The distribution segment is readying itself for a number of structural changes, including the introduction of competition. This is an intricate issue that must be handled sensitively, says Debasish Banerjee, managing director (distribution), CESC Limited. In a detailed interview with Power Line, Banerjee spoke about the performance of the power sector such as the health of discoms; carriage and content separation; smart metering; and CESC’s performance so far and plans for the future. Excerpts…
How do you think the power sector has performed during the past year? What were some of the key positives and negatives?
Capacity augmentation
The country’s installed generation capacity stood at 344 GW as of March 2018, higher 5.25 per cent over the last year. The year 2017-18 saw a change in the fuel mix with the share of renewables significantly increasing to 20 per cent and hydro power accounting for 13 per cent, while coal remained stagnant at about 57 per cent. In line with the government’s vision to increase the country’s renewable capacity to 175 GW by 2022, about 70 GW has already been installed. In 2017-18, renewables emerged as a frontrunner with over 11.75 GW of capacity addition, of which solar accounted for a major share of 9.36 GW. The fuel mix will further undergo a considerable shift. The PLF of coal-based capacity has declined consistently from 73.5 per cent in 2011-12 to 60 per cent in 2017-18. However, coal currently being a significant revenue and employment generator, reducing the dependence on the coal sector needs detailed deliberation. The power supply scenario has improved considerably with energy and peak deficits declining to 0.7 per cent and 2 per cent respectively in 2017-18, which is a remarkable improvement. The energy and peak demands in 2017-18 were 1,213 BUs and 164 GW respectively, with a CAGR of 4-5 per cent over the last eight years. The interregional power transfer capacity has also increased significantly over the past few years to reach 86,450 MW (as of March 2018).
Power procurement
Of late, long-term power purchase agreements (PPAs) have come under scrutiny with discoms citing high costs and pushing for reneging on the same. But, this approach can lead to pressure on generators, lenders/bankers and create stressed assets. The baseload of discoms is primarily catered to by long-term PPAs and some of the peak deficits are met with short-term purchase through exchanges and bilateral agreements, which has led to the development of a short-term power trading market in the country. Short-term power trading has come of age in the country as it creates a mutually beneficial situation for the generators, discoms and consumers as they can sell and buy power primarily during the peak deficit periods. Volume traded at the power exchanges has increased manyfold from an average of about 20 MUs per day in 2009-10 to more than 130 MUs in 2017-18, with the total yearly volume of electricity traded at 128 BUs. However, the price discovered at the exchanges has sky-rocketed recently due to the demand-supply gap.
Distribution losses
Lower billing efficiency, electricity pilferage and ageing network infrastructure contribute to higher transmission and distribution losses. Smart meters can facilitate the improvement in billing and collection efficiency. Aerial-bunched conductors and co-axial cables coupled with vigilance activities can reduce power pilferage issues. Network modification through feeder separation, conversion of overhead to underground cables, fortified anti-theft pillar boxes, theft aversion meter cabins, etc. can plug the theft from vulnerable network points. Based on data of the 23 UDAY states, at present, the country-wide AT&C losses stand at 23.1 per cent, and there is scope for further reduction.
Financial
The key factors that improved the financial health of discoms:
- Reduction in the gap between the average revenue realised (ARR) and the average cost of supply (ACS). The overall ACS-ARR gap, as per the latest UDAY data, still shows a gap of about 0.27 paise per unit.
- Speedier disposal of orders, quicker amortisation of regulatory assets.
- UDAY assisted in reducing the interest rates of loans to discoms thus reducing financial losses
- The Integrated Power Development Scheme and the Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) have provided capex support for network improvement and delivery of round-the-clock power.
What is your assessment of the current state of the power distribution segment? What are some of the areas that still need policy attention?
Fundamental structural reforms are the building blocks to improve the financial and operational performance. UDAY has given discoms some breathing space, and they are now leveraging their improved financial position to initiate reforms. UDAY primarily assisted in reducing the interest rates, thereby helping the debt-laden discoms reduce their annual financial losses by 70 per cent in the past two years, and the results are expected to catch up with the desired outcome. With the economic growth of the country, there has been a rise in the demand for new supply connections in rural areas and more than 15 million households have been electrified since the launch of the Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya) by the Government of India in October 2017. Providing electricity to all is a laudable initiative. Increasing expenses due to the growing cost of power procurement, high technical losses due to ageing networks, electricity pilferage, lower billing efficiency, and inadequate collection efficiency, result in less than the required financial gains. Improvement in operational efficiency, and enhancement of billing and collection efficiency through smart meters and theft reduction measures will increase the financial gains and make the arrangement viable. Although largely funded by government grants, a sizeable part of DDUGJY and Saubhagya, is also funded by loans and equity, which need to be serviced on time. In the coming years, pass-through of these network developments, repair and maintenance, and power procurement costs onto the consumer tariff may pose a challenge.
What is your outlook for competition in the power distribution segment in the next few years? Do you think the proposal for separation of carriage and content is feasible?
The draft Electricity Amendment Act is aimed at encouraging competition in electricity distribution. The same has been circulated to get feedback from various stakeholders. The best possible models will surely emerge, which will be beneficial for consumers and discoms. We need to understand that the introduction of competition may disturb the balance of cross-subsidy. As more number of high tension (HT) consumers opt for open access, the loss of cross-subsidy may adversely impact the bottom-of-the-pyramid consumers and hence cross-subsidy needs to be delicately balanced. Countries that have successfully implemented competition in the retail sector have a cost-reflective tariff and in some cases their domestic tariff is higher or equal to their industrial/commercial tariff, which is not the case in our country. This is an intricate policy issue, which needs to be tackled sensitively.
What were CESC’s key performance highlights for its distribution business in the past year?
CESC was able to enhance service and technical excellence across all aspects of its distribution business. It has set national benchmarks in several areas – new connections for 90 per cent applicants are given within one day and power supply restored within an hour. The distribution transformer (DT) failure rate is less than 0.4 per cent per annum. Moreover, 100 per cent automatic meter reading has been deployed in all HT meters, low tension current transformer meters, DTs and street light meters. Kolkata faces severe paucity of road-facing land for putting up new substations or augmenting the existing ones. CESC has adopted several innovative measures to save space – commissioning India’s first substation with a 132 kV gas-insulated switchgear (GIS) placed underground; and use of unit-cooled power transformers with 35 per cent less footprint than conventional transformers and multi-winding power transformers. Space consolidation is being actively pursued at the existing substations through the replacement of outdoor yards with indoor GIS. CESC continues to extend its 220 kV network upgraded from 132 kV into the city closer to the load centres to reduce technical losses and enhance the capacity of power corridors. Two such stations are already operational. A third 220 kV substation is under construction. RMU automation has been a key thrust area for the past two years to enable restoration within a couple of minutes at critical establishments, such as hospitals and pumping stations. A self-healing network has been put in place in some sensitive areas, which enables restoration without any perceptible interruption.
A lot of attention has been given to the LT network, with a command and control centre for centralised LT outage monitoring. A host of LT automation sensors and devices including autoservice changeovers, pillar boxes with high rupturing capacity fuses and fusefailure alerts, LT distributor load monitoring, etc. have been installed to improve customer services. Strengthening of SCADA/ energy management system (EMS)/distribution management system (DMS) with additional remote terminal units; setting up of redundant communication links; implementation of measures for information technology (IT)-operational technology (OT) integration such as advanced metering infrastructure (AMI) integration, outage alerts, handling interval data; and deployment of analytic platforms to reduce losses and almost eliminate non-actual billing were some other notable activities. One of the biggest interventions was loss reduction through technology interventions such as isolated distribution zones, converting overhead lines to underground, use of co-axial cables and automatic power factor correction, and a slew of inclusive social and welfare drives to sensitise and win over errant consumers. This helped bring down CESC’s losses to a level that is amongst the lowest in the country. Along with all the technical advancements helping CESC serve its customers better, customer centricity and digitisation have also taken new dimensions – a host of services to consumers are delivered on mobile at the click of a button. Almost 40 per cent of CESC consumers pay online and about 70 per cent of payment collection is cashless. Our journey to become “A Benchmark Utility” has been recognised at various forums and we have been awarded the SKOCH Order of Merit 2017, ICC Award 2017 for Quality of Service and many other notable awards.
What are some of the key initiatives proposed to be taken for the Rajasthan distribution franchises? What have been the operational improvements witnessed so far?
CESC operates three distribution franchises in Rajasthan at Kota, Bharatpur and Bikaner. After the takeover, the last one to two years were spent on improving and revamping the distribution network, putting multiple IT systems in place for billing, providing new connections, strengthening consumer relationship management (CRM), and establishing customer reach through helpdesks at offices, customer care centres and call centres. Operational improvements include providing most new connections within a day of meeting compliances, reduction of supply outages and restoration of supply outages within an hour. We have rolled out radio frequency (RF)-based smart meters at Kota for enhancing consumer services. The smart meters enable our CRM system to automatically register supply outage at consumer premises, thereby ensuring proactive outage management. Consumers can also view and monitor their energy consumption online.
What are the key priorities for CESC for the next one to two years?
We will continue to augment our power import and distribution network on a need basis backed by data-driven studies. Further, digital adoption assisted with artificial intelligence and machine learning will be our prime focus, which will enable us to enhance consumer satisfaction at reduced cost. We have already embarked on initiatives in asset management, big data analytics and artificial intelligence-based cable fault prediction models. Analytics and business intelligence would be the focus areas to optimise asset utilisation, and operations and maintenance cost, loss reduction and cutting down power restoration time in the event of faults. Upgradation of the existing SCADA/EMS/DMS/outage management system is in the pipeline. The new control centre would facilitate IT-OT integration, including progressive roll-out of AMI, integration of renewable, etc. Our new initiatives would be the deployment of EV charging stations across the city andon-grid storage based on business model and evaluation, and RMU and LT automation over internet of things. Situational awareness and data visualisation tools would be the intrinsic features of the new system. IT integration with even legacy applications over an enterprise service bus is a key feature. Focus on customer centricity would continue with more e-facilities for applicants and consumers. The ease-of-doing business would be the driving key performance indicator. Further, improvement in reliability indices remains a top priority.
What are some of the smart metering initiatives being implemented by CESC? What, according to you, are the key roadblocks that need to be overcome to accelerate the roll-out of smart meters in India?
CESC had been conducting several proofs of concept in smart metering since 2015. GPRS-enabled smart meters are already operational in specific customer segments. RF-based smart meters are currently under pilot roll-out in certain parts of the city. You are also aware that we have rolled out RF-based smart meters in Kota, Rajasthan. Discoms must be prudent in their deployment strategy of smart meters and the choice technology to achieve the desired outcomes. Interoperability is still a major issue, but hopefully this would be resolved in the years to come.
Apart from discoms, other stakeholders need to sensitise consumers about the benefits of smart meters – such as no requirement for meter readings, auto-alerts of supply outages and mobile applications for consumers to monitor and track their consumption. A bulk roll-out of smart meters will reduce the cost based on economies of scale similar.
What is your outlook for the power sector for the next few years?
NITI Aayog released the draft of the National Energy Policy in June 2017, which broadly sets a new agenda consistent with the emerging developments in the energy world. The policy anticipates major transformation on the energy demand and supply sides owing to evolving technology, consumer behaviour and air quality considerations. NITI Aayog has recently also mooted a proposal to set up an all-powerful umbrella ministry for the energy sector to deal with sectors like petroleum, power, renewable and coal – this would obviously have far-reaching implications. With improvement in the financial health of discoms, demand is also certainly bound to pick up. As the per capita consumption of electricity in our country increases, there may be an additional demand of about 50 GW of generation capacity in the next few years, for which private investment could be helpful. India is also gearing to move towards electric mobility due to concerns over environmental damage caused by vehicle emissions. Electric vehicles can become huge energy demand drivers in the future and hence offer a revenue opportunity for discoms.
To meet the expected demand our dependence on thermal generation is expected to continue. However, for the seamless integration of renewable energy, we would need to optimise the generation mix. The introduction of utility-scale storage systems and higher proliferation of decentralised distributed generation resources like rooftop solar will make renewables more affordable over time, and help discoms meet their renewable purchase obligation. However, the need is to transform from net metering to the gross metering philosophy, in order to create a win-win situation for both the discoms and consumers. The distribution segment is dominated primarily by state government-owned distribution utilities and only a few cities have private licensees. Besides, private distribution franchises, which take over distribution operations of high loss areas from the discoms for a definite period of time, are also operating in some areas and these need to be bolstered. Sustained AT&C loss reduction has to be pursued. In the context of proposed amendments in the Electricity Act 2003, we need to observe how the power sector evolves, and discoms need to be on their toes to meet their commitment towards consumer satisfaction.