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Strategic Objective 4:
Improved Access to Clean Energy and Water in Selected States
Problem
Over the past decade, India's economy has emerged from a half century of strong national control to a more liberal approach that encourages domestic and international private investments and reduces the role of government in the supply of clean energy and water. While the situation for water and energy is serious enough when each resource is viewed independently, vicious cycles exist between the two that greatly exacerbate inefficient behaviors. This cycle has been dubbed the water-energy nexus. In spite of the decade-long effort to implement economic reforms in these sectors, this key part of India's development agenda remains unfinished.
Financial viability in the Indian power sector is important to India's overall economic health. Yet significant power shortages still plague the economy due to a lack of cost-recovery by utilities, and the subsequent inability of utilities to provide reliable, high quality power. The result is widespread bankruptcy of both the utilities and the state governments that are forced to bail them out, significantly contributing to increasing levels of state fiscal deficits. Reform of electric power distribution is required to get cash flowing again through the system and stem both technical and commercial losses, including theft.
The agricultural sector is responsible for the greatest losses of power distribution companies, as well as for state governments, largely due to heavily subsidized irrigation pumping. Such pumping demands a major portion of electricity supply (estimated at 30+% of total electricity use), while providing the smallest fraction of total revenue from electricity generation and distribution. Poor water pricing and management policies worsen this wastage of both power and water resources. The World Bank estimates that current losses in the Indian power sector amount to approximately $5 billion per year and are growing rapidly. Financial losses on this scale, borne by state governments in the form of subsidies, preclude critical investments in other sectors, such as health and education.
Problems regarding water supply are also reaching crisis proportions. Unregulated groundwater pumping is not only draining utility resources, but also depleting water tables across the subcontinent. In many regions, groundwater levels have fallen as much as 1-3 meters per year, to levels 70 meters or more below those of 30 years ago. Nearly 12% of India's aquifers are severely overdrawn. By 2015, the per capita water availability in India is projected to be less than 1,000 cubic meters (m3), in contrast to about 1,600 m3 today and in the US where it is 30,000 m3. The resulting lowered water tables require farmers to use increasingly larger pumps and additional energy to pump ever-deeper water supplies, putting more strain on already insufficient power supplies and contributing to higher levels of greenhouse gas (GHG) pollution. Recent studies estimate a 4-12% increase in GHG emissions per meter drop in water tables, India-wide. Thus, over-exploitation of water resources also becomes a significant contributor to India's growing carbon emissions.
Although the consumption of both power and water is higher in the agricultural sector, India's rapidly expanding urban centers are facing serious water management problems. In addition to inadequate supplies of source water, leaking distribution systems, aging infrastructure, and serious deficiencies in wastewater collection and treatment, tariffs do not recover the utilities' economic and financial costs. In many urban water systems, the cost of energy to pump and deliver water to customers is 60-70% of the total operations and maintenance expenditure of already cash-strapped water utilities. Levels of system losses through "unaccounted-for water" or "non-revenue water" are often as high as 50% in Indian cities and represent large financial and environmental losses to cities and their economies. Sanitation and wastewater treatment are also significant energy users and are likely to become even more so as service is extended to a greater number of consumers. Deficiencies in sanitation combined with water shortages and chronic depressurization of the drinking water pipelines seriously compromise the potability of every municipal drinking water system. This is especially alarming in a country where water-borne diseases already take an enormous toll and are a leading cause of death among children.
Women and girls may also suffer disproportionately due to their larger role in providing for household energy and water needs. For example, as water becomes scarce, women and girls spend more time hauling water. As water quality declines, women and girls spend more time caring for sick family members affected by poor sanitary conditions, which in turn contributes to reduced school attendance among girls and an overall reduction in the productive potential in the family.
Constraints
Though India recognizes the importance of addressing these problems, successful implementation of electric power sector reforms, changes in agricultural subsidies, and financial viability of utility systems have yet to be realized. There has been variable commitment to reform and a lack of political will at the national and state level.
Over the past 10 years, the World Bank (WB) and the Asian Development Bank (ADB) have designed and financed comprehensive reform programs for public power sector entities in certain states. These reforms address the need to unbundle and privatize vertically integrated state utilities, create functional regulatory bodies, and establish rational tariff structures. Yet the state governments responsible for implementing these reforms are encountering an array of problems in execution.
Rationale
USAID India's Environment Strategic Objective is consonant with the Agency's Economic Growth, Agriculture, and Trade pillar and consistent with the GOI's Tenth Five-Year Plan. The premise of the SO is that success in improving the viability of the energy sector can be greatly enhanced by addressing water issues together with distribution reforms, and by improving India's access to clean energy technologies. By reducing losses and improving cost-recovery, service delivery, and ultimately the fiscal health of the state and municipal governments, will improve. This in turn will free up resources for investments in the much-neglected social sectors (health and education). Environmental benefits will also be realized, both in terms of improved water resource management and reduced greenhouse gas emissions from the use of cleaner, more efficient technologies in the power sector.
Electricity distribution reform activities will be given the highest priority since they will provide the largest potential payback in overall system efficiency, improved resource management, and reduced pollution. The proposed strategy will continue important work in end-use energy efficiency, access to clean technology and support for independent power sector regulation. These are essential ingredients in the power sector reform process. A new element of the program will address India's water crisis through the important nexus with the power sector reform process, and new partnerships between electric utilities, water resource management agencies, local user groups, and NGOs.
Comparative Advantage
For much of the past decade USAID India has been working on energy sector regulatory reform and restructuring, clean technology commercialization, greenhouse gas mitigation, and improved urban water and sanitation services. Worldwide, USAID has supported energy sector reform efforts in more than 15 countries in Eastern Europe and several of the former Soviet republics, in Latin America and elsewhere in Asia. USAID also has a strong global Water Team and has implemented successful water management activities throughout the developing world. USAID has successfully leveraged multilateral bank resources. It has also engaged the US Environmental Protection Agency, the US Department of Energy, the US private sector and academia as partners in successful energy and environment activities throughout India.
Assumptions
Achievement of the SO is based on the following key assumptions. They will be monitored for their continued validity and relevance during program implementation, and will be updated, as appropriate.
- Political will for power sector reform continues to grow;
- Urban local governments continue to seek innovative solutions to environmental management;
- Consumer and elected officials' awareness of the benefits of reform and willingness to pay for improved service increases; and
- Electric utilities are willing to forge partnerships with NGOs and local groups, and address water issues as part of their demand-side management strategies.
Target Groups
A key difference between the current and the proposed strategy is an explicit focus on consumer-level impact. The strategic objective will result in clear benefits to people in both rural and urban areas from more efficient use of, and reduced pollution from, energy supplies, and better management of scarce water resources. This SO targets the following broad sets of beneficiary groups, key representatives of which were consulted in developing this strategy:
- Farm families in pilot sites who will benefit from improved quality and reliability of energy and water supplies;
- Urban dwellers who will benefit from improved water and wastewater infrastructure development, and from improved quality and reliability of power supplies;
- State electric utilities that will benefit from improved cost-recovery as a result of successful implementation of distribution reforms;
- Electricity consumers who will be assured of good value for service through strong electricity regulatory bodies functioning in a transparent manner, increasingly independent of undue government influence; and
- State governments, NGOs, and the poor, who will eventually benefit from increased state fiscal resources made available for social sector improvements
Indirectly, the macroeconomic and health benefits of improved water and energy efficiency and reduced local and global air pollution will accrue to local communities, states, and the country as a whole.
Geographic Focus
The careful selection of appropriate sites for this strategy will be important to demonstrate and document its viability and allow for future replication and scaling up. The following criteria will be used by USAID and partners to prioritize targeted states, utilities, and communities.
- Presence of vulnerable populations, particularly the poor;
- Demonstrated advances in power sector reform at the state level;
- Clear and documented support requested by power utilities;
- Active state and national government support such as the Accelerated Power Development Program;
- Ongoing projects of other donors and strong opportunities for leveraging resources;
- Potential for synergies with other USAID activities;
- Presence of or potential for a local NGO working with agriculture, water, and energy issues;
- Local support and demand or need for water and energy conservation;
- Presence of water users associations;
- Proximity and involvement of State Ground Water Board;
- Location in a high groundwater pumping area;
- Declining water tables;
- Presence of or potential for rural power cooperative;
- Inclusion of significant urban areas to provide maximum impact and links to water-energy urban activities; and
- Reform initiatives undertaken at state government and local levels for improving water and sanitation services.
Based on these criteria and preliminary consultations with counterparts, the SO will likely target the states of Andhra Pradesh, Uttar Pradesh (Greater Noida), Karnataka, Rajasthan, and possibly Gujarat. The final selection will be made during activity designs.
Impact Measurement
The success of the Environment SO will be measured by the following illustrative indicators, which will be finalized following approval of the strategy:
- Increased number of hours of continual power supply (a measure of reliability) within target areas;
- Decreased rate of water table decline within target areas;
- Increased per unit productivity of agricultural water within target areas; and
- Increased use of clean energy technologies in the Indian power sector.
Intermediate Results
IR 4.1 Improved Power Distribution in Selected States
Only through financial viability can utilities enhance access to high quality and reliable power supplies to both urban and rural consumers. USAID and its partners will improve infrastructure, increase use of clean technology, support training and technical assistance on commercial best practices, and enhance awareness and knowledge of the reform process in order to accelerate acceptance of and participation in reforms by a wide array of stakeholders.
Change will occur at three levels over time. Initially, utility companies will be upgraded both in technology and capacity building so that they are able to provide more reliable and better quality power. This will translate into benefits for consumers who receive that power. Finally, as consumers begin to pay for enhanced services, and utilities improve their financial performance, states will benefit through less subsidization of the sector.
Illustrative Activities
- Technical assistance, training, and investments in model metering, billing, and collection systems;
- Investments in infrastructure upgrades, such as transformers, more efficient pump sets, and high tension power lines as part of a demonstration distribution model;
- Technology verification for and investment in clean, distributed generation technologies as part of a demonstration distribution model;
- Matchmaking and technical assistance to private utilities, village electricity committees, franchises, and NGOs to manage the "last mile" (connections to final consumers) distribution system and improve consumer relations; and
- Documentation and dissemination of lessons learned from pilot demonstration projects.
Illustrative Indicators
- Increased implementation of metering, billing, and collection within selected utilities;
- Increased cash flow in selected utilities; and
- Increased use of clean distributed generation technologies as an integral part of an efficient power distribution system.
IR 4.2 Improved Groundwater Management in Selected States
Groundwater management improvements, as represented by changes in technologies, policies, and behaviors in the agricultural sector, will be critical to improving the prospects for success of power sector reform in India. As activities are replicated and scaled up, less money will be needed by states to subsidize the agriculture power sector.
Interventions will take place at various levels. Farm families will be encouraged to increase on-farm water use efficiency through education, extension, and the development of proper incentives. Women will be encouraged to participate in and form community-based water and energy user associations. Utility partnerships and increased awareness of the water-energy nexus at the state and national level will be fostered.
Illustrative Activities
- Facilitating dialogue on and increasing awareness of the water-energy nexus at the national, state and local levels;
- Introducing water conservation techniques such as drip irrigation, land leveling, increasing soil organic matter, use of water-conserving crops and cropping patterns, and rainwater harvesting;
- Fostering partnerships between electric utilities, NGOs with water resource management and community development expertise, and village-level electricity and water user groups; and
- Promoting use of more efficient water pumps.
Illustrative Indicators
- Increased adoption of water conserving technologies; and
- Increased water-pumping efficiency for irrigation.
IR 4.3 Improved Urban Water Availability and Sanitation in Selected States
Improved management of urban water and sanitation systems will reduce water losses, energy consumption, and pollution and contamination, while increasing energy cost-recovery and financial viability of utilities.
Illustrative Activities
- Assisting state government departments of urban development and water supply to improve the policy and regulatory environment governing urban water supply and sanitation. Improved policies will result in incentives for more efficient, better quality service and the supplemental budgetary resources to urban local governments to plan and design financially and environmentally sustainable urban water and sanitation services;
- Providing technical assistance and training to city officials and managers will strengthen their capacity to design, develop, and implement projects to improve and augment urban water and sanitation services; and
- Providing technical assistance and training to the managers of urban water and sanitation services will also improve the operation and maintenance of existing service networks, including improving energy efficiency in municipal water pumping, storage, and distribution.
Illustrative Indicators
- Increased energy efficiency for municipal water supply and sewerage systems;
- Increased wastewater treatment efficiency for municipal utilities;
- Reduced "unaccounted-for water" losses by municipal water departments; and
- Increased access to water and sanitation services.
Relationship to Other Strategic Objectives
There are strong linkages between the energy-water strategic objective and activities in the strategy dealing with economic growth and governance. For example, much of the state fiscal deficit can be attributed to subsidies for the power sector. As utilities become more financially viable, the drain of state coffers will lessen, and these funds can be applied to much neglected social sectors such as education and health. Better governance is at the heart of power sector reform and integrated water resources management alike. Activities within the urban sector will also directly target improved governance by working with city managers and urban local governments.
There is also a direct link between this strategic objective and USAID's South Asia Regional Initiative in Energy (SARI/Energy). Through sub-regional economic trade promotion, SARI/Energy attempts to partially substitute Indian's high-ash coal used to fire thermal power plants, with cleaner fuels, such as natural gas from Bangladesh or hydropower from Nepal. If successful, increased regional energy trade will benefit India's economic growth and result in reduced greenhouse gas emissions. Lessons learned in power sector reform and water management in India can be shared regionally through SARI/Energy activities.
There are relationships to the health objective and USAID activities in disaster preparedness. For example, a more efficient power sector will have a positive impact on air quality and, therefore, on reducing respiratory illnesses due to air pollution. Enhanced urban services in water supply and wastewater treatment will have a positive impact on reducing water-borne diseases. Enhanced water management techniques in the rural areas will make a positive contribution to a community's preparedness to mitigate against and recover from drought or flood.
Donor Coordination
During the development of this SO, USAID coordinated closely with other donors that are currently or may become engaged in targeted areas of assistance. This coordination will continue during strategy implementation to avoid duplication and maximize the benefits of synergy.
- On power sector reform, USAID has worked closely with the WB, ADB and the British Department for International Development (DFID) over much of the past decade;
- USAID has leveraged $22 million in WB funding for energy efficiency in Rajasthan and plans to leverage a $110 million Global Environment Facility pump set replacement program;
- USAID will influence the direction of a $5 million WB/Activities Implemented Jointly distribution reform program in Andhra Pradesh, and a $30 million WB loan to the Indian Renewable Energy Development Authority for energy service company and energy efficient equipment financing;
- USAID is well placed to leverage a proposed $175 million Global Environment Facility-financed Climate Change Partnership and a $2.5 billion donor lending program with IBRD, IFC, ADB, GOI, UNDP, and Indian banks;
- USAID's Regional Urban Development Office (RUDO) cosponsors and co-funds technical assistance and training events with the United Nation's Urban Management Program and the WB's Water and Sanitation Program for South Asia;
- RUDO, DFID and WB are members of the "Change Management Forum" for urban water and sanitation managed by the Administrative Staff College of India;
- RUDO is part of the multi-donor Cities Alliance, which supports urban slum improvement projects and preparation of city development strategies; and
- WB and ADB requested USAID assistance for urban programs in Gujarat, Tamil Nadu, and Madhya Pradesh.
This ongoing collaboration and ability to leverage resources from other donors will be a very significant aspect of the new strategy.
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