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Current Scenario of Electricity Sector in India and Restructuring

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IEEE Sponsored NSC-2017, Dayalbagh Educational Institute, Dayalbagh, Agra, India 160

Current Scenario of Electricity Sector in India and

Restructuring
Ram Naresh Mishra1, D. K. Chaturvedi2
Department of Electrical Engineering, GLA University, Mathura
1
2
Department of Electrical Engineering, Dayalbagh Educational Institute, Agra

Email: maresh2007@gmail.com, dkc.foe@gmail.com


Abstract— As per the experience of restructuring trend in many NHPC National Hydroelectric Power Corporation
places of the world, the reform and restructuring process in
Indian electricity sector is going on since 1992. To facilitate NMRS Nodal Must Run Share
competition wherever feasible, efforts are being made. This paper NTPC National Thermal Power Corporation
presents current scenario of electricity sector in India and OA Open Access
emphasizes the recent strategies and policies made by PFC Power Finance Corporation
Government of India towards restructuring. With varying degree
of success, various states of India have implemented several key
PGCIL Power Grid Corporation of India Limited
elements of the reform program. The model for UPPCL PMUs Phasor Measurement Units
restructuring is proposed. This model can be adopted at national POSOCO Power System Operation Corporation
level with suitable modifications, if needed. Limited
PSUs Public Sector Undertakings
Index Terms— Electricity Act 2003, Deregulation, Distribution, PX Power Exchange
Generation, Open Access, Power Sector Reforms, Regulatory Co- RE Renewable Energy
mmission, Restructuring, Transmission. REBs Regional Electricity Boards
REMC Renewable Energy Management Centre’s
NOMENCLATURE RLDC Regional Load Dispatch Centre
SC Scheduling Coordinator
ABT Availability Based Tariff SEBs State Electricity Boards
AT&C Aggregate Technical and Commercial SERCs State Electricity Regulatory Commissions
BEE Bureau of Energy Efficiency SLDC State Load Dispatch Centre
CAGR Compound Annual Growth Rate STOA Short Term Open Access
CEA Central Electricity Authority STU State Transmission Utilities
CERC Central Electricity Regulatory Commission Transco Transmission Company
CPGs Captive Power Generations T&D Transmission and Distribution
CTU Central Transmission Utility TSO Transmission System Operator
DDG Decentralized Distributed Generation UI Unscheduled Interchange
Discos Distribution Companies WAMS Wide Area Measurement System
DSM Demand Side Management
ENMRS Expected Nodal Must Run Share I. INTRODUCTION
Gencos Generation Companies
GoI
HHI
Government of India
Herfindahl-Hirschman Index E lectricity has become a part of our existence. Moreover,
development and economic growth of the country
significantly depends on availability of electric energy at
IEA International Energy Agency
IPPs Independent Power Producers economical prices. It is a real time commodity being produced
ISO Independent System Operator and consumed instantly. Due to increasing demand of
LI Lerner Index electricity, power situation in India is not up to the mark yet.
LTOA Long Term Open Access There is a shortage of electricity. In India, the electricity sector
MoP Ministry of Power is mainly governed by the MoP. Electricity sector has three
MRR Must Run Ratio major pillars (generation, transmission, and distribution). The
generation is mainly divided into three sectors like central, state,
MRS Must Run Share and private sector. Central sector or PSUs involved in the
MTOA Medium Term Open Access generation of electricity include NHPC, NTPC, and NPCIL.
NEEPCO North Eastern Electric Power Corporation Various state level corporations (earlier name SEBs) are also
NETA New Electricity Trading Arrangement involved in the generation and intra-state distribution of
electricity. Other than PSUs and state level corporations,
private sector enterprises also play a major role in generation,
IEEE Sponsored NSC-2017, Dayalbagh Educational Institute, Dayalbagh, Agra, India
transmission, and distribution. PGCIL is responsible for the
inter-state transmission of electricity and the development of
national grid. India is a democratic country. Democracy is
about giving choice to the people. To facilitate competition
wherever feasible, efforts are being made. Choice of an
appropriate power market model plays an important role in this
context. With the evolution of markets, well functioning
markets in providing customer choice and good quality service
through provide competition. For successful power sector
reform, the role of power planning is very important as well as
economic growth of the country. The main objective of
deregulation is to encourage competition in electricity market
to provide reliable and good quality power supply at minimum
cost. Due to these advantages of deregulation, many countries
have already adopted this concept. It has been encouraged by
the benefits of restructuring in telecommunication, airline
industries etc [1].
II. OVERVIEW OF ELECTRICITY SECTOR [2-4]:
P.W. Fleury & Co was conducted first demonstration of an
electric light on 24th July, 1879 in Calcutta. First generating
station (hydro-electric) set up near Darjeeling (West Bengal) in
1897 having capacity of 130 KW. Calcutta is the first electrified
city in India (1899).During 1900-1920, various generating
station came into existence at different places like Khopoli
(Maharashtra), Sivasamudram (Mysore), Mettur dam (Madras)
etc. In1910, the Indian Electricity Act enacted to regulate
supply by licensees to consumers.
1948 - Electricity (Supply) Act 1948 - Formation of SEBs in
the states and at national level, CEA is responsible for planning
as well as development of power system.
1964 – Five REBs were formed by the GoI with the consent of
state governments.
1975 - Creation of central Genco’s for development of super
thermal power stations and large hydro-electric stations leading
to creation of NTPC, NHPC, and NEEPCO.
1991 - Electricity (Supply) Act 1948 amended to pave the way
for the formation of private Gencos. CEA empowered to fix the
norms for determining the tariff of all Gencos. The foreign
investment (100%) in power sector has been allowed by RBI.
1992 - First Gazette notifications on the criteria for fixing the
tariff for sale of electricity by the Gencos to SEBs or any other
agency.
1998 - Electricity Regulatory Commission Act 1998 enacted
paving the way for the formation of CERC and SERCs.
Regulatory power of the state governments transferred to
SERC. Consequently, Tariff regulatory function of CEA
transferred to CERC.
1998 - Act amended to provide for CTU and STU.
1999 - Privatizations of distribution in Odisha.
2000 - Indian Electricity Grid Code (IEGC).
2001-Energy Conservation Act, 2001 enacted on 1st Oct
2001.This Act ensured energy efficiency in consumption and
introduction of DSM. Under the provisions of the Act, BEE has
been established
2002 - Privatization of distribution in Delhi.
2002 - ABT.
2003 –GoI notified Electricity Act 2003 in June 2003. This Act
repeals the IE Act 1910, ES Act 1948, and ERC Act 1998. This
161
act covers major issues involving generation, transmission,
distribution and trading of electricity. Moreover, this act will
ensure the competition at wholesale as well as retail level in the
electricity market.
2004 - Open Access Regulations.
2006 - Tariff Policy, Competitive bidding for procurement of
power, Ultra Mega Power Projects.
2007-The Act was amended on 28th May,2007 with greater
emphasis on assessments, fines and legal framework to check
commercial losses due to pilferage and unauthorized use of
electricity.
2007/08-Power exchanges guidelines, and establishment.
2008 - Allotment of Coal Blocks to power generators for
captive mining.
2010- Formation of POSOCO to handle the power management
functions of PGCIL.
2011 -Competitive bidding for ownership and establishment of
inter-state transmission schemes.
2013-The commissioning of the 765 kV Raichur- Solapur
transmission line, thereby establishing the National Grid
2015- Auction of Coal Blocks to power generators for captive
mining.
2016- Started with steep fall in the international price of energy
commodities such as coal, diesel oil, naphtha, bunker fuel and
LNG which are used in electricity generation.
2017- CEA stated that India exported electricity of 5,798 GWh
to neighbouring countries, against a total import of 5,585 GWh.
This is happened first time in India [5].
A. Structure of Electricity Sector [3-6]:
India has an installed power generating capacity of 322,881.52
MW (as on 31 March, 2017) out of which 59.5%
(192,162.88MW) from thermal, 15.1% power stations share is
(48812.28 MW) from hydro,2.1%(6,780 MW) from
nuclear ,8.9% (28,700.44 MW) from wind power,3.8%
(12,288.83 MW) from solar power ,7.8% (25,329.38 MW)
from gas, 2.5% (7,970.08 MW) from biomass, and 0.3%
(837.63 MW) from diesel is shown in fig(1). Total installed
capacity of generating units region wise is depicted in fig (2). It
is observed that western region has got highest position among
five regions. The growth of installed capacity as well as
generation is shown in fig (3), and (4). But still there is a gap in
generation and demand. The annual per capita consumption of
electrical energy (in kWh) is increasing day by day. It was
1075kWh in 2015-16. As per progress report of village
electrification as on 31-03-17 CEA, in India, 99.25% of
597,464 villages are electrified and there are74% rural
house-holds are provided with electricity. Hence, India needs t
o be establishing more generating units preferably from renew
able s-ources [11].
The electricity sector of India is organized into five REBs such
as NREB, SREB, EREB, WREB, and NEREB. Each REB is
consisting of several SEBs. At national level, the CEA advises
the MoP for power policy, power planning and regulatory
matters. Where as, at state level SERCs do the same
functions. The electricity sector is beset with several problems
such as large-scale thefts of electricity, fiscal losses at REBs,
non-payment by consumers at all levels, under investment in
IEEE Sponsored NSC-2017, Dayalbagh Educational Institute, Dayalbagh, Agra, India 162

T&D , increasing power outages due to inadequate

transmission etc. The performance of various state level
corporations (earlier name SEBs) is vastly attributed to
unrealistically low tariffs set by state governments, poor
revenue collections, corruption, and increased costs.
There are five RLDCs in India such as NRLDC, SRLDC,
ERLDC, WRLDC and NERLDC. These RLDCs have been
modernized with modern Energy Management Systems tools.
RLDCs are responsible for scheduling of the central sector
generating units only. But in each state, there is a SRLDC.
SRLDCs carry out the optimum scheduling of the state
generating units. SRLDCs send the requisition to the RLDCs
against their entitlements out of available power from central
sector generation and the RLDCs allocate total available power
to various states in the ration of their entitlements [7].

*Up to May 2017(Provisional), Source: CEA

IEEE Sponsored NSC-2017, Dayalbagh Educational Institute, Dayalbagh, Agra, India
Status of power energy availability, demand and deficit has
given in fig. (5), the shortage of power generation is estimated
to be around 2608 MW during 2016-17(Fig.6). Currently, India
has a power deficit of around 1.6%. As per the reports
published by Oxford Institute of Energy Studies [12], the GoI
should more encourage and facilitate local private investment
in small scale distributed electricity generation capacity ,as part
of a ‘bottom-up’ solution to electricity sector reform
rather than ‘top-bottom’ reform.
B. ABT mechanism for frequency regulation:
Let us consider first the cost of electricity which the consumers
pay to Discos. The total cost is the sum of fixed cost, semi fixed
cost (depends on maximum KW demand) and variable cost. It
is mandatory for the consumers to maintain power factor within
prescribed range otherwise penalty is levied on them. ABT is
for the Discos and regulated by CERC. This tariff was
introduced in the country from 1st July, 2002. It has three
components, viz fixed charges, energy charges, and UI charges.
UI charges are largely responsible for bringing about the
desired grid discipline. UI charges are payable when a
generator generates more/less than the schedule or a
beneficiary draws more/less than the schedule. The
incentives/disincentives imposed vary with the grid condition
at the time of indiscipline. In the real time, the actual dispatch is
likely to be different from the schedule. If the grid has surplus
power at the time of frequency greater than 50.0 Hz, the rate
would be lower. If the excess generation takes place at the time
of its shortage (in this case the frequency is below 50.0 Hz), the
payment for extra generation would be at a higher rate. With
effective from 17 September 2012, the permissible range of the
frequency band for Indian’s grid is 49.7-50.2 Hz. The Union
Government regulates grid frequency by requiring states to pay
more when they draw power at low frequencies. The UI price
curve is shown in fig.(7). Now days, the ABT has been
implemented by central
commission almost in all the regional grid of India,which aims
actually at bringing responsibility, accountability in power
generation and also schemes of incentives and disincentives for
consumption by frequency dependent pricing[8].
Fig.
(7)
C. Status of Electricity Sector Reforms:
The electricity sector is facing a plethora of problems in all the
three basic areas like generation, transmission, and distribution.
Several initiatives have been taken by the GoI to invite
participation of private sector in generation, transmission, and
163
distribution. Understanding difficulties faced in the process of
reforms, the GoI in consultation with the states initiated
measures to overcome these difficulties. The unbundling
process has been started few years back. Many SEBs are
unbundled in Gencos, Transcos, and Discos. All Gencos and
Transco’s are controlled by government. In some states, the
Discos are controlled by government and in few states such as
Orissa and Delhi, the Discos are privatized.
Orisha was the first state which initiated the power sector
restructuring business in state. Restructuring has been done in
other states also. Milestones of electricity sector reforms are
shown in table (1). Most of the state’s only unbundled the SEBs
but did not privatize the distribution business. In India steps has
been taken for deregulation in electricity sector .But it is not yet
fully implemented because there are some issues which need to
be resolved to fruitful implementation of deregulation. There
are many private utilities in some states of India. These are in
position to face the challenges of competitive electricity market
[9].For the developing countries, the prospectus and the
economic growth of electricity sector are in the hands of the
private sectors. There are many private power companies are
came into existence in India such as Reliance Power Limited,
Adani Power , Tata Power Company Limited, Suzlon Energy ,
Essar Power, Jindal Power, Torrent Power, AEC Limited,
GMR Infrastructure Limited, GVR Power and Infrastructure
Limited, DLF Power Limited, Birla Power Solutions Limited
etc. It is also important to create a healthy competition among
players who participate in power generation without violating
the policies in a deregulated electricity market. At the same
time, one should not target the impact of constraints on the
transmission network in exercising market power by the
Gencos. Market power can be measured by using various
indices such as HHI, LI, MRR, MRS, NMRS, and ENMRS
[10].
III. IMPACT OF ELECTRICITY SECTOR
RESTRUCTURING:
A. Generation Segment:
IEEE Sponsored NSC-2017, Dayalbagh Educational Institute, Dayalbagh, Agra, India
As per EA2003, GoI introduced certain policy measures to
ensure more private participation in generation and to reduce
demand-supply gap. With the arrival of private players in
power generation, its contribution was 43% of generation
capacity on 30th April, 2017 (while central has 25% and state
has 32% on the same date)[6]. Yet, generation is not enough to
meet the growing demand of electricity. However, CPGs have
been growing at a fairly aggressive pace in India. Industrial
sector is one of the largest consumers of electrical energy. It
consumes about 45.9% of total electricity consumption in the
country. The demand for electricity in India has been
continuously growing with time. Thus, to sustain and excel in
the dynamic global environment, it has become imperative for
the industries to ensure uninterrupted power supply for
performance optimization which has subsequently led
to the growth in CPGs in India. Technavio's analysts forecast
the CPG market in India to grow at a CAGR of 4.5 % over the
period 2013-2018.
B. Transmission Segment:
As per EA 2003, GoI introduced a non-discriminatory open
access in the segment of transmission. Which enabled the
generator to sell electricity for any customer and there is option
to choose the generator by using transmission network. At
central level, CTU could provide open access and at state level,
STU could provide open access. As on April 30, 2017, around 1,
39,708 km of EHV transmission lines spread over the length
and breadth of the country. The total transmission capacity of
the inter-regional links found 75,050 MW [6]. PGCIL is
implementing the prestigious and state of the art, REMC for
managing the renewable generation integration and operation
which shall include a host of activities from RE forecasting to
energy balancing and generation scheduling. In smart
transmission, PGCIL has been implementing synchrophasor
technology in its WAMS project through installation of PMUs
at different locations in all regions across the country. Ref.[15]
presents a deregulation model for transmission system in India.
C. Distribution Segment:
Distribution is an important entity in the chain of electricity
sector and all other entities like generation, transmission
dependent on distribution for their revenue realization. Due to
high losses (including pilferage), uneconomical tariff, the
financial position of the Discos in the state, is severely strained.
This is the reason behind the inadequate investment by the state
government in distribution segment. The states also need to
seriously work on regular energy auditing and 100% metering.
It shall be duty of a distribution licensee to develop and
maintain an efficient, coordinated and economical distribution
system in its area, to supply electricity to consumers. Central
government has been extending all possible help to the state
governments in improving the distribution system [9].
D. Open Access:
The basic objective of Indian Electricity act 2003 was to
introduce competition in the electricity sector for improvement
of performance as well as efficiency of electricity market. It has
164
been almost thirteen years passed since enactment of this act.
OA is still distant dream for many stakeholders of this sector.
There are various factors such as technical feasibility of open
access in different states and political will create hurdles for its
implementation. In some states, the cross subsidy surcharge is
very high making the open access unviable.
Through open access the competition at wholesale (above 1
MW) was introduced in order to decrease the cost of power
procurement at the consumption level which results in the
industrial growth of the country. When the buyers and sellers
entities belong to different states, it is called as interstate open
access. In this case CERC regulations are followed. When
buyers and sellers entities belong to same state, it is called as
intrastate open access. In this case SERC regulations are
followed. Inter and Intra state open accesses are further
categorized as STOA (for period of less than one month),
MTOA (for a period of 3 months to 3 years) and LTOA (for a
period of 12 years to 25 years). In general the buyer and seller
of electricity can go for bilateral or collective transactions. In
bilateral transactions a PPA is signed between the buyer and
seller which is generally facilitated by a trader for a little
margin. In case of collective transactions the electricity is
traded through exchanges.
IV. RECOMMENDATIONS
The present condition of India is not yet suitable for electricity
restructuring due to the gap between demand and generation.
Following steps are recommended to overcome this issue.
A. Typically, electricity prices in India are less than the cost of
its production thereby it is challenging issues to build and
operate a new power plant. The poor power factor as well as
pilferage of electric power leads to increased T&D losses (22%
at present) and around 24% AT&C losses, thereby raising the
cost of power delivery. However, GoI is targeting to bring
down T&D losses in the electricity sector to 15% by 2019 from
22 % [5].DDG plays an important role to reduce the T&D
losses. Since DDG locates closer to consumers utilizing locally
available RE resources [11]. So, power tariffs analysis should
consider both the structure of tariffs and the costing
methodology for rate making. Moreover, government should
decentralize the planning process for an easy entry of
generators [13].
B. Open Access restrictions (section 11/108 of Electricity Act
2003) imposed by several state governments/ SLDCs citing
shortages or non availability of transmission infrastructure.
Thus, private investment for adding the interstate and intrastate
transmission capacity should be encouraged in the country [16].
C. Power sector reformation got the dimension by
politico-administration like free power supply to farmers etc.
The political timeframe causes a mismatch between planning
and the responsibility for its implementation. The direct
control of government should be reduced.
D. At present the financial health of electricity distribution
sector is not sound. This is mainly due to unrealistically low
tariff, high T&D losses, low billing and collection efficiency.
The financial crunch faced by the power industry, compounded
by inefficiency and corruption, contributes significantly to the
crises of distribution sector. The MoP needs to keenly follow
View publication stats
IEEE Sponsored NSC-2017, Dayalbagh Educational Institute, Dayalbagh, Agra, India
the process of privatization of the electricity distribution sector
in the states.
E. Intensive studies and surveys show that huge government
committees are set up and the public exchequer put to great
expense to devise paper work for all kinds of new plans and
projects. But its implementation is biggest weakness in India. It
would do India good to simply try and implement what is all
there on papers.
V. PROPOSED MODEL FOR UPPCL RESTRUCTURING
[14]:
This model combines the features of pool as well as
bilateral/multilateral model as shown in fig. (8). The main goal
of a better restructured power system is to open the door for
high degree of competition to all market entities. So that
consumers have option for cheaper and good quality of
electricity. In this model, sellers and buyers can enter into the
phase of bilateral/multilateral contracts. Moreover, consumers
would be able to make electricity purchase agreements directly
with power pool or genco’s or discos or IPPs or retailers as
needed. This is costlier approach to set up because of separate
entities required for operating the PX and the transmission
system. As for as security of the power system is concerned,
this model has a lot of constraints. Right now, Indian electricity
sector is not in position to enter in this competitive environment.
Electricity sector is underway to create surplus generation to
foster competition among power producers and open the door
for greater choice for consumers. This model can be adopted at
national level with suitable modifications, if needed.
Fig.(8)
VI. CONCLUSION
For the developing countries, the prospectus and the economic
growth of electricity sector are in the hands of the private
sectors. India is power deficit country; however CEA stated
165
that India exported electricity of 5,798 GWh to neighbouring
countries, against a total import of 5,585 GWh in the FY
2016-17. So, there is a very limited surplus power available in
the open market. In the country, most of electric power is being
traded in whole sale market either through bilateral or
multilateral contracts. It seems that the present condition of
India is not suitable for retail competition. However, there are
many plant of CPGs are exist in the country. They can
participate in the bidding process. In this view, the design of an
appropriate electricity market is not easy task for India.
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