Why are Indians paying three to four times the cost of generating electricity?

Indian consumers are paying highest power tariff in much of South Asia even as India’s power generating cost is the lowest among 12 countries. Power sector reform has not worked out, it would seem

Representative Image
Representative Image

Nantoo Banerjee

India is the cheapest producer of electricity from coal, solar and wind sources in the entire Asia Pacific region. It is the only country in the region where solar power costs almost 14 percent less than that of thermal power.

However, in terms of tariffs paid by Indian consumers, electricity charges are among the highest, much higher than those in countries such as Malaysia, Vietnam and China.

According to global consultant Wood Mackenzie, the levelised cost of electricity generation from fossil fuel at around $44.5 per MWh (Rs 3.05 per unit) in India is the cheapest in the region. In China, it is $48.5 per MWh (Rs 3.33 per unit) and Australia $50.9 per MWh (Rs 3.49 per unit) among other 12 countries in the region.

The same is for solar power. In India, the cost is estimated at around $38.2 MWh (Rs 2.62 per unit), the lowest. In Australia, it is $52.7 per MWh (Rs 3.62 per unit) and China $61.2 per MWh (Rs 4.2 per unit). India’s levelised cost of onshore wind power generation, estimated at $48.9 per MWh (Rs 3.36 per unit), is also the cheapest in the region.

Yet, thanks to the inefficiency and malpractices by India’s retail power distribution companies (Discoms), the tariff rates charged to electricity consumers are often more than four times the generation cost, or at the price these companies purchase power from bulk producers. Allegedly faulty electricity meters provided to retail customers and misleading reading further push the electricity bills of consumers.

In July, thousands of domestic subscribers in the Kolkata region, including Bengal’s Power Minister Sobhandeb Chattopadhyay, complained of over 100 percent increase in electricity bills. Similar complaints were made earlier by households in Delhi and Mumbai, all of which are serviced by powerful private sector Discoms. Incidentally, Maharashtra boasts of the highest power tariff (over Rs10 per unit), closely followed by Madhya Pradesh and West Bengal. Of the three states, West Bengal is the nearest to the coal mining region, the principal suppliers to thermal power plants.

Despite the high retail power tariffs, most Discoms show big losses. These power distribution companies run huge arrears of unpaid bills with bulk suppliers, which are invariably in the public sector barring Mumbai’s Tata Power and Kolkata’s CESC among a few others. Both Tata Power and CESC are also prominent retail distributors.

CESC is among the highest profitmaking power companies. CESC monopolises supplies to domestic, industrial and institutional consumers in the entire Kolkata region. The supplies in Mumbai are shared mostly between the Tatas and Adanis. Delhi is served largely by Tata Power and Reliance Infra-controlled BSES

BSES Rajdhani distributes power to an area spread over 750 sq. km with a customer density of 3,100 per sq km. It has over 2.4 million customers spread in 21 districts across Southern and Western parts of Delhi.

Lately, the government offered a Rs.900- billion bailout package to Discoms. However, experts feel that bailing out power Discoms at every crisis is certainly not the most desirable way to fix them. Discoms are taking both power generators and consumers for a ride.

The government’s recovery package barely scratches the surface on issues plaguing electricity utilities. According to the union power ministry’s portal, PRAAPTI, outstanding dues from Discoms to power generators at last October-end stood at Rs. 844.45 billion, up by Rs. 297.76 billion or 54 percent from the same period in 2018.

A significant challenge faced by Discoms in India is the increasing average technical and commercial losses (AT&C), which are primarily caused by power theft and poor payment collection procedures. Also, a steep fall in prices of power generated by solar and wind energy projects are driving their most resourceful commercial and industrial (C&I) customers to engage in private power purchase through open access.

Discoms have become a significant burden on India’s power system. Their poor financial performance has been weighing down the entire sector with their inability to pay power generators on time, manage their losses, and iron out other inefficiencies.

In recent months, COVID-19 has brought the Indian economy on its knees. The unprecedented slowdown was exacerbated with the already inefficient Discoms, making matters worse for power developers.

Despite all the relief provided on account of the ongoing pandemic, many Discoms refused to pay power generators claiming their inability to collect power dues from the consumers. This may not be all that true. Their bid to apply force majeure (due to Coronavirus outbreak) for not paying generators was rejected by the Solar Energy Corporation of India (SECI).

Apart from internal inefficiencies within Discoms, there are other issues like delays in subsidy reimbursements from the government, billing and revenue collection inefficiencies, ageing power distribution infrastructure, average technical and commercial (AT&C) losses and power theft among others that need to be tackled.

India’s corporatisation and privatisation of the retail power distribution system has nearly flopped. It is putting the power generating companies into severe financial stress. The retail consumers, including industrial units, are constantly complaining about reckless tariff increase and inflated billings by Discoms. The consumer complaints have hardly evoked government enquires into the matter.

Retail consumers are forced to pay their dues to Discoms in time or face disconnection. While Discoms collect electricity charges from consumers according to tariffs guaranteed by the regulators, they rarely pay their dues in time to bulk suppliers or electricity generators.

Surprisingly, the government continues to support Discoms. The union power ministry recently stated that “due to the lockdown, consumers are unable to pay their dues to the Discoms. This has affected the liquidity position of the Discoms thereby impairing their ability to pay to the generating and transmission companies.”

This may only be partly true. But, the fact remains that Discoms have been almost habitually defaulting in payment to generating and transmission companies. And, little is being done by the government to stop this practice. (IPA)

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