All Posts in "Power Distribution"

Time-of-day tariff is a big step forward

Policy reforms and technology intervention will hold the key to bringing commercial viability to India’s power distribution reforms. In the entire power value chain, it is the last-mile distribution where almost the entire commercial losses are concentrated. Resurrecting the power distribution space is therefore the only way to make the power value chain a profitable enterprise.

 

Very recently, the Union power ministry introduced “time of day (ToD)” tariffs. This was done by suitable amendments to the “Electricity (Rights of Consumers) Rules, 2020”.

 

ToD tariff marks a paradigm shift from the ubiquitous “same tariff” regime that has always been the historical norm. Basically, under the ToD mechanism, the electricity tariff will vary according to the time of the day (ToD). This can bring about a drastic change in the way electricity is consumed.

 

A consumer can now prefer to run heavy loads when tariffs are low. In other words, consumers will feel dissuaded to indulge in high electricity consumption when tariffs are high. This can, over a period of time, potentially flatten the peak demand curve.

 

It is not that the ToD tariff culture is entirely new to the nation; some private power distribution utilities have been experimenting with ToD tariffs on a pilot basis. In general, it is intuitively clear that electricity tariff in the day should be higher than that at night. This is for the simple reason that peak demand would exist during the day time when maximum consumption from industrial and commercial consumers takes place. However, now with renewable energy (mainly solar) expected to dominate the energy mix, tariff during solar hours (duration of eight hours as specified by the respective State Electricity Regulatory Commission) would be 10-20 per lower than normal tariff. In non-solar hours, tariff would be 10-20 per cent higher.

 

What ToD tariff is expected to do is to create “conscious” consumption of electricity. Right now, electricity is available practically round-the-clock – both in urban and rural areas. This makes electricity an “on-tap” commodity with consumption dictated by no factor other than need. When ToD comes into the picture, the dimension of tariff will set into the minds of the consumer. One can therefore expect that there electricity consumption will become judicious in nature.

 

The ToD facility will complement the benefits of smart prepaid metering. In a broad sense, while prepaid metering will ensure that power distribution companies become commercially viable (as monies will be collected before actual consumption of electricity), ToD tariff can help the consumer extract maximum electricity consumption for the payment made.

 

Two important benefits will accrue from the ToD tariff regime — rationalization and judicious management of electricity consumption. Both of these can prove effective agents of demand side management.

 

The author Venugopal Pillai is Editor, T&D India, and may be reached on venugopal.pillai@tndindia.com. Views are personal.

Venugopal Pillai by — July 22, 2023 in Power Distribution 0
Making state governments more responsible

According to information recently tabled in Parliament, a preliminary study shows that India’s AT&C losses have climbed down to around 17 per cent in FY22 from around 22 per cent in FY21. This is based on information filed by 56 state government-owned discoms that account for more than 96 per cent of the country’s total input energy.

 

The decline in AT&C losses has resulted in a reduction in the gap between Average Cost of Supply (ACS) and Average Realizable Revenue (ARR).  The ACS-ARR Gap (on subsidy received basis, excluding Regulatory Income and UDAY Grant) has declined from Rs.0.69 per kwh in FY21 to Rs.0.22 per kwh in FY22.

 

It is well known that India has targeted to restrict its AT&C losses to below 15 per cent, and as such, the performance in FY22 augurs well towards this goal.

 

The Union power ministry has said that the decline of 5 percentage points in AT&C losses and Rs.0.47 in the ACS-ARR gap in one year is the result of a number of initiatives taken by the ministry that includes among other things revision in the prudential lending norms of the two leading financial institutions – PFC and REC. Discoms that need financing will need to commit to an action plan, endorsed by the respective state government, to reduce AT&C losses within a timeframe. Discoms that are seeking funding under the Rs.3-trillion RDSS will also need to adhere to a time-bound loss reduction trajectory.

 

All said, over the past two decades, the Central government (with different leaderships) is doing much to extricate state discoms from the financial mess that they are in. One must bear in mind that electricity is not a purely “Union” subject. It is more of a “State” subject with Central intervention merited only in deserving cases. However, it appears that most states tend to take Central support for granted. It is high time that state governments take full responsibility of their power value chain – most importantly the distribution part – and work towards resurrection.

 

Free electricity, or highly subsidized electricity, has traditionally been a popular political plank but there should be serious rethinking on this matter. Mobile telephony is a prospering business and has extremely deep penetration even in the lower socio-economic class. The idea of “free mobile telephony” would sound absurd even to the lower social rung that is happily paying for the service.

 

India’s per capita power consumption is way below the global average. There is huge demand for electricity – across all social strata – without any condition precedent of “free power”. Given this, power distribution can be an extremely profitable business but only if seen from a business perspective and not a political one.

 

(The author of this article, Venugopal Pillai, is Editor, T&D India. He may be reached on venugopal.pillai@tndindia.com.)

Venugopal Pillai by — December 17, 2022 in Power Distribution 0
Fresh lease of life to privatization process

In a very significant recent development, Torrent Power moved closer to taking over power distribution in the Union Territory of Dadra & Nagar Haveli and Daman & Diu (DDN&DD). The Gujarat-based company, with a significant presence in the entire power value chain, has signed an agreement with the said UT administration to acquire controlling 51 per cent in the JV that will be responsible for power distribution activities in the UT of DNH&DD.

 

This is a major step forward for the government’s proposal, announced in May 2020, to privatize power distribution in all UTs.

 

The modality to be followed is the joint venture route where the private sector player will own 51 per cent equity stake (and management control) with the respective UT administration holding the remaining 49 per cent.

 

If matter progress well, power utility CESC will also take over power distribution in the UT of Chandigarh, on similar lines.

 

Privatization of power distribution of UTs is inherently different from the earlier attempts at privatization, which largely had to do with the asset-light distribution franchisee model. It must also be borne in mind that attempts at privatization were targeted in areas with high AT&C losses. However, in the case of UTs, the power distribution sector is not loss-making, if not highly profitable. This was precisely why several employee unions opposed the move, leading to some delay in finalizing the process.

 

The distribution franchisee model has not left a positive impression; there have been more failures and abortive attempts, than successes. What the government is now following is the distribution licensee model through the JV route where the private sector holds 51 per cent equity stake and management control, with the state government or UT administration holding the remaining 49 per cent.

 

This JV route has been phenomenally successful in Delhi, with Tata Power and Reliance ADAG Group being the private partners in two separate JVs. The recent attempt at similarly privatizing power distribution in Odisha, through four separate JVs with Tata Power, is also showing positive signs.

 

Power distribution is that area where the revenues for the entire power value chain are ultimately generated. It is also the only customer-facing link in the value chain. This being so, it is best that power distribution, in general, is handled by the private sector. Most state government discoms have a long legacy of commercial inefficiency. It is time that the private steps in.

 

While privatization needs to be pursued, it is also imperative that the much debated separation of “wire” and “supply” businesses of power distribution is implemented. This will bring more competition amongst private sector players in the “supply” side, which is in the ultimate interest of the end-consumer.

(Featured photograph, sourced from Torrent Power, shows replacement of electricity meters in Bhiwandi before and after Torrent Power took over as the distribution franchisee.)

(The author of this article, Venugopal Pillai, is Editor, T&D India. He may be reached on venugopal.pillai@tndindia.com.)

Venugopal Pillai by — April 15, 2022 in Power Distribution 0