Financial sustainability of electricity distribution in India remains a concern


Today, the Indian electricity system serves more than 200 million consumers with a range of up to 3.28 million km ². This makes India’s power system one of the largest and most complex power systems in the world. Along with the inherent complexities, India is committed to slowly but firmly increasing its dependence on renewable energy resources, which means increasing the variability of energy flows in the grid with increasing penetration of green energy. While India’s power sector has witnessed various remarkable policy interventions resulting in credible and long-term gains such as reducing the peak electricity deficit to 0.4%, almost complete household electrification, etc., an analysis Further investigation would show that the viability of India’s power sector largely depends on the financial health and operational efficiency of its distribution services, which still has a long way to go.

Distribution network and perennial issues

The Indian electricity distribution network consists of 73 electricity distribution companies (Discoms). Despite several interventions for the reform of the electricity sector, the Discoms constitute the weakest link in the value chain because they are plagued by permanent problems such as high technical and commercial losses, tariffs not taking into account costs, resulting in a high Average Cost of Supply (ACS). – Average Revenue Realization Gap (ARR), high levels of accumulated financial losses, heavy reliance on government subsidies to meet revenue needs, and steady increase in regulatory assets due to inadequate tariff increases. Although AT&C losses have been declining lately, they remain very high, hovering around 22% compared to the world average of 8.3%.

Discoms’ financial distress spilled over into the entire value chain and negatively impacted generation companies, with power purchase debts reaching INR Cr 90,000 by 2021. According to the Agency for Investment Information and Credit Rating Information (ICRA), the consolidated debt of state-owned distribution companies is estimated to increase to INR 6 lakh crore in fiscal year 2022.

Bill amending the Electricity Bill, 2021 and the enigma of privatization

Aware of the challenges ahead, the Ministry of Energy recently proposed draft amendments to the Electricity Law of 2003, through the Bill amending the Electricity Bill of 2021. L The proposed amendment affects various aspects of the electricity sector, such as the removal of licenses from the distribution sector, the introduction of penal provisions for Discoms on non-compliance with RPO objectives, strengthening of APTEL, etc. . The objective is to offer more options to the consumer in the choice of a supplier, because several electricity distribution concessionaires can share spaces within the same operating area.

Privatization has long been seen as a necessary step to make electricity distribution financially viable. While Delhi and Odisha states could only see privatization since 2002, the distribution franchise saw 13 operational franchisees in Maharashtra, UP, Odisha, Rajasthan, Meghalaya while 12 franchisees were terminated in Maharashtra, UP, Madhya Pradesh, Bihar and Jharkhand. This limited success of privatization is due to various factors which include, but are not limited to, huge unrest on the part of consumer associations, longer implementation timeframe, employee protests, political reluctance. and uncertainty even after contract award.

Digitization provides a viable solution as a stand-alone initiative

Digitization provides a viable solution to improve Discom’s efficiency in at least four ways: the next level of operational control through informed decision-making and remote operations; improve network efficiency through better forecasting and planning of resources; offer a new level of experience to consumers; and extend the operational life of assets. According to IEA estimates, the overall savings resulting from these digital measures could be in the order of $ 80 billion per year over 2016-40, worldwide. These digital technologies that improve efficiency at the Discom level include, but are not limited to, smart grid, advanced metering infrastructure (AMI), substation automation, Internet-based interventions. objects (IOT), advanced data analysis via artificial intelligence / machine learning for better operation and business efficiencies.

Smart meters are the backbone of digitization

The intelligent combination of IT and operational technology is relevant for the implementation of digital technologies in Discoms. This can be achieved through smart meters as they combine the advantages of real-time two-way data communication for better optics for informed decision-making with remote operations through on / off capabilities. Recognizing the plethora of advanced capabilities provided by smart meters, the Department of Energy has targeted the installation of 250 million smart meters across the country. However, the current pace of MAI implementation in the country needs to be accelerated as only 2.6 million installations have been completed to date.

Large-scale meter deployment will require the participation of large developers. Large scale projects for smart meters can be delivered under the BOOT (Build, Own, Operate and Transfer) model in which efficiency gains for Discoms are ensured through the full deployment of the smart meter system. as well as robust digital backend systems for remote operations. The BOOT model provides a value proposition to Discoms and consumers by ensuring the benefits of scalability, reliability, effective control and economies of scale resulting in a cost effective implementation.

The Ministry of Energy has made considerable efforts in this direction by notifying the standard tender documents (SBD) for the deployment of smart meters under the BOOT model. However, the ministry’s vision must be realized by the Discoms, as many states that have recently launched tenders for large-scale smart meter installations totaling around $ 5 million have severely waived SBDs. This compromises all efforts to implement transparent smart meter solutions. Therefore, there is an imminent need to guide the Discoms for the implementation of smart meter solutions in the BOOT model under the SBD umbrella.

Pivot India’s energy sector towards digitalization

Strong financial health of distribution companies remains essential to building a healthy electricity sector in the country. However, the financial and operational efficiency of these companies remains one of the areas of greatest concern. Digitization can enable flexible and efficient electricity consumption, better visibility of grid usage and better control of power systems. Digitization can facilitate positive change, but only if policymakers strive to understand, channel and harness its power. Smart Metering provides a robust building block for digitizing Discoms to eliminate operational and financial inefficiencies. The revised reform program that will be launched to facilitate the investment of 3 INR Lakh Crore for smart meters in the country is a good step in this direction. Its implementation with the right approach and attitude will ensure the development of a robust energy sector for the country.



The opinions expressed above are those of the author.



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