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Background
Access to clean and affordable energy is vital for a growing economy like India. It assumes great significance against a background of addressing issues of poverty reduction, environmental concerns, livelihood issues and the overall quality of life. However, it is widely acknowledged that mobilisation of the huge financial resources needed to augment the generation and distribution capacity is extremely difficult. It is also widely recognised that in order to bridge the future gap in the demand and supply of energy, one must look beyond conventional ways. Here ‘Renewable energy’ has a special role to play in improving access to cleaner energy. The development and utilisation of renewable energy has been accorded a high priority by the Government of India. The proactive stance taken by the Ministry of New and Renewable Energy (MNRE) has been successful in creating a fairly large and diversified manufacturing base, and an infrastructure (technology-support groups and facilities, as well as the nodal agencies) to support Renewable Energy Technology (RET) design, development, testing, and deployment.
Although renewable energy technologies are apparently more expensive, as compared to technologies based on commercial energy, if one takes into account the losses encountered in transmission and distribution of energy, the high cost of maintaining conventional central power plants, and the environmental cost associated with conventional power generation, renewables make economic sense in niche markets. The viability of various technologies varies depending upon the location and context, which is related to the technical input output parametric relationships. Because of difficulties in calculating realistic costs and benefits of RE projects, financial barriers act as a critical constraint to the dissemination of RETs in India.
Lack of adequate financial resources has been a chronic problem for commercialisation of RETs. In the initial phase of development of any new technology, institutional financing becomes particularly important in accelerating market linkages. The initial investment risk in RE is greater since they are neither proven nor in high demand, making coverage of venture risks an important aspect of financial arrangements. It is often argued that many times it is risk coverage rather than capital cost, is a limiting factor in rapid commercialisation of RETs.
In India, power tariffs are highly under priced and subsidised, especially for the rural sector and in some notified industrial areas. While considering cost benefits of RETs such direct subsidy on cost of power and indirect subsidy by way of subsidy on freight and coal are never calculated and hence conventional power costs are always more attractive and affordable than RETs. Another issue is availability of funding for financing of installation of RETs. Most banks and institutions have cumbersome procedures, which discourage probable investors. The section below analyses some of the key barriers to mainstreaming of RETs.
Barriers to up scaling Renewable Energy Technology
In spite of the proactive stand taken by the Ministry, and the achievements made so far, renewable energy still remains far from the energy mainstream. Several barriers impede up scaling of RETs and in the development of commercially viable small-and-medium scale enterprises (SMEs) that harness these technologies. The major barriers include: (i) lack of innovative delivery models, (ii) inadequate repair and maintenance infrastructure, (iii) lack of adequate or limited financing to defray high up-front costs associated with developing renewable energy projects, (iv) inability, so far, to engage private sector in a big way (v) inability to link renewable energy applications with productive use services, (vi) entrepreneur’s unfamiliarity with the procedure to structure commercially viable business models, (vii) tough competition from subsidized conventional energy sources that lower the market price for electric and thermal power and (viii) market penetration costs. Past experiences indicate that while there is a perceptible growth in demand for and adoption of RETs, institutionalization of market mechanism especially that of investment mechanisms, is yet to take root.
Analysis of some of the key barriers in this context is as follows:
- Entrepreneurs do not as yet have the knowledge and expertise necessary to write business plans for an enterprise/project that links RETs with productive use applications that assesses the rewards & risks of the project and estimates the cost to mitigate the associated risks, which are necessary inputs before a project is presented to a financial Institution.
- The paperwork and soft costs associated with identifying and accessing financing for SMEs / projects is high relative to the financing needs.
- Many of the RET are still relatively new to market so the commercial chains, networks, marketing and financial links and other institutional structures that service traditional energy technologies are not fully in place to assist the entrepreneur even if the skills, know-how and capital exists.
- Given the nascent stages of the RET industry, there is limited availability of investment capital to finance the high up-front costs associated, especially with the initial stages of developing a RET project.
Project Components
The analysis of the above barriers clearly show that what is needed for up scaling RETs is a completely different approach that develops a sustainable market for them through creation of demand, and actions that lead to commercialisation of these technologies. Thus there is an urgent need to develop appropriate models to accelerate renewable energy products/ technologies that are designed around the needs of the consumers with adequate servicing & delivery infrastructure to operationalise and run it sustainably.
In the context of the above, MNRE and United Nations Development Program (UNDP) have initiated a project for enhancing ‘Access to Clean Energy’. Efforts under the project are proposed to be directed towards accelerating access to energy services particularly for increasing livelihoods of the poor and marginalized in 35-50 villages including remote villages in seven United Nations Development Assistance Framework (UNDAF) states (Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan and Uttar Pradesh) based on prominence of the energy access issues. As access must be complemented by quality of energy services, the project will also demonstrate mechanisms for management of energy/electricity at the district level. The various components proposed under the project are depicted in the diagram below.
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In order to accomplish the objectives as highlighted above, the following specific actions are proposed to be carried out.- Design a framework to address gaps and up-scale clean energy technologies
Based on a review of existing policies, schemes and programmes, a feasible framework for up-scaling clean energy technology intervention in the identified districts in the relevant states will be designed. The respective state government, state nodal agencies (SNAs), NGOs, academic institutions and other relevant stakeholders will be involved in undertaking this exercise.
- Support to upscale implementation
The project will assist the local entrepreneurs, manufacturers and NGOs to upscale appropriate business models specific to the local conditions. Other innovative business delivery models will also be encouraged. The project will up-scale implementation through provision of basket of incentives including for technology packages, strengthening supply services (manufacturer development), demand development (by facilitating livelihoods), awareness, capacity building and skill development. Development of Renewable Energy Service Company (RESCO) as energy providers/managers will be explored. Capacity building of Panchayats and communities will be focused on making informed choices for participatory energy interventions as well as link them to livelihood generation and income enhancement. As women are the main managers of domestic energy, a special emphasis will be their inclusion in the decision making processes. - Mainstreaming clean energy devices for meeting thermal/ electrical applications in selected areas for end users of both domestic and enterprises
Appropriate modern energy devices will be chosen and criteria will be developed and tested for choosing basket of appropriate technology options. Appropriate service systems shall also be established for supply of efficient thermal / electrical energy devices (to meet thermal / electrical applications for both domestic and enterprises). This will also include organising awareness generation, training and capacity programs for key stakeholders.
- Development of a strategy paper that will feed into ‘Off grid renewable energy policy’ of MNRE
The learnings and feedback of key stakeholders involved with the project will serve as inputs development of a strategy paper that will feed into the ‘Off Grid Renewable Energy Policy’ of MNRE.
Objectives of the project
The project aims to upscale at least 10-15 successful, cost effective, replicable, financially viable entrepreneurship based business & delivery model for deployment of RET projects that strengthen livelihoods and enhance economic development.
In essence, the overall objective of the Project is to provide support for pilot prjects in 35-50 villages for the development of a replicable approach for assisting local entrepreneurs to create, manage, and upscale enterprises that harness RET applications to provide a clean energy access and improved quality of life of the rural people. The Project’s four related sub-objectives are to: i. Assist in local capacity building; ii. Generate local employment; iii. Augment incomes and livelihoods through value-added production; iv. Support development of MSMEs and v. Contribute to global local environmental benefits. |
