Investment rises in mini-grids as India races to meet energy goal

MUMBAI (Thomson Reuters Foundation) - Rising investment in mini-grids in India signals growing business interest in the sector, despite a lack of clear government policy, as the country races to meet its goal of providing energy for all in just two years, analysts said.

Husk Power Systems, which operates mini-grids in India and Tanzania, on Monday said it had raised $20 million from an arm of Royal Dutch Shell, Swedish state-owned investor Swedfund International and French utility Engie’s impact investment fund.

The investment is the largest in a mini-grid company in India, according to Husk, which builds and operates small-scale power plant and distribution networks that combine biomass gasification from rice husks, solar power and batteries to deliver energy in rural areas.

“About two-thirds of the population that is in rural India are off-grid or get weak grid power. They spend a lot of money on poor energy sources like kerosene, diesel and even candles,” said Manoj Sinha, chief executive of Husk Power Systems.

Growing investments in mini-grids are evidence they are the “most capital-efficient way to help reach national electrification goals while driving inclusive and sustainable development”, he told the Thomson Reuters Foundation.

Husk offers its customers a “pay-as-you-go” energy service, using mobile phones and a smart metering system.

Despite being one of the world’s fastest-growing economies, per capita electricity consumption in India is only about a third of the global average. About 300 million people - a quarter of the population - still live without electricity.

Prime Minister Narendra Modi has pledged to supply power to every citizen by 2019, but reaching remote villages remains a challenge with high distribution losses.

Mini-grids like Husk’s and those of OMC Power, in which Japan’s Mitsui & Co invested about $9 million last year, are helping narrow the gap in states like Uttar Pradesh and Bihar, which are among the most energy-deficient in India.

Husk plans to add nearly 300 mini-grids in the South Asian nation over the next four years, Sinha said.

Renewable energy accounts for 13 percent of India’s total installed capacity, and is key to its electrification plan.

Italy’s Enel Green Power, Japan’s SoftBank, Taiwan’s Foxconn Technology and Greenko Group, backed by the sovereign wealth funds of Abu Dhabi and Singapore, are among other foreign investors in renewable energy in India, helping lower clean-energy costs.

“Access to reliable electricity drives development and is essential for job creation, women’s empowerment and combating poverty,” said Gerth Svensson, Swedfund’s chief executive.

India’s ministry for new and renewable energy aims to deploy at least 10,000 mini- and micro-grids in “unserved and under-served parts” of the country, with a combined capacity of 500 megawatts or more by 2021.

But the lack of a comprehensive national policy on mini-grids is a major deterrent for investors, said Aruna Kumarankandath at the New Delhi-based Centre for Science and Environment.

Uttar Pradesh is the only state with a mini-grid policy, while Bihar’s renewable energy policy includes mini-grids, she said.

“Mini-grids still occupy a very small space in the renewable energy sector; their per-unit costs are still quite high, and investments have not been very big,” Kumarankandath said.

“A comprehensive government policy is needed for the expansion of mini-grids - otherwise for investors there are lots of questions, including exit options for when the areas have adequate grid supply,” she added.