All Posts in "Electricity"

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
Intrastate transmission needs TBCB boost

Very recently, Power Grid Corporation of India Ltd (PGCIL) completed an intrastate scheme in Madhya Pradesh that it had won under the TBCB modality. In most likelihood, for Madhya Pradesh, this is the first or amongst the early transmission schemes developed using the TBCB philosophy.

 

PGCIL, the Central power transmission PSU, is already very active in the TBCB-based interregional/interstate power transmission landscape. That PGCIL is also taking keen interest in the intrastate network is a favourable augury to the state-level power grid, in general. PGCIL currently has three intrastate schemes — two in UP and one in MP. It plans to participate in more schemes in these and other states, as and when they come up for bidding.

 

The disconcerting point however is that not many states are coming forward in adopting the TBCB culture. Even progressive states – Maharashtra and Gujarat to name just two – have not featured the TBCB modality in their transmission network upgrade plans.

 

The TBCB intrastate transmission scheme that PGCIL recently completed in Madhya Pradesh (Bhind-Guna transmission project) had attracted big names. In fact, all the leading transmission developers showed interest. The e-reverse auction saw as many as 52 rounds, demonstrating the aggression that potential developers evinced. All this goes to prove that there is developer interest but there is a very limited project shelf currently available.

 

TBCB-based interregional transmission schemes are progressing quite well. PGCIL along with leading private developers like Sterlite Power and Adani Transmission are making useful contributions in enhancing this network, which ultimately adds to the National Grid capacity.

 

For electricity to reach the end-consumer, it is very important that intrastate grids are also developed concurrently. State power transmission utilities must appreciate that the TBCB route gives ample scope for induction of technology and managerial expertise, apart from project finance. These utilities can be assured of projects completed within the time and cost estimates. Uttar Pradesh, it may be recalled, had invoked the TBCB modality for developing an intrastate transmission scheme, involving 765kV lines, over a decade ago.

 

Meanwhile, under the Revamped Distribution Sector Scheme (RDSS), private entrepreneurs have a solid opportunity to contribute to upgrading the power distribution network, mainly through smart meter deployment. It is widely expected that the private sector will play a very important role in this Rs.3-trillion RDSS venture.

 

While power distribution is indeed the weakest link in the power value chain, power transmission is not much better off. The private sector can definitely play an important role if given the opportunity.

 

State transmission utilities will therefore stand to benefit if they open up a platform for seasoned transmission developers. And what platform could be better than TBCB?

 

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

Venugopal Pillai by — October 15, 2022 in Power Transmission 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