Utilities: Smart metering – a game changer?

18 Jul 2023 , 11:33 AM

The state-owned discoms forego Rs1.4-1.5tn revenue p.a. due to billing inefficiencies. To plug such revenue losses Govt is fasttracking installation of 250mn smart meters by FY26 which can read, store data, and bill power consumption remotely (GPS/radio frequency, etc). Several players (NTPC-PWGR JV, TPWR, Genus, etc) are eyeing this opportunity (EPC/system integration). Seamless execution can fetch these players ~15% RoE. Smart meters with pre-paid feature can significantly alter the sectoral landscape; this however remains politically sensitive. As such analysts of IIFL Capital Services maintain a positive stance on the sector; BUY NTPC, PWGR.

Smart meters can alter the sectoral landscape: 

As per CEA, due to billing inefficiencies (due to human intervention, etc) the state-owned discoms are estimated to forego revenues of Rs1.4-1.5tn p.a. Installation of smart meters can potentially plug such revenue losses through real time automatic remote reading. The Govt is persuading discoms to install 250mn smart meters by FY26, for which a grant of Rs233bn is set aside (~25% of the cost); as such if executed well, it can significantly alter landscape of the Indian power sector.

Vendor base can earn ~15% RoE: 

As of now only 6.6mn smart meters are operational; given the policy push, several states may expedite the installations; however instead of incurring capex on their own, discoms will likely opt for the TOTEX mode (vendor incurs capex, undertakes O&M and earns monthly rental), which avoids upfront investment and yet improves billing efficiency. Several players such as EESL (PWGR-NTPC JV), TPWR, Genus Power, HPL Electric, etc. are eyeing this business opportunity from pick up in smart metering activities. Such activity can earn 12-15% RoE if executed well; meter manufacturing will also see a ramp up, where however barriers to entry are relatively low.

Not the ultimate solution: 

Installation of smart meters is the first step towards improving billing efficiency; it needs to be followed with improvement in collections, which is equally challenging; hence installation of pre-paid meters combined with smart meters can bring desired results. Pre-paid smart meters, while logical and efficient, may not go down well politically, particularly in an election heavy year.