The open access regime allows the consumers to source power from any surplus producer. It is a major policy step in reducing the demand-supply gap. The transparent price discovery mechanism offered by the power exchange helps bring together the buyer-seller at market determined prices.

With the recent ministry of power order regarding the open access system?which deems all 1 MW and above consumers eligible for open access and ends the regulators jurisdiction on fixation of energy charges?the electricity trading market is due for a major transformation. This will have major implications for all players, from utilities to consumers. Many new industrial and commercial customers are expected to join in to take advantages of the new regime.

Open access is resisted by incumbents as they fear that all the high value paying customers would go away and they would be left with small and subsidised agricultural and domestic customers. About 30% revenues of utilities come from 1 MW & above clients.

Such clients are likely to migrate to open access primarily because of cheaper power, and the failure of utilities to provide uninterrupted power. The industry lobby has always held that power costs are among the highest in India. Denying these consumers to open access would mean forcing the players not to play by market economics.

The utilities? claim an impending financial disaster is not entirely true. The utilities charge a cess on every unit sold to industrial consumers to cross-subsidise the free power being provided to farmers. So it is clear that the utilities do not go by economic logic. But there is a cross-subsidy component in the landed cost of power that open access (1 MW & above) consumers pay as well. This component varies across states, in Punjab and Bihar it is as high as 75 paise per unit and in Maharashtra it is 92 paise for some industrial connections. As industrial consumers shift to open access, state utilities? revenue from this cross-subsidy component will increase and partially cover the loss of revenue from migration. Moreover, the higher demand from retail consumers will make good the loss of revenue from bulk consumers.

So, a consumer in a particular state may be unwilling to buy through open access as his landed cost works out to be higher than what he gets from the state utility. For open access to be implemented in its true spirit, these cross-subsidisation surcharges have to be reduced over time.

The author is professor, Management Development

Institute, Gurgaon