Evolution of System Operations: A journey of growth, reforms and POSOCO's emergence as an independent entity

A journey of growth, reforms and POSOCO's emergence as an independent entity

The evolution of system operations in the country, particularly at the central and the regional level, has been a major catalyst for reforms in the Indian power sector. Today, the country has to its credit several achievements in this area, including the successful operation of one of the world’s largest synchronous power systems, without any major events. This has laid a strong foundation for the sector’s smooth energy transition, the creation of a vibrant power market and the achievement of the country’s clean energy goals.

In January 2021, Power System Operation Corporation of India (POSOCO) released a report titled, “Evolution of System Operation and Emergence of POSOCO as an Independent Institution in India”, presenting a case study of its evolution to the world. It chronicles the journey of the load despatch centres (LDCs) over the past six decades, the evolution of system operations, and the emergence of POSOCO as an independent institution in the past decade.

The progress of power system operations has been a long process of institutional restructuring. A key feature of this progress has been the development of internal capabilities. Notably, the availability of data and information, and internal discussions guided the process of adoption of various models without following the standard textbook or prescription advocated by multilateral institutions and external consultancies.

According to S.K. Soonee, adviser, POSOCO, who has played  a transformative role in the country’s power system growth and market development as well as the conception of POSOCO, “Successful reform requires three elements in synergy – engineering, economics and institutions. Given that it is not possible to anticipate how the different pieces of a complex, new system will fit together and operate, two strategies are recommended for institutional engineering – start simple and make sure that oversights can be corrected.”

Although spin-offs are not uncommon in the industry, it is definitely an uphill task in the government sector given the complexities involved with respect to legal and regulatory matters, the human resources (HR) process, delegation of authority, revenue streams, etc. The latest POSOCO report highlights the findings and learnings of the various processes that played a role in the strengthening and independent operation of LDCs along with the HR implications of creating an independent government company. The support from the parent company, Power Grid Corporation of India (Powergrid), concern for employees and HR factors relevant to the newly formed company are also discussed, along with the challenges faced by the senior management during the various transition phases. The historical aspects, the planning and movement of HR resources in the National Load Despatch Centre/regional load despatch centres (NLDC/RLDCs), which are operated by POSOCO, have also been highlighted.

The timing of the release of this report is very apt. The successful experience in hiving off the grid operation function will definitely serve as a precedent for the separation of the central transmission utility (CTU) function from Powergrid, a process that was kick-started recently with the government notification on the formation of a separate subsidiary, Central Transmission Utility of India, within the company for performing the CTU functions. The recent proposal to separate content and carrier in the petroleum sector through the institution of an independent system operator for natural gas pipelines will also benefit from the report. Further, the study will be of relevance to the institutional re-engineering of infrastructure institutions associated with cybernetics. As similar institutional engineering programmes are under way in other areas such as distribution, aviation and railways in India as well as in the electricity sector in many parts of the world, this report will provide valuable lessons for a smooth transition.

Power Line presents the key highlights of the report…

Historical background of LDCs

The regional grids in India evolved largely during the period 1970-90. Due to the absence of a regulatory commission or a grid code, the governance was done through layers of coordination committees formed under the regional electricity boards. During the 1980s, the RLDC buildings were constructed and the first digital control centres were installed. Most of the state load despatch centre (SLDC) buildings were also constructed during this period.

This decade also involved the construction of a transmission system and centrally funded interstate tie line  infrastructure, as well as the consolidation of regional grids. Further, the transmission system was separated from the generation system in terms of ownership, known as carriage and content separation in the power sector. With this, the transmission systems of the Nuclear Power Corporation, NLC, NTPC, NHPC and NEEPCO were carved out and amalgamated to form Powergrid (erstwhile NPTC). Further, in 1994-96, the RLDCs, which were a part of the Central Electricity Authority, were transferred to Powergrid in a planned manner. Powergrid then undertook the unified load despatch and communication project, under which load despatch facilities were established in each of the five RLDCs. Meanwhile, the five regional grids (northern, eastern, western, north-eastern and southern) managed by the RLDCs were synchronised in stages starting from 1991. This culminated into “one nation-one grid-one frequency” in 2013 with the synchronisation of the southern region (SR) with the rest of the country (NEW grid). It was a gradual process. In fact, it took over three decades of effort at the ground level to bring the vision regarding an integrated national grid and grid optimisation to fruition, points out Soonee.

In terms of regulation, the term LDC was first referred to in October 1991 through an amendment to the Electricity Supply Act, 1948. Subsequently, in August 1998, another amendment designated the LDC as an apex body, and detailed the roles, responsibilities and powers of the LDC for ensuring smooth and integrated grid operation. Finally, the Electricity Act, 2003 articulated the provisions related to LDCs and defined real-time operations. The NLDC Rules, 2005 notified by the Ministry of Power (MoP) listed the functions of the NLDC in detail. The act and rules mandated the CTU and the state transmission utilities (STUs) to operate the respective LDCs until a government company was notified by the central or the state government. As a result, in 2009, POSOCO was incorporated with the objective of ring-fencing its operation as a subsidiary of Powergrid. In 2011, POSOCO acquired  all the moveable assets and net current assets of Powergrid.

The LDC functions have evolved over time and contributed significantly to the improvement of the country’s power sector. The load despatch activities have been transferred from one utility to another in the past few decades. Further, LDCs have transformed through capacity building, advanced software systems, sophisticated tools, etc. and subsequently got an independent status at the regional and the national level under the umbrella organisation, POSOCO.

Since 2017, POSOCO has been functioning as a Schedule-A PSU, wholly owned by the MoP, with a mandate to deliver statutory load despatch functions assigned by the Government of India/the Central Electricity Regulatory Commission (CERC). It is an unlisted company and has an independent revenue stream, as per the CERC fees and charges regulations issued every five years. The power sector follows the independent system operator (ISO) model at the NLDC/ RLDC level, where the ISO is solely responsible for operation and despatch to meet demand across the entire system, in addition to settling market transactions. It is the single interface for generators within the system. In contrast, the state LDCs (SLDCs) operate within the transmission system operator (TSO) framework. There is diversity in the available resources for system operators and in the revenue model for LDCs notified by the regulators in different states. It may be noted that since electricity in India is a concurrent subject, the LDCs at the national and regional levels are owned by the central government while the SLDCs are owned by the respective states.

Over the years, the LDCs have played a significant role in the implementation of major reforms and regulations. This includes ensuring adherence to the Indian Electricity Grid Code (first notified in 2000), and implementing availability-based tariff regulations (2002) and open access regulations (2004) prior to POSOCO’s inception. The key regulations and mechanisms implemented by POSOCO to reform the sector are power market regulations (2010), the renewable energy certificate (REC) mechanism (2010), point-of-connection (PoC) transmission tariffs (2011), certification in system operation in India (2011), wide area management systems (2012), synchronisation of the NEW grid and the SR grid (2013), the reserve regulation ancillary services mechanism (2016), scheduling, accounting, metering and settlement (2016), automatic generation control (2017 onwards), implementation of the Perform, Achieve and Trade (PAT) initiative (2017), security constrained economic despatch and real time market (2020). These measures have consistently helped POSOCO increase grid reliability and realise high cost savings for power sector utilities, bringing about a paradigm shift in the sector at each stage.

India has adopted a regulatory framework for decentralised system operation, involving a coordinated multilateral scheduling and despatch mechanism, wherein commercial decisions are taken by market players with security oversight by system operators. There are two power exchanges for the day-ahead and term-ahead markets. In the bilateral market, congestion management is done through explicit bidding of the congested corridor, whereas in the day-ahead collective market, it is achieved through implicit auction, leading to a market split. To address transmission constraints, LDCs are empowered to curtail scheduled transactions as per the defined priority. With the growing penetration of renewables, the balancing mechanism is evolving. The focus is now on introducing active balancing through a thin layer of centralised optimal despatch, in addition to the existing decentralised passive balancing mechanism.

Drivers for institutional changes in LDCs

The key drivers for institutional changes in LDCs have been financial investments in the upgradation of supervisory control and data acquisition-energy management systems (the SCADA systems at POSOCO were upgraded in 2015-16 with state-of-the-art hardware and software technology), participation of private players in transmission, non-discriminatory open access in transmission, conflict of interest between system operators and transmission operators triggered after a major grid collapse in 2012, the distinct role of system operation, public accountability, bringing innovation in the power sector, the need for increased flexibility as well as functional and financial autonomy to deploy advanced technologies such as wide area measurement systems and cybersecurity systems, and a model institutional arrangement for SLDCs.

All the LDCs in the country collaborate on various system operation matters through the Forum of Load Despatchers (FOLD) formed in 2009. The power system operator certification programme has been a major initiative of FOLD to develop trained and expert manpower for LDCs across the country. POSOCO is assisting in strengthening the LDCs at the state level, particularly through the Forum of Regulators and FOLD.

Evolution of POSOCO as an independent institution

POSOCO was created as an umbrella organisation to give a corporate structure to RLDCs and the NLDC, with a mission to ensure the integrated operation of regional and national power systems to facilitate the transfer of power within and across regions, and the transnational exchange of power with reliability, security and economy. It also aims to facilitate competitive and efficient wholesale electricity markets, administer settlement systems, promote innovation, adopt the latest technologies to ensure cybersecurity, and nurture human and intelligent capital. It is a regulated entity and forms a vital link between the planners and regulators at one end and the physical system and market players at the other. In terms of organisation, POSOCO was an important part of Powergrid with 448 employees deputed in POSOCO on a secondment basis. The chairman and board of directors, who were from Powergrid initially, had a limited role in daily operations, which were mostly taken care of by the chief executive officer (CEO). So far, there have been two CEOs, S.K. Soonee (2010-16) and K.V.S. Baba (2016-17). The post was changed to chairman and managing director in 2017 after separation from Powergrid, and it continues to be held by K.V.S. Baba. Further, the board structure was altered as per the specific requirements of POSOCO, with four directors in charge of HR, market operation, finance and system operation.

After the final transfer scheme was announced by the MoP, Powergrid released an order regarding the detailed transfer scheme for manpower transfer from Powergrid to POSOCO. Based on this scheme, a fair and transparent opportunity was provided to all POSOCO employees to select their future employer between Powergrid and POSOCO. The report describes the separation of POSOCO from Powergrid as a “challenge of scale of transformation; like changing the tyre of a running car”. On the one hand, there was the responsibility of smooth transition and on the other, the leadership had to, in parallel, ensure reliable grid operations and other activities, most of which were mission critical in nature. This was managed in an uninterrupted manner with the rotation of manpower, stage-wise transfer of manpower to Powergrid, and maintenance of competent/ trained standby teams for emergency operations. Initially, some departments such as grid management had to put in an extra effort to help train the new executives. POSOCO’s human resources underwent a major change towards an executive-cadre-driven organisation with a continuous reduction in staff at the supervisor and technician levels over a period of time. After the separation of POSOCO, a separate recruitment process was initiated by POSOCO for meeting its manpower requirements. This helped in reducing the average age of employees and transforming POSOCO into an organisation with a new and modern ideology, which is required for adopting rapid changes in the sector.

The successful spin-off required proactive consideration of multiple HR issues and their resolution in a timely manner. A communication strategy and timeline were put in place to address employee concerns and ensure that they stayed focused on the necessary tasks. The core team travelled extensively to all the geographic locations of the company, establishing employee contacts, documenting key decisions and outcomes, addressing and resolving open issues, and tracking progress against plans. This helped build employee confidence and enhance their willingness to change. A key factor that contributed to the successful buy-in of people was the values and the culture of honesty and authenticity evident in frequent and transparent communications. Adequate compensation and benefits were ensured by granting Schedule A status to POSOCO as it maintained consistency and parity with Powergrid. Notably, while Powergrid faced several court cases at the time of its formation and acquisition of assets from different utilities, there were no legal cases by any employee or stakeholder during the separation of POSOCO from Powergrid.

POSOCO is a “profit-neutral” organisation. However, a strong case was presented to the CERC, which allowed for performance-related pay, subject to certain standards of performance. It reworked the benefits, including coverage under various social security schemes to win employee confidence.

Financial autonomy after separation was a major concern for POSOCO. The company did not want any budgetary support from the government for creating capital assets or employing specialised manpower or engaging in activities that necessitate a recurring cost. This has been ensured by the creation of a separate revenue stream for the NLDC and RLDCs in the form of fee and charges specified by the CERC regulations. In recognition of the importance of intellectual capital in POSOCO, which is a knowledge-based organisation, the CERC separated the HR expenses from other heads 2009 onwards. The company gets its strength from its expert manpower in various specialised fields of grid management, system operation, market operation, SCADA systems, IT, etc. The key revenue sources for the NLDC and RLDCs are the registration fee and monthly charges besides application fee and operating charges for scheduling short-term open access transactions and charges for facilitating the REC and PAT mechanisms.

The company model (instead of the authority model) adopted by POSOCO has given it the desired freedom, flexibility, agility and, most importantly, employee motivation to undertake system operation under the prevailing legislative and regulatory framework. It gives flexibility to the management to allocate and reallocate both financial and manpower resources to implement reforms in fast-track mode without any regulatory delays and approval processes.

As a system operator, POSOCO has successfully handled mission-critical grid operation activities, as was evident during the Covid-19 lockdown, when there was no major grid disturbance at the regional or the national level. POSOCO’s expertise and wealth of experience, as well as excellent coordination with stakeholders helped it in successfully handling the “9 PM-9 Minutes” lights-out call by the prime minister on April 5, 2020, when around 31 GW of load fall and pick-up were facilitated. Moreover, a key market-based reform, the real-time market was implemented in the midst of the pandemic, highlighting the commitment of POSOCO’s highly motivated workforce. Further, renewable energy management centres, established by Powergrid in February 2020, are being operated by the associated NLDC, RLDCs and SLDCs.

POSOCO has been taking steps towards brand building and discharging its corporate social responsibility (CSR). As part of its CSR initiatives, it has also been promoting innovation, research and excellence in power systems through collaborations with technology incubators located in academic institutions. The collaboration and association with several academic and industrial institutions such as IITs, NITs, IMD and ISRO as well as with international agencies have enabled the transfer of multisectoral knowledge and expertise.

Conclusion and the way forward

Power system operation is a mission-critical activity and system operators have a major responsibility in facilitating sector reforms. The country’s changing energy landscape poses new challenges for LDCs. These pertain to  consumer expectations for uninterrupted, reliable and quality power supply; expansion of the grid footprint; cross-border interconnection; large-scale integration of renewables, distributed energy resources and electric vehicles; automation and secondary control, flexibility, optimisation, and SCED; deployment of advanced techniques for visualisation and situational awareness; introduction of new products in the electricity markets; evolving regulations for flexibility services, qualified coordinating agencies, aggregators, REC and PAT mechanisms, battery energy storage systems, prosumers; envisaged segregation of carriage and content; establishment of distribution system operators; introduction of general network access; and financial products and derivatives. Thus, LDCs’ interactions with various stakeholders in the electricity industry, both locally and globally, will likely evolve further and intensify.

As the national grid operator, POSOCO has been a catalyst in the reform process, introducing a new paradigm in the power sector organisation. The force-multiplier effect of this activity is recognised. The essential elements for success in any institutional reform or re-engineering are strong legislative backing and support from policymakers and regulators to ensure full functional and financial autonomy. The formation of POSOCO has been presented as a case study to serve as a reference, particularly for high-level interventions aimed at addressing conflicts of interest and accountability through organisational restructuring without losing sight of the softer dimensions of institutional capacity building and human resource management during the transition.

Clearly, independent, well-structured institutions are the key to the success of reforms. The Indian power sector has benefited immensely from the evolution of system operations at each stage, which has culminated in the emergence of POSOCO as an independent system operator, an achievement that can justifiably be showcased to the world.

Swarna Kesavan