Final Exam of Strategic Management

Submitted by: Vibhor Mittal, Roll no. 6

Question 1: Write a letter to the PM explaining why his idea of “one world, one sun, one grid” may not
be such a good idea. Explain the role of storage. What might be better ideas instead?

Answer 1: Our PM’s idea of “one world, one sun, one grid” may not work as it sounds, since at
present with 346 GW1, total installed capacity of India and frequent backing-down of power
generation the plant load factor of base load power plant has fallen to 61.58%2. The capacity
utilization of currently base load installed plants is under serious threat. In India power grid is
experiencing aggressive expansion of the renewable energy bulk of which is solar power plant
generation. As the amount of solar interconnected to the system increases, the net load curve
will have characteristic U-shape during the day and steep increase in demand profile during
evening hours making it challenging to maintain the generation load balance. This increases the
need to have more dispatchable generation that can be quickly ramped up and down to
constantly match the net load curve.

As the solar power generation on the grid increases from morning hours into the noon hours,
the net load on the system decrease. This necessitates an equivalent amount of other type of
generation, mainly base load power generation to ramp down. Once when the solar power
plant generation starts to decline from noon hours into the evening hours, the net load on the
system increases steeply. In the grid, this steep increase in net load during the evening hours
also coincides with the inherent increase in the load on the system at that time interval.

In this situation, increasing renewable power generation has an impact over load balancing of
grid. Power demand varies from time to time and the tariff changes according to the time of
day in the net demand curve. The price for electricity at peak demand hours is high and at off-
peak hours low. This caused by the difference in the generation in time frame.

During peak hours when electricity consumption is higher the normal, power suppliers must
complement the base load generating power with less cost-effective coal fired boilers. During
the off-peak hours when less electricity is consumed like night hours the most costly generation
of electricity can be stopped. With high solar power penetration in the supply basket the cost-
free surpluses have to be absorbed causing backing down of base load power plants. The
consequence of this, on long distance bulk power transmission power congestion occurs and
causing issues with power balancing.
1 & 2 November Executive Summary, CEA

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 Source: CEA, India

The grid needs to match a sensitive balance between demand and supply on moment to moment basis,
lost in this balance can lead to potential blackout. The increase in penetration of solar power generation
there are much steeper increase in supply side variability of net load curve. This will result in inflexible
load curve which is famously known as duck curve shown as above.

The solar power generation cannot be scheduled with same accuracy as that from conventional
source. The variability occurring is diurnal and seasonal. The other reason for variation can be
attributed to the uncertainty associated with natural occurring like sudden movements of
clouds etc.

Apart for this technological issue there are concerns which will further lead not to generate
value creation that is expected out of “one world, one sun, one grid” vision to the citizens of

India, whose are the major stakeholders of this strategy. This is in direct to the conflict to
another strategically important economical initiative of the Government of India, “Make in
India” which has put safeguard duties in solar panels which ranges from 25% to 15% 1.

Other than unclear policy making decisions, the financing challenge of huge high power
transmission network project which intend to connect India’s nation grid to other countries.
Our country is producing a total of 162 GW2 as on 28-12-2018, with utilization of 46.82% of our
national asset with 1149 kWh3 per capita consumption. Therefore to match net demand with
intermittence solar power we can utilize methods of storage of power in various forms.
1www.cbic.gov.in

2 & 3 November Executive Summary, CEA

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The storage captures energy produced at one time and used later at a time, which comes in
various functionalities:

 Mechanical storage: Hydro power, pump storage, compressed air and flywheel
 Thermal storage: Molten salt storage, thermo-chemical storage
 Electrical storage: Capacitive storage, superconducting magnetic coil
 Battery storage: Nickel-cadmium battery, Lithium-ion battery, Lead-acid battery and
flow batteries

These storage solution provide three main roles, first reduces electricity cost by storing
electricity obtained at off-peak times when its price is lower, for use at peak times instead of
electricity bought then at higher prices. Secondly, in order to improve the reliability of the
power supply, storage solutions supports grid when major power generating station fails to
deliver power which can occur due to natural disasters. Thirdly, the storage solution takes a
role in maintaining and improving power quality, frequency and voltage.

Currently, India has initiated to use of storage solution to increase flexible operation and to
satisfy the demand of the day mainly in form of pump storage where hydro power station
generates power at time of acute demand by utilizing water stored in its reservoir and store the
water in downward run of river at a reservoir and when power is available at surplus or non
peak hours. The same water stored in downward reservoir is pumped back to make-up for the
loss of water level which is utilized at times of power generation.

These storage solutions are deployed accordingly to curve shaping so those power demand and
supply matches are possible, since at present majority of sub-critical base load thermal power
are not capable to ramp up and down to meet the demand of new load curve. Since at present,
India have a very limited resource to provide ramping of power within a short frame of time,
supplying power to more power deficit countries under the umbrella of “one world, one sun,
one grid” initiative will not realize benefits to the shareholders.

It will be better if we start working on our problems first and cater to upcoming requirement of
people so for the Indian population, power is made available at much economical ways than
reaching out to the power deficit countries. This means we should focus our attention more
towards, getting power in a short time interval by installing more storage resource in place of
the same financial resources that will go in setting up high voltage power transmission lines to
transfer bulk power to a greater geographical area. Also, investing in high voltage power
transmission and distribution infrastructure is to provide temporary treatment to a long
occurring problem for the developing countries like in Asian continent except China. Instead our

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attention should be on focused on integrating dispersed renewable generating station to
connect to the prosumers through low voltage power transmission infrastructure.

To present the better strategy to manage our financial resources to fill the gaps in time of day
in the duck curve at all times and to reduce wear and tear which is caused by frequent ramping
up and down as net load curve, a balance scorecard is shown below.

Financial
resources
to be used
towards
filling gaps

Vision to Internal
Supplying
quality provide power business
process to
power at
all times
at affordable in baseload
Efficiency
price

Building to
capacities
to provide
better
ramping up
& down

Balanced scorecard for better power availability at all time of the day

Before leapfrogging to supply surplus created in India, our leadership must provide power
throughout the time of day to implementation of the strategy structure as shown in the balance
scorecard. The key performance indicator to access the success of this vision is based on:

1. Financial Resources which are allocation in promoting “one world, one sun, one gird” is
basically involved in making power highways where bigger bulk of power is transported.
This should rather be utilized in integrating our own resources of scared solar power
plant, with storage and consumption points.
2. Supplying quality power and making it available to all should be prime objective to
increase the stakeholder value proposition.
3. Present base load power plant should enhance the operational efficiency by
standardization of internal business processes to increase the productivity of plant
machinery as well as human resource involved in it.

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 4. Installation of storage solution to provide power for sudden shortfall which is not
captured by modern day forecasting methodology.

Hence integration of scared solar power plant with low voltage transmission infrastructure,
provided storage solution and possible increase in efficient base load power plant are better
solution to cater needs of people rather than operating big infrastructure with sub-optimal
usage.

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Question 2: Given the discussions in class and the readings prescribed, explain how you would
restructure the “distribution grid” to be more business and planet friendly? Economical and
profitable? In the public interest? Who might oppose it? How will you overcome the
opposition?

Answer 2: With present structure of distribution grid or distribution power supplier companies
where power is purchased from the generators, are fighting for challenges mainly of the
following issues:

 Aggregate technical and commercial (AT&C) losses which is hovering around 19.7%1,
where government aims to bring it down to 15% by the end of FY19
 Operation inefficiency as low supply reliability, load shedding and frequent interruption
after which there are long restoration hours causing customer trust deficit and
dissatisfaction
 Financial stress is due to loss in revenue of distribution companies in under recovery
from consumers, which further initiates a vicious cycle of under recovery and increasing
debt. As cost coverage ratio of most distribution companies remain low (25 out of 41
rated)2
 Increase in captive power production with introduction of better high end technologies
like roof-top solar and integration of electrical storage solution with advancement in
battery technology
 Commitment to provide electricity access to all

To address the current situation of distribution grid or distribution power supplier companies
PESTLE analysis

P • Political
E • Economic
S • Social
T • Technological
L • Legal
E • Environmental

PESTLE Analysis

1
CARE Ratings Power: Yearly Update and Outlook, 2018
2Annual Integrated Rating of State DISCOM, coverage ration = (revenue realized from sales of power + other income + subsidy
received) / (total expenditure booked)

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  Political sensitive of the government to ensure power availability to agricultural
consumers by cross subsidizing, the distribution companies are burdened as they have
to supply power at cheap rates comparatively and bear losses which creates financial
burden.
 Economic condition of the distribution company deteriorates with increase of power
sales volumes and with dismal revenue realized.
 Social effect of power non-availability due lost opportunities hinders public growth and
development.
 Technological lag that can be clearly identified with availability of captive power
generation resources like roof-top solar and its integration with battery storage
solution, change in load structure which demand more quality power to cater digital
load, smart metering solution and presence of Internet of things.
 Legal framework is changing continuously with huge pressure on regulators and
government to improve state of affairs more and more reforms are underway to
address problems at hand.
 Environment factors after acceptance of Paris Agreement to limit global temperature
rise to well below 2 degrees and with India’s ambition target to achieve 100 GW by
2022. More stress is to increase renewable energy in the power consumption basket.

Keeping the above in mind, the distribution grid or the distribution power supplier companies
must restructure itself from sole power provider to bigger roles which can increase solution
range provided by it.

1. Like transmission grid companies, it has to act as a service provider to cater to needs of
consumer which connects dots. Elaborating my point further, it should present its
business model in point to point connector which provide balancing of power needs of
consumer as consumer now are turning more towards become a prosumer (producer
plus consumer)
2. Replace subsidy with less expensive renewable power to cater to the needs of
agricultural feeder.
3. Implementation of 100% metering with increased billing efficiencies by introducing high
end technologies like smart metering solution.
4. Ensures quality of power by offering power factor improvement services so that from
end user the distribution companies can charge a premium for the better power
quality.
5. Be a supplier of last resort for all large consumers as more and more consumers are
finding the tariff available at power exchange.

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The restructuring of distribution grid or distribution power supplier companies in above manner
is business friendly approach as these reforms will open new avenues of income and reduce the
rising average cost of supply. Points 1 says basically, collaborative efforts to provide
connectivity which can also involve better approach to address this issue with microgrid
solutions which enhance reliability and power availability.

Points 3 & 4 addresses business augmentation models which can further be enlarged be
acquiring more capital finance which can provide an organic growth for distribution companies
to reduce the inefficient billing practices and generate new revenue sources.

Point 2 is a planet friendly solution as the power consumed in these feeders are availed through
solar or wind power purchases which certainly much cheaper than non-renewable sources.

Weakness
Strengths
 Big pie of revenue is still
 Service provider for grid commercial losses
 Primary supplier to  Entity is financially stress
agricultural loads  Operational inefficiency, supply
 Last resort power supplier reliability

Opportunities Threats

 Capturing commercial  Challenged by new captive

losses power generation resources
 Optimum resource  Long term PPA obligation
utilization which inflates average cost of
supply

SWOT Analysis
With the effective resource utilization and business augmentation, where distribution
companies operate more efficiently will definitely in public interest since they are not capable
to install capital intensive equipment to fulfill their own requirements.

The distribution companies might oppose this change as it completely overhauls its business
structure and reduces its role from delivering primary value provider to a secondary value
provider whose role is the provide services when the prosumer cannot sufficiently produce to
satisfy its own demand. Hence, the customer dependency is diminished onto the power
distribution companies.

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The use of microgrid and high investment driven complex equipments can face utility as well as
user’s opposition, which has some merit for opposition by the distribution companies.

 Expensive equipment for interoperability

 Equipment communication for better power flow coordination
 Cyber security threats

These oppositions can easily be addressed by using economies of scale as distribution grid or
distribution companies have to cater to a large mass and implementing it in volumes will
increase our exposure to the technologies and ease of handling such technologies. Therefore
bring technology at a juncture where it is not longer expensive and also provide a sustainable
solution to the need of the hour.

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