April , 2019
Uniformity of electricity prices in India – will it work out
15:21 pm

D. Radhakrishna

The central government in various podiums claimed that they were able to bring the ‘One Nation one Tax’ system in the country.  On similar lines now, demand is being raised at certain levels that electricity prices all across the country - atleast for the domestic sector - are made uniform so that the present punch being faced at metropolitan cities is reduced.

Even during the recently concluded elections, electricity prices and its availability were among the main issues. The Schedule 12 of the Concurrent List of the Indian Constitution calls for maintaining uniformity in the policies that are aimed at electricity production. This has been reflected in most states where within states, an uniform approach is maintained with uniform tariff, barring Maharashtra and Gujarat that are supplied by private players as well.

The issues

The market of electricity is dominated by the national grid through its power plants totalling 3,50,000 MW installed capacity. Theoretically, either input material is transported or electricity is transmitted. Other heterogeneous modes of production such as coal, gas, nuclear and renewables also contribute to the supply of the heterogeneous consumer segment which ranges from agriculture to public utility such as railways and roads. The variation of production pricing is assumed by the state on a pooled basis.

At the level of supply, the bulk consumer takes a higher voltage in contrast with low consumer who takes, say 230 volt, but the prices of transmission and wheeling often hike electricity prices that the bulk consumer subsidises. This approach of ‘high consumption, high price’ is disgruntling users. This policy is countered by the policy on agriculture market that gives the responsibility of subsidy to the state.

The pricing of electricity is generally fixed by regulators under the Electricity Act, 2003. This policy on tariff is currently in force and is particular to India where fewer than 30 regulators determine the tariff petition submitted by distribution companies for the upcoming year. This arrangement has been unhelpful on all quarters as the prices continue to rise unabated and the distribution companies, ironically, continue to be at a loss. This is despite the implementation of the tariff policy which lays down conditions of fixing cost of recovery after levying of 15.9% post-tax return; which was fixed on interest rates of banks of 14% prevalent during that time but has been lowered to the interest rates of 9% and fuel cost. Yet, consumers are gaining no advantage from the situation. On the contrary, NPAs and losses are increasing. Thus, it is essential that to come out from this situation, one undertakes a paradigm shift in terms of pricing and delivery of power to benefit the end consumers.

At present, the maximum number of consumers of the electricity segment is residential consumers with around 240 million consumers availing electricity who consume around 24% of electricity produced. The per capita consumption of domestic consumers is around 180 units per month as against total per capita consumption of 1200 units. The per unit average cost is ` 5 and every house spends around ` 900 per month to meet electricity expenses. There are also high variations between state to state with some of central based utilities like Goa, Daman, Diu and Andaman Charging ` 3 per unit and some of the private players like Reliance Mumbai charging Rs. 12 per unit. The reduction of per-capita consumption is also aided by the focus on efficient lighting like LED.

On the production side, NTPC which produces around 47200 MW and is clubbed with other central units like NHPC 6000 MW and NPC 5780 MW, makes hefty 50000 MW power and with 90% plant utilisation factor can produce power at ` 2.90 per unit. Another example can be taken from states that have old depreciated power plants which are producing power at less than ` 3 in addition to Hydel Power plants like Bhakra Nangal, Bargi, Koyna. In the NE sector, some plants whose energy charges are a few paisa only can very well cater to domestic segments including the commercial segment - both at rural and urban levels - by merely adding up wheeling cost and can bring uniformity of rates to meet at a rate of say Rs. 4.  Such measures will comfortably enable state governments to take blame with some minor modification in regulations like setting up a national power distribution company. This arrangement would also increase competition in the market further reducing prices and catering to 8% commercial consumer’s country wide.

The present duties and cess collected by states from the consumers and state governments can be used by granting 75% of these duties and cess to supply power to agricultural sector without any budgetary support.

Major consumers such as the railways are opting out of distribution companies and thus, to save the damage, the central government needs to take control and check price rise. They can take an example from the railways that has had only moderate increase in prices unlike electricity despite the low fuel cost of electricity production. Thiswill also open the private market as open access consumers can wheel out their power at negotiated prices and by paying wheeling charges.  These arrangements can help the government to supply electricity in uniform and reasonable rates keeping in mind the heterogeneous consumers and production market of electricity. It may even lead to a day when like Germany, one could have negative pricing for electricity.

In fact, the government wants to bring competition in electricity supply by introducing supplier category in business with the choice resting with customer for choosing supplier and pricing, but, electricity being a commodity with cost plus production, the supplier category would confine with profiteering merging and may not work with this approach and on the other hand, instead of competition it will lead to cartelisation.


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