The power sector in Rajasthan has seen a significant transformation in the past two decades, characterised by a move from rampant shortages to surplus power and electrification of all households as reported by the state government. In fact, 7.2 million poor households have been electrified since 2012. At the same time, the state power sector is also facing multiple challenges which make it financially unviable.
For one, Rajasthan’s electricity distribution companies (DISCOMs) have significantly high costs, such that their cost of supply is not competitive with alternate options of power supply available to commercial and industrial consumers through open access and captive avenues. This rapid increase in costs is mostly due to issues with power procurement planning.
Secondly, revenue from various sources, especially tariffs, has not risen commensurate to the increase in costs. This is despite the state government subsidising 20 to 25% of the DISCOMs’ expenses. Most of this subsidy is utilised to provide concessional tariffs to agricultural consumers, who account for 40% of the sales. Along with subsidy, there is also some dependence on cross subsidy revenue. However, going forward with the steady erosion of cross-subsiding commercial and industrial sales who are meeting their demand via alternate sources, the financial situation of the DISCOMs could worsen.
Third, with financial issues, ensuring good quality of supply and service, especially to poor consumers, remains an issue which needs to be addressed with adequate performance monitoring and accountability mechanisms.
Nevertheless, Rajasthan has also seen significant addition of wind and solar capacity in the past decade. With the comparative price advantage, timely actions toward grid integration could be an opportunity to ensure cost-competitive supply in the future.
This note explores these multiple challenges and opportunities while giving a brief overview of the key institutions, practices, and realities in the state power sector. The full overview can be read here.