Relevance: Infrastructure : GS-3 : Energy; Indian Economy and issues relating to planning, mobilization of resources, growth & development.

Key Phrases : Revamped Distribution Sector Scheme, electricity distribution network, operational efficiencies, financial sustainability, AT&C losses, Average Cost of Supply(ACS), Average Revenue Realized(ARR), Prepaid Smart Metering, DDUGJY, IPDS, Saubhagya, KUSUM, feeder solarisation.

Why in News?

• Launched in July 2021, the Revamped Distribution Sector Reform Scheme (RDSS) is the latest of many central government grant-based programmes towards electricity distribution network investments. Let’s analyse it in detail.

Key Points:

• Revamped Distribution Sector Scheme (RDSS) launched by Ministry of Power, aims to help DISCOMs improve their operational efficiencies and financial sustainability by providing result-linked financial assistance to DISCOMs to strengthen supply infrastructure based on meeting pre-qualifying criteria and achieving basic minimum benchmarks.
  • The scheme has an outlay of Rs 3 lakh Crore over 5 years i.e. FY 2021-22 to FY 2025-26.
  • REC and PFC have been nominated as nodal agencies for facilitating the implementation of the scheme.
• The scheme aims to meet the following objectives:
  • Reduction of AT&C losses to pan-India levels of 12-15% by 2024-25.
  • AT&C loss is combination of energy loss (Technical loss+Theft+inefficiency in billing) & commercial loss (Default in payment+inefficiency in collection).
  • Reduction of ACS-ARR gap to zero by 2024-25.
  • Average Cost of Supply (ACS) and the Average Revenue Realized (ARR)
  • Improvement in the quality, reliability and affordability of power supply to consumers through a financially sustainable and operationally efficient distribution sector.
• The Scheme has the following components:
  • Part A : Financial support for Prepaid Smart Metering & System Metering and up-gradation of the Distribution Infrastructure.
  • Part B : Training & Capacity Building and other Enabling & Supporting Activities.
• Other such schemes include urban loss reduction schemes such as the Accelerated Power Development Programme and rural connections and network expansion focussed schemes such as SAUBHAGYA.
  • These have played a significant role in increasing access and improving performance.

Significance:

• RDSS’s outlay of Rs 3 lakh crore for five years can enable financially-strained electricity distribution companies to get similar support.
  • Half of the outlay is for better feeder and transformer metering and pre-paid smart consumer metering.
  • The remaining half, 60 per cent of which will be funded by central government grants, will be spent on power loss reduction and strengthening networks.
• RDSS, is a reform based and result oriented scheme that allow states to benefit from the additional money that becomes available, based on their commitment to underlying reforms as well as on being able to showcase corresponding outcomes.
• Last year, a different version of this scheme was made applicable, which enabled 24 states to take benefit of the same and avail additional borrowing limits of more than ₹13,000 Crore.
  • Based on the learnings from bringing out such a scheme and the reception it received from the states, the framework was further revised this year to put forth incremental reform requirements that the states need to commit for, in their power segment.
• In current times, wherein massive infrastructure has already been deployed under flagship central schemes of DDUGJY, IPDS, Saubhagya and having met the target to make available the power supply across all willing households, the Union government is directing its focus towards making the sector operations more robust, efficient and sustainable, with the end objective to make available round-the-clock, quality, reliable and affordable power to all consumers.

Issues:

• RDSS has inherited several design issues from its predecessors including the complex processes and conditions for fund disbursal.
  • Only 60 per cent of the total Rs 2.5 lakh crore grants allocated in past schemes were disbursed.
• Lack of public review and regulatory oversight in states is another issue.
• The prescriptive approach of the scheme design impedes effective implementation.
  • For example, RDSS emphasises loss reduction investments over system strengthening.
  • However, high losses are typically connected to sustained poor quality service which, in turn, is affected by inadequate investment in system strengthening.
• RDSS stipulates universal pre-paid metering but post-paid options may be suitable in many contexts.
• Similarly suggested measures in RDSS such as privatisation and franchisee adoption should be critically examined.

Way Forward:

Despite the challenges, there are opportunities for discoms under RDSS.

• As required, states are submitting action plans detailing their contexts, commitments and interests.
• States must leverage the grant towards dedicated agricultural feeders support to provide reliable supply and reduce subsidy requirements.
  • About 25% of electricity sales is to highly subsidized , agricultural consumers who also receive erratic, poor quality supply.
  • Under the national KUSUM Scheme, day-time, low-cost supply can be provided to a large number of farmers by installing megawatt scale solar plants, which supply eight hours of quality power directly to dedicated agricultural feeders.
  • This would address farmers’ demand for reliable supply and almost halve the discom’s cost and subsidy requirements.
  • For this to work, separate feeders for agricultural consumers are needed.
  • RDSS prioritises investments and grants towards dedicated agricultural feeders to accelerate feeder solarisation.
• It is important to strengthen rural networks to meet growing demand.
  • In the past decade, 4.9 crore poor households have been electrified and more than Rs 50,000 crore has been invested in rural networks. However, actual investments have been much less than planned.
  • Moreover, connections given to rural homes were for 250 or 500 watts, assuming few lights, fan and TV, not accounting for use of appliances such as refrigerators and mixers.
  • Transformer and sub-station capacities were designed to meet this minimal demand.
  • Increased supply hours, appliance usage and the needs of rural enterprises will need more network investment. Without this, the risk of power outages is high.
  • The RDSS system’s strengthening plans can focus on this challenge.
• There is a need for “automatic” metering of distribution feeders.
  • Despite efforts, unmetered consumers and non-functional meters at the consumer and feeder level persist.
  • Without functioning meters, accurate energy accounting and loss monitoring is a challenge.
  • Often, discoms under-estimate losses by over-estimating unmetered consumption in a bid to demonstrate loss reduction.
  • For greater veracity, all feeders must be equipped with meters capable of communicating readings without manual intervention.
  • States should leverage RDSS’s emphasis on automatic meter reading for this.
• So far, the experience with smart metering and pre-paid metering has been limited.
  • RDSS prescribes a phase-wise roll-out of consumer smart meters, starting with commercial and industrial consumers and urban areas.
  • Such an approach provides states with an opportunity to understand implementation issues, adopt suitable strategies for metering and evolve frameworks for assessing benefits vis-a-vis the costs.
  • This is possible if discoms, the state regulator and consumers play an active role in designing the roll-out to suit state realities, address implementation issues and assess benefits.
  • In their action plans, states should emphasise the need for this flexibility and allow the discoms to make an informed choice between pre-paid and post-paid metering.
  • To realise benefits, the state regulator must stipulate a framework to evaluate cost reduction and performance improvement due to smart meters and protect consumers from undue tariff impacts due to such investments.
• Next, the network can be prepared for charging electric vehicles.
  • Discoms can avail 60 per cent of grants under RDSS for network investments required to address the demand of charging infrastructure for electric vehicles.
  • This can accelerate a shift away from petrol and diesel fuels.

Conclusion:

• To leverage various opportunities, states must emphasise the need for flexibility in prioritising investments in their action plans. This should be accompanied by state-level commitments towards accelerated but deliberate implementation. Central government agencies should also be flexible in the monitoring, tracking and fund disbursal mechanisms. Without these efforts, despite its potential, RDSS will likely be important but limited in its impact, like its predecessors.

Source: Indian Express

Mains Question:

Q. The current state of operational and financial losses of Discoms requires solutions to provide much-needed fillip to the power sector as well as the overall economy. Comment in light of the Revamped Distribution Sector Scheme.