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Clean Energy Solutions Bringing Light to Millions of India's Poorest Households

The under-served rural Indian market offers opportunities for investors to support the sustainable energy solutions of the future.

India is facing a severe energy crunch. Roughly four hundred million rural inhabitants – more than the entire U.S. population – still lack electricity, making energy access a development imperative. At the same time, economic growth is sending national energy requirements soaring. India’s GDP is on pace to grow by 8% in 2010, and domestic energy demand is predicted to more than double by 2030.

The energy shortage is most acute among India’s rural poor, the majority of whom rely on relatively inefficient, polluting and health-threatening fuels such as kerosene and firewood for their lighting and cooking needs. As India’s government and energy sector seek to provide more modern and reliable heating and lighting services to these communities, a fledgling market in cleaner, more efficient energy products is emerging. This huge and under-served rural Indian market offers significant opportunities for investors looking to support the sustainable energy solutions of the future.

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In recent years, a number of domestic companies have developed clean energy products and services specifically targeting India’s rural “Base of the Pyramid” population – the 114 million households who spend less than US$75 a month on goods and services. About 45 percent of these families do not have reliable access to electricity and rely on kerosene for lighting, while over 85 percent largely rely on firewood and dung for cooking. Successful (though small scale) business models such as solar-based home electricity systems and lanterns, energy-efficient cookstoves, and electricity services generated from decentralized sources such as micro hydro and biomass gasifiers are increasingly finding a market among such households.

India’s government has also facilitated the emergence of this rural clean energy sector by supporting distributed generation in the form of community-based, self-sufficient biomass and solar power. The recently launched National Solar Mission seeks to achieve 20 gigawatts of solar power by 2022, in part through the installation of rooftop photovoltaic systems. It also sets the specific goal of providing 20 million solar lighting systems in place of kerosene lamps to rural communities within the next dozen years. Such measures serve the government’s dual objectives of providing electricity to rural areas and reducing the trajectory of India’s greenhouse gas emissions. Several Indian states, including Andhra Pradesh, Gujarat and Haryana, are also encouraging development of the clean energy sector by instituting statewide renewable portfolio standards. These mandate that a certain percentage of electricity is generated by solar, wind or other renewable, non fossil, fuels.

Realizing this potential would be a win-win for investors, for India’s people and for the global climate: profit-making clean energy solutions bringing light to millions of India’s poorest households.

Against this encouraging backdrop, this new report by India’s Centre for Development Finance at the Institute for Financial Management and Research (CDF-IFMR) and the World Resources Institute’s New Ventures Program, seeks to enhance understanding of the investment potential of the clean energy industry serving India’s rural poor. Based on extensive field work with clean energy companies and rural BoP consumers as well as rigorous secondary research, the report showcases eleven companies selling innovative products and services to sustainably meet the energy needs of the rural poor. It also analyzes both the market opportunities and the challenges to scale up that the industry faces.

WRI and CDF-IFMR hope that these research findings and recommendations will help investors – both in India and abroad - better understand the enormous potential of this market. We believe the expansion of this sector is highly achievable through the development of more efficient business models, additional favorable national policies, and increased, targeted capital. The potential opportunity for investors is significant. We estimate the aggregated potential market for clean energy consumer products and services to be INR 97.28 billion or USD 2.11 billion per year.

Realizing this potential would be a win-win for investors, for India’s people and for the global climate: profit-making clean energy solutions bringing light to millions of India’s poorest households.

This piece originally appeared as the foreword to Power to the People: Investing in Clean Energy for the Base of the Pyramid in India.

Jessica Seddon Wallack is Director of the Centre for Development Finance.

The Centre for Development Finance at IFMR is a non-profit action research think tank focused on improving government systems’ and markets’ capacity to channel finance into sustainable, holistic development.

The Rural Market Insight group at CDF develops key insights using qualitative research methodologies and traditional market research tools to help companies and investors understand what it takes to create sustainable and scalable social enterprises in the rural context.

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