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Compulsion and Economics of Power Supply in Indian Villages, Shri R V Shahi, Former Secretary, Ministry of Power

Electricity supply to rural India has been on the agenda of successive Governments right since the independence of India. This agenda is more emphatically reflected and projected on the eve of every election. As a child, I recall vividly the election propaganda carried out by various political parties at the time of 1957 general election, when a very forceful and rhythmic (in Hindi) assertion was made that within a five year period every village shall have electricity. Promises continued, challenges became more and more onerous, and almost after fifty years of that promise, which I still recall, in 2002 when I became the Power Secretary of the Government of India, this issue was equally relevant. According to Census 2001, 56% of rural India still remained unconnected in so far as access to electricity is concerned.

In 2004, the UPA Government took up rural electrification as one of the top most priority Schemes. We found out the problems and causes which were constraining the process of village electrification. It needs to be clarified that though on record 85% of villages had been electrified, so far as household electrification in villages is concerned, the percentage was less than 45%. It also needs to be clarified that a large number of villages, in a number of States, which had been electrified during various years, also got de-electrified because of disruption of supplies for weeks and months together followed by uprooting of distribution lines poles and distribution transformers. As many as twelve States of the country were highly deficient in terms of village electrification. Out of these, six States (Assam, Bihar, Jharkhand, Orissa, Uttar Pradesh and West Bengal) were most deficient in as much as 80 to 95% of rural households did not have electricity connectivity in these States. It was decided by the Government that, by the year 2012, access to electricity would be available for all. While considering the proposal of the Ministry of Power (under the name of Rajiv Gandhi Grameen Vidyutikaran Yojna), some of the important concerns which were raised by various Ministries and Departments are outlined below in order to have a better understanding and appreciation of the issues, which were, and still are, relevant :

  • It is true that even after 60 years of independence, if such a large proportion of Indian population is deprived of electricity access and, therefore, deprived of the benefits of local area economic development. It is a matter of serious concern. However, massive fund that would be necessary to create the rural electricity infrastructure is also a great challenge.

  • Even if the fund is organised, and the requirement would ultimately be as high as Rs. 40 to 50,000 Crores, it is doubtful whether the existing implementation machinery, which is available with these State Governments, will at all be adequate to fulfill these targets, and whether even the available fund would be utilised effectively.

  • Extension of electricity connectivity would obviously mean larger amount of power required to be made available. It has been an uphill task to provide sufficient electricity even to the consumers in urban and rural areas who have been provided electricity connectivity so far. Shortages have been increasing and invariably rural areas have been suffering greater brunts of load shedding. In such a situation, extension of connectivity would only further accentuate the shortages and enhance the extent of load shedding.

  • One of the reasons of financial bankruptcies of some of the State Electricity Boards/Distribution Companies has been their inability to handle the commercial aspects of rural electricity supply - metering, billing and collection etc. This problem has been further compounded due to vast difference between the cost of supply and the price at which power is supplied. It has been seldom understood that when electricity reaches village level distribution system, it suffers huge amount of technical loss in transmission and particularly because of long LT Lines. This obviously adds to the cost of supply and widens the gap between cost and revenue. Revenue sustainability of the Rajiv Gandhi Vidyutikaran Yojna, therefore, was and continues to be a major area of concern.

While finally deciding the Scheme, these concerns were duly taken into account and the following features of the Schemes were provided to ensure that these concerns are appropriately mitigated :

  • Availability of power, when the coverage is extensively increased, would no doubt be an issue. It is my firm belief that so long as the country faces the situation of electricity shortage - and I do not see shortages vanishing even in next 10 to 15 years - the first impact of such shortages would fall on rural area electricity supply. Why am I saying this? The presence of opinion leaders of the society, press and media is so predominant in the urban setting that shortages in towns and cities are bound to be projected as compared to the problems of supply in villages. This should obviously cause the Managers of electricity supply to attune their response to urban problems more promptly than to rural India. Therefore, the Rajiv Gandhi Grameen Vidyutikaran Yojana has also provided for Decentralised Distribution Generation as an alternate option to the present practice. This part of the Scheme has to be brought into implementation in a significant way. I will deal with this issue subsequently.

  • As regards revenue sustainability, one of the essential conditions of the Scheme is to Franchise the operations of electricity supply in rural area. Many States have implemented the Franchisee Scheme. But most of them have converted this into an easy and convenient arrangement of just Bill collection for electricity supply. This was not the objective of the Franchisee arrangement. Unless collections of Bills for electricity supply are linked to the input power, the arrangement cannot be commercially sustainable. This needs to be enforced. Those utilities which do not conform, should be disentitled from the benefit of the RGGVY. If it is appropriately insisted, with clear cut understanding that 90% grant funding would be available only if the Scheme is implemented in letter and spirit, we must feel confident that it will happen in most cases.

Last week, I had an occasion to speak to a friend from Bihar. He hails from a village in one of the most advanced Districts of the State. I enquired about the situation of electricity supply in his village and nearby villages. His answer was that the regular electricity supply from the Electricity Board is not available for weeks and sometimes months together. Since this situation has been continuing for long, local entrepreneurs have started alternate arrangements. In fact, there are two competing entrepreneurs. They have set up small diesel based generating units, have laid their own distribution lines and supply power from 6 to 10 p.m. in the evening. I was aware of similar arrangements being operated in a number of Bihar towns for many years because even in towns the electricity supply have been rather erratic. But, this type of an entrepreneurial initiative taken in remote villages was not known to me earlier. The brief economics of power supply, under this example, is as follows:

  1. He insists that the consumer must use only CFL System of about 15 Watt. To this extent this insistence is laudable because it is energy efficient.

  2. For every point he charges Rs. 2.50 per day i.e. Rs. 75 per month. If a household wants two, three or four such points it will have to pay in multiple of Rs. 75 as many times as a number of points.

  3. I made a calculation that if a 15 Watt CFL is used for four hours a day, for thirty days, it would mean 1800 Watt hours i.e. about 2 Kwhr. Even if we consider some reasonable loss, it would mean about 2.5 Kwhr. This works out to almost Rs. 30 per Kwhr for Rs. 75 of Bill for the month for every point of supply.

  4. There is a general myth that electricity consumers in villages do not wish to pay. From the above example we may observe that the same villagers are compelled to pay as high as Rs. 30 per Kwhr. It is also important and relevant to mention that it is not the electricity supplier who pays for the costly CFL System but it is the consumer himself who bears this cost.

  5. I have another point to make to contradict the general perception that villagers don't want to pay. Infact, some of the Electricity Boards have introduced the system of minimum monthly charges which the consumer has to pay. There are instances when electricity supply is disrupted for weeks and months, but the payment by consumers becomes due. It is this type of practice and lack of appreciation of the problem, on the part of the Electricity Board, which causes resentment and, therefore, major commercial issues of resistance to pay. Therefore, we can definitely make a reasonable assumption that if proper arrangement is made to supply power in Indian villages, customers would not only be willing but keen to pay for reliable supply. It is not to say that everybody would be able to afford the high cost of power, just as everybody may not be able to afford high cost of power even in towns. But, there would be a good number of families in villages who would be able to do so, infact they are paying much more today, in a not so well organised power generation and supply arrangement, as mentioned above.

  6. Even when Power for All by 2012, was being considered, it was abundantly clear that access to power for all will be made available by 2012. Obviously, there would be a number of families who would not be willing to take electricity connection and pay for it. What is important is that necessary provision for access and connectivity is made, so that anyone wanting to take electricity connection and pay for it should have it. We will have to make a reasonable assumption of the likely emerging customer profile, so that the distribution infrastructure is able to cope with the changing needs. It is also relevant to mention that as and when more customers get connected, the network will need to be regularly updated and upgraded.

  7. Availability of power in villages will continue to be a major challenge. What is required is that, the component of the RGGVY relating to Decentralised Distributed Generation, which has so far remained dormant in implementation, should be appropriately activated. Just as Ministry of Power evolved a Policy and accompanying procedure in respect of very large size Ultra Mega Projects, leading to development of these projects, there is an urgent need to formulate an approach and institutionalise the required procedure for development of a network of Decentralised Distributed Generation Systems throughout the country. All the pre-construction issues should be addressed by such an institutionalised framework under direct supervision of Government and Government agencies. Once such a seriousness and commitment is visible there would be right response from a number of corporate and other organisations to implement the Decentralised Distributed Generation Systems. The Rural Electrification Policy approved by the Government of India in 2006 has made a special provision about this.

  8. An outline of such a Scheme could be on following lines:

  1. We could provide necessary flexibility in choice of technologies. There could be areas where micro-hydel generating systems could be more appropriate, there could be areas where wind generation facilities could provide better answer, in which cases some sort of hybrid facilities may also have to be provided, so that in times of wind generation not being available the other system could take over. We could also consider conventional generation systems based on gas (in cylinder, containers or when pipeline networks expand, piped gas) or even liquid fuel like HFO.

  2. Until the time Solar Photo Voltaic Systems become cost effective, necessary incentive, obviously in a limited way, would be relevant. For large part of India, Bio-mass based generation will be more suitable. In case of Bio-mass power plants (in KW to 1 MW range), the choice of fuels will vary from place to place depending on the local availability or likely availability of different types of Bio-mass.

  3. We may form Shell Companies which could undertake all the preliminary activities for project development. May be, to start with, the initiative may cover about 600 locations, one in each District of the country to test the validity of the approach and to fine tune the procedure for future extensions to other locations.

  4. State Governments may be requested to support by way of facilitating land acquisition, approach roads for the project, as also land for Bio-mass cultivation in case of Bio-mass power generating plants. In the Rural Electrification Policy of the Ministry of Power, it is already provided that such plants upto 1 MW will not need environmental clearance.

  5. The distribution infrastructure created under RGGVY or otherwise should be allowed to be used free of cost to somewhat minimise the impact of high cost of power generation through Decentralised Distributed Generation Systems.

  6. The distribution utilities may contribute to the extent of savings effected, which otherwise these companies would lose due to high technical loses in distribution. This contribution would reduce the impact of higher cost of power generation.

  7. Institutional facilitation could be provided for availing CDM benefits. Individual small entrepreneurs may not be able to organise this on his own. CDM benefits in such cases would accrue not only on account of use of renewable technology of power generation to the extent of replacing fossil fuel based power, but will also include the loses in the systems which would be eliminated or reduced on account of local distribution.

  8. Organisations like PFC and REC could consider long term funding for such projects, may be of the order of 25 years or so, so that burden on cost of generation is partly mitigated.

  9. The manufacturers of Decentralised Distribution Generation Systems could be asked to revisit their costing. With large volume of bulk orders, the cost reduction could be substantial. A number of manufacturing organisations could also be advised to mobilise and bring down the cost through proper technology improvement and value engineering. In all areas of new technologies, the challenge of reducing the cost of equipment would continue to be relevant for many years in the future. This could be brought about through the twin strategy of technological innovations and by massive size of demand and, therefore, orders.

  10. With all the above inputs and facilitations, the entrepreneurs may be asked to Bid for the projects. There could be different groupings for the number of locations for which different types of Bidders with varying qualifying requirements could be entitled to bid. Price of power could be the main criterion.

  11. Role of Regulatory Commission would be very crucial. Considering the cost of equipment for these technologies, fuels, the benefits of CDM, the support which distribution company could provide out of the savings generated from reductions in distribution loses and all other relevant factors, Regulators could determine a tariff for consumers. It cannot be left to developers because acceptability in rural areas may be difficult, inspite of the fact that in an unorganised manner they are paying much more, as has been mentioned earlier. This could be an approach as an alternative to bidding for price of power. Regulators could, keeping in view all factors, declare a tariff which could be reasonable for attracting investments in Decentralised Distributed Generation. My own assessment is that power could be made available in villages at about Rs. 3 to 4.00 per Kwhr in a reliable way. People would accept this. With the considerations, mentioned above, this appears doable.

  12. Based on the experience of DDG's in about 600 Districts, one in each, the initiative could be extended to other locations. The capacity of each of the plants could be based on the needs of a cluster of villages. In order to get a comprehensive set of experience in the initial phase of 600 locations, all possibilities could be incorporated, say 100 KW plants to 1 MW plants in varying ranges of capacities. For example, there could be a number of such plants of 1 MW each of 500 KW each of 200 KW each, 100 KW each and of 50 KW each, catering to different types of clusters of villages in different areas. This type of a structure, at the planning stage itself, will throw up problems and issues of different types which could be sorted out, so that the next phase is presented in a much better and refined manner.

Inclusive growth of the country will only mean the extension of benefits of modern technology to Indian villages. Till the time our villages are deprived of the modern facilities and amenities, such as electricity, gadgets like refrigerator, television, internet etc., we cannot claim that our present better trend of GDP growth is leading to an inclusive growth of the country. We need to recognise that 70% of India lives in villages and emergence of modern technologies are infact widening the gaps between urban and rural India and thus between haves and havenots. Provision of electricity is crucial for almost everything that we need to do in these villages. And, DDG on lines discussed above, appears to be the most appropriate answer to supply of electricity in these villages.