to be metered
within two years. The SERCs may obtain from the
Distribution Licensees their metering plans, approve these, and monitor the
same. The SERCs should encourage use of pre-paid
meters. In the first instance, TOD meters for large consumers with a minimum
load of one MVA are also to be encouraged. The SERCs
should also put in place independent third-party meter testing arrangements. 5.4.10 Modern information technology systems may be
implemented by the utilities on a priority basis, after considering cost and
benefits, to facilitate creation of network information and customer data
base which will help in management of load, improvement in quality, detection
of theft and tampering, customer information and prompt and correct billing
and collection . Special emphasis should be placed on consumer indexing and
mapping in a time bound manner. Support is being provided for information
technology based systems under the Accelerated Power Development and Reforms Programme (APDRP). 5.4.11 High Voltage Distribution System is an effective
method for reduction of technical losses, prevention of theft, improved
voltage profile and better consumer service. It should be promoted to reduce
LT/HT ratio keeping in view the techno economic considerations. 5.4.12 SCADA and data management systems are useful for
efficient working of Distribution Systems. A time bound programme
for implementation of SCADA and data management system should be obtained
from Distribution Licensees and approved by the SERCs
keeping in view the techno economic considerations. Efforts should be made to
install substation automation equipment in a phased manner. 5.5 RECOVERY OF COST OF SERVICES & TARGETTED
SUBSIDIES 5.5.1 There is an urgent need for ensuring recovery of
cost of service from consumers to make the power sector sustainable. 5.5.2 A minimum level of support may be required to
make the electricity affordable for consumers of very poor category.
Consumers below poverty line who consume below a specified level, say 30
units per month, may receive special support in terms of tariff which are
cross-subsidized. Tariffs for such designated group of consumers will be at
least 50 % of the average (overall) cost of supply. This provision will be
further re-examined after five years. 5.5.4 The State Governments may give advance subsidy to
the extent they consider appropriate in terms of section 65 of the Act in
which case necessary budget provision would be required to be made in advance
so that the utility does not suffer financial problems that may affect its
operations. Efforts would be made to ensure that the subsidies reach the
targeted beneficiaries in the most transparent and efficient way. 5.6 TECHNOLOGY DEVELOPMENT AND R&D 5.6.1 Effective utilization of all available resources
for generation, transmission and distribution of electricity using efficient
and cost effective technologies is of paramount importance. Operations and
management of vast and complex power systems require coordination among the
multiple agencies involved. Effective control of power system at state,
regional and national level can be achieved only through use of Information
Technology. Application of IT has great potential in reducing technical &
commercial losses in distribution and providing consumer friendly services.
Integrated resource planning and demand side management would also require
adopting state of the art technologies. Special efforts would be made for research, development
demonstration and commercialization of non-conventional energy systems. Such
systems would need to meet international standards, specifications and
performance parameters. 5.6.2 Efficient technologies, like super critical
technology, IGCC etc and large size units would be gradually introduced for
generation of electricity as their cost effectiveness is established.
Simultaneously, development and deployment of technologies for productive use
of fly ash would be given priority and encouragement. 5.6.3 Similarly, cost effective technologies would
require to be developed for high voltage power flows over long distances with
minimum possible losses. Specific information technology tools need to be
developed for meeting the requirements of the electricity industry including
highly sophisticated control systems for complex generation and transmission
operations, efficient distribution business and user friendly consumer
interface. 5.6.4 The country has a strong research and development
base in the electricity sector which would be further augmented. R&D
activities would be further intensified and Missions will be constituted for
achieving desired results in identified priority areas. A suitable funding
mechanism would be evolved for promoting R& D in the Power Sector. Large
power companies should set aside a portion of their profits for support to
R&D. 5.7 COMPETITION AIMED AT CONSUMER BENEFITS 5.7.1 To promote market development, a part of new
generating capacities, say 15% may be sold outside long-term PPAs .
As the power markets develop, it would be feasible to finance projects with
competitive generation costs outside the long-term power purchase agreement
framework. In the coming years, a significant portion of the installed
capacity of new generating stations could participate in competitive power
markets. This will increase the depth of the power markets and provide
alternatives for both generators and licensees/consumers and in long run
would lead to reduction in tariff. a.
It is the function of the Central
Electricity Regulatory Commission to issue license for inter-state trading
which would include authorization for trading throughout the country. b.
The ABT regime introduced by CERC at the
national level has had a positive impact. It has also enabled a credible
settlement mechanism for intra-day power transfers from licenses with
surpluses to licenses experiencing deficits. SERCs
are advised to introduce the ABT regime at the State level within one year. c.
Captive generating plants should be
permitted to sell electricity to licensees and consumers when they are
allowed open access by SERCs under section 42 of
the Act . d.
Development of power market would need to
be undertaken by the Appropriate Commission in consultation with all
concerned. e.
The Central Commission and the State
Commissions are empowered to make regulations under section 178 and section
181 of the Act respectively. These regulations will ensure implementation of
various provisions of the Act regarding encouragement to competition and also
consumer protection. The Regulatory Commissions are advised to notify various
regulations expeditiously. f.
Enabling regulations for inter and intra
State trading and also regulations on power exchange shall be notified by the
appropriate Commissions within six months. 5.8 FINANCING POWER SECTOR PROGRAMMES INCLUDING PRIVATE
SECTOR PARTICIPATION 5.8.1 To meet the objective of rapid economic growth
and “power for all” including household electrification, it is estimated that
an investment of the order of Rs.9,00,000 crores at
2002-03 price level would be required to finance generation, transmission,
sub-transmission, distribution and rural electrification projects. Power
being most crucial infrastructure, public sector investments, both at the
Central Government and State Governments, will have to be stepped up.
Considering the magnitude of the expansion of the sector required, a sizeable part of the investments will also need to be
brought in from the private sector. The Act creates a conducive
environment for investments in all segments of the industry, both for public
sector and private sector, by removing barrier to entry in different
segments. Section 63 of the Act provides for participation of suppliers on
competitive basis in different segments which will further encourage private
sector investment. Public service obligations like increasing access to
electricity to rural households and small and marginal farmers have highest
priority over public finances. 5.8.2 The public sector should be able to raise
internal resources so as to at least meet the equity requirement of
investments even after suitable gross budgetary support from the Government
at the Centre and in the states in order to complete their on-going projects
in a time-bound manner. Expansion of public sector investments would be
dependent on the financial viability of the proposed projects. It would,
therefore, be imperative that an appropriate surplus is generated through
return on investments and, at the same time, depreciation reserve created so
as to fully meet the debt service obligation. This will not only enable
financial closure but also bankability of the
project would be improved for expansion programmes,
with the Central and State level public sector organizations, as also private
sector projects, being in a position to fulfil
their obligations toward equity funding and debt repayments. 5.8.3 Under sub-section (2) of Section 42 of the Act, a
surcharge is to be levied by the respective State Commissions on consumers
switching to alternate supplies under open access. This is to compensate the
host distribution licensee serving such consumers who are permitted open
access under section 42(2), for loss of the cross-subsidy element built into
the tariff of such consumers. An additional surcharge may also be levied
under sub-section (4) of Section 42 for meeting the fixed cost of the
distribution licensee arising out of his obligation to supply in cases where
consumers are allowed open access. The amount of surcharge and additional
surcharge levied from consumers who are permitted open access should not
become so onerous that it eliminates competition that is intended to be
fostered in generation and supply of power directly to consumers through the
provision of Open Access under Section 42(2) of the Act. Further it is
essential that the Surcharge be reduced progressively in step with the
reduction of cross-subsidies as foreseen in Section 42(2) of the Electricity
Act 2003. 5.8.4 Capital is scarce. Private sector will have
multiple options for investments. Return on investment will,
therefore, need to be provided in a manner that the sector is able to attract
adequate investments at par with, if not in preference to, investment
opportunities in other sectors. This would obviously be based on a clear
understanding and evaluation of opportunities and risks. An appropriate
balance will have to be maintained between the interests of consumers and the
need for investments. 5.8.5 All efforts will have to be made to improve the
efficiency of operations in all the segments of the industry. Suitable
performance norms of operations together with incentives and disincentives
will need to be evolved along with appropriate arrangement for sharing the
gains of efficient operations with the consumers .
This will ensure protection of consumers’ interests on the one hand and
provide motivation for improving the efficiency of operations on the other. 5.8.6 Competition will bring significant benefits to consumers , in which case, it is competition which will
determine the price rather than any cost plus exercise on the basis of
operating norms and parameters. All efforts will need to be made to bring the
power industry to this situation as early as possible, in the overall
interest of consumers. Detailed guidelines for competitive bidding as
stipulated in section 63 of the Act have been issued by the Central
Government. 5.8.8 Steps would also be taken to address the need for
regulatory certainty based on independence of the regulatory commissions and
transparency in their functioning to generate investor’s confidence. 5.8.9 Role of private participation in generation,
transmission and distribution would become increasingly critical in view of
the rapidly growing investment needs of the sector. The Central Government
and the State Governments need to develop workable and successful models for
public private partnership. This would also enable leveraging private
investment with the public sector finances. Mechanisms for continuous
dialogue with industry for streamlining procedures for encouraging private
participation in power sector need to be put in place. Transmission & Distribution Losses 5.8.10 It would have to be clearly recognized that
Power Sector will remain unviable until T&D losses are brought down
significantly and rapidly. A large number of States have been reporting
losses of over 40% in the recent years. By any standards, these are unsustainable
and imply a steady decline of power sector operations. Continuation of the
present level of losses would not only pose a threat to the power sector
operations but also jeopardize the growth prospects of the economy as a
whole. No reforms can succeed in the midst of such large pilferages on a
continuing basis. The State Governments would prepare a Five Year Plan
with annual milestones to bring down these losses expeditiously. Community
participation, effective enforcement, incentives for entities, staff and
consumers, and technological upgradation should
form part of campaign efforts for reducing these losses. The Central
Government will provide incentive based assistance to States that are able to
reduce losses as per agreed programmes. 5.9 ENERGY CONSERVATION 5.9.1 There is a significant potential of energy
savings through energy efficiency and demand side management measures. In
order to minimize the overall requirement, energy conservation and demand
side management (DSM) is being accorded high priority. The Energy
Conservation Act has been enacted and the Bureau of Energy Efficiency has
been setup. 5.9.2 The potential number of installations where
demand side management and energy conservation measures are to be carried out
is very large. Bureau of Energy Efficiency (BEE) shall initiate action in
this regard. BEE would also make available the estimated conservation and DSM
potential, its staged implementation along with cost estimates for
consideration in the planning process for National Electricity Plan. 5.9.3 Periodic energy audits have been made compulsory
for power intensive industries under the Energy Conservation Act. Other
industries may also be encouraged to adopt energy audits and energy
conservation measures. Energy conservation measures shall be adopted in all
Government buildings for which saving potential has been estimated to be
about 30% energy. Solar water heating systems and solar passive architecture
can contribute significantly to this effort. 5.9.4 In the field of energy conservation initial
approach would be voluntary and self-regulating with emphasis on labelling of appliances. Gradually as awareness
increases, a more regulatory approach of setting standards would be followed.
5.9.5 In the agriculture sector, the pump sets and the
water delivery system engineered for high efficiency would be promoted. In
the industrial sector, energy efficient technologies should be used and
energy audits carried out to indicate scope for energy conservation measures.
Motors and drive system are the major source of high consumption in
Agricultural and Industrial Sector. These need to be addressed. Energy
efficient lighting technologies should also be adopted in industries,
commercial and domestic establishments. 5.9.6 In order to reduce the requirements for capacity
additions, the difference between electrical power demand during peak periods
and off-peak periods would have to be reduced. Suitable load management
techniques should be adopted for this purpose. Differential tariff structure
for peak and off peak supply and metering arrangements (Time of Day metering)
should be conducive to load management objectives. Regulatory Commissions
should ensure adherence to energy efficiency standards by utilities. 5.9.7 For effective implementation of energy
conservation measures, role of Energy Service Companies would be enlarged.
Steps would be taken to encourage and incentivise
emergence of such companies. 5.9.8 A national campaign for bringing about awareness
about energy conservation would be essential to achieve efficient consumption
of electricity. 5.9.9. A National Action Plan has been developed.
Progress on all the proposed measures will be monitored with reference to the
specific plans of action. 5.10 ENVIRONMENTAL ISSUES 5.10.1 Environmental concerns would be suitably
addressed through appropriate advance action by way of comprehensive
Environmental Impact Assessment and implementation of Environment Action Plan
(EAP). 5.10.2 Steps would be taken for coordinating the
efforts for streamlining the procedures in regard to grant of environmental
clearances including setting up of ‘Land Bank’ and ‘Forest Bank’. 5.10.3 Appropriate catchment
area treatment for hydro projects would also be ensured and monitored. 5.10.4 Setting up of coal washeries
will be encouraged. Suitable steps would also be taken so that utilization of
fly ash is ensured as per environmental guidelines. 5.10.5 Setting up of municipal solid waste energy
projects in urban areas and recovery of energy from industrial effluents will
also be encouraged with a view to reducing environmental pollution apart from
generating additional energy. 5.10.6 Full compliance with prescribed environmental
norms and standards must be achieved in operations of all generating plants. 5.11 TRAINING AND HUMAN RESOURCE DEVELOPMENT In the new reforms framework ushered by Electricity Act
2003, it is particularly important that the electricity industry has access
to properly trained human resource. Therefore, concerted action would be
taken for augmenting training infrastructure so that adequate well-trained
human resource is made available as per the need of the industry. Special
attention would need to be paid by the industry for establishing training
infrastructure in the field of electricity distribution, regulation, trading
and power markets. Efforts should be made so that personnel of electricity
supply industry both in the private and public sector become more
cost-conscious and consumer-friendly. 5.12 COGENERATION AND NON-CONVENTIONAL ENERGY SOURCES 5.12.1 Non-conventional sources of energy being the
most environment friendly there is an urgent need to promote generation of
electricity based on such sources of energy. For this purpose, efforts need
to be made to reduce the capital cost of projects based on non-conventional
and renewable sources of energy. Cost of energy can also be reduced by
promoting competition within such projects. At the same time, adequate
promotional measures would also have to be taken for development of
technologies and a sustained growth of these sources. 5.12.2 The Electricity Act 2003 provides that
co-generation and generation of electricity from non-conventional sources
would be promoted by the SERCs by providing
suitable measures for connectivity with grid and sale of electricity to any
person and also by specifying, for purchase of electricity from such sources,
a percentage of the total consumption of electricity in the area of a
distribution licensee. Such percentage for purchase of power from
non-conventional sources should be made applicable for the tariffs to be
determined by the SERCs at the earliest.
Progressively the share of electricity from non-conventional sources would
need to be increased as prescribed by State Electricity Regulatory
Commissions. Such purchase by distribution companies shall be through
competitive bidding process. Considering the fact that it will take some time
before non-conventional technologies compete, in terms of cost, with
conventional sources, the Commission may determine an appropriate
differential in prices to promote these technologies. 5.12.3 Industries in which both process heat and
electricity are needed are well suited for cogeneration of electricity. A
significant potential for cogeneration exists in the country, particularly in
the sugar industry. SERCs may promote arrangements
between the co-generator and the concerned distribution licensee for purchase
of surplus power from such plants. Cogeneration system also needs to be
encouraged in the overall interest of energy efficiency and also grid
stability. 5.13 PROTECTION OF CONSUMER INTERESTS AND QUALITY
STANDARDS 5.13.1 Appropriate Commission should regulate utilities
based on pre-determined indices on quality of power supply. Parameters should
include, amongst others, frequency and duration of interruption, voltage
parameters, harmonics, transformer failure rates, waiting time for
restoration of supply, percentage defective meters and waiting list of new
connections. The Appropriate Commissions would specify expected standards of
performance. 5.13.2 Reliability Index (RI) of supply of power to
consumers should be indicated by the distribution licensee. A road map for
declaration of RI for all cities and towns up to the District Headquarter
towns as also for rural areas, should be drawn by up
SERCs. The data of RI should be compiled and
published by CEA. 5.13.3 It is advised that all State Commissions should
formulate the guidelines regarding setting up of grievance redressal forum by the licensees as also the regulations
regarding the Ombudsman and also appoint/designate the Ombudsman within six
months. 5.13.4 The Central Government, the State Governments
and Electricity Regulatory Commissions should facilitate capacity building of
consumer groups and their effective representation before the Regulatory
Commissions. This will enhance the efficacy of regulatory process. 6.0 COORDINATED DEVELOPMENT 6.1 Electricity being a concurrent subject, a
well-coordinated approach would be necessary for development of the power
sector. This is essential for the attainment of the objective of providing
electricity-access to all households in next five years and providing
reliable uninterrupted quality power supply to all consumers. The State
Governments have a major role, particularly in creation of generation
capacity, state level transmission and distribution. The Central Government
would assist the States in the attainment of this objective. It would be
playing a supportive role in fresh capacity addition and a major role in
development of the National Grid. The State Governments need to ensure the
success of reforms and restoration of financial health in distribution, which
alone can enable the creation of requisite generation capacity. The
Regulatory Commissions have the responsibility of ensuring that the
regulatory processes facilitate the attainment of this objective. They also
have a developmental role whose fulfillment would need a less formal and a
consultative process. The Electricity Act, 2003 also provides for mechanisms
like “Coordination forum” and “Advisory Committees” to facilitate
consultative process. The Act also requires the Regulatory Commissions to
ensure transparency in exercise of their powers and in discharge of their
functions. This in no way means that the Regulatory Commissions should follow
formal judicial approach. In fact, quick disposal of matters would require an
approach involving consultations with stakeholders. 6.2 Under the Act, the Regulatory Commissions are
required to perform wide-ranging responsibilities. The appropriate
Governments need to take steps to attract regulatory personnel with required
background. The Govt. of India would promote the institutional capability to
provide training to raise regulatory capacity in terms of the required
expertise and skill sets. The appropriate Governments should provide
financial autonomy to the Regulatory Commissions. The Act provides that the
appropriate Government shall constitute a Fund under section 99 or section
103 of the Act, as the case may be, to be called as Regulatory Commission
Fund. The State Governments are advised to establish this Fund expeditiously.
(Ajay Shankar) |
||||||