Distribution Progress

Despite a significant improvement in its overall performance, the power distribution segment continues to face challenges such as high aggregate technical and commercial (AT&C) and financial losses, inadequate tariffs, unconnected and unmetered consumers. Several ongoing government schemes including the Ujwal Discom Assurance Yojana (UDAY), the Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY), the Integrated Power Development Scheme (IPDS) and the Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya), are aimed at overcoming these challenges. One of the major achievements during the past year has been the electrification of the remaining villages under the DDUGJY. The other programmes have also recorded notable progress albeit below the targeted levels in many cases.

In addition to implementing these programmes for bringing about improvements in the technical, operational and financial performance of the utilities, the government has proposed new policies in the past year to bring about structural changes in the power system. These include imposing penalties on distribution companies for avoidable power cuts, introducing direct benefit transfer of subsidies, separating carriage and content, and making 24×7 power supply mandatory for distribution companies through amendments to the Electricity Act, 2003. Further, the government plans to set up a national electricity distribution company, simplify tariff categories and rationalise tariffs.

Meanwhile, the distribution network continued to grow in all aspects including line length, transformer capacity and metering, and met a peak demand of about 170 GW, the highest ever till date. A look at the performance of discoms and the key developments in the distribution segment in the past year…

Discom performance

The distribution network has been growing at a steady pace. As per India Infrastructure Research, the aggregate distribution line length and transformer capacity stood at about 9.34 million ckt. km and 683,325 MVA respectively, as of March 2017. The total energy sold by discoms in 2016-17 is estimated at 850 BUs. The consumer base is estimated to have increased from 235 million as of March 2016 to about 252 million in March 2017.

The discoms recorded an improvement in their operational performance. The AT&C loss level for the UDAY participating states declined from 20.2 per cent as of March 31, 2017 to 18.76 per cent as of March 31, 2018. Meanwhile, the gap between the average cost of supply and the average revenue realised (ARR) decreased from Re 0.45 per unit to Re 0.21 per unit. However, the cost coverage ratio for 25 out of 41 discoms that were rated remained below 90 per cent as per the Power Finance Corporation’s report “Integrated Rating for State Power Distribution Utilities”. The report attributed this to a substantial increase in expenses and non-cost-reflective tariffs. Further, power quality has improved over the past year. The average duration of power cuts has reduced from 10.1 hours per month in August 2017 to 8.5 hours per month in August 2018. In fact, in the month of May, when the country faced its highest peak demand, the average duration of power cuts was less than eight hours. The average number of power cuts in a month has also declined from 15.5 in August 2017 to 14.2 in August 2018.

Progress under government schemes

UDAY

UDAY was launched in November 2015 to improve the financial and operational efficiency of state discoms. A total of 32 states and union territories, except West Bengal, Odisha, Delhi and Chandigarh, have signed MoUs for the implementation of UDAY. By March 2017, the states had completed the takeover of their respective discoms’ debt, and bonds worth Rs 2.32 trillion (addressing 86 per cent of the debt to be taken over under UDAY) had been issued. AT&C losses have reduced to 18.7 per cent as against the target of 15 per cent by March 2019. In order to achieve the target, the government has directed all states with more than 15 per cent AT&C losses to submit an action plan for loss reduction, warning to put on hold the funding for various schemes if the target is not achieved. On the metering front, the discoms have shown mixed performance. While all feeders have been metered, only 59.9 per cent distribution transformers have been metered so far. Smart metering progress has been rather sluggish with only 1.6 per cent of the targeted number of smart meters (24.16 million) installed so far.

DDUGJY and Saubhagya

DDUGJY was launched in December 2014 to electrify all villages in the country and strengthen sub-transmission and distribution infrastructure in rural areas. Under the DDUGJY, projects worth Rs 425.65 billion have been sanctioned so far and about 22 per cent of the sanctioned cost has been disbursed to the states. Under the scheme, 100 per cent rural electrification was achieved in April 2018, ahead of the scheduled target of May 2018. After providing grid connectivity to all villages, the government is now focusing on the electrification of all households under the Saubhagya scheme. The government plans to achieve this target by December 2018, as against the scheduled timeline of March 2019 set under the scheme. Of the total 32.2 million unelectrified households (as of October 10, 2017), about 48.14 per cent (15.5 million) have been electrified so far. The rate of household electrification was 30,066 per day in June 2018 and touched 100,000 mark in September 2018, while the rate required to successfully achieve complete household electrification by December 2018 is 153,408 households per day.

IPDS

Under the IPDS, about 550 projects worth over Rs 300 billion have been sanctioned. These projects are being implemented across 5,500 towns in 32 states/UTs. The government has approved an aggregate grant of Rs 188.14 billion for these projects, of which only Rs 64.07 billion has been released till date. Of the total sanctioned cost, 92 per cent is for system strengthening, 3.2 per cent is for IT enablement (Phase II), 2.7 per cent is for smart metering, and 2.1 per cent is for enterprise resource planning implementation. Further, with respect to the Restructured Accelerated Power Development and Reforms Programme (R-APDRP), subsumed under the IPDS, a total of Rs 52.72 billion has been sanctioned as of August 2018 for Part-A (IT-enablement), of which Rs 37.77 billion has been released. Of the 1,405 towns sanctioned for IT enablement, 1,377 towns have achieved “go live” status. Under Part B of the R-APDRP (relating to strengthening of the distribution network), 1,189 projects have been completed against the 1,227 identified projects. Part B entails a total approved cost of Rs 292.96 billion, of which Rs 68.03 billion has been disbursed.

Other key developments

Smart grids

The government has taken a number of steps towards making the grid smarter. One of the key initiatives was the sanctioning of 10 smart grid pilot projects in 2012. Three of these projects, located in Panipat (Uttar Haryana Bijli Vitran Nigam), Kala Amb Industrial Area (Himachal Pradesh State Electricity Board) and Mysore (Chamundeshwari Electricity Supply Corporation), were completed in December 2017. Other projects are also at advanced stages of implementation. In December 2017, the India Smart Grid Forum released a “Smart Grid Handbook for Regulators and Policy Makers”. The handbook will serve as a good reference document for the discoms as well. Meanwhile, Energy Efficiency Services Limited (EESL) is deploying smart meters under the Smart Meter National Programme (SMNP) to reduce discoms’ billing inefficiencies. The SMNP is aimed at replacing 250 million conventional meters with smart meters. The company floated its second tender for procuring 5 million smart meters to be installed on a pan-India– basis in March 2018. The first tender of the same size was launched in July 2017.

Energy efficiency

Under the Unnat Jyoti by Affordable LEDs for All scheme, launched in January 2015, 308.56 million LED bulbs, 6.65 million tube lights and 2.01 million fans have been distributed across the country so far. This has resulted in energy savings of around 40 BUs per year and reduction in peak demand by 8,200 MW. In a move to take forward the energy efficiency initiatives in India, the Government of India, EESL and the World Bank signed a $220 million loan agreement and an $80 million guarantee agreement for the India Energy Efficiency Scale-Up Programme in August 2018. The programme is expected to help scale up the deployment of energy saving measures in the residential and public sectors, strengthen EESL’s institutional capacity and enhance its access to commercial financing.

Draft Electricity (Amendment) Act, 2018

The MoP has proposed amendments to the Electricity Act, 2003, on September 7, 2018. Amongst the key provisions related to power distribution are the switch to direct benefit subsidy, separation of the activities of distribution and supply of electricity in order to encourage competition and imposition of penalty on distribution companies failing to provide 24×7 power supply. It has also proposed penalties in case of violation of power purchase agreements. Further, the proposed amendments include the introduction of “smart grid” to the act, along with provisions for smart and prepaid meters. The proposed amendments are currently open for comments from different stakeholders and will be revised before being introduced in Parliament.

Proposed amendments to the Tariff Policy

The MoP also proposed to simplify the tariff structure and make it more uniform across all states through amendments to the Tariff Policy. As per the proposed amendment, the tariff structure should be based on the energy consumed and load used rather than the purpose of consumption (domestic, agriculture, industrial, etc.). It also suggests having maximum five load brackets and consumption slabs to be decided by the state electricity regulatory commissions. These provisions are also open for comments from stakeholders.

In sum

While government initiatives and programmes have led to an improvement in the segment, the progress has been slower than targeted and the performance of discoms continues to remain below the mark. The government is planning to set up a national electricity distribution company to ensure time-bound implementation of power schemes in the country. The proposal comes in view of the poor payment records of state-owned discoms. The company is expected to support discoms in electricity distribution activities and procurement of electricity at competitive rates.

Going ahead, the government’s focus areas in the power distribution segment will be 100 per cent electrification of households, separation of carriage and content, rationalisation of tariffs and implementation of smart grid technologies. Overall, the segment is on the path of recovery, but efficient implementation of the programmes and conversion of proposals into policies will be crucial for sustained improvement in its performance.[Ankita Gupta,Powerline]

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