Working Paper: NBER ID: w29610
Authors: Akshaya Jha; Louis Preonas; Fiona Burlig
Abstract: Blackouts impose substantial costs on electricity consumers in developing countries. We advance a new explanation for their continued prevalence in India, the world’s third-largest power sector: unlike in the developed world, utilities’ wholesale electricity demand is downward-sloping. We construct a novel dataset on power plant operations and demand. Instrumenting for cost with plausibly exogenous power plant equipment outages, we estimate a wholesale demand elasticity of –0.43. As a result, any increase in procurement costs will reduce the amount of electricity retail customers receive. Wholesale market simulations suggest that lowering procurement costs could eliminate blackouts for millions of Indian households.
Keywords: electricity blackouts; wholesale electricity market; India; supply-side misallocation
JEL Codes: L94; O13; Q41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Wholesale procurement costs (L81) | Wholesale power demand (L97) |
| Discretionary outages (L97) | Procurement costs (H57) |
| Procurement costs (H57) | Electricity purchases by utilities (L94) |
| Electricity purchases by utilities (L94) | Blackouts for retail consumers (L97) |
| Elimination of discretionary outages (L97) | Procurement costs (H57) |
| Elimination of discretionary outages (L97) | Quantity of electricity supplied (L94) |
| Quantity of electricity supplied (L94) | Blackouts for retail consumers (L97) |
| Elimination of discretionary outages (L97) | Economic benefits for households (D19) |