Shyam Ponappa | June 2, 2016
My column last month
faulted misrepresentation and hype about infrastructure. There’s a positive side of the electricity
supply story, however, apart from the valid criticism. It is of a breakthrough in governance
premised on a real epiphany, in the approach to reforms in electricity
generation and distribution, an area plagued with seemingly insurmountable difficulties
since economic reforms began 25 years ago.
If it’s true, a strategy based on abundance and organization instead of
on scarcity, shortages and a ration mentality, is yielding net benefits.
On a cautionary note,
this article is based on anecdotal evidence from the public domain. Therefore, the statements need independent
validation to be accepted as facts.
What’s remarkable about the
present initiatives is the enlightened approach to provide affordable
electricity. The emphasis is on systems
and flows, and not just jiggering numbers on subsidies and rebates. The focus is on increasing asset utilization in
systems to get lower unit-costs from generation and distribution, and increasing
volumes for gains from scale in manufactured products such as light bulbs, fans
and water pumps. There are additional
benefits because these products are energy-efficient, leading to lower electricity
demand for equivalent use, as well as lower emissions. Using these gains to attract manufacturing investment
by supplying inexpensive, assured electricity is likely to delight prospective
investors, provided the other aspects of infrastructure and inputs are also
available.
On the face of it, a
number of factors are being improved in the electricity supply and demand ecosystem
to make this possible. This is one
aspect of satisfaction: that a coordinated strategy was adopted to drive systemic
changes across multiple domains and aspects, leading to these gains. An approach desperately required in other
sectors, but that hasn’t yet been attempted.
For electricity, the
first step was to sort out coal supply for generation, as India relies on coal
for about 55 percent of its generation.
Fortuitously, a fall in global prices reinforced the steps taken by the
Coal Ministry working in concert with Indian Railways. Second, a combination of solutions were formulated
and introduced in the Ujjwal Discom Assurance Yojna (UDAY) scheme in November
last year. These included improving the
operating efficiency of distribution companies (the State Electricity Boards)
through measures to increase utilization, reducing the cost of power by
lowering the price of coal and the interest burden, and eliciting financial
discipline. On the demand/user side, an initiative
to introduce efficient Light Emitting Diode (LED) bulbs in January 2015 by
state-owned Energy Efficiency Services Limited (EESL) was apparently very effective,
with more than 100 million LED bulbs distributed by April 2016, resulting in a
considerable reduction in electricity demand. The sheer scale of procurement and
distribution have reportedly led to reductions of about 75 percent in LED bulb
prices.
The financial
innovations have been equally impressive, with imaginative structuring
resulting in states being persuaded to take over part of the liabilities of the
SEBs over three years, thereby reducing the interest cost, while also agreeing
to share future losses if any. As a
consequence, SEBs have lower debt obligations, and states have strong
incentives to maintain financial discipline.
Details on the UDAY scheme are available at: http://pib.nic.in/newsite/PrintRelease.aspx?relid=130261.
EESL has reportedly
begun a similar effort to introduce energy efficient fans. These fans use 30 watt-hours less on average
than the 75-80 watt-hour rating of older fans, of which there are estimated to
be 350 million. Another initiative is being
planned to replace over 20 million agricultural pumps with more efficient models.
The approach to orchestrating
these changes has apparently been exactly as one might script a good government
process: through coordinating and facilitating meetings and consultations over
many months between state and central officials. The result is convergence on initiatives to
reduce transmission and distribution (T&D) losses through steps such as upgrading
transformers and equipment, introducing smart metering, and financial
discipline. T&D losses are
inevitable up to a point depending on network conditions; the rest is
inefficiency and theft. Countries such
as the USA and China report as low as 6 percent, while Canada has 9 percent.1 India’s losses, however, have been at well
over 20 percent, and the effort is to reduce these to 15 percent or less.
While the solutions are
not perfect -- for instance, the Supreme Court order to auction coal mining
rights may result in higher life-cycle costs -- these may be the most
comprehensive, integrated and well-coordinated efforts at policy reforms.
Extension To Other
Sectors
Could the approach and
methods applied to address electricity supply and demand management be applied
to other sectors of the economy? Obviously
not in a one-size-fits-all manner, because the solutions have to address the specific
problems or needs of each sector. A consideration
of the elements suggests a potentially transferable process:
- An approach based on abundance instead of scarcity.
- Central
leadership in goal-directed coordination and facilitation with expert inputs,
to converge on planning and execution.
- Problem definition and analysis from a holistic perspective, with expert inputs from relevant domains, and inter-sectoral integration in solutions.
- Emphasis on high utilization of “plant and equipment”, i.e., capital equipment and networks.
- Scale and efficiency to reduce costs, combined with sophisticated financial structuring of solutions.
- Central and state areas of responsibility well covered.
- Distribution through markets and retail platforms.
These elements should be
applicable, changing as necessary for specific attributes, domains, and expertise,
to other sectors such as communications and broadband, primary health/water and
sanitation, education, and transport.
Each of these would require addressing a complex set of questions and
definitions with as much rigour, energy, expertise and panache as has been
brought to bear in the electricity supply solutions.
Much depends on the veracity of these claims about process
and results. If they’re true, this experience can be applied immediately to get
the beached Digital India initiative going. If it is hype, both Digital India
and Electricity for All are beached whales.
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Shyam (no space) Ponappa at gmail dot com
