Case study

The power sector in India is undergoing rapid changes especially for the last few
years due to the reform introduced recently in this sector. The growth of power
sector in India has been consistent. In 1950-51 the power generation was 1700 and
it increased to 118400 in 2004-05. This increase is attributed mostly to thermal
power generation in 1970.1980 and 1990-91. And more increase was observed
since 200-01 when it started hydro electric power production. The outlay for power
production consistently increased in the country.

Consider the power sector in UP, the largest state in India (Population). The state
has a cross cultural milieu with diverse population and activities. Some new towns
have come recently adding to its demand for infrastructure facilities largely demand
for power. The power situation in the state is that of deficit (demand exceeds
supply). UP generation of power capacity was 4000 MW against 6500 MW of
demand. For universal access of electricity, the requirement would be over11250
MW that shoot to over 14200 MW if UP were to match with national per capita
consumption. Compared to the requirements, the availability would be just 8650
MW. The situation has further deteriorated after the reorganization of the state in
2000. Prior to this the hydel capacity was 1797 MW and thermal capacity was 3909
MW. As a result of reorganization, UP retained only 516 MW of low cost hydel power
while the rest hydel capacity has been allocated to Uttaranchal. The cost of this non
availability of hydel power is Rs 400 crores. The state was not in a position to meet
its consumers demand due to its low financial capacity neither it is in a position to
purchase power or attract investments in this sector. The state faced serious
financial crisis and poor supply of power.

Questions:

1.What are the factors responsible for the excess demand for electricity in UP?

2.The demand supply gap may be overcome due to govt intervention through
reform in the sector. Explain this by demand supply model.

3. What do you think will happen to the price of electricity?