Introducing Competition in Indian Electricity: Problems and Prospects

Competition contributes to economic growth and to consumer welfare and it creates an atmosphere that favors change and improvement. Competition in electricity markets can produce same results. While competition in wholesale markets for power can provide better incentive for controlling construction and operating costs of new and existing generating capacity, to encourage innovation in power supply technologies, and to shift the risks of technology choice, construction cost and operating mistakes to suppliers and away from consumers, retail competition is supposed to allow consumers to choose the retail power supplier offering price/service quality combination that best meet their needs. While most of the developed nations have established effective competition in their electricity markets, the developing countries has recently started a move towards it.

In India protection and controls are being replaced by a competitive and de-regulated open economic system during last one and half decade. This fundamental transition in Indian economy is well reflected in the electricity sector. During first phase of reforms private players (IPPs) were introduced in electricity generation to create a competitive wholesale market, which achieved some degree of success as we have a number of IPPs contributing almost 32 percent of total generation. The next step was restructuring of the state electricity boards, which included unbundling-separation of potentially competitive segments, and corporatisation. To meet the gaps in the first phase of reforms, the second phase emphasized on privatization of distribution and establishment of independent regulatory commissions to manage the competition.

The purpose of this paper is to analyze different possibilities of retail competition in Indian electricity, and what are the problems and prospects of a competitive retail electricity market in the light of present Competition Act, 2002. The paper will discuss various steps taken to introduce competition in retail electricity market and will assess the process in the light of existing international models. On the basis of this analysis the paper will recommend an ideal way of introducing competition in retail electricity market.