Assessing the financial sustainability of rural grid electrification pathway: A case study of India

Abstract

India has recently achieved universal electricity access. However, the financial sustainability of supplying electricity in many rural areas in India still remains a key concern. In 2018–2019, total annual loss of all the distribution utilities in India was reported to be INR 270 billion. This is a huge financial burden and remains as a sustainability challenge to provide affordable and reliable electricity supply (SDG7.1). In this paper, a generic mathematical cost model has been developed in terms of viability gap and applied the model to evaluate the financial sustainability of rural grid electrification in four Indian provinces Andhra Pradesh (AP), Madhya Pradesh (MP), Uttar Pradesh (UP), and Uttarakhand (UTKH). The viability gap is basically the difference between electricity tariff and actual delivery cost of electricity considering the life cycle analysis. The analysis showed that viability gap is negative in all four provinces indicating the fact that existing modality of electrification is financially unsustainable. The paper also revealed that the tariff revision along with annual increment in the tariff, minimizing the distribution losses and increasing the load factor could significantly reduce the viability gap. This study could be of high interest to the policy makers, power distribution companies (DISCOMs) and energy researchers.