Bright Idea: Bringing Eco-friendly Lighting to India's HinterlandPublished: November 05, 2009 in India Knowledge@Wharton
Until eight months ago, Vinod Waghmare, 24, was a farmer in his native Mangaon village in Raigad, a district 150 kilometers (about 93 miles) outside of Mumbai. Back then, he generated an income of US$140 a month growing rice and lentils. Today, the newly married Waghmare supplements his earnings by doubling up as a rural sales representative for companies like Intelizon Energy, a Hyderabad-based maker of solar energy products. As a designated "Zon" adviser, he sells the company's solar lanterns and home lighting systems to households in five nearby districts that primarily use kerosene lamps, candles and biomass (such as plant material and animal waste for burning) during power outages that can last up to 10 hours a day.
As one of the first users of Intelizon's solar devices -- called ZonLight and ZonHome -- the fast-talking Waghmare is a quintessential marketer. He claims he now saves about US$3 a month since he no longer burns kerosene lamps during power cuts, or "load shedding" as it is known locally. That makes him well positioned, he says, to convince potential customers about the efficacy of the lights, which range from US$17 to light areas between five square feet and 100 square feet to US$149 for 400-square-foot homes. Having already sold 30 lanterns and five home systems, his new business adds US$45 a month to the family's total income. Enthusiastic about his changing fortunes, Waghmare is now grooming two friends to become sales representatives like him. "The solar lights have made me a businessman," he says.
Waghmare isn't the only fan of environmentally sustainable lighting that's helping to light up rural India and reduce its dependence on expensive and polluting kerosene. A number of companies -- from venture capital-funded startups to multinationals -- are developing a range of lighting products based on solar, wind and biomass-based energy. Business began taking off a year or so ago, but the market is already getting crowded. Besides Intelizon, it includes companies such as Selco, Cosmos Ignite and D.light that offer all kinds of lighting -- from small, portable lanterns to fancier home and utility systems -- using a mix of price points, marketing, distribution channels and financing. Some are even taking a bigger leap and developing environmentally sustainable power plants for rural areas that urgently need to address chronic electricity shortages.
In the Dark
Given the vast need, it's easy to understand corporate interest in these products. In a country with a population of 1.2 billion people, 450 million have no access to electricity, according to the National Sample Survey Organization, a government body that conducts socio-economic studies. That means nearly 40% of the population lives in darkness after dusk, accounting for a sizable portion of the 1.6 billion people worldwide who have no access to electricity.
Even many villages and cities connected to the national grid face power outages due to theft and diversion of power to industrial destinations. As a result, the total installed capacity of 146,000 megawatts of power is insufficient to meet the country's electricity demands.
It's a problem getting attention from a variety of organizations, including non-profits. For example, New Delhi-based The Energy Resource Institute (TERI), a research body focusing on energy, environment and sustainable development, launched a campaign called Lighting a Billion Lives (LaBL) in 2008, which has been helping to replace kerosene and paraffin lanterns with solar lighting devices in rural areas as well as running various educational programs. Its aim is to provide 200 million solar lights via initiatives, such as one for rural female entrepreneurs announced in August that involves local specialist firms developing lanterns with additional features, like a mobile phone charging function.
Intelizon founder and CEO Kushant Uppal describes the growth prospects of the industry as "mindboggling." A few years ago, he gave up his Silicon Valley job, where he developed energy products, to return home and "use technology to impact people's lives in rural India." Set up in 2007, his company, which was "mentored" by TeNet, the innovation unit of the Indian Institute of Technology (IIT) in Chennai, has sold 15,000 lighting products since early 2008 in Maharashtra in western India and parts of Africa. The plan now is to market ZonLights and its other products to one million homes across 1,000 villages in the next two years.
The playing field is not limited to small companies. Philips India, the lighting subsidiary of Dutch multinational Philips, began rolling out products for villagers a year ago. "We want to make the most of the opportunity to provide lighting solutions where they are needed most," says Mathew Job, senior marketing director for Philips.
Much of the current electrification of rural India is spurred by the increased demand for clean power, particularly solar energy. Nearly 100 public- and private-sector firms are involved in assembling and supplying solar photovoltaic systems and manufacturing solar cells, modules and panels. "As an energy source, solar has a lot going for it," says Debajit Palit, area coordinator for TERI's LaBL scheme. The country is well placed to take advantage of solar energy given that it enjoys nearly 300 sunny days a year.
The government, too, is playing its part. Over the past eight years, India's Ministry of Renewable Energy distributed more than 600,000 lanterns to rural areas. And in July, a groundbreaking National Solar Mission report revealed how serious the Indian government is about developing solar energy. The mission -- likely to spend more than US$20 billion -- aims to expand the country's current installed solar capacity of five megawatts to 20,000 megawatts by 2020 and 200,000 megawatts by 2050. It will be backed by US$5 billion in annual subsidies for the next 20 years, including various tax breaks.
As expected, the tax breaks have helped attract the interest of major corporations, from Moser Baer, the world's second-largest optical storage media manufacturer, to Reliance Industries, a private-sector conglomerate. Foreign money, too, is coming in. The New York-based William J. Clinton Foundation is putting its might behind a 3,000 megawatt solar project valued at US$10 billion in Gujarat, which is fast becoming known as the greenest state in the country. The foundation will enlist the help of global manufacturers and power generators, while also assisting Gujarat to access funds. In addition, AES, an Arlington, Virginia-based Fortune 500 company, is planning a 1,000 megawatt solar plant in the state.
For the time being, solar seems to be the most popular form of alternative energy. Last year, when Cosmos Ignite Innovations, a Stanford University-incubated, New Delhi-based startup, wanted to extend its product range beyond lanterns, it considered alternative sources of energy, such as wind and biomass. But "wind is seasonal and you have to go where it is available," says Amit Chugh, co-founder of Cosmos. Meanwhile, "the farmer who is the producer of biomass is also your consumer, [so] you become the middleman, making it difficult to scale." For those reasons, he notes, solar continues to be the company's lifeline.
One of the pioneers in the field is Harish Hande, a solar thermal energy expert from the University of Massachusetts. Fifteen years ago, he installed a 100-home solar system in India for Neville Williams, an American solar energy evangelist. In 1995, they founded Selco India to provide solar home packages -- such as fluorescent lamps, roof-mounted solar panels, water heaters and storage batteries -- sourced from vendors in the southern state of Karnataka. The products, including popular lighting systems, sell for between US$170 and US$1,275.
But as early entrants like Bangalore-based Selco have found, their products are not an easy sell and they have had to grow their customer base one step at a time. Hande first won over a sceptical areca nut farmer by lighting up his field at night, aided by US$320 from the farmer's 70-year-old mother. Then, in a southern village, he brought light to a local church facing power cuts in the middle of its evening mass.
These projects, he says, provided vital lessons: Even the poor yearn for customized energy solutions and they are willing to pay for the products they need. So Hande developed a product range accordingly. Within that range is a tubular headlamp designed for silk farmers, which can illuminate large areas and has an extension rod to provide mobility. There's also an inverted cone-shaped spotlight for cricket bat makers. "We do not believe in one-size-fits-all products, but in need-based ones," says Sarah Abraham, Selco's innovation manager.
It's not just the products that are innovative. To help customers finance their Selco purchases, the company has joined forces with local banks and microfinance institutions. Hande notes that Selco's products increase productivity -- and earnings -- to such an extent that customers are able to pay for the new lights with the additional money they earn as a result of using them.
Like most companies providing solar lamps or home systems to rural India, Selco is now graduating to newer applications of solar energy, including water heaters and street lighting. It is also looking at new forms of energy, such as using biomass to help farmers dry their perishable goods. Having provided light for 105,000 households in the last 15 years, Selco has set a target of reaching more than 200,000 new customers in the next two years and expanding into other states like Maharashtra and Gujarat.
Other local companies have expansion plans. Three years ago, Cosmos Ignite's Chugh and Stanford graduate Matthew Scott launched MightyLight, a US$50 light emitting diode (LED) fixture. By piggybacking onto nodal agencies like HelpAge in tsunami-affected areas in southern India, Cosmos -- funded by Menlo Park, California-based Vinod Khosla Ventures -- was able to generate revenues and create awareness for its first creation. But there were challenges. For many poor households, which subsist on less than US$2 a day, the price was prohibitively expensive. Cosmos went back to the drawing board and developed a new product at half the price. Sales have jumped fourfold since, with total unit sales reaching 100,000.
One new challenge, however, is that the low-tech lantern market is getting commoditized. There is no shortage of social entrepreneurs providing them, and companies such as Cosmos are competing with less expensive Chinese products.
As a result, Cosmos is moving up the value chain: It is switching to a higher-end range of products, which provides both scale and a new target audience -- households rather than individuals. The expansion plan includes solar pumps and systems to light up larger areas. In January, the company will enter the utility arena with a green power station to light up a village with 100 homes. The public-private partnership involves the government and a village body called the Panchayat. "It's a new business model and the centerpiece of our strategy to touch rural lives," says Chugh.
For Cosmos and others, a lot of their success hinges on the marketing of the products. That is not always a straightforward proposition in India's hinterland. The biggest challenge for rural marketers is to grapple with the cultural diversity of India, notes Sairee Chahal, co-founder of New Delhi-based Saita Consulting. "What works in one rural market may not work in another. Getting involved with the ground [realities] of a place is not easy," she says. "It can slow down penetration and reach considerably." Adding to the complexity is the fact that personal contacts, rather than high-decibel advertising, tend to close a sale. "The key issue with rural is 'last mile penetration,'" or the final leg of selling the lights to rural customers, which requires a personal touch, notes Intelizon's Uppal.
For Mandeep Singh, New Delhi-based D.light's chief operating officer, "engaging people and educating them about the product" is critical. "Rural folks don't trust outsiders." While D.light is developing its own network to sell solar lanterns, it is also partnering with the rural distribution backbone of established companies, such as Mumbai's soaps and chemicals major Godrej Industries' Adhar, the e-Choupal kiosk network of Kolkata-based tobacco consumer goods company ITC and DCM Hariyali, the retail arm of New Delhi chemicals, textiles and sugar company DCM Shriram.
One feature in particular that D.light's marketing now stresses is affordability. Incubated at Stanford by Sam Goldman and four friends, the venture began in a garage in Palo Alto, California, in 2007 and moved to New Delhi last year. Goldman discovered the need for portable lights when he saw a 12-year-old neighbor in Benin, in West Africa, suffer third degree burns from a kerosene lamp, and again when Goldman himself was bitten by a snake in the dark. D.light now has two functional lanterns -- the sturdy Nova, which is priced at US$200 and comes with a mobile charger, and the study light Solata, which costs US$34. In early October, D.light launched the US$10 Kiran, one of the cheapest lights in the biggest power-deficit states of Maharashtra and Uttar Pradesh. To facilitate easy usage, the Kiran can be charged both by solar and grid power.
Mandeep Singh, D.light's chief operating officer, is keeping future development under wraps but says the company is looking at next generation products with larger applications. Meanwhile, on October 22, Goldman and his four-member team went on a two-day camping trip to a farmer's house in rural Bhojaka, 131 kilometers outside of New Delhi. The mission: to get to know their market by experiencing how target customers live. Like most of the other light providers, D.light uses rural entrepreneurs such as Waghmare to reach out to consumers.
Arguably the biggest challenge now for D.light and other companies is to continue finding ways to reduce the price points for their lights, which most rural individuals still find too expensive. For its part, TERI has a franchisee model in nine states, where it has installed 108 charging stations managed by village entrepreneurs. Every station has 50 lanterns, which are rented to locals for a paltry three rupees (around four cents) an hour. (TERI's Palit says incidents of snakebites and burns have declined, while students are able to study for longer hours.)
Such efforts certainly help address the new global climate change norms requiring countries to increase their focus on renewable energy. India, like China, has a voracious appetite for fossil fuels, particularly for coal. India is the third-largest coal producer and the fourth-largest in terms of reserves in the world, making coal one of the primary sources of energy. Coal accounts for more than 67% of the total energy consumption in the country, and meeting demand is a struggle. The Central Electricity Authority says that the peak power demand last year was 120,000 mw, while the supply was 98,000 mw. Now there are concerns that reserves of this raw material are depleting.
Shirish S. Garud, a fellow at TERI, notes that all this makes harnessing indigenous renewable resources even more critical, especially if the country's economy continues to grow at the rate that it has been. And it gives the electrification of rural India a new sense of urgency. "India lives in the hinterland, and it has to be lit to power ahead."