Distribution Relief: Government comes out with a slew of reform measures

Government comes out with a slew of reform measures

The distribution segment has continued to be the centrepiece of government reforms and schemes in the power sector for many years. These have helped improve the segment’s performance in terms of reduction in financial and operational losses, but there are still many gaps due to mounting debt and a lack of profitability. The latest government programme, the Revamped Dis­tri­bution Sector Scheme (RDSS), is another attempt to revive the ailing distribution segment. The scheme, with a massive outlay of Rs 3,037.58 billion over a period of five years (2021-22 to 2025-26), aims to provide financial assistance to discoms for modernising and strengthening distribution infrastructure, and improving the quality and reliability of supply to end consumers.

Further, in order to address the lack of competition in the segment, the power ministry introduced the Electricity (Am­end­ment) Bill, 2022 in the Lok Sabha in August 2022. The bill proposes crucial amendments to the Electricity Act, 2003 to enable competition in retail power supply through non-discriminatory op­en access to multiple distribution licen­sees in an area. This will give consumers the freedom to choose their electricity supplier rather than having to depend on the incumbent state-owned distribution utilities.

Power Line takes a look at key trends and developments in the power distribution segment…

Size and growth

Driven by increasing power demand and electrification across the country, the distribution network has been growing steadily in terms of line length and tra­nsformer capacity, which have grown at a compound annual growth rate (CAGR) of about 5 per cent and 6 per cent, res­pectively, in the past five years. As of March 2021, the distribution line length stood at about 13.5 million ckt km. Utility-wise, the state-owned discoms of Ma­ha­rashtra and Tamil Nadu had the largest distribution networks.

In terms of consumption, the total electricity consumption stood at 1,227 BUs in 2020-21 (provisional), marking a sli­ght decline of 1.7 per cent over the previ­o­us year, as per the Energy Statistics 2022 released by the Ministry of Statis­ti­cs and Programme Implemen­tation. In­dustrial consumers accounted for the highest electricity consumption with a share of 41.09 per cent, followed by do­me­stic (25.67 per cent), agricultural (17.52 per cent) and commercial consu­mers (8.31 per cent). Traction, railways and other consumers accounted for the remaining share. Between 2010-11 and 2020-21, the CAGR for electricity consumption stood at 5.09 per cent.

Operational and financial performance

As per the MoP’s Urjadrishti web portal, the absolute cash-adjusted gap (losses) in the distribution sector stood at Rs 1,130 billion as of 2020-21, recording a CAGR of 5.5 per cent between 2018-19 and 2020-21. Meanwhile, the revenues (cash-adjusted) grew at a CAGR of 1 per cent during this period to reach Rs 6,440 billion in 2020-21. The distribution sector’s total liquidity gap stood at nearly Rs 3.04 trillion, and the discoms’ current liabilities of Rs 6.56 trillion exceed their overall current assets of Rs 5.27 trillion. Regarding AT&C losses, these remain highly variable with certain states like Himachal Pradesh, Gujarat, Tamil Nadu and Kerala recording losses of 8-14 per cent while others like Bihar, Jharkhand and Madhya Pradesh recording losses of 35-41 per cent.

Update on the RDSS

The RDSS, launched in July 2021, has made some headway in recent months with discoms finalising their implementation plans. The reforms-based and results-linked scheme has an outlay of Rs 3,037.58 billion over five years, with an estimated government budgetary su­pport of Rs 976.31 billion. As of Dec­ember 2021, the government has reportedly approved proposals worth over Rs 1.62 trillion for 13 states. Of this, about 54 per cent (Rs 880 billion) has been earmarked for smart metering and the remaining for infrastructure upgradation to reduce losses. The top seven sta­tes account for over 87 per cent of app­ro­vals in value terms, namely, Uttar Pra­desh (Rs 357 billion), Tamil Nadu (Rs 283 billion), Rajasthan (Rs 186 billion), Ma­dh­ya Pra­desh (Rs 182 billion), Gujarat (Rs 165 billion), Andhra Pradesh (Rs 134 billion) and Kerala (Rs 106 billion). The other sta­tes include Assam, Rajasthan, Jammu & Ka­shmir, Meghalaya, Mizo­ram, Andh­ra Pra­desh, Gujarat, Hima­ch­al Pradesh, Ke­rala and Uttarakhand. Un­der the sche­me, most states plan to take over the financial losses of their discoms and liquidate 100 per cent of the government department’s dues by 2024-25. In case a state is unable to meet the milestones, it will not be eligible to avail of the funds.

Recent developments

New late payment surcharge rules: The Ministry of Power (MoP) recently issued the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 to ad­d­ress the issue of mounting discom dues, which have now crossed Rs 1,500 billion. As per these rules, the total dues owed by discoms to generation and transmission companies can be paid in equated mo­nthly instalments. States su­ch as Rajas­th­an, Jharkhand, Tamil Na­du, Maharashtra, Jammu & Kash­mir, Ma­dh­­ya Pradesh and Uttar Pradesh, with pe­n­ding power purchase dues to the tune of Rs 960 billion, are complying wi­th the rules. Acco­r­din­gly, the distribution licen­se­es of these states paid arou­nd Rs 26 billion to their electricity suppliers on Au­gu­st 5, 2022. REC Limited has provided financial assistance of Rs 220 billion for clearing the outstanding dues of the distribution licensees of Jharkhand, Rajas­th­an, Chha-ttis­­garh and Jammu & Kashmir.

Draft resource adequacy framework for reliable power supply: In September 2022, the CEA introduced the draft gui­de­li­nes for implementing a resource adequacy plan for various distribution utilities. Such a plan would benefit discoms as well as the entire sector th­ro­ugh optimal utilisation of generation ca­pacity, thereby helping harness the diversity in electricity demand and sha­ring of generation ass­ets among various states. The plan will also help states in optimal capacity planning and procurement of power, thereby reducing the cost of supply for consu­mers. Pilot studies for re­source adequacy are currently being ca­rried out for five states: Madhya Pra­desh, Assam, Odisha, Tamil Nadu and Punjab.

The National Open Access Registry (NOAR) goes live: The NOAR went live successfully on May 1, 2022. The NOAR has been designed as an integrated single-window electronic platform that is ac­cessible to all stakeholders, including open access participants, traders, pow­er exchanges and national/regio­n­al/sta­te load despatch centres (LDCs) for electronic processing of short-term open access applications, thereby auto­ma­ting the administration of STOA in the interstate transmission system (ISTS). The NOAR platform will act as a repository of information re­la­ted to STOA in the ISTS, including the standing clearance issued by regional LDCs or state LDCs and the STOA granted to op­en access customers, and make such information available to stakeholders online.

Rules for green open access launched: In June 2022, the MoP notified the Green Open Access Rules, 2022, aimed at promoting generation, purchase and consumption of green energy, including po­wer from waste-to-energy plants. The rules enable a simplified procedure for op­­en access to green power and faster ap­proval for green open access, uniform banking, voluntary purchase of renewable power by commercial and industrial consumers, applicability of open acc­ess charges, etc. Under the rules, consu­mers can demand the supply of green power from a discom.

Discom privatisation in union territories (UTs): The discom privatisation pro­ce­ss of UTs, announced in 2020, has ma­de limited headway so far. Two UTs – Chandigarh, and Dadra & Nagar Haveli and Daman & Diu – have been awarded to private players, Eminent Electricity Distribution Limited (owned by CESC Limited) and Torrent Power, respectively, for the purchase of 51 per cent share in the discoms of these UTs. Recently, the Puducherry Electricity Department invited bids to privatise its distribution business.

Smart metering: Smart metering is a major focus area of the government and is being promoted under various sche­m­es and programmes such as the National Smart Grid Mission, the Smart Metering National Programme, the Integrated Po­w­er Development Scheme and the RDSS. As of September 2022, a total of 10.7 million smart meters have been sa­nctioned under various schemes while 4.95 million smart meters have been installed. The installation of 6.8 million smart meters is currently under way. Ut­t­ar Pradesh has the highest number of installed smart meters in the country at nearly 1.15 million, followed by Bihar (1.09 million).

Challenges and the way forward

The financial viability of discoms remai­ns a major challenge for the sector. The need for a financially sound distribution segment assumes greater importa­nce with the ongoing energy transition, since renewable energy generators and investors need payment security from discoms. Moreover, in the coming years, electricity flows will become in­crea­sin­gly complex with the growth of decentralised generation and the proliferation of EV charging infrastructure, thereby necessitating greater automation and te­ch­no­lo­gy adoption, which would re­quire significant investments. In additi­on, peak demand is expected to continue growing, putting pressure on discoms to provide reliable power by tying up adequate capacity. Going for­wa­rd, discoms need to take steps to ali­gn with the changing trends in the power sector, and gear up to meet the challenges of the future.

Neha Bhatnagar