Shocking proof of mess in electricity

Shocking proof of mess in electricity

Surge in spot prices reflects bankruptcy.

That spot power rates have surged 50% in a week is a symptom of the mess in the power sector. Bankrupt state power utilities are unable to step-up supply at short notice, following years of reckless giveaways, politically mandated tariffs and plain theft of electricity. And as the powers that be behave as if it is perfectly in order for consumers not to pay for power they consume, the distribution utilities remain financially moribund and unable to procure power from power producers, although capacity utilisation at power plants is barely over 50%.

Such a sorry state of affairs can short-circuit the entire system. Prompt corrective action is imperative. We can no longer presume that things are generally hunkydory and under control in power, now that state governments have issued bonds of the order of ₹2.3 lakh crore, in a bid to shore up power utility finances. What is essential is urgent transparency in utility accounts, complete with mandated publication of quarterly results. The political class needs to fast-forward reforms to make power distribution financially sustainable. The goal to provide power for all by December is sensible, but the subventions required need to be budgeted and provided upfront. In tandem, we need a proper market design in power, so that efficient producers and suppliers can gainfully seek custom. It seems that spot rates have soared at the Indian Energy Exchange due to pressing rigidities in fuel supply, attendant reduction in evacuation and faults in line capacity. But the problem is basically the lack of political will for purposeful reform in the policy-challenged power sector.

In terms of per-capita consumption, India is a power starved country. At the same time, going by the generation capacity that is under utilised or even left stranded, India is a power-surplus country. The apparent paradox stems from political unwillingness to charge consumers realistic tariffs and make the sector financially viable. Without a financially viable power sector, India cannot urbanise or build the economic muscle it aspires to have.