Merge for power

Can India leverage the dramatic changes occurring in the power utilities industry and rid itself of electricity shortages? Students of business know that the structure of an organisation influences its strategy and vice-versa . When faced with a turbulent environment requiring adaptation, CEOs restructure businesses. What happens when the macro environment requires the restructuring of government ministries, in particular, the ministries of Power and New and Renewable Energy? The rationale prompting the creation of these two separate ministries no longer exists. The electricity industry is among the most dynamic and turbulent today. The telecom revolution gave us the internet and universal mobile communications; the electricity revolution may yield 100 per cent electrification.

India is better positioned than the industrialised nations to take advantage of the emerging transformation — it has little to lose, its infrastructure needs fixing; about 300 million people have no electricity, and the rest have intermittent supply. Under coal-driven generation regimes, its prospects are bleak. Coal burning is one of two principal causes of global warming, and its continued use is suicidal. The 100-year-old assumptions underpinning today’s electric utilities do not hold — natural monopoly, high barriers to entry, large-scale centralised generation for low costs. When emissions are included in electricity costs, coal power is uneconomical relative to renewable energy.

Cleaning the Cobwebs

Public policy has to balance rural development and capacity additions; determine investment priorities; incorporate intelligent linkages among power, transport, and IT in the new infrastructure, and allow for charging of electric cars; take account of environmental consequences of business-as-usual, to mention a few. By implication, domain expertise matters and needs continuous strengthening. All-purpose ministers or seasoned bureaucrats will not do.

India may not lean on the expertise of the Planning Commission either. The 12th Plan document on the power sector appears rooted in history. What should be the relative proportion of grid-tied renewables versus rooftop solar, and why? What is the role of microgrids in rural electrification, or solar photovoltaics in powering water pumps for agriculture, and for powering cellular towers? Neither the Ministry nor Commission documents include credible statements of vision, white papers on key issues, or explorations of new policy directions. Budgets appear to be produced by slapping rupees against list items, processes of determining investment priorities are opaque, and plans extrapolate the past.

New Structure

The present ministry structure in India is based on generation technologies or fuel type — thermal power, hydro power, nuclear power, and corresponding organisations. To this list is added new and renewable energy, a separate ministry, and its execution arm, the Solar Energy Corporation of India. Yet how relevant are generation-based organisation structures? Why not a Microgrid Energy Corporation of India straddling solar, micro-wind, batteries, diesel generators, the existing grid, and therefore ministerial boundaries?

Why cannot India’s electricity management be by markets, however small — by neighbourhood, enterprise zone, housing society, campus, or municipality? Electricity no longer needs State-sized or national service areas. The ‘divisional’ structure in energy needs consolidation under a ‘corporate’ vision. A kilowatt is a kilowatt by any means produced. As fuel shortages and emissions costs are baked into energy economics, the price of traditional electricity will go up. As solar photovoltaics mature, their costs will go down. The optimum microgrid running economically, and competing with traditional electricity, will be smaller, less capital intensive, and more eco-friendly than today’s generation, transmission, and distribution.

As the barriers to entry in the electricity business fall, new players will emerge. There can be several providers in a given market, including the existing state-owned companies. India’s electricity shortages can be eliminated with bold policies that encourage thousands of new microgrid service companies. To formulate such policies a single Energy Ministry led by a visionary minister is required.

( The author is visiting professor of strategy at IIM-Kozhikode. )

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