Power problems

Deeper reforms remain difficult

Two recent reforms with the potential to reshape India’s electricity market could founder on the age-old problems of legacy issues and regulatory overreach. The two concepts the power ministry has introduced are “time of the day” (ToD) tariffs and market coupling. The ToD concept aims to incentivise customers to synchronise usage with peak and off-peak hours and encourage the use of renewable power. Although the ToD tariffs have been left to the state electricity regulators to set, the power ministry has stipulated that solar power be supplied at a 20 per cent discount to the regular tariff. The hurdle to this progressive scheme is that ToD can be introduced only if consumers have installed smart meters. The Centre has offered subsidies to states to install these meters, reserving Rs 10,000 crore from the Rs 3.03 trillion Revamped Distribution Sector Scheme (RDSS) for this purpose. This was also a priority of the RDSS’ predecessor scheme, Ujwal Discom Assurance Yojana (UDAY). But the challenges are enormous: The Centre has set a target of installing 250 million smart meters by 2025; the coverage so far has been a little over six million.

Stalling this process is the fact that smart metering demands a significant upgrade in crumbling back-end infrastructure, which indebted state distribution companies (discoms) lack the funds to undertake. Discoms’ chronic losses are the result of embedded political compulsions for state governments to offer power free of cost or at significantly subsidised rates to targeted consumer groups. These impulses have become so popular that, today, 27 of India’s 36 states and Union Territories offer power subsidies to consumers. The consequences of selling power below cost have created vicious circles of negligible investment in infrastructure, leading to the poor quality and frequency of electricity supply and permanent discom indebtedness.

Market coupling has become a contentious issue because of the government’s reluctance to fully liberalise power trading. It refers to the process by which all bids by power exchanges are matched to discover uniform clearing prices for “day ahead markets” (DAM) and “real-time markets” (RTM) via a single market coupling operator. This move would entail merging the bids of private power trading platforms operated by the India Energy Exchange (IEX), Power Exchange of India Ltd (PXIL), and Hindustan Power Exchange. These platforms act as intermediaries between generators and discoms, and industrial and commercial consumers, and offer a variety of products such as term-ahead, renewable energy certificates, and so on. The IEX and PXIL are dominant in several segments. They have contended that market coupling would vitiate price discovery and reduce exchanges to mere “post offices” for bid collection.

Although consultations were underway, the government went ahead last week and ordered the Central Electricity Regulatory Commission to initiate the process. No surprise, the share prices of the private platforms slumped. To be sure, there are widely differing views on the virtues or otherwise of market coupling, depending on which side of the equation the stakeholder lies. The power ministry has contended that power trading on different platforms has prevented the optimum use of the (state-owned) transmission network. It is clear that this complex issue demanded full consultation rather than what appears to be a hasty decision that could disrupt private investment in a key infrastructure industry.