India’s Smart Meter National Program (SMNP) is aiming to replace 25 crore conventional electricity meters with prepaid smart meters, along with upgrading infrastructure such as feeders and transformers, with an estimated capital expenditure of Rs 1.5 lakh crore slated for implementation over the next five fiscal years. According to CRISIL Ratings, this initiative will provide significant improvements in operational and financial efficiencies for distribution companies (discoms).

This will make billing and payment collection easier for distribution companies (discoms).The SMNP also helps track electricity usage in real time, reduces power theft, and makes supply schedules better.

Overall, it brings important improvements through its modernization efforts. In the SMNP framework, state distribution companies (discoms) will divide their areas among private concessionaires.

These companies will handle buying, setting up, and maintaining smart meters for a 10-year period. Contracts will be given out through open auctions where bids are based on the amount per smart meter that concessionaires will receive annually.

Discoms will fund these concessionaires from the money they collect from consumers, and they will also get grants from the central government for each smart meter installed.

Ankit Hakhu, Director at CRISIL Ratings, highlights the potential capex opportunity of Rs 1.5 lakh crore in India’s power distribution sector through the SMNP. He said, “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 meter from the Centre, which will improve the financial profile of discoms.” To ensure a smooth launch, the contracts for smart meter projects have been standardized to make them more attractive to banks and investors by addressing implementation challenges.

Innovations include allowing projects to start with as little as 5% of their total scope to facilitate early revenue generation. Since these projects are usually financed mostly through loans, this approach allows debt to be paid off gradually as the project progresses, which is supported by incoming cash flows. This reduces the risk of not being able to pay off debts on time.

Varun Marwaha, Associate Director at CRISIL Ratings, noted another important innovation in the SMNP program. It involves setting up a direct debit facility (DDF) where all online payments from consumers go directly into a designated account. From there, payments to the project’s bank account are prioritized.

This significantly reduces the risk of delays or non-payment from distribution companies (discoms), which is a major concern in the power sector. However, there are challenges to be mindful of. Aggressive bidding can impact the quality of projects and their ability to generate enough cash flow to repay debts.

The projected expenditure of Rs 1.5 lakh crore is also sensitive to how aggressively bids are made and the pace at which contracts are awarded to private concessionaires.