Renewable off-grid solutions for ‘Electricity for all by 2019’

The Union Government has identified “Electricity for all by 2019” as one of its key strategic goals.

Access to a clean reliable source of power holds the potential of improving the productivity, quality of life and per capita income of nearly 30 per cent of the Indian population, which has unreliable access to grid connected electricity or none at all.

This arguably is the single most important factor in transforming the social and economic parameters of the rural ‘bottom of the pyramid’ population by increasing their productivity (providing additional work hours) and providing them access to modern infrastructure for facilities such as healthcare and education, among others.

Currently, a bulk of this population is dependent on inefficient, antiquated sources such as kerosene, which apart from limited use, has substantial health, social and environmental hazards.

Renewable energy-based distributed power solutions provide a credible way to achieve this objective.

They could act as an effective complement to the existing grid network and provide cost effective solutions in regions where grid connection is impractical/time consuming.

These solutions can be provided as individual house-hold based solutions or as community/collective network-based solutions (mini or micro grid).

With substantial reduction in capital cost for renewable energy (especially solar), these solutions have gradually started becoming commercially viable.

However, there are several on-ground challenges that need to be addressed to achieve meaningful penetration of these solutions.

Some of these challenges include limited financial capability/mindset of target customers to undertake upfront investment, large subsidies on traditional energy sources such as kerosene, lack of a centralised government support scheme, difficulty in tapping soft loans proposed by the government, and difficulty in O&M services and leakages.

Positive collaboration from various stakeholders needs to be undertaken to bridge these challenges and enable long-term sustainable investments to capitalise on this enormous opportunity.

First, in order to provide a level playing field to renewable energy based off-grid solutions, kerosene subsidies need to be replaced with alternative mechanisms such as direct cash transfer.

Second, there is a lack of long term visibility for investments made in such systems if the region comes under the ambit of ‘traditional grid’.

Necessary policy framework and technologies such as net metering etc need to be put in place to ensure continued cash flows to owners of such a system.

Electricity as a service (pay per use vs upfront capex) could be a distinct enabler to increase penetration of such solutions as most of the end customers have limited financial capability for an upfront capex.

Flow of steady long term capital via dedicated government funds, tax-free bonds, CSR funds, multilateral agencies and private capital could enable private sector players to undertake such models on a large scale.

We are already seeing this model gain success and venture capital/development agency-backed private players like Simpa Networks, Husk Power Systems etc have undertaken significant installations in North India.

Further, there is a need to provide policy-level support to enhance returns and spur investments.

While there are several support schemes by the government for renewable energy, most are targeted towards utility scale plants and are not viable for distributed systems. Market/generation linked instruments such as tax credits, variant of REC scheme etc could prove to be very effective.

Last, a partnership model with local entrepreneurs for setting up these systems will not only act as an operationally effective mechanism to penetrate/manage these systems, but also enable large scale rural employment and wealth creation. A concerted effort by the corporate sector and investors with the necessary policy impetus can develop renewable energy based distributed systems as a viable solution to realise the vision of ‘Electricity for all by 2019’.

The writer is Managing Director (Sustainable Investment Banking), YES Bank

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