power crisis in india

DisComs' Pathetic Condition: Reason For India's Power Crisis

June 25, 2022

More than 70% of India's power needs are met by fossil fuels, particularly coal. So, a power crisis in India mainly translated to a shortage of coal.

Despite having the 5th largest coal reserves in the world, accounting for 9.5% of the global reserves, Indian states face long electricity cuts amidst the sweltering heat.

The problem lies not in the physical amount of coal which could power India for 111 years according to existing energy demands but in DisComs (Distribution Companies) payment dues to power generators.

The value chain of power includes stages - power generation, transmission, distribution, and trading.

Coal India is a government-owned company with almost a monopoly over coal extraction. It gives coal to power generators like Tata and Adani, who own massive geothermal plants to convert coal into electricity.

This electricity is given to power transmitters which may be government-owned like Power Grid or private like Adani. Then electricity reaches DisComs, usually government-owned for making profits by distributing electricity into chief areas like agriculture, industry, commercial uses, domestic use and miscellaneous purposes.

Coal India being a monopoly, is extremely profitable, and so are generators like Tata and Adani, but DisComs incur constant losses of tens and thousands of crores.

There was a loss of 27000 crores in the financial year 2018 and 49623 crores in the next year.

These losses make it impossible for Discoms to make payments to generators on time, and then these generators lack inventory and hence do not place orders with Coal India.

This causes electricity shortage during intense heat waves when consumption peaks with the use of air conditioners etc. 

 Why DisComs Facing Loss

So the obvious question is, what's the reason for this whopping loss?

The first reason is Aggregate, Technical and Commercial loss, also called AT&C loss. It means loss during energy transmission from the source to the destination due to both laws of physics and other reasons.

In India, the purview of these other reasons is vast, with electricity theft via illegal connections by street vendors for their stalls and even small industries.

Then there is the inefficient billing system, due to which lakhs of rupees are yet to be collected from defaulters. The infrastructure of electricity usage is also rudimentary, leading to the wastage of energy by appliances.

In countries like the United States and the United Kingdom, this AT&C loss is between 6-7%, but in India, it accounts for 20% of the energy loss.

So a fifth of the energy is lost due to carelessness, and the DisComs bear its brunt. One major setback is the outdated metering system of the country, as their calculation of units consumed is faulty.

By installing just 11 lakh smart meters, India gained 264 crores of extra revenue. If all 25 crore electricity meters are replaced, then it would certainly save a lot of bucks.

 Cross Subsidies: A Disaster In The Making

Cross-subsidising, in the simplest terms, means charging different rates from different groups for the same product. The basis of classification of a group may be anything like economic standards, geography, language or the like.

In India, electricity is cross-subsidised according to the purpose for which it is used: agriculture, small/subsidised industry, big/non-subsidised industry, domestic and miscellaneous.

The cost price of the electricity is the same, say Rs 4, but DisComs would sell it at Rs 1 to farmers incurring a loss of Rs 3, at Rs 2 to subsidised industries with a loss of Rs 2, at Rs 6 to non subsidised industries with a profit of Rs 2 and the same price for domestic and miscellaneous uses, making a profit of Rs 4 from these.

In this calculation, the profit is Rs 6, and the loss is Rs 5, so DisCom gets a net profit of Rs 1, but this is for a single unit consumed by a single member of the group.

In reality, it is a complex calculation as the net profit or loss is determined by the number of members in each group, which vary from time to time.

The essence of this socialist idea of Cross subsidisation is the hope that once a member moves from a low rate group to a high rate one by economic development, DisComs will make a profit.

This is utopian as people continue to take subsidies even when they become financially capable. It is also dependent on vote bank politics as people vote for the party that offers the best subsidies for the largest number of people.

It is not driven by important factors like current economic conditions and the state of natural resources but by party politics.

Along with this, the tariff setting process is also biased and expensive thermal power purchase agreements worsen the situation.

The Indian Railways are also not well equipped to handle power logistics; recently, the railway cancelled 670 passenger trains to rush coal rakes. 

 DisComs must be made more efficient to prevent a power crisis. DisComs owe 1.1 lakh crores to power generators which in turn owes 12300 crores to Coal India.

Cutting-edge data science techniques must be applied to change this Cross subsidisation situation. In addition, a one-time investment is needed to replace outdated electricity metres along with strict rules to curb AT&C losses.

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