Decentralized renewable power is seeing a flurry of business activity in India, attracting at least 69 companies so far, according to a recent survey. Giants like TATA Solar are targeting roof-top solar, while a host of start-ups such as OMC Power, Orb Energy, Simpa Networks, Gram Power, Boond, Husk Power and Mera Gao Power are going after the mini-grid opportunity.
Real money is starting to move into mini-grids. Rockefeller Foundation put up $75 million in 2015 to electrify 1,000 villages through mini-grids in three years, and prove the commercial viability of the mini-grid business model (learn more in our Q&A with the Foundation). Simpa raised $4 million in debt financing from OPIC and received a $6 million loan from the Asian Development Bank. Others have brought in millions in equity finance.
But for more project finance, especially debt, to flow, the outstanding issue remains policy uncertainty around what happens if and when the grid reaches the mini-grids. Mini-grid companies need one of three things: locked-in PPAs with state distribution companies, acquisition of their assets by the state grid at fair market price, or the right to act as the ongoing last-mile energy service infrastructure. Without these guarantees, investment will not flow into the sector at the level required to scale.
Fortunately, signs are emerging that both state and federal policies are falling into place. Uttar Pradesh has already implemented mini-grid policies that seek to address this uncertainty, with other states expected to follow suit. And the Ministry of New and Renewable Energy (MNRE) is also promulgating a federal mini-grid policy, and providing preferential treatment to companies that meet standards on service quality and local content.
And companies are not only providing basic electricity to tens of thousands of households, many are also delivering power for small businesses and for agricultural purposes. OMC in particular has pioneered an “ABC” model that powers an anchor (A) mobile tower, nearby small businesses (B) , as well as surrounding village communities (C). Others like Claro Energy are powering water pumps with solar for farming.
The new generation of mini-grid companies are proving that decentralized renewables are in demand, with Indians willing to pay for reliable, clean power, and that village mini-grids can deploy at speed. For example, a 100 kilowatt capacity mini-grid can be up and running within 90 days, including obtaining land rights. Smaller mini-grids can take as little as a few days.
The companies have also created hundreds of jobs in some of the poorest states of India, contributing significantly to regional development.