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Innovation and connections for energy access

LiveMint logoLiveMint 05-06-2017 Jessica Seddon

Imagine if Air India controlled other airlines’ access to airports, doling out landing rights as and when—or rarely. Or if State Bank of India controlled the payments infrastructure and refused to let any private banks use it. It wouldn’t have to explicitly ban new entrants or approaches to service to effectively eliminate them from the market.

A similar dynamic is currently holding back India’s electricity infrastructure. There have been important achievements. India has climbed 73 ranks to 26th position on the World Bank’s 2016 power accessibility rankings. It has increased the share of renewables , even as other parts of the world threaten to retreat to coal. Installed solar capacity, for example, has jumped five-fold over the last two years.

But there is much work ahead, not just on access or sources, but also in building the infrastructure capacity to support new uses for electricity and the load profiles they imply. Electric vehicles, increasing use of electricity in industry, or expansion of induction cooking, for example, will change the demands being placed on the electricity system.

We need, in particular, a distribution sector that is capable of collaborating with customers—not only for effective billing to restore utilities’ financial health, but also for ensuring efficient energy infrastructure. Collaboration between utilities and consumers is essential for managing load profiles to reduce capital investment. It is important for motivating adoption of appliances that use less energy and limit volatility in the current they draw—perhaps not the foremost concern today, but one that’ll become important in the coming years as more refrigerators, motors, and batteries are attached to the grid. Reducing power use can be much more capital-efficient than building additional capacity—but somehow consumers need to be motivated to make such investments if utility investments are to be avoided.

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We need innovation in technology and business models for managing the utility-customer interface, the last kilometre of service delivery. This flow of experimentation and evolution is not going to come from the state electricity boards (SEBs) that currently oversee most of the grid and modulate its interface with electricity users. SEBs are demonstrably slow to evolve, even with specific and pointed pressure from the centre.

Enter the opportunity. India is fortunate to have a robust entrepreneurial climate, including private-energy service companies providing rural electricity through decentralized, renewable energy-fed mini-grids. More than just additional electricity and wires, mini-grids provide variety in customer servicing models from load management to billing and commercial operations. The sector has long been seen as a kind of supplement to the grid for remote areas, but in fact it has the potential to be the leading edge of change in the utility-consumer interface. But only if mini-grids can interact productively with the national grid.

A useful analogy comes from the banking sector, where competition, technological changes, and explicit investment in a policy and regulatory framework for interoperability have dramatically improved the consumer interface and helped extend services to previously unbanked populations. The same potential exists in electricity with the introduction of an interconnection framework that provides clear incentives, not just for generating more power or setting up a distribution network, but for managing the customer interface.

The government knows the importance of mini-grids and has started to create the context for connecting into the larger network. National tariff policy allows the legacy grid to purchase power from mini-grid operators. The Uttar Pradesh government announced a major policy for the sector in 2016.

But we still have much to learn about the commercial and technical terms that will work in India to create robust incentives for more entrepreneurs to enter the fray, and the best service providers to scale. Our organizations—Okapi Research and Asha Impact—have recently released a comprehensive report “Beyond Off-Grid: Integrating Mini-Grids With India’s Evolving Electricity System”, laying out five interconnection models and their applicability in varying contexts. Each of these models has different technical, commercial and policy implications.

Three overarching themes emerged. First, we need a pricing regime that adequately values business models as well as electricity and assets—a mini-grid linking to the grid is not just an acquisition of power and wires, but of process and intellectual property. Second, we need a provision for safe islanding—allowing the mini-grids to operate independently of the main grid—in order to motivate more experiments in interconnection. Commercial mini-grids compete with the grid by supplying more reliable (albeit more expensive) power, but are often forced to shut down when the grid arrives. Third, we need more open dialogue between the industry and regulators about capital and operating costs of mini-grids. The absence of an industry-level interaction (broader than individual company representations) limits the prospects for identifying prices that balance legitimate concerns about over-priced electricity with the entrepreneurs’ needs for reasonable returns.

The prize is in sight. With an enabling regulatory framework, India has the potential to achieve the same success in electricity access it has seen in financial services, leapfrogging into the future of inter-connected, renewable, “smart” energy.

Jessica Seddon is managing director of Okapi Research and Advisory. Kartik Desai is executive director of Asha Impact, an impact investment and policy advocacy platform for Indian business leaders.

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