Smart Grids in India: Separating Hype from Hope

Content from the Brookings Institution India Center is now archived. After seven years of an impactful partnership, as of September 11, 2020, Brookings India is now the Centre for Social and Economic Progress, an independent public policy institution based in India.

Why Indian Smart Grids Make Sense

What are Smart Grids? There is no single technology or design, but these are a general term for the transformation of the power grid using digital communications and control to enable functionalities such as increased awareness, resiliency, flexibility, efficiency, and enhanced renewables integration.  Definitions and functionalities abound, but for India, the killer apps are likely to be different.  In the West, labor costs for meter reading and connections/disconnections have been one driver, in addition to pressures due to renewable energy and electric vehicles, as well as concerns on handling the peak on aging infrastructure.  In India, the short-term needs include reduction of losses (both technical and financial) and keeping the grid in balance (especially given shortfalls).  Focusing on these applications, and viable price points, will make or break Smart Grids in India. 

Theft reduction is important, but the scope, on average, may be about 13-15 percent, without grid upgrades to reduce technical losses (which are higher than in comparable countries).  In contrast, the demand is expected to grow several hundred percent over the coming decades.  Today’s challenge is meeting the peak load, due to which outages (feeder level “load-shedding”) are common, and load management will be very important for a power-deficit nation.  Instead of load-shedding, can all consumers not be guaranteed a minimum supply (e.g., 100 watts or 200 watts, enough for lights and a fan), even during deficit periods? If they want more, they could then pay a small surcharge (with regulatory approval).

It’s important to recognize that Smart Grids are only a means to an end, an enabling infrastructure (one could provide 50 watts or 300 watts as “lifeline” if one wished).  You also don’t need a Smart Grid to cut down theft.  In a few Indian utilities, professional operations and political will have worked. But Smart Grids make it much easier to reduce leakage.  It’s not as if the utility doesn’t know what is going on and where. But now one can have irrefutable data, instead of ad hoc and assumption-based calculations. 

Why Smart Grids Can Now Succeed in India

Today, Smart Grids in India have become a distinct possibility, instead of a science experiment.  The new Narendra Modi government has announced a vision for 100 Smart Cities.  Importantly, over the last five years, India has moved ahead from “What is a Smart Grid?” to “What does it mean for India?” (partially answered) to “How do we do it?” Yes, there has been hype (e.g., the cover of a business magazine showing the Badshah [emperor] of Bollywood,  Amitabh Bachchan, with a Smart Meter), but there has been consistent (even if sometimes slow) steps towards Smart Grids, including the recent National Smart Grid Vision and Roadmap

The technology has also improved over the last few years with standards for many components.  While ongoing, such efforts have led to solutions that take far less customization than before.  It’s not an off-the-shelf solution (yet) but price-performance points are now becoming interesting, even for a price-sensitive nation like India (where the median household electricity bill is only a few US$/month).   India’s IT skills are also world-class, and labor costs are low. In France, the national utility’s pilot showed smart meter installation costs of over 40 euros! 

Probably the greatest reason these can work is a willingness to change – people are sick of business-as-usual.  The government recognizes the issue of utility losses (many billions of dollars per year), and consumers hate losing power and paying for back-up power (also to the tune of billions of dollars per year).  This has an impact on GDP growth reportedly of several percent.  In the U.S., to save a dollar or two per month, consumers may not get that excited (what I call the “Smart Grid Slice of Pizza Syndrome”), but in India, if you tell consumers that with modest modifications to their usage patterns, they can save Rs. 50/month (with time of day pricing), or avoid outages, many will jump at it.  Modest? They already face extreme (involuntary) engagement with the grid – most lose power weekly if not daily, and expensive back-up power only covers part of their load.

Costs, alternatives, and options

“If you think education is expensive, try ignorance” – Derek Bok.

Certainly a Smart Grid has costs, but what are the alternatives? Load-shedding is artificially cheaper (as utilities avoiding buying costly peaking power) but this just passes the burden on to consumers.  Just imagining smart meters as avoiding meter reading costs (which are low in India) is a false comparison, or rather, can be considered Parmenides Fallacy (comparing the future to the present, instead of alternative futures).  With a smart grid, not only is meter reading far more accurate, one can get load profiling, outage detection, theft detection, time of day pricing, and congestion planning as well. 

To end load-shedding, one option that has worked well is the “Gujarat Model” which included rural feeder separation (which itself has costs).  However, some of the other states that tried something similar achieved less stellar results.  This is because of inherent differences in consumer profiles, availability of supply (generation), and sheer political will.  A smart grid isn’t an alternative to that – it is the next step where separation and granularity isn’t just at a feeder level, but can be down the household level. 

Recommendations for India’s Smart Grids

Focus on consumers (and utilities), their needs, and think bottom-up

Smart Grids work when you get the design right. They fail when consumers don’t want them.  Consumers need carrots (e.g., no more load-shedding) and not just sticks (e.g., theft detection). Engaging consumers need to require the Internet or even a fancy in-home display – one could use mobile phones and text messages (SMSes), which are ubiquitous in India.

Too much of Indian smart grids today are top-down driven, if not vendor/consultant driven.  Utilities have their hands full trying to implement the Flagship R-APDRP program, which can be considered a pre-cursor to Smart Grids.  Both efforts need to synergize to avoid duplicated or wasted effort. 

Improved if not innovative financing and accounting

  1. Innovative doesn’t mean convoluted Wall Street-type instruments, just improved granularity and accuracy. Instead of average costs, one has to account for marginal costs and time of day costs.  
  2. Use societal cost benefit analyses (CBA) for proving the business case of Smart Grids, instead of utility Return on Investment (ROI).  If a Smart Grid ends load-shedding, as of now the utility doesn’t benefit financially, but the consumer saves on back-up power.  A ROI will not capture this, but a CBA will. 
  3. Consumers today pay for electricity meters – can they pay for a smart meter? A modern digital meter can cost about Rs. 1,000 (almost $20), so can they cover the incremental estimated Rs. 1,000 for a simple smart meter? This isn’t the full system cost, but the utility could cover shared infrastructure, telecoms, data center, analytics, and more.  This is akin to the telecom concept of houses with tails, where the last hop optical fiber costs are borne by the household, in exchange for a network this can simply plug in to. 

Is this fair? First, if the utility buys the smart meter, ultimately it charges the consumer down the road. Second, regarding affordability, in most urban areas, the most basic of homes costs many hundreds of thousands of rupees (in Mumbai, there are single-room slums that builders have paid Rs. 10,000,000 for).  This cost is a small price to pay for improved electricity.

Learn, try, innovate

If anyone says they have a perfect, ready smart grid at the Indian price point, with modularity, interoperability, security, and other important features, then either they’re unaware, or trying to sell you something.  Smart grids need effort, and the 14 nationally supported Pilot Projects are a step toward rollouts. Better pilots would differentiate between learning and deployment pilots.  India also needs innovation to handle communications and other challenges, not to mention usability and consumer engagement needs. An in-home display is available, but too expensive (if not complex) today.  The government is planning a Smart Grid Mission, which can help drive both funding and policy. Importantly, the real challenge is not at the center but with the states, which are resource-constrained, both in skilled manpower and cash.  

Challenges with Smart Grids remain, including relating to the technology, especially communications.  Rural areas have limited cellular (data) coverage, and urban areas are cellular congested, and RCC-type dense construction with apartments doesn’t help in urban areas.  But these are surmountable. 

Probably the single biggest challenge is one of mindset.  To a utility, nothing looks cheaper than load-shedding. But it should be disallowed.  We can and should be granular.  We already differentiate consumers and tariffs. But now we can do it smartly, in a transparent, equitable, and efficient manner. 

Smart grids have been described as a work in progress, a journey, with different utilities worldwide at different levels of implementation.  If these are tough to get right in developed regions, do Smart Grids make sense for India, which is still struggling to keep the lights on (and provide access)?  Smart Grids can and should look different in different places, and an Indian Smart Grid becomes not only an option but, likely, an inevitable transformation of the grid.  Why? Because business as usual just will not meet India’s aspirations in terms of speed, economics, and sustainability.