Saubhagya scheme: Fluctuations in the 'power for all' target

Why the government's intention to supply all households in the country with 24x7 power by March 2019 appears ambitious

In September, Prime Minister Narendra Modi announced the Pradhan Mantri Sahaj Bijli Har Ghar Yojana-Saubhagya, promising electricity for all households by March 2019. The scheme, which has been allocated Rs 16, 320 crore, aims to provide all urban and rural households with 24X7 power in less than two years. This is a compelling promise as the general elections draw near. But is it possible?

Industry experts and officials agree with the intent since some 240 million Indians currently have no access to electricity, but suggest the target is ambitious.

The upside of this scheme is that it appears to offer a solution to the “stranded assets crisis” bedevilling the power sector — the 40,000 Mw of thermal power capacities that currently lie idle either for lack of fuel supply (mainly coal) or because power purchase agreements (PPAs) with discoms have not been signed. With an 8.8 power surplus and a peaking surplus of 6.8 per cent for the current financial year, according to data provided by the Central Electricity Authority (CEA), the possibility of these stranded assets going on stream anytime soon appeared remote. 

So, the “power for all” target could encourage discoms to sign PPAs to meet the obligations under this scheme. Ankur Agarwal, senior analyst with India Ratings, points out that these PPAs will be particularly beneficial because they typically involve the discom paying the generator fixed charges, even when it is not procuring power, ensuring the power plant some income stability. “Though, we do not expect PPAs in the range of 25 years for thermal power plants, PPAs for seven to 10 years are likely to be signed,” he added.

SOURCE: Parliament Questions

Such PPAs would undeniably be a new lifeline for these stranded assets but much is contingent on demand. “Some 47,000 Mw of power generation capacity is under construction but for achieving power for all only 6000 Mw is required that too after retiring plants with 21,000 Mw capacity,” said Pankaj Batra, member, CEA. “Unless power demand revives through economic activity and higher consumption, the sector may not see avenues for further capacity additions,” explained an analyst who requested anonymity. “One can hope once there is electricity supply for all, consumers are encouraged to use more electricity as well,” he added.

This broad picture also masks state-wise differences that could add complexities to meeting the target. CEA data shows that eight states and union territories have a net energy deficit annually and 27 states/Union territories have a net energy surplus. This imbalance is not limited to power generation. Each state grapples with unique sets of issues in making “power for all” a reality. For say, Uttar Pradesh to achieve the target the state will have to execute and improve operations by eight times of what it has achieved in the past, says Vivek Sharma, senior director, Crisil Infrastructure Advisory.

Most agree that “power for all” may be possible in a few states that are strong financially and are well placed to procure and supply electricity—Maharashtra and Gujarat being good examples.

Another big question concerns the government’s commitment to supply free power to all poor households, as identified under the 2011 socio-economic and caste census. This provision comes up against the Ujwal Discom Assurance Yojana (UDAY), the scheme launched in 2015 to help loss-making discoms turn around with the help from their state governments. Under UDAY, the states take on three-fourth of discom debt, issuing bonds to banks and financial institutions to raise money to pay it off. In return for this bailout, discoms have to meet various efficiency parameters, chief among them being raising tariffs for electricity supplied to certain groups (like farmers).    

Interest obligations on these UDAY bonds will start from 2018, which means states will need to strike a fine balance between their commitments under UDAY scheme and the “power for all” target. “The target also faces challenges, including the fiscal health of certain states, that will become a constraint in raising money for augmenting and strengthening the system. In addition, meeting these targets would mean more power supplied to segments that are heavily subsidised, this in turn could hinder the UDAY scheme’s target for profitability,” Crisil Infrastructure’s Sharma points out. “Therefore, there is a lack of incentive to supply 24x7 power to all unless and until tariffs are increased or subsidies are more targeted through direct benefits transfers,” Sharma added.

Some analysts fear that a move to supply electricity to all, may translate into burdening those customers who pay full tariffs. “Until this is addressed, supplying electricity to the non-paying consumer would burden the paying consumer,” said VP Raja, former chairman of Maharashtra Electricity Regulatory Commission. Procuring more power and supplying it at subsidised rates could mean charging customers in the higher slab more to recover cost. In Madhya Pradesh, for instance, agriculture and irrigation use of power was subsidised to the extent of Rs 1,750 crore in 2014-15, according to a PwC analysis. 

After chairing a meeting of state power ministers on December 7, Union Power Minister RK Singh said the Centre and the states have agreed on a comprehensive range of measures, including pre-paid metering and zero power cuts to meet the “power for all” obligations. Many are sceptical because this is not the first time New Delhi has spoken of such targets. But each time, these intentions flounder on last-mile connectivity, as the prime minister discovered after declaring the village of Nagla Fatela to be fully electrified in his 2016 Independence Day address. 

MERC’s Raja explained that many villages face issues concerning poor maintenance of transformers and unexpected load on the transformers, leading to unreliable power supply. “Earlier transmission planning was based only on evacuation of power, but later it dawned on the authorities there was a need for surplus transmission capacity. If a line collapses, there needs to be another line to evacuate power, which is the case in a city like Mumbai,” he said.

Besides, the proposal to penalise discoms for power outages may also be tough, since it will be difficult to establish whether the outage was the result of a technical glitch or an intended event, Agarwal from India Ratings points out. CRISIL Infrastructure suggests 2021-22 may be more realistic target for 24x7 electricity, but the political compulsions for such a challenging target will be weaker then.