In this episode of the Power for All podcast, William Brent speaks with Rajneesh Rana of Energy Efficiency Services Limited (EESL). In support of this year's UN food system summit, the conversation with EESL is part of a special series on the critical link between food systems and decentralized renewable energy. The discussion aims to shed light on game changing ideas in Africa and Asia that can help ensure sustainable energy for all, improve farmer's lives, and support economic growth.
EESL has been a global leader in driving down the costs of off-grid and weak-grid appliances through bulk procurement. The organisation has done this with LED lighting in India and announced a tender for 10 million solar home systems for member countries of the International Solar Alliance (ISA). Along with this, Rajneesh has been leading the project on procurement of solar pumps for irrigation in which a tender for 320,000 pumps for India early this year was floated, which followed an earlier tender for about 270,000 pumps for 22 International Solar Alliance member countries. The idea behind this is to scale up the use of renewable energy appliances while also helping rural communities, especially farmers by bringing down the cost.
Benefits of Bulk Procurement
The advantages of bulk procurement or aggregation of demand are both beneficial for the demand and supply side of RE appliances. Aggregating and creating larger demand results in suppliers quoting lesser profit margins since the number of units is huge. This brings down the cost considerably. Secondly, the quality of materials is of a good standard as such large scale suppliers will be vetted very cautiously, and only those entities that are equipped with a large production capacity would participate. Thirdly, as the scale is large, after sale services can be negotiated as part of the service, ensuring better quality of appliances to the end-user.
Moreover, when the Indian government decided to centralize solar pump procurement and then subsidize it for farmers, a price benchmark was set, after thorough discussions with suppliers and manufacturers. Due to this method of aggregation of demand, the cost of procurement was 20-25% less than the benchmark price. Even projects with ISA in member countries in Africa saw that the prices of these appliances were around 40% lower than the prevailing market prices.
The solar agricultural pump is not a simple machine to procure in large quantities. It is not a low-cost product either. Many factors determine the installation and usage of it such as, water table levels, land size, small/large holder farmers etc. Before EESL took up the tender for ISA, a detailed survey of ground level information was collected in order to understand the needs of different regions in the 22 member countries. Two rounds of meetings with suppliers, experts and other stakeholders in the supply chain were conducted in order to gain insight into cost, types of solar pumps and other technical and commercial aspects. Committee recommendations and suppliers’ inputs were integrated into the tender as well.
On the demand side of things, each farmer may have different levels of utility for solar pumps and the product needs to be tailored to local needs, keeping in mind not just the end user, but also the ecological and environmental impacts. At the same time, on the supply end, it is necessary to ascertain cost, quality and capacity of the suppliers beforehand, to ensure the right fit. EESL was able to collect the required details and work out a plan to see through the bulk procurement process for ISA member countries.
Data Driven Procurement
Operation and maintenance of such products is essential as they are used in varying and sometimes harsh conditions. Given the nature of its use, EESL has focussed on a service-based agreement as opposed to a supply-based agreement, wherein after sale services are also included for better service and quality standards. Additionally, the payments are also made in a staggered manner. For instance, 80% of the payment is made upfront and the remaining amount is paid over a 4-5 year period annually. This also makes it easier for farmers who are not familiar with legal documentation and to access after-sale services.
Since such a tender was undertaken by EESL on such a large scale, spanning several countries for the first time, acquiring ground-level data proved to be a challenge. A thorough, in-depth understanding requires a lot of minute data collection. This is a time-consuming process which needs to be accounted for to get the tender ready in time. Moreover, in handling bulk procurement for other agriculture-based DRE products, Rajneesh pointed out that data collection becomes pertinent to understand both demand and supply side of things. The first bulk procurement of a product is usually the most challenging, and most of the gaps can be filled if adequate ground data is available.