Has State-level Regulation Improved Efficiency of Thermal Power Generation in India?

Abstract: This paper investigates the impact of institutional quality on the performance of thermal power plants in India. We estimate a translog stochastic frontier model using index of state-level regulation as one of the determinants of inefficiency. The dataset comprises a panel of 77 coal-based thermal power plants during the period 1994-95 to 2010-11 covering over 70 per cent of installed electricity generation capacity. The mean technical efficiency of 76.7 per cent indicates there is wide scope for efficiency improvement in the sector. Results are robust to various model specifications and confirm that regulation at the state-level has positively impacted plant performance. While technical efficiency is highly sensitive to unbundling of state utilities, it is not impacted significantly by the experience of regulators. The policy implication is that regulatory capacity and experience need to be enhanced for the desired sectoral performance.