State governments announcing free power to consumers even as they have to pay Rs 75,000 crore in pending dues to distribution companies delays payments to generating companies. That underscores the need for urgent reforms, according to top executives of India's two private power producers.
India is in a position to leapfrog in power space, especially the renewable energy sector, though overall sectoral reforms are needed, Praveer Sinha, managing director of Tata Power Co. Ltd., said at the BQ Prime Future Today Summit on Friday, Oct. 14.
According to Prashant Jain, joint managing director of JSW Energy Ltd., India needs to take urgent steps to improve the financial condition of state power discoms by introducing direct benefit transfer for consumers.
Sinha and Jain also suggested including the power sector under the Goods and Services Tax regime.
"GST has helped create tax buoyancy across sectors. Bringing power sector under the GST net will help the entire sector become cost competitive," Jain said. It will also help in setting up the hydrogen economy as separate duties can be a big deterrent to growth, he said.
According to Sinha and Jain, although the distribution reforms in policy terms are moving at a fast pace, implementation remains a challenge.
“Since electricity is a concurrent subject, implementation is effected by the states,” said Sinha. “However, the discoms' inability to pay on time to generators is still a concern.”
There have been policy initiatives by the central government whereby if discoms do not pay the generators on time, their supply of power will get regulated and they will not to be able buy power on exchanges, Sinha said.
"However, we have a long way to go. It is the states who must come on board and demonstrate the seriousness to reform the discoms, in terms of unbundling them and/or having public-private partnerships."
According to Sinha, the next big reform would relate to manufacturing. Since solar panels in India are largely imported, the implementation of the production-linked incentive scheme will be crucial for India to achieve self-sufficiency.
The capacity additions are substantial for cells and modules, but it's not the same with silicon and wafers that are used as raw material for creation of modules, Sinha said.
“That gap needs to be addressed quickly to meet the 40 gigawatt annual renewable capacity, to meet the 2030 target,” he said. “We still have large coal-based plants; they can become the baseload and the incremental capacity can be taken care of by renewable energy going ahead.”
There will be global challenges but if India produces enough of these materials, we will be able to meet the target, he said.
Watch the full discussion here:
How Soon Can Reforms Happen?
Another concern in the sector relates to pending dues from state governments to state discoms in the form of subsidy.
According to data from the Ministry of Power, the total subsidy dues pending to discoms stand at Rs 75,000 crore. This has been a major constraint for discoms to pay power generators, leading to outstanding payments of more than Rs 1 lakh crore.
According to Jain, direct transfer of subsidy to consumers' account is the only way to resolve issues of delay in grant of subsidy by government to state discoms.
Since tariffs are decided by regulators based on revenue and expenditure, the delay in payment of the balance amount—which was supposed to come as subsidy from the exchequer—leads to mismatch in cash flows, Jain said.
“The direct benefit transfer will help avoid the one- or two-year delay since the subsidy was promised to the consumers by the government.”
In terms of power purchase agreements, various adjudicating authorities in the country have upheld the sanctity of the power-purchase agreements, maintaining that they cannot be delayed.
The central government has ensured that if there is a delay in payment, states cannot purchase power and penalise the generators, Jain said. “That thing is getting reflected in the balance sheets now. Very soon we will see a change in behaviour.”
The central government for the first time (in May-June 2022) invoked Section 11 of the Electricity Act directing all imported coal-based power plants to operate at full capacity, and suspended discoms from buying power on the exchanges. It even made import of coal mandatory to meet the shortages, and thus, necessary policy changes are happening, Jain said.
Power Shortages Ahead
India is likely to see a shortage of power in the coming years as surplus capacity has got exhausted, Jain said.
Given India's power demand has grown at 5% CAGR over the last 20 years, India will need at least 10 GW of additional capacity on a base load of 180 GW if demand continues to grow at the same rate by 2030, he said.
“If this has to be met by renewable energy, it would mean an annual capacity addition of 20-30 GW. Do we see that kind of execution? No!” he said.
"We need new capacities and unless that happens, there will be shortages," he said. “Everyone will have to buckle up.”
According to Jain, it isn't a cause for concern though, as in such events, the pace of reform increases and the decision-making becomes quick. The industry, too, comes up with quick solutions to address the problem at hand, he said.
Green Commitment Won't Be Diluted
There can be no going back on the commitment to go green, said Sinha. The frequency of climate change and weather events, that have impacted the world, have risen in the last 50 years.
“We should not dilute our commitments. It will require certain sacrifices from all the stakeholders.”
According to him, there has to be a firm belief that "whatever we do, we will have sufficient capacity to meet our requirements".
"We need to have hydrogen (production), (battery) storage capacity, demand side and supply side management and a whole lot of technology interventions to make the targets happen. Directionally, we are there. If we miss the target, it will happen next year or a year later,” Sinha said.
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