The Free Power Flywheel
In many Indian states the politics of electricity has hamstrung renewable energy.
Ah, to be an Indian power consumer during election season. The offers of free electricity — for farmers! for the poor! for everybody! — come in from all sides.
When I passed through India’s biggest state earlier this year, political parties were competing furiously in a poll that would determine control over the mega-state. Uttar Pradesh, located in India’s north, has a population of 280 million, enough to rank it as the world’s fourth-most populous country. The stakes are enormous here, locally and nationally. Uttar Pradesh is so big, and so influential within India’s political economy, how and when the energy transition happens here matters on a global scale.
The campaigns underscored perhaps the biggest challenge facing India’s clean energy transition: the politics of the country’s energy market.
As I hopped between campaign rallies and interviews with electricity industry players, the parties touted the electricity giveaways they vowed to enact and the industry players lamented the fiscal mess this would ensure continues. Uttar Pradesh’s main opposition party was promising 300 kilowatt hours of free power monthly for all — enough to cover what poor and lower middle class families consume — while assuring around-the-clock power (i.e. considerably more than the 12-18 hours many consumers live with now); Another opposition party seconded that, and upped the ante by promising to waive past electricity bills (and there are many, as non-payment is endemic).
The dominant Bharatiya Janata Party (BJP), which controls both the state and India’s central government and thus has the most incentive to restrain itself, nonetheless assured farmers they would continue to receive free electricity for irrigation, as they have for decades. Farmers are the most powerful voting bloc, in Uttar Pradesh and nationally, so cannot be ignored.
The electricity sops — resembling those in nearly every state election across the country — underscore India’s long-standing view of electricity: something between a hallowed right of citizenship and a political gift in exchange for votes. This has led to a chronically loss-making power sector and a utility industry bankrupt on an epic scale.
Not everyone benefits from the freebies. Business and industry are determinedly over-charged. Farmers, on the other hand, enjoy almost completely free power. Urban households are systematically undercharged. Cheating and outright power theft — often by illegally tapping into suspended power lines — are widely tolerated. By official admission, between one-fifth and a third of power goes unpaid for. Knowledgeable officials told me the real figures are likely higher since huge swaths of consumption are not metered, more or less by design.
The result is eye-watering debts at the utilities. Nationally, these currently total some 1.1 trillion rupees, roughly $13 billion. Known in India as “discoms,” short for distribution companies, these utilities buy power from generating companies and sell it to consumers. Discoms are controlled by state electricity boards, which in turn are controlled by politicians. The central government has come up with several schemes to improve profitability and wipe out these debts. So far they have not worked.
This might be starting to change — indeed, has changed in a few states — in part because of the rapidly falling cost of renewable energy. But progress is very slow.
Uttar Pradesh is home to some of the worst-performing discoms. They pay some of the highest prices in the nation to generators. They are among the worst in the nation at getting customers to pay them. Not coincidentally, Uttar Pradesh has lagged in adopting wind and solar energy, despite solid wind and solar resources.
Why does it pay so much to generators? Anticipating a power crunch in 2010s, the state signed a series of costly, multi-decade contracts with electricity generators operating coal-fired plants. These require payments even if their electricity isn’t needed. So when renewable electricity generators came along a few years later, they got short-shrift even though their power was cheaper than coal-generated power. Over time, however, the price gap has grown into a chasm as the cost of renewable energy has plunged by more than 90% over the past decade while the price of coal power has, at best, stayed the same and in some cases risen.
The cost savings have become so tempting, finally, that the political dynamics are starting to slowly change. Renewable energy is gaining momentum in the state. Discoms are beginning to feed it into the grid, saving money even after paying the coal generators for energy they don’t produce. More renewable energy is coming.
The state is still almost fully powered by more-expensive coal, all of which must be shipped in from out of state. But at least one of the state’s five discoms is working to improve bill collections from customers, a first step toward building revenues. These revenues at least in theory, can be invested in more lower-cost renewable generation over time, thus saving more money and helping close the profitability gap.
That could help set in motion a game-changing virtual cycle: cheaper renewable energy creating the funds to improve service and billing, which produces more revenues, allowing still more investments in renewable energy that save more money. The main thing standing in the way is politics.
“Political interference in the power sector leads to lower revenues and far more capital expenditure than required,” decried Avadhesh Verma, who runs the state’s largest electricity consumer protection group.
I tried to meet with the discom supposedly making progress on improving both service levels and raising revenues. A consultant working with the company assured me that the company is seeing “fantastic outcomes.”
But in a sign of just how resistant the free-electricity poltical flywheel is to systemic change, neither the discom nor the consultant wanted to publicize their successes.
Likely they know better than to brag about sticking their hand in the gears.