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UP shows the way in power reform

Investment in mini-grids is a positive thing in the government’s initiatives on reforms in electricity

analysis Updated: Apr 26, 2016 21:05 IST
Uttar Pradesh has taken the lead and announced its mini-grid policy to provide a conducive investment climate
Uttar Pradesh has taken the lead and announced its mini-grid policy to provide a conducive investment climate(Hindustan Times)

Some of the recent developments on power, such as the notification of the tariff policy and the launch of the UDAY scheme, demonstrate that the central and state governments are working to ensure power for all. One area worth discussing is the government’s recognition of mini-grids. This policy recognises the importance of ensuring last-mile connectivity by creating an enabling condition for investing in mini-grids. Uttar Pradesh took the lead and announced its mini-grid policy to provide a conducive investment climate. The state regulator announced the draft regulations for operationalising the policy. The last development was the constitution of a committee by the ministry of new and renewable energy for developing a mini-grid framework.

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However, there are some areas that need to be addressed. The tariff policy mentions that investment involved in setting up mini-grids is substantial and one of the investment risks is the grid reaching the area before full investment is recovered. It further adds that to mitigate such risks and incentivise investment, an appropriate framework is required to ensure compulsory purchase of power into the grid from such mini-grids.

The UP policy is an apt example. It allows projects to be established by the private sector with 10 years of mandatory operation and maintenance, with the government giving 30% subsidy. However, the monthly tariff is capped at `60-120, depending on load. Alternatively, the policy provides for mini-grids without subsidy in which the developers are expected to identify projects and arrange for land. They will be allowed to charge tariffs based on an understanding with the consumers.

To bring parity and at the same time ensure the viability of mini-grids, the committee may think of creating a universal service obligation. Using Aadhar, this amount can be used to provide direct subsidy to poor consumers, who can pay for the electricity from the micro-grids.

Second, the central and state policies indicate that mini-grids can start feeding power to the main grid when the grid reaches such villages. However, there are still some ambiguities related to their inter-connectedness and fate of the mini-grid infrastructure when the grid reaches such villages. The 2013 regulations of the Central Electricity Authority on interconnections do not provide full clarity. The key regulatory issue is developing standards that will allow for a cost-effective interconnection solution without jeopardising the safety and reliability of the power systems. The UP regulation is also unclear whether the developer can continue to serve locally, using distributed power and uptake electricity from the grid when it reaches there.

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Third, the feed-in-tariff (FIT) for mini-grids should not be set similar to FIT for larger capacity grid-connected systems, which has the inherent advantage of ‘economies of scale’. However, large projects suffer from higher technical losses when the generated power is taken to remote villages.

While the developments are positive, what is needed is to ensure that ambiguities are addressed through consultations with all stakeholders for ease of doing business for mini-grid developers, the reliability of the mini-grids and affordable consumer tariffs.

Debajit Palit is associate director at TERI

The views expressed are personal