Power games plans to shift to a centralised market in power sector must take into account concerns of all stakeholders

Power games plans to shift to a centralised market in power sector must take into account concerns of all stakeholders

Considering the system-wide ramifications of this move, the changes to the operations, systems and infrastructure of the players involved, and that this framework is under scrutiny around the world, there is need to tread cautiously. From state governments to load dispatch centres to power exchanges and others – they all need to be consulted at each step in this process

The power sector in India is increasingly becoming a site of contestation between the Centre and the states. Much of the recent confrontation between the two can be traced to the distribution segment — the weakest link in the power chain. Over the years, the central government has formulated various schemes to turn around the financial and operational position of state power distribution companies (discoms). But despite these multiple attempts, the financial position of discoms continues to be precarious. Their mounting losses have increased the fiscal risks at the general government level (Centre and states). As per a recent study by the RBI, a bailout of discoms in 18 large states is likely to impose a burden equivalent to around 2.3 per cent of the GSDP of these states. Considering that their weakening finances pose a threat to the entire power chain, the government has, of late, been increasingly adopting a tough stance. Earlier, the Power System Operation Corporation, the national grid operator, had asked power exchanges to restrict buying and selling by discoms from 12 states and Jammu and Kashmir on account of their dues to power generating companies. Now, another site of confrontation has opened up.

The Union government plans to shift to a market-based economic dispatch (MBED) mechanism. This shift to a centralised framework marks a radical departure from the current decentralised, voluntary pool-based electricity market. The arguments in favour of the move are straightforward. Under the MBED framework, the cheapest power from across the country will be dispatched to meet the system wide demand. The architecture would also lead to a “uniform clearing price”. Sellers and buyers will place their bids for the day ahead market, and an outcome of this will be the discovery of the market clearing price. This process is expected to generate significant savings for consumers.

However, as reported in this newspaper, the shift to this new framework is creating apprehensions that it could “strip states of their freedom”. Some analysts have also argued that as “inefficient plants” are likely to be adversely impacted by this move, it may impact state generators disproportionately. Moreover, as an official said, the market trends “necessitate greater decentralisation of markets and voluntary pools for efficient grid management and operations”. Considering the system-wide ramifications of this move, the changes to the operations, systems and infrastructure of the players involved, and that this framework is under scrutiny around the world, there is need to tread cautiously. All stakeholders — from state governments to load dispatch centres to power exchanges and others — need to be consulted at each step in this process. Their comments/suggestions must not only be sought, but the desirability of the policy itself needs to be discussed threadbare.