Reform in Practice: Rahul Tongia (CSEP) on Why Electricity Needs Re-Regulation, Not Deregulation

What is one area of regulation in India that should be deregulated?

I work a lot on energy and power, and these are areas where you have a mix of public and private participation. Now, there's been an old debate on is electricity, for example, a commodity, something that markets should deal with, or is it a public good where more government intervention is required? There's a lot of evidence that shows that that could be a false dichotomy and electricity actually needs to be viewed as a public utility and that should be then a well-regulated public utility. Now, this confusion over how should we view it has led to one state or type of regulation that we have today in India.

I would sort of frame this not as being I want to or we need to deregulate, but we need to better regulate or re-regulate in a manner that balances bringing in private sector, bringing in more players but, at the same time, maintaining the social contract that a lot of public utilities have to deal with.

It means that we have to balance risk and returns. We have to balance and figure out the objective functions. Now, whenever we had a set of regulations, be it mandates, be it targets, be it rates of return, they were all made with a certain objective function in mind. Now things are changing. What do we want out of systems is evolving and the most important word for all of this would probably be trade-offs. How do we handle trade-offs with multiple objective functions? That is why we need better regulation.

What would a more effective alternative look like?

A lot of, in the energy sector, especially electricity, regulation used to be geared around command and control. Top down, we issue targets. For example, you must have an energy mix with this much coal, this much renewables. What would be better is to not focus on targets but to focus on the frameworks that let the market evolve which one is better. Now, let the market evolve itself is complicated because one of the big missing needs is to understand the dynamics of this sector. Time of day, for example, is a very important thing that wasn't so important years ago when coal was our main source.

Now, if you just think about wind and solar, which are going to be the dominant sources of electricity, not just in India but worldwide, we know that they're variable. How do you handle them? How do you value them? How do you incentivize both things like storage but also demand flexibility? Saving energy used to be a big deal. We need to now have regulations that recognize not all electricity is the same. I want to have electricity savings at the right time, at the right place, with the right level of predictability and control. We need to rethink what is energy, how should it be signaled, how should it be valued. Those are things that are works in progress.