Last week, I had a few conversations with India policy experts and they brought up an interesting issue:
Energy services provided by private companies are quite unregulated and many businesses are not registered. Regulatory uncertainty means that there is a wide variety of services provided, which could allow a better fit for each community, but there are fewer financing opportunities when banks are often not willing to finance risky projects (particularly where the central grid expands and the investments could become unviable).
Is it necessary to formalize the sector? How do you avoid overregulation?
What are the optimal regulation options for dissemination of renewables energy by small business in developping countries ?
What are the optimal regulation options for dessimination of renewables energy by small business in developping countries ?
There are many reasons supporting the necessity to formalised the energy sector . In the same time, overregulation can be a factor against deploiement of renewable energy solutions .My post will try to give arguments to these two statements.
Adequate technologie and minimum material quality are required for the effectiveness of an energy project . Beside the right choice of the technological solution , the good installation of the good product are necessary for producing the expected energy during the average life cyle of the installation. Failure in this aspect can discourage potential customers .
In many countries FIT ( Feed in Tarif ) and other incentives policies encourage small companies to enter the market .Reversely these business are often driven by the sole opportunuity of making profit .The owner of the business and his employees are not always trained about technologies and environnmental issues . A solution could a minimum training target within the company.
Standards and regulations must not be constraining for business owner and customers . High quality products have cost that decrease the profit and reduce the clientele .Because of the great need of access to energy most people prefere low cost solution and hardly care of the overall lifecost or environmental cost. A good example to illustrate this aspect is the profileration of affordable portable phone.
Regulation strategy must set balance between the two ojectives:
-Allow access to energy for the maximum
-Ensure minimal quality that will not biase the climate change mitigation effect of renewable sources of energy.
Thank you for your comment! It is interesting to hear that you see the need for a minimum quality standard, but at the same time you agree that it can restrain business. As far as I know, in most countries there is currently no minimum quality standard required.
In your work, have you come across standards that you thought were too high or too specific?
What could a minimum training target within the company look like?
Hi Julia ,
The minimum quality standards I made allusion to are the technical specifications or other criteria that a product or process must meet. I think that this is necessary for a good performance of installations. Public procurement generally include technical specifications that ensure quality and there are very often a monitoring entity . With national and subregional policies and target in renewable energy sector and the decreasing price of solar photovoltaic material it is expected an important growth of the market . I think that this growth must be accompanied with quality instruments. My recommendation is more about projection in the future than existing situation .So to answer first your question I haven't met quality standard that are too high and in fact I don't know what criteria make a quality standard too high. All depend on the objective of the standard..
As minimum standard instrument we can think to a label of quality that may not be mandatory .The minimum target training can be defined in this label of quality. As an example minimum skill for both vendor and installator I suggest the ability to identify the compatible components of a system and the aproximative energy output.
The organinsation in charge of the quality label can select some " best practices " that installators must know.
To summarise , developping countries must fill the gap of access to energy in a sustainable way including quality of material and installation.
The sector seems to have the worst combination - over regulation, with lax enforcement which will make it really hard to raise any kind of serious investment.
Uncertainties where the grid is present, but mostly disconnected are a big barrier to any process where payment is delayed (e.g. repaying a loan; or PAYG) because who knows when the grid will become usable and loan/payment defaults will increase.
And the barriers on FDI are significant, tilting programs towards areas where subsidized loans are available and away from places where companies have to pay the protectionist interest rates from Indian banks but are prevented from accessing impact investors overseas.
Also .. subsidized kerosene and grid creates unrealistic expectations of pricing and a lower willingness to pay than almost any other developing country.
Thank you very much for your input. We are curious to learn more about FDI and the role it plays in India. Would you be able to share your experiences in this area with us?
Thank you as well for your comment on the expansion of the central grid. Without a doubt, this is a big risk factor. How would you approach this issue? Have you seen policy solutions can address grid expansion? What would be your ideal policy framework?
Hello Julia! I am interested in the off-grid solutions for rural communities in India; my research is mainly focused on decentralisation of funding mechanisms, so currently I am looking for possibilities to overcome baarriers to crowdfunding and Micro Finance Institutions in the energy sector. I am specially interested in the operational requirements for partnerships between foreign investors and local solar companies/entrepreneurs; barriers for foreign lenders and donors; solutions such as more flexible mechanisms to increase the feasibility of setting up NBFCs, and the use of compulsory convertible debentures are part of my policy recommendations.
My research is in the context of my masters degree in Environmental Policy and Regulation at London School of Economics and is being guided by IIED (International Institute for Environment and Development). I have a background as a lawyer, so ideally want to study regulatory-legal barriers in the energy market.
I have some preliminary conclusions that would be useful to discuss with you and your team, if possible, and I would be glad to hear suggestions or problems in which you think it would be valuable to focus while I am doing fieldwork in India (June-July). By now, I can tell you I am absolutely impressed by the over-regulation of the sector, and all the barriers from RBI to foreign lenders and private donors; the high rates of interest in MFIs and Banks in India, plus the few support given to local-rural entrepreneurs is also a barrier that must be overcome in order to achieve the goals of the new Indian government of reaching the poorest in their energy policies.