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Going forward, PowerGrid wants to manage infrastructure part of business across India, says managing director
India has started work on a previously announced plan to separate the so-called carriage and content operations of existing power distribution companies, with state-owned PowerGrid Corp. of India Ltd (PGCIL) applying for the "wire" license for the Puri district in Orissa.
Going forward, PGCIL wants to manage the infrastructure part of the business across the country, said chairman and managing director (CMD) R.N. Nayak.Carriage refers to the distribution aspect and content to power itself. In industry argot, these are known as "wire" and "supply".
PGCIL has applied for the license with the Orissa Electricity Regulatory Commission that will allow the utility to manage the infrastructure part of the electricity distribution business in Puri that may be accessed by retail supply licensees.
"We have applied for a distribution licence. Right now, there is a unified license for the wire and the supply business. We have only applied for the wire business to the regulator for Puri. It is known as the distribution network operator. If we get the licence, this will be a demonstration project," said Nayak.
On 27 September, Mint reported the government's proposed plan that may enable people and companies in India to buy electricity from a power company of their choice, and have it supplied to them by the distribution network that services the neighbourhood in which they live.
Currently, no electricity regulator in the country is giving out such licences. Officials at the Orissa regulator couldn't immediately be reached."We have applied for the licence. It is for the regulator to decide upon it," said a second PGCIL executive who spoke on condition of anonymity.
The result, apart from choice for consumers, would be lower tariffs because of the competition. The UK, New Zealand, and 24 US states allow some form of retail competition in power.
"It will also provide impetus to smart grid applications, as efficiencies will become a critical factor. Hence, it will bring in concepts like demand-side management, time-of-day pricing, etc. Many reformed markets have implemented the concept. For example, in the UK, wires are owned by the national grid while 70-odd players have been licensed as electricity suppliers. Even emerging markets like the Philippines have gone this route," said Abhishek Poddar, a partner at AT Kearney Ltd.PGCIL's CMD thinks so.
"This will improve service and supply. If we are given the licence, the plan will be successful. We can replicate it elsewhere in the country. As our primary business is wire (in the transmission space), we want to become the wire line service provider. We don't want to be in the supply part of the business," said Nayak.
The national rollout of the plan would require changes in the Electricity Act of 2003.
"As a concept, separating the wire business from suppliers or power retailers is the right move and can usher in next-wave reforms, specially on the transmission and distribution and retail side," said AT Kearney's Poddar.
The power ministry has set up a group that is working on ways to implement the plan, which will require a separation of the distribution and the retail supply business, with separate licences for each. And given that consumers will be able to choose their supplier, multiple retail supply licences will have to be issued for each area.
"It will create a vibrant retail market, where consumers will have flexibility to choose suppliers based on quality and stability of supply and costs. This in turn will drive competitive pressures on both suppliers as well as infrastructure owners for efficiencies," Poddar said.
Most Indian states have monopoly power distributors with distribution licensees owning the distribution infrastructure. A plan such as the one being considered could motivate loss-making state distribution utilities to improve their operational and financial performance.
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