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PROJECT INFORMATION DOCUMENT (PID)
CONCEPT STAGE
Report No.: PIDC635
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Project Name
India: Improving Rural Energy Access in Lagging States (P144678)
Region
SOUTH ASIA
Country
India
Sector(s)
Renewable Energy (100%)
Lending Instrument
GEF Grant
Project ID
P144678
Borrower(s)
Department of Economic Affairs, Ministry of Finance, Government of
India
Implementing Agency
Ministry of New & Renewable Energy
Environmental Category
B-Partial Assessment
Date PID Prepared
18-Feb-2013
Estimated Date of Appraisal
Completion
31-Jan-2014
Estimated Date of Board
Approval
15-May-2014
Concept Review Decision
Other Decision (as needed)
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I. Introduction and Context
Country Context
India’s dynamic economic structure and transformational demographic changes have made
the role of electricity critical. India has experienced average growth rates of about 8 percent
during 2007-8 to 2011-12 accompanied by a reduction in poverty levels of about 1.5 percent
annually between 2004-5 to 2009-10. Today, two thirds of India’s population is above the
poverty line.1 India is also becoming increasingly urban. The demand for power is only going
to rise to support the growing manufacturing sector, meet the rising aspirations of its people,
to provide electricity to and to meet the suppressed demand (now managed by load sheds and
unreliable supply).
India’s power sector faces a number of challenges. Of particular relevance for this proposed
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12th Plan Document, Planning Commission
1
project are: a large access deficit and low energy security.
First, India has the largest energy access deficit of any single country, compounded by
unreliable supply and low consumption. The rural and the poorest consumers constitute the
bulk of India’s 394 million people without electricity. About 93 percent of India’s unelectrified population comprising of 289 million people lives in rural areas. More than twothirds of un-electrified households belong to the lowest 40 percent of the income ladder and
are largely concentrated in five states – Uttar Pradesh, Bihar, West Bengal, Rajasthan, and
Orissa (NSS, 2010). Even those who do have electricity particularly in rural areas, face
intermittent power supply. The industries and commercial enterprises suffer due to unreliable
supply and invest in expensive back-up generation.
Second, India faces energy security and environmental concerns regarding its generation
structure largely driven by coal – 80 percent of energy generated and 57 percent of installed
capacity. The power sector accounts for about one half of the total CO2 emissions in the
country, which is higher than the one-third average around the world.2. Indeed, according to a
recent World Bank study in 2007, even under the lowest emissions scenario until 2031,
electricity was still the highest contributor to carbon emissions growth and coal based plants
would still dominate India’s energy mix with 51 percent share. The primacy of thermal fuels
also means that the sector is very vulnerable to endemic coal shortages and price fluctuations3
Sectoral and Institutional Context
Institutional Structure: The overall electricity sector is governed by two Ministries at the
national level, namely, the Ministry of Power (MoP), and the Ministry of New and Renewable
Energy (MNRE). The MoP is responsible for the development of the electricity sector and
implementing the landmark Electricity Act of 2003. The MNRE is in charge of the
development of new and alternative energy technologies and the promotion of renewable
energy. The MNRE and the MoP have overall responsibility for providing financing for gridbased rural electrification. The Indian Renewable Energy Development Agency (IREDA) is
the government financing agency for off-grid and renewable energy rural electrification
projects.
The state institutions are then responsible for implementing (and often cofinancing) the electrification projects that these central government institutions develop and
finance.
At the state level, the government power departments lead state-level policymaking in the
electricity sector, including rural electrification policies. The independent State Electricity
Regulatory Commissions (SERCs) regulate the state-level electricity sectors. The distribution
companies (or state electricity boards, in states that still have bundled electricity sectors) are
responsible for both urban and rural service delivery and implementation of rural
electrification projects. At the state level, there are no agencies or sub-agencies dedicated
exclusively to rural electrification.
Grid-based rural electrification instead is assigned
2
3
http://www.esmap.org/sites/esmap.org/files/India_LowCarbon_FullReport.pdf
http://planningcommission.nic.in/aboutus/committee/wrkgrp12/wg_power1904.pdf
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typically to planning or engineering departments within utilities. For renewable energy
promotion as well as off-grid electrification, state level New and Renewable Energy
development agencies serve as nodal institutions (state nodal agencies from hereon).
National vision of universal access: In 2004, the Government of India (GoI) announced a
goal of universal access within the next five years, following from the landmark Electricity
Act and the National Electricity Policy (NEP). During this time, the definition of village
electrification also underwent a change which raised the number of un-electrified villages.
Until 1997, a village was deemed electrified if electricity was being used within the village’s
revenue area for any purpose. Between 1997-2004, the definition changed to the use of
electricity in the inhabited locality within the village’s revenue area for any purpose. After
2004, at least 10 percent household electrification and electrification of public places was
defined as village electrification.
Focus on renewable energy and solar power: India is conscious of the need for a balancing
act between its developmental needs, energy security, and environmental sustainability.
Promoting renewable energy is an important effort as part of this act. The existing installed
capacity of renewable energy is 20 GW, 70 per cent in wind and developed largely by the
private sector (CEA, 2012). The umbrella initiative is in the form of the National Action Plan
for Climate Change (NAPCC) including the Jawaharlal Nehru National Solar Mission
(JNNSM) as one of its eight component missions. This action plan has set the vision of raising
the share of renewable energy in the electricity mix from 7 percent in 2011-12 to 12 percent in
2016-17. This translates to an addition of 30 GW in the 12th plan (2013-2017).
The JNNSM has set the stage for solar power to play a vital role in renewable capacity
addition in the next few years. Solar capacity has grown manifold from 20MW to more than
1000 MW in the past two years, supported by a precipitous decline in solar prices. Based on
current trends, solar PV particularly will reach grid parity as early as 20144. In addition, two
particularly relevant renewable energy initiatives, planned in the 12th plan, are renewable
energy development fund to ease the financing constraints of grid and off-grid developers as
well as renewable energy evaluation infrastructure that will support large scale renewable
energy production and transmission (12th Plan Document, Planning Commission, 2012).
Flagship grid and off-grid electrification programs: India decided to adopt a two pronged
approach, focusing on both grid and off-grid solutions to achieve its vision of universal
access. The progress towards achieving this goal gained momentum with the launch of the
flagship Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) in 2005, consolidating all
ongoing rural electrification programs5 at the time. The Government has also promoted
decentralized distributed generation (DDG) in 2009 under the auspices of RGGVY to provide
substantial capital subsidy (around 90%) and operating incentives to villages without grid
electrification for distributed generation initiatives. This was aimed at areas there the grid
extension was not possible in the foreseeable future. The Rural Electrification Policy of 2006
set the guidelines, definitions, and institutional structure of RGGVY program.
4
http://www.kpmg.com/IN/en/Press%20Release/The%20Rising-Sun-Press-Release.pdf
KJY, the Minimum Needs Program, Pradhan Mantri Gramodaya Yojana, the Accelerated Rural Electrification Program, and the
Accelerated Electrification of One Lakh Villages and One Crore Households
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The grid and DDG (or off-grid) components of RGGVY have proceeded at a differential pace.
About Rs 34000 crores has been spent towards the grid components, consequently 92 percent
of villages are now electrified and 20 million BPL connections have been released (Ministry
of Power Website, 2013). However, the DDG component was not as successful - about
Rs.1937 crores have been sanctioned for around 148 projects, none of these have been
commissioned yet.
Complementing the DDG component of RGGVY is the RVE program implemented by the
MNRE. This program, with support from the state nodal agencies, provides financial support
for electrification of those remote un-electrified census villages and un-electrified hamlets of
electrified census villages where grid-extension is either not feasible or not cost effective and
is not covered under RGGVY. Such villages are provided basic facilities for
electricity/lighting through various renewable energy sources such as solar energy
(photovoltaic), small hydro power, biomass, wind energy, hybrid systems, etc. So far, MNRE
has provided financial assistance to develop off-grid renewable energy facilities6 for lighting
and basic electricity generation to more than 10,000 remote villages and hamlets.
Challenges to scale up of DDG (or off-grid): The off-grid electrification space in India is
still in a nascent stage and has been unable to scale up to achieve the desired outcomes despite
Government policies and funding mandates. The key barriers to the scale-up include:
1. Isolated small pilots and business models – While a number of business models exist
in the off-grid space, there are only isolated success stories that exist wherein a few
households within isolated villages or hamlets have been electrified with small load
connections (two LED lights and mobile chargers). There is an absence of larger
solution providers catering to sizeable clusters of villages.
2. No explicit component for linking increase in access and improvement of livelihood):
While the use of renewable technology has been successfully demonstrated by the
small standalone solar home systems, small generation units etc, there is a demand for
higher productive loads that could cater to rising household demands as well as service
rural commercial centers. Micro-grids are essential to provide scalable solutions
capable of supplying productive loads.
3. Lack of transparency and high transaction costs to avail government subsidy: GoI’s
DDG schemes, implemented by MNRE and MoP, subsidize the cost of the plant
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Installation of power plants (mini grid) with capacity ranging from more than 10 kW to 250 kW per site through various
renewable energy sources such as small hydro power, biomass, biogas, solar etc. for electrification of villages/hamlets. If mini
grid is not feasible or cost effective then the villages/hamlets may be covered through micro grid with power plant capacity up to
10 kW. The duration of power supply to every household through min/micro grid mode will be minimum of 6 hours per day. If
micro grid is also not feasible or cost effective only then the villages/hamlets may be covered through standalone lighting
systems such as solar home lighting systems.
http://mnre.gov.in/file-manager/UserFiles/village_lighting_programme_scheme_2012_13_for_comments_feedback.pdf
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(based on estimates provided in the DPRs). However, the process of availing this
subsidy lacks transparency, involves high transaction costs, and involves the
government agencies at various steps through multiple approvals. This serves as an
adverse incentive for private players looking to enter this space. Further, in a number
of cases, the projects have been executed by the state nodal agencies on their own.
However, such state led execution lacks replicability.
4. Lack of policy & regulatory clarity: There is a lack of policy and regulatory clarity on
two key issues
a. Tariff – As government resources are used to subsidize the capital costs of
setting up the plant, the debate is whether the tariff charged should be fixed by
the state regulator or it can vary from case to case basis.
b. Exit policy – There is a lack of clarity as to what would happen to the
investments by private sector once the grid reaches the un-electrified areas or
the supply of power from the grid becomes more reliable
5. Access to finance: Commercial banks and other financial institutions have remained
shy of investing into the off-grid space leading to the use of costlier private equity by
the project developer. A challenge exists to encourage recourse or non-recourse
project financing in the off-grid space with favorable loan terms.
6. Sustainability: Hitherto, majority of the private developers have remained only
equipment providers and not service providers. Their role in projects has been limited
to setting-up the generation plants and transferring the assets to the state agencies. The
responsibilities of collections and operations and maintenance (O & M) have been
carried out by the state nodal agencies. Thus, due to the limited capacity of the state
agencies, limits the sustainability of the plants.
The proposed project aims to address these challenges and demonstrate scalable pilots and
business models for increasing rural energy access. It is the first attempt to partner with the
GoI on an operational engagement in the off-grid space. This effort is underpinned and
complemented by a number of ongoing activities within the World Bank Group.
Relationship to CAS
The proposed project supports the first and third pillar of the ongoing India Country Assistance
Strategy (2007-2012) – ‘achieving rapid inclusive growth’ and ‘increasing the effectiveness of service
delivery’. This project, through its focus on electrification efforts for poor households in lagging states
of Uttar Pradesh and Bihar, will enhance the economic potential and bring them within the fold of
prosperity as well as promote private sector models that stimulate better service delivery outcomes.
The proposed project also aligns itself with the third pillar of the draft India Country Program Strategy
(2013-2017) – ‘inclusion’: improving living standards for all, especially the poor and marginalized
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people’. By its inherent design, the project will address the access deficit in the lagging regions in
rural UP and Bihar and enable a more economically vibrant rural economy.
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II. Proposed Development Objective(s) (Display Only - Pulled from PCN)
Proposed Development Objective(s) (From PCN)
To improve the availability and quality of electricity service through public-private
partnership models in lagging states
Key Results (From PCN)
•
No. of households with new electricity connection (No.)
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Increase in household consumption (kWh)
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Increase in number of hours of supply for electrified consumers (No.)
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III. Preliminary Description
Concept Description
The proposed project aims to improve the access to electricity in rural areas in the Bihar and
Uttar Pradesh – the two most lagging states in the electrification space that together constitute
60 percent of total access deficit of 311 million in India. The proposed project is envisaged to
be located in Bareilly and Kanauj districts in Uttar Pradesh and Nalanda district in Bihar. The
villages include those that are deemed electrified by the grid rollout program RGGVY as well
as those that are still un-electrified. Therefore, some of the target households have grid
electricity at home and some don’t. However, the supply of electricity is limited, unreliable
and almost non-existent during the peak hours of the evenings, resulting in a continued use of
kerosene of a similar pattern as the un-electrified households. Some of the households are also
using lighting connections from a central diesel generator owned and operated by local
entrepreneur. Usually a household is paying Rs. 60-75/month for a single ~30W lighting
connection from these diesel generator sets. Thus electricity access would replace the use of
costly diesel which apart from leading to financial benefits to the consumer, would also lead to
economic benefits due to a) lower diesel subsidy burden on the state b) lower environmental
pollution. The women in Bareilly district villages also work on hand embroidery and access to
electricity in the evening hours would also enable them to put more hours in their work thus
generating more income. Few rural commercial centers also exist within the proposed project
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areas.
Key elements: The proposed project addresses a number of challenges articulated earlier
holding back the scale-up of off-grid potential. The principles of the project are to demonstrate
large scale pilots of new innovative PPP mode and allow the access to finance for private
developers. The key elements of this proposed project are:
PPP approach for project execution: The project would be developed through a public-private
partnership, where project implementing unit (PIUs) will be set up under the state nodal
agencies - Uttar Pradesh New and Renewable Energy Development Agency (UPNEDA) and
Bihar Renewable Energy Development Agency (BREDA). These PIUs will play the role of a
facilitator. The agency’s role would be limited to setting policy and bidding out pre-identified
project sites to private developers and will not be involved with project implementation.
Use of Micro-grids to ensure scalability: This project will promote micro-grids (as opposed to
standalone solar home systems) supplying directly to consumers. Setting up of micro-grids
will also help the developer to service commercial loads as well as rising residential load in the
project areas.
Technology agnostic: The choice of technology would be left to the private developer.
Possible technology options that could be deployed are solar PV and biomass.
Cluster based approach: The bids would be invited for the entire cluster of villages in the
district with a target market segment of more than 10,000 households as well as a few anchor
commercial load centers. However, the private developer (or successful bidder) would develop
generation plants in a phased manner starting from one village or hamlet in a cluster and then
moving to other villages/hamlets within the same cluster.
Affordable tariff: The tariff charged to households would be fixed on a monthly basis and
aligned with the affordability envelope of the low income households typical to the targeted
hamlets. The monthly amounts payable would vary depending upon the connected load, the
comparison metric would be the cost of kerosene, which is the primary alternate fuel being
used by the households and serves as an opportunity cost. However, the developer would be
allowed to charge any market determined tariff to the commercial/anchor consumers.
Use of Viability gap funding (VGF): The private developer would be selected on the basis of a
bidding based on Viability Gap Funding (VGF) to cover the below cost recovery tariffs
charged to residential consumers. As the MNRE in-principle has agreed to provide 30 percent
subsidy to the project developer (as per its existing policy, the issue discussed in more detail in
institutional arrangements), the VGF would be provided after the subsidy amount.
Financial intermediation for single window financing: To enable a better administration of
finance and to relieve the nodal agency from the duties of project execution, it has been
proposed that the funds (World Bank, MNRE, and Government of Bihar/UP) be housed with a
financial institution (FI). This FI would be the disbursement agency for the VGF and would
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also provide a line of credit to the developer.
Flexible load categories: Based on the consumer profile assessment (through pre -feasibility
studies) in the project areas, there exists a demand for higher loads. The project developer
would therefore provide customized products with two or three different wattage level
connections starting from 40W to 120W per household priced differently and the consumer
can choose based on their needs and affordability threshold.
Measures to ensure sustainability: Collections from households and O&M would be the
responsibility of the private developer and they can take various routes to streamline collection
operations from engaging a local entrepreneur with a social standing within the area or
involving communities to ensure high collection efficiency.
The possibility of involving community level institutions could be higher in Bihar, due to the
presence of rural livelihood group Jeevika which can be employed to collect the payment and
maintain the plant. Among the districts of Bihar that would be chosen for project
implementation (in subsequent phases apart from the ones already identified), preference
would be given to districts where Jeevika is present.
Phased disbursement on achievement of milestone and role of Independent verification
consultant: The VGF would be disbursed in phases based on outcomes including the number
of households connected as well as service delivery levels rather than as one-time capital
subsidy. The project envisages an important role for an Independent Verification Consultant
(IVC) to develop a monitoring system starting with the baseline data, monitoring the progress
overtime, and to verify the achievement of milestones. These milestones will be the tool for
disbursement of VGF.
Bidding based on feasibility study rather than DPRs: No detailed project report (DPR) would
be prepared at the bidding stage as the actual technical design of the project (including number
of plants to be set up, load capacity of each plant, design specs of mini-grid) would be left to
the private developer. Only a feasibility report identifying the estimated demand from
domestic consumers, probable anchor/commercial loads and land for setting up of generation
plant would be provided along with the bidding documents.
Exit strategy (if any): During various stakeholder consultations, a need was identified to have
an exit strategy for the private developer, in a scenario when the grid reaches the un-electrified
village/hamlet or when the power supply from the grid becomes reliable during the peak hours
in semi-electrified villages. The options for the project developer could be to either exit or get
the first right of refusal for becoming the input based franchisee.
Financing framework: The project would be funded by the developer’s own equity, MNRE’s
on-going subsidy scheme as well as GEF grant through VGF. MNRE has an on-going scheme
of rural electrification that gives out 30 percent subsidy (on the basis of estimated cost as per
approved DPRs) for off-grid projects. The ministry has in-principle agreed to provide this
subsidy to the proposed project as well. Thus, the developer will be provided the VGF from
Bank’s fund only if successful bid asks for capital assistance beyond 30 percent. More
discussions with GoI are needed to figure out how to give 30 percent MNRE subsidy as a VGF
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in a phased manner based on outcomes. In addition, the private developer would also be
required to put in a certain amount of money as equity. Finally, the GEF grant may be used as
VGF or debt. A part of it may be used as VGF, another portion would be earmarked for debt
financing of the projects. The loan terms could be made favorable by lowering interest rates or
increasing loan tenors.
Component 1: Viability Gap Funding for DDG project in Bihar and UP (US$ 10 million)
This component will include investments through VGF and debt facility for setting up of
distributed generation and supply projects including generation plants and mini-grids in the
identified un-electrified/semi-electrified villages and hamlets in UP and Bihar. The project will
disburse against achievement of results. This component would be executed through PPP
approach using financial intermediaries.
Component 2: Technical Assistance (US$ 2.6 million)
Capacity Building

Funding of Skill building exercises across the value chain of decentralized generation:
Government of Bihar and UP have expressed interest in introducing the skill building
courses and tool kits at state Industrial Training Institute (ITIs) for training people from
the local villages who could be used by the project developer as operations and
maintenance staff. Further this component would also be used to conduct training for
the UPNEDA and BREDA officials focusing on key technology and financing issues.

State level PIU set-up and assistance for staffing: Due to the lack of institutional
capacity at state nodal agencies, it is proposed that a PIU would be set up within the
state nodal agencies in Bihar and UP. The PIU would be also be staffed with
professional staff hired on contractual basis. The component would fund this PIU
assisting in its regular functioning and staffing.

Independent Verification Consultant (IVC): The independent verification consultant
will be hired for baseline data collection and impact evaluation. This impact evaluation
would also be used for release of outcome based VGF to the developer.
Consulting Services for Market Development

Technical assistance for solar based pump-set scheme: A market potential exists for
solar based pump sets replacing the diesel based pump sets. However, in order to
develop a market for the solar pump-sets, there are a) some key policy and design
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issues, including greater co-ordination between GoI and the states, use of FIs for
providing better loan terms to individual farmers, effective use of existing technology
in monitoring etc, have to be resolved and b) more innovative business solutions need
to be looked into to counter technology issues. This TA will delve into these issues in
detail and propose an action plan.

Technical assistance for telecom towers as anchor customers: There is a large scope to
hybrid solar technology with diesel in running the telecom towers in rural areas. It is
proposed a survey will be carried out to understand the market potential for this model.
.
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IV. Safeguard Policies that Might Apply
Safeguard Policies Triggered by the Project
Environmental Assessment OP/BP 4.01
Yes
No
TBD
X
Natural Habitats OP/BP 4.04
X
Forests OP/BP 4.36
X
Pest Management OP 4.09
X
Physical Cultural Resources OP/BP 4.11
X
Indigenous Peoples OP/BP 4.10
X
Involuntary Resettlement OP/BP 4.12
X
Safety of Dams OP/BP 4.37
X
Projects on International Waterways OP/BP 7.50
X
Projects in Disputed Areas OP/BP 7.60
X
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V. Tentative financing
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Financing Source
Amount (US$mn)
.
BORROWER/RECIPIENT
GEF ()
Others (Private Financing)
Total
14.00
14.00
14.00
42.00
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VI. Contact point
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World Bank
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Contact:
Title:
Tel:
Email:
Ashish Khanna
Lead Energy Specialist
011-49247755
akhanna2@worldbank.org
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Borrower/Client/Recipient
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Name:
Contact:
Title:
Tel:
Email:
Department of Economic Affairs, Ministry of Finance, India
Sanjay Garg
Director
011-23092345
Sgarg@nic.in
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.
Implementing Agencies
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Name:
Contact:
Title:
Tel:
Email:
Ministry of New & Renewable Energy, Government of India
Mr. Tarun Kapoor
Joint Secretary, MNRE
011-24360359
tarun.kapoor@nic.in
Name:
Contact:
Title:
Tel:
Email:
UPNEDA
Ms. Anamika Singh
Director
9415609002
dirupneda@gmail.com
Name:
Contact:
Title:
Tel:
Email:
BREDA
Mr. Dayanidhi Pradhan
Director
0612-2507734
breda@breda.in
.
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VII. For more information contact:
.
The InfoShop
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 458-4500
Fax: (202) 522-1500
Web: http://www.worldbank.org/infoshop
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