"Tariff-Based Incentives for Improving Coal-Power-Plant Efficiencies in India"
Journal Article, Energy Policy, volume 35, issue 7, pages 3744-3758
July 2007
Authors: Ambuj D. Sagar, Associate, Science, Technology, and Public Policy Program, Ananth Chikkatur, Former Associate, Energy Technology Innovation Policy research group, Nikit Abbyankar, N. Sreekumar
Belfer Center Programs or Projects: Energy Technology Innovation Policy; Environment and Natural Resources; Science, Technology, and Public Policy
ABSTRACT
Improving the efficiency of coal-based power plants plays an important role in improving the performance of India's power sector. It allows for increased consumer benefits through cost reduction, while enhancing energy security and helping reduce local and global pollution through more efficient coal use. A focus on supply-side efficiency also complements other ongoing efforts on end-use efficiency. The recent restructuring of the Indian electricity sector offers an important route to improving power plant efficiency, through regulatory mechanisms that allow for an independent tariff setting process for bulk purchases of electricity from generators. Current tariffs based on normative benchmarks for performance norms are hobbled by information asymmetry (where regulators do not have access to detailed performance data). Hence, we propose a new incentive scheme that gets around the asymmetry problem by setting performance benchmarks based on actual efficiency data, rather than on a normative basis. The scheme provides direct tariff-based incentives for efficiency improvements, while benefiting consumers by reducing electricity costs in the long run. This proposal might also be useful for regulators in other countries to incorporate similar incentives for efficiency improvement in power generation.
- Chikkatur_etal_Enrgy_Plcy_2007_published.pdf (258K PDF)
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