India's Energy Challenges For The Decade

Restoring the power sector’s health, getting all households to use clean energy and a big shift to renewables are crucial

- Ajay Shankar

What should our ambitious energy goals for the new decade be? What policy instruments are needed? The big achievement of the last 15 years has been the completion of the village and household electrification. As many as 1,25,000 villages and about 600 million people have got access to electricity. Funding from the Central government made this possible. There is also sufficient generating capacity for the first time due to large private investments.

The immediate challenge is to get the State governments to turn around the finances of their electricity sector. This can be done by a combination of improved governance, higher tariffs and timely provision of subsidies for free/ highly subsidized electricity for agriculture.

If improving governance appears difficult, getting the private sector to manage distribution is a proven solution. The success of the private sector in the distribution in Delhi has enabled the Delhi government to give subsidy from the budget for a free supply of 200 units of electricity per month.

Major bailouts

Two massive bailouts by the Central government for the power sector have been given since 2001. These became unavoidable as public sector banks and the Power Finance Corporation kept providing loans liberally to distribution companies without what should have been the normal precondition — that the revenue realized per unit of electricity supplied should be higher than the average cost of supply. Such lending needs to stop.

Further, if generators, including NTPC, supplied electricity only on Letters of Credit as the Power Ministry has stipulated, this hard budget constraint would force the States to act. The Central government and its financial institutions need to be firm.