Solar Power Could Aid Reforms In India's Electricity Distribution System
Electricity distribution companies are the all-important interface with electricity consumers and the fulcrum of the revenue cycle
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Reforming the electricity distribution system has remained one of the hot topics of discussion in the Indian power sector for years. Perhaps it is also the most elusive initiative that is widely believed to hold the promise to change the course of India's power industry. Or, it has just become a metaphor for the wrongs in the system that need correction but the associated complexities deny a meaningful beginning.
Electricity distribution companies are the all-important interface with electricity consumers and the fulcrum of the revenue cycle. They therefore need to be commercially viable at all times for sustained viability of the entire value-chain. Balance sheets of several state electricity distribution companies have been repeatedly re-structured with significant financial support from governments. Even the central government has heavily assisted state electricity distribution companies over the years.
Things, however do not seem to change much. While there are several possible reasons for problems to persist, let us discuss the most significant one.
For business viability, all key business decisions, including revenue management, must be based on accurate and verifiable information for managerial and regulatory oversight. In the electricity distribution business, available details are often not accurate. Let us take the case of electricity consumption. Almost all the irrigation supplies, around 20% of total national consumption, are unmetered, creating a huge information black box.
This information gap manifests itself in errors and unscientific provisioning at multiple levels, leading to retail tariff distortions, dilution of regulatory effectiveness and strain on state finances. Since accurate voltage-wise losses are not measurable, unlike in most other countries, 'Average Cost of Supply' is taken as the next best proxy for 'Cost to Serve' different categories of consumers, paving the way for adoption of rate-making principles that cause industrial consumers to pay the highest tariffs, despite being supplied at higher voltages with least technical losses.
Significant socio-economic disparity in Indian society makes it imperative for the government to mandate availability of low cost inputs for farming, including fertilizers, seeds and electricity for pump irrigated farming.
Free or near-free power for irrigation implies doing away with the commercial processes of Metering-Billing-Collection. This results in rural supplies going nearly unmetered as other rural consumers, mostly households, are too dispersed with low consumption, which makes the commercial process unviable for utilities. The information gap leads to:
i. Inaccurate Energy Accounting for the entire power system, diluting regulatory effectiveness
ii. Creation of avenues for erroneous consumption reporting for other consumer categories
iii. Inflated estimates of irrigation supplies increasing subsidy requirements
iv. Introduction of Cross-subsidy and Cross-subsidy Surcharge for industrial consumers and others
v. Making Open Access a near impossibility through high cross-subsidy surcharges to retain high value consumers
In most states, complete metering remains unachieved and even where irrigation metering was accomplished, actual meter readings are rarely used for commercial/ regulatory processes. Thus, just one significant block of unmetered consumers causes a complete breakdown of the utility business' discipline, besides eroding regulatory effectiveness. However, things can change now with new technological possibilities.
Solar power could be the answer. Irrigation needs could be met through solar power, providing over 6-8 hours of supplies 270-300 days a year, in most parts of country. Besides meeting irrigation requirements, solar power could also provide surplus power for rural households and/or for injection into the grid. States with high existing subsidy commitments could implement solarization of pump sets in just a couple of years with subsidy amount as the seed capital. This would result in the following advantages:
1. Ensure complete metering, helping accurate energy accounting/loss assessment, permitting tariff setting based on actual consumption data
2. Subsidy need would reduce drastically to negligible levels
3. Cross-subsidy may not be needed
4. Cost reflective tariffs would be possible for all categories of consumers and industry could get cheaper power (lower by around 30%), making Indian goods cost competitive
5. Robust M-B-C process could ensure easy theft detection and revenue tracking
6. Depoliticize the Indian power sector
7. Other advantages:
i. Farmers could sell surplus solar power to the grid to generate additional steady income, besides encouraging them to adopt metering
ii. Day time supplies would help conserve water due to prudent pumping, optimizing ground water extraction and fertilizer usage
iii. The scheme would also help achieve the national target for creation of renewable capacity
iv. Reduced tariff for industries could be a big boost for industries supporting employment generation
Complete irrigation pump solarization could mean the installation of around 30-40 GW of solar power capacity that would neither need significant power evacuation infrastructure nor fresh land acquisition.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house