Govt plans separate electricity distribution channel for industries

Power sector in India follows a federal structure wherein power distribution is a state subject, and the Centre has a guiding role
The ministry of power is looking at creating a separate electricity distribution channel for industries, as part of the Centre’s ‘Make In India’ push and bid to provide incentives to companies.

The department has proposed creation of “industrial hubs” across states, which will have their power supplier. This separate supply to industry, especially manufacturing zones, would be tendered to private companies, said senior government officials.
“The proposal has been made to reduce the cost of electricity for industries, especially manufacturing, which are loaded with high tariff by state-owned power distribution companies (discoms),” said an official.

According to the proposal, manufacturing hubs would be identified in each state and be given deemed distribution status. These areas would then be offered to private companies. The private power suppliers would have the right to procure and distribute power in their respective areas.

Power sector in India follows a federal structure wherein power distribution is a state subject, and the Centre has a guiding role.

Power generation and inter-state transmission come under the central government.

“A proposal like this is a win-win for the industry. They will get cheaper electricity, which reduces their capital cost, something that has been a concern of industrial consumers for long. This will also introduce competition and efficiency in power supply business, which the Centre has been trying to induce,” said a Delhi-based power sector expert.

“One option is these private utilities could be given a deemed distribution licence as is available to railways and metro rail service,” said the official.

The amendments to the Electricity Act, 2003, has also proposed private power distribution franchisees in states. The ministry of power has also formulated draft Standard Bidding Document (SBD) for privatisation of state-owned discoms, in an attempt to push states to improve their power supply operations.

However, the move to have separate supply for industries would be a major jolt to state discoms whose major revenue source is industrial consumers. Most states discoms levy cross-subsidy and surcharges on industrial consumers in order to generate revenue for subsidising or giving free power to certain sections of consumers.

Several large industrial clusters and commercial consumers depend on open access for procuring power on their own.

However, these open-access customers have to pay open-access charges to their host states for procuring electricity from sources outside the state. This revenue stream would also close if separate power supplier for industries gets deemed licensee status.

State-owned power discoms have been financially and operationally beleaguered for two decades now. There have been three reform schemes to revive them but have failed to turn around most of them.

The last discoms reform scheme, UDAY, floated by the BJP government during its first term, concluded in FY20 with most of the states failing to meet their stipulated targets.

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