NATIONAL ELECTRICITY PLAN
3.1 Assessment of demand is an important pre-requisite
for planning capacity addition. Section 3
(4) of the Act requires the Central Electricity
Authority (CEA) to frame a National Electricity
Plan once in five years and revise the same
from time to time in accordance with the National
Electricity Policy. Also, section 73 (a) provides
that formulation of short-term and perspective
plans for development of the electricity system
and coordinating the activities of various
planning agencies for the optimal utilization
of resources to subserve the interests of
the national economy shall be one of the functions
of the CEA. The Plan prepared by CEA and approved
by the Central Government can be used by prospective
generating companies, transmission utilities
and transmission/distribution licensees as
reference document.
3.2 Accordingly, the CEA shall prepare short-term
and perspective plan. The National Electricity
Plan would be for a short-term framework of
five years while giving a 15 year perspective
and would include:
-
Short-term and long term demand forecast
for different regions;
-
Suggested areas/locations for capacity additions
in generation and transmission keeping in
view the economics of generation and transmission,
losses in the system, load centre requirements,
grid stability, security of supply, quality
of power including voltage profile etc.
and environmental considerations including
rehabilitation and resettlement;
-
Integration of such possible locations with
transmission system and development of national
grid including type of transmission systems
and requirement of redundancies; and
-
Different technologies available for efficient
generation, transmission and distribution.
-
Fuel choices based on economy, energy security
and environmental considerations.
3.3 While evolving the National Electricity
Plan, CEA will consult all the stakeholders
including state governments and the state
governments would, at state level, undertake
this exercise in coordination with stakeholders
including distribution licensees and STUs.
While conducting studies periodically to assess
short-term and long-term demand, projections
made by distribution utilities would be given
due weightage. CEA will also interact with
institutions and agencies having economic
expertise, particularly in the field of demand
forecasting. Projected growth rates for different
sectors of the economy will also be taken
into account in the exercise of demand forecasting.
3.4 The National Electricity Plan for the
ongoing 10th Plan period and 11th Plan and
perspective Plan for the 10th, 11th &
12th Plan periods would be prepared and notified
after reviewing and revising the existing
Power Plan prepared by CEA. This will be done
within six months.
4.0 ISSUES ADDRESSED
The policy seeks to address the following
issues:
• Rural Electrification
• Generation
• Transmission
• Distribution
• Recovery of Cost of services &
Targetted Subsidies.
• Technology Development and Research
and Development (R&D)
• Competition aimed at Consumer Benefits
• Financing Power Sector Programmes
Including Private Sector Participation.
• Energy Conservation
• Environmental Issues
• Training and Human Resource Development
• Cogeneration and Non-Conventional
Energy Sources
• Protection of Consumer interests and
Quality Standards
5.1 RURAL ELECTRIFICATION
5.1.1 The key development objective of the
power sector is supply of electricity to all
areas including rural areas as mandated in
section 6 of the Electricity Act. Both the
central government and state governments would
jointly endeavour to achieve this objective
at the earliest. Consumers, particularly those
who are ready to pay a tariff which reflects
efficient costs have the right to get uninterrupted
twenty four hours supply of quality power.
About 56% of rural households have not yet
been electrified even though many of these
households are willing to pay for electricity.
Determined efforts should be made to ensure
that the task of rural electrification for
securing electricity access to all households
and also ensuring that electricity reaches
poor and marginal sections of the society
at reasonable rates is completed within the
next five years.
5.1.2 Reliable rural electrification system
will aim at creating the following:
(a) Rural Electrification Distribution Backbone
(REDB) with at least one 33/11 kv (or 66/11
kv) substation in every Block and more if
required as per load, networked and connected
appropriately to the state transmission system
(b) Emanating from REDB would be supply feeders
and one distribution transformer at least
in every village settlement.
(c) Household Electrification from distribution
transformer to connect every household on
demand.
(d) Wherever above is not feasible (it is
neither cost effective nor the optimal solution
to provide grid connectivity) decentralized
distributed generation facilities together
with local distribution network would be provided
so that every household gets access to electricity.
This would be done either through conventional
or non-conventional methods of electricity
generation whichever is more suitable and
economical. Non-conventional sources of energy
could be utilized even where grid connectivity
exists provided it is found to be cost effective.
(e) Development of infrastructure would also
cater for requirement of agriculture &
other economic activities including irrigation
pump sets, small and medium industries, khadi
and village industries, cold chain and social
services like health and education.
5.1.3 Particular attention would be given
in household electrification to dalit bastis,
tribal areas and other weaker sections.
5.1.4 Rural Electrification Corporation of
India, a Government of India enterprise will
be the nodal agency at Central Government
level to implement the programme for achieving
the goal set by National Common Minimum Programme
of giving access to electricity to all the
households in next five years. Its role is
being suitably enlarged to ensure timely implementation
of rural electrification projects.
5.1.5
Targetted expansion in access to electricity
for rural households in the desired timeframe
can be achieved if the distribution licensees
recover at least the cost of electricity and
related O&M expenses from consumers, except
for lifeline support to households below the
poverty line who would need to be adequately
subsidized. Subsidies should be properly targeted
at the intended beneficiaries in the most efficient
manner. Government recognizes the need for providing
necessary capital subsidy and soft long-term
debt finances for investment in rural electrification
as this would reduce the cost of supply in rural
areas. Adequate funds would need to be made
available for the same through the Plan process.
Also commensurate organizational support would
need to be created for timely implementation.
The Central Government would assist the State
Governments in achieving this.
5.1.6 Necessary institutional framework would
need to be put in place not only to ensure creation
of rural electrification infrastructure but
also to operate and maintain supply system for
securing reliable power supply to consumers.
Responsibility of operation & maintenance
and cost recovery could be discharged by utilities
through appropriate arrangements with Panchayats,
local authorities, NGOs and other franchisees
etc.
5.1.7 The gigantic task of rural electrification
requires appropriate cooperation among various
agencies of the State Governments, Central Government
and participation of the community. Education
and awareness programmes would be essential
for creating demand for electricity and for
achieving the objective of effective community
participation.
5.2 GENERATION
5.2.1 Inadequacy of generation has characterized
power sector operation in India. To provide
availability of over 1000 units of per capita
electricity by year 2012 it had been estimated
that need based capacity addition of more than
1,00,000 MW would be required during the period
2002-12.
5.2.2 The Government of India has initiated
several reform measures to create a favourable
environment for addition of new generating capacity
in the country. The Electricity Act 2003 has
put in place a highly liberal framework for
generation. There is no requirement of licensing
for generation. The requirement of techno-economic
clearance of CEA for thermal generation project
is no longer there. For hydroelectric generation
also, the limit of capital expenditure, above
which concurrence of CEA is required, would
be raised suitably from the present level. Captive
generation has been freed from all controls.
5.2.3 In order to fully meet both energy and
peak demand by 2012, there is a need to create
adequate reserve capacity margin. In addition
to enhancing the overall availability of installed
capacity to 85%, a spinning reserve of at least
5%, at national level, would need to be created
to ensure grid security and quality and reliability
of power supply.
5.2.4 The progress of implementation of capacity
addition plans and growth of demand would need
to be constantly monitored and necessary adjustments
made from time to time. In creating new generation
capacities, appropriate technology may be considered
keeping in view the likely widening of the difference
between peak demand and the base load.
Hydro Generation
5.2.5 Hydroelectricity is a clean and renewable
source of energy. Maximum emphasis would be
laid on the full development of the feasible
hydro potential in the country. The 50,000 MW
hydro initiative has been already launched and
is being vigorously pursued with DPRs for projects
of 33,000 MW capacity already under preparation.
5.2.6 Harnessing hydro potential speedily will
also facilitate economic development of States,
particularly North-Eastern States, Sikkim, Uttaranchal,
Himachal Pradesh and J&K, since a large
proportion of our hydro power potential is located
in these States. The States with hydro potential
need to focus on the full development of these
potentials at the earliest.
5.2.7 Hydel projects call for comparatively
larger capital investment. Therefore, debt financing
of longer tenure would need to be made available
for hydro projects. Central Government is committed
to policies that ensure financing of viable
hydro projects.
5.2.8 State Governments need to review procedures
for land acquisition, and other approvals/clearances
for speedy implementation of hydroelectric projects.
5.2.9 The Central Government will support the
State Governments for expeditious development
of their hydroelectric projects by offering
services of Central Public Sector Undertakings
like National Hydroelectric Power Corporation
(NHPC).
5.2.10 Proper implementation of National Policy
on Rehabilitation and Resettlement (R&R)
would be essential in this regard so as to ensure
that the concerns of project-affected families
are addressed adequately.
5.2.11 Adequate safeguards for environmental
protection with suitable mechanism for monitoring
of implementation of Environmental Action Plan
and R&R Schemes will be put in place.
Thermal Generation
5.2.12 Even with full development of the feasible
hydro potential in the country, coal would necessarily
continue to remain the primary fuel for meeting
future electricity demand.
5.2.13 Imported coal based thermal power stations,
particularly at coastal locations, would be
encouraged based on their economic viability.
Use of low ash content coal would also help
in reducing the problem of fly ash emissions.
5.2.14 Significant Lignite resources in the
country are located in Tamil Nadu, Gujarat and
Rajasthan and these should be increasingly utilized
for power generation. Lignite mining technology
needs to be improved to reduce costs.
5.2.15 Use of gas as a fuel for power generation
would depend upon its availability at reasonable
prices. Natural gas is being used in Gas Turbine
/Combined Cycle Gas Turbine (GT/CCGT) stations,
which currently accounts for about 10 % of total
capacity. Power sector consumes about 40% of
the total gas in the country. New power generation
capacity could come up based on indigenous gas
findings, which can emerge as a major source
of power generation if prices are reasonable.
A national gas grid covering various parts of
the country could facilitate development of
such capacities.
5.2.16 Imported LNG based power plants are also
a potential source of electricity and the pace
of their development would depend on their commercial
viability. The existing power plants using liquid
fuels should shift to use of Natural Gas/LNG
at the earliest to reduce the cost of generation.
5.2.17 For thermal power, economics of generation
and supply of electricity should be the basis
for choice of fuel from among the options available.
It would be economical for new generating stations
to be located either near the fuel sources e.g.
pithead locations or load centres.
5.2.18 Generating companies may enter into medium
to long-term fuel supply agreements specially
with respect to imported fuels for commercial
viability and security of supply.
Nuclear Power
5.2.19 Nuclear power is an established source
of energy to meet base load demand. Nuclear
power plants are being set up at locations away
from coalmines. Share of nuclear power in the
overall capacity profile will need to be increased
significantly. Economics of generation and resultant
tariff will be, among others, important considerations.
Public sector investments to create nuclear
generation capacity will need to be stepped
up. Private sector partnership would also be
facilitated to see that not only targets are
achieved but exceeded.
Non-conventional Energy Sources
5.2.20 Feasible potential of non-conventional
energy resources, mainly small hydro, wind and
bio-mass would also need to be exploited fully
to create additional power generation capacity.
With a view to increase the overall share of
non-conventional energy sources in the electricity
mix, efforts will be made to encourage private
sector participation through suitable promotional
measures.
Renovation and Modernization (R&M)
5.2.21 One of the major achievements of the
power sector has been a significant increase
in availability and plant load factor of thermal
power stations specially over the last few years.
Renovation and modernization for achieving higher
efficiency levels needs to be pursued vigorously
and all existing generation capacity should
be brought to minimum acceptable standards.
The Govt. of India is providing financial support
for this purpose.
5.2.22 For projects performing below acceptable
standards, R&M should be undertaken as per
well-defined plans featuring necessary cost-benefit
analysis. If economic operation does not appear
feasible through R&M, then there may be
no alternative to closure of such plants as
the last resort.
5.2.23 In cases of plants with poor O&M
record and persisting operational problems,
alternative strategies including change of management
may need to be considered so as to improve the
efficiency to acceptable levels of these power
stations.
Captive Generation
5.2.24 The liberal provision in the Electricity
Act, 2003 with respect to setting up of captive
power plant has been made with a view to not
only securing reliable, quality and cost effective
power but also to facilitate creation of employment
opportunities through speedy and efficient growth
of industry.
5.2.25 The provision relating to captive power
plants to be set up by group of consumers is
primarily aimed at enabling small and medium
industries or other consumers that may not individually
be in a position to set up plant of optimal
size in a cost effective manner. It needs to
be noted that efficient expansion of small and
medium industries across the country would lead
to creation of enormous employment opportunities.
5.2.26 A large number of captive and standby
generating stations in India have surplus capacity
that could be supplied to the grid continuously
or during certain time periods. These plants
offer a sizeable and potentially competitive
capacity that could be harnessed for meeting
demand for power. Under the Act, captive generators
have access to licensees and would get access
to consumers who are allowed open access. Grid
inter-connections for captive generators shall
be facilitated as per section 30 of the Act.
This should be done on priority basis to enable
captive generation to become available as distributed
generation along the grid. Towards this end,
non-conventional energy sources including co-generation
could also play a role. Appropriate commercial
arrangements would need to be instituted between
licensees and the captive generators for harnessing
of spare capacity energy from captive power
plants. The appropriate Regulatory Commission
shall exercise regulatory oversight on such
commercial arrangements between captive generators
and licensees and determine tariffs when a licensee
is the off-taker of power from captive plant.
5.3 TRANSMISSION
5.3.1 The Transmission System requires adequate
and timely investments and also efficient and
coordinated action to develop a robust and integrated
power system for the country.
5.3.2 Keeping in view the massive increase planned
in generation and also for development of power
market, there is need for adequately augmenting
transmission capacity. While planning new generation
capacities, requirement of associated transmission
capacity would need to be worked out simultaneously
in order to avoid mismatch between generation
capacity and transmission facilities. The policy
emphasizes the following to meet the above objective:
• The Central Government would facilitate
the continued development of the National Grid
for providing adequate infrastructure for inter-state
transmission of power and to ensure that underutilized
generation capacity is facilitated to generate
electricity for its transmission from surplus
regions to deficit regions.
• The Central Transmission Utility (CTU)
and State Transmission Utility (STU) have the
key responsibility of network planning and development
based on the National Electricity Plan in coordination
with all concerned agencies as provided in the
Act. The CTU is responsible for the national
and regional transmission system planning and
development. The STU is responsible for planning
and development of the intra-state transmission
system. The CTU would need to coordinate with
the STUs for achievement of the shared objective
of eliminating transmission constraints in cost
effective manner.
• Network expansion should be planned
and implemented keeping in view the anticipated
transmission needs that would be incident on
the system in the open access regime. Prior
agreement with the beneficiaries would not be
a pre-condition for network expansion. CTU/STU
should undertake network expansion after identifying
the requirements in consultation with stakeholders
and taking up the execution after due regulatory
approvals.
• Structured information dissemination
and disclosure procedures should be developed
by the CTU and STUs to ensure that all stakeholders
are aware of the status of generation and transmission
projects and plans. These should form a part
of the overall planning procedures.
• The State Regulatory Commissions who
have not yet notified the grid code under the
Electricity Act 2003 should notify the same
not later than September 2005.
5.3.3 Open access in transmission has been introduced
to promote competition amongst the generating
companies who can now sell to different distribution
licensees across the country. This should lead
to availability of cheaper power. The Act mandates
non-discriminatory open access in transmission
from the very beginning. When open access to
distribution networks is introduced by the respective
State Commissions for enabling bulk consumers
to buy directly from competing generators, competition
in the market would increase the availability
of cheaper and reliable power supply. The Regulatory
Commissions need to provide facilitative framework
for non-discriminatory open access. This requires
load dispatch facilities with state-of-the art
communication and data acquisition capability
on a real time basis. While this is the case
currently at the regional load dispatch centers,
appropriate State Commissions must ensure that
matching facilities with technology upgrades
are provided at the State level, where necessary
and realized not later than June 2006.
5.3.4 The Act prohibits the State transmission
utilities/transmission licensees from engaging
in trading in electricity. Power purchase agreements
(PPAs) with the generating companies would need
to be suitably assigned to the Distribution
Companies, subject to mutual agreement. To the
extent necessary, such assignments can be done
in a manner to take care of different load profiles
of the Distribution Companies. Non-discriminatory
open access shall be provided to competing generators
supplying power to licensees upon payment of
transmission charge to be determined by the
appropriate Commission. The appropriate Commissions
shall establish such transmission charges no
later than June 2005.
5.3.5 To facilitate orderly growth and development
of the power sector and also for secure and
reliable operation of the grid, adequate margins
in transmission system should be created. The
transmission capacity would be planned and built
to cater to both the redundancy levels and margins
keeping in view international standards and
practices. A well planned and strong transmission
system will ensure not only optimal utilization
of transmission capacities but also of generation
facilities and would facilitate achieving ultimate
objective of cost effective delivery of power.
To facilitate cost effective transmission of
power across the region, a national transmission
tariff framework needs to be implemented by
CERC. The tariff mechanism would be sensitive
to distance, direction and related to quantum
of flow. As far as possible, consistency needs
to be maintained in transmission pricing framework
in inter-State and intra-State systems. Further
it should be ensured that the present network
deficiencies do not result in unreasonable transmission
loss compensation requirements.
5.3.6 The necessary regulatory framework for
providing non-discriminatory open access in
transmission as mandated in the Electricity
Act 2003 is essential for signalling efficient
choice in locating generation capacity and for
encouraging trading in electricity for optimum
utilization of generation resources and consequently
for reducing the cost of supply.
5.3.7 The spirit of the provisions of the Act
is to ensure independent system operation through
NLDC, RLDCs and SLDCs. These dispatch centers,
as per the provisions of the Act, are to be
operated by a Government company or authority
as notified by the appropriate Government. However,
till such time these agencies/authorities are
established the Act mandates that the CTU or
STU, as the case may be, shall operate the RLDCs
or SLDC. The arrangement of CTU operating the
RLDCs would be reviewed by the Central Government
based on experience of working with the existing
arrangement. A view on this aspect would be
taken by the Central Government by December
2005.
5.3.8 The Regional Power Committees as envisaged
in section section 2(55) would be constituted
by the Government of India within two months
with representation from various stakeholders.
5.3.9 The National Load Despatch Centre (NLDC)
along with its constitution and functions as
envisaged in Section 26 of the Electricity Act
2003 would be notified within three months.
RLDCs and NLDC will have complete responsibility
and commensurate authority for smooth operation
of the grid irrespective of the ownership of
the transmission system, be it under CPSUs,
State Utility or private sector.
5.3.10 Special mechanisms would be created to
encourage private investment in transmission
sector so that sufficient investments are made
for achieving the objective of demand to be
fully met by 2012.
5.4 DISTRIBUTION
5.4.1 Distribution is the most critical segment
of the electricity business chain. The real
challenge of reforms in the power sector lies
in efficient management of the distribution
sector.
5.4.2 The Act provides for a robust regulatory
framework for distribution licensees to safeguard
consumer interests. It also creates a competitive
framework for the distribution business, offering
options to consumers, through the concepts of
open access and multiple licensees in the same
area of supply.
5.4.3 For achieving efficiency gains proper
restructuring of distribution utilities is essential.
Adequate transition financing support would
also be necessary for these utilities. Such
support should be arranged linked to attainment
of predetermined efficiency improvements and
reduction in cash losses and putting in place
appropriate governance structure for insulating
the service providers from extraneous interference
while at the same time ensuring transparency
and accountability. For ensuring financial viability
and sustainability, State Governments would
need to restructure the liabilities of the State
Electricity Boards to ensure that the successor
companies are not burdened with past liabilities.
The Central Government would also assist the
States, which develop a clear roadmap for turnaround,
in arranging transition financing from various
sources which shall be linked to predetermined
improvements and efficiency gains aimed at attaining
financial viability and also putting in place
appropriate governance structures.
5.4.4 Conducive business environment in terms
of adequate returns and suitable transitional
model with predetermined improvements in efficiency
parameters in distribution business would be
necessary for facilitating funding and attracting
investments in distribution. Multi-Year Tariff
(MYT) framework is an important structural incentive
to minimize risks for utilities and consumers,
promote efficiency and rapid reduction of system
losses. It would serve public interest through
economic efficiency and improved service quality.
It would also bring greater predictability to
consumer tariffs by restricting tariff adjustments
to known indicators such as power purchase prices
and inflation indices. Private sector participation
in distribution needs to be encouraged for achieving
the requisite reduction in transmission and
distribution losses and improving the quality
of service to the consumers.
5.4.5 The Electricity Act 2003 enables competing
generating companies and trading licensees,
besides the area distribution licensees, to
sell electricity to consumers when open access
in distribution is introduced by the State Electricity
Regulatory Commissions. As required by the Act,
the SERCs shall notify regulations by June 2005
that would enable open access to distribution
networks in terms of sub-section 2 of section
42 which stipulates that such open access would
be allowed, not later than five years from 27th
January 2004 to consumers who require a supply
of electricity where the maximum power to be
made available at any time exceeds one mega
watt. Section 49 of the Act provides that such
consumers who have been allowed open access
under section 42 may enter into agreement with
any person for supply of electricity on such
terms and conditions, including tariff, as may
be agreed upon by them. While making regulations
for open access in distribution, the SERCs will
also determine wheeling charges and cross-subsidy
surcharge as required under section 42 of the
Act.
5.4.6 A time-bound programme should be drawn
up by the State Electricity Regulatory Commissions
(SERC) for segregation of technical and commercial
losses through energy audits. Energy accounting
and declaration of its results in each defined
unit, as determined by SERCs, should be mandatory
not later than March 2007. An action plan for
reduction of the losses with adequate investments
and suitable improvements in governance should
be drawn up. Standards for reliability and quality
of supply as well as for loss levels shall also
be specified ,from time to time, so as to bring
these in line with international practices by
year 2012.
5.4.7 One of the key provisions of the Act on
competition in distribution is the concept of
multiple licensees in the same area of supply
through their independent distribution systems.
State Governments have full flexibility in carving
out distribution zones while restructuring the
Government utilities. For grant of second and
subsequent distribution licence within the area
of an incumbent distribution licensee, a revenue
district, a Municipal Council for a smaller
urban area or a Municipal Corporation for a
larger urban area as defined in the Article
243(Q) of Constitution of India (74th Amendment)
may be considered as the minimum area. The Government
of India would notify within three months, the
requirements for compliance by applicant for
second and subsequent distribution licence as
envisaged in Section 14 of the Act. With a view
to provide benefits of competition to all section
of consumers, the second and subsequent licensee
for distribution in the same area shall have
obligation to supply to all consumers in accordance
with provisions of section 43 of the Electricity
Act 2003. The SERCs are required to regulate
the tariff including connection charges to be
recovered by a distribution licensee under the
provisions of the Act. This will ensure that
second distribution licensee does not resort
to cherry picking by demanding unreasonable
connection charges from consumers.
5.4.8 The Act mandates supply of electricity
through a correct meter within a stipulated
period. The Authority should develop regulations
as required under Section 55 of the Act within
three months.
5.4.9 The Act requires all consumers to be metered
within two years. The SERCs may obtain from
the Distribution Licensees their metering plans,
approve these, and monitor the same. The SERCs
should encourage use of pre-paid meters. In
the first instance, TOD meters for large consumers
with a minimum load of one MVA are also to be
encouraged. The SERCs should also put in place
independent third-party meter testing arrangements.
5.4.10 Modern information technology systems
may be implemented by the utilities on a priority
basis, after considering cost and benefits,
to facilitate creation of network information
and customer data base which will help in management
of load, improvement in quality, detection of
theft and tampering, customer information and
prompt and correct billing and collection .
Special emphasis should be placed on consumer
indexing and mapping in a time bound manner.
Support is being provided for information technology
based systems under the Accelerated Power Development
and Reforms Programme (APDRP).
5.4.11 High Voltage Distribution System is an
effective method for reduction of technical
losses, prevention of theft, improved voltage
profile and better consumer service. It should
be promoted to reduce LT/HT ratio keeping in
view the techno economic considerations.
5.4.12 SCADA and data management systems are
useful for efficient working of Distribution
Systems. A time bound programme for implementation
of SCADA and data management system should be
obtained from Distribution Licensees and approved
by the SERCs keeping in view the techno economic
considerations. Efforts should be made to install
substation automation equipment in a phased
manner.
5.4.13
The Act has provided for stringent measures
against theft of electricity. The States and
distribution utilities should ensure effective
implementation of these provisions. The State
Governments may set up Special Courts as envisaged
in Section 153 of the Act.
5.5 RECOVERY OF COST OF SERVICES &
TARGETTED SUBSIDIES
5.5.1 There is an urgent need for ensuring recovery
of cost of service from consumers to make the
power sector sustainable.
5.5.2 A minimum level of support may be required
to make the electricity affordable for consumers
of very poor category. Consumers below poverty
line who consume below a specified level, say
30 units per month, may receive special support
in terms of tariff which are cross-subsidized.
Tariffs for such designated group of consumers
will be at least 50 % of the average (overall)
cost of supply. This provision will be further
re-examined after five years.
5.5.3
Over the last few decades cross-subsidies have
increased to unsustainable levels. Cross-subsidies
hide inefficiencies and losses in operations.
There is urgent need to correct this imbalance
without giving tariff shock to consumers. The
existing cross-subsidies for other categories
of consumers would need to be reduced progressively
and gradually.
5.5.4 The State Governments may give advance
subsidy to the extent they consider appropriate
in terms of section 65 of the Act in which case
necessary budget provision would be required
to be made in advance so that the utility does
not suffer financial problems that may affect
its operations. Efforts would be made to ensure
that the subsidies reach the targeted beneficiaries
in the most transparent and efficient way.
5.6 TECHNOLOGY DEVELOPMENT AND R&D
5.6.1 Effective utilization of all available
resources for generation, transmission and distribution
of electricity using efficient and cost effective
technologies is of paramount importance. Operations
and management of vast and complex power systems
require coordination among the multiple agencies
involved. Effective control of power system
at state, regional and national level can be
achieved only through use of Information Technology.
Application of IT has great potential in reducing
technical & commercial losses in distribution
and providing consumer friendly services. Integrated
resource planning and demand side management
would also require adopting state of the art
technologies.
Special efforts would be made for research,
development demonstration and commercialization
of non-conventional energy systems. Such systems
would need to meet international standards,
specifications and performance parameters.
5.6.2 Efficient technologies, like super critical
technology, IGCC etc and large size units would
be gradually introduced for generation of electricity
as their cost effectiveness is established.
Simultaneously, development and deployment of
technologies for productive use of fly ash would
be given priority and encouragement.
5.6.3 Similarly, cost effective technologies
would require to be developed for high voltage
power flows over long distances with minimum
possible losses. Specific information technology
tools need to be developed for meeting the requirements
of the electricity industry including highly
sophisticated control systems for complex generation
and transmission operations, efficient distribution
business and user friendly consumer interface.
5.6.4 The country has a strong research and
development base in the electricity sector which
would be further augmented. R&D activities
would be further intensified and Missions will
be constituted for achieving desired results
in identified priority areas. A suitable funding
mechanism would be evolved for promoting R&
D in the Power Sector. Large power companies
should set aside a portion of their profits
for support to R&D.
5.7 COMPETITION AIMED AT CONSUMER BENEFITS
5.7.1 To promote market development, a part
of new generating capacities, say 15% may be
sold outside long-term PPAs . As the power markets
develop, it would be feasible to finance projects
with competitive generation costs outside the
long-term power purchase agreement framework.
In the coming years, a significant portion of
the installed capacity of new generating stations
could participate in competitive power markets.
This will increase the depth of the power markets
and provide alternatives for both generators
and licensees/consumers and in long run would
lead to reduction in tariff.
For achieving this, the policy underscores the
following:-
a. It is the function of the Central Electricity
Regulatory Commission to issue license for inter-state
trading which would include authorization for
trading throughout the country.
b. The ABT regime introduced by CERC at the
national level has had a positive impact. It
has also enabled a credible settlement mechanism
for intra-day power transfers from licenses
with surpluses to licenses experiencing deficits.
SERCs are advised to introduce the ABT regime
at the State level within one year.
c. Captive generating plants should be permitted
to sell electricity to licensees and consumers
when they are allowed open access by SERCs under
section 42 of the Act .
d. Development of power market would need to
be undertaken by the Appropriate Commission
in consultation with all concerned.
e. The Central Commission and the State Commissions
are empowered to make regulations under section
178 and section 181 of the Act respectively.
These regulations will ensure implementation
of various provisions of the Act regarding encouragement
to competition and also consumer protection.
The Regulatory Commissions are advised to notify
various regulations expeditiously.
f. Enabling regulations for inter and intra
State trading and also regulations on power
exchange shall be notified by the appropriate
Commissions within six months.
5.8 FINANCING POWER SECTOR PROGRAMMES INCLUDING
PRIVATE SECTOR PARTICIPATION
5.8.1 To meet the objective of rapid economic
growth and “power for all” including
household electrification, it is estimated that
an investment of the order of Rs.9,00,000 crores
at 2002-03 price level would be required to
finance generation, transmission, sub-transmission,
distribution and rural electrification projects.
Power being most crucial infrastructure, public
sector investments, both at the Central Government
and State Governments, will have to be stepped
up. Considering the magnitude of the expansion
of the sector required, a sizeable part of the
investments will also need to be brought in
from the private sector. The Act creates a conducive
environment for investments in all segments
of the industry, both for public sector and
private sector, by removing barrier to entry
in different segments. Section 63 of the Act
provides for participation of suppliers on competitive
basis in different segments which will further
encourage private sector investment. Public
service obligations like increasing access to
electricity to rural households and small and
marginal farmers have highest priority over
public finances.
5.8.2 The public sector should be able to raise
internal resources so as to at least meet the
equity requirement of investments even after
suitable gross budgetary support from the Government
at the Centre and in the states in order to
complete their on-going projects in a time-bound
manner. Expansion of public sector investments
would be dependent on the financial viability
of the proposed projects. It would, therefore,
be imperative that an appropriate surplus is
generated through return on investments and,
at the same time, depreciation reserve created
so as to fully meet the debt service obligation.
This will not only enable financial closure
but also bankability of the project would be
improved for expansion programmes, with the
Central and State level public sector organizations,
as also private sector projects, being in a
position to fulfil their obligations toward
equity funding and debt repayments.
5.8.3 Under sub-section (2) of Section 42 of
the Act, a surcharge is to be levied by the
respective State Commissions on consumers switching
to alternate supplies under open access. This
is to compensate the host distribution licensee
serving such consumers who are permitted open
access under section 42(2), for loss of the
cross-subsidy element built into the tariff
of such consumers. An additional surcharge may
also be levied under sub-section (4) of Section
42 for meeting the fixed cost of the distribution
licensee arising out of his obligation to supply
in cases where consumers are allowed open access.
The amount of surcharge and additional surcharge
levied from consumers who are permitted open
access should not become so onerous that it
eliminates competition that is intended to be
fostered in generation and supply of power directly
to consumers through the provision of Open Access
under Section 42(2) of the Act. Further it is
essential that the Surcharge be reduced progressively
in step with the reduction of cross-subsidies
as foreseen in Section 42(2) of the Electricity
Act 2003.
5.8.4 Capital is scarce. Private sector will
have multiple options for investments. Return
on investment will, therefore, need to be provided
in a manner that the sector is able to attract
adequate investments at par with, if not in
preference to, investment opportunities in other
sectors. This would obviously be based on a
clear understanding and evaluation of opportunities
and risks. An appropriate balance will have
to be maintained between the interests of consumers
and the need for investments.
5.8.5 All efforts will have to be made to improve
the efficiency of operations in all the segments
of the industry. Suitable performance norms
of operations together with incentives and disincentives
will need to be evolved along with appropriate
arrangement for sharing the gains of efficient
operations with the consumers . This will ensure
protection of consumers’ interests on
the one hand and provide motivation for improving
the efficiency of operations on the other.
5.8.6 Competition will bring significant benefits
to consumers , in which case, it is competition
which will determine the price rather than any
cost plus exercise on the basis of operating
norms and parameters. All efforts will need
to be made to bring the power industry to this
situation as early as possible, in the overall
interest of consumers. Detailed guidelines for
competitive bidding as stipulated in section
63 of the Act have been issued by the Central
Government.
5.8.7
It will be necessary that all the generating
companies, transmission licensees and distribution
licensees receive due payments for effective
discharge of their operational obligations as
also for enabling them to make fresh investments
needed for the expansion programmes. Financial
viability of operations and businesses would,
therefore, be essential for growth and development
of the sector. Concerted efforts would be required
for restoring the financial health of the sector.
For this purpose, tariff rationalization would
need to be ensured by the SERCs. This would
also include differential pricing for base,
intermediate and peak power.
5.8.8 Steps would also be taken to address the
need for regulatory certainty based on independence
of the regulatory commissions and transparency
in their functioning to generate investor’s
confidence.
5.8.9 Role of private participation in generation,
transmission and distribution would become increasingly
critical in view of the rapidly growing investment
needs of the sector. The Central Government
and the State Governments need to develop workable
and successful models for public private partnership.
This would also enable leveraging private investment
with the public sector finances. Mechanisms
for continuous dialogue with industry for streamlining
procedures for encouraging private participation
in power sector need to be put in place.
Transmission & Distribution Losses
5.8.10 It would have to be clearly recognized
that Power Sector will remain unviable until
T&D losses are brought down significantly
and rapidly. A large number of States have been
reporting losses of over 40% in the recent years.
By any standards, these are unsustainable and
imply a steady decline of power sector operations.
Continuation of the present level of losses
would not only pose a threat to the power sector
operations but also jeopardize the growth prospects
of the economy as a whole. No reforms can succeed
in the midst of such large pilferages on a continuing
basis.
The State Governments would prepare a Five Year
Plan with annual milestones to bring down these
losses expeditiously. Community participation,
effective enforcement, incentives for entities,
staff and consumers, and technological upgradation
should form part of campaign efforts for reducing
these losses. The Central Government will provide
incentive based assistance to States that are
able to reduce losses as per agreed programmes.
5.9 ENERGY CONSERVATION
5.9.1 There is a significant potential of energy
savings through energy efficiency and demand
side management measures. In order to minimize
the overall requirement, energy conservation
and demand side management (DSM) is being accorded
high priority. The Energy Conservation Act has
been enacted and the Bureau of Energy Efficiency
has been setup.
5.9.2 The potential number of installations
where demand side management and energy conservation
measures are to be carried out is very large.
Bureau of Energy Efficiency (BEE) shall initiate
action in this regard. BEE would also make available
the estimated conservation and DSM potential,
its staged implementation along with cost estimates
for consideration in the planning process for
National Electricity Plan.
5.9.3 Periodic energy audits have been made
compulsory for power intensive industries under
the Energy Conservation Act. Other industries
may also be encouraged to adopt energy audits
and energy conservation measures. Energy conservation
measures shall be adopted in all Government
buildings for which saving potential has been
estimated to be about 30% energy. Solar water
heating systems and solar passive architecture
can contribute significantly to this effort.
5.9.4 In the field of energy conservation initial
approach would be voluntary and self-regulating
with emphasis on labelling of appliances. Gradually
as awareness increases, a more regulatory approach
of setting standards would be followed.
5.9.5 In the agriculture sector, the pump sets
and the water delivery system engineered for
high efficiency would be promoted. In the industrial
sector, energy efficient technologies should
be used and energy audits carried out to indicate
scope for energy conservation measures. Motors
and drive system are the major source of high
consumption in Agricultural and Industrial Sector.
These need to be addressed. Energy efficient
lighting technologies should also be adopted
in industries, commercial and domestic establishments.
5.9.6 In order to reduce the requirements for
capacity additions, the difference between electrical
power demand during peak periods and off-peak
periods would have to be reduced. Suitable load
management techniques should be adopted for
this purpose. Differential tariff structure
for peak and off peak supply and metering arrangements
(Time of Day metering) should be conducive to
load management objectives. Regulatory Commissions
should ensure adherence to energy efficiency
standards by utilities.
5.9.7 For effective implementation of energy
conservation measures, role of Energy Service
Companies would be enlarged. Steps would be
taken to encourage and incentivise emergence
of such companies.
5.9.8 A national campaign for bringing about
awareness about energy conservation would be
essential to achieve efficient consumption of
electricity.
5.9.9. A National Action Plan has been developed.
Progress on all the proposed measures will be
monitored with reference to the specific plans
of action.
5.10 ENVIRONMENTAL ISSUES
5.10.1 Environmental concerns would be suitably
addressed through appropriate advance action
by way of comprehensive Environmental Impact
Assessment and implementation of Environment
Action Plan (EAP).
5.10.2 Steps would be taken for coordinating
the efforts for streamlining the procedures
in regard to grant of environmental clearances
including setting up of ‘Land Bank’
and ‘Forest Bank’.
5.10.3 Appropriate catchment area treatment
for hydro projects would also be ensured and
monitored.
5.10.4 Setting up of coal washeries will be
encouraged. Suitable steps would also be taken
so that utilization of fly ash is ensured as
per environmental guidelines.
5.10.5 Setting up of municipal solid waste energy
projects in urban areas and recovery of energy
from industrial effluents will also be encouraged
with a view to reducing environmental pollution
apart from generating additional energy.
5.10.6 Full compliance with prescribed environmental
norms and standards must be achieved in operations
of all generating plants.
5.11 TRAINING AND HUMAN RESOURCE DEVELOPMENT
In the new reforms framework ushered by Electricity
Act 2003, it is particularly important that
the electricity industry has access to properly
trained human resource. Therefore, concerted
action would be taken for augmenting training
infrastructure so that adequate well-trained
human resource is made available as per the
need of the industry. Special attention would
need to be paid by the industry for establishing
training infrastructure in the field of electricity
distribution, regulation, trading and power
markets. Efforts should be made so that personnel
of electricity supply industry both in the private
and public sector become more cost-conscious
and consumer-friendly.
5.12 COGENERATION AND NON-CONVENTIONAL ENERGY
SOURCES
5.12.1 Non-conventional sources of energy being
the most environment friendly there is an urgent
need to promote generation of electricity based
on such sources of energy. For this purpose,
efforts need to be made to reduce the capital
cost of projects based on non-conventional and
renewable sources of energy. Cost of energy
can also be reduced by promoting competition
within such projects. At the same time, adequate
promotional measures would also have to be taken
for development of technologies and a sustained
growth of these sources.
5.12.2 The Electricity Act 2003 provides that
co-generation and generation of electricity
from non-conventional sources would be promoted
by the SERCs by providing suitable measures
for connectivity with grid and sale of electricity
to any person and also by specifying, for purchase
of electricity from such sources, a percentage
of the total consumption of electricity in the
area of a distribution licensee. Such percentage
for purchase of power from non-conventional
sources should be made applicable for the tariffs
to be determined by the SERCs at the earliest.
Progressively the share of electricity from
non-conventional sources would need to be increased
as prescribed by State Electricity Regulatory
Commissions. Such purchase by distribution companies
shall be through competitive bidding process.
Considering the fact that it will take some
time before non-conventional technologies compete,
in terms of cost, with conventional sources,
the Commission may determine an appropriate
differential in prices to promote these technologies.
5.12.3 Industries in which both process heat
and electricity are needed are well suited for
cogeneration of electricity. A significant potential
for cogeneration exists in the country, particularly
in the sugar industry. SERCs may promote arrangements
between the co-generator and the concerned distribution
licensee for purchase of surplus power from
such plants. Cogeneration system also needs
to be encouraged in the overall interest of
energy efficiency and also grid stability.
5.13 PROTECTION OF CONSUMER INTERESTS AND QUALITY
STANDARDS
5.13.1 Appropriate Commission should regulate
utilities based on pre-determined indices on
quality of power supply. Parameters should include,
amongst others, frequency and duration of interruption,
voltage parameters, harmonics, transformer failure
rates, waiting time for restoration of supply,
percentage defective meters and waiting list
of new connections. The Appropriate Commissions
would specify expected standards of performance.
5.13.2 Reliability Index (RI) of supply of power
to consumers should be indicated by the distribution
licensee. A road map for declaration of RI for
all cities and towns up to the District Headquarter
towns as also for rural areas, should be drawn
by up SERCs. The data of RI should be compiled
and published by CEA.
5.13.3 It is advised that all State Commissions
should formulate the guidelines regarding setting
up of grievance redressal forum by the licensees
as also the regulations regarding the Ombudsman
and also appoint/designate the Ombudsman within
six months.
5.13.4 The Central Government, the State Governments
and Electricity Regulatory Commissions should
facilitate capacity building of consumer groups
and their effective representation before the
Regulatory Commissions. This will enhance the
efficacy of regulatory process.
6.0 COORDINATED DEVELOPMENT
6.1 Electricity being a concurrent subject,
a well-coordinated approach would be necessary
for development of the power sector. This is
essential for the attainment of the objective
of providing electricity-access to all households
in next five years and providing reliable uninterrupted
quality power supply to all consumers. The State
Governments have a major role, particularly
in creation of generation capacity, state level
transmission and distribution. The Central Government
would assist the States in the attainment of
this objective. It would be playing a supportive
role in fresh capacity addition and a major
role in development of the National Grid. The
State Governments need to ensure the success
of reforms and restoration of financial health
in distribution, which alone can enable the
creation of requisite generation capacity. The
Regulatory Commissions have the responsibility
of ensuring that the regulatory processes facilitate
the attainment of this objective. They also
have a developmental role whose fulfillment
would need a less formal and a consultative
process.
The Electricity Act, 2003 also provides for
mechanisms like “Coordination forum”
and “Advisory Committees” to facilitate
consultative process. The Act also requires
the Regulatory Commissions to ensure transparency
in exercise of their powers and in discharge
of their functions. This in no way means that
the Regulatory Commissions should follow formal
judicial approach. In fact, quick disposal of
matters would require an approach involving
consultations with stakeholders.
6.2 Under the Act, the Regulatory Commissions
are required to perform wide-ranging responsibilities.
The appropriate Governments need to take steps
to attract regulatory personnel with required
background. The Govt. of India would promote
the institutional capability to provide training
to raise regulatory capacity in terms of the
required expertise and skill sets. The appropriate
Governments should provide financial autonomy
to the Regulatory Commissions. The Act provides
that the appropriate Government shall constitute
a Fund under section 99 or section 103 of the
Act, as the case may be, to be called as Regulatory
Commission Fund. The State Governments are advised
to establish this Fund expeditiously.
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