India’s electric grid reliability and its importance in the clean energy transition
Not too long ago, electricity consumers across states in India used to suffer long and frequent power outages. Daily or weekly load shedding – pre-defined intervals for planned power supply cut-off – was so prevalent that people used to plan their routine around their distribution company’s (discom’s) load shedding calendar. That changed substantially a couple of years ago when the peak demand deficit reduced to a low of 0.8% from the highs of 16.6% in 2007, largely as a result of private sector investment in power generation infrastructure, (mostly coal-based capacity).
What didn’t fully change is the frequency of planned outages or interruptions that consumers have to face, even after India has been declared a power-surplus nation. So, while supply of electricity came more in line with demand as a result of new capacity installations, the requisite investments in adequate distribution infrastructure fell short. In other words, the reliability of our electric grid is still a problem in the peri-urban and rural areas. And it should be addressed, not only for the benefits a highly reliable grid can have on future economic growth, but also for the opportunity this presents in making way for the energy transition to a cleaner and more equitable system.
This is the first in a series on electric grid reliability in India. Today, we begin by looking at the reasons behind the persistence of poor reliability around the country. In the two articles that will follow in the coming weeks, we will make recommendations for new regulatory approaches to resolve reliability problems, and then analyse the overall impact of improved reliability on India’s climate action planning.
Grid reliability – directives versus expectations versus reality
ISO New England, the regional transmission organisation in the eastern United States, defines reliability as “the electricity you need, when you need it.” Ideally, this means that end-use consumption should not be affected by either a lack of generation and procurement in the wholesale and bulk electricity system (generation and transmission) or by disruptions on the local distribution network. Of course this does not mean — from a societal cost-benefit perspective — that massive public spending on achieving 100% reliability via investments in multiple tiers of redundancy is desired.
Policy makers and regulators therefore have determined the minimum requirements for a reliable grid from two distinct, yet related, angles. One is the set of requirements to be met by the generation and transmission utilities and system operators, and the other is that to be met by the distribution utilities, together yielding a desired level of reliability for the end-consumers at a cost they—society as a whole—is willing to pay.
The National Electricity Policy, issued by India’s Ministry of Power in 2005, provides a vision for reliability. It prescribes creating adequate reserve capacity margins and a spinning reserve of at least 5% at the national level to ensure grid security, along with quality and reliability of power supply. It directs state regulators to specify standards for reliability and quality of power supply by distribution utilities. The National Electricity Policy further provides for consumer interest protections and directs state regulators to draw up a roadmap for improvement of a distribution utility’s reliability index (which is to be calculated and monitored for all cities and towns).
The Indian Electricity Grid Code Regulations, 2010, and subsequent amendments establish “rules, guidelines and standards to be followed by various persons and participants in the system to plan, develop, maintain and operate the power system in the most secure, reliable, economic and efficient manner.” These regulations apply to the bulk power supply system.
At the distribution level, discoms are guided by the Standards of Performance regulations, which are notified by state electricity regulatory commissions (SERCs). These regulations define reliability indices – such as the system average interruption frequency index, system average interruption duraction index and customer average interruption duration index – along with more procedural directions for consumer rights and protection, such as time taken by the discom for a new connection, restoration of supply on failure, time to resolve consumer complaints and the like. They also prescribe provisions on compensation to consumers in case the discom fails to meet minimum standards of performance requirements.
Most recently, the Ministry of Power issued the Electricity Right of Power Consumers Rules, 2020, with an aim to ensure a minimum standard of service for the supply of electricity to end consumers. This rule requires state electricity regulatory commissions to develop clear guidelines for discoms to follow for maintaining a 24/7 reliable distribution network. It also directs SERCs to prescribe detailed mechanisms for performance measurement of discoms and suitable compensation for consumers in case of non-performance.
While these directives and regulatory oversight have improved reliability on the bulk power system, the same is not true for the distribution network. What it means is that, although the incidence of regional, large-scale blackouts is rare, the end consumers (especially from rural and peri-urban areas) are nevertheless subject to intermittent and frequent power outages. A 2019 Global Competitiveness Report by the World Bank ranks India at 108th place out of 141 countries on the reliability of electricity supply.
What is not obvious is why, with these directives in place, the discoms do not plan and invest in appropriate measures to improve the reliability of their networks. More so, what inhibits them from deploying cost-competitive and clean distributed energy resources closer to the consumers usage point, which can help them meet their standards of performance?
One may argue that this indifference stems partially from a lack of regulatory will to penalise discoms for non-compliance with the standards. This may derive in part from a lack of public pressure: Given how consumers have internalised a significant share of the reliability costs over the years, expectations that discoms will actually improve reliability across the board for all consumers are low. A third reason, which is probably the most substantial and crucial of all, is the perennial poor financial health of the discoms limits them from making fresh investments that they likely see producing only marginal benefits. Still, they are entitled to earn a regulated return on equity on investment, which reliability-related assets would constitute. But then, with poor balance sheets and tariffs not in line with the cost of service, the inducement of earning returns on capital investments is only good in theory.
In practice, other solutions can fill this missing link. They may include driving investments in more distributed clean energy solutions, such as rooftop PV along with storage on select feeders where reliability is below average. This can be a substitute to a broader and expensive sub-distribution system strengthening. In general, a cost-effective, clean and efficient approach for improving reliability can occur via non-wires alternatives.
Non-wires alternatives are being evaluated by regulators the world over, to solve the local challenges of grid resilience, flexibility and equity. In the Indian context, local non-wires solutions can also help solve the reliability challenge. Such an approach can save ratepayers money and can also lead to a cleaner and more equitable grid, thus reducing emissions from diesel back-up generators and providing an overall impetus to the energy transition pace. These solutions can be implemented at lower costs – cost of distributed clean energy resources have dropped significantly over the last few years while the cost of traditional solutions are increasingly going up – and carry lower risks because the installation and performance of such resources is more stable and reliable than traditional grid-based solutions.
For that to happen, regulators will have to play an active role. That goes beyond setting standards and actually incentivising discoms to explore alternate solutions (which we’ll take up in the next installment in this series). Key takeaways remain: Distribution-level reliability has been poor in India due to lack of investments and the discoms’ lack of innovation in attempting new approaches. This has resulted in customers relying on high-cost and high-emissions solutions, such as self-owned diesel generators and batteries.
This is the first part of a series on reliability. We will update this post with links to the second and third blogs when they are published.