A structural problem: Why your electricity bill has been going up

If you have tracked the slide in solar tariffs all the way down to Rs 2.44 per unit from double-digit levels at the beginning of the decade, and you have wondered why your electricity bill has only been going up when it is becoming cheaper to generate power, there is a simple explanation: Power market structure.
 
This structure does not allow you to dynamically change your power supplier, as you would, say your mobile phone service provider. There aren’t options on tariff packages available or a choice to consume only green electricity generated from renewable sources. This situation will inevitably change, in line with what is happening in the rest of the world, with start-ups challenging the status quo.
 
Two months ago, an interesting company called Griddy, based in the US, offered to charge customers in the state of Texas only the real-time wholesale price of power, for a nominal fixed membership fee. Since wholesale prices are depressed, partly due to generation from renewables, there is a significantly lower electricity bill promised. The CEO of the company hoped such a move would challenge an “electricity system that looks like a snake pit.” Mojo Power does the same in Australia, exposing its customers to wholesale prices, with its “zero per cent mark-up electricity rates.”
 

Though less than 5 per cent of the power generated daily in India is traded, there is a clearing price across India that can be seen online on the government’s site (www.vidyutpravah.in) or on the Indian Energy Exchange.  The average price for traded power has ranged from Rs 2-3 per unit in the recent past. Tariffs paid by consumers, however, could be as much as Rs 10 per unit, as charges for transmission, distribution, power theft and other chronic system inefficiencies are piled on, particularly for non-residential users. With the transparency provided by real-time data, some consumers have started asking the right questions about the price and availability of power. If petrol and diesel prices can be adjusted daily, why is flexibility in electricity prices non-existent?
 
Residential consumers also have a choice of consuming only green electricity in some markets. In the UK, for instance, Good Energy supplies electricity from renewable sources only with nil carbon emissions and no radioactive waste. It is also a cheaper option —Delhi Metro is switching to solar power to curtail its power bill. That is also what is driving the swing towards solar for India’s airports, and various other facilities. As many as 96 companies have committed to use 100 per cent renewable energy under the so-called RE100 programme, including the likes of Apple, Google, Microsoft and Infosys. This option of consuming only green power is not available to residential users in India, even if some of them are willing to pay a premium for green power.
 
Interestingly, there would likely be no need for a premium payment for clean energy: A consumer, who taps into the 90 gigawatts of capacity locked in backup diesel generators, would see a reduction in bills on moving to renewable energy, and will also get the benefit of breathing cleaner air. Enabling such a scenario to unfold is what the power regulators should be thinking about. This is what should be on Niti Aayog’s radar before a start-up offering these services forces their hand.

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The author is editor, Global Policy, for Bloomberg New Energy Finance; vgombar@bloomberg.net