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Making Decentralised Distributed Generation Economically Workable, Shri R V Shahi, Former Secretary, Ministry of Power

Making Decentralised Distributed Generation Economically Workable
[R V Shahi's Weekly Column for Infraline, June 7, 2010]

On the subject of Decentralized Distributed Generation in villages, I had the opportunity to attend a one day Conference on 2nd June, 2010, which was organized by the Rockefeller Foundation and Decentralized Energy Systems India (DESI) Pvt. Ltd. I participated in the Panel discussions and had the opportunity to share my thoughts. Mr. Gupta, Secretary (Ministry of New and Renewable Energy), also participated in the Panel discussion and made a number of observations. Before, I outline the points I made, it is relevant to briefly discuss a very important concept, that the Rockefeller Foundation and Decentralized Energy Systems India (DESI) Pvt. Ltd. have come out with, to make the local generation through new technologies more economical and workable.

  • While the situation would gradually improve with the progressive increase in rural economic activities, leading to a more balanced electricity demand pattern over the 24 hour period, immediately tapping the demand potential which is already available from the Telecom Towers in rural area seems to be a good part solution to the problem.

  • It is estimated that there are over 2,50,000 Telecom Towers and the number is increasing at the rate of 10,000 per month.

  • Approximately each of these Towers needs uninterrupted power supply equal to 10-15 KVA. For a group of villages, from a number of Towers, the aggregate demand, when met from local generation, has the potential to make all the difference in the load profile.

  • It is also estimated that at present because of unreliable power supply from the Grid, these Towers are serviced by diesel supported generation systems and the amount of diesel consumed is of the order of 2 billion litres annually.

  • It needs to be appreciated that replacement of diesel by other means of supplying power, not only addresses the issue of import of petroleum fuel, but also the concerns of global warming. The high cost of electricity generation through new energy generating systems has to be evaluated keeping in view both these considerations.

  • Apart from the Telecom Towers providing the anchor loads, a few other anchor loads which may be considered include pumping for irrigation and local economic activities (existing or to be developed).

  • The demand pattern needs to be examined in detail in terms of hours of the day, so that the profile of demands could be appropriately matched with generation to be made available from technology mix. Sophistication associated with optimization of load has to be harmonized with a mix of diesel supported generation (the proportion to be drastically reduced), Photo Voltaic Systems, and Bio-mass based generation.

I have written, in the past, a few articles on the subject of supply of electricity in rural India. The thrust of these papers has always been that in spite of large scale expansion of power generation capacity, which is currently under progress, perhaps the rural areas will continue to suffer the shortage of power. Even in the long term perspective of next 25 years, which projects the installed capacity at over 800 GW, the power availability may not be sufficient to take care of the ever increasing demands. China is an example in case, where even though the installed capacity has crossed 800 GW with their accelerated capacity addition programmes over last 30 years, they do experience shortages. When the power supply system is faced with the situation of shortage, it is the rural area which gets the last priority. Therefore, in all the previous papers I tried to articulate that only the Decentralized Distributed Generation systems of smaller capacity will be able to mitigate the problem of rural electricity supply.

If the country had abundance of gas supply, and even the rural areas had been networked with national gas grid, local grids and spur pipelines, perhaps small micro-turbine, fuelled by natural gas, could have been an answer to the decentralized generation approach for reliable electricity supply in rural areas. Unfortunately, India does not have that much of gas and, therefore, this programme, atleast in the foreseeable future, does not appear to be possible. Even the LNG to supplement the domestic gas production may not be adequate to meet such needs.

Apart from the cost of new and renewable technologies being comparatively much higher than the conventional power generating systems, one of the other major problems which escalate the cost of power supply to such small decentralized generation systems is the highly unfavourable load profile in rural areas. Most of the villages need electricity supply for limited hours mainly for lighting. It is precisely for this reason that when the Ministry of Power was conceptualizing the Scheme of rural electrification, which ultimately was launched as Rajeev Gandhi Grameen Vidyutikaran Yojna (RGGVY), the objectives included not only lighting but also a number of rural economic activities viz. small agro-based industrial establishments, cold storage etc.

The goal of inclusive growth cannot be met just by providing electricity in rural areas for lighting. Extensive rural based economic activities would not only enable the small local power generation systems to cater to a more evenly placed demand pattern throughout the day and night, but, in fact, it will also lead to acceleration of economic activities, leading, in turn, to overall development and empowerment of rural India. This is obviously going to be a long drawn process. Rural electrification programmes, therefore, must be suitably integrated with overall rural development programmes. Bharat Nirman, no doubt, has captured some of these issues, but it mainly focuses on rural infrastructure. These are necessary, but not sufficient to directly promote rural economic activities. We need to go beyond infrastructure.

The RGGVY, no doubt, focuses on creation of Rural Electricity Distribution Backbone and also household connectivity for the poor families. But, the scope of this Scheme goes beyond the distribution infrastructure. The grant funding to the extent of 90%, which is available under this Scheme, is also available for Decentralized Distributed Generation. What is required is an organized response from industry and corporates. Somehow, business groups have not focused their attention to this important need of the country. We need Hindustan Livers for rural electricity. In the initial stage, small and medium entrepreneurs could make a big difference. But, very soon we need active involvement of corporates in this major national endeavour.

While dedicated generation and distribution system is an appropriate concept and will work with the exercise of matching the load profile with generation mix, as mentioned above, in many cases option of Grid connectivity could also be used to take care of uneven load profile in rural areas. The distribution system, which could work off-the-Grid, but, when needed, also have the compatibility of being connected with the Grid, would be most appropriate.

All the rural generation systems, which are renewable in nature, will qualify for CDM benefits. Individual generating organizations, particularly if they are in small and medium enterprise group, may not have the ability to access the concessions and incentives which may be available under CDM Schemes. An institutionalized arrangement, which could support all these entrepreneurs and get them these benefits, would lead to improving the economics of power generation. Once large corporates get motivated to enter this field, perhaps they may be on their own for these tasks.

In the Rural Electrification Policy (2006) of the Ministry of Power, a number of facilities for decentralized generation systems upto 1 MW have been envisaged. Many of these have to be coordinated and provided by the concerned State Governments. The process needs to be catalyzed. Regulatory Commissions could play a significant role by bringing out greater degree of clarity on facilitation by the State Governments, on pricing, and on use of local area distribution systems were needed. In the RGGVY, since the distribution network is mostly grant funded, the wheeling charge could be almost zero. This could make the economics of power supply through such systems even more affordable.

Financing of these projects is also an important area to be addressed. Long term finance with softer terms on interest will further enable in reducing the cost of generation. Power Finance Corporation and Rural Electrification Corporation, could consider accessing fund from various national and international agencies, which could make less expensive capital available for such renewable energy generating systems. In turn, PFC and REC could evolve schemes to provide loan for a period of 25 years or so with lower interest rates.

State Governments and State Regulatory Commissions could evaluate the positive impact of such decentralized systems on economics of their conventional power supply, which entails high amount of transmission and distribution loss and poor bill collection efficiency. The benefit derived due to local generation could be shared for reducing the cost of generation through such non conventional systems. In many States, in villages, if we include the T&D loss and bill collection gaps, the revenue realized is not even 40 percent. Local generation, in such cases, will lead to tremendous amount of savings to the State distribution companies. Involvement of Panchayats in helping bill collection etc. will be very useful.

At present, more than 350,000 villages (more than 50% of total) use kerosene oil for lighting. The Government subsidy on this fuel is huge. The local decentralized generation will obviously reduce the subsidy burden. A part of such savings could be shared to reduce the cost of generation in these systems. A suitable mechanism will have to be worked out to incentivize the Decentralized Distributed Generation by deploying savings out of the reduction in subsidy.

Finally, just like Ultra Mega Project Scheme, Ministry of Power may consider playing a catalyst's role to launch, on an all India basis, the Decentralized Distributed Generation development. It could coordinate with Ministry of New and Renewable Energy and State Governments to provide the required support, so that the industry is brought into this opportunity in a big way.