The problem of lack of rural electricity demand
Discoms’ stressed finances and, consequently, poor reliability of power supply in rural areas must be addressed
It has been a long time coming. The Narendra Modi government has now announced the electrification of all inhabited census villages. A village is considered electrified if it possesses basic electrical infrastructure and 10% of its homes have access to power. However, nearly one-fifth of India’s rural households (around 31 million) still remain in acute darkness. The government is committed to reaching these households through the Saubhagya scheme by 31 December 2018—a deadline that has been moved up from 31 March 2019. The project’s ambition is praiseworthy. But is it enough?
Electrification schemes like the previous Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), and the ongoing Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and Saubhagya schemes have focused on establishing village electricity infrastructure. DDUGJY, for example, provided electricity access to the remaining 18,452 inhabited villages. There are issues with these schemes, certainly—confusion over data regarding the number of households in the country and inconsistencies in the data put out by state electricity discoms. The largest issue, however, might be the lack of focus on supply-side barriers.
The rapid pace of rural electrification has clearly not been matched by adoption at the household level. According to a 2015 World Bank study, Power For All: Electricity Access Challenge In India, “even where electricity service has been locally available, many village households choose not to adopt a connection”. For instance, states like Tripura and Sikkim, despite almost universal access, have among the lowest consumption rates. Examining this gap between electricity access and household-level adoption allows for a better understanding of supply-demand problems that characterize the lag between village electrification and households’ decisions to connect.
India faces a terrible power reliability situation. Rural electrification by itself means little when load shedding and power outages are frequent enough to make the term a mere technicality. Thus, Dipti Jain notes in Mint, only six states had, on average, 24-hour power supply in rural areas as of December 2017. This lack of reliability often discourages households from adopting electricity, which disincentivises discoms, thus undermining investment in rural electrification. This makes power supply even more unreliable, perpetuating a vicious cycle.
This is just one aspect of the long-running problem of discom finances. Discoms face multiple challenges, ranging from revenue losses due to high costs of power procurement to power theft and irregularity and delay in disbursement of state subsidies assured to domestic and agriculture consumers. The lack of political will across governments to rationalize tariffs and slash these subsidies is a long-running problem. The Modi government’s attempt to address discoms’ financial stress via the Ujwal Discom Assurance Yojana (Uday), rolled out in 2015, is the latest in a long line of government bailouts. It hasn’t been any more successful than previous attempts. The continued stress doesn’t just have negative consequences on the demand side in the form of reduced investment in network modernization, upgradation of transformers and unreliable power supply. The ripple effects spread back up the supply chain as well, affecting the power generation sector when discoms push for renegotiation of power purchase agreements or prefer the spot market.
Little wonder that basic economic logic militates against rural households in areas with poor power reliability adopting grid electricity. They have to pay a monthly fixed minimum charge irrespective of brownouts and blackouts. Meanwhile, poor reliability forces them to also use traditional fuels, like kerosene and fuelwood, for lighting and cooking purposes. In effect, these households end up paying for two power sources. Unsurprisingly, this affects rural households’ decision making when it comes to electricity adoption.
While India has made remarkable progress in bringing electricity to every village, the achievement on this front masks continuing challenges. These challenges will only grow as the Modi government’s focus on renewable energy further disrupts the power sector—both financially and in terms of technical challenges. There’s still a long way to go for lowering barriers to adoption, easing discoms’ financial stress and incentivising rural adoption.
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