In an electrifying development post-Lok Sabha elections, Punjab is set to experience a significant power tariff hike. The Punjab State Electricity Regulatory Commission (PSERC) on Friday delivered a shocker with new charges for the fiscal year 2024-25, jolting domestic electricity rates by 10 to 12 paise per unit and industrial rates by 15 paise per unit. These changes will send electric ripples through the State, taking effect from June 16, 2024 (Sunday) till March 31, 2025.

Notably, for the period, from April 1, 2024, to June 15, 2024, the tariff or power charges will be applicable as per the tariff order for the previous fiscal year, that is 2023-24. The state power regulator said that minimal increase in the charges have been made to ensure that “consumers do not feel burdened”.

The hike will not affect most domestic consumers, as the Aam Aadmi Party (AAP) – led Punjab Government provides 300 units of free power to each household and free power to the agricultural sector, but this will burden the government, which pays Rs 20,000 crore annually in subsidies for both sectors.

Contrarily, the industry had been clamouring for relief, only to be jolted by the unexpected hike. Industrialists lamented that while 300 units of free power are allocated to domestic users, those pivotal in job creation are faced with increased power tariffs.

Impact on Domestic Consumers

The hike in electricity rates will see domestic consumers paying an additional 10 to 12 paise per unit. This increment translates to an extra cost of Rs 30 to 40 per month for families consuming up to the free limit of 600 units over two months. Under the current scheme, Punjab households enjoy 300 units of free electricity each month. However, if a family exceeds this limit, they will be charged the full bill, incorporating the new rates.  Notably, for domestic users consuming between seven to 50 kilowatts, there will be no change in rates. This category, predominantly middle and upper-class consumers, currently pays between Rs 5.34 and Rs 7.75 per unit, which, including all taxes, amounts to approximately Rs 10 per unit. Similarly, non-residential supply rates, which range from Rs 6.91 to Rs 7.75 per unit for up to seven kilowatts, will remain unchanged.

Industrial Sector Tariff Increase

The industrial sector will see a significant increase of 15 paise per unit. This rise will impact various industrial categories, including ice factories and cold storage units, which will experience a 10 paise per unit hike. The increase will add to the financial burden on industries, despite the Punjab Government’s subsidy of Rs 1,900 crore annually to support this sector.

Agricultural Sector and Subsidy Impact

The agricultural sector, which receives free electricity for tubewell connections, will also face a 15 paise per unit increase. This hike is expected to raise the agricultural subsidy burden on the Punjab Government, which previously spent Rs 20,200 crore on power subsidies. The increased rates will add approximately Rs 654 crore to the subsidy burden, intensifying the financial strain on the State Government.  In line with the National Tariff Policy, cross-subsidies have been maintained within the ±20 percent limits. This ensures a balanced approach to tariff setting, preventing excessive subsidies while promoting fair electricity pricing across different consumer categories.

Financial Implications for the Government

The tariff hike is anticipated to generate an additional revenue of Rs 654 crore for Punjab State Power Corporation Limited (PSPCL). This increment is part of the state’s strategy to address the revenue deficit faced by the power sector. PSPCL had initially sought an aggregate revenue requirement (ARR) of Rs 53,360.48 crore, citing a deficit of Rs 5,419.82 crore for the financial year 2024-25. However, the state power regulator — PSERC, after thorough scrutiny, determined a revenue gap of Rs 654.35 crore and allowed for previous period dues amounting to Rs 4,072.27 crore.  The average cost of supply (ACoS) for 2024-25 financial year has been calculated at 715.55 paise per kilowatt hour (/kWh), marking a 1.59 percent increase from the previous year’s ACoS of 704.34 paise/kWh. This results in an 11 paise per unit increase over the 2023-24 financial year’s average cost.

Govt Subsidy and Future Projections

Given the provision of free electricity to domestic and agricultural sectors, the Punjab Government shoulders a substantial subsidy burden. With the new rates, the Government’s financial commitment to power subsidies is expected to escalate further. The projected net revenue for PSPCL from the newly announced tariff during 2024-25 stands at Rs 48,467.72 crore, aimed at clearing the previously determined deficit.  

Starting from January 1, 2025, the PSERC will extend the kVAh Tariff and Contract Demand system to domestic supply (DS) consumers with loads exceeding 20 kW. This move aligns the domestic sector with industrial and commercial segments, ensuring a more accurate billing system based on apparent power usage, thus promoting energy efficiency.  Industrial consumers will continue to benefit from the ‘Voltage Rebate’, with the base energy charges set at Rs 5.31/kVAh (per kilovolt-ampere hour). This initiative aimed at encouraging the industries to maintain optimal voltage levels, thereby reducing energy wastage and enhancing overall grid stability. For mixed load industries, PIU (Power Intensive Units) loads with installed or connected kVA ratings up to 100 kVA will not be considered as PIU load, a policy that has been extended for FY 2024-25. This provision supports smaller industrial units by providing them with a more favourable tariff classification.

Special Night Tariff for Industrial Consumers

The special night tariff, which offers a 50 percent reduction in fixed charges for all large-scale (LS), medium-scale (MS), and small-scale (SP) industrial consumers using electricity exclusively during night hours, from 10 pm to 6 am, has been continued. This year, the variable energy charge for night usage has been fixed at Rs 5.31/kVAh. Additionally, industries can now utilize electricity at the normal tariff during the extended four hours from 6 am to 10 am — a facility that has also been retained, catering to industrial demands for more flexible operations.

Green Energy Tariff and Renewable Energy Initiatives

To promote renewable energy, the Commission has set a new green energy tariff for consumers requisitioning Renewable Energy (RE) power from PSPCL. The reduced rate is now Rs 0.54/kWh (and Rs 0.27/kWh for consumers transferring their green attributes to DISCOM for RPO compliance), down from the previous year’s Rs 0.94/kWh and Rs 0.47/kWh respectively. This substantial reduction incentivizes the adoption of green energy among consumers.

Feed-in Tariff for Solar Power Injection

The PSERC has also approved a feed-in tariff of Rs 2.51/kWh for accounting of solar power injection to PSPCL by Net-Billing or Gross Metering Consumers. This move encourages residential and commercial users to invest in solar power systems, contributing to the state's renewable energy goals.