PPPs for Universal Energy Access in India

November 28, 2014: Dr. Leena Srivastava, one of the most prominent global thinkers in the field of sustainable development, energy and environment shares how PPPs can help India in its quest for universal energy access.

“The development community needs to recognize that if you want to not only get energy access but also get energy access right from the start in an efficient manner, then the thing to do is to invest in human capacities, to train the potential entrepreneurs and allow them to develop the business sense that is required for successfully running an energy access enterprise.”

Dr. Leena Srivastava is the Vice Chancellor of The Energy and Resources Institute (TERI) University and Honorary Executive Director at TERI. She serves on numerous national and international boards and high-level committees. In 2008, the Prime Minister of the Republic of France awarded Dr. Srivastava with the Knight of the Order of Academic Palms (Chevalier dans l'Ordre des Palmes Academiques). She has also received a Certificate of Recognition from the Prime Minister of India, Dr. Manmohan Singh, and from the Intergovernmental Panel on Climate Change (IPCC) for her contributions to its work. She is the first recipient of the Richard von Weizsacker Fellowship at the Robert Bosch Academy.

What are your expectations for the joint two-day regional conference on public-private partnerships in the electricity sector that GSEP and TERI are holding together in New Delhi? What, in your view, would be the expected outcomes?

Leena Srivastava: We would love to see a position in India where the largest centralized utilities and interested decentralized energy partners can come together to create a fuller and broader vision of providing sustainable electricity in this country because in terms of challenges, we are faced with many and at a very large magnitude. I don’t see in our case in India any “either/or” solutions. It has to be a combination of centralized and decentralized energy forms. It has to be completely synergistic and we have to learn to prioritize areas of intervention because the solutions are not going to be short term.

With the launch of the Sustainable Energy for All initiative, the UN Secretary General called on the private sector for real action and increased cooperation with governments. In your view, can PPPs significantly help increase access to energy, fight poverty and act as a driver of transformative change in India?

Leena Srivastava: If I can give a slightly off-the-cuff remark, public-private partnerships have been there forever and will be there forever because the entire framework within which any private sector action takes place is provided by the public sector. Even if you were to very narrowly define PPPs around specific projects and not in terms of creating an environment for private investments as well, even in that sense, I think we don’t have an alternative to PPPs.

 

One of the things that is very recognized and accepted is that a lot of the investable resources are with the private sector and therefore, even if you need to have developmental activity that may not be of pure interest to the private sector, the private sector needs to be enthused to act in that particular sphere. Energy access is one such subject where, I think, the private sector at this point in time does not have an environment in which it can work, not just in terms of economic viability of projects – in which case it is a simple mechanism of looking at the viability gap, resources, etc. I also believe that there are huge capacity challenges, there are missing actors in the value chain and there are regulatory shortfalls in terms of quality assurance of the product and services. Depending on how we define a PPP then yes, I do believe that PPPs have a huge role to play and are essential for this country but I also believe that these have always been there and will always continue to be there in various forms.

We understood that there was a special emphasis on private sector participation in a PPP.

Leena Srivastava: There is a special emphasis on that and that continues under the Sustainable Energy for All initiative. You also saw that at the Climate Summit the UN Secretary General organized, he invited the private sector to participate. At a larger level this is recognition of the growing financial might of the private sector, which everybody recognizes, but also of the responsibility that one expects from the private sector, and, especially, in non-commercial areas. Apart from the growing financial might of the private sector, there is recognition of the scarcity of resources on the public side. Most governments are trying to recover at varying levels from the financial crisis. For the skill or effort that is involved in providing energy access and bringing about efficiency improvements in energy use, there are insufficient public resources available within governments – both for scale and speed – because as you know the targets are very ambitious. The year 2030 is just around the corner.

 

Associated with the whole issue of sustainable energy is the importance of capacity within populations. With the Intergovernmental Panel on Climate Change (IPCC) report saying that our window of opportunity [to prevent increase of global temperatures over 2°C due to climate change] is now up to 2020, I think the need to undertake both mitigation and adaptation actions is critical.

Despite efforts made by the government to stimulate private investments in the power sector over the last decades, a significant part of the Indian population still has no access to reliable electricity and many more count on traditional fuels for cooking. What are the main barriers to increasing access to electricity in the country? How can they be overcome?

Leena Srivastava: There are many barriers. One is the public finance part of it. When we talk about energy access we talk about both electricity and thermal energy for cooking and lighting and other livelihood enterprises that are dependent or constrained by the viability of energy. The Indian government has actually invested a fair amount in extending the transmission network and the distribution backbone. Today I think we are able to say that the coverage extends to 90% of the population in this country. Nevertheless, there is no electricity flowing through these wires. The constraint is that we don’t have enough primary energy resources: coal, oil and natural gas, and not enough investments in generation as well, to be able to meet the requirements of the country. Shortages exist, and typically it is people in rural areas and people living in remote areas that suffer from lack of access to electricity. The second problem is that the people’s ability to pay is constrained. The third problem is that the losses are very high in these networks, so, in combination, the whole system becomes uneconomical to operate.

 

Today we have solutions in the form of decentralized energy. If we create the right regulatory environment, if we overcome the financing barriers and train people adequately, then I think we can actually, in the next 15 years (which is the timeframe for the Sustainable Energy for All goals), achieve either the goal in its entirety or to a large extent as far as electricity is concerned. The bigger problem will remain with cooking because this is linked to very diverse and cultural habits, making the kinds of cooking equipment also very diverse. The economics are not so straightforward as well. There are also alternatives in the form of traditionally available biomass and traditional cook stoves, so overcoming the cultural barriers, overcoming the practice variables, and overcoming the market barriers are all going to pose a major challenge for cooking. In my view, finding cooking solutions will be much more demanding than finding lighting solutions.

You touched one interesting point: developing human capacities. We can see that a lot of the emphasis is being put on attracting capital flows for the generation of electricity. Very little is directed to human capacity building. How can we tackle this issue? How can we put capacity building at the heart of a development strategy?

Leena Srivastava: I think a large part of the inefficiencies in the energy system are because of inadequately skilled people. It is not that once we decide to set up solar home systems or once we decide to set up mini grids that the enterprising people will not jump onto the bandwagon and provide the services. Of course they will, maybe with some delay, but the bigger problem would be that, while we might provide access through this route, it will not be as efficient as it could possibly be due to lack of skills. Then we would have to go back and correct the entire system and invest once more. I think the development community needs to recognize that if you want to not only get energy access but also get energy access right from the start in an efficient manner, then the thing to do is to invest in human capacities, to train the potential entrepreneurs and allow them to develop the business sense that is required for successfully running an energy access enterprise. Otherwise you could have a situation where a large number of people start off and then are not able to reach the end. Failures are the worst possible thing that you can have in a very ambitious exercise of this kind. Capacity building has to be recognized and has to be priced (lack of capacity can be priced not only in terms of the energy costs but also in terms of economic opportunity costs). I think we need to undertake this exercise which hasn’t been done unfortunately.

 

Over the long term it’s important to make sure that the people that are there are able to transfer the skills and the knowledge. This is a challenge.  Let me add an idea to this. It’s not just about building human capacity in the potential stakeholder groups, but it’s also about sustaining capacities and keeping them engaged through the right kind of economic incentives. If you are able to build a successful business model, you also ensure that it runs, and at the third level, people’s aspirations will also increase.

As a large share of the energy mix in India is still non-renewable, what steps must be taken to make development happen without compromising sustainability? Is green growth possible in India?

Leena Srivastava: Let me come to the first part of your question “without compromising sustainability”. I think this is where the definition of sustainability becomes important. Sustainability depends on three dimensions: environmental, social, and economic. Given the very large number of very poor people in this country and the large young population, economic growth and job opportunities are actually paramount in terms of the economic and social stability of this country. Even in the energy access debates, we have often said it has to be access first, and clean access second, because of the kinds of situations we are in and the vulnerabilities that exist.

 

Having said that, I think India has many options. It can definitely improve the efficiency along its centralized energy systems (we have huge technical and commercial losses, not the best deployed technology and so on). In each of these there are tremendous opportunities that can be exploited. We need to put in place our incentive systems to take advantage of these opportunities.

On the renewable energy side, we have an enormous opportunity and many resources that can be utilized. The use of renewable energy resources is significant, not just from a climate change perspective but from an energy security one. It is interesting that when you do long-term modelling for renewable energy resources in our country, there are two drivers: climate change and energy security. When renewable energy use is driven by energy security concerns, you get climate change mitigation as an incidental benefit. When renewable energy use is driven by climate change concerns, you get energy security as an incidental benefit. In both cases, you are not too far from the targets we have to combat climate change.

The synergy between energy security and climate action is very strong in this country. We have to recognize that and we have to put in place the systems that will ensure that we are driving in that particular direction. I think the largest bottleneck we have is investable resources and this is where the international community really needs to step forward and help India not lock itself in. I do hope that between now and the Paris meeting, there will be some recognition of this and some action on it.

What about the efforts made in India to increase investments on the demand-side to help end-users reduce their consumption, either for industrial consumers or households? Can PPPs be efficient in this field?

Leena Srivastava: Pricing has always been a major challenge in this country (and all over the world) but I think one of the major challenges we have had is the lack of demand-responsive pricing. For that we need investments, but for those investments to come up we need the regulatory frameworks in place. When we talked earlier about capacity building, we spoke of the entrepreneurs and others. I also think that there is a huge need for capacity building in the policy community. Apart from the capacity building issue, there is a huge role for PPPs and demand-side management. Unless the regulatory support comes forward, you won’t see the response from the private sector.

 

Fortunately today in these areas I think there is a lot happening. In several local governments, and especially in northern areas, a novel policy regulatory framework is coming forward in support of demand-side management. Is everything working perfectly well? Well, not yet, but we are getting there. We have introduced time and day pricing in Delhi for example but the difference between peak and off-peak is actually inadequate to incentivize a lot of demand-side management or demand shifts. We are beginning to play with these variables. The infrastructure didn’t support us earlier, but now it’s following, so we will get there.

The only question that remains is how we are going to accelerate this entire process. There has been a lot of talk about carbon pricing. Maybe this will help, but there might be other kinds of taxes and incentives as well. As you can see, local air pollution is a major concern. I think building environmental considerations into our pricing decisions could also go a long way. When those prices are set right, I think the private sector will also find it much more attractive to make the investments.

In order for electricity to be sustainable and in order to ensure energy security, electricity needs to be reliable, environmentally friendly but also affordable. On the one side you have the investors, who want to have a reasonable return on their investment, and on the other you have a population who needs affordable electricity. How can we make sure that the poorest will be taken care of?

Leena Srivastava: The one thing that we say is that “free energy is the most expensive energy”. That’s because the energy not only costs the people that are investing in that, but you also have to factor in the opportunity cost for the users who are being deprived of high-quality and reliable energy. You need to be able to provide energy and create the right kind of environment for people to be able to exploit those resources. But you are asking about the poorest people, not just the poor. That is an important distinction in India because if you look at the people with an energy access challenge you might have the bottom 40% that are not even connected to the grid. But you have another 40% who get very unreliable, intermittent power which forces them to invest in a number of cooking mechanisms that adds to the cost of service they are paying for. It is important to understand the difference between the levels of energy access.

 

In India, the amount of people below the poverty line is somewhere in the range of 20-30% of the entire population (that is a pretty large number, but it is better than the 40% that other international benchmarks might put us at). For these people, in most countries you have social security programs (income subsidies, unemployment benefits, social action plans, etc.). In India, because we don’t have such support mechanisms for a variety of reasons, we provide them subsidies in the form of kerosene subsides, electricity subsidies, etc. Today, technology has progressed and we have given some effort into creating a Universal Identification Scheme (UID) scheme and we are linking that with financial access issues. These mechanisms would allow the government to provide direct income subsidies. If that comes through then maybe the subsidies provided can be more differentiated and more targeted and have the intended outcome that we want. It will have to be a combination of the use of these mechanisms and basically improving the quality and reliability of energy.

Do you think that providing electricity in rural areas would prevent the massive immigration to the cities?

Leena Srivastava: It’s a difficult question because we are talking about densification but at the same time it is also a food security issue. In many villages you are left with the old and infant population because all the men have immigrated into urban areas and the land’s net yielding is not enough. It’s not yielding enough because of lack of electricity, water irrigation etc. It’s a difficult balance to find.

What roadmap would you prescribe to achieve the Sustainable Energy for All goals in India and globally?

Leena Srivastava: We are establishing some accelerated initiatives for energy access, market creation and so on. If you look at the end of it you need to be able to get the government aligned with these overall objectives and be able to exploit the win-win opportunities that exist for them in the long term and the short term. And for that, once again, I think it’s important, rather than just jumping into action, to clearly define the environment in which success takes place. If you have the right type of conditions in the countries that you are targeting, then the possibility of successful intervention increases manifold. I don’t think we are investing enough in creating a buy-in from governments (the government either opts in or doesn’t), we are not investing the time in explaining to opinion makers what the benefits are and can be. Given what we have seen in term of oil prices, and in terms of other conflicts, I think that if we invested a little bit of time in capacity building, then the likelihood of success would be larger.

 

In India there is a lot that is happening that probably the rest of the world is not recognizing adequately, at least in terms of our commitments. The most exciting thing today: the prime minister has said that he wants 100,000 MW of solar power to be built in five years. This is an enormously ambitious plan, compared with the fact that in the last ten years we added 75,000 MW of conventional power and the fact that India’s total capacity is 250 GW, out of which only 140 GW are operational. Second, there is this smart cities initiative which will require a lot of support. We are getting into definition issues at this time (what do we mean by smart cities, etc.), but eventually it will advance. There is a lot of focus on wind and there is a lot of focus on energy efficiency under the National Action Plan on climate change. Often there is a gap between intent and outcome and that gap is for all the reasons said before. But if the intent is there and we are able to come up with all the solutions, which are also politically accepted, then we can have reasonable hope for achieving the outcome as well. That is where I think people like you and me have to focus. We need to show this is not a pipe dream, but that it is actually possible. Otherwise we might create innovative solutions that may not result in the long-term outcome that we wish.

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