Month: November 2019

Distribution Franchisee (DF) model has only recently picked traction since 2009 after successful demonstration by Torrent Power Ltd. at Bhiwandi, Maharashtra, which got operational in 2007. The success there has sparked private businesses interest into the sector with more than 30 corporates jumping into the fray.

Many of the businesses comes from very diverse background of telecom, IT, infra, media, iron & steel etc. and it will be there new entry into the power sector, starting with distribution.

The emerging nature of the DF model, high return promise, low entry barriers, closer to end-consumers, focused high capex with predictable cash flows and easy financial leverage under energy efficiency are some of important investment attractors.

The risks of operationalization of DF are still getting unearthed with less than 3-5 implementors. Most businesses are intuitively betting on capitalising the high ATC losses in range of 30-50% in DF selected areas. The 15-20 years DF contracted period with estimated 4-5 years to bring losses to range of 15% makes viable ROI.

While the credibility of delivery from new players is still to be tested, there stands a strong chance of these new players bringing professionalism, technology, IT, measurements driven performance, analytics, strong SLAs (Service Level Agreements), and much forgotten customer focus back to the utility business.

Under light of this, is DF a good PPP model? Does it has potential to scale? We will continue sharing our views and also from best industrial experts on this in coming articles under label of ‘Smart Distribution’.

Post by: Rahul Bagdia @ pManifold.

With ongoing operationalization of Distribution Franchisee (DF), one common question that keeps hitting again and again is ‘Why need of DF? What it can do, which utility cannot or have not?’. While answer to this is pretty subjective, I would share my opinion in 3 breakups

Key issues that are affecting profitability of distribution utility

• What are key issues with Distribution Utilities?
• How that has constrained key stakeholders potentials?

Does Distribution Franchisee has solutions to above?

• Link from Measurements (MIS) to Effective Distribution Management missing
• Lack of Incentivization
• PSU Organizational Constraints
• No Investment in skill enhancement
• Low Enforcement
• Govt. hindrance & manipulation
• Low Accountancy

Key stakeholders revenue potential constrained with missing last-mile robustness

• End consumers not getting reliable, sufficient and rightly priced power
• Generators unable to get guaranteed evacuation of all generated power
• Distributors (Utilities) themselves in losses
• Power Traders do not have predictability
• Does DF has a solution to above

At the end of day, it will do same thing as utility, but with a difference – more concentrated ownership that will expedite decisions to actions. Another way to look upon it will be as an extended ‘Business Outsourcing’ model, wherein the Franchisee becomes the new front end to the end-consumers, but assets still remains on book of the original Utility. The real underlying phenomenon driven by franchisee model is

• Performance benchmarking through establishing baseline
• Incentives alignment of all stakeholders

It is this ‘Measurements and Analytics’ that will drive the change and bring above suggested values to all stakeholders.

Post by: Rahul Bagdia @ pManifold

Power Distribution Franchisee (DF) remains a new and big canvas in India’s Power Distribution sector with few painters and there is not much history to build and learn from others. While ‘learning’ from ‘doing’ is way forward, but still there remains a gap in Distribution Franchisee Thought Leadership to establish and quantify DF’s potential impact and lay strong ‘model’ driven design.

So while different tuning of parameters could happen from one implementation to other, the base model should grow stronger with collaborative knowledge and best practices sharing.

Some critical design issues that needs addressing to scale Power DF model are discussed below. The issues are addressed in order of execution of DF model.

 

1. Performance benchmarking of power utilities: This aspect is seriously missing in utilities inspite of enormous MIS and Energy Audit data available. At first place, the data completeness, it’s authenticity and its time aggregation process to produce MIS report and KPIs is highly questionable.The derived operational KPIs like SAIFI, SAIDI, ATC etc. have hence lost their absolute meanings and its always chasing some incremental improvement without focusing on the end-consumers. Also, since the utility financial losses could be easily passed to end-consumers in next year ARR and increased tariff petition, there is not much good incentives for utility to perform. There is a need to develop a more integrated framework for performance benchmarking and regular monitoring.
2. Rationale process for Distribution Franchisee bidding: The RFP for DF bidding has some minimal information on DF selected area. It miss upon several key information like assets health, load curves, trends etc. to work a good investment plan. This limited information leads to erroneous or irrational bidding. This in turn affects raising good competition amongst participating bidders and encourage more established players to participate in DF. There is need to develop good common pool of DF area audit and share results with all bidders. There should probably be no good reason that joint audit between utility and selected DF bidder cannot happen before inviting bidding to establish robust baseline.
3. Good Change Management: The transition from utility to DF is a big one and needs diligent planning on both soft and technical side. On softer side, people’s issues needs to be tackled with bringing positive support from all DF stakeholders. Among key stakeholders, the utility employees and end-consumers need to be engaged tightly as DF change agent. On technical side, a strong capacity building would be needed to generate good MIS and base expedited decision making.
4. Good Performance Monitoring: DF being still an emerging model, there is need to draw continuous observations from focused pilots to scale them up. The integrated performance monitoring framework should tie operations, customer services, MBC (metering – billing – collection) etc. to financial business performance of the utility in easy and regular trackable KPIs.
5. Good System Integration: DF is not an end to a mean, but a mean to an end. With improved distribution infrastructure and service levels – distributed generation, DSM (Demand side Management) and efficient power trading for improved price discovery could soon become reality. What will be needed is a good system integration.

Scaling Challenges with DF (Source: pManifold)

Ultimate success for DF would be to bring more choices to end-consumers for them to select source of procurement of power and that will be the tipping point to scale DF.

Post by: Rahul Bagdia @ pManifold

Inspired by the success of the Power Distribution Franchisee model of electricity at Bhiwandi, Maharashtra, many other states have started piloting the model. MSEDCL is probably the most active utility with piloting Power Distribution Franchisee model – Bhiwandi, Nagpur, Jalgaon and recently Shil, Mumbra & Kalwa with many others in pipeline in coming short time.

The table below gives a good snap shot of most projects in this space across different states. It might not be a complete list at this point of time and we will strive to keep it most updated. Projects fall in various categories – Operations started; bid won; RFP released; prospective.

Distribution Franchisee RFP References:

1. Bhiwandi
2. Agra
3. Kanpur
4. Nagpur
5. Aurangabad
6. Jalgaon
7. Shil, Mumbra, Kalwa
8. Bihar
9. Guna / Narsinghpur / Rewa
10. Rudrapur / Roorkee

Post by: Kunjan Bagdia @ pManifold

Power Distribution Franchisee has attracted various big corporate houses (see earlier blog). A distribution below of major players bidding in the market shows that most companies has come from services sector of Infrastructure and Power businesses.

Those in Infrastructure like GMR, SMS, Ashoka Buildcon, A2Z & Kalpataru has earlier already diversified into Power sector primarily into Generation (balance of plant and EPC), distribution (substation EPC) and transmission (EPC).

A more recent trend of these Infra companies further getting into generating and trading power (thermal, renewables, waste) is noteworthy. Now if absorbed into Distribution Franchisee, their portfolio will be pretty much covering all of power sector and building scope of economy.

There are some companies in core Power sector, who like Torrent and Tata Power already has experience of managing a Distribution utility. There are still others like Crompton Greaves, Vijai Electricals, Secure Meters and Glodyne Power who comes from products domain with strong relevant power engineering and technology background.

A successful but uncommon entry is from telecom business GTL (who already have won Aurangabad Distribution Franchisee from MSEDCL) and IT giant SPANCO (who have won Nagpur Distribution Franchisee from MSEDCL). GTL intends to leverage its EPC, networking, hardware and software expertise, while SPANCO is banking upon its IT and BPO handling experience to bring value customer services and satisfaction to electricity consumers.

A rough strength mapping of these major players to Distribution Franchisee business will look like below:

• Infrastructure & Power: EPC, high capex leveraging, operations handling
• Power Utility: one-to-one mapping
• Power Engineering (Products): Engineering, Technology, Networks, Good asset creation & maintenance, hardware, automation
• IT/Telecom: Hardware, software, IT automation, Management, Customer services management

Wide bidding differences in last few bids between these categories of businesses, with IT, Telecom, Power products and utilities more successful over the Infra companies has hint on what strengths draws better margin to the Distribution Franchisee. More on this in coming blogs.

Post by: Rahul Bagdia @ pManifold

pManifold as Knowledge Partner to IIES 2011 organized a workshop on ‘Utility Monitoring & Distribution Power Franchise – Enhancing SEB’s Performance’. The workshop was co-chaired with domain experts Mr. Murhari Kele, Supt. Engg. MSEDCL, Nagpur and Mr. Prabhakar Kukde, Ex-Direcor, Tata Power.

pManifold Utility DF_IIES_Workshop_report

https://www.slideshare.net/slideshow/embed_code/7293856

View more presentations from pManifold

Speakers who participated in this workshop

1. Rahul Bagdia – Director, pManifold Business Solutions
2. Murhari Kele – Supt. Engg. MSEDCL, Nagpur
3. H.R. Venkatesh – Head Marketing, PRDC
4. Prasad Sutaone – DGM, GTL Ltd.
5. Y.S. Butola – AGM, NDPL
6. Hemant Diddee – Founder, Heta Datain
7. Pratap Dhumale- Project Coordinator, L&T
8. Kamal Maheshwari – VP, SPANCO Ltd.

Topics covered

1. Status quo and impact of DF
2. Issues w/ DF – Utilities perspective
3. KPIs of Utility’s Performance
4. Techno-business Parameterization of DF (Bidders perspective)
5. Best practices in DF Implementation – Techno/Commercial
6. Best practices in DF Implementation – HR/soft issues
7. Real-Time Monitoring of Utility sub-station
8. Diagnostics & Prognostics in Distribution Monitoring
9. R-APDRP implementation – IT, Automation, AMI
10. ERP/IT Integration – Smart Grid Road Map

The workshop spanned following discussions with relevant stakeholders (utility – MSEDCL, NDPL; Distribution franchisees – GTL, SPANCO; policy makers, bidders, consultants, vendors, media and others) with practical sharing of case studies of implementation in Nagpur, Bhiwandi and Aurangabad:

1. Value chain and impact of Distribution Power Franchisee – stakeholders, business opportunities, market size
2. Stakeholders alignment issues for Utility’s and Distribution Franchisee’s performance
3. Issues to be solved for scale-up of Distribution Franchisee
4. Perspective of Utility / DISCOM towards Distribution Franchisee
5. Perspective of bidders – more rationale Distribution Franchisee bidding
6. Best practices sharing in distribution through case studies – both technical and soft sides
7. Real-time monitoring of distribution network
8. R-APDRP integration – issues of capacity building, change management and stakeholder engagement to be resolved for true realization of utility’s enhanced performance
9. IT road-map for Utilities in India – realistic smart grid vision
10. Distribution Franchisee vs. full privatization of distribution vs. co-existence of utility + Franchisee
11. Investment considerations for entry into Distribution Franchisee business – portfolio leverage, capex considerations, operational competencies etc.

pManifold Services: The workshop was organized under pManifold’s Initiatives services. Focussed emerging models with potential to solve Indian power sector challenges were selected in categories of Distribution, Conservation and Generation. Relevant stakeholders including service providers, businesses, investors, bankers and professionals including students were brought together to participate in discussions led by domain experts to come with action items to scale respective business models. More details on each workshops on our Insights page.

Post by: Rahul Bagdia @ pManifold

REC (Renewable Energy Certificate) is a tool to implement Renewable Purchase Obligations (RPOs) for buyers like state electricity distribution utility, open access users and captive generators from conventional sources from sellers of renewable energy generators. It is an environmental commodity that:

1. captures the environmental benefits of renewable electricity generation
2. provides a market mechanism to incentivize Renewable Energy producers
3. Market is created through requirement on the various companies to have % RE in portfolio

RECs – a market ready for take offhttps://www.slideshare.net/slideshow/embed_code/7671147

View more presentations from pManifold

Wind, Solar, Small Hydro (below 25 MW of capacity), Biomass based power generation (including co-generation), Bio-fuels and Municipal solid waste based power generation projects are eligible to apply for REC. One REC is created when one megawatt hour of electricity is generated from an eligible renewable energy resource.

A good question to ask is what is benefit of REC over CDM? Are they competitors and which one is more applicable for an investor to choose from? Some of these questions are getting answered in another blog – Renewable Projects in India: What to adopt-CDM or REC?

The emerging RE market with potential 4000MW per year for next 10 years and increasing RPO share with 1% annual increment from current 5% to 15% by 2020 will make the REC instrument interesting in coming time. It could become a good tradeable market instrument with easier processing and validation then CDM with global securitization with standard carbon financial products. As of date REC price stands at Rs. 1500/3900 (min/max) for non-solar REC and Rs. 12000/17000 for Solar REC.

Its an emerging market driven financial incentives, which if rightly enforced will take India closer to its National Climate Change missions.

Post by Rahul Bagdia @ pManifold
Data and presentation supported by domain partner of pManifold – Agneya Carbon Ventures. More could be read on RECs on Agenya blog.

Indian Power sector is in a rapid growth phase and in a phase of undergoing rapid change – change in a way they used to operate. A special emphasis is laid by the government on the electricity distribution industry to improve their operational and business efficiency. On an average the SEBs suffer from an ATC loss in the upwards of 30-35 % and in some areas even more. The R-APDRP programme has laid emphasis on the reform and implementation of IT systems (see our earlier blog on R-APDRP). ERP (Enterprise Resource Planning) is one of the most important enablers in providing an environment for integration of utility applications.

The typical characteristics of an electricity distribution business are:

•   Wide Geographic delivery areas
•   Infrastructure is distributed
•   Equipment installed and maintained for 30 years or more.
•   Uncertain business models
•   Evolving Deregulation

A standard Utility Management System encompasses integrated line and meter information with an associated record of meter reading, billing and payment history for an account. Robust ERP software solutions offer additional enterprise level functionality such as customer relationship management, service management, warranty and repair, and complete business intelligence and reporting.

In a nutshell, ERP requirements for electricity distribution can be listed as:

• Customer care & Customer relationship management
• Call system integration
• Meter Management and meter information
• Meter reading
• Budget based billing, Pro-rating and intelligent estimating
• GIS interface
• Work management and field service management
• Repair and maintenance of Equipments and meters
• Business Intelligence & reporting
• ATC losses analysis including settlements
• Governance, Risk, and Regulatory Compliance capability
• Outage management

ERP Vendors like SAP, Oracle have specific ERP products to meet Utility Industry requirements.

However, it will be difficult to find an ERP software which can meet all the requirements for the electricity distribution sector. Many of the requirements specific to Indian market have to be a bespoke development. Also, some of the requirements have to be met by standalone specific software which need to be integrated with ERP (for example ERP with Street level routing software).

Future blogs will go layers deeper into IT and ERP aspects of utility distribution and its integration to create Smart grid.

Post by: Ritesh Rajput @ IBM Utilities division*

Note: * pManifold welcome external experts to share their ideas to raise System Thinking.

The Power Distribution Franchisee (DF) model is a precursor for privatization of distribution business in India. Under the model, the state retains ownership of the distribution asset and only leases O&M for defined contract period. On account of heavy capex already laid by the Government and its desire to keep its influence on this major portfolio, DF model will be the next generation model before the sector will start seeing full privatization.

The idea of DF first originated from Rural Electrification with the need of a low cost local agency to manage billing and collection at remote villages. Now that model remains no longer economically viable because of shortage of power directed to rural feeders. Then the shift of DF model application from Rural to Urban happened with piloting of new emerged Input Franchisee model for urban cities with heavy ATC losses. The selection of urban cities for DF model is driven by they having:

1. steady demand loads
2. relatively better collection efficiency,
3. less subsidized customers
4. good power supply
5. political will and attention

in contrast to rural villages which are characterized by:

1. uncertain and volatile loads,
2. low paying capacity
3. heavily subsidized agri base
4. constricted power supply
5. Low enforcement and lacking political will

These above challenging characteristics of rural electric power loads and networks has lead to failure of good conceived RGGVY scheme – which aimed to establish distribution network in all villages of India. (More on RGGVY and specific failures and gap analysis in future blogs)

One metric of success of existing DF model would be its re-emergence in rural areas after establishing successfully first in urban cities. The urban journey has started from Bhiwandi circle and it is hoped that DF will evolve into a robust model. With that cycle complete from rural-to-urban-back to-rural, Distribution Franchisee business would have reached scale.

Post by: Rahul Bagdia @ pManifold

Utility Performance Monitoring is one of major gaps in Indian distribution utility or DISCOMs. The major reason is missing measurements and analytics to drive decisions and implementations. Even the MIS that gets created (inspite of its questionable integrity) is not effectively used to control distribution system optimally. One abstraction is to look utility as a complex distributed network with multiple stakeholders/nodes (various end consumers, linked to DTCs, feeders and substations forming a network and one network interconnected with others). Each stakeholder has different metrics of performance and it is this mismatch of KPIs along various stakeholders, that make the network run non-optimally.

It is attempted here to give readers a detailed list of KPIs that could be applied to benchmark performance of a utility with other utilities or with itself across time. The list is not claimed to be complete, but have been arrived with good amalgamation from available literatures. The various broad categories of KPI’s identified in utility distribution are:

1. Operational Performance
2. Operational Cost & Management
3. Financial Performance
4. Customer Service Quality
5. Energy Efficiency & Demand Side Management (DSM)
6. Workforce (Including Health & Safety)
7. Sustainability

The subcategories and specific metrics under each broad category are given below in the table:

A good framework for use of KPIs to monitor performance of the utility will need answering:

1. what to measure?
2. how to measure?
3. how to present the information across different utility levels for decision/action support?

A good set of KPIs together should also give a good causal analysis of any problem in the network. With above KPIs broadly known, a question then comes then still why Indian utilities are not running profitable? This is because just having KPI alone is not sufficient for growth, and follow up interventions have to be executed well. Since most of the mis-management of utilities get directly pass through to the end-consumers, there is missing incentive layer for efficient utility management.

Figure below shows a different taxonomy of KPI’s across different hierarchy of Distribution delivery:

Will privatization of Distribution utilities be able to better use the KPIs to drive utilities to optimal performance and profitability? Readers please share your thoughts and any specific benchmark numbers on KPIs for Indian distribution utilities?

References:

1. Performance Benchmarks for Electricity Distribution Companies in South Asia – by Nexant for USAID and SARI Energy (2004)
2. Development of Key Performance Indicators – @ Maritime Electric Company Ltd. (2007)

Posted by: Kunjan Bagdia @ pManifold