Smart metering will improve discoms' efficiency, high cost a hurdle: Crisil

Smart metering will help empower discoms by improving billing efficiencies and reducing leakages, however, the scale of financial investment required is a major roadblock in its path, according to a report.

India's traditional power metering system is inadequate, resulting in MBC (metering, billing and collection) inefficiencies, high commercial losses and revenue leakages, Crisil Ratings said in a report.

Smart metering could empower discoms by improving billing efficiencies, enhancing customer services and reducing leakages, thus enabling financially distressed discoms to maximise revenues, it added.

The report also noted that smart metering could also help meet the need for robust metering systems, given the rising dependence on renewable energy will result in a growing tribe of distributed generators with net metering requirements.

However, it added that there are several stumbling blocks, including the scale of financial investment required.

While the need for smart metering provides an opportunity for domestic manufacturers, they will have to ramp up production to compete with cheaper Chinese imports, the report said.

State discoms with high MBC efficiencies may believe that they can postpone the switch to smart meters, however, the pandemic has shown that Indian discoms need to be better prepared to tackle such events.

Further, the report stated that smart meters could help ensure that they are future-ready.

Despite the benefits, only 3 million smart meters are operational in India compared with 270 million traditional meters, it said.

Thus, smart meter penetration is barely 1 per cent, which is much lower than in mature markets of Europe and North America, it added.

CRISIL Research estimates that the country would need to invest Rs 65,000 crore to transit from traditional to smart meters entirely, assuming a substantial reduction in current meter prices coupled with rising volumes.

This is achievable, as sufficient funds are available under various government schemes for a phased deployment, Crisil Ratings said.

This includes both the recent 'Aatmanirbhar Bharat Abhiyan' stimulus package and the Rs 22,000 crore allocated in the Union Budget 2020 to state discoms for implementing smart meters over a three-year period, it added.

The Ujwal Discom Assurance Yojana (UDAY) also aims to improve the discoms' overall financial health along with the implementation of 10 per cent of the country's total smart metering requirement.

However, as on July 17, UDAY has only achieved 6 per cent of the targeted smart meters for connections above 500 kWh and 7 per cent of the target for connections between 200-500 kWh.

Till date, the government has released Rs 12,760 crore to 3,644 towns under Integrated Power Development Scheme (IPDS), out of a planned allocation of Rs 28,260 crore for strengthening sub-transmission and distribution networks, metering of distribution transformers, feeders and consumers, and enabling information technology in urban areas.

The government has also announced privatisation of discoms in the union territories in order to reduce pilferage of revenue.

In cities like Mumbai and Delhi, the private discom model has already resulted in increased competition, better service and faster adoption of new technologies.

Moreover, reforms such as direct benefit transfer (DBT) of subsidies to consumers can lead to improvement in discom receivables from the subsidised consumer category, once implemented.

Therefore, CRISIL Research said this is an opportune time for Indian manufacturers to ramp up production of smart meters and related infrastructure.

It could bring down the effective cost of meters to Rs 2,000-4,000 for bulk procurement, which is on a par with the cost of Chinese imports, thus bringing the cost of replacing all traditional meters to Rs 65,000 crore.

In fact, the report said, the government's increased scrutiny of equipment imports to check cyber threats and ensure adherence to Indian standards and specifications, initiated in June this year, is expected to create a level playing field for domestic manufacturers.

The imposition of additional import duties would also ensure cost parity of imported equipment and domestic equipment, it added.