Krishnan Pallassana: We must abandon decades of old policies and move toward total energy access in India

26 August 2014

Krishnan Pallassana, India Director, The Climate Group, writes about the benefits that communities across India are getting from rural access to clean energy projects such as Bijli.

Today in Maharashtra, western India, seemingly debt-ridden families are paying every month  without fail  for electricity access at home, a move that has changed their lives. Instead of paying for kerosene that fills their evenings with smoke, and continuously paying for doctors and medicines to treat the perennial coughs of their kids, they are now paying for something that is clean, beneficial and aspirational.

And east in West Bengal, thousands of families are investing in solar lanterns. Irregular, insufficient and inefficient power supply has convinced these families that solar lanterns are more trustworthy and better value for money. Already the benefits are being proven with children doing better in school thanks to reliable light for homework.

In the north of India, in Uttar Pradesh, villagers who otherwise spend late evenings under starry-skies are now paying to harness power from the nearest star to light their homes with solar energy. This society that was made to believe poverty is an uncontrollable curse, are now experiencing a change for the good.

These are not fairy tales. These are live examples of how access to energy can change lives and accelerate growth and development in India. I will not be surprised to find these families with increased incomes and assets in years to come.

Our Bijli - Clean Energy for All initiative, funded by the Dutch Postcode Lottery and implemented by The Climate Group in India, is unlike any other development project. It is a transformational initiative which makes the rhetoric realistic. We aim to reduce greenhouse gas emissions and enhance the lives of rural inhabitants in India by deploying renewable energy technologies and improving infrastructure quality.

But while the 50,000 rural people covered by Bijli may seem negligible against nearly 400 million Indians who do not have access to electricity; a grain of sand is not a beach, but that grain constitutes the beach. And if 50,000 people can find change, why not 400 million? Those 50,000 people who are enjoying the benefits of Bijli today are setting the backdrop to a vibrant low carbon future for India.

Decentralizing energy 

Nearly a hundred years ago, M K Gandhi professed that the future of India’s growth lies in its villages and thus a village should become the locus of any industrial initiative. Gandhi envisioned vibrant villages that are self-sufficient in all respects, including energy.

We see a future where energy generation and distribution in India is decentralized. It is perhaps the most logical solution to meet Indian society and markets' increasing demand for energy access.

Making a paradigm shift in approach, instead of a handful of mega projects that generate electricity, we need hundreds of thousands of small integrated generating units at local levels that use multiple sources to generate energy – solar, bio-waste, wind and tidal.

Creative use of space including roof tops, canals and lamp posts to install generation equipment will solve the land issue. And smaller generation units will become more viable due to improved efficiency in distribution, which will cut transmission and distribution losses to less than 5%.

Such a decentralized approach has the potential to unleash new waves of entrepreneurship and immense employment generation in India. Clientele will range from tens to thousands of households, not only meeting local domestic energy needs but giving a boost to productivity at large. A decentralized supply of clean and efficient energy enhances productive capacities with local cold storages and dryers, mini manufacturing hubs, food processing zones and value chain creation. Every village can dream of having their own industrial parks to cater to local needs and beyond.

Policy regulations to inspire change

India's Prime Minister Modi has often articulated that the job of government is to govern and not do business. What we expect the new government to do now is lay the foundations for an enabling environment that enhances productivity, creates wealth at local levels and revives the economy. The time has come to abandon decades of old policies and regulations and move toward total energy access.

Investing in technologies to enhance efficiency in power generation and tidying up transmission and distribution (T&D) to be smarter and more efficient is a logical way forward. If we can bring down T&D losses to even 50% of the existing rate, we can release an additional 40+ gigawatts of energy in India, without burning any more fossil fuel.

It makes immense sense to privatize the energy sector while government invests in research and development. State of the art facilities will attract and retain technology talent. There is no better investment to make than in clean technologies.

Energy affordability

Critics of privatizing energy often say the poor in India cannot afford to buy private energy. This is a myth. As such, high costs of generation coupled with poor and inefficient distribution is currently exhausting the country and its people. Data available from our Bijli work indicates that low income households are already spending a considerable portion of their monthly income to buy fuel for lighting and cooking.

What decentralized access through market-based mechanisms offer to the poor is a choice.

And Bijli research further substantiates the fact that given a choice, they would opt for clean energy because it has multiple benefits to the household.

On a different note, cost and consumption are market driven. A vibrant, competitive market will actually bring costs down, help people to meet daily needs and enhance production.

While the government already has a plethora of subsidies, rationalizing subsidies through targeted scale down and ensuring they reach the people who need them most, including via energy access, could trigger an unprecedented economic revolution – a clean revolution.

Scale up energy access with smart financing

But where will the money come from? Who will finance the decentralized energy generation and distribution, considering lower ticket size, higher transaction costs and inherent risk factor?

Well technology is not the issue. It is ready and will continue to evolve to higher standards, be it through generation or better storage, two critical components of renewable energy access.

I believe the real bottleneck to accessing financing lies on the way we look at financing. Decentralization of energy generation and distribution warrants a paradigm shift in financing such projects, launching financial products that combines both capital and consumer finance.

Many a residential welfare association in India with anywhere from 30 to 3,000 households has the capacity to invest in roof top solar panels and bio-waste recycling plants. With a payback period of 4-6 years, investing in off-grid energy generation and captive distribution is indeed a better investment opportunity than locking cash-in banks.

High middle and upper income families who have the capacity to buy their third or fourth car without seeking consumer finance, also have capacity to install solar panels on their roofs. And hundreds of thousands of cooperatives and local banks in India can venture into renewable energy market for high returns and manageable risks.

An unprecedented creative approach to financing can open up the market and in turn the market will open up newer avenues. I can see mindboggling opportunity for financing decentralized off-grid energy in India, provided we are able to tweak our financial products to suit market demands.

Let us not ask the market to change its ways to meet our financing criteria, but make our financing options meet emerging market demands.

Opportunity begs

Billionaire investor Warren Buffet turned failing companies into money-spinning ventures and made thousands of people become millionaires. Bill Gates streamlined bytes to bite the market like no one did before. Tata turned India into a global manufacturing hub by offering everything a person needs, from salt to sapphire. Parekh revolutionized the housing sector in India. Varghese opened up the milky way to make millions of small farmers self sufficient.

Decentralized energy generation and distribution - with the potential to touch the lives of billions of people the world over in more ways we can fathom - offers a unique opportunity for the new generation following in the footsteps of Buffet, Gates, Tata, Varghese or Parekh, who will change the rules of the game and create distributed wealth.

Like the Industrial Revolution and internet revolution that transformed our global economy before, the opportunity offered by the clean revolution begs redemption.

This opportunity will be discussed on September 22, 2014, when business and government leaders will convene in New York for the Opening Day of Climate Week NYC, which is also the collaborative space for all related events in support of the UN Climate Summit on Tuesday September 23Together the two summits have the potential to catapult climate change and low carbon growth back to the top of the world agenda, mobilizing leaders to act now. 

Our decisions today, such as those made in New York next month, will change the world of tomorrow. We have two options: either to be cocooned within the fragile envelope of false protection, or to break free and take radical, bold steps to the future.

Who will lead the way? 

By Krishnan Pallassana

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