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Rural Energy Market in India

Team YS
3rd Dec 2010
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An oft repeated fact – 60% of India’s population resides in rural areas and is home to over 25% of the world’s poor. India also has 35% of the global population sans access to electricity (IEA, 2002). More than 700 million households use biomass and primitive stoves for cooking. The above figures reflect a failure of Government’s policies since independence. Even though rural energy development is in crisis, India is yet to have a comprehensive rural energy policy to guide Governments at both central and state level. There is a fixation with achievement of targets by all means which results in programs being implemented despite evidence of high inefficiency. For example, the Government of India has recognized rural electrification as a high development priority and has initiated programs such as the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) (GoI 2005). All these programs concentrate on augmenting centralized fossil fuel power generation while ambitiously pursuing grid expansion. However, in India electricity supply companies lose roughly $5.6 billion annually due to large scale budgetary support and some of the highest transmission and distribution losses (25-40%) in the world. The problem is compounded by involvement of multiple ministries of GoI and lack of financial appraisal.Real and widespread benefits can be realized only if the existing rural electrification schemes are complemented with implementation of distributed decentralized generation projects (DDG). The International Energy Agency (IEA) has projected that universal access can be achieved only if about 70% of the rural population is connected to mini-grids or off grid connections. New approaches to rural electrification can typically combine centralized grid connections as distribution franchises and DDG operated at the local level taking advantage of renewable energy technologies. Thus DDG projects, if widely replicated, can ease the burden on both electricity supply shortfalls and reduce the urgency of costly grid extension. DDG also offers the potential for affordable, clean and reliable electricity with minimal losses and effective maintenance and local cost recovery. Rural energy also encompasses cooking energy. It is estimated that about 84% of the total rural household cooking energy consumption, including primary, secondary, and tertiary cooking fuels, is derived from biomass with firewood having a dominating share. To ensure a shift from traditional energy sources to cleaner and more sustainable sources, R&D and investment is required into areas such as high-tech biogas reactors and storage of biogas in hydrates, porous carbon, etc.

The combined market for energy services to rural areas in India is huge. A recent study conducted by IFMR Research Centre For Development Finance in alliance with World Resources Institute, pegs the potential market for the clean energy sector is pegged at $2.11 billion per year including $2.04 billion for decentralized renewable energy services and $70.1 million for energy products (solar home systems, solar lanterns, and energy-efficient cook stoves). Within the energy products, the market size for solar home systems (SHS) or solar-based electricity-generating and storage systems designed to provide power to individual households is estimated at $27.39 million per year. The business model that has typically been prevalent for solar home systems is that of being sold on credit, in partnership with local banks. Users typically pay 10 to 25 % upfront and the rest in installments.

To effectively tap the market there is an urgent need for well structured subsidies, tax incentives and benefits along with establishment of rural energy venture funds. Better partnership is needed between corporations, NGOs and villagers. There is also a requirement for highly trained manpower in rural technology which will require investment in institutes focused on rural technology like Nimbkar Agricultural Research Institute (NARI). Currently, there has been increased interest in investors in firms being set up to cater the rural energy landscape. A host of funds like Acumen, Ennovent Capital and Pierre Omidyar Network are looking at promoting entrepreneurs who advance disruptive innovations for sustainability at the base of the economic pyramid. The development of local entrepreneurs to help cater to rural energy using renewable energy will also address the problems of income generation and improvement of economic productivity of rural India.

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