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Free flow of electricity across state borders is an essential prerequite for the development of a robust pan-India power market, asserted the central electricity regulatory commission (CERC) chairman, Pramod Deo in an exclusive conversation with Financial Express. The regulator’s comments came in the wake of the ongoing litigation over the Section 11 of the Electricity Act 2003, with states like Tamil Nadu allegedly mis-interpreting the emergency clause to thwart flow of their surplus power to the National Grid.

“Usefulness of a National Grid and genuine open access in transmission and distribution can be ensured only if there is free flow of electricity across state borders,” he said, adding that these are imperatives for the investors to look at the sector with enhanced optimism. Private investors are expected to contribute 30% of the proposed Rs 3 lakh crore investments in the Indian power sector in the 11th Five-Year Plan Period. Private sector contribution is envisaged to be even higher at 50% during the 12th Plan, Deo said.

On CERC’s initiation, the power ministry has already taken up the issue of “misinterpretation” of Section 11 with the law ministry for a possible legislative remedy.

Restrictions being imposed by some states on flow of electricity across the borders do not provide comfort to private investors and even ultra mega power projects (UMPPs) are vulnerable to misinterpretation of Section 11, Deo said.

Section 11 authorises states to issue directive to power generators under emergencies like floods or on security grounds. However, states are required to reimburse losses suffered by generators. But some states are misinterpreting these provisions to curb export of power, rendering provisions relating to open access in transmission and distribution of electricity meaningless.

“Power sector investors see opportunities because of inter-state power trading possibility. However, it entails signing of contract. If contractual obligations are not fulfilled, sellers will have to pay penalty,” Deo pointed out. A few months ago, the regulator had modified the norms for the Unscheduled Intercharge (UI) mechanism after it found certain state power utilities using the UI mechanism as a trading platform, sans any special charges. The move has contributed to grid discipline.

When asked what exactly is hampering the growth of the power trading business even after over 42 licences have been issued, he said non-availability of adequate quantum of electricity for trading was the main problem. This of course is linked to the question of capacity addition, but other pending issues such as lack of genuine open access in transmission and distribution are also critical.

States are entitled to free power from hydropower projects developed by central utilities or private players within their boundary. Some state electricity boards (SEBs) are also selling free power available from hydro projects, though not directly but through trading licensees. This is not in accordance with law. But states argue that they are keeping price of electricity in the free market low. The CERC cannot take any action as intra-state power trading that comes within jurisdiction of state electricity regulatory commissions.

Under the power purchase agreements signed for UMPPs, if a SEB defaults on payment for electricity supplied, developers can divert surplus power to a third party. But this right would be compromised if states “wrongfully” invoke Section 11 to prevent UMPP developers from exporting power.


Source- Financial Express