How to Reform Tamil Nadu’s Ailing Power Sector

Energy is fundamental to meet India’s economic aspirations. However, the poor financial management of India’s discoms (distribution companies), especially in the state of Tamil Nadu, calls for immediate reforms in this sector.

In July this year, the state government had announced electricity tariff hike For 3 crore consumers of Tamil Nadu Generation and Distribution Corporation (Tangedco). Domestic consumers, MSMEs and power looms have strongly objected to what they call ‘disorganized’ growth, which is the first time in nearly eight years.

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What’s wrong with Tamil Nadu’s power sector? A closer look at the state’s electricity utility, Tangedco, will answer this question. Tangedco has been rated “BBB” by India Ratings & Research with an overall negative outlook – given its longstanding inability to increase revenue and mismanagement of funds. More importantly, why should the Tamil Nadu exchequer pay for the state’s failure?

a look at the numbers

As of August 2022, Tamil Nadu tops the chart with the highest amount of dues from distribution companies to production companies in India. With rising debt of around ₹1.66 lakh crore in FY22, this was almost 3.8 times in FY2012 (₹43,493 crore), TANGEDCO now accounts for 28% of Tamil Nadu’s total debt.

A report by the Comptroller and Auditor General of India (CAG) in May this year attributed this increase in debt to various disadvantages – buying power at higher rates when lower rates are available, non-reduction in transmission losses, excessive capital expenditure, and more.

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Average Revenue Received (ARR), which is the revenue generated on selling each unit (kWh) of electricity sold, was less than the average cost of supply (ACS), which is the expenditure incurred for supplying each unit of electricity . According to the CAG report, the ACS-ARR deficit increased by 78.33% from ₹0.6 per unit to ₹1.07 per unit between 2015 and 2020. According to the UDAY portal of the Ministry of Power, the ACS-ARR loss is the fifth highest in Tamil Nadu at ₹1.04 per unit.

TANGEDCO’s capital loans have also grown by 87 per cent between 2015-16 and 2019-20 and working capital by 190 per cent, which has contributed to an increase in interest charges over the years, which stood at Rs 11,409 crore in 2019-20. was.

Power reforms needed by Tamil Nadu

Upon reviewing these bleak statistics, I believe there is an urgent need to implement reforms that will enable TANGEDCO to improve its financial health. I propose the following solution to transform Tamil Nadu’s energy sector.

TANGEDCO may launch an incentive cash deposit scheme to collect deposits from domestic, industrial and commercial consumers of electricity (consumption of more than 500 units). These deposits can be increased by 2.5 times the bi-monthly bill of the consumers. 9% interest per month may be offered on deposits. This interest rate can be deducted from the electricity bill of the consumers every six months. This would be in addition to the security deposit levied by the state utility, on which it had paid interest at the rate of 4.25% per annum in FY22. The idea behind the cash deposit scheme is to enable TANGEDCO to create liquidity of around ₹5,000-6,000 crore, and encourage consumers by giving them maximum returns on their deposits.

As of June 2022, Tangedco has an outstanding of Rs 2,828 crore for renewable energy generators. With a total installed capacity of 14 GW, contributing about 18.5% of the renewable energy generation in India, Tamil Nadu is undoubtedly a leader in renewable energy development. The amount raised through cash deposits can be used to pay off these dues, and also to invest in renewable energy, primarily solar and wind.

While the Tamil Nadu government inaugurated a 25 MW floating solar power plant this year, strengthening this infrastructure could add 300-500 MW of capacity to the state. The state is endowed with over 39,000 lakes and about 80 reservoirs, making it ideal for floating solar plants. As a case study, the state can look to Japan where the world’s first floating solar plant was built in 2007. Studies show that such plants are 16% more efficient than land-based systems, as the cooling effect of water reduces thermal loss and extends plant life.

With an installed capacity of 9.87 GW of wind power (as of June 30, 2022), Tamil Nadu is one of the largest states in the world in terms of operational wind farms. In 2020, the total electricity generated by these wind farms contributed to 13% of Tamil Nadu’s total power needs, while they had the potential to generate 31% of the state’s requirements. The reason for this difference? Tamil Nadu’s rusting wind turbine. Tamil Nadu has over 1,700 wind turbines with an installed capacity of less than 500 kWh. These can be retrofitted with modern 2-3 MW turbines.

To reduce transmission losses, detect outages, and improve collection and billing efficiency, smart meters can be one solution. Smart metering will increase revenue collection and facilitate demand-side management. For example, POWERGRID’s Puducherry Smart Grid pilot project shows encouraging results. After installation of Smart Grid, metering efficiency increased by 14%, which led to subsequent increase in billing efficiency.

Shutting down coal plants of 20 years and older in Tamil Nadu could result in savings of around Rs 9,000 crore in five years. The closure of the 3.1 GW coal plant (28-40 years old) would result in a saving of about Rs 1,670 crore. By replacing the energy requirements from these plants with renewable energy sources, at an average tariff of ₹3/kWh, the state would generate an additional net of at least ₹1,459 crore per annum based on the current tariff (approximately ₹4/kWh) (climate). can get savings. Risk Horizon, 2022).

Tamil Nadu may introduce ‘Green Tariffs’ primarily for commercial and industrial consumers. Green power tariffs allow consumers to meet their renewable energy needs directly through their DISCOMs, rather than through alternative purchase options, such as open-access or power exchanges.

Commercial and industrial consumers are concerned about the reliability and quality of electricity. An open-access route is fraught with obstacles and is not a stable option to rely on. Green tariff can also provide a source of additional revenue to the discoms. TANGEDCO may look at Maharashtra as a case study, where the State Electricity Regulatory Commission gave consumers the option of sourcing 100% of their power requirements through renewable energy sources by paying a ‘green tariff’ of ₹0.66 per kWh Is. general tariff. More than 400 users in Maharashtra, mostly commercial, have already opted for this tariff.

According to the CAG report, during 2017-20, the average cost of electricity per unit purchased ranged from ₹4.87 to ₹4.94, as against ₹5.07 in 2018-19. This was despite the fact that Power Purchase Agreements (PPAs) with lower rates (₹3.50 per unit) were available to the state utilities. TANGEDCO should exit long term PPAs which are inefficient from cost optimization point of view. For context, a study by CEEW suggests that Delhi’s DISCOMs could have saved ₹650-690 crore in FY2020 by exiting the long-term PPA with the Dadri I plant.

Comprehensive administrative reforms at TANGEDCO have the potential to tackle the hassle of non-payment and reluctance to pay before the due date. A “power lottery” may be offered. Every month, consumers who pay their electricity bills within a stipulated time, i.e. within seven days from the date of issue of the bill, will be offered lottery tickets up to ₹100, each ticket costing ₹10 . Once the lottery is out, the winning consumer will be entitled to a cash prize, which will be deducted from their electricity bill in the next billing cycle. This will positively influence consumer behavior and will also ensure that the state utility is able to generate revenue on time.

Increasing the consumer-friendliness of electricity bills in Tamil Nadu is also essential for improving utility revenue. In a CEEW study, 80% of the state’s residents said that informative electricity bills would increase consumer participation in the power sector. It recommended increasing information disclosure in bills and improving the grievance redressal mechanism.

The crisis mired in Tamil Nadu’s power sector cannot be resolved without innovative financial remodeling. The reforms, as I propose, should include concrete measures to increase revenues and seamless transition to renewable energy in a timely and cost-effective manner. Ultimately this requires political and bureaucratic will.

Karti Chidambaram is a member of the Indian National Congress, and Member of Parliament for Sivaganga in the Lok Sabha.