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Insights into Editorial: What is missing in the draft national electricity policy

 

 

Context:

The government has finally decided to take the plunge and revise the National Electricity Policy (NEP) by invoking Section 3 of the Electricity Act, 2003.

The Act mandates that the central government shall prepare the NEP in consultation with the state governments and the Central Electricity Authority.

Draft National Electricity Policy 2021 has been released by the Ministry of Power.

The policy aims to make electricity available to all households in the next five years. NEP 2021 will help to supply reliable and quality power of specified standards efficiently manner at reasonable rates.

 

Draft National Electricity Policy 2021:

  1. NEP 2021 covers multiple areas– grid operation, power markets, regulatory process, energy efficiency, optimal generation mix, transmission, distribution and many more.
  2. The draft talks about the creation of Electric Vehicle charging stations, Smart meters, power markets, environment and more.
  3. Ministry of Power has created a committee of experts to submit suggestions to the draft NEP 2021 within two months of the release of the draft.
  4. The members of the committee include members from state governments, the Ministry of New and Renewable Energy (MNRE), NITI Aayog, and the Central Electricity Authority.

 

Issues covered by Draft National Electricity Policy 2021:

National Electricity Policy address various issues such as rural electrification, generation, transmission, distribution, recovery of the cost of services and targeted subsidies, technology development and research and development, energy conservation, environmental issues, protection of consumer interests and quality standards, a competition aimed at consumer benefits and more.

Central Electricity Authority or CEA frames the National Electricity Plan once in five years and revise it from time to time according to the National Electricity Policy.

 

Background:

The first NEP was formulated in 2005 and a lot of water has flown under the bridge since then as far as the power sector is concerned.

It is a little surprising that despite the paradigm shift that was taking place in the power sector not only in India but across the world, especially towards decarbonisation, the government did not bother to revise its NEP for almost 16 years.

Although the government keeps pointing to the fact that peak and energy shortages have come down drastically implying that all is well, the reality is quite to the contrary.

The situation of excess supply is illusory because our demand has not grown at the rate it should have because of the economic downturn since the last couple of years, even before the pandemic.

 

Improving distribution infrastructure:

  1. Our distribution companies (DICOMS) have accumulated outstanding of over `6 lakh crore and this seems to be going up year after year despite all government programmes aimed at improving distribution infrastructure and restructuring of loans.
  2. We have been slow in adopting more stringent environment norms for our power stations and we have done practically nothing on carbon capture and sequestration.
  3. We have not been able to add to our hydro capacity, which could play a crucial role in balancing the grid with increasing thrust on renewable generation.
  4. We have fuel supply issues (coal) and are unable to meet our domestic demand through indigenous mining.
  5. The government has constituted a committee that would finalise the draft NEP which has been circulated after seeking views of stakeholders.

 

There are some issues that are important and need consideration:

First, our policy statements are too verbose and lengthy:

  1. The first NEP as also the draft circulated now run into several pages, and are not incisive enough or reader-friendly.
  2. Certain sections contain too much detail, not really germane to the issue.
  3. Ideally, policy statements should be crisp and pithy, and should be able to hold on to readers’ interest.
  4. The main policy document should only cite the direction we intend to take and the reasons for doing so should go as explanatory notes as an addendum to the policy.

The second issue is regarding the effectiveness of the policy.

  1. The draft policy has a lot to say on renewable generation, and rightly so, but what is the guarantee that it would be followed.
  2. While the central government may fix targets on renewable generation capacity, the implementation will mainly be done by private enterprises.
  3. Now, private enterprises will move according to the investment climate as it exists in states.
  4. Unfortunately, some states completely shake off investor sentiments by reopening PPAs, or by not paying renewable generators.
  5. Such actions would ensure that the objectives of the policy remain unfulfilled. All stakeholders should treat the NEP as mandatory and act accordingly.
  6. Similar problems have arisen in the case of the National Tariff Policy (NTP) in the past, where certain states have expressed unwillingness to comply with certain sections of this document.
  7. Incidentally, both the NEP and the NTP emanate from Section 3 of the Act.

The third and perhaps the most fundamental issue is whether we should have two separate policy statements, the NEP and the NTP.

  1. The first NTP was formulated in 2006 with some minor amendments carried out in 2008, 2011 and 2016.
  2. Both these documents exist concurrently, but they practically run into each other’s domain.
  3. The answer as to why this is happening is simple. It is not really possible to segregate tariff-related issues from electricity policy in general since they are all interlinked.

The draft has been floated in a public forum by the ministry of power for getting comments from stakeholders.

 

The NEP has introduced several new concepts starting from the need of micro grids in remote areas to having a real time power market and need for investment in pump hydro generation.

With the rising capacity of renewable energy generation and lack of balancing sources of energy such as gas and large hydro, the NEP has batted for realising the potential of pump hydro storage.

The NEP noted that the country has a potential of 96,524 MW of pump hydro storage and of that barely 4,785 MW has been out up.

 

Conclusion:

Electricity is an essential requirement for all facets of our life.

It has been recognized as a basic human need. It is a critical infrastructure on which the socio-economic development of the country depends.

Supply of electricity at reasonable rate to rural India is essential for its overall development.

Equally important is availability of reliable and quality power at competitive rates to Indian industry to make it globally competitive and to enable it to exploit the tremendous potential of employment generation.

Availability of quality supply of electricity is very crucial to sustained growth of this segment.

Thus, it would be appropriate to subsume the NTP into the NEP, and tariff would be one of the several issues which would be a matter of electricity policy.

Prima facie, this will not entail an amendment to the Act and we would have the benefit of a single holistic policy statement which would take into account all the interlinkages.