Globally, 789 million people lack access to electricity and 2.8 billion clean cooking. A recent study by Climate Policy Initiative (CPI) and Sustainable Energy for All (SEforALL) reveals that much of this gap, despite a decade of progress, is because money is not flowing where it is needed most.
While finance flows have increased for electricity access from $34.6 billion in 2017 to $43.6 billion in 2018, only one-third of this total has directly contributed to residential access. Further, investments in off-grid solutions and mini-grids, which are considered an immediate remedy to energy access issues, stood at $460 million in 2017 (only 1-1.5% of total financing).
Compared to 20 other countries tracked in the report, India has done exceptionally well in the last decade with a notable addition of 250 million people to the grid over 2012-2018 (World Bank). According to the latest India Residential Energy Consumption Survey (IRES), 97% of Indian households now have access to electricity with an average of 20.6 hours of grid-electricity supply. But there are still gaps – in addition to identifying and electrifying the remaining 2.4% households – that need to be filled for India to achieve its vision of 24/7 uninterrupted electricity supply. For instance, 64% of rural households and 40% of urban households still face power cuts at least once a day.
In terms of clean cooking, national data shows a reduction of 10% in the share of population relying on biomass and kerosene between 2010 and 2015, with most now using liquified petroleum gas (LPG) instead. Since 2015, government figures indicate that an additional 80 million poor households now have access to free LPG under the Pradhan Mantri Ujjwala Yojana (PMUY, also known as the Prime Minister’s Lighting Scheme. However, over 680 million people still rely on biomass and are without access to clean cooking facilities.
Yes, there is much to be done in improving the quality of electricity supply and access to clean cooking facilities, but one cannot deny the momentous achievement.
So, what lessons can we learn from India to apply to the rest of the world?
Lesson 1: It is important to set specific and bold policy targets and back them up with actions.
India achieved a rapid increase in clean energy access through publicly funded programmes with directed subsidies, and it is safe to say that relying on private finance would not attain the desired outcomes. However, for some segments of energy access, such as clean cooking stoves, solar home lighting systems could use blended financing. This can be effectively supported by dedicated and directed technical assistance and financing programmes such as the US India Clean Energy Finance initiative, which has supported some of the leading solar home system solution providers in accessing debt financing from institutional sources. Clean cooking was enabled through directed subsidies using a direct benefit transfer mechanism reducing leakage and better targeting of subsidies
Lesson 2: It is imperative that wide-scale energy access is achieved through clean sources, specifically through distributed renewable energy.
While electricity access in India has grown significantly, the biggest issue remains that energy cannot be considered clean. The share of clean energy in India’s total final energy consumption is only 11-12%, according to the International Energy Agency (IEA). But the good news is that this is slowly changing, and India is on the right path to decarbonize its electricity system. Trends show that contribution of renewable sources in the energy mix increased from 13% in 2014 to 22% in 2019 of total installed capacity. By 2030, India plans to expand its renewable energy capacity from 75GW in 2019 to 450GW in 2030, which will get India ahead of its climate change mitigation target. Using distributed solar at the village level would go a long way in clean energy access.
Lesson 3: Going from cash-based payment to transition-based payment is a win-win proposition.
Bills are generated regularly for 91% of the total 93% grid users, but payments are not as regular. A possible reason for this irregularity could be the overreliance on cash payments, especially during COVID-19. There is definitely a need to switch to innovative and technology-based payment options making use of smartphones available to 70% of Indian households. The households can save time in making the payment and the electricity distribution can get payment from the customers quickly than before and reduce the operating cost.
Accelerating capital flows to energy access face several hurdles, including relatively low willingness to pay for electricity access solutions and clean cooking, low affordability of solutions, small investment ticket size, and other financing risks (e.g. credit risk, liquidity, currency and political risk). Since clean cooking is not fully commercially viable, access to commercial finance is limited and hence there is a need for public investment, or directed subsidies. International public financial institutions could increase commitment and enable public investment in these two sectors and leverage the private sector financing. For example, blended finance, risk-sharing mechanisms and credit guarantees could be effective ways to leverage private capital for energy access – mainly clean cooking.
International financial institutions and country-level policymakers who are prioritizing Sustainable Development Goal 7 (affordable and clean energy), can prioritize clean energy access in integrated energy plans by offering directed incentives, subsidies, and technical solutions, such as providing improved cooking stoves along with LPG and distributed renewable energy. In addition, there should be a large-scale investment in renewable energy generation, transmission, and distribution, as well as a commitment to make necessary policy and regulatory reforms and develop innovative financial and business models to make energy accessible and clean.