Context

The power crisis has taken us by surprise. The question in everyone’s mind is: where did we go wrong? And who slipped up?

Responsibilities in supply chain

• Under the Electricity Act, it is the responsibility of the Distribution Licensee/Company (Discom) to provide reliable quality and round-the-clock electricity to all consumers to meet full demand.
• To do so, they enter into contracts with a number of generating companies in order to ensure adequate supply.
• These Discoms work under the oversight of the State Electricity Regulatory Commissions.

Suggestions

1] Dealing with the challenge of demand prediction

• Qualitative transformation in demand: With higher incomes and the consequent increase in the use of air-conditioners and other electrical appliances, the nature of electricity demand is undergoing a qualitative transformation with rising daily and seasonal peaks, and spikes on very hot or cold days.
• While demand prediction is inherently uncertain, the questions to ask are whether Discoms have been making and updating their demand growth projections and scenarios over the medium term with adequate supply arrangements in a robust manner.
• This needs to become central to the regulatory process.
• Ensuring reliable supply to meet unanticipated peaks, as have occurred now, requires making supply arrangements with reserve margins that are adequate.
• The Regulatory Commissions need to provide for such expensive peaking power arrangements in the tariffs they approve.
• It is also time to move towards separate peaking power procurement contracts in addition to the present system of long-term thermal power contracts.

2] Demand-based time of day rates of electricity

• A transition to demand-based time of day rates of electricity for generators as well as consumers would help.
• These should be brought in by the Regulatory Commissions.
• Flattening of demand curve: Peak demand moderation and flattening of the demand curve through a change in consumer behaviour is feasible with smart meters.
• But this would take place only with a strong price signal, a large differential in peak and off-peak rates.

3] Subsidies and politics

• Free supply of electricity to farmers and households up to a specified level is not a problem as long as State governments pay for it as provided in the Act, and the Regulatory Commissions do not at the same time act from a political point of view and shy away from determining cost-reflective tariffs.
• While the problem of delayed payments by Discoms is getting highlighted and needs to be resolved with a sense of urgency, the coal supply problem is not due to this.
• Coal India needs to create capacities to rapidly ramp up production; and the Railways need to carry larger quantities of coal when demand surges, as has happened now.
• Imported coal and gas generated electricity: There is idle but expensive generating capacity available — about 15-20 GW of gas-based power plants which can run on imported liquefied natural gas, and 6 GW-8 GW of thermal plants which can run on imported coal.
• Consumers who are willing to pay more could be kept free of power cuts with purchase and supply of more expensive electricity generated from imported coal and gas.
• To improve reliability, Discoms, with the approval of the Regulatory Commissions, need to go in for bids for storage.

Conclusion

A lesson is that demand growth projections and supply arrangements need to become central to the regulatory process.

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