INDIA’S OFF-GRID MARKET

INDIA’S OFF-GRID MARKET

 

INDIA’S OFF-GRID MARKET

India is the world’s largest off-grid solar market in absolute terms, but with the grid now reaching nearly all households, the largest opportunities in the next three to five years will likely involve providing off-grid appliances to the unreliable-grid market.

  • Portable lanterns (<3 W) have recently seen rapid growth, with almost 10 million solar lamps and lanterns sold in both 2017 and 2018.
  • Moreover, 2018 also showed increased (mostly cash) sales of products of larger capacities.
  • At the same time, the country has an electrification rate of almost 100 %, with the Saubhagya scheme aiming to provide a grid connection to reach almost all households.
  • However, the grid continues to struggle with a lack of reliability and stability, and non-grid sources (both solar and diesel generators) continue to compose 16 % of the rural energy mix for households and 40 % for enterprises, suggesting the grid does not cover all demand.

 

Population

1.4 billion people

GDP per capita 2018

US$ 2,010

Electricity access rate (Tier 1 or higher) 2018

 ~100 %

Current penetration of Off Grid Solar (OGS)

15 %

Off Grid Solar (OGS) potential 2030

0.6 million households (OGS as main source) + 38 million (OGS as backup to weak grid)

Status

Maturing

 

 

Emerging opportunities and successes

The main opportunities for off-grid solar involve complementing the unreliable grid, offering larger systems and accompanying appliances, and targeting last-mile consumers by partnering with MFIs, rural banks, specialized distribution companies and retail networks.

  • Reliability of the existing grid remains low, and (Off-Grid Solar) OGS products represent a viable alternative or backup for the grid, especially in rural areas. In some of India’s largest states, more than half of electrified rural households have less than 12 hours’ energy supply each day. On average, 57 % of regions monitored experience outages of more than 15 hours, and related voltage fluctuations can damage appliances, which may limit demand for (grid-connected) appliances.
  • Although electrification rates have increased rapidly, many households use OGS as their main source of electrification. For instance, in Uttar Pradesh, the most populous state in India (more than 200 million inhabitants), as many as 20 % of households have not taken up the offer of a grid connection. The many reasons for this include low ability to pay the upfront fees, lack of trust in the reliability of supply, illegal connections, and lack of awareness. In addition, around 20,000 remote rural households have still not been reached by the grid.
  • There is high availability of rural last-mile consumer finance. Consumer finance options include agent networks from banks, MFIs, specialized distribution companies, and retail. Many MFIs now also provide asset financing for a variety of off-grid appliances.
  • The retail market for off-grid lighting solutions is large and growing. Although off-grid lighting products sold at retail are usually low-cost with low consumer expectations around durability, Pico solar imports into India have increased over the last few years, and some companies have recently seen an opportunity to put a heavier focus on retail. For solar lighting products to succeed in this category, innovation in product design and increased consumer awareness of quality are essential. As consumer awareness of quality products has increased over the last few years, Lighting Asia is now taking the next step by undertaking a campaign to increase the awareness of quality within retail and distribution networks as well. Manufacturers need to have a clear retail strategy which includes hiring of teams, selection of geographies, and consistent trade policies.

Challenges to overcome

India has an almost 100 percent household electrification rate, subsidized kerosene, and high availability of low-quality imported emergency lights, reducing the demand for OGS products.

  • The Government of India offers to cover initial grid connection costs for households below the national poverty line. Over the next decade, the grid is expected to provide the primary source of electricity for the vast majority of households.
  • As alternatives to OGS like the grid and kerosene are subsidized and relatively cheap, consumers have low willingness to pay. For OGS products to be competitive (increasingly as a secondary source of electricity), they will need to target the same price range or offer more or better services than these subsidized alternatives.
  • Targeted product positioning and a localized operational strategy are necessary. The Indian market is vast and diverse, and acquiring the required reach across many contexts is costly.
  • Remote rural areas are relatively expensive to reach. Adding relatively high distribution costs to a customer segment with typically low affordability means companies are less likely to target these households as a sustainable commercial market.
  • Difficulty in financing and PAYGo penetration are low Companies wishing to provide consumer finance also need to apply for a Non-Banking Financial Company (NBFC) license, an onerous process that has acted as a barrier to offering PAYGo directly to customers. The main channel for selling SHS on consumer credit will likely continue to be through partnerships with MFIs, rural banks, and retail. It remains unclear if there is enough “need” for the PAYGo model in India as there has been in Africa and elsewhere.

 

 

 

 

 

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