Context: In an energy-dependent country like India, the availability of energy supplies at affordable rates is pivotal for fulfilling developmental priorities. 
Background

• The energy sector is beset with problems. 
• The distribution sector has for long been the bane of the power sector, consistently making huge losses owing to problems such as expensive long-term power purchase agreements, poor infrastructure, inefficient operations, and leakages and weaknesses in State-level tariff policies. 
• Most discoms are deep into the red as high aggregate technical and commercial (AT&C) losses are chipping into their revenues.    

Key Points

• Against this backdrop, the Electricity (Amendment) Bill of 2020 is a game-changing reform. 
• The wide-ranging provisions of the Bill will set the process of de-licensing power distribution after the monopoly of the state is dismantled. 
• This will provide the consumers with an option of choosing the service provider, switch their power supplier and enable the entry of private companies in distribution, thereby resulting in increased competition. 
• In fact, privatisation of discoms in Delhi has reduced AT&C losses significantly from 55% in 2002 to 9% in 2020.

Rationale Behind Amendment

• To address critical issues weakening the commercial and investment activities in the electricity sector.
• The current challenges plaguing the Indian power sector is derived from negligence in addressing the structural issues.
• These include operational and financial inefficiencies of power generation, transmission and distribution utilities, access and quality of power supply, political interference, lack of private investments, inadequate public infrastructure and lack of consumer participation.
• Bringing transparency and accountability to protect the interest of consumers and ensuring healthy growth of the power sector.

Key Objectives

• Ensure consumer centricity,
• Promote Ease of Doing Business,
• Enhance sustainability of the power sector,
• Promote green power,

Electricity (Amendment) Bill of 2020

• National Selection Committee: Instead of the separate Selection Committee (for appointment of Chairperson and members of State Electricity Regulatory Commissions-SERCs), there is a proposal to set up a National Selection Committee.

Introduction of Direct Benefit Transfer: Direct Benefit Transfer will be beneficial for both the State Governments as well as Distribution Companies.

• It will be beneficial for the State Government because it will ensure that the subsidy reaches the people who are actually entitled and the State Government gets clear accounts of the amount given as subsidy.
• It will benefit the distribution company by making sure that the subsidies due are received as per the number of beneficiaries.

National Renewable Energy Policy: India is a signatory to the Paris Climate Agreement. It is therefore proposed to have a separate policy for the development and promotion of generation of electricity from renewable sources of energy.

• The policy prescribes a minimum percentage of purchase of electricity from renewable sources of production. It seeks to give special attention to hydro power.

Sustainability

Cost Reflective Tariff: There had been the issue of lazy attempts from the commissions in adopting the tariffs determined, causing issues of cost escalation.

• To address this problem, the Amendment has prescribed a period of 60 days to adopt the determined tariffs. Failing such a timeline of 60 days, the tariff would be deemed to be accepted. 

Payment Security: It is proposed to empower Load Dispatch Centres to oversee the establishment of adequate payment security mechanisms before dispatch of electricity, as per contracts.

• Late payment of dues of generating and transmission companies have reached unsustainable levels. This impairs the finances of the Gencos and Transcos and also increases the Non Performing Assets of the Banks.

Additional Facts

• Strengthening of the Appellate Tribunal (APTEL): It is proposed to increase the strength of APTEL to at least seven to facilitate quick disposal of cases.
• To be able to effectively enforce its orders, it is also proposed to give it the powers of the High Court under the provisions of the Contempt of Courts Act.
• Penalties: In order to ensure compliance of the provisions of the Electricity Act and orders of the Commission, section 142 and section 146 of the Electricity Act are proposed to be amended to provide for higher penalties.
• Cross Border Trade in Electricity: Provisions have been added to facilitate and develop trade in electricity with other countries.
• Distribution sub-licensees: To improve quality of supply, an option is proposed to be provided to Discoms to authorise another person as a sub-license to supply electricity in any particular part of its area, with the permission of the State Electricity Regulatory Commission.

Road Ahead

• Open access for purchasing power from the open market should be implemented across States and barriers in the form of cross subsidy surcharge, additional surcharge and electricity duty being applied by States should be reviewed. 
• Discoms and regulators should be brought on board for proper implementation of open access, which will provide more options to consumers to choose their discom just as they are able to choose telecom providers.
• The question of tariffs needs to be revisited if the power sector is to be strengthened. 
• Tariffs ought to be reflective of average cost of supply to begin with and eventually move to customer category-wise cost of supply in a defined time frame. 
• This will facilitate reduction in cross subsidies. 

Electrical energy should be covered under GST, with a lower rate of GST, as this will make it possible for power generator/transmission/distribution utilities to get a refund of input credit, which in turn will reduce the cost of power. 

• Other antidotes to the problem include use of technology solutions such as installation of smart meters and smart grids which will reduce AT&C losses and restore financial viability of the sector.

Push for renewal energy: The impetus to renewal energy, which will help us mitigate the impact of climate change, is much needed. 

• One option is to encourage roof-top solar plants. Despite its inherent benefits, the segment has shown relatively slow progress with an estimated installed capacity of 5-6 GW as on date, well short of the 2022 target.

Early passage of the Bill is critical as it will help unleash a path-breaking reform for bringing efficiency and profitability to the distribution sector.