11 Mar 2013
Are Off-Grid Solutions Really More Expensive for the Rural Poor?
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A number you likely know: 400 million. That’s how many people live without electricity in India. And not coincidentally, most of these people are poorest of the poor and live in rural villages or hamlets. The presence of such an enormous population eager for something better has given rise to new commercial products and services such as solar lanterns, solar home systems, and, the subject of this blog, micro-grids.

Kerosene light - small.jpgWhile some bystanders look at micro-grid companies as social enterprises, providing a valuable service to populations often ignored by everyone else, there has been increased criticism from NGOs and sections of government that these companies are selling power to poor people at rates far higher than power from the grid. I understand why people think this, but I believe these opinions to be misinformed. I would like to provide hard evidence to back my claim that the company I co-founded, Mera Gao Power (MGP), is actually cheaper than the grid.

Let me take a step back; grid connections in the villages we work in aren’t even a reality. That doesn't mean the government doesn't provide them with a solution for their lighting needs, only that it isn’t electricity. Off-grid households are served by government through subsidized kerosene; while the government aims to provide families living below the poverty line with three liters of subsidized kerosene per month, the reality is that most households receive only two subsidized liters per month.

So let’s do some math. These first two liters cost Rs. 17 each while black market prices are often well above Rs. 40 per liter. Each liter provides approximately 30 hours of light from a low quality kerosene lantern; the most typical kerosene lantern in India is a low cost wick lantern producing approximately 1-6 lumens, roughly equivalent to a 0.1 watt LED light (though to our knowledge, no such light exists). Thus, each liter produces the equivalent to 3 watt hours of electricity. Punch it all into a calculator and the equivalent per kilowatt hour price of subsidized kerosene is Rs. 5,600! (I checked it four times to make sure I had the right number of zeros.) And unsubsidized kerosene is twice that.

Ok, now back to the grid discussion. Advocates for regulation argue that while the national grid charges Rs. 3 to 5 per unit, micro-grid companies charge a much higher rate. Indeed, if you simply divide the quantity of power MGP’s customers consume by the price of service, MGP’s per unit cost is quite high. I’ve done enough math so I won’t go into that now (I’m not dodging the issue of pricing, you can see our prices in the table below). However, this is an incomplete comparison of the cost of micro-grid service to grid electricity.

Grid electricity is not as cheap as advocates claim, nor is power pricing as simple as some would have you believe. If you really want to give yourself a good brain teaser, read “Power bill has become a math puzzle” from the Times of India. A quick glance at the 400 page Bihar Tariff Order for 2012-2013 will both cause your eyes to glaze over and further verify how complex power tariffs actually are. What is often ignored is everything else in the electricity bill beyond the energy tariff. While the per unit cost is truly low, often below Rs. 5 per unit, the fixed fees are often above Rs. 100 per month. MGP charges its customers a flat Rs. 25 per week for service – that covers the rental of high quality lights and phone chargers, maintenance of the entire system, and great customer service. The power itself is actually free! Micro-grid operators such as MGP are actually cheaper than heavily subsidized grid connections. The below table uses data collected from BijliBachao.in, an initiative of Abhishek Jain, to compare the cost of MGP’s service and those for single phase, low power consuming, non-BPL grid connections in various states.

Provider

Fixed Charge

Energy Charge

Meter / Equipment Rental

Energy Duty / Tax

MGP

60*

0

40**

0***

Bihar Grid

50

104

20

0

Haryana Grid

0

80

30

0

MP Grid

40

70

25

1

Punjab Grid

46

0

50

6

Rajasthan Grid

160

0

0

3

UP Grid

65

0

0

3

West Bengal Grid

30

0

0

3.4

 

Source: www.bijlibachao.in

* MGP’s fixed charge includes a connection fee, customer service via a dedicated phone number and a 24 hour response time to reported performance problems, maintenance and replacement of all equipment including the lights in customers’ houses, and a convenience fee for collecting weekly tariffs from customers in their villages alleviating the customers’ requirement to travel to make payment.

**MGP provides its customers with high quality LED lights and well manufactured mobile phone chargers. Thus, customers are not required to purchase lights or phone chargers, an additional savings for them.

***That’s right!

Blue Sky-16.jpgIt should be noted that power tariffs are quite complex; for example, Bihar’s 2012-2013 tariff order states that the first (lowest energy consuming) slab of customers who are unmetered but non-BPL pay Rs. 150 per month flat fee while metered first slab non-BPL houses pay a different fee. Higher consuming slabs pay higher rates, depending on the number of phases, power consumed, max load allowed, the fuel surcharge calculated for the period, meter rental fees, connection fees, base fees... sorry, now I’ve confused myself!

MGP’s service is cheaper than a first slab, single phase grid connection in Bihar, Haryana, MP, Punjab, and Rajasthan. But the real value to our customers isn’t that we are cheaper, it’s that we are more dependable. MGP provides seven hours of light each night at the hours our customers need it (we actually allow the community to decide their preferred hours, and can change this by season); grid power in rural areas is often limited to 3 to 5 hours per night, usually in the late night hours when consumers are asleep or during the day when there’s sun. When there is a service issue, MGP sends out a repair staff to fix the issue within 24 hours, and often the same night the problem is reported; when the grid goes out in rural areas, it can be weeks before it is ever repaired (one village we work in has been waiting since 1998).

The off-grid power sector is just emerging, and yet it is already providing great, tangible value to off-grid customers. Criticize us for not having scaled up faster, for not having reached many more of the villages that need a quality service; that is fair. But please don't criticize us for being too expensive; we’ve worked very hard to be quite the opposite.