While the power distribution segment has witnessed significant growth over the past few years, it continues to face challenges such as high aggregate technical and commercial (AT&C) losses, low revenue collection, high level of cross-subsidies, inadequate tariffs and increasing government dues. Key government programmes such as 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) have shown marked progress, albeit below the targeted levels in many cases.
In addition to implementing these prog-rammes for bringing about improvements in the technical, operational and financial performance of utilities, the government has proposed several new policies in the past year to bring about structural changes in the power system. These include the proposed amendments to the Electricity Act, 2003, and the Tariff Policy, 2016, the introduction of a scheme for aggregate procurement of medium-term power by discoms, redesigning of electricity markets to an intra-day model and the ancillary services mechanism from an administered one to a market-based mechanism, and setting up a national electricity distribution company (NEDC).
Meanwhile, the distribution network continued to grow with respect to line length, transformer capacity and metering, and met a peak demand of about 175 GW in 2018-19, the highest ever till date.
A look at the performance of discoms and the key developments in the distribution segment during the past year…
Operational performance
The distribution network has been growing at a steady pace. As per India Infrastructure Research estimates, the aggregate distribution line length and transformer capacity stood at about 10.9 million ckt. km and over 780,000 MVA, respectively, as of March 2018. The total energy sold by discoms in 2017-18 was estimated at 880 billion units (BUs). Meanwhile, the consumer base is estimated to be over 260 million as of March 2018.
AT&C loss levels for the UDAY participating states declined from 20.2 per cent in 2016-17 to 18.7 per cent in 2017-18. However, the latest data on the UDAY website indicates AT&C losses of around 20 per cent, much higher than the level achieved at the end of 2017-18 and far above the target level of 15 per cent that was planned to be achieved by March 2019, casting doubt on the consistency of the performance improvements.
Further, performance varied significantly across states and discoms in 2017-18. Nine states and 14 discoms were able to achieve the target of bringing AT&C losses down to less than 15 per cent. The states were Himachal Pradesh, Dadra & Nagar Haveli, Andhra Pradesh, Daman & Diu, Kerala, Gujarat, Telangana, Karnataka and Tamil Nadu. Amongst the discoms were the Himachal Pradesh State Electricity Board; Andhra Pradesh Eastern Power Distribution Company Limited and Andhra Pradesh Western Power Distribution Company Limited; Mangalore Electricity Supply Company Limited, Bangalore Electricity Supply Company Limited and Chamundeshwari Electricity Supply Corporation of Karnataka; three Gujarat discoms (Dakshin Gujarat Vij Company Limited, Madhya Gujarat Vij Company Limited and Uttar Gujarat Vij Company Limited); and the Kerala State Electricity Board.
Meanwhile, seven states recorded AT&C
losses of more than 25 per cent, with the highest being in Jammu & Kashmir at 53.78 per cent, followed by Jharkhand, Meghalaya and Bihar with losses above 30 per cent.
On a positive note, the gap between the average cost of supply and the average revenue realised decreased from Re 0.41 per unit in 2016-17 to Re 0.17 per unit in 2017-18.
Power quality too showed an improvement over the past year. The average duration of power cuts reduced from 5.2 hours per month in March 2018 to 4.7 hours per month in March 2019. The average number of power cuts per month declined marginally, from 7.7 in March 2018 to 7.5 in March 2019.
Financial performance
The total income of discoms increased from Rs 4,841 billion in 2016-17 to Rs 5,506 billion in 2017-18, an increase of nearly 14 per cent. Almost 42 per cent (Rs 182.73 billion) of the total incremental income was due to an increase in energy consumption over the year. Further, the total expenditure increased by 8.4 per cent, from Rs 5,219.58 billion in 2016-17 to Rs 5,656.24 billion in 2017-18. The book losses of discoms have also shown notable improvement owing largely to debt restructuring done under UDAY, reduction in AT&C losses and increase in tariff rates. The losses declined by more than 60 per cent in 2017-18 to stand at around Rs 150.5 billion as compared to Rs 378.77 billion in 2016-17.
Meanwhile, the average power purchase cost (PPC) stayed constant at Rs 4.20 per unit between 2016-17 and 2017-18. While the PPC had gone down on the back of coal linkage rationalisation, shutting down of old inefficient generating units, better compliance of merit order dispatch, overall performance improvement of state gencos, etc., most of this was offset by factors that led to an increase in the cost. These include increase in prices of domestic as well as imported coal, increase in railway freight charges and volatile short-term power prices. However, some states such as Chhattisgarh, Jharkhand, Telangana, Haryana, Meghalaya, Himachal Pradesh, Punjab, Uttar Pradesh, Goa and Gujarat have registered a decline in their PPC.
Key recent developments
Much of the discoms’ success has been driven by government schemes such as UDAY, DDUGJY, IPDS and Saubhagya. The target of 100 per cent household electrification is close to being achieved with fewer than 19,000 households left to be electrified as of April 2019. Earlier, in April 2018, the country’s last unelectrified village was electrified, achieving the 100 per cent village electrification target. UDAY ended in March 2019, and while the final numbers are yet to be reported, the government is already contemplating a second phase of the scheme.
In September 2018, the Ministry of Power (MoP) proposed amendments to the Electricity Act, 2003. Among the key provisions related to power distribution are the switch to direct benefit subsidy from subsidies in tariff, separation of distribution and supply of electricity in order to encourage competition, and imposition of a penalty on distribution companies failing to provide 24×7 power supply. The MoP has recommended that the violation of power purchase agreements should also result in penalties. It has also proposed the simplification of the tariff structure as well as making it more uniform across states through amendments in the tariff policy.
The government has also indicated its plans of setting up an NEDC in view of the poor payment record of state-owned discoms. The proposed NEDC is expected to support state discoms in power distribution, procure electricity at competitive rates and deal with stressed assets. Recent reports suggest that it could be a joint venture between NTPC Limited and Powergrid Corporation of India Limited.
Meanwhile, steps towards modernisation of the distribution segment continued to be taken during the past year. To this end, in December 2018, the government notified a target of making all meters smart and prepaid over a period of three years starting April 1, 2019.
Challenges and outlook
One of the major challenges facing the power distribution segment is the rising cost of power purchase due to coal supply shortages and expensive power at the exchanges. At the same time, tariffs continue to be inadequate in the absence of timely filing of tariff petitions as well as issuance of tariff orders by state regulatory commissions. There has also been upward pressure on AT&C losses because of outstanding dues from government departments, increase in supply to the agricultural sector and rural areas, and non-receipt of subsidies from the government. Outstanding dues from government departments increased from Rs 293 billion in 2016-17 to Rs 356 billion in 2017-18. With the increase in new connections under Saubhagya, losses are expected to go up and billing/collection efficiency is expected to go down as most of the connections are in far- flung rural pockets. Further, the number of open access consumers went up by over 4 per cent during 2017-18. This has also resulted in lowering of revenues for discoms and additional uncertainty in power demand. Another area of concern is that pertaining to regulatory assets, which were at a significant Rs 1,400 billion as of March 2018, with a major share accounted for by Rajasthan, Uttar Pradesh, Tamil Nadu and Maharashtra (besides the non-UDAY states of West Bengal and Delhi).
While the government has taken a number of initiatives and implemented several programmes to address these issues and improve the performance of the distribution segment, the progress has been slower than targeted and discom performance continues to remain below the mark. The need of the hour is to augment distribution infrastructure with advanced technologies and ensure sound execution of the proposed programmes as well as those already under implementation.
Going forward, network growth is likely to continue on the back of growing demand, increasing emphasis on 24×7 quality power supply to all households, replacement of ageing infrastructure and technological developments. Meanwhile, the industry keenly awaits outcomes related to the proposed policy changes including separation of carriage and content, redesigning of the tariff structure, rationalisation of PPAs and enforcement of a penalty mechanism for under performance of discoms.