Shift in Dynamics

Increasing focus on decarbonising the sector

Mitigating climate change and decarbonising the economy have been at the centre stage of developments in the power sector in the last one year or so. At the 26th Conference of Parties (COP26) of the UN Framework Convention on Climate Ch­ange held at Glasgow, Scotland, India ann­o­un­ced a net zero emission target for 2070, backed by strong near-term goals to increase reliance on renewables and reduce the carbon intensity of the economy. The country has set a target of augmenting non-fossil fuel el­ec­tricity capacity to 500 GW and also meeting 50 per cent of its energy requirements from renewables by 2030.

Another key development in the power sector has been the roll-out of the Ministry of Po­w­er’s (MoP) flagship Revamped Distribution Sec­tor Scheme (RDSS) to overhaul the ailing power distribution segment. This is the biggest distribution scheme so far, which aims to be more result-oriented, aided by grants available under the scheme, subject to discoms meeting certain performance milestones.

Indian Infrastructure presents a round-up of the key recent developments in the power sector over the past one year…

Policy and regulatory developments

In one of the key recent developments, the El­ec­tricity (Amendment) Bill, 2022 was introduced in the Lok Sabha and has been referred to a parliamentary standing committee on en­er­gy. The bill seeks to facilitate the use of distri­bution networks by all licensees under provisions of non-discriminatory open access. It se­eks to enable management of power purchase and cross-subsidy in the case of multiple distribution licensees in the same supply area. Fur­ther, the bill seeks to amend Section 62 of the act so as to make a provision regarding gra­ded revisions in tariff over a year and for mandatory fixing of maximum ceiling as well as minimum tariff by an appropriate commission, am­ong other provisions.

In another development, the Lok Sabha has passed the Energy Conservation (Amend­ment) Bill. The bill mandates the consumption of non-fossil fuel sources, including green hydrogen, green ammonia, biomass and ethanol for energy and feedstock by designated consumers; proposes the introduction of a carbon credits market; and brings large residential buildings under the energy conservation regime.

One of the key policy measures in the rene­w­able energy space has been the announcement of the Green Hydrogen Policy in February 2022, with an objective to make the country an ex­port hub for green hydrogen and green am­monia. The policy provides waiver of interstate transmission system (ISTS) charges for a period of 25 years to manufacturers of green hydrogen/am­monia for projects commissioned be­fo­re June 30, 2025. Further, open access for re­ne­wable energy sourcing will be granted within 15 days of the receipt of application.

In June 2022, the MoP notified the Green Open Access Rules, 2022. Under these rules, gr­een open access is allowed to any consumer and the open access transaction limit has been reduced from 1 MW to 100 kW of green energy to enable small consumers to purchase renewable power through this method. The rules also enable a simplified procedure and faster app­roval for open access to green power, uniform banking, voluntary purchase of renewable po­wer by commercial and industrial consumers, applicability of open access charges, etc.

A number of reforms have been introduced in the transmission segment with the objective of catering to the evolving power system needs on account of increasing renewable energy pe­netration and for ensuring grid security and ad­equate resource availability. The Central Elec­tricity Regulatory Commission (CERC) has issu­ed the Connectivity and General Network Acc­ess (GNA) to the ISTS Regulations, 2022. The rules provide for a regulatory framework to fa­cilitate non-discriminatory open access to lice­n­sees or generating companies or consumers for use of the ISTS system th­ro­ugh GNA. These regulations facilitate connectivity and access for renewable energy generators. In February 2022, the CERC further no­tified the Ancillary Services Regulations, 2022, which aim to provide mechanisms for procurement through administered as well as market-based mechanisms, deployment and payment of ancillary services at the regional and national levels. The regulations will aim to maintain grid frequency close to 50 Hz and restore the grid frequency within the allowable band as specified in grid code.

Generation

India’s total installed capacity across all generation sources stood at about 404 GW as of July 2022. Coal- and lignite-based power accounted for the highest share (52.1 per cent) at nearly 210.7 GW, followed by renewables at 114.44 GW (28.3 per cent) and hydropower at 46.85 GW (11.6 per cent). Gas-based installed capacity stood at 24.86 GW (6.2 per cent), nuclear at 6.78 GW (1.7 per cent) and diesel accounted for the remaining 0.1 per cent. Du­ring 2021-22, a net capacity of 17.35 GW was added from various energy sources. Of this, 15.45 GW was from renewable energy sources, followed by 1.41 GW from thermal power plants (TPPs) and 0.51 GW from hydropower plants. The total generation during 2021-22 stood at 1,491.86 BUs, recording a 7.96 per cent gro­wth from the 1,381.83 BUs recorded in 2020-21. During 2022-23 (as of July 2022), the total ge­neration has been recorded at 570 BUs.

In May 2022, in order to meet the growing power demand and enhance coal availability at power plants, the MoP mandated TPPs to use 10 per cent imported coal for coal blending purposes and directed all imported coal-based power plants to operate to their full ca­pacity. Notably, invoking Section 11 of the El­ec­tricity Act, the MoP allowed coal pri­ce to be passed through. However, with the im­prove­ment in coal availability at the TPPs, in August 2022, the central government rolled ba­ck the order on mandatory blending with im­ported coal at power plants.

In November 2021, the MoP issued new rules allowing automatic pass-through of fuel and power procurement cost in tariff upon oc­c­urrence of a change in law event. The automatic pass-through will be computed based on a suitable formula approved by the regulatory com­mission. The pass-through in costs and tariffs will be verified later by the commission.

Further, in the same month, the MoP and the Ministry of New and Renewable Energy revis­ed the guidelines for flexibility in generation and scheduling of thermal/hydropower stations thro­ugh bundling with renewable energy and storage. These guidelines allow thermal generation companies to set up renewable energy capacity either on their own or through developers via op­en bids, and supply energy to consumers under the existing power purchase agreements.

Earlier, in October 2021, the MoP had advi­s­ed coal-based TPPs to mandatorily use a 5 per cent blend of biomass pellets, made primarily of agro residue along with coal, on an annual ba­sis. Generating units having certain units un­der reserve shutdown or not being despat­ched due to merit order despatch considerations were to make sure to increase the percentage of co-firing up to 10 per cent in their other operating units. About 80,525 mt of biomass has been co-fired in 35 TPPs in the country, with a cumulative capacity of 55,335 MW till July 24, 2022.

Meanwhile, in the hydropower segment, in October 2021 the MoP issued detailed gui­de­lines for budgetary support for flood moderation and for enabling infrastructure (roads and bridges) with regard to hydropower proje­­c­ts, with an aim to reduce the tariff levels of the­se projects. Earlier, in September 2021, the MoP had approved the formulation of a dispute avoi­dance mechanism for construction contracts of central public sector enterprises executing hy­dropower projects.

Transmission

As of July 2022, the total transmission line length (at the 220 kV and above voltage level) stood at 461,768 ckt. km, alternating current (AC) substation capacity stood at 1,097,212 MVA, and high voltage direct current (HVDC) sub­station capacity at 33,500 MW. During 2021-22, about 14,895 ckt. km of transmission lines were added at the 220 kV and above level. In terms of capacity, AC substation capacity of about 74,982 MVA and HVDC substation ca­pa­city of 4,000 MW were added during 2021-22. The interregional transfer capacity has grown considerably from 58,050 MW in 2015-16 to 112,250 MW in May 2022. Power Grid Corporation of India Limited continues to dominate the country’s transmission sector with 176,109 ckt. km of lines and 451,056 MVA of substation capacity (as of July 2022).

Meanwhile, the prime minister’s Gati Sh­ak­­ti National Master Plan (NMP), was launch­ed in October 2021 with an aim to address these is­sues and many more across infrastructure projects, including power transmission. The plan is focused on new methods of planning and fin­ancing, greater use of technology and sp­e­e­dier implementation of infrastructure projects. The PM Gati Shakti NMP has a digital platform that provides a one-click comprehensive view of power transmission projects (apa­rt from other sectors) to streamline project development in a bid to reduce time and cost overruns. The portal aims to assist transmissi­on service provi­ders across all stages of project development – planning, tendering, ap­p­ro­val and im­plementation.

The MoP, in October 2021, also issued an order to dissolve five regional power committees (transmission planning) in order to ease the process for ISTS expansion. In the same month, the terms of reference of the National Committee on Transmission (NCT) were revis­ed to fast-track the process of ISTS development. Now, the ministry will only look at ISTS projects costing over Rs 5 billion, while ISTS projects up to Rs 1 billion will be approved by the central transmission utility and those between Rs 1 billion and Rs 5 billion will be approved by the NCT.

In December 2021, the Cabinet Committee on Economic Affairs approved the Green En­ergy Corridor (GEC) Phase II programme for the intra-state transmission system (In-STS). Arou­nd 20 GW of renewable energy projects in Gu­jarat, Himachal Pradesh, Karnataka, Kerala, Rajas­than, Tamil Nadu and Uttar Pradesh will benefit from the programme’s grid integration and electricity evacuation. The In-STS under GEC II will be built over a five-year period, from 2021-22 to 2025-26.

Distribution

In the 10th annual integrated rating and ranking of power distribution utilities, the absolute cash-adjusted gap (that is, losses) in the distribution segment has been calculated for the first time. The cash-adjusted calculations show that the financial deficit of discoms is larger than previously recorded and has risen over 2019-21. The national absolute cash-adjusted gap in the distribution segment is Rs 1.13 trillion. This rise is predominantly owing to the rising loss per unit of energy sold (that is, the average cost of supply [ACS]-average revenue realised [ARR] gap), considering that the gross input energy during the period remained al­mo­st constant. The sector’s total liquidity gap is nearly Rs 3.04 trillion. The discoms’ current liabilities of Rs 6.56 trillion exceed their overall cu­rrent assets of Rs 5.27 trillion and are al­mo­st twice the value of their current liquid assets of Rs 3.52 trillion.

In the grand finale marking the culmination of Ujjwal Bharat Ujjwal Bhavishya – Power @2047, the prime minister formally launched the RDSS to revamp the ailing power distribution segment. The scheme, with an outlay of Rs 3,037.58 billion for a period of five years (2021-22 to 2025-26), consists of two components. Part A comprises metering and distribution infrastructure works and Part B includes training and capacity building as well as other enabling and supporting activities. The sc­he­me aims to achieve 100 per cent prepaid smart me­tering at all levels and eliminate the ACS-ARR gap by 2024-25, while reducing pan-India aggregate technical and commercial losses to 12-15 per cent.

In a move to liquidate dues, the MoP has issued the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022. This sche­me allows discoms to clear outstanding dues in a maximum of 48 equated monthly instalme­nts. The rules incentivise timely payment of du­es and aims to bring in financial discipline am­ong power utilities. As of August 2022, m­a­jor states including Rajasthan, Jharkhand, Tamil Nadu, Maharashtra, Jammu & Kashmir, Madh­ya Pradesh and Uttar Pradesh, with pending po­wer purchase dues of almost Rs 960 billion, were complying with the rules.

Meanwhile, discom privatisation in union territories (UTs), announced earlier in 2020, has made limited headway so far with only two UTs – Chandigarh, and Dadra & Nagar Haveli and Daman & Diu – having been awarded to private players so far. In February 2022, the central government gave its nod to Eminent Elec­tricity Dis­tribution Limited (owned by CESC Limi­ted) to take over Chandigarh’s power supply de­pa­rtment. Meanwhile, in April 2022, Torrent Po­wer formally took over the distribution operati­o­ns in Dadra & Nagar Haveli and Daman & Diu.

On June 10, 2022, the country’s peak pow­er demand touched an all-time high of 211.86 GW amidst a heatwave and ex­panding economic activities. Prior to this, on Ju­ne 9, 2022, the peak power demand was re­corded at 210.79 GW, which was higher than the previous record of 209.8 GW registered on June 8, 2022.

The National Open Access Registry (NOAR) went live successfully on May 1, 2022. The NOAR has been designed as an integrated single-window electronic platform that is accessible to all stakeholders including open access participants, traders and power exchanges (natio­nal/re­gional), and will act as a repository of information related to short-term open access in ISTS.

Renewables

Renewable energy installations in the country have crossed 114 GW, as of July 2022. In the renewable energy segment, solar power acco­unted for a major share of 50.7 per cent (57.97 GW), followed by wind with a share of 35.7 per cent (40.89 GW), biopower with a share of 9.3 per cent (10.68 GW) and small-hydro power with a share of 4.3 per cent (4.89 GW). During 2021-22, a net capacity of 15.45 GW was added from renewable energy sources.

As mentioned before, in October 2021, at COP26 India announced a net zero emissions target for 2070. India has set a target to augment non-fossil fuel electric capacity to 500 GW and meet 50 per cent of its energy requirements from renewables by 2030. Besides this, it has pledged to cut carbon emissions by 1 billion tonnes by 2030. It has also committed to lower the emissions intensity of the GDP by 45 per cent by 2030. Notably, India is the only major economy to have achieved one of its Na­tionally Determined Contributions eight to nine years in advance. At COP21, the country pled­ged that by 2030 40 per cent of its capacity wo­uld come from non-fossil fuel-based sour­ces, which was achieved in November 2021. It also pledged to bring down emissions intensity by 33 per cent by 2030. At the time of last me­a­surement in 2018, India had already brought it down to 28 per cent and is expected to have crossed the target by now.

In July 2022, the MoP issued a renewable purchase obligation (RPO) and energy storage obligation (ESO) trajectory till 2029-30. Acc­ording to this order, the total prescribed RPO will progressively increase from 24.61 per cent in 2022-23 to 43.33 per cent by 2029-30. This includes wind RPO, hydropower purchase obligation and other RPOs. The ESO targets will in­crease from 1 per cent during 2023-24 to 4 per cent by 2029-30, which would be met through solar and wind power projects with energy storage. In the same month, a trajectory was anno­unced, according to which bids for offshore wind energy blocks of 4 GW would be issued every year for the next three years, followed by 5 GW of annual capacity auctioned till 2029-30. This 37 GW bidding trajectory for offshore wind power up to 2029-30 could be a potential game changer for the segment.

Conclusion

For the coming months, a number of reforms for the power distribution segment are on the anvil. The Electricity (Amendment) Bill, 2022, recently introduced in the Lok Sabha, which aims to enable competition and enhance efficiency of distribution licensees, is expected to transform the power distribution segment in a big way, on­ce implemented. In addition, a host of en­a­b­ling policy and regulatory measures undertaken in the renewable energy space in recent mon­ths are expected to provide a fillip to the segment going forward and take the country closer to its green energy goals.

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