Red marks in green power plans amid lack of reform in electricity pricing

News: Recently the Union Power Min­ister has asked states to set up steering committees at the level of chief secretaries to plan for the energy transition.

Why there is a need for power sector reforms?

No money spent on capital expenditure: Capital expenditure among states is rising fast, but it is not rising in the energy or power sector. This is worrying since the demand for energy is rising across India and this expansion will need commensurate investments by state governments.

For instance, 20 large Indian states’ aggregate capital expenditure growth in FY22 grew by 48%, but their energy spending is less than 10%.

Note: According to the recommendations of the 15th Finance Commission, the Centre has provided more fiscal room for states to borrow from the markets. The condition is the money has to be spent on power reforms.

Funds utilised for past debts: The money given by the centre to revive the power sector is going to meet the past debt liabilities of the distribution companies. Because these are paying for old dues, the return on equity for these spendings is abysmal in each state.

For example, According to a CAG report, Jharkhand has total outstanding loans of over Rs 20,000 crore to its power generation and distribution companies.

High energy subsidy burden: A Comptroller and Auditor General (CAG) report on the states shows that

-In Telangana, of the total subsidy spent by the state each year, the share for discoms was almost 54%.

-Similarly, in Karnataka energy subsidies were Rs 8,647 crore in FY17, more than half of the total subsidies paid out by the states.

Further, States have not taken any steps to rationalise power tariffs.

What should be done to improve the energy sector?

According to a research paper, more capital spending can take place in the energy sector only if a) Power sector reforms are linked to market-based pricing, b) Replacing the long-standing system of subsidies or free power to targeted user groups, c) Improve the quality of the distribution networks: This includes the provision of metering capacity, or installing substations for renewable energy to feed into the grids, d) Focus on specific problems: States such as Jharkhand and West Bengal need to spend money to encourage the population depending on coal mining and ancillary business to gravitate to other sectors.

Source: The post is based on an article “Red marks in green power plans amid lack of reform in electricity pricing” published in the “Business Standard” on 13^th June 2022.