Assessing the impact of the transition to Light Emitting Diodes based solar lighting systems in...

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Assessing the impact of the transition to Light Emitting Diodes based solar lighting systems in India Santosh M. Harish a, , Shuba V. Raghavan b , Milind Kandlikar b, c , Gireesh Shrimali d a Department of Engineering and Public Policy, Carnegie Mellon University, Pittsburgh, PA 15213, USA b Liu Institute for Global Issues, University of British Columbia, 6476 NW Marine Drive, Vancouver, BC V6T 1Z2, Canada c Institute for Resources, Environment and Sustainability (IRES), University of British Columbia, 2202 Main Mall, Vancouver, BC V6T 1Z4, Canada d Center for Emerging Markets Solutions, Indian School of Business, Gachibowli, Hyderabad, 500032, India abstract article info Article history: Received 25 June 2012 Revised 12 March 2013 Accepted 12 March 2013 Available online 13 April 2013 Keywords: Rural electrication Energy efciency Solar lighting systems LED lighting Plug and play There are many advantages of solar photovoltaic technology in providing lighting for rural homesscalability, minimal maintenance and well developed business models. This study seeks to study the impact of the transition from Compact Fluorescent Lamp (CFL) to Light Emitting Diodes based lights (LED) on the solar home lighting sys- tem market. Changing the lighting xtures from CFL to LED would lead to the requirement of smaller panels and batteries and consequently, a reduction in prices. Would this reduction signicantly increase the adoption of these systems? Would the requirement for nancing or government support change? To understand this chang- ing landscape of the rural solar lighting industry, this study analyses the current products, distribution network, and operations of seven diverse solar rms operating in different parts of India. Four of these rms exclusively make LED based products lanterns and small home lighting systems and the rest have some LED based sys- tems in their portfolio. There are several factors to be considered, product conguration, luminosity, price effects and service and maintenance. While the price reduction is found to be signicant (about 20%), affordability may still remain an issue for poorer households. LED lighting allows for the introduction of plug and play systems, and reduces institutional requirements for installation and maintenance. © 2013 International Energy Initiative. Published by Elsevier Inc. All rights reserved. Introduction As of 2011, about 33% of the 247 million rural households in India remained without access to grid electricity and most (about 95%) of these depend primarily on kerosene lamps for lighting (Census of India, 2011). While connectivity to the central electrical grid poses lower costs to the household than any other source of electric (or even, lighting) energy, extension of the grid to rural areas in India has been slow. Additionally, the mere presence of grid connectivity is not a guar- antee of reliable supply. Power outages and poor quality supply caused by voltage uctuations are common during periods of peak demand, es- pecially in rural areas. A majority, i.e. about 91% (Khandker et al., 2012), of rural house- holds use kerosene lamps, which are dim, inefcient and polluting, ei- ther for primary or backup lighting. In 2005, the electricity supply available in rural areas averaged about 12 h/day and perhaps as a re- sult, there was very little difference between kerosene usage of electri- ed and unelectried households, both averaging 2.62.7 l/month (Khandker et al., 2012). Just a single chimneylantern burning for 34 h daily will consume about 2.7 l in a month. Furthermore, the lumi- nosity of this lamp, around 100 lm, is substantially lower than the 180 lm derived from even a 15 W incandescent bulb. Due to an ever in- creasing demand supply gap and resource constraints, the future situa- tion increasingly looks grim. Solar Lighting Systems (SLS) have emerged as a potentially important interim source of lighting for rural Indians with poor or non-existent grid connectivity: they can be rolled out quickly; they can be an interim source of primary lighting; and could be a backup source when the grid does arrive. The market for solar lighting products in India is under- going a rapid change. A sharp decline in prices of photovoltaic (PV) panels (Aanesen et al., 2012), and support provided by the Indian gov- ernment through its National Solar Mission have accompanied the emer- gence of new solar lighting rms targeting rural consumers. These rms have varying characteristics that include differing product emphasis from the simple (e.g. a single lantern with a 1.5 W LED light) to more complex (a 40 W household scale lighting system with multiple x- tures); varied business models (along a continuum of off-the-shelf prod- uct to services) and different relationship to the market (e.g. for prot rms, social enterprises). In addition, as we discover in this paper, tech- nological change in the form of Light Emitting Diodes (LED) technology replacing existing Compact Fluorescent Lamps (CFL) is also underway. While the use of LEDs is common among solar lanterns, rms have begun to introduce LED based home lighting products. Energy for Sustainable Development 17 (2013) 363370 Corresponding author. Tel. +1 3024385252. E-mail addresses: [email protected] (S.M. Harish), [email protected] (S.V. Raghavan). 0973-0826/$ see front matter © 2013 International Energy Initiative. Published by Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.esd.2013.03.005 Contents lists available at SciVerse ScienceDirect Energy for Sustainable Development

Transcript of Assessing the impact of the transition to Light Emitting Diodes based solar lighting systems in...

Energy for Sustainable Development 17 (2013) 363–370

Contents lists available at SciVerse ScienceDirect

Energy for Sustainable Development

Assessing the impact of the transition to Light Emitting Diodes based solar lightingsystems in India

Santosh M. Harish a,⁎, Shuba V. Raghavan b, Milind Kandlikar b,c, Gireesh Shrimali d

a Department of Engineering and Public Policy, Carnegie Mellon University, Pittsburgh, PA 15213, USAb Liu Institute for Global Issues, University of British Columbia, 6476 NW Marine Drive, Vancouver, BC V6T 1Z2, Canadac Institute for Resources, Environment and Sustainability (IRES), University of British Columbia, 2202 Main Mall, Vancouver, BC V6T 1Z4, Canadad Center for Emerging Markets Solutions, Indian School of Business, Gachibowli, Hyderabad, 500032, India

⁎ Corresponding author. Tel. +1 3024385252.E-mail addresses: [email protected] (S.M. Ha

[email protected] (S.V. Raghavan).

0973-0826/$ – see front matter © 2013 International Enhttp://dx.doi.org/10.1016/j.esd.2013.03.005

a b s t r a c t

a r t i c l e i n f o

Article history:Received 25 June 2012Revised 12 March 2013Accepted 12 March 2013Available online 13 April 2013

Keywords:Rural electrificationEnergy efficiencySolar lighting systemsLED lightingPlug and play

There are many advantages of solar photovoltaic technology in providing lighting for rural homes—scalability,minimalmaintenance andwell developed businessmodels. This study seeks to study the impact of the transitionfromCompact Fluorescent Lamp (CFL) to Light EmittingDiodes based lights (LED) on the solar home lighting sys-temmarket. Changing the lighting fixtures from CFL to LEDwould lead to the requirement of smaller panels andbatteries and consequently, a reduction in prices. Would this reduction significantly increase the adoption ofthese systems?Would the requirement for financing or government support change? To understand this chang-ing landscape of the rural solar lighting industry, this study analyses the current products, distribution network,and operations of seven diverse solar firms operating in different parts of India. Four of these firms exclusivelymake LED based products – lanterns and small home lighting systems – and the rest have some LED based sys-tems in their portfolio. There are several factors to be considered, product configuration, luminosity, price effectsand service and maintenance. While the price reduction is found to be significant (about 20%), affordability maystill remain an issue for poorer households. LED lighting allows for the introduction of plug and play systems, andreduces institutional requirements for installation and maintenance.

© 2013 International Energy Initiative. Published by Elsevier Inc. All rights reserved.

Introduction

As of 2011, about 33% of the 247 million rural households in Indiaremained without access to grid electricity and most (about 95%) ofthese depend primarily on kerosene lamps for lighting (Census ofIndia, 2011). While connectivity to the central electrical grid poseslower costs to the household than any other source of electric (or even,lighting) energy, extension of the grid to rural areas in India has beenslow. Additionally, the mere presence of grid connectivity is not a guar-antee of reliable supply. Power outages and poor quality supply causedby voltage fluctuations are common during periods of peak demand, es-pecially in rural areas.

A majority, i.e. about 91% (Khandker et al., 2012), of rural house-holds use kerosene lamps, which are dim, inefficient and polluting, ei-ther for primary or backup lighting. In 2005, the electricity supplyavailable in rural areas averaged about 12 h/day and perhaps as a re-sult, there was very little difference between kerosene usage of electri-fied and unelectrified households, both averaging 2.6–2.7 l/month(Khandker et al., 2012). Just a single “chimney” lantern burning for

rish),

ergy Initiative. Published by Elsevi

3–4 h dailywill consume about 2.7 l in amonth. Furthermore, the lumi-nosity of this lamp, around 100 lm, is substantially lower than the180 lm derived from even a 15 W incandescent bulb. Due to an ever in-creasing demand supply gap and resource constraints, the future situa-tion increasingly looks grim.

Solar Lighting Systems (SLS) have emerged as a potentially importantinterim source of lighting for rural Indianswith poor or non-existent gridconnectivity: they can be rolled out quickly; they can be an interimsource of primary lighting; and could be a backup source when thegrid does arrive. Themarket for solar lighting products in India is under-going a rapid change. A sharp decline in prices of photovoltaic (PV)panels (Aanesen et al., 2012), and support provided by the Indian gov-ernment through its National SolarMission have accompanied the emer-gence of new solar lighting firms targeting rural consumers. These firmshave varying characteristics that include differing product emphasisfrom the simple (e.g. a single lantern with a 1.5 W LED light) to morecomplex (a 40 W household scale lighting system with multiple fix-tures); varied businessmodels (along a continuumof off-the-shelf prod-uct to services) and different relationship to the market (e.g. for profitfirms, social enterprises). In addition, as we discover in this paper, tech-nological change in the form of Light Emitting Diodes (LED) technologyreplacing existing Compact Fluorescent Lamps (CFL) is also underway.While the use of LEDs is common among solar lanterns, firms havebegun to introduce LED based home lighting products.

er Inc. All rights reserved.

1 TERI, Lighting a Billion Lives, http://labl.teriin.org/, Accessed on April 30, 2012.2 The questionnaire is available as online supplementary material.

364 S.M. Harish et al. / Energy for Sustainable Development 17 (2013) 363–370

This study seeks to understand whether a shift to LEDs as a technol-ogy of choice among solar power firms in India has the potential totransform products and business models of firms, and hence to hastendiffusion among users without grid access in India. The use of LEDscan have a direct effect on product specifications including on the sizeof the PV panels, and on the size and type of battery. The reduction inthe size of these components could lead to significant reductions inprice, with consequent effects on consumer financing. Changes to tech-nology, to system prices and to institutional partners could result innew business and operational models. This in turn could help providea cleaner and economically viable alternative to kerosene based lan-terns that are the mainstay for lighting for millions of rural Indian fam-ilies today.

This paper is structured as follows. In the Solar lanterns and lightingsystems section, we provide a brief description of solar lighting systemsand lanterns by way of background material. The Description of firmssection describes the firms whose employees were interviewed andthat are a focus of this study; we pay special attention to their choiceof technologies, pricing and financing options, and distribution systems.This is followed in the Assessing the CFL–LED transition section by acomparative assessment of CFL and LED systems based on their tech-nical characteristics (Technical considerations: comparing power andluminosity section), economic considerations (Economic considerations:comparing price and cost-effectiveness section), and institutional con-cerns (Institutional considerations section). Of particular interest is thedevelopment of LED based plug and play systems; its implications arebriefly reviewed in the Institutional considerations section. We concludewith policy implications of this work (Can government policy help?section).

Solar lanterns and lighting systems

At the wattage being considered, lanterns and SLS operate on DirectCurrent (DC) based power produced by the solar modules. Lanterns typ-ically are portable andhave a single light (LEDor CFL) of lowwattage. SLShave PV panels that are roof mounted and lights that are often wallmounted fixtures. These systems are available in a wide range of sizesand specifications. Further, since generation of power and demand donot coincide, battery storage is required. A typical lighting system at orbelow 40 W can support two to four lights, and power small loadssuch as a mobile phone charger or a small table fan.

Lighting systems can be almost an order of magnitude more ex-pensive than the solar lantern because of additional loads and the in-frastructure requirement. Solar lighting systems have hitherto beenbased on CFLs because the extra costs of the CFL vis-à-vis incandes-cent bulbs are more than compensated for by the need for smallerphotovoltaic panels and batteries. Similarly, a shift towards LED withlower wattage needs for comparable luminosity along with their great-er longevity could have a cascading effect on the prices and themarket.

Solar lanterns and SLS have been a technology of choice in programssupported by internationalfinancing organizations like theWorld Bank,and governments in developing countries where large fractions ofpopulations remain un-electrified or under-electrified with unreliablesupply. This is because solar lighting products are scalable and can bedesigned to fit a wide range of demands and affordability constraints.Several studies (for example, Cabraal et al. (1996), Nieuwenhout et al.(2001), van der Vleuten et al. (2007) and World Bank (2008)) showthat different institutional modes of delivery provide additional flexibil-ity. Broadly, these institutional approaches can be characterized as do-nation, concessionaire, cash sales, credit and fee-for-service (followingvan der Vleuten et al. (2007)).

In India, solar lighting sales have been supported by donor fundedprograms, sales based on credit, and cash sales. Donor funded pro-grams have been supported by either the government or internationalfunding bodies. Credit-based approaches have largely relied on theformal rural banking sector (Harish and Raghavan, 2011)—the scale

of these is perhaps unique to India. Fee-for-service models are lessprevalent in India than in parts of Africa (Gustavsson and Ellegard,2004) and Latin America (Rogers et al., 2006), though new firms usingthis model have emerged (e.g. Simpa Networks). Central charging sta-tions for solar lanterns working similar to the fee-for-service modehave been described by Chaurey and Kandpal (2009) and implementedby TERI's Lighting a Billion Lives program.1

Description of firms

The sample of solar firms chosen here represents a diverse set offirms based on age, range of operations, products, geographical, dis-tribution, and mode of financing. Three firms (E, F and G) interviewedherewere early entrants to the SLSmarket, withfirms F andG operatingfor over a decade and half. We interactedwith them for a broader studyon solar energy options in India in 2010 (Raghavan et al., 2010). Firm Awas referred to us by several sources as their products targeted relative-ly lower income households. This led to Firms B, C and D who wereoperating in a similarmarket. In the summer of 2011, we conducted ex-tensive open-ended interviews2with seniormanagement of all firms tounderstand their products and business approaches. While we hadface-to-face interviews with five firms, the other two (B and D) wereconducted on the phone. The designations of the respondents havebeen provided in Appendix A. In the autumn of 2011, we had additionaltelephone interviews with the three firms making CFL lighting systems(E, F and G) specifically on the question of CFL to LED transition. All firmshave been anonymized in the reporting of information. Appendix B pro-vides overviews of the seven firms.

Table 1 summarizes important attributes about the firms. Firms A,B and C, primarily make solar lanterns, while E, F and G, assemble andsell lighting systems. Firm D sells a product that is an intermediate be-tween lanterns and lighting systems as will be described later. Firmsvary by age from over 20 years (Firm G) to two years (Firms C and D).Similarly, the volume of sales too vary greatly as tabulated in Table 1,although a direct comparison might mislead as the products are verydifferent. Here we summarize the characteristics of these firms overthree major dimensions—product configuration (Products section),pricing and financing (Pricing section), and distribution and after salesmaintenance (Financing and distribution channels section).

Products

The panel size, battery type, and lighting loads supported in theproducts have been summarized below in Table 2. All the three firmsthat make lanterns use LEDs, as does Firm D. Among the larger systemmanufacturers, some configurations are based on LED lights or are acombination of CFL and LED lights.

The choice of the product sizes manufactured seems to depend onthe firms' views on the appropriateness of products for the poor. Forinstance, the interviews showed that Firms F and G are strongly againstlanterns—both sell lanterns only for projects targeting special categoriesof users such as street hawkers. They argue that unlike lighting systems,lanterns are not a long lasting asset because they are susceptible tobreakage. Moreover, unlike for lanterns, PV panels of SLS are fixed andinstalled at an optimal inclination to maximize solar energy harnessed.In contrast, Firm B is strongly against SLS and believes that selling suchexpensive products to the poor is not appropriate. Furthermore, themobility of the lanterns may have additional utility to the consumer(going to the field at night, for instance).

Table 1Summary of the firms studied.

Firm Type Year ofestablishment

Employees Products Volume of sales

A Multi-national social enterprise 2009 (in India) 17 Lanterns 200–250 thousand 1.5 W lanternsB Not-for-profit social enterprise 2006 250 Lanterns, lighting systems, power packs and

street lights300 thousand 1.5–3 W lanterns

C Not-for-profit division of amulti-national corporation

2010 10 Single light systems—one DC and another dualcharging (grid and PV)

9–10 thousand single light lanterns

D For profit, private sector 2010 70 3-light system 8–9 thousandE For profit, private sector 2007 500 Lighting systems, power packs and street lights 15 thousand lighting systems (20 W and higher)F For profit social enterprise 1995 150 Lanterns, lighting systems, power packs 120 thousand lighting systems (20 W and higher)G For profit, private sector 1989 1000 Lanterns, lighting systems, micro grids and a

range of solar based applications(>100 thousand) lighting systems (37 W and higher)a

a Missing information.

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A potentially important variant in the product configurations relatesto the inclusion of small table fans that use DC power. While two firmshave integrated a DC fan into their product, others felt that higherwattage and unpredictable usage hours made their inclusion difficult.However, it was also acknowledged that the inclusion of a fan could sig-nificantly improve the value proposition for solar PV systems in regionswith stifling summers and low grid penetration in parts of Central andNorth India.

Pricing

The prices ofmajor products for eachfirm are plottedwith respect tothe PV panel size in Fig. 1. The prices of small wattage lanternsmade byFirmsA and B are anorder ofmagnitude lower than those of the lightingsystems of other firms. To be sure, this may not be such a meaningfulcomparison; for instance, are three lanterns comparable in their utilityto a three-light system? Firm D's 3 lighting system combines the char-acteristics of these two categories. Each of the three lights is of 1.5 W,a power similar to that of a lantern, and the lighting system is pricedsomewhere between a lantern and a multi-unit systems. The cost perwatt would depend on the system configuration (lighting technology,sizing of battery, number of fixtures). From Fig. 1 it can be seen thatthe cost per watt varies from Rs. 325 to Rs. 1200 ($6.5 to $ 24).

Table 2Product configuration.

Firm Panel size (W) Battery type Lights supported

A Lanterns: 1.5–2 W Nickel metal hydride (NiMH) One 0.5–1.5 W LEDB Lanterns: 0.5–3 W Smaller lanterns—NiMH;

Larger lantern—SealedMaintenance Free (SMF)lead acid

LanternsOne under 3 W LED

Lighting systems:20 W and 40 W

a Combinations20 W–three 3 W LEDs40 W–four 3 WLED + 1 fan

C Lanterns:10 W a One 4.5 W/5.5 W LEDD Lighting systems:

5 WSMF valve regulated leadacid

Three 1.5 W LEDs

E Lighting systems:5–60 W

Li–Fe for 10 W plug andplayLead acid for largersystems

Combinations2–4 1.5 W LED7/11 W CFL–7/11 WCFL + DC fan

F Lighting systems:10–100 W

Lead acid Combinations5–11 W CFL3.6 W LED

G Lanterns: 3–12 W a Lanterns3–7 W CFL

Lighting systems:37–74 W

Lead acid Combinations9 W/11 W CFL1.8 W/3.6 W LED

a Information not available.

Financing and distribution channels

Table 3 provides an overview of the financing agencies and theforms of support available to the customers of the firms. Rural RegionalBanks (RRB) and their network of branches, and Micro-finance Institu-tions (MFI) that have a local presence, provide the end-users with loansand often help the firms identify the prospective customers. There arealso variants of this basic model. For example, for Firm A the role ofthe MFI is as a distribution channel and not as a provider of credit tocustomers.

Formal banking infrastructure and RRBs in particular, play a criti-cal role in the marketing of SLS systems. Respondents from all firmsclaimed that the presence of willing banking partners was crucial toentering a new region. RRBs are important in initiating a dialog betweenthe firms and consumers. In addition to their core function of providingflexible loan terms to suit the individual customer's cash flow, theyindirectly ensure that the systems are maintained well. If the systemfails the customer's loan repayment might stop. Moreover, RRBs inter-face with the government or appropriate agency to apply for financialsubsidies. Given these reasons, it is not surprising that over 70% of thesolar lighting systems of each of the Firms E, F, and G are purchasedthrough loans. RRBs are thus central to the process of ‘market-making’,but they also result in the creation of local monopolies and shape themarket thrusts of a specific product or a specific firm.

Though the MFIs and RRBs might often form the initial point ofcontact with the customers, the distribution chain or channel partnersactually do the sales, and are responsible for after sales maintenance.These channels are described in Table 3. In the case of home lighting sys-tems, trained technicianswho are either on the permanent or temporarypayroll of thefirms help install individual home lighting systems.Most ofthe firms provide a 1-year warranty. In the case of larger systems, during

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Fig. 1. Price vis-à-vis panel size of the major products of the firms (b40 W).

Table 4Comparison of the light output of typical light fixtures in lanterns and lighting systemswith kerosene lamps.

Lamp power rating(W)

Light output(lm)

Efficacy(lm/W)

Kerosene wick lamp a 202–504 10–100 0.02–0.5Solar lantern with LED 1.5 60–150 40–100CFL lamps in SLS 7 280–420 40–60LED lamps in SLS 3.6 144–360 40–100

For the kerosene lamp, f is taken to be 0.02–0.05 l/h. CV and d of kerosene are taken tobe 45 MJ/kg and 0.806 kg/l respectively. All these values are based on Mahapatra etal.(2009).

a Power rating (in W) for non electricity-based lamps is estimated using the ap-proach followed by Mahapatra et al. (2009). Given the fuel usage rate, f, the calorificvalue of the kerosene fuel, CV, and the density, d, power rating is estimated asPowerrating = (f (l/h) × CV(J/kg) × d(kg/l))/.

Table 3Financing and institutional support.

Firm Financial institutions Mode of purchase Distribution channels

A None. MFIs act as distribution channel in regions they operate in. All are through direct cash purchases Institutional partners—WB, NGOs, MFIsB MFIs provide short term loans with terms of 6 months–1 year.

Interest rates of 10–24% depending on transport charges/access30% through MFIs, rest—given for free/directcash purchase

16 service centers (10 of which are in AndhraPradesh) and work through partners like theWorld Bank, Government, NGOs, MFIs

C None; dealers provide informal loans sometimes 20–30% purchase through informal loans. Rest,direct cash purchases

Dealers—approximately, 350 dealers, mostlybased in cities. NGOs etc. purchase from dealers.

D District cooperative banks provide loans with 20% down paymentover terms of 1–3 years. MFIs provide loans of loan terms of2 years with Rs. 1000 (about 17% of costs) and Rs. 60/week.

80% direct cash purchase; 20% through loans Dealers—firm is new and is building a network

E Rural regional banks provide loans at market rates of interest andover terms of 5 years typically. Down payment not alwaysnecessary

70% take loans; the rest opt for direct cashpurchases

Local service centers—has over 80 branchesacross the 4 states

F Rural regional banks and cooperative banks provide loans atmarket rates. Has an arrangement with some banks to allow forzero down-payment.

90% through bank loans Local service centers—there are 24 in Karnataka.In addition, about 250 salespersons work parttime.

G Rural regional banks provide loans at market rates Lighting systems—almost entirely throughrural banks

Dealers—there are 155 across the country

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the first year of operations, technicians make home visits to ensure thatthe system is working as slated and train the residents on maintenance.

System maintenance requires keeping the PV panel from gettingcovered by foliage or dust and ensuring that the battery has an appro-priate recharge and discharge profile. The latter is very important formaintaining battery life. Hence, the availability of trained techniciansor a service center in the region is important for continued operationof the system. In the case of smaller systems with dry batteries, there isno requirement for periodic maintenance. These have to be changed in2–3 years, but the costs are much lower. In the case of larger systems,the lead acid batteries need to be replaced anywhere between 5 and8 years, depending on the usage. The costs are quite significant, and be-cause they are not amortized, they can be prohibitive for cash-strappedrural consumers.

In summary, lantern manufacturers, Firms A and B, have had salesin the hundred thousands, with products that are an order of magni-tude smaller and cheaper than the lighting systems. Because of thelow price of lanterns, they are sold through cash transactions. The sig-nificantly more expensive lighting systems depend on the rural banksfor facilitating their sales through the provisioning of credit. Further-more, unlike for the lanterns, dedicated distribution channels are neces-sary to install and maintain lighting systems. Lighting systems arecurrently not amenable for becoming an off-the-shelf product, althoughtwo of the interviewed firms are attempting to develop this.

Assessing the CFL–LED transition

For solar lanterns, the transition to the use of LEDs from CFLs is al-most complete. As described by the respondent from Firm A, lanternsused to be based on CFL, and were relatively bulky with a large battery.The shift to LED allowed for smaller panels, smaller and less expensivedry batteries, and has resulted in lanterns that aremore robust and por-table. Further, given the nature of the use of lanterns, a certain degree ofruggedness and ease of mobility is required and the shift to LEDs facili-tated this. Furthermore, the LED costs have also decreased, and withtime, the level of luminosity of the LEDs being used in the lanterns hasimproved.

Lighting systems appear to be ripe for the use of LEDs. But would ashift to LED based lighting systems have a similar impact on homelighting systems' market? If so, should policies be aimed at promotingthe diffusion of LED based systems? Before we engage in a discussionon policies to promote LED lighting systems, several techno-economicaspects of LED systems remain to be analyzed. These range from thetechnical (e.g. the quality of light or luminosity of different lightingtechnologies), economic (e.g. effects of pricing of these technologies)and institutional (e.g. ease of financing and maintenance of the

lighting products). In the following sections we focus on these ques-tions, and compare LED solar lighting systems with kerosene, theform of lighting used by the overwhelming majority of India's poorwithout grid access, as well as to CFL systems.

Technical considerations: comparing power and luminosity

As described in Azevedo et al. (2010), the luminous efficacy – thelight output in lumen per Watt – of CFL lights has saturated and is40–60 lm/Watt at low power loads. In contrast, the luminous efficacyof white LED lights has been rapidly improving. Azevedo et al. (2010)estimate it at 80 lm/W, and the US DOE had projected this to increaseto 174 lm/W by 2015 (Navigant Consulting Inc., 2008). There is likelyto be some degree of catch-up needed for the actual lights used in solarapplications. Our respondents estimated that a 3.6 W LED is roughlyequivalent to a 7 W CFL—pegging the efficacy of the LED lights used atabout 80–120 lm/W.

Simple wick-based kerosene “chimney” lanterns are commonlyused especially among poor households. They have a light output ofabout 10 lm (Mills, 2003). Another variety called the hurricane lantern,is mass manufactured in China, and has a higher output of about 50 lm(Apte et al., 2007), though these are not as commonly used. Lantern out-puts can vary within a large range depending on factors like the level ofthe flame, the wetness of the wick, and soot accumulation (Apte et al.,2007;Mills, 2003). It is in this context, that the relative utility of kerosenelanterns and solar lighting systems must be understood.

Table 4 compares the light output of CFL and LED bulbs of wattagecurrently used in the solar products. For the sake of comparison, a40 W incandescent bulb has a luminosity of about 480 lm. As standardsfor LED lights are not yet in place, a range of 40–100 lm per watt for

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12%

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luminous efficacy is used below. Not surprisingly, the output of mostlights is significantly greater than that of a kerosene lantern. However,for the small lanterns (1 W or lesser), these results are less certain. Interms of utilization of primary energy, the efficiency of kerosene lanternsis almost two orders of magnitude lower than the solar alternatives.

As LED technology evolves and becomes more efficient than CFLs,the number of lighting fixtures that a solar PV panel and battery combi-nation can accommodatewill likely increase. Conversely, lowerwattagesolar PV panel and battery combinations can have lower costs for afixednumber of light fixtures vis-à-vis CFLs. We turn to issues of pricing andcost-effectiveness in the next section.

Economic considerations: comparing price and cost-effectiveness

To demonstrate the difference in costs of LED and CFL technologies,we compare the cost of two similar systems—a three light system with7 W CFL fixtures to a three light systemwith 3.6 W LED fixtures whichare roughly equivalent in their output. The two systems are designed forthe entire load to operate for 5 h, 2 days autonomy. The systems areconfigured with the further assumption of 6 h of sunshine per day.10 years is considered as the life of the system, with replacement ofthe batteries once in 5 years and replacement of the CFL lights once in3 years. With the efficiency assumptions and for the given system con-figuration the PV panel sizes will be 40 W for the CFL system and 20 Wfor the LED system. The battery sizes will also change—40 Ah (12 V)lead acid battery with CFL and 22 Ah with LED. (Detailed assumptionson configuration provided in Appendix C). The LED systems have an ini-tial purchase price that is estimated to be about 20% lower, costingabout Rs. 9900 compared to about Rs. 12,800 for the CFL system. Thebreakup of the lifetime costs of both these systems is illustrated in Fig. 2.

The 20% reduced purchase price of LED systems when amortizedover a period of 5 years at an annual interest rate of 12% correspondsto a monthly installment of Rs. 180. This is about Rs. 50 lesser than themonthly installment for the CFL system. When compared with surveyestimates of household expenditure on kerosene for lighting and fuelfor each of the ten income deciles (Fig. 3), the costs of CFL and LED SLSvis-à-vis expenditure of lighting and heating appear to be particularlyhigh for the lower decile households. Monthly costs of SLS viewed asa percentage of total household expenditure for the poorest decilesare 9% for CFL and 7% for LED respectively (Fig. 4).

A reduction of payment of Rs. 50 accounts for about 2% of monthlyexpenditure even for the poorest deciles. If affordability is the majorbarrier, this price reduction is not likely to increase the consumeradoption dramatically. Anecdotally, this was supported by Firm F'sexperience of introducing LED systems. While the volume of sales al-most remained flat, the new LED and LED–CFL combination systemscontributed to 35–40% of the sales, resulting in decreased revenues.This suggests that the introduction of LED based systems by Firm Fmight have led to the substitution of its CFL based systems withoutincreasing the market size.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

With LED With CFL

Lif

etim

e C

ost

s (i

n R

s.)

Future Battery andBulb replacement

Panel

Lighting

Battery

Balance of Systems

Upfront systemcosts

Fig. 2. Cost breakdown of two SLS systems (three 3.6 W LED and three 7 W CFL) basedon NPV calculations.

We now consider two scenarios for SLS systems based on creditpurchases, and compare them to equivalent lighting needs providedfor by multiple kerosene lanterns (1 or 3). We use a ‘market’ basedscenario (20% down payment and the rest borrowed at 12%) and a‘policy’ scenario based on the subsidies available under the governmentof India's national solar mission for small scale off-grid solar PV applica-tion (30% capital subsidy alongwith a subsidized loan at 5% for a bench-mark cost of Rs. 270 per watt) (MNRE, 2010, 2011). Since the costs perwatt of both systems are higher than this benchmark cost, a second loanat market rate of 12% is needed in the second case.

The costs of these lighting systems are compared with the costs oflighting one and three kerosene lamps in Table 5. It is assumed thateach lamp is used for 5 h every day. A fixed amount of subsidized kero-sene is available to poor households on amonthly basis from ‘fair-price’shops, whose primary usage is for lighting, though a portion is also usedas cooking fuel. Kerosene consumption with hurricane lanterns is esti-mated to be about 0.03 l/h (Mills, 2003). If the monthly consumptionexceeds the subsidized amount (assumed here to be 4 l, though actualamounts vary across the states), consumers must purchase keroseneat market prices where it is significantly more expensive. In 2009–10,the average market price was about Rs. 25/l and the subsidized costRs. 10/l (National Sample Survey Organization (NSSO), 2010). Over aperiod of 10 years, the cost of a three fixture LED based system is similarto costs of using two kerosene lamps. With three kerosene lamps, thecosts are higher than those of both the three fixture systems (CFL andLED). With or without policy support, LED systems appear to be prefer-able from a cost perspective to both kerosene lamps and CFL lightingsystems.

0%

2%

4%

6%

8%

10%

1 2 3 4 5 6 7 8 9 10

% o

f to

tal m

on

thly

exp

end

itu

Decile of Monthly Per Capita Expenditure

Monthly exp on

fuel and light

CFL- monthly

installment

LED- monthly

installment

Fig. 4. Monthly expenditures on fuel and lighting and monthly costs of three light CFL andLED SLS as percentages of totalmonthly expenditure for different deciles of rural households.Expenditure Data Source: NSSO, 2011.

Table 5Comparison of discounted 10 year costs and costs of useful energy for lighting alternatives.

Numberof lamps

PV over10 years(Rs.)

Light output(klm-h/year)

Cost of usefulenergy(Rs./klm-h)a

Keroseneb

lamps1 3900 18–180 3.7–373 19,700 55–550 6.3–63

Solar LED lantern—with 1.5 W LED

1 3100 110–270 1.8–4.6

Solar lighting systemsCFL—without subsidy 3 16,200 1500–2300 1.2–1.9CFL—with subsidy 11,200 0.9–1.3LED—without subsidy 11,400 790–2000 1.0–2.5LED—with subsidy 8800 0.8–2.0

a Kerosene lamps are assumed to have a capital cost of Rs. 100/lamp, and an annualmaintenance cost of Rs. 20. The lifetime of these lamps is assumed 5 years (all valuesbased on Mahapatra et al. (2009)).

b Cost of useful energy is estimated as the annualized cost of the alternative divided bythe annual light output in klm-h. The annualized cost has been estimated by multiplyingthe present value of the costs with a factor of (d ∗ (1 + d)10) / ((1 + d)10 − 1),10 years being the duration considered. For analysis with other types of kerosene lampsand lighting alternatives, see Dutt (1994), Mills (2005) and Mahapatra et al. (2009).

368 S.M. Harish et al. / Energy for Sustainable Development 17 (2013) 363–370

Table 5 also shows the cost of replacing kerosene lamps with LEDbased solar lanterns (costing Rs. 1600 with a lifetime of about 5 yearsand with batteries costing Rs. 150 with a lifetime of 2 years). Assumingthat a second lantern is purchased at the same cost after five years, theexpenditure incurred is similar to the costs of a single kerosene lamp.This appears to validate the high volume of sales observed in the casesof Firms A and B. In fact, a study on the lighting usage before and afterthe introduction of LED based lighting (with a battery chargeable bygrid supply or solar), in a village in Malawi, found a dramatic reductionon households' reporteduse of kerosene and candle usage (Adkins et al.,2010). The cost of useful energy is an indicator of the cost-effectivenessof each lighting alternative. As expected, kerosene is significantly moreexpensive than the solar alternatives. The LED based SLS have the leastcosts per klm-h delivered.

Institutional considerations

While the techno-economic calculations done above confirm thatLED systems would be the outcome of choice after accounting for lumi-nosity and cost, other market considerations and institutional supportmechanismswill also influence howwidespread the use of the technolo-gymight become. These considerations include, inter alia, product design,credit mechanisms, distribution channels, and service & maintenance.

In principle, custom-built designs are needed including the choiceof number of fixtures, their wattage and type, thus allowing householdsto choose according to their needs and willingness to pay. In contrastwith grid-connected household where inhabitants make purchasingchoices about individual fixtures based on evolving needs, SLS are‘packaged’ and require the purchase of the entire system. How firmspresent these choices to customers is then critical to the acceptance ofSLS. In India, relationships between the solar firm and rural consumersare mediated through local ‘channel’ partners, who facilitate productchoice and consumer credit. These partners, such as the local bank, anNGO or a dealer, enters into a relationshipwith a solar firm, and typical-ly presents a single or a limitedmenu of solutions to households in a vil-lage. The need for a local partner often creates a systemic bottleneck inrural locations where capacity might be lacking. However, recent intro-duction of plug and play systems could help circumvent these bottle-necks. Firm E recently introduced a new plug and play model that isprecisely doing this—looking to use new approaches to circumventthe need for local partners. An individual with minimal training can in-stall Firm E's plug and play systems and all sales so far have been cashtransactions. As described below, the transition to LEDs can also facili-tate SLS servicing and maintenance.

After the product is specified, the installation of lighting systems re-quires trained technicians—a role that is typically taken up either by thefirms or by dealers. Once the system is installed, service and mainte-nance play an important role in determining the longevity and properfunctioning of a lighting system. Lanterns donot requiremuch attentionand their batteries can be replacedmore easily. While the large lightingsystems of the Firms E, F and G, use lead acid batteries that need main-tenance, the smaller systems usemaintenance free batteries. Shifting toLED lights could lead to a change in the system components and config-uration. This is especially the casewith the battery.With smaller batterycapacities required, LEDs allow for an easy maintenance battery type,for instance, moving from flooded electrolyte lead acid batteries toSealed Maintenance Free (SMF) or perhaps, to dry rechargeable celltypes like NiMH (nickel–metal hydride), NiCd (nickel–cadmium) orLi-based batteries.While lead acid batteries are currently less expensivewhen compared to these alternatives, the latter are easier to maintain.

Can government policy help?

Formillions of rural households in rural India, in the absence of grid,kerosene lanterns are the choice for lighting. In this context, it is worthlooking at the cost of kerosene subsidy to the government. While kero-sene is estimated to cost Rs. 25/l in the openmarket, its subsidized priceis Rs 10/l. The government itself estimates the unsubsidized price ofkerosene to be about Rs. 45/l (Petroleum Planning and Analysis Cell,2013). Using this latter number, the annual cost of kerosene subsidyper household is about Rs. 1500, assuming household monthly con-sumption of 3.5 l of subsidized kerosene. Kerosene subsidies constitutea recurring annual cost to the government. Hence, over a ten year peri-od, the government is currently spending about Rs. 8300 (with a dis-count rate of 12%) on kerosene subsidy per household. This could be areference amount for the government in computing solar subsidy, asthe new market for SLS will likely be households currently using kero-sene for lighting. Improvement in quality of lighting would not be theonly benefit. If kerosene usage for lighting can be reduced, the excesskerosene would be used by households for cooking, thus reducing theconsumption of biomass. The health benefits due to such a shift couldbe substantial (Grieshop et al., 2011). As noted in the Economicconsiderations: comparing price and cost-effectiveness section, thecosts of LED lighting systems purchased with a loan are lower thanthe costs of using two kerosene lanterns daily. Furthermore, thequality of lighting is substantially better.

The Government of India has subsidized SLS for over two decades.The National Solar Mission (NSM), announced in 2009, has specifictargets and financial subsidies directed towards SLS. Under the NSMthe policy is an improvement of previous approaches with the subsi-dies routed through the rural banks and offers a 30% capital subsidy,and subsidized loans (at an interest rate of 5%) for 50% of the capitalcost up to Rs 270 perwatt peak. The quantumof subsidy herewould de-pend on the panel size of the system. There is another recent scheme(March 2012) wherein the government provides a 40% subsidy for thecapital cost up to Rs. 270 per watt peak, but with no interest subsidy(MNRE, 2012a). This scheme targets the installation of 120,000 SLSand small PV based applications by 15 March, 2013. The rural bankscontinue to be the route of subsidy disbursal and are free to provideloans atmarket rates for the remaining costs.While both these schemesseem to be agnostic to the lighting technology, guidelines have beenprovided only for CFL based lanterns and SLS in amore recent document(May 3, 2012) (MNRE, 2012b). In addition, it also specifies SLS configura-tion for eligibility of subsidies—number of lights, battery size, and panelsize. This is a step backward as this policymeasure does not support cus-tomizing technology to suit local needs and may stifle innovation.

Wattage based subsidies (in the form of PV panel sizes) also disad-vantage LED systems. Panel size provided a reasonable reference forthe subsidy when it directly translated to greater load usage and hence,greater utility. With the introduction of energy efficient LEDs, the panel

369S.M. Harish et al. / Energy for Sustainable Development 17 (2013) 363–370

size required for equivalent light output is lower. Hence, there isan argument to be made for changing the reference attribute to onethat reflects the actual utility of the product—for example, light outputin lumen-hours. In our example in the Economic considerations:comparing price and cost-effectiveness section, three fixture LED andCFL systemswere estimated to require panel sizes of 20 W and 40 W re-spectively. Because of the structure of the present subsidy, the LED sys-tem receives lesser subsidy in terms of both actual amount receivedand as a percentage of price. Arguably, the two should receive equalamounts of subsidy, as they are equivalent in terms of output. On theother hand, the currentwattage based framework does have certain ad-vantages: while panel size is understood widely, light output measure-ments may not be so, making it difficult to implement; furthermore,LED standards have not been developed and hence, actual qualitymay differ. With time however, the reference for subsidies should bereconsidered.

A major area for policy intervention is in providing access to themarket for rural consumers. Currently, rural consumers depend onlocal intermediaries like banks and are often presented with a limitedset of options in terms of product configurations and firms. The cen-tral government could work with the state renewable agencies andrural regional banks to assist a broader range of customers—includingpublic buildings, hospitals and schools to showcase varied solar prod-ucts, thus increasing the awareness of solar solutions.

The market for LED based lighting systems in India is large and low-ering costs could make it affordable for the millions that are dependenton kerosene for lighting. Further, the economics of LEDs make SLS sys-tems that use LEDs robust to a number of different designs. The transi-tion to LED will lead to smaller systems and lower prices and so couldmake SLS more affordable for rural Indian households. Furthermore,firmsmight develop plug and play systems that could further help tran-scend some bottlenecks—installation and maintenance, and perhaps,even the need for financing. Government policies should continue toevolve so as not to stifle innovation and to provide households withincreased choice.

The effect on rural development of the shift from CFL to LED basedSLS might be hard to quantify. SLS based on CFL or LED, will remainmedium term solutions till the consumers can get access to a reliablecentral grid or a well-designed and maintained micro-grid. However,given that grid based lighting is still a distant reality to millions ofhouseholdswith continued dependence onkerosene, if LED based pack-ages help in larger dissemination of solar based lighting, they do offersubstantial benefits. With the smaller loads, LED based SLS could resultin cost and size reductions that may result in new products incorporat-ing larger loads—ceiling fans, televisions, and perhaps even applianceswith income generation potential like sewing machines.

Acknowledgments

We thank the editor, Gautam Dutt, and the anonymous referee fortheir valuable comments that have improved this paper.

Appendix A. Summary of respondents

Firm Designation of interviewees Date of first interview

A Head—Marketing and Communication July 1, 2011B *(Senior executive for the firm's solar lantern sales) July 26, 2011

(by telephone)C Senior Manager July 11, 2011

(by telephone)D VP—Product Development,

Chief Executive OfficerJuly 12, 2011

E Chief Executive Officer June 21, 2011F Chief Operating Officer August 3, 2011G Chief Executive Officer August 3, 2011

⁎ Precise designation not available.

Appendix B. Introduction to the firms studied

FirmA, headquartered in theUnited States, assembles its products inChina and is currently operating in about 40 countries. India accountsfor about a quarter of their sales so far. Their portfolio consists of 3 singlelight products of wattages from 0.5 W to 1.5 W. They are looking to in-troduce lighting systems based on LED in the near future. Their sales sofar have been primarily in the states of Uttar Pradesh (60%), Bihar (25%)and Maharashtra (10%) in north and central India. In the very shortperiod of operation, within a year, they have sold 250,000 lanterns.

Firm Bmanufactures a range of products, but their primary product isa LED based lantern of wattages from 1 to 3 W. They procure PV cells andhave amanufacturing unit to prepare themodules and assemble the sys-tems. Firm B has recently introduced two LED based lighting systems aswell, primarily targeting theUttar Pradeshmarket. Theywork in 11 coun-tries and within India, in 14 states—the North East and Uttar Pradeshbeing among the important markets. Firm B has also set up kiosks(or, central charging stations) in 150–200 villages mainly in the statesof Uttar Pradesh, Jharkhand, and Chhattisgarh, north and northeast ofIndia. This firm has sold about 300,000 lanterns over a 4–5 year period.

Firm C is a major international manufacturer of electrical equip-ment. Their foray into solar lighting systems space is primarily a cor-porate social responsibility initiative. They manufacture two singlelight systems—one of which is chargeable by both solar power andAC power. They have operated so far primarily in 5 states, with rough-ly equal sales in North and South India (about 35% each) and the restequally in the West and North-East. They are also looking to intro-duce larger LED based systems.

FirmD is also an internationalfirmoperating primarily in India. Theymake an LED based three light system. The systems are assembled by acontract manufacturer. Their sales are in Karnataka (60% of sales) andUttar Pradesh (40%), and they have a few trial projects in the Philippinesand in some countries in Africa. They are looking to introduce larger sys-tems in addition to investing in better battery management.

Firm E produces a range of lighting systems: six DC systems withpanel sizes ranging between 20 W and 60 W, and AC power packsin the kW scale for residential buildings and commercial enterprises.They also make solar water heaters. Primarily based in Karnataka, theyalso operate in the neighboring states of Andhra Pradesh, Maharashtraand Kerala. Most of their current products are based on CFL, and theyhave recently developed an LED based plug and play model.

Firm F is one of the oldest firms in this space. Unlike some of theothers, their primary focus is on providing energy products targeted atrural households. Although their primary segment is lighting systems,they also sell lanterns based on a central charging stationmodel for streethawkers and school children. In addition, they make commercial powerpacks andwater heaters. F has also begun exploring the cook stovesmar-ket.While they almost completelywork in Karnataka, they are looking toseed entrepreneurs in other states following a similar business model.

Firm G is another early starter and has the largest product rangeamong the firms interviewed here. They are among the leading manu-facturers of PV panels in India. Their solar lighting business cuts crosssizes—lanterns, rural home lighting systems and street lights all theway to large urban rooftop modules, moreover, they have set up solarbased micro-grids for over 600 villages. In addition, they manufacturesolar water heaters and solar based refrigerators to store vaccines invillages. Firm G has sold lighting systems in most of the states in thecountry.

Appendix C. Model inputs and assumptions

The systems were sized using the two formulae given below.

Panel Size inWð Þ ¼ LhLnL

vcvdvdustvL f DODhEHFSðC:1Þ

370 S.M. Harish et al. / Energy for Sustainable Development 17 (2013) 363–370

where, L, hL and nL are the wattages of each (identical) load, daily du-ration of usage (in hours) and the number of such loads; vc, vd and vLare the charging, discharging and load efficiency; vdust, the dust fac-tor; fDOD is the depth of discharge; hEHFS are the number of effectivehours of sunshine per day—that is, the level of solar radiation is trans-lated into number of hours of sunshine that provides 1 kW/m2

Battery Size inAhð Þ ¼ LhLnLdaysautonomy

vcvd f DODVterminalðC:2Þ

where, in addition to the variables defined above, daysautonomy is theautonomy (in days), andVterminal is the terminal voltage. As exact requiredsizes are unlikely to be available, the next commonly available size wasused. For battery sizes and costs, the website www.batterymart.comwas used, and the bulk prices in USD were converted using (1 USD =Rs. 50).

Table C.1Model inputs and assumptions.

Discount rate 12%Load assumptionsNumber of lighting fixtures, nL 3Daily hours of operation, hL 5CFL light wattage, L 7 WLED light wattage, L 3.6 WNumber of hours of sunshine, hEHFS 6

Efficiency assumptionsLoad efficiency, vL 0.8Charging efficiency, vc 0.9Dust factor, vdust 0.9Discharging efficiency, vd 0.9

Battery sizingNumber of days of autonomy, daysautonomy 3Terminal voltage, Vterminal 12Depth of discharge, fDOD 0.8Lifetime of CFL (h) (approx.) 5000Lifetime of LED (h) >30,000Lifetime of battery (years) 5

CostsPanel Rs. 100/WCFL light bulb Rs. 200LED light bulb Rs. 500

Battery (bulk prices from www.batterymart.com):12 V 22 Ah Sealed Lead Acid Rs. 250012 V 40 Ah Sealed Lead Acid Rs. 4300

The Balance of Systems cost for the CFL systemwas estimated suchthat it accounts for 30% of the overall costs. This was based on theinputs received during the interviews. The Balance of Systems costfor the LED systems were assumed identical to those for the CFL, asthe change in technology is not likely to affect this.

Appendix D. Supplementary data

Supplementary data to this article can be found online at http://dx.doi.org/10.1016/j.esd.2013.03.005.

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