Energy

How Private Mini-Grids Can End the Darkness of Rural India

Privately run local mini-grids can be a viable interim solution to India’s electrification problem, but we need a clear-cut policy and regulatory framework.

Credit: World Bank Photo/Flickr CC BY-NC-ND 2.0

Credit: World Bank Photo/Flickr CC BY-NC-ND 2.0

Nearly 70 years after independence and a quarter of a century after economic reforms, 400 million Indians, nearly half of whom live in rural areas, still use kerosene lamps for lighting, according to the government’s own admission. They constitute a third of all humanity without access to grid supply electricity on the entire planet. Government after government has set and missed deadlines, the last being the UPA’s promise of electricity for all by 2012.

Now the BJP government has once again moved the goal post to 2022, by which year prime minister Narendra Modi promises to supply electricity to all households. Meanwhile, generation capacity in the country has grown by an impressive 7% every year for over a decade and transmission lines have been extended a further 20,000 kilometres. However, most of this is going to affluent and profligate urban Indians, using new electrical gadgets in larger numbers.

Impressive initiatives, disappointing results

From time to time, the government comes up with new rural electrification initiatives and tongue-twisting yojanas named after dead politicians. We have an exclusive ministry dedicated to new and renewable energy (MNRE), something few countries can boast of. The government has issued elaborate guidelines for setting up decentralised distributed generation (DDG) facilities in unconnected areas, even including already connected villages that receive power supply for less than six hours a day under their purview. We have an ambitious national solar mission that promised 20,000 megawatts of grid-connected solar power, hugely subsidised by the government, now scaled up to a whopping 100,000 megawatts. We have even identified 60 solar cities where we hope to reduce dependence on fossil fuels through rooftop solar panels and other innovations. In addition, the MNRE lists an impressive array of renewable technologies suitable for off-grid supply in true motherhood and apple pie fashion.

All of this sounds great. Except, this pie is wedged high in the sky. All the initiatives taken by the government are falling through the cracks somewhere, even as faceless villagers continue to toil in darkness. Though the government has set aside substantial funding for DDGs, the funds are to be administered by the state governments through their renewable energy development agencies.

Private mini-grids: A viable interim alternative?

It is time we faced up to the reality: neither our Rural Electrification Corporation nor the state renewable energy development agencies have been able to connect every corner of our vast country to our beleaguered centralised grid, nor are they likely to anytime soon. Decentralisation has to go hand-in-hand with delegation to private enterprise. Even in Africa, thousands of villages are being supplied through mini-grids by private initiatives, not by their inept and/or corrupt governments. Mini-grids set up and run by private businesses serve localised needs – maybe a few thousand households or a few hundred hamlets. In India, mini-grids can provide a viable interim solution until the long arm of the utility reaches these remote corners.

But there is a catch. We associate mini-grids with a motherhood concept called renewable energy. While it is wonderful to have wind, solar, biodiesel, biogas, micro-hydel or whatever renewable source we can find light up these unconnected villages, they cannot be tied-down to only renewable sources. Diesel and kerosene distribution networks are wide and entrenched, and it would be possible for desperate villages to quickly set up a diesel generator to supply themselves, provided that the cost of electricity so generated is affordable.

In several countries in Africa, localised diesel generation has proved to be a viable alternative to grid extension. Economics, and not the environment, dictates the choice of technology. While not making a case for distributed diesel generation being the norm for off-grid supply, they need not be frowned upon – especially when most of us city-dwellers couldn’t care less when our ACs are powered by electricity generated from dirty coal. While capital subsidies can be reserved exclusively for renewably generated electricity, diesel generation should be made part of our off-grid policy.

India does not seem to have a clear-cut off-grid policy. Huge initial capital costs of setting up distributed generation facilities is the biggest obstacle, for which government schemes offer attractive upfront subsidies. Yet, cumbersome rules governing subsidy disbursal mean that few entrepreneurs are coming forward to avail the facility of setting up isolated mini-grids. Except occasional success stories in the Sunderbans in West Bengal, Bihar and Jharkhand, mini-grids are unknown in the rest of India.

Why such few mini-grids?

This is because we have not made the policy environment investor-friendly. There is much ambiguity and uncertainty surrounding mini-grids, there are numerous questions that remain unanswered. For instance, should the government or its agencies dictate the type of renewable or other technology to be adopted, or should the choice of technology, including the use of diesel, be left to the community to decide? Should there be licensing in some form for mini-grids or can they be totally exempt? If an investor comes forward to build a solar photovoltaic facility to supply a few thousand villages, for instance, will he be expected to stay in the village and run the plant or can it be handed over to the local community? In which case, where is the training facility to train local community representatives to operate and maintain a mini-grid? Since electricity is a basic utility, how is the consumer protected from usurious tariffs if the mini-grid is built and operated by an unregulated private business? If the capacity of the mini-grid is limited, how does the operator ensure that consumers do not overdraw power leading to collapse of the grid or at the least, depriving other consumers in the cluster of their due share of power?

And what happens to this mini-grid when the national grid finally gets extended to this region? If mini-grids are envisaged to connect to the main grid eventually, technical specifications will have to match, which means ex-ante regulation of compatible technical and safety standards. In any case, since electricity is a good servant but can be a dangerous master, should there not be some supervision of safety standards by a neutral authority? Will mini-grids which generate surplus power be allowed to supply to the grid? Should they then qualify for feed-in-tariffs? How will these be structured?

Need for a regulatory framework

While full-fledged regulatory supervision of mini-grids by the state will be counter-productive, some light-handed regulation is imperative considering the nature of the beast called electricity. Section 14a of the Electricity Act 2003 says that a person generating electricity to a rural area from renewable sources notified by the state government is exempt from licensing requirements. However, any private investor coming forward to set up a mini-grid will have to navigate a legal and regulatory minefield: identification and notification by the state governments of areas, the mechanism for dispensing subsidies where applicable and linking these to each model of ownership/management, methods of supervision of safety and technical features and identification of liabilities thereof, a discussion on various tariff models and guidelines for tariff-setting under each model, a mechanism for dispute resolution, institutional set up for various aspects relating to mini-grids; clear protocols for connectivity to the main grid as and when it happens, etc.

In fact, with the emergence of renewable energy certificates, some of these mini-grids with surplus power to sell to the main grid can become not just self-sustaining, but even a source of revenue to the host cluster of villages. In addition, mini-grids will industrialise rural India in a way that Gandhi might have approved of. Investors need clarity, stability and predictability. The potential is immense, if only the government can convert its pious statements of intent into an enabling environment through the formulation of a clear-cut policy and regulatory framework.

Sudha Mahalingam is an independent energy consultant and former Member, Petroleum and Natural Gas Regulatory Board.

  • Dr.K.SParthasarathy

    A very thought provoking article which identifies the problems and issues associated with mini-grids. Diesel generation may be too expensive.Only the richest few in remote villages may be able to afford the luxury.

  • K SHESHU BABU

    Many villages need electrification even after so many years of Independence. While the electrification programmes are mainly catering to the rich industrialists and business houses in urban areas, the rural electrification needs a lot to be desired. The country is situated in tropics where abundant solar energy can be tapped. Small solar power units in localised areas should be installed so that the cost of establishment would be relatively cheaper and supply of electricity becomes easier. The government should invest on small projects instead of large unviable projects.

  • Debajit Palit

    The article misses many points. The states with maximum no of private sector mini-grids (i.e. UP) and with maximum no of public funded mini-grids set up by a government agencies (i.e Chhattisgarh) are not mentioned. That there are many diesel based micro-grids running in Bihar & UP (locally called choti bijli) is also not mentioned. New policies have recently been formulated by states such as UP & Bihar. New tariff policy of GoI has also explicitly recognized the mini-grids and has also mentioned that mini-grids can be interconnected to main grids as and when they are extended so as to ensure that private investment is protected. MNRE is coming out with new mini-grid policy, the draft is already been circulated to stakeholders.

  • Debajit Palit

    The article misses many points. The states with maximum no of private sector mini-grids (i.e. UP) and with maximum no of public funded mini-grids set up by a government agencies (i.e Chhattisgarh) are not mentioned. That there are many diesel based micro-grids running in Bihar & UP (locally called choti bijli) is also not mentioned. New policies have recently been formulated by states such as UP & Bihar. New tariff policy of GoI has also explicitly recognized the mini-grids and has also mentioned that mini-grids can be interconnected to main grids as and when they are extended so as to ensure that private investment is protected. MNRE is coming out with new mini-grid policy, the draft is already been circulated to stakeholders.