Repay the debts, to instill confidence in GENCOs for new investment

The government’s introduction of LCs will help in smooth functioning of the DISCOMs moving forward but its effectiveness in the long run is still untested

Sidhharth Gangal, CEO, The Solar Lab, in a discussion, suggests modernisation of infrastructure as per the advancements of 21st century to improve the financial conditions of power players involved in the system.

Moving away from generation and focusing on supply. Your take?
The problem has been correctly identified in this sector finally. The evidence indicates that India has surplus generation capacity. Mismatch of generation and supply to areas with high demand was never solved. Unexpected growth demand in certain states has lead to a vacuum creation on the supply side. Mismanagement also happened since half of the Indian systems operate under the control of central government and the rest by state utilities. With thermal power plants operating at low plant load factors, we have upcoming projects to add excess capacity. The time is right to focus attention on supply side problems and deal with them effectively with a centralised strategy.

The government scheme UDAY from 2015 tried to solve supply issues as well. It ailed to meet its objectives, which will be tackled better in UDAY 2.0. The focus on improving infrastructure to enhance revenue collection at supply side will solve ailing debt issues with DISCOMs. Though we have connections to end points till homes and industries we observe the per capita consumption is lower in India than most countries. There is latent demand waiting to be unlocked. So far the trust was lacking because of unreliable power supply. New demand is expected to follow when disruptions in the transportation sector change the source of energy for travel. The focus on strengthening supply will definitely help every player in this industry.

Would this move to focus on supply, will bring any relief to the debts?
The focus on supply should address a few critical problems that can bring relief to debts. Two ways to increase profitability are:

• Increasing efficiency in collections
• Improving revenue collection by implementing new methods of applicable tariff rates.

The government has introduced LCs that will help in smooth functioning of the DISCOMs moving forward. Its effectiveness in the long run is untested. The policy changes expected aim to tackle certain behavioral issues at the root of the problems. It is necessary to solve the debt problem to inspire confidence in the GENCO sector for new investment.

What policy or tariff changes are you expecting to come under the UDAY 2.0?
Today, DISCOMs are the least trustworthy entities in the power industry. For years they have been plagued with piling up debts. Since DISCOMs are essentially bound by their poor balance sheets, LOCs with different rules will provide relief for operations. It’s expected that LOCs will allow free functioning in terms of purchase and supply of power. Once their problems related to acquiring power are solved, the DISCOMs can focus on becoming profitable in the long run. Other tariff changes will target bad monopolistic practices of old days. To improve operations, the DISCOMs will not be allowed to recover losses from regular paying customers. Once the limit of 15 per cent of losses is imposed the onus of improvement is on the employees of DISCOMs. Another, customer centric tariff change is expected. Load shedding is seen as a no cost solution to operational problems of DISCOMs. When such behavior is not penalised the system move towards lower operational efficiencies. This further harms the customers and compounded repercussions are experienced in the banking sphere.

Successful cyber attacks on the wider energy industry are expected. What are your thoughts on how to curb off such attacks?
The origin of such attacks cannot be stopped since these attacks originate from remote locations around in the world. But their attempts must be thwarted and the extent of damage can be mitigated. Since the threat is virtual, people working in the industry sometimes don’t feel the threat is credible. To improve our capacity to fight such attacks, digital privacy and security related trainings must be given higher importance.

The systems and hardware in place are quite outdated in terms of security features. Hence these computers that follow older protocols can be exploited on mass scales. Going forward it’s important to identify the vulnerable points of entry for malware or sleeper viruses in renewable systems. Given that the nature of renewable is distributed the risk associated to it also rises. Again to solve such problems the product certification agencies need to ensure sufficient risk standards are followed.

What kind of infrastructure should be in place for an efficient supply?
There are 2 parameters of focus on infrastructure for an efficient supply. The first parameter is expansion of the grid network. It is observed that certain zones have higher capacity to generate power, and some states have unmet demands. The grid expansion focus should be on building inter-regional transmission capacity. This would also augment renewable-rich zones capability to exploit the wind and solar potential.

Modernisation of infrastructure by improving the hardware to harness the advances in technology of the 21st century is important. This will help in improving financial conditions of all players involved in the system. We can improve efficiencies by promoting electricity generation at point of consumption using micro grids. Distribution companies usually have a tough time handling peak demand and also face problems when plants operate at low PLF.

We expect better revenue collection mechanisms come with variable tariff rates. This will ensure that renewable can genuinely be a part of the growth story of DISCOMs.

Sidhharth Gangal,CEO, The Solar Lab