Electricity Act 2003, National Electricity Policy 2005, Tariff Policy

2006, Rural Electrification Policy 2006, Renewable Power Policies,

Regulations
Electricity Act 2003
Background (Need for the Act)
Create enough generating capacity to outgrow the situation of energy and peaking shortages and make
the country free of power cuts with some spare generating capacity so that the system is also reliable.
The sector is to be made financially healthy so that the state government finances are not burdened by
the losses of this sector.
The sector should be able to attract funds from the capital markets without government support.
Private sector should come forward to set up power plants in a big way
It is in this context that the Electricity Act, 2003 seeks to bring about a qualitative transformation of the
electricity sector through a new paradigm.
The Act seeks to create liberal framework of development for the power sector by distancing
Government from regulation.
It replaces the three existing legislations, namely, Indian Electricity Act, 1910, the Electricity (Supply) Act,
1948 and the Electricity Regulatory Commissions Act, 1998.
The Act came into force with effect from 10th June 2003.

Objectives of the Act are:

-To consolidate the laws relating to generation, transmission, distribution, trading and use of electricity,
-Promoting competition
-Protecting interest of consumers through creation of Forum for redressal of grievances
-Supply of electricity to all areas,
-Rationalization of electricity tariff,
-Ensuring transparent policies regarding subsidies,
-Promotion of efficient and environmentally benign policies,
-Constitution of Regulatory Commissions and establishment of Appellate Tribunal for matters connected
with power sector.
(an Appellate Tribunal for Electricity having jurisdiction throughout India has been set up to hear appeals
or original petitions against the orders of the The Central Regulatory Commission or State Regulatory
Commission etc and issue directions to any Appropriate Commission for the performance of its statutory
functions

Salient features of the Act are:

i. The Central Government to prepare a National Electricity Policy and tariff policy in consultation
with State Governments
ii. Optimal utilization of power generation resources of coal, natural gas, oil, hydro and renewable
energy sources
iii. Trading which implies "purchase of power for resale" has been identified as an independent and
licensed activity
 iv. Thrust to complete the rural electrification and provide for management of rural distribution by
Panchayats, Cooperative Societies, non-Government organisations, franchisees etc.
v. Provision for licence free generation and distribution in the rural areas.
vi. Generation being delicensed and captive generation being freely permitted. Hydro projects
would, however, need clearance from the Central Electricity Authority
This is aimed at enabling the consumers to setup their own plants to meet their power
requirements
The act also enables small industrial units to group together and set up captive plants
Captive power plants create competition for existing utilities to improve their performance.
vii. Private sector participation in transmission& distribution of electricity
viii. Cross subsidy to be gradually phased out along
ix. Establishment of Central State Electricity Regulatory Commission (CERC) and State Electricity
Regulatory Commission (SERC) for each state
x. Provision for payment of subsidy through budget.
xi. Provision for reorganisation or continuance of SEBs.
xii. Metering of all electricity supplied made mandatory.
xiii. An Appellate Tribunal to hear appeals against the decision of the CERC and SERCs.
xiv. Provisions relating to theft of electricity made more stringent. By punishment and fine

Abridged Version Covering Salient Sections in ELECTRICITY ACT 2003

THE ELECTRICITY ACT, 2003 [No.36 of 2003] [26th May, 2003]

This is an Act to consolidate the laws relating to generation, transmission, distribution, trading
and use of electricity and generally for taking measures conducive to development of electricity
industry, promoting competition therein, protecting interest of consumers and supply of
electricity to all areas, rationalization of electricity tariff, ensuring transparent policies regarding
subsidies, promotion of efficient and environmentally benign policies, constitution of Central
Electricity Authority, Regulatory Commissions and establishment of Appellate Tribunal and for
matters connected therewith or incidental thereto.
This act is published in xviii parts. Each part contains several sections

PART I PRELIMINARY contains definitions of terms used in the document covering

sections 1 and 2

PART II NATIONAL ELECTRICITY POLICY AND PLAN covering sections 3 to 6.

The Central Government shall, from time to time, prepare the National Electricity Policy and
tariff policy, in consultation with the State Governments and the Central Electricity Authority
(CEA) for development of the power system based on optimal utilisation of resources such as
coal, natural gas, nuclear, hydro and renewable sources of energy. The Central Government
shall publish National Electricity Policy and tariff policy from time to time and also review or
revise them.

Section 3: CEA shall prepare a National Electricity Plan in accordance with the National
Electricity Policy and notify such plan once in five years

Section 4: The Central Government shall, after consultation with the State Governments,
prepare and notify a national policy, permitting stand alone systems (including those based on
renewable sources of energy and other nonconventional sources of energy) for rural areas

Section 5: The Central Government shall also formulate a national policy, in consultation with
the State Governments and the State Commissions, for rural electrification and for bulk
purchase of power and management of local distribution in rural areas through Panchayat
Institutions, users' associations, cooperative societies, non-Governmental organisations or
franchisees.

Section 6: The concerned State Government and the Central Government shall jointly
endeavour to provide access to electricity to all villages i.e rural electrification

PART III GENERATION OF ELECTRICITY covering sections 7 to 11

Section 7: Any generating company may establish, operate and maintain a generating station
without obtaining a licence under this Act if it complies with the technical standards relating to
connectivity with the grid referred to in clause (b) of section 73.

Section 8. (Hydro-electric generation): Any generating company intending to set-up a

hydro electric generating station shall prepare and submit to the CEA for its concurrence, a
scheme estimated to involve a capital expenditure exceeding such sum, as may be fixed by the
Central Government, from time to time and also having best prospects for ultimate
development of the river or its tributaries for multipurpose uses

Section 9. (Captive generation): A person may construct, maintain or operate a captive

generating plant and dedicated transmission lines provided

(a) that the supply of electricity from the captive generating plant through the grid shall be
regulated in the same manner as the generating station of a generating company.
(b)that no licence shall be required for supply of electricity generated from a captive generating
plant to any licencee and to any consumer subject to the regulations made under subsection
(2) of section 42.]
(c) That person shall have the right to open access for the purposes of carrying electricity from
his captive generating plant to the destination of his use subject to availability of adequate
transmission facility
PART IV LICENSING covering sections from sections 12 to 24

Section 12. (Authorized persons to transmit, supply, etc., electricity): Only an

authorized person shall transmit electricity; or distribute electricity; or undertake trading in
electricity,

Section 13. (Power to exempt): The Appropriate Commission may under special conditions
and restrictions shall not apply section 12 to any local authority, Panchayat Institution, users'
association, co-operative societies, non-governmental organizations, or franchisees:

Section 14. (Grant of licence): The Appropriate Commission may on an application grant a
licence to any person for transmission distribution and trading in electricity
The Appropriate Commission may grant a licence to two or more persons for distribution of
electricity through their own distribution system within the same area,
The Central Transmission Utility or the State Transmission Utility, the Damodar Valley
Corporation, Government Company shall be deemed to be a transmission licensee
A person intending to generate and distribute electricity in a rural area shall not require any
licence for such generation and distribution of electricity,
Also a distribution licensee shall not require a licence to undertake trading in electricity.

Section 15. (Procedure for grant of licence): This section gives the procedure a person
has to follow to obtain a license

Section 18. (Amendment of licence): This section indicates the terms and conditions and
procedure for amendments in the license

Section 19. (Revocation of licence): This section indicates the terms and conditions and
procedure for revoking in the license

Section 24. (Suspension of distribution licence): This section gives the conditions under
which a license is suspended

PART V TRANSMISSION OF ELECTRICITY covering sections 25 to 41

Section 25. (Inter-State, regional and inter-regional transmission): For the purposes
mentioned in this section, the Central Government may make region wise demarcation of the
country and also make modifications to it.

Section 26. (National Load Despatch Centre): The Central Government to establish a
centre at the national level, to be known as the National Load Despatch Centre (NLDC) for
optimum scheduling and despatch of electricity among the Regional Load Despatch Centres
(RLDC).
The NLDC shall not engage in the business of trading in electricity and shall be operated by a
Government company or authority or corporation of the Central Government.

Section 27. (Constitution of RLDC): The Central Government shall establish a centre for
each region to be known as the Regional Load Despatch Centre having territorial jurisdiction as
determined by the Central Government.
No RLDC shall engage in the business of generation of electricity or trading in electricity.

Section 28. (Functions of Regional Load Despatch Centre): The Centre shall be
responsible for optimum scheduling and despatch of electricity within the region, in accordance
with the contracts entered into with the licensees or the generating companies operating in the
region; monitor grid operations; exercise supervision and control over the inter-State
transmission system; keep accounts of quantity of electricity transmitted through the regional
grid. The directions of the RLDC shall be complied with by the State Load Despatch Centre or
the licensee or the generating company

Section 30. (Transmission within a State): The State Commission shall facilitate and
promote transmission, wheeling and inter-connection arrangements for the transmission and
supply of electricity

Section 31. (Constitution of State Load Despatch Centres): The State Government
shall establish the State Load Despatch Centre operated by a Government company or any
authority or corporation
No State Load Despatch Centre shall engage in the business of trading in electricity.
The State Load Despatch Centre shall comply with the directions of the Regional Load Despatch
Centre.

Section 32. (Functions of State Load Despatch Centres): The Centre shall be the apex
body to ensure integrated operation of the power system in a State.
The Centre shall be responsible for optimum scheduling and despatch of electricity within a
State, monitor grid operations; keep accounts of the quantity of electricity transmitted through
the State grid.

Section 34. (Grid Standards): Every transmission licensee shall comply with such technical
standards, of operation and maintenance of transmission lines.

Section 38. (Central Transmission Utility and functions): The Central Government may
notify any Government company as the Central Transmission Utility (CTU) to undertake
transmission of electricity through inter-State transmission system; CTU shall not engage in the
business of generation of electricity or trading in electricity:

Section 39. (State Transmission Utility and functions):

The State Government may notify the Board or a Government company as the State
Transmission Utility to undertake transmission of electricity through intra-State transmission
system.

Section 40. (Duties of transmission licensees): It shall be the duty of a transmission

licensee - to build, maintain and operate an inter-State or intra state transmission system;
comply with the directions of the Regional Load Despatch Centre and the State Load Despatch
Centre; provide non-discriminatory open access to its transmission system for use by any
licensee or generating company on payment of the transmission charges;

Section 41. (Other business of transmission licensee): A transmission licensee may,

with prior intimation to the Appropriate Commission, engage in any business for optimum
utilisation of its assets under some specific terms and conditions

PART VI DISTRIBUTION OF ELELCTRICITY covering sections from 42 to 60

Section 42. (Duties of distribution licensee and open access): It shall be the duty of a
distribution licensee to develop and maintain an efficient, co-ordinated and economical
distribution system in his area of supply and to supply electricity in accordance with the
provisions contained in this Act.
The State Commission shall allow open access for wheeling of electricity on payment of
surcharge
Such surcharge shall not be leviable in case open access is provided to a person who has
established a captive generating plant for carrying the electricity to the destination of his own
use. Every distribution licensee shall establish a forum for redressal of grievances of the
consumers
Section 50. (The Electricity Supply Code): The State Commission shall specify an
electricity supply code to provide for recovery of electricity charges, intervals for billing of
electricity charges, disconnection of supply of electricity for non-payment thereof, restoration
of supply of electricity; measures for preventing tampering, distress or damage to electrical line
or meter.

Section 51. (Other businesses of distribution licensees): A distribution licensee may,

with prior intimation to the Appropriate Commission, engage in any other business for
optimum utilization of its assets under some specific terms and conditions.

Section 56. (Disconnection of supply in default of payment): This section indicates

the procedure for such a disconnection.

Section 57. (Standards of performance of licensee): The Appropriate Commission may,

specify standards of performance of a licensee

PART-VII TARIFF covering sections 61 to 66

Section 61. (Tariff regulations): The Appropriate Commission shall specify the terms and
conditions for the determination of tariff, guided by the principles namely:-
(a) generation, transmission, distribution and supply of electricity are conducted on commercial
principles;
(b) encourage competition, efficiency, economical use of the resources, good performance and
optimum investments;
(c) safeguarding of consumers' interest and at the same time, recovery of the cost of electricity
in a reasonable manner;
(d) rewarding efficiency in performance;
(e) promotion of co-generation and generation of electricity from renewable sources of energy;
(f) the National Electricity Policy and tariff policy:

Section 62. (Determination of tariff): The Appropriate Commission shall determine the
tariff for (a) supply of electricity by a generating company to a distribution licensee: (b)
transmission of electricity ;(c) wheeling of electricity; (d) retail sale of electricity:

Section 63. (Determination of tariff by bidding process): This section gives the
procedure for bidding

Section 65. (Provision of subsidy by State Government): If the State Government

requires the grant of any subsidy to any consumer or class of consumers in the tariff
determined by the State Commission, the State Government shall pay in advance the amount
to compensate the person affected (distribution licensee)

PART VIII WORKS (provisions for works to be carried out for laying electric lines)
covering sections 67 to 69

Section 67. (Provisions as to opening up of streets, sewer lines, railways, etc): The
conditions and procedure for carrying out such works for laying electric lines are given

Section 68. (Provisions relating to lying of Overhead lines):

PART IX CENTRAL ELECTRICITY AUTHORITY (Constitution and functions of

Authority) covering sections 70 to 75

Section 70. (Constitution, etc., of Central Electricity Authority): The Central Electricity
Authority, established under section 3 of the Electricity (Supply) Act, 1948 continue to function
under the electricity act 2003
The Authority shall consist of not more than fourteen Members (including its Chairperson) of
whom not more than eight shall be full-time Members to be appointed by the Central
Government.
The Chairperson shall be the Chief Executive of the CEA. The headquarters of the Authority
shall be at Delhi.

Section 73. (Functions and duties ofCEA):

(a) advise the Central Government on the matters relating to the national electricity policy,
formulate short-term and perspective plans for development of the electricity system
(b) specify the technical standards for construction of electrical plants, electric lines and
connectivity to the grid;
(c)specify the safety requirements for construction, operation and maintenance of electrical
plants and electric lines;
(d) specify the Grid Standards for operation and maintenance of transmission lines;
(e) specify the conditions for installation of meters for transmission and supply of electricity;
(g) advise the Appropriate Government and the Appropriate Commission on all technical
matters relating to generation, transmission and distribution of electricity;

Section 75. (Directions by Central Government to Authority): the Authority shall be

guided by directions from the Central Government in matters of policy involving public interest

PART X REGULATORY COMMISSIONS (Constitution, powers and functions of Central

Commission) covering sections 76 to 109

Section 76. (Constitution of Central Commission): The Central Electricity Regulatory

Commission, established under section 3 of the Electricity Regulatory Commissions Act, 1998
continues to function under this act

The Central Commission shall consist of a Chairperson and three other Members; the
Chairperson of the CEA shall be the Member, exofficio. The Chairperson and Members of the
Central Commission shall be appointed by the Central Government

Section 79. (Functions of Central Commission):

(a) to regulate the tariff of generating companies owned or controlled by the Central
Government;
(b) to regulate the inter-State transmission of electricity ; and also to determine tariff
(c) to issue licenses to persons to function as transmission licensee and electricity trader with
respect to their inter-State operations;
(d) to adjudicate upon disputes involving generating companies or transmission licensee
(e) to levy fees for the purposes of this Act;
(f) to specify Grid Code having regard to Grid Standards;
(g) to specify and enforce the standards with respect to quality, continuity and reliability of
service by licensees;
(h) to fix the trading margin in the inter-State trading of electricity, if considered, necessary;
(i) advise the Central Government on formulation of National electricity Policy and tariff policy;
promotion of competition, efficiency and investment in electricity industry;
In discharge of its functions, the Central Commission shall be guided by the National Electricity
Policy, National Electricity Plan and tariff policy

Section 80 & 81 (Central Advisory Committee): The Central Commission May appoint a
Committee to be known as the Central Advisory Committee to advise the Central Commission
on major questions of policy; quality and service provided by the licensees; protection of
consumer interest; electricity supply and overall standards of performance by utilities.

Section 82. (Constitution of State Commission): Every State Government shall,

constitute for the purposes of this Act, a Commission for the State to be known as the (name of
the State) Electricity Regulatory Commission:
The State Electricity Regulatory Commission, established by a State Government under section
17 of the Electricity Regulatory Commissions Act, 1998 shall continue under this act
The State Commission shall consist of not more than three Members, including the Chairperson
appointed by the State Government

Section 83. (Joint Commission): a Joint Commission may be constituted by an agreement

to be entered into - (a) by two or more Governments of States; or (b) by the Central
Government, in respect of one or more Union territories, and one or more Governments of
States,
The Joint Commission, constituted under section 21 A of Electricity Regulatory Commissions
Act, 1998 shall continue under this act
The Joint Commission shall consist of 1 Member from each of the participating States and
Union Territories and the Chairperson shall be appointed from amongst the Members by
consensus, failing which by rotation.
The Joint Commission shall determine tariff in respect of the participating States or Union
Territories separately and independently.

Section 86. (Functions of State Commission):

(a)determine the tariff for generation, supply, transmission and wheeling of electricity,
wholesale, bulk or retail, as the case may be, within the State
(b) regulate electricity purchase and procurement process of distribution licensees including the
price at which electricity shall be procured from the generating companies or licensees for
distribution and supply within the State;
(c) facilitate intra-State transmission and wheeling of electricity;
(d) issue licences to persons seeking to act as transmission licensees, distribution licensees and
electricity traders with respect to their operations within the State;
(e) promote co-generation and generation of electricity from renewable sources of energy
(f) adjudicate upon the disputes between the licensees, and generating companies
(g) specify State Grid Code and specify or enforce standards with respect to quality, continuity
and reliability of service by licensees.
The State Commission shall advise the State Government on promotion of the electricity
industry; and reorganization and restructuring of electricity industry in the State.

Section 87. (State Advisory Committee): The State Commission may establish a
Committee to be known as the State Advisory Committee to advise the Commission on policy,
services provided by the licensees; and protection of consumer interest.

PART XI APPELLATE TRIBUNAL FOR ELECTIRICITY covering sections from 110 to

125

Section 110. (Establishment of Appellate Tribunal): The Central Government shall

establish an Appellate Tribunal to be known as the Appellate Tribunal for Electricity to hear
appeals against the orders of the adjudicating officer or the Appropriate Commission under this
Act.

Section 111. (Appeal to Appellate Tribunal): Any person aggrieved by an order made by
an adjudicating officer under this Act (except under section 127) can appeal to the Appellate
Tribunal for Electricity:
Any person appealing against the order of the adjudicating officer levying any penalty shall,
while filing the appeal, deposit the amount of such penalty or it can be waved under special
conditions

Section 112. (Composition of Appellate Tribunal): The Appellate Tribunal shall consist
of a Chairperson and three other Members. The Chairperson of the Appellate Tribunal shall be
appointed by the Central Government after consultation with the Chief Justice of India. The
Members shall be appointed by the Central Government on the recommendation of the
Selection Committee

Section 120. (Procedure and powers of Appellate Tribunal): The Appellate Tribunal
shall have the same powers as are vested in a civil court
Section 125. (Appeal to Supreme Court): Any person aggrieved by any decision or order of the
Appellate Tribunal may file an appeal to the Supreme Court
PART XII INVESTIGATION AND ENFORCEMENT (unauthorized use of electricity)
covering sections from 126 to 130

Section 126: (Assessment): --- If on an inspection the assessing officer comes to the
conclusion that a person is indulging in unauthorized use of electricity, he shall provisionally
assess the electricity charges payable by such person and served upon him

Section 127. (Appeal to Appellate Authority): Any person aggrieved by the final order
made under section 126 may appeal to an appellate authority. The judgement of the appellate
authority shall be final

Section 128. (Investigation of certain matters): The Appropriate Commission may, on

being satisfied that a licensee or a generating company has failed to comply with any of the
provisions of this Act or rules or regulations may , direct "Investigating Authority" to investigate
and report to that Commission

Section 129. (Orders for securing compliance): Where the Appropriate Commission, on
the basis of investigations, is satisfied that a licensee or the generating company has
contravened or is likely to contravene any of the provisions of this Act, it shall, direct them for
securing compliance.

PART XIII REORGANISATION OF STATE ELECTRICITY BOARD covering sections

from 131 to 134

Section 131. (Vesting of property of Board in State Government): With effect from
the date the State Government decides to implement the reorganization of Board any property,
interest in property, rights and liabilities which immediately before the effective date belonged
to the State Electricity Board shall vest in the State Government

Section 132. (Use of proceeds of sale or transfer of Board, etc.): In the event that a
Board is sold or transferred, the proceeds shall be utilized in priority in the following order,
namely :-
(a)payment of dues (including retirement benefits due) to the officers and employees of such
Board
(b) payment of debt or other liabilities of the transferor as may be required by the existing loan
covenants.

Section 133. (Provisions relating to officers and employees): The State Government
may, by a transfer scheme, provide for the transfer of the officers and employees to the
transferee on the vesting of properties, rights and liabilities in such transferee as provided
under section 131.
Section 134. (Payment of compensation or damages on transfer): the transfer of the
employment of the officers and employees referred to in section 133 shall not entitle such
officers and employees to any compensation or damages

PART XIV OFFENCES AND PENALTIES covering sections 135 to 152

Section 135. (Theft of Electricity): Theft means dishonestly tapping electricity, tampering a
meter, installing or using a tampered meter and damages or destroying a meter etc.
The licensee or supplier, as the case may be, may, upon detection of such theft of electricity,
immediately disconnect the supply of electricity:
This section prescribes fine to be imposed depending on the connected load (< 10 kW or > 10
kW)
For example when the connected load does not exceed 10 kilowatt, the fine imposed on first
conviction shall not be less than three times the financial gain on account of such theft of
electricity and in the event of second or subsequent conviction the fine imposed shall not be
less than six times but when the connected load exceeds 10 kW, there is imprisonment for the
second offence and further offences the person is debarred from getting an electrical
connection.

Section 136. (Theft of electric lines and materials):

A person committed an offence of theft of electric lines and materials, shall be punishable with
imprisonment for a term which may extend to three years or with fine or with both and for
further offences a person can be imprisoned upto five years and shall also be liable to fine
which shall not be less than ten thousand rupees.

Section 140. (Penalty for intentionally injuring electric works): Whoever, with intent
to cut off the supply of electricity, cuts or injures any electric supply line or works shall be
punishable with fine which may extend to ten thousand rupees.

Section 141. (Extinguishing public lamps):

Whoever, maliciously extinguishes any public lamp shall be punishable with fine which may
extend to two thousand rupees.

Section 145. (Civil courts not to have jurisdiction and no injunction shall be granted by any
court in respect of any action taken under the electricity act):

Section 152. (Compounding/ compromising of offences): The amounts to be paid for

this purpose are:
Industrial Service twenty thousand rupees;
Commercial Service ten thousand rupees;
Agricultural Service two thousand rupees;
Other Services four thousand rupees:
The Compounding of an offence shall be allowed only once for any person or consumer.

PART XV SPECAIL COURTS covering sections from 153 to 157

Section 153. (Constitution of Special Courts): The State Government may, for the
purposes of providing speedy trial of offences may constitute Special Courts

Section 154 & 155 (Powers of special court)

Section 157. (Review): The Special Court may on a petition or otherwise and in order to
prevent miscarriage of justice, review its judgment or order passed.

PART XVI DISPUTE RESOLUTION Arbitration

Section 158. (Arbitration):

Where any matter is, by or under this Act, directed to be determined by arbitration, the
Appropriate Commission may nominate the arbitration

PART XVII OTHER PROVISIONS (Protective Clauses) covering sections 159 to 165

Section 159. (Protection of railways, highways, airports and canals, docks, wharfs
and piers): No person shall, in the generation, transmission, distribution, supply or use of
electricity, in any way injure any railway, highway, airports, tramway, canal or water-way or any
dock, etc.

Section 160. (Protection of telegraphic, telephonic and electric signalling lines):

Every person generating, transmitting, distributing, supplying or using electricity shall take all
reasonable precautions in constructing, lying down and placing his electric lines, electrical plant
and other works in protecting telegraphic, telephone or electric signaling communication line
etc. Where a person makes default in complying with the requirements of these sections, he
shall make full compensation for any loss or damage incurred

PART XVIII MISCELLANEOUS covering sections 166 to 185

Section 166. (Coordination Forum): The Central Government shall constitute a

coordination forum for smooth and coordinated development of the power system in the
country.

The Central Government shall also constitute a forum of regulators

The State Government shall constitute a Coordination Forum
There shall be a committee in each district

Section 167. (Exemption of electric lines or electrical plants from attachment in certain cases):
Section 168. (Protection of action taken in good faith):
No suit, prosecution or other proceeding shall lie against the Appropriate Government or
Appellate Tribunal or the Appropriate Commission etc for anything done in good faith.

Section 170. (Recovery of penalty payable under this Act): Any penalty payable by a
person under this Act, if not paid, may be recovered as if it were an arrear of land revenue.

Section 176. (Power of Central Government to make rules): The Central Government
may make rules for carrying out the provisions of this Act.

Section 178. (Powers of Central Commission to make regulations): The Central

Commission may make regulations consistent with this Act and the rules generally to carry out
the provisions of this Act.

Section 180. (Powers of State Governments to make rules): The State Government
may make rules for carrying out the provisions of this Act.

Section 181. (Powers of State Commissions to make regulations): The State

Commissions may make regulations consistent with this Act and the rules generally to carry out
the provisions of this Act.

Section 184. (Provisions of the Act not to apply in certain cases): The provisions of
this Act shall not apply to the Ministry or Department of the Central Government dealing with
Defence, Atomic Energy.

Section 185. (Repeal and saving): Save as otherwise provided in this Act, the Indian
Electricity Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity Regulatory
Commissions Act, 1998 are hereby repealed.
National Electricity Policy 2005
1.0 INTRODUCTION

1.1 In compliance with section 3 of the Electricity Act 2003 the Central Government hereby
notifies the National Electricity Policy.
1.2 Electricity is an essential requirement for all facets of our life. It has been recognized as a
basic human need. It is a critical infrastructure on which the socio-economic development of
the country depends. Supply of electricity at reasonable rate to rural India is essential for its
overall development. Equally important is availability of reliable and quality power at
competitive rates to Indian industry to make it globally competitive and to enable it to exploit
the tremendous potential of employment generation. Services sector has made significant
contribution to the growth of our economy. Availability of quality supply of electricity is very
crucial to sustained growth of this segment.
1.3 Recognizing that electricity is one of the key drivers for rapid economic growth and poverty
alleviation, the nation has set itself the target of providing access to all households in next five
years. As per Census 2001, about 44% of the households do not have access to electricity.
Hence meeting the target of providing universal access is a daunting task requiring significant
addition to generation capacity and expansion of the transmission and distribution network.
1.4 Indian Power sector is witnessing major changes. Growth of Power Sector in India since its
Independence has been noteworthy. However, the demand for power has been outstripping
the growth of availability. Substantial peak and energy shortages prevail in the country. This is
due to inadequacies in generation, transmission & distribution as well as inefficient use of
electricity. Very high level of technical and commercial losses and lack of commercial approach
in management of utilities has led to unsustainable financial operations. Cross-subsidies have
risen to unsustainable levels. Inadequacies in distribution networks has been one of the major
reasons for poor quality of supply.
1.5 Electricity industry is capital-intensive having long gestation period. Resources of power
generation are unevenly dispersed across the country. Electricity is a commodity that can not
be stored in the grid where demand and supply have to be continuously balanced. The widely
distributed and rapidly increasing demand requirements of the country need to be met in an
optimum manner.
1.6 Electricity Act, 2003 provides an enabling framework for accelerated and more efficient
development of the power sector. The Act seeks to encourage competition with appropriate
regulatory intervention. Competition is expected to yield efficiency gains and in turn result in
availability of quality supply of electricity to consumers at competitive rates.
1.7 Section 3 (1) of the Electricity Act 2003 requires the Central Government to formulate, inter
alia, the National Electricity Policy in consultation with Central Electricity Authority (CEA) and
State Governments. The provision is quoted below:
"The Central Government shall, from time to time, prepare the National Electricity Policy and
tariff policy, in consultation with the State Governments and the Authority for development of
the power system based on optimal utilization of resources such as coal, natural gas, nuclear
substances or materials, hydro and renewable sources of energy".
Section 3 (3) of the Act enables the Central Government to review or revise the National
Electricity Policy from time to time.
1.8 The National Electricity Policy aims at laying guidelines for 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.
1.9 The National Electricity Policy has been evolved in consultation with and taking into account
views of the State Governments, Central Electricity Authority (CEA), Central Electricity
Regulatory Commission (CERC) and other stakeholders.
2.1 AIMS & OBJECTIVES

The National Electricity Policy aims at achieving the following objectives:

• Access to Electricity - Available for all households in next five years
• Availability of Power - Demand to be fully met by 2012. Energy and peaking shortages to
be overcome and adequate spinning reserve to be available.
• Supply of Reliable and Quality Power of specified standards in an efficient manner and
at reasonable rates.
• Per capita availability of electricity to be increased to over 1000 units by 2012.
• Minimum lifeline consumption of 1 unit/household/day as a merit good by year 2012.
• Financial Turnaround and Commercial Viability of Electricity Sector.
• Protection of consumers' interests.
3. NATIONAL ELECTRICITY PLAN

3.1 Assessment of demand is an important pre-requisite for planning capacity addition. Section
3 (4) of the Act requires the Central Electricity Authority (CEA) to frame a National Electricity
Plan once in five years and revise the same from time to time in accordance with the National
Electricity Policy. Also, section 73 (a) provides that formulation of short-term and perspective
plans for development of the electricity system and coordinating the activities of various
planning agencies for the optimal utilization of resources to subserve the interests of the
national economy shall be one of the functions of the CEA. The Plan prepared by CEA and
approved by the Central Government can be used by prospective generating companies,
transmission utilities and transmission/distribution licensees as reference document.
3.2 Accordingly, the CEA shall prepare short-term and perspective plan. The National Electricity
Plan would be for a short-term framework of five years while giving a 15 year perspective and
would include:
 • Short-term and long term demand forecast for different regions;
• Suggested areas/locations for capacity additions in generation and transmission keeping
in view the economics of generation and transmission, losses in the system, load centre
requirements, grid stability, security of supply, quality of power including voltage profile
etc. and environmental considerations including rehabilitation and resettlement;
• Integration of such possible locations with transmission system and development of
national grid including type of transmission systems and requirement of redundancies;
and
• Different technologies available for efficient generation, transmission and distribution.
• Fuel choices based on economy, energy security and environmental considerations.
3.3 While evolving the National Electricity Plan, CEA will consult all the stakeholders including
state governments. Projections made by distribution utilities would be given due weightage.
CEA will also interact with institutions and agencies Projected growth rates for different sectors
of the economy will also be taken into account in the exercise of demand forecasting.
4.1 ISSUES ADDRESSED

The policy seeks to address the following issues:

• Rural Electrification
• Generation
• Transmission
• Distribution
• Recovery of Cost of services & Targetted Subsidies.
• Technology Development and Research and Development (R&D)
• Competition aimed at Consumer Benefits
• Financing Power Sector Programmes Including Private Sector Participation.
• Energy Conservation
• Environmental Issues
• Training and Human Resource Development
• Cogeneration and Non-Conventional Energy Sources
• Protection of Consumer interests and Quality Standards
5.1 RURAL ELECTRIFICATION

5.1.1 The key development objective of the power sector is supply of electricity to all areas
including rural areas as mandated in section 6 of the Electricity Act. Both the central
government and state governments would jointly endeavour to achieve this objective at the
earliest. Determined efforts should be made to ensure that the task of rural electrification for
securing electricity access to all households and also ensuring that electricity reaches poor and
marginal sections of the society at reasonable rates is completed within the next five years.
5.1.2 Reliable rural electrification system will aim at creating the following:
(a) Rural Electrification Distribution Backbone (REDB) with at least one 33/11 kv (or 66/11 kv)
substation in every Block and more if required as per load, networked and connected
appropriately to the state transmission system
(b) Emanating from REDB would be supply feeders and one distribution transformer at least in
every village settlement.
(c) Household Electrification from distribution transformer to connect every household on
demand.
(d) Wherever above is not feasible decentralized distributed generation facilities together with
local distribution network would be provided so that every household gets access to electricity.
This would be done either through conventional or non-conventional methods of electricity
generation
(e) Development of infrastructure would also cater for requirement of agriculture & other
economic activities including irrigation pump sets, small and medium industries, khadi and
village industries, cold chain and social services like health and education.
5.1.3 Particular attention would be given in household electrification to dalit bastis, tribal areas
and other weaker sections.
5.1.4 Rural Electrification Corporation of India, a Government of India enterprise will be the
nodal agency at Central Government level to implement the programme
5.1.5 Subsidies should be properly targeted at the intended beneficiaries in the most efficient
manner. Government recognizes the need for providing necessary capital subsidy and soft long-
term debt finances for investment in rural electrification
5.1.6. Responsibility of operation & maintenance and cost recovery could be discharged by
utilities through appropriate arrangements with Panchayats, local authorities, NGOs and other
franchisees etc.
5.2 GENERATION

5.2.1 Inadequacy of generation has characterized power sector operation in India. To provide
availability of over 1000 units of per capita electricity by year 2012 it had been estimated that
need based capacity addition of more than 1,00,000 MW would be required during the period
2002-12.
5.2.2 The Government of India has initiated several reform measures to create a favourable
environment for addition of new generating capacity in the country. The Electricity Act 2003
has put in place a highly liberal framework for generation. There is no requirement of licensing
for generation. The requirement of techno-economic clearance of CEA for thermal generation
project is no longer there. For hydroelectric generation also, the limit of capital expenditure,
above which concurrence of CEA is required, would be raised suitably from the present level.
Captive generation has been freed from all controls.
Hydro Generation
5.2.5 Hydroelectricity is a clean and renewable source of energy. Maximum emphasis would be
laid on the full development of the feasible hydro potential in the country. The 50,000 MW
hydro initiative has been already launched and is being vigorously pursued with DPRs for
projects of 33,000 MW capacity already under preparation.
5.2.6 Harnessing hydro potential speedily will also facilitate economic development of States,
particularly North-Eastern States, Sikkim, Uttaranchal, Himachal Pradesh and J&K, since a large
proportion of our hydro power potential is located in these States. The States with hydro
potential need to focus on the full development of these potentials at the earliest.
5.2.7 Hydel projects call for comparatively larger capital investment. Therefore, debt financing
of longer tenure would need to be made available for hydro projects. Central Government is
committed to policies that ensure financing of viable hydro projects.
5.2.8 State Governments need to review procedures for land acquisition, and other
approvals/clearances for speedy implementation of hydroelectric projects.
5.2.9 The Central Government will support the State Governments for expeditious development
of their hydroelectric projects by offering services of Central Public Sector Undertakings like
National Hydroelectric Power Corporation (NHPC).
5.2.10 Proper implementation of National Policy on Rehabilitation and Resettlement (R&R)
would be essential in this regard so as to ensure that the concerns of project-affected families
are addressed adequately.
5.2.11 Adequate safeguards for environmental protection with suitable mechanism for
monitoring of implementation of Environmental Action Plan and R&R Schemes will be put in
place.
Thermal Generation
5.2.12 Even with full development of the feasible hydro potential in the country, coal would
necessarily continue to remain the primary fuel for meeting future electricity demand.
5.2.13 Imported coal based thermal power stations, particularly at coastal locations, would be
encouraged based on their economic viability. Use of low ash content coal would also help in
reducing the problem of fly ash emissions.
5.2.14 Significant Lignite resources in the country are located in Tamil Nadu, Gujarat and
Rajasthan and these should be increasingly utilized for power generation. Lignite mining
technology needs to be improved to reduce costs.
5.2.15 Use of gas as a fuel for power generation would depend upon its availability at
reasonable prices. Natural gas is being used in Gas Turbine /Combined Cycle Gas Turbine
(GT/CCGT) stations, which currently accounts for about 10 % of total capacity. Power sector
consumes about 40% of the total gas in the country. New power generation capacity could
come up based on indigenous gas findings, which can emerge as a major source of power
generation if prices are reasonable. A national gas grid covering various parts of the country
could facilitate development of such capacities.
5.2.16 Imported LNG based power plants are also a potential source of electricity and the pace
of their development would depend on their commercial viability. The existing power plants
using liquid fuels should shift to use of Natural Gas/LNG at the earliest to reduce the cost of
generation.
5.2.17 For thermal power, economics of generation and supply of electricity should be the basis
for choice of fuel from among the options available. It would be economical for new generating
stations to be located either near the fuel sources e.g. pithead locations or load centres.
5.2.18 Generating companies may enter into medium to long-term fuel supply agreements
specially with respect to imported fuels for commercial viability and security of supply.
Nuclear Power
5.2.19 Nuclear power is an established source of energy to meet base load demand. Nuclear
power plants are being set up at locations away from coalmines. Share of nuclear power in the
overall capacity profile will need to be increased significantly. Economics of generation and
resultant tariff will be, among others, important considerations. Public sector investments to
create nuclear generation capacity will need to be stepped up. Private sector partnership would
also be facilitated to see that not only targets are achieved but exceeded.
Non-conventional Energy Sources
5.2.20 Feasible potential of non-conventional energy resources, mainly small hydro, wind and
bio-mass would also need to be exploited fully to create additional power generation capacity.
With a view to increase the overall share of non-conventional energy sources in the electricity
mix, efforts will be made to encourage private sector participation through suitable
promotional measures.
Renovation and Modernization (R&M)
5.2.21 One of the major achievements of the power sector has been a significant increase in
availability and plant load factor of thermal power stations specially over the last few years.
Renovation and modernization for achieving higher efficiency levels needs to be pursued
vigorously and all existing generation capacity should be brought to minimum acceptable
standards. The Govt. of India is providing financial support for this purpose.
Captive Generation
5.2.24 The liberal provision in the Electricity Act, 2003 with respect to setting up of captive
power plant has been made with a view to not only securing reliable, quality and cost effective
power but also to facilitate creation of employment opportunities through speedy and efficient
growth of industry.
5.2.26 A large number of captive and standby generating stations in India have surplus capacity
that could be supplied to the grid continuously or during certain time periods. Under the Act,
captive generators have access to licensees and would get access to consumers who are
allowed open access. Grid inter-connections for captive generators shall be facilitated as per
section 30 of the Act.
Non-conventional energy sources including co-generation could also play a role. Appropriate
commercial arrangements would need to be instituted between licensees and the captive
generators for harnessing of spare capacity energy from captive power plants through the
appropriate Regulatory Commission
5.3 TRANSMISSION

5.3.1 The Transmission System requires adequate and timely investments and also efficient and
coordinated action to develop a robust and integrated power system for the country.
5.3.2 The Central Government would facilitate the continued development of the National Grid
for providing adequate infrastructure for inter-state transmission of power and to ensure that
underutilized generation capacity is facilitated to generate electricity for its transmission from
surplus regions to deficit regions.
The Central Transmission Utility (CTU) and State Transmission Utility (STU) have the key
responsibility of network planning and development based on the National Electricity Plan in
coordination with all concerned agencies as provided in the Act.
The State Regulatory Commissions have to notify the grid code under the Electricity Act 2003
5.3.3 Open access in transmission has been introduced to promote competition amongst the
generating companies who can now sell to different distribution licensees across the country.
This should lead to availability of cheaper power.
The Regulatory Commissions need to provide facilitative framework for non-discriminatory
open access.
5.3.4 The Act prohibits the State transmission utilities/transmission licensees from engaging in
trading in electricity. Power purchase agreements (PPAs) with the generating companies would
need to be suitably assigned to the Distribution Companies, subject to mutual agreement.
The appropriate Commissions shall establish transmission charges.
5.3.5 A well planned and strong transmission system will ensure not only optimal utilization of
transmission capacities but also of generation facilities and would facilitate achieving ultimate
objective of cost effective delivery of power. To facilitate cost effective transmission of power
across the region, a national transmission tariff framework needs to be implemented by CERC.
5.3.6 The necessary regulatory framework for providing non-discriminatory open access in
transmission as mandated in the Electricity Act 2003 is essential for signalling efficient choice in
locating generation capacity and for encouraging trading in electricity for optimum utilization of
generation resources and consequently for reducing the cost of supply.
5.3.7 The spirit of the provisions of the Act is to ensure independent system operation through
NLDC, RLDCs and SLDCs. These dispatch centers, as per the provisions of the Act, are to be
operated by a Government company or authority as notified by the appropriate Government.
5.3.10 Special mechanisms would be created to encourage private investment in transmission
sector so that sufficient investments are made for achieving the objective of demand to be fully
met by 2012.
5.4 DISTRIBUTION

5.4.1 Distribution is the most critical segment of the electricity business chain. The real
challenge of reforms in the power sector lies in efficient management of the distribution sector.
5.4.2 The Act provides for a robust regulatory framework for distribution licensees to safeguard
consumer interests. It also creates a competitive framework for the distribution business,
offering options to consumers, through the concepts of open access and multiple licensees in
the same area of supply.
5.4.3 For achieving efficiency gains proper restructuring of distribution utilities is essential.
Adequate transition financing support would also be necessary for these utilities.
5.4.4 Conducive business environment in terms of adequate returns would be necessary for
facilitating funding and attracting investments in distribution. Multi-Year Tariff (MYT)
framework is an important structural incentive to minimize risks for utilities and consumers,
promote efficiency and rapid reduction of system losses.
Private sector participation in distribution needs to be encouraged for achieving the requisite
reduction in transmission and distribution losses and improving the quality of service to the
consumers.
5.4.6 A time-bound programme should be drawn up by the State Electricity Regulatory
Commissions (SERC) for segregation of technical and commercial losses through energy audits.
Standards for reliability and quality of supply as well as for loss levels shall also be specified
,from time to time, so as to bring these in line with international practices by year 2012.
5.4.7 One of the key provisions of the Act on competition in distribution is the concept of
multiple licensees in the same area of supply through their independent distribution systems.
The SERCs are required to regulate the tariff including connection charges to be recovered by a
distribution licensee under the provisions of the Act..
5.4.9 The Act requires all consumers to be metered within two years. The SERCs may obtain
from the Distribution Licensees their metering plans, approve these, and monitor the same. The
SERCs should encourage use of pre-paid meters. In the first instance, TOD meters for large
consumers with a minimum load of one MVA are also to be encouraged. The SERCs should also
put in place independent third-party meter testing arrangements.
5.4.10 Modern information technology systems may be implemented by the utilities on a
priority basis to facilitate creation of network information and customer data base which will
help in management of load, improvement in quality, detection of theft and tampering,
customer information and prompt and correct billing and collection .
5.4.11 High Voltage Distribution System is an effective method for reduction of technical losses,
prevention of theft, improved voltage profile and better consumer service. It should be
promoted to reduce LT/HT ratio keeping in view the techno economic considerations.
5.4.12 SCADA and data management systems are useful for efficient working of Distribution
Systems. A time bound programme for implementation of SCADA and data management
system

5.4.13 The Act has provided for stringent measures against theft of electricity. The States and
distribution utilities should ensure effective implementation of these provisions. The State
Governments may set up Special Courts as envisaged in Section 153 of the Act.
5.5 RECOVERY OF COST OF SERVICES & TARGETTED SUBSIDIES

5.5.1 There is an urgent need for ensuring recovery of cost of service from consumers to make
the power sector sustainable.
5.5.2 A minimum level of support may be 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. Tariffs for such designated group of consumers will be at least 50 % of the
average (overall) cost of supply. This provision will be further re-examined after five years.

5.5.3 Over the last few decades cross-subsidies have increased to unsustainable levels. Cross-
subsidies hide inefficiencies and losses in operations. There is urgent need to correct this
imbalance without giving tariff shock to consumers.
5.5.4 The State Governments may give advance subsidy to the extent they consider appropriate
in terms of section 65 of the Act in which case necessary budget provision would be required to
be made in advance so that the utility does not suffer financial problems that may affect its
operations. Efforts would be made to ensure that the subsidies reach the targeted beneficiaries
in the most transparent and efficient way.
5.6 TECHNOLOGY DEVELOPMENT AND R&D

5.6.1 Effective control of power system at state, regional and national level can be achieved
only through use of Information Technology. Application of IT has great potential in reducing
technical & commercial losses in distribution and providing consumer friendly services.
Integrated resource planning and demand side management would also require adopting state
of the art technologies.
Special efforts would be made for research, development demonstration and
commercialization of non-conventional energy systems. Such systems would need to meet
international standards, specifications and performance parameters.
5.6.2 Efficient technologies, like super critical technology, IGCC etc and large size units would be
gradually introduced for generation of electricity as their cost effectiveness is established.
Simultaneously, development and deployment of technologies for productive use of fly ash
would be given priority and encouragement.
5.6.3 Similarly, cost effective technologies would require to be developed for high voltage
power flows over long distances with minimum possible losses.
5.6.4 A suitable funding mechanism would be evolved for promoting R& D in the Power Sector.
Large power companies should set aside a portion of their profits for support to R&D.
5.7 COMPETITION AIMED AT CONSUMER BENEFITS

5.7.1 It is the function of the Central Electricity Regulatory Commission to issue license for inter-
state trading which would include authorization for trading throughout the country.
The ABT regime introduced by CERC at the national level has had a positive impact. It has also
enabled a credible settlement mechanism for intra-day power transfers from licenses with
surpluses to licenses experiencing deficits. SERCs are advised to introduce the ABT regime at
the State level within one year.
Captive generating plants should be permitted to sell electricity to licensees and consumers
when they are allowed open access by SERCs under section 42 of the Act .
5.8 FINANCING POWER SECTOR PROGRAMMES INCLUDING PRIVATE SECTOR PARTICIPATION

5.8.1 To meet the objective of rapid economic growth and "power for all" including household
electrification, it is estimated that an investment of the order of Rs.9,00,000 crores at 2002-03
price level would be required to finance generation, transmission, sub-transmission,
distribution and rural electrification projects.
The Act creates a conducive environment for investments in all segments of the industry, both
for public sector and private sector,
5.8.4 Capital is scarce. Private sector will have multiple options for investments. Return on
investment will, therefore, need to be provided in a manner that the sector is able to attract
adequate investments at par with, investment opportunities in other sectors.
5.8.6 Competition will bring significant benefits to consumers , Detailed guidelines for
competitive bidding as stipulated in section 63 of the Act have been issued by the Central
Government.

5.8.7 Financial viability of operations and businesses would be essential for growth and
development of the sector. Concerted efforts would be required for restoring the financial
health of the sector. For this purpose, tariff rationalization would need to be ensured by the
SERCs. This would also include differential pricing for base, intermediate and peak power.
5.8.9 Role of private participation in generation, transmission and distribution would become
increasingly critical in view of the rapidly growing investment needs of the sector. The Central
Government and the State Governments need to develop workable and successful models for
public private partnership.
Transmission & Distribution Losses
5.8.10 It would have to be clearly recognized that Power Sector will remain unviable until T&D
losses are brought down significantly and rapidly. A large number of States have been reporting
losses of over 40% in the recent years. By any standards, these are unsustainable and imply a
steady decline of power sector operations. Continuation of the present level of losses would
not only pose a threat to the power sector operations but also jeopardize the growth prospects
of the economy as a whole. No reforms can succeed in the midst of such large pilferages on a
continuing basis. These losses have to be brought down expeditiously.
5.9 ENERGY CONSERVATION

5.9.1 There is a significant potential of energy savings through energy efficiency and demand
side management measures. In order to minimize the overall requirement, energy conservation
and demand side management (DSM) is being accorded high priority. The Energy Conservation
Act has been enacted and the Bureau of Energy Efficiency has been setup.
5.9.3 Periodic energy audits have been made compulsory for power intensive industries under
the Energy Conservation Act. Other industries may also be encouraged to adopt energy audits
and energy conservation measures. Energy conservation measures shall be adopted in all
Government buildings for which saving potential has been estimated to be about 30% energy.
Solar water heating systems and solar passive architecture can contribute significantly to this
effort.
5.9.5 In the agriculture sector, the pump sets and the water delivery system engineered for high
efficiency would be promoted. In the industrial sector, energy efficient technologies should be
used and energy audits carried out to indicate scope for energy conservation measures. Motors
and drive system are the major source of high consumption in Agricultural and Industrial
Sector.
5.9.6 In order to reduce the requirements for capacity additions, the difference between
electrical power demand during peak periods and off-peak periods would have to be reduced.
Suitable load management techniques should be adopted for this purpose. Differential tariff
structure for peak and off peak supply and metering arrangements (Time of Day metering)
should be conducive to load management objectives. Regulatory Commissions should ensure
adherence to energy efficiency standards by utilities.
5.9.7 For effective implementation of energy conservation measures, role of Energy Service
Companies would be enlarged.
5.10 ENVIRONMENTAL ISSUES

5.10.1 Environmental concerns would be suitably addressed through appropriate advance

action by way of comprehensive Environmental Impact Assessment and implementation of
Environment Action Plan (EAP).
5.10.2 Steps would be taken for coordinating the efforts for streamlining the procedures in
regard to grant of environmental clearances including setting up of 'Land Bank' and 'Forest
Bank'.
5.10.3 Appropriate catchment area treatment for hydro projects would also be ensured and
monitored.
5.10.4 Setting up of coal washeries will be encouraged. Suitable steps would also be taken so
that utilization of fly ash is ensured as per environmental guidelines.
5.10.5 Setting up of municipal solid waste energy projects in urban areas and recovery of
energy from industrial effluents will also be encouraged with a view to reducing environmental
pollution apart from generating additional energy.
5.10.6 Full compliance with prescribed environmental norms and standards must be achieved
in operations of all generating plants.
5.11 TRAINING AND HUMAN RESOURCE DEVELOPMENT

Special attention would need to be paid by the industry for establishing training infrastructure
in the field of electricity distribution, regulation, trading and power markets.
5.12 COGENERATION AND NON-CONVENTIONAL ENERGY SOURCES

5.12.1 Non-conventional sources of energy being the most environment friendly there is an
urgent need to promote generation of electricity based on such sources of energy.
5.12.2 The Electricity Act 2003 provides that co-generation and generation of electricity from
non-conventional sources would be promoted by the SERCs Progressively the share of
electricity from non-conventional sources would need to be increased as prescribed by State
Electricity Regulatory Commissions. Such purchase by distribution companies shall be through
competitive bidding process.
5.12.3 Industries in which both process heat and electricity are needed are well suited for
cogeneration of electricity. A significant potential for cogeneration exists in the country,
particularly in the sugar industry. SERCs may promote arrangements between the co-generator
and the concerned distribution licensee for purchase of surplus power from such plants.
Cogeneration system also needs to be encouraged in the overall interest of energy efficiency
and also grid stability.
5.13 PROTECTION OF CONSUMER INTERESTS AND QUALITY STANDARDS

5.13.1 Appropriate Commission should regulate utilities to provide quality of power supply.
Parameters should include, amongst others, frequency and duration of interruption, voltage
parameters, transformer failure rates, waiting time for restoration of supply, percentage
defective meters and waiting list of new connections.
5.13.2 Reliability Index (RI) of supply of power to consumers should be indicated by the
distribution licensee. A road map for declaration of RI for all cities and towns up to the District
Headquarter towns as also for rural areas, should be drawn by up SERCs. The data of RI should
be compiled and published by CEA.
5.13.3 It is advised that all State Commissions should formulate the guidelines regarding setting
up of grievance redressal forum by the licensees as also the regulations regarding the
Ombudsman and also appoint/designate the Ombudsman within six months.
6.0 COORDINATED DEVELOPMENT

6.1 Electricity being a concurrent subject, a well-coordinated approach would be necessary for
development of the power sector. The Central Government would assist the States. It would be
playing a supportive role in fresh capacity addition and a major role in development of the
National Grid. The State Governments need to ensure the success of reforms and restoration of
financial health in distribution, which alone can enable the creation of requisite generation
capacity. The Regulatory Commissions have the responsibility of ensuring that the regulatory
processes facilitate the attainment of this objective..
The Electricity Act, 2003 also provides for mechanisms like "Coordination forum" and "Advisory
Committees" to facilitate consultative process.
(Ajay Shankar)
Additional Secretary to the Government of India
Electricity Tariff Policy 2006
The Government of India notified the Electricity Tariff Policy in January, 2006.

The objectives of this tariff policy are to:

(a) Ensure availability of electricity to consumers at reasonable and competitive rates;
(b) Ensure financial viability of the sector and attract investments;
(c) Promote transparency, consistency and predictability in regulatory approaches across
jurisdictions and minimise perceptions of regulatory risks;
(d) Promote competition, efficiency in operations and improvement in quality

Salient features of the policy are as follows

1. All future requirement of power should be procured competitively by distribution licensees

Even for the Public Sector projects, tariff of all new generation and transmission projects should
be decided on the basis of competitive bidding after a period of five years

2. CERC/SERCs would notify, from time to time, the rate of return for generation and
transmission projects keeping in view the assessment of overall risk and the prevalent cost of
capital. Return should attract investments at par with other sectors so that the electricity sector
is able to create adequate capacity and growth of the sector.
The State Commission may consider 'distribution margin' as basis for allowing returns in
distribution business considering the issues such as reduction in Aggregate Technical and
Commercial losses, improving the performance and reduction in cost of supply.

3. For financing of capital cost of projects, a Debt : Equity ratio of 70:30 should be adopted.
Promoters would be free to have higher quantum of equity investments but the equity in
excess of this norm should be treated as loan

4. The Central Commission may notify the rates of depreciation in respect of generation and
transmission assets. The depreciation rates so notified would also be applicable for distribution
The rates of depreciation so notified would be applicable for the purpose of tariffs as well as
accounting.
The Central Commission would, in consultation with the Central Electricity Authority, notify
operating norms from time to time for generation and transmission. The SERC would adopt
these norms. Operating norms for distribution networks would be notified by the concerned
SERCs.
6. The multi year tariff (MYT) framework is to be adopted for any tariffs to be determined from
April 1, 2006.
(The concept of MYT gives an element of certainty to all stakeholders. The basic premise is that
tariffs would not fluctuate beyond a certain bandwidth unless there are force majeure
conditions. The consumer would have a fair idea of what to expect in the next three to five
years and the Utility would also be able to plan its business having known the principles for
tariff determination for the control period. The MYT framework will divide all costs into two
broad categories -- controllable and non-controllables. Expenditures on administrative and
general expenses, repair and maintenance will come under controllables while power purchase
and rise in costs will come under non-controllables. )

7. State Governments have the right to impose duties, taxes, cess on sale or consumption of
electricity. For realizing the goal of making available electricity to consumers at reasonable and
competitive prices, it is necessary that such duties are kept at reasonable level.

8. Availability Based Tariff (ABT) is to be introduced at State level by April 2006.

What Is ABT?

It is a performance-based tariff for the supply of electricity

It is also a new system of scheduling and despatch, which requires both generators and
beneficiaries to commit to day-ahead schedules.
It is a system of rewards and penalties seeking to enforce day ahead pre-committed schedules,
though variations are permitted if notified One and one half hours in advance.
The order emphasizes prompt payment of dues. Non-payment of prescribed charges will
be liable for appropriate action

9. Power Purchase Agreement should ensure adequate and bankable payment security
arrangements to the Generating companies. In case of persisting default the generating
companies may sell to other buyers.

10. Commission should create an enabling environment that encourages captive power plants
to be connected to the grid.
Wheeling charges and other terms and conditions for implementation should be determined in
advance by the respective State Commission,
Grid connected captive plants could also supply power to non-captive users connected to the
grid

10. Appropriate Commission shall fix a minimum percentage for purchase of energy
from Non-conventional sources of energy generation including Co-generation
11. A suitable transmission tariff framework for all inter-State transmission is to be evolved to
share the total transmission cost in proportion to their respective utilization of the transmission
system.

12. Cross subsidies for different consumers to be brought down within the range of + 20% of
average supply by the end of year 2010-11
Rural Electrification Policy 2006
The Government of India had announced the Rural Electrification Policy in 2006.
The Policy aims at :-
• Provision of access to electricity to all households by year 2009.
• Quality and reliable power supply at reasonable rates.
• Minimum lifeline consumption of 1 unit per household per day as a merit good by year 2012.
Salient features of the Policy

1. Grid connectivity is the normal way of electrification of villages.

For villages/habitations, where grid connectivity would not be feasible or not cost effective, off-
grid solutions based on stand-alone systems may be taken up for supply of electricity so that
every household gets access to electricity.
2. The State Governments should, within 6 months prepare and notify a Rural Electrification
Plan to achieve the goal of providing access to all households which includes the electrification
delivery mechanisms (grid or stand alone)
3. Rural Electrification Corporation Limited (REC), a Government of India enterprise under the
Ministry of Power, is the nodal agency at Central Government level to implement the rural
electrification programme
4. Local community to be involved in rural electrification programme particularly the women
5. Programmes for encouraging energy efficient equipment specially irrigation pump sets have
to be taken up
6. The tariff for sale of electricity generated from standalone systems is to be decided by
market forces, however the benefit of financial assistance/ capital subsidy received from the
government should be fully passed on to the consumers
7. The policy enables the franchisee arrangement for local management of rural distribution of
electricity
As far as possible the franchisee to be selected based on competitive bidding
8. There is a provision for special and automatic approval for standalone systems of upto 1 MW
which are based on cost effective proven technology and use locally available resource such as
biomass.
Renewable Energy Power Policies
The Electricity Act and several policies of the Government promote renewable energy in the
country as shown below

Electricity Act 2003”Section 86. (1):. promote cogeneration and generation of electricity from
renewable sources of energy------- etc

National Electricity Policy 2005 stipulates that progressively the share of electricity from
non-conventional sources would need to be increased------ etc
Tariff Policy 2006 the Appropriate Commission shall fix a minimum percentage for purchase of
energy from renewable------ etc

National Rural Electrification Policies, 2006 : off-grid solutions based on stand-alone systems
with renewable energy sources may be taken up for supply of electricity
 •Accelerated Depreciation
•Concessional Custom duty/duty free import
•Energy buy back, power wheeling & banking facilities
•Sale Tax concession benefits
•Electricity Tax exemption
•Capital Subsidy
Generation Based Incentive (GBI)

The GBI Scheme is applicable only for those power producers who do not avail of the
accelerated depreciation benefits under the Income Tax Act.
Grid integrated projects of capacity of more than 5 MW shall be eligible for this scheme.
Electricity generated from the project should be sold to the grid.
The MNRE will provide the GBI of Rs.0.50 per unit for a period of ten years to the eligible
project promoters through IREDA.
This incentive shall be in addition to the tariff determined by the SERC.
The IREDA will disburse the generation based incentive to the generator on half yearly basis
through e-payment.
FDI Inflows to Non-conventional Energy - Government Initiatives

The foreign investors are entitled to indulge in joint operations with Indian counterparts
through technological and financial collaborations for establishing renewable energy based
power generation projects.
FDI up to 100% is allowed in case of equity
The Central Government has been encouraging foreign investors to establish renewable energy
based power generation project on Build-Own-Operate basis.

Jawaharlal Nehru National Solar Mission

The mission targets 20,000 MW grid solar power, 2,000 MW off grid solar applications and 20
million sq meters of solar thermal collectors by the year 2022.
The mission initially aims at generating 200 MW by 2012,
Three Technical facilities will be created in the R&D campus of the Solar Energy Centre situated
on the Gurgaon-Faridabad Road.
i) grid connected solar thermal power plant of 1 MW capacity.
ii) a pilot project based on a solar concentrator technology that promises delivering low cost
thermal energy.
iii)a 20 kW solar photovoltaic power plant for testing various design configurations.

Development of Solar Cities

The government of India plans to develop 60 solar cities during the (2007-12), to both meet the
Nagpur city as first model solar city by 2012
10% of the projected energy demand of the city to be met through energy efficiency measures
and renewable energy systems

New Hydro Power Policy

The new hydro policy approved by the Cabinet on Jan. 03, 2008, will benefit both private and
public hydro power producers.
In order to encourages private producers to undertake Hydro projects in difficult and remote
areas, exemption from tariff based competitive bidding which is currently available only to
Public Sector Undertakings upto January 2011, is now also available to private hydro projects.
The developer will have the facility of merchant sale of upto 40% of the saleable energy in
hydro projects.
An additional 1% free power over and above 12% will be earmarked for a Local Area
Development Fund aimed at providing a regular stream of revenue for income generation,
infrastructure creation and welfare schemes in the affected areas.
At present 12% of power generated is to be supplied free of charge to the state where the plant
is located)
Each project affected family (PAF) will get 100 units of electricity every month for a period of 10
years free of charge.
Project authorities will construct houses at resettled sites for project affected persons.
At every project site an industrial training institute (ITI) will be set up 6 months before the
beginning of the project work in order to train project affected people to undertake skilled and
semi-skilled jobs.
Project affected persons will be provided jobs in the project.

National Policy on Biofuels

The Policy will bring about accelerated development and promotion of the cultivation,
production and use of biofuels to increasingly substitute petrol and diesel
An indicative target of 20% blending of biofuels, both for bio-diesel and bio-ethanol, by 2017 is
proposed.
The blending level of bio ethanol has already been made mandatory, effective from October,
2008, and will continue to be mandatory.
The focus for development of biofuels in India will be to utilize waste and degraded forest and
non-forest lands only for cultivation of shrubs and trees bearing non-edible oil seeds for
production of bio-diesel.
In India, bio-ethanol is produced mainly from molasses, a by-product of the sugar industry.
In future too, it would be ensured that the next generation of technologies is based on nonfood
feed stocks.

Therefore, the issue of fuel vs. food security is not relevant in the Indian context.

Cultivators, farmers, landless laborers, Panchayats etc. will be encouraged to undertake

plantations that provide the feedstock for bio-diesel and bio-ethanol.
Such employment will be made eligible for coverage under the National Rural Employment
Guarantee Programme (NREGP).
Corporates will also be enabled to undertake plantations through contract farming
Such cultivation / plantation will be supported through a Minimum Support Price for the non-
edible oil seeds used to produce bio-diesel.
The responsibility of storage, distribution and marketing of biofuels would rest with the oil
marketing companies ( OMCs)
National Bank of Agriculture and Rural Development (NABARD) would provide financing
towards loans to farmers for plantations.
Indian Renewable Energy Development Agency (IREDA), Small Industries Development Bank of
India (SIDBI) and other financing agencies as well as commercial banks would be actively
involved in providing finance for various activities under the entire biofuel value chain, at
different levels.
Biofuel technologies and projects would be allowed 100% foreign equity through automatic
approval route to attract Foreign Direct Investment (FDI), provided bio-fuel is for domestic use
only, and not for export.
Custom and excise duty concessions would be provided on plant and machinery for production
of bio-diesel or bio-ethanol,
Ministry of New & Renewable Energy has been given the responsibility of Policy and overall
Coordination concerning bio-fuels.