Growth in the electricity sector had been stalled ever since 1994 on account of reforms (unbundling for its own sake and the IPP policy) that were technically unsound and designed to fail. This was because they did not address the real problem that of revenue interruption on account of price-based subsidisation and the distortions that they bring in. The recent decision to allow captive units to supply at prices (even though only a little) higher than the marginal cost of generation finally means that a win-win move has been made. However, the scope of gain is limited to the value of additional generation amounting to about 20% of the installed captive capacity of about 20,000 mw right through the country. The importance of the change is not the gains per se but that it may well be the first movement away from zero and negative sum games that much of reform has so far been about. The only way forward is direct subsidy to the farmer based on entitlements while the price of electricity moves to its cost, killing all possibility of price and demand mix arbitrage which is currently large and is being exploited in many ways. Reaching out to high tariff and industrial consumers is the key. This means that the Centre would logically have to give up being patient with state governments who have delayed open access.
A Small Step Towards Growing Out Of The Mess In Electricity Supply
Author : Sebastian Morris