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NATHAN INDIA | Value Chain Of Electricity. Solutions powered by an understanding of the economics of competition, innovation, and reward. Executive Summary. - PowerPoint PPT Presentation
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NATHAN INDIA | Value Chain Of Electricity
Solutions powered by an understanding of the economics of
competition, innovation, and reward
NATHAN INDIAExecutive Summary
• Current Scenario: How the electricity sector has opened up in line with India’s liberalization process, how certain acts and regulations have helped a wider private participation
• However, competition still seems to be distant hope, thanks to government interventions and regulatory hurdles
• Things that need to be changed include the role of political economy in the sector, political expediency and monopolization by state monoliths
• Ways to facilitate the players include effective implementation of a National Competition Policy, regulatory freedom, competition toolkit
2
NATHAN INDIAIntroduction
Development of the Electricity Sector in the Developed Economies
• Here we do a literature review of how recent years have seen a decline in the scope of regulatory regime across countries and how major industries have become a par of market discipline and have delivered significant benefits to consumers in terms of choice, competitive rates and satisfaction from their use.
• Review the natural monopoly argument in the electricity sector, suggest that deregulation is desirable
• We study development of the electricity sector in the developed world and its transition to the market economy including that in Europe, France, Germany, North America, Canada, Australia, China, Japan, Russia
3
NATHAN INDIACompetition in the electricity sector• Uses of Electricity (Literature review)
• Introducing Competition in the Electricity Sector– Power Suppliers
• Innovation• Investment
– Consumers• Lower Prices• Choice of suppliers
– Others• Government• Environment Protection
4
NATHAN INDIAGovernment monopoly over coal• Producing around 80 percent of India’s overall coal production, the monopoly in
coal is led by the state owned Coal India Ltd (CIL), gives preferential treatment to public generating companies. Coal India under CCI scanner for abuse of dominance
• Government’s initiative in the last 5-6 years to allocate coal blocks to private players backfired as competition neutrality was ignored, resulted in a INR1.86 lakh crore scam dubbed ‘Coalgate’
• The federal auditor Comptroller and Auditor General (CAG), has recommended a competitive bidding process.
• We also study the auction and non auction models of coal supply in US, Australia, China, South Africa and Indonesia
5
NATHAN INDIAGovernment monopoly over coal (continues…)
Fallout of Coalgate
• Following the CAG report and its outburst the Government de-allocated 15 coal blocks
• Government periodically monitors and reviews the development of allocated blocks as well as end use plants by the allocatee companies
• An Inter-Ministerial Group (IMG) constituted on 21 June 2012 which would undertake periodic review and monitor the progress of allocated coal/lignite blocks and make recommendations on action to be taken including de-allocation, if required.
• CBI has registered three preliminary cases on allocation of coal blocks to private companies during the period 1993-2004 and 2006-2009
• Supreme Court has questioned the Centre’s power to allocate coal bocks under existing laws
6
NATHAN INDIAElectricity Sector in IndiaElectric Power Supply Chain Process :
Statutory bodies involved in the electricity supply chain :
• Central Electricity Authority (CEA)• Central Electricity Regulatory Commission (CERC)• State Electricity Regulatory Commission (SERC)• Central Transmission Utility (CTU)• State Transmission Utility (STU)• National Load Despatch Centre (NLDC)• Regional Load Despatch Centres (RLDC)• State Load Despatch Centres (SLDC)
7
Generation (Source: Coal , Gas,
Nuclear fuel or Water Storage)
Transmission through high voltage
lines
Distribution to
customers(subsidized sectors
and individual metered customers)
NATHAN INDIAElectricity Sector in India (continues..)
Generation Segment
• Central Sector or Public Sector Undertakings (PSUs)– National Thermal Power Corporation (NTPC), National Hydroelectric Power
Corporation (NHPC), etc
• State level corporations– Maharashtra State Power Generation Company Ltd (MSPGCL), Gujarat State
Electricity Corporation Limited (GSEC), etc.
• Private sector enterprises
– Reliance, Tata, Torrent, Adani et
8
NATHAN INDIA
9
2006-07 2007-08 2008-09 2009-10 2010-110%
10%20%30%40%50%60%70%80%90%
100%
13 14 15 18 22
34 34 33 32 31
53 52 52 50 47
Sector wise ownership pattern of installed generation capacity from 2006-07 to 2010-11
Private Central State
Shar
e of
Inst
alle
d Ca
paci
ty (
%)
55%
21%
11%
10%2%
1%
Sources of Electricity Generation in India
Coal Hydro Renewable Energy Resources GasNuclear Diesel
Electricity Sector in India (continues..)
NATHAN INDIA
10
Voltage level Circuit Kilometers Targeted (2007)
Circuit Kilometers Achieved up to March 2011
765 kV 2,773 1,636 ± 500 kV HVDC 1,600 1,580
400 kV 40,000 26,856
220 kV 24,300 19,780
Total 68,673 49,852
Transmission Segment - Opened for private investments in 1998
• CTU nodal agency provideso Medium terms ( 3 months to 3 years) o Long terms (12 to 25 years)
• Power Grid Corporation of India Ltd. (PGCIL) plays the role of the CTU.• Sector is a natural monopoly as electricity passes through grids that are
less resistant• Dominated by the public sectorAdani and Lanco have big plans
Electricity Sector in India (continues..)
NATHAN INDIA
Distribution Segment • SEBs own majority of the distribution segment in the electricity supply chain• 3 private sector companies operating in the distribution sector - distributing
electricity in Delhi only
11
Electricity Sector in India (continues..)
71%29%
Public Private
21%
21%
15%
5% 4%3%
2%Power Grid Corpn of India
Bangalore Electricity Supply
Dakshin Gujarat Vij
Maharashtra State Electricity Transmission Rajasthan Rajya Vidyut Prasaran Nigam Karnataka Power Transmission CorpWest Bengal State Electricity Transmission Co
12%
10%
7%B S E S Rajdhani Power
Tata Power Delhi Distribution
B S E S Yamuna Power
Market Share (Sales Revenue) of Top 10 Firms in Electricity Distribution
NATHAN INDIA
12
Distribution Segment (Cont..)
• State promoted Discoms have been facing huge losses due to selling electricity below costs or giving them free to agriculture and rural sectors. Collectively, state Discoms have an outstanding loans of around INR80,000 crore according to Shunglu Committee.
• According to Mint report of 07 Jan 2013, the state government of Andhra Pradesh has estimated that the state needs INR 49,189 crore to supply around 1 trillion units in 2013-14 financial year. Of this INR 12,725 crore will have to be raised through consumers if tariff rates are not allowed to be raised.
• If the government wants more private players to be in the distribution it will have to allow them to fix their own or, at least, adhere to a more liberalized tariff regime.
Electricity Sector in India (continues..)
Region 2009-10 (%) 2010-11 (%)Eastern 33.94 38.24North-Eastern 36.23 37.33Northern 29.66 28.91Southern 19.05 19.26Western 28.02 24.44National 26.58 26.15
AT&C Losses for 2009-10 and 2010 -11
NATHAN INDIA
13
Year 2005-06 2006-07 2007-08 2008-09 2009-10Andhra Pradesh Distribution Utilities 183 -90 57 152 35Tamil Nadu State Electricity Board -968 -1826 -3693 -7785 -9578Gujarat Distribution Utilities 58 90 38 32 65Karnatka Distribution Utilities 198 -23 122 -1717 -258Madhya Pradesh Distribution Utilities -741 -979 -1786 -2455 -3008Punjab State Electricity Board 89 -1645 -1501 -933 -1151Uttar Pradesh Distribution Utilities -2772 -3765 -4207 -4424 -4308Rajasthan Distribution Utilities -30 -5 -1273 -2383 -4034Haryana Distribution Utilities -266 -403 -815 -1372 -1663Bihar State Electricity Board -169 -856 -851 -1102 -1496Kerala State Electricity Board 183 233 157 -311 192Jharkhand State Electricity Board -249 -545 -1214 -1000 -559Himachal Pradesh State Electricity Board 56 79 -48 52 -209Uttrakhand Power Corporation Limited -215 -209 -220 -355 -391
Electricity Sector in India (continues..)
Profit/Loss before Prior Period Adjustment from 2005-06 to 2009-10
NATHAN INDIA
14
2006-07 2007-08 2008-09 2009-10 2010-11
-35000
-30000
-25000
-20000
-15000
-10000
-5000
0
-17057 -15990
-24796
-30466 -29701
Aggregate Book Losses – All Utilities (Rs Crore)
INR
Cro
reElectricity Sector in India (continues..)
NATHAN INDIA
• We have studied changes suggested through various electricity laws including Indian Electricity Act, 1910, Electricity Supply Act, 1948, Amendments to Electricity Supply Act, 1948, The Electricity Regulatory Commission Act, 1998, Electricity Act, 2003 (Act)
• The objective of the path breaking electricity Act was to promote competition, ensuring supply of electricity in all areas, rationalization of tariff, having transparent policies and creation of CERC
• The Act was supplemented by the National Electricity Policy (NEP) and National Tariff Policy (NTP).
• While all these moves aimed at removing regulatory hurdles and creating a smooth transition to a more competitive electricity sector much still require to be achieved. 15
History of regulation in the electricity sector
NATHAN INDIA
The Toolkit Approach: We use CUTS Toolkit to analyze distortions
• Distorts level playing fields between competitors, eg in the name of creating public goods, pronounced through subsidies, procurement policies. Our analysis suggests that tariff rates between 2007-08 to 2011-12 have always been higher than the WPI
• Creates entry barrier, eg Coal sector a virtual monopoly of CIL. Then FDI in nuclear power not allowed, target of getting 20 GW of nuclear energy by 2020 remains a distant hope
• Limits free and fair market process such as auctioning, eg auctioning of natural resources, merchant power plants still not prevalent. In transmission private investments allowed through CERC
• Promotes monopolies and their abuse, eg CCI issued notices to CIL and subsidiaries for non transparent contract conditions
16
Distortion effects of regulation on competition
NATHAN INDIA
• How the electricity sector can benefit from NCP? The NCP will ensure transparency, accountability and take care of information asymmetry which currently persists
• NCP will help achieve level playing field in generation and transmission: An example of how this can be done is the case of Ispat Industries which was demanding open access in transmission from MSEDCL as allowed by Electricity Act 2003. MERC ruled in favour of Ispat in 2012
• Functional autonomy for independent operators: The functionaries having membership on the board of independent regulatory organizations CTUs and STUs will not be allowed having a say in generation and retail supply
• Restructuring of Electricity Boards: Unbundling in some states have not been effective due to lack of regulation, the NCP will ensure that
17
Economic benefits of the national competition policy
NATHAN INDIA
Data Analysis
Impact on Private Sectora) Unbundling of SEB’sb) Share of Private Sectorc) Entry of New Players
18
Impact of regulation on competition in the electricity sector
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
05
1015202530354045
4 6 6
15
32
18 18
11
39 8 6
115
25
9
33
41
1410
2 1
Number of Private Companies in Electricity Generation from 1991- 2012
Year
Num
ber
of p
riva
te c
ompa
nies
NATHAN INDIA
19
Data Analysis (Cont..)
Impact on Consumersa) Increase in generation capacities
• Open Access Implementation
Impact of regulation on competition in the electricity sector
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2010-11*
2011-12*#
0.01.02.03.04.05.06.07.08.09.0
10.0
0.0%2.0%4.0%6.0%8.0%10.0%12.0%
5.5 5.6 5.9 6.3 6.9 7.4 7.8 8.3 8.6 5.7 6.1
5.0 5.2 5.5 5.8 6.2 6.6 6.9 7.5 7.9
5.2 5.78.8%
7.1% 7.3%8.4%
9.6% 9.8%11.1%10.1%
8.5%
8.8% 7.3%
Power Supply Position from 2002-03 to 2011-12
Energy Shortage Energy Requirement Energy Availability Energy Shortage (%)
'100
,000
Mill
ion
Uni
ts
Ener
gy S
hort
age
(%)
NATHAN INDIA
20
Impact of regulation on competition in the electricity sector
StateApplication
sReceived
Capacity (MW) Approved Capacit
y (MW)Cases
Implemented
Capacity Implemente
dAndhra Pradesh 9 130 2 44 2 44Chattisgarh 14 333 6 66 5 53Gujarat 15 871 15 871 15 871Haryana 2 573 0 0 0 0Himachal Pradesh 3 32 0 0 0 0Jharkhand 1 40 0 0 0 0Kerala 1 30 1 30 0 0Madhya Pradesh 29 56 29 56 29 56Orissa 1 5 1 5 1 5Punjab 2 21 2 21 2 21Rajasthan 29 259 12 165 12 165Tamil Nadu 12 1,764 0 0 0 0Uttar Pradesh 5 46 5 46 5 46West Bengal 4 86 3 36 0 0
Status of Open Access Applications in India
NATHAN INDIA
21
Impact of regulation on competition in the electricity sector
Data Analysis (Cont..) Impact on Consumers
b) Rural Electrification• Pradhan Mantri Gramodyaya Yojna (PMGY)• Accelerated Rural Electrification Programme (AREP)• Rajiv Gandhi Grameen Vidyutikaran Yojna (RGGVY)• Rural Electrification under Minimum Needs
c) Electricity Tariff Rates
2007-08 2008-09 2009-10 2010-11 RE 2011-12 AP8090
100110120130
100106 109
117124
100 99 100 102 101
Comparison of (Overall) Average Electricity Tariff with Wholesale Price Index from2007-08 to 2011-12
Overall Average Electricity Tariff WPI-Electricity (industry)Year
Tari
ff R
ates
(Pa
ise
/ Kw
h)
NATHAN INDIA
Impact of Regulation on Private Players – Case Study
A. Tata Power
B. Reliance
C. Adani Power Ltd
D. Lanco Infratech Ltd
Issues faced by Private Players
i. Insufficient Availability of Coal
ii. Tariff Sustainability affects lumpy investments
iii. Infrastructure and logistical constraints
iv. Regulatory hurdles22
Impact of regulation on competition in the electricity sector
NATHAN INDIA
• Government Monopoly over Major Inputs – Coal • Unbundling of process: Not Successful • Retail Trade in Electricity: Open Access still a distant target• Ensuring Financial Health- Poor Performance of State Electricity Boards • The Problem of Subsidization • Tariff Setting and Non Revision
23
Issues and recommendations
Domestic Commercial Agri./irrig. Industrial Rly.tractn. Outside State Overall av-erage
0
100
200
300
400
500
600
700
242
494
78
416 437 48
4
306
253
510
95
433 48
1 548
326
276
526
101
450 49
8
392
333
300
560
123
478 52
4
438
357
320
581
153
497 53
9
452
380
Consumer Category-wise Tariff for Electricity (paise/kWh) from 2007-08 to 2011-12
2007-08 2008-09 2009-10 2010-11 R.E. 2011-12 A.P
Ave
rage
Tar
iff (
pais
e/kw
h)
NATHAN INDIA
24
Year
Subsidy to
Agricultural
Consumers
Subsidy to
Domestic Consume
rs
Subsidy on
Inter-state Sales
Gross Subsidy
Subvention
received from State
Net Subsidy
Surplus from Other
Sectors
Uncovered
Subsidy
2007-08 33,363 15,767 -1124 48,005 17032 30,973 8,962 22,0112008-09 39,391 21,919 -1,529 59,781 23,049 36,731 -3,694 40,4262009-10 44,738 23,744 1,333 69,815 24,453 45,361 -2,780 48,1412010-11 R.E. 44,599 24,093 587 69,279 18,210 51,069 39 51,0302011-12 AP 45,561 25,006 461 71,028 17,684 53,343 4,754 48,590
Subsidy to Agriculture and Domestic Sector & Uncovered Subsidy (INR crore)
Issues and recommendations
NATHAN INDIA
25
Thank you
Nathan India is an economic consulting firm that specializes in survey design and research, market and business analytics and competition policy.
Nathan Economic Consulting India Private Limited
Chennai Office Delhi OfficeNew No.45, T.T.K. Road, G-C Ground Floor, Level 4,Rectangle 1,George Ponnaiya Building, Commercial Complex D-4,Chennai-600018, Tamil Nadu, India Saket, New Delhi-110017,India T: +91 44 4293 7700; F: +91 44 4293 7773 T: +91 11 4051 4051
E-mail: [email protected]