Special Series on Clean Energy and the BoP, Part 3

IFMR Centre for Development Finance and the World Resources Institute came out with a report focusing on clean energy options for the base of pyramid in India, this report is titled “Power to the people” and it is being launched in Mumbai on the 28th of September 2010 in front of a host of social sector investors and companies.

Parts I and II of this series can be read here and here. Leading up to this release, they have partnered with TC-I along with other premier bloggers to run a series of posts on the issue of clean energy at the BoP. All views in these posts are those of the authors and do not necessarily reflect that of TC-I.

India’s domestic energy demand is predicted to more than double by the year 2030. with most of the demand emerging from the rural poor.  Renewable energy from naturally replenishable sources, such as hydro, wind, solar and geo-thermal, holds significant potential for addressing the energy needs of India’s 114 million Base of the Pyramid (BoP) households. While renewable energy consumption rates in India (30% in 2008) were higher than the global average (19%), it is a small fraction of the potential of India’s rural renewable energy generation.

In a fast-growing market, over 30 new entrants since 2008, and initial successes of companies, such as Husk Power Systems, SELCO and TIDE-India, the challenges to renewable energy are not insurmountable if key issues are addressed by the government and market forces. According to a study just released by Centre for Development Finance-IFMR and World Resources Institute, India’s rural household energy market potential stands at INR 97.28 billion per year. This projection is instructive to private companies and investors looking to invest in decentralized renewable energy services, biomass and small hydro plants, solar lighting and energy efficient cook stoves.

Some key issues that need to be addressed by government and market forces in order to realize the great potential of these markets:

• Poor infrastructure
• Lack of consumer awareness about energy-efficient products
• High costs of product acquisition and after-sales services

Government Support – The central government’s role is critical in realizing the growth potential of renewable energy. In the Eleventh Annual Plan (2007-2012), INR 2,250 crores was allotted for the development of rural renewable energy through the Ministry of New and Renewable Energy. The government has introduced several incentives for renewable energy projects, including capital subsidies of up to 90%, tax holidays, accelerated depreciation and low interest loans.

While government policies and incentives have successfully addressed some issues, their efficacy can be increased by strengthening execution mechanisms and simplifying procedural requirements. A single window rapid clearance system for clearances and approvals would alleviate time and resources for entrepreneurs and government departments. Subsidy on kerosene and fossil fuels makes the renewable energy option less attractive for potential consumers; a better subsidy mix would spur sector growth.

Private Players – Increasing attention on renewable energy for BoP has resulted in inadvertent, but significant, market distortions. Corporate social responsibility initiatives, and short-term government schemes, that provide clean energy products to BoP households at highly subsidized prices are often not comprehensive enough to provide after-sales service. Eventually, consumer perception about product cost and quality become distorted.

Involved corporations and government departments should create a long-term vision for increasing energy-efficient solutions by addressing bottlenecks and limiting short-term unsustainable projects. Product manufacturers and distributors need to fully understand consumer preferences, provide better after-sales service and make product acquisition easier for BoP consumers.

The BoP clean energy market is in the early growth stage. Its future depends on comprehensive government partnership, as well as private sector drive for rapid growth and expansion.

Santosh Singh and Sreyamsa Bairiganjan are co-authors of the report “Power to the People: Investing in clean energy for the base of pyramid” published by IFMR-Center for Development Finance and World Resources Institute, Washington DC.