PROJECT: Designing a franchise model for conversion from diesel to renewable energy in rural India
Project Reference: AAGL-0047d
A quarter of rural India lacks access to grid-connected electricity. There are 75 million households without access to any form of electricity. The reason for such low level of consumption is not low demand, but poor access to energy. It is a national priority to deliver rural electrification in India and there are many programmes and policies to help facilitate this. However, progress remains slow.
CDKN supported TARA and cKinetics in exploring an indigenous solution to combat this deficiency, utilising the existing system of the local village entrepreneurs operating diesel generator (DG) sets and micro-grids. This system is currently not sustainable due to:
1. Rising electricity and environmental costs
2. Unsuitability for productive loads (enterprise, irrigation) which currently use stand-alone DGs
In this context, Decentralized Renewable Energy (DRE) based mini-grids are uniquely equipped to shape inclusive development by supporting productive loads in un / under-electrified rural areas.
Moreover, the existing DG micro-grids can be converted to DRE mini-grids to enable use of cleaner fuels and drive economic development. However, the nascence of the industry and the high investment requirements, necessitate the following:
1. Financial innovation to enable the conversion
2. Standardized operating and technical construct (to enable financiers to be comfortable)
CDKN supported the team to develop a franchising approach for conversion of DG operators to DRE which was be done through:
1. Establishing commercially viable pilot projects showcasing conversion of DG operators to DRE (mini-grid) entrepreneurs, with triple bottom-line impact on the electricity-starved rural population.
2. Crafting evidence and identifying enabling conditions for an aggregator of DG operators / Cluster Level Entity to enter the space (to ensure scaling up)
A ‘hire to own’ model was proposed wherein the Master franchisor (TARA and cKinetics in this project) established a strategic collaboration with a soft funder and enable the lease of the plant and equipment to the franchisee (DG operator) with an option to purchase the asset after a pre-determined period.
As a comprehensive solution for community’s electricity need, DRE mini-grids enable:
1. Economic development, by servicing micro-enterprises and creating employment
2. Savings of up to 35%, by maintaining pricing slightly below current share-of-wallet, which are typically deployed in education and enterprise development
3. CO2 emission reductions as the DG operators use consume 18 litres of diesel a day (average) and emit 47.3 kg of CO2.
The objective of this project was to remove energy poverty and use access to reliable and affordable clean electricity as a means to bring about economic development and environmental benefits in poverty ridden, rural areas of India. The outputs of this project include:
Setting up pilot project: 5 DRE mini-grid based power plants have been established in a cluster of villages in an electricity deficient rural area with engagement of local DG player(s).
Development of a Franchising package including: Business processes and systems, value added technology systems and standard operations management package
Innovative financial structuring and interventions: Interventions and financing structures, which will help increase capital flow and help achieve financial closure of projects, have been tested.
Engagement model for DG set operators including: Business case for DG operators, framework for identifying DG operators, and process and mode of engagement with DG operators
Plan for scale: Plan for pan-India roll out of the Financing Approach / Package with conversion of DG Operators to achieve scale and replicability
For more details, read a Powerpoint Presentation on the aims and activities of the project.
This project is one of a series of pilots CDKN invested in under a Climate and Development Business network which aims to enable business to business partnerships that demonstrate the potential to deliver sustained climate, poverty reduction and economic growth benefits.
CDKN Funding: £120,000