Despite half-hearted reforms, there is a revolution waiting to happen.
By Accountability Initiative Staff, 01 Aug 2014

So far, the story that I have related in this series of blogs is one of half-hearted reforms. Each of the adventures embarked upon so far - unbundling, privatization and the promotion of energy markets - has not eased the travails of the consumer. It is easy to say that the inability to bite the bullet on power tariffs, and in particular, the fear of charging farmers for the power they consume, has been the bane of the power sector. However, on a closer look, power subsidies to farmers are like any other policy of subsidizing them. It is possible to provide – though it might be difficult to sell the idea to them – a complete basket of subsidies in the form of cash transfers, and then withdraw service wise subsidies, such as in power, or irrigation, or fertilizer.

The real bane of the power sector has been the absence of metering, not the supply of subsidized power. When one does not meter electricity supply, one has no idea of how much is being consumed by the subsidized category. As power supply is not visible to the naked eye, the unmetered supply of electricity to any category of consumer is an open invitation for theft.

 

A few institutional reforms, aided by the fact that some technologies for generation hitherto considered un-economical have gathered a critical mass, might catalyse a new wave of reforms in the sector, bridging at last, the persistent gap between demand and supply.

Stealing power is as dangerous as it is rampant. All it requires is a couple of wires to be hooked on to the transmission lines, using wooden poles to maneuver them. Frontline officials in the electricity supply business, whether government owned or private, are powerless to take action because of threats from local politicians. Worse, they often collude in enabling such theft. In Karnataka state, which is considered to be better governed than other States in India, the number of unauthorized agricultural water pumps that await regularization, has always exceeded a hundred and fifty thousand at any given time. No sooner are they regularized, following political pressure, than a fresh lot of illegal connections sprout. It is hard to believe that such pumps are connected to distribution lines without the active collusion of ground level officials, such as line men and local engineers.

With rampant theft caused by un-metered supply, power utilities are cash strapped. This leads to long waiting periods for payment of bills to suppliers. That in turn creates a premium for jumping the queue for payment of bills, a factor that adds another layer of corruption to what is already considered a fairly corrupt system.

However, let me not paint a universally grim picture of the sector. A few institutional reforms, aided by the fact that some technologies for generation hitherto considered un-economical have gathered a critical mass, might catalyse a new wave of reforms in the sector, bridging at last, the persistent gap between demand and supply.

First, many governments have now begun to isolate the non-paying consumers from the rest, through special distribution lines meant only for them. This approach was led by Gujarat, which took the pragmatic decision to provide separate distribution lines meant only for farmers, who were supplied un-metered power. Since politically it was unacceptable to meter each individual farmer, the distribution companies decided to meter the distribution line instead; a sneaky, but effective way of tracking how much power was being consumed by agricultural water pumps. A few days back, I visited a village in Karnataka where such a project was under implementation. People were happy, because they had un-interrupted power for their homes, through a separate line meant only for non-agricultural consumers. As far as farmers were concerned, they were provided power only during non-peak hours, from midnight to dawn. Curiously, none of them complained; they were willing to face the inconvenience of power supply at night, provided they had good quality power of the appropriate voltage. By isolating the lines for agricultural supply and providing off-peak power to them, the ESCOM was also able to better manage the load curve.

 

A lot depends upon visionary managers in the power sector, who see the unfulfilled potential of new technology and the institutional latitude provided by the Electricity Act 2003 and capitalize on that opportunity.

 

The second revolution in waiting is the one heralded by access to new technologies of generating, controlling flow and metering power. Solar energy has so far not lived up to the promise of being a magic wand. The capital cost of solar photovoltaics is high, even considering that they do not require any maintenance. Besides, even if a consumer was able to afford the initial capital cost of solar power, the necessity for expensive batteries to store the energy for future use, rendered it uneconomical for most consumers. That position might change dramatically, if the experience of Germany is an indication. More than a decade back, the Germans encouraged individual householders to generate power using solar panels on rooftops. Instead of storing such power for use later, this generated power was pumped back into the grid. Consumers were fitted with reversible meters, which recorded both the generation of power by the consumer and the consumption, thereby enabling the utility to bill the consumer for the net energy consumed. Through its pricing policies, consumers were encouraged to generate power. Last year, Germany was able to generate nearly three quarters of its power requirements from renewable sources. For India, with its abundant access to sunlight, the potential for such generation could be limitless.

The Panchayats and Municipalities can emerge as the institutions that can transform this dream into a reality. As detailed in my last blog, Panchayats and Municipalities can obtain exemptions from licences to undertake distribution of power. Small local area loops, owned and managed by Panchayats, can bridge the requirements of local consumers. Furthermore, Panchayats might have the scale and financial clout to invest in somewhat larger scale generation projects, co-owned by its citizens and supply surplus power back into the grid. For the distribution companies, this would make a lot of administrative sense for them, as they will not need to manage large numbers of frontline workers, who are engaged in the expensive task of metering and billing. A single meter at the Panchayat level would suffice, with operations below being owned and managed by the Panchayats themselves.

Whether these reforms actually happen, depends on two possible scenarios. A lot depends upon visionary managers in the power sector, who see the unfulfilled potential of new technology and the institutional latitude provided by the Electricity Act 2003 and capitalize on that opportunity. Alternatively, the whole present system, teetering as it is on the brink of bankruptcy, might implode and in the resultant chaos, a decentralized system of generating and distributing power might emerge as a Phoenix from the ashes. Either way, it will augur well for the future.