Should Indians Pay more for Renewable Energy Based Electricity? - The Need for Evidence Based Consumer Tariffs for Electricity in India

Abstract

<span>India seeks to achieve 175 Giga-Watt (GW) of Renewable power by 2022. As of December 2017, out of 333 GW of total installed capacity of electricity, close to 62GW come from renewable sources. Meeting the set targets calls for augmentation of renewable energy based capacities as expeditiously as possible. However, the sick financial health of the distribution companies/utilities, who act as the primary purchasing authorities of such power, is posing as a threat to the success of the renewable industry. This paper highlights that while the cost of procurement of renewable power, to the utilities, has gone down significantly in the recent past; the worsening financial health of utilities remains a key concern. Data is presented to substantiate that the said distribution companies/utilities are saddled by high gaps between Average Cost of Supply (ACS) and Average Revenue Requirement (ARR). Revenues to the power supplying utilities are under-recovered due to the long standing practice of cross- subsidization in the Indian power sector – agricultural and residential consumers of electricity consume power at lower tariffs, than commercial and industrial consumers. A case is therefore suggested for implementing evidence based tariff setting by the utilities. Under the suggested framework, electricity tariffs for different consumer categories can be charged with a premium for green power, based on their willingness to pay for such power. Collected funds, then can be used towards purchase of green power, by the said utilities, and consequently help foster the development of green energy in the country. This study also presents limited empirical evidence, recording the willingness to pay for such premiums, across different categories of “paying" consumers.</span>