Power sector Current Affairs
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The World Bank recently released a report titled ‘In the Dark: How Much Do Power Sector Distortions Cost South Asia’. As per the report, Efficiency gap in India’s power sector costs the Indian economy 4% every year, which equivalents to $86 billion in 2016FY.
Key Points of the Report:
- The rural household’s income in India can be increased by $9.4 billion and business losses worth USD 22.7 billion can be eliminated with 24 hours access to power supply.
- There was a shortage of 14% in India in meeting coal demand in 2016FY.
- The average output per labour shift at Coal India’s underground mines was less than one ton in 2016FY, which is very less in contrast to 25 tonnes in the United States. Also, out of total 1o underground mines only one underground coal mine in India is mechanised.
- As per the World Bank Report, Electricity subsidies provided by the government and inefficient power generation, transmission, and distribution of the power play a major role in power shortages.
- In 2016, around 20% of electricity generated was lost during transmission and distribution. This rate is the highest loss rate in the world.
- Industrial electricity tariffs become less affordable and competitive due to power subsidies from to households and farmers.
- India provides subsidies on electricity for agriculture which has made India the world’s largest user of groundwater. The consumption of groundwater has increased by 700% from 1950 to 2014.
Recommendations in the report:
- The report recommends reforms in the electricity sector to restore market pricing and improve efficiency. This will complement traditional investments to increase power supply and expand access to reliable electricity.
- Reliable access to electricity will have a positive impact on Gender Equality by increasing women’s employment and girls’ study time. It will lead to lower use of kerosene lamps which would improve health and the environment.
- Coal allocation and delivery need to be more efficient and competition in coal and electricity supply needs to be encouraged. Energy prices should be rationalised to reflect the actual cost of supply.
- Incentives should be given for the promotion of more efficient power generation and delivery.
- Social assistance should be provided to help people deal with higher energy prices.
India has made great progress in expanding access to power in recent years. However, many people still lack access to electricity and power shortages harm the economy and consumer well-being. India was at the 80th spot among 137 economies in the reliability of electricity supply as per the 2018 Global Competitiveness Report.
Union Government has constituted High Level Empowered Committee headed by Cabinet Secretary to address issues of Stressed Thermal Power Projects. The committee has representatives from Ministry of Railways, Ministry of Finance, Ministry of Power, Ministry of Coal and lenders having major exposure to the power sector.
The Committee will look into various issues with view to stressed assets or non-performing assets in thermal power and maximise efficiency of investment including changes required to be made in fuel allocation policy, regulatory framework, mechanisms to facilitate sale of power, ensure timely payments, payment security mechanism. It will also consider if changes are required in provisioning norms, Insolvency and Bankruptcy Code (IBC), asset restructuring company (ARC) regulations and any other measures proposed for revival of stressed assets to avoid investments from turning bad.
Department of Financial Services under Ministry of Finance in its report had suggested setting up empowered panel, besides giving operating thermal power plants not facing insolvency action 6 months more months to resolve issues. The report came after Allahabad High Court in June 2018 had ordered that no action will be taken against power producers till they are heard.
The power generation companies had challenged Reserve Bank of India’s (RBI) February 2018 circular that laid down stricter timelines for initiating insolvency proceedings. It also mandated that banks classify even one-day delay in debt servicing as default. Private power producers feared that t RBI’s new regulations will push projects with capacity of about 60,000-70,000 megawatts (MW) towards bankruptcy and had sought more time. RBI is not in favour of giving more time these power plants.