The electricity sector, which falls in the Concurrent list, should be dovetailed to the larger natural strategic goal that aims to boost employment by making the Indian economy robust and more competitive
Even as Uttar Pradesh continues to reel under debilitating power cuts, the State remains agnostic on allowing Open Access — a key electricity sector reform introduced in the Electricity Act of 2003 that allows bulk consumers to buy power directly from exchanges or producers through the existing grid network. But Uttar Pradesh is not alone in this regard. Distribution companies across India have become increasingly Open Access-phobic, as their ‘overcharged’ industrial consumers, especially micro, small and medium enterprises, who cannot afford captive generation, desperately look for firmer and cheaper alternatives through Open Access to stay afloat.
However, what discoms are trying to thwart is not merely competition for their ‘cream customers’ but a key component of a growing competitive ecosystem that has a direct bearing on both present and future employment in a country facing a demographic bulge. Keeping at bay such partisan agendas in the electricity sector is imperative, given that the new Narendra Modi-led Government has identified the growth of Micro, Small and Medium Enterprises as a prime mover for employment generation. Open Access is also an important pathway for increasing renewable energy penetration in India — another key concern for the new Government.
Open Access was introduced in the Electricity Act 2003 as a “non-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system by any licencee or consumer or a person engaged in generation in accordance with the regulations specified by the Appropriate Commission”. This allowed any consumer with a load of one megawatt and above to purchase power from power exchanges or even directly from a producer, with the power being wheeled through the extant grid network on a pre-agreed schedule, at a competitively negotiated price. Now, discoms throughout India have never been too happy with this provision, since it allows industrial consumers, who cross-subsidise domestic connections by paying much higher rates than the latter, to re-balance their portfolios by drawing down on utility based power supply.
In the last few years, as electricity rates have risen sharply for bulk consumers, on account of the fuel cost burden transferred from thermal generators using imported coal, many MSMEs have tried to re-balance their power purchase portfolios by sourcing power from the Open Access market. The issue is simply not one of cost either — because MSMEs often pay capacity charges for their utility connections, even when the discoms are actually unable to deliver power, as in the case of Andhra Pradesh.
For State-owned discoms, the situation is not a happy one either. Years of populism has drained their finances, and political pressures do not allow them to increase domestic connection prices beyond a point, at a time when they are being bled by higher generation prices due to the use of imported coal. In such an event, the loss of ‘well paying’ industrial consumers would bring into even sharper focus their own systemic issues, which also includes large aggregate technical and commercial losses.
As such, discoms in many States have been lobbying with State Electricity Regulatory Commissions to either block short-term Open Access or at least levy high user charges, like the cross-subsidy surcharge, to make it prohibitive. The reason used to deny short-term Open Access is ‘congestion’ in the grid system. Recently, even a progressive State like Gujarat, whose phenomenal MSME growth has been in no small measure due to unhindered Open Access, has taken recourse to the ‘congestion’ argument to bar consumers from sourcing power from outside the State. Some 300 MSME units in the State have been affected and have publicly voiced concerns over their future.
Meanwhile, Haryana has joined the likes of Maharashtra in pushing the cross-subsidy surcharge levied on Open Access power beyond the two rupee mark. This is obviously bad news for many MSMEs who were looking to the Open Access route for succour. It is even worse news for companies like Manikaran Power limited, India’s largest Open Access trader, whose model depends on servicing MSMEs that form the bulk of its clientele. Higher cross-subsidy surcharge, along with Open Access specific transmission charges, means that the already small margins from Open Access trading evaporate, if one has to compete with the average tariff charged by discoms. It is important to note that Open Access trading is an IT enabled sunrise sector and also underpins many jobs.
The games against Open Access are detrimental to the growth of other emerging value chains in the Indian economy as well. The flexibility in scheduling provided by Open Access creates an avenue by way of which intermittent wind generating stations, which perform best at night, can supply to MSMEs that decide to work more shifts during those hours. In any case, Open Access traders in India are increasingly looking for non-fuel price-sensitive sources, such as small hydro and wind generating stations, to service MSMEs reeling under the sharply risen cost of power from thermal generating stations. Ultimately, electricity prices in India can only be held down by diversifying away from fossil fuel-based generation.
The issue of facilitating Open Access, therefore, goes to the heart of the future structure of the Indian economy that is being envisioned. On one side is the same old protectionist model, backed by desperate discoms, that is highly susceptible to populism and one that provides low incentives for upgrading infrastructure that can facilitate growth. On the other is the Open Access model, germinating new value chains that are also serving to create the basis for a more flexible grid network.
It is time that the electricity sector, which falls in the Concurrent list, is dovetailed to the larger natural strategic goal that aims to boost employment by making the Indian economy more competitive. Electricity utilities must be made to use their additional levies for cutting aggregate technical and commercial losses, rather than just offsetting domestic subsidies. Employment creation cannot be held hostage to the difficulties faced by discoms in managing their own inefficiencies. At the end of the day, if MSMEs go out of business the biggest losers will be the discoms themselves, as they will face a smaller market. Even the discoms agree that the welfare effects of such a development will be undoubtedly negative.