The distribution segment is the breadwinner for the power sector and while discoms may grapple with legacy challenges in the short term, initiatives such as the Revamped Distribution Sector Scheme (RDSS) will resolve the problems of the segment to a large extent, believes R. Lakshmanan, chief executive officer, REC Power Distribution Company Limited (RECPDCL). Excerpts from a recent interview…
What is your perspective on the current state of the power sector?
The Covid-19 pandemic has adversely affected economies across the globe, including the power sector of India. While the demand from industrial and commercial consumers fell significantly during the extended lockdown periods, it has now picked up. The rapid fall in electricity demand has led generation plants to operate at a lower capacity, which can be best inferred from the plant load factor (PLFs) figures for 2018-19, 2019-20 and 2020-21 at 62 per cent, 56 per cent and 51 per cent respectively. Amidst this, the Indian renewable energy capacity is growing tremendously. The declaration of the net zero target by 2070 at Glasgow and the Union Budget 2022 provision of production-linked incentive (PLI) arrangements for solar module manufacturing have given an impetus to the renewable energy segment.
Going forward, the focus will be on the implementation of smart technologies such as an evolved grid system, smart metering, and digital asset management. This will help transform the seemingly traditional sector, making it smarter and more efficient. The financial health and business viability of the state discoms continues to be in a poor state. The prevailing inefficiencies in billing, metering and collection eventually result in the accumulation of large outstanding payments by the discoms to the gencos. The RDSS is yet another attempt to revive the distribution segment and improve its financial and operational efficiency. The RDSS is focusing on making the power distribution segment financially viable and enhancing customer services.
What have been the key achievements of RECPDCL in the past year or so?
The key achievements of RECPDCL have been:
- Consultancy services to the Ladakh Power Development Department (PDD) for overall business transition in various aspects like technical, financial and business operations, and support to Ladakh under the Carbon Neutral Mission.
- Advanced metering infrastructure implementation in the union territories of Ladakh (60,000 smart prepaid meters) and Jammu & Kashmir (around 700,000 smart prepaid meters) while an additional 1.2 million meters are in the pipeline in Jammu & Kashmir.
- Support to more than 10 power distribution utilities for framing the action plan and preparing the detailed project report (DPR) under the RDSS. It is also likely to provide consultancy services, as the project management agency (PMA) under the RDSS, to various discoms in the near future.
- RECPDCL is also working on designing and implementing the National Feeder Monitoring Scheme for all power distribution utilities across the country.
- Preparation of a report for the Ministry of Power (MoP) based on a detailed study of the organisation structure and recruitment process of discoms. This report will provide a guidance framework to all the discoms for developing an efficient organisation structure and optimising the recruitment process.
- Since 2008, 32 interstate transmission projects worth Rs 463.91 billion and five intra-state transmission projects worth Rs 56.45 billion have been handed over to selected transmission service providers.
- Further, 16 interstate transmission projects worth Rs 137.39 billion and one intra-state transmission project worth Rs 8 billion are under process for bidding out.
- Implementation of the intra-state transmission project worth Rs 13.1 billion in Ladakh for the Ladakh PDD and support to the Goa Electricity Department as project management consultant on the intra-state transmission project.
What are your top priorities for RECPDCL?
Our top priorities are to:
- Enter the power distribution business in distribution franchisee/distribution license mode.
- Provide IT-based solutions such as a unified billing system and cybersecurity for the entire power sector value chain.
- Implement prepaid smart metering, smart grid and comprehensive energy accounting solutions for various distribution utilities.
What are your views on India’s pledge to achieve net zero by 2070? What will be its impact on the power sector?
Although 2070 is a distant journey, India’s pledge for net zero has raised interest among business enterprises, corporates and industrial units to start acting in this regard. It is obvious that the appropriate policy measures and regulatory framework will be introduced in line with the envisaged goal in the coming years. Major transformations will be needed in many spheres. Coordinated actions by different stakeholders are required; for instance, buildings must be designed to use less energy. Large manufacturing companies and their associated supply chains must scale up the use of clean energy and become energy efficient. Farming must start adopting more sustainable practices with more optimal use of natural resources. Transport systems must move away from personal motor vehicles towards public transport and non-motorised modes. Fuels must be developed and commercialised.
This net zero ambition, coupled with conducive policy and regulatory support, will give an immense push to the growth of renewables in India. Even the niche renewable energy segments that have remained unexplored for a long time (such as offshore wind, tidal, geothermal, solar thermal) may see several growth avenues. Solar and wind are likely to overtake coal in terms of generation capacity much before 2030. For achieving net zero, action must begin now. The starting point will have to be better awareness across multiple stakeholders, creating thousands of champions who can lead the design, development and implementation of climate solutions and a continuous pool of qualified manpower to take up jobs that this action will require.
What is the current status of the RDSS? What are the expected outcomes?
The scheme focuses on reducing the operational and financial inefficiencies of state-owned power distribution utilities through various reforms and technical interventions. Most of the states have submitted their action plan and DPR to the nodal agencies (REC/PFC) and the nodal agencies are thoroughly studying the roadmap designed by each utility. The next step under the RDSS is approval of the DPR and action plan by the nodal agencies. Thereafter, the utilities will start appointing a PMA for monitoring and evaluation, and TKCs for the implementation of desired works as per the scheme guidelines. It is expected that the RDSS would bring in technology penetration for day-to-day operations of utilities from the technical, commercial, financial and HR perspectives. This would improve the financial viability and customer services of discoms.
What are the biggest challenges facing the power sector?
The poor operational and financial performance of the state discoms continues to be a key challenge for the sector. This leads to a ripple effect on generation on account of delayed payment of power purchase bills. Higher AT&C losses and the widening ACS-ARR gap are not just leading to operational inefficiencies, but also posing a threat to the business viability and sustainability of discoms. This problem becomes even more challenging in rural areas, where the cost of service tends to go up, which, coupled with lower collections, is a double whammy. The factors contributing to the high revenue gap of power distribution utilities are absence of cost-reflective tariffs, and delays in the payment of state government subsidies and government department dues to discoms.
On the generation front, owing to coal supply constraints, the generating units operate at a much lower PLF. Also, the unavailability of the requisite gas from domestic sources has led to stranded gas-based capacity. While renewable growth has been remarkable in the recent past, it is also leading to cannibalisation of the share of non-renewable capacity under long-term power purchase agreements. With utility-scale and distributed solar (rooftop), there has been a rejig in the generation mix. While the move to renewable/clean fuels is the need of the hour, the cannibalisation of energy from existing non-renewable sources must be taken into account to make a comprehensive business case.
What is your outlook for the power sector in the near to medium term?
While the RDSS aims at an operational and financial turnaround of the ailing state utilities, the power distribution segment is likely to gain much through the effective implementation of the scheme in the coming two to three years. Given the higher emphasis on 100 per cent prepaid smart metering at all levels, it will help in accurate and precise energy accounting. The growing government push towards IT enablement of business activities and IoT will result in process automation and digitalisation of operational jobs, which would subsequently improve system efficiency. The promotion of electric vehicles (EVs) by policymakers is likely to push the penetration of EVs in different segments. NITI Aayog recently developed the guidelines for the inclusion of EVs in priority sector lending. The renewable growth trend in India has been remarkable due to various policies in place for green energy corridors, wind-solar hybrid projects, solar parks and ultra-mega solar power projects. The Union Budget 2022 provision of PLI arrangements for solar module manufacturers has given a new momentum to the segment.
Discoms are the breadwinner for the complete power sector value chain and the sector outlook thus largely depends on how discoms are going to perform. In the short term (two to three years), discoms may still be grappling with legacy challenges; however, in the long term, the outcomes and impacts of initiatives such as the RDSS will certainly resolve the problems to a large extent. Thus, I am bullish about the long-term performance of the sector.