gs-report

1
Off-GridBusinessModels
FINANCE
IN PARTNERSHIP WITH
THE BUSINESS CASE FOR
OFF-GRID ENERGY IN INDIA

THE BUSINESS CASE FOR OFF-GRID ENERGY IN INDIA www.theclimategroup.org2
LIST OF FIGURES AND TABLES
LIST OF ACRONYMS
DEFINITIONS
OBJECTIVES, SCOPE AND APPROACH
METHODOLOGY AND RESEARCH SOURCES
1. Executive summary
2. The opportunity for off-grid renewable energy
2.1 Unmet electricity demand in India
2.2 The case for solar home system (SHS) and DRE businesses
3. Assessment of off-grid energy business models
3.1 Overview of SHS enterprises
3.1.1 SHS technology and pricing
3.1.2 SHS value chain and key players
3.1.3 Unit level economics
3.1.4 Consumer financing and affordability
3.1.5 Evolution of the SHS market
3.1.6 Market size and impact
3.2 Overview of decentralized renewable energy (DRE) enterprises
3.2.1 DRE technology and service offering
3.2.3 Pricing and payment mechanisms
3.2.4 Addressing challenges in the DRE space
3.2.5 Evolution of the DRE market
3.2.6 Market size and impact
4. Policy environment and the case for private sector investment
4.1 Government policies and implementation progress
4.2 Need for private sector involvement
TABLE OF CONTENTS
01
06
06
09
14
14
14
15
17
21
24
31
33
33
37
39
49
51
56
56
61
ii
iv
vi
vii
vii

3www.theclimategroup.org THE BUSINESS CASE FOR OFF-GRID ENERGY IN INDIA
4.3 Challenges for investment
4.4 Specific financing needs of OGE enterprises
5. Recommendations to drive market growth
5.1 Promoting private sector financing
5.2 Promoting private sector engagement
6. Conclusion
ANNEX
Annex 1.1: Summary of opportunities and challenges in the SHS and DRE sectors
Annex 1.2: Summary of business models of interviewed enterprises
Annex 1.3: Summary of people and organizations interviewed
SOURCES
INTERNATIONAL EXPERT PANEL
ACKNOWLEDGEMENTS
63
66
70
70
78
80
83
83
85
88
89
91
96

THE BUSINESS CASE FOR OFF-GRID ENERGY IN INDIA www.theclimategroup.orgi
The Government of India has set an ambitious target of generating over 150
gigawatts of renewable energy by 2022, warranting investments of over US$150
billion. Realization of this target calls for the rapid creation of a positive enabling
environment for investors and entrepreneurs alike.
In the next few years, we anticipate considerable opportunities around off-grid as
well as grid-ready decentralized renewable energy in India.
There has been strong indication from across the world that investment in
renewables is yielding higher returns on investment. There is also a marked
improvement in risk perception around renewable energy projects. Coupled with
the emerging clean tech market in India, these aspects offer investors compelling
motivation for venturing into renewable energy financing.
This report is based on a study of off-grid business models in India by The Climate
Group, produced in partnership with Goldman Sachs Center for Environmental
Markets, which aims to inform investment and financing decisions on
decentralized, distributed renewable energy. It offers first-hand information on
some of the most viable, scalable business models that are investment ready.
It answers key questions for investors ranging from analysis of sound business
models to future prospects and regulatory frameworks in India. The report also
consolidates the findings and objectives of The Climate Group’s Bijli – Clean Energy
for All program, which is funded by the Dutch Postcode Lottery.
I am sure international investors and domestic financing institutions will find this
report highly useful and practical to inform their decisions. We are hopeful it will
generate sufficient interest that will result in considerable financial investment
into renewable projects in India, to support and complement national goals to
scale renewable energy generation.
KRISHNAN PALLASSANA
EXECUTIVE DIRECTOR, INDIA
THE CLIMATE GROUP
FOREWORD

iiwww.theclimategroup.org THE BUSINESS CASE FOR OFF-GRID ENERGY IN INDIA
Figure 1: Off-grid households in India 07
Figure 2: Moving up the energy ladder 09
Figure 3: Examples of key SHS and DRE players and the states in which they operate 13
Figure 4: Segmentation of SHS products 14
Figure 5: SHS value chain 15
Figure 6: SHS market share of different size enterprises 16
Figure 7: Profit margins across SHS value chain 18
Figure 8: Consumer financing options offered by SHS enterprises 22
Figure 9: Potential SHS market size (millions of households)
Figure 10: Solar D20 28
Figure 11: Three different Selco entities 28
Figure 12: The Simpa product purchase and payment model 30
Figure 13: Environmental and social impact of SHS enterprise 32
Figure 14: Overview of DRE systems 33
Figure 15: Plant size and technology of DRE companies (operating utilities of all possible
sizes) 34
Figure 16: Consumer offering and DRE plant capacity 35
Figure 17: Consumer pricing for DRE enterprises 38
Figure 18: B2C DRE model 41
Figure 19: Illustrative economics for a 240 W plant providing basic lighting and charging
(US$)
LIST OF FIGURES
43
23

THE BUSINESS CASE FOR OFF-GRID ENERGY IN INDIA www.theclimategroup.orgiii
Figure 20: Overview of a B2B + B2C DRE offering 44
Figure 21: Illustrative unit level economics of a year one plant with anchor load 45
Figure 22: New payment and collection technology 50
Figure 23: Environmental and social impact of Indian DRE enterprises 53
Figure 24: Expected investment in renewable energy in India 61
Figure 25: Incentives for lending 64
Figure 26: Cost of carbon financing 69
Figure 27: Securitizing DRE enterprise assets 75
Figure 28: Potential ecosystem building initiatives in the OGE sector 79
Figure 29: Categories of SHS enterprises 80
Figure 30: High potential DRE business models 81
Figure 31: Opportunities and challenges in the SHS space 83
Figure 32: Opportunities and challenges in the DRE space 84
LIST OF TABLES
Table 1: Key Indian government initiatives in rural electrification 56
Table 2: Examples of private sector investments in the off-grid renewable energy space 62
Table 3: Potential financial instruments for OGE enterprises [not exhaustive] 71

ivwww.theclimategroup.org THE BUSINESS CASE FOR OFF-GRID ENERGY IN INDIA
AC Alternating current
BOOM Build, own, operate, maintain
BPCL Bharat Petroleum Corporation Ltd.
CDM Clean Development Mechanism
CFL
CP
Com pact fluorescent lamp
Consumer products
DC
DDG
DRE
Direct current
Decentralized distributed generation
Decentralized renewable energy
GSMA Groupe Speciale Mobile Association
GW Gigawatt
HPCL Hindustan Petroleum Corporation Ltd.
IEG
IEP
Independent Evaluation Group
International Expert Panel
IMG Inter-ministerial group
INR Indian Rupees
IOCL Indian Oil Corporation Ltd.
IPO Initial public offering
LIST OF ACRONYMS

THE BUSINESS CASE FOR OFF-GRID ENERGY IN INDIA www.theclimategroup.orgv
IREDA Indian Renewable Energy Development Agency
IRENA International Renewable Energy Agency
JNNSM Jawaharlal Nehru National Solar Mission
kW Kilowatt
LED Light emitting diode
MFI Microfinance institution
MGP Mera Gao Power
MNRE Ministry of New and Renewable Energy
MW Megawatt
NABARD National Bank for Agricultural and Rural Development
NGO Non-governmental organization
NSSO National Sample Survey Organization
NWEM National Wind Energy Mission
OGE Off-grid energy
PV Photovoltaic
RBI
RGGVY
Reserve Bank of India
Rajiv Gandhi Grameen Vidyutikaran Yojana
SHS Solar home system
SPV Special purpose vehicle
US$
VLE
US dollar
Village level entrepreneur
W Watt

viwww.theclimategroup.org THE BUSINESS CASE FOR OFF-GRID ENERGY IN INDIA
DEFINITIONS
For the purposes of this report, the following definitions apply to enterprises that serve the
off-grid and under-electrified population in India.
Consumer product (CP)
Energyproductsforindividual
households
Solarlantern(SL)
Pico-power
(lessthan
2kW)
Micro-power
(2-10kW)
Mini-power
(10-25kW)
Small-power
(25-100kW)
Medium/
large-power
(over100kW)
Solarhomesystem(SHS)
Decentralized renewable energy
(DRE) system
Smallerpowerplantsthatgenerate
closetositeofdistribution
Connectmultiplehouseholdsand
businesses
Off-grid energy (OGE)
Notconnectedtothecentralelectricalgrid
Underservedbythegrid(receivelessthan
fourhoursofelectricityperday)1
1
InternationalFinanceCorporation.AssessmentoftheOffGridSolarApplianceLightingMarketinIndia.Marketresearch
report,NewDelhi,India,2015

THE BUSINESS CASE FOR OFF-GRID ENERGY IN INDIA www.theclimategroup.orgvii
OBJECTIVES, SCOPE AND APPROACH
This report sets out to boost entrepreneurial activity and private sector investment in renewable
off-grid energy (OGE) by assessing the market, identifying business models with the greatest
potential to achieve scale, and recommending investments that will be catalytic for the sector.
We focus on solar home systems (SHS) with capacity ranging between 10-200 watts (W), and
decentralized renewable energy (DRE) utilities of up to 100 kilowatts (kW) in size which use
renewable energy. This range covers the vast majority of systems and plants in the space. While
we have looked at solar, wind, hydro and hybrid sources of energy, most off-grid utilities (~80%)
run on solar energy.
The report begins with an overview of existing OGE business models in the SHS and DRE space. For
both SHS and DRE sectors, the report details current technology and business models, key players,
unit-level economics, future growth forecasts, and potential for social and environmental impact.
Each section also outlines current challenges in the space, business characteristics – over and
above usual operational excellence – that can address these challenges, and a brief hypothesis on
the likely evolution of both the SHS and DRE sectors.
As well as the above, the report provides an overview of the policy and regulatory environment and
highlights the need for private sector investment while laying out recommendations for financiers
and organizations looking to promote private sector involvement in the off-grid space.
METHODOLOGY AND RESEARCH
SOURCES
This research, produced in partnership with Goldman Sachs’ Center for Environmental Markets,
builds on ongoing work by The Climate Group in the renewable off-grid energy (OGE) sector. The
Climate Group’s flagship project Bijli – Clean Energy for All, supported by the Dutch Postcode
Lottery, aims to reduce carbon emissions by deploying renewable energy technologies through
innovative, social-impact business models and reaching over 50,000 rural people in India. The
project has already invested in four business models as part of its initial efforts.
We conducted a combination of primary and secondary research to inform our findings, including
interviews with 13 SHS and DRE players.1
We also used previous sector analysis, conducted by the
research firm Dalberg, that covered off-grid solar lighting, the decentralized energy solutions
space, and financing needs for small and medium-sized enterprises in the off-grid space. Input and
feedback was provided by our International Expert Panel (IEP) with representation from across the
energy sector, including: Mark Kenber, The Climate Group; Gauri Singh, IRENA; Jessica Long,
Accenture Development Partnerships; Brinda Ganguly, Rockefeller Foundation; Ankur Trehan,
Goldman Sachs (India) Securities Private Limited; Namita Vikas, Yes Bank Ltd.; Pankaj Agarwal, PRM
Power Holding AG and Uday Khemka, SUN Group.
1
Seeannex.

1. EXECUTIVE SUMMARY
The case for solar home systems and decentralized renewable energy solutions
Nearly50%ofIndia’sruralpopulation–80millionhouseholds–haslittleornoaccesstogrid-based
electricityandinstead,reliesonkeroseneasitsprimarysourceoflighting.2
Whilegovernmentefforts
areexpectedtoincreasegridconnectivity,progresshasbeenslowandthenumberofunderserved
householdsisexpectedtodeclinebyonly5%overthenext10years.Aswellasprovidingdim,
low-qualitylighting,therearemanynegativeimpactsofkeroseneuse,includingenvironmental
pollutionfromcarbonemissionsandchronicillnessesduetohighlevelsofindoorairpollution.
Improvingaccesstoproperlightingiscritical.Itincreasesincomegenerationpotentialandalsohas
apositiveeffectonschoolperformance.Throughprovidinghouseholdswithbetterqualitylighting,
off-gridenergysolutionshavemuchbroadersocial,environmentalandeconomicimpacts.
Thankfully,growingawareness,fallingpricesandgreateraccesstofinancearemakingoff-grid
energysolutions–includingsolarlanterns,solarhomesystems(SHS)anddecentralizedrenewable
energy(DRE)–increasinglyattractivetoconsumers.Andwhilesolarlanternscanmeetbasiclighting
andmobilechargingneeds,SHSandDREsolutionsarebetterpositionedtoservetheevolvingdemand
forconsumergoods,anddesireformorereliableservices.Inthisreport,weanalyzenearly803
playersinIndiawhohavebeentappingintothisopportunitywithvaryingdegreesofsuccess.
Overview of solar home system enterprises
Thereareover40establishedplayersandnewentrantstryingtocapitalizeonthegrowthopportunity
intheSHSmarketinIndia,butnosingleplayerhasachievedanymeaningfulscaletodate.Thereare
somelargeplayerslinkedtoconglomerateswhohavesucceededinwinninggovernmenttenders,but
theseenterpriseshavestruggledtoclaimasustainedpipelineofdirectcustomersales.The
majorityoftheremainingplayersaresmall,sellinglessthan5,000unitsayear,mostlythroughthird
partydistributorsanddealers.Thereareafewplayers,however,whohaveseensuccessinreaching
ruralhouseholdsbybuildingtheirownruraldistributionnetworks,focusingonbrandingandbuilding
relationshipswithconsumers.
Issuesaroundaffordabilityhaveputpressureontheseenterprises’margins,astheykeeppriceslow
tostaycompetitive.Asaresult,therehasbeensignificantemphasisplacedonconsumerfinance.
Grossproductmarginshoverbetween10-25%,4
butafteradjustingformarketing,transportationand
distribution,marginsarecloserto1-5%.Alackofmeaningfulscalehasmeantfewenterpriseshave
achievedprofitabilitytodate.Evenleadingplayersclaimtheyneedtogrowtoatleast2-4timestheir
currentsizeinordertobreakeven.Asaresult,theSHSmarketseemsviable,butenterpriseswhosell
onlysolarhomesystemsareunlikelytoseehighreturns.
Despitethesechallenges,fastgrowthandcross/up-sellopportunitiesmeanSHSenterprisescould
representahighpotential,albeitrisky,investmentopportunityforinvestors.Duetoincreasing
affordabilityandreach,weestimatethatnearly5millionsolarhomesystemswillbesoldbetween
2014and2018.By2018,themarketislikelytoreachanannualsalesvolumeof3millionunitsanda
marketopportunityofoverUS$215million.5
Thegrowthinthesesaleswillbedrivenbyenterprises
2
InternationalFinanceCorporation.“AssessmentoftheOffGridSolarApplianceLightingMarketinIndia.”Marketresearch
report,NewDelhi,India,2015.
3
~40mini-gridand~40SHSenterpriseswithanonlinepresence.
4
InterviewswithSHSenterprises.
5
Seesection3.1.
NEARLY 50% OF
INDIA’S RURAL
POPULATION
– 80 MILLION
HOUSEHOLDS –
HAS LITTLE OR
NO ACCESS TO
GRID-BASED
ELECTRICITY
ONE

abletoestablishdeepruralnetworksandeffectivelywinconsumersthroughproductbranding–and
whoplaceastrongemphasisonmaintainingtrustthroughstrongafter-salessupport.Beyondthis,
weseepotentialforcompanieswhoprovidetheirconsumerswithproductsandserviceswhichare
complementarytotheirsolarhomesystems,suchastelevisionsandfans.Suchenterprises
demonstratingtheirabilitytoevolvewiththeirconsumersrepresentinterestingopportunitiesfor
futureinvestment.
Overview of DRE enterprises
DREenterpriseshaveadoptedawiderangeoftechnologiesandbusinessmodels,butmostare
strugglingtoachievecommercialviability.Ofthe~40playersinthesector,themajorityarereliant
onsubsidiesand/orgrants,andonlythreehavetotalinstalledcapacities(capacityofallutilitiesput
together)greaterthan300kW.However,afewenterpriseshaveshownsignsofscaling,andthese
enterprisesprojectstronggrowthoverthenextfiveyears.
Ascapitalintensivebusinesses,DREenterprisesfaceanumberofchallenges.First,theyneed
significantlyhighlevelsofup-frontcapitalforplantinstallation.Second,debtisaprimaryunmet
needofDREenterprisesasthecostofstandarddomesticfinancingishigh.Furthermore,current
regulationsmakeitdifficultforIndianDREcompaniestogetforeignfinancingorleverageequipment
andinventoryascollateralforleasefinancing.Third,likeotherruraloff-gridenterprises,DREplayers
facechallengessurroundingaffordabilityaswellascollectingregularpaymentsfromconsumers.
Thispotentialfornon-paymentisasignificantriskforanyonewishingtoinvestinaDREproject.
Lastly,thelackofclarityaroundtheIndiangovernment’splansforgridextensionandinteractivityhas
ledtoconcernsaboutthelong-termviabilityoftheDREbusinessmodel.Thesechallengeshavemade
itdifficultforenterprisesto findandscalefinancingfromtraditionalsources.
However,enterprisesintheDREspacehaveaddressedtheseissuesindifferentways.Inparticular,
wehaveseentwoDREmodelsdemonstratestrongpotentialforcommercialviability:
Business-to-consumer(B2C)modelsthatprovidehouseholdswithonlybasiclighting(2-3
lights)andmobilecharging,canbuildsmallerplantswithlessthan500Wincapacity.In
manywaysthisofferingisverysimilartobuyingahigh-qualitysolarlantern,butcollections
overtimearebetteralignedwithconsumercashflows.Giventhatthesecompaniescan
offerhouseholdsapricelowerthankerosene,ruralconsumerscansimplysubstitute
theirmonthlykeroseneexpenditureforpaymentstotheDREprovider.Asaresult,this
modelcanreachmanyconsumersfast,withasmallamountofcapitalinvestment.Overall,
enterprisescanrecovercostsquickly:withinonetotwoyearsiftheyareabletoattract
enoughcustomersandensurestrongcollections.
Business-to-businessandbusiness-to-consumer(B2B+B2C)modelswithinstalled
capacitiesgreaterthan25kWcanprovidepowertocommercialanchorclientssuchasa
ruralmobiletoweroranATM,inadditiontoruralhouseholds.Thecommercialanchorclient
canprovideastablestreamofrevenuethatisenoughtocoveryearlyoperatingexpenses
ontheirown,andexcesselectricityisthensoldtonearbyhouseholds.Whilethismodel
requireslargerplants,theanchorclientprovidesawaytoquicklyrecovercosts,andthe
offeringtoconsumersisawaytomakeextraprofit.
CURRENT
REGULATIONS
MAKE IT DIFFICULT
FOR INDIAN DRE
COMPANIES TO
GET FOREIGN
FINANCING

Overall,weestimatethemarketsizeoftheDREspacewillbeatleastUS$150millionby2018,largely
drivenbyB2Brevenues.NotallB2BcompanieswillexpandtohouseholdDREofferings,butwehave
seensomeB2Benterprisesbegintodoso.Off-gridDREbusinessesservecloseto100,000households
today,andthisnumberissettogrowrapidlyat60-70%annuallytoaround900,000by2018.Whilethe
householdmarketwillgenerateannualrevenuesofUS$45millionby2018,6
commercialrural
infrastructureisgrowingandpresentsahugeB2Bopportunitytoensurestablerevenuesfrom
anchorclientsalongsidehouseholds.Companieslookingtoservebusinessescantapintoarangeof
enterprisessuchasruralmobiletowers,ATMsandpetrolpumps,andsecurelargescalecontracts
todriveexpansion.Potentialrevenuesfromservingruralmobiletowersalonecouldgrowtoatleast
US$95millionby2018.7
AndinlightofaGovernmentofIndiamandaterequiring50%ofallruralcell
towerstoshifttorenewableenergy,thisnumbercouldbesignificantlyhigher.
Furthering private sector engagement
GiventhecurrentchallengesinboththeSHSandDREmarkets,investorshaveastrongrolein
supportinginnovativeandscalableoff-gridmodels.Someemerginghighpotentialorganizations
haveambitiousgrowthplans,andareconfidentoftappingintocommercialsourcesoffunding.In
particular,organizationsarelookingforaffordabledebtandlong-tenurefinance.ForSHS
enterprises,thereispotentialforequitystyleinvestmentstogrowcompaniesthatarelookingto
servetheevolvingruralconsumerbasethroughproductsandservicesbeyondlighting.Potential
acquisitionsbylargeelectronicscompanies,whohavenotseensuccessinruralmarkets,could
resultininterestingexitoptionsforequityinvestors.ForB2BDREenterprises,theremayalsobe
potentialforlargescalesecuritizationofstableanchorload revenues.
Increasingtheattractivenessofthesectorwillrequirebroaderengagementfromallactorstohelp
pushpolicyandmaketheinvestmentclimateeasier.Improvingaccesstoinformationfortheprivate
sectorthroughindustrycoveragereports,spurringinnovationthroughcompetitionswithprizes,and
supportinginitiativestomakethecarbonmarketmoreattractive,areafewwaystohelptransform
thesectorforallplayers.Thistransformationcouldleadtonotonlysizeablereturns,butalso
expandedaccesstoelectricityformanypoor,ruralhouseholds.
6
SeeSection3.2.
7
ibid.

WE ESTIMATE THE MARKET SIZE OF THE
DRE SPACE WILL BE AT LEAST US$150
MILLION BY 2018

GiventhecurrentchallengesinboththeSHSandDREmarkets,investorshaveastrongroleinsupportinginnovative
andscalableoff-gridmodels.

2. THE OPPORTUNITY FOR OFF-GRID RENEWABLE ENERGY
2.1 UNMET ELECTRICITY DEMAND IN INDIA
Indiacurrentlyhas77million8
households(about360millionpeople)wholackadequateaccessto
grid-electricity,andanother20millionunderservedhouseholds(approximately95millionpeople)
whoreceivelessthanfourhoursofelectricityinaday.Whilegridconnectivityisexpectedtoimprove
overthenext10years,atthecurrentrateofgridexpansion,urbanizationandpopulationgrowth,70-
75millionhouseholdswillstilllackaccesstogridelectricityby2024.Since90%ofthesehouseholds
liveinruralareas,asignificantreductioninthe83millionruralhouseholdswhoarecurrentlynot
servedorunderservedbythegridisunlikely.
Morethanhalfofthetotalunderservedruralpopulationlivesinfivestates:UttarPradesh,Bihar,
Odisha,WestBengalandMadhyaPradesh. Ruralunderservedhouseholdsarenotequallydistributed
acrossIndia(seeFigure1).LargesectionsofNorthernandEasternIndiahavesignificantunderserved
populations.Furthermore,two-thirdsoftheunderservedruralpopulation,or~55millionhouseholds,
liveinthestatesofUttarPradesh,Bihar,Odisha,WestBengalandMadhyaPradesh.TheClimateGroup,
throughitsBijliproject,workswithlocaldeliverypartnersinUttarPradesh,WestBengaland
Maharashtra.
8
report,NewDelhi,India,2015.Calculatedbyprojectingthenumberofhouseholdsinthe2011IndianCensuswhodonotlist
electricityastheirprimarysourceoflighting,takingintoaccountpopulationgrowth,ratesofurbanization,andrateofgrid
expansionwithineachstate.Thenumberofunder-electrifiedhouseholdswascalculatedusingaconservativeestimateof
thepercentageofgrid-connectedhouseholdswhoreceivelessthanfourhoursofelectricityaday.
TWO

< 1 million households
1-2 million households
2-5 million households
> 5 million households
Figure 1: Off-grid households in India
DistributionofunderservedhouseholdsinruralIndia(millions)
StatewithBijliprojectincludingdistributionofsolarlanterns
GOA
TAMIL NADU
KERALA
JAMMU & KASHMIR
HIMACHAL
PRADESH
PUNJAB
HARYANA
RAJASTHAN UTTAR PRADESH
BIHAR
UTTARAKHAND
GUJARAT MADHYA PRADESH
CHHATTISGARH
ODISHA
ANDHRA
PRADESH
MAHARASHTRA
KARNATAKA
SIKKIM
MEGHALAYA
ASSAM
ARUNACHAL
PRADESH
NAGALAND
MANIPUR
MIZORAM
TRIPURAWEST
BENGAL
NEW DELHI
Source:PopulationtotalsfromIndiaCensus2011;Electrificationdata(sourceoflighting)fromIndiaCensus2011.
MORE THAN HALF
OF THE TOTAL
UNDERSERVED
RURAL
POPULATION LIVES
IN FIVE STATES:
UTTAR PRADESH,
BIHAR, ODISHA,
WEST BENGAL AND
MADHYA PRADESH
JHARKHAND

4.75.07.715.319.6
55
50
40
30
20
10
0
Uttar
Pradesh
Bihar West
Bengal
Odisha Madhya
Pradesh
Top 5 states
Under-electrified
Off-grid
0.620.2
15.5
54.6
8.3
5.3 5.3
0.2
0.6
0.3 0.6
2.3
Underserved rural households in least electrified states1
(millions)
1
Splitbetweenoff-gridandunder-electrifiedhouseholdsforallstatesisbasedonthenationalaverage.
Source:PopulationtotalsfromIndiaCensus2011;Electrificationdata(sourceoflighting)fromIndiaCensus2011.
52.3

2.2 THE CASE FOR SHS AND DRE BUSINESSES
Marketpenetrationforsolarlanternsisexpectedtogrowfromaround5-6%todaytonearly35%of
thetotalunderservedmarketby2018.9
However,whilesolarlanternsareaffordableandcanaddress
thecustomerneedsoftoday,theycannotmeettheevolvingneedsofruralconsumersbeyondbasic
lighting.Today,acustomerwithnoprioraccesstoelectricityiswillingtopayforjustbasiclighting
andmobilecharging,buttomorrowthatsamecustomerislikelytowanttomoveuptheenergy
ladderandusehigherwattageapplianceslikefansandTVs(seeFigure2).Theunmetdemandfor
electricitypresentsahugeopportunityforsolutionslikesolarlanterns,solarhomesystems(SHS),
anddistributedrenewableenergy(DRE)systems.
Figure 2: Moving up the energy ladder
AC/DC non-lighting products
(all day)
High wattage AC non-lighting
products (few hours per day)
High wattage DC non-lighting
products (few hours per day)
DC non-lighting products
(few hours per day)
Basic LED lighting
Traditional lighting
Household income
Householdconsumption
Need addressed by solar lanterns
Solar lanterns have some add-on features (mobile charging/
fans) but cannot address larger consumption needs primarily
due to low generation and storage capacity
Solar lantern wattage: 0.1–10 W
9
report,NewDelhi,India,2015;thepenetrationrateistheprojectednumberofunitssolddividedbytheprojected
underservedpopulation.Theunitssoldiscalculatedbyprojectingthenumberofhouseholdswillingtobuyasolarlantern
asapercentageofthosethatareawareoflanternsandcanaffordtheproduct.
Source:Interviews,companywebsitesandonlineresources

SHSandDREsystemsallowforawiderrangeofconsumptionatdifferentpricepoints.Solarhome
systemsconsistofsolarpanelsfixedonabuildingoropenlandthatpowersanearbyhomeor
business.Systemsrangeinsizefrom10Wtomorethan200WandcancostanywherefromUS$20to
overUS$500.Dependingonthesizeofthesystem,consumerscanpowerCFLandLEDlightsaswellas
higherwattageproductslikefansandTVs.
DREmodelsusearenewableenergysourcelikesolar,wind,hybrid,orbiomasstoprovideelectricityto
multiplehomesasamini-utility.Plantsizesspanalargerange,from200Wtomorethan100kW.While
DREmodelscanincludelarge-capacityrenewableenergypowerplantsthatfeedelectricityintothe
grid,off-gridmodelstendtobesmaller.MostoftheseDREmodelsonlyprovideenoughelectricityfor
basiclightingandmobilecharging,thoughsomehavebegunofferingenoughforhigherwattage
appliancesandACconnections.ConsumerstypicallypayUS$2-8permonthdependingontheir
consumption.10
Weestimatethatthereareover80businessesoperatingintheSHSandDREsector,withanevensplit
betweenSHSandDREplayers.Thisincludeslarge,mediumandsmallenterprises
functioningviaoff-gridaswellasgrid-connectedmodels,oroperatinginunder-electrifiedregions.
Figure3showscompaniesoperatinginregionsacrossthecountry.Thereisalargeconcentrationof
enterprisesinUttarPradeshandBiharwherethelargestunderservedpopulationslive.Additionally,
anumberofSHSplayersareoperatinginSouthIndia,particularlyinKarnataka,wheregreater
microfinanceinstitution(MFI)andruralbankpenetrationmakesconsumerfinancingeasierinthe
southernstates.Mostearlystageenterprisesarecurrentlyfocusingononeregion,whilesome
relativelyoldercompanieswespoketohaveplanstoexpandtootherregionsaswell.
Ofthesebusinesses,TheClimateGrouppartnerswithONergyandSelcoalongsidenon-profitand
micro-financeproviderstoreachruralandremoteoff-gridcommunities.Inaddition,TheClimate
Groupprovidedprojectfunding(US$30,000-100,000each)toSimpaNetworks,ONergy,Naturetech
InfraandMeraGaoPowerin2013throughits“Off-GridEnergyChallenge”Competition.
10
InterviewswithOGEenterprises.
MARKET
PENETRATION FOR
SOLAR LANTERNS
IS EXPECTED
TO GROW FROM
~5-6% TODAY
TO NEARLY 35%
OF THE TOTAL
UNDERSERVED
MARKET BY 2018

DEBT IS A PRIMARY UNMET
NEED OF DRE ENTERPRISES
AS THE COST OF STANDARD
DOMESTIC FINANCING IS HIGH

Figure 3: Examples of key SHS and DRE players and the states in which they operate
Basedonprimaryandsecondaryresearch,weestimatetherearenearly80businesses(~40mini-
gridenterprisesand~40SHSmanufacturersanddistributorswithanonlinepresence)inthesector.
Examplesofafewplayersinthetwooff-gridenergycategoriesareshownbelow.
SHS DRE
Source:Interviews,companywebsitesandonlineresources
ThemajorityofSHSandDREplayersareonly5-10yearsold.Withinthistime,thesebusinesseshave
undergonemultipleiterationsoftheirbusinessmodelstoarriveattheircurrentscale.Atpresent,
theaverageSHSenterprisesellsabout1,000unitsperyear,andtheaverageDREenterpriseserves
1,000–2,000householdsthroughtotalinstalledcapacity.
However,SHSandDREenterprisesunderstandthattheoff-gridmarketisstilllargelyuntappedand
areoptimisticabouttheirfuturegrowth.SHSandDREenterpriseshaveprojectedannualgrowthas
highas400%and250%respectively,andevenconservativeestimatesshowannualgrowthrates
rangingfrom40-70%.11
11
InterviewswithOGEenterprises.
VISIONARYLIGHTING
ANDENERGY
BOOND
BOOND
VISIONARYLIGHTING
ANDENERGY
ORBENERGY
ORBENERGY
SELCO
DURONSOLAR
ORBENERGY
ONERGY
ONERGY
ONERGY
ORBENERGY
VISIONARYLIGHTING
ANDENERGY
BOOND
SIMPANETWORKS
DURONSOLAR
GRAMOORJA
GRAMOORJA
GRAMOORJA
GRAMOORJA
SOLKAR
SOLKAR
BIOTECHINDIA
BIOTECHINDIA
GRAMPOWER
GRAMPOWER
DESIPOWER
AZUREPOWER
AZUREPOWER
AZUREPOWER
GRAMPOWER
OMCPOWER
HUSKPOWER
SARANRENWABLEENERGY
MERAGAOPOWER
NATURETECHINFRA
HUSKPOWER
HUSKPOWER

Basic solar home systemsarelowwattage
systemswhichhaveoneormoredetachable
lights.BasicSHSdonothaveothervalue-add
features.
SIZE:<10W
PRICE:US$20–100
Examples
Powapackjuniormatrix
In-diyabasic
Soloelectricbasicplugandplay
Standard solar home systemsarehigher
wattage,havemultipledetachablelights
andalsocomebundledwithfeaturessuch
asmobilechargingandfans.
SIZE:10–150W
PRICE:US$100-600
Examples
Soloelectricadvanced
Venussolarhomelightingsystems
Advanced solar home systems are
significantlyhighwattagesystemswhich
canpowerthelightsandappliancesfor
anentirehouse.ThesecanalsoofferAC
connectionsandgridconnectivity,so
theytendtobemoremodularinnature.
SIZE:150W+
PRICE:>US$500
Examples
GautamSS–3012
SolelectricAC
Figure 4: Segmentation of SHS products
3. ASSESSMENT OF OFF-GRID ENERGY BUSINESS MODELS
3.1 OVERVIEW OF SHS ENTERPRISES
3.1.1 SHS TECHNOLOGY AND PRICING
SHSproductscanbebroadlydividedintothreecategories:basic,standard,andadvanced.Solarhome
systemsconsistofsolarpanelsandanenergystoragedevice(battery)thatpoweranearbyhomeor
business.Systemscanalsoincludeachargecontrollerand/oraninverterforACconnections.
Broadlyspeaking,abasicSHSwillbelessthan10Wandbeabletopoweronetothreelights,andcan
looksimilartolargerlanterns,whichtypicallyrangefrom2-10W.AstandardSHScanbeupto150W
andcanpowermultiplelights,aswellasappliancessuchasDCfansandTVs.AnadvancedSHSis
greaterthan150W,willoftenhavemultiplepanels,andcanpowerthelightsandlargeappliancesof
anentirehouse.PricescanrangeanywherefromUS$20tooverUS$500,dependingonthesizeand
specificationsoftheproduct.Figure4belowsummarizesthecharacteristicsandpricesofeach
segment.
AnSHSasmentionedabovecanallowforuseofDCappliancesorevenACappliances.ACappliances
needanSHStohaveaninverterinadditiontothesolarpanelsandbattery,andarelikelytobepriced
higher.Electronicappliancesusedinhomeswithgrid-electricityaretypicallyACcompatible,andnew
productssuchaslowwattageDCTVsareafairlynewrangeofproductstargetedatruralconsumers.
Source:Interviews,companywebsitesandonlineresources,NounProject.
Imagecredit:barefootpower.com Imagecredit:barefootpower.com Imagecredit:boond.net
THREE

Enterpriseswho
manufacturesolar
PVpanels,batteries,
invertersandother
componentsofSHS
EXAMPLES
MaharishiSolar
Ammini
UniqueSolarEnergy
Enterpriseswhoprocure
andassembleindividual
SHScomponents,often
responsibleforproduct
installation
Theseenterprisesoften
possesssomeR&Dand
productdesigncapability
EXAMPLES
RondsEnergy
BarefootPower
VisionaryLighting
Duron
Thrive
Selco
Boond
SimpaNetworks
Individualdealer-
distributorsorenterprises
withruralnetworks
Manymanufacturershave
theirownproprietary
distributionchains
Mostoftenresponsiblefor
after-salessupport
EXAMPLES
BarefootPower
VisionaryLighting
Duron
Thrive
Selco
Boond
SimpaNetworks
Enterprisesthatofferlast
mileconnectivitytorural
households
Couldbeachainofrural
outletsorcommissioned
salesagents
EXAMPLES
Simpa(salesagents)
Selco
Duron
MFIs
Localruralshops
Component manufacturers Assemblers Distributors Retailers
MostSHSenterprisesofferabroadrangeofproductsbetween10Wandover200W.VeryfewSHS
enterprisesofferonlyoneSHScategory.Furthermore,mostSHSproductsofferedfallintothe
40-60W(standardSHS)rangewhichisusuallyenoughtopowertwoorthreelightsaswellasoneor
twoapplianceslikeaDCfanoralowwattageDCTV.RelativelyfewenterprisesselladvancedSHS.
Advancedsystemsaregenerallysoldtohighincomehouseholdswhooftenusethemasaback-up
duringoutagesrelatedtogrid-electricity.
3.1.2 SHS VALUE CHAIN AND KEY PLAYERS
MostSHSplayersinIndiadoacombinationofassemblyanddistribution.Thefourmajorpartsofthe
SHSvaluechainaswellasexamplesofkeyplayersineacharesummarizedinFigure5below.
Componentmanufacturingrequiresproductionfacilityandspecialistknowledge,whileretail
requiresdeepruralnetworksandlogisticscapabilities.Asaresult,over80%ofSHSenterprisesbuy
componentsfrommanufacturers,assemblethembasedonin-housedesigns,andthendistribute
systemstochannelpartnerswhocansellthemtothefinalcustomer.
Figure 5: SHS value chain
Source:Interviewswithenterprises;companywebsitesandonlineresources;NounProject.

SHSplayersbymarketsharein2013(%oftotalunitssold)
10%
85%
5%
~250,000 units sold
Smallplayersandnewentrants
Leadingsmallandmediumenterprises
Bigplayers
2013 sales
These assemblers and distributors adopt different business models:
Dealer-distributor:Inthismodel,acompanysellsitsproductsthroughthetraditional
channelsoflocalgeneralandspecialtyshopsandindividualdealers.
Proprietary (direct to consumer): Companieswithaproprietarydistributionstrategyhave
in-housestoragefacilitiesandreachtheconsumeroftenthroughadedicatedsalesforce
orcommissionedagents.
Partnership:Manufacturersoftenpartnerwithnon-traditionaldistributorssuchasNGOs
ofMFIsorgovernments,totapintoexistingruralnetworksandalargenumberofpotential
customers.Closeto80%ofenterprisesrelyontraditionaldealershipnetworkslikelocal
specialtyshopstoselltheirproducts.Assemblersanddistributorsalsoprovideafter-sales
supportandmaintenanceservices.
Thoughthemarketiscurrentlydominatedbybigplayers,thereisroomforleadingsmallandmedium
enterprisestogainmarketshare.12
TherearethreekindsofSHSenterprisescurrentlyoperatingin
themarket:smallplayersandnewentrants,leadingsmallandmediumenterprises,andbigplayers.
Smallplayersandnewentrantsmadeuponly5%ofSHSsalesin2013.Theseenterprisesaremostly
manufacturersandassemblerswhosellthroughotherdistributorsandthirdpartydealers.Often
solarhomesystemswillbeasmallerpartoftheiroverallbusiness.
Figure 6: SHS market share of different size enterprises
12
Estimatednumberofunitssoldin2013usinganaverageofabottomupandtopdownapproach(seesection3.16):The
marketissegmentedinto5-6bigplayers,4-5leadingsmallandmediumenterprises,and~30smallplayersandnew
entrants.Themarketshareforeachsegmentisfoundbasedonactualsalesdataextrapolatedtothenumberofenterprises
inthesegment.

Ontheotherhand,bigplayersaccountedforaround85%ofSHSsalesin2013(seeFigure6).Big
playerslikeTataSolarorPanasonicaregenerallylargeelectroniccompaniesorsubsidiariesoflarge
companies.Thesecompaniesareabletosellhighvolumesthroughchannelslikegovernmenttenders
putoutbytheMNRE,andfocusonbothruralandurbanunderservedmarkets.Smallerplayershave
difficultyinbecomingempaneled,andnavigatingthelargeamountsofpaperworkandbureaucracy
necessaryforwinningthesetenders.However,thoughbigplayerscurrentlymakeupthemajorityof
SHSsales,theyhavehadtroublemakingdeeperinroadsinrural,off-gridmarketsandthereforesell
throughthird-partychannels.
Leadingsmallandmediumenterprises,whohave deeperruraldistributionnetworksandcustomer
trustthanthebiggerplayers,arebeginningtoscaleandexpecttohavesustainedgrowthoverthe
nextseveralyears.Thispositionsthemtohavegreatermarketsharecomparedtolargercompanies
andsmallerplayers.
3.1.3 UNIT LEVEL ECONOMICS
WhilemarginsonindividualSHSarethin,earlystageenterprisesareconfidentofmaking
substantialprofitsastheyscaleandreduceoverheads.EarlystageSHSassemblershavekeptprofit
marginslowtokeeptheirproductscompetitiveandaffordable.Theytypicallypay70-80%oftotal
retailpriceonprocuringnecessarySHScomponentsfrommanufacturers(seeFigure7),resultingin
grossmarginsof10-25%.ThoughthepriceofsolarPVpanelshasfallendramaticallyinthelastdecade,
theyaccountforhalfoftotalcomponentcosts.Thecostofthebatteryisabout15%ofthetotal
retailcost,andtheremainingmaterialcostsareforwiring,lightsandotherproductadd-ons.
Technologyadvancementsinenergystoragearelikelytobringdownbatterycostsinthefuture.
However,afterfactoringintransportation,marketing,distributionandinstallationcosts,the
remainingprofitmarginonanSHSproductisonly1-4%.13
SHSenterprisesarethusfocusedongrowing
salesvolumeinordertomakelargerprofits.
SMALL AND MEDIUM ENTERPRISES, WHO
HAVE DEEPER RURAL DISTRIBUTION
NETWORKS AND CUSTOMER TRUST THAN
THE BIGGER PLAYERS, ARE BEGINNING TO
SCALE AND EXPECT TO HAVE SUSTAINED
GROWTH OVER THE NEXT SEVERAL YEARS
13
BasedoninterviewswithSHSenterprises.

Averageunitlevelcostbreakdownofa40WSHS(%ofretailprice,n=5)
*Costofgeneration
Source:Interviews,companywebsitesandonlineresources.
INR 20,000
(US$320)
Retail price COGS* Transport Marketing Distribution Install Profit margin
Figure 7: Profit margins across SHS value chain
2-8%
2-5%
5-10%
5-10%
1-4%
70-80%

A GOOD PRODUCT IS IMPORTANT
BUT INSUFFICIENT; ENTERPRISES
NEED TO DEVELOP LONG-TERM
CUSTOMER RELATIONSHIPS

3.1.4 CONSUMER FINANCING AND AFFORDABILITY
GiventhelargeticketsizeofSHS,mostcompaniesoffersomesortoffinancingoptionfortheir
customers.Evenwithlowmargins,SHSproductsaremoreexpensivethansmallsolarlanterns.An
averagesimplesolarlanternispricedatUS$13(INR800),amultiplefunctionallanternwithadded
featuresonaverageispricedatUS$23(INR1,400)andasmallerSHSispricedatUS$65(INR4,000).
Whileruralconsumersarewillingtobuysuchproducts,theirlimitedandirregularincomesmakeit
difficulttomakelargepurchases.Consumerfinancingoptionsarethereforeanintegralpartofthe
SHSproductoffering,andcompanieshavedevelopedvariouswaysofsupportingconsumer
purchases.Mostcompaniesarelookingtodevelopstrongrelationshipswithbanksandmicro-finance
institutionsinordertoensureaccesstofinancefortheconsumer,whileafewothershavelaunched
installmentbasedorpay-as-you-gomodelsforpayment.Figure8summarizesthefinancingoptions
SHSenterprisesinIndiahaveofferedtheirconsumers.

INDIVIDUAL LOAN
GROUP LOAN
SUBSIDIES/
GRANTS
INSTALLMENT
PAY AS YOU GO
Mechanism Examples Challenges
Consumer makes
10-25% down payment
MFI/Bank provides loan
5-20% interest
Low penetration of
banks and MFIs in
relevant areas
Banks and MFIs
unwilling to lend
Low penetration of
banks and MFIs in
relevant areas
Requires organized
distribution network
Subsidies can be
delayed or difficult
to get
May reduce consumer
willingness to pay
Requires more working
capital since capex is not
immediately paid back
Collection costs can be
high
Requires monitoring
capabilities
There is low awareness
about method
Loans provided to entire
village or SHG
Loan sizes range from
US$22-25 for SHG and >
US$500 for villages
Consumer applies for
government subsidy
through bank
Donor provides funds for
buying and distributing SHS
Consumer pays fixed
monthly installments
until the SHS is paid off
Consumer pays per own
usage until SHS is paid off
Mobile technology is used
for monitoring
Traditionallyenterpriseshaveusedindividualloansandsubsidiesforconsumer
finance;howevertheyarenowexploringnewerformsoffinancing,suchasgroup
loansandpay-as-you-go.
Source:Dalberginterviews;companywebsitesandonlineresources.
Figure 8: Consumer financing options offered by SHS enterprises
ONergy
Selco
Boond
Orb Energy
Thrive Solar Energy
Gautam Solar
Visionary Lighting
and Energy
Simpa Networks

1
Calculatedusing2011IndianCensusdataonthenumberofunder-electrified,andfindingthepercentageofhouseholds
whocouldaffordaUS$67/INR4000SHSsystem,givenhouseholddisposableincomeforenergyandconsumerdurables
(NSSO)
2014 2016 2018
+22%
Withfinancingsupport,weestimate7.2millionunder-electrifiedhouseholdswillbeabletoafforda
solarhomesystemby2018.ConsumerfinanceintheSHSmarketallowslow-incomeconsumerstobuy
basicandstandardSHSandallowsmiddle-incomeconsumerstobuyhigherpriceadvancedsystems.
Bettermodelsforconsumerfinancealongsidelargedemandandrisingincomes,willdrivethe
currentpotentialSHSmarketof3.3millionhouseholdstomorethan7.2millionhouseholdsby2018.14
Figure 9: Potential SHS market1
size (millions of households)
14
report,NewDelhi,India,2015;calculatedusing2011IndianCensusdataonthenumberofunder-electrified,andfindingthe
percentageofhouseholdswhocouldaffordalowendSHS.Thepercentagewhocouldaffordisfoundbasedonconsumption
datafromthe68throundofNSSO’ssurveyonhouseholdexpenditure.Ahouseholdwasconsideredabletoaffordiftheir
monthlydisposableexpenditurefor energyandconsumerdurableswasatleastonethirdthepriceofanaveragelowend
SHS(US$67orINR4000).
WITH FINANCING
SUPPORT, WE
ESTIMATE 7.2
MILLION UNDER-
ELECTRIFIED
HOUSEHOLDS
WILL BE ABLE TO
AFFORD A SOLAR
HOME SYSTEM
BY 2018
Forecast
3.3
4.4
7.2

3.1.5 EVOLUTION OF THE SHS MARKET
GivenincreasingaffordabilityandconsumerdemandforSHS,thereislikelytobegreatercompetition
fromnewandexistingsolarplayers.Risingruralincomesmeanthathouseholdswilldemandandbe
abletoaffordproductsbeyondbasiclighting.Weexpectthenumberofhouseholdsthatcanaffordan
SHStoincreasebymorethan20%peryearoverthenextfiveyears.15
Solarlanternenterpriseshavenoticedthistrendandarenowalsoenteringthesolarhomesystem
space(seed.lightcasestudy).Establishedlanternenterprisesalreadyhavethenetworksinrural
areastoreachcustomers,andcaneasilygainapartofthegrowingSHSmarket,becausethe
technologyiseasytoreplicate.
Whiletheconsumersoftodayareprimarilyconcernedwithlightingandmobilecharging,the
consumersoftomorrowwillwantmorefans,TVsandotherappliances.Enterprisesfocusedonthe
evolvingconsumerwillbewell-positionedforsuccess.Ruralconsumershaveheterogeneousand
evolvingneeds.AnumberofSHSenterpriseslikeONergyhavealreadybegunofferinglowwattage
DCTVsandfans.SHSenterpriseswillneedtodevelopawidevarietyofconsumerofferingsandbuild
greatertrust,forpeopletobuytheirproducts.Andwehavealreadyseensomeplayersbegintodo
this.
Enterpriseswillalsoneedtoinvestincontinuousinnovationtostayrelevant.Inordertodevelop
productsdesignedfortheirevolvingconsumers,enterpriseswillneedtoincorporatereal-time
consumerfeedbackintotheirproductdesign.Somehavealreadybeenbuildingproductinnovation
andlearningintotheirbusinessmodels(seeSelcocasestudy).
Agoodproductisimportantbutinsufficient;enterprisesneedtodeveloplong-termcustomer
relationships.ASHSisalargepurchaseforapoor,ruralhousehold—evenwithfinancing.Itisrisky
forthemtospendsomuchmoneyonaproducttheyarenotsurewillworkandwithanenterprise
theyknowverylittleabout.Consumersaremorelikelytodofuturebusinesswithbrandstheyknow
andtrust.Tothisend,enterpriseshaveusedvariousformsofafter-salessupport,includingproviding
warrantiesontheirproducts,freeservicingandfinancingthatreducestherisktotheconsumer(see
SimpaNetworkscasestudy).
15
SeeFigure8.

D.LIGHT SOLAR CASE STUDY
Lanterns to home systems: d.light Solar
d.lightisasolarlightingcompanythatwasfoundedin2006andoperatesacrossAfrica,
China,SouthAsiaandtheUnitedStates.Inthelastnineyears,d.lighthassoldover8million
solarlightandpowerproductsin62countries.Historicallyd.lighthasfocusedonsalesof
solarlanternswhichhadenoughlightingtoreplacekeroseneandcouldprovidesomemobile
chargingfeatures.
CASE STUDY

Source:Companywesite:dlightdesign.com.Imageusedwithpermissionofdlight.com
Inthelastyear,d.lighthasenteredthesolarhomesystemmarketwithitsD20system.Thisbasic
systemcanpower3-4lightsandmobilechargingfor15hoursonasinglecharge.d.lighthaseven
pairedtheproductwithvariousfinancingoptionsrangingfrommicro-loanstomobilepaymentsto
pay-as-you-go.
AsofMay2014,d.lighthassoldover125,000solarhomesystemsaroundtheworld.d.light’sexisting
salesnetworkandexperiencewithconsumershasallowedittorapidlygainmarketshareinthesolar
homesystemmarket.Solarlanternenterpriseswhohaveseensuccessinbuildingdeepsales
networksandwhohaveimplementedavarietyofconsumerfinancingoptionsarelikelytosee
successinthenascentbutgrowingSHSmarket.
Figure 10: Solar D20

Developing a platform for innovation: Selco
Selcobeganasaprivatesocialenterprisesellingsolarhomesystemsin1995.Thesolarhome
systemsrangefromsmall12WsystemstolargersystemsforinstitutionslikeNGOsand
schools.Todate,theyhavesoldover125,000homesystems,mostlyinthestateofKarnataka.
Asoneoftheearlyplayersinthesolarhomesystemspace,Selcorealizedthatinnovationwas
keytokeepingproductsrelevant,competitiveandattractivetoconsumers.Forthisreason,
Selcohascreatedaplatformofthreeseparateentities:SelcoPrivateLimited,Selco
Foundation,andSelcoIncubator.SelcoPrivateLimitedhandlessalesofsolarhomesystems.
Whenitdiscoversaproblemorissuethatitcannotsolvewithcurrentdesignortechnology,
SelcoFoundationwillresearchtheproblem.SelcoFoundationthendevelopsasolutionand
pilotsitthroughSelcoPrivateLimited.Ifthepilotissuccessful,thenewsolutionisdeveloped
intoanewproductandsoldthroughtheprivatelimitedcompany.Successfulproducts,
designsandprocessesarethenreplicated,bydisseminatinginformationtoother
enterprisesthroughtheSelcoIncubator.
SELCO CASE STUDY
CASE STUDY

Selco Pvt. Ltd.
Sellsproducts
Pilotsnewideas
Selco Foundation
Researchesideas
Developspilots
Selco Incubator
Spreadsnewproductstootherenterprises
Figure 11: Three different Selco entities
Forexample,whilesellingsolarhomesystemsamongfishermancommunities,Selco
PrivateLimitedsawthatfishermendidnothaveaneffectivewayofdryingfish,whichledto
spoilageandlossofincome.TheSelcoFoundationdevelopedasolar-powereddryerwhich
wasthenpilotedandsoldbySelco.
Source:Interviewswithenterprisesandanalysis;Organizationwebsite:Selcofoundation.org

SIMPA NETWORKS CASE STUDY
Energy as a service, and consumer trust: Simpa Networks
SimpasellssolarhomesystemsintheIndianstateofUttarPradesh.Foundedin2011,Simpa
hasreachedhouseholdsinninedistrictsacrossthestate,servingcloseto5,000households
intotal.Ratherthanfinanceconsumerpurchasesthroughtraditionalcredit,Simpausesa
pay-as-you-gotop-upmodel.Similartopre-paidmobiletop-upsinIndia,thisfinancingmodel
allowsconsumerstobuyrechargecreditsforwhentheywanttousetheSHS(seeFigure12).
Aftertheconsumerhasmade28monthsofpayments,theywillownthesystem.
Pay-as-you-goturnsanSHSintoanenergyservicethatSimpaprovidesforthe28-monthlease
period.Smallersizepaymentsaremadeflexibleandmoreconvenient.Inadditiontothis,a
consumerisabletosimplystopmakingpaymentsiftheproductbreaks,isnotbeingserviced
properly,ordoesnotfitaconsumer’sneed.Theinsurancebuiltintopay-as-you-gomakesit
easierforconsumerstotrustthatSimpawillcontinuetoprovideservicesevenifsomething
goeswrong.The28-monthpaymentperiodallowsSimpatoproveitscredibilityandbrandto
theconsumer.
Whilecompaniesemployingpay-as-you-gowillfaceafinancialriskofnon-paymentfrom
theircustomers,arobustwayofinitialcreditandcustomerportfolioassessment,aswell
asbuildingstronglong-termrelationshipswithconsumers,canmitigatenon-payment.
Simpahasastrongfocusoncustomerserviceandmakingsurecustomersdonotdefaulton
payments.Asaresulttheyhaveseenlowdefaultrates.
Source:Interviewsandanalysis.
CASE STUDY

Flexible payment
Iftheconsumerisunableor
unwillingtopay,theycanstop
usingtheSHSanddeferpayment
untilsometimelaterthatmonth.
Figure 12: The Simpa product purchase and payment model
2
Credit recharge
ThepaymentpointsendsSimpa
thecustomeridentificationand
rechargeinformation.Simpatexts
theconsumerarechargecode.
3
4
5
System unlock
Theconsumerusestherechargecode
tounlockthesystemandgetenergy
credits.TheconsumercanusetheSHS
foraslongtheirenergycreditsallow.
System lock
Themeterlocksthesystem
aftertheconsumer’senergy
creditshaverunout.
Product purchase
Consumerpaysadownpayment
fortheproduct.Theproductis
attachedwithasmartmeter.
1
Completion of lease
After28monthsofpayments,
thesystempermanentlyunlocks
andisownedbytheconsumer.
Regular payment
Theconsumerpayscash
(US$4-13)toadesignatedSimpa
paymentpoint.Thiscouldbea
localshoporentrepreneur.

Marginsinthespacewillremainlowuntiltherearemoreopportunitiesforcross/upselling.
Enterprisesthatprovideawidevarietyofproductswhichmeettheneedsofconsumersandhave
developedbrandstheirconsumerstrust,willbeabletoevolveintomoregeneral“whitegoods”
companies.Asolarhomesystemorlanternisoftenthefirstwhitegoodpurchasedbyarural
consumer.Asconsumersdemandotherenergyandnon-energyproductslikefans,TVsandappliances,
theywilllooktoenterprisestheyhaveestablishedrelationshipswith.MarginsonSHSsalesare
currentlylow,partlybecauseofhighdistributionandlogisticscosts.However,asexistingchannels
areusedtoup-sellhigherticketsizeproducts,marginsarelikelytoincrease.Enterprises,eventually,
arelikelytomimicwhitegoodscompaniesandmovedistributiontotraditionalretailchannels.
3.1.6 MARKET SIZE AND IMPACT
Overall,weconservativelyestimatethemarketsizeforsolarhomesystemswillgrowat60%peryear
toreachamarketsizeofUS$200-250millionby2018.In2014therewereapproximately518,000SHS
unitssoldandatotalof~900,000householdsusingsolarhomesystems.16
GivenanaverageSHSprice
ofUS$65,thetotalSHSmarketwasworthUS$35million.WeestimatethatannualSHSsaleswillreach
over3millionunitsby2018resultinginamarketworthoverUS$215million.
SHSenterprisesprovidedreliableelectricitytoaround900,000householdsandoffsetabout39,000
tonsofcarbonemissionsin2014.17
Ruraloff-gridhouseholdsusekeroseneformuchoftheirlighting,
spendingroughlyUS$2-3amonthonlighting.Kerosenelightingproducescarbonemissionsaswell
as“blackcarbon”whichhasamuchstrongergreenhouseeffectthanregularCO2
,buttheuseofsolar
homesystemscanoffsetthesecarbonemissions.In2014,theIndianSHSmarketoffset39,000tons
ofCO2
equivalent,andby2018thisnumberwillbemorethan235,000tons(seeFigure13below).To
putthisinperspective,thisamountistheequivalentoftheannualemissionsfrom50,000passenger
vehicles.18
Therearealsosignificantsocialbenefitstoexpandingelectricityaccessto900,000households,
includingincreasedstudytimeforchildren.Beyondthis,anincreaseinproductivityofrural
businessesfromlongerhoursofelectricityandtheincomebenefitsofincreasedeconomic
activity(especiallydistributionandretailinlocalcommunities)addedmorethanUS$21millionto
ruraleconomiesin2014.19
Forexample,anSHSenterprise,E-Hands,basedinChennai,SouthIndia,
soldsolarhomesystemstoflowervendorshelpingthemincreaseincomesbyUS$5aday,while
organizationssuchasSelcopaycommissionstosalesagentsforlastmilesales,addingtolocal
employmentandincome.
16
report,NewDelhi,India,2015;unitssold(3million)isanaverageofabottomupandatopdownapproach.Bottomup
approachtakessalesfiguresgivenbyenterprisesandthenisextrapolatedforthewholemarket.Projectionsarebasedon
companygrowthrates.Topdownapproachtakestotaloff-gridandunderservedpopulation.Thisismultipliedby
percentagenumberwhocanaffordUS$100SHS.ThisisthenmultipliedbythepercentagewhoareawareofSHS,haveaccess
toretailshops,andarewillingtopay.
17
Comparedtoelectricity/lightgeneratedfromdieselorkerosene.
18
EPAEmissionsCalculator.
19
Usesaconservativeestimateofaveragemonthlyincreaseinincome(US$3/month)thatresultsfromelectricityaccess
(IEG),multipliedbythe51%ofhouseholdswhoareself-employed(US$17million).Thenaddsthe5-10%oftotalrevenuesthat
aredistributionscostsusedtohirelocalstaffanddistributors(US$4million).
MARGINS IN
THE SPACE WILL
REMAIN LOW
UNTIL THERE
ARE MORE
OPPORTUNITIES
FOR CROSS/UP
SELLING

Figure 13: Environmental and social impact of SHS enterprises
+57%
Carbonoffsetby
SHSenterprises
900,000households2
haveaccesstoat
leastsevenhoursofelectricityperday
1billionadditionalhoursofstudyingevery
yearformorethan2.5millionchildren3
US$21millioninadditionalincomefor
localeconomies4
EnvironmentalimpactofIndianSHSmarkets(tonsofCO2equivalent1
avoidedannually)
Current social impact (2014)
OurMFIpartnerstellusthatSHShelptheircustomerscontinuebusinessintotheeveningresulting
inlowerdefaultrates.OnegroupofflowervendorsmadeUS$5perhourextrainincome.
-SHS assembler/distributor
Emissionsavoidedin2018
isequivalenttoemissions
ofover500,000barrelsofoil.
Source:Analysisandinterviews,NIRS,ImpactEvaluationGroup.
1
Ascomparedtoelectricity/lightgenerationthroughdieselorkerosene.
2
NumberisallthehouseholdsthatownaSHSin2014(cumulativesalesfigure).
3
Calculatedusingtheaveragenumberofchildrenperhouseholdmultipliedbytheaveragenumberofextrahoursofstudying
thatresultsfromelectricityaccess.
4
Usesaconservativeestimateofaveragemonthlyincreaseinincome(US$3permonth)thatresultsfromelectricityaccess
(IEG),multipliedbythe51% ofhouseholdswhoareselfemployed(US$17million).Thenaddsthe5-10%oftotalrevenuesthat
aredistributioncostsusedtohirelocalstaffanddistributors(US$4million).
MARKET SIZE
FOR SOLAR HOME
SYSTEMS WILL
GROW AT 60% PER
YEAR TO REACH
A MARKET SIZE
OF US$200-250
MILLION BY 2018
39,000 102,000 235,000
“
Forecast
2014 2016 2018

3.2 OVERVIEW OF DECENTRALIZED RENEWABLE ENERGY (DRE) ENTERPRISES
3.2.1 DRE TECHNOLOGY AND SERVICE OFFERING
DREenterprisescanuseseveraltypesofenergyresourcestoservedomesticandcommercial
consumers.DREmodelsuserenewableenergysourceslikesolar,wind,hybrid,orbiomasstoprovide
electricitytomultiplehomesasamini-utility.DREinfrastructureincludesbatteries,charge
controllersandinverters,aswellasdistributioninfrastructuretoserviceindividualhousesor
businesses.Someenterpriseshavebegundeployingsystemswithmetersandsmart-grid
capabilities,whichcanmonitorelectricityconsumptionandoptimizegenerationanddistribution
basedonthatdata.
Figure 14: Overview of DRE systems
AC/DC CONVERTER
SolarPV
Householdconsumers:
Nightlighting
Lights,fans,appliances
Mobilecharging
Commercialconsumers:
Daylighting
Lights,fans,
computers,equipment
Reliabilityiskey
Wind
Biomass
Hydro
Wind-solar
hybrid
FINAL LOAD
Source:Interviews;companywebsitesandonlineresources.

Source:Interviews;companywebsitesandonlineresources.
20
TheDREuniverseconsistsofcompaniesthatoperaterenewableenergyplantsofallpossiblesizesthatarenotconnected
tothecentralgrid.Thestudyfocusesonlyonplantsupto100kWinsize.
DREscanservebothhouseholdconsumers–whichrequiregenerallighting,theabilitytoplugin
applianceslikefansandTVs,andtypicallyneedmorepoweratnight–andcommercialclients,who
needconstant,reliableelectricitytopowerlightsandequipmentduringbusinesshours.
ThemajorityofDREplayers,roughly51%,usesolartechnology.WeestimatethatthenumberofDRE
enterprisesinIndiahasquadrupledfromabout10in2006toover40in2014.Morethanhalfofthese
DREsusesolar,whileanotherthirdusebiomassorhydroastheirenergysource.OnlyafewDRE
enterprisesemploywindorsolar-windhybridtechnologies.MostDREshaveplantcapacitiesthatare
lessthan10kW,andofthesethemostcommonlyusedtechnologyissolar.Biomassismorecommonly
usedforlargerplantsof30kWormore.Figure15showssomeofthemajorplayersintheDREspaceas
wellasthesizesoftheirplants.
Figure 15: Plant size and technology of DRE companies (operating utilities of all possible sizes)20
Solar
Biomass
Micro-hydro
Wind
Wind-solar
0.5 1 10 100 500
Energysource
Average size of plant (kW)
DREenterprise

Solarismoreprevalentbecausecurrentregulationsfavorsolarenergyoveralternativeforms
ofrenewableenergy.TherearelargeprogramslikeJNNSM,whichprovidesubsidiesforsolarDRE
projects.Incontrast,governmentincentivesforwindhaveonlyrecentlybeenre-instated,and
programsliketheNationalWindEnergyMissionareyettobeimplemented.Enterpriseshave
expressedtheneedforgreatersupportforbiomassmodelsandareconcernedthatgovernment
entitiesoftendonotunderstandsolar-windhybridmodels,resultinginlittlepolicysupportfor
organizationsemployingthistechnology.
DREcompaniescanprovidearangeofservices,frombasiclightingandmobilechargingforsmall
villagestocontinuouspowerforcommercialclients,suchastelecomtowers.DREplantcapacities
canbesegmentedintofourcategories:Picopower,micropower,minipowerandsmallpower
(seeFigure16below).
0.2kW 10kW 25kW
Upto100households Householdsandcaptive
consumptiontargets
Twolightsanda
cellphonechargerfor
afewhoursaday
Multiplelightsand
poweroutletfor
partoralloftheday
Multiplelightsand
poweroutletsfor
alloftheday
Continuouspower
accessoftenfor
commercialtargets
Source:Interviewswithenterprises.
100kW2kW
SMALLPOWERMINIPOWERMICROPOWERPICOPOWER
Upto100households Upto250households
Figure 16: Consumer offering and DRE plant capacity

MostDREsoperateplantswithcapacitiesinthe200W–10kWrange.21
Thiscapacityallowsfor5-8
hoursofbasiclighting,mobilecharging,andsometimesoneortwolowwattappliancesforupto100
householdsperplant.DREenterprisescantypicallyserve30-60householdsperplantandhavevillage
penetrationratesof50-60%.
LargerDREsthathavecapacitiesgreaterthan25kWaremuchlesscommon.Oftentheseplantsare
builtforcommercialclientswhoneedcontinuous,uninterruptedelectricity.Theseplantsmightbe
usedtopower,amongotherbusinesses,ruraltelecomtowers,ATMsandpetrolpumps.
OfdifferentownershipmodelsintheDREspace,mostenterprisesadoptthe“buildonly”model.Three
differentownershipcategoriesforDREclassificationareasfollows:
Build only –Thecompanyinstallsaplantandtransfersownershiptoathirdparty(village
community,government,localentrepreneur,NGOetc.)andmightprovidesome
maintenanceandafter-salessupport.
Build-operate-transfer –Thecompanyinstallsaplantandoperatesitforaperiodoftime
beforetransferringownershiptoathirdparty.
Build-own-operate-maintain –Thecompanyinstallstheplantandemploysitsownstaffto
operateitandcollectpaymentfromend-consumers.
Build-onlymodelsaremostcommonbecauseenterprisescanimmediatelyrecovercapexcosts.The
secondmostcommonmodelisbuild-own-operate-maintain,andtheleastcommonisbuild-operate-
transfer.Ownershiptransfersareconsideredmostdifficult,becauseoftheneedforathirdpartythat
canbothpayfortheplantaswellasoperateandmaintainit.
21
Interviewsandanalysis.

3.2.3 PRICING AND PAYMENT MECHANISMS
Dependingonconsumptionandthepricingmechanism,consumerspaybetweenUS$1.7–10(INR
100-600)permonthforaDREconnection.22
DREenterprisesthattakeuppaymentcollection
responsibilitiesuseoneoftwomodels:afixedtarifforapay-as-you-gomodel(seeFigure17below).
Inafixedtariffmodel,householdsreceiveastandardofferingandarechargedafixedamountat
regularintervals(everymonthorweek).ThismodelistypicallyusedbyDREenterpriseswith
smallerconsumerofferings(suchasafewlightsandmobilecharging).Inaprepaidpay-as-you-go
model,householdsbuycreditsfortheamounttheywanttoconsume–thoughtheremaybeacapon
theamountanyonehouseholdisallowedtoconsume.ThismodelismorecommonamongDRE
enterprisesthatofferconsumerstheoptiontousemoreelectricity.Enterprisesmentiontheneed
forflexibleconsumptionoptionsgiventhenon-homogeneityoftheIndianrurallandscape.Outside
oftheseoptions,post-paidmeteringisnotacommonmodelbecauseoftheincreasedmeteringcost
andthehigherriskofpaymentdefault.
22
InterviewswithDREenterprises.

Company Offering
Pricing
mechanism
Average cost to consumer (US$ per month)
Fixed tariff
Mera Gaon Power
2 lights and a
phone charger
(8 hours per day)
US$0.50 per week
Husk Power Systems
2 lights and a phone
charger
US$2–3 per month
OMC Power
2–9 lights or other
products based on
consumer need
US$2.50-11 per
month
Pay as you go
Gram Power Basic lighting and mobile
charging (based on need)
US$1.50 per month
+ per unit
consumption fee
Naturetech Infra
Basic lighting and
non-lighting products
(24 hours)
US$0.50–0.67 per
unit
Gram Oorja
Basic lighting and
non-lighting products
(up to 1 unit per day)
US$0.25–0.33 per
unit1
1.5
2-3
2.50-11
3
1.50-5
8-10
Post paid metering is not common among Indian off-grid utilities because of concerns
around expenses for metering systems and risk of payment defaults.
Source:Dalberginterviews;companywebsitesandonlineresources.
1
Plantinstallationissubsidizedbywayofgrants.
Figure 17: Consumer pricing for DRE enterprises

DREenterprisesareexploringnewpaymentcollectionmodels;howevermoststillcollectpayments
throughfieldcollectionagents.SomeenterprisessuchasMeraGaoPowerusefieldagents,but
ratherthancollectfromindividuals,theyhaveimplementedagroupcollectionmodelinspiredby
microfinancecollectionmeetings.Inthismodel,acollectorgoestoavillagewheregroupsof
individuals,organizedbytheenterprise,payduringregularpublicmeetings.Besidesfieldcollections,
someDREenterpriseslikeNatureTechInfraandOMChavestartedusingmobilepaymentsystems.In
thismodel,consumerscanuseSIMcardsortheircellphonestobuycreditforelectricityandpaybills.
ThoughIndianDREenterprisesareawareofdifferentpaymentcollectionmodels,skepticismand
capacityconstraintssuchaslackofworkingcapitalandaccesstomobilecommercetechnology
preventmostfromtryingthem.TheReserveBankofIndia(RBI)requiresallmobiletransactionsto
belinkedtoaformalbankaccount.Inruralareas,mostpoorhouseholdsdonothavebankaccounts,
makingmobilepaymentschallenging.Suchregulationshavehistoricallymadeitdifficultformobile
paymentsystemstogaintractioninIndia.
Therearesomecountries,especiallyinAfrica,wheremobilemoneyismorematureandDRE
companieshaveexperimentedwithotherpaymentmodelslikescratchcards.InonemodelaDRE
companysellsprepaidscratchcardsthathaveapinonthem.Theconsumercancallanumberand
enterthepintoaccesselectricity.InKenya,theKenyanPowerAuthoritysellspowercreditstoMFIs,
andtheMFIthencollectspaymentsfromthecommunityliketheywouldaloan.Asmobilepayments
evolveinIndia,thesuccessfulmodelsofDREsinAfricaandelsewherecouldbeasourceofinnovation.
3.2.4 ADDRESSING CHALLENGES IN THE DRE SPACE
DREcompaniesfaceanumberofrisksthatcouldpreventthemfromachievingmeaningfulscale.
Someoftheseareoutlinedbelow:23
High capital expenditure.Off-gridrenewableenergyDREenterprises,morethan50%
ofwhicharesolar,needsignificantlyhighinitialinvestmentinplantinstallation.
LargeDREsystemsabove10kWinsizecostupwardsofUS$30,000.Thishasstrong
implicationsonrecoverytimelinesatautilitylevelwhichtendtobelonger,andis
thereforeakeybarriertoscaleforanenterprise.Governmentsubsidies,although
substantial,aredifficulttoobtain,andtimelinesfordisbursementoffundsare
uncertain.Soenterpriseswantlittledependenceonsubsidiesandexpressastrong
needforlong-tenureprojectfinance.
High-interest costs.Mostfirmsandprojectslookforlong-termfinancingproducts
(typically7-10yeartenures)duetodifficultiesinvolvedinsettingupandoperatingin
theoff-gridsector.However,bankinginstitutionsrarelyprovidetheseloans,andthe
perceivedriskintherenewablessectorandlackofadequatefinancialhistoryforearly
stageenterprisesmakesaccesstofinancingevenmoredifficult.Enterprises perceive
thecostofstandardfinancingproductsonthemarket(13-18%annually)tobetoohigh
andarelookingforfinancingthatisinthe7-14%range,basedonthetypeoflender
(foreignlenders,impactinvestors,commercialbanks,etc.).
Potential for non-repayment.Ruraloff-gridenterprisesfacetraditionalchallengesof
ensuringaffordabilityaswellascollectingregularpaymentsfromconsumers.While
23
InterviewswithDREenterprises.

enterprisesbenchmarkpricestocurrenttraditionalsourcesoflightingandoffer
avarietyofpaymentschedulestoensurevillagersareabletoaffordtheirservice,
collectionofpaymentsistimeconsumingandlaborintensive.Paymentcollections
canmakeuptoaround50%oftotaloperationalcosts.Highdefaultratescouldhavea
significantimpactoncashflowandprofitmargins,whichiscrucialtorecover
upfrontinvestmentfaster.
Uncertainty around grid future connectivity. ThelackofclarityaroundtheIndian
government’sgridextensionplanshasledtosomeskepticismaboutlong-term
viabilityoftheDREbusinessmodel.DREenterprisessimplycannotcompetewiththe
lower,oftensubsidizedcostofgrid-electricity.Someenterprises,therefore,lookonly
tooperateinremoteoff-gridregionswithlowprobabilityofgridextension.Whilegrid
compatibletechnologyisavailable,noneofthesixDREenterprisesweinterviewedfor
thisreportcurrentlyuseit.
Wehaveseentwobusinessmodelsthatareabletosuccessfullyovercometheseissues.Thefirstis
aB2Cmodelprovidinghouseholdswithabasicoffering(lightingandmobilecharging).Here,certain
playershavebeenabletoreduceupfrontcapitalcoststoaslittleasUS$1,000byreducingplantsize,
andhaveensuredstrongcollectionratesduetotheaffordabilityofthebasicservice.
ThesecondmodelisaB2B+B2Cmodel,wheretheDREenterprisesellselectricitytoacommercial
consumer(alongsidehouseholds)whoservesasananchorclient.Commercialclientscanprovidea
stablerevenuestreamfortheDREoperatorsandsomecompanieshavesaidthattherevenuefrom
theanchorloadcanevencovertheannualoperatingexpensesoftheDREutility.
Small utility B2C models
B2Ccompaniescanensurealargemarketbecausetheyofferbasiclightingservicesto
householdsatapricecompetitivetothatofkerosene.Onaverage,un-electrified,ruralhouseholds
spendUS$2-3permonthonkerosene.ForUS$1.70-2permonth,anoff-gridconsumercangetbasic
lightingandmobilechargingforsevenhoursadayfromaPicopowerDREenterprise(seeFigure18
below).Withthismodel,consumerscansimplyreplaceanexistingcostintheirbudgetforamore
convenient,andoftenmorereliableservice.Forthisreason,thesemodelscanreachmanypoor
consumersinashortamountoftime.Theofferingisaffordable,andwhencombinedwitheffective
paymentcollectionmechanisms,canensurerelativelyhighpaymentcollectionratesforthe
enterprise.
Thesecompaniesarereducingplantsizetokeepcapextoaminimum–the240Wmodel,forexample,
costsonlyUS$1,000andcanrecovercostsin1-2years.24
PicopowerDREshavesolvedtheproblemof
highcapexcosts,bysimplybuildingsmallerplantswhichcostless.Theybuildplantslargeenough
toprovidebasicelectricityandmobilechargingto30-50householdsinasmallvillage.Theseplants
havehighoperatingprofits(closeto70-75%ofannualplantrevenues)andcanrecovertheinitial
investmentintwotothreeyears.Furthermore,becausethecostofbuildinganewplantissmall,
theseB2Centerprisescangrowrapidlybybuildingmoreplants.Figure19showstheeconomicsfora
240WplantwhichcostsUS$1,000andprovideselectricityto30households.25
24
25
Assumesa95%collectionrateandamonthlytariffbetweenUSD1.70-USD2.5permonth.

Figure 18: B2C DRE model
Businessmodelandconsumeroffering
CostofDREserviceforahousehold(US$permonth)
240–1kWplants
Costofasset:
US$1,000-3,500
Build-own-operate-
maintainplants
30-50households
Oneplantforasmallvillage,multipleplantsfor
largervillages
Electricitysupplyfor6-8hoursperdayper
household
Basicconsumerofferingthatincludestwo
LEDsandamobilechargingpoint
ConnectioncostsbetweenUS$8-16
USD 1.7-2.5
~USD 2-3
Thebasicmini-gridofferingcanbeatotal
replacementofkeroseneformid-lowincome
householdsgivenitscompetitivepricing.
Source:Interviewsandanalysis;companywebsitesandonlineresources.
Avg.lightingspend
onkerosenefora
ruralhousehold
Priceofbasic
offering(two
LEDsandmobile
charging)
~US$2-3
~US$1.7-2.5
-26%

MERA GAO POWER CASE STUDY
Scaling small plants: Mera Gao Power
MeraGaoPower(MGP)isabuild-operate-own-maintain(BOOM)solarDREenterprisethat
operatesinWesternUttarPradesh.Theenterprisecurrentlyownsandoperatesover1,000
plants.Eachplanthasaninstalledcapacityof240Wandcanprovidepowertoavillageof
30-100households.MeraGaoofferseachhouseholdtwoLEDlightsandmobilechargingfor
sevenhoursadayforaroundUS$0.42aweekorUS$1.70amonth.
MGPcollectspaymentsfromhouseholdsbyemployingahumancollectionagent.Households
usingMGP’sserviceareorganizedintogroupssimilartothoseformedbysomemicrofinance
institutionsforloancollections.Householdsmaketheirweeklypaymentsinpublicmeetings
infrontoftheirgroup.Thismodelofgroupcollectionincreasesthesocialpressuretopayand
lowersnon-paymentrates.
TheplantsbuiltbyMGPcostlessthanUS$1,000tobuildandcanbebuiltandmadeoperational
injustoneday.VillagersfindMGP’spropositionattractive,becausethecostoftheirservice
islessthantheamounthouseholdspayforkerosene.OverthelasttwoyearsMGPhasalmost
tripledinsize.Thismodelisscalableduetothespeedatwhichaplantcanbebuilt,made
operational,andfindcustomerstoruntheplantatoptimalutilization.Withlowcapital
investment,MeraGaocanbuildplantsquicklyandexpandintomanyvillages.
Source:Interviewswithenterprisesandanalysis
CASE STUDY

Figure 19: Illustrative economics for a 240 W plant providing basic lighting and charging (US$)
Source:Interviewsandanalysis;companywebsitesandonlineresources.
Afterrecoveringinitialcapexcosts,thereare
recurringbatteryreplacementcostsevery
3-5years,thatarealsocoveredbytotalcollections
Costofmini-grid Three-year
operatingcost
Three-yearprofitTotalcollections
(threeyears)
1,000-1,500
1,000
400-450
40
B2B + B2C DRE models
B2Benterprisesreduceriskbyensuringstablerevenuesfromananchorclient.Attheotherend
ofthespectrum,largeDREoperatorshaveenoughinstalledcapacitytoprovideelectricityto
commercialclientsliketelecomtowers,ATMsandpetrolpumps,alongsiderural households.The
plantsbuiltbyB2Bplayerswilltypicallyhaveinstalledcapacitiesgreaterthan25kW.Theseclients
canbeusedasanchorclientswhoprovidestabledemandandcashflowtotheDREenterprise
becauseelectricityissoldtoanchorclientsonalonger-termcontractbasis.

OverviewofaB2B+B2Cmini-gridoffering
30-40 kW plant
Solar/solar-diesel
Costofasset:US$10–12,000
Build-own-operate-maintainplants
Anchor clients: Mobiletowers
andothercommercialclient(incl.
banks,ATMs,etc.)
Households:
Around500householdsina
3–5kmradius
Directdistribution
tohouseholds
Tariff:US$2.5–11permonth
Humancollectionsand
mobilepayments
20%ofplantrevenue;
cangoupto60%
1–4kWloadserved
basedonanOPEXmodel
Tariff:~US$0.25perunit
Meteredconnections
80%ofplantrevenue
Source:Interviewsandanalysis;companywebsiteandonlinedata.
Figure 20: Overview of a B2B + B2C DRE offering

75%
25% 31%
28%
25%
16%
Figure 21: Illustrative unit level economics of a year one plant with anchor load26
Illustrativeunitleveleconomicsofayearoneplantwithanchorload(25–50kW)
(%oftotalrevenue)
Revenue
fromanchor
loadclient
Revenue
from
households
Plant
depreciation
Operationand
maintenance
Marketing
andadmin
Operating
margin
Source:Interviewsandanalysis;companywebsiteandonlinedata.
Whilerevenuefromtheanchorclientwillremain
steadyovertime,revenuesfromhouseholdswill
increaseasmarketingeffortsincreasethe
numberofhouseholdsreached.
ThecombinationofB2BandB2CmeanstheDREenterprisescanhavestablerevenuesfromthe
anchorclientandalsotheabilitytopursuelargerprofitmarginsfromhouseholds.Anchorclients
typicallysignlongtermagreementstobuypoweratapricethatiscompetitivewithsourcesofenergy
suchasdiesel.Annualrevenuesfromtheanchorloadcancovermostoftheoperatingexpensesof
theplant(seeFigure21).Profitmarginsforhouseholdconsumersontheotherhandarehigher,given
householdspayahigherperunitcost,whichisoftenbenchmarkedtotraditionalsourcesoflighting
suchaskerosene.Asanestablishedplantgainsmorehouseholdusersovertime,theplantwillmake
biggerprofits.
26
Assumesa40kWplantwithasingleanchorclientrequiring4kW,payingRs,20perunit,connectioncostofRs.500(US$8)
andmonthlytariffofRs.150(US$2.5)forhouseholdoffering.Alsoassumes20yearplantlife,with10%residualvalueandan
initialcostofplantat~US$100,000. BatteryisreplacedeveryfiveyearsandO&Mcostsare4%oftotalcapex(est.basedon
industrybenchmarks),whilemarketingandadministrativecostsare10%and15%respectively.

SOLAR IS MORE PREVALENT BECAUSE
CURRENT REGULATIONS FAVOR SOLAR
ENERGY OVER ALTERNATIVE FORMS
OF RENEWABLE ENERGY

OMC POWER CASE STUDY
Anchor loads and community lighting: OMC Power
OMCPowerwasfoundedin2011asamini-power,mini-gridenterprise.Itbuilds,owns,
operates,andmaintainssolarplantswithaninstalledcapacitygreaterthan25kW.
OMCisuniquebecauseithasbeenabletouseruraltelecomtowersasanchorclients.
TelecomcompaniesinIndiawillsignacontractwithOMCtoprovidetheirmobiletowers
withelectricityforacertainperiodoftime,atapre-determinedprice.
Withtheexcesspowergeneratedfromtheseplants,OMCreacheslocalcommunities
whodonothaveaccesstogrid-power.Inthesevillages,OMCeitherconnectshouseholds
directlytotheirplantsorhiresalocalvillagelevelentrepreneur(VLE).VLEsareoften
unemployedvillagersorthosewithextratimeforasidebusiness.Thisentrepreneurwill
chargeandrentoutvariousconsumerproductslikelanterns,fansandTVsandprovide
batterychargingformobilesandelectricvehicles.
Givenlargecontractswithanchorloadssuchasmobiletowers,OMChasstablerevenues
thatarelikelytocoveroperationalcostsoftheplant.OMChasbeenabletosecurelong
termcontractswithmobiletowercompanies,duetoastrongmanagementteamthat
hassignificantexperienceinthetelecomsector.Therevenuestreamfrommobiletowers
issubstantialandcanhelpOMCbreakevenfasterthanmostotherDREutilities.OMChas
thusbeenabletoproveinvestorattractivenessandraisedcommercialfundingtomatch
ambitiousgrowthtargetsof260%overthenextyear.
Source:Interviewsandanalysis.
CASE STUDY

3.2.5 EVOLUTION OF THE DRE MARKET
DREcompaniesareexploringnewtechnologiestoincreaseoperationalefficiency.For
commercialviability,itiscrucialDREenterpriseshavesubstantialcashflowsthatcanrecoverhigh
upfrontinstallationcosts.Increasedoperatingprofitsmeanaquickerbreak-eventimeforindividual
plants.Forexample,DREcompanieshavestartedtoinvestinpaymenttechnologies(suchassmart
meteringandmobilepayments)thatautomatethecollectionprocess.Foroff-gridDREenterprises,
paymentcollectionhasbeenatimeconsumingandlabor-intensiveprocess.SomeDREenterprises
reporta60%reductionincollectioncoststhroughbetterpaymentsystems.27
Thetwonewest
innovationsintheIndianmarkethavebeensmart,wirelessmetering,andmobilepayments(see
Figure22).
Othertechnologyincludespowermanagementdevices,networkedmeters,energymanagement
softwareandmobilemoneypaymentprocessing.28
Energy-as-a-servicemodelsrequirethe
deploymentoflow-costDCpowermanagementdeviceswhichcanmonitorpowerusageand
distribution.Whencombinedwithintegratedenergymanagementsoftwarelikethosethatsupport
mobilemoneypaymentsanddirect,over-the-airrechargeofthecustomer’ssystem,enterprisescan
createfullyautomatedpowermanagementandpaymentcollectionsystems.Thesesystemsgreatly
increase efficiencyandloweroverheadcosts. TheClimateGroupandISEP’s29
“ScopingStudyon
intersectionofICTandoff-gridenergyaccessinIndia”examinestheroleofinformationand
communicationstechnology(ICT)inenablingoff-gridenergyservices,anddetailsmarket
opportunitiesandcurrentchallenges.
Theabilitytoincorporatethelatesttechnologyisaskillthatorganizationslookingtogrowmust
develop.Themostsuccessfulorganizationswillbetheoneswhohaverelevantexpertiseontheir
managementteamthatenablesthemtostayabreastofnewtechnologyandeffectivelyimplement
relevantsolutions.
27
28
TheClimateGroupandISEP,2014.
29
ICTsforSustainableEnergyPartnerships.

Typesofinnovativetechnologyforoff-gridsystems
Metersarewirelessandcanbemonitoredremotely
Allowsforpre/postpayasyougopayments
Powercanbecutoffremotely
Example:GramPower,NaturetechInfra,SimpaNetworks
ASIMcardisaddedtometer
Consumerscanbuyprepaidcredit
Paymentcanbemadebymobilephone
Example:NaturetechInfra,OMCPower,SimpaNetworks
SMART METERING
MOBILE PAYMENTS
Smartmeteringimagecredit:grampower.com.
Mobilepaymentsimagecredit:exclusiveafrica.net.
Figure 22: New payment and collection technology

Ruralinfrastructureisgrowing,offeringavibrantmarketforB2Benergyservices.Currently,
commercialenterprisesoperatinginoff-gridorunder-electrifiedregionsrelyonexpensivediesel
forelectricitygeneration.Theseenterprisesincludemobiletowers,ATMs,petrolpumpsandother
entities.Thenetworkoftheseruralestablishmentsislikelytogrowatratesbetween5-20%.30
These
businessesalsorequiresubstantialamountsofuninterruptedelectricity,makingthemperfectfor
useasanchorclients.
DREenterprisescanfindanchorclientsandothersourcesofstablerevenuesthrough
effectivepartnerships. Havingmanagementwithexperienceintheanchorclientsectorwillhelp
organizationsidentifypotentialpartnersanddeveloplongtermrelationshipsthatcanbeturnedinto
sales.Enterprisesneedtohaveanunderstandingoftheanchorclient’sbusinesssotheycanshow
howaDREofferingwillbeofbenefit.Besidescommercialclients,DREenterprisesarepartneringwith
governmentsandlargeNGOs.ThesepartnershipsresultinlargecontractsforbuildingDREplantsand
canleadtoasteadypipelineforfuturebusiness.
3.2.6 MARKET SIZE AND IMPACT
WeconservativelyestimatetheB2CmarketsizetogrowtoUS$45millionby2018.In2014,around
100,000householdswereservedbyaDREutility31
By2018,theB2Cmarketwillgrowtoalmost900,000
households.AssuminganaveragemonthlytariffofUS$5perhousehold,thismeansB2CDRE
enterprisesmadeUS$6millioninrevenuesin2014,andcouldmakeclosetoUS$45millioninrevenues
in2018.MuchofthegrowthintheB2CmarketwillbedrivenbyPicopowerplayerswhohavesmaller
offeringsbutcanreachmanymorehouseholdsatalowercostthanDREenterpriseswhodeploy
largerplants.
31
Currentnumberofhouseholdsandmarketsizeiscalculatedbasedon numbers forthelargestpublicandprivate
DREenterprisesandprojectingthemforwardsusinghistoricalandprojectedgrowthrates;Anaveragemonthly
tariffrateofUSD5/householdisused.

32
Revenueisbasedonaveragedemandofunderservedtowersof~7,000unitsayearandtariffratesofUS$0.33/unitlikelytoescalateat5%
annually.
33
Comparedtoelectricity/lightgeneratedfromdieselorkerosene.
34
Sumof3sources:a)moneyaddedtolocaleconomythroughjobcreation,b)extrabusinessincome,andc)savingsfromswitchingaway
fromkerosene. a)moneyaddedtothelocaleconomyiscalculatedastheamountspentlocallyforinstallationofnewplants(10%ofnew
capexandtheamountspentlocallyforoperations(2%of totalexistingcapex)(~US$3million);b)usesaconservativeestimateoftheaverage
monthlyincreaseinincome(US$3/month)thatresultsfromelectricityaccess(IEG),multipliedbythe51% ofhouseholdswhoare
self-employed(~US$3million);c)usesthenumberofhouseholdswhopaylessthantheaverageamountspentonkerosene(US$3/month)
forDREelectricityandmultipliesthatnumberbytheamountsavedpermonthbyswitchingfromkerosene(~US$1million).
CurrentlytheB2BmarketforruralDREsystemsissmall,butwilldrivegrowthinthefuture.
Weestimatethatonly71ruralmobiletowersareservedbyDREsystems,makingalittlemorethan
US$150,000inrevenues.32
However,weexpecttheretoberapidgrowthinthenextfiveyears.
TheIndiangovernmenthasrequiredtelecomcompaniestomigrate50%ofallruralcelltowersto
renewableorhybridpowerby2015.Thiswouldtranslatetoover120,000towersandaB2Bmarket
worth~US$500million.Evenatjust10%penetrationofmobiletowers,weexpectDREsystemsto
serveover33,000mobiletowers,generatingmorethanUS$95millioninrevenuesby2018.
TheelectricityofferingsofDREplayersoftenreplacekeroseneuseforhouseholdsanddieselusefor
ruralbusinesses.Bothoftheseenergysourcesarelargeemittersofcarbon.In2014,theIndianB2B
andB2CDREmarketoffset12,000tonsofCO2
33
equivalent.By2018thisnumberwillbemorethan
87,000tons(seeFigure23)butcouldbeevenhigherifgovernmentmandatesforruraltelecomtowers
areadheredtoandmoreplayersentertheDREspace.DREenterprisesprovidedelectricityaccessto
100,000householdsin2014.Accesstoelectricityhashelpedmicro-entrepreneursandbusinesses
improveproductivityandincomes.Inadditiontothis,construction,operationsandmaintenanceof
plantsislikelytocontributetolocalincomegeneration.Weestimatethatthisextraeconomicactivity
addedUS$7milliondollarstolocalruraleconomiesin2014.34
WE CONSERVATIVELY ESTIMATE THE
B2C MARKET SIZE TO GROW TO US$45
MILLION BY 2018

CarbonoffsetbySHSenterprises
100,000off-gridhouseholdshave
accesstoatleastsixhoursofelectricityperday
120millionadditionalhoursofstudyingevery
yearforcloseto340,000children2
US$7millioninadditionalincome3
forthe
localeconomy
EnvironmentalimpactofIndianDREmarkets:B2BandB2C(tonsofCO2
equivalent1
avoided
annually)
Currentsocialimpact(2014)
Source:Analysisandinterviews,NIRS,ImpactEvaluationGroup.
1
Ascomparedtoelectricity/lightgenerationthroughdieselorkerosene.
2
Calculatedusingtheaveragenumberofchildrenperhouseholdmultipliedbytheaveragenumberofextrahoursofstudying
thatresultsfromelectricityaccess.
3
Sumof3sources:a)moneyaddedtolocaleconomythroughjobcreation,b)extrabusinessincome,andc)savings
fromswitchingawayfromkerosene. a)moneyaddedtothelocaleconomyiscalculatedastheamountspentlocally
forinstallationofnewplants(10%ofnewcapexandtheamountspentlocallyforoperations(2%of totalexistingcapex)
(~US$3million);b)usesaconservativeestimateoftheaveragemonthlyincreaseinincome(US$3permonth)thatresults
fromelectricityaccess(IEG),multipliedbythe51% ofhouseholdswhoareself-employed(~US$3million);c)usesthe
numberofhouseholdswhopaylessthantheaverageamountspentonkerosene(Rs.190/month)formini-gridelectricity
andmultipliesthatnumberbytheamountsavedpermonthbyswitchingfromkerosene(~US$1million).
TheB2Bcarbonoffsetfigures
onlyincludeOMCpower’soffsets.
OMCiscurrentlytheonlyoff-grid
DREenterprisetocatertomobile
towersandruralbusinesses.
+64%
12,000 27,000 87,000
Figure 23: Environmental and social impact of Indian DRE enterprises
Forecast
2014 2016 2018

IN 2014, THE INDIAN B2B AND B2C DRE
MARKET OFFSET 12,000 TONS OF CO2
EQUIVALENT. BY 2018 THIS NUMBER
WILL BE MORE THAN 87,000 TONS

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

Initiative Implementing
agency
Implementing agency for OGE businesses
ElectricityAct
2003
MinistryofPower
(MoP)
Removedtheneedforlicensesinordertogeneratepower(inallareas)anddistributepower
(inruralareasonly).
AllowedOGEbusinessestomoreeasilyprovideanalternativesourceofelectricity.
RemoteVillage
ElectrificationProgram
(RVEP)2005
MinistryofNewand
RenewableEnergy
(MNRE)
Initiallysupportedthedistributionofsolarlanternsandhomesystemsinremotevillages.
Currentlysupportsmini-gridinstallationsinvillagesnotcoveredunderthecentralgrid
extensionschemeandoperatedbyVECs(VillageElectedCouncils).
ProvidedsubsidiesforvillagestoinstallDREutilitiesupto90%.
RajivGandhiGrameen
VidyutikaranYojana
(RGGVY) 2005
MinistryofPower
(MoP)
Decentralizeddistributedgeneration(DDG)schemeoutlinedtheimportanceofoff-grid
projectsinareaswheregrid-extensionwasnotconsideredfeasible.
Providedsubsidiestoencourageoff-gridfranchisebasedprojectsintheseareas.
VillageEnergySecurity
Program(VESP)
2005-2012
MinistryofNewand
RenewableEnergy
(MNRE)
Capitalsubsidiesofupto90%offeredtosetupbiomass-gasifierbasedDREsystemsin
off-gridregions.
Focuswasoncommunitypartnershipsandownershipofassets.
Demonstratedbenefitsofcommunity-basedmodels.
JawaharlalNehru
NationalSolarMission
(JNNSM)2010
MinistryofNewand
RenewableEnergy
(MNRE)
Inadditiontoanambitious20,000MWtargetforgrid-connectedsolarPVsystemsitaimsto
install2,000MWofoff-gridsolarPVsystems,especiallyforprovidingelectricityaccess.
Theprogramofferscapitalsubsidiesforinstallationofsolarplants.
CreatedtheIndianRenewableEnergyDevelopmentAgency(IREDA)responsiblefor
re-financingsolarenergyprojects.
Fundingforsubsidies(30%-90%)availableforinstallingplannedcapacity.
Refinancingfacility(IREDA)availabletobankswhoprovideloanstoOGEenterprisesandallow
forlowinterestratesoflessthan5%.
4. POLICY ENVIRONMENT AND THE CASE FOR PRIVATE
SECTOR INVESTMENT
4.1 GOVERNMENT POLICIES AND IMPLEMENTATION PROGRESS
Severalpolicieshavebeendesignedtosupportruralelectrificationoverthelast10years,withafocus
ondecentralizedmodelssuchasDREutilities.Overandaboveeffortstoextendthegridtoruralareas,
thegovernmenthasinitiatedanumberofimportantprograms(seeTable1).Throughde-licensingof
electricitygenerationanddistributioninruralareas,dedicatedfundingforR&Dandcleanenergy
ventures,aswellastargetedprogramsforrenewableenergy(solarandwind)anddecentralized
systemssuchastheJawaharlalNehruSolarMissionandtheNationalWindEnergyMission,the
GovernmentofIndiahasshownintenttopromoterenewableenergysolutions.
Table 1: Key Indian government initiatives in rural electrification
FOUR

Whilemultipleinitiativestoencourageoff-gridcapacityhavebeenannounced,their
implementationhasbeenslow.Forinstance,JNNSMtargetedtheinstallationof200MWofoff-grid
solarby2013.However,few,ifanyoff-gridprojectswerecompleted,asthefirstphaseofJNNSM
(2010-2013)focusedalmostentirelyongrid-connectedprojects. MNREhasannouncedambitious
targetsforitsnewNationalWindEnergyMission(100GWofinstalledcapacityby2022)butfeasibility
ofon-the-groundimplementationremainstobeseen.35
ThegovernmenthasalsostartedinitiativessuchastheNationalCleanEnergyFund,butlittle
fundinghasbeendisbursedtodate.36
In2011,theNationalCleanEnergyFundwasestablishedto
fundprojectsandresearchinrenewableenergy.Theinitiativetaxescoalproductiontocreatea
corpusoffundsthatwouldbeavailabletogovernment,public,andprivatesectorplayersintheform
ofloansorviabilitygapfundingforupto40%ofthetotalprojectcost.In2014,thetaxoncoalwas
doubledtoUS$1.50permetrictonofcoalproduced.Thiswouldmeanthatthefundwhichisalready
atUS$2billionwouldgrowatmorethanUS$1billionperyear.Inspiteofthis,littlefundinghasmade
ittoprojectsduetoanumberofchallengesinfundallocation.ThefundismanagedbytheMinistry
ofFinance,butprojectsareapprovedbyaninter-ministerialgroup(IMG).TheMinistryofFinance
hasbeenslowtomovemoneytothepublicaccountaccessibletotheIMG,tohelpthegovernment
understateoverallbudgetshortfalls.37
Inaddition,projectsmustbesponsoredbyanexistingministry
ordepartmentofgovernment,andasaresultmostapprovedfundinghasbeenforMNREprojects
oftheJNNSMandtheNationalWindEnergyMission.Thisrequirementmakesitdifficultforprivate
companiestomakeuseofthesefundswithoutgovernmentconnections.
In2014,thegovernmentbroadenedthepotentialuseforthefundfromjustcleanenergytoanyclean
environmentproject,whichwilllimittheamountoffundsthatareavailabletooff-gridrenewable
projects.
Recognizingthepolicyissuesintherenewableenergysector,theGovernmentofIndiaplans
tointroduceacomprehensiveRenewableEnergyActin2015,toattractinvestmentintothe
sector.TheMNREisorganizingaRenewableEnergyGlobalInvestorsMeetandExpoinFebruary2015.
Rightbeforethisexpo,thegovernmentplanstointroduceanactthatwillclarifytheregulationsfor
renewableenergygenerationanddistributioninIndia.38
Currently,allrenewableenergyprojectsare
governedbythe2003ElectricityAct.However,thisactwasmadewithtraditionalenergysourcesin
mind.ThenewRenewableEnergyActwouldcreateanewframeworktogovernrenewableenergyand
wouldincludeprovisionstoencourageinvestmentinthesector.Inaddition,thegovernmentisasking
theReserveBankofIndiatonamerenewableenergyasaprioritylendingsector.
35
MinistryofNewandRenewableEnergy(MNRE),GovernmentofIndia.
36
PressInformationBureauofIndia.
37
CAGAuditReport2013.
38
VCCIRCLE.
WHILE MULTIPLE
INITIATIVES
TO ENCOURAGE
OFF-GRID
CAPACITY HAVE
BEEN ANNOUNCED,
THEIR
IMPLEMENTATION
HAS BEEN SLOW

Inaddition,thegovernmentcanexpandtheREC(renewableenergycertificates)mechanismto
includesmallerOGEenterprisesandprovidegreaterclarityaroundgridconnectivity.Recently,the
governmentallowedoff-gridenterprisestoreceiveandsellrenewableenergycertificates(RECs).The
RECprogramwasdesignedtohelpstateelectriccompaniesandotherinstitutionsmeettheir
renewableenergypurchaseobligations(RPOs).Enterpriseswhogeneratepowerfromrenewable
sourcesareissuedRECswhichtheycanselltoinstitutionsforfulfilmentofRPOs.However,the
registrationandmonitoringcostsofRECissuancearetoohighforsmallandmediumsizedoff-grid
enterprises.LargerOGEenterprisesmightfindRECsanattractivewayofincreasingthereturnon
theirinvestment.Furthermore,bundlingofsmallerprojectscouldopenthedoorforRECstosmaller
OGEenterprisesaswell.
IfanexpandedRECpolicyiscombinedwithgreaterclarityonfeed-intariffsandgridinteractivity,then
OGEsolutionscanbecomeacomplementratherthanacompetitorofgridelectricity.
Currently,thereisaperceptionthatgrid-extensionisalargerisktooff-gridenergyenterprises.
However,clearerpolicyaroundgridinteractivityandRECscouldmakeoff-gridsolutionsawayof
supportingthegrid.Giventherightincentivesandpolicyenvironment,off-gridenergycanbecome
animportantcomponentinIndia’soverallenergyportfolioratherthanbeingseenasonlya
stop-gapsolution.
IF AN EXPANDED REC POLICY IS
COMBINED WITH GREATER CLARITY
ON FEED-IN TARIFFS AND GRID
INTERACTIVITY, THEN OGE
SOLUTIONS CAN BECOME A
COMPLEMENT RATHER THAN A
COMPETITOR OF GRID ELECTRICITY

GIVEN RENEWABLE ENERGY
TARGETS SET BY THE
GOVERNMENT, THERE IS A NEED
FOR GREATER PRIVATE SECTOR
INVOLVEMENT IN THE SPACE

4.2 NEED FOR PRIVATE SECTOR INVOLVEMENT
Givenrenewableenergytargetssetbythegovernment,thereisaneedforgreaterprivatesector
involvementinthespace. TheIndiangovernmenthassaidthatenergyinvestmenttokeepupwith
populationgrowthandexpandaccesstooff-gridhouseholdswillneedtototalUS$250billionover
thenextfiveyears.39
Ofthisamount,US$100billionwillneedtobeinvestmentinrenewable
energy.AccordingtothePlanningCommission,thismeansthatIndia’sannualinvestmentsin
renewableenergywouldneedtogrowtoUS$18billionby2016.However,publicsectorinvestmentis
likelytogrowtoonlyUS$2billionbythatyear(seeFigure24).Therefore,closeto90%ofrenewable
energyinvestment,US$16billion,willhavetocomefromtheprivatesector.40
Figure 24: Expected investment in renewable energy in India
RequiredinvestmentinREinfrastructuretoachieveREtargets(US$billion)
2012 2013 2014 2015 2016
024681012141618
Closeto90%ofthe
investmentwillhaveto
comefromprivateinvestors
Publicinvestment
Totalinvestment
Source:PlanningCommission,http://planningcom-
mission.gov.in/plans/planrel/12thplan/pdf/12fyp_vol1.
pdf;http://planningcommission.gov.in/plans/
planrel/12thplan/pdf/12fyp_vol2.pdf exchangerate
assumedINR60/USD;GlobalTrendsinRenewableEnergy
Investment2013,BNEF;Dalberganalysis
TheClimatePolicyInitiative,MeetingIndia’sRenewable
EnergyTargets.
39
Reuters2014.
40
Planningcommission,GovernmentofIndia.
SMALLER
INVESTMENTS
IN THE
OFF-GRID SPACE
ARE GROWING

ThoughonlyasmallportionoftheneededUS$7.3billionwasinvestedinoff-gridrenewableenergy
in2013,smallerinvestmentsinoff-gridspacearegrowing.41
In2013,US$7.3billionwasinvestedin
theIndianrenewableenergymarket.Mostofthiswasinlargegrid-connectedpowerplants.
Furthermore,investmentintheoff-gridspacehaslargelybeenfromimpactinvestors,andrangefrom
US$100,000toUS$5million.42
However,asoff-gridenterpriseshavebeguntoscale,theyhavebeen
seekinglargerinvestmentsfromtheprivatesector.Theneedforinvestmentandthegrowthpotential
ofoff-gridenergyenterprisespresentsapromisingopportunityforprivatecapital.
Table 2: Examples of private sector investments in the off-grid renewable energy space
41
Bloombergnewenergyfinance;Planningcommissiondata,GovernmentofIndia.
42
Enterpriseswebsites,interviews.
FUND INVESTMENT
Acumen AtotalofUS$5millioninvestedinDLight,AvaniBioEnergy,HuskPower
SystemsandOrbEnergy
Bamboo
Finance
JoinedforceswithAshokaandtheCanopusFoundationtolaunch
thesolarenergyfund“Solarforall”.Sizeofinvestmentsrangefrom
US$0.4-4million
Ennovent InvestmentinBarefootPower
Invested
Development
CleantechnologyfocusedinvestmentsinSimpaNetworksand
PrometheanPowerSystems
LGTVenture
Philanthropy
InvestmentinHuskPowerSystemsofUS$300,000withthreeotherVP
funds
UnitusGroup InvestmentinSimpaNetworks
Ventureast BharatLightandPowerandIntelizonEnergy
Firstlight
Ventures
InvestmentinPrometheanPowerSystems,AnthroPowerandExcellent
Renewable
Source:Organizationwebsites;TheEconomicTimes;Yourstory.com.

Investmentsintheoff-gridenergyspacehavelargelybeenrestrictedtoequityinstruments,anddebt
remainstheprimaryunmetneedforoff-gridenterprises.Theseinvestmentshavecomefromimpact
investors,developmentbanks,anddonor/governmentagencies.Fewenterpriseshavebeenableto
raiselargescaleequityinvestments.Forexample,SimpaNetworksreceivedaUS$2millionequity
infusionfromtheAsianDevelopmentBankin2013.Giventheneedforraisinginexpensivedebt,some
enterprisesareconsideringapproachingforeignlenders.However,companieswhohavenooff-shore
officesfindithardtoraiseforeigndebtbecauseofregulatoryrequirements.Thefollowingsection
elaboratesonsomeofthechallengesthatneedtobeovercome.
4.3 CHALLENGES FOR INVESTMENT
Givenfragmentedpolicy,off-gridenterprisesandinvestorshavefoundithardtotapintothis
opportunity.Therehavebeenanumberofchallengesinimplementingsubsidiestoencourage
investmentintheoff-gridenergyspace.Applicationsforsuchsubsidiesrequirealargeamountof
paperworkandmustgothroughseverallayersofbureaucracybeforetheyareapproved.Eventhen,
subsidiesareoftendelayedornotdisbursedatalltoimplementingbanks.Formanyenterprises
thesedelaysresultinliquidityconstraints,placingpressureontheday-to-dayoperationsoftheir
business.
IncentivesforlendingtoOGEenterprisesareunderminedbyotherregulationsindomesticand
foreignlending.ThereareincentivesforforeignanddomesticlendingtoOGEenterprises,someof
whichareoutlinedinFigure25.
However,therearemanychallengestobothreceivingloansasanOGEenterpriseandinlendingto
OGEenterprises.Accordingtothoseinterviewed,enterprisesfaceinterestratesof13-18%inthe
domesticmarket,whichareperceivedasprohibitivelyhigh.Ontheotherhand,foreignlenderssuch
asimpactinvestorshaveahardtimegettingRBIapprovaltolendintheIndianmarket.Foreignloans
canalsoonlybeusedonaprojectbasis.Soenterprisesmustlookelsewheretofinanceneedssuch
asworkingcapital.MostbanksarenotwillingtolendtoOGEenterprisesevenathigherinterestrates
becausetheticketsizesofloansistoosmall.Banksandotherfinancialinstitutionswillingtolendto
OGEenterpriseshavefounditdifficultandtimeconsumingtogetapprovalforprojectsandapplyfor
benefitslikesubsidies.Duetothesedifficulties,mostOGEenterprisesraisefundsthroughamixture
ofgrantsandequity.

Figure 25: Incentives for lending
POLICY INCENTIVE TO LEND CHALLENGES IN LENDING
Domestic and foreign
banks in India
Prioritysectorlending 40%ofbanklendingmust
beto“prioritysectors”
(asdefinedbyRBI1
)which
includeoff-gridrenewable
energy.
Refinancingfacilityis
availableforloansmadeto
off-gridsolarprojects.
Thereislittlepriority
sectorlendingforOGEsgiven
perceivedrisk.
Applyingforrefinancingistime
consuming.Benefitsareoften
delayed.
Interestratesaretoohighfor
mostOGEenterprises.
IREDA2
refinancing
Foreign lending
Rupeeloans
ForeignlenderscangiveRupee
loanstoenterprisesthrough
currencyswaps.
RBIapprovalisvery
difficultandtimeconsuming
unlessforeignlenderislarge
institutionorsignificant
equityholderofborrower.
Repatriation Fundsarecompletely
repatriable(ascomparedto
equitywhichhasrestricted
repatriability).
Foreignloanscanbeused
forprojectfinancebutnot
workingcapital.
Giventhesechallenges,OGEenterpriseshavemostlyusedequitytoraisefunds.
Source:Analysis,NitishDesaiAssociates,RBI,PartnershiptoAccelerateCleanEnergyProgram(USAID).
1
ReserveBankofIndia.
2
IndianRenewableEnergyDevelopmentAgency.
3
JawaharlalNehruNationalSolarMission.

Lackofreliabledataandlittletechnicalexpertisemakesfinancialinstitutionswaryofinvestingin
anunknownspace.Formosttraditionalfinancialinstitutions,renewableenergyisnotaspacethey
havehistoricallyinvestedin.Thelackofqualitydatainthepublicdomainonthecurrentgapbetween
demandandsupply,benchmarksoncostsandprojectedreturns,andcasestudiesofsuccessful
renewablesenterpriseshasdiscouragedinvestors–especiallycommercialinvestors.Combinedwith
alackofinternalexpertisetoevaluaterenewableenergyfirms,thismakesfinancialinstitutionsless
willingtoinvestinrenewableenergyproducts.Financialinstitutionsdonotunderstandthenuances
ofthemarket,includingviabilityofdifferenttechnologies,implicationsofdifferentbusinessmodels
andwaystoassessfutureprofitabilityofspecificinvestments.Becauseofthelowperceivedvalueof
thesector,financialinstitutionsarenotprioritizingitasanareatodeveloptechnicalexpertise.
Inaddition,governmentpolicyandplansaroundgrid-extensionandpotentialforinteractivitywith
DREutilitiesarestillunclear.Itisdifficulttofindoutwhenandwherethegovernmentwillactually
extendthegridandwhethersuchextensioncanbecomplementedbyoff-gridsolutionslikeDRE
utilities.OGEenterprisescannotdirectlycompetewithcheaper,subsidizedgridpower,andinmany
caseswouldfacesubstantiallossesifthegridwereextendedtoareaswheretheyoperate.Thisrisk
makesfinancialinstitutionsevenmorehesitanttofinancerenewableenergyprojectsandfirms.

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