Last issue we examined the inefficiencies in the electricity sector in India and concluded that there could be a potential to save a staggering USD 26 Billion every year. That money can be channeled into investments to generate growth which can easily add a few percentage points to the GDP. We also observed that most of those inefficiencies are in the distribution end of the electricity value chain. This month we would examine the specific problems that afflict the Distribution Sector.
Over the past five odd decades the technical and commercial losses have continuously crept up. Soon, most electricity utilities in the country could not recover enough money from end user to even fully pay for the electricity that their customers required. That hit payments to generators and finally the fuel suppliers. Tarriffs were raised and state Governments chipped in with large subsidies.
That in turn strained the Government's exchequer. Investments into building adequate generation, transmission and distribution infrastructure slowed down. New investors putting up generation capacities asked for and got sovereign guarantees for electricity sales to the electricity distributors. With such intensive Government involvement it was but natural for the sector to get highly politicized.
Simultaneously another drama was unfolding for use of electricity in the Agriculture sector. In the early ‘60s, the second most populous country did not produce enough food to feed its citizens. The country became dependant on foreign aid. The Government rightly decided to give a massive boost to improve agricultural production. The sector required cheap and plentiful fertilizers and electricity for artificial irrigation. More subsidies went into both. In hind sight those were right moves. A few decades later India is a net exporter of food even after having enough available for her 1 Billion citizens.
All of that has left the electricity sector with bizarre and uneconomic tariff structures, a perception that electricity is available for free just like air and water and a culture of subsidy which has diluted the motivation to become efficient. Most of the available investible funds went into generation. The T&D segment increasingly became saddled with obsolete and unreliable technology, strained far beyond designed capacities.
Over the past two decades some serious effort has gone in to building up a national transmission infrastructure. Government is either investing directly or through large public-private partnerships. Large investments and quick project execution has dramatically transformed the Transmission sector. But the major problem lies with the Distribution sector which is fraught with technological, social, managerial and political problems. About 25% of the energy sent out in the distribution lines is lost due to problems which are controllable. These problems are:
Meters: The authors estimate that out of 150 Million electricity customers in India, some 20 Million would not have a metered connection. Billing is based on connected load. That encourages profligacy and wastage. About half of the existing customers would be controlled through old meters, most of which would have outlived their useful lives.
Controlling T&D losses
The first action necessary to control T&D losses would be to replace all the old meters and fix new meters for the un-metered customers. Based on their own experience, the authors estimate that 10% of the energy is being lost due to defective metering.
Theft of electricity: This perhaps is the single biggest problem and it happens two ways - directly tapping from electricity mains and by tampering meters. Thousands of kilometers of LV overhead lines were erected all through the past decades with bare conductors on steel or concrete poles. Insulated Aerial Bunched Cables (ABC) have become available indigenously only since the late ‘90s. But even then, cost differentials are forcing utilities to continue with bare conductors. The bare conductor lines are prey to easy direct tapping. The authors' own experience is that 5% of the energy is stolen by such direct tapping. The solution is switching to distribution lines with ABC and intense patrolling and theft detection. Tampering of meters, be it electromechanical or electronic meters, is other bane of utilities. Possibly another 5% energy is lost through such tampered meters. Continuous R&D to stay a step ahead of ingenious mind working at tampering meters is one solution. That has to go hand in hand with enabling legislation that allows courts to admit electronically recorded evidence in meter memories as proof of theft of electricity. Defective billing database: Most distribution utilities have only partially accurate billing database. Besides, full computerization is yet to happen. Inefficiencies in billing can crop up anywhere in the meter reading to data transcription to bill generation to dues recovery cycle. Not unusual for genuine customers to be inadvertently left out of billing data base and defunct customers still continuing to be shown as live. All of that means billing efficiencies are rather poor even if there are no thefts. It is difficult for the authors to estimate what could be the losses on this account but wouldn't be surprising if it is around 4%.
Stressed distribution infrastructure: Pure technical losses are an accepted phenomenon. Distribution networks along with the plant and equipment that goes into such networks, are designed to strike a fine balance between cost and performance. If the components of the network are overloaded or subjected to unbalanced loading then that adds to higher than designed technical losses. Similar is the case when excessively long lines feed customers. Currently large segments of the distribution network suffer from these maladies. Authors' estimate 5% losses on this account.
A simple arithmetic sum of all of the above would tend to lead to the conclusion that avoidable losses are at 30% rather than 25%. That's probably closer to reality because whenever there are un-metered customers, and virtually all utilities have some of those, it is difficult for utility engineers to resist the temptation to concoct a larger than actual consumption and attribute that to these un-metered customers.
Can all those problems be tackled or are we doomed forever to live with an inefficient key infrastructure sector. Next month we would examine how a handful of Distribution utilities have taken on the challenge and surmounted those daunting problems. In the process they have set a paradigm for successful reform of the sector.
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