Bengaluru Smart Energy Efficient Power Distribution Project (RRP IND 53192)

SECTOR ASSESSMENT (SUMMARY): ENERGY (ELECTRICITY TRANSMISSION AND

DISTRIBUTION)

A. Sector Road Map

1. Sector Performance, Problems, and Opportunities

1. Power distribution is a crucial link—although the weakest—in the electricity supply chain.
It has a direct impact on sector commercial viability, and ultimately consumers. The sector has
had high distribution losses caused by theft of electricity, low metering levels, and poor financial
health of utilities, with low cost recovery. Because of this, the distribution companies (DISCOMs)
have not been able to undertake corresponding investments in infrastructure augmentation.

2. India has about 73 distribution utilities—13 electricity departments, 17 private DISCOMs,

41 corporatized DISCOMs, and 2 state electricity boards. In the state of Karnataka, Karnataka
Electricity Board was unbundled along functional lines into a transmission and distribution
company called Karnataka Power Transmission Corporation Limited (KPTCL) and a generating
company called Visvesvaraya Vidyuth Nigam Limited in April 2000. KPTCL was subsequently
unbundled into six independent companies effective 1 June 2002, with one transmission company
(KPTCL) and five DISCOMs (including Bangalore Electricity Supply Company Limited
[BESCOM]).1

3. Continued demand for power. Power demand in the state has increased annually since
2010 in tandem with economic growth (about 6.8% per annum). Power demand in Bengaluru, the
capital of Karnataka, has increased much faster (10.0% per year) because of rapid urbanization
and industrial development driven by the information technology industry.

4. Increasing renewable energy mix. Since power from renewable energy is intermittent,
these powers require an interconnected grid with adequate spinning reserves and transfer
capabilities. Further, following policy objectives, DISCOMs must purchase a percentage of their
power requirement through renewable energy sources. For example, renewable energy
accounted for 47% of the electricity purchased by BESCOM in 2019.

5. Demand-side management. To reduce the overall electricity demand, the state energy
regulatory commissions introduced time-of-day tariffs—with different tariffs for usage at different
times, particularly for high voltage consumers. DISCOMs and regulators also encourage the use
of energy-efficient devices, including efficient pump sets in agriculture, and efficient lighting and
appliances. Farmers are encouraged to use electricity during non-peak hours.

6. Key subsector issues. The following key issues confront India’s electricity transmission
and distribution subsector:
(i) High distribution losses. These have been caused by a variety of problems,
including (a) energy sold at low voltage, (b) sparsely distributed loads over large
areas, (c) an obsolete distribution system, and (d) improper billing (faulty meters
and unmetered) supply and theft. Current losses in India are around 22%
according to the Ministry of Power. These compare very unfavorably with losses
of 5%–10% in some countries.

1 The other four companies are (i) Mangalore Electricity Supply Company Limited, (ii) Hubli Electricity Supply Company
Limited, (iii) Gulbarga Electricity Supply Company Limited, and (iv) Chamundeshwari Electricity Supply Corporation
Limited.
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(ii) Poor financial condition. The total losses of DISCOMs in fiscal year 2020 (ended
March 2020) were estimated to be ₹300 billion. One of the main reasons behind
these high losses is the high distribution losses. Electricity is stolen via overhead
distribution lines (not billed) or electricity bills are not paid at all or on time.
Agricultural electricity customers resist metering of pump sets, deteriorating
revenues of DISCOMs and reducing the resources available for maintenance and
rehabilitation of distribution systems. This results in suboptimal planning and low
quality of works, forcing the utility to consider further load shedding and eventually
affecting electricity consumers in urban areas. The anti-theft legislation passed by
Parliament in June 2007 provides a stringent framework to check electricity theft
and nonpayment of bills. This helps DISCOMs retain earnings and make the
necessary investments to modernize distribution assets.
(iii) Inappropriate tariff structure. Most of the problems arise from inadequate pricing
of power, with large cross-subsidies built into tariff structures, which provide wrong
economic signals to consumers. Populist policies such as free power have proven
to be a financial problem with the state governments, which are not able to
compensate DISCOMs for the additional costs they have to bear because of these
measures. These measures put an additional financial burden on DISCOMs and
lead to wasted power by the farmers.

7. Opportunities. The following are key opportunities and areas of intervention to solve
some of the issues raised above (para. 6):
(i) A greater role for information technology and automation. The deployment of
information technology and automation will allow DISCOMs to improve system
efficiency and customer service satisfaction. A distribution automation system, with
automated ring main units in the loop distribution network and optical fiber
communication cable, will allow the operating distribution system to be more
reliable, flexible, and responsive, optimizing power supply in the system.

Customer indexing and a geographic information system-based database enable

DISCOMs to increase their customer coverage, regularize unregistered or
unauthorized connections, and conduct audits at the feeder level.

Advanced metering infrastructure is defined as the communications hardware and

software and associated system and data management software that creates a
network between advanced meters and utility business systems, which allows the
collection and distribution of information to customers. Automated meter reading
of high-revenue consumers helps the utilities protect their revenues and keep track
of anomalies at the consumer premises remotely.

On the customer service side, spot billing, call centers, remote meter reading,
automated billing, and energy accounting are some of the information technology
mechanisms being incorporated. Advanced technologies are being deployed for
billing, fault reporting, remote metering and substation operations, enterprise
solutions involving employees and commerce, and consumer servicing through the
internet and SMS. This has resulted in increased customer satisfaction across all
segments, especially among urban domestic consumers, thereby improving
customers’ willingness to pay for better services. A virtuous cycle of better
customer satisfaction is resulting in more revenue for DISCOMs, which are also
investing in better services.
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(ii) Conversion to high voltage distribution systems. Apart from reducing theft,
high voltage distribution systems obtain immediate results through loss reduction.
The electricity is distributed to consumers at a high voltage level (11 kilovolts [kV])
instead of low voltage (400 volts [V] and/or 240 V). In the current distribution
network, the 11 kV high voltage line usually goes to the distribution transformer
center and lengthy low voltage lines are drawn from there to supply different
installations. In high voltage distribution systems, the high voltage lines are run up
to the installation premises and their voltage is stepped down through a
transformer before arranging supply through the service main.
(iii) Conversion from overhead to underground distribution cables. This will allow
(a) the prevention of power theft from the feeder, reducing commercial losses;
(b) the prevention of accidents caused by the snapping of overhead line
conductors and conductor sagging; (c) the creation of pedestrian-friendly
sidewalks by removing power poles; and (d) the avoidance of cutting trees that
obstruct the overhead power line on sidewalks. Underground distribution cables
have been adopted in some metropolitan cities such as Hyderabad, Kolkata, and
Mumbai.
(iv) Accelerating the installation of prepaid metering for rural users. Prepaid
meters enable the efficient use of power for agriculture and eliminate adverse
impacts on the water table caused by excessive exploitation of groundwater.
Although it involves huge capital costs, the gains from the system can offset such
costs in the long run. Further, prepaid metering can act as an effective tool against
defaulters and people involved in dishonest abstraction of energy.
(v) Improving access to concessional financing. Power distribution has a long
investment cycle of more than 20 years and relatively low rates of return. The initial
investment required is therefore understandably large. To be viable, power
DISCOMs must have access to loans with lower interest rates and longer tenors
to minimize the impact on the poor and economically disadvantaged.

2. Government’s Sector Strategy

8. The power distribution subsector started to receive greater attention and investment with
the restructuring of the state electricity boards. Several new initiatives have been introduced to
reduce distribution losses. The Electricity Act, 2003; National Electricity Policy, 2005; and National
Tariff Policy, 2006 are important regulations to bring competition to the sector and improve
services to consumers. The government has also made heavy investments in the distribution
sector through (i) the rural electrification program (Rajiv Gandhi Grameen Vidyutikaran Yojana);2
and (ii) a program to reduce distribution losses to about 15% across the country (the Accelerated
Power Development and Reforms Program)3 during the Tenth Five Year Plan, 2002–2007 and
the Eleventh Five Year Plan, 2007–2012. 4 The following policies and regulations have been
introduced since 2012 to improve access to electricity in rural areas, modernize distribution assets,
restructure financial debts of state-owned DISCOMs to improve commercial viability, and increase

2 The program was launched in April 2005. The central government provides 90% as grants and 10% as loans from
Rural Electrification Corporation to the state governments.
3 The program was initiated in 2002 and revised in 2008. It supported strengthening and upgrading of the sub-
transmission and distribution system of high-density load centers such as towns and industrial centers. State-owned
DISCOMs received 50% incentives to reduce their financial losses for actual cash loss reduction.
4 Government of India. Planning Commission. 2015. Five Year Plans. Delhi.
https://niti.gov.in/planningcommission.gov.in/docs/plans/planrel/fiveyr/default.html.
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competition, including in the private sector:

(i) Integrated Power Development Scheme. This is a financial support package
approved in November 2014 to (a) strengthen sub-transmission and distribution
networks in urban areas; (b) install meter distribution transformers, feeders, and
consumers in urban areas; and (c) adopt information technology in the distribution
subsector.5
(ii) Rural electrification scheme. Deendayal Upadhyaya Gram Jyoti Yojana is a
financial support package approved in November 2014 to (a) separate agriculture
and non-agriculture feeders; (b) strengthen sub-transmission and distribution
networks in rural areas; (c) install meter distribution transformers, feeders, and
consumers in rural areas; and (d) electrify rural areas.6
(iii) National Electricity Fund. To promote investment in the distribution sector, the
government set up this fund in March 2012 to provide an interest subsidy on loans
disbursed to DISCOMs—both in the public and private sectors—to improve the
distribution network for areas not covered by the Rajiv Gandhi Grameen
Vidyutikaran Yojana or the Accelerated Power Development and Reforms
Program. The preconditions for eligibility are linked to reform measures taken by
the states, while the amount of the interest subsidy is linked to the progress
achieved in reform-linked parameters.
(iv) Financial restructuring scheme. The government launched the scheme for the
financial restructuring of state-owned DISCOMs in October 2012 to achieve their
financial turnaround by restructuring their short-term liabilities, with support from a
transitional finance mechanism from the Government of India. Further, the
government launched the Ujjwal DISCOM Assurance Yojana scheme in
November 2015 for the financial restructuring of DISCOMs, and many state-owned
DISCOMs are reducing their losses under this scheme.7

9. Driven by the current administration’s focus on the energy sector for uninterrupted power
supply to households, the Ministry of Power drew up a strategy in 2020 to strengthen India’s
distribution subsector, including setting up a national electricity DISCOM, proposed as an equal
joint venture between the state-run National Thermal Power Corporation (NTPC) Limited and the
Power Grid Corporation of India Limited.8 The proposed firm is expected to support state-owned
DISCOMs by helping to bridge weak credit profiles at some DISCOMs, when they borrow money
from banks and the market.

B. Major Development Partners: Strategic Foci and Key Activities

10. The Asian Development Bank (ADB) has mainly financed generation and transmission in
India in 2009–2019 to support the government’s focus on enhancing power generation and
transmission to address the gap between supply and demand. ADB has funded 30 projects for
around $5.1 billion. For transmission, ADB has financed the extension of the existing transmission

5 The government provided budgetary support of ₹253.54 billion excluding the adaptation of the information technology
component, and ₹227.27 billion for the adaptation of information technology.
6 The government provided budgetary support of ₹334.53 billion excluding the rural electrification component, and
₹354.47 billion for rural electrification.
7 The scheme allows state governments, which own the DISCOMs, to take over 75% of their debt, as of 30 September
2015, and pay back lenders by selling bonds. DISCOMs are expected to issue bonds for the remaining 25% of their
debt.
8 NTPC Limited is an Indian public sector undertaking, engaged in the business of generation of electricity and allied
activities. The Power Grid Corporation of India Limited is an Indian state-owned electric utility company, which
transmits about 50% of the total power generated in India on its transmission network.
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network in response to increasing generation capacities of hydropower, and the construction of

transmission facilities for the evacuation of renewable energy sources. For distribution, ADB has
financed the rehabilitation, extension, and enhancement of existing distribution network.

11. The Japan International Cooperation Agency (JICA) and the World Bank have been active
in India’s energy sector. JICA’s funding has been concentrated in seven transmission projects
¥183 billion. The World Bank has funded five transmission system improvement projects for $2.5
billion. The extent of both institutions’ involvement in distribution appears to be limited compared
with transmission and other subsectors. Table 1 shows the projects approved by ADB, JICA, and
the World Bank during 2009–2018.

Table 1: Major Development Partners

Development Amount
Project Name Duration
Partner (million)
ADB Madhya Pradesh Power Sector Investment Program (project 5) 2009 $166.0
Uttarakhand Power Sector Investment Program (project 3) 2009 $30.6
National Power Grid Development Investment Program (tranche 2) 2009 $200.0
Assam Power Sector Enhancement Investment Program (tranche 1) 2009 $60.3
Himachal Pradesh Clean Energy Development Investment Program 2009 $59.1
(tranche 2)
Madhya Pradesh Power Sector Investment Program (tranche 6) 2010 $69.0
Assam Power Sector Enhancement Investment Program (tranche 2) 2010 $89.7
Bihar Power System Improvement Project 2010 $132.2
Himachal Pradesh Clean Energy Development Investment Program 2010 $208.0
(tranche 3)
National Power Grid Development Investment Program (tranche 3) 2011 $76.0
Assam Power Sector Enhancement Investment Program (tranche 3) 2011 $50.0
Himachal Pradesh Clean Energy Transmission Investment Program 2011 $113.0
(tranche 1)
Madhya Pradesh Energy Efficiency Improvement Investment Program 2011 $200.0
(tranche 1)
Madhya Pradesh Energy Efficiency Improvement Investment Program 2011 $200.0
(tranche 2)
National Grid Improvement Project 2011 $500.0
Gujarat Solar Power Transmission Project 2011 $100.0
Uttarakhand Power Sector Investment Program (tranche 4) 2012 $150.0
Himachal Pradesh Clean Energy Development Investment Program 2012 $315.0
(tranche 4)
Himachal Pradesh Clean Energy Transmission Investment Program 2013 $110.0
(tranche 2)
Rajasthan Renewable Energy Transmission Investment Program 2013 $62.0
(tranche 1)
Madhya Pradesh Power Transmission and Distribution System 2013 $350.0
Improvement Project
Assam Power Sector Enhancement Investment Program (tranche 4) 2014 $50.2
Assam Power Sector Investment Program (tranche 1) 2014 $50.0
Punjab Development Finance Program 2014 $200.0
Green Energy Corridor and Grid Strengthening Project 2015 $500.0
Assam Power Sector Investment Program (tranche 2) 2015 $48.0
Solar Transmission Sector Project 2017 $175.0
Himachal Pradesh Clean Energy Transmission Investment Program 2018 $105.0
(tranche 3)
Chennai -Kanyakumari Industrial Corridor: Power Sector Investment 2019 $451.0
Project
Maharashtra Rural High Voltage Distribution System Expansion Program 2020 $346.0
JICA Haryana Transmission System Project 2008 ¥20,902.0
Madhya Pradesh Transmission System Modernization Project 2011 ¥18,475.0
Andhra Pradesh Rural High Voltage Distribution System Project 2011 ¥18,590.0
Tamil Nadu Transmission System Improvement Project 2012 ¥60,740.0
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Development Amount
Project Name Duration
Partner (million)
Haryana Distribution System Upgradation Project 2014 ¥26,800.0
Odisha Transmission System Improvement Project 2015 ¥21,787.0
Transmission System Strengthening Project in Madhya Pradesh 2016 ¥15,457.0
World Bank Power System Development IV (additional financing) 2008 $400.0
Haryana Power System Improvement Project 2009 $330.0
Fifth Power System Development Project 2009 $1,000.0
North Eastern Region Power System Improvement Project 2016 $470.0
Jharkhand Power System Improvement Project 2018 $310.0
ADB = Asian Development Bank, JICA = Japan International Cooperation Agency.
Source: Asian Development Bank.

C. Institutional Arrangements and Processes for Development Coordination

12. The Ministry of Power, Ministry of New and Renewable Energy, and Department of
Economic Affairs of the Ministry of Finance have been coordinating development partners’
activities in the sector and states to maximize the development impact to the energy sector and
share lessons learned. ADB has maintained good communications with other donors, passing on
the insight it has acquired through its interventions in the energy sector.

13. ADB, JICA, and the World Bank have supported energy sector development at both the
central and state levels. ADB has supported states such as Assam, Bihar, Gujarat, Himachal
Pradesh, Madhya Pradesh, and Uttarakhand, while the World Bank has covered states such as
Andhra Pradesh, Haryana, Odisha, Rajasthan, and Uttar Pradesh. ADB has coordinated with the
World Bank on geographic demarcations over states, ensuring that interventions by both
institutions are complementary.

D. ADB Experience and Assistance Program

14. Since 2009, ADB has approved 30 loans totaling about $5.1 billion and has played a
leading role among international donors in the power transmission system for accelerating
renewable energy evacuation, renewable energy development, and energy efficiency
improvement in India (Table 1).

15. ADB will support (i) the development of energy-efficient power distribution systems for low-
carbon, climate-resilient, and livable cities; and (ii) the improvement of access to electricity in rural
areas to promote rural development and reduce energy poverty.
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Problem Tree for Energy (Electricity Transmission and Distribution)

Project scope

Source: Asian Development Bank estimates.