Pradeep Singh, 37, owns one of the two gas stations at Attrouli village in Uttar Pradesh's Hardoi district, 65 km north of Lucknow. Barely 30 per cent of the diesel he sells goes into vehicles; the rest is bought by village residents to run diesel generator (DG) sets for both household and agricultural needs. The village gets barely four to six hours of power on average a day from the grid, with 10 hours being the maximum it has ever got. "Yahaan bijli ka koi theek nahi hai (power supply here is very erratic)," he says. "We usually get power after 11 pm for a few hours, rarely during the day."
So how does he operate his petrol and diesel pumps when there is no power? "If I didn't have power during the day I'd have to turn away most of my customers," he says. "None of them comes at night." Earlier, he too used DG sets, spending an average of Rs 1,500 a day apart from their maintenance cost, but for the past year he no longer needs to. He now buys power from a private company, OMC Power, which has set up a mini power plant - called microgrid - in the village. He pays Rs 9,000 to Rs 10,000 per month depending on usage, with an additional amount of Rs 700 to Rs 800 as rent for the grid connection. This works out to Rs 23.41 per unit, but is still much cheaper than using DG sets. (In comparison, grid power, when available, costs a mere Rs 6.50 per unit.)
Approximate amount required for lighting 19,300 unelectrified villages, assuming each village is electrified using a 35 KW microgrid, with each costing about Rs 2 lakh.
The business opportunity is huge. A report by the World Resources Institute and the Centre for Development Finance estimates it at $2.1 billion annually. "Even if off-grid systems have 20 per cent penetration, the installation base would be more than 7,000 MW," says Anish De, Partner, Infrastructure and Government Services, KPMG in India. "The overall consumption from these grids would be more than 10 billion units. This will entail setting up a huge number of installations, because individual ones will be small. It is a relatively untapped market and should be attractive for new entrants."
Thus, OMC Power, started in 2011, has set up 20 microgrids (each costing around Rs 60 lakh) in a couple of districts of UP, with capacities ranging from 36 to 50 kW. Mera Gao Power, begun in 2009, has a staggering 1,200 microgrids, in six clusters in UP's Sitapur district, and supplies power to 16,000 households. Decentralised Energy Systems India, more commonly known as DESI Power, has six microgrids supplying power to 700 homes in five villages of Araria district in neighbouring Bihar. Naturetech Infrastructure has installed 27 tiny solar plants (each costing about Rs 8 lakh) across 20 villages in UP and Bihar, each producing 2 kW and servicing around 35 customers.These and other microgrid companies have made a significant difference to the quality of life of their rural customers, but the going has not been easy. To start with, the investment on such plants is considerable, around Rs 2 lakh per kW. "The cost is high because solar photovoltaic mini grids need battery backup, but power is lost when the battery is full," says Shruti Mahajan Deorah, Co-author of Prospects for Electricity Access in Rural India using Solar Photo-Voltaic based Mini-Grid Systems. "They have to set up poles and wires. The remoteness of the areas where the plants are located adds to logistics costs. Ensuring maintenance funds, primarily funds to replace the battery every five to seven years is also essential."
The government does provide a subsidy of 30 per cent, but many feel it is not enough. "Finance is a problem despite the subsidy," says Shailendra Nath Sharan, Director, DESI Power. "Many companies cannot offer the guarantees and securities required to get loans. There is also acute shortage of grant funds for training and capacity building of villagers." Even senior bureaucrats agree. "The government should facilitate soft loans at concessional rates," says G. Prasad, Director in the Ministry of New and Renewable Energy. "The ideal mix would be 30 per cent subsidy, 50 per cent soft loan and only 20 per cent investment by the entrepreneur." Another challenge is laying underground cables. "This requires permission from local authorities, which is difficult to obtain when the cable cuts across highways or through villages," says Rohit Chandra, Co-founder and Chief Operating Officer, OMC Power.
At 20% penetration of off-grid systems, the installation base would be more than 7,000 MW, according to KPMG estimates.
Karnataka-based Simpa Networks has gone one step further by making the community the eventual owner of the solar microgrids it sets up. It began by supplying metering technology to microgrid companies, but now also provides power to rural customers, charging - apart from a small initial payment - Rs 25 a day for 28 months. Thereafter, customers become owners of the plant and do not pay anything at all, but manage its maintenance. This has the added benefit that no one tampers with the system since customers have a stake in keeping it running.
Naturetech recently set up a solar microgrid at Belkhor village in Amethi, UP, as part ACC Tikaria Cement Works' CSR effort, supplying power to 30 households and fully funded by the company. More companies involving microgrid players in their CSR activities will surely help the latter find a firmer footing.
33% of all Indian households (about 80 million households, or over 300 million people) and 45 per cent of rural households do not have access to electricity
The solution obviously lies in the state and private companies working more closely together. Indeed, some experts feel the state alone should set up microgrids with the private sector playing only a supportive role. "We need high quality microgrids in rural India but perhaps these should be state funded," says Anant Sudarshan, Senior Research Manager at the Abdul Latif Jamaal Poverty Action Lab (J-PAL), South Asia, an initiative of the Massachusetts Institute of Technology. "This would allow micro-scale decentralised generation without having to worry about building distribution infrastructure."Some states like Chhattisgarh and West Bengal, and regions like Ladakh, have already moved in that direction. The Chhattisgarh State Renewable Energy Development Agency (CREDA), for instance, provides power from solar photo voltaic plants to 39,406 households in remote villages which are not covered by the central government's rural electrification scheme, the Rajiv Gandhi Grameen Vidyutikaran Yojana. But it is private companies, selected through competitive bidding, which have set up the plants as well as the distribution network. CREDA charges users a one-time fee of Rs 300 and thereafter just five rupees a month. "The distribution network has been installed in such a way that, in case these villages get connected to the conventional grid at some future stage, the same network can be used," says Sanjeev Jain, Chief Engineer, CREDA. "The power the solar plant produces will also go into the grid." Similar coordinated efforts by other states are also needed if Prime Minister Narendra Modi's stated goal of electricity for every household by 2019 is to be realised.
However, despite the hurdles, some microgrid companies have attracted substantial funding. Among the investors in Simpa Networks, for instance, are the Asian Development Bank, USAID's Development Innovation Ventures, International Finance Corporation and many more. It has so far raised $5.9 million in grants and equity and recently received even more. "We have just closed a new $7.2 million round of financing, comprising $4 million debt and $3.2 million in equity," says Paul Needham, Co-founder and President. So too Mera Gao Power has raised grants and loans from the likes of USAID-DIV, Insitor Seed Fund, National Geographic and others. "Each company is responding to different opportunities," says Jaisinghani. "To succeed, however, there will have to be consolidation. We hope that by 2018 there will be such consolidation and investors and lenders will understand how to evaluate companies in this space."