Tamil Nadu is an industrialised state and was one of the first states to meet the goal of 100% household and village on-grid electrification. It also accounts for the highest generation from renewable sources in the country. Despite this, Tamil Nadu’s power sector has faced significant supply and financial constraints through the years.
The supply shortages have since been addressed, and the shortfalls in availability have been reduced from 17.5% in FY13 to 0.2% in FY18. But the financial issues persist, despite the state adopting multiple bailout schemes. A contributing factor to Tamil Nadu’s continued financial distress is the irregular revision of consumer tariffs, which have not increased proportionately with the rising cost of power, resulting in revenue gaps. Further, the power purchase cost (PPC) in the state is also high, with approved PPC for FY19 averaging at Rs. 4.13/kWh. This can be attributed, in part, to high cost power procurement from state and private sector sources, most of which was undertaken when the state was facing severe power shortages.
As a result of the high power purchase costs and the stagnant consumer tariffs in the state, the state utility depends heavily on government subsidy and cross subsidy from industrial and commercial consumers to compensate for the tariff reductions to subsidised categories. However, owing to high industrial tariffs and growth of renewable generation, it is likely that industrial consumers will migrate away from the utility to cheaper open access and captive sources of power, which could further worsen the DISCOM’s finances.
The state’s electricity commission also plays a crucial role in maintaining the financial viability of the utility by ensuring accountability of its operations. While the commission has attempted several initiatives towards this end, it could further take steps aimed at better implementation and stricter compliance to its directives.
The state overview details the aforementioned challenges and opportunities faced by Tamil Nadu’s power sector, and outlines its key institutions and practises with a focus on the state distribution company. The full overview can be read here.