Revamping Distribution

Some improvement, but a long way to go

The power distribution segment has been the focus of government refor­ms and schemes for many years. While these programmes have helped improve the segment’s performance to some extent, there is still significant scope for improvement. Some of the flagship schemes are the Sahaj Bijli Har Ghar Yojana (SAUBHAGYA); the Deen­da­yal Upadh­yaya Gram Jyoti Yojana (DDUGJY); and the erstwhile Rajiv Gan­dhi Grameen Vidyutikaran Yoja­na (subs­umed subsequently under the DDUGJY), which focused on rural electrification and last-mile connectivity; the Integrated Po­wer Development Scheme (IPDS) and the erstwhile Restructured Accelerated Power Deve­lopment and Reforms Programme (subsumed under the IPDS), which laid emphasis on the IT enablement of discoms and network strengthening in urban areas; and the Ujjwal Discom Assurance Yojana (UDAY) for the operational and financial turnaround of discoms.

These schemes have given a major im­petus to the discoms and helped them achieve 100 per cent village electrification, extend grid connectivity to about 280 million unelectrified households, and reduce aggregate technical and commercial (AT&C) losses from 26.99 per cent in 2009-10 to 21.93 per cent in 2019-20. The financial losses of state-owned discoms also declined significantly, from Rs 726 billion in 2011-12 to Rs 280 billion 2017-18, al­th­ough they increased to Rs 491 billion in 2018-19. Subsequently, the losses declined by 35 per cent to Rs 317 billion in 2019-20. The latest government scheme, the Revamp­ed Distri­bution Sector Scheme (RDSS) aims to reduce AT&C losses further to 12-15 per cent and bring the ACS-ARR gap to zero by 2024-25.

New amendments to the Electricity Act, 2003 are expected to further alleviate the stre­ss in the distribution segment. The un­bun­dling of the wires and supply businesses has been a key feature of several draft amendments to the act, but it has reportedly been put on hold ow­ing to lack of cooperation from the states. The government is likely to bring in amendments to the act, with certain new provisions, in the monsoon session of Parliament.

Size and growth

Driven by increasing power demand and electrification across the country, the distribution network has been growing steadily in terms of line length and transformer capacity. The distribution line length and transformer capacity have grown at a CAGR of about 5 per cent and 6 per cent, respectively, in the past five years. As of March 2021, the distribution line length stood at about 13.5 million ckt. km. Utility-wise, the state-owned discoms of Maharashtra and Tamil Nadu had the largest distribution networks.

In terms of consumption, the total electricity consumption stood at 1,227 BUs in 2020-21 (provisional), marking a slight decline of 1.7 per cent over the pre­vious year, as per the Energy Stat­istics 2022 released by the Ministry of Statistics and Programme Implemen­tation. Industrial consumers accounted for the highest electricity consumption with a share of 41.09 per cent, followed by domestic (25.67 per cent), agricultural (17.52 per cent) and commercial consumers (8.31 per cent). Traction, railways and others accounted for the re­ma­ining share. Between 2010-11 and 2020-21, the CAGR for electricity consumption stood at 5.09 per cent.

Update on the RDSS

The RDSS, launched in July 2021, has made some headway in recent months with discoms finalising their implementation plans. The reforms-based and results-linked scheme has an outlay of Rs 3,037.58 billion over five years, with an estimated government budgetary su­p­port of Rs 976.31 billion. As of Decem­ber 2021, the government has reportedly approved proposals worth over Rs 1.62 trillion for 13 states. Of this, about 54 per cent (Rs 880 billion) has been earmarked for smart metering and the remaining for infrastructure upgradation for loss reduction. The top seven states account for over 87 per cent of the approvals in value terms led by Uttar Pradesh (Rs 357 billion), Tamil Nadu (Rs 283 billion), Rajasthan (Rs 186 billion), Madhya Pradesh (Rs 182 billion), Gujarat (Rs 165 billion), Andhra Pradesh (Rs 134 billion) and Kerala (Rs 106 billion). The other states include Assam, Rajasthan, Jammu & Kashmir, Meghalaya, Mizoram, Andh­ra Pra­de­sh, Gujarat, Himachal Pradesh, Kerala and Uttarakhand. Under the scheme, most states plan to take over the financial losses of their discoms and liquidate 100 per cent of the government department’s dues by 2024-25. In ca­se a state is unable to meet the milestones, it will not be eligible to avail of the funds.

Recent updates

Ministry of Power (MoP) launches new scheme to liquidate dues: The MoP has issued the Elec­tricity (Late Payment Sur­charge and Related Matters) Rules, 2022. As per these rules, the total dues owed by distribution companies to generation and transmission companies can be paid in equated monthly instalments (EMIs). Further, the total dues including late payment surcharge (LPS) up to the date of notification of these rules will be rescheduled and the due dates will be redetermined for payment by a discom in EMIs. Furthermore, discoms with dues of over Rs 100 billion can clear them in a maximum of 48 EMIs while those with dues of Rs 40 billion-Rs 100 billion can clear them in a maximum of 40 months. Discoms with dues of Rs 20 billion-Rs 40 billion, Rs 10 billion-Rs 20 billion, and Rs 5.01 billion-Rs 10 billion will have a maximum of 34 months, 28 months and 20 months respectively to clear their dues. Meanwhile, discoms with less than Rs 5 bi­lli­on will have a maximum of 12 mo­nths to settle their dues. The rules are applicable to the outstanding dues of gencos, interstate transmission licen­sees, and electricity trading licen­sees. LPS will be payable on the payment outstanding after the due date at the base rate applicable for the first month of default. The rate of LPS will increase by 0.5 per cent for every successive month of delay, provided the LPS does not exceed 3 per cent more than the base rate at any time.

National Open Access Registry (NOAR) goes live: The NOAR went live successfully on May 1, 2022. The NOAR has been designed as an integrated single-window electronic platfo­rm that is accessible to all stakeholders including open access participants, traders, power ex­changes, and national/regional/state load des­patch centres (LDCs) for electronic processing of short-term open access applications, th­e­reby automating the administration of sho­rt-term open access (STOA) in the interstate tra­ns­mission system (ISTS). The NOAR platform will act as a repository of information related to STOA in the ISTS, including the standing clearance issued by regional LDCs or state LDCs and STOA granted to open access customers, and make such information available to stakeholders online. The payment gateway provided for making payments and integrated with the NOAR will facilitate financial accounting and tracking of STOA transactions.

Rules for green open access launched: In June 2022, the MoP notified the Green Open Access Rules, 2022, aimed at promoting generation, pu­rchase and consumption of green energy, in­clu­ding power from waste-to-energy plants. The rules enable a simplified procedure for open access to green power and faster approval for gr­een open access, uniform banking, voluntary pu­r­­chase of renewable power by commercial and industrial consumers, applicability of open ac­ce­ss charges, etc. Under the rules, consumers can demand the supply of green power from a discom.

Discom privatisation in union territories (UTs): The discom privatisation process of UTs, an­no­unced in 2020, has made limited headway so far. Two UTs – Chandigarh, and Dadra & Nagar Haveli and Daman & Diu – have been awarded to private players, namely, Eminent Electricity Distribution Limited (owned by CESC Limited) and Torrent Power, respectively, for the purchase of 51 per cent share in the discoms of these UTs.

Smart metering: Smart metering is a major focus area of the government and is being promoted under various schemes and progra­mmes such as the National Smart Grid Miss­ion, the Smart Metering National Programme, the IPDS and the RDSS. As of May 2022, a total of 11.2 million smart meters have been sanctioned under various schemes while 4.5 million smart meters have been install­ed. The installation of 6.8 million smart meters is currently un­der way. Bihar has the highest number of ins­talled smart meters in the country at nearly 61,644, followed by Himachal Pradesh (57,014) and Haryana (13,965).

Peak demand creates new records: The country’s peak power demand touched an all-time high of 211.86 GW on June 10, 2022 am­id the continued heatwave and expanding economic activities. On June 9, 2022, the peak power de­mand was recorded at 210.79 GW, wh­ich was higher than the previous record of 209.8 GW registered on June 8, 2022.

Challenges and the way forward

The financial viability of discoms remains a major challenge for the sector. The need for a financially sound distribution segment assu­mes greater importance with the ongoing energy transition since renewable energy generators and investors need payment security from discoms. Moreover, in the coming years, electricity flows will become increasingly complex with the growth of decentralised generation and the proliferation of EV charging infrastructure. In addition, peak demand is expected to continue growing, putting pressure on discoms to provide reliable power by tying up adequate capacity.

Net, net, although the distribution segment has shown some improvement in the past decade or so, the discoms need to step up their efforts manyfold in order to meet the challenges of the future.

Neha Bhatnagar




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