By Somit Dasgupta
There are occasions exactly where choices taken in the previous in excellent faith come back to haunt us due to altered situations. This is precisely the case with our captive plants and group captive plants, also named non-utilities at a generic level. A captive energy plant is one particular which is devoted to one particular or a lot more industrial unit(s). As far as group captive is concerned, the beneficiaries need to hold at least 26% of the equity and collectively consume 51% of the energy generated for the duration of the year. Though devoted, it could also inject electrical energy to the grid. On the flip side, an industrial unit possessing a captive station could also draw energy from the grid. Thus, it is a two-way partnership. While captive energy plants have been in existence due to the fact decades, group captive is a fairly new phenomenon which owes its genesis to the Indian Electricity Rules (IER) 2005.
In a current CEA report (July 2020), it is described that captive/group captive energy plants have a capacity of about 75 GW. There are no official estimates as to the break-up in between captive and group captive. Considering the reality that India’s total installed capacity (excluding captive) is about 373 GW, the share of captive units is no smaller measure. While the share of the iron and steel sector is about 19% in the total captive capacity, the share of sugar is 11%. The corresponding figures for aluminium, cement, chemical substances are 10%, 8% and 7%, respectively. Most of these plants are coal-primarily based (64%), but there are diesel (21%) and gas-primarily based (12%) plants as effectively. About 3% of such plants are wind-primarily based, and the share of solar is 1%. Odisha (15%) is the top state when it comes to the capacity of captive plants, followed by Gujarat (11%), Madhya Pradesh (10.8%), Maharashtra (8.9%), Tamil Nadu (8.8%), Chhattisgarh (8.2%) and Karnataka (8.1%). All figures quoted are derived from CEA’s publications.
During 2018-19, there was a net generation of 195 BUs from the non-utilities whereas generation from utilities for the exact same year (inclusive of renewables) was 1,375 BUs. The share of non-utilities in total generation in the nation is, hence, substantial, estimated at 12.5%. It would also be relevant to mention that when we say that India’s per capita consumption of energy is about 1,181 BUs (2018-19), it incorporates what is getting generated by the captive energy units also.
Now, why do the captive and group captive plants stick out like a sore thumb now as far as the energy sector in basic and the discoms in specific? The reality is that the government encouraged the setting up of captive/group captive plants due to the fact it relieved the discoms of the strain of offering continuous, excellent excellent energy to higher electrical energy-intensive industries. There was a time when peak and power shortages have been effectively more than 12%, even though the scenario has changed absolutely now. With a huge improve in capacity vis-à-vis the price of development in demand in the final decade, there is a lot of spare capacity out there. Demand, as well, is muted for the reason that of the financial downturn even ahead of the pandemic. The plant load element (PLF) of thermal plants are hovering about 50% now (September 2020), and the peak and power shortages have been decreased to much less than 1%. The discoms are particularly unhappy due to the fact a customer, which chooses its captive energy plant, post the Electricity Act 2003, does not spend the open-access surcharge, therefore, robbing the discoms of substantial income. The energy sector, in basic, has a grouse as the PLF of thermal stations could have been substantially far better had there been no captive plants. A greater PLF implies far better efficiency, which implies lesser use of coal. Also, had there been no captive plants, the stranded generation assets in the energy sector could have got some succour, and they could have met portion of the demand rather of lying idle. This would have aided the banks in the recovery of their loans to some extent.
So with this background, what need to be our policy towards the captive units? Can we discard them now now that we have surplus energy? The answer is ‘no’ for the reason that one particular never ever knows when we shall be in deficit once again! Besides, even if we are surplus now, we nonetheless have outages, a thing most power-intensive industries can ill-afford. We have to understand to reside with them, and our policies need to balance out the interest of the discoms vis-à-vis the captive units. Doing this balancing act can be extremely hard, which can be gauged by the reality that we have been unable to revise the IER 2005 in order to regulate the group captive units a lot more closely. It is alleged that the group captive units have been exploiting specific loopholes relating to equity and consumption to their benefit, and at the price of the discoms. Proposed amendments to the IER 2005 have been 1st circulated for public comments in October 2016 (and once again in May 2018 with some revisions), but they have nonetheless not been finalised.
Rationalisation of tariffs is the ideal way to deal with the challenge of captive energy. While it will not be probable to wipe them out absolutely, we can make some of the captive units economically unviable, particularly the ones which are devoted to non-power intensive industries. Today, the industrial tariffs are extremely higher, which tends to make sense to have captive units. If the industrial tariffs are lowered by lowering cross-subsidies, a lot of industrial units will no longer locate it profitable to have captive plants and will supply their energy from discoms rather. As it is, the captive units are extremely inefficient due to the fact most are smaller units with higher coal consumption and consequently, higher generation price. Therefore, even a smaller reduction in cross-subsidy could do the trick and render the captive energy non-viable. Rationalisation of tariffs will not only enhance the economic overall health of the discoms but will also have a salutary impact on emissions due to the fact inefficient generation will be decreased.
The writer is former member, CEA Views are private