Relevance: GS-3: Infrastructure: Energy, Ports, Roads, Airports, Railways Etc.

Key Phrases: Power sector, power crisis, coal crisis, shortage of coal, renewable energy, Late Payment Surcharge (LPS), Baseload.

Context:

• Blaming the country’s coal producers for the power crisis India faces is not justified when the efforts being made on the policy front are not trickling down to the last mile.
• Both the Power Ministry and the Ministry for New and Renewable Energy are playing an active role in shaping the policies to meet the green commitments made by India. But there is some ground to be covered in the area of implementation.

What could be the reason for this?

• The coal producers’ were under an impression that renewables will come up in a big way and help offset coal usage. But this has not happened so far.
• Coal cannot be dismissed entirely from the system, as it is the one that meets the baseload; wind and solar are still unreliable as the wind doesn't blow all the time, and there's no sunlight at night.

Why hasn’t green energy yet fully become a part of the ecosystem?

• Here are some of the areas that require attention:
  1. The sector is weighed down by the absence of clear regulations and procedures from regulatory bodies, especially the State regulators
  2. Discoms often take a divergent stand in matters of change-in-law and passthrough; and
  3. Delays in tariff /quantum adoption.
• Different focus of the government and the regulators — while the former focuses on growth, the latter largely follows a conservative route.
• Disconnect between producers and policymakers: There is certainly some scope for enhancing interactions between investors/producers and policymakers, especially for framing of policy and announcements; often policy/notifications come as a surprise.
• Lack of prior consultation with stakeholders: The recently issued rules for late payment surcharge are not being accepted by State governments and are being challenged in courts. Therefore, prior consultations with State and other stakeholders would be beneficial for the actual implementation of such notified rules.
• Outstanding dues: The energy sector has been grappling with the never-ending problem of outstanding dues, which has led to financial stress across the electricity chain.
• Transmission- the missing link: There is a lack of existing transmission infrastructure in far-flung areas, making grid-connected solar and wind plants difficult to locate.
• Spot market cap: Although much of the power market in India is free, there is a small quantum of power still being procured from the spot market whose price is determined based on market dynamics. Such market enabled procurement gives an option to Discoms to fulfil their unplanned purchases.
  • A cap has been recently placed on the exchange prices in the spot market. This could hamper the development of merchant capacity in the country.

What is the way out?

• Advance deliberation: For a highly regulated sector like power there is hardly any scope for gaming, only advance deliberations will help in smoothening the process. Any meaningful time frame for deliberations with the industry before issuance of common policies is always welcome, industry players aver.
• De-licensing: A need for de-licensing of downstream distribution activity and segregation of carriage and supply business can certainly bring inefficiency into the power market.
• Honouring International Contracts: Honouring international contracts and obligations by States needs to be ensured to boost investor confidence.
• Mitigating outstanding dues: The inability of Discoms to pay dues impacts the entire value chain of the power sector, and considering this situation the Power Ministry is working on a scheme to mitigate the financial woes of the Discoms.
  • The proposed scheme enables payment of financial dues in easy instalments by the Discoms;
  • They will be given the flexibility to pay the outstanding amount in up to 48 instalments.
  • Also, a one-time relaxation is being considered for all the Discoms.
• Late Payment Surcharge (LPS): The liquidation of outstanding dues in a deferred manner without the imposition of the Late Payment Surcharge (LPS) will give Discoms time to shore up their finances.
  • At the same time, the generating company will benefit from assured monthly payments which otherwise were not forthcoming.
  • However, in case of delay in payment of an instalment by a Discom, the otherwise exempt LPS shall be payable on the entire outstanding dues.
• Improved transmission: Every megawatt of new generation capacity must be complemented by some form of transformation capacity added to the system to ensure a reliable and uninterrupted flow of electricity.
• Elimination of reverse auction methodology: Some of the enablers for the development of renewable capacity in the country must include notifying the bid pipeline for solar/wind/hybrid capacity and elimination of reverse auction methodology under RE bidding.

Conclusion:

• Over the next five years, 70% of new capacity expansion is expected to come from renewable energy. This would help India meet its Paris climate agreement commitment of increasing renewable energy to 40% of total power generation by fiscal 2030 from the current 25%.
• Considering the challenges that the power sector continues to face, a lot of political will both at the Central and State levels is required to completely overhaul the sector and make it robust.
• In addition to strong government incentives, viability gap funding, and the execution support for land and evacuation infrastructure, this upswing is expected to be supported by strong government support.

Source: The Hindu BL

Mains Question:

Q. How can improving the poor financial condition of power distribution companies (discoms) be a way out of scaling up renewable energy in India?