Shocking Problem in the Power Sector

Bankrupt electricity boards shun supply
Bad money drives out good. Bad politics drives out supply in the power sector. Tuesday’s Indian Express reports how power demand, at the peak of summer, is constrained to half the installed capacity of 2,68,600 MW in the country . Many units, which together account for installed capacity of 10,000 MW , are shut down openly because there is no demand for their power. Another 30-odd units are shut down because of technical problems that can be fixed in a jiffy. But they remain out simply because there is no demand for their power, even if they are brought on stream. Altogether, 47,000 MW of generation capacity suffers from what is called outage. The problem, however, is not technical, but political.Every single one of India’s 29 state electricity boards (SEBs) is bankrupt and lacks the capacity to pay for the power generation units are in a position to supply them.So, they choose not to buy power from power plants and, in turn, inflict load-shedding on their consumers. SEBs short-change citizens in this fashion because politicians deem it anti-poor to realise the full cost of generating, transmitting and distributing power from consumers. Farmers get power for free. The farmer’s friendly neighbourhood industrialist draws a line from the farmer’s unmetered connec tion and runs his business. The friendly neighbourhood neta makes it his business to shield the theft of power from penalties. The neta at the state level leans on the power regulator to keep tariffs below cost. The net result is to bankrupt the SEB. The politics of cheap power is crippling the system.

The latest round of captive coal auctions has left power producers with mines they cannot mine. They have bid up substantial fees for the right to mine, while committing themselves to zero fuel charges in the price of the power they sell. They assumed they would be able to pass on their costs as capacity charge. Now, the government has told them they cannot. They will face a coal crunch. But this is a lesser order problem, as compared to cheap politics. Power needs a political solution to its problems.

Source: Economic Times; 27 May 2015

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