Open Access – Solution to many problems

Originally Published in : EQ International (Click to link)

 

Author:

AlokTripathi,

Director, Power Plus Consultants

Co-founder, www.indianpowersector.com

AlokTripathi is heading a young organization having a team of fresh and dynamic power managers. As power managers, they have in-depth knowledge about the power sector and the regulations governing the sector. The team has zeal to work for the Indian power markets and offer various Market Intelligence Services, Energy Portfolio Management and Regulatory Advisory Services to number of national and international clients.

Analytics Candy

 

Indian Power Sector is going through a rough patch now days. Would it be able to recover from it in near future?

Unavailability of coal, poor financial condition of the Distribution companies, frequent shut down of generating stations due to damages of turbines are some of the major reasons behind the increasing demand supply gap. Presently the power supply deficit is 8.7% and peak deficit reached up to 9% in March 2013 (Source CEA March 2013 report).

But the worst problem is faced by Southern region grid where the demand supply deficit is 15.5% and the peak deficit is 16.1%.  Average power cut in India is around 4hrs/day. Indian Industrial sector is facing a lot of heat due to this power deficit; and due to non-availability of electricity industrial consumers are forced to run their industries on diesel gen sets which cost them around INR 12-13/unit against the average power supply cost of around INR 4/unit.

Indian Electricity act 2003 made an attempt with a vision of making the market competitive, to provide a solution to power consumers with a contract demand of 1MVA or above or even less than 1 MVA where ever feasible.

The term Open Access is introduced in the electricity act which enables the industrial consumer to buy power from the open market at competitive prices. However this sounds a fairy tale if we look at the current scenario.  Although Open Access was introduced in 2003, but till 2008 out of the total electricity generated only 0.43% of electricity was traded though power exchanges and only 4.84% was traded though bilateral transactions in India.Since the inception of the Open Access concept a decade has passed, but Power Exchanges still share merely 2.94% of market share, this reflects a growth of merely 2.51% in last 5 years. Also the bilateral transaction has increased by 0.46% to 5.30 % only (Source CERC monthly marketing report).

Now the question in front of everyone is that if distribution companies are not able to buy power to supply to its industrial consumers why don’t the consumers shift to the option of buying power directly through Bilateral Transactions or through Power Exchanges i.e. IEX and PXIL in India.

 

Given below are the various challenges in the implementation of Open Access:

  • Discom Approvals: First and the most important challenge in front of industrial consumersare to getthe various approvals of the distribution companies. As industrial consumers are the highly paying consumers of Discom (Distribution Company) so none of the Discoms would want to lose their high income sources, as the financial health of most of the Discomsis already in poor condition. So they don’t allow its consumers to buy power directly through open market.

 

  • High cost of standby power from distribution companies: If the power is not cleared by Load Dispatch Centre due to unavailability of transmission corridor or any other reason, the state Discom charge a 1.5 times higher tariff then the normal tariff of the industrial consumers.

 

  • High Cross Subsidy Surcharge: Even when the industrial consumers opt for open access, still they have to pay cross subsidy surcharge to the distribution companies on the electricity unit purchase through open market. Cross Subsidy surcharge range from as high as Rs 2.37/unit to as low as 0 Rs/unit.

 

Given below is a graphic representation of CSS of different states in India

Cross-subsidy

 

 

 

  • Availability of Transmission Corridor: Various short term transactions get curtailed in India due to the non-availability of transmission corridor. In order to boost our power sector it is very important to strengthen our transmission system.

 

  • High Wheeling and Transmission Losses: Due to the poor condition of distribution and transmission infrastructure, a consumer has to bear high transmission and distribution charges and losses. These charges are paid to the distribution and transmission companies by the open access consumers in order to use their infrastructure for buying the power through third party.

 

  • High Initial Cost: In order to purchase power through open access, a consumer has to install ABT (Availability Based Tariff) meter costing about INR 2,50,000 and should have an independent feeder. In some states like Rajasthan consumer has to buy main meter, check meter and stand by meter which are very costly.

 

 

Given Below are the various Opportunities favouring Open Access:

  • Load Shedding: Due to large demand-supply gap, distribution companies are forced to cut the power supply of the industrial consumers. Due to which industrial consumers are forced to run on diesel which will cost them around Rs 13/unit.

In some states like Andhra Pradesh there is power cut of around 4 days a week while in other states load shedding is around 3-4hrs per day. Due to this high load shedding industrial consumers are going for alternatives like Open Access.

 

  • High Industrial Tariff:Industries are facing a very high industrial tariff. In order to compensate the reduced tariff of domestic and agricultural consumers most of the distribution companies are charging higher tariff from the industrial consumers. In some states like Maharashtra tariff for industrial consumers is as high as Rs 7.01/unit, in Punjab tariff for industrial consumers is Rs 6.33/unit.

 

Although a simple law governing any market will state that a bulk consumer should be given better prices, however since electricity is treated more as a social service rather than a tradable commodity, the bulk consumer always ends up paying the high prices.

A brief of industrial consumer’s tariff is shown in below given graph.

State-wise-tariff

 

  • Cheaper Power: If any consumer buys power through Power Exchange or Bilateral Transactions then he can save around 15-20% of his electricity bills. Last year average tariff for electricity at IEX was Rs 3.17/unit.IEX_price

 

 

The opportunities are immense, and the industry should come forward and claim that is rightfully theirs.

We should make the process clean and transparent, and make the industry understand that they will not only be saving on electricity bills but also shall be getting a more consistent and reliable supply of electricity.

The power market should open up, and it’s high time; we should now start treating electricity as a market instrument rather than a social instrument.

We wish to educate the consumers, and in our continuous effort for industry education, we are coming up with a free for all detailed market report on Open Access in India.

For any queries regarding Energy Portfolio connect with us at

info@indianpowersector.com

 

 

 

 

 

 

 

 

 

http://issuu.com/eqinternational/docs/eq_final_print_may13?e=2604242/3225749

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