Lucrative rural market for solar products, yet penetration is insignificant

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With 40 per cent of India’s rural households lacking electricity and nearly a third of its agricultural water pumps running on subsidised diesel, there is a huge market and a lot of potential for solar energy adoption in rural India. However, solar energy companies do not seem to consider this sector as remunerative.

By Richa Chakravarty

Monday, April 09, 2012: According to Raghunandan SS, vice president, engineering, Kotak Urja Pvt Ltd, presently, there is a limited demand for solar lighting and water pumping amongst the rural populace. However, with the government’s desperation to increase its energy options in rural areas, solar companies are finding this new emerging market lucrative for solar energy.

Adds Raghunandan, “Even if the rural market is not presently very promising, the market will turn out to be very lucrative for companies who are into the production of solar lanterns and low cost solar home power systems. The rural market for solar PV will be more than 2 GW in the next three to four years. The number of solar water heating systems in rural India is also projected to grow at a CAGR of about 22 per cent by 2013.”

Demand for off-grid products

DK Varshnei, managing director, Saur Oorja Solutions (P) Ltd

The solar off-grid user base in rural India has grown in 2011 due to various Central and state government programmes, and industry experts forecast the demand to rise even further. Though these same experts feel that the regulatory and support mechanisms need to improve for companies to capitalise on and promote solar energy effectively. The rural population needs to be educated and awareness should be generated prior to this market accepting solar products. States like Bihar, Jharkhand, West Bengal, Uttar Pradesh, Madhya Pradesh, Gujarat, Rajasthan, Chattisgarh, the northeastern states, Orissa and some parts of Jammu and Kashmir have started promoting solar energy in rural areas.

Says Hari Kiran Chereddi, managing director, Sujana Energy Ltd, “Keeping in mind what the rural populace can afford, only cost effective solar products will have an opportunity to penetrate the rural regions. Ensuring affordability and ease of access to products is what would lead to greater market penetration. With the ambitious programmes of the Ministry of New and Renewable Energy (MNRE) to deploy off-grid/distributed renewable power and decentralised renewable energy systems for rural applications, the demand for solar off-grid products will definitely see significant increase in the near future.” However, Hari Kiran Chereddi warns that plans to cover 1000 villages with solar power by 2022 requires substantial government financial support, which may come as grants to meet the initial capital costs. “This should be separate from the target of 20 million households to be covered with solar on-grid power,” he adds.

Solar street lighting systems, home lighting systems, lanterns, solar cookers, solar pumps and solar water heating systems are the

Hari Kiran Chereddi, managing director, Sujana Energy Ltd

most popular applications in rural India. But industry experts believe that the actual need is far beyond what the current demand suggests. According to Raghunandan, with water pumping for irrigation purposes and energy requirements to preserve agricultural produce, a huge demand for solar energy based appliances and equipment will emerge from rural areas. Adds S Narayanamoorthy, director, Power Solutions Group, Aplab Ltd, “Generally, DC home lighting systems are being sold in rural areas. However, to increase rural productivity, it would be appropriate to offer a system that can take the load of the computer and the TV, in addition to lamps and fans.”

Reasons for insignificant penetration

Despite government initiatives and various schemes, the penetration of solar energy—off-grid and on-grid—still remains insignificant. “This could mainly be attributed to a lack of knowledge about the dynamics of the rural market and perhaps a misconception that non-metro markets are inherently risky. “In order to crack this market, it is vital to develop a critical understanding of the rural lifestyle,” opines Shaibal Ghosh, president, international business division, Vikram Solar Pvt Ltd. This inability to understand the rural market has led to a general lack of interest and enthusiasm among companies/vendors to cater to it; which is in itself a major hurdle in the adoption of solar products and systems.

Raghunandan SS, vice president, engineering, Kotak Urja Pvt Ltd

Another reason hampering the adoption of solar off-grid solutions and products relates to what rural communities can afford. “It is necessary for companies to offer products based on what the rural population can afford. Also, the main requirement in the rural pockets is for a basic lighting system and a small fan. Here, the aesthetics of the solar product is not what a buyer looks for. A rural buyer looks for a durable and affordable product,” informs DK Varshnei, managing director, Saur Oorja Solutions (P) Ltd. “Offering the end user finace on favourable terms is a necessity for off-grid systems and products as they involve high upfront investments,” adds Shaibal Ghosh.

Manufacturers also face a major challenge while developing affordable solar products for the rural market. Keeping their target customers in mind, companies like Sujana Energy, Kotak Urja, Vikram Solar, Saur Orja and Aplab have developed solar lighting solutions and solar backup systems, which according to the companies, are affordable. “The objective is to provide people with quality products for a fair price. In particular, our solar lighting solution, which has both portable and fixed lights, has found a large market in rural and urban areas. The government’s recent endeavour to subsidise and open up the market (like reducing the customs duty for solar lanterns) has also been a positive step towards lowering prices for the rural population,” adds Hari Kiran Chereddi.

S Narayanamoorthy is of the opinion that a ‘combo solution’, which can light a couple of lamps, run a computer, a fan, and if

Shaibal Ghosh, president, International business division, Vikram Solar Pvt Ltd
S Narayanamoorthy, director, Power Solutions Group, Aplab Ltd

possible, a TV, along with a mobile charger, should be the right solution. “Such a system, with a government subsidy of 30 per cent and financial assistance from Regional Rural Banks (RRBs) at reduced rates of interest, will not only improve the lifestyle of the rural people but will also substantially increase their productivity. Once productivity increases, they can easily afford these systems,” he adds.

Currently, creating products that include the right technology to enhance efficiency, that are durable and yet affordable, is proving to be a challenge for the manufacturers. This not only requires extensive R&D, but also heavy investments, which may not be affordable for the manufacturers.

TARGETS FOR SOLAR APPLICATIONS

Solar applications Target for Phase I
2010-2013
Target for
Phase II
2013-2017
Target for
Phase III
2017-2022
Solar thermal collectors 7 mn sq m 15 mn sq m 20 mn sq m
Off-grid solar applications 200 MW 1000 MW 2000 MW
Utility grid applications 1000-2000 MW 4000-10,000 MW 20,000 MW

Source: Jawaharlal Nehru National Solar Mission Report

STRATEGIES ADOPTED TO ENTER RURAL MARKET

Penetrating rural areas needs unique marketing strategies like arranging road shows, the innovative display of products, education of customers, etc. Here are some of the strategies adopted by companies who are catering to the Indian rural market.

Generating awareness: Creating awareness about the products is the foremost requirement in rural markets. For solar products to attain wide acceptance, it in necessary that the rural populace is educated about the benefits of solar power in comparison to the daily use of kerosene lamps. “Using road shows, sales vans and go-to-market campaigns are some of the methods that can be used to educate and generate curiosity among the users,” says Hari Kiran Chereddi.

Local engagement: Installing solar products offers great employment opportunities for rural people. Any market strategy must include local engagement in order to be successful and sustainable. Saur Oorja appoints local people or entrepreneurs as small distributors in each village or hamlet and distributes lanterns through them. These people ensure payments are made on time and they, in return, earn a percentage of the profits based on their output.

After sales service support: Off-grid solar projects are not viable without robust post installation maintenance facilities. Unless a company is able to put in place a strong service channel, the possibilities of growth are limited. A business model’s success eventually depends on the ability to earn the trust of the end user, which depends on the post sales assistance. “Since the livelihoods of many rural customers are critically dependent on the solar products, the company will have to respond to every breakdown as quickly as possible. Also, the quality of customer service influences the customer’s willingness to pay for the service. As rural consumers are not educated, they desire a service provider who provides regular repair and maintenance services rather than a mere seller who doesn’t have a good grievance redressal mechanism,” shares Shaibal Ghosh.

Cost effective schemes: Companies should understand the price sensitivity of consumers in rural areas. Hence, cost effective schemes are suitable for rural markets. Leasing the products on the basis of hourly requirements is an option that could be considered to meet the needs of this market. Also, arrangements should be made for rural customers to get the benefit of micro finance schemes.

Quality products: Proper training and information is a prerequisite for a product in any market to be accepted. Companies should offer high quality products that are durable, have a long life, and are resistant to bad weather and extreme climatic conditions.

Employee training: Small distributors should stock some spare parts with them with which they can make immediate repairs. But to do so, companies should ensure quality and provide proper training to their distributors. Most distributed and decentralised energy solutions suffer from poor performance due to a lack of proper maintenance. Companies should address this through training provided to the villagers and by designing a well structured maintenance and support system.

Good product design: The product’s design should take into consideration the users’ needs and living conditions. Intelligently designed products which take care of all practical issues (other than deliberate abuse) will ensure that the requirement for any service is minimal. Since there are electricians and artisans with practical knowledge of these systems, establishing a service network with local involvement is feasible.

Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine

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