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.
- Sociological Barriers;
- Financial hurdles & Technology related challenges
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.
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.