discom-losses-widen

The losses in the weakest link in Electricity value chain have mounted to such a level that at least ten states are losing about a third of the power supplied to their consumers in distribution losses. 

State of DISCOMs:

  • The electricity value chain goes like  Generation → Transmission → Distribution(Weakest Link).
  • Issues plaguing DISCOM sector
  • Low revenue collection
  • Increase in power purchase cost.
  • Tariff revisions are not commensurate with the cost of supply.
  • Uncleared dues from government departments.
  • The increasing gap between the cost of electricity bought (Average cost of supply) and supplied (Average revenue realized).
  • High AT&C (Aggregate Technical and commercial) losses.

Aggregate Technical And Commercial Losses

Energy losses occur in the process of supplying electricity to consumers due to technical and commercial reasons. 

The Technical losses are due to energy dissipated in the conductors, transformers and other equipment used in the process. These technical losses are inherent in a system and can be reduced to a certain level.  On the other hand, Commercial losses occur due to pilferage by hooking, bypassing meters, defective meters, errors in meter reading, etc.

Commercial losses combined with Technical losses give Transmission & Distribution (T&D) loss

There is another component of commercial losses, which is due to non-recovery of the billed amount, which is reflected in collection efficiency.  T&D losses together with loss in the collection give us Aggregate Technical & Commercial (AT&C) losses. 

Spillover of the poor state of DISCOMs: 

  • Delayed payment to Generation utilities (to the tune of ₹81,320 crores), which resulted in their state to such an extent that some of the power generators are finding it difficult to buy fuel such as coal to run their plants.
  • The poor financial health of DISCOMs has also affected the Indian Banking sector as clean energy developers are facing difficulty in servicing their debt. The banking sector is already grappling with the NPA woes.

Government initiatives:

  • UDAY (Ujjwal DISCOM Assurance Yojana) - It was launched in 2015 by the Ministry of Power. The scheme envisaged the following objectives.
  • Financial Turnaround
  • Operational improvement
  • Reduction of cost of generation of power
  • Development of Renewable Energy
  • Energy efficiency & conservation
  • ADITYA (Atal Distribution System Improvement Yojana): Recently, the Government is about to announce a ₹2.86 trillion plan to address the following:
  • Bring down the aggregate technical and commercial (AT&C) losses from India’s average of 21.4% to less than 12%.
  • Negating tariff gaps
  • Compulsory prepaid smart metering across the power distribution chain, including 250 million households.
  • Discoms that failed to meet targets for improvement shall be taken up for privatization.
  • Proposed national tariff policy
  • The imposition of penalty on gratuitous load-shedding (Discontinue power supply by resorting to load-shedding mechanism even when there are no technical faults).
  • Not allowing losses of more than 15% as a pass-through in tariff - To ensure that the burden of the inefficiencies of the Discoms is not passed on to the consumers, AT&C losses exceeding 15% shall not be considered for determination of tariff.
  • Limiting cross-subsidies (In order to keep the prices low for one group of customers, another group of customers is charged higher price)
  • Suspension of licenses in case of non-availability of adequate power supply arrangements.

 

  • Initiatives to help bring financial discipline 
  • Withholding permission to the state to borrow to the extent of electricity losses not funded by the respective state governments. The rationale behind it to make the DISCOM borrowing conditional to their performance.
  • Limiting DISCOM loans of Power Finance Corp. Ltd (PFC) and REC Ltd to capital expenditure projects.

Conclusion:

The recent initiative of ADITYA is a fresh lease of hope, especially for the performing DISCOMs. However, a lesson should be taken from the previous initiatives including UDAY, which couldn’t change the face of the DISCOMs sector in a radical manner. Given that electricity is in the concurrent list, the states need to show the political will to resolve this lingering issue. Delhi is a good case in point, where electricity discoms were privatized in July 2002, registered the lowest loss of 9.7% in the country and a revenue gap of only 0.19 per unit.

Also readNational Electricity Distribution Company (NEDC)

Reforms In the Banking Sectors

Source 1

Source 2