Cross-subsidy
Also called: Cross-subsidisation · Topic: Infrastructure: Transport, Communications and Energy · NCERT: Beyond NCERT
Meaning
Cross-subsidy means some groups of consumers are charged above cost so that other groups can be charged below cost. In electricity, industry and commerce pay more so that farmers and poor households pay less. The Tariff Policy wants tariffs to stay within ±20% of the average cost of supply. The side effect is that the users who pay more try to leave the system for cheaper options.
Example
Indian Railways earns a surplus on freight and uses it to cover losses on cheap passenger fares. Because freight tariffs are high, much cargo shifts to roads and rail's freight share falls. The National Rail Plan aims to raise that share to 45% by 2030.
Don't confuse with
- Direct subsidy: A direct subsidy is paid by the government from its budget. A cross-subsidy is paid by other consumers through higher prices.
Related concepts
- Energy infrastructure
- Energy security
- Plant load factor
- Aggregate technical and commercial losses
- Power purchase agreement
- Open access (electricity)
- Time-of-day tariff
- Feed-in tariff
- Levelised cost of electricity
- Grid parity