An Analysis by Business Line…
Power sector reforms commenced in 1991-92, with private players being invited for capacity addition in generation. With the enactment of Electricity Act, 2003 (the Act), generation was de-licensed and trading recognised as a distinct licensed activity.
Open access, a framework for development of power market and for promoting competition, is mandated to allow freedom for consumers (suppliers) to choose suppliers (consumers). It basically means that the buyer has the freedom of selecting the seller, and vice-versa.
Open access to the inter-state transmission network (that is, inter-state open access) was available from the very beginning of the Act coming into effect. The charges for transmission capacity and quantum of power transmitted over it are easily discernable for effecting payments.
Open access to the distribution network (that is, intra-state transmission), owned by Discoms, however, was to be implemented in phases on payment of open access charges and charges for cross-subsidy and additional subsidy if any, which were to be progressively reduced to within 20 per cent of the average cost of power by 2010-11.
INTRA-STATE TRADE
Open access is available for power purchase or sale by utilities or distribution licencees. However, when it relates to generators and consumers, only some of the States have permitted limited open access. Some are permitting open access to generators if they are connected to central transmission network.
Lack of open access in intra-State transmission has stifled the development of the power market, jeopardising competition. The competition is only feasible if players in the power market are permitted access to both intra and inter-state transmission networks on payment of reasonable charges.
While inter-state open access within the limitation of adequate ‘available transfer capability' (ATC) has been operational, intra-State open access has not progressed because of tardy implementation of certain pre-requisites.
Lack of open access has also restricted transfer of power from surplus to deficit regions and failed to optimise procurement costs.
RESISTANCE FROM STATES
The irony is that open access has not been allowed to succeed for various reasons, such as apprehension of the State utilities about flight of industrial consumers from their net; non-availability of surplus power at reasonable rates; irrational open access charges; non-availability of open access infrastructure of metering; and segregation of consumers' lines, among other factors.
Even though the cross-subsidy surcharge on open access transactions is mandated under Section 39 and 42 of the Act, erecting a high tariff barrier deters customers from purchasing supplies from outside the jurisdiction of Discoms and runs counter to the tariff envisaged in the National Electricity Policy and Tariff Policy.
The National Electricity Policy states that the cross-subsidy surcharge should not be so onerous that it becomes difficult for customers to procure competitive power from the market. For meeting the demand during acute power shortage, it is observed that some States have misused their powers to block the sale of surplus capacity of captive generators to other States, by inappropriately invoking Section 11 of the Act.
This de-motivates the generators to sell power through the power trading mechanism, and forces some of them to sell power below market rates. It vitiates the very spirit of the Act. It has forced the Union Ministry of Power to issue direction to Central /State Regulatory Commissions to allow industrial consumers to buy cheaper power from the open market under Section 107 of the Electricity Act.
GROUND REALITIES
It is a welcome step but needs to be implemented at the State regulators/State distribution companies' level. A standard, consumer-friendly open access regulation with balanced cross-subsidy computation should be formulated through a forum of regulators and adopted uniformly by all states regulators.
Taking the holistic view of the various provisions of the Act, open access cannot be legally denied, if requested by consumers. Sans open access, industries are either forced to opt for captive generation or depend on unreliable power supply from Discoms.
Some States like Punjab, Rajasthan and Gujarat, on a non-sustainable basis, have started allowing open access to the consumers for procuring power for meeting their requirements. Some States like Tamil Nadu are not allowing captive generators to sell power through open access, even though it allows importation of power during peak hours.
Some of the basic requirements for availing of open access by consumers are: metering conforming with specific standards; infrastructure to facilitate these transactions; servicing sub-stations to consumers to have the facility to segregate consumer lines; no objection for scheduling by State Load Despatch Centres and adhering to regulations of SERC/CERC on open access.
Discoms have to match consumers' expectations by supplying the reliable power or allow open access. It can't just build a tariff barrier by levying any surcharge to prevent possible migration of consumers.
With increasing size and depth of the market, new products are bound to hedge the risks for the buyers and suppliers, and these could be in the form of options and futures. Also, for making transparent open access regulations, there is a need for segregating the wires and content business in the distribution segment too. To help facilitate a successful open-access regime, Discoms are to create infrastructure and remove last mile connectivity problems for consumers.
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