Indian Electricity Sector Research Articles

Regulation in practice: impact of tariff orders on the Indian electricity sector

Independent regulation of the power sector in India started in 1995 in Orissa. Since then, the scope of independent regulation has expanded, and now it covers the entire country. In 1998, a central legislation – the Electricity Regulatory Commission Act – provided the Central Electricity Regulatory Commission the power to deal with the inter-state generation and transmission issues. The same law had enabling provisions for the SERCs (state electricity regulatory commissions), but there was no compulsion for every state to have a regulator. In 2003, the EA 03 (Electricity Act 2003) came into being, which made having independent regulator mandatory for all states. A large number of orders have since been issued by the regulators, both at the centre and in the states. The interesting question is to what extent have the regulators been able to reform the sector and perform the role that was expected from them. This broad question has many components and for convenience sake, they are divided into two – the procedures/processes followed by the regulator and the substantive content/impact of the orders. The book Regulation in practice: impact of tar iff orders on the Indian electr icity sector by A Garg, V Gaba, and J L Bajaj addresses precisely these issues. The analysis in the book is based on the study in nine states (Andhra Pradesh, Assam, Delhi, Jharkhand, Kerala, Madhya Pradesh, Maharashtra, Uttarakhand, and West Bengal) and covers the orders issued during 2003/04, 2004/05, and 2005/06. Book review

Tariff-based incentives for improving coal-power-plant efficiencies in India

Improving the efficiency of coal-based power plants plays an important role in improving the performance of India's power sector. It allows for increased consumer benefits through cost reduction, while enhancing energy security and helping reduce local and global pollution through more efficient coal use. A focus on supply-side efficiency also complements other ongoing efforts on end-use efficiency. The recent restructuring of the Indian electricity sector offers an important route to improving power plant efficiency, through regulatory mechanisms that allow for an independent tariff setting process for bulk purchases of electricity from generators. Current tariffs based on normative benchmarks for performance norms are hobbled by information asymmetry (where regulators do not have access to detailed performance data). Hence, we propose a new incentive scheme that gets around the asymmetry problem by setting performance benchmarks based on actual efficiency data, rather than on a normative basis. The scheme provides direct tariff-based incentives for efficiency improvements, while benefiting consumers by reducing electricity costs in the long run. This proposal might also be useful for regulators in other countries to incorporate similar incentives for efficiency improvement in power generation.

Simhadri Super Thermal Power Project (A)

The Indian electricity sector was opened to the private sector under the IPP policy. The NTPC, India's largest and perhaps most efficient generator had to respond to the changing scenario. It set out to set up the Simhadri project in Andhra Pradesh, going beyond to original mandate. The IPP policy, its perversities, the background of the power sector, the problems there in and the response of NTPC are discussed. Case (B) discusses the issues related to Project Planning and Implementation.

Carbon Taxes and Joint Implementation - An Applied General Equilibrium Analysis for Germany and India

Germany has committed itself to reducing its carbon emissions by 25 percent in 2005 as compared to 1990 emission levels. To achieve this goal, the government has recently launched an environmental tax reform which entails a continuous increase in energy taxes in conjunction with a revenue-neutral cut in non-wage labor costs. This policy is supposed to yield a double dividend, reducing both, the problem of global warming and high unemployment rates. In addition to domestic actions, international treaties on climate protection allow for the supplementary use of flexible instruments to exploit cheaper emission reduction possibilities elsewhere. One concrete option for Germany would be to enter joint implementation with developing countries such as India where Germany pays emission reduction abroad rather than meeting its reduction target solely by domestic action. In this paper, we investigate whether an environmental tax reform cum joint implementation (JI) provides employment and overall efficiency gains as compared to an environmental tax reform stand-alone (ETR). We address this question in the framework of a large-scale general equilibrium model for Germany and India where Germany may undertake joint implementation with the Indian electricity sector. Our main finding is that joint implementation offsets adverse effects of carbon emission constraints on the German economy. JI significantly lowers the level of carbon taxes and thus reduces the total costs of abatement as well as negative effects on labor demand. In addition, JI triggers direct investment demand for energy efficient power plants produced in Germany. This provides positive employment effects and additional income for Germany. For India, joint implementation equips its electricity industry with scarce capital goods leading to a more efficient power production with lower electricity prices for the economy and substantial welfare gains.

Carbon Taxes and Joint Implementation

Germany has committed itself to reducing its carbon emissions by 25 percent in 2005 as compared to 1990 emission levels. To achieve this goal, the government has recently launched an environmental tax reform which entails a continuous increase in energy taxes in conjunction with a revenue-neutral cut in non-wage labor costs. This policy is supposed to yield a double dividend, reducing both, the problem of global warming and high unemployment rates. In addition to domestic actions, international treaties on climate protection allow for the supplementary use of flexible instruments to exploit cheaper emission reduction possibilities elsewhere. One concrete option for Germany would be to enter joint implementation with developing countries such as India where Germany pays emission reduction abroad rather than meeting its reduction target solely by domestic action. In this paper, we investigate whether an environmental tax reform cum joint implementation (JI) provides employment and overall efficiency gains as compared to an environmental tax reform stand-alone (ETR). We address this question in the framework of a large-scale general equilibrium model for Germany and India where Germany may undertake joint implementation with the Indian electricity sector. Our main finding is that joint implementation offsets adverse effects of carbon emission constraints on the German economy. JI significantly lowers the level of carbon taxes and thus reduces the total costs of abatement as well as negative effects on labor demand. In addition, JI triggers direct investment demand for energy efficient power plants produced in Germany. This provides positive employment effects and additional income for Germany. For India, joint implementation equips its electricity industry with scarce capital goods leading to a more efficient power production with lower electricity prices for the economy and substantial welfare gains.

Dabhol

This article presents some the issues that arise in the context of restructuring a project finance transaction. The Dabhol Power Project, one of the largest independent power projects being implemented in India, is used for illustration. The issues faced by this project are a reflection of what ails the Indian electricity sector: low tariff collection, high subsidies, high transmission losses, poor transmission and distribution infrastructure, and political unwillingness to undertake measures necessary to reform the electricity distribution regime. The article concludes by outlining a possible option for restructuring the project.