India has one of the largest populations of young active citizens in the world and stands on the precipice of an era of economic growth. The government seeks to capitalize on this opportunity with a multitude of ambitious economic policies. Policies like Aatmanirbhar Bharat (self-sufficient India) and the 2030 target to reach 450 GW of renewable energy capacity aim to boost Indian growth and lift millions more Indians out of poverty.
The success of government plans will depend on a confluence of complex factors and will require contributions from different fields and sectors. One of these areas is rural electrification where the private sector can help build distributed renewable energy (DRE) capacity in rural areas and unlock the productivity of large sections of the country.
Rural India, home to around 70% of Indians, contributes around 46% of India’s GDP. Improving non-farm economic activity would unleash the potential of this demographic group to contribute to India’s growth.
Last year, a McKinsey Global Institute report, titled “India’s Turning Point,” predicted that 90 million workers would join non-farm jobs in rural India by 2030 and increase contributions from this vital sector.
Currently, micro, small and medium enterprises (MSMEs) account for around 30% of India’s GDP, and 51% of MSMEs are located in rural areas. Regardless of the exact distribution of rural and urban MSME contributions, it is undeniable that rural MSMEs have an impact on India’s GDP, and improving their productivity would accelerate India’s growth.
A major constraint on the performance of rural MSMEs is the poor quality of electricity. Although the government electrified 100% of the villages a few years ago, the state of electricity in rural areas still has many shortcomings: reliability, quality and last mile access remain critical issues. 50% of households experience 8 hours of power outages per day and agricultural users only receive 7-8 hours of power in most states. This limited supply is often of little use to MSMEs as it is provided outside of office hours, and is still frequently interrupted and unreliable.
As a result, nearly 50% of rural businesses use comparatively more expensive off-grid electricity supply options, such as diesel-powered generators. They are forced to cut their margins and buy these increasingly expensive sources of energy because it is the only way to maintain continuous cash flow and run a viable business.
Providing good quality and reliable electricity would thus increase the productivity of these businesses not only by reducing overhead costs, but also by giving entrepreneurs the confidence to increase their capital.
It is impossible to rectify the situation without first examining why rural electrification is so poor in the first place. The first place to look is one of the essential cogs of India’s electricity system: the state-owned electricity distribution companies (discoms).
Discos have always been plagued by health problems and are often considered the weakest link in the electricity value chain. They face a host of problems ranging from low collection rates (often from ministries) and high electricity purchase costs to inadequate tariffs and poor subsidy disbursement. The most important factor is cost: there is often a gap between the average cost of supplying electricity (ACS) and the price at which it is distributed (ARR, or average achievable income). This ACS-ARR gap is a critical constraint that discourages restaurant discos in rural areas.
So what is the solution ? One thing is clear: the worsening effects of climate change mean that any proposal must incorporate renewable energies. One possible option is Distributed Renewable Energy (DRE) sources such as rooftop solar panels, micro or mini-grids, and rechargeable batteries.
The DRE has shown promise in ensuring sustainable and equitable access to energy. Solar PV technology, a popular DRE technology, can reduce costs for businesses in rural India by up to 80% by replacing existing diesel systems which are increasingly expensive.
DRE can be used as an alternative in areas where grid electricity is not readily available, and in an additional role in other areas, covering outages due to poor quality connections. It is this ability to provide energy security that makes DRE such an attractive option; a 50 kW off-grid system typically provides basic lighting, cell phone charging and television to about 500 households. This would allow rural customers to benefit from continuous electricity, especially during peak hours.
Studies have shown that accessing electricity from these mini-grids can increase income and the number of new business opportunities by powering applications such as local ‘att chakki’ (wheat flour mills), Rice huskers, electric looms, sewing machines, pottery wheels, and solar dryers / coolers to name a few.
Unfortunately, the adoption of DRE has lagged considerably – the total installed renewable energy capacity in India currently stands at around 93 GW, of which only 5% is DRE. The DRE thus represents only 1% of the total installed electric capacity of India. COVID-19 only worsened the situation as supply chains were disrupted and the market for DRE projects shrank due to the economic downturn caused by the pandemic.
If the regulations allow, the private sector would help solve some of these problems with the ERD sector. Although regulations allowing private actors to enter the electricity sector are slowly relaxed, the distribution of electricity remains in the hands of discoms in most states.
A public-private partnership (PPP) model of electricity distribution can be a win-win situation for everyone involved. With the necessary regulations and systems in place, a PPP model will create a market-driven framework for scaling up DRE that will provide better access to finance and promote improved quality of rural electricity.
This would not only improve the quality of rural electricity, but also create a multitude of jobs and stimulate economic activity. Take the recent entry of TP Microgrids, one of the world’s leading suppliers of microgrids, into the Indian market. TP Microgrids has announced plans to invest $ 1 billion by 2026 in India to install up to 10,000 mini-grids providing clean electricity to 5 million homes. They commissioned their first 100 micro-grids in just 10 months and aim to commission the 100 seconds in less than 4 months.
TP Microgrids’ investment in India is expected to support more than 100,000 rural businesses, create 10,000 green jobs and provide irrigation to 400,000 farmers.
Investments in DRE are expected to see increased returns in the future: solar irrigation alone is estimated at US $ 60 billion in the near future.
There are huge opportunities for entrepreneurs to expand and strengthen rural electrification through DRE. Renewable energy is the fastest growing segment in the energy sector and, with the right support from the government, India’s renewable energy industry could help shape India’s trajectory in the 21st century.
Measures such as the recently announced production-related incentive programs for advanced chemistry batteries are a good start. These measures will be win-win for governments as they will have the added benefit of boosting local economies with jobs and income in addition to the spillover effects they will have on MSMEs.
Any push for DRE must be accompanied by measures that raise awareness of the potential benefits of DRE products and aftermarket services. A robust DRE ecosystem with a strong domestic industry will help provide reliable and good quality electricity to rural households and businesses. This would encourage inclusive community development as well as green entrepreneurship and green jobs, paving the way for a self-sufficient India or Atmanirbhar.
Established in 2015 by the Rockefeller Foundation, Smart Power India (SPI) is the key agency implementing the Smart Power Initiative in India.
The views and opinions expressed in this article are those of the author and do not necessarily reflect those of pv magazine.
This content is protected by copyright and cannot be reused. If you would like to cooperate with us and would like to reuse some of our content, please contact: [email protected]