Joint Indo-Norwegian cooperation on a Public-Private-People Partnership for solar PV electrification of 30 villages in India
Based on the experience and models gained in Scatec Solar’s pilot project completed in January 2009, as well as the realization that new partnerships are needed to attract more private investments to the renewable energy sector, the Norwegian and Indian governments have decided to form a Private-Public-Partnership with Scatec Solar to build another 30 village Solar PV plants.
The aim of the project which is now under way is to gain further experience with technical, financial and organisational issues related to the scaling up of village electrification by renewable energy in rural areas.
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| One of Scatec Solar’s two pilot installations, this one in Gopalpura village where a charging hub is powered by solar panels based on thin film technology. |
Project outline:
The overall motivation and long-term goal of the project is to increase electrification in rural areas in the developing world by use of renewable energy (solar PV) leading to poverty alleviation and the mitigation of climate change.
More specifically, the twin goals of the project are:
- To gain experience regarding the technical, organizational as well as the economic aspects related to Community Solar Power Plants (CSPPs);
- To design a proposal for a cost-effective incentive mechanism required for a large-scale roll-out of CSPPs through public-private-people partnerships, based on the data collected and know-how developed in the project.
To lift millions of people out of poverty and avoid migration to cities, the development of rural economies is of key importance. Access to energy is a critical component in this regard. Even though rural electrification has been high on the political agenda for decades, the actual development taking place on the ground has been slow.
There is a growing awareness that the time is ripe for testing out new models and new partnerships in order to provide energy, especially clean and reliable energy, for rural areas. Renewable energy, hereunder solar photovoltaic, is on its way to become the most cost-efficient option for rural electrification on a life cycle basis, beating the conventional energy options, such as diesel based power systems and the extension of the national grid. Still, high upfront capital investments coupled with the complexities of working in rural markets is proving to be the main impediments for a commercial roll-out. The question therefore, is how to make rural electrification an interesting market opportunity for the private sector.
Project Activities and methodology
Under the project, solar power plants will be built in around 30 villages in 4 different states in India. Different models and solutions will be tested with regards to technology and local revenue models, as well as different cooperation models with local Non-governmental organisations (NGOs) and entrepreneurs. The selected states are: Jharkhand, Madhya Pradesh, Uttar Pradesh and Leh-Ladakh.
Active local ownership and active community involvement is a crucial objective of the project, as this is a prerequisite for long-term sustainability. Identification of successful models for operation and maintenance, responsibility for the plant and utilization of the electricity are keys to the success of the project. The model is based on the assumption that it is possible to train a local entrepreneur to take care of the daily operations and maintenance of the plant, as well as revenue collection. To ensure broad acceptance, a Village Energy Committee (VEC) will be formed which will be involved in major decisions.
The methodology will be based on a “bottom-up-approach”. Scatec Solar will work closely with local Non-governmental organisations (NGOs), who act as door openers into the project villages. The NGOs work to mobilize the villagers and analyse the needs of the community. Further, Scatec Solar’s CSPP models are based on the idea of providing solar power “beyond the light bulb”. This means that the solar power plants are designed so as to make electricity available also for commercial activity. The NGOs work with the villagers to promote the development of income generating activities which may take advantage of the arrival of electricity to the village. Scatec Solar also plans to involve financing institutions where appropriate, which may provide suitable credit schemes for local entrepreneurs, such as micro financing institutions.
One of the major outcomes of this project will be a robust business model based on a local revenue scheme that is sustainable and easily replicable. The local payment scheme will use predefined fees and tariffs for the use of electricity. The electricity tariffs have been set by considering the local willingness to pay, based on what the villagers have had to pay for conventional sources of energy, such as kerosene and diesel. The local revenue model is designed to at least cover operation costs, as well as the renewal of components. The aim is to test out a local revenue model that in time will generate a positive cash flow.
The NGOs that are participating in the project are; Pradan, Haritika, Srijan, LeDEG and Development Alternatives (see below for websites). They are all involved in different kinds of livelihood creation and will be responsible for a different number of villages where the project implementation will take place.
Examples of commercial activities that might take place with the arrival of electricity are silk reeling, drip irrigation, flour mills, butter churner and milk chilling.
Outcomes of the project
The deployment of solar power plant solutions in villages with different requirements combined with the testing out of different concepts and models will result in a knowledge pool and help establish a few techno-commercial successful solutions for future roll-out.
Previous rural electrification projects by solar energy show that there is an urgent need for innovative financing solutions to incentivize the private sector to engage in rural electrification. Local revenues are not able to cover the cost of using renewable energy, which typically have a high upfront capital investment. Current public schemes have not been sufficiently successful in ensuring the needed roll-out, resulting in slow progress and lack of scalability. A review of case studies show that many previous rural electrification efforts by solar energy have been dominated by “hit-and-run” projects: the plant has been built, but the operations of the system have failed due to a lack of operational responsibilities and incentives for ensuring continuous power production. Thus, one of the outcomes of the project should be the development of an effective incentive mechanism which may facilitate a large-scale roll-out of CSPPs through public-private-people partnerships. Such a mechanism could take the form of a production-based rather than investment-based financing scheme, which will give an incentive to ensure quality performance and continuous power production throughout the lifespan of the plant. The aim of a production-based incentive for off-grid would be to make electricity affordable for local users, make projects attractive to implementers and attract private sector investment by decreasing the financial risk.
The incentive must be guaranteed for a long-term period, preferably 20 years, and will require strong policy support and a regulatory framework. An important benefit for the granting institution is that a production-based scheme, as compared to an investment-based scheme, distributes the government investments over several years instead of having to pay 100 % of the capital expenditure up-front.