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Cross-subsidy on power should go: Niti Aayog

LiveMint logoLiveMint 28-06-2017 Gireesh Chandra Prasad

New Delhi: Federal policy think-tank Niti Aayog has pitched for letting power utilities realize full market price from all consumers by doing away with cross-subsidy provided to poor consumers.

The recommendation is part of a new draft energy policy Niti Aayog unveiled late on Tuesday. The draft policy also projected that India’s power demand will go up more than four-fold by 2040 on account of strong economic growth. At present, the power demand is about 1.1 trillion units.

“Any fear of a rise in price to vulnerable customers should be addressed by subsidy on power use through Direct Benefit Transfer (DBT). Distribution companies should pay full market-determined price to generation companies and receive the same from customers with the latter compensated through DBT,” Niti Aayog said. At present, industrial consumers cross-subsidise residential users and farmers.

The eventual goal should be to bring down the cross-subsidy from industry, placing the burden directly on the budget. This would contribute to making electricity-intensive businesses more competitive, said the draft policy.

The projected robust growth in demand comes at a time when many power generation projects that came up in the last few years are in distress due to weak financial health of distribution companies which are in the midst of a turnaround effort. Power distributors are not able to fully realise the cost of power supply to consumers due to tight tariff regulation. Current turnaround efforts are focused on making these firms more efficient.

“The energy demand of India is likely to go up by 2.7-3.2 times between 2012 and 2040, with the electricity component itself rising 4.5 fold. India has an opportunity to incorporate emerging technologies in the new infrastructure, to be able to exploit these technologies as they mature and costs falls,” the think tank said, quoting from the energy scenarios it has forecast up to 2047.

Niti Aayog’s power demand forecast is in line with the power ministry’s forecast of electricity demand growing four-fold from about 1.1 trillion units to 4 trillion units by 2030.

“Urbanization is expected to go up to 47 %, while current share of manufacturing in the gross domestic product will double to 30% by the year 2040. The population of India is predicted to go up to 1.6 billion by 2040,” the think-tank said, in support of its forecast.####SUBBOX####

The think-tank’s energy policy document reviews the measures currently being taken to achieve the National Democratic Alliance government’s energy sector goals, including rural electrification, uninterrupted power for all, reduction in import dependence on oil and gas and increasing energy efficiency. The energy policy highlights the challenges facing the government’s goal of achieving village electrification by 2019.

“With nearly 304 million Indians without access to electricity, and about 500 million people still dependent on solid bio-mass for cooking, it may be acknowledged that the country has to still go a long way on securing its energy security objective,” said the policy. Citing the 68th round of the national sample survey (2011-12), Niti Aayog said that only 4% of the urban households did not use electricity as the primary source of lighting, while more than 26% of rural households are in this state which shows an inclination towards kerosene-based lighting solutions. Nearly 304 million people in the country are without access to electricity, it said.

Niti Aayog also said that while demand for energy from all sources will increase over the medium term, a major shift is happening in the energy mix.

Over the medium term, the trend of fossil fuels in the energy mix is set to come down, although within this segment, the share of natural gas will go up, while that of oil will keep coming down. The policy also pointed to the country’s rising import dependence on energy, saying that in spite of efforts to step up domestic energy supply, India’s overall primary energy import dependence (of coal, oil, gas and nuclear) could still rise to 36-55% by 2040 from 31% in 2012.

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