The Future of Rural Electrification

>> Oct 22, 2010

According to the International Energy Agency (IEA  ) 1.2 billion people will continue to lack access to energy by 2030 worldwide – 87% of which will live in rural areas.  In September, the IEA, along with other United Nations agencies released an excerpt of the world energy outlook 2010   meant to make the case that reversing this outcome and providing universal energy access was an     "ambitious yet achievable  ” goal. Yet to achieve a radically different outcome requires a fundamental shift in the way the world approaches the provision of rural energy services.

rural elec The energy outlook gave the need for this shift a nod by acknowledging the very limited role that traditional grid extension will play in achieving universal electricity access.

While this comes as no surprise to the 400 million Indians still waiting for electricity, it may be surprising to the institutions and governments that continue to accept the flawed notion that centralized fossil fuel power generation, transmission, and distribution is up to the task; A notion that has lead to supply side increases in India of 60% over the past decade that have only increased energy access by 10%  .  

Recognizing the failure of traditional grid extension, the energy outlook concluded that in order to achieve universal access by 2030 only 30% of rural communities will be connected through the grid. The remaining 70% will require mini-grids (75%) or off grid (25%) energy systems. The IEA even goes as far to say that “decentralized solutions…will, indeed, account for most of the investment over the projection period.” Moreover, the investment required to achieve universal energy access is only $33 billion per year above what current policies promise – a mere 3% of global energy investment.

This stands in stark contrast to the enormous costs associated with pushing the exact opposite policies of centralized power generation and grid extension. In India electricity supply companies lose roughly $5.6 billion annually   due to large scale budgetary support and some of the highest transmission and distribution losses (25-40%) in the world. By eliminating these inefficiencies India alone could contribute 16% of the global investment needed towards achieving energy access goals – a critical contribution considering the country currently is home to 28% of the world’s un-electrified population.

The question however, is how best to invest these savings. Many who currently control the purse strings would argue that transmission and distribution improvements, good governance measures that increase the government’s ability to reduce theft and recover costs, and more efficient generation equipment like super critical coal are the best method. However, the IEA makes a resounding case that this is an outdated, inefficient, and flawed way of thinking about rural electrification.

Indeed the failure of this paradigm has generated a new era of Indian social entrepreneurs   who have stepped in to provide economical and appropriate solutions for rural communities. For instance, today the cost of coal generation is a mere 2 rupees/kilowatt hour. Compared to micro hydro at 4.5 rupees, biomass at 5 rupees, wind at 12 rupees or solar at 18 rupees this may appear to be the most cost effective source. However, when the costs of infrastructure, maintenance, distribution and grid line extension are included coal is no longer cost competitive with micro hydro or biomass for communities 5 kilometers (~3 miles) from the grid. When you move 10 kilometers (~6 miles) from the grid coal is no longer competitive with wind, and at a mere 15 kilometers (~10 miles) it is no longer competitive with solar. These are the economic calculations before factoring in the Government of India’s incentives for renewables  , or the enormous hidden costs of coal  .

Source: Vasudha Foundation

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