The Indian Electricity Act, 2003 (EA 2003) is widely hailed as a landmark piece of legislation that reformed and rejuvenated the power sector in India.
The Act ushered in competition in the power sector by permitting the entry of private players, restructuring State Electricity Boards into separate companies for power generation, transmission and distribution, streamlining planning and operations, and empowering independent state and central regulators for decentralised decision-making.
EA 2003 was the result of a series of efforts by multiple stakeholders towards reforming the power sector. The reform process started with the entry of private players in electricity generation, which mostly failed. At the same time, the distribution sector also witnessed some privatisation with regions like Odisha and Delhi privatising their distribution operations in 1999 and 2002 respectively. In 1998, electricity regulatory commissions were established to regulate the power sector at the state and central levels.
EA 2003 – Many Hits, Few Misses
The biggest positive impact of EA 2003 can be seen in power generation, planning, network operations, regulation and power trading – facets that have transformed India into a self-sufficient power generating country.
EA 2003 has played a catalyst’s role in creating the regulatory framework for the renewable energy revolution, resulting in renewable energy as-on-date accounting for 24% of the total installed capacity. The evolution of various platforms for trading of electricity empowered Independent Power Producers (IPPs) to determine the nature of contracts with buyers.
Similarly, the inception of individual entities for planning, operating and regulating the sector brought in an improved sense of professionalism that has directly impacted the overall quality of all aspects of power operations.
At the same time, legacy issues continue to plague the power sector. Distribution Utilities are still loss-making entities with 19% technical and commercial losses and a Rs. 0.41/unit difference between expenditure and revenue.
Draft Electricity (Amendment) Bill, 2020
To address these recurring issues and to further encourage more private participation and competition, the Ministry of Power introduced a draft Electricity (Amendment) Bill on April 17, 2020.
Here are 10 notable amendments proposed by the Ministry of Power:
1. The inception of Distribution Sub-licensees and Franchisees to promote geographic specialisation of electricity distribution within the primary licensee’s area of supply.
2. Creation of Electricity Contract Enforcement Authority with sole jurisdiction to adjudicate all contractual matters related to the sale, purchase and transmission of electricity.
3. Empowering the Central Government to prepare and notify a National Renewable Energy Policy for the promotion of electricity generation from renewable sources.
4. Inclusion of a payment security mechanism to ensure that electricity shall not be scheduled or dispatched unless adequate security of payment is provided as agreed by the parties to the contract.
5. Progressive reduction of open access charges and surcharges.
6. Mechanism to facilitate cross border trade of electricity.
7. Benefit of subsidies to be granted directly to the consumer.
8. Maximum time limit of 60 days for adoption of the tariffs determined by the Appropriate Commission.
9. Tariffs to be determined considering the cost of supply of electricity. Furthermore, tariffs discovered through competitive bids shall be deemed to have been adopted.
10. Provisions specifying the selection process of Chairperson and Members of CERC, SERCs and Contract Enforcement Authority have been modified.
Implications For The T&M Industry
1. The proposed time limit of tariff acceptance within 60 days is a potential game-changer as it provides regulatory certainty to Utilities.
2. The envisaged National Renewable Energy Policy is expected to further boost the renewables ecosystem in the country.
3. As tariffs determined on the basis of competitive bidding shall be deemed to be adopted, it is expected that contracts in the transmission network to EPC players would also be acceptable based on competitive bidding. This certainty would significantly reduce the commissioning time for transmission networks.
4. The inception of a nodal Electricity Contract Enforcement Authority is a welcome move in ensuring that Utilities promptly pay power generation companies.
5. It remains to be seen whether provisions on the reduction of open access and surcharges would revitalise open access mechanisms.
At SCOPE, we sincerely hope that the draft Electricity (Amendment) Bill, 2020 passes the legislative test in the parliament and becomes an Act soon.
We’d like to hear your views on the proposed provisions in the draft Electricity (Amendment) Bill, 2020. Let us know what you think by writing to us at email@example.com.