When Saubhagya made mini grid projects redundant, Tata Power capitalised

In March 2019, when the BJP government at the Centre declared that its target of household electrification has been achieved, the announcement was a setback for off-grid power generators in myriad places across the country. Grid power travelling long distances from generation units through intense network of wires and sub-stations was much cheaper than what they could generate. This happened even as some portion of household electrification or the Saubhagya programme was itself achieved through the off grid systems, especially in remote areas which could not be connected to grids.

Off grid systems are not connected to the mainline power network. They generate and distribute electricity locally. Mostly based on renewable energy sources or hybrid solutions, such as solar and battery, or biogas, solar and diesel, they are especially found suitable for rural areas. Some of them precede the Centre’s Saubhagya programme. 

Even as there is a question mark on the survival of off-grid, an unexpected entry of a big player such as Tata Power has thrown in a whole new concept in rural electrification. Tata Power would now be taking the space that was hitherto occupied by small energy supply companies or ESCOs that formed the backbone of off grid power infrastructure. 

It all began when Tata Power’s current managing director and chief executive officer Praveer Sinha was earlier in Delhi as the group’s Delhi distribution business head. His interest in off grid business led him to speak to Smart Power India (SPI), a division of Rockefeller Foundation. He wanted them to do some pilots. This interest catapulted into Tata Power announcing the launch of a separate entity TP Renewable Microgrid Ltd. 

SPI, with its expertise in this business and strong learning from projects spawned by it, would be providing support to the new company, besides promoting micro enterprises to create non-residential demand load in identified villages. SPI will depute about three to five of its members to TP Renewable to train and select sites. For this, they will be signing a memorandum of understanding soon.

Interestingly, TP Renewable has a set a target of 10,000 micro grids which is same as what the government’s draft policy for the sector envisaged in 2016. Though buried under the huge load of other programmes, the policy envisaged India building at least 10,000 micro grids and mini-grids using renewable technology across the country by 2021 with a total of 500 MW capacity.

The policy defined a ‘mini grid’ as a system having a RE-based electricity generator with capacity of 10KW and above, and supplying electricity to a target set of consumers through a public distribution network (PDN). A ‘micro grid’ system has generation capacity of below 10KW. Micro and mini grids generally operate in isolation to the electricity networks of the distribution company’s grid and are, therefore, stand alone, but can also interconnect with the grid to exchange power. If connected to grid they are termed as grid connected mini and micro grid.

The 103-year-old Tata Power is a power distributor in the cities of Delhi and Mumbai. It is also has a distribution franchisee agreement (DFA) with Ajmer Vidyut Vitran Nigam Limited (AVVNL) to cater to the power requirements of customers in Rajasthan’s Ajmer for a period of 20 years. Now, getting into a business of managing power village-by-village will mean going down to micro level scale of distributed energy generation and management. This foray may appear dichotomous for a company that together with its subsidiaries and joint ventures has a generation capacity of 10,763 MW.

Sinha, however, is clear: “This is the leadership (which) Tata Power will have to demonstrate and if 25 million people have to be impacted, it has to be Tata Power.” In the first phase, some 200 villages have been identified in Uttar Pradesh, Bihar and some parts of Assam. The criteria being that a minimum of 400 houses in each village.

For Rockefeller which was finding it hard to expand through much smaller ESCOs, some of whom decided to scale down the business after the entry of grid power, Tata Power as a partner will have the wherewithal to expand the numbers. 

The two partners have based their belief on the fact that despite the presence of grid power, small entrepreneurs, farmers, shop owners and even households would always want a more reliable power supply. They will be ready to pay a bit more for it than grid power. Usually power from this micro grids are sold in packages that have fixed charge according to the load and the number of hours. An ESCO in Bihar, for instance, charges Rs 300 for using 10 units (kw/hour) for Rs 300 a month after which every extra unit is charged Rs 27. This is in contrast to Rs 6.15 a unit charged by state's distribution company for the first 50 units of power supplied to domestic consumers. 

Rajiv J Shah, president, The Rockefeller Foundation, further adds the endeavour is to build the whole ecosystem. It is not just about supplying power but supporting micro enterprises, financing, insurance and marketing. “Between the Smart Power India and Tata Power, we will be creating an end-to-end solution of creating economic activity as well as supplying power,” he says.

Nonetheless, the creation of TP Renewable comes at a time when power demand has started falling. According to the Central Electricity Authority, electricity demand from distribution utilities declined for third month in October by falling 13.2 per cent from a year earlier. Clearly, Tata Power is seeing growth in rural India and is ready to bet on small parcels of power generation and distribution risks across the country’s villages rather than mega cities.