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Subhes Bhattacharyya
Editor

Rural Electrification Through


Decentralised Off-grid
Systems in Developing
Countries

123
Editor
Subhes Bhattacharyya
Professor of Energy Economics and Policy,
Institute of Energy and Sustainable Development
De Montfort University
Leicester
UK

ISSN 1865-3529 ISSN 1865-3537 (electronic)


ISBN 978-1-4471-4672-8 ISBN 978-1-4471-4673-5 (eBook)
DOI 10.1007/978-1-4471-4673-5
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Preface

This edited book forms part of the dissemination activity of a Research Councils
UK funded project on off-grid electrification. The project, called OASYS South
Asia (through grant no EP/G063826/1), is led by me as the Principal Investigator
and includes four other partner organisations, namely School of Environment and
Development, Manchester University, School of Built Environment, Edinburgh
Napier University, The Energy and Resources Institute (TERI, India) and TERI
University. The consortium has been working on developing suitable business
models for off-grid electrification in developing countries since 2009. As part of
the research activity, the consortium members have reviewed a huge volume of
literature covering various aspects of off-grid project activities. These were ini-
tially presented as Working Papers of the project. This edited volume brings
together a revised and updated collection of relevant working papers from this
activity for wider dissemination.
This volume contains 12 chapters divided into three parts: Part I provides the
background information on electricity access, discusses the developmental
implications of rural energy infrastructure (or lack of it) and provides a review of
alternative technologies used for off-grid electricity delivery. Part II provides
detailed review of rural electrification experiences from around the world, with a
special emphasis on off-grid electrification. Part III presents the business-related
elements—participatory arrangements, financing, regulation and governance.
Finally, a concluding chapter summarises the key findings and indicates further
research agenda.
The work reported here has been discussed internally and in various workshops
organised as part of the research activity. These were held in Edinburgh, Delhi and
Dundee between 2010 and 2012. The chapters have thus benefited from the inputs
and comments of a large number of participants from the academia as well as those
involved in practice with off-grid electrification.
I hope this volume will prove to be a valuable addition to the literature on rural
electrification and off-grid electrification and would benefit researchers and other
stakeholders involved in policy-making and enhancing electricity access in rural
areas of the developing world.

v
vi Preface

The work related to my contributions to the volume was carried out while I was
with the Centre for Energy, Petroleum and Mineral Law and Policy (CEPMLP),
University of Dundee. I acknowledge the support I received there. The book
manuscript was prepared while I was relocating to the Institute of Energy and
Sustainable Development (IESD), De Montfort University, Leicester, UK.
As the editor of the Volume I would like to thank all contributors to this volume
for their continued support and hard work. I would like to thank the publisher—
Springer for agreeing to publish this volume despite the specialised nature of the
work that still faces limited academic attention. We would like to thank Elsevier
for allowing us to reuse materials for a few papers that appeared in some form in
their journals. We also thank the Energy and Resources Institute (TERI, New
Delhi, India) and the National Renewable Energy Laboratory (NREL), Wash-
ington D.C. (USA) for allowing us to reuse some of diagrams from their works.
Last but not the least, I would like to thank my wife (Debjani) and daughter
(Saloni) for their support in completing this work over the summer of 2012 during
a very stressful relocation exercise, thereby enduring a double externality (i.e.
sacrificing the entire summer holidays for my academic pursuits and shouldering a
higher share of the relocating stress).

Subhes Bhattacharyya
IESD, De Montfort University
Leicester
Contents

Part I Setting the Scene

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Subhes C. Bhattacharyya

2 Rural Electrification and Rural Development . . . . . . . . . . . . . . . 13


Paul Cook

3 Technology Choices for Off-Grid Electrification . . . . . . . . . . . . . 39


V. V. N. Kishore, Dattakiran Jagu and E. Nand Gopal

Part II Review of Electrification Experiences with Emphasis


on Off-grid Access Systems

4 Off-Grid Rural Electrification Experiences from South Asia . . . . 75


Debajit Palit and Akanksha Chaurey

5 The Chinese Model of Rural Electrification


and Electricity Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Subhes C. Bhattacharyya and Sanusi Ohiare

6 Electrification Experiences from Sub-Saharan Africa. . . . . . . . . . 131


Subhes C. Bhattacharyya

7 Rural Electrification Experience from South-East Asia


and South America. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Subhes C. Bhattacharyya

vii
viii Contents

Part III Approaches for Participation, Governance and Financing


of Off-grid Electrification

8 Participatory Business Models for Off-Grid Electrification. . . . . . 187


P. R. Krithika and Debajit Palit

9 Financing Electrification and Off-Grid Electricity


Access Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
Subhes C. Bhattacharyya

10 Regulatory Governance of Off-Grid Electrification . . . . . . . . . . . 253


Martin Minogue

11 Regulatory Issues Related to Off-Grid Electricity Access . . . . . . . 271


Subhes C. Bhattacharyya and Stephen Dow

12 Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285


Subhes C. Bhattacharyya and Debajit Palit

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295
Abbreviations

AC Alternating Current
ADB Asian Development Bank
AEPC Alternate Energy Promotion Centre
AfDB African Development Bank
AFPRO Action for Food Production
AGF Advisory Group on Climate Change Financing
AMC Annual Maintenance Contract
AMORE Alliance for Mindanao Off-grid Renewable Energy
ASER Senegalese Agency for Rural Electrification (French Acronym)
AWEA American Wind Energy Association
BANPRES The Presidential Assistance Project (Indonesia)
BPDB Bangladesh Power Development Board
BPL Below Poverty Line
BPPT Agency for Assessment and Application of Technology, Indonesia
CBO Community-Based Organisation
CDM Clean Development Mechanism
CEMIG Decentralised Electrification Programme (Brazil)
CER Certified emissions reduction (in CDM)
CFL Compact Fluorescent Lamp
CH4 Methane
CHP Combined Heat and Power
CIF Climate Investment Funds
CO Carbon monoxide
CO2 Carbon dioxide
CREDA Chhattisgarh State Renewable Energy, Development
Agency (India)
CREE Community Rural Electrification Entities
CTF Clean Technology Fund
DC Direct Current
DfID Department for International Development (UK)
DG Distributed Generation

ix
x Abbreviations

DoE Department of Energy


DTBP Di-tert-Butyl Peroxide
EC Electricity Co-operatives
ECS Electricity Consumer Societies (Sri Lanka)
EdC Electricite du Cambodge
ERB Energy Regulation Board (Zambia)
ESAP Energy Sector Assistance Program
ESMAP Energy Sector Management Assistance Program
ETS Emissions Trading System
EVN Electricity of Vietnam (Electricity Utility)
EWEA European Wind Energy Association
FDI Foreign Direct Investment
GDP Gross Domestic Product
GEDAP Ghana Energy Development and Access Project
GEF Global Environment Facility
GFCF Gross Fixed Capital Formation
GGC model Gobar Gas and Agricultural Equipment Development
Company Model
GNESD Global Network on Energy for Sustainable Development
GNI Gross National Income
GSS Ghana Statistical Society
GTZ German Technical Cooperation (now called GIZ)
HAWT Horizontal Axis Wind Turbines
HDI Human Development Index
HPS Husk Power Systems (India)
IBF Input-based Franchisee
IDA International Development Agency (World Bank)
IDCOL Infrastructure Development Company Limited
IEA International Energy Agency
IEC International Electro-technical Commission
IFC International Finance Corporation
INEP Integrated National Electrification Program (South Africa)
ITSL Intermediate Technology Sri Lanka
KUD Village Co-operatives (Indonesia)
KVIC model Khadi and Village Industries Commission Model
kW Kilo watts
LaBL Lighting a Billion Lives
LDC Least Developed Countries
LED Light Emitting Diodes
LnC Light in the Countryside (Brazil)
LpT Light for all (Brazil)
MCDA Multi-criteria Decision Analysis
MFI Micro-Finance Institution
MHP Micro-hydro power
MNRE Ministry of New and Renewable Energy (India)
Abbreviations xi

MPPU Multi-Purpose Project Unit


NEA Nepal Electricity Authority
NEA National Energy Administration (China)
NEA National Electrification Administration (the Philippines)
NECEUN National Association of Community Electricity Users-Nepal
NES National Electrification Scheme
NGO Non-Governmental Organisation
NIS National Interconnected System (Colombia)
NIZ Non-interconnected Zones (Colombia)
NRECA National Rural Electric Cooperative Association
NTPC National Thermal Power Corporation (India)
O&M Operation and Maintenance
OBA Output-based Aid
ODF Official Development Assistance
OECD Organisation for Economic Co-operation and Development
PBS Palli Bidyut Samiti
PCU Power Conditioning Unit
PDN Power Distribution Network
PEA Provincial Electricity Authority (Thailand)
PERMER Project for Renewable Energy in Rural Markets
PGSEP Philippines German Solar Energy Project
PLF Plant Load Factor
PLN Indonesian Electricity Utility (Perusahaan Listrik Negara)
PO Partner Organisation
PoA Program of Activities
PPP Purchasing Power Parity
PPP Public–Private Partnership
PRODEEM The Brazilian Programme for Rural Electrification
PV Photo-Voltaic
QTP Qualified Third Parties (Philippines)
REA Rural Electrification Agency (Ghana)
REB Rural Electrification Board
REC Rural Electricity Co-operative
RECS Rural Electrification Collective Scheme
REDP Rural Energy Development Program
REE Rural Electricity Entrepreneurs
REF Rural Electrification Fund
REP Rural Energy Policy
REP Rural Electrification Program (Kenya)
REPP Renewable Energy Power program (Philippines)
REREDP Renewable Energy for Rural Economic Development
REST Rural Electricity Supply Technology
RET Renewable Energy Technology
RGGVY Rajiv Gandhi Grameen Vidyut Yojana (Rajiv Gandhi Rural
Electrification Programme)
xii Abbreviations

RGR Global Reversal Reserve (Brazil)


RVEP Remote Village Electrification Programme
SCADA Supervisory Control and Data Acquisition system
SCF Strategic Climate Fund
SCS Solar Battery Charging Station
SDPC State Development Planning Commission (China)
SELCO Solar Electric Light Company (India)
SEP Special Energy Program
SETC State Economic and Trading Commission (China)
SHS Solar Home Systems
SIDA Swedish International Development Agency
SPC State Planning Commission (China)
SPPS Single Point Power Supply
SPUG Small Power Utilities Group (Philippines)
SPV Solar Photo-Voltaic
SREP Scaling-up of Renewable Energy in low-income countries
SWT Small Wind Turbine
TEDAP Tanzania Energy Development and Access Project
TERI The Energy and Resources Institute, New Delhi, India
TVE Town and Village Enterprise
UNDP United Nations Development Programme
USAID United States Agency for International Development
USD United States Dollar
VAWT Vertical Axis Wind Turbines
VDC Village Development Committee
VEC Village Electricity Committee
VESP Village Energy Security Programme
WBREDA West Bengal Renewable Energy Development Agency
WEC World Energy Council
WHO World Health Organisation
WHS Wind home systems
Part I
Setting the Scene

This part contains three chapters. Chapter 1 introduces the challenge of electricity
access and discusses the role that off-grid electrification can play. It also
introduces the content of the book. Chapter 2 establishes the link between rural
electrification and rural development, and puts the work in its wider context.
Chapter 3 provides a review of technology choices for off-grid electrification. The
themes of the introductory chapters will recurrently appear in the entire book and
hence are presented for setting the background of the book.
Chapter 1
Introduction

Subhes C. Bhattacharyya

Abstract This chapter introduces the research theme of the book and provides the
relevant background for the work. The issue of energy access in general and
electricity access in particular is presented and the developmental consequences of
lack of electricity access are discussed. The purpose of the book and a brief
introduction to subsequent chapters completes the chapter.

1.1 Background and Purpose

The critical role played by energy in achieving sustainable development has been
well recognized in the energy policy literature (see for example, WEC (2001);
DfID (2002); IEA (2002); UNDP (2005) Bhattacharyya (2006); and Ailawadi and
Bhattacharyya (2006)). Access to clean energies received significant attention in
the Johannesburg Summit in 2002 and in 2012—ten years after that event and
20 years after the Rio Summit—the issue once again is attracting global attention.
Although a consensus exists that sustainable development cannot be achieved
without affordable, reliable and clean energy services to the population, and
despite an increasing number of efforts over the past decade, the energy access
situation has not changed significantly in the past decade. According to IEA
(2011), more than 1.3 billion people (or 19 % of the global population) lacked
access to electricity and more than 2.7 billion people (or 40 % of the global
population) lacked clean cooking energy in 2009.

S. C. Bhattacharyya (&)
Professor of Energy Economics and Policy, Institute of Energy and Sustainable
Development, De Montfort University,
Leicester, UK
e-mail: subhes_bhattacharyya@yahoo.com; subhesb@dmu.ac.uk

S. Bhattacharyya (ed.), Rural Electrification Through Decentralised 3


Off-grid Systems in Developing Countries, Green Energy and Technology,
DOI: 10.1007/978-1-4471-4673-5_1, Ó Springer-Verlag London 2013
4 S. C. Bhattacharyya

Table 1.1 Level of electrification in various regions in 2009


Region Population without electricity (Millions) Electrification rate (%)
Overall Urban Rural
North Africa 2 99.0 99.6 98.4
Sub-Saharan Africa 585 30.5 59.9 14.2
Africa 587 41.8 66.8 25.0
China and East Asia 182 90.8 96.4 86.4
South Asia 493 68.5 89.5 59.9
Developing Asia 675 81.0 94.0 73.2
Middle East 21 89.0 98.5 73.6
Latin America 31 93.2 98.8 73.6
Developing Countries 1,314 74.7 90.6 63.2
Global total 1,317 80.5 93.7 68.0
Source IEA (2011)

1.1.1 Global Challenge of Access to Electricity

The access problem has a distinct regional dimension—Sub-Saharan Africa and


Developing Asia are two distinct regions where the problem is acute. 585 million
people in Sub-Saharan Africa lack access to electricity while 675 million in
Developing Asia face the same problem (IEA 2011). Similarly, 653 million people
in Sub-Saharan African and 1.9 billion in Developing Asia do not have access to
clean cooking energies. Table 1.1 provides the level of electrification in various
regions of the world. The rural population in most of these countries is lacking
access, although in a few countries the urban population also lacks access. But the
regional averages also mask the severity of the problem faced by many countries.
For example, 97 % of population of Burundi, Liberia and Chad, 95 % of Rwanda,
Central African Republic and Sierra Leone lacked electricity access in 2008
(UNDP-WHO 2009).
A closer look at the data shows that about 69 % of those lacking access to
electricity reside in just 12 countries while the rest 30 % is dispersed in all other
countries (see Fig. 1.1). Five of them are in South Asia while the remaining seven
are in Sub-Saharan Africa. However, the picture changes in terms of electrification
rate: most of the least electrified countries are located in Sub-Saharan Africa. Out
of twenty least electrified countries in the world, 17 are from Sub-Saharan Africa
(see Fig. 1.2).
Further, energy access is predominantly a rural problem. 1.1 billion (out of 1.3
billion or 85 %) lacking electricity access live in rural areas. Similarly, more than
2.2 billion (out of 2.7 billion or 81 %) lacking clean cooking energy access reside
in rural areas (IEA 2011). This disparity is acute in low income countries in
general and in Sub-Saharan Africa in particular. UNDP-WHO (2009) indicated
that 87 and 89 % of rural population of Least Developed Countries (LDC) and
Sub-Saharan Africa lack access to electricity respectively. Similarly, 97 and 95 %
1 Introduction 5

Fig. 1.1 Major concentration of population without access to electricity in 2009. Data source
IEA (2011)

Fig. 1.2 Least electrified countries in the world. Data source IEA (2011)

of rural population of LDC and Sub-Saharan Africa lack access to clean cooking
energies in 2008 (UNDP-WHO 2009).
Moreover, according to the United Nations World Population Prospects 2010,
most of the global population addition will take place in Asia and Africa in the
coming decades. Asia’s population will exceed 5 billion by 2050 (from 4.2 billion
in 2010) while Africa’s population will increase from just above 1 billion in 2010
to 2.2 billion by 2050. Forecasts by IEA (2011) suggest that almost one billion
people will still lack access to electricity in the 2030 horizon while 2.7 billion
people will not have access to clean cooking energies. Although the forecast
assumes a significant level of investment ($13 billion per year on average),
increases in the population in developing countries of South Asia and Sub-Saharan
Africa will mean that electricity access will remain a problem. According to IEA
6 S. C. Bhattacharyya

Table 1.2 Expected number of people without electricity access in 2030


Region Without electricity access in 2030
Urban Rural % of population
Sub-Saharan Africa 107 538 49
India 9 145 10
China 0 0
Rest of Asia 40 181 16
Latin America 2 8 2
Middle East 0 5 2
Total of Developing world 157 879 16
Source IEA (2011)

(2011) 356 million in South Asia and 645 million in Sub-Saharan Africa will still
live without electricity access by 2030 (see table 1.2).

1.2 Developmental Consequences

The empirical relationship between electricity access and development is generally


captured by linking either an economic indicator (e.g. GDP per capita) or the
Human Development Index (HDI) (or its components) of a country with electricity
access.1 As is generally expected, higher levels of electricity access are normally
associated with a higher income level but a rapid improvement in access level
occurs within an income band bounded by a lower threshold income level of about
$1,000 per person in PPP terms 2005 and an upper saturation level of about
$10,000 per person in PPP terms (See Fig. 1.3). Those below the lower threshold
clearly lack access to electricity, while everyone above the upper threshold has
access to electricity services. However, the scatter plot shows a significant level of
dispersion within the upper and lower thresholds, implying that some countries are
able to ensure better electricity access at low income levels while some with high
income have failed to deliver energy access to their population. For example,
Zimbabwe has defied the trend to provide a comparable performance of middle-
income group despite having an income level of $376 per capita (constant 2005 in
PPP). Jordan and Egypt have succeeded in ensuring almost 100 % energy access
with a per capita GNI of close to $6,000 (PPP terms) whereas Botswana with a
$13,000 GNI per capita has only achieved 45 % electrification. Clearly, income
does not automatically ensure high level of energy access of a country and there
are other drivers that play an important role. However, a detailed analysis of the
causes, drivers and lessons from the successful/unsuccessful cases is beyond the
scope of this chapter and is an area of further research.

1
This is based on Bhattacharyya (2012)
1 Introduction 7

Fig. 1.3 Electricity access—GDP link (The horizontal axis is presented in logarithmic scale to
capture the wide range of incomevariation across countries). Data source HDI data for 2011 and
UNDP-WHO (2009) for electricity and cooking energy access

Fig. 1.4 HDI and electricity access. Data source HDI data for 2011 and UNDP-WHO (2009)
for electricity and cooking energy access

The Human Development Index of a country, on the contrary, bears a better


correlation with electricity access than income. Figure 1.4 shows that better HDI
scores are generally associated with higher levels of electricity access, while
Fig. 1.5 shows that mean schooling years are also positively correlated to elec-
tricity access.
A number of observations can be made from the above figures. First, a number
of countries with low levels of energy access scored decent HDI scores. For
example, Rwanda has a HDI score of 0.429 with only 4.8 % access to electricity
and 0.2 % of its population having access to clean energies. Similarly, Kenya has
scored an HDI of 0.509 with 15 % electricity access and 17 % clean cooking
energy access. Madagascar and Uganda have HDI scores of 0.48 and 0.446
8 S. C. Bhattacharyya

Fig. 1.5 Electricity access and mean schooling years. Data source HDI data for 2011 and
UNDP-WHO (2009) for electricity and cooking energy access

respectively despite the fact that less than 1 % of their population has access to
clean cooking energies. Second, many countries with less than 20 % electricity
access have achieved 6 or more years of schooling that many countries with 100 %
electrification are also striving for. Third, countries with a given level of energy
access have also scored significantly differently on HDI scores or its component
scores. For example, in Fig. 1.4, large variations in HDI scores can be seen for
countries with 100 % electricity access.
Clearly, poor electricity access inhibits economic development by denying the
population the opportunity to develop their human capital and by restraining
economic activities. The quality of life is adversely affected and the economies get
locked-in to a perpetual low level development path.

1.3 Decentralised, Off-Grid Solutions as an Option

Governments and other stakeholders have actively pursued various interventions


for providing access to electricity and cooking energies for many years. There are
success stories as well as failure cases and learning lessons from the past expe-
rience can provide guidance for our future efforts. Further, in respect of electricity
supply the traditional grid extension mode of electrification has been supple-
mented, if not challenged, by an alternative, decentralised mode of supply. The
emergence of modular renewable energy technologies, poor and unreliable supply
from the central grid where available, and the support for low-carbon energy
solutions in response to climate change concerns have given further support to the
alternative option. Decentralised solutions are now recognised as a technically
feasible option.
Decentralised solutions have been promoted where the grid has not reached or is
unlikely to reach in the near future. ESMAP (2001) defines them as ‘‘an alternative
1 Introduction 9

Yes

No Yes

Yes

No

No

Fig. 1.6 Decentralised solution decision tree. Source (ESMAP 2001)

approach to production of electricity and the undertaking and management of


electrification project that may be grid connected or not.’’ Kaundinya et al. (2009)
indicate that the extent of decentralization can exist at different levels: 1) village
level where the focus is on providing electricity to meet the rural needs, 2) industry
level where the demand of the industry is the main focus and any excess power is
fed to the grid. Accordingly, the decentralization can lead to grid-connected or off-
grid (stand alone) options. When a decentralized solution is not connected to the
grid, it is known as an off-grid solution (see Fig. 1.6 for a decision tree).
The grid-connected decentralized systems are decentralized power systems that
are connected to the grid, are supply-driven options, cater to the local needs when
resources are available, are generally large plants in size and can operate at high
plant load factors. Generally, there are grid connection costs for such systems and
10 S. C. Bhattacharyya

they impose high demand on renewable sources because of size of the plant. They
also use the grid similar to a storage facility. Off-grid systems are mostly used in
areas where grid extension is difficult. These systems are demand-driven,
small-scale operation for local needs; impose less pressure on resources due to
smaller size; are often seasonal in supply due to technological characteristics and
need storage systems that incur extra costs (Kaundinya et al. 2009).
Decentralised options can be grouped into two categories—individual solutions
and collective solutions. Individual solutions normally include small ready-to-use
kit-based systems, such as Solar Home Systems (SHS), solar lamps, battery-
operated systems, etc. Collective systems come in two modes of operation: stand-
alone systems and local-grid systems (ESMAP 2001). The local-grid systems often
rely on diesel generators or hydropower. According to World Bank (2008), por-
table 5–10 kW diesel generators are widely used as the conventional solutions.
However, heavy reliance on diesel for small-scale power generation imposes cost
burden on the utilities (more importantly on oil importing countries). The price
fluctuations in the international market affect the overall cost of production and the
viability of the business. This, in turn, imposes a heavy subsidy burden on the
government.
Local-grid system has also developed in hydro-dominated areas. For example,
many small hydropower plants in China were initially developed using a local grid
system and then connected to the main grid. In the stand-alone category, the solar
photovoltaic systems (in local grid or in battery charging systems) and the Solar
Home Systems (SHS) have emerged as the preferred off-grid technology for rural
areas (IFC 2007). IFC (2007) estimates that SHS has provided electricity access to
between 0.5 and 1 million households in developing countries.
However, the access issue goes beyond the technology dimension and technical
feasibility does not necessarily make an option socially acceptable, economically
viable and desirable from a business perspective. A multi-dimensional approach
covering regulation, finance, economic development and social dimensions is
required to analyse the business case of off-grid electrification. Moreover, elec-
trification just to meet the basic illumination needs of a household or a society may
not provide adequate catalytic support for the economic and social development of
a society. An essential requirement for resolving the electricity access problems is
to ensure electricity supply that spurs economic activities which in turn can pro-
vide income generation opportunities for the communities.
The purpose of this book is to review, analyse and share the experience of
providing rural electricity access in developing countries with a special focus on
decentralised off-grid electrification. The issue of electrification is viewed from a
multi-dimensional perspective. The basic questions that each contribution of the
book asks can be stated as follows:
(a) What is the state-of-the art knowledge in respect of the specific topic or
dimension being considered in the contribution?
(b) What lessons can be learnt from the past experience so that those who are
trying to improve energy access can take advantage?
1 Introduction 11

These questions are answered through a critical review and analysis of the
status of electrification around the world, technological options for off-grid elec-
trification, electrification—economic development linkage, financial issues, regu-
latory challenges and participatory models of delivery.

1.4 Organisation of the Book

The book is organized in three parts. The first part sets the scene and consists of
three chapters. This introductory chapter provides the background of the work by
presenting an overview of electrification status across various parts of the devel-
oping world, and establishing the link between electrification and economic and
human development. In Chap. 2, Prof. Paul Cook delves further into the role and
relation of infrastructure, with an emphasis on rural infrastructure, on economic
growth and development. He critically reviews the social and economic issues
underlying rural electrification and explains why the progress has been so slow.
Chapter 3 by Kishore, Dattakiran and Nand Gopal provides a review of technology
options for off-grid electrification by considering the technical features, econom-
ics, potential and barriers.
The second part reviews the rural electrification experience from around the
world. This part is composed of four chapters. In Chap. 4, Palit and Chaurey present
the South Asian experience of rural electrification highlighting the off-grid elec-
trification efforts. They contrast the approaches taken by different countries and
identify cross-learning opportunities. Chapter 5 presents the Chinese success in
achieving almost 100 % electrification despite its billion-plus population and vast
geographic coverage. It highlights the key success factors and lessons for other
developing countries. Chapter 6 captures the African experience while Chap. 7
provides a brief review of South East Asian and South American experiences.
The third part is devoted to business-related issues of off-grid electrification.
Krithika and Palit present the participatory approaches for providing the off-grid
electricity services in Chap. 8. Bhattacharyya considers the financing issues in
Chap. 9. Minogue provides the regulatory governance perspective in Chap. 10
while regulatory issues and options are briefly considered in Chap. 11. Concluding
remarks are then presented in the last chapter.

References

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Bhattacharyya, S. C. (2006). Energy access problem of the poor in India: Is rural electrification a
remedy? Energy Policy, 34(18), 3387–3397.
Bhattacharyya, S. C. (2012). Energy access programmes and sustainable development: A critical
review and analysis. Energy for Sustainable Development,. doi:10.1016/j.esd.2012.05.002.
12 S. C. Bhattacharyya

DfID. (2002). Energy for the poor: underpinning the millennium development goals. U.K.:
Department for International Development.
ESMAP. (2001). Best practice manual: promoting decentralized electrification investment.
Washington, D.C.: World Bank.
IEA. (2002). World energy outlook. Paris: International Energy Agency. (see Chap. 13, Energy
and Poverty).
IEA. (2011). Energy for all: financing access for the poor, special early excerpt of the world
energy outlook 2011. Paris: International Energy Agency.
IFC. (2007). Selling solar: lessons from more than a decade of IFC’s experience. Washington,
D.C.: International Finance Corporation.
Kaundinya, D. P., Balachandra, P., & Ravindranath, N. H. (2009). Grid-connected versus stand
alone systems for decentralized power—a literature review. Renewable and Sustainable
Energy Reviews, 13(8), 2041–2050.
UNDP. (2005). The energy challenge for achieving the millennium development goals. New
York: United Nations Development Programme.
UNDP-WHO. (2009). The energy access situation in developing countries: a review focusing on
the least-developed countries and sub-saharan Africa. New York: United Nations Develop-
ment Programme.
WEC. (2001). Living in one world. London: World Energy Council.
World Bank. (2008). ‘The welfare impact of rural electrification: a reassessment of the costs and
benefits’, An ieg impact evaluation. DC, World Bank: Washington.
Chapter 2
Rural Electrification and Rural
Development

Paul Cook

Abstract Recent interest in rural electrification has emphasised the importance of


linking its development with productive uses for energy and poverty reduction. This
has been viewed as necessary to increase the pace of rural electrification and reduce
its concentration on a relatively small number of developing countries. Despite this
emphasis, progress in electrifying remote rural areas has been slow. In part this has
been attributed to the emphasis on cost recovery and a reliance on the private sector
to deliver electricity widely. This chapter reviews the literature on the role and
relation of infrastructure, particularly infrastructure in rural areas, to economic
growth and development. It reviews the focus on poverty reduction by the major
international development agencies and examines the arguments for increasing rural
incomes. It critically reviews the economic and social issues underlying the
development of rural electrification, drawing on the experience with both grid and
off-grid applications in developing countries and assesses the impact of electrifi-
cation on the ability to generate income in rural areas. Conclusions are drawn in
relation to the beneficiaries of rural electrification, the constraints that are faced in
stimulating economic activity that will contribute to making rural electrification
more feasible and affordable and to the importance of complementary services and
appropriate institutions to support rural electrification.

This chapter is a revised version of the paper Infrastructure, rural electrification and
development by the author that was published in Energy for Sustainable Development,
15(3):304–13.

P. Cook (&)
Centre on Regulation and Competition, University of Manchester,
Manchester, UK
e-mail: paul.cook@manchester.ac.uk

S. Bhattacharyya (ed.), Rural Electrification Through Decentralised 13


Off-grid Systems in Developing Countries, Green Energy and Technology,
DOI: 10.1007/978-1-4471-4673-5_2, Ó Springer-Verlag London 2013
14 P. Cook

2.1 Introduction

The recent literature on rural electrification has emphasised the importance of


linking its development with productive uses for energy. This has been viewed as
necessary to increase the pace of rural electrification and reduce its concentration
on a relatively small group of developing countries. The slowness to extend
electricity to rural areas in a wide range of developing countries through grid
extension, stand-alone and mini-grid approaches has resulted in a substantial
proportion of the world’s population still without access to electricity. It is esti-
mated that worldwide more than 1.4 billion people did not have access to elec-
tricity. Regionally, South Asia and Sub-Saharan Africa are amongst the poorest
served, with only 48.4 and 11.9 % respectively of their rural populations having
access to electricity (see IEA 2009). The disappointing progress towards providing
sufficient rural electricity has been partly attributed to the insistence on cost
recovery, particularly where projects are privately financed, and to the failure to
raise the incomes of rural households and effectively design tariffs and adapt
regulatory systems that can make electricity more affordable to poorer commu-
nities (Estache et al. 2001). The evidence for this conclusion can be seen in the
World Bank’s most recent ratings for the rural electrification projects it supports.
Only 68 % of electrification projects supported since 1995 have been ranked
satisfactory, which represents a drop from earlier periods, and is below the rated
assessment for all World Bank projects in general (World Bank 2008).
The purpose of this chapter is to review the past and more recent literature on
the role and relation of infrastructure, particularly rural infrastructure, to economic
growth and development. It will examine some of the economic and social issues
underlying the development of rural electrification, drawing on the experience
with both grid based expansion and off-grid applications in developing countries.
The review will assess the impact that schemes for rural electrification have had
on small business development and income generating activities and on access and
affordability. Affordability is of course, related to household income and oppor-
tunities to earn income, as well as income or concessions provided through various
types of policy interventions (e.g. implicit and explicit in the design of tariff and
subsidisation policies). Affordability is also integrally affected by wider issues,
such as participation in community-based initiatives and the availability of
localised credit facilities to help develop and finance access and use of energy.

2.2 The Relation Between Infrastructure and Growth

Intuitively rural electrification is an important part of a country’s infrastructure,


although it has not always been the case that it has been given priority in a
developing country’s economic plans for infrastructure. The interest in the
importance of infrastructure for growth and development has historically ebbed
2 Rural Electrification and Rural Development 15

and flowed, as has the debate over whether it ought to be provided by the public or
private sector. Central to these issues has been the type of case that can be made
for developing infrastructure. Should infrastructure to be developed primarily
because the relationship to economic growth is a supportive one, acting as a
prerequisite for growth? Or alternatively, does economic growth increase the
demand for more infrastructural services? In contrast, can the development of
infrastructure be viewed as a universal right, giving people access to essential
services? Clearly, the case for this has been made more strongly in relation to
water and health. A definitive answer to these age old questions has been difficult
to find. Swings in political ideology at the national and international levels have
played their part in explaining the fluctuating interest in issues relating to infra-
structure. In recent years, there has been a belief that the differences in growth
between the successful East Asian economies and other parts of the developing
world can be explained by failure to invest sufficiently in infrastructure (Estache
and Fay 2007).
Moreover, the concern for rural electrification has resurfaced in recent years
with the heightened interest in infrastructure in relation to the part it can play in
improving welfare and reducing poverty. Poverty is now officially recognised as
the core issue of international development; notably, halving absolute poverty by
2015 is at the top of the list of the Millennium Development Goals (MDGs)
(UN 2000), and the MDGs are recognised by most aid agencies, as well as by
many NGOs, as constituting their leading priority. In part this is a return to a
recognition that the relative importance of infrastructure may relate to a country’s
level or stage of development. In developing countries, even on economic grounds,
it is now seen that there is an urgent need to expand infrastructural services as
widely as possible to integrate dispersed populations in rural areas into the
mainstream economy. The mainstream economy has typically been concentrated
in urban areas where economic activities have been most vibrant. A contrast in
experience can be witnessed in the industrialised countries, where increased
attention on private ownership and the development of infrastructure have changed
the pattern and level of service provision in rural areas, although welfare has not
necessarily declined as a consequence. For example, the privatisation of railways
has often resulted in a deterioration of services in rural areas, as provision has been
rationalised on economic efficiency grounds, but alternatives and substitutes in the
form of other methods of transport have often been more readily available. The
relation between infrastructure and growth has been a debated arena for some time
as both the quantity and quality of infrastructure affect growth.
Infrastructure affects growth through a number of channels both direct and
indirect. The most evident direct link is through the productivity effect. This is
often captured in a production function framework, where an increase in the
quantity of infrastructure ought to raise the productivity of other factors. For
example, giving enterprises access to electricity will spread to the development of
other types of investment. This process can be applied to infrastructural investment
in remote areas and result in an increase and diversified range of private invest-
ments in productive activities. Direct channels, therefore, concern the effects of
16 P. Cook

infrastructure on productivity in industry, agriculture as well as various types of


services. The impact of investment in infrastructure on growth, output or firm costs
will in turn also depend on the indirect channels. For example, on the number of
users and, in the case of electricity, on the extent of the network as there will be
network effects. Modeling the effect of infrastructure on growth will need to
include these nonlinear effects and capture the effects of network externalities
which will be reflected in the size of the network, the institutional development
associated with network development and the degree of competition or factors that
affect the quality of the service provided.
Agenor and Moreno-Dodson (2006) point to improvements in the stock of
infrastructure reducing private capital adjustment costs through lowering the
logistic cost of such investments and by allowing the substitution of palliative
investments in machinery. Here infrastructure services can be made more reliable
to reduce a firm’s necessity to invest in substitutes to hedge against potential
service disruptions, therefore freeing up resources for more productive things. In
rural areas this may relate to the effect on labour productivity due to reductions in
the time commuting, fetching, carrying and organising work. Developing infra-
structure can also contribute to improving health and education which increases
labour productivity in both the short and longer terms. An interesting characteristic
of infrastructure investment is its spatial dimension. It involves choices concerning
the selection of rival locations for equipment and processes and connections for
energy, since it is an input for firms and household’s consumption and investment
decisions. The location of infrastructure will affect patterns of behaviour such as
the decision to migrate and locate a business. The contrast between urban and rural
areas is often portrayed as one between leading and lagging regions. Rural pop-
ulations market most of their goods in urban concentrations. In this respect the
most promising research from a spatial dimension has been developed from the
approaches combining new growth theory with new economic geography
(Krugman 1995).
Literature in this arena suggests that infrastructure will interact with physical
characteristics to affect the comparative advantage of a region. Investing in elec-
tricity to help disadvantaged regions could change characteristics in order that these
areas could integrate with more prosperous parts of the economy. Evidence from the
transport sector can be used to illustrate the point. Improved infrastructure in a
poorer area may remove a natural trade barrier that was protecting a local industry
and lead to a higher concentration of employment in a more successful region. In this
way access to electricity in an underdeveloped area could lead to the inward
migration of new enterprises moving to lower cost regions. This effect is likely to be
reinforced if complementary types of infrastructure and related services are also
being developed, which will further contribute to lowering costs. This point is
developed in more detail later in the paper in relation to rural electrification.
Numerous studies and reviews of the relation between infrastructure and eco-
nomic growth have been undertaken. Recent examples include Straub and
Vellutini (2006) and Straub (2008). Calderon and Serven (2004) point out that
increases in the quantity and quality of infrastructure raise growth but the effects
2 Rural Electrification and Rural Development 17

can take a long time and can be costly. Whilst these reviews find both positive and
negative effects on growth, there appears to be consensus that infrastructure
matters more for growth in lower income countries (Romp and deHaan 2005).
Fewer studies explore the relationship between infrastructure and growth in Africa
and most are hampered by the low quality of data and the concentration on the role
of human capital (Estache and Fay 2007). More recently, Escribano et al. (2010)
has extended the analysis by using total factor productivity in African manufac-
turing to examine the relationship with infrastructure. They find although infra-
structure (including electricity) has a low impact on total factor productivity in the
higher income countries in the region, the poor quality of electricity provision does
have adverse effects in poorer countries. Earlier Esfahani and Ramirez (2003)
came to similar conclusions, estimating that poor economic performance in Sub-
Saharan Africa was due to under investment in electricity and telecommunications.
Some of the blame for the poor performance of low income economies has been
linked to the adverse effects on infrastructure investment resulting from the pursuit
of economic liberalisation and forms of structural adjustment policies in the 1980s,
which called for smaller government and reduced public expenditure (Cook 1988).
Most capital expenditure in low income developing countries was aid financed in
the 1980s since indebtedness caused the cessation of external private capital
inflows. Some of the external financing supplied by the only lenders at the time,
the World Bank and the IMF, was diverted to support recurrent rather than capital
costs, as the effects on operating and maintenance of previous capital expenditure
was becoming increasingly recognised (the so-called recurrent cost problem).
Inevitably, this limited the growth of infrastructure in a wide range of low income
developing countries. Although private investment in infrastructure, principally
through privatisation did not significantly develop until the mid-1990s, after the
World Bank concluded in its Bureaucrats in Business Report (1995) that utility
privatisation had not proceeded as anticipated, the results have nevertheless been
disappointing. A recent study by Cook and Uchida (2008) showed that although
the performance of privatised utilities may have improved immediately after
privatisation in developing countries, this was not the case later. Even 10 years
after privatization there have been significant declines in investment and rising
indebtedness has been used to cover operation and maintenance costs of privatised
electricity utilities in many developing countries.

2.3 Electricity and Growth

Electricity infrastructure as consumption and an intermediate good is linked to


growth in income and therefore causality between income and infrastructure may
be in both directions. Changes in income lead to changes in the demand for
electricity and electricity generation. The causality between electricity and eco-
nomic growth has preoccupied energy economists for a number of years. Four
types of causal relationship between electricity and economic growth have been
18 P. Cook

postulated in the recent literature (Ozturk 2010). These consist of no relationship,


which implies that a policy directed at each is irrelevant for the other. If the
relationship is one where economic growth leads to the growth in demand for
electricity then policies directed towards conserving energy may have little effect
on economic growth. If on the other hand electricity consumption leads to
economic growth, then conserving energy may adversely affect economic growth.
The most plausible relationship is likely to be in two directions and in this case the
relation between policies towards promoting growth, energy use and conservation
are likely to be more complex. The differences are, however, increasingly relevant
as the ideas for sustainable development continue to penetrate thinking about
future growth paths for developing countries. The initial relationship between
energy consumption and economic growth was explored by Kraft and Kraft (1978)
in the US. Since then, numerous studies in this field have used single country
bi-variate and multi-variate models (which have included variables such as fixed
capital formation, labour force etc.) to examine the relationship (see Ozturk 2010
for a recent review). The results from the majority of studies examined on
causality are mixed.
A recent study by Huang et al. (2008) has grouped countries by income to
investigate the relationship between energy consumption and growth. They use
panel data for 82 countries between 1972 and 2002. They find a bi-directional
(feedback) relationship between energy consumption and economic growth. In
lower income countries there did not appear to be a causal relationship between
energy consumption and economic growth, with the implication that setting
parameters for energy policy would be less clear cut since increases in energy
consumption would not lead to growth. In middle income countries (lower and
upper) economic growth leads positively to energy consumption and negatively in
higher income countries. This implies that high income countries have already
undertaken conservation policies to protect the environment.
With the relation postulated for middle income developing countries there is the
additional question posed in the literature of whether the benefits resulting from
economic growth from energy consumption outweigh the cost imposed on the
environment through pollution. This appears in the so-called inverted U relation
between the level of economic development and pollution (Grossman and Krueger
1995). In low income countries there are not many industrial units to pollute. As an
economy grows, pollution increases as it attracts higher polluting industries.
Eventually, the pollution problem becomes the main concern and there may be a
tendency to produce lower polluting products (although firms can export their
pollution by relocating to lower income countries).
The inconclusive nature of the empirical results on the causality between
electricity consumption or use and economic growth may be due to statistical
inconsistencies, inappropriate methodologies for measuring the relationship and
differences in comparative country contexts. A major shortcoming of many of the
studies is that they have merely extended the range of years investigated and have
not introduced significantly different methods. Most data span 30–40 years and
using unit root and Johansen co-integration tests with insufficient data points
2 Rural Electrification and Rural Development 19

provides low statistical testing power (Huang et al. 2008). Although inconsistent
results on the association and the direction of the link exist, the more important
question for development comes down to the importance of electricity (or energy)
in relation to other factors of production, such as capital and labour. Even where
this has been examined the results continue to be mixed. Recently, Wolde-Rufael
(2009) has shown that in 11 out of 17 countries studied in Africa energy con-
tributes to economic growth but not as much as capital and labour. It ought to be
noted that transport costs also generally form a higher proportion of a firm’s total
costs than energy. Studies at the country level, however, do find more in favour of
a relationship running from electricity consumption to economic growth (Ozturk
2010). This implies that a policy to halt or slow down electricity capacity growth
will adversely affect economic growth.
It has also been argued that many studies are flawed in terms of causality or
attributing impact because electricity is put into areas with the greatest potential
for growth. Further, results can be distorted because a developed country puts
more effort into creating energy efficiency and introducing protective regulation
for the environment and the economy, whilst a developing country is more likely
to put more resources into production rather than energy efficiency and environ-
mental protection.

2.4 Rural Electrification Policies in Developing


Countries

The policy emphasis towards rural electrification has fluctuated over time and has
been influenced by the World Bank. In the 1970s the World Bank thought
investment in rural electrification was worthwhile [reflecting the received wisdom
over the previous 20 years that rural electrification would act as a catalyst for rural
development (Hirschman 1970)] but would be loss-making (World Bank 1975). It
was thought that the high up-front investment costs and perceived low demand in
rural compared to urban areas would constrain rapid development in this direction
and that developments in health and water were of higher priority. Despite the
spurt to rural electrification projects in the 1980s in, for example, Malaysia and
Bangladesh, an Independent Evaluation Group (IEG) found disappointing results
in terms of low economic returns, low cost recovery (between 10 and 15 %) and
little evidence of an impact on industrial development (IEG 1994). This finding
was also reflected in wider reappraisals of its effects which began in the 1980s
(Barnes 1988; Foley 1992; Pearce and Webb 1987; Kirubi et al. 2008).
The World Bank’s approach to energy in the 1990 s turned towards the pro-
motion of utilities in the private sector. The implications for the electricity sector
were spelt out in World Bank (1993a). This represented a reversal of earlier policy
where the World Bank had argued, particularly for poorer countries, that priva-
tisation of utility sectors was too difficult due political reluctance and the lack of
20 P. Cook

willing buyers and investors (Cook 1999). In the early 1990s the World Bank also
attempted to balance efficiency with an emphasis on sustainable development with
little real success (World Bank 1993b). The subsequent shift by the World Bank
and other international development institutions after 1995 towards a strategy
based on poverty had a more significant implication for rural electrification pro-
grammes and the ways in which they were perceived.
The link between energy and poverty was clearly laid out in a number of the
World Bank’s reports (World Bank 1996). By 2008 the World Bank could claim
that the economic case for investment in rural electrification is proven and that the
benefits to rural households are above the average long run supply costs, indicating
that cost recovery tariff levels are achievable (World Bank 2008). The World
Bank’s coverage of rural electricity is still low in South Asia and Sub Saharan
Africa and it acknowledges that it supports few projects in the countries where
access to electricity is poor and rural electrification is limited, although new energy
projects have recently commenced in Ethiopia, Uganda and Tanzania. The motives
for supporting projects are evenly matched between those that aim to improve
welfare (60 % have this component and it includes poverty reduction), those to
increase electricity supply (72 % have this component) and those to foster insti-
tutional development (75 % have this component). Most poverty reduction
objectives are associated with multi-sector projects. Institutional development
mainly relates to utilities and private sector development and includes training and
operational support as for example provided in Senegal and some grid and off-grid
regulation projects in Peru.
Most World Bank support for off-grid projects appear to be linked to renewable
energy schemes and is usually a component of a larger project, as is the case in at
least 28 out of the 33 off-grid projects that involve the World Bank. Many of these
are considered pilot projects which attract co-funding from the Global Environ-
ment Facility (See Sovacool 2010 for a recent review of support mechanisms for
renewable electricity). The World Bank uses several criteria to support electrifi-
cation projects. These include cost effectiveness to connect, distance to a grid,
affordability and population density. Sometimes a wider more socially-oriented
criterion is used in a minority of projects (usually multisectoral projects) and has
been used to support projects in deprived regions of NE Brazil and in Chile,
Honduras and Vietnam.
According to the World Bank, projects furthest from a grid are likely to involve
off-grid solutions, where there are small communities. In this way a kind of pecking
order is used which favours grid over off-grid support. Financial considerations are
also used to determine the merit order. This is the case because the World Bank’s
favoured model for delivering even off-grid electricity is through the private sector,
as in Nicaragua and Laos. However, as the example of Cuba shows the real value of
supplying a locality with off-grid technology lies in its ability to draw on local
resources and help develop local potential (Cherni and Hill 2009).
As far as an overall assessment is concerned it is evident that the private sector
has not developed electrification in rural areas on the scale envisaged with pri-
vatisation and the variety of approaches pursued to increase private participation in
2 Rural Electrification and Rural Development 21

infrastructure. This is largely the case whether consideration is given to investment


in rural electrification through privatised utilities, forms of public–private part-
nerships, increased use of subsidisation, through for example output-based aid and
more overtly through development assistance.
The deficit has to a very limited extent been filled by the growth of local micro
and small scale private providers and community-based cooperatives, who have
become more prominent and have to some extent compensated for the failings of
large scale privatisation and publicly-owned monopolies, either through stand-alone
or mini-grid systems (Ellegard et al. 2004; Sebitosi et al. 2006; Moner-Girona 2009;
Yadoo and Cruickshank 2010). In addition, there is evidence that larger scale private
firms resort to generating their own electricity in response to the insecurity in net-
work supply. For example, Steinbuks and Foster (2010) find significant evidence of
own generation of electricity in Africa. They examined 25 countries. Self-generation
accounts for 6 % of installed capacity in Sub-Saharan Africa, or 12 % in lower
income countries in the region.
Own generation is high despite power sector reforms. The marginal costs of
own generation are high and emergency backup does not appear to fully explain
why there are so many own generators, although power failures, when they occur,
do put strains on smaller enterprises, for example in Nigeria (Adenikinju 2005)
and Uganda (Reinikka and Svensson 2002) and on enterprises in the informal
sector. If smaller enterprises generate electricity they tend to install less than
5 MW thermal generators. Again, although maintenance levels are generally low,
essential parts are sometimes difficult to acquire. Reinikka and Svensson (2002)
also suggest that the costs of own generation outweigh the benefits. The decisions
to generate own electricity result from many factors and the benefits are difficult to
measure. They include elements such as lost sales due to power failures and where
backup is needed to meet export demand. Since own generation of power is costly
there could be opportunities to sell power at full cost. The extent of this is largely
unknown and whether or not excess power could be sold to grid to improve
national power supply is uncertain. For small firms it is believed that own gen-
eration imposes relatively low fixed costs but higher variable costs. For larger
firms, the reverse is the case, with firms facing relatively high fixed costs and
increasing variable costs, indicating that there could be scope for large firms to sell
to small firms.

2.5 The Focus on Poverty

Despite the heightened interest in poverty reduction through the targets established
in the MDGs, the objectives are not new: poverty reduction has been a major
policy focus in development circles for at least two decades. Unsurprisingly, there
is an immense literature on poverty going back to the 1960s, and the intention here
is to draw out some of the main analytical perspectives as a framework for an
understanding of the linkage to specific economic reforms held to have a pro-poor
22 P. Cook

orientation (see Minogue 2004). Whilst this is a contested literature, there is


general agreement that poverty in some way constitutes deprivation; that it has
absolute and relative dimensions; and that it is complex and multifaceted, with no
linear set of relations of cause and effect (Addison et al. 2008; Hulme and
Shepherd 2003; Grinspun 2001; World Bank 2000; UNDP 1997).
Traditionally, poverty has been understood through its connection with inade-
quate levels of income and consumption, identified either in terms of inadequacy
of food availability and consumption, insufficient fulfillment of basic needs or
inadequate levels of income to meet basic needs. The minimum requirements,
which were originally considered solely in terms of calorie-intake or food
requirements, are now considered in terms of basic needs, which take into account
both food and non-food requirements for the minimally acceptable fulfillment of
human needs (UNDP 1997). Based on this concept of basic human needs, poverty
is considered a deprivation of the minimum necessary level of material require-
ments including food, as well as basic health, education and essential services
required in order to prevent people from falling into poverty.
The concept of entitlement distinguishes between availability and accessibility,
because the simple availability of goods and services in society at large does not
necessarily ensure everyone’s access to them. People need to have an established
command over those goods and services in order to benefit from them; in other words,
they must have entitlement to the minimum necessary goods and services necessary to
meet basic needs (Sen 1981). For example, entitlement to command food may be
secured through ownership of land that produces food or by securing employment that
generates income to buy food (Dreze and Sen 1989). Entitlement failure, where a
person’s livelihood system fails to provide access to an adequate bundle of necessi-
ties, can arise when unemployment, production and price shocks and other problems
increase the vulnerability of particular individuals (Grinspun 2001).
Sen argues that it is inadequate and misleading to regard the poor as a homo-
geneous category. In reality particular classes and occupational groups have
different endowments, being governed by rather different entitlement relations
(Sen 1981). The concept of capabilities is used by Sen to explain why entitlement
failures occur. People may not have certain capabilities, such as education, to
access entitlements, which may prevent them from responding to employment and
income earning opportunities (Sen 1999). Whilst individual capabilities are not
necessarily sufficient to ensure entitlements (e.g. an educated person may not get a
good job if an economy suffers from an economic downturn), basic capabilities are
necessary pre-requisites for entitlements.
Inequality is also as important as absolute poverty. With inequality the main
conceptual focus is on the distribution of income within a society rather than the
levels of deprivation experienced at the individual level. But poverty and
inequality are closely linked and poverty reduction has to take place within a
broader context of distributional dynamics. Recent research indicates that the more
equal the distributions of productive assets (e.g. land) the higher is economic
growth (World Bank 2000). This concept applies not only to differences in
2 Rural Electrification and Rural Development 23

countries but to intra regional analysis, and provides justification for developing
backward rural areas.
Current approaches to poverty also emphasise the need to involve the poor in
the identification of their issues, through participation processes and mechanisms,
as well as in the consideration of what types of poverty reduction interventions
could be appropriate and effective (Chambers 1997). Two main strategies have
emerged from the literature for policy interventions to reduce poverty. Livelihood
promotion aims to raise productivity to bring people out of poverty. Livelihood
protection aims to prevent a decline in welfare and uses direct transfers and other
means to safeguard and protect the vulnerable. Livelihood protection, therefore,
focuses on ensuring the minimum level of entitlements. Although these two
concepts are useful to distinguish the goals and means of differing poverty
reduction policies, it is important to note that they are closely related. Effective
livelihood protection makes livelihood promotion more likely, since a household
will have the confidence to take on more risky, higher-return economic activities in
order to raise income (Matin and Hulme 2003).

2.6 Poverty, Rural Development and Income


Generation

The more positive view of the role of rural electrification and its relation to poverty
reduction has interesting implications for rural development strategies as a whole.
Most people living in poverty are in rural areas living below the poverty line
(70 % in rural as opposed to 30 % in urban areas). Earlier thinking was that rural
poverty could be alleviated by raising agricultural productivity (Johnston and
Mellor 1962). Underpinning this notion was agriculture as a labour-based activity
suitable for income earning possibilities in a labour abundant and capital scarce
developing economy (Hayami and Ruttan 1971).
Following these ideas a technological revolution in the form of the Green
Revolution gave impetus to the idea that agricultural growth could be stimulated,
particularly through increasing the efficiency of yields and involving smaller
farming units. This created a view that income could be increased with rising equity
and that economic growth could be linked to agricultural change through backward
(supply inputs to farmers) and forward (marketing and processing of agricultural
outputs and consumption linkages, that is expenditure by farmers on non-farm
consumption goods) linkages (Ellis 2006). With these developments, infrastructure
could contribute to improving agricultural productivity and reduce rural poverty
(Van de Walle 2002; Renkow et al. 2004). This view was reinforced by the asso-
ciated rise in non-farm activities in rural areas (Freeman and Norcliffe 1981).
However, there are sceptical views of the agriculturally centred approach which
emphasise that growth and poverty reduction may come more from the links with
industry and services than from agriculture (Harriss 1987; Hart 1993). Work by
24 P. Cook

Bernstein et al. (1992) and Ellis (2000) have questioned the agriculture-centred
approach to rural poverty reduction. They point to the importance of non-farm
sources of income for rural households through studying livelihood patterns. The
livelihood approach emerged in the 1970s and provides the link between assets and
the options that people have to pursue alternative activities that give income. The
belief that farming alone can provide a sufficient means of survival in rural areas is
replaced by a livelihood approach that emphasises a process by which households
construct a diverse portfolio of activities and social support capabilities for sur-
vival and to improve standards of living. Moreover, it is evident that incomes of
farm households also depend on income from migratory flows of labour to urban
areas (income remittances). Interestingly, it has been found that the rural poor are
more dependent on agriculture than the better-off rural population, who are less
dependent on agriculture (Ellis and Freeman 2004). The better-off farmers are also
able to use non-farm income to acquire inputs to raise productivity of farms. Part
of the explanation for the emphasis on non-farm income is linked to the deterio-
rating terms of trade between agricultural and industrial goods prices. In many
instances then this has led to less reliance on agriculture in rural areas with
increasing rural to urban migrations, particularly of males and women remaining
in agriculture.
Livelihood research would therefore suggest that rural poverty reduction
depends on the scope for intersectoral mobility and adaptability (Ellis 2006), and
that barriers to these need to be addressed (barriers include institutional factors
such as land tenure systems that hamper exit; land tenure systems make land rental
difficult without compromising ownership security). There are also social
restrictions on the mobility of women (less the case in the Philippines). In this case
poverty reduction could be served by encouraging urban and non-farm growth,
although some attention would need to be given to raising farm productivity where
this is low. Rural lighting, by improving possibilities for education, would help
remove the bottleneck of failure to get an urban job by raising skills and increasing
prospects of rural non-farm employment (Gibson and Olivia 2009). In practice,
many households straddle rural and urban areas through migration and investment
strategies, kinship ties and cultivation and livestock ownership (Satterthwaite and
Tacoli 2002). Rural to rural migration is also important, which is often seasonal,
and migrants search for work in road construction for example and contribute to
building infrastructure (Rogaly 2006).
Water and livelihoods are also intimately connected because water is a con-
straint on food production. Around 80–90 % of all consumed water goes onto
fields and only half of that touches crops through poor irrigation. In the water
sector the shift to cost recovery has increased prices for those connected to the
piped network, however, many of the poorest and those living in low income
settlements have not been connected. Low income households can buy water from
private vendors but this soaks up a high proportion of their income and may not be
viable. Connection is also not tenable because connection charges are high and
there is a need to pay bills on a regular basis. Income for the poorest is often
uncertain and seasonal. This is a reminder that poor households may find
2 Rural Electrification and Rural Development 25

themselves constrained to make choices when allocating their low incomes


between necessary and possibly mutually reinforcing public services such as water
and energy; if they pay for one they may not have enough remaining income to pay
for the other.

2.7 Impact of Electricity on Income Generating


Activities

It is argued that electrification enables livelihoods in several ways. By stimulating


employment and income generating activities, where people build assets such as
the expansion of dairy milk production and achieve better cash flows. It also
argued that electrification enables people to use surplus resources made possible
through their entrepreneurship that contribute to the emergence of credit and
savings schemes based on the newly available cash. Extra electric lighting and
improved water from better pumping facilities are likely to reduce women’s
drudgery in fetching water and create opportunities to set up other businesses.
In general, one of the underlying dilemmas of rural enterprise in developing
countries is that electric machinery potentially replaces labour that is compara-
tively cheap and the poorly educated fail to recognise the potential uses and
benefits of motive power. In this situation the inclusion of complementary services
including training becomes an important element for creating change. This is
reaffirmed in the study by Peters et al. (2009) who examine the impact of devel-
oping rural electricity with complementary services as opposed to just financing
hardware and civil works. Complementary services in their study refer to advocacy
to take-up and use electricity. These services comprise sensitisation campaigns to
raise awareness amongst households, enterprises and social institutions of both the
advantages and disadvantages of electricity. With respect to commercial electricity
users, complementary services can be broadened to cover business development
services, consumer and micro-finance services and other infrastructure, telecom-
munications and transport (Kirubi et al. 2008; Brew-Hammond 2009; Mustonen
2010). Utilities could provide complementary services as is the case in Thailand.
Kenya used this approach: the Kenya Power and Lighting Company (KPLC), a
national utility, put 500 rural electrification schemes covering health, schools and
community water in rural Kenya costing 30 million US$ (KPLC 2007). NGOs also
contribute in this area. Bastakoti (2006) in a study of rural electrification in Nepal
argues that complementary service systems and policy coordination are necessary
preconditions for the effective use of electricity power in rural communities.
One of the difficulties in assessing the impact of electrification on opportunities
for income generation is to separate the effects of existing connections to elec-
tricity and the stimulus provided by new connections. The literature does not
always address this issue in a direct way. One study that makes a distinction is by
Prasad and Dieden (2007).They indicate that growth in income generating
26 P. Cook

activities primarily resulted from businesses already connected to electricity.


Prasad and Dieden used household survey data between 1995 and 2004 to examine
the impact of electrification on the development of micro, small and medium sized
enterprises and those in self employment amongst households. They estimated that
between 40 and 53 % of the increase in enterprise activity was attributed to the
extension of the electricity grid, indicating that enterprise growth was higher
amongst those already connected. However, in the more remote rural areas the
take up did appear to be stronger. It increased by more than 40 % amongst non-
connected and only 10 % amongst the connected. Enterprises were mainly in the
wholesale and retail sectors. The increase in cellular telephone technology was
also a contributing factor to uptake.
However, the aim of targeting rural electrification towards income generating
activities that will raise the demand for electricity and support cost recovery
appears to be compatible with the recent shift in policy emphasis by the major
International Development Institutions who favour rural electrification that impact
on poverty alleviation and reduction. The discussion on livelihoods indicated that
there were better prospects for developing off-farm activities in rural and remote
areas than relying on agriculture, although in terms of asset building the greatest
scope for developing enterprises might come from the better off in the farming
community who has access to a variety of income sources. It was also apparent
that the scope for generating economic activities in sparsely populated rural areas
might be greatest when inward investment could migrate easily to low cost
regions. Clearly, rural electrification would facilitate a response to the risks
associated with this by making it easier to operate and repair various types of
machinery.
This was reaffirmed by Kirubi et al. (2008) conducting fieldwork in Kenya.
They reported that electricity enabled the use of electric power tools and equip-
ment which resulted in an increase in productivity of enterprises studied. These
ranged from retail shops, grain mills, petrol garages, welding and carpentry
businesses. Enterprises could also support the further mechanisation of agriculture
as welding facilities were more readily available. An important element of this
study, however, was the link to other types of infrastructural development,
including business support services. This finding is in keeping with studies of other
infrastructure sectors. For example, Whittington et al. (2008) in the case of the
water sector shows how important are post construction support.
It is, however, difficult to draw firm conclusions from the empirical studies and
project evaluation reports that have attempted to access the impact that rural
electrification has had on income generating activities. There are studies that
provide a more negative view of the link with electricity. For example,
Wamukonya and Davis’s (2001) study in Namibia reported that electrification did
not have a significant impact on the growth of income-generating activities in rural
areas. They found that the share of households with home-based income gener-
ating activities was highest amongst households without electricity. In their study
home-based activities included basket weaving, cake making and welding. Few
home-based enterprises used electricity except for lighting. All the businesses that
2 Rural Electrification and Rural Development 27

used electricity started before electrification. The source of electricity, whether


from grid or solar powered energy, did not influence the overall findings. Further,
in a more narrowly focused study on the effects of lanterns for lighting, Adkins
et al. (2010) examined the relation between electric lighting and income genera-
tion in Malawi. They looked at the innovative use of lanterns that use light-
emitting diodes (LEDs) powered by batteries and charged by grid or small solar
panels. These have emerged as a relatively cost effective alternative to kerosene
and other fuel-based lighting technologies since they provide a brighter light for
longer duration. They found little evidence of a clear connection with income
generating activities. Lanterns were paid for in cash and not installment plans. The
introduction of LED lanterns dramatically changed lighting patterns for buying
households, decreased their reliance on traditional lighting sources and reduced
their fuel outlays. Agoramoorthy and Hsu (2009) came to similar conclusions from
their study in India. These studies do indicate that lanterns in comparison with
other energy sources may still be unaffordable and possibly out of reach of the very
poor. Some householders indicated that lanterns did provide opportunities to
expand business opportunities by allowing more time to work at night when
compared to fuel-based lighting sources. The extent of this is difficult to measure.
Simply in terms of numbers, however, there are more studies that show rural
electrification can contribute to the development of income earning activities. But
even in the majority of these studies it is difficult to determine that electrification
alone accounted for the positive result. Mapako and Prasad (2008) in their study of
Zimbabwe adopted a different approach to examining basic indicators by focusing
on end user perspectives. Rural electrification took place mainly as a result of
extensions to the grid. Surveying 73 enterprises in Matebeland they concluded
electrification increased the number and scope of small enterprises and increased
employment. Respondents to their survey did not complain about higher tariffs but
were more concerned with the reliability of supply. Hiremath et al. (2009) in a
more recent study show the viability in India of small scale renewable energy
technologies that can be implemented locally by communities and small produc-
ers. These permitted increases in activities such as sewing and handicrafts, where
sewing machines were predominantly used by women to generate income.
Agricultural work could also be extended to night times.
Other studies have sought to broaden the argument of the benefits of rural
electrification beyond income generation. These have included the effects on
poverty reduction (Fan and Chan-Kang 2002 in China for example), the quality of
education, health, and gender equality. The World Bank’s study (ESMAP 2003);
in the Philippines found that access to electricity was correlated with educational
achievement. Better illumination from solar electricity contributed to improved
conditions for study. Access to electricity for television viewing also improves
information and helps spread knowledge on health and family planning.
Gustavsson (2007) shows in Zambia the educational benefits resulting from solar
technology. The study did not suggest that school children’s marks improved (this
could not be measured) but more time was spent reading and studying. Health
benefits were also likely to occur through less eye strain. Obviously, the benefits
28 P. Cook

for income generation through strengthening education are more likely to be


revealed in the longer term. Kanagawa and Nakata (2008), using multiple
regression analysis show that literacy rates above 6 years are explained by
household electrification. Finally, Howells et al. (2005) examine the effects on the
quality of life in rural Africa as a result of energy use. They argue that the benefit
of electrification in reducing local pollution (cleaner energy) and allowing for
special high value added services helps explain why the South African Govern-
ment and Eskom (the public electricity utility) have engaged in electrification
programmes for poor areas and support a subsidy for an initial volume of elec-
tricity for poorer consumers.

2.8 The Impact on Access and Affordability

According to the World Development Indicators (2007) access to electricity is


lowest in low income countries and, as a percentage of population, is lower than
access to other infrastructure services such as telecommunications, water and
sanitation. Whilst access to electricity is undoubtedly the major problem facing
electricity reform programmes in developing countries, much progress at an
individual country level has been achieved. In recent years, for example, electri-
fication levels have more than doubled in South Africa from 34 to 70 % between
1994 and 2001 and from 20 to 42 % in Zimbabwe between 1980 and 2001
(Davidson and Mwakasonda 2004). In these countries off-grid electricity pro-
grammes were used to reach the poor, particularly for lighting. Questions have
been raised concerning whether or not this use of electricity is the highest priority
for the poorest communities (Davidson and Sokona 2002). It has been argued that
designing energy reform programmes for the poor ought to address household
cooking and water heating needs over lighting. This would reduce the heavy
dependence on traditional fuels such as wood, dung, candles and kerosene that are
predominantly used by the poor (Louw et al. 2008); although even here the value
to lighting cannot be under estimated, in terms of providing opportunities for the
poor to raise their capabilities through the extra hours of studying that can be
undertaken and the additional illuminated time it provides to engage in simple
income earning activities.
Even where electricity is made available to a poor community the take up has
been affected by a wide range of factors. Various models have indicated that the
demand for electricity is income inelastic, as households view electricity as a basic
good. This assumption is implicit in most individual country’s electricity planning,
for example in South Africa, and in the energy policies of international devel-
opment agencies such as the World Bank. It is also apparent that cross price
elasticities of substitute energy services are inelastic and that various fuels are
substitutes for each other. However, it has not always been the case that the poor
have switched to more sophisticated forms of energy when these have become
available (Howells et al. 2010). In practice, most households continue to use a
2 Rural Electrification and Rural Development 29

combination of fuels at any one time, some of which may be advanced and others
more traditional. In any event, household fuel choices are likely to be related to the
size and diversity of household incomes, and other factors such as education and
distance and availability of natural resources come into play (Heltberg 2004). The
cost and availability of electric appliances, such as cooking stoves, has often been
a prohibiting factor in the take up of electricity. If appliance costs were to be
subsidized then indications are that the demand for electricity take up and use
would increase amongst the poor. However, whether or not the cost for this is
borne by cross subsidisation by higher income and higher consumption households
has to be carefully considered as price sensitivity amongst higher income groups
could lead them to switch to other fuels, with a consequent fall in the demand for
electricity.
The experience from projects has shown that where electricity becomes
available the take up is variable. Sometimes it takes between 1 and 3 years for
households to start using electricity, and there are still high percentages that do not
connect. So a distinction can be made regarding the type of policy that ought to be
used to improve connection where electricity has arrived, and towards expanding
electricity to areas where it does not presently exist. The World Bank report that
the emphasis is on the latter in Indonesia. This situation exists, despite the fact that
once a community is electrified, the marginal cost of electrifying additional
households is low. Marginal costs fall as more households become connected. It is
therefore argued that if tariff levels are sufficient to cover operating and mainte-
nance costs then little is lost by providing connections. However, in terms of
affordability it may mean looking more critically at discriminatory tariffs to
capture the poor that go beyond the cross subsidisation of commercial and non-
commercial users (as in Cambodia) and rural and urban users.
The World Bank confirms that in their experience connection rates are low for
the poor even when electricity becomes available. This has mainly been attributed
to the relatively high cost of connection. They cite the example of Laos, where
30 % of the population cannot afford the $100 connection charge. They also
reiterate that even though off-grid schemes can be delivered to a community at
lower cost than an electric grid can be extended to an area, it is sometimes still the
case that the price of off-grid electricity is higher than to those households that are
buying electricity from a grid elsewhere. It is obvious that cost continues to be a
barrier to accessing off-grid electricity for poorer households. But even for the
better off, costs can be formidable in many countries in Africa. For example, for a
solar heating scheme in Namibia a household needs $2,500 per year.
The World Bank in their projects has also looked at the issue of late connectors,
as in Laos, but has largely attempted to deal with the issue through loans rather than
subsidies. These are being tried in Ethiopia and Thailand. It is apparent that the use
of subsidies are more common in relation to off-grid projects, particularly to meet
the upfront equipment installation costs, since operating costs are negligible in the
case of solar energy and these systems only require limited maintenance. This
circumstance may represent a problem for low skilled poor communities and may
30 P. Cook

correspondingly provide opportunities for unscrupulous businesses to exploit the


situation by introducing high dealer and maintenance costs.
In general the World Bank favours the use of partial subsidies schemes that
retain an incentive element. They also prefer the use of extended credit and
possible micro credit institutions but these do not exist in all areas. Community
based schemes assist in getting people together to pay and work (for example in
Kenya) but may be more difficult to organise in the more remote areas of a
country. It is likely that subsidies have gone to the better off and there is some
evidence that the poor pay more per kilowatt hour for electricity than higher level
consumers (Angel-Urdinola and Wodon 2007).
These circumstances can be attributed to design flaws in tariffs. Tariffs are often
skewed against the poor because they represent a higher risk category i.e. they
have a greater tendency to default and have to be disconnected at a cost. These
categories of the poor are also more likely to tap into or grab electricity illegally.
Part of the problem here is tariffs are not always made clear to the poor, whose
education may be low, and they have not previously been used to paying regular
bills. It has also been argued that subsidies for electricity, especially where a free
element is provided, can have distorting effects through encouraging poor
households to cook with electricity rather than using potentially cheaper alterna-
tives such as liquefied petroleum gas (Howells et al. 2006).
A useful study on many of the issues discussed so far is provided by Prasad
(2008), who compares the impact of energy reform in Botswana, Ghana, Senegal
and Honduras. Prasad gives two examples of successful energy reform to increase
access and affordability. In Botswana the electricity that was delivered resulted in
a method of payment adjustment to make it affordable to the poor. This led to a
fivefold rise in rural connections between 1996 and 2003. In the most recent phase
of reform potential customers formed groups of 4 or more to share the cost of
extending the grid to their premises. A 5 % payment was required before con-
nection work began. The balance of 95 % was provided by a loan from the
Botswana Power Corporation (BPC), paid with interest spread over 18, 60 and
180 months according to customer preferences. Full cost recovery was insisted on
to sustain the reform programme. The government paid for the grid extension. It
was reckoned that 80 % of the beneficiaries would not be connected without the
scheme. Groupings also increased affordability. Low income households could
afford loans because BPC did not require income guarantees and security.
Sometimes lower interest rates than commercial loans were applied. However, low
income households on irregular incomes continued to encounter affordability
problems. In Senegal households got subsidies for butane gas for cooking. The
scheme also subsidised small stoves and gas cylinders. This led to a reduction in
the use of charcoal and wood and helped with deforestation. The exit of the
subsidy did depress growth in demand. 85 % of Senegalese households across all
income ranges tend to use gas for cooking compared to 23 % of the lowest income
group in Botswana. Motives for reform did vary between the two countries and
there has been some deforestation in Senegal. In Botswana poverty alleviation and
deforestation was secondary. In both countries the poorest of the poor remained
2 Rural Electrification and Rural Development 31

excluded despite government intentions. The poorer were also the first to revert to
wood when the subsidy was reduced to 20 % in Senegal.
Typically subsidies for rural electrification tariffs are based on estimates of
household spending for lighting and light electricity use. This was the case in
Argentina (Covarrubias and Reiche 2000). In the absence of willingness to pay
analysis, household expenditure on kerosene, bottled gas and dry batteries was
used as an indicator of the upper limit of electricity tariffs and affordability. This
determined the baseline cost the rural poor could pay. If the actual cost of elec-
tricity provision was higher, then the difference ought to be subsidised. But sur-
veys show that willingness to pay, even if estimated in this way, can be lower than
a household’s capacity to pay. In practice households generally want to pay less
than they previously paid for kerosene when switching to electricity or any other
new energy source. Obviously, there are advantages which they may not recognize
such as convenience of use and less pollution in the household.
Problems remain in relation to the knowledge poor communities have over the
benefits of electricity and in convincing them that these will eventually contribute
to improving welfare. The poor may continue to be reluctant to adopt newer
processes when they perceive meeting regular monthly payments will be difficult,
since their income flows vary in time and are often seasonal.

2.9 Impact on Income Distribution

There is a group of studies that analyse the distributional impact of infrastructure


reform. Amongst them are Adam and Bevan (2004), Bricefio-Garmendia and
Klytchnikova (2006) and Boccanfso et al. (2009). Bricefio-Garmendia and
Klytchnikova use household data to show that the access gaps for infrastructure
between the poorest and richest 20 % in various countries are systematically
strongest in poorer countries. Access to electricity is 9.7 % for the poorest 20 % of
the population compared to 68.7 % for the richest 20 %. Access for middle income
countries was higher in both extremes of the income spectrum, reaching 80 %
amongst the poorest 20 % of the population and almost 100 % for the highest
income category. It is apparent, however, that access rates for the poor are much
higher for water and sanitation than for electricity, although they are low for tele-
phones. Presumably this results from the greater priority given to water and
sanitation over energy and telecommunications because they are identified more
clearly as universal basic needs and also have significant health and public health
implications. Balisacan et al. (2002a, b), using data from the Philippines 1985–1997,
argue that the rich benefit more than poorer segments of the population from access
to electricity. Balisacan et al. (2002a, b) in examining Indonesia in 1990 showed that
a 10 % improvement in access to electricity raised income to the poor by only 2 %.
Access to electricity will affect market production and the demand and supply
for labour and may lead to a change in the nature of enterprises that can operate in
these rural areas. According to Dinkelman (2009) there is a net labour supply
32 P. Cook

effect in South Africa as labour is freed up with the arrival of electricity. The effect
on women is greatest. The female employment response is driven by the middle-
poor and second -richest communities that initially rely on wood for cooking and
are able to respond more when new electricity services become available. The
effects are larger for women in their 30 and 40 s and there is evidence to suggest
that this is related to women having fewer child-care responsibilities at these ages.
Dinkelman also looks at the potential spillover effects from electrification. If
firms create jobs for people living in neighbouring areas, then there are said to be
positive spillover effects. If, however, people move out of a non-electrified area
towards an electrified area to get a job, then there is a negative spillover.
Dinkelman suggests there are no strong spillover effects between communities.
Electrification was driven by household targets and capacity was too small to
stimulate even mid-sized enterprises or services. The lack of evidence for spill-
overs, therefore, supports the claim that electrification increased employment
primarily through a labour supply rather than a labour demand channel. Why
might middle-quintiles in particular have larger employment effects? It appears
these communities contain households that experienced the largest changes in
home production technology when electricity arrived. Middle poor areas are
initially less likely to be using electricity than richer areas and are anyway more
reliant on wood for cooking. Women who have additional home-production
responsibilities are less likely to be able to respond to the new access to electricity,
even though their productivity at home may be substantially enhanced by the use
of electricity i.e. child care.

2.10 Conclusions

In what ways has infrastructure development or reform failed the poor? It is


apparent that many of the benefits from rural electrification have gone to the non-
poor (both access and subsidises). Rural electrification schemes have not so far
provided universal access and have been unaffordable for most poor people. The
question of addressing access for the poor has been raised many times and the
solution has often been portrayed as simple. As argued by Estache and Fay, it
essentially involves three aspects. First, instruments are required to ensure service
operators provide access (a service obligation). Second, instruments are required to
reduce connection costs (through tariff design or direct subsidies built into
payment plans to favour the poor). Third, instruments are required to increase the
range of suppliers (to give choice to users to opt to choose lower quality service
providers). The achievements of these have often been difficult and slow
(Bhattacharya (2007) on South Asia) and our understanding of the issues that act
as constraints to the above is incomplete.
Both connection charges and electricity charges continue to represent serious
constraints for the poor and more innovative discount or subsidy schemes for
connection and improved tariffs, that are compatible with poor people’s incomes
2 Rural Electrification and Rural Development 33

and resources, are required. Our review has also indicated that whilst the more
extensive use of subsidies cannot be ruled out, caution is needed in relation to the
distributional effects of certain types of subsidies. For example, whilst income
elasticities do not rule out cross-subsidisation as a way of providing affordable
services to lower income households, high income groups could be over-burdened,
and as a result may alter the quantity of electricity they consume. For example, it
could lead to a decrease in demand (where gas is available for instance) to middle
and high income households (as indicated in Louw et al. 2008), if greater price
sensitivity exists amongst higher income groups who could switch to other fuel
sources. Our review has also shown that, if appliance costs are subsidised, then
electricity take up and use would increase for the poor.
Our review has indicated that the earlier emphasis on cost recovery and reliance
on the private sector to delivery electricity widely was misplaced. More recently,
the World Bank, drawing on the experience with the 120 electrification projects it
has supported since 1995, has moved away from a pure cost recovery approach to
provide lessons that are more in keeping with meeting the needs of the poor,
particularly in rural areas. These include firstly, justifying subsidises for capital as
long as income covers operating and maintenance costs. The example of Kenya’s
experience with community led rural micro-grids that have the potential to cover a
substantial proportion of the operating costs from internal revenue derived from
the sale of electricity and other charges linked to SMEs, demonstrates the alter-
natives that are available.
Secondly, rural electrification programmes must be implemented with comple-
mentary infrastructure, including educational initiatives that influence change.
As seen in our review this enables the users of electricity to put energy to productive
uses. These aspects are not normally part of rural electrification programmes
provided by private or state-owned utilities. Even enterprise development
programmes have not, as a rule, been designed to promote end-users of electricity
(Cook 2006). There are, of course, some examples such the Nepalese Enterprise
Development Programme between 1993 and 1998 that did, but these have often been
short-lived.
Thirdly, an autonomous and effective implementing agency is needed to ensure
that plans for electrification can be delivered. Although it has been argued that the
precise institutional structure for these agencies is less relevant, as different
structures exist in different countries (Barnes and Foley 2004 citing examples of a
separate rural electricity authority in Bangladesh, rural cooperatives in Cost Rica
and branches of government in a wide range of countries), it is apparent that not all
types of institutions are effective. An ingredient that works in many spheres of
local development is to involve the community closest to the targeted beneficiaries
that can leverage local skills and resources and overcome local resistances.
34 P. Cook

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Chapter 3
Technology Choices for Off-Grid
Electrification

V. V. N. Kishore, Dattakiran Jagu and E. Nand Gopal

Abstract This chapter briefly discusses the characteristics and requirements of


technologies for decentralized power generation with special reference to South
Asian countries. The individual technologies are then discussed in terms of
resource characteristics, technology description, economic analysis, advantages
and constraints, and current status. The discussions benefit from the personal
experience of one of the authors in technology development as well as extensive
field visits and stake-holder interactions in India. It is observed that none of
currently available technologies is individually capable of addressing the problem
of energy poverty in the developing countries. It is only with further advances in
technology and with the deployment of the full range of renewable energy tech-
nologies that universal energy access is achievable. Though the observations and
conclusions are based on experiences in India, these seem to be relevant to all
developing regions which have no access to modern energy services.

3.1 Introduction

The importance of decentralized options, either as short term solutions or as future


plug-ins for energy grids, becomes evident from the fact that 1.3 billion people
lived without adequate access to electricity services in the world in 2009 and that

V. V. N. Kishore (&)  D. Jagu  E. Nand Gopal


Department of Energy and Environment, TERI University, New Delhi, India
e-mail: vvnk@teri.res.in
D. Jagu
e-mail: jdkiran@gmail.com
E. Nand Gopal
e-mail: e.nandgopal@yahoo.com

S. Bhattacharyya (ed.), Rural Electrification Through Decentralised 39


Off-grid Systems in Developing Countries, Green Energy and Technology,
DOI: 10.1007/978-1-4471-4673-5_3,  Springer-Verlag London 2013
40 V. V. N. Kishore et al.

there is now growing acknowledgement of the fact that achieving 100 % electri-
fication even by 2030 seems ambitious particularly for Sub-Saharan Africa
(Bazilian et al. 2012). It is increasingly becoming important that such off-grid or
decentralized solutions be tried out until the local economy reaches a certain level
where productive activities dominate in comparison with minimal sustenance
activities, so that users of the modern energy services can pay for these, leading to
sustainable development. A number of technologies exist with different charac-
teristics and degree of maturity. As any discussion about the off-grid electrification
options is centred around specific technology choices, the purpose of this chapter
is to provide a basic overview. It provides a review of different technologies which
can be employed for decentralized power generation using local resources. The
review includes technology descriptions, limitations, economic considerations and
research needs.

3.2 Basics of Decentralized Electricity Generation

The basic difference between centralized and decentralized power generation is


related to scale. While centralized technologies can strive to achieve energy
conversion efficiencies to the extent allowed by thermodynamics at reasonable
costs, the same cannot be said about decentralized technologies. The other
important distinction is that, owing to the somewhat skewed power demand
(essentially the lighting load during 3–4 h after sunset and occasional demand for
electric motors), the base load tends to be zero (or very low) for decentralized
generation until the local economy develops to some level. This means that the
plant load factor (PLF) or utilization factor for decentralized systems is necessarily
quite low to start with, thereby further reducing the financial viability of the
system.
Power generation technologies can be broadly classified into two categories:
one producing Direct Current (DC) and the other producing Alternating Current
(AC). Photo-electric devices, thermo-electric devices and fuel cells fall under the
first category. The DC can either be used directly or converted to AC using
inverters. The latter is the preferred option as most appliances available in the
market are AC driven. The second category comprises the prime mover-generator
system. Well known prime movers are steam turbines, gas turbines, water turbines,
wind turbines and a variety of reciprocation engines fuelled by diesel, petrol, gas
etc. It should be noted that, though a variety of prime movers are available, some
are either expensive or difficult to manage in a decentralized mode. For example,
although small-scale steam generators can be built, those would need small sized
boilers and de-mineralized water, which would either add to the costs or would
require skilled manpower which would be difficult to obtain in rural areas.
Also, some heat source-prime mover combinations are better than the other.
3 Technology Choices for Off-Grid Electrification 41

Fig. 3.1 The chain of operations involved in decentralized power generation

The geothermal-Organic Rankine Engine combination would be more feasible


than the Solar Pond- Organic Rankine Engine because the solar pond would
require higher maintenance than a geothermal source. The generators can be
classified as induction, synchronous and permanent magnet generators. However,
for induction generators, an active grid is needed; hence it would not be an option
for decentralized generation. The energy sources for the prime movers can be
hydro (potential energy), wind (kinetic energy), heat from solar energy, geother-
mal sources etc. and a variety of fuels such as biodiesel, bio-methane and producer
gas (chemical energy). The last category of fuels are usually obtained after some
processing of primary fuels such as oil seeds, organic residues and a variety of
biomass materials such as firewood and agro-residues. The conversion processes
involved are: esterification, biomethanation and biomass gasification.
Some technologies, such as the Ocean Thermal Energy Conversion, geothermal
energy, tidal power or wave energy conversion are not considered here because of
a variety of reasons such as non-amenability for small scale, non-availability of
mature technology or high site specificity.
The complex chain of processes involved in decentralized power generation is
represented in Fig. 3.1. The individual technology options are described in the
next section.
42 V. V. N. Kishore et al.

3.3 Different Technology Options for Decentralized


Generation

3.3.1 Micro-Hydro Power

Hydro power is the power produced by harnessing energy from the flow or fall of
water in rivers, streams or canals. Water pressure is converted using a hydro
turbine into mechanical energy, which can then be used either to drive an elec-
tricity generator or for running small industrial applications that require shaft
power, such as a grain mill. Hydropower systems that generate 5–100 kW of
electricity are often called micro hydro systems and systems even smaller are
called pico-hydro systems. These systems are mostly ‘‘run-of-river’’, which means
that no dam or water storage is required for their operation. However, they do need
water diversion and conveyance systems.
Micro-hydro power (MHP) is environmentally benign and could be a cost-
effective solution for electrifying isolated communities located in mountainous
regions where extension of the electricity grid is not feasible. It could also be used
in the plains if adequate flowing water is available throughout the year.

3.3.1.1 Micro Hydro Resources

The best geographical areas for harnessing micro hydro power are those where
there are perennial rivers and streams flowing through steep hills and mountains.
In South Asia, the potential for micro hydro power exists in almost the entire
Hindu-Kush Himalayan region, which includes Afghanistan, Pakistan, Nepal,
Bhutan, Northern India and Myanmar. Huge potential also exists in several
locations in Sri Lanka and Southern India due to their unique geo-climatic
conditions.
The power potential of the water in a stream depends upon the flow rate (volume
per unit time) of the water and the head (vertical drop) through which the water can
fall. The theoretical power potential at a particular site can be estimated as:
P ¼ Q  H  9:81 kW ð3:1Þ

where,
P theoretical power potential at a site
Q flow rate in cubic metres per second
H head in metres
9.81 product of the density of water and the acceleration due to gravity (g)

However, energy is lost while getting converted from one form to another due
to inefficiencies and losses in various components of the power generation system.
In practice, the efficiency of most MHP systems ranges from 30 to 70 %.
3 Technology Choices for Off-Grid Electrification 43

Fig. 3.2 Schematic of a


typical run-of-the-river micro
hydropower system
(Source DOE/NREL)

Therefore, a more realistic power potential can be estimated by multiplying the


theoretical power by 0.53 (NREL 2001).

3.3.1.2 Micro Hydro Technology

A MHP system typically includes


• Water conveyance system—these are civil structures such as a weir and an
intake to divert water from the stream and a channel, a tank (fore bay) and a pipe
(penstock) to conduct water to the turbine
• Turbine—transforms the energy of flowing water into rotational shaft power
• Drive system—transmits the shaft power from the turbine to the generator or
other mechanical appliances
• Electrical system—convert mechanical power into electrical power. It consists
of a generator, an alternator and an electronic controller.
The general schematic of a run-of-the-river hydropower system is shown in
Fig. 3.2.
This figure is reprinted from ‘‘Small Hydropower Systems: Energy Efficiency
and Renewable Energy Clearinghouse (EREC) Fact Sheet,’’ DOE/GO-102000-
1173 (2001), Accessed July, 2012
The core of any MHP system is the turbine. Based on the head pressure,
turbines are generally classified as high-head, medium-head and or low-head. No
formal classification for head pressure exists; the classification is only relative to
the size of the turbine. The turbines are also classified based on their principle of
operation as (see Table 3.1):
44 V. V. N. Kishore et al.

Table 3.1 Classification of turbine types


Turbine type Head pressure
High Medium Low
Impulse Pelton Cross-flow Cross-flow
Turgo Turgo
Multi-jet pelton Multi-jet pelton
Reaction Francis (spiral case) Francis (open flume)
Pump-as-turbine Propeller
Kaplan
Source Harvey et al. (1993) and Paish (2002)

• Impulse turbines—these convert the kinetic energy of jets of water striking the
turbine buckets/blades running freely in air. No pressure reduction occurs in
these turbines.
• Reaction turbines—the rotating part (runner) of these turbines is completely
submerged in water and is enclosed in a pressure casing. The linear and angular
momentum of water flowing through the turbine is converted into shaft power.
They are suitable for medium and low heads.
The choice of turbine for any particular hydro site depends primarily on the net
head and flow available. The selection also depends on the desired running speed
of the generator or other connected mechanical appliances and whether the turbine
will be expected to produce power under reduced flow conditions. More than one
turbine could also be chosen at times to match the variations in flow during the
peak and lean seasons.

3.3.1.3 Economics

MHP plants are more expensive and are often less competitive as compared to
larger sized hydro power plants. The cost is highly site specific and depends on the
site characteristics such as the terrain and accessibility, in addition to various other
factors such as the availability of labour for civil works, availability of local
manufacturing of electro-mechanical equipment, the sizing of the plant and the
distance of load from the power house. Costs can be controlled to an extent by
proper sizing, by utilizing local materials and indigenous technology and by
adopting appropriate standards. The investment per kW of electricity ranges from
$1136 to $5630 per kW, with an average of about $3085 (Khennas and Barnett
2010). However, the investment required for mechanical power alone would be
significantly lower at around $714–$1233 per kW (Khennas and Barnett 2010) due
to the absence of expensive electrical/electronic equipment and the distribution
lines.
The operational costs on the other hand are highly competitive and are usually
lower than many other sources of energy. Most MHP plants could operate for up to
50 years without requiring any major refurbishment (Paish 2002). This brings
3 Technology Choices for Off-Grid Electrification 45

down the cost of energy drastically if the economics are worked out for the entire
life of the project. The levelized cost of energy for a typical MHP plant ranges
from $0.1 to $0.2 per kWh (ESMAP 2007). The energy cost reduces further if the
generated power could be fed into the main electricity grid.

3.3.1.4 Benefits

Unlike large hydro plants, the adverse impacts on the environment are minimal for
MHP. The energy source is predictable and power is available continuously on
demand. An MHP installation usually lasts for several decades. The operational cost
of the plant is very low. The operation is simple as well and training requirements
are minimal. Further, most components of an MHP plant can be manufactured or
assembled locally. The turbine’s shaft power can also directly drive machinery such
as a mill at a higher efficiency, thus making a cost-effective option for several energy
services.

3.3.1.5 Limitations and Barriers

MHP is a highly site specific technology and therefore requires an extensive


assessment of resource and site characteristics before installation. Modifications to
the river or stream might require approvals from multiple government agencies.
Also hydro turbines may not be readily available in smaller sizes. All these factors
could increase the project development time up to 1 year.
The limited availability of the resource at the site prevents up-scaling of the
plant in the future. River flows are more seasonal in nature than solar or wind
resources. Hence the plant utilization could drastically fall during the months of
lesser water flow. Possibility of conflicts with other downstream uses of the water
source such as fisheries is another crucial parameter that needs to be considered
while planning the project.
Due to its high initial investment requirement, MHP may not be affordable by
remote, isolated communities without heavy subsidies. The cost for energy dis-
tribution can occasionally be very high if the load is located far from the point of
power generation. In such cases, the project implementation would be highly
dependent on government or external aid. Unavailability of spares and service
locally is another critical factor that could affect the viability of the project.

3.3.1.6 Status of the Technology

The history of MHP in South Asia can be traced back to the traditional ghatta or
water mills used in Nepal for grinding flour. Thousands of such water mills existed
in Nepal for many centuries and even today, many installations of the improvised
ghatta—Multi-Purpose Power Unit (MPPU) are being used in this mountainous
46 V. V. N. Kishore et al.

country. The modern MHP technology, on the other hand, was derived from the
larger hydro technology and is only about four decades old in South Asia. The
technology has evolved considerably over the past few decades, with several
manufacturers and project developers currently available in the region.
MHP is currently among the most mature of small-scale technologies for
decentralized electrification. However, the technology has not been massively
disseminated in spite of its vast potential in almost all the countries in the region.
The reasons for this are the lack of local manufacturing, the higher initial cost per
kilo Watt, lack of specific government policies and the disproportionate attention
given to larger sized hydro installations. Most of the existing off-grid MHP
installations in South Asia are driven either by donor funds or by passionate
technocrats. With increasing awareness of the technology, the situation can be
expected to improve in the future. Current efforts in MHP technology for off-grid
electrification are focused on cost reduction, increase in reliability of the system,
local manufacturing and servicing of critical components, newer technical designs
for low flow and low head and regional cooperation for manufacturing and
development of standards.

3.3.2 Biomass Gasification

The term ‘biomass’ refers to a wide range of non-fossil organic matters derived
from the products of photosynthesis occurring in plants and algae. Solar energy
captured during photosynthesis is stored in biomass, thereby making it a high-
energy density source. Biomass resources are highly versatile and can be used in a
solid, liquid or a gaseous form for producing electrical power, heat, bio-fuels and
other useful by-products. Biomass has been a major energy source to mankind,
prior to the discovery of fossil fuels such as coal and petroleum. Even today, about
30 % (IEA 2011) of the total primary energy supply in South Asia is derived from
biomass, used predominantly for cooking and heating. With recent advancements
in technology and an increasing awareness of its potential benefits, there has been
a renewed interest in biomass as a source of power generation. Power generated
from biomass is considered to be renewable if the consumption of biomass mat-
ches to its production.
Several processes exist to convert biomass into fuels that can run engines to
produce electricity. These conversion processes are broadly classified as:
• Thermo-chemical processes (combustion, gasification, pyrolysis, liquefaction)
• Chemical processes (esterification)
• Biochemical processes (acid hydrolysis, enzyme hydrolysis, fermentation)
Among these, the most widely used technologies for decentralized power
generation are combustion and gasification of solid biomass, and anaerobic
digestion of organic matter for production of biogas, which is then combusted for
power production. Among the thermo-chemical processes, power generation
3 Technology Choices for Off-Grid Electrification 47

Table 3.2 Examples of biomass suitable for gasification


Forest residue Agricultural residue Agro-processing residue
Forest pruning Paddy straw Rice husk
Wood from energy plantation Wheat straw Cashew nut shells
Wood from marginal lands Maize stalks Oil seed shells
Grasses and bushes from wastelands Cotton stalks Oil cakes
Wood pulp Maize cobs Coconut shells and fibre
Saw dust Mustard stalks Coffee and tea waste
Bamboo waste Millet straw Bagasse

through gasification is the simpler and more economical option for low capacities
of 10–500 kW, which are typical for off-grid installations.

3.3.2.1 Biomass Resource Availability for Gasification

Biomass resources are highly versatile and are abundantly available in all the
South Asian countries, especially in the rural areas. The biomass resources suitable
for gasification can be derived from forests and wastelands and from residues of
agriculture and related processing industries. Based on their bulk density, biomass
resources are broadly classified as woody and non-woody (or powdery). An
indicative list of the different types of biomass resources is given in Table 3.2.
Despite being widely available, very little documentation is available regarding
the availability and variability of biomass resources due to their scattered nature.
Existing assessments of biomass resources in most developing countries are only
macro-level estimates that use an inventory approach. These assessments are based
on simple calculations that factor in the available forest, agricultural and waste
lands, the cropping patterns in the country/region and the alternative uses of
biomass. Examples of calculations for biomass resource estimation from ground
inventory are given below (Kishore 2008).
From woody biomass:
Annual sustainable yield ðASYÞ ¼ 2  growing stock = rotation ð3:2Þ

Extractable sustainable yield ðESYÞ ¼ ASY  collection efficiency factor


ð3:3Þ

Surplus woody biomass available for energy production


¼ ESY  alternative uses of biomass ð3:4Þ

From agricultural residue:


Residue production ¼ grain production  residue  product ratio ð3:5Þ
48 V. V. N. Kishore et al.

Surplus agricultural residue available for energy production


¼ residue production  collection efficiency factor
 alternative uses of biomass ð3:6Þ

These assessments usually have an error of 15–20 % (Pathak and Srivastava


2005) and can at best be used as preliminary inputs for project design. More
advanced resource assessment techniques involve utilization of geospatial tech-
nologies, simulation modelling and field surveys. These methods are usually more
labour-intensive and require immense resources but tend to be more accurate. The
‘National Biomass Resource Atlas’ of India prepared by the Indian Institute of
Science by integrating GIS data from the Indian Space Research Organisation,
statistical data from the Ministry of Agriculture and residue data from other
sources has been the biggest biomass resource assessment exercise till date in
South Asia.

3.3.2.2 Overview of Biomass Gasification Technology

Gasification is a thermo-chemical process that converts solid biomass into a


flammable gas mixture at high temperatures. The resultant gas called ‘producer
gas’ or ‘syngas’ contains carbon monoxide (CO), hydrogen (H2), methane (CH4),
nitrogen (N2), carbon dioxide (CO2) and smaller quantities of higher hydrocar-
bons. The gasification process occurs through a sequence of complex reactions:
(1) Drying of biomass, (2) Pyrolysis—heating in absence of air to release volatile
matter, (3) Partial combustion—produces Carbon dioxide, water vapour and
char (4) Reduction—reduction of the gases by char into Carbon monoxide and
Hydrogen.
Gasifiers are generally classified depending on the way the fuel is brought in
contact with air (or oxygen). Gasifier designs are broadly classified into: Fixed bed
and Fluidised bed gasifiers. A further distinction can be made based on the
direction of air flow as: updraft, downdraft and cross-draft. Based on the gasifier
design, the producer gas contains varying portions of contaminants such as
condensates (tar) and particulate matter. Tar cannot be tolerated in the engines, and
hence, the gas has to be cleaned using devices such as gravity filters, wet scrub-
bers, cyclone separators and bag house filters before being fed to the engine.
A general schematic of a typical biomass-gasifier based power system is given in
Fig. 3.3.
The important parts of a gasifier based power generation system are:
• The reactor—thermo-chemical reactions occur within the reactor, resulting in
producer gas
• The cooling and cleaning system—this consists of a cyclone to remove the
dust, scrubbers using water as the medium for cooling and filters for cleaning the
gas from impurities such as particulate matter and condensates (tar)
3 Technology Choices for Off-Grid Electrification 49

Fig. 3.3 Schematic of a gasifier system for power generation (Source www.teriin.org)

• The engine—this could be a dual-fuel compression ignition, or a spark ignition


or a 100 % producer gas engine that runs on the clean gas and provides
mechanical power to the generator
• Essential Auxiliaries—these include systems for biomass conveyance, biomass
preparation, fuel handling, driers and water treatment (if re-circulated)

3.3.2.3 Economics

The capital cost of biomass gasifier based power generation systems varies widely
based on numerous factors such the size of the system, the material used for the
reactor (stainless steel or mild steel), the choice of engine (CI or SI or Producer gas
engines), the types of sensors and controls used and the type of cooling and
cleaning mechanisms. An increase in the scale of operation reduces the price per
kW significantly; whereas choosing modern equipment such as 100 % producer
gas engines or SCADA control systems increases the initial cost drastically (see
Table 3.3).
The cost of electricity generated too varies widely from about $0.08 to $0.14
per kWh depending on several factors such as the cost of feedstock, labour costs,
capacity utilization factor of the plant and the distance over which the feedstock
needs to be transported.

3.3.2.4 Benefits

Unlike solar and wind energy technologies which are dependent on intermittent
sources, biomass gasification is capable of providing firm power and can therefore
be operated at high utilization rates to meet both the base load and the peak load.
A huge untapped potential exists in South Asia for utilizing the biomass resources
which until now are going waste. The technology could easily be retrofitted with
50 V. V. N. Kishore et al.

Table 3.3 Typical capital costs of biomass gasifier based power plants
Size of the plant Capital cost ($/kW)
(Excluding land cost)
10–35 kWe with dual-fuel engines and minimal 850–1,750
control systems
50–100 kWe with 100 % producer gas engines and minimal 1,500–2,880
control
Systems
250 kWe–2 MW with 100 % producer gas engines, 1,200–2,030
water treatment system and SCADA controls
Source ESMAP 2007, GoI 2009 and field visits conducted in India; Assumption of 1$ = INR 45

existing diesel based generation facilities, thereby leading to a gradual fossil fuel
replacement. An immense scope also exists for further efficiency improvements
in the current technology by employing waste heat recovery, by operating in
combined heat and power (CHP) mode or by employing gas turbines. Adopting
biomass gasification can lead to several social, environmental and economic
co-benefits as well. Almost 70–80 % of the cost of power generation will go back
to the rural community in terms of cost of biomass feedstock and for employing
local manpower, thereby resulting in increased prosperity. Large scale plants,
when planned with dedicated energy plantations on waste lands to supply fuel lead
to afforestation in the region. Potential for recovering value-added products such
as activated charcoal and precipitated silica (rice-husk gasifier) from the char
obtained in the reactor could make the technology more economically attractive in
the future.

3.3.2.5 Limitations and Barriers

The quality of producer gas is highly dependent on the feedstock type, its moisture
content and its sizing. Hence utmost consistency had to be maintained in the
feedstock supply. Ensuring the sustainability of the biomass source throughout the
lifetime of the plant could at times be a huge challenge. Monetization of fuel—
wood, crop and agro-processing residues could adversely affect their present uses
and could possibly lead to a competition for scarce land and water resources.
Further, the operational expenditure of the plant is highly dependent on the cost of
feedstock, with very little scope to hedge against any future price hike. Thus the
viability and scalability of the plant is limited by the availability of feedstock in the
region. The scalability could be severely restricted if the plant is dependent solely
on energy plantations.
Biomass preparation by cutting of woody biomass and by briquetting or pel-
letization of powdery biomass requires significant electrical power. In addition,
water is required for scrubbing the producer gas. Hence a water treatment plant
could be essential for large sized plants to meet the local pollution standards. The
operation and maintenance of the plant is labour-intensive and requires extensive
3 Technology Choices for Off-Grid Electrification 51

training. Unavailability of skilled operators in rural areas could severely affect the
operation of the plant.

3.3.2.6 Current Status of the Technology

The development of biomass gasification has always been in spurts since the
1850s, with the maximum intensity observed during the World War II and during
the energy crisis of 1970s. The technology received a boost again in the 1980s and
several demonstration projects were set up in Europe, US and a few developing
countries such as Brazil, India and Indonesia based on indigenous models. Most of
these were unsuccessful due to technical, economic and institutional problems
(Pathak and Srivastava 2005). A notable effort in South Asia during the 1980s
was the setting up five Gasifier Action Research Centres in India. The R & D
programmes were carried out in these centres resulted in the fabrication of new
prototypes, development of testing standards, development of gas cleaning systems
and the application of gasifiers in other sectors such as agricultural processing,
steel rolling, ceramic kilns and cold storages (Pathak and Srivastava 2005).
A 250 kW 100 % producer gas engine was also developed during this period.
Decentralized power generation through biomass gasification has been proven
to be commercially viable in many countries today. However several technical and
operational issues still remain to be overcome to advance the maturity of the
technology. Most small-scale gasifiers are still based on the conventional open-top,
down-draft configuration. Attempts are being made for newer configurations that
produce lower tar, such as two-stage gasification, dual-air entry configurations and
twin fire configurations. In addition, research is ongoing to eradicate slagging/
corrosion problems in the reactor, to identify more reliable materials for reactor
construction, to reduce the contaminants in the gas, to enhance the fuel flexibility
and to develop effective process controls for the plant operation.

3.3.3 Biomethanation

Biomethanation refers to the production of a combustible gas by the anaerobic


fermentation of biomass (substrate) in a humid atmosphere and in the presence of
different species of naturally occurring bacteria. Biomethanation is a complex
biochemical process occurring in three sequential stages—enzymatic hydrolysis,
acid formation and methane formation, with different types of bacteria acting on the
substrate at each stage. The resultant ‘biogas’ composes of methane (50–70 %),
carbon dioxide (30–40 %), hydrogen (5–10 %), nitrogen (1–2 %), water vapor
(0.3 %) and traces of hydrogen sulphide (Karki et al. 2005). With an average
calorific value of 21–23.5 MJ/m3 (Dimpl 2010), biogas can be combusted in
engines to generate power and is hence considered as a promising renewable
source of energy.
52 V. V. N. Kishore et al.

Table 3.4 Critical parameters for biogas production


Parameter Description Optimum value
Digestion Temperature affects the enzymatic activity of bacteria 30–40 C
temperature and influences the rate of biogas production. Gas (mesophilic)
production reduces with temperatures below 25 C 45–55 C
and virtually stops below 10 C (thermophilic)
pH pH is the measure of substrate’s acidity or alkalinity 6.8–8.0
Retention time It is the average time the substrate remains inside the 40–100 days
digester. It can be varied to maximize the yield
based on the type of substrate, the digester design
and temperature
Carbon–nitrogen For optimal growth of bacteria, it is essential that 25–30:1
(C:N) ratio nutrients are available in the correct concentration
Loading rate It is the amount of substrate fed into the bio digester per 6 kg of dung
day per unit volume of digester. Overfeeding results per m3 of
in acidity and underfeeding reduces the gas digester
production capacity
Dilution Optimum gas production occurs when the substrate is 1:1 for
diluted with water such that the input slurry has a fresh dung
total solid concentration of 8–11 % by weight
Co-substrate The plant materials such as straw and sawdust contain a
higher C:N ratio while animal wastes such as
chicken litter and human excreta have a lower C:N
ratio. Use of a co-substrate helps in judicious
manipulation of C:N ratio to maximize the biogas
yield
Toxicity Presence of toxic materials such as heavy metals,
ammonia, volatile organic acids, detergents and
mineral ions in the substrate inhibits the growth of
bacteria. Ammonia toxicity is often encountered in
substrates with high protein content

3.3.3.1 Biomass Resources for Biomethanation

Any biomass that contains carbohydrates, proteins, fats, cellulose and hemicellulose as
its main components is theoretically suitable for biomethanation. Examples of biomass
(substrate) suitable for anaerobic digestion include (1) Animal waste—manure from
cattle and pigs, chicken litter, human excreta, slaughter house waste (2) Market
waste—vegetable waste, spoilt grain and cereals (3) Wastes from households and
canteens—leftovers, eggs, bread (4) Agricultural residues—straw, stalks, leaves,
roots, sugarcane trash (5) Food processing waste—mash from fermentation, molasses,
spent fruits (6) Weeds and algae. Cattle dung has by far been the most widely used
feedstock for biomethanation by the rural communities in South Asian countries.
The nature of the substrate determines the type of bacteria acting on it and also
the composition of the generated biogas. Maintenance of optimum microbial
activity is crucial to gas generation which is in turn is dependent on a variety of
parameters. Few of the critical parameters are mentioned in the Table 3.4.
3 Technology Choices for Off-Grid Electrification 53

The gas production can be enhanced by (1) Mechanical methods such as stirring
the digester and recycling a fraction of the slurry; (2) Thermal methods such as
insulating the digester, pre-heating the input slurry, solar heating the digester and
composting around the digester; (3) Bio-chemical methods such as addition of
urine, urea, molasses and sugar wastes (Nijaguna 2009).

3.3.3.2 Biomethanation Technology for Power Generation

The principal components of biogas-to-power plant are:


Digester The physical structure where methane is produced by anaerobic digestion of
biomass is known as the bioreactor/digester. The digester could be of vertical or
horizontal design; cylindrical, spherical or hemi-spherical shape; and could be con-
structed above the ground, partially underground or completely underground.
Although several types of biogas digester designs can be found in different parts of the
world, the models that are widely used in the context of South Asia are (see Fig. 3.4):
(1) The KVIC model: This is a floating drum digester that was first developed in
India in 1956. It was later adopted by the Khadi Village Industries Commis-
sion of India and came to be known as the KVIC model. It consists of a deep
well made of brick masonry in cement mortar acting as the digester and a gas
holder made of mild steel in the shape of an inverted drum. The drum ‘floats’
atop the digester corresponding to the accumulation and withdrawal of gas,
guided by a central coaxial pipe,
(2) The GGC model: This is based on the fixed dome Chinese model and was
designed by the Gobar Gas and Agricultural Equipment Development Com-
pany (GGC) of Nepal in 1980. This model consists of a brick masonry digester
with a concrete dome on the top for gas storage. The digester and dome
together form a single underground unit.
(3) Deenbandhu model: It is also based on the fixed dome Chinese model and was
designed by the Action for Food Production (AFPRO), New Delhi in 1984.
This was meant to be a cheaper version of the Chinese model with the dome
structure being constructed of brick masonry instead of concrete.
Several other digester designs have been experimented or are being piloted in
South Asia which is more suited to the local conditions. For instance, in the hilly
regions of Nepal where transportation of construction material could be expensive,
bag digesters are currently being piloted. Selection of the type of digester is based
on several factors such as the cost of raw materials for construction/fabrication, the
climatic conditions, availability of water and the availability of skilled man power
for the construction, installation and operation of the plant.
Gas storage Not all the biogas produced may be consumed immediately. More-
over, the point of consumption might be far from the digester. This necessitates the
storage of gas in low-pressure biogas holders and bags made of double-membrane
or thermoplastic foil or medium-pressure holders made of steel.
54 V. V. N. Kishore et al.

Residue tank Spent slurry from the digester is stored in open tanks for drying
before being used as a bio-fertilizer. Storage in a series of small tanks used in
rotation not only makes the removal of dried residue easier but also increases the
overall cleanliness of the plant.
Gas cleaning systems Biogas contains several impurities such as dust, water vapor
and traces of sulphur dioxide. Water vapor and carbon dioxide in the biogas
reduces its calorific value; hydrogen sulphide and its combustion product SO2 can
cause severe corrosion in pipes and metal parts of the engine. The solid particles in
biogas are filtered with dust collectors. Water vapor is removed by condensation
either in the gas storage or by dehumidification on its way to the engine. Hydrogen
sulphide and other trace gases are removed by scrubbing, adsorption, absorption or
other chemical and biological processes.
Engine In theory, biogas can be used as a fuel in almost all types of combustion
engines such as diesel engines, gas engines, gas turbines and Stirling engines.
However in practice, only modified diesel engines in dual-fuel mode are widely
used in South Asia, owing to their lower capital costs and easier availability in
smaller sizes. Gas engines that run on biogas are slowly gaining popularity due to
their lower fuel costs. Running the engines in combined heat-and-power (CHP)
mode increases their overall efficiency. Heat recovery can also be used for heating
the digester during colder months of the year.

3.3.3.3 Economics

The capital cost, operating and maintenance costs of a biogas power generation
system vary widely based on the scale of the system, the type of civil construction
and the choice of engine. The typical cost a biogas power plant is estimated at
around $1890 (MNRE 2008) to $2490 per kWe (ESMAP 2007). The cost for
different types of engines varies between $1200 and $1600 per kWe (Deublein and
Steinhauser 2008). With civil construction and labour constituting roughly 30–
40 % of the capital cost, the availability of construction materials and labour costs
in the region also play a substantial role in arriving at the total capital cost.
The cost of power is primarily dependent on whether the biomass had any
previous use and the monetary value attached to it. Though several theoretical
studies have estimated the levellised cost of energy from biogas at around $0.07
per kWh, a more realistic figure calculated by GTZ experts in Kenya puts this at
about $0.15 per kWh (Dimpl 2010).

3.3.3.4 Benefits

Biogas digesters are simple in construction and could be adapted according to the
needs, climatic conditions and building materials in many countries or regions.
The produced biogas can be stored in bags, balloons or cylinders and could be
transported to remote places such as agricultural fields for running engines.
3 Technology Choices for Off-Grid Electrification 55

Existing engines can be modified to run in dual-fuel mode with minimal modifi-
cations, thereby contributing to gradual replacement of fossil fuels for power
generation. The operation and maintenance of a biogas plant is technically simple
and training requirements are minimal. Operational costs too are minimal since the
cost of feedstock is usually low and at times almost zero.
Use of biomethanation for disposal of organic waste is relatively cheaper as
compared to land filling or combustion of waste. It can therefore be an effective
technology for sewage treatment in rural areas of under-developed countries where
facilities for sewage disposal do not usually exist. Biomethanation of waste
reduces the pathogen content in the substrate materials and thereby helps to
improve the health of the community. The profitability of the plant could be
enhanced substantially with the sale of slurry as a bio fertilizer and the sale of
excess biogas for cooking and heating applications. Use of spent slurry as a natural
fertilizer not only increases soil fertility but also reduces the dependence on the
supply of chemical fertilizers.

3.3.3.5 Limitations and Barriers

The biggest barrier for the diffusion of biogas technology is to overcome the
negative perception about the technology in countries where many previous
installations have failed. Daily procurement of sufficient biomass is a critical
requirement for a biogas plant’s sustained operation. This means that plants uti-
lizing animal manure can be located only in such places where sufficient livestock
is stabled at a single location. This could restrict the technology to only a few
richer communities with larger livestock population and to communities with
excellent synergy for resource sharing. Also, the dependence on feedstock such as
cattle dung or poultry litter for power generation could affect their present uses.
Such competing uses of feedstock could have an adverse impact on the plant’s
operation.
Preparation of input slurry for the plant requires substantial amounts of water.
Water recycling would hence be required in locations with scarce water resources.
The digester requires an extensive overhaul once every few years to prevent
reduction in gas output due to scum or silt. Low temperatures at higher altitudes
and during winters can also severely reduce the production of biogas.

3.3.3.6 Current Status of the Technology

The utilization of biogas as a source of energy in South Asia could be traced back
to as early as 1859 when biogas generated by the purification of waste water from
a leprosy hospital in Bombay was used for emergency lighting. However, biogas
was recognized as a promising source of energy for cooking only a century later.
Several digester designs based on the fixed dome and the floating drum designs
were experimented in South Asia since the 1950s. The governments in Nepal,
56 V. V. N. Kishore et al.

Pakistan, India, Bangladesh and Sri Lanka launched several subsidy based pro-
grammes to promote biogas for cooking in rural areas. Several millions of biogas
digesters were installed in these countries. However, very few of them are fully
functional today. Their failure could be attributed to several reasons such as lack of
technical training, high costs of maintenance, lack of sufficient feedstock and
inadequate community participation. With most of the technical issues rectified
during the past few decades, biomethanation stands today as a mature technology
capable of uninterrupted operation. Currently, several large scale plants that
generate power from biogas derived from cattle manure, chicken litter, vegetable
waste and municipal solid waste exist in South Asian countries. However, gen-
eration of electrical power at a smaller scale in off-grid locations is still relatively
new in these countries. The few biogas-to-power plants that have been installed
in off-grid regions during the past few years were driven primarily by the support
of international agencies and by private enterprises seeking an alternative source
of reliable electric power.
Current research activities aim at creating cheaper and more rugged designs of
digesters for difficult terrains, investigating the use of weeds, algae and other
wastes in the digester, development of microorganisms capable of digesting
non-cellulose portions of biomass, seeking a better control and breeding of
microorganisms, incorporating solar–powered heating for cooler climates and
water saving mechanisms for arid regions, designing of more efficient biogas
engines and turbines, creating easier techniques for gas storage and developing
newer technologies for upgrading biogas to methane.

3.3.4 Solar Photovoltaics

Solar energy is the most abundant and inexhaustible of all the renewable energy
resources. The average solar radiation incident over the South Asian countries
varies from 4 to 7 kWh/day/m2. With most of these countries having about 300
sunny days in a year (Raman et al. 2012), it is but natural for them to explore the
possibilities of harnessing the energy of the sun.
Solar Photovoltaic (SPV) devices convert sun light directly into electricity.
High reliability and a lifetime of about 25 years for the solar panels are the most
attractive features of SPV for its use in off-grid applications. Due to its high degree
of modularity and scalability, SPV technology can be used in a wide range of
applications—from small solar lanterns up to kilo-watt sized mini-grids. Its
emission-free and silent operation makes it appealing for household applications.
Absence of moving parts and its use of sun as a free fuel makes it virtually free to
use during its entire lifetime, except for periodic replacement of battery. Even at
the existing price levels, SPV can be a cost-effective solution for many remote
locations that depend on kerosene lamps and diesel generators for lighting and
power back-up.
3 Technology Choices for Off-Grid Electrification 57

3.3.4.1 Overview of the Technology

PV technologies are broadly classified into crystalline silicon, thin Film, con-
centrating PV and emerging PV technologies. An SPV system usually consists of
the following components:
• PV modules (which convert sunlight into electricity)
• Battery
• Charge controller
• Inverter
• Mounting structure
• Interconnections and other devices
Several options of SPV technology are available for off-grid electrification:
(1) Solar home systems (SHS),
(2) Solar battery-charging stations, and
(3) PV mini/micro grids

3.3.4.2 Solar Home Systems

These are systems that are designed to meet the power requirements of a small
household. A solar home system consists of a PV module, a charge regulator,
deep-cycle battery and optionally an inverter (when connecting to AC loads) (see
Fig. 3.4). The charge controller which is a fundamental part of the SHS controls
the energy inflow and outflow into and from the battery bank. SHSs are usually
owned by the user; hence the user is responsible for all repairs, replacements and
maintenance requirement throughout the useful life of the system (Chaurey and
Kandpal 2010). The schematic of a typical solar home system is given in Fig. 3.5.
Economics
The capital cost of a SHS varies based on type of system opted. The capital cost
is directly related to the number of bulbs in the system. Table 3.5 gives typical
capital costs SHS.
Benefits
SHS is a DC system that generates, stores and uses DC electricity usually at the
same voltage levels throughout the cycle, thus it has higher system efficiency than PV
mini-grid. Energy consumption and load management is within the control of user.
There is no risk of fire, smoke or smell as compared to the traditional energy sources.
Current status
Several hundred thousand SHS are in operation in Africa, Asia and Latin
America. It is estimated that 200,000 SHS are sold annually. A steady growth is
expected over next few years (Goetzbergerand Hoffmann 2005). In India, Sri
Lanka and Bangladesh nearly 600,000, 125,000 and 750,000 SHSs had been sold
as of 2010 respectively (REN21 Renewables 2011).
58 V. V. N. Kishore et al.

Fig. 3.4 Models of biogas digesters

Fig. 3.5 Schematic of a simple solar home system

3.3.4.3 Solar Battery-Charging Station

A large solar battery charging station (SCS) is typically set up at a central place in
a village/hamlet. This station has battery bank charged from an array PV modules.
A DC-DC converter is used to charge batteries of individual solar lanterns. Solar
3 Technology Choices for Off-Grid Electrification 59

Table 3.5 Typical capital cost of SHS


Size of the system Capital cost
(US $)
10 Wp module, two led lamps (2 W, 1 W) 100
12 Wp module, two led lamps (2 W, 1 W) 112
20 Wp module, two led lamps (3 W, 2 W) 187

Fig. 3.6 A typical solar charging station system

Table 3.6 Typical cost of solar charging station


Size of the system Capital cost (US $)
SCS for 50 households 2,222
Lanterns with a 2.5 W LED and 6 V battery
SCS for 80 households 2,888
Lanterns with a 2.5 W LED and 6 V battery

lanterns, due to their portability and versatility are a potential option for replacing
kerosene lamps for domestic lighting applications. A solar lantern is a portable
lighting device using either a CFL or LED based luminaire, housed in an enclosure
made of plastic or metal that contains a re-chargeable battery and necessary
electronics. The schematic of a typical SCS is shown in Fig. 3.6.
Economics
The typical cost of a SCS depends on its capacity (numbers of households) and
the lantern specifications. Table 3.6 shows typical costs of SCS including the cost
of lanterns.
Benefitss
Solar lanterns are similar to kerosene lanterns, its easily accepted by rural
community. Easy to use, charging the lantern battery by paying fees is similar to
60 V. V. N. Kishore et al.

Fig. 3.7 Schematic of a PV mini grid

Table 3.7 Percentage break- PV panels 53 %


up of capital cost (Raman
Battery bank 11 %
et al. 2012)
Power distribution network 16 %
Power conditioning unit 20 %

buying kerosene. Users are not responsible for safety of PV modules. The con-
sumer could either buy a lantern or pay fees of only charging or he can rent a
charged lantern for a particular duration. The modular design of the SCS offers the
advantage of need based capacity expansion of the charging station

3.3.4.4 PV Mini/Micro Grid

Off-grid PV power plants are typically in the range of 1–500 kWp, and with
independent power distribution network (PDN). They usually supply 220 V 50 Hz
three-phase or single phase AC electricity through low-tension PDN to households
for domestic power, commercial activities (e.g. shops, video centres, computer
aided communication kiosks, small grinders), and community requirements such
as drinking water supply, street lighting and vaccine refrigeration (Chaurey and
Kandpal 2010). A PV mini/micro grid essentially has:
(1) Centralized electricity generating capacity mainly consisting of PV array,
(2) A battery bank to store the electricity,
(3) Power conditioning unit (PCU) consisting of junction boxes, charge control-
lers, inverters, distribution boards and necessary wiring/cabling, etc., all
located within an appropriately constructed building and
(4) Power distribution network (PDN) consisting of poles, conductors, insulators,
wiring/cabling; service lines, internal wiring and appliances to individual
households.
Figure 3.7 shows a schematic of a PV mini grid.
Economics
The capital cost of PV mini grid system can be broken down to cost of each
component. Percentage break-up of capital cost is shown in Table 3.7.
3 Technology Choices for Off-Grid Electrification 61

The cost of the power distribution network varies depending upon topology. The
typical cost of low-voltage distribution line is about $3000 per km for the plains and it
increases by 10–25 % for remote, hilly regions. Thus by only considering the fixed
cost of the solar PV micro grid system (without including the distribution cost) the
solar PV array alone accounts for 63 % of total cost, battery bank 13 %, and power
conditioning unit 24 %. But the cost of the solar PV panels has declined significantly
from $3.5/Wp in 2009 to $2/Wp in 2011; this has given a much needed boost for the
adoption of SPV technology for off-grid electrification (Raman et al. 2012).
Current status
The most common technology used for off-grid electrification in South Asia is
solar PV mini grids. The mini-grids are typically in the range of 2–150 kWp and
provide AC electricity.
Benefits
Possibility with grid interconnectivity in future is bright. It uses AC appliances,
which are easily available in the market. Better monitoring of energy consumption
is possible due to fixed hours of operation of the power plant at the generation
level and use of individual meters. Plant requires less maintenance.

3.3.4.5 Issues and Barriers for SPV

High investment cost of the solar panels and batteries is the most important barrier
for commercial dissemination of this technology. The high cost of energy relative
to the limited purchasing power of the rural households makes the electricity
prohibitively expensive. With most rural households being able to pay only $2–$3
per month for the electricity (Cust et al. 2007), it may not be financially viable to
run a mini-grid on solar PV alone.
Difficulty in access to finance is another major hurdle that is preventing solar PV
technology from large scale adoption. Most of the current off-grid PV installations in
South Asia are from donor-assisted programmes. Many banks and financing insti-
tutions still perceive solar PV as an unproven technology and as a risky investment.
This is exacerbated by the fact that financial institutions have difficulty finding well-
informed advice about PV system financing. Limited availability of low wattage DC
appliances is another factor that is currently restricting the technology to primarily
lighting loads such as CFL and LED lamps. Replacement of battery-bank every 3–
5 years can be an expensive affair if not planned for at the initial stages itself. Also,
access to quality spares and trained technicians to undertake repair/replacement of
equipment can be very difficult in remote regions.

3.3.5 Small Wind Turbines

Small wind turbines (SWT) are wind turbines which are smaller in size, simpler
in construction and have lower energy output [typically up to 100 kW
(Renewable UK 2011)] as compared to the large commercial wind turbines found
62 V. V. N. Kishore et al.

in wind farms. The two most common designs of SWTs are the horizontal axis
wind turbines (HAWTs) and the vertical axis wind turbines (VAWTs). Most
SWTs manufactured today are HAWTs with two or three blades and facing the
wind. They generally have aero-elastic blades, lifetime bearings and direct drive
generators. A vane helps it to point into the wind. Their simpler construction,
rugged design and gear-less direct-drive mechanism ensures a higher efficiency, a
longer life time and lesser maintenance expenses.
Unlike the larger wind turbines, installation of SWTs requires neither extensive
infrastructure, nor special equipment for carrying the equipment. SWTs therefore have
a great potential to provide electric power, especially in remote and hilly locations.
However, due to the intermittent nature of the wind resource, SWTs are usually used in
combination with other technologies such as Solar PV, diesel generators and energy
storage systems. Common off-grid applications of SWT are for small homes, farms,
institutions, communication systems, irrigation pumps and village mini grids.

3.3.5.1 Wind Resources

The energy produced by a SWT over a year depends critically on the average wind
speed at the site. The wind resource at a site is usually measured by installing
meteorological towers equipped with anemometers and wind vanes that measure
the wind’s speed and direction respectively. Where onsite measurement is not
viable due to technical or economic reasons, secondary data is used from nearby
reference stations such as airports, nearby meteorological towers or even from
satellite measurements. While typical wind resource maps evaluate wind condi-
tions typically at 50 m height and above, setting up an SWT usually requires data
at lesser than 30 metres height. This requires the data to be extrapolated to lower
hub heights. Installations that are in a semi-urban or built environment would
further require analytical tools to accurately assess the wind resource. With no
such tools currently being available or affordable, for small wind developers, most
SWTs are currently installed in built-up environments based on approximate
estimates of resource and power production.
The theoretical power generated by a small wind turbine (assuming negli-
gible mechanical and electrical losses) is given by the equation below
(Smallwindtips 2010).

P ¼ Cp  1=2  q  A  V3 ð3:7Þ

where,
P Power generated (in Watts)
Cp Power co-efficient of turbine, ranging from 0.25 to 0.45, (theoretical maxi
mum = 0.59)
Q Air Density (about 1.225 kg/m3 at sea level)
A Swept Area of Blades (pr2) (in m2)
V Velocity of the wind (in m/s)
3 Technology Choices for Off-Grid Electrification 63

The power curve of a wind turbine gives the relationship of power generated
and the wind speed. Most SWT manufacturers rate their turbines by the amount of
power (rated power) that they can produce at a particular wind speed (rated wind
speed). With no specific standard speed to define the power rating, there exists a
possibility that the wind speed for which the SWT is rated would never be seen at
the actual site of installation. Applying a combination of Cp, the swept area of
turbine and the average wind velocity at a site can give us a more realistic estimate
of the expected power output at a site.

3.3.5.2 Technology Overview

Three main technological solutions are available using SWTs (EWEA 2009):
• Wind home systems
• Wind-PV hybrid systems
• Wind-diesel hybrid systems
Wind home systems (WHS)
The WHS, similar to a Solar Home System, is designed to handle the power
requirements of a household for lighting, TV, mobile charging and small house-
hold appliances. A larger sized WHS can also be used for community lantern/
battery charging.
A typical WHS consists of a turbine mounted on the rooftop or on a tower, a charge
controller, deep-cycle batteries and optionally a power conditioning unit (when
connecting to AC loads). Turbines are usually of diameter less than 15 m and a rated
power output of less than 7 kW. WHS are ideal for dwellings, schools, hospitals,
telecom towers, water-pumps, etc. in remote sites with wind speeds above 4–5 m/s.
Unlike SHS that are very widely available, WHS are still not popular in South Asia,
with very few wind turbine manufacturers catering to this market.
Wind-PV hybrid systems
Most South Asian countries have a unique seasonal variation due to the mon-
soons. When the solar resource is low during the monsoon season, the wind speed
is high and vice versa. This creates an ideal situation for a SWT and solar hybrid.
A diesel generator may also be used an additional back-up source. Wind-PV
hybrids [see Fig. 3.8], typically less than 50 kW (EWEA 2009), can be used to
handle the power requirements for farms, institutions, irrigation pump-sets,
industrial applications, small commercial buildings, village electrification, etc.
Wind diesel hybrid
When the power requirement is larger (up to 100 kW) and when quality power
cannot be delivered by the intermittent sources alone, a wind-diesel hybrid is used.
The diesel generator handles most of the power requirement, with SWT being used
to fill in whenever adequate wind is available. Batteries, if any, are used only to
power supervisory controls and not for substantial storage. Wind diesel hybrid is a
suitable solution for mini-grids in remote locations with adequate wind resource.
64 V. V. N. Kishore et al.

Fig. 3.8 Schematic of wind-PV hybrid

3.3.5.3 Economics

The price of small wind turbines depends on its size, its design and whether it is
operated in stand-alone or hybrid mode. The cost of a SWT installation includes
the price of the complete system (wind turbine, tower, battery storage, power
conditioning unit and wiring), in addition to labour charges for installation and
permit charges in several countries. Other likely additional costs include those
arising from resource assessment and feasibility studies. The typical cost for
buying and installing a SWT ranges from about $2,500 to $6,000 per kW (AWEA
2009). In spite of the higher investment cost, their relatively lower operational
costs make the SWTs cost-competitive to conventional power in many off-grid or
remote areas having a sufficient wind resource.
Though SWTs are designed for uninterrupted operation, they still require
occasional cleaning and lubrication. In addition to the batteries, the turbine, guy
wires, nuts and bolts, etc. require periodic inspection. The maintenance costs are
primarily dependent on the availability of local spares and service. The amount of
energy generated and hence the cost of energy is critically dependent on the
average annual wind speed and the capacity factor (dependent on the frequency of
wind) at the site of installation. The typical cost of energy for an off-grid SWT
installation ranges from $0.19 to $0.34 per kWh (ESMAP 2007).

3.3.5.4 Benefits

SWTs are completely non-polluting and have no adverse environmental impact


throughout its life time. They help remote off-grid and remote communities
generate their own power and make them less susceptible to power interruptions
from the grid. With proper site selection and sizing, SWTs can recover the initial
investment within the first few years and produce virtually free electricity for up to
20 years with minimal servicing needs. Wind and solar resources complement
each other and setting up a hybrid installation significantly increases the capacity
factor for power generation. Unlike larger sized wind turbines, SWTs do not have
3 Technology Choices for Off-Grid Electrification 65

land acquisition issues and do not require large infrastructure support to transport
equipment. The SWT industry provides local employment for sales, installation
and maintenance in the remote regions. Scope also exists for local manufacture or
indigenization of the technology.

3.3.5.5 Limitations and Barriers

Due to their low state of maturity and commercialization, current designs of SWT
are relatively less efficient, more expensive to manufacture and produce lesser
energy per kW when compared to their larger counterparts. With paucity of actual
working installations, most customers are not aware of the technology and its
benefits. Manufacturers of SWTs have limited resources to promote the technology.
Hence SWTs may remain out of reach for most rural customers in South Asia
without sustained government policies and funding. Also, in the absence of tech-
nology and policy for net metering, there will be little incentive for private players
and co-operatives to adopt the technology for commercial gains.
Currently most manufacturers have their own performance rating criteria. This
leads to concerns over the performance of the equipment at actual site. In the
absence of testing to local or standard conditions, turbine components are prone to
reliability concerns. Problems of noise and vibration observed in many small
turbines can act as a major deterrent for rooftop installations and can be a major
cause of customer dissatisfaction.

3.3.5.6 Current Status of the Technology

Small wind turbine technology is still in a nascent stage across the world in spite of
the maturity attained on the development of the large and medium-sized wind
technology for wind farms. While opportunities for off-grid energy access are
making SWTs attractive to the developing world, feasibility to sell electricity to
the grid through policies such as feed-in tariffs and net-metering is driving the
sales in the developed world (AWEA 2011).
The US is the main market for SWTs in the world both in terms of consumption
and production, with more than 100,000 small wind turbines in operation (EWEA
2009). As per a 2009 estimate by the American Wind Energy Association, there
are approximately 250 companies manufacturing SWTs world-wide. Of these, 95
are based in the US. After the U.S., the U.K. and Canada are the largest markets
for SWTs.
The South Asian market, though believed to be large, is yet to gain momentum.
Realizing this huge untapped market, particularly in the off-grid segment, the
small wind turbine manufacturers in the region are slowly organizing themselves
to play a major role in the years to come (Windpowerindia 2010).
Globally, IEC standards exist for the safety requirements of SWTs (IEC61400-2)
and other applicable IEC standards such as those for power performance or noise
66 V. V. N. Kishore et al.

emissions measurements are borrowed from large wind technology. However,


testing and certification of SWTs is not yet mandatory in most countries in South
Asia and no national or regional standards exist.
Key challenges for the fledgling SWT industry in South Asia include better and
affordable resource assessment, development of common industry standards, cost
reduction with large scale commercialization and creating increased customer
awareness with adequate government support.

3.3.6 Biodiesel

Biodiesel is a natural, renewable fuel appropriate in any situation where petro-


diesel is used. Biodiesel is can be used in ordinary diesel engines. It is a clear
amber-yellow liquid with a viscosity similar to petro-diesel. Biodiesel can be used
alone, or blended with petro-diesel. Biodiesel can be produced from feed stocks
such as: plant oils, waste oils, using either pressure extraction or transesterification
with alcohol. Biodiesel unlike petro-diesel is biodegradable and non-toxic, and it
significantly reduces toxic and other emissions when burned as fuel.

3.3.6.1 Resources Availability

The most common feed stocks for biodiesel are rapeseed, sunflower, soybean, palm
oil, animal fats and used frying oil. In South-Asia, due to paucity of edible oils, only
non-food feed stocks are being recommended (Verma and Sharda 2005). India has
rich and abundant forest resources with a wide range of plants and oilseeds. Non
edible oils such as rice bran, sal, neem, mahua, karanj, jatropha, etc. are easily
available in many parts of the world including South-Asia (Satish 2006). Non-edible
oil sources of India, their potential and current utilization is shown in Table 3.8.

3.3.6.2 Overview of Technology

Biodiesel is generally produced by transesterification process. Oil is reacted with


alcohol in presence of a catalyst to produce biodiesel and glycerol. The alcohols of
choice for making biodiesel are methanol or ethanol. The catalysts of choice are
sodium hydroxide, also known as lye in US, and potassium hydroxide. These are
available in market for purchase, or can be produced locally with ease. A cursory
look at the literature relating to biodiesel reveals the following simplified rela-
tionship for the prediction of biodiesel made from fats and oils.
100 kg of oil þ 10 kg of methanol ! 100 kg of biodiesel þ 10 kg of glycerol
ð3:8Þ
3 Technology Choices for Off-Grid Electrification 67

Table 3.8 Non-edible oil sources of India


Oil Botanical name Potential (tons/year) Utilized (tons/year) % utilization
Rice bran Oryza sativa 474,000 101,000 21
Sal Shorea robusta 720,000 23,000 3
Neem Melia azadirachta 400,000 20,000 6
Karanj Pongamia glabra 135,000 8,000 6
Source Satish 2006

Fig. 3.9 Basic technology for production of biodiesel

The basic technology is shown in Fig. 3.9.


Step by step biodiesel production process:
(1) Boil vegetable/animal oil, leave it to precipitate
(2) Take alcohol 25 % of boiled oil
(3) Add lye, weighing 1 % of oil, add it to alcohol
(4) Mix warmed oil and stir
(5) Transesterification reaction takes place
(6) Leave the batch and let glycerine separate
(7) Clean biodiesel to reduce amount of alcohol
(8) Biodiesel percolation using 5 micron filter
68 V. V. N. Kishore et al.

3.3.6.3 Rural Electrification Using Bio-Diesel

Many non-edible oil-seeds grow in forests, wasteland, and can be cultivated in un-
used land in the village premises. These non-edible oil-seeds can be used to
produce biodiesel by the simple process explained above. Biodiesel production
does not require economy of scale. There is no minimum size for a biodiesel
facility. Small decentralized biodiesel facilities do not require dedicated technical
staff support; they can be operated by locally trained non-technical staff. Thus
biodiesel is a renewable way of meeting rural energy demands. Biodiesel can be
produced in a required quantity and used to run a diesel generator set. The gen-
erated electricity could be stored in a battery bank, and used to charge lantern or
could supply power through a DC mini grid. Although it is recommended that
biodiesel must not be used for sole purpose of electrification, it must be used for
other applications like pumping drinking water, etc.

3.3.6.4 Economics

The rapeseed oil derived biodiesel, in 1992 cost 186 % of the price of conventional
diesel. An evaluations of cost from US soybean and sunflower in 2005 concluded
that biodiesel cost were 2.8 fold those of conventional diesel. The production cost
depends on production route. When we talk about biodiesel for rural electrifica-
tion, the simplest way of producing biodiesel must be followed. Sale of glycerol
would reduce cost of production by approximately 6 % (David 2010). Sale of
glycerol covers not only cost of alcohol and catalyst, but labour and the energy
input as well. Small decentralized biodiesel plants of capacity 45–1,800 tons/year
would cost around US $1,000–$40,000 respectively (Satish 2006).

3.3.6.5 Benefits

Biodiesel is non-toxic. It provides domestic renewable energy supply. Biodiesel fuel


burns up to 70 % cleaner with 93 % lower total HC, 50 % lower CO and 45 % lower
particulate matter in comparison with conventional diesel fuel. Biodiesel could be
produced and used as and when needed, the energy can be stored in form of liquid fuels
(advantage over other renewable energy technologies). Utilization of by-products of
transesterification such as glycerol and oil cakes would bring extra revenue.

3.3.6.6 Limitations and Barriers

NOx emissions are generally higher (0–10 %) but can be reduced by additive like
butyl peroxide (DTBP) or by retarding the injection timing. Biodiesel can’t be
directly used in engines having components made of nitrile rubber, as biodiesel
dissolves it. Thus, engines need retrofitting, replacing nitrile rubber by
3 Technology Choices for Off-Grid Electrification 69

Table 3.9 Relative strengths and weakness of technologies


Technology Capital cost Operational Technology Resource Social and
cost maturity availability environmental
benefits
Micro hydro Very high Very low High Medium Medium
Biomass Low Very high Very low High High
gasification
Biomethanation High Low Low Very high Very high
Solar PV Very high Medium Very high Medium Medium
Small wind Very high Medium Low Medium Medium
Biodiesel Medium High Very low Low Medium

fluorocarbon rubber. Engine performance is less than that of diesel by 8–15 %,


because of low energy content. Concerns have been raised in the past regarding the
impact of biofuel production on the prices of agricultural commodities. Land and
water constraint: One of the main barriers for biodiesel is that rural people have
limited land and water which they use for agriculture of edible substance.

3.3.6.7 Current Status of the Technology

Rapeseed oil methyl ester was the first type of biodiesel fuel produced commercially in
1988. Tremendous progress has been made in the past two decades. Actual production
in the world rose from about 10,000 tons in 1991 to about 2,800,000 tons in 2003
(Verma and Sharda 2005). In 2010, the annual production of bio-diesel was at 19
billion litres (REN21 Renewables 2011). In principle there are two approaches that can
be taken to secure the wide use of biodiesel in the national fuel market: whereas
German law prefers a biodiesel to be used in the pure form, in France biodiesel blended
with fossil fuels carries the tax advantages (Planning and installing bioenergy systems
2005). At present, USA uses 50 million gallons and European countries use 350 million
gallons of bio-diesel annually. France is the country which uses 50 % of bio-diesel
mixed with diesel fuel (Murugasen et al. 2009). Biodiesel based rural electrification has
been attempted in various places in South Asia and Africa. Successful example can be
seen in West Africa, Odisha in India and elsewhere.
Each of the RETs discussed above vary immensely in terms of the resources
required, their initial and operational costs, their levels of technical maturity and
their perceived social and environmental benefits. Table 3.9 lists some of the
relative strengths and weakness of the technologies discussed.

3.4 Technology Selection

Renewable Energy Technologies (RETs) are well suited to providing sustainable


solutions to a whole range of poor people’s energy needs (GNESD 2007). Their
potential to provide electricity to the under-served for income generation and
70 V. V. N. Kishore et al.

poverty alleviation has now been widely acknowledged. It is therefore imperative


that the decision makers in developing countries invest judiciously by adopting the
right RETs that target the most energy-poor while also ensuring the long-term
sustainability of these technologies. The technologies chosen should be appro-
priate to the local setting and need to solve the problems of the developing
countries. They should to be more affordable, reliable, environmentally friendly
and cost-effective than fossil fuel systems alone. Further, local manufacture allows
for designs appropriate to the local context, lowering the capital cost of equipment
and leading to faster and cheaper repairs. Finally, with agriculture being the engine
for economic growth in South Asia, these technologies should be able to drive a
greater agricultural productivity by providing energy for better production, stor-
age, processing and commercialization of crops.
Choosing the best technology solutions for off-grid electrification is a complex
problem that needs considerable deliberation. The decision needs to factor in
several criteria from the environmental, social, economic, resource, technical,
operational and regulatory dimensions. The decision problem gets further com-
plicated if the perspectives—sometimes conflicting—of various stakeholders were
to be considered. However, inclusion of key stakeholders such as project devel-
opers, technology experts, private sponsors and policy makers in government
bodies in the decision process is essential to ensure that the decision is rational and
fair. Involvement of the local community in the decision process is another key
requirement for the success of most decentralized electrification schemes. A visual
depiction of the decision problem along with an example of application of two
multi-criteria decision aids—PROMETHEE and GAIA is presented in Fig. 3.10.
In this example, the global visual analysis diagram gives a multidimensional
depiction of the different RETs (as dots) and criteria (as axes) on a two-dimen-
sional GAIA plane. The longer an axis is in the GAIA plane, the more priority it
has. A RET lying in the direction of an axis indicates its better performance for
that criterion. Axes in the same direction indicate correlation between the corre-
sponding criteria and axes in opposite directions indicate conflicting criteria. The
‘pi’ axis represents the direction of the best compromise solution. The further a
RET’s projection goes on the ‘pi’ axis, the better it is. Employing such a multi-
stakeholder, multi-criteria approach ensures that the decision process is fair and
transparent. And a visual depiction of the decision problem creates a better
understanding of the inter-dimensional and inter-stakeholder synergies and con-
flicts, thereby ensuring debate and consensus building among the stakeholders.

3.5 Conclusions

Despite the abundance of renewable energy resources in South Asia, a significant


portion of the population does not have access to modern energy services. The
renewable energy solutions discussed show promising potential to address this
problem. However, no single technology is capable of either harnessing the diverse
3 Technology Choices for Off-Grid Electrification 71

Fig. 3.10 Visual representation of RET selection problem using MCDA

energy resources available or addressing the varied nature of the energy services
required. Therefore, a faster development and wider deployment ofthe full range of
technologies is essential for universal energy access to be achieved.
Each of the technologies is in a different stage of evolution and requires different
stimuli for its development. Research for further reduction in the capital cost and
development of innovative financing or pricing mechanisms could make the costlier
technologies such as Micro hydro and Solar PV more attractive even in the devel-
oping countries. The less mature technologies, on the other hand, require an exten-
sive focus on applied research and a localized innovation strategy to promote their
accelerated diffusion. In the interim, new hybrid solutions and smart mini-grids can
be adopted to effectively utilize the core strengths of each of the RETs in addition to
maintaining diversity in supply options for decentralized electrification.

References

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hydropower in developing countries: Final synthesis report (Contract R7215). The
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Part II
Review of Electrification Experiences with
Emphasis on Off-grid Access Systems

This part reviews the global rural electrification experience by focusing on South
Asia, China, Sub-Saharan Africa, and the rest of the world. The developments in
terms of off-grid electricity access are also highlighted. This part contains four
chapters. Chapter 4 presents the South Asian case, Chapter 5 focuses on China,
Chapter 6 deals with Sub-Saharan Africa and finally Chapter 7 covers South East
Asia and the Latin American experience. Each chapter considers the status,
technology choices, organisational and governance aspects as well as initiatives
for off-grid access. Each chapter also highlights the lessons for others or lessons
that can be learnt from others.
Chapter 4
Off-Grid Rural Electrification
Experiences from South Asia

Debajit Palit and Akanksha Chaurey

Abstract South Asia accounts for around 31 % of the global population without
access to electricity. While there is no denying the fact that the electrification rate is
increasing, such a situation continues to exist despite several initiatives and policies
to support electrification efforts by the respective country governments. The chal-
lenges to enhance electricity access are manifold including technical, financial,
institutional and governance barriers. Based on an extensive literature review, this
chapter attempts to highlight the rural electrification situation at the regional and
country level in South Asia. It also performs a comparative analysis to exploit cross
learning potential and suggest specific boosters that could serve as input for policy
and technology review and assist future electrification efforts in the region. Here we
have focused on renewable energy based mini-grids and stand-alone systems and
also covered conventional grid extension. We also raise some pertinent issues and
attempt to find their solutions. The household connection needs to be improved
considerably through a targeted approach and innovative micro-lending model.
At the same time the electricity supply also needs to be enhanced, such as through
distributed power projects utilizing locally available renewable resources, to ensure
that electricity supply to connected households in sustainable and supply constraints
do not inhibit extending electrification to virgin areas or intensification of existing
villages. Developing a regulatory mechanism to extend the tariff fixation for

D. Palit (&)  A. Chaurey


The Energy and Resources Institute, IHC Complex, Lodhi Road,
New Delhi 110003, India
e-mail: debajitp@teri.res.in
A. Chaurey
e-mail: akanksha.chaurey@itpsenergy.com
Present Address:
A. Chaurey
ITP Senergy Advisory Services, DLF Cyber City, Gurgaon 122002, India

S. Bhattacharyya (ed.), Rural Electrification Through Decentralised 75


Off-grid Systems in Developing Countries, Green Energy and Technology,
DOI: 10.1007/978-1-4471-4673-5_4,  Springer-Verlag London 2013
76 D. Palit and A. Chaurey

mini-grid projects and providing cross-subsidies to ensure long term sustainability


of such projects is also highlighted. Finally, economic linkages, access to credit and
institutional arrangements also need to be organised appropriately, especially for
off-grid rural electrification to facilitate successful outcomes.

4.1 Introduction

Despite growing investment in rural electrification across South Asia from gov-
ernments, NGOs, and private investors, 493 million people in the region continue
to remain without electricity. The importance of electrification, especially for rural
areas, in bringing about both human and economic development has been well
documented (DFID 2002; GNESD 2007; NRECA 2002). A number of studies also
demonstrate how rural electrification provides direct and indirect social and eco-
nomic benefits for communities, ranging from poverty eradication to education
(ESMAP 2002; Gunaratne 2002; Yang and Yu 2004). Some evidence even sug-
gests that provision of infrastructure in a complementary fashion provides not just
additional, but exponential benefits, due to the available synergies (Cecelski 2000).
The benefits of rural grid electrification, are similarly realized in off-grid situations
also, even though the amounts of power made available by decentralized systems
are relatively smaller and the services provided more basic (World Bank 2008).
While there is available literature (Khan 2003; Shrestha et al. 2004; Dubash and
Bradley 2005; Bhattacharyya 2006; TERI 2009a; Krishnaswamy 2010; Mainali
and Silveira 2011) analysing the rural electrification (RE) at the individual country
level, no recent comparative analyses exist1 at the South Asian regional level for
cross learning by the countries and others. This chapter seeks to provide a review
of available literature on the status of rural electrification in South Asia,2 and to
identify best practices in off-grid supply that could be useful to expanding elec-
trification in South Asian region and in other developing countries. Based on the
review, we attempt a comparative analysis to exploit the cross learning potential,
both at the country and region level, and suggest specific boosters that could serve
as inputs for policy and technology review and assist future electrification efforts
for improving the access. Emphasis is given to those countries in South Asia where
a significant improvement in the access to electricity has been achieved. The
categories studied include technology, delivery models, policy and regulatory
architecture, local participation and financing. As data availability on off-grid
electrification is often limited, the review is selective.

1
Our paper Palit and Chaurey (2011) is an exception and this chapter refers to this work
extensively.
2
South AsiaRegion consists of eight countries: Afghanistan, Bangladesh, Bhutan, India, Maldives,
Nepal, Pakistan and Sri Lanka.
4 Off-Grid Rural Electrification Experiences 77

4.2 Status of Rural Electrification in South Asia

World-wide, although the rate of rural electrification has increased and has made
significant gains in terms of percentage of access to electricity, there seems to be
no significant decrease in the absolute number of people without electricity. This
could be due to the fact that rural population has expanded at roughly the same
pace as electrification in many countries. Another reason could be because of
de-electrification3 of villages, typical of South Asian countries, due to poor or no
supply of electricity to such areas, although officially such villages remain elec-
trified. The current penetration of electricity in the rural areas of the region is about
59.9 %, leaving two out of every five people in the rural areas without access to
electricity (IEA 2011). While the figure serves as a common denominator to the
problem, there exists wide disparity in rural electrification in South Asia. Sri Lanka
has a rural electrification rate higher than the global average while only 15.5 % of
the rural population in Afghanistan is connected to the grid. India, Pakistan and
Bangladesh alone constitute more than 90 % of the population that lack access to
electricity in the region while the remaining 10 % is dispersed in the other smaller
countries (see Table 4.1).
Of the total population without electricity access in the region, many reside in
isolated communities, such as islands, forests fringes and hilly settlements. These
communities are generally small, consisting of low-income households—with
characteristics that may be economically unattractive to electricity distribution
companies or even government electrification program that usually prioritizes the
allocation of the scarce resources. A substantial section of the un-served con-
sumers are also found in mainstream rural and peri-urban areas, already connected
to the grid, where the issue seems to be less of opportunity to get connected to grid,
but more of inability of households to take electricity connection due to their
financial constraints or the perception that electricity services (quantity and
quality) will be inadequate. For example, official figures indicate that India and
Bangladesh has almost 94 and 57 % of the villages covered through grid while it is
observed that rural household connection levels are at 53 and 28 % respectively.4
Despite the differences in South Asian countries’ efforts to electrify rural areas,
including significant natural resource disparities, many similarities also exist in
regional efforts. Shared regional population characteristics are one major contrib-
utor to similarities in these rural electrification efforts. South Asian countries are

3
De-electrified village means a village which has been electrified earlier, however, it has
become un-electrified at present as the distribution infrastructure has not been in working
condition for a long time. However, in official records it continues to be shown as electrified. The
de-electrified village category was accepted by the Government of India during the launch of
Rajiv Gandhi Grameen Vidyutikaran Yojana and included for repeat electrification of such
villages.
4
Village electrification here is considered as percentage of villages where electricity grid or
mini-grid exists. Household electrification on the other hand is defined as percentage households
who have actually taken electricity connection.
78 D. Palit and A. Chaurey

Table 4.1 Electricity access in 2009—South AsiaSouth Asia


Country Population without Electrification rate (%) Per capita
electricity (millions) consumption (kWh)*
Total Rural
Afghanistan 23.8 15.5 12.0 35
Bangladesh 95.7 41.0 28 144
India 288.8 75.0 52.5 543
Nepal 16.5 43.6 52.5 81
Pakistan 63.8 62.4 46.0 475
Sri Lanka 4.8 76.6 75 418
South Asia 493.4 68.5 51.2 NA
Source IEA (2011).\http://www.worldenergyoutlook.org/database_electricity/electricity_access_
database.htm[*IEA (2009)\http://www.iea.org/stats/indicators.asp[

characterized by high-density population with almost one-fifth of the world’s


population inhabiting only 4 % of the world land mass. 40 % of the total population
are reported to be below poverty line (\USD 2 earning per day), and large per-
centage of the population in almost all the countries of the region inhabit rural areas.

4.3 Review of Rural Electrification Experiences in Selected


Countries

4.3.1 India

With the largest rural population in the world, India continues to face a huge RE
challenge. Though the government has been making conscious efforts since the
beginning of planned economic development in the country in 1951 to make
substantial improvements to the electricity infrastructure in terms of availability
and accessibility, the household electrification level and power availability is still
far below the world average. Low household electrification level may reflect the
fact that historically the level of electrification has been measured as a percentage
of electrified villages with extension of the grid to any point within the revenue
boundary of a village, irrespective of whether any household is getting connected or
not. In fact, some researchers argue that electrification as a part of the green
revolution in agriculture was the main driver for RE (Bhattacharyya 2006;
Krisnaswamy 2010). However, the Government of India adopted a new definition
of village electrification5 in 2004 and many villages that were previously
considered electrified now fall by definition into the un-electrified category.

5
A village will be deemed to be electrified if: basic infrastructure such as distribution
transformer and distribution lines are provided in the inhabited locality as well as the hamlet
where it exists; Electricity is provided to public places like schools, panchayat office, health
4 Off-Grid Rural Electrification Experiences 79

Currently, only seven states have achieved 100 % village electrification, and
five of these states are smaller ones. Though officially Andhra Pradesh and Tamil
Nadu are considered to have achieved complete village electrification, reports
from the TERI field study indicate that there are many hamlets and forest fringe
villages in these states where any form of electricity, on-grid or off-grid, is yet to
reach (Palit and Chaurey 2011). Some of the larger states such as Assam, Bihar,
Jharkhand, Orissa, Rajasthan and Uttar Pradesh and the north-eastern region lag
behind in rural electricity access. Krishnaswamy (2010) argues that the main
reason for poor electrification in these states is poor governance. Some have also
noted that structural factors may explain disparities in the share of electrified
villages between regions and states (Chaurey et al. 2004; Kemmler 2007).
Bhattacharyya (2006) while comparing the variation in electricity consumption by
expenditure class in rural and urban areas shares that ‘‘(a) electricity consumption
per capita increases with higher level of income; (b) for similar level of income,
urban consumption is much higher than rural consumption and (c) low-income
groups appear to use electricity mostly for lighting whereas very high level of
electricity consumption in highest income groups of urban areas can only be
achieved through significant appliance use’’.
Over the years, a number of central government Programs (such as Kutir Jyoti,
Minimum Needs Program, and Accelerated RE Program in grid extension mode
and RVE (Remote Village Electrification) Program and VESP (Village Energy
Security Program) in off-grid mode) attempted to enhance electricity access either
as part of overall rural development or specifically targeting RE. However,
Bhattacharyya (2006) argues that multiplicity of programs made funding for each
of them inadequate and implementation was also not properly coordinated or
managed. Due to the financial burden that national programs have been imposing
on state governments, the state government operated electricity utilities often have
shown less interest in promoting these schemes actively and even the targets set by
the utilities have not been met.
However, during the last decade, rural electrification has come become a political
priority, driven by the realization of its neglect over the years, with the Government
of India creating the necessary enabling environment through the REST (Rural
Electricity Supply Technology) Mission in 2001, Electricity Act 2003,6 National

(Footnote 5 continued)
centers, dispensaries, community centers etc. and the number of households electrified should be
at least 10 % of the total number of households in the village.
6
The Electricity Act 2003 made the government (both state and central) obligated to supply
electricity to rural areas including villages and hamlets. Section 6 of the act mandates the hitherto
implied Universal Service Obligation by stating that the government shall endeavor to supply
electricity to all areas including villages and hamlets. Section 5 further mandates the formulation of
national policy on rural electrification focusing, especially, on management of local distribution
networks through local institutions. The EA2003 in Section 4 also frees stand-alone generation and
distribution networks from licensing requirements.
80 D. Palit and A. Chaurey

Electrification Policy 20057 and Rural Electrification Policy 2006.8 In 2001, the
government declared the objective of ‘power for all’ by 2012 under the REST
Mission and continued it with the launch of a large-scale electrification effort, the
Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) scheme in February 2005 to
create access to electricity for all households and provide connections to 32 million
BPL (below poverty line) households. To ensure revenue sustainability, RE
distribution franchises were also introduced, and made responsible for metering,
billing and revenue collection for particular territories. In some cases, input based
franchises (IBF) were also introduced who procure electricity in bulk from the
distribution utility and distribute the same in their operational areas. These policies
have improved the financial and institutional status of the state utilities and have
widened the governments’ scope of action in the sector.
However, the RGGVY may have achieved its targets of village electrification
and below poverty line (BPL) household electrification; the overall household
electrification level has not increased substantially. While 87 % of the targeted
villages had been energized and 86 % of the BPL households connected to the grid
(as of December 2011), studies indicate only about 20 % of the total un-electrified
rural households have taken connection (Palit and Chaurey 2011). This is also
because of the ambiguity in interpreting the term ‘‘electricity access’’. As part of
RGGVY, the government is extending the electricity grid with the understanding
that the necessary access has been created and now the onus of taking the
connection rests with individual households. Rejikumar (2005) argued that
the timescale applied to the electrification targets seems to be highly infeasible.
Researchers argue that a more realistic date by which to achieve the government’s
targets is 2019/2020 (Dubash and Bradley 2005; Purohit 2009).

4.3.2 Bangladesh

Bangladesh’s RE programme started in the late 1970s with the assistance of the
United States Agency for International Development and has since then been
growing in size. Under the programme, 75,000 villages were planned to be elec-
trified out of a total of 86,038 villages (at the time of start of the program) in the
country. However, currently the overall electrification rate in Bangladesh is 41 %
and more than 95 million people do not have access to electricity (IEA 2011). The
main mode of electrification has been the extension of the electricity grid through the

7
The National Electricity Policy 2005 inter-alia states that wherever grid based electrification is
not feasible, DDG (decentralized distributed generation) facilities (either conventional or non-
conventional methods of electricity generation whichever is more suitable and economical)
together with local distribution network would be provided so that every household gets access to
electricity.
8
The REP aims at providing minimum lifeline consumption of 1 kWh per household per day as
a merit good by year 2012.
4 Off-Grid Rural Electrification Experiences 81

rural electricity cooperatives called Palli Bidyut Samity (PBS). The role of PBS is to
construct rural electricity distribution backbone, manage and operate the facilities,
and distribute power, all under the supervision of Rural Electrification Board (REB).
The PBSs are connected to the grid and receive electricity in bulk from the
Bangladesh Power Development Board, which is then distributed to their con-
sumers. The tariff structure cross-subsidizes domestic and agricultural consumers by
levying rates on them below the cost of service and levying rates above the cost of
service on industrial and commercial consumers. Overall, the REB programme has
been successful having energized over 2,29,809 km of line, electrified 48,730
villages and connected 9.03 million households as on April 2012 (REB 2012).
Despite the country’s political, social, and economic instability, the REB model
can be considered successful to the extent that it created the distribution backbone
covering almost 65 % of the targeted rural area and has achieved a certain level of
results in terms of proper system design, low system loss, and high collection
efficiency. However, similar to Indian situation, households getting connected to
the network continue to remain low as compared to the total number of rural
households in the country. Further, poor households have much lower electrifi-
cation rate as compared to non-poor households (GNESD 2004). One of the
reasons for low level of electricity access by the poor could be high upfront cost of
getting connected to the electricity network. At the same time, the focus on strictly
enforced performance targets for PBS (such as revenue/km of line, collection
efficiency, cost of service, system loss to name a few) may also have impeded the
PBS to connect households in unviable areas. Shrestha et al. (2004) opine that
inadequate electricity generation capacity commensurate with the increased
demand due to expansion in the distribution network to cover new areas, lack of
adequate financial resources to support RE as well as slow national economic
growth could also have limited electricity access of rural households. Neverthe-
less, the Government of Bangladesh has targeted to provide access to all by the
year 2020 (GOB 2005). In addition to the PBS model, solar home systems (SHS)
are also being disseminated in the areas not covered by grid electrification and till
April 2012 have covered around 1.43 million consumers.

4.3.3 Nepal

The national electrification rate in Nepal presents a very uneven regional and
urban–rural distribution (REP 2008). In urban areas, where less than 20 % of the
population lives, the household electrification rate is more than 90 %. The RE rate
on the other hand is considerably low—being higher in the accessible lowland
regions (the terai) and lowest in the mountain communities. IEA statistics also
indicate that in terms of per capita electricity consumption, it is only 81 kWh, one
of the lowest in the world. However, the access to grid does not necessarily mean
that there is a reliable electricity supply to meet the needs of the people. The
82 D. Palit and A. Chaurey

electricity demand is more than the supply capacity and there are frequent
blackouts with annual energy deficit more than 20 % of the demand (NEA 2009).
Though the electrification rate is still low, the country has made significant
progress since the beginning of the last decade to extend electrification to the
remote areas. The electrification rate was 40 % in 2002 at the start of the 10th Five
Year Plan. Due to concerted efforts by the Government of Nepal, the overall
electrification rate increased to 55 % at the end of the Plan period (ESAP 2006).
Zahnd and Kimber (2009) observed that about 10 million people, out of Nepal’s
estimated 28.5 million (at the end of 2006), live in such remote locations where it
will be difficult to extend the national electricity grid for decades to come. The
Government recognized the fact early and formulated the hydro power policy 2001
(NDF 2004) which allows domestic private sector to generate and distribute
electricity by building micro-hydro power projects of up to 100 kW capacity. The
Water Resources Strategy 2002 also emphasized active participation of rural
communities and private entrepreneurs, and envisaged electrifying 60 and 80 % of
the nation’s households respectively by the end of years 2017 and 2027 respec-
tively (NDF 2004). A note-worthy feature of the RE situation in Nepal is that, at
one point of time, almost 30 % coverage in rural areas and 10 % of overall
electrification has been through the off-grid route (REP 2008).
Since 2003, Nepal also started experimenting with community involvement as
part of their Community RE Rules. This was done to bring in operational effi-
ciency in the distribution sector, which was witnessing high system losses and poor
revenue collection over the years. Consumer associations, typically in the form of
cooperatives, take the responsibility of managing, maintaining, and expanding the
rural distribution of electricity. Communities raise 20 % of the investment cost for
grid extension to their area and 80 % of the cost is borne by the Government of
Nepal through the Nepal Electricity Authority (NEA). The NEA sells power in
bulk to rural electricity cooperatives that distributes and collects revenue from the
villagers. Ghimire (2011) reports more than 230 cooperatives across Nepal have
entered into agreements with NEA. Ghimire also shares that currently 135,000
rural households have been electrified through community based RE and the
number will increase to about 230,000 households as pipeline projects are com-
pleted. The communities have till middle of 2011 contributed a total of US$6.89
million towards their share.

4.3.4 Sri Lanka

Sri Lanka stands out among the South Asian countries for its high rate of household
electrification. During the period 1986–2005, the national electrification rate
improved significantly from 10.9 to 76.7 % due to aggressive electrification efforts
(ADB 2007). Almost 90 % of the rural households are reportedly connected to
electricity grid while another 2 % are connected through off-grid option. Sri Lanka’s
high electrification rate compared to other South Asian countries reflects the strong
4 Off-Grid Rural Electrification Experiences 83

political will and an early move by the Government to create grid electricity
infrastructure through donor support as well as utilize the country’s significant
hydro resources for meeting the demand. Another significant feature is setting up of
annual targets for household connection rate as part of the Energy Policy 2006 and
the implementable road map for achieving the targets. Electricity has been con-
sidered a basic service similar to providing access to better road, education and
water by the government and large amount of fund has been allocated to extend the
grid and provide quality power in the rural areas. Further, the country being compact
with almost all areas being accessible and better economic condition of households
in Sri Lanka may also have contributed to better grid penetration and households’
decision to take electrical connection.
ADB has been mainly supporting the Sri Lankan Government to achieve its
electrification goals. Similar to other developing countries, connection prices were
a barrier to electrification of households. ADB designed and created a revolving
fund to support grid connections for poor households through micro-lending (ADB
2009). The power fund targeted poor households who are within range of a grid
but lack finance to take connection, costing US$130–US$170. Building on the
initial success of the scheme from 2004 to 2009, ADB approved a new credit
program, which aims to connect at least 75,000 households into the grid by 2016
to support the government’s goal to substantially raise rural electricity coverage
to more than 90 % through grid by 2016.
Despite the high electrification rate in the country, disparities in access to
electrification exist with the relatively economically backward districts and estate
plantation areas recording lesser electrification than the country average. ADB
(2007) observes that deterrents to access include eligibility criteria used to select
electrification projects, politicization of the decision making process and also poor
affordability of the potential consumers to pay the connection charges.

4.4 Off-grid RE in South Asia

4.4.1 Choice of Technology

The most common technologies used for off-grid electrification in the region are
solar photovoltaic (PV) and mini/micro hydro systems. Solar PV applications in
the region include both SHS as well as mini-grids. While a typical SHS includes a
20–100 Wp (peak watt) PV array, a rechargeable battery for energy storage, one or
more high efficiency lamps (either compact fluorescent or LED) and an outlet for a
portable black and white television or other very low power consuming appli-
ances,9 the mini-grids are typically in the range of 2–150 kWp and provide
AC electricity (Ulsrud et al. 2011; Shukla 2010).

9
Usually SHSwith less than 40 Wp is used for lighting purpose whereas SHS above 40 Wp can
be used for operating other electrical appliances such as TV, motor, fan etc.
84 D. Palit and A. Chaurey

Almost all the countries reviewed have used SHS as a means for extending
lighting to areas that could not be reached with grid electricity. An interesting
feature in Nepal is that smaller capacity SHS (locally called solar tuki) with capacity
between 2.5 and 10 Wp have also been widely disseminated. India, on the other
hand, has also implemented solar mini-grids especially in Sunderban region and
Chhattisgarh to cover un-electrified areas. Lately, solar DC micro grid and solar
charging stations are also being implemented by selected institutions and solar
companies in India. TERI’s Lighting a Billion Lives (LaBL) programme is one such
program, where solar charging stations or solar DC micro-grids are set up in villages
to extend clean lighting to such areas. While the DC micro grid provides fixed line
connections, LED lamps are recharged from the solar charging stations and pro-
vided on rental basis to the users. A key factor of the success of the solar PV program
in different countries is due to quality standards ensured for PV panels, batteries, and
other components as approved by the technical standards committees in respective
countries. However, effective after sales maintenance in remote rural areas continue
to pose challenges, especially in India and Nepal, for functionality of solar devices.
The mini/micro hydro systems (usually capacity in the range of 50 kW–3 MW)
have been used to create mini-grids to supply AC electricity locally. While Sri
Lanka and Nepal have extensively used this technology to extend electrification to
off-grid areas, such plants have also been installed in the hilly regions of India such
as Arunachal Pradesh, Himachal Pradesh, Sikkim, and Uttarakhand. Many mini/
micro hydro projects in the region have been driven by ‘technology push’, with
micro-hydro now being a mature technology greatly improved by electronic load
controllers, low-cost turbine designs, and the use of plastics in pipe work and
penstocks. However, one of the key challenges faced by mini/micro hydro systems
especially in India is low utilization factor due to unavailability of sufficient water
discharge during dry season and very high discharges during monsoon in the
Himalayan streams (when the plant has to be shut down to avoid damage to
the penstock or turbine due to possibility of high quantity of silt coming with
the water). The low load factors also results in high O and M costs resulting in
uneconomical operation in isolated mode in the hilly areas.
Biomass gasifiers have found use in India and to a limited extent in Sri Lanka
for off-grid electrification (Ghosh et al. 2006; Abeygunawardana 2011). Biomass
gasifier based mini-grids are typically in the range of 10–500 kW. The technology
however has found limited success for off-grid electrification. One of the key
reasons for this is absence of standardized performance oriented technical speci-
fications of the systems to ensure quality of the products and also due to non-
creation of proper after sales maintenance network to service the systems in the
remote rural areas10 (TERI 2009b). Ghosh et al. (2006) opine that technical

10
The performance of the biomass gasifier projects implemented under VESP or RVE program
in remote rural areas is found to be unsatisfactory especially due to technology management and
product quality issues On the other hand, biomass gasifiers implemented by private companies in
some parts of India for electricity supply to ‘not so remote’ areas are reported to be working
satisfactorily.
4 Off-Grid Rural Electrification Experiences 85

barriers also remain in the development of engines running only on producer gas
for small capacity biomass gasifiers11—these engines are not designed for pro-
ducer gas and are mostly developed through modification of existing diesel
engines that leads to substantial capacity derating. The technology is also signif-
icantly hindered by limited manufacturing capabilities with most gasifier manu-
facturers having small workshops or small fabricators.
Reddy and Srinivas (2009) opine that the choice of energy technology in the
context of RE is influenced by various actors and factors—prevailing policy and
implementing agencies at the macro level, distributors, service companies and
financing institutions at meso level and finally the household socio-economics at
micro level. Even though both grid-connected and off-grid have their own
advantages and disadvantages, the underlying principle for choice of a particular
mode is adopting the least cost technology options and with minimum mainte-
nance requirements as far as possible. A strong fuel supply linkage, especially
through involvement of local community, is critical for sustainability of biomass
gasifier based mini-grids (Palit et al. 2012). Also, in the case of solar mini-grids,
the storage batteries are found to be the technically weakest part in the systems
(Ulsrud et al. 2011). They have thrown upon additional challenges for the whole
operation and sustenance of the solar mini-grids, including the difficulties it gives
the operators and the need it creates for development of a quite advanced technical
understanding in the operators as well as proper drawl of electricity by the con-
sumers as per set norms so as to have a longer battery life. A close interconnection
thus exists between technical and non-technical matters. Recognition of this fact is
thus crucial to obtain viable and sustainable solutions.

4.4.2 Business Models

Most off-grid electrification programs in the region have been grant-based and
donor-driven, and continue to be so in countries such as India, Nepal and Pakistan.
Yet markets have also developed in some countries, such as the SHS and solar
lantern market in Bangladesh, Sri Lanka, and India. The rise of these markets reflects
innovations in system design as well as in financial and institutional mechanisms.
While the grid has been extended mainly through the utility based model (in India,
Sri Lanka and Nepal) or rural electricity cooperative (in Bangladesh), literature
indicates community based models were often adopted for mini-grid based elec-
trification, albeit with different names such as VEC (village energy committee),
VDC (village development committee), and REC (rural electricity cooperative). The
VEC or the REC plays the role of stand-alone power producer, distributor and

11
Usually, for small capacity gasifier systems running on only producer gas such as 10 or
20 kWe, diesel engines are modified (CI engine converted to SI engine) and coupled with the
gasifier, as gas engines are not commercially available for smaller capacity range. Gas engines
are used for 25 kWe capacity systems and above.
86 D. Palit and A. Chaurey

supplier of electricity, manages the revenue through collection of payments for the
electricity used from users and dispute resolution in case of power supply disruption.
The RVE program and VESP in India followed the VEC approach. Though previ-
ously private Rural Energy Service Companies have not attempted to in any of the
countries, it is observed since last few years that private developers in some Indian
states have started providing electricity services on a flat rate basis (e.g. INR 150/per
light point per month) in rural areas, through installation of biomass gasifier based
power generation systems12 or diesel generators.13
In case of solar PV based rural electrification, different service delivery models
have been adopted in different countries. For example, fee-for-service, leasing and
consumer financing have been attempted in case of individual SHS disseminated in
the region. Sri Lanka and Bangladesh followed the consumer financing model
involving banks and MFIs (micro-financing institutions) for large scale dissemi-
nation of SHS. Similarly, in India private agencies such as SELCO and rural banks
(Aryabrat Grameen Bank and Prathama Grameen Bank in Uttar Pradesh, Gurgaon
Grameen Bank in Haryana, SEWA Bank in Gujarat and Syndicate Bank in
Karnataka) have also used the consumer financing model to disseminate SHS
(Palit and Chaurey 2011). Rural Electrification Board in Bangladesh on the other
hand has adopted an innovative model in disseminating SHS. The Board installs
the SHS in the customer’s house and the household pays a monthly bill for
electricity consumption but never owns the actual solar panel.
In case of solar mini grids in India, these are operated by cooperative societies
or VEC formed by the local people and is responsible for selection of consumers,
planning for the distribution networks, tariff setting and revenue collection.
A unique case is the Chhattisgarh Renewable Energy Development Agency
(CREDA), who evolved its own service delivery model and directly takes care of
the operation and maintenance through a three-tier system of maintenance to
ensure trouble-free working of the mini-grid systems. On the other hand, TERI has
been extending clean lighting under its LaBL program using the fee-for-service
model. Mera Gao Micro Grid Power (MGP) and Naturetech Infra, which are small
start-up companies in India, are building several solar DC micro-grids in small
villages in Uttar Pradesh and Bihar following the fee-for- service model. Both the
companies’ model focuses on implementing the full energy system—generation,

12
Husk Power Systems, DESI Power and Sharan Renewables are some privately owned
companies that have set up biomass gasifier-based power plants with capacity ranging from 30 to
100 kWe covering around 300 villages and hamlets across Bihar and Uttar Pradesh. These
gasifiers run on a variety of crop residues, such as rice husk, sugar cane toppings, corn cob, etc.
and provide electricity services to villages on flat rate or metered basis.
13
In many villages across India, especially in Bihar, Madhya Pradesh and Uttar Pradesh, use of
diesel gensets (called choti bijli) is common. These are usually owned by individuals and used to
supply power to their own homes or for powering irrigation water pumps. Often an enterprising
villager works out an arrangement to provide power either to a cluster of houses or for some
economic activity. The electricity is priced as flat rate (ranging between INR 10 and INR 15 per
kWh if converted to kWh basis) and so it is availed of only by those who can afford it or who
cannot afford to do without it.
4 Off-Grid Rural Electrification Experiences 87

Table 4.2 Technologies for off-grid electrification and business models adopted in four South
Asian countries
Country Major off-grid technologies Business models adopted
implemented
Bangladesh SHS Consumer financing, leasing
India SHS, solar lanterns, biomass gasifier, Consumer financing, leasing, fee for
micro/mini hydro power service, village energy committee
Nepal SHS, micro/mini hydro power Consumer financing, village energy
committee
Sri Lanka SHS, micro/mini hydro power Consumer financing, village development
committee

storage, DC distribution lines and LED lamps—with users paying service charges
for availing the lighting. Their core innovation is profiting from the low cost power
delivery through LED lights and charging of mobiles (both DC applications)
without provision for powering any other appliances.
It is also observed that programs such as IDCOL or mini-grids in Sunderban
region and Chhattisgarh in India have been more successful as compared to other
programs in these countries mainly due to their implementation through a proper
institutional arrangement following a standard set of guidelines (Palit and Sarangi
2011). This corroborates the need for a robust institutional structure along with
appropriate policy enablers for success of any solar programs.
The major off-grid technologies and the business models in the four selected
South Asian countries are shown in Table 4.2.

4.4.3 Coverage and Management

In India, the off-grid electrification has been carried out under RVE Program,
the VESP and the Technology Demonstration Program, all administered by the
Ministry of New and Renewable Energy (MNRE) and implemented primarily
through designated state renewable energy development agencies in each of the
states. In addition, various NGOs have also been attempting to create electricity
access through off-grid options with funding support from MNRE, bilateral and
multilateral aid agencies. The RVE program, initiated in 2001, covers un-electrified
census villages and hamlets that are not likely to receive grid connectivity. RVE
electrified 9,160 villages and hamlets as of March 2012 (MNRE 2012). The VESP,
conceptualized as a step forward to the RVE program, attempted to address the total
energy need for cooking, electricity, and motive power in remote villages through
use of the locally available biomass. In the test phase, 79 projects, covering as many
villages, were sanctioned of which 61 have been actually constructed or commis-
sioned in 8 states, while the others are at various stages of implementation (Palit
et al. 2012). In all, around 700 kW of electricity generation equipment has been
installed (World Bank 2011). MNRE statistics also indicate that about 721.31 MW
of off-grid/captive power projects have been deployed till 30 March 2012.
88 D. Palit and A. Chaurey

Bangladesh has an impressive SHS program for off-grid areas, implemented by


IDCOL (Infrastructure Development Company Limited), a state-owned financial
institution. IDCOL implements SHS through its 30 partner organizations (POs),
whose main role is to select the project areas and potential customers, offer micro-
lending, install the systems, provide after sales maintenance support, and provide
training to the users and local technician in order to create local expertise and
ownership on the system (Palit and Chaurey 2011). IDCOL started the program in
January 2003 and its initial target was to finance 50,000 SHSs by the end of June
2008. The target was achieved in September 2005, 3 years ahead of schedule.
IDCOL then revised its target and decided to finance 200,000 SHSs which was
also achieved, 7 months ahead of schedule in May 2009. IDCOL has today
achieved around 1.2 million SHSs and is targeting dissemination of 2.5 million
SHS by 2014 (IDCOL 2012).
The Energy Service Delivery project, under the aegis of Sri Lanka Sustainable
Energy Authority, was primarily responsible for steering the off-grid program in
Sri Lanka. This project provided the basis for a market-based approach, coupled
with a credit line, to the introduction of renewable energy development in
Sri Lanka. It was designed to promote private sector and community based
initiatives for the provision of electricity services through grid-connected mini
hydro projects, off-grid village hydro schemes and solar PV electrification of rural
homes. While the village hydro schemes were built, owned and operated by rural
communities through electricity cooperative societies, the private sector was
instrumental in promoting SHS (Gunaratne 1994). The project catalyzed the solar
market, involving financial intermediaries, called participatory credit institutions
(PCIs), by installing 20,953 SHS, with a total capacity of 985 kW, against a target
of 15,000 systems; 31 MW of mini hydro capacity against a target of 21 MW; and
350 kW capacity through 35 village hydro schemes serving 1,732 beneficiary
households against a target of 250 kW (Palit and Chaurey 2011). The REREDP
(Renewable Energy for Rural Economic Development Project), which followed
the Energy Service Delivery project, has over the past decade, electrified more
than 130,000 rural households through SHS and isolated mini-grids.
Off-grid electrification in Nepal started to develop after the establishment of the
AEPC (Alternate Energy Promotion Centre) in 1999. Under AEPC, donor supported
programs namely Energy Sector Assistance Program (ESAP) and Rural Energy
Development Program (REDP) assisted in a substantial way to promote off-grid
energy supply. During ESAP phase 1, a total of 69,411 SHS were installed, bettering
the programme target of 40,000. In case of micro-hydro power generation, projects
equivalent to 1.8 MW have electrified about 17,000 households. The program has
also established guidelines for administering solar energy subsidies and put in place
quality assurance and monitoring systems for solar energy projects. From 2000 to
2005, Nepal achieved, on a per capita basis, the fastest penetration of renewable
energy systems in support of rural electrification. For example, it is reported that
two-thirds of the increase in the RE rate during the period from 2001 to 2004/2005
came from off-grid solutions (REP 2008). Bhandari and Stadler (2009) note that
about 115,000 SHSs had been installed under various government programs and
4 Off-Grid Rural Electrification Experiences 89

private sales with a total installed capacity of around 3.5 MW. The current phase of
ESAP aims to provide energy solutions to more than 1 million households through
its various program (ESAP 2012). It is supporting creation of mini-grids, to be fed by
hydro power with capacity 5 kW–1 MW, as pre-grid electrification option.
In addition to mini-grids, it is also targeting to cover 1,50,000 households with SHS
and about 2,50,000 households by solar tuki systems (ESAP 2012).

4.4.4 Enabling Policies

Most of the countries in the region have established RE bodies or formulated


schemes with supportive legislation to extend RE. However, there has been no
separate policy framework for the off-grid based RE. In India, the Electricity Act
2003 made the government (both state and central) obligated to supply electricity
to rural areas. It also opened the door to off-grid generation to a much greater
extent than it existed before. The Act specifies distributed generation (DG) through
stand-alone energy systems under Section 2(63) in addition to grid extension as a
mode for RE. Further, provision of electricity to ‘‘notified’’ rural areas, from
generation through to distribution, is allowed with no prior need for a license,
opening the door to dedicated rural electricity businesses. The National Electricity
Policy and Rural Electrification Policy state that wherever grid based electrifica-
tion is not feasible, DG together with local distribution network would be pro-
vided. This made inclusion of DG as part of the RGGVY, which was a great step
for mainstreaming off-grid technologies within the ambit of the national RE
strategy. The importance of local level policy enablers also helped states to sustain
off-grid electrification efforts. For example, the proactive policy initiative by the
Chhattisgarh state government towards meeting the lifeline tariff for mini-grid
projects similar to that followed for grid connected consumers, has been one of the
key propellers for sustainability of the mini-grid projects in the state. Though the
Jawaharlal Nehru National Solar Mission14 has not been established to foster RE
per se, it does mention the use of solar energy as a means for RE and envisages

14
With the launch of the Jawaharlal Nehru National Solar Mission (JNNSM), as one of the eight
National Missions comprising India’s National Action Plan on Climate Change, the solar
technology programmes promoted by the MNRE has now all been integrated under the Mission.
The Mission has twin objectives of contributing to India’s long-term energy security and its
ecologically sustainable growth, and aims to incentivize the installation of 22,000 MW of on and
off-gridsolar power using both solar PV and Concentrating Solar Power technologies by 2022 as
well as a large number of other solar applications such as solar lighting, heating, and water
pumps. The first phase (up to 2013) is focusing on promoting off-gridsystems to serve populations
without access to commercial energy and also capacity addition in grid-based systems for
augmenting supply of clean energy. The Mission recognizes that off-gridsolar energy applications
have tremendous potential in reaching out to people in rural and remote areas by providing
lighting and basic energy services to them and envisages that by the end of phase 1 in 2013, it
should have led to the setting up of cumulative capacity of 200 MW of off-gridpower in India. In
the second phase, after taking into account the experience of the initial years, capacity will be
90 D. Palit and A. Chaurey

that by the end of phase 1 in 2013, the mission should have led to the setting up of
cumulative capacity of 200 MW of off-grid power (MNRE 2010).
The Energy Policy 2006 in Sri Lanka clearly emphasized provisioning of
electricity to all feasible areas, by extending the national grid and focused rural
energy initiatives using off-grid technologies, and set up specific annual targets,
milestones and institutional arrangements to achieve the same (GoSL 2006). The
Policy also attempted to address the issue of energy supply under Small Power
Purchase Agreement and also made provision for viability gap funding to ensure
renewable projects become financially viable for the project developers for
augmenting the electricity supply.
The Hydro Power Policy 2001 in Nepal is by far the most relevant policy in
existence for RE (NDF 2004). It emphasized the tying up of electrification with
economic activities and encouraged establishing small and mini hydropower
projects at local levels. At the same time, the Water Resources Strategy 2002 also
recognized the fact that providing electricity to rural populations is a major chal-
lenge in Nepal due to the scattered nature of the population in remote mountainous
areas and thus envisaged a combination of grid extension, isolated generation and
reliance on alternative approaches. The growth of SHS dissemination in Nepal can
be correlated with the implementation of a number of policies (subsidy policy 2000
with its delivery mechanism, VAT exemption and import tax exemption) and sup-
port programmes i.e. Rural Energy Development Program in 1996 and Energy
Sector Assistance Program in 1998.
The establishment of the Rural Electrification Board in Bangladesh, through the
issuance of Ordinance Number LI of 1977 was the first major institutional reform
in the power sector that emphasized RE and aimed at increasing electricity access
in rural areas. This institutional reform helped to increase the number of electrified
households from around 25,972 during the pre-reform period (i.e. 1982) to more
than 9 million households now. On the other hand, the promotion of SHS in
Bangladesh was successful mainly because of a market based model and a suitably
designed financing model by IDCOL. The Renewable Energy Policy Bangladesh,
published in 2008, has also recognized renewable energy as having strong
potential for delivery of electricity services to the entire country by 2020.
It is thus observed that the rate of success of the renewable energy based rural
electrification is directly dependent on the government’s commitment in creating
an enabling environment such as clear cut policy framework and milestones,
systems for defining and enforcing appropriate technical standards, financial
support mechanisms and support towards capacity building. Inspite of the above
efforts, required policy boosters are still falling short of the needed level of sup-
port. For instance, absence of standards and performance specifications for

(Footnote 14 continued)
aggressively ramped up to create conditions for up scaled and competitive solar energy pene-
tration in the country.
4 Off-Grid Rural Electrification Experiences 91

biomass gasification systems in India has resulted in large-scale failure of biomass


led mini-grid systems.

4.4.5 Community Participation

Local community participation is widely accepted as a pre-requisite to ensuring


equity and sustainability of RE efforts. It is observed from the RE efforts in all the
study countries, that local participation, whether in the form of RE distribution
franchises in India, the electricity cooperatives in Nepal and Palli Bidyut Samities in
Bangladesh, have helped in reducing theft and distribution losses, improved billing
and revenue collection efficiency and more importantly ensured stable delivery of
electricity (TERI 2007a, b, 2010; Yadoo and Cruickshank 2010). With local par-
ticipation in the case of PBS, the system has remained transparent in the crucial
areas of management and operations and the transparency has also motivated the
stakeholders to adhere to strict financial discipline. Further, it is also observed that
there has been more success where intermediary organizations, such as NACEUN
(National Association of Community Electricity Users—Nepal) and PBS, have
helped the local planning process. In off-grid programs the involvement of rural
communities, particularly their participation in decision-making committees, has
added value to the planning process and given communities a sense of ownership.
While community participation in off-grid projects has been relatively successful,
there has also been negative fallout from some community-centered projects. One of
the key reasons is because of the fact that almost all off-grid projects are located at
remote locations, thereby making it more challenging for sustainability. Shrank
(2008) observes, based on a case study in the Sunderbans, that the community
management system did not create incentives for maximizing profit at each power
plant, thus creating problems for the coverage of costs of the power supply.

4.4.6 Financing

While government programmes have been instrumental to extend the grid elec-
trification in almost all the countries of the region, the types of financing mech-
anisms used for various renewable energy based programmes, include micro-
credits schemes, interest rate buy-downs and fee-for service mechanism, all with
or without any subsidies. In case of off-grid electrification, it is observed that
leasing of energy generating products, consumer financing models, and direct
subsidy under state program has been instrumental for promotion of decentralized
systems. A survey of solar PV programs in South Asia shows that majority of the
customers have availed micro-credit or consumer credit, a quarter used state or
donor funded subsidies and fee-for-service and only 5 % used cash purchase for
procuring solar PV systems (Urmee and Harries 2009).
Among the successful SHS programs, IDCOL and ESD/REREDP offer refi-
nancing through loans (6 % interest with 10 years maturity and 2 years grace
92 D. Palit and A. Chaurey

period) to their intermediaries (such as POs and PCIs) and also channel grants (for
example around US$25 per 50 Wp system is provided as system buy down grant
to POs by IDCOL) to reduce the cost of SHS. The intermediary provides credit to
customers, who pay 10–20 % of the total cost as down payment and the out-
standing in monthly installments, which also covers the service charge (around
12–15 %, paid over a period of 3–5 years) and the maintenance cost. Mainali and
Silveira (2011) share that in Nepal, loans covered 55 % of the capital cost of SHS,
followed by subsidy (27 %) and owner’s equity (18 %). The centre piece of these
schemes was long term loan packages from donors to the national government
which made it possible for government to ‘on lend’ funds to local banks for
proving credit to customers.
Micro-hydro system costs per kW vary from $1850 to $5010 including the cost
of power evacuation and distribution system (Nouni et al. 2006; Mainali and
Silveira 2011). The wide variation of costs can be attributed to highly site-specific
nature of hydro projects. Costs also are impacted by management practises, proper
sizing and appropriate standards. The financial mix for mini/micro hydro power
reveals that the proportion of subsidy at 55 % followed by local community
contribution as equity (33 %), loan (11 %) and additional loan from local gov-
ernment (1 %). Further, there has been increasing trend in community contribution
towards meeting a percentage of the capital cost of systems in Nepal which can be
viewed as an indicator that RE is moving towards sustainable business.
In India, the RVE and VESP provide direct subsidy to implementing agencies at
90 % of the project cost, up to a predefined maximum of INR 18,000 per
household. The balance 10 % can be financed through state or other central
government support or by the users. Currently, the JNNSM provides capital
subsidy on off-grid solar products (INR 90/Wp) and soft loan at 5 % per annum
(MNRE 2010). Further, to meet unmet community demand for electricity or in
un-electrified rural areas, standalone solar power plants with mini-grid, capital
subsidy is provided at INR150/Wp and soft loan at 5 %. On the other hand, the
DDG program of RGGVY considers technology with the lowest marginal cost for
a given area and extends subsidy of 90 % of the project cost and some operational
subsidies. The subsidy is released on annuitized basis based on performance of the
system for 5 years. However, it is also observed that commercial finance for
off-grid electrification has been very minimal. Jaisinghani (2011) observes that
most companies active in off-grid distribution are not able to access sufficient
capital to expand. He further argues that off-grid electrification is also hindered by
non-uniform technical approaches, undeveloped non-technical processes (such as
tariff collection, and response to system abuse) which are also hindering access to
finance at the early project stage.
Further, the choice of financing mechanism used is also found to relate to the
organization type. Most government organizations used the fee-for-service
mechanism and these programs provided all equipment and maintenance costs,
and the users pay for the service only. Private organizations or NGOs tended to use
consumer credit, micro-credit or cash sale mechanism. An issue worth highlighting
is that lack of suitable financing mechanism was regarded in the survey by Urmee
4 Off-Grid Rural Electrification Experiences 93

and Harries (2009) as most significant barrier to the uptake of SHS, and was
considered to be of more importance than the technical and policy issues. Another
important finding was that while low incomes were regarded as barriers, it was not
perceived to be the primary, or even a major barrier to the uptake of SHS.

4.4.7 Specific Challenges

There are many challenges—technical, financial, regulatory, and institutional—


hindering electricity access in the region. Inspite having moderate to high village
electrification rate, the household connections in rural Bangladesh and India
continue to be low. In case of SHS, the lowest strata of the society finds it difficult
to procure SHS on the available financing options. Difficult terrain and poor
economic condition also seem to be hindering the electrification efforts in Nepal.
In Sri Lanka, the SHS market is diminishing with extension of grid and it is
reported that people are defaulting on their loan repayment after taking grid
connection. Some of the specific challenges, inhibiting the growth of the sector,
are discussed here:
• Mini-grid projects encounter many challenges for financial sustainability
because most of these projects are set up in remote villages resulting in high
transaction cost. These challenges lead to a feedback loop, wherein lower plant
load factor of the systems leads to higher cost of generation (Kumar and
Banerjee 2010), which does not match with the ability to pay by the consumers.
For example, a biomass gasifier system does not function when the load is less
than one-fourth of the rated plant capacity of the plant. The consumers become
reluctant to pay when the plant does not function and the discontinuation in
payment makes it further difficult to run the system as the operators lose interest.
While the issue is also prevalent in the remote villages covered by utility’s grid
network, the issue gets addressed through regulatory measures such as cross
subsidization of the consumer tariff (Palit et al. 2011).
• The REB experience (Bangladesh) shows that while some cooperatives have a good
customer mix including industrial customers and have achieved break even, those in
the remote areas are finding it difficult to produce positive margins, even after years
of operation (Palit and Chaurey 2011). Subsistence level energy consumption
activities such as lighting account for bulk of the power consumed in such areas
(resulting in lower load factor than the threshold load factor for viability) and with
most domestic rural consumers falling within the minimum tariff slab, the revenue
generated from such areas is low as compared to cost to provide the services.
• India, Bangladesh and Nepal face a severe electricity supply constraint15 which
is one of the key factors impacting the RE sector. On the other hand Sri Lanka

15
The access to electricity grids does not necessarily mean that there is reliable electricity
supply to meet the needs of the rural people. In India and Bangladesh the Central Electricity
94 D. Palit and A. Chaurey

has fully utilized its micro and small hydro potential in a planned way and has
also introduced small power producers program based on dendro-thermal and
other renewable resources to augment the supply situation in the rural areas. The
annual available biomass energy potential for electricity generation in Bangla-
desh is in the range of 184 and 224 TWh (Hossain and Badr 2007), which could
probably be utilized for decentralized electricity generation to augment rural
supply situation. Similarly, small and micro hydro power can be fully tapped in
Nepal to augment the supply in rural areas. A World Bank study (2010) for India
also shares that distributed generation and supply model, mainly biomass and
small hydro power, could well be utilized to improve RE efforts.
• Institutional and organizational shortcomings were also found to act as major
deterrent for the successful operation of the off-grid projects. Cust et al. (2007)
argue that even economically viable projects fail simply because the importance
of appropriate organizational structure and institutional arrangement of those
projects are not adequately appreciated. Past experiences also show that a large
number of off-grid electrification projects have seen limited success because
focus has been generally on technical installation without paying sufficient
attention to the long-term sustainability (Kumar et al. 2009). A study on the
functioning of the biomass gasifiers for off grid electrification implemented
under the VESP in India has revealed a number of challenges that need to be
tackled at village level to ensure the sustainability of the project interventions:
Some of these challenges are low concentration of electricity demand (making
distribution expensive and difficult); low economic activity (implying low
demand for electricity); difficulty on the part of users to pay for electricity;
difficulty in operation and maintenance due to remote project location; limited
technical knowledge of VEC members and weak fuel supply chain linkages
(Palit et al. 2012). Palit (2003) also highlights, based on specific examples from
north eastern region of India that lack of availability of adequate maintenance
facilities and inadequate capacity building of the technicians acted as a barrier.

4.5 Summary of Key Findings

Across South Asia, a wide variety of RE models and technologies have been
implemented. While on the one hand because of such a wide range of imple-
mentation efforts, it is difficult to identify and fully analyze all, or to create clear

(Footnote 15 continued)
Authority and Bangladesh Power Development Board statistics indicate that the peak power
deficit was more than 10 and 27 % respectively during the year 2010. Similarly, Nepal Electricity
Authority reports that the annual energy deficit was more than 20 % of the demand during 2008–
2009 and load shedding period was up to 16 h a day in the rural areas. As priority is always
provided to meet the urban and commercial demand, due to expectation of higher returns (as tariff
is high in such areas), the rural areas are neglected and is impacted by frequent blackouts.
4 Off-Grid Rural Electrification Experiences 95

directives for best practices, the range of options also presents the opportunity to
glean lessons. Our review presents a number of interesting findings and lessons as
summarized here:
a. While the village electrification level in Bangladesh and India is moderate to
high, the actual number of connected households is comparatively low. In fact,
the current definition of village electrification in India requires electrification of
only 10 % of households, for a village to be considered as electrified. In both
countries, the key issue is ‘how to improve the household level connection’ and
also ‘how to ensure sustained electricity supply to rural areas in line with the
demand’. Sri Lanka, by adopting targets and milestones for connecting rural
households and arranging micro-lending for poor households desirous of taking
electricity connection could achieve a high household connection level. The
country is also utilizing its local hydro resources potential to augment supply
especially in off-grid areas. Further, the better economic condition of house-
holds in Sri Lanka may also have contributed to their decision to take electrical
connection as compared to Bangladesh and Nepal. Nepal, because of its hilly
and forested terrain is finding it difficult to extend grid coverage and sustaining
the same. Another interesting fact in India and Bangladesh is that the SHS are
not considered in the RE figures as they cater only to lighting needs, while
Nepal and Sri Lanka considers SHS also as a means of electrification.
b. All RE projects examined have involved a significant subsidy component
especially capital subsidy. However, different approaches have been adopted
for grid based and off-grid electrification. ‘Top down’ approach has been
primarily adopted in extending grid to rural areas with the planning and
implementation undertaken by central or state level agencies, Off-grid electri-
fication, through mini-grids or otherwise, has been mainly through community
centered projects or involving non-governmental organisations and thus lacks
an organised delivery model.
c. The rate of success is directly dependent on the government’s commitment in
creating an enabling environment such as clear cut policy framework and
milestones, systems for defining and enforcing appropriate technical standards,
standardized operational metrics, financial support mechanisms and support
towards R and D and training. Market has a very minimal role for central grid
based electrification. Bangladesh and India are two examples where we can see
that the creation of REB and launch of REST mission and later the RGGVY
assisted in sharply increasing the village electrification rate. At the same time,
specific targets, milestones and institutional responsibilities adopted in the Sri
Lankan Energy Policy for improving households connections—both through
grid connected and off-grid model—along with the ‘Power Fund for the Poor’
project helped in achieving high household electrification level.
d. Bangladesh and Sri Lanka have had success in disseminating SHS following a
market based approach which indicates that it is possible to successfully
implement off-grid programs in association with the private sector and MFIs.
Improved access to capital, development of effective after-sales service,
96 D. Palit and A. Chaurey

customer centric market development and regular stakeholder involvement


assisted in scale-up. In both the cases, output focused approach offered private
companies and MFIs/NGOs incentives to enter new markets and deliver pre-
defined products, while grants increased product affordability and covered a
portion of the incremental costs of introducing clean energy products. While
these experiences may be true for delivery of individual systems, the design
principles key to their success can also be extended to cover other off-grid
technology. In fact, both projects are also providing other off-grid and rural
energy services (such as financing for setting up of solar and gasifier based
mini-grids and biogas plants) in their area of operation.
e. The success of the cooperative or community centric delivery model has been
due to equity, commitment and transparency in decision making. However, they
may also be vulnerable to cooption and coercion by local power brokers, if
appropriate checks and balances are not put in place. An appropriate institu-
tional environment, whether a government regulatory body or a decentralized
membership based self-regulating body such as NACEUN or Federation of
Electricity Consumer Societies in Sri Lanka, could create a highly favorable
delivery mechanism for rural electrification
f. The community approach has been particularly successful in cases where
the project has also worked at improving the productive uses of electricity
(to increase daytime demand) and the capacity of the consumers to procure
electrical appliances (Yadoo and Cruickshank 2010). VESP in India also
indicates that revenue realization is comparatively better in projects where
villagers are having cash income because of either existing income gener-
ation activities or newly introduced activities after being electrified (Palit
et al. 2012). On the other hand, VESP and REB also suggest that not all
areas are equal in terms of their suitability and prospects for productive or
micro-industrial end uses. Subsistence-based economies, a feature of off-grid
areas, with little market for local consumption have very little prospects for
micro-enterprises and thus cannot make full use of electricity to power
them.

4.6 The Rural Electrification Boosters

Based on the analyses, we observe that all the countries do not have similar issues
related to electrification efforts and so may need a differential approach to enhance
the level of electrification. While there is no doubt that conventional grid extension
has been and will continue to be a preferred approach, distributed generation can
also be attempted to enhance power supply as well as extend electrification to
remote areas. This section discusses some pertinent issues and attempts to suggest
measures to improve the pace of RE in the region.
4 Off-Grid Rural Electrification Experiences 97

4.6.1 Improving the Household Electrification Level

While the extent of village electrification level in India and Bangladesh is good,
the electricity connection at the household level is low. The key task is to improve
the overall household connection level at a rate that exceeds the rate of population
(or number of households) growth. The micro-financing of household connection
experience from Sri Lanka will be particularly useful in expanding the household
electrification level in countries such as India and Bangladesh where Government
support is currently being used to expand the network to the rural areas. With both
these countries are having a strong MFI network, the tasks should be easier. Rural
distribution utility in these countries can tie up with local MFIs and attempt to
develop schemes whereby the MFIs can bear the cost of connection charges
(including cost towards energy meter) and the money can be recovered by the
utility through monthly electricity bills. The electricity distribution utilities can
also launch a scheme of waiving/reducing the initial connection charges and
instead levy a connection fee every month, which may also help in improving the
connection rate. However, any schemes also have to be complimented by adequate
awareness generation of prospective consumers on the process to avail a con-
nection followed by organisations of spot connection programs in the village itself
(all necessary documentation works for connection being completed and con-
nections provided in the same day).

4.6.2 Regulatory Measures to Ensure Viability of Mini-Grid


Projects

Most of the mini-grid projects suffer from non-viability as cost of electricity


generation from such projects is high while the return through tariff is low. The
remoteness of projects also increases the capital cost, operation and maintenance
costs and in turn the cost of generation and supply. Added to this is the low paying
capacity of the rural consumers in the absence of any cash disposable income. The
financial un-viability results in closure of these projects after few months of
operation (Palit et al. 2011). This not only makes the villages de-electrified, but
also renders these projects, set up with capital subsidy from the Government, as
dead infrastructure. With off-grid projects in many of the countries not covered
under the regulatory regime and usual tariff setting by regulatory commissions, the
benefits of any cross subsidization, if any, is not extended to rural consumers of
such projects, which otherwise could have helped in achieving financial viability.
Extending the tariff fixation by regulators in case of off-grid projects and providing
tariff subsidy/Output Based Aid16 (OBA) from a universal service fund can be

16
OBA is a performance-based operating subsidy scheme that links payments to actual
electricity output delivered to customers.
98 D. Palit and A. Chaurey

attempted to bring in viability for project developers/concessionaire to extend


electricity to remote areas. The universal service fund can be worked out through a
suitable mechanism from the cross subsidization amount and or deploying savings
out of the reduction in kerosene subsidy which otherwise is used for lighting in
such un-electrified villages. Operating subsidies provided through competitively
determined OBA aimed at ‘base of pyramid’ consumers, along with differential
tariffs, can also bridge the financial viability gap.

4.6.3 Reducing Access Gap through Bundling

The ‘access gap’ relates to communities who are beyond the reach of the market
due to inadequate income levels or geographical access. Creating market linkages
and market accesses and targeted subsidy interventions are needed for attracting
business to low load areas. As the off-grid projects are invariably smaller in
capacity, concentrating energy loads in a given area or bundling projects can
increase the market size. Off-grid projects could be identified depending on the
availability of local energy resources and clusters, to ensure economies of scale
and scope, which would help to manage them sustainably. For example, CREDA
has been successfully running the projects in such remote locations, mainly
because of the cluster approach followed for operation and maintenance. Financial
institutions/banks would also be interested as project implementation and credit
risks would be less. Bundling also can be helpful in minimising the transaction
costs associated to get carbon benefits. The experience reflects that there have been
efforts by private mini-grid developers such as Husk Power Systems to capitalise
on bundling of projects and getting venture capital funding as well as carbon
benefits.

4.6.4 Attempting Innovative Financial Mechanism

Arranging necessary financial resources for mini-grid projects is the most crucial
and difficult part of the project development, so innovative financial mechanisms
are tried out and experimented across the intervention varieties. One way to
address the financing of renewable energy based projects is through carbon funds,
though it has achieved very limited success so far.17 The amount of CO2 mitigation
potential depends on the type and amount of fuel replaced by the renewable energy
system. As decentralized renewable systems replace very small amount of

17
According to the IEA (Energy for All-Financing access to the Poor 2011), ‘up to June 2011,
only 15 CDM projects, 0.2 % of the total, have been designed to increase or improve energy
access for households’.
4 Off-Grid Rural Electrification Experiences 99

kerosene or diesel, the challenge is to meaningfully bundle the number of systems


operating in a region/locality to make it a viable candidate for carbon financing.
Existing transaction cost barriers and current ways of bundling up small sized
projects are seemingly acting as key roadblocks to accrue the carbon benefits.
A way to address the high transaction cost could be through Program of Activities
(PoA) route of availing carbon financing. The PoA can also be developed at the
regional level thereby also getting benefits of economy of scale.
Another innovative financial options could be through pro-poor public–private
partnership (5P) model. The 5P approach can explicitly target the provision of
services to poor communities, which are often ignored by traditional PPPs since
supplying the poor can involve substantial business risk. Each of the stakeholders
in the 5P model can play a different role with the common goal of promoting
access: private sector participants can meet their corporate social responsibility
obligations, utilities and energy companies can fulfil their obligation to deliver
basic services, communities and members of civil society can expand access to
basic services.

4.6.5 Appropriate Institutional Structure for Sustainability

Similar to other developing nations (Monroy and Hernandez 2005), a key barrier
to extend and sustain off-grid RE in South Asia, is lack of appropriate institutional
models. While it is observed that the grid extension projects are more organized
and managed by a utility (private sector, state level cooperatives or government
owned), most of the off-grid programs are implemented through NGOs or local
level institutions. Successful programs such as IDCOL SHS or mini-grids in
Sunderbans (Ulsrud et al. 2011) and Chhattisgarh (Shukla 2011) in India imple-
mented through a proper institutional arrangement following a standard set of
guidelines corroborates the need for such institutional structure for off-grid case.
It is imperative that there must be appropriate (socio-politically acceptable)
institutions in place with necessary skills and means to manage the systems on-site
and collect revenue, and that the technical knowledge for ensuring sustainability
must be available within a reasonable distance.
The evidence drawn from mini-grid experiences in India reveals that appropriate
support system should be a mixture of both ‘participatory approach’ and ‘multi -
level’ approaches. While issues that are of local in nature could be better addressed
through participatory mode of governance structure, policy, regulatory, and
financing matters can be dealt at appropriate intermediary and or higher levels. It is
important to design support systems so as to ensure that plans and policies match
the needs of all stakeholders—consumers, owners and technology suppliers. Fur-
ther, it is observed that projects by private developers can be financially sustainable
in areas with adequate income generation, while remote areas with minimal
possibility of cash generation will require top-down support, both technical and
financial, for building up local institutions to manage and sustain the projects.
100 D. Palit and A. Chaurey

4.6.6 Economic Linkages for Improving Access

Electricity must result in opportunities for enhancing the local economy and
adequate money flow to the rural households so that they are willing and able to
spend a part of the incremental income on purchasing the electricity. While it is
observed from this research that correlation exists between the per capita GDP and
household electrification, the causal factor cannot be identified in this case. This
needs further research whether higher economic level contributes to higher con-
nection level or higher level of RE contributes to improved rural economy.
Nevertheless, creating economic linkages is particularly important for off-grid
electrification as they are usually remote and people have low disposable incomes.

4.7 Conclusions

This chapter shared the RE experiences and best practices from four selected
countries of South Asia for cross learning potential across the region as well as
other developing counties. We have also raised some pertinent issues and have
attempted to find solutions to these issues. We suggest that India and Bangladesh
should focus on improving the household connection level in grid connected rural
areas through a targeted approach. While micro-financing can be extended to
consumers unable to take connection due to financial barriers, the Palli Bidyut
Samities (PBS) and Input Based Franchises (IBF) should also be incentivised to
connect more un-served households. In rural areas of India, where franchise sys-
tem is yet to be introduced, IBF model should be extended for better delivery of
services. Secondly, benefits of cross-subsidy also need to be extended to off-grid
areas, especially in India, to ensure continuous operation of projects in such areas.
India and Bangladesh, being densely populated, hybrid model of solar charging
stations with solar DC micro grid can also be attempted as an enterprise based
model for providing lighting and value added energy services in electricity starved
areas. While the solar DC micro grid will provide fixed line connection, using LED
lamps, to around 10–20 households/shops within the vicinity of the enterprise,
rural community can also avail portable lanterns on rent. The enterprises can have
facility to charge mobile phones and option to sell LED lamps and efficient cook
stoves to meet any demand in the villages, thereby acting as rural clean energy
hub. The fee-for-service model for renting of lantern from a solar charging station
or providing only lighting service from a solar DC micro grid may also be closer to
the need of poorer sections of population. Wong’s (2010) research also corrobo-
rates the fact that without the support of any micro-credit systems and where poor
people are expected to pay for the service by their own means, they prefer to pay
for the ‘service’, rather than own the equipment since this exerts less financial
pressure on the poor households. Simultaneously, it also fosters a sense of own-
ership that is essential for co-financing the technology.
4 Off-Grid Rural Electrification Experiences 101

To augment the supply situation in grid connected areas and also for achieving
better operational efficiency, twinning distributed power generation, utilizing
locally available renewable energy resources, with a suitably structured rural
distribution delivery model in India (or PBS in Bangladesh) can result in better
utilization of the installed rural distribution infrastructure and in greater economic
and social development. The financing for setting up such renewable based dis-
tributed power projects in India could be leveraged from the National Clean
Energy Fund launched recently. Over the years, as the grid supply situation
improves and also the electricity demand, these operators can become distribution
franchisees and continue to serve the areas, partly with the local generation and
partly from the grid supply.
Nepal needs to address its RE issues with a two-pronged approach—extending
the coverage and also utilizing its hilly stream based hydro resources to ensure
supply to these areas. Although Sri Lanka has a notable RE achievement through
grid extension, the country should ensure that the off-grid mini/micro hydro power
projects set up earlier to extend RE remain functional and can feed power to the
grid to avoid any future supply constraints in the grid. Pakistan and Afghanistan on
the other hand need to formulate clear cut policy framework and executable master
plan taking lessons from other countries in the region to extend their RE efforts.
Finally, economic linkages, access to credit, bundling of smaller projects and
institutional arrangements also need to be organised appropriately, especially for
off-grid RE to facilitate successful outcomes in the region.

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Chapter 5
The Chinese Model of Rural
Electrification and Electricity Access

Subhes C. Bhattacharyya and Sanusi Ohiare

Abstract China, despite her billion-plus population and vast geographical


coverage, has successfully achieved almost universal electrification (IEA 2009).
The purpose of this chapter is to present the Chinese approach to rural electrifi-
cation and to identify whether China provides lessons for other countries. An
extensive literature review forms the basis of this chapter. We find that China
followed a more pragmatic approach by combining the top-down approach with
bottom-up, local-level solutions. China has also used a phased development pro-
cess and successfully integrated local resources, village-level development and
empowerment, rural income generation and local capacity development. The
integrated rural development approach has produced local-level solutions while a
strong government commitment and financial support ensured programme deliv-
ery. The Chinese model could serve as an inspiration for other developing coun-
tries trying to ensure universal electricity access but local adaptation and
implementation issues can not be underestimated.

5.1 Introduction

Although more than 1.3 billion people (i.e., about 19 % of the global population)
without access to electricity in 2009 (IEA 2011), the most populous country in the
world, China, has achieved a very impressive record, with less than one percent of

S. C. Bhattacharyya (&)
Professor of Energy Economics and Policy, Institute of Energy and Sustainable
development, De Montfort University, Leicester, UK
e-mail: subhes_bhattacharyya@yahoo.com; subhesb@dmu.ac.uk
S. Ohiare
Doctoral Researcher, IESD, De Montfort University, Leicester , UK

S. Bhattacharyya (ed.), Rural Electrification Through Decentralised 105


Off-grid Systems in Developing Countries, Green Energy and Technology,
DOI: 10.1007/978-1-4471-4673-5_5, Ó Springer-Verlag London 2013
106 S. C. Bhattacharyya and S. Ohiare

its population lacking electricity in 2009. The achievement comes in striking


contrast to the Indian case where close to 290 million (or 25 % of India’s popu-
lation) did not have access to electricity in 2009. Clearly, the Chinese approach
and experience may prove to be beneficial for other countries and provide
important lessons. Similarly, the experience may also prove to be too specific for
the Chinese conditions to replicate elsewhere. Although a number of reviews have
appeared in the literature explaining the Chinese approach (e.g., Yang 2003; Pan
et al. 2006, Peng and Pan 2006, etc.), the off-grid electrification has not generally
been captured. Our focus on success factors and lessons and a brief comparison
with the Indian approach makes this chapter distinct from others.1
The main purpose of this chapter is to provide a brief account of rural elec-
trification process in China, to elaborate the organization and financing of the
activity, to contrast the experience with that of India and to identify the critical
success factors and lessons for others. We do these through a thorough literature
review by focusing on the works published in the English language. Although our
reliance on the available English language literature introduces challenges related
to the accuracy of information as well as possible contradiction or conflicts in the
views, these issues are commonly faced by most foreign researchers. In addition, a
few China energy specialists have also reviewed the earlier drafts, which we
believe has mitigated some of the above risks arising from information issues.
The chapter is organised as follows: the second section presents a review of the
electrification status in China and discusses how China financed its rural electri-
fication over the past five decades. The next section then identifies the critical
success factors and lessons for others, while some concluding remarks are given in
the last section.

5.2 Review of Rural Electrification in China

5.2.1 Status

China is the most populous country in the world (with 1.33 billion people in 2009)
and the fourth largest country area-wise (with a surface area of 9.6 million m2)
(China Statistical Yearbook 2010). China’s population has more than doubled
between 1949 and 2009–increasing from 541 million in 1949 to 1.33 billion in
2009. A large share of the population lives in rural areas but the urbanization is
progressing rapidly, particularly since 1980. In 2009, 53 % of the population lived
in rural areas (see Fig. 5.1) (China Statistical Yearbook 2010).

1
This chapter is largely drawn from our own paper Bhattacharyya and Sanusi (2012), It also
refers to Bhattacharyya (2012) for the comparative analysis.
5 The Chinese Model of Rural Electrification and Electricity Access 107

Fig. 5.1 Rural and urban


population in China. Data
source China Statistical
Yearbook (2010)

Fig. 5.2 Rural energy trend


in China

Energy consumption in rural China, like the rest of the country, has increased
rapidly, particularly since 1978. According to Zhang et al. (2009),2 rural China
consumed 307 Mtce3 in 1979 but in 2007, the rural energy consumption reached
977 Mtce, representing a three-fold increase. The share of productive use of
energy in rural areas in 1979 was about 17 % but in 2007, this has increased to
44 %. The expansion of productive activities in rural areas has also brought a
significant change in the fuel mix in rural energy demand. In 1979, 71 % of energy
supply was of non-commercial type while in 2007, this has declined to about 32 %
of the demand. The evolution of rural energy demand in China is shown in
Fig. 5.2.
Rural electricity consumption has also followed the overall energy trend and
has grown exponentially. Electricity consumption in 1978 was 25 TWh and
reached 610 TWh in 2009 (China Statistical Yearbook 2010).4 To put the infor-
mation in perspective, the annual electricity consumption in the UK is typically
about 400 TWh. Rural China consumed about 1.5 times of this volume in 2007.
Surely, the challenge and scale is very different in China. Electricity consumption
per person per year has also increased accordingly—from 32 kWh per person per
year in 1978 it reached 856 kWh per person per year in 2009 (see Fig. 5.3). Yet, it
must be noted that electricity still plays a minor role in rural China and accounts

2
Zhang et al. (2009) provided the relevant data in an appendix. This is not reproduced here.
3
This represents ton coal equivalent. Energy contained in each fuel is converted to that of one
ton of coal. This is an imprecise unit but used widely in Chinese statistics.
4
Electricity data is shown in 100 million kWh in the Yearbook. This is equal to 100 GWh or
0.1 TWh.
108 S. C. Bhattacharyya and S. Ohiare

Fig. 5.3 Evolution of rural


electricity consumption in
China

Table 5.1 Progression of Period Percentage of rural population


rural electrification in China with access to electricity
since 1949
1949–1957 Very low
1958–1978 61
1979–1987 78
1988–1997 97
1998–2009 [99
Source IEA (2010)

for about 10 % of all energy consumption. The rest is provided by coal, oil and
non-commercial energies.5 Moreover, there is significant spatial variation in
electricity use—especially between the northern and southern regions (Zhang et al.
2009a). In per capita terms, rural energy consumption is almost one half of the
national average but the accelerated growth rate of rural energy consumption
points towards a possibility of role reversal in the future (Yang et al. 2010).
China has a long experience of rural electrification and has been successful in
providing access to 900 million people over a period of 50 years (Peng and Pan
2006). But the success in rural electrification started since 1979 when the eco-
nomic reform began from rural areas. The country achieved a tremendous success
in ensuring electricity access to 95.5 % of households by 1997 (Yang 2003).
About 8 million people lacked electricity China by 2009 (IEA 2011). The gov-
ernment intends to use off-grid and decentralized options to electrify the remaining
areas by 2020. The progression in rural electrification is summarised in Table 5.1
below (IEA 2010).

5.2.2 Review of the Chinese Rural Electrification Process

Since the People’s Republic of China was founded in 1949, the country’s eco-
nomic and social policies have been influenced by three distinctive phases, namely
(a) the Maoist era of central planning (1949–1977); (b) the era of market reform

5
See Luo (2004) for a general discussion on rural energy in China.
5 The Chinese Model of Rural Electrification and Electricity Access 109

(1978–1997); and (c) a subsequent move towards a dynamic market economy from
1997 till date (Peng and Pan 2006). As the government gradually moved from a
centrally controlled economy to a more market-oriented one, the country has seen
major institutional changes which have influenced her energy policy over the same
period (Peng and Pan 2006). These distinctive phases have shaped China’s rural
electrification policies as well and are briefly discussed below.

5.2.2.1 The Maoist Era of Central Planning (1949–1977)

At the time of its foundation in 1949, electricity consumption in rural China was
low with a per capita consumption of 0.05 kWh and representing only 0.58 % of
the total national consumption (Peng and Pan 2006; Yang 2003). China adopted
the Soviet Union’s command system of government and followed a strict central
planning framework. The energy sector development was under strict state control
and the commercial energy supply to rural areas was not a priority (Pan 2002).
Being isolated from the rest of the world, China was reliant on imported tech-
nology from the Soviet Union. The country had limited technical capacities,
financial resources and management skills. China completed its rural land reform
process by confiscating land from landlords and redistributing the same to landless
peasants. The rural living condition was constrained by limited economic activity
and shortage of essential supplies such as food, commercial energy and water.
Biomass-based energy was the main fuel used in rural households during this
period (Zheng et al. 2002). Rural electricity consumption increased marginally to
0.66 % of the national electricity consumption by 1957 (Yang 2003).
The subsequent years of this era witnessed major disruptive movements like the
Great Leap Forward of 1958 and the Cultural Revolution of 1966. The objective of
transforming the economy through rapid development of the agricultural and
industrial sectors was abandoned in 1961 amidst widespread famine, starvation
and economic recession. A ‘‘dual track’’ policy where agriculture acts as the
foundation of development, and industrialisation as the leading activity was
adopted in 1961. Low agricultural productivity, the existence of ‘‘price scissors’’
(i.e., low prices for agricultural outputs and high prices for industrial products),
and social and political disruption of economic activities meant that the rural
farmers were poor and there was a striking urban–rural income disparity (Long
et al. 2009). The economic policy during this period of political isolation of China
relied on self-reliance through ‘‘self-construction, self-management and self-con-
sumption’’ (Pan 2002; Zhang and Heller 2004), where local resources, technolo-
gies and state-controlled management played an important role.
Rural electricity supply through small hydropower received attention. This was
favoured as a means of agricultural development and was funded and managed
mostly by rural residents and collectives with some support from the state.
According to Pan et al. (2006), 1,000 small hydropower stations were built by the
end of 1959, with an installed capacity of 150 MW. Hydropower stations operated
on a single unit basis at this time and electricity was transmitted at low voltage to
110 S. C. Bhattacharyya and S. Ohiare

local communities (Pan et al. 2006). Recurrent changes were made to the orga-
nizational arrangement that ultimately led to more powers and management
responsibilities being vested in the county level agencies. This was particularly
notable with the management of small hydrothermal energy systems and other
types of power networks in the rural areas, making them the basic units of the rural
electrification drive of China.
Although the promotion of hydropower continued in the 1960s and early 1970s,
the central government decided to expand the central grid alongside the local
networks in rural areas. Funds for such network extensions were provided in the
national plan and the central government decided to adopt an equal share
arrangement for investments. Non-state sector small coal mines were also pro-
moted as a biomass conservation effort in rural areas and the production from
small coal mines trebled between 1957 and 1960 (from 6.49 Mt in 1957 to
21.95 Mt in 1960) and quadrupled between 1960 and 1965 (to reach 95.32 Mt in
1965) (Pan 2002). As a consequence of this two-pronged strategy a comprehensive
vertically integrated power network was developed in China that spans from the
central government, through regions and provinces to the local authorities and
counties by late 1970s (Peng and Pan 2006). Electricity access to rural China
increased to 61 % by the year 1978. Per capita electricity consumption increased
to 32 kWh in 19786 but the share of electricity in overall rural energy consumption
was just 5 % due to high reliance on traditional fuel wood energies in rural areas
(Zhang et al. 2009).
Despite the success in improving rural electricity access, this period also wit-
nessed a number of challenges. The Great Leap Forward, the Cultural Revolution,
and the strained Sino-Soviet relations of the 1960s affected the energy sector
significantly, particularly the coal mining industry. This caused energy shortages
during the period (Arruda and Li 2003). Half of the farmers in the rural areas still
lacked access to electricity, and rural electricity consumption per capita was one-
fifth of that urban areas (Zhang et al. 2002). The shortage of electricity supply was
a common feature and the over-reliance on firewood led to deforestation and local
environmental problems in rural areas (Zhang et al. 2009b). Wang and Feng
(2001) indicate that the policy of self-reliance of this period that meant limited
commercial energy supply led to over-dependence on local resources but ineffi-
cient technologies, limited local resources, and high population pressure meant
that local supplies were often inadequate, and this resulted in energy shortages.

5.2.2.2 The Era of Market Reform (1978–1997)

The adoption of the Open Door economic policy in 1978 marked a new era in
terms of economic policy, which led to a rapid economic growth. The subsistence
agriculture gave away to more ‘‘commercialised and industrialised’’ economy led

6
This is calculated from the data obtained from China Statistical Yearbook (2010).
5 The Chinese Model of Rural Electrification and Electricity Access 111

by the Township and Village Enterprises (TVE). This economic transformation in


rural areas generated more employment, created revenue and reduced rural pov-
erty. Higher rural income and better electricity availability increased the demand
for electricity and other commercial energies (Wang and Feng 2001).
This period saw a shift towards an integrated energy strategy and rural energy
management. Four rural energy technologies, namely small hydropower, biogas
units, improved biomass stoves and firewood forest plantations were promoted to
encourage re-forestation, conservation of coal and firewood through better tech-
nology use, and expansion of biogas development alongside small hydropower
development (Catania 1999; Zhang et al. 2009b). Simultaneously, pilot projects
were initiated in 12 counties to build integrated rural energy construction projects,
the successful completion of which led to diffusion of these systems in all rural
areas in the 8th five year plan (1991–1995) (Catania 1999). Similarly, the State
Council piloted rural electrification through development of small hydropower
plants in 100 rural hydro counties. These counties achieved this target in 1995 (Pan
2002).
The new wave of thinking and enterprise reforms carried out during this era
allowed decentralization of operations and devolution of powers amongst com-
ponent units of government to fast-track the electrification process. By 1990, the
contribution of the local governments to total investments in power projects rose
from 1 % in 1983 to a 17 % in 1990 (Zhao 2001). More revenues accrued to the
local governments due to special taxes imposed on power development in 1988,
and a major portion of this revenue was invested in small power plants of 10 MW,
light industries, real estate and processing industries, all of which raked in high
short term profits (Zhao 2001). Funding for capital projects from higher govern-
ment agencies to county and local governments increased during the late 1970s
(Peng and Pan 2006). Consequently, rural electricity availability improved.
By the end of the 1980s, 78 % of people living in the rural areas had access to
electricity and by 1997 the rural electrification rate reached 97 %. Per capita
electricity consumption increased to 235.2 kWh in 1997, representing a seven fold
increase in use level compared to that in 1978.7 The share of electricity in the
overall energy consumption increased to 11.5 % (Zhang et al. 2009) due to a
significant increase in electricity use for residential and productive purposes, with
productive use accounting for 62 % of rural electricity consumption in 1999
(Zhang et al. 2009b).
Yet, supply capacity shortage continued as the demand outstripped supply.
Increased use of coal and non-commercial energies between 1979 and 1995 also
led to environmental degradation. Wang and Feng (2001) argue that three factors
contributed to a low share of electricity in the overall energy mix: (a) high elec-
tricity price for rural consumers due to high level of power loss in the old power
network; (b) the long-standing supply shortage; and (c) the policy bias towards
urban consumers who received higher priority in supply. Low voltage and outdated

7
Based on China Statistical Yearbook (2010) data.
112 S. C. Bhattacharyya and S. Ohiare

network in the rural areas was responsible for 20–30 % line losses compared to 8–
9 % losses on the national level (Wang et al. 2006).
The challenges triggered another institutional restructuring to increase energy
supply capacity, while minimising the demand for energy through efficient use of
energy and reducing its intensity (Zhao 2001). These reforms, which basically
involved the transition from a centrally planned system to a more devolved one,
were targeted at the rural areas towards giving the counties and local authorities
more autonomy in investment decision making. The reconstruction of rural power
system was undertaken during this period to reduce power transportation losses.
The ‘‘pilot counties’’ provided encouraging results where losses reduced signifi-
cantly (Wang and Feng 2001).

5.2.2.3 Era of Dynamic Market Economy from 1998 Until Today

As the target of universal electricity access was almost achieved by 1999, the focus
shifted to better system management, system renovation and better regulatory
control. The non-standard and uneven growth of the rural network led to high
system losses and poor performance. The State Council decided to upgrade rural
electricity networks through an allocation of RMB 180 billion (equivalent to about
18 billion British pound) from treasury bonds (Yang 2003). This project led to
tangible benefits through a significant reduction in transportation losses (from 25
to 12 %), which also helped in reducing the rural electricity tariffs (Pan 2002).
Harmonization of electricity tariffs between rural and urban consumers helped
promote rural consumers. Simultaneously, China also undertook an ambitious plan
to electrify remote areas in a phased manner through the Brightness programme,
Township programme and then Village Electrification programme. A brief
description of the Brightness Programme and Township Electrification Programme
can be found in Box 5.1 below.

Box 5.1: Renewable energy-based rural electrification programmes in China

Here we present a brief account of two main programmes, namely the


Brightness programme and the Township Electrification programme.
The Brightness Programme
The Brightness electrification program was introduced in 1996 with an
objective of providing electricity to 23 million people in remote areas by
2010.8 Its strategy is to use renewable energies like wind or solar in meeting
its objective. Pilot projects were launched in 2000 in three western provinces
(Inner Mongolia, Tibet and Gansu) to test the programme and better
understand any issues related to the successful implementation of the

8
National Renewable energy laboratory: Renewable energy in China, Brightness Rural
electrification program found at http://www.nrel.gov/docs/fy04osti/35790.pdf.
5 The Chinese Model of Rural Electrification and Electricity Access 113

programme. The pilot projects successfully installed 5515 SHS, 518 wind/
solar hybrid systems and 5 solar/hybrid power stations at a cost of 40 million
RMB (around USD 50 million) (Shyu 2010). The pilot projects provided
important insights related to service networks, financing mechanism, train-
ing needs, and manufacturing needs.
The Township Electrification programme
As a scaling-up effort of the pilot projects, a new programme was launched
in 2002 called the Township Electrification Programme to extend electricity
access to 1013 non-electrified townships in 11 western provinces (Shyu
2010). This is now regarded as the largest renewable electricity supply
programme in the world. The RNB 4.7 billion programme (IEA 2010)
totally funded by the Chinese government aimed at supplying renewable
energy-based electricity to power businesses and homes with sufficient
capacity to supply basic needs such as public facilities, lighting and enter-
tainment. The programme relied on system integrators who designed, pro-
cured and installed the systems while the service companies were
responsible for operating and maintaining the systems. Thirteen system
integrators were chosen through a competitive bidding process and by 2005
when the programme was implemented, more than 840,000 people were
supplied with electricity.

Once rural access rose to 99 % during this era and urban China achieved a
100 % electrification rate (IEA 2009), the rural electrification efforts have slowed
down (IEA 2010). Between 1997 and 2007, the electricity consumption in rural
areas trebled and electricity consumption per capita increased to 856.3 kWh in
2009.9 The share of productive use of electricity marginally increased to 65 % in
2007, while the rest was used in households (Zhang et al. 2009b). However, the
rural electricity consumption per capita in 2008 is just 30 % of China’s average
electricity consumption. This suggests that the rural electricity market has not
reached its saturation level and further development will take place in the future.
Three phases of electrification of rural China as discussed above are charac-
terised by specific developments (Wang and Feng 2001). While the policy of self-
reliance amidst dramatic social changes during the first period failed to manage
severe shortage, a contrasting development took place during the second phase
when a rapid expansion of the electricity system was achieved that allowed
widespread use for irrigation as well as for lighting and other household uses (e.g.,
TV, fans). The third phase has further expanded electricity use to Town and
Village Enterprises. Electricity is also being used in highly energy intensive
appliances (such as air-conditioning, washing machines, refrigerators, etc.) in rural
areas and the appliance holding has rapidly increased.

9
This is calculated from the China Statistical Yearbook (2010) data.
114 S. C. Bhattacharyya and S. Ohiare

5.2.3 Specific Features of Rural Electrification in China

China, unlike many other developing countries, has relied on multiple resources,
and multiple distribution channels for its rural energy supply (Catania 1999). The
specific features of Chinese electrification considering the technical, organiza-
tional and financial aspects are presented here.

5.2.3.1 A Multi-Mode Delivery System

Unlike most developing countries where the grid extension has been the preferred
mode of electrification, China has experimented with alternative strategies. Pan
et al. (2006) report that rural electrification relied on three modes of delivery: local
grid-based, central-grid based and a hybrid system of local and centralised grids.
Local grids played an important role in areas with large hydro potential where
county water bureaus or small hydropower companies are responsible for elec-
tricity supply. However, the dominant mode of supply remains the extension of
central grid [about 2/3rd of the counties relied on this as per Pan et al. (2006)] but
due to high cost of transmission and high losses of this mode, rural consumers
either face shortages or are unable to afford electricity from the grid. This has also
prevented the development of local resources in these areas. The third mode (i.e. a
hybrid system) is used in areas where hydropower is inadequately available to
meet local demand. ESMAP (2000) noted that the delegation of electricity pro-
vision to local power companies in the first instance and then integration of the
local grids to the central system has allowed the Chinese system to accomplish a
higher rate of access.
Although the main emphasis was on grid-based electrification, China has also
undertaken a number of off-grid initiatives to provide electricity access, especially
in remote locations where grid extension is difficult. Zhang and Kumar (2011)
indicate that the cost of grid extension in western or north-western China has been
reported to range between $5000 and $12,750 per kilometre, making the option
uneconomic. Therefore, to reach the population in these areas, China has initially
launched the Brightness Programme in 1996, which was then scaled-up to include
1065 townships in 12 provinces under the name of Township Electrification Pro-
gramme. In addition, various bilaterally and multi-laterally assisted programmes
were also undertaken (See Shyu 2010 for more details) to promote rural energy
supply through renewable energies.
Stand-alone systems have been mainly used in remote areas of North and
Northwest China and include provinces such as Gansu, Inner Mongolia, Qinghai
and Xinjiang. Photovoltaic systems are being used in these areas since mid-1990s.
A recent report, World Bank (2009), claims that more than two million people in
western China are receiving electricity through PV systems. Between 2002 and
2007, companies have reported a total sale of more than 0.5 million PV systems
5 The Chinese Model of Rural Electrification and Electricity Access 115

Fig. 5.4 Rural hydro


capacity (GW)

with an aggregate capacity of 11.5 MWp. Four provinces account for the majority
of these sales: Tibet, Qinghai, Sichuan and Xinjiang.

5.2.3.2 A Multi-Resource Focus

The Chinese strategy for rural electricity supply has focused on a number of
energy sources. Reliance of local resources was an important consideration.
Small hydro power:10 Hydropower has played an important role in the elec-
trification of rural China since the first phase of its development (i.e., in the central
plan period). The self-reliance policy during the central planning period and the
policy of empowerment of rural population through utilisation of local resources in
the reform era stressed on small hydropower development. Small hydro power
(SHP) served multiple purposes—produced electricity, provided irrigation water
and supplied drinking water in rural areas. It also offered environmental benefits
through reduced firewood dependence. Small hydropower incentives in terms of
reduced VAT rate and state investment funds were provided to make this a success.
This helped resolve the power supply problem in many areas and small hydropower
accounts for more than one-half of the local generating capacity (Pan et al. 2006).
The growth in hydro capacity for rural energy supply is presented in Fig. 5.4.11 The
rapid growth in this area can be attributed to, among others, a decentralised
approach, reliance on special policies and strategies, manufacturing capabilities,
and a close co-ordination with rural electrification programmes (Hicks 2004).
However, SHP was not always the cheapest option because of high initial cost for

10
The definition of small hydropower (SHP) has evolved over time—in the 1950s, stations
below 500 kW were considered as SHP. In the 1960s, the size increased to up to 3 MW. The size
was increased to 12 MW then and now up to 25 MW stations are included as SHP (Hicks 2004).
This adds to the data consistency issue as well.
11
A sharp increase in capacity is shown in the diagram since 2007. IEA (2010) also confirms the
overall capacity at 51 GW. This change may be due to a change in the definition that increased
the size of hydro plants to 50 MW from 25 MW used earlier.
116 S. C. Bhattacharyya and S. Ohiare

Fig. 5.5 Coal output from


small rural mines in China

small plants, subsidised supply of other energies, and high per kWh cost due to
limited electricity supply due to hydrological factors (Hicks 2004).
Coal-based power: Because of widespread availability of coal, China followed
a policy of small, local mine development with an objective of reducing rural
poverty. Small-scale coal mines are found in all provinces of China and these were
developed since 1950s but the big push came after the economic reform when the
demand for coal increased. The average output of these mines can be as low as
4,000–25,000 tonne per year, while the largest ones can produce as much as
100,000 tonnes per year (Andrews-Speed et al. 2003). These mines were promoted
in the 1980s to avert the severe energy crisis China was facing in the period of
economic reform. They were owned by provincial government in general and were
a major source of employment (Andrews-Speed et al. 2003). These mines enjoyed
a number of cost advantages (Zhu and Cherni 2009)—their cost of production was
low as they extracted coal from shallow seams; they paid low wages to miners;
they were subjected to less tax payments and social burdens; and they hardly
invested on safety and environmental protection. Zhang et al. (2009b) suggest that
in 1996, there were 73,000 Township coal mines in the country that employed
20 million people. The price liberalisation of coal also gave a further boost to these
mines and by 1995, they produced about 45 % of the national output (see Fig. 5.5).
But recently, the government has imposed a ban on these mines to reduce safety
hazards and environmental degradation. Even then, 13,900 non-state mines were
operating in 2007 and produced 908 Mt of coal, which represented 36 % of
national coal output (Zhang et al. 2009b).
Development of modern renewable energies: This is a new initiative to use
modern renewable energies like wind and solar power. Although these energies
have been emphasised since 1990s, serious efforts have been made in the new
millennium to promote modern renewable energies. China relied on three specific
approaches—small- and micro-hydro was used where hydro potential exists; mini-
grids and village networks using renewable energies were developed in areas with
‘‘clustered households and township infrastructure’’ (Zhang and Kumar 2011).
In remote areas, off-grid technology options were used.
5 The Chinese Model of Rural Electrification and Electricity Access 117

It must be mentioned here that biomass plays an important role in rural energy
supply in China but instead of traditional burning, bio-gasification has been pro-
moted widely in the 1980s, making China the world leader in biogas production
(Zhang et al. 2002). As biogas is mainly used for heating and cooking, it is not
considered here.

5.2.3.3 A Multi-Level Organisational Arrangement

Although the organisational arrangement for rural electrification has changed


significantly over the past 50 years,12 China has followed three levels of man-
agement—central government, provincial government and county or village level
committees. At the Central level, traditionally a multitude of organisations have
played a role but the Ministry of Agriculture and the State Planning Commission
(or its new avatar National Development and Reform Commission, NDRC) have
always played an important role. In general, all programmes require NDRC
approval. The provincial level management caters to the province level efforts but
also supports the county level management in achieving the central government
objectives. The county level management is responsible for the local-level deci-
sion-making about financing, resource mobilisation and operation of the systems
(Catania 1999).
However, during the first period of rural electrification, there was no national
entity responsible for rural electricity system management or development (Pan
2002). The role of local government was strengthened in the era of reform, when
the central government transferred the responsibility of rural electrification to local
governments. However, the tariff-setting power was still with the central gov-
ernment and in the mid-1980s, a policy of dual tariff system was introduced
whereby old plants get old tariff while new plants are allowed new tariff (Pan
2002). This was done to encourage new investment in the sector. Management
through the decentralised local governments was a main driving force behind the
success of rural electrification in China (Pan et al. 2006). Each county created a
rural electrification leading group led by the local chief administrative officer
(county governor) to take important decisions on rural electrification investments
and operation. However, the distinction between the utility function and the local
governance function was non-existent, which in turn led to performance-related
issues subsequently.
Due to the clash of interests and power tussles between the central government
and local governments experienced towards the end of the 1980s and early 1990s
which posed a great threat to the rural electrification drive of China, the central
government took over some responsibilities and powers hitherto devolved to the
local governments during the transition era 1980–1992. The period 1993–1998
ushered in another wave to institutional restructuring towards re-positioning the

12
See Zhao (2001) for a detailed account of the organisational changes in the energy sector.
118 S. C. Bhattacharyya and S. Ohiare

central government to effectively control the production and consumption of


energy in the nation’s economy. Here, the Ministry of Energy was broken up, and
in its place, the State Economic and Trade Commission (SETC) was established,
while the State Planning Commission (SPC), currently the State Development
Planning Commission (SDPC), and Ministry of Coal Industry and Ministry of
Electric Industry (MEI) were re-established (Zhao 2001). Though existing Min-
istries and Government Corporation were equally expanded and strengthened
during this era, and controls over investments consolidated by the central gov-
ernment, there was the challenge of effective coordination of these agencies and
duplicity of policy implementation, which triggered criticisms amongst energy
experts in China.
The re-organisation and reform of rural electrification in the third phase tried to
address this issue by separating the responsibilities and introducing service or
utility companies in rural areas. This commercialisation process has helped
improve the performance of the sector significantly, by removing inefficiencies and
bringing role clarity. However, issues related to asset ownership cropped up, as the
collective assets held by the counties had to be transferred to companies that may
be privatised in due course.
In the case of decentralized electrification, the project implementation is done
through competitive bidding. State companies, private entities and former state
companies as well as start-ups participate in these activities. The National Energy
Administration (NEA) normally deals with the planning related to rural
electrification.

5.2.3.4 Strong Financial Commitment

Rural electrification projects in China are usually financed by government or


international funding supported by local communities. The financing arrangement
varied with the phase of development. During the era of centrally planned eco-
nomic development, China faced severe financial constraints due to its isolation
from the rest of the world. The local communities and local governments funded
any investments, with limited or no central government support in most cases.
Local communities also provided labour or in-kind support but the asset ownership
rested with the local governments (Pan et al. 2006). While some funding support
for specific activities came from the central government (e.g., the equal share
policy for hydropower development or central support for rural electricity infra-
structure expansion), most of the investments during this period were locally
made. The return on the investments were re-invested in the sector itself, thereby
allowing further expansion of the system.
The Chinese government formulated some policies during the 1970s such as the
rural electrical irrigation and agricultural production programme, electricity rev-
enue for electricity policy geared towards hydroelectric power projects, as well as
national subsidies at 20 % of the cost of construction, but, investments in rural
energy projects during this era were solely carried out by counties and local
5 The Chinese Model of Rural Electrification and Electricity Access 119

communities without much support from the central government. The asset
ownership rule was clarified in 1973—investor is allowed to own and operate the
asset. This policy encouraged investors to invest in hydro projects (Pan et al.
2006).
The Chinese government has over the years provided specific low interest loans
for rural energy development. For example, loans granted for the execution of
large and medium biogas projects, wind and solar projects by the government all
have interest rates which are almost half the interest rates obtainable on similar
projects at a commercial rate. Although, the commercial banks are seen to be
largely involved in providing private sector lending to the Chinese public, they
have not been very active in providing finance to rural energy projects. The reason
for this is the high risk and low profit margins that may be associated with these
energy loans. With a developed rural banking infrastructure, the links between
these banks and the rural energy renewable sector in supporting some of these rural
projects is still weak.
The source of funding changed during the next period when more government
funds were allocated to rural electrification. The government arranged funds from
the Agricultural Bank of China for rural grid construction and transformation. In
addition, grants, loans, in-kind contribution were also available. In 1987, the
government created a special interest-bearing loan for rural electrification which
was used for large biogas plants, solar thermal and small-scale wind projects. The
interest was 50 % subsidized by the commercial bank. But the decentralized
electrification was either fully financed by the central government or through a
cost-sharing scheme where the provincial government contributes a share. The
Township Electrification Programme which supported off-grid electrification in 11
provinces was a joint financing scheme where the share of central contribution was
determined by the level of socio-economic development. In certain provinces,
100 % central contribution was available (e.g., Tibet).
However, this era also witnessed some challenges as local authorities invested
only a fraction of revenues on energy projects and looked up to the central gov-
ernment for financial assistance and credit towards bridging the gap in energy
supply. This period also witnessed various energy fees and taxes on industries, as
well as increased the rents on land and other services. These led to frictions and
clashes of interests between the central government and the local authorities. More
so, there was an increase in the financial deficit of the central government due to
the rising tax regimes imposed by the local governments, which led to a reduction
in the central government’s control of resources, further deepening the friction and
power tussle between the federal government and the component units.
In the third phase, the government invested heavily in improving the network
system and also to provide access in the remote areas. The government invested
RMB 230 billion (or equivalent to £23 billion) in the Rural Power Grid
Restructuring project between 1998 and 2003 (Wang et al. 2006). 20 % of the
investment came from the central government while the rest came from the
preferential loans from development banks and locally matched finance (Wang
et al. 2006). An investment of RMB 9.88 billion (or equivalent to £1 billion) went
120 S. C. Bhattacharyya and S. Ohiare

into the Brightness Program, whereas RMB 4.7 billion (or £0.5 billion) was
invested in the Township Electrification program (Wang et al. 2006). RMB
2.96 billion (or £0.3 billion) came from the central government while the rest
came from local governments (Wang et al. 2006). Clearly, the state participation
has played a vital role in extending the electricity access in China, although
community contribution in the process was crucial as well.

5.2.3.5 Issues

China still faces a number of problems despite achieving 100 % electrification.


Gao and Luo (2009) indicate that the investment in transmission and distribution
networks lagged behind that for power plants, which created network inefficiencies
and bottlenecks, especially when the rural demand is growing fast. Moreover, the
regional imbalances in terms of electricity use and access continue. Zhang et al.
(2009) reported that the asset ownership has not been clarified in many cases and
although the Provincial Power Grid Company is investing heavily in the county-
level grids, issues such as responsibilities and right, asset cross-over, profitability
of assets, property right, liabilities for loans, etc. still continue to bother the sys-
tem. Evidently, the path dependence and lock-in effects are important to consider
so that a proper transition can be easily made.
Rapid electrification has led to tariff inconsistency, overlapping responsibilities,
and poor technical quality of supply. For Brightness Programme/Township Pro-
gramme, the use of inappropriate materials/designs has resulted in a high rate of
system malfunctions. For Township programme, issues like transfer of ownership,
management and maintenance of systems, financial support for the long-term and
tariff in the future etc. are not clear. Similarly, as small capacities suitable for
limited level of applications are used, the long-term needs are unlikely to be
satisfied. Because some technologies were never deployed in a large scale, their
long-term future is unknown (IEA 2010). Further, the subsidised systems have not
always benefited the poor who cannot afford the services and who could not
replace the capital assets at the end of life (Mohanty 2010). The increase in
demand is putting pressure on subsidies and there is no mechanism for determining
the real cost of off-grid electrification.
Simultaneously, despite its reliance on a bottom–up approach to development,
it is not really evident that the Chinese electrification programme has achieved
local resource integration for power generation in an effective way. Although the
focus has been on hydropower, coal and biogas development traditionally and of
late on modern renewable energies (such as wind and PV), there is no evidence to
show that the electrification programmes really considered the resource potentials
and opted for the most economic options. In fact, in the early days the focus on
self-reliance actually led to de-forestation due to over-exploitation of biomass
resources. There is still potential for an integrated rural energy development to
ensure long-term security and sustainability of supply.
5 The Chinese Model of Rural Electrification and Electricity Access 121

The renewable energy-based electrification raised a number of issues (Zhang


and Kumar 2011). First, the present system is unable to support power needs other
than basic lighting and telecommunication. Other productive uses of electricity
that will bring income generating opportunities cannot be supported by the present
system and therefore larger systems will be needed to maintain this. There are also
concerns about future demand growth and the ability of the system to meet the
demand in the long-term. Second, instead of optimising the use of local energy
sources to meet the demand, a fixed configuration was used, which neglected the
appropriate use of local resources. Third, weak quality management systems led to
poor system performances, including black outs. Poor production quality man-
agement as well as lack of commissioning checks and supervision has affected the
performance of renewable energy systems. The problem worsens when the above
is coupled with the neglect of proper operation and maintenance at the village
level. Fourth, the ‘‘confused ownership’’ of the systems, especially those funded
through grants or donor support, hindered proper management and operation of the
systems. Finally, there are tariff related issues as well. The tariff-setting process
and its collection are haphazard, and the tariff is often inadequate to meet the
expenses. There are also issues related to the availability and flow of subsidies.
Byrne et al. (2007) suggested that the removal of such barriers will require a
‘‘multidimensional response, including policy and institutional reform, market
development, new financing initiatives and a concerted outreach and training
effort’’.

5.3 Learning from the Chinese Electrification Experience

The Chinese experience provides a number of lessons for others and a number of
critical factors can be identified behind the success of the Chinese case. Similarly,
the contrast with the Indian experience can also be instructive. These are discussed
below.

5.3.1 Critical Success Factors

China’s success in providing electricity access to its entire population remains one
of the inspirational stories for the rest of the world trying to achieve the same feat.
A number of critical success factors can be identified from the Chinese experience
and are discussed below.
Bottom-up approach to electrification: Unlike other developing countries that
followed a top–down approach to electrification, China has relied on a bottom–up
approach, where the local level administration and participation was responsible
for the local solution. The approach allowed flexibility and was anchored in self-
reliance. Although it may be argued that this started not as a deliberate policy
122 S. C. Bhattacharyya and S. Ohiare

innovation as such in a politically isolated country in its initial days but as a


desperate, last resort option of some sort, the credit still goes to the country for
retaining this decentralised approach in an otherwise planned, command-oriented
economy. This is echoed in IEA (2010) which attributes the success of electrifi-
cation to the pragmatic approach which allowed local level administrative
responsibility of the projects while retaining the overall programme planning at the
central level. Government’s commitment to the programme was crucial for its
success.
Phased approach to development: Alongside the decentralised approach to
electrification, China also recognised that the rural electricity systems are essen-
tially different from the urban ones due to the difference in demand patterns.
Consequently, the establishment of local grids at the village or community level
initially followed by an upgrading of the system to link to the regional or national
network proved to be a pragmatic approach. This placed the onus of initial demand
creation on the local communities and because of the ‘‘self-reliant’’ supply policy,
they were also required to develop a suitable system. The expansion and upgrading
of the system at a later date proved less challenging due to better financial and
economic standing of the country.
Early recognition of rural electrification-rural development link: While
most other countries have taken up electrification as a social policy objective of the
government, China recognised that rural electrification and rural energy supply is
closely linked to rural economic development. Its focus on agricultural develop-
ment in the planned economy phase and on TVE in the reform era clearly high-
lights this recognition. World Bank (1996) attributes the success to rural
development initiatives that have transformed the rural economy and thereby
increased rural income greatly. Yang (2003) and Peng and Pan (2006) also suggest
that the decentralised, local level management of rural electrification initiatives
and the emphasis on rural development through agricultural activities, town and
village enterprises and poverty reduction programmes were also responsible for
the success of the country. Dollar (2008) pointed out that with sustained economic
growth China has been successful in reducing its poverty from over 60 % in 1978
to 7 % in 2007. He attributes this to a liberalised agricultural sector, existence of a
vibrant private sector, and infrastructure pricing based on cost–recovery principles.
China Statistical Yearbook (2010) indicates that in 2009, only 3.3 % of the rural
population had an annual income per person less than 1000 Yuan (or £100 per
capita income per year) while in 1990 the share was 82.3 % in 1990. About 53 %
of the rural population had a yearly income between 1000 and 5000 Yuan per
person (or between £100 and £500) in 2007 while the rest (about 44 %) had an
income above 5000 Yuan per person per year (or above £500). This shows the
change in the economic conditions of the rural habitants. As a consequence, the
holding pattern of durable goods has changed dramatically. For example, in 1990,
air conditioner was not at all used in the rural areas but in 2009, 12.2 units of air
conditioners are found in every 100 households. Similarly, the number of washing
machines and refrigerators has multiplied manifolds: in 1990, only 9.1 and
1.2 units respectively of washing machines and refrigerators were found in every
5 The Chinese Model of Rural Electrification and Electricity Access 123

100 households while in 2009, the number has increased to 53.1 and 37.1
respectively (China Statistical Yearbook 2010).
Organisational arrangements: The hierarchical organisational arrangement
with devolved powers and responsibilities at the lowest level and the central
administration setting the overall programme objectives have also helped in
implementing the programmes successfully.
Pilot projects and capacity building: China used pilot projects to gain vital
information before implementing it on a large scale. This small-scale experi-
mentation has allowed programme adjustments and helped the country to direct
resources where necessary. In addition, the emphasis on training and capacity
building, standardisation and dissemination has helped in spreading the knowledge
widely across the country. The development of a cadre of skilled technicians and
project staff and the performance improvement through feedback loops were also
essential factors.
Technological flexibility: Because of emphasis on local resource utilisation,
China allowed selection of locally-relevant energy sources and as a consequence
allowed technological diversities to co-exist. Although the main emphasis was on
small hydropower and coal initially, there was never a ‘‘single solution fits all’’
approach. Technological flexibility has also allowed local resource utilization and
avoided highest cost options for difficult locations. The sense of local ownership
has also ensured success of projects in remote areas.
Local manufacturing base: China’s strong manufacturing strength has also
helped in reaching the rural areas. The country has developed a strong manufac-
turing capacity in hydropower equipment, biogas and even in modern renewable
energies. Continued growth in demand and consequent exploitation of scale and
scope economies have resulted in lower supply costs, making supply more
affordable. Moreover, local supply also reduced external dependence and project
completion time.
Funding arrangements: Peng and Pan (2006) argue that funds for rural
electrification flowed from central and local governments and even local residents
participated in providing funds. Strong state support and the ability to engage the
local communities to the creation of local infrastructure have surely contributed to
the success. Dollar (2008) indicates that although the state invested in creating the
infrastructure, the pricing system ensured almost full cost recovery, which in turn
allowed future sustainability of the system. He points out that increased private
participation also supported this growth and in fact, cost recovery allowed
domestic private sector to achieve a significantly better financial result. In fact,
China has avoided the trap of high electricity subsidy syndrome noticed in many
South Asian countries.
Policy influence: Yang (2003) and Zhang and Heller (2004) suggest that the
central government policies played an important role in promoting rural electri-
fication. This is evident from the review of the electrification process presented
above.
124 S. C. Bhattacharyya and S. Ohiare

5.3.2 Lessons for Others

Clearly, China’s success in providing electricity access to its population is an


inspiration for all other developing countries that are trying to achieve universal
electrification. A number of lessons can be learnt from the Chinese experience and
are summarised below:
Strong commitment: Any ambitious programme requires a strong government
and stakeholder commitment. The key success factor in the Chinese case was the
strong central government commitment to rural electrification. The Central support
was essential for developing programmes, providing directions and for funding.
Surely a strong political power system in China helped such a strong control over
the programmes, which may be difficult to replicate in more democratic systems,
although examples of strong policy-making systems exist in other political
systems.
Active local participation: Rural energy and electricity supply requires active
local involvement and participation. Programmes are likely to work better when
there is strong state support in terms of finances and design, but are implemented
through local buy-in and participation. This however requires a strong local level
governance mechanism that has close links with other levels of the governance.
The Chinese experience shows that local level systems can be created through
local contributions and support.
Multiple solutions: As each rural area has its own specific characteristics in
terms resources, economic activities, geography, etc., one solution does not fit all.
Although grid extension has been the most common approach in China to ensure
electricity access, the reliance on multiple technologies and multiple systems
simultaneously has proved to be effective. The use of local level grids initially to
provide supply by using locally available resources and then building a network of
local to regional to national grid can be an alternative approach to electrification
compared to the standard approach of heavy reliance of extending the grid alone.
Rural development: Electricity or energy provision cannot be divorced from
the rural development agenda. The development of agriculture and TVE confirms
that only when rural population has access to economic activities to earn a decent
living, rural electrification succeeds. This rejoins the issue of proper selection and
clustering of activities in each area or community, considering its specific
characteristics.
Local capacity building: Success also depends on learning from the small
scale experiments (pilot projects) and learning from others. Simultaneously,
training and capacity building for designing, operating and maintaining systems is
essential. Even a village-level project remains technically demanding and without
proper training and capacity building, such systems cannot be effectively run.
Moreover, standardisation of systems and enforcement of quality and safety
aspects are crucial for a reliable and safe supply.
Consideration for environmental issues: The Chinese example also suggests
that local environmental issues related to rural electricity development cannot be
5 The Chinese Model of Rural Electrification and Electricity Access 125

neglected. Although China promoted small hydro power, yet unplanned devel-
opment of this resource can have significant environmental impacts. Similarly,
small-scale coal mining has damaged the environment and is responsible for fire
and flooding hazards. It is appropriate to consider these issues at the time of
planning and development.

5.3.3 Comparison with the Indian Experience

Although both China and India initiated their electrification efforts in the 1950s,
the two most populous countries in the world have produced very different out-
comes. With almost 100 % electrification rate, China stands out in the developing
world, whereas India still has a large population without electricity access. The
differences in their approaches explain the outcomes to a large extent.13
China has relied on a bottom–up approach, where the local-level administration
and participation was responsible for the local solution. India on the other hand
had relied on a top–down approach, where the Central government developed the
schemes, provided funding but required the state agencies to implement them.
There was limited local-level participation in India.
China adopted a phased development approach where local grids at the village
or community level were established initially, followed by an upgrading of the
system to link to the regional or national network. India on the other hand followed
a unified approach mainly based on grid extension, although decentralized options
were also used subsequently. However, lack of demand in the rural areas and poor
ability to pay of the consumers did not provide any incentive to the utilities to
extend supplies.
While both India and China recognised that rural electrification and rural
energy supply is closely linked to rural economic development, China’s emphasis
moved from agricultural development in the planned economy phase to Town and
Village Enterprises in the reform era. Through sustained rural economic activities,
China was able to reduce rural poverty rapidly and improve the living conditions
of its population. Rural Electrification programme in India on the other hand was
launched in the 1950s with two distinct dimensions viz. (1) Village Electrification.
(2) Irrigation Pump set Energisation. The former enhanced consumer satisfaction
and the latter optimised crop yield. The area of focus was maximising farm output,
which did result in the Green Revolution in the mid-1960s. Although the Green
Revolution was limited to a few states and a few crops, it transformed the country
from an importer of food grains to a self-sufficient (and even exporter) nation.
Thus, from a macro point of view, rural electrification was a success with benefits
having trickled down to the Indian farmers, though probably to those with com-
paratively bigger farm holdings. However, there was no parallel development in

13
This is based on Bhattacharyya (2012).
126 S. C. Bhattacharyya and S. Ohiare

the rural industrial activities, which in turn did not create industrial employment
and alternative income generation opportunities. This has reduced the commercial
attractiveness of rural electrification activities in India.
China allowed selection of locally-relevant energy sources and as a conse-
quence allowed technological diversities to co-exist. Although the main emphasis
was on small hydropower and coal initially, there was never a ‘‘single solution fits
all’’ approach. Technological flexibility has also allowed local resource utilization
and avoided highest cost options for difficult locations. In India this was never the
case, although various schemes were designed from time to time. Thus local
electricity generation at the rural level did not receive any attention.
The sense of local ownership has also ensured success of projects in remote
areas. Further, strong state support and the ability to engage the local communities
for the creation of local infrastructure have surely contributed to the success. On
the other hand, local ownership and participation was not promoted in India and
therefore, rural electrification was a state-driven activity.
Moreover, China followed a pricing system that ensured almost full cost
recovery, which in turn allowed future sustainability of the system. In fact, China
has avoided the trap of high electricity subsidy syndrome. The approach was thus
flexible, pragmatic and anchored in self-reliance. On the other hand, the Indian
practice of subsidised and unmetered supply to agriculture and small consumers
proved to be very costly for the utilities, making them financially unsound in the
first place. As local resources or local grids were not used, electricity only reached
villages during off-peak hours. The quality of supply was often very poor and
neither the consumers nor the utility were happy with the entire process. This
resulted in a poor rate of electrification until recently when a new drive for rural
electrification was initiated in 2005 through a centrally-sponsored scheme. The
country made significant progress since then but reaching the target of universal
electrification will take some more time.
The differences in the approaches highlight the need for careful decisions about
technology choices, energy resource selection, organizational arrangements,
pricing decisions and community participation.

5.4 Conclusions

The Chinese model of electricity access provision is a pragmatic approach that has
evolved over the past 60 years as it passed through the command-and-control era
to a more market-oriented economy. Obviously, the strategy required several
adaptations and adjustments—starting from a locally-developed, locally managed
programme using local resources, the strategy moved to a combination of central
grid extension and use of local grids and finally to off-grid solutions, with strong
state support. But it appears that the approach has clearly tried to make best use of
available resources and opportunities, keeping the constraints in mind within
which the country had to operate at different phases of its development. Thus, the
5 The Chinese Model of Rural Electrification and Electricity Access 127

self-reliance approach of the Maoist era with an emphasis on the mobilisation of


local level resources for electricity supply mainly for agricultural purposes, or the
dual approach of grid expansion coupled with local grid based supply in the reform
era was trying to find local answers to the problem that suit the local context. But a
strong commitment of the central government and its financial support, especially
in the later half of the development, has produced the result.
At the same time, a better articulation of the electricity access issue with rural
development firstly through a link with agriculture and subsequently through the
TVE was a key to the success as well. While other countries have struggled to
achieve this balance, China has succeeded in doing so effectively, and often
without introducing distorted incentives such as heavy reliance on subsidies.
Additionally, the idea of developing local grids first and then attempting an
integration worked well, as it allowed demand creation using appropriate small-
scale systems, which could be either upgraded or connected together to form a
regional network. Although the issues of non-standard supply, weak networks and
high power losses emerged as a consequence, the benefits of the phased approach
to development appear to have exceeded the costs, because of rapid reduction in
the number of people without electricity. While further work is required to
ascertain whether the Chinese model can be replicated elsewhere or not, it surely
serves as an inspiration for the rest of the world. Surely, all developing countries
can learn lessons from the Chinese example.

Acknowledgments We have benefited from the comments made on an earlier draft by a number
of specialists. We are particularly grateful to Prof. Philip Andrews-Speed, Prof. Shi Dan,
Dr. Mingying Yang and Dr. Xiaoyi Mu. Usual disclaimers apply.

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Chapter 6
Electrification Experiences
from Sub-Saharan Africa

Subhes C. Bhattacharyya

Abstract This chapter provides a review of electrification experience from the


African continent by focusing on a selected set of country experiences from Sub-
Saharan Africa. The review captures the diversity and similarities of approaches
adopted by the countries in this continent and contrasts the successful examples of
South Africa and Ghana with other Sub-Saharan African cases. The region lags
behind significantly in terms of electricity access and unless huge investment is
made urgently, the region is unlikely to catch up with the global trend. While
strong government commitment, requisite financial support, and organizational
and policy competence have produced clear benefits in the successful cases,
tentative approaches, weak governance and poor financial support have created the
vicious circle of weak outcomes.

6.1 Introduction

In this chapter, a brief review of the rural electrification experience from a selected
set of countries from the African continent is presented. The continent is one of the
least electrified regions of the world but provides a striking contrast between the
North and the sub-Saharan regions. As indicated in Chap. 1, more than 585 million
people lack access to electricity in the African continent (with an overall
electrification rate of just above 40 %) but most of them are concentrated in sub-
Saharan Africa. The contrast with North Africa is striking where 99 % of the
population has access to electricity and less than 2 million people do not have
electricity access in this region (see Table 6.1). On the contrary, the electrification

S. C. Bhattacharyya (&)
Professor of Energy Economics and Policy, Institute of Energy and Sustainable
Development, De Montfort University, Leicester, UK
e-mail: subhesb@dmu.ac.uk; subhes_bhattacharyya@yahoo.com

S. Bhattacharyya (ed.), Rural Electrification Through Decentralised 131


Off-grid Systems in Developing Countries, Green Energy and Technology,
DOI: 10.1007/978-1-4471-4673-5_6, Ó Springer-Verlag London 2013
132 S. C. Bhattacharyya

Table 6.1 Electrification Region Population without Electrification


status in Africa electricity (Millions) rate (%)
North Africa 1.6 99
Sub-Saharan Africa 585.2 30.5
Africa 586.8 41.8
Source IEA (2011)

rate in Sub-Saharan Africa is just above 30 %, with many countries recording a


very high level of non-electrification rate.
Mauritius has achieved universal electrification. Two countries, South Africa
and Ghana, have achieved between 75 and 60 % electrification by 2009, while six
others1 have achieved between 40 and 60 % electrification. Nine other countries
have an electrification rate between 20 and 40 % but all the rest (385 million or
66 % of non-electrified population in Sub-Saharan Africa) are found in countries
that have achieved less than 20 % electrification by 2009. There is also a signif-
icant urban–rural difference—with a high incidence of non-electrified population
in rural areas. This alarming situation requires greater attention in investigating the
present situation and identifying the drivers of poor performance. More impor-
tantly, the electrification efforts have progressed very slowly in the continent
which comes as a striking contrast with other regions of the world. If this slow rate
of electrification continues, a large section of the population will still remain
without access to electricity by 2050 (Eberhard et al. 2011).
The purpose of this chapter is to understand the approaches adopted by a
number of countries in sub-Saharan Africa and identify the lessons. This chapter is
organised as follows: first a review of country experiences is presented which is
followed by an analysis of technical, economic and institutional aspects that
influenced the success and failures.

6.2 Country Experiences

We first consider two successful cases, namely the South African and Ghanaian
cases, followed by six other country examples covering the entire range of electri-
fication spectrum. The choice of countries is informed by the available information
as well as specific research interests about the countries. These cases are presented in
the descending order of electrification rate.

6.2.1 The South African Case

In 1993, South Africa had an electrification rate of 30 %. Since the end of the
Apartheid regime in 1994, South Africa has been active in promoting changes to

1
These countries are Nigeria, Cameroon, Cote d’Ivoire, Botswana , Senegal and Zimbabwe.
6 Electrification Experiences from Sub-Saharan Africa 133

its policies. In 2000, it declared the access to basic services, including electricity,
as a social right. By 2009, the country has achieved a 75 % electrification rate,
with 88 % urban and 55 % rural population having access to electricity (IEA
2010). In 2009, 3.4 million households lack access to electricity, of which almost
50 % live in informal settlements. The government plans to achieve universal
electrification by 2014 (IEA 2010).
South Africa has relied on grid extension as the principal means of electrifi-
cation. Before 1993, the focus was only on urban electrification but during the
Apartheid regime there was systematic discrimination of supply in areas inhabited
by non-white population. Since 1994, the country has adopted an Integrated
National Electrification Programme (INEP) which allows for both grid extension
and non-grid supplies. But off-grid supply has not been widely used and is used
only when grid cannot be extended. Coal remains the main fuel for electricity
generation in the country. Where grid is not extended, solar home systems are used
for electrification.
In rural areas where grid has not reached, the solar home system (SHS) is used as
the means of electrification. The suppliers are selected through an open-bidding
process and they have the obligation of providing cooking fuel (paraffin or LPG)
alongside providing SHS. The suppliers receive a subsidy from the Department of
Energy (DoE). The service provider has a monopoly in its area of service. DoE has
selected 6 private consortia in the first phase of the programme (IEA 2010).
However, the progress in this respect has not been impressive—only 50,000 SHS
have been installed to date. Lack of political will, non-payment of fees by con-
sumers, and the perception of a temporary solution or inferior solution are among
the factors affecting the success of off-grid supply. Renewable energy is publicly
called ‘‘rural energy’’ and this has created a negative image. Technology innovation
for rural electrification has not succeeded. The South African example also supports
the claim that rural electrification as such does not lead to economic growth or job
creation or business development. DoE surveys have confirmed this view.
In South Africa, the electricity business was traditionally carried out by two
types of organisations—the state utility Escom and the local authorities (Bekker
et al. 2008). Escom generates, transmits and distributes electricity while local
authorities distribute in their areas. The responsibility of rural electrification was
with the local authorities in their distribution areas but Escom took over some
crisis-ridden areas and increased its market share in the overall distribution
business (Bekker et al. 2008). By 2008, Escom distributed 55 % of electricity to
end-users while the local authorities served the rest (IEA 2010).
The electrification under the INEP was financed by the state budget and since
2003, has cost about $160 million per year. The financial support is expected to
increase to $280 million by 2012. Bekker et al. (2008) indicated that Escom
initially thought the electrification programme could be self-financing but by late
1990s, it became apparent that this is unlikely and the state took the responsibility
for funding the infrastructure development and subsidising supply. From this
perspective, the financial sustainability of the rural electrification programme is
not ensured.
134 S. C. Bhattacharyya

The South African approach to electrification provides a number of lessons. The


achievement was largely due to a strong government commitment and financial
support. The subsidy provided by the government in creating the infrastructure has
been substantial. However, maintaining the large subsidy for energy consumption
remains a debatable issue. The focus on grid extension as opposed to attempting
alternative solutions is another feature of South African experience. The idea of
avoiding ‘‘low grade’’ solutions perhaps creates a forward loading of capital
investment but avoids a phased infrastructure development for rural areas.
Whether this is a replicable model or not needs to be analysed further. The idea of
bundling cooking fuels with SHS is another innovative idea used in South Africa.
This could help reduce the dependence on traditional energies by the poor. IEA
(2010) suggests that the South African case confirms that rural electrification does
not necessarily lead to economic development.

6.2.2 The Ghanaian Experience

According to IEA (2011) Ghana has achieved an impressive 60 % electrification


by 2009. The rate of electrification has improved steadily since 1988 when the
country had only 28 % electrified population. By 2000, the electrification rate
increased to 43 % and in 2008, 55 % of the population was electrified. However, a
closer look at the electricity use information from the survey of living conditions
(GSS 2008) reveals two interesting features: electricity use is an urban phenom-
enon and the use increases with higher income of the households. For example,
GSS (2008) reports that 78.5 % of the urban population use electricity for lighting
purposes but only 27 % of the rural population generally rely on electricity for
lighting. 88 % households in the capital city (Accra) rely on electricity for lighting
while in other urban areas 74 % of the households use electricity for lighting. The
rural areas of the Savannah region on the other hand enjoys electricity the least for
lighting purposes (16.6 %).
On the other hand, the electricity access by income class in urban and rural
areas (see Figs. 6.1 and 6.2) reveals that the richest rural households have elec-
tricity access similar to that of the poorest urban households. The rural poor have
very limited access to electricity and the situation has remained precarious even in
2005/06. The Upper East and Upper West have lowest levels of electricity access
(World Bank 2007a).
Ghana, like other countries, has followed the grid extension approach to
electrification of rural areas. The first ambitious rural electrification initiative was
undertaken in 1972 but the progress until mid-1980s was limited. In 1989 the
National Electrification Scheme (NES) was initiated that aimed at providing
electricity access to all within 30 years (by 2020). Priority was given to communities
with a population of 500 or more and grid extension was presumed to be the mode of
electrification. The phased electrification scheme was planned as six five-year
programmes and would cover several thousand villages of the country. In the first
6 Electrification Experiences from Sub-Saharan Africa 135

Fig. 6.1 Urban electricity access in Ghana by income class Data Source GSS (2008)

Fig. 6.2 Rural electricity access in Ghana Data source GSS (2008)

phase, the district capitals and towns/villages en-route were targeted. The Self Help
Electrification Programme was introduced in 2001 to accelerate the electrification of
non-electrified areas which would otherwise receive low priorities under the NES
due to smaller population size or other reasons. The Self-Help programme intro-
duced community participation through contribution of low voltage distribution
poles in villages within a distance of 20 km from the grid (World Bank 2007b).
These initiatives brought a rapid improvement in electricity access to reach 54 % by
2004 from 28 % in 1998.
The country also initiated another project in 2000 (called Ghana Energy
Development and Access Project, GEDAP) with the support of the World Bank
which introduced off-grid electricity systems into the electrification programme.
The project also aimed at improving electricity distribution performance and
creating a Rural Electrification Agency (REA) along with a Rural Electrification
Fund (REF). The country has increased its emphasis on increased electricity access
in the new milennium. Ghana adopted its formal energy policy that recognised the
importance of adequate energy supply for meeting development goals. The
136 S. C. Bhattacharyya

poverty reduction strategy also emphasised the importance of rural electrification


for rural poverty reduction.
By the fourth phase, the National Electrification Strategy electrified more than
4800 communities by 2009. Yet, the northern region still lags behind, with Upper
East and Upper West achieving just 30 % electrification. Kemausuor et al. (2011)
indicate that at the current rate of electrification the country may not achieve its
universal electrification before 2035 and therefore further strengthening of the
access programme is required.
Ghana has set a policy target of 10 % contribution of modern renewable
energies in the electricity generation mix by 2020. The country has identified more
than 70 sites for small hydro power plants with a total potential 800 MW (Miller
et al. 2011). However, no site has yet been developed due to lack of policy support,
financial constraints and limited knowledge about small hydropower systems
(Miller et al. 2011). Similarly, the coastal area has good wind power potential but
these potentials have not been harnessed yet.
Only solar PV systems have attracted some attention. Two major PV-based pilot
projects were undertaken in 1998 and 1999—one with Spanish government support
(off-grid rural electrification project) and UNDP/GEF support (Renewable Energy
Service Project, RESPRO). The Spanish supported project focused on community
lighting, battery charging centres, vaccine refrigeration for clinics, street lighting
for urban and rural areas and installing a grid-connected PV system at the Ministry
of Energy premises (Bawakyillenuo 2007). The battery-operated lighting systems
used a credit scheme where the consumers paid an initial payment and the
remaining amount is spread over 48 monthly instalments. The solar home systems
used a fee-for-service model but required a small initial down payment
(Bawakyillenuo 2007, p. 168). The RESPRO project on the other hand ran between
1999 and 2004 and aimed at creating privately-owned, renewable energy-based
rural energy service companies. It focused on solar home systems (SHS) of 50 and
100 Wp and used the fee-for-service model. But these pilot projects did not survive
once the project funding ended (Bawakyillenuo 2007).
Off-grid electrification of public institutions was also undertaken through the
World Bank supported GEDAP scheme and other donor supported projects.
Similarly, solar home systems have also been used as a source of lighting and
Obeng et al. (2008) report that the households without such systems are energy
poorer compared to those having them. Households without solar PV systems
spend more on kerosene and other alternative arrangements. Similarly, Obeng and
Evers (2010) found that solar PV lighting enhanced income of rural groceries
although their survey-based study could not confirm the same for other micro-
enterprises. However, there is limited information on the status of use of solar
PV systems in Ghana.
The Ghanaian experience also shows that grid extension is the preferred mode
of delivery of rural electrification but generation capacity shortage has affected the
provision of reliable power. Similarly, the grid has reached the urban and peri-
urban areas and is slow in reaching the distant rural areas. The donor support has
6 Electrification Experiences from Sub-Saharan Africa 137

played a crucial role but with limited attention on productive use of energy, the
sustainability of such systems remains questionable.

6.2.3 The Nigerian Case

Nigeria, with a population of 154.7 million, is undoubtedly the most populous


country in Africa and accounts for close to half of the population of West Africa.
Although Nigeria is blessed with abundant energy resources, the country has not
been successful in harnessing them effectively and according to IEA (2011), only
about 50 % of the population had access to electricity in 2009 and more than
76 million population lacked access to electricity. Only a quarter of the rural
population has access to electricity while 70 % of the urban population has
electricity access (IEA 2009). According to a recent survey report, only 40 % of
the households had access to the grid, and 48 % of the households did not use
electricity at all in 2008. The remaining 12 % used a combination of services—
generators, rural electrification schemes and other renewable energy options for
electricity (NBS 2009). Consequently, Nigeria accounts for the largest number of
people in Africa without access to electricity.
Moreover, the electrification status varies significantly in various states of the
country. For example, 77.7 % of households in Edo state are connected to the grid
while only 2.8 % of households in Taraba state are grid-connected. The distri-
bution of states in terms of rate of grid connected households shows that most of
the states have achieved less than 50 % grid connection by 2008 (see Fig. 6.3).
However, some poorly grid-connected states have also managed to provide elec-
tricity access otherwise—through generators or rural electrification schemes, while
some others did not succeed in that either. The overall position therefore changes
somewhat (shown in Fig. 6.3) but limited electricity access in many states remains
the reality.
According to ESMAP (2005), only about 30,000 connections are provided
every year in Nigeria and given the high rate of population growth, it is expected
the number of people without access will grow unless effective interventions are
made. According to UNDP-WHO (2009) study, the health effect of lack of access
to clean energies is significant in terms of pre-mature deaths and chronic diseases
as well as loss of productive manpower.
The rural electrification programme started in 1981 and was implemented by
the electric utility with the federal government providing the support. Its aim was
to connect the local government headquarters and important towns to the grid.
While local government headquarters have mostly been connected to the grid, the
expansion of the network for general rural electrification did not happen. ESMAP
(2005) identified a number of challenges and barriers facing the rural electrifica-
tion programme in Nigeria. These include poor organizational arrangement, weak
financial position of the utility, supply-driven approach without considering the
demand aspect, lack of local capacity to manage such activities, etc.
138 S. C. Bhattacharyya

Fig. 6.3 Distribution of Nigerian states in terms of grid connectivity Data source NBS (2009)
(The data can also be found in Oseni (2012a, b))

Recently the country has initiated a number of initiatives to address the above
problems. The government has approved an energy policy in 2003 that aims for a
coordinated development of the energy sector using both fossil fuels and renew-
able energies. The Electric Power Reform Act of 2005 paved the way for
restructuring of the electricity industry and a national regulatory commission was
created to regulate the electricity industry. The Act also led to the creation of the
Rural Electrification Agency (REA) in 2006 to rapidly expand rural and peri-urban
access to electricity in the country in a cost-effective manner, employing the grid
and off-grid options. The Act also provides for a Rural Electrification Fund (REF)
to support rural electrification projects. But the progress in respect of implemen-
tation has not been impressive so far.
Nigeria is blessed with abundant fossil fuels as well as renewable energy
resources. But the country faces a serious electricity supply shortage due to
inadequate generation capacity. The transmission and distribution network is weak
and requires significant strengthening before any major expansion into rural areas
can be aimed. Although the renewable energy potential remains high, the level of
exploitation is limited. Nigeria produced a Renewable Energy Master Plan in 2006
that aimed at a transition from the fossil-fuel based economy to a more sustainable
energy system. It also set short, medium and long-term targets for renewable
electricity generation that varied from 13 % for the short term to 36 % for the
long-term. Although the country has experimented with solar PV, solar thermal,
wind and bio-mass technologies, no significant success has been achieved in
harnessing the vast potential. For example, Ohunakin et al. (2011) indicated that
only 5 % of the small hydro power potential has been tapped so far. The rural
electrification authority does not seem to be working effectively and the slow
progress of sector reform has not helped in reducing the energy access problem.
The Nigerian example clearly shows that lack of strong government commitment
and support acts as a major barrier to rural electrification. While organizations have
6 Electrification Experiences from Sub-Saharan Africa 139

been created to promote rural electrification, they remained ineffective and lacked
capacity and financial strength. A clear road map, a well-monitored implementation
plan and proper demarcation of responsibilities would be required to make progress
in rural electrification.

6.2.4 Botswana

Botswana, a land-locked country in southern Africa, has a population of about


2 million. Only 45 % of Botswana’s population enjoys connectivity to electricity
grid (IEA 2011) and about one million lacked access in 2009. The electrification
rate in urban areas is 68 % but the level of electricity access to national grid in
isolated communities and rural areas is just 12 % (IEA 2009). Ketlogetswe et al.
(2007) and Ketolgetswe and Mothudi (2009) provide reviews of electrification
policy and the use of solar home systems in the country respectively. Botswana has
implemented a wide range of energy sector reforms aimed to increase access to
modern energy resources in rural communities. The reforms focus on a strategy to
increase the level of access to electricity for isolated communities and to build
capacity for sustainable socio-economic development.
The government introduced the first rural electrification program in 1975, con-
centrating on major villages. Financial assistance for early phases of development
was sourced from International Organizations including the Swedish International
Development Agency (SIDA). 1990 saw the introduction of a new scheme called
Rural Electrification Collective Scheme (RECS). During 1997/1998, the number of
villages enjoying electricity infrastructure increased from 7 to 14 per year, the
government introduced the RECS to complement the indirect subsidy for national
electricity grid infrastructure network.
RECS, as a new scheme required house owners to contribute 40 % upfront
payment for first time connection with the remaining balance of 60 % payable
over a 10 year period at 15.25 % interest. Despite these terms aimed to reduce cost
of first-time connection, the off-take for the scheme was considered relatively low.
In April 2000, the scheme was again reviewed and consequently required potential
consumers to form syndicates of at least four members within the same vicinity of
the village. Reasons for forming such groups included easing the costs of elec-
tricity distribution through shared responsibilities among members. Later, the
scheme required that each syndicate contribute 5 % of the total first-time payment
for connectivity whilst the remaining 95 %, was contributed by government,
refundable by the consumer over 18, 60 or 180 months dependent on an indi-
vidual’s chosen option. The repayment process attracts a lower interest rate than
the normal prime interest.
Non-grid photovoltaic system in Botswana was mainly restricted to applications
in institutional facilities, such as, police stations, public schools, clinics, and wildlife
posts where conventional electricity was not provided. As part of government’s
commitment to increasing access to electricity particularly in isolated communities,
140 S. C. Bhattacharyya

the strategy to develop renewable energy practices extended to include centralized


photovoltaic power systems. As a direct result of this, 1995 marked the first
construction of centralized photovoltaic power plant at Motshegaletau, a small
village located 50 km from the national electricity grid.
Emphasis on the use of photovoltaic systems has been reflected in a number of
government policy documents. For example, the Vision 2016 which is the coun-
try’s blue-print for future national aspirations spells out that the country must be
developed as a centre of excellence for solar energy technology.
Botswana, which is considered in the academic and policy circle as a successful
case that avoided the ‘‘resource curse’’, does not provide a role model for other
African countries in respect of rural electrification. While it is striving for a better
electricity access and wants to provide access to all by 2016 (UNDP-WHO 2009),
it is not yet evident that this target will be reached.

6.2.5 Senegal

Senegal, located on the west coast of Africa with a population of about 13 million,
had an overall electrification rate of 42 % in 2009 (IEA 2011) with a relatively
high urban electrification rate at 75 % but a relatively low rural access rate at 18 %
(IEA 2009). More than 7 million people (out of a population of 12 million) in the
country lack access to electricity. Thiam (2010) identifies the lack of adequate
infrastructure in rural areas due to financial constraint of the government and the
monopolistic state utility as the main factors behind poor rural electricity access.
As Sanoh et al. (2012) indicate, the state utility (SENELEC) continues to enjoy
the monopoly status in electricity supply in Senegal although the power sector was
reformed twice in the past. SENELEC focuses on urban areas now and in 1998, as
part of the World Bank promoted reform process, a rural electrification agency
(ASER) was created. The agency was mandated to develop rural electrification
programmes and grant concessions for delivering rural electrification programmes
so as to reduce rural poverty. It has set a target of reaching 30 % of the potential
population by 2015 and 60 % by 2030 (Sanoh et al. 2012).
To achieve its objectives, ASER has divided the country into 18 concession
areas and the concessionaire is selected through a competitive bidding process.
Each concession covers 5,000–10,000 consumers and can last between 10 and
25 years. This concession-based system allows private participants to invest in
rural electrification by developing their own local electrification plans. The plan is
required to identify the appropriate technologies including renewable energy
technologies, investment needs and include demands from productive uses. The
operator has to investment a minimum of 20 % of the project cost and the rest can
be supported through a subsidy. ASER has established a Rural Electrification Fund
(REF) that combines all resources available for rural electrification purposes.
These include a tax on electricity use, budgetary contributions, grants and financial
aid from development partners and any other resources that can be used for rural
electrification. The upper limit of the tariff is set by the electricity regulator and
6 Electrification Experiences from Sub-Saharan Africa 141

same tariffs apply for same levels of service but tariffs can vary from one con-
cession to another. The bidding process for the first concession started in 2006 and
the process of concession finalization has been achieved. However, Thiam (2010)
remarked that the country still remains poorly electrified and served.
As the grid extension has remained slow, the focus has shifted to renewable
energy-based off-grid and mini-grid systems. Pilot projects with donor support
have been undertaken. Thiam (2010) reported that the cost of PV-based mini-grid
electricity is cheaper than grid extension. Sanoh et al. (2012) on the other hand
report that between 20 and 50 % of the non-electrified households live in areas
where grid extension is the preferable solution than off-grid solutions and the cost
comparison is sensitive to assumptions on demand and capital costs. Camblong
et al. (2009) present the results of a micro-grid project with a high installed content
of renewable energies with an aim of promoting electrification of rural regions of
Senegal using these technologies. The authors concluded that solar energy
potential is excellent for the country whilst wind energy potential could be
interesting in some specific sites and that biomass could also be an efficient source
if livestock farming was properly managed in the future. They further believe that
the electrical energy needs could be met through the deployment kit based micro-
grids.
The Senegalese example shows that private sector involvement in the rural
electrification process is possible but is not an easy process. The small size of the
power sector, dispersed population in rural areas and weak paying capacity of the
consumers do not make private investments very attractive.

6.2.6 Zambia

Haanyika (2008) analysed the policy, legal and institutional measures implemented
in Zambia and assessed their potential or effectiveness to tackle some of the
challenges facing rural electrification in the country so as to increase access and
affordability. The overall level of access to electricity in rural areas in the early
1990s was 0.8 % of the rural population; mostly for cooking. 1.5 % used electricity
in 2000. However, the population growth of 2.9 % in effect hides the level of success
achieved. By 2009, the country had only achieved an electrification rate of about
19 %, with more than 10 million people lacking electricity access (IEA 2011).
Rural electrification in Zambia was for a long time viewed as grid extensions to
replace diesel generators in isolated towns. The use of decentralized systems and
renewable energies were introduced through the broadening of the National
Energy Policy (NEP) in 1994. It broadened rural electrification to include alter-
native technologies such as solar PV and mini-hydropower. It is interesting to note
that this helped to facilitate the increased application of decentralized technolo-
gies, thus enabling social institutions and residences in remote towns and villages
with low population densities to be supplied with electricity from solar PV.
However, Haanyika (2008) does point out that the application of alternative
142 S. C. Bhattacharyya

technologies has a number of constraints such as lack of awareness, high initial


costs, limited acceptability and lack of skills.
Establishment of the Rural Electrification Fund has contributed to increased
financial resources for rural electrification. The key rural electrification strategy of
the government of Zambia was to set up a Rural Electrification Fund (REF)
whereby all electricity consumers would contribute 3 % of the billed electricity to
help promote the electrification of non-electrified areas. A lifeline tariff for small
consumers was put in place to maintain affordability. The REF remained the main
source of funding for RE. What is interesting to note however is that Zambia
undertook liberalization hoping that it would bring about private investments in
the sector. However, Haanyika (2008) points out that that rural electrification is
unlikely to attract private finances in the absence of a supportive framework. He
found no such framework in place that was structured for attracting private sector
participation in RE except by way of prioritizing RE projects whose promoters
were prepared to contribute towards the network costs. He warns against using the
REF to fully fund financially sustainable projects.
In an effort to bring the cost down of rural electrification, Zambian policy
promotes the adoption of low-cost methods of power distribution and home wiring.
This included the use of local materials such as wooden poles and locally man-
ufactured copper conductors, ceramic insulators, etc. The main findings lead to the
conclusion that the policy and associated strategies coupled with the institutional
framework have so far contributed to some achievements in RE. Haanyika (2008)
brings up a great need to establish an effective mechanism for monitoring rural
electrification achievements. He suggests that such a monitoring mechanism could
reside with the RE authority in place in Zambia which was given authority through
the 2003 enactment of the Rural Electrification Act.
Lemaire (2009) analysed the case of energy service companies that were
established in Eastern Zambia to supply solar home systems. He studied three such
companies which manage 100–150 solar home systems and found that despite
initial government subsidies, only the rich section of the population could afford
the systems who could pay for the monthly rentals. However, ESCOs faced dif-
ficulties due to high inflation rate and irregularities in income of consumers. Also
technical difficulties due to overuse of the systems and constant discharge of
batteries were encountered. He suggested that while ESCOs are complementing
the traditional utilities, more long-term government support is required to sustain
the private–public initiative. The ESCO case is presented in Box 6.1.
Gustavson (2007) also reported a case study of an ESCO in Zambia where he
noticed that once users have acquired knowledge about the operation of the SHS,
they started to put higher loads on the system and over time, the load started to
increase. Despite these efforts, rural electricity access remains very limited in
Zambia.
6 Electrification Experiences from Sub-Saharan Africa 143

Box 6.1 The Zambian ESCO model experience


Lemaire (2009) reported the Zambian experience with the ESCO model.
Zambia took the inspiration from the Pacific Islands model and has
implemented it since 1999 with the financial support of the Swedish Inter-
national Development Agency (SIDA). Three ESCOs have been created in
three regions: one in Nyimba called NESCO, one in Lundazi, called LESCO
and one in Chipata, called CHESCO. The first two started their operation in
2001 and CHESCO started in 2002. A fourth company was also considered
initially but it went bankrupt. LESCO has installed 150 systems by 2005
(about 50 % of them are not working), CHESCO has installed 150 systems
(138 working) while NESCO has installed 100 systems (98 working). This
shows that the system has not grown significantly beyond their initial
operations. The investment cost was about one million dollars for 400 sys-
tems. The installation costs are broken down as follows: for NESCO, 100
installations cost 104,000 USD; for LESCO, 150 units cost 134,000 USD,
while for CHESCO, 150 units cost 178,000 USD. The break-down of costs is
as follows: 40 % for panel, 30 % for battery and 30 % for installation.
The government procured PV systems, which are then lent to the ESCOs,
who install and maintain the systems for a fee paid by the users. The ESCOs
repay the loan to the government over a 20 year period. Since 2005, the
government has transferred the ownership of the assets to the ESCOs but the
companies have to repay the loan within 10 years, with a capital subsidy of
50 % for old systems and 25 % for new systems.
A technician from the ESCO visits the installation each month to collect the
fee and get the feed-back. In general, the payment record is reported to be
high in NESCO (95 % of the customers paying regularly) while the record is
somewhat different in other areas. CHESCO, for example, faced financial
problems due to default of Zambia National Service Camp.
ESCOs faced a number of technical difficulties: in CHESCO, the pre-paid
tokens did not work, resulting in loss for the company and poor service to
consumers. The battery packs also were a source of trouble. However, the
main problem was the financial viability of the ESCOs as the monthly fee
was recovering only 15 % of the cost of the system. ESCOs are required to
repay the loan taken from the government but with such a low cost recovery,
they cannot ensure repayment. Although the companies have increased the
monthly charges in recent times, the cost recovery is not ensured and the
high fee makes the systems less attractive to rural users.
Lemaire (2009) also identified a few conditions for replication of the Zam-
bian example. These are as follows:
Locations—until costs decline, PV technology is more appropriate for
wealthier areas. The service area of an ESCO has to be such that its tech-
nicians can maintain the installations regularly and collect fees using a light
144 S. C. Bhattacharyya

mode of transport. The possibility of any connection to the grid can modify
customers’ expectations and can affect the financial condition of the ESCO.
Flexible systems—Initially a standard system was made available [a 50Wp
panel with a 90–105 Ah battery to light up to 4 lights and a connection for a
TV/radio]. Now ESCOs offer a number of alternative schemes to suit the
customers’ needs. The payment method can be made flexible as well, as
farmers tend to have an irregular flow of income. CHESCO accepts pay-
ments during harvest with interest. Energizing public institutions like
schools, hospitals etc. may have a social goal but from an ESCO perspective,
the risk of non-payment increases from such organizations that can ruin the
financial viability of the ESCO.
Training and awareness—The users need to be made aware of the limits
and good practices of using PV systems. This could reduce the over-use of
batteries and malfunctioning of systems. Establishing a local network of
component and system suppliers is essential for a successful business.
Excluding the local suppliers from the bidding process makes things worse.
Financial design—Because the systems are unaffordable by the local
consumers, subsidy systems are required. A study indicated that a subsidy of
50–70 % of the capital costs would be required. This is an area of concern.
The electricity act provides for a 3 % levy on electricity consumers to create
a rural fund. However, this was never created.
Lemaire (2009) raises a number of issues including the following: (1)
ESCO for PV or for other energies: a successful business model can cater to
PV and other energies for cooking/heating. The viability of the business can
be better for such a wider remit of the business. (2) Size of the ESCO: In
Zambia , small companies have been created. While this provides the benefit
of providing a local service, some advantages may be obtained by expanding
the size of the companies—in terms of scale of operation, cost advantage in
procurement, etc. But in such a case, the company has to establish a system
of managing the business internally. Source Lemaire (2009).

6.2.7 Kenya

Kenya, located on the east coast of Africa, with a population of 38 million in 2008
is an important East African economy (Kiplagat et al. 2011). Recent IEA data
(IEA 2010) indicates that only 16 % of the Kenya’s population has access to
electricity and 33 million people lack access in the country. While 55 % of the
urban population has access, only 1.5 % of the rural population is connected to the
grid (IEA 2009). The electricity system with an installed capacity of 1345 MW in
2008 is relatively small. Hydropower and geothermal energy contribute about
80 % of the electricity generation, making the country highly renewable energy
dependent for its electricity production (Kiplagat et al. 2011). But Kenya continues
to experience a marked shortfall in its electricity supply, caused partly by system
6 Electrification Experiences from Sub-Saharan Africa 145

losses (estimated at 20 %), and partly by the country’s over-dependence on


hydropower, which is frequently affected by the perennial droughts causing
reduction in water levels in the national systems of dams (Rabah 2005).
The country has a long history of pursuing with rural electrification. The Rural
Electrification Program (REP) was initiated in 1973 and lasted for 15 years.
Although the number of household connections increased during this period, the
progress was relatively limited. In 1997, the Electric Power Act was enacted and
the Rural Electrification Authority (REA) was established which developed the
first master plan and included the formulation of a rolling Rural Electrification
Program Master Plan to present least-cost electrification options for target areas.
The 1997 master plan prioritized a list of projects for implementation based on
economic and social factors, regularly updated to show what has been done and to
come up with new load centers. A new master plan is being developed to take
stock of the present situation.
However, the Electric Power Act provided limited incentives for private sector
participation and the creation of the REA did not result in an accelerated devel-
opment. A new Energy Act came into existence in 2006 and the Rural Electrifi-
cation Authority was created under this act to implement rural electrification
programme and to accelerate implementation of rural electrification projects
(Kiplagat et al. 2011). To support rural electrification the Rural Electrification
Programme Fund was established under the provisions of the Energy Act 2006,
which is supported through the electricity sales levy (charged at 5 % at present)
and other fees and charges levied by the Energy Regulatory Commission, and
other grants, donations, and contributions made available from the government
budget or elsewhere. The Rural Electrification Authority is also required under the
act to secure additional funds from other sources, including through participation
of the private sector in the form of Public Private Partnerships. It can also enter
into agreements with other international donor agencies. Kenya has also intro-
duced the feed-in tariff system for grid-connected renewable electricity generation
and hopes to attract private investors in this area.
REA is mandated to explore, promote and develop the use of sources of energy,
including renewable energies. Kenya is endowed with substantial renewable energy
resources but the attention so far has been on hydropower and geothermal energy.
The country has a potential of 3 GW of micro-hydro power (less than 10 MW
capacity) but only a small number of schemes have been installed so far. So far Only
32 MW of small-hydro power capacity has been installed by the Kenya Electricity
Generating Company, and less than 1 MW for schemes owned by community and
private enterprises. Kiplagat et al. (2011) also indicate that 55 sites have been
identified with capacities between 50 and 700 kW in rural areas which can provide
cost-effective supply to small communities. Maher et al. (2003) suggest that pico-
hydro systems (less than 5 kW size) can play an important role in Kenya as a source
of off-grid electricity supply in remote areas. Williams and Simpson (2009) suggest
that such systems can become cost effective through local manufacturing and careful
technical system design. Similarly, Kirubi et al. (2009), using a detailed case study
of a Kenyan small-hydro power system, suggest that community-based small hydro
146 S. C. Bhattacharyya

systems can contribute to productive use of electricity thereby generating income


opportunities. These systems can also support better business and social services
which can improve the quality of life.
The country was the first Sub-Saharan African country to introduce geothermal
power in a significant amount and by 2008 has an installed capacity of 163 MW.
This has been identified as a low cost power source in Kenya and the government
is putting an effort in harnessing this source.
Similarly, Kenya has the world’s highest ownership rate of solar systems with
30,000 systems sold per year (Kiplagat et al. 2011). Jacobson (2007) asserted that
Kenya has emerged as the global leader, in per capita terms, of solar energy use.
The solar market in the country has emerged with limited government support and
donor interventions and the market has been sustained without significant subsi-
dies. Hankins (2000) provided a detailed report of the solar market development in
Kenya and asserted that between 1982 and 1999 the market grew into a USD
6 million per year industry. The market has developed in stages—in the first stage
in the early 1980s the upper-middle class households (tea/coffee farmer,
businessmen, etc.) started to procure the systems and the market was creamed off
by early 1990s. The next phase of the development was driven by the television
boom when cheap Chinese televisions became widespread in the countryside. The
demand for smaller solar home systems soared to cater to this need and the market
thus expanded to rural masses. In the third phase, hire-purchase arrangements were
introduced for consumers (Hankins 2000).
Over-the-counter cash sales represent the most common form of solar system
transactions. Jacobson (2007) argues that the market has benefitted the middle
class who could afford the system and that the solar systems have hardly provided
direct income generation opportunities. It has however, influenced the social
interactions and has become a tool for communication and social connection. The
government is now promoting solar system installation in public institutions and
with the feed-in tariff in place more solar systems are likely to be integrated into
the grid system. Yet, the overall contribution of solar energy in the country’s
electricity is just below 1 % (Kiplagat et al. 2011). The demand for solar PV
systems in the Kenya market is driven by small business owners, rural profes-
sionals such as school teachers, civil servants, and pastors, as well as the better off
among the small holder cash cropping farmers. Solar PV plays a more substantial
role in supporting the use of electric light for key social activities, and household
applications such as television, radio, and cellular telephone charging that help
increase interconnectedness between the rural people, and markets. Abdullah and
Jeanty (2011) presented a contingent valuation study to identify the willingness to
pay for renewable energies. They found that rural households are willing to pay
more for grid-based electricity than PV electricity and that they prefer to pay
monthly connection payments as opposed to lump-sum payments. They also
suggest that the poorest section of the population cannot afford the renewable
energies and therefore the renewable energy through solar systems did not really
benefit them.
6 Electrification Experiences from Sub-Saharan Africa 147

Table 6.2 Trend of household electrification in Tanzania


Survey date % of households with electricity access
Dar-es Salam Other urban areas Rural areas Mainland Tanzania
1991/92 (any electricity) 51.4 21.7 2.6 8.5
2000/01 (grid) 58.9 29.7 2.0 10.0
2007 (grid) 55.0 25.9 2.5 12.1
Solar electricity (2000/01) 1.3 1.7 1.6 1.6
Solar electricity (2007) 0.7 0.9 0.5 0.6
Source NBS (2007)

Kenya can be considered as a rural electrification paradox. The country has set
up organizations and created dedicated funds for providing energy in deprived
areas. It has received sustained international donor attention and has experimented
with a variety of technologies and options. Yet, the country remains poorly served
in terms of electricity and energy access. While there have been cases of limited
success in some areas or pilot projects, their replication and sustenance has not
been ensured. This shows that it is not sufficient to have the legal framework or
organizational arrangement for a successful electrification programme. It requires
a strong government commitment and financial support, a strong strategy and a
systematic plan to bring success.

6.2.8 Tanzania

Tanzania, another East African country neighbouring Kenya with a population of


about 44 million, has a relatively low electricity access—about 14 % in 2009 (IEA
2011) and only 2 % of the rural population has access to electricity. The House-
hold Budget Survey of 2007 provides a comparison of electrification rates since
1991/92. The table shows only marginal improvements in the overall electrifica-
tion rate over a period of 15 years (see Table 6.2). However, a decline in the
electrification rate in urban areas is noticed, which is attributed to reclassification
of urban and peri-urban areas. The minor role played by solar electricity in the
country is also clearly captured by this survey.
The electricity system in the country is very small—the installed generating
capacity was about 1000 MW in 2010 and about 60 % of this comes from
hydropower generating stations. The national electricity company, TANESCO, is
the main state agency in charge of the power generation and distribution, although
the country has passed through a phase of failed sector reform in the late 1990s.
In order to improve energy access in rural areas, a dedicated Rural Energy
Agency (REA) was created in 2005, but it started its operation in 2007. The
agency is overseen by the Rural Energy Board which also oversees the Rural
Energy Fund (REF). The Rural Energy Agency provides financial support to
148 S. C. Bhattacharyya

project developers and promotes rural energy projects. The Fund is supported
through an electricity levy (charged at 3 % and to go up to 5 %) as well as grants
from international agencies, government budgetary support and other sources. The
Agency is mostly working with private investors who identify the projects, submit
their business plan and get agency’s approval. Most of the projects are renewable
energy-based and often off-grid type, while the national transmission utility
Tanesco is mainly responsible for grid extension.
REA has facilitated 32 electrification projects by expanding the main grid using
the electrification fund and promoted 17 off-grid projects. It is responsible for the
implementation of the off-grid component of the Tanzania Energy Development
and Access Project (TEDAP), which is a five year project with the financial
assistance of the World Bank and the Global Environment Facility. REA has
approved three small hydropower-based projects and a solar system project to
deliver 8,000 PV systems for private use and 285 systems for public facilities
under the TEDAP activities (REA, 2010). The project is expected to run up to
2015 but already the grid extension component has faced severe delays and the
project is facing cost over runs.
Several studies have reported the Tanzanian case. Kainkwa (1999) analysed
whether wind energy can be used in the dry season to supplement electricity
generation in the country. Based on wind data from two sites, he found that a
hybrid hydro-wind system can serve the dry season better and improve reliability
of electricity supply. Similarly, Sheya and Mushi (2000) describe the status of
renewable energy use in the country. However, these studies did not focus on rural
electrification as such.
Ilskog et al. (2005) analysed the co-operative model for successful electrifi-
cation in a Tanzanian village. The authors evaluated the performance of a rural
electrification co-operative pilot project, and found that the co-operative, which
was formed in 1993 (with regular operations commencing in 1994 with 67
consumers), had a tariff that was more than 15 times higher than in the nearby
town served by TANESCO—the electric utility. Even with the higher tariff, the
cooperative had been growing and reached 241 consumers in October 2002. Most
of the energy produced was consumed by households for lighting purposes with
the remaining being consumed in businesses, 12 % in institutions and public
buildings and approximately 3 % for street lighting. The reliability of the supply
has improved from 80 % in 1994, to 97 % during 2000 with one major episode
occurring in 2001 where the operations were shut down completely due to lack of
funds for purchase of spare parts.
This study suggests that the villages can manage their own electricity supply
system if given adequate technical, management and financial support. Even in
rural villages, it is possible to find a fraction of the population that has the ability
and willingness to pay the fairly high price of almost 0.5 USD/kWh for electricity.
It also highlights that if power is generated using fossil fuels that are subject to
price volatility, the need to increase tariffs at the same rate as fuel prices increase is
a must, otherwise funds run out and operations must come to a halt. Additionally,
the tariff must be sufficient for the build-up of an adequate budget for maintenance
6 Electrification Experiences from Sub-Saharan Africa 149

and reinvestment. The above co-operative strove to aim for at least 30 % capital
recovery during its operations even though most of the equipment and grid were
supplied by TANESCO and other aid agencies. Finally, non-metered supply
should be avoided in preference for metered consumption.
Gullberg et al. (2005) presented a related study where they analysed the effect
of introducing solar PV and compact fluorescent lamps in a Tanzanian village
where the co-operative model discussed above was operating. Their study found
that the PV system with incandescent lamp can compete with diesel generation and
offers a reliable system but the subsidized cost of diesel makes diesel generation
cheaper for the consumers.
Marandu (2002) investigated whether local investors in Tanzania are capable of
establishing and managing power sector enterprises in Tanzania and examined the
extent to which this capability could be harnessed to enhance rural electrification-
especially of the poor. The study concluded that substantial local ownership is
possible in small power enterprises but firms located in rural areas were established
to support an economic activity rather than selling of power as a core activity. The
terms and conditions of local financial institutions are major constraining factors on
the ability of local investors to mobilize finance locally. Marandu (2002) reveals that
the level of interest rate charged can be as high as 24 % for funds. As far as the level
of collateral is concerned some require the borrower to cover 100–150 % of the loan.
The repayment period varies between 8 and 10 years. It appears that, on the overall,
technical, managerial and professional capabilities needed to set up, operate and
manage Independent Power Production (IPP) and Independent Power Distribution
(IPD) enterprises exist locally. The results from a survey suggests that electrical
technicians, managers, accountants and artisans take a long time to get employment,
while engineers and lawyers take a short time. Therefore, he contends that a new
power sector investor may find it relatively easy to secure most of the required skills
from the market except engineers and lawyers. Although the study points to rural
electricity cooperatives and suggests that with the appropriate incentives, legal and
regulatory framework in place, there is the possibility that local private investors
may be capable and willing to invest in rural electrification, however, it fails to
represent that such co-operatives could not have been started and would not have
survived without external financial support, in particular from Swedish Develop-
ment Agency and TANESCO (for financing of rehabilitation of generator sets,
purchase of a new generator set and expansion of the distribution network).
Barry et al. (2011) have identified factors that should be considered for
promotion of renewable energies to address energy access problems in Africa and
used eight case studies in Rwanda, Tanzania and Malawi to confirm these factors.
They then suggested a list of 13 factors that could be used to ensure sustainable
renewable energy technology choices.
150 S. C. Bhattacharyya

6.3 Findings and Lessons from the Electrification


Experience

The above review brings out a number of interesting findings and lessons. These
are organised around technical, economic, and institutional aspects.

6.3.1 Technological Options and Choices

Most of the countries have preferred the grid extension approach to rural elec-
trification but the progress has remained very slow in most cases. The rate of
electrification was slower than population growth in some cases, thereby eroding
the overall growth in electrification. Electric utilities generally plan their electri-
fication activities around or in close proximity to their existing grids, which makes
the electrification of virgin areas very slow due to low demand, high cost of
investment and financial constraints of the utilities (Sanoh et al. 2012).
A specific feature of the power sector of sub-Saharan Africa is its limited size.
According to Eberhard et al. (2011), the combined installed capacity of 48 sub-
Saharan countries is just 68 GW but South Africa alone has about 40 GW of
installed capacity. Only seven other countries, namely Nigeria, DR Congo,
Zimbabwe, Zambia, Ghana, Kenya and Cote d’Ivoire, have more than 1 GW
capacity each, although only a part of this is operational. The rest have very small
capacity.
The capacity addition has also been slow and consequently, most of the
countries face severe capacity shortages and rely on back-up generators or
emergency power supplies. Increasing the supply capacity therefore is a priority in
sub-Saharan Africa.
Apart from South Africa, which relies heavily on coal, Sub-Saharan Africa is
much dependent on hydropower, which in turn makes the region vulnerable to
seasonal variation in water availability and draught. Although other resources such
as natural gas and petroleum fuel are also available in some countries, their
contribution remains low in most countries. The small size of the power sector in
individual countries and capital intensiveness of such investment have led to
small-scale generating plants and sub-optimal outcomes.
Szabo et al. (2011) using a spatial least-cost analysis framework identified that
in many parts of Africa cost of decentralised off-grid options can be cheaper than
grid extension and that if the affordability of consumers can be increased or cost of
supply is reduced, off-grid options can surely play an important role. In a similar
study, Bazilian et al. (2012) also suggest that to provide universal basic electricity
access, most rural areas in Africa will need off-grid supply systems, either based
on diesel generators or solar PV systems. Deichmann et al. (2011) also report that
renewable energies are already cost-competitive in many parts of Sub-Saharan
Africa.
6 Electrification Experiences from Sub-Saharan Africa 151

Where the alternative off-grid solutions are being offered, they appear as a
‘‘temporary’’ solution, until grid extension becomes feasible. This is especially
true in the case of South Africa. Promoting off-grid solutions as ‘‘inferior’’ or
‘‘temporary’’ solutions creates concerns regarding the acceptability of these
options and reduces their attractiveness. This also creates a sense of ‘‘discrimi-
nation’’ or ‘‘isolation’’ in the minds of the users and can adversely affect the
success of programmes for access to electricity.
Further, the introduction of modern technologies in rural areas with limited
support networks creates the challenge of sustaining such options over a long
period. Poor quality of components, using local solutions for cost reduction (e.g.
bypassing the control system or using cheap batteries), poor workmanship and lack
of technically skilled maintenance staff are common challenges faced in most
cases. The need for proper organisational arrangements for managing these sys-
tems thus cannot be underestimated.
In this context, it may be pertinent to look at the Chinese experience which
provides an alternative approach where rural development is integrated with the
rural electrification programme. The decentralised decision-making process, reli-
ance on local energies, development of local grid and supply network initially,
followed by its upgrading and linkage to the national grid, and strong state
commitment have produced a successful example of rural electrification and
access. The phased network and supply development, reliance on local content,
linkage with agriculture and local economic activity development, and high local
participation in the process have created wider benefits that have sustained the
programmes and made electricity accessible to all. However, the need for mod-
ernisation arises once the system reaches maturity and through a strong state
support, China has ensured such a transformation of the system. Sub-Saharan
Africa may benefit from such a phased development strategy.

6.3.2 Investments, Subsidies and Economic Issues

Inadequate infrastructure in the region is directly related to inadequate investments


in the power sector over decades. Bazilian et al. (2011) reported that the gross
capital formation in electricity and gas distribution in the Least Developed
Countries (LDC) has almost doubled between 2000 and 2009 but the volume of
investment was about 1 % of the global investment in this area. This insignificant
gross capital formation is also related to the inability of these countries to attract
private investment and even development assistance. Foreign Direct investment
was limited and benefited only a selected set of countries while the foreign
development assistance mostly went to non-LDCs, despite showing an increasing
trend.2

2
This is further elaborated in Chapter 9.
152 S. C. Bhattacharyya

Eberhard et al. (2011) estimated that between 1995 and 2005, the capacity
addition was about 1 GW per year whereas the region needs to add 7 GW per year
to clear the backlog and to cater to the growing electricity needs of the region as
well as to meet the rural energy needs. This in turn would require an investment of
$41 billion per year over a ten year period. In another study, AfDB (2008)
estimated that to enhance electricity access in Sub-Saharan Africa by 2030,
$547 billion (constant 2005 terms) will be required, which results in an average
annual investment need of $24 billion approximately. This does not include the
operational costs and hence provides an indicative estimate. The colossal invest-
ment need of the sector can be easily understood from the above estimates but the
issue of financing such huge investment remains an unresolved challenge.
While the rural electrification efforts so far have greatly relied on state support
and donor funding, the need for subsidy will increase exponentially as rural
electrification process intensifies and the current cost recovery trend continues.
Eberhard et al. (2011) indicate that although the tariff of electricity is high in the
region, still it does not ensure full cost recovery. This in turn weakens the financial
situation of the electric utilities and discourages the investors in the business. The
issue becomes even challenging due to resource constraints of many governments
and international aid or donor support may not provide funds for subsidies. Thus,
both short-term financing of subsidies and ensuring the long-term sustainability of
the subsidised systems are challenging issues.
Some Sub-Saharan African countries have created an electrification fund to
support rural electrification and energy access programmes but the rate of elec-
trification has not improved much. Although these funds are financed through a
combination of electricity use tax, budgetary support and donor supports, the
funding does not appear to have reached the required level to ensure funding for
electricity access. This shows that it is not sufficient to have a specific funding
mechanism. Strong government commitment to the process, strong financial
support and clear objectives and management systems are required.
Similarly, although some private partners are participating in some off-grid
supply activities, it is the general experience that the donor-assistance or state-
support has been the catalyst for off-grid solutions. Better results have been
achieved where the entire programme is well co-ordinated with adequate support
services and clear assignment of responsibilities. The development of a local
supply chain has also played a major role in the successful delivery of the systems.

6.3.3 Organisational Aspects

Clearly, any successful implementation of the rural energy access programme


requires a strong organisational support at multiple levels. In South Africa, a
strong and competent national utility has spearheaded the electrification
programme and where required has taken over the responsibility of distributing
electricity in rural/underprivileged areas. This lack of a strong, capable
6 Electrification Experiences from Sub-Saharan Africa 153

organisation in other countries of the region has resulted in a weak performance.


This has been further affected by ill-fated reform efforts in most of the countries
which introduced structural changes that were either not fully carried through or
reversed after a while. Although a number of countries of the region have created
their dedicated rural electrification or energy agencies, rarely they have proved to
be effective due to limited capacity, limited staffing and inadequate spatial
coverage. While the top-down approach has worked in South Africa, a more
participatory approach with local participation and community involvement is
likely to yield better results.
The private sector involvement through the concession system in Senegal
provides an interesting initiative. Similar approaches have been used quite
successfully in South America but the success of such a programme requires a
vibrant private sector, a strong regulatory arrangement, a transparent financial
commitment and good technical capabilities. Most of the countries in Sub-Saharan
Africa do not meet these requirements and therefore, this may not provide a recipe
for quick success.
Similarly, lack of integration with the overall rural development agenda also
reduces the effectiveness of the access programmes. Unless energy is used for
productive purposes, the users will not have direct opportunities for improving
their incomes and sustain such service provisions. Sporadic efforts of electrifica-
tion are not sustainable and a clear vision about a phased development pathway is
essential for a long-term solution.

6.4 Conclusions

The experience from Sub-Saharan Africa clearly shows that good performance in
terms of electrification and electricity access depends on sound policies, good
organizational set up, sound financing, strong commitments and good governance.
South Africa over the past two decades and Ghana over the last decade give
credence to this observation whereas weak performance of a large number of other
countries supports the counter-factual that the absence of essential elements does
not lead to success. The region urgently needs a massive power system expansion
along with commensurate efforts for enhancing electricity access to the population.
Reliance on donor funding or pilot projects will not be sufficient to achieve the
universal electrification objectives. A systematic, committed approach with strong
local participation is required to integrate rural development with the electrifica-
tion process so that a long-term solution is obtained. The experience shows that
there is no single solution that fits all cases and each country would have to
identify its own solution—this remains the main challenge.

Acknowledgments Several colleagues and student assistants provided inputs to this chapter.
I am particularly indebted to Dr. Suad Badri, a visiting researcher from Sudan, Mr. Roderick
Williams (a previous student and now an alumnus) and Mr. Nikhil Rodriguez, an MSc student at
the Centre for Energy, Petroleum and Mineral Law and Policy, University of Dundee. Nikhil has
154 S. C. Bhattacharyya

recently passed away in a fatal car accident just when he was about to start his career in the
energy sector. His loss is deeply regretted. This chapter is dedicated to him.

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Chapter 7
Rural Electrification Experience
from South-East Asia and South America

Subhes C. Bhattacharyya

Abstract This chapter provides a review of rural electrification with an emphasis


on off-grid electrification in South-East Asia and South America. Both the regions
have successfully enhanced electricity access and many countries of these regions
have achieved near universal electrification. The experience from these regions and
the contrasting approaches adopted by them are highlighted through a selected set of
country case studies from both the regions. This chapter confirms that grid extension
was the preferred mode of electrification in both the regions and a strong state
support was essential in enhancing electricity access. However, different forms of
organizational arrangements and varying degree of private and/or community
participation were used in different countries.

7.1 Introduction

South East Asia and South America represent two regions that have successfully
provided electricity access to most of its population. Both the regions have made
tremendous progress over the past two decades and have achieved improved
access to electricity despite difficult geographical and economic conditions. 93 %
of the South American population had access to electricity in 2009 while South
East Asia had an overall electrification of 74 %.1 As can be seen from Fig. 7.1,

1
If Myanmar is excluded, the overall rate improves to 80 % for the rest of the region.

S. C. Bhattacharyya (&)
Professor of Energy Economics and Policy, Institute of Energy and Sustainable
Development, De Montfort Unversity, Leicester, UK
e-mail: subhesb@dmu.ac.uk; subhes_bhattacharyya@yahoo.com

S. Bhattacharyya (ed.), Rural Electrification Through Decentralised 157


Off-grid Systems in Developing Countries, Green Energy and Technology,
DOI: 10.1007/978-1-4471-4673-5_7, Ó Springer-Verlag London 2013
158 S. C. Bhattacharyya

Fig. 7.1 Electrification rate


and non-electrified
population in South East Asia
Source IEA (2011)

Indonesia, Myanmar, Cambodia and the Philippines account for most of the
non-electrified population of South East Asia but in terms of electrification rate,
Myanmar and Cambodia are the worst performers. At least five member countries
of the region have reached universal electrification. About 152 million people in
the region still lacked access to electricity in 2009.
South America on the other hand shows a very different scale of the problem.
The total size of population lacking electricity access was only 31 million in 2009,
thereby putting the region on a strong footing compared to other developing
regions in terms of electricity access. The urban electrification rate was almost
99 % while 74 % of the rural population had electricity in 2009 (IEA 2011). Haiti
and Peru accounted for about 10 million (or one-third) of non-electrified popu-
lation of the region while Brazil, Colombia, Guatemala, Bolivia and Hondurus
account for another 13 million (or 43 %) of non-electrified population. The rest is
distributed amongst other countries in small sizes (see Fig. 7.2).
The purpose of this chapter is to review the successful and not-so-successful
cases of both the regions to identify the lessons for other countries trying to
improve their electricity access situation. The chapter is organized as follows: the
next section provides a review of the South East Asian cases while Sect. 3
considers the South American cases. A final section then provides the main lessons
and findings.

7.2 Experience from SE Asian Countries

South East Asia provides a rich experience of successful electrification. Countries


like Thailand and Malaysia have achieved complete electrification and even
Vietnam has made tremendous progress despite being a relatively poor economy.
Other countries such as Indonesia and the Philippines provide contrasting exam-
ples from two archipelagos who have attempted to electrify their islands in
different ways. In this section, a review of four countries is presented, namely that
of Indonesia, the Philippines, Thailand and Vietnam.
7 Rural Electrification Experience from South-East Asia and South America 159

Fig. 7.2 Electrification rate and non-electrified population in South America Source IEA (2011)

7.2.1 Indonesia

Indonesia is an archipelago of more than 17,000 islands, of which 6,000 are


inhabited. There are many small islands outside the main inhabited islands and
accordingly, the extension of an integrated grid-based supply is a major problem.
Indonesia is the most populous country in South East Asia and has 18 % of its
population below the poverty line. Thus poverty coupled with its geographical
configuration makes access to electricity a major issue.
The government has placed high priority to rural electrification and balanced
development. However, Indonesia remains one of the poor performers in South
East Asia in terms of electricity access. According to IEA (2011), 35.5 % of the
population did not have access in 2009, of which more than 50 % live outside main
islands. The Ministry of Energy and Mineral Resources puts the electrification rate
at 70.4 % for 2011. The country plans to electrify 90 % of the households by 2020
and it is estimated that this requires extending 1.3 million new connections every
year (Indonesian National Committee of the IEC 2007). It is reported that an
investment of $4.6–6.4 billion is required to address the challenge but such an
investment is outside the financial capability of the state utility (USAID 2008).
The national electric utility PLN is the main provider of electricity in the country
and was responsible for rural electrification. The country saw rapid improvements
between 1980 and 1995, when the rate of electrification increased from 7 % in 1980
to 43 % in 1995 (Indonesian National Committee of the IEC 2007). However, PLN
was focusing mostly on densely populated areas of Java-Bali-Sumatra-Kalimantan-
Sulawesi areas, where the rate of electrification was much higher compared to the
rest of the country. The Asian financial crisis in 1997 has adversely affected the
Indonesian electricity sector and left PLN financially weak. This together with its
inability to recover costs of electricity supply forced PLN to focus on its existing
business and to minimise losses, rather than undertaking rural electrification as a
social objective. The data published by the Ministry shows a slow progress in
electrification in the last decade (see Fig. 7.3). Even in 2010, Java-Bali-Sumatra-
160 S. C. Bhattacharyya

Fig. 7.3 Progress in


electrification in Indonesia
Source Ministry of energy
and mineral resources,
Indonesia

Kalimantan-Sulawesi remained the most electrified area while the rest of the country
remains less electrified.
The national utility PLN reported in its 2011 annual report that it has
successfully eliminated the customer waiting list and is strengthening the grid
system. The Ministry of Energy and Mineral Resources has launched a new
initiative to enhance electricity access and allocated state funding. The government
has set a target of achieving 80 % electrification by 2014. An improvement in the
overall electrification rate is clearly visible as a result (see Table 7.1) but reaching
the target in all regions looks challenging. According to, World Bank (2005) the
possibility of grid extension as a solution to increase access is an unlikely solution
in the present Indonesian context and the country is unlikely to achieve its elec-
trification targets if it continues with the existing electrification policies. Even PLN
estimates that grid extension is unlikely in the near future for about 6,000 villages
(Draeck 2008).
The country has also faced uncertainties in terms of legal framework for the
electricity sector. In 2004, the Constitutional Court annulled the Electricity Law
20/2002, which as a consequence disapproved all reform initiatives. This has
reduced investor confidence and has rendered private investment difficult (World
Bank 2005). A new electricity law (Law 30/2009) is in place and the national
utility company PLN does not have de-jure monopoly status anymore but it still
retains de facto monopoly.

7.2.1.1 Technology Options

Indonesia has relied on both conventional and renewable energies for its electri-
fication. Fossil fuels account for 80 % of the electricity generation in the country
while hydropower and geothermal account for the rest. The main emphasis was on
extension of the electricity grid but Indonesia has also experimented with other
options including mini-hydro, geothermal, solar PV and hybrid systems. PLN has
generally used diesel generator sets for rural supply in dispersed areas and
maintained a fleet of at least 30,000 diesel generators, with a capacity of 500 MW
(USAID 2008). However, the cost of diesel-based electricity is much higher than
7 Rural Electrification Experience from South-East Asia and South America 161

Table 7.1 Electrification rate in major Indonesian islands in 2010


Island Population Residential Residential Electrified Non-
households customer electrified
Million Million Million (%) Million
Java 135.44 35.68 25.9 72.59 37.12
Outside Java of which 98.74 23.44 13.42 57.25 42.21
Darusalam 4.43 0.987 0.895 90.68 0.41
North Sumatra 13.45 3.07 2.39 77.85 2.98
West Sumatra 4.89 1.17 0.811 69.32 1.50
Riau 6.175 1.459 0.611 41.88 3.59
South Sumatra, Jambi and 11.89 2.83 1.46 51.59 5.76
Bengkulu
Bangka Belitung 1.153 0.284 0.139 48.94 0.59
Lampung 7.592 1.865 0.985 52.82 3.58
West Kalimantan 4.388 0.985 0.518 52.59 2.08
South and C Kalimantan 5.659 1.461 0.909 62.22 2.14
East Kalimantan 3.033 0.732 0.434 59.29 1.23
North, Central Sulawesi 5.766 1.453 0.787 54.16 2.64
and Gorontalo
South, South East and 11.235 2.554 1.485 58.14 4.70
West Sulawesi
Malaku and North Malaku 2.345 0.505 0.295 58.42 0.98
Papua 2.896 0.699 0.202 28.90 2.06
Bali 3.585 0.912 0.683 74.89 0.90
West Nusa Tenggara 4.503 1.172 0.357 30.46 3.13
East Nusa Tenggara 4.705 1.007 0.244 24.23 3.56
PT PLN 1.009 0.284 0.213 75.00 0.25
Source PLN Statistics 2010

the revenue received from the consumers, which in turn makes the utility finan-
cially weak.
Indonesia is blessed with substantial renewable energy resources. The country
has significant hydro potential (75,000 MW), geothermal potential (27,000 MW),
as well as biomass, solar and wind power potential (Draeck 2008) but only a small
fraction has been developed so far due to high upfront cost, infrastructure
deficiency and non remunerative tariffs (USAID 2008). Despite a number of
initiatives solar PV has not reached the poorer section of the population. Draeck
(2008) estimated that only 0.016 % of the Indonesian households use PV systems,
which is much lower compared to other poorer countries such as Sri Lanka and
Kenya.

7.2.1.2 Off-Grid Solutions

Draeck (2008) and Retnanestri et al. (2003) provide an overview of off-grid status
in Indonesia and present the lessons from the past experience. Indonesia experi-
mented with off-grid solutions for remote rural areas since the 1980s. By 2000,
162 S. C. Bhattacharyya

5 MWp of power was produced from PV applications. Retnanestri et al. (2003)


categorized these initiatives into three phases:
(a) Experimental: 1979–1986 when a number of PV systems were installed for
water pumping, ice-making, telecommunication repeater and buoy lighting.
(b) Pilot/demonstration: 1988–1993 when 1600 PV systems were installed in
Sukatani, Lebak and West Java as pilot projects;
(c) Multiple demonstration: The BANPRES project was launched in 1990 to
install 3140 PV systems in 13 provinces. By 1997, 30,000 PV systems were
installed by various agencies under the demonstration phase. In 1997, the
government launched 50 MWp one million roof programme in which GEF,
AusAid and BIG SOL projects participated.
Draeck (2008) suggested that the PV market in Indonesia can be grouped into
three segments: (1) high market regions where the consumers have a relatively
high per capita income (above $1000 per year), (2) medium market regions where
the consumers have an average income between $500 and $1000 per year and (3)
low income regions (income below $500 per year). In the low income areas and
with seasonal income, the issue of affordability is more acute. The off-grid ini-
tiatives can be grouped into two groups: government-driven and private-driven.

Government-Driven Initiatives
In 1991, BANPRES, or Presidential Assistance Project was launched and 3300
SHS were installed through this (Cabraal et al. 1996). The project received grants
from the Presidential Development Budget and was implemented in 13 provinces.
A government agency, BPPT (Agency for Assessment and Application of
Technology) was leading the implementation of the programme. The Village
Co-operatives (KUD) were the village level delivery agents and were responsible
for project implementation, fee collection, maintenance and disconnection of
services for non-payment. The Ministry of Co-operatives was involved in
providing the link between the local KUDs and the government. A state bank, BRI
(Bank Rakyat Indonesia) participated in the scheme because of its widespread
presence in rural areas (Cabraal et al. 1996).
The programme identified the villages to be included in the programme using a
set of criteria: affordability and willingness to pay of the consumers, grid extension
possibility, location relative to the KUD, etc. Once a village is selected, villagers
received the system upon becoming a full member of the KUD and agreeing to
sign a lease-purchase agreement by paying the stamp duty. The KUD upon
receiving the down payment then engaged a private supplier to install the system.
This consisted of a 45–48 Wp PV panel, supporting structure, two fluorescent
lights, an automotive battery, required wiring and control equipment and a 12 V
DC outlet. The system is capable of generating 145 Wh/day with 6 h of bright
sunlight and could run two lamps for 7–8 h or 5 h of light and 5 h television.
Consumers pay an initial payment of Rp 50,000 and a monthly fee of Rp 7500 for
10 years. The KUD retained Rp 500 per month towards its costs and deposited the
rest to a Revolving Fund maintained at the Bank. In contrast, commercial terms for
7 Rural Electrification Experience from South-East Asia and South America 163

private supply of SHS to affluent consumers were Rp 200,000 of initial payment


and a monthly payment of Rp 20,000. However, the collection rate was about
60 % (Cabraal et al. 1996).
The success of the programme led to semi-commercial initiatives for installa-
tion of 20,000 SHS in the country and is considered to be the predecessor of
‘‘50 MWp one million roof programme’’. Retnanestri et al. (2003) contended that
one of the pilot PV projects in Indonesia was Sukatani project in West Java which
was initiated in 1988 when 102 PV lighting systems were installed. Users con-
tinued to use these systems even when grid was extended to the area after 15 years.
However, Draeck (2008) indicates that the overall experience in Indonesia in terms
of solar PV was disappointing. Although 300,000–350,000 PV systems have been
installed in the country, only a small fraction of them is working, and the system
components are recycled back to the second-hand market. The state utility iden-
tified about 6,000 villages in remote areas where grid connection is unlikely to
reach in the near future. The potential for off-grid systems in these areas remains
high but the progress has been limited.
In addition, mini-grids are being used in 20 regencies, each serving 30–100
households with a typical capacity of 5 kW (Draeck 2008). Hybrid options using
PV and diesel generators or wind-diesel generators have been tried. Under the
Australian Aid programme, such a project involving an 8 kWp solar PV and a
25 kVA diesel generator to electrify 200–250 households was carried out. The
generator operates during the peak and inter-mediate load conditions. This solution
has been experimented in five villages of Central Sulawesi and in 6 islands
(Akhmad et al. 2008).
Retnanestri et al. (2003) report that PV lighting systems have been used for
economic activities like solar boat lighting, egg incubator and indoor/outdoor
lighting for chicken barns. In Jangari village of East Java, fishermen are using PV
lights for floating fishing nets on the Cirata dam since 2000 that replaced
electricity from polluting diesel engines or batteries. The users procured these
systems under a semi-commercial scheme.

Private initiatives
IEA (2003) provided two examples from Indonesia where two private entities
supplied solar home systems in the Indonesian market.
PT Sudimara, Indonesia: Between 1993 and 1998 this company, which was
earlier known as R&S and was owned by Shell Renewables, was supplying SHS in
Middle-Java, West Java, Lampung and Jambi. It stopped operation after the
financial crisis of 1998. They offered both cash sales and a hire-purchase option.
The company carried out the installation at the consumer premises and undertook
the collection of monthly payments for hire-purchase sales. They offered a 40 Wp
SHS and produced the BOS locally. The price was about $400 and charged a down
payment of 20 %, with the rest spread over a maximum of 3 years carrying an
interest of 20 %. The system ownership was transferred to the consumers upon full
payment. The company operated about 65 branches and each branch covered an
area of 45 km radius. The company faced credit management problems as it grew
164 S. C. Bhattacharyya

and overheads increased. Raising loans or credit from banks was difficult in
absence of collaterals.
PT Mambruk Energy International, Indonesia: Mambruk started its operation in
1998 and has achieved a significant level of sales. It operated a cash sale and a
hire-purchase sale through Sales and Service Centres (S&SC) and their appointed
agents or outlets. S&SC places a batch order for units and arranges for their sales
through its agents or outlets. The consumer upon entering into an agreement and
upon payment of required charges receives the unit which is installed by the
technician of S&SC. The company has experimented with alternative payment
collection schemes—collection through debt collectors and payment with a trusted
person in the locality who received a commission. A system in 2001 cost USD 320
and required a down-payment of 25 % which can be spread over a three month
period and a monthly fee spread over a maximum of 30 months.
Draeck (2008) reported that PT Mambruk and Shell Solar participated with BRI
in the village credit scheme and supplied 1000 SHS units each in the plantation
area where farmers have regular income streams.

7.2.1.3 Organisation and Financial Viability of Electrification

As indicated above, the state utility is the main agency used in the electrification
process. The funding for rural electrification was provided by the state, which was
utilised through the PLN. In the off-grid projects, both state and private entities
operated, and the donor agencies have played an active role in providing support
and conducting pilot projects. The government provides subsidy for SHS based on
the level of income and location but this has put a subsidy burden on the state. Also,
the financial difficulties of the state affected its commitment towards financing.
Retnanestri et al. (2003) reported that Indonesia classifies the consumers into
three categories—under developed, more developed and developed economic
standing. According to them, demonstration projects are important for the first two
categories whereas semi-commercial projects are useful for the third category. In a
demonstration project, government or donor agencies support the revolving fund
used to finance the project whereas in a semi-commercial project, consumers
contribute significantly to the cost-recovery. In a demonstration project, rural
cooperatives provide the support service whereas in a semi-commercial operation,
consumers deal directly with the dealer.

7.2.1.4 Lessons

Although Indonesia has shown commitment to rural electrification and use of


renewable energies, it remains one of the weak performers in the region. Even the
Philippines, having very similar geographic conditions (island state), has been
more successful in providing electricity access. Based on Retnanestri et al. (2003),
Draeck (2008), USAID (2008), and World Bank (2005) the following lessons can
be highlighted.
7 Rural Electrification Experience from South-East Asia and South America 165

Limited growth despite huge potential: Indonesia offers huge potential for
off-grid solutions because of its geographical location and its configuration (island
country). Although Indonesia has experimented with the PV technology and other
options, the country did not make a substantial progress in its rural electrification
compared to its neighbours or countries in similar positions. Lack of government
commitment due to financial and political difficulties faced by the country, reliance
on the state initiatives mainly through the national power company and lack of
local participation in the programmes have affected the success.
Tariff and subsidy issues: Indonesia offers fuel subsidy and other supports for
conventional fuels and its electricity tariff does not ensure cost-recovery for the
electric utility. Poor financial condition, lack of access to private funds and
dwindling state support for social projects have affected the electrification efforts
of the national electric utility.
Regulatory confusion: The annulment of the reform-oriented electricity act and
the subsequent regulatory confusion has also slowed down the electrification
process. This has affected the private investment climate and consequently,
governance issue has emerged as a major concern. With the new law in place, the
situation is likely to change in the future.

7.2.2 The Case of the Philippines

According to, IEA (2011) the overall electrification rate in the Philippines was
89.7 % in 2009, with only 9.5 million without access to electricity. IEA (2009)
indicated that 97 % of the urban population and 67 % of the rural population have
access to electricity. However, according to the National Electrification Admin-
istration (NEA), the country achieved 100 % electrification of urban areas and
99 % electrification of other areas, although 77 % of the households have access to
electricity (NEA (2010)). Clearly, despite the differences in the coverage of the
above two definitions,2 the Philippines has recorded an impressive rural electri-
fication performance. This is even more impressive considering the fact that the
country is composed of more than 7,000 islands, some of which are far-fetched
from the main area of inhabitation. The present target is to achieve 90 % house-
hold electrification by 2017 and a four-year revolving development plan is being
used to achieve this target.

2
The NEA considers an area electrified based on the concept of accessibility. If it is possible to
supply a customer upon request even if it is not electrified, the area is considered as electrified.
Thus in an electrified area there can be households without actual connection to the grid or supply
166 S. C. Bhattacharyya

7.2.2.1 Technology Choice

The main mode of electrification is the extension of the electricity grid. The
Electricity Co-operatives (EC), created in the 1960s, generally manage the local
grid and distribute electricity in their areas. A specific group called Small Power
Utilities group (SPUG) of the National Power Corporation produces most of the
power for small and isolated islands. Other generators include independent power
producers, new power producers, local government units, qualified third parties
and community-based generators (DOE 2008). SPUG operated 304 generating
units in 78 small islands with a generating capacity of about 130 MW. Most of this
capacity comes from diesel generators—either land-based or barge mounted. It
also operates a micro-hydro plant and a hybrid renewable energy farm (DOE
2008). Co-operatives generally buy power from SPUG and distribute it through
their distribution systems.
However, for remote rural areas where extending the grid is not cost effective or
is not likely to materialise in the near future, off-grid solutions have been used.
Mini-grid system has been used in such areas. Mini/micro-hydro power was the
preferred energy source where hydro potential exists. Similarly, geothermal power
has also been exploited where available. Otherwise, new renewable energies such
as solar power, wind and biomass have been used, although the development in
these areas remains slow compared to other technologies. SPUG operated 8
isolated grids in 2008 (DOE 2008).
Heavy reliance on diesel for small-scale power generation imposes cost burden
on the utilities of an oil importing country. The price fluctuations in the interna-
tional market affect the overall cost of production and the viability of the business.
This imposes in turn a heavy subsidy burden on the government.
The Philippines is however endowed with significant renewable energy
resources. It has the largest potential for wind power in South East Asia and can
support about 700 MW of capacity. It has large small hydropower (*1,800 MW)
and geothermal power (1,200 MW) potential. It is also the largest solar
manufacturing hub in South East Asia. But the progress in renewable power
development has been slow.

7.2.2.2 Off-Grid Options

The country has a long experience with PV technology but often as a pre-electrifi-
cation strategy rather than a permanent solution. A few examples are given below. In
1982, a collaborative programme with German assistance installed a 13 kWp plant
under Philippine-German Solar Energy Project (PGSEP). However, the plant was
uneconomical due to its high capital cost and the demand grew faster than the plant
could supply. The above programme however led to the next phase of development
under Special Energy Program (SEP) in 1987 (Cabraal et al. 1996). SEP relied on the
SHS-based electrification and developed a village selection criteria based on the
7 Rural Electrification Experience from South-East Asia and South America 167

following (Cabraal et al. 1996). (1) Area not included in the near-term electrification
plan; (2) Existence of an approved rural electrification cooperative for program
implementation and fee collection; (3) At least 20 users in a cluster within a day’s
travel time; (4) Ability and willingness to pay the fee; (5) Existence of a local
association or NGO to take responsibility of collection, maintenance, monitoring
and access to the areas at all conditions.
The SEP procured the SHS and supplied to RECs who sold to the consumers
upon payment of charges for BOS (balance of systems) and on agreeing to pay
monthly charges. A typical system consisted of 53 Wp panel, associated
controllers and converters, a lead-acid battery, and five lamps. The system could
generate 130–206 Wh per day that was sufficient to light one or two lamps for
few hours and operate a radio (Cabraal et al. 1996). The entire system except the
panel is locally produced but the quality was a major problem. The REC
technicians are responsible for installation and maintenance or trouble shooting
while the NGO or local association collected the fees and monitored the
performance of the systems.
The price of the system was 23,000 pesos (USD 900) in 1995. The imported
components were exempt from duties and taxes. The SEP created a revolving fund
to fund procurement of new units. Only 10 % of the households could procure the
SHS in cash terms but another 20–60 % could afford with an appropriate financing
mechanism while the rest could not afford the SHS but could buy a battery.
In 1991, with GTZ support, NEA initiated a ‘‘pre-electrification project’’ by
installing SHS in remote households through the electricity co-operatives. This
project installed about 2000 systems but was a one-off exercise (ESMAP 2001a).
An Australian aid-funded project supported installation of 1000 packaged PV
systems in 390 villages for community infrastructure development (ESMAP
2001a).
The Renewable Energy Power Program (REPP) was the most important
government initiative in promoting renewable energies in the country. This was
initiated in 1993 and aimed to support small renewable energy power projects up
to 25 MW by providing finance up to 750 million pesos. A task force under the
Department of Energy was created and the department guaranteed the purchase of
electricity produced from the renewable projects under the programme. Although
this generated a significant amount of interest, the project faced difficulties and
delays, and was never successfully launched (ESMAP 2001a).
However, most of the initial experiments did not produce promising results
either due to their limited scope or one-off nature of the intervention. In 2008, the
Renewable Energy Act was enacted and this provided support for renewable
energy development in the country through feed-in tariffs, renewable portfolio
obligations and Renewable Energy Market creation. Additionally, market incen-
tives are being provided to support on-grid and off-grid use of renewable energies.
To achieve the target of 90 % household electrification by 2017, the Depart-
ment of Energy has planned to provide 200,000 SHS in remote areas under its
SWITCH programme which supports a transition from kerosene to a renewable
energy for lighting. The Department will provide P8000 per SHS and P1500 per
168 S. C. Bhattacharyya

lantern (DOE 2008). A successful off-grid electrification case of an island is


presented in Box 7.1.

Box 7.1 The AMORE Story in the Philippines

The Alliance for Mindanao Off-grid Renewable Energy (AMORE) pro-


gramme is a successful off-grid electrification programme run by Winrock
International with support from the USAID and the Department of Energy,
Philippines . This programme is electrifying the remote, rural areas of
Mindanao island where one-fourth of the national population resides. The
quality of life in Mindanao has been much below the national average and
the electricity access was low.
The programme started in 2002 and at present the third phase is being
implemented. The programme is relying on renewable energy technologies,
namely PV battery charging stations, solar home systems and micro-hydro
systems, to provide clean energy to the deprived communities. At the end of
the second phase 13,000 households have been electrified in 400 barangays
in 12 provinces of the island. The community members organise their own
association and register it with the appropriate government agency. The
programme provides training to the associations to transfer required
knowledge and skills to the members. The association raises funds, maintains
the system and decides about the expansion of the system.
The first two phases of the programme received grants to subsidise the
electrification systems. But to recover the operating costs a membership fee
and a one-time charge are payable by the association members. In the third
phase commercialisation attempts are being made to ensure long-term sus-
tainability of the electrification process. The project has exceeded its targets
and is successfully running, bringing lights to the poor rural communities and
improving their lives.

Source http://amore.org.ph and Winrock International (2005)

7.2.2.3 Organisation and Financial Viability of Rural Electrification

The government initiatives for rural electrification in the Philippines started in


1960 when the Electrification Agency was set up. The electrification process
started with government support and low-cost financing available at the time.
Initially, the country established small systems (each of less than 500 kW
capacity) and by 1969, there were 217 such small systems (ESMAP 2002). But due
to financial and technical problems, most of these systems failed and were closed
down. Consequently, only 18 % of the population had access to electricity by early
1970 (ESMAP 2002).
7 Rural Electrification Experience from South-East Asia and South America 169

The second phase started in 1969 when the National Electrification Act was
passed and the Electrification Agency was reorganised to create the National
Electrification Administration (NEA). The private utilities played an important
role in the electricity sector of the country but they mostly focused on the urban
areas, which created a significant urban–rural gap. NEA decided to promote the
Rural Electrification Co-operatives to enhance electricity access in rural areas.
This gave impetus to the electrification process and during the next two decades,
the country recorded significant progress (ESMAP 2002). By early 1990, the
country reached 100 % electrification in the municipal areas. But the electric
co-operatives faced financial difficulties in pursuing the electrification goals due to
drying up of low-cost funds. The cooperatives were designed along the US model
of rural electric cooperatives but the Philippine co-operatives cannot request
members to contribute funds beyond their initial subscription payments.
Accordingly, they were totally dependent on NEA funding for their operations.
Subsequent to reform of the sector in 2002, the government did not allow NEA to
borrow additional funds for lending to co-operatives, which in turn affected their
access to capital.
Prior to the reform of the electricity sector in 2002, the country was served by
139 distributors, of which 20 were investor owned and 119 were electricity
co-operatives, each covering a specific area franchised to them (ESMAP 2004).
Upon reform in 2002, the country has adopted a competitive electricity market
model but the reform progress has been slow. In 2003, the government launched
the Expanded Rural Electrification Programme to achieve 100 % electrification by
2008 (extended to 2010 afterwards) and 90 % household electrification by 2017.
The programme focuses on a combination of approaches including extension of
distribution network, setting up of micro/mini grids and the use of off-grid
systems. The programme has allowed participation of non-government and non-
utility agencies in electricity provision and resource generation by involving
qualified third parties (QTP). Where a co-operative or a franchisee finds it unviable
to provide electricity, the Missionary Electrification project is undertaken, which
receives a continuous flow of subsidy from a fund created by levying a universal
charge, set by the electricity regulator, on electricity users. For off-grid electrifi-
cation, innovative delivery mechanisms are being used to reach the dispersed
population (DOE 2008).

7.2.2.4 Lessons

The experience of the Philippines shows that the country has used private supply
and co-operative models for rural electrification. The co-operative model has been
successful in delivering electricity through state and donor funding support.
However, ESMAP (2004) indicates that the performance of ECs is not uniform and
the difference in the performance cannot be explained by common driver variables
such as differences in the consumer density, area or per capita income of
consumers. The report suggests that the governance and management of the
170 S. C. Bhattacharyya

cooperatives is responsible for such variations. The performance has been


impressive where the local participation was high.
The reliance on grid extension as the electrification method has resulted in a
high cost solution and poor financial viability of the co-operative system.
In addition, the experience with private investors in the rural areas has not been
long enough to come to any conclusion. It is also surprising that despite having the
geographical advantage and huge renewable energy potential, the off-grid options
have not been attempted beyond the donor-government sponsored schemes.
However, ESMAP (2002) indicated that the benefits derived from electrification
outweighed the costs incurred in the process.
Another important lesson is that the country has relied on both state support and
market-based mechanisms to enhance electricity access. Similarly, it is relying on
market-based mechanisms to a large extent to promote renewable energies. There
is need for a more detailed study to appreciate the developments in this country.

7.2.3 Example from Other South East Asian Countries

7.2.3.1 Thailand

Thailand’s rural electrification is considered a success story. Its grid-based rural


electrification programme, which began in 1974, has increased the number of
electrified villages from 20 to 99 % by 2004 (Harnboonyanon 2005). Three
distinct development phases in Thai rural electrification can be identified:
(a) Initial stage between 1964 and 1975 – This phase relied essentially on diesel
generators on a limited scale and by 1975 only 20 % villages had access to
electricity.
(b) Accelerated rural electrification programme between 1975 and 1996 – This
period saw an expansion of the grid and resulted in a rapid growth in elec-
tricity access. As a consequence, 44 % of the villages were electrified by 1981
and by 1986, 75 % of the villages received electricity (Harnboonyanon 2005).
By the end of the programme by 1996, 98 % of the villages were electrified.
The success of this programme has been mainly due to the integrated and
systematic planning process set in accordance with the National Plan with
emphasis on expansion of electrified villages all over the country as soon as
possible. To complete the task, PEA took some initiatives like reducing capital
investment cost by actively minimizing the losses (especially theft), high bill
collection through village leaders, cross-subsidy from urban to rural, bulk
tariff subsidy, community involvement, and reducing construction and oper-
ating cost.
7 Rural Electrification Experience from South-East Asia and South America 171

(c) Household electrification programme – Since 1997, the focus has changed to
electrifying households and more than 550,000 households were provided
electricity access in two phases. Only less than 1 % of the households lacked
electricity by 2004 and most of these households are located in national parks,
forests, islands, etc. These were to be electrified using solar home systems.
Rural electrification in Thailand was carried out by the Provincial Electricity
Authority (PEA). PEA used a pragmatic approach towards electrification. It used a
ranking scheme to decide the village electrification decision. This was based on the
following seven components: (1) proximity of the grid, (2) accessibility by road,
(3) village size, (4) number of expected customer in the first five years, (5)
potential agriculture and industrial loads, (6) number of commercial establish-
ments, and (7) extent of public facilities (ESMAP 1997). PEA accelerated a village
selection if that village was willing to make a larger contribution to the
construction cost. 17,681 villages out of 70,726 contributed 30 % but only 707
villages contributed the full amount (ESMAP 1997). However, there are some
evidences that most of these contributions were paid by a few individuals and by
politicians securing local development funds (World Bank 2000).
Harnboonyanon (2005) identified the following key success factors behind the
Thai success:
(a) Standardised technical design: PEA used a standard technical design for all
rural areas that was easy to use and replicate.
(b) Simple construction standard: The delivery was based on a simple standard
and involved private contractors to provide the supply.
(c) Financial support: The electrification programme received generous finan-
cial support from the government, local people, donor agencies and inter-
national funding agencies. This support ensured a rapid development of the
system.
(d) Cross-subsidy: The development was supported by a tariff policy that ensured
cost reduction for the rural consumers. The cross-subsidy was provided at the
wholesale level for rural consumers from the urban consumers.
(e) Dedicated organisation: PEA was a dedicated agency for the provision of
electricity in the rural areas. This separation of responsibilities and organisa-
tional arrangement ensured a concerted effort on rural electrification.
Yet, Thailand also faced a number of constraints. The financial viability of rural
electrification programme was an issue, given the heavy investment in developing
rural electricity infrastructure and poor revenue potential due to low demand.
The non-availability of adequate infrastructure for transportation of equipment and
materials was another issue. The cost of revenue collection and regular meter
reading was high for PEA and this affects the financial viability of rural system
operations. Finally, the reliability and quality of supply was also a problem
(Harnboonyanon 2005).
However, Thailand essentially relied on grid extension and has used off-grid
options only in a limited scale. Two technologies were used for off-grid
172 S. C. Bhattacharyya

electrification—micro-hydro systems and more recently solar home systems. The


micro-hydro systems were initiated in early 1980s and used in the northern areas of
Thailand. Only in the third phase of Rural Household Electrification in 2004–2005
the solar home systems were introduced to electrify the remaining households.
The experience with these systems has been mixed at best, with poor quality and
poor performance affecting the overall benefits.

7.2.3.2 Vietnam

Vietnam provides another example where rapid progress has been made in terms
of rural electrification. Vietnam is a populous country (90 million in 2011) with a
high share of the population living in rural areas (about 70 % of its population).
According to Shrestha et al. (2004), only 2.5 % of the poor had electricity access
in 1975 but the rate of access accelerated in the 1990s and according to IEA
(2010), the country has achieved close to 98 % electrification. As a result, from a
mere 1.2 million population with electricity access in 1976 the country managed to
provide electricity to 82 million population by 2009 (World Bank 2011a).
According to Nguyen (2007), about 2 million households living in remote areas
lack access to electricity grids, where off-grid electrification methods are being
used. World Bank (2011a) provides a detailed review of the Vietnamese rural
electrification experience. In the following paragraphs, we briefly present the
salient features and essential points.
Vietnam started its electrification in the mid-1970s during the post-war
recovery period but the focus was on developing required infrastructure, particu-
larly in the urban areas. Therefore, rural electrification was not the priority during
this period and consequently, and the progress was relatively modest. The country
initiated market-oriented economic reform initiatives in the mid-1980s following
the example of China and wide-ranging changes to the economic system were
initiated (ADB 2006). This period paved the way for rapid economic growth, and
some crucial electricity infrastructure was created during this period. Rapid pro-
gress in electrification was made during since mid-1990 (see Fig. 7.4) when the
electricity generating capacities and transmission networks were available, and
when the Electricity of Vietnam (EVN) was established to ensure integrated
development of the electricity supply industry. At this time the government also
set the national electrification targets. After a short period of rapid electrification,
the progress continued at a slower pace due to reduced access to favourable
funding and emergence of institutional and organisational issues related to elec-
trification. While EVN was ensuring village level connections, taking the grid to
the households was done using diverse operational and administrative arrange-
ments. The emphasis then shifted to better regulation of the industry and better
quality of supply. The ad-hoc operational arrangements were initially converted to
local distribution utilities and then consolidated to create viable local distribution
business. A uniform distribution tariff system and the distribution code were
7 Rural Electrification Experience from South-East Asia and South America 173

Fig. 7.4 Progress in


electrification in Vietnam
Source World Bank (2011a)

established in 2009 and 2010 respectively, to provide a structured distribution


system in the country (Fig. 7.4).
As noted in the previous cases, Vietnam also relied on grid extension as the
main mode of electrification. The state played an important role in the entire
electrification process—policy making, strategy development and delivery.
Vietnam followed a logical approach in building the capacity and infrastructure
first and then expansion of the system to rural areas. It also prioritised the process
by putting emphasis on productive use of energy, which helped create demand for
electricity. The creation of EVN and its effective support in promoting rural
electrification contributed to the success of the programme as well. Finally, the
involvement of various stakeholders and the focus on cost sharing and cost-
recovery were also important features of the system.
Some studies report the progress in electrification in Cambodia and Laos but
very limited information is available on Myanmar. Maunsell Ltd (2004) provides a
detailed study of the electrification status in Lao PDR and proposed a framework
for rural electrification. Bambawale et al. (2011) explain the quadrupling of
electrification rate between 1995 and 2009 in Laos. Similarly, Arriaga (2010) and
Smits and Bush (2010) discuss the pico-hydro alternative for electrification in Lao
PDR. Zeriffi (2011) presents the efforts being made in using distributed generation
in Cambodia to provide electricity access. All these record the progress being
made in this region and the alternative options being attempted to provide elec-
tricity access.
174 S. C. Bhattacharyya

7.3 Experience from South America

7.3.1 The Brazilian Experience

7.3.1.1 Status

According to IEA (2010), Brazil reached an overall electrification rate of 97.8 %


by 2009—with 99.5 % urban areas electrified and 88 % of rural areas. This has
been achieved through grid expansion to a large extent and the 1988 constitution
has considered distribution of electricity as a public service.
The country has made a significant progress in its electricity access provision.
Until 1990s, most of the electrification was undertaken at the state level using
government funds. Some decentralised activities were supported by donor agen-
cies. In 1994, a major electrification programme, PRODEEM was launched with
state funding. Electrobras was the co-ordinating agency. Another programme, LnC
(or Light in the Countryside) was launched in 2000, which received funds from
RGR (or Global Reversal Reserve). This was coordinated directly by MME
(Ministry of Mines and Energy). However, these programmes did not have a clear
universal electrification target and the concessionaires, especially the private ones,
were not interested in reaching out the remote areas with little demand.
Consequently, in 2003, a specific universal electricity access programme, LpT
(Light for All) was launched with an objective of electrifying the country by 2010.
The programme laid emphasis on productive use of energy and integrated local
development, and accorded higher priority to less developed, poorer areas of north
and north-east. Although the programme allows for grid extension, decentralized
options and individual systems, Brazil has relied mostly on grid expansion. Very
limited use of decentralised and off-grid solutions has been made so far. Only 3100
SHS have been installed until end of 2006 and diesel generators are predominantly
used in the Amazon region. The non-electrified areas of the Amazon region have
less than 30 households in an area and because of distance from the grid, it is
uneconomical to extend the grid in these areas. Under the MME Guidelines,
Electrobras were evaluating 23 special stand-alone or decentralized projects in
2009 but it is expected that diesel generators will continue to play an important
role in this area.
According to, Andrade (2009) the rural communities in Brazil have special
characteristics, as follows: they are highly dispersed, with very low population
density, sometimes as low as less than 1 person/km2; they are not integrated with
the formal economy; they lack disposable income or monetary strength; show poor
human development index and low levels of consumption. Accordingly, the
problem for the remaining non-electrified villages is more complex. IEA (2010)
reports that Brazil has achieved poverty reduction in the past few years and
achieved its Millennium Development Goals in this respect but it still suffers from
extreme poverty in some rural areas of north-east.
7 Rural Electrification Experience from South-East Asia and South America 175

7.3.1.2 Technology Options

Brazil has relied on grid extension as the main mode of electrification. The main
difference with South Africa is that a large share of electricity in Brazil comes
from hydro sources, making it less environmentally damaging. Diesel generator
based mini-grid systems have been widely used in rural areas, especially in the
Amazon region. According to, Goldemberg et al. (2004) more than 1,000 diesel
generator sets are used in the region, of which more than 700 sets have a capacity
of less than 500 kW. Brazil has also used other forms of renewable energies such
as solar PV for electrification purposes.
Andrade (2009) indicates that isolated systems provide electricity to 3 % of the
Brazilian population (1.6 million consumers) spread over 45 % of the territory.
Thermo-electric plants running on diesel are generally used in most of the cases
but this entails fuel waste as one litre of fuel used in the plant may require spending
two litres of fuel for transportation to the region. The quality of power is not high
and the supply is often not available for 24 h.
Zerriffi (2008) indicates that Brazil has a considerable experience in the
decentralised electrification programme. CEMIG, the utility of Minas Gerais,
undertook a PV-based electrification in the 1990s for electrification of schools,
community buildings and households. However, the programme could not achieve
its target and only 450 SHS were installed out of a target of 4,700 between 1995
and 2001.
According to, Andrade (2009) three main programmes have been used in Brazil
for universal electrfication:
(a) PRODEEM (The State and Municipal Power Development Programme)—This
was launched in 1994 to provide decentralized renewable energy options to
schools, health centres and other community facilities. Between 1996 and 2002,
more than 8,700 systems were distributed leading to an installed capacity of
5.2 kWp. The programme faced operation and management problems and the
performance was not high due to poor operating results of the installed systems
(50 % not working) and other institutional issues (Zerriffi 2008).
(b) LnC (Rural Power supply National Programme)—This was initiated in 1999
and extended grid connection to rural areas. Between 2000 and 2003, 630,000
connections were made.
(c) LpT (Light for all)—Initiated in 2003 to connect more than 2 million rural
households by 2010 with a budgeted expenditure of R$12.7 billion.
Two types of efforts are found in Brazil: (1) efforts by centralised utilities to
provide access in their service areas—this is the dominant mode of operation and has
often promoted diesel mini-grid, solar home systems in remote areas and providing
supply to community structures (schools, etc.) through PRODEEM programme
(Zerriffi 2008). (2) There are a few examples where non-centralised agencies have
also participated in decentralised energy supply. An NGO, IDEAAS, has developed
a fee-based SHS where consumers pay an installation fee and a monthly charge. The
NGO used a mix of loans and grants for funding but requires the installation of 4000
176 S. C. Bhattacharyya

units to break-even. This has not been ensured but if the costs can be controlled, the
model could be replicated and sustained (Zerriffi 2008).
The diesel mini-grid is used in the rural areas of Amazonia and is provided by
government-owned utilities like CAEM, who use grants for ‘‘Lights for all’’
programme and diesel fuel subsidy for rural areas. Even then, the services are not
economically viable and the companies run into deficits. On the other hand, private
companies like COELBA have relied on SHS to provide electricity to the remote
areas. While they can access funds for ‘‘Lights for all’’ programme, being private
utilities cannot operate under financial losses, although they also try to use cross-
subsidies from rich consumers to make up for some losses.

7.3.1.3 Organisation and Financial Viability of Rural Electrification

Until 1990s, the rural electrification programmes were implemented at the state
level through franchisees selected by the state. PRODEEM followed a top-down
approach and was a centralised project and implemented through utilities
(Goldemberg et al. 2004). This was funded by donor agencies and the federal
government. The LnC programme was implemented by Electrobras and coordi-
nated by the Ministry of Mines and Energy. For the LpT programme, a new
organisational structure has emerged (IEA 2010). The regulatory agency, ANEEL
plays a key role here for setting the annual targets and approving the conces-
sionaires while Electrobras, the national utility, holds the secretariat for the
programme. The Ministry of Mines and Energy coordinates the programme. The
funding is essentially provided by the federal government although the states
contribute about 10 % to the cost.

7.3.1.4 Lessons

The Brazilian experience also supports the case for state support in rural electri-
fication infrastructure. Brazil has relied mainly on grid expansion and only used
off-grid solutions where grid cannot be extended. Its reliance on diesel generators
for off-grid solutions as opposed to renewable sources is another important feature
of the electrification strategy. In all programmes, the state took an active role in
setting the targets, creating the organisational arrangements and monitoring of the
programme. Although Brazil has reduced its poverty and developed economically,
the viability and sustainability of its subsidised electrification programmes is not
ensured.

3
PIES-MME. December 2007
7 Rural Electrification Experience from South-East Asia and South America 177

Fig. 7.5 Duration of electricity supply in Colombia Data’source IPSE (http://www.ipse.gov.co)

7.3.2 Examples from Other South American Countries

7.3.2.1 Colombia

Electricity in Colombia is supplied by the National Interconnected System (NIS)


and by local systems in the Non-Interconnected Zones (NIZ). The grid-based
access covers 96 % of its 45 million population, whereas the zones which are not
connected to the national grid cover a population of 1.5 millon spreading over
nearly 66 % of the country’s territorial surface (Silva and Nakata 2009). Around
88 % of this population is living in rural areas and the population density can be as
low as 2 persons/km2. The installed generation capacity in the NIZ zone was
90 MW3 in 2007. Diesel plants contribute 92 % of the total installed capacity and
come with varied characteristics depending on where they are located. On the
other hand, the small hydroelectric plants constitute almost 8 % of the total
capacity.
One of the characteristics of the electricity system in NIZ’s is its intermittent
supply. Figure 7.5 depicts the average number of hours of electricity per day in the
main NIZ’s areas. The graph shows that the 90 % of municipalities have 6 h of
electricity per day. While a number of government agencies are involved in the
policy and planning of electrification in the NIZ area, the supply is undertaken by
93 public service enterprises.
The General State Budget and the National Royalties Fund support the new
infrastructure creation in the NIZ area and provide subsidies for power supply.
Between 2003 and 2007, a total of about 307 Million USD was provided to the
NIZ as support towards electrification. Yet, the level of access in many areas is
178 S. C. Bhattacharyya

quite poor and the remoteness implies that the cost of supply is higher when the
supply comes from diesel. Silva and Nakata (2009) report that diesel costs 60 %
more in the NIZ area compared to that prevailing in the capital and consequently,
the average price of electricity is twice that of grid-connected areas and the service
duration is limited.
Although renewable energies can become cost effective in certain areas and
could displace some fossil-fuel use in rural Colombia, the progress has been rather
limited. Hernandez et al. (2011) report that the telephone company (TELECOM)
first used solar PV systems for rural telecommunication systems in 1979 and this
still continues to provide electricity for rural telecommunication. In recent times,
some solar PV systems for individual household use are being used with the
financial support from the general budget and special funds. Also a 125 kW
mini-grid pilot project is under development (Hernandez et al. 2011).

7.3.2.2 Peru

According to IEA (2011) Peru has an overall electrification of 86 % with


4.2 million without access to electricity. But this overall picture hides the stark
urban–rural divide: only 28 % of the rural population had access in 2008 as against
96.5 % of the urban population (IEA 2009). This is one of the lowest rural elec-
trification rates in South America and it is a reflection of the fact that Peru is one of
the most unequal societies in the world and that poverty in rural areas is wide-
spread (Cherni and Preston 2007). The country relied on grid extension as the main
mode of electrification and significant progress was made in the 1990 s when the
country reformed the electricity industry. The level of electrification increased
from 45 % in 1972 to 75 % in 2002 (Cherni and Preston 2007) and then to 86 % in
2009. But the process remained an urban phenomenon and the rural areas did not
see significant improvements in this respect. In fact, rural electrification was not
within the purview of the sector reform and the responsibility rested with the
Department of Electricity Projects of the Ministry of Energy and Mining. The
Department prepared the Rural Electrification Plan and carried out projects under
the plan. These were essentially grid extension projects and did not yield results
due to a number of factors: inappropriate project selection, shortage and uncer-
tainty of funds and the possibility of corruption (Cherni and Preston 2007).
A Rural Electrification Law was introduced in 2002 to ensure rapid rural
electrification using appropriate resources and technologies. It provided for a Rural
Electrification Fund and left the electrification responsibility with the state. The
Fund is guaranteed to receive no less than 0.85 % of the annual national budget,
which according to Cherni and Preston (2007) represented an increase of about
$14 million in funding per year that could electrify additional 11–13000 families
per year. However, this is clearly insufficient to address the rural electrification
problem.
Off-grid electrification can be a viable option in rural Peru, although grid
extension received the emphasis. Some isolated investments and experiments were
7 Rural Electrification Experience from South-East Asia and South America 179

carried out in the 1990s. Martinot and Reiche (2000) reported that in Peru a GEF
funded project aimed at creating a model concession arrangement for the devel-
opment of PV-based rural electrification in Peru through the involvement of local
communities. The users will pay a monthly fee and the government will provide a
subsidy and contribute equity to the project. It aimed to provide 12000 SHS within
4 years.
ESMAP (2001b) reported evaluations of several small-scale projects through
post-investment investigations and found that micro-hydro plants and diesel
generators faced a number of problems including frequent shutdowns, high
subsidy requirements, and lack of management skills. It is reported that there are
300,000 isolated households in the country where grid extension is not feasible and
off-grid systems will be used to provide electricity access (ESMAP 2001b). As part
of a World Bank project that started in 2006, 39,000 people are targeted to be
provided access with solar PV systems (ESMAP 2011).
A recent study suggested that Peru has a significant small hydropower potential
and a conservative estimate puts it at 1600 MW. But as small hydropower has to
compete with cheap gas-based electricity, investors did not find it attractive to
invest in Greenfield projects, which prevented the country from realizing its small
hydro potential (World Bank 2011b).
In 2008, the Renewable Energy Decree was introduced to promote renewable
energy and renewable electricity in the country. But the focus again was on grid-
connected supply. The country still needs strategic thinking to address the rural
electricity access issue.

7.3.2.3 Chile

Jardesic (2000) reported the Chilean programme that was introduced after the
restructuring of the power sector in the country. In the early 1990s, almost 50 % of
the rural population had no access to electricity and an innovative rural electrifi-
cation was introduced (called PER in Spanish) in 1994 to address the problem. It
aimed at providing electricity to 100 % of electrifiable rural dwellings within
10 years and reach 75 % coverage by 2000. The programme was deeply rooted in:
(i) decentralised decision-making; (ii) community participation; (iii) competence
promotion in the energy supply; and (iv) use of appropriate technologies. A special
fund was created to provide one-time direct subsidy on a competitive basis to
cover the investment costs while the tariff charges set by the regulators were to
cover the operating costs. The subsidy fund is allocated based on the progress
made in the past year and the number of households still lacking access. Jardesic
(2000) reported that the programme produced demonstrable results, achieving the
75 % target set for 2000 by 1999. The state invested $112 million between 1995
and 1999 and the private sector also brought another $60 million.
These experiences from South America show that while the urban electrifica-
tion has been very successful, there are areas of low rural electrification in the
continent. Although the grid-based approach has been favoured and countries have
180 S. C. Bhattacharyya

tried private investor-led developments, the rate of success varied. While countries
have created funds and special legal arrangements for rural electrification, they
were not always quite effective. Therefore, no univocal lesson emerges from these
experiences that can be used in other countries.

7.4 Findings and Lessons from the Electrification Experiences

This review brings out a number of interesting findings and lessons from the rural
electrification and off-grid experiences from South-East Asia and South America.
These can be summarised below as follows.
Grid extension as the preferred mode of operation Grid extension has been used as
the preferred mode of electrification in all cases. Even in the cases of Indonesia or
the Philippines, the main emphasis was on grid extension, although mini-grids or
local grids are being used as well. Many countries considered in this review have
made a significant progress in terms of electrification. However, the rate of success
has depended on the level of government commitment and financial support to the
process. Examples of Brazil, Thailand and Vietnam in particular show the
importance of proper planning of the electrification process.
Most of the countries in this review have also used alternative off-grid solutions
but these are offered as a ‘‘temporary’’ solution, until grid extension becomes
feasible. This is especially true in the case of Brazil, Philippines and elsewhere.
Promoting off-grid solutions as ‘‘inferior’’ or ‘‘temporary’’ solutions creates con-
cerns regarding the acceptability of these options and reduces their attractiveness.
This also creates a sense of ‘‘discrimination’’ or ‘‘isolation’’ in the minds of the
users and can adversely affect the success of programmes for access to electricity.
Similarly, dependence on petroleum fuels for decentralised operations is clearly
noticed in islands or remote areas. The cost of supply becomes prohibitively high
during soaring international oil prices, which in turn jeopardises the financial
viability of the operator or imposes high subsidy burden on the state or high
electricity tariffs on the consumers.
Subsidy-based and donor-assisted initiatives In all cases, the electrification process
has heavily relied on state subsidies for infrastructure development and in many
cases for system operation. It is also the general experience that the donor-assis-
tance or state-support has been the catalyst for off-grid solutions. Indonesia pro-
vides a clear example of the possible consequences of such dependence. The
Financial Crisis of 1997 eroded the subsidies and caused a major set-back to the
electrification process. It also shows that the electrification as a social objective
suffers during economic downturns, including externally supported initiatives. The
resilience of electrification programmes to such shocks proved to be poor due to its
inadequate local participation and self-reliance. Operating subsidies supporting
non-remunerative tariffs for electricity services have not often benefited the poor
and were always difficult to remove subsequently. The issue of long-term viability
and sustainability of such subsidy or donor-assisted programmes remains.
7 Rural Electrification Experience from South-East Asia and South America 181

Limited integration with rural development Although both the regions have
achieved relatively high levels of electrification, the electrification efforts were
carried out as social objectives without properly integrating them with rural
development. Consequently, despite electrification the rural poverty remained a
problem in many countries. This also enhances the need for perpetual support to
sustain the electrification efforts, which becomes a questionable issue for finan-
cially weak utilities or budget-constrained states. The contrast with the Chinese
approach becomes very evident in this respect. While China has ensured rural
prosperity by integrating electrification efforts with rural development, such a
transformation did not happen in countries reviewed in this chapter. The effec-
tiveness of the electrification programme reduces consequently.
Prevalence of top-down approaches Most of the countries have relied on a top-
down approach, where the targets were set by the governments and the pro-
grammes were implemented by the utilities or their subsidiaries. Better results
have been achieved where the entire programme is well co-ordinated with ade-
quate support services and clear assignment of responsibilities. The development
of a local supply chain has also played a major role in the successful delivery of
the systems. However, reliance on the top-down approach in turn did not provide
flexibility of integrating local resources into the electrification process and did not
create a reliable rural supply system.
Private sector participation and local involvement Although many countries have
followed the top-down approach, local-level involvement and private sector par-
ticipation played an important role in some cases. The Philippines relied on the co-
operative model initially and has extensively used the market-based approaches
allowing private sector to play an important role. The franchisee system used in
South America allowed private sector participation as well. Local participation in
Thailand, Vietnam and the Philippines can also be noticed. However, their influ-
ence in the decision-making process was limited and the electrification process did
not develop as a locally-driven system as was the case in China.
Clearly, these examples provide a contrasting alternative case where successful
electrification was achieved through different means that each country has char-
tered to suit its specific needs and conditions. This provides further support to the
diversity of solutions to reach the same objectives and can be useful for others who
are trying to enhance electricity access.

7.5 Conclusions

This chapter provides further evidence to the premise that strong state support is an
essential condition for the success of any electrification process. All successful
cases have received strong policy support and financial contribution from the state.
Further, these experiences from South-East Asia and South America suggest that
top-down approaches work when they are supported by strong implementation
strategies. Although such strategies varied and included strong national utility
182 S. C. Bhattacharyya

participation, private sector involvement through bidding or franchisee systems


and community participation through co-operatives, a clear objective and purpose
with a strong monitoring and co-ordination of activities helped the successful cases
to reach their goals.
The prevalence of grid extension in most cases leaving a minor role for off-grid
systems confirms the policy bias towards large projects. This is particularly
surprising for island states where decentralized options have not received any
disproportionate support although these options are likely to be more cost effec-
tive. Similarly, the lack of integration with rural development efforts and depen-
dence on donor-assistance for off-grid electrification cause concerns for
sustainability of electrification process in the long-term.

Acknowledgment I gratefully acknowledge the research inputs and support provided by


Ms Claudia Victoria Martinez Roa, an alumnus of the Centre for Energy, Petroleum and Mineral
Law and Policy, University of Dundee, for contributing to the Colombian case study. I am only
responsible for any errors.

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Part III
Approaches for Participation, Governance
and Financing of Off-grid Electrification

This part focuses on the business and delivery of off-grid electrification and
elaborates on three aspects, namely participatory approaches for electrification
and off-grid electricity provision, governance and regulatory issues, and
financing of electrification. Chapter 8 presents a review of participatory
approaches with a special emphasis on South Asia. Chapter 9 presents the
challenge of financing electrification and off-grid access globally while
Chapter 10 presents the governance issues related to electrification. Chapter 11
elaborates on the regulatory challenges facing off-grid electrification.
Chapter 8
Participatory Business Models
for Off-Grid Electrification

P. R. Krithika and Debajit Palit

Abstract Bringing modern electricity services to more than 450 million South
Asians without access to grid electricity calls for a variety of innovative mecha-
nisms. Since off-grid electricity implementation is ipso facto decentralized, many
have been able to experiment with different business models for implementation.
This chapter examines various business models in rural electrification with a focus
on off-grid models using clean sources of energy. The chapter also aims to
understand how different organizations have modeled their off-grid and rural
electrification programmes and what have been successful and challenging about
each model. Given the vastness of the literature available on various electrification
models adopted across the world, the review will necessarily be a partial one,
however an attempt has been made to capture the models prevalent in the South
Asian region and their essential features.

8.1 Introduction

Bringing modern electricity services to more than 450 million South Asians
without access to grid electricity calls for a variety of innovative mechanisms.
Most off-grid populations lack not only the ability to easily pay for electricity, but
also the active demand for electricity necessary to support financially viable
electricity programs. Innovative strategies for rural electrification are crucial to
success—whether through innovative financing programs, marketing strategies or
distribution channels.

P. R. Krithika  D. Palit (&)


The Energy and Resources Institute, IHC Complex, Lodhi Road,
New Delhi 110003, India
e-mail: debajitp@teri.res.in
P. R. Krithika
e-mail: krithika@teri.res.in

S. Bhattacharyya (ed.), Rural Electrification Through Decentralised 187


Off-grid Systems in Developing Countries, Green Energy and Technology,
DOI: 10.1007/978-1-4471-4673-5_8,  Springer-Verlag London 2013
188 P. R. Krithika and D. Palit

Since off-grid electricity implementation is ipse facto decentralized, many have


been able to experiment with different business models for implementation.
Implementation models are driven by different sources—by regional governments
looking to increase economic activity, by communities looking for access to
modern forms of energy, as well as by private entrepreneurs looking to build for-
profit energy businesses. These models of course have different strengths. While
community-driven models will often provide superior local support, government
models typically reach a broader range of consumers. For-profit ventures often
focus more heavily on financial viability. On a smaller scale, some have focused
on implementing end-consumer products—selling individual lanterns, solar home
systems (SHS), or other products. Others have focused on installing mini-grids,
using village-scale power plants.
This chapter examines various business models in the rural electrification sector
with a focus on off-grid models using clean sources of energy. As providing grid
connection is by far the main model for electrification in South Asia (Palit and
Chaurey 2011), this chapter explores selected business models for grid extension
also in addition to the off-grid electrification efforts. Given the vastness of the
literature available on various electrification models adopted across the world, the
review will necessarily be a partial one, however an attempt has been made to
capture the models prevalent in the South Asian region and their essential features.
This chapter also attempts to identify key factors that have contributed to
failures and successes of these models. Specifically, the following countries have
been covered: India, Bangladesh, Nepal, Sri Lanka, Laos PDR, Cambodia, Zambia
and Argentina.
Figure 8.1 indicates the countries and the models that have been reviewed in
this chapter.
We have attempted mainly to cover business models1 in rural electrification
with special emphasis on participatory ones to understand how participation from
communities can affect the outcomes of a project—specifically what roles can
communities assume in a project and whether taking on such roles lead to the
success of a project.
Experiences from India,2 Nepal,3 Ghana4 and other countries clearly indicate
how contribution from community helped to improve access in rural areas, thereby
corroborating the importance of participatory models for improving access.

1
We are defining the business model as an overall framework within which the project operates
including the choice of technology, financial viability of the model, institutional set up, role of
various stakeholders and the regulatory & policy framework. In a business model, the underlying
motive for an investor is profit which assumes central importance, however in a participatory
model the underlying objective is to create access to electricity through sustainable partnerships
with the local communities.Participation of the communities is the centrepiece in a participatory
model.
2
Palit and Chaurey (2011).
3
Palit and Chaurey (2011).
4
Vanderpuye (2010).
8 Participatory Business Models for Off-Grid Electrification 189

Fig. 8.1 Study coverage


across continents Source
Authors compilation

A number of previous studies have developed their own classifications for


electrification models. A review of literature shows that while there is no formal
definition for business models in the off-grid electrification sector, there are a
number of perspectives which broadly converge on the same idea, typically
ownership and the type of institutional arrangement. The World Bank defines
various electricity supply models based on the form of ownership (State owned,
NGO, private sector) and type of technology (Grid extension, off-grid) (ESMAP
2006). Appendix 1 provides the matrix of electricity supply models developed by
the World Bank.
Specifically for solar home systems, the World Bank has defined four different
institutional models (Cabraal 1996): cash sales, consumer financing through
dealers and commercial banks, leasing arrangements, and fee-for-service. Each of
these institutional models has specific characteristics with respect to ownership,
financing mechanisms, services and internal processes. At the same time, UNDP
defines four basic delivery models particularly for solar PV systems (UNDP 2004).
These are summarized as follows:
(1) Commercially led models which are driven by suppliers and dealers with
relatively little government control. The model typically operates on the basis
of cash sales and relies upon merchants that may be dealing in many other
commodities. The consumer is responsible for long term maintenance or the
dealer provides maintenance on a cash recovery basis.
(2) Multi-stakeholder programmatic model wherein a project management unit or
multi- stakeholder management authority is typically charged with reaching
rural consumers. Consumer credit is usually offered through an intermediary
finance organization which is sometimes a village level cooperative or a bank.
(3) Utility model typically operates on a fee-for-service basis. In these cases, the
utility or a rural energy service company seeks to establish a long term rela-
tionship with the rural consumers but retains ownership and maintenance
responsibilities for the systems installed. The consumer pays on a monthly fee
but the utility of the ESCO must carry the debt service associated with the
capital cost of the PV systems.
190 P. R. Krithika and D. Palit

Fig. 8.2 Business models for electrification Source Authors compilation

(4) Grant based models, which typically apply to institutions—schools, clinics


and missions. Bulk procurement typically occurs at a national level and the
systems are then delivered and installed locally, leaving the operation and
maintenance to local hands.
Drawing from these classification systems, we identify five models with dif-
ferent types of operations that have been used in rural electrification.
1. Electricity co-operatives;
2. Electricity distribution franchises;
3. ESCO/Fee-for-service models;
4. Community managed models; and
5. Private sector models (including PPPs).
Figure 8.2 gives an overview of various business models in electrification
attempted in this chapter.

8.2 Electricity Cooperatives

A cooperative is a business organisation owned and operated by its members for


their mutual benefit (Tchami 2007). Rural electricity cooperatives work on the
same principle that are democratically governed businesses, motivated by socially
orientated goals of local development. Cooperatives offer an attractive alternative
to public sector management or principally profit-motivated private sector
involvement. As cooperatives function on a one member one vote basis, they
promote equal participation and empower rural people to shape the course of local
development (Cruickshank and Yadoo 2010).
8 Participatory Business Models for Off-Grid Electrification 191

Fig. 8.3 Rural Co-operative system in Bangladesh Source Author’s illustration

This model has been experimented widely across the world starting with USA
in the 1930s to developing countries such as Argentina, Bangladesh, Philippines
and Nepal and India to some extent.

8.2.1 Rural Electricity Cooperatives in Bangladesh

The Rural Electrification Board (REB) in Bangladesh, established in 1976, has


been extending electricity access to rural areas in Bangladesh by forming rural
electricity cooperatives known as ‘‘Palli Bidyut Samities’’ (PBSs).5 The REB has
divested the distribution of power to end-users through PBSs to ensure local
ownership and participation (see Fig. 8.3). Each PBS is responsible for providing
grid extension to approx. 5–6 districts. At present there are 70 PBSs operating in
Bangladesh providing approximately 7,279,136 domestic connections in 48,799
villages (as on July 2011), serving a total population of 92,513,296 persons.
Though PBSs are independently and privately owned, yet they remain under the
direct regulatory control of the REB, which manages the procurement process,
financial sustainability and management effectiveness (Cruickshank and Yadoo
2010). The REB controls the PBSs in their infancy stage and later envisages
providing financial and operational autonomy once the PBSs become profitable
and self-sufficient (Rejikumar 2007).
Each customer is a member of the PBS. The PBS prepares a master plan for the
electrification of its operational area based on forecasts of load growth of the area
it covers. The responsibility of managing a PBS’s financial and operational
activities is entrusted with the member-consumers in accordance with set rules of
the PBS. The member consumers participate in the decision making through

5
Palli Bidyut Samiti is the Bengali name for rural electric society.
192 P. R. Krithika and D. Palit

elected representatives to the PBS governing body. The PBS has a board of
directors consisting of 12–15 members who are elected on an annual basis to
manage the business and affairs of each PBS. While the tariff setting authority
vests with the PBSs, it is still subject to the approval of REB. Cross subsidies are
permitted, however, average tariffs are set so as to cover for operation, mainte-
nance, depreciation and financing costs. REB also prescribes the by-laws for the
PBS as well as operational, technical and administrative standards of rural
electrification.6
Additionally, REB assists the PBS in planning and designing of the distribution
network; conducting initial organizational activities relating to institutional
development; constructing substation and electric lines; providing training to PBS
personnel; and monitoring management, financial, and system operational activi-
ties. REB also offers the PBSs subsidized financing through low interest loans with
long repayment periods. During the start-up period (up to 6 years) cooperatives
with losses receive direct subsidies and a common revolving fund allows them to
benefit from cross subsidies.
There is a strict system of ‘‘checks and balances’’ as far as the procurement
procedure is concerned and the REB instils a strict discipline into the process
through comprehensive training in the areas of management, rules and regulations
(Rejikumar 2007). The REB also hires the executive management of the PBS and
has the power to terminate their employment with the PBS board approval for non-
performance. The most important feature of the model is the annual performance
target agreement which the PBSs have to sign with REB, covering 22 parameters
broadly committing to increase revenues and connections, decrease losses and
improve service quality, based on previous year’s achievements. PBSs that attain
the set targets are rewarded with incentive bonus up to 15 % of the salary, on the
other hand, PBSs which fail, have to face financial penalty.
The PBSs have been claimed to be a successful model as they have been able to
achieve 14.31 % distribution losses as compared to the national average of 30–35 %
losses, 97 % collection efficiency which is far higher than that of other utilities not
only in Bangladesh but also internationally.
The PBSs which have essentially focussed on centralized grid connections are
now focussing on off-grid technologies also. The renewable policy of REB has
selected SHS as the preferred option for providing electricity to those regions of
Bangladesh that will not be reached at least for next 5 years. The arrangement is
by ‘‘Pay for Service’’ where the equipment is owned by the PBSs and the con-
sumers pay fixed monthly bills for 20 years according to their chosen system
configuration. PBS is also responsible for the maintenance of the systems.

6
As per Bye-Laws, the PBS shall at all times be operated on No Loss-No Profit basis for the
mutual benefit of all its Members and non-members alike and is expected to repay all
indebtedness on schedule.
8 Participatory Business Models for Off-Grid Electrification 193

8.2.2 Cooperatives in Nepal7

In Nepal, the primary responsibility of electrification is vested with the state


owned Nepal Electricity Authority. However, due to practical constraints in
servicing remote and commercially unviable areas, the concept of community
based rural electrification was introduced in 2003. A community electricity dis-
tribution bylaw was passed in 2003 which allows any organized rural group to buy
electricity in bulk from the grid and retail it amongst its users. These community
based organizations (CBOs) are made responsible for any non-technical losses
(theft) occurring within their area. While the NEA provides up to 80 % of the
capital investment, communities must contribute at least 20 % of the total cost of
grid extension via labour, household donations, bank loans, or loans and grants
from the local village and district development committees. CBOS fall under the
purview of NACEUN (National Association of Community Electricity Users-
Nepal).8 These CBOs are also known as Community Rural Electrification Entities
(CREE).
NACEUN has 207 CBOs spread across in 47 districts. Uptil December 2010
around 1, 11, 344 rural households have been electrified.9 The cooperative’s board
is made up of four voluntary members who manage the daily operations.
An annual meeting is held for all the members of the cooperative and the share-
holders to approve the action plan, policies and budget, while the executive
committee (board members plus nine other members) meets on a monthly basis.
NACEUN’s first point of contact with CBOs occurs after the proposal for grid
extension has been submitted to it. Following the payment of a membership fee
(US $20/year) the CBO is incorporated into the NACEUN network and can benefit
from a wide range of training on subjects such as in-house wiring, electrical safety
and productive end uses. The CBOs charge households an initial connection fee
(approximately US$ 67 with all in-house wiring, cost of the meter and basic wiring
included) and then provide electricity at the tariff rates specified by the NEA for
rural areas. The revenue generated from tariffs goes towards the operation and
maintenance costs of the cooperative. The CBOs are free to choose to subsidize the
tariff to their poorest members if desired. Many of the CBOs have formally
registered as cooperatives and offer micro-financing loans to their members to
promote productive end uses of electricity and other income-generating activities
(such as poultry raising, carpentry, computer work- shops, etc.). Others are also
looking into investing some of their profits into off-grid or near-to-grid systems to
further extend electricity provision into nearby areas.

7
Cruickshank and Yadoo (2010)
8
NACEUN’s responsibilities include (1) national level policy advocacy, (2) capacity building,
technical training, administrative and management support for its member organizations,
(3) institutional development, and (4) research and promotion of some renewable technologies
(for example, biogas and improved cooking stoves.
9
http://naceun.org.np/about-us/what-we-are-doing.html, accessed on 20th Dec 2010.
194 P. R. Krithika and D. Palit

A case in point is the South Lalitpur Rural Electric Cooperative (SLREC)


which has set up a revolving fund to provide micro-loans to its members from the
seed capital donated by donors and personal contributions from shareholders.
A social mobilizer is employed by the cooperative to work with households and
communities interested in receiving loans. Poor households unable to connect to
the grid without initial financial assistance are prioritized for receipt of loans,
followed by local income-generating activities, productive end uses and welfare
projects such as biogas digesters. Loans vary from an average of US$ 60 (plus
10 % interest) for a new connection to an average of US$ 268 (plus 14 % interest)
for a small enterprise and typically require repayment within 12–18 months. From
the beginning of the scheme in July 2005 until the end of July 2008, these micro-
loans were directly responsible for 167 new meter connections, 237 new small
enterprises (loans funded carpentry tools, poultry farming, mills, irrigation units,
grass cutters and a community milk refrigeration unit) and the building of 23
biogas digesters. However, there are bottlenecks which the cooperative faces in
terms of timely repayments of loans from households. It has been observed that
about 30 % of the loans are paid late.
Another problem faced by the CBOs is their ability to retain personnel once
trained by the NACEUN as technicians or linesmen. It has been observed that
approximately 7 % of technicians trained by NACEUN have migrated to cities in
search of better jobs. To avoid this problem, the NACEUN has now set criteria for
selection of technicians to be trained.
In spite of these minor hurdles and bottlenecks, one can broadly conclude that
the CBO-led approach to decentralized electricity distribution and management
has been successful. The following improvements have been witnessed in coop-
erative driven service delivery:
1. There has been a reduction in tariffs paid by the communities after they were
serviced by the cooperatives as the communities used to pay US$ 455/month to
receive electricity from a diesel generator but now they pay only pay their local
cooperative US$ 94/month for the energy they use from the national grid
(generated from hydropower).
2. System losses have declined from around 25 % under NEA management to
around 15 % within one year of community management (mainly achieved
through theft reduction).
3. Unpaid bills from as long as five years were settled once the community took
over management and the NEA was paid for the electricity promptly each
month based on the bulk sales meter readings
4. The CBO’s costs for meter reading and system maintenance are also lower than
under the NEA since the linesmen live locally and can respond immediately to
service disruptions. On average, the time required to acquire a household meter
was reduced to one day and the time for a three-phase meter for pumps and
industries was also substantially reduced.
5. Productive end uses training have helped in increasing the rural community’s
income. The heightened sense of awareness as a result of regular training
8 Participatory Business Models for Off-Grid Electrification 195

provided by the cooperatives has empowered the local communities and made
them realize that they can hold the management accountable and thus led to
improvement in service.

8.2.3 Rural Electricity Cooperatives in India

While most of the literature on India’s electricity cooperatives is dated, an attempt


has been made to assess the strengths and weaknesses of this model based on the
available literature. Indian experiences with the cooperative model have not been
very encouraging. India experimented with the cooperative model in 1960s with
assistance from National Rural Electric Cooperative Association (NRECA) and
USAID. Forty-one cooperatives were formed of which 14 are currently in
operation, while other cooperatives have either been taken over/liquidated by the
respective state utilities/governments or have stopped functioning. The electricity
cooperatives are registered under the State Cooperative Societies Act and they are
mostly funded by the apex body for rural electrification viz. Rural Electrification
Corporation. Electricity is sold at bulk rates to the cooperatives by the SEBs/
distribution utilities. The electricity tariffs are set by the state electricity regulatory
commissions. Of the operating cooperatives, those that were established with
NRECA’s assistance in Maharashtra, Karnataka, Andhra Pradesh and Uttar
Pradesh have survived and in general have fared better than the cooperatives set up
by the states (NRECA 2002). While India’s experience with electric cooperatives
for grid extension projects has met with very limited success, it has been very
successful in the case of off-grid projects in the Sunderbans region. Similar
successful examples are also found in other countries in South East Asia.

8.2.3.1 Box 1: Electricity Cooperatives in India

Electricity Cooperatives in Sunderbans, West Bengal

This case study examines two off-grid distributed generation projects initi-
ated by West Bengal Renewable Energy Development Agency (WBREDA)
in the Sunderbans, viz., a 500 kW Biomass Gasifier System at Gosaba Island
and a number of Solar Power Plants at Sagardweep Island.

Gosaba Rural Electricity Cooperative Society


The Gosaba RESCO is a rural isolated mini grid electricity supply scheme
set up with the help of WBREDA. A 500 kW biomass gasifier system was
installed in Gosaba island of Sunderbans in July 1997 with the objective of
supplying electricity to 10,000 people spanning across 5 villages in the
island. The capital cost for the project was Rs 10 million and most of the
capital was provided by WBREDA which also undertook the construction of
196 P. R. Krithika and D. Palit

the plant and training of the operators for the biomass gasification plant and
the electricity distribution mini grid. The members provided some capital
from the society membership fees and some construction labour.

Sagardwip Rural Electricity Cooperative


The Sagardweep Solar PV Project was initiated keeping twin objectives of
providing quality power to rural remote areas and also to showcase the
viability of SPV to achieve the former. There are a total of 11 solar power
plants of varying capacity (26–120 KWp) in Sagardwip Insland, which are
managed by the Swagardweep Cooperative.
Electricity uptake
WBREDA’s model of implementation is usually in a local mini grid mode.
Both 11 kV and LT grid network is created by WBREDA depending on the
capacity of the power plant and evacuation of power from the plant. To
maximize the plant load factor, WBREDA established the plant near the load
centre and creates a 2–4 km of mini grid in the area for supply. This min-
imizes the distance to the consumers, thereby, reducing transmission and
distribution losses and increases the plant load factor at the same time.
Service delivery model
The service delivery model is same in both the projects; and has been
implemented and operated by RESCOs with the support of WBREDA. The
co-ops are responsible for the operation and maintenance of the plants,
billing, collection, new connections when required and disconnections for
failure to pay. The rural banks operating in the area worked as intermediaries
between the cooperative and individual consumers to collect bills based on
actual consumption. A minimum charge has been set that has to be paid by
the consumer irrespective of the consumption levels since the plant load
factor has to be maintained for sustained supply. In the case of Sagar Island
SPVPP, the cooperative is charging roughly between Rs. 2.5 and 3.75 per
kWh (unit)10 against the estimated Rs.10–15 per unit for SPV systems. In
Gosaba Island, the society charges Rs. 3.25 per unit to domestic users and
Rs. 3.75 per unit to commercial consumers.
Socio-economic benefits
• Development of small, micro and medium enterprises in the region like
boat repairing, grill welding, spices grinding Xerox machines etc.
• Education sectors have benefited most from these projects since students
can study at night and get good grades in the examinations. Availability of
photocopy machines also facilitates copying of books those are other-wise
pretty costly and remain unaffordable.
• Benefits in terms of healthcare have also been realized from the project.
An operation theatre has been made functional in Gosaba island because

10
One US dollar is equivalent to 50 Indian rupees in 2012.
8 Participatory Business Models for Off-Grid Electrification 197

of availability of refrigerators (to store indispensable vaccines and


medicines)
Key lessons
• In both the cases, quality grid power was supplied to the consumers for
6–8 h rather than only for lighting. This resulted in a tremendous response
from the consumers and in turn increased their willingness to pay as well.
• The main reason for success was the tariff that was set according to
existing diesel generation tariff as well as was abreast with the willingness
to pay estimate of the consumers. The West Bengal Electricity Distribu-
tion Company already operates a diesel electricity generation centre in
Sunderbans and supplies power at the rate of Rs. 4 per unit. While Power
from these projects was intelligently priced between Rs. 2.50–3.75 per
unit for solar project and Rs. 3.25–3.75 per unit for biomass project, to
keep it in the range of existing paying capacity of the consumers.
• Fuel supply remains a major issue for biomass gasifiers, Gosaba Island is no
exception. Although a 75 Ha energy plantation has been raised in the vicinity
to ensure a consistent supply, a deficit exists in the supply and demand of
woody biomass, which sometimes hampers the power generation.
• High capital costs of the plants as well as difficulty of providing power to
energy intensive units are some of the downsides of this model.
• Transmission and distribution (T&D) losses are comparatively high
(13 %) in such a small-decentralized biomass gasifier plant. This is by
virtue of the longer low-tension lines to cover a vast expanse throughout
the command area.
Source Iyer and Misri 2007; TERI 2008

The fact that very few cooperatives have survived in India is indicative of the
failure of the model to take off in a big way. Some of the factors responsible for the
poor performance of the cooperatives in India are as follows:
1. The fundamental cooperative principle is missing as the RECs were constituted
in a top-down approach through departmental actions.
2. Cooperatives in India have been subject to political interference in their day-to
day work which has caused delays and disputes in power supply activities
(NRECA 2002).
3. The electricity cooperatives were operating in a very restricted environment. In
most situations, nominated administrators imposed by the government and
senior officers of SEBs were often sent on deputation to act as managing
directors of cooperatives (Singha 2007).
The societies are registered under Cooperative Societies Act and are regulated
by Registrar of Cooperative Societies. However, they are also regulated by the
Table 8.1 Strengths and weaknesses of the rural electricity cooperativescooperatives
198

India Bangladesh Nepal


Strengths • Cooperative’s intrinsic requirement to offer • Good performance of the PBSs owing to the • Productive end uses training have
universal coverage to its designated area. incentive-penalty mechanism as part of the improved rural incomes.
• Increase in average revenue realization because Annual Performance Targets agreement. • Lower system maintenance costs.
of focused approach. • Significant reduction in electricity theft which • Financial support extended to
can be attributed to peer pressure to control poorer households not able to
theft. If one member of the group taps afford electricity connections.
electricity illegally all the members must pay
for the cost.
• Well-defined systems adopted for procurement,
tariff setting, meter reading and collection
• A fruitful relationship between REB and PBS.
• Release of new connections, load enhancement • Appropriate organizational procedures.
etc. is effected within 2–3 days of applying.
• Faster access to services.
• Heightened sense of awareness
amongst the members owing to
numerous trainings provided by
the cooperatives.
Weaknesses • Top-down approach of management as most of • Very limited operational autonomy. • Local cooperatives vulnerable to
the cooperatives are controlled by the SEBs/ • PBSs electrify only those villages which satisfy political power struggles at local
discoms. This leaves them with very little revenue requirements. This leads to a situation level
operational autonomy. where some communities remain non-
• Unfavourable load mix forced on the electrified for several years until they satisfy
cooperative societies on account of SEBs potential for productive use of load growth.
proximity and influence of State Govt.
• Being registered under the cooperative Societies
Act of the state govts, management of the
societies is highly susceptible to political
interference. The regulatory power conferred
to the State govt. under the Act, is often
misused on account of State govt.’s own
political priorities.
Source TERI Analysis, 2011
P. R. Krithika and D. Palit
8 Participatory Business Models for Off-Grid Electrification 199

respective SERCs/ministries which issue conflicting directions. Table 8.1


summarizes the strengths and weaknesses of the cooperative models in India,
Bangladesh and Nepal.

8.3 Electricity Distribution Franchisees

An electricity distribution franchisee is an entity empowered by the discom


(distribution company) to either develop/operate distribution system to distribute
electricity within an identified territory for a prescribed duration, sell electricity and
collect revenues directly from rural consumers. In most cases, the franchisee has to
off-take electricity supplies from the power utility. However, in special cases, the
franchisee may be permitted to generate its own electricity requirement and serve
within its territory in addition to taking supply from the discom. Franchisee based
electricity distribution is an integral part of the Government of India’s (GoI) rural
electrification programme—Rajiv Gandhi Grameen Vidyutikaran Yojana
(RGGVY). The GoI launched the RGGVY in April 2005 with the goal of electri-
fying all un-electrified villages/un-electrified hamlets and providing access to
electricity to all households in five years. The franchisee model was introduced to
ensure revenue sustainability and provide faster service to the consumers. The
introduction of franchisees has reportedly led to better metering, billing, and col-
lection practices, higher collection efficiency, and reduced distribution losses (Palit
and Chaurey 2011).
Broadly there are two types of franchisees operating in India viz. revenue based
and input based franchisees (MoP 2010).

8.3.1 Revenue Franchisee

The role of this franchisee is limited to billing, revenue collection, complaint


redressal, facilitating release of new service connection and keeping vigil on the
status of distribution network in the franchised area for providing appropriate
feedback to the utility. There are two types of franchisees under revenue based
model—collection and partial input based. The only difference in these models is
in the target setting mechanism. For a collection franchisee a target is given for
revenue collection every month (which depends on the baseline collections in the
area). However, in the input based, the input energy into the area covered by the
franchisee is measured by the utility and the targets for revenue collection are set
based on the collections made as a percentage of the input energy supplied to the
consumers beyond the point of metering by the utility. In cases, the operations and
remuneration methodology is identical, which involves:
(1) Paying the franchisee margins (which will be a percentage of collections) on
achievement of the target
200 P. R. Krithika and D. Palit

Fig. 8.4 Input based


franchisee model Source
TERI compilation

(2) A levy of penalty for not achieving the target


(3) Incentives for exceeding the target.
The biggest drawback in the collection based model is that the franchisee is not
a partner in loss reduction since his remuneration is linked to the collections made
and not on the energy input coming into the area. This shortcoming however, is
taken care of in the input based model.

8.3.2 Input Based Franchisee

In this model, the franchisee buys the electricity from the utility and pays the
energy charges to the utility at a pre-determined rate (see Fig. 8.4). The energy
supplied/purchased will be as shown in the feeder/distribution transformer
metering unit. The franchisee collects revenues from the consumers through raising
bills (as per the tariff set by the regulator) so as to have sustainable commercial
operation. An extension of this model is an operations and maintenance franchisee
wherein the franchisee is also responsible for the Operation and Maintenance of the
11 kV and LT feeders including distribution transformers to the franchisee based
on monthly retainer basis or at an adjusted energy purchased price (of the utility),
factored appropriately considering O&M cost of the franchisee.

8.3.2.1 Box 2: Input based Franchisee Model, India

Input Based Franchisee model in Assam


In Assam, the franchise system for rural electricity distribution was initiated
as a PPP model in 2003 under the name of Single Point Power Supply
(SPPS) System. The franchisees receive electricity in bulk at the LT (low
8 Participatory Business Models for Off-Grid Electrification 201

tension) end of DTR, recorded by a three phase static meter, and makes
monthly payment to discom based on the energy charge for the energy
consumed in the franchisee’s operational area. In short, the franchisee is
responsible for energy purchase, sales and revenue collection. The coverage
for the franchisee is for systems (a) beyond and including feeders from
substation or (b) from and including DTRs. The scheme is for rural con-
sumers only and a minimum of 80 % of the connected load in a particular
area has to be domestic to qualify for the scheme. DTs up to maximum 250
kVA are handed over to the franchisees.
The SPPS model is a good example of PPP wherein the state owned discom
and private franchisees came together to provide better service to the con-
sumers, reduce the line and commercial losses ensuring increased revenue
for the utility. The decentralised distribution of electricity has resulted in
better service, maintenance and management and increase in revenue as
compared to the centralised billing and collection because of focussed
approach by franchisees and improved customer service due to localised
operation.
Surveys conducted by TERI in 2005 and 2007 indicate that there has been a
substantial increase in revenue for the discom after introduction of SPPS.
The discoms reported that 70 % of the outstanding bills are usually from
rural areas. However, after introduction of SPPS, collection of current and
outstanding bills in the areas served by franchisees has increased by 50 % to
more than 100 % (including arrears) in some cases.
The collection efficiency in the franchised area of a district (Nagaon) cov-
ered during the TERI study was fund to be 93 % as against average of 53 %
for the entire district. The average billing efficiency (ratio of energy billed to
energy injected in the network) in the franchised area of the said district was
found at around 81.83 %. The motivating factor behind the increase in
revenue was found to be convenience of the consumers in depositing the
bills at the camps and franchise’s office, which are near to the villages and
due to extensive campaign by the franchisee in recovering the dues.
Source TERI 2007

Similar models are also in operation in Orissa and in some urban areas such as
Bhiwandi (Maharashtra), Agra and Kanpur (Uttar Pradesh) etc. Following the
success of the input based models, other states of India such as Uttar Pradesh,
Madhya Pradesh, Rajasthan, Bihar and Haryana are also planning to adopt the
model for rural electricity distribution in certain areas. Recent TERI studies on
evaluation of franchisees in the rural areas of selected districts of Assam, Kar-
nataka and Madhya Pradesh show that the franchisee model has been successful
and have generated avenues for business and employment for the local population,
resulted in reduction of customer grievances and contributed to the socio-eco-
nomic development of the regions. It has also improved the revenue realization
and led to reduction in thefts and pilferage (TERI 2007).
202 P. R. Krithika and D. Palit

Table 8.2 Strengths and weaknesses of the rural electricity distribution franchisee model
Strengths • Focussed attention on electrification of rural areas thereby increasing the pace of
rural electrification.
• Investments in the distribution network of the franchised area which are usually
remotely located and are neglected by the distribution licensees. This helps in
bringing down losses and stepping up revenues.
• Creation of employment opportunities in the rural areas as franchisees generally
employ the local youth for services like bill collection, meter reading,
maintenance of LT lines, fuse off calls etc.
• Better customer service and grievance redressal as compared to the distribution
company due to localised operation.
• Political fallouts associated with full privatization are not there in the franchisee
model since the distribution assets stay under the control of the distribution
company, while it also simultaneously allows for benefits of private sector
efficiency to come in.
Weaknesses • Does not improve supply and the lack of predictable and demand-responsive
supply is a barrier to attracting qualified franchise operators.
• Short duration of contracts may act as a deterrent for private entities to invest in
the distribution network.
• The possibility of franchisee defaulting on the payments could emerge as an issue
unless contractual arrangements are enforced effectively.
• Difficulty in having operational control over franchisee where large distribution
zones are franchised (esp. in the case of retail supply and distribution
franchisee) which may create regulatory hurdles.

The franchisee model however, is grappling with certain challenges that need to
be addressed so as to realize its full potential in functioning as a sustainable
participatory model. Franchising may bring in private sector efficiency, invest-
ments in the distribution network, reduce loss levels and improve collection
efficiency but their financial sustainability also depends on the load mix that they
cater to. In case of Bhiwandi, it needs to be noted that the franchisee primarily
served the industrial consumers, who are high revenue base consumers. However,
the same may not hold true for rural consumers who generally cannot afford to pay
high tariffs. The study undertaken by TERI also reveals that one of the risks that a
franchisee faces is due to short duration of contracts. The contract duration for
franchisees is seldom adequate for them to invest in the distribution network and
reap positive returns from the same (TERI 2010).11 A franchisee wanting to
manage the distribution and retail supply activities in the franchised area would
require a whole set of technical, commercial, and managerial skills, the availability
of which may be an issue in the rural areas, at least initially (Bhattacharya and
Srivastava 2009). Franchising may prove to be a win–win case, provided the
operational and financial risks associated with the model are carefully considered
while analysing the feasibility of the model. The Table 8.2 summarizes the
strengths and weaknesses associated with this model.

11
For e.g., the contract duration of Enzen Global in Orissa is five years.
8 Participatory Business Models for Off-Grid Electrification 203

8.4 Fee-for-Service/ESCO Models

The ESCO is a company that owns, installs and operates electricity systems (e.g.
SHS, solar water heaters etc.) and provides energy services to consumers.12 The
company is also responsible for repair and maintenance of the systems and
providing replacement parts over the life of the service contract. The ESCO
charges the users/beneficiaries a fixed monthly fee or leases the equipment to the
consumers for a fixed rental fee, which is why the model is also known as fee-for-
service model. The Fee-for service model has been found to be successful in India
and Sri Lanka in South Asia as well as in some countries of Africa such as Zambia,
Kenya, Dominican Republic etc. Here we discuss cases from Zambia and India.
There are some fee-for-service models for SHS that are run by private companies
such as Selco India, Sunlabob etc. These have been separately discussed in the
successive section on private sector models as these are purely commercial ventures
which provide a range of products (e.g. solar homes systems, solar lanterns, solar
water pumps etc.) using various financing models where in fee-for-service is just one
of the options.

8.4.1 ESCO Model in Zambia

The Zambia PV ESCO project was implemented by the Government of Zambia in


1998 as a pilot with the aim of applying the ESCO concept to diffuse solar
technology. It was supported financially by the Swedish International Develop-
ment Authority (SIDA), with the Stockholm Environment Institute (SEI) as
advisors to the DoE (Gustavsson and Ellegard 2004). The project has supported the
formation and operation of three ESCOs in districts of Eastern Province of
Zambia.13 In all cases, the ESCO business is a subsidiary to an existing company
with business activities in other fields: farm implements, waste management and a
farmer’s cooperative. The ESCOs are private companies and are licensed to do
business and installation of solar equipment by the Energy Regulation Board
(ERB). The ESCOs have a very small administrative set up consisting of a
director/project manager, two finance/administrative staff and two or three tech-
nicians (Lemaire 2009).
In the ESCO scheme, the Zambian government buys solar photovoltaic systems
that are then lent to the Energy Service Companies, which have up to 20 years to
reimburse the loan from the government (initially a donation from SIDA). The
ESCOs install solar equipment in households and small shops and charge an
installation fee. Post installation they receive a monthly payment for the systems.

12
ESCO can be a public or a private company.
13
ESCOs are operating in the districts of Nyimba, Lundazi and Chipata in Eastern Province of
Zambia.
204 P. R. Krithika and D. Palit

A fund is also created to replace the batteries regularly. This is a savings scheme,
where part of the regular service fee is set aside in a bank account, in order to be
able to purchase a new battery once the old one is exhausted.
Most of these ESCOs served a similar consumer mix which primarily com-
prised of farmers, civil servants, businesses and schools. However, a recent study
states that many of the farmers and entrepreneurs have withdrawn from the scheme
and now the ESCO caters mainly to the government servants as they have steady
income stream (Lemaire 2009). Several studies also indicate that there are tangible
socio-economic benefits accruing from the SHS such as educational benefits for
school children who can study at night, extended business hours for shops etc.
SHSs have also improved the quality of life of people who now have a better
source of lighting and access to entertainment facilities such as black and white
TV sets and radio cassette players.
The model has been running smoothly for several years now, owing to various
factors that have contributed to its success. There is a regular interaction between
the ESCO and the customers, which enables the ESCO to take feedback from
customers and act on their requests in a timely manner. The technicians of the
ESCO visit the customers on a monthly basis to collect the fee, check the system
for malfunctions and provide services which include—checking the acid level of
the battery, cleaning the solar panels, visual inspection of the system installations,
measuring the voltage over battery poles etc. There seem to be no vandalisms as
the consumers have to face severe costs in accordance with the agreement that they
sign with the company. These systems are kept in close control of the client’s
houses. Further are no local black markets for panels which may also be the reason
for low incidence of thefts. The payment record of the consumers is also good due
to the quality of the service provided by the ESCOs and immediate disconnection
in case of non-payment.
However, the ESCO model in Zambia faced some challenges in terms of
overuse of the systems by the clients which resulted in blackouts. Some of the
initial designs of the SHS also had technical limitations in terms of the quality of
batteries and lamps. Lamps and lamp fittings were reported to break after a few
operating hours. However, with the training of ESCO’s technicians and the dis-
semination of information to customers who are now aware of the possibilities and
limits of their solar system, these initial technical difficulties have been solved to a
great extent.

8.4.2 Fee-for Service Model, India

TERI has evolved an innovative renting model for providing access to clean
lighting through solar lantern under its Lighting a Billion Lives (LaBL) campaign
initiative (See Fig 8.5). The campaign launched in 2008 aims to bring light into the
lives of one billion rural people by displacing kerosene and paraffin lanterns with
solar lighting devices, thereby facilitating education of children; providing better
8 Participatory Business Models for Off-Grid Electrification 205

Fig. 8.5 TERI’s LaBL model Source http://www.hedon.info/LightingBillionLives%20TERI?bl=y

illumination and kerosene smoke free indoor environment for women to do


household chores; and providing opportunities for livelihoods both at the indi-
vidual and at village level.
LaBL operates on fee-for-service or rental model where centralised Solar
Charging Stations (SCS) are set up in villages for charging the lanterns and
providing the lanterns daily on rent to households and enterprises. A typical solar
lantern charging station consists of 50 solar lanterns with five solar panels and
junction boxes. The charging stations are operated and managed by entrepreneurs
(Self Help Groups/individual youths) who qualify the selection criteria set as part
of the LaBL campaign. These entrepreneurs are selected and provided the hand-
holding support by local LaBL implementation partners called LaBL Partner
Organization. The rent is collected by the entrepreneur, a part of which is used for
O&M of the charging station and for replacement of battery as may be required
after 18–24 months of operation.
Financing being one of the key challenges of a solar PV programme, the
financial model under the LaBL initiative attempts to bring together all stake-
holders together on one platform. The government, TERI, local NGOs (LaBL
Partner Organisation) and the community are all involved, reflective of the Public–
Private-People Partnership model. The capital costs for setting up the SCS in
remote locations are mainly grant-supported from the LaBL Fund (raised from
206 P. R. Krithika and D. Palit

Table 8.3 Strengths and weaknesses of the fee-for-service model


Strengths • The consumers do not have to raise capital to purchase technology upfront. As the
ownership vests with the ESCO, paying monthly fees for the service works very
well with the lower income strata populations in the rural areas.
• Customer service has been found to be very good (e.g. replacement of batteries,
charge controllers etc.). ESCO staff regularly visits the households for operation
and maintenance.
• By aggregating the demand, ESCO can obtain favourable financing terms from
donors, market based credit organizations etc. which can be passed on to the
consumers in form of lower service fees.
Weaknesses • As the ESCO is responsible for almost the entire range of activities in the energy
service value chain, one of the drawbacks that ESCO faces is availability of
trained personnel with appropriate technical and business skills.
• The risk of theft of systems is mainly carried by the ESCO and only partially by
the user.
• To ensure a full cost recovery mechanism, the ESCOs may target only the
relatively affluent households within rural areas.
• Short contract period with consumers and withdrawal by consumers for the
services, may lead to losses for the ESCO.
Source TERI analysis

corporate and government schemes) and co-financed by the LaBL-PO. For ‘not so
remote’ villages, where the villagers have some paying capacity, the operators are
provided with the option to set up SCS as their own enterprise either putting in
their equity or availing loans (facilitated under LaBL initiative), with part of the
SCS cost being subsidised by the LaBL Fund.
As on 30th April 2012, TERI has successfully extended the initiative in around
1486 villages spread across 21 states in India impacting more than 370,400 lives.
The LaBL initiative has successfully demonstrated in India how solar lanterns
could impact the community; be it for lighting or for livelihood generation at the
household and village level. There is direct livelihood benefit in the form of ‘green
jobs’ for the entrepreneurs managing the SCS and earning through renting. The
operators—more than 15 % of whom are women—earn approximately INR 2000–
3500 (USD 40–60) per month by renting out lanterns. At the household level, the
programme has been instrumental in encouraging children—particularly, the girl
child, who is usually busy during the day with household activities— in opting for
longer study hours. Apart from inducing a smoke-free indoor environment for
women, there is improved mobility and safety after dusk for both women and the
elderly. In addition, the programme is also advantageous to those who are using
the lanterns to earn a living by way of weaving, sewing, vending, running tuition
centres, and by providing other village level services.
Some of the key strengths and weaknesses of the fee-for-service model are as
given in the Table 8.3.
8 Participatory Business Models for Off-Grid Electrification 207

8.5 Community Managed Off-Grid systems

Community management of supply systems is yet another service delivery model


to serve isolated load centres. In such cases, a village energy committee is created
to manage a mini-grid based project or other decentralised energy systems, either
in a village or a cluster of villages. Participation in community based models may
vary widely with communities taking on an active role sometimes and at other
times taking on a more passive role focussed on a few tasks (e.g. monitoring and
oversight). For example in case of biomass gasifier systems implemented under
Village Energy Security Programme, India, village energy communities (VECs)
had an active role in operation, monitoring and oversight while in case of solar PV
plants implemented by CREDA, VECs have played a much passive role limited to
supervision of the plants and overall monitoring.
Micro hydro based developments in Sri Lanka and Nepal are considered to be
successful initiatives run by the local communities using the locally available
water resource to meet their energy needs. On the other hand, the model has met
with limited success in case of biomass gasifier systems implemented under VESP
in India. Solar PV based projects implemented in India based on this model have
however, been successful.
Community managed systems in fact are very similar to co-operatives, because
in both models, the community is involved in managing the project. The difference
lies in the fact that in co-operatives all the consumers/beneficiaries are the
members of the cooperative with the cooperative established as a legal entity,
whereas village energy committee is a loosely formed association of representa-
tives of the local community and may or may not be registered under any law.

8.5.1 Village Micro Hydro Projects in Sri Lanka14

The growth of village micro hydro schemes in Sri Lanka can be traced in two
phases. Phase 1 saw the emergence of welfare oriented community projects, while
the second phase was more market-oriented, driven primarily by the private sector
(discussed in detail in the next section on private sector models).
In the first phase (early 90s), Intermediate Technology Sri Lanka (ITSL),15
embarked on an innovative mode to provide electricity to rural households in Sri
Lanka through micro hydro based generation. As Sri Lanka is abundantly
bestowed with rainfall, there is significant hydro potential to generate adequate
power for household illumination. ITSL capitalised on this idea to provide rural
electrification based on ‘‘community management’’. While the concept of micro

14
Ariyabandu, R, Upscaling Micro hydro a Success Story
15
ITSL is a development charity based out of United Kingdom. It has now been rechristened as
Practical Action.
208 P. R. Krithika and D. Palit

hydro was not new in Sri Lanka, the micro hydro turbines available in the open
market had poor safety record. ITSL improved this technology by incorporating
new developments and safety features.
ITSL first studied the electricity needs of a few off-grid communities with water
sources and analysed the financial viability and economic benefits of micro hydro
for village applications. Community management approach was adopted where
Electricity Consumer Societies (ECS), a village organization, were formed for
development, functioning and maintenance of village hydro schemes. This was done
to instill a sense of ownership among the communities. Further given the
geographical location of these micro hydro sites, external agencies were not able to
manage on a long term basis. Membership of ECS was essentially from the village.
ECS functioned as an autonomous body, responsible for raising funds, contributing
labour, setting tariff structures and managing operation and maintenance. ECS was
ably supported by the technical advisory committee of ITSL. A monthly fee of SL Rs.
600/household for a maximum usage of 100 W/household was fixed by the ECS.
Tariff subsidies or free power were given to poor so that they will not be ‘dropped
out’ in the rural electrification process. Households were willing to donate ones share
of power to households in need of extra power at times of social functions. These
projects were functioning with aid from development organizations and donors.
In the second phase, the micro hydro projects were included in the World Bank
ESD project. However, under the more ‘commercial orientation’ of the World Bank
programme, the ECS were not eligible for loans and had to be converted into limited
liability Electricity Consumer Companies. The new model under ESD/RERED
project allowed a ‘project developer’ to submit a proposal to the bank (DFCC) and
on the strength of the proposal a loan was approved for implementation. ECS had to
repay the loan with interest after a stipulated time. Households which could con-
tribute towards the initial project costs, voluntary labour for civil works and pay for
the internal wiring are known to be favoured more in the new model. While initially
the micro hydro model was only for lighting purposes, later on the concept of
productive end uses was also introduced. Two main uses were—battery charging
and grinding and paddy milling. However, ECSs do not encourage day time pro-
ductive end uses which consume substantial power, leading to power fluctuations
and consequent disputes between high power users and normal users. While these
are minor setbacks, the village micro hydro model in Sri Lanka has by and large been
successful with increased role of decentralized provincial institutions.

8.5.2 Village Energy Committees in India16

Village Energy Committee (VEC) model has been tried out in some states in India
with limited success. Most of the projects promoted under various schemes of the

16
TERI 2009a
8 Participatory Business Models for Off-Grid Electrification 209

Ministry of New and Renewable Energy such as Village Energy Security Pro-
gramme (VESP) and Remote Village Electrification programme propagated the
VEC model to manage off-grid projects at the village level. These projects have
been undertaken in un-electrified remote villages and hamlets that are not likely to
be electrified through conventional means in the immediate future. Based on a
community centric approach, a one-time grant (up to 90 % of the project cost) is
provided to the village community for installation of energy systems capable of
meeting the village community’s energy (mostly lighting and some low con-
sumptive applications) demand. The community is also expected to provide an
equity contribution either in cash or kind to bring in the much needed ownership,
required for success of any community centric project.
The service delivery model involves formation of a VEC by the Project
Implementing Agency (PIA), usually the state renewable energy development
agency or NGOs, with representations from villagers and the local governance body
(panchayat). The VEC is either constituted directly or through the Gram Sabha17
and might also be duly notified by the Gram Panchayat as a Sub-Committee of the
Gram Panchayat as per the relevant provisions of the State Panchayati Raj Act and
rules in this regard. The VEC usually consists of 9–13 members with 50 %
representation from women members and the elected Panchayat member from that
village being the ex-officio members of the VEC.
The PIA sets up the energy production systems and hands over the hardware to
the VEC for day-to-day operation and management. The VEC thus acts as cus-
todian of the energy production system and is responsible for the operation and
management of the systems. The electricity generated from the energy production
systems is distributed to the community through a local mini-grid. The tariff is set
by the VEC in consultation with the PIA in such a way that it takes care of the fuel
and the O&M costs. The VEC is also responsible for arranging the fuel (in case of
biomass or biofuel projects), either as contribution from the project beneficiaries
on rotation basis or purchase of biomass from the biomass collection agents such
as self-help groups. The VEC also creates energy plantation in the village for-
estland or community land to ensure sustainable supply of biomass. User charges
are collected by the VEC to meet the operational expenses of the projects and VEC
manages all the accounts in relation to the project (see Fig. 8.6).
Further, a Village Energy Fund is created by the VEC initially with beneficiary
contributions for sustained operation and management of the project. The monthly
user charges from the users are deposited in this account. The fund is managed by
the VEC with two signatories nominated by the Committee. One of the signatories
is the Gram Panchayat member and the other signatory is the President or Sec-
retary of the VEC. In short, it can be said that VEC plays the role of stand-alone

17
Gram Sabha is a body consisting of all registered voters of a village within the area of a
village Panchayat. It is a forum that ensures direct, participative democracy. It offers equal
opportunity to all citizens including the poor, the women and the marginalised to discuss and
criticize, approve or reject proposals of the Gram Panchayat (the executive) and also assess its
performance.
210 P. R. Krithika and D. Palit

Fig. 8.6 Village energy committee model Source TERI 2009a

power producer, distributor and supplier of electricity, manages the revenue


through collection of payments for the electricity used from users and dispute
resolution in case of power supply disruption.
TERI’s evaluation of the VESP in 2009 found out that despite a holistic
approach with sound basis, it is difficult to achieve desired goal/success due to
certain weaknesses of the VEC model (TERI 2009a). There is lack of clarity in the
roles and responsibilities among the different stakeholders of a project: PIAs, state
energy development agencies and VECs with the result that the VEC’s training
and handholding support by PIA is inadequate. This is reflected in poor leadership
qualities of the VECs and low level of activities by the VECs.
However, there are certain good examples as well for the community based
model in India. For example the community SPV systems installed by Chhattis-
garh State Renewable Energy Development Agency (CREDA), are also managed
by village energy committees. Here, CREDA is the nodal agency for implementing
the community solar PV projects and responsible for overall monitoring of the
projects. It identifies the suppliers who are responsible for the design, construction
and execution of the solar PV plants. An annual maintenance contract is entered
between CREDA and the supplier. At the next level in the service delivery chain is
the operator, who is responsible for the operation of the plant (switch on and
switch off, cleaning of the modules etc.) and lastly there are master technicians
who take care of the preventive breakdown and maintenance of the plants. The
village energy committees, formed at the village level, are mainly to ensure
community participation in the project, handle grievances of the community and
act as the interface between the CREDA and the community. In this case it has
been seen that model has been successful as there is an expert agency taking care
8 Participatory Business Models for Off-Grid Electrification 211

Table 8.4 Strengths and weaknesses of the community managed model


Strengths • Decentralized approach of management by involving communities brings in a
sense of ownership and builds accountability.
• Provides employment opportunities to the local youth to get trained in O&M of
the off-grid systems.
• Communities with socially progressive and cohesive structures are seen to be able
to manage the entire range of activities –power generation, O&M, delivery,
revenue collection, dispute resolution well if they are successfully mobilized by
an NGO or other appropriate bodies.
• Productive end uses application helps in improving incomes of the rural
population.
Weaknesses • Without proper mobilization of the communities and proper training and
handholding support especially during the initial phase, this model is not
sustainable.
• Revenue management is often seen to be poor wherein the beneficiaries who do
not pay are not penalised because of local compulsion.
• Without productive end uses applications at the local level, community managed
projects tend to become defunct in the long run because of limited revenue
generation.
Source TERI analysis

of the technical operation and maintenance and there are local level technicians to
handle preventive maintenance such as fuse off calls etc., which was found to be
lacking in the VEC model under VESP.
The NTPC decentralized distributed generation projects are also community
managed where the custody of the project rests with VEC. The village committee
is also responsible for revenue collection, operations and maintenance, while
NTPC provides the technical back up support and does the social engineering,
training and capacity building in the project area either directly or involving a
NGO or a consultant agency. The equipment manufacturer is given an Annual
Maintenance Contract (AMC) for the first 5 years for preventive and breakdown
maintenance. The equipment supplier also trains at least two operators in operation
and maintenance of equipment. The technology used for electrification is usually
biomass gasifiers, wherever surplus biomass is available. Biomass is supplied by
the villagers. All the capital expenses of this project are funded through grants
from various GoI schemes as well as from international funding agencies. All
running expenses for operating and maintaining the plant are borne by the
villagers.
One key aspect that distinguishes these projects from the VEC model projects is
introduction of income generation activity from the planning stage itself. The
income generation as an inherent project component ensures an anchor load thereby
improving the load factor of the project and the resultant income (from electricity
revenue) for the VEC allows it to manage the project on a sustainable basis.
The strengths and weaknesses of the community managed model are given in
the Table 8.4.
212 P. R. Krithika and D. Palit

8.6 Private Sector Models

Some of the most promising models for scaling up off-grid energy involve private
companies profiting from building rural energy infrastructure and/or selling rural
electricity. In these models, a for-profit entity arranges and manages an imple-
mentation model (often using one specific technology), identifies suitable villages,
builds the electricity supply, and arranges for operations and maintenance, often
with the help of local partners. In general, the private sector space is undeveloped,
perhaps because of the high risk and relative instability of the market. Yet the
recent World Resources Institute and CDF-IFMR report Power to the People
identifies an enormous potential $2+ billion market in decentralized renewable
energy.
There are many variants of the private sector models of electrification. Each of
the models is discussed separately in this section:

8.6.1 Public Private Partnerships (PPP)

A large number of private models implemented to-date have used a private model
paired with government resources to support their initiatives. These models
develop a business plan that relies on government subsidy or support to make the
financial model effective, but is implemented by the private entity. For example,
some models have used government funding to support capital cost of a power
plant or charging station, but a partial-private model uses power revenues to pay
for operations and maintenance.

8.6.1.1 Argentina: PERMER Model18

The Argentine government’s programme PERMER (Project for Renewable


Energy in Rural Markets), introduced in 1999, provides electricity for basic
lighting and social communication (radio, TV) needs for families in remote rural
areas that are beyond the reach of the grid. This is a PPP model led by the federal
government and implemented by provincial authorities and involves private sector
firms, co-operatives and state companies, who provide, install and maintain
electricity generation equipment. The government funding is utilized to install
generating equipment and to subsidise user tariffs. In this model, concession
contracts have been given to the private sector/cooperatives known as ‘‘conces-
sionaires’’, and their performance is regulated by the provincial regulators.
The concessionaire owns the equipment and is responsible for its maintenance,
instead of the user. Majority of the financing for this programme comes from

18
Best (2011).
8 Participatory Business Models for Off-Grid Electrification 213

international loans such as the World Bank and the GEF, national and provincial
budgets, with small-user contributions. The focus of this programme is on
renewable energy, but it is neutral on individual technologies and inclusive of
fossil fuel generation (e.g. hybrid diesel-solar mini-grid), with choices made on the
basis of technical and best value options. Though majority of the installations are
based on solar PV panels, PERMER also involves renewable and hybrid mini-
grids (wind, hydro, biomass, diesel), and solar systems for water heating, cooking,
space heating and water pumping.
The cost of maintaining and replacing equipment (at the end of its lifetime) is
covered by a tariff charged and collected from users by the concessionaire, and
supported by a subsidy. In the case of individual home systems, the tariff is usually
a flat rate aligned to the capacity of the equipment, while connections to a mini-
grid, which has higher capacity, involve a combined flat and variable rate,
depending on use. The tariff is set by the provincial regulator, through a process of
negotiation with the concessionaire.
The PERMER programme was successful in delivering basic energy access to
rural populations which otherwise would not have happened in the business as
usual scenario. The model also has other distinct strengths. The award of service
contracts, enforced by regulators, appears to have been reasonably effective in
ensuring equipment is properly used and maintained. Since it was a large, gov-
ernment-led programme, PERMER was able to achieve efficiencies through cen-
tralising some procurement activities and by standardising more technical
processes such as market surveys. It also ensured that rural customers received
services during the entire concession period (15 years). While the programme is
broadly considered successful, with concessionaires maintaining good levels of
performance (especially in repair and maintenance of the equipment’s) and ben-
efits have accrued to the rural communities particularly schools, there are also
criticisms of the model. The main criticism is that the model is not economically
sustainable as the tariffs are heavily subsidized. Implementation has also been slow
owing to a host of reasons, including economic, institutional and capacity factors
and the programme has not had much impact in stimulating domestic industries.

8.6.2 Private Electricity Supply Models

Two successful examples of private sector models from India are discussed here:

8.6.2.1 Husk Power Systems (HPS), India

HPS a small start-up company based in Bihar, is one of the most widely recog-
nized rural energy enterprise in India (see Fig. 8.7). It has electrified around 80
villages since 2007, affecting nearly 25,000 households, with plans to expand to
6,500 villages by 2014. HPS builds village scale mini-grids using rice husk
214 P. R. Krithika and D. Palit

gasifiers, usually ranging between 30 and 200 kW systems. HPS works only in
locations where at least 250 households agree to take a connection and it charges a
nominal installation charge as well as a regular fee-for electricity, sometimes 45
INR per 15 W CFL. It charges a higher rate for commercial use than for residential
use. Some of its plants have generated INR 40,000 monthly revenue from tariffs,
considerably greater than average expenses of INR 20–25,000/month.
HPS’s operation focuses on local community participation and a number of
synergies which enable it to profitably sell power to villagers. Revenue from
villager’s electricity use pays for the operations of the plant and there is enough
profit to pay back the large upfront costs to build the biomass plant. The favourable
economics result from a number of specific innovations. For instance, HPS builds
rice mill alongside its plant, using surplus power capacity from its power plant to
run these mills. It offers free milling to local farmers in exchange for using the rice
husks to feed the power plant. As a result it has reduced its fuel costs and
simultaneously provided local benefit. HPS has even found out an innovative way
to use the charred rice husk and generate additional revenue. The charred husk is
used to make incense sticks and this process is usually carried out by rural women,
thus providing them with a gainful employment opportunity and in turn additional
revenue for HPS through sale of electricity to these employee’s household. HPS
employs local entrepreneurs to manage plant upkeep and collection. Plant
assembly provides temporary employment for about 10 local labourers. Each plant
then employs four people (plant operator, electrician, fuel handler and fee col-
lector) who have training, income and safe working conditions. It also encourages
its collection agents to earn extra as ‘travelling salesman’, selling goods that are
not usually available in the village (such as groceries and other articles) at the
same time as collecting fees.19 The company has also secured significant seed
investments from primarily social venture funds, such as Acumen Fund, the Shell
Foundation, and Bamboo Capital.

8.6.2.2 SELCO, India

Bangalore-based SELCO has made a name for itself selling, servicing and
financing more than 100,000 SHS since 1995. A typical system uses a single PV
module to power four 7 W compact fluorescent lights (CFLs). While the core
business of SELCO is design and sale of solar PV systems, SELCO also offers an
array of solar lighting, water heaters, cook stoves and other products. Core to its
business model are innovative financing and loan mechanisms which support
consumers to purchase the relatively expensive systems.
While SELCO does not provide credit or loans directly by itself, the company
has built up working relationships with local banks and microfinance organisa-
tions, over the years. This has given finance organisations the confidence to

19
www.ashdenawards.org/winners/husk11, last accessed on 30th October 2011.
8 Participatory Business Models for Off-Grid Electrification 215

Fig. 8.7 Husk power systems model Source TERI compilation

provide credit for PV systems, and an understanding of the payment terms which
different owners may need. The average loan size is Rs. 13,000 (average system
cost being 15,000 for a 2–3 light system and the rest is margin money). For a
tenure of 5 years and the interest rate of 12 % (which keeps varying depending on
base rate), the monthly instalments (EMI) is about Rs. 300. The ‘lease-to-own’
plan was initiated which focused on establishing a steady, long term policy while
simultaneously maintaining a good relationship with the customers and building
their trust and confidence. At the initial phase of the activity, along with the
lucrative financing scheme, Selco also had an additional one-year guarantee to the
manufacturer’s warranty, a 90 day money back guarantee along with a year’s free
service to build consumer’s trust. Currently SELCO provides a free service for
1 year and after that consumer has the option of availing an annual maintenance
contract or pay per service. Some users work directly with the finance organisa-
tions, others work through self-help-groups which provide additional security that
a loan will be repaid.20
The main work of SELCO is carried out by its local energy service centres, with
the aim that all customers should be within three hours travelling distance of a
centre. All installations and user training are carried out by SELCO technicians.
Service is free during the first year, and SELCO staff visit each system every three
months to make sure that it is working correctly. PV modules supplied by SELCO
come with an 8 year guarantee and batteries with a 3 year guarantee, and the
electronics are warranted for 1 year: any faults are reported to the SELCO head
office, which keep details of all systems, so that problems with suppliers can be
tracked quickly. Usually the systems would last for 15 years at optimal efficiency
with one battery change.

20
www.ashdenawards.org/winners/selco07 accessed on 12th February 2011.
216 P. R. Krithika and D. Palit

8.6.2.3 IDCOL Solar Home System Programme, Bangladesh21

The IDCOL Solar home system programme in Bangladesh was launched in 2003
for the installation of SHS at the household level. This programme has been sup-
ported by the World Bank’s International Development Agency (IDA) and GEF
and is administered by IDCOL—a non-banking financial institution. IDCOL
implement’s the project through its 23 partner organizations (POs), Grameen Shakti
being the largest among all. It provides grants and refinances the systems, sets the
technical specifications for the solar equipment, develops publicity materials,
provides training for PO capacity building and monitors PO performance. The role
of PO is to select the project areas and potential customers, offer micro-financing to
the customers, install the systems, provide maintenance support, ensure that spare
parts are available, consultation with the users before installation, disseminate
knowledge for productive use of the system, and provide training to the users and
local technician in order to create local expertise and ownership of the system.
IDCOL offers refinancing through soft loans (6 % interest with 2 years grace period
and 10 years maturity) to the POs and channels grants to reduce the SHSs costs as
well as support the institutional development of the POs. In addition, the IDCOL
also provides technical, logistic, promotional and training assistance to the POs.
The POs provide credit to the customers. A customer has to pay 10 % of the total
cost of the system as down payment and the outstanding amount is to be paid in
monthly instalment with a 12 % service charge, which covers the maintenance cost
of the system. The programme has been immensely successful with deployment of
more than 1,008,854 SHS as of June 30, 2011, lighting the lives of around 4 million
people (IDCOL 2011). IDCOL has set a target of 2.5 million SHS by 2014. Cur-
rently, an average of 30,000 SHSs is installed per month, lighting the lives of about
150,000 people (see Fig. 8.8 for a schematic of the model).

8.6.2.4 Rural Electricity Entrepreneurs and Battery Charging Stations,


Cambodia22

Cambodia’s power supply facility covers only about 20 % of the total population.
Of this, 13 % is by EdC (Electricite du Cambodge), which is the national elec-
tricity company and essentially covers the capital city Phnom Penh and other
provincial towns and cities; 7 % by REEs (Rural Electricity Entrepreneurs). Most
of these REEs own 1–2 small diesel generators, and distribute electricity through
their own small network (low-voltage distribution lines) to local households.
While many of these REEs have been established after obtaining license from the
Government as per norms, there are many unlicensed REEs operating in the
country. It is reported that there are around 600–1,000 rural electricity enterprises

21
IDCOL 2010
22
TERI 2009b
8 Participatory Business Models for Off-Grid Electrification 217

Fig. 8.8 IDCOL model Source IDCOL, 2010

supplying electricity services in rural areas and catering to an estimated 60,000


households. The electricity supplied by mini-grid is used to power 2 CFLs and a
television set/music system for entertainment. Electricity is supplied for limited
hours and there is frequent power failure due to poor network facilities. In fact, the
tariffs are also higher ranging from 30 cents/kWh to 90 cents/kWh, as compared
10–20 cents/kWh of electricity served by EdC. This can be partly attributed to the
large use of old small generators, reliance on fully imported diesel fuel, and high
losses in low quality medium voltage distribution systems.
Apart from diesel mini grids, battery charging stations (BCS) based on diesel
generators is also very common in Cambodia. Between 50 and 75 % of the
Cambodians in rural areas get access to electricity by batteries. The communities
buy the batteries and get them recharged by a local entrepreneur in the village. The
equipment at the BCS is kept at the strict minimum. In general they make use of
old diesel gensets and on average charge 50–100 batteries in day, with an average
charging time of 7–8 h. Each of such battery charging stations caters to 2–3
neighbouring villages. The type of batteries is shallow cycle lead acid, which is
normally designed for use in vehicles. The sizes of batteries are 50, 70, 100 and
5 Ah. These batteries are used to supply electricity for home lighting and run TV,
video, etc. In general, 50 Ah battery is used for home lighting, 70 Ah for lighting
and running TV, and 100 Ah for running VCD/DVD set. Small size batteries are
used often for a head lamp to catch frogs, birds, insects and so on. The price of
recharge varies from 1,000 Rials (0.25 US$) for a 40 Ah battery to 2,000 Rials (0.5
US$) for a battery of 100 Ah. The batteries are usually recharged at an interval of
2–3 days depending on the usage pattern. The batteries are imported from China,
Thailand and Vietnam by distributors and sold in the country. Though these
models are successfully ensuring energy services for basic minimum need for rural
Cambodians, the model has pollution related concerns because of erratic disposal
of batteries, apart from other issues such as high fuel costs, inefficiencies in the
system etc.
218 P. R. Krithika and D. Palit

Table 8.5 Strengths and weaknesses of the private sector models


Strengths • For-profit model has the ability to scale widely
• Single Companies act as the driving force for starting new projects
• Private sector competition can lead to innovation and ability to experiment easily
with new models
• Low barriers to entry for individual entrepreneurs
Weaknesses • Decentralized rural electricity is a risky investment, so few major investors other
than ‘‘socially-motivated’’ have entered the space.
• Profit-centred model means community needs could be neglected
• Current economics generally not viable—companies have to rely on government
subsidies or other inputs to drive business.

The key strengths and weaknesses of the private sector models are given in the
Table 8.5.

8.7 Key Lessons

This chapter has reviewed a number of alternative business models for rural elec-
tricity supply that have been reported in the literature. From the review, it is observed
that the business models for rural electrification projects vary from country to
country depending upon the resource availability, load profile, consumer’s will-
ingness to pay, techno-economic viability and social structures etc. A comparative
assessment of various service delivery models is provided in Table 8.6.

8.7.1 Choice of Appropriate Business Models

Based on the analysis, it can be said that it is not possible to narrow down to a
single approach of participatory models that can be considered for off-grid elec-
tricity access provision. However, based on the analysis of the models, we find that
for any model to be sustainable, scalable and socially acceptable, there are certain
pre-requisites that need to be fulfilled. The key features which are essential for any
participatory rural electrification model are as follows:
• Choice of technology and demand estimation: The suitability of a technology
for a particular area would depend upon the availability of resources, the con-
sumption pattern of consumers and degree of dispersion of the population. If it is
a highly dispersed population and main electricity usage is only lighting then
stand-alone systems based on solar, is most suitable while for concentrated
populations with some productive load, village mini grids is more appropriate.
Small renewable energy plants with capacity of 25–40 kW can be viable if they
select an ideal area of operation, as demonstrated by the business models of
Husk Power Systems. While this may not be necessary as seen in the case of
VESP, where a 10 kW biomass gassifier was inadequate to run productive load
Table 8.6 Comparative assessment of service delivery models
Characteristics Energy service delivery model
Cooperative Fee-for-service/ESCO Community managed Franchisees Private sector
model
Ownership Members of the cooperative own Ownership vests with Can be of two types: Ownership of assets vests Owned and operated by the
and operate the model the ESCO • Owned by private/public entity and with the discom; private sector except in
managed by communities Franchisee is a custodian PPPs where the
• Owned and managed by communities of the assets ownership of assets
may remain with public
entity
Management Managed by a Board of directors Managed by the ESCO Managed either by an NGO or local self- Managed by private sector, Managed by private sector
or a governing body elected by governing institutions such as village NGO, SHG etc.
the consumers committees or village councils etc.
Maintenance Cooperative is responsible Maintenance is Maintenance is undertaken by the VEC O&M undertaken by the O&M undertaken by the
for O&M undertaken by the village council etc. franchise operator private sector
ESCO
Pricing Low upfront cost and monthly Low to moderate tariffs Low to moderate tariffs (mutually decided Moderate electricity tariffs Moderate to high tariffs
tariffs; usually regulated (set up by ESCO) by the community and VEC) (regulated) (set up by service provider)
Community Moderate to high participation. Limited participation. High participation. Communities are Limited participation. Consumers are generally
participation Communities are members of involved right from the planning stage Franchisee operators not involved in the
Cooperatives. Local youths may till the end implementation stage. may involve locals for planning or
also be involved for bill Several functions such as labour bill collection. management of the
collection, undertaking minor contribution for construction, business.
8 Participatory Business Models for Off-Grid Electrification

repairs etc. management, maintenance, grievance


redressal are performed by
communities.
Risks Amenable to political interference. Communities lack ESCO carries primary risk of theft. Franchisee depends fully on Private operator can
technical and ESCO model is sensitive to uncertainty discom for power supply discriminate by
managerial skills regarding grid extension and so can’t always meet charging high tariffs
and this threatens the community’s
the sustainability aspiration
of the model
219
220 P. R. Krithika and D. Palit

and was excess for just lighting. Therefore, the choice of technology and its
sizing is a complex decision dependent on several factors.
For many rural communities, especially in remote areas, there may be visible
need for electricity, but often with low levels of disposable income and irregular
income streams. Unfortunately, while the investor and entrepreneurs may see an
exciting market opportunity in this suppressed need, need for electricity solu-
tions does not necessarily translate into ability to pay. This, combined with the
need for plants to maintain a certain plant load factor to not operate in a loss,
underscores the needs for careful demand estimation while selecting target
villages. The LaBL or the HPS model has been successful as they conduct a
scoping survey to estimate the likely demand for lighting and ability to pay and
sizes the plant/operation accordingly. The technology choice should best be
compared with alternative options to arrive at the most favourable least cost
option for a particular demand.
• Financing: As seen from the review, there are a number of financing mecha-
nisms available to support rural electrification projects. Finance for project
developers on favourable terms is a necessity for off-grid projects as they
typically involve large upfront costs. A World Bank study has clearly demon-
strated that financial subsidy is an important component of most rural electri-
fication projects, at least in the initial years (The World Bank 2010). Financing
can range from consumer financing, subsidies, grants etc. to market develop-
ment finance given to the companies in the supply—chain.23 For consumer
financing, there is a need for creating mechanism for easy access to credit and
financing through simpler process and better accountability mechanisms. On the
other hand, for large scale programmes such as company-to company lines of
credit, it is extremely important that timely disbursement of funds to companies
installing/operating off-grid systems is ensured. However, ex-post subsidies or
payments which are released only after a project has been completed and is
running well have also shown good results. Because of the unique situation of
every off-grid project, there is no ‘one-size fits all’ approach for financing.
Experience also suggests that contribution solicited from the direct beneficiary
of the projects (e.g. the local community) helps to foster a sense of project
ownership in the community.
• Electricity tariffs: As affordability is one of the key factors from a customer’s
perspective, the electricity tariffs should be based on the ‘ability/willingness to
pay’ of rural consumers. Willingness to pay and affordability are influenced by
variety of factors such as trust, flexibility and frequency of payment schedules,
proximity to payment points and quality of customer service.
As many rural consumers still perceive off-grid to be the second best solution in
comparison to grid connectivity, it is vital to spell out the tangible and intangible
benefits which off-grid electrification may offer. Building trust and community’s

23
Supply-chain refers to the actors in the supply chain of RETs such as manufacturers, dealers,
equipment importers etc.
8 Participatory Business Models for Off-Grid Electrification 221

‘buy-in’ is therefore important to induce the communities to pay for electricity.


In communities with variable cash flows, flexibility in payment schedule is
critical. Payments should be of right size to justify a trip to the payment point
and not too high to be a barrier. In case of HPS, they sell electricity directly to
consumers and set the price of electricity to the users, projected use and esti-
mated ability to pay. Similarly, SELCO designs the SHS capacity based on the
household’s ability to pay thereby ensuring that the user pay the instalments in
time. Proximity to payment/collection centres is again a relevant factor as higher
transportation costs can discourage bill payment and may lead consumers to
default on payments. The rural electricity distribution franchisee model is a case
in point. Where the collection efficiency used to be low when state owned utility
was managing the rural electricity distribution, the franchisees provided the
facility to the user to pay at their door step, which also contributed to higher
collection efficiency among other reasons.
• Service delivery:
Despite having a sound conceptual design of an off-grid project, they encounter
challenges in terms of operational sustainability. One of the lessons learned
from the review is that, without a robust supply chain and post installation
maintenance facilities, off-grid projects don’t deliver. VESP project in India
faced a number of difficulties as there were weak fuel supply linkages along with
limited maintenance facility, which was found to be a key constraint for the
uptime of the biomass gasification plants. On the other hand, community model
was successful in case of solar PV plant implemented by CREDA or WBREDA
as the operation and maintenance was done through trained local persons and
not handed over to the community.
Regardless of the type of institutional model, unless a project is able to recover
at least its operation and maintenance costs, it is highly unlikely to be sus-
tainable. Experience shows that models which provide for productive applica-
tions, find more customers and concentrate customers closer together are the
most successful models. Further many off-grid projects serve some of the
poorest members, whose ability to pay for electricity is limited. Thus, it is
important that a realistic assessment is made during the design of the project.
• Management
Any participatory service delivery model can be successful only if it has a well-
defined administrative structure and effective management at the local level.
There should be well-trained technical, administrative and support staff to run
the business on a day-to-day basis. Well laid out procedures and set processes
should be developed and followed. Revenue management which has been found
to be a weak link in invariably many of the service delivery models needs to be
strengthened. Proper accounting records should be maintained and service level
benchmarks should be developed. A case in point is the Bangladesh PBS model,
where there are pre-defined performance benchmarks which push the coopera-
tive to strive towards better performance every year.
222 P. R. Krithika and D. Palit

• Community participation
Organizations with fewer layers and greater community interaction seem to
work well and have the potential to scale up. Only those institutions which can
successfully mobilize the communities by engaging with them can be sustain-
able in the long run. Women’s groups and local farmers associations should be
involved in the project development process. Voluntary labour (or ‘‘sweat
equity’’) and capital contribution by the communities in design and imple-
mentation of a project also brings in a sense of ownership. It has also been seen
that models which leverage local expertise seem to perform very well as local
persons know the service area much better and are able to respond to community
needs effectively. In fact private models with community involvement can
perform very well as seen in the case of Laos (Solar lantern rental system).

8.7.2 Customer Service

• Customer service is one of the key aspects of a successful participatory model.


The quality of customer service also influences the willingness to pay. A ‘‘single
window’’ model is more appropriate to address user’s needs and to assure
functionality of the technical system during the period of loan repayment as
observed from Bangladesh. Here, the POs provide the micro-finance to the
consumers, facilitate sale and installation of the SHS and also take care of the
after-sales service (Palit and Sarangi 2011). Irrespective of urban–rural divide, all
customers desire a service provider who provides regular repair and maintenance
services and has a good grievance redressal mechanism to resolve any disputes.
• Socio-economic benefits: The model should have visible socio-economic
benefits, be it improvement in rural incomes, educational benefits, health care
implications etc. To ensure this, the model should cater to productive applica-
tions in addition to domestic end use. A monitoring unit should be set up by the
respective state government/nodal agency to oversee the working of such pro-
jects. The unit should also undertake regular consumer surveys to quantify the
socio-economic benefits of the project.

8.8 Concluding Remarks

The experience in off-grid electrification till date highlights the presence of different
business models depending upon the geographical settings, consumer mix, socio-
economic context and the type of technology chosen. It is also seen that participation
from communities at all levels, especially from the planning stage, leads to their
‘‘buy-in’’ into a project and makes it sustainable beyond the pilot phase. However,
complete dependence on community for operation and maintenance and more
specifically on the technical aspects without any external support is also seen lead to
the failure of projects. Models involving multiple actors, with each actor performing
8 Participatory Business Models for Off-Grid Electrification 223

a well-defined role are found to be more successful as compared to single actor


driven models. Affordability of the service is a ‘‘make-or-break’’ factor for entities
serving the off-grid market owing to low cash incomes of rural population and this
can be achieved through innovation in service design, operations, provision of
consumer finance (directly or indirectly) etc. Finally the success of any off-grid
electrification model rests on the larger eco-system or the regulatory and political
environment which creates enabling conditions for a model to flourish.

Appendix 1 Supply Model Matrix for Electrification

Grid / Technology ? Off-grid


Grid extension Village mini-grid Single user system
Small, Small grid reseller Diesel or hydro mini-grid SHS (Honduras,
decentralised (India) (Cambodia, Ethiopia) Kenya, Indonesia, Sri
private (for- Hydro mini-grids selling Lanka)
profit) large, to local customers and to PV/wind/diesel water
central the main grid (China, pumping (Brazil, Chile,
Nicaragua) Mexico)
Formerly isolated mini- WHS or pico hydro
grid now connected to (Argentina, Mongolia,
grid, (Cambodia) Nepal)
Privatized SHS (Bangladesh,
concessionaire extends Bolivia, Morocco,
grid (Argentina, Chile, South Africa)
Guatemala, Uganda)
Cooperative Cooperative finances Multi-service Coop with Agricultural Coop
Non- grid extension (Costa diesel or hydro micro- using diesel genset
governmental Rica, Bangladesh, US) grid (Bangladesh,
other community Bolivia, Philippines)
organizations Small ‘‘community Community micro-grids Diesel genset or
gateways’’(Bolivia) (Brazil, Cambodia, renewable energy to
Honduras, Indonesia, power a school, clinic,
Nicaragua, Sri Lanka) community centre, etc.
Small, Small state-owned Municipal diesel or
decentralised utility extends grid hydro mini-grid (Bolivia)
public large, (Colombia, Brazil)
central State utility extends grid Residual state-owned SHS (Mexico)
and sells at retail isolated diesel mini-grids
(Botswana, with fuel subsidies
Mozambique, Thailand, (Nicaragua, Cambodia)
Tunisia)
224 P. R. Krithika and D. Palit

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Chapter 9
Financing Electrification and Off-Grid
Electricity Access Systems

Subhes C. Bhattacharyya

Abstract This chapter provides a review of financing mechanisms used for energy
access in general and off-grid electrification in particular. It reviews the literature on
the subject and tries to find answers to issues like whether the funding has been
adequate, whether sufficient funding for the future is likely to be available, whether
states should take the lead or leave it to the private sector and so on. It also looks at the
innovative approaches used in funding and indicates whether small-scale projects can
benefit from such initiatives. The chapter finds that in general the state has played an
important role in funding infrastructure investments in both developed and developing
countries. But many developing countries faced difficulties financially and neglected
this for a long time. The gap has been somewhat filled by international donor agencies
but their scale of operation so far has been selective and limited and cannot ensure
adequate funding for the future. The innovative mechanisms are also unfriendly
towards small-scale projects and therefore, do not really provide much hope. The
challenge of mobilising finance and ensuring its appropriate delivery and use remains a
major issue and would require a co-ordinated effort of all relevant stakeholders.

9.1 Introduction

The manifestation of severe energy access challenge at present (discussed in Chap.


1) and the likelihood of continuation of such a situation in the absence of any
concerted policy interventions (IEA 2011)1 clearly indicate that new investments
1
IEA (2011) indicates that in the absence of new policy interventions 1 billion people will still lack
electricity access by 2030 while 2.7 billion will not have access to clean cooking energies by 2030.

S. C. Bhattacharyya (&)
Professor of Energy Economics and Policy, Institute of Energy and Sustainable
Development, De Montfort University, Leicester, UK
e-mail: subhesb@dmu.ac.uk; subhes_bhattacharyya@yahoo.com

S. Bhattacharyya (ed.), Rural Electrification Through Decentralised 227


Off-grid Systems in Developing Countries, Green Energy and Technology,
DOI: 10.1007/978-1-4471-4673-5_9, Ó Springer-Verlag London 2013
228 S. C. Bhattacharyya

are urgently required in countries lacking energy access. One challenge that
immediately catches attention is that of funding energy access projects, particu-
larly in poorer economies of the world where the need is the most. It is not difficult
to recognise that financing electrification projects (or clean cooking energy supply
for that matter) will not be an easy task, given the inadequacy of existing efforts by
governments, international financial agencies, donor agencies and even the private
sector in funding energy supply provisions.
Rural electrification programmes both at the national and international levels
have long been supported by the states and donor agencies. The funding mecha-
nisms have evolved over time due to changed economic paradigm (i.e. the wave of
economic reforms in the 1980 and 1990s) promoting more market involvement
and private sector participation. Further, the financial markets have evolved and
new innovative instruments have arrived including carbon market instruments as
well as micro-finance to cater to the financial needs of the users. Unfortunately,
there is limited academic attention on this vital issue.
Although there are some studies on financing energy covering various macro-
aspects, (e.g. the funding needs and possible funding flow in IEA (2011), inter-
national financial flows to the energy sector in Bazilian et al. (2011); Glemarec
(2012) who identifies the private and public sector funding potentials), or micro
aspects (e.g. Monroy and Hernandez (2008); (2005) on stakeholder perspectives,
Mainali and Silveira (2011); Miller and Hope (2000); ASER (2007) providing
country case studies of Nepal, Sri Lanka and Senegal respectively), there is no
systematic review of financing issues and options for electrification in developing
countries. This chapter aims to bridge the gap through a comprehensive review.
The chapter is organised as follows: the second section presents the scale of
the challenge by considering the financing needs for energy access for all and
by identifying the financial sources and financial flows; Sect. 9.3 discusses
financial options and financing challenges, Sect. 9.4 explores financing mecha-
nisms specifically for off-grid electrification. Finally, Sect. 9.5 provides some
concluding remarks.

9.2 Problem Dimension

9.2.1 Investment Needs for Electricity Access Provision

This section provides an overall picture focusing on the investment needs for universal
electrification first, followed by specific details related to off-grid electrification.
9 Financing Electrification and Off-Grid Electricity Access Systems 229

9.2.1.1 Overall Needs

The enormity of the financing challenge is directly related to the energy access
problem itself. According to IEA (2011),2 $9.1 billion was invested in providing
access to energy in 2009—most of which (except only $70 million that went to
provide advanced biomass cook-stoves benefitting 7 million people) was used in
providing access to electricity to 20 million people. IEA (2011) further estimated
that 14 % of the above investment came from bi-lateral official development
assistance, and $3 billion (or 34 %) were provided by multi-lateral agencies (such
as international financial institutions, funds, etc.). The developing countries
themselves invested about 30 % of the above investment while the rest came from
private agencies. IEA (2011) further estimates that $14 billion will be invested
each year between 2010 and 2030 to provide electricity access. 55 % of this
amount is likely to be invested in on-grid electricity supply while 45 % will go to
the off-grid sector. This investment is likely to connect 26 million people to
electricity supply each year but, this investment will not be sufficient to ensure
energy access to all—by 2030, about 1 billion people will still lack access to
electricity. This implies that even with a 50 % increase in investment in energy
access provision, the gravity of the problem is likely to change marginally.
IEA (2011) also provides an alternative scenario to achieve universal energy
access by 2030 as is envisaged by the UN Secretary General’s call. This scenario,
which makes necessary assumptions about the technology choices for electrifi-
cation requires a five-fold increase in the investment compared to that in 2009.
Electricity access will need about $45 billion a year with grid extension taking
30 % of the share, whereas the rest 70 % will go to mini-grids and off-grid systems
in the proportion of 65:35. Similarly, the regional pattern of investment will follow
the pattern of lack of energy by region. 60 % of the investment for providing
electricity access will be needed in Sub-Saharan Africa.
Bazilian et al. (2010) provided a review of various cost estimates for energy
access and indicated the variation in the cost components and offered a new
estimate for universal electricity access based on the life-cycle costs. They argue
that most of the studies focus only on the capital costs and ignore the recurring
costs. They found the cost for capital investment to vary between $5 and $40 per
person. Their cost estimates for universal electricity access are based on the fol-
lowing assumptions: (a) full levelised cost of generation is considered but trans-
mission and distribution-related costs are not considered; (b) the levelised
generation costs are based on IEA studies; (c) estimates are provided for three
scenarios—low, medium and high where the consumption level varies from basic,
to the current average residential consumption in Latin America; (d) the electri-
fication rates in 2008 is considered as the base level and universal electricity

2
This report was released ahead of a high-level conference on Energy for All: Financing access
for the poor in Olso organised by the Government of Norway and the International Energy
Agency on 10 October 2011.
230 S. C. Bhattacharyya

access for urban and rural population by 2030 is considered; (e) Urban access is
provided through grid extensions while rural access is provided through an arbi-
trarily chosen mix of grid extension, mini-grids and off-grid options.
Their results show that the annual investment requirement will be $12 billion in
the low scenario, $60 billion in the medium scenario and $134 billion in the high
scenario. While the low estimate is comparatively lower than IEA (2011), the
middle estimate is closer to the IEA’s estimate while the other estimate is much
higher than that of IEA. This suggests the possibility of significantly higher level
of investment needs for providing access.
AfDB (2008a) provides an indicative estimate of investment requirement for
enhancing electricity access in Africa with the assumption that 90 % of the rural
population in Sub-Saharan Africa and 100 % of the rest (including urban
population of SS-Africa) will have access to electricity by 2030. The estimation
included cost of generation, transmission and distribution of electricity for the
period between 2008 and 2030 and found that 265 GW of new generation capacity
will be required to ensure energy access. AfDB (2008b) estimated that $547 billion
(constant 2005 terms) will be required for this purpose, which results in an average
annual investment need of $24 billion approximately.
Thus, the investment requirement for universal electricity access is likely to be
substantial and the estimates have high levels of uncertainties. Moreover, they do
not consider the demographic transitions, rural–urban migrations, effects of
economic development and life-styles of people (e.g. emergence of the middle
class income group by 2030 horizon in many developing countries), etc. Yet, in
any case the financial need will be considerably higher than the present needs if
energy access targets have to be realised.

9.2.1.2 Funding Needs for Off-Grid Electrification

As indicated in the general overview, the investment needs for electricity access is
dependent on assumptions of technology choice. IEA (2011) considered that mini-
grids and off-grid technologies will be deployed in 70 % of the rural areas. In its
New Policies Scenario, IEA (2011) estimates that $6 billion per year will be
required for mini-grid and off-grid electrification, but this level of investment will
not ensure universal electricity access. The alternative scenario where electricity
access for all is considered, an additional annual investment of $20 billion is
required for off-grid options between 2010 and 2030. However, the investment is
likely to be back-loaded, implying a higher amount of flow required as 2030
approaches. Mini-grids are likely to have a major share in the off-grid systems,
while isolated off-grid systems will cater to about 20 % of the population without
electricity access. About 60 % of the investment would go to Sub-Saharan Africa
where the electricity access is relative low at present.
Bazilian et al. (2012) provide an estimate of power capacity requirement and
investment need for providing basic electricity access in Africa. It reports an
investment requirement of $3.4 billion per year for off-grid systems to deploy
9 Financing Electrification and Off-Grid Electricity Access Systems 231

approximately 12 GW of off-grid capacity. However, the above estimate is based


on a basic level of access and is not comparable with IEA (2011) estimates
directly.
The above clearly shows the looming financing challenge for energy access in
general and off-grid electrification in particular. We now turn to financial flows to
see how these needs can perhaps be met.

9.2.2 Funding Availability to Enhance Electricity Access

Generally, four sources of funds can be identified: public sources, international


development assistance, private capital and new sources of finance such as carbon
finance (AGF 2010). Bazilian et al. (2011) and IEA (2011) acknowledged that the
data on financial flows to the energy sector of developing countries in general and
that to enhance energy access in particular is rather limited, incomplete and often
available at a highly aggregated level. In this section, an overview of overall
investment in energy, foreign direct investment, development assistance and car-
bon finance is presented.

9.2.2.1 Overall Energy Investment

Based on data compiled by Bazilian et al. (2011) on Gross Fixed Capital


Formation (GFCF) for electricity and gas distribution, Foreign Direct Investment
(FDI) and Official Development Finance (ODF) for a large set of countries, it can
be noticed that the GFCF for electricity and gas distribution has been rising
steadily over the past decade (between 2000 and 2009, see Fig. 9.1). On a global
level, the investment in electricity and gas distribution increased by 36 % between
2000 and 2009 (or from $232.6 billion (constant 2000 terms) to $316.6 billion) but
the capital investment in the Least Developed Countries (LDC) remained very
insignificant—just $2.6 billion in 2009 (less than 1 % of global investment). This
is an area of concern, given that the investment need is the highest in these
economies.

9.2.2.2 Foreign Direct Investment

Although the data on Foreign Direct Investment (FDI) in energy is more patchy,
Delina (2011) contends that $3.65 trillion flowed to developing economies
between 1997 and 2008 but FDI has benefitted only certain countries that provided
the enabling environment and that the poor countries did not benefit from the FDI.
Bazilian et al. (2011) noted that the FDI flow has declined over time.
232 S. C. Bhattacharyya

Fig. 9.1 Trend of gross fixed capital formation in electricity and gas distribution Data source
Bazilian et al. (2011). Note LDC—least developed countries (as per UN categorisation). The data
is presented using the right-hand scale

Data from the Private Participation in Infrastructure Database of the World


Bank (see Fig. 9.2) on private investment in energy sector clearly indicates the
variation in FDI over the years. The flow of funds was hugely affected by the 1997
financial crisis and it took a decade for the FDI flow to reach a reasonable level but
again the global financial crisis has resulted in a major decline in the flow.
Moreover, the Latin American countries to a large extent, China, India and some
Asian countries received a steady flow in the pre-1997 period but FDI flow to
Sub-Saharan Africa has remained insignificant. Also, the FDI tends to be related to
large electricity supply projects and therefore may not be so relevant for energy
access purposes.

9.2.2.3 Development Assistance

Although Bilateral and multilateral donor support for the energy sector of developing
countries started in the 1940s, but until recently, there was a lack of co-ordination of
aid policies amongst the donor agencies (Gualberti et al., 2012). Delina (2011)
observed that between 1997 and 2008 OECD countries have provided almost $1
trillion as Official Development Assistance for various purposes and this remains an
important source of funding for developing countries.3 However, only a small share
of this funding goes to the energy sector. According to Bazilian et al. (2011) and
Gualberti et al. (2012), the Official Development Finance for energy generation and
supply declined in the 1990s amid widespread sector reform initiatives. Since 2000,
the ODF has steadily increased and in 2008, ODF for energy represented $9.67
billion (constant 2000 terms)—see Fig. 9.3. Although, most of the ODF went to non-

3
Tirpak and Adams (2008) reported $490 billion for 1997–2005.
9 Financing Electrification and Off-Grid Electricity Access Systems 233

Fig. 9.2 FDI flow in energy infrastructure Data source PPIAF database (World Bank)

Fig. 9.3 ODF flow for energy generation and supply Data source Bazilian et al. (2011)

LDCs, the share of LDCs is showing an increasing trend: in 2000, LDCs received
only 11 % of the ODF while in 2008, it reached 16 %.
Summarising the above discussion, it can be argued that only a fraction of ODF
and FDI leads to new capital asset formation and that financial constraints of
poorer countries act as a hindrance towards gross capital formation in energy
generation and supply. In addition to FDI and ODF, development assistance from
multilateral agencies, such as agencies of the United Nations and some regional
agencies come under this group, provided $94 billion between 1997 and 2008
covering various development activities (Delina 2011). The World Bank group
contributed almost 40 % of this funding. A review of World Bank investment in
energy access by Barnes et al. (2010) reveals that out of $20 billion invested by the
Bank between 2000 and 2008 in energy-related projects, only about $4 billion (or
one-fifth of the total) qualifies as energy access investments. The report indicates a
steep rise in energy access funding in 2008 to reach $1.15 billion from a level of
234 S. C. Bhattacharyya

Fig. 9.4 World bank funding for energy access in LDCs Source Barnes et al. (2010)

Fig. 9.5 World bank’s


energy access portfolio Note
the first figure is the
investment amount in million
dollars (current), and the
second represents the percent
share. Data source Barnes
et al. (2010)

$250 million per year earlier. Whether this rise is an abberation or not cannot be
verified from the report. In terms of geographical distribution, about $1.1 billion
each went to Africa and East Asia while South Asia received $0.7 billion, Eastern
Europe $0.6 billion and Latin America $0.4 billion. The balance went to Middle
East. Data provided in Barnes et al. (2010) reveals that about $1.4 billion went to
the LDCs for energy access purpose, representing 35 % of the total energy access
finance by the Bank. 64 % of the funding for energy access in LDCs went to
Africa, and about 50 % of this came between 2007 and 2008 (see Fig. 9.4). This
shows that only a small share of the energy access funding was directed to
countries who need it the most and the attention to energy access in situation in
Africa has received recent attention by the multilateral funding agencies. This
imbalance in the funding is a major challenge for energy access funding.
In terms of investment by type of activity, household electrification received the
highest amount—47 % of the total investment (see Fig. 9.5). Within electrification
investments, grid extension was the preferred mode, whereas off-grid electrifica-
tion is gaining in importance. The lowest amount of investment went to cooking
9 Financing Electrification and Off-Grid Electricity Access Systems 235

energy solutions, which clearly indicates the Bank’s bias for prestigious large
projects and inadequate support to the most pressing challenge of the poor.
The Asian Development Bank (ADB) and the African Development Bank, two
multilateral funding agencies, have also provided energy-related assistance but
most of the investment went to large energy projects. Energy access financing was
not a major priority for ADB and the support did not reach the poor, less developed
economies.

9.2.2.4 Carbon Finance

A number of financing mechanisms related to climate change mitigation and


adaptation have emerged over the past two decades and they have supported
promotion of renewable energies as well as sustainable development. According to
the State and Trends of the Carbon Market 2011 (World Bank 2011), the global
carbon market, which recorded rapid growth between 2005 and 2008, has stag-
nated at $142 billion in 2010. However, the emissions trading of the European
Union is the most dominant player in this market and influences 84 % of the
market value.4 The Clean Development Mechanism (CDM) of the Kyoto Protocol
which was one of the main mechanisms of involving the developing countries in
the climate mitigation process through financial flow from the developed world has
seen a major fall in its market value: 7.4 billion in 2007 to 1.5 billion in 2010. The
uncertainties about the future of CDM post-2012, the restrictions imposed by the
European Union on the usage of Certified Emissions Reductions (CER) as a
compliance instrument for the Emissions Trading System (ETS) and a reduction in
demand due to economic recession have eroded its worth substantially. There is
little incentive for any investor in the CDM now due to these developments.
Moreover, only a few countries have benefited from the CDM so far. World
Bank (2011) indicates that only 16,000 CER out of 605 million CER issued so far
originated from the least developed countries. Consequently, Africa as a continent
has not gained much from the CDM despite a number of corrective measures taken
by the CDM Executive Board. Energy access projects, being small-scale in nature,
face prohibitive transaction costs to access CDM benefits and given the marginal
nature of the CDM financial support, the barriers outweigh the benefits. However,
Glemarec (2012) suggests that the introduction of Program of Activities (PoA) and
the decision to introduce standard baselines for such PoAs can help redress the
problems. He indicates that as of January 2012, 58 PoAs for enhancing energy
access of households have been designed—3 of which have already been
registered.
The Global Environment Facility (GEF) is another source of climate finance
over the past 20 years and has invested $10.5 billion in 2,700 projects in 165
countries and arranged $51 billion in co-financing (GEF 2012). It has a dedicated

4
97 % if secondary transactions are considered.
236 S. C. Bhattacharyya

fund for the least developed countries but most of the funding is directed towards
climate change issues and not specifically for energy access.
UNDP (2009) highlighted the uneven flow of funds for clean energy investment
across regions. Although the private sector has made about $150 billion new
investment in clean energies in 2007, only 22 % of the investment went to
developing countries and only two countries (China and Brazil) attracted most of
this investment and only $1.3 billion went to Africa. 85 % of the funds went to
three technologies, namely wind, solar and biomass. It is not clear how much of
this finance went for enhancing energy access but given the regional distribution
pattern, it can be inferred that energy access did not really benefit much.
Therefore, despite a significant growth of the carbon finance market, it remains
less accessible to small and poor developing countries and has not helped much in
financing energy access.

9.2.2.5 Investment in Energy Access

IEA (2011) estimated that about $9.1 billion was invested in 2009 for enhancing
energy access. This includes ODA, Multilateral organisational funding, private
sector funding and state funding. IEA (2011) reported that 14 % of the investment
came from ODA, 34 % from multilateral organisations, 22 % from the private
sector and 30 % from the national governments. However, these estimates need to
considered with caution because of the assumptions used (such as 50 % of the
Private Public Partnership funding for energy infrastructure came from the private
sector and that between 5 and 20 % of the private sector funds went to enhance
energy access, or that governments provided matching funds for every dollar of
ODA support).

9.2.3 Financing Universal Electricity Access

Based on the analysis of financial flows and investment needs for electricity
access, the magnitude of the challenge becomes quite clear. The present level of
investment is much lower than what is needed to ensure universal electricity
access and the gap in funding will be significantly higher for low income countries.
Bazilian et al. (2011) observe even if LDCs invest entire amount of their energy
sector investment to enhance energy access, universal electricity access by 2030
will not be ensured. They estimate that LDCs will need an annual investment of
$11.6 billion as against $2.5 billion invested in 2008. Bridging this huge gap in
finance is the main challenge. IEA (2011) suggests a 30:30:40 split of funds from
the private sector, national governments and development assistance (including
multilateral funding support). This would turn out to $15 billion per year each for
the private sector and the governments, and $18 billion per year for the devel-
opment assistance. The task becomes even more challenging due to economic
9 Financing Electrification and Off-Grid Electricity Access Systems 237

recession in the developed world and donor apathy towards sustaining aid support
over decades. Glemarec (2012) notes the dim prospects of additional development
assistance in the near future. Thus, a major change in the attitude of the funding
agencies, development priorities of the states and the business strategies of the
private sector will be required. It remains to be seen whether profound changes
inherently assumed in the above suggestion are likely to happen or not.
Therefore, the challenge of financing universal energy access is a major global
challenge. It will require unprecedented level of investments in a large number of
countries, most of which are in the low and middle income group, and who have
limited experience of dealing with such high level of investments. The level of
financial resources would have to grow a few folds compared to the present level
and even the traditional sources may not be sufficient to bridge the funding gap.

9.3 Financing Options and Challenges

The financing challenge has received international attention in recent times, since
the Copenhagen Accord in 2009 where a promise was made for investing $100
billion per year in the developing countries by 2020 towards climate adaptation
and mitigation. The subsequent decision of the UN to designate 2012 as the Year
of Sustainable Energy for All has expanded the scope of the financing problem.
This section reviews the literature on financing options and related challenges.

9.3.1 Review of Financing Options

A review of funding sources by the UN Secretary General’s High Level Advisroy


Group on Climate Change Financing (AGF) for the $100 billion per year invest-
ment promise considering four broad sources of funding, namely public sources,
development bank finance, carbon market finance and private sources, indicates
that in the likely scenario developed countries could mobilise $100 billion
annually by 2020 for investing in the developing world. In the high scenario,
significantly higher finance mobilisation is possible while the targets would not be
reached in the low scenario (AGF 2010). This highlights the importance of future
carbon price prevailing in the market. Table 9.1 provides a summary of the
estimates by the (AGF 2010), in which Public finance from the developed econ-
omies is suggested as the most important source of new finance and can account for
40–45 % of the total funding. However, a prolonged recession in the OECD
economies and the potential for carbon leakage or relocation to developing coun-
tries can easily affect this outcome. Further, carbon markets and development banks
are identified as potential sources that can contribute another 20–25 % while the
rest will have to come from the private sector. Yet, based on the present carbon
238 S. C. Bhattacharyya

Table 9.1 Summary of financing sources identified by (AGF 2010)


Source Sub-category Low carbon Medium carbon High carbon
price case price case price case
Public finance AAU/ETS auctions US $2–8 $8–38 billion $14–70
billion billion
Offset levies $0–1 billion $1–5 billion $3–15 billion
Martime transport $ 2–6 billion $4–9 billion $8–19 billion
emission levies
Air transport emission $1–2 billion $2–3 billion $ 3–6 billion
levies
Other carbon-related $25–33 billion
revenuew
Financial transaction taxes $ 2–27 billion
Development $11 billion
bank finance
Carbon market $8–12 billion $38–50 gross; $150 billion
finance $ 8–14 billion
net
Private finance $20–24 billion
Note The public sources included potential revenues from carbon-related taxes, charges or
auction proceeds. Development bank finances included contributions to dedicated carbon-related
funds or new contributions to these agencies by countries. The money transferred to developing
countries as a result of carbon-offsetting is captured in carbon market finance. Private finance is
the flow from the private sector of developed countries
Source (AGF 2010)

market and FDI trends, it remains doubtful that the required volume of finance will
flow to countries who need it most.
A Roundtable day organised by Bloomberg New Energy Finance in association
with UN Energy in April 2011 to seek views of various stakeholders and thought
leaders on the twin challenge on financing energy access and low carbon transition in
developing countries reported that if private capital has to flow to enhance energy
access, the business climate has to change and countries would need to ensure the
‘‘core tenets of business ecology’’. Also the need for capacity building, identifying
local champions and providing information was highlighted (Bloomberg 2011).
AfDB (2010) recognises that the financing gap in Africa is enormous. Against
an annual investment need of $41 billion in the power sector, the continent is
typically investing $11.6 billion. Closing the gap will be a challenge due to
insufficient national public finances, limited benefits from the CDM, and poor
private sector participation. While donor and multilateral funding agency support
can help, the financing challenge cannot be underestimated.
Glemarec (2012) suggests that the development assistance is unlikely to meet
the financing needs of energy access as there is the possibility of reduced flow of
development assistance in the future due to economic downturn. The developing
country governments will also be hardpressed for funds despite their commitments
to energy access. This will by default imply a higher reliance on private capital to
9 Financing Electrification and Off-Grid Electricity Access Systems 239

ensure energy access. He also highlights the new arrangements like Green
Investment Fund, Energy+ initiative and stresses on the need for leveraging
different funding mechanisms to achieve the energy access objectives. A summary
of various new financing instruments is given in Box 9.1.

Box 9.1: New financing mechanisms


Green Investment Fund—This is a fund created by the decision of COP 16
(Cancun in 2010) to address the funding issues of developing countries for
climate change mitigation and adaptation. This is managed directly by the
UNFCCC. The modalities of Fund operation was approved in Durban in
2011 but funding for energy access was not included. However, Glemarec
(2012) suggests that it can support scaling-up of energy access projects by
allowing governments to aggregate small-scale projects under a single
umbrella initiative.
Climate Investment Funds (CIF)—These were created in 2008 by a group of
developed countries to fund climate-smart development in developing
countries. The funds are managed by five multilateral development banks
collaboratively. The CIF has a funding pledge of $7 billion through the
Climate Technology Fund (CTF) and the Strategic Climate Fund (SCF). The
Climate Change Fund has an allocation of $4.8 billion for renewable energy
technologies, energy efficiency and sustainable transport while the Strategic
Climate Fund has an allocation of $2.2 billion in low-income countries in
forestry, renewable energy and strategic climate resilience programmes (CIF
2011). The Strategic Climate Fund has a programme for Scaling-up of
Renewable Energy in low-income countries (SREP) which focuses on
renewable energies and energy access (Behrens et al. 2011).
Adaptation Fund—As per the provisions of the Kyoto Protocol, an Adap-
tation Fund was created by the UNFCCC to provide financial support to
vulnerable developing countries who are parties to the Kyoto Protocol in
adapting to the effects of climate change. The Fund, on a temporary basis, is
being managed by the GEF Secretariat and the World Bank is acting as the
Trustee. The fund receives 2 % of the proceeds of CER sales from the CDM
mechanism and from other sources. So far, 15 projects have been approved
for funding of $104 million and 11 other projects have been endorsed. Most
of these relate to agriculture, water, coastal area management and do not
have any direct impact on energy access.

A review of energy access projects in Asia and the Pacific (UNDP 2011)
suggests that a firm commitment from the government for financial support
through appropriate budgetary allocations was a key element in all successful
cases. Embedding the projects in the overall rural development programme is also
found to be another feature of successful programmes. It reports that two energy
access projects in Nepal have successfully accessed CDM funding—one of them is
based on biogas and the other is a micro-hydro project. At the end-user level, a
240 S. C. Bhattacharyya

Fig. 9.6 Perception about transaction costs and fossil fuel subsidies Data source UNEP (2012)

combination of funding and financing mechanisms have been used, including


capital subsidies, micro-finance and donor assistance for market development. It
suggests that a set of locally appropriate financing options, use of micro-credit
options to expand the market and reliance on productive use of energy as an
alternative financing mechanism could be used to enhance energy access.

9.3.2 Financing Barriers

A recent study, UNEP (2012), provides a number of barriers based on a survey of


38 financial institutions with experience of financing renewable energy projects in
developing countries. The barriers are organised under three main heads: level-
playing field, easy market access, and political and regulatory investment risks.
It is generally recognised that renewable energies face undue competition from
subsidised fossil fuels and transaction costs related to renewable energy project
development. The survey results indicate that the practioners consider transaction
costs related to renewable energy development and subsidies on fossil fuels as
major barriers to level-playing fields (see Fig. 9.6). Almost 80 % of the respon-
dents considered transaction costs as an important barrier while more than 70 % of
them thought fossil fuel subsidies also affected the renewable energy promotion
adversely. A corollary from the above is that the CDM is just perceived as ‘‘icing
on the cake’’ that is unlikely to play an important role in promoting renewable
energies for electricity supply.
In addition, the electricity sector in most developing countries is highly regu-
lated and does not offer easy entry. The survey reveals that unsustainably low
energy prices and protective, non-competitive and innovation-strifling electricity
sector policies in developing countries have detrimental effects on private financial
capital flows to renewable energy development. As indicated in Fig. 9.7, between
9 Financing Electrification and Off-Grid Electricity Access Systems 241

Fig. 9.7 Detrimental factors to market access Data source UNEP (2012)

75 and 85 % of the respondents consider that politically-motivated low prices and


distortive sector policies as important barriers.
Moreover, investors face significant macro-economic, regulatory and political
risks while making investment decisions in a developing country. High risks make
return expectations prohibitively high, making investments unviable. The study
confirms this for four risks under the regulatory and political risk category by
finding that respondents perceive effective law enforcement, reliability of policies
and support mechanisms, and political stability as major threats to viable invest-
ments (see Fig. 9.8).
The survey also indicates that the respondents considered national renewable
targets and feed-in tariffs as the most important incentives for renewable energy
promotion. The CDM did not figure as a favourite incentive. UNEP (2012) rec-
ommends that countries should ensure creating a level-playing field, provide easy
access to their electricity market and mitigate risks by setting national renewable
energy targets, removing fossil-fuel subsidies, providing incentives for investors,
reforming political, economic and societal structures, and by adopting interna-
tional risk-mitigation instruments. However, this is easier said than done but can
energy access wait for satisfaction of such pre-conditions?
Woerlen (2011) presents another interesting study of identifying barriers using
a meta-study of evaluation of 17 GEF projects. Using the Theory of No Change
that uses four sets of stakeholders, namely consumers, suppliers, financiers and
policy makers and considers seven generic barriers, namely ignorance, lack of
motivation, lack of expertise, lack of access to technology, lack of cost effec-
tiveness, lack of business model or demand and lack of affordability, she identified
20 barriers for energy efficiency projects. The barriers are grouped in four cate-
gories in terms of their severity, namely show-stopping barrier, significant barrier,
not so important barrier and no barrier. The evaluation of the barriers for each type
of stakeholder is shown in Table 9.2.
Monroy and Hernandez (2005, 2008) also present the stakeholder views on
private capital flows to energy access. They contacted 800 experts for an email
242 S. C. Bhattacharyya

Fig. 9.8 Perception of political and regulatory risks Data source UNEP (2012)

Table 9.2 Key barriers to market development

Barriers Consumer Suppliers Financiers Policy


Show-stopping lack of cost lack of cost
barrier Ignorance effectiveness effectiveness

Lack of access

Significant barrier Lack of affordability lack of expertise lack of expertise lack of expertise

Lack of affordability
lack of business
model
No important
barrier lack of access

No barrier lack of interest Ignorance ignorance Lack of interest


lack of business
lack of expertise model Ignorance
lack of cost
effectiveness lack of affordability

Source Woerlen (2011)

survey and received 185 responses (21.6 % response rate). They found that 85 %
of the respondents considered financial sustainability of projects is the essential
factor ensuring long-term viability of rural electrification projects. 67 % of the
respondents considered that a public–private partnership would strengthen the
financial sustainability of such projects. In respect of financing, micro-finance and
linking electrification with productive activities was highlighted as a very
important factor. 72 % respondents considered renewable energy funds ‘‘the most
suitable financial instrument to deal with renewable electrification projects’’.
Revolving funds were identified as the best option for end-user financing, followed
by productive uses and micro-finance. Lease instruments were considered least
suitable for these markets.
9 Financing Electrification and Off-Grid Electricity Access Systems 243

Simon et al. (2012) highlight the barriers faced by cook-stove promotion


programmes in accessing climate finance. They report that the CDM has recently
approved a methodology for emission reduction from small-scale cook stove
projects. In order to benefit from the CDM funding mechanism, projects have to
undergo the registration, verification and validation processes. In addition,
improved cook stove programmes face further barriers as follows: there is no ready
additional finance available for the implementation of such projects; the rigid
requirements of the CDM in terms of verification and performance requirements
can hinder such programmes; in addition, measurement and verification of emis-
sions, possibility of leakage, and changes in the climate policy or carbon finance
policy can also affect the programmes.
UNDP (2011) also underlines the difficulties in accessing carbon finance for
energy access projects. Lengthy processes and high transaction costs act as
disincentives but the greatest barrier is the uncertainly prevailing in respect of
post-2012 situation.
Based on the experience of Asia and the Pacific in promoting renewable
energies for energy access, UNDP (2008) reported that through a process of trial
and error, most countries of the region have an understanding of the ‘‘first
generation barriers’’ and ways of resolving them. These barriers relate to initial
barriers faced by an investor and include low returns on investment, high trans-
action costs, and lack of experience with energy access financing, and unsuitability
of existing credit facilities for financing these projects, etc. However, the scaling-
up experience is quite limited and there is poor knowledge about successful scale-
up models. This leads to the second generation barriers to ensure an effective
transition from projects to programmes.
Radulovic (2005) presents an analysis of market barriers in using solar PV for
productive uses and provides an example from the Indian agricultural sector. The
author suggests that the call by neo-institutional economists (NIE) for getting
institutions right is not sufficient to address the problem because it does not offer
viable solutions for political interference in the barrier removal process. A case
study in Punjab was used to show the shortcomings of NIE. A programme of PV in
the agricultural sector has succeeded here with government providing subsidies to
agricultural users, although such subsidies are not recommended by NIE. The
author suggests that state policymakers should look beyond NIE and try to
improve and expand PV markets by considering the market barriers, political
constraints, and cultivating locally appropriate service models.
To conclude, mobilising financial resources to ensure universal energy access
remains a major challenge. The financial needs of poorer countries are likely to be
beyond their own financial means and the governments of budget-constrained
developing countries may not be able to contribute much to finance such demands.
International support will be required but the public finance may not be easily
forthcoming and may not reach the countries that need it the most. The present
support of the multilateral finance organisations is biased towards large-scale
energy projects and often disproportionately benefits large developing countries.
This trend needs to change so that poorer countries receive the required finance.
244 S. C. Bhattacharyya

Fig. 9.9 Financial instruments for off-grid electrification Source Adapted from Ortiz et al. (2007)

Moreover, the developing countries need remove major barriers that hinder large-
scale mobilisation and use of funds. Whether such corrective actions can be taken
in the short-term or not remains an issue requiring further investigation.

9.4 Specific Financing Approaches for Off-Grid


Electrification

Sonntag-O’Brien and Usher (2004) posit that for a new off-grid business, capital is
required at various stages of the business—upstream of the project, for running the
project and even downstream to support the customer or the business transaction.
Ortiz et al. (2007), on the other hand, presented the financial instruments by their
nature: assistance, funds, micro-finance, fiscal instruments and others (see
Fig. 9.9). Accordingly, this section is divided into project-level financing and end-
use level financing.

9.4.1 Project-Level Financing

Off-grid projects have often relied on finance from donor agencies and budgetary
support from the state. For example, electrification programmes such as Energising
9 Financing Electrification and Off-Grid Electricity Access Systems 245

Development by Dutch-German governments (EnDev)5 and World Bank projects


in China, Bangladesh, Ethiopia and Sri Lanka are providing access to clean
energies. In many countries, the national government provided the funding. For
example, in China the decentralized electrification is either fully financed by the
central government or through a cost-sharing scheme where the provincial
government contributes a share. In the Philippines, where a co-operative or a
franchisee finds it unviable to provide electricity, the Missionary Electrification
project is undertaken, which receives a continuous flow of subsidy from a fund
created by levying a universal charge, set by the electricity regulator, on electricity
users.
Any investor intending to enter the off-grid business would need the start-up
capital and the ability to take risks in the new business. The seed capital is an early
stage finance mechanism for this purpose that is used to convert an idea to a new
business, particularly in the case of small and medium sized businesses. Sonntag-
O’Brien and Usher (2004) reported that E+Co is a specialized entity in respect of
renewable energy business. Although venture capitalists play an important role in
industrialized countries in taking risks of innovative businesses, the prospect of
persistently low returns in the off-grid businesses restricts the potential of venture
capital. Sonntag-O’Brien and Usher (2004) recommended that the donor agencies
should fill this gap instead.
In addition, Cabraal et al. (1996) indicate that private investors or agencies
involved in the service also used the following sources: (1) Equity or debt
financing by the government—In Mexico, the government provided for the initial
capital required for the equipment either through an equity contribution or through
a loan; (2) Asset-based lending—Investor borrowed funds from banks or financial
institutions by mortgaging its PV assets or other assets. The limited size of these
assets however, restricts the loan amount. Banks often require other security to
reduce its risk exposure, thereby making the borrowing unattractive for the
investor; (3) Non-recourse financing—This follows from the project finance
literature where the company borrows money based on its project cash flows
instead of relying on the parent company’s balance sheet. However, it is noted that
this option has been rarely used but the Rural Electrification Co-operatives in the
Philippines raised funds through this mechanism from the National Electrification
Administration; (4) Supplier credits—PV suppliers offer credits to dealers or
aggregators to improve the cash flow for a short period. Generally, these credits
tend to be short (six months or so). Indonesian PV companies received such
supplier credits.

5
EnDev is a joint programme of the Dutch and German governments to enhance access of energy in
developing countries. EnDev aims to provide access to 5 million people in rural areas and is being
implemented by GTZ and SannterNovem. The programme started in 2005 and has undertaken 23
projects covering cooking energy, lighting, energy for productive use and for social infrastructure.
More information is available at http://www.senternovem.nl/energising_development/general_
information/index.asp.
246 S. C. Bhattacharyya

Once a business starts operating, its operating capital needs increase to meet the
short-term and long-term capital needs. Sonntag-O’Brien and Usher (2004) indi-
cate that very few commercial lenders provide funds to off-grid electricity busi-
nesses and consequently, support mechanisms are required in the form of ‘‘lines of
credit, credit enhancements for loan provision and SME growth capital funds.’’
Reiche et al. (2000) present a review of off-grid rural electrification experience
in developing countries especially through the World Bank initiatives. They
suggest that if governments want to reach the poorest section of the population,
subsidies perhaps cannot be avoided but these have to be well targeted and
appropriately designed to avoid market distortions. Based on a case study of
Nepal, Mainali and Silveira (2011) argue that there is still a huge affordability gap
amongst rural poor and therefore subsidy plays an important role. But the subsidies
may be attracting new suppliers in the market and may not be creating a sus-
tainable business model.
World Bank (2008) suggests that to become sustainable an off-grid project has
to be beneficial to all main stakeholders—consumers, service providers, financiers
and government. It should consider the government’s intentions, subsidy
commitment, and regulatory rules; promote productive and institutional energy use
that generates income opportunities; and take the possibility of international
co-financing into account.
World Bank (2008) acknowledges that designing an off-grid system is not an
exact science—it is made more complex by a combination of factors including
among others high cost, poorer consumers and new technologies. It also suggests
that the question that requires investigation is how and when an off-grid invest-
ment complements grid expansion. It recognizes that although a few off-grid
operations are commercially viable (example include PV in China and Kenya,
some PV operations in India, pico-hydro in Laos and Vietnam and micro-wind in
China and Mongolia), most off-grid electrification may require subsidies. There-
fore, enhancing affordability through subsidies, consumer financing, low-cost
technology options and policies and business practices is important. Further,
financing arrangements can complement subsidies. International co-financing such
as through GEF, CIF, and CDM can help. By increasing the size of the consumer
base through micro-finance, the affordability and viability of projects can be
enhanced. Duty or import tax waiver or reduction and avoidance of multiple taxes
are commonly used in this respect.

9.4.2 End-Use Level Financing

The issue of end-use financing is not a new one. Cabraal et al. (1996); Wang
(1998); Reiche et al. (2000) provide a review of practices in the 1990s and
discussed alternative types of financing arrangements. Sonntag-O’Brien and Usher
(2004) also provide a review of alternative end-users financing options. These
include:
9 Financing Electrification and Off-Grid Electricity Access Systems 247

1. Small-scale lending: where multilateral lenders provide funding to organizations/


agencies with adequate institutional arrangements for administering the financ-
ing programme. UNDP/World Bank, GEF and other government funds (e.g.
Netherland’s project Finesse) come under this category. Under Finesse, multi-
lateral lenders provide loan to a local agency that retails the loan to end-users;
2. Micro credit—Because the cost of SHS is generally high compared to a rural
household income, availability of consumer credit facilities is an important
aspect. Wang (1998) reported that an Indonesian company, Sudimara Solar
operated customer financing scheme and achieved a 100 % pay-back record.
See Box 9.2 provides further details on micro-financing6;
3. Leasing arrangements—Here the company supplies the SHS with upfront
investment and receives a monthly charge from the consumers towards recovery
of the cost. The system remains the property of the company. Wang (1998)
reported that such a system was operated by Soluz in the Dominican Republic.
Often Energy Service Companies (ESCO) follow this approach as through
aggregation of demand the company obtains a better deal from the lenders and
appliance suppliers while the consumers benefit low rental charge;
4. Revolving funds: These funds are generally provided by philanthropic orga-
nizations or donors and are operated by community-based organizations that
lend funds to individuals often at a favourable rate than the banks do. Initial
seed funds are provided to install systems and repayments are then used to
finance more systems. This has been generally used in the initial stages of
projects such as Enersol NGO in the Dominican Republic; Solanka NGO in Sri
Lanka; and the BANPRES project in Indonesia.

Box 9.2: Micro-finance schemes


Commercial banks and formal financial institutions often do not reach rural
and remote areas. An alternative has arisen in the form of micro-finance to fill
the gap. There is now considerable experience in using micro-finance for
development purposes and in enhancing energy access in developing coun-
tries. More than 500 million people in the world now have access to micro-
finance (Morris et al. 2007). Microfinance organisations have developed a
number of arrangements (Morris et al. 2007):
1. Financing provided hand-in-hand with technical support: In this
arrangement, the micro-finance organization enters in an association with
the service provider and work towards a common goal of providing a
complete package of product sale backed by a tailored financial service.
This arrangement has been used in SELCO (an India solar energy
provider) and SEWA (a micro-finance organization).

6
See Morris et al. (2007); Morris and Kirubi (2009); Lipp (2001) for country cases and
examples.
248 S. C. Bhattacharyya

2. Energy companies lending directly—Some energy service companies


provide micro-finance directly to consumers by availing financial support/
resources from third-parties. This has been used in some Latin American
countries and in the Caribbean. The Soluz enterprises used this model.
3. Subsidies linked with microfinance—Micro-finance organizations often
receive subsidies or grants for onward lending to final users. Micro-
finance is also used to bridge the project cost and subsidies. SEEDS uses
this model and is participating in a World Bank supported project where
it provides 25–30 % of the energy access project costs.
4. Conventional loans—In this case, the micro-finance organization plays
the role of a conventional bank and provides small credits to consumers.
Amret in Cambodia relies on this form.
5. Bulk purchase of equipments for onward lending—Here an umbrella
organization procures the equipment in bulk and lends them to local
micro-finance organizations.
However, microfinance organizations also face a number of risks: finding a
suitable partner is not easy; as consumption-oriented loans are normally
based on credit-worthiness of recipients, mass-scale penetration of energy
consumption loans may be difficult; and the risk of non-recovery of energy
equipment cost.
Moreover, many countries do not have proper regulatory arrangements for the
microfinance sector. While such organizations emerge as informal activities,
there is also the risk of misappropriation of consumer money and quality of
services. Accordingly, Morris and Kirubi (2009) recommend that governments
should create enabling environment for microfinance sector and strengthen
monitoring, evaluation and disclosure of microfinance activities for energy.

UNDP (2011) reported that the projects reviewed in the report used a combi-
nation of end-user financing mechanisms. Table 9.3 presents a summary. It can be
seen that projects tend to rely on a combination of instruments that are appropriate
locally. In most cases direct subsidy (capital and in some cases energy-related)
forms an integral part of the end-user financing mechanism for enhancing energy
access. However, the issue of ensuring financial sustainability of the business
enterprises and the burden on government budget cannot be overlooked.
There is also some suggestion that a premium renewable energy tariff scheme
along the lines of feed-in tariff can be used in rural mini-grid systems. Moner-Girona
(2009) provides such an argument and shows that it can be a viable alternative.
However, it is not known whether such a system has been applied in reality yet.
To conclude, both upstream and downstream financing options play an important
role for off-grid electricity supply. Rapid expansion of off-grid electricity supply in
remote rural areas would require expansion of financial services and financing options.
While upstream finance receives greater attention, sustainability of the electrification
9 Financing Electrification and Off-Grid Electricity Access Systems 249

Table 9.3 End-user financing mechanisms used in energy access projects


Project Financing mechanism
name
User Direct Micro- Loan Retailer Fee for
contribution subsidy financing finance service
DPBURC X X X
China
project
StoveTec X X X
Tide India X X X
RGGVY X X X
IWM Nepal X X X X X
BSP Nepal X X X X
REDP Nepal X X X X
RERED Sri Lanka X X X X
Sunlabob Lao PDR X X
Source UNDP (2011)

efforts would also require a greater attention to downstream activities. Balancing these
challenges would require involvement of multiple stakeholders—government,
financial organizations, microfinance organizations and energy suppliers.

9.5 Conclusion

Renewed focus on universal energy access in recent times has necessarily brought
the underlying financial challenge to limelight. Although the estimates vary from a
low of $11 billion per year to $ 120 billion per year with a mid-range value of
$50–60 billion for the next two decades, the size of investment required is
significantly higher than traditional levels for energy access provisions. The
funding gap will be more acute in least developed countries where the energy
access level is very low and where the traditional barriers to investment are more
profound. This review highlighted that even the multilateral funding agencies
actively involved in development of poorer countries have not paid adequate
attention to energy access funding and have focused on large projects and large
countries. There is an urgent need to redress this bias.
Our review also highlights that the development assistance will not be sufficient
for promoting energy access. Despite pledges for support to noble causes, the
developed country funding constitutes only a small fraction of the overall financial
resources. Given the unfavourable economic condition in many developed coun-
tries at the moment and aid fatigue, one cannot solely depend on such sources.
Developing country governments and the private sector will have to play an
important role. Governments would have to commit not only funds but also create
an enabling environment for private businesses, micro-finance organizations,
and management and implementation of energy access activities in a timely and
250 S. C. Bhattacharyya

orderly manner. Removing barriers to investment and business promotion,


and supporting innovative approaches through collaboration, learning from others
and experience sharing will be very essential.
In this respect, the issue of south–south co-operation cannot be overlooked.
A lot of experience and innovative approaches are being used in the developing
world that can be easily tried and replicated in other contexts. Similarly, the
financial support from developing countries itself can be an additional source of
finance. Already, China has been actively involved in many infrastructure devel-
opment projects in Africa. Although China’s investment is flowing to resource-rich
countries (often rich in petroleum resources), some future support to energy access
from China and other developing countries may be possible.
Although carbon finance and such innovative mechanisms have not played a
major role in energy access so far, the carbon market is likely to grow in the future.
Creation of new climate funds (such as Green Investment Fund or Climate
Investment Fund) and inclusion of energy access of least-developed countries in
their remit can help but the barriers related to transaction costs and complex
processes cannot be overlooked either.
Overall, the challenge to financing energy access remains a major global issue
and requires a concerted effort of all stakeholders to find tangible solutions to the
problem.

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UNDP. (2009). Charting a new low-carbon route to development. New York: United Nations
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Chapter 10
Regulatory Governance of Off-Grid
Electrification

Martin Minogue

Abstract The general principles of regulatory governance need to be understood


as models which may need adjustment to differing service contexts; this is par-
ticularly the case where, as with rural off-grid electricity, the service context is
defined as small scale and local, and is likely to be characterised by significant
deficits in infrastructure, resources, and institutions. The challenge then is to
construct an institutional framework that can provide an efficient service on an
inclusive social basis, while ensuring local accountability. This may sometimes
involve the need to create new institutions, whether of delivery or regulation, but is
more often likely to mean an adaptation and reinvigoration of existing institutions.
It is essential to go beyond narrower, ‘technical’ approaches to regulation since in
the public policy arena these are necessarily embedded in wider social and
political contexts. Specific policy initiatives such as off-grid rural electrification
will not succeed if these wider contexts are neglected in policy design and
implementation. This chapter presents general principles of regulatory gover-
nance; examines some of the analytical problems involved in arriving at an agreed
model; and assesses the issues of policy and practice that arise in relating existing
principles and models to specific initiatives and interventions in the field of rural
off-grid electrification.

10.1 Introduction

The design and delivery of an off-grid electrification project in rural areas is


inevitably shaped in the first instance by decisions about alternative technologies
and by financing requirements that flow from the chosen technical intervention.

M. Minogue (&)
University of Manchester, Manchester, UK
e-mail: martin.minogue@yahoo.co.uk

S. Bhattacharyya (ed.), Rural Electrification Through Decentralised 253


Off-grid Systems in Developing Countries, Green Energy and Technology,
DOI: 10.1007/978-1-4471-4673-5_10,  Springer-Verlag London 2013
254 M. Minogue

We might label these generically as ‘technical’ issues. Considering a range of


technical options, selecting a preferred option, designing a system for putting this
option into practice on the ground, will be highly rational activities, ordered and
conducted in a highly systematic way, and based on the best available information.
We might label this as a ‘rational model’ of technical planning, decision and design.
But in examining the context of the intervention we are obliged to take note of
implementation issues that may not readily conform to a rational and technical
approach. If the intervention is into an area of public policy and public gover-
nance, there is a considerable literature of practice, both in developed and
developing economies, to warn us to expect problems with both implementation
and outcomes: in brief, if attention is not paid to these anticipated contextual
problems, there is a substantial likelihood that the chosen technical intervention
either will fail, or at best will have unanticipated and unintended consequences.
These issues of context fall broadly under the umbrella of ‘regulatory gover-
nance’. Planning for the provision of a service to the public must incorporate the
idea of regulation, both in terms of ensuring efficiency of provision and fairness in
pricing, and may also include ensuring equality of access. Regulatory governance
mechanisms are often deployed to define and protect these activities; often these
will constitute formal rules and procedures, developing into a regular practice based
on the interpretation of rules in relation to specific cases. But when the intervention
is in a rural area, and in countries with a prominent public policy development
agenda, the notion of regulatory governance must be considerably broadened.
Again, a substantial development literature tells us that first, there are numerous
types of state development agency likely to be active in rural areas, concerned with
organising, or stimulating and assisting, a range of economic and social activities,
including many dependent on forms of energy such as electricity. Secondly, a
leading role can be expected for local forms of state organisation, usually local
forms of government. Both types of state agency are involved in regulation and both
types constitute forms of governance. Inevitably, any specific technical intervention
(such as an off-grid electrification project) must take account of the existing set of
regulatory and governance agencies operating in the same policy space; indeed,
effective regulatory governance design for such interventions would entail con-
sideration of the participation of and potential relationships with such agencies.
This chapter begins by examining the definitions and principles of regulatory
governance that are conveyed by an extensive literature drawn mainly from
developed economy policy and practice; considers analytical and policy issues
identified in the literature; and goes on to consider the relevance of these models for
off-grid electrification interventions in the rural sectors of developing economies.

10.2 Defining Regulation

Interest in regulation as a mode of governance is now a central feature of the


literature on regulation in developed economies. Extending this area of study to
developing and transitional economies gives rise to problems in comparative
10 Regulatory Governance of Off-Grid Electrification 255

analysis. Two categories of problem are considered here: the problem of contested
definitions, arising in part from the intervention in the traditionally economic
literature of disciplines such as law and political science, and the problem of
scope, which remains ambiguous because of the difficulty of separating out reg-
ulation from the normal range of state activities.
According to the OECD (1997), regulation refers to the diverse set of instru-
ments by which governments set requirements on enterprises and citizens. Reg-
ulation includes laws, formal and informal orders and rules issued by all levels of
government, and rules issued by non-governmental or self-regulatory bodies,
which enjoy delegated regulatory power: ‘Constitutions, parliamentary laws,
subordinate legislation, decrees, orders, norms, licenses, plans, codes, and even
some forms of administrative guidance can all be considered as regulation’ (OECD
Council document, quoted in Black, 2002:9). In this approach, regulation is
straightforwardly based on rules which may give strict directives, or be broadly
enabling in ways which permit further negotiation; rules may also be framed in
ways which concede discretion over their detailed application. Any enquiry into
rulemaking must establish what are the institutions of rule-making, who are the
rule-makers, how rules are implemented, and by whom, and the forms that com-
pliance and accountability take (Ogus 2002).
Another simple yet broad definition (Hood et al. 1999) takes regulation to be
‘the use of public authority to set and apply rules and standards’ (ibid: 3). The
authors, however, make a distinction between the regulation of business (private,
non-state activities) and regulation inside government (within and between gov-
ernment agencies, and between different levels of national government). They
essentially regard the principles of regulation to be the same in either the public or
the private sectors, or indeed in any combination of these sectors as represented,
for example, by public–private partnerships, or contracting arrangements, or sit-
uations where there may be some form of regulation common to both sectors (e.g.
medical professional self-regulation).
These simple definitions seem to lead to a straightforward set of research or
analytical questions, but in relation to the governance and policy processes even of
developed countries they are questions to which we frequently do not have clear
answers. The problem here is that there are different approaches to the notion of
what constitutes regulation. As Ogus (2002) makes clear, much of the literature
provides a formal and legalistic definition which focuses on the construction and
application of rules, while for many economists, regulation is primarily the means
by which private firms are constrained from anti-competitive behaviour. Corre-
sponding to the legalistic approach is the traditional view of government as a
command and control regime operating in a precisely defined public interest, while
the second view leads to a focus on the way in which regulation creates the
conditions for efficient markets. The definition offered by a leading analyst of
European regulation of ‘sustained and focused control exercised by a public
agency, on the basis of a legislative mandate, over activities that are generally
regarded as desirable to society’ (Majone 1996, p. 9) appears to take in both
meanings, but is still too narrow since regulation is often derived from sources
256 M. Minogue

other than a legislative instrument, and because the definition still leaves a
question mark about who makes formulations of what is regarded as desirable for
society, i.e. the public interest. Since ‘regulation is seen both as a form of public
policy and as a means of constituting markets’ (Wilks 1996, p. 536), we need an
approach which on the one hand captures the multi-layered nature of institu-
tionalised regulation, and on the other leads us into an exploration of the way in
which ‘the dark world of politics sullies the purity of markets’ (McGregor et al.
2000, p. 2). Even the narrower approach concedes that ‘because regulation
redistributes resources and rents, politicians often use it to secure political gains
rather than correct market failures’ (Guasch and Hahn 1999, p. 137).
Black (2002) attempts to bring together these contrasting approaches, and notes a
range of meanings given to regulation, starting with ‘the core understanding that
many have ’of control-and-command regulation, seen as ‘regulation by the state
through the use of legal rules backed by (often) criminal sanctions’ (Black 2002, p. 2).
The well-known failures of this model are rehearsed: instrument failure, information
and knowledge failure, implementation failure, motivation failure, and capture fail-
ure. Black is concerned to counterpoint this model with one of ‘decentred regulation’,
dependent on notions of ‘complexity, fragmentation, interdependencies, ungovern-
ability, and the rejection of a clear distinction between public and private’
(Black 2002). Regulation is a complex interactive process which is ‘co-produced’.
All actors have needs and capacities and ‘solutions’ emerge from a mutually
dependent relationship. This complexity is further affected by changes in the public–
private set of relationships so that ‘Governance, and regulation, is seen by some to be
the outcome of the interaction of networks…which operate in the absence of formal
governmental or legal sanction.’ (ibid:6).
We may conclude from this review of definitions that there are alternative and
therefore contested definitions of regulation. We are free to choose between these,
but our choices are likely to be determined by disciplinary settings and prefer-
ences, rather than by some neutral process of agreeing on one ‘best’ definition.
Economists will mainly choose a narrow definition which reduces the complexities
to be handled and focuses almost exclusively on economic agents and economic
outcomes. Moreover, the focus will be overwhelmingly on economic policy issues
rather than social policy issues, though it is by no means easy to maintain such a
clear distinction. On the other hand political and social scientists interested in
regulation can be expected to prefer the broader, more inclusive definition. At the
policy level, the analysis of specific sectoral regulation, to be complete, requires
consideration of the processes involved. Essentially, these are standard processes
of public policy, which involve examination not only of policy design and deci-
sions, but of implementation; while studies of implementation require consider-
ation not only of impact, but of results and outcomes. Invariably, such studies
demonstrate an implementation gap or deficit together with a range of unintended
consequences which produce outcomes at variance with those expected or inten-
ded. In a textbook policy system an evaluative procedure would close these gaps
and adjust policy objectives to learned experience; but in real policy systems this
10 Regulatory Governance of Off-Grid Electrification 257

rarely happens. Generally a process of incremental adjustment takes place over


quite long time-scales. As Hood (1976) has demonstrated, such adjustment is
principally conditioned by political factors.

10.3 The Scope Of Regulatory Governance

Recent literature on regulation in developed economies, more particularly in


Europe, reflects this type of policy based conceptualisation and has produced the
prevailing terminology of ‘regulatory governance’, ‘regulatory politics’ the ‘reg-
ulatory state’, and ‘regulatory space’ (see especially Majone 1999, 1997; Hansher
and Moran 1989; Wilks 1996; a more detailed survey of this literature is in
Minogue 2001). What are the implications here for the scope of studies of regu-
lation? Put in the simplest way, regulation (within any of the meanings examined
earlier) must operate within some sort of governance framework, which in turn
becomes part of the necessary scope of enquiry. This framework will incorporate
institutions and processes of both public and private decision-making, the
assumption being that at many points the private domain is subject to control,
intervention and influence by the public domain. This gives rise to some uncer-
tainty about the precise scope of regulation itself, the problem being to distinguish
it sufficiently clearly from the rest of what government does.
Hood and Scott (2000) coin the term ‘the regulation of government’ as one that
links the ‘regulatory state’ and the ‘new public management’ state, defining a
regulatory state as ‘one that puts heavy emphasis on rule-making, monitoring and
enforcement…rather than on subsidies, direct ownership or state operation (Hood
and Scott 2000, p. 2).They concede that ‘the link between ‘regulation’ and other
activities in government is admittedly a fine one’ (ibid:5), but assist us greatly by
providing a definition of ‘regulation inside government’ as one that must satisfy
three main criteria:
1. One public organisation (or part of it) is attempting to shape the behaviour of
another public organisation (or part of it)
2. There is some form of arms-length separation between the two (i.e. there is no
co-existing managerial or hierarchical relationship)
3. The regulating body has some formal authority for its regulatory oversight
Hood and Scott suggest that the regulatory problems inside government are
much the same as for independent regulation, particularly in terms of information
asymmetries, relational distance, and compliance costs. One implication is that we
can usefully examine the ‘regulatory state’ as an interactive public policy system.
Here we might note Majone’s focus (in a European context) on the extensive
delegation of policy making powers to what he describes as non-majoritarian
institutions, by which he means the various new regulatory bodies but also judi-
ciaries, tribunals and other regulatory and adjudicative agencies intrinsic to the
public sector (Majone 1996). Majone concludes that in designing an effective
regulatory state the key variables are
258 M. Minogue

1. The extent to which decisions are delegated to an independent agent rather than
taken by the political principal
2. The nature of the structure of governance itself, in particular in determining the
agent’s degree of independence from the political process
3. The rules that specify the procedural framework e.g. reason giving require-
ments, consultative processes
4. The scope for political principals to overrule agency decisions
5. The relative autonomy of financial resources
6. The extent of ex post monitoring, e.g. legislative oversight, judicial review,
citizen’s complaints procedure
What is striking here is the way Majone moves between the narrower con-
ception of regulatory instruments and procedures, and the broader conception of
politics in ways which underwrite the usefulness of the label ‘regulatory gover-
nance’. This means looking behind the institutional façade to grasp the ‘real world’
of public action. The orthodox model, with its emphasis on legal rules, formal
structures of organisation, rational policy choice, and the assumed implementation
of formal policies, has serious limitations, for it oversimplifies the complex pro-
cesses from which policy debates and decisions emerge; and neglects the political
discourse of rule-making and rule-application, notably the interplay of ideas,
interests, and resources, and the ways in which these interactions determine out-
comes. It therefore fails to explain either policy and organisational failures, or
policy innovations and successes, and obscures both the significance of relations of
power and influence, and the extent to which public policies and their results are
determined by conflicts and bargains between conflicting stakeholders, whether
internal or external to public bureaucracies.
This survey of the scope of regulatory governance indicates how far the debate
on regulation has moved on from the rather straightforward post-privatisation
debate to a more complex discussion of what has come to be labelled ‘the regu-
latory state’, but this too readily implies a replacement of other types of state, such
as the ‘traditional’ state, or the ‘welfare state’, or the ‘enabling state’. These are all
crude labels, and in reality we are likely to find elements of each, and of the
regulatory state, present in any particular national state we choose to examine.
Perhaps this is why the notion of ‘regulatory space’ has been deployed. Drawn
from the prior notion of ‘policy space’ in public policy studies, ‘regulatory space’
offers a canvas onto which we can paint a variety of occupants and their relational
configuration; their provenance as state, non-state or hybrid actors matters less
than their activities, transactions, motivations, and power or influence. Central to
this approach to regulatory governance is work which focuses on institutions.
A major contribution here is by Douglass North (1999, 1991, 1990). North
defines institutions as ‘the humanly devised constraints that structure political,
economic and social interaction’ (North 1991, p. 97). Institutions include both
informal constraints and formal rules and evolve incrementally, connect the past
with the present and the future, and provide the incentive structure of an economy.
In this analysis individuals shape institutions and vice versa. This approach links to
10 Regulatory Governance of Off-Grid Electrification 259

ideas of policy space, of the path dependence of specific political economies, and
of policy reversal or lock-in. North’s work has informed a number of contributions
to regulatory governance. Resonating North’s concepts of new institutionalism
Levy and Spiller (1996) argue that policy-makers’ choices on regulatory gover-
nance and regulatory incentive structures are determined by a country’s specific
institutional endowment which has five elements
1. Formal legislative and executive institutions and mechanisms
2. Formal judicial and legal institutions and mechanisms
3. Custom and other informal but broadly accepted norms that may restrain the
actions of individuals or institutions
4. The character of contending social interests within a society and the balance
between them, and
5. The country’s administrative capabilities
Stern and Cubbin argue that ‘there is very strong agreement between the var-
ious authors as to what good governance entails: they all emphasise clarity of
assignment of functions, regulatory autonomy, accountability, and transparency’
(Stern and Cubbin 2005, p. 7). As Levy and Spiller (1996, 1994) emphasise,
regulatory designs, practices and outcomes are a function of institutional endow-
ments and realities and these may vary from country to country. Stirton and Lodge
see the regulatory process as ‘characterised by an interplay of interdependent (state
and societal) organisation interests with varying degrees of power and resources
each of which is competing for influence over outcomes. In short, regulatory space
is characterised by social relations among actors’ (Stirton and Lodge 2002, p. 13).
They combine the notion of the ‘embeddedness’ of institutions drawn from
Granovetter (1985) with the concept of regulatory space and the idea of trust to
argue that the way in which social relations within regulatory space are structured
‘affects the institutional capability of regulatory agencies, potentially providing
further, societal, protection against the dysfunctional regulatory outcomes of
capture or administrative expropriation (Stirton and Lodge 2002, p. 14).

10.4 Towards More Responsive Regulation

In sum, analysis of regulation involves analysis of ideas, institutions, processes,


activities, and actors, in all their myriad interrelationships in economic, social and
political spheres. The conceptions of the regulatory state and regulatory space offer
us the broadest possible analytical framework, in direct contradiction to the narrow
formulations favoured in the standard literature on regulation, and so capably
criticised by Black (2002) for its preoccupation with the correction of market
failure, when wider issues of the management of a risk society, and the achieve-
ment of social justice, should be equally insistent concerns. Moran agrees that
effective regulation ‘in conditions of great complexity depends on fostering norms
260 M. Minogue

among the regulated such that they will voluntarily comply, and depends upon the
creation of a constant dialogue between regulators and regulated.’ (Moran 2002,
p. 6). Braithwaite argues that we have moved to ‘a world where private powers
pose many more threats to liberty than public power’ and that accordingly we need
to escape from traditional forms of political accountability, since these ‘cause
regulated actors to work defensively to avoid blame, instead of for achieving
valued outcomes’ (Braithwaite 1999, p. 91). But this approach appears to beg
two questions. First, who decides what the appropriate norms should be, or
which values should inform what outcomes? If these norms and values are
pre-determined, then they will have to be imposed, which will invite strategies of
avoidance; if they depend upon dialogue, they will represent a negotiated bargain,
and opportunities for capture. As Moran admits, ‘non-formal modes of regulation
are themselves subject to the same sort of destructive influences as afflict formal
modes’ and both ‘are undermined by the creativity of strategic actors searching for
advantage’ (Moran 2002, p. 7).
What is missing from most accounts of regulation is understanding of the
cultural elements that are essential to explanations of social behaviour, whether in
general, in national systems, in organisations, or in particular groups; and of
interactions and transactions between these various entities. This explanatory
mode is well understood in social science, but is often neglected by the economists
and lawyers who dominate the regulation literature. Baldwin and Black (2007)
seek to redress this neglect in proposing the idea of ‘really responsive’ regulation.
They centre their argument on the significance of social mechanisms and insti-
tutions which inspired Ayres and Braithwaite’s (1992) concept of responsive
regulation in which they condemned as sterile the futile dispute between ‘deter-
rence’ and ‘compliance’ models of regulatory enforcement and searched for a
balance between these two systems. The crucial question for Ayres and Brai-
thwaite was ‘when to punish, when to persuade?’. Their prescription was a
responsive approach in which regulators enforce initially by compliance strategies
but are ready to move on to more punitive deterrent responses if needed. They
suggested the need for a regulatory agency to operate an ‘enforcement pyramid’
ranging from persuasion to penalties, and escalating in response to regulatory
failures. Baldwin and Black (2007) argue that this approach is persuasive where
there is a clear binary relationship between regulators and regulated, but that in the
more complex situations to be found in most regulatory systems, it may be too
inflexible. In practice, they suggest, ‘regulatory objectives are not always clear and
legal powers may be limited. Enforcement functions are often distributed across
numbers of regulators who struggle to coordinate their activities. Further, it is
often extremely hard to measure the success or failure of regulation’ (Baldwin and
Black 2007, p. 1). They regard existing models of regulatory enforcement as
unhelpful to regulatory policymakers: ‘neither responsive regulation nor the target-
analytic approach, or even risk-based regulation, say a great deal about how a
regulator should deal with resource constraints, conflicting institutional pressures,
unclear objectives, changes in the regulatory environment…’(ibid:3)
10 Regulatory Governance of Off-Grid Electrification 261

The literature surveyed so far is based on theories, models and practices drawn
principally from developed economies. This chapter now considers applications to
developing economies.

10.5 Regulatory Reform and Policy Transfer

In considering issues raised by the notion of policy transfer from developed to


developing economies Cook and Minogue (2003) suggest that the conditions
which the ‘best practice’ model of regulation assumes include
1. A stable macroeconomic environment, to reduce uncertainty in economic
decision-making
2. A redistributive tax base, to fund strong social protection arrangements through
a well developed social security system
3. A rules based system supported by an effective legal infrastructure and the rule
of law
4. A transparent and accountable public policy process
5. A clear separation of administrative and political roles within a democratic
constitutional framework
6. Appropriate financial and human resources to ensure that regulatory agencies
can work effectively
Reformers in this field are still inclined to proffer models based on conditions
and practices such as these in high income economies, then become frustrated
when such models do not seem to work elsewhere, or not in the ways anticipated
and intended. There is a reality gap here between textbook ideas of best practice,
and the actual legal, administrative, political, and economic processes that exist in
low and middle income countries. A good example is afforded by the principle of
accountability.
Accountability is a central element in regulatory governance, since improved
accountability and transparency are usually posited as key objectives of regulatory
reform (assuming this to be defined as re-regulation rather than deregulation). The
neoliberal version of accountability with which current regulatory reform is so
closely implicated rests on evaluation of performance against pre-set standards or
targets, and offers incentives to managers as well as some loosening of the tra-
ditional restraints. While financial and procedural accountabilities can be brought
within such a framework (and improvements here would undeniably be a gain) it is
a framework which sits uneasily with developing country governance. The degree
of managerial and institutional autonomy involved and reliance on a competitive
model of public service delivery, assume the existence of market and civil society
institutions which in many developing countries are more notable for their absence
or deficiencies. Moreover, while the advantages of autonomous regulatory agen-
cies standing at arms length from state political control and intervention are
obvious, there are serious disadvantages too, including the reduction of political
262 M. Minogue

accountability, and fragmentation at the heart of governments already suffering


problems of institutional incoherence. In the political conditions of developing
countries we cannot expect significant public agencies to operate as though politics
did not exist, as the practice of privatisation has demonstrated (Ramamurti 1999;
World Bank 1995). Moreover, giving to the managers of regulated services
simultaneously more discretion and more financial responsibility appears to put
in place precisely those conditions which may lead to increased corruption
(Harriss-White and White 1996); while giving more autonomy to regulators (by
taking them outside government frameworks) is unlikely to reduce regulatory and
political capture where constitutional, legal and public interest mechanisms of
accountability offer no protection (Ogus 2004). As limited experiments with
executive agencies in developing countries have shown, where there is a conflict
between economic efficiency objectives and the internal dynamics of political
governance, the imperatives of politics will usually prevail (Harrison 2001;
Therkildsen 2000). One conclusion we might draw here is that in developing
economies accountability finally is likely to be underwritten less by formal
institutions than by relations of trust, the argument that now makes the running in
the regulatory literature in developed economies too, as discussed earlier (Baldwin
and Black 2007; Braithwaite 2006).
Some of these elements are highlighted in the findings of the Regulatory
Governance Research Programme of the Centre on Regulation and Competition
(CRC) at the University of Manchester, derived in part through its network of
research partners in both developed and developing economies. This research
focussed on issues of regulatory governance and post-privatisation reforms and its
findings (presented in detail in Minogue and Carino, 2006) may be summarised
briefly as follows:
1. There are serious gaps in our knowledge and understanding of governance
process in developing economies; these governance structures and processes
appear to serve a range of objectives other than efficiency; correspondingly, due
attention to process, i.e. how things really work in practice, is essential to
effective governance reform.
2. Transferred ‘best practice’ models demonstrate clear adaptive variations in
different countries, and it is likely that the ‘blind’ importing of these models
from developed economies will be counterproductive where no account is taken
of differences in legal infrastructure, bureaucratic culture, market realities, and
political values.
3. Regulation inside government remains widespread and this will bring resistance
to stereotypical regulatory reform.
4. A key task is to design governance reforms so that opportunities for corruption
are minimised rather than enhanced.
5. Political institutions and relationships constitute a primary operating context for
economic reforms; but these political factors are frequently neglected or
inadequately understood by external economic policy actors; in this respect the
rhetorical nature of political commitment to such reforms is consistently
10 Regulatory Governance of Off-Grid Electrification 263

underestimated. Well-organised and institutionally entrenched political inter-


ests will often succeed in controlling or subverting economic agencies; none-
theless, authoritative and stable political interests can be a driver for economic
reforms.
6. Market reforms of basic public services are likely to meet political and user
resistance if they reduce access, affordability, and quality; the impact of these
reforms on poor communities is inadequately understood.
These findings demonstrate that significant constraints on efficient and effective
policy and administration flow from the cultural characteristics of the government
system, and the primary political context within which government operates. We
need to understand better how these political, bureaucratic and cultural factors
impede effective regulatory reform. We also need a better understanding of the
role and operation of legal institutions and actors in regulatory systems that are
politically and behaviourally constrained. There is therefore a link between general
public management reform and regulatory reform, in the sense that the effec-
tiveness of any area of public policy, including economic policy, will be deter-
mined by whatever are the bureaucratic and political constraints and weaknesses
inherent in the general system of governance. Political factors may be taken in
principle to represent an opportunity for commitment to effective reforms but are
just as likely to be a potential source of inhibition. The tension between efficiency
objectives and political imperatives is clearly marked, and is itself responsible for
the relatively slow progress of institutional reforms.
Two examples may be cited here. First, Knight-John (2007) demonstrates in a
study of regulatory impact assessment in Sri Lanka (or rather, its absence there) that
regulatory weaknesses in Sri Lanka are explained by a flawed institutional frame-
work, the absence of an explicit regulatory policy, and poor governance. This latter
characteristic leads to easy regulatory capture by interested parties, even raising the
possibility that regulatory capture has deliberately been built into the system. Where
formal institutions of regulatory accountability exist, they largely constitute a faç-
ade concealing the de facto politicisation of the regulatory process. In such condi-
tions, regulatory tools such as regulatory impact analysis are unworkable.
A second study, one that illustrates the crucial effect of politics on privatisation
strategies and outcomes is provided by Smith (2003). His comparison of the
privatizations of electric power in Malaysia and Thailand argues that:
1. In both countries, restructuring and privatisation of the electricity sector has
‘dramatically changed the nature of governance’ of this sector
2. Strong government leadership in Malaysia meant rapid privatisation, while
weak coalitions in Thailand meant slow and contentious progress
3. In both cases, restructuring was used to reward political supporters
4. The strength of labour unions in Thailand meant resistance to reforms but also
ensured a more open and responsive policy process; in Malaysia, on the other
hand, there was a rapid implementation but a closed policy process, ‘the net
result of which has in fact been a reduction in competition, increase in charges,
and consumer complaints’ (Smith 2003, p. 282).
264 M. Minogue

These cases illustrate the impossibility of designing and introducing rational


economic reforms without regard to the bureaucratic and political contexts which
ultimately determine how and whether economic (and indeed managerial) measures
work out in practice; they also imply that while politically contentious debates over
privatisation and regulatory reforms may slow down the pace of reform, the benefits
derived from a more open and transparent process may ultimately produce more
effective outcomes. Hood is right to warn against what he calls ‘fatal remedies’
(1998, p. 208), because of the tendency for idealised modernisation initiatives to
produce perverse and unexpected results. Overall, then, attempts at ‘policy transfer’
of the privatisation and regulation model of economic reform have run into serious
problems of cultural reception. Many of the countries concerned acknowledge the
necessity for less wasteful government bureaucracy and less stifling forms of tra-
ditional government regulation, but feel compelled to retain other developmental
agendas, including response to the basic social needs of most of their citizens (an
excellent example is South Africa). Some countries are characterised by political
systems that give priority to political agendas and tend only to pay lip service to aid
donor preferences (Malaysia may be a good example). Others have neither the
financial resources nor political will (or stability) to undertake reforms effectively
(Philippines is an exemplar despite its excellent levels of human and social capital).
Perhaps the simplest point to make here is that where the neoliberal model has the
characteristics reform of a uniform prescription and blueprint, local cultural vari-
ations mean that each transfer will be made into unique social, political and legal
and administrative contexts, and will end either in being rejected, or converted into
some kind of hybrid, with the consequences generally unpredictable in advance.

10.6 The Politics of Electricity Regulation: The Case


of India

The overall thrust of this comparative analysis of regulation has been to emphasise
that regulatory governance is much more than a technically narrow field in which
specific regulators pursue their legal jurisdictions, and focus primarily on questions
of pricing and investment. Public services, whether electricity or any other, are
designed and delivered in the context of a state which will have developmental
social objectives as well as more traditional functions. Inevitably in a develop-
mental state there will also be a major policy focus on social justice, conceived in
part as the necessity to provide for the access of the poorer sections of society to
basic goods and services. In this respect, regulators may also be given wider social
objectives to meet by ensuring access to and affordability of the services they
regulate: food, water, health and energy provision are the most clear-cut cases.
What the findings on regulation and regulatory governance tell us is that reg-
ulators will operate in an unavoidably political arena, and that both bureaucratic
and political factors will affect the ways in which regulators can carry out their
tasks. Some weaknesses in regulatory systems will be found to be a question of
10 Regulatory Governance of Off-Grid Electrification 265

basic institutional weaknesses: poor financial resources, inadequate human


resources, conflicting jurisdictions. But the overarching problem is likely to be the
existence of political interventions and interactions which amount to ‘political
capture’, linked often enough to the usual kinds of regulatory capture by target
groups, and in its worst forms to corrupt practices. Ample evidence of this kind of
political influence is to be found in both developed and developing states.
A recent study provides an interesting insight to how such factors operate in the
arena of Indian electricity regulation. The study, by Dubash and Narasimha Rao
(2007) is solidly based in three case studies of electricity regulation in Andhra
Pradesh, Karnataka, and Delhi. The intention is to examine the idea and practice of
independent regulation in the electricity sector. The main findings are:
1. Electricity reforms linked to a privatisation process are inherently political
: regulators are frequently drawn into conflicts with entrenched interests and
efficiency is sometimes undermined by political resistance, damaging regula-
tory credibility and weakening ‘independence’
2. The regulatory staffing selection process is often the object of political control
and intervention, driven by patronage considerations rather than the require-
ment for efficient, properly qualified and trained staff, leading to a poor outlook
for long term regulatory capacity building
3. The broad provisions of the Electricity Act (2003) make for ambiguity in
operating procedures, with no guidelines or ‘good practice’ norms to assist
regulatory decision making; but good practice procedures have been developed
around key regulatory functions such as investment planning and power pur-
chasing agreements
4. Regulators tend to take an ‘arms length’ approach to scrutiny, making only
limited use of their powers and inclined to avoidance of difficult problems:
‘well intentioned regulators have stopped short of asking larger questions that
potentially place them in conflict with entrenched and politically connected
interests’(Dubash and Narasimha Rao 2007, p. xiii)
The authors identify as key regulatory problems in Indian electricity regulation:
1. Deliberate avoidance by regulators of entrenched political interests e.g agri-
cultural users
2. Poor or weak compliance enforcement, where often ‘no regulator has been
willing to impose a penalty’ (ibid:38)
3. Regulators present as technical issues what are really political decisions e.g.
tariff setting and open access to services but ‘this fiction is hard to sustain’
(ibid:39)
4. Stakeholder participation is weak: ‘regulatory procedures for transparency and
participation are reasonably sound, but regulation of them is cursory and
ineffective’ (ibid:41)
Dubash and Narasimha Rao make recommendations for improved regulatory
governance which may be relevant to any new project. They recommend an
approach which
266 M. Minogue

1. Balances all acknowledged interests in any area of electricity provision, and


does not just leave the field to political interests
2. Ensures that regulation is used as ‘an instrument of deliberative governance’
rather than in a hands off, risk avoidance way
3. That there should be greater attention to consumer voice institutions, particu-
larly in the start up period of a project
4. And that there should be better procedures for access to documents and data,
and appropriate consultation processes
It is clear that such recommendations would have considerable relevance for
rural electrification policies and projects in India, including those related to off-
grid provision.

10.7 Towards a Policy Model for Rural Electrification

An interesting attempt is made in a World Bank report (Reiche et al. 2006) to


construct on the basis of several international case studies a model of policy and
practice for regulation in the electrification sector: this model is said to have
particular application to rural electrification. The report begins with two ‘golden
rules of regulation’
(a) What matters are outcomes(i.e. rural electrification) rather than rules
(b) The benefits of regulation must exceed the costs.
The report lays out the following principles
1. Light handed and simplified regulation
2. Provision for the regulator to contract out or delegate regulatory tasks to other
government or non-governmental entities
3. Provision for the regulator to vary the nature of regulation depending upon
what is being regulated
4. The establishment of quality-of-service standards that are realistic, affordable,
enforceable and capable of being monitored
The first principle (light handed regulation) is said to be essential for off-grid
operators for whom the costs of regulation may be crucial in determining com-
mercial viability. The approach is said to hold good regardless of whether the
regulated enterprise is privately, publicly, or community owned. The second
principle rests on the idea that ‘executive’ bodies such as, for example, a rural
electrification agency could be made responsible for traditional regulatory func-
tions because of the advantages of specialised knowledge, and because there are
likely to be closer working relationships with the regulated entities. The third
principle wishes to move away from the notion that one regulatory method fits all
circumstances, so allowing considerable variation according to the types of or-
ganisations which fill the regulatory space. The fourth principle emphasises the
10 Regulatory Governance of Off-Grid Electrification 267

neglect in regulatory systems of quality of service issues and permits variations in


quality between customer categories or geographic areas.
This approach, the report suggests, can be formulated through a model law
incorporating a number of standards about regulatory methods, tariff setting,
subsidies, quality-of-service, inter-agency coordination and model information
provision. The authors of the report are at pains to emphasise a) that this proposal
is based upon the examination of experiences with a number of experiments in off-
grid electrification and b) that these are not necessarily ‘best practices’ but may
better be described as ‘emerging practices’. But there is a genuine attempt in this
approach to recognise the needs for a hands-on, decentred approach to regulatory
design in relation to rural electrification, which to some degree falls under the
category of responsive regulation discussed earlier in this chapter. Of some interest
is the support for community-centred management both of the provision and
regulation of rural electricity. A problem here that needs further examination is the
opportunities such an approach might engender for regulatory (indeed, political)
capture. There also needs to be more attention to the possible effects of the ‘golden
rule’ that costs must not exceed benefits, for this may lead to the exclusion from
access of those(the poorest) who have most need of it; the case for subsidy of such
provision, and its regulation, should not go by default (see Mitlin 2004 for a
discussion of the pros and cons of subsidies to ensure accessible and affordable
public services for poor communities).

10.8 Lessons for Off-Grid Electrification Projects

Economic initiatives such as off-grid rural electrification are in effect new inter-
ventions in an existing local economy. But the objects of such interventions are not
only economic actors and agents; they are also participants in a set of local social,
administrative and political relationships. This provides, at the social level, an
opportunity to build or adapt local community organisations in ways which ensure
the sustainability of economic initiatives, and which crucially will go beyond
setting standards and gathering information, to modify existing economic and
social behaviour (Hood 1998), and so achieve effective change in the pursuit of
real economic and social improvements. Such forms of organisation may have
both managerial and regulatory capability.
A further institutional element to be considered is provided by the operation in
most rural areas of a wide range of potential institutions of regulatory governance,
including local government bodies, decentralised agencies of central government,
specialised development agencies, and even non-state ‘third sector’ organisations.
All may have regulatory potential, or already be carrying out regulatory responsi-
bilities in relation to communities that are the target of rural off-grid electrification
initiatives. It is therefore important to take account of the existing network of
governance institutions when designing new regulatory capacity, with the
268 M. Minogue

possibility that existing institutions may have the potential to take on new respon-
sibilities, privileging ‘adaptive’ rather than wholly innovative solutions.
Also of some interest is the support for community-centred management both
of the provision and regulation of rural electricity. This is by no means a novel
approach as indicated by Foley’s advocacy nearly two decades ago of the merits of
attention to institutional design which considered such alternatives as separate
rural electrification agencies, rural electrification cooperatives, and local com-
munity management (Foley 1992). But a problem here that needs further exami-
nation is the opportunities such an approach might engender for regulatory
(indeed, political) capture. What seems clear is the need for such institutional
design to be informed by some form of institutional mapping prior to decisions on
how off-grid electricity is to be provided, managed, and regulated. In effect, this
would entail a detailed analysis of all existing governance institutions in the target
‘regulatory space’, likely to be a village or other cluster of local communities. This
process of mapping would clarify how many institutions in this space already
possessed regulatory capabilities, whether there were likely to be any conflicts of
regulatory jurisdiction, and whether regulatory and socially developmental criteria
might be combined in one community-based agency. This mapping procedure
could also help to determine appropriate processes of consultation with existing
agencies, including political authorities such as local councils and representative
bodies; this approach should help to avoid overlapping jurisdictions and dupli-
cation of resources, while also ensuring that decisions about rural electrification
would take account of social needs as well as economic requirements.

10.9 Conclusions

The literature surveyed above suggests that the following elements of evidence-
based regulatory design should be incorporated into a model for regulatory gov-
ernance of off- grid rural electrification
1. A delineation of the ‘regulatory space’ for any specific supply proposal
2. Which means a process of institutional mapping inside that regulatory space
3. This to include identification of all public, private, or non-government bodies
involved
4. And the designation of all ‘stakeholders’ in the supply and regulation system
5. Which should also incorporate political and social interests, insofar as these can
be identified
This approach will provide the evidence on which regulatory design and reg-
ulatory choices can be based in specific local cases. But reliance on ‘stakeholders’
can be a two-edged weapon. Stakeholder analysis may usefully identify a range of
groups that will have an interest in off-grid electricity provision; but such groups
may resist or capture the intervention and its benefits. Indian-based research has
shown that politically powerful rural interests have often captured and neutralised
10 Regulatory Governance of Off-Grid Electrification 269

the regulator. On the other hand, as proposed by international agencies as the UN


and the World Bank, political interests may be persuaded or incentivised to play a
more positive and cooperative role. In this way it is possible that local institutional
and political interests may combine to support forms of community management
and regulation more likely to lead to productive and acceptable rural electrification
schemes. This approach would satisfy Levy and Spiller’s (1996) account of reg-
ulatory design, that it must relate to a specific institutional endowment charac-
terised by social and political norms and practices that can be used to ensure
credible and effective regulatory outcomes.

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Chapter 11
Regulatory Issues Related to Off-Grid
Electricity Access

Subhes C. Bhattacharyya and Stephen Dow

Abstract This chapter outlines regulatory issues related to off-grid electrification.


It first asks whether the sector has to be regulated or not. It then tries to find out
where regulation can be used and what type of regulation is appropriate. The
chapter considers different types of delivery options and tries to map service
functions and regulatory options. It also discusses some regulatory challenges and
issues.

11.1 Introduction

Various chapters of the book have considered the challenges relating to enhancing
electricity access in developing countries. One issue that has received limited
attention is the regulatory arrangements for governing off-grid electrification or
decentralized electrification. Yet, in order to enhance electrification through off-
grid access systems, a properly defined business environment is an essential
requirement, particularly when private participation is aimed at. As discussed in
Chap. 10, the regulatory arrangement has to be compatible with the existing
institutional arrangements. Similarly, the regulatory arrangement is likely to vary

S. C. Bhattacharyya (&)
Professor of Energy Economics and Policy, Institute of Energy and Sustainable
Development, De Montfort University, Leicester, UK
e-mail: subhesb@dmu.ac.uk; subhes_bhattacharyya@yahoo.com
S. Dow
Centre for Energy, Petroleum and Mineral Law and Policy, University of Dundee,
Dundee, UK
e-mail: s.r.dow@dundee.ac.uk

S. Bhattacharyya (ed.), Rural Electrification Through Decentralised 271


Off-grid Systems in Developing Countries, Green Energy and Technology,
DOI: 10.1007/978-1-4471-4673-5_11, Ó Springer-Verlag London 2013
272 S. C. Bhattacharyya and S. Dow

depending on the delivery mechanism chosen. Moreover, the delivery mechanism


can evolve over time and new delivery systems can emerge. Similarly, the off-grid
systems may become embedded in the central grid system eventually and the
regulatory arrangement needs to allow for such an eventuality. Path dependencies
of existing and new delivery systems, and their compatibility with the regulatory
environment raise some concerns about their acceptance and effectiveness.
Moreover, commercial viability of rural electricity supply and accordingly the
issue of long-term sustainability of delivery systems can be another source of
concern.
It appears that the regulatory issues related to off-grid electrification have
received limited attention. Only Reiche et al. (2006) have considered the issue in
detail while ESMAP (2001) and World Bank (2008) provide some references to
regulating these activities. The purpose of this chapter is to consider the regulatory
need and concerns of off-grid electrification in developing countries. Accordingly,
this chapter aims to analyze the following questions:
(a) To regulate or not to regulate off-grid electrification is the primary question.
Does decentralized electrification require regulatory supervision and if yes,
what should be the purpose of such supervision?
(b) What should be regulated and how would the regulatory arrangement differ
depending on the delivery system?
(c) What are the possible concerns or issues related to the effectiveness of the
regulatory systems?
The organisation of the chapter is as follows: Section 11.2 presents the business
activities undertaken through off-grid electrification and alternative delivery
mechanisms used to perform such activities. Section 11.3 considers whether to
regulate or not and how while Sect. 11.4 considers the regulatory functions.
Section 11.5 raises the issues related to subsidies and tariffs while the final section
provides brief concluding remarks.

11.2 Off-Grid Electrification Business Activities and Delivery


Options

As highlighted in Chap. 1 (see Fig. 1.6, reproduced as Fig. 11.1), decentralized


electricity supply takes two forms—individual solutions and collective solutions
(ESMAP 2001).1 The grid extension and grid-connected systems are not consid-
ered in the discussion below, although this represents the most common rural
electrification approach.

1
Alternative classifications are also possible but this simple categorisation captures the essential
elements of decentralised electricity supply.
11 Regulatory Issues Related to Off-Grid Electricity Access 273

Yes

No Yes

Yes

No

No

Fig. 11.1 Decentralised electricity supply decision tree. Source ESMAP (2001)

(a) Individual solutions normally involve sale of a product or a service that


enables individual users to produce or generate a small quantity of electrical
energy (often at a low voltage) to meet some basic household needs of lighting
or providing energy for running simple electrical appliances such as a tele-
vision, a radio or a fan or such items. Although the literature focuses mostly on
renewable technology options (such as solar home systems (SHS) or solar
lanterns or battery systems), petroleum-fuel based small generating systems
are widely used in many developing countries either as the principal source of
electricity or as a back-up system. The business activity generally takes the
form of an equipment sale, followed by a regular maintenance arrangement of
the equipment.
(b) Collective solutions on the other hand serve more than a single individual user
and provide electricity to the users generally by producing electricity locally
or by procuring electricity from other sources and distributing it amongst the
consumers. The service provider in this case undertakes the business activities
274 S. C. Bhattacharyya and S. Dow

Fig. 11.2 Typical distribution and retail supply activities of an electricity supplier. Source:
Bhattacharyya and Srivastava 2009

related to generation, procurement, distribution and sale of electricity. In


particular, the supplier invests in generating capacities, makes contractual
arrangements for procuring electricity, invests in the distribution network,
maintains the assets, and performs all relevant sales related functions (billing,
revenue collection, customer relationship management, etc.). Typical activities
involved in electricity distribution and retail supply are indicated in Fig. 11.2.
Different types of business arrangements can be used to deliver the product or
the service. For the product/equipment sale type of activity, four types of business
arrangements are commonly found, namely direct sales by dealers (on cash pay-
ments or for credit), fee-for service (or Energy Service Companies, ESCOs),
leasing arrangements and hybrid options where a combination of cash sales and
fees are used (ESMAP 2001). The ownership of the equipment rests with the
purchaser in the case of outright purchases whereas in the case of lease or fee-for-
service type of arrangements the supplier retains the ownership.
For the collective solution (or service), the delivery channel normally requires a
local grid (mini or micro grid) and a service provider. As discussed in Chap. 9, the
service provider can take a number of alternative organizational arrangements,
including franchisees, co-operatives, ESCOs, community managed systems, or a
state utility. Clearly, the service provider approach requires undertaking a full-
fledged distribution and retail supply activity, albeit on a small-scale and at a
remote location. This makes this approach more challenging.
11 Regulatory Issues Related to Off-Grid Electricity Access 275

11.3 To Regulate or Not to Regulate Decentralized


Electricity Supply?

Electricity generation and supply is normally a regulated business activity in most


jurisdictions and an electricity act (or a similar legal instrument) generally governs
the operational and developmental activities of the industry. The main economic
reason behind the regulation arises from a dilemma involving natural monopoly and
the possibility of consumer exploitation by monopolists. It is generally believed that
the transmission and distribution activities of the electricity sector benefit from
natural monopoly conditions where one entity can provide the service more eco-
nomically than multiple entities. The economic logic would then require allowing
one entity to provide the service which ensures low cost supply. But if a monopoly is
allowed to operate it also has the potential of abusing its power and charge excessive
prices for its own profit motives. Forcing the natural monopolist to competition, on
the other hand, is likely to lead to a situation of perpetual loss, which would not
encourage any private provider to enter the market. The economic regulation tries to
balance the dilemma by granting a monopoly status to the service provider but
subjecting it to conditions that would protect the consumers as well.
The act normally specifies its area of application and does not generally dis-
tinguish between urban and rural areas. Therefore, unless a specific exemption or
waiver is granted or allowed, the rural electricity supply generally comes under the
purview of the general provisions of the act and accordingly, the law of the country
essentially decides whether rural electricity supply is a regulated activity or not.
However, the development of decentralized solutions in many countries around
the world discussed above requires some attention. The poor state of (or even non-
existent) rural electricity supply is a result of the failure of the existing delivery
mechanisms. The emergence of the decentralized solutions thus can be viewed as a
response to the existing deficiencies that are either arising as a consequence of
modifications to regulatory arrangements or perhaps working outside the scope of
electricity supply regulations. Two cases mentioned above, namely product deliver
mode and service delivery mode, require specific attention in this respect.

11.3.1 Regulation of Delivery of Individual Solutions

Individual solutions delivered through product sales do not share any features of a
natural monopoly (due to non-involvement of any distribution or transmission
networks) and therefore, the basic need for economic regulation does not arise.
The responsibility for grid-based electricity distribution remains with the distri-
bution utility but the product delivery mechanism provides a short-term relief until
formal supply arrives. As the product delivery mode does not fall under the
licensed (or regulated) activity, this mode of supply does not come under the
purview of the electricity regulator. This is however not to suggest that no
276 S. C. Bhattacharyya and S. Dow

regulation applies to product/equipment delivery activities. The product or


equipment will be subjected to technical standards (regulations) for quality,
environmental standards, and even consumer protection regulations/laws. Absence
or ineffectiveness of these can reduce the benefits to the consumers.
However, the absence of any market at present may justify the need for creating
a protective environment for private entrepreneurs, which in turn may require
allowing demarcated delivery zones. This is likely to provide some monopoly
rights over the area of delivery but depending on the authority used to grant such a
protective environment, the regulatory control would be decided. In general, the
competition authority or authority controlling monopoly and restrictive trade
practices or a designated state agency would be responsible for monitoring and
controlling such issues.

11.3.2 Regulation of Delivery of Collective Solutions

In the case of a collective service provision, the decentralized service is provided


as a substitute of grid extension that uses a distribution network and decentralized
generators. In this case, the need for regulation arises for two reasons: (1) to ensure
that the activity complies with the law of the land and (2) to protect the investors
and the consumers following the standard principles of economic regulation
indicated above.
The regulatory arrangement may depend on the mode of delivery chosen in this
case and can take different forms.
(a) A generic waiver or exemption from the standard provisions applicable to the
electricity supplier may constitute a simple solution. This is the approach
followed in India where the Electricity Act 2003 allows the state government/
state commission to exempt certain types of organisations from the licence
requirements for rural electricity supply either by notifying the rural areas to
be covered by them or by the regulator specifying the terms and conditions for
such exemption (See Bhattacharyya and Srivastava 2009 for further details).
However, unless the conditions of the waiver or exemption are clearly indi-
cated, and the roles and responsibilities of the parties involved are clearly
documented, this simple option can create confusion and may introduce
uncertainties for the business. This can also create issues related to reporting
and sharing of information related to the activities and may prove to be an
ineffective system.
(b) A simplified, standardized regulatory approach can be a more practical
approach. Such a regulation should specify the role and duties of the provider,
set the information filing requirements and ensure consumer protection
mechanisms. The purpose of such a light-handed approach is to reduce the
cost of regulation by imposing reduced burden on the regulatory agency. This
is likely to be effective for local community-based organizations, non-profit
11 Regulatory Issues Related to Off-Grid Electricity Access 277

organizations and private entities with socially driven motives. For-profit


private organizations may try to take advantage of such light-handed systems
to increase their profitability. Strong penalties and rule-enforcing mechanisms
would be required as deterrents in such cases.
(c) A full-fledged regulatory arrangement constitutes the most formal regulatory
approach. The existing electricity regulator can be entrusted with these duties
or a separate rural electricity (or infrastructure service) regulator can be
established. The regulatory powers are normally derived from a specific leg-
islation (such as the Rural Energy Act) and the implementation and gover-
nance aspects follow the provisions of such legislation. However, such a
regulatory arrangement is likely to be a costlier option and a careful cost-
benefit analysis needs to be undertaken prior to the adoption of such an
arrangement to ensure that the benefits of regulation would outweigh the costs.

11.4 Regulatory Supervision

It is evident from the above that the need for regulatory supervision is not same for
two types of delivery channels and for different types of delivery organisations. In
the service mode of delivery the regulatory supervision will depend on the own-
ership of the delivery system. For example, if a distribution franchisee model is
chosen the supervision need will perhaps be more extensive whereas in a co-
operative model or a community managed delivery system the threat of consumer
exploitation may be limited. In general, the regulatory supervision covers the
following aspects:
(a) Regulated business activities: The service provider is allowed to carry out
specific tasks under the permission granted to it. In the off-grid electrification
case, it would involve generation of electricity and supply using appropriate
infrastructure. The sale of electricity is normally restricted to final users and
re-selling is not normally allowed. This would normally require a clear
demarcation of the area of activity and a mechanism for avoiding overlaps
with the incumbent utility’s service area. Absence of clarity in this respect
enhances business uncertainties.
(b) Activities requiring prior regulatory approval: The service provider is nor-
mally subjected conditions requiring it to seek prior approval for a number of
activities or transactions. These include sale of the business, engaging agents,
or transactions with affiliates, etc.
(c) Conditions of supply: Normally a condition of non-discriminatory supply to
eligible consumers is imposed to ensure that all consumers meeting the supply
criteria are connected. Similarly, any anti-competitive practices or practices
leading to market abuse are also not permitted. The regulatory arrangement
may provide specific conditions for connection and disconnection.
278 S. C. Bhattacharyya and S. Dow

(d) Tariff related provisions: These constitute the most important element of the
regulatory supervision. The cost of electricity supply using an off-grid system
depends on the technology used, energy resources utilised, size of the system,
demand pattern, infrastructure used, service quality and the cost of regulatory
compliance. As the cost of supply tends to be high, full cost recovery may lead
to limited access (due to limited affordability of consumers) while a limited
cost recovery either requires a well-defined subsidy scheme or leads to a
unviable business proposition, thereby increasing the potential for under-
achievement or failure of the system. The tariff issue can be the most con-
tentious issue for the private sector involvement in the business while the
challenge is somewhat mitigated in the co-operative or community-based
service options.
(e) Consumer protection: Protecting the vulnerable consumers constitutes one of
the main purposes of regulation. This can cover protection from abusive tariffs,
poor supply quality, and other customer grievances (related to billing, con-
nection, disconnection, deposits, technical faults, etc.).
(f) Reporting requirements: All regulated entities are required to provide certain
information to the regulator to indicate the level of activity, quality of service,
or for reporting incidents, disputes or grievances. A systematic flow of infor-
mation allows the regulator to decide whether to intervene or not and whether
any regulatory change is required.
The regulatory requirements for alternative delivery options are indicated in
Table 11.1.
Evidently, regulation of the business activity will not be an easy process and
would require significant amounts of training and capacity building both at the
regulatory level and the service provider level.

11.5 Regulatory Issues and Challenges

Any decision to regulate the off-grid electricity service delivery would face a
number of issues and challenges due to its specific character. Some such chal-
lenges are considered below.

11.5.1 Clarity About the Coverage

The most important challenge for any off-grid electrification is the threat of grid
extension. Any grid extension soon after the installation of an off-grid system
amounts to a loss of business opportunity and the risk of non-recovery of the costs.
Therefore, a close co-ordination between the distribution utility and the off-grid
service provider is essential. Aggressive grid expansion after launching off-grid
Table 11.1 Regulatory check for alternative delivery options
11

Regulatory conditions/requirements Franchisee model Co-operative model ESCOs State utility or community
based
Electricity sale only for final Satisfied, as there is no Satisfied Satisfied Satisfied
consumption intermediate
transaction
Generation of electricity Required as approved Required as approved activity Required as approved Required as approved
activity activity activity
Assignment of transfer of assets/ Required as a condition Normally does not apply but may be Required as a Normally does not apply.
business permission without required in case of merger or condition
prior approval acquisition
Engaging affiliates or subsidiaries Condition required May arise May arise Normally does not arise
Providing loans/guarantee on May arise and a suitable May arise and a suitable condition is May arise and a May arise and a suitable
obligations condition is required required suitable condition condition is required
is required
Undue preference Suitable condition Unlikely to arise Suitable condition Could arise and suitable
required required condition required
Separate accounts for businesses Required if franchisee Required if different businesses are Required if different Required if different
operates different undertaken businesses are businesses are
businesses undertaken undertaken
Regulatory Issues Related to Off-Grid Electricity Access

Major incident reporting Required as a condition Required as a condition Required as a May per part of the overall
condition utility reporting scheme
Seeking permission for disposing of Required as a condition Required as a condition Required as a May be part of the utility’s
or relinquishing assets or control condition overall regulatory
obligation
Demand forecasting Franchisee Co-operative’s responsibility ESCO responsibility Utility responsibility
responsibility
Consumer protection Franchisee Co-operative responsibility ESCO responsibility Utility responsibility
responsibility
System planning Franchisee Co-operative responsibility ESCO responsibility Utility responsibility
responsibility
279

Tariff regulation Required to avoid Not essential—no profit motive Required to avoid Could be part of overall
exploitation exploitation utility regulation
280 S. C. Bhattacharyya and S. Dow

services has been a common observation in many countries around the world. This
problem arises because of unclear demarcation of the area of coverage of two
entities. Generally, the overlapping area of coverage of the distribution utility and
the off-grid service provider causes this problem. If the rural areas where the
incumbent utility has failed to provide access are excluded from its area of service,
and one or more off-grid service providers are granted exclusive rights for a fixed
period, the business uncertainty can be mitigated. However, as this often requires
an amendment to the existing supplier’s area of coverage, it may not be easy and
cannot be done without the consent of the incumbent.
A related issue arises when the grid eventually comes to off-grid areas. The
assets used for off-grid supply can become stranded or obsolete and in some cases,
the grid system may represent a duplication of the network, which does not rep-
resent a cost-effective solution or an efficient use of resources. If only temporary
networks are used for off-grid services, which can be dismantled and re-deployed
in other areas, the cost implication can be limited. However, this option may not be
appropriate from health and safety perspectives. The other option is to ensure grid
connectivity of off-grid generating systems and high quality of distribution net-
works. This has cost implications and can reduce financial viability of the systems.

11.5.2 Quality of Service

The off-grid supply need not necessarily aim for the same quality of standards as is
used for the grid-based supply. Generally, the off-grid service often aims to pro-
vide quality power for a limited period of time. Depending on the system used, the
duration of supply and technical standards can be quite different from a grid-based
supply and it often makes sense to prescribe different standards for the grid and
off-grid services. Similarly, one of the issues faced by most off-grid systems is to
maintain reliable supply in the future as the demand increases. This requires load
forecasting, system planning and demand management activities, absence of which
may deteriorate the quality of supply in the future.
Health and safety issues tend to receive less priority in a cost-conscious busi-
ness environment. Compromises in technical standards and use of low quality
materials are often attempted to reduce initial costs. However, this can increase
accident risks and can make the activity unsafe. Technical quality and safety
standards have to be carefully considered as part of the regulatory requirements.

11.5.3 Tariff Related Issues

Traditional tariff issues as well as new issues arise in the off-grid services. Traditional
tariff-related issues include the case for cross-subsidies depending on the demand or
usage pattern, compatibility of tariffs with grid-based supply, and the need for and
11 Regulatory Issues Related to Off-Grid Electricity Access 281

financing of subsidies for such services. If the grid-based supply benefits from
subsidies and cross-subsidies, the geographical disadvantage should not further
discriminate rural consumers from getting such advantages. However, funding such
subsidies initially and in the long run can be more challenging. Similarly, if the grid-
based supply is much cheaper compared to off-grid supply, the demand for price
parity, particularly for areas not far away from the grid-based supply, cannot be easily
overlooked. Similarly, the tariff may vary depending on cost of off-grid supply of
electricity generating and supply technologies used. Price parity in such cases
between different off-grid service areas can emerge as a regulatory issue.
The problem is further aggravated by the non-distinctive electricity tariffs
between urban and rural areas in most countries. Although there is a strong case
for distinctive rural and urban electricity tariffs (see Bhattacharyya 2005), its
implementation is not easy and this makes comparison with off-grid electricity
tariffs more difficult. The regulatory challenge in respect of tariffs is to decide
whether to intervene in the tariff matter or not, and how best the tariff can be
regulated in this case without imposing too much regulatory burden on the service
provider while ensuring that consumers are not unduly charged for the services
they receive. The light-handed regulatory approach used in the developed world is
often prescribed as the best solution (e.g., Reiche et al. 2006) but there is limited
experience of successful implementation of such schemes in the developing
countries and hardly any experience in the off-grid electrification area. Therefore,
the challenge here cannot be underestimated.

11.5.4 Regulatory Capacity

Depending on the regulatory approach chosen, the governance mechanism would


require certain regulatory capacity to manage and monitor the developments in the
off-grid sector. Most of these would be required in remote areas in countries with
limited regulatory capacity in general. The issue of a centralized regulatory agency
versus decentralized regulatory arrangements will also need some consideration.
Given the potential for a large number of regulated entities, the nature of regu-
lation and the most appropriate organizational arrangement to manage this would
have to be carefully considered. This assumes greater importance given the limited
size and coverage of most of the entities, and the potential for an overwhelming
amount of regulatory intervention in this newly developing activity. The challenge
in this respect has not yet been fully recognized.
The regulatory tariff-making exercise is a relatively new experience for many
developing countries and extending this at a village unit level is not an easy task.
Even the regulatory bodies with experienced staff and the possibility of hiring
consultants find it difficult to manage the tariff exercise within a limited time,
given the information and time constraints. In addition, the performance moni-
toring and benchmarking of off-grid service provision, given the technological
diversities and geographical coverage, will add to the challenge.
282 S. C. Bhattacharyya and S. Dow

As the service providers may rely on paper-based systems and the data
retrieval/communication systems may not be modern, the regulatory management
can be challenging. In addition, there can be large numbers of such off-grid sys-
tems, which may make timely regulation and decision-making a problem if
extensive regulation is used. There would be a significant need for capacity
building in this area.

11.5.5 Information Gaps and Progress in Electricity Access

The basic purpose of off-grid electrification is to enhance electricity access in rural


areas. The progress in this respect can only be measured through systematic
information collection and verification of claims. This in turn requires a system of
timely information gathering, analysis and reporting, which can be better ensured
through electronic data transmission systems. However, weak information and
communication infrastructure in rural areas can prevent such information flow, and
create information gaps, that can hinder proper appraisal of off-grid electrification
influences. As the focus is on household connectivity rather than just availability
of networks, a system of verification is also required for subsidy allocation and
assessment of progress. In addition, accurate information is essential for any
regulatory decision making process and hence, the regulators would need to
develop standardized regulatory information requests from off-grid service pro-
viders to monitor and govern the developments.

11.6 Conclusions

This chapter has provided a brief overview of the regulatory dimension involved
with off-grid electrification. The chapter suggests that the product delivery mode
of operations do not require a formal regulatory supervision in the traditional
utility regulation sense but the service mode of delivery using local networks
requires some form of regulation. Off-grid electrification however faces significant
regulatory challenges due to the newness of its development and poor regulatory
capacity of many developing countries. Simple, standardized regulatory approa-
ches may prove to be effective in a co-operative or community-based delivery
arrangement while somewhat formal regulation may be required for privately-
owned services. In any case, capacity building will be essential to manage the
regulatory activities for this emerging business.
11 Regulatory Issues Related to Off-Grid Electricity Access 283

References

Bhattacharyya, S. C., & Srivastava, L. (2009). Emerging regulatory challenges facing the Indian
rural electrification programme. Energy Policy, 37(1), 68–79.
Bhattacharyya, S. C. (2005). Rural electricity tariffs: case of India. International Journal of
Regulation and Governance, 5(2), 93–122.
ESMAP, (2001). Best practice manual: Promoting decentralized electrification investment, World
Bank, Washington D.C.
Reiche, K., Tenenbaum, B., & de Mastle, C.T. (2006). Electrification and regulation: Principles
and a model law, Paper 18, energy and mining sector board discussion paper, World Bank,
Washington DC.
World Bank, (2008). Designing sustainable off-grid rural electrification projects: Principles and
practices, The World Bank, Washington, D.C. (see http://siteresources.worldbank.org/
EXTENERGY2/Resources/OffgridGuidelines.pdf).
Chapter 12
Summary and Conclusions

Subhes C Bhattacharyya and Debajit Palit

Abstract This chapter provides a final synthesis of the outcome of the book and
presents the concluding remarks. The slow progress of electricity access and the
developmental consequences of lack of access to electricity clearly highlight the
need for sustaining concerted global efforts to ensure a better future. The different
chapters of this book captured the efforts and experiences in electrification with an
emphasis on off-grid electrification systems. The main message that comes out from
these experiences is that sporadic efforts are not sufficient to improve the situation
and that a strong state initiative in terms proper planning, program design, financial
support and institutional arrangements is essential for any successful outcome.
Although the grid extension remains the preferred mode of delivery of electricity
access, in reality grid is unlikely to reach many areas in the near future where
decentralized off-grid solutions will play an important role. Despite tremendous
technological improvements and availability of alternative options, the focus of off-
grid solutions has remained restricted to sale of simple products that cater to a
limited range of individual needs, with a limited attention going towards local grid-
based services for productive and household needs. Thus a step change in the
delivery of decentralised solutions is required to create a better niche for these
options. This also requires a proper integration of local resources in hybrid tech-
nology combinations to ensure adequate, reliable and affordable supply. However,
the financial, regulatory and governance challenges remain strong and often under-
estimated. Mobilising financial resources for enhanced electricity access and

S. C. Bhattacharyya (&)
Institute of Energy and Sustainable Development, De Montfort University,
Leicester, UK
e-mail: subhesb@dmu.ac.uk
D. Palit
The Energy and Resources Institute, IHC Complex, Lodhi Road,
New Delhi, 110003, India
e-mail: debajitp@teri.res.in

S. Bhattacharyya (ed.), Rural Electrification Through Decentralised 285


Off-grid Systems in Developing Countries, Green Energy and Technology,
DOI: 10.1007/978-1-4471-4673-5_12, Ó Springer-Verlag London 2013
286 S. C Bhattacharyya and D. Palit

ensuring conducive business environment through an appropriate regulatory gov-


ernance arrangement would require significant attention in the future. Similarly, the
desirable business model from a variety of participatory approaches available for the
service delivery has to be found that best suits the local condition. These also
highlight the need for significant capacity building efforts in rural electricity supply.

12.1 Introduction

More than 1.3 billion people in the world lacked access to basic electricity services
in 2009, that in turn had significant socio-economic implications. The global
challenge of enhancing electricity access to billions of population requires sus-
tained new efforts in many developing countries around the world. Forecasts by
international organizations suggest that continuation of present efforts will not
ensure universal electricity access by 2030, and that new policies and programmes
would have to be undertaken, to achieve the social objective of universal
electrification.
A lot of experience exists in this area of electrification that can serve as
valuable guide for any future efforts. Countries around the world have been pur-
suing electrification programmes with the support of national governments and the
international community. The successful and not-so-successful cases provide rich
lessons for others to follow. Simultaneously, the technological options have
multiplied, thereby offering a suite of decentralized solutions that can supplement,
if not compete, with the traditional grid extension mode of electrification. Further,
new business models have been experimented with, leading to a multiplicity of
organizational arrangements for the delivery of electricity services that comple-
ment the traditional monopoly utility model. Yet, the issues of financing electricity
access provisions and ensuring appropriate governance to fast-tracking the
developments remain.
Various chapters of this book have focused on these dimensions by reviewing
the relevant literature to present the state of the present knowledge on the subject
and identify the lessons for countries who are aiming at new electricity access
initiatives to enhance electrification rates in rural areas. This concluding chapter
synthesizes the essential findings and outlines further research agendas.

12.2 Summary of Major Findings and Lessons

Three parts of the book focused on three distinct areas. Part 1 provided the
background information covering the status of electricity access, the link between
electrification and economic development and the technological options for off-
grid electrification. Part 2 presented the rural electrification experience from
12 Summary and Conclusions 287

around the world, with specific emphasis on South Asia, China, South East Asia,
South America and Sub-Saharan Africa. The contrasting developments in terms of
approaches, organizational and delivery arrangements and emphasis, and the
diversity in outcomes provide rich lessons for others to follow. Part 3 covered
business-related issues focusing on the participatory business arrangements,
financing issues, governance and regulatory issues. Thus the book goes beyond the
traditional focus on the technological dimension of the problem and adopts a
multi-dimensional approach to electrification in general and decentralized, off-grid
electrification in particular. Below we synthesize our major findings and lessons
from various chapters.

12.2.1 Key Findings from the Background Part (Part 1)

Three chapters of this part set the background of the book. Chapter 1 highlights
that the electricity access problem is predominantly a rural problem and is pres-
ently concentrated in South Asia and Sub-Saharan Africa. Lack of access to
electricity inhibits economic development by denying the rural population the
required opportunity to develop their human capital and by restraining economic
activities. The prospect of significant population growth in these regions coupled
with poor economic conditions of many countries does not portray a bright future
unless dramatic changes in policies and efforts take place quite soon. Limited
prospects of grid-based electrification in most of these areas, poor and unreliable
supply from the grid where it has reached, and the emergence of decentralised
technological options provide a window of opportunity for off-grid solutions but a
multi-dimensional perspective will be required to reap the potential benefits
offered by these alternatives.
Chapter 2 focuses on the role and relation of rural infrastructure to economic
growth and development. It suggests that the benefits of past rural electrification
initiatives both in terms of electricity access and subsidies did not reach the poor
and the understanding of the issues hindering the provision of universal electricity
access is incomplete. Although it has been suggested that the resolution of the
problem hinges on three simple elements, namely imposing a service obligation on
the service providers, reducing the connection costs and increasing the range of
suppliers, the poor performance so far suggests the practical difficulties in
achieving them. Over-emphasis on cost recovery and the reliance on the private
sector in the past did not always help. The recognition of capital subsidies for
infrastructure development and emphasis on the recovery of operating and
maintenance costs surely offers a more practical alternative. The chapter also
suggests that any electrification initiative has to be supported by the provision of
complimentary infrastructure services, including provision of educational services
and productive uses of energy and an effective implementing agency that involves
local communities, local skills and local resources.
288 S. C Bhattacharyya and D. Palit

Chapter 3 provides a broad review of off-grid technologies that are available for
rural electricity supply. The chapter covers micro-hydro technology, biomass
gasification, bio-methanation, solar photo-voltaic systems, small wind systems as
well as biodiesel. The chapter presents the technology, resource availability,
economics, and advantages/disadvantages of each option. It concludes by com-
paring the strengths and weaknesses of alternative options using a multi-criteria
technology selection framework. The chapter suggests that although individual
technologies are at different stages of the maturity level, it is often difficult, if not
impossible, for a single renewable electricity generation technology to meet the
diverse needs and provide reliable electricity in a cost effective manner. This calls
for a two-pronged approach involving additional applied research to enhance
diffusion of these technologies on hand and to develop cost reduction strategies
using innovative pricing, financing as well as improving efficiency level and
increasing local content in technology designs. It also suggests that smart mini-
grids and hybrid technology options can be considered as interim solutions to
enhance electricity access.
This part thus highlights the need for more articulated initiatives for rural
electrification that can offer effective solutions to the electricity access problem
recognizing the links with economic development, appreciating the technological
options and ensuring the critical success elements.

12.2.2 Key Findings from the Country Experiences (Part 2)

The second part provides a global review of rural electrification experiences and
highlights the lessons for others. Chapter 4 reviews the electrification experience
of four South Asian countries, namely India, Bangladesh, Sri Lanka and Nepal.
Each country has approached electrification differently and has recorded varying
degrees of success. Sri Lanka’s outstanding performance in the region can be
attributed to its target-based approach for connecting rural households and micro
financing schemes to facilitate electricity uptake. India and Bangladesh on the
other hand have achieved much lower household connection levels due to earlier
focus on village level electrification (as opposed to household connectivity). Nepal
has performed quite poorly due to its hilly terrain, poverty and ineffective
arrangements for delivery of electricity access.
All the countries have provided significant amounts of subsidies for both grid-
based and off-grid electrification. The success in electrification has been directly
related to the government’s commitment in promoting the electricity access
agenda through proper policy formulation, financial support and enforcement of
technical and operational standards. The reliance on community-centric delivery
models, particularly where productive use of electricity was considered, has also
promoted success due to equity, transparency in decision making and strong
commitment of the society. Countries have experimented with alternative tech-
nologies including off-grid options, and Bangladesh, India and Sri Lanka have
12 Summary and Conclusions 289

successfully disseminated large numbers of solar home systems. However, there is


limited experience of mini-grids in the region, as the financial viability issue due to
high cost of electricity in the absence of a clear regulatory arrangement affects any
initiative. The chapter suggests that bundling of projects, innovative financing
arrangements and an appropriate institutional arrangement can boost off-grid
electrification in the region.
Chapter 5 explains the Chinese experience of achieving near universal elec-
trification despite being a large, populous country. Unlike other countries
reviewed in this part, China provides a distinctive approach that relied on a
phased electrification process focusing initially on local grids, local resources
and local management initiatives to upgrading and up-scaling through sub-
sequent integration with the national grid system. This bottom-up approach
comes in contrast with the top-down approach generally adopted by other
countries. The Chinese example also shows a clear appreciation of the rural
development—rural energy link from an early stage, which has helped create
financially viable rural electrification systems in the long run. Initial focus on
agriculture as the main productive activity and the subsequent emphasis on town
and village enterprises as the engine of rural development have ensured rural
income generation activities that could pay for electricity supplies. This also
ensured electricity use for productive purposes, which made the supply viable.
Although state support was essential at all stages of the development, local
participation and involvement was crucial in the delivery of the benefits. China
also avoided the perpetual subsidy trap that is commonly found in the rural
electrification experience of most developing countries. In addition, the reliance
on local resources and technologies allowed system diversities to suit the local
needs. Thus the Chinese experience provides a very different example where
multiple solutions, clear development linkage, strong state commitment, and
active local participation ensured an outstanding performance envied by others.
Chapter 6 provides the contrasting experience of successful cases and not-so-
successful examples from Sub-Saharan Africa. South Africa and Ghana represent
two successful examples while six other country experiences (namely that of
Nigeria, Botswana, Senegal, Zambia, Kenya and Tanzania) provide a rich set of
cases with weak performance. In the case of South Africa since mid 1990s and
Ghana in the last decade, the success in rapid increase in electricity access can
be attributed to strong government policy and financial support, sound organi-
zation and good governance. A strong, competent national utility in South Africa
has spearheaded the electrification process whereas weak organizations and
tentative reform initiatives in most other countries resulted in weak perfor-
mances. While the electrification has relied mostly on state funding and donor
support, the slow progress so far suggests inadequate funding, a challenge that
can only intensify in the future when the region tries to step up efforts to catch
up with the rest of the world. The off-grid solutions have been used in the region
but these were offered as a temporary solution, which creates a sense of dis-
crimination or isolation in the minds of the users, thereby affecting the success
of such initiatives. Most of the efforts in this respect also relied on the product
290 S. C. Bhattacharyya and D. Palit

sale/delivery mode that only caters to basic electricity needs for lighting and
entertainment. Inadequate linkage with rural development initiatives and
dependence on subsidized operation reduce the long-term viability of such
options. Clearly, the region needs to intensify its efforts if universal electrifi-
cation targets have to be reached within a reasonable time-frame but financing
such investments and developing the necessary organizational, technical and
governance arrangements remain major challenges.
Chapter 7 covers two generally successful regions in terms of electrification,
namely South East Asia and South America. Four countries each from South East
Asia (namely Indonesia, Thailand, the Philippines and Vietnam) and South
America (namely Brazil, Colombia, Chile and Peru) are reviewed in this chapter.
Each country in this case has adopted its own approach of electrification and thus
provides support to successful local solutions. However, in all cases, the success
depended on strong government policy and financial support. Most of these
countries have also relied on a top-down approach but in a number of cases the
private sector played an important role, particularly in South America. However,
limited integration with rural development and heavy reliance on subsidies make
the electrification efforts vulnerable.
These experiences show that successful cases have ensured electricity access
through a strong emphasis on service provision, strong financial support to ensure
affordable supply and a strong organizational/governance arrangement. However,
the sustainability issue of such efforts has received limited attention and a
re-emergence of energy poverty issue can occur if financial support cannot be
sustained.

12.2.3 Key Findings from Business Approaches for Off-Grid


Electrification (Part 3)

Four chapters of this part cover different business-related issues, namely business
models, financing, governance and regulatory issues. Chapter 8 examines alter-
native business models with a particular emphasis on participatory approaches
prevalent in South Asia. A number of alternative business models have been used
in practice, including co-operatives, fee-for-service or ESCO companies, com-
munity-managed initiatives, franchisees and private sector companies to extend
both grid connected and off-grid electrification. However, there is no ‘one-size-
fits-all’ solution or best option and a choice has to be made depending on the
resource availability, load profile, consumers’ willingness to pay, financial
viability of the project and local institutions. The early participation of local
communities ensures local buy-in into a project and can enhance its sustainability.
Similarly, affordable supply is a highly relevant factor and unless this is ensured, a
project is unlikely to succeed.
12 Summary and Conclusions 291

Chapter 9 provides the scale of financing required to ensure universal electri-


fication at the global level. The enormous amount of investment need, with esti-
mates ranging between $11 and $120 billion per year with a mid-range value of
$50–60 billion per year over a period of two decades, clearly highlights the
impending challenge. As Sub-Saharan Africa will be the top destination of such
investments, the issue of financing such disproportionate amounts cannot be
underestimated. The development assistance will not be sufficient to meet the
financing needs, particularly in the present unfavourable economic climate of the
developed countries. Carbon markets may not offer much support either given the
poor track record of flow of such benefits to Sub-Saharan Africa and other smaller
countries. National governments and the private sector will have to mobilize a
large share of the funding needs, but the demand is likely to be far beyond the
financial means of poorer countries. Similarly, it remains a huge challenge for
them to attract private finance to meet their needs. This is an area that needs a
major global initiative but whether promises will be delivered or not remains to be
seen.
Chapters 10 and 11 discuss the design of regulatory governance and regulatory
issues respectively. Chapter 10 provides a broad review of regulation and regu-
latory governance, and indicates that it is important to adapt existing network of
governance institutions rather than designing new innovative solutions. Such a
design will be informed by some form of institutional mapping of the regulatory
space and designation of all stakeholders so far as they can be identified. Chapter
11 on the other hand pays specific attention to the issue of off-grid electrification
and considers whether regulation is required, where and how. It suggests that
the product delivery mode of operation does not specifically require regulation in
the sense of economic utility regulation but the network-based local service
provision qualifies for such regulations due to reliance on networks for the delivery
of electricity and the potential for exploitation of consumers for profit motives. But
the extent of regulation would depend on the organizational arrangement used for
the service delivery and the intensity of off-grid electrification activity. The
chapter highlights a number of regulatory issues that affect off-grid electricity
supply business, including lack of clarity about grid expansion and off-grid
coverage, tariff issues, quality of service, information gaps and inadequate regu-
latory capacity. The challenge is to develop these governance arrangements for a
new and upcoming area of activity for which there is limited experience and
expertise anywhere in the world. This makes the challenge even more daunting for
the poor developing world.
In three parts, the book thus covers a significant ground to offer insights about
the electrification process in general and using off-grid means in particular. The
electrification process remains a challenging task and successful implementation
requires taking care of various dimensions of the problem. The main contribution
of this book resides in capturing a multi-dimensional thinking process and offering
lessons for future initiatives to ensure universal electrification.
292 S. C Bhattacharyya and D. Palit

12.3 Agenda for Further Research

We have identified a number of areas for further research, some of which are
already indicated in various chapters. One area that emerges from the review of
various experiences is the limited understanding of off-grid projects themselves,
although many initiatives were undertaken so far. A compilation of such case
studies and their systematic analysis using an appropriate framework can be a rich
source of information and understanding. As part of our research project, we have
initiated such an exercise for India which will be expanded to cover other South
Asian examples. The results from this exercise will be reported in the future.
A related issue that has surfaced from this study is the clear preference for grid
extension both at the policy level as well as at the user level. Off-grid options are
being promoted only as a temporary solution or as a pre-electrification relief. This
preference issue is greatly influenced by the predominance of product-based,
small-scale individual off-grid solutions that can only cater to limited electricity
needs of the society. Further investigation is thus required to understand the
barriers to be overcome in delivering affordable, reliable, and desirable off-grid
service options that can compare well, if not outperform, grid-based supply.
A second area requiring further attention is the development of a multi-
dimensional and multi-level analytical framework that can be applied to analyse
off-grid interventions. The purpose is to integrate the economic, technical, social
and environmental dimensions in the intervention design and assessment. While
the academic works have paid greater attention to the techno-economics of elec-
trification interventions, they are not sufficient to ensure viable and acceptable
outcomes. A number of options exist here both at the theoretical and operational
levels. In theoretical terms, the extension of existing optimization frameworks to
include social and governance dimensions could be considered. It is also possible
to take a fresh look and avoid carrying the old baggage that served other purposes
in the past. In operational terms, practice-oriented tools are required to assist users
on the ground take thoughtful decisions. These tools can take different forms—
starting from simple worksheet based options to more demanding tools relying on
optimization, decision support systems and possibly system dynamics. This
development is essential for future capacity building needs of emerging and fast
developing off-grid initiatives.
A third area that has received relatively limited attention so far is the regulation
and governance of off-grid electrification initiatives. Although we have covered this
dimension in two chapters, there is need for a more in-depth analysis and research to
ensure conditions for successful implementation and sustenance of the off-grid and
electrification initiatives. The diversity of technologies, participatory models and
governance arrangements provides scope for case studies, standardized solutions
and even integration with other developments such as the climate change initiatives.
There is also need for greater capacity development initiatives in this area.
While it is observed from this research that correlation exists between the per
capita GDP and household electrification, it was highlighted in Chap. 2 that the
12 Summary and Conclusions 293

causality and the direction of influence is not well established. Similarly, the
causal relationship between electrification and the human development index has
not been adequately explored. This necessitates further research to identify whe-
ther higher economic level contributes to higher electricity connection level or
higher level of rural electrification contributes to improved rural economy. Sim-
ilarly, the ways of integrating rural development agenda and rural electrification
require further analysis.
Finally, we would also like to bring an issue related to the future of off-grid
electrification itself given the bias towards grid expansion mentioned above. As
governments extend the grid to all corners, there will be nothing called off-grid in
the future, excepting physically inaccessible areas. If and when this happens, the
traditional off-grid systems will lose relevance to a great extent. While the off-grid
service and off-grid systems will still be relevant for physically inaccessible areas,
a new role has to be found for them in the grid connected areas, perhaps taking
advantage of the growing demand for reliable and better quality supply. The
renewable energy resources often used in off-grid service delivery can thereby
complement the central grid supply, and enhance supply security and sustain-
ability. Clearly, the long-term sustainability issue through a better integration and
articulation of choices, options and complementarity for better electricity services
to the population requires further investigation.
Index

A C
Access to electricity, 3–8 Capacity building, 278, 282
CDM, 235, 238–241, 243
China
B cultural revolution, 109, 110
Bangladesh, 76–81, 85–91, 93–95, 97, 100, economic reform, 108, 116
101 great leap forward, 109, 110
IDCOL, 87–92, 99 open door economic policy, 110
PBS, 81, 100, 101 TVE, 111, 122, 127
REB, 81, 86, 89, 91, 93, 95, 96 Clean cooking, 3–5, 7
Biodiesel, 41, 66–69 Collective solutions, 273
Biogas, 46, 51–56, 58 Colombia
Biomass, 41, 46–56 NIZ, 177, 178
biomethanation, 41, 52, 55, 56 Community based schemes, 30
gasification, 41, 46–51, 69 Comparative advantage, 16
Biomethanation Consumer protection, 278, 279
deenbandhu model, 53 Cross subsidisation, 29
digesters, 53, 54, 56, 58
GGC model, 53
KVIC model, 53 D
Botswana Decentralized, 9, 39–42, 46, 68, 70, 71
RECS, 139 Development, 13–15, 18–21, 23, 25, 28, 32, 33
Brazil direct channels, 15
LpT, 174–176 indirect channels, 16
Business models, 187–190, 218, 222
AMC, 211
cash sales, 189 E
ESCO, 189, 190, 203, 204, 206, 219 Economic growth, 13–18, 22, 23
fee-for-service, 189, 203, 205, 206 bi-variate and multi-variate models, 18
HPS, 213, 214, 220, 221 causality, 17–19
IDCOL, 216, 217 livelihood, 23, 24
leasing, 189 livelihood approach, 24
REEs, 216 pollution, 18, 28, 31
SELCO, 214, 215, 221 poverty reduction, 13, 20–24, 27

S. Bhattacharyya (ed.), Rural Electrification Through Decentralised 295


Off-grid Systems in Developing Countries, Green Energy and Technology,
DOI: 10.1007/978-1-4471-4673-5, Ó Springer-Verlag London 2013
296 Index

E (cont.) M
private investment, 17 MFI, 97
under investment, 17 MHP. See Micro hydro, 42–46
Electrification, 157–160, 164–182
diesel, 160, 163, 166, 170, 174–179
grid extension, 157, 160, 162, 170, 171, N
173–175, 178–180, 182 Nepal
mini-grids, 163, 180 NEA, 82
mini-hydro, 160
off-grid157, 161–166, 168, 170–172,
174, 176, 179, 180, 182 O
SHS, 162–164, 166, 167, Off-grid, 8–11, 39, 40, 46, 47, 56, 57,
174–176, 179 61, 62, 64, 65, 70
solar PV, 160, 161, 163, 175, 178 gasifiers, 84–86, 94
Electrification rate, 4 LED, 83, 84, 87, 100
Energy access micro grid, 84, 100
electricity, 5, 6 micro hydro, 42
Entitlement, 22 SHS, 81, 83–90, 92, 93, 95, 99

F P
Funding, 227, 228, 232–234 Participatory models, 188, 202, 222
asset-based lending, 245 CBO, 193, 194
barriers, 235, 240–244, 249, 250 cooperatives, 190–195, 197, 198, 207, 212
CIF, 235, 239, 246 distribution franchisee, 202, 221
FDI, 231–233, 238 ECS, 208
GFCF, 231, 241 franchisee, 199–202
micro-finance, 228, 240, 242, 244, PPP model, 201–212
246–249 VEC, 209, 211, 290
non-recourse financing, 245 Philippines
ODF, 231, 233 AMORE, 168
EC, 166
NEA, 165, 167, 169
G QTP, 169
Gasification SEP, 166, 167
gasifier, 48–50 SPUG, 160
GEF, 239, 246 PoA, 99
Ghana
NES, 134, 135
R
Regulation
H rules and standards, 255
HDI, 6–8 Regulatory arrangement, 271, 272, 276, 277
effectiveness, 272
exemption, 275, 276
I monopoly, 275, 276
India prior approval, 277, 279
RGGVY, 77, 80, 92, 95 standardized regulatory approach, 276
Individual solutions, 273, 275 Regulatory governance, 253, 254, 257–259,
Indonesia 262, 264, 265, 267, 288
KUD, 162 accountability, 253, 259–263
PLN, 159, 160, 164 institutional endowment, 259, 269
Investment, 228–234, 236–238, 240, intervention, 253–255, 257, 261, 265, 268
241, 243, 246, 247, 249, 250 regulation, 253–261, 264–269
Index 297

regulatory space, 257–259, 268 concession, 140, 141, 153


regulatory state, 257–259 SHP. See Small hydro power, 115
Regulatory capacity, 281, 282 SHS, 10
Rural electrification, 13–16, 19–21, 23, 25–27, South America, 157–159, 174, 178–181
31–33, 75–77, 79, 86, 90, 96, 104, Brazil, 158, 174–176, 180
106–111, 113–119, 122–126, 131, 133, Colombia, 158, 177, 178
134, 136–142, 145, 147–152, 187, 188, Peru, 158, 178, 179
190, 192, 193, 199, 202, 207, 208, 218, South East Asia, 157–159, 166
220 Indonesia, 158–165, 180
brightness programme, 112 Philippines, 158, 164–166, 169, 180, 181
China, 106–126 Thailand, 158, 170–172, 181
coal, 107, 108, 110, 111, 116, 120, 123, Vietnam, 158, 172, 173, 181
126, 127 Zambia, 141–147, 150
funding, 118, 119, 124 Solar lanterns, 56, 58
grid extension, 133, 134, 136, 141, 148, Solar Photovoltaic, 56
150, 151 SPV. See Solar Photo-Voltaic
income generating activities, 14, 25–27 battery charging station, 58
India, 76–78, 84–97, 99–101 SHS, 57, 59, 63
local governments, 111, 117–119, 123 Sub-Saharan Africa
micro-grid, 141 Botswana, 132, 139
mini grid, 195, 196, 207 Ghana, 131, 132, 134–136, 150, 153
modes of delivery, 114 Kenya, 144–147, 150
Nepal, 76, 78, 81, 82, 84, 85, 87, 88, LDC, 151
90–95, 101 Nigeria, 132, 137, 138, 150
off-grid, 76, 79, 82–85, 87–92, 94–101 Senegal, 132, 140, 141, 153
PV, 136, 138, 141, 143, 144, 146, 149, 150 South Africa, 131–134, 150–153
PV systems, 114 Tanzania, 142, 147–149
REA, 135, 138, 145, 148 SWT, 61–66
REF, 135, 138, 140, 142 WHS, 63
SCS, 205, 206
SHS, 133, 134, 136, 188, 192, 203, 204,
216, 222 T
small hydropower, 109, 111, 114, 115, 123, Tariffs, 14, 27, 29–32, 278–280
126 Thailand
solar PV, 196, 207 PEA, 170, 171
South Asia, 75–78, 83, 91, 94, 95, 99, 100
sub-Saharan Africa, 131, 132, 150–153
tariff, 117, 120, 121 W
Township Electrification Programme, Wind diesel hybrid, 63
112–114, 119
Sri Lanka, 76–78, 82–84, 86–88, 90, 93,
95–97 V
Rural infrastructure, 14 Vietnam
Rural population, 4 EVN, 172, 173

S
SCS. See Battery charging station
Senegal
ASER, 140

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