For years now there has been propaganda to push the idea of ‘open access’ in electricity transmission and distribution lines if capacity is available. For a while, I also thought that this could be a major breakthrough for optimising the supply-demand balance in electricity. I recall a television discussion with the then power minister before the Electricity Act 2003 was passed. I argued for power trading as a means to bring greater equilibrium between power supply and demand. The minister wondered how there could be trading in a situation where there was such a perennially large gap between supply and demand. My response was that in a large system like India’s, there are pockets of surplus even in the midst of severe overall shortage. Trading could move these surpluses to where there was demand, and price would determine who got the supply.
I realised over time that this was an oversimplification that did not take into account the complex and untenable situation to which India, by deliberate actions, has brought its power system. Until these artificial distortions are removed, open access and the creation of electricity markets would have only a marginal influence on the supply-demand equilibrium.
First, of course, is that there must be adequate transmission capacity for power to flow from points of surplus to where there is demand. There must be some redundancy (excess capacity) in these lines. They must always be well-maintained in all parts of the country so that the national grid can work seamlessly. The double collapse in two days of the Northern Grid earlier this year proved that none of these pre-conditions existed.
In 2000, the then Central Electricity Regulatory Commission introduced an availability-based tariff to bring a commercial mechanism to control frequency in the grid that till then varied considerably. This damaged fast-moving equipment like turbines, textile machinery, etc, while it may not have bothered the nationalised generators. It also had a financial impact on private power operators and industries. This required a day-ahead forecast made for 15-minute intervals by all major users and generators of electricity they would consume or supply, respectively. While there was provision for modification, anyone who substantially violated their forecast paid heavily for it. This penalty helped stabilise the frequency in the grids. But it also became a benchmark price that state electricity boards used when they had a surge in demand. They paid the penalty, but continued to overdraw