Lighting Asia: Solar Off-Grid Lighting, Market Analysis of India, Bangladesh, Nepal, Pakistan,...

7/31/2019 Lighting Asia: Solar Off-Grid Lighting, Market Analysis of India, Bangladesh, Nepal, Pakistan, Indonesia, Cambodia

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Market analysis of :

india, Bangladesh, nepal, pakistan,

indonesia, CaMBodia, and philippines

1

Market analysis of:

india, Bangladesh, nepal, pakistan,indonesia, CaMBodia and philippines

Lighting Asia: Solar Off-Grid Lighting

With support provided By:

UNITED

STATESOFAMERIC

A

DEPA

RTMENTOFST

ATE

MINISTERO DELL AMBIENTEE DELLA TUTELA DEL TRRITORIO E DEL MARE


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This publication was written or the International Finance Corporation (IFC) by Intellecap (Intellectual Capital Advisory Services Private Limited).

It was made possible through support provided by the United States Department o State (under the terms o Award S-LMAQM-11-GR1011)and the Government o Italy. The opinions expressed herein are those o the author(s) and do not necessarily reect the views o the United States

Department o State and o the Government o Italy.

Cover page photographs:Children with a solar light, Cambodia (M Young)Tailor with a solar light, India (A Jacobson)


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3

February 2012

With nearly 800 million people living in Asia with intermittent or no access to

the electrical grid, these people experience greater health risks due to unclean

lighting alternatives and ewer income-generating opportunities. There is an

urgent need to provide clean, sustainable and aordable lighting solutions to

reduce such risks and a signiicant opportunity or business to provide such

solutions.

This IFC Lighting Asia Solar O Grid Lighting Report provides a valuable

insight into the sector potential, regulatory and business environment across

seven major Asian o-grid lighting markets.

It explains critical success actors or the Asian o-grid lighting sector with

details o business models, price points and market scoping inormation. It

presents a valuable resource to active players, market practitioners and investors

with a vested interest in thi s par ticular market. Since access to qua lity lighting

has a signiicant positive impact on productivity, education and quality o lie,

this report will assist in developing the necessary activities to address these

challenges.

Rodd Eddy

Executive Director & Acting Chairman


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Lighting AsiA: soLAr off-grid Lighting4

CoMMon aBBreviations 8

CurrenCy exChange rates 9

lighting asia 10

exeCutive suMMary 13

1 asia overvieW 20

2 india Market sCoping 37

2.1 The current state of off-grid lighting ............................................................................................ 37

2.2 Overview of the solar off-grid lighting market ............................................................................ 41

2.3 Demand scenario ............................................................................................................................43

2.4 Supply scenario................................................................................................................................ 44

2.5 Overview of the regulatory environment ..................................................................................... 51

2.6 India conclusion ...............................................................................................................................52

3 Bangladesh Market sCoping 53



3.3 Overview of the regulatory environment .....................................................................................63

3.4 Bangladesh conclusion ...................................................................................................................64

4 nepal Market sCoping 65




4.4 Nepal conclusion ............................................................................................................................. 74

Table o contents


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5

Table o contents5 pakistan Market sCoping 75




5.4 Pakistan conclusion .........................................................................................................................80

6 indonesia Market sCoping 81




6.4 Indonesia conclusion ....................................................................................................................... 86

7CaMBodia Market sCoping 87


7.2 Overview of the solar off-grid lighting market ............................................................................90

7.3 Overview of the regulatory environment ..................................................................................... 97

7.4 Cambodia conclusion ...................................................................................................................... 98

8philippines Market sCoping99

8.1 The current state of off-grid lighting ............................................................................................99


8.3 Overview of the regulatory environment ................................................................................... 103

8.4 Philippines conclusion ..................................................................................................................104

9appendix 105


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tb

Figure 1.1: Access to electricity by region (2009) ................................................................................ 20

Figure 1.2: Off-grid population in regions across Asia (2009) ........................................................... 21

Figure 1.3: Population without access to electricity by country (2009) ............................................22

Figure 1.4: Annual kerosene expenditure by country ........................................................................23

Figure 1.5: Market segmentation of the solar off-grid lighting market ...........................................24

Figure 1.6: Market segmentation by population density .................................................................. 27

Figure 1.7: Typical prices of solar off-grid lighting products in Asia .................................................32

Figure 2.1: Rural-urban distribution of off-grid households in India (2008) .................................... 37

Figure 2.2: Distribution of primary sources of lighting in rural India (2004-05) ..............................38

Figure 2.3: Primary sources of lighting in households across states (2007-08) ................................39

Figure 2.4: Annual expenditure on kerosene for lighting by rural and urban households ............40

Figure 2.5: Comparison of lifetime costs of solar off-grid lighting products

and kerosene lanterns ......................................................................................................... 41

Figure 2.6: Market potential for solar lanterns and SHS in rural India ............................................. 43

Figure 2.7: Comparison between sales of CFL and LED lanterns .......................................................44

Figure 2.8: Price vs. panel wattage of LED lanterns ........................................................................... 45

Figure 2.9: Mapping loan amounts against the SHS panel wattage under the JNNSM program .. 49

Figure 3.1: Rural-urban distribution of off-grid households in Bangladesh ....................................53

Figure 3.2: Electrification rates and kerosene usage for lighting by region (2004) ........................54

Figure 3.3: Schematic diagram of IDCOL solar program .................................................................... 55

Figure 3.4: Cumulative number of SHS installed through the IDCOL solar program....................... 56

Figure 3.5: Cumulative number of targeted installations of SHS until 2014 .................................... 56

Figure 3.6: Cumulative sales of different POs (2009) ......................................................................... 57

Table o contents


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7

Figure 3.7: Mapping product features and prices of SHS................................................................... 58

Figure 3.8: Sales mix of SHS and mapping against the consumer household income segment ..... 59

Figure 3.9: Subsidies provided and the cumulative growth of SHS installed (2010) ........................ 61

Figure 4.1: Rural-urban distribution of off-grid households in Nepal (2008) .................................. 65

Figure 4.2: Primary sources of lighting in rural households of Nepal (2005) ................................... 66

Figure 4.3: Solar Tuki .............................................................................................................................67

Figure 4.4: Cumulative number of SHS installed through AEPC subsidy program .......................... 67

Figure 4.5: Schematic diagram of the AEPC subsidy program ........................................................... 68

Figure 4.6: Subsidy structure of AEPC..................................................................................................68

Figure 4.7: Annual SHS installations through AEPC ........................................................................... 69

Figure 4.8: Mapping of product features and prices of SHS ..............................................................70

Figure 5.1: Rural-urban distribution of off-grid households in Pakistan .......................................... 75

Figure 5.2: Monthly household kerosene consumption value across income quintiles (2004-05) . 76

Figure 5.3: Mapping of product features and prices of SHS ..............................................................78

Figure 6.1: Rural-urban distribution of off-grid households in Indonesia ........................................81Figure 6.2: Number of SHS installed trough the government tender scheme ................................. 83

Figure 7.1: Distribution of households by primary source of lighting (2007) ...................................87

Figure 7.2: Retail price of SHS available in Cambodia ........................................................................ 91

Figure 8.1: Distribution of off-grid Households in the Philippines (2008) ........................................99

Figure 8.2: Retail price (non-subsidized) of SHS in the Philippines ................................................. 101

Figure 8.3: Schematic of CARD partnership with SunTransfer and Barefoot ................................. 102

Figure 9.1: Schematic diagram of JNNSM program in India .............................................................109

Table o contents


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Common abbreviationsAEPC Alternative Energy Promotion Center

AMORE Alliance or Mindanao O-grid Renewable Energy

Bn Billion

BOP Bottom o the Pyramid

CAGR Compounded Annual Growth Rate

CBO Community Based Organisation

CFL Compact uorescent lamp

EMI Equal Monthly Installments

ESAP Energy Sector Assistance Program (Nepal)FMCG Fast Moving Consumer Goods

IEA International Energy Agency

IDCOL Inrastructure Development Company Limited

kWh Kilo Watt Hour

JNNSM Jawaharlal Nehru National Solar Mission

LaBL Lighting a Billion Lives

LED Light-Emitting Diode

LFL Linear Fluorescent Lamp

MFI Microfnance Institution

Mn MillionMNRE Ministry o New & Renewable Energy, India

MW Megawatt

NGO Non-governmental Organization

PDS Public Distribution System

PE Private Equity

PO Partner Organization

PV Photovoltaic

REF Rural Electrifcation Fund

RRB Regional Rural Bank

RPP Rural Power Project

SHS Solar Home Systems

SME Small and Medium Enterprise

TERI The Energy and Resources Institute

USD United States Dollars

VAT Value Added Tax

VC Venture Capital

W / Wp Watt / Watt-Peak


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9

Country Local currency value equivalent to 1 USD

India INR 459

Bangladesh BDT 708

Nepal NPR 744

Cambodia Riel 4245

Indonesia Rupiah 9123

Pakistan PKR 859

Philippines PHP 452

Note: The currency conversion rates listed above are derived rom theaverage o the rates over 2010Source: http://wwwoandacom/currency/historical-rates/

Currency exchange rates


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Lighting AsiaNearly 800 million people in Asia[1] live in a state onear darkness, coping with unreliable or non existentor no access to electricity on a daily basis. The eectson these vulnerable communities are severe. Medicaland educational opportunities and services are severelyconstrained, health risks are heightened by uncleanlighting alternatives and opportunities or income-generating activities are reduced. Many people alsopay a great deal over time or paltry service oeredby most uel based lighting. There is a great need orclean, sustainable and aordable products to bring lightto these households.

[1] IEA fgure or 2009 (developing Asia)

Modern o-grid lighting has emerged with the ascento solar energy, battery and LED technology and hasa rapidly growing demand rom those living o-grid.This report provides an overview o the o-grid lightingmarket in seven nations across southern Asia India,Bangladesh, Nepal, Cambodia, Indonesia, Pakistanand the Philippines and presents the opportunityor investors and industry players to make a real andnecessary impact by serving communities without accessto reliable electricity.

Pakistan Nepal

India

Bangladesh

Indonesia

PhilippinesCambodia


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11

The ReportObjectives

Lighting Asia: Solar O-grid Lighting provides analysisto support the Asian o-grid lighting market by:

Guiding enterprises: in ormulating theirstrategy to enter / scale up in these markets.

Assisting investors: fnancial institutionsand regulatory authorities in understanding

these markets and in identiying potentialopportunities to catalyze their growth

Scope

There is a strong demand among o-grid consumers inAsia or reliable, clean and cost-eective alternatives touel-based lighting, in particular the kerosene lantern.This is not as a consequence only o the demand oralternatives, it is also dependent on the availability oalternatives and modern o-grid lighting products arerapidly emerging as an alternative.

Modern lighting products include a range o technologybut are primarily rechargeable solar o-grid lightingdevices. There are several broad main product categoriesportable lanterns and Solar Home Systems (SHS).

Basic Lanterns: Lighting products that are oten designedwith a similar look and eel to that o traditional kerosenelanterns and that could be used as handheld devices.

These products vary greatly in perormance, with a rangeo light output and accordingly a range o solar powerratings rom 0.25-4 Watt-peak[2] (Wp)

Multiunctional lanterns: Covers devices such as solarlanterns and torches, which oer unctions over and abovelighting. A common unction ound in such products ismobile phone charging. Typical wattage or these productsrange rom 4-10 Wp.

A complete inventory o these products will be covered inmore detail in the section 1 Asian Overview.

[2] Measure o the nominal power generated bya photovoltaic energy device under laboratory conditions

Basic lantern Basic SHS


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Photos: A. Jacobson

In each o the seven ocus countries a parallel analysis wascompleted to acilitate their comparison. First, the marketpotential was assessed by examining current expenditureon kerosene or lighting and other lighting products by

the households.

The report traces the evolution o solar o-grid lightingmarket in these countries, the orces aecting theirdevelopment and the current penetration o theseproducts in these markets. Country-by-country marketanalyses ocus on the ollowing key components:

A tailor in Bihar using a solar lantern (India)

Government and donor-driven programs topromote solar lighting

Supply and demand characteristics and

product trends

Product consumer fnancing and Small andMedium Enterprise (SME) fnancing

Market barriers

The report concludes with high-level opportunities or

private sector enterprises to engage in this market.


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13

Executive Summaryintroducton

Nearly 1.3 billion people worldwide[3]-almost a quarter o the worldspopulation-live without access to electricity. More than hal reside in Asia,where they ace severe challenges to basic lighting access; 85% o o-gridAsians are in the seven ocus countries o this report. India alone has 400million people who live without the distinct advantages oered by modernlighting o any kind, about hal o the continents o-grid population.

An even larger number o people in these countries are under-electrifed,acing constant outages that beg or new solutions. Given the slow pace ogrid expansion on the continent, this situation is expected to remain oryears to come unless innovative, low-cost alternatives are introduced.

Currently, o-grid households largely depend on conventional uel burning(mainly kerosene) that are inefcient, polluting and damaging to bothhealth and the environment. Solar o-grid lighting alternatives oer a bettercost-perormance option[4] with health, saety and environmental benefts.Despite their potential, these products have yet to make a signifcant impactin the market. The current limitations in distribution models, the smallsize o market players and their inability to scale the market are amongthe reasons or lack o penetration. It does not help that in India and in

Indonesia kerosene is heavily subsidized by the government, distorting themarket or lighting.

Across countries, it is mostly SMEs and social enterprises that are currentlyengaging with the low-income o-grid consumers to promote solar o-gridlighting products, while larger enterprises have yet to make signifcantinvestments to serve this segment.

While purely commercial models[5] that demonstrate proftability throughdelivering solar o-grid lighting products exist, they are ew and ar between.A majority o the business models covered in the seven countries aresemi-commercial, they are usually able to recover running costs but are

still partially dependent on external grants and subsidies. In some countries,the solar o-grid lighting market is ully subsidized by the government,and the private sector has yet to establish businesses with signifcantscale and proftability.

[3] IEA (2009)

[4] From a liecycle cost perspective

[5] No dependence on external grant / subsidized capital


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An opportunity exists or investors and enterprises alike in these underserved markets. In order to make these opportunities viable, enterprisesneed to ocus on the ollowing critical success actors:

Consumer awareness: Giventhe low awareness o solar o-grid lightingproducts and their benefts, investors and enterprises need to generatedemand by educating potential consumers about solar o-grid lightingproducts. Substantial resources may be required to reach them, some owhich are in remote regions.

Consumer nance: Since most o-grid households are low-income,they tend to lack access to fnancing options. There is a large market orproviding credit to such households to invest in solar o-grid lightingproducts. However, banks and microfnance institutions (MFIs) aretypically unwilling to oer the loans owing to a lack o awareness o themarket potential, ater-sales challenges and other issues which can besystematically addressed.

Credit access or SMEs: Lack o readily accessible debt and equity capitalis a major constraint or SMEs in the solar o-grid lighting market. Thereis an opportunity or investors and fnanciers who can oer fnancing

tailored or emerging SMEs.

Product quality:With the market dominated by cheap and sub-standardsolar lighting products, there is a need or appropriate solutions to preventmarket spoiling and to dierentiate good quality products. Consumermistrust in solar or LED technology can be addressed by providing reliableinormation about better quality products.

Distribution network building: Because most o-grid households areoten in remote areas, there is a need to create efcient distribution andater-sales networks.

Policy advocacy: In some countries, there is scope to create awarenessamongst policymakers and governments regarding market-distortingpolicies such as subsidies on kerosene (in India) or ree distributiono SHS (in Indonesia). Highlighting the cost-competitive, healthand environmental benefts o solar o-grid lighting products in thelong term could potentially promote the growth o commercial and

sustainable models and open up the market.


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Maturity o solar o-grid lighting industry: This actorhelps private sector enterprises understand the extent o

the industry in the country. The relative maturity o theprivate solar o-grid lighting industry is measured by thepresence o local manuacturing capacity o products and/orcomponents, product quality testing capacity, prevalence oindustry standards and the presence o commercial models.

Overall policy environment and government support:This actor aims to capture the attractiveness o the policyand regulatory support available to the solar o-gridlighting industry by examining the presence o avorableimport duties, taxation policies, and subsidiary rameworks.

Presence and quality o existing energy access initiativesor promoting private sector models: Government/donorsupported lighting access programs with a market-basedapproach that are ocused on acilitating the growth ocommercial private sector models (versus ully subsidizedprograms that may be hampering a burgeoning privatesector play) are a key enabler or private sector enterprises.This actor aims to capture the presence o such initiativesin the countries.

A school with an installed SHS in India Image courtesy o SELCO

Country Assessment

Based on the market-scoping exercise, the ocuscountries were compared across the ollowing

parameters, which are critical actors to attract privatesector participation:

Market potential: This actor aims to capturethe potential o the market as defned by the totalnumber o o-grid households and their currentspending on kerosene or lighting and other lightingproducts. This is one o the key determinants oprivate sector participation.

Availability and quality o critical enablinginrastructure or commercial models: This

actor aims to capture the presence o key enablinginrastructure or private sector enterprises to scalethe market in the countries. This covers distributionand retail networks to reach out to rural consumers,access to fnance or consumers and businessesand the presence o local stakeholders such ascommunity-based organizations (CBOs) and MFIs,who can undertake grass-root level marketing andpromotion activities.


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The ollowing table provides a summary o the country assessments based on these parameters:

Country

MarketPotential (o-grid householdstotal spendon majorconventionalsources olighting)

Availability andquality o localinrastructure

Maturity o privatesolar o -gridlighting industry

Overall policyenvironmentand governmentsupport (energyaccess policies,subsidies onconventionaluels etc)

Presence andquality o anyexisting energyaccess program(s)or promotiono commercialmodels[i]

India75 millionhouseholds;USD 2.2 billion(Kerosene spend)

Deep rural reachestablished byFMCG companiesand the market

The industry has

only become activein the last 3 -4 yearswith tremendouspotential or theuture

Low/no import

duties andavourable taxationpolicies negated byhuge subsidy onkerosene

Upcoming

governmentsubsidy program,JNNSM no trackrecord but hugeexpectations

Bangladesh

17 millionhouseholds;USD 0.36 billion(Kerosene spend)

Strong presenceo MFIs ordistribution andmarketing

On high growthtrajectory ollowingthe start o theIDCOL program;poised to grow morein the coming years

Insignifcantsubsidy onkerosene;Low/no importduties;Favourabletaxation policies

IDCOL program- successul inmarket buildingand growth

Nepal


Transportationand distributionto the remote ruraland hilly areasis a challenge

Relatively slowmarket growth,but the potentialis still there

No subsidy onkerosene; Low/noimport duties

AEPC program -market dependenton solar subsidiesand several donorprograms inplanning stages

Cambodia

2.2 millionhouseholds;

USD 0.11 billion(Kerosene andBattery spend)

Strong presence obattery chargingstations in remoteareas which could

be a potentialdistributionpartner . MFIsmostly locatedin urban areas

Sector is nascentand only a limitednumber o playersin the market.

However, innovativeplayers (Kamworks)are experimentingwith business anddistribution models

No subsidyon kerosene;

Import dutiesand taxes levied

World Banksupported REF

revised program tobe implemented

[i] For abbreviations please reer to the Abbreviations defnition at thebeginning o this report. For each program description, please reer tothe individual contry sections.


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Country

MarketPotential (o-grid householdstotal spendon majorconventionalsources olighting)

Availability andquality o localinrastructure

Maturity o privatesolar o -gridlighting industry

Overall policyenvironmentand governmentsupport (energyaccess policies,subsidies onconventionaluels etc)

Presence andquality o anyexisting energyaccess program(s)or promotiono commercialmodels[i]

Indonesia


Large archipelagowhich is difcultto access. MFIssolely operate inurban and semi-urban areas onthe main islands

No private sector

initiatives to targetthe BOP on acommercial basis,everything througha governmenttender process. Nofnancing supportor companies whowould like to targetthem directly.

Subsidizedkerosene;

Free distributiono SHS underthe governmenttender scheme

Pakistan

11 million

households;USD 0.11 billion(Kerosene spend)

Strong presenceo MFIs and

developmental aidorganizations; ruralnetworks not wellestablished

Very nascent market Political instability;High importduties

No programcurrently

Philippines

2.5 millionhouseholds;USD 0.18 billion

(Kerosene spend)

Transportationand distributionto remote areas isa challenge, MFIslocated mostlyin urban areas.Law and order in

some remote areasremain an issue,or the lack oreliable distributionchannels

Well developed solarindustry with a largenumber o players.Government undedprograms targeting

the BOP, havehelped the marketto develop

Taxation

World Banks RPPand, USAIDsAMORE subsidydriven and had

little impact

The table above shows that India oers the largestopportunity in terms o market potential and is alsorelatively ahead o the other countries in terms o maturityo private sector-led models. Indonesia and Pakistan,

home to approximately 150 million o-grid householdsor approximately 20% o Asian o-grid households,present the most barriers or private enterprises to enterthese markets.


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Instances o such unsuccessul programs canbe seen in the Philippines, Indonesia, Pakistan,etc. However, in Bangladesh, the InrastructureDevelopment Companys (IDCOL) solar program,which has eectively managed its ater-sales networkthrough its partner organizations, has been relativelysuccessul in scaling up.

Grass-roots organizations are critical orpromoting the use o solar o-grid lighting

The lack o consumer awareness on solar lightingproducts and their benefts is a key barrier acing thesector. The barrier is urther heightened by the push[6]nature o the products and the limited resourcesavailable to SMES in this market enterprises topromote solar o-grid lighting. Last mile deliveryto rural consumers is another signifcant challenge.In this context, local CBOs can play a vital role inincreasing the use o these products. As we have seenin Bangladesh, a critical actor driving the IDCOLsolar programs success has been the presence andlocal outreach o its partner organizations, which

are primarily CBOs. The partner organizations havebuilt high levels o consumer trust and easy access torural households over many years. These actors haveallowed the program to overcome some o the above-mentioned challenges. Similarly, in India, largerenterprises, such as Tata BP Solar and Schneider etc.,are looking to or have partnered with local CBOs tosupport their solar o-grid lighting business plans.

The sector at its current stage requirespatient[7] / subsidized capital to scale

The market or solar o-grid lighting products isnascent, and a pure commercial approach to servethe o-grid market will take some time to evolve.

[6] Push products are those where the consumer demand islow and companies need to aggresively market and sell their products tocreate demand

[7] An investor with patient capital is willing to make fnancialinvestment into a business (social enterprise) which has relatively longergestation period o generating profts

RecommendationsFollowing are some key observations or privatesector companies and investors interested in the solaro-grid lighting space. These points are based on thereport fndings on enterprise, government and donordriven activity in solar o-grid lighting marketsacross the seven countries.

Solar lanterns and SHS can help to reducethe number o un- and under-electriedrural households

Each country profled in this report is home to asignifcant number o o-grid households. The slowrate o electrifcation and the lack o technical and/or economic easibility make extending the grid tothese households a distant reality. Grid extensionsaside, the challenges o generating adequate powerto meet the current demand leave many grid-connected households under-electrifed. Giventhese realities, both solar lanterns and SHS oer animmense potential to provide clean lighting to low-income households. Some governments have alreadybuilt in the provision o these products into their

electrifcation plans. For instance, the Governmento Bangladesh considers a household with a SHSinstalled as electrifed, which is not the case in India.

Any program or pilot project design mustinclude an eective mechanism to ensureproduct quality and oer ater-sales support

Many programs / pilots have ailed despite hugeinvestments due to the lack o quality assurance andmonitoring and/or the lack o adequate planning toset-up an efcient ater-sales network. The success

o consumer fnancing eorts depends heavily onproduct perormance. Channeling poor qualityproducts or ailing to service a aulty product duringthe fnancing term is a signifcant credit risk borne bythe fnancial institutions.


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The market today is characterized by long paybackperiods, given the challenges set our above and theend-consumer profle.

SMEs dominate the sector today. While largeenterprises with deep pockets have the potential tosustain themselves and scale up, the market is yet towitness signifcant activity rom these companies.SME enterprises operating in the market are severelyconstrained by a lack o resources to scale up.

There is a mismatch between the current supplyo fnancing (debt and equity) and the demand orfnancing in terms o risk profle, return expectations,collateral requirements, etc. The current need iscapital (debt and equity) that is characterized by longtime horizons and a high risk tolerance. Enterprisesthat have successully started to scale up operationsin this market have been supported with patient /subsidized capital.

The ollowing observations on current policies pointout the need or both direct policy and advocacy by

the donor organizations and multilaterals to catalyzethe solar o-grid lighting market growth.

Policy and subsidies that strengthen thewhole value chain are more eective thana direct subsidy intervention that simplyreduces the end-consumer price

Nearly all the markets studied have a governmentsubsidy program to support solar o-grid lighting.However, every program adopted a dierentapproach, with varying levels o success.

The Bangladesh program has, so ar, ocused onstrengthening the capacity o the entire value chain- rom provision o sot loans to acilitate consumerfnancing, to providing marketing and promotionsupport, to quality control support. The programscurrent scale depends less on the equipment pricesubsidy, allowing it to progressively scale back itsprice support. The program has been able to catalyzemarket demand or solar o-grid lighting productsand aims to scale up aggressively in the coming years.

On the other hand, Indonesias program, based onree distribution o Solar home systems, is stiingthe entry o the private sector enterprises throughits rigid tender-based approach and is resulting insignifcant user dropouts.

As these examples o programs suggest, it is extremelycritical that any intervention be designed andimplemented to create an eco-system or solar o-grid lighting that can gradually become sel-sufcientand wholly sustainable.

Kerosene subsidy is a major challenge to thedevelopment o solar o-grid lighting market

Indian and Indonesian governments providesignifcant subsidies on conventional uel sourcessuch as kerosene or domestic usage (lighting andcooking). Heavy subsidies on kerosene make itdifcult or the solar o-grid lighting market toscale up, as the conversion costs or the consumersincrease maniold. In such a scenario, it makesit more challenging to convince consumersto change to the cleaner, more efcient solaro-grid lighting products.


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1 Asia OverviewAsia has the largest o-grid population in the world, with55% o the global o-grid population. This translates into22% o the population in Asia and 798 million people

0

300

600

900

1200

1500

Transition

economies

&

OECD countries

Middle

East

Latin

America

AfricaAsiaWorld

Off-gridpopulation(Mn)

Region

f 11: acc cc b (2009)

without access to electricity. O this, over 700 million or90% are located in rural Asia.

Source: International Energy Agency, Intellecap analysis

1441

798

587

3122 3


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21

South Asia accounts or 65% o the o-grid population[8]

[8] 2009 data has been used or overall electricity access or countries in this report, but as the rural and urban electrifcation rates were not availableor 2009 at the time o writingthis report, 2008 data was used as a proxy

f 12: o- c a (2009)

Note: South Asia comprises o Bangladesh, India, Nepal and Sri Lanka; East Asia and Pacifc comprises o Cambodia, East Timor, Indonesia, Laos,Malaysia, Philippines, Thailand, Vietnam, China, Burma and Mongolia; The Middle East comprises Pakistan and Aghanistan; Other Asian Countriescomprises o North Korea, Taiwan, Brunei, Singapore and Other East Asia

Source: International Energy Agency, UN Habitat, Intellecap analysis

(20%) East Asia and Pacifc

0

500

1000

1500

2000

2500

3000

3500

4000

Populationwithout access

to electricity

Populationwith accessto electricity

Totalpopulation

in Asia

Population(Mn)

South Asia (65%)

36932895

798

2692

160

520

(3%) Other Asian countries

Other Asian countries =(North Korea, Taiwan, Brunei,Singapore, Other East Asia)

(12%) Middle East(Pakistan and Aghanistan)

ASIA


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The seven ocus countries constitute themajority o the Asian o-grid population

These countries together represent 86% o the overallo-grid population in Asia. India alone contributes toapproximately 50% o the o-grid population withapprox. 400 million people[9] without access to electricity.

[9] The 2011 Census Report indicates a 67% electrifcation rate and apopulation o 1.2 billion people which implies an o-grid rate o 33%and approximately 400 million people o grid

50

60

70

80

90

600 650 700 750 8000

10

100

20

30

40

200 250 300 350 400 45050 500 5500 100 150

Electrification rate (%)

Po pulation without electricity

798 mn

IndiaIndonesiaPakistan

NepalBangladesh

Cambodia

Philippines

Other countriesSource: IEA, Intellecap analysis

Focus countries

f 13: p w cc cc b c (2009)

Kerosene is the dominant o-grid lightingoption in these countries

Our estimates are that the total expenditure onkerosene or lighting in these countries is approximatelyUSD 3.68 billion per annum. The bulk o this iscontributed by India, where the kerosene expenditureor lighting is estimated to be approximately

USD 2.2 billion per annum.


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23

According to the IFC and WB Group Lighting Africa report,

the annual expenditure on conventional fuels for lighting in

Africa is estimated to be USD 10.5 billion. Despite the off-grid

population in the 7 focus countries being higher than the

whole African continent, the expenditure in Asia is relatively

lower. 70% of the off-grid population of these countries is

in India and Indonesia, where governments provide huge

subsidies on kerosene.

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Annual Kerosene expenditure (Bn)

Cambodia

Philippines

Nepal

Pakistan

Bangladesh

Indonesia

India

Asia (7 focus countries) 3.77

2.22

0.56

0.36

0.20

0.19

0.18

0.06

f 14: a

b c

Solar o-grid lighting products are emergingas key alternatives

Solar o-grid lighting products such as lanterns andSolar Home Systems (SHS) are emerging as keyalternatives in meeting the basic lighting needs (andlimited electrifcation needs in the case o SHS), o o-grid households in the ocus countries. These productsare characterized by their ease o use, saety, brighterand cleaner light, long product lie, and signifcantly

lower liecycle costs compared to conventional sources olighting mainly kerosene.

A wide variety o solar o-grid lighting products currentlyexist in their markets, including solar torches andashlights, desk and working lamps, solar lanterns, solarmultiunctional devices, solar home systems.

Source: UN data, Primary research, Intellecap analysis

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Off-grid solar lighting market segmentation in Asia

Totalnumberofruralhouseholds

Household income range per month

Multi-functional solar

lanterns and basic SHS

Basic solar lanterns

Advanced SHS

f 15: M m - m

In the ocus countries, single light point systems such assolar torches, ashlights, lanterns and multiunctionaldevices, are typically reerred to by the catch-allterm solar lanterns, disregarding the marginaltechnical nuances between them. SHS are consideredseparately as they are more expensive and have a largereature set and applications.

Solar lanterns and SHS target dierentmarket segments

The market segments targeted by solar lanterns and SHS

are quite dierent. The market potential or a SHS ismuch higher amongst higher-income customers whereasthe primary market or solar lanterns is the lower-incomecustomer segment that needs lighting at aordable prices.This is represented below.

Image courtesy o BP Tata solar


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25

There are fve key product categories in the o-gridlighting space that are highlighted in the table below.Products can be categorized based on a combination othe unctionality, portability, and overall service level.

Basic solar lanterns:

In addition to usage amongst the lower-incomehouseholds, solar lanterns are used extensively or portableapplications by certain proessions such as fshermen, silkarmers, and night security guards. Their demand is alsodriven by the need to work early in the morning and/orlate in the evening, coupled with the benefts o brighter

and saer light that solar lanterns provide.

These lanterns can perorm only one or two basicunctions such as acting as a task light and/or as asolar torch/ashlight.

Multi-unctional solar lanterns:

This products distinguishing characteristic is that itcomes with more unctionality than the basic solarlantern. These eatures include outlets or mobile phonecharging, radio charging and charging through dualmodes solar and AC points. Some lanterns in themarket even come with built-in radios. While all incomelevels fnd these products more useul than basic solar

lanterns, many cannot aord them.

Basic lanterns

Torch Light Task Light Ambient LightMultiunctionallantern

Basic SHS Advanced SHS

Portable Portable Portable Portable Permanent Permanent

Images courtesy o Schatz Energy Research Center (R. Hosbach)

Photo o a traditional Kerosene lantern

Basic SHS:

These are quite similar in unctionality and in targetcustomer segment to the multi-unctional solar lanterns.Their key distinguishing eature is that their lights areseparate rom the charging/battery unit. This allows thelighting to be provided in dierent rooms as per thecustomers need unlike lanterns that can only supply

lighting at one location at a time.

Multiunctional SHS: Typically larger lighting systems(10 40 Wp) that oer lighting or multiple points withadditional unctions such as mobile phone charging andpower or running loads such as radios, black & whitetelevision, etc.

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Advanced SHS:

As the income level increases urther, the ability to payor lighting and other electricity needs increase as well.Amongst the customers that are the key target segment oradvanced SHS, the typical applications are or lighting uphouses with multiple rooms that would need more than

one light and or using ans, TVs, radios and other smallelectrical appliances as needed. Very large systems (>40Wp) that oer power to run loads such as multiple ans,color television, large number o lights etc., over and abovethe unctionalities provided by Multiunctional SHS.

Technology drives the o-grid lighting market

Light SourcesThe solar products in the market today typically have either CFL or LED lamps

LEDs (Light Emitting Diodes): LEDs are characterized by their low power requirements

CFLs (Compact Fluorescent Lamps): CFLs use much less power compared to traditionalincandescent lamps but considerably more power when compared to LED

Batteries

Batteries can be o the ollowing 3 types:

Lead-acid batteries: These are the oldest type o rechargeable batteries and are typically usedin SHS

Lithium-ion batteries: These batteries have seen more application in portable products as they

have one o the best energy densities

NiMH batteries: Nickel-Metal Hydride cells have a high energy density but a high sel-discharge rate, which leads to lower battery lie


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27

Co

sttoconsumer

Population density

Market for solar lighting products Market formini-grid solutions

Solar lighting

Market potential for solar off-grid and mini-grid solutions

Mini-grid

f 16: M m b

Applicability o solar o-grid lightingproducts is population-density dependent

Multiple solutions such as solar lanterns, SHS and mini-grids[10] have emerged to cater to the lighting needs oo-grid households. The applicability o these solutionsdepends on the population-density o an area.

The diagram above illustrates how when the populationdensity is low enough, solar o-grid lighting products arethe more economical option or the consumer.

[10]A minigrid is a small local electricity utility producingpower using a small generator. The power is distributedover wires to households and businesses in localitiesneighboring the generator

Once a high enough population density is reached and imini-grid solutions are available to customers, they maybe a more economical option than standalone lightingproducts. The key consumer beneft o this option is thatthe costs may decrease with corresponding increases in the

population density o consumers in that area.

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Market penetration o solar o-grid lighting

products is still insignicant

The market penetration o solar o-grid lighting productsis insignifcant when compared to the vast number oo-grid households. The ollowing table shows the

estimated sales o good quality solar lanterns and SHS inour ocus countries.

Husk Power Systems Biomass minigrid in Bihar, India Photo: A. Jacobson

Countries Solar Lantern Sales[i] Solar Home Systems Sales [i]

India 2.3 - 3.2 million 1.0 1.2 million

Indonesia NA 260,000

Bangladesh NA 680,000

Nepal NA 229,000

Philippines approx. 3,000 40,000

Pakistan NA NA

Cambodia 10,000 10,000 20,000

Total 23 - 32 million 22 24 million

[i] Table includes both subsidized products sold as well as unsubsidized products


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29

Signicant presence o sub-standardsolar lanterns

The issue o sub-standard solar o-grid lightingproducts entering the markets is primarily restrictedto the solar lantern market. High levels o variationare currently observed in the price-perormanceratios o lanterns available in the market today. Theperormance o electronic circuits in these lanterns alsovaries widely with respect to charging, efciency andtype o circuit protection.

l gb Q ac fmw

Lighting Global has developed a global quality assurance framework for off-grid lighting.

The framework includes a test protocol, sampling requirements, Minimum Quality

Standards, Recommended Performance Targets, and Standardized Specifications Sheets.

Any organization can adopt their own set of Standards and Targets, working within the

Lighting Global QA framework to suit their needs.

The Lighting Global QA framework originated with Lighting Africa, but since then has been

applied for global projects, including the UNFCCC CDM methodology for carbon credits.

There is currently no globally harmonized rameworkor testing and certiying products although eorts, e.g.by the International Electrotechnical Committee, areunderway. Such requirements and certifcations wouldensure that only good quality products enter the marketand that poor quality lanterns do not lead to consumermistrust in good quality solar lanterns too.

See www.Lighting Arica.org or more details

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Solar o-grid lighting companies have adoptedour key distribution models

Distribution is a critical success actor or solar o-gridlighting companies. Most companies operating in the

Model description Channel evaluation

Institutional partnerships:Manuacturers tie up with

institutions (either or-proft ornon-proft) that have signifcantpresence in rural areas

Advantages

Access to wide and deep distribution channels

Opportunity to leverage on the partners ready client base

Challenges

Ambiguity on cost sharing and risk sharing

Concept selling would be a challenge. For example, in India, Tata BP Solarcould not leverage on the Tata Chemicals channel because solar o-gridlighting products, unlike ertilizers, do not have a ready pull and need to bepushed aggressively

May not work or SHS as it is not an o-the-shel product. Most organizationsconsider SHS to be a customized technical solution

Company owned branches:Branches set up in the targetgeographies or distribution

Advantages

Stronger control on margins, brand, and supply chain

Can drive and ensure concept selling o SHS eectively by working closely withsales sta

Challenges

High initial investment required to set up branches and thereore potentiallymore relevant or SHS

Management and coordination o sta across branches is challenging

Micro-ranchising:Manuacturers identiy micro-entrepreneurs at a village level, workclosely with them on distribution,marketing and servicing

Advantages

Works well at a local level or a company to begin operations

Challenges

Sales are entirely dependent on the micro-entrepreneur

Likelihood o up-ront payment to the suppliers by the micro-ranchisee is low

Identifcation o a micro-entrepreneur in every village and regular coordinationcan be a time-consuming and cumbersome process

Traditional distribution channel:Manuacturers sell their productsto the distributors, who in turnsell them to dealers. The dealergenerally has a network o sub-dealers or micro-entrepreneursdepending on the remoteness o theareas. The distributors are usuallyo 3 types consumer durables,electrical goods and exclusive solar

Advantages Common and well-understood model

Potential or higher market penetration

Challenges

Inadequate and underdeveloped number o distributors with a nationwide reach

Ensuring ater-sales service through various distributors and dealers

Reputation risk to the brand

Concept selling is a challenge

ocus countries are still experimenting with multipledistribution models. Based on this study, our majordistribution models used by private sector initiativesacross the seven countries have been identifed:


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31

Solar o-grid lighting companies areadopting various marketing and promotionpractices to drive uptake

Given the low levels o awareness and somemisconceptions about solar o-grid lighting due tounsatisactory experiences rom sub-standard products,it is imperative or businesses in this market to investresources into education, marketing and promotion.Social marketing[11] is especially critical in drivinguptake. Companies are testing various approaches

[11] Please reer to the Appendix or successul social marketingexamples in India

to communicate a host o marketing messages to thecustomers using dierent media and collaborations asrepresented below.

In spite o the various company-level promotionaleorts, the collective impact is still insignifcant acrossthe countries with the rural o-grid population needingurther education on solar o-grid lighting products and

their benefts.

Better lighting or education

Longer hours o work or income generation

Quality o lighting (brightness etc.)

Improved health & saety in comparison tokerosene lamps

Long term savings

In case o SHS, higher energy needs

Aspirational positioning

Partnerships with co-

operatives, NGOs trusted byconsumers. Example: TataBP Solar tie-up with theRamakrishna Mission in India

Collaborations with banksand MFIs or reerrals and orproduct promotion throughcredit camps

Door-to-door selling

Stalls in village airs

Wall paintings, pamphlets,Point o Sale banners, collateral

Key marketingmessages

Collab

oratio

ns

Marketing medium

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Access to nance or low-income consumersremains a key challenge

While a select ew o-grid households are able topurchase solar o-grid lighting products easily on a cashbasis, many low-income customers fnd it difcult to paythe upront costs associated with these products. A surveyconducted by Intellecap in 2009 o rural low-incomeIndian households that owned solar lanterns (costingUSD 15-20) revealed that the provision o access tofnance had positively inuenced their purchase decision.

LanternSHS

Price(USD)

Price(USD)

102

37

9970

50

210

306

118

165

303

379

226

280

220

380

180

250

790

510

612

379

566 566

700

510

600

420

70

20

25

17

40

100

Basic SHS(40 Wp)

Basic lantern(


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33

o the ocus countries. Commercial banks as well asmicrofnance institutions shy away rom extending credit,citing high transactional and operational costs in the aceo low demand or solar lighting products and remotelocation o most target customers. Additionally, given thelow-income status o such consumers, they also see a highdeault risk, part o it stemming rom their distrust o theproduct quality i it dies beore the loan terms, chanceso recovery decrease. Product quality is a key actor orensuring the viability o the o-grid lighting market acrossmultiple dimensions.

All the above mentioned issues are more acute in solarlanterns because o their small loan ticket size, lowrepossession or collateral value and relatively lowerwarranty period (usually no more than a year). Moreover,providing ater-sales service is a bigger challenge in thecase o lanterns compared to SHS as lanterns are low-value products and need scale or it to be viable or thecompanies selling them.

In light o these difculties in working with individualcustomers and products, some banks and MFIs areinterested in supporting models o o-grid lighting thataggregate customers. This could be through providingmicro-entrepreneurs with fnancial support to start theirown solar lantern charging stations or providing smalldealers with credit to buy products rom companiesor distribution to customers on direct sale or exiblerepayment terms.

An example o this fnancing support can be seen in the

pilot being run by Yes Bank, an Indian bank, to providemicrofnance loans to Lighting a Billion Lives (LaBL)entrepreneurs with the disbursement and on-groundmonitoring to be handled by a partner MFI.

Photo: A. Jacobson

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Innovative models are emerging acrossthe globe to overcome barriers inaccessing nance

Model 1: Fee-or-service / rental model orsolar lanterns

In this model, a micro-entrepreneur who has a banko batteries, panels and lanterns rents the chargedbatteries/lanterns to the users. The user pays a ee orcharging services (in case o batteries) or a rental ee(in case o lanterns). The micro-entrepreneur couldeither buy the inventory upront or pay the supplieron installments.

SELCO, Bareoot and Schneider are some o thecompanies that are piloting such models in India.Recently, the LaBL program implemented by TERI hasalso adopted this model (see images). The advantages othe model are:

Flexibility to rent or recharge the lantern onlywhen required

Maintenance and servicing issues are not acedby the customer

Image Courtesy o Simpa Networks


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35

Picture Courtesy: Lighting a Billion Lives - A TERI initiative

Model 2: Pay-as-you-go- loan repayment over mobile:

A technology company called Simpa is piloting apay-as-you-go model in collaboration with SELCOin the state o Karnataka in India. In this model,consumers pay or energy credits through the easyrecharge agents, which mimics the mobile airtimerecharge process. Simpa then collects rom the agents(in kilo watt per hour - kWh).

Each payment accumulates towards the fnal purchaseprice and once ully paid, the system unlocks permanentlyand delivers ree solar energy rom that point onwards.Simpa collects the payments rom the mobile airtimedistributors and pays the SHS supplier ater deducting aservice charge.

Advantages o the model are that:

Increasing mobile penetration in rural areashas led to a vast mobile airtime distributornetworkthe model aims to leverage thisnetwork or its operations

Customer can make payments at his/her convenience based on his/her usagerequirements- this advantage puts the model

on par with kerosene

Lender can better manage baddebt/non-payments, through increasedleverage through the ability to turn o the solarsystem remotely

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Model 3: Acquisition o solar o-grid lightingproducts through remittances:

A ew companies are still developing this model. Theidea is to provide SHS loans to people working insemi-urban / urban areas whose amilies may be livingin o-grid villages. Banks are to make an uprontpayment to the supplier and collect loan repaymentsrom the working people. It would be the responsibilityo the suppliers to deliver the product to the respectivehouseholds in the villages.

An example o an existing program that attempts this

is the FOMIN[12] project in Honduras and Haiti,which aims to fnance solar o-grid lighting productsthrough remittances.

[12] Multilateral Investment Fund (member o IDB group)

Model 4: Financing SHS through monthlypayroll deductions:

Under this program, companies would partner with largeagri-businesses, who would deliver solar lighting productsto armers and deduct repayments on behal o banksrom the crop payments made to the armers. A payrolldeduction program to fnance the sale o SHS or palm-oil armers has been proposed by UNEP[13] in Indonesia.This scheme is targeted at these armers as they oten havea stable and regular income.

Model 5: Increase aordability through

modular design:

Companies such as Sundaya in Indonesia are ocusingon the modular construction o their solar o-gridlighting products. This enables the low-income segmentconsumer to purchase the basic system with one lightinitially and then add more lights and other accessoriesas and when their purchasing power increases. While thisis not a microfnance strategy per se, it can achieve someo the same goals - spreading out the cost o a lightingsystem over time.

[13] Financing Mechanisms and Public/Private Risk SharingInstruments or Financing Small Scale Renewable Energy Equipmentand Projects, UNEP


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37

2 India Market Scoping

21 The current state o o-grid lighting

India aces the most acute challenge o electricity access inthe world with 75 million o its 226 million householdso the grid, the largest such demographic globally[14]. Inaddition, it has a very high population that aces under-electrifcation (assuming that households consumingless than 50 kWh[15] o electricity per month areunder-electrifed[16]) .

[14] Average household size in India is 5.3 person/HH.Source: Census 2001

[15] World Energy Councils minimum level o modern energy servicesor a household per month is 50 kWh

[16] Under-electrifcation as presented here does not distinguishbetween unreliable grid supply and low usage o power by thehousehold. The extent o under-electrifcation is estimated to be around420 million people in 2005. Source: Overview o Indian Energy,Prayas Energy Group

0

10

20

30

40

50

60

70

80

UrbanRuralTotal

75

71

75

5

~94%

~6%

% of total off-grid households in India

Electrification Rate

(2008) 64.5% 52.5% 93.1%

No.ofoff-gridhouseholds

(Mn)

f 21: r-b b - i (2008) [17]

O the o-grid population, a vast majority (94% or71 million households) is spread across rural India wherethe electrifcation rate dips to 52.5% (Figure 2.1).

Source: International Energy Agency, Intellecap analysis

[17] 2009 International Energy Agency data is available or overallelectricity access or Asian countries in this report, but the rural andurban electrifcation rate distinction is not available or 2009. Due tothis, the report reers to 2008 data or which this split is available

INDIA


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Kerosene is predominantly used or lighting in sevenlow-income states Bihar, Uttar Pradesh, Jharkhand,Orissa, Assam, West Bengal and Rajasthan. Thesestates collectively account or two-thirds o the totalo-grid rural households (or approximately 50 millionhouseholds) in India (Figure 2.3 (next page)).

Kerosene is the dominant source or lightingin o-grid households

Kerosene is the most commonly used source o lightingby o-grid and under-electrifed rural households,across income segments[18]. As the household incomedecreases, the percentage o households using keroseneor lighting increases, as shown in Figure2.2. Keroseneexpenditure[19] or lighting constitutes 0.6% - 2.1% othe monthly expenditure o rural households and sees adecrease as a percentage o household consumption withrising income levels.

[18] The segments on the X-axis o the chart represent monthlyexpenditures that are assumed to be proportional to the correspondingmonthly incomes

[19] The kerosene expenditure is based on Public Distribution System(PDS), which is the subsidized kerosene

0

20 %

40 %

60 %

80 %

100 %

70 69 64 59 54 50 46 41 3627

19 14

28 31 35 40 45 49 53 59 6372

80 86

0-5.1 5.1-5.9 5.9-7 7-8 8-8.9 8.9-9.9 9.9-11.1 11.1- 12.6 12.6 -15 15-19.4 19.4- 25.2 25.2 -more

Monthly per capita expenditure (USD)

Kerosene Electricity Other sources (other oils, candles & solar products)

-

f 22: db m c i (2004- 05)

Note: Monthly per capita expenditure is used as an indicator or income

Source: Energy Sources o Indian Households or Cooking and Lighting (NSSO) (2007), Intellecap analysis


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39

Total annual expenditure on kerosene orlighting is USD 22 billion

The annual expenditure on kerosene or lighting by o-grid and under-electrifed households in India is estimatedto be approximately USD 2.2 billion, o which USD 1.8billion is spent by rural households. The total expenditureis estimated by considering the weighted average o thekerosene price, based on the prices o kerosene soldthrough the subsidized Public Distribution System and

that o kerosene sold in the black market.

Kerosene consumption is driven byheavy subsidization

India has one o the highest subsidy levels or kerosenein the world. The government incurs an annual bill oapprox. USD 4 billion on kerosene subsidies. O this, theimplied subsidy or lighting is USD 2 billion.

Kerosene subsidy is a highly political subject as themajority o consumers are rural and low-incomehouseholds, a critical voter base or any political party.Though there have been recommendations that thekerosene subsidies be reduced or phased out, they havenever been implemented.

Indias budget announcement to move to a directtranser o cash subsidy holds implications or the solaro-grid lighting market, the exact nature o which willdepend on the mechanism o transer and use o thecash subsidy transerred. It could have a signifcantpositive impact on the market in case the cash subsidyis not linked to kerosene and the consumer is ree tochoose an energy product.

14

2834 36 37

46

55

75 75 76

87 89 89 8991 92

96

84

7166 64 61

5343

24 24 23

12 11 10 108 7

0

0

20

40

60

80

100

Bihar

UttarPradesh

Jharkhand

Orissa

Assam

WestBengal

Rajasthan

MadhyaPradesh

Maharashtra

Chhattisgarh

Gujarat

AndhraPradesh

Haryana

Kerala

TamilNadu

Karnataka

Punjab

%o

fhouseholds

Other sourcesKerosene Electricity

States with >20% of households using Kerosene States with < 20% of households using Kerosene

f 23: pm c c (2007-08)

Source: HouseholdConsumer Expenditure inIndia (NSSO) (2010),Intellecap analysis

INDIA


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Despite high levels o kerosene subsidization,solar o-grid lighting is already acost-eective option or the consumer

As shown in Figure 2.5 (next page), over a 2-3 yeartimerame or lanterns (and 10 year timerame orSHS), the lietime costs (product plus battery) or thesolar lighting products range rom USD 18 to 310.In comparison, kerosene costs (averaging 3-4 litersper month) or the same timerames are higher atUSD 38 to 860.

Another measure o aordability is the payback period[20].For a solar lantern, this could vary rom 1-2 yearsdepending on the panel wattage o the lantern (rangingrom 0.5 Wp to 3 Wp)[21].

[20] Period taken by consumer to recoup high initial costs throughsavings accrued rom orgone kerosene consumption

[21] Payback period or households that use unsubsidized kerosene ismuch shorter (by as much as 3-4 times) as they spend much more incomparison to households that buy subsidized (PDS) kerosene.

For SHS (5 Wp and 15 Wp systems are considered or theanalysis), this period ranges rom 2-3 years.

These payback periods are estimated using the weightedaverage price o kerosene. The payback periods will shrinkconsiderably in the scenario o households purchasingkerosene only at black market prices or in the scenariowhere government withdraws or reduces subsidies.

0.0 0.5 1.0 1.5 2.0

Rural

Urban

Annual kerosene consumption (USD Bn)

138 MnUSD 1.1

Liters 2.9USD 0.39

42.7 MnUSD 0.76

Liters 1.6USD 0.47

No. of households usingkerosene (off-grid &under-electrified) (2010)

Estimated monthlykerosene consumption byhousehold on lighting

Weighted averagekerosene price

f 24: a b b

Source: UN data, Viable and Sustainable System o Pricing o Petroleum Products(2010), Primary Research, Intellecap analysis


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41

22 An overview o the solar o-gridlighting market

Current market penetration o solar o-gridlighting products is very low

It is estimated that roughly 2 to 3 million solar lanterns and

1 million SHS have been sold to date[22]

in India. Assumingthat there are 75 million o-grid households in India, theestimated penetration o solar lanterns and SHS is extremelylow at approx. 4-5%. I the under-electrifed householdswere also taken into account, these penetration levels woulddecrease urther.

There are no clear estimates available on the annualmarket size or solar lanterns and SHS in India. A recentsurvey o solar o-grid lighting companies by TheEnergy and Resources Institute[23] (TERI) ound that16 survey respondents sold approx. 270,000 lanterns in2010. However, this may not be representative o total

lantern sales in India, as sales data o enterprises such asD Light and Reliance are not reected in the survey. Inthe absence o other sales data sources and based on our

[22] Please reer to the Appendix or the detailed methodology and theassumptions

[23] TERI is an independent, not-or-proft, research institute ocused onenergy, environment and sustainable development, devoted to efcient andsustainable use o natural resources

primary research, we estimate that the current annual

market size or solar lanterns could range between 300,000and 500,000 units per annum. Similarly, we estimate thatannual sales o SHS could be approx. 100,000 units[24].

Market led by government eorts until recently

Until 2007-08, the market in India was led by semi-commercialand non-commercial approaches. These were driven by theMinistry o New and Renewable Energy (MNRE), whichis responsible or promoting PV systems in the country andoversees programs or promoting solar lanterns and SHS. Theseprogrammes did not kick start the commercial market as hadbeen hoped with a still limited penetration rate o solar products.

[24] A Solar lanterns o 0.5 to 2 Wp is assumed to replace 1 kerosene lantern,a 3 Wp lantern to replace 2 kerosene lanterns and SHS o 5 Wp and 15 Wp- 3kerosene lanternsEach solar lantern is assumed to have a capacity o 4 litres and householdsare eligible to buy this quantity at PDS price (USD 0.26 per liter). We alsoassume that households using more than one kerosene lantern have to purchaseadditional kerosene at a higher retail price (USD 0.76 per liter).

Also, please reer to the Appendix (9.9, page-117) or the detailed methodologyand the assumptions

f 25: Cm m c - c

18 25 3446

154

310

38 38 3876

493

860

0

200

400

600

800

1000

0.5 Wp 0.7 Wp 2 Wp 3 Wp 5 Wp 15 Wp

USD

Solar Kerosene

INDIA


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Summary o MNRE solar lantern andSHS programs

Solar lantern program:

The program provides solar lanterns to o-grid householdsthrough a grant subsidy o approximately USD 52 perlantern to households in o-grid villages identifed as aspecial category. The subsidy is provided through StateNodal Agencies (SNAs) and exclusive retail outlets calledAkshay Urja Shops. The cumulative number o lanternsdistributed through this program (2010) is approximately800,000. Primary research indicates that this program willbe merged with the new government led Jawaharlal NehruNational Solar Mission (JNNSM) program.

Remote Village Solar Lighting Program (RVSLP):

RVSLP aims to provide a single-light SHS to 9,000 villages(o 100 households each) that cannot be covered under thegovernments two rural electrifcation programs. However,villages covered under the RVSLP will continue to bedesignated as un-electrifed. The program provides subsidysupport or up to 90% o the system cost or USD 160whichever is less. It has distributed 600,000 SHS (2010).This program will be continued as a component o the

JNNSM program.

MNRE subsidy has distorted the market toan extent; going orward, the situation islikely to improve

Some solar companies believe that the market hasbeen distorted by subsidized/ree distribution to anextent. Households in certain regions, especially thoseclassifed by the government as unreachable throughthe grid, are aware o the ree distribution/subsidy andtheir purchase decisions have become dependent onthe subsidy provision. As a result, cost competitiveand good quality products that do not come with asubsidy are not preerred in those regions.

TheJNNSM that aims to install 20 millionSHSs by 2022, to serve the lighting needs o

approximately 100 million people, an ambitioustarget. At this stage, even though the specifcations orreceiving MNRE support under JNNSM are not clear,manuacturers are optimistic that the specifcationswill not be as restricting in nature as earlier. Thereis also an ongoing dialogue between manuacturersand the MNRE on the specifcation requirements.

Photo A. Jacobson


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43

is driven by the efciencies through better productcomponents and innovative product designs.

23 Demand scenario

The Indian market oers signicant potentialor solar lanterns and SHS

Based on our primary research with companies,households earning less than USD 65 per month are

targeted primarily or lanterns and they do not constitutethe target customer segment or SHS. As shown in theFigure 2.6, the target income segment or SHS rangesrom USD 65 and above per month.

The proposed cash transer subsidy system or kerosenein the 2010-11 national budget may have implicationson the target customer segment o solar o-grid lighting.Assuming that the criteria or transer o the cash subsidywill be possession o a Below the Poverty Line (BPL) card,

Strong emergence o private sector models

An increasing number o companies are looking to servethe market by adopting pure commercial approachesi.e. by not depending on MNRE subsidy support. Thissegment o companies is characterized by young SMEs,most o which have been in operation or less than5 years. These companies have especially contributed tothe increase in sales o solar lanterns in the last 2-3 years.

Most o these companies ocus on the solar lantern marketand undertake their own product R&D. They developproducts that currently do not meet subsidy requirements,

but are signifcantly cheaper and oer a better or anequivalent perormance to that o MNRE-certifedproducts. For instance, MNRE primarily promotes CFLbased lanterns, which have a luminosity o approximately370 lumens and are typically priced at USD 90-100.However, there are LED based lanterns available todaythat do not meet the subsidy requirements, but deliverequivalent lumen output and are priced at around USD50-60. The lower cost o manuacturing such products

0

20

40

60

80

100

120

Less than 45 45 to 65 65 to 110 110 to 220 More than 220Totalno.ofruralhouseholds(Mn)

Household income range per month (USD)based on IRS 2007 su rvey data

Mini-grid viability

Usage of electricityLighting only Lighting plus other

energy services

Potential market f orlanternsPotential market f orSHS

Market segmentation based on income segments

-

Targeted market for basicsolar lanterns Targeted market for multi-

functional solar lanterns andbasic SHS Targeted market for

advanced SHS

Monthly expenditure onkerosene for lighting foroff-grid HHs

f 26: M shs i

INDIA


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Increase in the market share o LED lanternscompared to CFL lanterns

In the recent years, manuacturers have moved rom CFLlanterns to LED lanterns, this trend is partly due to the actthat some LEDs can be more efcient but also because otheir scalability and the relative exibility in altering thedirectionality o LEDs o the higher efciency o LEDsand their greater lumen package, which decreases the costo production. Besides, consumer preerence towards LEDlanterns is on the rise due to their higher perormance obattery lie, ease o use, lightweight and robust build whichare all preerable or rural conditions and or portableapplications. Currently, 3 Wp LED lanterns dominate themarket with their prices[27] varying rom USD 20 to 70.

Having said that, some consumer segments still preerCFL lighting due to higher brightness level perceptionand better color temperature. For instance, SELCO hasobserved that micro-entrepreneurs preerred CFL lightingas they eel it lights up their stalls better.

[27] Please reer to the Appendix or the price points o various LEDbased lanterns available in the market

f 27: Cm bw

Cfl led

42%

65%

58%

35%

0%

20%

40%

60%

80%

100%

2008 2010

Percentagesalesof

CFLandLEDl

anterns

CFL LED

an estimated 50-55 million households[25]

who currentlyenjoy the kerosene subsidy, are likely to be excluded romthe scheme. In such a scenario, they will be an attractivecustomer segment or solar o-grid lighting companies.

Consumer preerences and needs or solaro-grid lighting are highly localized

Consumer preerences are seen to vary with locationand proession. For instance, street hawkers and armershave varied product preerences. As higher customizationadds to costs, some enterprises are working on modular

designs that can be used to produce customized systemsat reduced cost.

An example o a product that is designed to addressvaried consumer preerences is a solar lantern with longrange ocus manuactured by InteliZon. The productcan be used to both illuminate a room and as a torchor armers when they are in the arm felds during earlymornings and evenings.

SELCO[26] oers customized SHS based on consumerneeds. Their portolio includes approximately 20 SHSvariants to cater to dierent customer segments and

usage requirements.

24 Supply scenario

Fragmented solar lantern market

Though the solar lantern market in India is characterizedby a large number o enterprises, both small and large,there is still vast untapped market potential. Theindustry is ragmented with no clear leaders in the space.Multinational enterprises such as Philips and Schneiderhave also only recently entered the market.

[25] According to NSSO 2004-05 survey, approx. 104 million ruralhouseholds purchase subsidized kerosene and approx. 18 millionpurchase both subsidized and unsubsidized kerosene. However, thenumber o rural BPL cardholders is estimated to be approx. 70 million.This implies that the number o rural households purchasingsubsdiized kerosene without BPL cards could be in the range oapprox. 50-55 million

[26] SELCO is a social enterprise, which provides sustainable energysolutions to the under-served households and businesses. Focused inthe state o Karnataka. SELCO is prominent in the SHS market

Note: About 20 lantern manuacturers participated in the2008 survey and 16 in the 2010 surveySource: The Solar Quarterly 2010, TERI, Intellecap analysis


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There are huge variations in price, quality andperormance among LED-based solar lanterns

High levels o variation are observed in the price-perormance ratios o dierent LED lanterns availablein the market today. The LED lamp wattages in themarket range rom 0.5 to 5 Wp, with lumen[28] outputranging rom 55 to 450 lumens and LED efca

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