Rationale for mini grids in India

Satya Prakash Choubey
Director (Program Implementation)
Smart Power India

With the understanding that access to electricity is a vital input in the socio-economic development, policy makers have been focusing on rural electrification since the past many decades. The decades after Independence were marked by food shortages due to poor agriculture production. In order to increase production, Government of India (GoI) in 1969 established Rural Electrification Corporation (REC), with the purpose of promoting grid connected irrigation pump sets and bringing in more area under irrigation. Then in 1974, the Minimum Needs Programme (MNP) was launched to enhance access of electricity services to rural areas. All subsequent programmes since then had focused on universalizing access to electricity, like the Kutir Jyoti Programme, which was launched in 1988-89 aimed at improving the quality of life of the poorest households through provision of single point connections. 

During all this time till 1997, the definition of an electrified village was “A village should be classified as electrified if electricity is being used within its revenue area for any purpose whatsoever”. After 1997 and till 2004, the definition of an electrified village was enlarged to “A village will be deemed to be electrified if the electricity is used in the inhabited locality, within the revenue boundary of the village for any purpose whatsoever”. In 2000-01, GoI launched the Pradhan Mantri Gramodaya Yojana and added a rural electrification component to it the next year.

In 2003-04, the Accelerated Rural Electrification Programme was launched. The following year, this programme was merged with the Kutir Jyoti Programme to form Accelerated Electrification of 1 lakh villages and 1 crore households. This brought into focus the importance of household electrification within the ambit of village electrification.

In order to deepen village electrification, GoI in 2004 expanded the definition of an electrified village and merged all ongoing schemes/ programmes to launch the Rajiv Gandhi Grameen Vidyuti Karan Yojana (RGGVY) in 2005. The new understanding was that a village will be deemed to be electrified if (a) basic infrastructure such as distribution transformers and distribution lines are provided in the inhabited locality; (b) electricity is provided to public places like schools, Panchayat office, health centres, community centres, etc. and (c) the number of households electrified should be at least 10% of the total number of households in the village. The focus of RGGVY was to create a backbone of rural electricity supply, however, at the risk of being extensive (number of villages electrified) rather than intensive (% of households covered)[1].

Interestingly, RGGVY had a component on Decentralized Distributed Generation (DDG) for remote villages where grid connectivity was either not feasible or not cost effective. All un-electrified villages and hamlets having a population of more than 100 were eligible under the scheme and identification of eligible villages was to be done by the State Nodal Agencies (SNAs) in consultation with state utilities/DISCOMs and MNRE. This was the first time that Ministry of Power, which has always been anchoring rural electrification programmes, through REC, and MNRE jointly assumed responsibility of providing electricity to remote hamlets/villages through RE technologies. MNRE had also been running Remote Village Electrification Progamme (RVEP) and Village Energy Security Programme (VESP), through the SNAs. In 2014 GoI launched the Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) which in addition to rural electrification component of RGGVY, had additional components on separation of agriculture and non-agriculture feeder separation and further strengthening/augmentation of transmission and distribution infrastructure in rural areas. RGGVY was thus subsumed into DDUGJY[2].

While the country was on its course for 100% village electrification, which happed in April 2018, GoI in September 2017 launched the Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya) targeting 100% household electrification of all interested households, estimated at 3 crore[3]. Till date 99.99% of all interested households have been electrified and the remaining households will be provided with basic electricity services in the near future.

The paradox of Demand-Supply Gap

Despite such large strides in universal village and household electrification, studies consistently reflect that this wider electricity coverage, especially in rural areas, does not automatically result in increased and sustained consumption of electricity resulting in improvements in incomes and quality of life. The gap is a result of mismatches between characteristics of demand and supply.

Supply side issues

Rural electricity distribution is primarily the responsibility of the state-owned distribution companies (DISCOMs). They do not prioritise quality supply of power to rural areas primarily because of the following challenges:

  • High capital investments: creating the necessary infrastructure of sub-stations and feeders and providing connections to individual connections is a capital intensive exercise which act as a deterrent for the DISCOMs.
  • Higher losses: large number of distributed loads that too in small quantities increase the distribution losses for the DISCOMs.
  • Lesser returns: Typically rural consumers have lesser paying capacities as compared to their urban counterparts. This coupled with lesser per capita consumption of electricity (at least in the domestic category due to lesser use of electrical appliances) results in lesser returns for the DISCOMs per unit of electricity supplied to a rural consumer as compared to an urban one. In fact in many cases, the ‘cost to serve’ a unit of electricity to a rural consumer is significantly higher as compared to the revenue that the DISCOM gets from her.
  • Operational inefficiency: per unit cost of billing and collection for a rural consumer is comparatively higher as compared to urban ones. Without automation/ computerisation billing and collection in rural areas contribute in making electricity supply less remunerative. It should also be noted that a large component of this operational inefficiency of DISCOMs are hidden in the ‘pilferage’ component of their financial statements.
  • Higher pilferage: though this is not specifically a rural phenomenon, coupled with the above issues, the theft of electricity in rural areas through by-passing of meters, hooking (katiya), bribing of DISCOM agents, etc further aggravate the supply challenges.

Technological interventions like pre-paid metering, load limiters, use of armoured cables, remote monitoring can help address some of the above challenges of pilferage and operational inefficiency. Institutional models like input based franchisees have also been explored in different parts of the country, though with mixed results, to address collection and operational issues. Also augmentation of distribution infrastructure is being carried out through government programmes like APDRP. However, low returns from investments have been a consistent challenge for the DISCOMs.

Demand side issues

Rural consumers have comparatively much lesser demand for electricity as compared to their urban counterparts, at least at the household level and excluding the energy consumed for irrigation water pumping. This is primarily due to:

  • Lower ability to pay: rural households have much less per capita income as compared to urban households and thus the amount of disposable income is also lesser impacting their ability to pay for electricity and electrical appliances. Also incomes of rural households are from a mix of livelihood options the returns from which are not assured and in control thereby impacting their ability to pay for electricity and electrical appliances.
  • Poor quality of supply: demand for electricity services is muted due to the poor quality of supply which is characterised by frequent, unscheduled and long power cuts, voltage fluctuations, tail end voltage drops, etc.
  • Lower willingness to pay: the above two reasons result in lower willingness of villagers to pay for electricity services.
  • State focus on household electrification: for improving rural energy access, till the 1990s the State focused on pump set energisation and village electrification. Since the last couple of decades, the focus has primarily been on household electrification, with commendable achievements. Provision of electricity services for micro industries and off-farm based livelihood activities have never been the focus.
  • Characteristics of rural markets: the availability of electrical appliances and their servicing support is limited resulting in unmet demands.

This is the first part of the article on mini grids in India. The remaining part will be featured in the next issue of the newsletter.  

[1] Modi, Vijay, 2005. Improving Electricity Services in Rural India, CGSD Working Paper No.30, pp. 30

[2]http://www.swaniti.com/wp-content/uploads/2017/07/DDUGJY-Brief_Schemes-Compendium.pdf

[3]http://pib.nic.in/newsite/mbErel.aspx?relid=171148

 

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