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Off-Grid Generation Drives India's Renewable Energy Growth
In an effort to tackle growth in greenhouse gas emissions and meaningfully address the challenge of energy poverty in India, the government plans to install 175 GW of renewable energy capacity by 2022 to help provide electricity to the 309 million Indians who currently lack access to modern energy services.
Given this ambitious target and the country’s enormous demand for electricity, India is growing its off-grid renewable energy capacity at an unprecedented rate. While utility-scale solar still currently drives a large share of this growth, the off-grid market has seen remarkable progress in the past year. This is a trend largely driven by private developers, social entrepreneurs, and equity investors.
According to the ‘Financing India’s Clean Energy Transition’ market report published by Bloomberg New Energy Finance, the country had over 500 MW of cumulative off-grid solar capacity at the end of 2016. This represents the combined capacities of both small energy grids and rooftop solar.
One of the companies with a foot on the pedal of India’s renewable-energy growth is OMC. The private renewable-energy developer is headed by former mobile tech executives. It is tucked away in a newly-constructed office complex in Delhi’s emerging tech hub of Gurgaon. It has innovative approaches which combine mobile technology infrastructure and solar development.
Rohit Chandra is the vice chairman and executive director of OMC. He has spent a good portion of his career overseeing the expansion of telecommunication towers in East Africa and Asia for large multinational tech companies. He is now using a similar strategy to expand distributed power generation in India.
“The concept of distributed infrastructure borrows heavily from the telecom-industry technology leapfrog. In places such as India, you even had half a million telecom towers deployed at the rate of 10,000 towers a month,” Chandra said.
Telecom Towers
OMC is an energy service company (ESCO) that is part of the Rockefeller Foundation’s Smart Power India (SPI) initiative. The company has 100 kW-capacity microgrid plants with a 99.9 percent up-time at 1000 sites across the country.
OMC’s distributed power generation model depends heavily on telecom towers’ ‘anchor loads.’ Telecom towers account for 70 percent power off-take at OMC sites and a further 36 percent of the company’s total earned EBIDTA.
Sarraju Narasinga Rao, CTO of OMC, uses high-impact technology tools to illustrate the company’s core business. On a large screen at his office, he projected a high-resolution video of drone imagery sweeping across vast geographical areas and capturing stunning imagery of hundreds of gleaming solar panels at OMC sites. David Letterman was shown interviewing locals, some of whom were experiencing electricity for the first time.
And the company’s ambitions to scale are equally big. OMC is currently undertaking four PPA obligations for the largest telecom tower service providers in India. It aims to build out 250 additional plants at a cost of approximately $150,000 per site.
Capital Costs
Because the company currently prices its power between INR 22/kWh and INR 25/kWh, it recognizes that increasing revenue through developing new loads is its most effective strategy.
While the company’s long-term 10-15 year structured PPAs assure lenders of predictable cash flow, branching out into the company’s B and C segments, which consist of microenterprises and consumers, requires additional financing.
Chandra said access to low-cost capital is a major hurdle to achieving scale quickly. “This is a risk especially for long-term capital and hedging. The cost of capital in India is 12-13 percent – and that is expensive.”
“For the next funding round, we are seeking to raise $40,000 in debt financing,” Chandra said. “We are hopeful that we can at least raise additional capital to generate between 8 percent and 9 percent return on equity.”
Dynamic Collaboration
The collegial sense of cooperation that exists among competing ESCOs in the distributed power generation space in India is not hard to miss. They know each other and they learn from one another.
Smart Power India has done a lot of work to nurture these relationships. The initiative was incubated by the Rockefeller Foundation in 2015 to “build, catalyze, create and scale the renewables market.”
“We are creating an ecosystem of financiers, suppliers and investors and building evidence for commercial viability and sustainability,” said Sidhartha Vermani, director of strategy and development at Smart Power India (SPI). “Once there is sufficient proof – perhaps a tipping point of around 300–500 profitable sites – external stakeholders can easily jump in.”
Livelihood Development
This unique collaboration has drawn together ESCOs that could not have been more different from OMC. TARAUrja and D.E.S.I. Power are nonprofit ESCOs under SPI with a strong community–driven focus.
Addressing India’s energy poverty challenge by reaching the 309 million people currently without access to electricity in India sits high on the agendas of both organizations.
TARAUrja’s business model is predicated upon robust community engagement, optimal load acquisition, and microenterprise development. This strategy – which the company popularly refers to as CELAMED – means that TARAUrja’s business model is successful to the extent it is able to build sufficient demand for power in the communities where it situates the 30-kilowatt peak microgrids.
D.E.S.I. Power is building load uptake through creating easy access to technologies on demand such as reverse-osmosis filtration systems and water pumps. It has installed 3-horsepower-capacity pumps at 10 sites in the state of Bihar. Each pump is powered by a 1.2 kW minigrid which, in addition, also provides energy for lighting and basic electricity needs for two households.
Growth Path
Both models are inherently difficult to implement. But if implemented successfully, they have the potential for great social impact. ESCOs such as OMC, TARAUrja, and D.E.S.I. Power are turning the wheels of the country’s rapidly evolving renewable-energy ecosystem as the country rushes towards its 175 GW mark.