Electrifying Bihar – the role of philanthropy and social investment

Why does Bihar matter?

Simon Desjardins – 1 June 2011 – Alliance magazine

Long before Gandhi would use it as a launch pad for his campaign for independence, Bihar was an economic powerhouse, serving as the capital of India during Ashoka’s empire in the third century BC, when India’s boundaries stretched to include present-day Afghanistan and parts of Iran to the west and Bangladesh to the east. It is a state rich in history, home to one of the world’s oldest universities (Nalanda) and the oldest democracy, and they even say Buddha found enlightenment here.

That prominence didn’t last.

The state has come to be known in recent times more for poverty, widespread corruption and economic irrelevance. It is still hugely stigmatized today within India. I was asked three years ago by a high-profile Indian ‘impact’ investor why we were planning to support a Bihari rural electrification start-up. ‘You can’t do business over there,’ he told me. ‘It’s a backward state. If you want to have an impact on electrification, do something in the cities, where people will pay for their power.’ In those cities, ask a taxi driver about Bihar and they’re liable to refer (loudly) to the Bihari brain-drain, lamenting that local jobs are being taken by Bihari migrants. The state is surely helping to drive India’s trend of rapid urbanization as people leave rural communities looking for work in cities. By most accounts it would seem like a place to avoid, rather than a place to commit capital. As with most things Indian, though, the reality is more complex than would appear to the casual observer.

The truth is that Bihar is quietly becoming important again.

A unique test bed

Specifically, there are three main reasons we’ve chosen to focus this issue of Alliance on energy provision in Bihar. First, for those readers interested in energy poverty and the services that could be delivered as a result of rural electricity provision, this state is a hotbed of innovation. Indeed, some of the world’s most ground-breaking rural electrification businesses are scaling up in this state. We need to learn from them.

Second, energy in Bihar may seem like a narrow focus, irrelevant to a development organization or investor working on education in Africa, for example. The opposite is true. In many ways, Bihar is a proxy for the rest of India (excluding the urban growth centres), and a unique test bed for technology and service innovation that could be applied throughout the world. It is a conflict-free region and starvation is not a major problem. The state’s democracy is working: voters resoundingly rejected the caste-based politics of Laloo Yadav in 2004 by electing Nitish Kumar, who ran an issues-driven campaign, as chief minister. People here are subsisting, but they are not flourishing – and they are grossly underserved. In other words, there is nothing peculiar to the region that would limit the applicability of solutions developed here to regions elsewhere.

Third, because access to products and services is so limited in Bihar, the opportunity to make a significant difference is heightened. Bihar’s 90 million or so inhabitants almost universally lack access to reliable energy, education and healthcare services. Paradoxically, the challenges of doing business here are advantages for enterprises with national or global ambitions, because they force innovation. ‘We have to create everything we need,’ says Gyanesh Pandey, co-founder and CEO of Husk Power Systems. If you can make it work in Bihar, you can make it work anywhere.

Clearly, investment should be driven by specific commercial opportunity rather than geography, though from this perspective Bihar is an exciting story, rich with unique opportunities for commercial investors and scale-driven donors alike.

Energy in context

The issue of access to energy in India is a pressing one, and the numbers tell a story that borders on scandal. India has over 500 million people without access to reliable electricity – nearly a third of the world’s 1.6 billion ‘energy poor’. Of the 650,000 villages in India, 100,000 have no access to grid electricity and most of the rest have only a very poor-quality power supply. The enterprises working here to date have proved that there is not just a need for electricity, but a genuine demand, as the willingness to pay for high-quality solutions when offered shows. The supply of technology and feedstock required to meet the demand already exists, but largely because of solvable route-to-market challenges, supply isn’t meeting demand.

Bihar is at the centre of this problem. The story here will sound all too familiar to Alliance readers working on this issue in other areas: most of the population uses polluting and prohibitively expensive and dangerous kerosene for lighting, and diesel generators are used (by those few who can afford them) to power irrigation systems and often to charge phones at great expense and inconvenience. People don’t pay for electricity, of course. They pay for what they can do with that electricity. It sounds obvious, but the implications are tremendous.

There are broad implications to this problem. The economic impact extends to shopkeepers who have difficulty staying open after nightfall, to farmers who need to pay for diesel to irrigate their land, to consumers who need to pay a hefty price to charge their phones. The social impact is felt by children who struggle to study at night, by anyone who wants to meet friends during the evening, by retired men who want to play a board game before bed. The list goes on. It also has a direct effect on quality of life – intangible benefits that matter in ways that are difficult to measure. For example, consumers describe new-found access to electricity in surprising ways: they talk about feelings of pride and independence that at least equal the economic benefits. The lack of television probably increases the rates of spousal abuse, though we’re waiting for a bright group of academics to confirm this.

Our approach at Shell Foundation has been to support small and growing enterprises that provide modern energy services to the poor in ways that are financially viable and scalable. We support these enterprises by providing smart subsidy (in the form of grants), typically at the post-R&D stage but before revenues start to come in when commercial funding is not yet available. Our grants are never used to subsidize the price of the end product or service. Rather, they are used to create the core components required for scale, namely: seed funding for proof-of-concept, business plan and strategy development; initial partial subsidy support to enable the enterprise to employ senior managers (who are much needed but often too expensive to afford at the pilot stage); assistance in developing route-to-market partnerships; and technical assistance from Shell engineers and safety experts.

The most successful enterprises in Bihar

In Bihar, we are providing direct support both to energy providers and to a rural distribution company. Our rural electrification partner, Husk Power Systems, generates reliable and affordable power to rural villages by gasifying waste rice husk (or any other locally available biomass), feeding the resulting ‘producer gas’ into a generator, and selling that electricity  to the community on a pay-as-you-go basis, as a kerosene replacement.

The company, which has developed the lowest cost power generation model at this scale (35-50kW) in the world, is gearing itself for rapid growth. Their infrastructure now includes electronic systems to monitor power plant performance remotely as well as the world’s cheapest energy meter (less than $10). They’re also developing a centralized training institution dubbed ‘Husk Power University’ which will deliver capacity-building content through video, e-learning and lectures by experts to the thousands of operators and managers who will be required over the coming years. They are finding ways to monetize the waste streams generated by the plants, for example the new incense sticks business (see Husk Power article), which will significantly improve the economics for future operators. Husk Power has now installed over 65 power plants that collectively deliver electricity to over 100,000 individuals and has a plan to grow to over 30 times its present size over the next four years, mainly through a ‘build and maintain’ model (see Husk Power funders).

We also have a partnership with d.light – a manufacturer of solar lighting products – to help the company reach lower-income groups in the population by reducing the risks for potential distribution partners. This has meant deploying grant funding as a revolving capital pool to incentivize high potential distributors who can’t or won’t pay cash up front for d.light’s solar lanterns. Mandeep Singh, who runs d.light in India, sees Bihar as a core growth market, and has focused on selling through FMCG (fast moving consumer goods) distribution points, bicycle selling shops and telecom outlets, as well as seeding lights with local opinion leaders like local doctors and school students through corporate partnerships.

Our rural distribution partner, Project Dharma, is actively involved in selling social impact products and services to low-income customers at the ‘last mile’. Products include water purifiers, improved stoves and a range of solar lighting products offered at a range of prices. Health and sanitation products are on the way. Distribution is based on a network of village-level entrepreneurs who are given professional training and logistical support, backed up by SAP-powered information systems. Project Dharma’s founder Gaurav Mehta is increasing the company’s presence in Bihar, with an entrepreneur network that now numbers in the hundreds. Their model is different because of the quality of training and support services offered to their dealers, as well as their growing range of complementary products which translate into sustainable incomes for dealers.

Greenlight Planet, a portable solar lantern company led by Anish Thakkar and Mayank Sekhsaria, is the fourth organization in Bihar on the way to achieving scale. They are implementing a unique sales agent model based on successful sales techniques developed in the US (see Greenlight article). Rural sales agents sell lights part time on a cash basis and can make a significant top-up income over their regular jobs. Bihar is a key market for Greenlight, which is now selling thousands of lights per month.

Lessons to be learned

What lessons can we learn from these enterprises? First, the solution must be entrepreneur-led, not model-led. We’ve seen many high-profile electrification schemes fail or stagnate due to a reliance on ‘community-led’ solutions involving high levels of capital expenditure that look great on paper but don’t have committed promoters behind them. The entrepreneur must come first, and the promoters must have shared financial risk with their investors.

Second, it’s clear that in Bihar there is no one-size-fits-all when it comes to energy provision. In some areas, a biomass-powered mini-grid option like the one Husk Power is promoting will be most appropriate. In other areas, solar lanterns or solar home systems will make more economic sense.

Third, for those organizations providing energy to the underserved, that provision must be the first priority. We’ve seen proposed models where energy for rural communities would be derived from leveraging the over-capacity of existing energy sources, like diesel generators powering mobile phone towers. This looks great on paper too but in practice is potentially reckless, as it will surely lead to unreliable energy supply at times when resources are stretched (and they will be), as power to the mobile tower will necessarily be the first priority for the provider, not the communities.

Finally, quality of technology matters, but it is secondary to the quality of the channel that delivers that technology to the customer. The key question related to potential for scalability is: does that channel deliver significant improvements in reliability and cost savings to the communities in which it is implemented? We often get proposals or questions related to a new product that claims some marginal cost-per-kilowatt-hour improvement over some other energy product along with a declaration of superiority. This type of comparison may be of academic interest to someone sitting in a comfortable armchair in London or New York, but it is meaningless to a rural Bihari coughing in front of a kerosene lantern.

Simon Desjardins is guest editor for this Alliance special feature. He is responsible for Shell Foundation’s Excelerate programme, which has the goal of helping to provide access to modern energy services for the poor. Email Simon.Desjardins@shell.com

Source: Alliance

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