Transition from flat to metered electricity tariff in agriculture: Who gains and who loses? Evidence from West Bengal, IndiaA. 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

The context of meteringThe context of metering Rapid increase in area under groundwater Rapid increase in area under groundwater

irrigation due toirrigation due to High population density & small land holdingsHigh population density & small land holdings Inadequacies in canal water supplyInadequacies in canal water supply Demand for assured supply of irrigationDemand for assured supply of irrigation Flat and highly subsidized electricityFlat and highly subsidized electricity

This led toThis led to Proliferation of electric pumps in 1980s and 1990s Proliferation of electric pumps in 1980s and 1990s Emergence of competitive water markets Emergence of competitive water markets Benefited millions of small water buying farmersBenefited millions of small water buying farmers

But there are downsides of flat tariff systemBut there are downsides of flat tariff system

Flat tariffs remained low and became political tools of Flat tariffs remained low and became political tools of appeasementappeasement

Low flat tariff lead to fiscal deficits for the State Low flat tariff lead to fiscal deficits for the State Electricity Boards (SEBs)Electricity Boards (SEBs)

These deficits were over-estimated to hide inefficiency These deficits were over-estimated to hide inefficiency of the SEBsof the SEBs

It lead to groundwater overexploitation in hard rock It lead to groundwater overexploitation in hard rock aquifers with low rainfallaquifers with low rainfall

It benefited the large farmers disproportionatelyIt benefited the large farmers disproportionately

Contd…

ADB & World Bank agreed to finance ADB & World Bank agreed to finance restructuring of electricity sector providedrestructuring of electricity sector provided

SEBs were unbundled (Orissa took the lead)SEBs were unbundled (Orissa took the lead)

Independent State Electricity Regulatory Commission Independent State Electricity Regulatory Commission were formedwere formed

Proper energy auditing through 100% metering was Proper energy auditing through 100% metering was undertakenundertaken

Electricity Act 2003 was enacted & all states Electricity Act 2003 was enacted & all states were asked to meter agricultural supplywere asked to meter agricultural supply

West Bengal and Uttarakhand are the only West Bengal and Uttarakhand are the only states to implement universal meteringstates to implement universal metering

Contd…

Objectives of the studyObjectives of the study

How was GoWB* able to overcome How was GoWB* able to overcome traditional pitfalls (high transaction costs & traditional pitfalls (high transaction costs & corruption) of metering?corruption) of metering?

To assess the impact of change from flat To assess the impact of change from flat to meter tariff system on the to meter tariff system on the Electric pump ownersElectric pump owners Water buyers from electric pumpsWater buyers from electric pumps Overall operation of groundwater marketsOverall operation of groundwater markets Electricity UtilityElectricity Utility

* GoWB: Government of West Bengal

(A)(A) Review of literatureReview of literature

(B)(B) Structured/semi-structured interview with Structured/semi-structured interview with

various groups of farmers, ABECA*, various groups of farmers, ABECA*,

government officials etc.government officials etc.

(C)(C) Three data sets used, two large scale Three data sets used, two large scale

quantitative questionnaire surveys & one quantitative questionnaire surveys & one

qualitative surveyqualitative survey

(D)(D) Sample size of each survey varied between Sample size of each survey varied between

137-143 respondents.137-143 respondents.

Methodology & DataMethodology & Data

*ABECA: All Bengal Electricity Consumers’ Association

West Bengal: A state that bucks West Bengal: A state that bucks the trend in GW* and electricitythe trend in GW* and electricity

Punjab, Haryana, Gujarat, Punjab, Haryana, Gujarat, Tamil NaduTamil Nadu

West BengalWest Bengal

Over-exploitation of GWOver-exploitation of GW Under- development of GW Under- development of GW (42% development)(42% development)

> 60-80% electric pumps> 60-80% electric pumps < 20% electric pumps< 20% electric pumps

Free/very low flat rateFree/very low flat rate Highest flat rate in IndiaHighest flat rate in India

High fiscal deficits due to High fiscal deficits due to electricity subsidyelectricity subsidy

Non-existent electricity Non-existent electricity subsidysubsidy

*GW- groundwater

Electricity reforms in WB: The high-tech way

Introduction of Time of the Day (TOD) metersIntroduction of Time of the Day (TOD) meters TOD tariff rates for agricultureTOD tariff rates for agriculture

‘‘Normal’ hours: 6am-5pm, @Rs. 1.37/unitNormal’ hours: 6am-5pm, @Rs. 1.37/unit ‘‘Peak’ hours: 5pm-11pm, @Rs. 4.75/unitPeak’ hours: 5pm-11pm, @Rs. 4.75/unit ‘‘Off-peak’ hours:11pm-6am @Rs 0.75/unitOff-peak’ hours:11pm-6am @Rs 0.75/unit

Average unit charge (estimated): Average unit charge (estimated): Rs 1.52/unit as against Rs 2.68/unit in flat Rs 1.52/unit as against Rs 2.68/unit in flat

systemsystem Per hour metered tariff ~ Rs. 6.00Per hour metered tariff ~ Rs. 6.00

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

Hi-Tech Metering Hi-Tech Metering TechnologyTechnology

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.

Defining gainers and losers• For pump owners

– Loser if they have pay higher electricity bill for the same number of hours of usage as before, gainer otherwise

• For water buyers– Loser if they have to pay higher price for buying same

amount of water & face adverse terms and conditions

• For electricity utility– Loser if they earn lesser revenue from same number

of tubewells than before

0.0

5000.0

10000.0

15000.0

20000.0

25000.0

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64

Number of submersible tubewells

Ele

ctr

icit

y b

ill

(Rs/

year)

Predicted bill under metered tariff Electricity bill under flat tariff in 2006-07

0.0

5000.0

10000.0

15000.0

20000.0

25000.0

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70

Number of shallow tubewells

Ele

ctr

icit

y b

ill

(Rs/

year)

Predicted electricity bill under metered tariff Electricity bill under flat tariff in 2006-07

Submersible pump owners

Gainers 63%

Centrifugal pumps owners

Gainers 74%

Gainers and losers among pump owners

Source: Mukherji 2004 survey

Water buyers: Gainers or Water buyers: Gainers or losers?losers?

LosersLosers Water charges increased by 30-50% in Water charges increased by 30-50% in

response to metering response to metering Unwillingness among PO* to sell water Unwillingness among PO* to sell water

due to changed incentive structuredue to changed incentive structure Adverse terms of exchange including Adverse terms of exchange including

demand for payments in advancedemand for payments in advance Buyers perceive that water sellers are Buyers perceive that water sellers are

now providing sub-optimal servicenow providing sub-optimal service

*PO: Pump Owners

4000

8000

12000

An

nu

al c

ost

of

irri

gat

ion

in R

s

O200 400 600 800 1000 1200 1400

16000

20000

1600 1800 2000

Annual hours of irrigation

22000

Hour: 1500, Energy cost: Rs 9000

Self irrigationHour: 700

Energy cost: Rs 4200

Saving in electricity bill

Rs 6600

Break even pointHour: 1927

Energy cost: Rs 10800

Selling irrigationHour: 800

Earning: Rs 14400

Profit in flat tariff system

Rs 3600/yr/TW

Profit in meter tariff systemRs 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

An

nu

al c

ost

of

irri

gat

ion

in R

s

O500 1000 1500

16000

20000

2000Annual hours of irrigation

24000

28000

2500

Annual flat tariff, Rs 10800

Break even pointHour: 1927Cost: 10800

Total irrigationHour: 2400

Energy cost: Rs 14400

32000

Self irrigationHour: 1500

Energy cost: Rs 9000

Selling irrigationHour: 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.

ConclusionsConclusions

Same hour of Same hour of pumping – Less pumping – Less electricity billelectricity bill

Same hour of selling Same hour of selling water – Higher water – Higher revenuerevenue

Higher bargaining Higher bargaining power vis-à-vis water power vis-à-vis water buyersbuyers

Win – win situationWin – win situation

Pump owners: Pump owners: Largely winnersLargely winners

Photo Credit: Aditi Mukherji

ConclusionsConclusions

Water buyers:Water buyers: LosersLosers

Increase in water charges by 30-50%

Adverse terms & condition of buying water

Photo Credit: Aditi Mukherji

Depends on Depends on motivation of water motivation of water sellerssellers

If pump owners only If pump owners only want to recover their want to recover their electricity bills, then electricity bills, then GWM* will contractGWM* will contract

If they want to earn If they want to earn more profit, GWM may more profit, GWM may remain same or remain same or expandexpand

ConclusionsConclusionsGroundwater market:Groundwater market:IndeterminateIndeterminate Photo Credit: Aditi Mukherji

*GWM: Groundwater Market

Depends on Depends on motivation of water motivation of water sellerssellers

If pump owners only If pump owners only want to recover their want to recover their electricity bills, then electricity bills, then GWM will contractGWM will contract

If they want to earn If they want to earn more profit, GWM may more profit, GWM may remain same or remain same or expandexpand

ConclusionsConclusionsGroundwater market:Groundwater market:IndeterminateIndeterminate

ConclusionsConclusionsGroundwater Groundwater use efficiency:use efficiency:WinnerWinner

Increased adoption of plastic Increased adoption of plastic pipes for conveyancepipes for conveyance

Better maintenance of field Better maintenance of field channelschannels

Construction of underground Construction of underground pipelines pipelines

But will it save water? And is it But will it save water? And is it important?important?

Photo Credit: Aditi Mukherji

ConclusionsConclusionsElectricity board: Electricity board:

Loser (!)Loser (!)

Probable loss by Rs 145 million per year under existing meter rates

Photo Credit: Aditi Mukherji

Policy implicationPolicy implication Rapid electrification of tubewells to Rapid electrification of tubewells to

encourage competitive GW marketsencourage competitive GW markets Relaxation on issuance of SWID* Relaxation on issuance of SWID*

certificate for new TW* installationcertificate for new TW* installation Give capital cost subsidy for Give capital cost subsidy for

installation of tube wells – target installation of tube wells – target small & marginal farmerssmall & marginal farmers

PanchayatPanchayat (village council) (village council) intervention in regulating water intervention in regulating water pricesprices*SWID: State Water Investigation Directorate

*TW: Tube well

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

0

5000

10000

15000

20000

25000

30000

35000

Years

Are

a ir

rig

ated

(h

a)

Canals Wells and tubewells Tanks and other sources

Rapid increase in groundwater irrigation

Source: Government of India data, 1950-2000

Source: Mukherji, A.

0

420

850

1512

2160

0

500

1000

1500

2000

2500

Punjab Haryana Gujarat Uttarakhand West Bengal

States

Rs/

HP

/Yea

r

Flat rate tariff (Rs/HP/year)

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.

0 20 40 60 80 100

Madhya Pradesh

Haryana

Gujarat

Andhra Pradesh

Karnataka

Rajasthan (Transco)

Tamil Nadu

Punjab

Maharashtra

U.P (Power corp)

West Bengal

Bihar

Percentage

Electricity subsidy as percentage of state fiscal deficits, 2000-01

BRISCOE, 2005

500

850

660

1100

0

200

400

600

800

1000

1200

Aman paddy Boro paddy

Wat

er p

rice

(R

s/b

igh

a)

Flat (2006-07) Metered (2007-08)

Increase in water price after metering

Source: Graph created by Mukherji et al. based on data from 2nd CGA 2008 survey.