Despite the government’s efforts to increase the availability of grid power in rural and remote regions, nearly 50 per cent of the country’s rural population still has little or no access to grid-based electricity and instead, relies on kerosene as the primary source for lighting. Apart from providing dim and inferior quality lighting, increased use of kerosene negatively affects the environment and causes chronic illnesses due to high levels of indoor air pollution. In this context, off-grid energy systems including solar lanterns, solar home systems and decentralised renewable energy offer a promising solution for providing sustainable and affordable electricity to the vast sections of the population that are yet to be connected to the grid, especially in areas with difficult terrain.
While there are several established players as well as new entrants in the Indian off-grid market, none of them has been able to achieve meaningful operational scale. This is because most of the companies in this space keep product prices low to cater to the rural market and to stay competitive. Consequently, after adjusting for marketing, transportation and distribution costs, margins in this space are only around 1-5 per cent. In the distributed renewable energy space too, enterprises are struggling to achieve commercial viability. They need significantly high levels of upfront capital to set up plants and securing long-term credit is a difficult proposition. Further, like other rural off-grid enterprises, distributed renewable energy players face challenges pertaining to pricing and collecting regular payments from consumers.
The lack of low-cost, long-term capital availability in the off-grid space, a segment that can directly improve the lives of millions of people, makes a compelling case for large corporate groups and public sector undertakings to financially support off-grid activities as a part of their corporate social responsibility (CSR). As per the Companies Act, 2013, it is mandatory for companies with a profit of Rs 5 billion or more, a turnover of Rs 10 billion or more, or a net profit of Rs 50 million or more in a fiscal year to spend 2 per cent of their net profit on CSR activities. According to industry estimates, 2 per cent of the net profits of India’s top 1,000 companies can form a pool of Rs 120 billion. A part of these funds can be channelised for ensuring environmental sustainability, which is one of the nine activities that qualify as a CSR initiative.
An analysis of CSR programmes being undertaken by several large companies in the country over the past few years indicates that most industries are conscious of their impact on the environment and are striving to become more responsible. According to the Ministry of Corporate Affairs, 14 per cent of the total CSR spending in India in 2014-15 was on activities focusing on conserving the environment. It was the third highest expenditure on a social impact issue after education (32 per cent) and health (26 per cent).
The trend highlights the fact that companies today are becoming increasingly aware of the risks and opportunities associated with climate change, which would affect their strategies and operations. Traditionally, the most common environment-focused CSR activity was planting trees; however, companies today are focusing on projects that have a sustainable long-term impact. The most attractive environment-related CSR initiative today involves renewable energy solutions, particularly solar. One of the reasons why companies prefer such projects to tree plantation drives is that access to clean energy sources has many cascading effects on social and economic development. Further, the social transformation achieved in this case is visible, monitorable and measurable. In villages where off-grid lighting solutions have been provided, it has been found that the people have engaged themselves in entrepreneurial activities and succeeded in improving their income levels. The corporate sector has much to gain by this increased activity in villages. For instance, by providing mobile charging points in the solar lanterns, low-cost smartphones can also be sold to the villagers.
Modes of support
As a part of their CSR initiatives, organisations can help set up decentralised renewable energy systems involving a mix of solar panels, windmills and biogas plants to help villages achieve energy self-sufficiency. Such projects reduce the load on the grid, provide regular electricity supply and generate local employment as most of these projects can be maintained by villagers with some amount of training.
In the solar space, there are three major ways of ensuring CSR compliance – investing in a solar power project for captive consumption, buying solar power for captive consumption and distributing solar off-grid products in unelectrified rural areas. Most corporate groups have opted for distributing products such as solar lanterns, solar pumps, solar dryers and solar cookers either on their own or through collaboration with non-government organisations working in this space.
Given the low paying capacity of rural households and the lack of awareness about clean energy products, the size of the solar off-grid market is extremely small. Corporate organisations can help in creating an enabling environment for the off-grid market and make a positive and sustainable impact on society by adding off-grid solar projects to their CSR portfolio. In order to generate substantial benefits, companies should undertake those solar CSR initiatives that align with their business goals. Further, companies need to make a distinction between the capex and opex of the CSR project so as to make the beneficiaries bear a certain component of the opex to instil a sense of ownership, and also enhance the sustainability of the project. In addition, it is imperative to prepare a database of credible implementing partners as the solar CSR space is still nascent and finding the right partner is a key impediment.