The Prime Minister, earlier this month, had announced relief package for industrial electricity consumers amid much fanfare. Tariff support for industrial power consumers is not an entirely new thing, as time and again have there been packages of various sorts, the latest of which was the blanket Rs3/unit subsidy on industrial consumers for peak consumption.

Realizing the increasing cost of doing business, and also faced with rather stagnant power off-take in the last three years, the government decided to come up with what is being termed as on out-of-box idea. The relief has two branches, of which one is abolishing peak rate category, which had been a part of applicable tariffs for quite some time.

The idea behind abolishing peak rates and applying uniform off-peak rates 24 hours a day, is seemingly built on encouraging more power consumption from the grid. Industrial electricity consumption is one-fourth of the total electricity demand. The industrial power consumption during peak hours stands at no more than 12 percent of the total industrial demand at 3.3 billion units.

The differential between peak and off-peak tariffs is a big one at Rs2.35/unit, whereas the average total industrial tariff stands at Rs17.85/unit. With the peak hour category now gone, the average tariff is going to be reduced by 35 paisas per unit to Rs17.5/unit, as the peak hour consumption just constitutes 12 percent of all industrial consumption. This would mean an additional room of a paltry Rs9 billion will have to be made on an annual basis.

But there is potential gain to be had from a likely increase in consumption as tariffs at off-peak hours throughout the day could lead to incremental demand. This is where the strategy aimed directly at encouraging higher consumption comes to play, offering 50 percent concessionary tariff for incremental consumption over last year for the remainder of FY21. The scheme would continue with 25 percent concession for the next two years till the end of FY23.

It is anyone’s guess how much higher demand could the concessional incremental consumption generate. Not all demand is necessarily a factor of energy prices, but it could be safely said higher demand should be in order. A 10 percent increase in power consumption would cut the tariff by Rs1.2 per unit needing Rs17 billion to be set aside (see table for different demand scenarios).

The point is that the relief to be extended is well within reasonable ranges even at 20 percent incremental demand. And the amount could be matched by slight improvements in T&D losses and billing collection, the importance of which cannot be overemphasized. What comes handy in this scenario is that the incremental industrial demand would lead to higher recovery and lower losses, as industrial consumers are often the best on both these counts.