BackPerverse power incentives
While aggressive attempts are afoot to resuscitate the financial health of power utilities, the situation is a precarious one
Premium(Illustration by Shyamal Banerjee/Mint)
It is not unusual for state power utilities to indulge in load-shedding instead of lifting power from various power generation sources—private and public—in tune with what is demanded in their states. Given their precarious finances, it is not unusual. But in the bargain, industrial consumers, who do not default on their bills, are left to fend for themselves.
Under such conditions, these consumers are forced to operate diesel-fuelled captive units to keep the lights on and their units running. However, this electricity is expensive and given the manner in which prices of diesel for bulk consumers are being raised, their costs will only increase.
While this behaviour hurts private generation companies and traders who are looking to sell power, it is in a way a welcome symptom. Utilities must cut their coat according to their cloth. However, this transition phase throws up a huge challenge—how does the utility cope with the dynamics of rationing electricity? Large paying consumers will either set up captive units or better still, find cheaper alternatives outside the state.
The latter trend, in most states, has not picked up since the exit fee is hefty. A consumer making such a switch has to pay its share of the cross-subsidy bill since farmers in most states pay little or nothing for power supplies from the utilities. For another, the transmission system, especially in the southern region, is poor. This is, however, expected to ease over the next two years. Another reason for staying behind the fence is that the local area transmission networks are in the hands of the state utilities and notwithstanding the amorphous nature of governance, there have been instances where the utilities have not allowed external supplies to go through on some frivolous pretext or the other, often claiming technical problems.
While aggressive attempts are afoot to resuscitate the financial health of the utilities—from financial restructuring packages to soft loans to reduce the technical losses—the situation is a precarious one since industries are forced to use expensive electricity. This undermines their competitiveness and, in turn, survival in the market. However, absence of supply is worse than expensive supplies.
Hence, state electricity regulators must devise tariff orders that incentivize utilities to ensure supplies to industrial consumers. Bitter medicine will help—there is a need to aggressively reduce the cross-subsidy surcharge since the threat of flight of paying consumers increases. As a corollary, for other consumer segments, tariffs need to be aligned with supply costs.
Are industrial consumers being penalized due to populist policies? Tell us at views@livemint.com
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
