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Sustainable Decentralisation Solution for Rural Electrification

Posted in Finance Articles, Total Reads: 2778 , Published on May 15, 2013

Rural India is very important for country’s economic growth as nearly 70% of India’s population lives in rural villages and agriculture is the main source of their livelihood. Consequently rural people have to face a much larger burden of poverty including energy poverty also.

There is diversity of rural population in social, physical, educational and economic background, so the solution would need to be developed taking care of the peculiarities of the region. Providing energy access to such areas means that adequate infrastructure must be in place so that power can reach corners of the country. Moreover the electricity generated must be clean enough to be environmentally acceptable, affordable and feasible to implement. Renewable energy fits most of these criteria; also renewable energy can be generated in a decentralized facility which makes it more suitable for providing power to geographically remote areas.


Comparison of Different Decentralized Technology Solutions


Small Wind




Dual fuel engine

100 percent producer gas-engine system





(less mature than large wind)




Estimated life

>10 yrs

>15 yrs

20-25 yrs

20-25 yrs

20-25 yrs

3 yrs

Levelized unit cost of electricity(Rs/ kWh),



3.55 to 5.33




Capital cost of equipment (Rs/kW)





124,000- 216,000


Range of unit capacity (kW)







Fuel availability

Regional, dependent on harvest and forestry

Regional and site specific

Availability across India. Seasonal diurnal variation

Few sites and regions where relevant

Reliable if distribution network is strong

Installed capacity,Dec12(distributed)

128 MW

1.07 MW

4.42 MW

10 MW

Source: ABPS Infra Offgrid, 2012 Report

The above analysis shows that micro-hydro projects are the most economical form of decentralized technology with a levelized cost of 2.6-3.0/kWh. Biomass and small wind-based generation costs Rs 3.1-4.5/kWh and 3.5-5.0/kWh respectively. Diesel generated power is most expensive among all. Among renewable sources solar is most expensive to generate power.

Available Distributed Renewable Electricity Generation Business Models

Various types of Offgrid electricity models exits which uses different type of renewable sources. Decentralized facility models mainly depend upon status of local governance, type of renewable energy used and type and quantum of load/demand existing in thevillage. In India various decentralized renewable models are implemented in various regions which can be summarized asfollows:

Different Renewable Technology Options as per Load Profile

Load Profile

Technology Options


High load areas (>50kW)

• Rural industry

• Irrigation

• Gasifier

• Micro hydro

• Husk Power System

• Desi power

• Many micro hydro sites

Medium load (10-20kW)

• Domestic load

• Livelihood/irrigation

• Gasifier

• Micro hydro

• VESP/TERI-NTPC pilot projects

• Many micro hydro sites

Low load (<10kW)

• Domestic


• Commercial lighting


• Gasifier

• Micro hydro

• Solar Home

• VESP pilot projects

• Many micro hydro sites

Source: ABPS Infra 2012 Offgrid Report

Husk Power System Business Model: HPS follows a demand driven approach which it quantifies in watt-hours. The model caters to 500-600 households in a village. Households pay a initial installation charge of Rs100 which covers a substantial portion of grid extension expenditure. HPS has mainly 3 business models:

1. BOOM (Build, Own, Operate and Maintain)

2. BOM (Build, Own and Maintain)

3. BM (Build and Maintain)

HPS trains its operators in Patna (Bihar) for 2 months and then send them to its operating plant for on-job training. In addition, two more people are associated with each HPS plant – one of them involves in buying and regular supply of raw material (husk) and alsoinvolved  in the revenue collection. The other one is an electrician for a cluster of villages. Besides this arrangement, HPS has also cluster level manager who looks after 5-6 villages or in the range of 20-25km. HPS has maintained strong relationships with rice husk suppliers to ensure smooth supply of raw material at low cost.

HPS adopts differential pricing formula to calculate electricity charges. Every household pay a fixed per month charge of Rs 45 per CFL of 15W while shop has to pay monthly charge of Rs 80 per CFL. For households which want to operate fan, TV etc. charges are calculated on wattage-hour basis.

1 unit of HPS (HPSU) = 15W x 6hrs x 30days = 2.7kwh equivalent

On an average a typical 32kVA plant is able to collect Rs 60,000 per month. The total monthly operating cost which includes manpower cost also comes out to be Rs 25,000. So this makes a profit marginof Rs 35,000, out of which the local entrepreneur has to pay Rs 15,000 to HPS per month, thus making the project financially sustainable.

VESP – VEC Model: Village Energy Committee (VEC) plays a role of stand-alone power producer, distributor and supplier of electricity and collects electricity charges, thus managing the revenue. Usually the electricity generated from the plant is distributed to the households through a local mini-grid. As most of these decentralized projects are subsidy driven, the tariff is set by VEC in consultation with the PIA (Project Implementation Agency) taking care of fuel and the O&M costs. In most cases electricity charges are set at a fixed rate based on the ability and willingness of the local community to pay which ranges between Rs 10-20 per light per month and Rs 50 per socket per month for a 4-5hrs of power supply.


Fig: VEC Model for decentralized electricity distribution

TERI Model: NTPC, the largest power generation company has set up decentralized projects for rural electrification based on a model similar to VEC model. NTPC provide the technical consultancy and does the social engineering in the village either directly or with the help of NGO. VEC has the role of project custodian, responsibility of revenue collection and O&M. Local youths from the village are given training to operate the system. The tariff for the electricity usage is set on the flat rate basis and is usually Rs 30 per light point.


Fig: TERI Model

Advantages of using Decentralized Technology in Indian Scenario

Considering the unique demographic and wide diversification in terms of terrain along with population living in very remote areas, decentralized electricity generation carry an edge over centralized electricity for rural electrification in India.

  • Minimum Losses: India suffers from huge Aggregate Technical & Commercial losses (AT&C) amounting to a national average of 27% of the total electricity generation. Decentralized generation means electricity is produced at the place where it is to be consumed, so there are no issues related to grid over power evacuation. Hence grid losses are minimal. For instance if we require 3000MW output from centralized power facility, we have to install the power capacity of at least 5000 MW which will also account for all the losses. But the same power output can be achieved by installing 3500-4000MW in a decentralized facility.
  • Ease in Installation, Maintenance and Operation: Decentralized facility require less land as compared to centralized facility. Offgrid technology does not require complex controls; as a result high skilled manpower is not required. So there is ease in installation, maintenance and operation of decentralized technology.
  • Employment Opportunity for SME & local entrepreneurs: Indian SME contribute only 8% of total GDP compared to world average of 65%.SME represent 22% of the total employed population in India. Decentralized facility would also ensure the participation of local people, SME as franchisees in the business model to enhance productivity and generation of electricity.

Conclusion: Sustainable clean energy plays a important role in eradicating energy poverty and also environment degradation. Decentralized generation of electricity is win-win situation for the poor and the environment. For the rural poor, without basic energy services, it provides the cheapest option of energy. Hence decentralized models should be promoted to serve the energy needs of rural India.

The Article has been authored by Anuj Pundir - Great Lakes IEMR, Gurgaon. 


HPS Husk Power System

VESP Village Energy Security Programme

DESI Decentralized Energy System India Ltd.

SPV Solar Photo-Voltaic

VEC Village Energy Committee

OEM Original Equipment Manufacture

MNRE Minister of New and Renewable Energy

DPR Detailed Project Report

O&M Operation and Maintenance

TA Technical Assistance


ABPS Infra Off grid 2012 report
Rural Electrification Corporation: Annual Report 2011-12
TERI Annual Report 2011

NTPC National Thermal Power Corporation Power Ltd.

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