The market for decentralised renewable energy in India could be worth more than US$150 million by 2018, while around 5 million residential solar systems are predicted to be sold in the country between last year and 2018, according to a new report.

The report, “The business case for off-grid energy in India", authored by non-profit organisation The Climate Group and investment bank Goldman Sachs, argues that using low carbon, off-grid renewable electricity and therefore being nearer the generation source can reduce transmission losses, as well as providing price stability and energy security. Its writers attempted to “identify promising off-grid energy business models with the greatest potential for scale-up”.

In doing so, the report looks at the questions of how best to connect the rural populations which currently lack access to electricity and how best to assess the demand for electricity of those rural populations in order to meet it. The report’s authors examined various renewable energy options for off-grid electrification, but concluded that the vast majority of off-grid utilities – as much as 80% – will be run off solar.

For instance, solar lamps have become an increasingly popular way for non-government organisations (NGOs) and charities to support remote communities. The SolarAid charity launched in Africa by UK developer Solarcentury replaces dangerous and polluting kerosene lamps with cheaper solar alternatives, with the goal of eradicating the kerosene lamp from African society by 2020.

The new report predicts that in India, solar lamps or lanterns will have a market penetration of 35% in the currently underserved market by 2018, a figure which stands at 5% today. However, the report argues, solar lanterns can only meet the most basic electricity needs of households, to provide lighting and phone charging, something which is likely to change as consumers take their first steps onto the “energy ladder”.

“Today, a customer with no prior access to electricity is willing to pay for just basic lighting and mobile charging, but tomorrow that same customer is likely to want to move up the energy ladder and use higher wattage appliances like fans and TVs,” the report says.

This and other drivers are likely to lead to the higher sales of home solar energy systems, with the overall market for decentralised renewable energy predicted by The Climate Group to be worth “at least US$150 million” by 2018. Currently serving 100,000 households in India, this market will expand its reach to 900,000 households by that date, the group claims. This represents an annual growth of 60% to 70%.

While grid connectivity will improve, at its current rate of expansion this would still leave around 70 to 75 million households without basic access to electricity by 2024, the report predicts.

In a blog last year for PV Tech’s sister site, PV Tech Storage, Dr Rahul Walawalkar of the India Energy Storage Alliance explained that there is likely to be a two-tiered approach to electrification for India. On the one hand, around 400 million Indian people currently lack even basic electricity access, Walawalkar wrote, while there is also a growing middle class population of around 300 million that “that is looking for the same level of energy access and power quality as enjoyed by people in developed countries”.

Walawalkar said his organisation was “excited” by government plans for the energy sector, which included a target for 100GW of solar by 2020 and a microgrid-building programme. Walawalkar said the next 10 years in India would represent an "energy infrastructure transformation".

“We are excited by the steps taken by the new central government led by prime minister Narendra Modi and policy directives by Piyush Goyal, Minister for Energy, Renewable Energy and Coal,” Walawalkar wrote.

“The government has announced a number of key initiatives, such as 24/7 energy access for all, 100 smart cities, 10GW wind installations per year and 100GW of solar by 2020.”

The Climate Group/Goldman Sachs report, launched at the RE:Invest renewable energy conference in India, goes into regional details in its analysis and forecasts, and points out that more than half of the rural population currently lacking grid access is in five states of the country. As might also be expected from the Goldman Sachs-supported publication, it also looks at business cases for various technologies and where financing might come from, looking at a number of innovative new options for lending as opposed to traditional debt or equity products.

Greater affordability of home solar systems, coupled with rising consumer demand, will lead to greater competition in the space, the report predicts. However, while pricing new entrants into the market and meeting their demand with good quality products is important, The Climate Group argues, good customer relationships built up over time will be vital in persuading consumers to spend what is still likely to be a significant portion of their income on a solar system for their home.

“A good product is important but insufficient; enterprises need to develop long-term customer relationships,” The Climate Group argues.

“A SHS (solar home system) is a large purchase for a poor, rural household – even with financing. It is risky for them to spend so much money on a product they are not sure will work and with an enterprise they know very little about. Consumers are more likely to do future business with brands they know and trust.”