Electricity tariffs for domestic consumers and several other consumer categories such as agriculture, huts, etc., are subsidized by the Government of Tamil Nadu. In addition to the electricity subsidy provided by the Government, TANGEDCO cross-subsidises the lower consumer tariffs from revenue collected from higher tariff paying customers. However, TANGEDCO is not able to recover its cost of supply. In 2015-16 TANGEDCO’s cumulative revenue gap was INR 30,884 Crore (TNERC 2017a). The trued-up revenue gap for the subsequent years is not available in the public domain, but the revenue gap is expected to have increased as no tariff revisions took place after the year 2017.
The Ministry of Power has repeatedly requested State Governments to phase out cross-subsidies and introduce a direct benefit transfer scheme in lieu of the current electricity subsidy scheme.
This briefing note presents alternatives to the current energy subsidy and cross-subsidy schemes along with the implementation of a tariff rationalization for the domestic consumer category and assess the impact on consumers, TANGEDCO, and the Tamil Nadu State Government.
Direct Benefit Transfer or Community Solar Energy systems are alternatives to the current subsidy and cross-subsidy schemes. Both mechanisms can be deployed to mitigate the impact of a swift tariff rationalization for domestic tariff rates.
In the case of a swift tariff rationalization for domestic consumers, slab 1 and slab 2 domestic consumers will feel a higher financial impact compared to domestic slab 3 and slab 4 consumers.
Direct Benefit Transfer and Community Solar Energy will allow for a swift tariff rationalization while at the same time mitigate the impact on domestic slab 1 and slab 2 consumers.
No mitigation strategy for current slab 3 and slab 4 consumers may be required in the case of tariff rationalization.
Direct Benefit Transfer and Community Solar Energy are both attractive alternatives to the current electricity subsidy and cross-subsidy schemes for domestic consumers.
Community Solar is financially more attractive and is a winning proposition to all stakeholders.