India's electricity sector , powered by a recent wave of amendments to the Electricity Rules, 2005 vide notification of Ministry of Power (MoP) dated January 10 and 17, 2024 ("Rules"), is undergoing a transformation. These amendments are aimed at ease of doing business, tackling long-standing open access issues (including the increased charges) and pave the way for a more efficient, accessible, and reliable grid.

What's new?

A. Demolishing Licensing Walls:

One of the biggest hurdles for large and bulk consumers was the requirement for a transmission license to connect to the grid. The Rules have demolished the licensing walls, allowing an independent power producer, a captive power plant owner, an energy storage system or a consumer, with a load of at least 25 MW for inter-state transmission systems and 10 MW for intra-state transmission systems to be exempted from obtaining a license to establish, operate, or maintain a dedicated transmission line to connect to the grid. However, this exemption is contingent upon the exempted bodies adhering to the regulations, technical standards, guidelines, and procedures specified under the provisions of the Electricity Act, 2003.

This not only simplifies the process but also opens doors for new players, giving impetus to the captive power projects and at the same time contributing to affordable electricity and enhanced grid reliability. This will also save the time and effort involved in procuring these approvals.

B. Open Access (OA):

The industry has been facing the brunt of excessive OA charges for a long time, which has hindered potential growth opportunities and sometimes defeats the very purpose of the captive power or open access projects. Add to it, the differing OA charges from one state to another makes it all the more confusing and chaotic. The Rules now seek to plug this gap by introducing a standardized methodology and manner for computation of OA charges :- wheeling charges, charges for use of State Transmission Utilities (STUs) and additional surcharge. This will resultantly make it economically more reasonable for bulk consumers like industries as well as ultimately lead to better competitive rates for the end users.

OA Charges

Formula or Manner of Computation

Condition

Wheeling Charges

Annual Revenue Requirement towards wheeling Energy wheeled during the year

Central/State/Joint Electricity Regulatory Commission may determine such charges at different voltage levels separately as per the prescribed formula.

Charges for using network of STUs

The new amendment sets a maximum limit towards these charges for Short Term OA and Temporary-General Network Access (GNA) consumers. These charges cannot exceed 110% of the charges levied on long-term or GNA users, as the case may be.

Additional Surcharge (AS)

  • AS on any OA consumer is capped to per unit fixed cost of power purchase of concerned DISCOM.

  • AS will be linearly reduced and gradually eliminated within four years from the date of grant of access for person availing GNA or OA.

  • AS will not be applicable for OA consumer to the extent of contract demand being maintained with DISCOM.

AS shall be applicable only for the OA Consumers who are or have been consumers of concerned DISCOM.


C. Financial Discipline and Stability:

The Rules also seek to address the gap and discrepancy between approved Annual Revenue Requirements (ARR) and estimated annual revenue under approved tariffs. Previously, some states allowed these gaps to widen, creating financial imbalances. The new measures mandate cost-reflective tariffs and limit any revenue gap for extraordinary circumstances namely, natural calamity and that too capped to three (3) percent of the approved ARR in such circumstances.

Moreover, any such gap along with applicable carrying costs, shall be now settled in a maximum of three (3) equal yearly instalments from the next financial year. Further, any such existing gaps as on the date of notification of these Rules, will be settled in a maximum of seven (7) equal yearly instalments from the next financial year.

Our parting thoughts

The MoP's proactive approach to bring forth these Rules is a move towards ease of doing business, streamlines tariff structure and encourages private participation, while safeguarding the interests of producers and consumers alike. These amendments will further encourage the industries to adopt captive models to make their operations green, offering the added advantage of securing more commercially favourable terms.

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