analysis

Analysis: Better financing can boost livelihoods around renewables

Solar-powered irrigation has become popular in India in part because of a widely implemented central government scheme. Photo credit: CLEAN.

By Juhi Anand

Innovative funding for initiatives and applications of decentralised renewable energy will boost demand in India while generating livelihood options for a large number of people.

Renewable energy will continue to be an important part of India’s energy mix. The consistent rise of renewable energy applications and lower costs is a positive trend. But one of the biggest challenges facing the sector is the lack of available budgetary resources and investments from financial institutions.

To overcome this, the involvement, contribution and collaboration of the public and private sectors is vital.

A recent CLEAN report surveying financial institutions in India, including banks (public, private, small finance, regional and state cooperatives), microfinance and development finance institutions, non-banking financial companies and foundations found that enterprises providing renewable energy solutions to rural populations have gained the interest of the government and the private sector.

For instance, the Ministry of New and Renewable Energy (MNRE) has a draft policy framework for decentralised renewable energy (DRE) livelihood applications in rural areas. Although the final policy is yet to be notified, this development has been seen as a good sign by financial institutions who were already investing in such businesses and now have further incentive to continue to do so.

As the DRE sector in India continues to expand and contribute to various livelihood opportunities, it is important to continue to sensitise financial institutions and create awareness so that they are confident to continue lending to entrepreneurs and end-consumers in the sector. The report identified key areas that need improvement so as to boost the sector further.

Overcoming risks

One of the major risks highlighted by financial institutions was system non-performance. In addition, non-scalable models, loan defaults, lack of after-sales services, changes in government policies, inability to provide collateral, lack of formal lending history, seasonal and unpredictable income, and natural calamities were other areas of concern.

Most microfinance institutions (MFIs) use risk assessment tools to base their loan offers on, and banks have in-house scorecards to capture demographic information, bureau footprint and cash flow analysis.

However, a standardised risk assessment framework and strategies for overcoming these risks would support growth and instil confidence among financiers in the sector.

The respondents also recommended improvement in after-sales services and operations and maintenance facilities. Enterprises need to present scalable business models to make the project worth financing.

In addition to that, lines of concessional credit, interest subvention, and guarantees by corporate producers can be add-ons in boosting the sector.

Expanding lending opportunities

While the demand for income-generating products is gaining momentum, this is still largely limited to locations where energy access is still an issue. A lot more needs to be done to facilitate a shift from traditional products to DRE products.

These new technologies have proven to contribute to an increase in income, as well as complement traditional products in some areas. The demand for higher valued DRE-powered agriculture and non-agriculture applications and products, especially pumps and mini-grids, has also gone up across India. This has helped in increasing employment and income.

Some MFIs have contributed to sensitising people by using strategic outreach mechanisms including distributing pamphlets, handouts, monthly magazines and getting civil society organizations involved as part of these campaigns.

Marketing tools like word of mouth, radio jingles, WhatsApp, leaflets and flyers, demo camps and loan fairs have also been used, along with training programmes organised for financiers on funding solar-based DRE solutions by the Bankers Institute of Rural Development.

However, there is still a strong lack of awareness about these applications, especially non-agriculture productive applications in rural areas. A concerted effort is required by all stakeholders in order to build awareness levels of bankers and other stakeholders.

While solar home systems (SHS), lighting solutions and water pumps are popular DRE products, other applications like sewing machines, blacksmith blowers, micro-grids, BLDC (brush-less direct current) fans, water purifiers, water heaters, charkhas, bulk milk chillers, and cookstoves are also some of the products currently being financed by surveyed respondents.

There is also scope for e-rickshaws, charging stations with battery-swapping facilities, pottery wheels, roti rolling machines, aerators, cold storages, fencing, and refrigerators.

In addition, non-solar applications include biomass-fuelled plants, electric vehicles, and energy-efficient inverters. This suite of DRE applications that are gradually gaining traction is encouraging for financiers.

Developing innovative financial solutions

While many respondents said they had dedicated financial products in the form of debt, equity or revolving funds to support DRE applications and enterprises, most of these products were for solar home systems, solar lamps, and solar pumps.

SHS and lamps are low-value products and have been around for a while. Solar pumps, although high value, have gained popularity owing to the PM-KUSUM Yojna. For other products, there is still a need for financial support.

This can be made possible with outreach and information available on the benefits of such applications to businesses and end-users, to help financial institutions develop targeted products and innovative solutions to support enterprises and consumers.

Learning from how PM-KUSUM boosted sales for solar water pumps, similar schemes with government backing for other livelihood applications could go a long way in raising awareness and generating demand. In addition, many respondents said there is a need for alternative forms of funding or guarantee funds set up by the government to support high-value products.

Nearly 44% of those surveyed stated that they were familiar with most DRE applications available in the market, and 46% said they knew about specific traditional products. About 10% said they were not aware of these applications but expressed interest in finding out more.

There is a need for awareness programmes on a continuous basis both for the financiers as well as end-users to increase the demand of DRE applications, as well as meaningful engagement with different sector stakeholders to build a better understanding of new innovative products and applications, and new emerging opportunities.

First published in India Climate Dialogue.

Juhi Anand is associate (access to finance) at the Clean Energy Access Network (CLEAN), a non-profit industry body.

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