The road out of energy poverty

India is home to 18 per cent of the world’s population. However, its energy consumption is a meagre 6 per cent, with per capita consumption at 1,122 kWh mark — or a third of the world average and the lowest among BRICS —during fiscal 2017.

Almost a fifth of the population lives in abject poverty, or below poverty line, with no access to electricity. Low demand and poor access to ‘energy’ — which includes electricity, cooking fuel etc — have meant chronic under-consumption.

Such ‘energy poverty’ has, apart from  its socio-economic impact, a bearing on the environment, too, as it leads to greater reliance on unclean fuels such as wood, crop waste, dung, and biomass to cook and heat homes. While such fuels provide affordable energy access, in the long run, they become more expensive.

Smoke from wood and biomass stoves is hazardous and causes respiratory illnesses. Every year, thousands of women and children fall ill because of it. In other words, the indigent consumer is forced to cough up a hefty healthcare price.

Unclean fuels are also inefficient because they don’t have scalability so cannot be utilised to energise businesses. In other words, they cannot create livelihood or fulfill basic human necessities such as affordable healthcare.

The ill-effects of an unclean fuel such as kerosene, for which the government initially offered subsidy, is well-documented. For want of access to grid-based electricity, poor rural households, especially in rural areas, continued using it to light up their homes, which drove up consumption and health problems.

Illustration by Binay Sinha
However, between fiscals 2011 and 2017, household electrification increased substantially and kerosene consumption fell, which was also driven by central government policies to reduce kerosene subsidy expenditure.

Over the past many years, the Centre has been decreasing quotas of subsidised kerosene that it allocates for states to distribute. The sharpest reduction was seen in fiscal 2017, when allocation nationally was reduced by over 20 per cent over fiscal 2016.

The primary motivation for lower allocation was to control the subsidy expenditure borne of the central government. Other reasons include large losses due to black marketing, which prevents the intended poor beneficiaries from accessing subsidised kerosene and thus decreases the efficiency of subsidy targeting.

And since August 2016, the government has progressively hiked the price of kerosene every fortnight by 25 paise per litre. This, and the oil price crash after 2013 have created significant savings on the government’s subsidy bill. 

To its credit, the government has actively targeted sustainable energy for all initiatives — including through ‘LPG for all’ and ‘power for all’, which have led to a reduction in the use of unclean fuels.

Under the Pradhan Mantri Ujjwala Yojana, the government aims to provide five crore subsidised LPG connections to women of poor households (below poverty line) in the next three years. 

Recently, the government launched the Pradhan Mantri Sahaj Bijli Har Ghar Yojana, or Saubhagya, scheme to provide electricity connections to over 35 million families in rural and urban areas. Saubhagya will fund the cost of last-mile connectivity to willing households in order to achieve the goal of lighting up every household. To this end significant progress has been made with 33 per cent that is, 11 million households been connected. 

The problem is, while Saubhagya aims to provide electricity connections, the goal to provide 24 hours reliable supply under 24x7 power for all programme continues to be a challenge.

Much of the blame for the situation rests with tangled political wires. This is a sad mindset, indeed. Removing energy poverty should be a bipartisan goal at all times because of its criticality to human development.

The key to providing adequate energy access to the poor lies in the implementation of Universal Service Obligation (USO) and direct benefit transfer (DBT) for various energy schemes including 24x7 power for all. This can eventually replace the USO for LPG and all other energy schemes.

The logistical challenges to providing continuous LPG, including replacement cylinders, in the back of beyond is more expensive and difficult than connecting households that already have with 24x7 electricity. Hopefully, and eventually, appliances such as electric cooker and stove need to replace conventional ones fired by kerosene, wood or LPG.

A USO corpus to ensure reliable, extended supply of energy or electricity can be carved out from the annual revenues of the electricity distribution entities and, as was done in the telecom and banking sectors, an explicit fund to meet such an obligation needs to be created.

Such a corpus can be jointly funded from state and central Budgets. In fact, the central Budget on LPG can be subsumed with the revenue subsidy required for the electricity sector. Later, the amount of cross-subsidy charged to high-end consumers (industrial, commercial) can also be included in this corpus.

In addition, the introduction of DBT in power distribution the way it has been done for LPG, along with the USO corpus, can ensure effective subsidy delivery, eliminate discrepancies in subsidy accounting, and delays in disbursals, and also help in substantial savings in the total amount of subsidy given.

The challenge to overcome here is that unlike in the case of LPG, where the central government is involved, subsidy disbursal for electricity supply is the remit of state governments, which may result in varying approaches.

But the scheme can bring about seminal improvement in the duration and stability of electricity supply in the hinterland, which can set off a virtuous cycle by providing impetus to economic activity and development.

Apart from making fiscal sense, that would be crucial to ensuring sustainability of energy for all, and to structurally reduce subsidy requirements of the future. 

The ultimate cost of energy poverty is far greater than what it takes to provide continuous power to all through an efficient and transparent ecosystem.

Bringing that drastically down is a mandate inherent in the social contract.
/> The author is senior director, Crisil Infrastructure Advisory