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How to electrify Rural India?, Shri R V Shahi, Former Secretary, Ministry of Power

Power supply, in general, is a major area of concern irrespective of whether it is industry, services, urban domestic, rural domestic or agriculture. The very fact that, on an overall basis, peaking shortages have increased over the last two years to over 16.5% in view of increasing demands due to rising activities all over, is indicative of the situation. Obviously when there is such a serious mismatch between demand and supply, the sectors which are hit most are rural domestic and agriculture. Experience over the years indicates that in any State the shortfall between their requirement at any given point of time and the supply of electricity that they receive is not distributed equitably in the urban and rural areas. Because of pressure of demands from towns and cities and from industrial areas, where the sensitivity of impact due to absence of electricity is comparatively more intense, and the criticism more vociferous through media and otherwise, they inevitably secure the first claims on whatever is available, and it is only the residual that is then made available to the rural India. It is precisely for these reasons that the State Electricity Boards or Distribution Companies resort to massive load shedding programmes for hours together for rural domestic as well as for rural agriculture. This problem does not seem to be going out soon. As the demands for electricity further grow, and notwithstanding the fact that large scale capacity addition programmes have been launched, the mismatches across the country are likely to continue and in fact accentuate. Though the problem of rural electricity supply is an area of concern in almost all the States, twelve States of the country including six large States (Bihar, Jharkhand, Assam, Orissa, U.P. and West Bengal) are most adversely affected. In these States, almost 80% or more rural households did not have electricity connectivity as per the latest census. We thought that the Government of India Flagship Programme, Rajeev Gandhi Grameen Vidyutikaran Yojana (RGGVY) will be a solid answer to address the problem of rural electricity supply. However, we need to now recognize that mere connectivity will not be enough, if it is not appropriately matched with atleast the minimum level of electricity supply. If this does not happen, the existence of distribution networks and connectivity to households might be a sore point causing immense dissatisfaction and resentment among the rural population.

The goal under the Bharat Nirvan and the RGGVY was to give connectivity to all the villages within a period of five years from the time the RGGVY was started and to provide access to all the rural households by 2012. These targets are reasonable, looking from the point of view of our failure, even after more than 60 years of independence, to provide access to electricity to our rural population. However, the task is daunting and challenging. It is precisely for this reason that the implementation strategy under the RGGVY Scheme was radically changed and a number of central public sector companies were also asked to mobilize and participate in Rural Electrification Programme alongwith the State level Electricity Boards and Distribution Companies. Thus, the challenges involved in creating the rural electricity distribution backbone and its further extension for household electrification, were greatly addressed through the coordinated efforts and the above implementation modality. What is, however, compounding the challenge now is to see how to get electricity to these villages. Additional capacities connected to national and State level grids are proving to be only a part solution, and in many cases, particularly those states which suffer large shortages, this is not proving to be even a part solution.

Last year, I had written a piece on "Decentralized Distributed Generation" and had articulated that such an approach through Public - Private - Partnership (PPP) Model is not only relevant but has the ability to address the rural electricity supply problem in a significant way. While that approach needs to be brought into implementation considering the procedures as suggested in that Article, in this paper I would like to describe briefly what else could be done as another, but more powerful, strategy through a more direct intervention by Government agencies. Before I deal with this issue, it is relevant to mention that local generation of electricity, as an important energy development strategy, is emerging as a significant contributor even in highly developed countries. A few years back, we saw a new development of micro turbine and therefore small systems of power generation gaining momentum in a number of States in U.S.A. as a reliable back-up for power supply. These were, however, based on gas as the primary fuel and were meant to take care of a different type of problems. A recent issue of the News Week (April 28, 2008) has carried a very important piece "Big Power Goes Local" and has emphasized on "grass root movement to generate power in towns and basements as challenging the energy industry's status quo." From this long paper a small extract seems relevant to be mentioned here :

"The idea of generating power locally, where it's needed, is as old as power itself. In the late 1800s, light-bulb inventor Thomas Edison envisioned efficient cogeneration of heat and power for every home and business, and even drew up plans for a self-sufficient home powered by a wind generator. However, it was George Westinghouse's vision of a giant hub-and-spoke system of centralized electricity plants and a vast network of power lines and transformer stations to distribute power that won the day. The central plants' efficiency was abominable, and much of the power was lost in transit from electrical resistance in the wires. That didn't matter in an age when fossil fuels were cheap, the environment didn't count and central planning was in vogue.

That equation is changing. The most powerful argument for generating local power is efficiency. The average power plant converts only about 30 percent of the energy content of fossil fuel into power - the rest is lost directly from the plant as heat to the atmosphere or cooling water. Of the power generated, 7 percent is then lost from transmission lines.

The newest, state-of-the-art power plants can reduce direct losses of heat to about 45 percent. Create power locally, even with fossil fuels, and not only do you cut transmission losses but you can also recapture waste heat to boil water or to heat homes. "Trigeneration" machines in schools and hospitals use generated heat to extract power, heating and, in a process that absorbs heat by boiling a liquid coolant, air conditioning out of a single fuel course, raising efficiency to about 90 percent. Do the math: tripling efficiency from 30 to 90 percent cuts fuel needs (and carbon emissions) by two thirds. Add better insulation or more-efficient appliances and local generation could cut the fuel required to heat and power homes and business to a small fraction of today's.

The poster child of local power is Denmark, the world's most energy-efficient nation. This resource-poor country began mandating local cogeneration of heat and power in the 1980s. In the 1990s, the Danish Parliament was the first in the world to create "a feed-in tariff" promoting local sources of alternative energy. Today, with less than one third of the nation's power generated by big utilities, Denmark uses less energy to generate each dollar GDP than any other country in the world."

In the Indian context, in addition to the PPP Model that I had described in the earlier paper (April, 2007), the second approach to be primarily driven by Government agencies could be structured on the following lines:

  1. While recent developments, in last two years, do provide sufficient evidence of emerging interests and enthusiasm among Indian private business groups for investments in power sector, we must recognize that it would take time before we could expect a similar interest from them to come to rural India. It has taken us almost 15 years to enthuse them to get into Indian power sector in a meaningful way, and for that the Government and Indian Parliament had to not only re-orient and restructure various Policy and administrative instruments, but we had to overhaul the entire power industry structure through Electricity Act, 2003. As we all know, various efforts in the past during the period 1991 right upto 2001 did not work. If anything, the more we did during this period, farther the private sector went away from the power industry. Therefore, while we should continue to be optimistic that the private sector would also look at possibilities in rural energy development programmes, we should not expect too much, and in any case, we need not depend only on this alternative as a total solution to rural India's power requirements.

  2. What I suggest is a direct intervention of Government agencies. In a period of last 25 years, in the power sector we have been able to create very strong public sector companies - both technically and financially. We may recall that one of the powerful transformations that happened in Indian power industry was in late 70's when the Government of India decided to set up large power generating companies. Their contribution has not only been significant, but, in fact, all of them put together contribute today more than one third of power generation. Similar initiative is needed to address the power generation and supply issues of rural India. What is being suggested is that NTPC, NHPC, Neyveli Lignite Corporation (under Ministry of Coal), Nuclear Power Corporation (Department of Atomic Energy), Power Finance Corporation and Rural Electrification and IREDA (under Ministry of New and Renewable Energy, MNRE), should join hands and create a National Rural Electricity Generation Company (NREGC). To start with all of them put together could contribute to a paid-up equity of about Rs. 5,000 crores. It is not difficult. All of them are profit making. NTPC alone would be making a profit of the order of Rs. 10,000 crores a year. Other Corporations are also making good profits. With this equity and commensurate amount of loan they could start in a very big way. Loan and equity put together could create a financing package of the order of Rs. 15,000 crores - sufficient enough to handle about 3,000 MW of mini and micro generation facilities spread throughout the country.

  3. Once they are through on this line for next 2 to 3 years, the Corporation could access equity market through IPO and bring in more equity (say additional 5,000 crores) and corresponding debts. This could enable them to create additional 3,000 MW capacity.

  4. Thus, with a financing package of about Rs. 30,000 crores and within a time frame of 3 to 7 years we could definitely target about 6,000 MW of local generation facilities. The plant rating could vary from 200 KW to 2 MW - more on the lower sizes. The average could be assumed to be about 1 MW. With this initiative we could expect the mini and micro generating facilities at about 6,000 locations in rural India. We have over 600 districts in India. About 350 of them are backward districts. Perhaps backward districts could be the priority targets. About 6,000 such small plants could mean that every such district could have these facilities at about 20 locations. They could be connected to 33 KV or 11 KV sub-stations.

  5. Once this picks up through such a strong public sector initiative, and it demonstrates that it succeeds, the PPP Model that I had articulated in my previous Article will also perhaps make equally strong contribution. It would, I think, start picking up after 1 to 2 years of NREGC's initiative.

  6. While the methodology that such a company could follow will, in itself, require a long discussion, to mention briefly as an outline, perhaps they could consider the following approach.

  1. Different areas will be suitable for different types of decentralized generation technologies. Therefore, we should carry out a technology mapping, in phases, for all the districts to be covered with a view to establishing whether one or more of the following technology options would be relevant to them - micro hydel, wind, solar, bio-mass.

  2. Such a technology mapping, when aggregated will present a total picture of how much can be done through each of these technological options.

  3. Pooling of engineering, project management and operation expertise could be determined taking the above as the basis.

  4. Such an aggregation will also enable an optimal procurement of equipment at reasonable prices from various manufacturers.

  5. The Corporation could also consider that the generation is appropriately integrated with supply to the local areas through a chain of Franchisees with full involvement of Panchayati Raj Institutions or similar local bodies. Unless the whole chain from generation to supply to collection of bills is properly structured and orchestrated, the whole approach will be under avoidable stresses and strains.

  1. Another important issue that must be addressed is in relation to the economics of generation. Obviously these emerging technologies are at present comparatively costlier in terms of cost of power generation even though they do have various types of incentives and supports. While scaling up, in terms of numbers and capacities, there will be obvious advantage of lower capital cost, yet it may not be sufficient to bring down the price of power to a level that would be expected by the rural consumers. The following additional points need to be considered:

  1. At present, every State Electricity Board/Distribution Company has to reckon with, in the context of grid connected power supply, cost of transmission, transmission loss, cost of distribution network, and distribution loss in long lines and bear the financial burden.

  2. The distribution utilities and Regulatory Commissions may work out the amount of savings which will be achieved when the supply is made from the local generation facilities. The Commission could also decide that these savings could be passed on to this arrangement.

  3. Similarly, at present, the tariff structure provides for cross subsidy for different types of consumers. If this is superimposed on the local area generation arrangement by the Commission, this will further bring down the price.

  4. The National Rural Energy Generation Corporation (NREGC) will be in a better position to handle the issue of CDM benefits. This also will provide considerable relief on cost of power.

  5. A small part of the cost could also come out from schemes of Corporate Social Responsibility of participating companies as also from other Corporates.

  6. Considering the merit of this proposition and keeping in view its positive impact on climate change related concerns, both Central and State Governments may also consider appropriate support so that the whole scheme becomes viable.

I recall, we in the Ministry of Power had advised NTPC - and they responded positively - to take up Decentralised Distributed Generation (DDG) projects in villages in the nearby areas of their large power projects. I understand almost a dozen such projects have already been taken up in last three years and the results are encouraging. Experience gained in these pilot (average size about 40 KW) projects would be very relevant when the whole approach is scaled up in terms of number and sizes. Considerable amount of experience is available in the country on setting up and operating these small generation facilities. What would be necessary is to pool together these experiences with a view to making improvement in all aspects - engineering, construction, fuels in case of bio-mass based projects, and operation and maintenance etc. With such a major expansion and demand for equipment, there would be resultant upgradation of all these technologies. These upgradations would be leading to improved efficiency and cost reduction.

This initiative will not only make a significant dent on this issue, it will also project the participating corporations in a better light. Corporate Social Responsibility (CSR) has emerged, in recent years, as one of the most important concepts in corporate management and governance. In India the faster economic development is leading to rising levels of income of all the people but this rise is also causing wider disparity. One of the primary reasons, that we have not been able to bring the prosperity of the country as a whole to large masses of rural population and thus have not been able to make a major impact on our goal of an inclusive growth, has been our inability to get for these people access to energy and more particularly to electricity. The Scheme described in this paper holds tremendous potential to address this challenge.