Bringing clean energy to India's rural poor consumers creates cascading economic and social benefits, in addition to profits.
This piece originally appeared in The Economic Times (India).
The village of Rupahi, home to a small community of sugarcane farmers in Bihar, is too isolated to connect to a traditional electric grid. For cooking and lighting, its residents have traditionally paid — with cash or their time — for whatever was available. The options — kerosene, firewood, dung or diesel generators — left their houses dim and full of smoke. Many of the country’s 114 million poor rural households, comprising nearly 60% of the population, struggle with similar issues. Currently, 45% of the country’s rural poor cannot connect to a reliable source of energy. They spend an estimated $4.86 billion (INR 224 billion) each year on energy, mainly for fuels that are unreliable, harmful to the environment and hazardous to their health.
Yet, new research in a report, Power to the People: Investing in Clean Energy for the Base of the Pyramid in India, shows that demand for energy presents an opportunity for green business. If cleaner energy alternatives were available, there is a market willing to pay for them, even in very poor communities. The Washington-based World Resources Institute and the Centre for Development Finance at the Institute for Financial Management and Research in Chennai estimate the potential market for clean energy products and services among India’s rural poor at $2.11 billion a year (INR 97.28 billion). This conservative assessment of the market potential signals a huge opportunity for consumers and clean energy companies alike. Companies surveyed for the report that supply clean energy products and services to the rural poor have seen annual gross revenue grow by an average of 36% since 2004. As revenues have grown, so have the number of rural villagers with access to clean and reliable energy.
A new perspective that regards the rural poor as a customer base demanding functional energy solutions signals a very different approach to rural development.
Installed at the community level, small hydro and biomass gasification can supply electricity to an area not covered by the grid, and solar lanterns and energy-efficient stoves can replace ‘dirty’ fuels like kerosene and wood. In Rupahi, villagers now get their power from Husk Power Systems (HPS), a company that converts rice husk into electricity via 35-100 kW mini power plants. HPS provides villages in the country’s rice belt, like Rupahi, with cost-effective and environmentally-friendly electricity.
According to Gyanesh Pande, CEO of HPS:
At first, only 10 of the 32 households in Rupahi made the decision to take electricity from HPS. By the time the electric cables were being laid out, all 32 households had applied for HPS’ electricity services.
A new perspective that regards the rural poor as a customer base demanding functional energy solutions signals a very different approach to rural development. But it is an approach that, when combined with a focus on expanding clean energy and attention to business-NGO-government collaboration on creating an enabling policy and infrastructure environment, creates cascading economic and social benefits in addition to profits. Reliable electricity acts as an economic multiplier allowing businesses to stay open later and use refrigeration to keep products fresh.
In one small Indian market, a company rents solar lanterns to street vendors for a few rupees. According to Jigyesh, a vegetable vendor in Karnataka’s Hassan village:
The solar lanterns allow me to keep my stall open past dark and cost only INR 150 a month. The kerosene lantern I used earlier gave poor light and cost almost INR 500 a month. The solar lantern also produces less heat, so the vegetables stay fresh longer.
Clean energy companies have the technologies in place that provide strong potential for growth, but need to first overcome barriers in distribution and pricing of their products to be accessible to the poor.
Investors can assist the market’s growth by providing clean energy companies looking to scale with patient capital that will allow companies to improve distribution and develop innovative financing mechanisms, enabling consumers to purchase their products.
Intermediaries such as WRI’s New Ventures initiative for environmental entrepreneurship and CDF’s Rural Market Insight group, which works with HPS and other clean energy companies in India, can connect investors with promising emerging businesses in the sector. With the help of patient capital, clean energy entrepreneurs will have a significant opportunity to grow their markets and create profits while also providing rural Indians with access to clean, reliable and environmentally-friendly electricity.
Jamshyd Godrej is chairman of the board of Godrej & Boyce Manufacturing Co., and a member of WRI's Board of Directors. This post was co-authored by Jessica Wallack, former director of the Centre for Development Finance.