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Ujwal DISCOM Assurance Yojana (UDAY): Objectives, Benefits, and Challenges

Team AckoJan 18, 2024

India's power distribution sector plays a crucial role in ensuring electricity reaches every corner of the nation. However, several DISCOMs (Distribution Companies) across the country have faced financial challenges, hindering their ability to provide reliable and affordable electricity. To resolve this issue, the Indian government launched the Ujwal DISCOM Assurance Yojana (UDAY) in 2015. Here’s an overview.

Contents

What is the UDAY scheme?
Why was UDAY launched?
Objectives of UDAY
Benefits of UDAY for the participating states
UDAY: Challenges
UDAY 2.0
Frequently Asked Questions (FAQs)

What is the UDAY scheme?

The UDAY scheme came into existence to enable a positive change in state-owned Power Distribution Companies (DISCOMs). Its main objective is to ensure the availability of affordable and accessible 24x7 power supply to all citizens. Additionally, the UDAY scheme is designed to address issues related to revenue-side efficiency and cost-side efficiency, aiming to improve the overall performance and financial health of DISCOMs across the country.

Why was UDAY launched?

The Ujwal DISCOM Assurance Yojana (UDAY) was introduced with the objective of achieving a comprehensive financial and operational revival of power distribution companies. Additionally, the scheme aims to ensure the availability of electricity in even the most remote regions of the country, making sure that every corner of the nation has access to power supply.

Objectives of UDAY

Here’s a list of the objectives associated with the UDAY scheme.

Cost reduction: Outdated power transmission systems lead to lower output and higher maintenance costs. Upgrading technology and infrastructure is essential to reduce the cost of power. This will also result in increased operational efficiency, leading to a considerable reduction in interest costs.
Debt restructuring: The scheme acts as a debt restructuring plan to uplift DISCOMs from their distressed state. It introduces mechanisms to rationalise tariffs and gradually increase prices when necessary. By implementing systems and mechanisms, UDAY aims to instil financial discipline in DISCOMs.
Improve efficiency: UDAY focuses on significantly improving the operational efficiency of DISCOMs through technological and infrastructure upgrades. Smart metre installations, feeder separators, accurate data collection, and analysis are emphasised. Energy-efficient bulbs and metres are also part of the enhancements.
Long-term sustainability: The scheme aims not only to rescue DISCOMs but also to provide a financial restructuring plan for their long-term sustainability. Ensuring strict adherence to Power Purchase Agreements (PPAs), introducing market-friendly power reforms, and implementing strict measures to prevent electricity theft are all steps taken to transform loss-making DISCOMs into profitable and sustainable business models.

Benefits of UDAY for the participating states

Here’s a list of benefits that the participating Indian states can gain from UDAY.

The scheme provides central support measures to reduce the cost of power generation, making electricity more affordable for consumers.
Ensuring a higher availability of domestically produced coal helps in securing a stable and reliable fuel source for power generation.
Power plants receive coal linkages at prices determined and notified by the government, ensuring transparency and cost-effectiveness.
Implementing measures to rationalise coal prices leads to better cost management for power producers.
Optimising coal linkages and allowing the exchange of coal between power plants enhances efficiency in coal utilisation.
Providing power plants with washed and crushed coal improves combustion efficiency and reduces environmental impacts.
Facilitating the availability of additional coal at government-notified prices ensures a steady supply for power generation.
The scheme aims to expedite the development of interstate transmission lines, leading to improved power distribution and reliability.
Promoting power purchase through open and competitive bidding processes ensures fair pricing and transparency in procurement.

UDAY: Challenges

Here’s a list of challenges associated with UDAY.

The DISCOMs have high Aggregate Technical and Commercial (AT&C) losses, with most states experiencing figures close to 20% instead of the intended target of 15%.
The logistics of renewable energy are relatively costly as low-cost methods have not been developed yet.
Given the substantial losses accumulated by the DISCOMs, it will take a significant amount of time for them to become profitable.

UDAY 2.0

Here’s what UDAY 2.0 aspires for.

The scheme focuses on ensuring that power distribution companies (DISCOMs) make timely payments to power generators, thus improving the financial health of the power sector and reducing the burden of unpaid dues.
UDAY 2.0 aims to revive gas-based power plants by providing necessary support and incentives, leading to increased utilisation of these plants and enhancing the overall power generation capacity.
The scheme aims to address coal shortages faced by power plants in the short term, ensuring a steady supply of fuel for power generation and reducing dependency on costly imports.
UDAY 2.0 promotes the installation of smart prepaid electricity metres. This helps in better management of energy consumption and reduces financial stress on DISCOMs.
During the COVID-19 pandemic, numerous industries and enterprises were shut down for months, resulting in reduced demand for supply and causing DISCOMs to face a significant increase in debt.

Frequently Asked Questions (FAQs)

Here’s a list of FAQs associated with UDAY.

What is the expanded form of UDAY?

The expanded form of UDAY is Ujwal DISCOM Assurance Yojana.

What is the key function of DISCOM?

DISCOMs act as intermediaries between power generation companies and consumers, purchasing electricity from companies and supplying it to the end consumers. Their efficient functioning plays a crucial role in ensuring a smooth and uninterrupted electricity supply to the customers.

What are the key features of UDAY?

Some key features of UDAY include financial restructuring, tariff revision mechanism, demand-side management, and smart metering implementation.

How does UDAY benefit electricity consumers?

UDAY benefits consumers by stabilising electricity tariffs, improving service quality, and providing access to a cleaner and greener energy mix.

What was the prime reason for the launch of the scheme?

UDAY is a government initiative launched to improve the financial and operational health of India's power distribution companies (DISCOMs) and promote affordable electricity for all.

What is the challenge faced by the scheme regarding renewable energy?

While UDAY promotes renewable energy adoption, integrating intermittent renewable sources into the grid requires careful planning and grid balancing.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet, and is subject to changes. Please consult an expert before making related decisions.