Productive activities

Donor and development institutions such as such as the World Bank stress that productive activities linked with DRES ensure long term functioning of the DRES (Clemens et al. 2010).

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The use of productive activities is not only beneficial to the user but it also has positive consequences for private DRES developers. Increased load factor due to productive activities (in case of micro-grids) can increase financial feasibility due to greater utilization of the capacity of the plant. Even if profit generation is not the objective of a DRES project, as is the case in government based projects, productive activities can enable the socio- economic development of the people (Kumar et al., 2009; Glemarec, 2012). Revenue generation from productive activities could also translate to increased equity of the rural community which would increase ownership and sense of participation. DRES projects that mainly rely on subsidies for operation and maintenance are not financially sustainable and literature analysis showed that DRES projects have collapsed in the past upon subsidy withdrawal. Productive activities could act as an exit mechanism from dependence on revenue subsidy, by letting the DRES become financially sustainable.

Commercial activities that generate revenue in rural communities offer an important opportunity for incentivizing and increase the willingness and increasing financial capacity of rural communities. Productive activities that generate revenue possess a tangible benefit for the user as opposed to consumptive purposes like lighting (previously being met by burning wood which came at no cost) enabled by a DRES.

It is possible to increase the load of a micro-gird by utilizing anchor users such as a rural industry which forms the bulk of the load. Mobile-phone towers can serve as anchor customers if this does not entail lengthy approvals from the regulatory body (Tenenbaum et al. 2014). This increased load factor utilizing the capacity, makes DRES more financially feasible. Lecoque et al. (2015) discusses the benefits of productive use of DRES based on

six case studies of DRES application for rural use in Africa. Some of these benefits could be equally applicable in the South Asian context and are summarized below:

• Stronger local economy – the presence of a reliable energy access based on DRES can enable rural communities to move beyond traditional professions such as farming and can give rise to new entrepreneurial activity

• Increase in jobs – new expertise will be required for installing, operating and maintaining DRES installed in the region.

• Improved health and sanitation – An indirect benefit of DRES enabled by productive applications is that people can have access to community health centres, information on how to prevent malaria and other diseases can be communicated by radio, television, mobile phone texts etc.

• Gender equity – Productive uses can be used to empower women by enabling them to earn money through small businesses

4.6.4 Financing

The centre or focal point of DRES projects are rural communities who are predominantly poor (Painuly, 2001). Specialized institutions such as micro-finance institutions (MFIs) can help in assisting of financial viability of the equipment as the rural poor do not have the capability to pay for the high initial costs of DRES (Glemarec, 2012).

Besides MFIs, subsidies have an important role in implementation of these systems. Analysis of the literature provided examples of DRES projects that relied on initial capital donations with no plans in place ensuring future financial sustainability. One-off subsidies actually act as barriers and a subsidy in the form of Output Based Aid is more successful in

which is linked to the performance of the projects. It has been proven to be highly effective in the success of DRES (Glemarec 2012). It is also suggested that the process for subsidies disbursement should be transparent and devoid of political influence so as to prevent any misuse of the subsidies. As discussed in the previous section DRES projects supported with productive activities have better prospects of losing their dependence on subsidies.

As government led projects are often fully or partly subsidized (Schnitzar et al. 2014) care should be taken that such projects do not cause market distortion and discourage private investment. Evidence suggests that fully subsidized DRES are not successful in the long term (Tenenbaum et al. 2014) because they fail to create a sense of ownership in the users.

An example of an innovative financing technique (also discussed in previous section) is where financial viability of a DRES project can be improved by using “anchor” customers. (Tenenbaum et al. 2014) cites an example in Africa where telecom companies owned mobile phone towers were used as anchor customers to provide a sufficient enough electric load to increase the financial viability of the DRES project.

The role of private investors is important in developing countries and it is recommended to facilitate private sector investment in DRES projects, by helping to reduce the (perceived) risks on the regulatory, technological, political and market development level, as well as by taking part in financing, for example through grants and soft loans.

Glemarec (2012) gives the following four recommendations to lower initial costs of DRES: (i) eliminate taxes and tariffs on clean energy devices; (ii) reduce subsidies on fossil fuels and subsidize part of the upfront and operation costs; and (iii) promote entrepreneurship and income-generating activities by the new end-users of these energy services.

Glemarec (2012) also discusses an encouraging and relevant example of a currently widespread use of technology, the mobile phone. Industry watchers were sceptical that the mobile phone would ever become common among the poor of the world such as the sub Saharan and South Asian population where landline connections had grown very slow. The initial cost of the phones alone was thought to be insurmountable for people living on very low income levels. But through innovative business models this industry has expanded rapidly in the developing world with South Asia being the fastest growing market for mobile phone subscriptions. This example just goes to show that with the right incentives, tangible benefit for the users and enabling environment newer technologies could thrive. This real- life example also suggests that the potential of private investment is subject to an environment that is conducive to private investment. Decentralized renewable energy systems are set in a similar environment with relatively expensive technology being targeted at the same rural population. This analogy suggests that with the right factors in place it is possible to make DRES viable for the poor.