Power tariffs are bound to change

Power tariffs are bound to change.
 

The energy sector is being buffeted by powerful forces that it had not anticipated a few years ago. 

 

It seemed to be the most lucrative business to get into.  But domestic coal availability on the one hand, and a sudden surge in the pricing of imported coal on the other, have both compelled the industry to ask for a revision in tariffs. 

 

At the same time, agricultural subsidies threaten to make industrial tariffs unsustainable. At stake is the entire financial viability of the power sector, and even the Indian economy.

 

At the same time, other power players want state governments to allow them to distribute power in specific regions as parallel licensees in addition to the existing player. 

 

The Supreme Court had allowed Tata Power to supply power in the same region catered to by Reliance Infra. 

 

But some legal pundits believe that existing provision of the Electricity Act may not allow other players to enjoy a similar benefit. At stake is the concept of competition and open access.

 

DNA’s RN Bhaskar discussed these issues with a panel of experts. The panel included (in alphabetical order) OP Gupta, IAS, General Manager,  BEST; Ajoy Mehta, IAS, Managing Director, Maharashtra State Electricity Distribution Company Ltd; RR Mehta, Sr. Exec.Vice President (head of business), Reliance Infrastructure; Siddharth Mehta, Head, Business Development (T&D), Essar Power; and S Padmanabhan, Executive Director, Tata Power Ltd.

 

Given below are edited excerpts:

 

DNA: Power has suddenly become a vexatious issue. Everyone is worried that power tariffs will go up.  Delhi’s announcement of a 25% increase in tariffs has made the situation.  Hence we decided to focus on just two aspects of the power business.  Parallel licensing -- which allows for competition and open access -- and tariffs. Both are topics which could be debated for hours.  But we shall try to be concise.

 

Gupta:  I would like to begin with the issue of parallel licensing.  Is refers to the power of the regulatory commission to grant a second license or more licenses to entities in the same areas where an existing distribution license is already functioning. It allows another party to distribute electricity through the existing licensee’s network, or to set up a full-fledged parallel network. And as we all know, electricity distribution business is a highly capital intensive businesses. 

 

So to prevent duplication of expenditure, it may make sense to allow the right to use another entity’s wires since the current licensing scheme is such that most of this business has already been licensed to the public sector. So do we allow the second entity to use the wires of the first entity, or to duplicate the wire investment? From the business perspective, it does not really matter, because, under the current setup, the whole CapEx is passable to the consumer.
 

Will this parallel licensing ultimately benefit the consumer? That’s the question we need to ask.

 

Experience suggests, and I saw it for myself in the US, that the wire business and the distribution business should be separate. The US has kind of separated both.

 

So what I saw in US, in one of the towns, is that they have a system where the wire business or what you call distribution, the rates are fixed by the regulator for that particular area. Now generators across -- all across, they offer their electricity with a particular tariff to the individual customers in that area. Once you make an offer, you cannot change it for almost a year. So at least the person knows that my tariffs are going to be fixed at this level for one year. Now, this is competition. I am generating power at a particular price or I am buying power at a particular price. I’m able to offer you a price, which brings down your electricity bill positively, for at least a year. Then the consumer has real choice. Then your efficiency levels, your quality of supply and all other parameters are also fixed.

 

There’re penalties for defaulting on those issues.

That is the way you lay down benchmarks, bring in multiple operators, or multiple distributors.

 

In India, this particular issue of parallel licensing is totally misunderstood. And it’s going to create trouble for consumers and is going to increase power distribution costs for individuals

 

Padmanabhan: I fully agree with him that the separation of network and retail is the way to go. With duplication of network, it is going to be additional cost to the consumer.  I think a change is required. On the competition side, I have just one more point to add. Today, in India there is a demand/supply gap. The demand is about 15% more than the supply. There is a shortage.

 

I think, first, in many western countries, which have reached higher levels of retail competition, the first step has been to create more supply than demand. There is a spinning reserve of 15% or 20% that is first created, only then competition is really market force driven. Otherwise, the very fact of having competition in a demand/supply gap situation, like the one we have, can skew the market,
 

DNA: We have three Mehtas here.  So I will have to refer to them by their first names.

 

Siddharth Mehta: The important question is where will the parallel license work?

 

It will work in an area where there are high losses. That network is dilapidated and you need to put a new network, number one.

 

Two, there are paying customers with high base rate. If he is willing to pay 6 rupees, 5 rupees and I’m putting a network, the network is going to work and there are huge losses.

In a city like Mumbai, where the cost of CapEx is going to be so high, number one. Two, the service level of the existing utilities is fairly good. Why would a new utility come into existence and start supplying where he knows that the competition itself is at a very high level?

 

Third, when he comes in, he has to supply through his EHV station, do his own network. There is no license condition which [currently] permits him to supply through the existing wire. And if – till that happens -- he is taking a risk of putting in a network, keeping it there with just 5% or 7% changeover or 10% changeover. That’s what he is expecting.

 

Therefore, the license condition first, if you have to bring in competition, you’ll need to change the license condition. You need to separate the wire and supply business and also look at the areas where this could be done.
 

RR Mehta: I think it’s a subject, you fathom as much and you get deeper into it. And why I say that is that any competition you talk about is an environment created competition. Are we there or not there?

 

One, as was rightly said, we are in the shortfall scenario.

Two, we are still politically not de-affiliated to the business; particularly when it is related to consumers and the public.

And three, what is important is that we are still in a segment of cross subsidy. That means a group of consumers subsidizing the rest of the consumers or the reverse.

 

So unless we are able to control these conditions, any kind of competition or parallel licensing, is going to hurt one or the other, either the consumer or the utility or the supplier. So you have to create an environment, with whatever conditionalities, in order to implement parallel licensing.

 

Network link, definitely, in city a like Mumbai, is a Herculean task, more so because in our development plan itself, there is nothing like a utility corridor. You go to a developed country, there are utility corridors, so you don’t get involved in digging, re-digging, paying to a local authority. You are at their mercy, because the cost can be jacked up, which has happened in Mumbai.

 

So unless you have that kind of an environment created where you can work as a utility, [parallel licensing would be extremely difficult].

Ajoy Mehta: Where did this term parallel license come from? It has been borrowed from the telecom industry.

In the telecom sector, they first gave out those mobile licenses. Then they said “No, no, no, we need competition.”

What drove cost down in telecom? Fundamentally, technology. You had spectrum there. You have fuel here. That’s a limited resource, spectrum, fuel, both are limited resources. You can price spectrum and fuel the way you want to. If I want cost to come down, I must get competition.

 

But you forgot that telecom competition was being driven by technology. When the satellite TV came in and when Tatas came out with the Tata Sky that time it needed five megahertz for its channel. Today, you can move a channel on 0.25 megahertz, that’s the kind of spectrum drop technology and compression technology have offered. So you need almost one-fiftieth of the spectrum to drive the same information.

 

So look at what technology has done in the power sector. You have supercritical boilers that have created an efficiency of just 2%. Compare this with the 500% in telecom. And I am told that in just two more years, you would be able to drive a channel on just 0.1 megahertz.

 

So whenever you borrow terms, please find out why and what are you trying to achieve and what is going to be the driver. Somewhere, I think, along the line, we’ve forgotten the driver. I won’t make a judgment call whether that will be right or wrong. I still feel that this concept we have borrowed from telecom is not appropriate. Telecom had technology driving it; in power technology is not driving it. That’s the only judgment I will make.

 

DNA: Since you rightly mention telecom, in telecom the world over, one operator can use the wires of the others. In power also, one operator can use the wires of others, either it’s a separate company as a wire or you pay a usage charge. Ideally, the Electricity license should have permitted the usage of wires by a second party. Why was that not done -- oversight or deliberate?

 

Gupta:  I’ll put it at ignorance on the part of regulators.

 

Siddharth Mehta: I think it has been left out. The question is at what point of time this should come in.

 

Padmanabhan:  Actually, you are absolutely right. For some reason, it’s has got left out If you take the Singapore example, there is one network provider, like for transmission. For distribution also, there is one network provider and there are many retail players.
 

India being a large country, the government or the national distributor can be the network provider and all the other players can be the retail players, that is possible. But for some reason, it’s has got left out in the documentation. I think the Maharashtra regulator tried this from 2009 till date with the common area between two licensees. Instead of laying the network and incurring costs, the regulator’s recommendation was one licensee uses the network of the other licensee and since then we are learning. The learning is continuing.
 

DNA:  But wasn’t that also because of Supreme Court?

 

Padmanabhan: Yes. But if you take this case out, look at, let’s say, a completely different situation, you have to opt for a gradual implementation. This is not in the act but is possible. There is a lot of learning to the standard operating procedures and the method of dealing with it. There is a lot of experience, at least in Mumbai. This can be incorporated in times to come. But today it is not there.

 

RR Mehta:  It is possible, personally speaking, that the Supreme Court comment has been largely misinterpreted. And it has been extensively used at the cost of the consumer. Now what is right or wrong is in the judgment of the regulator. But the Supreme Court responded to a question being asked, whether there can be a licensee who is not having a network? Or if he does not, cannot be a licensee. And Supreme Court did respond to it, that a network’s existence is not a pre-requisite for being qualified as a licensee. Then it adds to say, there is a provision for open access by paying wheeling charge and all that. But it did not specifically address the issue whether, between the two licensees, there should be a continuous use of network.

 

How is it to be used, how is it to be replaced, leading to the ultimate objective of the Act whereby every licensee is required to supply power using his own network. That’s a fundamental requirement of the law. The interim interpretation or the observation given by the Supreme Court was with the reference to, can a licensee be with or without network at a particular time.

 

Now, try and visualise Supreme Court observation with reference to a new license application. Now, he can be a licensee with a rollout plan. It does not mean he has to lay a network in advance and then become a licensee. So, in my personal view, how can you have a situation where the permission to lay a network is selective when there is a fundamental universal service obligation [USO] on its own network. That’s a – I’m not talking of Mumbai or Delhi or any specific place -- fundamental requirement of law -- that a licensee has to live through his own network.

 

DNA: So – now there are two possibilities. One is that the law was an oversight and the second is that the law was deliberate.

 

Ajoy Mehta:  The last on the law has still not been said. The jury is still to be out on that and rightly so, because law is subject to interpretation.

 

But I have a very unreconciled paradigm. In mathematics, there are certain complex problems which you can keep solving and solving and you finally reach two solutions which are both equally correct.

 

What has happened in this separating the wires from billing, should it be done or should it not be done? Let the law be on one side. Law can be written, the way you want it to be written. So whether the wires business should be separated from the power businesses, whether the existing law is subject to interpretation, all answers can be right.

 

I have no objection to that. But there are certain issues. One, the person who set up the wires in the first place put in money when nobody was putting in that kind of money.

 

Now, you suddenly turn and say, “Oh, well, you’ve done it. Now this is a bottleneck infrastructure. So I am not duplicating it. Let everybody walk on this.” Should it be allowed or shouldn’t it. I have the first mover advantage, I also have the first mover disadvantage of getting into an economy when nobody was ready.

 

Now, I move on to the next point. How do you pay for the usage of an existing network?

 

Today if you ask me, the right-of-way in Mumbai is the most expensive right. You just cannot pay for right-of-way. This thing -- right-of-way -- what do you pay him? How do you pay him? Now, whose benefit are you working for? Are you working for the benefit of the consumer, the investor, the entrepreneur? All these are unanswered questions. I really have no answer.

 

Please think over all these issues. These are paradigms. This is the same paradigm like whether God exists or God doesn’t exist. Come to a conclusion, and then rewrite the law. Don’t try and interpret this law. This law can be interpreted from both sides. I can give you an argument, why, and I can give you an argument, why not.

 

Gupta:  And there’s another aspect to it. Now your question of tariff comes in place. Because when you are talking about policy, tariff alone can be a benchmark.  If that is focused on, then the only competition relates to your efficiency and your functioning.

 

This promotes competition or which actually gives advantage to a person who is more efficient and offers better service.

So we’re saying, okay, separation of buyer business and supply business needs to be done for efficient parallel licensing to reduce duplication of resources.

But simultaneously, we are not moving ahead on the tariff front. We are not allowing competition on the basis of a uniform tariff.

 

Then the regulator does not have to do an accounting job.  He focuses on standards and processes.  Market competition becomes more interesting when there is a uniform tariff.

 

RR Mehta: To expand on what Ajoy Mehta has said, the fundamental difference is that this parallel license has been picked up from telecom.

 

Telecom is a developing market. Electricity is a developed market from that perspective, particularly in urban areas. So when you have a developing market, you can have multiple players, because, one, they are not obligated to give connection to anybody and everybody, which as in electricity I am obligated to give power to anybody who makes an application, whether it’s a 10-unit consumption or 100-unit or 10,000-unit consumption.

 

So there is a huge fundamental difference between telecom and electricity. And in using the same word in electricity, we miss out on these fundamentals in deciding what the parallel license should mean.

 

DNA: So should the rules on parallel licensing be reviewed?

 

RR Mehta: Well, if I may say so, looking to Mumbai as a situation, yes, it definitely needs to.

Padmanabhan:  I too agree. But there are many more things which need to be done before you reach this evolved state.

 

Siddharth Mehta: See the point is: what is a valuation of my network?

 

Which consumers are you supplying to? What is my cross subsidy element that I am supplying to this consumer? All this exercise needs first to be done, arrived at, maybe in a particular city, not Mumbai. The quantum that needs to be paid to the first mover who is willing to come in and lay that network; that quantum needs to be decided.

 

Then you can say that you bring in the power, this is your transmission and wheeling charges. This is the cost that needs to be paid to you and then the end consumer will this and then the exercise would compete and say, is it affordable now as a parallel licensing to the consumer. That needs to be done.

 

Thus, I may not be able to build the network. But the growth part that comes in would become my responsibility from day one itself.
 

Gupta: That’s where another aspect comes in. When you say pay usage or wheeling charges for the wire business, you cannot say wheeling charges for all units of electricity are same, because today they are not. There is an element of cross subsidy involved and there somebody who is paying more, and somebody is paying less. The wheeling charges need to take into account that part.

 

My belief is that, ultimately, competition should be on the efficiency contract side. It should not be on the ability to play around things and thus try and garner advantages.

 

Padmanabhan: On parallel licenses, there is one more aspect, I think, a certain segment of customers must be defined as what typically is called as a non-contestable customers. Whoever supplies electricity to that segment, must supply at the same tariff.

 

Basically, they are not available in the open market competition. We are talking about a time when we reach a situation where retail is separated from buyers, when there is supply more than demand and a real free fair market competition comes into play. At that time, low-end customers  – who are below the poverty line or an income level definition or whatever – should get power supply at the same price by any discount or any retail supplier who supplies to that segment.

 

Then you compete for the rest. This model has worked in some countries. So there are steps of evolution. Before you reach that stage, there is much more to be done. This is not a burning problem. If you looked at it at the apex level, the burning problem is the gap between demand and supply. If you address that and if you make that process smooth, many things will start falling into place.

 

RR Mehta: Coming back to this demand/supply gap, now, because there is a demand/supply gap, therefore, the regulator expects a utility to tie-up a long-term power. You tie-up a long term power and then comes in a parallel license. What happens with the tied up power?

 

So it’s the entire perspective which needs to be addressed…

 

DNA:  Which means that you have to explain a policy, give some time to unwind whichever way.

 

RR Mehta: Correct. Either you have to create that much capacity, so that there is a market available and the market drives the prices; or if you don’t have that ability then how do you control it for the cost which is going to land up with the customer because, for example, you have a pithead plant because you’ve been able to get a coal mine, or you’re competitive. What happens to the contract, which has already been signed? It might have been the good contract at that particular point in time. So how do you balance this?

 

Siddharth Mehta:  What he’s saying is you can take or pay. If you won’t take, you pay.

 

RR Mehta:  Correct. Or otherwise you will idle the capacity.
 

Padmanabhan: Therefore, the inputs, the feedstock, should also be made available to all the distributors at a certain defined price. So there are other conditions, which are coming into play. If the feedstock is open today you need to consider other aspects. If somebody has a mine mouth plan, he would be able to supply at Rs.2.5 or Rs.3 per unit. Somebody else is dependent on a mine, which is 1,000 kilometers away, so he will never beat that price.

 

So does it mean that certain types of feedstock are available to everybody at a certain price. So that aspect also needs to be stated upfront.
 

DNA: That brings us to the next question: Do you think tariffs will have to be revised? Delhi revised its tariffs upwards 25% yesterday [on 26 June]. Moreover, imported coal has just become more expensive.  Domestic coal is not available in adequate quantity. What do you think the tariff scenario will be like in India?

Ajoy Mehta: The only certainty is that tariffs are going north. It’s neither going east, nor is it going south. It is going north.

 

My only issue is that all of us are putting a lot of emphasis upon what should the tariff be and whether the regulator is doing it correctly or not.

 

Fundamentally, first thing break the tariff down into its elements. Nobody is doing that. Once you break the tariff down into elements, then you will be actually be able to identify contestable and non-contestable consumers.

 

Similarly you will be able to identify elements which are subject to efficiency, and elements that are not subject to efficiency. Try and handle that. Is there something that can drive efficiency in that element?

 

What is happening now is you are generally looking there. There is one group, which says, “Oh, no, tariff should go up only once a year, why twice a year?”  Last time I was the regulator, I said, why, twice a year, it should go twice a day.That is the right way of doing it. If the tariff has changed, it has changed.

 

I might as well tell, “Look, 5 o’ clock onwards, you’re going to pay twice the amount. So you might as well be careful.” So if it has to change, it has to change twice a day. There is no other way.

 

Fundamentally, we are fighting on all the wrong issues. We are still not breaking it down into its elements. There are certain elements that can be subject to competition, it can be subject to efficiencies and you can bring down the cost. Simple things, distributing a bill. Today, it costs me Rs.15 to distribute a bill. Can I not bring that down? Can there be a better method of delivering of a bill to you?

 

Collecting the cash back: it’s costing me Rs.5 for every bill; when the cash comes to me. Can I not bring that thing down? So, nobody is looking at the elements. People are just generally saying no, no, no, no, the power cannot go up by so much.

 

So my feeling is that somewhere, I think along the line we’ve all made huge big political statements rather than breaking power costs down into elements. And then, saying, well, these are the elements, which need to be touched. And these elements can’t be touched. There is no way you can touch coal. Coal is there. It’s for everybody to buy or sell.

 

Gupta: True, tariffs are going up for the time being. But the issue is, when they will stabilize, or when they can come down?
 

It depends on the demand/supply gap. But demand/supply gap does not mean that you leave it to individual generators to enter into bilateral agreements and allow for a supply [or pricing] distortion.

 

So ultimately. It is important to ensure that all power generated is available to all licensees to buy from exchange. This means that you cannot have bilateral agreements. That will give you a benchmarking pricing for the power purchased across the board.

 

Let all supply come to the open market. Let people buy so that your power purchase cost, which is 80% of the cost in the tariff is taken care of.

 

Today, you have a regulated price. Whatever the inefficiency in generation, where I generate, my regulator is going to decide all. Ultimately, I have to convince the regulator that this is my generation cost, and this is what you should give me.

 

Siddharth Mehta: As rightly mentioned, there are two components -- one which are fixed components where nothing can be done, and there is one which need to be improved. One major component in the tariff throughout the country is T&D losses. We have a loss to the range of about 23% and above in India, and roughly 1% loss reduction translates to 1,500 megawatts.
 

And if you were to reduce this loss from 23% to, say, an average of, say, 15%, you are going to bring around 10,000 megawatts of power into the system, instead of pumping in more power, or putting in more plants.

 

And that’s why the Shunglu Committee, which has recommended that more and more towns have to adopt franchisees to reduce losses and improve bill collections. The ultimate aim must be to plug leakages. If you plug leakages you’ll probably be able to control tariffs.

 

Padmanabhan: On the tariffs front, there are two, three structural issues that we are facing today in the country. Definitely, I agree, tariffs will go up. It is only relative whether it will be 90 degrees or it will be 60 degrees. And we are in this situation because of many things that have happened in the past. And we will be in a similar situation in the future. I’m not saying it will all get cleaned up in one night. We were in a very similar situation 10 years ago as well.

 

If the tariffs are not reflective of the actual cost of production and cost of supply, consistently, we will all end up having huge regulatory assets. If you take Mumbai and Delhi, two circles where I am very familiar with, and the rest of the discoms [power distribution companies] all India, there are numbers I read from Rs1,20,000 crore to Rs2,00,000 crore. These are the big losses discoms are carrying.

 

So we have to set that right. Of course, for government discounts, there are different ways of doing it. But for private enterprises, you have regulatory assets. That needs to be recovered at some point, okay. So till that clean-up happens, tariffs will go up.

 

There will also be tariff increases due to current commodity prices. Fuel prices have gone out of control. But that’s a cycle. After say, two years, three years, if the commodity prices come down, relatively to that extent, the final tariff will come down. That possibility is there. But bigger issue is, today, how do you ensure that the discoms move away from the difficult situation they are in to recover that tariff increase.

 

There are also tariff increases that are necessitated because different costs of supply -- see we are in a very peculiar situation. Our cost of supply to residential customers is more than the cost of supply to industrial customers. But the subsidy is exactly upside down.

 

If you go to any other western country, the residential customer pays more than the industrial customer, because the tariff is linked to the cost of supply. This is another structural issue because we are supplying electricity not from a market point of view.

 

RR Mehta: The big issue is that in the entire cycle, who should make what profit to ultimately control the consumer price. Is it the coal? Is it the generator? Is it the distribution licensee? Who should make what profit? If you don’t control the entire chain, how do you control the price to the consumer?

 

So either you leave the price to the consumer free or if you want to control that then you have to control the entire chain. And if 80% of the cost is a cost which is coming down, and if you don’t control that process, then you can’t have a situation of proper communication or being said that tariffs should not go up.

 

Now, the second point comes is who is responsible to communicate price increases to the consumer. The consumer doesn’t believe in the utility. No matter how much you want to explain to him, he will say, “You are fooling me.” Who takes the responsibility of communicating, “Listen! Yes, you’ll have to pay. It needs to be paid because one, two and three.”

 

Nobody else communicates. The regulator doesn’t want to communicate. There are very few exceptions. Regulator stays back. He says, “Yeah, utility should communicate.” So how do you communicate when there is a lack of trust or lack of belief.

Padmanabhan: In India, there is a feeling and perception that electricity, water are all free. That perception is there. So as a result people feel that when there is a tariff increase, it is always seen as somebody is trying to take it on me. In fact, yesterday, I have – I was at the airport lounge yesterday. Exactly when the first news came on the television, about the increase in power tariffs in Delhi, I was sitting, and everybody sitting around me reacted by saying, “Oh My God, one more increase.”

 

I just quietly walked away because probably I was the only guy sitting there who was feeling ‘At last there is an increase’. But the rest of the people -- and they are not, you know, people who cannot afford electricity -- had this reaction.

DNA: There is another aspect.  A new development is taking place where solar power for the first time in Orissa is available at Rs.7 a unit. This could mean that many industries will opt for rooftop solar, and reduce their dependence on state grids.  That means less revenue to state grids to subsidise farmers and lower income groups.  That will compel a revision in tariffs.

 

As Maharashtra being the largest base for industry, it will mean that the first tariff changes will talk place in Maharashtra.

 

Ajoy Mehta: In the land of Gandhi, you have forgotten how to speak the truth. Somehow, we’ve stopped speaking the truth.First and foremost, we have to tell every consumer truthfully what is the cost of power.

 

So the cost of power as far as Mahavitaran [MSEDCL] is concerned, it is Rs.5.19. But a farmer gets it at 25 paisa. He doesn’t even know it is Rs.5.19. His bill shows 25 paisa. And to achieve that, a Rs.6,000 crore subsidy is granted. Of this Rs.6,000 crore, Rs.3,000 crore is coming from industry. Just in Maharashtra.

 

So, Rs3,000 crore comes in from industry, because industry pay Rs7 a unit, while the cost of power is Rs5.19. The farmer pays 25 paisa. So the industry subsidises, and a certain amount is subsidised by the government. So industry pays Rs.3,000 crore, government pays 3,000 crore, and the farmer gets a subsidy of 6,000 crore. Ask any farmer in Maharashtra, I think, nobody would know that he is being subsidized to this level.

 

So, first and foremost, we need to tell people. And that can only happen if you actually serve them a bill of Rs5.19. And then the subsidy flows directly into an area which you think is important to subsidise.

 

DNA: So targeted subsidies.

 

Ajoy Mehta:  Targeted subsidies with the rider. Like, if you use your water efficiently, if you use drip, I’ll give you a subsidy. You used it for a crop which is water efficient, I’ll give you a subsidy. You grow a crop, which the nation needs, maybe food, I’ll give you a subsidy. If you grew a crop, which the nation does not need, which I call a non-priority crop, or a cash crop, I’m not giving you a subsidy. So then you target the subsidy as per your need and you also target your subsidy on efficiencies.

 

Today, the subsidy is going blind. You are good, you are bad; you grow a good crop, you grow a bad crop; you do what you like; subsidy is given. Similarly small users, again, today, a BPL [below the poverty line user] user is paying just about 96 paise for the first 30 units a month. So till he touches 30 units, he goes on wastefully consuming electricity. So inefficient use of electricity goes on till he starts paying the real cost of subsidy. So you need to first and foremost direct your subsidy. Let everybody be charged at Rs5.19.

 

When I was in the UK doing my MBA, I got a heating coupon. I had two children with me and they need to be kept warm. My electricity rate was same, but because of being a student, so I couldn’t afford the normal electricity costs, I got a heating coupon which I stapled to my bill and it was subtracted, and I paid the balance.

 

So, first, let everybody pay and government decide as to who needs to be given subsidy and then give it from taxes. Taxes may not be enough. Then tax whoever you think should be taxed to get that kind of money. That’s one.

 

Second, let’s come to solar, Let’s remember when we say solar is at Rs7 or maybe has dropped to Rs6 a unit, or that by 2017 it will be Rs4.50 a unit, or will reach grid parity.

Now, look at the characteristic of solar power. It’s not straight [he makes a wavy gesture full of spikes and troughs], it is of inconsistent quality.

 

Is any industry going to buy that power? So if somebody comes to tell me that I’m going to a solar panel and run my CNC machine, computerized numerically controlled machine on to a solar cell, I will say, “Happily do it”. You can’t because this kind of a power is not quality power.

 

Moreover, 5 o’clock onwards, are you willing to shut down your plant? You can’t. You can’t.

 

There is a cost of standby power. So if you are going to tell me that when during the day when the sun is up, I am using my power. In the evening, I am coming to you. Now you give me at 4.50 rupees which is your grid power rate, why should I?

 

I’ll also charge you what I feel like charging, because my plants were standing, waiting for you to come on and take that load. So let us not try to push solar as an alternative. We’re heading towards what is called – what I call the energy alloy.

 

So I am looking at an energy basket where solar is feeding in, the hydel is feeding in, the cogen [co-generation power] is feeding in, the biomass is feeding in, the wind power is feeding in, and everybody is feeding in. And then there are sources of energy, the conventional sources of energy, which are subject to those rise and drops, can be used as a fly-wheel to smoothen out the curve, flatten it out rather than have a zigzag curve going there. This comes at a cost. So let us not look at solar as standalone, a mistake we make.

 

So let’s look at solar as something which is one part of the basket. Please stop saying that the industry will go off the grid and get on to solar. You can’t.

 

DNA: Solar need not be off-the-grid. It will reduce the load on conventional power.

Ajoy Mehta: Yeah. I believe that every individual must feed into the grid, let it get into the grid, let it become a basket, and then the basket is apportioned out.
 

DNA: So no captive power generation?

Ajoy Mehta:  No captive. It is bad. It must be pooled.
 

Padmanabhan:  More or less, I think, he very nicely conceptualised the situation. All this will be a basket. You know, it is very difficult to think that all gigawatts of conventional electricity that is there in India today will get replaced by solar. Solar will only keep adding. And it addresses other issues. For instance, solar, wind and micro-hydels address the reduction of carbon emission. I think to that extent, it is a value brand.

 

But I also wanted to spend a few minutes on technology. There is a lot of work underway on many aspects related to fluctuating availability or the poor quality of solar or wind power.  Storage technologies are coming into play.

 

So technology will move in that direction to address some of these. That is one factor. You know, the ultimate technology which will put to rest all these conversations will be the wireless transmission of electricity. And it is not a utopian thought. It is at a very early test-bed stage.

 

There are companies based in Boston, and there have been live reported tests very recently, just two weeks back from the University in Scotland, where they have been able to transmit electricity albeit low voltage over significant distances with 60%, 70% attenuation, which means the concept is available. And I have actually walked through a lab where all your equipments are charged and have come alive. So, yes, so it is possible.

 

Now this technology will be a complete game-changer. With geostationary satellites or solar panels put up on the Sahara Desert and wireless transmission – it is just Star Trek 8 now.

 

But this is what we all felt in the early ‘90s about mobile phones. I mean, it was very big. It was a status symbol. And in 20 years, the world has changed.

 

I remember we used to stand in queues for hours to get a telephone connection and all that. I don’t know whether this technology will also be at that phase. But it is happening, and it can be a huge, huge game-changer. But today I don’t know.

 

Siddharth Mehta:  There was another technology that I had seen and which was demonstrated at Mantralaya. And it was on fuel cells. And that -- when it gets developed, it could be 15 years down the line, then it will be like off-the-shelf, go to Big Bazaar, buy a fuel cell, put it in the house and get your electricity.

 

DNA: A game-changer.

Padmanabhan: Technology in the electricity industry is bound to grow, because today’s generation of electricity goes beyond the conventional methods that we know of. Heat and force are used to generate electricity, but they’re all very large scale. Maybe 10 years from now, if there is a forum like this, that would be very interesting.

 

But there is one more thing, which is not so technologically intensive but this concept of distributed generation.

 

Somehow, in India, we have huge unconnected areas. So, is there a way to give them electricity – because the transmission grid is very expensive? CapEx is involved, right-of-way, many things are involved.

 

So is there a different model of meeting the demand requirement and managing tariffs at a localized level. There are huge opportunities in that space. There too the cost of technology and the availability of feedstock come into play, but it is possible. That’s another area which can be a game-changer in terms of addressing electricity distribution.

RR Mehta: Is it possible that we may have an energy cartel like oil cartel? I have lot of space. Sahara Desert is there, I will set up, but I should get my price. If I don’t get price, I’ll shut it down. Are we in that direction?

 

Because here, there are certain areas which are capable of generating that kind of a power.

 

But it’s like oil, oil cartel got found. Prices were controlled by them. Now, will that happen? Can it happen? Theoretically, yes, it can happen. So is it going to be a solution? By that time, the consumption will go up. So it cannot be limited to any directional or – it has to be a very, very, very comprehensive solution, whether it’s nuclear, non-nuclear, those very complex issue. The ultimate objective is energy security.  Every nation has to have its own capacity created.

 

What is the best capacity for each nation? It will have to be looked by each nation. It might drill down to a city, it might drill down to state, but then you’ll have to balance the natural resources, other resources available. How do you balance your requirement?

 

Ajoy Mehta: I don’t say that there should be absolute agreement, but even for a consensus to emerge, it takes bit of a time. Now a consensus is surely and finally emerging, that industry is going to get unviable with this kind of process. It is now becoming a reality. It is also becoming a reality that industrial development is the need.

 

You really cannot do away with manufacturing. Manufacturing is necessary and it will be the mainstay of your economy. So industry must survive. With these kind of power tariffs, industry cannot survive.

 

So that reality is now seeping in.

 

Secondly, it is also seeping in that water is an issue.

 

DNA: Sharad Pawar [one of India’s leading political leaders] has for the first time come up and said, water must be priced.

Ajoy Mehta: Water has to be priced. Water not only has to be priced, the use of water has to be rewarded on the basis of efficiency of use. It has to be rewarded. Now, today, your power tariffs are not doing that. Your power tariffs are saying, pump as much as you want. Pay 25 paisa per unit and do you what you want to do.

 

So now these two realities are coming back, and the consensus is emerging. Therefore, one great instrument of bringing in efficiency is tariff.

 

DNA: So that could force a tariff revision. Do you also see the same mode in the government?

Gupta: In the urban sector, government has actually more or less come up to the level where they have left the tariff part to the regulator.
 

Ajoy Mehta: Gujarat has a stated policy, that we are restricting the supply of electricity to rural areas to restrict water. Not that we don’t have power. We can give you power, but we need you to control water.
 

DNA: How does the private sector react to an overhaul of tariffs?

 

Padmanabhan: If you have seen the last one year, even states which have not increased tariff for six years, seven years, some number like that, have started revising tariffs, because it’s a reality. I mean, you can’t go completely bankrupt. This sector cannot draw the government to a situation where it cannot do any other developmental work.

 

And we know there are examples of states, which have not increased tariffs or started increasing. So it will happen.

 

Siddharth Mehta: It has to happen

 

Ajoy Mehta: There is no choice in pricing the recovery of the cost.

 

DNA:  Yes. And water could be one of the biggest drivers for revising tariffs. Water significantly has happened in Gujarat. It’s not that it’s happening in the Punjab now.

Ajoy Mehta: Yes, it has to be.

 

Siddharth Mehta: It has to be.

RR Mehta: Otherwise who pays for it? It’s the government who has to pay.