Overlooking rural energy access

Decentralised energy resources using locally-available renewable energy can solve supply shortage problem

The Electricity Amendment Bill, 2014, has several laudatory objectives such as the promotion of competition through segregation of carriage and content, increased renewable energy development, and enhancing open access to power producers and consumers for unhindered access to transmission and distribution networks to transmit power to any part of the country in a non-discriminatory manner. But issues pertaining to energy access for 75 million rural households or around 300 million people haven’t gotten the attention they deserve. On the proposed amendments to the Electricity Act, 2003, we examine the overlooked issue of rural energy access and suggest potential solutions that may be incorporated in the Act.

With growth rates of 8-10% in the first decade of the century, the overall energy pie has kept getting bigger, but the share of non-electrified households has remained stagnant. The current ruling party in its political manifesto highlighted “24x7 power supply to all households by 2017” as a primary objective. However, this intention is not reflected in the proposed amendments.

The state of affairs in rural electrification is making it increasingly clear that while grid extension is required and is taking place, a large number of households are not getting connected to the grid. Further, even where grid extension and household electrification has taken place, the utilities are not able to supply sufficient amounts of power. To make matters worse, power is supplied when it is available and not when it is required. Problems exist on both fronts—household electrification as well as availability of electricity. This calls for some innovative thinking.

Since most rural communities consume small quantities of electricity, extending grids may not be a viable option as costs are spread over small consumption, resulting in very high per-unit costs. In 2008, the Forum of Regulators estimated that the cost of supplying electricity in remote rural communities in Uttar Pradesh and Bihar could be in excess of R20 per unit. Under such circumstances, decentralised energy production and distribution may provide opportunities for rural development and encourage local institutions to manage their own energy needs.

Decentralised energy resources using locally-available renewable energy resources would solve the problem of supply shortage. This is critical considering the large spikes in energy demand forecast in the coming years. The attraction of renewable energy technologies lies in their abundance and local availability. Interventions in this field have the potential to bring about drastic changes not only for access to basic energy services but also to the economic prosperity of the rural landscape.

Section 43 of the Electricity Act, 2003, imposes universal service obligations on distribution utilities. In compliance with Sections 4 and 5 of the Act, the central government notified the Rural Electrification Policy in 2006. Though the objective of the policy is to provide access to all households, it fails to identify the institutional set-up for rural electrification in cases of discrepancy, stakeholder disagreement, etc. Conferring power rather loosely on an ‘Appropriate Commission’, the policy fails to clearly define the authoritative institutional set-up that will play this role of ‘Appropriate Commission’.

Further, by incorporating an apparently innocuous proviso to section 14 that exempts an entity generating and distributing electricity in rural areas from licensing requirements, the Act is not providing any benefit to disadvantaged rural populations but actually letting distribution companies off the hook in terms of the responsibility under the universal service obligation of state utilities to supply electricity to consumers within its area in a nondiscriminatory and time-bound manner. This exemption doesn’t create a strong policy and regulatory environment for mini-grid operators, resulting in the absence of a commercial model for rural electrification. It is important that the rural energy system operator be provided with a stable framework that would enable it to access the markets for commercial finance.

The need of the hour then is to look beyond current simplistic policies and focus on for mulating a rural energy access model providing a one-stop solution—supplying lowcost power to consumers, meeting energy demands, facilitating positive returns to the service provider, and fulfilling universal service obligations. In such a model, the role of the distribution company is important. Given the success of the time-tested concept of power purchase agreements and feed-in tariffs, the Forum of Regulators adopted a business model in 2010-11, which facilitated the development of local mini-grids using locally-available renewable energy-based generation, and stresses on parity of grid tariff to ensure its sustainable operation over a lifetime.

Under this model, the project developer would operate as a generator as well as distributor of electricity. The project developer would be compensated by the distribution licensee for units generated at Feed-In Tariffs (FIT)—preferential tariff for renewable energy based on its cost of generation—determined by the State Electricity Regulatory Commission. The same project developer would sell electricity to consumers at consumer tariffs determined by the state regulator. This would ensure parity with licensee tariff while the project developer is compensated for costs using FIT. Assured FIT for the lifetime of a plant will provide improved commercial sustainability to project developers, helping to attract the needed private sector investment in supporting community-level offgrid renewable energy-based power plants to enhance electricity access in rural areas. The proposed model brings about a paradigm shift from the traditional rural electrification models. It is important that this model be incorporated in the proposed amendments.

One of the proposed amendments in the Electricity Amendment Bill, 2014, is to define a Renewable Energy Service Company (RESCO); however, it has not been subsequently mentioned anywhere in the Bill. A waiver of a licence to generate and supply renewable energy could have facilitated such RESCOs operating and selling distributed renewable power through small-scale plants such as rooftop systems.

The need of the hour then is to look beyond current simplistic policies and focus on formulating a rural energy access model providing a one-stop solution—supplying low-cost power to consumers, meeting energy demands, facilitating positive returns to the service provider, and

fulfilling universal service obligations

Pramod Deo is former chairman of the Central Electricity Regulatory Commission. Balawant Joshi is one of the founding directors of Idam Infrastructure Advisory Private Limited