By Suvojoy Sengupta & Satya Komaragiri
An efficient power sector is a crucial enabler in India’s journey to sustained economic growth and development. While the country’s distribution companies (discoms) have significantly raised operational and financial performance, they face two challenges — keeping up with fast-expanding demand, and providing high-quality and reliable power supply. Measures such as using data-driven forecasting to plan and deliver power optimally and strengthening distribution networks will help the sector rise above these challenges.
India’s power sector has attained 100% electrification and has been integrated in a single grid across the country. Daily power availability has increased to 20 hours in rural areas, and 23.5 hours in urban centres. The aggregate technical and commercial (AT&C) losses have narrowed from 21.2% in FY21 to 15.4% in FY23, according to power ministry data — sufficient savings to power the state of Karnataka or eliminate the need for building a 20 gigawatt (Gw) coal-fired power station. The sector’s payables fell from 200 days in FY21 to 120 days in FY23, while capital expenditure increased to `70,000 crore in FY23.
However, power demand has been growing at 8-9% per annum, outstripping the baseload capacity additions at discoms. In FY23, as demand levels reached or exceeded baseload contracted capacities, the government directed imported coal-based plants to run at full capacity and domestic power plants to import coal for blending. Several discoms also resorted to expensive short-term procurement from power exchanges, raising power prices by 71 paise per unit during FY23. But only 46 paise were passed on to customers, widening the gap between discom revenue and power costs.
At the same time, the quality of power supply in India could still improve. Metrics that measure average system interruption frequency and duration reveal that urban areas in India face 120 outages and 131 hours of power cuts annually. This compares to less than one outage and one hour of outage in two years in developed economies.
To be an enabler in India’s economic development the power sector could focus on four aspects. First, generating a granular forecast to allow discoms to plan power procurement with high-fidelity and ensure resource adequacy will be helpful.
Advanced analytics can help assess any demand additions, changing load profiles, integration of distributed energy sources, and demand migration from open-access users in detail. Such forecasting would let discoms optimise the supply mix across long-term and short-term power purchase agreements as well as purchases from power exchanges.
Second, an improved distribution network will ensure reliable supply. Investments in loss reduction works, prepaid smart meters, additional transformative capacity, and system redundancy would be key. Smart solutions such as GIS mapping of assets, predictive maintenance and network automation tools can boost operational efficiency.
Third, a renewed customer focus is key, especially as enterprises and households demand higher reliability. Ensuring 24/7 supply will nudge commercial and industrial customers away from diesel or gas backup gensets. In other examples of customer-centric efforts, discoms could reduce the time to get new connections, facilitate solar installations, promote digital payments, and provide visibility on outages. They could also leverage smart meter data through analytics to unlock value-added services.
Lastly, discoms need a clear road map for seamless integration of renewable energy, with 322 Gw of the planned 469 Gw capacity addition till 2032 expected from renewable sources. However, as solar and wind power generation are intermittent, discoms need to plan for 24/7 availability through energy storage, hybrid power plants, green hydrogen, etc. Additionally, demand-side strategies like time-of-day tariffs and demand response management would incentivise customers to shift consumption to peak solar hours.
Some discoms have already started taking steps in this direction. City discoms in Mumbai and in Delhi have invested in building network redundancy and smart solutions for reliable power supply; they are improving consumer experience by developing dedicated apps, messaging systems, and real-time usage monitoring. States such as Maharashtra, Andhra Pradesh, Karnataka, and Odisha have implemented green tariffs for high tension consumers. The use of AI is also picking up, with implementation of a demand response system incentivising consumers to modulate demand in Mumbai.
The availability of affordable and reliable power is a prerequisite for India’s journey towards greater economic development. Timely investments by the distribution sector to build adequate resources, strengthen capabilities, and improved customer service will be essential to fuel this progress.
Further, as the share of renewable energy in the power mix grows and more consumers demand green energy, discoms need to innovate to mitigate renewable intermittency challenges. Some of the discoms have taken the lead towards these goals; it is time for the entire distribution sector to work together and emerge as a lynchpin in national development.
About the authors: Suvojoy Sengupta serves as partner, while Satya Komaragiri holds the position of associate partner at McKinsey & Company.
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