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Wednesday, December 02, 2020

Solar power can be the game-changer for inclusive growth

Solar power can ease up the availability of these resources to the rural population.

Written by Vikas Gupta | New Delhi | Updated: December 19, 2014 4:10:33 pm
solar-main Solar power can ease up the availability of these resources to the rural population.

With the positive intent and progressive action from the new government, the country is excited about entering a new era of growth & revolutionary transformation. This can happen faster and more effectively if the whole ecosystem is geared for it. And most important component of the ecosystem are the people, who are the primary beneficiaries as well as the key catalysts to stimulate this growth and transformation. Hence, their inclusive growth is imperative for this transformation to succeed and its benefits to accrue to the “nook and corner” of the population.

READ: Broadband connectivity key to rural development

The key enabler for the inclusive growth is the availability of basic resources and tools affecting their daily life, viz, Power, Education, Transport, E-governance, Communication and Staple commodities. Today, for majority of the population, access to these resources is a big struggle and the challenge only gets bigger as we move to rural areas, where easy and abundant access to these resources is a pipe dream – only exception being the agro-products, which are produced and so available locally.

Solar power can ease up the availability of these resources to the rural population. Though it has been recognised as the near-panacea for our power crisis, the progress is too slow and fragmented for the ‘big-bang’ impact it is capable of – with abundant availability of solar radiation across the country.

Let us first understand the enormity of the power crisis and the challenges we face in resolving the inherent issues involved. Currently, we have an installed power generation capacity of around 250 gigawatts in the country. However, even this limited capacity is not utilised effectively, with the annual power generation of only 1100 bn units (kWh), which is half of the maximum generation capacity of 2200 bn units. The current shortfall estimates of 150-200 bn units are misleading, as they do not factor in the latent demand, which would have come forth if ample power was available. A better indication of power scarcity is our per capita power consumption, which is just over 700 units/year. Comparing this with the per capita availability in US (13500), Germany (7000), UK (5500), Japan (8000) and China (4100), the huge gap is disturbing !

Looking at what we want to achieve in next 4-5 years, particularly the Make-in-India (which is going be a real power-guzzler !) and “Power for all” missions, we can fairly take 50% of China’s (per capita) generation as the “initial” benchmark – that is, 2000 units (say, till 2020). Taking into account the 30 percent transmission and distribution losses, this would mean annual power generation of 3000 bn units – an increase of almost 200%. At the current capacity growth of 8-10% (for last 5 years), this could take 20 years !

To achieve this 200% growth in next 4-5 years would mean 40-50% growth annually, which is an herculean task and would require radical and innovative policies and implementation. The measures like fast-tracking mid and large power projects, reducing distribution losses, better capacity utilisation, etc. would help bridge the gap, but may still only boost the power kitty by about 50-60%. Besides, it would require major policy and operational turnarounds, alongwith some major capability building and drastic measures in power administration. For example, reduction in distribution losses would require stringent monitoring of power pilferage and resultant penalisation and better capacity utilisation would require higher production or import of coal to cater to increased demand.

Expanding the power generation capacity through traditional energy sources would be challenging beyond a point. With depleting reserves and increasing pressures from the OPEC countries like Iran and Iraq, cost of fossil fuels would continue to rise. Every now and then, we have one or more of the OPEC countries threatening to pull the plug on crude supply raising the threat of sharp increase in the crude prices. Nuclear and Hydroelectric, the other two primary sources, are strewn with their own environmental and socio-political challenges.

So, our real hope lies in the Renewable energy – particularly Solar energy. In the past few years, as the Solar industry has come out of the shadows, several formats have emerged for solar power generation – such as solar farms, micro/mini grids, solar lights and lamps (for homes), street lights, Solar home systems, water pumps, etc.

While the solar farms will boost the power generation immensely, the real game-changer could be generating the solar power locally in the rural areas. Besides, giving a big jump-start to the rural economy as it will also facilitate percolation of other socio-economic drivers like education, trade and commerce, communication, etc., generating solar power locally has multiple advantages for the rural sector.

It will bring better reliability to power availability, reducing the cost of power generation drastically. While the total demand (across all energy sources) is pegged at 500-600 bn units, rural sector gets only around 250-275 bn units annually – with more than half of it used for agricultural purposes. The big gap is expected to increase further as the demand is expected to increase to 750-800 bn units in next few years. In absence of a reliable power supply, rural population will have to depend on the alternate energy sources, cost of which can be quite exorbitant. For example, factoring all costs, generating a unit (KWh) of electricity costs around Rs. 20 for diesel generators, Rs. 25-30 for water pumps and Rs. 50-60 for domestic lighting using kerosene lamps. And these costs will increase with the increase in fuel costs.

Secondly, as the transmission and distribution (T&D) losses in rural areas are much higher (almost 20-25% higher than for urban areas), increase in local generation will require less supply from the grid, and so lower losses. Besides, as solar sector grows, higher volumes will significantly bring down the prices for solar products, further reducing the cost of solar power generation.

More electricity we generate locally at the rural areas, lesser will be the demand from the rural sector from the grid, and more power will be available for the industrial and service sector, encouraging socio-economic growth and success of initiatives like Power to All, Make-in-India, Swachh Bharat, e-governance, RTE, etc., which have high dependence on power availability.

Increased availability of reliable power in rural areas will also reduce the consumption of alternate fuels – diesel, kerosene, wood, etc. This will not only bring down the country’s crude import bill, but will also reduce carbon emissions which have severe health and environment costs.

So, how can we ensure ample power supply for rural areas ? How can we promote local power generation and distribution ?

Distributed or local solar power generation in rural areas can happen through three formats – Solar mini/microgrids, Solar water pumps, and Solar lights. While some good work in this direction has been done by enterprises like Greenlightplanet, Nature Infratech, Mera Gaon Power, D-light, Grampower etc., the coverage is limited and fragmented, not sufficient to create the “Solar” movement needed for wider proliferation. This has also led to spawning of low quality solar products taking advantage of increasing awareness, but their shoddy performance is denting the consumer confidence, slowing the down their adoptability and penetration of Solar products.

Solar microgrids are big opportunities for rural areas raising big hope for cost-effective generation at this smaller scale. A solar microgrid typically comprises of a Solar panel array installed in a central location in a village. The electricity generated in the day is stored in the solar batteries and is supplied to the subscribing customers in the evening/ night through electrical cables laid either over head or underground. The customers pay for an initial installation costs which may also include the cost of CFL/LED lights provided, and the usage is charged either as fixed charges, where a fixed supply is provided for defined hours to all customers, or through meter-based charging where electricity meters are installed and the customers pay as per their usage, where both postpaid and prepaid models are implemented, with microgrid enterprises preferring prepaid model due to erratic payment patterns in rural areas.

A typical microgrid of 5 KW, serving 90-100 households, will currently cost around Rs. 5 Lakhs (including installation and wiring), requiring around Rs. 10,000 annually for maintenance and additional cost of around Rs. 50,000 for replacements costs (batteries, electronic equipment, etc.) every 4-5 years. So, assuming 20 years lifecycle, the total cost in present terms would be Rs. 6.5-7 Lakhs. The set-up will generate 40 units of electricity daily – around 12000 units annually (with 8 hrs of effective sunlight for 300 days in a year). We can assess the economics of this microgrid through two perspectives.

Firstly, from a federal perspective, these 12,000 units would provide a total savings of Rs. 1.8 Lakhs per annum, assuming economic cost of grid supply to rural areas at around Rs. 15 (including cost of generation and transmission, T&D losses, etc.). This gives us a pay-back of 3.9 years on the micro-grid plant.

However, the enterprise operating the microgrid has to charge a tariff rate equivalent to that for grid supply. Considering the tariff of Rs. 7 per unit (factoring in the likely increase in grid tariffs), the annual revenue from 12000 units would be Rs. 84,000, giving a payback of 8.3 years. However, if a subsidy is extended to these enterprises, the payback period can be reduced. At 50% subsidy on capital costs, the payback period would be around 4.2 years. The project will provide an internal rate of return (IRR) of 30-35%, which is good enough for a start. At 60% subsidy, the payback period will reduce to 3.3 years, and the IRR will be 35-40%

The payback period will further drop and IRR will improve with better financial sops including subsidies, soft loans, tax holiday, etc. The question is why government should provide such high subsidy and financial support. The answer lies in multiple benefits shared earlier – more supply for industrial and service sector, lower crude import bill, reduced health and environment support costs, and better socio-economic development through education, communication and e-governance.

Alongwith the financial support, the government will have to also build the right environment for microgrid enterprises to smoothly setup their projects and operate them without much hassle. The disbursal of subsidy, access to soft loans and tax breaks should be uncomplicated and painless. Requisite policies and guidelines should be released promptly and with minimal ambiguity on regulatory and governance. Corporates should be encouraged to invest in microgrid ventures as part of Corporate Social Responsibility (CSR) mandate. Promoting wider proliferation of more efficient LED lighting products will further enhance the impact of solar power generated.

Besides, these microgrid enterprises can augment their profitability by leveraging their presence in rural areas to exploit other synergistic opportunities such as extending Solar power to telecom towers, distribution and retailing of solar products like Solar water pumps, Solar lights, etc. In last few years, telecom towers have emerged as the second largest consumers of diesel consuming around 3 bn litres annually. The key perpetrators are telecom towers in rural areas where to ensure network availability diesel generators are required to operate for almost half the day. Despite special efforts by the telecom and tower companies to shift to renewable energy sources, the progress have been slow due to strong resistance from interests involved in diesel pilferage, which has become menacingly huge. As the microgrid enterprises get entrenched in the rural social fabric, hopefully they will be able to break this resistance gradually.

So, there is a strong business case for promoting rapid proliferation of microgrids by building a strong ecosystem including financial, regulatory, manufacturing and trade practices and support from local administration and government bodies, with both the central and state governments to play their respective roles, particularly on the subsidy front, where the burden will have to be shared by them.

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