Climate Change Mitigation as a stimulus for Universal Rural Energy Access in India

Dr. P. BALACHANDRA

Department of Management Studies & Centre for Sustainable Technologies

Indian Institute of ScienceBangalore – 560 012

Motivation is to explore whether climate change imperatives be transformed as opportunities for expanding rural energy access in the India Climate change mitigation is a necessity and India’s

participation is inevitable; Is expanding rural energy access a low hanging fruit?

The market mechanisms created by international protocols have provided revenue opportunities for mitigation efforts; Whether these can reduce the cost of expanding rural energy access?

Why rural energy access is a critical issue in India?

Only 55% of the rural population had access to electricity in 2005 and the remaining 45% relied on kerosene for their lighting needs.

For cooking, only 8.6% of the rural population had access to LPG (cooking gas), 1.3% to kerosene and large share of 84% to biomass (firewood, agro-waste and cattle dung) in 2005.

726 million relying on biomass for cooking and 364 million on kerosene for lighting out of a total rural population of 808 million in 2005.

The issue is even more criticalSource: Estimated based on NSSO (2007); UNPD (2008)

Energy poor are also income poor. Rural poverty line in India is Rs. 447 MPCE (Planning Commission, 2009)

The trends are disheartening, especially with cooking energy access (based on National sample survey organization (NSSO) and Census reports)

• The regional disparities in cooking access levels are vast

• Top 5 states have access levels in the range of 17-28% and the worst 5 in the range of 2-5%.

• The progress during last 11 years is discouraging for failure states. This is true even for successful states

• Rural electricity access situation is far better compared to cooking access

• Electricity access levels were in the range of 10-34% in failure states and in the successful states the range was 80-96%.

• Except for Uttar Pradesh other states are progressing well

• Even many focused programmes have failed to achieve desired results in failures states

Distribution of monthly average rural household electricity consumption in India (2005)

Average household electricity consumption per month in 2005 for electrified households World – 213 kWh USA – 956 kWh China – 56 kWh India – 56 kWh India rural – 39 kWh India urban – 78 kWh

Estimated based on NSSO, 2007; MOSPI, 2007; MOSPI, 2006; EIA, 2008 and UNESCAP, 2009

Cooking energy access programmes - Outcomes

MNRE programmes on biogas and improved cook stoves were technology centric approach aiming more on dissemination rather than expanding access. Success was measured in terms of numbers deployed rather than how many use.

With cattle ownership and availability of adequate dung being the criteria for installation of biogas plants, the poor got excluded from the programme. Thus, government subsidy for installing biogas plants was targeted at rural high income families.

LPG subsidy is directed at mostly middle class and rich.

Kerosene subsidy is mostly for lighting and directed at urban poor for cooking. Nearly 40% of kerosene is diverted.

Electricity Access Programmes - Outcomes All programmes prior to RGGVY have failed to achieve the

objective of universal access to electricity. Through RGGVY India could electrify only 23% of the targeted

rural households during last four-years. As on 1st January 2010, a total of about 9.4 million households are

electrified. Though initial goal was to provide electricity access to all

households and free connections to 23.4 million BPL households by 2009, the targets have been revised to free connections to 17.5 million BPL households by March 2012.

The estimates suggest that rural household electrification level is likely to be about 64% by 2009 compared to 43.5% in 2001.

Focus was mostly on “connectivity”. Energy problems are yet to be resolved.

Unreliable and low quality supply

Expanding rural energy access: Opportunities

1. Need for climate change mitigation and associated opportunities

2. Large potential for renewable energy resources

3. Access to near-commercial renewable energy (low carbon) technologies

4. Pioneer in small and micro enterprises

5. Targeting the current government incentives

Need for climate change mitigationThe global climate change regime requires India’s

contributions in mitigating GHGs

India cannot avoid participation citing the need for development. Non-participation might result in economic

consequences.

Expanding rural energy access is a “low hanging fruit”

According to IEA’s reference energy scenario, India’s energy related CO2 emissions are expected to increase

from 1.3 Gt in 2007 to nearly 3.4 Gt by 2030 (IEA, 2009).

The climate stabilization 450 ppm scenario requires India to reduce CO2 emissions to 2.2 Gt by 2030 from 3.4 Gt.

Rural energy access has a potential of up to 0.2 Gt.

Climate Change: Opportunities Market mechanisms like Clean Development Mechanism (CDM)

created by international protocols allow mitigated GHG emissions to be traded in carbon market.

CDM in its present form is not exactly suitable for rural energy access programme. It is too restrictive and preference is always for large scale and easy to implement GHG mitigation projects.

Though sustainable development and conforming to national priorities are listed as critical factors for approval of a CDM project, these are not strictly adhered to in practice.

Projects catering to the needs of poor and maximizing social wellbeing hardly attract attention of CDM market.

Reforms in CDM are being proposed (IEA, 2009) Sectoral crediting mechanisms - emission reductions at the sector level,

relative to a pre-defined sector baseline. Policy CDM - Government policies generating CERs related to renewable

energy, efficiency standards, energy subsidy, etc.

Renewable energy resources

Centralized energy supply alone cannot achieve universal access. Distributed energy systems relying on renewable energy sources will have to play significant roles.

Among renewable energy sources, biomass appears to be most promising for India

Hard or woody biomass for electricity generation Woody biomass being used for cooking/heating is 200 MT Energy forestry in wasteland (40 million hectares) is estimated

to contribute 255 MT (million tonne)

Soft biomass for biogas production for cooking Soft biomass of 300 – 600 MT Cattle dung of 450 MT

Renewable energy technologies

Biomass combustion/gasification technology

Bio-methanation or biogas technology

Both are commercial and India has experience in large-scale dissemination of these technologies.

Power generation potential is 60,000 MW

Biogas potential is more than 100 billion m3/year (adequate for 275 million households).

(Based on Planning Commission, 2005, MNRE, 2010, Ravindranath, et al, 2005, Vijay, 2006)

India; a pioneer in MSME sector

Medium, small & micro enterprise (MSME) sector contributes to 8% of country’s GDP, 45% of manufactured

output and 40% of its exports (MSME, 2010)As per fourth census of MSMEs; in 2006-07

26 million medium, small and micro industries 29% engaged in manufacturing and the remaining 71% in

services 52% of the MSMEs are rural based MSMEs have provided employment to 60 million people This is second only to agriculture Women employees account for 17% of the total employment About 91% of enterprises are of proprietary type indicating the

entrepreneurial qualities of the individuals

Targeting Subsidies

Kerosene subsidy of Rs. 10 billion and LPG subsidy of Rs. 17 billion in 2009, total of Rs. 27 billion (US$ 0.6

billion)

Kerosene and LPG under-recovery of Rs. 458 billion (under pricing) in 2009 (US$ 10.2 billion)

Electricity subsidies are provided by the state governments and they were approximately Rs. 415 billion (US$ 9

billion) in 2006 (IEA, 2007)

Nearly US$ 20 billion per year is available. Major portion of it can be made available as incentives for expanding

energy access.

A proposal for Universal rural energy access

Proposal targets 100% access to modern energy carriers for cooking and lighting by 2030, in 20 years starting from 2010.

The energy needs are to be met with a judicious mix of supply from centralized (electricity grid and LPG) as well as decentralized renewable energy-based systems (electricity and biogas)

It is assumed that a contribution of 50-70% would be from distributed and small–scale renewable energy technologies

The rate of transition towards universal energy access is expected to be slow at the beginning and to pickup towards the end.

Expanding rural energy access through decentralized energy systems would be based on market principles by adopting a public-private partnership driven business model approach

Universal Rural Energy Access

For cooking and lighting Total annual energy requirement of 1,300 PJ

Total investment over a period of 20 years is Rs. 1,650 billion (US$ 37 billion)

Total annual recurring cost is Rs. 236 billion (US$ 5.2 billion).

Annual GHG mitigation potential of 213 million tonne

Average GHG abatement cost of Rs. 1,830/tCO2e (US$ 41/tCO2e)

Lighting access is about US$ 205 per household

Cooking access is about US$ 120 per household

Implementation Framework

Multi-stakeholder and multi-level implementation programme

Enacting an exclusive integrated rural energy policy

Creation of exclusive rural energy access authorities within the government system as leadership institutions

Establishment of energy access funds to enable transitions from the regime of investment/fuel subsidies to

incentive-linked delivery of energy services

Integration of business principles to facilitate affordable and equitable energy sales to households and carbon

trade

Treatment of entrepreneurs as implementation targets and not millions of rural households

• Similar to RGGVY with expanded scope

• More stakeholders• Energy access authorities• Energy access funds• Business principles• Entrepreneurs instead of

franchisees • Carbon markets

Implementation framework

National & State Governments

Create

National Rural Energy Access Authority

Regulatory policies

Stakeholders Financial institutions Energy Organizations Technical organizations Donor agencies Industries NGOs Government ministries

Energy access fund Energy subsidies Budgetary support Donor funds

Regional energy access authorities

Entrepreneurship development programs

Regional energy access funds

Capacity building programs

Entrepreneurs

Micro-enterprises

Energy services

ESCO/ Intermediary

Rural households

Carbon markets

Biogas

Energy Facility

Biogas plant

Biomass gasifier plant

Generator

Biogas distribution

system

Govern-ment

Electricity

GH

G

mitigation

ESCO CERs Carbon market

Micro-enterprise

Payments

Sales revenue

Revenue share

Villages/ Households

Financial institution

Loan/incentive

Biomass source

Cost Cost

Loan

EMI

EM

I By-products

Livelihood Enterprises

Cost/income

Micro-enterprise for energy services

Financial feasibility of Enterprises

Bio-methanation for cooking energy access

Biomass Gasifier and CFLs for lighting and lifeline energy access

A bundling intermediary (ESCO; Energy service company) for accessing carbon market

Bio-methanation enterpriseVillage with 200 households requiring 200m3 capacity biogas

plant/s.Total new investment (biogas plants, distribution system & stoves)

is Rs. 1.6 million annual O&M cost of Rs. 0.21 millionCO2e mitigation per year ranging from 214 – 415 tonneA micro-enterprise model with equity contribution of 20% and a

soft-loan at 6% interest rate and a repayment period of 5 years.A profit (from carbon trade) sharing arrangement with ESCO with

98% for enterprise and 2% for ESCO.Household repayment of Rs. 20,000 (@ Rs. 100/HH/Month).At present CER rates of US$ 20/tCO2, the enterprises will be able

to make only marginal profits during the repayment period and this is expected to improve substantially after 5 years.

Government to provide incentives to increase profitability of the enterprises from energy access fund.

Biomass-gasification enterpriseFive villages with 1000 households requiring 65,000 kWh/year

for basic lighting with efficient technologies.For economies of scale, a 100 kW biomass-gasifier is proposed

with a generation potential of 530,000 kWh per year.Remaining 465,000 kWh will be used for other end-uses and

productive livelihoods at higher tariff. Total new investment is Rs. 5.0 million and annual O&M cost of

Rs. 0.35 million and input fuel cost of Rs. 1.6 million and same financial arrangements as that bio-methanation enterprise.

CO2 mitigation potential per year is 581 tonne assuming grid as the competing option

Differential tariffs for various end-usesAt present CER rates, the enterprise would be under loss during

the first 5 years and making significant profits afterwards.

Profitability measures

Enterprises Biogas-Dung Biogas-Biomass

Biomass Gasifier

Entrepreneurs

IRR 39% 14% 25%

NPV (Rs.) 1,730,000 315,000 3,300,000

ESCO (Intermediary)

IRR 69% 47% 86%

NPV (Rs.) 12,260,000 14,700,000 9,300,000

Enterprises 125 225 75

RHEES ProjectRural Hybrid Energy Enterprise Systems (RHEES)

– Proof of concept – Energy enterprises with profit + equity

– Biomass methanation & Gasification based systems in selected villages– Integrate by-product based enterprises to enhance affordability levels of the

rural poor– By-products – surplus energy, fertilizer, fiber, mushrooms, pest repellant,

etc.

Resources are more than adequate US$ 24 billion/year versus an investment of US$ 37 billion and

expenditure of US$ 5.2 billion/year Energy resources – Requirement is less than the prevailing biomass

consumption

Policies and Institutional mechanisms are already available600,000 micro-enterprises; 2 million employment and 4,500

ESCOs, and by-product based enterprises, employment, livelihood and business

THANKS