Fixing the free power problem

Fixing the free power problem

The three biggest challenges facing power sector in India, in random order, would be to expand generation capacity rapidly, to lower transmission and distribution losses, and to address the issue of free power to farmers.

Though much still remains to be done, there has been considerable progress with capacity addition, especially with the entry of private generators. Loss reduction, while the top priority for transmission and distribution utilities, is mainly an issue of enforcement of commercial loss reduction measures. However, breaking the gridlock on free power for farmers, with its deep political symbolism, is probably the Achilles Heel.

But first, a little background. Agriculture and non-agriculture electrical connections are serviced from a common feeder emanating from the sub-station. Many states have policies that mandate the supply of three-phase power to farmers for a specified number of hours each day. Accordingly, the feeder supply is restricted to single-phase for the remaining period. The three-phase supply timings are staggered to manage the local demand conditions. Agriculture services are unmetered.

This effectively discriminates against rural consumers by denying them three-phase supply for the major part of the day. Further, any individual proposing to set up an industrial unit in rural areas will have to draw a separate three-phase line from the nearest sub-station. This often costs more than the investment in the plant and equipment itself. In urban areas, they could merely draw supply from the nearby service line.

In response to this problem, some states, led by Gujarat, have adopted the strategy of separating the agriculture feeder from household and all other non-agriculture services. The objective is to provide three-phase supply for only the specified timings in the agriculture feeders, while non-agriculture feeder gets three-phase supply round the clock. Accordingly, massive investments are planned over the next few years to lay exclusive feeders for agriculture consumers.

However, this strategy may be yet another example of the classic regulatory, top-down approach to resolving complex public policy challenges. Leave alone the huge up-front investment expenditures required, the long-term costs of such investments are enormous. In view of the scattered nature of agriculture connections, any feeder segregation will effectively double the rural distribution network. The resultant maintenance costs and safety problems will only add to the woes of the overburdened and inefficient distribution utilities.

As more distribution lines criss-cross the land, power theft will become more pervasive. Since agriculture and non-agriculture lines will pass in close proximity to each other, illegal tapping from the rural feeders is inevitable. In fact, this is one of the biggest problems facing Gujarat’s experiment with feeder segregation, as borne out by the spurt in commercial losses in rural feeders.

Without any revenues from the agriculture feeder, the distribution utility will have limited incentive to maintain it. Their technical losses will invariably rise. Finally, there is also the threat of cheap and secure disruptive technologies and devices emerging that can restrict power to agriculture motors for a defined period each day. This would leave the huge alternative feeder investments redundant.

One of the more plausible and sustainable solution to the issue of free power for farmers is to meter agriculture connections. Subsidy, at the current or any other level, can be delivered by fixing a number of units of free supply every month. All connections will be metered and agriculture tariff fixed. Farmers will be billed based on actual consumption. The subsidy can be transferred to the farmer’s Aadhaar-linked bank account once the bill is paid.

Alternatively it can be deducted when the next month’s bill is generated or net-off against the farmer’s household bill. The subsidy structure can be made more attractive by providing a generous allocation of free-power units. The farmer can even be incentivized to optimize his consumption by reimbursing him in cash, in some multiple of, the unutilized share of his free-power allocation.

The benefits are manifold. It will be the first step in introducing incentives, and resultant efficiency improvements, into electricity usage for agriculture. The farmer can use his pump at his choice, instead of languishing over the odd hours. Farmers can avail of continuous three-phase supply and consume beyond the subsidy units by paying for it.

This strategy is not without precedent. The resistance to metering water connections in many developing countries were overcome by offering the incentive of free or minimally priced supply for an initial quantity required to meet the basic requirements.

Sceptics will question the possibility of flexible supply timings since the heavy agriculture demand will over-burden the distribution system and result in grid failures. However, the same investments now proposed for feeder segregation would, if turned over to distribution infrastructure— new sub-stations, power transformer capacity expansion, extension of lines etc—enable the system to manage heavy loads. The inevitable power deficits will have to be addressed through regular load reliefs.

Its implementation raises formidable challenges. To start with, pilot projects can be initiated in a few carefully selected feeders. Farmers can be demonstrated the flexibility and other benefits of this subsidy regime. Carefully structured communication campaigns should be planned to buy political support among both farmers and their representatives.

Gulzar Natarajan is a civil servant. These are his personal views.

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