A decade of Electricity Act generation scores but distribution a laggard

In June 2003 when the Electricity Act was notified, power sector reforms were set into motion but a decade of the new policy regime has seen dramatic changes on the generation side though transmission and distribution reforms leave much to be desired. Private sector now contributes 30% to the installed generation capacity in the country, leaving behind even the Central sector power generators that held three times the generation capacity a decade back.

Though the challenge of fuel supply and unutilised generation capacity have cast their shadow on the sector, it is expected that with new projects coming up, the private sector would constitute half of the generation capacity by 2017. 'De-licensing of generation and mandatory competitive bidding for power procurement attracted wide private participation, inflow of capital, and set new benchmarks for efficient project development,' says Kameswara Rao, Executive Director – Energy, Utilities, and Mining, PricewaterhouseCoopers.

Rao says the tariff-based bidding format has proved to be quite robust for most cases, and its success must be seen in conjunction with the state’s ability to deliver its promises of fuel supply, consents, etc. The model, however, has come in for questioning with bidders unable to build in the fuel risks that are now coming to the forefront. 'It has faced a challenge only with imported coal projects where overseas developments were outside the normal ability of business to anticipate. We must not let the specific challenges kill an otherwise robust model.'

According to Pramod Deo, former chairman, Central Electricity Regulatory Commission, power trading is another important product of the new policy regime. 'Today, we have 11% electricity being sold in the in the short-term market through trading and power exchanges. This has been made possible due to high capacity transmission highways,' says Deo.

Though generation and trading saw the biggest impact of the path breaking legislation, distribution reforms need much to be desired. Deo believes the biggest challenge that the legislation was to have addressed remains in the form of open access which is still not available to consumers. Open access in distribution and transmission of power was provided in the Electricity

Act 2003. However, one of the hurdles in implementing it has been the cross subsidy surcharge imposed by the state on open access consumers to compensate for the revenue loss by high paying industrial consumers switching to open access. This reduces the competitive advantage offered by open access, says Deo. 'Unlike telecom, competition does not give choice to consumers to switch to other distribution companies. Law envisaged that the subsidy will be eliminated but this did not happen.'

To address the issue of open access, the government is now working on an amendment to the Act. 'Open access will permit a consumer in any part of the country select supplier of his choice, and a fixed payment for cross-subsidy surcharge to discoms will avoid the regulatory uncertainty that participants today suffer. This competition will attract new supply, and ensure tariffs remain competitive,' says Rao.

A surprising number of reforms initiated by the 2003 Act are successful. Structural reforms through unbundling of state electricity boards and setting up of independent regulators are now in place in most states. Transmission open access and distribution franchisees, both new features, are also well established. Though the Electricity Act is regarded as a good piece of legislation, its implementation falls in the realm of political economy and as Deo points out unless those decisions are taken by the state, the purpose for which the Act was enacted would not be served. Till then the gap between the objectives and achievements will continue.

Total installed capacity in MW

	2013	2003
State	89,092

63,068 Private 71,088 11,650 Central 65,612 32,8105 Total 225,792 107,533
Source: Central Electricity Authority