Time-of-day (ToD)Tariff System

Context:

The Centre has signalled a move towards rolling out Time-of-day (ToD) Tariff System

About Time-of-day (ToD) Tariff System:

• Time-of-day tariff norms are a set of rules and guidelines that decides  how electricity prices vary throughout the day. 
• These norms determine when electricity is cheaper or more expensive based on different time periods, such as peak, off-peak, and sometimes intermediate periods. 
• Under it, the tariff during solar hours, a duration of eight hours as specified by the State Electricity Regulatory Commission, will be 10-20% lower than the normal tariff. Conversely, during peak hours, the tariff will be 10-20% higher.
• The Primary objective of time of day tariff is to disincentive higher energy consumption during the peak demand hours by raising the tariff for the period and lowering the tariff for the lean demand period.
• The new tariff system will come into effect for commercial and industrial consumers, having demand of 10 KW and above, from April 1, 2024.
• For all other consumers except those in the agricultural sector, the new tariff system will be applicable from April 1, 2025. 

Image Credits: IBEF

Benefits of Time-of-day (ToD) Tariff System :

• Facilitating Faster Energy Transition: It  will also ensure better grid integration of renewable energy sources thereby facilitating faster energy transition for India.
• Improved Management of Renewable Generation Fluctuations: It will improve the management of renewable generation fluctuations and thereby increase grid integration of larger quantities of renewable power.
• Cost Savings and Consumer Benefits: The TOD tariffs, which are separate tariffs for peak hours, solar hours, and normal hours, send price signals to consumers to manage their load according to the tariff. With awareness and effective utilisation of the ToD tariff mechanism, consumers can reduce their electricity bills.
• Infrastructure Investment and Maintenance: If the load on the grid during peak consumption hours goes down, the requirement for additional investments in grid infrastructure for maintenance and upgradation also declines over the medium to long term.
• Better Integration of Renewable Energy:The government also expects the ToD tariff structure to lead to better integration of renewable energy sources with the country’s electricity grid, which will hopefully expedite India’s energy transition. 

India’s Power Sector:

• India is the third-largest producer and consumer of electricity worldwide, with an installed power capacity of 411.64 GW as of January 31, 2023.
• As of January 31, 2023, India’s installed renewable energy capacity (including hydro) stood at 168.4 GW, representing 40.9% of the overall installed power capacity. 
• Solar energy is estimated to contribute 63.3 GW, followed by 41.9 GW from wind power, 10.2 GW from biomass, 4.92 GW from small hydropower, 0.52 from waste to energy, and 46.85 GW from hydropower.

Challenges:

• Coal Sourcing Issues: The insufficient availability of domestic coal is a key impediment to the power generation industry. Coal mining efficiencies and transportation challenges make procuring coal difficult.
• Grid Operational Challenges: Renewable energy sources such as wind and solar have high variability in their generation due to weather conditions.
• International Impacts: Global supply disruptions due to the Russia-Ukraine conflict have sent coal prices touching historical highs. For Example: The cost of imported coal in India is expected to be 35 per cent higher in the fiscal year 2022-23 compared to the past year. 
• Power Generation and Supply Gap: India continues to face a significant gap between power generation capacity and demand, resulting in frequent power shortages and inadequate electricity access in certain regions. 
• Financial Viability and Discoms’ Health: Many Discoms struggle with financial viability due to issues like high transmission and distribution losses, inefficient billing and collection systems, and inadequate tariff structures.
• Inadequate Transmission Infrastructure: Insufficient transmission capacity and bottlenecks in grid infrastructure hinder the smooth transfer of power across regions. 
• Environmental and Sustainability Concerns: India’s power sector, primarily dependent on coal, contributes to environmental challenges such as air pollution and greenhouse gas emissions.

Initiatives by the Government to boost the Indian power sector are as below:

• Issuance of Sovereign Green Bonds: Under the Union Budget 2022-23, the government announced the issuance of sovereign green bonds, as well as conferring infrastructure status to energy storage systems, including grid-scale battery systems.
• Green Energy Corridor Projects: The Green Energy Corridor projects have been initiated to facilitate renewable power evacuation and reshaping the grid for future requirements. For Example: As of October 2022, 8651 km of intra-state transmission lines have been constructed and 19,558 MVA intra-state substations have been charged.
• Various Government Schemes: Electrification in the country is increasing with support from schemes like:
  •  Deen Dayal Upadhyay Gram Jyoti Yojana (DDUGJY)
  •  Ujwal DISCOM Assurance Yojana (UDAY)
  • Integrated Power Development Scheme (IPDS).
  • The Pradhan Mantri Sahaj Bijli Har Ghar Yojana
• Promoting Renewable Energy: To encourage rooftop solar (RTS) throughout the country, Ministry New and Renewable Energy has developed a National Portal wherein any residential consumer from any part of the country can apply for rooftop solar.
• Privatisation of Power Departments & Utilities: Government of India announced privatisation of Power Departments & Utilities in Union Territories under Atma Nirbhar Bharat Abhiyaan with the objective of providing better services to consumers with improvement in operational and financial efficiencies.

Way Forward:

• Minimise Losses: Empower electricity regulators to help bring down discom losses. Despite two decades of sectoral reforms, the aggregate losses of discoms stand at 21 per cent (2019-20).
• Grid Modernization and Expansion: Invest in upgrading and expanding the transmission and distribution infrastructure to ensure efficient power transfer, minimise losses, and enable seamless integration of renewable energy. 
• Policy and Regulatory Reforms: Provide a stable and transparent policy environment with clear regulations and long-term visibility on tariffs and contracts.
• Public-Private Partnerships: Foster collaboration between the government and private sector entities to leverage their respective strengths and resources.

News Source: Live Mint