Thursday, May 20, 2010

Electricity no cheaper!

Apologies for a gap of over two weeks since my last blog as I was on a family vacation to the US. Although the idea was to keep the blogs going, somehow the visits to Universal studios, sea worlds, zoos, river walks, city towers, and of course the fabled Disneyland with my family ensured that I could not quite keep the resolve. I am back in India 2-3 days ago. A month in the US was quite educational for my primary area of interest that is conservation of limited resources such as energy and water. What I learnt there was that even if areas and states are pronounced drought hit, no home has any less supply of water and for sure never ever is there any load shedding and lack of power supply - whether homes or industry.

Coming home from there, I hit upon a news clip couple of hours ago. I read a news item quoting the minister of power, Government of India, suggesting that the cost of electricity across the country is likely to go up by a Re 1 per KWh. This got me thinking. THe price normally goes up when either the resources are scarce or when the limited resources are made available at an extra cost (the toll). But this hike is because of the former, which means that the natural rare resources became more dear and rare. The Cabinet hiked price of gas sold to power, fertilizer and city gas projects from Rs3,200 per thousand cubic meters ($1.79 per million British thermal unit) to Rs6,818 per thousand cubic meters ($3.818 per mmBtu). So the cost of electricity goes up ! It is sad to note that although there are compulsive reasons why cabinets have to take such steps from time to time, it hardly addresses the basic requirement of higher energy that India needs. If there had been a parallel announcement of such a plan along with the Re 1 increase per KWh, it would have made more sense. So from an end user point of view all it means is that you pay more for less energy. The scheduled and unscheduled load shedding will continue. There is no promise on that. Just that if your electricity bill for consumption of 50,000 units (KWh) was INR 700,000, then now you start paying around 800,000 for no additional promise!


There is an interesting facet to this though. What it drives home the point is that it is even more imperative for users to conserve more. That is the only way they can avoid additional financial burden of paying up for the usage. The interesting part is that it in a very convoluted way actually instils the spirit of conservation and will help consumers see the benefit right away. No indirect maths is required, what you use is what you pay for and the less you use the less you pay. For companies offering energy management solutions, this means that their business case is even stronger. Without doing anything additional from a portfolio point of view, all they can now claim is that with their systems, the savings would be that much more, as the power tariff has generally gone up.


The Central government of India enacted the Electricity Act 2003 for primarily reducing power cost. But power tariff has increased many folds since and power deficit increased. Only power generators and traders are getting benefitted. Prolonged shortfalls in power supply throughout the country have led India to boast the dubious distinction of being the state that has the highest cost per unit of electricity in the world. During the first half of the 11th five-year plan, the cost rose to Rs 5.9 per unit for the 59,000 crore units flowing through the sector’s various mechanisms for inter-state trading, according to a Planning Commission report. And please remember that would becmme close to Rs 7 now with the proposed increase !

With short supply causing the price of power to rise, those states with excess energy have made a profitable scheme out of the sale of power, while managing to keep their consumer tariffs low. Unfortunately, states with power deficits are dictating power exchange trends resulting in frequent unscheduled interchanges (UI).

Each day, regional load dispatch centres prepare for the next days’ power consumption by asking states to declare how much power they will be supplying to the grid and how much they will require. When states are unable to keep their word and end up withholding power from the grid or withdrawing excess energy, they pay an unscheduled interchange surcharge ranging from 12 paise per kilowatt hour (kWh) to 735 paise per kWh, depending on the fluctuation in frequency.

Along with supply shortfalls, these UI’s have caused massive inflation in rates, which are then passed on to consumers. And although these fluctuations in grid frequency draw additional financial burden on both the deficit and surplus states, approximately 41 per cent of the volume of power trading comes from UI.

More than 48 per cent of power traded has come through bilateral exchanges while just less than 11 per cent is exchanged on India’s two power exchanges.

In an earlier blog article, I had mentioned that the energy generation scenario in India is not very good. Now it is clear that whatever little energy is generated is also not very cheap and is getting costlier by day. One just cannot shy away from the need for energy conservation in India – be it homes or industries.

1 comment:

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