Barriers to adoption of off-grid PV system

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There are multiple barriers that must be overcome for the development of a healthy off-grid PV business. The first is in the minds of PV manufacturers and integrators, most of whom are in the more affluent nations of the developed world, and who are used to marketing their products to wealthier customers in the developed world. Likewise, potential customers in the developing world are often not familiar with photovoltaic and their advantages. For off-grid PV as a business to be successful in the developing world, manufacturers, integrators, and distributors must understand the unique challenges and opportunities of this market.

The major Barriers are classified into 3 types.

They are

  • Sociological Barriers;
  • Financial hurdles & Technology related challenges 

    Sociological Barriers

    Coherence of a village or cluster of villages: The residents of a village must come together  and agree to  either purchase power from an IPP  or band together  to  install,  own,  safeguard  and  maintain  a  collective  asset  (mini-grid),  when  in  fact  they  can legitimately  expect government to provide grid power. In either situation, they also  need to agree  tohand over the land that is required for this activity. This is challenging because caste-based issues within the  community,  familial  conflicts,  large  variations  in  income  levels  and  suspicion  towards  external parties make it very  difficult to drive a village into collective action. In such a situation,  either the locals themselves  or  a  grassroots  organisation  that  may  be  already  working  with  the  villagers  on  socioeconomic  development  activities  can  be  a  good  access  route  for  speeding  up  this  process.  Business models  in  which  the  entrepreneurs  are  encouraged  to  treat  the  land  as  equity  and  make  the  land owners part-owners of the project could be experimented with.

    Availability of skilled manpower: Even  when  a  company  owns  the  asset,  several  enterprising  persons  from  the  village/region  must  be trained for O&M. This requirement applies to any kind of deployment. Solar systems are still ‘technology intensive’ and  even though they entail minimal maintenance, it can be intimidating for villagers who are unfamiliar with technology.

    Additionally, localisation of last mile is very important in a rural supply chain network. Hence, the local technician should ideally belong to the area; understand the language and the needs of the people. This is difficult to achieve given that Solar is a relatively new technology and formal training programmes are not easily available.    Availability of trained human resources is a huge gap that needs to be filled with diligence. A massive skill development effort is required by the Central as well as State governments. While the money invested in subsidies is fuelling growth in the grid-connected sector, several vendors are of the opinion that the off-grid market will evolve faster if MNRE and other government agencies invest heavily in capacity building and skill development, instead of subsidies.

    Pricing & Payment Collection: Entrepreneurs who have picked up the mantle of providing electricity in un electrified and power starved rural areas face the great challenge of having a target group with typically very low payment capacity. In addition,  due  to  prior  Government  policies,  people  might  expect  to  pay  nominal  price  for  electricity. With household  incomes primarily dependent  on agriculture, paying for  energy is usually limited  to  the monthly spend on kerosene. Thus it is critical that power producers charge an amount equivalent or less than the cost of kerosene, at least to begin with, so as to wean people away from the fuel.

    Payment  collection  (small  amounts  from  large  numbers  of  families)  is  a  considerable  cost  to  the business, as observed by Husk Power Systems and MeraGao Power. While it is true that the culture of regular payments takes time to build, an important learning from the field is that payment systems that are aligned to the cash flows of the consumers have a better chance of succeeding. Even if the rates of payment default are high initially  they drop  over several cycles, once  trust is gained and the value of electricity is experienced,  as per our conversations  with a few mini-grid operators. It is not surprising therefore,  that people from villages that have grid  connectivity  but are currently suffering  from  severe power cuts, are more likely to pay for power.

    Financial hurdles

    Overheads of a remote standalone mini-grid: The benchmark costs that the subsidies are based on effectively capture the overall market trends of Solar PVpanel prices.  Panel  prices  have  dropped  sharply  over  the  past  three  years,  pushing  down costs/Watt-peak  at  an  astonishing  rate.  This  drop  has  translated  into  lower  capital  costs  and  hence lower FITs for grid-connected MW scale plants being commissioned under the JNNSM  Nevertheless, there are a few major differences between grid connected Solar PV plants and an off-grid standalone plant.

    Relevance and impact of Subsidies: There  have  been  several  schemes  for  Solar  PV  systems  –  first  under  RGGVY  (the  DDG  scheme)  and thereafter  released  by  MNRE,  which  has  resulted  in  quite  some  confusion  regarding  which  subsidy  is applicable in which case. It can take a while for anyone new to the industry  to comprehend the policies and discern which ones are extinct.

    Under  JNNSM,  MNRE  has  the  Off-grid  and  Decentralised  Solar  Applications  Programme,  wherein  for Solar  PV  based  household  systems,  assumptions  on  benchmark  costs  are  Rs  270/Wp  (Watt-peak) including  battery  and  Rs  190/Wp  without  battery  (MNRE  2011).  MNRE  provides  40%  of  the  cost  as Central Financial Assistance (CFA).

    Access to Capital: A solar mini-grid is an expensive asset, with an estimated  average cost of ~Rs.2.5-3  lakh per kW installed. This implies that a system of  10kWp  would need an investment of ~Rs. 25-30 lakhs upfront. To start with, this money should come from various channels means. Existing loan criteria and processes make it difficult for rural entrepreneurs to avail of individual loans, due to lack of credit history and collateral.

    Technology related challenges

    Solar systems are not self-sufficient. Electricity needs to be stored in batteries for  night-time usage  as well  as  during  monsoons.  Specifically,  initial  demand  from  a  newly  electrified  village  is  more concentrated at night (due to lighting needs), and hence storing electricity generated during the day is essential.  On the  other hand, the notion that no generation is possible during monsoons is false. The generation  efficiency  typically  reduces  by  40-50%  maximum  (except  days  of  very  heavy  rain).  This  isbecause solar photo-voltaic panels  can  produce electricity from  ambient light. In fact,  PV  systems have higher  efficiencies  at  cool  temperatures,  and  power  generation  decreases  when  it  gets  too  hot.

    However,  sharp  decrease  in  production  could  happen  during  heavy  fog.In  renewable  technologies, seasonality has to be planned for. Site specific solar radiation data  usually gives  a fair estimate  of the total annual production.

    Batteries are not just expensive but environmentally toxic too.  In fact, battery costs  could be  as high as 30%  of  system  cost.    It  doesn’t  help  that  the  Indian  government  levies  a  significant  import  duty  on batteries, thereby protecting the market for toxic batteries being manufactured domestically.

    Battery maintenance and replacement is also the single largest maintenance cost in a Solar PV system. In case of corporate pilots, such as those implemented by SunEdison and Gram Oorja (mentioned earlierin  the  document),  monthly  payments  by  the  villagers  go  into  the  maintenance  corpus,  primarily  to replace batteries every 5 years. An interesting model is being experimented with in Ladakh where LREDA is considering levying  a minor surcharge on conventional grid power to pay for battery replacement in remote  areas where Solar PV systems have been installed.  It is noteworthy that LREDA has installed large PV systems with large battery banks,  for example a 100 kWp system at Vikas,  an office site in Leh. Thus, feasibility of large battery banks as the plant size increases has been proven by them.

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