Energy Rural India

8/2/2019 Energy Rural India

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Expanding Access to Modern Energy in

Rural India

Dr. P. BALACHANDRA

Department of Management StudiesIndian Institute of Science

Bangalore 560 012


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l Motivation is to explore whether climate change

imperatives be transformed as opportunities forexpanding rural energy access in the India Climate change mitigation is a necessity and Indias

participation is inevitable; Is expanding rural energy

access a low hanging fruit? The market mechanisms created by international

protocols have provided revenue opportunities formitigation efforts; Whether these can reduce the cost ofexpanding rural energy access?

l Why rural energy access is a critical issue inIndia?


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l Energy access is a term mostly used in the

context of describing the energy use pattern ofpoor people in the world.

l It means a reliable and affordable access tomodern energy carriers to perform basic end-use

services like household cooking and lighting.These two are used as indicators of energyaccess levels.

l What is the crisis?


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l Only 55% of the rural population had access toelectricity in 2005 and the remaining 45% relied onkerosene for their lighting needs.

l For cooking, only 8.6% of the rural population hadaccess to LPG (cooking gas), 1.3% to kerosene and

large share of 84% to biomass (firewood, agro-waste and cattle dung) in 2005.

l 726 million relying on biomass for cooking and 364million on kerosene for lighting out of a total rural

population of 808 million in 2005.

Source: Estimated based on NSSO (2007); UNPD (2008)


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l 0.73 billion are in India out of a total 2.15 billion worldrural population without access to modern cooking fuelsin 2005 (33.8% share).

l 0.36 billion in India out of a total 1.3 billion world ruralpopulation without access to electricity for lighting in2005 (28.4% share).

l India accounted for 24.1% of rural world population.

l Lack of rural access to cooking in India is 90%compared to 64% in the world.

l Lack of rural access to electricity in India is 45%compared to 38% in the world.

l The issue is even more critical

Source: Estimated based on NSSO (2007); UNPD (2008); IEA (2006)


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Energy poor are also income poor. Rural poverty line in India is Rs. 447MPCE (Planning Commission, 2009)


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The trends are disheartening, especially with cooking energy access (basedon National sample survey organization (NSSO) and Census reports)


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The regional disparities in cookingaccess levels are vast

Top 5 states have access levels in therange of 17-28% and the worst 5 inthe range of 2-5%.

The progress during last 11 years isdiscouraging for failure states. Thisis true even for successful states


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Rural electricity access situation is farbetter compared to cooking access

Electricity access levels were in the rangeof 10-34% in failure states and in thesuccessful states the range was 80-96%.

Except for Uttar Pradesh other states areprogressing well

Even many focused programmes havefailed to achieve desired results in failures

states


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First number within the brackets is the share of households using a particularfuel for cooking and the second number is that share of that fuel in total

energy consumption.


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Distribution of monthly average rural household electricityconsumption in India (2005)

Average household electricityconsumption per month in 2005for electrified households

World 213 kWh USA 956 kWh China 56 kWh India 56 kWh India rural 39 kWh India urban 78

kWh

Estimated based on NSSO, 2007; MOSPI, 2007; MOSPI, 2006; EIA, 2008and UNESCAP, 2009


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Implications of lack of energy access

The outcomes are income poverty, primitive lifestyles, lossof dignity, physical hardship, health hazards, lack ofemployment and polluted environment.

Household energy access for cooking, lighting and othercritical end-uses forms an important linkage in achieving the

Millennium Development Goals (MDGs) and therebysustainable development

It is an aspiration as well as social necessity. India cannot beenergy secure if her people remain without access to modernenergy for lifeline needs.


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Health impacts of lack of energy access

Globally two million deaths occur annually from pneumonia,chronic lung disease, and lung cancer, which are associated withexposure to indoor air pollution and 99% of them occur indeveloping countries (UNDP-WHO, 2009)

Women and children, especially the girl children, suffer most from

indoor air pollution Respirable particles are strongly associated with acute respiratory

infections among children accounting for largest number of childdeaths in India (World Bank, 2004).

Indoor air pollution is causing more than 400,000 deaths everyyear in India (World Bank, 2004)


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Climate change and energy access

GHG emissions from rural energy is typically ignored considering that

it is mostly from renewable biomass. However, this is not true atleast in the Indian context.

The total GHG emissions from rural household energy use in 2005 was191 million tonne (including 141 million tonne from biomasscombustion) compared to total energy related GHG emissions of

1,252 million tonne (WRI, 2010) in India.Rural household emissions are estimated to reach 330 million tonne in

2031-32.

Black Carbon is estimated to contribute 10-20% of global warmingcompared to 40% by CO2 and residential sector contributes18-25%

of the black carbon (Baron et al, 2009, Smith, 2009).Rural households contribute 134,000 tonne of BC annually, which is

about 20% of BC emissions in India.


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Access to modern fuels for cooking - Programmes

Policy towards rural cooking energy was to encourage use of non-commercial energy and discourage shift to commercial fuels with betterconversion technologies like biogas plants and improved cook-stoves(Planning Commission, 1979 and1981). Efforts are guided by subsidydriven programmes with a technology dissemination focus.l National Project on Biogas Development (NPBD) in 1981:

Cumulative number of biogas plants built from 1982 to 2009 is 4.17 million(MNRE, 2010) against a potential of 12 to17 million.

The estimates suggest that about 1.05 million households were using biogasas primary cooking fuel in 2005 and this is about 28.3% of the biogas plantsdisseminated.

l National Programme on Improved Chulhas (NPIC) or improvedcookstoves in 1983: As on 31 March 2003 over 35 million stoves had been built across the nation

In 2002, MNRE deemed NPIC a failure and funding was stopped and theresponsibility of continued ICS dissemination was passed to the states.

In December 2009, the Ministry of New and Renewable Energy (MNRE)re-launched a re-structured National Biomass Cookstove Initiative (NBCI)


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Access to modern fuels for cooking - Programmes

l Subsidies on household fuels for expanding cooking energy access:

Both LPG and kerosene are subsidized heavily. They are not targeted at poorand are universally applicable to all categories of consumers. Indian government contributed Rs. 26.7 billion (US$ 0.6 Billion) in 2008-09

towards subsidies. The total under-recovery due to the sale of these under-priced fuels is to the

tune of Rs. 458 billion (US $10 billion) in 2008-09.

Benefit of subsidized LPG is largely enjoyed by middle and higher incomeurban households and that of kerosene by urban poor. Kerosene ispredominantly used for lighting by rural poor.

A study in 2005 revealed that nearly 39% of the Public distribution system(PDS) kerosene was being illegally diverted (NCAER, 2005).

l Deepam, a scheme for expanding LPG access to poor in the state of

Andhra Pradeshl Rajiv Gandhi Gramin LPG Vitrak (RGGLV) A scheme forexpanding LPG access


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Cooking energy access programmes - Outcomes

l MNRE programmes on biogas and improved cook stoves were

technology centric approach aiming more on dissemination ratherthan expanding access. Success was measured in terms of numbersdeployed rather than how many use.

l With cattle ownership and availability of adequate dung being thecriteria for installation of biogas plants, the poor got excluded fromthe programme. Thus, government subsidy for installing biogas

plants was targeted at rural high income families.

l LPG subsidy is directed at mostly middle class and rich.

l Kerosene subsidy is mostly for lighting and directed at urban poorfor cooking. Nearly 40% of kerosene is diverted.

l Andhra Pradesh accounts for 33% of LPG using poor households inIndia (an outcome of Deepam scheme).


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Only 10.7% of the biogas using rural households belonged to poor and thisis 5.8% for LPG. In 2005, 45% of the rural households were poor (MPCE

< Rs. 455)


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Electricity Access - Policies

l Electricity Act 2003

Universal obligation on the part of government to endeavorelectricity supply to all areas including villages and hamlets National policy for rural electrification Bulk purchase of power and management of rural distribution

through local participation

Stand-alone systems, removal license requirements from the stategovernments in notified rural areas

l National Electricity Policy, 2005 and Rural ElectrificationPolicy, 2006 Access to electricity for all households in next 5 years

Minimum lifeline consumption of 1 kWh/household/day as amerit good by 2012 Rural electricity infrastructure and implementation mechanisms


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Electricity Access - Programmes

l Rural Electrification Corporation (1969): Financing ruralelectrification schemes and promoting electricity co-operatives.

l Kutir Jyoti Scheme (1988-89): Providing single point lightingconnections to below poverty line (BPL) rural households.

l Accelerated Rural Electrification Programme (AREP): Interestsubsidy of 4% on loans for rural electrification.

l Accelerated Electrification of one lakh villages and one crore

households: 40% capital subsidy and remaining loan.l Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) in 2005

Establish village electrification infrastructure within next five years Free electricity connection to all rural households below poverty line All relevant stakeholders are included

Government provides 90% of the capital cost as grant Projects are managed by franchisees (NGOs or entrepreneurs) The awarded cost till now is Rs. 287 billion (US$ 6.4 billion)


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Electricity Access Programmes - Outcomes

l All programmes prior to RGGVY have failed to achieve theobjective of universal access to electricity.

l Through RGGVY India could electrify only 23% of the targetedrural households during last four-years.

l As on 1st January 2010, a total of about 9.4 million households areelectrified.

l Though initial goal was to provide electricity access to allhouseholds and free connections to 23.4 million BPL households by2009, the targets have been revised to free connections to 17.5million BPL households by March 2012.

l The estimates suggest that rural household electrification level is

likely to be about 64% by 2009 compared to 43.5% in 2001.l Focus was mostly on connectivity. Energy problems are yet to be

resolved.

l Unreliable and low quality supply


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Expanding rural energy access: Opportunities

Lack of energy access had serious negative implications foreconomic, social, & environmental wellbeing of human kind

Large number of programmes has been initiated by thegovernment and they have failed to achieve the desired goalsof universal access

These lessons suggest that India needs a radically differentapproach to bridge the rural energy access gap.

The proposal is to use opportunities provided by climatechange mitigation imperative and other inherent capabilities

possessed by India to stimulate expansion of access to modernenergy carriers for rural households.


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Expanding rural energy access:Opportunities

1. Need for climate change mitigation and associated opportunities2. Large potential for renewable energy resources3. Access to near-commercial renewable energy (low carbon) technologies4. Pioneer in small and micro enterprises5. Targeting the current government incentives


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Need for climate change mitigationThe global climate change regime requires Indias

contributions in mitigating GHGsIndia cannot avoid participation citing the need for

development. Non-participation might result in economicconsequences.

Expanding rural energy access is a low hanging fruit

According to IEAs reference energy scenario, Indiasenergy related CO2 emissions are expected to increasefrom 1.3 Gt in 2007 to nearly 3.4 Gt by 2030 (IEA, 2009).

The climate stabilization 450 ppm scenario requires India to

reduce CO2 emissions to 2.2 Gt by 2030 from 3.4 Gt.Rural energy access has a potential of up to 0.2 Gt.


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Climate Change: OpportunitiesMarket mechanisms like Clean Development Mechanism (CDM)

created by international protocols allow mitigated GHG emissions to

be traded in carbon market.CDM in its present form is not exactly suitable for rural energy accessprogramme. It is too restrictive and preference is always for largescale and easy to implement GHG mitigation projects.

Though sustainable development and conforming to national priorities

are listed as critical factors for approval of a CDM project, these arenot strictly adhered to in practice.Projects catering to the needs of poor and maximizing social wellbeing

hardly attract attention of CDM market.Reforms in CDM are being proposed (IEA, 2009)

Sectoral crediting mechanisms - emission reductions at the sector level,relative to a pre-defined sector baseline. Policy CDM - Government policies generating CERs related to renewable

energy, efficiency standards, energy subsidy, etc.


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Renewable energy resources

The past experiences suggest that centralized energy supply

alone cannot achieve universal access. Distributed energysystems relying on renewable energy sources will have toplay significant roles.

Among renewable energy sources, biomass appears to bemost promising for India

Hard or woody biomass for electricity generation Woody biomass being used for cooking/heating is 200 MT Energy forestry in wasteland (40 million hectares) is estimated

to contribute 255 MT (million tonne)Soft biomass for biogas production for cooking

Soft biomass of 300 600 MT Cattle dung of 450 MT


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Renewable energy technologies

Biomass combustion/gasification technology

Bio-methanation or biogas technologyBoth are commercial and India has experience in large-

scale dissemination of these technologies.

Power generation potential is 60,000 MW

Biogas potential is more than 100 billion m3/year(adequate for 275 million households).

(Based on Planning Commission, 2005, MNRE, 2010, Ravindranath, et al,2005, Vijay, 2006)

I di i i MSME t


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India; a pioneer in MSME sector

Medium, small & micro enterprise (MSME) sector

contributes to 8% of countrys GDP, 45% of manufacturedoutput and 40% of its exports (MSME, 2010)As per fourth census of MSMEs; in 2006-07

26 million medium, small and micro industries 29% engaged in manufacturing and the remaining 71% in services

52% of the MSMEs are rural based MSMEs have provided employment to 60 million people This is second only to agriculture Women employees account for 17% of the total employment About 91% of enterprises are of proprietary type indicating the entrepreneurial qualities

of the individuals


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Targeting Subsidies

Kerosene subsidy of Rs. 10 billion and LPG subsidy of Rs.

17 billion in 2009, total of Rs. 27 billion (US$ 0.6 billion)Kerosene and LPG under-recovery of Rs. 458 billion (under

pricing) in 2009 (US$ 10.2 billion)

Electricity subsidies are provided by the state governments

and they were approximately Rs. 415 billion (US$ 9billion) in 2006 (IEA, 2007)

Nearly US$ 20 billion per year is available. Major portionof it can be made available as incentives for expanding

energy access.


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A proposal for achieving universalrural energy access

Process of providing access to modern energy for all rural households Energy accessscenario

Implications of the above on energy resources, investments, cost and benefits, andenvironment

Policy and institutional framework required for enabling such a transition

Implementation mechanism and financial feasibilities


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Scenario of universal rural energyaccess

Proposal targets 100% access to modern energy carriers for cookingand lighting by 2030, in 20 years starting from 2010.

The energy needs are to be met with a judicious mix of supply fromcentralized (electricity grid and LPG) as well as decentralizedrenewable energy-based systems (electricity and biogas)

It is assumed that a contribution of 50-70% would be from distributedand smallscale renewable energy technologies

The rate of transition towards universal energy access is expected to beslow at the beginning and to pickup towards the end.

Expanding rural energy access through decentralized energy systemswould be based on market principles by adopting a public-privatepartnership driven business model approach


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Scenario of universal rural energyaccess

2010 base year status is established by projecting the 2005 data usingpast growth rates in access levels.

As in 2010, the total rural households are 165 million (based on UNPD,2008, Census, 2001). Out of these, 25 million have access to moderncooking fuels and 106 million to electricity.

By 2030, the total rural households predicted to grow to 188 million.The scenarios track providing access to 163 million households for

cooking and 82 million for lighting.

Data from various secondary sources as well as few relevantassumptions were used to estimate the implications of providinguniversal rural household energy access


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C 2030


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Cooking energy access: Implications by 2030

Total annual energy requirement of 10 million tonne ofLPG and 34 billion m3 of biogas

Soft biomass (dry) requirement of 67 million tonne(potential 300-600) and cattle dung (wet) requirement of355 million tonne (potential 450).

Total investment over a period of 20 years is Rs. 870 billion(US$ 19 billion) and annual recurring cost is Rs. 230

billion (US$ 5 billion).

Annual GHG mitigation potential of 190 million tonne

(including 37 million tonne of avoided emission of CH4from cattle dung)


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R l l t i it I li ti b 2030


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Rural electricity access: Implications by 2030

Total annual energy requirement of 23,000 GWh Incremental requirement is about 5,500 GWh (3,300 GWh from grid and 2,200 GWh

from distributed systems) Additional installed capacity of 7,000 MW (4000 MW grid and 3000 MW

distributed). Incremental lifeline energy requirement of 25,000 GWh is possible with this capacity.

Woody biomass requirement of 12 million tonne (potential

> 400).Total investment over a period of 20 years is Rs. 760 billion(US$ 17 billion) and annual recurring cost is Rs. 55

billion (US$ 1.2 billion).Annual GHG mitigation potential of 21 million tonne (with

lifeline consumption)


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U i l R l E A


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Universal Rural Energy AccessFor cooking and lighting

Total annual energy requirement of 1,300 PJ

Total investment over a period of 20 years is Rs. 1,650billion (US$ 37 billion)

Total annual recurring cost is Rs. 236 billion (US$ 5.2billion).

Annual GHG mitigation potential of 213 million tonne

Average GHG abatement cost of Rs. 1,830/tCO2e (US$41/tCO2e)

Lighting access is about US$ 205 per household

Cooking access is about US$ 120 per household


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Inp ts for Polic /Instit tional frame ork


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Inputs for Policy/Institutional framework

Policies are in place to enable such a transition, howeverthey are fragmented.

The need is to integrate these and create a national ruralenergy access policy focusing on household electricityand cooking energy.

Ensuring compatibility of CDM projects to national

development priorities.Establishment ofenergy access authorities, both at thenational and state levels.

Creation ofenergy access funds with plan grants as well asbudgetary support. Transferring energy subsidy amounts

to this is crucial.Transforming RGGVY franchisees in to rural energy

enterprises.

National &StateGovernments


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Similar to RGGVY withexpanded scope

More stakeholders Energy access authorities Energy access funds Business principles Entrepreneurs instead of

franchisees Carbon markets

Implementationframework

Governments

Create

National Rural EnergyAccess Authority

Regulatory

policies

StakeholdersFinancial institutionsEnergyOrganizationsTechnical organizationsDonor agenciesIndustriesNGOsGovernment ministries

Energy access fund

Energy subsidiesBudgetary supportDonor funds

Regional energy

access authorities

Entrepreneurshipdevelopment

programs

Regional energy

access funds

Capacity buildingprograms

Entrepreneurs

Micro-enterprises

Energy services

ESCO/Intermediary

Rural

households

Carbonmarkets

Micro-enterprise for energy services


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Financial feasibility of Enterprises

Bio-methanation for cooking energy accessBiomass Gasifier and CFLs for lighting andlifeline energy access

A bundling intermediary (ESCO; Energyservice company) for accessing carbonmarket

Bio-methanation enterprise


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Bio methanation enterprisel Village with 200 households requiring 200m3 capacity biogas

plant/s.

l Total new investment (biogas plants, distribution system & stoves)is Rs. 1.6 million annual O&M cost of Rs. 0.21 millionl CO2e mitigation per year ranging from 214 415 tonnel A micro-enterprise model with equity contribution of 20% and a

soft-loan at 6% interest rate and a repayment period of 5 years.

l A profit (from carbon trade) sharing arrangement with ESCO with98% for enterprise and 2% for ESCO.l Household repayment of Rs. 20,000 (@ Rs. 100/HH/Month).l At present CER rates of US$ 20/tCO2, the enterprises will be able

to make only marginal profits during the repayment period and this

is expected to improve substantially after 5 years.l Government to provide incentives to increase profitability of the

enterprises from energy access fund.

Biomass gasification enterprise


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Biomass-gasification enterprisel Five villages with 1000 households requiring 65,000 kWh/year for

basic lighting with efficient technologies.l For economies of scale, a 100 kW biomass-gasifier is proposed

with a generation potential of 530,000 kWh per year.l Remaining 465,000 kWh will be used for other end-uses and

productive livelihoods at higher tariff.l Total new investment is Rs. 5.0 million and annual O&M cost of

Rs. 0.35 million and input fuel cost of Rs. 1.6 million and samefinancial arrangements as that bio-methanation enterprise.

l CO2 mitigation potential per year is 581 tonne assuming grid asthe competing option

l Differential tariffs for various end-usesl At present CER rates, the enterprise would be under loss during

the first 5 years and making significant profits afterwards.

Profitability measures


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Profitability measures

Enterprises Biogas-Dung Biogas-Biomass Biomass

Gasifier

Entrepreneurs

IRR 39% 14% 25%

NPV (Rs.) 1,730,000 315,000 3,300,000

ESCO(Intermediary)

IRR 69% 47% 86%

NPV (Rs.) 12,260,000 14,700,000 9,300,000

Enterprises 125 225 75

Conclusion


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Conclusion

l Climate change mitigation linked energy access expansion

programme has multiple benefits; monetary, social/ethical,compliance, etc.

l Resources are more than adequate US$ 24 billion/year versus an investment of US$ 37 billion and expenditure

of US$ 5.2 billion/year

Energy resources Requirement is less than the prevailing biomassconsumption

l Policies and Institutional mechanisms are already availablel Only suggestion is that the energy governance should include the

demand-side dimensionl Mitigation of black carbon emission is a major plusl 600,000 micro-enterprises; 2 million employment and 4,500 ESCOs


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