Power plus distribution new
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The document discusses power distribution in India, focusing on distribution franchisees. It provides an overview of the current state of power distribution, including high AT&C losses around 27% on average. Distribution utilities have been losing money, with aggregate losses increasing from 2008-2009 to 2009-2010 before decreasing in 2010-2011. The document discusses steps taken to privatize distribution, including different models of private sector participation like management contracts, franchise models, and private licensees. It provides examples of recent distribution franchise deals across several states. Key benefits to utilities and franchisees from franchise models are outlined. Issues around standardizing bidding documents for franchisees are also mentioned.
Power plus distribution new
- 1. Power Power Power PLusPLus PLus Distribution March Edition www.indianpowersector.com Power Distribution power sector (IPPs and mega power projects) are nothing but ways of pouring more water into the bucket so that the Sector in India consistency and quantity of leaks are assured...” Twenty years after reforms were introduced in the Indian electricity sector, the above remark still holds good. The ‘bucket’ in the Snapshot above remark is the Indian electricity distribution sector, which consumes no matter how much is generated, without adequately Distribution and Retail Supply is the most critical link compensating the producers of electricity for the same. in the electricity market, which interfaces with the end- customers and provides revenue for the entire value chain. Lack of focus has resulted in poor operational and financial Indian electricity distribution caters to nearly 200 million performance of the sector, thereby creating greater need of consumers with a connected load of about 400 GW that sector transformation, with high calls for private participation in places the country among the largest electricity consumer terms of private franchising, public-private-partnership (ppp), bases in the world. The consumers are served by around equipment suppliers. As a result, tremendous opportunities 73 distribution utilities – 13 electricity departments, lie on fore in the sector, for various stakeholders. Thus, this 17 private distribution companies, 41 corporatised paper establishes the current scenario of power distribution distribution companies and 2 State Electricity Boards. franchisee in urban power distribution network. It owes to the fact of sustenance of other elements in the sector such as generation, transmission, equipment manufacturing; which depends on its operational Operational & Financial performance and commercial viability. However, despite of its critical importance, generation segment has always Performance been on the agenda of the government, in light of high AT&C Losses energy deficit, necessitating need of huge capacity addition. Not long back, the Government of India had The average AT&C losses in the country are hovering constituted a committee, headed by Mr. Deepak Parekh, around 27% and these losses are higher on both erstwhile Chairman of IDFC, to study the electricity sector technical and commercial heads. While higher technical in India and suggest for improvements. The report, losses are due to old and dilapidated conductors, longer among other suggestions, remarked the following: lines serving distant and remote loads, old and inefficient distribution transformers and incorrect configuration “India’s power sector is a leaking bucket; the holes deliberately leading to load imbalances, higher commercial losses crafted and the leaks carefully collected as economic rents by are due to stealing of power, poor billing, low collection various stakeholders that control the system. The logical thing efficiency and faulty metering. to do would be to fix the bucket rather than to persistently emphasize shortages of power and forever make exaggerated In the absence of a proper energy accounting and estimates of future demands for power. Most initiatives in the auditing system in place for most of the utilities, the actual Power Plus Counsultants 1
- 2. figures for the AT&C loss could be higher than what gets The aggregate book losses of these utilities increased reported. Arresting the AT&C losses and reducing them from Rs.21,562 Crs. in the year 2008-09 to Rs.28,493 40 36.64 34.9 34.82 33.02 35 30.62 29.45 27.74 27.15 30 25 20 15 10 5 0 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 AT&C Losses (%) for all utilities Source:PFC year-on-year on a sustained pace will require disciplined Crs. in 2009-10.However, in the year 2010-11, the losses approach by the utilities, mostly comprising behavioural decreased to Rs.26,921 Crs. changes to the functioning of the field personnel engaged in technical and commercial management of Profit on the distribution network and the customers respectively. Profit before Profit after Profit without subsidy tax tax subsidy received basis Income, Expenditure and Profitability (14,446) (14,303) (27,893) (15,057) (14,586) (14,751) (34,137) (17,620) The aggregate turnover (revenue from sale of power and (21,862) (21,562) (50,441) (34,728) other income but excluding subsidy booked) of the utilities (28,182) (28,493) (62,508) (43,433) reflected a YoY growth of 10.79% in the year 2009-10 and 19.40% in the year 2010-11.The aggregate expenditure of (26,107) (26,921) (59,200) (38,821) Source:PFC these utilities registered YoY growth of 13.47% in the year 2009-10 and 13.12% in 2010-11. The recovery of cost is The aggregate book losses of these utilities increased shown in the figure given below:- from Rs.21,562 Crs. in the year 2008-09 to Rs.28,493 Crs. in 2009-10.However, in the year 2010-11, the losses decreased to Rs.26,921 Crs. ARR-ACS gap The gap (without subsidy) increased from Rs.0.48/kilowatt- hour (kwh) in 2006-07 to Rs.0.77/kwh in 2010-11. The upward trajectory of gap per unit is explained by the fact that while power procurement cost and wage bills - together both these cost heads account for 82 per cent of the discoms costs - were increasing, lack of political will to revise tariffs resulted in growth rate of ACS outpacing the rate at which ARR increased. Between 2006-07 and 2010-11, the cost of procuring power and wage bills per unit increased by 10 per Source:PFC cent each, resulting in ACS growth of 9 per cent. 2 Power Plus Counsultants
- 3. On the other hand, tariff hikes have been few and far franchisee model is key attraction, for instance, a franchisee between and insufficient to meet the revenue gap in most arrangement can be limited to catering to small segment cases; in some states no tariff revision has been implemented of distribution business such as managing a single feeder for years, as evident from the ARR CAGR of only about 6 or distribution transformer, etc or taking care of all the per cent between 2006-07 and 2010-11. distribution functions for a complete circle. Steps taken to Privatization ■■ During the pre-reform era (1991), Power sector was dominated by the state owned vertically integrated entities called State Electricity Boards (SEBs), responsible for all three functions viz. Generation, Transmission and Distribution of electricity. ■■ Deteriorating financial health of most of the SEBs and poor quality of supply and service led to reforms in the power sector ■■ While Generation segment was the first one to be opened up for private participation, the enactment of the Electricity Act 2003 provided for mandatory unbundling Power Distribution of the state electricity board into separate and independent generation, transmission and distribution Franchisee companies. ■■ In the Distribution sector, most of the SEBs have already Definition unbundled (except for Kerala and Jharkhand). The ownership still largely remains state owned. Private Distribution Franchisee is the latest form of public-private Sector Participation is limited to 15 private sector partnership in the distribution sector. The proviso to Section distribution licensees 14 of the Electricity Act 2003 states that: ▪▪ 3 in Delhi (Privatization) “…in a case where a distribution licensee proposes to ▪▪ 4 in Orissa (Privatization) undertake distribution of electricity for a specified area ▪▪ 2 in Gujarat within his area of supply through another person, that person shall not be required to obtain any separate license ▪▪ 4 in Maharashtra from the concerned State Commission and such Distribution ▪▪ 1 in Uttar Pradesh licensee shall be responsible for distribution of electricity in his area of supply”. ▪▪ 1 in Jharkhand ▪▪ 1 in Madhya Pradesh This provision provides a conducive framework in which ▪▪ 2 in West Bengal franchisee can operate in many ways in the distribution business. Electricity distribution franchisee is a classic example of public private participation (PPP) and going ■■ In addition to the above, new initiatives like introduction by the recent trends its acceptability in the private sector of various models of distribution franchisee have also outweighs when compared to the overall privatization been introduced in the distribution segment, both at the of distribution companies. Flexibility provided by the rural and urban level. Power Plus Counsultants 3
- 4. Pre Reforms 1999 2002 2007 2010 2011 CESC, Orissa Delhi Privatisation Distribution Distribution Distribution AECL,BSES,NPC, Privatisation – – Distribution Franchisee – Franchisee – Franchisee- TPC (existing First State Utilities Bhiwandi Agra(operational) Nagpur, private players) Kanpur(currently Aurangabad, on hold) Jalgaon Types of PPP Models It is also apparent that distribution franchisee model is a Major models identified in distribution sector under trade-off between privatization benefits and SEB driven private sector participation or PPP model are Management reforms which is also politically accepted and yields good Contract Model, Franchise Model and Licensee Model. The result at moderate pace. The franchisee model is thus a allocation of responsibility in the three models is as under: right mix of progress, legislature and Acceptability. Management Contract Allocation of Responsibilities Franchise Model Private Licensee Model Model Operation & Maintenance Private Private Private Capital Investment Public Private Private Commercial Risk Public Private Private Asset Ownership Public Public Private Duration 3-5 years 10-15 years Indefinite Reform Process Slowest Balanced Fastest Political Acceptance Most Balanced Lowest Source: PFC @IndianPowerSector.com Types of Franchisee Models 4 Power Plus Counsultants
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- 6. Win-Win Situation for Utility & Franchisee Benefits to: Description ■■ Reduction in commercial and distribution losses ■■ Better collection efficiency Distribution Utility ■■ Improved customer satisfaction ■■ Ability to serve larger area ■■ Possibility to earn high financial returns Franchisee ■■ Customer lock in period ■■ Develop credentials to help in further bids ■■ Improvement in quality of services Consumers ■■ Improved power availability Recent Deals Several of the recent bidding rounds for Distribution from the private sector players but also entry of several Franchisee have not only witnessed increased participation non-Power players into the sector Franchisee Year Utility Winning Bidder Current Status Area Dakshinanchal Vidyut Vitran 2009 Agra Torrent Power Ongoing (Operations Taken over) Nigam Limited (UP) Kanpur Electricity Supply Com- Delayed due to Agitation from KESCO 2009 Kanpur Torrent Power pany Limited (UP) employees Spanco started the Operations but Essel Maharashtra State Electricity Spanco Group-Essel 2010 Nagpur joined in by paying the dues worth Rs. Distribution Company Ltd. Group 200 Cr for the area to MSEDCL Maharashtra State Electricity 2010 Aurangabad GTL Ongoing (Operations Taken over) Distribution Company Ltd. Maharashtra State Electricity 2010 Jalgaon Crompton Greaves Ongoing (Operations Taken over) Distribution Company Ltd. Madhya Pradesh Madhya Smart Wireless, Essel 2012 Gwalior Operation to be taken over soon Kshetra Vidyut Vitaran Co. Ltd. Group Madhya Pradesh Poorv Kshetra Smart Wireless, Essel 2012 Sagar Operation to be taken over soon Vidyut Vitaran Co. Ltd. Group Madhya Pradesh Paschim Smart Wireless, Essel 2012 Ujjain Operation to be taken over soon Kshetra Vidyut Vitaran Co. Ltd. Group North Bihar Power Distribution Smart Wireless, Essel 2013 Muzaffarpur Operation to be taken over soon Company Limited. Group South Bihar Power Distribution 2013 Gaya Spanco Group Operation to be taken over soon Company Limited South Bihar Power Distribution 2013 Bhagalpur SPML Infra Operation to be taken over soon Company Limited 6 Power Plus Counsultants
- 7. Key Issues Sl. Parameters Remarks Standardized selection process & terms of contractas in 1. Standard bidding document for DF case of Generation and Transmission. Large enough (Energy input) with defined technical boundary 2. Structuring of Franchisee area Revenue potential/ sales mix/ Revenue-loss matrix/ LT loss level of the area; 3. Contract period Impact on depreciation/transfer value of assets Participation of consortium allowed in recent bid process; 4. Qualification criteria Optimizing Competence Vs. Competition Key success factor for successfulbid process and benefits 5. Quality of base-line data that shall accrue to the discom/ franchisee Higher reserve price makesthe proposition non-lucrative, 6. Reserve price for bidderzzzzzzz tgg may be left to market driven input rate; Process for periodic joint auditing to be a part of contrac- 7. ABR tual obligations Regulatory approval for additional Power purchase, 8. Power sourcing option for DF FORstudy recommends reliability charge Loss trajectory and related incentive/ penaltymay lead to 9. Performance Improvement Target limited participation; Pass through of subsidy should be based on area profile/ 10. Treatment of subsidy viability of the projectwithout subsidy; DF should have independence of capexdecision in the ini- 11. Capital expenditure tial years in long term contract; Regulator should recognize DF/ Input rate approval/ Util- 12. Role of regulator ity ARR and DF revenue; Way Forward Distribution Franchisee in present form needs serious corrections ▪▪ Especially in provisions related to regulatory oversight, specify guidelines and standard bidding documents for Distribution Franchisees, separately in Urban and Rural areas, supply guarantees by the licensee and asset ownership and transfer Distribution business model needs a complete rethink ▪▪ Unbundling of intrinsic services, viz. “Wires, Supply and Customer Services” would lead to value release ▪▪ Would allow for core specialization in all the activities ▪▪ Would also allow for Non-discriminatory Open Access to become a reality ▪▪ Addressing responsibility for emerging interventions –Smartgrid/ AMI, DSM initiatives Power Plus Counsultants 7
- 8. 1. Power Plus Solar 2. Power Plus Smart Grid Power Power Power Power Power Power PLus PLus PLus sola r PLus PLus PLus smart grid www.indianpowersector.com www.indianpowersector.com The complete Inside Out of Indian An introduction to Smart Grids Solar Market a. hat world is doing W a. Project development challenges b. hat is smart grid W on sites c. Challenges and opportunity b. The complete financials of d. ay ahead W different off-takes e. Investments requirement c. Policy reviews and way ahead d. Technology About Authors Shubham Gupta is a Power Ankit Varshney is an Electrical Management Graduate from Engineer with 2 Yrs of Power National Power Training Distribution Franchisee Institute (NPTI), Faridabad experience at Torrent Power’s with special interest and Agra Distribution Franchisee prior experience in Power as an Executive-HV/EHV Distribution Sector. During department. He has also seen the course of his management the operational aspects of studies he has worked with AF-Mercados Franchisee model from close. EMI as a Research Intern and has also took He is currently pursuing his Power Management up an assignment with Indian Smart Grid from National Power Training Institute (NPTI), Forum (ISGF). Faridabad. He has also worked with Infraline He has also worked with Torrent Power Ltd. Energy as a Management Intern. There he as Engineer-Distribution at Agra Franchisee made a report based on Risk Profiling of after completing his Electrical Engineering Distribution Utilities on the basis of financial from Dr. KNMIET, Modinagar. and operational data. 8 Power Plus Counsultants
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