go-to-market research interim franchisee opportunity in power...
TRANSCRIPT
MAY 2013
Go-To-Market ResearchInterim Franchisee Opportunity in Power
Distribution Business in India
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Report Contents
• Executive Summary
• Loss Reduction measures adopted by different stakeholders in Indian Utilities
• Types of Distribution Franchisee Models at bigger regional/city level
• Different variants of Franchisee models at smaller target areas
• Interim Franchisee as a new opportunity for private players/owners
• Value Chain and roles mapping of different stakeholders in Interim Franchisee
• Value Benefits and Challenges of different stakeholders in Interim Franchisee
• Uptake of Interim Franchisee in various states– Current Project Status– Maharashtra - Interim/Mini Franchisee Project Developer List– Haryana - Single Point Delivery Model – Punjab - Single Point Supply Model
• Case Studies
• Go-To-Market Entry Recommendations
• Appendix– Prospective new Projects list for Interim Franchisee– List of Pilot Smart Grid Projects– Lists of operating Input based Distribution Franchisee models– List of IBDF projects in takeover phase – References
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Terminology & Acronyms
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AT&C Aggregate Technical & Commercial MBC Metering, Billing and Collection
AMR Automated Meter Reading MERC Maharashtra Electricity Regulatory Commission
BST Bulk Supply Tariff MIDC Maharashtra Industrial Development Corporation
CAPEX Capital Expenditure MoU Memorandum of Understanding
CIDCO City and Industrial Development Corporation of Maharashtra
MSEDCL Maharashtra State Electricity Distribution Company Ltd
CRM Customer Relationship Management NPCL Noida Power Company Limited
DF Distribution Franchisee OA Open Access
DG Diesel Generator O&M Operation & Maintenance
DHBVN Dakshin Haryana Bijli Vitaran Nigam OPEX Operational Expenditure
DISCOM Distribution Company R-APDRP Restructured Accelerated Power Development and Reform Programme
DTR Distribution Transformer RE Renewable Energy
EE Energy Efficiency RWA Resident Welfare Association
ERC Electricity Regulatory Commission SEB State Electricity Board
FDA Feeder Distribution Associates SEZ Special Economic Zone
GHS Group Housing Society SLA Service Level Agreements
HERC Haryana Electricity Regulatory Commission STPI Software Technology Park of India
IBDF Input based Distribution Franchisee UHBVN Uttar Haryana Bijli Vitaran Nigam
IF Interim Franchisee UPPCL Uttar Pradesh Power Corporation Limited
Executive Summary
• Loss reduction in Indian Utilities is being driven at all levels - Policy, Central, State, and Private with state ERCs strictly monitoring and penalizing DISCOMs for low performance on AT&C loss reduction targets. SEB distribution losses projected to rise to INR 1.16 lakh Cr. by 2012-15 from the current INR 70K Cr.
• For expediting loss reduction, some DISCOMS are implementing Franchisee-based models involving private participation through performance-linked contracts
• Of these franchisee models, certain variants are being applied to smaller target areas e.g. Distribution Transformers, Feeders and more importantly across Aggregated Customer Premiseswhere private ownership exists
• Interim Franchisee Model providing Single Point Delivery of Electricity to Aggregated Customer Premises have emerged as new opportunity for Private Developers or Owners
• There is definite scope for competent providers to service private developers/ owners across customer services, O&M, backup power supply provisioning and loss reduction
• The Interim Franchisee model is win-win for all stakeholders however challenges exist for especially Infra Developers in engaging with State DISCOMs as the model is still evolving
• The Interim Franchisee model is currently operating in few states and is in growth phase, with its likelihood of adoption for all aggregated customer premises. Currently , it is operating in 4 states (Maharashtra, Haryana, Uttar Pradesh and Punjab)
• Go-To-Market Entry Recommendations– Typical market entry points could be in existing RWAs, Vendors, New Developers by providing organized
O&M , MBC solutions and cost effective backup power. Haryana, one of the state where the model is operating seems to be best fit for first entry based upon high density of housing society, existing RWAs.
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Loss reduction in Indian Utilities is being driven at all levels - Policy, Central, State, and Private with state ERCs strictly monitoring and penalizing DISCOMs for low performance on AT&C loss reduction targets
•Planning Commission has mandated PPP involvement on Distribution side before allowing any financial debt re-structuring for any Discom, which stand tall at approx. INR 2.6 lacs crores.
•Various State ERCs are strictly monitoring achieved AT&C loss reduction vs. pre-agreed trajectory, and penalizing Discoms on low performance. SEB distribution losses projected to rise to INR 1.16 lakh Cr. by 2012-15 from the current INR 70K Cr.
Policy
•R-APDRP investments of INR 5 lacs crores in Technology upgradation of Network. (Nearly INR 4160 Crores has been sanctioned under the scheme, as of Dec 2011)
•Centrally organized funds for 14 Smart grid pilots, including setting of National India Smart Grid Forum Taskforce. The projects would be funded under R-APDRP
Central
•Large scale meter replacement drives, providing new connections in a quicker way and improved call centre facilities for handling customer complaints are running in almost every utility
•Various innovative franchisee models are being piloted to expedite loss reduction and improve end-service delivery. 22+ significant size input based franchisees are operating at city or broader region level in Maharashtra, MP, UP, Jharkhand, Bihar, Orissa.
State / Discoms
•Private Utilities and Franchisees are experimenting various decentralised models to expedite loss reduction at Sub-station/Feeder/DTR/Regional/Premise levels.
•Advanced solutions in areas of Metering (Network and end-Customer), Spot Billing, multiple payment channels, Network Automation, CRM, Theft identification Analytics, Customer Services, DSM etc. are on rise
Private
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For expediting loss reduction, some DISCOMS are implementing Franchisee-based models involving private participation through performance-linked contracts
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Types of Franchisee
Types of Models
Examples
Key Activities involved
Energy Purchase
Investmentsin Network
Improvement
Operation & Maintenance
Metering& Billing
RevenueCollection
Major O&M
UrbanFranchisee
Input linked Revenue Collection Franchisee
NPCL’s Feeder Franchisee model
---- ---- ----
Input based Distribution Franchisee (IBDF)
Bhiwandi, Nagpur, Jalgaon, Agra,Gwalior etc
----
Operation and Maintenance Franchisee
Jabalpur, Sagar, Satna (by A2Z) ---- ----
Rural Franchisee
Collection based RevenueFranchisee
All RGGVY project
---- ---- ---- ----
Rural Electric Co-operativeSocieties
Mula PravaraCo-Operative (MSEDCL)
---- ----
The below models usually work at bigger regional levels (City, Circle / Sub-Division, Village). However, a new breed of decentralization is emerging, which focuses on further smaller aggregations like Feeders, or Buildings (residential / commercial / industrial), and that is the focus of this market research.
Of these franchisee models, certain variants are being applied to smaller target areas e.g. Distribution Transformers, Feeders and more importantly across Aggregated Customer Premises where private ownership exists.
Asset Level Active project location/area
Model Name
Scope of work for Operator
Typical Operator Profile / Private Ownership
Power sourcing & Payment Model to Discom
Key Operator’s RevenueModel distinction
Distribution Transformer
Several DT Level LossReduction
•Capex•Meter Reading, Bill Distribution•Maintenance of loss level•Fault attendance
Energy Services Companies, Infrastructure Companies
Input energy procurement at agreed input bid price
Retail Revenue collected from end-customers
Feeder Level
Madhya Pradesh
Feeder Level Loss Reduction
Haryana FeederDistribution Associate
•MBC•Minimize AT&C losses•Resolving complaints
Energy Services Companies, Infrastructure Companies
Input energy procurement at agreed input bid price
Retail Revenue collected from end-customers + incentive on arrears
Aggregated Customer premises e.g. Commercial Malls, Residential Townships, IT Parks,Industrial SEZ,Airports, Educational Institutes,Hospitals
Maharashtra Interim / Mini Franchisee
• Capex• O&M• MBC• Loss reduction
Real Estate Developers Payment from revenue collected from end-customers
5% sharing from Revenue Collection + Min charge for MBC for each customer
UPPCL/ NPCL Bulk Power supply
Real Estate Developers/RWA
Payment for single pointinput metered supply
Arbitrage of retail collected Revenue from bulk purchase
Haryana Bulk Power Supply
Real Estate Developers/GHS/RWA
Payment as per point input supply
Rebate of 4%/5%, in case of power supply at 11kV or higher voltage respectively
Punjab Single Point Delivery
Real Estate Developers/RWA
Billing on one point supply at the highest slab rate applicable of Domestic supply for residential purpose
Rebate of 12% forDomestic supply and 10% for Commercial
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Interim Franchisee Model providing Single Point Delivery of Electricity to Aggregated Customer Premises have emerged as new opportunity for Private Developers or Owners
What is Interim Franchisee model?
• Model Mapping– Applicable to aggregated Real estate Developers
serving multiple customers within a premise, and already invested in all Electricity infrastructure
– The premise receives single point delivery of power supply. The Developer additionally take upon servicing Electricity Distribution Utility functions like O&M, Metering, Billing, Collection etc. on behalf of Discom
– The Developer could engage in other Value Add Services (VAS) like Backup Power supply through alternate power sources
• Revenue Model (for Developers)1. Management Contract with DISCOM to support
retail MBC and loss reduction within premise. Two options:i. Pre-agreed % Revenue sharing from realized
collections (at regulated tariffs) after allowing deduction for agreed loss levels
ii. Arbitrage between input bulk purchase price and retail distribution tariffs across different supplied consumer categories
2. Additional separate contract with individual end-customers for backup power supply
What activities by Interim Franchisee Operator?
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•Capex investment in Power Distribution Infra within premise (transformers, lines, meters, cables etc.)
1•Periodic Meter reading at customer premises2
•Periodic Bill generation and distribution3
•Periodic payment Collection and payment to DISCOM for power sourcing4
•Regular O&M of electricity network5•Can provide backup power during Load Shedding6
In one way, Interim Franchisee is smaller variant of Input Based Distribution Franchisee model. It is getting promoted in new building areas, and Developers are encouraged to add service component to their already invested electricity infrastructure. Here also, energy units are purchased at one point, and revenue collected from customers at ERC regulated tariffs only. All between from input to consumption to revenue realization has to be managed by the Developer.
There is definite scope for competent providers to service private developers/ owners across customer services, O&M, backup power supply provisioning and loss reduction. Current provider space in this model is scattered.
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Shows typical process flow of Single Point Delivery model. All vendor activities integration and better customer facilitation will give rise to strong Interim Franchisee operations.
DISCOMInfra
Developer
C1
C2
C3
Customer Society or
Association(RWA/ GHS)
• Metering• Billing• Collection
• Operation & Maintenance
• Backup Power Supply & MaintenanceCn
V1
V2
V3
Key
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Key
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33kV / 11kV
Pow
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Pro
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New Technology Providers (Ex. Smart Meters, EE, RE, OA, RPOs)
Stakeholders and Role/Activities Mapping
Number of IF models state wise
Maharashtra
Nearly 25+ models (mostly from Pune)
Uttar Pradesh
Nearly 50 (~15 owned by RWA and remaining
by Developers)
Haryana
Multiple residential colonies
HERC has mandated the model for 20 or more
flats in one society
Punjab
Residential Colonies and commercials places like
malls, etc (in Chandigarh, Zirakpur
area)
Others
Kerala state (Thrissurmunicipality, Kannan
Devan, KINFRA, Technopark and the
Cochin Special Economic Zone (CSEZ))
The Interim Franchisee model with its variants is currently active and functional in 4+ states and is picking traction. Haryana Regulator has mandated the Single Point Delivery model to all new and old Housing (plus Commercial) Societies with 20+ connections. (This is indicative of good market opportunity as RWAs seek competent and integrated provider’s support)
• The model is currently active operational in 4 states namely Maharashtra, Uttar Pradesh, Haryana and Punjab
• It is also partially applicable in other states like Kerala, etc
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Supply power at Single Input Points
Joint Meter reading at Input Point for Energy Audits
Bill generation for end-customers
Discom Metering, Bill collection from Discom & distribution to customers, Collection
O&M of network
Developer
Maharashtra - Interim/Mini Franchisee Model Overview – (Slide 1 of 3)
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Model Objective - With a view to reduce AT&C losses, improve customer service and collection efficiency in multi-storey buildings, MSEDCL has appointed Mini Franchisee by signing MoU with the developers.
Business Model
MSEDCL shall provide power supply at single points to the Franchisee (Developer) having load more than 2MVA. Franchisee should develop and maintain an efficient and economical distribution system in his area of operation to meet the standards prescribed by MSEDCL and MERC.
Model Characteristics
• Current Status – 3-4 developers are active, out of 25+ developers. Others are in different stages of agreement with MESDCL and initial gestation.• Model Operating since –2012 • Contract Tenure – Started with 1 year contract followed by extension each year till 2014• Compliance by DISCOM –Not mandatory
Target Customers
• Urban Township or Colonies with 100+ connections• SEZ • IT Park / STPI • MIDC / CIDCO• Rural/Hilly areas having scattered network
Sco
pe
Rev
enu
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el• Retail tariff collected from end customers (after deducting performance fee share with Developer)• Max. Distribution loss allowed is 4-5% measured w.r.t input check meter. Any additional loss is charged separately at avg.cost of supply.
• DF shall be paid separately for meter reading, billing and collection• O&M charges as 3-5% of normative revenue collected , excluding add-ons such as FAC, ED, etc
Case Study 3 - Commerzone, Raheja Corporation, Pune, Maharashtra
Overview
• Area Characteristics– 4 individual buildings with
multiple IT/ITeS companies– Load is approx. 15-17 VA/sq ft.
(Green Building standards for IT park is 12 VA/sq ft.)
• Maintenance– Individual IT companies
requires complete maintenance across utilities like electricity, water, back up power supply, etc. The developer supports all these under AMC.
Performance
• Key Challenges faced by Developer– From DISCOM side
• ‘Dual Source Energy Meter’ are not allowed to be installed by MSEDCL
• Maintenance of electrical network outside the premise, from where the supply is coming into the complex (In this case, the developer is receiving supply from ~8km long lines. MSEDCL is not making this point clear, as to who will maintain this network cost. Developers says, it is Govt responsibility)
– UPS power back of desktops in IT parks affects the performance of transformers
– In-house technical team carries all the activities and solve customer complaints
– DG running and maintenance cost is considerable, and some alternative cheaper backup solution is being looked upon.
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Full functional IT park. Extension getting added.
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