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Smart Grid - Regulatory Perspective


Currently, Power Generation, Transmission & Distribution companies alongwith Power Trading Exchanges and End-Consumers are independent entities. The Smart Grid is expected to integrate these entities and allow them to interact with each other and respond to situations in real time. This will require huge infrastructure in terms of network, smart devices, field equipment, IT applications etc. and will result in massive cost of implementation.

A Smart Grid project entails heavy capital expenditure and the benefits are realized over a period of time. Therefore a stable regulatory framework is of utmost importance. This framework will devise a mechanism for achieving balance between the cost & risk involved in implementation of such a large project.

It is important to carry out Cost-Benefit analysis before deploying smart grid technologies. But due to lack of established and proven technologies of these kinds, it's difficult to calculate cost and benefits. We do not have benchmarks available across the globe which can throw light on the social impact of such type of implementations. However, decisions regarding cost allocation of smart grids versus grid upgradation make it tough to measure the returns besides other issues such as uncertainty about customer participation and effectiveness. Another challenge is the fact that benefits will accrue over a long period of time.

In setting a stable regulatory framework, utilities have two options with them. The first one involves sourcing external funding in the forms of loan, grants and Public Private Participation (PPP). The distribution utilities could partner with a smart grid technology company to invest in infrastructure and work out a revenue sharing arrangement, which will not put burden on accounts of utilities. The other option is to factor in the capital expenditure while calculating return on investments and increase the tariffs on a temporary basis. These tariff hikes will be offset by monetization of benefits accrued at a later stage.

Project viability could be exhibited through pilot implementations. This could help in setting the benchmark regarding cost benefit analysis, measuring social impact in terms of customer behavior, readiness of infrastructure to take such a huge load etc. Regulators could consider using time of use or variable pricing or a combination of both for tariff differentiation for a set of segment where the pilot project has to be implemented.

These options would be the stepping stone for the formulation of smooth and balanced regulatory framework and utilities could have a stable environment during implementation of Smart Grid Technologies.



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