governance, political economy, institutional development and economic regulation

Posts tagged ‘solar power’

Lighting for all by Deepawali 2018

India diwali night

Poor or profligate households are often forced to borrow for meeting current expenditure. But most borrowers ensure that they are able to fund the interest payable from current income. Not so the Government of India. In fiscal 2016-17, interest payments on government loans amounted to Rs 4.8 trillion. The government had to borrow Rs 1.4 trillion (effective revenue deficit) to meet its interest payments.

Non merit subsidies compress the fiscal space

The reason government ran short, is that it spent Rs 2.3 trillion to reduce the cost of fertilizers for farmers; supply cheap cereals to the poor and reduce the price of cooking gas and kerosene. This income transfer mechanism is leaky – it benefits many more than just the poorest; it is expensive to administer; and it leads to the environmentally disastrous overuse of fertilizer by a few farmers with assured irrigation, as in Punjab and Haryana; encourages profligate use of cooking gas and adulteration of diesel with kerosene.

FM Jaitley – a fierce, fiscal Ayatollah

Jaitley ayatollah

To be fair, Finance Minister Jaitley, has leashed subsidies since 2015-16. In 2017-18 subsidy, on these three accounts, is budgeted only marginally higher than the previous year. But, interest payments are budgeted to increase to Rs 5.2 trillion, even as the net borrowing is budgeted to decrease to Rs 1.26 trillion. Reduced borrowing is unlikely. Significantly lower than anticipated growth and lower inflation will depress nominal revenues and increase the need for loans.

But politics beckons

BJP politics

The launch, by Prime Minister Modi, of a scheme this week to connect the estimated 16% households (40 million out of 248 million) who live sans electricity, will be welcomed by the beneficiaries. But the fiscal implications are worrisome.

Two options exist. Either connect these households by distributed solar power or extend the distribution grid into their homes. Of the two, renewable supply is a better option.  It requires capital expenditure to buy equipment. But the recurrent cost on maintenance is minimal, at least for the first three years, till the battery is replaced. Of course, this is not an option if solar intensity is low; rooftops are not available or if the maintenance supply chain is dodgy.

Renewable energy micro-grids – a sustainable option

Micro grid

Some of these downsides can be met by opting for renewable energy micro grids, managed by a private franchisee. This model is used in several states, including Bihar, with which R.K. Singh, the new minister for power, is familiar. The franchisee can make a profit, even where the utility cannot, because distribution line-loss, which on average is 20%, is minimized; private workers cost less and work more than public sector workers and the renewable capital cost is subsidized.

What customers prefer is to be connected to a grid, managed by the distribution utility. This assures them that as their needs ramp up, they would get better supply on demand. The problem is of asymmetric expectations. Distribution utilities do not want more low value, domestic customers because subsidy compensation from state governments are patchy and there is no profit to be made.

Grid power – burdened by past indiscretions

Of the 41 distribution utilities, assessed by ICRA/CARE for Power Finance Corporation in 2017, as many as 22 or more than 50%, ranked below average due to unsatisfactory financials. Expectedly, most, though not all, are in the poorer states of Uttar Pradesh, Bihar, Jharkhand, Madhya Pradesh and Rajasthan, where the share of industrial and commercial load is low.  Industry pays double of what it costs to service them whilst farmers and small domestic users pay, either nothing at all, or just a fraction of what it costs to service them. High electricity prices for industry and commercial users is one reason why business flounders or opts instead for self-owned oil based generation. This is a triple whammy for Make in India; energy security and environmental sustainability. Map the highest electricity supply rates for industry across states and you will have a map of de-industrialized India.

Last year, under the Uday Scheme, 16 distribution utilities transferred debts exceeding Rs 2 trillion to their state governments. These debts had funded their annual revenue loss. Going forward state governments are to compensate the loss of distribution utilities. Increasing the number of poor customers significantly will either deteriorate utility finances or stress state government budgets.

Being stingy with current expenditure is virtuous

Electricity is different from telecom. Each additional customer comes with significant marginal cost. Nearly two thirds of the cost of supply is the cost of fuel; metering, billing and collecting; installing and operating transformers to step down electricity supply to domestic use voltage levels and wires to connect with the customer. These add to the cost and the potential for theft. All this is neatly sidestepped in mobile telephony, by just topping up your pre-paid SIM. Pre-paid meters are possible in electricity too but they are too expensive for small users and susceptible to tampering.

Union government finances are under threat in fiscal 2017-18. State governments also risk overshooting their fiscal deficit targets. Limiting current expenditure to the revenue available is an urgent, near-term objective. This is best done by deepening the Finance Minister’s stance of freezing subsidies at nominal levels, within the existing envelop. Dovetailing the renewable power generation program with the target of lighting every home by Deepawali 2018, is a sustainable and “best fit” option.

Also available at https://blogs.timesofindia.indiatimes.com/opinion-india/lighting-for-all-by-deepawali-2018/

India’s “green” moves

solar-shade

Solar powered sun and rain shades in India!

India formally ratified the Paris climate agreement on Sunday, notwithstanding that Donald Trump trashed global warming, last week, as a hoax and efforts to control it as expensive and ineffective.

The United States contributes around 16 per cent of world carbon emissions. Truculence in its approach to manage global warming can scuttle the efforts of the rest of the world. Mr Trump’s cavalier approach to climate change can only be explained by his belief that a slowing US economy should not be the one which pays to set the world’s climate right.This abdication of international leadership appears to resonate with his not inconsiderable supporters.

Clearly, the expectation is that China, which contributes 28 per cent of global emissions, needs to step up to the plate of international burden-sharing. China is now the world’s second largest economy. Despite the slowdown it is growing at three times the rate of the American economy. That is reason enough for higher expectations from it to play the role of a global leader.

china-smog

Photo credit: huffingtonpost.com

India is also a fast-growing economy. In the long term we may be where China is today. But not for a while yet. We are just one-fifth of the Chinese economy. Our emissions are just six per cent of world emissions. Our global ambitions should be commensurate with our constraints. This is why, unlike China, we have not committed to cap our emissions at a predetermined level.

Paris – the agree to disagree concord

Under the Paris climate agreement countries have agreed to disagree. It is now left to individual nations to exercise “strategic direction” in developing their future energy profile and “tactical restraint” in energy consumption.The decentralised responsibility is welcome but worrisome on two counts. First, countries which are too small to make a difference but which will face the wrath of global warming like island countries now have to depend not on covenant but on the generosity of others to survive. Second poor, technologically deficient countries will now pay more to mitigate global warming since there are no pressing compulsions for the rich to change consumption patterns or develop carbon benign technology for domestic use.

India’s challenge is to remain green

green-house

Laurie Baker’s characteristic green building in Kerala

Altogether 37 per cent of India’s energy consumption is non-fossil fuel based. This is fairly similar to the world non-fossil fuel energy consumption of 33 per cent. But the big difference is that bio energy accounts for only two per cent of the world’s green energy consumption, unlike in India, where biomass accounts for 92 per cent of the renewable energy used.Hydro power and new renewables — solar and wind- account for just six per cent and nuclear for two per cent of our green energy profile.

india-cooking-2

The challenge for India is to ensure that as incomes grow, poor consumers – who use non commercial biomass sources today like dung, firewood and agricultural residue for heating and cooking – should graduate to new renewables like solar and wind, rather than go down the fossil fuel route, as the OECD countries have done. This challenge is principally for the government, not consumers. Consumers typically want energy services — cooling, heating, cooking and transport. They don’t really care about the fuel that provides these services. It is for the government to put in place the incentives which drive energy suppliers to provide renewable energy services.Energy users are underserved in India particularly in dispersed habitations. This presents the opportunity to use renewables to bridge the gap in innovative ways.

To be sure, domestic compulsions like smog do compel us to clean our energy profile. India already has economic incentives in place for this. High energy prices induce energy efficiency in industry. High taxes on petrol and diesel are expected to result in frugal consumption for personal transport. Scarce public funds are allocated to subsidise renewable electricity. Investment in public transport is being stepped up to substitute high energy-intensity personal vehicles. Rail freight has been reduced to stem the shift to the more energy-intensive road transport. Bulk public purchase and supply of low-energy intensive LED bulbs help manage domestic electricity peak load. The path to carbon sustainability is fortunately closely aligned to the the path to make our economy competitive by squeezing out the fat along he supply chain. But gains in the efficiency with which energy services are delivered  can only mitigate, at best, around 20 percent of our additional energy needs.

The compulsions to consume more energy services are stark.India’s per capita energy consumption is just 0.6 tons of oil equivalent (toe) versus global per capita consumption of 1.9 toe. India will likely consume four times the energy it does today to provide welfare enhancing energy services to its citizens. Similar compulsions face most developing countries in South Asia and Africa.Only a technological revolution in clean energy and in energy storage systems can delink the growth led increase in energy consumption from unsustainable levels of carbon emissions.

Target renewable energy services

Setting up clunky publicly owned entities to research and transfer renewable technology to industry is not the way to go. Backing selected private firms willing to invest in renewables in anticipation of an assured domestic market is also tough. We don’t have the democratic space in India, unlike South Korea, to back industrial winners.Transparent subsidies on the “viability gap funding” template will suit the private sector best to innovate, implement and increase the consumption of renewable energy. Shifting the subsidy from energy generation to the provision of energy services can enlarge the pool of potential investors whilst retaining the objectives of efficiency and effectiveness in subsidy provision.

solar-bus

Prime Minister Modi flags off a solar bus service for MPs

Link green subsidies explicitly to revenue – social cost based levies on fossil fuel and a green cess

India’s clean energy strategy is built around the principle of minimising environmental damage whilst maximising economic growth. But the implementation of good principles also needs accurate and timely monitoring mechanisms to ensure that progress is along the desired trajectories. One such mechanism is to monitor the social cost of our fossil energy consumption and to use the data for fiscal allocations. The Arvind Subramanian report on pulses has suggested the inclusion of social cost, with respect to water intensity, while determining the maximum support price of agricultural food products, to ensure that subsidies do not deplete our water reserves. This is a good way of allocating public resources.

Social cost filter for resource allocation

If a social cost filter is adopted for allocating finances, public investment in the railways and in coastal shipping would surely trump investment on road transport. This is also a good mechanism for making users pay differentially for the energy they use. Charging more from those who use electricity at peak time is justifiable beyond the additional financial cost it imposes, to being an affirmation of commitment to going green. Habitats, offices and homes all impose social costs and must be taxed in proportion to the extent of their footprint. This “green tax” should be used to directly subsidise green energy and energy conservation.

A green balance sheet – green tax revenue and expenditure 

The government should consider including a green fiscal resources allocation and tax collection balance sheet along with the annual financial budget. This would provide, at a glance, the revenues collected by taxing fossil fuel and the capital allocated for green energy initiatives. Similar green fiscal resource balance sheets at the state and municipality level could feed into a green national fiscal framework.

India has traditionally punched above its weight in international affairs. Preserving the global commons is a lofty goal; an opportunity to upstage the international economic Goliaths and to improve well-being at home.

laurie-baker

Laurence Wilfred “Laurie” Baker 1917-2007 – architect & practioner of the science of living comfortably with nature. Seen here with his wife Elizabeth, in their home in Thiruvananthapuram, Kerala.

Adapted from the authors article in Asian Age October 4, 2016  http://www.asianage.com/columnists/green-taxes-cleaner-india-600

If only Suresh Prabhu was CEO of Indian Rail!

train-crowd (1)

(photo credit: Indianexpress.com)

As expected Suresh Prabhu, the likable, very professional and intensely committed Railway Minister presented a Rail Budget yesterday, which is not only fiscally responsible; internally consistent; aligned with the medium terms needs of the economy but which also pushes all the right buttons.

For the middle class the buttons pushed are availability of disposable linen in trains, on payment, for the squeamish- a first; entertainment on board to while away boredom; Wi-Fi at stations; a choice of meals; an assured maximum waiting time of five minutes whilst purchasing a ticket – again a first. Most important is there is no increase in the price of “upper class” tickets, which no one was expected, given the gaping hole in the financials of passenger traffic.

For the environmentally conscious citizen, Minister Prabhu flags that investing in rail reduces transport of goods and people by road, thereby saving up to 90% of energy and 85% of the carbon emissions as compared to road transport. A clear plus for the security of energy imports dependent India and a plus for the global climate.

Second, dual fuel engines are planned which will run on diesel plus the significantly less polluting Compressed Natural Gas, which compulsorily fuels all commercial road traffic in Delhi thanks to a Supreme Court order a decade ago and is why Delhi citizens are not choking to death in stand-still traffic.

Third, select railway stations will switch to green solar power, generated on site, using the ample land available with government.

For the poor, he has held the lower class ticket fares constant despite a net loss on passenger traffic of Rs 26000 crores ($ 4.2 billion). He adds that he is likely to be helped somewhat by weak oil prices which may reduce the loss by 20%.

Revenues from passenger traffic contribute only around 33% of total revenues but passenger trains get priority in congested routes. Of the passenger revenue the “lower class” subsidized fare contributes only around 70% even though around 85% of passenger miles are in this class. These rates are crying for upward revision.

Sadly, he has hiked the rates for goods transport by around 10%, in line with the long term trend, in which freight of goods and upper class passenger fares are taxed to cross subsidise passenger fares for the poor.

But there is hope. Unlike all his august predecessors he has resisted the temptation of announcing new trains and thus frittering away the meagre public funds (Rs 40,000 crores – $ 6.6 billion) that Indian Rail (IR) gets from the budget.

Sensibly, he intends to invest in around 50% of pre-identified segments of the congested routes to remove blockages,  which slow down premier passenger trains- technically capable of running at 130 km per hour to a mere 70 and freight trains- which can run at 75 km per hour to a mere 25 km per hour.

Decongesting such sections will increase the speed of transport, improve turnaround time of rolling stock and reduce the delivery time at destination of both goods and passengers. Once realized, this by itself will result in financial rewards for IR from improved efficiency. Sadly these intended benefits are either not assessed or not shared with the public.

But it is sad that India still wastes both executive effort and scarce parliamentary time on issues which are squarely within the corporate ambit. There is really no reason why IR should not be a government corporate just like Oil and Natural Gas Corporation (ONGC) the oil behemoth or the National Thermal Power Corporation (NTPC), India flagship power Generation Company.

India’s stock market is booming and capital values are several times the book value of “capital employed” in the these corporations based on future expectations of their profits.

Meanwhile IR, a monopoly in the rail transport segment, with annual revenues of Rs 183, 828 crores ($ 30 billion) struggles to charge cost reflective rates; needs to mind its Ps and Qs because its budget is debated in Parliament, where the 790 honourable members can each be a stumbling block to reform and rationalization and is strapped for capital to invest.

If Indian Railways were a government corporation with a Suresh Prabhu clone as its CEO, it would be the second largest Indian company by assets size, after State bank of India (SBI); the fifth largest Indian company by profits after ONGC, the Mukesh Ambani led Reliance Industries (RIL), SBI and TATA motors and the seventh largest by revenues after Indian Oil Corporation, RIL, Bharat Petroleum, Hindustan Petroleum, SBI and TATA motors.

Ofcourse if it had been a government corporation it would not have had to suffer the political interference which has crippled it since the last “business like” minister it had in the late Madhavrao Scindia of the Congress more than  two decades ago. It is time all the Scindia descendants alligned with the right side of reform again.

The best part of Suresh Prabhu’s Rail budget is that it is “timid” in its ambition. It does not promise the moon and instead bats for “incremental improvements” which aligns well with the glacial pace of reform in India. It is realistic in its assessment of political economy compulsions and yet firm on not “giving in” to the long prevalent culture of “pork” in railway budget allocations.

Small is still beautiful and the Rail budget does well to recognize it. It is the small changes which have a big bang for the buck. Problem solving and unplugging bottled up efficiency essentially involves looking for cost effective solutions. The railway budget assiduously finds them all. The only exception is the commitment to green solar energy which, despite the hype, remains a hugely expensive option for grid connected electricity generation in a poor country like India.

If PM Modi’s “invisible hand” was behind the Rail Budget, we hope to see more of the same, strengthening FM Jaitley’s resolve on February 28, whilst presenting the nation’s Budget for FY 2016, to be efficient without being excessive; effective without being cruel and carefully allocating public funds where the maximum private sector jobs can be created; the poor most benefited and the common tax-payers wallet swelled.

The Rail Budget was a good beginning. Lets hope for a  happy ending tomorrow to the budget mania.

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