OASYS – South Asia Project

Workshop on Off-‐grid Access System in South Asia

Sustainable Energy for All – Regulation and Governance Issues for Off-‐grid

Sector

Date: January 5, 2012; Venue: TERI, New Delhi

Organised by TERI & TERI University

Workshop Proceedings

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Acknowledgement

The activities reported in this report are funded by an EPSRC/ DfID research grant (EP/G063826/1) from the RCUK Energy Programme. The Energy Programme is a RCUK cross-council initiative led by EPSRC and contributed to by ESRC, NERC, BBSRC and STFC.

Disclaimer

The views expressed in this report are those of the authors and do not necessarily represent the views of the institutions they are affiliated to or the funding agencies.

Ta b l e o f Co n t e n t s

T A B L E O F C O N T E N T S ......................................................................................................... . 1

2 . 0 O B J E C T I V E O F T H E W O R K S H O P ........................................................................... . 2

2.1 Speakers ..............................................................................................................................  2

2.2 Participants .........................................................................................................................  3

3 . 0 S U M M A R Y O F S E S S I O N S ........................................................................................... . 3

Session 3.1: Inaugural Session ..............................................................................................  3

Session 3.2: Regulatory structures for off-grid projects ....................................................  5

Session 3.3: Implementation and governance of off-grid projects  ................................. 10

Session 3.4: Moderated discussion on regulation & governance issues for off-grid sector  

...........................................................................................................................................  12

4 . 0 S U M M I N G U P A N D C O N C L U S I O N ................................................................... . 14

A N N E X U R E I : P R O G R A M S C H E D U L E ....................................................................... . 16

A N N E X U R E I I : L I S T O F P A R T I C I P A N T S ............................................................... . 18

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1 . 0 B ack g rou n dOff-grid electricity access systems are of great interest, particularly in developing countries like India and other South Asian countries. Apart from the capacity to provide reliable, affordable and sustainable electricity access to remote villages as well as peri-urban areas with no or limited access to centralized grid electricity, they also have the potential ability to support local development, create local employment, and contribute to climate change mitigation. Despite growing popularity, commercial viability, operational issues, social issues, local governance issues plus institutional challenges remain the primary concerns for the sustainability of any decentralized energy system. Developing a techno-economically viable and replicable business model for every region is perhaps the first step in implementation of a successful off-grid access system.

As part of the research project on Off-grid Electricity Access System in South Asia (OASYS), a Regional Workshop was organized on January 5, 2012 at TERI, New Delhi, India. The project is led by University of Dundee with TERI, TERI University, Edinburgh Napier University and The University of Manchester as consortium partners. The project aims to find appropriate local solutions, which are techno-economically viable, institutionally feasible, socio- politically acceptable and environmentally sound, for sustainable electricity supply to off-grid areas. This workshop brought together a myriad of stakeholders, from India, Nepal, Sri Lanka, Bangladesh, Singapore and UK, consisting of off-grid energy sector researchers and professionals, bilateral and multilateral organizations, government officials, consultants and development practitioners from NGO and CBOs.

2 . 0 O b j e c t i ve o f t h e w o rk sh op

The aim of the workshop was to give an opportunity to off grid electricity sector researchers and practioners from South Asian countries to come together in a common platform, where they could discuss and share their experiences and brainstorm to arrive at various possible innovative and sustainable financing and delivery mechanisms to scale up off-grid energy access systems in various parts of South Asia. Since the year 2012 is observed by United Nations (UN) as ‘International Year of Sustainable Energy for All’, it was decided to align the theme of the workshop with the UN’s declaration and to focus on key aspects of off-grid energy sustainability issues. Accordingly the workshop was themed as “Sustainable Energy for All – Regulation and Governance Issues for Off-grid Sector” and sessions were structured suitably.

2.1 SpeakersSenior officials from the Governments of India, Bangladesh, Nepal and Sri Lanka, multilateral organizations, academia, NGOs, consultants, think tanks etc. highlighted some of the key concerns in the field of governance and regulatory aspects of off-grid electrification sector and debated about resolving the challenges ahead. The programme schedule including the list of speakers is appended in Annexure I.

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2.2 ParticipantsThe participants for the workshop consisted of policy makers and regulators, business developers, NGOs, consultants, people from grass root levels, consumer groups, scholars, representatives from various think tanks, and several other stakeholders. Participants from almost all the South Asian countries and several other countries gathered together to debate and deliberate on the identified theme, discuss case studies and suggest ways forward to mainstream a regulatory regime for the off-grid energy sector in South Asia. The complete list of participants is also provided in Annexure II.

3 . 0 S u m m a r y o f S e s s i o n s

The workshop comprised of four sessions including the inaugural session, two technical sessions and panel discussion. The following section highlights the summary of each session.

Session 3.1: Inaugural SessionThe workshop was started with a welcome remark by Dr Akanksha Chaurey, Director, TERI. She espoused the importance and opportuneness of such a workshop with such a crucial issue at hand and the need to build consensus on the appropriate regulatory framework and instruments for such a sensitive sector. She remarked that electricity regulators in the region have dealt with the off-grid sector in a cautious manner so far. There exist large potential in the off-grid sector to drive the developing economies in the sustainable development trajectory. Since the sector possesses a set of positive externalities, there is a need to put in place a sector watchdog to streamline the benefits to the desired sections in the society. This introductory note was followed by a thematic presentation by the principal investigator of the project Dr Subhes Bhattacharyya from University of Dundee, UK. The presentation had two major sections – (i) an overview of the project, and (ii) setting the theme of the workshop. The first part of the presentation delved deep into the aims and objectives of the project, achievements made so far, and proposed future activities and timelines for execution of such activities. The second part of the presentation set the theme of the workshop by throwing upon some key challenges in regulating the sector. The key challenges were formulated in terms of some important question such as :

• Should the sector be regulated at all? If yes, then at what point in time?

• What kind of regulation is required for the sector?

• What sort of regulatory incentive structures are to be designed?

• What should be the quality of service, safety and security of supply?

• Should we cherry pick technology or all technologies should be considered?

Dr Bhattacharyya also opined that there is also a need to ensure that there should not be too much of regulation nor lack of regulation. Finally, Dr Bhattacharyya reiterated the need for a cautious approach to regulation.

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Delivering the key note address, Dr Leena Srivastava, Executive Director, TERI, pointed out that the UN’s enunciation of the Year 2012 as ‘International Year of Sustainable Energy for All’ has three major goals i.e. energy access by 2020, doubling of the current energy efficiency standards, and increase the share of renewables. She highlighted that these goals are interconnected and operationalizing these goals into real ‘nuts and bolts’ is not an easy task. Going back to the question of energy access, she opined that there have been renewed interests shown worldwide to revisit and reformulate the exact definition of energy access. The existing definition of energy access has been found to be inadequate and does not able to capture the multi-dimensionality and complexity of the issues involved with the concept of access to energy. She put forward that when we talk of energy access we must bear in mind the question of energy access at what level? Are we focusing only on 1.4 billion people as oft quoted who lack access to electricity? Or Are we talking of residential energy needs? Or Are we thinking of energy access in terms of stated millennium development goals (MDGs) i.e. other productive goals as well. She further pointed out that the whole question is how do we establish the benchmark for energy access? If energy access is considered in terms of accelerating other developmental goals, what would be the appropriate definition of energy access and what would be the right kind of benchmark? She contended that we have yet to see a consensus in having a common definition of energy access and we are still struggling with it. We have our own pet approaches to define it which do not capture the entire gamut of complexities in defining the ‘access to energy’. It is also often debated that a uniform approach may not serve the purpose. Often the question boils down to not of providing access to energy but access to services. She highlighted that a related concern is about the monitoring the level of energy access. How to monitor it? How do you define the programme? How do you convert targets into real implementable actions? She elaborated that finding an appropriate role for private players in the sector is also crucial. Given the diminishing and limited budgetary resources, private sector is required to play a significant role in addressing the key and ever increasing challenges of energy access. If this happens, then there is a need to have proper regulatory structure in place. She also opined that quality of supply has been a major consideration which has been less emphasized so far and often got a secondary priority in the discussions. Therefore, conceiving an idea of introducing a regulatory watchdog sounds to be premised on well-reasoned logic. However, she emphasized that there is a need to look into all the pros and cons of creating a regulatory architecture.

Delivering the Special Address, Shri Rakesh Sahni, Chairman, Madhya Pradesh Electricity Regulatory Commission (MPERC), mentioned some specific practical issues associated with the off-grid sector. Highlighting the concerns with the current regulatory framework created to regulate grid supplied electricity, Shri Sahni pointed that in the current operationalizing framework electricity regulators have not grown at the spirit of reforms act and legislations. He pointed out that there has been a deliberate and conscious decision not to touch off-grid sector by the regulators. Since, the current regulatory portfolio has already filled with multiplicity of regulatory instruments; it becomes more difficult to incorporate off-grid sector into the current domain of regulatory structure. Further, the varying forms of off-grid models would compound the problem further. Shri Sahni was of the view that local level institutions could be given an informal set of guidelines or loosely structured framework, instead of creating a whole new artefact of regulatory structure for the sector. He emphasized that solutions devised for off-grid sector must be made as simple as possible.

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Session 3.2: Regulatory structures for off-grid projects

Chair: - Dr S P Gon Choudhuri, Former Director of West Bengal RenewableEnergy Development Agency

Dr S P Gon Choudhuri started the session by highlighting some of the key challenges in the off-grid sector. First, he pointed out that every day 250 km of distribution lines are being extended in India under the national electrification programme of Ministry of Power (MoP). Hence, any business model for the off-grid sector needs to consider this in order to be sustainable in the long run. However, it also needs to be noted that extending lines in remote rural areas is not the core business of distribution companies and they are merely fulfilling their social obligation. This is because discoms do not generate sufficient revenue from rural consumers. In fact, in certain places the cost of electricity generation is as high as Rs 90/kWh however it is subsidized to a large extent by the government and sold at less than Rs 3.0/kWh. Further, though the electricity infrastructure is built, the power supply in such areas is highly erratic. Essentially, the rural consumers just have “access to electric infrastructure” and not “access to electricity”. Therefore for any business model in the decentralized renewable energy sector to compete or co-exist with the discom in such a scenario, there should be a stipulation/regulation that discoms should provide reliable power supply for a minimum of 10-12 hours and not just focus on building distribution infrastructure. This would create conditions for emergence of appropriate business models for off-grid areas.

Secondly, he stressed on the importance of “viability gap funding” for remote rural areas. Elaborating the concept, he said that this type of funding is being tried out under the Decentralized Distributed Generation (DDG) scheme of MoP. Citing an example he said, if the cost of generation is approximately 20 US cents per unit, while the retail tariff fixed by regulator is around 15 US cents per unit, then the gap can be funded to private developers based on a bidding scheme. Areas can be earmarked for which bids can be called for and the least price requested by a bidder can be awarded the same. This gap between the least price and tariff can come from the state exchequer as a performance based subsidy. Meter readers from the state discom can check the meter readings on a monthly basis, based on which performance based subsidy can be disbursed.

Thirdly, he mentioned the ambitious target of Jawaharlal Nehru National Solar Mission (JNNSM) of installing 2000 MW of off-grid power. He stated that achieving such an ambitious target in the next 10 years will not be possible without private participation and proposed reverse bidding based process as a viable market based approach for the scheme as is being followed for the grid connected projects under the scheme.

He also brought the attention of the floor to the fact that while assessing the financial viability of off-grid projects, cost of battery replacement is usually ignored. This usually acts as a deterrent for developing a sustainable business model. This is because private participation is not forthcoming in this sector and entrepreneurs operate projects for a short term till the time subsidies and incentives are available and the economics is favorable. However, once the battery replacement costs are also factored in, it adds to the cost and makes it less attractive for private entrepreneurs.

Finally, he highlighted that capital subsidies on solar lanterns is around 90% of the total capital cost, which comes out to be Rs 6 per whereas the cost of electricity generation is

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around Rs 20-25 per unit, which means that around Rs 14-19 per unit is being paid by the poor consumer from his pocket. Even with subsidy, such a model is not sustainable in the long run as the rural consumers will not be able to afford such systems. This in fact is not only a burden on the consumer, it is unfair as his urban counterparts pay much less for electricity. He stated that the real price of renewable electricity needs to be calculated while assessing the government’s capacity to fund such projects. Private sector should play a big role in the off-grid space and to make it attractive for them, performance based subsidy should be given to such entrepreneurs. On the other hand, discoms should be subject to quality of service regulations which will restrict them from focusing only on infrastructure creation and will create an environment for reliable service provision.

Experience from Bangladesh by Mr Al Mudabbir Bin Anam

The first presentation was given by Mr Al Mudabbir Bin Anam, Deputy Director (Sustainable Energy), Ministry of Power, Government of Bangladesh. He presented the Bangladesh perspective on rural electrification particularly focusing on IDCOL’s solar home systems (SHS) project. He also talked about Bangladesh Government‘s Vision 2021 which aims at providing electricity to all by the year 2021. He pointed out that a four- tier plan is being put in place which focuses on aggressive expansion based on grid extension, development of mini-grids and scaling up of the existing SHS programme. He also discussed the widely successful IDCOL SHS project, which is one of the fastest growing off- grid programmes in the world, explaining the institutional model and financing scheme. He concluded by highlighting the development of mini grids by private operators under the Remote Area Power Supply System (RAPPS) and shared the strengths and weaknesses of the model. He pointed out that solar PV mini-grids will be taken up under the RAPPS by involving the private developers. The government shall be providing 50% grant, whereas30% will be arranged as soft loan by IDCOL and the balance will be equity contribution bythe developer. Rural Electrification Board of Bangladesh will play the supervisory role and will also provide viability gap financing.

Experience from Sri Lanka by Mr Harsha Wickramasinghe

The next presentation was given by Mr Harsha Wickramasinghe, Deputy Director General, Sri Lanka Sustainable Energy Authority. He presented Sri Lanka’s experience in rural electrification based on village hydro schemes, challenges faced and lessons learnt. Interestingly he shared both sides of the story – the government’s view and the practitioner’s perspective owing to his stint with a private project development company, prior to joining the Govt. He pointed out that Sri Lanka has been able to achieve 92% electrification, in which Sri Lanka’s topography, political and socio economic conditions played a big role. Sri Lanka is a compact country where all regions are largely accessible within six hours of travel therefore it has a geographical advantage compared to other South Asian countries. The development of the renewable energy sector in Sri Lanka could be traced into three distinct phases – Pre Energy Services Delivery project (ESD)1, ESD and post ESD. He highlighted that the high connection fees of the hydro schemes, decline in donor finance due to Sri Lanka’s transition to a middle income bracket and few isolated communities lying in forests and fringes are some of the issues in rural electrification. Defining the kind of off-gridprojects he said that they were mostly projects ranging from 5-20kW catering to 20-100

1 ESD is a World Bank funded Renewable energy project in Sri Lanka.

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households. Further elaborating the village hydro project structure, he said that village hydro Projects are essentially community investments, implemented by a community based organization and funded by many sources. Community itself contributes labour and funds in addition to finance from a rural bank / micro finance institute and Global Environmental Facility (GEF). It is operated and maintained by a society / association. The project is facilitated by a project developer and supervised by Provincial authorities. He highlighted the administrative hurdles in getting the approvals and clearances from various statutory agencies and legal barriers in registering a consumer society. Finally he mentioned some of the key success factors of the programme such as enabling policy environment, lenient regulator, structured World Bank funding programme, proactive role of project developers- the key stakeholder and socially progressive communities. Some areas of improvement were also pointed out such as a firm stand on areas marked for off-grid electrification certified by the utility which does not threaten the sustainability of off-grid projects, a simplified administrative process for registration of societies, an asset transfer mechanism after project commissioning and importantly the need to learn from experience which is lacking objective at present.

Experiences from India on micro grid operators by Mr Nikhil Jaisinghani

Mr Nikhil Jaisinghani from the Network of Micro grid operators and Director of Mera Gao Power shared the Indian micro-grid experience with the audience. He spoke about some of the challenges which micro grid operators face in India. He specified the characteristics of off-grid distributed energy operators or micro grid operators – which essentially are private social enterprises, sustainable and scalable in the long run in contrast to NGO driven models which were mostly dependent on donor financing and that is entirely subject to donor priorities and conditionality and ultimately threaten the sustainability of the model. He also mentioned that micro grid operators were involved in the entire value chain of the power supply –generation, transmission and distribution and directly worked with consumers. Some of the challenges which the off-grid sector faces are also the risks foreseen by the investors in venturing into this space. Essentially off-grid power supply is a high cost high risk model. Elaborating on the payment collection issues, he said that rural consumers paid small periodic instalments unlike urban consumers. For instance Mera Gao Power, collected Rs 25 as weekly charges from consumers, posing a high collection cost to the company, in addition to inserting many hands between company and consumer. Here investments in mobile banking could greatly facilitate improved operations, where in consumers could directly make payments through mobile phones instead of company having to manually collect money from consumers.

On the regulation front, he said that policy decision not to put ceiling on price or floor on service standards would help encourage investment into the sector. Capping prices would be a detrimental move as companies already have to compete with subsidized grid electricity, so they are in a sense already capped as far as pricing is concerned. He also said that it is of utmost importance that the public and private sector coordinate with each other as they both are striving for a common goal – rural electrification. In this regard, the grid expansion needs to be strategic and not replace services already invested in or in other words, should not replace the technologies where private sector has already invested in. Opportunity for the private sector also existed in those places where there was unreliable grid power supply. In this context, he reiterated that villages currently served by micro grid operators should be the last priority for grid expansion and operators should be allowed to

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freely operate in poorly served villages. Logistics and financing barriers to setting up decentralized renewable energy projects were also highlighted.

The presentation ended with some key recommendations for the industry and government. For the industry, the need for strong collaboration and developing an effective network that develops common technical and operational processes and extensively engages with the government was emphasized. Citing the example of the micro finance industry which is thriving in India owing to collaboration among various MFIs and coordinated efforts by developing common codes of practice, it was suggested that the off-grid sector also needs to learn from this sector and evolve in the same way. For the government, it was recommended that there should not be any regulation and the micro grid operators should be allowed to work without the threat of national expansion. Industry exemptions for cross border paper work requirements and importation of select commodities should be supported.

Experiences from Kenya by Mr Charles Muchunku

The last presentation of the session was made by Mr Charles Muchunku, Senior Consultant from Camco who presented Kenya’s experience in rural electrification. He pointed out that only 22% households have access to electricity and around 80% of the households were within 5 km of the national grid. The steep differential in prices of grid extension and off- grid electrification was highlighted. Even with subsidy the cost of getting a connection from the grid was as high as $400 in comparison to $ 7.5 for lantern or $160 for SHS. Some of the key policy initiatives were also discussed such as the rural electrification fund levy (5% of cess charged on electricity consumption goes as proceeds for the fund), uniform tariff policy where in same tariff was charged for the national grid and isolated mini grids running on diesel, operated by public utility. He also pointed out that a number of community owned and operated mini grids (diesel and pico hydro) were being set up in Kenya. On the same lines, he said that an ongoing research project with University of Oslo is trying to implement a 2 kW solar powered off-grid energy centre providing electricity for lantern renting, phone and battery charging, IT services and entertainment. It is targeting 400 households in 5 km radius and is considering CBO/concessional approach.

In the end, he flagged some important questions for the floor to consider during discussions.

• For a business proposition to make sense, there is a need to commercialize the sector, and commercialization is also the path to sustainability. Given this, can off grid electricity supply be commercially attractive?

• How should the subsidy be structured? Should subsidy be for CAPEX or OPEX?

• Should off-grid supply be based on renewables alone? Does that limit productive applications?

• How can the model be rolled quickly and easily? Should it be through competitive bidding often preferred by government for ease of implementation?

Setting the backdrop for the discussion, Dr Gon Choudhuri, Chairperson of the Session, stated that country level experiences as discussed during the session have their own targets for electrification and a common thread which emerged from the presentations is that grid extension is definitely high on the agenda of governments and all of them seek to provide grid electricity in another 8-10 years’ timeframe. However off-grid can be an interim solution till the time grid reaches the village. Here he cited the example of DDG scheme of Government of India, which initially can function as an independent mini grid, but with

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grid extension, can get connected to the main grid. Given this scenario, what should be our objective – Should we have regulation for off-grid or not since with grid extension the mini grid will automatically fall under the regulatory purview? Secondly, in such a situation what should be the options for the private project developers– whether they should purchase bulk power from the utility and sell it to the rural consumers or should the discom purchase the assets created by the developer at market determined rates?

Mr Ram Prasad Dithal from Nepal posed a question to Mr Bin Anam from Bangladesh as to what was the motive behind engaging NGOs and community based organizations in the IDCOL SHS programme. Since they were not for profit agencies, how do they manage to deliver services in the villages? Mr Bin Anam responded by saying that the government found it difficult to get involved in the day-to day operations of SHS project. The idea to engage community based organizations came up primarily because they understand the community needs well and understand the socio-cultural perspective.

Mr Hari Natarajan from S3IDF posed a clarification from Mr Bin Anam about the viability gap funding in the solar micro grid project. He also pointed a question to Dr Gon Choudhuri asking what should be the realistic expectation of the grid extending to the entire country at a cost which is minimal, since capacity additions are not happening and loss levels are high. In this context, where the electricity supply shortages are high even in urban areas, should rural consumers wait for grid or should they look at alternative options? And when grid reaches the village electrified by off-grid technology, how should they plug into the larger grid because there is a need to take the whole issue of “dead investments” seriously. As poor people already pay a much higher cost for off-grid technologies say SHS, with grid extending they will have to bear a whole new cost. Dr Gon Choudhuri responded to this question by pointing out that grid extension is a politically contentious issue and features high on the agenda of politicians who understand conventional power better than renewables. This is probably the reason electricity provision to all is a priority and efforts of MoP such as RGGVY are being seriously pushed forward. But simultaneously there is a need to look at alternative approaches such as the DDG scheme of MoP. Since this scheme aims at the transformation of the rural economy by providing productive applications in addition to basic services (lighting, cooking) as opposed to solar lanterns and other standalone RE technologies, it is a sustainable option and worth seriously pursuing. He also suggested that once mini grid becomes connected to the main grid either the private developer can buy bulk power from the disocm or the discom can purchase the asset at mutually agreed rates and continue supplying power.

Another question was posed to Mr Jaisinghani where in it was asked that if the utility paid the electricity charges of Rs 25 (weekly collection of MGP) or when the mini grid gets connected to the national grid, the government pays the operator, instead of the company having to collect weekly charges from rural consumers, will it not ease the operations and allow it to scale up? Will that not be a workable solution? To this Mr Jaisinghani responded by saying that such a model would seem to work on paper but will not be workable when it comes to actual implementation. He said that in a situation where the government paid the operator weekly charges and rural consumers enjoy free power and unexpectedly the government priorities changed and it decided to channelize the money somewhere else, then in that case it will be the rural consumers who will suffer. Though the consumers would be in a position to pay, they will already have the precedent of free power and therefore they will not be keen on paying for electricity. Also a model which runs the risk of price instability is not a financially viable model as the consumer confidence is lost.

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The last question was posed by Mr Ramanathan, Distinguished Fellow, TERI, to the presenters. He sought clarification if all the countries had a similar definition of electrification and whether a consumer satisfaction survey was carried out in Sri Lanka to see how many village hydro projects performed satisfactorily. He also suggested that areas should not be quarantined solely for off-grid electrification (e.g. mini grids). Both grid extension and off-grid can co-exist through proper regulation. Mr Bin Anam stated that Bangladesh had a similar definition of electrification as in India and that village electrification do not consider cent percent households electrification. On the other hand, Mr Wickramasinghe clarified that Sri Lanka considered real electricity connections and supply to households on a 24x7 basis.

Session 3.3: Implementation and governance of off-grid projects

Chair: Mr Hari Natarajan, Chief Executive Officer, S3IDF

Governance of Small-scale Renewable Energy in Asia - Ms. Ira Martina Drupady

The first presentation in the session titled ‘The Governance of Small-scale Renewable Energy in Asia’ was given by Ms. Ira Martina Drupady from National University of Singapore. Out of the total set of 10 different case studies compiled by her as part of Energy Governance Case study series, Ms. Drupady presented analysis of REDP from China and SHS project from Indonesia. The two case studies, while dealing with the same technology (i.e. solar home system), yielded highly contrasting results. REDP —which exceeded its initial target— was considered as a case of success, whereas SHSP of Indonesia fell short of its target by a huge margin was cited a failure. The key research focus of her study dealt with the benefits of off-grid programmes, the barriers faced during implementation and the subsequent lessons offered to energy policy and development.

After a brief background to the two projects, an in-depth analysis and comparison was presented based on a few key parameters/criteria. Parameters such as the design of project, the financing options, the implementations arrangements and the presence/absence of a consumer credit line and rising of consumer awareness were discussed and the significant differences were highlighted. A summary of benefits attained by these projects was also mapped. Challenges to either project or the way respective agencies tackled them were summarized. The presentation ended with lessons learnt from the success/failure of these projects. REDP fares well on several fronts for net beneficial energy access, while Indonesian SHS project could only achieve improved technical quality and better technical standards and certification for SHS. Presence of a credit line and flexible sizing of systems as per varying local needs, and learning from failures in other Asian countries worked favorably for REDP. The role of a strong political support, institutional diversity and measures for capacity building and awareness creation — factors that worked in favor of REDP — were also emphasized. The presentation contributed to the OASYS discussion a non-South Asian perspective to governance in off-grid energy projects.

Scaling up deployment of renewable energy technology for promoting innovative business models - Mr. Ashish Khanna, The World Bank

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The World Bank’s perspective for implementation and governance in off-grid energy access projects was presented by Mr. Ashish Khanna. While recalling several initiatives by the government in providing electricity access, Mr. Khanna stated that that the existing options for electricity access focused mainly on enhancing centralized generation or on improving the efficiency in the distribution business. The presentation dwelt more intensively with the whole gamut of challenges such as the operational, financing, cross-sectoral issues. Reiterating that providing energy access is capital intensive in nature, he highlighted the lack of capacity and technical training and hence the predominant need for a capacity building framework. The fact that electricity access facilitates rural development and inclusive growth was stressed upon. He further quoted a few experiences of the World Bank in decentralized generation. Detailed analyses conducted by World Bank in two sites in Haryana and Maharashtra revealed that the economic cost of diesel-based generation is higher than most expensive renewable source for commercial and industrial consumers. Quoting the results from an analysis from Radhanagri in Maharashtra, and comparing the gaps between tariffs and revenues, he argued that a viability gap funding mechanism would be a win-win solution for all.

The presentation also summarized the on-going assistance provided by the World Bank for scaling up deployment of RE-based innovative business models. Taking the experiences from VESP and West Bengal’s DG projects, the World Bank aims to scale up successful business and delivery models. Bihar, UP and West Bengal are chosen as pilot states for this exercise. Mr. Khanna listed the significant milestones achieved by the World Bank in this regard. The critical need for an ecosystem approach that addresses the information, institutional, policy and financial barriers in an integrated manner was underlined.

“When problems are local, solutions should also be local”, he argued, while enlisting the primary barriers to off-grid projects, policy and regulatory hurdles, barriers to financial viability, lack of an enabling infrastructure and lack of capacity and skills were discussed at length and possible solutions to overcome them were suggested. Drawing from the Bank’s international experience in China and Philippines for in combining generation and distribution, few key recommendations — to begin with — were made for the Indian off- grid context. These included creation of a market of sufficient critical mass of projects for commercially sustainable businesses, extension of capital subsidies to localized generation and supply and viability gap funding in the form of operating subsidies.

Integrated approach for sustainability: A case of biomass Gasifier project - Dr. Atul Kumar, TERI

The challenges for the financial viability of decentralized power projects were highlighted in the presentation by Dr. Atul Kumar, Fellow, TERI. Highlighting the inter-perspective conflict of the project implementation agencies, the government and the consumers for pricing of decentralized electricity, he stressed the need for a broader framework with mechanisms to bridge the gaps for financial viability. Analyzing the actual field data of biomass gasifiers from VESP projects, he discussed the key operational parameters for different plant sizes and the minimum desired price for their financial viability. Presenting scenarios ‘with’ and ‘without’ productive loads, he emphasized that introduction of multiple productive loads with longer operating hours will further enhance the financial sustainability of projects. However, critical challenges such as the lesser ability to pay and the difficulty in developing productive loads itself were aptly brought to attention. Comparison to the utility’s grid network revealed that regulatory measures such as cross-

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subsidization was the key differentiator and therefore the need to bring decentralized electrification under the purview of regulation. An integrated approach with regulatory interventions such as tariff fixation with cross-subsidy from a universal service fund and financing from RPO and REC mechanisms was suggested for the off-grid projects. Mr. Kumar concluded that the correct combination of innovative financial support mechanisms and adjustments in the regulatory framework would allow the distributed generation models to thrive alongside the centralized grid expansion approach.

Policy and Regulatory Interventions for Community Off-grid Projects – MrBalawant Joshi, ABPS Infra Services

Mr. Balawant Joshi, Director, ABPS Infrastructure Advisory espoused the reasons for developing new policy and regulatory interventions for off-grid sector. He mentioned that Climate Works Foundation had engaged ABPS Infrastructure Advisory to support Forum of Regulators (FoR) in developing a new Policy & Regulatory structure for the decentralized electricity supply in India; two of these have been discussed in the presentation. While recalling the key enabling provisions and the relevant sections of the Electricity act, he debated that though section 14 mentions that no license is required for off-grid generation and distribution of electricity, it does not necessarily mean that sale of off-grid power is outside the regulatory purview. Despite the several enabling legal provisions, the emergence of franchisee framework and the introduction numerous models, he stated that off-grid electrification still continues to be risky for private enterprisers due to policy uncertainties and due to weak implementation framework.

Enlisting the key characteristics for the required policy and regulatory interventions, he argued that the business model proposed for Policy and Regulatory Interventions (PRI) must work in both off-grid & grid connected set up. Further he argued that the tariff paid by the consumer should not exceed either the tariff set by DISCOM or the existing expenditure on lighting load. Mr. Joshi proceeded to discuss two potential models that have been recently developed by his organization for the Forum of Regulators.

In the first model named ‘Off-grid Distributed Generation Based Distribution Franchisee’ (ODGBDF), the project developer acts as a franchisee of the DISCOM. This, he says addresses two distinct activities ⎯⎯ generation and supply. With the current policy framework being different for both, ODGBDF helps provide a comprehensive solution for rural electrification. The institutional and contractual structure as well as the roles and responsibilities of the various stakeholders such as the Government, Forum of Regulators, Central Electricity Authority, State Electricity Regulatory Commission, the DISCOM and Rural Local Body were explained at length. Listing out the various advantages of the model, he recommended the ODGBDF Model for the development of Policy & Regulatory Initiative. The second model ⎯⎯ ‘REC for Off-grid Generation’ exploits the REC mechanism for increasing the financial viability of the off-grid projects. Both the models have been accepted by the Forum of Regulators (FoR). Mr. Joshi’s presentation gave an excellent insight into the currently evolving policy and regulatory interventions for off-grid projects.

Session 3.4: Moderated discussion on regulation &governance issues for off-grid sector

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Moderator: - Dr Akanksha Chaurey, Director, TERI

Dr. Chaurey initiated the discussion stressing on the fact that the renewable energy technologies for off-grid sector has been there for 30 years, however it still lacks a proper regulatory framework and governance structure.

She then posed several questions to the participants for discussion – “When do we start to regulate this sector? What would be the most appropriate time? Is it the time when we have too many players in the sector? or Is it when we see that matters are dealt haphazardly in the sector? or Is it when we find that somebody/a party is at loss so that the regulatory authorities feel the need to regulate the sector? Or Is it the situation where we have only few players in the market so that regulating the sector makes it to grow in a controlled manner? In addition, there are issues like “How do we define regulation and governance framework in the context of off-grid sector?” This becomes compounded when power is to be sourced from clean sources. Further, “Can it be possible to have performance benchmarks and technology standardizations for the sector?

She also mentioned that the presentation by Mr. Al Anam from Bangladesh presented a good model for using the regulatory and governance principles for the benefit of the off-grid sector. She shared her experiences from Philippines and explained that sometimes technical designing, financial modeling, and supply chain matters fail to sustain a project, which reiterates the need for strong regulatory framework for the sector.

Mr. Ram Prasad Dithal from Alternate Energy Promotion Centre, Government of Nepal, talked about ways and methods being used to regulate the decentralized energy systems in Nepal. He gave a brief about the models being followed in Nepal i.e. (i) a subsidized specific model for solar and biogas, and (ii) Community based model for MHP and improved watermill. He mentioned that in Nepal RET’s are subsidized based on outputs from the generation plant and not on technology or size of the project. Also, 30% of the project cost is subsidized based on the remoteness, transportation and technology. Qualification and disqualification of vendors is also a key element in the success of the RE projects. He added that even after being very rich in hydro resources potential, still Nepal is facing huge energy crisis, winters are hard and load shedding’s can be for up to 18 hours. Currently planning to upscale the size of RE technology; geographically based on the two models and increase the electricity ratio in rural areas from 10% to 20% in next 5 years.

Dr. Shantanu Mitra, Team Leader, Climate Change and Development, DFID India, said that funding organizations like DFID looks at focusing on risk sharing with private sectors, providing funding for some of the public goods, knowledge, dissemination, basic R&D and capacity building. Results based financing is very much the paradigm which DFID is focusing at depending on result delivery. He also talked about the importance of smarter use of subsidies, technology neutrality with the energy services, private sector support, the inadequate data availability in the off grid sector. Also he mentioned about the importance of learning from each other’s experiences and different business models prevalent in practice, the fact that panchayat groups, SHG’s and NGO’s play an important role. Dr. Chaurey responded on the positive aspects on systematic and periodic monitoring in regulation. This benefits the ventures in the future where the experiences from the past get streamlined and are made available.

Mr. P. K. Mohan, Chief Executive, Orissa Renewable Energy Development Agency, expressed that since renewable energy technology is not yet matured, and most of these

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technologies are experimented in far-off rural communities, this needs to be supported. This also calls for bringing in place a regulatory regime in the sector. He also opined that once the technology is matured and the market is competitive then there will be no need to regulate the sector. He also talked about the problems of interfacing the off-grid projects with grid connections, problems with payment for electricity in rural areas.

Mr. Ashwin Gambhir, Prayas Energy Group, Pune, put forward that long-term solution is more of distributed grid interfacing renewable energy based systems either through roof-top based systems or through mini-grids or both. He questioned the current arrangements as unsustainable and there is a need to change the matrix from number of systems deployed to number of systems working. He was of the view that regulation can play an effective role in making the sector more bankable and by giving more clarity to the private entrepreneurs to enter the market. He strongly argued that the fear of regulating the sector should be avoided. He argued that since we do not have any guidelines, protocols and manuals, the proposed regulatory model of ABPS needs to be taken up. Further he reiterated that there is a need to have proper matrix to gauge the system. Simple change in matrix could help a lot. Finally, he also favored the need to make things simple and workable.

4 . 0 Sum m i ng up an d C on c l u s i on

Dr. Subhes Bhattacharya summarized the panel discussion and thanked all the participants and speakers for their valuable contribution to the day’s discussion and deliberation. The diversity of themes of presentation and the in-depth discussions that followed brought out several key points, which will help the project in its subsequent activities. Dr Bhattacharyya indicated that;

• All the discussions to be fed back to the Manchester University team for their better appreciation of issues related to regulation and governance of off-grid sector.

• The Bangladesh’s mini-grid system is found to be quite interesting and needs to be studied more intensively and thoroughly. This, combined with competitive bidding mechanism could be more interesting to look at.

• Several participants emphasized on the importance of ‘simplicity’ as the mantra of any off-grid intervention.

• Balancing regulatory supervision and promoting innovation was suggested to be a central issue.

• Integrating off-grid projects with the main grid is also an option which cannot be ignored.

The conclusion that came out of the workshop was that a common feeling persisted among all to have the off-grid sector regulated and polices formed. It is time when such policy development should materialize for the growth of this sector and its smooth integration into grid connected sector. Some of the key suggestions from the workshop are:

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1. The electricity supplied to customers from the central grid is at subsidized rate which makes it hard for DDG to compete with this price. Hence a policy decision not to put ceiling on price or floor on service standards for distributed generation sector would help encourages investment into the sector. In case of any ceiling, viability have to be ensured through a correct combination of innovative financial support mechanisms and adjustments in the regulatory framework for distributed generation models for them to thrive alongside the centralized grid expansion approach.

2. Capital subsidies under existing schemes like RGGVY to (i) strengthen distribution and (ii) promote DDG (Decentralised Distributed Generation) should be extended to localized generation and supply and any excess generation can be fed to the grid after meeting the local needs. The franchisees under the RGGVY programme can be encouraged to set up DDG projects in remote areas. While this will ensure improving the access in remote areas, the DDG projects will also ensure availability of supply for grid connected areas, thereby ensuring viability of both franchise as well as DDG model.

3. Preparation of an integrated energy policy/planning and regional cooperation for energy security and sustainable development is vital for the off-grid sector to be sustainable.

4. To consider all available options of renewable energy technologies and other sustainable alternate sources of energy is the most viable thing to do depending on its resource availability at the project site. Selection of the technology will also depend on its techno-economic viability, institutional feasibility, socio-political acceptability and environmentally sound.

5. One size does not fit all – governance structure can be different, depending on the project type, technology, business model etc., for different areas. However, appropriate support system need to be developed, which can also be a mixture of both ‘participatory approach’ and ‘top down’. While issues that are of local in nature could be better addressed through participatory mode of governance structure, simultaneously policy, regulatory, and financing matters can be dealt at appropriate intermediary and or higher levels. Also, capacity building of all stakeholders is essential for project sustainability.

The project will take forward these themes of discussion and learning and try and incorporate it in the project action plans as and when needed. The workshop concluded with Dr. Akanksha Chaurey thanking all the participants of the workshop for their active participation and wished to get support and cooperation from all stakeholders for success of the OASYS project.

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An n e x u r e I : P r og r a m S c he du l e

09.30  -‐-  10.00:   Registration    

10.00  -‐-  10.05:     Welcome  Remarks  –  Dr  Akanksha  Chaurey,  Director,  TERI    

10.05  –  10.15:     Self  introduction  by  Participants  

10.15  -‐-  10.30:     About  OASYS  &  Setting  the  Context:  Dr  Subhes  Bhattacharyya, Project  Leader,                                                         OASYS    

10.30  -‐-  10.50:     Key  Note  Address:  Dr  Leena  Srivastava,  Executive  Director,  TERI    

10.50  -‐-  11.00:   Special   Address:   Shri   Rakesh   Sahni,   Chairman,   Madhya   Pradesh   Electricity  Regulatory  Commission,  Bhopal      

11.00  -‐-  11.15:     Tea/coffee  Break    

11.15  –  13.00:     Regulatory  Structures  for  Off-‐-grid  Projects  (Chair:  Dr  S  P  Gon Choudhuri)      

 1. Experiences   from   Bangladesh   –   Mr   Al   Mudabbir   Bin  

Anam,   Deputy  Director   (Sustainable   Energy),   Ministry   of   Power,   Govt.   of   Bangladesh,  Dhaka    

2. Experience   from   Sri   Lanka   –   Mr   Harsha   Wickramasinghe,   Dy   Director  General,  Sri  Lanka  Sustainable  Energy  Authority, Colombo      

3. Experiences   from   India   -‐-   Mr   Nikhil   Jaisinghani,   Network   of   Micro   Grid  Operator  

4. Experiences  from  Kenya  –  Mr  Charles  Muchunku,  Camco,  Nairobi    

Reflections  from  the  House  

13.00-‐-14.00:        Lunch  

14.00   –   15.30:   Implementation   and   Governance   of   off-‐-grid   projects   (Chair:   Mr   Hari                                                              Natarajan)      

 o The   governance   of   small-‐-scale   renewable   energy   in   South  

East   Asia   –   Ms  Ira  Martina  Drupady,  National  University  of Singapore;        

o Scaling   up   deployment   of   renewable   energy   technology   for  

promoting  innovative  business  models  –  Mr  Ashish  Khanna,  The World  Bank,  South  Asia  Unit    

o Integrated  approach  for  sustainability:  A  case  of  biomass  gasifier

project  – Dr  Atul  Kumar/Mr  Debajit  Palit,  TERI    

o Policy   &   regulatory   interventions   for   community   off-‐-grid  

projects   -‐-   Mr.  Balwant  Joshi,  ABPS  Infrastructure  Advisory  

Reflections  from  the  House  

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The   governance   and   management   structure,   costs/tariff   of   off--‐-grid   power,  viability  gap  and  mechanism  to  scale  up  off-‐-grid  projects        

15.30  –  15.40     Tea/Coffee Break  

15.40  –  16.50:    Moderated  Discussion:  Regulation  &  Governance  Issues  for Off-‐-grid  Sector    Moderator:   Ms   Akanksha   Chaurey,   Director,   Decentralized   Electricity  Solutions,  TERI    Panelists:    

Mr   Ram   Prasad   Dithal,   Alternate   Energy   Promotion   Centre, Govt.   of  Nepal    

Dr   Shan   Mitra,   Team   Leader,   Climate   Change   and   Development,   DFID-‐- India;    

Mr   P   K   Mohan,   Chief   Executive,   Orissa   Renewable   Energy Development  Agency;    

Mr  Ashwin  Gambhir,  Prayas  Energy  Group, Pune;    

 16.50  -‐-  17.00:        Concluding  Remarks  –  Dr  Subhes  Bhattacharya,  University  of Dundee,  UK  

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An n e x u r e I I : L i s t o f P a r t i c i pa n t s

S. N  

Title Name  of  the  participant  

Organization  Name     Email  ID  

1   Ms   Ruchi  Soni   The  World  Bank   rson i 1 @w or l dbank . org  

2   Mr   Ashish  Khanna     The  World  Bank   akhanna2 @w or l dbank . org  

3   Mr   Nikhil  Jaisinghani   Micro  Grid  Power     n j a i s i nghan i @ g m a il. co m  

4   Mr   Hari  Natarajan   S3IDF   hna tr a j 13 @ g m a il. co m  

5   Ms   Arpana  Udupa     Green  Peace   arpana . udupa @ greenpeace . or g  

6   Mr   Sanjay  Mande   ABPS  Infra   san j ay . m an d e @ ab p s i n f ra . co m  

7   Mr   Mr  Anish  Pasrija   ABPS  Infra   an i sh . pasr ij a @ abps i n f ra . co m  

8   Mr   Hermann  Herz   GIZ   he r m ann . he r z @ g i z . de  

9   Mr   Ashwin  Gambhir   PRAYAS   ash w i n @ prayaspune . org  

10   Ms   Ira  Martina Drupady  

National  University of  Singapore  

i ra m ar ti na @ nus . edu . sg  

11   Mr   Harsha Wickramasinghe  

Sri  Lanka  Sustainable Energy  Authority  

ha r sha @ ene r gy . gov .l k  

12   Mr     Al  Mudabbir  Bin Anam  

Ministry  of  Energy,  Govt. of  Bangladesh  

a m bana m @ yahoo . co m  

13   Mr   Deepak  Gupta   Shakti  Foundation     deepak . sse f @ g m a il. co m  

14   Mr   Yashraj  Khaitan     Gram  Power   yashra j @ gra m po w er . co m  

15   Mr   Ram  Prasad  Dhital     Alternate  Energy Promotion  Centre,  Nepal  

ra m . dh it a l @ aepc . gov . np  

16   Dr   S  P  Gon  Choudhuri   Ashden  India  Collective   nb irt 2008 @ yahoo . co m  

17   Mr   Subhes Bhattacharyya  

University  of  Dundee   S. C . B ha tt acharyya @du n d ee . ac . u k  

18   Mr   Charles  Muchunku   CAMCO,  Kenya   Char l es . M uchunku @ ca m cog l oba l . c o m    

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19   Dr     Shantanu  Mitra   DFID  -‐-  India   S - ‐ - M it ra @ d fi d . gov . uk  

20   Dr     Ahmar  Raza   Ministry  of  New &  Renewable Energy  

raza @ n i c .i n  

21   Mr   P  Krishna  Mohan   OREDA   ceoreda @ oredaor i ssa . co m  

22   Mr   Nachiketa  Das   IRADA   dnach i ke t adas1950 @ yahoo .i n  

23   Mr     Balawant  Joshi   ABPS  Infra   ba l a w an t.j osh i @ abps i n f ra . co m  

24   Shri   Rakesh  Sahni   MPERC      

25   Mr     David  Eekhoot   UTRECHT  University   d . a . vaneekhou t @ s t uden t s . uu . n l  

26   Mr   Nilanjan  Ghose   GIZ   n il an j an . ghose @ g i z . de  

27   Mr   Praveen  Bhasin   MINDA  NexGen  Tech  Ltd.   pbhas i n @m i ndagroup . co m  

28   Dr   Anil  Kumar  Pandey   UPNEDA   poghazb @ red iff m a il. co m  

29   Ms   Rashi   TARA   rash i @ deva lt. org  

30   Ms   Pooja  Sahni   PMC-‐-MNRE    -‐-  

31   Mr   Amit  Dwivedi   MNRE    -‐-  

32   Mr   Onkar  Nath   GIZ    -‐-  

33   Dr   Leena  Srivastava   TERI   l eena @ t er i. res .i n    

34   Dr   Akanksha  Chaurey   TERI   akanksha @ t er i. res .i n  

35   Dr     Arabinda  Mishra   TERI  University   a m i shra @ t er i. res .i n  

36   Mr     Debajit  Palit   TERI   deba jit p @ t er i. res .i n  

37   Mr     Gopal  K  Sarangi   TERI  University   gopa l. sarang i @ t er i. res .i n  

38   Mr     K  Ramanathan   TERI   krna t han @ t er i. res .i n  

39   Ms   P  R  Krithika   TERI   kr it h i ka @ t er i. res .i n    

40   Ms   C  Sita  Lakshmi   TERI   c . s it a l aks m i @ t er i. res .i n    

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41   Mr     Rohit  Sen   TERI   roh it. sen @ t er i. res .i n  

42   Dr   V  V  N  Kishore   TERI  University   vvnk @ t er i. res .i n  

43   Mr     Sunil  Dhingra   TERI   dh i ngras @ t er i. res .i n    

44   Mr   Datta  Kiran   TERI  University     j dk i ran @ g m a il. co m    

45   Dr   Atul  Kumar   TERI   a t u l k @ t er i. res .i n    

46   Mr   Amit  Kumar   TERI   aku m ar @ t er i. res .i n