17 February 2012

NEW DELHI, INDIA – UNICON awarded JICA contract to assess Economics of Electricity Supply in India.

India’s primary energy demand has grown spectacularly over the last three decades in line with rising population, industrial output and household incomes. India now accounts for over 5% of world energy demand in total and around 3% of commercial energy use. Coal and oil represent just under half of India’s total energy consumption, with most of the rest made up by combustible renewables and waste – essentially biomass and animal waste used mostly by poor households. The share of gas is small but growing quickly. Around 29% of primary energy supply is used in power generation, and more than 80% of generation is based on coal.

The Indian Government has traditionally intervened heavily in the energy sector, both through state ownership and through regulation, including price controls and subsidies. As part of its economic reform programme, the Government has sought in recent years to modify its role in the energy sector. Electricity subsidies in India are very large and give rise to major economic, environmental and social costs. They encourage waste and over-consumption, exacerbate the country’s worsening pollution problems, increase CO2 emissions and hold back rural electrification. They cause the electricity companies to make huge commercial losses and so undermine their ability to improve the quality of service and to invest in new capacity. Cross-subsidies, which raise prices to industry, impede economic development.

Retaining a degree of subsidy to improve access to electricity services for the poor is justified, in part because of the lack of social welfare infrastructure for distributing income support to the poor.