National Electricity Policy

03-Feb-2005

Under the provisions of section 3(1) of the Electricity Act, 2003, the Central
Government is required to prepare the National Electricity Policy for development of
the power system based on optimal utilization of resources. The Policy has been
evolved after extensive consultations with the States, other stake holders, the Central
Electricity Authority and after considering the advice of the Central Electricity
Regulatory Commission.

The National Electricity Policy is one of the key instruments for providing policy
guidance to the Electricity Regulatory Commissions in discharge of their functions
and to the Central Electricity Authority for preparation of the National Electricity
Plan. The Policy aims at accelerated development of the power sector, providing
supply of electricity to all areas and protecting interests of consumers and other
stakeholders keeping in view availability of energy resources, technology available to
exploit these resources, economics of generation using different resources, and energy
security issues. Salient features of the policy are given in Annexure.

Objectives of the Policy

a) Access to Electricity Available for all households in next five years.

b) Availability of Power Demand to be fully met by 2012. Energy and peaking

shortages to be overcome and spinning reserve to be available.

c) Supply of Reliable and Quality Power of specified standards in an efficient

manner and at reasonable rates.

d) Per capita availability of electricity to be increased to over 1000 units by

2012.

e) Minimum lifeline consumption of 1 unit/household/day as a merit good by

year 2012.

f) Financial Turnaround and Commercial Viability of Electricity Sector.

g) Protection of consumers interests.

Main thrust Areas

The National Electricity Policy lays down the approach for developing Rural
Electrification distribution backbone and village electrification to achieve the target of
completing household electrification in next five years as envisaged in the National
Common Minimum Programme. The policy also envisages financial support in terms
of capital subsidy to States for rural electrification and special preference to Dalit
Bastis, Tribal Areas and other weaker sections for rural electrification.

It seeks full development of hydro potential. Choice of fuel for thermal generation is
to be based on economics of generation and supply of electricity. Exploitation of
non-conventional energy sources such as small hydro, solar, biomass and wind for
additional power generation capacity is also envisaged. Development of National Grid
is an important feature of the Policy.

The Policy recognizes the need for ensuring recovery of cost of service from
consumers to make the power sector sustainable. The existing cross-subsidies for
other categories of consumers need to be reduced progressively and gradually.

The policy recognizes that a minimum level of support is required to make the
electricity affordable for consumers of very poor category. Consumers below poverty
line who consume below a specified level, say 30 units per month may receive special
support in terms of tariff which are cross-subsidized. Efforts would be made to ensure
that the subsidies reach the targeted beneficiaries in the most transparent and efficient
way.

The National Electricity Policy lays special emphasis on time bound reduction of
transmission and distribution losses and advocates promotion of competition aimed at
consumer benefits.

The policy estimates that to meet the objective of rapid economic growth and power
for all including household electrification, an investment of the order of Rs.9,00,000
crores would be required to finance generation, transmission, sub-transmission,
distribution and rural electrification projects upto the year 2012. Public sector
investments, both at the Central Government and State Governments, will have to be
stepped up and a sizeable part of the investments will need to be brought in from the
private sector. Public service obligations like increasing access to electricity to rural
households and small and marginal farmers have highest priority over public finances.

Private sector has various options for investments. To attract adequate private
investments in power sector, return on investment will need to be provided at par
with, if not preference to, investment opportunities in other sectors. Appropriate
balance will be maintained between the interest of the consumers and the needs for
investment.

Open access in transmission will promote competition and in turn lead to availability
of cheaper power. The policy emphasizes that the Regulatory Commissions need to
provide facilitative framework for non-discriminatory open access at the earliest
including technological upgradation of the State Load Dispatch Centres by June 2006
to ensure data acquisition capability on a real time basis.

Open access to distribution networks, initially for bulk consumers, would increase the
availability of cheaper and reliable power supply. State Regulatory Commissions have
been mandated to notify regulations by June 2005 for laying down the road map for
introducing open access in distribution. It has also been envisaged that the amount of
cross-subsidy surcharge and additional surcharge to be levied from consumers who
are permitted open access should not become so onerous that it eliminates
competition.

The Policy stipulates that Regulatory Commissions should regulate utilities based on
pre-determined indices on quality of power supply. Parameters should include
frequency and duration of interruption, voltage parameters, harmonics, transformer
failure rates, waiting time

for restoration of supply, percentage defective meters and waiting list of new
connections. The Commissions would specify expected standards of performance.

The policy emphasizes that the Central Government, State Governments and
Electricity Regulatory Commissions will facilitate capacity building of consumer
groups and their effective representation before the Regulatory Commissions. This
will enhance the efficacy of regulatory process.

Other features

The policy also emphasises on higher efficiency levels of generating plants through
renovation and modernization, transmission capacity to have redundancy level and
margins as per international standards, adequate transitional financial support for
reforming power utilities,

encouragement for private sector participation in distribution, putting in place

independent third party meter testing arrangement, adoption of IT system for ensuring
correct billing, speedy implementation of stringent measures against theft of
electricity, emphasis on augmentation of R&D base, energy conservation measures,
appropriate tariff structure for managing the peak load, development of training
infrastructure in regulation, trading and power market, providing boost to renewable
and non-conventional energy sources, and necessary regulations and early
appointment of Ombudsman for redressal of consumers grievances.

Annexure

Salient features of the National Electricity Policy

1. Aims at accelerated development of power sector, providing supply of electricity to

all areas and protecting interests of consumers and other stakeholders.

2. Objectives :

a) Access to Electricity Available for all households in next five years.

b) Availability of Power Demand to be fully met by 2012. Energy and
peaking shortages to be overcome and spinning reserve to be available.
c) Supply of Reliable and Quality Power of specified standards in an efficient
manner and at reasonable rates.
d) Per capita availability of electricity to be increased to over 1000 units by
2012.
e) Minimum lifeline consumption of 1 unit/household/day as a merit good by
year 2012.
f) Financial Turnaround and Commercial Viability of Electricity Sector.
g) Protection of consumers interests.

3. CEA to notify first National Electricity Plan in six months with a perspective up
12th Plan period. The Plan prepared by CEA to be used by prospective generating
companies, transmission utilities and transmission / distribution licensees as reference
document.

4. Development of Rural Electrification Distribution backbone, village electrification

and household electrification to achieve the NCMP target of completing household
electrification in next five years. Financial support in terms of capital subsidy to
States for rural electrification. Special preference to Dalit Bastis, Tribal Areas and
other weaker sections for rural electrification. REC to be nodal agency for rural
electrification at Central Government level.

5. Creation of adequate generation capacity with a spinning reserve of at least 5% by

2012 with availability of installed capacity at 85%.

6. Full development of hydro potential. Provision of long tenor finance for these
projects.

7. Choice of fuel for thermal generation to be based on economics of generation and

supply of electricity.

8. Development of National Grid.

9. Cost of recovery of service from consumers at tariff reflecting efficient costs to

ensure financial viability of the sector.

10. Provision of support to lifeline consumers (households below poverty line having
consumption of 30 units per month) in terms of tariffs.

11. Availability based tariff (ABT) to be extended to State level for better grid
discipline through economic signaling.

12. Special emphasis on time bound reduction of transmission and distribution losses.

13. Measures to promote competition aimed at consumer benefits.

14. Reliability and quality of power supply to be monitored by State Electricity

Regulatory Commissions.

15. Exploitation of non-conventional energy sources such as small hydro, solar,

biomass and wind for additional power generation capacity.

Other Features

16. Emphasis on achieving higher efficiency levels of generating plants through

necessary renovation and modernization.

17. Central Government to facilitate the continued development of national grid. CTU
and STU to undertake coordinated planning and development.
18. Transmission capacity to have redundancy level and margins as per international
standards.

19. Adequate transitional financial support for reforming power utilities.

Encouragement for private sector participation in distribution.

20. The State Regulatory Commissions to put in place independent third party meter
testing arrangement.

21. Support for adoption of IT system for ensuring correct billing to consumers.

22. Speedy implementation of stringent measures against theft of electricity.

23. Full emphasis on augmentation of R&D base. Mission approach for identified
priorities areas.

24. Demand side management through energy conservation measures. Labels

regarding energy efficiency to be displayed on appliances. Efficient agricultural
pumpsets and efficient lighting technologies to be promoted. Appropriate tariff
structure for managing the peak load.

25. Special attention for developing training infrastructure in the field of regulation,
trading and power market.

26. For giving boost to renewable and non-conventional energy sources, a prescribed
percentage of power, as specified by State Regulatory Commissions, to be purchased
from such sources of energy at the earliest.

27. Necessary regulations and appointing Ombudsman for redressal of consumers

grievances to be in place in six months.

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