India is one of the world’s fastest developers of solar energy and will be the largest driver of solar power expansion over the next 25 years. Moreover, there has been a rapid decline in the price of solar power, falling by nearly 75 percent, to a mere 6 cents per kilowatt-hour. While India faces massive challenges in meeting its broader electric power sector needs, there is one niche area where solar power could make a difference. Innovative financing mechanisms for sustained solar power provision could spur significant progress in rural electrification.
In India’s urban areas, which largely fall within the coverage area of power grids, consumers have greater access to cheaper, conventional sources of electricity. Because of this, the financial viability of setting up a new solar plant is uncertain.
Rural areas, however, present an opportunity to capitalize on solar power. Rural areas are typically treated by state electricity utilities as agricultural users. Electricity rates for agriculture tend to be particularly low; hence, when states face an electricity availability crunch, rural areas are the first to experience “load-shedding.” Because of this, even the rural residents that are technically connected to the grid are, in practice, virtually off the grid and remain reliant on alternative fuels for home use.
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