Its All About Power Sector

Electricity Act 2003 is considered as an indispensable measure to enhance the growth of power sector in India. All Generation, Transmission and Distribution sectors have had an impact in the past decade and most of which were positive. The act brought in various changes in the then existing policies and laid path to creation of new policies. The act owns very critical objectives regarding policy formulations, promotion of competition, protecting consumer interest, supply of electricity to all areas, rationalization of tariff, etc., Below is a review of what EA-2003 has in it's store to show us in a decades time. This should help us understand what has it achieved and what more needs to be done to take it to the next level.

• Incompliance with Section 3 of the Electricity Act 2003, National Electricity Policy which aims at meeting the demand fully by 2012, supply of reliable and quality power, increase of per capita availability of electricity, financial turn-around and commercial viability of electricity sector and protection of consumer interests was notified in June 2005.
• In compliance of section 3 of the Electricity Act 2003, the Government of India has also notified the Tariff Policy on January 06, 2006 to ensure availability of electricity to consumers at reasonable and competitive rates, ensure financial viability of the sector and attract investments, promote transparency, consistency and predictability in regulatory approaches across jurisdictions and promoting competition, efficiency in operations and improvement in quality of supply.
• The Tariff Policy has been subsequently amended from time to time to take care needs of hydro generation, transmission capacity and renewables.

Development of Electricity Industry

• Section 7 & 8 of Act provides for delicensing of generating station subject to compliance of technical standards relating to connectivity with the Grid and Concurrence of CEA needed for setting up of Hydro projects.
• Before 2003, total generated energy was 530 Billion Units (BU). Total generated energy has increased to 912.05 BU between 2003-13 which is an increase of 382.05 BU in a span of 10 years.
• Per Capita availability of power increased from 592 Units in 2003-04 to 917 Units in 2012-13.
• Share of Private sector increased to 32% in 2013 from 9.38% in 2004.
• As per Section 9 of Act, no license shall be required for supply of electricity generated from Captive generation plants to any licensee.
• Captive generation capacity has increased from 18740 MW in 2004 to 34444 MW in 2013.
• Section 38 & 39 of the Act provides for setting up of Central Transmission Utility (CTU) & State Transmission Utility (STU) for development of transmission network in a planned and coordinated manner.
• Transmission Capacity (66KV and above) has increased from 3,04,258 Ckt.Kms in 2002 to 4,58,529 Ckt.Kms In 2013.
• Section 131 of the Act provides for reorganization of SEBs to transfer rights and liabilities vested in the state government to be re-vested by the state government in a Government Company or Companies.
• 19 out of 21 State Electricity Boards (SEBs) have been restructured.

Promoting Competition

• Section 63 of the Act provides for determination of tariff through transparent process of bidding in accordance with the guidelines issued by the Central Government.
• Central Government notified guidelines for procurement of power by Distribution Licensees through competitive bidding in 2005 and Issued the Standard Bidding Documents (RFQ, RFP & model PPA) for long term procurement of power from Case-2 projects in 2006 and Case-1 projects, in 2009 and amended time to time.
• Issued Guidelines for short-term procurement of electricity i.e. for a period of less than or equal to one year, in 2012.
• In pursuant to the decision of the EGoM on UMPPs, reviewed Standard Bidding Documents (SBDs) and the Model Bidding Documents (MBDs) for construction and operation of power generation projects/ UMPPs on DBFOT basis have been issued on September 20, 2013 and the guidelines published on September 21, 2013.
• The tariff adopted by CERC for Four UMPPs (located in Mundra, Sasan, Krishnapatnam and Tilaiya) have been determined through the process of bidding and tariffs have been competitively determined.
• Two power exchanges have been set up and Short term market volume increased from 24 BUs in 2008-09 to 60 BUs in 2012-13.
• All this is expected to bring in larger private sector investments in power sector and also competitive tariffs. 
• Section 38, 39, 40 & 42 mandates for providing non-discriminatory open-access to the transmission system for use by any licensee or generating company on payment of transmission charges and by any consumer when such open access has been provided by Sate Commission on payment of transmission charges and a surcharge thereon.
• 27 SERCs have issued regulation on open access in intra-State transmission and distribution.
• 25 SERCs have allowed open access to consumers with loads of 1 MW and above.
• 22 SERCs have determined transmission and wheeling charges for open access.
• 20 SERCs have fixed cross subsidy charges for open access.
• Open access at Inter-state level is fully operational. The total number of transaction for open access availed on inter-state transmission system has increased from 15414 in 2008-2009 to 32088 in 2012-2013, transmitting a total of 73153 million Units in 2012-2013 as against 778 million units in 2004-2005

Protecting Consumer Interest

• Section 42(5) of the Act provides for establishment of a Consumer Grievances.
• Forum for redressal of grievances of consumers in accordance with the guidelines specified by State Commission.
• 9 Consumer Grievance Redressal Forum have been set up in 33 States/Union Territories by distribution licensees.
• Section 42(6) of the Act provides for appointment of Ombudsman who shall settle the grievance of the consumer with in such time and manner specified by State Commission.
• 28 Ombudsman have been appointed by SERCs.
• Section 153 of the ACT provides for constitution of Special Courts for the purposes of providing speedy trial of offences to in sections 135 to 140 and 150.
• 23 States have set up Special Courts for speedy trials.
• Consumers are represented in Tariff determination process by CERC through Public hearing.
• In compliance with Section 110 of the Act Appellate Tribunal (APTEL) has been established to hear appeals against the orders of the Adjudicating Officer or Appropriate Commission.

Supply of Electricity to all Areas

• National Electricity Policy formulated in pursuance of Section 3 of Act, mandates for access to electricity to all households by 2010 and demand to be fully met by 2012.
• Rural Electricity Policy formulated in pursuance of Section 4 of Act, mandates for provision of access to all households by year 2009.
• Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) Scheme launched in 2005 with a goal of electrifying all un-electrified villages/ hamlets and providing access to electricity to all house-holds. The scheme is still under progress.
• 1,07,615 unelectrified villages have been electrified till September 30, 2013 as against 1,12,980 unelectrified villages sanctioned for X & XI Plan.
• 3,01,533 partially electrified villages have been electrified till September 30, 2013 as against 3,83,470 partially electrified villages sanctioned for X & XI Plan.
• 212.63 Lakh BPL house-holds have been electrified till September 30, 2013 as against 276.76 Lakh unelectrified BPL households sanctioned for X & XI Plan.
• Total Outlay for X & XI Plan projects: Capital subsidy of INR 39000 Crore.
• In order to rationalize the tariff in all states, Ministry of Power made a reference to APTEL regarding filing of Annual Tariff revision petition in time by State Distribution utilities. APTEL in its order in 2011, has asked for periodic revision of tariffs by SERCs on suo moto basis. All SERCs have revised tariff in 2012-2013.

Promotion of  Efficient and Environmentally Benign Policies

• Improved availability and efficiency through successive regulations by CERC.
• Improved reliability and power supply through grid code regulations and Unscheduled Interchange mechanism.
• Introduction of point of connection tariff regulation in transmission for removal of regional cascading of transmission charges and for providing level playing field for all generators.
• Renewable Purchase Obligations fixed by all SERCs.
• CERC have notified Renewable Energy Certificate regulation and tariff regulations for renewable energy sources.
• Tariff Policy amended to provide for solar specific minimum purchase obligation of 3% by 2022 in accordance with National Solar Mission Strategy.
• Generation capacity has gone up from 3.5 GW in 2002 to 25 GW in 2012.

With so many issues addressed by the EA-2003, there still persist many issues and challenges in the power sector. These issues include Grid security, Financial viability of distribution licensees and high AT&C losses, Robust implementation of Open Access and Promotion of competition in distribution & retail sector, Accountability of Regulators and regular filling up of vacancies in Regulatory Commissions. Reviews help us understand the status of existing scenario and help us plan for necessary amendments in the act to address the issues and challenges.

Source: Cerebral Business Research Pvt. Ltd.

The Mega Power Policy was introduced in November 1995 for providing impetus to development of large size power projects in the country and deriving benefit from economies of scale and quick capacity addition. Under Mega policy, fiscal benefits in the form of zero duty imports, income tax waiver etc. are extended to the certified Mega power projects.

The Mega Power Policy was amended in 2009 to make it liberal and operationally more effective. Amended Mega Policy allowed the developers to tie up all power to even one state and as per National Electricity Policy they could also sell power upto 15% outside the long term PPA. Thus, the policy stipulates that the private power companies must tie up only 85% of power of the plant with Discoms / State designated agencies through tariff based competitive bidding.

Based on the representation from the industry that there has been delays in signing of PPA through competitive bidding (which is mandatory for grant of mega power status), MoP in consultation with Department of Revenue, issued guidelines for issuance of Provisional Mega Certificate where the projects undertake to sign long term PPA of at least 85% of plant capacity within 36 months from the date of issuance of such Provisional Mega certificate, to enable the developers to continue with the execution of the project and tie up PPAs in that three year period with an undertaking to that effect backed by bank guarantee.

Developers have also represented that even if they commissions the plant they are unable to get the benefits of Mega Policy as they are unable to tie up 85% power through competitive bidding because not many States are calling bids for procurement of power and some of them are taking too long for finalizing the bids that are received. The developers have requested that any power project tying up the long term PPA of their part capacity be given Mega benefits proportionately. In other words, if any developer is able to achieve less than 85% power tie up, they can be extended mega benefits in the proportion of the tied up PPA.

The salient features of the Mega Power Projects is minimum plant capacity size of 1000 MW for Thermal Power Project in normal areas and of 700 MW for North Eastern States and J&K. So the mega benefits cannot be extended unless the projects achieve this threshold capacity of commissioning as they would fail to meet the definition of Mega Projects as per the Mega Power Policy.

It is proposed to extend the Mega Policy benefits in proportion to the extent of signed PPAs as provided in Tariff Policy 2006 once the threshold capacity of the Provisional Mega project gets commissioned and also extend the time period for Provisional Mega projects to get final Mega Status from the present 36 months to 60 months as adequate bids were not forthcoming from Discoms for procurement of power.

It was recently approved by the cabinet that Custom Duty @5%, CVD @12% (as applicable and equal to  excise duty on domestic industry from time to time) & SAD @  4% to  be uniformly applicable to the imported equipments of all categories of Power generation projects, viz., Mega Power Projects (including  UMPPs) and non-Mega Power Projects. All projects certified as mega power project and provisional mega projects before the date of Cabinet decision will be exempted from the duty structure proposed in the above and they will continue to get all the benefits available under Mega Power Policy.

With the above decision, at present only provisional Mega projects are to be given final Mega certificates and no new power project can be accorded Mega Status.  Thus the duty free imports of equipments are no longer available to any new power project except certified mega projects and provisional Mega projects.

This decision was arrived based on the following:
To avail the benefits under Mega Policy, the developer must tie up at least 65% of installed capacity/ net capacity through competitive bidding and up to 35% of installed capacity/ net capacity under regulated tariff as per specific host state policy and approved by the respective regulators under long term PPA with Discoms / State designated Agency. This dispensation would be one time and limited to the 15 projects which are located in the States having mandatory host State power tie up policy of PPAs under regulated tariff.

Allow propotional Mega policy benefit to the developer (25 projects) in proportion of the long term PPAs tied up as permitted under the Mega Power Policy, once the threshold capacity of the projects gets commissioned.

Extend the maximum time period to 60 months instead of 36 months from the date of Importation for provisional Mega projects (25 projects), for furnishing the final Mega certificates to the Tax authorities.

Source: Cerebral Business research Pvt. Ltd.

Source: Cerebral Business Research Pvt. Ltd.