By Joydeep Mukherjee
Durability for MSMEs: India’s ongoing power crisis, the worst in six years, highlights the power sector’s dependence on fossil fuels. Due to extreme heatwaves and the resumption of economic activity after the epidemic, rising demand for electricity has led the government to double its carbon-intensive sources for power generation. The current pattern of energy consumption is unsustainable, as geopolitical developments have pushed up the price of fossil fuels, leading to energy shortages. This is evident from the power outages across India.
These power cuts are especially crippling for small commercial and institutional (C&I) customers, for whom diesel (a common alternative source of electricity) is three times more expensive than electricity from the local grid. Disruption is further prolonged in rural areas, where power supply hours are reduced by 16 percent due to load shedding. The crisis highlights the need to shift to alternative sources of electricity, such as solar energy, which could be used to reduce India’s dependence on fossil fuels. C&I customers, especially in rural and peri-urban India, can benefit significantly from reliable and clean energy from solar rooftop installations.
Why Rural C&I
The vast majority of rural C&I customers, who are small in size, are underdeveloped by the main grid. About 40 per cent of these customers in UP, Bihar and Jharkhand are not connected to the grid and rely heavily on alternative sources of electricity, primarily diesel. This segment uses 1 billion liters of diesel per year. The other 60 percent of customers who are connected to the grid lack quality access and many of these customers continue to use diesel as a backup.
The Government of India has set an ambitious target of installing 40 GW rooftop solar by 2023. However, only 20 per cent of the roof target has been achieved, and only 3.1 per cent of the rural India target has been installed. With a potential demand of 16 GW, there are millions of rural C&I customers suited for solar rooftop installations, which could translate into a $ 11 billion market. Currently, only 5 percent of these customers are being serviced despite the cost savings from solar rooftop installation.
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Problems and solutions
Despite the high potential of this market, the acceptance of rooftop solar offers by the rural C&I market has been slow. Some of the main challenges include lack of consumer awareness, low ticket size, fragmented demand and limited access to money. More than 80 percent of enterprise customers surveyed were not aware of roof solutions and their benefits. The high cost of customer acquisition is due to low ticket size and scattered demand in rural areas.
Furthermore, due to the small size of rural C&I customers and their limited credit history, most developers refuse to enter into long-term power purchase agreements (PPAs). Limited credit histories also pose a challenge to financial access because banks are risk-averse and do not extend credit without collateral – something small C&I customers are unable to offer. The state-level policy and regulatory framework for roof solar is also constantly changing, and state utilities are reluctant to provide customers with net metering connections.
Solutions to catalyze the rural C&I market need to be viewed in terms of geographic clusters (as opposed to private enterprises, which work for large scale industries) as it allows aggregation of demand which makes it easier to run awareness campaigns. Targeted approach. In order to achieve operational efficiency and scale in isolated rural areas, market actors such as national and local developers and financing partners need to be attracted.
Providing access to wholesale capital for retail financiers complements their liquidity to lend to willing roof clients, while minimizing their loan risk through the guarantee process. In addition, various development finance institutions (DFIs) play an important role in extending credit and equity to solar rooftop developers to finance their expansion.
Collaborative and strategic partnerships with public interest capital can track the rapid adoption of solar rooftop installations and enable the government to successfully achieve its 16 gigawatts by focusing the attention of stakeholders in various sectors on rooftop solar, especially for rural C&I customers. Aims for non-urban C&I solar rooftop installation by 2023.
Joydeep Mukherjee is the CEO of Smart Power India. The published opinion is the author’s own.