11 Decentralized Distributed Generation
for an Inclusive and Low Carbon
Economy for India
Chandrashekar Iyer, Rajneesh Sharma, Ronnie Khanna, and
Akil V. Laxman
Background
Power is essential for the socio-economic development of
a country and is being recognized as a basic infrastructural
requirement. Rising demand for energy in the developing
world has given rise to two main challenges for the power
sectorthe addition of new generation capacity and
expansion of the current transmission and distribution
infrastructure. Decentralized generation has the potential
to solve both these issues, particularly in remote areas.
Access to modern and reliable source of energy is a major
driver for rural development and improved livelihoods.
Electrication is a signicant step towards poverty allevia-
tion, income generation, health, and other developmental
objectives. Electrication has a major impact on rural
society by bringing in higher productivity through electri-
cal machinery, higher number of productive hours in the
day through electric lighting and better access to aord-
able education, health, and entertainment. It enhances the
quality of life of the rural populace and holds out hope for
a better future.
According to the 2001 Census, the rural household
electrication of India was around 43.52 per cent, which
implies that a large section of Indias rural population does
not have access to electricity, let alone a reliable supply
of it. As a result, rural households spend huge amounts
1
The World Bank (2007).
2
National Sample Survey Organization (2008).
3
Union Budget 201011.
of money on expensive and environmentally damaging
resources such as charcoal, wood, and kerosene. The low
income households spend a considerable amount of their
time in collecting wood for their kitchens and are exposed
to indoor air pollution on a daily basis which according to
World Bank estimates, is responsible for over 1.5 million
deaths1 per year the world over. About 42 per cent2 of
households in India use kerosene as the primary source
of lighting and the GoI incurs a subsidy bill of nearly
Rs 2,765 crores3 (200910) to provide subsidized kero-
sene and LPG to the populace. This subsidy bill would
come down dramatically if all households used electricity
as their primary source of lighting.
Grid Extension (GE) and Decentralized Distributed
Generation (DDG) are the two basic means used to
electrify rural areas. GE involves laying out distribution
infrastructure to reach out to the villages while DDG
comprises small, modular, decentralized o-grid energy
systems located in or near the place where energy is used.
While grid extension is a costly solution for connecting
to remote locations and populations spread over a larger
area, it does oer the benets of being connected to the
grid with access to relatively cheaper source of electric-
ity, continuous supply, and access to energy generated by

generating stations located far away from the consump-
tion point. On the other hand, the maintenance of a large
distribution network and high Transmission and Distri-
bution (T&D) losses on such a network are issues that
the utilities have to deal with. Grid extension becomes
prohibitively expensive in the cases of remote villages
which are hard to reach due to their location constraints.
Most rural electrication in India is currently implement-
ed through this option.
DDG is the other option for rural electrication that
has been implemented successfully across the world in
nations such as Cambodia, Nepal, China, and Philippines.
DDG can be based on either conventional or renewable
sources and is usually implemented in remote villages
where connectivity to the grid is not feasible or cost-
eective. DDG enables electricity generation at the local
level using locally available resources ensuring reduced
dependence on external resources. Local distribution net-
works or micro-grids are set up over a cluster of villages
and powered by a local generating plant which may be
based on conventional fuels such as diesel, natural gas,
fuel oil or on renewable energy such as wind energy,
solar energy, hydro power, and biomass. DDG is also
promoted by the GoI through the Rajiv Gandhi Grameen
Vidyutikaran Yojana (RGGVY) (scheme of Rural Electric-
ity Infrastructure and Household Electrication) which
aims at electrifying about 1.15 lakh unelectried villages
and 2.34 crore BPL (Below Poverty Line) households.
This scheme includes a capital subsidy of Rs 540 crore for
DDG for the Eleventh Five Year Plan.
The high cost of extending electrical grid coverage to
remote areas can enhance the viability of renewable energy
technologies, such as solar PV. The availability of clean
electricity not only helps households avoid the health
risks associated with conventional forms of energy, such as
kerosene, charcoal, and disposable batteries, but also helps
the global environment through avoidance of GHGs and
conventional air pollution associated with fossil fuel-based
forms of electricity. Table 11.1 shown below shows the
CO2 emissions reduced by the usage of RE DDG units as
against conventional sources of electricity.
DDG systems also have a denite positive impact on
the rural economy due to introduction of a new revenue
generating entity (the DDG unit) into the system and the
jobs that are created due to its establishment. Biomass-
4
CEA (2008).
5
Ibid.
6
MNRE.
7
Census of India (2001).
Decentralized Distributed Generation for India 187
Table 11.1 Emission Reduction due to Use of RE DDG
Grid Emission Factor (India)4 0.80 tCO2/MWh
Estimated monthly household 50 kWh
consumption
No. of households in village 50 Households
Annual consumption of a village 30000 kWh
CO2 emission reduced compared 24 tonnes/year/village
to regular sources
Source: Authors own.
based DDG units are quite well suited to rural areas as
they enable the farmer to reduce electricity expenses by
selling the biomass to the DDG unit, in addition to the
benets that come with electrication such as higher
productivity and better access to communication, etc.
Penetration of DDG
As on 30 April 2010, 16.1 per cent5 of Indias villages were
still unelectried. These villages are expected to be electri-
ed through a mix of GE and DDG. The MNRE has
undertaken the remote village electrication programme
targeted at electrifying unelectried remote census villages
and remote unelectried hamlets of electried census vil-
lages where grid connectivity is either not feasible or not
cost-eective. A total of 5259 remote villages/hamlets
were identied in 2001 for rolling out the project, out of
which 3332 villages have already been covered.6 The plan
is to electrify 296 villages through distributed generation
technologies of biomass gasication and small hydro.
Barriers to Penetration
Over 158 million households in India7 have limited access to
modern energy sources like electricity and non-traditional
cooking fuels like LPG (liqueed petroleum gas). Instead
they rely on inecient and polluting energy sources such
as kerosene, wood, dung, and other biomass.
RE based-DDG projects across the world have been
successful in areas where demand exists and DDG has
been found to be economically viable. However, successes
at the local or the micro-level have rarely been scaled
up. This is due to a number of institutional, nancial,
and technical reasons. In this section, we look at the
issues that have impeded the development of RE-based
DDG projects.
188 India Infrastructure Report 2010
Rural Energy Synonymous with
Rural Electrication
Over the years, planners have regarded delivery of rural
energy services as synonymous with rural electrication.
This is reected by the fact that once a village has been
declared electried, the energy needs of the village are
deemed to have been met, regardless of whether electric-
ity is available to that village and whether the village rural
electrication infrastructure is operational throughout the
year. At the same time, energy needs related to cooking,
water extraction, and space heating have not been looked
at as an integral component of this energization pro-
gramme and thus are developed as disjointed and specic
programmes catering to a particular end use.
Poor Access to Credit
The rural poor, owing to limited cash ows have limited
options for investing in clean energy technologies like solar
home lighting systems. In light of this, access to credit
becomes crucial for facilitating access to clean energy tech-
nologies, especially for relatively capital intensive DDG
systems. Owing to the consumptive nature of energy,
cumbersome procedures involved in accessing formal
credit and the reluctance of formal banking institutions to
provide credit to the poor for meeting their household
energy needs, especially in the remote areas, the poor have
remained outside the mainstream, especially in terms of
accessing clean technologies like solar home lighting sys-
tems, biogas plants, etc. The poor are unable to provide
the required guarantees and hence, nancial institutions
do not develop packages for decentralized rural energy
programmes. In cases, where institutions like SELCO
(Solar Electric Light Company) have been able to facilitate
access to credit (see Box 11.1), the development of DDG
energy technologies have taken place at a much faster pace
than in areas where these facilities are not available.
Box 11.1
SELCO Model
The organization has formed a steady relationship with nine
regional rural banks, commercial banks, NGOs, and rural
farmer cooperatives to develop nancial solutions which
match the needs of the rural folk after considering the cash
ows of the targeted audience. For example, SELCO helped
a small handloom weaver community in Doddaullarthi,
Karnataka, to nance their lighting needs by arranging for
nance from the local village bank with instalments suited
to their income levels. It also helped fund the margin money
required for the loans with support from Renewable Energy
& Energy Eciency Partnership (REEEP).
Source: SELCO with REEEP.
Financial institutions in India, due to lack of adequate
knowledge of these technologies, their advantages, and
their returns, are not convinced enough to lend for the
purchase of these (RETs) especially solar PV technologies.
These technology options do not directly result in pro-
ductive and income generating activities and thus, in
absence of enough information, banks and FIs nd
it hard to justify lending to the rural consumers for
these packages.
Lack of Adequate Information/Data for
Market Development
Limited data and information exists for rural energy entre-
preneurs looking to enter the clean energy DDG market.
However, due to the fact that a number of government
agencies collect data at the rural level that focus on dif-
ferent aspects of energy, including resource availability,
supply potential, and to a limited extent demand assess-
ment, this data is neither shared nor collated into a single
database for an informed decision-making system either
by the government or private sector.
Implementation of Policy and
Regulatory Frameworks
The EA 2003
The Electricity Act 2003 (EA 2003) has been the most
important driver of reform in the electricity sector over
the last decade. The EA 2003, besides providing for the
overall development and management of the Indian
electricity sector has included some legislative provisions
facilitating and promoting adoption of renewable energy
technologies for rural electrication through:
Section 6which obligates the state government to
supply electricity to all areas, including villages and
hamlets.
Section 13which exempts the need for a distribu-
tion, transmission, and trading licence based on
recommendation of the state government for local
authority, panchayat institution, co-operative society,
or franchisees.
Section 14which exempts licence to a person who
intends to generate and distribute electricity in a rural
area notied by the state government. Furthermore, a
person exempted under the 8th Proviso of Section 14 as
above would also be free from purview of appropriate
commissions in matters pertaining to determination
of taris.
The retail taris for such exempted persons would be
based on mutual agreements between such persons and
the consumers.
 Decentralized Distributed Generation for India 189

The legislative provisions do provide for mutually agreed Table 11.2 Status of Remote Village Electrication
taris. However, the taris of grid-connected consumers State Total Villages Villages Ongoing
are decided by the respective regulatory commissions sanctioned completed Villages
and are lower than the average cost of supply for the area since 2001 up to 2007
in the case of domestic and agricultural consumers. The
1 Madhya Pradesh 199 30 150
lower taris are a result of the cross-subsidizing eect
2 Gujarat 38 38
that the higher taris paid by high tension (HT) consumers
have on the overall revenue of the distribution compa- 3 Rajasthan 327 218 85
nies. In the case of DDG, the taris are mutually decided 4 Chhattisgarh 368 325 43
between the generator producing electricity using DDG 5 Maharashtra 271 120 148
means and the end consumers. The remote areas elec- 6 Karnataka 20 16
tried by DDG typically do not have any subsidizing
consumers, thus resulting in higher taris for the Source: MNRE.
domestic consumers.
The GoI for the last ve decades, through its various
Rural Electrication Policy committees and groups, has tried to address the issues
The Rural Electrication Policy declared in 2006, aims at related to provision of rural energy services resulting in
provision of access to electricity for all households, quality programmes related to rural electrication, promotion
and reliable power supply at reasonable rates, and mini- of RETs improved chullahs (cook stoves), biogas develop-
mum lifeline consumption of one unit per household per ment, etc. The impact of such programmes, over the years,
day as a merit good by year 2012. It species the approach though signicant has not been to the level expected, on
to be used for rural electrication through DDG and GE account of the increasing population, limited increase in in-
along with the nancing and implementation mechanism come levels, attention to supply rather than demand, and use
required for such projects. of inecient institutional mechanisms for delivery of
these services that has lead to leakages, higher losses, and
The RGGVY Programme low availability.
The Government of India, in February 2005, launched a One of the very strong messages that has come out
large-scale electrication eort, called the Rajiv Gandhi from a number of failed rural energy programmes has
Grameen Vidyutikaran Yojana with the objective of been the fact that delivery of rural energy services has
speeding up rural electrication under the Power for all become synonymous with grid extension and that grid
by 2012 initiative. The RGGVY programme envisaged extension programmes have their own limitations and
a major grid extension and reinforcement programme, have been able to meet the energy requirements only in
especially for that of the rural grid. RGGVY also envisaged a limited manner.
the use of DDG systems based on conventional and non- The case of DDG programme has been similar. DDG
conventional sources where grid supply is not feasible or has been dependent on national programmes that have
cost-eective. either been technology-centric or end-use-based without
any inter-linkages. Owing to a rigid programme-based
The RVE Programme approach, little or no attention has been given to either
The Government of India also launched the Remote the eectiveness of these programmes or the issues that
Village Electrication (RVE) programme through the promote human welfare through a measurable approach.
MNRE for supplementing the eorts of the Ministry Hence, in spite of the existence of these programmes
of Power (MoP). The RVE is responsible for electrifying for nearly two decades, their impact on the development
unelectried remote census villages (with a population scenario in general and the rural energy scenario in par-
of less than 100 inhabitants) and remote unelectried ticular, has been limited.
hamlets of electried census villages where the grid con-
nection is either not feasible or not economical (because Lack of Research and Development (Including
they are located in forests, hills, deserts, or islands) and Customization) in Technology
where DDG projects are not implemented by the In spite of the need, sucient emphasis has not been laid
RGGVY of the MoP. The status of RVE is given in on technology development in the national level energy
Table 11.2. programme. In the entire planning mechanism there is no
190 India Infrastructure Report 2010
emphasis on the necessity of designing devices as per the
needs of the community and this is reected in the absence
of a mechanism that can take and incorporate feedback
for assessing R&D requirements from the community in
the planning process. For instance, the kerosene devices
used in rural areas for lighting purposes are technically
archaic in nature. This not only results in higher kerosene
consumption, but also in higher emissions of smoke and
poor luminosity.
Limited Inter- and Intra-agency Coordination
Currently, DDG programmes are largely being imple-
mented by government agencies, and on a much smaller
scale, by non-government organizations. In case of gov-
ernment agencies, there is neither intra- nor inter-agency
coordination. An example of lack of intra-agency coor-
dination is the fact that there is no synergy between the
improved chulha programme and the biogas programme.
In some cases, biogas subsidy is extended to the house-
holds that are using improved chulha and vice versa. This
may be justied in certain situations, but it is highly
probable that the concerned beneciary may have only
required a biogas plant, rather than an improved chulha.
This leads to duplication of eorts and of resources that
could have been applied productively elsewhere. The cases
of lack of inter-agency coordination are far too many. The
biogas programme, the improved chulha programme,
and the marketing of LPG are all directed at meeting the
cooking requirements in rural areas, but each programme
has its own targets, which are pursued independent of
each other.
Lack of Adequate Awareness about RETs in
Rural India
The use of RETs and their advantages are still not widely
known in rural India. As a result most rural folk are not
aware of these technologies and their advantages. Further-
more, the high up-front cost of these technology options
make RE-based DDG options out of the reach of the
common rural consumer unless backed up with some
support and access to nancing
Lack of Condence in RETs in Rural India
Even in areas where the rural consumers are aware of these
technologies, that is, in areas where pilot projects or large-
scale programmes have been implemented, the limited
success of these projects/programmes have resulted in the
consumers often being wary of investing in these technol-
ogies due to their past failures. The rural poor have a very
limited risk-taking capacity and unless completely certain
as to the products sustainability and viability, would not
take the risk of investing in it.
Risks Associated with Developing a Marketing
Enterprise in RE Technologies
Entrepreneurs face issues like competition from highly
subsidized yet unsustainable RE products being marketed
by the state Renewable Energy Development Authorities
(REDA) under the MNRE programmes. These govern-
ment programmes are often seen as another target to
be achieved, and as a result, the product development
and customization to local needs, sustenance, after sales
services, etc., are poor. Besides, the marketing skills and
knowledge of entrepreneurs with regard to RETs are
often not very developed. Entrepreneurs face large pre-
investment risks associated with the costs of marketing,
contracting, and information collection.
One of the key requirements for entrepreneurs includes
upfront investment in the supply chain to ensure smooth
delivery of services. For instance, the availability of spares
in the local market or trained mechanics, who undertake
repairs and change installations, can contribute to sus-
tained delivery of services.
Small-scale local entrepreneurs may also need to be made
aware of the unexploited market potential in the sector
and be provided with initial assistance in market research
and development. In order to encourage such innovation
and ownership, micro-credit schemes have supported the
development of local capacities to plan, execute, maintain,
and nance rural infrastructure.
Willingness to Pay
Successful deployment of rural energy interventions is
contingent upon widespread willingness to pay amongst
rural households and energy users. Willingness to pay in
turn is contingent upon the following broad conditions:
Availability and access to credit.
Image and brand status of service/product provider.
Earlier experience with such products.
Cost comparison with incumbent energy sourcebreak
up between up-front costs and variable costs.
Impact on livelihood.
Life of the product and daily operability of the product.
Repair and maintenance of the product and the avail-
ability of spare parts and service network.
These, however, are quite likely to be only perceived
barriers. It has been seen that electricity consumption has
high value for rural households and where access exists,
willingness to pay is high, even amongst poorer households.

Consumers are generally willing to pay signicantly more
for shorter outages and better-quality supply even in grid-
connected areas. This is also conrmed by observations
that in remote and o-grid areas consumers are willing
to pay a premium for electricity connections, either from
diesel generators or for non-conventional connections.
An appropriate example of this would be the Gosaba
Rural Energy Cooperative Society in West Bengal where
consumers have shown a willingness to pay market rates
when the choice is between no supply and a basic level of
supply with demonstrable benets despite the area being
amongst the poorest in the region (South 24 Paraganas
where Gosaba Island is located ranks 14 among 18
districts of West Bengal in declining order of per capita
income). The Gosaba O-grid Cooperative Society is
promoted and assisted by West Bengal Renewable Energy
Development Agency (WBREDA). The society, which
generates electricity using a 500 KWe biomass gasier
plant, currently supplies electricity to about 1,000 house-
holds and small businesses through a 11 KV distribution
system. An interesting aspect of the Gosaba electricity
supply scheme is that initially while the plant started o
with just one 100 KW gasier plant and supplied to only
25 consumers, the plant quickly scaled up to 500 KW to
supply electricity to over 900 consumers for 16 hours a
day once the local people were convinced of the potential
benets. The domestic consumers pay Rs 5/kWh as
compared to Rs 9/kWh being borne by them for diesel-
based generation before the start of the Gosaba project.
An average household consumption is between 13 units/
day and is also charged a xed charge of Rs 75/month. So,
a typical household consuming 60 units a month would
pay Rs 375/month as electricity charges.
It has been seen that rural communities are able and
willing to pay for reliable electricity services, especially
where good-quality electricity connections exist and the
positive impact on rural incomes can oset the cost of
the electricity supply. If electricity generation and sup-
ply is directly tied to income generation activity, the
communitys ability to pay for electricity services are
further enhanced.
Financial Viability
Financing is a major issue for DDG systems based on
renewable energy. The major components related to cost
are capital cost and operation and maintenance cost. The
relatively high capital cost results in the overall high cost
of generation related to these systems. Owing to the lower
income levels, the rural households are generally able to
meet the operational costs and some part of the capital
Decentralized Distributed Generation for India 191
cost related to the DDG systems. The relatively high
capital expenditure requires the government to provide
support in the form of capital subsidy/grant to render the
DDG systems nancial viability. The involvement of the
local community stakes in a way enhances the viability of
the project.
The graph (Figure 11.1) comparing costs of a diesel
versus a solar system (25 k\KW) is shown below. The
sharp spikes in cost of the solar system are caused by
the very high cost of battery replacement after every ve
years. The spike in cost of diesel generator (DG) is caused
by the system replacement. In a comparison between
25 KW solar and DG systems, over a 20 year period,
the user gains a net positive amount by installing a solar
system. The dierence between the cost savings (gap
between the lines), is greater than the dierence in the
initial capital investments, making the solar system a
viable alternative to diesel generation under the given
set of assumptions. (No depreciation benets have been
included in the analysis)
The Alternative Energy Promotion Centre (AEPC) in
Nepal has been implementing various mini-grid and o-
grid renewable Rural Electrication (RE) projects, where
the contribution of the community is as high as 50 per cent
of the project cost. This has increased the sustainability
of the project as the members of the community set
the taris, manage the project, ensure O&M, and also
undertake other development work in the village from the
funds created under the project.
Limited Site Specic Site Options
The DDG-based renewable energy projects are site specic
and may face issues related to limited options for technol-
ogy selection owing to its dependence on the availability
of the locally available renewable energy resource and
dispersed population. Further, low levels of population
density may oer low levels of demand, resulting in short
hours of operation of the system thereby impacting the
project viability.
Institutional Aspects
The DDG based on renewable energy mainly caters to
the remote areas, which face issues related to lack of local
technical and management capacity for operation and
maintenance. This hinders the successful operation of the
DDG-based system and can further increase the cost of
running such systems, thereby impacting the nancial
viability as well.
Owing to the remote location of the renewable energy-
based DDG system, usually the distance between the local
192 India Infrastructure Report 2010
160,000.00
140,000.00
120,000.00
100,000.00
Rs
80,000.00
60,000.00
40,000.00
20,000.00
0 1 2 3 4 5
solar PV cost
Figure 11.1 25 KW Diesel System v/s 25 KW Solar PV System
Source: Authors own.
manufacturer/service providers is large. Visits of the local
manufacturer/service providers for service and support are
therefore expensive and not executed regularly.
Lack of planning to keep sucient feedstock for the
biomass-based DDG systems and mismatch between
the needed electricity for use of specic applications and
the supplied energy can further impact the performance
of the DDG systems.
Programme Eectiveness
The key issues impacting the programme eectiveness are
detailed below:
Lack of participation: To date local institutions,
including Panchayat Raj Institutions, community
organizations, and NGOs have had little involvement
in rural electricity supply through DDG systems. The
experience of other sectors, such as rural water supply
and natural resource management, demonstrates sig-
nicant potential benets from greater participation of
local institutions.
Lack of performance monitoring of the DDG systems
and delay in disbursement of grant/subsidy by the
government.
Lessons from Successful Experiments
in DDG
Need for Well-designed Business Models:
Gasication-based Mini Grid, Uganda
A mini grid connected to a 10 KW gasier unit fuelled
by eucalyptus prunings has been installed on a Ugandan
25kW solar system V. 25kW DG set
6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Year
DG PV cost
farm. The gasication system has been running since
August 2006 on a daily basis for six hours in the evenings
producing 3 KW on single phase only. The gasier unit
is supplied with eucalyptus prunings from the 100-acre
farm and hence is guaranteed fuel supply for operations.
The system highlights the success that gasier systems
can have in ensuring electricity supply in rural areas.
Business models have to be carefully designed keeping in
mind feedstock supply, conversion technology, and energy
allocation. The business models should also provide suit-
able incentives to both the farmers and the entrepreneurs
in order to ensure a mutually beneting sustainable system.
The farmers supplying biomass could be compensated by
reduction of their electricity bills to that extent and the
entrepreneur could be incentivized by ensuring adequate
returns on the investment through fair taris. Without
reliable business models, investors will not take the risk
of investing. Capacity building is essential to develop and
promote business opportunities.
Financing Arrangements: Small Hydro-based
O-Grid Electrication, Nepal
Small hydro projects in KW capacity were planned
under the Renewable Energy Development Programme
(REDP) to electrify remote rural areas. The cost of these
plants varies from $ 1500/KW to $ 2000/KW. 243 SHP
(Small Hydro Project) projects established so far total
3MW capacity.
This highlights the need for government support
for DDG-based renewable projects. Loans from banks
funded 50 per cent of the project cost. The Government

of Nepal loaned 10 per cent of the project cost to the
community through its Local Area Development. IFIs
(World Bank, UNEP) contributed to the project through
a grant to the tune of 40 per cent of the project cost. Tari
is set by the community and once the repayment of loan
is done, the tari is lowered. The community creates a
fund from the revenue collected from consumers and it is
used for community development programmes. This kind
of nancing arrangement ensures a lower tari burden on
the consumers and sustainability of the project.
Capacity Building: Biomass Energy for
Rural India Project (BERI), India
This project aims at the promotion of decentralized mode
of power generation from biomass fuels to cater to rural
demand. It is supported by the state government, central
government, UNDP, and Indo-Canada Environment
facility and covers 24 villages.
This project recognizes the need for capacity building
of stakeholders involved in DDG from biomass in order
to ensure sustainability of such projects. It includes long-
term training for entrepreneurs, NGOs, managers, and
women in planning, management of bio-energy systems
and business skills for the success of rural bio-energy
development institutions. Potential technicians, prefer-
ably from among the targeted community are also trained
on the technical operations of the bio-energy systems
to ensure the availability of a talent pool to operate and
maintain such systems. NGOs, community-based organi-
zations, and entrepreneurs are given training with focus
on developing business skills such as marketing, nance,
accounting, billing, and project development, and estab-
lishing linkages with micro-credit organizations, NGOs,
and other village-level groups for enabling cost recovery.
Involvement of Local Population:
Desi Power, India
Decentralized Energy Systems India Private Ltd (DESI
Power) works on DDG system implementation in the
villages of India. DESI Power has set up a 74 KW biomass-
based energy power plant in Badarbahari village in Bihar,
which it runs through a community-driven model.
DESI Powers business model is based on building
and operating biomass gasication-based power plants
in direct association with local partners and later on
transferring the plant to the partner under mutually
agreed terms. The local partner may be an NGO, a
panchayat, a co-operative body or an industry, actively
involved in these projects right from the beginning. The
EmPower Partnership Programmes run by DESI Power
help in setting up micro enterprises owned and managed
Decentralized Distributed Generation for India 193
by local village organizations. A number of power plants
and the linked micro enterprises in neighbouring villages
form a cluster having an intrinsic relationship between
them, providing mutual support and markets for survival
as well as growth. The project has provided direct
employment to 19 locals and has been declared a Winner
at the World Bank Global Development Marketplace
Competition 2006 in Washington with a prize of USD
200,000.
Willingness to Pay: Sagardweep Rural Energy
Development Co-op Society Ltd, India
WBREDA implemented a Solar PV programme benet-
ing 30 per cent of the 6,000 families in Sagardweep Island.
A dozen mini-grids (2528.5 KWp), each costing about
Rs 1 crore supply grid quality power for 46 hours in the
evening at the rate of Rs 8 per unit to about 100150 con-
sumers. The mini-grids are operated by local co-operative
societies formed by people using the grid. The project was
nanced through a government subsidy of Rs 6 million
and a loan of Rs 4 million from WBREDA at one per
cent interest.
The consumption is regulated by MCBs in the con-
sumers premises and is monitored from a computerized
central console, which houses the batteries. Local youths
trained for day-to-day management of the system, are paid
Rs 900 per month. Billing, collection, and maintenance
of discipline is done by the society which remits the col-
lection to WBREDA. The results are so satisfactory that
there is a queue of villagers willing to pay Rs 10 per unit
for power.
Impact on Environment: Green Power Rural
Energy Programme, India
In villages surrounding the Similipal Tiger Reserve, Green
Power International is working with WWF Orissa and
Gram Swaraj Mayurbhunj to install 15 Rural Energy
Units of Biogas. Each unit will reduce demand for timber
by about 1500 metric tonnes per unit per year by utilizing
biogas technology. This will go a long way in preserving
vegetation and sustaining biodiversity, while also provid-
ing cheap and reliable source of energy for the villages in
which they are installed.
It is estimated that each household biogas plant can
save eight tonnes of rewood, 64 litres of kerosene and 1.2
acres of forest each year. About ve tonnes of natural
bio fertilizer is produced by each biogas plant annually
which contains three times more nitrogen than chemical
fertilizers. It is estimated that each household provided
with a biogas plant will save almost 1,000 hours annually
usually spent in rewood collection and cooking. Biogas
194 India Infrastructure Report 2010

plants contribute to the reduction of greenhouse eect by
converting natural methane into fuel. One kilogram (kg)
of methane causes greenhouse eect damage equivalent to
25 kgs of carbon dioxide.8
Financing Arrangements: The UNEP PV Loan
Support Programme, India
In the year 2003, the United Nations Environment Pro-
gramme (UNEP) recognizing the need for cheap credit
as a necessary primer for kick-starting any DDG project
catering to the market segment at the bottom of the
pyramid, launched an initiative to bring down the cost
of consumer credit for solar PV home lighting systems
in India.
The $7.6 million initiative was implemented through
two of Indias largest banking groups, Syndicate Bank and
Canara Bank, and provided low interest loans to 19,533
households to install domestic solar power systems. The
interest rates ranged around 5 per cent per annum com-
pared to 1112 per cent per annum normally charged to
consumers. These two banks oered loans also through
group lending schemes which enabled the poorest of the
poor to participate in the southern states of Kerala and
Karnataka. The programme had approved four companies
to oer systems under the programme and these were
Selco, Tata-BP Solar, Shell Solar, and Kotak Kurja.
Proposed Solution
The promotion of renewable energy-based DDG systems
requires initiatives across dierent fronts. The framework
shown below (Figure 11.2) shows a few of the key fac-
tors which will impact the degree of success that DDG
implementation will have on rural electrication in
the country.
Rural electrication policy:
The current rural electrication policy discusses in detail
the means of achieving 100 per cent rural electrication
and providing reliable power supply at reasonable rates
to all rural households. It also lays out the institutional
arrangements necessary to achieve its aim. However, it
stops short of appointing a single nodal agency to drive
the goal of rural electrication and coordinate all rural
electrication eorts.

Rural Electrification Policy

Rural Electrification Planning & Nodal Agency

Funding Schemes
Market Capacity Publicity
MNRE REC Others Development Building

CDM GoI
Benefits RE DDG Systems Capital Subsidy

Managed by Local Societies/Samitis/Panchayats

Wind Biomass Solar Technology Selection based on local constraints

Figure 11.2 Proposed Framework for DDG System Implementation

8
Green Power India, accessible at http://greenpowerindia.org

Centralized planning and nodal agency:
A single nodal agency is required to drive rural electri-
cation eorts in order to ensure proper implementation
of schemes. This proposed agency would be the central
coordinating agency for all rural electrication eorts and
would be responsible for planning of future rural electri-
cation schemes in order to avoid overlap of the scope of
dierent schemes. The agency would oversee the channel-
ling of funds for the purpose through various agencies,
including the REC and MNRE. The agency would also be
responsible for undertaking market development activities
in order to develop an active market for DDG systems.
This would be done by encouraging private players to
enter this eld by making available all data required for
estimation of market potential and future target areas from
a centrally maintained database and help in developing
a viable business model for private players in the sector.
The agency would also undertake capacity building activi-
ties and would train technical sta for the upkeep of the
DDG systems among others. Publicity drives highlighting
the benets of DDG systems and assuring the public of
their reliability would also form part of the scope of work
of the agency.
Management of DDG systems:
The DDG systems would have to be managed by the local
society/panchayat present in the area in order to ensure
that the scheme would have public welfare as its main
focus, as well as to ensure sustainability of the system.
Technology selection:
The technology to be used for rural electrication through
the renewable DDG route should be selected based on
the potential for each technology in the area, availability
of feedstock, total demand, and cost of implementation.
This requires careful planning based on various drivers,
that is feedstock supply, ability to operate, maintain, and
service the newly installed systems and potential applica-
tions for income generation.
References
Biomass Energy for Rural India Society, available at http://
bioenergyindia.kar.nic.in Central Electricity Authority,
available at www.cea.nic.in)
Buchholz, T., I. Da Silva, T. Volk, T. Tennigkeit (2007).
Economics of a Gasication Based Mini GridA Case
Study of a 10 kW unit in Uganda. Proceedings of the
Industrial and Commercial use of Energy Conference,
Cape Town, South Africa, 2930 May, pp. 1259.
Decentralized Distributed Generation for India 195
Capital subsidy from government:
Rural societies are generally able to bear the operational
expenses involved in the generation of power through
DDG sources. So, considering the relatively high capital
expenditure required for DDG systems, the government
would have to provide support in the form of capital
subsidy/grant in order to ensure nancial viability of the
DDG systems.
The manner of disbursal of capital subsidy by the gov-
ernment to DDG projects must be based on output-based
contracting wherein the focus is on the output produced,
and operators are given the exibility and incentives
to innovate and implement based on local constraints.
This results in arrangements where contracts are drawn
and subsidies/concessions are awarded for a specic time
period. The issues of tari setting, service quality, technol-
ogy options, bundling of one or more services is spelt out
in the contract which guides the functioning of such an
arrangement.
Overcome high cost of electricity purchase through
dedicated fund:
A dedicated fund can be formed to overcome the high
cost of electricity purchase from DDG based projects.
The fund can be established by levying a surcharge on
the urban/HT consumers. This can be at par with the
cross-subsidization of the domestic consumers by the
HT consumers.
CDM benets:
All RE DDG systems qualify for CDM benets but the
small organizations managing these facilities might not
have the ability to access the concessions and incentives
which may be available under CDM schemes. An insti-
tutionalized arrangement with the help of the state nodal
agency, which could support all these managing bodies
and get them these benets, would lead to improvement
in the economics of power generation.
Central Electricity Authority (2001). Progress Report of Village
Electrication as on 30-04-2010, May.
Central Electricity Authority (2008). CO2 Baseline Database for
the Indian Power Sector, Ministry of Power, Government of
India, October.
Census of India (2001). Data Table- Fuel used for Cooking, acces-
sible at http://censusindia.gov.in/Census_Data_2001/Cen-
sus_data_nder/HH_Series/Fuel_used_for_cooking.htm
196 India Infrastructure Report 2010
Decentralized Energy Systems India Private Ltds, available at
www.desipower.com
Ghosh, Debyani, Ambuj Sagar, V.V.N. Kishore (2004).
Scaling up Biomass Gasier Use: Applications, Barriers and
Interventions.
Green Power Indias, available at www.greenpowerindia.org
Intergovernmental Panel on Climate Change, Fourth Assessment
Report, Ministry of New and Renewable Energy (www.
mnre.gov.in).
Ministry of New and Renewable Energy, Remote Village Lighting
Programme, accessible at http://mnre.gov.in/prog-rvlp.htm
National Sample Survey Organization (2008). Household Con-
sumer Expenditure in India, 2006-07, Ministry of Statistics
and Programme Implementation, Government of India,
October 2008, accessible at http://mospi.nic.in/rept%20_
%20pubn/ftest.asp?rept_id=527&type=nsso
SELCO with REEEP. Access to Sustainable Energy Services via
Innovative Financing, Vienna, Austria. http://www.selco-
india.com/pdfs/selco_booklet_web.pdf
The World Bank (2007). World Development Indicators
2007, available at http://siteresources.worldbank.org/
DATASTATISTICS/Resources/table3_13.pdf
UNDP. Financing Options for Renewable Energy: Country Expe-
riences, UNDP Regional Centre in Bangkok, Thailand.
Union Budget 201011. Government of India, accessible at
http://indiabudget.nic.in/ub2010-11/eb/sbe72.pdf
United Nations Environment Programme, available at www.
uneptie.org