Power Policies Formulated by Government of India

The following points highlight the top three power policies formulated by government of India. The policies are: 1. Revised Mega Power Policy 2. The Electricity Act, 2003 3. National Electricity Policy, 2005. 

Policy # 1. Revised Mega Power Policy:

The Government of India has formulated the revised mega power policy to develop mega power projects in both the private and public sector supplying power to more than one state.

The main objective of the revised mega power policy is setting up of mega power projects to generate power at the lowest possible cost by utilizing the economies of scale and setting up of such plants at pitheads, in the hydel or coastal areas so that it can act as catalyst for the reform in the beneficiary states.

While formulating the revised mega power policy for the sale of power to more than one state from a private sector mega power project, it was considered necessary to develop a single power purchase entity.

The revised mega power policy envisages establishment of a Company called Power Trading Corporation (PTC) with majority equity participation by Power Grid Corporation of India Ltd. (PGCIL), along with NTPC, Power Finance Corporation (PFC) and other financial institutions. Concerned State Governments/State Electricity Boards (SEBs) would also be co-opted, if found feasible.

The PFC would purchase power from the identified private projects and sell it to the identified State Electricity Boards. Security to the PFC would be provided by means of a letter of credit and recourse to the State’s share of Central Plan Allocations and other devolutions.

The setting up of PFC would enable mega projects to negotiate with one-buyer only and would eliminate risk factors of mega projects regarding payments. Such security would substantially bring down the tariff from such projects.

Guidelines under the Mega Power Policy, introduced in 1995, were modified in 1998 and 2002 and further amended in April 2006 to encourage power development in Jammu & Kashmir and the north eastern region. In the wake of the important statutory and policy-level changes, some of the provisions of the present Mega power Policy were revisited, bringing them within the purview of National Electricity Policy, 2005 and Tariff Policy, 2006.

With a view to rationalize the procedure for grant of mega certificate and facilitate quicker capacity addition, following modifications to the Mega Policy have been made:

(i) The existing condition requiring privatization of distribution by power purchasing states will be replaced by the condition that they shall undertake to carry out distribution reforms as laid down by the Ministry of Power.

(ii) The condition requiring inter-State sale of power for getting mega power status will be removed.

(iii) The present dispensation of 15 per cent price preference available to domestic bidders in case of cost plus projects of public sector undertakings (PSUs) will continue. However, the price preference will not apply to tariff-based competitively bid projects of PSUs.

(iv) Developers of mega power projects will not be required to undertake international competitive bidding for procurement of equipment for the mega power project if the requisite quantum of power has been tied up through tariff-based competitive bidding or the project has been awarded through tariff-based competitive bidding.

(v) All benefits, except a basic custom duty of 2.5 per cent only, available under the Mega Power Policy would be extended to expansion unit(s) of existing mega power projects even if the total capacity of expansion unit(s) is less than the threshold qualifying capacity, provided the size of the unit(s) is not less than that provided in the earlier phase of the project.

All other conditions for grant of mega power status shall remain the same.

(vi) Mega power projects may sell power outside long-term power purchase agreements (PPAs) in accordance with the National Electricity Policy, 2005 and Tariff Policy, 2006.

Policy # 2. The Electricity Act, 2003:

The Electricity Act, 2003 was enacted and the provisions of this Act (except Section 121) were brought into force from 10 June, 2003. With the enforcement of the Electricity Act, 2003, the Indian Electricity Act, 1910, Electricity (Supply) Act, 1948 and Electricity Regulatory Commission Act, 1998 were repealed.

Main features of the Act are as follows:

1. The Central Government to prepare a National Electricity Policy in consultation with State Governments.

2. A Thrust to complete rural electrification and provide for management of rural distribution by Panchayats Cooperative Societies, non-Government organizations, franchisees etc.

3. Generation to be de-licensed and captive generation to be freely permitted. Hydro projects would, however, need approval of the state governments and clearance from the Central Electricity Authority.

4. Transmission Utility at the Central as well as State level, to be a Government Company—with responsibility for planned and coordinated development of transmission network. Provision for private transmission licensees.

5. Open access in transmission from the outset with provision for surcharge for taking care of current level of cross subsidy with the surcharge being gradually phased out.

6. Distribution licensees would be free to undertake generation and generating companies would be free to take up distribution licensees.

7. The State Electricity Regulatory Commission is a mandatory requirement.

8. Provision for license free generation and distribution in the rural areas.

9. The SERCs may permit open access in distribution in phase with surcharge for current level of cross subsidy to be gradually phased out along with cross subsidies and obligation to supply.

10. Provision for payment of subsidy through budget.

11. For rural and remote areas stand alone systems for generation and distribution would be permitted.

12. Trading as a distinct activity is being recognized with the safeguard of the Regulatory Commissions being authorized to fix ceilings on trading margins, if necessary.

13. The State Governments have flexibility to unbundle the SEBs or continue with them as distribution licensees and State Transmission Utility.

14. The Bill does not prescribe any model reform, instead provides flexibility to the State Government to choose the model suiting to their conditions.

15. Metering of Electricity supplied made mandatory.

16. An Appellate Tribunal to hear appeals against the decision of CERC and SERCs.

17. Provisions relating to theft of electricity made more stringent.

Thus the Electricity Act, 2003 has brought considerable changes in the rules and regulation relating to electricity generation, transmission and supply in a rational manner.

Policy # 3. National Electricity Policy, 2005:

The Government has announced recently the National Electricity Policy, 2005 as envisaged in the Electricity Act, 2003.

Following are some of the salient features of the policy:

1. Objectives:

(a) Access to electricity-Available to all households in next five years.

(b) Availability of Power—Demand to be fully met by 2012. Energy and peaking shortages to be overcome and spinning reserve to be available.

(c) Supply of Reliable and Quality Power at specified standards in an efficient manner at reasonable rates.

(d) Per capita availability of electricity to be increased to over 1,000 units by 2012.

(e) Minimum lifeline consumption of 1 unit/household/day as a merit good by year 2012.

(f) Financial Turnaround and Commercial Viability of Electricity Sector.

(g) Protection of consumers’ interests.

2. CEA to notify first National Electricity Plan in six months with a perspective up to 12th Plan period. The Plan prepared by CEA to be used by prospective generating companies, transmission utilities and transmission/distribution licensees as reference document.

3. Development of Rural Electrification Distribution backbone, village electrification and household electrification to achieve the NCMP target of completing household electrification in next five years. Financial support in terms of capital subsidy to States for rural electrification.

Special preference to Dalit Bastis, Tribal Areas and other weaker sections for rural electrification. REC to be nodal agency for rural electrification at Central Government level.

4. Creation of adequate generation capacity with a spinning reserve of at least 5 per cent by 2012 with availability of installed capacity at 85 per cent.

5. Full development of hydro potential. Provision of long term finance for these projects.

6. Choice of fuel for thermal generation to be based on economics of generation and supply of electricity.

7. Development of National Grid.

8. Cost of recovery of service from consumers at tariff reflecting efficient costs to ensure financial viability of the sector.

9. Provision of support to lifeline consumers (households below poverty line having consumption of 30 units per month) in terms of tariffs.

10. Availability based tariff (ABT) to be extended to State level for better grid discipline through economic signalling.

11. Special emphasis on time bound reduction of transmission and distribution losses.

12. Measures to promote competition aimed at consumer benefits.

13. Reliability and quality of power supply to be monitored by State Electricity Regulatory Commissions.

14. Exploitation of non-conventional energy sources such as small hydro, solar, biomass and wind for additional power generation capacity.

15. Central Government to facilitate the continued development of national grid CTU and STU to undertake co-ordinated planning and development.

16. Transmission capacity to have redundancy level and margins as per international standards.

17. Adequate transitional financial support for reforming power utilities. Encouragement for private sector participation in distribution.

18. The State Regulatory Commissions to put in place independent third party meter testing arrangement.

19. Support for adoption of IT system for ensuring correct billing to consumers.

20. Speedy implementation of stringent measures against theft of electricity.

21. Full emphasis on augmentation of R&D base. Mission approach for identified priorities areas.

22. Demand side management through energy conservation measures. Label regarding energy efficiency to be displayed on appliances. Efficient agricultural pump sets and efficient lighting technologies to be promoted. Appropriate tariff structure for managing the peak load.

23. Special attention for developing training infrastructure in the field of regulation, trading and power market.

24. For giving boost to renewable and non-conventional energy sources, a prescribed percentage of power as specified by State Regulatory Commission to be purchased from such sources of energy at the earliest.

25. Necessary regulations and appointing ombudsman for redressal of consumers’ grievances to be in place in six months.