Powering up the transmission sector

Powering up the transmission sector

Article:

1. Writer has talked about rising cost of power transmission by giving preferential treatment to incumbent public entity.

Important Analysis:

2. The Central Electricity Regulatory Commission (CERC), in its recent Tariff Approach Paper, has mentioned that the cost of inter-State transmission has increased by 69 per cent in the last seven years.
3. Why the cost of transmission has increased:

• RBI has cited, preferential treatment to public entity is the main cause.
• Government policies to favor public sector undertakings and dissuade competition and investments.
• Due to a significant share of power transmission projects being executed under Regulated-Tariff mechanism instead of Competitive Bidding.

4. About Competitive Bidding:

• Competitive bidding was opened in Transmission sector in 2010.
• It allowed all companies (Public, Private, National, International etc.) to compete with each other and offer lowest possible transmission tariffs.
• It has resulted in a 30-40 percent reduction in transmission tariffs and about 30 percent reduction in construction schedules.

5. Why Regulated Tariffs mechanism is bad:

• In this mechanism the developer has little incentive to optimize cost and reduce tariffs.
• Higher approved costs of bidding, leads to high tariffs.

6. Concern with Power transmission sector:

• Recently Empowered Committee (now renamed National Committee on Transmission) recommended only one out of a total of 19 projects through the competitive bidding route.
• Power transmission sector is mostly controlled by Central Government and leaves very less scope for state.

7. Impact of higher cost of transmission:

• Due to increase in power transmission expense, electricity tariffs will increase and burden will have to be borne by public
• It may negate all the good work done in reducing the price of wind and solar power.
• It will adversely impact plans of achieving global leadership in clean energy and affordable power for all.

8. Best Practices:

• Brazil has reaped the fruits of innovation, cost reduction, and FDI by opening its key sectors like transmission to global competition by putting complete stop to regulated tariff mechanism.

9. A robust cost-effective transmission network is need of the hour to achieve ambitious vision of 225 GW renewable energy and achieving 24×7 power for all.