Plug in all, but boost supply hours too

The Pradhan Mantri Sahaj Bijli Har Ghar Yojana, or Saubhagya, launched recently, will provide much-needed funds to State electricity distribution companies (discoms) for last-mile connectivity to unconnected households. But meeting the goal of electricity for all by 2019, and ensuring assured hours of supply, will take a lot more.

Saubhagya adds to a bouquet that has the Deen Dayal Upadhyaya Gram Jyoti Yojana (which subsumed the earlier Rajiv Gandhi Grameen Vidyutikaran Yojana) for rural areas and the Integrated Power Development Scheme for urban areas. These two schemes have an outlay of ₹75,645 crore. Even so, many discoms had flagged a shortfall in last-mile connectivity. That’s the gap Saubhagya, with an outlay of ₹16,320 crore, aims to plug — across urban, rural and remote locations — by fiscal 2019.

However, it sets some daunting targets. For one, discoms need to electrify an additional four crore households in just 15 months, or over two crore households a year. That’s many times more than the trend rate. In the last decade, the total electrified households have increased from 10.7 crore to 16.6 crore, that is, around 0.6 crore households a year. At this rate, it would take 6-7 years to achieve the target.

Whether discoms have the capacity and capability to meet the steep targets is a point to ponder.

Another challenge would be to overcome the reluctance of many low-end households to get connections. These households have typically avoided taking on the long-term liability of monthly electricity bills, what with the option of pre-paid meters yet to be explored.

But even assuming that all the remaining households are electrified by 2019 — or by 2022, with some slippages — it still does not address 24x7 power supply to these consumers.

To be sure, India is said to have surplus power generation capacity and is among the lowest per-capita consumer of electricity at about 806 kWh/year, compared with China at 3,927 kWh/year and Russia at 6,603 kWh/year.

Yet, no State provides 24x7 hours supply in the rural areas. In Jharkhand, only 2 per cent of households get power for 20 hours a day; in Uttar Pradesh the number is 5 per cent, in Bihar 8 per cent, in Odisha 23 per cent and in Madhya Pradesh 26 per cent. Thus, the ‘surplus’ can be easily exhausted if the consumption of existing consumers were to increase. And if the Saubhagya scheme is implemented successfully, ~28,000 MW of additional generation capacity would be required.

But why are we unable to supply 24x7 power to the majority of households? The main problem is lack of cost recovery from consumers.

For instance, rural areas are sparsely populated and are far from major load centres. This leads to higher technical losses and the cost of supply shoots up to ₹7-10 per unit compared with the average ₹5 per unit. Also, due to higher commercial losses, cross-subsidisation and lack of paying capacity, the average revenue from such areas is low (around ₹2 per unit).

Assuming an average consumption of 50 units/month and a revenue shortfall of ₹5 per unit, supplying minimum reliable electricity (and not necessary 24x7) to these four crore households will result in an annual burden of ₹12,000 crore against the total scheme outlay of ₹16,320 crore.

Besides, the more the supply hours to existing low-end consumers, the more would be the discoms’ financial losses. For instance, for the past six months, Uttar Pradesh has been supplying over 18 hours of power in rural areas, leading financial losses equivalent to an entire year’s losses for discoms.

Such losses would have to be transferred either to other consumers or be absorbed by the State through subsidy. Therefore, while connecting 100 per cent of the households is not an unattainable goal, there are fiendish challenges, especially since the milestones need to be crossed together, and some of them would work at cross-purposes. For example, increasing electrification would crank up losses when low-tension (LT) network is extended to low-paying consumers, which, in turn, will have a cascading impact.

In the context, it would make sense for the State governments to first focus on the following:

• 100 per cent metering of all existing and upcoming consumers to plug theft and revenue leakage, and ensure discoms get more money from the same consumers. For that offer cheaper power tariffs than unmetered consumers. And stop subsidy to connections that are not metered after, say, a deadline of December 31, 2018.

• Provide this subsidy under Direct Benefit Transfer scheme to consumers who can’t pay much — but only if these are metered. This can be complemented with smart metering and mapping of all consumers under the Government’s Urja Mitra scheme. That will make the consumers aware of their rights and obligations. In the process, estimate the adequate subsidy requirement for only deserving consumers, and not for those who can afford to pay in full.

• Though the Electricity Act 2003 provides for upfront subsidy from State governments, this clause needs to be sharpened to define the overall social objective. Even better, universal service obligation (USO) can be completely separated during estimation of annual revenue requirement of discoms, and as done in the telecom sector, an explicit fund for meeting USO may be formed. With such clear definition of subsidy, models for involving the rural cooperatives and other private franchisee will also become viable.

• An improvement in the hours of supply is better than providing access alone, and can help promote economic development in rural areas. It can also provide a regular source of income, which is crucial for ensuring sustainability of electricity to all and also helps in reducing subsidy requirement over the years in these areas once economic activities pick up.

The writer is senior director at Crisil Infrastructure Advisory

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