- The project presents a huge business opportunity for IoT module makers.
- The SMNP features modularity in capex and escrow structure.
- There will be grants of up to Rs 1,350 per smart meter from the Centre.
The Indian government’s Smart Meter National Program (SMNP) now aims to replace 25 crore conventional electricity meters with prepaid smart meters and upgrade power distribution infrastructure, including feeders and transformers. The project, with an estimated capital expenditure of Rs 1.5 lakh crore, is expected to be implemented over the next five years.
Smart meters broadly consist of 8 modules: the power supply module, the display module, the storage module, the sampling module, the measuring module, the communication module, the control module, and the multi-utility controller (MUC) processing module. These modules are components of the internet-of-things (IoT) module that is what makes meters smart. This project represents a huge opportunity for these module makers.
Smart meters improve the operational and financial efficiency of distribution companies (discoms). SMNP aims to improve the billing and collection efficiencies of discoms and help monitor electricity demand and consumption on a real-time basis. It will reduce power theft, improve forecasting of demand and scheduling of supplies, and help reduce the distribution losses of discoms.
The SMNP features such as modularity in capex and escrow structure to regulate payments will lower risks associated with large projects, making them safer and bankable. This is likely to stimulate private sector participation and enhance the roll-out of smart meters.
As the project is divided into smaller, manageable stages (as small as 5% of overall scope), it enables the receipt of cash flows on a pro-rata basis (In proportion as opposed to all at once), reducing the intensity of risk during the implementation stage. This is the benefit of modularity in capex.
An escrow structure is a financial arrangement where an escrow account is used to regulate payments. For the SMNP, a direct debit facility (DDF) acts as an escrow account. All online payments from the consumers of discoms are deposited into this DDF account. From this account, annuity payments to the project’s bank account are prioritised. This structure reduces the risk of payment delays or non-payment from the discoms to projects, which is one of the key risks in the power sector. It ensures that the funds are used specifically for the intended purpose and provides a layer of financial security for the project.
Under SMNP, each state discom divides the area under its control/ jurisdiction into circles and awards them to private concessionaires, which will be responsible for purchasing, implementing, and maintaining smart meters for 10 years. The contracts are awarded via open auction based on annuity quoted per smart meter to be received over the concession period.
Discoms will pay the concessionaires from the monies collected from consumers. With an average price of ₹6,000 per smart meter SMNP is expected to provide a Rs 1.5 lakh crore capex opportunity in India’s power distribution landscape. There will also be support in the form of grants of up to Rs 1,350 per smart meter from the Centre.
There are several challenges in the implementation of SMNP. Aggressive bidding may result in the concessionaires taking up the project at much lower price. This low cash inflow may hamper their ability to pay the debts raised for the project and disturb its cash flow. The projected Rs 1.5 lakh crore capex is also sensitive to the level of aggression in bidding and the pace at which contracts are awarded to private concessionaires. Any payment delays would be challenging for debt service.
The project is overall managed by Energy Efficiency Services Limited (EESL), a JV of PSUs under the Ministry of Power. EESL is a joint venture of four National Public Sector Enterprises – NTPC Limited, PFC, REC, and POWERGRID, and was set up under the Ministry of Power.
