23‐05‐2021

Energy in Transition (EIT)

PGDM(E) 2020‐21 
(21st May 2021)

By:
Prof. Brijesh Bhatt
Assistant Professor
NTPC School of Business

Lecture Outline: National Experiences

Case of Technology Adoption and Regulation:

The Indian Electricity Distribution sector

Suggested Reading:
Bhatt B. and Singh A. (2021). Power sector reforms and technology adoption in the Indian electricity distribution 
sector. Energy, Volume 215, Part A, Jan. 2021, 118797

Bhatt B. and Singh A. (2020) Stakeholders role in the distribution loss reduction technology adoption in the Indian electricity 
sector: An actor‐oriented approach. Energy Policy, Volume 137, Feb. 2020, 111064

Indian Electricity Distribution Sector

Impressive achievement in many dimensions …
…but …performance of distribution sector/DisComs… 

Source: The World Bank 2014: 56 3

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Indian Electricity Distribution Sector

Technology a potential solution: Panacea! 
• Lot of scope for improvement in technology in
distribution networks

• Specifically, adoption of loss‐reduction technologies

(LRTs) such as high voltage distribution system, aerial
bunched conductors, efficient transformer, feeder
segregation, advanced metering technologies together
with ICT

• There has been significant push for technology adoption

in distribution sector.

(USAID 2004, 2005; Ruet 2006; FOR 2008, 2016; WB 2009, 2014; GoI 2011)
4

Indian Electricity Distribution Sector

Technology a potential solution: Panacea! 
E.g. HVDS

Existing LT distribution

HT distribution 5

Indian Electricity Distribution Sector

Legislative/Policy and Financial Push for LRT adoption  
Legal/policy measure Key provision  
The Electricity Act 2003
Section 153, electricity theft (non‐technical losses) an offence
Section 56 permits disconnection in case of non‐payment or default of payment
Section 55 – metering mandatory, and no utility to provide electricity without metering 
Statutory provisions  Section 57 – State Electricity Regulatory Commission to specify Standard of Performance for utilities and 
electricity supply quality
Section 73 – mandates Central Electricity Authority to advice on technical matters. Central Electricity 
Authority has recommended high voltage distribution system as an effective technology for distribution loss 
reduction 
Separation of distribution segment from generation and transmission to enhance accountability and 
Structural changes 
independent decision making 
The State Electricity Regulatory Commissions to setup operational performance targets including loss 
Regulatory changes  
reduction targets, along with penalties and incentives for same
Section 5.4.9 – metering mandatory 
Section 5.4.10 – adoption of information communication technology (ICT)
Section 5.4.11 – introduction of high voltage distribution system 
National Electricity Policy 2005
Section 5.8.10 and Section 5.10 – energy conservation and demand side management 
Section 5.4.13 – provision of theft‐prevention measures 
Section 5.13 – introduction of quality standards 
Mandates adoption of smart meters, for certain consumer categories 
National Tariff Policy 2016  Reiterates that operational norms for distribution utilities to be specified by the State Electricity Regulatory  6
Commission

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Indian Electricity Distribution Sector

Legislative/Policy and Financial Push for LRT adoption  

Sl. No. Legal/policy measure Key provision  

4 Funding schemes from central government for distribution sector upgradation
a. Integrated Power  For urban areas, IPDS schemes provides financial supports for strengthening of distribution networks,
Development Scheme (IPDS), metering, IT enablement with a total outlay of INR 326.12 billion. Earlier, from 2001 to 2014, a similar
scheme ‐ Restructured Accelerated Power Development and Reform Program, it has provision whereby
(2014 ‐ ongoing)
100% to 50% of loan gets converted to grant if utility can demonstrate consistent 15% AT&C losses.
b. Deendayal Upadhyaya Gram  For rural areas, this scheme provides financial support (total outlay of INR 440.33 billion) feeder
Jyoti Yojana  segregation, strengthening of sub‐transmission and distribution networks, metering and rural
electrification. Earlier, from 2005‐2013, similar scheme ‐ Rajiv Gandhi Gramin Vidhutikaran Yojana ‐
(2014 ‐ongoing) 
c. National Electricity Fund  Provides interest subsidy on loans disbursed to the distribution utilities, to improve the distribution
(2012 ‐ ongoing)  network for certain areas not covered by other schemes.
d. National Smart Grid Mission  To plan and monitor implementation of policies and programmes related to smart grid activities in India,
(2015 ‐ ongoing)  Development of smart grid using various technological innovations INR 10 billion

Indian Electricity Distribution Sector

Problem

Low adoption of loss‐reduction technologies (LRTs) despite regulatory reforms!

Why have the Indian power sector reforms not been effective in
enhancing new technology adoption, specifically the adoption of LRTs,
in the distribution sector?

Indian Electricity Distribution Sector

Approach

1. Identify key barriers to technology adoption in distribution networks (Bhatt and Singh 2021; 2020)

2. Analyse role of state electricity regulatory commissions in driving transitions in distribution

networks (Bhatt 2020)

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Indian Electricity Distribution Sector

1. Identifying Barriers to technology adoption in distribution networks

Source: Bhatt and Singh 2021 10

Indian Electricity Distribution Sector

Phase I: Barrier Identification method 
 Semi‐structured interviews and literature review / project implementation reports 

Organization type Number of  Number of officials 

organizations interviewed

Distribution utility 3 8
Transmission utility 1 2
State Electricity Regulatory Commission 2 2
Financial institutions 2 3
Technology suppliers 1 1
Consumer interest groups 2 2
Project implementing companies 1 2
Research organizations 2 4
Total 13 24

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Indian Electricity Distribution Sector

Phase II: Barrier Ranking 

AHP Hierarchy
AHP survey; pairwise comparisons (58 respondents) 
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Indian Electricity Distribution Sector

Understanding Barriers 

Sector-level

Utility Utility-level
LRT Barriers
adoption Sector-consumer
decisions Interaction
level

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Indian Electricity Distribution Sector

Identified Barriers
Governance level Key actors Barriers
Sector Level i. Public ownership 
Government  ii. Partial unbundling 
iii. Regulations and incentives 
iv. Complex regulatory process
Regulator
v. Poor implementation & non‐compliance
vi. Technological issues
vii. Availability of funds 
Utility level Utility viii. Internal functioning & organization
ix. Financial health of utility
x. Lack of information 
xi. Utility size, consumer mix & geographical location
Sector‐consumer  Consumers xii. Consumer choice & social pressure 
interaction level 14
xiii. Political influence

Ranking of barriers
Governance  Weightage Key actors Barriers Weightage
Levels
Sector Level 0.286 i. Public ownership of utility 0.026
Government  ii. Partial unbundling  0.011
iii. Regulations and incentives  0.127
iv. Complex regulatory process 0.132
Regulator v. Poor implementation & non‐ 0.07
compliance
vi. Technological issues 0.008
vii. Availability of funds 0.004
Utility level 0.571 Utility viii. Internal functioning & organization 0.177
ix. Financial health of utility 0.127
x. Lack of information  0.107
xi. Utility size, consumer mix and    0.118
geographical location
Sector‐consumer  0.143 Consumers xii. Consumer choice & social pressure  0.008
interaction level xiii. Political influence 0.019 4915
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Indian Electricity Distribution Sector

Decision making steps for LRT adoption 
Status quo
I. Need for technological upgradation

II. Identification and evaluation of options and preparation

of investment plan

III. Seek regulatory approval

IV. LRT project implementation

V. Assessment of LRT project

VI. Consumer feedback

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Indian Electricity Distribution Sector

Barriers and LRT adoption decision‐making 

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Indian Electricity Distribution Sector

2. Role of SERC: Interplay of rules & technology

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Indian Electricity Distribution Sector

Case selection criteria: Andhra Pradesh      b. SERC functioning   
a. LRT Adoption 
45.0

40.0
T&D losses (as % of total output)

35.0
Uttar Pradesh
30.0

25.0 All India 

20.0
Andhra Pradesh APERC ranks highest in regulatory substance ranking   (WB 2014)
15.0

10.0
World
5.0

0.0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

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APERC ranks good in regulatory governance  (WB 2014)

Indian Electricity Distribution Sector

Interactions among key actors governed by formal and informal rules 

State government 

d d’

e e’ SERC

a RO a’ f’

Utilities
b b’ c

Consumers

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Source: Bhatt 2020

Indian Electricity Distribution Sector

a. Regulatory governance analysis
i. Interactions between SERC and government
Criteria  Formal Actual
(Formal legal documents – (Based on tariff orders, interviews, 
Act, policies, regulations) reports, published literature)
Clarity of roles and  • Defined broadly • Leave significant scope for regulatory discretion
responsibilities 
Autonomy • Quasi‐judicial status, guided by policies;  • Government directives compromised regulatory 
government can give directives independence. Political  capture through informal means 
predominant
Accountability  • Accountable to legislature • Legislature does not seek formal accountability, and is 
limited to submissions of report only. Decisions were 
challenged in higher courts 
Transparency • Ensure transparency in exercising its  • Public participation high; Ex‐post decision available in 
power public domain

Capacity • Government approval required for  • High dependence on government grants, inadequate 

budgetary and staff appointment approval of regulatory staff, delay and deputation 
21
arrangement

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Indian Electricity Distribution Sector

Table : Backgrounds of Andhra Pradesh Electricity Regulatory Commission chairpersons, members, secretaries, and staff
Source: Own compilation based on APERC annual report and website
* Staff includes technical officers of APERC for 2013-14 in the director, joint director, and deputy director positions.
Utility: officially retired or on deputation from utilities and retired staff of SEBs

SERC composition Total Indian Judiciary Utility Others

Administrative
Services
Chairman 5 4 1
Members 7 2 1 3 1
Staff* 16 14

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Indian Electricity Distribution Sector

b. Regulatory substance analysis

ii. Interactions between SERC and utilities

Regulatory  Formal Actual

procedures  (Formal legal documents – (Based on tariff orders, interviews, 
Act, policies, regulations) reports, published literature)
I. Capex approval Mandatory approval of investment plan  • Investment without approval
• Non‐sharing of investment data/repeated directives
• Delayed submission of investment plan/data
Incentives for LRT adoption/loss  • No definite influence of incentives 
reduction
• Multi‐Year Tariff regime could not enhance adoption 
of LRT 
Financing schemes for LRT • Utilities utilized less funds for LRT and more for grid 
extension/rural electrification 
Regulator to enhance investment in  • Regulators reduced investment in LRT and diverted to 
LRT/prudence check rural electrification  23

…(cont.)
Indian Electricity Distribution
Regulatory  Formal Sector Actual
procedures  (Formal legal documents – Act, policies,  (Based on tariff orders, interviews, 
regulations) reports, published literature)
II. Performance targets 
a. Distribution loss  Time bound targets  • Loss figures incorrect (huge un‐metered consumption)
reduction targets  • Non‐adherence to estimation techniques  
• Regulator accepts targets proposed by utilities
• Proposes other (non‐specific) targets: efficiency gains
• Regulator relaxed targets set under policy
• Benchmarking studies not done 
Penalty provisions • Allowing grace period “with considerations to practical 
limitations” (APERC 2009:69)

b. Standards of  Statutory submission of SOP  • Reports not submitted for long period, no penalty 

Performance (SOP) reports, penalty on non‐ imposed
submission
Provision of compensation to  • Initially, SOP but no compensation provision
consumers  • On public complains issued directives & compensation 
paid
• Safety budget not utilized, no penalty, allowed for next FY
24
Independent study to verify  • No independent studies (issue raised in public hearings)

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Indian Electricity Distribution Sector

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Indian Electricity Distribution Sector

MYT Framework 

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Source: CER 2020

Indian Electricity Distribution Sector

Under the multi-year tariff framework, all the parameters influencing expenses and revenue sources, are segregated into -
controllable and uncontrollable parameters.
The controllable parameters are distribution losses, collection efficiency, operation and maintenance expenses, quality of supply,
return on capital employed and depreciation, whereas uncontrollable parameters are sales and power purchase costs. While any
variation in revenue of uncontrollable parameters is trued-up and is passed on to consumers, variation in revenue caused by deviation
in controllable parameters is borne by the utility.
The multi-year tariff framework also includes base year selection, time frame for truing-up and data accuracy and adequacy issues.
The criteria for tariff determination and its redistribution over the control period are left to the discretion of SERCs.
MYT allowed performance targets to be set for “controllable” parameters (such as network and financing costs and system
losses) for the entire control period, not annually. Revenue generated from performing better than prescribed targets are not adjusted
against revenue requirement and utility is allowed to retain part of such gain during the control period. Also, any financial loss arising
from the performance falling short of these targets in this period is not be recoverable through tariffs.

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Indian Electricity Distribution Sector

Table 7-A: Standard of performance regulations issued by Andhra Pradesh Electricity
Regulatory Commission

# Regulation Year Detail of Regulation

1 Standard of Performance September, 29 performance indicators spread over si
Regulation 2000, 2000 areas (restoration of power supply; qu
Regulation No. 6 of 2000 supply-voltage and frequency; period an
of scheduled outages; meter complai
billing complaints); no provisio
compensation to consumers if target tim
are not met by the utility; no overall perfo
benchmark
2 Licensees Standard of June, 39 performance indicators spread over fou
Performance Regulation, 2004 areas (restoration of power; quality of
2004 metering and billing and,
connections/modifications); utility
compensation to consumers if perfo
targets are not met; overall perfo
benchmark set for each indicator; u
submit monthly, quarterly and
consolidated reports on compliance
3 First Amendment August, No major amendment, only the voltage
2005 tension or low voltage was specified (low
meant, a voltage not exceeding 440 Vol
normal condition).
4 Second Amendment 2013 The compensation amount to be paid in
noncompliance of the standards were in
for many performance parameters.
Source: Own compilation based on regulations issued by APERC

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Indian Electricity Distribution Sector

 Utility level governance is the key barrier to large scale LRT adoption
 Regulatory  governance a key factor 
 Social acceptance and consumer behavior   
 For both, key role of ‘informal rules’ or ‘social norms’

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References
Bhatt B. (2020) Institutional reforms, governance structures and technology adoption: Evidence from the Indian electricity 
distribution sector. 
Bhatt B. and Singh A. (2021) Power sector reforms and technology adoption in the Indian electricity distribution 
sector. Energy, Volume 215, Part A, Jan. 2021, 118797
Bhatt B. and Singh A. (2020) Stakeholders role in the distribution loss reduction technology adoption in the Indian 
electricity sector: An actor‐oriented approach. Energy Policy, Volume 137, Feb. 2020, 111064
FOR. (2008). Loss Reduction Strategies. Forum of Regulators. New Delhi.
FOR. (2016). Best Practices and Strategies for Distribution Loss Reduction Final Report. Forum of Regulators. New Delhi
GoI (2011). Report of High Level Panel on Financial Positions of Distribution Utilities. Planning Commission of India, 
Government of India
Ruet, Joel. 2006. “Cost‐Effectiveness of Alternative Investment Strategies for the Power Sector in India: A Retrospective
. Account of the Period 1997‐‐2002.” Utilities Policy 14(2):114–25.
USAID. 2004. Options for System Upgrades for Rural Power Distribution Networks ‐ India. Nexant SARI / Energy.
United States Agency for International Development.
USAID. 2005a. Best Practices in Distribution Loss Reduction. United States Agency for International Development.
USAID. 2005b. Improving Power Distribution Company Operations to Accelerate Power Sector Reforms. United
States Agency for International Development.
World Bank (2014). More power to India. The challenge of electricity distribution
Williamson O. (2000) The New institutional economics: Taking stock, looking ahead. Jr. of Economic Literature (38) 595‐613
.

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Thank You

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