Urgent reforms needed across the board in power sector, says Niti Aayog report

India's power sector, reeling under debt and inefficiency, is in need of urgent turnaround of operations and finances, and while many steps have been taken, they are not enough and reforms are needed across the board, says a report released by the Niti Aayog.

These reforms, as suggested by the report, include public-private partnership model for loss-making discoms (distribution companies), creation of regional electricity regulation commissions, regular revision of tariffs, greater use of smart meters and use of more renewable sources to reduce power procurement costs.

The report, which was released by Niti Aayog Vice Chairman Rajiv Kumar on August 3, was co-authored by members of Niti Aayog staff along with the energy think-tank RMI India.

Read: Efficient distribution sector essential for improving ease of doing business: Niti Aayog VC Rajiv Kumar

"The schemes implemented so far have not been able to ensure a sustainable turnaround of the discoms. A turnaround, in terms of both finances and operations, remains urgent. The answer lies in significant policy, organisational, managerial, and technological changes," the report stated.

In her 2021-22 Union Budget, Finance Minister Nirmala Sitharaman had announced a Rs 3.06 lakh crore reforms-based result-linked discom sector scheme for five years. The scheme is expected to provide assistance to discoms for infrastructure creation, upgradation of systems, etc, tied to financial improvements.

"Most discoms are state-owned, and only about 10 percent of India’s population is served by private distribution licensees. For a state-owned utility to succeed, there should be a clear separation between utility and state. Good corporate governance practices, including the use of independent directors, can help ensure such separation," the report said.

"A PPP model can be especially useful in loss-making areas, where commercial operation might not be feasible without support in the form of viability gap funding by the government," it said.

where commercial operation might not be feasible without support in the form of viability gap funding (VGF) by the government.

Regulatory and Operational Reforms

The report stated that discoms need to be prepared for an increasing amount of power from renewable sources and that there should be a stricter implementation of renewable purchase obligations mandate.

The state governments should promote autonomy, competence, and transparency of the State Electricity Regulatory Commission (SERC) and tariffs should be regularly revised, it said.

"One way to insulate regulatory functions from political pressures is to create regional electricity regulatory commissions with the participation of the central government. For consumers, who receive subsidised electricity, direct benefit transfer (DBT) can help improve efficiency and reduce leakages," the report said.

It stated that many discoms need to improve their billing efficiency through better metering. and that they should fully utilise the central scheme to achieve 100 percent metering using prepaid or smart meters.

The report also stated that some states with large agricultural consumer bases have reduced leakages by separating feeders for agricultural use from non-agricultural use. "Discoms can significantly decrease their power procurement costs by encouraging the use of solar pumps for agriculture," it said.

"Discoms have locked themselves into long-term, expensive power purchase agreements (PPAs). As long as the markets continue to provide low-cost power, discoms should not sign new expensive long-term thermal PPAs," the report added.