[Answered] Grants and loans to the power distribution sector haven’t worked. Why the central government should stop funding the power distribution sector?

According to Niti Aayog’s report 2021, most power DISCOMs in the country incur losses every year. The total loss was estimated to be ₹90,000 crores in the financial year 2021. So, they are also unable to build the infrastructure required to facilitate the transition from fossil fuel to renewable energy sources, such as solar or wind.

There are following reasons for why the central government should stop funding the power distribution sector:

• Lack of consumer indexing: In a distribution set-up, all end consumers get their supply from some identified distribution transformer (DT). Each DT is under the supervision of one person who is held accountable for losses. In the case of most public discoms, no one knows which consumer is attached to which DT (implying a lack of indexing). Incidentally, a large number of DTs are not metered.
• Recently, a budgetary outlay of about Rs 3 trillion was earmarked for aiding the distribution sector. However, the sector registered only a small reduction in losses. The AT&C loss has come down to 22.3 per cent in 2020-21 from 26.6 per cent in 2011-12.
• Most discoms are state-owned, and only about 10 percent of India’s population is served by private distribution licensees. Higher private participation in distribution holds out the possibility of greater efficiency. g. in Delhi, AT&C losses have come down from about 55 percent in 2002 to about 9 percent in 2019.
• Discoms have locked themselves into long-term, expensive power purchase agreements (PPAs). As long as the markets continue to provide low-cost power, discoms should not sign new expensive long-term thermal PPAs.
• So far, the govt. schemes have helped the cash-strapped discoms in reducing their debts and the total AT&C loss. However, it has not been able to address challenges around cross-subsidy and power-procurement costs.
• The massive Saubhagya scheme mostly succeeded in expediting electricity access across off-grid pockets. However, it could not address challenges around tariff realisation with these new groups of consumers which ultimately impacted the discoms’ finances in some states.

A public-private partnership (PPP) model can be especially useful in loss-making areas, where commercial operation might not be feasible without support in the form of viability gap funding (VGF) by the government.