1 ADB Policy Research Network Project by T L Sankar TERI Conference Hall 23 rd November 2004

2 New Deal for Rural Electrification 1.Prior to Electricity Act, 2003, the laws did not have special mention for Rural Electrification (RE). 2.R.E. Received momentum due to the clamor of politicians and public for modern and convenient lighting and pumping energy. 3.Village Electrified defined as one connection at least in a Revenue Village. 4.By 2002, cent percent village electrification in 8 States and over 80% villages. 5.In year 2000, villages electrification redefined as one house in each habitation - No. of villages to be electrified over 80, In 2003, redefined further – at least 10% of households should be electrified - No. estimated as 1.12 lakhs ! (contd.)

3 7.No. of pump sets increased rapidly till 1990 to 130 lakhs and shapely decelerated later a farmers movement forced reduction of tariff for pump set farmers to make it on par with canal irrigation farmers in Karnataka. Others followed. 9.Politics forced States in competitive reduction of agricultural tariff to near zero. 10.Utilities lost interest in rural electrification. Commercialization of utilities as part of Reforms intensified the neglect of rural electrification. New Deal for Rural Electrification (contd.)

4 Electricity Act 2003 – A new deal for Rural Electricity 1.Section 6 - Government shall endeavour to supply electricity to all areas including villages and hamlets. 2.Section-5 - Government of India (GOI) shall consult States and others and formulate national policy for rural electrification including management of rural power systems through Panchayats, User - Associations, Cooperatives, franchisees. 3.Section - 4 GOI shall notify a policy permitting stand alone systems including systems based on renewable energy technologies (RETs) 4.Draft Rural Electrification Policy published in 2003, seeking public opinions.

5 Electricity Act 2003 – A New deal for Rural Electricity (Contd.) 5.REP sets the goals – (AARQA) A - Accessibility – electrify all households by A – Availability – Adequate energy supply by R – Reliability – 24 hours supply by Q – Quality 100% quality by A – Affordability – pricing based on ability to pay. 6.Village Electrification Targets set in – All villages to be electrified by one unit of electricity per day to all BPL households. 7.States to prepares and publish Rural Electrification Policy and Plans within 6 months. 8.Government shall create Rural Electrification Distribution Backbone (REDB) – One 33/11 kV substation / in per block and one DT in every human settlement.

6 Electrification of Rural and Poor households – other Country Experiences USA First to give special attention to rural electrification. TVA – Hydel power – in Government projects reserved for special purposes. Discount for interruptive supplies. Contd.

7 CHINA Most villages electrified. Hasty efforts – T&D losses increase 40% of total power is consumed in rural areas of this total rural consumption 58% goes to non- farm consumption by T&V industries. Distribution / Supply through 2400 County level entities. Owned by provincial power company or separate company often managed by local bodies. Rates for domestic higher, in separated companies. Reform efforts - TA by ADB to rationalize tariff, to better governance, and to proper regulation.

8 South Africa: HouseholdElectrifiedPercentage Rural % Urban % 2 million households – use prepaid meters. Rates are commercially determined so far. Clamor is to give 50 units free power per month to poor households. If this subsidy is to be absorbed by other consumers, their tariff would increase by 4%. Search is on - for solutions. Millions

9 Sri Lanka: Proposal to connect all households with electricity. Upfront cost to be met from a revolving fund through micro finance. Japan Fund for Poverty Reduction (JFPR) managed by ADB would meet fund requirements through grants $1.5 million. Two NGOs would distribute and collect payments against the micro finance. Summary: Most developing countries concerned at poor state of connectivity to rural poor households. Affordability issues under explorations.

10 Issues in Electrifying all Villages - Finance 1.Total number of villages to be electrified before lakhs. A List Villages connected Distribution lines needed lakhs. B List Villages to be connected by transmission lakhs. 2.Estimate of Cost A 3 lakhs/village = 40 lakhs x 3 lakhs = Rs.1200 crores. B 10 lakhs/villages = Rs.7300 cr. = Rs.8500 cr. Central share 90% = Rs.7600 crores. To be spend in 3 years - appears feasible? Contd.

11 3.Households to be electrified before lakh current backlog lakh new households in lakh total by Cost per household – Rs.1500 only. Total cost = Rs crores of which utility 50% = Rs.6450 crores in 8 years = About Rs.800 crores/ year. Private investment = Rs.800 crores/year. Can it be arranged as micro credit through commercial banks ?

12 Issues in Accelerated Rural Electrification – Technical Minimum Technical Requirements are : (a)They should be adequate power to supply. (b) The system should be capable to handle the changed load structure with a very high peak load. (c) RET use for stand alone distributed generating stations. * Plans to increase the generating capacity by 110,000 MW in X and XI plans provide for 7.6% growth rate per year * Observed growth rate – 5.9% per year. * Peak load capacity projected to increase as per plan may be adequate. * Electrification of un-connected villages through RET to be examined.

13 Issues in Accelerated Rural Electrification – Quality Issues Indicators of Quality A – Power timely as per consumer needs. B – Frequency steady around 50 Hz/sec. C – Voltage steady around 220 volts. D – Customer service standards similar to urban areas. A&D depend on input received from above into 33/11 kV sub-station -Energy will be available in adequate quantity. -Adequate peak meeting capability available - frequency assured steadiness. Contd.

14 - However, supply in time as per consumer requirements would need – partitioning of consumers into three categories. (a)those who require supply including during peak time at same hours throughout the years, Eg. Domestic, Commercial. (b)those whose require supply same time through out the year but services can be interrupted during peak hours. Eg. LT industries and Agriculture. (c) those whose needs have to be monitored differently as per seasonal conditions and crops under cultivation - Agriculture, Horticulture. Contd.

15 Contd. C.Installation of adequate DTs to supplement REDB can help to keep voltage steady. D. Service Standards provided to Rural Consumers depends on attitudes and work culture of the field staff of utility in rural areas –possible only through institutional changes.

16 Issues in Accelerated Rural Electrification – Price and Subsidy Rural / Agricultural tariff has to be low in view of 1)Low paying capacity of consumers. 2)Low productivity of activities using power. Eg. Agriculture. 3)Restricted, rostered supply. Price of power in rural areas can be reduced (A)by reducing cost to supply. (B)by making more accurate cost-to-serve calculations allowing for interruptability and limited hours of supply excluding peak hours. (C)by subsiding from Government through budget. Contd.

17 A - is possible if the capex of extending lines up to DTs (REDB) is treated as Government contribution for socio-economic development or by linking rural / agriculture services to lowest cost generating plants owned by Government. B – rural supplies are limited to 6-8 hours a day for about 150 days for Agriculture and for 6-12 hours a day for domestic cut off for 6-12 hours a day. 50% Agriculture needs during night hours. Proper cost-to-serve computation will make tariff quite low. Contd.

18 C – Government subsidy should aim to bring down tariff for Agriculture to rates equivalent to canal irrigation rates – cannot be free supply. - should be limited to specific numbers focused on small farmers or BPL farmers. - should be delivered through coupons system. Poor households supply limited to – 1 unit / day and charged at Re.1/- per unit. It is feasible in most States. Contd.

19 Several models are possible. Issues in Accelerated Rural Electrification – Institutional Issues Model – 1: Organizing a separate Rural Electricity Supply Corporation (RESC) with assets including all low cost power generating plants and all the distribution lines below 33 kV. Model – II: Same as above, - but all generating plants are with GENCO. Contd.

20 Model – III: Based on corporatisation and unbundling already done, with special attention to rural areas. Model – III – A : No change but geared to fulfilling new targets in Rural Electrification. Model – III – B : DISCOMs devolve management responsibility on Panchayats. Model – III – C : DISCOMs appoint franchisees to manage system below 33/11 kV sub-stations. Is it possible to relate the success of each model to certain field conditions and develop a typology of what model works and where? Contd.

21 Towards a Rural Energisation Programme Rural areas are poorly served with electricity and also with other fuels like Kerosene, LPG and Diesel. Can the Distribution of all fuels be under one village entity. Can water / agricultural management be integrated with energy management at the extensions level in villages. Can industrial development plans and electrification plans be integrated - Chinese T&V industries will be a model? What are the suitable institutional arrangements? Are there models functioning in India or outside?

22 Why Ahead - An Action Plan 1.Empowered Taskforce to be set up. 2.States to prepare Rural Electrification Master Plan in 3 months. 3.States to notify “Rural Areas” for purposes of Section 6 of Electricity Act within 3 months. 4.States should identify and declare villages to be reached through Grid in 7 years. 5.States should map the needs and resources of villages identified as candidates for stand alone systems, especially those based on RET. Contd.

23 Why Ahead - An Action Plan 6.Government / ERC to notify procedure for competitive purchase of services for Rural Electrification. 7.Model contracts for transferring responsibility to Panchayats to be published. 8.Manuals for Systematic Operating Procedures (SOP)for power supply entities at village level to be framed. 9.Training Seminars. 10.Taskforce to review progress and experience once every three months and share it with public and Annual Report to Parliament.