Decentralised Renewable Energy (DRE) enterprises have adopted a wide range of technologies and business models, but most are struggling to achieve commercial viability. Of the 40 players in the sector, the majority are reliant on subsidies and/or grants, and only three have total installed capacities (capacity of all utilities put together) greater than 300 kW. However, a few enterprises have shown signs of scaling, and these enterprises project strong growth over the next five years. So is the DRE model the panacea for all of the country´s electricity woes?
No one can imagine how life without power would be than a student who wants to appear for an exam, a farmer who wants to grow crops and provide livelihood for his family, an entrepreneur who wants to earn more profits, and a teacher who wants to impart better education. Without knowledge-no progress, and without electricity-no knowledge. That´s how the dictum goes.
Life without power
That´s what Ashok Kumar Bajpayee, an farmer in Uttar Pradesh told OMC Power, a DRE operator, about life without power. Everyday life in rural India is certainly different from the urban way of life. But the people and their basic needs are not very different. It´s just that they don´t have access to power. This lack of basic infrastructure is the main obstacle for development. ´If I had power, I would not have to buy diesel for the pumping set. I would not have to use the diesel generator for the water pump,´ he says.
Sharing her grief, Aarti Singh, a student from Jangaon, Hardoi district, UP feels that to be a student without power is also a challenge. Doing homework at night is difficult, if not impossible, because there is no sufficient source of light available. Reading in kerosene or candlelight puts too much strain on the eyes to be sustainable for any length of time.
More so ever, for Vinod Kumar Gupta, teacher, with electricity in the vicinity, his classroom would get better lightning and more fans. In addition he could extend his teaching hours till evening and use the electricity for computers.
One can ask who these people are. They are currently part of India´s 77 million households (about 360 million people) who lack adequate access to grid-electricity, and another 20 million undeserved households (approximately 95 million people) who receive less than four hours of electricity in a day. While grid connectivity is expected to improve over the next 10 years, at the current rate of grid expansion, urbanization and population growth, 70-75 million households will still lack access to grid electricity by 2024. Since 90 per cent of these households live in rural areas, a significant reduction in the 83 million rural households who are currently not served or underserved by the grid is unlikely.
Now with the government announcing its plans for last-mile connectivity to cover India with 24x7 electricity supply, what would be the best way to bring light to our dark hinterland? There happens to be a tiny, or rather, micro-ray of hope.
Now let´s touch upon the possible geographical business opportunities for DRE in India. A number of DRE developers that we spoke to suggested that Uttar Pradesh, Bihar, Odisha, West Bengal and Madhya Pradesh hold the prime geographical business presence as more than half of the total underserved rural population lives in these five States. (refer to box Unprecedented geographical growth) According to a latest report by The Climate Group on off-grid business models, electricity in rural underserved households is not equally distributed across India (see Off-grid households in India). To this, Sushilkumar Jiwarajka, Chairman and Co-founder, OMC Power, says, ´With 55 million rural population underserved due to them being cut off from grid network, for micro-grid entrepreneurs, it works out to be the opportunity that cannot be overlooked.´
OMC Power has set up 20 projects in Uttar Pradesh and is likely to set up another 150 micro-grid projects in UP and Bihar.
Another player in the DRE space, Naturetech Infra, also have a good presence in the UP and Bihar markets. In these States (in total), the company has 29 solar micro-grids operational and the response is quite good in most of the villages. As per the assessment of Shyam Patra, Founder, Naturetech Infra, a lot of factors go into deciding the viability and sustainability of a micro-grid in a village. To that extent, each State looks very different from the consumer profile and need point of view. ´We had our try in Bihar and Orissa, prior to settling in UP. As of now, most of the micro-grid activities are happening in the hinterlands of UP and Bihar only,´ he suggests.
The company is now coming up with 1.5, 2.5, 5 and 10 kW smart AC solar micro-grids to cater to bigger villages and greater energy needs.
Meanwhile, one may ask as to why putting up micro-grid projects in the hinterland is a good business proposition? Because for a State electricity board to put up a grid extension network in such areas is much costlier as compared to setting up a micro-grid project. The government spends around Rs 5-6 crore to set up a 1 km transmission network (considering land and end-to-end cost), whereas it takes just Rs 3 lakh to set up a 1 kW solar micro-grid which gives 24 hours supply to around 30 households. Normally the size of the micro-grid project differs from 120 watts to 10 kW for a 15-100 household village catering to household and village enterprise needs including water pumping etc. (refer to Economics of micro-grid) In this case, Balwant Joshi, Managing Director, Idam Infrastructure Advisory Pvt Ltd suggests that the State electricity boards and private developers should complement each other while setting up micro-grid projects in the hinterland where SEBs cannot expand their grid network.
Opportunity in the DRE space
Overall, experts estimate the market size of the DRE space to be at least Rs 933 crore by 2018, largely driven by B2B revenues. Not all B2B companies will expand to household DRE offerings, but experts have seen some B2B enterprises begin to do so. Off-grid DRE businesses serve close to 100,000 households today, and this number is set to grow rapidly at 60-70 per cent annually to around 900,000 by 2018. While the household market will generate annual revenues of Rs 280 crore by 2018, commercial rural infrastructure is growing and presents a huge B2B opportunity to ensure stable revenues from anchor clients alongside households. Companies looking to serve businesses can tap into a range of enterprises such as rural mobile towers, ATMs and petrol pumps, and secure large scale contracts to drive expansion. Potential revenues from serving rural mobile towers alone could grow to at least Rs 540 crore by 2018. And in light of a government of India mandate requiring 50 per cent of all rural cell towers to shift to renewable energy, this number could be significantly higher.
Conservative estimates suggest that the DRE sector will grow at a cumulative average rate of 50-60 per cent over the next five years (2015-19). At this rate, the installed mini-grid capacity would reach 90 MW by 2019, requiring an investment of around Rs 1,555 crore in plant assets between 2015-19. Projected at the same rate, DRE installed capacity would reach 330 MW by 2022. To put this in perspective, DRE instalments would account for 16 per cent of the Jawaharlal Nehru National Solar Mission (JNNSM) target of 2,000 MW for off-grid solar capacity by 2022. The JNNSM target includes consumer products such as solar home systems, captive generation as well as mini-grid installations. Reaching this capacity would require investments worth around Rs 6,200 crore in plant assets, between 2015 and 2022.
That said, Kyung-Ah Park, Head-Environmental Markets Group, Goldman Sachs, suggests that by working together with the public sector, the private sector can play an important role in deploying innovative financing mechanisms to expand decentralized renewable energy solutions to underserved rural communities in India. Meanwhile, growth rate estimates by individual enterprises span a broad range of 40-250 per cent for the next two to three years, but are largely optimistic in nature. These enterprises are in need of both debt and equity financing for expansion and scale-up. But overall, affordable long tenure debt remains the primary unmet need. Based on interactions with DRE companies they are looking for a broad range of debt financing of Rs 13 crore, with some enterprises even requiring up to Rs 150 crore.
Market size and impact
DRE developers estimate that the B2C (refer to box: Two DRE models demonstrate strong potential for commercial viability) market size will grow to Rs 280 crore by 2018. In 2014, around 100,000 households were served by a DRE utility. By 2018, the B2C market will grow to almost 900,000 households. Assuming an average monthly tariff of Rs 300 per household, this means B2C DRE enterprises made Rs 37 crore in revenues in 2014, and could make close to Rs 280 crore in revenues in 2018.
Sameer Nair, Co-founder, Gram Oorja Solutions Pvt Ltd, feels that much of the growth in the market will be driven by players who have smaller offerings but can reach many more households at a lower cost than DRE enterprises who deploy larger plants. Currently the B2B market for rural DRE systems is small, but will drive growth in the future.
Experts estimate that only 71 rural mobile towers are served by DRE systems, making a little more than Rs 1 crore in revenues. However, we expect there to be rapid growth in the next five years. The Indian government has required telecom companies to migrate 50 per cent of all rural cell towers to renewable or hybrid power by 2015. This would translate to over 120,000 towers and a B2B market worth Rs 3,000 crore. Even at just 10 per cent penetration of mobile towers, we expect DRE systems to serve over 33,000 mobile towers, generating more than Rs 600 crore in revenues by 2018.
Arresting CO2 emission
When the sun sets in many parts of rural India, its light is replaced by the faint flicker of a kerosene lamp. For farmers, it´s diesel that they fall back upon. Both of these energy sources are large emitters of carbon.
Thus, for a teacher like Usha Devi, college student like Tumasti, farmer like Rajesh Awasthi, and a shop-owner like Subhash Chand, the micro-grid brings their life back to the mainstream, with avoiding kerosene and diesel completely.
While sharing his experience, Radhesham Trivedi, a retired teacher who has never seen electricity for the last 35 years in his village, was visibly happy as the micro-grid has completely eliminated his dependency on kerosene.
´The first thing we noticed is that the light is milky-white. The pressure on the eye will be less when children are studying. The noise from the fan is low and the child who studies is not disturbed. This feels good in every aspect. Children will now regularly acquire knowledge. They will prepare. Our community, family and village will be educated,´ he says.
Meanwhile, for Rajesh Awasthi, saving the cost on diesel is a prime focus. Hence, with his pumps attached to the micro-grid, he could save around 50 per cent of the amount he used to spend on diesel.
Meanwhile, now Subhash Chand can extend his business hours for another hour with the installation of solar lanterns in his shop. ´Our business increased as the shop´s opening hours increased by an hour which resulted in greater sales. Greater sales mean prosperity and happiness,´ he says.
Meanwhile, a considerable amount of contribution has been made by these DREs (B2B and B2C) in 2014, offsetting 12,000 tonnes of CO2 equivalents. By 2018, this number will be more than 87,000 tonnes, but could be even higher if government mandates for rural telecom towers are adhered to and more players enter the DRE space. DRE enterprises provided electricity access to 100,000 households in 2014.
´Access to electricity has helped micro-entrepreneurs and businesses improve productivity and incomes. In addition to this, construction, operations and maintenance of plants is likely to contribute to local income generation,´ says Bharath Jairaj, Senior Associate, Governance Center, World Resources Institute. It is estimated that this extra economic activity added Rs 43 crore to local rural economies in 2014.
DREs can serve both household consumers-which require general lighting, the ability to plug in appliances like fans and TVs, and typically need more power at night-and commercial clients, who need constant, reliable electricity to power lights and equipment during business hours. The majority of DRE players, roughly 51 per cent, use solar technology. (see Consumer offering and DRE plant capacity on the next page) The possible thrust of the government on solar has led the number of DRE enterprises in India quadrupling from about 10 in 2006 to over 40 in 2014.
´More than half of these DREs use solar, while another third use biomass or hydro as their energy source,´ says Joshi from Idam Infrastructure.
Most DREs have plant capacities that are less than 10 kW, and of these the most commonly used technology is solar. Biomass is more commonly used for larger plants of 30 kW or more.
´Solar is more prevalent because current regulations favour solar energy over alternative forms of renewable energy. There are large programs like JNNSM, which provide subsidies for solar DRE projects,´ explains Shyam Patra from NatureTech Infra.
In contrast, government incentives for wind have only recently been re-instated, and programs like the National Wind Energy Mission are yet to be implemented. Enterprises have expressed the need for greater support for biomass models and are concerned that government entities often do not understand solar-wind hybrid models, resulting in little policy support for organizations employing this technology.
Addressing the challenges
Uncertainty around grid future connectivity is one of the biggest threats faced by DRE players. The lack of clarity around the Indian government´s grid extension plans has led to some scepticism about long-term viability of the DRE business model. DRE enterprises simply cannot compete with the lower, often subsidised cost of grid-electricity. Some enterprises, therefore, look only to operate in remote off-grid regions with low probability of grid extension. This is simply because, says Sushilkumar Jiwarajka from OMC Power, ´The already financial burdened State electricity board would not like to put in higher capital costs for (a) grid network.´ Another challenge is high capital expenditure. Off-grid renewable energy DRE enterprises, more than 50 per cent of which are solar, need significantly high initial investment in plant installation. Large DRE systems above 10 kW in size cost upwards of Rs 18 lakh and above. This has strong implications on recovery timelines at a utility level which tend to be longer, and is therefore a key barrier to scale for an enterprise. Government subsidies, although substantial, are difficult to obtain, and timelines for disbursement of funds are uncertain. So enterprises want little dependence on subsidies and express a strong need for long-tenure project finance.
Importantly more than high capital costs, it is the higher interest rates that are holding back the growth of DRE space. Banking institutions rarely provide loans, and the perceived risk in the renewable sector and lack of adequate financial history for early stage enterprises makes access to financing even more difficult.
The majority of enterprises express a need for long-tenure finance and debt. Debt financing is the primary unmet need in the OGE sector. DRE enterprises need long term debt and soft loans to finance expansion and scale-up, while Solar Home System (SHS) enterprises are looking to cover working capital needs and operational costs through debt. While requirements for SHS enterprises are small at Rs 1 crore to Rs 20 crore, individual DRE enterprises have expressed debt financing needs of up to Rs 150 crore. The high interest cost in India has led many DREs to either depend on grants by large corporates as their social responsibility activity or from multilateral foreign institutions such as International Finance Corporation, World Bank, Asian Development Bank and US-Exim Bank. Many players that we interacted with are of the opinion that these financial institutions understand the risk and model of off-grid projects as compared to Indian banks which have age-old methods of asking for personal guarantee and related collateral.
Enterprises perceive the cost of standard financing products on the market (13-18 per cent annually) to be too high and are looking for financing that is in the 7-14 per cent range, based on the type of lender (foreign lenders, impact investors, commercial banks, etc.).
Investments in the off-grid energy space have largely been restricted to equity instruments, and debt remains the primary unmet need for off-grid enterprises. These investments have come from impact investors, development banks, and donor/government agencies. Few enterprises have been able to raise large scale equity investments. For example, Simpa Networks received a Rs 13 crore equity infusion from the Asian Development Bank in 2013. Given the need for raising inexpensive debt, some enterprises are considering approaching foreign lenders. However, companies who have no offshore offices find it hard to raise foreign debt because of regulatory requirements.
At the end, this is an opportune time for investors to become more engaged; companies are seeking investment, proving the viability of their business models and making meaningful inroads in distribution. Investors and other private sector players have a significant role to play in identifying and helping scale the most promising enterprises as well as in accelerating the growth of the overall sector.
While debt financing will fill the most immediate short-term needs of businesses, a broad range of innovative financing mechanisms such as venture debt funds, lease financing and large scale securitisations could also be applicable.
Beyond this, ecosystem players such as non-profits, multilateral agencies and public institutions can engage in a series of targeted initiatives, ranging from supporting research initiatives to galvanise and bring new stakeholders to the table, to supporting cutting edge innovations to make products relevant to the Indian consumer.
Aside from technological innovation, there is likely to be an inflection point where current off-grid models of power supply are realised as not just being ´stop-gap´ solutions to grid-connectivity but a relevant complement to grid extension in rural and remote far-flung areas.
There has been initial evidence of such an inflection with the government of India´s regulatory support for distributed renewable energy generation, especially in remote areas. Government affirmation of off-grid models being a complementary way of viable electricity provision will be critical to unlocking market potential.
India has a large energy need for both household and commercial consumption, and it is becoming increasingly difficult to meet these needs through traditional forms of power generation. India has an abundance of resources such as solar, wind and biomass, and yet spends a lot of money on importing oil, coal, and natural gas. A decentralized renewable energy model, bolstered by the support of investors and other private sector players, can make clean, healthy, reliable and equitable energy access a near-term possibility.
- Rahul Kamat
Two DRE models demonstrate strong potential for commercial viability Business-to-consumer (B2C) models that provide households with only basic lighting (2-3 lights) and mobile charging, can build smaller plants with less than 500 watts in capacity. In many ways this offering is very similar to buying a high-quality solar lantern, but collections over time are better aligned with consumer cash flows. Given that these companies can offer households a price lower than kerosene, rural consumers can simply substitute their monthly kerosene expenditure for payments to the DRE provider. As a result, this model can reach many consumers fast, with a small amount of capital investment. Overall, enterprises can recover costs quickly: within one to two years if they are able to attract enough customers and ensure strong collections.
Business-to-business and business-to-consumer (B2B + B2C) models with installed capacities greater than 25 kW can provide power to commercial anchor clients such as a rural mobile tower or an ATM, in addition to rural households. The commercial anchor client can provide a stable stream of revenue that is enough to cover yearly operating expenses on their own, and excess electricity is then sold to nearby households. While this model requires larger plants, the anchor client provides a way to quickly recover costs, and the offering to consumers is a way to make extra profit.
Economies of scale
Most DREs operate plants with capacities in the 200 Wû10 kW range. This capacity allows for 5-8 hours of basic lighting, mobile charging, and sometimes one or two low watt appliances for up to 100 households per plant. DRE enterprises can typically serve 30-60 households per plant and have village penetration rates of 50-60 per cent. Larger DREs that have capacities greater than 25 kW are much less common. Often these plants are built for commercial clients who need continuous, uninterrupted electricity. These plants might be used to power, among other businesses, rural telecom towers, ATMs and petrol pumps. Three different ownership categories for DRE classification are as follows:
Build only - The company installs a plant and transfers ownership to a third party (village community, government, local entrepreneur, NGO etc.) and might provide some maintenance and after-sales support.
Build-operate-transfer - The company installs a plant and operates it for a period of timebefore transferring ownership to a third party.
Build-own-operate-maintain - The company installs the plant and employs its own staff to operate it and collect payment from end-consumers.
Build-only models are most common because enterprises can immediately recover capex costs. The second most common model is build-own-operate-maintain, and the least common is build-operate transfer. Ownership transfers are considered most difficult, because of the need for a third party that can both pay for the plant as well as operate and maintain it.
Solar lanterns business to grow by 35 per cent
Market penetration for solar lanterns is expected to grow from around 5-6 per cent today to nearly 35 per cent of the total underserved market by 2018. However, while solar lanterns are affordable and can address the customer needs of today, they cannot meet the evolving needs of rural consumers beyond basic lighting. Today, a customer with no prior access to electricity is willing to pay for just basic lighting and mobile charging, but tomorrow that same customer is likely to want to move up the energy ladder and use higher wattage appliances like fans and TVs. The unmet demand for electricity presents a huge opportunity for solutions like solar lanterns, solar home systems (SHS), and distributed renewable energy (DRE) systems.
Economics of micro-grids
The solar home systems (SHS) and DRE systems allow for a wider range of consumption at different price points. SHS consist of solar panels fixed on a building or open land that powers a nearby home or business. Systems range in size from 10 watts to more than 200 watts and can cost anywhere from Rs 1,300 to over Rs 30,000. Depending on the size of the system, consumers can power CFL and LED lights as well as higher wattage products like fans and TVs.
DRE models use a renewable energy source like solar, wind, hybrid, or biomass to provide electricity to multiple homes as a mini-utility. Plant sizes span a large range, from 200 watts to more than 100 kW. While DRE models can include large-capacity renewable energy power plants that feed electricity into the grid, off-grid models tend to be smaller. Most of these DRE models only provide enough electricity for basic lighting and mobile charging, though some have begun offering enough for higher wattage appliances and AC connections. Consumers typically pay Rs 100-500 per month depending on their consumption.
Unprecedented geographical growth
It is estimated that there are over 80 businesses operating in the SHS and DRE sectors, with an even split between SHS and DRE players. This includes large, medium and small enterprises functioning via off-grid as well as grid-connected models, or operating in under-electrified regions. There is a large concentration of enterprises in Uttar Pradesh and Bihar where the largest underserved populations live. Additionally, a number of SHS players are operating in South India, particularly in Karnataka, where greater microfinance institution (MFI) and rural bank penetration makes consumer financing easier in the southern States. Most early stage enterprises are currently focusing on one region, while some relatively older companies that we spoke to have plans to expand to other regions as well.
The majority of SHS and DRE players are only 5-10 years old. Within this time, these businesses have undergone multiple iterations of their business models to arrive at their current scale. At present the average SHS enterprise sells about 1,000 units per year, and the average DRE enterprise serves 1,000û2,000 households through total installed capacity.
However, SHS and DRE enterprises understand that the off-grid market is still largely untapped and are optimistic about their future growth. SHS and DRE enterprises have projected annual growth as high as 400 per cent and 250 per cent respectively, and even conservative estimates show annual growth rates ranging from 40-70 per cent.
Small utility B2C models
It can ensure a large market because they offer basic lighting services to households at a price competitive to that of kerosene. On average, un-electrified, rural households spend Rs 120 per month on kerosene. For Rs 65-120 per month, an off-grid consumer can get basic lighting and mobile charging for seven hours a day from a Pico power DRE enterprise (see B2C DRE model). With this model, consumers can simply replace an existing cost in their budget for a more convenient, and often more reliable service. For this reason, these models can reach many poor consumers in a short amount of time. The offering is affordable, and when combined with effective payment collection mechanisms, can ensure relatively high payment collection rates for the enterprise.
These companies are reducing plant size to keep capex to a minimum û the 240-watt model, for example, costs only Rs 60,000 and can recover costs in 1-2 years. Some DREs have solved the problem of high capex costs, by simply building smaller plants which cost less. They build plants large enough to provide basic electricity and mobile charging to 30-50 households in a small village. These plants have high operating profits (close to 70-75 per cent of annual plant revenues) and can recover the initial investment in two to three years. Furthermore, because the cost of building a new plant is small, these B2C enterprises can grow rapidly by building more plants. Figure 19 shows the economics for a 240-watt plant which costs Rs 60,000 and provides electricity to 30 households.
Pricing payment mechanism
Depending on consumption and the pricing mechanism, consumers pay between Rs 100-600 per month for a DRE connection. DRE enterprises that take up payment collection responsibilities use one of two models: a fixed tariff or a pay-as-you-go model (Consumer pricing for DRE enterprises). In a fixed tariff model, households receive a standard offering and are charged a fixed amount at regular intervals (every month or week). This model is typically used by DRE enterprises with smaller consumer offerings (such as a few lights and mobile charging). In a prepaid pay-as-you-go model, households buy credits for the amount they want to consume-though there may be a cap on the amount any one household is allowed to consume. This model is more common among DRE enterprises that offer consumers the option to use more electricity. Enterprises mention the need for flexible consumption options given the non-homogeneity of the Indian rural landscape. Outside of these options, post-paid metering is not a common model because of the increased metering cost and the higher risk of payment default.
DRE enterprises are exploring new payment collection models; however most still collect payments through field collection agents. Some enterprises such as Mera Gao Power use field agents, but rather than collect from individuals, they have implemented a group collection model inspired by microfinance collection meetings. In this model, a collector goes to a village where groups of individuals, organized by the enterprise, pay during regular public meetings. Besides field collections, some DRE enterprises like NatureTech Infra and OMC have started using mobile payment systems. In this model, consumers can use SIM cards or their cellphones to buy credit for electricity and pay bills. Though Indian DRE enterprises are aware of different payment collection models, scepticism and capacity constraints such as lack of working capital and access to mobile commerce technology prevent most from trying them.
Need for private involvement
Given renewable energy targets set by the government, there is a need for greater private sector involvement in the space. The Indian government has said that energy investment to keep up with population growth and expand access to off-grid households will need to total $250 billion over the next five years. Of this amount, $100 billion will need to be investment in renewable energy. According to the Planning Commission, this means that India´s annual investments in renewable energy would need to grow to $18 billion by 2016. However, public sector investment is likely to grow to only $2 billion by that year. Therefore, close to 90 per cent of renewable energy investment, $16 billion, will have to come from the private sector.
Though only a small portion of the needed $7.3 billion was invested in off-grid renewable energy in 2013, smaller investments in off-grid space are growing. In 2013, $7.3 billion was invested in the Indian renewable energy market. Most of this was in large grid-connected power plants. Furthermore, investment in the off-grid space has largely been from impact investors, and range from $100,000 to $5 million. However, as off-grid enterprises have begun to scale up, they have been seeking larger investments from the private sector. The need for investment and the growth potential of off-grid energy enterprises presents a promising opportunity for private capital (see Examples of private sector investments in the off-grid renewable energy space).
POWER TODAY suggestions
Government can extend funding options to micro-grid operators and make soft loan and grant options available so that operators can sustain their operations in rural areas
. A policy on co-existence of grid power and off-grid power can also address the investor concerns.
Promoting private sector finance, long term debt and soft loans as well as long tenure equity is need of the hour.
Venture debt can be used to fund high growth start-ups and provide working capital.
A dedicated fund can provide debt to investor-backed enterprises that have received equity and are now looking for debt.
State government can encourage the micro-grid franchise model for distribution and generation.
Private equity and venture capital could be suitable for leading SHS players which have a strong reputation among customers and a growing product portfolio.
A Public-Private Partnership model can be developed by the State governments.
Need to revised bidding norms of decentralised distributed generation under RGGVY.
Inclusion of uniform tariffs by CERC for all micro-grid projects.
´Economics does not fit well for higher size micro-grids´
Shyam Patra, Founder, Naturetech Infra
To begin with, can we have an understanding on what are the opportunities for micro-grid projects in India? Where do you see the maximum opportunities, in rural areas or urban?
At present, there is a greater need of clean electricity access in rural India. In majority of rural India during evening hours electricity is not available, be it an electrified village or un-electrified village. Taken one village at a time, solar micro-grids make a greater sense as a solution in meeting the basic energy needs of the households and shops/micro enterprises in the village.
What is the minimum or maximum size of micro-grid projects that can be set up? And what is the requirement in terms of population to provide services of a micro-grid set up?
(The minimum size should be) around 120 watts to 10 kW for a 15-100 household village catering to households and village enterprise needs including water pumping, etc. Normally, economics does not fit well for higher size micro-grids as the rural household customers fail to pay anything more than Rs 300 a month for the energy services, no matter whatever the connected load and quantum of energy supplied to them.
Naturetech Infra builds 1 kW smart AC Solar micro-grids for 30 households with SMS based smart prepaid metering with 24 hour supply and option to customers to plug in TV, fans, etc. They go for a recharge. A monthly recharge costs them Rs 150-300.
How can these micro-grid projects minimise the ever-increasing power shortages? How has your project met this need of minimising dependence on State grids?
Micro-grid projects at present are serving the communities who are not served by the State grid or who are not getting supply from State grid during the hours of need.
If the above gap in services from State grids remains, then micro-grids have to remain in service for a longer time and would serve as a back-up to the State grid if they became available in rural areas.
We have a few grids in electrified villages. We existed in those villages because the State grid in unreliable and the grid´s supply is not available during evening hours in the villages, hence there was a need for our grid.
We would continue to be relevant in the villages, until and unless the State grid is 100 per cent available and reliable in the villages round the year.
What technology has been used while setting up these micro-grids? How does supply from this technology compare with grid supply in terms of ability to serve load, quality, etc?
We supply electricity at 220V AC and use SMS based smart prepaid meters produced by us to cater to the energy needs of the customers. All our grids use solar energy for electricity. Ability to serve load goes hand-in-hand with power plant capacity. At 1 KW grid capacity, we are handling household loads like fans, TVs, music systems, computers/printers/laptops, lighting, etc. The basic difference is that we are reliable and dependable; hence the villagers are buying electricity from us and going for a monthly recharge. Now the villagers are reaching out to us for a six-month or annual recharge in line with their income pattern, and as well as a sign of confidence in our services.
Setting up such projects is a difficult task considering the amount of capital cost that goes into the same. How difficult is it to get commercial bank finance for such projects?
Commercial bank finance is possible under CGMSE scheme with credit guarantee from government of India for small & micro enterprises. We have got a loan from NABARD. Other rural banks and commercial banks can follow and contribute in extending clean energy access in rural areas in a financially viable manner. But (most) banks´ major problem is in seeking collateral against loans and not relying on CGMSE scheme or any corporate/personal guarantee of promoters. We are not able to extend any primary collateral as of now in terms of property mortgage/FD etc. Need of the hour is risk capital.
Have you received any subsidy from the central/State government?
We have received a small subsidy from MNRE under JNNSM. Subsidy was realised to the extent of only 40 per cent, that also after 1 year of project. We could overcome operating shortfall like increased travel cost, lower revenue, increased O&M cost etc., with the subsidy amount and could maintain the grids in very remote areas with a monthly package cost of Rs 80-Rs 150.
Do you think your project would survive and continue to operate if a distribution utility in the area extends its grid to the project area?
Our project and services survive on customer needs and because of their need for our services. We are needful to them because when they need electricity, we are there and the cost to them for the entire month for our services is mostly Rs 150, which is very reasonable to them. We would continue to be useful to them until and unless (the) State grid is 100 per cent available, reliable and cheap. These conditions won´t come, because if State grids have to be 100 per cent available, reliable and cheap in rural areas, they would go bankrupt.
Do you think large scale deployment of micro-grids to expand energy access is possible? What are the solutions/policy initiatives the government should take in this regard?
Yes. If RGGVY can extend to so many villages with over Rs 1 lakh crore of funding gone into it, and then failing to deliver electricity in time and not able to recover any cost from the rural customers, this is a worse failure than any micro-grid models possibly can face.
The government can extend funding options to micro-grid operators and make soft loan and grant options available so that operators can sustain their operations in rural areas. A policy on co-existence of grid power and off-grid power can also address the investor concerns.
´State governments should fund micro-grid projects´
Bharath Jairaj, Senior Associate, Governance Center, World Resources Institute
To begin with, can we have an understanding on what are the opportunities for micro-grid projects in India?
Opportunities are significant in this space. Ironically, for micro-grid developers, areas with staggering number of people living without electricity make a good business proposition.
This itself can give you an indication about how big is the market in India in terms of volumes, especially in hinterland where the chances are bleak for grid expansion network and electricity boards are reluctant to invest heavily. Meanwhile, one must understand that this is not the only reasonable argument in terms of opportunities. Since the government has traditional approach of focusing more on larger infrastructure projects, this particular approach may not be suitable when it comes to connecting such hinterlands which are cut off from mainstream lifestyle. Hence, such markets are more suitable and favourable for decentralised options which do not require huge investment as compared to grid expansions.
The installation of micro-grid projects requires heavy capital investments which pushes up the prices of power supplied. Can these rural masses with the limited means of revenue afford to pay and make such projects viable?
The calculation is simple. If those villagers can pay anything between Rs 100-120 for the use of kerosene then paying services provided by micro-grid project owners are much cheaper. Any micro-grid project can be more successful when the service provider charges lesser than what a villager spends on kerosene or diesel. So as far as financial viability is concerned, it is much easier to achieve in smaller micro-grid projects than the large one. A micro-grid developer needs to develop such a model where the financial instrument will need to consider low demand and low capacity to pay along with higher installation cost and also higher producing cost per unit. But even though the cost of selling through micro-grids is higher than grid-connected power, it has been well-supported by subsidies by the government. So to make this (micro-grid) a successful model in India, we have to look at a combination of public support either through government subsidies or inclusion of uniform tariffs in the future policy. Secondly, Indian financial institutions or NBFCs can come out with innovative lending products to such enterprises that are coming forward and setting up such projects, not just for making profits but taking up it as a social obligation. And thirdly, give a common forum to such players where the government brings each and every player in this space together.
So I think there is a role for all these three components in order to deal with initial setting-up costs.
So who is leading the way?
At present, it´s just the third component, i.e., developers who are holding the fort. We haven´t seen much movement in all three components together. What are we experiencing is either enterprise-subsidy or enterprise-investment mode is taking shape. And, now that the government is talking about energy development for India, it is the duty of the government to come forward and encourage State entities to fund such projects. Instead what is happening presently is these DREs are depending on private grants which corporate entities´ fund as their CSR activities. Now it should be the prime duty of State governments to develop such a model where government can be a facilitator clearing its role as a lead investor and these DREs will remain as an operator who can produce and distribute energy to the hinterlands.
For me it´s not a difficult task to crack. Now that we are talking about energy development for India, the government should come forward and take up such initiatives in terms of funding projects or encouraging State government to take up or finance projects. For such initiatives, regional rural co-operative banks should take the lead while funding the debt component of such projects. Meanwhile, the Central government through IREDA should reach out to the large investors by crowd funding.
Then what is holding all this back?
Converting these ideas into reality is what holding back this sector. Importantly, including such ideas in the policy is the biggest challenge as of now. Mainly, when it comes to uniform tariffs for such projects.
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