Smart grids are the next big thing in the Indian power sector. While the primary driver for smart grid implementation in Western countries is the transition to a low-carbon economy and modernisation of ageing grids, in India, the need to plug the power deficit, reduce aggregate technical and commercial (AT&C) losses, and integrate the increasing renewable energy generation is driving the adoption of smart grid technologies. However, the high costs involved in smart grid technologies and the financially weak position of state utilities are deterrents to large-scale adoption. Utilities often resort to load shedding instead of investing in technologies to monitor electricity usage and curb theft. However, this practice may not last long as consumers demand uninterrupted power supply. In addition, cost-effective technologies and well-defined standards are being developed to meet the needs of Indian utilities. Dr Rahul Tongia, technical adviser, India Smart Grid Task Force, and adviser, India Smart Grid Forum, shares his views on smart grid development in the country. Tongia is also a non-resident fellow, Brookings India, and an adjunct professor at Carnegie Mellon University. Excerpts…
What are the key policy and regulatory considerations for smart grid development in the country?
Smart grids are a process, not a product. The transformation will take time, and one cannot simply mandate the deployment of a smart grid as there are too many gaps in such a directive. When technologies are chosen, for example, meters, it should be ensured that they are smart meters, or at least smart-ready meters, which can be converted to smart meters with a small add-on. The important factors for smart grid development are as follows:
- Broad awareness and timely approvals regarding smart grid deployment (such as pilot projects).
- Financial support, both for investment
as well as variable (time-of-day [ToD]) pricing.
- Experimentation is required for a smart grid-enabled environment where utilities should be able to address the key issues before adopting new technologies.
- Most importantly, a change in mindset is needed. The transformation to a smart grid cannot work if we treat this simply as an automated meter reading project. We have to think about peak load management, ending load shedding, etc., and not just a reduction in AT&C losses.
What factors must be considered while undertaking a cost-benefit analysis of smart grid projects?
A cost-benefit analysis is much more complicated than return on investment calculations. It involves societal analysis. Some benefits accrue to consumers rather than utilities. For instance, if we end load shedding, consumers would use less diesel but the utility will have to incur higher costs on account of additional power procurement, peak load management, smart meter deployment, etc. Therefore, some of the savings achieved by consumers (due to reduced diesel usage) would need to be translated into slightly higher tariffs.
In addition, ToD differentiation and simple pricing schemes must be introduced. A cost-benefit analysis also needs to consider uncertain factors such as the level of consumer participation for demand response, or even price elasticity (how demand will decline during peak hours with increased peak prices).
No one knows many of these things yet, or even what the “best” solution is; that is why we have to learn as we move ahead. Anyone who claims that they know is either unaware, misrepresenting facts or trying to sell you something.
Given the weak financial position of state discoms and the capital-intensive nature of smart grid technologies, how can discoms formulate an effective business case for smart grid adoption?
To formulate an effective business case for smart grid adoption, the issue of liquidity and solvency should be taken into consideration. The latter depends on the cost-benefit analysis but the question is who incurs the costs involved in smart grid projects. By having strong pilot projects, we can address the solvency issue. However, financing these projects largely depends on regulatory approvals. In addition to incorporating the capex into the tariff rate base, we can think of alternatives such as the energy service company models, where a service provider shares the benefits in lieu of full upfront payments. Such a model is not trivial since baseline data matters and there remains some risk.
What are some of the tariff structures that can be introduced by regulators for smart grid deployment while balancing the interests of discoms, technology providers and consumers?
Given that peak power shortage is a major issue, we need to have ToD tariffs. We can start with bulk procurement before consumer ToD pricing. Besides, we can consider critical peak pricing which is not as complex as real-time pricing.
What are some of the key regulations that need to be drafted in the context of interoperability of various systems as well as cyber-security?
I am not sure whether we need regulations per se; rather, we need a portfolio of standards that can achieve the desired functionality and security (including interoperability).
What are the key challenges associated with smart grid implementation in the country? How can these be overcome?
There are many challenges, some of which relate to financing, mindset, technologies, etc. Probably another major issue is that the discoms (utilities) have their hands full, not simply with keeping up with demand but also with implementing various projects under the Restructured Accelerated Power Development and Reforms Programme (R-APDRP). The R-APDRP will play an important role in getting the background work right for successful smart grid implementation. More than anything else, it’s not just the one-time R-APDRP implementation but also the ongoing updation of data that is important. This process needs to start now, even before smart grid deployment.
What will be the focus areas of smart grid development in the country?
It’s just the beginning of the smart grid journey. While the broader transformation will take time, within a few years, we must have success stories, even if small, to learn from, to showcase and to keep the momentum going. Pilot projects that are supported by the government are just a part of the smart grid development initiatives. Going forward, there should be more activities including other pilot projects, small demonstration projects of new solutions, test beds, educational programmes and consumer interaction forums.
(The views expressed above are the author’s personal views and do not reflect those of his organisation.)