Why the J&K govt is struggling to fulfill its free electricity promise, and the solution it is considering

In its election manifesto in 2024, the National Conference promised 200 units of free electricity. However, after coming to power, the Omar Abdullah government, realising its financial implications, said the free units would be provided only to underprivileged households.

With mounting pressure to deliver on its election promise, the government is now exploring a plan to install solar rooftop systems for economically weaker households under the RESCO (Renewable Energy Service Company) model.

In its manifesto for the 2024 Assembly elections, the National Conference blamed the Indus Water Treaty (IWT) for the power woes in Jammu and Kashmir. The manifesto said people had been suffering from a power supply crisis not only in the winter, when hydropower generation is low due the water level of rivers, but even in summer when power generation is high. The manifesto promised 200 units of free electricity as a relief measure if the National Conference came to power.

Why has the government failed to fulfil this promise as of now?

The power sector of Jammu and Kashmir is already under financial strain because of subsidised rates and high transmission and distribution losses. Providing 200 units of free electricity would put a huge financial burden on the state exchequer.

While the J-K government has tweaked the promise to cover around 2.2 lakh underprivileged (AAY) households, this will still put an annual burden of around Rs 1,000 crore on the exchequer, approximately 10% of the total power outlay for Jammu and Kashmir.

The government had earlier envisaged two proposals to fulfil the promise but had to step back after the bureaucracy shot them down citing the financial burden. Since the higher bureaucracy is under Lt Governor Manoj Sinha, who also has the financial powers, it was essential for the government to take the bureaucracy along.

What is the government’s new proposal?

A new framework under the Renewable Energy Service Company (RESCO) model is under active consideration.

Under the RESCO framework, the government proposes to set up rooftop solar plants in collaboration with private partners. The private vendors will invest in the solar rooftops under the BOOT (Build, Own, Operate and Transfer) model. The vendors will set up two kilowatt solar rooftops and charge the government for the electricity generated from it for a period of 10 years.

The proposal estimates that a two kilowatt solar rooftop would cost about Rs 1,10,000. Out of this, around Rs 66,000 would be covered through central subsidy under the Prime Minister Surya Ghar Mufti Bijili Yojana. The rest of the amount would be borne by the private vendor. The project would be implemented on a BOOT model for a period of 10 years.

During this time, the vendor will charge the government for the electricity generated by the solar rooftop at rates far below the average electricity purchase charges. After the completion of 10 years, the ownership of the solar rooftop will be transferred to the household.

What were the two earlier proposals rejected by the bureaucracy?

Under the first proposal, the government planned to provide 200 units of free electricity to underprivileged families. At prevailing electricity tariffs, this would have translated into a subsidy amount of Rs 460 per month for a family, or Rs 5,520 per family annually. For 2.2 lakh households, it would have meant an additional burden of Rs 10 crore per month, or nearly Rs 120 crore annually, on the government. While it was 10% of the total power outlay, the bureaucracy felt it would further strain the power sector.

The government then shifted to an alternative plan of providing solar rooftop systems to underprivileged households. The proposal envisaged installing two kilowatt solar rooftops for each beneficiary household. After accounting for the central subsidy component, the government had to pay a one-time Rs 44,000 for each solar unit. It would have needed a one-time budget of Rs 836 crore to implement the project.