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Context
Traditionally power sector in India has been closely regulated by the government. Consumers are typically bound to purchase electricity from the state-owned electricity distribution companies (also referred to as ‘discom’), that has monopoly over electricity distribution & retail in their jurisdiction.[1] The discom is responsible to source power from various sources (generators or open market) and supply it at regulated tariffs to its consumers. However, in order to promote competition and increase efficiency in the sector, the government through enactment of Electricity Act in 2003, made drastic changes to the way electricity was generated, transmitted and distributed in the country. Electricity consumers with a load requirement above 1 MW now had the option to choose their supplier of electricity. The Electricity Act also mandated discoms and other large consumers to procure a specified share of electricity from renewable energy sources (Renewable Purchase Obligations). Open access has since become an important tool for consumers to either reduce their electricity bills, increase reliability or meet their RPO obligations.
Open access may be classified as following:
- Inter-state open access: Governed by Central Electricity Regulatory Commission (CERC) regulations, in this case, the purchasing and selling entities belong to different states. Based on tenor, it may be further classified as short term (less than a month), medium term (3 months to 3 years) or long term (12 to 25 years).
- Intra-state open access: Governed by a State Electricity Regulatory Commission (SERC) regulations, in this case, the purchasing and selling entities belong to same state. Based on tenor (varying across states), it may be further classified as short term, medium term or long term.
Generally, a buyer and seller enter into a power purchase agreement, facilitated by a trader for a margin. But, large customers also resort to purchasing electricity from power exchanges (India Energy Exchange – IEX and Power Exchange India Limited - PXIL) that facilitate trading of electricity.
Relevance & Impact
In order to compensate the discoms for reduction in their revenue when the consumer shifts to open access, the state discoms levy certain charges. These include PoC charges, transmission charges, wheeling charges, cross subsidy charges, SLDC charges, etc. Recently it has been observed that state discoms escalate these charges in order to deter customers from shifting to open access. The states of Maharashtra, Rajasthan, Gujarat and Karnataka witness some of the highest open access supply volumes. Increased interest in renewable energy based open access has been seen in few states due to reduction in tariff and exemptions from cross-subsidy and additional surcharges.
The proposed amendments to Electricity Act recommends separation of supply and distribution of electricity. This would mean that discoms would have to provide suppliers a non-discriminatory access to their distribution system by creating a market place. Going forward it would be interesting to see how consumers react to changing regulations if open access still remains the favourite instrument to procure cheaper and reliable power.
Who should care
- Renewable energy developers & investors
- Discoms
- Central and State Electricity Regulatory Commissions
References
- [1] Except in few cities where private distribution companies operate (such as Delhi, Mumbai, Ahmedabad, Kolkata, etc.)
