How Should India Respond To Smart Grid

Published Date: 02 Nov 2017

Smart grid technologies and programs signify a development in how our electricity system operates. As this dissertation highlights, this transformation offers significant ability for utilities, innovators, consumers, and society at large. There are three important pillars that will enable the Indian power grid transform into smart grid:

1. Enable Cost-Effective Smart Grid Investments: Smart grid technology can drive enhancements in system efficiency, and reliability, and help enable a clean energy economy through cost-effective grid investments. Many of these technologies promise to pay for themselves in operational improvements, and energy savings. The Indian Smart Grid task force’s technical assistance, information sharing on technologies and programs, and evaluations provide valuable guidance for utilities, consumers, and regulators about what approaches are the most cost-effective, thereby paving the way for the effective, ongoing upgrade of the grid.

2. Reveal the Potential of Innovation in the Power Sector: A modernized electric grid promises to be a powerful platform for new products and services that improve grid operations and deliver comfort, convenience, and savings to energy customers.

3. Empower Consumers and Enable Informed Decision Making: The achievement of smart grid technologies and applications depends on engaging and empowering both residential and small business consumers. New tools and programs assure to provide consumers personalized information and equip them to make informed energy choices, while ensuring their energy consumption data is accorded privacy protections.

The still-evolving concept of the smart grid is a vision of an industry transformed. The electric industry’s historic business model will be changed, perhaps as much as the long-successful business model of the telephone industry was. For the electric industry, technology is the key enabling factor, but the situation is more complicated.

The ultimate reality is that the electric industry urgently needs a new business model. Companies must learn how to thrive in an era of increasing unit costs, when their primary measures of service quality are either high but declining (as in the United States) or low and stagnant (as in India).

The smart grid concept results from the convergence of a number of trends that have been evolving for up to a half century, including:

Information and communications technology (ICT) – Moore’s Law continues in effect and ever-cheaper computer chips, sensors and controllers, coupled with increasingly sophisticated mobile and WiFi capabilities, have already begun to radically transform the data-intensive electric business.

Advances in metering technology – Likewise, digital meters are progressively inexpensive and robust, and they have initiated to replace electro-mechanical meters on a wholesale basis.

Costs – The trend in the unit cost of electricity bowed upward several decades ago, although that was ambiguous until more recently. The electric companies need to learn how to flourish during an age of increasing costs and declining service quality. That may well require a "next new thing." If the smart grid is not the answer, the industry’s future could be unpleasant as well as unprofitable.

The dawning of the digital age – The automation of almost everything is occurring at a breath taking pace. Likewise, the expansion of high-tech electronic manufacturing has spread in response to mushrooming demand. One side effect of the digital age is the increased demand for electricity as the premium form of energy (as the authors of Perfect Power put it, "Try running your laptop on a lump of coal") and the need for higher-quality power to run everything from delicate precision machinery to advanced household appliances.

Growing prosperity – It is difficult to recognize in the middle of the most serious recession in 75 years, but the world is becoming more wealthy. There are substantial risks attached to recent economic developments but, with the exemption of a worst-case scenario, the long-term trend is still up. And customer expectations are rising with individual prosperity.

Climate Change – Escalating indication is reinforcing the consensus of leading scientists that global warming is actual, that it is a function of historic amounts of carbon that have been released to the environment as the result of human behaviour. The reality of global warming and the increasing public concern it has triggered — and the close link between electricity production and carbon emissions — add an accelerant to the technological, utility cost and behavioural economic influences that are converging.

Despite the reality of the "convergence" of the historic forces discussed above, there are also some discouraging hurdles, including:

Initial cost – The utility sector is steeped in the concepts of return on investment (ROI) and cost-benefit analysis (CBA). The American Recovery and Reinvestment Act of 2009 (ARRA), also known as the stimulus package, set aside $4.5 billion for qualifying smart grid projects. This resulted in the minimizing forward of projects that otherwise would have been followed over a longer time frame. The study of smart grids, including consultations with knowledgeable experts on the cost of employing smart grid technology, suggests that the initial stage may experience a substantial rise in costs but without a adequate near-term reduction in O&M costs from savings. Unknowns surrounding actual vs. projected costs and the nature and value of benefits may be difficult to quantify (fully) and assign a value. If the full benefits of the smart grid vision will not be realized until the full "system integration" effect kicks in, the debate may settle towards a battle between believers (i.e., in the potential of the smart grid vision) vs. skeptics. Unfortunately, regulators have an institutional responsibility to be skeptics.

Policy and regulatory – The power sector is poised of an institutional complex that includes companies, regulators, governmental agencies, politicians and more. The laws, policies and regulations governing the behaviours of various performers are elaborate and detailed, and were developed over very long periods. The further the industry must move away from the traditional model in order to deploy a smart grid vision, the more it will require changes to existing policies and regulations. When policy, law and regulation must be changed as a precondition, the time frame to accomplish the desired result will be lengthened. One of the challenges for regulators and policymakers will be dealing with the societal benefits of smart grids. This will influence the cost-benefit analyses that must be done and it could become a difficult issue. For example, a reduction in utility O&M costs would offset the higher cost of installing advanced meters. However, discoms in India will not have a net gain from the reduction in labour-intensive meter reading activities, as will utilities in the West. But one benefit would be the increased transparency in consumption, billing and payment, and a reduction in aggregate technical and commercial losses. Other societal benefits will accrue once a more robust smart grid comes into existence, including micro-grids powered by renewable energy sources and more advanced variations of energy efficiency. Some of these will be quantifiable, but others will be more difficult, and there are some that may not materialize until the "system integration" effect comes into play. Costs will probably be easier to quantify. The full range of benefits, including some elusive societal benefits, will need to be properly valued too.

Technology –For India, a critical question is: "How can you implement a smart grid when the existing grid isn’t yet capable of providing reliable service to half the population?" While this over-simplifies the issue, it does help frame an important question about the "how to" of adopting smart grid concepts. Pondering this issue can help develop an understanding of how the smart grid vision could be used to leapfrog into an entirely different future than the conventional path would lead to.

Customer response – The most unique "human factor" in business is customer response. The electric industry’s historic term for a customer ("ratepayer") says something about how they are still perceived in what has long been a centralized, bureaucratic, supply-side business. In competitive retail industries, marketing — developing customer solutions — is where strategy begins. Not so in the electricity business. Not yet. That may change even with powerful institutional forces aligned against it. In a business-as-usual case, India’s state-owned monopolies may be evolving in a "Swiss cheese" pattern where high-profit customers with the ability to solve their own problems (e.g., industrials) are abandoning the SEBs for SEZs with captive power. Market liberalizations in other countries saw industrials become "first movers," but it didn’t stop there. It probably won’t in India either. For smart grid expenditures, proposed projects will have to pass rigorous CBA tests. However, even for those who are persuaded that the benefits of the smart grid vision will ultimately justify the costs incurred, there is still a question of the transition. Another question is who will bear the risks and costs relative to potential benefits. Customer response — specifically whether customers will pay extra for early smart grid features — has become a much-discussed issue for smart grids. The answer for some customers is "no," but it’s difficult to judge consumer response to a service they have never experienced. Nonetheless, it’s clear that cost will be important in shaping customer sentiment.

AT&C losses – In India, the issue of aggregate technical and commercial (AT&C) losses must be added. A reduction in AT&C losses is central to reducing cost, improving cash flow and, thus, enhancing the financial viability of discoms so they can pursue measurable service quality improvements. Loss levels of 32% of total electricity produced are ruinous.Any effort to capitalize on the smart grid vision should build on India’s continuing program to reduce AT&C losses. A smart grid initiative should begin with an enlargement of the R-APDRP program to link R-APDRP to the achievement of specific service quality improvements as measured by key performance indicators (KPIs) such as those developed by four discoms under the MOP’s distribution reform initiatives. Electrification – Another key driver in India is electrification. Urban areas are expanding access to electricity, although considerable unevenness and significant power quality issues remain. In rural areas, access to electricity is lagging seriously. About 50% of rural households lack electricity and even where service is available, the rationing of supply with daily outages lasting for hours is the norm. The GOI is committed to an ambitious plan to make electric service universally available to all. The smart grid vision can help achieve that goal.

How Should India Respond to the Smart Grid Vision?

Does the smart grid vision make sense for India? We trust the answer is, "Absolutely." Nonetheless, an across-the-board implementation should not be attempted right away. While India’s power sector needs a "next new thing" more than the power sectors in mature economies need a new business model, a selective and flexible approach will yield a better result than a "one size fits all" approach. Generally, the following are basic preconditions for the successful implementation of the smart grid:

Commercially viable and self-sufficient discoms

Public awareness and acceptance of the smart grid

A national smart grid vision and a flexible plan

Appropriate smart grid standards.

Optimally, these should all be in place before smart grid implementation is launched. These preconditions do not yet exist in India and it is likely that their achievement will be uneven going forward. In 2007-08, AT&C losses averaged 32% of total generation and, in 6 of 30 states, discom AT&C losses were above 50%.

Another thought is that India should defer pursuing a smart grid vision. However, the same elements that are regarded as preconditions to the smart grid are also the ones that benefit most from the adoption of smart grid elements and principles. For instance, improved metering through the deployment of remote measurement and monitoring of energy use will help utilities better monitor energy use across the grid and allow them to trace the source of energy losses. The resulting improvement in transparency will lead to reduced losses and improved financial health of the sector. Smart grid technologies can enable improvement in meter-billing-collection systems and help reduce line losses.

Furthermore, investment in a smart grid today may enable India to leapfrog into a vastly improved electricity scenario. Even under a business-as-usual case, the GOI will have to invest heavily in the power sector over the next two decades and beyond. Smart grid technologies could enable India to leapfrog into a much more advanced grid infrastructure and electricity market, and more quickly achieve parity with developed economies.

"Nonetheless, there is much unfinished business to be taken care of before adopting the more advanced features of smart grids on a broad scale. A strong follow through on earlier programs will be necessary to build the foundation needed for more advanced features of the smart grid vision. But that doesn’t mean action should be deferred until a foundation is fully in place. Transitioning to a smart grid vision tailored to India’s unique circumstances would have a number of dimensions:

Develop a national vision and frame a flexible plan for pursuing smart grid benefits.

Build on the R-APDRP program and link it to improvements in service quality as defined by measurable KPIs.

Identify and implement smart grid concepts that reinforce the operational efficiency of discoms.

Conduct customer and marketing surveys to develop a more refined understanding of what drives customer satisfaction, and analyses to develop a better understanding of demand and consumption (e.g.,, an analysis of the actual cost of "free" power and a profile of who receives agricultural power and how much, among other analyses).

Develop policies and regulations to create a more receptive environment for smart grids, by encouraging innovation, establishing standards for interoperability, and allowing more market-oriented and entrepreneurial solutions.

Implement techno-commercial "proof of concept" pilot projects for initiatives that have potentially high impacts and that can be implemented independently of the grid.

As part of its approach to adopting smart grid concepts, India should give priority to customers and customer solutions over the creation of another high-level commission.

The need for a commission is unavoidable given the structure of the power sector, but its convenors should make a conscious effort to limit the temptation to develop a top-down, "one size fits all" solution.

Hurdles to Smart Grid Implementation in India

The barriers to implementing the smart grid in India are much the same as those that have foiled power sector reform ever since market liberalization was first announced nearly 20 years ago. The problems that worry India’s power sector are many and serious, and are very well known to policy makers, industry experts and, indeed, the general public.

The loss of 32% of total electricity generated, the sector’s legendary voltage fluctuations, chronic blackouts in rural areas, the lack of electricity connections for almost half the population, and so-called "free" power to the 25-30% of farmers with irrigation pumps are not simply unfortunate happenstance.

All these outcomes persist despite the GOI’s Rs. 25,000 crore annual subsidy to the sector and what must now be the equivalent of many billions of dollars in time, effort and capital that have been invested in power sector reforms since the early 1990s. There are causes for these effects and, if left unaddressed, they could dampen the impact of any smart grid scheme as they did in the past for other initiatives.

As experienced by other economies, electricity is an ever-more prized form of energy, especially for high-tech industries but, increasingly in manufacturing and other old-line industries too. It would be dangerous for India to be complacent about the importance of world-class electricity as an enabler of world-beating growth.

The major hurdles are:

No proven commercial viability for large-scale smart grid roll outs

Poor financial health of most state-owned T&D companies

Low awareness of technological developments in the utility sector

No coordin ated national road map for smart grid deployment

A fragmented industry.

Need a Base Methodology

For any individual electricity utility, setting a complete smart grid strategy involves a composite mix of internal and external challenges:

The technical challenges of new systems, new devices, new communications technologies, and a deluge of new data can be overwhelming

The impact on existing business processes needs to be identified, with new business processes defined. The organization has to make it ready for the significant and perhaps thorough changes that will take place.

Customers, regulators and investors need to understand the change and be convinced that it is beneficial. A successful migration to a smart grid environment will require that all of them embrace the vision, not merely accept

Way Forward

Techno-commercial pilot projects offer interesting potential demonstrations of ways to improve results for customers and utilities similarly. However, achieving a smart grid vision goes well beyond any individual pilot and, in fact, all of them collectively. Overall, the major elements include:

Evolving a smart grid vision

Performing appropriate communication to educate and develop consent

Identifying viable funding options

Costs of new metering system

Quantifying the benefits (direct or indirect)

Employ appropriate policy and regulatory actions to set common standards.