ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
-A A +A

Universal Electricity Access

Can Cooperatives Strengthen Electric Connections?

Jennifer Richmond (jenrich@terpmail.umd.edu) is a PhD student at and Anand Patwardhan (apat@umd.edu) teaches at the School of Public Policy, University of Maryland, United States.

The National Democratic Alliance government has targeted to electrify all villages by the end of 2018. But simply establishing electric connections does not translate into adequate, affordable and good quality supply. This article examines the possibility of setting up rural electric cooperatives and assesses the successful examples in some other countries.

The government classifies villages as electrified if public buildings have electric connections and merely 10% or more of the village residences have connections, withholding concerns of supply quality and outages from theft or malfunction (Ministry of Power 2017). The government’s online energy dashboard reports that nearly 15,000 villages—covering around 80% of the population—have been electrified (REC 2017). However, only a small fraction—8%—of the electrified households have 100% connectivity. In fact, a recent study by Jain et al (2015) in coordination with the Council on Energy, Environment, and Water (CEEW), revealed that 80% of rural households surveyed in Bihar have no (or extremely poor) access to electricity, despite the government reporting Bihar’s village electrification rate as 95.5%. At a macro-level, India’s per capita electricity consumption in 2014 was quite low at about 25% of the world average, and only 10% of the Organisation for Economic Co-operation and Development (OECD) average (World Bank 2014). This suggests that there is a pervasive latent demand remaining unmet, despite climbing village-level “electrification”rates.

Electricity has clear multiplier effects for development outcomes, including health, education, and living standards generally. A recent World Bank study conducted over a 17-year period revealed that rural electrification led to increases in household consumption and wage work for men (Ravallion et al 2015). The provision of adequate and affordable electricity is therefore paramount to the country’s long-term development strategy.

The most significant barrier to expanding access to remote areas is cost recovery. Utility companies hesitate to build out transmission lines to remote villages, which will have lower demand than high-density urban populations and will generate a lower return on investment for private or municipal utilities dependent on profits. At the same time, several studies have determined that there is a considerable willingness-to-pay for electricity services even among poor, rural consumers (Gunatilake 2013). When connections can be extended to rural areas, utilities still face two major impediments: reliability and affordability. Reliability constraints result from electricity theft, transmission losses, and inefficient distribution. Affordability is a concern for rural populations because of distance from distribution centres and low population density, both of which drive up the price of the service. The challenge then is to find the right institutional and organisational models that will help bridge this “last-mile” gap; with regard to access, and also with regard to adequacy, reliability and affordability. In this context, we would argue for a closer examination and possible adoption of rural electric cooperatives, particularly given the long history of the cooperative movement in India.

Bottom-up Approach

Many countries have experimented successfully with electric cooperatives to close the gap in rural electrification and generate and/or distribute electricity at a local, decentralised scale. Member-managed cooperatives are often more responsive to community concerns and needs and can operate largely independently from state utilities and state governance, which may help ease corruption, increase sustainability, and reduce inefficiencies by taking advantage of more direct feedback loops.

The cooperative model has been successful across many international contexts, including Argentina, Bangladesh, Bolivia, Brazil, Chile, Costa Rica, Italy, Philippines, the United States (US), and Spain (NRECA International 2016). The lessons learned and best practices from this experience may be helpful for electric cooperatives in India.

Costa Rica: This country has reached a national electrification rate of 95% through the creation of electric cooperatives and expansion of the national electric company’s services. Four major cooperatives have formed since the 1960s with assistance from the National Bank of Costa Rica and United States Agency for International Development (USAID) (Barnes and Foley 2004). Community members in each cooperative’s service area elect delegates to a general assembly every two years; the general assembly then elects an administrative council to oversee the cooperative’s operations, which helps mitigate the risk of corruption. Costa Rica’s cooperatives are intended to be profit-generating, and reinvest revenue into extending services, maintenance, improving services, and investing in social programmes such as education (Climate Parliament 2017).

Nepal: The Nepal Electricity Authority (NEA) passed Community Electricity Distribution Byelaws in 2003 to unbundle electricity generation from distribution, meaning that cooperatives could buy wholesale electricity from producers and distribute it locally rather than wait for utilities to extend services (Yadoo and Cruickshank 2010). The by-laws state that the government will cover 80% of upfront capital investment costs for distribution connections, while the community is responsible for the remaining 20% (changed to a 90:10 ratio in 2008 when the by-laws were amended) (NACEUN 2017).

Bangladesh: Bangladesh established a national Rural Electrification Board (REB) to create and organise electricity distribution cooperatives known as Palli Bidyut Samities (PBSs); the REB has set up over 70 PBSs, serving 45 million people, covering nearly the entire country (NRECA 2016)and employing over 16,000 people. In fact, Bangladesh’s PBSs boast a 96% service fee collection rate and a distribution loss rate of only 10% (Yadoo and Cruickshank 2010). Government financing for PBSs is extremely attractive with a 33-year loan period and an eight-year grace period at a 2% interest rate. The government offers a subsidy covering operating losses for the first several years of commercialisation. Bangladesh’s management structure is similar to Costa Rica’s model in which a 15-member board of directors is elected by the community every three years to oversee and manage operations. Women are ensured at least a fraction of board positions. The PBSs have remained stable and have provided reliable electricity due to efficient management practices such as the REB’s biannual management audit of each PBS to evaluate its progress against established operational requirements and goals (Chowdhury nd).

United States: The US experience with rural electric cooperatives dates back to the creation of the Tennessee Valley Authority (TVA) in 1933. At the time, only 10% of rural households had electricity connections while 90% of urban households were connected to the grid (UWCC 2017). Private investor-owned utilities were hesitant to expand services to rural consumers for fear that low demand and a diffused consumer base would result in a low or negative return on investment. When utilities did occasionally reach rural customers, the supply was provided at a premium price compared to cheaper prices for urban residents who paradoxically had a higher average ability to pay. In 1935, after the initial success of the TVA model, President Franklin D Roosevelt formed the Rural Electrification Administration (REA) to prioritise electrification as a public good. The REA encouraged citizens—largely farmers—to establish their own electricity cooperatives.

Decades later, cooperatives remain the primary electricity suppliers in rural areas of the US. There are a total of 930 cooperatives, which deliver 10% of the country’s electricity to 12% of the population (42 million customers), and own nearly half the country’s transmission lines throughout 47 states. Despite averaging only seven customers per mile compared to an average of 35 for investor-owned utilities and 47 for municipal-owned utilities, the RECs receive the least federal subsidies per consumer (Yadoo and Cruickshank 2010). What made the US programme so successful?

The US created a large national agency, the REA, to promote and organise the expansion of rural electric cooperatives and install electric wiring in rural households across the country. The REA ensured that cooperatives functioned effectively mainly as distribution hubs, which purchased wholesale electricity from utilities and met customers’ needs. The US also granted long-term, government-backed, low-interest loans to residents wishing to start non-profit cooperatives. Rural electrification rose from 10% to 93% in the two decades following the creation of the REA.

Given that cost recovery is an important driver for long-term sustainability of cooperatives, communities must generate adequate demand for electricity. This means that consumers may need to be actively introduced to new end-use technologies, as the REA did in the US by holding rural appliance fairs. However, many appliances may be too expensive for low-income consumers to purchase without assistance, especially electric farming equipment. Therefore, in addition to appliance fairs, the REA offered heavily subsidised loans to purchase appliances (Power Africa nd).

Rural Electrification Strategy

India has had a long, varied, and rich experience with cooperatives that could be leveraged for electrification and the larger issue of rural economic development. India’s cooperative movement began with the Cooperative Credit Societies Act of 1904 during British colonial rule when the government was prioritising rural agricultural cooperatives to provide credit to farmers. In the energy sector, there is more limited experience. One example of a successful model for electricity distribution is the Hukkeri Rural Electric Cooperative Society (HRECS) in Karnataka. The HRECS was established in 1969 with sponsorship from USAID and in coordination with the US NRECA (National Rural Electrification Cooperative Association). It operates at a profit with a 93% service fee collection rate—without receiving any government subsidies—to distribute electricity to more than 80,000 customers. The sustainability of the HRECS model seems to be partially derived from the cooperative’s investment in its self-reliance. For instance, the group began training workers to repair its distribution transformers, and later by 1995 had adapted to manufacture its own transformers, which helps to cut costs and increase efficiency (Kamalapur and Udaykumar 2012).

Cogeneration in Maharashtra is another example where existing sugar mills (cooperative and private) use waste bagasse for combined heat and power generation. Plants use some electricity on-site and sell the excess to state electricity boards (Gautam and Raha 2010). By generating revenue from sugar, ethanol, and electricity, plants are less vulnerable to any one commodity’s price fluctuations or change in consumer demand. Plant designs such as these can ensure cleaner–burning power generation, local employment, water conservation, and solid waste reduction—all of which benefit the local community (Mishra et al 2014). As for sugar mill cooperatives generally, financing has played an important role. Cooperative and publicly owned plants are given a higher capital cost subsidy than their private counterparts, helping to sustain less profit-driven models (Mishra et al 2014). Sugar mills are also able to acquire loans from the Sugar Development Fund (SDF) and the National Cooperative Development Corporation (NCDC).

While India is making significant investments in rural electrification schemes, such as the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), and its implementation arm, the Rural Electrification Corporation (REC), cooperatives have not been emphasised as a major model. The RGGVY simply outlines two forms of cooperatives without further elaboration: (i) community-owned and operated, and (ii) systems owned and operated by a third party (Aggarwal et al 2014). Very basic guidelines and insufficient tariff structures have led to low uptake of cooperative development. A number of concerns have been identified that might act as barriers to cooperatives, such as asymmetric information (or lack of information at all) between the government and consumers, too much government ownership (since the government owns a portion of all cooperatives by law), local political coercion, lack of competent management, unfamiliarity with new technologies, poor supply quality, and financial or regulatory uncertainty.

Conclusions

With proper management and oversight structures in place, cooperatives may be able to adeptly address many of the concerns above. As discussed in the case studies, an enabling financial framework is, unsurprisingly, a key component of a sustainable model. There are already institutional structures in place, such as the NCDC, which could be used to jumpstart electricity cooperatives; and a combination of financial tools could ensure stronger demand and welfare gains, such as low-interest loans as in the case of the US, community cost-sharing as in the case of Nepal, or covering operating losses during the commercialisation phase as in the case of Bangladesh.

Central to cooperatives’ long-term sustainability is ensuring stable consumer demand for electricity services. As we discussed in the case of the US, consumer demand depended upon electric appliance purchases. The US REA organised appliance fairs for newly electrified areas and provided loans to purchase appliances. Many cooperatives offer purchase rebates to this day. Experiences with off-grid solar companies in Kenya have shown that rent-to-own or leasing programmes can boost appliance uptake and electricity demand in rural developing areas. It is pivotal that electricity access policies integrate appliance adoption mechanisms to stimulate demand as well as socio-economic welfare, for example, better educational and health outcomes.

Long-term sustainability also relies on transparency and accountability. Recent evidence from Sukhtankar and Vaishnav (2015) reveals that elected chairpersons in charge of sugar mill administrative councils are prone to embezzle funds for campaigns during election years. It may be possible to place a check on this form of corruption through the creation of an external body to oversee cooperatives’ operations and payments to shareholders or members such as Costa Rica has done. This body could also serve as a liaison to share best management practices among cooperatives in each state and across the country.

We have presented exploratory ideas about the role cooperatives may place in extending adequate, reliable and affordable electricity access. There are still several topics that deserve attention through further research, such as potential application of consumer or producer subsidies, accountable distribution of subsidies, redirection of current incentives, such as liquefied petroleum gas subsidies, limiting corruption and inefficiency, and dispute resolution mechanisms. Electricity cooperatives are not the only option for closing the “last-mile” gap, but also in combination with existing programmes for grid electrification and distributed generation, cooperatives may present one of the most viable and self-sustaining solutions for rural communities.

References

Aggarwal, V et al (2014): “Rural Energy Alternatives in India: Opportunities in Financing and Community Engagement for Renewable Energy Microgrid Projects,” Princeton University, https://wws.princeton.edu/sites/default/files/content/591f%20Rural%20Energy%20Alternatives%20in%20India.pdf.

Barnes, D and G Foley (2004): “Rural Electrification in the Developing World: A Summary of Lessons from Successful Programs,” United Nations Development Programme and World Bank Energy Sector Management Assistance Programme (ESMAP), https://cleanenergysolutions.org/resources/rural-electrification-developing-world-summary-lessons-successful-programs.

Barnwal, P (2016): “Curbing Leakage in Public Programs with Direct Benefit Transfers Evidence from India’s Fuel Subsidies and Black Markets,” Michigan State University, http://pubdocs.worldbank.org/en/826341466181741330/Barnwal-DBT-India.pdf.

Chowdhury, N (nd): “Rural Electrification: Bangladesh Experience,” Bangladesh Rural Electrification Board, World Bank presentation, http://siteresources.worldbank.org/EXTAFRREGTOPENERGY/Resources/717305-1....

Climate Parliament (2017): “Supply Electricity through Rural Cooperatives,” http://www.climateparl.net/acs-supply-elec-thru-rural-coops.

Gautam, S and A Raha (2010): “Comparative Analysis of Cooperative Owned Cogeneration Units in Maharashtra,” Bioenergy India, Issue 5, Ministry of New and Renewable Energy and United Nations Development Programme, http://www.undp.org/content/dam/india/docs/bioenergy_india.pdf.

Gunatilake, H (2013): “Willingness to Pay for Electricity Supply Improvements in Rural India,” Journal of Resources Energy and Development, Vol 10, pp 55–78, https://www.researchgate.net/publication/258118062_Willingness_to_Pay_fo....

Haya, B, M Ranganathan and S Kirpekar (2009): “Barriers to Sugar Mill Cogeneration in India: Insights into the Structure of Post-2012 Climate Financing Instruments,” Climate and Development, Vol 1 (1), pp 66–81, http://www-tandfonline-com.proxy-um.researchport.umd.edu/doi/pdf/10.3763....

International Labour Organization (ILO) (2013): “Providing Clean Energy and Energy Access Through Cooperatives,” United Nations, p 5, http://www.ilo.org/wcmsp5/groups/public/---ed_emp/---emp_ent/documents/publication/wcms_233199.pdf.

Jain, A et al (2015): “Access to Clean Cooking Energy and Electricity—Survey of States,” Council for Energy, Environment, and Water (CEEW) and Columbia University, http://ceew.in/pdf/CEEW-ACCESS-Report-29Sep15.pdf.

Kamalapur, G and R Udaykumar (2012): “People’s Participation in Rural Electrification—A Successful Case,” Energy Systems, Vol 3(2), pp 209–19, https://link.springer.com/article/10.1007/s12667-011-0045-6.

Lee, K, E Miguel and C Wolfram (2018): “Experimental Evidence on the Economics of Rural Electrification,” University of California, Berkeley, NBER, and Energy Institute at the University of Chicago, http://www.catherine-wolfram.com/uploads/8/2/2/7/82274768/repp-jpe_2018-01-31-final.pdf.

Lewis, J, E Severnini (2017): “Short- and Long-run Impacts of Rural Electrification: Evidence from the Historical Rollout of the US Power Grid,” Université de Montréal and Carnegie Mellon University, https://as.vanderbilt.edu/econ/seminars-and-research/seminarpapers/sever....

Ministry of Finance (2018): “Union Budget,” Government of India, http://www.indiabudget.gov.in/bspeecha.asp.

Ministry of Power (nd): “National Franchisee Training Program of Ministry of Power,” http://recindia.nic.in/download/National%20Franchisee%20Training’s%20Reading%20Material-English.pdf.

— (2017): “Definition of an Electrified Village,” Government of India, http://www.ddugjy.gov.in/mis/portal/definition_electrified_village.jsp.

Mishra, M N Khare and A Agrawal (2014): “Bagasse Cogeneration in India: Status, Barriers,” Journal of Mechanical and Civil Engineering, Vol 2 (1), pp 69–78, http://www.iosrjournals.org/iosr-jmce/papers/vol11-issue1/Version-3/J011....

NACEUN (2017): “Community Based Rural Electrification Program in Nepal,” National Association of Community Electricity Users Nepal, http://naceun.org.np/about-us/what-are-we-doing/.

National Institution for Transforming India (NITI) (2017): “Draft National Energy Policy,” http://niti.gov.in/writereaddata/files/new_initiatives/NEP-ID_27.06.2017.pdf.

NRECA International (2016): “Guides for Electric Cooperative Development and Rural Electrification,” National Rural Electric Cooperative Association International Ltd and USAID, p 5, http://www.nrecainternational.coop/wp-content/uploads/2016/11/GuidesforDevelopment.pdf.

— (2017): “Costa Rica,” NRECA International Ltd, http://www.nrecainternational.coop/where-we-work/costa-rica/.

Power Africa (2018): “Hey, Discos! (That Is, Electricity Distribution Companies,” Medium, https://medium.com/power-africa/hey-discos-that-is-electricity-distribut....

— (nd): “Electrifying Africa Based on the US Rural Electrification Model,” Medium, https://medium.com/power-africa/electrifying-africa-based-on-the-u-s-rur....

Ravallion, M, van de Walle, D, V Mendiratta and G Koolwal (2015): “Long-term Gains from Electrification in Rural India,” The World Bank Economic Review, Vol 31 (2), pp 385–411, https://doi.org/10.1093/wber/lhv057.

REC (2017): “Dashboard,” Government of India, Rural Electrification Corporation, https://garv.gov.in/dashboard/ue.

Singh, A and M Chatterjee (2017): “PM Modi Promises Electricity to Every House by December 2018,” Times of India, https://timesofindia.indiatimes.com/india/pm-modi-promises-electricity-to-every-house-by-december-2018/articleshow/60834610.cms.

Sukhtankar, S and M Vaishnav (2015): “Corruption in India: Bridging Research Evidence and Policy Options,” India Policy Forum, National Council of Applied Economic Research, Vol 11(1), pp 193–276, https://ideas.repec.org/a/nca/ncaerj/v11y2015i2015-1p193-276.html.

UWCC (2017): “Research on the Economic Impact of Cooperatives,” University of Wisconsin Center for Cooperatives, University of Wisconsin, http://reic.uwcc.wisc.edu/electric/.

World Bank (2014): “Electric Power Consumption (kWh Per Capita),” World Bank Data, https://data.worldbank.org/indicator/EG.USE.ELEC.KH.PC.

Yadoo, A and H Cruickshank (2010): “The Value of Cooperatives for Rural Electrification,” Energy Policy, Vol 38 (6), pp 2941–47, https://doi.org/10.1016/j.enpol.2010.01.031.

Updated On : 8th Jun, 2018

Comments

(-) Hide

EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

Back to Top