If you are operating, selling, innovating or investing in the Base of Pyramid energy market, this month’s Editor’s Choice has analysis that you probably need. Power to the People; Investing in Clean Energy for the BoP in India, illustrates the investment potential of the clean energy sector by delving into sub-sectors, products, prices and consumer trends.
US$2.1 billion per year is one answer: the estimated potential market for four clean energy sectors among Base of Pyramid (BOP) households in India. These households, the lowest four expenditure quintiles of the Indian population, number 14 million households. Almost half rely on kerosene for lighting, and most use biomass for cooking.
By far the biggest clean energy sector identified is ‘decentralised renewable energy services’ – local-level electricity services from small hydro and waste biomass. In rupee or dollar terms, this vastly outweighs the market potential of the three household-level products reviewed: solar home systems, solar lanterns and energy-efficient cookstoves (each with a potential annual market value of roughly US$18mn- 28mn p.a.). But for each, the growth potential is evident, and the companies studied have clearly demonstrated revenue growth.
The facts and figures are India specific, but the issues identified that shape the future market will be of interest to clean energy investments anywhere. A single table, on page 12, summarises the themes and issues that investors should consider in each market – drawing on the well-researched 65 page report and the company analysis that lies behind it.
For decentralized energy systems, viability is shaped by pricing regulations and ability to match demand with plant size - or sell surplus to the grid to offset demand risk.
High up-front costs and poor maintenance constrain demand for solar home systems at present, suggesting companies should develop leasing and other financing options, while exploring revenue-generation from after-sales service.
Solar lanterns and energy-efficient cookstoves offer clear gains for both users and the environment, but these are not yet fully reflected in the market. Charitable give-aways and government kerosene subsidies distort the market for solar lanterns. Nevertheless, the long-term cost savings they deliver compared to kerosene suggest consumer-financing models (pay-per-use and other purchasing models) combined with strategies to control distributor and retailer margins, have potential.
Demand for efficient stoves is latent – health benefits are not well understood by users, and preferences of user are not always well understood by stove designers. But improved design and partnerships to reduce pricing can help tap this market of 30 million households.
The report is produced by the World Resources Institute and Centre for Development Finance – seeking a win-win for India’s people and the global climate through expansion of clean energy. That requires more efficient business models and increased targeted capital – and this report is one helpful step along that way.
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