With every passing year, it is becoming increasingly clear that power shortage in India is unlikely to disappear anytime soon. The shortage went on mounting as the demand for electricity has kept on growing, while capacity expansion has fallen short of targets: both in the ninth and tenth plans, the capacity additions in the power sector were just about half the targets.
It is unlikely that the ambitious target of 90,000 MW can be reached in the eleventh plan (2007 – 12). Does it mean, therefore, that electricity consumers should learn to live with scarcity and regular load shedding? It is high time we start looking for options that would keep the situation from getting out of hand.
As has been widely reported in the media, cities and towns in Maharashtra faced load shedding of up to 10 hours or more this summer and, in several states, industries had to shut down for more than one day a week due to load shedding. In fact, in Maharashtra, the situation had reached such a point that the state’s power distribution company MSEDCL approached Maharashtra Electricity Regulatory Commission (MERC) with a proposal to extend the closure days from one to two every week for industrial units.
However, in today’s changed context, throwing one’s hands up in helplessness is not the answer. When the Indian economy has entered an era of high economic growth, distribution utilities in the states have an added responsibility to seek out solutions that do not hinder growth.
In Pune, for example, the CII’s local chapter in consultation with MSEDCL submitted a proposal to MERC to utilise the surplus captive generating capacity of around 90-100 MW available with the top 30 companies in its area. MERC on its part, after holding public hearings, issued an order approving the proposal, which mitigated the supply shortfall.
But, since these captive plants were running on liquid fuels, their cost of generation was much higher than the conventional power plants running on coal. Hence, to ensure viability, the captive generating units had to be reimbursed with the difference in costs by levying a reliability surcharge of 42 paise per unit on all the units sold in the area, except sales to residential and commercial customers consuming less than 300 units per month. In return, all the consumers in Pune were guaranteed zero load shedding.
What one learns from this example is that with some innovation and bold approach it is possible to manage power shortages. Moreover, most consumers are willing to pay more for reliable power supply. The Pune solution was specific to that city and may not be easily replicable in cities or industrial areas that do not have adequate captive generating capacity. Yet, in a situation where the cities and semi-urban areas are commercial hubs and the industries are bulwarks of India’s GDP growth, it is imperative that their power requirements are met.
However, as discoms have universal service obligation they cannot discriminate between consumers or areas. Hence, when there is a demand-supply gap, the discom must distribute that shortage uniformly over its customers. The SERCs have to ensure that this 'distribution' is equitable. The issue is, can the state utilities and ERCs rise above conventional thinking and start planning for anticipated power shortages in their areas of operation?
MERC has proposed a franchisee model based on the principle of distributed generation to cater to the needs of urban agglomerations and industrial areas. This model is an extension of the distribution franchisee concept provided within the legal framework of the Electricity Act 2003.
The concept of distributed generation, unlike the conventional generating stations, is based on small, modular and short-gestation technologies for electricity generation, located close to the load. Distributed generation can be in stand alone or in grid parallel mode. Here we are concerned with the latter.
In the MERC model, such distributed generation franchisee will not only undertake supply of power in an agreed area of discom based on performance-linked contracts but will also bring in enough power through distributed generation to meet the power deficit for that area. Similar to the Pune model, MERC will determine the reliability surcharge for electricity injected by this franchisee.
The proposed franchisee would have various options for alleviating the supply deficit in its area. For example, it could harness available captive power; source power from the power trading companies in short term; or even set up a decentralised power generating unit based on gas, liquid fuel or even renewable energy sources in the long term. With a clear contractual obligation to ensure adequate power supply at all times, the franchisee could ring fence his area from the general power shortages subject to regulatory scrutiny to keep his procurement costs reasonable.
The benefits of this model become clear if one considers that there are many districts in India where distribution losses are as high as 60% and the bill collection is as low as 30%. Hence, any attempt by a discom to buy expensive power to meet the deficit universally is a non-starter.
Since franchisees’ generating stations would typically be connected to local feeders at 33, 22, or 11 KV, the transmission losses associated with the supply of electricity from the pit head power stations would be avoided. Moreover, since the power would be supplied to consumers in areas where the willingness to pay for reliable power is high, the revenue leakage due to theft or defaults in bill payments would also be low. In Pune, distribution losses are lower than 15% and collection of bills almost hundred per cent. Hence this model can work only in areas where distribution losses are lower and collection efficiency is high.
This would enable unhampered economic growth in the vital sectors of the country’s economy and is, therefore, worth pursuing. Especially, when there is no guarantee that power shortages will not persist in the foreseeable future. Further, the success of the franchisee model would usher in the much needed public-private partnership in the power sector, as opposed to privatisation of distribution which, faces many a political and economic obstacle.
(The author is chairman, MERC)
