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    HomeNewsBusinessEconomyExplained: What is the new discom revamp scheme and how can it reduce the woes of the power sector?

    Explained: What is the new discom revamp scheme and how can it reduce the woes of the power sector?

    While this scheme can help improve operational efficiencies, its success hinges on execution by the states

    Rachita Prasad
    August 01, 2022 / 16:07 IST
    Representative image
    Prime Minister Narendra Modi launched the power ministry’s flagship Revamped Distribution Sector Scheme (RDSS) on July 30, which aims at improving operational efficiencies and the financial sustainability of beleaguered power distribution companies (discoms) and state power departments.The Union Cabinet approved an outlay of over Rs 3 lakh crore for RDSS, which the ministry described as “a reforms-based and results-linked scheme.”

    While launching the scheme, the PM said the states owe Rs 60,000 crore to discoms and another Rs 75,000 crore on account of various subsidies promised to their citizens.

    “About Rs 2.5 lakh crore of the power generation and distribution companies are trapped,” Modi said. “Given this situation, will the power companies be able to invest in infrastructure and future needs? Will we force future generations to live in darkness?”So what will RDSS do and how will it help discoms? Moneycontrol explains:Why has the scheme been introduced?Electricity is a concurrent subject in India, which means it can be regulated by both the Central government and the state governments. The Centre and the states have pushed for expansion of the country’s power distribution network to ensure universal access to electricity. Consumers in many parts of the country still do not get reliable 24x7 electricity.Technical and commercial losses that occur while supplying electricity remain high and the gap between the average cost of supply and the average revenue realised continues to be wide. There are structural and management deficiencies and some infrastructure constraints that have led to the sub-optimal performance of the distribution sector.RDSS is meant to be a facilitator to improve the operational efficiencies of discoms and help reduce their losses and make them financially sustainable.What does it aim to achieve?The scheme aims to reduce technical and commercial losses to pan-India levels of 12-15 percent by 2024-25 and cut the cost-revenue gap to zero by 2024-25.The objective is also to improve the quality, reliability and affordability of power supply to consumers through a financially sustainable and operationally efficient distribution sector.Who will oversee implementation?Rural Electrification Corporation and Power Finance Corporation have been nominated as the nodal agencies for the scheme.What does the plan entail?RDSS includes two components, which will work simultaneously.

    MC explains logo

    Part A –Financial support for prepaid smart metering and system metering and up-grading of distribution infrastructure.Part B – Training and capacity building and other enabling and supporting activities.What makes RDSS different from earlier schemes for discoms?Previous schemes offered financial assistance to loss-making discoms and financial incentives linked to meeting certain targets. RDSS does that too, but one aspect where it differs from the other schemes is the thrust on compulsory smart metering infrastructure.Smart meters are a new generation of energy meters that allow consumers to learn about their consumption patterns and help utilities conduct system monitoring and customer billing without manual intervention. This can significantly reduce inefficiencies around billing and collection by discoms and lead to improvement in operations.ChallengesThe success of this scheme will hinge on execution by the states. As of April 2022, the government of India had approved proposals from 13 states under this scheme which may have an outlay of Rs 1.62 lakh crore.While this scheme can help improve operational efficiencies, many fundamental issues in the power sector need to be resolved to improve the overall financial health of discoms.Power sector experts said the weak financial position of discoms would continue as long as there are issues related to inadequate tariffs, higher power distribution loss, and inadequate subsidy payments.END 

     

    Rachita Prasad
    Rachita Prasad heads Moneycontrol’s coverage of conventional and new energy, and infrastructure sectors. Rachita is passionate about energy transition and the global efforts against climate change, with special focus on India. Before joining Moneycontrol, she was an Assistant Editor at The Economic Times, where she wrote for the paper for over a decade and was a host on their podcast. Contact: rachita.prasad@nw18.com
    first published: Aug 1, 2022 04:07 pm

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