[This blog post is a quick personal view by an energy sector professional on India's blackouts this week. These should not be taken to be the views of the organization the author is affiliated to, its management or its Board of Directors]
The last 2 days have been absolutely crazy. They are now calling it the world's biggest blackout ever. At least we do something better than the rest of the world ;)
In all honesty, it's a surprise this thing doesn't happen more often. The electricity system, like several other critical systems in India, is ill-managed, politically interfered with and treated as a public good, to be distributed by benevolent (read malignant) politicians.
The forensics on the root cause of these two gigantic failures is yet to be done, but such problems rarely occur only because of a failure or two. They are usually the manifestation of several simmering problems. They usually reveal several vulnerable spots in a system. And India's power system has many many festering challenges. I'll go into several of them in a bit.
India's electricity system is big and complex, but not exceptionally bigger or more complex than many other countries. Close to a third of the people are not served by the sector, yet. Several problems exist. The immediate crisis, I believe, may have been triggered due to overdrawing by the large agricultural states trying to give power to farmers to pump groundwater to compensate for a real poor monsoon this year.
However, several other reasons have contributed to the problem. The demand is increasing at a healthy 6-7% annually, while new capacity additions have been severely constrained of late. New coal-fired capacity is not getting enough coal from state-run monopoly of Coal India (problems of which are worthy of its own library of books!), hydropower is facing rehabilitation challenges and nuclear power seems to be taking forever, like the rest of the world. India's energy and peak generation capacity face shortfalls of almost 10% on a daily basis, despite more than a quarter of the population still unconnected to the grid! These shortfalls create perfect conditions for demand/supply imbalance, which gets worsened by agricultural demand, triggering rolling black-outs like we have seen in the past 48 hours.
However, there is a massive socio-political and financial angle to the electricity crisis. India's power system does not recover the costs of generation and supply of electricity from its consumers. Despite the intention of the regulatory structures, the sector is not allowed to run on commercial principles. There is close to $42 billion (close to 3% of GDP) of accumulated deficits in the distribution companies' accounts, since local politicians fight tariff increases tooth and nail. For context, while India's electricity deficits have crosses 3% of GDP this year, at the peak of the mortgage crisis in the US, the payment deficits (or accumulated non-performing loans) were less than 1% of that country's GDP!
In such dire financial circumstances, there is no incentive for private investors to invest in new capacity, since their payments will be at risk, further worsening the power crisis. Already, close to 1.2% of GDP growth annually is cannibalized by lack of electricity for industries and other sectors. Several recent news articles and features have focused on the deep electricity crisis faced by industries almost throughout the country.
The media share significant blame. Whenever a state tries to raise tariffs to cover costs of supplying electricity, media hounds the brave local politicians, painting the latter as anti-poor. Electricity is seen as a social good, with several politicians fighting elections promising to improve supply. Due to the certain brouhaha by the media such a move causes, state level politicians are loath to allow tariff increases, preferring to let state-owned distribution companies run large deficits. The system is used a vote-pulling machine, not a critical part of the country's infrastructure.
It should be said India's legislative structure around the electricity structure is robust. However, socio-political factors do not let the technocrats run a reasonable system that provides service to the poor and for growth. Excessive political interference, with negative and uninformed media coverage and poor understanding in the general population allow problems to fester.
If the world's biggest electricity failure is not a wake up call, we will sleep while our country's economy burns. However, if this lack of electricity has jolted the players into action (pun intended), this could be a crisis too good to waste, to bring about the many necessary changes in the country's system.
The last 2 days have been absolutely crazy. They are now calling it the world's biggest blackout ever. At least we do something better than the rest of the world ;)
In all honesty, it's a surprise this thing doesn't happen more often. The electricity system, like several other critical systems in India, is ill-managed, politically interfered with and treated as a public good, to be distributed by benevolent (read malignant) politicians.
The forensics on the root cause of these two gigantic failures is yet to be done, but such problems rarely occur only because of a failure or two. They are usually the manifestation of several simmering problems. They usually reveal several vulnerable spots in a system. And India's power system has many many festering challenges. I'll go into several of them in a bit.
India's electricity system is big and complex, but not exceptionally bigger or more complex than many other countries. Close to a third of the people are not served by the sector, yet. Several problems exist. The immediate crisis, I believe, may have been triggered due to overdrawing by the large agricultural states trying to give power to farmers to pump groundwater to compensate for a real poor monsoon this year.
However, several other reasons have contributed to the problem. The demand is increasing at a healthy 6-7% annually, while new capacity additions have been severely constrained of late. New coal-fired capacity is not getting enough coal from state-run monopoly of Coal India (problems of which are worthy of its own library of books!), hydropower is facing rehabilitation challenges and nuclear power seems to be taking forever, like the rest of the world. India's energy and peak generation capacity face shortfalls of almost 10% on a daily basis, despite more than a quarter of the population still unconnected to the grid! These shortfalls create perfect conditions for demand/supply imbalance, which gets worsened by agricultural demand, triggering rolling black-outs like we have seen in the past 48 hours.
However, there is a massive socio-political and financial angle to the electricity crisis. India's power system does not recover the costs of generation and supply of electricity from its consumers. Despite the intention of the regulatory structures, the sector is not allowed to run on commercial principles. There is close to $42 billion (close to 3% of GDP) of accumulated deficits in the distribution companies' accounts, since local politicians fight tariff increases tooth and nail. For context, while India's electricity deficits have crosses 3% of GDP this year, at the peak of the mortgage crisis in the US, the payment deficits (or accumulated non-performing loans) were less than 1% of that country's GDP!
In such dire financial circumstances, there is no incentive for private investors to invest in new capacity, since their payments will be at risk, further worsening the power crisis. Already, close to 1.2% of GDP growth annually is cannibalized by lack of electricity for industries and other sectors. Several recent news articles and features have focused on the deep electricity crisis faced by industries almost throughout the country.
The media share significant blame. Whenever a state tries to raise tariffs to cover costs of supplying electricity, media hounds the brave local politicians, painting the latter as anti-poor. Electricity is seen as a social good, with several politicians fighting elections promising to improve supply. Due to the certain brouhaha by the media such a move causes, state level politicians are loath to allow tariff increases, preferring to let state-owned distribution companies run large deficits. The system is used a vote-pulling machine, not a critical part of the country's infrastructure.
It should be said India's legislative structure around the electricity structure is robust. However, socio-political factors do not let the technocrats run a reasonable system that provides service to the poor and for growth. Excessive political interference, with negative and uninformed media coverage and poor understanding in the general population allow problems to fester.
If the world's biggest electricity failure is not a wake up call, we will sleep while our country's economy burns. However, if this lack of electricity has jolted the players into action (pun intended), this could be a crisis too good to waste, to bring about the many necessary changes in the country's system.
