1.
Energy Last Mile Connectivity
Gaurav Bhatiani, Harsha Meenawat
IL&FS Academy of Applied Development
Rajasthan Priorities conference, Jaipur June 8-10, 2018

2.
Cost – Benefit Analysis of 3 Interventions for Rural Electrification
• Grid connectivity
• Solar Micro Grids
• Diesel Micro Grids
• Comparison across models of centralized and distributed systems of generation
• All interventions are targeted towards achieving a common goal of electrification
of rural households

3.
Why is Rural Electrification Important?
• Critical for the pathway to modern
economy
• Can change the nature of productivity
of households and markets
• Welfare benefits of electrification
•Lighting
•Health
•Education
•Productivity
•Increased labour participation
•Enterprise development
•Income generation
India Current Scenario
• An estimated 239 million people are
without electricity access in India
•25% of population estimated without
electricity access globally
• Urban electrification rate 97%
• Rural electrification rate 74%
• Electrification Programmes –
•RGGVY
•DDUGJY
•Saubhagya Scheme

4.
Why should we look at these three models of electrification?
• All schemes have focused on grid extension in a top-down approach
• Grid is predominantly fossil fuel powered
•Coal accounts for 77% of total electricity generation and power accounts for 44% domestic GHG
emissions of India
• Centralized energy generation has externalized costs – particularly environmental –
which are borne by society
• Distributed generation reduces the amount of energy lost in transmitting electricity

5.
Intensive Village Electrification in Rajasthan
0
10
20
30
40
50
60
70
80
90
100
%
22% rural households were un-electrified in Rajasthan as of October 2017
60% average rural household electrification rate across districts

6.
Bikaner Rural Household Electrification – Demand for Power
• According to Saubhagya scheme survey
•38% rural households to be electrified in Bikaner as of October 2017
• Annual per capita residential electricity consumption is estimated at 225 units in
2019
• Residential electricity consumption is estimated to grow at 8%
• Average number of hours of supply in Rajasthan is 22 hours

7.
Common Assumptions
• This analysis assumes that all labour costs grow at the projected real growth rate
• Capital costs are estimated and fixed at 2017 levels
• To capture the increase in purchasing power, revenues are also assumed to
increase at real growth rate levels
• Common outcome of provision of electricity to meet the demand of rural
households

8.
1st analyzed solution
Extending Grid Connectivity in Bikaner

9.
Model and Implementation Considerations
• Project life – 10 years starting from 2019
• Model – Connect all un-electrified households to electricity grid serviced by JdVVNL with 24 hours
continuous supply per day
• Set up of new distribution assets and additional generation capacity
• Grid is assumed to be predominantly coal fired
• JdVVNL would charge RERC approved electricity tariff to customers
• Electricity generation from coal fired power plants leads to carbon emissions which would not
have been emitted otherwise
• Legacy model – grid has been the focus of rural electrification for a long time with national
programmes

10.
Costs
• New distribution assets created based on
current density of assets of JdVVNL
• Multiplier of 2.5 to account for low population
density
• Capital outlay for assets in year 1 and 6 based on
power demand in year 5 and 10 respectively
• Cost of electricity estimated based on full cost
recovery
• Social Cost of Carbon accounts for costs borne
by society at large due to carbon emissions from
electricity generation using coal
Costs of Grid
Electrification
Costs incurred (INR cr) at
5% Discount rate
Cost of additional
electricity generated
₹1,598
Capital costs incurred for
transmission,
distribution and meters
₹185
Operating and
maintainence costs
₹751
Social cost of carbon ₹184
Total Costs ₹2,717

11.
Benefits
• Revenue accrued by DISCOM assumed
as a proxy for benefits accrued by
private citizens
• Salvage value of assets that have a life
more than project duration
Benefits from Grid
Electrification
Benefits accrued (INR cr)
at 5% Discount Rate
Total Revenues ₹ 2,649
Salvage Value ₹ 87
Total Benefits ₹ 2,736

12.
Risks and Uncertainties
• Uncertainties in demand estimation – varying estimates of actual number of rural
households
• Costs for asset estimation depends on estimation of power demand
• Cost of Carbon uncertainties – current levels of social cost of carbon may not capture
real costs
• Cost of coal – fluctuations in international coal prices
• Possibility of WTP to be lesser than current tariff assumption and its escalation over
the years

13.
Benefit – Cost Ratio
Discount rate
3% 5% 8%
NPV benefits 3,121 2,736 2,267
NPV costs 3,452 2,717 2,142
BCR 0.90 1.01 1.06
Sensitivity Analysis Resulting BCR at 5% Discount Rate
Increase in estimated O&M costs by 25% 0.94
Under recovery of revenues by 10% 0.91
Under recovery of revenues by 25% 0.76

14.
2nd analyzed solution
Distributed Generation using Solar Micro Grids in Bikaner

15.
Model and Implementation considerations
• Project life – 10 years starting from 2019
• Installation of solar micro grids distributed across villages as per local capacity
requirements
• Model options - DDG with Discom, private OEM, PPP, community based models
• Service delivery expected to be at par with grid connectivity
• Tariff as per RERC approved grid tariff rates
• Soft energy path with possibility of local enterprise development
• Model tested in various locations across the country but not a mainstream model like
grid

16.
Costs
• 169 MW of total solar micro grid
capacity added in year 1
• New capacity added each year based on
demand and growth in number of
households
• Battery life 5 years, replaced starting
year 6 onwards
• Additional battery back up to address
intermittency (10 percent)
• O&M costs to maintain micro solar grids
Costs of Solar Micro Grid Costs incurred (INR cr) at
5% discount rate
Capital costs of solar micro
grids
₹ 9,745
Costs of battery replacements ₹ 1,387
Operation and maintenance
costs
₹ 218
Total costs ₹ 11,350

17.
Benefits
• Revenue accrued by DISCOM assumed
as a proxy for benefits accrued by
private citizens
• Salvage value of assets that have a life
more than project duration
Benefits from Solar
Micro Grid
Benefits accrued (INR cr) at
5% Discount Rate
Total Revenues ₹ 2,649
Salvage Value ₹ 5,477
Total Benefits ₹ 8,126

18.
Risks and Uncertainties
• Uncertainties in demand estimation – varying estimates of actual number of rural
households
• Costs for asset estimation depends on estimation of power demand
• Decreasing costs of Solar panels and battery
• Possibility of WTP to be lesser than current tariff assumption and its escalation over
the years

19.
Benefit – Cost Ratios
Sensitivity Analysis Resulting BCR at 5% Discount Rate
Capital Costs Over – Run by 10% 0.65
Capital Costs Over – Run by 25% 0.57
Decrease in the capital cost for Solar Power by 10% 0.78
Decrease in the capital cost for Solar Power by 25% 0.91
Under recovery of revenues by 10% 0.69
Under recovery of revenues by 25% 0.66
Discount rate
3% 5% 8%
NPV benefits 9,654 8,126 6,334
NPV costs 12,469 11,350 9,958
BCR 0.77 0.72 0.64

20.
3rd analyzed solution
Distributed Generation using Diesel Powered Micro Grids in Bikaner

21.
Model and Implementation Considerations
• Project life – 10 years starting from 2019
• Installation of diesel powered micro grids distributed across villages as per local capacity
requirements
• Model options - DDG with Discom, private OEM, PPP, community based models
• Service delivery expected to be at par with grid connectivity
• Tariff as per RERC approved grid tariff rates
• Model is soft path to energy, though based on fossil fuels – could be combined with other models
• Electricity Generation from Diesel would lead to carbon emissions not emitted otherwise

22.
Costs
• 45 MW of diesel genset capacity added in year 1
• New capacity added each year based on
demand and growth in number of households
• Cost of Diesel estimated based on World Bank
Commodity Price Forecast
• Network connection costs incurred per
household
• Operating & Maintenance costs
• Social Cost of Carbon accounts for costs borne
by society at large due to carbon emissions from
electricity generation using diesel
Costs of Diesel Micro Grids
Costs Incurred (INR Cr) at
5% Discount Rate
Capital costs for diesel gensets ₹ 122
Cost of diesel ₹ 2,080
Network connection costs ₹ 130
O&M costs ₹ 117
Social Cost of Carbon ₹ 274
Total Costs ₹2,722

23.
Benefits
• Revenue accrued by DISCOM assumed
as a proxy for benefits accrued by
private citizens
• Salvage value of assets that have a life
more than project duration
Benefits from Diesel Micro
Grid
Benefits accrued (INR cr)
at 5% Discount Rate
Total Revenues ₹ 2,649
Salvage Value ₹ 135
Total Benefits ₹ 2,784

24.
Risks and Uncertainties
• Uncertainties in demand estimation – varying estimates of actual number of rural
households
• Costs for asset estimation depends on estimation of power demand
• Cost of Carbon uncertainties – current levels of social cost of carbon may not
capture real costs
• Cost of diesel – fluctuations in international crude prices
• Possibility of WTP to be lesser than current tariff assumption and its escalation
over the years

25.
Benefit – Cost Ratios
Discount rate
3% 5% 8%
NPV benefits 3,179 2,784 2,303
NPV costs 3,661 2,722 2,077
BCR 0.87 1.02 1.11
Change in Variable Resulting BCR at 5% Discount Rate
Increase in Crude Oil price from forecast by 10% 0.97
Increase in Crude Oil price from forecast by 25% 0.91
Increase in Social Cost of Carbon by 50% 0.97
Under recovery of revenues by 10% 0.93
Under recovery of revenues by 25% 0.78

26.
Summary BCR
Interventions Discount Benefit Cost BCR
Grid
Electrification
3% ₹ 3,121 ₹ 3,452 0.90
5% ₹ 2,736 ₹ 2,717 1.01
8% ₹ 2,267 ₹ 2,142 1.06
Solar Micro Grids
3% ₹ 9,654 ₹ 12,469 0.77
5% ₹ 8,126 ₹ 11,350 0.72
8% ₹ 6,334 ₹ 9,958 0.64
Diesel Micro
Grids
3% ₹ 3,179 ₹ 3,661 0.87
5% ₹ 2,784 ₹ 2,722 1.02
8% ₹ 2,303 ₹ 2,077 1.11