How you can solve an $11bn power crisis

A massive black-out caused India’s government huge embarrassment recently. And you can be sure they’re going to do something about it, says Tom Bulford. That’s great news for this British small-cap.

Miners left stranded down mineshafts, cremated bodies left half-burned, surgeons reverting to manual methods mid-way through tricky operations and havoc on the road and railway networks.

These were just some of the problems caused by Indian power cuts two weeks ago. The biggest power outage in history left 700 million people – that is 10% of the world’s population – without electricity.

The country is still reeling. Protestors have been out in the street, riots have flared and electric utility workers have feared for their safety.

For India, this is more than just a little local difficulty. It is an embarrassment in the eyes of the world and further evidence that it cannot compete with the mighty Chinese growth engine. And – here’s the good news for investors – you can be sure that they are going to do something about it…

What caused this chaos?

In simple terms, all it comes down to is supply not keeping pace with demand. India now suffers a 10% electricity shortage at peak times and no amount of grid management can prevent power ‘outages’. Although wind farms are fast being built along India’s windy west coast, coal-fired power stations lack sufficient domestic coal and are desperate for imported supplies, while hydro-power plants are compromised by drought.

As things stand at present though, India would have to generate about 25% more electricity than it needs, just to keep everybody happy. How so? The real problem is in the amount of electricity that is never paid for.

A research paper earlier this year called Theft and Loss of Electricity in an Indian State by Miriam Golden of the University of California and Brian Min of the University of Michigan looked at the problem in detail. As they pointed out, a certain amount of power is always and inevitably lost as it travels down the cable from power station to consumer. In inefficient systems, this could amount to as much as 12% of power produced, but even this extreme estimate would still mean that some 18% of electricity is effectively stolen.

The most obvious illustration of this theft are the spaghetti of wires that illegally divert electricity from overhead cables into homes and workshops throughout the country. But that is not the only problem…


Three factors killing the electricity supply

Firstly, meter-tampering is rife. Standard electro-mechanical meters use a slowly spinning disc to record power usage. This rotation can be slowed by gum or small stones. In a more inventive method, spiders eggs are deposited in the meter. The spiders then spin webs which impede the disc.

Even if they choose to steal the electricity instead, most consumers are at least supposed to have a meter. The same does not always apply to farmers. They have a fixed allocation but in times of drought, for instance, they are liable to exceed this in order to power their sub-surface water pumps. Such is the clout of the farming community that local officials turn a blind eye.

This is the second devastatingly costly factor that is hindering Indian electricity supply – turning a blind eye has become symptomatic of a deep-set problem – bribery and corruption.

Individual meter readers will accept bribes for under-reporting the amount of electricity used. Utility officials can be induced to overlook excessive consumption by farmers and businesses. There are votes in under-priced electricity so the government is happy to collude with electric utilities, effectively securing votes by allowing electricity theft.

Thirdly, even when customers are happy to pay the full amount for the electricity they have used, bureaucratic inefficiency means that they might not receive a bill, they may be required to travel to some distant office to pay over the counter, or they may simply not have the means to pay at all.

A company that could help solve India’s electricity problems

It is a major problem and unless it is tackled, India’s economic aspirations will not be met. Reliable power supply is rapidly becoming a litmus test for the competence of the government and it is determined to tackle the issue.

A good place to start is by establishing exactly who is using electricity. Thanks to digital meters that can wirelessly transmit data to a remote control room, a solution is possible. It is a solution in which one UK penny share company intends to play a key role in.

The UK company I have my eye on already has had success overseas and it has developed a technology that could be crucial in resolving the Indian power crisis. Their meters can be adopted by utilities to monitor the use of electricity on their lines. And the company is already winning big contracts.

You can read more about it in the August edition of Red Hot Penny Shares. To sign up for your free no obligation trial, click here. You will not only be able to access August’s issue, but the entire backlog of Red Hot Penny Shares issues – why not give it a shot?

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