Electricity sector reform and generators as a source of backup power: The case of India

Abstract

In India, many firms rely on their own generators, often diesel, as a secondary source of power to guard themselves against frequent outages in the national electricity grid. In 2003, the Government of India implemented a national reform to enhance the efficiency of the electricity grid. How did firm ownership of generators respond to this? We analyze data from the World Bank's Enterprise Surveys, with more than a thousand firms surveyed first in 2002 and then again in 2005 for generator ownership and potential explanatory variables. We show that although the use of generators decreased in the years following the reform, the response was heterogeneous. Large firms and exporters continued to rely on generators upon reform, while small firms and domestic producers reduced their reliance on diesel generators. These findings suggest that large firms and exporters value the insurance against outages that generators provide more than small firms and domestic producers. If India is to reduce the reliance on generators of key firms in the national economy, further improvements in the electricity sector are needed.