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Electricity is often assumed to be a right of citizens, meaning that everyone deserves access to electricity regardless of their willingness and capacity to pay for it.  Burgess, Greenstone, Ryan & Sudarshan (2019) has argued that this social assumption forces the governments to provide electricity at a subsidised rate even to those who cannot pay for it, which has its social benefits but these benefits are reaped at a high cost which fails the electricity distributors to earn profit thus leading to power cuts which is the source of electricity crises in India. 

To understand this in more detail it’s important to consider the electricity distribution process which involves 3 steps; one, companies that manufacture electricity; second, the power transmission companies that send electricity from a power plant to the various substations; Third, the distribution companies (DISCOM) that carry electricity from the substation to the consumer. Sometimes all 3 things can be done by one entity or by different ones that can either be public or privately owned. The DISCOMs provide electricity to the people at a reduced rate and the government compensates the subsidised amount to the DISCOMs. The following is the graph showing Electricity Losses in Bihar, India for 2019-20:

Since the cost of supply exceeds the total revenue (including compensation by governments) of the DISCOMs, it is impossible for them to effectively distribute electricity. So they end up taking either high-interest loans or purchasing short-term agreements, especially during peak season (such as summer) which adds to the supply cost. The unpaid dues to DISCOMs by the government are another menace adding to their woes, currently, about 1.23 trillion of the electricity subsidy is due as of April 2022. In addition to this in April 2022, more than 100 out of the 173 thermal power plants reported that their coal supply was at less than critical levels forcing them to import coal at a very high cost increasing their cost of electricity production. Thus, overdependence on coal for power generation is another challenge to be combated, currently, about 991,197 GWh is undertaken by coal which is about 71.8% of the total Gross electricity generation. To compensate for the losses the DISCOMs end up selling less electricity via load shredding (or power cuts). These power cuts also impact those who have the willingness and capacity to pay for electricity. Thus leading to huge social costs.

The problem can be dealt with by revamping our existing subsidy model wherein compensation is provided to the DISCOM so that the electricity bill of the poor is less, this can be substituted by providing the poor with the subsidy amount so that he/she/ they pay the entire ill and the cost of the subsidy is not borne directly by the DISCOM. It will also help in identifying people who require subsidy, only to get the subsidy thus reducing the cost of subsidy for the government. Prepaid electricity meters may be used to avoid consumers’ lack of electricity bill payments. Furthermore, DISCOMs which are collecting more electricity bills can be incentivised by allocation of more elasticity to them, this will encourage people to pay their electricity bill so that the power cuts are less. This will also create a community-level impact where everyone would want not only themselves but also their near and dear ones to pay their electricity bills on time so that they do not get power cuts. 

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