A live-wire market for electricity could be the power sector’s UPI moment

The generation margins reflect efficient policy planning and actions by the Union government, a challenging task, especially since 93% of the electricity produced in India is purchased and distributed by state-owned utilities that are weighed down by populist imperatives. On average, they end up charging less than what it costs to serve the consumer, thereby imperilling investments across all limbs of electricity supply, from generation to distribution.

A key lynchpin of the government’s reform efforts that has steered capacity addition in states to make utilities viable has been its digital push. Installation of prepaid electricity meters at the consumer end and remote monitoring of bulk distribution supply assets like transformers has cut technical losses and improved utilities’ revenues.

However, the digital experience at the consumer end is limited to paying bills, transactions that can now be done effortlessly thanks to the Unified Payments Interface (UPI), an alternate payment system to traditional bank transfers that now accounts for 85% of all digital transactions in the country.

This takes us to the larger question of a UPI embrace in the power sector, with electricity being transacted by consumers on a mobile phone keypad.

Domestic roof-top solar panels have emerged as the cheapest source of electricity for consumers, though limited of course to times when the sun shines. In the absence of a free market, after meeting their captive needs, consumers can sell the excess solar panel electricity only to distribution utilities.

Utilities, however, aren’t equipped to efficiently match demand with these supplies. A pilot experiment in Jaipur and a few neighbouring cities by the Global Energy Alliance for People and Planet showed that roof-top solar supplies jumped 20% with a service provider implementing a ‘digital twin’—physical tagging of every distribution supply device in the area, like transformers and feeders.

Mapping these has addressed supply disruption and demand spurt issues by maximizing local area roof-top solar supplies. This entailed the digital tagging of as many as 2 million assets and real-time analysis of the data. As a result, not only have consumers saved on electricity bills, but also the government, since, on average, it subsidizes domestic consumers, who account for a third of the electricity consumed in the country.

This approach sits well with the government’s promotion of roof-top solar and decentralized ground-mounted solar, since in the case of large domestic consumers, utilities lose money as they transact on a ‘net metering’ basis, as volume and not price defines the engagement. This is because they ‘buy’ from consumers during the day when the market is awash with inexpensive solar supplies and ‘return’ it to them in the evening by purchasing or generating expensive fossil-fuel electricity.

Digitization at low-voltage levels by giving a unique digital identity to millions of assets that take electricity to consumers under each utility will thus help improve penetration of roof-top solar, which is at an anaemic 16%.

This will also lay the foundation for power trading that is currently practised at the inter-state level, where traffic managers or state-owned electricity system operators manage the demand-supply dynamics. By introducing distribution operators in appropriately defined regulatory frameworks, consumers can turn traders and nudge a ‘UPI moment’ for electricity.

The volume of transactions that could be stimulated are significant, since it allows for innovation at scale, both in terms of technical models of trade, such as peer-to-peer trade, and commercial models involving shared charging infrastructure or vehicle-to-grid exchange.

The key to success lies in moving away from net metering and introducing real-time pricing of electricity at the consumer end to create value opportunities. For example, domestic consumers could raise household battery storage capacity for day-time charging, via captive solar panels, to be sold to the utility after sunset or when there is a sudden rise in demand.

Regulatory interventions alone are unlikely to suffice. Utilities should be nudged to either build the capacity needed to turn operators or outsource this function to service providers for a fee, even as they are asked to charge consumers real-time prices.

For this, the Centre’s reform programme could be tweaked to include fiscal incentives and disincentives for utilities to usher in a producer-consumer—or ‘prosumer’s’—market with ‘live-wire’ prices. Aggressive interventions in the past have been effective. In 2022, inter-state transmission access was blocked for states that defaulted on dues to generators. This resulted in a sharp drop in outstanding bills.

Creating a prosumer’s market would be a win-win situation for the utility, with lower spends on generation, better reliability in supply, potentially lower subsidy bills and an inclusive commercial opportunity for citizens.

These are the authors’ personal views.

The authors are, respectively, vice-president, GEAPP India, and consulting editor, Mint.