India’s power distribution segment is undergoing significant transformation, driven by the Revamped Distribution Sector Scheme (RDSS) and smart metering initiatives that are improving operational efficiency and reducing aggregate technical and commercial (AT&C) losses. However, challenges persist, particularly in improving the financial health of distribution companies (discoms) and reducing AT&C losses further. As energy demand grows, modernising infrastructure and meeting consumer requirement are becoming crucial. Experts from various discoms share their views on the challenges, solutions and future outlook for the distribution segment…
What is your view of the current state of the power distribution segment?
Gajanan S. Kale
The country’s power sector has undergone significant transformation over the past decade. It has transitioned from being power-deficient to power-sufficient, adding nearly 200,000 MW of generation capacity. The total power generation capacity now stands at 426,132 MW. In line with this growth, peak power demand has also reached new heights, crossing 250 GW earlier this year.
There is a clear emphasis by the government on promoting clean energy. The PM Surya Ghar Muft Bijli Yojana, launched by Prime Minister Narendra Modi in February this year, is a step in this direction. This initiative has significant potential to boost solar energy adoption across urban and rural areas in the country. The scheme provides a subsidy covering 60 per cent of the cost for solar units with up to 2 kW of capacity and 40 per cent for the additional cost of systems with 2-3 kW of capacity. The subsidy has been capped at 3 kW capacity. The scheme has received a positive response in a short span of time.
The power distribution segment has also experienced a series of changes over the past couple of years. Due to targeted government reforms, the sector is showing signs of meaningful improvement. Various reform measures have been undertaken, including the RDSS and earlier programmes such as the Integrated Power Development Scheme, aimed at strengthening sub-transmission and distribution networks. As a result, AT&C losses have decreased to 15.41 per cent in 2022-23 from 16.23 per cent in 2021-22. While challenges remain, particularly concerning financial sustainability and governance, there are visible signs of recovery and momentum towards achieving universal electrification.
Dennis Rajan
The power sector is one of the most demanding and rapidly growing sectors in the world. The evolution of green hydrogen and the rise of renewable energy have boosted the growth of the power sector across the world. Many multinational companies now have separate channels or wings to oversee the challenges and developments in the power sector. This trend is also energising the research and development of various growing elements and areas. The growth of renewable energy and the rising demand for sustainable, non-fossil fuel energy sources have significantly transformed the energy sector, especially with the advent of green hydrogen. Green hydrogen offers a cleaner energy alternative, supporting efforts to combat climate change. The dynamics of energy distribution, where supply meets demand, have evolved considerably over time. Real-time demand and consumption often differ, like two sides of a coin. However, recent advancements in edge-to-edge technology have enabled the power sector to bridge this gap, enabling more efficient and precise energy distribution.
The revamp of the distribution sector is very essential in today’s context. Despite the evolution of low-consumption household items and various commercial equipment that takes less power, overall power consumption has increased to a large extent compared to previous years. Moreover, the widespread adoption of electric vehicles has ushered in a new era of power usage, allowing for comparisons across different consumption patterns. In the past, demand in the distribution sector could be categorised into urban, semi-urban, rural and semi-rural areas. Now, these distinctions have become less relevant, reflecting the growth in the number of consumers and the increasing demand for power in all areas irrespective of categorisation.
The adoption of the latest technology for advancing reliable and cost-effective power remains a challenge in this sector. Nationally, the distribution sector is undergoing significant changes, particularly with the implementation of the Revamped Distribution Sector Scheme (RDSS). Unlike previous initiatives, this scheme offers more comprehensive coverage. The improved ease of doing business significantly enhances convenience for individuals across all lifestyles. The one-touch solution makes life so simple. The parameters established for this revamp are attainable, but achieving the set milestones and goals requires close monitoring and follow-ups.
Reliable 24×7 power supply is a significant achievement, but achieving this goal requires time, investment and the development of smart infrastructure. The current efforts towards revamping the power sector are progressing well and can be completed within the prescribed timeline. However, given the diverse methodologies across the system, a uniform approach is necessary to ensure nationwide compliance with the reforms. Bridging the gap between different customer segments is essential, as progress in the power sector should translate to benefits for consumers. In essence, this reflects collective progress and greater efficiency in achieving the goal.
Pramod Singh
The power distribution segment plays a critical role as it serves as the end link in the power value chain and acts as the nodal point for consumers. It is imperative that the distribution segment be financially viable so that it generates adequate revenue to feed the rest of the value chain, while having surplus to fund future capex and efficiency improvement efforts, and maintain tariffs at affordable/manageable levels.
The current state of the distribution segment is marked by a combination of challenges and promising developments. Efforts continue to focus on reducing AT&C losses, ensuring financial resilience and addressing the need for greater integration of renewable energy. The push for smart metering, distribution capacity addition, enhancing grid resilience and improving operational efficiency are ongoing efforts to ensure reliability and meet the desired level of customer service. However, resource adequacy for enabling reliable power supply and managing the financial health of discoms remain critical areas that require continued focus.
Overall, 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 improvement of performance efficiency.
What is your assessment of the progress under the RDSS?
Gajanan S. Kale
The RDSS has made steady progress in revitalising the power distribution landscape, focusing on key areas such as reducing energy inefficiencies, addressing measurement discrepancies and resolving outstanding financial support issues. While there has been a modest reduction in AT&C losses (from 16.23 per cent in 2021-22 to 15.41 per cent in 2022-23) and a decrease in the gap between the average cost of supply and average realisable revenue (from Re 0.69 per kWh in 2020-21 to Re 0.55 per kWh in 2022-23), there is still a long way to go. These improvements are encouraging, but we need to accelerate our efforts to sustain this momentum.
Enhanced revenue realisation, driven by more efficient management of subsidies and government dues, is definitely a positive outcome. However, it is crucial that we expedite the implementation of the RDSS and perhaps even extend the programme beyond its current timeline to tackle the remaining challenges more effectively. For instance, integrating discoms’ IT systems with meter data management systems, ensuring the timely availability of smart meters, addressing the non-uniformity in tendering practices and providing adequate training and capacity building are all areas that need more attention moving forward.
Dennis Rajan
The revamping of the power sector, particularly with the implementation of the RDSS, has been progressing at a slow pace. This delay is mainly due to the need to streamline projects at various stages and coordinate efforts across multiple levels of implementation. To accelerate this process, a pilot project should be launched in critical areas that require a higher level of expertise. This focused approach can help identify key issues and implement seamless solutions in a time-bound manner. Technologies such as SCADA, smart meters, prepaid meters, AB cables and covered conductors are expected to play a significant role in shaping the new grid. Additionally, strengthening the existing infrastructure is essential to support progress. Although the initial progress has been slow, the integration of advanced technology and expertise is expected to accelerate real progress in the field.
Pramod Singh
The RDSS holds significant potential to enhance India’s power distribution efficiency and has shown promising initial progress. The scheme focuses on reducing AT&C losses, improving the financial sustainability of discoms and ensuring reliable 24×7 power supply. Key initiatives under the RDSS, such as smart metering, network modernisation and the introduction of advanced IT systems, have begun yielding results. However, challenges will persist in achieving uniform progress across states and further accelerating delivery while harnessing the intended benefits of sustainability. A continued focus on capacity building, timely implementation and effective monitoring is crucial for achieving the scheme’s targets.
What are the unresolved issues in the segment?
Gajanan S. Kale
While there has been significant progress in the power sector, some key challenges still need to be addressed. One of the main issues is the high AT&C losses, along with the rising cost of power, primarily driven by fuel and purchase expenses. This gap between the cost to supply power and the revenue from power sales continues to strain the finances of discoms. By reducing this gap and relying less on borrowing for operational costs, discoms can achieve better financial stability.
Looking ahead, the sector is set for major improvements through the adoption of smart metering, digital solutions and advanced distribution management systems. These technologies will help boost efficiency and support the integration of renewable energy sources. Additionally, a focus on improving corporate governance, such as collaborating with more independent directors and strengthening financial and human resource practices, will be crucial for long-term success. Overall, the sector is well positioned to build on its progress and move towards a more sustainable and prosperous future.
Dennis Rajan
The major unresolved issues in the sector include a lack of effective players and the absence of comprehensive solutions across different stages. Bidders often focus only on low-hanging fruits, aiming to extract maximum value with minimal effort. This is a common phenomenon in the sector, where operations occur at multiple levels requiring specialised expertise. The power sector cannot be easily compared to other industries, as it demands a high degree of skill and adherence to safety standards. Safety is of paramount importance, and there can be no deviation from these standards, even in efforts to expedite processes and complete tasks reliably.
The main constraints include:
- A shortage of experienced players for work and execution.
- Limited competition in key areas.
- A need for sound decision-making to ensure reliable project execution.
- Pramod Singh
Rather than “unresolved issues”, I would prefer to call them “work-in-progress”, as many policy and market development efforts are underway that could provide significant 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 comes from fuel/power purchases, which remain at elevated levels. Reducing AT&C losses, narrowing the average cost-to-tariff ratio and providing efficient customer service remains key priority areas for the segment.
There have been several important market and regulatory changes, such as the General Network Access Regulations, the deviation settlement mechanism and the new grid code, which greatly influence the way a discom operates and responds as a grid participant. These changes affect the injection, drawing, scheduling and use of transmission infrastructure in the new paradigm, which is being assimilated at the operational level, and to that extent, new standard operating procedures are being developed and aligned with these requirements. On the market front, current efforts to deepen the power market in the real-time and ancillary segments, as well as to make renewable energy projects deliver energy profiles tailored to a discom’s demand, are essential. In addition, developing a despatchable product would be beneficial.
The integration of renewable energy sources and the energy transition objective are reshaping the landscape, requiring a commensurate response from the distribution network. This shift towards cleaner energy sources necessitates updates to distribution infrastructure and practices to manage grid integration effectively. Ensuring the resilience and reliability of power distribution systems remains a critical need.
What is your outlook for the distribution segment in the near to medium term?
Gajanan S. Kale
The outlook for the power distribution sector is promising, thanks to a strong emphasis on clean energy. Ongoing reforms, enhanced governance and advancements in technology and financial management provide a solid foundation for future growth. To maintain this momentum, it is essential to swiftly and effectively implement key reforms such as the RDSS, and adopt innovative technologies such as smart grids, advanced metering infrastructure, energy storage systems and artificial intelligence. Furthermore, integrating renewable energy sources such as wind and solar power will be crucial in shaping a sustainable future for the sector. With these strategies in place, the sector is well-positioned to seize opportunities and achieve its transformative goals in the coming years.
Dennis Rajan
The distribution sector serves as a crucial bridge between power generators and customers, integrating the transmission component as well. Accurate forecasting of real-time demand is essential for enabling the smooth dispatch of power from generators to customers through the necessary channels. This highlights the importance of the distribution segment. With the adoption of the latest technologies, real-time demand and consumption can be effectively forecasted and calculated, ensuring efficient power delivery to meet consumer needs.
The X factor plays a crucial role in connecting generators to ensure a smooth flow of electricity. In the context of renewable energy, the future lies largely with battery energy storage systems. These systems can help overcome crises and meet peak demand goals. However, there remains a need to focus on developing cost-effective, adaptable technologies that are reliably available. Such advancements would not only boost economic growth, but also facilitate a significant leap toward the future. Once the market stabilises with sustainable and reliable power, it can sustain itself over a defined period, allowing for recovery and generating returns in a short timeframe.
Pramod Singh
Over the past few years, India has progressed well and is now the world’s third-largest electricity producer. However, the country’s need for energy is increasing at a fast pace as a result of economic growth. Our per capita power consumption has more than doubled every decade, but it remains less than one-third the global average. This indicates that significant capacity addition, specifically in the distribution segment, will continue to be necessary in the future. The outlook for power distribution is promising. Sustainable, efficient and resilient power distribution systems will be essential to meet the evolving energy delivery system, and for this, investments in grid modernisation, automation and renewable energy integration are expected to continue as key
intervention areas.
While challenges persist in the power distribution segment and the need to successfully navigate the energy transition remains, ongoing technological advancements and a shift towards clean energy sources offer a bright future. The segment must ensure that it is well prepared to deal with these evolving changes and has a robust resource
adequacy plan.
The deployment of technology and progress along the digital path by distribution utilities will play a key role in this transition. The grid of the future must adapt to the emerging energy transition, changing customer needs and the need for grid flexibility while maintaining the security of both the grid and supply.
Integrating environmental sustainability into operations and active participation towards meeting decarbonisation objectives in the tail end of the value chain will be a prominent strategic goal in the business plans of discoms.
