The issue of energy access is one of ensuring access to modern energy systems to every citizen of the globe. At a time when climate change and rising fossil fuel costs are threatening the energy supply in every country, the issue of providing energy access to all becomes even more challenging.
Globally 1.3 billion people have no access to electricity and nearly 2.7 billion people use firewood and other biomass for cooking. According to Planning Commission of India the number of citizens without electricity is 400 million while the number of those without modern cooking fuel is 700 million.
To provide modern energy to these people is a daunting task for any government and economy. It presents three distinct challenges. One is to finance this gigantic operation, find right set of technologies that are scalable and above all an enabling policy environment where the earlier two components can grow and prosper.
Need for policy framework
The funds will flow to achieve the goal as it presents a tremendous business opportunity. But efforts have to be undertaken at policy and institutional levels to evolve financial models that can act as an incentive for the individuals, NGOs, micro finance lenders, FIs and banks to take up energy access goal as a proper business opportunity.
Globally it has been witnessed that policy drives any sector and the tight management of regulations produce results. For example when the Ministry of Non-conventional energy sources (MNRE’s earlier name) came out with a policy to promote small hydro sector it was met with a lot of enthusiasm and overnight a new business was created. Similarly, since MNRE has launched the Jawaharlal Nehru National Solar Mission (JNNSM) a huge business opportunity has been created and the entire solar sector has taken giant strides. It has seen private entities, both local and global, make a pitch and it is helping the cause of energy access to all.
Studies in other parts of the world confirm that strong government intervention is necessary to push a new idea. For example in US till 1935 only 10 percent of the rural area was electrified however by 1955 the figure increased to 99 percent due to Rural electrification Act of 1935. It developed hydro power and provided low interest loans to cooperatives. These cooperatives were non-profit organisations exempt from federal income tax. So these policy initiatives brought about a fundamental change in US rural areas. Similarly, in Malaysia the Renewable energy Act and Energy Development Authority Act powered the energy access programme by putting a renewable energy levy of one percent on the consumers. The money generated was invested in bringing the have-nots into power fold.
Harish Hande, Magsaysay award winning social entrepreneur says, “Policies that are crafted should take into account the views of the practitioners. Policies should have long term timelines and should not just revolve around capital subsidies. The subsidies should be directed towards creating the eco-system for business and not towards the business itself. This will help businesses create long term processes for serving the poor.”
Industry professionals insist that any policy undertaken to ensure energy access to all should take into account two main considerations. One it needs huge investments that would come from private sector and second the people who need access have little capacity to pay.
For this the policy framework should ensure speedy clearances of projects, right tariff rates that produce high returns on investment and some reasonable profits.
Finance is the key
Both the economists and policy makers agree that huge amount of capital needs to be raised. In present economic scenario national governments, on their own, can’t generate so much of capital.
According to IEA’s Report nearly one trillion dollars are needed to provide sustainable energy for all by 2030. Initially till 2015 the world would need at least $50 billion to kick start the programme. While globally two initiatives – UN general secretary Ban Ki Moon’s initiative “Sustainable Energy for all by 2030” and Green Energy Fund conceptualised during Copenhagen Climate Change Summit — are being planned a lot has to be done at local and community level to generate the desired capital.
The issue of finance is two-fold. Huge investments are needed in creating energy access infrastructure while evolving suitable business models to make this modern energy affordable to the economically weaker sections of the society.
India has witnessed a host of initiatives in the field of generating finance and viable financial models to provide energy access to the last person in the queue. The country holds a unique position where both the government as well as private players have done their bit in formulating elaborate financial mechanisms.
The Ministry of New and Renewable Energy’s (MNRE) has initiated many programmes of distributed and decentralized generation and its financial agency Indian Renewable Energy Development Agency (IREDA) has been providing loans to renewable energy and energy efficiency projects.
In the last 25 years of its existence IREDA has evolved many financial models that can be replicated not only in India but elsewhere too in meeting the goals of energy access.
IREDA Chairman and managing director, Debashish Majumdar, says, “The issue of energy access is complex but we at IREDA have gathered valuable experience of financing renewable energy projects that are ideal for providing energy access. Development of domain knowledge has helped us in re-configuring age old financing models to suit a new sector which also helps in the national plan of providing energy to all. ”
While government is doing its bit it’s the private entrepreneur and equity fund managers that can play a larger role in realizing the goal of energy access. But the private players say that they need assurances from the government in terms of tariff policies and regulations that provide high returns of investment and some reasonable profit. According to them it will make their projects more bankable so getting financial closer will become easier.
Naji El Haddad, director World Energy Future Summit admits that there are challenges to finance in providing energy access especially through renewable energy. He says, “I admit investment in the industry has been affected due to slowdown, eurozone crisis, anti-dumping measures but renewable energy is still a vibrant and growing industry in terms of capacity installations. Finance for R&D is there and many may have rescheduled projects to test the results. More and more banks should come forward to fund renewable projects – the RoI takes slightly longer, but a proper business plan will help them realise that it is not impossible.”
However, the target population is huge but divided into very small groups which have limited paying capacity. It presents a unique challenge. While in the last century economies of scales were acheieved due to scalability of technology due to standardisation, today the need is shifting to customisation. So creating region and community specific mechanisms becomes the new order.
Harish Hande of SELCO, who was able to convince banks to offer micro credit to those who were buying lighting equipments based on renewable energy narrates the challenges and possible way out for an entrepreneur. He says, “One should concentrate on replicating processes of successful businesses and not replicating the business itself. Relevant processes can be replicated in other areas, with subtle changes in variables, and can be modified – while it is difficult to take the whole business and replicate it. Processes and not business models should be the mantra for replication.”
Financing energy access also needs out of box thinking and can draw heavily from other sectors that have made access possible to economically weaker sections of the society. A case in point is telecom industry that uses pre-payment mode to provide access to telephony. Mr Majumdar says, “Energy access will have to borrow management practices as well as tariff structures from many sources. Chief among them can be pre-payment mode of telecom industry. However, for these practises to take root here lot of investment would be needed in technology.”
While policy and finance are two important components in ensuring energy access to all, the third important pillar in the energy access edifice is technology that is affordable reliable and scalable. Technology for producing energy, its distribution and management is another challenge.
Till today the energy supply infrastructure is grid based and is dominated by single large hubs that produce copious amounts of power. This is then transported to long distances with the help of grid. However, this model has its limitations in countries like India where terrain is varied and those who don’t have access to energy are scattered. In such a scenario it becomes uneconomic to provide them with grid based energy access.
To meet the challenge of energy access to all by clean measures it is necessary to look for renewable and energy efficiency as the source of generation and smart grids as well as micro grids for their distribution. For energy efficiency it has been seen that standardisation of products like bulbs, home appliances and machines on the basis of their efficiency of energy use creates a huge market for companies to move in as they see economy of scale.
As El Haddad says, “The first thing we should do is to adopt energy efficiency measures – it is the new renewable in a way. We need serious and honest energy efficiency measures to save money meet targets and allow energy access. Off-grid also has an important role to play.”
Off grid solar power and biomass gasifier technologies are projected as the way forward. As Indian rural areas produce huge amount of biomass, gasifiers can act as an important source of energy as has been successful demonstrated in rural Bihar by Husk Power.
Most of the Indian sub-continent receives abundant sunshine throughout the year (According to C-WET on an average India receives 300 days of bright sunshine in most parts of the country). This recourse presents an opportunity to use solar lanterns, solar street lights, solar water pumps and solar-biomass hybrid cold chains to bring about energy access in rural India.
SK Singh who helped Husk Power in ironing out technological hiccups says, “Energy production centre using both biomass and solar as a hybrid plant produce energy. It is used by villagers to power their pumps and light their homes at night with the help of solar lantern or solar light and they pay for its upkeep makes it a truly mini-grid and these are the experiments that can go a long way in ensuring energy access to all.”
However, the challenge here is of investment in research as well as proliferation of scalable technologies. Dr Bibek Bandyopahdyay, director Solar Energy Centre says, “We have realized that it is necessary to rope in private sector manufacturing into R&D in order to shift focus to commercialization. We have seen that big manufacturing units can maintain quality while bringing down cost due to economies of scale and that is what is needed in providing energy access.”
Similar sentiments were echoed early this year by former United Nations Convention on Climate change (UNFCCC) chief Yvo de Boer in an interview to Energy Next when he said, “Technologies are transferred in the context of investments. I think economic growth is probably the best way to ensure technology diffusion. The challenge however is to have a legislative framework in place that drives you in the direction of right technology deployment.”