In the early 90s, when there was a change from command and control economy to a free-market economy, private investment was also permitted in the generation segment of the electricity sector. Some of the main agencies responsible for supplying power throughout India are the Electricity Authority (CEA) and State Electricity Boards27 (SEBs). The first period of reform began in the year 1991 with the introduction of the Independent Power Producers (IPP) paradigm. Thereafter, the Government of India initiated the reform process because of the following provided reasons: -
(a) the ever-widening gap between the demand and availability of electricity,
(b) the poor technical and financial performance of the State Electricity Boards, and
(c) the inability of the central and state governments to finance and mobilize resources for generation capacity expansion projects, making third party investment in power sector imperative.
Even after the introduction of the Electricity Act, electricity in India remained a commodity that could be sold to the state-owned monopolies only. The scenario at the present period is such that inadequate availability of fuel is obstructing the entry into the generation market thereby limiting competition. Even after the introduction of a provision of de-licensing in the generation segment of the electricity sector there are awaited list of clearances required to set up a power plant. The major narrow scope was in terms of the highly controlled input market concerning price and availability, especially in the case of coal and gas. On the other hand, the system of pricing in India’s coal sector has been far from being transparent. Resultantly, the two inputs (e.g. coal and natural gas) used for the production of electricity, are not substitutable
The captive power plants are thereby forced by the local distributors to sell the power only to these companies by denying access outside the state which therefore results in low prices for the generating company because of the resulting monopsony and thereby low capacity utilization. Another barrier to competition in the electricity sector is the continuation of exclusive power purchase agreements (PPAs) which limits the sales by generation companies to distribution companies operating in the concerned state. Finally, principles of competitive neutrality are violated regularly as government assistance is provided only to public sector distribution companies.
Furthermore, more issues gathering up for competition and regulation in the distribution segment are as mentioned below:
The distribution companies would normally be local monopolies in regional areas. The important issue is to expose the distribution companies to pressures of markets, namely to decisions of both consumers and investors, which requires a long-term systematic programme whereby the SEBs are restructured and privatized and the SERC and state governments implement the Open Access provisions made in the Electricity Act, 2003.
