By Indroneel Das
Anyone who has ever watched Shahrukh Khan’s ‘Swades’ is no stranger to the fact that the state of rural India, in terms of electrification and regular supply of electricity, is dismal. For decades now, rural India has, literally and metaphorically, lived in the dark. It is quite disturbing that the biggest emerging economy has been unable to change the state of affairs, and provide electricity to everyone. However, all of this may soon improve if PM Modi gets to have his way. Recently, he launched the ‘Saubhagya’ scheme (the Pradhan Mantri Sahaj Bijli Har Ghar Yojna— a 16,000 crore attempt to light up all the households in India.
Achieving last-mile connectivity
The scheme aims to provide free electricity connections to the poor, and at a very low cost to others who don’t have access to it yet. Planned for execution just before the general elections, it has a broader goal of positively impacting the environment, public health, and education. Our country does not really lack a transmission and distribution network, or proper power grids. The major problem is that of ‘last-mile connectivity’. This refers to extending the existing transmission and distribution network from the closest hubs and taking them all the way to the households.
The work needs to be done at two levels. Firstly, a large number of remote pockets in India still don’t have the kind of connectivity, in terms of a transmission network, to be able to get an electricity connection in the first place. The bulk of spending is likely to go into developing infrastructure that ensures wider access for all. The second step will be to actually register metered electricity connections in all households. There are many rural areas where, despite having electrical connectivity, many households lack registered metered connections in their names.
Subsidies and a regularised supply
After ensuring access to electricity for all, the PM believes that the regular supply of electricity is the next phase of the plan. This would mean being entirely self-sufficient, in terms of installed capacity and power generation. It also involves being able to provide the requisite amount of electricity to the nation without having to engage in load-shedding. The whole scheme of things would involve setting up adequate infrastructure to implement the plan. An automatic result of this is job creation.
Another point worth noting is that the electricity supplied to the beneficiaries of this programme would be billed without any subsidy. As of now, 60% of the scheme is funded by the centre, 30% through bank loans, and 10% by states. However, to further incentivise the implementation by states, the government has said that the states which complete the scheme by December next year will receive an additional 15% grant from the centre.
Seasonal shocks
Currently, India has an installed capacity of about 326 GW, 57GW of which is of renewable capacity. While demand has subsided in recent years, the demand for power suddenly peaked in the last couple of months. This occurred because of erratic rainfall, which caused a surge in irrigation demand for agriculture, along with an increased use of air conditioners and coolers. This demand had to be met overnight by the power plants. The seasonal nature of power demand means it is highly susceptible to supply shocks, especially once every Indian household has electrical connectivity. Additional capacity needs to be built, and this needs to forerun the demand.
Targets for renewable energy
India may have a target of possessing 175 GW of renewable energy-based power by 2022, but it is unlikely that the incremental demand of power will be met by renewable power. In fact, this scheme further dampens the fate of renewable energy-based power in India. The first reason is that, as soon as the scheme is operationalised in 2018, there will be a sudden need to cater to much more demand. In the renewable power space, solar power is the major growth avenue, since India, with its abundant sunshine, rooftops and open fields, is best suited for solar power generation. If renewable energy-based power has to grow, the growth has to come from solar power.
Problems with solar energy
However, the solar power generators are facing severe problems regarding contract reneging with the photovoltaic grid manufacturers (who are predominantly Chinese), as well with offtake agreements that are already signed with transmission and distribution companies. The contract reneging is leading to cost pressures that are making lenders uncomfortable in providing credit to the renewable power generators. This is a part of the value chain, which is inherently CapEx intensive and, therefore, needs solid credit support to proliferate. Also, a technical problem is that for every MW of installed capacity, only about 0.19 MW of usable electricity is generated with solar power. Therefore, to cater to an increase in electricity demand, India would need about 5.26 GW of installed solar capacity, assuming that all the incremental demand is met by solar power.
However, solar power is not ideally suited to meet a quick surge in electricity demand that we expect to see in a couple of years. Apart from solar energy, wind and hydro are far too seasonal for the government to try and use if 24-7 power is the focus of the initiative.
The road ahead
Most importantly, if the electricity is given out free or cheap, and we continue with how the government currently funds it, then fossil fuel-based electricity only gets perpetuated. Currently, the urban consumers, commercial consumers, and advertisers pay the maximum price for electricity. This then goes on to fund the subsidised electricity for the farmers. The government would have to continue with this structure because the major users of electricity wouldn’t pay extra for renewable power-based electricity and if they don’t, this type of electricity won’t be sustainable. Also, the distribution companies have barely pulled through the last couple of years, and are only beginning to see better financial health. They would be unable to take any price pressure going ahead, and the government knows this. As a result, the government needs to protect them as well.
The final conclusion of all that has been said is simple: the scheme is a great one. It can have multiple positive impacts on the poor and the economy as a whole, but it does perpetuate major fossil-fuel-based power generation and pushes the already stretched fiscal limits of the government. Given this, only time will tell if the social benefits and long-term economics of the scheme exceed the environmental costs and the short-term economic challenges.
Featured Image Source: Pixabay
Stay updated with all the insights.
Navigate news, 1 email day.
Subscribe to Qrius
