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Transition from flat to metered electricity tariff in agriculture

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Transition from flat to metered electricity tariff in agriculture: Who gains and who loses? Evidence from West Bengal, India.
A. Mukherji, B. Das, N Majumdar, N. C. Nayak, R. R. Sethi, B.R. Sharma & P.S. Banerji
Presented at the International Conference on Water Resources Policy in South Asia, December 17-20, 2008, Colombo. International Water Management Institute (IWMI)

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Transition from flat to metered electricity tariff in agriculture

  1. 1. Transition from flat to metered electricity tariff in agriculture: Who gains and who loses? Evidence from West Bengal, India A. Mukherji, B. Das, N Majumdar, N. C. Nayak, R. R. Sethi, B.R. Sharma & P.S. Banerji Presented at the International Conference on Water Resources Policy in South Asia December 17-20, 2008, Colombo
  2. 2. The context of metering <ul><li>Rapid increase in area under groundwater irrigation due to </li></ul><ul><ul><li>High population density & small land holdings </li></ul></ul><ul><ul><li>Inadequacies in canal water supply </li></ul></ul><ul><ul><li>Demand for assured supply of irrigation </li></ul></ul><ul><ul><li>Flat and highly subsidized electricity </li></ul></ul><ul><li>This led to </li></ul><ul><ul><li>Proliferation of electric pumps in 1980s and 1990s </li></ul></ul><ul><ul><li>Emergence of competitive water markets </li></ul></ul><ul><ul><li>Benefited millions of small water buying farmers </li></ul></ul>
  3. 3. <ul><li>But there are downsides of flat tariff system </li></ul><ul><ul><li>Flat tariffs remained low and became political tools of appeasement </li></ul></ul><ul><ul><li>Low flat tariff lead to fiscal deficits for the State Electricity Boards (SEBs) </li></ul></ul><ul><ul><li>These deficits were over-estimated to hide inefficiency of the SEBs </li></ul></ul><ul><ul><li>It lead to groundwater overexploitation in hard rock aquifers with low rainfall </li></ul></ul><ul><ul><li>It benefited the large farmers disproportionately </li></ul></ul>Contd…
  4. 4. <ul><li>ADB & World Bank agreed to finance restructuring of electricity sector provided </li></ul><ul><ul><li>SEBs were unbundled (Orissa took the lead) </li></ul></ul><ul><ul><li>Independent State Electricity Regulatory Commission were formed </li></ul></ul><ul><ul><li>Proper energy auditing through 100% metering was undertaken </li></ul></ul><ul><li>Electricity Act 2003 was enacted & all states were asked to meter agricultural supply </li></ul><ul><li>West Bengal and Uttarakhand are the only states to implement universal metering </li></ul>Contd…
  5. 5. Objectives of the study <ul><li>How was GoWB* able to overcome traditional pitfalls (high transaction costs & corruption) of metering? </li></ul><ul><li>To assess the impact of change from flat to meter tariff system on the </li></ul><ul><ul><li>Electric pump owners </li></ul></ul><ul><ul><li>Water buyers from electric pumps </li></ul></ul><ul><ul><li>Overall operation of groundwater markets </li></ul></ul><ul><ul><li>Electricity Utility </li></ul></ul>* GoWB: Government of West Bengal
  6. 6. <ul><li>Review of literature </li></ul><ul><li>Structured/semi-structured interview with various groups of farmers, ABECA*, government officials etc. </li></ul><ul><li>Three data sets used, two large scale quantitative questionnaire surveys & one qualitative survey </li></ul><ul><li>Sample size of each survey varied between 137-143 respondents. </li></ul>Methodology & Data *ABECA: All Bengal Electricity Consumers’ Association
  7. 7. West Bengal: A state that bucks the trend in GW* and electricity * GW- groundwater Punjab, Haryana, Gujarat, Tamil Nadu West Bengal Over-exploitation of GW Under- development of GW (42% development) > 60-80% electric pumps < 20% electric pumps Free/very low flat rate Highest flat rate in India High fiscal deficits due to electricity subsidy Non-existent electricity subsidy
  8. 8. Electricity reforms in WB: The high-tech way <ul><li>Introduction of Time of the Day (TOD) meters </li></ul><ul><li>TOD tariff rates for agriculture </li></ul><ul><ul><li>‘ Normal’ hours: 6am-5pm, @Rs. 1.37/unit </li></ul></ul><ul><ul><li>‘ Peak’ hours: 5pm-11pm, @Rs. 4.75/unit </li></ul></ul><ul><ul><li>‘ Off-peak’ hours:11pm-6am @Rs 0.75/unit </li></ul></ul><ul><li>Average unit charge (estimated): </li></ul><ul><ul><li>Rs 1.52/unit as against Rs 2.68/unit in flat system </li></ul></ul><ul><ul><li>Per hour metered tariff ~ Rs. 6.00 </li></ul></ul>
  9. 9. Electricity reforms in WB*: The high-tech way Contd… Tamper proof TOD meter (with optical load sensor) Meter Reading Instrument (MRI) for data capture and transfer to computer Engagement of SHG* Introduction of GSM and GIS technology for monitoring *WB: West Bengal *SHG: Self Help Group Photo Credit: Aditi Mukherji
  10. 10. Hi-Tech Metering Technology Source: Adapted from Tongia, R., 2004. What IT can and cannot do for the power sector and distribution in India: link to reforms, incentives and management , Working Paper #19, Program on Energy and Sustainable Development, Stanford University.
  11. 11. Defining gainers and losers <ul><li>For pump owners </li></ul><ul><ul><li>Loser if they have pay higher electricity bill for the same number of hours of usage as before, gainer otherwise </li></ul></ul><ul><li>For water buyers </li></ul><ul><ul><li>Loser if they have to pay higher price for buying same amount of water & face adverse terms and conditions </li></ul></ul><ul><li>For electricity utility </li></ul><ul><ul><li>Loser if they earn lesser revenue from same number of tubewells than before </li></ul></ul>
  12. 12. Submersible pump owners Gainers 63% Centrifugal pumps owners Gainers 74% Gainers and losers among pump owners Source: Mukherji 2004 survey
  13. 13. Water buyers: Gainers or losers? <ul><li>Losers </li></ul><ul><ul><li>Water charges increased by 30-50% in response to metering </li></ul></ul><ul><ul><li>Unwillingness among PO* to sell water due to changed incentive structure </li></ul></ul><ul><ul><li>Adverse terms of exchange including demand for payments in advance </li></ul></ul><ul><ul><li>Buyers perceive that water sellers are now providing sub-optimal service </li></ul></ul>*PO: Pump Owners
  14. 14. Hour: 1500, Energy cost: Rs 9000 Self irrigation Hour: 700 Energy cost: Rs 4200 Saving in electricity bill Rs 6600 Break even point Hour: 1927 Energy cost: Rs 10800 Selling irrigation Hour: 800 Earning: Rs 14400 Profit in flat tariff system Rs 3600/yr/TW Profit in meter tariff system Rs 5400/yr/tw ‘ no gain no loss’ 1050 hr ‘ no gain no loss’ 1300 hr 250 hr Annual flat tariff, Rs 10800 Rs 6/hr Rs 18/hr What happens to the size of GW markets? The Average Scenario: GWM will contract Source: Figure created by Mukherji A. based on data from Mukherji, A. et al. 2009. Metering of agricultural power supply in West Bengal, India: who gains and who loses? Energy Policy, 37(12):5530-5539. 4000 8000 12000 Annual cost of irrigation in Rs O 200 400 600 800 1000 1200 1400 16000 20000 1600 1800 2000 Annual hours of irrigation 22000
  15. 15. 4000 8000 12000 Annual cost of irrigation in Rs O 500 1000 1500 16000 20000 2000 Annual hours of irrigation 24000 28000 2500 Annual flat tariff, Rs 10800 Break even point Hour: 1927 Cost: 10800 Total irrigation Hour: 2400 Energy cost: Rs 14400 32000 Self irrigation Hour: 1500 Energy cost: Rs 9000 Selling irrigation Hour: 900 Earning: Rs 16200 Profit in flat tariff system Rs 5400 Profit in meter tariff system Rs 1800 2250 2100 An exceptional case: GWM expands Gainer and loser in meter tariff system Source: Figure created by Mukherji, A. based on data from Mukherji, A. et al. 2009. Metering of agricultural power supply in West Bengal, India: who gains and who loses? Energy Policy, 37(12):5530-5539.
  16. 16. Conclusions <ul><ul><li>Same hour of pumping – Less electricity bill </li></ul></ul><ul><ul><li>Same hour of selling water – Higher revenue </li></ul></ul><ul><ul><li>Higher bargaining power vis-à-vis water buyers </li></ul></ul><ul><ul><li>Win – win situation </li></ul></ul>Pump owners: Largely winners Photo Credit: Aditi Mukherji
  17. 17. Conclusions Water buyers: Losers <ul><li>Increase in water charges by 30-50% </li></ul><ul><li>Adverse terms & condition of buying water </li></ul>Photo Credit: Aditi Mukherji
  18. 18. <ul><li>Depends on motivation of water sellers </li></ul><ul><li>If pump owners only want to recover their electricity bills, then GWM* will contract </li></ul><ul><li>If they want to earn more profit, GWM may remain same or expand </li></ul>Conclusions Groundwater market: Indeterminate Photo Credit: Aditi Mukherji *GWM: Groundwater Market
  19. 19. <ul><li>Depends on motivation of water sellers </li></ul><ul><li>If pump owners only want to recover their electricity bills, then GWM will contract </li></ul><ul><li>If they want to earn more profit, GWM may remain same or expand </li></ul>Conclusions Groundwater market: Indeterminate
  20. 20. Conclusions Groundwater use efficiency: Winner <ul><ul><li>Increased adoption of plastic pipes for conveyance </li></ul></ul><ul><ul><li>Better maintenance of field channels </li></ul></ul><ul><ul><li>Construction of underground pipelines </li></ul></ul><ul><ul><li>But will it save water? And is it important? </li></ul></ul>Photo Credit: Aditi Mukherji
  21. 21. Conclusions <ul><li>Electricity board: </li></ul><ul><li>Loser (!) </li></ul><ul><li>Probable loss by Rs 145 million per year under existing meter rates </li></ul>Photo Credit: Aditi Mukherji
  22. 22. Policy implication <ul><li>Rapid electrification of tubewells to encourage competitive GW markets </li></ul><ul><li>Relaxation on issuance of SWID* certificate for new TW* installation </li></ul><ul><li>Give capital cost subsidy for installation of tube wells – target small & marginal farmers </li></ul><ul><li>Panchayat (village council) intervention in regulating water prices </li></ul>*SWID: State Water Investigation Directorate *TW: Tube well
  23. 23. Thank You www.iwmi.org Related Publication: Mukherji, A. et al. 2009. Metering of agricultural power supply in West Bengal, India: who gains and who loses? Energy Policy, 37(12):5530-5539. Available online at www.elsevier.com/locate/enpol
  24. 24. Rapid increase in groundwater irrigation Source: Government of India data, 1950-2000
  25. 26. Source: Mukherji, A.
  26. 27. Comparison of flat tariff in different states, 2006-07 Source: Chart created by Mukherji,A based on data from Mukherji, A. et al. 2009. Metering of agricultural power supply in West Bengal, India: who gains and who loses? Energy Policy, 37(12):5530-5539.
  27. 28. Electricity subsidy as percentage of state fiscal deficits, 2000-01 BRISCOE, 2005
  28. 29. Increase in water price after metering Source: Graph created by Mukherji et al. based on data from 2 nd CGA 2008 survey.

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