Assessment of the electricity reforms: restructuring improving access and policies for the future

Abstract

The frenzy generated by the throwing open of the generation sector in 1991 by the amendment of the electricity statute has largely subsided with the experiences in Orissa and the prolonging problems in Dhabol. Hence electricity sector reforms became the focus of policy makers who were interested in finding a way to revive the sector by changing the reforms. Even with the formation of independent regulators at the state and central levels the reforms have not progressed satisfactorily because of the fact that independent regulation could not give enough incentives to utility managers who were essentially government employees. In this backdrop the following issues of reforms formed the focal point of this research  Benchmarking of SEBs using Data Envelopment Analysis (DEA) to gain insights into how the reform process in the past decade has affected the performance of the utilities. From the comparative performances some insights into how future reform processes could be reoriented have been suggested  The need for central planning arises to create and orchestrate a nation-wide electricity markets. For this various institutional requirements and the areas that need central planning has been identified. Using inputs from Delphi technique some options have been identified and evaluated. Competition policy in the liberalized electricity markets is delved in with experiences from other liberalized electricity markets and inputs from Delphi process.  Renewable energy promotion policies have long been debated and India has a long history of central policies for promoting renewable energy. In this study renewable energy policies have been evaluated and options to reorient policies to support rural electrification has been delved into  Finally access to electricity is central to the effectiveness of any electricity sector policies. With household electrification rates as low as 45%, it is imperative to look into options to improve the rates of rural electrification. This study used Delphi to gain expert judgment on options for augmenting electrification rates.

The main findings of the study are:

 The reforms have not given enough incentives for utilities with low industrial loads to improve their performances. This is mainly because of the fixation of the reforms on financial turnaround of the utilities without concerns for the overall costs and benefits of the processes. Hence future reforms should take a more holistic view of electricity sector by giving adequate important to rural supply.  After the 1980s the increase in the central government share in investments in the electricity sector especially in generation end, has lead to a moral hazard situations for the states. With the central funding of generation which constitutes significant portion of cost of electricity, the States found it convenient to exacerbate the rot in the distribution end.  For formulating and implementing centralized planning there needs to be coordination between the energy and electricity policy making apparatus. The Delphi study suggests amalgamation of various ministries to form an Energy Ministry to help give a coordinated energy and electricity market policies. New institutions are preferred to using an existing one even with modified processes because the new institutions seem advantageous in not having “legacy” effects.  Liberalization of Indian ESI with the introduction of competition needs to be carefully implemented. Such efforts even in developed countries have been mired with problems of missing price signals for adequate capacity additions and market power. Hence institutions will have to be formed that will mitigate these market failure problems and there is a clear need for a nationwide competition policy framework integrated to the competition regulatory apparatus.  The renewable policies are skewed towards giving capital subsidies and incentives for the project promoters without adequate concern for the equitable sharing (among the various stakeholders) of the benefits arising out of the renewable energy projects. Moreover the design of policies was in such a way that there were not as much incentives for generation of power as for setting up of the projects, leading to appropriation of most of the benefits by the project promoters. While many renewable energy projects are in non-electrified areas, policies would have to be evolved for sharing some of the benefits of the projects with the local community in the way of some public electrification in the local areas.  The rate of rural electrification has been a concern since majority of the households does not have access to electricity. The results of Delphi technique and international experiences in other developing countries suggest the following

 Independent institutions should oversee the rural electrification programs, and such programs cannot be left to utilities managing both the urban and rural loads  The local participation in any rural electrification program is critical to the success because unlike in the conventional mode of utility operation, the rural areas characterized by low loads and dispersed demand needs higher local participation to make it successful  Rural electrification is not as costly as the cost of subsidies incurred by the state governments, and since many cases of rural electrification show villagers paying high electricity prices, finances and investments are not the actual barriers to giving access to electricity. Instead of using an electricity sector level policy for improving access, electricity should be a part of a more holistic approach to sustainable development like the rural development programs. This is especially so because of issues in rural electrification are intertwined with those of energy and water markets.  A levy on commodities using electricity directly and indirectly could be an effective way of generating funds for rural electrification in the event of shortage of funding. Even if privatization in electricity sector is contemplated, a part of the proceeds could be allocated to a special fund for electrification. The rationale here is under the government ownership assets were created with the assumption that rural areas will be electrified using the extensions of grid hence when it is privatized with no obligation of universal access on the private player, a part of the privatization money can be earmarked for rural electrification.