Focus on power supply, but not at other segment’s expense

The proposed Renewable Energy Management Centers (REMC) being built by POSOCO must be brought online at the earliest

Deepak Sriram Krishnan, Associate Director, Energy Program, WRI India in an interaction with Athira Bejoy states how segments like generation, system operation, transmission and distribution (wires) shouldn’t be ognored and the problems with the distribution sector should go beyond the realm of the techno-commercial.

Moving away from power generation and focusing on supply. Your take?
In my opinion, this should not be framed as a duality. As the country is steadily moving towards its declared goal of 175 GW of renewable energy by 2022, the generation segment will continue to need attention. At the same time, addressing inefficiencies in the system (ATC losses, upgrading distribution and transmission networks, improving billing etc.) must continue to receive focus.

According to the Central Electricity Authority (CEA), India’s installed capacity as on 31st August 2019 was approximately 360 GW. The total generation from conventional and renewable sources for the same month was close to 118,000 MU. For the same month (August 2019), the following was the power supply situation in India – 177.525 GW peak met against a peak demand of 177.968 GW (0.2 per cent deficit) and 110,644 MU of energy met against a requirement of 110,896 MU (0.2 per cent deficit). For a full year (2017-18), the country saw a peak demand deficit of 2.1per cent and an energy deficit of 0.7per cent. (CEA, Load Generation Balance Report (LGBR), 2018-19).

Therefore, in theory, we have adequate generation, and the deficit figures point to a scale which can easily be resolved. However, this masks a deeper underlying problem of deteriorating distribution company finances; delayed payments to generators and stranded generating assets. So much so, that the Reserve Bank of India (RBI) in its report State Finances – A study of state budgets of 2019-20 says that “Going forward, states might have to take over higher losses of DISCOMs if they do not show a turnaround in their financial performance and this will inevitably take its toll on debt sustainability in the medium-term.”

Solutions to the problems in the sector will have to emerge from the distribution/supply side. Hence, more effort will have to be focused on the supply side, while not neglecting other segments. It is, however, important to ensure that the “focusing on supply” peg must also cover reliable and good quality supply. The absence of this has led to the growth of massive diesel generator industry, as well as a range of inverter and other UPS type industries. These are all potential revenues lost by distribution utilities – because they do not supply reliable power.

One more thing to push for is the need for medium term plans – which would look at different types of scenarios, keeping in mind India’s development needs and our environmental challenges as well such as air quality, water stress etc., as well as low rural energy demand, remote areas, etc.

Rise in the outstanding dues to GENCOs
It must be understood that moving the focus on supply shouldn’t be at the expense of neglecting the other segments – generation, system operation, transmission and distribution (wires). The problems with the distribution sector should go beyond the realm of the techno-commercial. In the electricity value chain, every stakeholder except the distribution company has a back-to-back contract arrangement which institutionally insulates it from risks. For example, generating companies which need to pay, say, mining companies/equipment suppliers having PPAs with DISCOMs. Here, even if a DISCOM has outstanding dues, it is contractually still bound to pay up. A DISCOM doesn’t have that kind of protection from all its consumers given the political economy in the distribution segment. These are governance challenges and need to be addressed through improved efforts at transparency, public participation and accountability systems.

At the same time, newer technology interventions, for example like small scale storage, are picked up by the C&I consumers which again hit the DISCOMs’ revenues first. Hence, some more attention to this “problem child” is welcome, and every other stakeholder ultimately will benefit from this.

UDAY 2.0, shouldn’t be a just a ‘first aid’
One of the major criticisms of UDAY 1.0 was that the existing financial liabilities were just being shifted to another state entity, and there was no real control over improvement of the DISCOM performance. From media reports, it looks like UDAY 2.0 is likely to build penalties in the form of denying loans and grants to DISCOMs that don’t meet targets; opening of LCs for supply of power (already in place). One could say that the central government has started to adopt the danda (punishment) phase of ‘Kautilya’s four Upavas’ to drive home the point.

UDAY 2.0 needs to go to the core of the problem and address the causes for utility financial stress or else it’ll be just a temporary relief like first aid.

Beyond this, the sector also needs to see the changes happening in the market structure by which DISCOMs, for instance, are not tied to 25-year PPAs with their take or pay clauses and are also allowed to bring new products into the market like demand response and green tariffs.

The unfortunate reality
Cyber threats are unfortunately a reality that inter-connected systems need to live with. However, that shouldn’t prevent us from utilising the benefit of such inter- connectedness. Efficient functioning on the supply side is possible only if the business need is understood and mapped thoroughly; and technology interventions are designed to fit the business need and security solutions are in-built into the business architecture.

Transmission infrastructure
With the increasing amount of RE and the tightening of the deviation settlement rules, forecasting and scheduling is going to play a major role. Hence, the proposed Renewable Energy Management Centers (REMC) being built by POSOCO must be brought online at the earliest and must work in close co-ordination with the SLDCs and RLDCs. In addition, regular long-term planning and implementation to ensure that the necessary lines and sub-stations are in place along with suitable VAR compensation mechanisms is a must.

The role of WRI India
WRI India’s energy team is driven by an objective to undertake work that informs and guides India’s transition to cleaner energy. Accordingly, we work across 3 inter-related aspects of this energy transition: enhancing energy access so that it results in improvement of socio-economic development among the poorest in our country, scaling renewable for specific consumer categories and achieving higher levels of energy efficiency (particularly in the buildings sector). Our key role would be to combine our deep sub-national (city, state, private sector) knowledge and engagement with global and international expertise to guide and inform India and Indian states as they navigate this very important transition.

Deepak Sriram Krishnan, Associate Director, Energy Program, WRI India