Economic Failures Contribute to Indian Grid Blackouts

On 2012 July 30 and July 31, India experienced massive blackouts on its electricity grid. The first blackout was early in the morning of July 30 and affected only the Northern Region. The second failure was at midday on July 31 and affected the Northern Region, the Eastern Region, and the Northeastern Region. The Western Region, though interconnected with the Northern, Eastern, Northeastern Region in the NEW Area, survived, as did the Southern Region, which is not interconnected synchronously with the NEW Area.

Various comments have been made about the events that led up to the blackouts. This blog entry will only discuss some failures of the economic systems that contributed to the blackouts.


Prices of Inadvertent Didn’t Reflect Security Issues, That Is, No Locational Marginal Prices

Beginning in 2002, India implemented its Availability Based Tariff (ABT) that included the creation of a market for imbalances, Unscheduled Interchange (UI).  ABT pricing of UI has a geographically uniform price.  I said early on that the price in areas that could be at risk of a blackout due to a power deficit after a transmission failure should have higher prices than other regions, those that have a power surplus.

Other pundits have suggested that utilities in the Northern Region ignored operators’ requests to reduce load because the energy price was low enough, that there were no economic consequences of taking too much electricity. The economic system failed the Indian electric network by not providing sufficient monetary pain for ignoring operators’ request.

A rigorous locational pricing plan could have produced that monetary incentive. I have not heard that all of the NR utilities were drawing more power than the amount which had been scheduled. A feature of ABT pricing of UI is an incentive for some utilities to draw less power than the amount which has been scheduled, not just for utilities to reduce their draw to the scheduled amount. Thus, a locational pricing plan would have led to some NR utilities to under draw and help stabilize the system.


High Inadvertent Prices Could Not Incent Backup Generators to Assist the Grid

Customer owned back up generators can do double duty. The standard use of a back up generator is providing electricity to the owner when there is a rotating blackout that affects the owner. When rotating blackouts are not affecting the owner, stand by generators can provide electricity to the grid when the value of electricity on the grid is high enough to pay for the fuel cost of the back up generator.

This second use of back up generation requires

  • the back up generator being able to operate synchronously with the grid; and
  • metering to identify the amount of energy provided to the grid to displace the high value UI power that the utility would otherwise be purchasing on a real time basis.


Power Deliveries to Farmers Aren’t Structured so Farmers Can Help Save the System

Indian farmers do not participate in the market for electricity, generally receiving several hours of free service. Giving Indian farmers a fixed subsidy would allow them to participate in the UI market for the number of hours they need for electricity. This would give the farmers incentives to help the system when there is a larger shortage of electricity. From the farmer’s perspective, the farmer would be able to use electricity for more hours since the average price could be cheaper than that upon which the subsidy was predicated.