Striving to Recover

Discoms’ perspective

The power distribution segment has been grappling with multiple challenges, including a large revenue gap and high aggregate technical and commercial (AT&C) losses, and the pandemic further aggravated the discoms’ distress. The government has taken a slew of measures over the past few years to resolve the issues facing the segment including the introduction of the reforms-based, results-linked Revamped Distribution Sector Scheme (RDSS) and the Late Payment Surcharge Rules, allowing discoms to clear their dues in equated monthly instalments. Experts from various discoms share their views on the key challenges and solutions for the distribution segment, as well as the future outlook…

What is your assessment of the power sector’s progress during the past year?

Manoj Kumar Jhawar

The sector has recovered from the Covid shock and power demand has shown decent growth. The growth has exceeded pre-Covid levels, but after almost five ye­a­rs of power surplus, supply-related iss­ues are again coming to the fore. Mig­ra­tion towards renewables has picked up pace and is likely to gather more ste­am. However, renewable energy generation still accounts for very little of the overall energy basket.

Debashis Sarkar

Over the past year, the implementation of renewable power plants has been prioritised in the form of solar, hydro and wind to replace conventional power pl­an­ts, thus progressing towards net zero. The RDSS has been implemented to reduce AT&C losses. The large-scale commissioning of smart prepaid meters has been carried out to stop revenue leakage on part of discoms, through the provision of Rs 3 trillion in funding ac­ross the entire country. A greater degree of digitalisation has occurred, mainly in the call centre operation, and billing and collection fields, to make the life of the end consumer more comfortable.

Pramod Kumar Singh

If one takes a segmented view of the power sector value chain, the generation segment, especially renewables, has res­ponded exceedingly well in recent years so far as capacity addition is concerned, making the country power surplus. Although we have seen demand increasing, due to the recent heightened volatility with respect to commodities globally, there have be­en some concerns on the fuel side, which are being addressed. The transmission segment continues to do well in terms of capacity addition and robustness, with decreased congestion, thus strengthening the One India One Grid-One Price initiative. Efforts are also be­ing made towards generation flexibilisation and schedule optimisation by mo­ving, to some extent, to a centralised sc­he­dule and introducing a despatch me­chanism. Deepening of the power mar­ket through greater arrays of products, in­clu­ding the real-time market and separate renewable windows in the short-term market, is also in the works. The pro­po­sed general network access framework in transmission may further deepen the power market.

The challenges witnessed during the year concerned the emerging global fuel availability and price volatility risks, and the resultant stubbornness of the cost structure, given that fuel/power purch­ase account for at least two-thirds of costs. AT&C losses and other efficiency gains constitute key cost optimisation drivers and present great opportunities for further improvement, going forward.

Ganesh Srinivasan

India’s power sector is one of the most diversified in the world, providing sol­utions that include both conventional and non-conventional energy sources. The recovery path of the power sector, post the second wave of Covid, has be­en positive. The sector has experienced a significant rise in electricity consum­ption over the past few years. Accor­ding to the Ministry of Power’s data, In­dia’s power consumption grew by nearly 2 per cent year on year to 130.35 BUs in August 2022. Power consumption in August last year was recorded at 127.88 BUs, higher than the 109.21 BUs recor­ded in the same month of 2020. This ye­ar’s peak demand has re­mained at over 200,000 MW throughout the first two quarters.

The centre has also given some brea­ther to the gencos by enforcing a payment security mechanism to bring the receivables of gencos under control. The government is promoting and en­cou­raging the use of sustainable energy. To this end, in the Union Budget 2022, around Rs 33.65 billion was allocated to the solar segment. This is a 29 per cent increase over the previous ye­ar’s budget of Rs 26.06 billion. The fo­cus is on promoting green energy, do­mestic manufacturing and technological advancements.

There has also been significant growth in terms of installed renewable energy capacities. At COP26, India committed to 500 GW of renewable energy capacity by 2030. The recently issued renewable purchase obligation and energy storage obligation trajectory till 2029-30 will play a major role in achieving that target. Moreover, for promoting green en­er­gy at the grassroots level, the government is encouraging the introduction of green hydrogen and green open access rules for the adoption of a wide and in­clu­sive definition of green energy.

On the distribution front, under the reforms-based and results-linked RDSS, discoms have shown improvement in their operational efficiencies and financial sustainability, and have strengthened their supply infrastructure.

What, according to you, are some of the steps needed to address the challenges facing the power distribution segment?

Manoj Kumar Jhawar

  • Tariff simplification and subsidy rationalisation.
  • Timely receipt of government subsidies.
  • Digitalisation of commercial processes, and building strong linkages with fintech to improve recoveries and compliances.
  • More automation and investment in operation technologies.
  • Addressing shortages of trained manpower, particularly in state-owned utilities.

Debashis Sarkar

  • Addressing the high AT&C losses of discoms despite the implementation of so many schemes.
  • Improving operational efficiency and optimising the power purchase cost.
  • Improving employee motivation and ownership of their organisations.
  • Cost plus tariff support by concerned regulators to ensure sustainability of the discoms.
  • Improving supply reliability for end consumers through distribution auto­ma­tion.
  • Improving cybersecurity.

Pramod Kumar Singh

The power distribution segment is a very vital segment, being the end link in the power value chain and the nodal point for consumers. The onus of overall cost re­covery for the entire sector lies with the discoms, and hence their perfor­ma­n­ce is key. It is imperative for the distribution segment to be financially viable, so that it garners enough cash to feed the rest of the value chain and maintain a surplus to fund future capex, while al­so keeping the tariff at an afforda­ble/ ma­­nageable level. It is encouraging to see the steps being taken to introduce gr­ea­ter payment discipline in the sector, which will service and protect returns on investments already made, while also helping attract investments to the sector, resulting in the overall benefit of co­nsumers. The creation of huge regulatory assets has been a bane for the sector. The proposed automatic pass-th­rou­gh for retail tariffs through power purchase adjustment charges without caps for generator cost increases, combined with the effective on-ground execution, whi­ch has resulted in performa­nce efficiency gains in the distribution segment, will certainly help in maintaining the cash flow and reducing regulatory assets in the future. It is important to continue in­vesting in this segment and using technology to optimise costs and improve customer service. This will help discoms effectively embrace the energy transition objective and transform into efficient utilities.

Ganesh Srinivasan

The sector is settling down after Covid and the coal supply crisis, which hit twi­ce. A few challenges still persist, and su­p­port is required to address them:

  • Reducing power purchase costs, and particularly offsetting the impact of im­ported coal and gas, is critical, as th­is is putting a huge stress on the discoms.
  • The financial viability of discoms nee­ds to be improved through timely and cost-reflective tariffs across customer categories.
  • There is a need for clarity on the path towards reducing AT&C losses across states, especially regarding choosing bet­ween the models available for privatisation – PPP, franchisees, etc. – and the role of multiple players as per the Electricity Amendment Bill, 2022.
  • The sector can explore scaling up of storage solutions through renewable en­­ergy round-the-clock contracts to cater particularly to the night peak, and grid solutions to support e-mobility.
  • Stringent cybersecurity measures need to be taken, as the risks are increasing exponentially with the growing scale of automation and connectivity.

What is your outlook for the segment in the near to medium term?

Manoj Kumar Jhawar

In the medium term,

  • Peak power shortages are likely to in­crease;
  • Subsidies are likely to remain a sticky issue, considering the overall socio-po­litical situation. This is likely to remain a drag on discom finances.
  • In­vestments in the transmission sect­or are expected to further increase gr­id stability at the macro level.
  • Investments proposed under the RDSS are likely to address in­vestment ne­eds in the distribution segment.
  • Implementation of smart metering, although emphasised vigorously, is li­kely to take at least five years in the ur­ban areas alone. Rural areas will possibly take longer.

Debashis Sarkar

  • Private participation in PPPs or in franchise mode needs to grow to in­cr­ease the efficiency of discoms.
  • There needs to be greater injection of renewable energy such as solar and wind to reduce carbon usage.
  • There needs to be 100 per cent installation of smart meters as well as their integration with smart grids to impro­ve operational efficiency.
  • Distri­bution automation needs to be implemented to improve supply reliability.

Pramod Kumar Singh

Our per capita power consumption has been more than doubling every decade, and has increased almost 2.3 times since 2003, but is still less than one-third the global average. This points to the need for much more capacity addition across segments in the future.

Meanwhile, there are structural changes under way. The country aims to push el­ectricity steadily towards becoming the primary choice of fuel in automobil­es over petrol and diesel. Electric vehicles are thus emerging as a strong disruption. On the supply side, we are seeing ap­preciable mainstreaming of renewa­bles in the energy basket. Formats such as solar rooftops, decentralised generation and green hydrogen are expected to see a significant growth. Such structural changes need to be addressed effectively and successfully navigated at the discom end too.

The energy scenario of the future will be highly decentralised, decarbonised, de­mocratised and flexible. Technology de­p­loyment and progress on the digital pa­th by distribution utilities will play key roles in this transition. The grid of the future will have to adapt to the emerging energy transition path, changing custo­mer needs and grid flexibility while maintaining grid security and supply.

Needless to say, in the context of these changes, the sector will have to learn qu­ickly and back it up with stronger executi­on, as the landscape further evolves from the regulatory, policy, consumer preferences and technology points of view.

Ganesh Srinivasan

The future of the power sector looks bright since by 2026-27 the country’s in­s­talled power generation capacity will be close to 620 GW, of which 38 per cent will be from coal and 44 per cent from renewable energy sources. Customers are actively adopting renewable energy, from the residential to commercial segments. Moreover, green energy solutions have aggressively entered the mobility sector, particularly the vehicle and public transportation segments. Energy demand is expected to increase substantially. We will require strong and sustainable infrastructure to match consumer demand for green energy solutions. The grid-level integration of larger-scale renewable energy – both utility-scale and rooftop – is a strong point. It will enable power companies to educate consumers on the importance and long-term benefits of renewables.

Consumers will possibly become more aware and have higher expectations in terms of energy solution benefits and the services available to them. They will become more empowered due to green open access, which enables them to procure power from a utility of their choice.

The discoms will be a part of the bright future of the country by transitioning to clean and green energy solutions. How­ever, increased efforts by key stakeholders and government officials will he­lp in structuring and reforming the dis­tri­bu­tion sector as it is critical for meeting the growing demand, the aspirations of customers, and India’s sustainable energy transition targets.

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