Downstream electric utility restructuring and upstream generation efficiency: productivity dynamics of Indian coal and gas based electricity generators

Abstract

This paper investigates the producer-level temporal dynamics of total factor productivity and operational performance changes in coal- and gas-based generators during the 2000-2013 period of major structural reforms in the downstream utilities in India. The total factor productivity is estimated using a recently developed improvement in the Stochastic Frontier panel method that controls for time-invariant unobserved heterogeneity, and the productivity change is decomposed into components of changes in technology frontier, efficiency, scale and allocation. A unique dataset of station-level data for coal and gas plants, that represents about two-thirds of all power generation in India during this period, is constructed for the analysis. The study shows that while there is improvement in the coal generator productivity at the mean rate of 0.20% per year that converges towards a point of higher efficiency for most plants, the gas generators show a trend of stagnant efficiency and declining total factor productivity at the mean rate of -0.80% per year. Unbundling and multi-dimensional utility reform indices are significantly associated with improvement in thermal efficiency and capacity utilization for coal generators. In contrast, utility reforms shows no significant positive influence on gas generators, instead a decline in capacity utilization is observed following unbundling.