Union power minister, R.K. Singh, was the chief guest at the mega event ELECRAMA 2020 that was held at India Expo Mart, Greater Noida, during January 18-22, 2020. In his inaugural address, Singh discussed overall trends in the power sector, particularly highlighting concerns in the power distribution segment. The minister asserted that the government was working towards an early resolution of the problems faced by distribution utilities, and was confident that the new wave of reforms, proposed to be initiated soon, will make power distribution commercially viable and even profitable. This special story is based on R.K. Singh’s address.
Despite the hiccups in the form of an occasional episode of slow growth, India is still the fastest growing large economy in the world—even if the annual average GDP growth rate in recent times is around 4-5 per cent. The developed world is growing at just 1-2 per cent. Hence, if the world economy needs to grow the onus is on India and China, noted R.K. Singh. “We are the ones that can increase the pace of growth of the world economy,” he said.
The Transformation: In the past few years, the power sector has been radically transformed. For a very long time until a few years ago, India was a power-deficient country that has now turned into a power-surplus nation. The country’s installed power generation capacity today is 367 GW and capacity is still being added rapidly. India even exports electricity to neighbouring countries like Bhutan, Nepal and Bangladesh. What is the most striking feature of India’s power sector is that India today has the largest unified power grid in the world. The entire country is connected by one single grid, and at the same frequency. In the near future, power transmission capacity for evacuation of 66.5 GW of renewable energy will be added, the minister noted.
Over the past 18 months or so, there has been tremendous improvement in terms of access of electricity. A total of 26.4 million consumers have been added through national household electrification programmes, mainly Saubhagya. R.K. Singh said that according to International Energy Agency (IEA), this is the largest expansion of access in the world, in recent times.
Even in terms of renewable energy, the progress has been commendable. “When we announced in 2015 that by 2022, we will have 175,000 mw of renewable energy capacity, people thought it was not possible. But we made it possible.” Today, according to the minister, renewable energy capacity of 68 GW has been installed. Another 36 GW is under installation while 30 GW worth of capacity is under bidding. This makes a total of 152 GW. The target of 175 GW would be attained, Singh noted.
Per capita consumption: While the power minister outlined the achievements, having taken place mainly in the power generation and transmission side, he admitted that much needs to be done in terms of electricity consumption. “We are a huge country, so the scale of what we do is huge. But let me tell you this again that what we have done is not sufficient. Our per capita energy consumption is still around 1,189 units (kwh) per year while the world average is 3,600 units per year. This means we have to treble our consumption to reach world standards. And that we will do,” was how R.K. Singh put his point across.
Having expanded access to electricity, the first target is to increase the national per capita consumption to meet the world average. The next target would be to increase this to match the average of developed countries. The latter would mean reaching six times the current consumption.
Correction needed: R.K. Singh maintained confidence that the Indian power value chain would turn efficient but admitted that the power sector could recover and prosper only if the power distribution system is reformed.
Singh very poignantly described the role of the power distribution segment. “That is from where money comes into the system. All that we do materializes when power reaches the consumer and when money is realized from the consumer,” he said. The minister went on to explain that if the consumer is covered under subsidy, part of the money is realized from the consumer and the rest from the state government.
This is the point from where R.K. Singh took off on the proposed reforms. He emphasized that the manner in which subsidy is handled needs to be looked into in all seriousness. “This will require hard decisions and those hard decisions will be taken,” he stressed.
There was no problem with subsidy, explained Singh. Power was part of the Concurrent List, which is to say it a subject dealt by the Union government as well as the state governments. Any state government was free to decide on the parameters of subsidy (how much and to whom) and that the Central government would have no reservations on any stance that a state government took on the power subsidy issue.
R.K. Singh however was of the strong view that this electricity subsidy should be given to the consumer in the form of Direct Benefit Transfer (DBT). Broadly, under DBT, the quantum of subsidy is transferred directly to the bank account of the consumer. (This is also discussed in detail further.)
Speaking about state-owned discoms, Singh explained in the new proposed reforms scheme, a trajectory for loss reduction by discoms will be laid out. All discoms will need to follow this trajectory if they want to access grant from the Central government or seek assistance from lending agencies like Power Finance Corporation or Rural Electrification Corporation.
About UDAY (Ujjwal Discom Assurance Yojana), which was launched in 2015 and modified periodically, Singh felt that it was successful in the sense that it brought down average national AT&C losses from 22 per cent to 18 per cent. However, the target was to reduce such losses to below 15 per cent and this target was not achieved, the minister admitted. Explaining the shortcoming, Singh said that the targets envisaged under UDAY were not aligned with incentives and disincentives. Regarding the new reforms, Singh assured that the targets (the loss-reduction trajectory discussed above) will be worked out in consultation with the discoms and these will then become sacrosanct. “Once these targets are agreed upon, they will become mandatory,” asserted R.K. Singh.
The way forward: Explaining the government’s approach towards reviving the power distribution sector, the power minister said that the principal focus will be on metering, billing and collection. Discoms generally find it difficult to complete the exercise of metering, bill-printing and bill-delivery to consumers on time. “If you serve consumers bills for three months at one go, he is bound to find it difficult to pay,” was how Singh explained the ground reality. Further, with the addition of 26.5 million consumers over the recent past, the exercise of metering, billing and collection has become very difficult for most discoms, especially in rural areas.
Automation will be coming to the rescue and this would be achieved primarily through smart prepaid energy meters. As announced by the Union power ministry in the past, and also corroborated by the Union Finance Minister, Ms Nirmala Sitharaman in her recent Budget Speech, the Centre is planning to switch to prepaid energy meters in the next three years, at the national level.
Stating that the government was already in discussions with manufacturers for the nationwide rollout of smart prepaid meters, Singh underscored the importance of prepaid meters on three counts:
- There has been a significant addition of “marginal” consumers over the recent past. The current system that charges them for a 30-day period may not be feasible for consumers. They need to be given the facility of paying for 5-6 days at a time. They need the facility of being able to recharge their account for any amount. This is why prepaid is essential.
- A “smart” meter is necessary so that a consumer does not hide his load. The smartness of the meter will notify the utility if a consumer is trying to bypass the meter. Also, smart meters will be indispensable when “time-of-day” metering is introduced.
- Only a smart meter can facilitate recharging through mobile phones.
R.K. Singh reiterated that a timeframe of three years has been set for this smart meter transition. He also felt that the smart meter rollout should be an indigenous activity. “We want ‘Make in India’; we don’t want imports. This is an opportunity for smart meter manufacturers to increase their capacity,” was how he put his point across to local manufacturers. The minister also felt that Indian manufacturers of legacy (analogue) meters could experience muted demand of such meters from India but they could tap the exports market. Several developing countries could still be a potential market for such meters, the minister felt.
Prakash Javdekar, Union minister for Heavy Industries and Public Enterprises who also holds the Union ministerial portfolios of Environment, Forest & Climate Change, and Information & Broadcasting, spoke at the ELECRAMA 2020 inaugural session, touching upon the point of “aspirational growth.” He observed that an electricity connection, especially in a rural household, represents not just a facility but also a form of empowerment. Equipped with an electricity connection, a household is never going to remain content with just a couple of lamps. There will be progressive addition of appliances, reflecting what Javdekar termed as ‘aspirational growth’. “People want new facilities; people want ease of living.” The minister noted that if the economy grows by say 6 per cent, electricity demand (consumption) must grow by 10 per cent. “A 10 per cent growth in electricity demand would be the thumb rule for many years to come,” Javdekar said. However, this demand was being unnaturally suppressed by load-shedding because many state power distribution companies were resorting to load-shedding as part of what Javdekar dubbed as an “undeclared policy.” The minister also suggested that forums like ELECRAMA should have a grand challenge to develop innovative products, possibly with the involvement of students. Javdekar went on state that such challenges would further the “Make in India” campaign. The minister felt that the campaign was not limited to just “manufacturing” in India. It also entails innovation, investment and selling the “Made in India” product with pride.
Loss reduction: In areas where losses from electricity theft are high, the government has decided to go in for High Voltage Distribution Systems (HVDS). In HVDS, electricity is distributed at a higher voltage (11kV) instead of the regular 400V or 220V. In the conventional system, 11kV lines go up to the distribution transformer centre (DTC) and from there lengthy 400/220V lines are drawn to give supply to various consumers. What happens in HVDS is that a consumer gets a 11kV line up to his premise and it is stepped down to 400V or 220V through a step-down transformer, just before the supply mains.
This is being done with a view to dissuade theft of power. Theft is generally done of low voltage overhead lines. Tapping of electricity from an overhead 11kV HT line is generally not attempted as it could be lethal to the person committing the offense. Thus, HVDS can go a long way in forestalling theft of electricity. From a technical perspective, HVDS also improves the voltage profile of the electricity supply and reduces the overall load on transformers in the distribution grid.
R.K. Singh observed that HVDS will create more demand for 11kV HT conductors as well as small distribution transformers. This could spell business opportunity to relevant manufacturers.
The power minister also mentioned that laying of aerial bunched (AB) cables could be an alternative to HVDS. Aerial bunched cables, which are insulated, unlike bare conductors, are laid overhead as a substitute to conductors. In normal circumstances, it is not possible to tap electricity from AB cables as they are insulated. However, R.K. Singh brought to light a ground reality that some linesmen have developed the “expertise” to even tap AB cables. Due to this, HVDS would be the preferred mode for mitigating electricity theft.
Assistance to discoms: For all the reforms that have been proposed, the power ministry would be assisting the discoms. For instance, smart meters will be rolled out on the operational expenses (OPEX) mode. The upfront payment to be made to the manufacturers—or at least part of it—will be given by the power ministry. R.K. Singh however reiterated his point that such assistance by the Central government will only be possible if discoms agree and adhere to the loss-reduction trajectory. “We do not want to sink in any more money in an organization that is not taking steps to make itself viable,” was how Singh put forth his resolution.
Load shedding: In the revised Tariff Policy, 24×7 power will be made compulsory; no load-shedding would be permitted. “If any discom resorts to load-shedding, it will have to pay a penalty,” Singh said. Explaining the phenomenon of load-shedding, the power minister said that it was one of the methods employed by discoms to avoid buying more power from generators. “The more power discoms acquire, the more losses they incur,” was the irony that R.K. Singh brought out. Elaborating on the point, the power minister said that discoms were making losses due to inefficient metering, billing and collection, as well as from power theft. Another reason for discom losses was not receiving subsidy from the state government on time. Under the new policy, state governments will need to pay the quantum of subsidy on time.
Expounding on the power subsidies, Singh explained that it was financial assistance granted to a particular class of consumers—agricultural consumers, BPL (below the poverty line) consumers, etc. R.K. Singh clarified that state governments were free to decide on the parameters of the power subsidy. Fixing the quantum of subsidy and identifying beneficiaries is entirely the state government’s prerogative, the minister clarified. “But state governments must pay the money (subsidy) on time. If state governments don’t pay (subsidy), discoms make losses and they (discoms) cannot pay for the power they procure,” was how Singh summarized the predicament.
The solution: Inefficiencies in the power distribution chain are at both the ends—the discom and the consumer. Reforms in the power distribution space are going to address both the ends. For the consumer, it would mean that unless he pays for the power, he will not get it. This is going to be achieved through prepaid meters. Discoms will be penalized if they resort to load-shedding. This would mean that power availability would be ensured 24×7. With respect to subsidies, state governments will necessarily have to pay the subsidy amount on time.
IEEMA President R.K. Chugh stated that by 2023, nearly 50 per cent of the current working population will need to be re-skilled. This is because the current skill set will progressively become redundant in the face of new concepts like Internet of Things (IoT), Machine Learning (ML) and Artificial Intelligence (AI). Speaking about IEEMA, Chugh observed that the industry body epitomizes not only the electrical equipment industry but also the capital goods industry. IEEMA represented around 55 per cent of the capital goods industry in terms of sales turnover. With respect to the electrical equipment industry per se, IEEMA has a share of well over 90 per cent. Speaking of the current size of IEEMA, the association’s President said that the top line of IEEMA member companies was $42 billion currently and the same is targeted to reach $100 billion by 2025. Exports by IEEMA members, which currently stand around $7.5 billion, are projected to reach $25 billion by 2025. Highlighting the concerns, Chugh noted that the outstanding amount payable by state government transmission and distribution utilities to IEEMA members was currently in the region of Rs.15,000-20,000 crore. The IEEMA President also cautioned that growth in the electrical equipment industry had subsided in the past 8-9 months and some segments within the industry had even recorded a decline in production.
A responsible consumer: The ultimate step in the power subsidy issue would be introducing the Direct Benefit Transfer (DBT) scheme where the subsidy money is given directly to the consumer. R.K. Singh then went on to make a very compelling point. “When you give the subsidy money directly to the consumer, the consumer becomes a responsible consumer. He will switch off the light when he does not need it. Because he has to still pay for it—the subsidy will come later from the state government–but he still needs to pay the full amount. If he can save on his electricity bills, he will still have some money left over.”
Thus was introduced a very important aspect of how DBT of subsidy—as opposed to state government paying subsidy to discoms—could help create responsible consumerism.
Electricity has traditionally been a highly politicized subject. Politicians, for decades on end, have used the “free electricity” promise as their election plank. Time and again in his address, R.K. Singh stressed on the fact that electricity was not free; it had to be paid for. “This is something that we have to tell all our politicians in all the state governments.” All the changes in the New Tariff Policy are driving at creating a new payment culture—whether it is government subsidy or electricity bills. “These are bitter pills to swallow because we cannot have a system that is dysfunctional,” asserted Singh.
If we need a modern India, we need a modern power system that is based on markets. Singh envisaged an ecosystem where power generators could sell their electricity on the markets (power exchanges) without having to mandatorily enter into power purchase agreements.
Coming back to his point of shoring up the per-capita consumption of electricity, Singh said that when power demand increases, it should lead to an increase in generation capacity. Investments in the power generation segment, in turn, will come only when a generator gets prompt payment of the electricity that he has sold. If a power generating company is not confident of getting paid on time, no investment will flow into the power generation segment, argued Singh. “The rules are hard because they need to be hard,” R.K. Singh said, directing his remark to state governments. The power generation sector will need to grow in the coming years because if India were to aim at a per capita electricity consumption of 3,600 units per year, the present power generation capacity needs to treble.
In his inaugural address, Anil Saboo, Chairman, ELECRAMA 2020, highlighted the phenomenal growth seen in ELECRAMA, which is now regarded as the world’s biggest tradeshow in the electrical equipment industry. The first edition of ELECRAMA was held in Mumbai (Godrej Compound) in 1990. It had a modest 100 exhibitors and the event covered an area of just 9,000 sqm. The 2020 edition, the 14th of ELECRAMA, saw a whopping 1,300-plus exhibitors and the event covered an area of 1,10,000 sqm. Saboo observed that the electrical equipment will generally stand to benefit from the Rs.2,40,000 crore worth of investment envisaged in the National Infrastructure Investment Plan. The ELECRAMA 2020 Chairman also noted that Indian electrical equipment manufacturers inherently have tremendous export potential. Despite this, electrical equipment is currently the third largest commodity imported into India.
Inverted Logic: The last point made by R.K. Singh was perhaps the most hard-hitting. He exposed a longstanding anomaly in India’s power distribution system, which is that a consumer who consumes more, ends up paying more. He was referring to industrial consumers that end up paying more, on the basis of the cross-subsidy mechanism, despite being the biggest consumers and therefore the biggest customers of power distribution utilities. In Singh’s words, “Right now, if you consume more, you have to pay more. That is not fair. In fact, you should encourage more consumption, which is how a market works. Here the market works in a reverse manner.” It makes no sense to penalize main consumers, he elaborated, expressing disconcert that India was the only country that did it. “In any other country, if you are a bulk buyer, you get power at lower rates. Here, you need to pay more and nobody questions it!”
The Mission: Concluding his address with a rather scathing attack on state governments on the issue of power subsidy, he expressed anguish that state governments were not giving subsidy out of their own pockets; it was being given out of state revenues. In his concluding words, “You are giving subsidy out of your revenues, which is collected from tax payers. Give it directly. That is the mission. That is a mission for modern India.”
