Lighting the way
Reforms to make the power production sector in India more competitive will drive a variety of related changes benefitting the masses
The Indian economy has reached USD 2.7 trillion at present. In the interim Budget of 2019-20 presented in February 2019, the Government gave a vision for the decade and flagged there are ten important aspects of their vision laid before us. The most important aspect was building physical and social infrastructure. The new target set in the full Union Budget by finance minister Nirmala Sitharaman is to reach the USD 5 trillion mark in the next few years. Thus maintaining the same tempo, Union Budget 2019 further emphasised the infrastructure sector. Big bang reform proposed for the power sector is set to act as a successful model in ensuring power connectivity that will ensure power availability to states at affordable rates. Measures like one nation-one grid and creating green infrastructure along with affordable housing can transform lives. The Finance minister said the much-needed power reforms such as the power tariff reform should be taken up soon. A discussion paper on 'Re-Designing the real-time Electricity Markets (RTM) in India' was proposed by the Central Electricity Regulatory Commission (CERC) and invited comments/suggestions. In response to the new proposal, 21 stakeholders including POSOCO, Power Exchanges, Trading Licenses, IPPs, State Utilities, State LDCs, Generators and Consultancies submitted their comments. The proposed Real-Time Market (RTM) would not only provide discoms with an alternate mechanism to access a larger market at competitive prices but would also allow the generators to participate in the RTM with their un-requisitioned capacity. This will definitely ensure the procurement of electricity by the masses at an affordable tariff. As a step towards creating a market platform for the trade of energy closer to the delivery of power in real-time, a framework for real-time market for electricity is already proposed and a public notice (No. RA-14026(11)/2/2018/CERC) issued by CERC on August 6, 2019, to finalise formation of the real-time market.
The recommendations of the High-Level Empowered Committee (HLEC) on the retirement of old and inefficient plants and addressing low utilisation of gas plant capacity due to paucity of natural Gas will also be taken up for implementation now.
Sitharaman said the government is examining performance of the Ujwal Discom Assurance Yojana (Uday) and it will be improved. The Government launched Ujjwal DISCOM Assurance Yojana (UDAY) in 2015 aimed at financial and operational turnaround of DISCOMs. Uday has faced criticism owing to rising debt and the various recorded overdues of the discoms. The gap between the average cost of supply and revenue recovery reduced from 59 paise at the beginning of Uday to 17 paise in FY18. However, the revenue gap widened in nine months of FY19 to 35 paise, from 26 paise one year ago, on higher coal and freight charges, lesser subsidy disbursement by states and ineffective tariff hikes by regulators. It may be mentioned that DISCOMs are now beset with huge debt burdens, at present an amount of Rs 72,862 crores and the Power ministry very recently has proposed special credit scheme for DISCOMs to pay back debt burden to generators on easy terms. The central government will work with the State Governments to remove barriers like cross-subsidy surcharges, undesirable duties on open access sales or captive generation for industrial and other bulk power consumers. Besides these structural reforms, considerable reforms are needed in tariff policy. A package of power sector tariff and structural reforms would soon be announced.
Large public infrastructure can be built on land parcels held by Central Ministries and Central Public Sector Enterprises all across the country. Through innovative instruments such as joint development and concession, public infrastructure will be taken up.
The key difference between an integrated market and an exchange-based market is in terms of how the unit commitment and dispatch processes take place and the extent to which the decisions are centrally coordinated. Both the integrated markets and exchange-based markets rely on day-ahead and real-time markets. The day-ahead market typically clears at about midday on the day before the operating day in question. In both these markets, market players use forecasts of demand and supply conditions on an operating day to provide market participants with day-ahead schedules and corresponding prices. Continuous trading implements a pay-as-bid matching algorithm. In uniform pricing as followed in the integrated markets of US, auction participants receive the market-clearing price so that the optimal strategy in competitive environments is to bid at marginal cost. In comparison, the pay-as-bid scheme used for continuous trading implies that market participants have to anticipate the clearing price and accordingly mark up their bids.
India has unique characteristics of variation in demand pattern in the different regions due to its climatic and socio-cultural diversity. This diversity in the demand pattern can be utilised effectively with national level organised market given the fact that electricity is more difficult and expensive to store. With National level organised market, the possibility of resource optimisation across regions to take advantage of cheap resources would increase significantly thereby benefiting the masses.
Given the constraints in the existing market and system operation and the challenges facing energy imbalance in real-time, it is high time the country brought about changes in the market design in the real-time segment. Subba Rao Amarthaluru, Executive Director, Finance & Strategy at CLP India, said, "The announcement of pursuing a 'One Nation One Grid' concept is a positive move and will prove beneficial in achieving the government's goal of power for all by 2020. Government's move to focus on driving structural reforms in the power sector is commendable and will definitely help in propelling the sector towards the path of growth. This will fuel investments and address the issues concerning stressed power plants." Thus, the solution to the existing problems of the power sector lies in the way forward of a competitive market model for power sector via the real-time market.
Dr Hiranmoy Roy is HoD and Associate Professor, Department of Economics and International Business, UPES, Dehradun. Views expressed are strictly personal