Energy Access: Powering Rural Enterprises

Until recently, basic household electrification has been the chosen focus of the energy access ecosystem through the deployment of solar lanterns and solar home systems. Using solar to power larger income-generating appliances, such as solar pumps, cold storages and grain mills, is opening up potential for project developers to contribute directly to stimulating livelihood opportunities of rural users while improving their bottom line.

The Government of India has made strides in improving access to electricity with its ambitious Saubhagya scheme, launched in 2017. The scheme aims for household-level connection to the grid, going beyond previous focus on partial connectivity at every village. Claims of success have been made that all Indian households have been connected much ahead of the established deadline.

While this announcement is a reason to celebrate, the undeniable fact remains that millions of households, businesses and institutions are still unelectrified for multiple reasons. These include high connection costs for commercial users, unpredictable and irregular billing cycles, and very poor quality and reliability of grid electricity supply. As a result, over 1/3 of rural businesses and at least 15 million households that did not apply for an electricity connection remain without grid electricity.

Until recently, basic household electrification has been the chosen route for the energy access ecosystem through the deployment of clean energy solutions, such as solar lanterns and solar home systems (SHS). The maturity of this market coupled with increasing access to the electricity grid has led enterprises to look beyond households to reach new markets and provide solutions for powering productive energy uses and directly improving livelihoods.

Between 2000 and 2008, the investments approved by the World Bank for energy access saw only 0.7% dedicated to productive energy uses, out of almost US$2 billion dedicated to energy supply expansion. This gave the segment a late start. However, solarising productive-use appliances is now seen as the next big opportunity, as evidenced by success stories of social enterprises and project developers.

While trying to define ‘productive uses of energy’ throws up a number of interpretations, a recent analysis suggesting the alternative use of the term income-generating appliances (IGAs) allows for a clear definition. Not all productive use appliances generate income, leading us to exclude small appliances such as lamps and fans. Significant efforts in powering small-scale IGAs have taken place in the form of solar-powered sewing machines and refrigeration systems.

A farmer in Bahraich district, Uttar Pradesh, India using a diesel-powered pump for irrigation purposes. © Adam Barr

The on-farm sector has produced one major winner: solar pumps. The potential of solar-powered irrigation has been realised by various enterprises as well as the Government. The Government of India's KUSUM scheme and the Gujarat's Suryashakti Kisan Yojana are steps in the right direction for solar-powered irrigation initiatives, providing farmers access to these systems at a minimal up-front cost. However, even this is still not affordable to many poor farmers, especially marginal and smallholder farmers. This has driven Oorja to innovate through alternate delivery models such as ‘irrigation-as-a-service’ to reach out to all sections of society. Apart from solar pumping and cold storages to some extent, projects involving other large-scale IGAs have been limited.

Compared to households, commercial enterprises take up larger power loads and provide the project operator with a higher and more stable demand, and hence revenue stream. A large proportion of productive energy demand can be tapped by using solar-powered equipment.

Smart Power India's recent study on rural electrification in Uttar Pradesh, Bihar, Odisha and Rajasthan highlights affordability concerns and the availability of alternatives as major reasons for reluctance to connect to the grid. In addition, the Government’s Saubhagya scheme primarily targeted household electrification, resulting in only 65% of commercial establishments connected to the grid, lagging far behind rural households.

In particular, service-based enterprises such as mills, restaurants and computer centres currently rely heavily on non-electric motors and diesel engines despite the presence of the grid. This reflects a high willingness to pay for reliable electricity, as diesel-based motors have higher running costs than the subsidised grid tariff.

Large IGAs constitute a large share of electricity demand in rural areas, despite their low levels of ownership. Appliances such as flour mills represent less than 2% of all enterprises, but account for 40% of electricity demand of all rural enterprises. Such enterprises present a golden opportunity for solar project developers as an anchor load that can provide a stable cash-flow and, ultimately, lead to greater financial sustainability.

Ownership and use of key appliances used in rural enterprises. Source: Smart Power India/ISEP, 2019.

Large IGAs clearly represent a major opportunity in the non-farm productive appliance sector. But why have they not featured prominently in the vision of solar project developers, notably those of mini-grids?

The use of these appliances, still often linked to agriculture (such as in grain mills), is frequently intermittent and seasonal. The majority of these enterprises rely on diesel fuel as their primary source of energy, primarily for its availability on demand, as compared to an unreliable grid.

For grid-connected non-farm enterprises, one challenge that is shared with that of solar pumps is the inability of developers to compete with subsidised grid electricity tariffs. Even with alternative delivery models, it is not possible to provide electricity at a lower cost than that of the grid.

Sticking to the mantra of solarising non-electric motors powered by diesel engines is a better prospect as the cost and effort of sourcing diesel regularly, its associated O&M and carbon emissions are worthwhile reasons to move away from diesel-run appliances.

From a technical standpoint, the electricity consumption patterns of these appliances are seasonal. Taking grain mills as an example, the demand is dependent on the type of crop needed to be processed and the time at which the crop is brought to the mill. Demand scheduling becomes key to ensure that the operating hours of the mill coincide with the availability of solar energy. Mini-grid developers cannot rely on powering a single appliance as this can negatively impact cost recovery and profitability. Various loads need to be powered by each solar system, by ensuring that the seasonality of these loads complement each other, thereby leading to maximum utilisation of the mini-grid.

Grain mills powered by diesel engines used for wheat and oilseed processing. © Oorja Development Solutions India Pvt Ltd.

While retrofitting appliances with compatible motors is a standard practice, further innovation to produce more efficient and fit-for-market appliances will result in a greater throughput at lower energy costs. While the market for efficient agro-processing appliances is nascent, appropriately designed and high-quality off-grid appliances present a significant and emerging opportunity for manufacturers.

Standardisation of solar pumps is a first step towards ensuring efficiency of appliances may receive due consideration in the future. It will be interesting to see how this initiative can spread towards other service-based appliances such as agro-processing and cold storages, thereby opening new doors for mini-grid developers.