Energised Focus On Power Sector Augurs Well For India

The Power Ministry has been one of the best-performing ministries in the Modi government in the last two years. The government as a whole has demonstrated continued focus on providing 24x7 power for all, restructuring the coal sector operations with a gradual push towards commercial mining, and handling the problems associated with the power distribution companies (discoms).

When the UDAY scheme (Ujwal Discom Assurance Yojana) was launched in November 2015, there was early scepticism on whether the ambitious programme would work. Now that many states have joined the financial and operational restructuring programme, much of the scepticism about the programme has moved from conjectures to operational targets. The commitments made by the state governments while signing the MOUs for the programme are far-reaching, with provisions for central assistance being taken away for the errant states.

The complex value chain of the power sector and the concurrent nature of the subject do not allow the Union government to solve the last mile problem - how the end consumer gets electricity. But the Minister of State with independent charge for Power, Coal, and New & Renewable Energy, Piyush Goyal has created several unique interventions in the last 18 months to push and prod the state governments to align with his vision of 24x7 power for all.

Goyal has also ensured that the Union government does not disengage from the transformation process as the proposed changes shape up. This federalism seems to be working well with a majority of the state governments, including the non-National Democratic Alliance (NDA) ones.

Financial restructuring under UDAY

When UDAY was launched in November 2015, the key component of the programme was restructuring the discom finances. 75 percent of the approximately Rs 4 trillion debt on the books of discoms as of March 2015 was to be taken over by respective state governments so that the cost of interest servicing could be reduced. In the available four-month window of the financial year 2015-16, various states issued bonds worth Rs 1 trillion out of the Rs 3 trillion to be restructured.

While this was good progress, the time window available was short and the market conditions for placing these bonds volatile. With Tamil Nadu, Kerala, Karnataka, and Telangana not coming on board last year, and Andhra Pradesh not floating bonds, a large chunk of the Rs 4 trillion debt was, in any case, not up for restructuring.

The Union government has now extended this restructuring window by a year. In the current financial year, Telangana and Karnataka have already joined the programme while the Andhra Pradesh MOU is in place too. This should cover the gap for the remaining Rs 2 trillion bond issuance over the year.

Additionally, the Maharashtra government, which was already a UDAY signatory, has also decided to use the financial restructuring option this year, though the initial thought process was only to stick to operational improvements. For smaller states that do not have dedicated discoms, the Union government will seek approval for centre-driven restructuring over the year.

Engaging the states

Goyal has been pushing for greater engagement with the states on the subject of power. One such vehicle is the two-day bi-annual conference organised by the ministry. The fourth edition of this conference was recently held in Goa on 16th and 17th June. Ministers from 19 states and Secretaries and officials from 27 states attended the conference.

All states and union territories agreed to push for 24x7 power for all unelectrified households by December 2018. Although none of these agreements are legally binding, not making the decisions in Delhi and involving the actual on-ground stakeholders in drawing up their plans should be a big plus for facilitating implementation.

Transmission improvement

Since independence, the power grid system in India has evolved differently in different parts of the country. There are five major regional grids, one each in North, East, South, and West and one in North East.

In February 2014, the grids were interconnected to the extent that any region could accept surplus power from any other region. In practice, this is not easy given the fragile nature of India’s power transmission infrastructure. Given the relatively fewer power generation sources in the south and correspondingly higher consumption driven by greater economic prosperity and urbanisation, the southern grid has always been under capacity stress. Several corridors are congested based on daily peak demands as well as seasonal patterns linked to weather and agricultural cycles.

The Power Grid Corporation of India has worked hard over the last year to complete several projects, improving and streamlining this transmission imbalance. The company responsible for all inter-state power transmission infrastructure commissioned projects worth Rs 30,000 crore in the last financial year - highest ever for the firm. It also met its capex target of Rs 22,500 crore.

Power Grid also commissioned the links with Nepal (via Muzaffarpur in Bihar) and Bangladesh (via Surjyamaninagar in Tripura). While the power generation in South India itself can improve if the Westinghouse nuclear deal comes through, Goyal has set a target of 18,000 mw power transmission capacity for the southern grid by 2020, a threefold increase from the current levels.

In the Goa conference, the states came up with ideas on new intra-state transmission projects worth Rs 1 trillion. The Union government is encouraging states to award smaller packages via competitive bidding to expedite the implementation.

Demand-side management

Demand management and optimisation is a key deliverable for all the states signing UDAY MOUs. The Union government has taken a big leap on the LED bulbs distribution program, thus far the prime driver for demand management. From 600 K bulbs being distributed annually in 2014, the government is now giving out 600 K bulbs every day.

The ‘Unnat Jyoti by Affordable LEDs for All’ (UJALA) programme benefits retail customers as well as institutions without any government subsidy, simply by facilitating the economies of scale for private players. This programme is now being extended to other appliances like domestic fans and agricultural pumps. The programmes for these two new areas are expected to start scaling in Q3 2016.

Leading with technology

The UDAY participating states have agreed to install smart metres for all new power connections going forward. The Union government will procure these metres in bulk, and the cost of these metres has already reduced from ₹8,000 to ₹3,000 over the last year.

Another significant agreement reached in Goa was the sharing of feeder-level data on National Power Portal by July 2016 for smaller towns. Top 4,000 cities and towns across India will be on the portal later this year, sharing the flow of power at the last network point. This information can be seen, tracked, and monitored centrally, and can be used to reduce transmission losses, reduce theft, and increase billing efficiency.

There’s an app for that!

The Power Ministry has taken the path of making data transparent and fixing accountability via various apps, which can be downloaded by anyone.

This started with GARV, which tracks the progress of rural electrification. The BEE Star Label app shows the energy efficiency ratings of various consumer appliances approved to be sold in the country. This was extended to the popular Vidyut Pravah app, which showed the spot prices for electricity available to be bought by states facing electricity shortage. This app has helped drive the narrative on Goyal’s work effectively.

Through this channel, the Union government cleverly sought the states to address the shortages. If the national power deficit was as low as 2-3 percent through most of the last year, why were states not able to provide uninterrupted power?

The Vidyut Pravah app is now being enhanced to provide district-, feeder-, and consumer-level data. This will tell the end user the exact point at which the power supply failure is occurring. Andhra Pradesh is already ahead in the game, capturing consumer-level information, and other states are likely to follow in its path.

In the Goa conference, a new app ‘URJA’- Urban Jyoti Abhiyaan was launched, which will address discom-related issues - status of new connections, complaints, and scheduled outages.

The road ahead

The next challenge which the Power Ministry will face is to ensure that the UDAY signatory states stick to their operational improvement targets. This will eventually determine the pace of discom rejuvenation. The MOUs factor in financial downsides for the errant states, but actually penalising the states will need renewed supplies of conflict management skills, which Piyush Goyal has demonstrated in the last year.

On top of all these changes in progress, the two lasting legacies of this government can be reducing India’s dependence on oil and deregulating the power sector further, promoting real, open access and easier power trading.

A lot is already happening on the renewable energy front, especially solar and hydro power. Ease of open access registrations, reducing corruption in discoms for new connections, reducing inspector raj in states for certifying terms of power connection usage, and ability to sell and buy power on exchanges easily can be the next area of reform.

Goyal has already spoken about separating content from carriage, which will effectively make transmission infrastructure a true utility. This can be the first significant change towards facilitating the aforementioned reforms.

So far Piyush Goyal has made great ground using a combination of the Kautilyan motivation techniques of saam (to ask and to advice, to engage) and daam (to offer the right financial incentives) with the states. Hopefully, the states will reciprocate sufficiently to ensure there is no need for the Union government to invoke dand (to punish).

And more importantly, the states will hopefully work towards improving the ease of doing business and reducing local corruption to completely obviate bhed (exploiting weaknesses and secrets).