Making Solar Energy Transition for
Rural MSMEs Viable and Profitable
ndia has witnessed phenomenal growth in the renewable energy sector over the last decade. With a total installed renewable energy capacity of 151.37 GW (as of December 2021), India ranks fourth in the world in terms of installed capacity (Manohar 2022). This includes 49.34 GW of solar, 40.08 GW of wind, 10.61 GW of bio-power and 51.34 GW of small and large hydropower. During the last eight years, India’s renewable energy capacity has almost doubled, with solar energy capacity expanding over 19 times.
Despite making strides in overall renewable energy capacity addition, a more disaggregated view of India’s rooftop solar sector shows that it has largely remained untapped. Against the government’s target of installing 40 GW of rooftop solar power by 2022, it has only been able to achieve 7.6 GW by March 2022 (Mercom 2022). Bridging this gap over the next few years would require collaborative efforts from all actors in the rooftop solar business ecosystem, including consumers, project developers, financiers, policymakers, and regulators.
One area of opportunity to achieve this target lies in the micro, small and medium enterprise (MSME) sector. Besides playing a prominent role in the Indian economy, the MSME sector is also one of the largest consumers of energy in India, accounting for approximately 54% of the total energy consumed by industries (World Bank 2019). Moreover, a significant number of MSMEs, mostly in rural areas, use highly polluting diesel generators as the power source at an exorbitant cost. Adoption of solar energy by these rural MSMEs can help contain the demand for fossil fuels and provide a cushion against escalating energy expenses and volatile market conditions while improving their competitiveness, profitability, and sustainability. However, despite a huge untapped market opportunity and a strong business case to shift from fossil fuel-based power sources to solar energy, the rural MSMEs have so far been lagging in the such energy transition.
A major barrier to the adoption of the solar energy among rural MSMEs has been the lack of access to low-cost finance. Micro-enterprises, in particular, from the rural areas are perceived to be a credit risk by lenders. High transaction costs due to the small size of projects, lack of quality assurance, challenges in implementing net metering, and concerns about legal enforceability of contracts are some of the other barriers that are holding the adoption of solar energy at scale (Gulia, Thayillam, and Garg 2022). There is also a socio-cultural barrier typical of a rural customer base. Unlike their urban counterparts, rural MSMEs desire a one-stop solution for all their solar energy transition needs including assurance of their quality and after-sales support. On the supply side, most of the actors in the solar rooftop business ecosystem tend to work in isolation and struggle to make the unit economics viable.
Addressing these challenges and creating an enabling rooftop solar business ecosystem for rural MSMEs can unlock a huge lending opportunity for microfinance institutions, non-banking finance companies, commercial banks, and emerging innovative financial start-ups. This would also pave a low carbon pathway for India and significantly contribute to achieving the government’s target of 500 GW of non-fossil power capacity by 2030 (GoI 2021), and becoming a carbon neutral (net-zero) economy by 2070 (BBC 2021).
The Development Alternatives Group (DA Group), in collaboration with Smart Power India (SPI), is creating an enabling ecosystem for rural solar energy transition by partnering with various private and public actors in the business ecosystem such as technology providers, financial institutions, service providers, and relevant government agencies. By leveraging digital technology, it is generating and aggregating rooftop solar demand from rural MSMEs, and unlocking economies of scale for incentivising technology providers, financial institutions, and system installers to operate in rural areas. The initiative, in partnership with financial institutions, has successfully introduced an innovative financing model for easing the energy transition journey of rural MSMEs.
A successful energy transition by a rural micro-enterprise
Suryanarayana Bind from Mishrainpur, Bhadohi district of Uttar Pradesh owns an integrated flour mill-cum-oil extraction enterprise. He used to power his business with a diesel generator. However, the escalating diesel expenses and cost of operation and maintenance negatively impacted the competitiveness and profitability of his enterprise.
Under the Joint Rooftop Solar Initiative by the DA Group and SPI, Bind was made aware of the benefits of using solar energy, and a business case for energy transition was established. By providing a one-stop solution at his doorstep, a 16-kWp rooftop solar power plant was installed at his enterprise at a cost of ₹ 7.12 lakh, with financing support from ProgCap. Using solar energy, the micro enterprise is estimated to have cut down its energy cost by up to 70% while mitigating on an average 2.00 tonnes of carbon emissions, every month. Bind has been able to pass on a part of the energy cost savings to his customers by reducing the processing cost, much to their delight.
The government has identified energy transition and climate action as a key priority area for reaching net-zero carbon emissions by 2070, and has declared a goal of making India energy independent by the 100th year of India’s independence (Jain 2022). The rural MSMEs can play a very important role in ensuring livelihood security while decarbonising the Indian economy more equitably and inclusively. The DA Group, through collaborative efforts and innovative financing models, has been creating an enabling ecosystem for making rural solar energy transition viable and profitable, and co-providing social, economic, and environmental benefits to the larger community in rural areas.
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