current affairs Cash Transfer Model for Power Sector

Cash Transfer Model for Power Sector

As per recently released World Bank Report, India needs investment and reform to target inefficiency in entire electricity supply chain to boost and sustain its energy supply.

• According to the World Bank report, ‘In the Dark – How much do power sector distortions cost South Asia’, the distortions in power sector impose a total economic cost of around $86.1 billion on India, which is around 4.1 per cent of the GDP in 2015-16.
Findings of the report: The subsidies are not the main cause of distortion. Institutional distortion, such as expensive coal supply, is having a larger effect on India’s power sector than the distortion by subsidies.
• Further, The 2018 Global Competitiveness Report ranked India 80th among 137 economies in the reliability of electricity supply.

• Use Cash Transfer Model to Reduce subsidy induced distortions and protect poor households: The application of cash transfer model will protect the poor from any price volatility in electricity prices.
Ensure optimal Coal Supply: About 76 percent of the coal consumed in India is used by the power sector, and around 60 percent of the electricity generated comes from coal. Hence, coal remains the critical factor in reducing India’s global carbon footprint along with maximizing the productivity of Indian Power sector.
Decrease the theft: Electric theft is mostly seen in the slum areas and in some villages. As a result substantial amount of power is wasted and there’s is a mismatch between generation and monetary gains.
Demand Side Management (DSM) Strategies: Use organizations offering DSM and Energy Management Systems (EMS) to improve efficiency of system. With the use of socio-economic cast census, proper demand side management should be formulated.

Reduce the transmission and distribution (T&D) losses: India has one of the highest levels of electricity transmission and distribution (T&D) losses in the world. India’s T&D losses are almost 20% of generation, more than twice the world average.
Adjusting for inflation: The transfer amount can vary depending upon price fluctuations. It is important in program budgeting to build in a contingency between current prices and the worst- case scenario based upon seasonal and historical prices.

Increases the revenue: Many of India’s utilities also lose significant electricity-related revenue because of poor collection efficiency.
Commercial losses occur when utilities are unable to collect customer bills, either because customers are unable to pay or because the utility is not reimbursed for state-mandated subsidies.
Reduce the subsidies burden: Low Administration costs and quickly distribution and circulation decrease the subsidy burden.

Way Ahead:
• The steps will require amendments in the Electricity Act of 2003. It will be required to be done in stages and we will do it in consultation with the states.
Reform Coal Sector: Reforms should focus on prioritizing efficient coal allocation and delivery, promoting competition in coal and electricity supply, rationalizing energy prices to reflect cost of supply, using incentives to promote more efficient power generation and delivery, and targeting social assistance to help people cope with higher energy prices.