Rural electrification: Many micro units still out in the cold

The electrification drive which saw India achieve 100% coverage in 2018 has left out in the cold more than 40% of rural micro enterprises in four major states with loss-making discoms, with these entities still dependent on diesel to run operations. The state utilities have either failed to bring them under the grid or provide them uninterrupted supply of electricity, leading to high operational costs for the micro enterprises even as the discoms are deprived of an important source of revenue.

As per the findings of a recent survey conducted by Smart Power India, in partnership with the Rockefeller Foundation and Niti Aayog, on 25,000 customers across four customer groups in 10 states, the availability of electricity infrastructure has significantly improved in states. But the quality of service and supply has not met customer expectations.

Jaideep Mukherji, CEO of Smart Power India, tells FE that maintenance of diesel gensets by micro enterprises in rural areas is like engaging in another business activity. “For instance, while the cost of using two diesel gensets for a petrol pump is around Rs 20,000 per month, the additional cost of maintaining an operator, a technician and a storage facility is equal to the cost of the fuel. If it gets regular supply of electricity the costs would come down to Rs 7,000 per month”.

He adds, “unlike rural households which were targetted through the Saubhagya scheme, there has been no pointed effort to reach micro-enterprises. In fact, the Saubhagya scheme should have brought within its fold all the consumer segments and then looked at the challenge of supplies.”

Shubhranshu Patnaik, partner, energy, at Deloitte India, says, “while micro enterprises closer to the network were mostly included in the grid structure, those far from the villages might have got excluded as the core focus of the programme was household electrification. Getting them into the fold would be up to the discoms on normal merits of the cost-benefit of extending the infrastructure, now that grant funding would not be available.”

Significantly, of the 63.33 million MSMEs in India at present, 63.03 million are micro enterprises. With the average consumption of diesel by micro enterprises pegged at around 250 litres per month, getting connected to the grid would not only translate into huge savings for these enterprises but also gains for discoms.

Santosh Kamath, partner, energy, at KPMG says, “It is possible that supplying to micro enterprises does not make commercial sense for discoms given that tariffs are subsidised for them in many states. The other factor is the reliability of the network, since there are a lot of technical and tripping-related issues which call for 100% back-up for operations.”

Mini grids are cited as the most appropriate solution in this context, although the existing approaches have been heavily dependent on subsidies and grants. What is needed is a business model that would make mini grids commercially viable, while enabling last-mile distribution of electricity. Mukherji says Energy Service Companies (ESCOs), which organisations like his support, have a vital role to play in the mini grid value chain. “Today, we have six ESCOs that operate 95 plants across the states of U.P., Bihar and Jharkhand, with a strong pipeline of new plants. Their mini-grids connect over 28,000 customers, 3,000 commercial enterprises and service over 150 anchor loads including telecom towers, fuel stations and rural banks,” he says.