Editorial 1 : Powering ahead with competition
Context: Governments should encourage more players in the power sector, not less
Advantages of Competitive Bidding
- Two decades ago, India introduced competitive bidding for electricity power procurement, which has yielded significant results in the form of greater competition and increased investments.
- Solar Sector: Competitive bidding-based price discovery leveraged rapid technological advancements to achieve efficient pricing for solar power.
- Tariffs fell from Rs 15/kWh in the initial bidding rounds of 2010 to Rs 2.80/kWh by 2018.
- About 27 GW of capacity was added, driven by the private sector.
- Wind Sector: Competitive bidding led to tariffs falling from Rs 5.30/kWh to Rs 2.50/kWh in just two years.
Advantages of Renewable Energy (RE) Sector
- Lower entry barriers as compared to traditional power sources - encourages participation from big as well as smaller players.
- Factors responsible:
- shorter gestation periods
- lower investment requirements
- absence of fuel-related risks
- modular nature of technologies, especially solar and battery energy storage.
- RE sector demonstrates a continuous learning curve, adapting with each new tender.
- Evolution from traditional power sources to renewable sources is evident in 3 key areas.
- Increased capacity
- Price reduction
- Improvements in tender conditions to meet the complex requirements of procurers.
Recent Development
- Some states are inviting bids for capacity from both coal and solar sources using a composite bid structure.
- These tenders require bidders to supply both energy sources, with selection based on an average tariff.
- These tenders represent the majority of both coal and solar capacity needs for these states over the next six to 10 years.
Issues with recent development
- Despite the composite bidding, actual power delivery timelines will differ significantly.
- Coal plants require about 6-7 years to become operational, compared to 1.5-2 years for solar projects.
- Allocating a majority of the future capacity to a single tender is akin to putting all eggs in one basket.
- It excludes smaller players due to the massive investments required.
- It eliminates potential tariff reductions and innovations that could result from spreading procurement across years — a benefit particularly relevant for solar projects with shorter gestation periods.
Adverse implications of requiring bidders to commit to substantial solar and coal capacity simultaneously
- It effectively excludes many developers from the bidding process.
- Some players may struggle to secure the necessary capital for investments at this scale.
- Developers without expertise in building and operating thermal power plants find themselves at a disadvantage, though they may be competitive in the solar sector.
- Thermal as well as solar plants will continue to operate independently, offering no particular advantage due to composite tendering.
- By concentrating procurement in large, composite tenders, states will be foregoing benefits of a more diverse, competitive, phase-wise and innovative power procurement.
Way Forward
- The advancement towards a robust wholesale power price discovery through competitive bidding should not be undermined by such arrangements.
- Measures are needed to foster competition and innovation.
- Distribution utilities should consider implementing an annual procurement calendar to acquire capacity, providing investors with greater clarity and certainty.
Conclusion: Given the ever-growing demand for reliable and affordable power, it is crucial to continue to move forward towards fostering competition and market development, and not take a step back.
Editorial 2 : Giving farms their due
Agriculture in Modi 3.0
- Bringing a minister (Shivraj Singh Chouhan) with ample experience as the longest serving Chief Minister of Madhya Pradesh, and who transformed agriculture in Madhya Pradesh, signalled a high priority that Agriculture and Rural Development may get under Modi 3.0.
PM-KISAN
- The first major decision of the new government was to distribute Rs 20,000 crore under PM-KISAN.
- It signalled clearly that direct cash transfers under the PM-KISAN scheme will continue under Modi 3.0.
Approval of New Schemes
- Union government approved 7 schemes for agriculture ranging from digitalisation of agriculture (land records, farmers’ identity cards, etc) to crop science for food and nutrition security in the backdrop of climate change, to horticulture for nutrition and profitability, livestock health and production for sustainability and profitability, natural resource management for climate resilience and clean environment, agriculture education for skilled human resources and Krishi Vigyan Kendras for better outreach for farmers.
- These are steps in the right direction, and if implemented properly and quickly, can bring rich returns, economically and politically.
Digitalisation of Agriculture
- First Step: Identification of farmers
- Second Step: Distinguishing between an owner-operator and a tenant
- The problem with oral tenancy is that those farmers have very limited access to institutional credit at seven per cent or four per cent, which owner-operators get.
- Digitalisation of agriculture has to go way beyond just identifying farmers.
- There is a need-to-know what crops they are growing, whether they are insured or not, how much fertiliser they are using, what is the status of their soils, whether they are receiving food subsidies etc.
- Triangulation of data sets related to agriculture in a common agri-stack is needed.
- Example: Linking data of soil health cards with fertiliser purchases.
- Triangulation of various data sets and using them to tweak fertiliser and food subsidies, can lead to massive savings and higher efficiency in the use of public resources.
- The marginal rates of returns from digitalisation of agriculture then can be more than 10 times the investment being made to do it, giving a tremendous boost to the sector.
Rural Development
- Rural Housing
- Government announced an additional 20 million houses to be built in rural areas.
- It would give another boost to the rural economy, creating jobs in rural areas for masons, carpenters, electricians, etc., besides giving much-needed dignity and hygiene to poor people in rural areas.
- Rural Roads
- Government announced its intention to invest Rs 75,000 crore under PM-Gram Sadak Yojana.
- The investments in rural roads give high returns in terms of agri-GDP and poverty alleviation, as it opens up markets for rural people.
Conclusion
Investment in the schemes for agriculture like digitalisation, climate-resilience and for rural development like housing, roads etc. brings hope both for agriculture and the rural economy.