According to latest reports, India's power ministry is considering a proposal that may see the closure of some of the nation's dirtiest coal plants as policymakers seek to address the climate crisis.
Reforms could free up INR 306 crore while making the system more equitable, researchers say
Ranchi, October 1 — Better-off households in Jharkhand receive more than twice the share of government electricity subsidies collected by poor households, as revealed in a survey of over 900 households released today by the International Institute for Sustainable Development (IISD) and the Initiative for Sustainable Energy Policy (ISEP).
In both rural and urban areas, the richest two-fifths of households received at least 60% of electricity subsidies, while the poorest two-fifths received only 25%.
The statewide survey could represent a larger trend in India, where residential electricity subsidies are skewed toward non-poor households.
“Energy access is vital for development, and subsidies are provided so that electricity is affordable. But our research shows that it’s the poorest who are receiving the smallest benefits,” says study co-author Shruti Sharma of IISD. “This doesn’t make sense—there’s an opportunity to improve equity here.”
In FY2019, India’s subsidies for electricity consumption amounted to at least INR 110,391 crore (USD 15.6 billion). According to the report, How to Target Residential Electricity Subsidies in India: Step 2. Evaluating Policy Options in the State of Jharkhand, electricity subsidies in Jharkhand vary between INR 1 and INR 4.25 per kWh, depending on the type of household and amount of energy used—but every kWh consumed receives some amount of government support. Since wealthier households can afford to consume more, they capture a larger share of the benefits.
“According to this model, those consuming more than 800 kWh per month can receive up to four times more government support than those who use below 50 kWh,” says Shruti Sharma.
Researchers note that the unfair distribution of energy subsidies is a pervasive problem internationally, and, since many other Indian state governments have tariff and subsidy structures similar to Jharkhand, this issue is likely widespread. The experts highlight that the lack of good data on targeting electricity subsidies is a major knowledge gap across the country. To make support for energy access more fair for poor households, researchers say, the government must fill that gap.
To improve the system, they recommend that state electricity departments in India should rationalize subsidies for rich households and target government support to poor households. This approach could even allow support for the poorest to be increased, the study indicates.
The report provides specific recommendations for governments based on the Jharkhand study.
In the short term, the researchers recommend a highly cautious approach, given the impact of the COVID-19 crisis on citizens: removing the subsidy only for households consuming more than 300 kWh of electricity per month. Once the economy begins to recover, the report says, governments should progressively reduce subsidies for blocks between 50 kWh and 200 kWh per month and exclude households that do not hold poverty ration cards.
With these reforms, the Jharkhand electricity distribution company (DISCOM) could free up INR 306 crore (USD 44 million). Savings could be redirected to improve electricity supply, support poor households consuming less than 50kWh per month, or assist with recovery from COVID-19.
For other states in India, the report recommends finding context-specific solutions with similar analysis of who benefits most from electricity subsidies and by testing different targeting strategies. Experts say this would allow states to improve targeting of subsidies without compromising energy access and affordability. They should also work together with state government agencies that maintain registries of the poor, researchers suggest, to make sure energy access policies align with accurate data on household wealth.
“People across India have been hit hard by the economic shock of COVID-19. It is more pressing than ever to ask: are the right people receiving government support?” says Christopher Beaton, the project lead at IISD. “And could we do a better job at focusing support on the people who really need help the most?”
Note for the editors: The measurement of poverty in Jharkhand is based on a deprivation index; according to that, in FY 2016, 46.5% of the population was poor. Based on this poverty rate and monthly expenditure data of surveyed households, the lowest two quintiles capture the majority of the population that is defined as poor by state definitions.
शोधकर्ताओं ने कहा- सुधारात्मक कदम उठाए जाएं तो बचेंगे 306 करोड़ रुपये और तंत्र भी ज्यादा समानतापूर्ण बनेगा।
1 अक्टूबर 2020 : झारखंड में राज्य सरकार द्वारा गरीब परिवारों को दी जा रही बिजली सब्सिडी का दोगुने से ज्यादा फायदा संपन्न परिवारों की झोली में जा रहा है। इंटरनेशनल इंस्टीट्यूट फॉर सस्टेनेबल डेवलपमेंट (आईआईएसडी) और इनिशिएटिव फॉर सस्टेनेबल एनर्जी पॉलिसी (आईएसईपी) द्वारा आज जारी किए गए सर्वे में यह तथ्य सामने आया है
करीब 900 परिवारों पर किए गए इस सर्वे के मुताबिक शहरी और ग्रामीण दोनों ही इलाकों में बिजली पर दी जाने वाली सब्सिडी में से कम से कम 60% हिस्सा अमीरों (रिचेस्ट टू फिफ्थ) के पास पहुंच रहा है वहीं सिर्फ 25% भाग गरीबों (पुअरेस्ट टू फिफ्थ) के पास जा रहा है।
झारखंड में किए गए इस सर्वे से पूरे भारत की बड़ी तस्वीर का अंदाजा लगाया जा सकता है, जहां घरेलू बिजली पर दी जाने वाली सब्सिडी उन परिवारों तक पहुंच रही है जो गरीब नहीं हैं।
इस अध्ययन की सह लेखिका और आईआईएसडी से जुड़ी श्रुति शर्मा ने कहा ‘‘विकास के लिए हर किसी को बिजली की उपलब्धता जरूरी है और सभी लोग बिजली खरीद सकें, इसके लिए सब्सिडी दी जाती है, लेकिन हमारा अध्ययन यह जाहिर करता है कि सबसे गरीब परिवार को सबसे कम फायदा मिल रहा है। ऐसी सब्सिडी का कोई फायदा नहीं। इस मामले में समानता लाने के लिए व्यवस्था को बेहतर बनाने की पूरी गुंजाइश है।’’
वित्तीय वर्ष 2019 में भारत में कम से कम 110391 करोड़ रुपए (15 अरब 60 करोड़ डॉलर) बिजली पर सब्सिडी के रूप में दिए गए। 'हाउ टू टारगेट रेजिडेंशियल इलेक्ट्रिसिटी सब्सिडीज इन इंडिया : स्टेप टू. इवेलुएटिंग पॉलिसी ऑप्शंस इन द स्टेट ऑफ झारखंड' शीर्षक वाली इस रिपोर्ट के मुताबिक झारखंड में बिजली पर दी जाने वाली सब्सिडी प्रति किलोवाट 1 रुपए से लेकर 4 रुपये 25 पैसे के बीच है। यह इस पर निर्भर करता है कि घर में कितनी बिजली का इस्तेमाल किया जा रहा है। मगर खर्च किए जाने वाले प्रत्येक किलोवाट में कुछ धनराशि सरकारी सहयोग के तौर पर शामिल होती है क्योंकि खुशहाल परिवार ज्यादा बिजली का इस्तेमाल करने में सक्षम होते हैं लिहाजा वे सब्सिडी के तौर पर दिए जाने वाले लाभ का एक बड़ा हिस्सा हासिल कर लेते हैं।
श्रुति शर्मा के मुताबिक इस मॉडल के अनुसार जो परिवार 800 किलोवाट प्रति माह से ज्यादा बिजली खर्च करते हैं उन्हें 50 किलो वाट से कम बिजली खपत वाले लोगों को दी जाने वाली सरकारी सब्सिडी की सहायता के मुकाबले 4 गुना ज्यादा फायदा मिलता है।
अध्ययनकर्ताओं ने यह माना कि बिजली पर दी जाने वाली सब्सिडी के असमानता पूर्ण वितरण की समस्या पूरी दुनिया में व्याप्त है और चूंकि भारत के कई अन्य राज्यों में बिजली शुल्क दरें और सब्सिडी का ढांचा झारखंड से ही मिलता जुलता है इसलिए इस बात की पूरी संभावना है कि देश के अन्य राज्यों में भी यह समस्या मौजूद हो। विशेषज्ञों ने इस बात को रेखांकित किया है कि ऊर्जा सब्सिडी को वास्तविक रुप से जाहिर करने के लिए सटीक आंकड़ों की कमी के कारण पूरे देश में एक बड़ा नॉलेज गैप बन चुका है। शोधकर्ताओं का मानना है कि गरीब परिवारों को बेहतर ढंग से बिजली पहुंचाने में मदद के लिए सरकार को यह अंतर खत्म करना होगा।
शोधकर्ताओं का सुझाव है के तंत्र में सुधार करने के लिए भारत के विभिन्न राज्यों के बिजली विभागों को खुशहाल परिवारों को दी जाने वाली सब्सिडी को अधिक समानतापूर्ण बनाना चाहिए और गरीब परिवारों को सब्सिडी का समुचित लाभ उपलब्ध कराने की दिशा में काम करना चाहिए। इससे गरीबों को दी जाने वाली सब्सिडी में बढ़ोत्तरी करना भी मुमकिन हो सकेगा।
झारखंड में किए गए अध्ययन के आधार पर इस रिपोर्ट में सरकारों के लिए कुछ सुनिश्चित सुझाव दिए गए हैं।
शोधकर्ताओं का सुझाव है कि कोविड-19 महामारी के नागरिकों पर पड़ने वाले असर को देखते हुए अल्पकाल में बेहद सतर्कतापूर्ण रवैया अपनाना होगा और सिर्फ उन्हीं घरों की सब्सिडी खत्म करनी होगी जो हर महीने 300 किलोवाट से ज्यादा बिजली खर्च करते हैं। रिपोर्ट में कहा गया है कि अर्थव्यवस्था में सुधार की शुरुआत होने पर सरकार को 50 किलोवाट से लेकर 200 किलो वाट प्रतिमाह बिजली खर्च करने वालों वाले परिवारों को दी जाने वाली सब्सिडी में कटौती करनी चाहिए और उन उपभोक्ताओं को सब्सिडी के लाभार्थी लोगों की सूची से हटा देना चाहिए जिनके पास बीपीएल राशन कार्ड नहीं है।
इन सुधारात्मक कदमों से झारखंड की बिजली वितरण कंपनियां 306 करोड़ रुपए बचा सकती हैं। इस बचत का इस्तेमाल बिजली आपूर्ति में सुधार करने, प्रतिमाह 50 किलोवॉट से कम बिजली खर्च करने वाले गरीब परिवारों की मदद करने या फिर कोविड-19 से हुए नुकसान की भरपाई में मदद के लिए किया जा सकता है।
रिपोर्ट में भारत के अन्य राज्यों के लिए सुझाव दिया गया है कि सरकारें यह पता लगाएं कि बिजली सब्सिडी से सबसे ज्यादा फायदा किसको हो रहा है। इसके अलावा ऐसी ही अन्य लक्ष्यपूर्ण रणनीतियां अपनाकर काम करना होगा। विशेषज्ञों ने कहा कि इससे राज्य सरकारों को ऊर्जा की उपलब्धता और उसके किफायतीपन से समझौता किए बगैर सब्सिडी के ढांचे को बेहतर बनाने में मदद मिलेगी। इसके लिए राज्य सरकार की विभिन्न एजेंसियों के साथ मिलकर काम किया जाना चाहिए जो गरीबों की रजिस्ट्री के मामले देखती हैं ताकि नीतियों को उपभोक्ता परिवार की माली हालत को देखते हुए सटीक आंकड़ों पर आधारित बनाया जा सके।
आईआईएसडी के प्रोजेक्ट प्रमुख क्रिस्टोफर बीटन ने कहा ‘‘कोविड-19 महामारी के कारण अर्थव्यवस्था को लगे झटके का असर पूरे देश के लोगों पर पड़ा है, लिहाजा यह सवाल पहले से कहीं ज्यादा अहम हो जाता है कि क्या सरकारी मदद उसके वास्तविक हकदारों तक पहुंच रही है या नहीं, और क्या हम सही मायनों में जरूरतमंद लोगों की मदद पर ध्यान केंद्रित कर पा रहे हैं?
संपादकों के लिए नोट
झारखंड में गरीबी का पैमाना अपवंचन सूचकांक (डिप्राइवेशन इंडेक्स) पर आधारित है। इसके मुताबिक वित्तीय वर्ष 2016 में राज्य की 46.5% आबादी गरीब थी। गरीबी की इस दर और सर्वे के दायरे में लिए गए घरों के महीने के खर्च संबंधी आंकड़ों के आधार पर सबसे कम दो पंचमक (क्विनटाइल) के बराबर का हिस्सा झारखंड की आबादी के बड़े भाग को खुद में शामिल करता है। इस आबादी को राज्य सरकार की परिभाषा में गरीब के तौर पर प्रस्तुत किया गया है।
Step 2. Evaluating policy options in the State of Jharkhand
The report examines practical options for subsidy targeting in India by using a survey of over 900 households to analyze the distribution of residential electricity subsidies in the state of Jharkhand. It also examines various strategies to improve subsidy distribution and to better target benefits to poor households.
Jharkand spent INR 984 crore (USD 140 million) on residential electricity subsidies in 2019, but around 60% of the benefits went to the richest 40% of households.
Adjusting tariffs in Jharkhand could make electricity subsidies more equitable and free up INR 306 crore (USD 44 million) that can be redirected to the poor or used to help cope with COVID-19.
In Jharkhand, the poorest 20% of households spent 12.8% of their income on electricity while the richest 20% spent only 3.7% of theirs. So why are better-off households getting a larger share of benefits from electricity subsidies?
Based on a survey of over 900 households in Jharkhand, this report finds that residential electricity subsidies are not well targeted and that wealthier households in Jharkhand receive more than twice the share of benefits received by poor households. In rural areas, the top two quintiles—the richest 40%—received 61% of subsidy benefits, and the bottom two quintiles received 25%. Among urban households, the top two quintiles received 60% of benefits and the bottom two received 25%.
The research evaluated three mechanisms that can improve subsidy targeting and deliver savings for the state government. In light of COVID-19’s impacts on the affordability of living, the research recommends taking a highly cautious approach in the short term to prevent any further hardships at the current time. In the medium term, however, it recommends rationalizing subsidies for better-off households to better target support to the poorest.
Even today, Jharkhand can confidently restrict subsidies for households consuming more than 300 kWh of electricity per month, as very few households are well-off enough to consume at this level. For the medium term, the research recommends an incrementally decreasing subsidy for consumption blocks between 50 kWh and 200 kWh. We estimate this would generate fiscal savings of least USD 44 million, which could be used to increase support for the poorest or contribute to tackling the current health and economic crisis.
Many other state governments in India have tariff and subsidy structures similar to Jharkhand. The statewide survey could represent a larger national trend, where residential electricity subsidies are skewed toward non-poor households. But the lack of good data on targeting electricity subsidies is a major knowledge gap across the country. The report recommends making energy access fairer for poor households by encouraging state governments, electricity regulators, and electricity distribution companies to analyze who benefits most from electricity subsidies and test different targeting strategies.
Part 3 – Social Sustainability: Energy affordability and pricing reform in India
This International Institute for Sustainable Development (IISD) & Council on Energy, Environment and Water (CEEW) three-part commentary series takes a deep dive into how India’s energy sector is coping with the impacts of COVID-19 and what this means for the sustainable energy transition. We explore three key themes.
This workstream is linked to global efforts to track government support for fossil fuels and renewables in light of COVID-19, as reported in the Energy Policy Tracker launched in July 2020 by IISD in partnership with 13 other organizations.
The COVID-19 crisis has had dramatic impacts on the ability of families across India to afford the cost of living. At the same time, as covered in our first commentary, the pronounced drop in electricity demand during lockdown has worsened the financial stress of electricity distribution companies (DISCOMs). Tariff reforms are a longstanding recommendation for DISCOMs to improve their finances—but what now is the agenda for price changes in this period of economic difficulty?
To address these issues, IISD and CEEW held a closed-door roundtable session on September 3, hosting around 15 participants from India’s energy think tank community. This commentary synthesizes highlights from IISD’s efforts to track COVID-19 impacts, the roundtable discussion, and its broader program of work on targeting electricity subsidies[1].
With a large low-income population, the impact of COVID-19 was always going to be pronounced in India. Further, India’s stringent lockdown, though initially successful at slowing infections, also triggered a further set of socioeconomic impacts.
In a recent review, IISD found numerous studies and government reports attempting to grasp the enormity of the crisis. Unemployment rates soared to 26% in early April, though they recovered to pre-lockdown levels in mid-June. The latest government figures show a 23.9% economic contraction in the last quarter. Numerous media reports covered the effects on low-income groups, such as farmers, domestic workers, small business owners, and daily wage earners, whose informal employment is often coupled with little job security, leaving them among the most affected. According to a Dalberg survey of 47,000 households covering 15 states from April to June, primary income earners in over half of low-income households lost their jobs, rendering about 23% of households without an income. Further, there was a sustained drop in total household incomes, on average, to 40% of pre-lockdown levels. This was worse in some states than others.
Given the impacts on poverty, it is clear that now is not the time to be pushing hard on reforms to electricity pricing.
At the same time, the longstanding rationale for tariff revisions has become even more pressing: DISCOMs are struggling to stay solvent during the crisis. In part, this is because they have been selling less power (during the period of late March to July 2020), and many of their costs are fixed. It is also because of the role of “cross-subsidies”: some consumers pay more than the average cost of supply, and the surplus is used to subsidize others, who pay less than the cost of supply. With industries and commercial establishments running into financial losses owing to the pandemic, their ability to cross-subsidize the agricultural and certain residential consumer categories has dropped.
An INR 90,000 crore (~USD 12.1 billion) loan package for DISCOMs has already been announced, and further assistance may be pending. If DISCOMs continue needing to be bailed out by state governments, there will be fewer resources available to help with the health and economic crises; and if they are not bailed out, DISCOMs will only be able to cope by providing unreliable and unstable electricity services. Consumers ultimately end up paying these costs too.
Three principles can go some way in helping resolve this dilemma:
Focusing subsidy reforms on better-off consumers presupposes that we have good information on who is able and willing to pay. This includes how willingness to pay may vary according to factors such as the reliability of power, the quality of service, coping costs (in the absence of reliable electricity supply), education, and awareness.
Various studies have tried to gauge consumer willingness to pay, producing interesting results:
In the IISD and CEEW roundtable discussion, there was broad agreement among participants that independent studies could only go so far. Ultimately, data collection on consumption, willingness to pay, and consumer preferences needs to be collected on a regular basis by government departments, DISCOMs, and regulators—and be made transparently available. Where agencies already have disaggregated data on some of these essential factors, it would be highly valuable to piece it together. As we progress on subsidy targeting, data on the energy efficiency of appliances will also become increasingly important.
The need for improved data gathering by government institutions is only more pressing in light of the pandemic, which has undoubtedly had a huge impact on some electricity consumers’ ability to pay for essential services.
Today, many state electricity tariff systems are highly complex: in some, there are as many as 90 distinct categories and subcategories of consumers with unique tariff rates. Tariffs vary according to factors like voltage levels, contracted load, consumer types, and various socioeconomic considerations. There is no uniform evidence-based approach for categorizing consumers across the nation. In practice, this means that categories expand based on the government in power and their promises to different parts of the electorate regarding subsidized power. Legacy issues prevent newer governments from reforming the system and creating more rational targeted tariffs.
India’s central government had proposed an amendment to the National Tariff Policy, 2016 in the form of targets for simplifying tariff structures that focused on sanctioned load and volume of power consumed; this amendment hasn’t as yet been approved. Since the COVID-19 pandemic, the central government has also proposed amendments to the Electricity Act, which would increase the pressure for cost-reflective tariffs and the eventual limitation of cross-subsidies within +/-20% of the cost of supply, as well as introducing a DBT-P scheme in the electricity sector. States have further been encouraged to carry out the implementation of the DBT-P system in one district by the end of the year to receive benefits in the form of increased borrowing limits. Very recently, Andhra Pradesh has proposed the implementation of DBT-P to take advantage of the benefit of increased borrowing limits.
In the IISD and CEEW roundtable, there was a lively discussion of additional options for tariff simplification and what they might mean in terms of targeting. This included:
For all such measures, and in particular the DBT-P, there was consensus that careful evidence-based testing and piloting are necessary to work out the nuances related to large-scale implementation.
Even with the right technical solutions, state-level politics are critical to the success or failure of tariff reforms. This has only grown more pronounced during the COVID-19 crisis: from announcements so far, it seems like annual tariff adjustments this year are likely to be minor, if they take place at all. Politics is an area where it may be possible to address some structural problems during the COVID-19 period so that challenges ease during the economic recovery.
Some steps on this front are already being taken by the central government. The 2020 draft amendments to the Electricity Act have proposed several measures to shift some of the control from the state governments to the centre in the form of appointment of members of the state electricity commission and requirements to reduce cross-subsidies. The risk of the above-mentioned proposal is that state tariffs could still be driven by politics, but national instead of state interests—which may just shift problems rather than solving them. However, in a June 2020 clarification notice, the Ministry of Power stated that the aim of the amendments was not to take away powers from the state governments and that there would be a consultation process in deciding on how cross-subsidies will be reduced.
More steps could still be taken to address structural issues. One proposal was to consider schemes in which better-off households could voluntarily opt out of subsidized tariffs, in the spirit of the Give Up LPG Subsidy campaign in 2015. This was personally backed by Prime Minister Modi and involved a public “scroll of honour” that included the names of those who had opted out, with signatures by major public figures and the staff of iconic Indian organizations. A similar campaign in the power sector could help establish the norm that giving up subsidies—if you can afford the cost of supply—is the ethical thing to do.
As noted, there are various data gaps and political hurdles in identifying and implementing affordability reforms. Think tanks and universities need to continue producing and amplifying the missing data to both assist and hold regulators accountable for subsidy allocation. Government agencies need to start adopting the structures developed and the outcomes identified by the policy research community engaged in tackling these issues for better evidence-based decision-making.
On this note, please keep an eye out for:
[1] This discussion was held under Chatham House Rule: as a result, individuals and organizations are not cited unless they explicitly requested acknowledgement upon reviewing a draft of this commentary. On that basis, participants included Rasika Athawale (Regulatory Assistance Project), Bigsna Gill (Sustain Plus Energy Platform), Ankit Gupta (CERC), Manabika M and Aditya Chunekar (Prayas Energy Group), Pavithra Ramesh (Citizen Consumer and Civic Action Group), Umesh Ramamoorthi (Auroville Consulting) and Vibhuti Garg (Institute for Energy Economics and Financial Analysis (IEEFA).
[2] Such as timely billing, convenient payment options, quality of power supply (reduced blackouts), stable voltage, etc.
A deeper look at fossil fuel subsidies and emerging renewable energy solutions suggests that green stimulus could actually be India’s most economically viable pathway to recovery.
Part 2 – Environmental Sustainability: Tracking COVID-19 support for fossil fuels and renewables in India
This International Institute for Sustainable Development (IISD) & Council on Energy, Environment and Water (CEEW) three-part commentary series takes a deep dive into how India’s energy sector is coping with the impacts of COVID-19 and what this means for the sustainable energy transition. We explore three key themes.
This workstream is linked to global efforts to track government support for fossil fuels and renewables in light of COVID-19, as reported in the Energy Policy Tracker launched in July 2020 by IISD in partnership with 13 other organizations.
Government responses to the pandemic have raised serious concerns about the global prospects for a transition from fossil fuels to cleaner sources of energy. These concerns are not unfounded: energypolicytracker.org shows that G20 governments have pledged USD 169 billion to fossil fuels during the COVID-19 crisis and only USD 138 billion to clean energy (as of August 14, 2020). India specifically has seen a concerted effort to decrease dependence on imported coal by easing business for domestic coal.
IISD and CEEW organized a webinar session on July 27 to dissect some of these emerging trends in the Indian power sector. This commentary synthesizes highlights from IISD’s tracking efforts and the webinar. A recording of the webinar is available here, and full details on the session, including presentations, are available at the end of the commentary.
Energypolicytracker.org shows that government commitments to clean energy have been trailing those made to fossil fuel sources globally. A shining example in the other direction has been France, with almost five times as much support for clean energy (USD 33.7 billion) over unconditional fossil fuels (as per an update available on July 29, 2020), directed largely toward energy efficiency in buildings, transportation, and clean energy.
In India, the largest quantifiable stimulus package is a set of loans for electricity distribution companies, which is focused on helping them pay off their debts to power generators. As explained in detail in the first part of this commentary series, this measure benefits thermal power producers, among whom the largest amount of unpaid dues have accumulated. While some form of intervention was clearly necessary in order to keep the electricity sector financially buoyant, the policy does not attempt to distinguish between sustaining generators that are needed to service core electricity demand and generators that are scheduled for early retirement or may be a form of overcapacity.
India has also signalled strong support to its domestic coal mining and production industry to help reduce import dependence. In recent months, a number of measures have been announced that will permit the commercial mining of coal and hasten new mining and coal production. A significant portion of them is directed at loosening existing environmental safeguards and the vetting processes that are intended to verify the experience of bidders for mining projects. Most of these measures could not be quantified, but commitments to invest in coal transportation infrastructure are, alone, worth over USD 6 billion.
At the time of writing, many fewer commitments have been identified for clean energy. From the central government, this includes two main policies: a provision to allow solar power to be bundled with thermal power, thereby helping intermittent renewables scale up without endangering the grid; and a scheme to green the Indian Railways through efficiency and clean energy measures. At a state level, further measures have been identified in Andhra Pradesh, which introduced a policy to provide free solar power for farmers and a policy to facilitate the leasing of land for renewable energy export. Targeting one of its biggest challenges—air pollution—the Delhi government has introduced the Delhi electric vehicles policy, with large incentives across the various categories of vehicles. Of all these measures, the financial value of only one has been estimated: free solar power for farmers in Andhra Pradesh, at USD 1.2 billion.
Nonetheless, at both the national and international levels, the clean energy sector has witnessed a record-breaking fall in solar tariffs in the past few weeks. Further, it is worth noting that the government has not backed down on maintaining a “must-run” status for renewables, which has left renewable energy developers the least affected by falling electricity demand. Does this imply that we have reason enough to be optimistic about the clean energy transition in India?
CEEW’s Centre for Energy Finance analysis shows that clean energy investment trends remain largely on track, despite the pandemic. This is, in large part, attributable to the policy measures that the government had in place over the last decade to ensure that the entire sector supports the integration of clean power. The responses during and after COVID-19 will be pivotal for maintaining a clear signal that India is backing its clean energy targets. This is particularly important in the light of recent IISD-CEEW analysis showing that renewable energy subsidies fell more than 35% from financial year 2017 to 2019.
With regard to support to the clean energy sector, there is a stark need for the government to reconsider its focus, taking into account changing geopolitical dynamics, the national focus on self-sufficiency, and widespread economic uncertainty. This includes:
As of late July 2020, power demand has recovered and reached the same peak levels seen in July 2019—up from the 25% decline in demand in April and the 10% decline in June. However, experts predict that the true impact on demand is likely to be seen toward the end of the year. At this time, moratoria on loan payments will lift and defaults on payments may occur, reducing economic activity and associated power demand. It is also important to note that data on electricity generation doesn’t include all sources—in particular, it is missing “captive” power, such as when an industry has its own privately owned generation capacity—so it will be hard to have a full picture on recovery in the electricity sector until complete statistics are available.
A recent TERI study predicts that the COVID shock will result in a persistent downward revision to expected growth in Indian GDP for the medium term and, by implication, a persistent downward revision in electricity demand. Even before COVID, demand modelling indicated that additional investment in thermal power plants would be unnecessary, and the 2021 budget had already set out plans to retire some of the oldest, most polluting plants. Now, with the fall in demand forecast owing to COVID-19, there are growing calls to phase out a share of thermal power plants to make space for green power.
While some of the recently announced pro-mining and thermal power policies may be seen as a necessary response to changing global geopolitical dynamics and trade owing to COVID-19, it also raises concern about a divergent mindset on the clean energy transition. Other G20 countries have mostly held back on passing policies on coal during this time—apart from China, South Africa, Australia, and Canada. On the other hand, most G20 countries, including India, have passed several policies to navigate their economies through the fall in global oil prices.
A forthcoming CEEW study of the efficiency of existing coal power plants has identified that many of the older plants are more inefficient, but the delivered coal cost for these plants is lower, making them competitive financially. However, by phasing out these inefficient plants, India could see significant annual cost savings, which could then be used to fund the costs associated with phase-outs. This could be by way of paying for the debt service obligations or other costs they are likely to continue incurring, even in the event the plants are retired.
Energy transitions are ultimately about people: the ones who make the decisions and the ones affected by those decisions. Politicians care about jobs and political support for climate policies; particularly in fossil fuel-producing countries, action is often influenced by the impact of climate policies on fossil fuel jobs. A “just transition” ensures that decision-makers consider the affected fossil fuel workers and their communities through a process based on tripartite and social dialogue. The agenda must be shared by workers, industry, and governments, then negotiated and implemented in their geographical, political, cultural and social contexts. The Paris Agreement on climate change includes just transition as a key principle.
For India specifically, while the coal industry has negative impacts on the environment and people’s health, in its 50 years of existence, it has become a significant source of government revenues in at least six states for jobs (direct, indirect, induced, and informal) and public services (in the form of schools, hospitals, and other institutions paid for by coal companies’ corporate social responsibility funds). It also promotes local industry in the many districts where coal mining and power plants are located. While estimates of jobs from renewable energy are promising, there will be no one-size-fits-all solution for the entire communities that are directly or indirectly dependent on the coal sector. A University of British Colombia analysis shows that, while adequate solar resources are available in coal mining areas to install solar power plants, to transition coal miners, huge solar capacity is required in each coal mining area. On the other hand, suitable wind resources have little overlap with Indian coal mining areas. If the impact of COVID-19 does open up new conversations on the early retirement of coal power capacity, then now is also an excellent time to start talking about just transition needs over the next decades.
Such conversations should be beginning early and, from a granular perspective at the district-level, shedding light on their specific risks and appropriate resilience measures. Such plans are crucial to ensure that energy transition in India is firmly on a pathway to prioritizing equity and welfare in a post-COVID world. Global experience (be they in the United States or the European Union) shows that, wherever coal industries are declining, just transition policies have taken centre stage in climate debates. The time is ripe for India to start engaging with just transition ideas on a broader scale.
IISD has developed a list of seven principles that should be attached to COVID-19 recovery measures to ensure a recovery aligned with climate goals for Canada. While India has several other competing priorities that may take precedence, a resilient and comprehensive economic recovery package cannot afford to leave energy transition and climate goals behind either. Despite the impacts of the pandemic, countries such as Germany have remained committed to just transition policies by phasing out coal power by 2038 and allocating resources to the economic transformation of coal regions to compensate coal plant operators. Significant budget dollars have also been allocated to compensating lignite power generators for these planned shutdowns. Regions such as the United Kingdom have shown unambiguous support for clean energy, with the majority of the focus being on energy efficiency and achieving carbon neutrality. Several scattered but commendable measures have also been announced in the United Kingdom to support innovation in emissions reduction, and early-stage green businesses. During this time, many emerging economies are yet to announce major policies on energy that involve significant fiscal expenditure. India’s commitment and leadership in the climate and environment sphere are needed now more than ever to influence countries’ actions in response to the impacts of COVID-19.
The session was moderated by Christopher Beaton, Lead, Sustainable Energy Consumption in IISD’s Energy Program, and hosted five panellists, who presented on the following themes (presentations are available for download at the embedded links below):
While the Indian government has announced a Rs 20 lakh crore stimulus package, preliminary thoughts being voiced are that this may be much smaller than envisaged. There are also concerns on how the package will be implemented.
In May, India claimed to have reached a historic milestone in renewable energy. The central government awarded a contract for the supply of 400 megawatts of solar and wind energy. Unlike other such contracts, this was the first-ever ‘round-the-clock’ supply contract.
Part 1 – Financial Sustainability: Bailing out India’s electricity sector
This International Institute for Sustainable Development (IISD) & Council on Energy, Environment and Water (CEEW) three-part commentary series takes a deep dive into how India’s energy sector is coping with the impacts of COVID-19 and what this means for the sustainable energy transition. We explore three key themes.
This workstream is linked to global efforts to track government support for fossil fuels and renewables in light of COVID-19, as reported in the Energy Policy Tracker launched in July 2020 by IISD in partnership with 13 other organizations.
Since India entered lockdown in late March 2020, IISD’s energy program has been tracking, on a weekly basis, the impacts on different parts of the energy sector, demands for assistance from stakeholders, and responses from the government.
Amid the lockdown, the power sector has, so far, been successful in ensuring continued supply to essential services and households. However, it has also faced some of its biggest challenges. Electricity distribution companies (DISCOMs)—who buy electricity from generators and sell it to consumers—were already struggling with finance and performance issues before COVID-19. Now, they sit in a vortex of major risks and losses that have occurred across the supply chain. In order to support economic recovery and to enable a sustainable energy transition, it is essential to stabilize the basic financial viability of the power sector. The central government has already intervened with a major stimulus package worth INR 90,000 crore (~USD 12.1 billion) and proposals to revise core electricity sector regulations—but is it enough?
On June 30, 2020, IISD and CEEW convened 30 participants from India’s energy think tank community to discuss these challenges in a closed-door roundtable. This commentary synthesizes highlights from IISD’s tracking efforts and the roundtable discussion.[1]
India’s DISCOMs have had financial and service performance problems for a long time, and, despite a bailout package in 2015, there have been few improvements. In particular, DISCOMs in many states have outstanding dues on payments to power generators: in IISD and CEEW’s recent review of government energy subsidies, we reported around INR 80,900 crore (USD 10.8 billion) of outstanding dues in late 2019. This grew to INR 1,26,000 crore (USD 16.8 billion) as of May 2020, a 56% increase.
There are many causes, but three stand out at the current time. First, the cost of power procurement has not come down. This is largely due to off-target demand forecasting and surplus power generation capacity. Some states also emphasize the ongoing cost of the first investments in renewables, when tariffs were more than double the conventional supply. Second, DISCOMs continue to struggle with inaccurate and delayed billing, particularly on account of the large growth in consumers under the 2017 SAUBHAGYA household electrification program. Third, electricity tariff structures in many states simply do not cover full costs, including margins to invest in infrastructure and operations. Residential and agricultural consumers, on average, pay far below the average cost of supply. Some of the revenue gap is borne by higher tariffs for industrial and commercial consumers (“cross-subsidies”), some is covered by large subsidies from state governments estimated at INR 63,700 crore (~USD 8.5 billion) in 2019), and the remainder accumulates as DISCOM losses.
High costs and unsteady revenues already represented a lack of resilience in India’s power system—and COVID-19 has brought this into stark relief.
As illustrated in our roundtable briefing slides, the national lockdown from March 25 exacerbated these existing issues, largely due to a catastrophic drop in power demand—around 9% on average across India in March alone, rising to 23% in May.
For DISCOMs, this resulted in a large decline in revenues, and for various reasons, they were unable to reduce their costs by an equivalent degree.
Among electricity generators, renewable energy enjoys a “must-run” status—DISCOMs have to buy electricity from them before any other source.[2] In recent auctions, the per kWh cost of renewable energy has fallen lower than coal (even including storage), so it would be easy to assume that this would reduce costs for DISCOMs. But in many states, older renewable facilities, built many years ago, are producing power at above the average cost of conventional generation. At the same time, DISCOMs can’t fully reduce costs associated with coal power. DISCOMs’ power purchase agreements (PPAs) for coal are typically split into two parts: first, a “fixed cost” payout, which is due regardless of how much electricity is purchased, and second, a “variable” payout, which is due based on the volume of electricity purchased. This left DISCOMs taking on all renewable power, regardless of whether it was low-cost or high-cost, and continuing to pay fixed charges to coal power plants, even if they were not being used at all.
Among consumers, many households and businesses were struggling with the economic crisis created by the lockdown, not to mention the shift to online payment facilities, and some received assistance. All consumers were offered a three-month moratorium on payment dues during the lockdown, along with the choice, in some states, to pay bills in the form of equated monthly instalments over a three-month period. Industrial and commercial tariffs usually include a fixed and a variable component—but to help businesses cope, the fixed cost charge was waived in some states and deferred in others. Consumers were also offered options to defer payments. Some states, like Maharashtra, announced that tariff hikes would not be implemented as planned. This only increased the short-term pressure on DISCOM revenues.
Two main central government policy measures have already been announced: (i) an INR 90,000 crore (~USD 12.1 billion) stimulus package and (ii) permission to expand state government borrowing limits.
More recently, a number of significant proposals have been made to adjust the national tariff policy and to potentially increase the bailout package to INR 1.25 lakh crore (~USD 16.8 billion).
The status of these proposals is not yet clear. However, this commentary by CUTS International emphasizes the importance of careful implementation of subsidy reform for vulnerable consumers and notes again the important interlinkages with good design and implementation of DBTs.
In our roundtable discussion, the following measures were discussed as a way to help the electricity sector build back better:
The current crisis presents an opportunity for policy analysts to convene and lend a common voice to long-pending structural changes needed in the power sector. Without these, the sector will continue to struggle, even once the COVID-19 crisis is over, and will remain equally vulnerable to future shocks—ultimately undermining energy access, economic development, and a sustainable energy transition. IISD and CEEW’s roundtable discussion aimed to contribute to this by bringing together a number of energy policy think tanks from the state and national levels in India. We hope that the tracking of impacts and the proposed policy interventions will be helpful not only for India but also for other countries whose utilities are struggling with the combined impacts of demand shock and legacy issues of financial unsustainability.
[1] This discussion was held under Chatham House Rule: as a result, individuals and organizations are not cited unless they explicitly requested acknowledgement upon reviewing a draft of this commentary. On that basis, participating organizations included the Regulatory Assistance Project, CUTS International, the Centre for Study of Science, Technology and Policy (CSTEP), Prayas Energy Group and the Institute for Energy Economics and Financial Analysis (IEEFA).
[2] This resulted in an increase in the share of renewable power generation for the months of lockdown as compared to the same months in the previous year. See the Central Electricity Authority’s monthly report for April to see the growth in renewable energy generation in April 2020 as compared to April 2019.
Swapping subsidies from fossil fuels to clean options can make renewables the most viable alternative.
Kerosene is not an ideal fuel: it can lead to dangerous levels of indoor air pollution, offers poor lighting, emits greenhouse gases, and raises the risk of fire. But millions of households in India still rely on subsidized kerosene as an affordable and accessible source of light and cooking fuel, especially in parts of the country where an unreliable power supply—such as limited hours of electricity per day, blackouts, and voltage surges—make kerosene lamps an important source of backup for lighting.
Parts of India still experience unreliable power supply—including limited hours of electricity per day, blackouts, and voltage surges.
Kerosene subsidies cost the government of India USD 1.2 billion in the 2018–2019 fiscal year alone and represented 9% of all fossil fuel subsidies in the country. While energy subsidies can be important for expanding energy access and poverty reduction, they are also often improperly targeted, providing disproportionate benefits to the wealthiest consumers, while making little sense in a world shifting to low-carbon sources of energy to tackle climate change.
In April 2019, IISD and The Energy and Resources Institute (TERI) proposed shifting kerosene subsidies in India to off-grid solar products for marginalized households that rely on kerosene for lighting. Solar products are cheaper than kerosene over their lifetime, offer better lighting, and can even come with the ability to plug in and charge devices like mobile phones.
This is what's known as a "subsidy swap"—redirecting some of the savings from reforming fossil fuel subsidies to clean energy solutions.
Such approaches could prove to be very popular: a 2018 survey of 9,000 rural households in India found that 84% favoured government support for solar lanterns, even if it involved foregoing their kerosene subsidies.
“Almost everywhere, renewables are so close to being competitive that a subsidy swap tips the balance. It goes from being marginal to an absolute no-brainer.”
Thanks to IISD’s advocacy and awareness efforts, the subsidy swap idea is catching on. In April of 2019, India’s Ministry of New and Renewable Energy requested the Ministry of Petroleum and Natural Gas to divert part of the cooking gas and kerosene subsidy towards solar options. It is not clear if this will result in an explicit reallocation of funds from one budget line to another—swaps of this kind are rare. But IISD’s research shows that public resources are indeed shifting: kerosene subsidies fell from USD 7.7 billion in fiscal year 2014 to USD 0.9 billion in fiscal year 2019, while major new policies on solar irrigation and solar rooftop PV have been announced in coming years.
As renewable energy becomes cheaper, swapping subsidies from fossil fuels to clean options such as renewables and energy efficiency can tip the balance and turn them into the most viable alternative.
Governments are currently injecting, or planning to inject, trillions of dollars into the global economy to counteract the health, social, and financial shocks caused by the COVID-19 crisis. This unprecedented stimulus spending is an opportunity to accelerate the clean energy transition, and subsidy reform can help fund this spending.
Swapping at least some money from coal, oil, and gas subsidy reform to clean energy offers a real chance for countries across the world to build back better.
