|And now, power portability!|
|Tuesday, 10 January 2012 01:15|
Though it has been delayed four years, mid-sized consumers can finally choose their electricity suppliers
In the rush of new year celebrations, you probably missed the Jindal Power advertisement that talked of how its 1,000 MW power plant was among the first large power plants in the private sector and how it was amongst the most efficient in the country. An ad by a power producer? Given power producers don’t get to sell directly to end-consumers, why the ad?
Yes, that’s right, the Jindals, and scores like them, can now finally sell power to the end-consumer—that means more ads for newspapers such as this one, not something to be scoffed at especially in these times! Late last year, the power ministry finally announced that power producers can sell directly to mid-sized power consumers—people who use more than 1 MW of power (that’s a mid-sized shopping mall). The ministry has come out with the notification after managing to delay the process by four years—in 2003, the Electricity Act mandated that the outside limit for mandating such ‘open access’ for 1 MW consumers would be five years. Open access for the smaller-sized consumers was to kick in later. In the UK, which is where the concept first came from, open access started with the larger users but is today available even to households.
Though the Act had put 2008 as an outer limit for states allowing open access, between the power ministry and the state electricity regulators, it never really happened, and all manner of excuses were trotted out for not allowing this to happen. The Planning Commission, which was rooting for open access, kept pushing and the matter went to the Attorney General who initially turned it down. The Planning Commission, however, kept at it and, in December 2010, Attorney General Goolam E Vahanvati okayed open access and said, “the jurisdiction of the State Commissions in relation to bulk consumers who opt for open access is limited to the determination of wheeling charges and surcharge and not fixation of tariff”.
What that means is that a state regulator, say the Delhi Electricity Regulatory Commission, can no longer regulate tariffs that, say, BSES can charge from, say, Ambience Mall in Vasant Kunj (New Delhi)—Ambience will directly negotiate with BSES. What DERC will do, however, is to say that in addition to whatever rate Ambience and BSES negotiate bilaterally, there will be a ‘cross-subsidy’ charge (this is to make good the losses BSES incurs since a large number of Delhi’s customers don’t pay it and choose to steal electricity instead) as well as a ‘wheeling’ charge (to compensate BSES for investing in and maintaining the power lines going into Ambience). So, if Ambience gets a better deal from Jindal, all it needs to do is to pay BSES the cross-subsidy and wheeling charge and get on with life. And once the cross-subsidy charge (what can loosely be called the theft surcharge) is out there in the open, there is certain to be increased pressure to reduce this over a period of time—going by the axiom that you can change things only if you can measure them!
After Vahanvati okayed the proposal, it went to law minister Veerappa Moily, who endorsed it—without his endorsement, the AG’s opinion doesn’t carry the same weight—in April 2011 when he said “the tariff for bulk consumers of above 1 MW cannot be regulated by the State Regulatory Commissions and only their wheeling charges and surcharge thereon may continue to be regulated ...” The power ministry still dilly dallied, but presumably ran out of stall-power towards the end of last year.
The results of this, as in the case of mobile number portability, will be immediate. For one, various state regulatory commissions will now start coming out with cross-subsidy surcharges and wheeling charges. Two, the levels of competition in the industry will go up dramatically, and that means both lower tariffs as well as increased client servicing. Most important, it will also open up avenues of finance in the sector which have dried up with the sharp hike in power sector losses—these are up 2.5 times since 2006-07 (they rose to R63,548 crore in 2009-10) and the debts owed by power distribution companies were up to R3.1 lakh crore by March 2010, up 27% over the year. With power companies only allowed to sell to SEBs that are now bankrupt, banks are increasingly averse to lending to them. But with open access, the better ones can sell to solvent buyers and the lending-building cycle can carry on for at least one part of the power sector.
The impact on pricing is also expected to be significant. Today, with the market for traded power quite small, even a small spike in demand sends power tariffs shooting through the roof. While there is no firm estimate of how much power those establishments with more than 1 MW demand actually use up, it is certain to increase the size of the market for traded power. Estimates of the demand for the 1 MW-plus clients range from 8% in some parts of country to 20-30% in others. Given that around 5% of total power produced today is traded (see table), if the share of the 1 MW consumers in total consumption is 10%, this means the market for traded power trebles. If it’s 20%, the market goes up to five times. Naturally, power tariffs have to come down—since tariffs can’t come down unless costs fall or recoveries rise, this means there will be increased pressure to reduce theft levels in the sector.
All in all, a powerful push to the much-delayed reforms in the power sector. Watch this space to see how the access to open access story pans out.
|Last Updated ( Tuesday, 10 January 2012 01:19 )|