As part of its work on energy policy and sustainable development in India, the Global Subsidies Initiative publishes a regular briefing on issues related to energy subsidies.

Below are highlights from the December 2018 edition:

• Draft amendments to the Electricity Act 2003 proposed in September 2018 include provisions to promote renewable energy, improve quality of power supply, impose stronger penalties for violations of Power Purchase Agreements (PPA), and initiate a direct benefit transfer for electricity subsidies to households.
• Government says it is likely to exceed the renewable energy target of 175 GW by 2022 and may increase the target to 225 GW.
• Oil subsidy burden on the rise with volatile crude oil prices; may cost the exchequer up to USD 7.4 billion in financial year 2018–19.
• Supreme Court to hear pleas of owners of stressed power assets directed to declare insolvency by Reserve Bank of India.

For any additional or more detailed information, please do not hesitate to contact Christopher Beaton or Vibhuti Garg.

Pricing drives economic decision making, and subsidies (along with taxation) are one of the key tools that governments use to influence prices, and through them investment decisions and consumer behaviour.

This update highlights the most significant developments in the dynamic domain of India’s energy subsidy policies in FY 2017 and explores the role that subsidies play with respect to four themes: energy access; the role of coal; prospects for renewables; and a transport sector transition. It finds that the total value of quantified energy subsidies has declined from INR 2,15,974 crore (USD 35.7 billion) in FY2014 to INR 1,51,484 crore (USD 23 billion) in FY2017. Subsidies to fossil fuels have declined over this period, while subsidies to renewables and electric vehicles (EVs) have increased. However, the absolute value of subsidies to fossil fuels is much greater than those to renewables and EV.

In order to promote the uptake of clean cooking, the Government of India has historically provided significant price subsidies for household liquefied petroleum gas (LPG), worth over INR 20,000 crore (USD 2.9 billion) in FY 2017/18.

This digital story takes an in-depth look at some of the most recent developments.

Solar power has a key role in India's transition towards universal household electrification by March 2019. India has a growing market for off-grid products, recording its highest sales volume of off-grid products in 2017.

Despite recent progress and the wide range of on- and off-grid electricity and lighting options, a large number of marginalized households in India continue to remain without power and rely on subsidized kerosene.

Kerosene subsidies, originally provided as a way to promote access to affordable fuel for lighting and cooking, create negative health impacts and household pollution. They are also inefficient because it is easy for fuel to be illegally diverted in the distribution system. For many years, the Government of India has sought to gradually reduce kerosene subsidy expenditure by increasing product prices and restricting the volume of subsidized fuel supply.

If kerosene subsidies are being gradually removed, can a share of the subsidy savings not be reinvested in helping the most vulnerable households access electric lighting through off-grid solar technologies? This paper explores this idea in detail, referring to it as a “kerosene to solar subsidy swap” or a “subsidy swap.” The paper lists pico solar PV products currently available on the market to provide an affordable, reliable, direct replacement for lighting with kerosene. It then examines how the current business models and market structure for the suppliers of these products could enable a subsidy swap. The paper ends by reviewing the suitability of Uttar Pradesh and Odisha to host a subsidy swap pilot study, assessing the real-world impact of increased adoption of solar energy and a reduction in kerosene consumption.

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.

As part of its work on energy policy and sustainable development in India, the Global Subsidies Initiative publishes a regular briefing on issues related to energy subsidies.

Below are highlights from the January 2018 edition:

• Draft National Energy Policy proposes alignment of domestic energy prices with international rates
• Rise in crude oil prices will increase the subsidy burden to the exchequer
• The government will discontinue an increase in monthly subsidized domestic liquefied petroleum gas prices
• Electricity, natural gas and petroleum products may be included in the new unified tax mechanism, the Goods and Services Tax
• States will be legally obliged to provide 24x7 power for all by March 2019 and provide electricity subsidies only through direct benefit transfer
• Competition is driving the prices of solar and wind energy in India

For any additional or more detailed information, please do not hesitate to contact Christopher Beaton or Vibhuti Garg.

This report maps out the context, magnitude, trends and impacts of India’s energy subsidies. It aims to enhance transparency and dialogue on energy choices in India and to help track shifts in government support from fossil fuels to renewables.

The reviewed subsidies are grouped according to the energy type they benefit: a) coal; b) oil and gas; and c) renewable energy. In addition, we single out the grouping of subsidies to d) electricity transmission and distribution (T&D) that are, in theory, neutral to the energy source, though in practice benefit mostly coal because of its dominance in India’s electricity generation. Subsidies to nuclear power and large hydropower were excluded due to the lack of data.

FURTHER READING: India's Energy Transition: Subsidies for Fossil Fuels and Renewable Energy, 2018 Update

If finds that energy subsidies from the central government declined substantially between FY2014 and FY2016, from INR 216,408 crore (USD 35.8 billion) to INR 133,841 crore (USD 20.4 billion). While the large majority of this expenditure supports fossil fuels and a fossil-fuel-dominated electricity system, the trends also show a sharp decline in fossil-fuel subsidies and an increase in renewable energy subsidies, suggesting a shift in priorities. Full details on the subsidies identified and quantified are provided in the report and its annexes.

Energy subsidies have wide ramifications beyond government budgets, including for markets, society and the environment, and are linked to issues such as stranded assets, enhancing energy access, public health and climate change. Transparency can help to enable an informed debate among the public and policy-makers on how well aligned they are with India's objectives.

As part of its work on energy policy and sustainable development in India, the Global Subsidies Initiative publishes a regular briefing on issues related to energy subsidies. 

Below are highlights from the October 2017 edition:

• Petroleum products may be included in the new unified tax mechanism, the goods and services tax 
• Two fuels—diesel and petrol—have seen a change in pricing policy, allowing daily revision of retail prices
• A new electricity subsidy scheme, Saubhagya, has been launched to enable last mile electricity connectivity of households
• Gradual price hikes for liquefied petroleum gas and kerosene have been introduced with the aim of eliminating their subsidy by March 2018

For any additional or more detailed information, please do not hesitate to contact Christopher Beaton or Shruti Sharma.

This policy brief analyzes the current policy environment governing kerosene and off-grid solar use. It sets out a suite of detailed policy interventions that can be implemented to achieve a systemic transition from kerosene to solar for lighting in rural India.

The paper is one of a series of three policy briefs examining the links between the use of kerosene fuel and off-grid solar applications for lighting in rural India. The papers provide initial policy solutions to enhance off-grid solar penetration by tackling the barriers to an enabling market environment for solar, while pursuing kerosene subsidy reform.

Policy Brief 1  examines the existing system of kerosene subsidies in India, the key issues facing this system and the impact of kerosene subsidies on the uptake of clean, alternative off-grid solar lighting solutions. Policy Brief 2  looks at the current market situation for off-grid solar technologies in India, and the current barriers to an enabling business environment for solar.

This policy brief examines the current system of kerosene subsidies in India, looking at key issues and the impact subsidies have on the distribution of clean, off-grid solar lighting solutions.

The paper is the first in a series of three policy briefs looking at the links between kerosene use and off-grid solar applications for lighting in rural India. By tackling the current barriers to the market, the brief seeks to reform kerosene subsidies and outlines suggestions for policy solutions that could enhance off-grid solar penetration.

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