From diesel to solar: A franchise model for the replacement of diesel generators with solar PV systems for micro-grids in rural India

Abstract

India has the highest population without access to electricity. To tackle the problem, the Government of India has been focusing on the extension of the national grid. However, the generation capacity remains insufficient providing low quantum and quality of electricity. Rural areas are the most affected by this problem. Most of the villages suffer from power outages of 14 to 20 hours per day. Local entrepreneurs have found an opportunity in this gap. They build their own grids and supply electricity to households or markets running a diesel generator (DG). Renewable energy systems, like solar photovoltaic (PV) systems, are not sensitive to the change in fuels price and are more environmentally friendly than DG. Nevertheless, DG operators can’t afford these systems and can’t get finance. Therefore, this thesis proposes a franchise model to allow the conversion of DGs to solar PV systems. Data from surveys about electrification status and demographics done in the state of Bihar was used to understand the characteristics of the villages where DG operators exist. Additionally, ten DG operators were interviewed to better understand their business model. From the data collected, two standardized solar PV system designs were proposed, one for villages (4.2 KW) and one for markets (6.72 KW). The cash flows for the franchisees and the franchiser were forecasted, showing that the business is profitable for both. The Internal Rates of Return (IRR) for the franchisee were 52% for the households’ system and 35% for the markets’ system. Furthermore, the IRR for the franchiser were 17% for the households’ system and 35% for the markets’ system. The roles and responsibilities for each stakeholder were defined and a risk analysis was performed. This franchise model provides a scalable solution for the implementation of solar PV systems for rural electrification. The problem of lack of finance is being addressed and the technical risks are diminished by having a standardized system design and operation. To prove the viability of the model 5 pilot plants will be installed during the next year, after which the model will be refined and scale up.