By H. V. Kumar

The Questions

Energy economists say payback period for solar photovoltaic products is 10-15 years. Social scientists argue that selling expensive solar lights to poor populations is undesirable. Governments grapple with the dilemma of unbridled population growth, limited resources and widening energy deficits. They are unable to establish new power stations and extend the grid. Where there is an electricity line, there is no power. Where there is no power, people simply live in the dark or depend on biomass or kerosene. Biomass is scarce, kerosene is expensive, so what are the solutions?

Millions of rural homes in a poor country like India know nothing about climate change. Nor do they care. They just want light, whether it is from biomass, kerosene or solar. The solar lights for the home--definitely a good solution, but who has the money to buy these expensive products? Pay one lump sum for a product that has no recurring costs or pay the monthly electricity bills? But then where is the electricity? Is it inevitable that Governments have to continue subsidizing renewable energy, especially the solar photovoltaic industry? Is it possible to sell solar lights to poor rural homes without any subsidies? Is it possible to compete with Governments who give away solar lights free; is it possible to ensure good quality and reliable after-sales service? Can the solar light be marketed like any other consumer product? Will the solar lights work through their designed lifetime? If the power crisis is so serious, why is no one buying solar lights? Are they waiting for government to give it to them free? Or is it that they cannot afford them? If they can buy bicycles and mobile phones on credit, why are the banks not giving them loans to buy solar lights? How does a solar light help generate income? Isn’t it just a device that will light up a home, an unproductive use of money? Considering that some poor rural homes spent up to 1/3 of their incomes on energy, won’t the additional financial burden of a loan ruin them? For a vendor of solar lights, is it worth the effort building a large network of sales and service outlets to cater to a scattered rural population  or is it a better idea to sell in bulk to the Government who will distribute them free or at subsidized prices to the poor? What are the answers?

Renewable Energy, the Only Alternative?

Half of India does not access to consistent supply of electricity. The country reels under an energy crisis, and the problem will be accentuated in the years to come, given the pace of growth in population and economic activity and the laggardness in establishing new power utilities and improving distribution infrastructure. There is virtually no hope for millions of rural households who burn biomass or kerosene to light up their homes.

Income Losses: Faster Paybacks

The mainstay for lighting, Kerosene, is heavily subsidized, sells at a fraction of its real cost. Unfortunately, such price distortions result in Kerosene being spirited away to adulterate more expensive petroproducts and that means that the retail shops run by government run short of supplies. For a villager, the kerosene shop may be 5-10 kms away and he has to take a long walk to buy Kerosene. Often, he is disappointed when he arrives at the shop to be told to come back another day because there is no kerosene left. The public distribution system has pre-determined each household’s consumption and the rationed supplies squeeze the householder further--he has to buy Kerosene anyway at higher prices (often in the black market) to make up for the shortfall.

Have you thought of the financial impact? The villager often spends money traveling to the kerosene shop, sometimes several times for the same errand. He sacrifices his livelihood for that day--lesser income, or if he is a farm laborer, he loses his entire daily income. Running out of cheap kerosene, he pays through his nose to buy expensive kerosene outside the government shop system (called the “ration” shops or public distribution system). Work that out--all this he saves when he buys a solar light.

Now, the energy economist has something more to evaluate his investment proposition: Price of not remaining in the dark = Cost of Kerosene (low-cost Government shop + high-cost Non-Government shop) + Cost of transport to Kerosene Shop (maybe cost of several trips) + Lost earnings from lost day’s wages (maybe many days). So, it is just not a comparison of costs of photovoltaic, fuel and grid power.

Everyone accepts that currently the tariffs for grid power are so low that the crossover will take many more years, and till that happens, no other source of energy, including solar photovoltaic, can be cheaper. But when grid power itself is not available, why compare coals and apples?

Solar Light Is Not Just Indulgence

What happens when you have no light at home? Predictable answers: Difficult, inconvenient, education suffers, maybe population rises. But you probe further and you also hear how home businesses now work longer hours, small shops attract more clientele at night and there is scope for supplementing incomes in the extra time that is available. For example, I know of a farm laborer who plucks areca nuts for a living during the day. He bought solar lights, now after dark, he is able to shell the nuts and add to his income, instead of simply selling the unhusked nuts.

Overturning the Sachet Principle

The users see tangible financial gains in investing in the expensive solar light. Western paradigms don’t fit rural India--no one compares solar photovoltaic with grid power costs, the incomes arising from tapping additional economic opportunities compensate handsomely for the extra financial outgo. Financial outgo--I am not sure of that either, households spent large sums of money on kerosene, and they are relieved to be free from periodical fund outflows, and wary of the continuing impact of rising crude prices. Solar light vendors trumpet the solar light to be “freedom from bondage”--no dependence on the inefficient government retail shop, no more waiting for grid power and immunity from crude oil price volatility. The solar light stokes the aspirations of the small rural household like nothing else has, in a manner that most of us will never understand, the fulfillment of a life’s dream to have their houses bathed in the warm glow of the white CFL solar light, no more the flicker and the obnoxious smell of burning kerosene.

Credit Is the Driver

Most of rural India needs energy solutions, but cannot attain it without financial backing. Buying a solar light is not easy--the cheapest solar home light system cost US$300 upwards. Conventional credit delivery platforms like Banks and Microcredit institutions were reluctant to lend, they have seen that most solar lights failed to work due to poor product quality, non-existent after-sales service, inadequate customer education and above all, the user’s indifference to a product for which he has not paid anything for--all thanks to the billions of Rupees spent by the Government and NGOs, for whom giving away solar lights was one more tool for poverty alleviation. In over 3 decades, millions of solar lights have been distributed, thus, they hardly worked beyond the first few weeks. The challenge is to enlarge the commitment of financial institutions to financing solar light bought by rural households and businesses. Give them a loan and empower them to buy the solar light, repaying in easy installments. The solar light is a consumer product like many others, it is an aspiration for which no price is too high and a matter of pride to pay for and use it for a long period of time. The pride of ownership--this was missing in earlier government/NGO interventions was the psychological tool that guaranteed loan repayments. Use some motivational tools such as smaller down payments, reduced interest rates and longer repayment periods, and you have an attractive loan product that helps sell more solar lights. In India, even a Merc is sold at low interest rates!

Successful Story Already

Some years ago, the United Nations Environment Programme facilitated a unique initiative to commercialize the market for solar home light systems in rural India, moving away from government dominance of the industry and prodding the private sector to wrest the initiative of expanding the market with the help of attractive loan products. Started in a small scale in the South Indian state of Karnataka, over 2,000 bank branches started lending to small rural households and businesses to enable them to buy solar home systems. None of the borrowers were recipients of any subsidies. They paid out of their hard-earned incomes the down payments and loan installments. Vendors expanded their sales and service networks, offering a 5-year service contract, to reach out to far-flung areas and assure the bankers that they would stand by their products and make sure they worked--at least for the period the loans remain unpaid. The strategy worked, and a strong credit culture was born--vendors now used the credit tool to sell their products, more and more customers walked in to buy solar lights and the past legacy of “solar lights are not reliable” was expunged. Sales grew manifold as did market penetration and Karnataka became the first State in India where the direct sales of solar lights outdid the number of solar lights distributed free (or with subsidy) by the Government. No one wants the Government’s benevolence anymore, they have stopped waiting for grid power; they buy solar lights with their own money, they are truly free.

Capitalism Is the Best Tonic

For those doubting Thomases who think the solar home light is simply a lifestyle product, and “unproductive” at that, you must witness the innovation at work in the marketplace now that the industry has been unshackled from a regimented approach. Small entrepreneurs buy solar photovoltaic panels, connect them to central charging stations and hire out the batteries so charged, to street hawkers and small business establishments for a small fee which is lower than what they spent on kerosene lamps. Housewives are sharing panels to wire up their neighboring houses. Small shops in rural areas are reporting jumps in business volumes and popularity now that their customers can buy in the ambience of the white light. All banks in the State of Karnataka have the solar loans in their asset portfolios. The solar shop is just around the corner as is the friendly neighborhood bank.

Do you sense the opportunity?

H V Kumar is Director of Crestar Capital India Private Limited, Mumbai, India. Kumar, a renewable energy consultant, helps manage projects and has been involved with management of a recent solar home light initiative in India. 

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