Who cares for power shortage?

Just a few months ago, when oil prices started their seemingly unrelenting climb, media interest in the subject was also peaking. However, over a period of time the variations in oil prices have become routine with just the standard line item stating the day’s oil price. Electricity shortages have been with us for so long that we seem to have become immune to the consequences. The Central Electricity Regulatory Commission (CERC) recently brought out its monthly report on short-term transactions of electricity for February 2009. Comparing this report with the report for the period August to December 2008, it is heartening to note that the share of the short-term transactions market has increased to about 6-8 per cent of total electricity generation. Given the huge shortage situation in this sector, during the discussions on reforms this question is often raised — but where is the electricity to trade? This process of discovery that India has gone through, in a relatively short period of time, should be of great interest to South Asian Association for Regional Cooperation (SAARC) countries that could also benefit from setting up a regional electricity grid and power exchange. Having said that, it is interesting to note that unscheduled interchanges (UI) continue to account for nearly 40 per cent of these short-term transactions despite the impressive growth of bilateral trade and the introduction of power exchanges in 2007. When the UI tariff was introduced by CERC in 2000, it was seen as a mechanism to bring about grid discipline by both generators and users of electricity — meaning that generators generate as per schedule and consumers do the same. Today, not staying by scheduled operations seems to have become the mechanism of choice over the power exchange to alleviate shortage situations, despite the uncertain supply of power through the UI mechanism. Why is it easier to resort to such indiscipline that could threaten the stability of the entire grid rather than adopt the more planned way of going through the power exchanges? The reasons could be many. To start with is the acceptance of the very wide frequency range implicit in CERC’s UI regulations — from 49.22 Hz to 50.30 Hz. Undoubtedly, CERC has tried to discourage overdrawal to the extent that would result in a frequency drop to below 49.5 Hz, but the UI charge even beyond this level is cheaper than the rate at which short-term transactions are taking place. The UI charge at the lowest grid frequency level (49.22Hz) allowed is Rs 7.35 per unit, whereas the average peak price of electricity traded in February 2009 was Rs 8.16 with the maximum being Rs 9.04. The maximum price on the power exchange was Rs 10 per unit. By setting UI prices at such levels, the CERC seems to be almost encouraging grid indiscipline! Maybe the regulations should be modified to disallow a frequency beyond 49.5 to 50.2 Hz. This would effectively address the gaming issue in the sector as well. Another reason for resorting to UI instead of entering into bilateral trade could be the poor abilities that we have in forecasting demand — in all time frames as well as in real time — and, therefore, being unable to estimate shortages in time for planned interventions. The introduction of sophisticated market mechanisms must be combined with access to good quality information, modelling techniques and human capacities. India is still not able to get its long-term demand projections, which are at a more aggregate level, leave alone the short-term demand projections that would need a much higher level of accuracy. On the supply side, too, there seems to be no sense of urgency to address the shortages. Plan after plan, India grossly under-performs vis-à-vis its electricity capacity additions — yet, our competitive bidding processes have no incentives built in to reflect the time value of electricity. It is expected that India will face an energy shortage of 9.3 per cent and a peak shortage of 12.6 per cent in the year 2009-10, despite the development of the short-term transactions market. Consumers in the country are paying upward of Rs 15 per unit in trying to cope with the situation with diesel-based power generation. The opportunity cost of electricity shortages is about Rs 40 per unit. Who, then, do we hold accountable for the mess we are in?