Ministry of Power of India amendment

PROPOSED AMENDMENTS OF ELECTRICITY ACT, 2018 :

The Ministry of Power of India has recently announced the draft proposed amendments to the Electricity Act, 2003. The proposed amendments aim to be in line with the country’s changing electricity markets and systems, with their large renewable capacities and the emergence of a smart grid network.

The Amendment proposes important changes in renewable energy, cross-subsidy, open access, operations & responsibility of ERCs, and many other changes. Some of these are discussed in brief below:

Renewable Energy

The EA Amendment 2018 proposes several amendments that are favorable to the RE sector. Some of these are:

Definition of Renewable Purchase Obligation and Renewable Generation Obligation introduced.
RPO has been separately defined. Related to this, the definition of “Obligated Entity” has also been introduced.
RGO means the Renewable Energy Generation capacity required to be established to be procured from Renewable Energy Sources, and sale of such energy along with the electricity generated from the coal or lignite based thermal generating station, by a generating company establishing a coal or lignite based thermal generating station.
Introduction of renewable energy service company which provides renewable energy to consumers in the form of electricity.
Introducing policies in order to support RE sector like National Renewable Energy Policy to promote smart grid, ancillary support, and decentralized distributed generation in accordance with the provisions of the Act;
A penalty of maximum Rs. Fifty lakh for non-compliance of RGO. (Reduced from 1 Cr. to 50 Lakh, the earlier penalty was on 1 lakh.)
For non-compliance of RPO, an additional penalty is proposed, which shall be minimum of Rs 1 per unit with a maximum of Rs 5 per unit depending on the extent of the shortfall.
Generation and supply of renewable energy will not require any license for such generation and supply.
Cross-subsidy

The draft EA Amendment proposes (a) time-bound reduction in cross-subsidies (CSS), and (b) CSS to be not more than 20% of the wheeling charge. These provisions are nothing new. The EA 2003 also included provisions for reduction of CSS. But these were watered down later.

The proposal that CSS be 20% of wheeling charges is significant, as if implemented, it will reduce CSS significantly. Also, the provision for charging “additional surcharge” is proposed to be deleted – this will also have a significant impact as in recent years states have used high additional surcharge as a tool to discourage open access.

Open Access

The draft EA Amendment states the following with respect to open access:

“With effect from the commencement of the Electricity (Amendment ) Act, 2018, all consumers having a connected load of 1 Mega Watt and above with the power system, may procure at their option electricity through open access under contractual agreement from any generating company, trading licensee, or from any other source.”

This implies automatic open access, without the need for permission from the Discom. If implemented, this will be a radical change and can potentially transform the electricity market in the country.

Separation of Carriage and Content

One of the key provisions in the previous EA amendment (proposed in 2014) was the separation of carriage and content – i.e. further breakup of the Discom into supplier and network operator, and also allowing multiple suppliers in the area of the Discom. This proposal was met with significant resistance from the state when the Standing Committee of the Parliament viewed the amendment. As a result, the current amendment, while retaining the provisions, has significantly diluted the scope of carriage and content separation by leaving it entirely to the decision of the state government.

In our opinion, this is a pragmatic approach, as it may allow the passage of the EA Amendment act without significant resistance from the states. However, the flip side of this approach is that such a reform will take a long time to be realized on the ground, and there will be significant differences between states. The EA2003 has heralded the break-up of Electricity Boards into Genco, Transco and Discom’s. Fifteen years on, the separation is still only partially effective in most states.