subsidization and cross subsidization is the one of the topic of power generation economics . Well researched .

1. NAME- SOUMYADIP SAMANTA
STREAM –EE SEM -7TH
ROLL-26901621022
Paper Code: PE-EE 701C
SUB-Power Generation Economics

2. TITLE
SUBSIDIZATION AND CROSS SUBSIDIZATION

3. ACKNOWLEDGEMENT
I would like to express my special thanks of gratitude to Mr D Roy
for providing me guidance for gathering information .

4. TABLE OF CONTANT
SL NO CONTENT
1 INTRODUCTION
2 SUBSIDIZATION
3 PURPOSE OF SUBSIDIZATION
4 FORMS OF SUBSIDIES
5 EFFECTS AND CONTROVERSIES
6 FACTOR BEFORE PROVIDING SUBSIDIES
7 CROSS SUBSIDIZATION
8 CROSS SUBSIDIZATION ON POWER GENERATION
9 FORMULA FOR CROSS-SUBSIDIZATION
10 CASE STUDY:HOW RELIANCE JIO REACH LEADING TELECOM
PROVIDER OF INDIA BY GIVING SUBSIDY

5. INTRODUCTION
❑In the complex world of economics and business, two terms often come into play
to describe financial support mechanisms that influence market dynamics and
resource allocation: subsidization and cross-subsidization. These concepts play a
crucial role in various sectors, including government policies, industries, and public
services. Understanding their implications is essential for policymakers, businesses,
and consumers alike.

6. SUBSIDIZATION
Subsidization is an economic concept that involves providing financial
support or assistance, typically from the government or an organization,
to certain industries, sectors, or individuals to achieve specific objectives
or address economic imbalances. Subsidies are often used to encourage
desired behaviors, promote growth in targeted areas, or assist those who
may be disadvantaged or facing financial challenges.

7. Purpose of Subsidization
Promoting Research and Development
Governments may provide
financial incentives to companies
engaged in research and
development activities to foster
innovation and technological
advancement, ultimately
benefiting the economy.
Supporting Strategic
Industries
Subsidies can be used to
support strategic industries
that are vital for a country's
economic and national
security. Governments might
offer subsidies to industries
such as defense, aerospace, or
telecommunications to
maintain their competitiveness
and self-sufficiency.
Addressing Market Failures
Subsidies can be used to correct
market failures or address
externalities. For example,
subsidies on public
transportation can help reduce
traffic congestion and air
pollution.
Reducing Income
Inequality
Subsidies are sometimes targeted
at low-income individuals or
families to help them access
essential goods and services, such
as housing, education, healthcare,
or food.
Encouraging
Production
Subsidies are sometimes offered to
encourage the production of certain
goods or services that are considered
essential or beneficial to society. For
example, a government might provide
subsidies to farmers to increase food
production or support the development
of renewable energy sources

8. Forms of Subsidies
Tax Subsidies
Tax credits,
deductions, or
exemptions that
reduce the tax
burden for certain
industries or
activities.
Price Subsidies
Subsidies that lower the
cost of goods or services
for consumers, making
them more affordable.
Research and Development (R&D)
Subsidies
Financial assistance
provided to companies to
promote research and
development efforts.
Export
Subsidies Financial incentives given
to exporters to increase
their competitiveness in
international markets.
Direct Cash
Transfers
Direct cash payments or
grants provided to
individuals or businesses to
support specific activities or
meet basic needs.

9. Effects and
Controversies
Risk of Dependency
Some industries or
individuals may
become dependent
on subsidies, making
it challenging to
withdraw the
support without
negative
consequences.
Misallocation of
Resources
Subsidies can sometimes
lead to the
misallocation of
resources, as they may
support industries or
activities that are not
economically viable in
the long term.
Budgetary Concerns
Providing subsidies
can strain
government budgets,
and if not managed
properly, they may
lead to fiscal deficits.
Distorted Markets
Subsidies can distort
market forces by
artificially
influencing prices
and production
decisions, leading to
inefficiencies and
market imbalances.

10. Providing subsidies to consumers can be a strategic business decision for some companies, and it is possible for a company to remain profitable even
while offering subsidies. However, the success of this approach depends on various factors and requires careful planning and execution. Here are some key
considerations:
FACTOR BEFORE PROVIDING SUBSIDIES
Cost Analysis: Before offering
subsidies to consumers, the
company must thoroughly analyze
its cost structure. The subsidy
provided to consumers should be
sustainable and not exceed the cost
savings achieved through efficiency
gains, economies of scale, or other
cost-cutting measures.
Competitive Advantage: Offering
subsidies might give the company a
competitive advantage over rivals,
attracting more customers and
driving sales. This advantage can
translate into increased revenue
and potentially higher profits.
External Factors: The company must
consider external factors such as
market conditions, regulatory
environment, and changes in
customer demand. These factors can
influence the feasibility and impact
of subsidization on the company's
bottom line.
Targeted Subsidization: Companies
may choose to offer subsidies
selectively to specific customer
segments or products/services. By
targeting subsidies to areas where
they can have the most significant
impact, the company can ensure a
better balance between profitability
and customer satisfaction.
Scale and Market Share: The
company's ability to maintain
profitability while offering subsidies
often depends on its market share
and scale. Larger companies with a
significant market presence may
have more room to absorb the
costs associated with subsidies
without compromising profitability.
Long-Term Strategy: Subsidization
should align with the company's
long-term business strategy. Short-
term subsidies may have positive
effects on customer acquisition or
retention, but the company must
consider the long-term implications
of its subsidization approach.
Pricing Strategy: A well-thought-out
pricing strategy is crucial when
providing subsidies to consumers.
Companies may adjust the pricing
of other products or services to
offset the impact of subsidies,
ensuring that the overall business
remains financially viable.
Customer Loyalty and Retention:
Subsidization can be used as a tool
to increase customer loyalty and
retention. Happy and loyal customers
are more likely to stay with the
company over the long term, which
can lead to a more stable revenue
stream and increased profitability.

11. CROSS SUBSIDIZATION
Cross-subsidization occurs when revenue generated from one product, service, or group of customers is used to support or subsidize another
product, service, or group that may not be as financially viable or profitable. This practice is often employed to maintain affordable prices for
certain goods or services or to ensure access to essential services for everyone, regardless of their ability to pay.
In cross-subsidization, one part of the business subsidizes another part that faces higher costs or serves a less financially advantageous segment of
the market. This redistribution of resources allows the organization to offer competitive pricing or provide services that might otherwise be
economically unfeasible.
An example of cross-subsidization is often seen in the telecommunications industry. Companies may charge higher prices for services to corporate
or business customers, and the profits from these higher-priced plans are used to subsidize lower-cost plans for residential customers, ensuring
that essential communication services remain affordable for all.
It's important to note that while subsidies and cross-subsidization can have positive effects, they can also lead to market distortions, inefficiencies,
and potential misuse of funds. Therefore, implementing and managing such mechanisms require careful consideration and monitoring to ensure
they achieve their intended goals effectively.

12. 1.Power Generation: The power generation company operates power plants that produce electricity. These power plants can
be of various types, such as coal-fired, natural gas-fired, nuclear, hydroelectric, solar, wind, or a combination of renewable
energy sources.
2.Customer Segmentation: The company divides its customer base into different segments, such as industrial, commercial,
and residential customers. Industrial customers may have higher electricity demand due to their large-scale operations,
while residential customers generally consume lower amounts of electricity.
3.Pricing Strategy: The pricing strategy involves setting different electricity rates for each customer segment. Industrial
customers typically pay higher rates due to their higher consumption and specialized power requirements. Residential
customers, on the other hand, pay lower rates to remain affordable for households.
CROSS SUBSIDIZATION ON POWER GENERATION

13. Formula for Cross-Subsidization:
1.Revenue Calculation: The revenue from industrial customers (I_revenue) is calculated by multiplying the number of industrial customers
(I_customers) by the average revenue per industrial customer (ARPI):
I_revenue = I_customers * ARPI
Similarly, the revenue from commercial customers (C_revenue) and residential customers (R_revenue) are calculated using their respective
average revenue per customer (ARPC) and average revenue per residential customer (ARPR):
C_revenue = C_customers * ARPC R_revenue = R_customers * ARPR
2.Cost Calculation: The cost of generating electricity for industrial customers (I_cost) is the sum of the operational costs, fuel costs (if
applicable), maintenance expenses, and other costs specific to serving the industrial segment.
I_cost = Operational costs + Fuel costs + Maintenance expenses + Other industrial-specific costs
The cost of generating electricity for commercial customers (C_cost) and residential customers (R_cost) are similarly determined, considering
their specific cost components.
C_cost = Operational costs + Fuel costs + Maintenance expenses + Other commercial-specific costs
R_cost = Operational costs + Fuel costs + Maintenance expenses + Other residential-specific costs

14. 3.Subsidy Calculation: The subsidy (Subsidy) is the difference between the actual cost of generating electricity for residential customers and
the revenue generated from residential customers:
Subsidy = R_cost - R_revenue
4.Profit Calculation: The total profit (Profit_total) of the power generation company is the difference between the total revenue and total
cost:
Profit_total = (I_revenue + C_revenue + R_revenue) - (I_cost + C_cost + R_cost)
Successful Cross-Subsidization:
For successful cross-subsidization, the profit generated from industrial and commercial customers (Profit_IC) should exceed the subsidy
provided for residential customers:
Profit_IC > Subsidy

15. CASE STUDY:HOW RELIANCE JIO REACH LEADING TELECOM PROVIDER OF INDIA BY GIVING SUBSIDY
Reliance Jio, a telecommunications company in India, achieved unprecedented success and emerged as a leading telecom provider in the country by leveraging a
strategic combination of disruptive pricing strategies and subsidies. Let's explore the case study of how Reliance Jio reached the forefront of the Indian telecom
industry through subsidization:
Background: Reliance Jio, a subsidiary of Reliance Industries Limited, launched its services in September 2016. Before Jio's entry, the Indian telecom market was
dominated by established players charging relatively higher prices for data and voice services.
Disruptive Pricing and Subsidization:
1.Free Welcome Offer: To attract customers and gain rapid market penetration, Reliance Jio offered a "Welcome Offer" that provided free voice calls, unlimited
data, and access to premium apps for an extended period. This approach allowed potential customers to experience high-speed 4G data without incurring any
significant costs during the initial phase.
2.Low-Cost Data Plans: After the free offer, Jio continued to offer data services at remarkably low prices compared to its competitors. The company's data plans
were priced significantly lower per GB, making it affordable for users to consume large volumes of data without worrying about high bills.
3.Subsidized Handsets: Reliance Jio partnered with various smartphone manufacturers to launch affordable 4G smartphones bundled with attractive data plans.
This move helped in expanding the company's customer base by making 4G-enabled devices accessible to a larger section of the population.

16. Impact and Results: Reliance Jio's disruptive pricing and subsidization strategies had a profound impact on the Indian telecom industry:
1.Rapid Customer Acquisition: Jio's free Welcome Offer and low-cost data plans attracted millions of customers within a short span, leading to a surge in the
company's subscriber base.
2.Data Consumption Surge: The affordable data plans led to an unprecedented increase in data consumption in India, making it one of the world's largest
data-consuming countries.
3.Increased Network Usage: The surge in data consumption put immense pressure on Jio's network infrastructure, leading to network congestion and call
quality issues initially. However, the company continued to invest in expanding its network and infrastructure to handle the rising demand.
4.Market Disruption: Jio's disruptive entry forced other telecom operators to revise their pricing strategies and offer competitive data plans, benefiting
consumers across the board.
5.Consolidation in the Telecom Sector: The intense competition triggered by Jio's entry led to consolidation in the Indian telecom sector, with some operators
merging or exiting the market.
6.Revenue and Profitability:While Jio initially incurred significant losses due to heavy subsidization and infrastructure investments, the company's long-term
strategy aimed to achieve profitability through increased market share and customer loyalty.
Conclusion: Reliance Jio's strategic use of subsidization and disruptive pricing reshaped the Indian telecom landscape, making data and voice services affordable and
accessible to millions of Indians. By challenging the established players and disrupting the status quo, Jio quickly became a leading telecom provider in India,
achieving significant market share and transforming the way people consume mobile services in the country.

17. CONCLUSION
Here I have come to end of this project on the topic.
I would like to share my experience while doing this project
This project increased my research, thinking skill, interest in this subject.

18. REFERENCE
• GOOGLE
• WIKIPEDIA
• SLIDESHARE.COM
• REFERENCE BOOK
• RESEARCH JURNAL
THANK YOU