Policy Briefs & Reports

Fixated on Megawatts: Urgent Need to Improve Power Procurement and Resource Planning by Distribution Companies in India

Ashwini K Swain
Daljit Singh

Centre for Energy, Environment & Resources

July 10, 2018

In India, there is great concern over the retail tariffs being charged for electricity, but ironically little attention is paid to the components of overall costs. Power generation makes up 70-80% of the cost of supplying electricity, and power procurement practices have a significant effect on that cost. Yet almost no attention is paid to how discoms procure power. The recent swings between shortages and surpluses of generating capacity point to serious shortcomings in power procurement practices of discoms. The challenge of effective power procurement will be even greater in the future. Discoms will need to deal with increasing amounts of renewable energy in the resource mix. Smart homes, self-generation and the presence of electric vehicles will add to the challenges and magnify the uncertainty.

Clearly there is an urgent need to improve the power procurement practices in the country to address these challenges. Effective power procurement practices can also facilitate greater energy access through a decrease in the cost per kWh of providing electricity, which will allow access to electricity for a greater number of people for the same amount of money.

This study analyses the current practice of resource planning and power procurement in three states: Delhi, Punjab and Uttar Pradesh. Building on the analysis and drawing from a review of international experience, the study has developed recommendations for improving power procurement practices. The study makes a case for shifting the discourse beyond power procurement to resource planning which covers a broader range of activities. Resource Planning is the process used by discoms to meet the forecasted peak demand and total energy requirements of all their customers. Resource plans with a typical planning horizon of 10-20 years, also focus on cost-effectiveness, minimization of risk, and compliance with environmental and policy goals.