Even after 19 years sinceThe Electricity Act 2003, open access is still a distant dream for many stakeholders in the sector. Reasons may be transmission bottlenecks or political will, but the end result is the same. Though bulk consumers trade around40% of the power traded through leading power exchanges to procure power, by-passing the local utilities, severe issues in open access still remain. Indian gross domestic product (GDP) is stalled by 0.4% because of power cuts to the industries as per the federation of Indian chambers of commerce & industry (FICCI) and the loss of markets because of higher prices. A 100% open access implementation throughout India by empowering the infrastructure, consumer and local utility is essential to minimise this loss. More than the government’s will, it is the lack of infrastructure and the lack of information for the bulk consumers in performing the cost-benefit analysis in the respective states of their businesses, which is the reason for very few consumers availing open access even in the States which are permitting the open access to the fullest. This year after the elections, there will be an optimistic scenario in the Indian markets providing lots of opportunities for the industries to grow globally, imparting competitiveness in prices by minimising the cost of power procurement. This blog post focuses on providing information on the costs and benefits of open access, highlighting how it will pave the way to empower bulk consumers in major industrial states of the country.
Meaning of Open Access
Open access is defined underSection 2(47) of then Electricity Act as a “non-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system by any licensee or consumer or a person engaged in generation in accordance with the regulations specified by the appropriate commission.” This definition simply points towards the regulators’ intention of separating wire businesses from ‘electricity’. This separation implies that the supplier can now use the government’s infrastructure by paying certain tariffs and availing of their own choice of supplier. For heralding reforms in power, the regulators intend to give consumers the freedom of choice, and this will ensure the prevention of monopoly enjoyed by the government. The one who owns some network in an area will no longer necessarily be the electricity supplier to the destination. Hence, the consumers are free to choose their own supplier without laying off a new network for the same, which increases competition among the suppliers all over the country, leading to competitive, affordable electricity pricing for consumers.
Introduction and Working of Open Access
The basic objective of the Electricity Act was to induce competition in the sector for performance and efficiency improvement. Accordingly, the power sector was re-structured to commercialise and create competition among all the stakeholders of the power sector and all sectors of consumption.
Through open access, the competition at wholesale (more than 1 mega watt) was introduced to decrease the cost of power procurement at the consumption level, which could help in the country’s industrial growth. It is an attempt to make power, which is treated as a commodity, open for buying and selling in the markets. Open access is one of the vital features of the act to introduce competition both in the upstream and downstream market among generators and distributors to increase efficiency in the sector through the enactment of theIndian Electricity Act 2003.
Traditionally the power sector in India has been closely regulated by the government. Consumers are typically bound to purchase electricity from state-owned electricity distribution companies (also referred to as ‘DISCOM’), which have a monopoly over electricity distribution & retail in their jurisdiction. The discoms are responsible for sourcing power from various sources (generators or open markets) and supplying it at regulated tariffs to its consumers. Electricity consumers with a load requirement above 1 mega watt (“MW”) now had the option to choose their electricity supplier. TheElectricity Act also mandated the discoms and other large consumers to procure a specified share of electricity from renewable energy sources (renewable purchase obligations). Renewable purchase obligation (RPO) is a system that requires power distribution entities to purchase a particular percentage of energy generated from renewable sources as a percentage of total electricity consumption. Open access has since become an important tool for consumers to either reduce their electricity bills, increase reliability or meet their RPO obligations. These obligations will be met by strict adherence and enforcing compliance with these RPO targets by purchasing a certain amount of percentage from a renewable source.
The Indian GDP was stalled due to power distortion by $86.1 Billion, or roughly 4.13% of the gross domestic product (GDP) in the financial year 2015-16, according to a report by World Bank. Therefore, a 100% open access implementation through India by empowering the infrastructure, consumer and local utility is very much crucial in the scenario to minimise this loss.
More than the government’s will, it is the lack of infrastructure and lack of awareness and information for bulk consumers in performing the cost-benefit analysis in the respective state of businesses, which is the reason for very few consumers availing open access even in the states which are permitting the open access to the fullest.
Evolution of Open Access
The year 2003 marked a new beginning of reforms in the Electricity Sector in India, with the enactment of the Electricity Act replacing the legal framework for the sector governed by theElectric Supply Act of 1948 and theElectricity Regulatory Commisions Act of 1998. Under the new Act, generation was de-licensed, and the new producers could construct captive generation plants (plants serving electricity to a plant constructed by that same company to meet its energy needs). The Act also had a provision for private transmission licenses, and the distribution licensee was free to undertake generation and vice-versa. In one stroke, it also removed the biggest obstacle in the path of independent power producer’s- the obligatory power sales to state electricity board’s was disallowed. In addition, the appellate tribunals were created for the disposal of appeals against orders of regulatory commissions as perSection 110 of the Indian Electricity Act. This led to a spurt in private sector participation as new private producers decided to invest in the sector.
The amendments of 2014 were also important in the regard that they gave glimpses of the future by including renewable energy in the ambit by making it mandatory for entities to procure electricity from a market representing renewable energy sources. Furthermore, it was also made mandatory to provide open access to electricity to consumers with a load of more than 1 MW by default, thus, allowing them to enter into bilateral agreements for procurement. Currently, more than one supplier can operate in an area, giving consumers the power to choose the supplier. In addition, the concept of “smart grid” and “smart meters” were also incorporated.
When the consumer shifts to open access, the state discom levies certain charges such as cross-subsidy charges, wheeling charges, computation of point of connection (PoC) charges, transmission charges etc. These charges may restrict many consumers from shifting to open access. TheElectricity Act 2003 is the paramount legislation which opens the power sector to several players by laying down provisions for a power market and competition. The following statutory provisions deal with open access:
Section 9 (Relevance of Captive Generation with Open Access)
The concept also helps industries to reduce the unavailability of quality power supply. The captive generating plant owners now have the right to supply electricity from their generating plant to the point of use. This has been mentioned inSection 9(2) of the Act. Moreover, underSection 38(2d),Section 39(2d) andSection 40(c), captive generating utilities have been made free from the payment of cross-subsidy surcharge to the utilities providing open access to their transmission network.
Section 38 And Section 39 (Central and State Transmission Utilities Functions)
Under Section 38 and Section 39, the transmission utilities shall not levy cross subsidy surcharge on the consumers as they increase the price at which the electricity is being sold to the consumers resulting in the failure in the implementation of open access.
Section 40 (Duties of Transmission Licensee)
Section 40(2) specifies the role of central and state transmission utilities. It divides the responsibility to the Appropriate Commission for looking into the matters of cross-subsidy surcharges.
Section 42 (Duties of Distribution Licensee)
Section 42(2) specifies the role of the state commission in leading the concept of open access in the respective states in successive phases. Also, state commissions have been made responsible for determining the wheeling charges and cross-subsidy surcharges to be levied on open access consumers.
Section 86 (Functions of State Commission)
Under section 86 subsection (a) of the Act, the state commissions have been allowed to determine the wheeling charges and surcharges to be levied on the open access consumers within the respective states.
Open Access in States of India
Few states in India have seen significant demand for open access, which proved the functionality and chance of success of open access in the power sector. Considering the demand for open access, the below-mentioned states amended the eligibility criteria for open access by passing the regulations in consonance with the same. Amended eligibility criteria for open access by State Electricity Regulatory Commissions (“SERCs”) are provided below:
1. Open Access in Uttar Pradesh
The regulation which is acting as an obstruction between the Industrial Consumers and open access is the bar limit of the Uttar Pradesh Electricity Regulatory Commissions (“UPERC”) that consumers with the demand of 1MW and Access shall be permissible to the consumers seeking:
a) Open access for a contracted demand of 1MW and above,
b) Connected at 11Kilo Volts (“KV”) and above
Whereas in several other states of India, the eligibility criteria of open access have been reduced from 1MW as per the market demands within the state’s territory (Haryana it is 0.5MW5, Uttarakhand it is 0.1MW6).
UPERC has issued open access regulations and best practices where the consumers have the choice of supplier in phases: open access allowed to consumers with the demand of 20 MW or above from July 01, 05, 10 MW or above from April 01,06, 5 MW or above from April 01,07 and above 1 MW from April 01,08.
2. Open Access in Haryana
In 2008, Haryana Government introduced the open access policy in the state, under which electricity consumers with great demand can import power from any generation source outside the state. As Announced in the policy, it was said that the bulk consumers having 1 MW and above-contracted demand being supplied through an independent feeder could source the power requirement from outside Haryana. While introducing the policy, the then Power Minister, Mr. Randeep Surjewala, even said that open Access would help the state improve its power availability for other sectors, including domestic and rural. Later, the eligibility criteria of open access were brought down to 0.5MW from 1MW to enable small consumers as well to purchase electricity from open access at competitive prices.
Section42 (2) of the Electricity Act provides that the Commission shall introduce open access in a phased manner, keeping system constraints and other relevant factors in view. It further provides that “the Commission shall, not later than five years from the date of Commencement of theElectricity (Amendment) Act, 2003 (57 of 2003) by regulations, provide such open access to all consumers who require a supply of electricity where the maximum power to be made available at any time exceeds one megawatt”. In pursuance of these provisions, the Commission prescribed the phasing of open access in theHaryana Electricity Regulatory Commission (“HERC”) (Terms and conditions for Open Access for Intra-state Transmission and Distribution system) Regulation, 2005, which has since been repealed and replaced with the notification ofHERC Open Acsess Regulations 2012 as under:
1. Phase 1 – Consumers with contact demand of 15 MVA (“Mega Volt Amperes”) and above (October 01, 2006).
2. Phase 2 – Consumers with contact demand of 3 MVA and above (October 01, 2007).
3. Phase 3 – Consumers with contact demand of 1 MVA and above (April 01, 2008).
4. Phase 4 – Consumers with contact demand of 0.5 MVA and above (December 03, 2013).
The Commission, based on inputs received during the hearing and keeping other relevant factors in view, decided to lower this limit of contract demand for entitlement to open access to 0.5 MVA.
3. Open Access in Uttarakhand
Under Chapter 3, Section 10 ofUERC Regulations, 2015, it is stated that “Subject to the provisions of these regulations, open access shall be permissible to the consumers, located within the area of the distribution licensee of the State having a contracted load of 100 kVA(“Kilo Volts Amperes”) and above and connected to the distribution system of the licensee at 11 kV or above, and are connected through an independent feeder emanating from a substation of the licensee or industrial feeder.”
As mentioned above, considering the demand of the industrial market in Uttarakhand, the Uttarakhand Electricity Regulatory Commission (UERC) reduced the eligibility limit from 1MW to 100kVA.
4. Open Access in Tamil Nadu
Tamil Nadu allowed open access to consumers with less than 1 MW capacity. Earlier, on request of the government of Tamil Nadu, the Commission allowed open access below 1 MW capacity due to power shortage scenarios across the state.TNERC (Tamil Nadu Electricity Regulatory Commission) reduced the open access Limit from 1 MW to 250KVA in order to overcome the power shortage it was facing and also in consonance with the demand of the industrial sector in the state of Tamil Nadu so that they could enjoy the benefits of the competitive price in the power sector.
Therefore, in many states across the country, the limit for open access has been reduced from the standard 1MW limit for industrial consumers so that they could enjoy the benefit of competitive pricing in the power market.
Market Demand for Open Access and Consumer Response to Open Access
The authors of this research paper conducted this empirical research in collaboration and association with the Indian Industrial Association (IIA) to evaluate the demand of industrial consumers in the state of Uttar Pradesh with respect to open access. The survey was conducted with the aim of analysing the need of the industrial market by collecting information about the awareness of Industrial Consumers regarding open access, it was aimed at figuring out the hindrances faced by the industrial sector (with respect to power sector) demand of open access in the Ministry of Micro, Small and Medium Enterprises (“MSMEs”). The survey is limited to the state of Uttar Pradesh and majorly focuses on the industries operating within the state of Uttar Pradesh. The survey majorly focused on the following:
(i) If the industrial consumers were satisfied with the services provided by the state discom to them or not,
(ii) If the pricing mechanism of the UPERC is in conformity with the demands of the Industrial Market,
(iii) If the industries should have their own choice of supplier for the same or not,
The survey concluded that the majority of the MSMEs want to avail the benefit of open access but are not able to do so because of certain regulations persisting in the Power Market and a lack of awareness about open access. The regulation which is acting as an obstruction between the Industrial Consumers and open access is the bar limit of the UPERC that:
Open access shall be permissible to the consumers seeking
a) Open access for a contracted demand of 1MW and above,
b) Connected at 11KV and above
Green Energy Open Access Rules, 2022
In 2022, Green Energy Open Access Rules (“Rules”) were introduced by the Ministry of power in order to further accelerate the union government’s ambitious renewable energy programmes. The primary goal of these rules was to ensure that everyone had access to affordable, reliable, sustainable, and green energy. Common consumers will be encouraged to get green power at reasonable and fair prices by reducing the open access transaction limit from 1 MW to 100 kW and the proper provisions for cross-subsidy surcharge, additional surcharge, and standby charge. Furthermore, because theRules address other issues that have hampered the growth of open access, ordinary consumers can now easily access renewable energy power by meeting the new eligibility criteria mentioned in theGreen Energy Open Access Rules, 2022. Paris agreement was signed in 2016, where the Ministry has promised that 50 per cent of its total electricity be generated from clean energy sources by 2030. One of the most paramount features ofGreen Energy Open Access Rules is that all consumers are allowed to use green open access, since open access Transaction has been reduced from 1 MW to 100 kW for green energy. This limit has encouraged small consumers to purchase renewable power through open access.
TheGreen Energy Open Access Rules, 2022 not only help the consumers but are also helping the green energy producers. Many captive power plants, which produce green energy with a capacity of not more than 10 MW, were shut down because of a lack of consumers in the market, and the prices offered by the government to them were not cutting it off. But now, as there will be a sudden surge in the market of consumers, the injection of green energy in the grid will also increase rapidly, which will be in consonance with theGreen Energy Open Access Rules 2022, also the start of many Captive Power Plants again will help in generating employment which was lost because of the shutting down of such captive power plants.
The benefit of the Government
Open access allows a consumer to buy electricity from a source of their choice. Earlier, green energy open access was restricted till 1 Mw consumption level.The move is expected to draw the attention of smaller industries and commercial consumers or large households to shift to green energy. Through aGazette notification, the Union power ministry notified “Green Open Access” Rules, 2022. It said these rules are for “promoting generation, purchase and consumption of green energy including the energy from Waste-to-Energy plants.”
“The notifiedRules enable simplified procedure for the open access (OA) to green power. It will enable faster approval of Green OA, Uniform Banking, Voluntary purchase of Renewable Energy power by commercial & industrial consumers, the applicability of OA charges etc.,” said the notification.
Thecharges to be levied on green energy open access consumers shall be as follows: –
(a) Transmission charges;
(b) Wheeling charges;
(c) Cross subsidy Surcharge;
(d) Standby charges wherever applicable; and
(e) No other charges, except the charges above, shall be levied
Cure for Power Shortage in Consonance to the Regulations issued by UPERC, 2022
The 2022Rules are specifically for using green energy under an open access system, which, according to the notification, refers to “thenon-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system by any licensee or consumer or a person engaged in generation in accordance with the regulations.” The new rules also classify waste-to-energy projects as green energy and have made it available for open access trade. The rules also specify special incentives if green energy is used to produce green hydrogen and green ammonia.
There are several small power generating plants (which produce renewable energy) which are not operating right now due to the policies introduced by the State government in Uttar Pradesh. Even the Ministry of Power quotes, “In light of the increasing pollution level, particularly in metros and cities with a population of 100,000 or more, the distribution licensee needs to ensure 24×7 uninterrupted power supply to all consumers, so that no diesel generator sets are required, and accordingly, the State Commission shall give trajectory of system average interruption frequency index and system average interruption duration index for such cities.” and “The consumers, who are using the diesel generator sets as essential backup power, shall endeavour to shift to cleaner technology such as renewable energy with battery storage and the like in five years from the date of commencement of these rules or as per the timelines given by the State Commission for such replacement based on the reliability of supply in that city covered under area of supply of the distribution licensee.” in the notification issued on April 20, 2022. In consonance with the vision of the Ministry of Power, the allowance of open access for MSMEs is not only going to be beneficial for the consumers but also for the green power generators and the state and central commission of power in achieving the objective of more usage of green energy and less dependency on fossil fuels, and by more power generators coming back in business will not only help in achieving the objective of green energy but will also help in curbing the power shortage faced by the State of Uttar Pradesh.
Recommendation and Suggestions
Remove cross subsidy surcharge and additional surcharge for better operation of open access as it just increases the price of the power available through private power suppliers for consumers, even in many conferences and sessions conducted the higher officials such as former chairperson of central electricity regulatory commission, Dr. Pramod Deo has many times raised the topic of removing the surcharge as it is acting as a major hindrance in the success of open access. The government should make efforts to implement the rules and put a cap on the cross-subsidy surcharge, additional surcharge, and standby charge to enable more participation. Despite numerous attempts to enable and support it, open access power has had very little success. Due to the surplus capacity in some states, which has resulted in opportunistic use by large consumers, implementing open access has proven challenging. The introduction ofGreen Energy Open Access Rules, 2022 has been a big step by removing the cap of 1MW and reducing it to 100Kw, enabling a lot of MSMEs to avail the benefit of open access, the Ministry of power has really high hopes from open access after the implementation of the policy.
Classical open access appears to be a relic of the past when power was scarce, and even bad economics of open access sufficed. A competitive power market will, however, need open access. It was anticipated that giving consumers a choice of suppliers would create a strong and competitive market, which would, in turn, encourage more investment in the industry. Even if the government has introduced new changes in the use of open access, it is still a distant dream for many consumers as they remain unaware of it.
About the Authors
Ms. Shivani Bardia & Mr. Ujjwal Lohat are students of School of Law, Galgotias University.
Managing Editor: Naman Anand
Editors-in-Chief: Hamna Viriyam and Muskaan Singh
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Preferred Method of Citation
Shivani Bardia and Ujjwal Lohat, “Open Access System and the Indian Power Sector: A Growing Demand” (IJPIEL, 19 December 2022)