Introducing competition in the power sector in India: adoption of the US model

Abstract

Purpose: The twin objectives of power sector reforms in India – improving efficiency and attracting private investment – are far from being achieved. It is commonly acknowledged that competition in the sector can help achieve the objectives of the reforms, but although the Electricity Act of 2003 promised to usher in competition, even after seven years of its enactment there is very little competition in generation and absolutely no competition in retail supply. This paper seeks to find a road map for the introduction of competition in the power sector in India by discussing and drawing upon the US model of deregulating generation and retail supply whilst simultaneously keeping transmission and distribution under regulation. Design/methodology/approach: The study is a historical analysis of deregulation in the US power sector and its relevance for India by drawing upon both primary and secondary resources. Findings: The introduction of competition in the USA has brought substantial gains for the consumer and India can follow this model by mandating all distribution utilities to procure their future requirement of power through open competitive bidding. For retail competition, the system of provider of last resort (POLR) with POLR price being fixed with reference to market price can be the way forward. Originality/value: This paper offers some practical and implementable suggestions for introducing competition in the power sector in India.