In the words of Rakesh Jhunjhunwala, India is poised to get its biggest reform since 1991. He’s talking about the Electricity Amendment Bill 2021 that’s been doing the rounds since early August.
On the face of it, the bill has the potential to disrupt the Indian power industry in ways that can have ramifications for decades to come. It also allegedly proposes a solution to correct India’s power inefficiencies.
That said, is the Electricity Amendment Bill 2021 actually significant for common folks like you and me? That’s what we will explore in this blog, starting with unwrapping the complexity of the bill.
Why Was The Electricity Amendment Bill 2021 Introduced?
The Electricity Amendment Bill 2021 looks to primarily delicense the state government’s monopoly over power distribution. This simply means that more private companies can become power distributors (Discoms).
There’s a historical context to this. First, the transmission and generation of electricity in India were opened up to private companies back in the 1990s.
This act alone boosted India’s capacity for efficient transmissions and generation in the decades that followed, from a paltry 179 TW-hr in 1985 to 1,057 TW-hr in 2012.
Second, data suggests that privatising power distribution can effectively reduce aggregate technical and commercial (AT&C) losses. Case in point, Delhi. India’s capital was vastly inefficient with power until 2002.
In fact, Delhi’s AT&C losses stood at 55% before privatization and dropped to 7.5% in 2021. This answers the question of the main motive behind the Electricity Amendment Bill 2021.
Moreover, there’s been a sharp shift in the way the world views power generation and usage. There’s an onus on discoms, generation, and transmission companies to be more environmentally friendly.
The Electricity Amendment Bill 2021 addresses this as well with reforms to penalize electricity companies that don’t comply with the Renewable Purchase Obligation (RPO).
The RPO requires them to buy or generate electricity at a set percentage from renewable sources. Furthermore, the bill will make the Electricity Contract Enforcement Authority (ECEA) the lone contract dispute arbiter.
How Does The Electricity Amendment Bill 2021 Affect India?
Logic suggests that allowing private companies to enter the power distribution sector would lead to healthy competition with state-owned entities that have been running the show for decades.
Private enterprises may reduce the distribution inefficiencies, which might lower AT&C losses and hassles like power cuts. Currently, private discoms exist in urban cities like:
But only a handful of state-run discoms in India have missed the mark by a longshot over the years based on historical data. That’s why the bill was met with stern opposition even before it was introduced in the parliament.
Sceptics suggest that it’s not prudent to point to the success of private discoms in urban cities as a potential marker for success in rural areas. The challenges posed by a village with zero connectivity will be different.
That said, the Electricity Amendment Bill 2021 looks to allow consumers to choose their own discoms like a telephone or internet service provider. This is, perhaps, one of the biggest propositions of the bill.
Furthermore, power stocks in India have been surging on the back of the Electricity Amendment Bill 2021 announcement, among other things like the lopsidedness in supply and demand.
Did The Electricity Amendment Bill 2021 Impact Power Stocks In India?
The Electricity Amendment Bill 2021 is responsible for a relative uptick in power stocks due to the combination of reforms that it looks to bring about in the power sector.
Discoms like Tata Power, Reliance Power, and Adani Power saw an obvious growth in their stock due to the bill, among other factors like the current power shortage.
Electricity metre suppliers like Genus Power Infrastructures and Advance Metering Technology Ltd may also gain from the bill as it looks to incentivize smart metres that are leakage free.
There is also a heavy emphasis on renewable energy in the Electricity Amendment Bill 2021, but it remains to be seen whether companies like Adani Green Energy may get anything out of it.
Does This Mean You Should Invest In Power Stocks?
Analysts suggest that the Electricity Amendment Bill 2021 may have long term consequences when it comes to power stocks. Discoms and metre companies, especially, stand to benefit from the approval of the bill.
But that’s contingent on the bill being approved, as it’s still a work in progress. There’s strong opposition to the bill as well, which is a factor to be wary of before investing in power stocks based on future prospects.
Furthermore, India and the world is currently facing a severe power crunch. The demand is too high and the supply is barely enough. This may dictate power stocks prices to a greater extent than the bill.
That’s why it’s important to invest in power stocks based on expert advice from specialists like Purnartha who’ve seen the industry manoeuvre ups and downs over the past 2 decades.
Highlights Of The Electricity Amendment Bill 2021
🔸Status: expected to be introduced in the parliament
🔸Delicense State Monopoly: private companies to enter power distribution and compete head-to-head with state-owned companies
🔸Renewables Focused: strict Renewable Purchase Obligation (RPO) rules and emphasis on producing smarter metres
🔸Sole Dispute Arbiter: the Electricity Contract Enforcement Authority (ECEA) to handle contract disputes
🔸Better Access: consumers get the right to 24*7 electricity supply
🔸Democratize Electricity: consumers get to choose their discoms
Facts & figures are true as of 12-10-2021. All information mentioned is for educational purposes and relies on publicly available information. None of the information shared here is to be construed as investment advice. We strongly recommend you consult a Cube Wealth coach before investing your money in any stock, mutual fund. PMS or alternative asset.