Micro-grid firms look to govt for support

Watching videos of Mera Gao Power always leaves you with a good feeling. They typically start showing a village in darkness and a woman struggling with work in the light of a kerosene lamp and end by showing bright LED lights and smiling faces. Provide solar-powered lights to villages that had never seen electricity, let the villagers pay for it out of their savings on kerosene spends—way to go!

The going was good in the beginning. MGP lit up the first village in December 2011 and by mid-2013, had covered 300 villages. Its NRI-founder, Nikhil Jaisinghani, said in a conference in 2013 that he had a “scaleable model” and 30 per cent rate of return was possible.

But what works well for hundreds need not necessarily work for thousands—a lesson that social entrepreneurs such as Nikhil are learning the hard way.

About four years ago, in the darkness of the unelectrified villages of Uttar Pradesh and Bihar, micro-grid companies such as MGP, Husk Power, Minda NextGen and Gram Oorja, saw a sure-shot business opportunity. To provide basic lights, it only requires a trickle of electricity, which can be produced with a small solar unit. Lighting expands the working day, women work longer and easier, children study till bedtime and customers spend less on the lights than they would on kerosene for lamps. And where electricity also enables some commercial activity, the solution is a killer.

Four years down the line ground realities have shaken these companies out of the delusion of scale-ability.

The biggest problem is human resources, as scaling up calls for a huge army of people to maintain the grids and collect payments from villagers. “Identifying and retain quality staff is a challenge,” says Nikhil. As a result, MGP has lit-up 1,100-odd villages, a figure he expected to reach by the end of 2013. He says that 2014 was a “bad year for us”—which he partly blames on “poor CEO recruitment”—though he stresses that the company has turned the corner and will raise the coverage this year to 30,000 customer households, from 17,000 now, and begin to see profits.

Nikhil cites finance, logistics and trouble with the governments as other irritants. “Lenders can charge high rates on loans and for very safe deals because of a shortage of lending capital. This will not change any time soon,” he says. Harassment from tax authorities is another issue. “They have often confiscated our goods.”

These problems are common to all micro-grid companies. Minda NextGenTech, for instance, has managed to power 250-odd villages which is “far too low compared with our budget,” according to Praveen Bhasin, who heads the business. He wants the government to help in training manpower. Minda NextGenTech operates on a different model—it sells systems to entrepreneurs who operate them in villages. Funding constraints have driven the company to limit itself to pockets where CSR money is available.

The bigger are better

Micro-grid companies typically operate in the 5 kW – 10 kW area, just enough to provide basic LED lighting and fans. In contrast, mini-grid companies, whose systems are between 100 kW and 1 MW, seem to be faring better, not in the least because they have anchor customers such as a telecom tower or a petrol station and sell only the surplus energy to villages, sometimes in the form of batteries of charged appliances. OMC’s Rohit Chandra says collection is not a problem because the company, like telecom operators, work on a “pre-paid” model, where customer household pays upfront for a fixed number of hours of electricity.

But the ‘OMC model’ has different problems in scaling up. Its villages, unlike those of micro-grids, are not those where the government cannot bring a cable into, some day. The prospect of such a competition weighs on the minds of its lenders, making funding for scale-up difficult. Chandra wants the government to help by declaring the company’s grids as the official grid for that area, to keep the state-owned discoms out.

And, there are uncertainties. What if the consumption shoots up and the customers, not being able to afford the higher cost power, ask the regulator to step in to fix the tariff? Pasupathy Gopalan, the Asia Pacific head of SunEdison, (with whom OMC has tied up for joint operations) says mini grids would find it difficult to scale up until the government gives the operators a “concession area”, as for oil producing companies, and regulator fixes a long term tariff before handing the area over to a grid company.

In his recent Budget speech, Finance Ministry Jaitley spoke of his desire to power 20,000 villages with off-grid solar, but the experience of the incumbent operators show that scaling up is fraught with difficulties.

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