1.
Smart Grid Solutions in India IS 831: White paper Arvind Patravali 5/2/2011

2.
Table of ContentsExecutive Summary ........................................................................................................................ 1India’s Electricity Needs ................................................................................................................. 2 Current Electricity Needs ............................................................................................................ 2 Power Sector Reforms ................................................................................................................ 4 Future Electricity Needs ............................................................................................................. 4 Role of the Smart Grid to meet future electricity needs ............................................................. 5The Smart Grid ............................................................................................................................... 7 What is the Smart Grid? .............................................................................................................. 7 Opportunities for Smart Grid in India ......................................................................................... 8 Cost-Benefit Analysis for Smart Grid in India ........................................................................... 8 Implementation barriers for Smart Grid in India ........................................................................ 9 Smart Grid Projects in India ..................................................................................................... 10Indian Smart Grid Market ............................................................................................................. 12 Indian Smart Grid Market Size (2009 – 2015) ......................................................................... 13 Indian Smart Grid Market Segmentation .................................................................................. 15 Indian Smart Grid – Competitive Landscape............................................................................ 20 Communication/IT Layer - Analysis ........................................................................................ 20Recommendations to Companies .................................................................................................. 24Appendices .................................................................................................................................... 26References ..................................................................................................................................... 28

3.
Executive SummaryWith a population of over 1200 million people living across 28 states, India is the second mostpopulous country in the world. With a major power deficit of around 10% and more than 400million people in India without access to electricity, providing electricity to these people is botha social and economic development imperative.It is clear that demands on the electricity sector will increase at a dramatic rate and requiremassive investments in the electricity infrastructure. The Indian Power sector, with aggregatetechnical and commercial losses around 28% of total electricity production, has often beenreferred to as a leaking bucket with holes deliberately crafted to benefit various stakeholders inthe system. Strategically it is important that these holes be fixed simultaneously with makinginvestments for additional power capacity.With Smart Grid Solutions using information and communication technologies it is now possibleto track and plug power leaks as also proactively manage the peak power demands and reducethe power deficit in the country without increasing the installed capacity. In a huge democracysuch as India plugging these leaks has often been difficult due to various issues which need tobe addressed by the Indian government through legislation and technology.This report while highlighting the context and challenges in the Indian Power sector alsoattempts to quantify the market opportunity for Smart Grid Solutions to enable companiesstrategize entry into the Indian market. 1

4.
India’s Electricity NeedsCurrent Electricity NeedsThe Annual Report 2009 – 2010 of the Central Energy Authority (CEA) – Ministry of Power1indicates that India has an installed power generation capacity of 169,749 Mega-Watt (MW) ason 31st December 2010 - fifth largest in the world. In addition, a substantial amount of captiveproduction capacity amounting to around 15,000 MW exists mainly in the industrial sector,according to official data. The country generated a total of 746 million Mega-Watt hours (MWh)in FY 2009 – 10 to meet the demand of 831 Million MWh2.Below is a bar & line graph showing Supply and Demand of electricity in India during the period2004 to 2010. Supply and Demand of Power in India during 2004 - 2010 900 12% 800 10% 700 Million Mega-Watt hour 600 8% 500 6% 400 300 4% 200 2% 100 0 0% 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Demand Supply % DeficitThe peak power deficit in the country has been to the tune of 10.1 % and could even be as highas 25% if we were to take into account captive production, the potential electricity demand of1 http://www.cea.nic.in/report.html2 Refer Table 1 in Appendix 2

5.
about 80,000 villages that are yet to be electrified and the latent demand in other parts whichcould not be met due to load shedding.India is heavily dependent on thermal resources - coal, gas (65%) for a significant portion of itselectricity needs with the balance coming from hydroelectric power (22%), renewable energysources – solar, wind (10%) and nuclear energy (3%)3.Of the total installed power capacity about 48% is provided by state power plants and 31% bycentral power plants. The balance 21% is met by the private sector which has made an entryinto the power sector over the last two decades.Below are a set of pie-charts which show the breakup of production by source and sector. Breakup of Production by Source Breakup of Production by Sector 3% 10% 22% 31% 48% 65% 21% Hydro Thermal Nuclear Renewable Energy State Private CentreAnnual per capital electricity consumption is dismally low at 733 Kilo-Watt hour (KWh) ascompared to the global average of about 2,500 KWh. Roughly 45% of the power consumedgoes to the industrial sector, followed by 27% to the agricultural sector and 16% to residentialrequirements4. The balance 12% is consumed by commercial enterprises, transport and othersectors. Officially a population of 426 million5 (36%) is without access to electricity.Aggregate technical and commercial losses (AT&C) are officially reported at around 28%6 ofelectricity produced. Technical losses in the system have been high primarily due to inadequateinvestments over the years for system improvement resulting in unplanned extensions of thedistribution lines, overloading of the system elements like transformers and conductors, andlack of adequate reactive power support. Commercial losses are mainly due to low metering3 Refer to Table 2 in Appendix4 Refer to Table 3 in Appendix5 Refer to Table 4 in Appendix6 T&D Loss in the Country Presentation & Wiki 3

6.
efficiency, theft and pilferages. These can be eliminated by improving metering efficiency,proper energy accounting and improved billing and collection efficiency.Coupled with un-metered power to the agricultural sector these losses have serious eroded thefinancial viability of many State Electricity Boards (SEBs). It is reported that the combined cashloss of State Electricity Boards was expanding by nearly $22 billion7 (almost 1.5% of India’s GDP- $1430 billion in 2009) per year of which about 40% ($9 billion) was estimated to be due totechnical losses and the balance 60% ($13 billion) due to commercial losses.Power Sector ReformsOver the past three decades, the Government of India has taken steps to reform andrestructure the power industry. From 1975-1991, generation grew at the Central level butsupplies were still inadequate. Following State efforts, the National Electricity RegulatoryCommissions Act was brought into law in 1998, which helped create independent regulators atthe State level and led to the formation of the Central Electricity Regulatory Commission.The Electricity Act 2003 was enacted to consolidate the laws relating to generation,transmission, distribution, trading and the use of electricity, and to promote competition. TheAct allowed the entry of private companies into generation, transmission and distribution.With the objective of bringing Aggregate Technical & Commercial (AT&C) losses below 15% infive years in urban and high-density areas the Government of India initiated the RestructuredAccelerated Power Development & Reform Program (R-APDRP)8, in 2008, in order to have an ITenabled reliable and verifiable baseline data of revenue and energy in APDRP project areas.Future Electricity NeedsThe Ministry of Power aims to achieve a per capita electricity consumption of 1,000 KWh by2012. This would require about 1,150 Million MWh electricity generation per annum or about230,000 MW installed generation capacity.Under the current 11th five year plan (FY 2007-2012), the Ministry of Power has envisioned anaddition in generation capacity by 80,000 MW and setting up of an integrated National PowerGrid with about 37,700 MW of inter-regional power transfer capacityWith the current focus of the Government of India on development of power infrastructure, itis estimated that a total of about $170 billion would be invested on this sector during next five7 http://energybusiness.in/measures-wipe-losses-sebs-phases-shinde/8 http://www.apdrp.gov.in/rapdrp/ 4

7.
years. Of this, about $108 billion would be invested on power generation and rest ontransmission and distribution9.Assuming an average economic growth rate of 8% between 2010 and 2030 and 5.8% thereafterup to 2050 India’s electricity production is projected to increase almost 8.8 times from 746million Mega-Watt hour (MWh) in 2010 to 6,600 million Mega-Watt hour (MWh) in 2050. Thecorresponding power generation capacity is projected to increase almost 5.8 times from170,000 Mega-Watt (MW) in 2010 to almost 1000,000 Mega-Watt (MW) in 205010.Role of the Smart Grid to meet future electricity needs11With the tremendous demand for electricity as projected in the previous section, coupled withhuge technical and commercial losses and limitations for making investments in powergeneration, it would appear that the only way forward for India is to harness the power ofinformation and communication technologies to plug leakages, improve efficiencies and createa Smart Grid for India which would not only meet the future electricity needs of the country butalso transform the entire, transmission and distribution infrastructure in the country. India,with its vast resources in technology and innovation, has the unique opportunity to take theleadership role in the future in implementing Smart Grid solutions not just in India but also inother countries.We give below areas where Smart Grid technologies can significantly help India meet its futureenergy needs. Supply shortfalls. With increasing population and per capital consumption of electricity, India’s peak power demand will continue to outpace its’ installed power. Official estimates of India’s peak deficit are around 10%, but it could be as high as 25% taking into consideration other requirements mentioned earlier. A smart grid would allow more “intelligent” load control, either through direct control or economic pricing incentives that are communicated to customers in a dynamic manner. Such measures would help mitigate the supply-demand gap and reduce the peak load by at least 5%. Technical and Commercial Loss reduction. India’s average technical and commercial losses are reported to be about 28% with annual financial losses to State Electricity Boards of about $22 billion.9 www.iquestsolution.com10 Technology Development Prospects for the Indian Power Sector – IEA – Feb 2011http://www.iea.org/papers/2011/technology_development_india.pdf11 The Smart Grid Vision for India’s Power Sector – White Paper 5

8.
With about $13 billion of the financial losses due to commercial reasons such as low metering efficiency, theft and pilferages, there is significant incentive to deploy smart grid solutions to improve the metering, billing and collection efficiencies. Renewable energy. To meet the power deficit, India has moved away from central power production to distributed generation, especially of renewable energy such as wind and solar power. These sources of energy can now be integrated into the power grid. With information and communication technologies the power grid can be managed effectively to monitor and integrate the central and distributed sources of power generation as also take advance action to prevent outages. Economic Savings. As a result of various smart grid initiatives it would be possible to bring the peak power deficit and technical and commercial losses to manageable levels, if not eliminate them completely, during the foreseeable future. Considering that every unit of power saved is equivalent to 1.5 units of power generated, this would be the most compelling driver for implementing smart grid solutions urgently to meet the power needs of the country. Managing the “human element” in system operations. Labor savings are not a prime driver for the smart grid in India, as contracts for outsourcing are inexpensive. However, automated meter reading would lower recording and other errors or even deliberate errors, which are thought to be significant reasons for losses. Technological leapfrogging. Perhaps the most intriguing driver for India is the potential to “leapfrog” into a new future for electricity, as it did with telecommunications. Also, the “smart” in a smart grid is ICT (Information and Communication Technologies) — an area of unique capability in India. 6

9.
The Smart GridWhat is the Smart Grid?Simply put, a smart grid is the integration of information and communications technology intoelectric transmission and distribution networks. The smart grid delivers electricity to consumersusing two-way digital technology. This is, so as to firstly enable the efficient management ofconsumers’ end uses of electricity. Secondly, to enable efficient use of the grid by identifyingand correcting supply demand-imbalances instantaneously, thereby improving service quality,reliability, and reducing costs.Thus, the smart grid concept is not confined to utilities only; it involves every stage of theelectricity cycle, from the utility through electricity markets to customers’ applications. Theemerging vision of the smart grid encompasses a broad set of applications, including software,hardware, and technologies that enable utilities to integrate, interface with, and intelligentlycontrol innovations.Below is exhibit which shows the Smart Grid as a combination of existing Electrical Gridinfrastructure with Information and Communication infrastructure built on top of it. 7

10.
Opportunities for Smart Grid in India1. Regulations: The regulatory environment is India is very favorable for international companies to enter and setup pilot projects on Smart Grid technology. If these projects are successful the government will grant them contracts to implement them across the nation.2. Economics: Smart Grid technology at the earliest can help reduce commercial losses due to theft by installing tamper proof smart meters and good monitoring. In the short-term, the savings from this could be upto $13 billion annually. In the long-term there is the added benefit of minimizing transmission or technical losses by proper grid optimization and improving the grid infrastructure. Overall, savings could be at the least $22 billion annually over the next 5 years.3. Environmental: Currently India is under a lot of pressure to reduce its carbon emissions as imposed by international regulatory organizations. By implementing smart grid technologies and using higher renewable energy sources, India has the potential to offset this CO2 emission is a short time frame without compromising on growth and productivity.4. Technology: The Smart Grid technology is already proving to be very reliable and having multiple benefits. It is reaching main stream deployment in cities across developed countries. It is being considered the future for power grids across the globe.Cost-Benefit Analysis for Smart Grid in IndiaThe Indian power grid infrastructure is similar to the grid infrastructure in US. On the same lineswe expect the costs and benefits from the implementation of Smart Grids in these countries tobe comparable and have therefore used the data from the US for carrying out the cost-benefitanalysis for India. Cost of Deployment: Based on the Electric Power Research Report Institute (EPRI) report released in 2011, the cost of modernizing the US electricity system and deploying a fully functional smart grid would range from $338 billion to $476 billion over the period 2010 - 203012. This estimate reflects technologies related to the grid, information, and communication technologies; market structures; demands of an increasingly digital society; more widespread deployment of renewable power production and its integration into the grid; expansion and maintenance of existing infrastructure; and technologies and systems to address grid security.12 http://www.greencarcongress.com/2011/04/epri-20110408.html 8

11.
 Benefit of Deployment: The benefit of such a smart grid implementation would correspond to be between $1.3 trillion and $2 trillion12 for the US market. The benefits would include cost reduction; enhanced reliability; improved power quality; increased national productivity and enhanced electricity service, among others. The Smart Grid will allow the benefits resulting from the rapid growth of renewable power generation and storage as well as the increased use of electric vehicles to become available to consumers. Benefit to Cost Ratio: Using the above cost and benefits numbers as a gross indicator of profitability we find that the ‘Benefit to Cost Ratio’ ranges from a low of 3.85 times to a high of 4.2 times (with an average of 4 times) indicating thereby that investing in the Smart Market can be a very profitable proposition. Payback Period: Based on the ‘Benefit to Cost’ Ratio of 4 times we expect the payback period to would be anywhere between 3 to 10 years (with an average of about 5 years). Smaller investments like smart meters would have shorter payback periods, where as larger investments such as grid optimization, demand response and improving transmission and distribution having longer payback periods.Implementation barriers for Smart Grid in India131. Policy & Regulations: As much as the regulations are favorable for international players to come and invest in the Indian smart grid market, it is at the same time mired in old policies which do not address the clean and renewable energy supplies which Smart Grid hopes to bring in. Going forward regulations needs to focus on renewable energy sources, carbon reduction and allow more private and foreign direct investments.2. Financial viability of State Electricity Boards: While some State Electricity Boards have indeed made substantial progress in implementing power reform, reducing technical and power losses and becoming financial viable, the rest are still struggling with rampant pilferage, un-metered supply and subsidies and yet to be motivated to move towards the implementation of Smart Grid technologies.3. High capital and operating costs: Upgrading the aging electric grid would require high capital investment and companies would seek proof-of-concept before making investments in Smart Grid technologies.4. Smart Grid Eco-System: The time lag in development of a Smart Grid Eco-System capable of collectively offering the hardware, software and consulting advice could one of the deterring factors in implementing Smart Grid technologies in India.13 http://www.iemr.in/userfiles/SMAR%20GRID%20CHALLENGES.pdf 9

12.
5. Technology maturity and delivery risk: Technology is one of the essential constituents of Smart Grid which include a broad range of hardware, software, and communication technologies. In some cases, the technology is well developed; however, in many areas the technologies are still at a very initial stage of development and are yet to be developed to a significant level. As the technology advances, it will reduce the delivery risk; but till then it’s a risk factor. Also technology changes very quickly adding to the risk.6. Lack of awareness: The average Indian consumer has low awareness of how power is delivered to their home as well as what their power consumption patterns are. This is mainly because literacy levels in India are low. Without educating the end-consumer, Smart Grid Technology cannot leverage its full potential in a market like India.Smart Grid Projects in IndiaWith Smart Grid buzz gaining momentum across the world, every country is rolling out pilotprojects to test the combination of technologies that may best suit their unique needs.Similarly, in India, private companies, utilities, distribution companies, and startups in closecollaboration with government, are engaged in various smart grid projects.1. Smart Grid Pilot in Electronic City, Bangalore - India14: The Bangalore utility company, Bangalore Electricity Supply Company (BESCOM), is pursuing Smart Grid Pilot, which may potentially become Indias first Smart Grid pilot. The project is supported by Ministry of Power, Government of India and the United States Agency for International Assistance (USAID). Central Power Research Institute (CPRI), which has been appointed as consultant for the project will carry out the feasibility study along with the International Partner. The Electronic City, a 332 acre industrial complex housing 100 plus IT companies and educational institutions, located outside Bangalore is chosen as the site for the study.2. Smart Grid Pilot in West Bengal – India14: The West Bengal State Electricity Distribution Company Ltd (WBSEDCL), a wholly-owned state government enterprise, recently announced a first of its kind Smart Grid pilot in India that will pin-point power theft or unauthorized consumption in real-time basis. According to state secretary, Malay De, Singapore Power Ltd will be appointed as consultants for the project, which will be completed in next 2-3 years. To start with, the WBSEDCL will enter in agreement with US technology provider, which will supply technology and run the project. The pilot will be executed in south Kolkata locality Garia that has 50,000 customers consuming 45 MW power. The project, which is estimated to cost $80 million, is going to be first such large-scale pilot project in India. According to Secretary, Malay De, it will probably be the14 http://smartgrid-for-india.blogspot.com/2011/02/smart-grid-projects-in-india.html 10

13.
first such project in the world where entire power generation, transmission, and distribution will be brought under single roof of control.3. Smart Grid Pilot in Mangalore – India15: Mangalore Electricity Supply Company (MESCOM) is setting up a Smart Grid Pilot system in Mangalore, a city in Karnataka state of India. It covers around 250 installations, including industries, domestic connections and streetlights. As a part of this project which began three months ago, streetlights are being switched off automatically by means of a centralized control system in some areas where not much light is needed from 12 a.m. to 4 a.m. Instead of load shedding during the peak hours in evening, consumption is being reduced when the demand shoots up.4. Telvent to Implement Smart Grid Project for Maharashtra India16: On June 16, 2010 Telvent, the IT company for a sustainable and secure world, announced its agreement with Larsen and Toubro Ltd. to partner on a contract for Maharashtra State Electricity Distribution Co. Ltd. to implement baseline data and information technology (IT) applications for energy accounting, auditing and IT-based consumer service centers for 95 towns in India. With Telvent Smart Grid Solution, Maharashtra is able to effectively measure the aggregate technical and commercial losses and increase reliability and quality of electric supply to its customers, as well as enhance the operation of the distribution network. For Telvent and Larsen and Toubro, this project is a new opportunity to deploy state-of-the- art technology using the Telvent Smart Grid Solution which provides the necessary toolset for utilities to take an active role in the rapidly emerging smart grid systems.15 http://www.smartgridx.com/2011/02/smart-grid-pilot-project-in-mangalore.html16 http://www.telvent.com/en/business_areas/smart_grid/news_center/2010/Telvent-to-Implement-Smart-Grid-Project-for-Maharashtra-India.cfm 11

14.
Indian Smart Grid MarketIn this section we will attempt to define the market size, various segments and the companiesin these segments for the Smart Grid in India; with the objective of enabling companies tounderstand how big the opportunity will be over the next five year, as also decide their strategyfor entering the India market.The methodology being followed is as follows:1. Evaluating the Indian market size in the next 5 years2. Identifying the segments in the Indian market size The Indian Smart Grid Market consists of 6 layers or segments -  Power Layer  Communication/IT Layer  Demand Response Layer  Grid Optimization Layer  Distributed Generation & Storage Layer  Smart Charging and V2G (Vehicle-to-Grid) Layer We will be specifically focusing on the Communication/IT Layer since payback periods are shorter and several players would want to gain early entry and promote adoption of their technologies as commercial deployment cost have started dropping as in the case of smart meters.3. Identifying the players and their interactions in each segment In each segment we will identify the current players and interactions with a view to understand the competition and dynamics of the market as also decide the best possible strategy for entering a particular segment either independently or through acquisitions, joint ventures, equity stakes, technology licensing or marketing arrangements with current players. 12

15.
Indian Smart Grid Market Size (2009 – 2015)We expect the Indian Smart Grid Market to evolve in the following manner over the period2009 -2015: In 2009 the Indian Smart Grid Market is assumed to be negligible, as technology was still being tested in developed countries. In 2010 it is assumed that this market would be equivalent to 1% of the US market share as foreign companies, having developed and tested Smart Grid technologies in other countries, would seek to enter the Indian market and launch pilot projects in partnership with the Indian Government and private players. From 2011 to 2015 the investment in smart grid technology in India would increase exponentially because of the successful pilot smart grid projects initiated in 2009-2010 as well as due to favorable policies created by the Indian government for foreign companies to enter and invest.Assumptions on the Indian Smart Grid Market SizeWe calculated the market size from 2009-2015 by making certain logical assumptions on theavailable data. Below are the list of these assumptions and the rational on how we arrived atthem. The Global Smart Grid market size in 2010 was $89.7 billion17, as suggested by ZPryme Research Consulting. This is estimated to reach $200 billion by 2015 at a CAGR of 17.39%. Similarly, the US Smart Grid market size in 2010 was $25.7 billion 16, by ZPryme Research Consulting. This is estimated to reach $50 billion by 2015 growing at a CAGR of 14.24%. Based on media reports, India has only started investing in Smart Grid technology from the year 2010. It is known that the Indian Electric Grid infrastructure is very similar to the US Electric Grid. We expect money spent on modernizing the grid and making it intelligent (by investing in Communications/IT, Distribution & Storage and Grid Optimizing) would follow similar patterns as the US.17 Data was taken from the below link http://www.slideshare.net/zpryme/smart-grid-market-research-united-states-hardware-and-software-companies-should-prepare-to-capitalize-on-the-smart-grid-in-the-united-states-and-international-marketsmarket-growth-opportunities-trends-report-zpryme 13

16.
 We have assumed that the India’s smart grid market size can be expressed as a %age of the US market size from 2010-2015, but with a time lag due to India’s late entry in this arena. We expect the Indian smart grid market, though very nascent now, to grow aggressively and overtake US in investments by 2030 thus following a standard “S” curve. The Smart Grid market in India would grow very aggressively in the next 5 years due the importance and impetus provided the Indian Ministry of Power through the formation of an “Indian Smart Grid Task Force” whose sole purpose is to advise the Indian Government on investments opportunities.Below is a table which shows how we arrived at the Indian Smart Grid Market Size from 2009-2015 based on Global & US market size projections available, from ZPryme ResearchConsulting. Global US Indias market size as a %age India Year (USD billions) (USD billions) of US market size* (USD billions) 2009 69.3 21.4 0% 0.0 2010 89.7 25.7 1% 0.3 2011 110.1 30.0 5% 1.5 2012 130.5 34.3 10% 3.4 2013 151.0 38.6 17% 6.6 2014 171.4 42.8 26% 11.1 2015 200.0 50.0 37% 18.5* Percentages indicated are reasonable estimates based on needs, size of economy and lag in implementation of theSmart Grid in India.IndiaS market size was calculated using the assumed %ages and their corresponding US market sizes. 14

17.
The graph below gives a visual representation (of the above table) and shows the growth inmarket sizes of Smart Grid across the Global, US & India during the period 2009-2015. Smart Grid Market Size, 2009 - 2015 250 40% 35% 200 200 %age of US Smart Grid Market Size 30% 171 151 25% 150 USD (Billions) 131 110 20% 100 90 15% 69 50 10% 50 39 43 30 34 21 26 19 5% 7 11 0 0 2 3 0 0% 2009 2010 2011 2012 2013 2014 2015 Global US India Indias market size as a %age of US market sizeIndian Smart Grid Market SegmentationThe Indian Smart Grid Market can be segmented into 6 layers as in the US Smart Grid market.1. Power Layer: The power layer relates to the power generation facilities which use different sources of energy such as coal, oil, gas, nuclear and hydro. Renewable sources of energy such as solar, wind, biomass and geothermal are adding to these existing sources of energy and increasing the supply of electricity in developing countries. We have not considered the power layer as part of the smart grid ecosystem since the role of smart grid in this layer is limited to integrating distributed sources of energy such as renewable sources and not contributing to generation of power per se.2. Communication/IT Layer: This layer consists mainly of Advanced Metering Infrastructure (AMI) and corresponding technology and softwares to support the communication between 15

18.
the applications and grid infrastructure for better grid management. We see many smart meter manufacturers and IT companies being the primary players in this market. Advanced Metering Infrastructure (AMI) refers to a system that collects, measures and analyzes energy usage by enabling data to be sent back and forth over a two-way communications network connecting advanced meters (“smart meters”) and the utility’s control systems. AMI provides utilities unprecedented system management capabilities, allowing for the first time the possibility of having consumers make informed, real-time choices about their energy usage. We have assumed that the Communication/IT Layer of the Indian Smart Grid Market in 2015 will contribute 29% of the total market share, making it a $5.3 billion18 market. This would be much higher than the 14% that this segment would normally represent in the global smart grid market in 2015, based on Pike’s Research19. The rationale behind this is that Asian countries will be lagging behind developed countries in smart grid technology deployment and will be ramping up their investments in this segment just as developed countries will be reaching saturation in this segment. Countries are incentivized to invest first in the Communication/IT layer, especially in smart meter and software installations for communication, due to its high returns and faster payback periods.3. Demand Response Layer: Demand Response (DR) is a relatively simple concept. Utility companies incentivize electricity customers to reduce their consumption at critical, “peak” times, on demand. Contracts, made in advance, specifically determine both how and when these companies can reduce an end user’s load. It is expected that demand response will be one of the first applications of Smart Grid to capture a critical mass of market penetration. The on-going deployment of approximately 40 million smart meters20 in the U.S. will open the door for DR programs to be offered to millions of residential energy users for the first time. The same will happen when Smart Grid technologies, especially smart meters, are made available in India. These utility scale smart meter deployments will accelerate the pace of DR adoption, as the needed communication backbone between the end users and the utilities will be in place. Demand response is a win-win solution for utilities and customers. At times of peak energy demand, DR is a cheaper, faster, cleaner and more reliable solution than adding a peaking power plant. While concerns for the environment are increasing, the fact that both the18 Taken from the Smart Grid Market Share breakup by Segments in 2015 Graph, at end of this section19 http://smartgrid-for-india.blogspot.com/2009/12/200-billion-investment-in-smart-grid-by.html20 http://www.infraxinc.com/resources/collateral/documents/TheSmartGridin2010_2431.pdf 16

19.
utility and the consumer save money will be key driver in the mass adoption of demand response programs.4. Grid Optimization: Grid optimization entails a wide array of potential advances that will give utilities and grid operators digital control of the power delivery network. The addition of sensor technology, communication infrastructure and IT will help optimize the performance of the grid in real-time, improving the reliability, efficiency and security. Grid operators will gain improved situational awareness as fundamental system-wide visibility and analytics will now be in place. While AMI deployments lay the foundation for utilities having control of millions of end user devices, real-time command and control of higher- level grid devices is of equal, if not greater, value in the current push for overall grid efficiency. Grid Optimization serves as an umbrella term that encompasses improvements in three main areas, namely System Reliability, Operational Efficiency and Asset Utilization and Protection. Grid Optimization will help reduce distribution losses (technical and commercial) of upto 30% through optimal power performance and system balancing giving it a predictable high ROI, and hence making it an attractive investment opportunity for a lot of companies. In India we will see many new entrants in this segment.5. Distributed Generation and Storage: The distribution generation is one of the most revolutionary aspects of the smarter grid. It will not only enable integration of renewable sources of energy such as solar and wind but also integrate individual to mass producers across the nation, which wasn’t possible in the existing infrastructure. This true “plug and play” scalability and interoperability will promote the same wide-spread deployment in distributed generation that occurred with personal computers and cell phones, bringing a profound transformation to electric generation in the coming decade. The advancement of storage technologies holds the promise of revolutionizing the existing power delivery system. The electricity grid has historically contained a negligible amount of electricity and energy storage. The chief problem has been that storing electricity is incredibly expensive. While this remains a challenge – and there presently remains no single ideal storage technology – the possibility of storage breakthroughs in the next few years is high, as there is more attention now being given to storage as a necessary, viable and potentially very profitable technology. We have assumed that the combined segments of Demand Response, Grid Optimization and Distributed Generation and Storage will contribute 70% of the Indian Smart Grid 17

20.
Market in 2015 making it a $12.9 billion21 market. This is lower than the 84% that this combined segment would represent of the global smart grid market in 2015, based on Pike’s Research.6. Smart Charging & V2G: One of the most discussed and anticipated “applications” of Smart Grid is the introduction of the plug-in hybrid electric vehicle (PHEV). The PHEVs will heavily depend on higher quality and longer lasting batteries along with smart charging and vehicle- to-grid options. The latter two can be provided by the Smart Grid. Smart Charging - The key to the success of plug-in hybrids as an environmentally friendly solution and one that doesn’t crash the grid is how and when they re-charge. The ideal would be for them to do so in the evening hours, when utilities’ inexpensive base-load generators keep turning and consequently there is a lot of spare capacity available. V2G - Vehicle-to-grid (V2G) in the next 5 to 10 years might very well emerge as one of, if not, the most transformative applications of Smart Grid. While we believe that the market fundamentals are not yet in place for the V2G to take-off as, firstly, PHEVs will need to first be introduced at a price point that attracts a large mass of individuals, especially the middle income Indians, beyond just the early adopters and, secondly, we still may be one or two generations away from having the right battery. We have assumed that Smart Charging and V2G layer of the Indian Smart Grid Market in 2015 will represent 1% of the total market share, making it a $185 million 21 market. This would be marginally lower than the 2% that this segment would represent of the global smart grid market. The reasons are very much the same as stated for the other layers.21 Taken from the Smart Grid Market Share breakup by Segments in 2015 Graph, at end of this section 18

21.
Please find below a graph which shows the Smart Grid Market Share breakup for Global vs.India in 201522 by the segments/layers mentioned earlier. What is interesting to note from thisgraph is that Indian Communication/IT segment will make up a larger %age of the Indian SmartGrid market in comparison to same segment on a global scale.22 Also shown in Table 5 of Appendix. 19

22.
Indian Smart Grid – Competitive LandscapeIn view of favorable conditions through government regulations, technology innovation, lowcompetition and high return on investment several players are entering the various segmentsof the Indian Smart Grid market.Below, is a snapshot of the players currently in the various layers of the Indian Smart Grid. Market Size Layers Players in 2015 Honda, Mahindra, General Motors, Tata Motors, Hero Electric, Tara Smart Charging and V2G International, GE, Nissan $0.18 billion Distributed Generation GE, IBM, ABB, GridPoint, State Electric Boards (SEBs) & Storage Grid Optimization ABB, Siemens, Schneider Electric, Alstom $12.9 billion Demand Response Ecolibrium Energy GE, Cisco, Ericsson, Siemens, Echelon, eMeter, Itron, PowerGrid, Communication/IT Layer Landis+Gyr, Tridium, IBM, SAP, Microsoft, TCS, Infosys, HCL, Wipro, $5.3 billion Telvent, Capgemini, Accenture, KEMA GE, ABB, Reliance Energy, Essar Group, GMR, Larson & Toubro, Power Layer State/Govt. owned Power Plants,Communication/IT Layer - AnalysisThe Communication/IT Layer of the Indian Smart Grid Market, a $5.3 billion market in 2015, canbe broadly classified into 4 sub-segments based on the existing players.1. Communication Companies – These include companies which manufacture smart meters; companies that provide communication hardware infrastructure; companies that provide the transmission lines for Electric Grid.2. Consulting Companies – These companies provide consulting experience to hardware and software communication companies planning to deploy smart grid technology as they have some experience by doing so in developed countries. 20

23.
3. IT Companies – These companies provide software to the hardware equipment, including smart meters, which will complement the communication infrastructure of the future smart grid.4. Power and Transmission Companies – Essentially utility companies, including power generation and transmission companies which are working with Communications and IT companies to help adopt smart grid technologies faster and thereby improve productivity and experience for customers.Below is an exhibit which shows the interactions between the various companies from the 4sub-segments of the Communication/IT layer of the Indian Smart Grid market. Communication/IT Layer NTPC NDPL PowerGrid KPTCL GE Ericsson KEMA L&T Communications Companies OPTCL BESCOM Microsoft Telvent Wipro Consulting Cisco Companies Capgemini Echelon Itron Reliance Energy Information Technology Tridium HCL Infosys Companies Siemens Google Power & Transmission IBM eMeter BPL Companies Accenture Global (Govt. & Private) TCS SAP Landis+ GyrAnalyzing the Interaction PatternsOn analyzing the interactions between the various players in the Communication/IT layer of theIndian Smart Grid market, over the last few years, we see the following patterns emerge. 21

24.
 Cisco, a major player: Looking at the interactions between the companies we see that Cisco, is one of the major players in this segment. It is working with IT, Consulting, Utility and Power generation and transmission companies to create an ecosystem for Smart Grid in India23. Some of its ecosystem members are o System Integrators & Consultants – Accenture, Capgemini, HCL, Infosys & Wipro o Power and Utility Integrators – Schneider Electric o Technology Vendors – Echelon, Itron, Telvent Partnerships: We find that majority of the interactions were partnerships which have happened in the recent past. Smart Meter companies growing: We are seeing many smart meters companies in this segment. In the above chart, some of the big smart meter players entering the Indian market are Itron, eMeter, Echelon, GE and Landis +Gyr. If you look closely one can see that eMeter is already gaining prominence due to the number of connections, in total six, it has with other players. (In this paper, we judge prominence of player based on the interactions it has with other companies.) Microsoft & Google not yet dominant: Based on the research done we see that Google with its meters and Microsoft with its software competence have not yet partnered with companies in this segment. We could speculate that this might be due to their late entry into this layer of the Indian Smart Grid market. PowerGrid - a significant player in this segment: We are seeing that PowerGrid Corporation, a Government of India Enterprise (which manages regional power grids), is working with a lot of State Utilities companies in the states such as Karnataka (KPTCL – Karnataka Power Transmission Corporation Ltd.), Orissa (OPTCL – Orissa Power Transmission Corporation Ltd.), Meghalaya and Pondicherry to bring in the Smart Grid technology onto the existing grid. It is also working with the National Thermal Power Corporation in Maharashtra towards Smart Grid goals. Ericsson and Bharti Airtel are some of its customers on the telecom side. IT Companies doing Consulting too: While doing the research it was found that companies such as Infosys, TCS, Wipro, HCL and SAP were doing IT consulting work for many companies along with implementing the software solutions. HCL expanding Smart Grid Partner Ecosystem: HCL Technologies, a leading global IT services provider, in 2011 announced a significant expansion of its smart grid partner23 http://www.cisco.com/web/strategy/energy/ecosystem_partners.html 22

25.
ecosystem by forging strategic alliances with two leading data management software firms focused on the smart grid market: eMeter and Tridium24. GE & IBM not yet significant players in this segment: GE and IBM both have extensive, established presence in India and have a large amount of experience in implementing end- to-end Smart Grid solutions. GE is one of the top producers of smart meters in the US, after Itron. IBM is currently implementing a 70 million euro end-to-end Smart Grid System for Malta, an island country in the Mediterranean Sea. Both these companies have not really capitalized on this segment, in the Indian Smart Grid market, by partnering with a lot of companies.Our analysis of the interaction patterns in the Communication Layer indicates that while themarket is still fragmented, large companies are likely to establish their presence quickly. Weexpect companies seeking to enter the Indian market to be aware of these players andinteractions and accordingly strategize their entry into the market.24 http://smartgrid-for-india.blogspot.com/2011/04/hcl-partners-with-emeter-and-tridium.html 23

26.
Recommendations to CompaniesHere are a few high level recommendations for foreign companies planning to enter the IndianSmart Grid Market, especially the Communications/IT layer in the next few years –1. Enter India through Partnerships: There are many incentives for foreign companies to enter the Indian market. Firstly, the benefit to cost ratio in Smart Grid Technology is extremely high, ranging from 3.85 to 4.2 times. Secondly, the Indian Smart Grid market will be worth $18.5 billion and the Communications/IT layer of that would be worth $5.3 billion by 2015. Thirdly, there isn’t a lot of competition in this market, as it still very nascent, along with the regulations being favorable for foreign investment. Given all of the above, companies should be very eager to enter this market. But before entering companies need to decide how they are going to enter this unique environment and be successful. Based on precedence, foreign companies which have entered the Indian market have done well when they have partnered with existing or local companies and adapted to the local needs. We feel acquiring an existing player could also be a viable option, but that would depend if the entering company has the financial resources to do so. One of the recommendations is for foreign companies to partner will existing players who understand the market well and are successful doing business here. This would definitely be less cost intensive and risky.2. Partner with Cisco, eMeter or HCL: For a company planning to make investments on the communication side of the business, they should consider partnering with Cisco. Reason being, that Cisco is investing a lot in creating a Smart Grid Ecosystem25 by partnering with all the relevant companies and hence building up its competencies. It is already working towards facilitating the adoption of Internet Protocol (IP) based communication standards for smart grids that will benefit the energy industry as well as business and residential customers. Also Cisco has the, overall, highest number of interactions with other companies in the Communication/IT layer. For a company planning to focus only on the smart meter side of the business, they should most likely partner with eMeter. This company essentially provides software that enables electric, gas and water utilities to realize the full benefits of the Smart Grid. It was rated by Bloomberg New Energy Finance in 201126, for 2 years in a row, as one of the best companies in the world in the field of clean technology and innovation. Also it has potential to change the energy landscape in a very significant way by playing a significant role in the world’s25 http://newsroom.cisco.com/dlls/2009/prod_091709.html26 http://www.emeter.com/company/news/2011-press-releases/emeter-selected-as-new-energy-pioneer/ 24

27.
transition to a lower carbon energy system. Also e-Meter has the most number of partnerships, among smart meter companies, in the Indian Smart Grid market. For companies planning to focus on the IT implementation of the Smart Grid market, they should partner with HCL Technologies. The reason being, this company is expanding its smart grid partner ecosystem by forming strategic alliances with eMeter and Tridium. This would enable HCL to become an end-to-end integration service provider to the utility companies.3. Work with the Indian Government: Right now, the biggest stakeholder in Smart Grid Technology deployment is the Indian Government, as it owns much of the existing electric grid infrastructure. If a foreign company works directly with the Indian Government, on smart grid pilot projects, and given that they are successful, then most likely the government will award long-term contracts to these companies along with other parts of their business. It is worth noting here that the Indian Government plans to invest $170 billion on the electric grid infrastructure over the next 5 years, of which $62 billion will be spent on distribution and transmission. There is the added advantage further for the entering companies to also work with state owned utility companies. 25

28.
AppendicesTable 1: India’s Electricity - Demand, Supply & Deficit (2004 - 2010)Year Demand (MWh) Supply (MWh) % Deficit2004-05 591.4 548.1 7.32%2005-06 631.6 578.8 8.36%2006-07 690.6 624.5 9.57%2007-08 737.1 664.7 9.82%2008-09 777 691 11.07%2009-10 831 746 10.23%Source: Power Scenario at a Glance – Central Electricity Authority Planning Wing Integrated Resource PlanningDivision, January 2011Table 2: India’s Power Installed Capacity – 2010 - Sectors Renewable Hydro Thermal Nuclear Total Sector Energy % age (MWh) (MWh) (MWh) (MWh) (MWh) State 27.26 52.16 0 2.82 82.24 48% Private 1.43 19.75 0 13.96 35.14 21% Centre 8.68 39.12 4.57 0 52.37 31% Total 37.37 111.03 4.57 16.78 169.75 100% % age 22% 65% 3% 10% 100%Source: Power Scenario at a Glance – Central Electricity Authority Planning Wing Integrated Resource PlanningDivision, January 2011Table 3: India’s Electricity Consumption Mix in 1998 Electricity Consumption in India in 1998 Industry 2% Transport 16% 8% 45% Agriculture 27% Commercial and Public 2% Services Residential Other SectorsSource: http://www.iea.org/work/2006/gb/publications/india_electricity.pdf 26

29.
Table 4: Indian Population having access to Electricity in 2010 Access to Electricity in India in 2010 Rural Penetration 52.5% Rural Population (as % of total population) 72.2% Rural Access (as % of total population) = Rural Penetration x Rural Population (as % of population) 37.9% Urban Penetration 93.1% Urban Population (as % of total population) 27.8% Urban Access (as % of total population) = Urban Penetration x Urban Population (as % of population) 25.9% Total Access (as % of total population) = Rural Access + Urban Access 63.8% Indian Population in 2010 1178 Mil Population with Electricity Access 752 Mil Population without Electricity Access 426 MilSource: http://en.wikipedia.org/wiki/Electricity_sector_in_IndiaTable 5: Smart Grid Market Share Breakup by Segment in 2015 Distr. Generation & Storage, Smart Charging & V2G Communication/IT Total Indian Smart Grid Grid Optimization, Market share Demand Response Global 2% 84% 14% 100% India 1% 70% 29% 100% Distr. Generation & Storage, Grid Optimization, Indian Smart Grid Smart Charging & V2G Demand Response Communication/IT Total Market share (USD billions) (USD billions) (USD billions) (USD billions) Global 4.00 168.00 28.00 200.00 India 0.19 12.95 5.37 18.50Source: ZPryme Research Consulting & Pike Research Report 27

30.
References1. The Smart Grid Vision for India’s Power Sector: A White Paper – USAID from the American People, March 20102. Electricity in India, Providing Power for the Millions – International Energy Agency, 20023. The Indian Electricity Market: Country Study and Investment Context - Peter M. Lamb, August 16 20054. Power Sector in India – iQuest Solutions, Feb 20105. Power Scenario at a Glance – Central Electricity Authority Planning Wing Integrated Resource Planning Division, January 20116. Smart Grid Analysis – A Division of NanoMarkets7. Smart Grids Road Map – International Energy Agency8. The Smart Grid – An Introduction – US Department of Energy9. The Smart Grid in 2010: Market Segments, Applications and Industry Players – David J. Leeds, GTM Research, July 200910. Smart Grid for India Blog - http://smartgrid-for-india.blogspot.com/11. Technology Enabling the Transformation of Power Distribution – Infosys & CSTEP – Oct 200812. Technology Development Concepts for the Indian Power Sector – International Energy Agency – February 2011 28