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Interaction | July 2016

Investment in T And D networks is the need of the hour

Santosh Kamath, Partner, Infrastructure and Government Services (Power) at KPMG in India
There is an impression that the power sector has not witnessed a balanced growth among its three major segments over the years. Comment...
In the recent past, we saw a lot of investment in power generation, but not sufficient in power transmission and distribution (T&D). Investments in transmission have caught up more recently, but the lag has meant that even though we have surplus generation capacities, not all the demand is always served. For example, there are bottlenecks in the NEW-SR corridor that led to price differentials in the power market. We estimate this congestion cost to be Rs.5,200 crore during FY 2014-15. Also, at the distribution level, the quality of the networks leaves much to be desired. I would say sufficient investment in T&D networks is the need of the hour.

What are the repercussions of this for the consumer?
The repercussions are that while we may have adequate surpluses, the quality of power has suffered with the interruption levels exceeding 100 hours per year in most states. This has cost implications for consumers in the form of backup generation capacities that need to be maintained. It also impacts quality of life and in case of industrial and commercial consumers leads to economic losses. We now need to shift focus on reliability of power supply to consumers.

How can the power supply situation be improved in such a way that ┬┤Power for All┬┤ can be achieved? What are the hurdles in its path?
Power for all is a laudable goal. Nearly 5.8 crore households comprising over 20 per cent of our population do not have access to electricity. When viewed at the level of certain states, this figure is even worse with electrification levels below 40 per cent in some of the states. Through the Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) program, the Government is spending on connecting these households to the grid. That is the first step. The other issues are to do with affordability of power to these sections of consumers and the financial health of the distribution companies (discoms) in meeting the costs. Our estimate is that it will cost Rs.6,000 crore per year in the form of annual revenue subsidies to meet the cost of power supply to these households, assuming that the tariffs will recover 50 per cent of the cost of supply. We have to find a mechanism to meet these costs, otherwise the electrification goal will not be met.

What are the challenges in giving power accessibility to those who cannot afford it? What are the global practices in the regard?
In the short term, power will have to be subsidised. Power is a basic infrastructural necessity and forms the basis for livelihoods and economic growth in rural areas. Economic growth will also lead to skill development and increase in productivity and rural incomes. Over time, subsidies can be reduced and affordability would set in. The question we have to ask is, how do we meet these costs today? Given that the respective states where these households are located are economically weaker, I would say that this cost will have to be socialised over the whole country. In many ways, we could think of models as in other network industries such as telecoms and airlines, where concepts such as access deficit charges and USO charges have been levied to pay for non-profitable sectors. The source of funds can be the National Clean Energy Fund which mobilises nearly Rs.25,000 crore annually. In some ways, electrification will displace some non-clean forms of energy like firewood and cutting down of forests. Alternatively, the source of money could be a Universal Service Obligation (USO) levy which is levied on all power consumption in the country. That would be approximately 10 paise/kWh.

When several countries are giving up on nuclear power due to disasters it can create, India is embarking on this path. What are the advantages and disadvantages?
I would say, from an energy standpoint, nuclear power today is probably not the same as it was ten years back. Renewable energy is beginning to provide a credible clean energy option. Yes, renewables are variable and intermittent and we would need technologies such as storage to make them reliable. However, renewable energy plus storage are within range of becoming economically feasible in the next 5-7 years. Renewable energy is also virtually infinite in meeting our energy needs. The key proposition of nuclear being a non-carbon energy option thus has competing alternatives. Having said that, it would be good to have nuclear as an alternative in our energy basket, but we have to look at the cost aspect very carefully. As long as nuclear power comes at a reasonable price point compared to other clean energy alternatives, it should be included in our energy basket.

-BS Srinivasalu Reddy

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