Khanna, Shefali 
ORCID: 0000-0002-6724-9076
(2025)
Contracts and constraints: how long-term power purchase agreements undermine carbon pricing in India’s electricity sector.
The Electricity Journal.
p. 107495.
ISSN 1040-6190
(In Press)
Abstract
Market-based instruments like carbon pricing are increasingly being adopted in developing countries to mitigate carbon emissions. However, institutional features such as long-term electricity contracts and regulated tariffs may mute their effectiveness. I explore this question in the context of the electric power sector in India, where electricity is transacted primarily via long-term bilateral contracts and state-owned distribution utilities self-schedule contracted power plants to meet their demand. The absence of a centralized and dynamic market-based economic dispatch mechanism generates short-run misallocation in electricity dispatch and distorts long-run investment decisions, such as the incentive to invest in flexible generation capacity and energy storage to complement renewable-based capacity. Using panel data on coal price schedules and monthly plant-level operations from 2012 to 2020, I construct a predicted delivered coal price index to estimate the elasticity of plant utilization with respect to fuel prices. I find that the demand for electricity from coal-fired power plants with a higher share of capacity allocated under long-term bilateral contract(s) is less sensitive to changes in coal prices, implying that the existing market design could erode some of the environmental benefits of carbon pricing.
| Item Type: | Article |
|---|---|
| Additional Information: | © 2025 The Author |
| Divisions: | Geography and Environment |
| Subjects: | H Social Sciences > HD Industries. Land use. Labor G Geography. Anthropology. Recreation > G Geography (General) |
| Date Deposited: | 12 Sep 2025 09:00 |
| Last Modified: | 12 Sep 2025 09:03 |
| URI: | http://eprints.lse.ac.uk/id/eprint/129494 |
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