India must strike local tie-ups in energy quest

11-Jun-2015 #Ideas Source: India Inc

by Sarah Alexander

A wave of optimism has taken over on India’s solar path as a viable parallel energy source to meet her growing economy. Partly due to the government’s strong added commitments to the previously instituted National Solar Mission along with much publicity to attract related low cost investments.

This highlights two things:

1). India is serious about pursuing a low carbon integrated energy plan;

2). Viability of these alternative clean sources is a much needed boost to planning India’s energy future.

However this wave of optimism should not overshadow the core of the issue. At the heart of it more than one third of India’s populations do not have access to the grid and others who have it can be subject to over 12-15 hours of power outages a day. The expenditure on fuel and light by the urban and rural poor is the third highest expenditure after food and health in India.

These disparate realities caution over whether one is thinking about securing reliable energy sources and at the same time deploying last mile solutions on the ground. The latter requires more thought than just setting ambitious targets.

Many initiatives are built on the backs of under-served populations whose energy needs are often ignored or misunderstood and very often burdened with super imposed solutions unsuited to their conditions. Shifting from the dominant centralized power distribution models in recent years, multiple approaches have been adopted by local enterprises whose approaches are crafted to suit the needs of vastly heterogenous poor segments. What they demonstrate are localized, decentralized approaches built around local contexts, dynamics and community engagement.

By virtue of the very challenging missions they pursue, these enterprises operate in difficult environments and can be broadly categorized under these categories:

Parameters* Micro Small Medium
Investments (in Rs.) <5 Lakhs 5 Lakhs – 15 Lakhs >15 Lakhs- 3 crores
Avg. no. of beneficiary households per year 150/entrepreneur 500/entrepreneur 800-1000/ entrepreneur
Geographical Spread Hamlet/Village Few Taluks – a District Few Districts- 1 State
Registration Informal, none Formal, Proprietary or
Pvt. Ltd
Formal
Formal Business training None Little to moderate Moderate- Good

Level and Pattern of consumption expenditure, 2009-10, NSSO 66th round
Source: SELCO Incubation Centre

Often these difficult environments mean an underdeveloped ecosystem that slows the ability of these energy enterprises to deliver solutions effectively.  A few are:

• Last mile supply chain linkages such as lack of scale to source materials, distorted tax structures (VAT) leading to varied pricing, identifying good quality components with long term warranties through reliable local suppliers.

• Tapping into domestic enterprise financing especially debt/working capital below INR 10,00,000

• Access to end user credit for energy solutions to enhance affordability despite the presence of the financing infrastructure through regional rural banks, cooperatives etc.

• Lack of trained local skill force in areas of technical support, management, financial management etc.
• Appropriate research and design that is built off field experience and catering to the needs of local enterprises.

The enterprise is then caught up in trying to build this ecosystem or work despite its absence, stagnating growth or worse creating unsustainable models. The fallout from this is that very often only particular aspects are built but they are not blended to create interactions which ultimately shape sustainable models.

In India’s quest to bridge these energy inequities appropriate attention should also be paid to enhance enabling conditions for local solution providers who very often fall under the radar due to lack of a cohesive voice. Some steps being taken include:

• Establishment of an alliance in India of energy access stakeholders through the Clean Energy Access Network

• Facilitating ease of access to seed and early stage funding such as creating more awareness around availability of credit, deploying derisking tools to incentive financial institutions to lend, tapping into domestic funds like the coal cess fund, NCEF to source low cost financing for last mile energy enterprises, allocation under the MUDRA bank for these small energy entrepreneurs

• Facilitate ease of access to end user financing through derisking tools that can unlock credit such as risk guarantee funds, interest subsidies, awareness among bankers and key financing institutions like RBI, NABARD etc.

• Inclusion of training curriculum on technical support, entrepreneurship, management, sales & marketing for underserved communities in government training institutes and other recognized vocational training institutes. RSETIs and ITIs to have an entrepreneurship module on energy access.

These local players need to be part of the solution and policy makers along with other key stakeholders need to recognize that unless conditions that encourage more players in the market are not made more conducive then we run the risk of falling back on to the failings of centralized distribution. The momentum is there but it has to be made less frustrating if the goal is to reach the last mile.

Sarah-SelcoSarah Alexander has worked at SELCO Foundation for over six years, on program conceptualisation, project management, communications and fundraising. She currently looks at sustaining enabling conditions for social energy enterprises through a policy lens.

 


Policy India Roundtable
The above article was published in India Inc‘s print edition of the India Investment Journal launched in June 2015 in conjunction with the Policy India Roundtable 2015.

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