Policy Note on Power Sector

Power sector is a key infrastructure sector in India with a dominant role for State owned institutions in its operation (90% owned and operated by State). It is in the concurrent list with demarcated roles for the State and Central governments. There are many players with muscle - both private and public. Private players are mostly in manufacturing and services, though there are a few in operations as well. In the post liberalisation phase, role of private players and international capital has been increasing. The sector is unionised - worker and officer levels in utilities. It is technically complex and has multiple linkages. Fuel linkages include Water for Hydro, Coal, Petrochemicals, Nuclear, Wind and Bio-mass. Economic linkages include Industry, Agriculture and Commercial Consumers. Socio-political linkages include Subsidy and quality power access for poor and farmers. Environment linkages include rehabilitation, green house gas emission. It is PEG's experience that space exists for civil society intervention in policy and regulation in the sector.

Prayas Energy Group (PEG) works to protect and promote public interest in energy sector. This implies interests of the disadvantaged sections and the long-term interests of society. The energy sector policies of today focus on financial viability and economic growth at the cost of neglecting institutions, governance, equity and sustainability. This, along with the distortions caused by the influence of powerful vested interests and neglect of inter-sectoral linkages has aggravated the crisis in the sector. The remedy for problems in the sector lies in moving towards a public interest paradigm which is based on an integrated view of the sector including its linkages with related areas like agriculture, water, fuel and environment. This paradigm would have a balanced emphasis on economy, efficiency, equity and sustainability. It would democratise institutions and facilitate public control on governance by establishing transparency, accountability and participation.

There are a few distinct stages in the activities of PEG. PEG started in 1990 by working in the area of renewable energy technologies and energy conservation. This involved end-use efficiency studies and preparing a detailed Least Cost Plan for the state of Maharashtra. The second stage involved analysing and exposing major inefficiencies in the power sector. Areas included agriculture subsidies, techno-economic analysis of the Dabhol project by Enron and support to groups like the Narmada Bachao Andolan to analyse large hydro projects. The third stage was marked by a focus on governance of the power sector. International Financial Institutions were playing a major role in changing the Indian power sector and PEG undertook a study of the impact of funding by Multilateral Development Banks. This was followed by a review of the Orissa state power sector reforms and participation in the regulatory process in Maharashtra.

Considering the changes in the power sector across the country, efforts were taken for capacity building in Maharashtra and at the National level. This work also led to networking and collaborative work with similar groups across the world. For the last few years, Prayas Energy Group has focused mainly on issues relating to power sector regulation and restructuring. This includes issues thrown up by the passage of the Electricity Act 2003 as well as democratisation of sector operation and planning.

Engaging with the State

In power sector, State has a significant role in policy making and regulation. PEG has been engaging with various actors in the power sector.

- Mainstream actors

o State (Planning & Policy, Regulation, Operation, Judiciary)
o Private industry (Operation)
o Financial institutions (Indian and International)
o Political parties and mass organisations (utility trade unions, farmer's associations)
o Academic analysts, Consultants

- Civil society actors

o Consumer interest groups
o Environment campaign groups
o Public interest analysts – Indian and International

The three pillars of PEG's strategy for proactive engagement with the sector are:
- Creating spaces
- Building capacity
- Strategic use of spaces

The mechanisms PEG has used for engaging with the state include:
- Building pressure from below to create public interest driven inputs to the State (higher priority)

o Discourse changing through analysis offensive (Integrated Resource Planning, Private distribution, Fuels, Regulation and poor, Governance analysis of the sector – democratisation of governance is the issue; not ownership)
o Watch dog pressure on mainstream institutions (Regulatory Commission Survey, Quality of Supply study)
o Awareness creation through Training and Primers (Handbook, Booklets, Civil Society news updates). Taking consumer participation from grievance redressal to public interest
o Analysis tools for civil society use (Electricity Governance Tool kit, Generation tariff calculation tool, Demand-Supply tool, etc.)
o Analysis Support to civil society Campaigns (World Bank role, WWF on Demand Side Management, etc.)
o Consensus building – bringing together public interest actors towards analysis and developing alternatives
o Supporting good initiatives of the State (programs, people)
o Exposing gross in-efficiencies

- Direct intervention in Policy, Planning & Regulatory processes

o Feedback on National Policies
o Inputs to strategy documents of influential actors like the World Bank, Asian Development Bank
o Participation in 5-year plan through the Working Group on Power
o Participation in State (more) and Central Regulatory processes

Success
Enron campaign: Key analysis support and campaign supporter. Exposed the PPA through techno-economic analysis and prepared popular booklet. PEG gave key inputs to the review committee, which produced a comprehensive report and suggested judicial review. This was not followed up with the result that those responsible for the mistake were not nailed.

Democratising the Regulatory system: Early intervention while the regulatory system was being set up helped to introduce public interest provisions. PEG participated in the regulatory processes in Maharashtra and few other States to evolve and demonstrate Transparency, Accountability and Participation. Survey reports like the Electricity Regulatory Commissions' survey, Quality of Supply helped to pressure on RCs. PEG catalysed groups in few states (AP, Karnataka, Haryana etc) for regulatory intervention. Continuous monitoring on a long term basis and evolution of a number of capable, analysis and intervention groups are key challenges.

Credibility building: Civil Society groups (Indian and International) and well meaning State actors have high expectations from PEG.

Limited Impact

National Policies & Plan: Gave inputs to national policies prepared subsequent to the Electricity Act 2003. This included National Electricity Policy, National Tariff Policy, National Electricity Plan and 11th Five-year plan. Succeeded in many critical changes including: transparency in the competitive bidding process, State support for capability building of consumer groups, integrating energy efficiency into rural electrification, increased emphasis on energy efficiency institutions, mentioning the need for techno-economic evaluation of high-tech investment. A lot of ground work is needed to create any impact in the planning documents.

Developing alternate models: Could not do a comprehensive critique of the crucial Electricity Act 2003 or the Integrated Energy Policy 2006; could not realise alternate to the World Bank promoted reform models; could not force planners to adopt Integrated Resource Planning, though some components like energy efficiency were; limited impact on the 11th five year plan preparation (see Box).

Limited strategic use of spaces: Lack of capacity has resulted in under utilisation of spaces created after years of work. Participation of poor in tariff public hearings, committees or consultation processes continues to be low. Level of involvement of academic community in theoretical analysis of the sector restructuring has been low.

Challenges & Lessons

Public interest oriented work in this mainstream sector is not easy. There are many vested interests (public and private) who wish to mystify the sector (limiting it to a domain of ‘experts') and reduce the influence of actors like PEG. Commitment, credibility bank and a supporting constituency are the only defences of PEG. Identifying funding sources ready to support such a long lead time policy work (without exerting agenda setting pressures) is not easy. Finding and retaining committed competent continuous learners, who feel challenged by the multi-dimensional nature of work (technical, economic, social, political and legal) in PEG has not been easy. Eroding social recognition for PEG kind of work is often a bigger issue than compensation. Developing a balanced approach between nurturing creativity and enforcing minimal systems & procedures is very tough. Developing and practising public accountability of PEG's own work is not easy.

Over the years, PEG has realised the importance of persistent long term proactive engagement and early process interventions. Political understanding is as critical as techno-economic grasp. Engagement at the macro level (like critique of World Bank Country Strategy) is important, but staying rooted with ground level work should never be given up. Paradigm level shifts take time and have political dimensions. Preparing the links which, along with works of others could weave together to create a paradigm is equally important, a realistic aim and is often satisfying, because of small successes.

Comments on Sreekumar's note by Uma

Very few groups have done such focussed work as Prayas, for which there is also a lot of recognition both from the government as well as civil society. There is a lot of expectation from your group, and I am sure you are eager to do more. One of the things we need to do is to see electricity in the context of our overall energy policy. Widening the debate seems to be so very important today with climate change pressure picking up. So Prayas Energy group may have to expand or collaborate with others in the larger energy debate direction.

Your general intent is very noble and in a direction that I agree and support. On people's controlled micro-power generating units, we set out with the same idea about a decade back before retreating. The regulation conditions were a bit different then, but the reason why we retreated then holds true even today--1) "green" energies have low energy densities and therefore find it difficult or nearly impossible to compete with fossil fuels. After nearly 30 years of pushing bio-gas plants, solar cookers by GOI and NGOs, they still contribute a very miniscule percent of rural India's cooking energy needs. 2) Managing technology is not as easy or simple as you may believe it to be, for example, simple technologies like a drinking water hand pump installed under various schemes, lies broken and unused for lack of collective management organizations. 3) It is not accurate to say that green technologies are absolutely non-polluting. Land use changes, if caused by the great amount of land that solar panels or wind farms gobble, may cause CO2 emissions.

Reducing technology costs, even non-conventional energy technologies, is supply side management, and will not work as it will only increase demand for power, both for conventional and non-conventional sources. Much has been written on how the Jevons paradox and the Khazoom-Brooks postulate come into play the moment cost of goods/ services are brought down through increased technology efficiency or other means. Jevons writes about how a 70% reduction in coal consumption to make steel in the 19th C, increased steel consumption in Scotland by 10 fold between1830-1863.

There is a general misnomer that electric cars are better. Ultimately electric cars use primary energy sources like coal, oil or gas being burnt at power plants. Their efficiency is ~15% as compared to nearly 45% that a diesel car is able to deliver. Electric cars are nearly three times as polluting as diesel cars, except that the point of pollution is ultimately at the power plant, and in intermediary sense, at the various production and transport points. The more energy you use to produce a good or service and the more energy conversion you do, the less efficient is the overall use of primary energy. The path towards a solution, in the era of peak oil, is not even more and better public transport and less of or no private transport, but less of fossil fuel-based prime movers, and that includes fuel cell vehicles.

Of course much more discussion is required than this to arrive at the end points that we are looking at and a practical road map to get there. Some of that I am sure will happen when we meet.

I do wish to again add that I am completely with you regarding your sentiment to move towards a cleaner world that is more in control of people, and what I have said is not to put down anything that you have said but to throw in my 2-bits the roadblocks that your suggestions will run into.