The operational and financial health of distribution companies in India is a major concern. According to a recent study, public sector discoms have accrued Rs 10 lakh crore in cash basis losses over the past 15 years. They also suffer from high distribution losses. This is a hindrance to India’s development story. Startups and philanthropies can effectively address a part of this problem by improving metering systems, which can lead to better billing and collection for discoms. Doing so will also encourage the adoption of renewable energy.
Starting in the 1990s, the Union government has made several attempts to improve the viability of state-run discoms. However, inherent pricing and access tension between consumer groups has constrained the impact of past reforms. Expanding the scope for private sector participation, with limitations, has shown real promise in addressing these issues.
The Revamped Distribution Sector Scheme (RDSS), which focuses on improved metering is encouraging. The impact of the scheme can be further augmented by the private sector. Due to innovation, fast adaptation, and their “low cost-high efficiency” nature, startups in India are well poised to do this. Philanthropies can play a critical role by supporting government-startup linkages.
Also read: ADB, Tata Power Delhi Distribution sign deal to enhance power distribution in national capital
Spillover effects
The woes of the distribution sector spillover in integral areas such as renewable energy (RE) adoption. The payment security mechanism implemented by Solar Energy Corporation of India (SECI) to fund RE projects caused a temporary boom in the sector. However, utility companies’ structural problems including delayed repayments and the lack of grid flexibility caused investments to plateau. This directly impacts India’s ability to add the required 30-40 GW of renewable energy to reach the stated goal of 500 GW of non-fossil fuel generation capacity by 2030.
In 2021, the government launched the RDSS, which focused on upgrading distribution infrastructure. Since then, RDSS has ushered in an unprecedented $4.8 billion private sector investment commitment for replacing 50 million smart meters.
This directly improves billing and collection efficiency, which according to the study constitutes about 30 percent of all cumulative discom gaps in the past 15 years. The idea of “Meter-as-a-Service (MaaS)” is gaining traction, and private sector companies are replacing meters on a Build-Own-Operate-Transfer (BOOT) model. In the MaaS model,installation of meters, collection of data, and maintenance of web cloud services are outsourced to a specialist company. Under the BOOT model, private firms finance, build, and operate meters with government concessions, and transfer ownership to the government at the end of the concession period. The goal of the RDSS is to replace all 300 million meters with smart and pre-paid meters and ease India’s pathway to net zero by 2070.
Under the MaaS model, recently, tenders have been awarded at Rs 90-95 ($1.1-1.16) per month for each meter for 10 years— much lower than the European Union, and the United Kingdom. While this seems like a comparative advantage, the price rounds up in India due to lower costs and average meter revenues. This is where startups can step in and help reduce metering costs.
Also read: MP: Power distribution company preserves electricity meters of different generations
Opportunity for Startups
Lowering the cost of smart meters would accelerate RE adoption significantly. There are four areas where startups and philanthropies can help: smart meters manufacturing, meter-backend communications, backend IT cloud architecture, and data analytics.
The cost of smart meters accounts for approximately 40 per cent of the monthly rental for metering service, followed by the cost of integration and IT backend and communication. Since most inputs are imported, there is an opportunity to reduce the cost of smart meters (single phase) by 50 per cent, from the current Rs 3000 (~$40), by localising the concerned technologies.
Similarly, innovations in IT backend and cloud infrastructure can be leveraged. Decentralised IT backend and computing for smart meter groups would increase efficiency and reduce communication and cloud infrastructure costs.
Additionally, using artificial intelligence/ machine learning to help utilities implement programmes like equipment replacement, demand response, and demand side management would reduce the gap between peak and off-peak demand and thereby reduce the overall cost of procurement.
For instance, a tech-enabled air conditioner (AC) replacement program could support energy efficiency, and help in cost reduction. Currently, a three-year-old AC with a three-star efficiency rating requires 1800 W whereas a five-star rating AC consumes 1,000 W.
Replacing 1.25 million ACs, would result in cumulative savings of 1 GW or 8760 GWh in a year. In India, the Average Pooled Power Purchase Cost (APPC) for 2022-23 is Rs 4.44/kWh. Thus, AC replacement could result in saving Rs 3.89 thousand crores ($474 million) in a year. For perspective, the average cost difference between a 1.5-ton three-star and five-star AC is Rs 10,000 (~$121). The cost of AC replacement can be optimised by using data science.
Also read: Indian states with less than 10% multidimensional poverty doubled in 5 yrs, says NITI Aayog report
Role of Philanthropies
While startups can support the government’s reforms for the distribution sector, currently there are sparse linkages.
Philanthropies can work together with startups to accelerate reforms by stimulating innovation. This can be done by creating an enabling environment for startups and providing mentorship from ideation to implementation stages.
Additionally, philanthropies can partner with utilities and regulators to implement pilot projects. Foundations can also provide seed capital, thereby cushioning governments from financial risk at the initial stages.
The Global Energy Alliance for People and Planet (GEAPP) has released an innovation challenge named “Entice”, which seeks to engage with innovators and start-ups to help solve aforementioned challenges pertaining to digitisation, technical support provision, and financial cushioning.
Distribution sector reform in India is crucial for renewable energy adoption and industrial development. Startups can augment government programs, by providing technical expertise, and innovation case samples, whereas philanthropies are crucial for furthering private-public synergies and providing additional cushioning.
Saurabh Kumar is the Vice President, The Global Energy Alliance for People and Planet (GEAPP) in India. He is an Indian Revenue Service officer of 1992 batch and has served as the Executive Vice Chairperson of the Energy Efficiency Services Limited (EESL) Group. Views are personal.
(Edited by Ratan Priya)