A REVIEW OF POLICY AND REGULATORY

FRAMEWORK FOR SCALING UP ACCESS TO

ELECTRICITY IN RURAL AREAS
________________________________________________________________________________

A DFID Funded World Bank Assisted Project on Scaling up Deployment of Renewable

Energy Technology for Promoting Innovative Business Models

Submitted to

Ministry of New and Renewable Energy (MNRE)

14, CGO Complex, Lodi Road, New Delhi

Prepared by

World Institute of Sustainable Energy (WISE)

July 2012

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Contents
1. I NTRODUCTION......................................................................................4
2. POLICY FRAMEWORK FOR RENEWABLE ENERGY AND RURAL ELECTRIFICATION......6
2.1 E LECTRICITY ACT 2003......................................................................7
2.2 N ATIONAL ELECTRICITY POLICY.............................................................8
2.3 N ATIONAL TARIFF POLICY..................................................................10
2.4 R URAL ELECTRIFICATION POLICY.........................................................11
2.5 C HALLENGES IN IMPLEMENTATION OF OFF-GRID/DECENTRALIZED SYSTEMS AND
PROPOSED SOLUTIONS ............................................................................14
3. R URAL ELECTRIFICATION PROGRAMMES IN INDIA.........................................18
3.1 R AJIV GANDHI GRAMEEN VIDYUTIKARAN YOJANA (RGGVY)......................18
3.1.1 STATUS OF RGGVY....................................................................19
3.2 DECENTRALIZED DISTRIBUTED GENERATION (DDG) S CHEME......................21
3.2.1 FINANCING OF PROJECTS UNDER DDG SCHEME.................................21
3.3 R EMOTE VILLAGE ELECTRIFICATION (RVE) PROGRAMME...........................22
3.3.1 STATUS OF RVE P ROGRAMME.......................................................22
3.4 V ILLAGE ENERGY SECURITY PROGRAMME (VESP)...................................23
3.4.1 STATUS OF VILLAGE ENERGY SECURITY PROJECTS..............................23
3.5

A N OVERVIEW OF RURAL ELECTRIFICATION PROGRAMMES........................24

4. R URAL ELECTRIFICATION IN INTERNATIONAL CONTEXT...................................26

4.1 R URAL ELECTRIFICATION SCENARIO IN LATIN AMERICA , ASIA AND AFRICA....26
4.1.1 LATIN AMERICA.........................................................................26
4.1.2 ASIA.......................................................................................28
4.1.3 AFRICA....................................................................................28
4.2 R EVIEW OF RURAL ELECTRIFICATION IN EMERGING ECONOMIES
(BRAZIL,
C HINA AND SOUTH AFRICA).....................................................................29
4.2.1 BRAZIL....................................................................................29
4.2.2 CHINA.....................................................................................30
4.2.3 SOUTH AFRICA..........................................................................31
5. B USINESS MODELS FOR RURAL ELECTRIFICATION.........................................34
5.1 R ENEWABLE ENERGY TECHNOLOGY OPTIONS FOR OFF-GRID SYSTEMS............35
5.2 ELEMENTS OF A SUSTAINABLE OFF-GRID PROJECT...................................36
5.3 SUMMARY OF BUSINESS MODELS.......................................................37
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5.4 OFF-GRID DISTRIBUTED GENERATION BASED DISTRIBUTION FRANCHISEE

(ODGBDF) MODEL..................................................................................38
5.4.1 DESCRIPTION OF THE MODEL...............................................39
5.4.2 INSTITUTIONAL AND CONTRACTUAL STRUCTURE OF ODGBDF............40
5.4.3 IMPLEMENTATION PLAN FOR ODGBDF...........................................41
5.4.4 STEPS TO BE TAKEN FOR SUCCESSFUL IMPLEMENTATION OF THE PROPOSED
MODEL.............................................................................................41
5.5

F INANCIAL ASSISTANCE FOR THE PROPOSED

MODEL.42

6.MOVING TOWARDS A HOLISTIC APPROACH...................................................46

7.C ONCLUSION........................................................................................48
8.R EFERENCES
9.ANNEXURE

TABLES

AND

FIGURES

TABLE 1.REC OPTIONS FOR OFF-GRID SYSTEMS

TABLE 2.STATUS OF RGGVY
TABLE 3.PROGRESS OF RVE
TABLE 4. STATUS OF VESP
TABLE 5.OVERVIEW OF RURAL ELECTRIFICATION PROGRAMMES
TABLE 6.R URAL ELECTRIFICATION SCHEMES IN BRAZIL
TABLE 7 RURAL ELECTRIFICATION SCHEMES IN CHINA
TABLE 8 RURAL ELECTRIFICATION IN SOUTH AFRICA
TABLE 9 SUMMARY OF ALL BUSINESS MODELS
TABLE10 I MPLEMENTATION PLAN FOR ODGBDF MODEL
FIGURE 1. CUMULATIVE VILLAGE ELECTRIFICATION FROM 2001-02 TO 2010-11
FIGURE 2. CUMULATIVE ADDITION OF RENEWABLE ENERGY TO THE GRID FROM 200102 TO 2010-11
FIGURE 3. MICROGRID OPPORTUNITIES IN BRICS MARKETS
FIGURE 4. TECHNOLOGY OPTIONS FOR OFF-GRID ELECTRIFICATION
FIGURE 5. OPERATIONAL STRUCTURE OF ODGBDF MODEL
FIGURE 6. INSTITUTIONAL AND CONTRACTUAL STRUCTURE OF ODGBDF MODEL
FIGURE 7. RURAL AFFORDABILITY PYRAMID
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FIGURE 8. PROVIDING UP -FRONT EQUITY THROUGH CARBON FINANCING

1. Introduction
India, a rapidly emerging economy with the worlds second largest population, is
facing a surging demand for energy. Almost 60 per cent of the countrys total
population, which is 114 million households, lives in rural India. There has always
been a big question how to provide access and steady supply of energy to this large
section of the society. The current challenges facing the electricity sector in India
can be summed up as: a) access to electricity for rural and urban poor, b)
generation capacity that cannot meet peak demand and c) reliability of supply, in
terms of predictability of outages and quality of power supply. The central
government also recognizes that the current state of energy services could
significantly impede Indias economic growth on a national scale.
The Electricity Act was a landmark legislation which is envisaged to be the panacea
for the prevailing ailments of the electricity sector. The Act accords priority to rural
electrification and renewables, in sections 3,4and 5. It has explicitly stated the
formulation of National Electricity Policy, Tariff Policy and Electricity Plan thereof for
development of power systems to ensure optimal utilization of all resources
including renewable sources of energy. It has also created several other enabling
provisions to accelerate the development of renewable energy based generation
and rural electrification.
In accordance with the guiding principles outlined by the Act, the Rajiv Gandhi
Grameen Vidyutikaran Yojana (RGGVY) was launched under the National Common
Minimum Programme (NCMP) to bridge the urban-rural gap and provide reliable and
quality power supply to rural areas. This flagship programme of Ministry of Power
was aimed at accelerating the pace of rural electrification in the country. It was
earlier conceived that 100 percent electrification would be achieved by 2009. This
was extended to 2012; however this too hasnt been achieved. Considering the slow
pace of implementation the government is now planning to extend it to the end of
the present Five Year Plan (2012-17).
Rural Electrification has never been accorded priority by the State Governments and
the utilities mainly due to the costs involved and the lack of revenue realization
possibilities. Moreover the somewhat [incomplete] definition of an electrified village
has limited the electrification efforts to just installation of rural feeders, distribution
lines and transformers. Even under the RGGVY, household electrification still
remains a challenge.
It has been seen that the implementation of Decentralized Distributed Generation
(DDG) systems which have the potential to supply reliable and localized electricity,
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has not been done extensively. Instead the focus in RGGVY has primarily been on
grid extension. However, now it is clear that grid extension alone will not be
effective and feasible in the long run. Decentralized Distributed Generation Systems
using Renewables, are possibly the most economical and environment friendly
alternative for electrification.
In order to work out the best possible approach towards a Renewables based DDG
system for rural electrification, several inputs have also been taken in the form of
lessons learnt and approaches followed in various developing countries. A number
of challenges in implementing the scheme have been considered in the report with
ways to resolve them.

The major challenges clearly seem to be revenue realization in rural areas and
ensuring quality power supply. It has been found that this can be achieved by
incorporating the right institutional, policy and financing mechanisms. Several
business models using various technologies have already been discussed and the
most appropriate one has already been proposed to the Forum of Regulators by M/s
ABPS Infra Ltd. This report, thus going in line with M/s ABPS, discusses briefly about
the proposed model and explores how a more cogent framework will ensure proper
implementation of off-grid systems.
Decentralized Distributed Generation Systems, if successful in the rural context
shall be the first step towards a better energy scenario in the future. They will not
only ensure quality supply and energy security, but also provide a means to
greenhouse gas reduction. A scenario wherein the local community shall play a part
in energy as well as environmental security. Such an energy scenario shall be rich in
diversity, with localized DDG systems using various technologies, functioning just
like individual ecosystems operating in an incredibly rich and magnificent
biodiversity.

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2. Policy Framework for Renewable Energy and Rural

Electrification
Prior to Electricity Act 2003, there were no specific provisions for promotion of
renewables or non conventional sources. Therefore, development of the renewable
energy sector was left to the whims and fancies of the State Governments and
utilities. The Ministry of Non Conventional Energy Sources (MNES), now Ministry of
New and Renewable Energy (MNRE) announced policy guidelines in 1994-95 in
order to give impetus to Renewable Energy. These efforts yielded mixed results in
the development of renewables in the country.
Similarly rural electrification was not given priority before enactment of Electricity
Act 2003. Most of the funds for rural electrification schemes were diverted for other
purposes. Some rural electrification schemes such as Pradhan Mantri Gramodaya
Yojana and Kutir Jyoti Yojana were launched; these schemes resulted in mixed
results.
The EA 2003 was landmark legislation, for it brought the much needed impetus to
the power sector. It nullified all the earlier legislations and proved to be the panacea
for an ailing sector. The Electricity Act brought in competition, liberalization and
viability to the sector. Even though at the time of its inception, the sector was facing
basic problems related to power deficit and poor condition of SEBs, the Act showed
a lot of vision by promoting renewables and decentralized generation systems.
In compliance with the EA 2003, the National Electricity Policy (NEP) was launched
in 2005, with an aim to provide electricity to all households and to bring a financial
turnaround to the sector. Further, the National Tariff Policy was introduced in January
2006, with an aim to improve financial viability and to promote renewables in the
long run. The Rural Electrification Policy was launched in Aug 2006 in order to
address the rural urban gap in electricity consumption.
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India has mainly been an agrarian economy, for most of its years after
Independence. Recent decades have seen a rapid growth in other, especially
services sector. However, still a majority of the Indian population still resides in the
villages. In order to promote inclusive and holistic growth its imperative to have a
comprehensive development plan for the country. Earlier, before the EA 2003 was
passed, the Government could not develop rural areas despite consistent efforts
because of a lack of clarity and vision. The Electricity Act and the policies that have
thus ensued shall act as guideposts on the path of all inclusive development.
Today, India has moved from a highly regulated to a market based economy. The
progress towards a deregulated economy started from decentralization of power.
Decentralization leads to equitable distribution of power, wherein market forces can
act freely and shape the economy. Perhaps, using decentralized systems for
supplying electricity might lead towards a better, more liberalized and more
progressive electricity market. However, even a free market requires watchdogs
that ensure competition, transparency and self regulation, the electricity market is
no different. In context of off-grid systems we shall now examine these policies
which act as guiding principles for the development of off-grid systems based on
renewable sources of energy.

2.1 Electricity Act 2003

The following are the relevant provisions for rural electrification and promotion of
renewables [1]:
Section 3: The Central Government shall, from time to time, prepare the National
Electricity Policy and tariff policy, in consultation with the State Governments and
the Authority for development of the power system based on optimal utilisation of
resources such as coal, natural gas, nuclear substances or materials, hydro and
renewable sources of energy
Section 4: The Central Government shall, after consultation with the State
Governments, prepare and notify a national policy, permitting stand alone systems
(including those based on renewable sources of energy and other nonconventional
sources of energy) for rural areas.
Section 5: The Central Government shall also formulate a national policy, in
consultation with the State Governments and the State Commissions, for rural
electrification and for bulk purchase of power and management of local distribution
in rural areas through Panchayat Institutions, users associations, cooperative
societies, non-Governmental organisations or franchisees.
Section 6: The concerned State Government and the Central Government shall
jointly endeavour to provide access to electricity to all areas including villages and
hamlets through rural electricity infrastructure and electrification of households.

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Section 13: The Appropriate Commission may, on the recommendations, of the

Appropriate Government, in accordance with the national policy formulated under
section 5 and in the public interest, direct, by notification that subject to such
conditions and restrictions, if any, and for such period or periods, as may be
specified in the notification, the provisions of section 12 1shall not apply to any local
authority, Panchayat Institution, users association, co-operative societies, nongovernmental organizations, or franchisees
Section 14: Provided also that where a person intends to generate and distribute
electricity in a rural area to be notified by the State Government, such person shall
not require any license for such generation and distribution of electricity
Section 61(h):
Section 61: The Appropriate Commission shall, subject to the provisions of this Act,
specify the terms and conditions for the determination of tariff, and in doing so,
shall be guided by the following:
(h) the promotion of co-generation and generation of electricity from renewable
sources of energy
Section 86(e): Section 86: The State Commission shall discharge the following
functions, namely

1 Section 12 requires a person undertaking transmission, distribution or trading of

electricity to take a license
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(e) promote co-generation and generation of electricity from renewable sources of

energy by providing suitable measures for connectivity with the grid and sale of
electricity to any person, and also specify, for purchase of electricity from such
sources, a percentage of the total consumption of electricity in the area of a
distribution licensee

A purview of the Electricity

Act

Sections 3&4 mandate the Central Government to prepare policies at a

national level to promote renewable energy, with an emphasis on

standalone systems for distribution in rural areas

Sections 5&6 endeavour to make rural electrification more effective, by
formulating a policy for rural electrification and by mandating State and

Central Governments to jointly put efforts in rural electrification

Sections 13& 14 exempt any entity engaging in rural distribution from

taking a license
Sections 61(h) and 86(e) envision a comprehensive approach to be
followed by SERCs in determining tariff and connectivity to promote
financial and overall viability of renewable and cogeneration based

2.2 National Electricity Policy

The National Electricity Policy [2] in its Clause 5.1 outlines several measures to
promote rural electrification and address the challenges in rural electrification. In
clause 5.1.1 it mentions, The key development objective of the power sector is
supply of electricity to all areas including rural areas as mandated in section 6 of
the Electricity Act. Both the central government and state governments would
jointly endeavour to achieve this objective at the earliest Further it mentions in
the same clause , the task of accomplishing 100% rural electrification within five
years, About 56% of rural households have not yet been electrified even though
many of these households are willing to pay for electricity. Determined efforts
should be made to ensure that the task of rural electrification for securing
electricity access to all households and also ensuring that electricity reaches poor
and marginal sections of the society at reasonable rates is completed within the
next five years.

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Clause 5.1.2 stipulates creating infrastructure for rural electrification such as Rural
Electrification Distribution Backbone (REDB) for every substation or alternatively
provide decentralized distributed generation systems,
5.1.2 Reliable rural electrification system will aim at creating the following:
(a) Rural Electrification Distribution Backbone (REDB) with at least one 33/11 kv
(or 66/11 kv) substation in every Block and more if required as per load,
networked and connected appropriately to the state transmission system
(d) Wherever above is not feasible (it is neither cost effective nor the optimal
solution to provide grid connectivity) decentralized distributed generation
facilities together with local distribution network would be provided so that every
household gets access to electricity. This would be done either through
conventional or non-conventional methods of electricity generation whichever is
more suitable and economical. Non-conventional sources of energy could be
utilized even where grid connectivity exists provided it is found to be cost
effective.
Clause 5.1.5 recognizes the need for providing incentives and soft financing for
distribution of electricity in rural areas, Subsidies should be properly targeted at
the intended beneficiaries in the most efficient manner. Government recognizes the
need for providing necessary capital subsidy and soft long-term debt finances for
investment in rural electrification as this would reduce the cost of supply in rural
areas
The policy also recognizes that rural electrification efforts will not bear fruit without
awareness and participation from the local community and cooperation amongst all
stakeholders, according to clause 5.1.7 which states, The gigantic task of rural
electrification requires appropriate cooperation among various agencies of the
State Governments, Central Government and participation of the community.
Education and awareness programmes would be essential for creating demand for
electricity and for achieving the objective of effective community participation
The policy stresses on full exploitation of potential of non conventional sources to
create additional power generation capacity, clause 5.2.20 states,Feasible
potential of non-conventional energy resources, mainly small hydro, wind and biomass would also need to be exploited fully to create additional power generation
capacity. With a view to increase the overall share of non-conventional energy
sources in the electricity mix, efforts will be made to encourage private sector
participation through suitable promotional measures
Clause 5.12 of the policy focuses on non conventional energy sources and
cogeneration, it outlines the measures for promotion of these sources by means of
bringing down the capital costs, increasing competition and providing grid
connectivity, the relevant clauses are:

5.12.1 Non-conventional sources of energy being the most environment friendly

there is an urgent need to promote generation of electricity based on such sources
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of energy. For this purpose, efforts need to be made to reduce the capital cost of
projects based on non-conventional and renewable sources of energy. Cost of
energy can also be reduced by promoting competition within such projects. At the
same time, adequate promotional measures would also have to be taken for
development of technologies and a sustained growth of these sources.
5.12.2 The Electricity Act 2003 provides that co-generation and generation of
electricity from non-conventional sources would be promoted by the SERCs by
providing suitable measures for connectivity with grid and sale of electricity to any
person and also by specifying, for purchase of electricity from such sources, a
percentage of the total consumption of electricity in the area of a distribution
licensee. Such percentage for purchase of power from non-conventional sources
should be made applicable for the tariffs to be determined by the SERCs at the
earliest. Progressively the share of electricity from non conventional sources would
need to be increased as prescribed by State Electricity Regulatory Commissions.
Such purchase by distribution companies shall be through competitive bidding
process. Considering the fact that it will take some time before non-conventional
technologies compete, in terms of cost, with conventional sources, the Commission
may determine an appropriate differential in prices to promote these technologies.

2.3 National Tariff Policy

The tariff policy envisages to achieve financial viability of the sector, by increasing
transparency, competition and efficiency in the sector. It recognizes the role of
renewables in achieving these objectives in the long run. The tariff policy stipulates
the following measures for addressing various issues related to and for promotion
renewables [ 3]
(1) Pursuant to provisions of section 86(1)(e) of the Act, the Appropriate
Commission shall fix a minimum percentage for purchase of energy from
such sources taking into account availability of such resources in the region
and its impact on retail tariffs. Such percentage for purchase of energy
should be made applicable for the tariffs to be determined by the SERCs
latest by April 1, 2006.
It will take some time before non-conventional technologies can compete
with conventional sources in terms of cost of electricity. Therefore,
procurement by distribution companies shall be done at preferential tariffs
determined by the Appropriate Commission.
(2) Such procurement by Distribution Licensees for future requirements shall
be done, as far as possible, through competitive bidding process under
Section 63 of the Act within suppliers offering energy from same type of nonconventional sources. In the long-term, these technologies would need to
compete with other sources in terms of full costs.

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(3) The Central Commission should lay down guidelines within three months for
pricing non-firm power, especially from nonconventional sources, to be
followed in cases where such procurement is not through competitive bidding.

A recent amendment to the tariff policy stipulates a separate Renewable Purchase

Obligation (RPO) for solar and mentions the implementation of a Renewable Energy
Certificate (REC) mechanism, the amendment is mentioned below
(i) Within the percentage so made applicable, to start with, the SERCs shall also
reserve a minimum percentage for purchase of solar energy.... which shall go up to
0.25% by the end of 2012-13 and further up to 3% by 2022.
(ii) It is desirable that purchase of energy from non-conventional sources of energy
takes place more or less in same proportion in different States. To achieve this
objective in the current scenario of large availability of such resources only in
certain parts of the country, an appropriate mechanism such as Renewable Energy
Certificate (REC) would need to be evolved. Through such mechanism, the
renewable energy based generation companies can sell the electricity to local
distribution licensees at the rates for conventional power and can recover the
balance cost by selling certificates to other distribution companies and obligated
entities enabling latter to meet their renewable power purchase obligations. In view
of the comparatively higher cost of electricity from solar energy currently, the REC
Mechanism should also have a solar specific REC.

2.4 Rural Electrification Policy

Rural Electrification had been in the focus of policy makers for the past several
decades. However this policy priority rarely translated into effective schemes on the
ground. A combination of factors ranging from low tariffs, high cost to serve; poor
efficiency levels and inappropriate organizational frameworks led to continued
neglect of rural India in electricity services. Even within the overall levels of
electrification in the country, the widespread regional disparities are a matter of
genuine concern for policy makers and for the regulators.
The Electricity Act, 2003 seeks to bring about a change in this picture. Through the
law, rural electrification and provision of electricity services has been accorded
renewed priority. In compliance with Section 4 and 5 of the EA 2003 the
Government of India has notified Rural Electrification Policy on August 23, 2006. The
policy aimed at providing quality and reliable power supply at reasonable rates to all
households by year 2009. Further, it also envisaged to provide a minimum lifeline
consumption of 1 unit per household per day by the year 2012.
The primary way of electrification of villages according to the policy is by
augmentation of sub-transmission and transmission system. However for villages
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where grid connectivity would not be feasible or not cost effective, off-grid solutions
based on stand-alone systems can be developed for supply of electricity. Further,
villages in which neither standalone systems nor grid connectivity is feasible then
isolated lighting technologies like solar photovoltaic maybe adopted. However, such
remote villages which use only isolated lighting technologies shall not be considered
electrified.
A village shall be deemed to be electrified if, basic infrastructure such as
distribution transformer etc. is established, electricity is provided to public places
and at least 10% of the total number of households in villages electrified.
Accordingly, in order to achieve electrification the rural electricity policy mandates
State Governments to prepare and notify a Rural Electrification Plan which will map
and detail the delivery mechanisms, whether grid or stand alone keeping in
consideration the available resources and technologies.
The salient features of the Rural Electrification Policy [4] are given below:

The nodal agency for implementing rural electrification shall be Rural

Electrification Corporation Limited (REC), a Government of India enterprise
under the Ministry of Power. It will provide financing for the rural
electrification programmes as well as coordinate with the state governments
for their implementation
A district committee, set by the state government in accordance with Section
166(5) of the Electricity Act shall facilitate the Rural Electrification projects,
both through stand-alone systems and grid extension and local management
projects, as may be required

The Rural Electrification Policy seeks involvement of local community in rural

electrification ,with panchayats having a supervisory or advisory role in
village electrification

The policy also seeks the involvement of State Government in raising

awareness on electricity related issues including generation, distribution,
energy conservation and energy efficiency

The policy stipulates deployment of franchisees for distribution in rural areas

under its current scheme RGGVY (Rajeev Gandhi Grameen Vidyutikaran
Yojana), for improving revenue sustainability.

The franchisee system shall be developed in a phased manner so as to

monitor the projects financed under the scheme. If the conditions of the
scheme have not been implemented properly, the scheme shall convert into
interest bearing loans.

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For implementation of rural electrification programmes, higher capital

subsidy is necessary. Similar capital subsidy is necessary for the distribution
networks in the un-electrified remote villages.

The Central Government shall in consultation with NABARD evolve model

schemes
and related
facilitative
and limits
eligible
Impact
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Electrification
and for
Renewable
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The graph below shows cumulative village electrification from the years
In order
to effectively
utilize
subsidiesseen
it is purported
thatelectrification
energy efficiency
2001-02
to 2010-11,
it can
be clearly
that village
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progressively increased since the inception of EA 2003, moreover after
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National Electricity
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efficient
farm
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village electrification has gained momentum

The Electricity Act exempts any person undertaking supply of electricity in

rural area from obtaining a license. The retail tariffs shall therefore be based
on mutual agreement between such person and the consumers. Since these
would be micro enterprises with low capital expenditure, short gestation
100000
periods and no entry barriers, competitive market forces would ensure
reasonable prices reflecting actual costs.
120000

The Appropriate Commission shall however have right to intervene by

scrutinizing tariff in cases where subsidies have been availed by the
developer ,in order to ensure that the benefits are passed to the end
consumers

80000

60000

Several state governments have already put administrative mechanisms like

single window clearance within easy access for giving necessary approvals
and clearances in time bound manner to facilitate development of
40000
decentralized systems, such as those using biomass for generation.

For stand-alone systems up to 1MW which are based on cost effective proven

20000
technology and use locally available resource, they would have automatic

approval for land, pollution and safety clearances as per norms.

As per the act, the policy also mentions that person(s) responsible for
0
managing
of distribution networks in rural areas are not liable to give
01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11
surcharge for open access to interstate transmission system for procuring or
So
transmission of power.
urce: http://cea.nic.in/archives.html
Another graph below shows the cumulative addition of Renewable Energy
sources to the grid, it is clear that additions have progressively increased
after the inception of the Act and supportive policies.

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NTP
EA200

NE
P

2.5 Challenges in implementation of Off-Grid/Decentralized

Systems and proposed solutions
Two solutions for rural electrification are grid extension or using decentralized
distribution systems. Grid extension is the primary option in order to achieve rural
electrification; however this entails significant expenditure and may not be
economically beneficial in the long run. Moreover more transmission and
distribution infrastructure results in more transmission and distribution losses,
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thereby leading to a more inefficient system. Decentralized Distribution or Off-Grid

systems offer a viable solution to address this situation, even more so if these
systems are based on non conventional or renewable sources. They simultaneously
address two issues, of providing electricity economically and providing energy
security whilst promoting clean energy.
However, certain issues need to be addressed in order to promote these systems
and to safeguard the interests of the stakeholders. Issues that need to be addressed
or resolved are:
(1) Determining the tariff from such systems and ensuring that the benefits are
passed on to the consumers
(2) In case extension of grid takes place, safeguarding of developers interests as
buyers may opt for cheaper power from grid
(3) In case the Off-Grid system is connected to the grid, should the rural licensee
be allowed Open Access? Determination of Open Access charges in such
cases.
(4) Integration of the Off Grid systems with the prevailing REC Mechanism.
The solutions to these issues have been discussed below:
1. Determining the tariff from such systems and ensuring that the
benefits are passed on to the consumers

Section 13 and 14 of the Electricity Act 2003 exempt any entity engaging in
rural distribution, to take a license. In such case the tariff may be determined
based on a mutual agreement between the developer and the rural
consumers
However, in case the developer is availing subsidy/benefits, the same shall be
passed on to the consumers. The appropriate commission may scrutinize the
tariff in such case ,based on information related to cost of service, technical
and operational performance ,furbished by the developer
The appropriate commission (SERC) may decide the tariff on a case to case
basis; however this may not be very convenient. The commission can also set
guidelines for determining the tariff for such projects
Model guidelines for management and operation of Off-grid Distributed
Renewable Energy Generation Systems may be formulated by the Forum of
Regulators which shall address all the above requirements
In case of planned/unplanned outage (given that grid extension has taken
place), Section 5 of the Electricity Act allows for bulk purchase of power from
the State distribution utility for rural electrification. The Appropriate
Commission shall decide the bulk purchase tariff in such case.

2. Safeguarding Developers Interests (in case of Grid Extension).

In case grid extension takes place, consumers may buy electricity from the grid,
owing to the cheaper rates. In such a case developing an off-grid system may turn
out to be futile, therefore suitable measures for evacuation of power by the grid
from the off-grid system need to be developed. Moreover the tariff for supply of
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such power into the grid from off-grid systems needs to be decided. Section 177(2),
with Section 73 (b) of the Electricity Act 2003 empowers the Central Electricity
Authority to specify guidelines/regulations on technical standards for connectivity to
the grid. The CEA has already drafted the regulations on technical standards for
connectivity on distributed generation resources.
It can be construed from Regulations in Section61, 62 and 86 of the EA 2003, that
SERC shall have jurisdiction in order to protect developers interests. Section 61 of
EA 2003 states, The Appropriate Commission shall determine tariff according to
the following guidelines in which guideline (h) is the promotion of co-generation
and generation of electricity from renewable sources of energy.
In addition Section 62 (1) mentions The Appropriate Commission shall determine
the tariff in accordance with the provisions of this Act for
(a) supply of electricity by a generating company to a distribution license
(d) retail sale of electricity
Further, Section 62(3) states that SERC shall not show any undue favor towards any
party while determining tariff, however it can differentiate on the basis of factors
such as nature of supply and the purpose for which it is required.
Section 62(3): The Appropriate Commission shall not, while determining the tariff
under this Act, show undue preference to any consumer of electricity but may
differentiate according to the consumer's load factor, power factor, voltage, total
consumption of electricity during any specified period or the time at which the
supply is required or the geographical position of any area, the nature of supply and
the purpose for which the supply is required.
Section 86 of the EA 2003 mentions the functions of the State Regulatory
Commissions, wherein it states that the SERC shall determine tariff for generation,
supply, bulk or retail and regulate electricity purchase and procurement process of
distribution licensees including the price at which electricity shall be procured from
the generating companies or licensees or from other sources through agreements
for purchase of power for distribution and supply within the State.
Thus it is clear, that the Act provides sufficient provisions to be followed in case of
grid extension while ensuring protection of developers interests.

3. Issues related to open access

Although open access is not an immediate issue to be dealt with as far as off-grid
systems are concerned, yet in case grid connectivity is given to the stand alone
system, it may opt for sale/purchase of power through open access.
The EA 2003 permits a distribution licensee non discriminatory open access to
transmission systems without any payment of surcharge, further since the rural
17 | P a g e

distribution licensee is exempt from taking a license for distribution under Section
13 it will also not pay any surcharge for open access.
If the rural distribution licensee has excess power for sale, then it can be sold
through open access. Providing open access to the rural licensee will therefore
encourage adoption of such models and will encourage developers for investment.
Moreover revenue from sales of surplus power may be used to lower the tariffs of
rural consumers or to strengthen the distribution network. According to Section 42
of the EA 2003, the determination of open access charges may be done by SERC.

4. Integration of the Off Grid systems with the prevailing REC Mechanism
The integration of off-grid renewable energy systems could be one of the possible
ways to promote the deployment of renewable energy, however few issues need to
be addressed:
(i)
(ii)
(iii)

Should generation from off grid qualify for REC?

Should there be a separate category for off-grid renewable energy systems?
Metering , auditing and certification of energy from such plants

(i) Presently, only grid connected entities can participate in the REC mechanism.
The REC mechanism is a way to take advantage of the spread of renewable energy
potential of the country. With the help of this mechanism, a lucrative market is
envisaged for the renewables.
Since, REC is an environmental attribute which is traded, a physical delivery of
electricity is not needed. Therefore RECs can be successfully implemented and shall
even improve the viability of such stand alone systems. Since various renewable
energy generators get grant/subsidy from MNRE and are eligible for participating in
REC mechanism, it follows that off-grid renewable generators should also be eligible
for RECs. In view of this, amendments can be made by the Central Commission to
the present notifications for inclusion of off grid systems. Forum of Regulators can
also formulate guidelines in this regard.
(ii) It may be useful to have a separate category for off grid renewable energy
systems, since they have an inherent disadvantage over economies of scale
enjoyed by larger projects. In order to implement this however, a separate RPO will
also have to be specified for off grid.
Given below are the various options that can be exercised as far as RECs for off grid
are concerned
REC/RPO for off grid
included in overall RPO

Separate REC/RPO for

offgrid projects

Multiple off grid RECs

based
on
different
technologies
18 | P a g e

Not feasible, since off- Feasible, but not for

grid RECs will not be
states especially where
able to compete due to
100% or near 100%
economies of scale of
electrification has been
conventional RE projects
achieved
Will need amendment to
present regulations

Existing framework of
REC will have to be
changed completely

(iii) In order to issue the REC Certificates, proper metering needs to be done since
the number of units generated needs to be verified and certified by SLDC for
issuance of RECs. For this purpose, the distribution licensee will have to install
meters, however regular data collection for energy accounting shall entail
significant costs for the distribution licensee, particularly since the off-grid projects
are most likely to be located in remote areas. For this purpose, remote metering
devices can be installed, with proper communication networks, so that data is easily
available at regular intervals for energy accounting.
Tamper proof metering and installation of remote communication devices
installation can be done at the design stage of the project in order to address these
issues. The certification of energy should be done by the same body (i.e.) SLDC in
order to avoid discrepancy. The distribution utility can do occasional checkups in
order to ensure proper sealing and operation of remote metering systems.

19 | P a g e

3. Rural Electrification Programmes in India

In the past, the government tried to implement several programmes for rural
electrification. These programmes were either discontinued or merged with the
existing schemes like RGGVY. Since the implementation of these programmes was
left to the SEBs which were in ailing condition, these programmes largely failed to
deliver. Moreover, rural electrification has always been considered a burden by SEBs
and has never been accorded top priority.
Thus, there was clearly a need to form more comprehensive schemes which would
address all the issues of rural electrification, viz. development of rural
infrastructure, increasing scope of rural electrification by covering all BPL families
and setting up of rural infrastructure at block level to cater to non domestic demand
of power

3.1 Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY)

In February 2005, a large-scale electrification effort, the Rajiv Gandhi Grameen
Vidyutikaran Yojana (RGGVY) scheme was launched by the Ministry of Power to
speed up rural electrification under the Power for all by 2012 initiative. All ongoing
schemes were merged with RGGVY, which is a major programme of grid extension
and reinforcement of the rural electricity infrastructure.
As opposed to earlier schemes which focused on village electrification rather than
household electrification, RGGVY focuses on household electrification.
The aims of RGGVY [5] are:

Provision of electricity access to all households (including rural households)

by year 2012 (which includes 23.4 million households living below the
poverty line)

Quality and reliable power supply at reasonable rates

20 | P a g e

Minimum lifeline consumption of 1 kWh per household per day as a merit

good by year 2012.

Under this scheme projects shall be financed for the provision of the following
systems:

A Rural Electricity Distribution Backbone (REDB) with 33/11 kV (or 66/11 kV)
sub-station of adequate capacity in every block where none exists

Village Electrification Infrastructure (VEI) with provision of distribution

transformer of appropriate capacity in villages/habitations

Decentralized Distributed Generation (DDG) systems based on conventional

sources where grid supply is not feasible or cost-effective

90% of capital subsidy shall be disbursed from Rural Electrification Corporation

(REC) which is the nodal agency for rural electrification. If the project is not
implemented satisfactorily then the subsidy shall be converted into interest bearing
loans. The scheme also provides for 100% financing of un-electrified Below Poverty
Line (BPL) households
In order to avail assistance for the above following conditions are to be met:

States to make adequate arrangements with no discrimination in the hours of

supply between rural and urban households

States should deploy franchisee for the management of rural distribution

State Government should have provision of requisite revenue subsidies to the

State Utilities

Determination of bulk supply tariff for franchisees in a manner that ensures

their commercial viability

RGGVY envisaged achieving 100% electrification by 2009, however due to the slow
status it was further extended into the 11th plan period (2007-2012) with the
following new conditions for its better implementation

States to ensure quality and reliable power supply at reasonable rates for
minimum 6-8 hours

A three tier Quality Monitoring Mechanism has been introduced to ensure

quality of materials and implementation

The deployment of franchisees is mandatory for the management of

distribution in rural areas

21 | P a g e

3.1.1 Status of RGGVY

During the 10th plan, 235 projects sanctioned at an investment of Rs 9733 crores,
covered the electrification of 65,419 un-electrified villages and provision of free
electricity connections to 8.31 million BPL households .At the end of the 10th plan
period , 38 525 villages were electrified and 672 000 BPL households had been
provided with electric connections.
During the 11th Five-Year Plan, focus has been on states that had a heavy backlog of
unelectrified villages and BPL households, as well as on special category states
(such as north-eastern states, Himachal, J & K and Uttarakhand), border districts
and districts led by left wing extremism.
As on 31st July 2012, a total of 576 projects across the states have been sanctioned,
under RGGVY covering the electrification of 105529 villages with intensive
electrification of 267861 electrified villages and free electricity to 19955055 BPL
households.

Propos
als

TOTAL
of
10th
PLAN
PROJE
CT
TOTAL
of
11th
PLAN
PROJE
CT
TOTAL
of
OTHER
S
TOTAL

Projec
ts
Sancti
oned

Project
cost
Sanctio
ned ( in
Rs. Cr.)

Revise
d cost
( in Rs.
Cr.)

Total
Amount
Release
d ( in
Rs. Cr.)

Electrific
ation of
Un/ DeElectrifie
d villages

Intensive
Electrificat
ion of
Electrified
villages

No. of
Connections
to BPL
Households

235

9733

13205.
74

11635.8
3

63466

98482

7347306

341

16695.1
1

20804.
51

16704.4
9

40969

169379

12095195

102.19

80.53

72.08

1094

512554

576

26500.
34112. 28502.1 105529(8 267861(75 19955055(8
19
14
6
9%)
.2%)
0.7%)
Source: http://rggvy.gov.in/rggvy/rggvyportal/plgsheethomeplan.jsp as on
31.07.2012
22 | P a g e

In Maharashtra, a total of 34 projects have been sanctioned under RGGVY, covering

the intensive electrification of 36713 electrified villages and electricity has been
provided free of cost to 1170645 BPL households.
Proposa
ls

TOTAL
of 10th
PLAN IN
MAHAR
ASHTRA
TOTAL
of 11th
PLAN IN
MAHAR
ASHTRA
TOTAL
of
OTHERS
TOTAL

Projec
ts
Sancti
oned

Project
cost
Sanctio
ned ( in
Rs. Cr.)

Revise
d cost
( in Rs.
Cr.)

Total
Amount
Release
d ( in
Rs. Cr.)

Electrific
ation of
Un/ DeElectrifie
d villages

Intensive
Electrificat
ion of
Electrified
villages

No. of
Connections
to BPL
Households

78.86

78.51

66.46

4291

208501

30

635.22

729.66

518.08

32422

962144

40

40

714.48

808.57

34

584.94

36713(91.
1170645(62.
1%)
4%)
Source: http://rggvy.gov.in/rggvy/rggvyportal/plgsheethomeplan.jsp as on
31.07.2012

3.2 Decentralized Distributed Generation (DDG) Scheme

The Rajiv Gandhi Grameen Vidyutikaran Yojana has set aside Rs.540 crores subsidy
for electrification of hamlets and habitations which are not being covered under the
scheme on account of their remote locations through Decentralized Distributed
Generation (DDG) scheme. [6]
DDG aims at utilizing suitable technologies which are locally available for generation
of electricity and distributing the same in the nearby hamlets / habitations. In DDG
scheme also 90% subsidy shall be given by Rural Electrification Corporation (REC)
which is the nodal agency.
The DDG system shall be owned by the state government and the implementing
agency shall be State Renewable Energy Development Agency (SREDA) or any other
department in the state that promotes renewables. The implementing agency will
assist the developer in land acquisition, execution of project, community
23 | P a g e

mobilization and creating awareness about DDG systems. Villages where grid
connectivity is not foreseen for next 5-7 years will be given priority under this
scheme.
3.2.1 Financing of Projects under DDG Scheme
The financial assistance for implementing the DDG projects would include the
following project cost:
(a) Capital cost, comprising of:
(i) All plant equipment & auxiliary systems and accessories required for the
power plant operation
(ii) All associated civil works. Cost for land, however, has to be borne by the
state government
(iii) Distribution Network with necessary control equipment. The subsidy
applicable to BPL Households
under the RGGVY Programme shall also be
applicable for DDG Projects. Access to electricity has to be provided for common
facilities such as Street light, Schools, Community buildings Panchyat Bhawan etc.
(iv) Initial capital cost for plantation for sustainable supply of bio energy (in case
of biomass gasification/bio fuel projects only).
(v) Initial capital cost of setting up non-domestic loads as specified by the
implementing agency
(b)
(c)
(d)

Revenue Cost: Cost of spare parts for 5 years after commissioning. The cost
of consumables and labour will not be included in the capitalized project cost
Cost of providing power for 5 years after the date of commissioning, after
taking into account the recovery from village households
Soft Cost: The developer shall also be eligible for soft cost towards,
Pre-selection of villages, technologies and preparation of DPR
Cost of social engineering to ensure community engagement

(e) 90% of the total project cost (capital cost and soft cost) will be provided to the
implementing agency as subsidy. The balance 10% can be arranged by the
implementing agency at their own or taken as loan from any financial institution
or REC

3.3 Remote Village Electrification (RVE) Programme

Since 2005, the RVE[7] programme of the Ministry of New and Renewable Energies
(MNRE) has been supplementing the efforts of the Ministry of Power (MoP) through
complementary measures for the provision of basic lighting/electricity facilities
through renewable energy sources. The Remote Village Electrification programme
(RVE) is responsible for electrifying un-electrified remote census villages and remote
24 | P a g e

un-electrified hamlets of electrified census villages where grid connection is either

not feasible or not economical (because they are located in forests, hills, deserts or
islands) and where DDG projects are not implemented by the RGGVY of the MoP.
The scope of the RVE is the provision of electricity for:

All un-electrified remote census villages by 2007

All households of un-electrified remote census villages by 2012
All un-electrified remote hamlets of electrified census villages by 2012

The RVE programme is implemented in the states by state-notified implementing

agencies, which receive 90% capital subsidy from the MNRE. A remote village or
remote hamlet will be considered electrified if at least 10% of the households are
provided with lighting facility. Under the RVE programme, the electrification process
entails choosing the most adequate energy technologies through the identification
of locally available energy resources. However, in the case where these solutions
are proven unfeasible, and if the only means for electrification is through use of
isolated lighting systems (such as solar PV), these should be taken up. However, the
remote villages receiving them shall not be declared electrified. In fact, where the
population is scarce and remote, there is often no other renewable energy option
but the installation of solar photovoltaic (SPV) home lighting systems. According to
the MNRE, a total of 95%, a large share of remote census villages are provided with
solar photovoltaic home lighting systems. However, these villages are not
considered properly electrified until further solutions are implemented
3.3.1 Status of RVE Programme
The RVE programme of the MNRE covers remote un-electrified villages which are
not covered under the RGGVY. In Dec 2012, the cumulative sanctions under the RVE
programme had reached 9729 villages out of which 7113 have been electrified and
1871 hamlets out of 2640 sanctioned, have been successfully electrified.
Progress of RVE Programme as on 31.12.11
Completed

Villages

Cumulative Sanctions since

inception of RVE
9729

Hamlets

2640

1871 (70.87%)

7113 (73.11%)

Source: Annual Report MNRE (2011-12)

3.4 Village Energy Security Programme (VESP)

25 | P a g e

The Village Energy Security Programme [8] was launched by the MNRE, for providing
energy security to villages which have not access to grid connectivity. The
programme aims to meet all energy needs of villagers such as domestic,
commercial, agricultural, industrial and motive power will be met by local available
biomass /bio sources of energy. The village should have a minimum of 50 and
maximum of 400 households. MNRE shall provide Central Financial Assistance of Rs.
20000/- per household under VESP.
Under the VESP the villages which are not feasible to be connected to the grid are
identified and are considered as remote villages, the selection criterion is:

Should be non-electrified and will not be electrified by 2012 by conventional

means.

Should have households in the range of 50 to 400.

Should have sufficient quantity of biomass / renewable energy sources.

The projects are undertaken by the Panchayats and are duly facilitated by
implementing agencies such as District Rural Development Agencies (DRDAs),
forestry departments, NGOs, entrepreneurs, franchises, co-operatives, etc.
Financial Assistance under VESP is provided as 90% of the capital cost to be met
through central grant, subject to a benchmark of Rs.20, 000/- per beneficiary
household for meeting the total domestic and community energy requirements. The
balance 10% towards the capital cost would have to be mobilized by the community
/ implementing agency / State Nodal Agency.
3.4.1 Status of Village Energy Security Projects
S.No
Name of
Implementing Agency
States

1
2

Assam
Chattisgarh

3
4
5
6
7

Gujarat
Jharkhand
Madhya
Pradesh
Maharashtra
Orissa

8
9
10

Tamil Nadu
Uttarakhand
West Bengal

State Forest Department

State Forest
Department/CREDA(14) &
NGO (1)
NGO
NGO
State Forest Department
NGO
State Forest Department(4)
& NGO(11)
State Forest Department
Uttarakhand Biofuel Board
State Forest
Department/WBREDA

No of Test
Projects
under
implement
ation
14
15

No of
Commissio
ned
Projects

2
3
9

10
15

10
15

4
4
3

4
4
2

5
15

26 | P a g e

Total
Source: Annual Report MNRE (2011-12)

3.5

79

65

An overview of rural electrification programmes

The various programmes in India for rural electrification have been summarized
below in the form of a table
DDG
Ministry of
Power (under
the RGGVY)
March 2009
REC

RVE
Ministry of New
and Renewable
Energy
2005
IREDA

VESP
Ministry of New
and Renewable
Energy
2004/05
IREDA

State
government
through state
nodal agency /
implementing
agency
Central
government
financial
assistance for
village
electrification
infrastructure
and DDG

State
government
through state
nodal
agency/impleme
nting agency
Under the
RGGVY for
electrification of
remote villages
where grid
connection is
not feasible or
not cost
effective

State government
through state
nodal
agency/implemen
ting agency

Forest
Department/Rur
al Development
Department/
NGOs

Central
government
financial
assistance for the
un-electrified
village not
covered under
RGGVY;
electrification
through
renewable
sources.

Technolog
y

Both
conventional
and non
conventional

Both
conventional
and non
conventional

Support
for

Creation of
distribution
infrastructure

Generation And
distribution
infrastructure

Renewable energy
(bio mass, wind,
mini hydro); In
some cases solar
photovoltaic
Survey and
study
Installation
of power
plant
Training
and
developme
nt
Monitoring
and
evaluation
Remote villages

Central
government
financial
assistance for
the unelectrified
village hamlets
not covered
under RGGVY,
Electrification
through
biomass, bio
diesel
Biomass and
biodiesel

Sponsor

Year
Nodal
agency
Implement
ing agency

Descriptio
n

Eligibility

RGGVY
Ministry of
Power
April 2005
REC

Un-electrified

Remote villages

Survey
and
study
Installatio
n of
power
plant
Awarenes
s
program
me

Remote villages

27 | P a g e

Criteria

Villages

where grid
connection is
not feasible or
not cost
effective

where grid
connection is not
feasible or not
cost effective and
not electrified
through
conventional
means

Funding

90% as a grant
and 10% as a
loan by REC

90% as a grant
by the central
govt and 10% as
a loan by REC

Current
status

Rs. 28,000
crore has been
sanctioned;
4355 villages
covered as on
31 Dec 2011
and 1,00,917
villages covered
cumulatively

Issues

Underfunded,
Lack of
monitoring and
evaluation of
new projects
Lack of fund for
initial cost of
connection
Village should
be consider
electrified if
10%
households are
electrified what
about
remaining
village

Subsidy of Rs.
540 crore for
DDG and 149
projects
sanctioned as
on 31 Dec 2011
covering 167
villages at a
cost of Rs. 197
crore
Regulatory and
clearance issues

90% as a grant
from MNRE and
remaining
contribution
through state
plan, etc.
Rs. 95 crore was
sanctioned in the
financial year
2011-12

timely availability
of funds
Financial
condition of the
state nodal
agency/implemen
ting agency
Willingness to pay
by consumer
Higher project
cost

where grid
connection is
not feasible or
not cost
effective and not
electrified
through
conventional
means
90% of capital
cost by MNRE
and the
remaining 10%
by the
beneficiary
UPNEDA prepare
20 Projects,
10 village are
selected by
OREDA,
22 VESP project
are completed
by 2007-08

1. Timely
availabilit
y of
funds
2. Willingne
ss to pay
3. Availabilit
y of the
fuel
4. Higher
project
cost
5. Low
demand

28 | P a g e

4. Rural Electrification in International Context

Modern renewable energy plays an important role in providing energy services to
the billions of people who depend on traditional sources of energy. Traditional
biomassincluding waste wood, charcoal, and manure remains the most
predominant fuel source in rural areas of developing countries. In addition, people
often rely on kerosene lamps or candles for lighting, expensive dry-cell batteries for
radio or mobile phone charging, and inefficient, polluting, and costly diesel
generators for other purposes.
29 | P a g e

Access to modern renewable energy not only counters the health and
environmental hazards associated with current energy sources, but can also
increase the quality and efficiency of providing basic necessities like lighting,
communications, heating, and cooling. In addition, modern renewable technologies,
such as wind turbines, provide additional services using motor power, such as water
pumping, which can improve quality of life and promote economic growth. [9]
Rural areas are characterized by low population density, difficult terrain and low
consumption capability. As a result electrification of these areas is usually more
difficult and costly to implement. Moreover long distances mean more transmission
losses and more equipment maintenance, which combined with low consumer
willingness to pay, make any electrification project unviable. State utilities or central
utilities around the world are generally assigned the task of rural electrification;
these utilities are already starved of cash, especially in case of developing
countries. Thus rural electrification efforts by these bodies have at large, not been
quite successful.
In several developing countries, innovative schemes have been launched by the
governments, several of them being successful. Linking of subsidies to output have
shown promising results, especially when private entrepreneurs and local bodies
have been engaged in rural electrification. However, high cost of service and
choice of appropriate technology options still remain a concern.
In this section, some of the successful rural electrification schemes and
programmes of continents such as Latin America, Asia and Africa, in which most
developing countries are situated, are described briefly. Further, overall rural
electrification scenario in the emerging economies, Brazil, China and South Africa
are reviewed.

4.1 Rural Electrification Scenario in Latin America, Asia and

Africa
4.1.1 Latin America
Across Latin America, an estimated 7% of the population (nearly 31 million people)
does not have access to electricity, and almost 19% (85 million) depends on
traditional biomass for heating and cooking. Lack of access is primarily a rural issue;
only about 1% of the urban population lacks electricity, whereas the rural share is
28%. Compared with other developing regions of the world, Latin America is far
closer to achieving full energy access, particularly access to electricity. Due to
geographical limitations, the only viable solution for most of the relatively small
share of the regions population living in isolated regions is renewable off grid
technology. In the last decade, the Andean region (Colombia, Ecuador, Bolivia, and
Peru), as well as some Central American countries, have developed numerous offgrid projects. Recent oil price increases have made solar PV more cost competitive,
30 | P a g e

driving the installation of large PV plants to provide electricity to isolated regions

that traditionally have been dependent on diesel. [9]
In Argentina, developers are selected for providing electricity in areas where grid
connectivity is not possible/feasible by providing a subsidy for providing off-grid
supply. The developer who bids for the lowest subsidy gets the grant for the project.
10 % of the project cost is paid by the consumers, while the rest is given by a
special electricity fund run by the government and a Global Environment facility
grant by the World Bank. Subsidies are paid on receipt of proof of installation of the
system; the installations are verified by random audits. In case there are no local
operators, a tender document is released; the developer with the lowest demand for
subsidy gets the project.
Chile uses a rural electrification fund with a planned life of 10 years to offer onetime, competitively awarded subsidies to local operators bidding to provide service.
The goal of the scheme is 100 percent electrification by 2004. Local operators, often
working with community groups, commit to a target for new connections. Their
proposals are scored against a checklist of objective criteria, including a cost-benefit
analysis, the operators investment commitment, and social impact. Although grid
connections are preferred, renewable off-grid systems can also get support.
Operators receive the subsidy up front and must make a minimum contribution to
project costs according to a formula set by the government. Operating since 1994
and using annual tenders, the fund had increased rural electrification by 50 percent
in 1999. The subsidy paid over this period amounts to US$112 million, while private
operators have invested US$60 million.
Panama is applying a variant of this approachopen season competition, in which
blocks of money are offered to private companies bidding to construct the largest
number of connections. Bidders can identify potential connections from a database
maintained by the rural electrification office. A social fund (using donor and
government funds) disburses payments against agreed construction milestones,
with random audits to check installations. Once construction is complete, the assets
are transferred to the local private distribution company, which commits to operate
and maintain the infrastructure for 20 years. The distribution company calculates
the subsidy required for the 20 years, and this is paid up front in a lump sum. In
1999 the program funded just over 100 projects, with an average size of 34
connections. Nonexclusive concessions are also allowed, but so far there have been
no takers. [10]
Mexico has created several programmes and projects to advance rural energy
access through renewable energy, including several large electrification projects,
with the aim of enabling the Federal Electricity Commission (CFE) to provide energy
solutions to the 2.5% of Mexicans living in low-income rural communities. The
Banderas Blancas (White Flags) programme plans to electrify more than 700 rural
communities (with 1002,500 inhabitants each) with both conventional methods
and distributed solar PV farms (30 kW).

31 | P a g e

In Peru, the national electrification strategy is to provide electricity services to 95%

of the 500,000 isolated householdsusing PV systems, wind turbines (4%), and
small and micro-hydro projects (1%)by the end of 2012. The total capacity to be
installed is estimated at 32.2 MW. Peru also has a centralized PV system, in
Vilcallamas, which was developed as part of a GEF-financed pilot project, benefiting
more than 40 households with the goal of improving productivity of local alpaca
fibre processing. [9]

4.1.2 Asia
During 2011, innovative plans within Asia to advance rural electrification included
programmes from Iran in the West to the Philippines in the East. They included
government-driven programmes as well as efforts financed by NGOs and
development banks.
The Philippines expanded its existing Rural Electrification Programme in 2011 based
on experiences gained from previous programmes, with the goal of achieving 90%
household electrification by 2017.Performance based subsidies in Philippines have
been quite successful with the specific targets being linked to the subsidy. The
subsidies require in part increasing sales, reducing commercial and technical losses,
and meeting connection targets.
The government of China has been proactive in meeting the growing demand for
electricity in rural areas. The Renewable Energy Development Program estimates
that 400,000 solar home systems were distributed during the period 2006 to 2011.
In Bangladesh, subsidies from the government have been linked to the salary and
the performance of the employees which has resulted in 1.3 million Solar Home
Systems under the Solar Energy Programme. Additionally Bangladesh also receives
support from 30 partner organizations from the private sector and civil society, with
support from the World Bank, the Global Environment Facility (GEF), KfW and GIZ of
Germany, the Asian Development Bank, and the Islamic Development Bank. [9]
Distinct from the many government-initiated programmes and targets, a number of
initiatives have been developed and implemented entirely by development banks.
For example, Germany's KfW financed a programme in Bangladesh that supported
about 450,000 Solar Home Systems. In Nepal, KfW is implementing a programme
that aims to install 150,000 Solar Home Systems.

4.1.3 Africa
Across Africa, electric utilities have failed to provide adequate service to the
majority of the regions population, especially rural communities and the urban
poor. Meanwhile, severe drought across the northern sub- Saharan region has
32 | P a g e

reduced generation from existing hydropower capacity, among other impacts.

Despite efforts to promote electrification in sub-Saharan Africa, the region has the
lowest electrification rate in the world, and more than 650 million people rely on
traditional biomass for heating and cooking
Solar PV Pico systems (SPS) and solar home systems (SHS) are two of the most
popular lighting solutions in Africa. Mini-grids based on PV and hybrid systems
(including small hydro and wind) are gaining popularity in villages that are
sufficiently dense and well-off, due to their economies of scale and to the demand
for electrical services beyond lighting, including communications, space cooling and
refrigerators, and motive services (such as water pumping and irrigation). The
popularity of advanced cook stoves is also on the rise in many African countries; an
increase in numbers can be attributed to a variety of projects in the region.
Players in Africa have developed, implemented, and realized a number of rural
energy programmes and targets in 2011 to extend electricity access through
renewable energy technologies.
During 2011, Gambia, Ghana, and Nigeria enacted policies to help extend electricity
to rural populations. In Gambia, a 10,000 Solar Home Systems programme, with an
estimated budget of nearly USD 7.4 million, was established to provide systems for
households, schools, health centres, and ICT centres. Ghana, which has already
achieved a 72% electrification rate, enacted a Renewable Energy Law in 2011 and
plans to achieve universal energy access by 2020. The law targets the installation of
15,000 solar systems in rural areas by the end of 2013. In Nigeria, the Bank of
Industry established an energy loan portfolio to provide power-sector investors with
financing at concessionary rates. [9]
Some countries such as Kenya are adopting a rural electrification planning
framework that first compares the cost-effectiveness of the various investment
options when delivering reasonable levels of service, and then factors in
considerations of social equity and balanced regional development. This approach
known as spatial analysis focuses on electrifying areas that will have impact on the
maximum number of people thereby having a maximum social and economical
impact. [11]
With support from multilateral banks and bilateral aid organizations, countries in
Africa and around the world have installed several million small SHS and established
market structures for their dissemination. Several countries are piloting innovative
business models based on fee for service, pay as you go, or prepaid metering to
improve affordability of these systems. The market for solar lanterns has
experienced significant momentum: in Africa alone, manufacturers have sold some
502,000 solar lighting applications (all meeting the Lighting Africa quality
standards).15 Lighting Africa is distributing solar lanterns that use light-emitting
diodes (LEDs) and offer potential lifetimes of up to five years without battery
changes.

33 | P a g e

4.2 Review of Rural Electrification in Emerging Economies

(Brazil, China and South Africa)
4.2.1 Brazil
Since the 1988 Constitution, the federal government of Brazil has been assuming
full responsibility for the distribution of electricity as an essential public service. As
a consequence of strong political will and the release of sufficient funds, in 2009
Brazil reached an overall electrification rate of 97.8%. This rate was 99.5% in urban
areas and 88 % in rural areas according to the estimates by IEA in 2009. This has
been achieved largely through grid extension. Stand-alone systems may be more
widely used in the future. In 1994 with an objective to electrify the rural
communities, the PRODEEM(Programme for Energy Development of States and
Municipalities) was launched and further programmes such as Luz no Campo (Light
in the countryside) were initiated. During 2003, PRODEEM and Luz no Campo were
merged together into Luz para Todos (Lpt or Light for All). A review of the rural
electrification schemes [12] in Brazil have been tabulated below.
Scheme

PRODEEM

Year
Objectives

1994
Promote Supply of
Energy to poor
rural community
that have no grid
access
DNDE(National
Energy
Development Dept)
under Min of Mines
and Energy (MME)
One of the largest
PV based Rural
Electrification
Programme,
superseded by LpT

Agencies
Involved

Targets and
Achievements

Issues Observed

Key
Learnt

Lessons

Luz no Campo
(LnC)
1999
Provide electricity
to 1 million rural
households in 3
years

Luz Para Todos

(LpT)
2003
Universal
electricity
access
to all rural areas by
2010

Eletrobras(largest
utility
in
Latin
America)
under
MME

Eletrobras(largest
utility
in
Latin
America)
and
ANEEL (Regulatory
Agency)
419000
Target = 2 million
connections (42%)
by 2008, 1.88
by 2002
million achieved,
overall 97%
electrification
achieved currently
After providing universal access, no promise yet for
further efforts
Difficulty in bill collection in some rural areas, however
issue solved in some areas by giving prepaid connection
Difficulty in assessing suitable technology for Amazon
region
For successful electrification local community
involvement is a must
Strong Political will is absolutely necessary to achieve
rural electrification targets
34 | P a g e

Well defined guidelines facilitate timely completion of

projects

4.2.2 China
China, with strong political will, extended its electricity grids and exploited the
countrys hydropower and solar potential. China achieved an electrification rate of
99.4% in 2009, with rural areas reaching 99% and urban areas 100% according to
IEA [12] in 2009. Over the last ten years, rural electrification has slowed down
because of nearly complete nationwide electrification. The emphasis is put on
modernization, service and quality improvements, poverty alleviation and
introduction of innovative technology solutions for the remaining non-electrified
remote areas in the vast western regions of the country. China will now focus mainly
on the use of decentralized power systems to supply, by the end of 2020, most of
the people who are still without electricity [13]

35 | P a g e

Schemes

Brightness
and
Township
Electrifica
tion
Programm
e

County
Hydropower
Construction
of National
Rural
Electrificatio
n

Power for China

All
Southern
Grid
Electrifica
tion
Efforts

Golden
Sun
Programm
e

Objectives

Providing
electricity
to 23
million
people

Construction
of 400 dams
for rural
electrificatio
n, to provide
electricity to
880000
people
without
electricity
access and
4.85 million
people with
insufficient
electricity
access

Providing
electricity
to 4.5
million
people by
2010 in
26
provinces

Constructi
on of
Power
grids at
country
level by
2010 to
supply to
410000
household
s

Deployme
nt of upto
500-600
MW of
large
scale solar
PV in both
off grid
and on
grid by
2012

Agencies

State
Developm
ent
Planning
Commissio
n

Min of Water
Resources

State Grid The China

Corporati Southern
on
Grid
Company

Ministry
of Science
and
Technolog
y, Min of
Finance
and
National
Developm
ent and
Reform
Commissi
on

Targets
and
Achievem
ents

1.3 million
people by
end of
township
programm
e, full
electrificat
ion by

45000 hydro
stations with
51 GW
capacity is
supplying to
300 million
people as on
2008

99.66%
village
electrifica
tion
achieved,
99.87%
househol
ds

Extension
of Targets
to 2015

99.94% by
end of
2008

36 | P a g e

2015

Issues

Key
Lessons
Learnt

electrified
by end of
2007
Prohibitive operational costs esp in rural areas have
prohibited several investors
Low quality of rural electricians ,mainly farmers
Operation and maintenance of off grid systems is
difficult in remote areas
Adequate training programmes are required in order to
address the last two issues above
Strong commitment by the Government plays a vital
role in success of rural electrification
Flexibility is required in selection and utilization of wide
range of technologies
Community involvement is necessary to build sense of
ownership among individuals
Private Sector involvement should be done via
competitive bidding

4.2.3 South Africa

Since 2000, the government of South Africa has been seeking to provide universal
access to basic services, including electricity. In 2009 South Africa achieved 75%
electrification with 88% urban and 55% rural populations who gained access to
electricity services according to IEA [12]. South Africas electrification has been
achieved mainly through grid extension. In the future, more renewable sources may
facilitate further electrification if barriers to their widespread use are overcome.
Before 1994, South Africa only focused on electrification of urban areas. In 1993,
some 30% of households were electrified. Since 1994, there has been a
fundamental shift towards electrifying all households, including those living in rural
areas. The grid electrification rate has since then increased from 30% in 1993 to
73% in March 2008 according to Dept of Minerals and Energy. The current scheme
for rural electrification[12] is given below

Scheme
Year
Objectives

Integrated National Electrification Programme

2001
To achieve universal access of electricity
to schools by 2009/10
to clinics by April 2008
to households 2012/13

Agencies Involved

National Energy Regulator : in 2001

Dept of Minerals and Energy: April 2002-Present
37 | P a g e

Targets and
Achievements
Issues and
Lessons learnt

75% of households by 2009, up from 30% in 1994

Deadline for full electrification is 2014
Pricing- Low tariffs for the national utility ESKOM led to
power shortages and cuts. It has been decided that
tariff shall be doubled in a span of three years
Microgrid
Opportunities
in BRICS
Unemployment
in South
AfricaCountries
is very high, more than
20%, therefore people find it difficult to pay for
Key players in microgrid market are expanding operations in BRICS
electricity. However, rural electricity programme has
countries
generated several jobs
Projected CAGR for
global microgrids
market = 13%
Installed
capacity is insufficient
to meet the present
Projected CAGR for BRICS microgrids market = 25%
demand,plans to double capacity by 2025
BRICS will account for 15% of global market by 2012 and 33% of global
Initially energy was being used very inefficiently
market by 2020
because of its low tariffs, mandated energy efficiency
targets were announced followed by blackouts in 2008
Poor policy and perception regarding renewables and
lack of support for off grid systems
Electricity theft and non payment of bills common in
rural areas, prepaid meters have been installed in
some places to address this issue

Key Drivers

Demand for energy in

BRICS countries
increasing at a higher
rate than that of
developed countries
Increasing focus on
Renewable Energy in
these countries
Varied geography,
microgrids present a good
option for remote areas
Industrial growth rapid,
microgrid has good
potential in industries
and commercial buildings

Challenges

Energy Storage for such

systems have to be
developed
Grid safety to be ensured
,due to variable power
from microgrid systems
High Capital investment
required
Operation and
Maintenance and
Revenue realization in

Country
Brazil
Russia
India
China
South Africa

Projected CAGR
17%
20%
34%
26%
25%

38 | P a g e

Source:http://smartgridresearch.org/wpcontent/uploads/sgi_reports/Microgrids_The_BRICS_
Opportunity_July_2012_Smart_Grid_Insights_Zpryme_Research.pdf

5. Business Models for Rural Electrification

In selecting projects for Rural Electrification, well-defined criteria are important to
ensure that funds are allocated efficiently and the program is financially
sustainable. It has been seen from various experiences in national and international
context that political patronage alone does not make a project viable or sustainable,
suitable measures should be taken to ensure the success of a project in the long
run.
In many countries projects have been prioritized by the government on the basis of
upfront equity provided by the local community. For instance in Panama, projects for
39 | P a g e

which the rural consumers provide a higher amount of upfront are given a higher
priority on the list as it shows the consumer willingness to pay for electricity. Other
countries like Chile divide the whole cost of installation, including lines and
metering, amongst the consumers over a period of several years [10]. Countries like
Kenya have followed a spatial approach by determining areas which would have the
maximum socio-economic impact by electrification. In all cases, the allocations of
costs and subsidies have been towards maximizing the desired output-the delivery
of electricity services. [11]
After deciding that grid extension is unviable in a given area, technology choices for
a given area must be determined. These must be determined taking several factors
such as energy consumption, willingness to pay, income of consumers and local
resources.

5.1 Renewable Energy Technology Options for Off-Grid Systems

In order to properly assess the renewable technology options or off-grid systems,
several factors should be taken into consideration. Some of the important factors
that need to be considered have been listed below:
Typical village and consumer profile of off-grid villages: A typical
village in India lacks basic infrastructure such as proper roads, schools,
hospitals and water. Many villages are inaccessible from owing to lack of
infrastructure. The rural population mainly depends on agriculture, and has
single rain fed crop yearly. The type of loads in Indian villages are generally
lighting loads, or loads for radio, T.V. etc
Typical energy consumption pattern and load demand: The energy
consumption in a village is mainly for agricultural uses such as pumps and for
household lighting. Minor industrial and commercial use can also be there for
shops, offices and small agro industries
Present energy use pattern and Willingness to pay: In villages the
primary sources of energy for cooking and lighting requirements are firewood,
kerosene, diesel etc. These sources are hazardous as well as expensive as
compared to electricity. Husk Power Systems have been providing electricity
to villages in Bihar for lighting purposes and have shown that villagers are
ready to pay Rs 10-15 per kWh since they still get far more benefit from
electricity and that too at a cheaper price.
Typical unit size and modular requirement: For lighting loads alone, any
renewable technology, viz. Solar PV, gasifier, micro-hydro, and solar-wind
hybrid can be used. However for large loads Solar PV or solar-wind hybrid
cannot be used. For higher loads gasifier or micro-hydro can be used,
depending upon their availability.
Distance from
Grid

Decision:
Grid
Extension or
off grid

Dispersion
Type of Load
Off
Grid

Decision: Micro
grid or
Individual
Systems

40 | P a g e

Dispersed:
Mainly
Household

Concentrated:
Some
Productive Load

Individual
Systems

Micro
Grid
Resources
Availability
Income Level

Community
Organization

Equipment
Availability

Diesel

Solar
Home
System
Wind
Home
System

RET

Diesel/RE
T
Hybrid

Pico Hydro

Batter

RET: Wind, Solar PV, Solar Thermal, Hydro, Biomass Gasifier, Biomass Direct
Combustion
Technology Options for Off Grid Electrification
Source:
http://siteresources.worldbank.org/EXTENERGY2/Resources/OffgridGuidelines.pdf

41 | P a g e

5.2 Elements of a Sustainable Off-Grid Project

In order to improve the viability and sustainability of an off-grid project, the
following points have been observed and should be followed. [14]
1. Consistency with overall Rural Electrification Programme
The conception and implementation of the off-grid project must be consistent with
the overall rural electrification plan for the region. This will ensure that the
programme will be pursued despite unavailability of technology or despite political
interference or influence
2. The design of Business Model must not be technology driven
Choice of technology must be done after carrying out a detailed cost benefit
analysis. Practical considerations such as availability of manpower, raw material and
maturity of technology must be carried out by the developer before deciding the
technology. Proper baseline data collection on demographics of the village,
infrastructure, load requirement and willingness to pay must be carried out
3. Increasing Community Awareness
Efforts to involve local community must begin at the starting of the project itself.
Promotional programmes and regular meetings with village officials will ensure
project success
4. Commitment of funds from Government
Several off-grid projects are funded by external agencies such as World Bank, this
grant or co-funding generally ceases at project closure. In order to maintain
implementation momentum, these projects should have access to funds from
Government. For example, the Philippines created a Missionary Electrification
Development Fund and formulated a subsidy rationalization policy specifying the
terms for providing off-grid systems assistance from the fund (Philippines
Department of Energy 2004)
5. Competence of the Project Developer
The implementing agency must assess the capabilities of the service providers,
adequately address their risks, provide technical assistance, ensure appropriate
technical standards and performance requirements, establish access to adequate
financing, and ensure the timely disbursement of funds.
6. Proper Institutional Mechanisms
The regulatory and institutional mechanisms should simplify operations for the
project developer and limit the cost of doing business while protecting the rights of
the consumers.

42 | P a g e

7. Imparting proper training

Training must be provided to the government staff at all levels for smoother
implementation. Locals from village should be trained on a regular basis for
operations and maintenance of the plant. Proper training of the personnel handling
equipment handling, accounts and collection is also very important. Sufficient funds
should be allocated for training of personnel at all levels.

8. Maximize opportunities for productive and institutional applications

Off-grid systems can help setting up and more efficient running of local industries
and institutions, these may provide better employment opportunities to households,
which generate more revenue for the off-grid system.
9. Explore opportunities for International Co-financing
Such funding sources might include the World Banks Global Environment Facility
(GEF) or Global Partnership for Output Based Aid (GPOBA), the Clean Development
Mechanism (CDM) of the Kyoto Protocol, bilateral donors, or a countrys sectoral
ministries (e.g., health or education). Given the need for specialized demand
studies, training of service providers, and other vital preparatory activities, staff
should take advantage of opportunities to obtain grants for such purposes.

5.3 Summary of Business Models

Business Models have been developed in some places in India, either for test or for
commercial purposes. These projects are mainly using gasifiers or small hydro and
solar PVs in some cases. In several villages only solar lanterns have been provided
to individual households for lighting purposes. Out of these models, worth
mentioning are Husk Power Systems in Bihar, Desi Power PPP model and Mera Gaon
model. These have been elaborated further in Annexure.
Recently, M/s ABPS has conducted one study on Policy and Regulatory
Interventions to support Community Level Off-grid Projects [15] wherein they have
studied following five business models for off grid projects.

REC based model

Centrally Procured Agency (CPA) based REC model
Generation Linked Subsidy (GLS) model
Combination of REC & GIS model
Off grid Distributed Generation Based Distribution Franchisee (ODGBDF)
model

On the basis of detailed analysis of each model, ABPS Infra has recommended
ODGBDF model and in certain cases, REC based model where REC revenue and
43 | P a g e

consumer tariff are sufficient to meet revenue requirement of the project developer.
Since Forum of Regulators, in their meeting dated 6 th June 2012, has also in
principle accepted ABPS Infras recommendations, this report exclusively focuses on
the ODGBDF Model proposed by ABPS to FOR, since it has been shown by M/s ABPS
Infra that the REC based model(s) may not be viable in case of many technologies.
Further, the revenue from RECs is variable and is subject to market risks, which a
developer may be unwilling to take. Thus we have decided to continue with the
ODGBDF model in detail. A summary of all the business models with their merits
and demerits are shown in the table below.

Sr. No.
1

Business Model
REC model

Advantages
Direct issuance of
REC
to
Project
Developer (PD)
Better price for REC
to PD

CPA based REC

model

Assured
centralized
assistance from MoP
Centralised
procurement of REC
No hassle of REC in
exchange by PD

GLS model

Comb. REC & GLS

model

Assured return due to

GLS from MoP
No risk involved due
to absence of REC

Direct issuance of
REC to PD
Better price for REC
to PD
Assured return due to
GLS from MoP

ODGBDF model

Assured return due to

direct cash flow to PD
Stability of cash flow
to long tenure period

Disadvantages
Limited resources
of PD to reach to
exchange
Risk
associated
with volume and
price
High
transaction
costs
Need to establish
CPA
PD may get low
REC
price
in
advance
Risk of CPA for
sale of RECs to
exchange
CPA
dependent
energy accounting
Long process in
reaching GLS to
PD
Intermediary
required at state
level
Limited resources
of PD to reach to
exchange
Long process in
reaching GLS to
PD
Risk
associated
with volume and
price
Too
much
dependence
on
DISCOM

44 | P a g e

of FIT
No need for creation
of CPA
Assured
centralized
assistance

Source:http://www.forumofregulators.gov.in/Data/Reports/CWF%20Offgrid
%20final%20report%20nov%202011_Latest_feb2012.pdf

5.4 Off-Grid Distributed Generation based Distribution

Franchisee (ODGBDF) Model
This model is mainly dependent upon the Feed in tariff (FIT) provided by the
distribution company and the Central Financial Assistance (CFA) provided by GOI to
DISCOM. The project developer shall form a franchisee agreement with DISCOM,
wherein the project developer will provide electricity to consumer and receive tariff.
The DISCOM will provide FIT to the project developer and receive CFA from GOI.
The operational structure of the model is shown below

Govt of
CFA

DISCOM
Agreement

Project
Developer
Tariff(Cashflo
Electricity

Electricity

Consumer

Consumer

Consumer

Consumer

Source: http://www.forumofregulators.gov.in/Data/Meetings/Minutes/30th_for_meeting.pdf

5.4.1 Description of the Model

1. Project developer to identify the project scheme for electrification of rural offgrid community;
2. Project developer to finalize the technology based on the availability of local
renewable resources;
3. Project developer to verify the State Government notification of rural area
from the Rural Local Body (RLB).
45 | P a g e

4. RLB shall provide the necessary details to project developer such as number
of households in the village, un-electrified status of village / hamlet / padas,
and consumerswillingness to pay etc. and also provide consent to developer
for generating and distributing electricity in the particular area.
5. Project developer to undertake the detailed prefeasibility study of the project;
6. Detailed project report to be developed by the project developer;
7. Project developer to enter into a franchisee agreement and PPA at FIT with
DISCOM,
8. Project developer to achieve Financial closure
9. Project developer to develop and commission the project
10.Project developer to provide electricity to consumer and receive tariff as paid
by the consumer of the local DISCOM
11.Project developer to receive FIT from the DISCOM (however, as per the
Franchisee Agreement, project developer to collect the due tariff from the
consumer for supply of electricity on behalf of DISCOM)
Prerequisites of the model

FOR to develop Model Regulations for Off-grid Rural Electrification

Government of India to modify Rural Electrification Policy and announce
central financial assistance. This step is optional.
Central Electricity Authority to develop technical guidelines for
interconnection of small generating systems with the distribution system
SERC to adopt the Model Regulations with suitable adjustments to take into
consideration state specific factors. This is one time activity.
DISCOM to submit petition to SERC for determination of FIT. This step is
generic and shall be performed for each technology in each state & not for
particular project.

5.4.2 Institutional and Contractual Structure of ODGBDF

The institutional and contractual structure of the ODGBDF model is shown on the
following page. It envisages that the model franchisee scheme adopted by GOI as a
part of RGGVY shall be adopted in this business model. The GOI may have to modify
its Rural Electrification Policy to provide CFA to DISCOM so that it can be
compensated for provision of electricity to off-grid areas. However it may be noted
that such a policy may not be mandatory for development of ODGBDF model.

GOI

CEA
FOR

CFA(Optio
nal)

State
Govt

Rural Local
Body
(RLB)

Model
Franchisee
Scheme

SERC
FIT
Order
Franchisee
ConseAgreement
DISCOM

PPA

46 | P a g e

Consume
rs

Institutional and Contractual Structure of ODGBDF Model

Source:
http://www.forumofregulators.gov.in/Data/Meetings/Minutes/30th_for_meeting.pdf

In ODGBDF model, the project developer will provide electricity to the consumers
and collect the tariff as paid by the consumers of the local DISCOM. The DISCOM
shall provide FIT to project developer. GoI may consider development of policy
under which it may provide central financial assistance to DISCOM for promoting offgrid rural electrification. This model provides the maximum certainty of revenue to
the developer, proper integration of off-grid projects with grid as and when it is
feasible. This would enable large scale deployment of off-grid projects. The model
will also ensure internalization of costs of rural electrification. It will be possible to
customize model according to local requirements and there shall be optimum
utilization of the government subsidy, if offered. The institutional and contractual
structure for the model has been developed and presented in the chapter. It is
proposed that FOR develops Model Regulations for Off-grid Renewable Energy
Generation and Supply (OREGAS) which would be suitably modified and adopted by
the SERC
5.4.3 Implementation Plan for ODGBDF [15]

S.No.

Task

1
2
3

Develop Model Regulations for Off Grid Supply

Adopt Model Regulations according to State
Adopt Guidelines for determination of tariff for Off
Grid RE Technologies
Adopt Model Tariff Regulations for Off Grid RE
Technologies
Issue tariff order for Off Grid Renewable Energy

4
5

To be done
by
FOR
SERC
FOR
SERC
SERC
47 | P a g e

Identification of Project Scheme and submission of

DPR
Signing of PPA with DISCOM

7
8

Achieve Financial closure and commissioning of

project
Tariff petition to SERC ,taking in account costs of offgrid project
Scrutinize project and approve FIT
Supply Electricity to consumers and claim FIT from
DISCOM
Providing FIT to project developer
Avail CFA from GOI
Timely payment of electricity charges

9
10
11
12
13
14

Project
Developer
Project
Developer
Project
Developer
DISCOM
SERC
Project
Developer
DISCOM
DISCOM
Consumer

5.4.4 Steps to be taken for successful implementation of the proposed

model
Several steps have been proposed with a basic framework to address any issues
and for proper implementation of the proposed business models. However, lessons
should be drawn from various sources and incorporated to achieve the best results.
Few necessary steps that should be taken are:

Guidelines for off-grid systems to be formulated keeping in view the

philosophy of the Electricity Act 2003
Single window clearance to be provided, i.e. the institutional mechanism to
be made as simple as possible
Institutional arrangements for back up services & technical support
Applicability of tariff in case of extension of grid
Protocol for grid connectivity to be developed
Terms & conditions for determining open access charges
Incorporating these projects into the REC Mechanism
Guidelines for determination of Feed in Tariff to be developed
Identify capacity building requirements at distribution level
Rules regarding installation of prepaid meters in rural areas for consumers

The proposed regulations should be developed, keeping in view the provisions of the
Electricity Act 2003 and should contain:

Concept of ODGBDF
Nature of PPA
Eligibility criteria for village/hamlet
Eligibility criteria for ODGBDF Operator
Eligibility Criteria for Technology and Sizing of the Plant
DISCOM to create supporting Institutional Structure
48 | P a g e

Responsibility of DISCOM to enter into Agreement

Grid Interconnection Requirements

5.5 Financial Assistance for the proposed model

Off-grid projects are characterized by remote locations, expensive technology, low
economies of scale and consumers with less ability to pay. Therefore, financial
assistance is necessary in most of the off-grid projects. Mostly these projects have
higher investment costs but have lower fuel costs. Developing such projects not
only lead to rural urban divide parity, but also lower costs in the long run.
If the population is large enough for a village or for a cluster of villages, then the
affordability of the project can be achieved by using suitable ways of financing. A
rural affordability pyramid is shown below.

In a
Source:
area, http://siteresources.worldbank.org/EXTENERGY2/Resources/OffgridGuidelin

rural

es.pdf

around 2-3 % of the consumers can afford to pay for the services, using micro-credit
the customer base can reach up to 20%. Micro-leasing services can further increase
the consumer base up to 50%. Longer term fee for service arrangements can be
done by involving a local authority such as a Panchayat to pay a lump-sum for
installation of wires and meters which it can reimburse from the villagers over a
long period of time. This arrangement can reach up to a consumer base of 50-70%.
For the remaining ones who cannot pay for electricity services, the government can
provide them minimal services such as LED based lamps through social
programmes.
In India there are several schemes for providing financing assistance to projects, the
MNRE provides subsidies of 50% for Biomass pilot projects and 30% for solar
projects. Under the existing rural electrification programmes subsidy to the tune of
90% can be availed. In order to achieve the best results subsidies should be either
linked to completion of milestones or achievement of certain targets. Financing
49 | P a g e

options in order to achieve viability of the proposed business model have been
given below.
1. Jawaharlal Nehru National Solar Mission (JNNSM ) guidelines for offgrid projects
This scheme provides soft loans for off-grid projects which use solar or any solar
based hybrid technologies. It also provides soft loans for working capital
requirements and balance of system manufacturers.
A project report including client details, technical and financial details shall be
submitted to MNRE after approval of the project by the project approval committee
(PAC) of MNRE.
The scheme requires a minimum of 20% equity contribution from the developer and
MNRE shall give a subsidy of 30% through IREDA and/or loan for the remaining part
at the rate of 5%.
The subsidy (max 30%) and the loan for the remaining part shall be availed from
IREDA. The loan shall be available at a rate of 5% per annum from IREDA or any
other financial institutions notified by MNRE, such as Regional Rural Banks,
NABARD, SIDBI, NHB and HFC. The loans from these institutions shall be available at
the same rate, i.e. 5% per annum.
The guidelines also propose a bouquet of financial instruments that can be used by
the developer in order to ensure the financial viability of the project. [16]
a) RE Voucher/Stamp
A Transaction-cost free redeemable financial instrument, denominated in physical or
monetary units. Placed in the hands of ultimate beneficiary it empowers him by
giving him enhanced degree of freedom to choose. Hence, it can be used as an
effective instrument to gauge and enhance consumer satisfaction at the retail level.
b) Capital Subsidy (Credit Linked and non credit linked)
An instrument which lightens the burden of financing the initial project cost to
enable financial closure of viable business proposition.

c) Interest Subsidy
An instrument aimed at neutralizing the high cost of capital given after due
diligence of credit appraisal by FIs, NBFC, Micro finance institutions.
d) Viability Gap Funding

50 | P a g e

Financial support provided mostly in the form of initial grant in one or more
installments to finance the project cost so as to create a viable business model. PPP
Scheme of Ministry of Finance has this arrangement for physical infrastructure
projects. It is supplemented by similar arrangement at the state level.
e) Green Energy Bonds
A form of low interest bearing long-term redeemable security, which could be issued
by IREDA/ MNRE for Renewable Energy Projects. Analogy: Infrastructure Bond/Gold
Bonds.
2. Viability Gap Funding
There are many projects with high economic returns, but the financial returns may
not be adequate for a profit-seeking investor. For instance, a rural road connecting
several villages to the nearby town. This would yield huge economic benefits by
integrating these villages with the market economy, but because of low incomes it
may not be possible to charge user fee. In such a situation, the project is unlikely to
get private investment. In such cases, the government can pitch in and meet a
portion of the cost, making the project viable. This method is known as viability gap
funding (VGF).It is being administered by the Ministry of Finance
Viability gap funding is used for funding of projects under several sectors such as
infrastructure, tourism, SEZs and power. Under VGF, the government provides up to
20% capital subsidy for competitively bid projects, thus making them more
attractive to the investor. The government can even provide 20% more capital
subsidy (thus making a total of 40% subsidy), thereby making the project even
more lucrative to the investor. Project developers are chosen on the basis of
competitive bidding process, in which the developer that quotes the least VGF
requirement gets the project. [17]

3. CDM Benefits
The Clean
Development
Mechanism (CDM) [18]
is one
of
the flexibility
mechanisms defined in the Kyoto Protocol, the other two being Emissions trading
and Joint Implementation. CDM allows a country (usually a developed country) with
an emission-reduction or emission-limitation commitment under the Kyoto Protocol
to implement an emission-reduction project in developing countries. Such projects
can earn saleable certified emission reduction (CER) credits, each equivalent to one
tonne of CO2, which can be counted towards meeting targets under the Kyoto
Protocol
A CDM project activity such as an off-grid system based on renewable energy
sources can be registered for CDM. Moreover, this can also be combined with other
activities which reduce C02 emissions such as installing more renewable
technologies or even by forest plantation in the nearby area. A CDM project has to
be approved by a designated national authority and then registered by CDM board
51 | P a g e

which issues Certified Emissions Reductions (CERs) which are tradable in the
market. These CERs can also be used to provide upfront equity through their
securitization as shown below.

Pro
viding Up-front Equity through Carbon Financing Mechanism
(Source: http://www.ptcfinancial.com/carbon_financing.php)
In this scenario, a project developer can be financed by a carbon financing entity
according to a future pre-determined delivery of CERs. Alternatively CERs can be
traded by the project developer in the market, once they have been issued, thereby
generating revenue.
4. Renewable Energy Certificates (RECs)
In India power consumers are required to buy a certain part of their consumption
from renewable energy generators. This is known as Renewable Purchase Obligation
(RPO). The State Electricity Regulatory Commission (SERCs) of each state has
notified minimum percentage of RPO for every financial year and also the obligated
entities. Obligated entities includes DISCOMS, open-access consumer, captive
generators and any other consumer as specified. The renewable energy sector in
India has been segregated into two types namely non-solar and solar for defining
percentages of RPO.

52 | P a g e

An obligated entity can meet their obligation by purchasing the required quantum of
renewable power directly from the producers. Alternatively, they can buy Renewable
Energy Certificates (RECs) to fulfill their RPOs. However presently the REC
mechanism requires grid connectivity for metering and issuance of RECs. Separate
guidelines may be formulated for off-grid projects or off-grid may be incorporated
with the REC mechanism in future.

6. Moving towards a holistic approach

An in-depth review of the key literature has been carried out in this report, giving an
overview of the surrounding policy framework, undergoing schemes and the
proposed business model. This section discusses the approach followed by us in
implementing the proposed business model.
So far, model regulations for off-grid supply need to be developed by the Forum of
Regulators. However, SERC is empowered by Section 181 of the EA 2003 to develop
regulations according to their own state. A draft of grid connectivity of off grid
systems has been already prepared by the CEA.
In line with the regulatory and policy framework described in the report, the
business model shall be tested. Current policy framework addresses most issues,
but certain issues need to be incorporated by specific policy guidelines for them.
The present rural electrification schemes offer a high percentage (90%) of grant for
off-grid projects. However efficiency can only be achieved if the incentivization is
applied at the right spot.
Engaging local entrepreneurs with sufficient net worth and giving them a conducive
institutional mechanism, will encourage improved viability of off-grid systems.
However, in order to address the rural- urban gap (of access to basic services such
as electricity), the viability gap needs to be addressed. This can be addressed in
several ways; the best way would be to optimally use the existing financing options.
The currently proposed model addresses the financing issue by providing a feed-in
tariff to the developer. Later on as the REC market becomes more competitive and
incorporates off-grid RECs, feed-in tariff can be gradually reduced, thereby
prompting the developer to take part in the REC mechanism.
A comprehensive and holistic methodology needs to be developed towards
achieving operationalization of the business model. Although it is clear that the
policy framework is encouraging, the institutional changes must be brought
wherever lacunae is found.
The Electricity Act in conjunction with the National Electricity Policy, National Tariff
Policy and Rural Electrification policy aims at providing electricity at reasonable
prices to all, with an emphasis on renewable and cogeneration technologies.
Although certain amendments (such as Section 14) need to be made in order to

53 | P a g e

bring existing off-grid systems into the legal framework, the policy has laid out a
very clear path for development of off grid systems.
Schemes such as RGGVY have not been fully successful owing to certain issues such
as unavailability of funds on time, lack of institutional support and moreover a
continuing lack of interest of State utilities in rural electrification. In view of this, the
onus lies on the rural community for its self development. Therefore, if replicable
and viable business models are developed, which can be run by local people, theyll
ensure self sustainability and reliance. Lessons learnt from other developing
economies have also shown that involving local community ensures smooth
functioning and a feeling of ownership of the project.
Going by the notion that individuals by their ambition, will benefit the community
even more than charitable funding by the government, the approach is to develop
replicable business models left to be run by individuals themselves ,who will be
responsible for their success (or failure).
Several key lessons have been derived from the literature review, from the
experiences in national and international context. These have been summarized
below:

Timely availability of funds is absolutely necessary for successful rural

electrification
Implementation of a proper institutional framework with clear guidelines
ensures proper implementation and functioning of such projects.
Working in conjunction with several agencies such as NGOs, local businesses
and businesses engaged in agro activities has found to be very helpful.
Partnering with the businesses in the value chain may also improve viability
for all of them
Choice of technology is very important to ensure viability of off-grid projects.
Flexibility in selection and utilization of a wide range of technologies can be
very helpful
A strong political will has resulted in successful rural electrification over a
large scale in several countries
Clear cut guidelines and policies for off-grid systems ,will ensure proper
implementation of off-grid systems
Engagement of local community gives a sense of ownership and employment
opportunities too to the rural people , in several cases local support by the
community has led to successful functioning of off-grid systems
Proper training of personnel for operations and maintenance of the system is
essential for smooth running of projects
Proper metering at source and tamper proof metering at houses is essential
for proper billing and managing commercial losses. Prepaid meters have been
successful in many countries. Metering may also be helpful when the system
is to be registered for RECs.
Providing basic services such as electricity, clean water, education and
healthcare to rural communities has always resulted in a positive feedback. It
54 | P a g e

helps in building a nation of educated and better individuals who can

positively contribute to economy and nation building.

7. Conclusion
A report on Policy and Regulatory Interventions to Support Community Level OffGrid Projects has already been presented to the Forum of Regulators. The report
discusses on the related policies and regulatory framework regarding development
of off-grid systems. It also proposes two models that can be adopted for off-grid
systems, the ODGBDF model and an REC based model. However, presently the
recommendation is for ODGBDF model due to reasons described earlier. This report
has been made in line with the proposed model by further streamlining of the
relevant literature.
As the RGGVY targets have moved into the 12 th Five Year Plan, there is a clear need
to seek alternatives to rural electrification. There are several remote areas in which
grid extension is not feasible, for such areas it is imperative to seek solutions that
are viable, non hazardous and sustainable. Renewable generation is not as
profitable as fossil fuel generation, especially for an off-grid system where the scale
of economies is low. Therefore proper measures to improve financial viability of such
projects and make them feasible are extremely important. Several funding
mechanisms have been developed for rural electrification but due to unavailability
of funds on time electrification efforts have not been successful. Moreover complex
institutional mechanisms hinder the progress of rural electrification.
55 | P a g e

Several successful off-grid systems are currently being operated by local

entrepreneurs, who have involved local community and partnered with
neighbouring agro businesses. They are not only successfully running their own
projects but are also providing financial viability to their partners in the value chain.
Differential pricing for rural and industrial consumers is also being done by several
entrepreneurs. It is possible that setting up of off-grid systems will encourage
setting up of local industries which may fulfill the viability gap without the need to
resort to any external help.
The proposed business model shall be tested for its viability and to test the
institutional mechanisms. Once the feasibility of such a model is ascertained, it can
be replicated in different areas to produce successful results. The key features of
the proposed model have been described below:

Project Developer to form franchisee with DISCOM

DISCOM to provide feed in tariff to Project Developer
DISCOM to avail Central Financial Assistance from Govt of India
Project Developer to collect tariff from consumers
Collected revenue shall be accounted before receipt of feed in tariff

8. References
1. Electricity Act,Ministry of Power,New Delhi.
Website: www.powermin.nic.in/acts.../electricity_act2003/preliminary.htm.

2. National Electricity Policy, Ministry of Power,New Delhi.

Website: www.powermin.nic.in/whats_new/national_electricity_policy.htm

3. National Tariff Policy Ministry of Power, New Delhi.

Website: www.powermin.nic.in/whats_new/pdf/Tariff_Policy.pdf

4. Rural Electrification Policy,Ministry of Power.

Website: www.powermin.nic.in/whats_new/pdf/RE%20Policy.pdf.

5. RGGVY Scheme,Ministry of Power .

56 | P a g e

Website:http://rggvy.gov.in.

6. Guidelines for village electrification under DDG scheme.

Website: http://recindia.nic.in/download/DDG_guidelines.pdf.

7. Remote Village Electrification, MNRE,Govt of India.

Website: http://www.mnre.gov.in/file-manager/offgrid-remote-village-programme/rve-adm2011-12.pdf.

8. Village Energy Security Programme,MNRE, Govt of India.

Website: http://www.mahaurja.com/RE_VESP_Program.html.

9. REN21. Renewables 2012 Global Status Report. 2012.

Website: http://www.ren21.net/default.aspx?tabid=5434. pp 81-90.

10. Ray Tomkins. Extending Rural Electrification-A Survey of Innovative Schemes

Website:rru.worldbank.org/Documents/OBAbook/10ch5.pdf.

11. Spatial Analysis,PACEAA. Website:http://paceaa.org/workshops/Malawi%20Training

%20Workshop/07.%20IDENTIFYING%20AND%20PRIORITIZING%20SETTLEMENTS%20TO
%20BE%20ELECTRIFIED.pdf.

12. Niez, Alexandra. Comparative Study on Rural Electrification Policies.

International Energy Agency, 2010.
Website: http://www.iea.org/papers/2010/rural_elect.pdf

13. Hevia, Tomas.The Rural Electrification in China and The Impact of

Renewable Energies
Website: http://www.ceibs.edu/bmt/images/20110221/30210.pdf

14. World Bank, Designing Sustainable Off-Grid Rural Electrification

Projects
Website:http://siteresources.worldbank.org/EXTENERGY2/Resources/OffgridGuidelines.pdf.

15. ABPS Infra, Policy and Regulatory Interventions to Support Community

Level Off-Grid Projects Website:http://www.forumofregulators.gov.in/Data/Reports/CWF
%20Offgrid%20final%20report%20nov%202011_Latest_feb2012.pdf.

16. MNRE, JNNSM Off Grid Guidelines

Website:http://mnre.gov.in/file-manager/UserFiles/jnnsm_g170610.pdf.

17. Guidelines for financial support to PPP,Ministry of Finance.

Website:www.infrastructure.gov.in/pdf/Finance.pdf.

18.Clean Development Mechanism

Website:http://unfccc.int/kyoto_protocol/mechanisms/clean_development_mechanism/items/
2718.php.

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9. Annexure
Several entrepreneurs have recently shown a lot of promise in rural electrification
by standalone systems. On one hand where government owned SEBs are incurring
heavy losses and low quality of supply, these models are setting an example by
ensuring financial viability, giving employment and providing access to clean
energy. A few such models, Husk Power Systems, Desi Power PPP Models and Mera
Gao Power have been briefly described.

7.1 Husk Power Systems for Rural Electrification

Most of the villages in Bihar are far away from electricity. In order to light up these
villages, Husk Power System (HPS) is trying to explore the ways to convert farm
58 | P a g e

waste into electricity. In 2007, under the guidance of Ministry of New and Renewable
Energy (MNRE), they took their first step towards the green energy revolution. They
got their gasifier fabricated at a local workshop and procured a cheap CNG engine
modified to suit their purpose from a small supplier. Rice husk is a waste product of
rice mills and is found in plenty in vast rural India; it is not often used for generating
electricity. The added advantage of these generators is its by-product-silica, which is
a valuable ingredient in making cement
The genesis of a bright idea
Gyanesh Pandey, a native of Baithania village in Bihar and an Electrical Engineer
from IIT BHU went to study at Rensselaer Polytechnic Institute in New York and
worked in the Power Management Semiconductor Industry. Meanwhile his friend
Ratnesh Yadav from Patna had just moved back from Delhi to pursue his
entrepreneurial dreams.
Gyanesh was concerned about the problem of rural electrification in India and tried
to find solutions in a variety of options such as nanotechnology to Jatropha based
biodiesel. In 2007, after a failed Vipassana meditation course he had a change of
heart and he came back to India.
The duo, Gyanesh and Ratnesh saw a ray of hope when they met Mr Krishna Murari,
a gasifier salesman. They learnt how several rice millers in the state of Bihar were
using the decades old technology of Biomass gasification to power their mills using
Rice Husk largely a no-good by-product of their operations.
The duo decided to use these gasifiers to provide power to the rural areas. After
much hard work towards developing a cheap engine that could fit the model of rural
electrification. What had been a rather lofty and continuously unyielding idea for
over five years took less than five months to realize and on the 60th anniversary of
Indias Independence, a remote and run-down village of Tamkuha( Literally
meaning Fog of Darkness) in the infamous Dhanaha region (often called the
University for Kidnappers) of West Champaran district in the state of Bihar
experienced electricity for the first time. The work was done under the banner of
Samta Samriddhi Foundation, an NGO setup by duo in Bihar.
Having a good enough business model and a working technology in the backwaters
of Bihar doesnt guarantee any larger success. The breakthrough needed exposure.
Exposure came through the efforts of Gyaneshs college friend, Manoj Sinha, a
business student at University of Virginia at the time. Manoj had been aware of the
work on the ground and he undertook the task of presenting the work to the world.
Manoj was assisted in his efforts by his classmate Charles Ransler. The model
proved to be a great success at various Business Plan competitions and Husk Power
Systems was born. With the success came prize money, exposure and a stream of
willing
investors
and
the
rest,
as
they
say,
is
history(Source:
http://www.huskpowersystems.com/innerPage.php?pageT=Background)
Technology
59 | P a g e

HPS supplies electricity to the villagers using environment friendly biomass

gasification technology Gasifiers are optimized for rice husk but can also work with
other type of agricultural residue or with wood. The engines are manufactured by a
local partner who worked with HPS to develop an engine that could run on rice husk
gas alone rather than dual-fuel operation with diesel fuel. This is a technical
challenge because of the amount of tar in the rice husk gas. Electricity is
supplied to only those villages that have demand of 15 kW and fall within the
radius of 3 kilometers from the proposed HPS plant. The plants are made so
simple that any high-school educated people from the village can be trained to
manage and run them. Tars and other particulates in the producer gas can
damage equipment, so a key factor for successful operation is the rigorous HPS
maintenance programme. HPS also requires high standards and detailed
monitoring, with individual plant managers sending daily report to the regional
manager. It is through this attention to maintenance and monitoring that HPS
plants achieve over 93% availability.

Business Model
Pay-for-use service approach is being followed by HPS for raising revenue and
supplying electricity. HPS came up with BOOM, BOM and BM business model. BOOMBuilt Owned, Operated and Maintained by HPS. BOM Built Owned and Maintained
by HPS but operated by a local who is willing to put in 10% of the project cost. BM
it is closer to the conventional franchisee model where HPS Builds and Maintains the
plant and the rest is done by a local entrepreneur. The HPS business model is
attractive and successful in the rural areas because of its low cost. Low cost prepaid meters have been installed that can efficiently regulate the flow of low-watt
electricity and reduced electricity theft to less than 5%.
HPS has also adopted a demand driven approach. Only villages where people are
eager to get the power connection can benefit from this technology. HPS team
surveys at least 250 households and quantifies the potential demand in watt-hours.
Uniqueness in this approach is that this willingness is not just verbal from all the
involved households they also have to give a token installation charge of 100 per
household. This money not just ensures compliance by the users, but also covers a
substantial portion of grid distribution expenditure.
Revenue Model
HPS earns its revenue from electricity sales. The company also generates revenue
from Rice Husk Char which is a waste product of Biomass gasification process,
which is being monetized by making incense sticks and Silica precipitation. Other
avenue of adding to the revenue such as channeling of product in rural markets is
being piloted. Revenue is also generated from Certified Emission Reduction (CER)
and Verified Emission Reduction (VER) sales.
By using HPS electricity, household kerosene usage cuts by 6-7 liters/month. Overall
kerosene saving of 27 lakh liters/month cuts greenhouse gas emission by 8100
60 | P a g e

aC3PclMSLi1oh(bm5ndsf0ger7v,t-2%)

ton/year of carbon di oxide. As 1 CER = 1 ton of CO2 saved, equivalent CER can be
traded through Clean Development Mechanism (CDM).

Further HPS have also expanded their operations through franchising. HPS will
provide plant equipment on a turnkey basis and to provide ongoing maintenance
support. HPS will also provide high quality training at no additional cost. HPS to
share in-house technology know how such as low cost pre-paid smart meter, low
cost transformers and remote monitoring technology.
HPS will levy a fixed service charge on a monthly basis. Franchisee shall share
revenue generated by the monetization of Biomass waste and CER/VER (voluntary
emission reduction) revenue.
Funding

A 32 kW gasifier system costs Rs 16 Lacs. MNRE subsidy works out to around 50%,
total project cost comes around to be near Rs 8 lacs .Some cost is covered by
franchisees and developers who pay a certain fees to HPS for installation, and the
remaining cost is covered by financial institutions and investors. HPS provides an
equity return of 12%-35% depending on the monthly fees charged to each
household, collection rate and price of feedstock. HPS loses only about 4% of
revenue through default on payment or electricity theft, considerably lower than
most power suppliers in India, who often lose 30%.
HPS also saves costs in its entire value chain, by using rice husk which is quite an
inexpensive fuel in the area. It uses bamboo poles as electricity poles for cost
savings; plenty of bamboo is available in the area.HPS installs prepaid meters and
CFL bulbs in every households. The CFL bulbs are provided at a subsidized rate,
which also save power apart from being environmentally friendly. By optimizing the
inputs and minimizing the losses HPS have been able to produce a successful
business model. (Source: papers.ssrn.com/sol3/papers.cfm?abstract_id=2029639)
Husk Power System using Rice Husk
bamboo Pole

9.2 Desi Power PPP Model

Smart Meter using a

61 | P a g e

Sustainable Energy for Rural Progress through Employment and Power

(EmPP) Partnership Programme
Integration of Decentralised Electrification and Energy Services with Employment
Generation
The central philosophy of the Desi Power group is holistic development of villages in
this present era of globalization. They believe that villages are the most neglected
areas in our developing economy. Thus they are developing replicable business
models which will not only electrify villages, but also generate employment
opportunities thereby ensuring sustainable development.
(Source: http://www.desipower.com/)
In the Barabari village in Bihar, desi power has installed a biomass gasifier plant
which supplies electricity to agricultural pumps and micro industries. Villagers who
had to pay around Rs 55 per hour for pumping water can do it now for a longer
period at Rs 40. Moreover, the pollution caused by diesel is also eliminated. Micro
Industries and the gasifier plant are providing employment to the local people
thereby preventing them from migrating to other places for finding work. These
industries are bringing an improvement in the overall lifestyle of the villagers by
providing employment and basic infrastructure.
Desi Power is quite convinced that unless the rural population is suitably employed,
they will not be able to pay for infrastructure such as electricity. Self-sustained
growth can only take place if the rural electrification programme is linked to village
micro-enterprises for local value addition and employment generation. The power
generation based on local renewable energy resources can provide reliable and
affordable electricity supply to make the micro-enterprises profitable and thus
bankable and attractive for private entrepreneurs.
To take its initiative to the next stage, DESI Power has prepared a 100 village project
proposal. The proposal is based on the successful field experience of EmPower
Partnership projects of DESI Power which can become a viable "Public-Private Rural
Electrification and Employment Generation Model" for large scale replication. The
cost of power production from the small-scale biomass gasification systems is lower
than any other technology in India today. Even so, they will only become widely
used if the power station package is disseminated simultaneously with the microenterprise package by professional and experienced partnerships under a policy
framework for the self-reliant progress of the rural people
A hundred successful EmPower Partnership projects as proposed here will provide
the basis for establishing the policy framework and the financing mechanisms. The
successful implementation of the EmPower Partnership Programme in 100 villages
within four years will create the momentum to promote a large scale replication of
the programme. A systematic documentation and training programme based on the
experience, combined with the flow of experienced people, will help the transfer of
know how to new project groups. Several 100 village programmes implemented by
different companies, coalitions and consortia will augment the experience and
broaden the network for the transfer of competence regarding the planning and
62 | P a g e

implementation of such decentralised projects in a decentralised manner. The goal

is that implementation organisations in 10 locations will replicate the 100 Village
EmPower Partnership Program to reach the target of 1000 villages per year. The
saving of CO2 emissions will be an additional gain to the global community. In this
way Desi Power envisages to eradicate rural poverty by encouraging social
development and providing infrastructure to all rural areas in the country.

Source:
http://www.desipower.com/100Village/writeUp100Village.htm#THE
%20PROGRAMME

Fund Requirement and Financing

A number of micro-enterprises are to be setup apart from the decentralized plants
in this scheme. Since, the notion is that electrification will not be feasible unless
people have purchasing power which is only possible if employment avenues are
provided for people. An approximate calculation has been made by Desi Power that
for a cluster of 10 villages, with each village having services such as briquetting,
63 | P a g e

rice milling, irrigation pumpsets the cost per cluster will come out to be around Rs
7.4 crores and for its ambitious aim of electrifying 10 clusters the cost will come
about Rs 74 crores. Desi Power has also calculated the funds that will be received
from various sources, these are shown below

Funds from various Sources

23%
43%
14%
10%

Bank Loan
Subsidy
Grant
CDM
Equity

10%

Source: http://www.desipower.com/100Village/writeUp100Village.htm#THE
%20PROGRAMME
The Poverty Reduction Impact
One of the axioms of the current neo-liberal economic thought is that ALL
investments must be justified on the basis of an adequate ROI otherwise the private
sector will not invest. Issues related to fairness and equitable sharing of common
resources, external costs and long term damages caused by economic activities
carried out for private profit, and the short and long term monetary costs of social
unrest, are not taken into account in such investment decisions.
One of the hardest tasks of everyone involved in promoting sustainable
development is to try and convince policy makers, private sector investors and
financial consultants that ROI as the sole criteria is not adequate for programmes
covering sustainable energy, economic and social rural development and poverty
reduction. Economic, social and ecological consequences should be simultaneously
considered in making investment decisions and selecting projects and a single
Triple ROI criterion should be used for this purpose. The Triple ROI criterion is
shown below
Activi Economic
Social
Ecological
ty

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Micro
Enterp
rises,
Power
Plant,
Energy
Servic
es

Investment

ROI on
Investment

Total
Direct
Jobs

Investment
per job

Total
Indirect
jobs

Jobs for
women

Other
Impacts

Reduction
of Local
Pollution

Reductio
n in CO2
emission
s

Redu
on in
the c
of
savin
CO2
emis
ns

Other social impacts cover drinking water, lighting, cooking, health services, schooling
and capacity building
Local pollution covers impacts on air, water and soil.

Source: http://www.desipower.com/100Village/writeUp100Village.htm#THE
%20PROGRAMME

9.3 Mera Gao Power

Micro Grid Power (MGP) builds and operates micro grids to provide lighting to offgrid villages in Uttar Pradesh. MGP has developed and operates the lowest cost
micro grid facilities in India. MGPs facilities provide superior lighting through
multiple light points for a lower monthly cost compared to kerosene and other
household lighting options like battery operated LED lamps. Low capital and
operational costs make for a commercially viable business model with projected
returns greater than 30%, allowing a repayment period of less than three years.
MGP was founded by two US born entrepreneurs, Nikhil Jaisinghani and Brian Shaad
who met in Nigeria and originally were interested in finding a way for Nigerian
villagers to use the natural gas that is unearthed in oil recovery but is usually
burned off and wasted. Instead the two went off to India, with little experience with
solar technology, but with the idea that an electrification product needs to be sold
as a service that is paid off over time, instead of sold via a high upfront fee that
requires a microloan.
Their biggest innovation is mapping and design. The company, which deployed the
first commercial micro-grid in last summer, is now supplying power to eight more
villages and has plan to scale upto 50 villages by end of this year. For which, it has
received $300,000 grant from USAID, however, according to guardian, the founders
have vision to supply micro-grid based power to 100,000 household by
2016 requiring many more investment in the future.
The company has faced several challenges and learnt a lot from their experience,
for instance in one of the first villages they made the mistake of starting out the
service by negotiating the power ceiling and price with the villagers. Later on that
put them in a vulnerable position when the villagers came back and wanted more
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power for less money. Eventually they ended up removing that system. In another of
the early villages the group worked with a local villager who acted as the collection
agent of the weekly-fees. However that proved to be a tricky situation, because if a
household didnt pay the fee they had to be disconnected from the service. The
villager-turned collection agent wasnt too keen on disconnecting his own neighbors,
and also had a penchant for tweaking the system to offer 24-hour power, which
killed the batteries. I dont think we realized how little knew about the market. We
were naive, says Jaisinghani.
Today Mera Gao Power has electrified 13 villages and Jaisinghani says the villagers
are happy with the service and the company is meeting its growth and revenue
targets. For the rest of the year the team will focus on managing sustainable growth
and doubling the amount of villages it electrifies.
(Source: http://gigaom.com/cleantech/lessons-learned-from-an-entrepreneurelectrifying-rural-india/)
Business Model of Mera Gao
Mera Gao mainly caters to giving electricity to households for lighting and mobile
charging purposes. They are exclusively using solar cells for this purpose. Their
design requires 90% less solar power generation capacity per customer compared
to traditional solar powered micro grids. In addition, to the saving on panels and
batteries, MGP is able to install panels on existing houses within the village and
batteries inside the houses; thus MGPs solar power stations require very little
additional infrastructure. In addition, because MGP distributes power at low voltage
direct current, inverters are not necessary, saving power loss due to conversion and
reduce maintenance costs.
MGPs facility design has four basic components, they are:

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Source: http://meragaopower.com/products/
Solar Panels: MGPs design uses solar panels to generate power. Because of
the low energy design, four panels are sufficient to power an entire village of
100 households with quality light and mobile charging. These panels are
installed on the roofs of existing households, thus eliminating the need for
land.
Battery Bank: Power is generated during the day but consumed at night. To
bridge this gap, a battery bank large enough to provide two days back up is
installed inside the same house that the panels are installed on. MGPs design
only requires four batteries for an entire village thus reducing the footprint of
the battery cabinet in the household.
Power Distribution System: Power is distributed over a short distance from
the battery banks to the village and then to households within the village.
Low voltage electricity is distributed according to a set schedule agreed to by
the village and MGP.
LED Lighting: By utilizing LED lights, MGPs micro grid design is ultra energy
efficient. This is the key to reducing power generation and storage
equipment. Each household is provided with two or four LED lights. These
lights provide better light through more light points and for longer duration
each night than our customers are able to get through kerosene.
Economics
The actual project expenditure for a village of 100 households is close to Rs.
248,380. Operation and maintenance costs are estimated to be approximately
12% of capital expenditures. Labor requirements are limited to tariff collection,
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solar panel cleaning, and regular inspection of the facility. Tariff collection costs
per village, is around Rs. 4,516 per year. The average household tariff for lighting
is Rs. 70 per month for two lights. For a village of 100 households, revenues are
estimated to be Rs. 83,997. After covering operation and maintenance expenses,
profit is estimated to be Rs. 74,967 for a village of 100 households, resulting in a
repayment
period
of
less
than
three
years.
(Source:
www.inspirenetwork.org/pdf/CS_MGP.pdf )
Outcomes of the model
Quality, dependable light transforms lives; children are able to study at night,
adults are able to earn additional income, and indoor air quality is improved. Our
services benefit women who traditionally spend more time working indoors and
children who accidentally drink kerosene and inhale its fumes. With a
commercial model, MGP expects to scale up its services to reach 1,000,000
people by 2017. The strong potential value of MGPs facilities for the women in
its customer villages coupled with the observed strong demand by women to
have the improved lighting in the kitchens has led MGP to believe that its
outreach activities must integrate female social awareness builders who can
demonstrate the improvement MGPs services can have on their lives.

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