SAUBHAGYA scheme, old wine in new bottle

30 October 2017 |

The Government of India has launched SAUBHAGYA scheme for providing universal electricity access to all households in India by March 2019. The government estimates that there are 46 million unelectrified households in India at present and this scheme will primarily target the 30 million below poverty line households not covered by other ongoing electrification schemes. Target households will be provided free or nominally priced connections (but not free electricity). Households in remote, inaccessible areas will be offered decentralised solar power generating systems of 200-300 Wp each with integrated batteries and 5 LED lights, a fan and a power socket.

  • The scheme would potentially have huge multiple economic benefits for the country although the government estimate of 7% demand growth is highly optimistic;
  • The government has announced multiple schemes with seemingly similar objectives and it is not clear how the SAUBHAGYA scheme will be different;
  • Despite provision of decentralised solar power generating systems for remote locations, the scheme is likely to deal a blow to the private off-grid businesses unnerving investors and consumers alike;

The new scheme is operational with immediate effect and is budgeted to cost INR 163 bn (USD 2.5 bn) at an average of INR 5,400 per connection (USD 84). Funds will be used to create last mile infrastructure including poles, cables and electricity meters. Up to 75% of the funding shall be provided by the Indian government (90% for some north-eastern states and union territories) with balance coming from respective DISCOMs, state governments and/or borrowings.

The scheme has been launched with much fanfare. Potentially, it is an important policy development as it would not only improve social, educational and economic status of millions of people but also lead to a much-needed power demand boost. The Ministry of Power believes that the scheme will grow power demand by 80 bn kWh (+7%). This estimate seems highly optimistic to us considering that most target households will be fractional users of electricity. Also, it is important to remember that electricity connection in India does not mean getting regular, reliable electricity. Power cuts are common across the country despite a power ‘surplus’ situation. We estimate actual uplift in power demand to be closer to 2%.

It is also difficult to understand how this scheme is different from multiple overlapping schemes announced in the past. The DDUGJY (Deendayal Upadhyaya Gram Jyoti Yojana) scheme was launched in 2015 with the aim of electrifying all 18,000 unelectrified villages by May 2018. The Modi government also launched the ‘24×7 Power for All’ programme in 2015 with the objective of providing 24×7 power to all consumers across India by 2019. It is hard to escape the conclusion that the SAUBHAGYA scheme is old wine in new bottle.

The provision of decentralised solar power generating systems with integrated batteries for households with no grid supply is a heartening feature although we remain cautious. Such systems would cost about INR 35,000 (USD 540) per household and given the limited funds availability, their use will be highly restricted in our view. On the contrary, launch of this scheme is likely to hurt prospects of multitude of off-grid operators offering market based solutions in the country.

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