Rural Electrification has been one of the key focus areas for the current government.The vision of “Power for All” has been shining brightly in the eyes of government and it aims to electrify all villages by May 2018.The following post will look at the current status of Rural Electrification and various initiatives taken by the government to achieve this target.
Meaning of Electrification
As per the earlier definition of Rural electrification “A village is classified as electrified if electricity is being used within its revenue area for any purpose what. so-ever..” However, the definition needs some revision and the overall purview of Electrification is currently amended definition of Electrification as follows :
The basic infrastructure such as distribution transformer and or distribution lines is made available in the inhabited locality within the revenue boundary of the village including at least one hamlet/Dalit Basti as applicable and
- Any of the public places like Schools, Panchayat Office, Health Centers, Dispensaries, Community centers etc. avail power supply on demand and
- The ratings of distribution transformer and LT lines to be provided in the village would be finalized as per the anticipated number of connections decided in consultation with the Panchayat/Zila Parishad/District Administration who will also issue the necessary certificate of village electrification on completion of the works.
- The number of household electrified should be minimum 10% for villages which are un-electrified, before the village is declared electrified. The revision of definition would be prospective.
Thus,as per the above definition it requires only 10 % of the households in a village to be connected for it to be classified as “electrified”. This implies that even if a large number of households remain un-electrified after covering 10%, still the village will qualify to be called as “Electrified”moreover, the definition doesn’t specify the minimum number of hours of electricity supply in the villages.
Initiatives/Schemes in Rural Electrification
Prima-facie, a couple of major steps have been taken by the earlier government and the current government.Some of these are :
- Establishment of REC (Rural Electrification Corporation) : REC was established in the 1969 with the objective of providing finance and promoting finance and promoting rural electrification across the country.Its main objective is to finance and promote rural electrification projects all over the country. It provides financial assistance to State Electricity Boards, State Government Departments and Rural Electric Cooperatives for rural electrification projects as are sponsored by them.
- RGGVY (Rajiv Gandhi Grameen Vidyutikaran Yojana) It was launched in April 2005 for attaining the National Common Minimum Program goal of providing access to electricity to each and every household within a period of 5 years.The scheme was to officially end in 2009 ,however, due to non-attainment of the targets, certain allocation were made for the continuation in the 12th plan period (2012 -17). In terms of achieving the targets of lighting up unelectrified villages, the performance was much better in the initial years than in the last three years of the program.
- DDUGY(DeenDayal Upadhyaya Gram jyoti Yojana) : In Dec’14, the government announced DDUGY with some modification to the RGGVY scheme already in progress.It aims feeder segregation and strengthening of sub-transmission and distribution infrastructure in rural areas including metering of distribution transformers/feeders/consumers part from electrification of unelectrified villages,household.
As per the revised targets set by REC vis-a-vis government of India , 2,21,424 villages to be electrified out of which 95,977 have already been electrified ( Dated 20.04.2016 http://garv.gov.in/dashboard ) . Nine states (AP , Goa , Haryana, Kerala,Maharashtra,Punjab,Sikkim and Tamil Nadu) have achieved 100 % of the village electrification.Bihar is the worst performer in terms of household electrification. While 97 percent of the Bihar’s village are electrified, only 12 percent homes have electricity connections.
- Location specific technologies like solar,wind,mini-hydel so that target of electrification reach the granular level of society.
- Technological improvement required at the micro level so that the systems are well maintained over longer duration with requisite maintenance strategies.
- Last but not the least, there are still so many villages across India which have not experience the word “Electricity” and they are to be helped with utmost priority.
Power is essential for the socio-economic development of a country and is being recognized as a basic infrastructural requirement. Although the installed capacity has increased to 210 GW but India faced an energy deficit of 10.1% in 2011-12.
Even today, 40 per cent of households are denied electricity; the other 60 per cent do not have reliable access to electricity and is lagging service, measured by hours of supply as well as penetration. Power cuts, erratic voltage and low or high supply frequency have added to the ‘power woes’ of the consumer.
Today, the need of the hour is sustainable power supply which will help address the need for increased demand. For a large and dispersed country like India, with its unique geography and current state of economy, innovative means of producing energy needs to be looked at to reduce its dependence on oil and coal as a primary source of energy.
Ministry of Power, Government of India launched Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) in 2005 for providing access to electricity to rural households. Electrification of about 1.15 lakh un-electrified villages and electricity connections to 2.34 crore BPL households by 2009 was on the agenda. Under the scheme of Rural Electricity Infrastructure and Household Electrification, DDG was introduced in the XIth Plan to address the issue with the recommendations of Gokak Committee.
Technologies which can be used for Distributed Generation are:
• The Internal Combustion Engine.
• Wind Turbines
• Concentrating Solar Power (CSP)
• Fuel Cells
Penetration of DDG: As on 30-11-2012[ ], around 6% of the villages are still to be electrified and these villages will be electrified with a mix of GE and DDG.
Benefits of DDG
-Utilization of waste fuel to Energy
-Investment Deferral in Transmission Sector
-Power Quality and Ancillary Service
-Remote Areas Electrification
Barriers to implementation of DDG
-Lack of Adequate Information for market development.
-Poor Access to Credit
-Lack of awareness of RET(Rural Energy Technologies) in rural India
-Limited Site specific issues may erupt
-Financial Viability-A major factor
To successfully implement DDG,Overall strategy that can be thought of is
-Support Incentive in the near term
-Transition to New Market
-Reducing remaining institutional barriers.
Model/Proposed Framework for Implementation of DDG:
• Rural Electrification Policy: The current REP Clearly discusses the means of achieving 100% rural electrification but it falls short of recommending a single nodal Agency for all rural electrification efforts as shown in Fig 1. The Agency will have to act as an overseer for channelizing of funds through various agencies like MNRE, REC etc. and encouraging private participation in the sector.
Under Sec 14 of Electricity Act 2003, no licence is required for electricity generation & distribution in notified rural areas (26 states have notified).RE Policy states that for villages/habitations, where grid connectivity would not be feasible or not cost effective, off-grid solutions based on stand-alone systems may be taken up for supply of electricity so that every household gets access to electricity.
• Management of DDG systems: Local authority/panchayat/societies need to maintain the system as they are the real consumers and a sense of belongingness may incorporate in them.
• Selection of Technology: Relevant technology need to be adopted by the authorities with adequate feasibility analysis(in terms of raw materials, feedstock level, transportation facilities, usage pattern of consumers etc.) of particular region.
• Capital Subsidy from Government: Generally Rural cooperative societies manage the high expenditure of the DDG but owning to huge capital expenditure involved in the preliminary stage, government should provide adequate subsidy to the developers or the EPC companies whosoever is involved in the project. The incentives/subsidy should be based on the various factors like geographic location of area, planned capacity addition and output performance.
• Enabling guidelines for Tariff revision: Under the purview of CERC, Tariff setting and revision should be taken care by the concerned nodal agency which has been assigned the successful implementation of DDG in a particular area and moreover there should be crystal clear transparency in this process.
• CDM Benefits: All RE projects are eligible for CDM benefits, DDG projects can be made financially more viable and competitive after encompassing the monetary benefits associated with them.
• Considerations to be taken w.r.t various institutional Models recommended by Gokak Committee: Models like Sunderbans Model, TERI Model, Bangladesh Model may be adopted after suitable changes in order to increase people participation at large.
• Other recommendations:
Extend RGGVY to fund evacuation infrastructure
Develop transparent and simple interconnection rules and procedures.
Streamlining Project Approval
In the long run, distributed generation will help consumers to get power at lower tariff as power will be available at lower per unit cost. More employment opportunities, both at plant management level and in the manufacturing sector for related machinery, will improve living standards of the people. Availability of power at low cost will attract more investments, which would be more evenly distributed throughout the country rather than being limited to cities alone.
Going forward, concerted efforts by the Union and State Governments, financial institutions, academic and research institutes, non-governmental organisations, as well as multilateral and bilateral agencies is required. A distributed generation matrix for India is recommended for lighting the lives of those for whom lighting a bulb still remains a distant dream!
• Biomass Energy for Rural India Society, available at http://bioenergyindia.kar.nic.in Central Electricity Authority http://www.cea.nic.in)
• Village Electrification report of CEA
• Gokak Committee Report on Distributed Generation
• “Electricity Act 2003”, Ministry of Power, Government of India, New Delhi, India, Jun. 2003.
• World Bank Report on “Empowering Rural India: Expanding Electricity Access by Mobilizing Local Resources” 2010.
• California Energy Commission “Distributed generation and cogeneration policy roadmap for California” 2010
• Chandrashekar Iyer,” Decentralized Distributed Generation for India” – 2011
Introduction of REC(https://www.recregistryindia.nic.in/index.php/general/publics/AboutREC) trading framework has been a significant step in 2010,transforming the renewable energy market to go for market based modelled approach. Success/ Failure of the REC Trading framework can be gauged from the inventory being built up in monthly trading sessions. Of the 712792 RECs put up for sale in the two power exchanges in Sep 2012 session, about 450000 remained unsold and moreover 37% of the REC holders didn’t participate in the trading session at that time. This growing demand supply mismatch is giving alarming bells to the project developers and various potential investors who are eager to invest in RE sector in the near future.
REC mechanism seeks to expand its horizon from resource rich states to the deficit states but the key factor which will lead to success of REC is the RPOs by various obligated entities. Nonetheless state power regulators need to play a proactive role in the development of REC market. Till date all states except Arunachal Pradesh and Sikkim have declared their RPOs explicitly(http://ceew.in/pdf/Appendix_F-Renewable_Purchase_Obligation_for_States.pdf).
A survey was conducted to gauge the total renewable energy capacity of states,RPOs declared by them, CUFs of various renewable sources of energy. It has been analysed that only 4 states -Tamil Nadu, Gujarat, Karnataka and Maharashtra have significant wind power installations and RPOs higher than those required in 2010-11 and 2011-12.For eg Tamil Nadu needed about 4000MW of renewable energy capacity to meet its RPO of 14 % and it has already installed capacity of 4908MW.Except these states, rest of them were unable to meet their solar RPOs.
-There is huge inconsistency in RPO norms across the states. NAPCC,2008 targets 5% of the total grid purchase to be achieved through renewable energy. However in the absence of national level RPOs, states have been fixing their own targets depending upon the availability of renewable energy in that particular area.
-Another risk that is quite prominent as far as REC market is concerned- regulatory capture by the obligated entities which further skews the market against developers and investors. Certain states have been revising their RPOs targets in a downward trend for e.g Tamil Nadu(wind rich state) revised from 14% (2010-11) to 10% (2011-12).According to regulators, unrealistic targets imposed by some state regulators could set a wrong precedent not only for the state. Similarly, in April 2012, MP Power Trading Company Ltd. requested MPERC to waive RPO targets for solar energy for 2011-12 and 2012-13 because no solar power plant has been commissioned in MP and solar RECs were not available for trading on any one of the exchanges.
-RPO setting in most of the states is based on the assessments that are outdated. Therefore, they are set much lower than what could be feasible. Some stake holders are worried about the impact on tariff due to these targets. Like a study conducted by CRISIL along with CERC indicated that compliance with NAPCC target will have a marginal tariff impact of Re 0.01/unit/consumer ,reducing every year to reach Re 0.005/unit/consumer by 2017.
-Another risk that is anticipated by developers is lack of visible long term RPO trajectory. Only 7 states(AP,karnataka, Delhi, HP, Kerela, Maharashtra, Odisha) have declared their RPO trajectory till 2015-16 or beyond.
Limited Focus on CPPs and Open Access consumers
While most of the states have amended their regulations to include open access customers and CPPs under the purview of RPO but still there are some states which have not notified their OA and CPP consumers to meet RPOs. The glim scenario can be seen from the trading of RECs over IEX in which over 90% of the participants are DISCOMs and there have been very few CPPs and Open Access users. But there are states like Karnataka i.e KPTCL directed OA users in the state to fulfill 5% RPO for 2011-12.Similary Chattisgarh has also notified CPPs to provide RPO compliance on monthly basis.
Recently Rajasthan high court dismissed an appeal raised by Hindustan Zinc, Ambuja Cements etc that had challenged RPO regulation enacted by RERC. The petitioners stated that RERC did not have authority to pass the RPO regulation and impose a surcharge(penalty) as CPPs and OA were completely de-licensed under EA 2003.However Jaipur bench of High court rejected the petition stating the exact meaning of word ‘total consumption’ as total consumption in the area of distribution licensees in all modes. One of the reason for non compliance is the lack of incentive mechanism to support RPO implementation.
-A key stumbling block in the implementation of RPO is the financially strained DISCOMs. Burdened with over 2 trillion of losses, how can one expect DISCOMs buying costly RECs? However a recent development is the Debt restructuring for the DISCOMs(http://powermin.nic.in/whats_new/pdf/Financial_restructuring_of_State_Distribution_Companies_discoms_Oct2012.pdf)
-Another encouraging trend is that several DISCOMs have been facing losses due to their inability to hike tariffs but recently over 17 states have revised their tariffs giving a good signal to the market stabilization for RE.
Need to Improve REC Market Design
-There is lack of visibility in floor and forbearance price beyond the initial five year period because only non PPAs based sales are eligible for RECs.
-REC trading is restricted to auction markets and can be conducted only on a “once through” basis, thereby not permitting forward contracting and liquidity reduction.There is a sheer need of secondary trading market,which both the exchanges as well as industry players have been seeking for some time.
-Finally compliance window has to be shortened to a quarter or half year to ensure that there is continuous procurement action on obligated entities.
Thus,REC markets will fail to bring the desired results unless regulators are empowered to enforce the RPOSs and DISCOMs are allowed to function as independent power utilities rather than as an arm of government.
References: Power Line Magazine,MNRE Website, ICRA report on DISCOM bailout,REC registry,RE Connect etc.
India being fifth largest energy consumer in the world is rising high in terms of installed capacity (207 GW,Source : CEA as on 11.Nov.2012). Much progress is evident in Infrastructure,Telecom but things in power sector is not going as per the planning done by our GoI and MoP and thus India’s economic growth is at risk. Inspite of having so many reforms and policies,Indian power sector is grappling with “Cancer” and it requires some sheer reforms that will ultimately lift it to more sustainable position. Some of recent reforms/policies that have jolted Indian power sector in recent times can be summarised as below:
- Competitive Bidding of Captive Coal Blocks: Competitive Bidding Mines Rules,2012(http://www.coal.nic.in/100212.pdf) has been notified in Feb,2012 and according to which Captive coal blocks will be allotted on the basis of competitive bidding to the power plant developers.After the recent COAL SCAM(http://en.wikipedia.org/wiki/Indian_coal_allocation_scam) there was a lot of hue and cry about the allotment of coal mines to non serious players in the Indian power market.Almost each and every bidder has earned a windfall gain through the Coal Scam. According to the recent Competitive Bidding guidelines, Coal will now be allocated to companies in specific end use sectors(excluding power companies) through an auction under which two part bids would be invited over a floor price.For power companies, the respective state will select a developer on the basis of competitive tariff bids and recommend coal block allocation. Moreover power companies are required to pay the reserve price fixed by state government for such coal blocks.
- Approval of draft of MMDR(Mines and Minerals(Development and Regulations) Bill,2011: Another much awaited bill is the MMDR Bill(http://pib.nic.in/archieve/others/2011/sep/d2011093002.pdf) which has been approved by the cabinet in Sep,2011.It will be enacted after getting approval from President as well as Parliament.The bill provides a strong legislative environment for socio- economic conditions of the mining areas and the people which are effected by the same.The core of bill is a provision that mandates coal mining lease holders to contribute 20% of their Post tax profits( PAT -It is the net profit earned by the company after deducting all expenses like interest, depreciation and tax.PAT can be fully retained by a company to be used in the business. However dividend is paid to the share holders from this residue.) to a distinct mineral fund,which will be used to meet social compensation obligations.With the advent of this policy,it might make a dent to the profits of CIL,SCCL and they can take a harsh step of increasing the coal prices which will affect the developers and consumers at last.
- Revision of Royalty Rates: Another significant aspect that occurred in recent times is the revision of Royalty rates in which there is an increase of 14% ad valorem and 6% advalorem on coal,lignite respectively.(http://pib.nic.in/newsite/erelease.aspx?relid=82191)
- Exemption of Import Duty on thermal Coal: The finance Bill that has been passed by Parliament enforces the exemption of 5% basic customs duty and 1% Countervailing duty on thermal coal imports for indefinite time.This is major step in favour of major coal importers as well as power plant developers.Moreover,ECB has been allowed in case of Indian power sector which will be used to part finance the rupees based debt of power plant projects.
- Presidential Decree to CIL: A presidential decree has been issued to CIL for supplying coal to power generating companies under the terms and conditions of FSA.
- Revision of Standard Bidding Documents: In the generation side, There has been a major revision in case of Case 1 and Case 2 Bidding Documents in lieu of competitive bidding.MoP has also issued drafts related to UMPP Power projects and these aimed at more stringent bidding process with higher performance guarantees and other eligibility norms.Only core sectors companies can participate in bidding process and company can’t have more than 3 UMPPs in the pre commissioning stage.CERC has been made a regulatory body to intervene in the cases related to PPAs.
- Issue of Guidelines for Short Term Market: MoP released a notice of guidelines related to comptetive bidding in short term power market(accounts for 10% of the total electricity generated in the market).
- Imposition of Import Duty on Power Equipment: Union cabinet approved the request of imposing 21 % import duty on the power plant equipment. The move has been taken to restrict the cheaper equipment that are being used in the Indian power scenario thereby hampering the growth of Indian manufacturing industries which are still struggling to develop the power plant.
- Steps in Renewable Sector: A major step taken in Renewable sector is the withdrawal of Accelerated Depreciation and GBI i.e Generation Based Incentives (http://www.eai.in/debate/scrapping-of-the-accelerated-depreciation-incentive-for-wind-projects). This move will led to low capacity additions in the coming years & it has been speculated that MNRE will reintroduce incentives in the 12th plan.
- Regulatory Initiatives: CERC has played major role in the past year in formulating various key policies especially related to transmission and distribution sector i.e tightening of frequency band from 49.5 – 50.2 to 49.7 – 50.2 Hz. This has been primarily done to increase grid security in more stricter manner (under Electricity Grid Code 2010)
- Ensuring Timely tariff revision: In Nov 2011,APTEL (Aplleete Tribunal) passed a landmark judgement regarding timely revision of tariffs by state DISCOMs.SERCs(StateElectricity Regulatory Comissions) has been directed to issue suo moto proceedings for tariff determination within a month of scehduled tariff petition.In June 2010,GERC became the first commission to implement APTEL’s order.
- Implementation of Open Access: In Nov 2011,MoP announced all consumers to be eligible for Open Access who have their load more than 1 MW.Moreover state regulators have jurisdiction over fixing of energy charges for these consumers. Inspite of these efforts, there is a need to take strict steps to implement it as in some cases like Odisha they are trying to suppress it by Sec 11 of EA 2003.
- Renewable Energy Regulations: Renewable Energy Regulations has been made effective from 1st,April 2012 for five years.It lays down the guidelines for tariff determination and moreover the floor prices, forbearance prices have been revised. Forbearance Price of Non Solar RECs Rs 3300/MWh & Floor Price as Rs 1500/MWh(Solar RECs).
So, a bunch of steps have been taken to revive the Indian Power Sector but the Sector requires strong implementation strategy which will ultimately make India from Power deficit nation to power surplus nation.
References: PowerLine Magazine,Govt. sites like MoC,MoP etc