Productive Uses of Renewable Energy

A Case Study of Biomass Energy for

Rural India Project
on Financing and Delivery Models

Subhash C Khuntia
10th May, 2005
 Project Concept

Use bioenergy technology to

¾ To improve quality of life in project villages
by providing biogas for cooking, electricity for
piped water supply and home lighting to all
households
¾ Water pumping for irrigation
¾ Better agricultural yield from bio-fertilizer
¾ Increased income from farm forestry
Global Objective of the Project

To reduce Green House Gas

(mostly Carbon dioxide)
emission to atmosphere through
the promotion of bio-energy in
rural areas leading to
sustainable development
National & Local Objectives

National Objectives:
™ To enhance the share of renewable energy in the total
energy generated
™ To develop decentralised bio-energy technology for
quality rural energy services
™ To remove barriers to large scale adoption and
commercialization of bioenergy technology packages
Local Objectives:
™ To provide reliable, timely and qualitatively superior
and affordable energy services to the village
population to enhance income-earning opportunities
 Mission

Our mission is to develop, promote and

implement through participatory approaches, a
decentralized, cost-effective, renewable and
sustainable bio-energy package :
¾ To meet rural energy needs
¾ To enhance income earning opportunities for the
poor
¾ To reduce green house gas emissions to the
atmosphere
 Project Strategy
(Barrier Removal)

¾ Technology Package Standardization

¾ Bioenergy system demonstration and Proof of
Concept
¾ Capacity building to overcome Institutional Barriers
¾ Enabling Activity to Overcome Market Barriers
¾ Information Dissemination to overcome
Information Barriers
¾ Financial mechanisms to overcome
¾Financial Barriers
¾ Post-project management
¾ Commercial bank- Entrepreneur system
¾ Local Government – Entrepreneur- NGO
 Components of the Project

¾ Community Mobilization
- Community participation in planning,
implementation and monitoring
¾ Biomass Development
- Common land (plantation, assisted
natural regeneration)
- Private land (treebased farming)
Components of the Project (2)

¾ Energy and End Use Systems

- Biomass gasifier for power
- Biogas plants for cooking
- Micro-irrigation
- Agro-processing
- Drinking Water Supply
- Domestic and Community lighting
 General Framework of Strategy
™ Community participation
¾Planning
¾Implementation
¾Monitoring
™ Stakeholder participation
¾Ownership of concepts
™ Transparency
™ Rationality of approaches
™ Sustainability
¾Financial
- Cost recovery model (PURE)
¾Institutional
¾Ecological
™ Replicability
 Financing for the Project

¾ GEF through UNDP : $ 4.017

¾ I.C.E.F : $ 2.495
¾ Govt. of India : $ 0.391
¾ State Govt. of Karnataka : $ 1.481
¾ Local Community : $ 0.239
Total $ 8.623
 Productive Uses Planned

A. Economically Productive:
1. Primary Sector ( Agriculture, Animal
Husbandry, Agro-storage)
2. Secondary Sector (Rural industries,
Food processing)
3. Tertiary Sector (ICT kiosks, repair and
servicing)
Productive Uses Planned (2)

B. Socially Productive:
(which improves quality of life and is
economically productive in the long run)
1. Education (School and home lighting,
computer, Video)
2. Health (Telemedicine, clinic lighting,
drinking water)
3. Community Services (Street light,
entertainment-cinema, TV)
 General Principles of
Cost Recovery

A. Capital Cost
- Provide access to energy services
through external funding
- Create stake and ownership through
affordable user contribution in
capital cost
- Attempt capital cost recovery over the life
time of the asset through a graded approach
 General Principles of
Cost Recovery (2) Contd.

B. O & M Cost
- Full O & M cost recovery right from the
beginning to fully cover consumption
- Modify policy to create level playing field
with conventional systems
Biomass Gasifier plant
Gasifier plant & Power Evacuation
 Financial Model for the
Bioenergy Systems
A. Biomass Gasifier based Power Generation System
Model Funding Ownership O&M Recovery Remarks
responsibility of dues

Village For demo of

A Project Community Community financial
Committee viability
Project Village Asset leased
B Bank Third party Committee to bank
MoU between
Entrepre- Entrepreneur Village
C Entrepr- neur Village
eneur Committee Community
&
Entrepreneur
Community Biogas Plants
 Financial Model for the
Bioenergy Systems (2) Contd.

B. Biogas System (for cooking)

Model Funding Ownership O&M Recovery Remarks
responsibility of dues
Project
A & Users Users User
group
Users
Project One person
& User maintains
B Users Third party
Users group several
plants
Bank Users or third User
C Bank (leased to
users) party group
Community Irrigation
Drip Irrigation
 Financing Model for
Energy End-Use Systems
Community micro-irrigation
¾ Project funding for access and equity (Irrigation
borewell, energisation)
¾ Institutional finance for consumption (storage
tank, drip system)
¾ Even landless are given equal water right
¾ MFI provides
a) Agri-investment loan (repayable in 3 years)
b) crop loan (repayable in 6 months)
Financing Model for Energy
End-Use Systems (2)
Community micro-irrigation Contd.
¾ Repayment is scheduled based on crop harvest
time
¾ No mortgage of property by MFI, but surety by
Joint Liability Group members.
¾ Fast disbursement of loan in the village itself
¾ Charging for water rather than power
¾ Use of Government subsidy for micro-irrigation
¾ Risk guarantee by project to MFI
 Financing Model in
Community Micro-irrigation
Problems
¾ High rate of interest (18%) (Govt. rate is 9%)
¾ Insurance premium
¾ Crop failure risk
¾ Physical distance of MFI
Further Development
¾ Cluster NGO started MFI operation
¾ Rate of interest 12%
¾ Take-over of earlier loan
¾ Advantages of horizontal integration
- Guidance on crop strategy by NGO
¾ Converting Water Users Association to SHGs for
savings
Community Biogas Plant
 Financing Model for
Community Biogas Plants
¾ Funding for the hardware by the project
(for access)
¾ Labour component is a user contribution
(for ownership)
¾ Pressure cooker (50% contribution by users)
for energy and time saving
¾ Monthly O & M charge deposited to common
account to facilitate repair and renewal
¾ Fuel wood saved will fetch income from gasifier
plant
¾ A group of plants can engage a service provider to
attend to daily operation
¾ Outlet slurry fed to Vermicompost Units
Vermi-composting
 Financing Model for
Vermicompost Units

¾ An initial assistance of $5 per unit for digging a

pit and putting up a shed
¾ A refundable advance of 1 kg earthwork
¾ Fir self-use for organic farming and also for sale
¾ After critical mass, no further assistance would
be needed
Decentralised Nursery
Agro-Forestry
Farm Forestry
Agro - Horti Forestry
 Financing Model for
Tree-based farming
¾ TBF includes agro-forestry, agro-horti-forestry
and farm forestry
¾ Seedlings raised by Village Forest Committees in
decentralized nurseries through Women’s SHGs
¾ Seedlings supplied at 20% cost
¾ A set of agricultural implements supplied on loan
recoverable in 3 monthly instalments
¾ With establishment of market for fuel wood due to
demand in gasifier plant, it will be possible to
convert the subsidy into a loan recoverable from
the sale proceeds of fuel wood.
Assisted Natural Regeneration
(ANR)
Self-Help Groups
Village Biomass Energy
Management Committee
Income Generating Activities

¾ Formation of Women’s and Men’s SHGs

¾ Weekly savings as leverage for financing of
assets or working capital
¾ Enhanced income will enable payment for
consumption of energy services
¾ Mix of power-based and non-power-based
activities
¾ Improvement of productivity using power
 Gender Issues

¾ Reduction of drudgery (collecting fuel wood,

fetching drinking water, milling of grain)
¾ Health (smoke in the kitchen, drinking water
quality)
¾ Economic (savings and income generation
activities through SHGs)
¾ Empowerment (group activity, leadership)
Involvement of Private
Sector and Banks
Private Sector
¾ Entrepreneurs
¾ Manufacturers
¾ Suppliers
Financial institutions
¾ Linkage through SHGs
¾ Demo of financial model of bioenergy
systems and end-use systems
¾ Introduction of MFIs
¾ Involvement of re financier of banks
¾ Government support
 Some Lessons

¾ Productive use of additional earnings

essential for cost recovery of energy usage
¾ Charging for energy services preferable
¾ Access can be subsidized, but not
consumption
¾ Policy fine tuning necessary to create level
playing field (e.g., subsidy for agricultural
power
¾ Optimum size of installation of RET will reduce
O & M cost
 Some Lessons
Contd.
¾ Community involvement is essential at the
beginning, but efficient management through
private sector on full cost recovery is
preferable for sustainability
¾ Win-win situation for community power utility
and entrepreneur
¾ Horizontal integration (NGO as business
facilitator)
¾ Maximization of productive use (waste heat for
drying, etc.)
¾ Transparency
¾ Use of Government and local body facilities
and funds to further the objectives - Synergy
 Issues in Financing for
Productive Uses

¾ Financial viability, IRR and cash flow

- Can improve with commercialization
of RET turnover and carbon trading
¾ Bankability (M.F.I. Vs regular banking
channel size of finance)
¾ Village Cooperative for power distribution
franchise
¾ Forward and backward linkage
- Product market
- Local availability of raw material
 Issues in Financing for
Productive Uses (2) Contd.

¾ Energy Cost, availability, quality and

reliability
¾ Energy efficiency
- Use of waste heat, energy efficient
lighting
¾ Synergy with Government, NGOs and private
sector
¾ Ownership by stakeholders
¾ Capacity building
¾ Sustainability
¾ Replicability