Wednesday, December 3, 2014

A potential remedy for Transmission and Distribution Losses in India

Transmission and Distribution Losses - roughly measured as the difference in power produced and legally consumed - have been a thorn in the Indian electricity system. As of 2011, India had amongst the worst T&D losses among the BRICS as well as its neighbors.

The country loses more than a fifth of the power it generates due to these losses, which further exacerbates its power crisis. These losses are caused due to 2 main reasons:

Technical Losses: electricity lost in transit due to unavoidable physical reasons as well as avoidable infrastructure-related reasons. These are:

overloading of existing lines and substation equipments
usage of insufficient/inadequate infrastructure

Commercial Losses: electricity lost because of theft or defective meters

The discussion in India about how to reduce these losses is largely centered largely around stopping electricity theft and using more modern infrastructure like smart-grids, in order to enhance load-balancing. But there is another, though often overlooked, reason for T&D losses - the lack of transmission lines.

T&D Losses vary significantly across states (2011)

Source: Planning Commission (goo.gl/23RIkk). Data for Delhi and Orissa was not available.

T&D losses vary significantly across states, and are very strongly related to the length of transmission lines in the state, relative to its area. The correlation coefficient between T&D Losses and log(transmission line length per square kilometer) is -0.72, which is extremely strong by socio-political standards. The corresponding p-value is less than 0.001, indicating strong significance.

It's important to realize that correlation does not necessarily imply causation, and we must be careful about taking quantitatively sound relationships that do not have any logical basis too seriously. But in this case, the correlation seems to make sense. More circuit lines per square kilometer would likely lessen the load on individual lines, which will reduce T&D losses (losses increase exponentially with the current flowing through lines). At the same time, overloading in one area would not have extreme effects in other areas if the line network is well distributed.

The fall in T&D losses seems to be particularly steep on the left side of the graph. This indicates that investment in additional transmission lines in states that currently do not have sufficient transmission lines (which include Bihar, Uttar Pradesh and Madhya Pradesh) might reduce their T&D losses substantially.

However, minimal investment has been made in these states in recent years. No additional lines were installed in UP from 2005-06 to 2011-12, while they only grew at annual rates of 1.2% and 4.2% in MP and Bihar respectively, over the same period.

For a more detailed overview at the length of transmission lines relative to a state's area, take a look at the map below. Darker regions imply fewer transmission lines relative to area. Data taken from MOSPI.

Building new transmission lines is an expensive proposition, and the government is likely trying to invest in cheaper alternatives to reduce T&D losses like smart meters and smart grids first. These will surely help reduce pilferage, but until the fundamental problem of inadequate infrastructure is resolved, these changes will have a limited impact.

With the country's account balance set to receive a boost due to lower oil prices, and it's increased attractiveness to investors under PN Narendra Modi, perhaps now would be a good time to raise and/or set aside capital for investment in transmission lines.