Financing Decentralized Renewable Energy Minigrids in India

Working with investors, developers and technology providers to bring DRE into the mainstream
Decentralized Renewable Energy (DRE) based rural electrification is a rapidly emerging sector in India. Investors are just beginning to understand the business model, commercial viability, risks and opportunities that this sector presents.This report provides a perspective on opportunities, gaps and directions for financing in this emerging sector. It is not only meant to be a primer but also serve as a resource guide.

Analysis of the top 4 states in India which are most deficient in electricity supply (namely Bihar, Uttar Pradesh, Odisha and Jharkhand) reveals that there exists an immediate power requirement of atleast 553MW in around 30,000 villages which can be met through rural DRE mini-grids. This demand goes up to 4,628 MW if we consider electricity needs equal to the state average per capita consumption and to 7,629 MW if we consider the national average.


The capital requirement to meet this potential demand is estimated to be ranging from USD 922 million to USD 12.7 billion depending on the scenario chosen for potential electricity consumption by rural households.

USD 82 million of capital is estimated to be available for deployment in the rural DRE mini-grid sector in India, of which USD 71 million is grant/donor capital and only USD 11 million is available from non-grant sources. Considering the estimated demand for capital, it is evident that currently there is a low level of interest from private mainstream capital providers to invest in this space.

Mismatch between accessible capital and what is needed Assessment of the landscape of capital supply and the demand for capital reveals that there seems to exist a mismatch between the type of funds that the rural mini-grid DRE projects need and what is available from the various sources of capital.

What is available is capital that is either meant for established business models (low-risk and low-return capital) or where the businesses provide attractive returns with a potential for an upside (high-risk and high-return).

In addition, grants and subsidies (high-risk and no-return capital) are available to help test business models in the rural mini-grid DRE space however ‘bridging capital’ (high-risk and low-return) required to support high-risk DRE mini-grid ventures and enable them to create a track record (that can then be supported by mainstream capital) is missing.

This ‘bridging capital’ is what the rural mini-grid DRE sector presently needs: i.e. capital with high risk appetite, low return expectations (given the risk) and a long tenure (given the nature of the projects). Unfortunately not many capital providers fall under this bucket.



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Directions for financing DRE mini-grids and going beyond this report
In an on-going exercise through 2013 and 2014, cKinetics is leading an effort to identify pathways to bridge the apparent mismatch and gap between the supply of capital and the (known) demand of capital for rural DRE mini-grids.

The desired outcome is that the proposed financing interventions would not only attract investors and donors to the rural mini-grid DRE space but also help project developers achieve target IRRs and make them investment-worthy of the different types of capital that maybe accessible.

Some of the potential interventions/facilities being ideated upon include: Co-developer equity facility*; Long term, low cost loan facility and Asset owner facility that owns the mini-grid amongst others. Due to the requirement of low cost funds, different models of blended capital structures that are supported by CSR or other donorsare being evaluated.


This space continues to see active developments. In order to engage with some of the follow-up activities listed above, please send an email to:

Contents of the report

1. Executive Summary
      Context: DRE mini-grids as an emerging opportunity for private sector
      Sizing the emerging rural DRE mini-grid opportunity
      Mapping the landscape of supply of capital
      Financing gaps in the landscape to meet the emerging opportunity
      Directions for financing DRE mini-grids and going beyond this report

2. Audience lens
      Scope of the report
      Lens and audience for this report

3. Context and Background
Understanding the electricity deficit
      Current state of rural electrification in India
      Case for DRE mini –grids and the need to electrify productive loads
      Typical DRE mini-grid solution

4. Sizing the opportunity for rural DRE mini-grids
The emerging DRE mini-grid opportunity
      Scope of market
      Sizing the potential demand and capital requirement for rural DRE mini-grids
      Nature and profile of firms engaging in the emerging mini-grid opportunity

5. Current experience of capital accessible for the mini-grid led DRE sector
Quantifying potential capital available for rural DRE mini-grids in India
      Profile of different capital providers

6. Field Building Efforts required to shape a sustained and expedited uptake
Gaps to be addressed to help build the rural DRE mini-grid market
      Gaps to be bridged to attract capital
      Gaps to be bridged to attract ESCOs
      Mismatch between capital supply and capital demand
      Learnings from other emerging sectors: Factors and engagement models
         affecting availability of capital
      Attracting debt by distributing risks: Risk sharing facilities can encourage
         the provision of debt
      System design: Examples of eco-system development in other emerging
          sectors to attract capital
      Matching what’s needed to what’s available

Annexure 1: List of financial institutions and investors mapped for this report
Annexure 2: Capital from HNIs, Angels and Networks
Annexure 3: Sample of investor exposure in renewable energy in India
Annexure 4: Government schemes for decentralized renewable energy projects
Annexure 5: Public information resources used for this report
Annexure 6: Potential demand of rural mini-grid in four underserved states in India demand estimates

Report lead: cKinetics
cKinetics is a specialized Sustainability Advisory firm that provides end-to-end solutions for investors and businesses. The firm has offices in New Delhi, India and Palo Alto, California, United States.