Blackouts in the Developing World: The Role of Wholesale Electricity Markets
Electricity blackouts impose substantial economic costs on firms and households. This paper advances a new explanation for their continued prevalence in India, the world’s third-largest power sector. Using novel data on India’s wholesale electricity sector, we demonstrate that utilities satisfy less electricity demand when wholesale procurement costs are high. As a result, supply-side misallocation of output across power plants can decrease the quantity of electricity supplied to end-users. We provide evidence that a substantial share of the supply-side misallocation in India arises from discretionary power plant outages—-outages called by suppliers for economic rather than technical reasons. Reducing supply-side misallocation by returning plants on discretionary outage to service significantly lowers procurement costs, resulting in increases in the quantity of electricity purchased by utilities sufficient to eliminate roughly 70% of reported shortfalls between quantity demanded and supplied.
Date: 7 November 2022, 16:00 (Monday, 5th week, Michaelmas 2022)
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Skills Lab
Speaker: Akshaya Jha (Carnegie Mellon University)
Organising department: Department of Economics
Part of: Environment and Resource Economics Seminar
Booking required?: Recommended
Booking url: https://zoom.us/meeting/register/tJwrcu6prTgoH9U1eXUpm1PysbjDa-yNrc0S
Audience: Members of the University only
Editors: Melis Clark, Emma Heritage