Scaling Up Mini-Grids Through Capital Infusion, Innovation, and Cross-Sector Collaboration
Government affirmation of off-grid models being a complementary way of viable electricity provision will be critical to unlocking market potential. A quarter of the world’s energy poor live in India. This energy access gap is partially due to the remoteness of some communities, where the national grid may not reach for many years. In some cases, these villages do have central grid infrastructure, but sufficient electricity is not reaching people at the household level. This puts the unelectrified at a distinct disadvantage because energy is a prerequisite for economic development.
The International Energy Agency has calculated that universal electrification can be achieved if 70% of rural areas currently without access is supplied with energy from off-grid solutions. That’s why the off-grid energy sector has been hard at work building new technologies and testing new models to bring power to the powerless. Today, what started out as a small business idea has electrified over 100 villages in India, and we’re proud to announce that Japan’s Mitsui and Co has invested 1 billion Japanese yen in OMC to expand our impact in India, as well as to Africa and Asia, with a vision to help build the largest distributed energy business in the world. Here are some highlights from our journey along the way:
- The support and commitment of the public sector are essential. The Government of India has set an ambitious target of generating over 150 gigawatts of renewable energy (RE) by 2022, warranting investments of over US$150 billion. More than a target, this commitment has sent a signal that RE development is a priority and thus has led to the rapid creation of a positive enabling environment for the sector. Today, a range of reliable RE technologies to generate, distribute, and manage power, as well as decreasing costs, are making the installation of mini-grids more palatable to investors and energy entrepreneurs alike.
- Explore beyond what you originally envisioned. Looking back, my initial idea of entering the distributed renewable energy space was to serve telecom towers. As we built our first mini-grids and saw the possibilities, that vision widened. The lack of something as basic as power in rural areas drove the innovation of the business model we have today. The positive change we could bring to the lives of the rural population by providing clean energy access motivated me and my co-founders to set this up and seven years since, we are happy to note the overall economic development. And this makes business sense: a stronger village economy makes for a more robust customer base.
- It takes a village. It will not be a misplaced belief that at the most crucial time in our company’s journey, we received support from The Rockefeller Foundation and their network of partners, who have also intensely guided and engaged us and in driving policy and regulatory initiatives while supporting various integral aspects of our business, such as load development and data analytics. For companies like OMC, which rely on low-cost capital, enabling regulations and excellent execution capabilities are essential to be successful. While our execution capabilities were time-tested, we were struggling to put the funding piece together. With The Foundation’s support and venture debt, we have been able to prove our business model, making us attractive to a global conglomerate like Mitsui.
Government affirmation of off-grid models being a complementary way of viable electricity provision will be critical to unlocking market potential.
There have been strong indications from across that investment in renewables are yielding higher returns or promising potential for scaling up. Aside from technological innovation, we seem to be getting close to an inflection point where current off-grid models of power supply no longer viewed as “stop-gap” solutions, but complementary to grid extension in rural and remote far-flung areas. Especially encouraging is the Government of India’s regulatory support for distributed renewable energy generation, particularly in remote areas. Government affirmation of off-grid models being a complementary way of viable electricity provision will be critical to unlocking market potential. Indeed, there is a marked improvement in risk perception around renewable energy projects making it an opportune time for investors to become more engaged and entrepreneurs to continue innovating.
For OMC, in addition to capital infusion, strategic investment from Mitsui will bring forth complementary strengths like sector/domain expertise, execution capabilities, telecom knowledge, global presence, financial strength and global brand. More importantly, Mitsui is sending encouraging signals to others working to ignite economic empowerment for the world’s energy poor. Investors and other private sector players have a significant role to play in identifying and helping scale the most promising enterprises as well as in accelerating the growth of the overall sector. While debt financing will fill the most immediate short-term needs of businesses, a broad range of innovative financing mechanisms such as venture debt funds, lease financing, and large-scale securitizations could also be applicable and help scale the DRE sector so that energy can reach those who need it the most.
2017 is shaping up as an important year of groundwork-laying for mini-grids in remote or un-electrified regions of the world and OMC is proud to be part of these exciting times.
This piece was originally published in October 2017.