India’s Blackout is Enlightening

When India went black, the lights may have actually come on. No, nearly 640 million people were still without power for several hours. But the powers-that-be there defined for their own people and the rest of the world what the central problems are that led to such a massive power outage.

India is growing at an 8-10 percent economic clip a year. But the lifeblood that feeds such potential -- electricity and the infrastructure carrying it -- is inadequate. The wires are old and decrepit while the fuel levels to meet peak demand in summer are 8 percent less than where they need to be. Beyond those critical issues, it’s hard for the government there to fix those things because its people are largely poor and really do require the subsidized power flows so that they have a shot at financial freedom.

“Everyone overdraws from the grid,” says Power Minister Sushil Kumar Shinde, who made his comments to reporters that circulated throughout the international press. He said that extreme summer temperatures in excess of 100 degrees Fahrenheit caused the Indian states to overdraw their allotments. The immediate goal is to get local grid managers to live within their rations.

Long-run, though, an efficient system will require huge investments from outside financial interests. But the paradox is that is that no one wants to take such risks unless they can get returns. And while India is a developing nation with much promise that will require more and more energy to reach its dreams, the government there is remiss to allow free markets to take root. Doing so would cause rates to skyrocket, leading to social upheaval.

According to a Bloomberg BusinessWeek story, the nation needs $1 trillion in investment for the next five years. All told, about 300 million there -- one in four people -- are not tied to the transmission grid, adds the International Energy Agency in Paris.

“The proximate cause of a power outage on this scale almost always seems trivial,” say Michael Parker, an analyst in Hong Kong with Sanford C. Bernstein & Co., in Bloomberg. “The blackout highlights the big underlying issue India faces in terms of infrastructure quality. To keep the lights on, India needs to add power capacity, build robust transmission and distribution systems, ensure fuel supply and transport and reform power pricing. Most of that is expensive.”

Economic Costs

One issue that does not get the same level of attention but which also bears responsibility for the blackout in India is the stealing of electricity. An estimated one-third of all power there is hijacked, according to a 2010 report by Deloitte partners that was discussed in the Bloomberg story. By comparison, China’s theft rate is pegged at 8 percent.

Basically, some its citizens there run wires from the distribution lines into their homes, which is a tremendous hazard as the cables are strung through populated alley ways and corridors. The epidemic cost India’s government-owned utilities around $5 billion a year.

Circling back to the recent blackout, economic officials in India say that hundreds of millions in lost economic opportunity occurred during those several hours without any electricity. But the additional perils are related to safety and the need for emergency personnel to reach those sick and injured as a result of the situation.

Here, the theft figures heavily into the equation as the impromptu distribution systems are jerry-rigged in such a way that puts those first responders in serious jeopardy. In situations where they have to shut off power within a home, they are placed at risk of electrocution or burning because meters that have been tampered with may remain "live."

India’s citizens are accustomed to blackouts, although not necessarily those of the magnitude just experienced. In such cases, their people often remain calm while the vital businesses -- hospitals and rail systems, for example -- crank up emergency generators. That ‘bandaid,’ though, is an immediate remedy that does nothing to cure the overall ailment.

What’s needed is large outside investment so that the infrastructure can get an upgrade. While that would help lift the economic aspirations of the Indian people, the process of getting there is expected to be long and painful -- and one that won’t erase the brownouts that will undoubtedly continue there for a while.


EnergyBiz Insider is named a 2012 Finalist for Original Web Commentary presented by the American Society of Business Press Editors. The column is also the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has been named one of the Top Economics Journalists by Wall Street Economists.

Twitter: @Ken_Silverstein

energybizinsider@energycentral.com