IDENTIFYING MICRO-MARKETS FOR CLEAN ENERGY ACCESS
Where should foundations and investors target resources for distributed energy access?
The “Power to the People” report from 2009 by WRI-New Ventures estimated “the aggregated potential market for clean energy consumer products and services to be INR 97.28 billion or USD 2.11 billion per year”. In 2010, 293 million people in India were living without electricity as per 2012 updates from World Economic Outlook.
At the same time, we know that these markets are rural, remote and the need for electricity does not often translate to demand.
Through our Micro-Market analysis work, we propose a standard technique, based on Census data, to identify target geographical markets (districts) where players can focus their energies. We studied 13 states in India. The states in white in the map below have not been studied.
Please click on the state in the map (below) to learn more about the micro markets in the 10 states.
Himachal Pradesh, Tamil Nadu and Karnataka have the highest rural electrification rates within these 13 states. Our focus for this analysis is the remaining 10 states with more than 25% rural un-electrification rate. Please click on the map to learn more about micro markets in the 10 states.
The penetration of distributed renewable energy (DRE) products and services in these states has been limited: States like Uttar Pradesh and Bihar had the highest rural un-electrification rate (un-electrified rural households/total rural households), yet rural solar penetration in these states was less than 1%.
Methodology for identifying micro markets (target districts) in these 10 states
The early adopter market for DRE products will be un-electrified areas where access to finance already exists, where there is relative economic buoyancy but where the grid growth is sluggish. We use these criterions to identify our target micro markets within each state.
The first criteria, access to bank finance is critical as most solar home system companies use bank loans to finance consumer purchases. Rural banking penetration varies from as low as 38% in Assam to 74% in Uttar Pradesh.
We next applied the criteria of economic activity seen, using increase in asset ownership data over 10 years (2001-2011). The assets that we considered were television and motorized vehicles. For 10 states with average rural un-electrification rates of more than 25% in 2011, only 116 districts of the 321 rural districts (36% of the total 321 districts in these states) satisfy the criterion of high banking penetration and strong economic growth.
Finally we check the grid expansion in these states. The reluctance to invest in DRE products is related to the risk associated with the redundancy of these products once the grid comes in. We eliminate districts with more than 15% increase in electrification rates over the last 10 years (2001-2011) in the 10 states, to get our final target micro market of 80 districts that satisfy the criteria of high banking penetration, strong economic growth and sluggish grid expansion.
Based on this analysis, the addressable market is 15.9 million un-electrified rural (excluding solar) households. This represents 23% of the 67.6 million un-electrified rural (excluding solar) households in the 10 states with more than 25% rural un-electrification rates.
Figure 1: Target district identification
Households refer to un-electrified rural households (excluding solar)
How can organizations use this analysis?
Foundation & Investors: Project costs should include market research and promotional activities. We urge that foundations and investors use this data to assess specific market demand and work with enterprises they support in taking decisions on geographical expansion and organizational structures.
Large corporations: Large corporations with CSR activities can support projects and organizations in their own backyard. They can use this data to identify districts where they have operations in, which require clean energy products and services.
Policy makers and private sector: Public funds can be best utilized for areas that do not have access to the grid, where banking penetration and economic activity is low. For the 80 districts in the 10 states, on the other hand, public private arrangements that allow private sector participation in clean energy access clusters would be most appropriate.
Does this analysis need to be extended and how?
Our analysis depends on Census data. We are keen to talk to other researchers who would use similar methodology with NSSO data to select the final districts. Additionally it would be useful to complete this analysis by including a few other states in India with high degree of rural un-electrification.
We can add further value by extending this analysis to include additional information on hours of electricity outage and household level income data. We can conduct similar analysis to identify target markets in other countries using their national information databases.
One final comment
The analysis is restricted to rural districts only. However, in some of these states urban un-electrification is not insignificant: Bihar (33%), Uttar Pradesh (19%), Orissa (17%), Assam (16%) and West Bengal (15%). It would be useful to research the drivers of this market and identify products and business models that can work in urban micro markets.