Unit 7

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Unit 7 Pricing and Regulatory Aspects of Transmission Lines

175 Notes __________________ __________________ __________________ __________________ __________________ __________________

Objectives

__________________ __________________

After studying this unit you should be able to: y

Know financial aspects related to power transmission

y

Have an idea about EA 2003 and its objectives

Introduction Transmission and Distribution (T & D) Losses T&D losses continued to remain high. The reported all-India average T&D losses increased from 19.8 per cent in 1992-93 to 26.45 per cent in 1998-99 and are anticipated to increase to 27.8 per cent by 2001-02. There is a wide variation in losses reported by different states for 2000-01 (RE), ranging from 17 per cent to 56 per cent. Based on the experience of a few states that have unbundled their utilities, actual T&D losses for the country as a whole are estimated to be in the 35-45 per cent range. The high T&D losses are attributed to:Weak and inadequate sub-transmission and distribution systems due to haphazard growth of demand to meet the short-term objective of extension of power supply to new areas. n

Long transmission and distribution lines.

n

Inappropriate size of conductors.

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n

Improper load management, resulting in overloading of systems.

n

Pilferage and theft of energy.

n

Unmetered supply.

n·

Financial constraints to undertake system improvement schemes.

__________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________

In order to reduce T&D losses, it is necessary that various electricity supply organizations take up system studies and carry out energy audits for identification of the causes of excessive losses. Based on these studies, system improvement projects should be formulated for strengthening and revamping the distribution system, improving the MIS and addressing issues of governance. n

The current level of T&D losses is very high. Although the all-India T&D loss is reported to be about 28 per cent, actual loss levels are estimated to be in the range of 35-45 per cent. Further, losses in some states are much higher than in others. Losses in Delhi and Jammu & Kashmir were as high as 47 per cent and 56 per cent respectively in 2000-01.

n

While part of the T&D losses are due to technical deficiencies in the system and the extensive low voltage distribution network in rural areas, a large portion of the loss is attributed to theft and pilferage compounded by connivance on the part of line personnel.

n

There are a large number of unmetered connections particularly in the agriculture sector. Even if supply of electricity to agriculture is to be subsidised, it should be metered so that proper accounting can be maintained.

n

Indiscriminate grid extension despite low load densities (as measured by demand in MW divided by the length of the T & D system) has resulted in a high ratio of low tension (LT) to high tension (HT) lines. This has also led to a large amount of pilferage.

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There is a need to introduce energy audits to help generate reliable data for analyses in a systematic and meaningful manner.

Accelerated Generation and Supply Programme Scheme

177 Notes __________________ __________________ __________________ __________________

The Accelerated Generation and Supply Programme (AG&SP) were launched in 1997-98 initially for one year and were later extended up to 2001-02. The scheme covers the following activities:

__________________

1.

R&M and life extension/rehabilitation.

__________________

2.

Ongoing generation projects.

3.

Missing transmission links and system improvement.

4.

Grant for studies.

The Ministry of Power provides a grant from its budget to fund an interest subsidy of 4 per cent on normal lending rates of the PFC to SEBs/State Generation Corporations (SGCs). R&M schemes costing less than Rs. 100 crores are currently also being financed under APDP. It is proposed that all R&M schemes would be financed under AG&SP only and no financing would be made through APDP during the period 2001-02 and 2006-07.

Programme for Central Assistance under APDP Projects relating to the following areas are financed under the APDP, which was initiated in 2000-01 in order to give a fillup to power sector reforms: i.

R&M/life extension/upgrading fillup of old power plants (thermal and hydel).

ii.

Upgradation of the sub-transmission and distribution network (below 33 KV or 66 KV) including energy accounting and metering.

One of the main strategies identified for distribution reforms is the development of distribution plans/projects for all distribution circles. Sixty-three such circles have been identified initially in which 11 KV feeders will be taken as

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profit centres. Improvement/ strengthening of the subtransmission and distribution network, 100 per cent metering, establishing of an MIS to improve billing, collection, etc. will be taken up in the selected circles. It has been decided to utilize APDP funds to develop the selected circles as centres of excellence that can be replicated by the states in the later phase of distribution reforms. Funds under APDP are released to state governments as additional Central Plan by the Ministry of Finance under advice from the Ministry of Power.

Financial Performance of the SEBs The financial health of the SEBs has deteriorated over the years mainly due to higher level of technical and commercial losses and subsidized sale of electricity to agricultural and domestic consumers. The net subsidy of Rs. 5,404 crore on agriculture and domestic sectors in 1991-92 was 46 per cent of Central Plan assistance flowing to states/Union Territories in that year. The same has increased substantially to Rs. 25,607 crore in 2000-01 and is likely to be 69 per cent of the funds flowing from Central Plan assistance. Further, the subsidy on account of the sale of electricity to the agricultural sector has come down from Rs. 29,461 crore in 2001-02 annual plan (AP) and is expected to come down to Rs. 26,959.30 crore for 2002-03 (AP). This may be partly due to the reform and restructuring process initiated by some of the states. Financial Performance of the State Power Sector (Rs. Crore) 1991-92 2000-01 (Prov.)

2001-02 2001-02 (AP) (RE)

2002-03 (AP)

A.(i) Subsidy involved on account of sale of electricity to (a) Agriculture

5,938.00 24,074.13 29,461

25,571.10 26,959.30

(b) Domestic

1,310.00 9,968.04

11,267

10,894.14 11,651.01

510

247.36

(c) Inter-state sales 201.00 Gross subsidy

385.51

7,449.00 34,427.68 41,238

225.89

36,712.59 38,836.20

Contd.

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(ii) Subventions 2,045.00 8,820.33 received from state governments.

8,370

10,099.16 7,980.84

Notes __________________

(iii) Net subsidy

5,404.00 25,607.35 32,868

26,613.43 30,855.36

(iv) Surplus generated by sale to other sectors

2,173.00 3,434.93

3,614.88

(v) Uncovered subsidy

3,231.00 22,172.42 27,342

22,998.56 23,356.37

B. @ Commercial losses

4,117.00 25,394.89 28,445

27,306.44 24,320.99

5,526

7,499.00

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Commercial losses (net of state subvention)

16,574.56

17,207.28 16,340.15

__________________ __________________

C. Revenue Mobilization (i) Rate of Return (ROR) #

179

-12.70

-41.82

-38.20

-39.48

-32.08

(ii) Additional revenue mobilization from achieving (a) 3 per cent ROR 4,959.00 27,216.62 30,280

29,403.65 26,226.42

(b) From 2,176.00 1,637.83 introducing 50 paise/ unit from agriculture/irrigation

1,350.44

1,840

1,329.71

RE : Revised Estimates, AP : Annual Plan Projections, # In Percent @ Commercial losses are different from uncovered subsidy because they include financial results of other activities undertaken by the SEBs. Note: i.

The information relating to the subsidy for agriculture, domestic and inter-state sales for 1999-2000, 2000-01 and 2001-02 in respect of Orissa is not available, as the distribution is now with private companies. The information regarding commercial losses pertains to GRIDCO only.

ii.

Information in case of Andhra Pradesh, Haryana, Rajasthan, UttarPradesh and Karnataka relates to T&D

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companies set up after the reforms. In the case of other states, the information pertains to SEBs.

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iii. The estimates do not include information relating to Uttaranchal as these have not been furnished by the state.

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Success Stories of the Power Sector

__________________

n

The Plant Load Factor (PLF) of thermal stations improved from 63.0 per cent in 1996-97 to 69.90 per cent by 2001-02. The PLF of the nuclear power stations improved from 55.90 per cent to 79.4 per cent over the same period.

n

Thirteen States have constituted and operationalised State Electricity Regulatory Commissions (SERC) while six others have notified the constitution of the SERCs.

n

The SERCs of Orissa, Andhra Pradesh, Uttar Pradesh, Maharashtra, Gujarat, Karnataka, Rajasthan, Delhi, Madhya Pradesh, Himachal Pradesh and West Bengal have issued tariff orders.

n

Seven States have unbundled/corporated their SEBs into separate companies for generation, transmission and distribution. Of these, Orissa and Delhi have privatized distribution.

n

A three-stage clearance procedure has been introduced for central sector hydro-electric projects to minimize time and cost overruns.

n

The Accelerated Generation and Supply Programme (AG&SP) provided incentives in the form of interest subsidy to SEBs/states and central power utilities. This has helped in carrying out power development activities particularly in the state sector. The capacity addition in the state sector achieved was around 88 per cent of the target, in which the contribution of AG&SP was around 55 per cent. The scheme has also given boost to the renovation and modernization (R&M) programme during the Ninth Plan period (1991-92 to 1996-97). The additional generation due to the incentives given through AG&SP is estimated to be about 10,000 MU/ annum.

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The Accelerated Power Development Programme (APDP) scheme was initiated in 2000-01 with the objective of giving a flip to reforms in the distribution segment. The scheme is now proposed to be modified as the Accelerated Power Development and Reform Programme (APDRP), which is a critical investment for providing distribution reforms. Under the modified scheme, there would be an element of incentive linked to achievement of certain reform-based parameters besides provision for investment in the distribution sector.

n

In order to liquidate the outstanding dues of CPSUs, a mechanism was evolved for one time settlement of these dues payable by states.

n

In the programme of electrification of remote villages, there has been success in electrifying the Sagar Island situated in the Sundarban region of West Bengal through solar energy. About 1,400 families on this island have benefited from the community and individual solar photovoltaic systems. The community is totally involved in the operation and revenue collection in this programme.

Capacity Additions Required According to the Sixteenth Electric Power Survey (EPS), the electricity requirement at the bus bar (utilities only) in 200607 will be as follows: Demand for Power in 2006-07 as per Sixteenth EPS Region

Energy Requirement (MKWh)

Peak Load (MW)

Northern

2,20,820

35,540

Western

2,24,927

35,223

Southern

1,94,102

31,017

Eastern

69,467

11,990

North-Eastern

9,501

1,875

Andaman & Nicobar Isl.

236

49

Lakshadweep

44

11

All India

7,19,097

1,15,705

181 Notes __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________

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Source

Central

State

Private

Total

Hydro

8,742

4,481

1,170

14,393

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Thermal

12,790

6,676

5,951

25,417

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Nuclear

1,300

-

-

1,300

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Total

22,832

11,157

7,121

41,110

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Proposed During 2001-02 to 2006-07

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Keeping in view the status of the ongoing, sanctioned and new projects in the pipeline, it is felt that a target capacity addition of 41,110 MW - 18,659 MW from ongoing projects, 9,193 MW from projects cleared by the CEA and 13,258 MW from new schemes - would be more realistic. Even under this lower estimate for capacity addition, only 27,852 MW appears to be firmed up so far. Vigorous and urgent steps have to be taken for the balance capacity addition programme. The public sector will continue to play a dominant role during the period 2001-02 to 2006-07 while progress along the reform path helps clear the roadblock for greater private participation in the medium to long term. The capacity addition will be contingent upon fuel linkages being firmed up and early start of work on new projects. For the new projects, particularly in the central sector, it is essential to simplify and streamline procedures for input linkages/techno-economic clearance/investment clearance. Generating Capacity Anticipated by 2006-07 Hydro

·

Thermal

Nuclear

Total

Installed 26,261.22 Capacity as on 31.3.2002

74,428.82

2,720.00

1,03,410.04*

Addition 14,393.20 During Tenth Plan

25,416.64

1300.00

41,109.84

Total Capacity on 31.3.2007

99,845.46

4,020.00

1,44,519.88

40,654.42

*excludes the capacity of 1,507.46 MW from wind

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Private Sector

183 Notes

The initial response of domestic and foreign investors to the policy of private participation in the power sector had been encouraging. However, many projects have encountered unforeseen delays in the finalization of power purchase agreements, guarantees and counter-guarantees, environmental clearances, matching transmission networks and legally enforceable contracts for fuel supplies. One of the most important impediments to private participation was the bankruptcy of the monopoly purchaser - the SEBs. This necessitated complex payment security mechanisms for achieving financial closure. Further, the high tariff of power from some of the commissioned independent power projects (IPPs) due to factors such as high cost of liquid fuels, risk factors involved and unrealistic forecast for future growth of demand, etc. have prevented full utilization of available capacities. With the power sector reforms already set in motion, these problems are expected to be sorted out in due course. The status of private power projects as on 1 February 2002 is as follows:Description

Number

Capacity (MW)

Projects technoeconomically cleared by CEA

58

29,614.50

Private power projects 15 fully commissioned

4,427

Private power projects 7 under Construction

3,432

In addition, 18 private projects not requiring technoeconomic clearance of the CEA, with a total capacity of about 2,340 MW, have been commissioned and two projects with total capacity of 36 MW are under construction.

Private Sector Participation The policy of inducting private investment into the power sector, initiated in 1991, was expected to result in the addition of 17,588 MW of power capacity in the Ninth Plan. The actual achievement was 5,061 MW, a mere 29 per cent of

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The chronic financial weakness of SEBs.

n

Unviable tariffs to IPPs, due to factors such as high cost of liquid fuels, risk factors involved and slow growth in demand for future power below the expected levels, etc.

n

The absence of an enabling regulatory, legislative and market environment.

n

The slow pace of reform in the power sector and related sectors such as coal, transport.

n

The inability to deliver bankable contractual frameworks.

n

The lack of recognition of the fact that the distribution segment would need to be made efficient and bankable before private investment and competition emerges in generation.

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the target. The achievement ratio for the central and state sectors comparatively was higher at 38 per cent and 88 per cent respectively. The main impediments have been:

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Captive Power Generation The industrial sector is the largest consumer of electricity. Besides purchasing power from the utilities, a number of industries, viz. aluminum, cement, fertilizer, iron, steel, paper, sugar, etc. have their own captive power plants either to supplement the electricity supply from the utilities or for generating electricity as a by-product through co-generation. Captive power plants are being set up by industries to meet their own power requirements to enable them to tide over problems due to power shortages and poor quality of supply. The Electricity Bill, 2001 proposes to free captive generation and enable captive generators to sell directly to other consumers by wheeling power through the grid under an open access regime. However, the Tenth Plan capacity addition has been finalized based on the demand as per the Sixteenth Electric Power Survey that excludes the demand met by captive power plants.

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In accordance with the guidelines issued by the Ministry of Power, the following categories would be eligible to install captive power plants:

185 Notes __________________ __________________ __________________

n

A consumer of electricity.

n·

A group comprising more than one consumer as a joint venture.

__________________

n

An actual user of power but not a consumer.

__________________

n

A group of actual users of power, but not consumers, as a joint venture.

__________________

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__________________ __________________ __________________

n

A group comprising both consumers and actual users of power as a joint venture but excluding `Generating Company' as defined under Section 2 (4A) of the Electricity (Supply) Act, 1948.

n

If the captive plants fall under the category of hydro or co-generation plant, such plant may be permitted, irrespective of its size and the power supply position in the state.

n

If the captive power plant is based on coal or liquid fuel or gas and if the state is deficit in power supply, the installation of the plant could normally be allowed and the plant can be permitted to have a capacity up to 200 per cent of the requirement of the host industry.

n

If the captive power plant is based on coal, liquid fuel or gas and the state is surplus in power, the installation of such captive plants can still be considered in cases where the state/SEB cannot guarantee uninterrupted supply or stipulated quality of supply (within prescribed voltage and frequency variations) required by the industry or a particular process. Further, captive generation may also be permitted if it is found, after a review of costs and tariffs, to be more economical than grid supply.

n

Banking facilities may also be provided to the captive plants so that available capacities are utilized to the extent possible and when required. The rates for banking may be determined on mutually agreed terms.

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Units in Special Economic Zones (SEZ) and industrial estates may be allowed to set up captive power plants liberally.

Augmenting Transmission Augmenting Transmission Capability

__________________ __________________ __________________ __________________

The investments in and growth of Transmission, subTransmission and Distribution Systems have not matched the increase in generating capacity. Consequently, there are constraints of power evacuation from generating stations.

__________________

Investments in strengthening transmission, sub-transmission and distribution systems within the region and building inter regional links is the principal need of the immediate future. The problem is severe in the eastern region, where surplus capacity is idling due to lack of absorption network and evacuation facilities. The power sector development demands a thrust on Transmission sector and the following blueprint is envisaged for this sector.

Formation of National Grid Before the beginning of the planning era in 1951, the electricity supply industry in the country consisted of generating stations supplying power to loads in their immediate vicinity. With a view to promote reliability of power supply and achieving operating economies, interconnections of individual systems was done leading first to the formation of State grids. The uneven geographical distribution of exploitable energy resources (coal and hydro potential in the country) necessitated large scale transportation of coal across the State boundaries. A decision was taken in the early sixties to create regional electricity grids as basic units for power planning and operations of the electric power system. In the seventies, the regional grids were in position and advantages of sharing generating capacity between the States, and the inter-connected operation were being obtained. In the eighties, with the commissioning of the Regional power stations by Central sector Generating Companies (NTPC, NHPC) and

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construction of EHV transmission lines by them transcending state boundaries, the development of regional grids was further accelerated. This has necessitated the formation of a National Power Grid to fulfill the following objectives: n

Enable transfer of power from power surplus regions to deficit regions.

n

Enable optimal development and utilization of coal and hydro resources, in the overall interest of the nation.

n

Improve economy, reliability and quality of power supply.

187 Notes __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________

Towards the objective of formation of National Grid, a number of inter-regional schemes have been planned for phased development. The brief status including interregional links under operation, approved schemes and future programme is presented ahead: Inter-regional Links under Operation Regions interconnected

Capacity (MW)

Vindhyachal HVDC back to back

West and North

500

Chandrapur HVDC back to back

West and South

1000

Gazuwaka HVDC back to back

East and South

500

Korba-Budhipadar 220kV 3 ckts

West and East

450

Balimela-Upper Sileru 220 kV S/c

East and South

200

Kolhapur-Belgaum 220 kV D/c

West and South

300

Lower Sileru and Burgur

West and South

100

Dehri-Sahupuri 220 kV S/c Karmnasa - Sahupuri 132 kV D/c

North and East

200

Biharshariff-Sarnath 400 kV D/c*

North and East

500

Birpara-Salakati 220 kV D/c

East and North-East

100

Auraiya-Malanpur 220 kV D/c

North and West

200

Bongaigoan-Malda 400 kV D/c

North-East and East

800

Name of the link HVDC Links

AC Links

Total

4850

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*This 400 KV transmission line is part of 500 MW Sasaram HVDC back to back link. At present it is utilised to transfer power to Northern Region in a radial mode. This line has been completed in advance to evacuate the surplus power from Eastern Region. With completion of Sasaram HVDC back to back station it would be reckoned as part of 500 MW Sasaram HVDC back to back link. With the help of the above links, transfer of power among the regions, especially from the power surplus Eastern Region,

New Approved Schemes In order to further strengthen the interconnection between regions, some more schemes have been approved which has enhanced significantly, as can be seen from the chart below: Energy Transferred Among Regions (Million Units)

Energy Transferred

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Additional Inter-regional Schemes by 2003

Name of the link

Regions inter-connected

Capacity (MW)

Talcher-Kolar HVDC bipole

East and South

2000

Rourkela-Raipur 400kV D/c

East and West

1000

Total

3000

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The existing and new approved inter-regional links are indicated in Figure-1 on next page.

189 Notes __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________

Figure 7.1: The existing and new approved inter-regional links

Future Programme Looking into the future demand and availability of generation resources, a Perspective Transmission Plan has been drawn up indicating the major inter-regional transmission highways to be developed by 2011-12. This will ultimately lead to the formation of a strong National Grid. These highways are proposed to be established in phases matching with the requirement of inter-regional power transfer.

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Notes __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________

As per the envisaged programme, cumulative capacity of the inter-regional links will be enhanced as shown in the graph.

Evacuation of surplus power from Eastern Region Eastern Region at present is having substantial energy surplus, as load growth has not been commensurate with the generation capacity addition, leading to non-utilisation of available capacities. The total installed capacity in the Eastern Region is of the order of 15,000 MW (out of which NTPC contributes 3900 MW) whereas the peak load is around 6500-7500 MW and off-peak load is 4000-4500 MW. While the formation of National Grid is an ultimate solution to remove inter-regional imbalances, the following schemes have been completed on priority basis to facilitate power transfer from surplus Eastern Region to other deficit Regions, n

220 kV 3rd Ckt Korba-Budhipadar connecting ER & WR.

n

Jeypore-Gazuwaka HVDC Bipole between ER & SR.

n

220 kV S/c Balimela-Upper Sileru between ER & SR.

n

400 kV D/c Bongaigoan-Malda between ER & NER.

n

220 kV D/c Birpara-Salakati between ER & NER.

n

220 kV S/c Dehri-Mughalsarai between NR & ER.

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400 kV Sasaram-Sarnath-Allahabad line between NR & ER.

With the above concerted efforts, energy exchange from Eastern Region has increased to the tune of about 6,790 MUs in 2000-2001 as against 5500 MUs in 1999-2000, registering a growth of more than 23%. However total transfer of only 1100 MW is possible currently. Inter-regional links to increase the transfer to 4400 MW in short run involving an investments of Rs.17,600 crores are proposed. A task force under the Chairmanship of Special Secretary (Power) has been constituted by Ministry of Power to formulate a short-term action plan for evacuation of surplus power from Eastern Region.

Monitoring of grid discipline and grid issues Grid discipline is a pre-requisite for maintenance of primary grid parameters namely frequency and voltage within permissible limits for safe, secure and stable operation of the grid. However in India, the operating frequency goes beyond the permissible range of 49-50.5 Hz. mainly due to: n

Mismatch in generation and demand.

n

Due to chronic power shortages, there is a tendency among state utilities to overdraw from the grid during peak hours. Predominance of thermal / base load stations and inadequate peaking capacity (hydro / gas turbines) limiting the flexibility of generation control as per load pattern of the grid.

Lack of grid discipline leads to critical situations of the kind, which happened on the 2nd of January 2001 in the Northern region, when the entire grid failed. A failure of this proportion not only causes severe stress on the power plant equipment and reduces its life, it also has a cascading effect on the industries and the people. It adds up to huge economic losses and causes immense damage to the country's image. After the grid failure in January 2001, at the instance of the Minister of Power, the Chairman, CEA conducted an inquiry and submitted its report. Follow-up action on the report is

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being taken on priority. The following measures have already been taken. : n

Modification and modernisation of Panipat 400 KVA substation.

n

In-principle approval of CEA given to (i) series compensation for Panki-Muradnagar. (ii) providing interconnection between 400 KVA substations of POWERGRID and UPPCL at Agra, and (iii) preponing of Allahabad-Mainpuri-Ballabgarh 400 KV double circuit line.

n

All States have been advised to observe strict grid frequency discipline, promptly carry out the instructions of RLDC, ensure free governor operation of their power plants and expedite capacitor installation programme.

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As a result of these measures, there has been substantial improvement in grid frequency. However the situation is being closely monitored to prevent its recurrence.

Encouraging FDI in Transmission Out of the Rs. 8,00,000 crores required for doubling the power capacity to 2,00,000 MW by the year 2012, about Rs. 2,00,000 crores would be required for the associated transmission system including creation of a National Grid. Out of this, an investment of about Rs.70,000 crores would be required in Central Sector Transmission Systems alone. POWERGRID is expected to mobilise an investment of Rs.41,000 crores from its own resources. The balance requirement of Rs.29,000 Crores is proposed to be mobilised through private investments. Considering the scale of investment and the volume of expansion required, attracting large private investment in transmission is essential. The Government of India amended Indian Electricity Act and Electricity Supply Act in 1998, to enable private sector participation in transmission sector. In January 2000, the Ministry of Power has issued detailed guidelines for private sector participation in transmission. The Guidelines envisage two routes for inviting private

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sector participation. One route is through Joint Venture of POWERGRID and private investor. The other route called IPTC (Independent Power Transmission Corporation) shall facilitate private investor including investors coming through FDI to invest 100% by themselves.

Preparation of Manual on Disaster Management

193 Notes __________________ __________________ __________________ __________________ __________________ __________________

Power is an essential service and it is one of the first to be affected by natural disasters like the earthquake in Gujarat in January, 2001 and the cyclone in Orissa in October, 1999. It is, therefore, necessary to have a clear-cut action plan ready for managing major breakdown of essential power supply posing wide-spread and protracted problems. Ministry of Power has directed all power sector utilities and State Electricity Boards to prepare contingency plans to meet situations arising out of breakdown of machinery and equipment and disruption of power system due to any reasons including natural calamities. Such action plans have already been drawn by a number of State Electricity Boards and Central Power Sector Undertakings such NTPC, NHPC, PGCIL, BBMB.

Transmission Pricing The transmission system in the country consists of the regional networks, the inter-regional connections that carry electricity across the five regions, and the State networks. The national transmission network in India is presently under development. Development of the State networks has not been uniform and capacity in such networks needs to be augmented. These networks will play an important role in intra-state power flows and also in the regional and national flows. The tariff policy, insofar as transmission is concerned, seeks to achieve the following objectives: 1.

Ensuring optimal development of the transmission network to promote efficient utilization of generation and transmission assets in the country;

2.

Attracting the required investments in the transmission sector and providing adequate returns.

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Transmission Pricing 1.

A suitable transmission tariff framework for all interstate transmission, including transmission of electricity across the territory of an intervening State as well as conveyance within the State which is incidental to such inter-state transmission, needs to be implemented with the objective of promoting effective utilization of all assets across the country and accelerated development of new transmission capacities that are required.

2.

The National Electricity Policy mandates that the national tariff framework implemented should be sensitive to distance, direction and related to quantum of power flow. This would be developed by CERC taking into consideration the advice of the CEA. Such tariff mechanism should be implemented by 1st April 2006.

3.

Transmission charges, under this framework, can be levied on MW-mile basis, zonal postage stamp basis, or some other pragmatic variant, the ultimate objective being to get the transmission system users to share the total transmission cost in proportion to their respective utilization of the transmission system. It is necessary that transmission tariff framework gives the right signals for setting of new generation and also ensures that merit order of generating stations does not get distorted. The overall tariff framework should be such as not to inhibit planned development/augmentation of the transmission system, but should discourage nonoptional transmission investment.

4.

In view of the approach laid down by the NEP, prior agreement with the beneficiaries would not be a precondition for network expansion. CTU/STU should undertake network expansion after identifying the requirements in consultation with stakeholders and taking up the execution after due regulatory approvals.

5.

To meet the revenue requirement of transmission developers other than CTU/STU within national tariff framework, competitively, determined annuity may be added to the revenue pool which is to be recovered

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through transmission tariffs. Investment may be invited on the basis of bids in which the investor will get the annuity for making his transmission asset available according to laid down operational norms. The Central Government will issue guidelines in the three months for bidding process for developing transmission capacities through annuity based tariffs determined competitively.

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6.

7.

As far as possible consistency should be maintained in transmission pricing framework in inter-State and intraState systems. Accordingly, after the implementation of the proposed framework for the inter-State transmission system, a similar approach should be implemented by SERCs in next two years for the intraState transmission system, duly considering factors like voltage, distance, direction and quantum of flow. Metering compatible with the requirements of the proposed transmission tariff framework should be established on priority basis. The metering should be compatible with ABT requirements, which would also facilitate implementation of Time of Day (ToD) tariffs.

Approach to transmission loss allocation 1.

Transactions should be charged on the basis of average losses, as applicable to relevant voltage level, on the transmission system. The loss framework should ensure that the loss compensation is reasonable and linked to applicable technical loss benchmarks. The benchmarks should be determined by the Appropriate Commission after considering advice of CEA. It would be desirable to move to a system of loss compensation based on incremental losses.

2.

The Appropriate Commission may require necessary studies to be conducted to establish the allowable level of system loss for the network configuration, and the capital expenditure required to augment the transmission system and reduce system losses. Since additional flows above a level of line loading leads to

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significantly higher losses, CTU/STU should ensure upgrading of transmission systems to avoid the situations of overloading. The Appropriate Commission should permit adequate capital investments in new assets for upgrading the transmission system.

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1.

Financial incentives and disincentives should be implemented for the CTU and the STU around the key performance indicators (KPI) for these organizations. Such KPIs would include efficient network construction, system availability and loss reductions.

2.

All available information should be shared with intending users by the CTU/STU and the load dispatch centers, particularly information on available transmission capacity.

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Electricity Act, 2003 Objective : Competition, Protection of Consumers interests & Power for all Areas n

Creates liberal framework for power development.

n

Creates competitive environment.

n

Facilitates private investment.

n

De licenses generation except for hydro : Captive free from controls.

n

Rural Areas : Stand alone Generation and Distribution delicenced.

n

Multiple licensing in Distribution.

n

Stringent provisions for controlling theft of electricity.

n

Focus on revenue recovery in cases of unauthorized use of electricity.

n

Obliges States to restructure Electricity Boards.

n

Mandates creation of Regulatory Commissions.

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197 Notes

n

Retail tariff to be determined by regulatory commissions.

n

Open access in Transmission from outset.

n

Open access in Distribution to be allowed by SERCs in phases.

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Gradual phasing out of cross subsidies.

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Trading distinct activity permitted with licensing

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Power is today a basic human need. It is the critical infrastructure on which modern economic activity is fully dependent. Only 55% households in India have access to electricity. Most of those who have access do not get uninterrupted reliable supply. The industry in India has among the highest tariffs in the world and is not assured of the quality of supply. In this era of globalisation, it is essential that electricity of good quality is provided at reasonable rates for economic activity so that competitiveness increases. Being internationally competitive is now essential for achieving the vision of 8% GDP growth per annum, employment generation and poverty alleviation. 1.

In recent years the financial health of SEBs has been deteriorating. There is a big gap between unit cost of supply and revenue and the annual losses of SEBs have been increasing and have reached unsustainable levels (over Rs. 33,000 crores).

2.

In the last two Plan periods, barely half of the capacity addition planned was achieved. The optimistic expectations from the IPPs have not been fulfilled and in retrospect it appears that the approach of inviting investments on the basis of government guarantees was perhaps not the best way. The energy as well as peaking shortages across the country is a matter of concern and the situation would have been worse but for the slowdown in manufacturing sector.

3.

The Hon'ble Prime Minister and Chief Ministers have set before the nation the goal of electrifying all our

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villages by 2007 and all our households by 2012. Access is yet to be provided to about 80,000 villages. Uninterrupted and reliable supply of electricity for 24 hours a day needs to become a reality for the whole country including rural areas.

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Enough generating capacity need to be created to outgrow the situation of energy and peaking shortages and make the country free of power cuts with some spare generating capacity so that the system is also reliable. The sector is to be made financially healthy so that the state government finances are not burdened by the losses of this sector. The sector should be able to attract funds from the capital markets without government support. The consumer is paramount and he should be served well with good quality electricity at reasonable rates.

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4.

It is in this context that the Electricity Act, 2003 seeks to bring about a qualitative transformation of the electricity sector through a new paradigm. The Act seeks to create liberal framework of development for the power sector by distancing Government from regulation. It replaces the three existing legislations, namely, Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity Regulatory Commissions Act, 1998. The objectives of the Act are to consolidate the laws relating to generation, transmission, distribution, trading and use of electricity and generally for taking measures conducive to development of electricity industry, promoting competition therein, protecting interest of consumers and supply of electricity to all areas, rationalization of electricity tariff, ensuring transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, constitution of Central Electricity Authority, Regulatory Commissions and establishment of Appellate Tribunal and for matters connected therewith or incidental thereto.

5.

The Act strikes a balance which takes into account the complex ground realities of the power sector in India

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with its intractable problems. The salient features of the Act are: i.

The Central Government to prepare a National Electricity Policy in consultation with State Governments. (Section 3)

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ii.

Thrust to complete the rural electrification and provide for management of rural distribution by Panchayats, Cooperative Societies, nonGovernment organizations, franchisees, etc. (Sections 4, 5 & 6)

iii. Provision for licence free generation and distribution in the rural areas. (Section 14) iv.

Generation being delicensed and captive generation being freely permitted. Hydro projects would, however, need clearance from the Central Electricity Authority. (Sections 7, 8 & 9)

v.

Transmission Utility at the Central as well as State level, to be a Government company - with responsibility for planned and coordinated development of transmission network. (Sections 38 & 39)

vi.

Provision for private licensees in transmission and entry in distribution through an independent network. (Section 14)

vii. Open access in transmission from the outset. (Sections 38-40) viii. Open access in distribution to be introduced in phases with surcharge for current level of cross subsidy to be gradually phased out along with cross subsidies and obligation to supply. SERCs to frame regulations within one year regarding phasing of open access. (Section 42) ix.

Distribution licensees would be free to undertake generation and generating companies would be free to take up distribution businesses. (Sections 7, 12)

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x.

The State Electricity Regulatory Commission is a mandatory requirement. (Section 82)

xi.

Provision for payment of subsidy through budget. (Section 65)

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xii. Trading, a distinct activity is being recognised with the safeguard of the Regulatory Commissions being authorised to fix ceilings on trading margins, if necessary. (Sections 12, 79 & 86)

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xiii. Provision for reorganization or continuance of SEBs. (Sections 131 & 172) xiv. Metering of all electricity supplied made mandatory. (Section 55) xv. An Appellate Tribunal to hear appeals against the decision of the CERC and SERCs. (Section 111) xvi. Provisions relating to theft of electricity made more stringent. (Section 135-150) xvii. Provisions safeguarding consumer interests. (Sections 57-59, 166) Ombudsman scheme (Section 42) for consumers grievance redressal.