Private Sector Participation In Rural Electrification In India

For renewable energy to make significant contribution economic development, job creation and reduced dependence on oil, the goal must not just be to install capacity but to create an environment for sustained and profitable industry. This will simultaneously increase the generating capacity and drive down the cost. To achieve this goal, a viable, clear and long-term government commitment is vital. Further to this are policies that create markets and ensure a fair rate of return to investors. This is the hallmark of Electricity Act 2003.

The Indian rural electrification plan is unlikely to attract private investment. The current discriminatory capital subsidy between private sector investment (*1) and socially oriented investments (*2)makes the private sector uncompetitive. Capital subsidy accessed for socially oriented projects is 20% in excess of that accessed for the private sector investment for the same sized plant. At discount rate of 15%, this translates into breakeven of Rs 1.69/kWh for socially oriented investment and Rs 2.00/kWh for private sector investment, making private investment uncompetitive. However, the technological know-how of the private sector offers opportunity for partnership with socially oriented investments.

The partnership can be achieved through the following mechanisms:

• Non-discriminatory Capital Subsidy
• Community-Private Partnership
• Private Trained Community Management.
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* 1 Equipment manufacturer, private utility firm or entrepreneur
* 2 Rural electric cooperatives, non-governmental organizations