Heralding a major change in the power distribution sector of the country, two leading public sector utilities — NTPC and Power Grid Corporation of India — have planned to form a joint venture to set up National Electricity Distribution Company (NEDC), which will undertake electricity distribution by forming JVs with state-owned discoms and help bridge market and credit risks.
Electrification scenario in India
- The proposal comes at a time when the Centre is looking to introduce several other reforms in the proposed draft national tariff policy, including a penalty on gratuitous load-shedding, not allowing losses of more than 15% as a pass-through in tariff and limiting cross-subsidies, etc.
Issues with Power discoms in India
- In terms of electrification, the government has fairly achieved its said objectives with Leising in Manipur becoming India’s last village to be electrified in April 2018.
- Village electrification, however, is only the first step in delivering power across India. A village is declared electrified if just 10% of the households have electricity connections.
- To complete the process of household electrification, the NDA government rolled out the Sahaj Bijli Har Ghar Yojana (Saubhagya Scheme) in 2017. The scheme provides free electricity connections and low-cost power supply to households, and initially targeted universal household electrification by December 2018.
- More than access to electricity, the bigger challenge for India now is providing a better quality of electricity. Across the country, there are significant disparities in the number of hours households get electricity. For instance, the CEEW survey revealed that while West Bengal households get 20 hours of power supply on average, Jharkhand households receive only 9 hours.
- A big reason for low-quality electricity supply is the financial health of the power distribution companies (power discoms), which are responsible for distributing electricity at the state level.
The objective of setting up NEDC
- Distribution companies have so far been the weakest link in the electricity value chain. Rising non-performing assets (NPAs) in the power sector has been a major concern. The problem only multiplies with the states refusing to ink new power purchase agreements (PPAs), as they are not willing to buy more electricity. The NPAs account for around 5.9% of the banking sector’s total outstanding advances of ₹ 4.73 trillion, according to the Economic Survey 2016-17 released in August.
- Low tariffs mandated by governments, electricity theft and weak infrastructure mean that state power discoms are burdened by losses and debts. In March 2015, discus had accumulated losses worth ₹3.8 trillion—3% of gross domestic product (GDP)—and outstanding debt worth ₹4.3 trillion.
- To tackle this, the government launched the Ujwal Discom Assurance Yojana (UDAY) in 2015 as a bailout scheme in which power discoms could convert their debt into government bonds as long as they met certain conditions. While 27 states have joined the scheme and ₹2.3 trillion worth of government bonds have been issued, few meet the necessary conditions.
- The announcement of setting up NEDC comes at a time when the existing reform scheme UDAY has been declared as a failure by several agencies. While the financial part was concluded with states taking over the losses of discoms and issuing bonds, the operational front is facing challenges.
Separating Carriage and Content Operations
- A national electricity distribution company can procure electricity at competitive rates and help address the issue of stressed assets in power generation.
- Given that electricity is on the concurrent list, NEDC will not only act as a nodal agency for implementing the Union government’s scheme in the distribution sector but also serve as an implementation agency for state discoms.
- It will also help bring new tech, including smart grids, big data, and analytics, into fund-starved discoms.
- It will not become a distribution utility (DISCOM). Instead, this joint venture will have a character similar to other such ventures such as Energy Efficiency Services Ltd and Petronet LNG that operate as profit-focussed entities.
The functioning of NEDC and related Issues
- The government has been working on a radical plan to separate the so-called carriage and content operations of existing power distribution companies — i.e the infrastructure builder for power supply and the supplier to consumers would be two separate companies. Carriage refers to the distribution aspect and content to electricity.
- The separation will allow people and companies in India to buy electricity from a power company of their choice and have it supplied to them by the distribution network that services the neighborhood in which they live. This would bring more competition in the power distribution sector with more than one power supply.
Conclusion- Aiming 24*7 Power Supply
- Leveraging the experience of state-run firms such as NTPC and PGCIL, the aim is to form Joint Ventures with the state discoms to improve efficiency in areas such as system and network operations, asset management, and operations and maintenance.
- The state-run units can leverage their technical expertise, competence, and access to cheaper funds to act as a change agent in electricity distribution.
- However, experts are of the opinion that the public sector company will require the support of state governments and state regulatory electricity commissions (SERCs) to become a success.
- NEDC will have to seek licenses from the respective state electricity regulatory commissions, the process will be tedious and unfeasible as this will create an adversarial relationship with the state discoms.
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- India will achieve 100 percent household electrification by March 31 as envisaged in the Saubhagya scheme and the next goal is to achieve round the clock power supply to all households.
- Better functioning of state discoms will help reduce overall transmission and commercial losses. It will help expedite the plan to separate the “carriage and content operations" of discoms, letting people and companies in India buy electricity from a firm of their choice.
- Therefore, the objective of supplying 24x7 power to all can’t be achieved unless there is a robust electricity distribution space. The setting up of a pan India discom is a welcome move in this direction.