India: Summary of proposed amendments to the Indian Electricity Act.

published on 17th February 2022

The Ministry of Power of India („MOP”) has released the draft Electricity (Amendment) Bill 2020 for public comment. The Bill contains important amendments on privatization and subsidy distribution, but it is expected that changes or deletions will still be made due to increasing criticism of the new regulations. This article obtains a summary of the proposed changes, criticisms expressed, and approval of the bill.

1. privatization of power utilities

The privatization of power utilities was already confirmed in early April in the address of the 2021/2022 annual budget by Finance Minister Nirmala Sitharama. The opening of the market to private players brings competition to the state-owned DISCOMS. So far, only India's metropolitan areas have private power utilities, such as Delhi and Mumbai. All other regions are largely in the hands of state-owned energy providers.

End customers will be happy about this change, because it will give them the opportunity to switch between energy supply companies, just like in Germany, in order to get the lowest possible tariff and better service. However, it will also bring new capital into the sector, driving modernization, especially in the areas of energy efficiency and energy loss prevention.

2. establishment of the Electricity Contract Authority and expansion of compliance

The Electricity Act bill provides for the establishment of the so-called Electricity Contract Enforcement Authority („ECEA”). This administrative authority would have the authority to adjudicate certain contract-related disputes in the energy sector. However, these matters do not include matters relating to electricity tariffs. The draft law provides that within 6 months of the dispute arising, it must be brought before the ECEA, and the ECEA is to rule on the matter in dispute within 120 days. The judgments of the ECEA are to be enforceable like civil court judgments. The Appellate Tribunal for Electricity is to be the competent appellate body. It is unclear whether the parties can also contractually agree on arbitration, which would take precedence.

However, it is questionable whether the ECEA will be introduced. This part of the bill has already been heavily criticized and therefore it seems likely that this part of the bill will be deleted.

3. modification of subsidy distribution

The draft law provides for subsidies to be paid directly to the end customer and not charged through the electricity provider, as is currently the case. Although this idea sounds good in principle at first, it may result in the end customer first receiving the electricity provider's bill before the government subsidies are paid. In some cases, this can lead to liquidity problems. Others see this change as an opportunity to prevent further indebtedness of the power utilities. Since up to now the power utilities have been mainly state-owned enterprises, subsidies to the power utilities do not seem to be paid out at all. Thus, subsidies are charged that do not flow in themselves. As soon as subsidies are to be paid out directly to the end customer, it is hoped that the subsidy payers will be forced to actually distribute the money and that, as a result, no further negative cost burden will arise for the energy utilities.

This regulation has also been subject to considerable public criticism, and it is unclear whether this change will be retained.

4. adaptation to climate protection targets and strengthening of renewable energies

The new Electricity Act is also intended to take into account India's climate protection targets and the growing market for renewable energies. For example, the bill provides for penalties for non-compliance with the Renewable Purchase Obligation („RPO”).

If the RPO obligations are not met, the person in question would be required to pay a penalty, after a hearing. The penalty is to be calculated on a sliding scale based on non-compliance with the RPO per kilowatt-hour. Thus, in the first year of non-compliance, 50 paise per kilowatt-hour shall accrue on the respective portion of the RPO not complied with, and in the second year, one (1) INR per kilowatt-hour shall accrue on the respective portion of the RPO not complied with.

In order to better control the overall development of the renewable energy market, the responsibility of setting the RPO will be changed from state level to central level. Currently, the RPO percentages set vary significantly between states and can range from 8% to 22%.

Further, the amendment provides that the central government, with the cooperation of the states, may enact a National Renewable Energy Policy, which will contain further regulations on RPO and the promotion of renewable energy.

Prospect:

The Electricity Act bill contains exciting changes that have the potential to modernize and revolutionize the energy market. In particular, the amendments focus on customer orientation, compliance, competition and climate protection. This is particularly in the interest of consumers, but it is questionable whether the states will agree with the planned regulations. It therefore remains exciting how and to what extent the planned changes will be implemented. Unfortunately, the draft law also leaves gaps. For example, topics such as energy storage and grid stability are not addressed in the draft legislation and remain inadequately regulated.