The power sector in India will undergo big reforms that will change the face of domestic electricity market, make it more responsive and reduce cost for distribution utilities as well as consumers through intense competition. The power ministry has set up an expert group headed by special secretary in the ministry to chart a course for “deepening of power markets in India”. Simultaneously, the ministry has also appointed consultants EY (Ernst & Young) to suggest ways to bring alive the power market by identifying the voids in the current system.
The reforms, potentially the biggest since the enactment of the Electricity Act of 2003, has been initiated as part of power minister R K Singh’s efforts to lay a roadmap for a thriving domestic power market by 2030 to ensure the Narendra Modi government’s objective of providing 24X7 affordable and quality power.
“We are going to bring about a wholesale change the way we approach the power market. The idea is to make the sector more responsive and viable so that investments can come. Make it accountable to consumers on quality of service. Giving rights to consumers. Deepening of market is to create competition and encourage efficiency and flexibility,” Singh said, confirming the ministry’s move.
The broad contours of the current exercise revolve around encouraging discoms to buy bulk of the power through trading platforms, just like in developed markets such as Europe. This will bring about several changes down the value chain.
Generators will optimise their capacity and source - coal, hydel, renewables and compete to offer lower tariffs. This will reduce the cost of power purchase for discoms, which will have to manage the demand-supply slate more efficiently and be nimble enough to be able to tie up cheaper power when on offer. Trading is also expected to address the issue of delayed payments to generators by discoms, improving viability in the sector.
Most of the building blocks for this phase of reforms are already there: India is near-surplus in generation capacity and has a decade of operating power exchanges. Utilities and generators were given flexibility to use their coal linkages at more efficient plants. Recently, Singh allowed flexibility to generators to supply from any plant of their choice instead of the plant designated in a PPA (power purchase agreement). To ensure timely payment to generators, he used PPA provisions to introduce a pre-paid system for discoms.
On the consumer side, pre-paid meters are being rolled out. There is plan for introducing time-of-the-day tariff and open access for large consumers by separating carriage and content. Large-scale trading will bring all these together to turn India into a viable, thriving power market.