Page 3 - Charging Power - Understanding Electricity Pricing and the Willingness to Pay for Electricity in India
P. 3
Policy Brief
Finally, increasing the hours of supply from say 5 to 10
hours a day, even at existing tariffs, will result in higher total
revenues and contribute towards meeting the revenue gap.
In MVVNL’s case, this last measure resulted in neutralizing
the gap between average cost of supply and revenue and
the generation of a surplus (row 6 in Table 1).
Conclusion: When a number of technical-, policy-,
and consumer-awareness measures are addressed in
conjunction with tariff increases based on supply cost,
affordability, and willingness to pay, then it is possible for
distribution companies to recover the cost of electricity
supply to rural domestic consumers.
Cross-subsidies and their Impact
To understand how cross-subsidies impact consumer
categories and the discom’s financial performance, a
state-wise per unit average price comparison was done
for consumer groups across 11 states in India (Figure 2).
The analysis shows the overall importance and impact of
tariffs paid by major consumers on the viability of distribution
companies; specifically, the high levels of cross-subsidy
borne by commercial/industrial consumers and the low
revenues recovered from agricultural consumers.
At the all-India level, agricultural consumers account for
23% of the total unit sales, while their contribution to
Electricity Tariff (`/kWh)
Figure 2 Calculated Average Per Unit Price
Source: Power Finance Corporation Report on Performance of State Power Utilities, 2015
Note: The numbers in the parantheses indicate the number of discoms considered for each state.
FEBRUARY 2017 3
Finally, increasing the hours of supply from say 5 to 10
hours a day, even at existing tariffs, will result in higher total
revenues and contribute towards meeting the revenue gap.
In MVVNL’s case, this last measure resulted in neutralizing
the gap between average cost of supply and revenue and
the generation of a surplus (row 6 in Table 1).
Conclusion: When a number of technical-, policy-,
and consumer-awareness measures are addressed in
conjunction with tariff increases based on supply cost,
affordability, and willingness to pay, then it is possible for
distribution companies to recover the cost of electricity
supply to rural domestic consumers.
Cross-subsidies and their Impact
To understand how cross-subsidies impact consumer
categories and the discom’s financial performance, a
state-wise per unit average price comparison was done
for consumer groups across 11 states in India (Figure 2).
The analysis shows the overall importance and impact of
tariffs paid by major consumers on the viability of distribution
companies; specifically, the high levels of cross-subsidy
borne by commercial/industrial consumers and the low
revenues recovered from agricultural consumers.
At the all-India level, agricultural consumers account for
23% of the total unit sales, while their contribution to
Electricity Tariff (`/kWh)
Figure 2 Calculated Average Per Unit Price
Source: Power Finance Corporation Report on Performance of State Power Utilities, 2015
Note: The numbers in the parantheses indicate the number of discoms considered for each state.
FEBRUARY 2017 3
