Access to reliable electricity remains a formidable challenge for the majority of rural households in India, with 45% still lacking electrification (Census of India, 2011). Even in electrified areas, the grid supply is often of poor quality, plagued by frequent blackouts and brownouts. A persistent gap exists between the required investments to meet rural demand and the actual allocations, which predominantly target urban power supply. Given resource constraints, the power supply scenario in rural areas is unlikely to improve in the near future. Decentralizing the production and distribution of electrical power emerges as a solution to expedite access to reliable electricity, and Solar Lighting Systems (SLS) are well-suited for decentralized distribution due to their modularity, flexibility, and swift deployment.
Under the Remote Village Electrification Program of the Ministry of New and Renewable Energy (MNRE), almost 95% of approximately 10,000 villages (less than 2% of all villages) have been equipped with SLS, heavily relying on significant capital subsidies, amounting to about 90%. The Jawaharlal Nehru National Solar Mission (JNNSM), launched in 2009, aims to deploy 20 million SLS and solar lanterns by 2022. Despite these initiatives, decentralized solar lighting faces global challenges, including high initial costs, inconsistent financing, and perceived risks by financial institutions in assessing creditworthiness. Additional hurdles include a lack of understanding and experience related to solar lighting among financing institutions, as well as inadequate service infrastructure from firms. Limited longevity of lighting systems due to insufficient maintenance further diminishes their value proposition.
Despite these barriers, there is a renewed interest in SLS. A significant drop in the global price of solar photovoltaic panels has led to the emergence of numerous firms seeking to provide solar lighting to rural populations (The Economist, 2012, Singh, 2012). Notably, the state of Karnataka in India has been a pioneer in the adoption of solar lighting for rural electrification, with several solar firms exclusively operating in the state. Importantly, the solar market in Karnataka is predominantly based on commercial sales involving both credit and cash purchases. The relative success of solar lighting in rural Karnataka, in contrast to the challenges faced in most other states in India, makes it a critical case for examination. Drawing on interviews with rural households adopting solar energy in Karnataka, as well as solar firms and local rural banks serving as lead solar financiers, this study describes and analyzes the ‘Karnataka model’ for solar lighting.
Context and Introduction : Initiated in 1980, the Indian government’s solar photovoltaic program aimed to electrify non-grid connected villages and households. However, by 1996, the program had limited success, with only 36,000 Solar Lighting Systems (SLS) and 37,000 solar lanterns adopted. Even in 2011, merely 916,000 rural households relied on solar energy for lighting, indicating a slow progress in rural electrification.
Research Approach : This study delves into the SLS market, involving key stakeholders—solar firms, banks, and households. Interactions with rural banks at both district and headquarters levels, as well as a non-profit trust, offer insights. Interviews with executives in local branches contribute to a comprehensive analysis.
Insights from Local Banks : Conversations with Cauvery Kalpatharu Grameen Bank (CKGB) in Tumkur and Mysore, Karnataka Vikas Grameen Bank (KVGB) in Dharwad, and Sri Kshetra Dharamasthala Rural Development Project (SKDRDP) shed light on their roles in facilitating solar-based loans and generating awareness.
Discussions and Implications : The Karnataka case highlights two key aspects: first, many adopting households were already grid-connected, and second, a significant number made purchases through market-rate loans. Despite the relatively high costs, even economically disadvantaged families acquired SLS, emphasizing the critical role of power reliability in driving adoption. Additionally, the potential for electricity payment savings presents a promising avenue for further exploration.
To gauge the influence of carbon finance on the user’s effective cost, we analyze a standard Solar Home System (SHS) with a 37 Wp capacity and a capital cost of Rs. 12,500. Assuming a useful life of 20 years, the project period for carbon revenue accrual is established. The mitigation potential for the 37 Wp SHS is estimated at 298.4 kg CO2/yr. Employing carbon prices of $10 and $20 per ton of CO2 (equivalent to approximately Rs. 400 and Rs. 800 per ton of CO2), we explore the potential impact. Transaction costs are considered to vary, ranging from nil to account for diverse scenarios.