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Impact of Reforms on Generation Efficiency in the Indian Power Sector

Principal Investigator(s): 

Abstract: 

Investigators: Maureen L. Cropper, Alexander Limonov, Kabir Malik and Anoop Singh

(NBER Working Paper 17383, September 2011)

In the decades following independence, the Indian power sector, like the power sector in many developing countries, was characterized by inadequate generating capacity, frequent blackouts, and high transmission and distribution losses. The thermal efficiency of Indian power plants was low, compared to similar plants in high-income countries.. Electricity pricing was characterized by direct government subsidies, with high tariffs to industry cross-subsidizing low tariffs for residential and agricultural consumers. Following nationalization of the power sector in 1956, most generating capacity was government-owned.

Reforms in the late 1990s attempted to correct these inefficiencies by requiring the unbundling of generation, transmission and distribution functions, encouraging the privatization of distribution companies and restructuring the electricity tariff structure.  In this paper we examine the impact of the unbundling of generation from transmission and distribution on the operating efficiency of state-owned thermal power plants.  Our results suggest that unbundling significantly improved average annual plant availability by about 4.6 percentage points and reduced forced outages by about 2.9 percentage points in states that unbundled before 2003. Restructuring has not, however, improved thermal efficiency.  This may reflect the fact that unbundling has not yet attracted independent power producers into the market to the same extent as has occurred in the US.