The Rs 6 Trillion Hole In India’s Pledge To Revise Its Energy Mix

Context: Politically-inflated power discom liabilities need to be sorted out.

Challenges before India ambitious announcements at the CoP-26, Glasgow

• Current low share of renewable energy: The share of renewable energy in the country’s current energy mix is only 12%.
• India’s growing power demand by 2030: Though world’s lowest-cost solar and second-lowest-cost wind producer, the third-largest emitter would guzzle 2.5 trillion kilowatt-hours of electricity annually by 2030, almost double what it required at the start of the decade.

Issues in India’s Power Discom sector     

• Perverse Incentives: The biggest bottleneck as politicians won’t want to lose control of discoms as long as free electricity for pumping groundwater remains a popular ploy to get votes.
• Uncompetitive Power Discom Open Market: Giving retail consumers more choice by allowing multiple discoms to share wires and poles appears attractive but consumers who want to switch suppliers face heavy regulatory charges.
• Accumulated Financial Liabilities: This overhang crimps their ability to pay on time, forcing them to run up operational debt to electricity suppliers and transmission firms.
  • 22.3% “technical and commercial loss”, euphemism for free electricity to farmers and power theft despite several restructuring attempts.
  • Many discoms now have outstanding dues of between six and 12 times their monthly bills.
  • Shaky financial position hurts generators, including clean-energy firms.
  • Arrears are now nearly $14 billion, where almost a fifth are claims of renewable power producers.
• Negligence from Governments: Higher branch of the government lends to entities controlled by a lower branch, and then gets bills of its own producer paid.
  • Recently, when power distributors in three states couldn’t pay their arrears to NTPC, the Reserve Bank of India intervened and deducted money from their governments’ accounts at RBI.
• Contingent liabilities in practice are proving to be very real: During Covid, central government provided $17 billion in emergency liquidity support to discoms under the condition that state governments had to guarantee these loans. According to ICRA Ltd seven states extended almost $14 billion in such guarantees.

Conclusion: Modicum of political will to depoliticize power, the promise of India’s renewable industry may disappear due to the accumulated financial liabilities of India’s electricity discoms.