India’s power sector has undergone a significant transformation, but challenges still persist. The distribution companies (discoms) continue to incur losses, leading to delayed payments to generators and hindering the necessary investments for transitioning to renewable energy. The tension between the need for low-rate electricity as a public service and the market-driven approach is one of the key issues. The unbundling of state electricity boards into separate entities, launching schemes such as UDAY, DDUGJY, and IPDS, and delicensing generation and open access in distribution were among the initiatives aimed at improving discom finances and operations. However, the schemes failed to produce a sustainable turnaround of the discoms. Policy, organisational, managerial, and technological changes are necessary to achieve this. Table 1 summarises the challenges faced by India’s discoms based on the RMI Niti Aayog report.
Table 1: Challenges faced by India’s discoms
| Challenge | Description |
|---|---|
| Financial losses | Discoms incur significant losses every year, which are estimated to be ₹ 90,000 crore in FY 2021. The accumulated losses prevent discoms from paying generators on time, which was overdue by ₹ 67,917 crore as of March 2021. |
| Infrastructure | The lack of investment in the infrastructure required for transitioning to renewable energy sources such as solar or wind is a significant challenge for discoms. |
| Governance | The state-owned discoms need to have a clear separation between utility and state. Corporate governance practices such as independent directors can help achieve this. |
| Private participation | Higher private participation can bring greater efficiency to discoms. Franchisee models have been successful in improving metering, billing, and collection in some states. |
| Regulatory reforms | Tariffs need to reflect actual fixed and variable costs regularly. Regulatory assets should be cleared, and new ones should not be created. Direct benefit transfer (DBT) can help improve efficiency and reduce leakages for consumers who receive subsidised electricity. |
| Operational reforms | Discoms need to improve billing, collection, and reduce Aggregate Technical and Commercial losses, which are currently at 24.54 percent. |
In conclusion, discoms face multiple challenges that need to be addressed with policy, organisational, managerial, and technological changes to ensure a sustainable turnaround in finances and operations. The RMI Niti Aayog report provides valuable insights into these challenges and suggests potential solutions.
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