Solar Home Systems vs. the Grid in Rural India: A Balancing Act of Risk and Reward

This paper examines the deployment of Solar Home System (SHS) solutions as a means to address rural electrification in India. This is explored through analysis of Uttar Pradesh and Bihar, states where less than 40% of households use electricity as their primary lighting source. Government solutions have been inconsistent in addressing the issue with most research and comparable case studies identifying small to medium enterprises (SME) as holding the key to rapid rural electrification. The adoption rate of SHS by rural customers in India has been slow when compared to that of comparable rural electrification markets within Bangladesh and Sub-Saharan Africa. Recent survey data collected from rural households in Uttar Pradesh has helped shed light on some of the key factors behind the slow uptake of SHS experienced in rural India. In particular, respondents revealed perceptions of greater trust in Government authorities and the often unreliable grid based electrification solutions they provide as opposed to SME and their competing renewable based product offerings. There is a gap in understanding when it comes to establishing how valid these perceptions truly are. An aversion to risk, characterised by the low incomes of rural Indian customers further adds to the reluctance of the market to adopt SHS as a solution. This paper quantifies perception validity on an income tier basis by assessing the ability of a grid connection to service a rural load profile in comparison to a SHS solution. This analysis utilises the optimisation tool HOMER Pro to take into account several sensitivities that impact each income tier. These include, amongst others, grid reliability, load profiles, grid tariff structures and SHS costings. The implication of this analysis is the identification of the target market for which SHS provides a better solution than grid connection. The analysis further identifies a price point at which an SHS solution satisfies energy requirements whilst remaining in keeping with the ability to pay for a particular income tier. The paper then leverages experimental results to create a five-pronged risk mitigation strategy which may be implemented to accelerate the adoption of SHS in the market. This techno-economic analysis is then synthesised into concrete recommendations for both SME as well as the Indian Government in their effort to spread rural electrification through SHS at a higher rate. These recommendations further help to address validity issues surrounding consumer perceptions of trust and risk in a rural context.