Decentralised energy technologies have a vital role in extending electricity to around 80 million households lacking access to grid electricity and meet cooking energy needs of 49 % of the population which is still dependent on biomass fuels for cooking (Census 2011). Access to enterprise and end-user finance is one of the key pre-requisites for ensuring greater penetration or widespread uptake of decentralised renewable energy (RE) technologies. One of the key objectives of the Clean Energy Access Network (CLEAN) is alleviating financing gaps hindering the growth of the decentralised renewable energy sector.
With this backdrop, CEEW undertook a two-month study to understand the various business models of decentralised RE enterprises; map the enterprise and end-user financing mechanisms in place; investigate enterprise and end-user financing challenges; and develop a portfolio of interventions which can be implemented to CLEAN for addressing the financing gaps. Further, the study also features a special case on the financing ecosystem for decentralised RE in seven north-eastern states, which has thus far received very little attention. The overarching goal of the study is to lay the foundation for CLEAN’s work on facilitating greater access to finance for various decentralised RE enterprises and end-users in the next three years. The report shares findings from interviews (twenty-seven) with various stakeholders (enterprises, financiers, and finance enablers), desk research, field visits (eight) and insights gleaned from stakeholder consultation in Guwahati.
The study features business models of various decentralised RE technologies such as solar lighting solutions, improved biomass cookstoves, solar water pumps, and micro/mini grid installations (solar, wind, biomass, and hybrid). Various sources of enterprise financing such as grants, traditional debt financing from banks, National Bank for Agriculture and Rural Development (NABARD) financing, early stage financing, social impact funders, venture debt, venture equity/venture capital, corporate social responsibility funds, crowdfunding platforms, project call facilities, and carbon financing have been examined in the report. Apart from grants, enterprises have also evinced interest in accessing social impact investments in the form of venture debt or venture capital. Further, end-user financing modes through banks and microfinancing institutions have been explored. Also outlined are policies (for example, different rate of interest) leveraged by organization to facilitate access to consumer finance.
The study also provides a breakdown of challenges in accessing various types of enterprise financing modes (enumerated above). Lack of sufficient collateral and three years of proven track record is a major bottleneck which enterprises face when accessing debt from banks. Few enterprises also cite high cost of loans from social impact investors as an impediment. Mismatch in expectations between investors and enterprises was another key obstacle. Policy uncertainty around subsidies and grid extension has hampered consumer confidence and financing options. Both banks and microfinancing institutions have shown reluctance to lend due to trust deficit stemming from poor after-sales service. Lack of consumer awareness and reliable repair/maintenance services was highlighted as cross cutting issues which impacted financing of DRE technologies. Enterprises in north east indicated that consumer awareness is the need of the hour to promote decentralised RE solutions in the region. Interviews have also indicated a dearth of information amongst enterprises about various forms of financing modes/sources as well as policies which could be leveraged for raising end-user finance.
Read: Unlocking Access to Finance for Decentralised Energy Solutions