Introduction: Provide a brief introduction to the “ Electricity regulation model in the United Kingdom during the early 1990s with the model proposed in India following the Electricity Act 2003” Body: Write 4-5 points comparing the electricity regulation model in the United Kingdom during the early 1990s with the model proposed in India following the Electricity Act 2003. Write 3-4 points on full deregulation deemed unsuitable for India. Write 2-3 points on the ways for India. Conclusion: Provide a conclusion on the balanced approach for India. |
Contents
Introduction:
The Electricity Act 2003 in India aimed to separate generation, transmission, and distribution into separate companies and promote competition in the power sector. The United Kingdom implemented full deregulation and competition in the early 1990s, introducing a power pool and retail competition.
How does the electricity regulation model in the United Kingdom during the early 1990s compare and contrast with the model proposed in India following the Electricity Act 2003?
UK Model:
- Mandatory power pool where generators submitted bids indicating the quantity and price they could supply.
- Pool price is determined by the intersection of supply and demand curves.
- The full retail competition allowed consumers to choose from multiple suppliers.
Indian Model:
- Power is supplied through long-term contracts at prices determined for each plant.
- Competitive procurement through power purchase agreements (PPAs).
- Distribution Licensee (Discom) responsible for supplying electricity to meet full demand, entering long-term contracts to ensure reliable supply.
- Open access is provided for consumers with 1 MW and above load, allowing them to buy electricity from suppliers of their choice.
Why was full deregulation deemed unsuitable for India?
- Impact on electricity prices: Full deregulation would have resulted in selling electricity at the price of the most expensive plant, leading to a steep price shock. India’s older plants, with depreciated capital costs, would have been required to sell electricity at significantly higher prices, causing affordability issues.
- Political economy and governance issues: State governments struggled to determine cost-reflective tariffs and provide timely subsidies. Misgovernance and rent-seeking in some states necessitate privatization as a solution.
- Importance of Discoms: Discoms project demand and enter long-term contracts, ensuring investment in generating capacity. Without Discoms, power supply reliability and investment would be at risk.
- Lessons from the UK: the UK did not experience significant demand growth, which limited the need for new generating capacity. To drive energy transition, the UK had to invite bids for renewable energy through contracts for differences.
Way forward:
- Progressive reduction of cross-subsidies: Implement progressive reduction of cross-subsidies as mandated in the Electricity Act.
- Address political economy and governance issues: Address political economy and governance issues through better regulation and privatization in certain states.
- Maintain competition and private investment: Continue promoting competition and private investment while ensuring the role of Discoms in reliable power supply.
Conclusion:
India needs to find a balanced approach that addresses governance issues, reduces cross-subsidies, and encourages private investment while maintaining the stability and accessibility of the power sector.