 Energy Conclave 2006 Energy and Sustainable Development July 2006

 Slide 2 Agenda / Contents Rural poverty and sustainable development -achievement on MDGs require significant improvement in the quality and quantity of energy services Electricity: and the challenge to support growth and equity Issues in terms of access, security, reliability, and price and key responses Local participation in village energy system Implementation challenges

July 2006  Slide 3 Achievements and unfinished Agenda 75% villages electrified; but only 46% households have access to electricity (77 million households un-served) About 63 lakh poor households (12%) have lifeline access under Kutir Jyoti; but 82% BPL HH are not yet covered Per capita usage increased from 15.6 (1951) to kWh (2005) but well below developing cos. Groundwater irrigation accounts for 70% of irrigated area; but poor quality of supply Source: Ministry of Power and CEA – various reports

July 2006  Slide 4 Defining requirements Earlier Definition: 98% villages electrified across 12 districts of Jaipur Discom total villages : electrified : New Definition: 60% villages electrified but in terms of households, <30% electrified in 12 districts total villages : electrified : 8829 rural households: 2.3 million electrified: 0.68 million

July 2006  Slide 5 Source: Sinha 2006 RE and sector initiatives

July 2006  Slide 6 Key challenges Financial sustainability Capital Operations Primary energy Management requirements Under-managed, commercial approach New institutional arrangements Quality of supply Demand side and Supply side Pricing Residential and Industrial Targeting Subsidy Performance

July 2006  Slide 7 Financial viability Source: Financial model output from one of the state utilities

July 2006  Slide 8 Financial viability Key issues: Annual financial gap of utilities is increasing again with higher cost of power purchases, O&M, and financing of past losses Response: Business plan (IEP8.1.6) New institutional framework to enhance local involvement, scale, and quality of rural supply, and to reduce commercial losses Responses (cont’d) Franchisee initiatives must be supported by capacity building, regulatory, and utility actions Notify rural areas under EA2003 -competitive distribution -can integrate other renewable options

July 2006  Slide 9 Institutional Framework to support rural electric ventures

July 2006  Slide 10 Quality of Supply Key issues: Quality of supply differs across regions Significant improvement on standard measures in recent times Supply rationing Cost implications – poor staff deployment, limited use of productivity tools

July 2006  Slide 11 Quality of Supply Key issues Commercial quality performance lags in rural, semi-urban areas; even as the norms are lax Standards to address metering complaints: Urban: in 7 days; Rural: in 15 days; Replace in 15 days of inspection

July 2006  Slide 12 Demand side initiatives Responses: Regulatory -TOD tariffs (IEP6.1.9) -Fuel surcharge pass-through Differentiating the Urban and Rural services -Tariffs, metering, subsidy DSM incentives -outturn and case for utility investments

July 2006  Slide 13 Supply side management Responses Decentralised supply management -MBMS: capacity allocation to unbundled Discoms: brings better power procurement and capacity utilisation, scheduling, and load management -Intra-state ABT and impact on flattening load curve Benchmarking and review -Plant performance metrics -Distribution construction and maintenance standards

July 2006  Slide 14 Pricing – Residential and Agriculture

July 2006  Slide 15 Pricing - Industrial Source: PwC analysis

July 2006  Slide 16 Cross-subsidies and implications on viability Note: Size of the bubble represents the energy sales to the category Subsidized Subsidizing DOM AGR COM HT 1 HT 2 LT IND RLY Key issues Impact of open access and retail competition Contestable load from 58% (AP) to 80% (RAJ) of HT load Experiences from group captives Tariff rationalisation and targeting

July 2006  Slide 17 Subsidy Targeting Key issues Subsidy for lifeline users is poorly targeted in current slab structure. Case: 80% of slab 1 consumption is drawn by users with > 50 kWh. T>COS applied for δ =c-150kWh Response Direct payment options (IEP8.3) Tariff re-design Time-limited; shift to metered use 20% 34% 46% 50 kWh kWh > 100 kWh Lifeline Other than lifeline users Recovery for consumption in Slab 1 COS = 395, Tariff = % 66% kWh > 100 kWh Recovery for consumption in Slab 2 COS = 395, Tariff = 280

July 2006  Slide 18 Performance and Tariff regime Prevailing tariff regimes are focused more on minimising disparity than promoting efficient behaviour; need for redesign to long-term performance based regime

July 2006  Slide 19 In conclusion To differentiate institutional arrangements for rural and urban electricity supply Change from State “Administered Reforms” to “Stakeholder influenced” reform process Change from “Monopoly” to “Competitive Market” by providing choice to consumers To address financial, management, regulatory and utility requirements of rural supply for sustainable growth

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