According to data put out by the Central Electricity Regulatory Commission, the cumulative capacity of diesel generators (DGs) used by industrial and commercial units in the country is 90,000 MW — 36 per cent of our total installed power generation capacity. In spite of the expense and resultant compromising of competitiveness (the cost of generation using a mid-sized genset, Rs 14 to 15 per kWh, is much higher than non-domestic tariffs anywhere in the country), inconvenience and safety hazards, industry is compelled to use highly polluting diesel generators because of unreliable and poor-quality power supply. What’s more, DG capacity is growing by 5,000 to 8,000 MW every year — more than nuclear and solar put together. If another piece of evidence to prove that industry is willing to pay more for good quality and uninterrupted power supply were needed, this is it.
Earlier, the Pune model had demonstrated the same thing — load shedding was completely eliminated in the city by passing on costs to consumers, which they happily bore. The problem with most state electricity boards, on the other hand, is that their incentive structures are perverse — they shun buying electricity from surplus states or plants because the more they supply, the higher their losses are, as they can’t pass costs on. But perhaps the biggest irony is that, in spite of consumers hungering for electricity and reeling under power cuts, more than 48,000 MW of thermal generation capacity lies idle due to coal-supply problems and unsigned power purchase agreements. There is simply no way ahead but to rationalise tariff structures to reflect generation and transmission costs, and to sort out coal linkages for generation plants.
Interestingly, the electricity regulator’s findings bring into question the entire diesel subsidy system. According to a 2014 Nielsen study commissioned by the oil ministry, industries and electricity generators account for 9 per cent of diesel usage. That amounts to a subsidy of approximately Rs 8,285 crore for 2012-13. But is the raison d’etre of the subsidy to provide cheap fuel for electricity generation to industrial and commercial establishments? Is it intended to make up for the inefficiencies in power generation and distribution?