Crowdfunding for PV micro-grids in rural India

DECENTRALISING FUNDING
MECHANISMS FOR PV MICRO-GRID
SYSTEMS: CROWDFUNDING
PLATFORMS AS DRIVERS OF THE
LOW-CARBON ENERGY TRANSITION
IN RURAL INDIA
A dissertation submitted by Boris Lopicich
MSc candidate in Environmental Policy & Regulation
The London School of Economics and Political Science
*Please do not cite, this work is yet to be graded*

Summary
The present report looks primarily to clarify whether and to what extent Crowdfunding
Platforms (CFPs) can be an alternative to existing funding mechanisms for micro-grid
projects in rural India; aiming to analyse barriers that potential donors – especially from
overseas – may confront. Current methods employed by practitioners to circumvent these
obstacles are examined, concluding that changes in regulatory laws would help to provide
with more incentives to private donors and foreign lenders to be part of the Indian energy
transition towards a sustainable energy for all.
2

Acronyms
C4D Collaboration for Development
CFP Crowdfunding Platform
ET Energy Transition
FCRA Foreign Contribution Regulation Act
FEMA Foreign Exchange Management Act
MFI Micro Finance Institutions
MLP Multi-Level Perspective
NGO Non-Governmental Organization
PAYG Pay As You Go
PPP Public-Private Partnership
PV Photo-Voltaic
RRB Regional Rural Banks
SE4ALL Sustainable Energy for All
SEBI Securities and Exchange Board of India
SMBA Social Merchant Bank Approach
SNM Strategic Niche Management
STR Socio-Technical Regime
TM Transition Management
TT Transition Theory
3

Table of Contents
Summary .................................................................................................................................. 2
Acronyms.................................................................................................................................. 3
Table of Contents ...................................................................................................................... 4
Introduction.............................................................................................................................. 5
Background & Literature Review ................................................................................................ 8
1. Current scenario of Access to Energy ............................................................................... 8
2. Focus on rural electrification for the developing world ..................................................... 9
3. Why a bottom-up approach based on micro-grid generation? Past findings. .....................11
4. A systemic approach towards SE4ALL: Transitions Theory, MLP and regime level analysis .12
Different Levels and Stages in ETs. .....................................................................................12
Factors of success for ETs. Transition Management and its influence over the regime level. ..14
The Regime Level ..............................................................................................................16
Co-evolutionary Regimes ...................................................................................................17
5. Why decentralization of funding mechanisms? ...............................................................18
Leapfrog of low-carbon technologies to developing countries..............................................18
The rise of slow-money and socially responsible energy generation. ....................................19
Methodology ...........................................................................................................................21
Discussion & Findings ...............................................................................................................23
An overview of the micro-grid generation in India. .................................................................23
Electricity in India and PV status.........................................................................................23
The status of micro-grids and the raise of best practices......................................................24
Current configuration of the Indian Regime ........................................................................26
The “crew” as a new player. CFPs as trustworthy funding mechanisms for micro-grids..........30
A new set of rules for a new network of actors ...................................................................32
Opportunities for further research and Recommendations .........................................................35
Conclusion ...............................................................................................................................37
Appendix I: Bibliography ...........................................................................................................38
Appendix II: Topic Guide and Table of Interviewees. ...................................................................43
Annex III: INDIAN REGULATORY FRAMEWORK............................................................................45
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5
“Innovation mak es enemies of all those who
prospered under the old regime, and only lukewarm
support is forthcoming from those who would
prosper under the new”
Nicola Machiavelli
Introduction
Access to energy has proved to be a cardinal tool for development and overcoming poverty.
However, the “fossil fuel” energy transition (ET) is far from complete and 1.3 billion
people still lack electricity for light and heat (Fouquet, 2010). Different factors explain this,
such as levels of urbanization of households, income and expenditure, prices of electricity
and supplier costs, plus demographic and geographic conditions (Pachauri and Jiang, 2008:
4027). In fact, most people lacking electricity belong to the poorest populations in Sub-
Saharan Africa and South East Asia, especially in India. Commonly, remote areas in
developing countries in these regions are not electrified, because “the initial cost of
developing the infrastructure is high and unaffordable for poor people”1.
Nevertheless, a new ET toward sustainable energy for all is just matter of time. Around
84% of people without access to electricity live in rural areas (IEA, Energy Development
Index, 2011). A better political will and an empowered civil society pressuring
governments and the public sector could catalyze a low-carbon ET within the next two
decades.
The transition towards sustainable energy for all is already happening in many ways: small
plants produce decentralised off- grid energy (generated from mini or micro power plants),
called “micro-grids” along the present report2. Different technologies based on Renewable
Energies (RE), such as solar or wind power, are being implemented in both developed and
developing contexts, although under different conditions. In energy markets like the
Californian one, for example, it is common to acquire equity in solar power companies and
1 Barnes, 2007, p.3.
2 Micro-grids are small-scale electricity distribution networks operating below 11 kilovolts (kV) and typically
provide power to a localized community, from a plurality of energy sources, and with or without storage
(Tenenbaum et al., 2014).

also commercialize renewable energy certificates (by entities such as Join Mosaic and the
Center for Resource Solutions). Similarly in the UK, Crowdfunding Platforms (CFPs) such
as Abundance Generation have raised over six-million pounds from 1,200 investors in two
years of operation, whilst offering a 5-9% return (Marsh, 2013); while in countries with low
rates of access to energy like Tanzania, Kenya, India and Uganda, different solar projects
hardly reach the required funding needed by the poorest rural communities.
The analysis here requires a theoretical framework formed from a systemic approach that
understands technological transitions as muti- level processes as stated by the Multi-Level
Perspective (MLP) of Geels and Schot (2007). According to them, innovations are
influenced in three hierarchic and complementary levels: the niche, where innovations are
created within a protective space; the regime, corresponds to the material and technical
elements of the innovations plus a network of actors and rules influencing them, and
landscape, composed by heterogeneous factors that put pressure on the regime, evidencing
the dynamism of the MLP.
Changes within the regime are essential for technologies to overcome the feared valley of
death and be able to go from a pre-commercial stage to a mass production stage, where
diffusion makes a specific technology the dominant one. This is the current situation of
solar PV for off- grid generation in developing countries. A technology in need of changes
to rules currently governing the regime, by removing unnecessary regulatory barriers that
only end up favouring the socio-technical lock in of high-carbon energy sources.
India and its low rates of access to electricity will be used as the case study. In the Indian
electricity market, new actors and configurations emerged in the past decade to invest in
many early-stage energy innovations. However, there are still many barriers for new and
small players, to expand electricity to the most remote areas. In this sense, results are key to
understanding the regime as an integrated space where barriers from political, institutional,
administrative and others collide, funding being only one of these factors. Still, emerging
funding opportunities are key, and if social, political, technological and other aspects are
considered by policymakers, this could be a successful energy transition.
6

This paper aims to determine whether and to what extent new funding mechanisms,
especially CFPs, are likely to improve the availability of funding from foreign lenders and
private donors to build PV micro-grids and how more flexible operational and financial
requirements for partnerships would allow more solar enterprises to succeed with a higher
operational volume.
In the first part, I will present the theoretical framework and methodology used. The
framework will show literature concerns about access to electricity, solar off-grid
generation and rural electrification, emphasizing a systemic approach to understanding
what is still required to achieve an ET. Then, an overview of the solar market in India is
presented, showing new actors and business opportunities. The analysis is based on
contrasting current sources of finance, such as Micro Finance Institutions (MFIs), Co-
Operative and Regional Rural Banks with CFPs; barriers for Crowdfunding are a main part
of the analysis. Finally, recommendations and opportunities that a new scenario would
present for policy-makers and practitioners are commented.
7

Background & Literature Review
1. Current scenario of Access to Energy
Political agreements are often the result shared claims of multiple actors including society,
academia, business and innovators. The political will of the United Nations in order to
achieve universal energy access by 2030 may be a seminal case in this sens e; summed to
commitments at 2009 Copenhagen Conference of Parties (COP), where developed
countries agreed to mobilise USD$100 billion per year to be used in climate finance by
2020 (Whitley, 2013). The reality is undeniable, as Yadoo points out: 1.3 billion people
still lack access to electricity, over 95 per cent living in sub-Saharan Africa or developing
Asia (2012). O nce seen as a solution, the “energy liberalisation era”3 has proven to be a
failure for the poorest (Roland, 2008) and access to energy is today a priority for defeating
poverty.
Overcoming this scenario has an estimated cost of between USD$48 and USD$86 billion
per year (IEA, 2011; Pachauri et al., 2013), which supports different stages of new
technologies: R&D (including an adequate approach of strategic niche management for
innovations), demonstration, pre-commercial, and diffusion (mass production) phases.
Such great effort will require different types of initiatives and international programs to
fund it. The United Nations Sustainable Energy for All Initiative (SE4ALL) and the
Millennium Goals are examples of a global political will that might remove bureaucratic,
legal, and regulatory barriers. Besides finance, the formation of relevant networks of actors
are promoted by these types of programmes; “delivering modern energy services to the
poor also requires substantial involvement by governments, donor agencies, NGOs and
social enterprises” (Wilson et al., 2012). The private sector is seen as key, since “the
government´s role is to set rules and be part of a dialogue with other stakeholders, but
3 As Pollitt estates, a period of energy privatization and liberalizat ion began in the 1980s, by introducing more
competition in electric markets, as well as establishing independent energy sector regulators (Pollitt, 2012).
The lack of polit ical stability and working institutions has leaded to the failure of this model especially in the
developing world, mainly for socio-political reasons.
8

addressing the access issue is what businesses can do best, by providing technical and
operational capacity”4.
The search for new funding mechanisms for off- grid electrification is seen by many as a
way to improve the situation of households relying on firewood (i.e. in the Delta region in
Myanmar), wood or charcoal (Haiti, Uganda) for cooking and with almost no facilities for
lighting. Energy consumption in places like Sub-Saharan Africa have extreme low levels of
supply, with an energy consumption per capita amount of “only 0.67 tonnes of oil
equivalent; about 11 and 5 times less than that of the US and EU respectively” (IEA
2011b), quoted in Gujba et al., HEDON magazine, p. 25).
In India, the situation is worse: over 400 million Indians currently lack electricity. Poor
governance has lead to this situation, according to Krishnaswawmy (2010, quoted in Palit).
Only 7 out of 29 States “have achieved 100% village electrification” (Palit et al., 2011:
267). Historically, household electrification has been connecting a million of households
per year (p.268). In 2006, India accounted for more than 35% of the world´s population
without electricity access and was by far the largest population worldwide (Bhattacharyya,
2006), with special issues in remote rural localities.
2. Focus on rural electrification for the developing world
Due to the high costs for the industry, combined with the low revenues it might obtain from
rural electrification, access to electricity in remote zones requires more than just funding
opportunities. Therefore, access to energy in rural zones is far from optimal performance.
South Asia accounts for 42% of the households without access to electricity. Worse, studies
show that there are no specific initiatives to improve the overall household connection level
except in Sri Lanka (Palit et al., 2011).
Following Barnes (2007), major obstacles to rural electrification include low population
densities, poor consumers, and violation of property rights when constructing transmission
lines, rights of indigenous populations, and higher operation and maintenance costs due to
larger distances, which results in expensive supervision, low-quality maintenance and high
9
4 Bellanca and Wilson, 2012, p. 3.

10
levels of corruption (p.11).
However, a rising political determination might change the existing scenario. Energy
expenditure is often reduced when households are electrified (Yadoo, 2012: 7).
Additionally, many aspects of daily life are improved when rural populations have access to
electricity, including health, creation of green jobs and effects over education.
The opportunities to these targets are enormous, though. The appearance of new business
actors and opportunities, which I will address in part two, has been seen as a first step of a
more ambitious goal. The commercialization in rural areas of portable solar appliances,
solar lanterns and modern cook stoves by myriad sources is a good indicator. However,
how to promote the installation of micro-grids in remote locations continues to be a
challenge. Solutions on a larger scale than solar appliances are urgently required.
To achieve this, many models are useful depending on the socio-technical context. Co-operative
models in the Philippines, Bangladesh, and Costa Rica, where people benefitted
by the system manage it; public models in Tunisia and Ireland, and grid privatisation in
Chile and China (Barnes, 2007) are examples. Hybrid models with public-private
partnerships (PPPs) are also becoming increasingly popular; examples of this can be
found all over the world. One of these is PERMER, a public-private programme led by the
federal government of Argentina, but executed by provincial authorities and private firms,
co-operatives, and state companies to supply technical support (Best, 2011). A wide range
of options can also be implemented: central charging stations, solar home systems, mini
and micro grids.
These and other models look forward to solve the challenge by taking advantage of the
potential in off- grid generation, since “community- level mini- grids have the potential to be
among the cheapest electrification methods available for rural areas on a per unit basis (…)
[giving] the opportunity for additional local benefits to be accrued such as empowerment
through local management [and] payment for feedstock” (Yadoo, 2012: 9). So far, it seems
an important tool to improve access to energy worldwide, as explained below.

3. Why a bottom-up approach based on micro-grid generation? Past
11
findings.
When referring to off-grid electrification in developing contexts, we mention
decentralisation as a “bottom-up” approach, because electrification is generally carried out
through nongovernmental entities such as cooperatives, community user groups, or private
entrepreneurs.” (Tenenbaum et al., 2014: 20). But besides empowering people,
decentralised energy solutions proposed by innovators have been shown to have positive
impacts on energy efficiency and in pro-environmental behaviour (Theiss, 2009). In fact,
“individuals with microgeneration technologies [MTs] in their homes save more energy and
act in a more environmentally friendly manner ... [providing] an opportunity to change
technical, infrastructural and social systems that could aid in escaping energy intensive
lock-in” (p. 183); certainly a goal to achieve under a decentralised distributed generation
scheme.
Because of its advantages and technological progress, it makes sense that this new approach
is gaining relevance “both in developed and developing countries albeit for different
reasons” (Bhattacharyya, 2001). In the developing context, as an alternative to the failed
traditional approach of centralisation and by providing a double-dividend with its
contributions to a low carbon economy and climate change mitigation (p.201). In a
developed context, decentralised energy generation may save the money and allow
consumers to sell energy back to the grid, under a feed-in tariff scheme (Burger, 2013).
For the bottom-up approach to succeed, renewable energy (RE) trends are focusing on off-grid
electrification “that does not depend on connection to the high-voltage transmission
network. This may include mini-grids set up to serve isolated communities as well as stand
alone systems to serve individual houses”5. Unlike a centralised approach to electrification,
which relies on a central authority, in a decentralised approach a plurality of actors
(cooperatives, private entrepreneurs, NGOs) are involved in the success or failure of the
electrification scheme (p.1).
5 Palit et al., 2011, p.266.

Funding for off-grid projects currently comes from a variety of sources: international loans,
user contributions, national budgets and others (Best, 2011: 17). Due to their cost, many of
the projects get fully funded without many requirements. Community micro-grids can be
“one of the cheapest forms of electrification and have the potential to offer a 24 hour AC
service that can power a wide range of appliances” 6 . Besides affordability and lower
environmental costs, RE micro-grid offer a wide range of benefits, including community
empowerment (Burger et al. 2013: 14) and positive impacts in schools, appliances and solar
thermal installations, as well as in health effects (Best, 2011). These reasons place RE off-grid
generation as the main tool used in this new ET. The type of energy that will lead off-grid
generation will be discussed in Part Two.
Due to the focus of this report, when referring to ETs in the following section the focus will
be given to Solar (PV) energy in off-grid rural power plants.
4. A systemic approach towards SE4ALL: Transitions Theory, MLP and
12
regime level analysis
The literature suggests off- grid generation to improve access to electricity and make it
universal before 2030. If its necessity and convenience is already demonstrated, what else
is missing? I will now discuss two main issues to explain what is lacking to achieve the ET.
First, it is fundamental to understand different levels and stages in which innovations are
implemented. With this purpose in mind, I will explain the different dimensions of ETs
identified by Van der Bergh and Bruinsma (2008), with an emphasis on the MLP
established by Geels and Schot; followed by an analysis of the regime, showing funding as
one of its many dimension, and the influence that other technological transitions (such as
telecommunications) can have over the ET.
Different Levels and Stages in ETs.
The study of ETs has followed a systemic approach in large parts of the literature (Van der
Bergh, 2007; Rootmans and Loarbach, 2008; Foxon et al., 2010; Verbon and Geels, 2010;
Smith et al., 2010). This has an explanation. When studying the different factors causing an
6 Yadoo, 2012, p. 7

ET, it is relevant to take into consideration changes in broad socio-technical systems.
Transitions are not isolated events affecting a specific level. Certainly, technology and
markets are important aspects of the transition but it will also include changes in the current
paradigm in infrastructure, cultural and regulatory aspects, and consumer behaviour
(Verbong and Geels, 2010). The systemic or socio-technical approach presents transitions
as “structural change[s] in a societal (sub)system that [are] the result of a co-evolution of
economic, cultural, technological, ecological and institutional developments at different
scale levels”7.
Within this paradigm, the MLP is relevant to understand the dynamics among the three
different levels affecting the innovative process defined earlier: a niche level, also
mentioned as the breakthrough stage, the regime, “where selection occurs,” 8 and a
landscape level that includes worldwide factors, such as economic or environmental crisis,
wars and myriad of different regimes. The emphasis of this report within this hierarchy will
be given to the regime level and more specifically, to its financial (“markets”) dimension.
7 Rotmans et al., 2000, quoted in Rotmans, 2008, p. 15.
8 Evans, 2012, p. 151.
13

But ETs do not only happen at different levels, but also follow a temporal sequence. From a
pre-development stage, through a take-off moment, to the acceleration of the innovation
and its stabilisation in the market, transitions follow a path with no limit of difficulties until
becoming the dominant technology.
Factors of success for ETs. Transition Management and its influence over the regime
level.
Historically, a socio-technical approach suggests that a complete transition towards a low-carbon
economy “is likely to be very slow,”9 though it has been possible to identify certain
factors under which transitions are more likely to be successful. Following Grübler et al.
(1999), commonly a well- implemented transition in the energy field follows a learning
curve that allows costs to decline while following an S-shaped growth model of
technological diffusion supplanting the existing market. Finally, the creation of
technological clusters seems key to the success of a new technology (quoted in Fouquet,
2010: 6587).
For others, a combination of better service and lower prices for generators is vital for the
transition to succeed. For example, a low-carbon transition could provide additional
benefits such as a better return of investment, storage capacity or improved power
intermittency (Fouquet, 2010). Part of the strong international support for off-grid
generation is due to its contribution to climate change mitigation and adaptation policies in
developing countries. However, the success is by no means guaranteed. Different issues are
raised when moving from a sanitary model, where the State provides centralised services,
to a sustainable model, with decentralised services, managed by a broad range of actors
(Pincetl 2010, quoted in Evans, 2012: 163-164) and will need to be addressed by well-managed
14
transitions.
In this sense, transition management (TM) is seen as a valuable tool and a new, specific
form of multilevel governance. As the literature has stated, “a transition to sustainable
9 Fouquet, 2010, p. 6586. One common claim regarding to this refers to the fact that not even the current
energy transition, init iated in the 1920´s, is close to be completed by now. Stat istics showing access to energy
are a proof of this.

development cannot occur without good environmental regulation and resource
management” 10 . From a multi-actor process, TM links local governments, companies,
societal organizations, knowledge institutes and intermediary organizations and creates a
multilevel network (Rotmans, 2000: 22), strongly influencing the regime.
Following the socio-technical path, TM encourages diverse approaches rather than a single,
centralised plan (Meadowcroft, 2009). A multilevel approach is essential to manage the
network described above as effectively as possible at various scale levels (Rotmans and
Loorbach, 2008: 22), providing different strategies to organise a plurality of dynamics. This
type of management also gives specific policy instruments for actors at each level, with
different competences needed (p.27).
Also, a multi-actor network approach has diverse influence over the regime level and the
funding mechanisms chosen by policymakers; “networks of actors represent differences in
power and perspective, and network management aims to direct all actors involved
jointly”11. The appearance of actors is dynamic and brings interesting opportunities with it.
Even “the crowd” could be an actor by collectively financing projects for its own
community (co-operative or community management of natural resources) or by funds sent
from the developed to the developing world (collective loans and CFPs).
However, the success of TT in the developing world needs to be studied in a deeper way.
Being too Western-European oriented may affect it success “beyond the developed world
context”, where most countries do not have po litical nor technical capacity to encourage
technological change (Evans, 2012).
15
10 Van der Bergh and Kemp, 2008, p.105.
11 Rootmans and Loorbach, 2008, p.27.

The Regime Level
Within this dynamic context of plurality of vantage points, levels and needs in which we
need to situate the search for alternative funding mechanisms to support the innovation
process of PV for off-grid generators – technology already proven to be one of the most
competitive in many aspects, but still “off the charts” in terms of cost ($300-$350 MWh
against coal $50-$80 MWh).
Also called Socio-Technical Regime (Evans, 2012), Techno-Institutional Context (Unruh,
2002) or meso- level by most of economists, the Regime Level needs to be understood as a
myriad of factors. It is commonly understood as a three-dimensional level, consisting on
material and technical elements (resources, grid infrastructure), a network of actors and
social groups, and formal, normative and cognitive rules (Verbong and Geels, 2010: 1215).
Innovations break through the regime level, taking advantage of the existence of windows
of opportunity. These opportunities are given by landscape developments, which put
pressure on the regime precisely to help novelties overcoming the “valley of death” in a
pre-commercial stage (Evans, 2012: 151). In the case of PV off-grid plants, the pressure
given by International Environmental NGOs, UNSE4ALL and different businesses, is a
way to show how the landscape dimension operates in reality.
Related to the landscape pressure over the regime, it points out once again the failure of its
liberalisation. The ELE in the 1980s aimed to move away from small scale local production
to centralised energy generation, using mostly fossil fuels. That less than 40 years later a
new ET is being discussed, shows how landscape pressures have been working effectively
on an international level.
Other factors that play a role within the regime include financial and regulatory issues,
manufacture/equipment/service providers, end users, financiers (Sarkar, 2010: 5562) and
even educational institutions, since they manage a sub-system of knowledge generation.
Consequently, TM focuses on systemic transformation, understanding that not only new
funding mechanisms are required, but an overall societal change. For this reason, if there is
no strong political unit capable “of setting its own incentives” (Evans, 2012: 168) TM will
not succeed. “A lack of appreciation for the wider political context in which technology
16

operates has produced a rather schizophrenic mentality among policy-makers, who shift
between espousing grand technological solutions and individual behaviour change,” 12
without realising that for a transformation of the regime it is necessary to interfere with as
many of its aspects as possible to pursue a PV micro-grid ET.
Co-evolutionary Regimes
Not only different dimensions of the regime need to be studied to achieve an ET. Other
existing regimes may also influence a “co-evolutionary” transition. A regime coexists with
different transitions of plurality of services and fields. Within integrated systems, “socio-technical
regimes are structures constituted from a co-evolutionary accumulation and
alignment of knowledge, investments, objects, infrastructures, values and norms” (Smith et
al., 2010: 441). Developments in one regime influence developments in another regime.
Co-evolution refers to two different processes that are inter- linked and inter-dependent
(Van der Bergh and Stagl, 2003).
In this sense, one could argue that the energy and telecommunications transitions are linked
and depend on each other. If this is true, the exponential increase in the spread of mobile
technology is good news for the low-carbon energy transition. “There are high hopes that
solar energy can leapfrog the electric grid, similar to how cell phones have surpassed the
landline system around the world”13. Some ways in which the “mobile revolution” could
improve the access to electricity are in emerging stages, such as new payment methods
such as Pay As You Go (PAYG); new approaches for operations and maintenance (alerting
the local supplier via SMS about technical issues); and the growing demand for mobile
phones, since networks, 3G, and 4G technologies easily reach rural localities, which has
resulted in hundreds of millions of people unable to charge their phones.
This strong link between two different transitions reaffirms the decision of choosing a
systemic vantage point for the study of TT.
12 Evans, 2012, p. 168.
13 Ryan Levinson, founder of SunFunder, gigaom.com (2012-12-07).
17

5. Why decentralization of funding mechanisms?
Currently there are many different ways that funding sources for sustainable projects can be
created. The multi-actor approach in TM aims to be a link between the different players to
share the load. In the first place, the private sector has a huge responsibility towards the
access of electricity for all. Governments need to set proper regulatory mechanisms,
avoiding policies that can affect Small Power Producers (SPPs) and mini- grids
(Tenenbaum, 2014: chapter 3). NGOs have the necessary skills to get manufacturers, solar
enterprises, local entrepreneurs, independent government agencies, seed funding, and
companies together. The power of the crowd is immense. Also, decentralising funding
mechanisms help to diminish the policy risk, which is a barrier that affects specifically low-carbon
innovation. Lowering the risk will attract local firms, foreign lenders, and global
investors, maintaining the reliability on the foreign direct investment (FDI).
In the following section I will discuss the necessity of decentralising funding mechanisms,
as well as new forms of funding that will be fully explored in the second part of the report.
Leapfrog of low-carbon technologies to developing countries.
The scheme of providing energy access to remote communities by renewable energies and
not fossil fuels might begin a process of leapfrogging, where “technological stages of
development, which are prodigal, are skipped in order to implement a sustainable
technology to the greatest possible extent.”14 Many factors influence leapfrogging, and far-reaching
political will seems to be a key one (Perkins, 2003: 185). This is required of the
developing and the developed countries alike; the latter of which transfers the technology
and know-how that it includes.
Some authors suggest that leapfrogging is a worth-while policy goal (Perkins, 2001;
Golbemberg, 1998; Murphy, 2001), while for others its success is not realistic (Unruh and
Carrillo-Hermosilla, 2006). However, both sides agree in the existence of many barriers for
14 Quoted in Hannah Müggenburg, Tim Raabe, Schweizer-Ries and Annika T illmans, “Rura l Electrification
in Developing Countries: Socia l Acceptance of Small Photovoltaic Lanterns in Ethiopia,” CON FERENCE
MPDES 2011, pp.189-190.
18

low- income economies seeking to advance straight to carbon- free technological systems
(Perkins, 2001) and consequently difficulties in leapfrogging.
Most of the barriers to leapfrogging can be found within the regime and correspond to
legal, institutional, and regulatory factors related to financial aspects. Protectionism,
inflexible regulation, lack of incentives for FDI, foreign lenders, private donors and
companies can stifle funding for new technologies. Scepticism, feeble institutions, and
weak property rights also worsen the problem. As Barnes states, most rural electrification
programs globally have involved some kind of subsidy, though many have failed to meet
their objective of making services more affordable to the poorest households. Many fail
because they are too complex, implicit, non-targeted, or indiscriminate (Barnes, 2007).
As a result, identifying the different barriers blocking the transfer of technology is key, not
only in a macro-level (subsidies, Pigouvian taxes and funding from schemes as diverse as
CDM and COPs agreements) but in particular when they affect slow-money mechanisms,
as explained below.
The rise of slow-money and socially responsible energy generation.
Necessarily, a new paradigm based on sustainability principles will involve a change from
the current Western values of consumption and reification of nature. A socio-technical
vision necessitates that if funding mechanisms change, something else will change as well.
In this context, the concept of slow-money has emerged as a tangible alternative to
decentralising financial sources.
As mentioned, new actors are emerging from the public sector, society and private
companies. A socially integrated model is being articulated, and shows how “the innovation
chain from the creation of a niche market to widespread adoption and dominance [of a low
carbon economy] will probably have to be managed by government and backed by society.
(Fouquet, 2010). These players seem to share essential principles of slow-money, such as
19

being socially responsible, sustainable, direct, individual, local, and diverse15.
The concept of slow-money (originally from the food industry) has to do with providing
funding to projects that achieve those principles; “money that is too fast is money that has
become so detached from people, place, and the activities that it is financing that not even
the experts understand it fully” (Tasch 2010: 19). The traditional approach of private equity
capital might not accomplish this to be part of the slow-money movement, but certainly
many private investors aim to incorporate socially responsible principles in their
donations16. Other ways include donations, recoverable grants, forgivable debts, convertible
debts, advanced sales, royalty financing17, CFPs and Corporate Social Responsibility (CSR)
Programs. While this report focuses on CFPs, there have been few efforts to adequately
address the remaining mechanisms.
Some of the benefits of slow-money, besides the realisation of the project itself are
empowerment of the community and the ability of community-managed programs. Large
companies and projects do not make sense anymore; similar logic follows the larger,
centralised, more expensive and pollutant energy power plants. Certainly, if slow-money
mechanisms become more flexible, they will have a strong and deep impact over the ET.
15 Slow-Money for Soft-Energy, available in http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3492558/
16 Article of Marco Vangelisti, available in http://slowmoneynorcal.org/appropriate-funding-mechanisms-for-slow-
20
money-projects/
17 “Royalty financing is an arrangement whereby investors provide capital to an enterprise with revenues and
approaching profitability or already profitable. The investors are repaid via a percentage of the gross revenues
until the initial capital plus a premium determined in advance is returned.”

Methodology
The main goal of the present report is to identify: (a) whether and to what extent CFPs may
be an alternative or a complement to current funding mechanisms, and (b) if so, what are
the main barriers for its implementation for solar PV off-grid projects in rural India. With
that purpose in mind, a theoretical framework that takes a systemic (socio-technical)
approach is presented, evidencing different levels and stages in which ETs are developed.
The MLP adopted shows a regime where funding mechanisms are just one constituent.
Consequently, the methodology used consists of an in-depth analysis of this level, its
components, actors, and rules involved.
The available literature on new funding mechanisms for PV off-grid generation is not
expansive; however, relevant grey literature and academic sources were studied. General
sources on financing for RE in general was analysed, including studies for decentralised
energy generation.
While the slow-money movement continues overcoming barriers globally, few CFPs have
focused entirely on the bottom-up approach to energy. Much of the literature reviewed
about TT does not put a special emphasis on a systemic approach to funding the regime.
Because of the special characteristics of this research, the analysis is based on a multiplicity
of sources. Literature review of the most relevant sources in low-carbon innovations,
worldwide and in India; semi- structured Skype and personal interviews with different
practitioners in the Indian market, primarily from Bangalore (see Annex II for details on the
topic guide), first-hand observation by the author of PV off-grid plants in rural India, and
an analysis of several unpublished documents, reports, current legislation, consultancy
papers and presentations, websites and blogs, among other sources. Joining different
networks for practitioners, such as the forum Collaboration for Development of the World
Bank (C4D) and the Energy Network of Practitioners of the UN Foundation and its access
to energy division, was another way to obtain reliable information about the Indian status
quo.
21

The interviewees were chosen from a broad scope of actors related to the PV off-grid
Indian market, some of them working with small solar entrepreneurs, others part of solar
enterprises. Founders and employees from CFPs and Social Merchant Banks, as well as
“facilitators” (companies that provide skills in solar technology to some entrepreneurs,
connecting them with funding opportunities in rural banks or Micro-Finance institutions)
were interviewed. All those interviewed were consulted about aspects they find useful, as
practitioners to include the research. Comments were also received from practitioners in
C4D forum.
The research consists primarily to develop an overview of the solar market generally and in
India. Lessons about the important new actors and business configurations are important.
Motivated by the findings, a comparison among the current approach and an approach
involving CFPs was performed. Case studies dependent on the role of the company
interviewed within the market are important to obtain a general vision.
From January to July 2014, a total of 10 interviews were conducted with energy experts,
practitioners, facilitators, and solar businesses in India. First-hand information was
obtained. The interview topic guide performed, as well as a table of interviewees can be
found in the Annex II.
The expertise of the interviewees for this study was key for the findings described in the
section below. Practitioners with vast experience not only in India but also in business
models applied in United States and Europe were able to give their impressions about the
difficulties faced by not only CFPs but also by the regime of foreign lenders, private
donors, FDI and other important dimensions of the Indian regime. Their positions range
from founders of CFPs and facilitators, to employees in solar enterprises. Solar
entrepreneurs were also interviewed. All the interviewees had an important knowledge of
the solar micro-grid industry from different perspectives, resulting in enriching approaches
for the study.
22

Discussion & Findings
An overview of the micro-grid generation in India.
Electricity in India and PV status
Despite of the many different governmental initiatives, still millions of Indians have no
connection to any kind of grid. Even those who do, suffer from regular blackouts, like it
happened in 2012, when 600 million suffered the biggest power failure in human history. In
23

April 2005, a programme launched by the Indian government aimed to achieve village
electrification in 2007 and household electrification by 2012 (Bhattarcharyya, 2006: 3387);
the failure is patent. Later, new ambitious targets have been set, being the idea to double
existing RE capacity to 55,000 MW by 2017 (Shrimali et al., 2014).
Notwithstanding, “the expansion of India´s strongly subsidized, coal-based electricity
sector has provided the country with affordable electric power [and] within a decade the
installed capacity increased from 109 GW to over 176 GW in 2009” 18, with PV providing a
mere 119 MW in 2011, mostly from off-grid projects (p. 450). Following the ELE
principles, India has tried to transform its electric market through introducing competition.
Nowadays, the total PV capacity is over 2,5 GW distributed as shown in the map above.
The status of micro-grids and the raise of best practices
Particularly, micro-grids in India have followed a growing development curve, where
community involvement in the TM has been fundamental for the success of the different
types of models existing.
Following the typology of business models based on funding sources presented by
Deshmukh et al. (2014), it is possible to identify different kinds of micro-grids: For-Profit
(FP), Partially Subsidized (PS) and Fully Subsidized (FS) models. Since our focus is on
new funding mechanisms instead of the classic subsidies from the Government, the present
report will only study FP models of deployment and management. Despite of this fact, “all
micro-grids can thrive - regardless of whether they are for-profit, partially subsidised, or
government owned and operated – if they carefully design their revenue stream, customer
relationships, ongoing maintenance, and community involvement for their particular
context”19.
Common factors of concern for micro-grid developers – and particularly for FP models -
seem to be the reliability of the project, quality of the business model and the collection of
payment from final users. These different dimensions show the different issues of
18 Becker and Fischer, 2013, p.450.
19 Deshmukh et al., 2014, HEDON Magazine No.63, p.6.
24

maintenance, the ownership of the grid and eventually, the hardware and software
production of smart-meters, PAYG systems and different technologies to collect payments.
 The reliability of the micro-grid is cardinal to build local willingness to pay. Poor
maintenance due to longer distances to rural communities and short-term
management from investors looking for a rapid return of investment (ROI) are
factors that can directly affect the collection of the payment. A proper reliability of
services incentivises the payment in a weekly or monthly basis to the entrepreneur
or solar enterprise. "Successful developers strive to provide prompt customer
service through ‘24/7’ hotlines and prompt on-site visits to solve technical
problems, thus ensuring a loyal and paying customer base”20. Keeping customers´
loyalty appears to be like the main task in this item.
 Quality of the business plan: Trustworthiness is not only about keeping customers
satisfied by paying attention to maintenance issues (which are, of course, essential
for the success of the enterprise) but also has to do with presenting credible high-quality
projects to investors. Funding mechanisms that can be accessed in short time
for micro-grids are available but have not managed to match with high quality
sustainable businesses. Business models that can absorb the higher level of capital
and meet the risk requirements of more conventional investors are urgently required
in the field.
 Collecting payment from costumers in rural communities can be tough for local
entrepreneurs. A strong implicit or explicit control over the community is key; it can
come from local NGOs, religious institutions, or by providing with skills to local
collectors. The financial sustainability of the model is always critical; capital and
operational costs must be differentiated. Capital costs may not be recovered in the
short term, while operational costs are commonly charged in a monthly basis.
Different strategies for this matter have been implemented: systems such as pay-as-you-
go (PAYG), which can operate even from mobile phones as seen in the Part
One of this report; pre-paid meters; designation of one respected member of the
25
20 Ídem, p.8.

community to collect the money; and inclusion of local entities and regional NGOs
are part of the unreached solution.
Some facilitators in India appear to have some progress in this issue. Examples of
this might be the “joint liability gro up model” of Mlinda, a Bangalore-based
facilitator (if one household does not pay, the entire community contributes to pay
its debt); or the PAYG system implemented by SIMPA. Others, like Mera Gao
Power (a solar enterprise) have deployed a Micro Finance Institution (MFI) type
collection process, which requires collectors visiting villages to collect fees in
person in group meetings. The process requires a lot of discipline to be effective,
but based on the experience of MFIs it has succeeded in the past. The problem of
this particular strategy is that the customer base can expand in a faster way than the
internal processes of the company collecting the money; still, if effective, it is a
cheaper way than PAYG technology thereby keeping fees to customers low and
minimizing the payback period of the company´s investments. The collection of
money has direct influence on CFPs credibility and its success will certainly
promote this new funding mechanism.
Current configuration of the Indian Regime
The literature review showed how the regimes are a mixture of networks of actors,
technical and material elements, and sets of rules. The configuration of these items in India
has changed dramatically in the past decade in some aspects, as will be reviewed below.
Figure 3. Electric market configuration in the 1990s (source: Verbong and Geels, 2008)
26

 Network of actors: New players have emerged, as well as business opportunities.
Motivated by the dramatic situation of the lack of access to energy, actors with
different backgrounds such as NGOs backing up a now empowered civil society;
foreign lenders; facilitators or “brokers” between funding sources and solar
enterprises or rural entrepreneurs; regulators and policymakers, they all look
forward to developing the micro-grid business in rural communities. The contrast
between the network of actors in the 1990s and nowadays is patent, as shown in the
figure 3.
This new configuration shows how India has opened its boundaries to the world.
The imported “know/how” from foreign institutions (especially the “facilitators”
shown above) is a clear example of that. Among these, we can mention companies
such as S3IDF (based in Boston) and SELCO. The first one brought a totally new
approach to the electric market, by developing their “Social Merchant Bank
Approach” (SMBA) to help solar entrepreneurs to grow their business. Providing
local entrepreneurs with the skills to get involved into the solar market and renting
solar appliances (lanterns, cook stoves). The SMBA claims for an innovative use of
philanthropic and development capital, critical to mobilize private sector investment
for pro-poor end-user and small-scale enterprise finance. Enabling ecosystems by
removing obstacles from governments’ regulatory frameworks and policies is one of
their main objectives.
In the meanwhile, SELCO has focused in both solar appliances and micro-grids, in
what they call “solar powered interventions”. SELCO’s main sustainable energy
categories are decentralised clean energy and social entrepreneurship; their newest
project is a mini- grid that covers 65 households in Mangalore and has been a
complete success by now. Besides these facilitators, some incubators have also
emerged, but focusing in smaller guarantees and niche markets.
Just as these two, there are many other companies focusing their efforts in micro-grids
and different funding sources can now be used to finance energy projects, with
27

different rates of interest; “MFIs have found ways to make the poor bankable and to
demonstrate that their repayment performance in well-designed programmes is
above average” (Von Ritter et al., 2013: 6). Not only MFIs (with 18% to 29% rates
for 3-year period loans for solar systems) but also Co-Operative Banks (around
15%) and Regional Rural Banks (RRB)(rates are about 12-13%) are providing with
finance to micro-grids. The basic principle is: higher the interest rate, the lower the
requirements from the bank to concede the loan. While interests are higher in MFIs,
bank´s documentation requirements are reduced. In the field of MFIs, some of them
even have solar systems targets to achieve, being SKDRDP India one of the most
emblematic institutions specialised in entrepreneurship assistance; others, like
Kinara Capital intend to fill the gap between funding sources and small enterprises
in India.
The use is soft capital to help dissemination of solar energy is a proper complement
for solar entrepreneurs. It can reduce interest rates from the current 12% of RRB, to
around a 4%, by lowering the initial debt. An interesting case of soft capital use
could be the “New Act” that in 2013 replaced the Companies Act of 1956. Both
Indian and foreign companies operating in India will have – from April, 2015 -
compulsory CSR obligations21, and must spend no less than 2% of its average net
profit for its preceding three financial years in CSR activities. This regulation can be
a contribution to funding sources such as donation-based CFPs and, despite of its
critics, can cause a positive impact in the micro-grid field.
Regarding to CFPs as new actors – as will be seen below – some of them have
emerged in the past years but still struggling against several barriers imposed by
regulators to foreign capital. Platforms such as Milaap, Kiva India and Rang De are
not only focused in sustainability and solar micro-grids; projects cover a wide range
of options, including solar entrepreneurs.
21 Companies are subject to the CSR requirements if they have, for any financial year: a net worth of at least
Rs. 5 billion (approximately U.S.$80 million); a turnover of at least Rs. 10 billion (approximately U.S.$160
million); or net profits of at least Rs. 50 million (approximately U.S. [$800,000).
28

Figure 4. Current configuration of actors in the Indian off-grid market. Source: Author.
 The technical and material elements have been developing quickly in India, as a
consequence of this new network of relevant players. International (landscape)
pressures over the Regime show the progress in the PV market, not only on its R&D
dimension but also new developments of manufacturers and imported business
models of solar appliances and panels. Foreign actors have brought their expertise
to India; transnational contact, networking and communication have been relevant
in this item, providing Indian business with a higher exposure to a variety of
innovations and pressures from abroad. Facilitators are generating human capital by
training local entrepreneurs to rent their solar appliances and to do maintenance
labours in micro-grids.
 The set of rules that regulates not only the electric market, but also foreign
investment, private donations and small and medium enterprises is still too tight for
foreign lenders and private donors. Regulations from the Reserve Bank of India
(RBI) and the Securities and Exchange Board of India (SEBI) directly affect loans
and capital flows. Following Tenenbaum (2013: 67-68) primarily three kinds of
regulatory decisions can affect micro-grids and small power producers (SPPs):
technical/engineering (feasibility of the project), commercial (subsidies, taxes and
29

interest rates), and process decisions (how to make and enforce technical and
economic decisions). Funding sources, costs for investors and brokers and
moreover, how RBI regulation might affect investment in CFPS for micro-grids will
be studied more deeply in the section below.
The “crew” as a new player. CFPs as trustworthy funding mechanisms for micro-grids
As seen above, the complexity of micro-grid industry involves not only multiplicity of
rules, players and pressures, but also high transaction costs. Within this context, how can
CFPs be a valid alternative to the current financial approaches? In a nutshell, these
platforms intend to collect a pre-determined amount of money required for any kind of
project, with a lower cost for refinancing and providing access to a capital less adverse to
risks. Crowdfunding “has also been called social banking, and it is already making an
impact on fields far outside micro-credit”, allowing people to finance projects they believe
in with “just a few dollars” (Howe, 2008: 249).
Some interesting reports have been written in the past few years about the raise of CFPs to
fund sustainable projects, in particular PV micro-grids. Different business models have
been discussed and tested, but a common characteristic is that many investors make modest
investments, in opposition to the traditional approach of angel investors or private donors
buying an entire round of financing. However, it is possible to identify two main branches
of CFPs: Donation and Investment Platforms. Within these, several business models have
been raised: donation-based and reward-based in the first category, and equity-based,
lending-based and royalty-based in the second one22. While donation CF raises non-equity
capital, investment CF may include raising debt capital in the form of loans or by selling
investors ownership shares.
In the Indian scenario, the emphasis must be given to lending-based platforms, which seem
to be the more adequate to fund energy projects and to replace or complement more
traditional sources. Loans are based on debt instruments given to solar partners, which
commonly pay a fixed rate of interests or a fee when the pledge in the website reaches its
22 Crowdfunding’s Potential for the Developing World. 2013, infoDev, Finance and Private Sector
Development Department, Washington, DC: World Bank.
30

goal. The pre-determined interest rates are significantly lower compared to those charged
by MFIs, Rural or Co-Operative Banks, and can be below the 10% of the total cost of the
project. Due to the problems faced by collecting monthly payments from the community,
however, loaners usually considered the risk as high. Lending-based platforms are ideally
used by business already generating some kind of cash flow but needing to raise capital, so
they can return the loan in a really short-term.
Briefly explained, the lending-based model works as follows:
31
Figure 5 - Source: Sunfunder
While the figure above is a proper guideline, it is not the only way in which CFPs work.
There are many different business models depending on the context – existing barriers,
developed or developing countries, and specific targets of the Platform -. But commonly,
CFPs charge fees in both directions. Some platforms charge a small amount (generally less
than a 5%) to the user lending the money, to cover operational and transactions costs; while
the solar enterprise or the entrepreneur requiring the loan generally pays a fee to the
platform, plus an interest rate when returning the loan to the users. This may vary across
different platforms, depending on if they follow or no a FP approach; certain more
“altruistic” approaches do not even charge interest to their local field partners. Others link

the repayment of loans to the actual repayment by the local borrower, thereby providing a
form of credit insurance to their credit field partners.
A new set of rules for a new network of actors
Enabling the environment to scale up CFPs is the next step. In order to do that, the biggest
challenge is to understand how various RBI and SEBI regulations affect the project and,
more important, partnership structures between the CFP and solar enterprises/entrepreneurs
that form the operational implications.
CFPs such as Kiva India, Sunfunder and Milaap have shown the viability of CF as
mechanisms that supports financial inclusion. It is often highlighted that loans for micro-grids
can often be repaid by the borrower´s avoided cost of alternative energy (typically
kerosene). In this sense, these loans provide different advantages, such as lower cost and
risk tolerance.
The case of Milaap is paradigmatic. Based in Bangalore, this private social enterprise was
launched for the “explicit purpose of providing capital for unconventional essential service
loans, such as energy lending”23. Milaap has diversified its sources of funding, making
broad the target of potential investors and including foundations and other private donors.
“By diversifying its sources, Milaap is able to grow the overall level of capital deployed
and smooth out any month-by-month inconsistencies in funds secured via its lending
platform, therefore increasing the predictability and consistency with which capital can be
made available to its partners”24. But to successfully look for different donors, especially
overseas, it is necessary that some of the current regulations in India get more flexible and
therefore present fewer obstacles to return loans to foreign lenders. SEBI´s regulation does
not allow raising money from the public promising a ROI unless the company goes
“through the complicated and costly procedure of listing on a stock exchange”25. This is
why CFPs like Sunfunder cannot offer any type of earned interest to their investors, and the
23 REMMP (Renewable Energy Microfinance and Microenterprise Program) Briefing Note: Crowdfund ing in
the Energy Access Space.
24 Ídem.
25 Ramanuj Mukherjee, “The biggest problems of crowdfunding in India”.
32

CF takes a more “philanthropic” perspective under these types of regulatory laws. Under
the current legislation, not many incentives are offered to the potential funders.
Same problem are facing other CFPs. Kiva India has raised awareness of the fact that loans
made to non-government MFIs have a minimum term of 3 years, and has intended to
circumvent this issue by holding on to loan funds for this entire period before sending
repayments back to lenders. Additionally, Kiva warns its users that “lenders assume the risk
that repayments may be delayed due to regulatory difficulties transferring funds out of
India”26, which only augment the uncertainty for potential lenders. Sunfunder, in the other
hand, has created a program of “impact points” to be reinvested by funders in future
projects of the platform, but they cannot withdraw it.
The current set of rules contained in the Foreign Contribution Regulation Act (FCRA) and
the Foreign Exchange Management Act (FEMA) requires more flexibility to promote
foreign loans. Especially the FCRA requirements for India Grant Recipients, which specify
that without the FCRA approval, grantee organizations cannot legally receive contributions
from any donor outside India. The regime in this sense is non-flexible: any organization
that has existed for less than three years must receive “prior permission” to accept foreign
contributions, besides being registered – a process that lasts for at least 90 days and requires
the payment of a fee.
Research findings show that challenges for practitioners are mostly related on how to
obtain all necessary permits to receive foreign contributions, since procedures are lengthy
and complicated. One of the most common methods is work with intermediaries that have
been authorized to receive the funds. However, FCRA also regulates these intermediacy
cases, requiring a mandatory authorization in these cases. Some of the solutions used by
practitioners in order to overcome this barriers have been as diverse as: (a) the use of intra-company
loans (a mechanism used to lend money from a foreign-entity to its Indian
subsidiary); (b) partnership agreements with MFIs (companies can partner with non-profits
– as described in Appendix 3 – that are using the funds to further end-user lending,
however, it requires a tri-partite agreement between the CFP, the MFI and partner, so risk
mitigation is more complex); (c) by setting up a non-banking financial company (NBFC),
33
26 Kiva.org

which requires $500k investments and a 49% partner in India, although it is possible to
own the 100% of the NBFC by investing $50m; and (d) by using Compulsory Convertible
Debentures. This mechanism is used to transfer funds between a foreign-entity and its
Indian subsidiary, structured regularly to be serviced as a 3 or 4 year-loan. Currency issues
may arise in this type of solution.
It is possible to notice that all of these avenues to circumvent the strict regulation for FP
business models are expensive and require that CFPs have a detour from their main role,
which is actually obtaining funding for micro-grids. This scenario makes patent the need of
more flexible regulations regarding CF. However, too flexible laws might bring some
issues, such as money laundering schemes that take advantage of lending models with high
returns within 3 or 5 years. Aware of the risks of social media, SEBI has set up a restrictive
regulatory framework that affects overall investment in CFPs.
34

Opportunities for further research and Recommendations
Requirements, barriers and possible solutions exposed above made patent the eventual
importance CFPs may have for the further development of micro-grids. In this sense, CFPs
are seen not only as possible complements to current financial approaches; if regulatory
barriers are defeated, it can be a solution to the lack of funding itself. In this sense:
 Besides regulatory barriers, to ensure the success of CFPs it would also be helpful
to obtain data about the behavior/usage patterns of these websites in India. See if
there is a market full of potential investors for projects more “altruistic” in nature.
The willingness to invest from both Indian and foreign contributors needs to be
deeply studied.
 Regarding to the capital required by solar entrepreneurs in early stages, CFPs can
definitely fill a gap for startups in need of USD$15,000 up to USD$50,000 for their
first inventory; unfortunately, for many entrepreneurs there will still be a gap of
USD$100,000 or more for working capital, especially for the first couple of years of
operations. Thus, having more flexible regulations is urgent but also CFPs that
target investors with higher levels of contributions is cardinal.
 As said in the theoretical framework, the approach to succeed has to be systemic. It
is necessary that impact investors and local banks become less risk averse and
embrace the existing investment opportunities in solar entrepreneurs/enterprises.
This will only be achieved by educating these actors and recognizing the success of
CFPs in more developed latitudes. An “entrepreneurship” culture takes decades to
be achieved, and requires regulators to promote it.
 More flexibility is needed in two dimensions, operational and financial, is urgently
required. Operationally, a proper risk-management in a commercial level is desired.
Requisites to establish partnerships with non-profit entities need to be reviewed,
because they are preventing many foreign contributions to be obtained by small
entrepreneurs. Financially, faster access to funds is urgent. The lack of access to
electricity is an urgent issue that cannot keep waiting for much longer.
35

 In some instances, mobilizing finance can be a matter of putting in better policies
that create better subsidy structures or programs that work to help mainstream
financing for technologies at financial institutions. Working within these types of
barriers by employing de-risking mechanisms, such as partial risk guarantees, is
basic for the success of new funding mechanisms that can act as complement of
more traditional sources.
 Finally, online donation processing services should also be incentivized as a way to
complement lending/based CFPs. Donations – especially those coming from foreign
lenders in developed contexts – may be a proper complement for the growing social
media trends benefitting online donations. “Network for Good”, in the US, is a good
example of these services that can prove to be a key support mechanism in the
future and tie into CF. Demand-side policies promoting donation habits would be
helpful in this sense.
36

Conclusion
The merits of micro-grids as contributors to reach a sustainable energy for all in India are
compelling. Policymakers should focus on this type of electricity generation for several
reasons: because it is a proven technology, it is cost-effective and offers many advantages
for Climate Change mitigation. Electrification based on micro-grids is reliable and robust.
However, current regulation is not enabling an appropriate environment for this type of
electricity generation. Thus, it results necessary to find new funding mechanisms that can
fill the finance gap and provide solar enterprises and local entrepreneurs with enough
resources to implement micro-grids in a higher operational volume.
In this sense, CFPs are a reliable and fast way to obtain the required funding for this low-carbon
energy transition to happen. Current methods utilized by practitioners to overcome
legal and financial barriers are too expensive and require too many human and economic
resources. By seeing CFPs not only as complements of the current funding mechanisms,
but as the solution of the funding problem itself, policymakers should amend current
regulation and make it more flexible so foreign lenders and private donors can be part of
the solution. Still, funding source cannot be studied separately from other components of
the regime level. The challenge for funding is not only financial, it is political and
administrative. It requires political will with a long-term vision; an ethical component in
regulatory laws, that looks for more environmentally friendly technologies for the poorest;
and people with the proper techno-managerial profile in government’s administrative
structures. All these components need to unify their goals towards a common one: the
“global crew” providing with energy and dignity to millions of households that actually
lack of it.
37

Appendix I: Bibliography
38
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Hall, David and Lobina, Emanuele (2004) “Private and public interests in water and energy”
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Jeroen C. J. M. van den Bergh, Frank Reinier Bruinsma, (2008) Managing the Transition to
Renewable Energy. Theory and practice from Local, Regional and Macro Perspectives, Edward
Elgar Publishing.
Lesage, Dries, Van de Graaf, Thijs, Westplah, Kirsten (2010) Global Energy Governance in a
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Lachman, A.D. (2013): A survey and review of approaches to study transitions, Energy Policy, 58:
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Innovation Energy Development Report, vols. 1-2, (2013)
UNEP, Sustainable Energy Finance Initiative (SEFI), Rural Energy for Latin America, available in
unep.org, accessed August 5, 2014.
C. Decentralisation of funding mechanisms
Godfrey Wood, Rachel, Carbon finance and pro-poor co-benefits: The gold standard and Climate,
Community and Biodiversity Standards, Sustainable Markets, Discussion Paper 4, IIED.
Howe, Jeff, “Crowdsourcing. Why the power of the crowd is driving the future of business’’, 2008.
Kock, B.E., Slow money for soft energy: Lessons for energy finance from the slow money
movement (2012).
39

Levinson, Ryan, Five reasons why the off grid solar revolution will be driven by cell phones
(Sunfunder.com – Blog)
Marsch, George (July-August 2013), Community, Crowd and Conversion, Renewable Energy
Focus, pp. 16-17.
Nelson, David and Shrima li, Gireesh, 2014, “Finance Mechanisms for Lowering the cost of
renewable energy in rapidly developing countries”, Climate Policy Initiative.
Sarkar, Ashok and Singh, Jas, 2010, Financing energy efficiency in developing countries – lessons
learned and remaining challenges, Energy Policy, pp. 5560-5571.
Von Ritter, Konrad and Black-Layne, Diann (2013), Crowdfunding for Climate Change. A new
source of finance for climate action at the local level?, European Capacity Building initiative.
Wilson, Emma, Godfrey, Rachel and Garside, Ben (2012), Sustainable energy for all? Linking poor
communities to modern energy services, IIED Linking Worlds Series.
Wilson, E. and Symons, L. 2013. Stimulating quality investment in sustainable energy for all. IIED
policy brief. Available at: http://pubs.iied.org/pdfs/17156IIED.pdf
Wilson, Emma and Bellanca, Raffaella (2012), Sustainable Energy for all and the Private Sector,
Sustainable Markets Group, IIED.
World Bank, E-Discussion #6: Innovative Consumer Finance Mechanisms for Small Scale Off-Grid
Energy.
China Daily: Crowdfunding: How it Works, 28 February 2014, p. 5.
Friend, Elizabeth, TUFTS Energy Conference: Mobilizing Finance for Pro-Poor Clean Energy
Access.
REMMP (Renewable Energy Microfinance and Microenterprise Program) Briefing Note:
Crowdfunding in the Energy Access Space.
40

41
D. Indian context
Bairiganjan, S. (2010), Power to the People: Investing in clean energy for the Base of the Pyramid
in India. Washington, D.C., World Resources Institute.
Becker, B., and Fischer, D. (2013) Promoting renewable electricity generation in emerging
economies, Energy Policy 56, pp. 446-455.
Bhattacharyya, Subhes (ed.)(2013), Rural electrification through decentralised off/grid systems in
developing countries, Springer.
Bhattacharyya, Subhes, Energy access problem of the poor in India: Is rural electrification a
remedy?, Energy Policy, 2006, pp. 3387-3397.
Dubash, Navroz, (2011) From Norm Taker to Norm Maker? Indian Energy Governance in the
Global Context, Global Energy Governance, Vol. 2, Issue Supplement s1, pp. 66-79.
India Solar Handbook, Bridge to India, June 2014, available in <http://www.bridgetoindia.com/wp-content/
uploads/2014/06/BRIDGE-TO-INDIA_THE-INDIA-SOLAR-HANDBOOK_June-2014-
Edition.pdf>.
India Solar Compass, April 2014, available in: www.bridgetoindia.com
Mukherjee, Ramanuj, (2013), The biggest problems of Crowdfunding in India.
Patnia, Alok, (2013) Crowdfunding: An Indian Perspective.
Shrimali et al., 2014, Solving India´s Renewable Energy Financing Challenge: Which federal
policies can be most effective? CPI-ISB Series.
Pachauri, S., and L. Jiang (2008) ‘The household energy transition in India and China’, Energy
Policy 36: 4022-4035.
Pachauri, S., Van Ruijven, B.J., Nagai, Y., Riahi, K., Van Vuuren, D.P., Brew-Hammond, A., and
Nakicenovic, N. (2013), Pathways to achieve universal household access to modern energy by
2030, in Environmental Research Letters, 8 (2013) (7 pp.). Available at:
http://iopscience.iop.org/1748-9326/8/2/024015/article

42
E. Case-studies outside India
Bernard Tenenbaum, Chris Greacen, Tilak Siyambalapitiya, and James Knuckles, “From the
Bottom Up: How Small Power Producers and Mini-Grids Can Deliver Electrification and
Renewable Energy in Africa”, the World Bank, 2014: accessed July 27, 2014.
Deshmukh, Ranjit, Juan Pablo Carvallo and Ashwin Gambhir. “Susta inable Development of
Renewable Energy Mini-grids for Energy Access: A Framework for Policy Design, HEDON
Magazine No. 63.
Fullbrook, David, (2013) Power Shift: Emerging Prospects for Easing Electricity Poverty in
Myanmar With Distributed Low-Carbon Generation, Journal of Sustainable Development Vol. 6,
Issue 5, pp. 65-72.
F. Methodology
George, Alexander L. and Bennett, Case Studies and Theory Development in the Social Sciences,
BCSIA Studies in International Security, 2005.
Wengraf, T. (2001), Qualitative Research Interviewing: Semi-structured, Biographical and
Narrative Methods, London: Sage
Yin, Robert K., Case Study Research, Design and Methods, fifth edition, Sage Publications, 2013.

Appendix II: Topic Guide and Table of Interviewees.
43
Topic Guide
1. What is your role in the solar field? How long have you been working there?
2. Do your work with solar enterprises or small entrepreneurs?
3. Is your company´s work focused on households or micro-grids for small villages?
4. From your perspective, how would you describe the current scenario of access to
energy in the region you focus your work in India?
5. Do you think that solar appliances/off-grid electrification would help to solve that
problem? If so, to what extent?
6. What are the main barriers your company is facing to help small entrepreneurs/ get
funding for micro-grids?
7. Have you heard of crowdfunding as a potential new source of finance for your
field?
8. Have you use crowdfunding platforms?
9. What do you think are the main barriers that crowdfunding is facing in your field?
10. Does your company receive any funding from private donors or foreign lenders?
11. What are the main difficulties you have to face in order to get funding from these
types of sources?
12. Do you consider the regulations from the SEBI, FEMA and FCRA a limitation in
order to obtain funding from private sources?
13. Do you have partnerships with Indian entities?
14. Has the process to celebrate those partnerships been easy to accomplish?
15. Do you find the operational requirements for partnerships easy to accomplish?
16. Have you explored other methods to get funding without suffering the strict
regulation of the RBI? If so, which ones?

44
Table 1: Interviewees
Company Position of interviewee Date
Join Mosaic Executive Director 03-01-2014
Sunfunder Research Assistant 07-01-2014
Sunfunder Co-Founder 15-05-2014
S3IDF Senior Program Officer 18-06-2014
S3IDF Researcher in Bangalore 17-07-2014
SELCO Senior Officer, Bangalore 26-02-2014; 14-07-2014
TERI Researcher, New Delhi 22-07-2014
Abundance Generation Co-Founder 15-01-2014
Mera Gao Power Executive Director 23-06-2014
UN Foundation Senior Associate 11-04-2014

Annex III: INDIAN REGULATORY FRAMEWORK
1. National – State regulations
a) Besides national legislation governing not-for-profit organizations (NPOs) in India,
State laws and regulations ought to be taken into account, since regulation of NPOs
varies from state to state.
 Further revised once location of CBO is defined.
b) Some relevant authorities like Registrars and Charity Commissions are State
entities, therefore specific requirements may vary from state to state.
45
2. Retailing
Further analysis that will vary according to the State where the CBO is based is necessary
to identify possible State regulations on retail businesses (specific permits, requirements
etc.)
3. Potential applicable taxes (See Appendix - Numeral 2 for details).
Any legal entity operating in India must obtain a Permanent Account Number (PAN) in
order to be identifiable for financial transactions. Issued by the Indian Income Tax
Department.
Potential applicable taxes:
a) Income Tax: The income of certain non- for-profit organizations might be exempt
from corporate income tax, although unrelated business income is subject to tax
under certain circumstances.
 See Appendix – Numeral 2 for details.
b) Value Added Tax: Levied on products by State Governments. There is usually a
range of exempt activities.
 Whether it would apply to the CBO and the retail of the products could vary
according to State regulations.
c) Central Value Added Tax: Applies to sales of goods and differs from regular VAT.
Collected by the Central Government. Currently there is a uniform rate on most of
the inputs and final products of 16%.
 Unclear whether/how it applies to NPOs. Requires further clarification from a
national tax attorney.
d) Service Tax: Might be applicable to consultants, transport of goods by roads or air
services.

46
4. Other relevant issues
There are three legal forms for not-for-profit entities under Indian law:
Type of Non-for-
Profit
Society Trust (Public
Charitable Trust)
Section 25
Company
Purpose Charitable
purposes27
Might include, but
are not necessarily
limited to, the relief
of poverty or
distress, education,
medical relief,
provision of
facilities for
recreation or other
leisure time
occupation, and the
advance of any
other object of
general public
utility.
Promoting
commerce, art,
science, religion,
charity or any other
useful object.
Applicable
regulations
National
Societies
Registration Act,
1860
No central law,
although most
States have “Public
Trusts Act”
Indian Companies
Act, 1956.
Permits “Section 25
companies” to
obtain not-for-profit
status.
Members Minimum of 7 Trustees
Minimum of 2
Profits Does not prohibit
the inurement of any
earnings of the
society t any private
shareholder or
individual
May be distributed
in any form to its
members.
No profits, if any,
or other income
derived through
promoting the
company's objects
may be distributed
by way of dividends
27 Section 2(15) of the Income–tax Act defined “charitable purpose” as (a) relief of the poor, (b) education,
(c) medical relief and, (d) the advancement of any other object of general public utility. Finance (No. 2) Bill
2009 amended the Income Tax Act to include the preservation of environment (including watersheds,
forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest. It
stated that th e “advancemen t of any oth er object of gen eral public utility” shall not be a charitable purpose,
if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of
rendering any service in relation to any trade, commerce or business, irrespective of the nature of use or
application, or retention, of the income from such activity.

47
or any form to its
members
Dissolution May be dissolved.
Remaining funds
and property must
be given or
transferred to some
other society with
similar objectives.
Irrevocable
If a trust becomes
inactive due to
negligence of the
trustees, the Charity
Comissioner may
take steps to revive
it.
Under certain
circumstances the
trust can be
officially declared
inoperative, defunct
of moribund.
May be dissolved.
Remaining funds
and property must
be given or
transferred to some
other section 25
company with
similar objectives.
1. Taxes
1.1. Income Tax Act, 1961: http://law.incometaxindia.gov.in/DIT/
NPOs may qualify for tax-exempt purposes if:
a) The organization must be organized for religious or charitable purposes.
b) The organization must spend 85% of its income in any financial year (April 1 to
March 31) on the objects of the organization. The organization has until 12 months
following the end of the financial year to comply with this requirement. Surplus
income may be accumulated for specific projects for a period ranging from 1 to 5
years.
c) The funds of the organization must be deposited as specified in section 11(5) of the
Income Tax Act
http://www.usig.org/countryinfo/laws/India/India%20Income%20Tax%20Act%201
961%2011.pdf
d) No part of the income or property of the organization may be used or applied
directly or indirectly for the benefit of the founder, trustee, relatives of the founder
or trustee or a person who has contributed in excess of Rs. 50,000 to the
organization in a financial year.
e) The organization must timely file its annual income return.
f) The organization's income must be applied or accumulated in India. However, trust
income may be applied outside India to promote international causes in which India
has an interest, without being subject to income tax.
g) The organization must keep a basic record (name, address and telephone number) of
all donors. According to section 115BBC, introduced with the Finance Act, 2006,
all anonymous donations to charitable organizations are taxable at the maximum

marginal rate of 30%. Finance (No.2) Act, 2009, however, carves out the following
exception: anonymous donations aggregating up to 5% of the total income of the
organization or a sum of Rs. 100,000, whichever is higher, will not be taxed.
Additionally, religious organizations (temples, churches, mosques) are exempt from
the provisions of this section.
Capital contributions or donations to an endowment should not be included when
computing the total income of the organization.
48
 Business Tax
Income Tax Act, 1961 – Section 11 (4A)
http://www.usig.org/countryinfo/laws/India/India%20Income%20Tax%20Act%201961%2
011.pdf
An NPO is not taxed on income from a business that it operates that is incidental to the
attainment of the objects of the organization, provided the ent ity maintains separate books
and accounts with respect to the business. Furthermore, certain activities resulting in profit,
such as renting out auditoriums, are not treated as income from a business.
The Finance (No. 2) Act of 2009 had changed the definition of "charitable purpose" such
that the “advancement of any other object of general public utility” would not be
considered a “charitable purpose” if it involved carrying on any activity in the nature of
trade, commerce, or business, or any activity rendering services in relation to trade,
commerce, or business for a fee, tax, or other consideration. However, the Finance Act,
2011 has now provided some relief by exempting the aggregate value of the receipts from
such activities up to 2.5 million Indian rupees (approximately USD $50,000).
1.2. Value Added Tax
Levied and collected by States rather than by the Central Government.
The rates range from 1% to 12.5%, with most goods and services taxed at 12.5%. Although
it is hard to generalize, most States have a considerable range of exempt activities.
1.3. Central Value Added Tax (CENVAT)
http://business.gov.in/taxation/vat.php
http://business.gov.in/outerwin.php?id=http://www.cbec.gov.in/excise/new-cenvat-rules.
htm

49
1.4. Service tax
http://www.servicetax.gov.in
2. Foreign Contribution Regulation Act 2010
http://mha.nic.in/fcra.htm
Below, detailed steps to be completed by not-for-profits in order to be legally
authorized to receive foreign contributions:
a) Complete the application for grant registration online (Form FC – 3).
Documents to enclose:
- Hard-copy of the online application, duly signed by the Chief Functionary of the
association.
- Certified copy of registration certificate or Trust deed.
- Details of activities during the last three years.
- Copies of audited statement of accounts for the past three years (asset and
liabilities, receipt and payment, income and expenditure).
- Copy of the PAN.
- Fee of by means of demand draft or banker’s cheque of Rs. 2000/ - in favour of
the “Pay and Accounts O fficer, Ministry of Home Affairs”, payable in New
Delhi.
b) Complete the application seeking prior permission to accept foreign contributions
online (Form FC-4). These ought to be completed and sent to receive a specific
amount, for a specific purpose and from a specific donor.
Documents to enclose:
- Hard-copy of the online application, duly signed by the Chief Functionary of the
association.
- Certified copy of registration certificate or Trust deed.
- Commitment letter from foreign donor specifying the amount of foreign
contribution.
- Copy of the project report for which foreign contribution solicited/being offered.
- Copy of the PAN
- Fee of by means of demand draft or banker’s cheque of Rs. 2000/ - in favour of
the “Pay and Accounts O fficer, Ministry of Home Affairs”, payable in New
Delhi.
Hard copies of the documents listed above must reach the Ministry of Home Affairs,
Foreigners Division, within 30 days of the submission of the on-line application.

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