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Promoting Competition in Electricity Sector: Transmission System Holds the Key, Shri R V Shahi, Former Secretary, Ministry Of Power

Promoting Competition in Electricity Sector: Transmission System Holds the Key
[R V Shahi's Weekly Column for Infraline, December 17, 2007]

The central theme of The Electricity Act 2003 is to protect the interests of consumers, and in order to achieve this objective we need to facilitate restructuring of the industry in a manner that competition leads to consumer benefits in terms of competitive prices and quality of service. For last over 50 years, consumers of electricity have not tasted the service from the utility service providers which they so badly deserved. It must be recognized that the intensity of adverse impact, due to poor quality of service, is perhaps the strongest in case of electricity as compared to any other commodity. A slight disruption in water supply, or in milk supply or in supplies of essential commodities could be felt as inconvenient, but consumers can put up with these disruptions for a few hours or in some cases even for couple of days, because they could make advance preparations for such likely eventualities. However, electricity disruption has immediate and direct adverse effect.

People often quote the example of telecom sector while highlighting the problems of reliable power supply in adequate measures and also for customer care. It is true that customers in the Indian power sector can get the quality of service which they deserve only when sufficient amount of competition is facilitated and created in this sector. However, some of the reasons that it has not happened are as follows:

  1. In view of the risk perception in respect of payment security for electricity generated and supplied, all these stakeholders collectively evolved a model which binds electricity purchase and sale through long term contracts. This obviously writes the rule of the game for 25 to 30 years for various projects which are developed and leaves little room for emergence of players competing with each other.

  2. Electricity sector is significantly different from others, including from telecom sector. Power flow and its peculiar characteristics bind us to develop transmission systems considering the source of generation, locations of load (demand) centers and various other factors. And, it is this transmission system which has to facilitate - and it cannot facilitate free-for-all situations - which could have ideally led to larger degree of competition in the market.

  3. The electricity generation and consumption is a simultaneous process (normally electricity cannot be produced and stored for consuming it at a later time of choice). This brings additional burden on flow of power.

  4. This sector is unusually confronted with high peaks in demand at certain hours of day and night and during certain periods of the year - and this varies differently across different parts of the country.

  5. Our natural energy resources (coal, gas, water) are located in select pockets and the electricity demand centers have entirely different locations.

The above factors together with many others compound the complexity of forecasting power flows and designing a system which could be adequate to meet all situations which are themselves dynamic in nature - dynamic across seasons and across various time periods. Additions of new generation capacities whose locations cannot be predicted over a long period of time further add to the challenge of planning a suitable network. Inspite of all these difficulties, while we can sympathies with those who have to predict the future and plan a proper system, we cannot do so beyond a point because electricity consumers also need to have a choice of their suppliers, electricity price also has to come down (like it has happened in the case of telecom sector) for which the only solution is to cause Indian power sector to quickly shift toward a large scale competition. Long term Power Purchase Agreements and that too for over 97% of electricity generated has been the anti climax and a counter force to meet this vital need.

Electricity Act 2003 is quite clear on this subject. It desires the following in the larger interest of consumers:

  • Creating competition in electricity sector has been provided in the preamble of the Act itself.

  • There is an institution provided in the Act namely, Central Transmission Utility (Power Grid has been notified as the CTU). The CTU under Section 38 of the Act has been obliged with the responsibility to provide non-discriminatory open access to its transmission system for use by (i) any licensee or generating company on payment of transmission charges, and (ii) to any consumer when open access in distribution network is introduced by the Regulatory Commission. It is relevant to mention here that Regulatory Commissions have been obliged under the Act to introduce open access on distribution network latest by January 2009.

  • Just as at the central level there is a provision for Central Transmission Utility, at the state level, the Act provides for a State Transmission Utility (STU), which have been notified by the State Governments and these are the State Transmission Companies. STU's have also been obliged under the Act (Section 39 & 40) to provide similar non-discriminatory open access on the transmissions systems owned and operated by them.

  • In both the cases, i.e. for CTU as well as STU the Act has obliged them to ensure development of an efficient, co-ordinated and economical system and network for efficient flow of power from generating stations to load centers.

Subsequent to the Act, two more important statutory policies have been formulated and notified by the Government of India - National Electricity Policy (February 2005) and Tariff Policy (January 2006). The direction and thrust of these policies toward bringing about competition, and role of Transmission in this regard, can be appreciated from the following provisions of these policies :

Transmission (Para 5.3.3.)

"Open access in transmission has been introduced to promote competition amongst the generating companies who can now sell to different distribution licensees across the country. This should lead to availability of cheaper power. The Act mandates non-discriminatory open access in transmission from the very beginning. When open access to distribution networks is introduced by the respective State Commissions for enabling bulk consumers to buy directly from competing generators, competition in the market would increase the availability of cheaper and reliable power supply. The Regulatory Commissions need to provide facilitative framework for non-discriminatory open access. This requires load dispatch facilities with state-of-the art communication and data acquisition capability on a real time basis. While this is the case currently at the regional load dispatch centers, appropriate State Commissions must ensure that matching facilities with technology upgrades are provided at the State level, where necessary and realized not later than June 2006."

Similarly, for facilitating open access in Distribution the Policy provides :

Distribution (Para 5.4.5)

"The Electricity Act 2003 enables competing generating companies and trading licensees, besides the area distribution licensees, to sell electricity to consumers when open access in distribution is introduced by the State Electricity Regulatory Commissions. As required by the Act, the SERCs shall notify regulations by June 2005 that would enable open access to distribution networks in terms of sub-section 2 of section 42 which stipulates that such open access would be allowed, not later than five years from 27th January 2004 to consumers who require a supply of electricity where the maximum power to be made available at any time exceeds one mega watt. Section 49 of the Act provides that such consumers who have been allowed open access under section 42 may enter into agreement with any person for supply of electricity on such terms and conditions, including tariff, as may be agreed upon by them. While making regulations for open access in distribution, the SERCs will also determine wheeling charges and cross-subsidy surcharge as required under section 42 of the Act."

The Electricity Policy provides for facilitating further competition at the distribution level through more than one Distribution Licensee in the same area of supply. This clearly shows the concern of the Act for introducing competition aimed at providing choices to consumers.

(Para 5.4.7) - "One of the key provisions of the Act on competition in distribution is the concept of multiple licensees in the same area of supply through their independent distribution systems. State Governments have full flexibility in carving out distribution zones while restructuring the Government utilities. For grant of second and subsequent distribution licence within the area of an incumbent distribution licensee, a revenue district, a Municipal Council for a smaller urban area or a Municipal Corporation for a larger urban area as defined in the Article 243(Q) of Constitution of India (74th Amendment) may be considered as the minimum area. The Government of India would notify within three months, the requirements for compliance by applicant for second and subsequent distribution licence as envisaged in Section 14 of the Act. With a view to provide benefits of competition to all section of consumers, the second and subsequent licensee for distribution in the same area shall have obligation to supply to all consumers in accordance with provisions of section 43 of the Electricity Act 2003. The SERCs are required to regulate the tariff including connection charges to be recovered by a distribution licensee under the provisions of the Act. This will ensure that second distribution licensee does not resort to cherry picking by demanding unreasonable connection charges from consumers."

The Tariff Policy, which was notified in January 2006, further reinforces the need for an adequate transmission planning and also for a tariff structure, which promotes, on the one hand, balance flow of power, and adequacy of the system on the other.

Para 7.1 of the Tariff Policy states :

Transmission pricing

  1. A suitable transmission tariff framework for all inter-state 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 (NEP) 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 determined on MW per circuit kilometer 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. The overall tariff framework should be such as not to inhibit planned development/augmentation of the transmission system, but should discourage non-optimal transmission investment.

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

These provisions are very powerful to propel competition. But, perhaps what is needed is a little more proactive approach by all the concerned functionaries including Central Electricity Authority, CTU, and more importantly the Central Regulatory Commission and the State Regulatory Commissions. Inspite of over six years of Power Trading we are still continuing at less than 3% of total generation through such arrangement. Unless short term power transactions increase to 15 to 20%, even the marginal benefits of competition may not be available to consumers. How will this happen? The following few points are worth considering:

  1. The momentum of Ultra Mega Projects (UMP) and similar projects at the state level must be continued. UMP's should keep about 15% of capacity outside long term PPA.

  2. We should see that a reasonably good proportion of capacities are developed which are not necessarily through the long term contracts.

  3. Public sector companies like NTPC have already started developing capacities on merchant plant basis. They should expand on this. Other public sector companies should also follow suit.

  4. Specific steps by CEA and Ministry of Power could facilitate development of a number of merchant power plants.

  5. The aim should be to have about 15% of capacity on basis other than long term contracts. In five years the country's installed capacity may rise to above 2,00,000 MW and therefore by that time more than 30,000 MW needs to fall in the category of such arrangements.

These are obviously expectations which can be met from all other angles except from the fact that they would put enormous burden on transmission planning. However what needs to be done, therefore, is that we provide more than 25% of excess transmission capacity (redundancies) in our national and regional transmission grid systems and about similar excess transmission capacity in the Intra State Transmission Systems. This objective, no doubt, is difficult to materialize. The question is not just to build, into the system, redundancies and excess for trading; the fine point is where and in which segment of the national and regional networks such redundancies and adds-on need to be provided. This is a challenge for power Transmission system planners.

In a recent Round Table discussion organized by Infraline Energy and IDFC on 5th December, 2007, the issue of development of transmission system planning to promote competition in electricity sector was deliberated at length. Two comprehensive presentations were made - one by Shri V. Ramakrishna, Additional Secretary & Member (Power Systems), Central Electricity Authority (CEA) and another by Shri R.K. Madan, Former Director Power Grid, CMD Power Trading Corporation and now President in Adani Group. What was satisfying to learn, from the presentation of CEA, is that Central Electricity Authority and CTU are planning for a 30% cushion in the system. Besides, the following aspects were particularly brought out :

  1. The adequacy of transmission system is tested for different load generation scenarios corresponding to the following variables so as to ensure that the system is able to cope with the maximum burden - (a) summer peak load, (b) summer off peak load, (c) winter peak load, (d) winter off peak load, (f) monsoon Peak load, and (g) monsoon off peak load. These obviously create highly complex models for power system planning.

  2. Because of extensive work done in last three years, we have much better preparations for the Eleventh Plan right from the beginning. The inter regional transmission capacity which was about 5,000 MW in March 2002 increased to about 14,000 MW in March 2007 and is expected to increase to over 37,000 MW by March, 2012.

  3. The details of inter regional transmission systems are worked out keeping in view the likely import into and export from different power regions of the country and in different scenarios viz., winter, summer, monsoon etc. and for both peak and off peak hours. For XI Plan details are given in the Table :

Inter Regional Transmission Capacity (MW) (National Grid)

Region March 1997 March 2002 Addition in XI Plan March 2012
ER to SR 620 3,120 500 3,620
ER to NR 120 4,220 9,400 13,620
ER to WR 360 1,760 4,900 6,660
ER to NER 1,240 1,240 1,600 2,840
NR to WR 980 2,080 2,100 4,180
WR to SR 1,680 1,680 2,100 3,780
NER/ER/ to NR/WR - - 3,000 3,000
Total 5,000 14,100 23,600 37,700

  1. The maximum amount of import that has been planned is for Northern region, which is of the order of 11,500 MW, followed by Western region (9,500 MW) and Southern region (3,600 MW). Obviously considering the natural resources of coal and water in Eastern and North-eastern region and also keeping in view their own demand projections, which are rather lower compared to other regions of the country, the maximum amount of exports from these regions are 19,500 MW from Eastern and 5,500 MW from North-Eastern regions.

  2. Since the capacity addition programmes for next ten years are on a much larger scale and also preparations for generation projects of the Eleventh Plan, which had started a few years ago, are substantially superior both in terms of quantitative and qualitative aspects, transmission system has to be commensurate. Accordingly, it has assimilated into its planning process the latest state of the art technologies which include multi circuit lines, high capacity lines with multi conductors, high temperature designs, alloy conductors, high voltages of 765/800 KV and subsequently even 1200 KV, compact Gas Insulated Sub-stations (GIS), enhancement of transmission density through SVC, Flexible A.C. Transmission System (FACTS) etc. High Capacity Transmission Systems of 6,000 MW on 800 KV HVDC System have been envisaged.

  3. The expansion is so large that only the central sector organization viz. Power Grid for the National Grid and the respective State Transmission Utilities for the State Transmission Systems may not be able to mobilize for the total tasks. Therefore, in consonance with the letter and spirit of the Electricity Act, Central Government as well as the State Government would be embarking upon suitable contribution from the private sector in this massive expansion programme of the transmission sector.

  4. The general concern is - and there is substantial reason for the same - that most of the States are either not alive to or are not proactive enough to respond to the need for augmentation of their state level transmission and sub-transmission systems. Though there has been a definite and visible change in the level of understanding and appreciation about the need for suitable expansion of transmission, in terms of concrete actions there are lot of gaps particularly in most of the states. Therefore even though national and regional systems are made comparatively much stronger, if suitable feeder systems at lower voltages including those in sub-transmission and distribution networks are not created, most of the objectives would remain unfulfilled.

From these discussions it is abundantly clear that the role of reliable and strong transmission systems at national, regional and state level is crucial. Ideally, it should be possible for any power generator to supply power to any consumer who can have the commercial arrangement with him. If generators could be assured that transmission will not be a bottleneck and therefore they will be able to sell their power to different distribution licensees and other large consumers at different points of time and this flexibility could lead to maximizing their own benefits, we could definitely expect much larger generation capacities being set up at different locations. Similarly, if distribution licensees and very large consumers could choose, in a dynamic fashion, their suppliers of power, a much healthier electricity market could evolve, with the ultimate gain of this competitive structure going to consumers. In such a situation even the investors could benefit. Such an ideal situation however may not be possible for the reasons of uniqueness and peculiarities of the power sector. However, we cannot dismiss this desire by just highlighting - or perhaps over highlighting the special features of this sector. Our skill will lie in how innovatively we are able to predict and design systems which, even if they may not meet the ideal expectation, could provide the best to our consumers under the circumstances we are placed in. The future will judge the power sector planners and more particularly the power transmission systems designers with a view to see how close they come to these expectations. From the preparations for Eleventh Plan, there are reasons to believe that, by and large, we have captured these needs and expectations in our planning. Proper emphasis on implementation would definitely lead to desired results.

Copyright: R.V. SHAHI