India needs to ‘radically’ improve the performance of the state electricity distribution companies (discoms) and leverage technology to bring down the high logistics cost, said Niti Aayog chief executive officer Amitabh Kant at “Mint India Investment Summit” on Wednesday.
This comes against the backdrop of the proposed Electricity (Amendment) Bill, 2021, that aims to delicense power distribution and increase competition, unleashing next-generation power sector reforms in India.
“My belief is that key reforms have been carried out. We need really good implementation on ground. There are two areas where I think we need to radically improve—one is the performance of our state power distribution companies,” said Kant.
India has also been grappling with high logistics costs, which make its exports uncompetitive vis-а-vis China, which has lower logistics costs.
“The other area where a lot of technology improvement is needed is logistics sector. Logistics cost is high in India,” Kant said.
The Centre plans to rationalize electricity tariff categories and simplify tariff slabs. Domestic electricity connections account for around a quarter of India’s power demand and contribute towards a bulk of India’s average aggregate technical and commercial (AT&C) losses. Also, the gap between the cost of electricity bought (average cost of supply) and supplied (average revenue realized) for discoms is still substantial in most states.
“Electricity cost for industry for manufacturing is high. We need to make discoms very efficient. That is a huge responsibility for states. If discoms become efficient, electricity costs come down and we need to bring in a lot more technology, smart meters and better grid management,” Kant added.
Prime Minister Narendra Modi has earlier said that an electricity consumer should be able to choose his supplier like any other retail commodity. The Union budget presented in February proposed to create a framework to allow consumers to choose their electricity suppliers.
With the discoms being the weakest link in the electricity value chain, the National Democratic Alliance government wants state power regulators to ensure regular tariff revisions and put an end to creating the so-called regulatory assets, as it seeks to enforce financial discipline on discoms.
As factories are shutting down during the second wave of the coronavirus pandemic, the financial health of the state discoms is expected to worsen as electricity demand load shifts to homes, resulting in lower realizations.
“The proliferation of lockdown restrictions across many states in the country, amid the second wave of covid-19 infections, could adversely impact the electricity demand growth prospects in FY22,” ICRA said in a statement on Thursday.
“Basis the data available from POSOCO for 1 to 25 April 2021, the electricity demand is higher by 40.4% on a year-on-year (y-o-y) basis, considering the favourable base effect, given the impact of the all-India lockdown on electricity demand in April 2020. However, the average daily demand has slowed from ~4071 MUs (y-o-y growth of ~48%) during the first 10 days of April 2021 to ~3923 MUs (y-o-y growth of ~35%) during the subsequent 15 days, considering the rising covid-19 infections and the consequent restrictions being imposed by various state governments,” the statement added.
Of India’s total electricity demand load pattern, industrial and agricultural consumption account for 41.16% and 17.69%, respectively. Commercial electricity consumption accounts for 8.24%.
“A prolonged second wave of covid-19 infections and its impact on demand, particularly from the commercial & industrial (C&I) segment in key industrialized states, remains a key downside risk for our earlier forecast of 6-7% growth in electricity demand in FY22,” Sabyasachi Majumdar, group head and senior vice president, corporate ratings, ICRA said in the statement.
