Jyoti Prasad Painuly

UNEP Risoe Centre on Energy, Climate and Sustainable Development, Risoe National laboratory, DK-4000, Denmark, email: j. p.painuly@risoe. dk

and

Eric Usher

Energy and Ozon Action Unit — Division of Technology, Industry and Economics — United
Nations Environment Programme, 39-43 quai Andre Citroen, 75739 Paris, email:

eric. usher@unep. fr

Abstract: Renewable Energy is expected to contribute significantly in future to World Energy Supply. It holds tremendous potential for countries like India where approximately seventy percent of the rural households are still without access to electricity. These households continue to rely on less efficient and polluting energy sources, typically biomass for cooking and heating and kerosene for lighting. Even when connected to grid, problems of capacity shortages and inconsistent quality plague the power supply, especially in rural and semi urban areas in most parts of India. Despite high initial costs, Solar Home Systems (SHS) emerge as an attractive option in the context of costly or unreliable alternatives and escalating grid power tariffs. Barrier to the growth of SHS market include a lack of access to financing, awareness, and risk perception associated with the technology, new to the customers of SHS and financing community. Consultations with stakeholders were held and an intervention was designed to address these barriers through creation of a credit facility in partnership with two banks having wide reach to the potential customers. The facility provides loan to the customers and a small subsidy to buy down high cost of the credit, which is designed to reduce over the three-year operation of the facility, with a target to reach market rates of interest at the end of the project. Technical support, awareness raising strategies and training were included as a part of the overall strategy. The credit facility was launched between April and June 2003 by the two banks. Early indications on sales have been very encouraging and the facility is expected to surpass the target of 5000 SHS sales in two years well in advance. Feedback mechanisms such as customer surveys, new initiatives to reach the poor households, and ongoing consultations with stakeholders etc. are also part of the market development strategy.

1. Introduction

Renewable Energy (RE) is expected to contribute significantly in future to World Energy Supply. Though estimates vary, studies indicate significant growth potential for renewables, particularly in scenarios where environmental constraints are imposed, for example on CO2 emissions. According to IEA estimates, a scenario that considers new energy and environment policies in OECD countries, the share of renewables could reach 25 percent by 2030 (IEA, 2002).

The implication of the growing share of world energy needs mean RE can be expected to have a substantial share of energy sector investment which in total is estimated to be US$16 trillion over the next 30 years, 60% for the electricity sector alone. This is three times the amount invested in the last 30 years, and is due to the expected doubling of global electricity demand. The investment potential is huge even if renewables were to
capture only 3-5% of this market. According to IEA (2002), globally installed renewable energy capacity is expected to more than double over the next ten years from approx. 130 GW in 2003 to 300 Gw in 2013. Renewable energy is thus a multi-billion dollar industry and the most dynamic sector of the global energy market.

Among the developing countries, India has been at the forefront of RE development with a full-fledged Ministry of Non-Conventional Energy Sources (MNES) dedicated to the promotion of RE. The MNES Policy Statement on Renewable Energy includes meeting minimum rural energy needs, providing decentralised / off-grid energy supply for agriculture, industry, commercial and household sectors in rural and urban areas; and, generating and supplying quality grid power. The medium-term goals, to 2012, include 10% of new power capacity addition from renewables, progressive electrification by renewables of; 18,000 villages in remote areas, deployment of five million solar lanterns, two million solar home lighting systems, and one million solar water heating systems in the household segment (MNES, 2002-03 and IEA, 2001).

With approximately seventy percent of rural households still without access to electricity in India, less efficient and polluting energy sources — typically biomass for cooking and heating, and kerosene for lighting — are used in rural areas, with an adverse impact on the health and economic development of the users, as well as the environment. Even when connected to the grid, problems of capacity shortages and inconsistent quality plague the power supply, especially in rural and semi urban areas in most parts of India, including Karnataka. This has led households to look to alternative power supply systems such as inverters, diesel generators, and solar PV systems. But use of solar PV systems is on a very small-scale due to several barriers.