A woman carries her child while standing in the light provided by a kerosene lamp at night in the village of Fateh Nagla, Uttar Pradesh. (Photographer: Prashanth Vishwanathan/Bloomberg)

Modi’s ‘Power For All’ Plan May Make Off-Grid Plants Unviable

Prime Minister Narendra Modi’s plan to electrify villages has left small power producers in remote locations worried.

That’s because they are off the grid, mostly in inaccessible locations, and require high tariffs to stay viable. The Saubhagya scheme aims to either take cheaper grid power there or set up low-maintenance solar equipment. Either way, existing plants will become uncompetitive.

The model faces a huge challenge because it’s not known as to where the grid will be expanded, and no private investor will be willing to give money to them, Vinay Rastogi, managing director of consulting firm Bridge to India Energy Pvt. Ltd, told BloombergQuint. “Off-grid solutions are very expensive because of their small scale and execution in difficult areas. Because of the high costs, once the grid reaches, they will become unviable.”

Such plants are largely wind, biomass, hydro, and solar or hybrid units set up to meet the energy needs of isolated communities, according to the Ministry of New and Renewable Energy website. Contributing a fraction of power generated in India, they charge a flat amount every month for providing power along with a bulb and a fan, irrespective of the usage. Average tariff works out to Rs 35-40 a unit, according to Rastogi. That compares with the average grid tariff price of Rs 6.59 a unit, according to Bloomberg New Energy Finance Research.

Power for All scheme targets 3 crore unlit households, while an earlier Deendayal Upadhyaya Gram Jyoti Yojana will cover another 1 crore. Together, the government plans to take power to about a fifth of 120 crore left-out Indians. Where it’s not possible to take the grid, it will provide solar power packs of 200 to 300 watt and a battery pack with 5 LED lights, 1 DC fan, 1 DC power plug along with repair and maintenance for five years.

Even the draft national energy policy released by NITI Ayog in June is silent on the fate of the small plants once the grid expands. Electrification of smaller habitations and remote locations will not be postponed until grid reaches, and in the short run off-grid solutions will be provided, it says.

Unless the government gives some kind of assurance to these businesses by way of feed-in tariff, the off-grid model will not sustain, said Rastogi. The ministry has so far shown no inclination for any such relief. Feed-in tariffs is a mechanism for payments to anyone generating power from renewable sources and supplying to the grid.

One solution could be that the small unlinked plants can supply power when the grid fails. Off-grid producers have held talks with NITI Aayog to fix a tariff at which the distribution companies will buy power once the grid reaches villages, according to a financing agency representative.

Producers have their doubts. These projects were not designed to feed to the grid and even at a price of say Rs 8 a unit, it won’t be a fit business proposition, said an off-grid power producer. This is a high price for discoms when solar tariffs are at an all-time low of Rs 2.44 a unit.

A worker tends the land as a wind turbine manufactured by Suzlon Energy Ltd. lies idle behind him. (Photographer: Dhiraj Singh/Bloomberg)
A worker tends the land as a wind turbine manufactured by Suzlon Energy Ltd. lies idle behind him. (Photographer: Dhiraj Singh/Bloomberg)

Lenders too are worried. They are in talks with the government’s planning think tank for a tariff at which the discoms will buy power once the grid reaches these villages, said a financing agency representative.

Kameswara Rao, partner (energy, mines and utilities) at PwC India said this is an opportunity for off-grid suppliers to reinvent themselves. "Distributed energy suppliers suffer a higher cost of generation given their smaller scale, but offer compensating benefit by saving on distribution losses and reduce overall cost of supply. So, they carry a good economic and social justification," said Rao.

The government should take steps to mainstream them as part of the Saubhagya scheme by offering them a viable feed-in tariff, he said. “This will increase supply of power generation at the tail-end and ensure rural electrification actually lights up homes.”