Parikh, Kirtida
(1992)
Electricity demand and pricing in India: 1947-1986.
PhD thesis, London School of Economics and Political Science.
Abstract
Over the years 1947-86, electricity has become an important source of energy. The social, political, economic and institutional conditions under which the electricity industry has evolved in India are studied in this thesis. Though electricity demand has increased in India, due to electricity supply shortages after 1972 it was difficult to study electricity demand since no data are available on unconstrained demand. Hence, the factors affecting electricity sales are studied at all-India level for three consumer groups: i) industrial ii) agricultural and iii) "other" consumers. Since states in India differ in their characteristics, electricity sales to industrial and agricultural consumers were studied for the States of Bihar, Kerala, Maharashtra and Punjab. In this analysis, economic and econometric principles are applied to historical data. On the basis of demand theory, income elasticities were expected to be positive and the price elasticities were expected to be negative. From the analysis, it was found that income and price elasticities varied across States and across different consumer groups. Income elasticities were found to be positive and high in each case. Price elasticities were negative and very low in each case with the exception of industrial consumers in Punjab. The time-of-day ("unrestricted") demand for power in Gujarat was studied for the years 1985-86 to 1988-89. The expectation of an hourly and seasonal pattern in the ("unrestricted") demand for power was confirmed. A series of 24 seemingly unrelated equations testing the effects of employment and price on "unrestricted" demand for power at each hour of the day were analysed. It was found that the observed hourly pattern of power demand could not be affected in the desired manner with the existing pricing policy and structure in Gujarat. Pricing remains an important practical tool for managing electricity demand. Pricing also directly affects the performance of the State Electricity Board. The financial performance of Gujarat State Electricity Board was examined and found to be poor due to its pricing policy. On the basis of the literature on the theory of pricing in public enterprises, a method of calculating prices in Gujarat was derived. Due to data constraints, the estimation of prices in the period 1961-86 was limited to prices charged to all consumers of the Gujarat Electricity Board taken as a group. For similar reasons, it also ignored the response of consumers at different time of the day. The prices charged by Gujarat Electricity Board were then compared with the estimated prices. It was found that the estimated prices were higher than the prices charged by Gujarat Electricity Board in the period 1961-86. One of the consequences of low electricity prices was Gujarat Electricity Board's poor financial performance. The study concludes that it is important for the State Electricity Boards in India to study their costs and demand in order to derive a pricing policy that allows the consumer to be aware of the costs and helps the State Electricity Boards to eliminate financial losses.
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