Revival of Power

Revival Strategies for Indian Power Sector

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India being fifth largest energy consumer in the world is rising high in terms of installed capacity (207 GW,Source : CEA as on 11.Nov.2012). Much progress is evident in Infrastructure,Telecom but things in power sector is not going as per the planning done by our GoI and MoP and thus India’s economic growth is at risk. Inspite of  having so many reforms and policies,Indian power sector is grappling with “Cancer” and it requires some sheer reforms that will ultimately lift it to more sustainable position. Some of recent reforms/policies that have jolted Indian power sector in recent times can be summarised as below:

  1. Competitive Bidding of Captive Coal Blocks: Competitive Bidding Mines Rules,2012(http://www.coal.nic.in/100212.pdf) has been notified in Feb,2012 and according to which Captive coal blocks will be allotted on the basis of competitive bidding to the power plant developers.After the recent COAL SCAM(http://en.wikipedia.org/wiki/Indian_coal_allocation_scam) there was a lot of hue and cry about the allotment of coal mines to non serious players in the Indian power market.Almost each and every bidder has earned a windfall gain through the Coal Scam. According to the recent Competitive Bidding guidelines, Coal will now be allocated to companies in specific end use sectors(excluding power companies) through an auction under which two part bids would be invited over a floor price.For power companies, the respective state will select a developer on the basis of competitive tariff bids and recommend coal block allocation. Moreover power companies are required to pay the reserve price fixed by state government for such coal blocks.
  2.  Approval of draft of MMDR(Mines and Minerals(Development and Regulations) Bill,2011: Another much awaited bill is the MMDR Bill(http://pib.nic.in/archieve/others/2011/sep/d2011093002.pdf) which has been approved by the cabinet in Sep,2011.It will be enacted after getting approval from President as well as Parliament.The bill provides a strong legislative environment for socio- economic conditions of the mining areas and the people which are effected  by the same.The core of bill is a provision that mandates coal mining lease holders to contribute 20% of their Post tax profits( PAT -It is the net profit earned by the company after deducting all expenses like interest, depreciation and tax.PAT can be fully retained by a company to be used in the business. However dividend is paid to the share holders from this residue.) to a distinct mineral fund,which will be used to meet social compensation obligations.With the advent of this policy,it might make a dent to the profits of CIL,SCCL and they can take a harsh step of increasing the coal prices which will affect the developers and consumers at last.
  3. Revision of Royalty Rates: Another significant aspect that occurred in recent times is the revision of Royalty rates in which there is an increase of 14% ad valorem and 6% advalorem on coal,lignite respectively.(http://pib.nic.in/newsite/erelease.aspx?relid=82191)
  4. Exemption of Import Duty on thermal Coal:  The finance Bill that has been passed by Parliament enforces the exemption of  5% basic customs duty and 1% Countervailing duty  on thermal coal imports for indefinite time.This is major step in favour of major coal importers as well as power plant developers.Moreover,ECB has been allowed in case of Indian power sector which will be used to part finance the rupees based debt of power plant projects.
  5. Presidential Decree to CIL:  A presidential decree has been issued to CIL for supplying coal to power generating companies under the terms and conditions of FSA.
  6. Revision of Standard Bidding Documents: In the generation side, There has been a major revision in case of Case 1 and Case 2 Bidding Documents in lieu of competitive bidding.MoP has also issued drafts related to UMPP Power projects and these aimed at more stringent bidding process with higher performance guarantees and other eligibility norms.Only core sectors companies can participate in bidding process and company can’t have more than 3 UMPPs in the pre commissioning stage.CERC has been made a regulatory body to intervene in the cases related to PPAs.
  7. Issue of Guidelines for Short Term Market: MoP released a notice of guidelines related to comptetive bidding in short term power market(accounts for 10% of the total electricity generated in the market).
  8. Imposition of Import Duty on Power Equipment:  Union cabinet approved the request of imposing 21 % import duty on the power plant equipment. The move has been taken to restrict the cheaper equipment that are being used in the Indian power scenario thereby hampering the growth of Indian manufacturing industries which are still struggling to develop the power plant.
  9. Steps in Renewable Sector: A major step taken in Renewable sector is the withdrawal of Accelerated Depreciation and GBI i.e Generation Based Incentives (http://www.eai.in/debate/scrapping-of-the-accelerated-depreciation-incentive-for-wind-projects). This move will led to low capacity additions in the coming years & it has been speculated that MNRE will reintroduce incentives in the 12th plan.
  10. Regulatory Initiatives: CERC has played major role in the past year in formulating various key policies especially related to transmission and distribution sector i.e tightening of frequency band from 49.5 – 50.2 to 49.7 – 50.2 Hz. This has been primarily done to increase grid security in more stricter manner (under Electricity Grid Code 2010)
  11. Ensuring Timely tariff revision: In Nov 2011,APTEL (Aplleete Tribunal) passed a landmark judgement regarding timely revision of tariffs by state DISCOMs.SERCs(StateElectricity Regulatory Comissions) has been directed to issue suo moto proceedings for tariff determination within a month of scehduled tariff petition.In June 2010,GERC became the first commission to implement APTEL’s order.
  12. Implementation of Open Access: In Nov 2011,MoP announced all consumers to be eligible for Open Access who have their load more than 1 MW.Moreover state regulators have jurisdiction over fixing of energy charges for these consumers. Inspite of these efforts, there is a need to take strict steps to implement it as in some cases like Odisha they are trying to suppress it by Sec 11 of EA 2003.
  13. Renewable Energy Regulations: Renewable Energy Regulations has been made effective from 1st,April 2012 for five years.It lays down the guidelines for tariff determination and moreover the floor prices, forbearance prices have been revised. Forbearance Price of Non Solar RECs Rs 3300/MWh & Floor Price as Rs 1500/MWh(Solar RECs).

So, a bunch of steps have been taken to revive the Indian Power Sector but the Sector requires strong implementation strategy which will ultimately make India from Power deficit nation to power surplus nation.

References: PowerLine Magazine,Govt. sites like MoC,MoP etc