Direct to Home. Both Electricity and Subsidy.

We have a number of international investors including the leading private equity funds, pension funds and global energy players lining up to invest in India’s electricity sector, especially in the renewable energy. The government is committed to promote renewable energy and move India towards a low carbon economy. As an economy, we are moving towards a $5 trillion mark with per capita electricity consumption way below the desired mark of 3000 kWh per year.

So, what is the issue here? The issue on hand is the boom and bust cycles of investment in this critical sector of the economy. Since 1992, when the private sector was first invited to participate in the electricity sector of India, we have seen at least 3 cycles of leading Indian and international investors literally losing hundreds of millions of dollars of their investment. The reasons cited include lack of fuel, opaque fuel allocation process, tardy approvals system, and environmental issues.

But, the real issue that has often been soft pedalled, by the investors and governments alike, is the lack of payment capacity of the distribution companies. No industry, where your consumer does not have wherewithal to pay, can survive. We have been putting the electricity sector on a lifeline from time to time with financial restructuring, loan waivers and government guaranteed soft loans.

The time is there now to call a spade a spade!

We are seeing a very strong government at the federal level, with commitment to make long term reforms. Electricity sector is one sector where these reforms are overdue. In the recent budget, it was very encouraging to note that we are moving towards prepaid meters with the intention of letting the customers choose their own suppliers.

To make these steps truly successful, the single biggest restructuring opportunity in the energy distribution industry, that will address one of the major causes of perennially distressed DISCOMs, is introducing the Direct Benefit Transfer (DBT). DBT, where the subsidies are transferred to the accounts of the beneficiaries directly, has shown promising results in many Government schemes such as PAHAL for LPG subsidy, and MGNREGA Payments.

Introducing the DBT will allow the DISCOMs to sell power at full cost to all consumers, without exception. This will have multiple benefits not just for DISCOMs, but also for consumers:

• There will be no requirement for complex charges like the Cross Subsidy.
• DISCOMs would not have to suffer any revenue losses owing to lower tariff from subsidised categories of consumers.
• Subsidies will be transferred by the state directly into the consumer’s bank account at the end of the payment cycle. This system can be easily compatible even with the proposed prepaid smart meters.
• Misuse of subsidy will not be an issue as the point of consumption of electricity is fixed for individual beneficiaries.
• Audit at the state level becomes easier as a result.
• States will be compelled to be more prudent in identifying need-based consumers as the subsidies will come directly from their treasury.
• This reform will reduce the cost of electricity for the C&I segment. This lower cost will further boost domestic manufacturing, contributing to the Make in India initiative.

As we can see, removing subsidy from the purview of DISCOMs and allowing them to price electricity commercially has multiple benefits across many areas. Rooftop Solar is one such area. Once the cause for resistance, the subsidy element, has been simplified, the rooftop solar segment will be free to grow in line with the country’s expectations. DISCOMs can become major beneficiaries of Rooftop Solar and can also take the lead in setting up and managing rooftop solar installations for residential consumers. All rooftop solar plants will count towards the RPO targets of states, giving an additional commercial benefit to DISCOMs.

Compared to utility scale plants where large tracts of land and dedicated transmission infrastructure are required, rooftop solar is way simpler and quick to implement. It uses idle space on building roofs or factory sheds; there is no additional requirement for T&D infrastructure and virtually zero losses due to transmission or distribution as the energy is consumed at the point of generation. The distributed nature of generation also ensures better grid stability. Modern remote monitoring systems can also give the DISCOMs a better visibility into the performance of these rooftop plants, helping them in their energy forecasting.

India needs to continue to bring in forward-looking policy changes that will help unleash its true growth potential. Our increasing electricity demands will need us to accelerate our deployment of cleaner energy. The success of solar in countries like Germany and Japan, largely due to rooftop and distributed solar, should serve as an example. Rooftop Solar is set to play a crucial role in India’s energy future, and DISCOMs will be the enablers in this story.

Let the power be in the hands of the consumers.

Amplus Solar

April 9, 2020