Case BriefsTribunals/Commissions/Regulatory Bodies

Appellate Tribunal for Electricity (APTEL): The Coram of Manjula Chellur (Chairperson) and Ravindra Kumar Verma, Technical Member (Electricity) allowed an appeal which was filed against the Order of Karnataka Electricity Regulatory Commission (Commission) whereby, the Commission has held that the Applicant/Appellant was not entitled to extension of time for commissioning of solar power project in terms of the Power Purchase Agreement and Supplementary power Purchase Agreement.

Two applications, one for condonation of delay in re-filing the Appeal and the other for condonation of delay in filing the Appeal were filed.

The Applicant/Appellant submitted that during the pendency of the petition before the Commission, the Solar Power Developers (SPD) had formed an Association i.e., “Land Owned Farmers Solar Power Plants, Karnataka” with the aim of addressing the grievances of the SPD’s who were all part of the Land Owning Farmer scheme introduced by the State of Karnataka and he was the member of the said association. After the impugned order was passed on 28-08-2018, the said Association followed up the matter with the Central and State Governments seeking their intervention in the matter as the Commission had reduced the tariff to Rs.4.36/- from Rs.8.40/- in a few of the petitions disposed by the Commission. The Applicant/Appellant further submitted that he approached a Chennai based Advocate, who took five months time to look into the matter i.e., from September 2018 to January 2019. The said Advocate first suggested to file first appeal and later suggested to file a review petition before the Commission with other documents. Thereafter, he approached Advocate in Bangalore to file a review petition before the Commission, which again took two months of time. Finally, on 08.03.2019, when the Applicant/Appellant approached the Bangalore based Senior Advocate, he was advised by the Senior Advocate to file an appeal before this Tribunal instead of the review petition before the Commission. Thereafter, it took four months time to prepare the appeal and to procure additional documents as suggested by the Advocate. Appeal was finalised, on 27-07-2019 the appeal was sent to the practicing advocate in New Delhi, who filed the appeal before this Tribunal on 23-08-2019. The delay in filing the appeal was explained as above.

The Tribunal observed that this was not an Appeal against rejection of total claim of the Appellant. According to Appellant, on account of reason of force majeure, i.e. reasons beyond the control of the applicant/Appellant, there was delay in filing the Appeal, since they were hoping to get a favourable response from the authorities to resolve the problems faced by the Appellant like other project proponents.

The Tribunal noticed that since the power plant of the Appellant was commissioned with some delay, which according to Appellant amounts to force majeure, there is reduction of tariff that was agreed to be paid in terms of PPA. The Tribunal was of the opinion that delay of 106 days in re-filing as well as 315 days in filing the Appeal can be condoned. The Tribunal set aside the impugned order stating that no prejudice would be caused to the parties as the matter will ultimately be decided on merits.[Anjinamma v. Bangalore Electricity Supply Co. Ltd., DFR No. 2267 of 2019 & IA Nos. 1592 & 1594 of 2019, decided on 16-07-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Karnataka High Court: N. Sanjay Gowda, J., allowed the petition and quashed the demand note.

The facts of the case are such that the petitioner is supplied electricity by the licensee i.e. Hubli Electricity Supply Company Limited i.e. ‘HESCOM’. Apart from this, it is also supplying energy from the energy exchange every month which is called as purchase of electricity from Open Access Source. The petitioner is liable to pay tax on electricity consumed by it. A demand to pay a sum of Rs. 94, 47, 534 being a demand for payment was issued by HESCOM. The grievance of the petitioner is regarding whether the electricity tax which is to be paid should be levied on the price at which it purchases, be it from the licensee or from the Open Access Source. Aggrieved by the demand note, instant petition under Article 226 and 227 of the Constitution of India was filed on grounds of it being without jurisdiction and thus unconstitutional.

Counsel for the petitioner submitted that the price paid for purchase of electricity through Open Access Source is different than the price paid by it for the electricity sold to it by the licensee HESCOM.

Counsel for the respondents submitted that irrespective of source of electricity, every consumer is liable to pay tax on the electricity consumed within the State and since, admittedly, petitioner had consumed the electricity within the State of Karnataka, it was bound to pay electricity tax on the rates at which electricity has been supplied by HESCOM.

The Court observed that The Karnataka Electricity (Taxation n Consumption or Sale) Act, 1959 i.e ‘The Act’ was enacted to provide for levy of tax on consumption of electricity energy in the State of Karnataka in the year 1959 for sale of electricity energy in the State of Karnataka.

The intent of Section 3 of The Act is clear that whenever electricity is consumed by a consumer within the State of Karnataka, the consumer is bound to pay electricity tax on that on ad valorem basis at the rate of 6% on the charges payable on the electricity sold or consumed. The deliberate use of the expression “charges payable on electricity sold to or consumed by any consumers” would indicate that the charges for the electricity sold and for the electricity consumed could be different. Section 3 sub section 2 makes it clear that the source of electricity consumed by the consumers would be the yardstick for determination of the electricity charges on the basis of which an ad valorem rate have to be calculated.

Further, it was observed that as per Section 4 (1)(a), licensee is required to collect and pay to the State Government the electricity tax payable under the Act on the electricity charges included in the bill issued by him to the consumers. Thus, it is applicable in respect of electricity sold by the license.

Section 4 (1)(b) clearly states that the licensee shall collect and pay to the State Government the electricity tax payable on the units of electricity supplied to consumer by a non licensee through a license. Thus, a clear distinction is made on the manner in which the tax is paid.

The Court concluded that it is to be borne in mind that the person who sells the electricity would necessarily pay the wheeling and access charges to the licensee and the seller of the electricity would be basically using the infrastructure and paying for the distribution. The licensee, therefore, would have no preferential right.

The Court thus held “the demand made by HESCOM by computing the tax at the rate at which it was selling electricity to its consumers cannot be the basis for levying and collecting the electricity tax. HESCOM shall now calculate the electricity tax at the rate at which the petitioner had purchased the electricity from Open Access Source and issued a revised demand within a period of two weeks from the date of receipt of a certified copy of this order”

In view of the above, petition was allowed.[Southern Ferro Ltd. v. State of Karnataka, W.P. No. 105054/2017, decided on 15-03-2021]


Arunima Bose, Editorial Assistant has reported this brief.


Advocates before the Court:

Counsel for the Petitioner: Mr Gurudas Kannur (Senior Counsel) and Mr Narayan G. Rasalkar (Adv.)

Counsel for the respondent: Ms K. Vidyawati (Add. Adv. Gen), Mr Vinayak S. Kulkarni (for R1, 2 and 5) and Mr B. S. Kamate (Adv.)

Op EdsOP. ED.

Safe, reliable and affordable electricity is a fundamental building block for all modern societies. It is one of the key components of sustainable development, providing the backbone for society’s social and economic well being. However, electricity differs from all other energy sources, in that it is an unembodied source of energy. All other energies are corporeal, and are indeed contained in some material which has some volume, some weight, and is, from the economic point of view, storable, so that it represents capital, in the form of some inventories. Electricity is invisible. Its presence can be determined from its effect. It does not represent a storable commodity, and does not represent capital or running assets in the form of stocks. It is a phenomenon associated with stationary or moving electric charges, a fundamental property of matter and is borne by elementary particles. The particle involved is the electrons, which carry a charge designated, by convention, as negative. Electricity is a form of energy. Various manifestations of electricity are the result of the accumulation or motion of numbers of electrons. Static electricity cannot be taken from one place to another and cannot be produced in bulk. Dynamic or current electricity can easily be taken from the generation station to far-off places by means of wires and cables. This can be generated in bulk and at high voltage. Electricity is specified as a service of general economic interest. The special qualities of electricity have always been known. It has to be consumed immediately when produced and delivered which raises problems and makes it incompatible with a market driven service.

Divergent Operational Economics

Electricity clearly is more complex energy product than other energy source. Electricity may be available for small, medium or large industrial users, at different times of the day such as peak or off-peak hours, and at different times of the year, and all these qualities of electricity must, from the economic standpoint, be treated as different goods, since they have various and differing production, and distribution costs.

Unique short-term supply-and-demand characteristics make electricity an unusual product. Short-term power market covers contracts of less than a year for electricity traded under bilateral transactions through inter-State trading licensees and directly by the distribution licensees, power exchanges and deviation settlement mechanism (DSM). It constitutes about 12 per cent of the total electricity generation in India.

Electricity market is significantly spike-prone than many comparable systems. Bilateral electricity contracts take place well in advance that may be for a week, month or up to one year. Therefore, the nature and duration of contract influence the price of power. Price of DSM plays an important role in ensuring system balance and secure reliable grid operation. The price of electricity during peak period is higher. For deployment of electricity to customers scheduling and despatch, imbalance settlement, congestion management and support services are essentially required. The volume of electricity transacted is sometimes constrained due to transmission congestion. The challenge of balancing supply and demand is compounded by the lack of cost-effective storage options. The physical fundamentals of energy inform the economic fundamentals of electricity. Electricity is the most volatile of commodities.

Electricity is a Standard Product

In an interconnected network, electricity is an entirely standard product. Electricity is network energy. The only means available for transporting energy in the form of electricity is over transmission lines. Standards play an important role in the power industry. Switching to another supplier cannot produce “better” electricity. The standard system of supply is the alternating current system and standard pressure for domestic supply is 220 volts, alternating at 50 cycles (hertz) per second 230 volts in India. Major concern for electrical power system is to maintain reliable uninterrupted power supply. Network improvement improves power quality. Flexible Alternating Current Transmission System (Facts) devices increase the ability of transmission capacity of lines, and help control power flow over designated transmission, electronically and statically. Distribution static compensator (D-STATCOM) is used for voltage regulation, compensation of reactive power, correction of power factor and elimination of current harmonics. On-load tap changer (OLTC) transformers are used between multiple voltage levels to regulate and maintain the voltage, which is supplied to customers. Automatic Voltage Regulators (AVRs) regulate the voltage to ensure electronic units to continue to operate during extreme mains voltage variations, without getting damaged. Evaluating the standards of performance include voltage variation, neutral voltage variation, voltage unbalance, dips, swells, transient, interruption at point of supply and harmonics. Smart systems are needed for network which can communicate the real-time information and power quality deviations for measurement and monitoring of harmonics. In an electricity network, supply and demand must match at all times if the whole system is not to collapse.

Inability to Store Power

Electricity is not storable. This is probably the most important difference between electricity and other commodities. Almost all other products can be stored. This allows consumers and producers to smooth out peaks in demand and prices. However electricity cannot itself be stored on any scale, but it can be converted to other forms of energy for storage and then back again reconverted to electricity. This has the same effect as storing electricity, but is not really storing electricity. Without the ability to store, a free market inevitably exposes consumers to huge volatility in prices and gives ample opportunity for market manipulation by generators who can withhold power to force up prices. Storage is not a generating system, but it can be combined with generating technologies to provide backup power for intermittent and peak power needs.  There exist batteries that can store electrical energy mainly for households and more powerful batteries as well which can even charge small factories for short interval. Nevertheless, there are scant storage capacities to the extent of grids. Due to the high cost of electricity storage at grid-scale, with minor exceptions, only as much electricity is generated as is required. The integration of distributed generation resources on the low voltage grid requires the support of active demand response and energy storage systems to maintain grid stability.

Energy storage solutions can create huge economic opportunity for India. In February 2018, an expert committee under the chairpersonship of secretary, Ministry of New and Renewable Energy, with representatives from relevant Ministries, industry associations, research institutions and experts were constituted by the Ministry of New and Renewable Energy to plan the launch of a national energy storage mission (NESM) for India. This initiative was subsequently moved to NITI Aayog and Government of India launched the “Transformative Mobility and Energy Storage Mission” in March 2019. India Smart Grid Forum (ISGF) initiated preparation of an energy storage roadmap for India 2019-2032 in association with India Energy Storage Alliance (IESA). The study has resulted into energy storage roadmap for India 2019-2032; Energy Storage India Tool (ESIT) and guidelines for determining the variable renewable energy (VRE).

Environmental Impacts

Additionally, electricity is a variable and unpredicted commodity in the sense that the quantity of electricity produced often depends on unpredicted factors such as the weather. Electricity demand patterns and supply systems are themselves subject to climate change impacts. Projections for impacts on hydropower and bioenergy resources are more varied. Indeed, various hourly, daily, weekly, monthly, and seasonal discrepancies define the amount of electricity that enters the grid. Integration of renewables is more sensitive to weather and climate impact usually considers “ingredients” and not power “systems”. Components of the electrical system are affected by climate change via long-term changes in climate parameters, variability and extreme weather events. In the power markets full of solar energy, for example, the amount of energy produced is highly sensitive to the amount of sun during days. The power markets with dominating hydro power, as another example, are affected by precipitation during either rainfall or snowfall seasons, or both. For wind farms, wind speed is a key factor to returns and for investors financing wind farms, there is considerable uncertainty around returns since wind speed can be fairly volatile.  Furthermore, weather has impact on the other side of the market too, meaning it influences the demand for electricity. Weather represents a major risk for energy businesses as both energy supply and demand are dependent on weather outcomes.

Electricity on the Commodity Foothold

Immediate generation and consumption, however, lead to another quality of electricity. Electricity is intractable and intangible. An individual cannot see electrical current as well as cannot grasp it. It looks and feels exactly the same wherever it is generated. It has to be supplied immediately. The delivery period for electricity is zero. As soon as the switch is turned on, immediate consumption causes in turn immediate generation. Despite the fact it must be used immediately as it is generated and conversely, its supply must exactly demand at any given time across the grid. Yet, it also behaves unlike any other commodity.

Electrical energy carries some of the characteristics of a commodity. It can be bought, sold, traded and used in any quantity. There are no predetermined conditions for transportation and delivery. The logistics of the power market is an electric circuit that contains a continuous flow of electricity. The continuous flow is a significant, it allows immediate supply characteristic. Transmission network of a country is defined by its grid, a chain or, more accurately, a system of interconnected power lines and nodes that form the electric circuit with a continuous flow of electric current and transmit this current from producers to consumers and in the process some energy is wasted.

Homogeneity, through the existence of standardised qualities; storability, not really a necessary condition for a viable commodity spot, or futures, market; deliverability, and the existence of a competitive spot market carrying arbitrage operations; price variability and flexibility and the existence of speculators, that may want to carry price risks. These configurations applicable to the traditional commodities accord the electricity a character of commodity.

To Close

Electricity is a set of physical occurrences that produces the flow of electrical power or charge. It is both a naturally occurring phenomenon and one of the most prolific forms of energy used around the world. People have been aware of electricity for thousands of years. Ancient societies marveled at electric fish and noticed static electricity when they rubbed certain objects.
It was only in the last 250 years that scientists made attempts to harness electricity. In 1752, American inventor Benjamin Franklin conducted research on lightning using a kite and a key. This famous experiment demonstrated that lightning is electricity. Significant breakthrough took place in 1831 when British scientist Michael Faraday discovered the principles of electricity. In the late 1800s, Thomas Edison invented the first long-lasting incandescent light bulb, and inventor Nikolas Tesla pioneered the use of alternating current electricity. Modern society is totally dependent on reliable supplies of electricity for it to function. The largest global economies consume trillions of kilowatt-hours (kW-h) annually to power governments, businesses and home. As the global economy has grown, so too has demand for this vital resource. For most products, a market failure can be tolerated by use of substitutes and stores but Governments cannot incur the risk of electricity industry failure. By and large electricity is different.


*Harsha Rajwanshi is Assistant Professor of Law, Dean of External Relations, Gujarat National Law University & Faculty Advisor to GUVNL-GNLU Research Fellowship on Energy Law and Policy.

Op EdsOP. ED.

India is charged to become a global hotspot for electric mobility. Electricity is a domestically produced fuel that can transform the transportation sector using electricity grid infrastructure. The technology exists to promote transportation applications that move both people and goods using electricity as a fuel. As cities and communities seek smart, sustainable mobility solutions, electric transportation becomes a significant component. This new generation of electric transportation will help the nation enter an era of clean transportation. It will curb pollution and reduce reliance on import dependent fossil fuels. The economy will thrive as it will create a diverse set of entrepreneurial opportunities and augments advanced skills and jobs. India is in a unique position to leverage electric mobility by  leapfrogging the historical evolution of personal mobility and finding synergy with strategic imperatives for energy security, renewable production and urban decongestion. Electric mobility holds tremendous promise for India. However, this transition to e-mobility is a typical “wicked policy” problem wherein there are many actors and a great degree of complexity in the arena of e-mobility.

Policy

India has announced a plethora of electric mobility policies and regulatory measures, including an allotment of INR 10,000 crore for faster adoption and manufacture of electric vehicles (EV) across the country. 10 States and Union Territories (UT) have published draft EV policies or notified final policies detailing fiscal, non-fiscal and other incentives to accelerate a value chain of electric mobility activities.

Government of Andhra Pradesh has introduced Andhra Pradesh Electric Mobility Policy 2018-2023 to encourage and support electric mobility in the State. Andhra Pradesh has set an ambitious target to be the best Indian State in EV by 2029. The State aims to have 1,000,000 EVs on the road by 2024. The policy focuses on the production, services and customer sides of the EV value chain and infrastructure value chain. Bihar Electric Vehicle Policy 2019 is aimed at creation of manufacturing eco-system for e-vehicles in the State, fulfil sustainable development goals in the transport system and make Bihar the most preferred investment destination for EV sector. Mission of the State policy, inter alia, is to supplement the Government of India (GoI) in its mission to bring 100% e-mobility by 2030. Delhi Electric Vehicle Policy 2018 has a number of provisions to reduce air pollution. It has included pollution cess, an air quality parking surcharge and an environment compensation charge for existing petrol/diesel vehicles. It also provides scrappage and deregistration incentives for a few internal combustion engine (ICE) vehicle categories that will be applicable if someone buys an EV in the same financial year. Two-wheelers (2Ws), three-wheelers (3Ws), public transport buses and taxi fleets shall be prioritised, and will benefit from a governmental push in the form of a purchase incentive. Delhi plans to add 50% e-buses to public transport by 2023. Karnataka was the first State in India to release its own EV policy, titled “Karnataka Electric Vehicle and Storage Policy 2017”. The policy kicked into force on 25-11-2017 for 5 years. Karnataka aspires to be the electric vehicle capital of India. The State sees the EV sector as an employment opportunity and wants to create a conducive environment for transitioning from ICE vehicles to EVs. To encourage local manufacturing, the State is planning to provide a special package of incentives and concessions for ultra mega and super mega EV enterprises. The State will reimburse 100% of land conversion fees for converting land from agricultural to industrial use for setting up EV/component manufacturing units. Kerala aspires to promote eco-friendly tourism. Localised manufacturing within the State will focus on complete vehicle, electric drivetrain, power electronics, energy systems and storage and will provide viability gap funding for e-buses and government fleets. One aim of EV policy is to procure 6000 electric buses for the State Road Transport Corporation by 2025. Maharashtra policy does not distinguish between private and commercial vehicles in the categories of 2Ws, 3Ws and 4Ws. The State has mandated that planning authorities and electricity supply agencies should provide approvals for setting up of charging stations as a priority. The policy specifies 25% capital subsidy (with a few caps) for commercial public charging stations. The EV policy of Telangana emphasises the promotion of skills development and innovation in e-mobility. Self-certification shall be a part of single-window clearance. The State has prioritised the vehicle segment for EV transition: cabs, public transport and institutional transport as well as freight, logistics firms, delivery services, intra-city goods delivery, etc. Tamil Nadu aims to partner with the public and private sectors to set up charging stations. Uttarakhand has outlined its intention to promote clean fuels as an alternative to battery-operated EVs, especially in the transition period. Develop a battery disposal strategy and offer incentives for companies engaged in battery disposal to minimise negative environmental impact. Uttar Pradesh is adopting single window system in place for all approvals required for EV and battery manufacturing units along with EV testing centres with 24/7 power back-up accessible to manufacturers and service providers. The effective implementation shall be directly monitored by the chief minister’s office.

Role of Government

The role of Government is important in accelerating adoption, diffusion and deployment of electric mobility. Government of India approved the National Mission on Electric Mobility in 2011 and subsequently National Electric Mobility Mission Plan (Nemmp), 2020 was unveiled in 2013 with the purpose to address the issue of energy security, vehicular emission and domestic manufacturing EVs and it targets seven million electric and hybrid vehicles by 2020. As part of the mission, Department of Heavy Industry (DHI) has formulated a scheme, namely, FAME India [Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India] for implementation with effect from 1-4-2015, with the objective to support hybrid/electric vehicles market development and phased manufacturing programme. The amendment in building bye-laws is proposed to set up charging infrastructure by the Ministry of Housing and Urban Affairs and the public charging station guidelines by the Ministry of Power. Ministry of Road Transport and Highways has issued Notification No. GSR 643(E) dated 19-8-2015 vide which the mass emission standards for Bharat Stage Emission Standards (BSES) IV shall come in to force all over the country in respect of four-wheeled vehicles manufactured on or after the 1-4-2017. The Government has agreed upon the auto fuel policy for implementation BS V and BS VI emission norms across the country by 2020 and 2024 respectively.

The Transformative Mobility Mission for India by NITI Aayog and the Nemmp 2020 has laid down the principles and strategies for the transition to e-mobility. The NITI Aayog has proposed that only electric vehicles should be sold in India by 2030. The Commission has also proposed piloting an e-highway programme with an overhead electric network to enable trucks and buses to ply on select national highways. The proposal also includes a plan to manufacture 50 gigawatt hour (GWh) batteries by 2030. The object is to initially work upon 80 per cent of components of two and three-wheelers and buses and also push manufacturing of batteries. The Government think tank believes that such a move will expand India’s clean fuel vision. Investments in zero emission technology will enable local manufacturers to gain global leadership in the e-mobility space .

Overall, the Government endeavours outline strategies for demand creation, technology development, robust charging infrastructure and pilot projects. So that Indian automotive industry will be among the top three of the world in engineering, manufacture and export of vehicles and components, and will encompass safe, efficient and environment-friendly conditions for affordable mobility of people and transportation of goods in India comparable with global standards growing in value to over 12% of India’s GDP and generating an additional 65 million jobs. India aims to become a 100% EV nation by 2030.

Challenges

Despite various policy incentives and non-fiscal measures taken by Government, numerous barriers prevent widespread adoption of EVs. There are various constrains related to these vehicles. The uptake of electric vehicles is slow because the vehicles are costly — not only upfront but also on a life cycle cost basis, or in other words, total cost of ownership (TCO). The high purchase cost of the EVs is the biggest hindrance in the way of adoption of these vehicles. EVs are comparative new. Most of the EVs at present are imported or partially imported and then assembled, which makes it quite costly due to different type of taxes levied on these. As this technology is comparatively new for India, there has not been much choice of vehicle models.  The technology is not proven which is somewhere stopping the users to go for electric vehicles as they opt for conventional vehicles. Travel range is limited. The payback over the lifetime of the EV is inversely correlated with the Vehicle Kilometers Travelled (VKT). Incentives provided for purchase of EVs are lower in comparison to other countries. Life cycle cost of batteries is still not measurable; the economic viability of total life cycle cost of EVs is yet to be ascertained and determined. The overall performance of these vehicles and safety, working limit of battery and its charging is the major hindrance in the way of adoption of such vehicles.

Partakers

All stakeholders—including electric companies, automakers, charging network providers, transit agencies, large commercial customers, transportation planners and others — will help drive transportation electrification. Electric companies have to invest in smart grid technologies that provide the capability to manage EV charging in a manner that benefits the energy grid and for electric transportation. Deliver the solutions to customers who have adopted EVs, and also providing charging infrastructure in homes, workplaces, and public places.

Manufacturers have joined in by launching diversified products in various categories: rickshaws, 2Ws, 3Ws, passenger vehicles, buses and power trains. Fuelled by the national agenda of electrification and bolstered by government-led initiatives, the public and private sectors alike have commenced their transitions to electric mobility. Startups are developing viable products for battery technologies, charging infrastructure and more.

Way Ahead

India needs to make a transition to EV, as  internal combustion electric vehicle (ICEV) is one of the significant sources of air pollution and Indian cities already have alarming Air Quality Index (AQI) levels. India is obliged to reduce its global emissions, owing to the Paris Climate Agreement as signed in 2016. Expanding the use of electricity in transportation shall save money, improve the environment, and enhance the quality of life for everyone. The rules and directives for local parking standards for charging station accessibility, limited access to urban areas or roads has to be designed. Purchase grants, tax benefits for consumers of EVs, government funding for battery research, subsidies on home chargers or free electricity for public charging shall encourage demand. Communication of persuasion, education and government information campaigns can influence the value chain of e-mobility. Actions by Government that provides the physical ability to act directly, using its own forces to achieve policy goals including the allocation of means, capital, resources and the physical infrastructure and acting as a launching customer, buying own fleet of EVs, Government installing public chargers, etc. has to be endeavoured as an organisational need. In addition to EVs, electrification must take hold in public transit, delivery vehicles, ridesharing applications, ports and airports, and more. For a price-sensitive market of India, developing incentives for electric (clean) kilometers run versus electric vehicles purchased shall make economic sense. The downstream fiscal and non-fiscal incentives sunset, long-term investment in R&D will create sustained growth. India has a significant potential to become one of the largest EV markets in the world.


Harsha Rajwanshi is Assistant Professor of Law, Dean, External Relations and Centre Director, Gujarat National Law University & Faculty Advisor to GUVNL-GNLU Research Fellowship  on Energy Law and Policy.

Case BriefsHigh Courts

Calcutta High Court: Shekhar B. Saraf, J., while allowing the present petition held that,

“Lawyer using a domestic space as his chamber for his livelihood cannot be placed in the commercial category.”

The present writ petition was filed to resolve the issue as to whether a lawyer using a domestic space as his chambers is liable to be charged with a tariff on a commercial basis.

Petitioner who is a practicing lawyer was having a chamber on the ground floor of the multi-storied building where he resided on the third floor. He had made an application for a new electric connection on the ground floor under the category domestic (urban).

CESC Limited had sent the petitioner a quotation for payment of service charges and security deposit on the basis of commercial connection. Later on, receiving the same, the petitioner raised an objection to the said quotation and sought a fresh quotation on the basis of domestic connection.

Aggrieved with the above, the petitioner filed the present petition.

Counsel for the petitioner, Subir Sanyal, submitted that the profession of a lawyer cannot be equated as a commercial activity. Neither the Electricity Act nor any Rules or Regulations framed thereunder define the term “commercial”.

In reference to the above, counsel cited the case — V. Sasidharan v. Peter and Karunakar, (1984) 4 SCC 230, wherein the following was held:

“…under the Shops and Establishment Act, the establishment of a legal practitioner/ firm of lawyers was held not to be a commercial establishment.”

Advocate Rajiv Lall, appearing on behalf of CESC Limited, relied on the Supreme Court decision in,

M.P. Electricity Board v. Shiv Narayan, (2005) 7 SCC 283, to indicate that the activity of a lawyer running an office falls under the category of non-domestic use.

Analysis

High Court on perusal of the Supreme Court decision in M.P. Electricity Board v. Shiv Narayan, (2005) 7 SCC 283, stated that it is evident that the tariff entries in the case before the Supreme Court were of two categories, that is, (a) “domestic purposes” and (b) “commercial and non-domestic purposes”. The Supreme Court after examining held that as the use was not domestic it would fall in the category of “commercial and non-domestic” and further held that running an office is clearly a “non-domestic” use.

“There is a fundamental distinction between a professional activity and an activity of a commercial character, and therefore, it is crystal clear that the legal profession would not fall under the category of ‘Commercial (Urban)’.”

Further, the Court noted that the categorization in the tariff of CESC Ltd. only contains two categories of relevance to the present case:

  • Domestic (Urban)
  • Commercial (Urban)

Thus the Court added that upon reading of the Supreme Court’s decision in M.P. Electricity Board v. Shiv Narayan, (2005) 7 SCC 283,

…it is crystal clear that the legal profession would fall under the category of “non-domestic”

Decision

Hence, the High Court in view of the present case stated that,

 “…space on the ground floor has been taken by the petitioner as an extension of his residence for the use of the space as his legal chamber. The above factual matrix is clearly distinguishable from law firms and proprietorship firms that are having offices in commercial spaces dealing with litigation and non-litigation work.”

Thus, chambers of a litigation lawyer are clearly used for his livelihood, and accordingly, the benefit of doubt is required to be given to such a petitioner placing him in the category of the “Domestic (Urban)”

In view of the above, the writ petition was allowed. [Arup Sarkar v. C.E.S.C. Ltd., 2020 SCC OnLine Cal 295, decided on 11-02-2020]

Op EdsOP. ED.

In the electric power system, electricity supply needs to be balanced with electricity demand and network losses at all times to maintain safe, dependable and stable system operation. Fluctuating demand from hour to hour, day to day, season to season is a fundamental characteristic of all power systems. The ongoing changes in electricity production and consumption create uncertainty into the system and make difficult to meet the moment-by-moment challenge of balancing supply and demand for electricity across a power system. If system balance between supply and demand is not maintained, the operational system frequency will deviate from its reference, potentially resulting to system instability and outages. Power flexibility is therefore required to counterbalance supply and demand of electricity to maintain equilibrium at every second on the every location of grid. Flexible power system has to maintain continuous service in the face of rapid and large swings in supply or demand. Future electricity system is expected to steer away from the conventional means of production. Nevertheless, driven by international and national climate and energy plans, the introduction of very high penetration levels of variable renewable energy sources (VRES) like wind and solar energy shall displace the part of the conventional generation capacity energy generation and VRES is subject to weather conditions and suchlike makes production unpredictable. The move towards more renewable energy paradigm shift shall increase the requirements for more power system flexibility as on the supply side. This development will make planning and balancing of supply and demand more challenging to meet the transition. The “power system flexibility” gap has to be covered by new flexibility options.

Concept

Electricity consumers are supplied with electricity through sizable technical infrastructure combined with a manoeuvered operating system that ensures balancing of supply and demand. Power system to ensure spatial and temporal balance of generation and consumption at all times consist inherent feature of flexibility in its design but their ability to alter their output differs considerably. Dispatchable power generators can be turned on or off and can adjust power to match generation and demand. Peaking plants like gas or diesel turbines and reservoir hydropower can respond on the minute-to-minute time scale to start up and shut down. Mid-merit plants including coal, biomass and solar plants respond within the hour to ramp down to a minimum operating scale and thus provide significant flexibility. Base load plants mostly geothermal have slower response times. Other resources that may potentially be used for balancing are storage, demand side management (DSM) or response, and interconnection to adjacent power systems. In practice balancing reseed through predicting the electricity demand within the time-frame and scheduling the operation of generation units accordingly.

Flexibility, in power system thus refer to sources of electricity that can be used on demand and dispatched at the request of power grid operators, according to the need within certain available parameters to increase or decrease the output over a defined period. “Up regulation” provides additional power needed to maintain system balance and “down regulation” reduces the power generation in system. Both up and down regulations can be controlled by reducing and increasing the load. Ramping capability in its common parlance represent how fast flexible resources can change demand or supply of power. 

International Energy Agency (IEA) defines the “electrical flexibility” as the ability of a power system to reliably and cost-effectively manage the variability and uncertainty of demand and supply across all relevant time scales for ensuring instantaneous stability of the power system to support long-term security of supply.

The Flexibility Assessment Method

The IEA has developed the flexibility assessment (FAST) method to guide decision-makers through a holistic assessment of system side measures for balancing variability. The technical flexible resource is assessed over the balancing time scale. The time scales used are 15 minutes, 1 hour, 6 hours and 36 hours ahead of the moment resources are actually required to provide their flexibility. Resources are quantified in megawatts and summed up, resulting in technically ramp electricity supply or demand; up or down; to balance variability and uncertainty in the net load. The availability of flexible resource is captured to know whether the technical flexible resource will be available to operate in the desired way or not. The extent of the existing need is identified to find out the maximum expected value and rate of variability and uncertainty. When flexibility needs and resources are both known, they are compared to assess the extent to which the existing flexible resource might provide for the additional needs resulting from variable power plants. This step results in a megawatt number that expresses how much variable renewable energy capacity can be reliably balanced by the system.

Flexibility Options

Conventional sources of power generation such as fossil fuel power plants or nuclear plants are able to adjust to changes in power demand. However rapid growth in variable generation is driving the need for a more flexible power system. The transition to a more flexible power system requires a new portfolio of technologies and methodologies.

In prevailing coal-fired power plants to minimise frequent
shutdowns, augment aggressive ramp rates and lower minimum sustainable load to enable flexibility, fossil generators need holistic layup techniques to reduce impacts on boiler tubes and addressing cycling repercussions on heat rate which deteriorates significantly at lower and transient loads with better understanding of damage mechanisms, considering defense against water side corrosion, methodologies for reducing minimum loads, advanced monitoring capabilities during transients, and methods to minimise emissions during cyclic operations. For ameliorating flexibility of natural gas fired generation fast-start technology, remote starting and integration of equipment into a unit that can minimises the effects of thermal cycling is essential. Converting nuclear plants to flexible operation the overarching need is to implement new operating practices, increased staff training and awareness. Safe operating of nuclear power plants has to be clearly defined. Advanced sensor and monitoring methods needs to be developed to detect possible impacts of high-cycle fatigue caused by changes in flow-induced vibrations during more frequent plant heat and cool down cycles; and changes in flow rates, pump speeds, and valve repositions. The acceptable ramp rates, depth of power reductions, duration of reduced power operation, and frequency of power level changes deserve consideration. Hydroelectric generation for flexible operation poses unique challenges. In a course for converting hydropower to flexible operation appropriate path is to develop improved turbine runner materials/coatings and for improving operational performance, maintenance strategies are obligatory to keep availability, reliability of major components through improved inspection, along with ancillary supporting.

Flexible Power System a Key to Renewables Push

India has positioned itself to leapfrog into a cleaner electricity system in its development pathway. Increasing the flexibility of the power system is necessary and urgent. Failure to do so will constrain the growth of renewables. To tap the potential of green energy, power plants need to balance their demand-supply equation better. Solar output is zero at night, rapidly rising to near 100 per cent at mid-day, and falling again to zero in the evening. This cyclicality, while relatively predictable, imposes large stresses on the power system. Another group of renewables including wind, wave and tidal energy are also based on resources that fluctuate over the course of the day and from season to season. These fluctuations are likely to mean that, in order to maintain the balance between demand and supply, other parts of the power system will have to change their output or consumption more rapidly and more frequently than already required. Variable renewable electricity and uncertainty in the system is an additional, rather than a new. There is inability to perfectly forecast the output from renewable energy resources which are not uniform across all geographical locations and operating with non-synchronous technologies. The transitions towards an energy system where the majority of energy provided by VRES shall require sufficient ability of generators to effectively balance the variations that occur in demand and generation.

The Energy and Resources Institute (TERI) has been leading a flagship project called the Energy Transitions Commission India, along with several international partners. The project has developed a roadmap inter alia for increasing the flexibility of the Indian grid, in order to enable large-scale integration of cheap renewables.

Storage as an Option for Providing Flexibility

Electric energy storage offer promising solutions in improving flexibility in power system. The development of storage technologies that release energy on an as-needed basis can address several of the challenges presented by the use of increased renewables. Energy storage provides an inventory of electricity to the power system, adding a buffer to the current “just-in-time” system. It has the potential to enhance grid flexibility in peak shaving, load leveling, frequency regulation, voltage control, and renewables integration. It can follow power system ramps and relieve Transmission and Distribution (T&D) congestion. Storage can make the overall grid more flexible by accommodating more variable, renewable generation resources. 

Battery energy storage shall provide substantial benefits not only to grid operators but also to customers. For customers, storage technologies ensure availability of power during non-generation hours, uninterruptible power supply, and possibly opportunities to trade power with local utilities. Pumped hydro is the dominant technology where water is pumped uphill to a reservoir and released to generate electricity when it is required. Thermal energy storage (TES) stocks, thermal energy by heating or cooling a storage medium so that the stored energy can be used at a later time. Flywheel stores energy is in the form of rotational kinetic energy. Energy from off-peak electricity is stored underground as compressed air. Grid scale energy storage can respond quickly to second-to-minute changes in electricity demand and supply changes resulting from variable generation. As a temporary “shock absorber” it can dampen transient electric conditions on local generation, transmission, and distribution network equipment. 

Flexibility Options Disjunctive to Storage

 As one of the flexibility options to manage reliable and cost-effective, variability and uncertainty of demand in power system, demand-side management response can be used as an alternative to energy storage. The implementation of DSM programs can range from improving energy efficiency with better insulation materials to fully autonomous energy systems that automatically respond to shifts in supply and demand. It is an important and integral strategy for addressing the challenges of chronic peak and energy shortages, improving access and affordability of power. The utilities are being mandated to draw up cost-effective demand side management action plans and programs to prioritise them as per their specific needs. The benefits from DSM are potentially twofold; first, consumers can reduce their electricity bills by adjusting the timing and amount of electricity use. Second, the energy system can benefit from the shifting of energy consumption from peak to non-peak hours.

Transmission Flexibility 

Transmission plays a critical role in facilitating flexibility derived from resources with changing demand and renewables production. Ensuring system flexibility presents a new challenge to transmission system planning and operation. As more variable generation connects to a network, the direction of power flow and transmission networks may experience a reversal of flows.

Transmission system design and operation is evolving to consider more uncertain and variable power flows. Adopting power electronics devices, known as Flexible AC Transmission System (Facts) technologies, aide balancing of operations. Resources are used to overcome certain limitations in the static and dynamic transmission capacity of electrical networks to enhance controllability and increase power transfer capability.

Closing

Increasing the flexibility of the electricity system is an urgent, complex and substantial challenge. Variable generation output, stronger transmission and distribution systems, increasing storage capacity and demand-side management all help to boost system flexibility, as do renewable-based heat and hydrogen production. Increased flexibility should also contribute to long-term decarbonisation, which is essential to ensure a sustainable energy future.


*Harsha Rajwanshi is Assistant Professor of Law, Dean, External Relations and Centre Director, Gujarat National Law University & Faculty Advisor to GUVNL-GNLU Research Fellowship on Energy Law and Policy.

Hot Off The PressNews

Supreme Court: CJI Ranjan Gogoi has said that the Court will look into the plea of the Government of NCT of Delhi has sought constitution of a larger bench to expeditiously decide the issue of who controls the services in Delhi.

The bench of Dr. AK Sikri and Ashok Bhushan, JJ had, on February 14, put an end to ‘almost’ all the issues related to the powers exercisable by and functions of the elected Government of National Capital Territory of Delhi (GNCTD) vis-a-vis the Central Government. However, the judges differed on the question relating to ‘Service matters’.

While both the judges agreed that Entry 41 of List II of the Seventh Schedule of the Constitution is not available to the Delhi Legislative Assembly as Entry 41 of List II deals with ‘State Public Services’ and ‘State Public Service Commission’ and that State Public Service Commission does not exist in NCTD, they differed on the issue of power to transfer and appoint certain officers.

Justice Sikri Justice Bhushan
The transfers and postings of Secretaries, HODs and other officers in the scale of Joint Secretary to the Government of India and above can be done by the Lieutenant Governor and the file submitted to him directly. For other levels, including DANICS officers, the files can be routed through the Chief Minister to Lieutenant Governor. In case of difference of opinion between the Lieutenant Governor and the Chief Minister, the view of the Lieutenant Governor should prevail and the Ministry of Home Affairs can issue a suitable notification in this regard. I having held that Entry 41 of List II of the Seventh Schedule of the Constitution is not available to the Legislative Assembly of GNCTD, there is no occasion to exercise any Executive power with regard to “Services” by the GNCTD, since the Executive power of the GNCTD as per Article 239AA(4) extend in relation to matters with respect to which Legislative Assembly has power to make laws. With regard to “Services” GNCTD can exercise only those Executive powers, which can be exercised by it under any law framed by the Parliament or it may exercise those Executive powers, which have been delegated to it.

To read the full report report on February 14 verdict, click here.

Case BriefsSupreme Court

Supreme Court: The bench of Dr. AK Sikri and Ashok Bhushan, JJ has put an end to ‘almost’ all the issues related to the powers exercisable by and functions of the elected Government of National Capital Territory of Delhi (GNCTD) vis-a-vis the Central Government.

Difference on opinion on issue relating to ‘service’ matters:

While both the judges agreed that Entry 41 of List II of the Seventh Schedule of the Constitution is not available to the Delhi Legislative Assembly as Entry 41 of List II deals with ‘State Public Services’ and ‘State Public Service Commission’ and that State Public Service Commission does not exist in NCTD, they differed on the issue of power to transfer and appoint certain officers.

 

 

Justice Sikri

 

Justice Bhushan

The transfers and postings of Secretaries, HODs and other officers in the scale of Joint Secretary to the Government of India and above can be done by the Lieutenant Governor and the file submitted to him directly. For other levels, including DANICS officers, the files can be routed through the Chief Minister to Lieutenant Governor. In case of difference of opinion between the Lieutenant Governor and the Chief Minister, the view of the Lieutenant Governor should prevail and the Ministry of Home Affairs can issue a suitable notification in this regard.

I having held that Entry 41 of List II of the Seventh Schedule of the Constitution is not available to the Legislative Assembly of GNCTD, there is no occasion to exercise any Executive power with regard to “Services” by the GNCTD, since the Executive power of the GNCTD as per Article 239AA(4) extend in relation to matters with respect to which Legislative Assembly has power to make laws. With regard to “Services” GNCTD can exercise only those Executive powers, which can be exercised by it under any law framed by the Parliament or it may exercise those Executive powers, which have been delegated to it.

 

In the light of the aforementioned difference of opinion, a larger bench will be deciding the issue.

Concurrent opinions of the judges on other issues at a glance:

Setting up of Anti-Corruption Bureau Police Station

Centre

Setting up of Commission of Inquiry

Centre

Power to pass orders under Delhi Electricity Reforms Act, 2011 and Delhi Electricity Reforms (Transfer Schemes) Rules, 2001 appointing the nominee Directors on the Board of Electricity Distribution Companies

GNCTD

Power to revise the minimum rates of Agricultural Land (Circle Rates) under the provisions of Indian Stamp Act, 1899

GNCTD

However, the LG is also empowered to form its opinion ‘on any matter’ which may be different from the decision taken by his Ministers. In such circumstances, LG is supposed to refer the matter to the President for decision and act according to the decision given thereon by the President.

Appointment of Public Prosecutors under Section 24 of the Code of Criminal Procedure

GNCTD

 

Also read the related 5-judge Constitution Bench judgement that held that NCT of Delhi is not a State and Lt. Governor of Delhi is not an administrator.

[Govt. of NCT of Delhi v. Union of India, 2019 SCC OnLine SC 193, decided on 14.02.2019]

Case BriefsHigh Courts

Jharkhand High Court: A writ petition filed against the order passed by the respondents whereby recovery of Rs. 1.90 lakh was to be made from the petitioner, was allowed by a Single Judge Bench comprising of Pramath Patnaik, J. due to the absence of a departmental enquiry before the passing of the order.

The petitioner, at the relevant time, was a Member of Finance in Jharkhand State Electricity Board.  Alleging that he delayed in making certain payments, the petitioner was asked to show cause. The petitioner alleged that without giving a proper opportunity, the liability was fixed and order of recovery was passed against him. The said order was challenged by the petitioner.

The High Court considered the submissions made on behalf of the parties and perused the record. The Court found that the impugned order was passed by the respondents without holding any departmental proceedings. The order was passed only on the basis of the preliminary enquiry. The Court held the law to be well settled that culpability of an employee cannot be fastened basing only on the preliminary enquiry without holding a full-fledged departmental enquiry. It was held that the impugned order, punishing the petitioner, was not sustainable as it was passed without holding a departmental enquiry. Accordingly, the petition was allowed and the impugned order was set aside. [Niranjan Roy v. Jharkhand SEB,  2018 SCC OnLine Jhar 369, dated 15-05-2018]

 

Op EdsOP. ED.

Electricity is a development indicator and critical for India’s economic growth. The electricity is shared responsibility between the central and state governments, with states having considerable freedom to set electricity prices, the average subsidy level and the beneficiaries of the cross-subsidisation. Cross-subsidy surcharges and non-price regulatory measures are key tools for balancing distribution companies’ equity and access considerations. These only become addressable after the terms of the bargains and the flows of the funding are made explicit. Cross-subsidisation is an important arena for transformation and enabling greater social efficiency. Consumers end up paying the socially efficient price.

What is cross-subsidy?

Views on the meaning of cross-subsidisation have varied, but they have generally involved the idea that one set of customers receives favorable prices at the expense of other customers. Specifically, a product is receiving a cross-subsidy if it is priced below its average incremental cost, and a product is generating a cross-subsidy if it is priced above it’s per unit stand-alone costs. The fairness standard for determining cross-subsidy has allowed for the development of numerous cost allocation techniques; generally in the form of fully distributed cost. In context of electricity, it is the difference between the applicable average tariff of a consumer category and the cost of supply to that consumer category. The cost of supplying electricity to all categories of consumers is same. However, the tariff charged from them is different. Say, if the average cost of service is Rs 3/unit, the domestic consumer may be charged at Rs 2.5/unit while an industrial consumer may be charged at Rs 3.5/unit. It is said that the domestic consumers are cross-subsidised by industrial consumers. The cross-subsidy for a consumer category is the difference between the cost to serve that category of consumers and average tariff realisation of that category of consumers. Cross-subsidies are to be calculated with reference to the category-wise cost of supply and not average cost of supply. The tariff for different categories of a consumer may progressively reflect the cost of electricity to the consumer category but may not be a mirror image of cost to supply to the respective consumer categories.

Cross-subsidies involve a group of consumers paying more than the general cost of supply and the surplus is used to subsidize the provision to the other group at a price that is lower than the cost of supply to the subsidised group.

Cross-subsidies in electricity tariff, therefore, can be defined as a mechanism whereby some consumer groups are charged a higher tariff as compared to the cost of supplying power to them. The additional revenue generated from them is used to tide over the revenue shortfall from other consumer groups, who are charged lesser tariff as compared to the cost of supplying power to them.

In India, cross-subsidies are pervasive where commercial and industrial consumers of electricity pay higher rates of supply to cover the shortfall in revenue of domestic and agriculture electricity consumers. Most of the distribution utilities have a lower tariff for consumers residing in rural or hilly areas in comparison to consumers residing in urban areas without factoring in the cost of supply. In some cases, consumption at higher tariff slabs generates cross-subsidies for the consumer whose consumption falls in lower slabs.

Desirability of cross-subsidy

The Electricity Act, 2003 (EA03) inscribes to ensure transparent policies regarding subsidies. Section 62(3), EA03 though speaks that Appropriate Commission while determining the tariff under this Act, shall not show undue preference to any consumer of electricity still it does refer to cross-subsidisation by allowing the Appropriate Commission to differentiate tariff, according to the consumer’s load factor, power factor, voltage, total consumption of electricity during any specified period or the time at which the supply is required or the geographical position of any area, the nature of supply and the purpose for which the supply is required. Section 42 aims the distribution licensee levying the surcharge to use it for cross-subsidy within the area of sup-ply of the distribution licensee. Section 61(g) EA03 endorses that while ascertaining the terms and conditions for the determination of tariff, the Appropriate Commission must be guided with the fact that the tariff progressively reflects the cost of supply of electricity and also, reduces cross-subsidies in the manner specified by the Appropriate Commission. Sections 38, 39, 40, 42, 178 (2) (k), (m) & (r) 181 (2) (j), (m), (p) & (zc) of EA03 refer to cross-subsidies which shall be progressively reduced in the manner as may be specified by the Central Commission or State Commission.

National Electricity Policy (NEP) notified on 12-2-2005 proffers that a minimum level of support may be required to make the electricity affordable for consumers of a very poor category. Consumers below the poverty line who consume below a specified level, say 30 units per month, may receive special support in terms of the tariff which are cross-subsidised. Tariffs for such designated group of consumers will be at least 50 % of the average (overall) cost of supply. The amount of cross-subsidy surcharge and the additional surcharge to be levied from consumers who are permitted open access should not be so onerous that it eliminates competition which is intended to be fostered in generation and supply of power directly to the consumers through open access. Policy feels concerned with the increase of cross-subsidies to unsustainable levels and hiding inefficiencies and losses in operations. It craves for the urgent need to correct imbalance without giving tariff shock to consumers. It aims the cross-subsidies for other categories of that consumers should be reduced progressively and gradually.

Tariff policy (TP) notified on 6-1-2006, stated that subsidy is a better way to support the indigent categories of consumers than the mechanism of cross-subsidizing the tariff. It suggests that as a substitute of cross-subsidies, the State Government has the option of raising resources through the mechanism of electricity duty and giving direct subsidies to only needy consumers which can be the better way of targeting subsidies effectively. For achieving the objective that the tariff progressively reflects the cost of supply of electricity, the SERC would notify roadmap within six months with a specified target and those tariffs are within ± 20 % of the average cost of supply. The road map would also have intermediate milestones, based on the approach of a gradual reduction in cross-subsidy. Tariff for agricultural use may be set at different levels for different parts of a state depending on the condition of the ground water table to prevent excessive depletion of ground water. The cross-subsidy surcharge should be brought down progressively and, as far as possible, at a linear rate to a maximum of 20% of its opening level.

In fact, reduction of cross-subsidy or tariff rationalisation has been the major factor of tariff reforms and it is for this reason that the independent regulatory commissions were envisaged through Electricity Regulatory Commissions Act, 1998. The aim of electricity reform begun with EA03. Further NEP and TP marked with periodic revisions, particularised the framework to reduce cross subsidies in retail tariffs.

Detrimental impact of high cross-subsidies

Electricity tariffs in India are fixed at the predetermined level, keeping in mind socio-economic considerations to meet consumer’s capacity-to-pay. Cross subsidies are widely used to support rural electrification schemes but their effectiveness depends on the existence of a relatively large number of better-off consumers that can afford to pay more than the cost of supply. Cross subsidisation is distortionary, in that neither group is paying the correct price for power but in all cases, the loss of revenue on electricity sent out is carried by the utility or by other users through a cross-subsidy, therefore, utilities are reluctant to provide connections and regular supply to agricultural and residential consumers. Dysfunctional ties and distortions of cross subsidisation result in increasing theft and leakages, loss of accountability of revenue and misreporting.

The farmers are ostensibly the beneficiaries of subsidised electricity; they suffer from a de facto “de-electrification”. Farmers experience power rationing and poor supply quality. Low voltage, frequent interruptions, and phase imbalances hit rural areas with substantial economic costs. Poor quality of power supply imposes significant coping costs on farmers which lowers the quality of life in rural areas and hampers the growth of local industries and commercial enterprises. Delivering subsidised electricity to farmers actually imposes substantial economic costs on the farm-sector.

Cross-subsidised electricity sector encourages consumption of electricity. Cheap electricity supplied to farmer’s effects groundwater level due to indiscriminate extraction.

A free-market is the fastest and most efficient way to correct the market distortions. Cross-subsidies ob-struct competition in the retail supply of electricity. Utilities incur losses on every unit of electricity sold; Subsidization leads to economic distortions which affect the balance between supply and demand, thereby impacting quality and accessibility of electricity.

In order to finance the cross?subsidy, industry and businesses, generally are asked to pay tariffs above costs. The Higher cost of electricity increases the cost of manufacturing and feeds into higher product costs which adversely impact the competitiveness of businesses. In fact, cross-subsidy regimes prove counter-productive. Cross-subsidies lead to wastage of resources, and rising price elasticity of electricity demand in industry, force the industry to seek energy alternatives. Industries switch to “captive power generation” resulting the decline in revenue to state utilities.

Many power generation projects are in distress due to the weak financial health of distribution companies. Power distributors are not able to fully realize the cost of power supply to consumers due to tight tariff regulation. The lack of clarity on the treatment of cross subsides; the model did little to help potential investors understand the future of the sector. As a consequence, federal policy think-tank, “Niti Aayog” has pitched for letting power utilities realize full market price from all consumers by doing away with cross-subsidy provided to poor consumers.

Upshot

The principal difficulty in finding “true cost” of supply is a very subjective notion, particularly in the light of cross-subsidies. It is nearly infeasible for regulators to establish subsidy-free prices. It seems reasonable that regulators should narrow their interest to some definable social importance. The cross-subsidy surcharge needs to be lowered so that the end consumers may find it economical. Cross-subsidies should be limited to reducing the tariff for a lifeline quantity of electricity for the lowest income consumers and financed in a way that imposes the least degree of distortion on the tariffs of other customer categories. On the policy front, there are adequate guidelines that emphasise the need for winding down cross-subsidies.

 

*Harsha Rajwanshi is the Assistant Professor of Law, Gujarat National Law University & Faculty Advisor to GUVNL-GNLU Research Fellowship on Energy Law and Policy.