Guest Articles

Tuesday
May 28
2019

Ananth Aravamudan

The Power to Produce: How Indian Energy Entrepreneurs are Approaching the Next Big Frontier

Editor’s note: This post is part of the NextBillion Series “New Frontiers in Renewable Energy” that explores the dynamic changes reshaping the sector. Learn more about NextBillion’s other 2019 series here.

 

The Indian government maintains a dashboard to track the progress of electrification at a household level in the country. It shows that 99.99% of houses in India, a staggering 214 million of them, are now on the grid. Just 18,000 odd houses, it tells you, are yet to get power. Even assuming that the government data contains omissions and errors, these are incredible numbers for a country that not even a decade ago had vast swathes of villages that were off the grid. The data also begs the question – if all houses in India are now grid-enabled, does it mean there are no more energy access issues in the country?

Not quite, as most energy access practitioners in India would tell you. Households consume a relatively small quantity of power, and are able to take outages in stride. But when it comes to agricultural and industrial installations in rural areas, “productive loads” in industry parlance, the existing power grid does not provide satisfactory service. It isn’t rated to supply the kind of power (whether single-phase or three-phase) needed by most of these installations – and moreover, it is plagued by frequent outages that disrupt operations. Indeed, productive loads represent the next big frontier for energy access practitioners working in India. Decentralized renewable energy, coupled with energy efficient end appliances, could revolutionize livelihoods and productivity in rural areas.

The business case for powering productive loads seems much stronger than that for domestic loads. After all, these installations produce goods and services of value, the revenues from which can pay for the energy they consume. But a deeper dive shows that things aren’t as simple as they seem. Capital costs for energizing productive load are fairly steep, especially when both the power generation system as well as financing the energy-efficient end (consumer) appliance are considered. Rural communities often lack the risk-taking ability to invest in these solutions. They are not plugged into existing value chains, either for raw material purchases or for sale of the end product. Frustratingly for entrepreneurs in the sector, the biggest barrier is behaviour change – communities that have been earning their livelihoods in a certain manner for generations find it extremely hard to adapt to the changes brought on by the availability of reliable energy, often opting to sit it out rather than take the plunge.

But these issues are no barrier to a determined entrepreneur. Across the country, innovative startups are building solutions around productive loads that create both value and social impact. Here are a few case studies that illustrate how entrepreneurs are bringing unique products, tailored business models and holistic thinking into powering rural livelihoods.

 

The silken touch

Women in the villages around Bilaspur in the Indian state of Chhattisgarh make silk yarn the humane way. They work on empty silk cocoons brought from the forest – empty because the moths inside them have emerged and flown away, but in the process have snapped the silk fibre in many places. The women spin the cut strands into “Tasar” silk, often branded as “Ahimsa” or non-violent silk (as opposed to mass-produced silk where the cocoons are boiled to kill the insect inside, just to prevent the strand from breaking). For generations these women have painstakingly made this silk by hand, using a small wooden spindle they call Takli. On average, a skilled spinner can produce 30-40 grams of silk per day.

A company called Resham Sutra is looking to intervene here. It makes highly efficient solar-powered spinning and reeling machines for silk yarn production. The machines mirror the manual process, so their output retains the texture and appearance of the handmade product. But they reduce the drudgery, and more importantly increase the output by a factor of five. Every machine generates at least 200g of silk per day, even in the hands of a novice user. Thanks to solar power, the women who use the machines can confidently take orders without worrying about interruptions due to power cuts. This increases the women’s earning capacity by nearly INR 2000-2500 per month.

Kunal Vaid, the founder of Resham Sutra, says that his customers come from poor families and always find it hard to pay for the machines, so his company needs to be innovative when it comes to business models. He usually ties up with NGOs that help identify users and aggregate the demand. In the Bilaspur area, an NGO called Astitva Mahila Samiti has been of immense help in creating clusters of silk spinners and reelers. They place bulk orders, say 50 at a time, for the machines and arrange for a 10% down payment. Resham Sutra then provides them with supplier’s credit, allowing the women to pay for the machines and their solar panels in instalments. Vaid says that Resham Sutra gives the women up to a year’s time, but most of them earn enough to pay off their instalments within four months.

 

Something to dry for

In the western Indian state of Maharashtra, a company called S4S technologies is harnessing the sun to create a new type of value-added product – dried fruits and vegetables. S4S makes a solar conduction dryer that claims to have the world’s highest drying efficiency in its category. More than the product, their business model is unique. S4S identifies women entrepreneurs in villages who become aggregators. The women then work with 15-20 micro-entrepreneurs each, who are provided with solar dryers by S4S. Based on market demand, these micro-entrepreneurs dry items like ginger, garlic, carrot and beetroot. Once dried, aggregators supply the products back to S4S, which then sells the produce to institutional clients. The company also channels some of the dried produce to retail customers via its ready-to-eat snack brand, desiVdesi.

For the micro-entrepreneurs, the business model is straightforward. They need to pay a small entry fee, just to demonstrate their seriousness. They host the solar dryer at their premises without actually owning it. They either grow, or buy their raw material from other women farmers (sometimes with the help of S4S) and dry it. They are paid costs plus a value-addition fee when they supply the dried products to S4S. Across the district of Aurangabad, the company has nearly 200 micro-entrepreneurs and 13 aggregators, who work with 1,000 farmers. S4S CEO Vaibhav Tidke points out that even at moderate activity levels, these micro-entrepreneurs are able to earn an additional income between INR 3000 and 4000 per month. His company, of course, stays profitable because of the prices they are able to negotiate with their end users.

 

Cool innovation for farmers

Many farmers in Mahbubnagar district, located an hour’s drive west of Hyderabad in southern India, grow marigold flowers. People use them in small quantities for religious rituals throughout the year, but on major festival days like Diwali or Shivaratri, these flowers are bought in bulk. This sends their prices through the roof. A kilogram of marigold that normally sells for INR 10 gets priced at INR 100 on these special days. In the past, middlemen used to reap the windfall gains from these seasonal price surges, but not anymore. Some farmers in the region have organized themselves into a farmer producer company (or FPC), with the help of an NGO called Cosmos Green. Ayush Sharma, co-founder of the NGO, realized that the farmers needed technology to take control of their own destiny. That’s when he got in touch with Niraj Marathe, co-founder of CoolCrop.

CoolCrop makes a farm-gate cold storage that is highly energy-efficient. It consumes 20% less power than a conventional cold storage of comparable size, which makes it viable to run on solar power. It does not need 3-phase electricity. Perishable items like the flowers can easily be stored for up to a month, allowing the farmers to benefit from price surges. But even for an FPC, buying a unit like this outright is not affordable. Luckily for them, CoolCrop offers an alternative business model – a rental scheme. The FPC pays CoolCrop for every kilogram of produce stored in the unit, with a floor charge to cover for the leaner months. As long as the cold storage unit’s capacity is reasonably well utilized, CoolCrop can recover its costs within two years, and make profits from there onwards.

Ayush Sharma sees multiple benefits for farmers who have access to a farm-gate cold storage facility. As the produce gets cooled within hours of harvest, its quality stays several notches higher than that from neighbouring areas, which fetches it a better price. Also, the farmers get to time the market. CoolCrop is helping with this, by creating a price-prediction app that runs on farmers’ mobile phones and gives them accurate estimates of future pricing. This data, Niraj Marathe believes, will give even the most reluctant farmers enough confidence to seriously evaluate the cold storage option.

As more and more entrepreneurs take the plunge into the productive use segment, a few clear trends are emerging. Firstly, they can no longer be classified purely as energy entrepreneurs. Kunal Vaid is an expert on silk production techniques, just as Niraj Marathe knows intimately the ups and downs of vegetable pricing. Both relate more to the sector they are energizing, than to the energy itself. Secondly, the onus of financing is gradually shifting from the end-user to the enterprise. As Resham Sutra extends supplier credit, or CoolCrop offers a rental model to farmers, their cash cycles become longer, which means they need to have good credit lines. Cash management and creditor relationships become very important.

Lastly, these enterprises often end up walking the extra mile to ensure their customers’ success. From sourcing raw materials to making market linkages for produce, they work hard to plug gaps in the customers’ value chain. That’s the only way they can expect their projects to get financed, and their customers to pay them on time. S4S takes this idea to the next level by acting as both equipment supplier and procurer for the dried produce.

At Villgro, we have a strong focus on the productive use segment. Over the last year, we have incubated nearly 10 enterprises in this space (including CoolCrop) and have many more lined up in the coming year. We strongly believe in their potential to create impact at the bottom of the pyramid while running viable businesses, a glimpse of which can be seen in our annual Impact Report.

India’s founding father, Mahatma Gandhi, believed that villages should be hubs of productivity. If you are an entrepreneur making his vision a reality, join us!

 

Ananth Aravamudan leads the renewable energy sector at Villgro, a social enterprise incubator in India.

 

Photo courtesy of the organization.

 


 

 

Categories
Energy, Entrepreneurship
Tags
electricity, emerging markets, energy access, entrepreneurship, Off Grid Energy, renewable energy, social enterprise, social impact, startups