This is a transcript of a talk delivered on 31.8.2015
Good afternoon, it is really a pleasure to be able to visit Ashoka University and to meet with all of you this afternoon. I am not going to be speaking about my organisation, but more about a concept that I would like to share with you and a particular void, a particular kind of poverty which is energy poverty. Estimates vary but it is believed that almost 400 million people in India today do not have access to reliable electricity i.e. one-third of our population. And while we have made remarkable progress in actually bringing electrical power to our people over the last many decades, it is still unacceptable that in India today, one-third, one out of every three people, cannot rely on having access to electricity. Energy poverty, the absence of access to electricity, is a particularly pernicious form of poverty. It impacts health, education, livelihoods and has a disproportionate impact on women. And things that we in urban areas take for granted, such as the ability to flick on a light switch, charge a cellphone, put on a fan, watch television or use a refrigerator, these are all concepts that for hundreds of millions of our fellow Indians are not attainable. As an example, I am also a creature of urban India, but my yoga teacher is a young man from Bihar who helps keep me in touch with the other part of life in our country. And he tells me whenever he goes home to a village that is supposedly electrified, he has basically in the evenings at home to dip a wick in kerosene and stick it in to a bottle and the family sits around that. So that unfortunately is the reality of too many people in our country.The government is aware of this and has been acting upon this. And as I said, there has been steady progress in bringing electricity to more and more people, but there are just too many people who are still left out of that net and the question is when will they get what they need and they deserve.
It is important when dealing with government announcements to also be clear on what definitions are.The government has had many schemes on electrifying rural India. And if you listen to their statements, they claim that 90% of India is now electrified. The question is what is their definition of electrification? Often, it just says that there is a wire leading to a village and that is when they declare victory.There is no mention made of is there any electricity running through those wires, how many hours in the day does that electricity course, what is the stability of the voltage levels, what is the predictability of the hours when that electricity, that is available, comes. And most importantly, there is no mention made of how many households or individuals are actually connected to the electricity, the people who reside inside the village.So if one goes in that level of detail, one can understand why we are talking about hundreds of millions of people.
So we need to discuss how best we can get affordable and reliable electricity to the millions that do without. The government’s action plan clearly is based on getting the grid to these people who are not yet covered and actually just a few days ago, the Prime Minister announced that within the next 1,000 days, we will have 100% coverage. But there are many challenges with that plan. The grid will need more power plants to feed into that grid. Those power plants invariably will be fired with coal. As we all know, the mining of coal, the burning of coal is environmentally damaging, and we are already having to import larger and larger amounts of coal to meet our needs. And apart from being dirty, coal burning is also inefficient. On an average, our better plants use 3 units of coal to produce 1 unit of electricity and our more inefficient and older ones actually take 4 units of coal to product 1 unit of electricity. And the grids themselves are very expensive to build, especially to remoter reaches and to those areas that are far away from where the electricity is actually being generated. There is a long lead time in building a plant or in extending a grid and grids themselves have inefficiencies. We have average technical losses of up to 30% of the electricity that is put into the grid and by the time it reaches the end user, 30% of it is lost. And grids themselves have environmental impacts as they traverse forests and other ecologically sensitive areas.
So for all these reasons, this grand plan of continuing to build power plants and build grids and get electricity to our people may not work and may not have the desired benefits.It is estimated that grid power costs our state electricity boards about Rs. 10 a unit to buy and average realisations we are told are Rs. 5.So they effectively lose Rs. 5 for every unit of electricity they sell. And these electricity boards, that are already bankrupt, find it far easiest not to buy electricity and not to supply it to individuals and villages and households, even if there is supply or there is a grid.
So what are the alternatives that are less expensive, more immediate and less ecologically harmful? The market and the demand certainly exist. As I mentioned, there are 400 million people literally dying for a product, it is huge unmet demand people either go without, or they go to other inefficient and polluting and expensive solutions like kerosene, like diesel, like firewood and like biomass.And the cost of this is extremely high, both in nominal trends and much higher if we factor in health and environmental costs. And the tragedy is that the poorest of our country pay the most for the electricity that they need. So we need effective alternatives that meet these needs and we believe the answer lies in solar power, especially distributed solar power.Activity in this space has been going on for many years and we have a range of solutions that are available in rural India, from solar powered appliances, particularly lanterns, to rooftop solar installations that can, at a minimum, generate enough electricity to provide light for two bulbs and maybe a cell charging point, to more extensive solutions like mini grids where entire communities or householdsand enterprises can get the electricity they need from solar power.
So these localised, reliable, scalable solutions meet both equity and aspirational needs of our population. And when they are introduced, they unleash a virtuous circle of social and economic activity that positively feeds upon itself, generating more demand and more benefits to the communities in question and positively impacting the communities, the households and the enterprises there.
So this is known and the question is why have not these systems blanketed the country and solved the problem I am talking about today. So obviously each of these situations face their own challenges and I will briefly go through some of those to see how best they can be addressed. First is the technology. These are not high technology solutions. Solar PV technology is quite tested, is quite proven and is quite prevalent and the cost of this technology has been dropping steadily as the price of solar panels has dropped. And actually on the usage, on the demand side, technology has made a significant impact on energy efficiency. So, for example, LEDs have had a dramatic impact on the access to lighting in rural areas because the amount of load necessary to light a couple of bulbs has dropped dramatically. But we still need to do a lot more work in this space of efficiency as we go up the energy consumption ladder and go beyond the basics of having two light bulbs.So we need more efficient fans,we need more efficient refrigerators, televisions and agricultural pump sets. But one area in technology that still needs a major breakthrough and if it happens will make a dramatic change is that in storage. Renewable power having this nature, its intermittency has to be augmented the storage capacity and the day the world can deliver a more efficient and more available storage solution, we believe that the range of these solutions will increase markedly.
Finance, as always, is a significant issue. It is a major challenge.The solar solutions have a particular characteristic associated with them in that most of the expenditure is frontend, the installation, while the actual running costs are very low. So we need capital to install a solar based system and this cost has to be borne by the supplier or by the consumeror by financial intermediary who can bridge the gap between the supplier and the consumer.And we need different and innovative payment models and those are emerging like prepaid power or pay as you go.But in addition to the flow of capital, equally important are the issues around the understanding and assessment of risk associated with such investments and we desperately also need risk mitigating mechanisms like first loss coverage and like insurance which are still fairly immature in the country and a lot more work needs to be done over there.
Capacity is again a key need and capacity is needed at all levels but we need a cohort of ITI level trained technicians who can service and install such systems. And one of the key characteristics of such a solution is that it does not lend itself to a top-down structure. You cannot have a large government body or a large corporate entity aiming to electrify 1,000 villages or 2,000 villages at a time. By definition, this solution has to be ground up and we need village level enterprises to establish these to take ownership and to act both as owner and customer. So for this, we need a group of village level entrepreneurs that could be self-help groups. We have examples of women self-help groups successfully running mini grids but we really need a group of people who can understand the business, who can communicate a business plan,who can deal with a banker and obtain the financing they need. And if there is one capacity that we are in short supply is a group of such entrepreneurs who can communicate their ambitions and deal with the financial community.
And there is a significant amount of, if I may say, illiteracy in the financial community as well. Most of our bankers do not understand the risks involved in a project like this and because they do not understand it, they just don’t deal with it because they think it is not something they can handle but we again need a lot of training for our bankers and our lenders to understand how the risk works and how you can structure transactions such that you have an acceptable level of risk and an acceptable level of grid.
And finally, we have policy, that is an area in which my organisation works in particular, because for investment to take place, you need some predictability around policy. What investors and businessmen do not like is risk that they cannot predict. Electricity is a state regulated subject and every state in the country hasstate electricity regulatory boards that actually administer the price of electricity and the principle they work on is that all consumers within a particular category can access electricity at the same price. So if you are buying electricity from the grid, you know what price you can get it at. However, the economics of mini grids are very different. They lack the economies of scale and they have to perforce work on a fully loaded cost model. They cannot ignore certain other costs that maybe a large grid operate can. So the risk is that what happens to our investment the day the regulator says you have to compete with the grid and offer them the same price. That will obviously mean the death knell of this industry. So what we are seeking to do is work with regulators, especially in a few key states where this is a major problem, to develop a regulatory policy framework where the state will intermediate and try to address the gap between the price at which the electricity is being produced and the price at which electricity needs to be bought by the consumers such that it protects both individuals and enables this business to go forward. A related policy risk that we are seeking to address is what happens to your investment the day the grid arrives.There you have gone ahead and established this grid, got the customers, got the technology and are running a good business and one day the state electricity board decides to wire a few villages and basically to take away your business.
Here again, I think it is a fundamental difference in how we should be looking at this business of mini grids. Too often, it is looked as a band aid, as a bridge, as a temporary solution. But in a resource poor country, in a country which is energy poor as well, I think we need to use all the resources that we have and use the mini-grid system as a complement to the overall grid planning and not as a substitute. So there too work is going on with the regulators such that mini grid operators, if the grid arrives, can work as franchisees to the main grid and act as a component. So we believe by systematically addressing these challenges, we see an alternate future to one that is waiting for the grid to reach every village, for more thermal power plants to be built at a significant financial and ecological cost and that will address the needs of rural India in a way that is reliable, affordable and clean and we look forward to continuing that work and hopefully coming back and reporting that this problem, if not completely eliminated, has been significantly addressed. Thank you.
Recent related policy initiatives include:
The federal Ministry of New and Renewable Energy constituted a committee for drafting a national policy for mini grids. The objective of the policy is to promote deployment of micro and mini grids powered by RE sources such as solar, biomass, pico hydro, wind etc. in un-served and underserved parts of the country by encouraging the development of State-level policies and regulations, that enable participation of Energy Service Companies (ESCOs). The policy is still undergoing inter-ministerial discussions and is expected to be announced soon.
The “Saubhagya” Scheme has been launched to ensure electrification of all willing households in the country in both rural and urban areas by 31st of December 2018.The total outlay of the scheme is INR 16,320 crore. The beneficiaries for free electricity connections would be identified using Socio Economic and Caste Census (SECC) 2011 data. However, un-electrified households not covered under the SECC data would also be provided electricity connections under the scheme on payment of Rs. 500 which shall be recovered by discoms in 10 instalments through electricity bill. It will provide solar power packs of 200 to 300 Wp with battery bank for un-electrified households located in remote and inaccessible areas.