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Published on February 15th, 2016 | by Guest Contributor

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Getting In The Game: Scaling-Up (Or Not) Of Off-Grid Solar Technologies In India

February 15th, 2016 by  

Editor’s note: I just flew to India to present at an institutional investment conference on the topic of disruptive innovation, so it was interesting/serendipitous that I edited two great, original, India-focused articles on the flight here. This one is on the complicated and important off-grid solar market. Kartikeya Singh, who has written for us before, dives into the nuances of the market often not seen or discussed. (The other is on the electric car market in India, its historical boom–bust cycle, and how the market could most effectively move forward.) Enjoy! –Zach

By Kartikeya Singh, Doctoral Research Fellow, Center for International Environment & Resource Policy (CIERP) and Hitachi Center for Technology & International Affairs

It can be hard to escape the buzz of the activity around energy access initiatives that have been launched by a variety of stakeholders in India. However, this hype often muddles the real story of how entrepreneurs and enterprises are succeeding or failing to distribute energy technologies across this vast country. The space for business innovation in the sector is promising, with a large market of unelectrified people (over 300 million) and government targets aimed at boosting solar technologies and achieving universal electricity access by 2019. Arguably, however, this promise is hard to deliver on due to a variety of factors that complicate the ability of a firm to achieve unit scale. Some of these factors, explored below, include the often-cited lack of end-user financing, the competition a firm may face from government programs to extend the electricity grid, and the types of products being sold. The result of an extensive survey of 69 off-grid solar energy enterprises reveals how such factors affect the scaling-up¹ (or not) of these technologies.

Solar Installer India

A solar energy entrepreneur in the Bangarmau district of Uttar Pradesh proudly displays his solar array. Photo © Kartikeya Singh

The results reveal some interesting insights for both practitioners and policymakers alike. Policymakers interested in the affordability of energy technologies should note two interesting findings related to subsidies and financing. First, most off-grid solar energy enterprises are not operating in the government subsidy market. This observation suggests that government efforts to provide end-user subsidies for the purchasing of off-grid solar technologies may not have helped achieve the desired result of helping rapidly diffuse the technology to those who need it the most.

Furthermore, more than half the firms are not offering any form of financing for their customers when selling their products, suggesting that many customers are in fact able to find a way to finance off-grid solar technologies on their own. A corollary to this observation, however, is that most firms may not be serving the destitute (those living on less than USD$2/day). These findings are important because scholars and practitioners alike have stated that end-user financing is one of the biggest barriers to the scaling of off-grid solar technologies around the world. The lack of access to financing, and ability of some customers to self-finance, is an important lesson for the government as it decides what mechanisms should be used to provide energy access subsidies to those at the base of the pyramid.

Another interesting interaction is the one observed between the geography of the electric grid and the sales of an off-grid solar energy enterprise. More than half of all the enterprises are selling their products in areas where the electric grid is present. This is important for entrepreneurs and investors to know because it suggests that the market for off-grid solar technologies is not limited by the presence of an electric grid. For the time being, this may be due to the fact that electricity supplies may be erratic. However, some customers reported purchasing solar products for greater energy independence or for decreasing monthly electricity bills.

More interesting is the finding that, in areas without the electricity grid, the number of off-grid solar technology options decreases because the firms operating in the area have fewer categories of technology options for sale. Thus, government and intergovernmental development programs should recognize that those who need electricity access the most may be the ones with the most limited technology options. To provide genuine energy access for all, one must target areas that are currently truly beyond the grid.

Finally, on the all-important question of “scaling” and how to excel in the business of providing energy access to the poor, this study reveals that off-grid solar technologies that focus on fewer technology categories² are more likely to achieve unit scaling. But the more products a firm provides, the more likely it is to also provide financing for its customers. Investors and policymakers must consider the possible tradeoffs between supporting firms likely to achieve scale and those likely to provide financing.

The value of scaling must, of course, be questioned in an industry that should be trying to move from providing technologies to quality energy services. Finding a balance between simply achieving scale in numbers and assuring that quality, defined by sufficient energy and an ecosystem of support structures for the technology post deployment, is essential if one is to genuinely provide access to energy for improving the livelihoods of those who need it most.

For a full copy of the paper, please click here.

¹ Unit scaling in this case is defined by the number of products a firm sells or the number of households a firm provides basic electricity services such as lighting and mobile phone charging through solar energy. For example a solar lantern with mobile phone charger = one home connected to lighting and mobile charging facility through either a micro-grid or a solar home lighting system = one unit.
² Categories are as follows: lanterns, solar home lighting systems, micro-grids, and other (solar hot water heaters, street lamps, etc.).

 
 
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  • Nisa

    Limitations on the use of end user financing subsidies can also be due to poorly designed capital subsidies, lack of awareness by the end user, complicated red tape to access subsidy at the bank etc. Also, the finding that enterprises do not tap into end user financing can be attributed to the above and also the effort to tap into the end user ecosystem particularly with local bankers. It does not necessarily mean that it is not needed or people can self finance. Maybe it’s the latter because there is no other option and solutions are also downsized to be made affordable for upfront payments.

    One has to take into consideration these aspects when trying to interpret these findings.

  • JamesWimberley

    The finding about the failure of current subsidy programmes to reach poor end-users confirms other reports. Policymakers often greatly underrate the importance of administrative simplicity and immediacy. The FIT works because it ticks both boxes. A cash subsidy for panels paid to installers would also work. A scheme where the customer has to fill in forms and wait 12 months will fail.

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