IMPLEMENTATION ISSUES IN DSM APPLICATIONS AND OUT SOURCING

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					                    Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
                         Distribution Reform, Upgrades and Management (DRUM) Training Program




                   IMPLEMENTATION ISSUES
                                               IN
                      DSM APPLICATIONS
                                            AND
           OUT SOURCING POWER SERVICES




                                      PREPARED BY




     ENERGY ECONOMY & ENVIRONMENTAL CONSULTANTS
          #506, 15TH CROSS, INDIRA NAGAR II STAGE
                      BANGALORE 560 038
                    PHONE: 080 – 25213986 – 89, FAX: 080 – 25259172
                           EMAIL: mail@3ecindia.com




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                                      Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
                                           Distribution Reform, Upgrades and Management (DRUM) Training Program


                                                         Table of Contents

1.     Introduction ............................................................................................................... 1
2.     Energy Service Company (ESCO) .......................................................................... 2
     2.1      What is an ESCO? ............................................................................................ 2
     2.2      Opportunities & constraints of the participants in the ESCO model .................. 2
     2.3      Available ESCO models ..................................................................................... 3
     2.4      Need for ESCO ................................................................................................... 5
     2.5      Sources of funding in an ESCO model ............................................................... 5
     2.6      Example of ESCO working ................................................................................ 6
     2.7      Benefits to the customer from ESCO model....................................................... 6
3.     Improving Efficiency in Utility – Role of ESCOs .................................................. 7
     3.1      ESCO and Electricity Utility; ............................................................................. 7
     3.2      Typical urban distribution problems: .................................................................. 9
     3.3      Typical Rural Distribution Problems: ................................................................. 9
     3.4      ESCOs and Customers: ..................................................................................... 10
4.     Gubbi Project- A Case Study of ESCO’s involvement ........................................ 12
     4.1      Introduction ....................................................................................................... 12
     4.2      Implementation plan ......................................................................................... 12
     4.3      Project Economics – Investment Estimate ........................................................ 14
     4.4      Salient Commercial Points of Agreement......................................................... 17
     4.5      Post Implementation Issues In DSM: ............................................................... 18
5.     Out sourcing Power Services and the concept of Franchisees ............................ 19
     5.1      Grama Vidyut Prathinidhis: .............................................................................. 19
     5.2      Franchisees for Commercial operation: ............................................................ 21
     5.3      Input and Investment based Feeder franchisee. ................................................ 23
       5.3.1         Objective: .................................................................................................. 23
       5.3.2         Benefits to stakeholders from the scheme ................................................ 23
       5.3.3         Role of Stakeholders ................................................................................. 24




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                           Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
                                Distribution Reform, Upgrades and Management (DRUM) Training Program




        IMPLEMENTATION ISSUES IN DSM APPLICATIONS AND OUT
                   SOURCING POWER SERVICES


1. Introduction

Government of India has taken up poverty alleviation in rural areas as a major economic
development priority. It is increasingly recognized that the provision of reliable, sustainable,
commercial energy, particularly electricity, to rural population is critical to addressing this issue.
The Electricity Act 2003 and consequent ongoing reform process in the electricity sector has
clearly outlined the importance of Rural Energy Service component. Hence it is very essential to
formulate programs that enhance the environment for improving rural energy supply. However
the following aspects, though not exhaustive, have to be taken into account as the basic pre
implementation issues.

   i.    For any model to be developed for rural electricity supply service has to take into account
         the inherent difference between rural and urban electricity supply. Design of new
         regulatory entities is required to overcome this difference.
 ii.     Appreciation and consensus has to be built on the need to provide for rural electricity
         supply within new and revised Electricity Act and Regulatory commissions.
 iii.    Different models for rural electricity services have to be compared and communicated to
         policy makers and stakeholders duly brining out the advantages and disadvantages of
         each model.
 iv.     The approaches, resource requirements and advantages of decentralizing rural electricity
         supply regulations have to be clearly understood by all concerned.
  v.     Incentive based tariff has to be developed for rural electricity supply.
 vi.     Rural electricity suppliers have to be encouraged to undertake other related businesses
         and services simultaneously.

Further, assistance of the following nature is also required for the proper take off of the model
rural electricity supply entity.

   i.    Facilitate information exchange between different rural energy supply programs across
         the country.
 ii.     The policy makers and financial institutions should promote all options such as
         franchising and rural cooperatives.
 iii.    Rural electricity suppliers should be encouraged to form apex organizations.
 iv.     Rural electricity financing mechanism should be simplified through rural development
         banks.
  v.     Subsidies for rural energy should be remodeled with different approaches to suit the
         particular environment.




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                             Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
                                  Distribution Reform, Upgrades and Management (DRUM) Training Program




2. Energy Service Company (ESCO)
2.1 What is an ESCO?

An ESCO is a company engaged to improve the energy efficiency of a facility, with the
guaranteed energy savings arranging for the capital investment required to implement
improvements.
ESCO examines the facility, evaluates the level of energy savings that could be achieved.

Chart 1: ESCO Model

                        Financial Institution



  DISCOM                                                              Manufacturer




                                  ESCO


                     Money                                                Guarantee


2.2 Opportunities & constraints of the participants in the ESCO model

 Opportunities                                                 Constraints
 Industry
 Huge potential for saving                                     Unaware about Energy Efficiency
 Investment capital available                                  Engineers unaware of finance
 Reduction in cost of production                               Finance managers unaware of engineering
 Increased competitiveness and market share
 Financial Institutions and Banks
 Large capital available                                       Lack of sound projects from industry
 Search for safe and profitable investment                     Lack of Assurance of guarantees from ESCO
 Search for performance guarantee                              Risk averse

 Consultants (ESCO) / Manufacturers
 Knowledge of technologies                                     Lack of capital for investments
 Awareness of Energy Efficiency projects                       Lack of balance sheet

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                             Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
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 Opportunities                                                 Constraints
 Financial attractiveness                                      Lack of capacity of guarantee




2.3 Available ESCO models

a) Partnership between ESCO & Financial institution
Chart 2: Partnership between ESCO & Financial institution


 DISCOM                                                         Manufacturer




                         FI + ESCO


                 Money                                                Guarantee

Weakness - FI is dependant on ESCO


b) Partnership between ESCO & Manufacturer
Chart 3: Partnership between ESCO & Manufacturer



 Industry
 DISCOM
                                                                   Financial Institution




                              Manufacturer
                                 + ESCO


                     Money                                                   Guarantee



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                         Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
                              Distribution Reform, Upgrades and Management (DRUM) Training Program



Weakness - ESCO is being tied up to a Manufacturer, Willingness to take risk




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                              Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
                                   Distribution Reform, Upgrades and Management (DRUM) Training Program



c) Partnership between ESCO & Industry

Chart 4: Partnership between ESCO & Industry



 Manufacturer                                                      Financial Institution




                                  DISCOM
                                  + ESCO


                      Money                                                  Guarantee


Weakness - ESCO & Industry can be tied up to only one deal


2.4 Need for ESCO

An ESCO is required to address the following issues.
 Technical risk
 Project financing
 Guaranteed savings
 Expertise
 Environmental benefits



2.5 Sources of funding in an ESCO model

Once the project costs have been determined, and the level of savings agreed, the ESCO needs to
establish the source, determine the applicable terms, and establish whether project financing can
be structured to meet the requirement.

The different types of funding in an ESCO model are listed below
    Direct financing provided from the balance sheet of the ESCO (rarely done)
    Third party financing: leveraged by ESCO, equipment suppliers or leasing firms
    Direct financing by the customer using traditional sources of project funds




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                             Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
                                  Distribution Reform, Upgrades and Management (DRUM) Training Program




2.6 Example of ESCO working
Step 1: Customer Pre Qualification (Basis: Profitability / Accumulated Resource Etc.)
Step 2: Walkthrough Audit (Basis: Approximate savings, Investment & payback etc.)
Step 3: IGA (Investment Grade Audit) (Basis: Fine detail on energy consumption practices)
Step 4: Agreement on Performance Contracting (Basis: M & V Protocol, Cash Flow, Financial
Agreement)


Energy Bill                          - 1.5 Crore per year
Preliminary Energy Audit             - Savings potential identified as 45 Lakh Rs.
Investment Grade Audit               - Confirms 40 Lakh Rs.
Investment                           - 45 Lakh Rs. (to be serviced in 3 years)
Interest                             - 15 Lakh Rs.
Total                                - 60 Lakh Rs.

                       Normal case           Below normal case                     Abnormal case


 Years                  1    2        3         1           2            3          1       2          3
 Savings               40    40      40        30          30            30         15     15         15
 Repayment             20    20      20        20          20            20         20     20         20
 Profit                20    20      20        10          10            10         0       0          0
 ESCO                  10    10      10         5           5            5          -5     -5          -5
 Customer              10    10      10         5           5            5          0       0          0


2.7 Benefits to the customer from ESCO model

   Technical and financial risks are shifted from customer to the ESCO
   The payment to the ESCO are contingent, to varying degrees, upon the level of energy
    savings achieved
   The customer may not be required to make an up- front capital investment (if the contract is
    structured as an operating lease or if the ESCO provides direct financing)
   If you are required to borrow funds, the loans agreement can be structured such that the
    guaranteed savings stream will exceed the loan repayment obligations, producing a positive
    cash flow and resulting in immediate and real benefits from the project
   Outcomes are guaranteed by ESCO




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                           Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
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3. Improving Efficiency in Utility – Role of ESCOs

An Energy Saving Company (ESCO) is a company with an objective of analyzing the existing
methologies in any process and attempt to improve the energy efficiency of a facility, with the
guaranteed energy savings thereby inducing considerable savings to the utility as well as to the
end consumers.

The Energy service company has a big role to play in the power sector where unbounded
opportunity exists with many potential areas for exploration of energy saving incommensurate
with the economic feasibility.

3.1 ESCO and Electricity Utility;

The power sector has expanded enormously over the last three decades and especially the rural
network has assumed unmanageable proportion. Coupled with this there is considerable
reduction in the manpower to manage such a huge network.

The main causes of the energy losses on the utility side are non-standard and antiquated
distribution engineering practices, inefficient and overloaded distribution equipment, faulty and
poor maintenance practices, insufficient investment in system upgrade, faulty meters and poor
commercial management and accounting practices.

At the consumer end, problems leading to avoidable energy and revenue losses are lack of
meters, prevalence of flat rate tariffs over metered tariffs, non payment, theft, illegal connections,
a lack of consumer education in the rural sector, rampant political interference and inefficient
electricity usage.

The rural sector is very different from the urban sector mainly due to differences in the consumer
profile, rural energy end use practice, flat tariffs, lack of meters and collections, a lack of
institutional infrastructure, political interference, (particularly in the farming sector now
spreading to domestic sector also) and a lack of consumer education and participation in
electricity distribution.

Many ESCOMs as, could be seen from the below graphical illustrations, are predominantly rural
based utilities. Thus they require a different and innovative approach.




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                            Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
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Chart 5: Category wise Profile of a typical RURAL based DISCOM


               CATEGORYWISE CONSUMER PROFILE OF A TYPICAL RURAL BASED
                                      ESCOM

                                 LT7
                                0.17%       HT
            LT5          LT6
                        0.79%             0.03%
           1.88%
                                            LT1 - BJ
                LT4
                                             15.40%
               14.26%
                                                                               LT1 - BJ
                                                                               LT2 - a&b
        LT3                                                                    LT3
       6.64%                                                                   LT4
                                                                               LT5
                                                                               LT6
                                                                               LT7
                                                                               HT




                                        LT2 - a&b
                                         60.83%

Chart 6: Category wise Consumption of a typical RURAL based DISCOM
Error!




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                                    Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
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              HT-           I and A forms &          HT
              Industrial
                 7.855      LIS 0.362                4
                                                   0.330             LT
                 %               % HT-             %        BJ/K
                  LT      HT                                         2
                                                                   15.062
                                    Commercial
                                       0.951                J
                                                           2.256
                  7       1
                0.176 2.330                                        %
                                       %                   %
                %        %
              LT
               6
             2.602                                                             BJ/K
             %                                                                 J
                                                                               LT
                                                                               2
                                                                               LT
                                                                               3
                                                                               IP
           LT                                                                  Set
                                                                               Water
           5
         4.956                                                                 Supply
                                                                               LT
         %
       Water                                                                   5
                                                                               LT
       Supply
         2.196                                                           LT    6
                                                                               LT
         %                                                               3
                                                                       3.025
                                                                               7
                                                                       %       HT
                                                                               1
                                                                               HT-
                                                                               Industrial
                                                                               HT-
                                                                               Commercial &
                                                                               I and A forms
                                                                               LIS
                                                                               HT
                                                                               4




                                                  IP
                                                  Set
                                                 57.899
                                                 %




3.2 Typical urban distribution problems:
              High commercial losses.
              Poor distribution network maintenance leading to high technical losses, poor voltage
               profile, overloading of lines and distribution Transformers.
              Faulty meters at consumer installations and inadequate metering at DTC level for
               effective energy audit.
              Un-served and dissatisfied consumers, erratic billing and billing cycle and poor
               trouble call management.
              Poor management and lack of Employee performance Incentives.

3.3 Typical Rural Distribution Problems:
Apart from the problems of urban distribution enumerated above rural consumers have certain
additional and unique problems that can be summarized as follows:

   Retail tariffs are significantly lower than cost of electricity supply making rural electric
    supply economically unviable.
   Poor collection efficiency mitigates the problem further.
   Poor collection efficiency is further affected by the frequent changes in the policy regarding
    revenue payment by IP set/BJ/KJ consumers and excessive interference at all levels leading
    to attitudinal changes in rural consumers in non-payment of electricity bill for even domestic
    and other categories.


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   Consequently quality and reliability of supply is poorer than urban areas.
   Lack of social infrastructure and rural energy delivery mechanisms closest to the consumer
    makes rural consumers dissatisfied and resulting in a lack of confidence in the utility.
   Incidence of theft through illegal connection is generally higher resulting in higher
    commercial losses.
   Excessive political interference necessitates providing low cost or free electricity at remote
    locations with low demand density.

Thus in both urban and rural scenarios the Energy Service Companies have a big role to play in
mitigating the problems of power sector and to make it economically and commercially viable.

3.4 ESCOs and Customers:

As pointed out earlier the problems in urban and rural sectors of the power sector are quite
different. Consequently the Energy service provider also has different opportunity and roles to
play in the two areas.




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Urban Sector:

Here the Energy Service Providers has to mainly concentrate on the possibilities of reduction of
Technical and Commercial Losses caused by the following contributing factors.
   i. Faulty and MNR metering: inadequacy of manpower and non-availability of funds have
       made the utilities to respond very slowly to this problem. The ESCOs can intervene to a
       extent to reduce the losses attributable to this cause.
  ii. Expansion of distribution network without proper planning and engineering. The ESCOs
       can take the partnership of major consumers in urban areas and mitigate this problem
       with investment proposals. Urban feeder franchising involving consumers can be resorted
       to.
 iii. The ESCOs can facilitate the setting up of Call Centre culture in urban areas so that there
       is a proper grievance redressal mechanism for the consumer complaints in the urban areas
       thus increasing the reliability of supply and reducing the number of un served and
       dissatisfied consumers.

Rural Sector:

Apart from the tasks related to urban sector the ESCOs have to contend with more complex
additional social problems due to the problems narrated above and the details of tasks are further
elaborated in the following paragraphs.

In the context of the complexities of rural electricity service as explained above the role of the
Energy service providers becomes very critical for the success of rural electricity service.

   In initial stages ESCOs has to educate the village people about benefits like good quality of
    power, reliability and increased supply hours
   ESCO can set up a team in the villages itself for collection so that collection efficiency can
    be improved.
   Lack of social infrastructure and rural energy delivery mechanisms closest to the consumer
    makes rural consumers dissatisfied and resulting in a lack of confidence in the utility.
   Incidence of theft through illegal connection can be avoided by a close monitoring system
   Expansion of distribution network without proper planning and engineering. The ESCOs can
    take the partnership of major consumers and mitigate this problem with investment
    proposals.




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4. Gubbi Project- A Case Study of ESCO’s involvement


4.1 Introduction
3EC proposes a Rural Energy Efficiency Model at Gubbi Taluk in Tumkur District in Karnataka.

The Project “Gubbi” is a small commercial pilot project being launched in Karnataka to optimize
the Agricultural Distribution System to minimize line-losses, improve supply quality and
improve pump-set energy efficiency. The project envisages a model wherein all the partners
involved will have a win win situation. The project will provide considerable savings in energy
to the power utility thereby increasing the financial viability of the power utility by increasing its
realization per unit of energy sold.

The rural based consumers especially the farm community will get better quality of electricity
with high reliability thus improving their agricultural produce. This will also enhance the rural
economy considerably.

The total consumption is expected to reduce from 95 MU to 66 MU per annum with total
investment of 47 Crore Rs. (US$ 9.6 Million) with payback period of 5 years including soft cost
for design, engineering, energy audit, implementation, NGO intervention etc.

The Pilot project is proposed to be implemented in a very representative area involving typical
consumer base, social topography, load profile, crop pattern and technical and commercial losses
on the net work and utility related parameters mainly the billing and collection efficiencies.

About 36 Million units of electricity will be saved by the project and this will reduce about 0.1
million Tons of CO2 equivalent GHG emissions per annum. The project has an immense scope
for scalability and replicability given the generic nature of the distribution inefficiencies. With
the help of CDM revenue implementation of the project in large scale would be more viable.

M/s. Energy Economy and Environment Consultants will implement the project.
4.2 Implementation plan
The following paragraphs briefly discuss the barriers involved in both the network efficiency
improvement and the demand side (pumpsets) efficiency improvement.

(BESCOM still not signed the agreement detailing the duties, responsibilities and payment terms
in order to proceed toward implementation. Moreover government policy on CERs sharing might
significantly affect the CER revenue estimated by project developer. As the revenue generation
and energy saving potential is linked to the number of hours of supply in the feeder with the
variation of the same IRR will vary significantly)



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(The remote load management is a new concept; achieving the predicted energy savings can face
difficulties and utility may not pay to 3EC, project developers share. Prediction of now a day‟s
weather is also very difficult. If the villagers get heavy rain, pumpsets will be of no use & energy
saving will reduce significantly and the pumpsets users might not pay to 3EC. Moreover day-by-
day ground water level is decreasing. With addition of any drought problem will aggravate the
ground water scarcity problem, which will lead to no usage of pumpsets, however efficient it
might be. Lack of economic signal for improvement for pump: Since the tariffs for pump sets are
based on capacity and not on units consumed, it does not encourage investor to invest in buying
new pumps.)

An MOU was signed between BESCOM and 3EC for
    Technical & Commercial loss reduction
    Better metering, billing & realization
    Improved Operation & Maintenance practices

Other Improvements
    Continuous (24 hrs) supply to all paying consumers
    Regulated supply to pumpsets
    Good quality & reliability of power supply

The Concept of loss reduction
    HT loss reduction through bifurcation and replacement of conductors
    LT loss reduction by extending 11 kV near to loads & install 15/25 kVA transformers for
      a group of 3-4 pumpsets
    Setup comprehensive metering & control system for remote load management for better
      control
    Pump set loss reduction through replacement of inefficient pumps by smaller efficient
      units

Remote Load management
   Objectives
    Continuous (24 hrs) supply to all paying consumers
    Regulated supply to pumpsets

   Methodology
    Categorization of loads into metered (lighting, commercial, village water supply) &
      pumpsets
    Install control equipment (at MUSS & pump set DTC) to facilitate remote switching of
      pumpsets
    Provide separate transformers for lighting & other metered consumers




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4.3 Project Economics – Investment Estimate

Description                                                       Lakh Rs.
1. Transformers                                                   106.1
2. Line conversion                                                38.3
3. Meter                                                          43.8
4. HT Modifications                                               22.9
5. Strengthening                                                  12.5
6. Miscellaneous                                                  2.2
7. Injection transformer & accessories                            15.0
8. Total (Lakh Rs.)                                               240.8
9. Released material (transformer, conductor)                     -17.0
10. Net investment                                                223.8

Benefits from High Voltage Distribution system

                                                           Existing            After modifications
Sent out                                                   8.2 MU              5.7 MU
IP set consumption                                         4.2 MU              4.2 MU
Metered consumption                                        1.2 MU              1.2 MU
Total Losses                                               2.8 MU              0.3 MU
Technical losses                                            2.0 MU              0.3 MU
Illegal consumption during single phase                     0.8 MU              - MU
Energy savings                                                                 2.5 MU
Monetary savings                                                               54.8 Lakh Rs.


Investment                                                 223.8 Lakh Rs.
Saved energy through Loss reduction                        54.8 Lakh Rs.
Improvement in Billing & Collection                        6.7 Lakh Rs.
Total Benefits                                             71.5 Lakh Rs.
Simple Payback                                             3.2 Years

Pumpsets under G Hosahalli Feeder

Number of pumpsets            709
Average capacity              4.7 kW
Pump set consumption          4.2 MU* annually
Average efficiency            21%



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Pump set efficiency summary

Efficiency                     Nos
Less than 10%                  90
10% to 20%                     155
20% to 30%                     155
> 30%                          54

Chart 7: Pump set efficiency summary


                     Summary of efficiency of pumpsets

       Greater than 30%                                                  less than 10%
           efficiency                                                       efficiency
            (12%)                                                            (20%)




    Efficiency b/w
                                                                              Efficiency b/w
     20% to 30%
                                                                               10% & 20%
        (34%)
                                                                                  (34%)




Investment Scenario for replacement of Pump Sets

1. Replacement of Pump set 5% - 10% efficiency

 Average rating                5 HP
 Average efficiency            7.5%
 Efficiency of EE pump         45%
 set
 Calculated power of EEP       0.83 HP
 Rating of EE pump set         1 HP
 Demand savings                4 HP
 Energy savings*               4476 U/Year
 Monetary savings*             Rs. 13,428/year
 Investment*                   Rs. 25,000
 Simple payback                1.9 Years


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2. Replacement of Pump set 10% - 20% efficiency

 Average rating                5 HP
 Average efficiency            15%
 Efficiency of EE pump         45%
 set
 Calculated power of EEP       1.7 HP
 Rating of EE pump set         2 HP
 Demand savings                3 HP
 Energy savings*               3357 U/Year
 Monetary savings*             Rs. 10,071/year
 Investment*                   Rs. 25,000
 Simple payback                2.5 Years

3. Replacement of Pump set 20% - 30% efficiency

 Average rating             5 HP
 Average efficiency         25%
 Efficiency of EE pump      45%
 set
 Calculated power of EEP    2.8 HP
 Rating of EE pump set      3 HP
 Demand savings             2 HP
 Energy savings*            2238 U/Year
 Monetary savings*          Rs. 6,714/year
 Investment*                Rs. 25,000
 Simple payback             3.7 Years

* Annual operating Hrs-1500, Tariff - Rs. 3/kWh, Investment per pump set - Rs. 25000

Summary of Replacement Options

Category       Nos     Energy saved Monetary savings Investment Payback
                       (MU)         (Lakh Rs.)       (Lakh Rs.) (Yrs)
1 - 10%          142       0.64           19.1           35.5      1.9
10% - 20%        241       0.81           24.3           60.3      2.5
20% - 30%        241       0.54           16.2           60.3      3.7
Total            624       1.98           59.6          156.1      2.6


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                          Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
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4.4 Salient Commercial Points of Agreement

   BESCOM to pay 3EC 5% of project cost every year of lease period towards O & M
   BESCOM to pay 3EC a one time payment of 5% of project cost towards supervision of
    implementation

Benefit sharing of additional revenue realization on the following basis

 Category                 BESCOM            3EC
 Metered category         60%                40%
 Unmetered category       50%                50%

   3EC will invest and install energy efficient pumpsets
   BESCOM to support this activity with Rs. 3000/IP as grant to meet marketing expenses
   BESCOM to pay 3EC at Rs. 2.50/unit of saved energy from pump set replacement for a
    period of 8 years
   The duration of the franchisee agreement will be 10 years

Lack of enforcement on restricting the pump size to its capacity has encouraged the pump set
owners to rewind the pumps for a higher size thus drawing higher than sanctioned capacity
thereby loading the network. This also does not encourage deployment of more efficient pumps.
It is difficult to make the farmers agree to have their pumps replaced, as it requires repeated
efforts to make the farmers fully conversant to the objectives of the project. Social opposition is
expected for metering of power supply at pump level. But there will not be that much opposition
for metering at transformer level.

As the components of technological interventions are locally available regarding project
implementation there is no foreign exchange risk, but as the CER generated from the project
would be traded internationally, CER revenue in local currency may be subjected to fluctuations
- hence a high risk for return on investment.

Remedial measures:

Mitigation of all the above-mentioned risks is in need of the following:
 More efforts to be put to get the State Electricity Board (SEB) to agree for projects of this
   nature.
 It has been realized that without private investment CDM will not take place. So, efforts have
   to be put to encourage private sector participation in projects of this nature.
 Speed up the approval procedure


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                         Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
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   Make a minimum floor price and if necessary a maximum ceiling price each year to ensure
    decent returns and to mitigate market risk of CERs due to fluctuation of CER price.

4.5 Post Implementation Issues In DSM:

Apart from the difficulties indicated above the following post implementation issues are involved
in the DSM Application of the type of Gubbi case elaborated in the previous paragraph.

   The farmers owning the IP Sets will have reservations about the intention of the agencies
    carrying out such schemes and they may feel that some obstructions are being put in their
    free and abundant usage of water and electricity.
   An attitudinal change has to be brought in the farming community by educating them in a
    systematic fashion as to the advantages of such schemes. Experts in the field of electricity
    and psychological experts have to be utilized for the purpose. Local leaders and NGOs
    should be involved for the purpose.
   Agencies involved in the supply of IP sets and also in the repairs and rewinding works will
    also feel the infringement in their regular income source.
   These agencies should be involved as partners in the scheme to remove the fear from their
    minds.




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                           Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
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5. Out sourcing Power Services and the concept of Franchisees

The ESCOs have certain limitations in operating continuously at a particular location, which will
limit their scope to a large extent since they have many other roles to play in the overall energy
sector scenario. After the initial introduction of the particular model suiting the particular area
with its own characteristic features ESCOs have to find some alternative entity to take over the
operation. The alternatives can be a cooperative society formed at the village/group of villages‟
level, franchisees with required background that are willing to take up the responsibility.

In this context it is appropriate to quote the relevant section of the Electricity Act 2003.

    Section 5 of the Electricity Act 2003 states -„The Central Government shall formulate a
     national policy, in consultation with the State Governments & the State Commissions, for
     rural electrification and bulk purchase of power and management of local distribution in
     rural areas through Panchayat Institutions, users‟ associations, cooperative societies, non-
     Governmental organizations or franchisees.‟

Thus it is imperative that a suitable mechanism be put in place to take care of the rural electricity
distribution management at the earliest.

In Orissa and Karnataka States attempts have been made to bring in some sort of community
participation in rural electricity distribution. The following illustrations will lead to the final
evolution of Franchisees for rural power distribution management.

5.1 Grama Vidyut Prathinidhis:

In Karnataka the concept of Grama Vidyut Prathinidhis were introduced as a pioneering effort at
HESCOM and the same was extended to all the ESCOMs in Karnataka. The following
paragraphs give the salient features of the scheme.

    Rural power sector is not commercially viable as at present.
    HESCOM is a predominantly rural utility.
    “Grama Vidyut Pratinidhi” concept introduced in June 2003 to improve revenue.
    One-Gram Vidyut Pratinidhi per Gram Panchayat.
    Grama Vidyut Prathinidhis were selected from the same Grama Panchayat area and the
     Gram Panchayat was also involved in the process of selection.
    Minimum qualification of ITI was prescribed.
    GVP‟s main activities include Meter reading; Bill distribution and Revenue collection
     and the required training in these activities were imparted to them.
    GVP acts as one point customer care center for the rural consumers and not only solves
     many local day to day electricity problems but also initiates actions through local sub


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                                         Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
                                              Distribution Reform, Upgrades and Management (DRUM) Training Program



     division of ESCOM system improvement works to solve major problems like providing
     additional Distribution transformers to reduce overload, improve voltage profile etc.
    GVP also facilitates the reduction of unauthorized users of electricity with the help of
     local leaders.
    An incentive based compensation package was devised for the GVPs.
    GVP with proper service satisfies customer, and thereby improves collection

   With the introduction of GVPs the following important phases were covered.
                 Phase-I: 127 GVPs in 5 Taluks- 1/06/2003
                 Phase-II: 463 GVPs in 11Talukas-1/11/2003
                 Phase-III: 757 GVPs In 23Talukas-1/04/2004
                 Total 39 rural based Taluks are covered by GVP Operation
                 Enhancement in revenue collection in rural sector achieved.

The following graphs illustrate the success level of the GVP project in HESCOM

Chart 8:Performance

                                 GVP Performance-HESCOM TOTAL

                            70
                 Millions




                            60

                            50
   Coll In Rs.




                            40
                                                                                                                  Base
                            30                                                                                    Actual

                            20

                            10

                             0
                                 April               May                June                July
                                                             Month




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                                       Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
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Chart 9: Cumulative Additional Revenue Mobilized in 39 Taluks under „Project GVP‟

                            40
                 Millions



                            35
                                                                                              33.974931

                            30


                            25
   Million Rs.




                            20                                                                                 Series1
                                                                           17.655815
                            15


                            10
                                                        8.974223

                             5
                                      3.727399

                             0
                                 April.04        May.04            June.04             July.04
                                                           Month


5.2 Franchisees for Commercial operation:

Close monitoring of GVPs for further improvement in revenue mobilization is very essential.
GVP is not a stakeholder in loss reduction.

Large network of GVPs becomes unwieldy to monitor without additional supervisory support
from ESCOMs. Since ESCOMs cannot provide additional supervisory support it becomes
imperative to have Franchisees at the intermediate stage.

The Concept of Input Based Feeder Franchisee for 11kV rural feeders was introduced purely for
commercial operation at the first instance.



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                          Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
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       Rural Distribution can be transferred to the franchisee.
       Models & incentive schemes for transfer of Distribution system to be worked out with
        different approaches.
       Certain exemptions are available to the transferee as per the Electricity Act 2003.
       In the first phase handing over of the metering, billing & collection activities are
        envisaged.
       In the final stage grid extension & undertaking of capital expenditure programs may also
        be covered.
       A Commercial Entity will take over as Feeder Franchisee
       Technical intervention in terms of Loss Reduction
       Move all Rural Feeders to IBF
       Franchisee expected to become a partner in revenue enhancement & loss reduction.
       Franchisee may use the existing GVPs services to carry out the Activities.
       IBF will monitor, Supervise and Pay the GVPs.
       GVPs will carry out Meter reading, Bill distribution and Revenue Collection activities
        under the supervision of IBF.

In the present model the payment package to the franchisee was on the line indicated below.
Though models can be devised with different structure, the present model is only an illustrative
one and further fine-tuning can be done depending on the experiences and situational
requirements.

       Meter reading and billing- Rs1.50 to Rs.2.00 per installation.
       Receipt drawn per consumer per bill-Rs 1 to Rs 2.
       Per IP Set reading Rs.5
       Replacement of faulty/MNR meter & providing meter to new installation-Rs.20/-
       Additional incentive for regularization of unauthorized installations as per prevailing
        rules.
       Additional incentive for encouraging farmers to avail the benefit of Own your
        transformer.
       Slab based incentive scheme of payment for reduction of base line commercial loss.

Note: Sufficient meters will be provided by ESCOM.

The following data was collected for all the feeders for the analysis

 Data Collected to analyze:

           Feeder Average Input
           Base loss figure
           Per unit Recovery

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                          Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
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           No. of consumers, No. of LT4 consumers
           No. of metered LT4s and No. of un-metered LT4

In the first phase 142 feeder from 12 O & M subdivisions in HESCOM were entrusted to Feeder
Franchisees purely for commercial activities. In this change over many Grama Vidyut
Prathinidhis were capable and took over as franchisees.

5.3 Input and Investment based Feeder franchisee.
Final step in the out sourcing process for rural electricity distribution management will be
obviously “The input and Investment Based Feeder Franchisee “

Here again thru franchisee can be an individual/group of individuals forming a society, a rural
cooperative society or an entrepreneur, self help group, user associations, NGOs, Panchayats,
local bodies etc. However the entity should be acceptable to the local beneficiaries and should
have experience in such operations or should associate with persons/entity having the requisite
experience. The GVPs and the commercial franchisees can also take up such schemes.
5.3.1 Objective:
The model should be a participatory model of distribution in rural areas, which are sensitive to
the local aspirations and requirements. The objective of such arrangement can be listed as
follows:

(a) To promote public participation for bringing effectiveness in the present distribution
    arrangement for reducing theft and conducting maintenance and distribution system on
    community basis through the Distribution Franchisee.
(b) To encourage community management in the maintenance of distribution lines for its'
    protection and promotion.
(c) To attract private investment in distribution through the Distribution Franchisee
(d) To promote technical and managerial capability of the beneficiaries / community in the field
    of electricity distribution through institutional capacity building and training efforts.

5.3.2 Benefits to stakeholders from the scheme
 For rural households, there will be direct and indirect benefits of increased access to adequate
    and reliable supplies of electricity, which would improve the quality of their lives and expand
    income generation opportunities. Direct benefits include improved convenience, safety and
    quality of lighting, enhanced ability to operate small appliances and improvements in indoor
    air quality resulting from displacement of kerosene smoke. The indirect benefits would arise
    from the improved services provided by rural public institutions - health, education and water
    - deriving from their increased access to electricity;
 For rural enterprises, the benefits of increased productivity and income arising from
    electricity access;



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                          Best Practices for Agriculture Pump Sets and Rural Demand Side Management (DSM)
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   For utility customers, greater access and reliability of electricity service due to increase in
    generating capacity and mitigation of tariff increases due to increased energy efficiency
    investments;
   For medium to large scale local investors who can invest in electrification business
    opportunities;
   Greater leveraging of Government financial resources for capacity addition and rural
    electrification.

5.3.3 Role of Stakeholders

a) State Government
    Publicize and make aware the stakeholders about potential sites / locations for
      implementing the schemes.
    Provide an enabling framework for streamlined operation of the developer in the area.
    Maintain system of constant checks and controls through local administration with
      involvement of the beneficiaries for more participative interaction.
    Monitor and evaluate implementation of the scheme.

b) State Utility / DISCOM
    Assist the Supply provider during identification and execution of the scheme.
    Support       the   supply     provider     during    the    initial   operation    period.
      To educate the Supply provider and consumers in its jurisdiction on the efficient use of
      equipments such as lighting, pumpsets etc. for conserving energy.
    Educate community on safe use of energy.
    Designate Project Manager for the scheme who would be responsible for overall financial
      and physical progress, verification of bills of the Proposer, furnishing of claims to PFC
      for seeking funds etc.

c) Local administration
    Act as trustee of beneficiaries‟ interest w.r.t. the investments made, security of assets,
     continuity of the system & stakeholders.
    Provide for quality of service measures & controls ensuring streamlined operation of the
     system without any undue interference.

d) Supply provider/ Franchisee
The scope of work given herein is indicative for an input based Franchisee model, the scope
would vary as per terms and condition on case-to-case basis.)
    Technical
          o Breakdown maintenance and repairs of Distribution lines.
          o Maintenance of Distribution Transformers and other equipments.
          o Maintaining the reasonable stock of line and sub-station materials required for
              repairs.
          o Replacement of failed transformers and equipments.

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         o   Install meters to all unmetered installations
         o   Attend to consumer's complaints & grievances.
         o   Prevent pilferage & thefts of energy.
         o   Receive application for new connections.
         o   Prepare feasibility report & estimate for new connections.
         o   Sanction estimates for new connections as per norms & approved polices /
             procedures.
         o   Prepare estimates and drawings for extension and improvement works, to bring
             down energy losses to acceptable levels, check theft and energy accounting.
         o   Servicing of new installation with meters
         o   Execution of improvement works.
         o   Identify inefficient pumpsets and arrange for replacement with efficient pumpsets
             by bringing in necessary investments.
         o   Submission of prescribed reports to the DISCOM / Government.
         o   Identifying unauthorized installations & take suitable action.
         o   To follow the provisions relating to safety and electricity supply.

 Revenue:
     o Meter reading
     o Billing
     o Collection
     o Maintenance of records
     o Submission of monthly accounts & statistics to respective DISCOM /
        Government.
     o Reply to audit queries
     o Use necessary hardware/software for issuing computerized billing and generating
        reports, wherever feasible.
     o Collecting government charges /levies & paying the same to the Government.

 General Functions, Duties and Responsibilities of Distribution franchisee
  The rights and obligations of the Franchisee will include:
     o Supply of electricity to all consumers within the Franchise Area
         Increase technical efficiency of distribution system, reducing technical losses,
         evolve innovative solutions to improve system performance and revenue
         realization.
     o All commercial activities relating to issue of new service connections, metering,
         meter reading, billing, collection, realizing bad debts, disconnection,
         reconnections, customer complaint handling etc. within the Franchise Area
     o All repairs and maintenance activities related to all equipment and infrastructure
         within the Franchise Area
     o All investment decisions (capital and operating), subject to approval by the
         DISCOM, that might be required to enhance the operations or meet the specified
         standards of performance of the distribution business within the Franchise Area



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         o All manpower to run the operations and commercial activities will be provided,
           managed and paid for by the Franchisee without any recourse to employment by
           the DISCOMs
         o Responsible for the operation and maintenance of the substation however, any
           repairs. Replacements related to the power transformer in the substation are
           excluded from the responsibility of the Franchisee.
         o The Franchisee shall reasonably maintain and operate the billing system database
           and ensure the overall integrity of the system.
         o The Franchisee shall furnish DISCOM with data, information and analysis and
           any other information as may reasonably be required by DISCOM from time to
           time
           Ensure Franchisee Distribution System has a [99%] availability, and “adequate”
           quality of supply is maintained [measurement parameters and methodology to be
           developed] thus put in place a Performance Monitoring System.
         o Set up a system to respond to Consumer complaints with respect to consumer
           servicing [measurement parameters and methodology to be developed]
         o As an agent of the DISCOM, comply with all the regulatory, legal and reporting
           requirements that are applicable to the DISCOM.




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