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Scale-up and replication of off-grid electrification
OASYS SOUTH ASIA Research Project
Working Paper Series
Working Paper 25
Scale Up and Replication of Off-grid Projects
P R Krithika, Debajit Palit, K Rahul Sharma, Mitali Sahni, Sangeeta Malhotra
The Energy and Resources Institute, IHC Complex, Lodhi Road, New Delhi 110003, India
Version: Final
30 April 2015
Abstract
Scaling up of off-grid electrification is one of the key priorities of developing countries across
the world trying to meet SE4ALL objective of universal energy access by 2030. However,
scaling up off-grid electrification projects is beset with many challenges as most such
projects end up becoming islands of excellence without being able to expand and deliver
impacts at a larger scale. There are several reasons for this inability to scale up including lack
of resources, lack of finance, policy and regulatory barriers, and lack of champions to steer
the project. However, despite some evidence on the reasons for the success and failure of
energy access projects and the abundance of literature on the subject of scaling up (as
applied in other sectors), the concept of scaling up off-grid electrification is still nebulous.
Through an intensive study of scaling up literature and selected case studies on off-grid
electrification, this paper provided a systematic understanding of the concepts of scaling up
and replication in the context of electricity access. The paper finds that financial assistance
or support for an energy enterprises and or project implementation agencies is one of the
critical factors for scaling up. The type of financial assistance is also depended on the stage
where the entity is on its scaling up trajectory. Another key learning on the financing aspect
is the need for ‘flexibility’ both in terms of debt repayment terms as well as conditions that
are tied it. The study also observes that performance milestones should incentivize the
project developer to sustain a project and scale it up. Further, given all the elements of
potentially scalable projects, a project or a programme can also end up having different
scaling up trajectories depending on the entity or actor which is scaling it up. Finally, the
question of when to scale up energy access project or programme remains debatable due to
lack of sufficient evidence and may need further research.
Keywords: Scaling up, Replication, Energy access, Off-Grid electrification.
Corresponding author: Debajit Palit ([email protected])
The Working Paper Series disseminates the findings of work-in-progress so that the
outcomes can be shared quickly with the research community to facilitate exchange of
ideas on important issues that the researchers in this project are working on. The authors
can be contacted directly or through the Principal Investigator of the project. The views
expressed in these papers are those of the authors and the project team but they do not
necessarily represent the views of the organisations they are affiliated with, or that of the
funding agencies.
Scale-up and replication of off-grid electrification
Table of Contents
1.0 Introduction .......................................................................................................................... 3
2.0 Understanding scaling-up .................................................................................................... 6
2.1 Scaling-up in the literature ............................................................................................... 6
2.2 Defining scaling up in electricity access ......................................................................... 10
3.0 Mass electrification process ............................................................................................... 12
4.0 Case study approach .......................................................................................................... 16
5.0 Business model elements - What to scale up? .................................................................. 19
5.1 Scale up Finance ......................................................................................................... 20
5.1.1 Financing scaling-up of Husk Power ........................................................................ 22
5.2 Technology Customization and Standardization ........................................................... 27
5.3 Enabling Government Policies, Laws and Institutional Mechanisms ............................. 29
5.4 Capacity building ............................................................................................................ 33
5.5 Monitoring and Evaluation ............................................................................................. 35
6.0 Actors – Who should scale up? .......................................................................................... 37
7.0 Pathways to scale – How to scale up? ............................................................................... 45
8.0 Timeframe – When to scale up? ........................................................................................ 48
9.0 Discussion ........................................................................................................................... 49
10.0 Conclusion and way forward ............................................................................................ 51
References ................................................................................................................................ 53
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1.0 Introduction
Ensuring universal access to modern energy services to the global population by the year 2030
is one of the key aims of the UN initiative on Sustainable Energy for All (SE4ALL). This implies
providing electricity access to around 1.3 billion electricity un-served people in the developing
world. It has been observed that grid extension is the most preferred option to achieve
universal electrification for many developing countries. The nations with high electrification
rates have primarily relied on grid expansion as the means of electrification. Though grid will
continue to remain as the preferred mode of electrification in the SE4ALL initiative, yet in many
developing countries, grid alone will not be practically feasible or economically viable, mainly
due to practically non-existent nature of the grid and highly dispersed rural population in many
such regions. Many researchers and policymakers argue that providing access to remote
communities through off-grid electrification is necessary given the low technical and financial
viability of grid based approaches in such locations (IEA, 2010, Bazilian and Pless, 2013). A
report by the IEA (International Energy Agency and the World Bank, 2014) indicates that 60% of
the non-electrified villages of the world will gain electricity through off-grid options, namely
stand-alone solutions or local mini-grids.
Over the past two decades, a significant level of experience has been gained around the world
through various demonstration and pilot projects and socially oriented ventures in the off-grid
electrification space. Both stand-alone options (such as solar home systems and solar lanterns)
as well as local mini-grids have been experimented with and many such successful cases have
also been reported in the literature. However, most of the initiatives are supported by
international donor agencies or multi-lateral funding agencies. It has often been observed that
many such initiatives cease to operate once the support by the project implementing agency
was withdrawn at the end of the funding cycle. Similarly, there are examples where activities
did not go beyond the pilot scale or a self-sustaining propagation of the activity did not
materialize. Therefore, a better understanding of the conditions required for supporting
scaling-up and replication is essential so that successful experiences can be replicated at a
faster rate and electrification objectives of SE4ALL can be achieved.
Many international donor agencies as well as not-for-profit organizations have launched large
scale programmes for providing access to energy. Some of these are Lighting Africa, sponsored
by the World Bank and ESMAP, which targets to provide clean, off-grid lighting to 2.5 million
people across sub-Saharan Africa; Lighting a Billion Lives programme by TERI, which aims to
provide the energy starved rural population across the globe with clean lighting solutions, and
Energy for All Initiative by Asian Development Bank, that aims to bring access to energy to 100
million people in Asia-Pacific by 2015. Yet, the World Energy Outlook estimates, nearly $1
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trillion in cumulative investment – around $49 billion per year – is needed to achieve universal
energy access by 2030 (WEO 2012) and a step change from the pilot/ demonstration projects to
mainstreaming of off-grid electrification will be required. To achieve the global objective of
universal electrification, the emphasis on mass electrification is required in all areas where
energy access is still limited.
There are a number of reasons for examining the scaling up in electricity access. First, we find
that creating self-propelling, demand-driven, business models for electricity access is often
fraught with challenges. After the successful operation of an off-grid electrification project for
few years (pilot and demonstration stage), most struggle to make the transition to the next
phase, i.e. moving beyond the pilot to cover a larger group of end-users or replicating the
success in different geographical regions. Barring a few, many such projects end up becoming
“good practices” at the project level, without the potential to deliver impact at a larger scale or
graduating to a successful programme. For those that do, there is a lack of understanding on
the processes for transition from pilot to scale and reasons for what has worked or what has
not worked. This is simply because most of the interventions are not linear in which more
output can be obtained by merely increasing inputs (e.g. more project funding leads to more
people connected). On the contrary, most projects have a natural tendency to saturate at a
certain level of impact, determined primarily by the institutional capacity of the project
stakeholders to expand, regardless of the input in terms of project funding.
Second, through TERI’s significant experience in implementing and observing off-grid
electrification projects as well as through stakeholder consultations we find that this sector has
its own specificities. Off-grid electrification projects take a relatively longer time line to achieve
scale. A long time is spent on basic R&D, piloting and demonstrating a project, before it actually
goes on to scale up. Donor agencies such as the Shell Foundation conclude that it can take 6-10
years for an unproven business to scale up and achieve net positive cash flows (Shell
Foundation, 2014). Other than that, the nature of entities involved in off-grid electrification
initiatives is also unique to this sector. Until recently, mostly government agencies or NGOs
through their initiatives were involved in electricity access programmes. Over the last few
years, a surge of private investments and projects has been witnessed. Private initiatives work
very differently from the former two. They engage in activities for profit and thus, the decisions
and models they follow are vastly different from that of both the governments and NGOs. This
means that their process of scaling up also differs. This study recognizes this changing
landscape and seeks to understand these very nuances of scaling up for electricity access
projects.
The purpose of this paper is to present a detailed review of the concept of scaling-up and
replication in respect of off-grid electrification, and investigate who can perform such tasks,
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when and how. As different actors may approach the problem differently, an attempt is made
to develop a typology of alternative options and identify conditions required to promote
scaling-up and replication. The discussion is also centered on scaling up without having to grow,
where results through multiplication of impacts matter rather than organic growth of the
organization. .
The paper is organized as follows: After the introduction, literature review of scaling up
contexts in general and as applied to the electricity sector is discussed. Section 3 then discusses
the process of mass electrification. The case study approach is then presented which is followed
by presentation of results from the case studies. The conclusions and way forward are finally
presented.
The study is based on an intensive literature review of scaling up concepts and frameworks, as
applied to other sectors, as well as review of secondary case material on energy access
interventions in South Asia focusing on lighting, electricity generation through mini-grids and
standalone systems and productive applications. Limited stakeholder consultations were also
held with few sector experts and energy access practitioners. Six successful cases were chosen
for in-depth study based on their social acceptability, institutional viability, financial feasibility
and environmental desirability. In addition to successful cases, some other cases which have
not been so successful or less successful in achieving scale and replication (such as Village
Energy Security Programme in India) have also been considered to develop a holistic
understanding on scaling up, specifically what do projects that have met with limited success or
fail have to offer as lessons for scaling up. At the same time, some selected cases were taken up
to understand the reasons as to why some interventions which were successful pilots could not
be scaled up or were never thought to be scaled up, therefore ending up as “lab experiments”
that could never make the transition from lab to the field.
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2.0 Understanding scaling-up
It is important to understand what ‘scaling up’ means in order to move further in detail about
this subject. ‘Scaling up’ has been a much discussed and debated topic in the development
sector with the concepts of scaling up constantly being re-defined. From a traditional approach
of viewing scalability from a purely ‘economies of scale’ lens, practitioners and investors are
now talking about scaling impact and processes and not just the organization’s size (Enright,
2013). Hartmann and Linn (2008) have adopted the definition put forth by the World Bank in
the Shanghai summit, 2004 which states that, “Scaling up means expanding, adapting and
sustaining successful policies, programs or projects in different places and over time to reach a
greater number of people.” Such a definition not only focuses on projects but also on policies
and the reach of these. This is also the definition used by IFAD, guiding its framework for scaling
up. IFAD/Brookings framework of scaling up defines ideas, vision, drivers, spaces and pathways
as critical elements for scaling up. It defines the presence of eight critical spaces for an initiative
to grow viz. – Fiscal, Policy, Institutional, Natural/Environmental, Political, Partnership, Learning
and Cultural.
2.1 Scaling-up in the literature
From the abundant literature on scaling up, it is clear that there is no universal definition of the
term as scaling means different things to different people. There are many aspects to scaling up
and depending on who or what the purpose of scaling up is, the definition varies. Most of the
literature on scaling up is contributed by donor organizations (such as IFAD, UNDP, World Bank,
AusAid etc.) or impact investors and grant foundations (Shell Foundation, Acumen Fund,
Bamboo Finance etc.). This is mainly because donor agencies and impact investors unlike
commercial investors measure their success in terms of social impact per granted dollar.
There are two obvious ways of approaching scaling up: (1) to view it as an increase in
investment – aid funds or otherwise - in the project; and (2) as an increase in impact - whether
this be in terms of outreach, number of projects, quality of impact, sustained timeframes of
impact and so on. Different researchers have explained scaling up from these two perspectives.
Social science researchers and scaling up experts, Hartmann and Linn (2008) rightly point out
that the concept of scaling up intuitively is rather straight-forward and simple. However, in
practice, the process of scaling up is much more complicated and requires meticulous thought
and educated action. Uvin, Jain and Brown (2000) identified two kinds of impacts: direct impact
- where the work done has a direct impact on the lives of the target population - and indirect
impact - when ‘seeking to affect behaviour of other actors who work with the poor or to
influence their lives’, thereby, reaching the target group indirectly. These researchers go on to
say that scaling up need not necessarily only mean either expansion or decentralization both of
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which are relatively old methods. It can also be done through creating spin-offs, integration,
creation of alternative knowledge and influencing other social actors which are usually
captured in spontaneous diffusions (Uvin, Jain and Brown 2000). In this new form, success of a
scale can be measured not just in terms of size or impact, but also in terms of number of spin-
offs, number of projects taken over by other actors and contribution to social and intellectual
diversity of civil society. Impact here is not only about number of beneficiaries or specific policy
changes but it is also about ‘capacities built, local norms of trust developed and democratic
processes strengthened’. Further, Cooley and Kohl (2006) have developed a simplicity-
complexity index to assess scalability based on different factors.
The review shows that the definition for scaling up also varies depending on the sector in which
scaling up is undertaken. In the development sector, scale is usually defined in terms of ‘impact’
achieved. For example, a background paper for the World Bank Rural Development Strategy
defines scaling up as efficiently increasing “the socioeconomic impact from a small to a large
scale of coverage” (Hancock 2003 in Hartmann and Linn 2008). Simmons and Shiffman (2007) in
a publication for the health sector, define scaling up as increasing the impact of “health service
innovations successfully tested in pilot or experimental projects”, so as “to benefit more people
and to foster policy and program development on a lasting basis” (cited in Hartmann and Linn,
2008).
However, for Brian Trelstad and Robert Katz (2011), ‘scale’ comes from the idea of ‘economies
of scale’ – larger the company, larger the production, lower the costs per unit and higher the
returns on investment. They define scale as ‘something large or pervasive and relevant to the
problem at hand.’ As defined by Metcalfe’s law, scale is ‘the value of a network as proportional
to the square of the number of users, and the cost to acquire and service a customer goes
down as the number of customers increases.’ Simply put, scale becomes a function of the size
of the network. They also recognize that in the social service sector and in public policy, scale
need not always only pertain to production processes but also to the organization’s scale
relative to the problem at hand. Trelstad and Katz further postulate that there are three paths
to scale depending upon the actor leading the scaling up – Mission, Margin and Mandate.
Scaled success in the non-profits occurs because of a compelling mission while scaling up in the
for-profit private sector happens because of growth in margin. Finally a government enables
scaling up through the mandate mode. They conclude that any successful scaled up entity
needs to navigate all these three paths at different points in time.
Shell foundation in its assessment of grant funding to enterprises has highlighted that scale and
sustainability for enterprises is fostered through catalysing disruptive change through angel
philanthropy, building sectoral pioneers who innovate by doing old things differently and are
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able to transit from a subsidy to earned income mode (Shell Foundation, 2010). Their criteria
for scale (e.g. for energy enterprises) are as follows:-
Large- scale development outcomes (measurable)
Multiple country and/or regional operations (measurable)
Earned income derived from the market (measurable)
Leverage that matches or exceeds Shell’s grant contribution (measurable)
Management team has competence to execute the venture (subjective)
Shell Foundation in its successive report on scaling up energy access (Shell Foundation, 2014)
has concluded that there are 6 stages of scaling up for energy enterprises. It identifies the six
stages as the following; Catalyze, Pilot, Create Pioneer, Scale, Tackle market barriers and
Market building.
It is evident that grant agencies and impact investors have clear measurable and reliable
indicators for assessing scalability of enterprises, which is seldom seen in government driven
programmes.
While discussing the different pathways to scaling up, Jonasova and Cooke (2012) highlight two
major errors that organizations tend to make while attempting to scale:
Type I error – where opportunities to scale up are missed due to bad judgement, lack of funds, inefficiencies in the organization and can be attributed to a number of causes.
Type II error – where opportunities to scale are not justified but they have been undertaken nevertheless.
The UNDP guidance note has identified the following scenarios of scaling up (see Figure 1).
These show the different paths that scaling up can take. Scenario 1 is an example of how the
process could look like when it is initiated from top, for example, through a government
mandate or initiative. Scenario 2 and 3 start at local levels and then get either adopted or
replicated. It is clear from each of these how ‘with each repetition, lessons are generated,
interventions and processes are improved, impact deepens, or change becomes more
transformative’ (UNDP 2013).
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Figure 1: Scenarios of scaling up
Source: UNDP, 2013
Another report titled “From Blueprint to Scale’ identifies four essential stages in the process of
scaling up undertaken by a pioneer firm (Koh et al., 2012). These were identified by analyzing
projects funded by Acumen Fund and Monitor Group in Africa and India. The main thrust of the
report deals with what and how impact investors and philanthropic aid can help and can play
integral roles in each of these four stages, leading to successful scaled interventions. These
stages are: Blueprint, Validate, Prepare and Scale.
The Volans ‘Pathways to Scale’ model of change (see Figure 2) for social enterprises highlights
that “Each new business model typically begins at Stage 1, with the recognition of an
opportunity for a new solution; the ‘Eureka’ moment. In Stage 2, that initial idea is put to test
and experimented with (Volans Ventures Ltd, 2009). Over time, successful experiments evolve
into solutions around which new business models and enterprises are created (Stage 3). Stage 4
sees the emergence of number of players involving a growing number of public, private and
citizen sector partnerships, followed by secondary waves of imitation. For anything to be truly
sustainable, entrepreneurial initiatives will need to scale-up further to Stage 5, system change –
typified by broad-based market and societal adoption of new mindsets, models and
technologies. The successful transition from stage 4 to 5 will involve the transformation of
political priorities, governance process, market rules and cultures.
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Figure 2: Five stage pathways to scale model of change
Source: Volans Ventures Ltd, 2009
From these definitions, it is clear that scaling up can have different meanings, depending on
purpose, initiator and form of scaling up. For example, there can be three different aspects and
approaches to scale depending on who the initiator is – government, private or for-profit
organizations and non-government and non-profit. A government programme may or may not
start with a pilot phase but invariably it aims for a bigger scope to have maximum impacts,
generally supported by organic growth and bureaucratic machinery that has the potential to
generate a large impact. The private sector initiative on the other hand may start with a specific
product or idea at a pilot scale and develop new forms of businesses and alliances for further
growth and accordingly scale up.
2.2 Defining scaling up in electricity access
Scale is very context specific. A business sourcing oranges from small and marginal farmers will
never reach scale using a process as a business selling rural health services or energy services. It
is therefore important to define scale for electricity access. However even before any discussion
on scale in electricity access, it is essential to discuss what electricity access/energy access
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actually means. While there is yet no standard internationally accepted and commonly agreed
upon definition of energy access, different organizations working in this space have defined
energy access touching upon the different dimensions of access. The World Energy Outlook
defines modern energy access as “a household having reliable and affordable access to clean
cooking facilities, a first connection to electricity and then an increasing level of electricity
consumption over time to reach the regional average”. The IEA defines a certain threshold of
electricity consumption which varies based on whether the household is in a rural or an urban
area. The initial threshold level of electricity consumption for rural households is assumed to be
250 kilowatt-hours (kWh) per year and for urban households it is 500 kWh per year.
Further, there is a body of ongoing work on the measurement and definition of energy access
using a multi-tiered indicator approach, anchored in the SE4All Knowledge Hub in the World
Bank which together with the IEA co-leads the Global Tracking Framework. In the SE4ALL Global
Tracking Framework, electricity access is defined as availability of an electricity connection at
home or the use of electricity as the primary source for lighting. As per the UN Secretary
General’s High Level Working group on Sustainable Energy for All, a) energy access includes
access to productive energy such as mechanical power which supports value adding activities
and/or income generation and b) households of different income levels may aspire to different
thresholds of both electricity and fuel access from an equity point of view. The prevalent
approach to energy access also seems to be reductionist in nature i.e. only considers the
physical access and therefore there is a need for a more holistic notion of energy access.
Further, such a binary household-based definition though simple to understand, they fail to
reflect the multi-dimensional nature of the problem that goes beyond the household focus into
the productive use of energy. This multidimensional nature also has a connection with different
domains of sustainability. For example, in many parts of the world, despite having access to the
electricity grid, many people are unable to derive benefits from it due to unreliable and
inadequate supply. The same is the case with improved cook stoves, which though have been
disseminated widely, but its long-term operation was not given due importance and many users
reverted to their traditional devices after few months of use. If the world is to achieve the
target of Universal Energy Access by 2030, which among others will also require framing
policies for achieving the target, then a concrete definition of 'energy access' will have to be
agreed upon.
Pachauri (2011) explains that reaching a consensus on the definition of energy access hinges on
agreements on three elements: 1) consensus on services defining the basic needs basket, 2) a
clear definition of the thresholds defining the basic needs, and 3) assessing the household
expenditure on energy by different income class. One way of understanding what energy access
actually means is to consider the incremental level of access to energy services. According to
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this approach, there may be different levels of access to energy and the policies for achieving
the universal energy access can be classified under different heads: (1) electricity for lighting,
health, education, and communication; (2) modern fuels and technology for cooking and
heating and (3) mechanical power for productive use. Based on the inter-linkages between the
three stages and for developing robust and inclusive policies, universal energy access can be
defined as "access to clean, reliable, and affordable energy services for cooking and heating,
lighting, communications, and productive uses". Apart from the incremental level of energy
access, it is also necessary to include the condition of whether the delivered energy is being
used for a more holistic definition of energy access.
As per TERI’s understanding of energy/electricity access, access to energy covers four main
aspects --Availability, Accessibility, Affordability and Usability. In other terms,
Is clean energy available (macro-level physical dimension of the challenge i.e. wires/ transformers/ micro-grids/ solar present?)
If yes, is it accessible (micro-level connectivity and market dimensions i.e. is infrastructure available at the door-steps, do people find it easy to apply for house connection, can people buy solar systems of their choice as and when they want? )
If yes, is it affordable (are the product/ services packaged and customized to meet the “ability and willingness to spend” of people?)
If yes, is it being used (mind-set issues and other dimensions, i.e. do people have reliable and safe appliances to use electricity, do they want to shift from traditional cookstoves to improved designs in view of taste, flavour etc., cooking habits etc.).
Our definition of scalability of electricity access derives from this definition of energy/electricity
access. Building from the case selection criteria, scaling up for off-grid electrification projects is
defined as any innovative intervention/project/enterprise by an actor, which has proven
success in progressively increasing the access to electricity to rural households (increase in
number of connections/number of systems installed), widened its reach geographically by
replicating whole or part of its concept or the processes and is financially viable. Replication is
therefore a sub-set of scaling up which involves repetition of or adaptation of
techniques/concept/model in different geographical settings by the same or even a different
actor. An important thing to note here is that replication is not blindly copy pasting the model,
rather a contextualization of any model in a given setting. Therefore, we can say that scaling up
and replication is similar concepts but each has its specific meaning.
3.0 Mass electrification process
The main challenge facing the universal electrification agenda under the SE4ALL initiative is
how to achieve mass electrification given the existing electricity network infrastructure in the
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country, the cost of further grid extension and the possibility of electrification through a
portfolio of off-grid solutions. The identification of geographical areas for grid extension and
off-grid options is the first step. Considering this as a planning problem where the issue is to
identify areas where grid extension and off-grid options are least cost solutions, Szabo et al.
(2011) used a spatial least-cost analysis framework that combined geological information
system with least-cost electricity supply optimisation for a case study in Sub-Saharan Africa. The
study used Network Planner – a spatial planning tool developed by the Modi group at Columbia
University. Parshall et al. (2009), Sanoh et al. (2011) and Kemausuor et al. (2014) applied the
same approach to Kenya, Senegal and Ghana respectively. This tool compared the cost of grid
extension for a given location with the cost of off-grid solutions and suggests the preferred
mode of electrification. Deichmann et al. (2011) also used a modelling approach that considers
spatially distributed demand points, generation facilities and supply options through grid
extension or off-grid solutions. They consider the lumpy nature of investment in generation and
transmission-distribution systems and use a “greedy algorithm” which selects the highest
payoff options first. Consequently, the highest demand points are first electrified and as the
system expands, it serves smaller settlements thereby causing the marginal service cost to
follow an upward trend. A cost comparison with the off-grid option decides the most
appropriate solution at a given point. They applied the case to Ethiopia, Kenya and Ghana. The
above studies confirm that in many parts of Africa the cost of decentralised off-grid options can
be cheaper than grid extension and that if the affordability of consumers can be increased or
cost of supply is reduced, off-grid options can surely play an important role.
Whether the geographical demarcation of grid and off-grid options is done through such a
planning process or using other ad-hoc options, electrification normally follows one of two
approaches – top-down or bottom-up (see Figure 3). In a top-down process, electrification
generally occurs through a central agency, either following an overarching mandate or directive
and/or a planned programme. While this often takes the form of grid extension, off-grid
electrification can also form part of the solution portfolio (e.g. CREDA spearheading the off-grid
electrification in Chhattisgarh state in India). The bottom-up approach on the other hand is a
more spontaneous development to provide electricity solutions to non-electrified users or
communities. Scaling-up in each case follows different logic and strategies. Off-grid electricity
supply can take two forms – individual product-based solutions and collective network-based
solutions.
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Figure 3: Electrification approaches
The development of off-grid supply can be divided into four stages (see Figure 4), namely
preparation, testing markets and infrastructure, take-off and finally maturity and saturation
(IRG, 2003). The preparation stage takes a few years during which the policies, financing and
business development efforts are put in place but very few actual electricity connections or
products are sold. This can be a slow process but this does not necessarily imply that the
market will grow slowly. Many countries in Sub-Saharan Africa are still in this phase of
development and there is a significant learning potential from others to ensure that the
preparatory phase leads to successful second and third phases. During the second stage,
market preparation, pilot testing and appropriate business models are developed. This phase
also can take a few years to establish and success during this period ensures transition to the
growth phase of business development. Many countries have entered this phase and are
working through the pilot testing and experience gaining process. Spreading the successful
experience and sharing the knowledge is essential for rapid mass electrification. During the
third phase, the off-grid electricity service starts growing rapidly through greater investment
and increasing visibility and acceptance of off-grid activities by various stakeholders (users,
governments, suppliers and regulators). This also encourages entry of multiple suppliers in the
market. Scaling-up is relevant at this stage of development when suppliers mobilise resources
and develop strategic alliances in search of growth and expansion of the market. Finally, the
market matures and saturates and business continues with normal supply activities.
Electrification
Top-down approach
Grid extension Off-grid
Bottom-up approach
Individual solutions
Local grid options
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Figure 4: Stages of off-grid supply development
Source: IRG (2003).
While both individual product delivery and local grid solutions go through the above stages of
development, each successful electrification solution will find its own unique development path
based on the local conditions, business environment, organisational arrangement, and market
needs. But in all cases, innovation is the foundation on which scaling up thrives. Without
innovative products or processes – even incremental in nature, scaling up may not be
sustainable. To achieve scale, it is pertinent to change the status quo that keeps electricity
access in this case at a small or local scale.
Further, the top-down approach is likely to focus on a large spatial coverage whereas the
bottom-up approach tends to build from the lowest level of aggregation. The top-down
approach starts with the bigger picture and consequently, it tends to follow a hierarchic
organisational arrangement where each lower level is looking after a narrower cluster of areas
and targets. The systematic replication of a standard delivery model leads the expansion and
growth of the business. This can be derived through organic growth or through strategic
partnership arrangements. Because of the involvement of a larger player (e.g. a national entity,
a specialised state agency), a top-down approach may have more credibility and acceptance to
other stakeholders involved in the business. On the other hand, for the bottom-up approach,
aggregation of business focus and activities is essential for its take off and growth. As the
business starts with a localised view, it is essential to develop the bigger picture and support
the realisation of such a vision through appropriate strategies and plans. Product and process
standardisation from the initial experimentation plays an important role but challenges like
supporting organic growth, developing a partnership arrangement for the delivery and ensuring
organisation development commensurate with the growth plan are crucial as well. Moreover,
Preparation Market
tests
Take off
Strategic Scale-up
Maturity
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being a smaller player, it has to build its reputation and credentials as a serious player which
can be a time consuming and difficult process.
4.0 Case study approach
As mentioned earlier, this study undertook an in-depth analysis of successful and not-so-
successful cases of off-grid electrification to understand the scaling-up process. The cases were
selected based on objective selection criteria, such that they met most of the characteristics
mentioned below:-
Increase in geographical spread
Increase in number of customers served
Ability to leverage funding from diverse sources
Enabling policies facilitating scale up
Replication of whole or part of the model
Creation of partnerships/Networks
To select the cases, the inventory of 75 cases prepared as part of Work Package 1 of the OASYS
project on framework development in the study undertaken by Mishra and Sarangi (2011) was
used. In addition, several other prominent examples from South Asia, which are claimed to
provide best practices led by different actors (Government, NGOs and energy enterprise), were
tested for the criteria. Based on the criteria, seven cases were identified for detailed analysis of
scale up and replication (Table 1).
To analyse the cases systematically, a framework has been developed, based on the literature
review, for the purposes of this study. The framework analyses four main aspects of scaling up
(see Figure 5) that have been consistently highlighted in most of the literature (albeit in no
particular order) viz. Business model elements necessary for scaling up, the nature of entities
who are involved in the scale up, the approaches taken up by these entities to reach scale and
finally the timeframe within which a project matures from pilot to full-fledged scale. We discuss
each of these aspects in detail highlighting relevant examples to illustrate our key arguments
for each of the framework components. To facilitate the investigation process, we have asked a
set of questions in relation to each aspect which allow us to explore the cases systematically to
bring out main features. These are indicated in Table 2.
17
Table 1: Case selection criteria
PROJECT DETAILS PARAMETERS TO ASSESS SCALABILITY
S
No
Name of the
project/
programme/
Enterprise
Country Technology Actor Years in
operation*
Increase
in spread
Increase in
customers
Ability to
leverage
funding
Policy/legi
slative
change
Partnerships/
Networks
1 Husk Power
Systems
India Biomass gasifiers Private 7 Growing × ×
2 Nuru Energy Africa,
India
Originally pedal-
powered charging
and modular
lighting, expanded
into solar and AC
charging.
Private 6 Growing - ×
3 IDCOL Solar
Home System
programme
Banglades
h
Solar home
systems
Govern
ment
and
Private
17 Mature Governme
nt
provides
policy
support
4 Remote village
electrification
programme,
Chhattisgarh
India Solar power
plants
Govern
ment
14 Mature (Able to
leverage
state
government)
× ×
5 Renewable
Energy
Development
Programme
(REDP)
Nepal Micro-hydro
power systems,
improved
cookstoves, toilet
attached biogas
plants
Govern
ment
18 Mature
6 Village Energy
Security
Programme
India Biomass gasifiers,
improved
cookstoves
Govern
ment
Defunct
× × - ×
7 Lighting a Billion
Lives (LaBL)
India Solar Lanterns NGO 6 Growing
Note: * Nascent (<5 years), Growing (5-10 years), Mature (>10 years)
19
Figure 5: Research framework
Table 2: Research framework questions
Business model/
Programme elements
(What to scale up?)
Actors
(Who should scale up?)
Pathways of scaling up
(How to scale up?)
Timeframe
(When to scale up?)
• What interventions can be scaled up?
• What are the drivers and barriers for scaling up and replication?
• What is the role of finance in scaling up and replication of projects?
• Is finance the most important factor for scale up or it is driven by other factors?
• Will scale up put stress on the environment and resource availability?
• Who are/ can be the actors who can scale up?
• Who are/ can be the actors for replication?
• What are the pathways of scaling up and replication of energy access interventions?
• How does scaling up differ for different actors?
• For off-grid projects, how can technology and the concept be scaled up or replicated?
• Should scale up be planned from pilot stage or can it be decided later?
• When does scaling up becomes technically feasible and economically viable?
5.0 Business model elements - What to scale up?
Not all projects need to be or can be scaled up or are designed to be scaled up. There are
certain pre-requisites which have to be met for a project/enterprise/programme to be
expanded to a larger scale. It is necessary that the project is innovative in any or all of these
fronts, which helps to scale up the process and interventions to achieve the above
mentioned objectives. These are as follows:-
Price
Service delivery
20
Technology
Sourcing arrangements/ supply chain
Training/capacity building
The necessity and effectiveness of scaling up the said project/pilot/innovation has to be
thought through right from the start of the project. Simply put - what is to be scaled up?
Should it be a scale up of the organization (through partners and affiliates or organic
growth) or should it be a scale up of the key functions of the organization? One approach is
to see why one needs to scale up energy access? One of the main reasons to scale is to
maximize developmental impact and achieve valued outcomes. For this, most often, the
choice is to scale up existing good practices. This implies scaling up processes or parts or
whole of the model that has worked.
Traditionally off-grid electrification has been about top-down approaches led by
governments where the focus is on expansion of the programme by replication (on their
own) as explained in Section 3.0. Only recently we are seeing an increase in bottom up
approaches, those that are primarily led by the private sector who are trying to scale both
by replication on their own and by involving partners (franchisees, joint ventures etc.) In
particular, in the off-grid electrification space, we see several first movers who are breaking
new grounds through an innovative business model/ service delivery or technology
improvements. The successes and failures of these market leaders has provided lessons for
other players who seek to reproduce the model by ‘copying’ them and it is advantageous as
it reduces the lead time for these second movers who adapt their models without having to
reinvent the wheel. Further, it creates competition and offers more choices to consumers.
Taking the example of solar lamps, we find that well- known producers such as d-light,
Greenlight Planet, Toughstuff etc. constantly copy and learn from each other when it comes
to product features (mobile phone chargers, battery quality), marketing or distribution
strategies (selling through micro-franchisees) etc. (Kramer et al., 2014).
There are several business models in off-grid electrification market, which is continuously
evolving. The case studies that we have discussed in the following sections also highlight the
different business models of these entities.
5.1 Scale up Finance
Finance is one of the most important elements for scaling up any sustainable energy
enterprise/ project or a programme. In particular, there are multiple barriers in financing
off-grid projects as the sector has very limited best practice examples, further compounding
the problem. These include, among others, small ticket size of transaction, limited
penetration of FIs in rural areas as well as limited product offering by banks, low awareness
and limited understanding of off-grid projects by financiers and investors, long gestation
period for release of capital subsidy, lack of a viable business case to banks/Fis credit
committee for financing, and very low risk appetite of FIs and financiers. This is true
21
especially for small energy enterprises which have large unmet financing needs. In fact,
research shows that there is a distinct correlation between unmet financing needs and size
of organization – higher proportion of large organizations (in terms of revenue generated)
reported no unmet financing needs.
Scale up finance is difficult and challenging for projects that are expanding as compared to
those which have already become well-established. Scaled up projects are investment-
ready, since they have a credible reputation, a track record of achieving targets which
boosts investor confidence. From a project proponent’s perspective securing finance is
typically a “what comes first, chicken or the egg?” situation where securing the first tranche
of investment is very difficult given limited understanding of the financier’s requirements,
which will provide the necessary track record to secure further financing (AT Kearney, 2014).
From the perspective of scaling up energy access, the question to ask is what kind of finance
is required at each stage of growth? To answer that question, it is first important to
understand how the scaling up trajectory of an enterprise/project looks like, which then
provides some direction on the way a capital curve for an enterprise or a project may be
built. Typically, any technological innovation passes through five interlinked stages from
inception to commercialization (Jenkins and Mansur, 2011). Two distinct barriers –
“Technological valley of death” and “commercialization valley of death” impede the diffusion
of innovation of any technology (Figure 6). The first valley of death occurs when innovators
or entrepreneurs need capital to undergo a process of developing, testing and refining their
technologies to prove that the innovation will be viable in the market beyond the lab,
however investors are typically reluctant or wary of funding this early stage product
development because the magnitude of risk involved is very high as these are yet unproven
technologies. Similarly a second gap arises when entrepreneurs seek capital to move a
technology from pilot/demonstration stage to the commercialization stage for the
commercialization, production and manufacturing processes associated with demonstration
and market launch. Some lessons from failed projects are indicated in Box 1.
Figure 6: Finance gap and valleys of death in an energy innovation cycle
Source: Jenkins and Mansur, 2011
Venture capital Private equity
Debt financing
Technological
valley of death Commercialization
valley of death
Angel Philanthropy
22
A decentralized electrification project operated by a private entrepreneur or an NGO also
goes through similar stages and faces these very challenges in accumulating capital at these
critical junctures. As an example, the scaling up trajectory of a private energy enterprise,
Husk Power is analysed in detail.
5.1.1 Financing scaling-up of Husk Power
Husk power systems (HPS) owns and operates decentralized biomass based mini power
plants (30-50 kW), serving rural consumers in the state of Bihar in India. It was set up in
2007 by first generation entrepreneurs in one of the least electrified states of India where
only 10.4% of the rural consumers have access to electricity (Census of India, 2011). The
company since its inception has installed 84 mini-power plants in a period of four years
thereby providing electricity to over 200,000 people spread across 300 villages over six
districts in Bihar. Each of these plants achieves operating break-even on average within six
months of starting operations.
Initially, the founders used their personal savings without drawing salaries for 20 months
after the start of the first power plant in August 2007. The next step was marked by utilizing
Box 1: Lessons from Failed Projects
Grantmaker’s view
Shell Foundation highlights the following reasons why projects or enterprises fail to achieve scale.
Poor execution by project proponent as they lacked technical skills, management resources,
operational systems or financial controls required to bring the project to scale. This was seen
in several pro-poor energy projects in Africa.
No observable market for services or product offered.
No financial viability without permanent subsidy. For example, several grantees in Asia that
were distributing pro-poor energy products and services at prices well below production costs
were either unwilling or unable to shift from a subsidy based approach.
Other reasons why a project may not scale up…
The business models are not sufficiently commercial
Other external factors (Government policy and regulations) limit the commercial proposition
and ability to scale commercially
The business cannot access growth capital
There are structural or capacity constraints to growing the business
There is a lack of ambition or incentive to go to scale, low risk taking appetite
There are no, or very limited, economies of scale for the business model
Source: Shell Foundation, 2010; Business Innovation Facility, 2013
23
the winnings from business plan competitions which provided the start up with a lot of
international attention as well interest from potential investors. HPS then partnered with
Shell which in its capacity of a strategic funder helped chart its growth trajectory using
defined milestones, i.e. offering a conditional grant support (see Figure 7). While in case of
Husk Power, conditional grant has proven extremely beneficial by streamlining and
structuring the company’s operations, thereby smoothening its growth trajectory, in many
cases it can also prove counterproductive, which brings in the need for ‘flexible grant
support’ (Box 2).
The ability to leverage grant funding and secure private investment from investors is in fact
one of the critical drivers of HPS’s growth. From taking the business model from blueprint to
validation stage, grants by Shell Foundation proved to be a key factor. Shell Foundation
provided a series of targeted grants which were conditional upon initiating changes in the
business (see Table 3). In all, Shell provided a total of $2.3 million to HPS between 2008 -11
(Koh et al, 2012). The grant funding from Shell helped in creating the core components
required for scale for example, in designing its business strategy, recruiting senior managers,
building awareness about the HPS brand, funding R&D activities to decrease capex for
plants, for developing the smart meter and importantly leveraging Shell’s global expertise to
dramatically improve safety conditions at its operational sites, thereby reducing low-
probability, high-impact risks (black swan events).
The funding from Shell foundation came in post R&D, pre-revenue stage when commercial l
funding was not yet available to the enterprise. Precisely it provided the much needed seed
funding at the proof of concept stage thereby helping the HPS to overcome the technology
valley of death.
Box 2: Inflexible financial support
Rigid terms and conditions - One example is cited by an energy enterprise (solar lantern company)
which stated that the exacting terms and conditions imposed by a national bank, became a drain
on the company. The reasons given for why it has not helped the company as intended are that
the bank is not patient enough, the interest rate is too high (24%) and the repayments are eating
into operational budgets. The money is disbursed in tranches and tranches are released only when
repayments are made.
Overly ambitious finance - A large solar enterprise stated that they received a large investment
from a state-backed investment company. However the high returns expected pushed the
enterprise to expand into multiple countries at the same time, before it was ready. The leader of
this work said the investment “was crippling”.
Source: Ashden Awards
24
Figure 7: Finance spectrum for Husk Power
Source: Koh et al, 2012
Table 3: Conditional grant by Shell Foundation to Husk Power Systems
Period
Outcomes
Specified Usage and conditions Key outcomes
Nov 2008 –
Jun 2009
Research and development
Build 3 new plants to test scalability
Demonstrated ability to replicate plants
at accelerated pace and with consistent
performance outcomes
Jun 2009-
Jan 2010
Build 5 new plants
Trial new energy payment system
Initiate carbon credit conversion with the assistance of a specialist consultant
Hire senior management
Further R&D to enable tar reduction, assisted by Shell Global Solutions
Further R&D to reduce plant cost
Complete intellectual property legal work
Establish Husk Power University, a centralized training facility for personnel
20 percent reduction in tar
10 percent reduction in cost of engine development
IP formally protected in India and USA
Training facility established
Apr 2010-
Dec 2010
Pre-paid metering system tested and installed at pilot
Further R&D on operational efficiency
Explore options to monetize waste streams
Hire key senior staff, including director of operations, with partial subsidy support
Conduct an external HSSE audit
$1.3 million capital raised
Pre-paid meter system developed
Key staff hired and on-boarded
Progress on implementation of recommendations under safety audit report
Jan 2011-
June 2012
External consultancy to assist with building Husk Power University
Continued implementation of HSSE audit recommendations
Rolling out of pre-paid meters
Establishment of Husk Power University
HR Subsidy for senior management
Disbursement of final tranche conditional upon successful raising of commercial Series A funding
Initial training curriculum and scale-up plan for HPS University developed
Existing plants retrofitted to HSSE standards reflecting audit recommendations, and new plants being installed to the new standard
New meters rolled out
Training facility established and in use as the primary training site for new HPS employees
New senior manager (COO)hired
Series A funding secured
Source: Koh et al., 2012
2007 2008 2009 2010 2011 2012 Post 2012
Founders’ savings
and winnings from
business plan
competitions
Grants from
Shell
foundation
Investment from impact and commercial investors
Acumen Fund, LGT, IFC, Bamboo Finance, Draper Fisher Jurvetson, Oasis
Fund etc.
25
After securing grants and building a solid foundation, the company was ready to enter the
next phase of its scale up strategy by attracting commercial capital from venture capitalists
and impact investors such as Acumen Fund and angel investors. In addition, one of the
critical drivers of HPS’s growth has been its ability to garner subsidy support from Ministry
of New and Renewable Energy. MNRE provided a capital subsidy support to Husk Power
Systems, which helped it become an economically compelling case for investors. HPS was
paid a subsidy of Rs.7,80,000 (USD 13,000) per 32 kWe plant.
HPS then aimed to secure non-dilutive commercial debt to further its expansion plans, given
its asset heavy (power-plants) business (Sinha M, 2011). This is primarily because HPS feels
that debt facility provides a growing energy enterprise financial discipline, cash flow stability
and the cash cushion which is required. Further, since HPS is planning to scale up via the
franchise mode where it adopts a build and maintain (BM) model requires a different
approach to financing as it is important that the financing mechanism attracts a multitude of
BM partners. It is very likely that many strong BM partners may not have upfront capital or
may not be able to contribute a portion of the capital requirement as SME debt in India is
difficult to obtain, is expensive and the process of availing debt is marred with bureaucratic
delays (Desjardins S, 2011). On the contrary, established franchisee such as Mcdonald’s
franchisee wouldn’t have to undergo this hassle as banks are comfortable lending to them
as the revenue models are proven. One of the ways this barrier can be handled is if the BM
partner is able to get third party credit risk guarantee from a bank.
The Husk Power case shows very clearly that grants if given well can catalyse growth and
bridge the gap from enterprise creation to scale. However this is not to say that grants are
always beneficial because generally grants are short term and the managing and reporting
of grants is often time consuming. Grant funding can sometimes deter those enterprises
who risk becoming grant dependent and hence losing their entrepreneurial acumen.
It is also known that there are numerous enterprises which face or have faced challenges in
accessing finance especially working capital to manage day-to-day operations. Research by
Ashden indicates that the greatest financial need of energy enterprises is towards getting
working capital in the form of debt or credit line. Since commercial finance providers are
usually wary of providing debt to energy enterprises for such purposes, donors and other
social investors could help in overcoming such obstacles by providing loan guarantees etc.
to reduce/mitigate the risk which can then enable such businesses to receive loans from
commercial finance providers.
The funding issue can be different for a government agency following the top-down
approach. The fund allocated to such organisations is linked to government policies and a
committed government may ensure sufficient funding but its disbursement and utilisation
at the local level can remain a challenge unless an appropriate funding agency/corpus is set
up. Similarly, funding from Rural Electrification Fund, where it exists, can also support
26
expansion and scaling-up efforts. Here are some new emerging avenues of garnering funds
from investors such as crowd funding (See Box 4).
Box 4: Crowd funding in decentralized energy access
Crowd funding is a new and emerging source of finance for growing energy enterprises which
require seed capital for growth and finance for scale up. In general terms, “Crowd funding” describes
the practice of raising funds in small increments from large numbers of non-institutional sources.
The activity is mediated via an online platform and promoted through social media (Arcfinance,
2014). Crowd funding is a particularly more appealing source of finance as it offers greater cost and
flexibility advantages in addition to greater funds availability. There are several crowdfunding
solutions available for clean energy today. Two popular platforms are described here: 1) Sunfunder
2) Milaap.org.
Sunfunder is a US-based private solar financing company that sources low-cost, short-term debt for
solar companies operating in off-grid, emerging markets. It was established in 2012. The company
has till date focused on East Africa but aims to expand to other emerging markets as well in the near
future. Sunfunder does not provide financing for startups but targets established companies which
have demonstrated commercialization and are looking to scale up. Sunfunder’s platform is very
similar in format to other crowd funding platforms such as Milaap,org, Kiva etc. The website gives
the project profiles of different off-grid companies, the markets they operate in, their customers, the
terms of loan, timelines, purpose of the loan, progress made etc. The website is very user friendly
and designed for easy monitoring by lenders and lenders can make credit card or paypal based
payments. Lenders have the option to withdraw funds that are repaid or to reinvest in other
projects. The minimum investment a lender can make is UDS 10 and maximum is whatever remains
unfunded. The average term of SunFunder loans is 12 to 18 months. As of January 1, 2014,
Sunfunder had completed 17 loans to nine different solar companies operating throughout East
Africa, representing a total portfolio of US$365,000 invested across all partners.
Milaap is an India based crowd funding platform which was founded in 2010. It raises loan capital for
Indian microfinance institutions (MFIs) engaged in energy, education, clean water access etc. The
company sources low-cost debt for individuals or groups of borrowers for a variety of income-
generating and essential service investments through its online lending platform, Milaap.org. Milaap
works through a growing network of field partners that includes non-profit, community-based
microfinance organizations as well as private companies. It is a for-profit enterprise and it generates
revenue by applying a small interest fee (typically 5% to 8%) to field partners that receive and
disburse the credit that it provides In addition to online lending, Milaap raises capital using a
combination of strategies including innovative corporate employee engagement initiatives, but also
the solicitation of funds from more conventional philanthropic sources, such as High Net Worth
Individuals (HNIs), foundations and other donors.
Source: Arcfinance, 2014
27
5.2 Technology Customization and Standardization
It is the technology on which a business model thrives. Optimization of a technology plays a
vital role in scaling up of an energy project. Considering the rural settings of developing
countries such as India, it becomes necessary for entrepreneurs and energy companies to
innovate technologies that are more user-friendly. Certain parameters are to be considered
by the actors while devising their innovations, such as, the technology should be compatible
with the region’s physical and social settings and should be easy to handle/maintain by rural
beneficiaries. Hence, developing and implementing certain technical standards helps in
maximizing the business model compatibility, ease in operation and maintenance and
replication or scale up of the project in future.
Off-grid energy model in Chhattisgarh is one such model that displays a successful
demonstration of technical customization up to an extent and then standardizing the model
to cover large number of villages which aids in smooth after-sales in a structured manner. In
order to provide electricity in Chhattisgarh through renewable energy sources including off-
grid/decentralized energy systems, Chhattisgarh State Renewable Energy Development
Agency (CREDA) was created. Most of the un-electrified villages in the state are in the tribal
dominated districts of Sukma, Dantewada, Narayanpur and Bijapur.
CREDA initiated with the solar home system (SHS) model in 2003 which could not sustain
longer mainly due to two major reasons. First, heavy subsidy on the system could not make
the beneficiaries realize the value of these systems and whenever the system owner faced
any financial crunch they would mortgage the system at a low price. Secondly, there was
large scale social problem of theft which negated the very purpose of the deployment
(Malviya, 2011). This led to exploration of option of installing solar mini-grids by CREDA and
therefore, the first mini-grid was commissioned in 2004 without discarding the SHS. Solar
mini-grids provided supply to larger villages with concentrated settlements whereas hamlets
and villages with scattered households are provided with SHS.
As on June, 2012 CREDA covered 1439 villages with a cumulative capacity of around 3.5
MWp of solar power plants spread across different districts in the state (Jain, 2012). The
installed system capacity in the villages ranges between 2-6 kWp and electricity supply is in
single phase. Each kWp of solar power plant serves around 12-14 beneficiaries with average
load of 73 watt per household. Every household is provided with two 11 W CFLs and the
electricity supply comes for 6 hours (4-6 AM and 6-10 PM) in a day. Also, every village is
provided a streetlight connection. In order to meet possible future demand, the systems
have been designed in a way to generate 10-20% incremental power.
A key feature of the CREDA model, which contributed to the significant ease of operation
and maintenance and cost minimization, has been the technical standardization in terms of
different capacities and inverters. They have plants providing six different capacities but
they are connected to only two inverters. The systems with 1-3 kWp of installed capacity
28
have a battery-bank of 48V and inverter rating of 3 kVA and the systems with 4-6 kWp
capacity have 96V battery bank and inverter rating of 5kVA. Instead of having different sizes
of inverters at different villages, thereby increasing the maintenance cost, CREDA have
standardized and kept two inverters spares which otherwise have to be six spares for six
different capacities. Further, in later installations the civil structure has been standardized
with rooftop mounted panel and inverter and battery kept in the room unlike the former
structure where the solar panels were mounted on the ground and fencing provided around
the same. This reduced the maintenance cost which otherwise is incurred for ground
mounted panel on expenses such as fencing, theft, damage during monsoon etc. These are
the primary reasons that led to the success of the project.
Similarly, sometimes customization of energy access model is required at sub-national level
while adopting a model from the other nation and then standardizes it for further
dissemination at last mile. For example, very often the capacity of a plant is designed
keeping in mind the local resources and the size of the population to be served but then the
mode through which electricity would be generated and the supply is kept the same for all
the beneficiaries.
The technology needs to be built in a way that it can address the needs of the area where it
is being implemented and can be easily handled by the local communities. Unless the
technology addresses the needs, there will not be ownership of the system which will result
in its failure. This can be well illustrated through example of cookstoves in India, which did
not witness a large scale uptake by users. With the aim of reducing fuel use and indoor
smoke emissions, a large number of initiatives driven by local or international NGOs and
some led by the Indian government have sought to introduce improved cooking
technologies over the past two decades. The results of these initiatives have been mixed.
The Indian government launched the first National Programme for Improved Cookstoves
(NPIC) in 1984, wherein it aimed to supply 120 million energy-efficient cookstoves to
households in 23 states and 5 union territories in order to address local deforestation by
reducing biomass use at the household level, improve health and ease the burden of
fuelwood gathering for rural women and girls. By 2002, roughly 34 million stoves had been
distributed across India with 50% government subsidised cost of the stoves.
However, NPIC was brought to completion in 2002 only, top down approach being one of
the major shortcomings (Greenglass and Smith 2006) and also the central government
subsidy went directly to stove and it is apparent that producers while designing cookstoves,
did not consider consumer preferences and therefore, many households discarded the new
stoves within a matter of months (Hanbar and Karve 2002; Kishore and Ramana 2002). Also,
subsequent impact assessment studies revealed that the real benefits of the programme in
terms of fuelwood and monetary savings at the household level are likely to be far lower
than the claims made in the annual reports of the Ministry of Non-conventional Energy
Sources (Kishore and Ramana 2002). The NPIC cookstoves made by networks of trained local
29
artisans were criticized in terms of meeting minimum quality standards (Hanbar and Karve
2002) and besides, these stoves often failed to improve upon the efficiency of their
traditional counterparts (Bhattacharya and Cropper 2010), making it non-beneficial to users
in terms of fuel savings or reduced smoke levels.
TERI’s Lighting a billion Lives (Labl) programme is also another example which showcases
technology customization suited to the needs of the target population. LaBL initiated its
operation with the technology of Solar Charging Station (SCS) which is a community based
lighting option with mobile lanterns. One SCS usually consists of 50 lanterns, 5 solar panels
and 5 junction boxes. A lantern provides light equivalent to a 40 W incandescent bulb for 4-
6 hours. These lanterns are provided on rental basis to households and enterprises in the
evening, the rental varies between INR (2-5) per day per lantern. Though LaBL started its
operation with SCS technology but through years it has evolved various other solar
technologies, depending on the local level demand from different communities across
different states, aiming to light up the households in the rural communities. Such other
lighting models under LaBL are:
Solar Micro Grid through which low voltage electricity is distributed over a short
distance from the battery banks for 4 hours each night to power the household/shop
lights. In order to reduce per connection power consumption, LED lights are utilized;
Solar Home Light Systems (SHLS) that gives an individual ownership on the light wherein
each system provides a household with a facility of two light points and a point for
mobile charging. Each household is given a solar panel and a lead acid battery with a 2
years warranty. At some places, these solar home light systems are being integrated
with improved cookstoves and are called Integrated Domestic Energy Systems (IDES).
It is thus important to ensure that the technology should not only depend only on technical
efficiencies but also should be able to meet users’ needs in terms of matching social,
cultural and economic preferences. And, this explains that due to lack of considering these
preferences have resisted the efforts to scale up access to improved cookstoves till date.
5.3 Enabling Government Policies, Laws and Institutional Mechanisms
All successful scaled up programmes have been able to do so primarily because of a
favourable business environment which is characterized by enabling policies and long term
government commitment. Though private sector is an enthusiastic stakeholder in
developing off-grid energy solutions, it has been observed that where the government
intervention is serious and strong, the results have been tremendously positive and move
on a better pace. Even a private initiative in the renewable energy sector requires public
partnership and/or enabling government policies to go from pilot to scale up stage.
Government has the capacity to ease constraints in terms of information, financial
resources, capacity building and regulations (See Section 6). In doing so, it can collaborate
with a number of other actors such as donors, civil society actors, private sector etc. to build
30
an eco-system for off-grid electrification products and services. Government can also
establish development partnerships which combine public sector outreach with
entrepreneurship, skills, expertise of the private sector.
Rural Energy Development Programme (REDP) in Nepal is one such case where strong
leadership and long term commitment of Government of Nepal (GoN) with its vision of
scale, catalytic support, and enabling policies has helped in creating beneficial impacts
through micro-hydropower systems and improved cook stoves on millions of people in less
than five years. The government of Nepal initiated the Rural Energy Development
Programme (REDP) on 16 August 1996 to support the rural electrification objectives of the
tenth five year plan. This initiative was a joint venture between Government of Nepal and
the United Nations Development programme and the World Bank.1.
REDP introduced decentralized renewable energy services by building micro-hydropower
systems and providing improved cooking stoves to the most remote populations of Nepal.
The micro hydro systems were not installed as a part of a separate donor-funded project,
but were delivered as components of the district development plan. The GoN placed
emphasis on decentralized planning and involved District Development Committees and
Village Development Committees for the delivery of the energy services directly at the local
level, where the DDCs were involved in programme administration and management at the
local level. These local bodies gave top priority to promotion of energy services and
accordingly allocated a substantive amount of matching funds to support renewable energy
schemes from overall district development budgets and community contributions.
The pilot project was started in five remote hill districts in 1996 benefiting more than one
million people. The initial financial and technical assistance to this programme was provided
by the United Nations Development Programme (UNDP). The successful piloting led to the
implementation of the programme in 15 more hill districts of Nepal. By December, 2003
more than 10,000 new rural households had access to electricity. This success resulted in
the enactment of the Hydropower Development Policy of 2001, which superseded the
Hydropower Policy of 1992 and addresses the shortcomings of the former policy regarding
private sector involvement (Kim, 2011).2
In the second phase of the programme from 2003 to 2007, REDP started operating in 25
districts and the programme reached to 40 districts in its third phase by March 2011
1 Renewable Energy Development Programme (REDP). http://www.rerl.org.np/phase2/introduction.php.
Accessed on 12 June 2014 2 While the earlier Hydropower Policy of 1992 aimed to promote private sector participation, it failed to attract
significant investment (foreign investment) because it mainly promoted small scale projects in hilly areas where electrification was lacking and did not envision large scale or mega projects for producing electricity for export. All the electricity had to be sold to Nepal Electricity Authority making it the monopoly buyer and seller. These shortcomings were addressed in the Hydropower Development Policy, 2001 where developers were allowed to export hydropower to neighboring countries (India) through BOOT.
31
(Pradhan, 2011). The strong, long-term commitment of the national government provided a
robust support in terms of catalytic public investment and policies enabling the programme
to scale up. With a view to develop and promote renewable/alternative energy technologies
in Nepal, the Ministry of Science and technology established a separate institution called as
Alternative Energy Promotion Centre (AEPC) on 3 November 1996 , solely dedicated to lead
and coordinate rural energy programmes and in 2001, the REDP was brought under the
aegis of AEPC. An establishment of a dedicated national agency in this case, thus, depicted a
true vision for implementing and scaling up the pilot projects.3 The Government of Nepal
from the beginning gave high priority to the promotion of rural and renewable energy
technologies and their energy schemes such as micro-hydro plants were never treated as a
separate donor funded project but were delivered as of the overall district development
plan.
The involvement of national agency in REDP was not at all static but ever-growing in terms
of rigorous monitoring and evaluation system like; all activities undergo a well-auditing
process. This ensured a continuous learning process for improvement and necessary
adjustments and therefore further facilitating the scaling up process.
In addition to national government agency – AEPC, there are number of enabling policies
and laws playing a crucial role in scaling up of off grid energy projects in Nepal such as the
Rural Energy Policy (2006), the Subsidy Policy for Renewable (Rural) Energy (2009), the
Renewable (Rural) Energy Subsidy Delivery Mechanism (2010) and the Delivery Mechanism
of Additional Financial Support to Micro/Mini Hydro Project (2011) policies which provided
guidelines on institutional mechanisms, subsidy criteria and delivery mechanisms, including
the setting up of a Renewable Energy Fund (REF) (Kim, 2011) .
The government intervention in terms of upfront public financing also proved to work as a
catalyst in gathering up of resources for the programme growth. Dominant funding from
public sources at the onset stage of programme resulted in increased contributions from
community over time reaching upto 40% of investments by the year 2006. The fact that the
total costs are shared by the local communities - through cash and kind contributions -
would not have been possible without upfront public financing, which indeed played a key
role in the success and scaling up of micro-hydro systems.
In addition to Nepal, Renewable Energy Development Programme (REDP) in China is also an
example where government long term commitment has shown remarkable success in off-
grid energy access. From the beginning, China has recognized rural electrification and rural
energy supply as close links to rural economic development rather than just as a social
policy unlike most of the other countries.
3Alternative Energy Promotion Centre (AEPC). http://www.aepc.gov.np/index.php. Accessed on 13 June 2014
32
Over the last few decades, China is one such country that has successfully embarked on
rural electrification and energy projects and have almost achieved 100% electrification rate
(WEO 2010). China has been successfully providing access to 900 million people over a
period of 50 years (Peng and Pan, 2006). This success is significantly attributed to China’s
strong government commitment towards rural electrification. China’s rural electrification
policies were being shaped and influenced in certain ways over time in three distinct phases
from 1949 to 1997 and the visible success in rural electrification started since 1979 when
the economic reform began from rural areas (Bhattacharyya & Ohiare, 2012). With an
emphasis on renewable energy, a significant share of investments has been allocated to
green sector in China’s 11th Five-year Plan (2006-2010). The plan projected 20% decrease in
energy consumption per unit of GDP by 2010 as compared to 2005. Also, the Chinese
government has committed itself to producing 16 per cent of its primary energy from
renewable sources by 2020.4China’s Renewable Energy Law passed in 2005 catalysed the
national support for development of the renewable energy sector. The law encompasses
national fund, discounted lending and tax preferences for renewable energy projects and a
variety of other financial incentives to promote renewable energy development.
Under REDP, Chinese companies have sold over 400,000 solar home systems (SHS)
benefitting two million individuals from 2002–2007. The initial target of the REDP was to
deploy SHS in 350,000 households which were exceeded to 400,000 which enabled
renewable energy suppliers to enter into export markets to manufacture products in
compliance with international standards. To understand REDP’s effectiveness and support
from government requires exploring the Chinese renewable energy legal and regulatory
environment. Over the last two decades, Chinese government has implemented various
other renewable energy promotion programmes after mid 1990s with the support from
bilateral and multilateral agencies (Benjamin and Anthony, 2011). These programmes arose
from poverty reduction measures and focused on coverage territory outside the scope of
immediate grid extension efforts. Few such programs are –
Table 4: Electrification programmes in China
Name of the programme Year of operation RE Technology Coverage
Brightness Rural
Electrification Program
1998 – 2010 Various kinds of RETs Electricity to 23 million people
at both household- and village
Song Dian Dao Xiang
(SDDX) or Township
Electrification Program
2001 – 2005 small-hydro, wind, and PV Electricity to nearly one million
people living in 1,000 townships
in Western China
The Song Dian Dao Cun
(SDDC) programme
2005 – 2010 small-hydro, wind, and PV Electrified 20,000 villages
Source: Sovacool and D’Augustino, 2011
4UNEP. Renewable Energy in China.
http://www.unep.org/greeneconomy/SuccessStories/RenewableEnergyinChina/tabid/29865/Default.aspx. Accessed on 13 June 2014
33
Another example where government support has been seen as a driving factor is that of
Lighting Africa which has been successful in catalyzing the off-grid lighting market in Sub
Saharan Africa. Lighting Africa (cited in Section 9) initially did not have a policy focus; it was
a market oriented programme. However because of the numerous policy and regulatory
hurdles present in countries that Lighting Africa engaged with, it became clear that to scale
the programme securing government support is necessary. Most Sub-Saharan governments
had discriminatory policies favouring kerosene as they did not consider solar lanterns as
credible instruments for electrification. Lighting Africa thus engaged in systematic
discussions with governments in the eight interested countries (Cameroon, the Democratic
Republic of Congo, Ethiopia, Ghana, Kenya, Rwanda, Senegal, and Tanzania) to identify key
policy barriers (related to subsidies, taxes, tariffs, standards, and procedures) and mitigation
strategies. Eventually, governments began to integrate off-grid lighting programs into their
rural electrification initiatives and Lighting Africa has contributed to directly or indirectly
influencing the rural electrification strategies of these countries. For instance, the
government of Ethiopia has waived duties on all off-grid lighting products that meet or
exceed Lighting Africa’s recommended performance targets. In Kenya, all imported LED
lighting equipment and solar components are exempt from taxation. The Ugandan
government implemented a 45 percent subsidy on solar equipment as part of its Energy for
Rural Transformation program (Murphy and Sharma, 2014).
5.4 Capacity building
Off-grid electrification involves transition from status quo to adapt to a new type of system
which affects the very fabric of the rural communities adopting the system. It requires them
to learn the skills to operate a new system, maintain it, such that faced with a problem they
are able to resolve it efficiently. In several cases, it has been seen that communities who
are exposed to electricity for the first time and not adequately trained, lose interest and
eventually render the system defunct. The VESP example is a case in point. Capacity building
is required at the community level as well as the institutional level and those projects and
enterprises which have been able to achieve this, are well placed on the road to scale.
Barefoot college presents an ideal example in the regard of building the capacity of local
community. Barefoot college is a NGO providing services and solutions for more than 40
years, in the sector of Solar Electrification, Clean Water, Education, Livelihood Development,
and Activism with an aim to make rural communities self-sufficient and sustainable. To
achieve this goal, they have targeted village women and since 1972, more than 6,525
housewives, mothers and grandmothers, daily wage labourers, midwives, farmers and small
shopkeepers have been trained to become solar engineers, artisans, weavers, parabolic
solar cooker engineers, Barefoot midwives, handpump mechanics, FM radio operators and
fabricators, dentist, masons, and early childhood as well as day and night school teachers.
In the annual two training classes of Barefoot College, 100 middle-aged women from India
and 80 from other parts of the world are trained to become solar engineers who are also
34
locally known as Barefoot Grandmothers. They are given six months of training where they
are trained on how to install, maintain and repair and solar lighting units for a period of five
years. These grandmothers start solar electrifying each house on returning to their villages
and each of them gets a monthly salary from the village solar committee for their
installation, maintenance and repair services. Since 2008, more than 40,000 households in
1015 villages have been provided with electricity by these grandmothers to bring light in the
lives of more than 450,000 individuals (Barefoot).
Similarly, CREDA has also developed its own innovative model for Operation & Maintenance
(O&M) by bringing standardization in all aspects of O&M. They call it “GOLD” (Group the
partners, Organize their skills, Allocate load in villages, Deliver service) or Cluster based
service delivery model, where the installation is steered by CREDA and O&M of the plants is
undertaken through a three tier set-up. CREDA has signed an annual maintenance contract
with an outsourced company, better known as system integrators/AMC contractors. Under
this AMC, the O&M of the plants is taken care of by:
Village operator who looks after the O&M at the village/individual plant level;
Cluster technician who handles a cluster of villages performing more advanced
maintenance and supervise the operator;
Supervisor who takes care of the activities at multiple clusters or a block level and
monitors the activities of technicians
All three – the village operator, the cluster technician and the supervisor are engaged, paid
salaries and given incentives by AMC contractors only.
To ensure that assigned tasks like routine maintenance are being properly carried out,
regular CREDA staffs are engaged in parallel with AMC staffs. All the training expenses are
borne by CREDA and they also provide periodic refresher training courses in every six
months to train the technicians and operators. More than 1400 operators are trained under
this model for carrying out responsive maintenance of the mini-grid systems (Malviya, 2011)
and more than 500 people are trained to install and maintain various solar power systems
that have been implemented in the state. Further, 75 technicians and 60 supervisors now
repair inverters and other electronics. It was found during the field visits that the model is
effectively working with staff getting regular payments. Also, the state government is
providing some additional fund to meet the expenses like battery replacement and inverter
and for conducting trainings through the fund generated by keeping 10% of the project cost
at the beginning in bank fixed deposits.
In the Nepal REDP case it was seen that capacity development costs amounted to be more
than half of the programme’s total costs. For the micro-hydro programme from (1996-
2006) capacity building costs constituted 56% of the total 14.3 million USD while for the
improved cook stove programme (1999-2004) it accounted for 65% of the total 1.5 million
USD. In this programme, capacity building was not just limited to training and management
35
but included the whole array of functional capacities ranging from planning, oversight,
monitoring to situational analysis, facilitation of stakeholder dialogue, training,
implementation capacities and management support, and provision of policy advice. In
essence, the project focused on two entry points for scaling up – community mobilization
and institution building. The community was mobilized based on process which focused on
six fundamental principles, known as Mul Mantras viz., organization development, skill
enhancement, capital formation, technology promotion, environment management, and
vulnerable community empowerment (Clemens et al., 2010). The mobilization of the
community was done through a structured process which involved setting up of local
institutions. The micro hydro systems were installed by community members in close
cooperation with District Development Committees (DDCs) and Village Development
Committees (VDCs). Local NGOs were developed to act as support organizations (SOs), to
carry out the process of community mobilization. The SOs support the villagers to establish
community organizations (COs) and ensure that at least one male and one female from each
household are members of a community organization of the target VDC or settlement.
Multiple COs were then supported to form various functional groups (FGs) based on their
common interests, ranging from micro-hydro FG (MHFG ), income generation FG , or
forestry FG, to biogas FG or poultry farming FG , and so on. These functional groups were
made up of representatives from all COs, ensuring representation from males, females, and
vulnerable groups. The MHFG is the key body at the village level for establishment,
operation, and management of MHSs. Once the community-managed MHS has been
running successfully for at least six months, the community groups are encouraged to
convert the MHFG into a legal entity, such as an MH cooperative, to encourage long-term
sustainability.
While the Nepal case showcases this extremely important and successful element for scaling
up, a recent evaluation shows that despite certain good elements, the renewable energy
programme in Nepal faces multifarious roadblocks to scale up which range from regulatory
uncertainty and flawed subsidy design to conflict of mandates among different institutions
(Sarangi et al., 2014).
5.5 Monitoring and Evaluation
Effective monitoring and evaluation is critical for scaling up. Monitoring of a project is done
regularly in order to know about what aspects of the project are performing well and not
well whereas, the evaluation is done at one time at periodic intervals and helps the project
implementing agency (PIA) know about the reasons in case the system is underperforming
and how the problems can be rectified. Lessons from monitoring and evaluation (M&E)
undertaken by an expert agency can feed into the strengthening of the particular project.
This exercise should ideally be done mid-term as well as on the completion of projects
answering two critical questions a) what can be learnt from this project which can help the
project or others in scaling up this initiative? b) Are enough right things being done which
36
assure its replication or scale up? In most government driven programmes, monitoring and
evaluation is done as a standalone activity as a project closure requirement, however in
order to decide the scaling up strategy, monitoring and evaluation should be an important
milestone at pre-defined intervals to take stock of the progress and plan for course
corrections.
In the clean energy sector, M&E is emphasized on and rigorously followed mainly by the
funding agencies (international donor organizations, impact investors etc.) as they are the
ones who are more concerned with the impact generated as a result of their grant/funding.
Other entities who are actual implementers of such projects (NGO/ Energy
enterprise/Government) tend to undertake this exercise as a procedural compliance
requirement, which is probably the reason why several initiatives fail to sustain and create a
lasting impact. Foundations such as the Shell Foundation which has a significant energy
portfolio and provides grants to energy enterprises accounts for performance through Key
Performance Indicators (KPIs), which include both financial as well as organizational metrics
that can be tracked over time such as cost per job created, ratio of fixed overhead to service
delivery cost, cumulative subsidy per clean cook-stove sold etc. Performance against agreed
KPIs is measured, documented and reported on a regular basis to ensure accountability.
Monitoring and evaluation essentially requires 4 steps i.e., implementation, monitoring,
feedback and corrective action. This loop has to be followed in order to aid the process of
implementation and ensure the sustainability of the project. If there will be dedicated M&E
agencies then PIA would not have to face the burden of the same. While, the PIA can focus
on their core area of implementation, the M&E agencies could provide their inputs to PIA on
how to strengthen the project. Therefore, it is very important for scaling up to not just have
a good PIA but at the same time have a robust monitoring and evaluation process, providing
the required feedback for corrective information at right time.
Since these practices are still nascent in the clean energy sector, it is worth highlighting an
example of M&E as followed in Mexico which has followed such loop. Mexico is one country
which has a dedicated national agency known as CONEVAL (Council for Evaluation of Social
Policy) for systematically carrying out monitoring and evaluation of all social policy
programmes in the country. CONEVAL coordinates cross-sectoral evaluation activities, sets
out standards and methodologies for the evaluation of social programs, provides technical
assistance to ministries and agencies. Its evaluation processes range from design
evaluations that are conducted on programs that are in their first year of implementation to
various other evaluations.
The evaluation (based only on secondary data) assesses if a program makes a clear
contribution to the solution of a particular policy problem and if the objectives of the
program are aligned with the objectives of its ministry. Process evaluation appraises the
efficiency and efficacy of operational processes of a program during its implementation and
37
provides feedback for improvement before the program ends (Fernando et al, 2009).
Program consistency and results evaluation is a rapid assessment used to obtain a general
and comparative perspective of the design, strategic planning, coverage and targeting
mechanisms, operation, beneficiary perception, and results. Impact evaluation seeks to
measure changes in the conditions of well- being of the target population that are
attributable to a specific program. This type of evaluation provides the most technically
robust evidence about whether a program is working or not. Lastly, indicator evaluation is a
process which measures the quality of indicators whether they are clear, relevant,
adequate, and monitorable, as well as whether their information comes from reliable data
sources.
6.0 Actors – Who should scale up?
The entity which drives the scaling up strategy is the lynchpin of the initiative as the success
of any scaling up depends on that entity or actor. A programme could scale up at different
levels –village/block/district/state/regional/country level depending upon the lead entity’s
vision, mission strategy and strengths. This section highlights the role of the three key
entities – public, private and NGOs or civil society in scaling up and assesses the strengths
and weaknesses of each actor for scaling up an energy access project.
The role of providing electricity generally rests with the government of a country. In India,
over the years, several government programmes have been launched to cater to the energy
needs of households.5 However, government has not been the only actor involved in
providing power. Starting with the 1980s several NGOs took the role of providing electricity,
most of which used unconventional means such as renewable energy. This is mainly because
even though the government programmes covered a large scale, implementation was not
always effective since they were unable to reach the grassroots. On the other hand NGOs
operated on a smaller scale, but with local communities at the ground level.
As on date, the government still plays a central role, but private sector and NGOs have also
entered the off-grid electrification space. Presently, off-grid electrification projects involve
three key actors in their execution, namely the government, non-governmental
organizations (NGOs) and private agencies. The question as to who should scale up has no
straight answers, primarily because these players have different strengths and weaknesses
which contribute to the scale up of the project. Each of these entities (except NGOs) have
shown to scale up on their own without partnerships and alliances and at the same time
5 Pradhan Mantri Gramodaya Yogna (PMGY; 2000-05), Kutir Jyoti Programme (for BPL households, now
merged with RGGVY), Minimum Needs Programme (2001-05; targeting villages with less than 65% electrification), Accelerated Rural Electrification Programme (operational since 2002) and Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY; biggest government electrification programme aiming for 100% rural electrification with free electricity to BPL households) are key programmes launched by the government for rural electrification. The Electricity Act which was introduced in 2003 also mentions rural electrification in law for the first time.
38
have demonstrated remarkable success in scaling up through partnerships with each other,
which is elaborated in the next section.
Government agencies:
With ample financial and human resources and the ability to cover a larger scale, the
government is a strong actor when it comes to execution of energy projects. Government
funding is often considered the Holy Grail for social-sector initiatives. With its programmes
designed to reach out to a large population, the government provides finance in the form of
subsidies and grants, which is a resource that other actors do not possess in the same
magnitude. Government has the wherewithal to ease constraints with respect to
information, financial resources, rules and capacity (Table 5)
Table 5: Constraints and government capacity
Constraints Government capacity Instrument
Information : Information about poor communities, including their purchasing power, consumption habits, needs,
preferences, skills and capacities,
is rarely available.
Government require and receive vast amounts of information from diverse stakeholders for their own policymaking purposes. This central position and the authority that comes with it put them in a unique position to generate and share information.
Data and research
Peer learning
Rules: Companies with innovative business models face considerable red tape and often cannot build on existing regulatory frameworks
Government has the mandate to
and authority to force societal
actors to comply with rules and
impose sanctions in the case of
non-compliance by setting a
regulatory framework.
Standards
Regulations
Universal service obligation
Policy framework
Legal framework for market participation
Financial resources: Private
sector companies in off-grid
business often face hurdles in
securing finance, due to risks
which are perceived as high by
investors.
Governments have the capacity to
collect financial resources by
levying taxes, tariffs and other
fees. They also disburse financial
resources in order to incentivise
companies to invest in certain
activities
Tariffs
Tax breaks
Subsidies
Public procurement
Incentives
Structure and capacity: Lack of
physical infrastructure (roads,
market access etc.) in off-grid
communities makes it difficult for
companies as well as poor people
to do business and start
productive enterprises.
Governments have a mandate to
ensure basic needs are met. They
also have a mandate to manage
natural monopolies such as
physical infrastructure networks.
Infrastructure
Capacity building
Micro-business support
Source: Tewes-Gradl et al., 2013
39
Infrastructure Development Company Limited (IDCOL) is one such entity owned by the
Government of Bangladesh (GoB) which works on spreading clean energy under the Rural
Electrification and Renewable Energy Development (RERED) program. It has shown
enormous growth since its inception in 1997. IDCOL plays the role of channelling both grant
funds and refinancing to renewable energy projects in rural areas under this programme.
More than 3 million Solar Home Systems (SHS) have been installed under the programme as
on April 2014 (Sadeque et al., 2014). In order to understand the reasons for the success of
this programme, it is first important to know how the programme works. Since the
government is an entity which is mostly responsible for development of programmes and
policies, it is unable to reach the grassroots when it comes to implementation of projects.
However, under the IDCOL programme, GoB took note of this disconnect between the
centre and the grassroots and implemented the programme with the help of Partner
Organizations (PO).
The PO is responsible for selecting the project area and identifying potential customers.
They extend loans, install systems and provide maintenance support. IDCOL plays the
broader role of providing grants and refinancing, which it receives from international donor
agencies in the form of grant or loan (Figure 8). It also sets the technical specification for
solar equipment for quality control, develops publicity materials, provides trainings to
stakeholders and monitors the performance of POs. The POs extend the loans to
households, who are required to pay minimum ten percent of the system cost as down-
payment. Thereafter they enter into a sale or lease agreement, which is approved by IDCOL.
After installation (mostly on credit), IDCOL carries out an in-house checking for physical
verification of the SHSs installed through a Technical Standards Committee (TSC), and with
satisfactory results releases the grant/ refinance amount. Most of the energy projects fail or
are unable to scale up due to lack of financial aid. As a government entity, the strongest
feature of IDCOL is the availability of funds which are given as grants or loan to the POs, who
further extend them to the end users.
Figure 8: Implementation of the IDCOL project
40
Source: Output Based Aid (OBA) Approaches, April 2012
The project has shown success in scale up due to the following reasons:
a. Inclusivity: It has reached out to the most marginalized sections of rural Bangladesh through its rage of credit facility given for systems with sizes from 10 watts to 135 watts. This gives an option to the end users to choose from a variety of products as per their affordability.
b. Implementation with checks and balances: IDCOL follows a model which shifts most of the risk to the POs and suppliers, which mitigates corruption and governance issues which usually pertain around government entities and ensures better implementation. The model followed by the project is one of partnership between the government and NGOs (i.e. POs) where the imperfections of both are covered through distribution of roles.
c. Robust Quality control: The quality control mechanism of IDCOL through rigorous checks by the TSC ensures proper installation of the systems and the after sales services provided by the POs have resulted in consumer satisfaction, increasing the demand for the product. IDCOL also maintains a call centre to address customer complaints.
Government agencies are found to be very suitable for implementation of energy projects if
these three points outlined above are taken into consideration. This is primarily because
the road to scale up of energy projects goes through the public sector due to its influence on
policies and availability of fund, helps it reach out to a large population. However, when the
project is implemented, there must be inclusivity of the marginalized that are unable to
afford other sources of energy; the major role of the government should be restricted to
provision of finance and supervising the role of the private agencies/ NGOs involved to
undermine the issues of corruption and inefficiency due to the scale of implementation; and
lastly the quality of the products must be maintained with good after sales services.
Off-grid electrification in the Indian state of Chhattisgarh by the state nodal agency, CREDA,
is another interesting example which highlights a government agency’s strengths in scaling
up, covering all the major elements of a government scale up model as highlighted above,
namely inclusivity, quality control and performance oriented implementation model.
Chhattisgarh has around 3.5 MWp of solar power plants spread across 1439 villages in
different districts of the state installed as part of the off-grid electrification programme by
CREDA in partnership with the private sector. Most are of less than 7kWp capacity. Each
household is provided with 2 lights (11 W CFLs) with six hours of daily power supply. In
addition, villages have also been provided with solar powered streetlights. CREDA along
with MNRE, Government of India provide policy support and financial assistance to set up
and operate the power plants while the private sector is responsible for installation,
operation and maintenance services. The state government is extremely pro-active as far as
off-grid electrification is concerned. It has sanctioned funds as high as 55% of the project
41
cost to install mini grids at remote locations. In keeping with the extremely low paying
capacity of the target population (most of the beneficiaries are Adivasis /tribals from remote
forests, rural fringe settlements and habitations), the tariff structure has been so devised
such that the burden on the households is minimum. Out of Rs 30 per month (towards
tariff), Rs25 comes from the state government as operational subsidy and the remaining is
collected from the beneficiary. Apart from these features, one of the most distinguishing
features which has enabled the model to scale up to more than 1500 villages in the state is
the innovative three-tier operation and management system developed by CREDA. CREDA
signs an annual maintenance contract with a private company known as the “system
integrator”. O&M at the village level is carried out by the operator selected from the village
and at the next level is a cluster technician who handles a cluster of villages for faults and
maintenance. The last tier is managed by CREDA itself which monitors all the installations
through monthly reports and records maintained by cluster technicians. Since maintenance
is entirely outsourced to the private sector, the system of monitoring and oversight is so
robust that it has won the support and confidence of the local population who have
demanded for capacity enhancement of the power plants in many villages.
On the other hand, the Village Energy Security Programme (VESP) is an unsuccessful
example of a Government scaling up programme that highlights the weak links in
government implementation. VESP was launched by the government in 2004 to meet the
total energy needs of remote villages through locally-available renewable energy (e.g.,
biomass and biogas). The program also promoted the use of clean cooking technologies
through the distribution of improved cook stoves and biogas units. MNRE provided a one-
time grant to cover up to 90% of the capital costs of electricity generators using biomass
gasifiers and/or vegetable oil in combination with the infrastructure necessary to distribute
the electricity throughout the community. In all cases, community members were
responsible for providing at least 10% of an equity contribution with either cash or other
contributions such as land and labor. However there were a number of issues in the way the
project was implemented. First, a policy framework and clear vision for all stakeholders was
lacking for the VESP, which is necessary for large scale implementation (Palit et al., 2011).
Second, some renewable energy technologies such as biogas or gasifier systems require
clusters, or certain economies of scale, to work properly. They need a different promotional
strategy as opposed to solar home systems or improved cookstoves, and in the particular
case of the VESP, its community-scale ambitions did not always match the realities of local
fuel supply. Third, a critical element of a scaling up strategy was missing, namely capacity
building and handholding of users and other local agencies. In the VESP model users such as
the villagers and Village Energy Committees were not adequately trained about the basics of
operating biomass gasifiers. Most of the suppliers showed reluctance to develop the post
installation service network because of a low volume of activity, mainly because the villagers
were not using enough electricity to convince the supplier to develop a post-sale installation
network. As a result the knowledge and skills to maintain the systems was not sufficiently
42
developed among the local population. Further, there were no champions to own the model
and strive for its scaling up. The local Panchayat which was supposed to own the project and
take complete responsibility of the operation and management of the systems did not do
so. There was insufficient stakeholder engagement and buy-in when much more facilitation
was required by the provincial government. Lastly, the project was not commercially viable
mainly because revenue management systems were not in place (Palit et al., 2011). Since
the systems were down much of the time, communities were reluctant to pay for service.
Poor revenue flow diminished interest in maintaining system operations, creating a vicious
cycle. Operator costs also became significant since low lighting load and the absence of
productive load diminished demand. Normal maintenance costs added to total expenditure
often overwhelmed revenues that user payments generated. In short, the project had very
few elements of innovation which are requisites for scaling up.
Non-Governmental Organizations (NGOs):
Scaling up is about ‘expanding impact’ and not about ‘becoming large’, the latter being only
one possible way to achieve the former. NGOs and the projects initiated by them usually
begin small, which start as a pilot to test technologies or a business model. The project, if
successful is then scaled up which may be in terms of expansion of the NGO as a whole, or
the spread of only the impact created through the project. In case of the latter, the NGO
forms other alliances at places where it spreads. However, most of the initiatives remain
rather small, which can be accounted to various factors such as lack of funds, manpower
and capacity to influence government policies. Due to these reasons, it becomes difficult for
NGOs to expand beyond the local level. As a result, NGO successes remain as ideas for best
practices and islands of excellence in a wider economic and institutional environment which
stops them from reaching to a larger population.
The donor agencies seek to promote those NGOs that supplement the government through
their work. NGOs scale up by becoming larger organizations, managing larger budgets, and
reaching out to more people. The strongest characteristic of the NGOs is their presence at
the grassroots, which ensures better implementation. The NGOs thus resort to partnerships
with other NGOs or agencies which can look into implementation at a different location.
The Energy and Resources Institute (TERI) is an example of large not-for profit organization
which has scaled up its flagship programme of Lighting a Billion Lives (LaBL) though its
alliances at the grassroots. The LaBl programme was initiated in 2007 by illuminating 200
households in a rural village in West Bengal. Initially called as the Lighting a Million Lives
programme, TERI soon crossed the million mark and decided to upscale the programme to a
billion lives around the world. So far it has reached out to 2570 villages in India and Africa,
touching the lives of more than one million people. The programme follows an
entrepreneur based model, where local people are identified and given training to carry out
the project. The local partner NGOs of TERI play a significant role in such capacity building
43
exercise and supervision in terms of implementation. To support sustainability of the
projects, a network of local-level institutions that facilitate micro-implementation of project
deliverables, carry out training and capacity building exercises and ensure after-sales
services. A local-level enterprise that caters to after-sales service support to LaBL solar
charging stations (SCSs), called the Energy Enterprise (EE) is established by TERI. The EE is
authorized to market and sell TERI-approved clean energy products such as solar lights and
improved cookstoves in a specified area. The EE ensures sustainability of the project by
looking into after sale issues that might arise in the installed systems. These energy projects
undertaken by TERI are mostly funded by donor agencies.
The same may be very difficult to achieve for smaller NGOs which do not have access to
large pool of funds. Many of the energy access projects particularly those involving
dissemination of cookstoves involve local NGOs, Association, SHG Federations etc. which
help in awareness generation, identification of potential beneficiaries, community
mobilization and social engineering, and sometimes are themselves the project
implementers. These NGOs seldom have the resources to further widen or expand the
project without the support of an external partner. However, NGOs are institutions which
are best suited to implement projects in the field through their ground presence, conduct
training and capacity building exercises, and form local institutions to ensure sustainability
of the project. However, since in many cases grassroots NGOs lack adequate availability of
funds, they are unable to scale even when other resources are available to them. .
Availability of human resources is another area where the NGOs lack, along with their ability
to influence national policies. TERI has shown success in terms of scaling up the LaBL
initiative due to its ability to gather sufficient funds to execute these rural energy projects
and its network of being associated with 130 local NGOs which have helped reach out to the
large number of villages.
Private sector:
Privatization of an infrastructure project is seen to usually result in better implementation
and service to customers. Better accountability and provision of quality products are
typically the characteristics of private energy projects, where the aim is to maximize profits
and increase the consumer base. Private agencies/ enterprises usually start with the help of
seed funding in the form of grants or prize money, or through private investments. In the
off-grid electrification sector, with falling renewable energy technology costs, high efficiency
appliances, and mobile phone enabled metering and monitoring, private sector is poised to
play a pivotal role in accelerating access to the underserved and unserved.
This can be seen in the case of Husk Power Systems, which has been discussed in detail
earlier. The scale up of private enterprises depends on the ability of the agency to attract
funds or investments. However, similar to the NGOs, they lack the ability to influence
44
national policies, due to which the projects are most likely to remain region specific, and not
scale beyond.
An emerging model of scaling up in the off-grid electrification projects is through the
franchisee route. This model is being adopted by a number of private players in this space
such as Husk Power, Gram Power, SolarNow etc. Franchisee models have distinct
advantages in scaling up rapidly. Franchisees are standardized models, are adaptable to
local circumstances, have a cost-effective set up, have economies of scale which are very
conducive for scaling up an off-grid project. Franchisors utilise franchisee investments to
rapidly expand their geographic reach (often in remote areas) and build their brand image.
Franchisees gain access to the 'proven business concept', established brand, clientele and
(initial) and ongoing training and support in return for paying ongoing royalties and other
contributions. At the same time, there are certain disadvantages, in terms of finding
suitable entrepreneurs, significant up-front investment, monitoring the activities of the
franchisees; however these disadvantages can be easily countered if the franchisee model is
well-structured with performance incentives for the franchisee. It requires the delineation
of roles for the principal (franchisor) and agents (franchisees) and this involves clear lines of
communication, training and monitoring. In this way, trust and commitment to the brand is
built within the network and the franchising concept is more sustainable.
As pointed out above, franchising requires rigorous monitoring so that the franchisee does
not ‘free-ride’ on the brand and reduces service quality. This has been seen in the case of
TERI’s Uttam Urja model. TERI has seeded the concept of energy entrepreneurship (EE) in
certain regions and created a brand called ‘Uttam Urja’. These franchisees are given access
to a network of reputed solar lighting products and other facilities such as returnable
inventory, branding, ERP and other marketing support from TERI. Upon establishment, the
EEs become cognizant of the massive market demand and some of them (the more
entrepreneurial ones) started procuring local but non-standard equipment for sale and also
deviated from the standard processes laid down in the agreement. This has become one of
the prominent mechanisms that franchisees exploit to make themselves financially viable.
From the above discussion, it may be reckoned that with its capacity to finance energy
projects and the availability of resources, the government sector is well suited for scaling up
of off-grid electrification projects. At the same time, private entities with their innovative
business models, service delivery and post sales services, have the potential and the
wherewithal to scale up. Intuitively, private businesses or energy enterprises are more
scalable and sustainable as compared to government driven initiatives as profits reinvested
back to the business mean that the business can go on indefinitely as opposed to govt.
programmes where there is no certainty about the future of public spending. Public
spending on energy projects will depend a lot on government’s priorities based on the
sectors where it seeks to improve social outcomes. The only entity which has a limitation in
achieving a wider reach and expanding beyond the local level is an NGO, especially the
45
smaller ones. For an NGO, the best route to scale would through partnerships with
government and the private sectors.
Table 5: Strengths and challenges in scaling up
Government NGO Private sector
STRENGTHS
Ample financial, human and
organizational resources
Good understanding of the target
beneficiaries, presence at the
grassroots
Innovation in service delivery
Credibility with beneficiaries Capacity building and handholding Monitoring and evaluation
Reach to wide population Quality, post sales services
CHALLENGES
Limited Innovation. Generally
conventional models of service
delivery.
Limited funding, resources and
capacity
Profit oriented, risk of
overlooking or not placing
emphasis on community
welfare
Monitoring and Evaluation is seldom
seriously done.
Limited to small areas, cannot scale
to wider segment
Quality, after sales repair and
maintenance
Financial viability
SCALABILITY POTENTIAL
Medium – High Low – Medium High
Source: Authors’ compilation
7.0 Pathways to scale – How to scale up?
Pathways to scale define the routes to get a project/programme/enterprise to scale. The
Business Innovation Facility, a pilot initiative of DFID, UK highlights three distinct strategies
to scale up (Figure 9) Expansion via partnerships where partners complement each other
and the proven model is aligned with others who have existing networks, economies of
scale, consumer base etc. (which can be tapped into 2) Organically growing the initiative to
scale by adding human and financial resources 3) Replication especially for smaller
enterprises/ entities who cannot scale through the traditional approaches.
Most of the off-grid electrification projects and enterprises have been seen to scale up
through the first and third route i.e. expansion via partners and business model replication.
This is mainly because a) providing electricity access to different consumers across different
regional contexts and different market conditions requires some degree of customization in
the business suited to the target group’s needs and preferences. This is possible not through
standardized approaches which are the features of a conventional scaled up model and b)
To reach a larger population, increase the capacity, reach and impact of the project, private
46
and public actors see collaboration as a vital step. An established partner has larger
resources, management expertise, value chain advantages and the ability to scale across
regions while small local partners may have base presence and rapport with rural
consumers, whereas the government has the policy setting role, which if combined together
can produce tremendous synergistic results in increase access to electricity.
Figure 9: Routes to scale up
Source: Business Innovation Facility, 2013
Expansion via partnerships
Partnership is a term which is used to broadly define the relationship of a company and
other actors (NGOs, Government) and it could take several forms. Partners collaborate to
realize mutual interests and they share a common vision. They pool money, technical
expertise, knowledge and other resources and share the profits and losses which arise from
the partnership (Kramer et al., 2014). However choosing the right partners is key for such a
strategy. Partnerships should be forged after a due diligence process and the type of
partnership will ultimately depend on the degree of control that the parent entity wants to
retain over its subsidiaries/partners.
The IDCOL example explained earlier is a classic example for scaling up through
partnerships. Husk Power which is expanding through the franchisee route is also a
company scaling through partnerships. Other than that, Lighting Africa is also an example of
a large scale programme which plans to expand in Africa through partnerships. Lighting
Africa, a joint initiative of IFC and the World Bank, accelerates the development of markets
for clean off-grid lighting products in sub-Saharan Africa. The Lighting Africa program was
launched in September 2007 with the goal of catalysing markets for off-grid lighting
products to light up the homes and businesses of 250 million people by 2030. The
programme, which is active in 10 countries across Africa, has to date contributed to more
than 7.7 million people across Africa using affordable, solar-powered lighting. As an
47
example, the Lighting Africa programme in Kenya was launched in May 2008 and closed on
31 July 2013. It provided a comprehensive market development set of activities across five
components that included quality assurance, market research, consumer education,
business development support to the supply chain and policy support to the Government.
Lighting Africa’s consumer education campaign reportedly reached 9.4 million people in
Kenya, encouraged populations in rural areas to switch from kerosene lighting to solar
lighting, and made consumers knowledgeable buyers. The programme was able to establish
the first product quality testing laboratory in Africa established at the University of Nairobi.
For partnerships to succeed, it is important to find the right partners who are carefully
selected after a thorough due diligence process such that they share an aligned vision, have
a credible track record and project management competence. The challenge which most
organizations face is in finding the right match be it a motivated energy entrepreneur at a
local level to run the business or a partner company/ franchisee. In fact, in this sector, most
potential partners find each other by accident, given the lack of formal match-making
platforms (Kramer et al., 2014). Here right match refers to suitable partners with talented
and qualified personnel who have an understanding of the market they cater to and the
drive to take it forward. In most cases, attracting and retaining qualified personnel is a
problem as there are competing traditional businesses offering better remuneration. On the
other hand, just recruiting qualified personnel with little or no knowledge/exposure to the
target group (low income segments), limited understanding of the market also puts the
partnership at peril. It is therefore required that the personnel get training and mentorship
on running an energy enterprise, which is precisely what Husk Power has tried to do. It has
set up its own training and mentoring programme for its employees to understand the
detailed process of operating an energy enterprise.
Expansion via replication
This model essentially involves business expansion through knowledge dissemination. Some
enterprises are not interested in expanding beyond their initial target location, but want to
create a larger impact. These enterprises scale their impact by helping others copy their
work. For example, SELCO is a solar lighting company that is scaling through replication.
SELCO believes that while it is possible to scale by standardization for a want, needs require
customization based on the context. It is therefore looking to scale the concept of SELCO
and not necessarily the company SELCO. While the SELCO model has been widely
recognized as a successful model, there are a few challenges that SELCO faces in terms of
scaling up the traditional way. Since the products are customized as per individual needs
and local contexts, it is difficult to scale up as it requires standardization, which is
antithetical to SELCO’s business philosophy. SELCO stresses on the “replication” of specific
processes in other geographical regions rather than scaling up, where the aim is to create
small SELCOs in different parts of the country.
48
For such models which are based on knowledge dissemination or rather whose models are
opened up for replication by others, the reproduction of the model can happen in different
ways depending upon the originator of the model. By documenting their model and best
practices, highlighting lessons from failure, identifying the most replicable processes and by
creating opportunities for peers to learn from their model by offering training programmes,
organizing visits to their project/business sites and by putting content related to their
businesses online, such models can find the right mix of entrepreneurs who can then
replicate their model. SELCO has been able to replicate their model by opting for all of the
above listed options. SELCO through their incubation centre trains a selected pool of
entrepreneurs by giving both classroom and field training on the different aspects of their
business model which includes helping with marketing and sales, building partnerships,
managing finance as well as talent and understanding industry, and policy. The centre also
provides a shadow team to guide early-stage management in new markets, connects
entrepreneurs with other stakeholders, and helps companies raise a mix of social
investment commensurate with their stage of growth.6
8.0 Timeframe – When to scale up?
There is insufficient evidence as to when should an energy access project be ideally scaled
up. The previous sections of the paper have highlighted the conditions that have to be
present for scaling up but do not provide sufficient evidence as to how many conditions
need to be present before a programme can be launched at scale. Most of the projects met
all the conditions, however there were one or two key elements that were more dominant
than others which were the driving factors. This essentially creates a paradox, where one
school of thought says that scaling up should be decided once certain boundary conditions
are met, while detractors may say that scaling up should be decided from the start of the
project itself and all activities must be executed with the larger scaling up vision. On a
related note, the scaling up process can take a decade or less than 5 years or can start early
on, but witness the actual expansion in a spurt as has been seen in the case of Bangladesh.
Cases where it has taken less than 5 years to scale are extremely rare.
The Bangladesh SHS programme led by IDCOL for example, has massively scaled up in the
last 2-3 years while the scaling up process itself started a decade ago. Out of the 3 million
SHS installed till 2014, two-thirds have been installed in the last three years (Figure 10). The
scaling up has seen a sharp spike in 2010, post which there has been a steady expansion.
Over this time period, the programme has witnessed many changes. From a subsidy based
approach, the model has evolved to a point where SHS are provided practically on
commercial terms, as the subsidies have been phased out due to technological advances
and decline in system prices. A modest subsidy is provided only for smaller systems for the
poorest of the poor households. The trajectory in both Bangladesh and CREDA cases seem
6 Source: http://www.selcoincubation.org/approach, accessed on 2 June 2015.
49
to follow an S-curve where the expansion the model is slow at first (indicated by increase in
no. of SHS sold/no. of solar mini grids deployed) as the models work on building enabling
conditions first which pays off indicate by the growth in numbers. On the other hand there
are examples where it took lesser (around 5 years) to scale up such as Husk Power.
The scaling up timelines would also depend upon the strategy per se- whether it is scaling
up organically or through partnerships. An organic scaling up would ideally require a longer
time period depending upon the organization’s readiness on all fronts (explained in the
previous sections), while an entity proposing to grow through partnerships or replication of
business model may think of scaling up earlier as compared to the former as in this case it
has to leverage the resources, networks and strengths of the partner organization.
Figure 10: Solar Home Systems programme scale up trajectory in Bangladesh (2003-2014)
Source: Sadeque et al., 2014
9.0 Discussion
Based on the literature study and examples cited in the previous section, we can summarize
and discuss our most important findings.
First, in terms of the business model elements which are essential for scaling up, financial
assistance/support for energy enterprises or project implementing entity (NGO) emerges as
a critical factor. The type of financial assistance should depend on the stage where the
entity is on its scaling up trajectory. Most of the times, for private energy enterprises, scale
up finance to operate commercially is found lacking and it is here where these entities
require support. Other than that, finance for working capital needs to manage day to day
operations is another critical requirement. It is evident that grants have come to play a
pivotal role in scaling up and grants if given well can propel an entity’s growth (as seen in
the case of Husk Power). The other key learning as far as financial assistance to energy
enterprises is concerned is the need for ‘flexibility’. Flexibility is required in loan repayment
terms and in terms of the conditions that are tied to the debt provided by financiers.
50
While a completely ‘hands off’ approach is not advocated, it is recommended to include
performance milestones which are defined in the contract such that it incentivizes the
project developer to sustain a project and scale it up. For instance capital subsidies which
are provided to project developers only provide an incentive to build the micro-grid or solar
power plant, however does not incentivise her to sustain operation in the long run. For
instance in the RGGVY programme of Government of India, capital subsidies are provided to
project developers to the tune of 90% of the capital costs for decentralized and distributed
generation in areas where grid extension is considered uneconomical or unfeasible. This has
relegated the role of project developers to technology suppliers rather than serious
investors seeking to scale up the project and earn a return on their investment. An effective
alternative is performance based subsidies. However, performance based subsidies have not
been much experimented with, most notable examples are from Asian countries. For
instance Bangladesh’s rural electricity cooperatives are given incentives for achieving pre-
defined performance milestones such as reduction in losses, theft, increasing sales etc.
Therefore, it is argued subsidies wherever necessary should be given related to the
performance of the project implementing entity so that scaling up strategy is inbuilt in the
design, or should be completely done away with as they have distortionary effects on the
market. As seen in the IDCOL example, subsidies which were provided initially were seen as
‘market-development’ tools by enabling the partner organizations sell more number of
systems by making SHS affordable as well as in off-setting some of the costs which they
incurred in setting up a new business line of SHS. These subsidies were gradually phased
out.
Second, monitoring and evaluation (M&E) of projects is a must for developing a scaling up
strategy or even evaluating whether a scale up is required. M&E is found wanting in most
energy access projects. It is usually performed as a compliance requirement in most donor
funded projects without a clear evaluation strategy. M&E while an important aspect of any
donor funded or impact investor funded project, is hardly ever performed in a government
funded and led programme. A set of clearly defined KPIs should be defined and realistically
assessed before deciding the scale up strategy.
Third, we also see that given all the elements of potentially scalable projects, a
project/programme/ enterprise can end up having very different scaling up trajectories
given the entity or actor which is scaling it up, thereby underscoring the importance of an
actor. Evidence shows that Government and Private sector on their own have a medium-to
high scalability potential whereas NGOs because of their inherent structure are not
designed for large scale ups. These entities get to scale through different agendas - mission,
margin and mandate as has been noted by a few researchers and a mutual partnership
results in the formation of hybrid entities such as social enterprises or public private
partnerships. In the context of electricity access, it is found that be it private or NGO led
initiative, government support through enabling policies, favourable regulatory regime or a
partnership with government for implementation is essential to achieve scale. Private or
51
NGO led initiatives cannot scale up on their own completely excluding government. At the
same time, partnerships amongst these actors (Government + NGO, Government + Private,
Private + NGO) can also deliver good results, with the partnership between social
enterprises (a partnership of NGOs, working with a mission, and private sector, working for
margin) and government (working to deliver mandate) seems to be the best option for
scaling up energy access.
Fourth, depending on the level of scale, different actors may come into the picture and
oftentimes this may result in increase in transaction costs. To put it more clearly, as a
project scales from a local to national to international level, the number of entities it has to
deal with multiplies and so do the transaction costs associated with each entity. It could in
certain cases also lead to a conflict of regulations and laws. For instance, when an energy
enterprise, in the business of setting up micro-grids, scale up from state to the national
level, it may have to deal with many new actors and new instruments such as national
energy regulator, national fiscal policies etc. (SBI, 2013). Many a times, energy enterprises
which have traditionally operated at a smaller scale do not have a full overview of the taxes
that are applicable, even after engaging a professional tax advisor. For such enterprises,
getting a clearer picture of all the taxes applicable is challenging. Further, when it decides to
expand to foreign markets and engages with international donors for funding, it may find
itself in pressure adhering to the terms and conditions of donors and preparing the projects
in time to secure donor money as donors usually have strict time frames for spending the
money (money is available for a certain fiscal year and needs to be spent). Frequently
donor conditions are related to acquisition of licenses from public authorities. In several
developing countries regulatory frameworks, legal frameworks etc. are being defined and
not in place, which could be to the detriment of the energy enterprise as it getting licenses
takes time, sometimes longer than the donor is prepared to wait. Even if the enterprise is
working on getting the licenses etc. before applying for donor funding, national authorities
may not cooperate as they work on resolving these issues, only when there is urgent need
or inquiry. This may hinder the scaling up process, therefore, scaling up needs to thought of
with clear planning and pre-empting solutions.
Finally, the question of when to scale up energy access project or programme remains
debatable due to lack of sufficient evidence. While evidence shows that it is difficult for
most energy access projects/programmes to scale up before 5 years, it could take longer; it
remains a moot point as to what is the best time to think of a large scale expansion. This
clearly emerges as an area requiring further research.
10.0 Conclusion and way forward
This report has analysed scaling up in the electricity access context and has highlighted the
key elements of scaling up, through a research framework. Despite clarity on a number of
fronts, the concept of scaling up in the context of electricity access still remains to be clearly
52
understood on certain fronts such as timelines to scale up, relative importance of different
business model elements in their contribution to scale up (weightage of different business
model parameters in scaling up) etc. The paper finds that financial assistance or support for
an energy enterprises or project implementation agencies is one of the critical factors for
scaling up. The type of financial assistance is also depended on the stage where the entity is
on its scaling up trajectory. Another key learning as far as financial assistance to energy
enterprises is concerned is the need for ‘flexibility’ both in terms of loan repayment terms
as well as conditions that are tied to the debt. Given the numerous hurdles which small off-
grid energy providers have to deal with, and finance being one of the key hurdles, it would
be in the interest of the off-grid community if scale up finance tailored to the needs of the
developers is readily available. Scale up funds by government or private investor community
specifically to meet the scale up requirements, will spur the growth in this sector.
Further, performance milestones should incentivize the project developer to sustain a
project and scale it up. Another key learning is the importance of actors. Given all the
elements of potentially scalable projects, a project or a programme can also end up having
different scaling up trajectories depending on the entity or actor which is scaling it up. While
partnerships amongst different actors (Government + NGO, Government + Private, Private +
NGO) can deliver good results, the partnership between social enterprises (a partnership of
NGOs - working with a mission - and private sector who work for margin) and government
(working to deliver mandate) seems to be the best option for scaling up energy access. It
would be interesting to evolve a set of KPIs, for different scaling up models such as
government, private and NGO led or their partnership models, where none exist today.
Finally, the question of when to scale up energy access project or programme remains
debatable due to lack of sufficient evidence and may need further research.
53
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Acknowledgement
The activities reported in this case study report are funded by an EPSRC/ DfID research grant
(EP/G063826/2) from the RCUK Energy Programme and supported by REEEP (Renewable Energy and
Energy Efficiency Partnership) South Asia. Several REEEP and non REEEP partners have provided
critical information and facilitated our onsite stakeholder discussion, surveys and interviews for the
report
Disclaimer
The views expressed in this report are those of the authors and do not necessarily represent the
views of the institutions they are affiliated to or that of the funding agencies.
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OASYS South Asia project
The Off-grid Access Systems for South Asia (or OASYS South Asia) is a research project
funded by the Engineering and Physical Sciences Research Council of UK and the
Department for International Development, UK. This research is investigating off-grid
electrification in South Asia from a multi-dimensional perspective, considering techno-
economic, governance, socio-political and environmental dimensions. A consortium of
universities and research institutes led by De Montfort University (originally by University of
Dundee until end of August 2012) is carrying out this research. The partner teams include
Edinburgh Napier University, University of Manchester, the Energy and Resources Institute
(TERI) and TERI University (India).
The project has carried out a detailed review of status of off-grid electrification in the region
and around the world. It has also considered the financial challenges, participatory models
and governance issues. Based on these, an edited book titled “Rural Electrification through
Decentralised Off-grid Systems in Developing Countries” was published in 2013 (Springer-
Verlag, UK). As opposed to individual systems for off-grid electrification, such as solar home
systems, the research under this project is focusing on enabling income generating activities
through electrification and accordingly, investing decentralised mini-grids as a solution.
Various local level solutions for the region have been looked into, including husk-based
power, micro-hydro, solar PV-based mini-grids and hybrid systems. The project is also
carrying out demonstration projects using alternative business models (community-based,
private led and local government led) and technologies to develop a better understanding of
the challenges. It is also looking at replication and scale-up challenges and options and will
provide policy recommendations based on the research.
More details about the OASYS South Asia project and its outputs can be obtained from
www.oasyssouthasia.dmu.ac.uk or by contacting the principal investigator Prof. Subhes
Bhattacharyya ([email protected]).
OASYS South Asia Project
Institute of Energy and Sustainable Development,
De Montfort University,
The Gateway, Leicester LE1 9BH, UK
Tel: 44(0) 116 257 7975