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Building a Sustainable Energy Future for India. FINANCE FOR LOCAL SUSTAINABLE ENERGY The Role of Social Investing, End-user Finance And Carbon Finance in Scaling Up Thomas J. Pullenkav SELCO Solar Light (P) Limited 9 February 2010. SELCO – The Concept.
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Building a Sustainable Energy Future for India FINANCE FOR LOCAL SUSTAINABLE ENERGY The Role of Social Investing, End-user Finance And Carbon Finance in Scaling Up Thomas J. Pullenkav SELCO Solar Light (P) Limited 9 February 2010
SELCO – The Concept SELCO INDIA was founded in 1995 to service and sell solar electric lighting systems (presently into energy services) in rural India. • To create a sustainable business by promoting energy services in the underserved and un-served areas of South India. • To build a strong service network in the rural areas for energy services. • To build a sustainable linkage between modern energy services and income generating activities.
The Barriers…… We overcame them by…. Lowering cost of ownership – Soft Finance / Subsidy / ‘Affordable’ technology Removing myth of Hi-tech – Local Service using local people / Appropriate product. THE SELCO MODEL • High ownership costs; User has to buy the power generation unit itself. • Perception of “hi-tech” / non-functioning technology. DOOR STEP FINANCE & DOOR STEP SERVICE
Lowering the Cost barrier There are two ways of lowering the cost barrier. • Reduce the cost of equipment by direct / indirect subsidies • Make the “cost” affordable - Financing
Lowering the cost barrier - Subsidies • Direct Capital Subsidies • Not sustainable. • Does not reach the needy as there is not enough for everybody and the rural poor still cannot afford it. • Not effective as they fail to create a free market. • Indirect Subsidies • Interest subsidies – Reduce interest burden on financing • Using indirect funds (Non-budget subsidies) like carbon offset money to reduce system cost.
Rich Households Cash Cash Cash Short-term credit Short-term credit Short-term credit Upper Middle Class Long-term financing Long-term financing Long-term financing Lower Middle Class Poor Needs Innovation & Financing Affordable with subsidies Affordable with subsidies Lowering the cost barrier - Financing • Financing - Make the “cost” affordable The poor need innovation and financing to access technology
Lowering the cost barrier SELCO decided that the best way forward was to help create innovative financing using indirect subsidies and traditional end-user finance products. • Created a parallel third-party financing network along with its own service network. • Helped the end-users to access attractive finance from the local financial institutions. • Used funds from the sales of carbon offsets to subsidize ‘operational’ costs which otherwise would have added to cost of systems or affected growth.
Leadingto…………. • 110,000 rural homes • 2,000 institutions • 10,000 small businesses / cottage industries HAVING ACCESS TO RELIABLE POWER – POWERED BY SELCO
Key Challenges SELCO faced & is facing • Raising capital • High risk, low returns. Need social investors • Finding the right people • Staffing problems; constraints of a social enterprise w.r.t high salaries, work environment, etc. • Securing finance for end-user financing • Most crucial as viability of business depends on this. • Finding funds for financial and technical innovation. • Awards, projects, carbon finance, etc.
End-User Finance SELCO’s experiments with financing…. • 1996 : WB/ IREDA – 3 year loan • 1997 : WB/ IREDA – 3 year loan • Since 1998 – Local financing • Excellent working relationships with 15+ FIs -Commercial Banks, Grameen (regional rural) banks, Credit-Coops and MFIs. • Lot of F.Is keenly interested in financing SELCO’s solar home lighting systems.
