A crippling power shortage across India has resulted in a spike in the spot prices of electricity. Today, these prices are as high as four times the average production cost of Rs 3 per unit. To add to these problems, a weak monsoon, coupled with insufficient supplies of fuel, has led to several large stations idling or generating power below capacity.
This adversity offers opportunities for some—traders mostly—who offer a platform for buyers and sellers to meet and, of course, the sellers who make hay in such transactions. But for most consumers, the situation is miserable.
High spot prices are clearly injurious to state distribution utilities as expensive purchases inflate costs and these are not recovered from consumers due to the reluctance of state governments to raise tariffs periodically.
If the remedies are well known, they are also not feasible. These include reforms in the coal sector to break the near monopoly of government-owned Coal India Ltd, power reforms in the states to reduce supply losses and, finally, some semblance of regulatory independence and order. Tackling these issues requires political will. Thus, it is not clear if these are feasible.
This situation can be addressed to an extent if the reform process makes a distinction between rural and urban supply. In this framework, if the states make an all-out attempt to provide quality service to the urban lot, there is a scope to charge such consumers a premium that will find acceptance with them. This involves upgrading the infrastructure to eliminate technical losses, automating the supply lines to reduce human interference significantly and providing incentives to the workforce to rectify supply disruptions quickly.
Implicitly, this recognizes a constraint in the sector—rural supply will remain subsidized and will not be charged at the level that it costs to serve. It is not a “solution” as such, but given the prevailing political realities, it can bridge the gap between costs and revenues to an extent—which is what power utilities should be trying now. At a later date, under changed political conditions, rural supply can be adjusted to reduce this gap further.
Such an approach will give the utilities a handle to recover higher costs arising from expensive power purchases without having to face the ire of urban consumers.
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