The MSME sector is often described as the backbone of Tamil Nadu’s economy. With about 5 million units, Tamil Nadu has the third-largest number of MSMEs in the country. MSMEs form an important and growing segment of the state’s industrial sector, contributing 12.09% to the Gross State Domestic Product (GSDP) and employing 114 lakh people. The majority of employment is generated by the numerous micro enterprises in both rural and urban areas. The role of the MSME sector in the economic and social development of the state can therefore not be underestimated.
The sector is still dealing with the after-effects of the devastating impact of the Covid-19 pandemic, and focused measures are needed to support MSMEs. A thriving MSME sector will be vital to meet the state’s economic goal of a 1 trillion GSDP by the year 2030. Ensuring MSMEs have access to reliable, affordable and clean energy can be a game changer for the sector while increasing the state’s attractiveness for industries.
Reliable electricity
The provision of reliable electricity has long been a demand of the MSME sector. Currently, MSMEs experience frequent electricity supply interruptions. Power outages are considered as one of the main barriers to the economic growth, affecting profits of MSMEs and state’s GSDP.
Currently TANGEDCO takes a monthly shut-down at substations for maintenance. In most cases the shut-down period for a supply feeder is from 9:00 am to 5:00 pm in rural areas and for shorter periods in urban areas. These shut downs were introduced a decade ago when the state had a power deficit. There is no technical need to shut down a feeder for 8 hours a month to undertake maintenance, the same maintenance work could be undertaken in 1 to 2 hours instead. Today, TANGEDCO, has a surplus of energy available for sales to consumers, hence, shutdowns can be kept to a minimum. Besides the scheduled power outages, MSMEs suffer from unscheduled outages and, more importantly, from a limited daily availability of 3-phase power. 3-phase power supply is essential to operate machinery and equipment. MSMEs either have to revert to operating diesel generators during the power supply interruptions or stop production entirely. Both come at a high economic, environmental, and social cost.
Affordable electricity
The cost of energy can be considered as an important element to gauge the investment attractiveness in a state. Access to affordable energy is essential for MSMEs to compete on national and international markets. Most of the MSMEs in Tamil Nadu fall under tariff rates that include a cross-subsidy charge. TANGEDCO cross-subsidises the lower consumer tariffs from revenue collected from higher tariff paying customers. This means that MSMEs pay energy cost that are higher than the cost to TANGEDCO for supplying this energy. While both, The Electricity Act and the National Tariff Policy call for a gradual reduction of cross subsidy surcharges, Tamil Nadu has yet to come up with a mid or long-term strategy of reducing and phasing out cross-subsidy surcharges.
Clean electricity
India recently announced a net-zero greenhouse gas emission target for the year 2070. Tamil Nadu has the ambition to achieve net-zero before 2070. The MSME sector is a major consumer of energy, and the State cannot meet this target without providing and actively facilitating clean energy access for MSMEs. Further there is an increasing pressure, in particular for export oriented MSMEs, to decarbonise their manufacturing processes and energy supply. For the latter MSME’s in Tamil Nadu have several procurement options for clean electricity.
Some of the options available include the green tariff offered by TANGEDCO, open access and rooftop solar energy. Open Access allows an entity to procure power from the open market. However, eligible entities need to have a sanctioned load of 1 MW or greater. Therefore, the Open Access route is only available for a small segment of the MSMEs. With the increase in various open access charges, this option has become less attractive in the recent years. In June 2022 the Ministry of Power notified its Green Open Access Rules meant to promote the generation, purchase, and consumption of green energy. As per the Green Open Access Rules entities with a sanctioned load of 100 kW or greater are now eligible to procure clean energy via the open access route. So far Tamil Nadu has not yet introduced Green Open Access. While reduction in sanctioned load from 1 MW to 100 kW is a good signal, it is likely that the vast majority of the MSMEs will still not meet this eligibility criteria. Their only remaining option is rooftop solar energy.
While rooftop solar is one of the most attractive clean energy procurement options for MSMEs, network charges levied on the solar energy gross generation by TANGEDCO have substantially reduced its attractiveness and financial viability. Withdrawal of the network charges would provide a much needed and affordable clean energy option.
Along with the high cost for clean energy under TANGEDCO’s Green Tariff, the lack of a decarbonization trajectory for grid power, the restrictions on the open access facilities, and the additional charges levied on rooftop solar, MSME’s in Tamil Nadu are left with very limited options to develop a mid or long-term affordable clean energy procurement strategy. A cohesive policy strategy that enables access to reliable, affordable, and clean energy would help MSMEs to stay competitive in a national and global market, and to contribute to meeting the state’s net zero emission target.