How distributed renewable energy could ease discom distress, improve power supply

Financial Express, May 30, 2019

By Udai S Mehta and Anurag Mishra

Distributed renewable energy (DRE) is over a US $100 Billion business opportunity for India, as per a report by Clean Energy Access Network (CLEAN). But harnessing any such potential requires unambiguous understanding of its role in country’s development ambitions. The discussion on relevance of DRE in India often gets clogged between its competitive vs complementary nature with respect to traditional means of providing clean energy access.

Grid based electricity access to low income consumers remains a costly affair in India. Discoms continue spending capital for the non-paying segments, with low hopes for recovery. State-owned Discoms are expected to amass a mammoth outstanding debt of INR 2.6 lakh crores, at the end of current fiscal year. Consequently, due to suboptimal investment, longstanding concerns of consumers regarding poor service quality and infrastructure remain unalleviated. Industrial and commercial consumers have been resorting to buy power through open access in search of cost-effective quality power. Therefore, with reducing cross-subsidizing consumer base, the financial position of discoms seems exacerbating in future. Elseways, domestic consumers, especially in rural areas, cannot enjoy quality power due to low income levels.

Nevertheless, the government has focused on grid expansion to improve electricity access. Though, mini-grids have been developed in some areas, in absence of a regional integration and adoption plan, they become stranded after grid expansion. Given the poor financial position and lack of government push, public sector discoms have shown lukewarm response to DRE. Low consumer awareness and perception about reliability has been a major concern.

Domestic and MSME sectors, which could be effective carrier for DRE mass-adoption, remain untouched due to lack of business and financial models that are lucrative, both for developers and consumers. In absence of clear policy and regulatory signals by the government, financial institutions have been apprehensive of long-term viability of investments. Current financing for DRE seems to be sustained by international donor grants, debt from international development finance institutions and owner equity, driving only the early stage funding. The early stage enterprises seem to struggle with financing of DRE due to their short track record, high-risk profile and lack of assets to offer collateral.

In terms of government incentives, DRE remain a low priority item as they made up only 1.2% of total renewable energy subsidies and 0.12% of total energy subsidies in 2017, amounting to just US $27.6 million. A gross comparison suggests that the current subsidy provided to coal sector (US $2.3 billion) could pay for almost 114 million solar lamps and create nine-times more jobs than solutions using conventional fuels. Though policies such as KUSUM has been implemented, a much large scale deployment requires long term regional planning, involving both government and distribution companies. Nevertheless, current limited funding for DRE has been primarily dedicated to solar water pumps and government driven tendered projects with meagre support for enterprise-based models.

The demand level complexities for DRE are additionally saddled by technical and regulatory complexity related to grid infrastructure. The future grid needs to be ready to interact with these small generation sources, absorbing them after grid extension and supporting two-way communication.

Nevertheless the negligence cloak for DRE has hidden many much-desired benefits it might bring to the country. It could eliminate AT&C losses and be rapidly built with lower investment and customization as per community needs. In addition, it can also play bigger role in assuaging India’s stressful job and income scenario in gross-roots. A conservative estimate suggests that during year 2017-18, DRE deployment created at least 41,868 jobs. But given that India has about 63 million MSMEs, the potential is much bigger if they are roped in through suitable financial models and incentives. Decentralization and community involvement may act as an instrument of socio-economic development in rural areas.

A study in Ghana suggests that DRE access to women entrepreneurs increased their income by 11 times, also improving their participation levels in business-making processes, in turn. Increased ownership and accountability through DRE seems to be only possible way of changing current consumer perception towards electricity theft. Convincingly, DRE solutions are much relevant for India due to their potential to permeate effect of economic development to grass-roots, anchoring inclusive growth and ushering accountability for resources.

With rumination that energy, rather being just a commodity, is an enabler for development, and should be used wisely to avoid unrecoverable impact on land resources and environment, the future access policies need to be more ‘services focused’ linked with livelihood generation and productive consumption. And if there is vision of such ‘service focused’ energy access model in India, DRE is going to be one of the essential ingredients in it.

With advent of technologies, DRE is certainly a low-hanging fruit; but sustainable deployment requires a decisive and proactive government leveraging its potential through apposite policy vision and financial support.

Udai S Mehta is Deputy Executive Director and Anurag Mishra is Associate Fellow work at CUTS International. The views expressed are the authors’ own.

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