Effective Leapfrogging to Decentralized Energy Access

author Harish Hande

authorSurabhi Rajagopal

Harish Hande and Surabhi Rajagopal

The world has approximately 1.3 billion people that have never experienced the benefits of electricity in their homes, and 2.8 billion who still use solid fuels for cooking and heating4,5. Then there are several other households that, despite being connected to the grid, often find themselves starved of power supply. Combine this with estimates6 from a country like India where expenditure on fuel and light by the urban and rural poor is the third highest expenditure after food and health, with poorer households spending up to 20% of their incomes on energy7,8. What this reveals is an opportunity for plugging the energy gap by leapfrogging to decentralized, renewable sources of energy, and facilitating improvements in basic quality of life as well as productivity at the household and village level9. These alternative solutions allow for local generation and use, overcoming problems around the demand on central grid, increasing costs of traditional fuels, transmission losses and so on.

In recent times, there have been a good number of enterprises taking on this challenge. Energy enterprises with holistic solutions (customized technology with affordable financing and maintenance mechanisms) have shown that they can play an integral role in bridging the gap in the provision of basic energy services. Having recognized the case for these alternatives, many governments have also introduced schemes to support a dissemination of market based decentralized renewable energy (DRE) solutions. However, they are often restricted to measures such as subsidies and tax incentives. What is overlooked in the process is the creation of more conducive conditions for these newer enterprises and the development of a supportive ecosystem including technological innovations, human resource development, and financing options for end users. The important steps to building this ecosystem are outlined below:

Figure 1: Ecosystem for the decentralized renewable energy sector (SELCO Foundation, 2014)

Human Resource Development

There is often skepticism around the longevity and durability of decentralized renewable solutions – a fear that they will not last. This fear stems from the lack of a skilled human resource base for this sector that would work as a service mechanism to ensure maintenance. While the sector is still nascent, it is critical to address the human resource needs at all levels - operations, sales and marketing, finance, servicing, research and development, and community involvement. There is immense potential for entrepreneurship and job creation. Today, this time and resource intensive need is being met directly by the entrepreneurs who are already stretched for resources. Individual organizations are forced to invest in the most basic skill training even while the initiative would better the sector as a whole.

To reduce the cost of training and skill development incurred by individual entrepreneurs, there must be a thrust on creating curriculum and teaching modules for training of DRE technicians, operators, and micro-entrepreneurs. Existing vocational training and self-employment training institutions or apprenticeship programs should be utilized to disseminate these courses at the local level and build manpower on the ground.

Financing for Entrepreneurs

An important prerequisite for entrepreneurs to actively engage in this sector is the access to right forms of capital, i.e., the right mix of social investments and low cost working capital. For entrepreneurs at the grassroots, this is not merely a challenge but it is a prohibitive factor. Approaching private impact investors or private banking institutions is virtually impossible for individuals with a lack of both fluency in English language and skills to make PowerPoint presentations or excel sheets.

“There is an opportunity for plugging the energy gap by leapfrogging to decentralized, renewable sources of energy, and facilitating improvements in basic quality of life as well as productivity at the household and village level.”

There is an opportunity here for various bilateral and multilateral organizations, keen on providing an impetus to this sector to facilitate the access to such debt financing. Organizations can create mechanisms for existing banks and financial institutions to lend to entrepreneurs. It would be ideal to structure working capital debt allowing for lower rates of interest and a reasonable moratorium period.

The other challenge of attracting investment capital requires a change in mindsets within the impact investment community. While there are impact investors who recognize the significance of ‘patient capital,’ there are just as many solely focused on exit strategies and higher rates of return. Often individuals undertaking due diligence from the investor’s standpoint do not have the practical experience to fully understand the entrepreneur’s perspective. These expectations seriously affect the real social impact being created on the ground. The impact investment community must seriously introspect and take measures to counter this trend.

Consumer Financing for Energy Solutions

The financial linkage is a critical piece in energy access provision. The use and adoption of innovative financing mechanisms that reduce the risk of bankers and increase access to loans are essential in bolstering this linkage. Where the basic financing model is unviable due to high risk, where customers have a low ability to pay and communities are migrant or “illegal” or lack land titles and collateral, similar to the case of entrepreneurs, increasing the financial institution’s confidence can be achieved by facilitating loan guarantees and interest subsidies using soft funds.

The off-grid component within India’s National Solar Mission is a good example of a government program that has taken the first step to facilitate this linkage. However, this has to be supported with a significant amount of capacity building among banking and lending institutions to discuss risk mitigation techniques, financing newer, productive use technologies, innovative mechanisms and so on.

Once the linkage is created, there is also an opportunity to extend financing for other off-grid appliances through the same institutions. Beyond household appliances such as fans or televisions, access to credit should be facilitated for productive utilizations such as irrigation pump sets, sewing machines, milk weighing and testing machines in dairy cooperatives, laptop and internet centers, energy efficient equipment for garage shops, powerlooms and other MSMEs.

Technology and Energy Efficiency

The constraints with technology are currently on a few different fronts: 1) Energy efficiency of existing appliances such as televisions, motors, etc., which make decentralized renewable energy more expensive 2) Quality assurance of products meant for this sector itself which lack standards for comparison to determine the working under field conditions.

To address this, in addition to existing lighting solutions, field-testing of other off-grid appliances for faster implementation in rural and urban poor communities is critical. Research and development funds should be allocated to developing sustainable models through field-based testing and pilot programs in specific contexts. Efficiency of appliances for productive use and livelihoods should also be highlighted as an important area of work for manufacturers.

Practitioner-Driven Policies

To bring all of the above-mentioned aspects together and accelerate the impact, an interest from policymakers is essential. There is a need to work on policies that consider the needs on the ground while also capitalizing on synergies with other developmental concerns. Energy access interventions can be used as means to address the critical energy gaps that exist in the development-oriented programs of ministries such as Rural Development, Women and Child Welfare and, Human Resource Development. For example, energy interventions can support improvements in agriculture, dairy farming, and small businesses as well as help with inclusion of information communication technologies in schools. This convergence needs to be noted to prevent duplication of efforts.

...[V]iew these DRE solutions not as stop gap measures for the grid but rather as ideal complements to the grid depending on resources and context.”

To support practitioners to tackle these common ecosystem challenges, there is a need for representation of enterprises operating in this space, relevant research organizations, think tanks, and donors. A practitioner-centric alliance of this nature is being set up in India – one that could provide a platform to bring forth many of these concerns while also being a go-to point to provide examples of successful models.

All the possible ways of creating this ecosystem listed above are meaningless without that one important first step – a willingness to view these DRE solutions not as stop gap measures for the grid but rather as ideal complements to the grid depending on resources and context. There are a host of successful models using solutions that range from waste products like rice husk, grid interactive and standalone PV systems, pico-hydro and so on, to satisfy needs such as cooking, lighting, and productive utilizations. They serve the needs of communities that have not managed to access basic energy services for decades while the rest of the world moves towards a systematic dependence on electricity for every new appliance. Many of the DRE models can be replicated with customizations for specific energy needs, culture, financial behaviour, consumer interests, etc. Once there is a willingness to view these as sustainable solutions, the next step must be to create the right eco-system.

The declaration of this as the decade of ‘Sustainable Energy for All’ by the UN General assembly provides an opportunity to master a holistic approach to energy. This approach would take cognizance of development needs of the poor and facilitate energy access using renewable energy sources at the local level while also promoting sustainable entrepreneurship on the ground.

Harish Hande, Ph.D. is cofounder of SELCO India and Surabhi Rajagopal is a Principal Analyst at the SELCO Foundation

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