Singur is a well-known story of bad policies and weak governance creating disincentives for industry. Another such example is brewing in the electricity generation business.
Its genesis lies in some states’ indiscipline in drawing more electricity from their respective regional power pools than they should, thereby risking the transmission grid. Booking them would require political courage that is scarce. Hence, regulator CERC had put in place a financial disincentive to curb them. The side effect of that medicine is strong. While it was to fix the errant “grabbing” behaviour of states such as Uttar Pradesh (UP) and Bihar, it also ended up as a benchmark price for India’s short term power trading market. As a result, the price of power during times of peak demand soars. CERC now wants to introduce a perverse fix to that problem, by capping the price of peak power.
Each morning, electricity is scheduled to states from various plants through power highways called grids. When some states overdraw beyond their “quota”, this “unscheduled interchange” (UI) harms the flow of electricity and damages the grid. To discourage these states, CERC had defined a special UI charge of Rs6 per unit back in 2002, as penalty on the truant states. That was later raised to Rs10.
In the process, even the more disciplined states in the west and the south (and West Bengal in the east) end up paying a higher sum during emergencies.
The UI charge has become a benchmark price for short-term sales, as that trading market is still nascent in India and it is only of late that reforms in the generation business have given private power producers some confidence that trading is viable. And trading improves the profitability of power plants that are otherwise locked into long-term contracts to ensure committed consumers for their large investments.
Admittedly, throwing the book at states that are overdrawing power will not be easy. For instance, for the Centre to discipline UP would mean risking power supply interruptions to the constituencies of senior Congress leaders such as United Progressive Alliance chairperson Sonia Gandhi. The premium on political courage is indeed rising, especially with elections around the corner.
Will capping peak power prices do the trick? Write to us at email@example.com