Originally Published 2016-09-01 07:39:15 Published on Sep 01, 2016
Around 300 million people in India’s villages are still without power.
Now, plan for power for all

It would indeed be a great moment in India’s history when all six lakh villages light up the evening sky. Unfortunately, this is not the case today. Around 300 million people in India’s villages are still without power. That is why Prime Minister Modi was so keen to talk about the electrification of villages in his recent Independence Day speech. The truth is, like many PMs before him, Modi is trying to achieve an uphill and a very ambitious task of providing power to all, 24x7, by 2019.

If all villages had electricity, many small and micro enterprises could be started which would give jobs to their inhabitants and the urban rural divide could be lessened. Even simple crafts like pot making could be mechanised by electrically powered potter’s wheel. Yet complete electrification of India has eluded us, even though on paper, India is 97 percent electrified. Without regular power supply, India cannot advance at a fast pace, especially through IT penetration.

Even the definition of an electrified village is vague. A village is considered electrified if public places in a village and 10 percent of its households have access to electricity. This definition has led to the NDA government showing exaggerated figures of electrified villages. According to the 2011 census, 96.7 percent villages are connected, but 33 percent households or eight crore, out of 24 crore households, do not have electricity.

One of the main reasons why there is slow progress in the rural electrification programme is that the distribution of power is under the domain of the state electricity boards/discoms (power distribution companies) which are difficult to reform. The supply of fuel, logistics, generation of power and transmission, however, fall under the Central government.

Enough power is being generated by state companies like the NTPC. Power generation increased by 5.5 percent in 2015-16. Also, due to the steep fall in oil and coal prices, the capacity of thermal power plants has increased by 11 percent. Today, there is falling capacity utilisation of power plants and plant load factor has gone down from 65.6 percent in 2013-14 to 62.3 percent in 2015-10.

The distribution of power has been privatised in some big cities like Delhi through public-private partnerships. But in general, the power sector is burdened by a growing number of loss-making state discoms. This is because of the rampant theft of electricity, political interference and largesse regarding pricing of power, corruption and inefficiency.

As almost all state discoms are in financial trouble, they are in no position to increase their debts by buying more power. When their demand for power is low, villages in those states are losing out in the last mile connectivity, even though additional transmission lines have been laid extensively.

The technical and commercial losses (T&C) of state discoms are very high, around 25 percent. The renamed Deen Dayal Upadhyaya Gram Jyoti Scheme aims at reducing T&C losses due to illegal tapping of lines, faulty electric meters that understate actual consumption and also contribute to reduced collection of revenue.

There is need for state discoms to set progressive tariffs that reflect the true cost of power. Political largesse is one of the reasons why tariffs are set at extremely low rates, especially for agriculture, and results in huge losses to discoms. The accumulated losses of state discoms are around ₹3 lakh crore.

Thus the idea of electrifying all villages in India by 2019 will need much more effort towards improving the health of state discoms. Already a scheme, which was in existence before, but renamed UDAY (Ujwal Discom Assurance Yojna), has been asked to buy the debts of discoms and convert them into bonds. It is a restructuring package for state discoms and UDAY will take over 75 percent of their debt and issue bonds to banks and other financial institutions to raise money to pay it off. The remaining 25 percent will be continued as a loan to the state discoms with a cap on interest rates. This will bring relief to discoms on interest payments and ICRA (Invesment Information Credit Rating Agency) estimates the interest rate burden to be around ₹30,000 crore, which can be taken off from their account books. Hope it works!

In return, the discoms will have to undertake reforms, like installation of smart meters, upgrade transmission infrastructure and undertake periodic tariff hikes. To attract states to join, incentives like additional coal supplies and funding have been included and 18 states have joined the scheme.  With improvement in the health of discoms, the states are likely to increase their power purchase and boost the power demand and enhance the capacity utilisation of power generating companies.

To make available power 24x7, the transmission grid will have to be spread widely and efficiently from power producers to the distributers. Often, states are not able to buy cheaper power because of transmission bottlenecks. With lack of grid connectivity, states are compelled to buy power from costly, but linked-up generators in their vicinity.

From March 2011, transmission capacity has grown from 82,000 circuit km (CKM) to 129,000 CKM in 2016.  According to the set target, transmission line network will be further expanded by 364,900 CKM by March 2017. Higher investments in the transmission sector should benefit the Power Grid Corporation of India, the country’s principal transmission utility and also other private sector players bidding for transmission projects.

Thus there remain many hurdles before complete electrification of India can be achieved. More difficult would be to ensure 24x7 power supply in remote villages, because even in cities and towns, this is difficult to achieve. Due to irregular power supply, people are using UPS and DG sets to generate power in times of load shedding.

Around 10 million Indian households are using backup (UPS) storage batteries to cope with power disruptions. All UPS storage batteries have to be imported at high cost and all diesel generator sets require costly diesel. If there is regular power supply, a lot of money will be saved and businesses, educational and healthcare institutions, services of all kinds, agriculture and FDI will work better. New thinking is thus needed.

This commentary originally appeared in The Tribune.

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David Rusnok

David Rusnok

David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany

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