August 2022

The power distribution segment and the poor financial condition of the state discoms have long been a pain point for the overall Indian power sector, including renewables. Discoms struggle with operational inefficiencies and high aggregate technical and commercial (AT&C) losses, which impact their overall financial viability.

This gets passed down to power generators, including solar and wind power producers, who suffer from delayed payments, lengthy timelines for signing of power purchase agreements (PPAs), curtailment of energy generation and postponement of project awards after auctions due to price sensitivity concerns. In fact, timely payment of dues to renewable power producers has been one of the key bottlenecks for renewable energy project financing.

There have been many initiatives taken in the recent past by the central government to address this issue, including the introduction of a payment security mechanism, letters of credit, and even a delayed payment surcharge. Recently, the government allowed discoms to clear their dues along with late payment surcharges in equated monthly instalments. A special bailout package with liquidity infusion was also announced by the government to help the discoms during the pandemic. However, these have not had the expected results in improving discom health.

In a bid to address the still lingering inefficiencies and improve the financial sustainability of discoms, the government introduced the Revamped Distribution Sector Scheme (RDSS) in end July with an outlay of Rs 3,037.58 billion over a period of five years from 2021-22 to 2025-26. The scheme was launched by the prime minister as part of the grand finale marking the culmination of Ujjwal Bharat Ujjwal Bhavishya – Power @2047, along with a national portal for rooftop solar and various green power projects of NTPC Limited.

The RDSS will provide financial assistance to discoms for the modernisation of distribution infrastructure, improvements in reliability and quality of supply to end-consumers, and provision of 250 million smart prepaid meters across the nation. This scheme aims to reduce discoms’ AT&C losses so that they can become profitable.

It now remains to be seen how the scheme will be implemented by the states and what its overall impact will be on the health of the discoms, which still are the weakest links in the power sector value chain.