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Access to finance remains one of the biggest obstacle for energy providers (upstream) and energy users (downstream) especially in off grid sector. The traditional sources of financing are mostly Banks. Although, their presence has been recorded in almost every corner of the country though due to the demand of collateral or security, high transaction cost and limited understanding of RE off grid sector, banks hesitates in sanctioning loan. The problem of finance become more compounding due to lack of homogeneity at both the level (upstream and downstream). There are different kind of energy providers such as social enterprises, private entity, NGOs, civil Societies etc and their requirement of finance also differs whereas energy users also differs in terms of their socio-economic status. There are many consumers (potential energy users) who are economically well off but deprived of access to energy. However, they are ready to pay the price for the services. On the other hand, there are families who are extremely poor and mainly are dependent on subsidized Kerosene for their basic lighting. Therefore, different customized approach has to be adopted to accelerate access to energy in rural areas.
The IGEN-ACCESS programme of GIZ with an objective of strengthening the sector for Rural Energy Enterprises (REEs) and make energy services easily accessible by integrating the solution of addressing access to finance at both the level (downstream and upstream). The programme is working with different partners with customized approaches in order to access finance. Following approaches have been adopted with some satisfactory outcomes.
- Self Help Group based enterprise financing: The IGEN-ACCESS programme is providing technical support to a Self Help Group (the Swaraj Group) who has certified themselves as a micro-enterprise in establishing forward linkages for the products processed in watermills by the Group. The objective of the technical support is to strengthen business environment for revival of uses (manufacturing products or providing services) of watermills in the state of Uttarakhand, India. The technical support includes capacity building to the members of the Group, establishing market linkages for the products/services provided by the Group and support the Group for availing finance. Access to finance become critical in this project because GIZ does not provide any grant or capital. Therefore, in order to do business and its expansion, the Group needed to get capital from traditional sources of finance such as banks or MFIs. After 7 months of persistent effort and adhering to banks rule for availing loan, the Group has been finally approved a loan of INR 1,32,000 or ~Euro 1800. The loan will be used by the Group as a working capital which include mainly purchase of raw materials (maintaining inventory), cost of staff and rent. Access to loan from the bank is a significant step for the Group because it will strengthen the credit history of the Group which would further help them in accessing fund from different sources.
- Peer to peer social investment platform for consumer financing: The IGEN-ACCESS programme of GIZ is supporting Deviab Energy in order to avail consumer financing for large scale adoption of RE products in rural areas in the state of Bihar. Deviab Energy is a promoter of peer to peer social investment website platform lytyfy.org. Lytyfy intends to provide quality solar energy solutions to low income rural families at their doorsteps by providing convenient hassle free energy loans to rural customers. The platform factors in customer's ability to pay while designing energy and credit solutions for them. As of now around 35 investors have invested around INR 2, 20,000 (~Euro 3000) for 100 borrowers (customers). The customers are buying solar home lighting system for basic lighting and mobile charging. Deviab energy is also trying to understand the repayment behavior of customers in order to build credit history. This would further enable Deviab energy to increase the base of investors by minimizing customers default. The servicing of investment is being done by Deviab Energy based on mutually agreed terms and condition with the investors. For more information, please visit www.lytyfy.org
- Leveraging private finance through public funding: It has become now imperative to bring private capital in energy access space. Many reports have indicated that public funds or traditional sources of financing are not sufficient enough to achieve target of SDGs. Public fund should act as a catalyst to unlock private investment. The IGEN-ACCESS programme of GIZ has explored a similar kind of approach by way of leveraging private finance under a public private partnership approach. The objective is to accelerate access to clean, reliable and modern energy by way of developing a scalable mini grid solution coupled with productive uses of energy. Under this approach, the programme has a tie up with a private mini grid player not focusing on their core business of mini grid but is primarily on areas which would make mini grid economically viable and sustainable in long term. In order to make mini grid economically viable and sustainable, one way is to promote productive uses of energy and increase in uptake of demand. As an inherent character of any private entity, they need their investment to be recovered with in a shortest span of time. In case of mini grid, the economics become better when commercial loads are tied up with the generating plant. The entire approach has a win-win situation where it not only benefits a private player but also stimulate local economic growth on a sustainable basis. Around Euro 50000 has been unlocked under the ongoing Public Private Partnership approach.
More finance for energy providers or energy users is one of the way to address financing gaps but improving the policy and enabling environment will go a long way in building low-income energy markets where projects are more attractive to investors and energy services of economically affordable. Incentives such as feed-in-tariffs, reducing import duties, exemption from VAT etc will further increase the index of “Ease of doing business in India”. Moreover, capacity building to institutions such as local bodies, banks are equally important. Awareness creation and sensitization to public, banks about RE sector, its products, and services will further strengthen the market and also accelerate adoption of renewable energy.
The market development activities also require funding and as such, funding from bilateral or multilateral donors provided for national governments is often targeted at building the enabling environment, rather than investing in specific projects or technologies. The IGEN-ACCESS programme of GIZ is also in line of strengthening market development for RE products and services especially in rural areas.
- ↑ The IGEN-ACCESS programme is a bilateral technical cooperation programme implemented by GIZ India
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