Thursday, January 8, 2015

Rural Electricity Adoption in India: What's Standing in the Way?

By Doug Barnes

For several years I have been involved in a project to understand why the electricity connection rates in India are not higher than they are. This resulted in a report probing various reason that are holding back India for achieving universal access, despite spending quite a bit of money on the problem. For details, see the report Power for All: Electricity Access Challenge in India. I have done quite a bit of work on India, including a some older major studies on Energy Strategies for Rural India (2002)  and The Impact of Energy on Women's Lives (2004). This new report complements the past work.

First some facts. Owing mainly to its large population, India still has by far the world’s largest number of households without electricity. About 311 million people still live without electricity, and they mostly reside in poor rural areas. By late 2012, the national electricity grid had reached 92 percent of India’s rural villages, about 880 million people. And 200 hundred million households in India live in villages with electricity, but they have not adopted service.

So what does this say about energy access? For me, given the significant benefits of rural electrification, with so many without electricity living in villages with grid service means that something is standing in the way of electricity adoption in India. For India it is necessary to understand the concepts involved in both village and household electrification. The electricity access rate is the percent of all households in India with electricity. The electricity availability rate is the percent of household living in communities with service, regardless of whether or not they have adopted electricity. Finally, the electricity hook-up rate is defined as the percent of households that have adopted electricity in communities that have service.

Physical Access to Electricity in Improving

Figure 1. India Electricity Adoption Rates
Source: National Sample Survey 2010
According to the National Sample Survey, household electricity adoption rates in villages with electricity increased by 9 percent between 2000 and 2010. The number of households adopting electricity in households served by the grid increased from 74% in 2000 to 80% in 2004 and to 83% in 2010. This means that the hook-up or adoption rate is catching up with availability of electricity in India's villages. In other words, with time more and more households in villages with electricity decide to adopt service. Even so, as of 2010, a 17 percent gap still remains between availability in a village and the adoption of electricity and is about 200 million people.

This gap is quite large between urban and rural areas. In rural areas 22% of households in villages with electricity do not adopt service. This is nearly four times greater compared to urban areas (figure 1). Thus, in India the grid is available in about 90% of villages, but in those villages is only adopted by 78% of households. These households are also among the poorest households in India.

Electricity Is Affordable

The monthly expense of rural electrification is often given as the reason that household do not adopt
Figure 2. Affordability of India, 2010
Source: National Sample Survey 2010
electricity service. It is true that the remaining households without electricity are poor. The question is, can the poor afford to pay a reasonable amount of their income for electricity? One should also keep in mind that such households also already are paying for kerosene for lighting. In theory, the kerosene expenses could be paid towards monthly the electricity bill making electricity quite affordable.
The patterns of household electricity use in India confirm that electricity is quite affordable, even for the poorest households. For households with an electricity connection, expenditure on electricity service accounted for just 3.4 percent of an average household budget in 2010 (Figure 2). This expenditure level was remarkably similar across income quintiles.
No doubt for the poorest households their current level of expenditures for electricity for the poorest income groups would appear to be around the maximum that they can afford. People with higher incomes tend to increase their spending on electricity. As incomes rise, they buy and use more appliances. This means spending levels as a percent of income are similar for both the rich and the poor. In other words, electricity consumption increases at about the same rate as income. The implication is the electricity is quite affordable in India, even among poor households. They use less electricity, but spend the same % of their income on service as the richest households.

One other issue regarding affordability is the minimum charge for electricity in India. Every month households have to pay a minimum charge, regardless of whether or not there are brownouts or blackouts. This means that a poor household has to pay even if service is not available during evening hours. Thus, it is necessary to assess the impact of reliability on electricity adoption.

Poor Service Reliability Negative for Electricity Adoption

The power reliability situation in rural India is not just bad; it is terrible. In 2005 only about 7 percent of
Figure 3. Electricity Adoption and Power Reliability, India 2005
Source: India Human Development Survey 2005
rural households with electricity report no power outages. About one fifth of households with electricity report outages of up to four hours a day, and the same number experience intermittent power supply throughout most of the day. Bihar and Uttar Pradesh—the two states that lag farthest behind in terms of both village coverage and household adoption—face the highest average daily outages. With such outages, in the evening children cannot study and people cannot watch television. During the day water cannot be pumped for agriculture, thus lowering yields.

The lack of a reliable electricity supply does not just lower the benefits of rural electrification. There also is a direct correlation between the extent of power outages and the rate that households adopt grid electricity in a community. In communities with daily service outages of 20 hours or more, the household adoption rate is just 38 percent, compared to more than 80 percent for those with few or no outages (figure 3). After controlling for such factors as family size, education, and electricity price, it was found that raising the availability of electricity by just one hour per day increases the probability of household adoption by nearly 2 percent (see Power for All: Electricity Access Challenge in India for details). Many of the 200 million people without service--but living in villages with electricity--would adopt a connection if they could depend on electricity being available to them when they flip the switch for lights and appliances.


In conclusion, those without electricity are less likely to adopt service because the benefits of unreliable power supply sporadic. People reason, why should they pay minimum monthly service costs for electricity that is off all the time? Poor reliability also reduces the amount of revenue collected by electricity companies, which in turn provides them low incentives to invest in maintaining service. For electricity companies this is a vicious cycle of providing poor service leads to lower adoption by households, which in turn results in lower revenues to invest in reliability.

As India enters a new age of modernization, it is important that electricity not only be provided to all of its citizens, but the service offered should also be closer to levels found in the rest of the developed world. In a sense, this means that India's well intentioned policies to help the poorest populations gain access to electricity while not dealing with the electricity supply problems is holding it back from achieving universal access to electricity for all. From a policy standpoint, what is the use of investments in lines, transformers and poles, when power does not flow through them? Addressing both the access and the reliability electricity challenges will not be easy, but for a country like India it is a very achievable goal.

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