10 Jun 2023: UPSC Exam Comprehensive News Analysis

E. Editorials

Category: ECONOMY

1. The necessity of electricity distribution companies

Syllabus: GS-3, Energy.

Mains: Electricity Act and proposed reforms.

Background Details:

• The Electricity Act 2003 laid the framework for the dismantling of the State Electricity Boards. It further separated generation, transmission, and distribution into separate companies. 
• Though electricity generation was delicensed, transmission and distribution remained licensed and regulated activities.
• Its aim was to encourage competition, protect consumer interests, and supply electricity to all.
• Consequently, a competitive industry structure in a generation has evolved in recent years and the share of private industry increased rapidly.
• Similarly, the impressive growth in renewable power can be attributed to private investment. For instance, tariff-based bids for the electricity supply to Discoms have been the key to the success of the National Solar Mission.

Also read: Energy Conservation (Amendment) Bill 2022

U.K. Model:

• The U.K. has a power pool where all generators must submit bids for the next day indicating the quantity and price of the supply.
• The bids are then stacked in ascending order of the price. Then the price with the quantity that would be required to meet the total demand becomes the pool price for electricity. 
• This mimics the intersection of supply and demand curves to get the market price.
• Moreover, the introduction of full retail competition allows consumers to choose from several suppliers.

Scenario in India:

• India now has one of the cheapest solar rates in the world.
• Currently, power in India is supplied from individual power plants through long-term contracts at determined prices.
  • Notably, as the plant depreciates, the fixed (capital) cost component in the tariff declines; the older the plant, the cheaper its electricity.
• As India is discussing the contours of the new Electricity Amendment Bill 2022. Several experts favour deregulation and competition like the U.K. model.
• However, other experts highlight that adopting a power pool model is unsuitable for India.
  • The free market (or power pool) mechanism implies all electricity will be sold at the price of the electricity from the most expensive plant at which demand would be fully met.
  • As a result, the steep price shock cannot be absorbed.
• Discoms have the universal service obligation of supplying electricity to meet the entire demands of all consumers in their license area.
  • This is done by entering long-term power purchase contracts.
• Achievements:
  • In India, power-generating capacities have risen sharply and the power supply position has become comfortable in the past few years.
  • Discoms have become pivotal in the completion of rural and household electrification.
• The Electricity Act enables consumers with a load of 1 MW and above the right to open access. It allows them to buy electricity from whoever they want and pay the Discom only for the use of their distribution network and a cross-subsidy surcharge. 
  • The cross-subsidy surcharge became obligatory because higher-end industrial and commercial users pay more and cross-subsidize the lower-end households (with fewer tariffs).
  • However, the mandate to progressively reduce cross-subsidies has not yet been implemented. 
• There are also power exchanges that enable trading and optimal utilization of the total generating capacity in the country.
• As the demand for electricity is inelastic, there is a necessity for price caps.

Associated Concerns:

• Discoms are often seen as the weak link in the supply chain of electricity with rising cumulative losses and an inability to pay generators on time.
• The issue with Discoms primarily lies in the domain of political economy as:
  • There is the inability of regulators in the States to determine cost-reflective tariffs
  • State governments fail to give timely subsidies
  • There is also an issue of misgovernance
• It is suggested that without any new investments, India might again suffer from power shortages.
• The Russia-Ukraine conflict has also led to consequences emanating from a dogmatic faith in the deregulated market.

Conclusion:

• The idea of doing away with the centrality of the Discom should be carefully analyzed. The lessons from the experience of the U.K. in 2022 should also be thoroughly studied.
• The inelasticity of electricity demand has compelled the government to give cash support or impose taxes.

Also read: Sansad TV Perspective: The Energy Conservation (Amendment) Bill, 2022

Nut Graf: The electricity status has considerably improved in recent years in India. However, there are several concerns associated with the new bill. It is suggested that the centrality of discoms should not be ignored. 

Category: INTERNATIONAL RELATIONS

1. A pragmatic approach, for better India-Nepal ties

Syllabus: India and its neighbourhood relations.

Mains: India-Nepal ties.

Context: Nepal Prime Minister’s visit to India.

Introduction:

• The Prime Minister of Nepal Pushpa Kamal Dahal Prachanda visited India. This was his first bilateral visit to India, after assuming office.
• Despite several challenges to Nepal’s democracy and the challenges posed by COVID-19, India and Nepal reviewed the entire spectrum of bilateral relations including political, economic, trade, energy, security, and developmental cooperation.

For details, read here: Nepal Prime Minister Prachanda’s Visit to India

Details:

• Nepal is facing political instability and the opposition is challenging the leadership of the current Prime Minister. 
  • However, Prime Minister Prachanda acted moderately and reasonably focusing on the opportunities for a better future.
  • Unlike his earlier stint as the Prime Minister, Prachanda is focusing on maintaining good relations with India.
  • The Indian government has also reassured Nepal that the border issue will be resolved with mutual satisfaction.
• The recent visit of the Prime Minister has helped in underlining the real priorities like the economic landscape of the region. For example, infrastructure, hydropower projects, tourism circuits, etc.

India-Nepal Relations:

• Despite political challenges in both countries, there was a consensus on Mahakali Treaty that identified the Pancheshwar Multipurpose Project (PMP).
• There is also a new dimension of cooperation in the power sector with the transmission passage (trilateral power transaction) from Nepal to Bangladesh through India.
• The Memorandum of Understanding was signed for facilitating cross-border digital payments.
• India has offered to create a ground station and supply 300 user terminals to offer the services of the South Asia Satellite to Nepal.
• There is also cooperation in areas like space technology, telemedicine, tele-education, e-governance, banking and ATM services, meteorological data transmission, disaster response, and the networking of academic and research institutions.

Way Ahead:

• Nepal needs to depoliticize cooperation with India, particularly in water resources cooperation.
• It should improve its governance and democracy and check unbridled corruption.
• India should address the concerns of Nepal that it is no longer a foreign policy priority. It should give a sense of ownership, equality, and credit for major forward movements in sectors like hydropower.

Also read: India-Nepal Relations

Nut Graf: Nepal’s Prime Minister’s visit to India and his steady focus on development will boost bilateral ties between both countries. India should also go the extra mile in meeting the needs and expectations of Nepal and stabilize relations for a better future.