"Decentralizing power generation and distribution to the local level through the distribution grid of the state utility by using renewable energy sources will help reduce prolonged outages and increase electricity supply in rural areas," states the report, "Empowering Rural India: Expanding Electricity Access by Mobilizing Local Resources."
About 56 percent of households in rural India don't have access to electricity.
The World Bank proposes using what it calls distributed generation and supply franchises, a model that combines generation and distribution.
Aside from distributing power and collecting revenues, the rural franchisee would also generate power locally and supply it to the franchised area. A portion of the generated power goes to the designated area and the balance gets fed into the grid, thus allowing the franchisee to draw power as needed.
The proposed model, the bank says, can be successful in regions with renewable resources such as high solar insulation, perennial local streams and surplus biomass.
India's New and Renewable Energy Minister Farooq Abdullah has said that up to 10,000 remote villages across the country would be electrified with renewable energy sources by March 2012.
Most of the power is expected to come from the first 1,000 megawatts added to the national grid as part of the country's national solar mission, announced November 2009, which aims to increase solar power to 20,000 megawatts by 2022.
World Bank studies in the Kolhapur district of India's state of Maharashtra show that consumers receive on average 8-10 hours of electricity per day, supplementing with kerosene when there's no power.
The combined cost of direct and supplemented electricity, known as the "coping" cost, totals about 25 cents per kilowatt hour, solely for lighting needs.
If the district were to use the model proposed by the World Bank, the area could have 24-hour power supply daily at 13 cents a kilowatt hour, the study says.
India isn't expected to become fully electrified until 2030, the International Energy Agency says.
"India has, no doubt, undertaken several policy initiatives to enhance access and extend its national grid but much still awaits to be achieved," John Henry Stein, senior director of the World Bank's Sustainable Development Network, said in a statement.