The off-grid energy access market has been given its moment in the sun. The United Nations “decade of energy access” has been launched to meet the “Sustainable Energy for All” initiative. Announced by the UN Secretary General, the vision seeks to achieve by 2030, universal energy access to modern energy services, a doubling of the global improvement in energy efficiency and a doubling of the share of renewable energy in the global energy mix. This could mobilize billions of dollars of investment to address the challenge. However, investors would be wise to gain a better understanding of the market in which they are about to participate. The off-grid energy market varies across geographies and is rich in both challenges and opportunities.
- With over $2 billion annually, the off-grid market in India is large and ripe with business opportunity for investors.
- Factors unique to each provider’s business model must be better understood within the context of the broader market in order to support the scaling of micro-energy enterprises.
- Market analysis based on preliminary data collected suggests that grid connectivity is not a limitation of the market for solar off-grid products.
The World Resources Institute estimates that in India, the off-grid energy access market includes 114 million households who are at the base of the pyramid (BOP) earning less than $2/day. Specifically, decentralized renewable energy enterprises (DRE) offer an annual market opportunity of $2.04 billion while the solar home lighting (SHS) market is estimated to be $27.4 million a year. The IEA estimates that the 400 million people without access to electricity in the country spend over $60 billion annually on energy (primarily inefficient and antiquated sources such as kerosene). This suggests that people are willing to pay for energy services even in the base of the pyramid market. Another way to frame the opportunity is this: assuming a peak demand of 1 kWh per household, if by 2020 the country will have 100 million households still without access to electricity, then there is a 100 GW opportunity to serve this market with off-grid energy. It’s no wonder that according to the Off-Grid Business Indicator report released by the Solar Energy Foundation, India ranks highest among the top five off-grid markets in the world.
Equally important as understanding the size of the market, is understanding the characteristics of firms operating in it. By this I mean the factors specific to each provider and the kinds of choices they make. Imagine if by examining the majority of firms operating in the off-grid sector in India we are able to draw conclusive evidence on what specific things determine the successful scaling of the firm. For example, the type of technology a firm provides, or the diversity of products in their portfolio. Are the most successful firms selling just one product? Are they focusing simply on one state? Are they spending money on marketing or research and development? Are they a private limited or a non-profit? Are they foreign owned or wholly Indian? Do they sell solar simply to the rural market or also the urban one? One factor emerging from preliminary data analysis of a market survey (see below) suggests that grid connectivity does not limit the market for solar off-grid products.
To start with, it is unclear how many providers exist in the current market. Estimates diverge: 36 off-grid lighting companies are registered as channel partners with the government. Analysis conducted on the basis of extensive interviews by the Council on Energy Environment & Water (CEEW) has identified approximately 250 DRE lighting providers (218 of which focus on solar home lighting systems alone), both in the formal and informal market. Many of these providers are very new, with limited scale and their characteristics ill-understood. Many do not have detailed records of how many products they have sold over time and what percentage of products require servicing. Not understanding firm-level characteristics leads to a poor understanding of how these firms could scale their efforts and ultimately uninformed investment decisions on behalf of donors and investors.
In order to better understand the characteristics of this market, I am conducting a market analysis of off-grid lighting providers in this country. The first step entails creating a comprehensive sales database of solar lighting products distributed into the market over time. This will help shed light on the rate of growth in the Indian BOP market. If you are an off-grid solar lighting provider (company, NGO, financial institution, etc.), please consider partaking in this voluntary and confidential study to ensure it is robust and comprehensive.
To participate, please fill out this brief survey.
Kartikeya Singh is a Ph.D. candidate at the Fletcher School of Law & Diplomacy at Tufts University (Boston, USA). Currently a visiting fellow at the Shakti Sustainable Energy Foundation in New Delhi, Kartikeya is focusing his research on energy access innovation and diffusion.
 Sustainable Energy for All. United Nations, 2011.
 Power to the People: Investing in Clean Energy for the Base of the Pyramid in India. WRI/IFMR 2010.
 World Energy Outlook. International Energy Agency, 2010.
 OBIN: Off-Grid Business Indicator. Stiftung Solarenergie, 2014.
 Developing Effective Networks for Energy Access: An Analysis. CEEW and USAID, 2013.