1. New challenges in
Electricity Distribution and
Regulation
IEEE PES/IAS/PELS
Hyderabad
joint chapter webinar
22nd May 2020
Sreekumar Nhalur and Manabika Mandal
Prayas (Energy Group)
www.prayaspune.org/peg
3. Challenges – Not being covered -1
• Power shortages till about 2015
• Electricity connection deficit – addressed by 2019
• Financial losses from late 1980s
– Bail outs in 2001 (0.4 lakh Cr); 2012 (1.2 lakh Cr), 2015- UDAY (2.3 lakh Cr)
– Reforms after reforms
• High energy losses
– Transmission & Distribution loss = 20% ( 35% to < 10%)
– AT&C Loss = 19% (40% to < 10%)
• Poor quality of supply, especially for small consumers and rural areas
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4. Challenges – Not being covered -2
• Grid integration of intermittent renewable
• Regulators: Vacancies, limitations in resources and capacity, independence
• Safety and accidents (IEEE Hyderabad project)
• Recent developments
– Demand and revenue slump due to COVID lockdown
– Amount owned by distribution companies to generators: 0.94 lakh Cr
– Recently proposed reforms – Electricity Act Amendment, New Tariff Policy, Liquidity support (0.9
lakh Cr), Atal Distribution System Improvement Yojana: 2-3 lakh Cr
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5. Growing fatalities due to electrocution
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Source: Reports of National Crime Records Bureau
6. Distribution and Regulation – new challenges
• Sustained surplus in base power
– High cost surplus due to aggressive capacity addition in the recent past
– 15% to 35% of total fixed cost payments to generators is for backed down capacity in many states
• Wind/solar PV and coal generation prices
– Rs 2.5-3/kWh for wind/solar & fixed for 25 years, vs. Rs 4-5/kWh for new coal
• Rising average cost of supply and tariffs
– More than Rs. 7/unit and rising at 6% per annum
• Competitiveness of alternative supply options, increasing sales migration
– Open Access, Captive, net-metering – accelerating, loss of cross subsidy, planning difficult
• Relentless fall in Li-ion battery prices
– Can help further reduce dependence on DISCOM in the medium–term
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7. Increasing costs and rising tariffs
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Tariffs
• HT,LT industrial, commercial consumers provide
significant cross subsidy > 130-140% of ACoS
• Average tariffs for cross-subsiding consumers ~ Rs. 9/ unit
Power from Alternate Sources
• Cost of RE power < Rs. 4/unit
• > 70% of non-agri. sales with energy charges > Rs. 5/unit
• Short/medium term power < Rs. 4/ unit
• Short term rather than long term
8. Open Access based sales migration, 2016-17
• In Maharashtra, Rajasthan and Gujarat, OA as high as 20% of DISCOM HT sales
• > 80% of open access is short term; makes power procurement planning challenging for DISCOMs
• Reducing in recent years due to high surcharges and increase in captive
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9. Proliferation of captive consumption
Source: PEG compilation from various CEA
reports
• Captive consumption already 20% to 30% of total sales in few states
• FY14 to FY15 saw 9% ↑ in Odisha, 12% in Chhattisgarh, and 34% in Karnataka
• Captive rules amendments to encourage serious players
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10. Increasing viability of kW scale solar PV systems
• Generation cost for such system @ or <Rs. 5/kWh
• Even without net metering, a consumer with significant proportion of day-time load will save ~ Rs. 2/unit with rooftop
solar.
• In the face of policy/regulatory hurdles to net-metering/OA, consumers will also find solar + storage options viable in
the near future.
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11. Shaking fundamental pillars of electricity sector –triggered by technology & market
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• Direct generation cost of new renewables is less than average tariff of existing generation
• Generation projects no longer require long gestation periods and are modular
• Electricity can be stored with increasing ease and affordability
• Grid services are likely to be as critical as supply
12. Challenges before the DISCOM - a summary
Aggressive high cost capacity addition in the past decade Avg. Cost of Supply at Rs.7/kWh and growing
Increased RE capacity addition and need for peaking power in
recent past
Alternate supply options @< Rs.5/unit, strategies to retain
consumers ineffective
Sustained surplus base load capacity Rapid anticipated increase in sale migration
Uncertainty in demand and power procurement
Fast eroding scope for reliance on cross-subsidy
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• Need for increase in tariffs or revenue subsidy or there will be greater financial losses 🡪 more bailouts
• Could result in poor supply quality for small consumers
• High risk of more stranded assets in the future
13. Limited scope of current strategies in tackling these challenges
• Improving efficiency 🡪 reduce cost of supply, tariff
– ↑ costs due to need for additional capex, loan repayments and wage increase
– Heroic efforts to ↑ efficiency will ↓ rate of growth of cost of supply but not stall it
• Increasing fixed charges, for same total tariff
– Energy charges may reduce by 10-20% but will remain > Rs. 5/unit
– High incidence of fixed charges will make shift to solar PV captive more lucrative.
• Reduction in tariff to retain migrating consumers
– Tariff rebates and Time of the Day rebates provided in many states but with limited success
― Could increase subsidy burden / DISCOM losses (Punjab caps energy charge @ Rs.
4.99/unit for industries, Haryana & Gujarat provide subsidy to new industries)
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14. DISCOM – 2.0
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Paradigm shift from the current business model
• Cross – subsidy based tariff design unsustainable
• Protect small consumers, market option for paying consumers
15. Regulatory Commissions – vast mandate and significant authority
• Licensing, approval of power purchase, tariff determination, service quality
• Quasi-judicial body, subordinate legislation (regulations),powers of civil court
• Two aspects of making the institution effective
– Procedural : transparency and public participation
– Substantive
• Important substantive aspects
– Power purchase planning
– Tariff determination
– Quality of supply and service
– Promoting market
– Balancing varied consumer interest and long term sector viability
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16. Regulatory challenges
• What went well
– Brought in transparency, improved participation
– Improved tariff process, accountability, quality of supply and service
– Suspending capacity addition till proper plan is prepared and reviewed (Maharashtra, UP)
– Central Commission: Grid discipline, market monitoring, renewable integration
• But many new challenges
– Not able to improve planning and coordination in the sector
– Not able to manage the market
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17. Some ideas for discussion…1
• Avoid long-term, base load power purchase contracts
– Revaluate need for 25 year base load contracts, given RE addition, uncertain demand
– New contracts after rigorous analysis of demand, supply alternatives
– Use analytical tools - load forecasting models, power sector models for exercise
– Capacity addition planning through a public process with regular re-evaluation
• Encourage long-term sales migration of large consumers
– Open Access consumers to procure from DISCOMs only via ‘non-regulated’ tariffs, contracts
– Minimum duration of Open Access: 1 year, short-term only for contingencies
– Fixing sales migration charges for a 5 year period to provide certainty
• Promote end use efficiency based on load surveys and market transformation
• Agricultural demand met through solar feeders, where possible
– Deploy 2-10 MW scale solar PV plants at the sub-station on separated feeders
– Capacity procurement through competitive bidding, 25 yr. contracts @ fixed rate
– Significant ↓ in subsidy with fixed solar tariff of ~ Rs 3/kWh, rising average power purchase cost (now Rs 4/U)
– Approach already part of KUSUM scheme of GoI, being implemented in Maharashtra and Rajasthan
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18. Solar Agriculture feeders
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• Maharashtra 2017: 3,000 MW underway
in Maharashtra, ~ 7.5 lakh ag pumps will
be solarised, ~300 MW operational
• GoI KUSUM 2019 Component A: 10,000
MW
• Rajasthan 2020: 5-6,000 MW being
planned
• Haryana 2020: Started the process
19. Some ideas for discussion…2
• Rationalising tariff design
– Move away from cost-plus regulation; explore incentive based
– Introduce a general tariff for small consumers
• Same tariff slabs for all industrial, commercial, domestic consumers using <300 units
• High intra-category cross subsidy to ensure revenue neutrality
• Link tariff increase of <300 units to inflation
• Steps to encourage market participation
– Innovations in power procurement and contract design, Flexible market instruments
– Increased market monitoring (incl. open access and captive consumption)
• Increasing accountability for supply and service quality
– Harnessing technology to monitor actual hours of supply, ensure real time reporting
– Third party audits for metering, billing and public hearings for quality of supply and service
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20. Ideas … 3: Round the clock (RTC) renewable power
• Solar Energy Corporation of India 400 MW tender
– Tender issued in Oct 2019, bids for 950 MW received
– Won by ReNew Power, May 2020: Rs.2.9/U, 3% annual escalation for 15 years, Rs 3.60 levelised tariff
– Solar, wind and storage (if needed), 80% CUF (CUF of RE now < 30%)
– To be supplied to Delhi, Daman and Diu & Dadra and Nagar Haveli
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Ideas … 4: Increase professional participation in policy and regulatory processes
• Contribute to Ministry and CEA efforts on legal, policy, planning and regulatory processes
• Support Central and State level efforts to tighten grid discipline, real time markets
• Plan for Renewable integration
– Scheduling & forecasting for renewables (some SERCs doing)
– Changing the technical minimum for thermal units to 55%
– Separate renewable load dispatch
– Promoting distributed renewable and storage
– Slowly reduce concessions for renewables
• Promote use of modelling and planning tools
21. Thank You
sreekumar@prayaspune.org
manabika@prayaspune.org
Further reading:
1. DISCOM future 2018: https://prayaspune.org/peg/publications/item/377-electricity-distribution-companies-in-india-
preparing-for-an-uncertain-future.html
1. Many sparks but little light 2018: https://prayaspune.org/peg/publications/item/332-many-sparks-but-little-light-
the-rhetoric-and-practice-of-electricity-sector-reforms-in-india.html
1. Primer 2019: https://prayaspune.org/peg/publications/item/410-know-your-power-a-citizens-primer-on-the-electricity-
sector.html
2. Solar feeder for Agriculture: https://prayaspune.org/peg/resources/solar-feeder.html
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