By - King Stubb & Kasiva on October 28, 2023
With the rise in temperatures and delayed monsoons, there has been an increase in the consumption of electricity this in turn led to an increased power demand, and immense pressure on governments to meet this need. According to data from the Grid Controller of India, the country witnessed an unprecedented peak shortage of 9.11 gigawatts (GW) in August 2023. Subsequently, demand increased to 234GW, resulting in a peak shortage exceeding 7GW.
These fluctuations in demand and supply were felt in Karnataka (hereinafter, State), which faced a significant power shortfall of approximately 1,500-2,000 MW. In October, it was observed that the generation of renewable energy significantly reduced. Heavy rains in the coal mines, the source of coal for the State’s thermal power plants, caused wet coal, leading to frequent breakdowns in power plants managed by Karnataka Power Corporation Limited (KPCL).
The state government introduced the 'Gruha Jyoti Scheme' aimed at providing free power to the state's citizens. Under this scheme, every residential household in Karnataka was entitled to receive free electricity for up to 200 units. However, the consequence of this well-intentioned initiative was that consumers began to excessively utilise their allotted units. This increase in power consumption, coupled with the reasons mentioned above created an unexpected power shortage. To tackle the problem, the State negotiated power swaps and procured short-term tenders and soon thereafter invoked Section 11 of the Electricity Act, 2003 (“Act”).
Section 11, framed for use in extraordinary circumstances such as threats to the state's security or natural calamities, permits the government to direct power generators to prioritise the supply of electricity to specific sectors. While this directive is crucial for ensuring essential services receive power during crises, determining fair compensation for private generators has proven to be a serious issue.
By invoking Section 11 citing public welfare reasons, the State Government has once again brought to the forefront the challenges associated with compensating private generators for their losses during power shortages, which often results in prolonged legal disputes.
The lack of clarity in the Act regarding the methodology for calculating compensation has led to disagreements between the government and private parties. In past instances, wherein Section 11 was invoked, the facts resulted in disputes over provisional tariffs, with the Karnataka Electricity Regulatory Commission eventually deciding on a compensation rate.
Furthermore, timely compensation remains a concern, especially given the historical delays in payments by state distribution companies to generators even under normal circumstances. The inherent commercial nature of these transactions differs from the government's political mandate to provide subsidised power to the public. Balancing these interests is essential to ensuring both public welfare and the viability of private power generation entities.
While challenges lie ahead, what possible solutions can the state explore?
Although Section 11 serves an important purpose during energy crises, its implementation requires a more transparent and streamlined compensation process and efficient energy banking is a viable solution that should be considered.