Regulatory independence and thermal power plant performance: evidence from India

We examine the role of regulatory independence on electricity generation performance in India. Electricity generation in India is exposed to several regulatory jurisdictions with varying levels of regulatory independence. Based on the level of regulatory independence, we classify Indian coal fired power plants into two groups, and evaluate their performance over the period 2005–14 using the non-radial directional distance function model in a meta-frontier framework. We find that plants under relatively less independent state regulators are more inefficient than plants under the largely independent central regulator. Differences in independence between state and central regulators account for nearly half of the inefficiency of plants under the state regulation. Regression analysis reveals that the channels of causation of regulatory independence on plant performance are through its effects on coal consumption and electricity generation. Our results suggest the need for two policy interventions: (1) providing greater independence to state regulators for bridging the performance gaps between plants subject to different regulators, and (2) a more forward-looking norm setting process through the use of benchmarking techniques by identifying best practices and performance among plants.