Added to that is the practice of cross-subsidy wherein industrial consumers are charged high tariff so that residential consumers can pay less, is stretched to the limit. As a result, the lockdowns last year in the wake of the coronavirus pandemic that saw consumption among the well-paying commercial customers dwindle while that on the subsidised residential side go up, led to a further spiral in the debt. As of March 2021, distribution companies owe Rs 67,302 crore to power generation firms.
As more low-cost solar power goes on stream, it brings down the cost for distribution firms. The gap between average cost of supply (ACS) and average revenue realised (ARR), a key parameter that reflects the health of discoms, went down from 0.84 in fiscal 2013 to 0.17 per unit in fiscal 2017 after the implementation of UDAY scheme in 2015, but has gone up again to 0.44 per unit in fiscal 2019. One of the main targets of UDAY scheme was to negate it completely by then indicating that the scheme has failed. It is believed it has gone up further due to the pandemic in fiscal 2021, though numbers are not out yet. Going forward, low cost of solar power provides a relief. As its share increases, the cost for discoms comes down which in turn contributes towards a narrowing of ACS-ARR.
The benefit to the environment--more solar power means less need for dirty coal based thermal power, is a bonus. When a tool to fight climate change also makes better business sense, it is a win-win. India’s quest for more solar power is one such proposition.