International Journal of Regulation and Governance
Year : 2005, Volume : 5, Issue : 1
Print ISSN : 0972-4907.
How price reform revolutionized the operational discipline of India's power sector*
Khosla Sunil K, Plummer Judith1
Senior Energy Specialist, The World Bank
1 Senior Financial Analyst, The World Bank
*The views expressed in this paper are of the authors and not of the World Bank.
Abstract
The development of an incentive-based tariff scheme has had a significant impact on the operation of the Indian power sector. Voltage fluctuations have been minimized, greater supply made available, and costs reduced. All this was achieved through the ABT (availability-based tariff) introduced in 2000. This paper considers the development, implementation, and results of this sector's change bulk tariff system.
Implementation of the ABT bulk power tariff regime has been possibly the most significant practical development in the power sector in India in the past decade. It has improved the quality of power supply dramatically, brought the much-needed commercial discipline among the generators and utilities, and laid the foundation of a power market. The ABT is already leading to improvements in what were highly volatile grid frequencies. Consequently, it is most likely to help prevent system collapses and lead to a more efficient use of India's current installed generating capacity. The impact of the new regime will also encourage increased investments in the power sector and will provide incentives to generators to enhance the output capacity of their power plants. This, in turn, will enable more consumer load to be met during the hours of peak demand. Also, because of tariff arrangements, generators will now back down generation during off-peak hours, which will result in economic benefits for India.
The ABT regime has also encouraged interstate trading and merit-order dispatch, which will minimize the financial cost of power for the bulk purchasers with further benefits for India's economy. However, the real winner will be the consumer who in the past has suffered as a result of grid indiscipline. With proper control of grid frequency and improved system voltages, it will be easier for utilities to provide the consumer with more reliable supply of power, allow for more efficient use of equipment, and reduce the costs of back-up power supply reduced. Overall, reforms in the bulk power supply tariffs will result in an installed generation capacity supplying more energy at a lower cost. The new tariff will also result in less system component damage, increased interest by would-be investors, and substantial benefits for the Indian economy.
