Fulbright US-India Series: Pramod Deo | India's Longest Serving Electricity Regulator | Former Chairman of CERC

2022-08-17
Pramod Deo is India’s longest serving electricity regulator and former chair of the central electricity regulatory commission.
As India’s longest serving regulator, Dr. Deo has been a pioneer in enacting policies that help improve the integration of renewable energy into the Indian energy mix.
In this conversation, I ask Dr. Deo about how the Indian electricity system is structured and what the key challenges are for the system moving forward. ​​In this episode, we also listen to Sushanta Chatterjee, who is the chief regulatory officer of the central electricity regulatory commission, and has been serving for the last 7 years.
We focus our discussion on the present policies CERC is working on to ensure the smooth integration of renewable energy sources. ​

Topics covered in this podcast:
  • A brief introduction of Dr. Deo’s involvement in the energy sector of India
  • Can you talk about how the Indian electricity system is structured?
  • How has the congestion problem been dealt with, especially in terms of green corridors?
  • Which ministries manage what, in terms of how the grid is structured and operated?
  • The extent to which distribution companies are privatized in India 
  • Dr. Sushanta Chatterjee What are the key costs of renewable energy integration onto the grid?
  • Dr. Pramod Deo Breakdown of the subsidization policy and impacts on the DISCOM cash flow Primary reasons for why Discoms are not cash flow positive Are you optimistic the distribution challenges in India will improve?

Transcript

00:06 Karan Takhar
Hello everyone. This is Karan Takhar, and welcome to the Zenergy podcast. Over the past decade, India has done an impressive job of integrating renewable energy into its energy mix. For this Fulbright Podcast series, I sought to investigate the enabling factors and potential of India's global leadership in renewable energy. With a focus on solar, this Fulbright series is broken down into Four Seasons. This season we look at the next set of key technologies and regulations integral for unlocking India's continued renewable energy success at the system level. It includes conversations with leading regulators and thought leaders across energy management storage, transmission, and distribution. In this episode, I will be speaking with Pramod Deo who's India's longest-serving electricity regulator and former chair of the Central Electricity Regulatory Commission as India's longest-serving regulator Doctor Deo has been a pioneer in enacting policies that help improve the integration of renewable energy into the Indian energy mix. In this conversation, I asked Doctor Deo about how the Indian electricity system is structured and what the key challenges are for the electricity system moving forward. I hope you enjoy my conversation with Doctor Deo. Thank you, Dr. Deo, so much for participating in this interview. I really appreciate you taking the time. I want to ask you just to briefly introduce yourself so that listeners can get a little bit of an understanding of what you do and your involvement in the renewable energy sector in India and, even more broadly, the energy sector in India. Could you provide a brief introduction?

02:14 Parmod Deo
When I was an electricity regulator both at the state and central level, I was the first member and then chairman in Maharashtra. Electricity Regulatory Commission which is located in Mumbai. So it was generating interest rate or electricity matter in Maharashtra than in 2008 to 2013, I moved to enter and Exit Equality Commission.

02:46 Karan Takhar
Can you talk a little bit about how the Indian electricity system is structured, so I know it's a federalist structure in India? Yes,

03:10 Parmod Deo
I will explain that because, uh, under the Indian Constitution we have central subjects which fall in the list where only the central government has jurisdiction very good example of that is the entire petroleum sector because there was a dispute and this matter has been finally settled by Supreme Court because Gujarat state government had set up their own Petroleum Corporation and they had also started exploration activity so that is the clearly false we are under the purview of the Central Government and if you were to take Cole, Cole is also entirely within the purview of Central Government, but when it comes to electricity, it falls under the list called concurrent list but there are certain subjects which fall under the state electricity bill concurrent It means both central and state has jurisdiction and Central Government, Central Government, and State Government both can make laws to pertaining to that but if a central government makes a law that supersedes the state government, so when we talk about the new eletricity at 2003 under which various reforms were taken up and which gave a momentum to renewable energy, it was done in consultation with State Government and it has been moral is accepted by the State Government, but there are certain issues which will be always contested by state government and when it comes to implementation, finally it is the state governments who have jurisdiction on anything interested.

04:50 Karan Takhar
Yeah, just recently, India developed the synchronous grid, right? The national synchronous grid this has just been developed over the last eight or ten years or so, If I'm not mistaken.

05:04 Parmod Deo
That's right because the initial philosophy was Southern region was not made part of the National Grid. It was connected only through asynchronous mode, and it had a limited capacity for transfer of electricity, but let's run. It was realized, so the process started when I was Chairman CRT, and it was completed two years after that, and then that creates a loan problem like in the equity market, there is an issue of congestion because when the central grid was not part of it, there always used to be problems about congestion so when you were doing transaction on the exchange, you find that you could not really complete the transaction because of the capacity limitation, so to large extent that has been now taken care of.

06:02 Karan Takhar
So in terms of how the grid is structured and operated, which ministries manage what you could talk a little bit about this?

06:14 Parmod Deo
You have under the electricity law itself, you have a central transmission utility a central transmission's role is to do the planning for Interstate, so then the World Bank advised was that there should be a national-level transmission company, and that's how we Powergrid corporation was created The POSOCO is a system operator, so normally you find that the system operator has to be independent and in many countries like in the US, system operator is not controlled by government, POSOCO being part initially of CFE have continued to be government. But what they have done is It has been made an independent public sector company. So it gets its freedom in this autonomy. Now once we go to the state level state had in 1948 electricity supply they had a monolith where the generation, transmission, and distribution all were combined, they were called the state electricity boards so under the 2003 law, they had to separate make them into different entity generation could be a separate body and you have a distribution company you could have more than one distribution company and you will have your transmission company so most of the states did that, but there were some states they were reluctant to do that but most important condition was that India Electricity Act 2003 was in training and developing the market for electricity instead of it being controlled by government we market them naturally the carrier of electricity had to be a neutral body, so it was made mandatory that transmission company shall not be entering into any commercial transaction or the trading activity It will be only a carrier for electricity and its charges will be determined by the State Regulatory Commission so that's why we have these separate dark transmission companies in the state.

08:44 Karan Takhar
And then also the distribution companies within the states are generally owned by the states, or are they mostly private?

08:52 Parmod Deo
So they are unable to state there was an attempt by the World Bank for privatization. They tried first in Orissa, and Orissa's experiment has failed. I don't want to go into details, but it has been finally, we have come back full circle, whereas it has been a great success in the Capital City of Delhi. We should not only then did this directly is like, uh, and he said to talk about the Washington DC in the Capital Region you can find that there there there it is the joint sector, so 51% of the shares are owned by private and 49% by Delhi Government and there the and he said I did not development, but after that, there has not been really any privatization because the Chief Minister for the electricity is a very important political issue, so they don't want to lose control, and also I think the important thing is they want us to see the budget of this distribution sector is huge one, so like to give an example of the state of Maharashtra. It is of the order of 75,000 floors. So I don't think any chief minister Is very happy and willing to transfer part of it to the travel sector and other issues, considering you have a cross-subsidy built in the tariff structure, your main revenue comes from industrial and commercial and take in turn cross-subsidized agriculture and to some extent domestic so that being the case they would not like to part away with urban centers, In that case, they will find that the main this will prove it, although NCDR shame that privatization but then talk about it directly but if you see the tariff policy and it is its central government plan is that we should have more and more private sector managing distribution sector, but it is a big political challenge.

11:18 Karan Takhar
Now we will transition to listen to a brief clip from a conversation of mine with Doctor Sushanta Chatterjee, the Chief regulatory officer of the Central Electricity Regulatory Commission based in New Delhi, to explore his beliefs on the costs of renewable energy integration and also the work that SRK is doing in this space so just curious, ask like what are your thoughts on the challenges and costs of renewable energy integration are they like pretty substantive or do you see that these are solvable as renewable energy becomes like more increasingly integrated.

12:02 Sushanta Chatterjee
If you talk in terms of upgrade, parity, and integration from that point of view that we have already achieved so, but then the biggest problem in terms of, you know, creating an integration of the renewables or mainstream now dreaming of renewable Is their variability because you know even if they are available at will be 50% today In that range in China so the local you know load serving entities or the distribution company still would be reluctant because of the uncertainty that goes around, it's not firm. So what we call the capacity value of wind and solar, even at ₹2 and 50 paise, Is not as high as the capacity value of a thermal plant available.

12:55 Karan Takhar
Even though it's cheaper because it's not firm and reliable, it's not worth as much, essentially.

13:02 Sushanta Chatterjee
So as a regulator, our biggest challenge to overcome this constraint as to how we because these are realities which we cannot ignore how can you reduce their impact and make them more firm what the, uh, what the what is the biggest challenge for the regulator in terms of finding a solution for gradient exists?

13:27 Karan Takhar
Yeah, that makes so that.

13:29 Sushanta Chatterjee
Yeah, so that's how the whole, if you want to understand the regulatory perspective, all these initiatives that we are taking in terms of our integration, stems from this critical element that I highlighted, and so the the the the the Uh, challenge is to make the problem now what are the options available with you as a regulator the options first you try and improve their forecast because what they say is that I cannot do proper quota because the wind prediction I can't I don't know what time the wind and the sun will come so you have to make a person at improving you know the RMC is one initiative which the Government of India is second, which is called renewable Energy Management Center another important thing that we have done Uh, is the creation of a regulatory framework for forecasting union deviation, which serves as a model for the state but then.

14:43 Karan Takhar
I also was looking at the Maharashtra state discom paper that you actually sent me regarding the cross-subsidization policy and how, essentially, the policy is insufficient in terms of allowing the discount to achieve a positive cash flow just the way the subsidies are set up. It inherently does not allow the discount to retrieve positive cash flow from its different consumer categories.

15:22 Parmod Deo
The why discount the reason is like the marriage is a very good example 'cause I had sent you that marriage can giraffe both have salmonella because they're both highly industrialized water for industry is located there and also commercial would you mind going so high Issue concept at Maharashtra then for commercial crops like sugar cane y'all should know banana, so these commercial crops they're highly water intensive and Maharashtra the political structure, if you see, it was built around the cooperatives, so these sugar cooperatives are controlled by the at the grassroots level, and as you go up higher In the hierarchy you will find these are the same politician who rises who becomes from a counselor in the General Patricia that the district level they become the MLA, then they become the some of them will be going to the Member of Parliament at the center, so it's like a situation like what you have in US. After all, the congressmen are not going to do something which is going to harm their own interests. So because of that, electricity has a very interesting thing that electricity for agriculture is not metered.

16:57 Karan Takhar
So I'm looking at this Maharashtra lists all the consumer types. In the revenue contribution per category, the percent of total revenue the category makes up as a sum of the total average billing rates for that consumer category, as well as the average cost of supply. What I found really interesting was how In Maharashtra, for example, the agriculture there charged a tariff rate of three rupees 71 paise which cost of supply for the discom is ₹7.31 pop up, and then the industrial consumer is charged ₹8.76 paise to the average cost of supply of ₹7.31 paisa in my view, and I Would like to hear if this is correct, but just for my understanding of this is that the cost subsidization policy does not adequately cover the discom meaning the discount comes at a loss like its average cost of supplies. 7 rupees 31 paise. But since it charges such a low rate to the agricultural consumer, it's unable to make up achieve a positive cash flow.

18:21 Parmod Deo
Yes, but this is what has happened during this COVID period when the lockdown and the industries were not functioning commercial complexes were also closed down the revenue deficit has gone up with the astronomical level messaging is finding it very difficult to run it we should ensure consumer their consumption has gonna be given It's based on the average you want me to read you could not be taken now once the meter reading has been taken the bills are from very high the state government is again talking about giving subsidy again, with money has to come from the state government, so again, that shows that the political nature of electricity no, no, there's no easy solution because what has happened is that since the prices of pay like solar, have dropped drastically anyway, the wind also has gone down, so the reluctance on the part of the discounts by solar and wind has become less but the question is that integration of that has also its own cost, and that cost finally is passed on to the discord and because of that, because of the intermittent nature of solar and wind, one has to client they were running of power 16 In the client way, and that also carries the same cost so all these things factors have to be taken into account and that's why I can you find that when it comes to the payment to because most of the capacity set up in the green energy Is not private so all small players find it very difficult It is only when the Solar Energy Corporation damn, it started doing the bidding or Interstate and they started also providing the transmission facility that by the way, you find that the investment has picked up, and also the overseas funds are finding it attractive but to do at the state level.
It's going to be always a challenge unless you address the change basic problem and how do you run your discount. They have to be run as commercial entities. It should be arm away from the State government. They should not be political instruments of the state government, so that is the big challenge.

21:02 Karan Takhar
So are you optimistic that this challenge will be resolved?

21:07 Parmod Deo
An optimistic interface that has a more and more to make the battery cost of going down, and if you find that many consumers find that they can two without being dependent on the grid and they can manage on their own. What we have here is a different game. If that movement becomes true actually in, this course will be under pressure, and the state governments will have to think about how to do that. Obviously, they will try their best to do 50 Chatting. Finally, you are talking about making India at nearby Para states in India. In that case, this is something she's a bullet pitch. Politicians had to bite and how to do that is a challenge with the Prime Minister is facing.

22:09 Karan Takhar
I see Doctor Deo. Thank you so much for your time.

22:13 Parmod Deo
Thank you.

22:17 Karan Takhar
I hope you enjoyed that episode, and do check out the show notes. For more information on my guest, see you next time.
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