The Government of India’s Smart Meter National Program (SMNP) aims to replace 25 crore conventional electricity meters with prepaid smart meters¹ and upgrade power distribution infrastructure, including feeders and transformers.

The project, involving a capital expenditure estimated at Rs 1.5 lakh crore, is expected to be implemented over the next five fiscals and should improve the operational and financial profile of distribution companies (discoms).

Further, the features of SMNP 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.

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. Such an upgrade will also help reduce the distribution losses of discoms.

Under SMNP, each state discom divides the area under its control/ jurisdiction into circles and awards them to private concessionaires, which will undertake infrastructure upgradation by 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. They will also receive a grant from the Centre for each smart meter installed.

Says, Ankit Hakhu, Director, CRISIL Ratings, “At an average price of ~Rs 6,000 per smart meter including ancillary costs², SMNP is expected to provide a Rs 1.5 lakh crore capex opportunity in India’s power distribution landscape. Since smart meters are prepaid, their roll-out will improve the collection efficiency of discoms. There will also be support in the form of grants of up to Rs 1,350 per smart meter³ from the Centre, which will improve the financial profile of discoms.”

To ensure a smooth rollout, smart meter project contracts have been standardised. They have features that enhance bankability by de-risking typical issues encountered during implementation.

For example, features include modularity in capex, i.e., allowing commissioning of projects for as low as 5% of their overall scope, which enables receipt of cash flows on a pro rata basis. That reduces the intensity of risk during the implementation stage. Further, with projects likely to be funded majorly by debt, the modularity feature allows for the debt to be disbursed on a piecemeal basis aligned with the commissioning pace and thus backed by cash flows. This lowers the debt servicing risk.

Says Varun Marwaha, Associate Director, CRISIL Ratings, “Another notable innovation of the SMNP programme is the requirement of a direct debit facility (DDF) under which all online payments from the consumers of discoms get deposited in the DDF account. From this account, annuity payments to the project’s bank account is prioritised. This reduces the risk of payment delays or non-payment from the discoms to projects, one of the key risks in the power sector.”

But the program is not without challenges. Aggression in bidding and the resultant impact on credit quality of projects bears watching. This is because lower cash flows against debt taken for financing capex can reduce expected debt service cushions and hence credit quality. Also, the Rs 1.5 lakh crore capex projection remains sensitive to aggression in bidding and pace of award to private concessionaires.

¹ Electricity meters that record consumption in real-time and are connected to central systems through the internet. With these meters, users and discoms can track and monitor electricity usage and billing accurately.
² These include transformers, feeders, network monitoring center and other distribution system upgrades.
³ Grants from the central government vary from Rs 900 to Rs 1,350 per meter depending upon categorisation of state and additionally incentives for early implementation of SMNP.