In the realm of renewable energy, the potential of low-value clean energy assets to spark economic and energy transformations at the grassroots level cannot be overstated. Assets such as solar-powered carts, e-rickshaws, or small-scale wind turbines are not only affordable but can also drive sustainable development, create jobs, improve energy access, and reduce carbon emissions in underserved communities.
Take, for instance, carefully curated night markets featuring solar cartsfor varied purposes like food vending, mobile bookshops, electronics stores, or even training services can not only stimulate economic activity but also breathe life into urban spaces while fostering environmental awareness. However, despite the clear benefits, obtaining financing for such assets presents a significant challenge that should be addressed to ensure a clean energy transition at the grassroots level. This article will delve into the complexities and hurdles that obstruct the financing of low-value energy assets, and suggest actionable solutions to unlock their true potential.
Primary challenge: Inadequate financing
The crux of the matter lies in the inherently low value of these energy assets. Their affordability and accessibility to small-scale entrepreneurs and rural communities mean that they often have low upfront costs. For instance, a solar cart costing Rs 60,000 can break even in less than a year through daily repayments of Rs 200 from cart-based activities. However, the smaller scale and lower returns make these assets unattractive to traditional lenders and investors, who tend to favour larger-scale projects with longer tenures and higher returns. Additionally, the costs associated with loan administration can often outweigh the value of the loan itself. Moreover, the absence of standardised financing models further complicates the issue. Unlike larger renewable energy projects that possess established financing structures, low-value assets lack this foundation, making it difficult for entrepreneurs and communities to secure funding.
Perceived risks and barriers
There is a perception among investors that low-value energy assets are inherently high-risk, due to factors such as technological uncertainty and limited operational experience. Consequently, funding for these assets remains elusive. Failure to foster clean energy transitions at the grassroots level will inevitably impede the ambitious ‘Net Zero goals’ set by cities and nations. Therefore, it is imperative to devise innovative financing solutions for low-value energy assets.
Solutions: A collaborative approach and digitisation
To surmount these financing barriers, a collaborative approach and partnerships among financial institutions, microfinance, and micro-insurance providers, non-government organisations, local community groups, digital marketplaces, and the private sector for granting and administrating funding can provide a breakthrough.
Riding on the government’s support for clean energy acceleration, financial institutions can design specialised financing products under priority sector lending, and implement them through partners such as non-government organisations and community groups that can assist in client acquisition, credit scoring, data collection, technical support, and administering the loan. Micro-insurance companies can play a vital role in managing risks and boosting finance, particularly through coverage of non-wilful defaults.
Digital markets can provide a platform for disseminating information, facilitating loan swaps, and attracting private-sector investment. By leveraging these partnerships, it is possible to unlock funding for low-value clean energy assets and accelerate the transition to a more sustainable energy future at the grassroots level.
Digitising low-value physical assets for either full or partial ownership and offering investment instruments legally tied with the digital assets for purchase and trade present a novel and efficient way of financing these assets. However, this approach is not without its challenges. For one, it requires a robust digital infrastructure and secure data management protocols to ensure the authenticity and security of transactions. Moreover, the scalability and regulatory compliance of such a system to avoid legal and operational hurdles remains a challenge.
A new frontier for India-Nepal cooperation?
A major power trade agreement signed in January 2024 for Nepal to export 10,000 megawatts of hydroelectricity to India over the next 10 years is expected to significantly draw investment to the Himalayan nation with an economy in dire straits. Nepal’s rivers, flowing from the Himalayas, have the potential to generate about 42,000 MW of electricity, but due to the lack of technical know-how, required infrastructure and strategic funding, end up producing less than 3000 MW as of now. India, which has a short-term electricity trading deal with Nepal, is investing billions of dollars in infrastructure including hydropower plants with a long-term vision of including a friendly neighbour like Nepal, a natural partner in development partnership with accelerated bilateral energy cooperation.
The views from different quarters calling it New Delhi’s greater outreach for countering China’s hyper-active interest in India’s northern neighbourhood need to be seen in the right perspectives, rather it is India’s long-standing commitment to complementarity and shared prosperity that are driving these transformational actions at crucially important India-Nepal bilateral front.
As dependable partners in the energy sector, India and Nepal should go even more aggressively in promoting the use of energy-efficient appliances. India has already achieved a few notable milestones in this regard, and some of its best practices can inspire Nepal to be on the path of ensuring sustainability with its energy consumption. It will help environmental conservation with reduced carbon footprints, it will also deepen the culture of electricity uses—and thus give fillip to the increased production and consumption of clean energy in Nepal.
To make this happen, green mobility has to be given the chance it deserves in both India and Nepal. Among the low-energy assets, it holds a prominent mention. There is a glaring need for policy sensitisation in this regard, and this will be pursued as a business plan sooner than later. This will be a sort of altruistic act.
The way forward
While the potential of low-value energy assets to drive economic and energy transitions at the grassroots level is undeniable, access to finance remains a major obstacle. Overcoming these challenges necessitates innovative financing mechanisms, capacity building, collaboration, and risk mitigation measures. By addressing these barriers, it is possible to unleash the full potential of low-value energy assets and chart a path toward a sustainable future.
The importance of low-value energy assets lies in their capacity to support economic, social, and technological advancements, catalysing development and enhancing social well-being. To an asset owner, they open new avenues for income generation that were previously untapped. To investors, these assets offer opportunities for diversification of investment portfolios, hedging risks, catalysing growth, providing stable returns, and potential for strategic positioning. To governments, these assets can become an important tool to support economic and social advancements, increase access to energy, and promote the transition to clean energy and environmental sustainability.
Atul K Thakur is policy professional, columnist and writer with a special focus on South Asia; Deepak Rauniar is an energy expert from Nepal. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect News18’s views.
Comments
0 comment