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Enabling Mini-grid Development in Rural India

Enabling Mini-grid Development in Rural India

By Stephen D. Comello, Stefan J. Reichelstein, Anshuman Sahoo, Tobias S. Schmidt
December 2015Working Paper No. 3382

Rural electrification rates in India lag behind government goals, in part due to the inability of distribution companies (discoms) to fund central grid expansion. In the absence of central grid electrification, generation systems that serve only a small number of customers offer an immediate pathway towards rural electrification, in particular mini-grids. Yet private investment in mini-grids in India has been virtually absent. Using a comprehensive life-cycle cost analysis, we find that mini-grids are more economical than incumbent energy services available to households without central grid connection. Through a qualitative analysis, we identify the threat of central grid extension as the gateway barrier preventing mini-grid development in India. The issues associated with the gateway barrier have common elements with the so-called holdup problem as identified in the economics of organizations. We suggest several modifications to a proposal by the Indian Forum of Regulators that would regulate the terms on which entrepreneurs could develop mini-grids and then receive contractual protections on these infrastructure investments.