Mirroring India’s solar revolution for rapid smart meter adoption

Kid welcoming smart meters in his town with the promise of more reliable power

The business case for India adopting smart meters is clear. As a country, we lose almost INR 6708/meter/year on average in distribution losses, while the cost of a smart meter has come down to less than INR 2500. Since more than 50% of these losses can be eliminated through effective implementation of AMI in India, it’s clear why the Indian government said in 2018, it wants to replace all 250 million meters in India to smart prepaid meters in three years.

However, these efforts have been ongoing now since 2012. India started experimenting with smart meters first through micro pilots across 14 different utilities. 5 years into the program, only a fraction of the pilots went through with limited results and success. The country then moved to a centralized approach — centralized bulk procurement of hardware and a unified software stack to manage 100% of the smart meters across the roughly 110 utilities in India. While the number of smart meters procured and installed increased substantially — a little over 2M smart meters, the program has achieved only 0.8% of its desired targets.

The primary reason for this laggard adoption is because the government is trying to be in the business of doing business. Instead, if the focus is on creating the right policy environment to support private sector participation, the results can be staggeringly different. Consider for instance the success of India’s solar program — we’ve grown 10x from 3.7GW in 2015 to 35GW in 2020!

India’s solar program grew not simply because of reduction in solar prices but because of right government policies at the center and state levels. One of the important policies that led to this growth is MNRE’s empanelment based subsidy policy. Under this policy, private sector players would get assessed by third party auditors like CRISIL and ICRA and then become an empaneled MNRE vendor, making them eligible to claim capital subsidy payments from the government for successfully commissioned projects. The vendor and the end client were completely free to choose from a variety of technologies and design a business model for the procurement and operation of the solar installation that worked for them mutually.

A similar approach needs to be adopted by the government for rapid scale up of smart meters as well. The reasons for this are as follows:

1. Unique requirements — Even India’s smallest state, Goa has a population which is more than that of 30 European countries! Each electric utility is hence serving almost an entire country and has very unique requirements. They all have unique challenges around peak demand management, billing, collection, power portfolio management, and power theft, all of which require custom AMI solutions and business models. A one fit all solution, necessitated by centralized procurement won’t fit the bill for all utilities.
2. Legacy IT systems — Each utility has adopted or developed unique IT systems for their operations over time. It’s almost impossible to have a single piece of software that works optimally for each customer. For instance, for Gram Power’s AMI project in Bihar, which is India’s largest privately funded smart meter project, we had to recreate a new billing engine to enable prepaid metering on the cloud for 100% of their customers. If such customization is done for each utility using a single centralized software, it will not be able to meet performance SLAs for each deployment. It’s similar to expecting Maruti Suzuki to make engines for all cars of India and yet meet each customer’s performance and price expectations!
3. Financial limitations — Utilities in India are reeling under heavy losses. COVID-19 alone has increased their payables by about Rs.90,000 crore. In such an event, it’s not possible for them to spend even Rs.2500 on a smart meter, which is still about 4x the cost of a regular meter. PPP models are mandatory for scale up of smart meters in India, which can become a reality only under conducive policy environments.

So what’s the solution? One way that the government could further this agenda is by replicating what it did for solar. It would work as follows:

1. Empanelment — Nodal agencies like PFC, REC, PGCIL can lay out guidelines and requirements for smart meter implementation agencies against which independent credit rating agencies can score private sector companies. Based on the score, these companies can be empaneled with the nodal agencies. The nodal agency would then set annual quotas and targets for each empaneled vendor for smart meter installations. Depending on target achievement, their quotas can be enhanced each year
2. Benchmark pricing — The government in partnership with nodal agencies can set benchmark pricing for different technologies of smart meters and set clear subsidy amounts per meter, which the empaneled vendors can claim upon successful installation. Over 3–4 years, these subsidies can be eliminated, just like it happened for solar. This will help faster adoption by State utility companies and leave room for innovation in business models.
3. Access to debt — The right business model for utilities is to procure smart meters as a service and not as a product. This is also evident from the acceptance that EESL’s ESCO model for smart meters has received. However, financing smart meters is not something that banks are used to. Just like the government created IREDA to promote financing in renewable energy, it can mandate PFC and REC to have a minimum portfolio size in smart meter projects across India. This will create much needed access to capital for this sector and transfer the financial and technology risk of smart meters from the utility to the private sector
4. Performance benchmarking — Instead of focusing on technology specifications, government policy should focus on performance benchmarking. The nodal agencies must mandate minimum performance standards of the service, instead of the product. And data on smart meter performance must be shared in a central data warehouse hosted and managed by the nodal agencies to monitor how every project is performing

To get India back on a rapid growth path, it is absolutely essential for the health of our utilities to radically improve. There are only two options for this — privatization and technology adoption. The former, being politically sensitive is unlikely to happen in a short period of time. However, the latter can be done faster, and will be necessary even for private operators if and when utilities in India are privatized at a faster pace. Smart meters play a pivotal role in this technology transformation and the government can achieve their well intentioned agenda by simply learning from their past successes.