Where have the industrial buyers gone?

Continuing my recent trend on emphasising a need to restructure the electricity tariff structures in this post I present the case of missing industrial consumers.

I recently analysed the data of industrial consumers over the past decade for Bangalore Electricity Supply Company (BESCOM). I wasn’t entirely surprised with the decline in energy sales over the past few years considering BESCOM has been highlighting this every year before electricity tariffs are hiked. What is entirely surprising is the link between rise in consumers and drop in energy sale.

Summary

The data from the utility reports indicate that the number of industrial consumers have been rising over the past decade however between the period of 2013 to 2016 the total units sold to industrial consumers have dropped. In a recent filing [ARR, 2016-17], BESCOM attributes a loss of 1148MU energy sale due to consumer opting for power through open access which is an increase from 12% to 20% between 2013 to 2016. The loss is significant considering industrial consumers contribute to nearly 30% of BESCOM’s annual revenue [ARR, 2016-17]. Every retail tariff revision in this period has been attributed to the fall in revenue and widening deficits. Interestingly, tariff revisions by the utility during the same period indicate the annual increase has been consistent across all consumer segments. The negative effect of this is that the vulnerable consumers with low income and consumption are subjected to the same burden as others.

Why are industrial consumers crucial to Indian utilities?

  • The retail electricity tariff is different for industries and domestics users
  • Utility recovers most of the fixed cost incurred in maintaining the power infrastructure from billing the industrial consumers a premium
  • In short they have been cross subsidising power for the rest

“Large industrial electricity buyers who are likely to exit are also those keeping the system afloat by cross-subsidising other users such as farmers and households. If, because of open access they were to shift their power purchases to independent private generators, the finances of the public utility would become untenable, leading to declining quality of supply to poor, but politically important constituencies” Navroz K Dubash Senior Fellow Centre for policy research,Business Standard, 2011

 Industrial consumers have been on a love-hate relationship with the utilities for a long time.

“…distribution companies in Rajasthan told industrial consumers that they ought to fend fr themselves and that there is no more any obligation to serve them. … On the other hand, West Bengal has argued that there is no way that it can let go such consumers who bear the subsidy”- Pramod Deo, Chairperson, CERC, 2012

A classic economic equation of supply and demand is unlikely to be reflected in an electricity market, especially a deregulated market where there is an option for open access electricity.

Open Access

Incidentally BESCOM is not alone. A recent report has indicated that the Tamil Nadu utility has seen over 10% loss in industrial energy sale year on year for the few years. (read more)

You might also like Electricity markets and solar rooftop: a case study.

 

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