The power distribution sector has been at the forefront of policy reforms aimed at ensuring the financial viability and sustainability of distribution utilities. The flagship Revamped Distribution Sector Scheme (RDSS), which focuses on improving the operational efficiency of discoms through network strengthening, smart metering and capacity building, is making headway. Apart from this, the introduction of the Late Payment Surcharge Rules has led to a significant improvement in the payment discipline of discoms. Experts from various discoms share their views on the challenges, solutions and future outlook for the distribution segment…
What is your assessment of the current state of the power distribution segment? How has been the performance in the past one year?
India’s power sector, including the power distribution segment, has undergone a sea change in the last decade. The country has added over 175 GW of generation capacity during the past decade. Meanwhile, there has been a significant reduction in AT&C losses (which dropped to around 16 per cent), a persistent challenge in the sector. This achievement has been complemented by a narrowing of the gap between the average cost of supply and the average revenue realised. Various government policies and initiatives have helped in achieving these milestones. The RDSS played a pivotal role in curbing technical losses, metering losses and subsidy arrears. Measures such as subsidy disbursal and easing of the debt obligation have helped in the financial sustainability of discoms. Widespread smart meter installation, supervisory control and data acquisition (SCADA) application, improved operations and maintenance practices, payment innovation and other digitalisation measures have also played an important role in performance excellence.
Various other policies such as the Late Payment Surcharge Rules, 2022, which results in the suspension of power exchange access until payment for the interstate transmission system is settled, along with measures such as the Electricity (Rights of Consumers) Amendment Rules, 2023, have helped in rejuvenating the sector. It is pertinent to mention here that according to a written reply by power minister R.K. Singh, discom debt decreased from Rs 1,383.78 billion in March 2022 to Rs 910.61 billion in March 2023.
Similarly, policymakers have shown agility in dealing with challenges related to grid stability and the energy market by publishing the IEGC 2023, ancillary services regulations, market coupling mechanism, resource adequacy plan, and DSM-related regulations. However, certain guidelines related to the blending of coal, and pooled tariffs for thermal power plants with expired PPAs have led to an increase in the power purchase cost.
The power distribution segment plays a pivotal role in ensuring the availability, reliability and sustainability of electricity supply to consumers across India. It is imperative that the distribution segment is financially viable so that it garners enough cash to feed the rest of the value chain and also has a surplus to fund the future capex as well as keep the tariff at an affordable/manageable level.
When seen from this context, the current state of the power distribution segment is marked by a combination of challenges and promising developments. Addressing the large regulatory asset and cost-reflective tariff requirements are important ingredients. In recent years, discoms have grappled with financial and operational challenges, which have put a strain on the entire power sector value chain. However, a transformative shift is under way. The government is undertaking significant reforms for discoms and the recent policy related to automatic pass-through in retail tariffs through power purchase adjustment charges, steps being taken to bring in more payment discipline in the sector and providing financial assistance to discoms for the upgradation of the distribution infrastructure and prepaid smart metering and system metering, combined with the effective on-ground execution related to performance efficiency in the distribution segment, shall certainly provide the much-needed impetus to improve operational efficiencies and financial sustainability of discoms for the overall benefit of the sector.
Above all, the power distribution segment in India stands at a critical juncture, characterised by technological advancements, ambitious renewable energy integration goals, regulatory reforms and a wide array of possibilities for further harnessing performance efficiency.
The current state of the power distribution segment, particularly in NCT Delhi, looks promising. Over the past year, the sector has shown remarkable resilience and efficiency, fully recovering the demand for power to pre-Covid levels. Delhi’s power demand has been continuously rising and clocking 7,695 MW, and it is being successfully met.
One of the most significant achievements has been the ability of both BRPL and BYPL to meet peak power demands of 3,389 MW and 1,752 MW, respectively, despite various challenges. In terms of network reliability, BSES has maintained an impressive level of 99.7 per cent, which is on par with the best in the industry. Furthermore, BSES has reduced its AT&C losses to under 7 per cent.
Over the years, BSES, which supplies reliable electricity to two-thirds of the national capital, has modernised its distribution network. It is not just powering Delhi and empowering over 20 million residents in South, West, East and Central Delhi, but is also supporting mega events. Recently, BSES supplied reliable power supply at the G20 Summit venues, including the Bharat Mandapam. The credit for the success of this massive operation goes to an experienced team of BSES engineers, their state-of-the-art technology, multiple backups and 24×7 monitoring by the BSES SCADA control centre.
The company has made significant progress in embracing the concept of electric mobility by installing over 3,000 EV charging connections with a combined sanctioned load of 70 MW. Additionally, BSES has been proactive in facilitating the Delhi government subsidy for EV charging installations, adding over 1,550 connections under the Switch Delhi scheme. The company added over 1,000 new EV charging connections with a sanctioned load of 19 MW. Further, it has installed and is operating around 170 new EV charging points. Furthermore, 131 battery swapping stations have been set up in the lincensed area.
As of now, there are over 5,650 net metered connections, boasting a combined capacity of over 150 MW rooftop PV installations. The surge in these numbers can be attributed to the increasing interest of customers in adopting renewable energy. Noteworthy government policies include the net metering regulations, group net metering, virtual net metering, and the provision of the generation-based incentives. These policies not only promote the use of renewable energy but also make it financially viable for consumers. The company successfully enabled around 1,000 net metered rooftop PV installations, which cumulatively have a capacity of around 18 MW. Additionally, the New Delhi Solar Policy was introduced by the Delhi government last year and is currently open for public comments. The final version of this policy is anticipated to further bolster the adoption of solar energy. Furthermore, the current framework is designed to be consumer friendly. Levies such as cross-subsidy charges, wheeling charges and additional surcharges are not levied on customers who opt for net metering, group net metering, and virtual net metering. This financial incentive further encourages consumers to transition to renewable energy sources.
What are some of the unresolved issues in the distribution segment?
While the distribution sector has witnessed significant improvements, challenges such as regulatory asset liquidation, and subsidy and disbursement delays continue to persist. These issues require immediate attention and regulatory intervention. Policy initiatives such as the Subsidy Accounting Rules, 2023, are an attempt to address the liquidation of subsidy dues from the state government. It is imperative to address challenges pertaining to accurate demand forecast and energy estimation. Rising power purchase costs due to increased fuel costs, strict RPO targets, exiting of cheaper thermal power plants after PPA completion, etc., are some other challenges that the sector confronts. Even though the implementation of the Late Payment Surcharge (LPS) Rules in 2022 led to a drastic reduction in discoms’ outstanding dues towards gencos, the dues still persist in a few of the states. Hence, long-term solutions to all these challenges are needed through structural reforms.
Rather than “unresolved issues”, I would prefer to call it “work-in-progress” as a lot of policy and market development aspects are at work, which could potentially provide a lot of tailwinds for the distribution sector, going forward, if implemented effectively.
The underlying cost structure at the retail level continues to be very stubborn as a large part of the cost is fuel/power purchase, which mostly remains at elevated levels. Reducing AT&C losses, narrowing the average cost-to-tariff ratio customer service remain key priority areas for the segment.
There are a lot of important market and regulatory changes such as GNA, DSM, new grid code, etc., that will greatly influence the way a discom needs to behave and respond as a grid participant to inject, draw, schedule and use the transmission infrastructure in the new paradigm, which perhaps would require new algorithms and standard operating procedures to be developed at the operational level. From the market front, the present effort on deepening the power market in the real-time and ancillary segments, as well as making renewable energy projects deliver an energy profile tailored to the discom’s demand profile and also a dispatchable product, would be very useful.
Renewable energy sources and the energy transition objective are also reshaping the landscape in so far as seeking commensurate response from a distribution network perspective is concerned. This shift towards cleaner energy sources necessitates updates to distribution infrastructure and practices to manage grid integration effectively.
The distribution segment faces a myriad of unresolved challenges that impede its efficiency and reliability. The most pressing issues are land, space and right-of-way constraints. The lack of space not only overloads existing assets but also compromises the quality of power supply. Another key challenge is ensuring reliable power supply in unauthorised colonies. These areas often lack planned space for infrastructure, leading to safety issues and asset damage.
The transition from overhead networks to underground systems also poses challenges. The underground space is already cluttered with various assets, increasing the risk of damage and accidents. A policy mandating the construction of dedicated utility corridors is essential for enhancing operational efficiency and reliability. Border demarcation is another issue, particularly in certain parts of the Delhi-Haryana and Delhi-Uttar Pradesh border areas, where the absence of clear boundaries contributes to rampant power theft and high transmission and distribution losses. Additionally, the non-availability of an adequate police force remains a challenge in booking cases of theft and lodging FIRs. Financial challenges also persist, such as the liquidation of regulatory assets created to prevent tariff shocks among consumers. These unresolved issues require immediate attention to ensure a reliable and efficient power distribution system.
What is the future outlook?
The future outlook of the power distribution sector is promising, with sustainability at the forefront of its agenda. As the sector continues to evolve, strict adherence to policies and regulations by all stakeholders is important. The adoption of technology, such as smart grids and AI, is essential. Embracing IoT-based projects and placing a heightened emphasis on low voltage automation, demand response initiatives, operational technology (OT) cybersecurity framework; promoting digital technology and innovation; and a seamless integration of renewable energy sources, particularly solar rooftops, will further prepare the power distribution sector for a sustainable and innovative future.
Furthermore, focused customer-centric approaches should be adopted in the complaint resolution and service delivery process. Building manpower expertise through proper training will also play a key role. Additionally, the transition from technology pilots to full-scale deployment of innovations such as peer-to-peer trading and distributed energy resource management systems will usher in a new era of efficiency and flexibility. In addition, to meet the rising electricity demand, many distribution networks require substantial infrastructure investment.
At Tata Power-DDL, we recognise the multifaceted nature of the power sector in India. To meet these goals, we continue to invest in grid modernisation, thereby enhancing the reliability and efficiency of our power distribution networks. We recognise the importance of responsible energy consumption and are committed to reducing our environmental footprint. Through the Urja Arpan initiative, which was initiated in April 2022, we have achieved impressive savings, conserving 130 MUs of energy, preventing the emission of 100,000 tonnes of CO2, and preserving an equivalent of 4 million trees.
As we look ahead, the Indian power distribution segment is poised to embrace innovation and sustainability, setting the stage for a brighter, more efficient and environmentally conscious energy future.
The future outlook for power distribution is promising. Investments in grid modernisation, automation and renewable energy integration are expected to continue as key intervention areas. 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 of the global average, which points to the fact that a lot of capacity addition requirements across all segments would continue to be there in the future.
Moreover, there are structural changes under way. It is aimed that electricity moves steadily towards becoming the primary choice of fuel in automobiles, instead of petrol and diesel, and EVs are emerging as a strong disruption. On the supply side, we see appreciable mainstreaming of renewables in the energy basket. Formats such as solar rooftop, decentralised generation, green hydrogen, etc., are expected to see significant growth.
While challenges persist in the power distribution segment, ongoing technological advancements and a shift towards clean energy sources offer a bright future. Sustainable, efficient and resilient power distribution systems will be essential to meet the evolving energy needs of the licensed area.
Some recent experiences suggest that power distribution finds itself in a strange conundrum today. While it has traditionally been considered as a steady state localised business, primarily driven by long-term arrangements, of late, we have seen that it inevitably has to deal with greater variability in supply and in net demand, including managing surplus due to distributed generation at the local level. At the same time, it is increasingly exposed to more global volatility, such as global energy crisis and geopolitical events. The segment has to ensure that it is well fortified to deal with these evolving changes and has a robust resource adequacy plan.
Technology deployment and progress on the digital path by distribution utilities shall play a key role in this transition. The grid of the future will have to adapt to the emerging energy transition path, changing customers’ needs and grid flexibility, while also maintaining grid security and supply.
Imbibing environmental sustainability in its operation and active participation towards meeting decarbonisation objectives in the tail end of the value chain would arguably be a prominent strategic goal in the business plan of every discom.
Needless to mention that in the backdrop of these changes, the sector would have to learn faster and back it up with stronger execution as the landscape further evolves from a regulatory, policy, consumer preference and technology point of view.
In an era marked by rapid technological advancements and increasing energy demand, the power distribution sector is at the cusp of a transformative change. The industry landscape is evolving, from the emergence of solar energy to the rise of EVs.
To manage the growing demand effectively, discoms are focusing on implementing time-of-day tariffs through the rollout of smart meters. Battery energy storage systems are being deployed to manage peak demand and optimise costs. In parallel, the sector is leveraging analytics and management information system reports to proactively identify and mitigate instances of power theft and fraud.
Automation is a cornerstone in this transformation. Advanced meter reading capabilities, facilitated by AI-based apps and optical cables, are reducing billing errors and enhancing operational efficiency. The digitalisation of bill generation and payment processes, in collaboration with mobile applications and UPI gateways, is streamlining operations while improving customer satisfaction.
In terms of infrastructure, the integration of SCADA systems with advanced distribution management systems is crucial for enhancing operational efficiency and service reliability. These systems, when coupled with geographic information systems, provide a robust framework for utilities. The convergence of IT and OT is becoming increasingly important, especially in the context of cybersecurity to protect critical infrastructure.
Looking ahead, we are optimistic about the sector’s growth potential, especially in NCT Delhi. The vertical expansion of residential units and the initiation of prestigious projects are expected to surge power demand. Overall, the future of the power distribution sector is bright, driven by technological innovations and a commitment to sustainability. We are poised to capitalise on these emerging trends, ensuring a more responsive and sustainable utility management ecosystem.
The future outlook for BSES in the EV charging sector is promising and poised for significant growth. By 2023-24, BSES aims to operate around 900 EV charging points. Furthermore, the overall number of EV charging connections is projected to reach 3,300 by 2023-24, with a combined sanctioned load of 110 MW.
The company is set to add an additional 20-23 MW of capacity in 2023-24, and this growth trajectory is expected to continue. By 2030, BSES aims to achieve a substantial capacity of 320-380 MW, facilitated by policy support and an enabling regulatory framework.
In addition to capacity expansion, the introduction of green open access and green tariffs will play a pivotal role in shaping the future. These initiatives will not only provide consumers with better energy options but will also significantly contribute to decarbonisation efforts. Overall, the company is well positioned to meet the growing energy demands while also focusing on sustainability.