Power Vision: What is missing in the draft national electricity policy

By Somit Dasgupta

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The government has finally decided to take the plunge and revise the National Electricity Policy (NEP) by invoking Section 3 of the Electricity Act, 2003. The Act mandates that the central government shall prepare the NEP in consultation with the state governments and the Central Electricity Authority. The first NEP was formulated in 2005 and a lot of water has flown under the bridge since then as far as the power sector is concerned. Just to give a few instances, between 2005 and 2021, generation capacity (inclusive of renewable capacity) has gone up by about 251 GW, renewable generating capacity has gone up to 94 GW (from wind, solar, small hydro and biomass) from almost nothing, leading to about 10% of generation from renewable sources, an additional 2.5 lakh circuit-km of transmission lines (above 220 kV) added, per capita consumption has almost doubled from 630 units to approximately 1,200 units today, peak and energy shortages have come down from double digit figures to about half a percentage point, and rural electrification is almost complete with near 100% electricity access to households (not necessarily 24 hours supply).

It is a little surprising that despite the paradigm shift that was taking place in the power sector not only in India but across the world, especially towards decarbonisation, the government did not bother to revise its NEP for almost 16 years. Although the government keeps pointing to the fact that peak and energy shortages have come down drastically implying that all is well, the reality is quite to the contrary. The situation of excess supply is illusory because our demand has not grown at the rate it should have because of the economic downturn since the last couple of years, even before the pandemic. Our distribution companies (discoms) have accumulated outstanding of over `6 lakh crore and this seems to be going up year after year despite all government programmes aimed at improving distribution infrastructure and restructuring of loans. There are other areas too where we have failed; for example, we could not become world leaders in the area of solar power despite having the advantage of geography and continue to rely on imports for our capital equipment. We have been slow in adopting more stringent environment norms for our power stations and we have done practically nothing on carbon capture and sequestration. We have not been able to add to our hydro capacity, which could play a crucial role in balancing the grid with increasing thrust on renewable generation. We have fuel supply issues (coal) and are unable to meet our domestic demand through indigenous mining.

The government has constituted a committee that would finalise the draft NEP which has been circulated after seeking views of stakeholders. It would be the combined wisdom of several experts who would decide as to what all should be included in the policy. However, there are a couple of issues that may not be debated upon by the committee; these are important and need consideration. First, our policy statements are too verbose and lengthy. The first NEP as also the draft circulated now run into several pages, and are not incisive enough or reader-friendly. Certain sections contain too much detail, not really germane to the issue. Ideally, policy statements should be crisp and pithy, and should be able to hold on to readers’ interest. The main policy document should only cite the direction we intend to take and the reasons for doing so should go as explanatory notes as an addendum to the policy.

The second issue is regarding the effectiveness of the policy. The draft policy has a lot to say on renewable generation, and rightly so, but what is the guarantee that it would be followed. While the central government may fix targets on renewable generation capacity, the implementation will mainly be done by private enterprises. Now, private enterprises will move according to the investment climate as it exists in states.

Unfortunately, some states completely shake off investor sentiments by reopening PPAs, or by not paying renewable generators. Such actions would ensure that the objectives of the policy remain unfulfilled. All stakeholders should treat the NEP as mandatory and act accordingly. Similar problems have arisen in the case of the National Tariff Policy (NTP) in the past, where certain states have expressed unwillingness to comply with certain sections of this document. Incidentally, both the NEP and the NTP emanate from Section 3 of the Act.

The third and perhaps the most fundamental issue is whether we should have two separate policy statements, the NEP and the NTP. The first NTP was formulated in 2006 with some minor amendments carried out in 2008, 2011 and 2016. Both these documents exist concurrently, but they practically run into each other’s domain. The answer as to why this is happening is simple. It is not really possible to segregate tariff-related issues from electricity policy in general since they are all interlinked. Thus, it would be appropriate to subsume the NTP into the NEP, and tariff would be one of the several issues which would be a matter of electricity policy. Prima facie, this will not entail an amendment to the Act and we would have the benefit of a single holistic policy statement which would take into account all the interlinkages.

The author is senior visiting fellow, ICRIER, and former member (Economic & Commercial), CEA