Need to create a sustainable ecosystem for energy sector in India

All of this is great news but the rush of capital puts tremendous stress on the creaky power infrastructure in India and it becomes imperative that the government & industry take immediate steps to correct the wrongs. A reduce-encourage-deregulate policy towards power generation can form the 3 pillars of supporting Indian manufacturing industry with cheap and readily available power.  

Reduce consumption

A kilowatt-hour saved is a kilowatt hour generated. Therefore, provide energy savings based tax benefits that encourage the use of power-efficient electronic gadgets such as 5-star air conditioners, LED lights, etc. Many programs are already in place but the methodology to get the benefits promote the use of cheap systems that provide the tax benefits but the benefit to the environment is not being measured. 

Secondly encourage the use of IoT systems that can automatically turn on or off lights, fans, air conditioning systems but extend the scope to include start-ups that provide management of specialised equipment like diesel generators, machines on the factory floor, etc. The IoT management of specialised equipment gives a clear picture of the performance of that equipment and serves as an early warning system for equipment that requires repair or maintenance thus ensuring that the equipment stays up in its best performing state and doesn't consume excess power. 

An added incentive in focussing on IoT systems is that it would inspire private investment in the IoT space which is the need of the hour. 

Encourage self-generation

The rooftop solar programs in most states are stuck due to convoluted policies that discourage those consumers that want to buy power from renewable sources. In fact, the administration in many stages makes it difficult for large factories to invest and setup roof-top solar plants on their own properties and they reduce the size of the projects that can be put up on one's property! 

When you consider that Indian discoms (electricity distribution companies) glaring loss of over 20 percent of generated power in transmission to customers, a customer generating their own power makes logical sense! Any customers that can power more than their own requirement should be rewarded because that same power can be supplied to customers connected at the self-generating customers' substation - it would save some discoms (like the ones in UP) almost 50 percent of the power they lose in transmission!  

The central and state governments can provide a single window clearance for roof-top solar projects and remove caps on the size of the projects that are put up and in fact encourage the projects to be as large as possible as each kWh generated will be consumed locally reducing transmission losses. 

Excess power generated by the rooftop solar plants should be compensated at the same price at which that power is charged by the discom and in addition, funds can be earmarked in state & central budgets that provide generation-based incentives for rooftop solar generating plants which are (most importantly) paid on time. 

Rooftop solar projects have the potential to solve the many problems with power generation, delivery and pricing but they are shackled by the vested interests of the incumbent players owned by the government. Therefore another measure which is a necessity right now is deregulation.

Deregulation: Give the power to choose to the consumers

In the current power setup, a government-owned discom buys power from government & privately owned power projects and then delivers almost 40 percent the power bought at cheap or nil rates to agricultural & BPL customers. To compensate for the losses hefty prices are charged to residential and commercial customers. This Robinhood system has led to an exodus of ultra-large consumers of power who prefer setting up their own captive power projects to avoid paying the costs of free power to agri & BPL customers thereby increasing the burden on the highest paying customers. 

Government owned entities become bloated with excess staff and traditionally they are slow in adapting to the rapid changes of an evolving market and prone to massive corruption. This has led to discoms running up massive accumulated losses and loans that they cannot payback and state owned energy companies that generate power at much higher than market rates. The government has had to rescue the discoms from the brink of collapse for the second time in this millennium through the UDAY scheme but if drastic changes aren't made today there will not be any ‘Uday’ at the end of this tunnel. 

I recommend that all government-owned power generation assets are sold in an online auction. Then let consumers buy their own power directly from power generators or power aggregators and privatise discoms and reduce their role to just the delivery of power, ie they create the infrastructure to get a kwh from a generator to a consumer. 

Limit the amount of subsidy that an agricultural or BPL customer will get for their power to a rupee amount thereby forcing them to choose the lowest cost of power. 

Other measures that could help be credit the subsidy directly into the bank accounts of those that are eligible for the subsidy, by ensuring the power suppliers are paid in full amounts and remain profitable. Give fleeting powers to the state ERCs to penalise power suppliers, discoms and consumers that engage in fraudulent activities with massive financial & criminal penalties also would work in this case. Lastly, allow long-term trading of power through exchanges like IEX.

All in all, by removing the government from the role of a monopolistic entrepreneur to a strong governor of the free market (with a steel rod) gives the massive Indian power market the impetus to provide power at competitive rates and make it available 24/7. 

To sum up, to create a sustainable ecosystem for manufacturing in India, the government really needs to reform their policies and the way they operate in the energy space, particularly the renewable energy space. India has a lot of potential in the renewable energy space as it is still at its infancy and needs better and structured government policies to realise its maximum potential. 

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Anirudh Damani is partner of Artha Energy Resources