Rural Solar Electrification

as a substitute for
Kerosene Subsidies in India

Sushant Vinchurkar
G14054

Rural Solar electrification as a substitute for Kerosene subsidies in India

In a recent article in the Times of India, renowned economist Swaminathan S. Anklesaria

Aiyar has posed a million dollar question: For decades, kerosene has been sold at highly
subsidized prices on the grounds that it provides essential rural lighting to villages without
electricity. However, if electricity is now available in all villages in some states, and will
soon cover the vast majority of the rural population, why should the kerosene subsidy
continue, especially when its well known that a corrupt, leaky distribution system means that
little actually reaches the poor?

The magnitude of subsidy on Kerosene in India: Factual data

Kerosene is primarily used in rural households for lighting (see following figure 1).
Subsidized kerosene provided through the public distribution system (PDS) is intended to be
targeted to those households that are below the poverty line and have ration cards to prove
their economic status.

Figure1
National Sample Survey Office data for 200405 showed that approximately 50 per cent of
poor rural households did not have a BPL card and, in some states, such as Bihar and
Jharkhand, the figure was as high as 80 per cent (Ministry of Statistics and Programme
Implementation, 2007).

Figure 2 (Source: IISD report)

2

Rural Solar electrification as a substitute for Kerosene subsidies in India

Solar as a renewable energy option

As of 31.3.2014, there are 25982 inhabited villages in India that are un-electrified. Due to
abundant solar energy available in most parts of the country, a better option for a long term
scalable and low maintenance solution would be distributed, community level, renewable
energy based solar photo-voltaic (PV) mini grids.
The climatic conditions in India are favourable to solar photovoltaic (PV) technology; India
enjoys around 280 sunny days during an year, translating to ~ 4-7kwh/m2. However the
capital costs associated with solar PV technology is on the higher side ~ Rs.6.5 crores per
MW, making them suitable only for small dispersed loads or for remotely accessible
locations.
Solar Home Systems (SHS) and small solar panel systems have been used in niche
applications especially in projects that requiring small loads of 20-100W. SHS and solar
lanterns have been successful in southern India and are becoming more widely available
in northern parts. The Ministry of New and Renewable Energy (MNRE) under its PV
programme has distributed around 610,000 systems, totalling around 20MW of capacity. This
includes solar lanterns, home lighting systems, street lighting systems, water pumping
systems,etc.

Traditional solutions to avoid Exploitation of Kerosene subsidies areShort term: Small price increase for PDS kerosene in 2012 and the Expert Group chaired by
Kirit Parikh recommended periodic price increases for PDS kerosene (Government of India,
2010).
Medium to long term: Develop a roadmap gradually replacing PDS kerosene with direct
payments (cash transfers, etc.), to be rolled-out on a state-by- state basis.

Alternative Solutions (Self analysed proposals based on the gathered statistics)

Total Kerosene subsidy by government (Fiscal + under recovery) ~ Rs.20415 Cr. per year.
We make a conservative estimate that 50% of the total kerosene subsidy is spent on energy
needs other than cooking (primarily lighting) (Figure 1 above).
Short term solution:
1. Cost of a quality solar lamp cost ~ Rs. 1,800 per piece.
2. Wholesale government purchase price ~ Rs. 1,500 1600 per piece.
3. A social welfare scheme will cost the government a meagre fraction of the massive Rs.
20,000 Cr. spent.
Long term solution:
1. 1 MW capacity equals 1000 kilowatts or 1.67 million units of energy a year and is enough to
light up anywhere between 300 and 350 homes in cities such as Delhi, Mumbai or
Bangalore.
2. Cost required to generate 1 MW of Solar power with current technology = Rs. 6.5 Cr.
3. Calculation:
20415 * 50% = Rs. 10207.5 Cr. (50% of total subsidy as per our assumption above)
Total energy equivalent = 10207.5/6.5 = 1570 MW (Enough to light 7.5 lakh rural
households in a year) * 1 MW capacity equals 1000 kilowatts or 1.67 million units of energy a year
Other factors:
Cost of maintenance almost ZERO (negligible)
Duration of recovery on investment = 8 years.

Rural Solar electrification as a substitute for Kerosene subsidies in India

Conclusion
In the light of even private corporations planning to go solar (Infosys Ltd. planning to set up
its own solar power plant that will meet a bulk of the electricity needs of its offices in
Bangalore, Mysore and Mangalore), it is high time that the Government of India invest in
long term Renewable (Solar) energy option for rural India and plan for phased
discontinuation of subsidy on kerosene.

References

SA Aiyar (2014, July 27) Scrap subsidies that burn funds. The Times of India
http://blogs.timesofindia.indiatimes.com/Swaminomics/scrap-subsidies-that-burn-funds/

Lang, K., & Wooders, P. (2012). Indias fuel subsidies: Policy recommendations for
reform. Policy Brief. Global Subsidies Initiative, International Institute for Sustainable
Development. www. iisd. org/gsi/sites/default/files/ffs_india_guide_rev. pdf

Chakrabarti, S. (2002) Rural electrification programme with solar energy in remote

regiona case study in an island. Energy Policy 30(1): P.33-42.

Velayudhan, S. K. (2003) Dissemination of solar photovoltaics: a study on the

government programme to promote solar lantern in India. Energy Policy 31(14): P.15091518

K R Balasubramanyam (2014, June 17) Infosys turns green, proposes 50 MW solar park
in Karnataka The Economic Times

http://articles.economictimes.indiatimes.com/2014-06-17/news/50651331_1_infosys-kamathelectronics-city