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Archive for the ‘Energy’ Category


As we talk about market integration in agriculture through Electronic National Agriculture Market portal and also talk about moving toward a economic union by realizing GST. Similarly power sector too need reform such that dream of one nation, one grid and one price come true. It is in 2013 that southern part of India too got connected with the National Grid System and because of that on December 29,2015 no congestion was observed in the electricity grid and single price (2.3/kwh) was  discovered on the power exchange IEX.

Similarly Open Access policy was introduced under the electricity Act 2003  which allows consumer with electricity load above 1 MW  to procure electricity directly from electricity market. Recently Indian Railways the country’s largest single costumer of electricity , has been allowed to shift its purchases to an Open Access regime. Central and state government has come forward to address the DISCOM debt problem. Thus some of these above steps in the direction to discover a single market price for power around the country.

But following challenges still remains:

  1. In 2014-15 the addition of generation capacity was 26500 MW which is much higher than the average annual addition in last five years of 19000 MW. But ability to produce more power is not matched with the  ability to lift the power. Thus power plant ran at historic low load factor of 60% and also due to the stressed discom condition.
  2. Tariff segmentation(10-12 categories are present such as Agriculture, Poultry Farm, Businesses etc) has reached hilarious level, thus complexity of tariff schedule prevents economic actors from responding sufficiently to price signals.
  3. Some states have imposed significant barriers to Open  Access Policy by imposing the cross-subsidy surcharge and additional surcharge for purchasing electricity from the power exchanges (PX) . This problem was meant to be addressed by the National Tariff Policy (2006), which established a methodology for determining the cross-subsidy surcharge to be levied on Open Access consumers, with the goal of reducing it over time. Nonetheless, cross-subsidy surcharges over the years have gone up.
  4. The growth rate of captive power generation between 2006-07 and 2014-15 is 9.3 per cent compared to 4.6 per cent for electricity procured from utilities. This trend could be exacerbated in the coming years, as the decline in oil prices and the cost of renewable energy alternatives may prompt a further shift to captive power.

Though government is committed to address DISCOM debt problem and AT&C losses issue under UDAY scheme. State governments need to rationalise Tariff segmentation from present level of 10-12 to 2-3.While Confederation of Indian Industry is demanding following measures for making single market for power :

i) A new legal architecture for making independent regulators truly independent (including the Central Electricity Regulatory Commission).

ii) Examining the concept of state regulators being replaced by a smaller number of effective regional regulators.

iii) Setting up of a National Power Distribution Company (NPDC) that begins to effectively challenge the hegemony of state-owned discoms. The NPDC can equally well fulfil other pressing objectives of picking up stranded capacities, price-pooling across diversified sources of supply (for energy security, plus encouragement to renewables), providing a national pricing benchmark as well as facilitating a rapid move towards effective Open Access.

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The Ujwal Discom Assurance Yojana (Uday) is launched to turn around power distribution companies (discoms), which are generally inefficient state government monopolies that are struggling financially.

Key features of the scheme:

  • The scheme allows DISCOMS in few selected states to convert their debt into state bonds. According to the scheme, states will take over 75% of DISCOM debt as on 30 September 2015 over two years – 50% of DISCOM debt will be taken over in 2015-16 and 25% in 2016-17.
  • States will issue non-SLR including SDL bonds in the market or directly to the respective banks / Financial Institutions (FIs) holding the DISCOM debt to the appropriate extent.
  • The centre will not include the debt taken over by the States as per the scheme in the calculation of fiscal deficit of respective States in the financial years 2015-16 and 2016-17.

However, the scheme is not free from criticisms. Main criticisms are:

  • The cost of borrowing for state governments has risen sharply since the Uday was launched.
  • Also, as state governments have tried to raise funds by selling Uday bonds, they have been blamed by some for creating a shortage of funds for other borrowers.
  • It is also argued that the gap between the costs at which the Centre and the state governments borrow — “the yield gap” — has now widened to levels only seen at a time of crisis.

Is there any shortage of funds?

Experts say, “NO”. This whole process is just debt replacement where the banks that had earlier lent to the discoms get their money back, and are then free to lend in the economy, or even buy state development loans (SDLs) from the market. Even the non-banking companies that receive the proceeds of these SDLs may deploy them in bank bonds, among others things, and these funds thus enter the market again.

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The government has announced a radical overhaul of the oil and gas exploration policy. The hydrocarbon exploration licensing policy (Help) addresses many of the ills afflicting Nelp ( The new exploration licensing policy), the framework working for the last 18 years. It aims at improving the ease of doing business as well as reducing India’s import dependence by raising the output from domestic sources of oil and gas. In the process, it is expected to create jobs and spur economic growth.

There are three key changes in the new regime.

  • One, instead of separate policies and licensing regimes governing different hydrocarbons, such as oil, gas and coal bed methane, there will now be a single unified framework for all or single licence for all.
  • The second key change is that the production-sharing contract between government and contractors would henceforth be governed by a revenue-sharing model instead of a profit-sharing one. In the latter, the norm till now, contractors gold-plated their costs to artificially depress profits. This not only led to disputes and litigation but also caused project delays as government pored over each decision by the contractor to check for possible fraud.
  • The third key change has been the freeing-up of pricing. One of the reasons why domestic oil and gas exploration has suffered over the years despite the fact that India has a huge import dependence — over three-fourths of the domestic crude oil demand and about a third of the domestic demand for gas are met by imports — is the inability of companies to price the output in a profitable manner.
  • Bidders will identify areas under HELP and propose a bid.
  • Royalty rates for offshre fields reduced.

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