UMD researcher and colleagues show how poor infrastructure and low capacity are not the primary cause of unstable power supply in India
Image Credit: Eric Parker (Creative Commons)
Electricity blackouts are more than just an inconvenience. Power outages shut down offices and factories, threaten human health, and lead to economic losses for governments and businesses. But power outages remain a common occurrence in the developing world. Until now, economic researchers have focused on poor infrastructure and limited capacity as the root cause of persistent blackouts in places like India, which is home to the world’s third largest electricity sector.
But an in-depth analysis of the Indian electricity sector over a seven-year period revealed that a poorly structured market which lacks incentives for suppliers and protections against price fluctuations is a major driver of power outages in that country. The researchers modeled alternatives to the current system and found that regulatory changes that require utility companies to meet consumer demand for electricity and provide better incentives for power plants to operate could prevent most blackouts in India.
The paper was released as a National Bureau of Economic Research working paper on January 3, 2022.
“When we ask, why can’t there be 24/7 power in developing countries, the refrain is often that the infrastructure is faulty, electricity theft makes the distribution network unstable, or there are too few power plants. But these factors are only part of the story,” says Louis Preonas, an energy and environmental economist in the Department of Agricultural and Resource Economics at the University of Maryland and co-author of the new study. “What our analysis shows however, is that at least in India, blackouts are often caused by a poorly designed market, where utilities lack the incentive to provide consistent power and face no penalties for rationing power to consumers.”