India’s power distribution companies (discoms) are in poor financial health. It is partly driven by low power prices. Discoms argue that regulators are setting their prices far below marginal costs, and are lobbying for price increases to help cover costs.
At the same time, regulators argue that discoms are inefficiently operating, leading to high costs, and that higher power prices would disproportionately harm the poor. Moreover, low electricity prices are a powerful tool in elections, making subsidies an extremely popular campaign promise.
This project will investigate the extent to which Indian consumers respond to power prices. The results will be of interest to regulators, discoms, and politicians who subsidize electricity out of government coffers.
The study intends to use administrative data from Tata Power Delhi Distribution Limited and discoms to estimate consumer price elasticities, responses to bill shocks, and the relationship between electricity tariffs subsidies and bill payment.
A quasi-experimental analysis will be conducted to estimate the relation between prices and, importantly, both consumption and bill payment. In another experiment, treated consumers will be informed about the tariff, their consumption pathway through a billing cycle, and their appliances’ energy usage, which will help us determine mechanisms behind possible inelasticity.