Mini grids and enterprise development: A study of aspirational change and business outcomes among rural enterprise owners in India

https://doi.org/10.1016/j.esd.2020.04.004Get rights and content

Highlights

  • We surveyed 229 enterprises connected to solar mini-grids in September 2016 and June 2018.

  • Enterprises shift towards using mini grid electricity as their primary source.

  • Enterprises adopt more productive loads over time and reveal an increase in aspirational demand for electricity.

  • Longer duration of reliable power is correlated with increased operational hours and customer footfall, but not revenue.

  • Mini grids can benefit enterprise development by increasing aspirations and allowing experimentation with business.

Abstract

Mini grids are increasingly filling the supply gap between government supplied electricity and the requirements of households and enterprises. We present a descriptive analysis of enterprise development within a large mini grid based rural electrification initiative launched in India in 2015. Using data from two surveys conducted with 229 enterprise operators, we explore the change in aspirations among enterprise owners and the impacts of longer duration of reliable electricity on key business outcomes. We find that improved quality of electricity from mini grids leads to a shift towards using mini grids as the primary source of electricity; transition from lighting to productive uses of electricity; and increased aspirational demand for electricity among enterprise operators. Further, we find a positive relationship between increased hours of reliable electricity supply and extended hours of operation and customer footfall, but not with revenue generation. Our findings suggest that mini grids offer an important opportunity for enhancing local aspirations for business development and should be an integral part of policies focused on rural enterprise development.

Introduction

The current global policy emphasis on sustainable energy for all is empirically well supported by the strong link between access to energy and developmental outcomes. Access to electricity is positively associated with household income, expenditure, health and educational outcomes (Bonan, Pareglio, & Tavoni, 2017; Kanagawa & Nakata, 2008; Khandker, Barnes, & Samad, 2009), increased productivity for rural enterprises (Kirubi, Jacobson, Kammen, & Mills, 2009), reduced kerosene expenditure (Aklin, Patrick, Harish, & Urpelainen, 2017), gender equality and women's empowerment (Cabraal, Barnes, & Agarwal, 2005; Winther, Matinga, Ulsrud, & Standal, 2017), and better local employment opportunities and information access (Ulsrud, Winther, Palit, & Rohracher, 2015; Koijman-van Dijk & Clancy, 2010). In sum, electricity access is expected to generate positive impacts across social, financial, human, physical and natural dimensions of human development (Henao, Cherni, Jaramillo, & Dyner, 2012).

A subset of the literature focuses on enhancing livelihood generating activities, or the provision of electricity for enterprise development (Kirubi et al., 2009; Sharma, Palit, & Krithika, 2016; Koijman-van Dijk & Clancy, 2010; Ulsrud et al., 2015; Kaygusuz, 2011; Peters, Harsdorff, & Ziegler, 2009; Fishbein & Sanghvi, 2003; Cook, 2011). The rationale being, that enterprises gain productivity advantages from electricity, therefore increasing revenue and employing more people, resulting in an overall economic growth (Bhattacharyya, 2012; Chaurey, Ranganathan, & Mohanty, 2004; Rao, 2013). This paper focuses on the enterprise development component of rural electrification programs in India.

Through an original survey of 229 enterprises supported by a decentralized solar electricity program, this paper aims to answer the following research questions. First, does access to reliable electricity result in changes in the aspirations of enterprise owners to grow their business? And second, does access to longer duration of reliable electricity impact key business outcomes for enterprises? We find that enterprises in our sample increasingly adopt productive load appliances over the period of our study. Second, we observe a change in aspirational demand for electricity among our sample of enterprise owners. And finally, we find that higher duration of reliable electricity is positively associated with increased number of hours of operation and customer footfall, but not with an increase in enterprises' revenue.

The paper is organized as follows. We review the literature on electricity access with a focus on productive enterprises and present our research questions in the Literature review section. In the third section , we provide a brief background on the electricity access initiative studied in this paper. The Methodology adopted for the paper is presented in the fourth section, followed by Results and Discussion in fifth and sixth sections.

Section snippets

Literature review

A reliable and regular electricity supply is key to fulfilling increasing energy demand among households. Improved energy access has a direct bearing on the overall energy consumption (Pachauri, 2007). With improved energy consumption, households or individuals progress on the ‘energy ladder’ and gradually move to cleaner and convenient fuels (Reddy & Sudhakara Reddy, 1994; Alam, Sathaye, & Barnes, 1998). At the household level, improved lighting provided by a minimum amount of electricity

Background: description of the Smart Power Initiative: an energy access program to enhance productive use of electricity

This study is based on the Smart Power Initiative launched by the Rockefeller Foundation. By 2018, the initiative supported eight energy service companies (ESCOs) to develop renewable energy mini-grids in 120 villages across three Indian states: Bihar, Uttar Pradesh and Jharkhand. The capacity of the mini grids ranges from 19 kW to 67 kW, depending upon the local requirement as well as the business potential of the sites. Around 63% of the sites have a designated anchor load (usually a telecom

Data collection

We utilize a mixed methods approach consisting of survey questionnaires and semi-structured interviews with customers of electricity from the mini-grids. Questionnaires were deployed for a stratified sample of 284 enterprises including both productive and lighting loads. The sample was randomly selected within each category of lighting and productive loads for the first survey.1

Results

The results are divided into two sections. We first discuss before-after comparisons with respect to the a) reliance on the mini-grid as a primary source of electricity, b) shift from lighting to productive loads over time and c) increase in aspirational demand. Next, we discuss the results of three regressions to examine the role reliable electricity has on selected business performance indicators.

Discussion

Our analysis on the impact of reliable electricity offers the following key insights on enterprise development.

First, we observe that aspirations of enterprise owners have changed after getting connected to a more reliable source of electricity through the mini-grid. Through a before-after analysis we have shown that 95% enterprises in our sample shifted towards using the mini-grid as their primary source of electricity from 84% in 2016. Moreover, the adoption of more productive loads has

Conclusion: limitations and further work

We have used a sample of 229 enterprises to demonstrate how a) enterprises shift to using mini-grids as their primary source of electricity; b) enterprises incorporate a larger number of productive loads over time; c) there is an increase in aspirations among enterprise owners and d) longer duration of reliable electricity supply has a positive impact on hours of operation and customer footfall but not revenue, controlling for enterprise level characteristics such as initial investment,

Declaration of competing interest

We declare that we have no conflicts of interest in the publication of this manuscript. We are engaged with the Smart Power Initiative of the Rockefeller Foundation as monitoring and evaluation consultants. We do not have any professional or financial relationships with the ESCOs, or entrepreneurs involved in this program. We have reported our results highlighting both positive and negative outcomes of electrification to contribute to the literature on mini grids.

Acknowledgements

We acknowledge the support of the Rockefeller Foundation and in particular, Mr. Pariphan Uawithya, Director at the Rockefeller Foundation and Ms. Shawna Hoffman, Director at the Rockefeller Foundation. We are engaged with this program as monitoring and evaluation consultants. We do not have any professional or financial relationships with the ESCOs, or entrepreneurs involved in this program.

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