Electrifying India, with sun and small loans

Electrifying India, with sun and small loans

The idea is to create a business model that will leapfrog the coal-dependent grid to renewable energy

Electrifying India, with sun and small loans

A few years ago, the hundred or so residents of Paradeshappanamatha, a secluded hamlet in Karnataka, gathered along the central pathway between their 22 densely clustered homes and watched as government workers hoisted a solar-powered streetlamp.

As the first display of electricity in the town, it was an object of mild interest, but, being outside, the light didn’t help anyone cook or study, and only attracted moths.

Still, when B Prasad arrived two years later to encourage people here to abandon kerosene lighting for solar-powered home systems, people had some idea what he was talking about. What sounded preposterous to the village residents was the price. Prasad, an agent for Solar Electric Light Co, or SELCO, was selling a panel and battery that would power three lights and an attached socket for phone charging for approximately Rs 12,800.

“There was no way we could afford that,” P C Kalayya remembers thinking. He and his neighbours rise early in the morning to walk miles along a nearly impassable dirt road to work on coffee, pepper and betel nut plantations. Kalayya earns $3 a day — he’d been earning $2.25 until a raise came through this year — and half his wage is withheld by his employer as repayment for various loans.

And yet, despite what seemed on its face an impossibly high cost, SELCO agents succeeded in persuading Kalayya and 10 other village households to make the switch. Now, Kalayya’s wife can better see how much spice she is putting in as she cooks, and Pratima, their 18-year-old daughter, can study long after dark.

The idea behind SELCO, and other companies like it, is to create a business model that will help some of the 1.2 billion people in the world who don’t have electricity to leapfrog the coal-dependent grid straight to renewable energy sources.

About a quarter of the world’s off-the-grid people, or 300 million or so, live in India, mostly in remote, rural communities like Paradeshappanamatha, or in informal urban settlements. Hundreds of millions more get electricity for only a few hours a day.

Prime Minister Narendra Modi has pledged to achieve universal electrification in India by the end of 2022. His main effort is adding hundreds of new coal plants, which have contributed to near-apocalyptic pollution levels across large swathes of the country.

On the other hand, Modi has also promised investments that would significantly increase production from renewable sources. Partly to that end, Modi and President François Hollande of France started an “International Solar Alliance” during the recent climate talks in Paris.

With an initial pledge of $30 million from India, Modi said that the eventual goal was $1 trillion in global funding for solar technology development by 2030.

Solar power accounts for just one per cent of India’s current electricity production, mostly through large plants that contribute power to the grid, but a generation of energy entrepreneurs is out to prove that a faster, cleaner and ultimately more economical route to universal electrification is through solar home systems.

“Why is it always about a grid?” asked Harish Hande, a co-founder of SELCO India. It was one of the first of more than 40 companies now offering solar home systems in India.

SELCO systems typically include a small panel connected to a battery that stores enough power to run one or more lights, phone chargers and, with higher wattage options, some small appliances. Since its inception in 1995, Selco India has sold 3,18,400 solar home systems, and has provided power systems to almost 10,000 schools, hospitals and other institutions, almost all in Karnataka.

“Solar home systems have been around for a long time by now, and they are a successful model,” said Robert Stoner, the director of the Tata Centre for Technology and Design at MIT, which works directly with SELCO and others, including the Indian government, on renewable technology development. “Their challenge is that they cost a lot — far more than the average person has, even a relatively well-off person.”

So if it is difficult to persuade a middle-class family in an industrialised country to invest in solar, how do you persuade a family that lives on a couple dollars a day?Prasad is a consummate salesman who talks a mile a minute, wears his hair in a side-part and keeps three pens in his breast pocket. On his home turf in the villages of the Chikkamagaluru district in Karnataka, his salesmanship is put to the test.

If he can manage to interest people in what is often an unfamiliar technology, he then pitches his potential customers on the more mysterious, but crucial idea of financing.

Step towards banking

For two decades, SELCO has worked to persuade a network of banks to provide financing options to poor people who were typically seen as too risky. As Mohan Hegde, the company’s operations manager, noted, “The idea behind SELCO is to take a poor man to the bank and see if what he can afford to pay per month is acceptable to the lenders.”

The sales presentation, once it includes assurance of financing from a bank, is much more palatable to potential customers: Pay the bank monthly installments of roughly the same price you’d spend on kerosene, and in a few short years, you’ll own the system and your basic energy needs will be fulfilled by the sun free. “When we say free, their ears prick up,” Prasad said.

Without financing, decentralised renewable energy could never compete in India with kerosene, which is cheap because the government subsidises its sale at a cost of more than $5 billion a year.

Use of kerosene contributes to carbon emissions, but also to more personal and immediate hazards like skin irritation, respiratory problems and a significant fire risk. Ultimately, it provides only dim, flickering lighting.

For many of SELCO’s customers, financing the solar home system is their first interaction with a bank. The experience is often new for the bankers, too.

Kalayya’s family hopes that their solar home system, with its lights and phone charger, is only the beginning. Pratima, who is one of four people in the village to have attended school, said that getting bank accounts and understanding loans had broadened her family’s sense of possibility. “The faster we pay off this loan, the more likely we are to get another one,” she said.