Replicable Off-Grid Solar Business Models

With increasing climate concerns across the globe, it becomes increasingly important to increase our thrust on other cleaner sources of energy. Due to high irradiation level in India and more than 300 sunny days per year, India represents a lucrative alternative for development of solar power. This article sheds light on few of the solar PV /thermal models in the off-grid domain which are successful and are thus replicable.

Viable business model in the off-grid space is imperative for the sustainability of access to clean energy systems in India. However, the successful implementation of such project greatly depends on the availability and use of raw material, technology applied, availability of investments and finances, level of involvement of local community and seamless integration with the local socio-economic needs.

Some of the replicable off-grid Solar Business models in India are:

Founded in 1995, SELCO is a for-profit social enterprise providing clean and sustainable energy solutions and services to rural unserved households and businesses in the lower- and middle-income groups. Most of these customers are either off-grid or connected to unreliable power source.

The company’s primary focus is to provide Solar PV technology-based energy for lighting, water pumping, communications and small business appliances. The company also provides solar thermal water heating solutions, solar inverter systems and biomass cook-stoves.  Presently it is operating in Karnataka and Gujarat. The main investors in the company are three socially focused finance organizations: E+Co; US-based The Lemelson Foundation; and Switzerland-based Good Energies. The company also partners Global Village Energy Partnership (GVEP), Renewable Energy and Energy Efficiency Partnership (REEEP), and UNEP and Clinton Global Initiative to provide sustainable end-to-end energy solutions.

During the last 15 years of operation, SELCO has improved the lives of over 120,000 direct beneficiaries and over 600,000 indirect beneficiaries with the help of its customized solar energy systems. Its unique initiatives of financing the products and providing after-sales customer services have brought huge success to the business model of the company. The company also tries to create a package of technology, micro-finance and income-generating avenues for the rural poor.

Technology

Customized technology solutions are the backbone of SELCO’s business model. It is of the view that lighting solutions for the poor needs to be customized. The company has realized that the requirements of a fruit vendor are different from that of a farmer. The company’s technicians make necessary alterations in the final energy solutions as per the customers’ need. The company sources its solar panels from Tata BP Solar, and CFL lights and batteries from local vendors.

Cost and Finances

SELCO caters to that segment of the society which has limited resources. The high actual cost of the solar PV systems thus proves a deterrent for them. To increase the access of such energy solutions to the poor, SELCO partners rural financial institutions (Grameen banks), commercial banks, NGOs and rural cooperatives to carve out effective financing schemes under which the poor customers have to pay 10-25% of the equipment cost as down-payment and the rest in easy installments over  3-5 years. Such financing solutions are provided at customers’ doorsteps. Many times the lending is made to a group of women rather than individual customers, thereby substantially decreasing the chances of default. SELCO tries to ensure that the repayment schedule correlates with the earning pattern of its low-income customers. The company is also financing through low-cost World Bank funds available through the PV Lending Program of the Indian Renewable Energy Development Agency (IREDA).

SELCO’s operations at the grass-root level are carried out by Energy Service Centers (ESCs). In their service areas, ESCs market, sell and provide post-sale services for SELCO’s products and energy solutions. A group of ESCs are managed by Regional Branch Office. They act as the link between the ESCs and SELCO headquarter, and supply equipments, components to the ESCs. Along with the ESC network, which acts as marketing, sales and servicing point, SELCO has local sales agents who its products for a fixed commission.

SELCO’s sales and servicing points also acts as effective marketing agents. They organize brand promotions, sustainable energy benefits demonstrations and awareness campaigns to showcase products. The after-sales service is a strong marketing tool for the company. It has created necessary trust among the users regarding the reliability of solar light.

Long-Term Sustainability and Risks

SELCO has carved out a financially and environmentally sustainable business which not only earns profit for the management but also socio-economic co-benefits for lakhs of its customers directly and indirectly. A World Resource Institute’s study in 2007 pointed that majority of SELCO’s customers cited significant savings in their energy expenditure as the primary benefit of using the company’s products. Further, the company provided direct employment to hundreds of its employees and created employment opportunities for several rural entrepreneurs who rent out SELCO solar lights to hawkers, vendors and small institutions.

SELCO broke even in 2001 and earned small but rising profits in subsequent years. The profits peaked in 2005 (Rs 3.8 million). Though its revenues rose to about Rs 170 million in 2008, the margins have narrowed in recent years. The global shortage of solar cells and sharp rise in their prices have led to accumulated losses of Rs 7.5 million over the past several years as the company struggled to secure supplies (SOURCE: Lighting the Way, Financial Times, March 2009).

SELCO is planning to scale up its operations in future to wider geographies and products. The company is looking at up-scaling the technologies through replication and not standardization. It will continue to focus on customization of technologies for diverse needs of its customers. It aims to cater to 2,00,000 additional rural homes Maharashtra and Andhra Pradesh in the next three years.

Synopsis of SELCO Model

 2) Aurore

AuroRE is a community-owned social enterprise based near Pudducherry, which provides integrated solutions for new and renewable energy applications in rural and urban areas. Main areas of work of AuroRE are – solar PV pumping, solar lighting, solar water heating, solar cooking, biomass gasifiers, biogas and electric vehicles. It has facilitated the installation of over 1600 PV-powered water pumps, 8,700 domestic PV systems and about 6000 PV-powered lanterns. One unique fact about AuroRE is that it has not relied upon any investments in the form of grants, equity or long-term loans for its operations and has been profitable in its area of work. AuroRE has been a significant catalyst in mainstreaming solar energy technologies.

Their main approaches are to first pilot test a project and then scale it up in other parts of the country. Once the technology systems installed work effectively, such knowledge is replicated and shared with others through policy advocacy and training programs. It partners local NGOs to identify problems and then supply the technological solutions.

Technology

AuroRE provides technological interventions for the problems related to the effective use of renewable energy. To implement its projects, it establishes technology and institutional tie-ups with technology providers like TATA BP and BHEL, which provide it with necessary equipment. It primarily focuses on solar PV systems — water pumps, solar home systems and solar lanterns.

AuroRE has successfully implemented the solar PV water pumping systems in Gujarat’s remote areas to solve drinking water problem. Such areas are not connected with the grid and inhabitate low-income population. Learning from the successes of pilot projects, the Gujarat government scaled up the program of providing solar water pumping systems in 3000 villages of the state. Solar PV-based water pumps can also be used for irrigation purposes.

Similarly, the company partnered with NGOs and Sunmin — a solar lantern making company — to provide solar lanterns to hawkers and vendors on a daily rent basis.

Cost and Finances

Solar PV equipment cost is prohibitive for the lower- and middle-income groups in rural areas. For example, solar PV pumps cost about Rs 400,000 and solar lanterns Rs 2,000-Rs 6,000 depending upon the size and quality. So financing of such equipment becomes very necessary for their adoption by the rural poor. AuroRE partners local NGOs and financial institutions such as IREDA to provide financing of solar equipment. Subsidies provided by MNRE and state governments also help greatly. Social enterprises like SELCO and S3DIF have invested in the Rent-a-Light project of AuroRE, through which they provided about 100 solar lantern for renting to hawkers in Chennai.

The company also convinces the users to pay a particular percentage of the total cost of equipment. The users also contribute by providing labor for construction and maintenance of the set-up. The financial tie-up with banks and government subsidies reduced the upfront cost of equipment (up to 90% in the case of solar pumps).

Long-Term Sustainability and Risks

AuroRE has acted as an innovative service provider for solar PV-based clean energy technologies. It has brought together various stakeholders in this field to build renewable energy capacities in the rural and off-grid areas.

There is a large scope for replicating the activities of AuroRE in wider geographical regions. For example, organizations can partner solar lantern manufacturers and financiers to spread the rent-a-light model to more urban areas.

The solar cooker at kitchen complex of Sri Sai Baba Sansthan in Shirdi is considered as the largest solar cooker in India. The system cooks food for about 30,000 devotees twice a day.

The solar cooking system is designed, built and installed by Gujarat-based Gadhia Solar. It has partnered Germany’s Sceffler to source the technology for manufacturing solar concentrators. The system uses about 70 parabolic solar dishes, each with aperture area of 16 m2. These dishes are connected in various series and parallel combination. The system generates enough steam to cook said number of meals, even in the absence of electricity which is used to run the feed water pump for circulating water in the system. Average steam generated in the system is about 3500 Kg. The system is also connected with a LPG-run conventional boiler to supplement the solar system in case of prolonged cloudy weather.

The estimated total cost of the solar heating system is Rs 13.3 million. Out of this, MNRE has provided subsidy of about Rs 5.8 million to the temple’s trust.

Gadhia Solar has installed about 50 solar steam cooking systems with different capacities –  from 500 to 15,000 people – in temples, canteens, hostels, hospitals and even army establishments. Some of the new areas where solar thermal technology is being developed by the company are solar air-conditioning systems, solar drying in food processing industry, solar desalinization systems, etc.

Among others, installation cost is a major factor in the long-term viability of such projects. This factor is more crucial during replication of this set-up for smaller establishments. Government subsidy is a major portion of the initial costs. Easy loans and financial institutions will further be needed for the technology to reach wider user groups. The savings accrued in the form of replacement of conventional fuels (like LPG, firewood, etc.) is the major gain for the users of such systems. Further, innovative energy solutions have to be devised to cater to the needs of users in different geographical regions in a cost-effective way. The awareness and reach of the solar thermal products needs to be strengthened, especially in rural and remote areas where such technology applications have penetrated marginally.