Chairman Emeritus Reconnect 18 – Electricity Tariff

My dear young friends,

You may be noticing that in the backdrop of forthcoming elections some of the political parties are addressing “Electricity Tariff” as one of the major issues, rightly so. However, they may not be knowing the fundamental reasons of the tariff being so high.
We engineers calculate the tariff based on following 7-components:

1. Cost of Generation
2. Cost of Wheeling Power to the Distribution Sub-Station
3. Cost of Recovery of Distribution Assets
4. Cost of Distribution O&M
5. Commercial Cost
6. Legitimate Losses
7. Interest on Working Capital

However, there are 13-components which get built up in a roundabout way, remaining invisible.

1. Political Cost
2. Cost of APDRP & R-APDRP
3. Cost of corruption / Power theft
4. Cost of Coal maffia
5. Cost of improper planning
6. Cost of inefficient management
7. Cost of misplaced environmental perceptions
8. Cost of Bureaucratic delays
9. Cost of commercially unviable rural electrification
10. Cost of non-optimum resource mix
11. Cost of non- training
12. Cost of non – R & D
13. Cost of Grid indiscipline

Let us take up these 13-components one by one:

1. Political Cost:
In my last monthly letter I indicated the political cost of distribution sub-stations. Same is true of locating thermal power stations. Instead of going for pithead stations only, politicians force on locating power stations based on their political maps, not appreciating that transmitting electricity on high voltage lines is much cheaper than transporting coal through railway lines. Politicians also interfere in locations of hydropower stations on political maps rather than river basins. Courts decide the dam heights. All these factors build in inherent extra cost of electricity.

2. Cost of APDRP & R-APDRP:
Cost of accelerated power development and reforms program (APDRP) and Revised APDRP, barring some portion for modernizing the system like IT interface, is the carried over burden of political interference in locating substations treating them as status symbols for the constituencies rather than allowing engineers to locate them load centric.

3. Cost of corruption / Power theft:
Cost of power theft and associated corruption gets built-up in the tariff and the poor customer pays for it. More the theft more is the burden on a faithfully paying customer.

4. Cost of Coal maffia:
Coal is over weighed by 10% or so and the siphoned off payment is made up on record by windage loss or high ash content of coal or low efficiency of thermal power systems.

5. Cost of improper planning:
Improper planning of distribution system by resorting to unfavorable LT/ HT ratio as bad as 5 (Indian average) against world average of 1.5 is one of the reasons for high distribution losses. Obviously the geometry of Indian power network has gone to winds.

6. Cost of inefficient management
Power distribution companies are prepared to be efficient to the extent of making sure to get 16% return on investment (which they are permitted) and not beyond, to make more profit to pass on to their customers to make electricity cheaper for them.

7. Cost of misplaced environmental perceptions:
Environmentalists think that small is beautiful. Yes, but is it productive unconditionally? Can you go to US in an environmentally friendly balloon? A 2-m dia. hydro turbine can produce only 2-MW under 10-m head but the same size machine can produce 100-MW under 300-m head. In order to create 300-m head, one needs to create a high dam or a long vertical tunnel. If Sardar Sarovar project was to be replaced by Small Hydro’s, entire Gujarat would have to be submerged.

The submergence required by schemes identified by CEA to develop country’s entire hydropower potential would be <0.77% of the total area of the country, of which forest land would be 0.2%, since most of it would be the river bed itself. Not appreciating real environment-development logic, environmentalists have virtually brought hydro development to a grinding halt. Hydro provides electricity at 1/3 cost compared to that of polluting thermals. Customer is paying the cost of misplaced environmental perceptions.

8. Cost of Bureaucratic delays:
Bureaucratic delays in clearing the projects are causing huge loss to the country and the sector. Delay in commissioning of a power project of 500 MW by a single day can cause a revenue loss of nearly Rs 10 million. Further, multiplier effect of electricity on country’s economy (GDP) is more than 10 times. Can bureaucrats ever realize how much country is losing by their delays in clearance of projects at various stages by months and years?

9. Cost of commercially unviable rural electrification
Cost of rural electrification requiring T&D lines over long distances to cater to small loads causes a huge burden on average cost of power. With no cognizable effort on “distributed generation through renewables”, this will continue to be a heavy burden on the power system and the customers at large.

10. Cost of non-optimum resource mix
Hydro:Thermal Mix in our country today is 20:80. If it would have been just reverse, the cost of power would have been nearly half of what we are paying today.

11. Cost of non- training
EPRI of USA conducted a revealing experiment of operating a set of thermal power plants by simulator trained as-well-as untrained operators and found that the difference it made was a saving of $ 4,632/MW/Yr in case of former; in terms of savings on availability, thermal performance, equipment damage and environmental compliance. Translated to Indian situation, non-training of thermal plant operation staff on simulators could cost to the nation a staggering figure of Rs 4,350 Cr/yr.

12. Cost of non – R & D
Similarly, cost of non-R&D could be Rupees thousands of Crores every year in terms of import of technology, its finesse going superior every day due to continuous research going on overseas.

13. Cost of Grid indiscipline
All of us saw the cost of grid indiscipline July last year facing the largest electrical blackout in human history. Overdrawing, overfeeding of power leading to frequency and voltage fluctuations harming not only our users’ equipment but also the smaller generators, getting recovered through tariff.

I wish politicians and public at large also understand the above hidden factors somewhere responsible for high tariff. If you analyze, all the factors are related to ethics and ethos of different stakeholders of electricity sector.

Satyamev Jayate !!!

Best wishes and Regards,

Dr. B.S.K.Naidu

M.Tech., Ph.D., CBI Scholar, D.Engg.(Calif), FNAE
Hon.D.WRE (ranked amongst 30-most eminent scientists in the world)
Chairman Emeritus, Great Lakes, Gurgaon, NCR, New Delhi, INDIA
Former Director General (NPTI & CPRI / REL), Ex-Director (REC)/ Executive Director (IREDA)

No job is small or big, the way in which you do, makes it small or big (c)