Integrating the power sector in India: Reflections and suggestions
Abstract The historical development of the power generation industry in India shows a steady trend towards complete integration: ‘… The aim is to connect all the power-regions by the end of the Seventh Plan. The desirability of having a single organization to own and to operate the essential elements of the national grid needs to be urgently considered …’ ([4], p 335). This paper seeks to verify the actual desirability of integration, through economic as well as technical aspects; and to emphasize the deviations induced by a strengthened concentration and suggest corrective directions to a second-best equilibrium.
Dual v uniform prices — an application
Abstract The economic literature on non-linear pricing schemes mainly considers the case where average price decreases with quantity — indeed this pricing strategy is often referred to, especially by firms displaying non-convex production sets. However, such a price schedule seems inadequate to cope with the ‘endowments’ of most developing countries, viz severe income inequalities and binding capacity constraints. Thus, we design here an increasing-blocks tariff and show, as an illustration, how it can improve the distribution pattern of low-voltage electricity in India without depressing the producer's profit. Shadow income transfers automatically flow within the sector, without requiring the heavy informational and operational background necessary for lump-sum transfers, as advocated by second-best theory.
Electricity Pricing: Theory and Case Studies
The rapidly increasing cost of electric power in recent years has brought about a growing awareness of the importance of pricing policies in maximizing the net economic benefits of consumption and avoiding waste. Although the theoretical principles governing optimal pricing strategies have long been understood, their practical application to the energy sector in general, and to electric power in particular, has not been seriously pursued until recently. Increasing unit costs, however, have provided the stimulus for a change in approach, and there is now a good deal of evidence that marginal cost pricing is becoming accepted as an important criterion that should be considered in determining electric power tariffs. The book contains a summary of the economic principles underlying marginal cost pricing for electric power, and emphasizes the importance of the adjustments that need to be made to the strict long-run marginal costs (LRMC) to reflect the various economic, social, and engineering objectives and constraints that are actually faced by policymakers in the energy sector. The book also consists of case studies that follow a two-stage procedure in which the LRMC of electric power is used to weigh the costs and benefits of other policy objectives that might be addressed through the medium of power pricing. LRMC is therefore treated largely as a benchmark by which other economic and social objectives may be consciously judged.