Regulatory Challenges in Reforming Indian Power System

1. Regulatory Challenges in Reforming Indian Power System byVijay L Sonavane Member, MERC Mumbai NPTI Nagpur , Date: 25th FEB 2011

2. Reform Agenda… • Indian Power System • Open access in T&D • Parallel Licensing • Cross Subsidy Reduction

3. Edison’s Dream “We will make Electricity so cheap that only the rich will burn candles” - Thomas Alva Edison (1847 - 1931)

4. History of Indian Power System • 18th Nov.1897 first generating station in India (Asia) commissioned at Sidrapong (Darjeeling) . • Installed capacity on 15th Aug 1947: 1362 MW. • Electricity: Prime mover for economic development, Industrial & Green Revolution. • Installed capacity :1,67,077 MW (30/11/2010) • AI Energy & Peak Load Shortages: 11.1% & 11.9% • Per capita: 734 U/year (FY 08) Target: 1000 U (Mar 12)

5. Indian Power Sector • Total No. of consumers: Over 130 million. • Revenue: Rs 350,000 CR/year • T&D losses: 18 to 62% in various states. • 35% of Indians do not have access to Electricity. • Use: Industries: 42%, Domestic: 25%, AG: 24%, RLY: 3% • As on 31/10/10: 5,08,992 villages electrified ( 85.7%) • 1,68,33,575 Nos (85.2%) of AG pumps energized • India is 6th Largest electricity utilizing country next to USA, China, Japan, UK & France. By 2014 we will be fourth

6. Indian Power System – Challenges in Transition Stage To Reduce Distribution Losses. Reduce Shortage of power by effective Load Management . Promote and Develop Competition Promote DSM/EE activities. Promote RE Generation

7. Highlights of Indian Gen Sector • Coal/ Gas/ Diesel: 108,362 MW : (64.9%) • Nuclear: 4,560 MW : ( 2.7%) • Hydro: 37367 : (22.4%) • RES : 16,799 : (10.0%) • Total: 1,67,077 MW (MU: 8,30,757 in FY 2010-11) • AI PLF: 2009-10: 77.48% • Coal: 2009-10: 341 MT • Growth: 31/03/85: 42,584 31/03/97: 85,795 MW 31/03/2007: 132,329 MW 31/11/2010: 167,077 MW

8. Renewable Generation RE Source: Wind/ Solar/ Bio-Gas/ Small Hydro (Mini, Micro Run Of River Projects)/ Baggase/ Bio mass: Infirm sources Issues in RE Sources: • Site Selection/ • Grid Connectivity / Storage • Non Schedulable resource/ • Low Plant load factor Satara, Maharashtra

9. AI Transmission Network… • 400 KV Lines: 102,166 Km, 220 KV Lines: 196,355 KM • 400KV S/S: 124,676 MVA 220KV: 196,355 KM • 765KV Lines: 3910 KM & S/S: 4500 MVA • EHV: 765 KV/ 400KV/ 220 KV/ 132 KV/ 110 KV /(+/-) 500 KV HVDC • In 11th Plan JV/Private Sector Transmission projects (1200KV/765 /400/ 220KV) are being developed • During 2009-10, 765KV Seoni-Bina S/s line & second circuit of Bina- Gwailor have been commissioned.

10. Evolution of National Grid • State grids ( 1948+) • Regional Grids (1970+) • National Grid (2003+) What are the advantages of Interconnections? • Higher Moment of Inertia (Stable system) • Higher Power Number • Mumbai (60MW/HZ) /Maharashtra (400MW/HZ)/ Western Region (800 MW/HZ)/ India (2100 MW/HZ)

11. Regional Grids of India August 2006 North synchronized With Central Grid March 2003 West synchronized With East & Northeast NEW Grid October 1991 East and Northeast synchronized South Grid FiveRegional Grids Five Frequencies Central Grid North East Merging of markets along with synchronization of regions West Northeast South

12. Maharashtra Load Curve and Demand Management MW 14 12 10 8 6 4 BASE LOAD BASE LOAD Hours Base Load – Managed through Long Term PPA’s Seasonal Variations – Managed through Short Term trades, by 1) Traders, 2) Bilateral Contracts or 3) Banking Arrangements Daily Variations – Managed through 1) Day ahead Power Exchange or 2) UI Balancing

13. Mumbai Load curve as on 10/05/2010

14. Functions of Distribution Utilities To Give Good quality supply / services Continuous Supply At an Affordable Cost Issues We cannot store electricity in bulk Control switches with consumers Payment Afterwards

15. Main issues with Distribution System • Distribution Losses: Technical ( I Square R) & Non-Technical (Commercial) losses (Theft, faulty/ Slow meters) • Solution to Theft: Areal Bunched Conductors (ABC)/ High Voltage Distribution Systems (HVDS) • High Distribution Transformer failure rate (13.4%) • Consumer Metering: Automated Meter Reading (AMR) system Time of Day (TOD)/ Time of Use (TOU) metering • Challenge: Demand Side Management (DSM)/ Energy Conservation

16. Aggregate Revenue Requirement

17. TariffSetting Consider a Utility purchasing 8000 MUs from Genco (Rs 1.50 P.U.) & 2000 MUs from Traders (Rs 4.0 P.U.) P.P. Cost = 8000 * 1.5 + 2000 * 4 = 1200 + 800 = Rs. 2000 Cr. for 10,000 MU i.e. P.U. input cost = Rs 2 / Unit Consider the Utility has Fixed Expenditure = Rs. 800 Cr. i.e. Total Input Cost = Rs. 2800 Cr. for 10000 MU input (i.e. Per unit Cost = Rs 2.80)

18. If Distribution loss is 30% ,One unit of Input means, 0.7 Unit Sold. i.e. Rs 2.80 have to be recovered from 0.7 Unit sale i.e. P.U. Sale Cost = 2.8 / 0.7 = Rs 4 P.U. at consumer end If the losses are 20%, i.e. 0.8 P.U. sold per unit Input i.e. P.U. Sale Cost = 2.8 / 0.8 = Rs 3.50 If Losses are 40%, i.e. 0.6 unit sold per unit Input P.U Sale Cost = 2.8 / 0.6 = Rs 4.58 Distribution loss is Integral Component of Retail Tariff TariffSetting...

19. What is Success? “ “In 1988 Tendulkar failed in English in 10th standard Now, in 2011 for 10th Standard English book the first lesson is about Sachin Tendulkar…..” This is Real SUCCESS!!!!

20. Open Access, Parallel Licensee

21. Electricity Act 2003 Mandate for Reform • Promoting competition/ Protecting consumers’ interest / Providing power to All • Consolidation of Laws in G/T/D/ Trading • Gen is decentralized but Regulatory freedom needed for accessing the market • Transmission: Licensed activity. Regulatory framework necessary for competitive & transparent operation

22. Buying/Selling commodity named Electricity….. • Which cannot be seen, counted in numbers, or measured in Kilos, liters or meters • Which cannot be put into container with forwarding address, on a particular truck taking a particular route, but flows as per laws of Physics • Which cannot be stored and whose availability and cost keep changing widely

23. Buying /Selling of Electricity…. • Which intermingles with other supplies in an inevitable pool & cannot have an owner’s name tag • Buyer has no control over what seller supplies &seller has no control over what buyer draws from the pool & the two may not match all time • Thus, it is necessary to have mechanism for commercial handling of mismatches

24. Solution ???? • Power trading has to be notional : the buyer has to pay the agreed amount to the supplier for scheduled quantum of power • Payment for variations from the schedule through a common mechanism called UI (Unscheduled Interchange)

25. Concept of Unscheduled Interchange State Load 12500 MW CS Schedule 2000 MW Drawl from CS 2500 MW Gen 10000 MW CS UI 500 MW If System frequency is 49.5 Hz, the State has to pay ar Rs 8.73 PU is Rs.10,18,250 in 15 minutes! (500 MW: Rs. 1.018M) Cost of 12000 MW scheduled generation for 15Min at Rs 3 PU is Rs. 12000/4 X 3 i.e. 90,00,000 in 15 minutes! (12000 MW: Rs.9.0 M) (For only 4% Energy: Price is over 10% : Avoid overdrawing)

26. UI rate in Paisa

27. Electricity Markets • More private sector participation needed • Need to unbundle supply system & start multi-seller, multi-buyer model • Basic need: consensus building in various stake holders Competition: • Open access (using existing DL’s wires & paying wheeling charges) • Parallel Licensing (New DL to lay the network & give supply) We should see competition as an opportunity & not as a threat

28. Open Access • OA means that customer can pick & choose their supplier & any supplier can use existing lines to reach any customer. • On payment of wheeling charges, CS surcharge & additional surcharge wherever applicable. (S 42(2), 42 (4)) • Open access means enabling Sale/ purchase of energy between two parties utilizing the system of an (in-between) third party & not blocking it on any unreasonable grounds. • Implications: Competitors may cherry pick high revenue customers but Cross Subsidy & Stand by issues

29. More clear definition • Open access means enabling non-discriminatory Sale/ purchase of electrical energy between two parties utilizing the system of an (in-between) third party & not blocking it on any unreasonable grounds

30. Example of OA Tata Power wants to sell 100 MW to Discom A in Andhra • TPC & Discom A agree on terms & conditions of sale • TPC to get consent from MSETCL /STU & no objection from SLDC Kalwa • Discom A to get consent from APTRANSCO and APSTU and no objection from AP SLDC

31. Example (contd) • Both SLDCs after ascertaining transmission adequacy agree to arrange for necessary metering, scheduling, EA, UI settlement • All concerned to have a common understanding about treatment/ sharing of transmission losses, levy of transmission/ wheeling charges for use of intra-state & inter-state system

32. OA REGULATIONS OF MERC • MERC has formulated two Regulations: Transmission OA 2005 & Distribution OA , 2005 • Distribution OA Regulations permit consumers with contract demand >= 1 MVA are eligible to avail OA from by 1st April 2007 • Draft for OA Regulations were finalized & uploaded on MERC website for comments by stakeholders & consumers up to 11th Feb.2011.Final Version is getting ready

33. Categorization of OA Customers Long term Open Access customers • OA for a period >= 12 years but not exceeding 25 years Medium term Open Access customers • OA for a period < 3 years & > 3 months Short­-term Open Access customer • OA for a period up to one month, at a time. “Limited Short term OA customer” means consumer, who has a supply agreement with the DL & avails OA only during pre-scheduled LS period”

34. Open Access: issues • Cross subsidy: To compensate full/partial revenue loss of existing DL • Apportionment of losses • Shortage scenario: load shedding • State of Art Energy metering & EA system Despite none of these issues, most countries took over ten years to implement full OA

35. Charges for Open Access Customer Charges payable by OA customers: • Transmission charges & Wheeling charges • Cross Subsidy Surcharge (CSS) • Additional Surcharge (ASC) • Standby Support charges (SBSC) • Scheduling & System Operation Charges payable to SLDC

36. Why Cross Subsidy Surcharge(CSS)? • In current tariff orders, CSS & ASC are identified as NIL from 1st April 2007 (due to negative values) • Study Committee re-examined approach towards CSS & ASC. • By identifying a value for CSS & ASC, prospective OA applicant would share burden of Cross Subsidy.

37. Cross Subsidy Surcharge NTP formula S = T – [ C (1+ L / 100) + D ] • S: Surcharge • T: Tariff payable by relevant category of consumers; • C: Weighted average cost of PP of top 5% at the margin excluding liquid fuel based Gen. & renewable power • D: Wheeling charge • L: % System Losses for applicable voltage level ( In case the formula gives negative value of surcharge, ‘C’ in the formula needs to be redefined (????))

38. Cross subsidy surcharge • Surcharge formula (NTP) S = T – [C (1+L/100) + D] C Costliest long term contracted PP cost excluding liquid fuel generation may be considered Example: If C Rs.4.26 PU (for costliest LTPP) then S = 67 PS/Unit for IND consumer @ 33KV & above

39. OA CSS IN Various States

40. Additional Surcharge: Stranded costs • OA customer, receiving supply from a person other than DL of his area of supply, shall pay to the DL, an additional surcharge, in addition to wheeling charges & CSS, to meet out the fixed cost of such DL, arising out of his obligation to supply as provided under Section 42(4) of EA 2003. • Additional surcharge shall become applicable only if, the obligation of DL in terms of LTPP commitments has been stranded. • Fixed costs related to network assets are recovered through wheeling charges.

41. Additional Surcharge (ASC) • DL should be required to demonstrate stranded cost, if any, every six months to SERC. • On being satisfied, SERC would determine additional surcharge (Ps/KWH) • Such ASC should be levied only on new open access applicants. • No ASC for captive GEN plant for carrying electricity to destination of his own use.

42. Treatment of S/B Supply (Our Views) • In case consumer meets part of his demand through OA & if the supplier defaults to supply power or • In case of failure by OA supplier & the consumer meeting all his requirement from DL, Energy settlement would be at highest of the following : • UI charge • At SMP levied under Intra State ABT mechanism • Temporary tariff as permitted in NTP

43. Unscheduled Interchange • If an OA consumer is unable to draw scheduled energy due to failure of InSTS &/or network of DL, power injected may be treated as Banked Power & OA consumer may be allowed to draw the same within a period of 3 months with an advance notice of 24 hours to DL. • Beyond 3 months, energy would be treated as lapsed.

44. Metering • For OA consumer having load of >= 10 MW & all Gen Stations irrespective of capacity, Special Energy Meters shall be installed by STU or DL as the case may be, for & at the cost of the customer. • SEM can be inspected by any person authorized by STU/ SLDC. • As regards OA consumers having load < 10 MW, the TOD meter shall be installed by DL concerned. • All OA customers shall follow Metering Standards of CEA.

45. States Allowing OA Power Procurement through Power Exchanges • Punjab • Haryana • Uttarakhand • Himachal Pradesh • Madhya Pradesh • Rajasthan • Tamil Nadu

46. Volume on Power Exchanges

47. Price on Power Exchange

48. BENEFITS OF OPEN ACCESS • Maharashtra is facing peak & energy deficits, even after subsequent reforms programs, the utilities are not unable to bridge the gap and provide quality & reliable power supply to consumers. • With OA, consumers are will get alternative sources of power from Market, may be, at a lower cost, & can have assured availability of power on demand • Purchase of costly power to meet demand can be avoided, which will actually result in lower PP cost for DL, leading to lower tariffs for remaining utility consumers. • However, Revenue of DL will get affected (CSS/ASC/SBC)

49. “If it is to be It is up to me!!” Thanks!! (Contact me vlsonavane@gmail.com)

50. Parallel Distribution Licensee • MERC can grant distribution license to more than one persons for distribution through their own networks in same area (6thproviso of S14) • Implications: DL will face Competition in its HT & High Revenue Customers.