Note: This topic is important for TISSNET.
During the Covid-19 outbreak last year, the Indian government proposed the Atmanirbhar Bharat plan, a rescue package for the power sector. This rescue package was put in place to ensure that the entire power sector chain was not harmed as a result of the discoms’ failure to meet their responsibilities.
This isn’t the first time the Centre government has intervened to help discoms and address the challenges facing the distribution sector (previous intervention: UDAY scheme). Despite the frequent interventions, cash-strapped discoms are now appealing for another bailout package.
This emphasises the power sector’s major structural issues, which must be addressed in order for India’s power sector to be sustainable.
Associated Challenges
AT&C Losses:
- Attributable technical and commercial (AT&C) losses arise from a lack of or insufficient infrastructure, as well as theft and bills that are not generated or honoured.
- The UDAY programme aimed to reduce these losses to 15% by the year 2019.
- However, according to data from the UDAY dashboard, AT&C losses in India are currently at 21.7 percent.
Cost-Revenue Gap:
- The gap between discoms’ costs (average cost of supply) and revenues (average revenue realised) continues to widen.
- This is due to the lack of consistent and updated electricity rates.
Magnifying Effect:
- Surprisingly, the government’s quest for universal electrification has resulted in increased inefficiency.
- To accommodate increasing levels of electrification, cost structures must be modified, and the distribution network (transformers, wires, etc.) must be expanded when household connections are ramped up.
- Losses will inevitably escalate in the absence of all of this.
Economic Fallout of the Pandemic:
- With demand from industrial and commercial customers declining due to the pandemic, revenue from this stream, which is used to cross-subsidize other consumers, has decreased, adding to the financial strain on the discom.
Low Investment:
- There are fewer new investments in the power business due to the dicoms’ low financial health (particularly by the private sector).
Fossil Fuel Dominated Energy Generation:
- Thermal energy derived from fossil fuels such as coal, natural gas, and diesel accounts for 80% of total generation in the country.
- Furthermore, the majority of India’s plants are old and inefficient.
Solutions
Eliminate Cross Subsidization:
- The cross-subsidy regime and high industrial/commercial tariffs have harmed the competitiveness of the industrial and commercial sectors.
- As a result, robust enforcement of cross-subsidy rationalisation is required.
Covering up AT&C Losses:
- To regulate power demand, 100 percent metering (net metering, smart metres, and metering of electricity delivered to agricultural) is required.
- In addition, performance-based incentives should be included in the pricing structure.
Greening The Grid:
- In agriculture, the KUSUM plan is a viable alternative to the power subsidy concept.
- The initiative aims to promote the use of solar pumps in agriculture by requiring local utilities to purchase surplus power from farmers.
Cross-Border Trade:
- To make use of present and future generation assets, the government must actively promote cross-border electricity commerce. The SAARC electrical grid is a positive step forward.
The development of a national electricity distribution company is one solution that has been proposed to deal with the failing discoms. However, without addressing the structural issues, it is difficult to see how discoms can achieve a long-term turnaround in their financial and operational positions.