Consumers and distribution network companies are partners when creating value for the network and themselves

India’s electricity regulators, at the central and state level, are tasked with setting appropriate regulations and standards that govern grid reliability and protect consumer rights. While the incidence of complete blackout is rare, the reliability of distribution networks—better known as discoms in India—is below par, especially in rural areas.

One of the main reasons for inaction by discoms is that they have limited financial resources to invest in network upgrades—a key prerequisite to strengthening the local grid. Discoms struggle to meet their working capital requirements. Raising funds for long-term capital expenditure is therefore an even bigger challenge.

Discoms can now, however, think beyond traditional network upgrades to meet local reliability and power quality requirements in a much cleaner and more efficient way. Technological improvements and maturation have driven cost reductions for several newer modular solutions, such as rooftop PV, energy storage, or microgrids. This holds promise to solve the grid reliability challenges in a more sustainable way. There are some insights to be gained by taking a look at the experience of utilities and regulators elsewhere, in building up the ecosystem for newer solutions to work.

NON-WIRES ALTERNATIVES

Non-wires alternatives (NWAs) refers to technologies and other interventions that can, individually or collectively, present an alternative to traditional wired solutions such as new and upgraded distribution lines, feeders, and substations. Typically, NWAs include a combination of distributed generation, demand response, energy storage, and end-use energy efficiency measures to meet a given set of network requirements.

Motivations for the promotion of NWAs differ from region to region. In some places, they are being promoted with an aim to integrate a larger share of cleaner energy resources; while in other places it is to decrease the variable and fixed costs of distribution utilities. Elsewhere, NWAs are promoted as a means to increase the resiliency and reliability of the local grid.

The Bonneville Power Administration in the northwest of the United States, was an early employer of NWAs. In the 1990s, it cost-effectively deferred expensive network upgrades in the San Juan Islands by investing primarily in broad-based efficiency measures (measures (such as lighting, insulation, heating and cooling, and process equipment) in homes and businesses.

More recent examples include the Brooklyn-Queens Demand Management (BQDM) programme and the Oakland Clean Energy Initiative. The BQDM programme allowed New York’s distribution utility, Consolidated Edison, to achieve 50 megawatt (MW) peak demand reduction with demand-side resources, thereby deferring a $1.2 billion substation upgrade. In the case of Oakland Clean Energy Initiative, the utility was able to retire an uneconomic power plant without a transmission upgrade.

ROLE OF REGULATORS

Typically, regulators play tough when they scrutinise a discom’s capital expenditure plans, a majority of which involves low-voltage distribution network upgrade, partly because the discoms have an inherent financial motivation to spend —at times beyond what is reasonably required—to earn an almost-assured rate of return. It is also partly due to the public pressure put on regulators when they are asked to approve higher costs and, in turn, hikes in retail tariffs.

Regulators should be guided by three core objectives during the process of annual capital expenditure approvals: optimisation of grid investments and performance; integration of cost-effective non-wires alternatives; and increased customer engagement.

A prerequisite for these is an environment that requires discoms to engage stakeholders in a public resource planning and power procurement process. Such engagement builds trust and a shared vision—a distribution system plan that the regulators, discoms, and public can support—and thus a greater likelihood that desired outcomes will be achieved.

It will not be easy, but it is worth the effort. Regulatory commissions will have the challenging task of making sure participants are motivated (mostly financially) to shift to a new approach to grid planning and investment that will encourage and accommodate a variety of solutions. This means that, among other things, access to usage and other relevant data by NWA service providers will be critical. By opening up the network in this way, regulators can encourage innovation in product offerings for enhancing reliability, improving environmental performance, and lowering overall costs.

INTEGRATED PLANNING

Traditionally, high value-usage consumers have invested on their own in resources, especially diesel backup generators, to ensure uninterrupted power supply where the discom network is unreliable. That leads to an increase in the total cost of electricity procurement for these consumers. With an increased role of the regulator and deployment of low-cost, cleaner modular solutions, the total cost of reliability can be reduced for all consumers in the system.

It is essential that discoms open up to the possibility of an integrated approach for planning network upgrades, benefit from new technologies, and the regulator should take the lead in seeing this through. The way to move ahead lies in reimagining the system as one in which end-users are partners with the discoms in creating value for the network and themselves.

Perhaps the place to start on that journey is to create a new approach to infrastructure planning, one that will drive solutions that create greater societal benefits than costs. But this is unlikely to be enough so long as discoms lack the motivation to do so. The societally preferred outcome should also be the preferred course of action for discoms. It is therefore up to regulators and policymakers to create the means for fairly evaluating NWAs and incentivising discoms to create and manage this change for a better societal outcome.

This article was originally published at Foresight Climate & Energy.