Electricity Sector Reform in Uttar Pradesh: Analysis of tariff adjustments and the Ujwal Discom Assurance Yojana Plan (UDAY)

Uttar Pradesh, India’s most populous state, is home to the country’s largest number of people without electricity access: as of late 2017, 14.6 million households—49 per cent of the state’s total—are yet to be electrified. Since 2015, however, the Government of India, in partnership with the state government, has been actively pursuing two targets: universal household electrification by 2019; and 24/7 power for all by 2022.

At present, the state’s public electricity distribution companies (discoms) are not financially sustainable—that is, they do not collect enough revenue from their consumers to recover their costs. The revenue gap has increased over the years resulting in a significant gap of INR 21,486 crores (USD 3.2 billion) in FY16.

Demands from a growing consumer base and the need to provide universal electrification conflict with the discoms’ inability to generate revenue from the same consumers. How then can discoms improve their financial viability in order to meet the state’s energy access needs?

One approach is to reform end-user tariffs, set by state-based market regulators on a cost-plus basis. Another approach is through a financial assistance scheme, Ujwal Discom Assurance Yojana (UDAY), launched in 2015.

This study investigates both tariff reform and the UDAY scheme. It uses a political economy approach to map stakeholders’ perceptions on tariff adjustments. The report carries out surveys and interviews with different consumer groups, a total of 1,917 households, 413 farmers, 65 commercial and industrial consumers. The interim assessment of UDAY was conducted by identifying Uttar Pradesh’s progress against various milestones specified in the scheme and 12 interviews with officials from discoms and the state government.

The report lists key findings on energy use, billing, perceptions and preferences with respect to tariff reform. It also lists progress made under UDAY and some of the key requests of discoms. The report makes recommendations and several points of guidance for governments to consider when planning tariff increases and achieving the milestones set under UDAY.