Anation that can’t control its energy sources can’t control its future.
While we sit in a room full of bright LED- lights with more than enough fans, overcharging our gadgets there are still 23 million households in India without access to electricity. Their nights are literally dark. Even though being the world’s third-largest producer as well as third-largest consumer of electricity India is facing a severe problem. This is possibly due to various reasons like absence of coal supply, absence of long haul power purchase agreements, the
inability of promoters to infuse the equity, and inordinate delays in regulatory orders and receivables from distribution companies added to the hardships of the energy market in the country.
The framework for electricity sector in India is governed majorly by Electricity Act, 2003. This act was enacted with an aim to consolidate the laws relating to trading, generation, transmission, distribution and use of electricity. This act takes measures conducive to development of electricity industry, promoting competition therein, protecting interest of consumers and supply of electricity to all areas, rationalization of electricity tariff, ensuring transparent policies regarding subsidies, promotion of efficient and environmentally benign policie. Under its ambit Central Electricity
Authority, Regulatory Commissions and Appellate Tribunal and for matters connected therewith or incidental thereto are also establish.
Now that we are in the year 2021, it is to note that the Electricity sector has not been able to score complete results it has set out to i.e. affordable, economical power, and transparency in pricing. There has been substantial addition to
generating capacity and considerable progress of electrification through direct investments, public-private partnerships, and market development.
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Critical issues of the Act
ELECTRICITY LAWS IN INDIA: TRENDS AND CHALLENGES
(i) Irregularities and tardiness in tariff filings – it has been report that DISCOMs in 12 out of the 29 states have not filed tariff petitions for FY2020. This has led to substantial non-revision of their tariff.[1]
(ii) Losses faced by distribution companies (DISCOMs) – Discoms reported a near doubling of their financial losses in FY19 to Rs 27,000 crore; and, the discom losses in FY20 is estimate to be around Rs 30,000 crore.[2]
(iii) Dues to power producers – Owing to their financial distress, discoms have been failing to pay power producers on time. As of February, 2020, discoms record over dues to power producers to the quantum of Rs. 80,387 crore.[3] Additionally, there have been recurring instances of power purchase agreements (PPAs) not being honoured. Eg. Madhya Pradesh Power Management Co had cancelled a PPA signed in 2015 for two 50 megawatt (MW) projects. Most recently, the Andhra Pradesh government had made controversial attempts to renegotiate clean energy tariffs for 140 power plants. Some cases of renegotiation of PPAs have also been sees in Uttar Pradesh and Karnataka. These cases can be attribute to the lack of regulatory enforcement of contracts by SERCs. [4]
NEW AMENDMENTS TO THE ACT
ELECTRICITY LAWS IN INDIA: TRENDS AND CHALLENGES
It has been observed that few provisions of the Act are unable to enhance or add with the rapid development of the electricity sector. Therefore, to bridge the gaps in the prevailing statutory paradigm and ensure sustainable growth in
the sector, it has been thought necessary to further amend the Electricity Act 2003 so Electricity (Amendment) Bill, 2020 (“Amendment“) was introduce by the Ministry of Power, Government of India on April 17, 2020. The key highlights of the bill are as follows
(I) Enforcement of contracts
Under the Electricity Act presently, there is no particular provision to touch upon the problems arising in regard to power purchase agreements (“PPAs”). To seek better regulation and adherence to executed PPAs, the Amendment envisages creation of an Electricity Contract Enforcement Authority (“Enforcement Authority”) to supervise the
fulfilment of contractual obligations under a PPA between a generating company/ power producer and a distribution/ transmission licensee or between licensees.
The Enforcement Authority will have the powers of a civil court of arrest, attachment of property including executing
its orders as a decree of a civil court and will be headed by a retired judge of the High Court. This is intend to inculcate discipline to honour the executed PPAs in their true spirit.
(II) National Renewable Energy Policy
The Amendment contemplates a national renewable energy policy to promote renewable energy, particularly solar and hydro power. It proposes a minimum percentage of purchase of electricity from renewable sources, with special attention to hydro power. This is at present left primarily to various State Governments upon their own initiatives. Additionally, a National Renewable and Grid Integration Policy which seeks to improve planning, create an ancillary services market, build short and long-term forecasting capacity, and drive coordinated investments across generation,
transmission and distribution is also contemplate in the Amendment
(III) Cost reflective tariff
The Electricity Act permit the SERCs to determine tariff after receipt of subsidies, but there was no provision for fixation of tariff with ‘fair cost’. The tariff so determine was therefore not ‘cost reflective’ and as a result, contribute to the weakening of the financial health of power distribution companies (“Discoms”). Under the Amendment, it is proposed that the tariff should be ‘cost reflective’, i.e. reflect the cost of the supply of electricity and that the retail tariff
should reflect the actual cost or fair cost of the power which is to be supplied, in order to ensure financial health of the Discoms.
(IV) Subsidy
Under Section 65 of the Electricity Act, a State Government is require to pay subsidy in advance to the Discoms, resulting in lower tariffs for Discoms and the customers, therefore, could indirectly benefit through the reduce price of power supply by the Discoms. The Amendment proposes that the subsidy shall now be transfer directly into
the account of the consumers, through direct benefit transfer. The impact is that Direct Benefit Transfer (DBT) should generate transparency and accountability for State Governments, and the subsidy will reach the people who are
entitled to it. Discoms would benefit as the subsidy component of the tariff would be directly transfer to the consumer, and improve their revenue streams.
(V) Powers to Load Dispatch Centres
It is propose to empower State Load Dispatch Centres so as they may oversee the payment security mechanisms as
per contracts, prior to dispatch of electricity. This is intend to address the major issue of non-payments and delay in
payments, which is impacting health of Discoms and also results in increased non-performing assets.
(VI) Privatization in power distribution
The Amendment contemplates that a franchisee of a distribution licensee (i.e. a person through whom the distribution licensee desires to supply power in its specify area of supply) shall not be required to obtain any separate license for
such operation from the relevant SERC and such distribution licensee shall continue to remain responsible for
distribution of electricity in its area of supply. While the Electricity Act already encourages the participation of the
private sector in power generation, transmission and distribution will greatly benefit from increased private investment.
(VII) Increased penalties
Penalties under Section 142 of the Electricity Act in relation to non-compliance with the rules/ regulations of the Electricity Act and/or orders or directions of the relevant SERC have been increase to INR 1,00,00,000 and INR
1,00,000 per day for continuing failures. Additionally, for noncompliance with the renewable and hydro-power
purchase obligations, the Amendment proposes a penalty of INR 0.50/kWh for the shortfall in purchase in the 1st year of default, and if such default continues for the 2nd successive year, then the penalty is propose to be increase to
INR 1 /kWh and thereafter INR 2/kWh.
Under Section 146 of the Electricity Act, the penalty for general contravention of any order or direction issue under the Electricity Act, or any of its rules/ regulations, has also been increase from INR 1,00,000 to INR 1,00,00,000 and
in case of continuing failures, from INR 5,000 per day to INR 1,00,000 per day.[5]
Reference
ELECTRICITY LAWS IN INDIA: TRENDS AND CHALLENGES
[1] Sengupta, D. (2020). Tardiness in tariff filings and inadequate tariff revision proposals negative for the power sector: ICRA. The Economic Times. Retrieved 1 July 2020, from https://economictimes.indiatimes.com/industry/energy/power/ tardiness-in-tariff-filings-and-inadequate-tariff-revisionproposals-negative-for-the-power-sectoricra/articleshow/68379258.cms?from=mdr
[2] Bureau, F. (2020). Discom losses can spiral to Rs 50,000 crore in FY21: Icra. The Financial Express. Retrieved 1 July 2020, from https://www.financialexpress.com/industry/discomlosses-can-spiral-to-rs-50000-crore-in-fy21- icra/1943588/#:~:text=%2DARR%20gap)
[3] Ibid.
[4] Jhawar, P. (2020). Renewable energy: It is crucial to honour signed contracts. Downtoearth.org.in. Retrieved 1 July 2020, from https://www.downtoearth.org.in/blog/energy/renewableenergy-it-is-crucial-to-honour-signed-contracts-68935.
[5] BGC Legal,(2020),The Electricity (Amendment) Bill, 2020 – Key Highlights,Mondaq.com,from www.mondaq.com//
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