Power to India: The Challenge of Electricity Distribution

255 Pages·2014·4.91 MB·English

by  World Bank Group

dd
ee
zz
M oriori
hh
o utut
r AA
e
e e
P rr
o susu
w oo
clcl
e ss
r DiDi

to c c
blibli
In uu
PP
d
i
a
dd
ee
zz
riri
oo
hh
utut
AA
e e
rr
uu
ss
oo
clcl
ss
DiDi
c c
blibli
uu
PP
DIRECTIONS IN DEVELOPMENT
dd
ee Energy and Mining
zz
riri
oo
hh
utut
AA
e e
rr
uu
osos More Power to India
clcl
ss
DiDi
c c
blibli The Challenge of Electricity Distribution
uu
PP
P
a
r
g
a Sheoli Pargal and Sudeshna Ghosh Banerjee
l a
n
d dd
B ee
a zz
n riri
e oo
r hh
jee AutAut
e e
rr
uu
ss
oo
clcl
ss
DiDi
c c
blibli
uu
PP

More Power to India

Directions in Development
Energy and Mining
More Power to India
The Challenge of Electricity Distribution
Sheoli Pargal and Sudeshna Ghosh Banerjee
© 2014 International Bank for Reconstruction and Development / The World Bank
1818 H Street NW, Washington DC 20433
Telephone: [phone]; Internet: www.worldbank.org
Some rights reserved
1 2 3 4 17 16 15 14
This work is a product of the staff of The World Bank with external contributions. The findings, interpreta-
tions, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its
Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the
accuracy of the data included in this work. The boundaries, colors, denominations, and other information
shown on any map in this work do not imply any judgment on the part of The World Bank concerning the
legal status of any territory or the endorsement or acceptance of such boundaries.
Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and
immunities of The World Bank, all of which are specifically reserved. Nothing herein shall constitute or be
considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of
which are specifically reserved.
Rights and Permissions
This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) http://
creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to
copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following
conditions:
Attribution—Please cite the work as follows: Pargal, Sheoli, and Sudeshna Ghosh Banerjee. 2014. More
Power to India: The Challenge of Electricity Distribution. Directions in Development. Washington, DC:
World Bank. doi: 10.1596/978-1-4648-0233-1. License: Creative Commons Attribution CC BY 3.0 IGO.
Translations—If you create a translation of this work, please add the following disclaimer along with the
attribution: This translation was not created by The World Bank and should not be considered an official
World Bank translation. The World Bank shall not be liable for any content or error in this translation.
Third-party content—The World Bank does not necessarily own each component of the content c ontained
within the work. The World Bank therefore does not warrant that the use of any third-party-owned
individual component or part contained in the work will not infringe on the rights of those third parties.
The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a com-
ponent of the work, it is your responsibility to determine whether permission is needed for that re-use
and to obtain permission from the copyright owner. Examples of components can include, but are not
limited to, tables, figures, or images.
All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, The
World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: [phone]; e-mail: pubrights@
worldbank.org.
ISBN (paper): 978-1-4648-0233-1
ISBN (electronic): 978-1-4648-0234-8
DOI: 10.1596/ 978-1-4648-0233-1
Cover photo: NOAA. This photograph is in the public domain and available for public use. Please credit
NOAA.
Library of Congress Cataloging-in-Publication Data has been requested.
More Power to India • http://dx.doi.org/10.1596/978-1-4648-0233-1
Contents
Foreword xiii
Acknowledgments xv
About the Authors xvii
Abbreviations xix
Overview 1
Evolution of Policies and Institutions 1
Impressive Achievements in Many Dimensions 2
The Agenda for Addressing Distribution Performance
Must Now Be a Priority 3
Analyzing Operational and Financial Performance of
Distribution 5
The Sector Operating Environment Has Contributed to
Discom Financial Difficulties 6
Institutional Factors and Governance Shortcomings
Are Other Contributors 8
Way Forward: Priority Areas for Action 11
Notes 14
References 17
Introduction 19
Note 20
References 20
Chapter 1 Evolution of Policies and Institutions 23
Policy Space Uneventful through 1991 25
Sector Restructuring and Independent Regulation
in the 1990s 26
The Lead-Up to the Electricity Act of 2003 27
Notes 31
References 32
More Power to India • http://dx.doi.org/10.1596/978-1-4648-0233-1   v
vi Contents
Chapter 2 Impressive Achievements in Many Dimensions 33
A Tripling of Generation Capacity 33
Progress toward a Clean Energy Future 35
Creating a National Grid 37
Developing Competitive Power Markets 40
Competitive Power Procurement 42
Massive Expansion of Access 45
Promising Examples in Distribution 48
Notes 51
References 52
Chapter 3 Deterioration of Distribution Finances 55
State Subsidies to the Sector Impose a Heavy
Opportunity Cost 55
Rising Power Sector Debt Has Escalated the
Risk of Financial Contagion 61
The Central Government’s Response to the
Risk of Contagion 65
Projected Sector Finances at the End of the
12th Five-Year Plan 66
Notes 69
References 69
Chapter 4 Drivers of Losses 71
Rising Gap between Cost and Revenue 71
Inefficiencies in Distribution and Generation 74
Decomposition of Utility Losses 76
Tariff Performance on Equity 82
Benchmarking Utilities on Financial and
Operational Indicators 88
Notes 95
References 96
Chapter 5 Implementing Sector Reforms 97
Implementation of Reforms Index 97
Sector Outcomes Index 101
Relationship between Implementation of Reforms and
Sector Outcomes 103
Note 104
Reference 104
Chapter 6 The Role of Governance and Institutional Factors 105
Vertical Restructuring: Unbundling State Electricity
Boards 106
Corporate Governance 107
More Power to India • http://dx.doi.org/10.1596/978-1-4648-0233-1
Contents vii
Regulatory Governance 115
Central Mandates 123
Notes 130
Bibliography 131
Chapter 7 Moving Toward Efficient and Effective Service Delivery 133
Align Stakeholder Incentives 134
Strengthen Regulatory Governance and Processes 134
Implement Key Regulatory Mandates 136
Improve Corporate Governance of State Utilities 137
Promote Responsible Lending to the Sector 138
Ensure Availability of High-Quality, Updated Data 138
Reinvigorate Planning and Coordination Mechanisms 139
Explore Different Models to Improve Distribution 140
Promote Electrification in a Financially Responsible
Manner through Different Delivery Models 141
Notes 142
References 144
Appendix A Advantages of the Point of Connection Method in
Assessing Transmission Charges 145
References 147
Appendix B Measures to Overcome Barriers in Integrating Renewable
Energy into the Electricity Grid 149
References 151
Appendix C Considerations for Attracting Private Investment in
Hydropower 153
Note 155
References 155
Appendix D Experience with Multiple Transmission Owners 157
References 161
Appendix E Maharashtra State Electricity Transmission
Company’s Strategic Alliance Model 163
Reference 165
Appendix F International Experience in Private Sector Participation
in Transmission and Distribution 167
Selected Country Experiences 168
Key Findings 170
Notes 172
References 172
More Power to India • http://dx.doi.org/10.1596/978-1-4648-0233-1
viii Contents
Appendix G International Experience in Open Access 173
Country Experiences 173
Key Considerations in Designing OA 175
Implementation Issues 176
References 177
Appendix H Coal Sector Challenges and the Power Sector 179
International Experience with Coal for
Power Generation 184
References 188
Appendix I Best Practices in Electricity Theft Reduction 191
Notes 194
Reference 194
Appendix J Regulatory Assets: The Delhi Case 195
Notes 197
References 197
Appendix K A Strategic Model to Improve Distribution
Performance—Enersis in Chile 199
Note 201
Reference 201
Appendix L Separation of Carriage and Content in
Distribution—Potential Benefits and International
Experience 203
India 203
New Zealand 205
The United States 208
European Union 208
Concluding Observations 210
Notes 211
References 212
Appendix M Productive Use of Electricity—Experience from
Indonesia and Peru 213
Reference 214
Appendix N Regression Results—Governance and Performance 215
Appendix O Overview of the India Power Sector Review Databases 219
Bibliography 227
Appendix P Background Papers 229
More Power to India • http://dx.doi.org/10.1596/978-1-4648-0233-1