MoP consultation paper on Open Access

Ministry of Power (MoP) recently invited comments on a consultation paper on issues related to Open Access (OA). Electricity Act (2003) which provides non-discriminatory Open Access (OA) to all consumers for use of evacuation infrastructure has been caught up with regulatory hurdles at every stage of implementation.  State utilities who are on the losing side as consumers migrate through OA have ensured the market mechanism fails to take-off.

The MoP committee which has come up with this consultation paper has categorized the issue along the tariff structure and consumer behaviour

Frequent shifting of Open Access consumers

The argument of frequent consumer shifting is accepted to an extent considering the fact, short term Open Access clients are unable to project their load demand to utilities. The proposal calls for OA clients to schedule for power requirement 24 hrs prior to seeking OA clearance to ensure state utilities are prepared to meet the demand.

Cross Subsidy Surcharge

Cross Subsidy Surcharge (CSS) has always been a major point of debate and there have been multiple revisions to the formula that calculates this charge. Owing to an increase in OA transactions CSS charges are already high. The proposal is to limit the CSS to 20% of consumer tariff and introduce category wise CSS. The proposal also calls for CSS based on time of day, peak, normal and off-peak which is quite interesting.

Additional Surcharge

Additional Surcharges are increasing across states after every tariff revisions owing to an increased capacity of stranded assets bound by long term Power Purchase Agreements (PPA). A calculation method based on a revised definition of stranded asset (based on capacity stranded on account of OA) and amortization of assets has been proposed to remove the potential double accounting of charges to consumers.

Stand-By charges

In recent times BESCOM has charged OA clients with a high temporary tariff on account of classifying the power sold to them under stand-by charges. Although the existing regulations at the state level forbid such charges, BESCOM has incurred the wrath of OA consumers for the past few months. The proposal calls for definition of stand-by charges based on a two part tariff with the upper limit set at 125% of the consumer tariff under the category.

Tariff design and rationalisation

In the end the paper clearly acknowledges the fact, the failed two-part tariff structure has lead to the overall collapse of the market mechanism and OA. A better structured tariff structure would have limited the damage of OA shift on the state utilities. (Read more about the inefficient electricity tariff structure from an earlier post)

Overall, the paper calls for a major revamp of the OA regulations and it brings out a need to align with the recommendations in the National Tariff Policy (NTP,2016). The consultation paper has been dubbed as anti Open Access by multiple stakeholders but I see this as a frank assessment of our tariff structures and gives an opportunity to rectify the basic flaws in the existing inefficient tariff structure.

Read more: MoP Consultation Paper

 

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EESL: The procurer for masses

Energy Efficiency Services Limited (EESL) could come across as yet another government initiative that is unrelenting in its pursuit of energy efficiency and EESL has managed to do that in the past few years but through a radical step. The drop in LED bulb prices (7W/9W) in the last few years is hard to be missed although the reason behind the drop goes unnoticed at times.  After setting a precedence or claiming to have set one, EESL has geared up on the next big vision of its former Minister Piyush Goyal, ‘Electrification of Indian transport by 2030’.

UJALA

Unnat Jeevan by Affordable LEDs for All (UJALA) scheme previously called Domestic Efficient Lighting Programme (DELP) has been funded by KfW, AFD and ADB in procuring LEDs for large scale distribution through local utilities across states. As of Sept. 2017 it claims to have distributed over 260million LEDs leading to a cost saving of over 13,000 Cr per year with an avoided peak demand of over 7GW (Dashboard).

How did it happen?

The price of LEDs have come down significantly, a 7W LED in 2014 costed INR 310 which in 2017 is less than INR 70 and even the retail prices for 9W LED is less than INR 100. The quality of the bulbs is always debated but EESL offers free replacement for the faulty ones (3yr window) and claims to have a fault rate of less than 1%. A few experts however feel the lumens from EESL LED is low.  Although the procurement practices have been questioned by the opposition, EESL claims to have endorsements from its funding agencies for its procurement which is completely transparent through a eprocurement platform(Read an IEA report on the same).

 

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Large scale public procurement has been a success across countries as the bulk procurement through demand aggregation has proved to decrease cost by close to 20%. In EESL case, the LED drive has achieved over 70% cost reduction.

Make in India

One of the key successes of the EESL has been the emphasis on Make in India. It has transformed the Indian LED industry that was manufacturing 1-2 Lakh LEDs a month to now produce 3-4 Crore LEDs/month in a span of just three years. As on today, all LEDs procured for domestic lighting, public street lighting procured by EESL are manufactured in India.

Electric Vehicles

EESL taking up the procurement of Electric Vehicles (EV) and Electric Vehicle Supply Equipment (EVSE) is not without a reason. The cost of EVs, batteries are high and there is negligible manufacturing in the country in this sector. The subsidies through FAME have been flowing for the last few years but the supply and demand has not scaled up. If large scale procurement of EVs in China especially in public transportation is anything to go by, India can hope to replicate it or kick start EV and battery manufacturing in India.

In between LED procurement and the foray into EVs, EESL has tested waters and found success in lighting/appliances procurement (tube lights, fans and ACs), it has also procured energy efficient solar pumps in large scale and distributed to state DISCOMs. It has also bought solar modules in bulk quantities and supplied to projects undertaken by public sector corporations. Building on its success, it has also floated tenders for procurement of LEDs for UK and Malaysia right out of India since 2017. Just a few weeks before the release of tenders for EV, EEESL also floated a tender for procurement of 5 million smart meters for utilities in  Haryana and Uttar Pradesh, two states with the largest power theft/loss.

The national EV policy is yet to be finalised and so is the specifications for charging infrastructure, ‘Bharat Charger‘; EESL however has indicated its ambitious procurement target early on giving the industry a big wake up call to what is likely to happen. The 10,000 sedan programme aims to procure 10,000 vehicles in the medium term with the first order accounting for 1000 of them to be supplied in Delhi/NCR. Similarly 400 EV charging stations are to be setup in Delhi/NCR region out of the 4000 targeted between 2017-2019. Currently, the specifications of the sedan match Mahindra eVerito the lone EV sedan manufactured in India. In addition to these, EESL has also floated an expression of interest inviting industry to procure and lease E-auto rickshaws through app based model without batteries. It hopes to separate batteries out of these vehicles to keep the costs low ( public buses to follow in the long run). It will in all likelihood setup an energy business offering swappable batteries for e-rickshaws and then public buses (?).

The tenders are yet to be awarded but even at the nascent stage the intent of EESL is quite clear. The short successful track record will give companies a confidence in its procurement policies. Since the potential off-takers in this business have already expressed interest, the plan should see a smooth roll out of EVs by the start of 2018. However, the success of this mission of EESL should be gauged on how much of local manufacturing it is able to generate for EV, EVSE and batteries in India. Nevertheless, EESL through its vision (Ministry of Power’s) and action is turning out to be the ‘The procurer for masses’. Only time will tell if they can sustain the same momentum with a new minister at the helm.

About EESL

EESL was incorporated as. Joint Venture of 4 CPSUs of Ministry of Power NTPC, PGCIL, REC and PFC and is under the administrative control of Ministry of Power, Government of India since 2015.

Economic Survey: Climate Change, Sustainable Development and Energy

Electricity is one the key sectors of the Indian economy and with the emergence of non-fossil power plants unsettling the traditional businesses it was high time to have a comprehensive take on the subject, the recent economic survey tries to do just that. A chapter aptly titled ‘Climate Change, Sustainable Development and Energy’  is a clear indication that the electricity sector today has wider impact on the people than portrayed by the phrase ‘Bijli, Sadak, Pani‘ (Electricity, Road, Water).

Climate Change

The chapter on economic survey clearly brings out the Govt.’s objective to stick to its commitment to the Paris Agreement (Read more on India’s climate commitment). The chief economist goes on to say India will stick to its stand irrespective of what happens with the US’s stance on climate change.

Sustainable Development

Its been over two years since UN released its objectives for Sustainable Development and the 17 Sustainable Development Goals (Know more about SDGs) and India has produced the first review of the goals. As expected the emphasis is on SDG 7, “Ensure access to affordable, reliable, sustainable and modern energy for all”. Incidentally, SDGs also have 2030 as the target year like the Paris Agreement.

Energy

The narrative of the chapter is quite clear right from the start, justify the need to transition to Renewable Energy (RE) alternatives by stressing the benefits of climate change and sustainable development. A detailed analysis on the costs of energy and net benefits have been studied and presented in the study. A few of the analysis have been spot on like the one on anticipated RE penetration by 2027, a 43% of the grid total and getting better of coal.

Solar Power

The past year has been a clear indication that rapid deployment of solar power is possible with declining costs (highlighted below). (Solar bids: No more outliers)

The survey interestingly points out to the key factor that determines if a solar power development is really sustainable. I’m glad to be proved right, that the development costs of solar power is high considering land use is impacted especially if the plants are performing below their efficiencies (Read more: Is Solar Power Development Sustainable?) Survey points out the land requirement for solar is 10 times the requirement for coal plants, clearly a loss of opportunity cost.

Need explanation: Social costs

As a surprise, in what looks to be a clear approach to show the net benefits of RE switch is not significant as thought, the economic survey throws up an analysis that points social costs of Renewables is three times that of coal but reduces as we progress to 2030.

Similarly an explanation is needed to justify the lack of accounting of actual costs of stranded assets in thermal power plants while the same has been well accounted for renewables. If there is a valid justification, calculations have to be made public for debate.

Subsidies

It is understandable that subsidies for RE have been high in the past and wind accounted for a major chunk considering the Generation Based Incentives (GBI) were in place until March 2017. How are the budget estimates for 2017-18 FY expected to be close to last year when the major financial incentive of GBI has been waived off? There have been no known policy announcement that can justify this estimate.

National Clean Energy and Environment Fund (NCEEF)

A topic that needs further debate considering that the new proposal of  Govt. is to use this fund for compensating states for the loss of revenues from GST implementation. I had earlier pointed out NCEEF allocation had to be re-looked considering its objectives (NCEEF: A review). The survey points out the NCEEF has been under utilized, no projects have been recommended by Inter Ministerial Group (IMG) to be funded from this corpus for the past two years.

Overall, summaries from a few analysis are highly debatable especially related to social costs of renewable energy. But, the Economic Survey brings out the major topics for discussion in the public domain, a clear indication that the government is actively pursuing these policy objectives. The chief economist has promised to release all the data pertaining to the economic survey in public domain in due course and I’m looking forward to it.

On a personal note, I’m glad that a chapter in Economic Survey talks about Climate Change, Sustainable Development and Energy in the same breadth, the very topics I have been writing about in my website.