Clean Energy Transition Financing – Is it for Energy or Social Transition?

Monday, 19 February 2024

Anandajit Goswami[1], Animesh Ghosh[2], Sharmistha Baig[3], Rakesh Kacker[4]

120 km away from the bright lights of Delhi lies the village of Daranagar in Uttar Pradesh where Grid Based Electricity has not yet reached. However, a private partner-led, and grant-based solar microgrid has been operational since December 2022. The microgrid supplies electricity to each household with four bulbs (4W each). The microgrid has 93 solar plates arranged in series with each solar plate of 500 watts backed up by a well-developed earthing and battery storage system. The project can serve electricity to 230 households in the village. On average, the daily load of the village has been around 40 KW with a three-phase connection system. Around 10 KW of load has been saved and stored in the battery. The households also have been provided with MCB (Miniature Circuit Breaker) so that no one can consume excess load. Currently, the commercial load is catering to 3 motors of 2 KW for rice hulling only after seeking permission from the Village Energy Committee comprising fifteen (15) people along with four (4) woman representative.

The average electricity consumption of most households in the last year has been around 3-4 units. Each unit costs INR 10 for consumption below 40 units. Initially the committee charged a fixed connection cost of INR 100 per month, and subsequently it was INR 10 per unit of consumed electricity. On average, the households have struggled to pay INR 130 – INR 140 per month to the Gram Urja Samiti/ committee to get electricity in their houses. In a year, the total amount paid by each household has been around INR 1560 – INR 1680. Additionally, INR 1200 has been collected from the household by the committee as a one-time security deposit for a year. For ultra-poor households, INR 100 payment per month was a burden, and they could not pay the same losing their household connections.  

Electricity is mostly used by households for lighting and smart phone charging. Even though the quality of life with illumination in the house has improved, the ability of the households to pay the subsidized unit cost for electricity has not improved over the years., It is felt that for a grid based electricity from the government, the willingness to pay by households will always be biased towards a lesser amount of INR 2- 3 per unit, as compared with a grant based private agency led solar microgrid’s assured electricity supply, for which they are paying INR 10 per unit.

A relatively wealthy household in the village has been consuming   more than 40 units of electricity by paying INR 200 per month @ INR 5 per unit. There is a cross-subsidy, which is embedded here, and the village samiti/committee has approved this rate of INR 5 per unit for more than 40 units to incentivize larger units of consumption for bringing a social transition in the village.

The cost of providing electricity to each household of Daranagar for a year (starting from December 2022 – December 2023) has been INR 1900 considering that the land was provided free from the local Panchayat. But, if the opportunity cost of land or the least cost is included, the cost of power provision will increase further. However, the revenue received from each household on an average with a consumption of 3 units per month has been – INR (3*10*12+100) = INR 460.

It is clear that on an average, for each household of an aspirational village of Daranagar, the subsidy amount to provide electricity has been INR (1900-460) = INR 1440, which is about 75% of the cost of provision, currently subsidized by a philanthropic grant. However, the subsidy for the investment required for electricity provisioning in the village of Daranagar has been between 30% – 40% assuming a benchmark investment cost of INR 1,00,000 per KW of load for the households. In Daranagar, 100W solar plates are provided freely by the Saubhagya Scheme for each household to create a social and renewable energy transition.

The question is whether this subsidy should continue to create a social transition in villages of India like Daranagar. In many other aspirational tribal villages of the country, through the Jan Man program of the Government of India, an investment subsidy of INR 50,000 for each household is being provided to bring a social transition through solar microgrids. Earlier, a 30% subsidy was provided by MNRE on the capital expenditure assuming an investment of INR 1,00,000 per kw load from solar micro grid. The 30% subsidy provision was operational till 2017. However, an initial subsidy provision doesn’t always guarantee a social transition. For a social transition in off-grid aspirational villages to happen, a continuous, reliable supply of electricity from microgrids or from grids needs to happen. It can only be sustained with strong peer review, operation, and maintenance systems managed by the villagers themselves.

Even though the subsidy of electricity provision for these villages has come from both private grants and government scheme-based funds, the role of the communities in maintaining the systems has played a key role in the long-term functioning of microgrids ensuring light for households and enabling social transition. Thus, these experiences indicate that a mix of business model with different types of financing structures are necessary for the transition of the unelectrified villages to fully electrified ones with 24×7 power helping in their social and energy transitions. Clean Energy Financing with a blend of public, private, and philanthropic models situated in the local context can electrify households and enable them towards clean energy usage for cooking, and transportation. It can save on economic costs of health hazards, and pollution and can then enhance willingness and capability to pay for nonsubsidized off grid electricity in future complemented by sustained economic growth.

Disclaimer: Views are personal. The research conducted for this analysis has been possible due to the funding support received from HSBC by Ashoka Centre for People-Centric Energy Transition (ACPET) for the Financing Energy Transition Component of The HSBC Project.

[1] Research Fellow, ACPET

[2] Senior Research Associate, ACPET

[3] Research Fellow, ACPET

[4] Advisor, ACPET

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