Viability of power distribution in India – Challenges and Way Forward

Energy is a key component for economic growth as well as for human development. India is the third-ranking electricity generator in the world but ranks 106th in terms of per capita consumption. Specifically, the distribution of power is the most important link in the value chain of the power sector since it is the cash register for the entire sector. In India, electricity is a concurrent subject shared between the Central and State Governments. While the generation of power has been deregulated since 2003, the supply of power to the consumers is generally carried out by Government-owned power Distribution Companies (DISCOMs). In this paper, the authors analyze the financial distress of DISCOMs in India, and explain how the supply-demand mismatch due to over-ambitious demand projections, the fixed and energy charges of thermal power plants, and the excess procurement of “must-run” renewable sources together contribute to the high cost of power procurement that drives the financial stress faced by DISCOMs. The authors support their assertion with a study of nine DISCOMs supplying electricity to 155 million people in three States and propose policy recommendations for a turnaround of such DISCOMs which can be rolled out with suitable modifications across India.