Govt power subsidies benefit high users more, promote polluting coal-based plants: Study

CHENNAI: Even as consumers complain of a steep hike in energy bills at times of high consumption, especially during the peak summer, a study on electricity subsidy ironically exposes how they are the bigger beneficiaries of the government subsidies.

The study shows that households with a bi-monthly energy consumption of higher than 500 units receive about three times the annual subsidy when compared to low-consuming households falling within the 100 units free slab-taking into account subsidy and cross-subsidy.

According to the study titled “Electricity Subsidy and a Just Energy Transition in Tamil Nadu” authored by Martin Scherfler of Auroville Consulting, households consuming over 500 units, 600 units and 700 units receive the highest annual benefits in terms of subsidy and cross-subsidy.

“The subsidy which goes to these households is in the range of over Rs 14,000. This is nearly three times as much as the subsidy of Rs 4,999 for low-consuming households with a bi-monthly consumption of 100 kWh,” the study pointed out.

The state government pays direct subsidies to Tangedco for the subsidised energy charges for the domestic, agriculture, handlooms and power looms consumers. Cross-subsidy is the mechanism under which industrial and commercial consumers pay more than the cost of supply to subsidise the low-paying residential and agricultural consumers.

All domestic consumers irrespective of their energy consumption get the first 100 units free while those consuming less than 500 units would get an additional subsidy of Rs 2.25 per unit for consumption between 101-200 units.

Out of the state government allocated subsidy of Rs 14,816 crore in 2023-24, a share of 93 percent was allocated to agriculture and domestic consumers. The subsidy allocated for domestic consumers alone comes to Rs 7,047 crore. The average annual subsidy per domestic service connection is Rs 2,986. However, it is found that households with a bi-monthly consumption between 200 units and 500 units receive the highest annual subsidy allocation of Rs 4,050 a year while those consuming up to 100 units receive Rs 2,700.

In terms of cross-subsidy, consumers with a bi-monthly energy consumption of 600 units receive the highest subsidy allocation of Rs 12,146 per year. This is five times higher than the subsidy allocated for consumers with a bi-monthly consumption of 100 units. The current cross-subsidy scheme is designed to favour households with higher consumption.

“Adding up the subsidy and cross-subsidy allocation by consumption slab we find that households which consume 500 units, 600 units and 700 units receive the highest annual benefits. The subsidy for these households is in the range of Rs 14,000. This is nearly three times as much as the subsidy for low-consuming households with a bi-monthly consumption of 100 units,” the study added.

A senior Tangedco official said that the electricity tariff was set in a way to reduce the burden on domestic consumers while the industries and commercial consumers pay higher tariffs. “There are five different slabs for the domestic consumers. The households consuming up to 600 units pay energy charges that are less than the average cost of supply. Only those consuming over 800 units will face the brunt. Those consuming high energy will pay higher charges,” the official said.

Martin Scherfler of Auroville Consulting takes a divergent look at the subsidy and points it out as a “flawed policy.” As per the research, if the subsidy of Rs 5,324 crore paid for free units supplied to domestic consumers is used to invest in solar energy generation, a solar energy plant with a capacity of 1,520 MW could be deployed. “This solar plant would have generated 2,798 million units of clean energy per year. Thus the annual generation would have contributed to 50 percent of all free energy units provided to households consuming up to 100 units and 101-200 units,” Martin Scherfler said in the research paper.

The study also points out that the major share of Tangedco’s electricity is sourced from polluting coal and lignite power plants, pushing upwards the emission intensity per unit of subsidised electricity. It added that the subsidy provided by the state government is indirectly contributing to 6.11 million tonnes of carbon dioxide emissions. “On the one hand, the state is committed to spending substantial public funds on climate adaptation and climate change mitigation and on the other hand there is substantial subsidy allocation that is indirectly utilised to pay polluting power generators,” it noted.