Understanding the Indian Electricity Sector: Transmission, Distribution, Retail, and Tariff Setting

India’s electricity sector is experiencing tremendous growth, driven by an increasing demand for power, industrialization, and the need for renewable energy integration. The sector is complex and involves multiple national and state-level players in the generation, transmission, distribution, and retail of electricity. Tariff setting is an essential component of the industry, which determines the price of electricity for end consumers. This article aims to provide a comprehensive understanding of these aspects, drawing insights from the Renewables Integration in India 2021 report by the International Energy Agency (IEA).

National and State-Level Players

The Indian electricity sector is regulated by the Central Electricity Authority (CEA), the Central Electricity Regulatory Commission (CERC), and State Electricity Regulatory Commissions (SERCs). The CEA is responsible for the overall technical coordination and supervision of the sector. The CERC and SERCs are responsible for tariff setting and regulation at the central and state levels, respectively.

The electricity generation, transmission, and distribution sectors consist of various national and state-owned enterprises, as well as private players. Key national players include the National Thermal Power Corporation (NTPC), the Power Grid Corporation of India Limited (POWERGRID), and the Nuclear Power Corporation of India Limited (NPCIL). State-level players comprise State Electricity Boards (SEBs), State Transmission Utilities (STUs), and State Distribution Companies (Discoms).

Transmission and Distribution

The transmission of electricity in India is primarily managed by POWERGRID, which operates the majority of the inter-state transmission system (ISTS). STUs are responsible for intra-state transmission. Together, they form a robust transmission network that connects power generation plants to distribution networks across the country.

Distribution companies or Discoms are responsible for delivering electricity to end consumers, such as households, industries, and commercial establishments. Discoms are usually owned by state governments and are governed by the respective SERCs. They maintain and upgrade the distribution infrastructure, including transformers, substations, and distribution lines.

Retail

The retail sector in India’s electricity market consists of suppliers who purchase power from generators and sell it to end consumers. These suppliers can be distribution companies, open access consumers, or traders. The retail sector has been witnessing increased competition, with the introduction of private players and the provision of open access, which allows large consumers to procure electricity directly from generators.

Electricity Tariff Setting

Tariff setting is a critical aspect of the electricity sector as it determines the price paid by end consumers. The CERC sets tariffs for inter-state transmission and central generating stations, while SERCs set tariffs for intra-state transmission, distribution, and retail supply. Tariffs are determined based on various factors, including the cost of generation, transmission and distribution, subsidies, and taxes. They also consider the need to promote renewable energy and energy efficiency.

The tariff structure in India is typically designed to cross-subsidize different consumer categories. Industrial and commercial consumers often pay higher tariffs to subsidize residential and agricultural consumers. This cross-subsidization has been a point of concern for the industry, as it affects the competitiveness of Indian industries in the global market.

Conclusion

India’s electricity sector has witnessed significant growth and transformation over the past few years. With the increasing demand for power and the government’s focus on renewable energy integration, the sector is poised for a sustainable future. Understanding the roles of national and state-level players, the transmission and distribution networks, retail operations, and tariff setting mechanisms is essential for stakeholders to navigate the complexities of the industry and contribute to its continued success.