Electricity Bill 2022 to push pvt investment in power distribution sector

The long-standing proposal to amend the Electricity Act, 2002, could finally see light of the day as it is likely to be tabled in Parliament next week.

The Electricity Bill, 2022, which proposes significant changes in the power distribution sector, will open the door to private investment. It will allow multiple distribution licensees to function in an area. Sources said the Bill has been introduced in Parliament. 

Business Standard had reported recently that the Centre has dropped the proposal of privatising state-owned power distribution companies (discoms). It may introduce a model of multiple electricity sellers. 

Through a proposed amendment to Section 14 and 42 of the Act, the Union government has allowed use of distribution networks by all licensees “under provisions of non-discriminatory open access.” 

The recent set of amendments would provide choice to consumers through multiple distribution licensees on the same network. The incumbent Act did allow multiple licensees to operate but did not give them access to the existing power distribution network. Anyone can apply to a State Electricity Regulatory Commission (SERC) for a distribution licence.

The legislative proposal to have multiple electricity sellers comes at a time when the Centre has floated a Rs 3-trillion scheme to revive the power distribution sector. State-owned discoms across the country are financially and operationally beleaguered despite four reform schemes in the last 15 years.

The earlier discom reform scheme UDAY concluded in FY20 with most of the states failing to meet their stipulated targets and still in the red.

Another significant amendment proposed is the empowerment of the National Load Despatch Centre or the power grid operator. It can now regulate electricity supply to the discoms/states that default on payment to the power generating companies (gencos). 

Under Section 28 of the Act, “no electricity shall be scheduled or dispatched under such contract unless adequate security of payment, as may be prescribed by the central government, has been made.”

Key Proposals

• Bill proposes multiple distribution licensees in an area, paving the way for network sharing
• Stringent regulations for timely payment by discoms, tariff filings and renewable power purchase 
• Empowers Central and State Electricity Regulatory Commissions to get status of civil court, issue suo motu tariff orders
• Penal provision for defaulting on mandatory renewable purchase obligation

The amendment is in the wake of rising dues of discoms to generating companies. The dues of discoms stand at Rs 1.12 trillion as on July-end, which is a record high.

Another agency, which has been empowered, is Central Electricity Regulatory Commission (CERC) along with State Electricity Regulatory Commissions (SERCs). They would now have the status of a civil court. SERCs can also issue suo motu tariff orders even if the discoms don’t file regular tariff revision.

However, SERCs are now bound to meet their regulatory duties, failing which the central government will intervene. It could give the duties to some other SERC, said the proposal.  The Bill also proposes a penalty for the states, which default on their mandatory renewable purchase obligation (RPO).

Since RPO was launched a decade back, this is the first time that a penal provision has been introduced for not meeting mandatory renewable purchase. Officials said this would further India’s ambition to meet 500 Gw of renewable energy (RE) by 2030. The Centre recently notified new RPO targets.

States would need to meet a quarter of their energy demand from renewable sources under the new RPO trajectory. They would have to increase it to 43 per cent by the end of this decade. 

Except for renewable rich states, none have met 100 per cent of their target during any year since 2010.

This has led to a growing mismatch in the RE sector with states reluctant to purchase RE. However, solar and wind power project capacity is increasing every year.  The Electricity Act, 2002, has been under a series of amendments since 2018. The proposed amendments in the final Bill text were drafted in 2020.