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De-centralized Distributed Power Generation through P-P-P Model is the most workable solution for Rural India, Shri R V Shahi, Former Secretary, Ministry Of Power

De-centralized Distributed Power Generation through P-P-P Model is the most workable solution for Rural India

Monday, April 23, 2007


One of the inevitable consequences of electricity demand supply mismatch is prolonged outages for hours together, in some cases for days together, in rural India. In extreme situation of summer and winter, towns and cities also do get affected. But, the fact remains that in any state, if there is a shortage, obviously the priority of power supply goes to towns and industrial areas. There is nothing unusual about it, because the intensity of dependence on electricity in towns, and more particularly in industrial activities, is much more severe than in villages. The managers of electricity distribution would obviously be under tremendous pressure from all quarters but more so from various established towns and cities from where they will be under focus from all including from press and media.

Quite often, in discussions as also in conferences and seminars, people ask a question "When would the power shortage situation be over?" I often reply that power shortage situation will not be over in foreseeable future. I genuinely believe that in the context of power, its availability leads to further demand. The more power we make available the more there would be demand. Our per capita consumption is today hardly in the range of 615 KWH per year. This is less than one fourth of the global average. In the next 25 years, even if we are able to raise our installed capacity by 5-6 times, shortage situation would continue. This is desirable and is also the essence of growth of economy, as also the requirement of enhanced quality of life for our people. Just as it is a truth that supply demand mismatch would continue for several years, so is also the other truth about allocation and priorities. Rural India may receive a lower priority. And, therefore we need to consider a special dispensation for our villages, which should, to a great extent, address this predicament. Power supply through the state grid would be generally meeting the requirement of the priority areas as mentioned above and rural area may need to be supported, at least for a major part of its demand, by local generation.

De-centralized distributed electricity generation is a concept which would mean that power is generated locally and distributed through the local distribution network. Implementation of this concept has several dimensions which include (a) Technical Issues, (b) Financing Issues, (c) Pricing & Commercial Issues, (d) Institutional Issues. Large size power stations at fuel sources do produce cheaper power. But, apart from the fact that, in view of considerations mentioned above, availability of such power to rural India would be in question, other connected aspects are also important. They include transmission cost, transmission loss, distribution network cost and distribution loss. As against this, local generation would obviously be costlier but they would not have to bear the burden of transmission cost, distribution cost and transmission losses. Technology of local generation could be both conventional and non-conventional. Wherever practical and economical, non-conventional system must be given preference. These might include Micro Hydrel, Wind Turbines, Biogas and Biomass. Solar system could become cost effective but in longer time frame. Micro hydel and wind turbines have now already become cost effective. Biomass based plants could also become cost effective. If large number of such generation facilities are ordered in next 3-5 years, there could be possibility of drastic reduction in cost of plant and equipment. This will require interaction with the manufacturers. The technologies and processes could encourage local fuels such as commercial forest, bagasse, rice husk, bio-diesel etc. In coming years efforts should be made to encourage innovative rural farming for such raw materials which could be economically used to produce electricity.

Most important of all would be the issue concerning institutional frame work. If we channelize the generation and distribution through existing state owned machinery it is unlikely to succeed. Arrangement should be such that it ensures not only successful technical operation of the generation facilities but also takes care of consumer interface including recovery of payments from consumers, ensuring quality of supply, right response for giving connections to new consumers etc. Setting up of such small generation facilities has therefore to be integrated with the entire supply chain elements from generation to distribution and to handling of all consumer related problems.

One of the issues that may come in the way would be about pricing of power, particularly in view of the present tariff structure for rural household and agricultural supply. Following suggestions may need to be examined to address this issue:

  1. The whole scheme could be brought under the Govt. of India Public Private Partnership scheme. Entrepreneurs could be asked to set up the facility, arrange the raw material, take the responsibility of operating the plant, using the local distribution network to supply power to consumers, give connections to new consumers and handle problems and grievances of consumers.

  2. We have about 600 districts and about 6,000 blocks in the country. Depending on the size of the block and quantum of requirement of power we could set up the de-centralized generation units through out the country in the range of plant capacity of 1 MW to 5 MW. All blocks of the country may not be required to be covered. We may target about 6,000 MW capacity through about 3300 (approx) such small plants in various blocks in the country depending on the assessment of needs. The following table could illustrate this approach:

S.No. Module (Plant Capacity) No. of Plants Total capacity (in MW)
a) 1 MW 2,000 2,000
b) 2 MW 5,00 1,000
c) 3 MW 330 1,000
d) 4 MW 250 1,000
e) 5 MW 200 1,000
Total 3,300 (approx) 6,000

  1. (a) could be also in 2X500 KW module.

  2. (b) to (e) could be modular with unit capacity of 1,2,3,4, or 5 MW.

  1. The whole scheme could be planned and implemented in a period of next 2-5 years so that burden on financing, manufacturing and implementation is staggered.

  2. The Public Private Partnership Scheme of the Govt. of India could be invoked with the objective that small entrepreneur, medium business groups and large Corporates all are encouraged to participate in the process of rural economic development through creation of this basic infrastructure. We need to recognize that even a small capacity of 10 MW would require a capital investment of the order of Rs. 40 Crores in which the equity investment could be of the order of Rs. 12 Crores. One more requirement that needs to be kept in mind is about managing the whole chain as a business and therefore very small entrepreneur may find it somewhat difficult to take the total responsibility. They could come as franchisee for distribution.

  3. Keeping these in view we may, invite private sector participation under the five categories as mentioned below. This is just by way of illustration and could be suitably modified if required.

Category of agency Total capacity to be handled by each agency Likely number of agencies Total capacity (MW)
CAT- I 10 MW 50 500
CAT- II 25 MW 40 1000
CAT- III 50 MW 20 1000
CAT- IV 100 MW 10 1000
CAT- V 500 MW 5 2500
TOTAL 125 6000

  1. The scheme should specify that (i) the state government would give the land for the plant free of cost, (ii) sales tax exempted, (iii) distribution infrastructure would be allowed to be used. Given the stage of development of the technology, even though transmissions loss and transmission and distribution costs are avoided, the power generation cost would be comparatively higher. These concessions, therefore, would help reduce the tariff.

  2. There could be automatic clearance for environment and forest for such small units provided they use the duly approved technologies.

  3. Long term funding of 20-25 years could be facilitated through institutions like Power Finance Corporation, Rural Electrification Corporation and NABARD so that the impact on tariff is reduced.

  4. With above frame work, in order to make the whole process objective and transparent, as also to get competitive cost, the projects could be put to tender to invite the developers to bid for the grant funding that they will need to supply power to consumers at an average rate of say, Rs. 2.50 or Rs. 3.00/- (as may be decided) per KWHR. If the process is facilitated for pre construction inputs, it could be expected that competition will lead to minimum grant burden on the Government. Regulatory Commission's intervention could be secured for optimum results.

In order that this whole scheme is implemented in a time bound manner, an implementation agency may need to be put in place with the task that 6,000 MW capacity is created in next 2-5 years for supplying power to rural areas. The implantation agency would need to handle all issues concerning project development, state support required as provided in the scheme, timely implementation by agencies which are given the project, and ensuring that the agencies have taken the total role including distribution. REC could be a good candidate to facilitate the implementation.

Role of Panchayats would be very crucial in implementation of this scheme. They should be associated as provided under the Rural Electrification Policy of the Ministry of Power to see that consumers interests are adequately safeguarded.