Aggregate financial losses by state power distribution utilities (discoms) reportedly stood at Rs.28,369 crore as of March 31, 2019, nearly doubling from the corresponding Rs.15,049 crore in 2018. After the launch of the UDAY scheme in 2015, there was a secular trend of decline in such losses during FY16 and FY17. This reversal of trend is worrisome.
A recent report by Central Electricity Authority (CEA) states that renewable energy procurers, mainly state-owned distribution companies, owe over Rs.8,200 crore to power producers in the renewable energy space—solar, wind, small hydropower, etc. As of July 31, 2019, outstanding dues amounted to Rs.8,231 crore, the report states.
The Centre’s intention of revamping the power distribution sector—the weakest link in the power value chain—appears to be serious, in light of the various measures recently announced.
This move is very significant as it marks the entry of the Central government in power distribution—an area that has traditionally been handled by state governments.
On June 21, 2019, the foundation for what could be a defining phase for the country’s power distribution sector was laid. Two Central government companies—NTPC and Power Grid Corporation of India—signed an MoU to form an equal joint venture “National Electricity Distribution Company Ltd.” that would undertake the business of power distribution on a pan-India basis.
This move is very significant as it marks the entry of the Central government in power distribution—an area that has traditionally been handled by state governments, and in a limited way, by the private sector. Power is a part of the Concurrent List, which is to say is it part of both the Union and the State List. In other words, it is a subject that is handled by both Central and state government entities.
The Central government has for long been in the power generation sector with mega entities like NTPC, NHPC, Nuclear Power Corporation, etc. The Central government entered power transmission in 1989 through Power Grid Corporation of India, which took over all the power transmission-related assets of Central PSU power generators, especially NTPC and NHPC.
The Central government’s decision to get into power distribution stems from the fact that most state government utilities have just not been able to manage the situation. Power distribution is responsible for the unbridled losses of state discoms. Several Central governments have tried to resuscitate state discoms through bailout packages (seen in the UPA regime) or through schemes like UDAY (NDA regime). However, there has been no positive transformation on the operational aspect of state discoms. They continue to be in losses. It is estimated that in FY19, aggregate losses of discoms grew by over 40 per cent, year-on-year, to reach Rs.21,658 crore.
One more pending reform is the separation of “carriage” and “content”. Power distribution is today considered as a single activity. With the proposed separation, which will suitably incorporated in the Electricity Act, owning and maintenance of infrastructure (carriage) and supplying of electricity (content) will be regarded as two separate activities. There will also be a provision of having multiple service providers within the same area of service. This will bring in competition amongst different service providers. The proposed National Electricity Distribution Company Ltd will also be one such service provider. The “carriage-content” phenomenon is also referred to “wire” and “supply”.
Clearly, the entry of Central PSUs in power distribution is a welcome step. State government power distribution utilities have been provided ample opportunity to reform, but a true transformation has been elusive.
The author of this article, Venugopal Pillai, is Editor, T&D India, and may be reached on venugopal.pillai@tndindia.com. The views expressed here are personal.
Distribution transformer manufacturers are troubled by the need to comply with guidelines issued by two agencies—BEE and BIS.
Of late, the distribution transformer industry has been in the news on the issue of product quality certification by two agencies Bureau of Indian Standards (BIS) and Bureau of Energy Efficiency (BEE). The matter needs to be understood in some detail.
It all started when BEE extended its star labeling programme to include distribution transformers; this was around January 2009. Under BEE’s programme, an electrical equipment or appliance is designated with “stars” (from 1 to 5) depending on the energy efficiency of the equipment. A 5-star rating suggests highest energy efficiency, while a 1-star rating stands for lowest. A distribution transformer was required to have a minimum of 1-star label. However, when these guidelines came out, distribution transformers (DT) corresponding to 1-star and 2-star efficiency were not being manufactured as the industry was by itself technologically evolved. A 3-star label was therefore considered as the minimum norm. This has since progressed to 4-star. In other words, DTs today have either a 4-star or a 5-star label.
Meanwhile, BIS, after a detailed study, revised its IS1180 standard to incorporate features of energy efficiency. Accordingly, what was 3-star under the BEE guideline came to be known as Level-1, 4-star was Level-2 and 5-star was Level-3. This revised guideline was followed by all DT manufacturers and was considered comprehensive, in terms of both product quality and energy efficiency.
Recently, it is learnt that BEE has independently revised its guidelines with a view to introducing more energy efficiency. Accordingly, what was Level-2 under IS1180 has now become the “New Level-1”, the Level-3 under IS1180 has become “New Level-2”. It is further learnt that BEE has revised guidelines without extensive discussions with manufacturers and other stakeholders. This has peeved manufacturers of DTs.
Transformers that are affected by the BIS and BEE certification are those up to 2.5MVA in the 11kV, 22kV and 33kV class. Such equipment is termed as a distribution transformer and is used in the last-mile of the flow of electricity from the power generation source to the point of consumption. Distribution transformers of these specifications find widespread application in rural electrification.
The industry feels that the ultimate objective of both BIS and BEE is to ensure minimum energy efficiency of distribution transformers. Getting independent certification from both BEE and BIS is both costly and time consuming. As of now, the new BEE guideline has been put on hold for six months but a permanent solution to this duality of certification still eludes.
Tata Power Company’s recent appointment as the distribution franchisee for the Ajmer circle in Rajasthan could do well for the languishing DF model.
On April 21, 2017, Tata Power Company announced that it has signed the distribution franchisee agreement with Ajmer Vidyut Vitaran Nigam Ltd for power distribution in designated areas of Ajmer city in Rajasthan. This development is significant on several counts.
For Rajasthan, this represents furtherance in its endeavour of privatizing power distribution under the DF model. Ajmer represents the fourth city after Kota, Bharatpur and Bikaner to come under the distribution franchisee ambit.
For Tata Power, amongst the oldest power utilities in India, it is another attempt at experimenting with the DF model. The utility in late 2012 was appointed as distribution franchisee for the Jamshedpur circle in Jharkhand but the agreement was called off in 2015. However, this development follows the state government’s decision to work on the DF model afresh and cancel all previous agreements. Accordingly, the DF agreement with CESC for the Ranchi circle was also annulled. Incidentally, Jharkhand had initiated the process of inviting DFs for seven circles (including Ranchi and Jamshedpur) but elicited poor responses from bidders.
Tata Power has done a wonderful job in making power distribution a profitable business in Delhi. However, Tata Power’s involvement in Delhi is through the licensing model. It has formed a joint venture Tata Power Delhi Distribution Ltd, in which the Government of NCT of Delhi is also a stakeholder. The Delhi government, for that matter, is also a stakeholder in the other two private power utilities BSES Yamuna Power and BSES Rajdhani Power, in which the private party is Reliance Infrastructure (Anil Ambani Group).
Under the licensing model, the private entity (licensee) undertakes capital expenditure in improving the distribution grid. It is therefore an asset-heavy model. The DF model is a relatively asset-light model where the primary focus is on improving the commercial efficiency of the designated area through enhanced recovery of dues from customers.
The distribution franchisee model has generally not been successful. Since there aren’t too many successful precedents, there are not many emulators as well. There are several cases where the DF model has failed—Aurangabad and Jalgaon in Maharashtra; Ujjain, Sagar and Gwalior in Madhya Pradesh; Ranchi and Jamshedpur in Jharkhand; and perhaps some more.
Also read: Making the distribution franchisee model work
As a seasoned power utility, Tata Power has tremendous experience in handling both the B2B and the B2C segments in the power value chain. It is therefore expected that Tata Power’s involvement in the Ajmer circle could bring much needed credibility and support to the power distribution franchisee model, per se. According to information available, Tata Power did bring about efficiency in Jamshedpur during its tenure as the distribution franchisee. However the appointment was cancelled more as government ideology rather than inadequate performance by the private franchisee.
Rajasthan has three power distribution companies—Ajmer, Jaipur and Jodhpur. For Ajmer Vidyut Vitaran Nigam Ltd (AVVNL), the Ajmer circle is the first instance of appointment of a distribution franchisee. AVVNL handles power distribution in 12 circles spread over eleven districts—Ajmer, Bhilwara, Nagaur, Sikar, Jhunjhunu, Udaipur, Banswara, Chittorgarh, Rajsamand, Doongarpur and Pratapgarh.
Ajmer district has two circles called “Ajmer City” and “Ajmer District”. The Ajmer City circle, in turn, has three divisions, out of which two (City Division-I and City Division-II) will be taken over by Tata Power.
