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current discussions on fuel subsidies in India and because the „market‟ prices do not .... for different sizes of LED and CFL lights in comparison to the kerosene ... Analysis is based on interviews with seven manufacturers of SLS and solar lanterns ... lighting fixtures from CFL to LED would lead to the requirement of smaller ...

Elsevier Editorial System(tm) for Energy for Sustainable Development Manuscript Draft Manuscript Number: ESD-D-12-00122R2 Title: Assessing the impact of the transition to Light Emitting Diodes based solar lighting systems in India Article Type: Full Length Article Keywords: Rural Electrification; Energy Efficiency; Solar Lighting Systems; LED lighting; Plug and Play Corresponding Author: Mr. Santosh Maddur Harish, Corresponding Author's Institution: Carnegie Mellon University First Author: Santosh Maddur Harish, BTech, MS Order of Authors: Santosh Maddur Harish, BTech, MS; Shuba V. Raghavan, MS, PhD; Milind Kandlikar, PhD; Gireesh Shrimali, PhD

Detailed Response to Edits

Response to the edits and suggestions Thank you for the edits. While we had combed through the manuscript several times, some errors had regretfully crept in. We have incorporated almost all the edits that have been suggested. In addition, we have made an edit in the first paragraph regarding the number of rural households as we realized that the previous number was from the 2001 Census and hence outdated. In the third paragraph of the introduction, there was a suggestion to replace ”…support provided by the Indian government through its National Solar Mission have accompanied the emergence of new solar lighting firms” with “…support … encouraged (or enabled) the emergence of new solar lighting firms”. We would prefer to say “accompanied”. “Encouraged” or “enabled” would suggest causality and we think that may be a strong claim. Many of the new firms seem to predate the dramatic fall in prices and the solar mission by a year or two. The editor has expressed a doubt over an order of magnitude estimate regarding the government subsidies on kerosene in the first paragraph of section 5. We can understand the surprise at the size of the number, but with the assumptions we have documented, the calculations seem to be correct. One of the key inputs to the calculation- the estimated “actual” price of kerosene at the fair price shops at Rs. 45/l (Petroleum Planning and Analysis Cell, 2013) - had been incorporated in the last revised manuscript. Previously, we had used the price of kerosene in the market, which is about Rs. 25/l. As the “actual” price estimate is part of the current discussions on fuel subsidies in India and because the „market‟ prices do not really reflect the costs of production (because these markets are illegal with the kerosene having been diverted from the „fair price‟ shops), Rs.45/l seems to be the more appropriate number. We lay out the steps in this calculation below. PDS price of kerosene= Rs.10/l “Actual” price of kerosene= Rs.45/l Subsidized Kerosene consumption per month/ household= 3.5 l/month Annual subsidy from the government= (45-10) Rs./l * 3.5 l/month *12 = Rs.1,470 Subsidy over 10 years, with a 12% discount rate= Rs.1470 * 5.65 = Rs. 8,300 5.65 is the discounting factor- the sum of the geometric progression {1/(1+d) +1/(1+d)2+…+1/(1+d)10 }, d being the discount rate, assumed here to be 12%. References Petroleum Planning and Analysis Cell, 2013. Price Buildup of sensitive products. Ministry of Petroleum and Natural Gas, Government of India. http://ppac.org.in/writereaddata/Price%20Build%20up%20Sensitive%20Products.pdf Accessed on February 25, 2013.

Detailed Response to Reviewers

We thank the editor of Energy for Sustainable Development to give us an opportunity to revise this paper along with some insightful suggestions. We also thank the anonymous referee for the valuable comments and suggestions. Their comments have helped us in framing some of the analysis in this paper much better. As a result, we believe the paper has improved. We have replaced two of our graphs with tables, and incorporated dimensions of the alternatives that we had not talked about previouslythe efficiency of kerosene lanterns in terms of usage of primary energy, and the costs of useful energy. We have also added some background on kerosene consumption in rural India in the introduction, as this should provide better perspective to the significance of solar lighting systems. What follows is a point by point response to the comments that we have received. Reviewer 1: 1. It would be useful to report the capital costs of the CFL and LED devices - not only the lifetime cost. How do the initial costs compare? 2. The comparison of the products should also include battery ratings. Our response: This was previously indicated only in figure 3. We have now included it in the discussion just before the figure. We have also included battery ratings here. Previously this was mentioned in appendix D 3. How does the option look at higher discount rates? Our response: Discount rates may be a significant factor in cases like this, because the more energy efficient alternative (the LEDs here) typically have cost schedules that are relatively front loaded, but with lower operation costs or greater lifetimes subsequently. In our analysis, discount rates do not change the nature of the comparison for two reasons. One, only the lighting fixtures have very different costs and lifetimes and they represent a small fraction of the overall costs. Two, the costs of the LEDs are part of the upfront costs and the LED systems are less expensive than the CFL based system to begin with. Hence, irrespective of discount rate, the results do not change. 4. Also what is the total market and how are LEDs capturing market share? Using the 7 company data is it possible to provide some insights into this. Our response: In principle, all the households that use kerosene for lighting beyond a certain threshold and who are able to afford the lighting systems through loans and subsidies form a potential market for lighting systems. We conducted household surveys in Karnataka and found that a few below poverty line households who were already grid-connected had adopted SLS as backup. These are however likely to be the exceptions. As households’ valuations on supply reliability and quality differ, we believe it’s difficult to pin a number down for the market share and hence, have avoided doing so. 5. Is there any time series trend available? Our response: We are unaware of a suitable dataset for estimating time trends, especially for marketbased sales which go unrecorded in government documents. As per a few of our respondents, the

adoption rate has picked up significantly since 2008 or so. Based on our interviews themselves, we are unable to show time trends as only two of our respondents have operated before the mid-2000s. 6. In the Indian market a wide variety of similar products at different prices are available. Some of the lower priced products (that are being sold) are of [poor quality and have high failure rates (I am not sure if this is documented appropriately in literature) but may be worth commenting on / exploring Our response: We agree with the reviewer. Poor quality of products is certainly a major concern and will impact adoption if products are perceived to be substandard. Similarly, poor maintenance by the companies could lead to early failure. We discuss this particular problem in some length in the paper. We try to incorporate poor quality of lights to some extent in our analysis, by considering a very conservative efficacy of LED lights as the low bound. With failure rates as well, we consider lifetimes of 5 and 10 years for lanterns and lighting systems, respectively, although the PV panels are expected to function for 20 years or so. We do not have additional information from our interviews on low quality. The lantern manufacturers mentioned that the consumers’ prior experiences or hearsay about poor quality of other lanterns forms a hurdle in greater adoption. As would be expected, even if there were complaints from some quarters about the quality of their own products or after sales service, this would not have come up during the interviews. Hence, while we do consider certain aspects of quality, this is restricted to those which are directly related to our research questions. 7. The questionnaire could be dropped from the Appendix but kept as supplementary info on the web site. Our response: As per the reviewer’s suggestion, we have now removed the questionnaire from the Appendix, and will include it as supplementary information online. Editor’s comments We thank the editor for the recommended citations. These were very useful, and we have based some of our new analysis on these papers. 1. Figure shows a number of points for LED and CFLs. Not clear if these correspond to products actually in the market. The figure legend reads “Figure 2 Comparison of the light output in terms of lumen for different sizes of LED and CFL lights in comparison to the kerosene lanterns” Besides the syntax (the word “comparison” is repeated), there is a problem in how kerosene lamps are depicted -- as horizontal lines. They really should be shown as points on the vertical axis. Alternatively, you can show an equivalent power level, based on the following table from the Mahapatra paper. This would be more dramatic, showing that they are really, really inefficient. Our response: We have replaced Figure 2 with a table (Table 4 in the revised manuscript) with similar comparisons as in the Mahapatra et al. paper. We agree with the editor that this explores a very relevant aspect of kerosene lamps that we had not stressed on previously.

2. Figure 6 compares different lamps. Without additional information, readers might not know that electric lighting systems offer much more lumens than the kerosene lamps Our response: We have replaced Figure 6 with a table (Table 5 in the revised manuscript) where in addition to the Present Value of the costs, we also explore the cost-effectiveness in terms of cost per klmhr. The light outputs too are mentioned, so that it is clear that not only do the lighting systems compare better in terms of absolute costs with a comparable number of lanterns, that the consumers get significantly more bang for the buck with SLS. 3. While your paper focuses on LED versus CFL, kerosene lamps are mentioned in various places, and the discussion of the latter could be strengthened. Our response: In addition to the above revisions which we believe present additional perspectives on the kerosene lanterns, we have included more discussion on kerosene usage and lanterns in the introduction. 4. Which brings me to the development implications of CFL/LED shifting. You have technical (4.1) and economic (4.2) considerations, but I could not find a discussion around the subject that the LEDs have lower light output than typical CFLs, so people may be getting less energy service. Of course, I agree that LEDs are much better in low/medium power output. I have two lanterns for power outages (one also has a fluorescent lamp alternative). But what about higher levels of electrification: would people be happy with PV/LED or would they ask for mini-grids and higher lumens (500+)? Our response: We agree with the editor that this point was not dealt with explicitly. Lighting systems, based on CFL or LED, will have limited impact on development outcomes compared to reliable grid supply or a micro-grid. However because reliability seems to be quite some way off and micro-grids supporting substantial loads seem to be difficult to replicate at a large scale, SLS could be the most optimal medium term solution. What the transition to LED will allow is a more cost effective way of meeting basic lighting needs. Further, the cost reductions it offers may translate to greater utility in terms of supporting additional loads like fans or even productive equipment like sewing machines if there is a large enough market for such packaged products. We have included a brief discussion on this in the last section.

*Highlights

Highlights     

LED lights are slowly replacing CFL in solar lighting systems targeting Rural India Analysis is based on interviews with seven manufacturers of SLS and solar lanterns LED based SLS are about 20% less expensive than equivalent CFL systems But, the reduced costs may not result in greater diffusion among poorer households LED inclusion may reduce institutional barriers and lead to plug and play products

Revised manuscript Click here to view linked References

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Assessing the impact of the transition to Light Emitting Diodes based solar lighting systems in India Santosh M. Harish a,*, Shuba V. Raghavan b,i, Milind Kandlikar c, Gireesh Shrimali d a

Department of Engineering and Public Policy, Carnegie Mellon University, Pittsburgh, PA- 15213, USA. Email:[email protected] *Corresponding author b

2B Abhinaya Apartments, 14 First Avenue, Shastri Nagar, Chennai 600 020, India. Email:[email protected] c

Liu Institute for Global Issues, 6476 NW Marine Drive, University of British Columbia, Vancouver, BC V6T 1Z2, Canada; Institute for Resources, Environment and Sustainability (IRES), 2202 Main Mall, University of British Columbia, Vancouver, BC V6T 1Z4, Canada d

Center for Emerging Markets Solutions, Indian School of Business, Gachibowli, Hyderabad, 500032, India

Abstract There are many advantages of solar photovoltaic technology in providing lighting for rural homes– scalability, minimal maintenance and well developed business models. This study seeks to study the impact of the transition from Compact Fluorescent Lamp (CFL) to Light Emitting Diodes based lights (LED) on the solar home lighting system market. Changing the lighting fixtures from CFL to LED would lead to the requirement of smaller panels and batteries and consequently, a reduction in prices. Would this reduction significantly increase the adoption of these systems? Would the requirement for financing or government support change? To understand this changing landscape of the rural solar lighting industry, this study analyses the current products, distribution network, and operations of seven diverse solar firms operating in different parts of India. Four of these firms exclusively make LED based products- lanterns and small home lighting systems- and the rest have some LED based systems in their portfolio. There are several factors to be considered, product configuration, luminosity, price effects and service and maintenance. While the price reduction is found to be significant (about 20%), Funded in part by Martha Piper Research Fund at the University of British Columbia, Vancouver; part of the work was done when this author was at Center for Study of Science, Technology and Policy (CSTEP), Bangalore, India. i

Abbreviations: CFL- Compact Fluorescent Lamp LED- Light Emitting Diode MNRE- Ministry of New and Renewable Energy NGO- Non-Governmental Organization NSM- National Solar Mission NSSO- National Sample Survey Organization PV- Photovoltaic SMF- Sealed Maintenance Free SLS- Solar Lighting System Acknowledgments: We thank the editor, Gautam Dutt, and the anonymous referee for their valuable comments that have improved this paper.

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affordability may still remain an issue for poorer households. LED lighting allows for the introduction of plug and play systems, and reduces institutional requirements for installation and maintenance. Keywords Rural Electrification, Energy Efficiency, Solar Lighting Systems, LED lighting, Plug and Play 1. Introduction As of 2011, about 33% of the 247 million rural households in India remained without access to grid electricity and most (about 95%) of these depend primarily on kerosene lamps for lighting (Census of India, 2011). While connectivity to the central electrical grid poses lower costs to the household than any other source of electric (or even, lighting) energy, extension of the grid to rural areas in India has been slow. Additionally, the mere presence of grid connectivity is not a guarantee of reliable supply. Power outages and poor quality supply caused by voltage fluctuations are common during periods of peak demand, especially in rural areas. A majority, i.e. about 91% (Khandker et al., 2012), of rural households use kerosene lamps, which are dim, inefficient and polluting, either for primary or backup lighting. In 2005, the electricity supply available in rural areas averaged about 12 hours/day and perhaps as a result, there was very little difference between kerosene usage of electrified and unelectrified households, both averaging 2.6-2.7 liters/month (Khandker et al., 2012). Just a single “chimney” lantern burning for 3-4 hours daily will consume about 2.7 liters in a month. Furthermore, the luminosity of this lamp, around 100 lumens, is substantially lower than the 180 lumens derived from even a 15 W incandescent bulb. Due to an ever increasing demand supply gap and resource constraints, the future situation increasingly looks grim. Solar Lighting Systems (SLS) have emerged as a potentially important interim source of lighting for rural Indians with poor or non-existent grid connectivity: they can be rolled out quickly; they can be an interim source of primary lighting; and could be a backup source when the grid does arrive. The market for solar lighting products in India is undergoing a rapid change. A sharp decline in prices of photovoltaic (PV) panels (Aanesen et al., 2012), and support provided by the Indian government through its National Solar Mission have accompanied the emergence of new solar lighting firms targeting rural consumers. These firms have varying characteristics that include differing product emphasis from the simple (e.g. a single lantern with a 1.5W LED light) to more complex (a 40 W household scale lighting system with multiple fixtures); varied business models (along a continuum of off-the-shelf product to services) and different 2 / 21

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relationship to the market (e.g. for profit firms, social enterprises). In addition, as we discover in this paper, technological change in the form of Light Emitting Diodes (LED) technology replacing existing Compact Fluorescent Lamps (CFL) is also underway. While the use of LEDs is common among solar lanterns, firms have begun to introduce LED based home lighting products. This study seeks to understand whether a shift to LEDs as a technology of choice among solar power firms in India has the potential to transform products and business models of firms, and hence to hasten diffusion among users without grid access in India. The use of LEDs can have a direct effect on product specifications including on the size of the PV panels, and on the size and type of battery. The reduction in the size of these components could lead to significant reductions in price, with consequent effects on consumer financing. Changes to technology, to system prices and to institutional partners could result in new business and operational models. This in turn could help provide a cleaner and economically viable alternative to kerosene based lanterns that are the mainstay for lighting for millions of rural Indian families today. This paper is structured as follows. In section 2, we provide a brief description of solar lighting systems and lanterns by way of background material. Section 3 describes the firms whose employees were interviewed and that are a focus of this study; we pay special attention to their choice of technologies, pricing and financing options, and distribution systems. This is followed in section 4 by a comparative assessment of CFL and LED systems based on their technical characteristics (4.1), economic considerations (4.2), and institutional concerns (4.3). Of particular interest is the development of LED based plug and play systems; its implications are briefly reviewed in section 4.3. We conclude with policy implications of this work (section 5). 2. Solar Lanterns and Lighting Systems At the wattage being considered, lanterns and SLS operate on Direct Current (DC) based power produced by the solar modules. Lanterns typically are portable and have a single light (LED or CFL) of low wattage. SLS have PV panels that are roof mounted and lights that are often wall mounted fixtures. These systems are available in a wide range of sizes and specifications. Further, since generation of power and demand do not coincide, battery storage is required. A typical lighting system at or below 40 W can support two to four lights, and power small loads such as a mobile phone charger or a small table fan.

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Lighting systems can be almost an order of magnitude more expensive than the solar lantern because of additional loads and the infrastructure requirement. Solar lighting systems have hitherto been based on CFLs because the extra costs of the CFL vis-à-vis incandescent bulbs are more than compensated for by the need for smaller photovoltaic panels and batteries. Similarly, a shift towards LED with lower wattage needs for comparable luminosity along with their greater longevity could have a cascading effect on the prices and the market. Solar lanterns and SLS have been a technology of choice in programs supported by international financing organizations like the World Bank, and governments in developing countries where large fractions of populations remain un-electrified or under-electrified with unreliable supply. This is because solar lighting products are scalable and can be designed to fit a wide range of demands and affordability constraints. Several studies (for example, Cabraal et al. (1996), Nieuwenhaut et al. (2001), van der Vleuten et al. (2007) and World Bank (2008)) show that different institutional modes of delivery provide additional flexibility. Broadly, these institutional approaches can be characterized as donation, concessionaire, cash sales, credit and fee-for-service (following van der Vleuten et al. (2007)). In India, solar lighting sales have been supported by donor funded programs, sales based on credit, and cash sales. Donor funded programs have been supported by either the government or international funding bodies. Credit-based approaches have largely relied on the formal rural banking sector (Harish and Raghavan, 2011) - the scale of these is perhaps unique to India. Fee-for-service models are less prevalent in India than in parts of Africa (Gustavsson and Ellegard, 2004) and Latin America (Rogers et al., 2006), though new firms using this model have emerged (e.g. Simpa Networks). Central charging stations for solar lanterns working similar to the fee-for-service mode have been described by Chaurey and Kandpal (2009) and implemented by TERI‟s Lighting a Billion Lives programii.

ii

TERI, Lighting a Billion Lives, http://labl.teriin.org/, Accessed on April 30, 2012 4 / 21

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3. Description of Firms The sample of solar firms chosen here represents a diverse set of firms based on age, range of operations, products, geographical, distribution, and mode of financing. Three firms (E, F and G) interviewed here were early entrants to the SLS market, with firms F and G operating for over a decade and half. We interacted with them for a broader study on solar energy options in India in 2010 (Raghavan et al., 2010). Firm A was referred to us by several sources as their products targeted relatively lower income households. This led to Firms B, C and D who were operating in a similar market. In the summer of 2011, we conducted extensive open-ended interviewsiii with senior management of all firms to understand their products and business approaches. While we had face-to-face interviews with five firms, the other two (B and D) were conducted on the phone. The designations of the respondents have been provided in Appendix A. In the autumn of 2011, we had additional telephone interviews with the three firms making CFL lighting systems (E, F and G) specifically on the question of CFL to LED transition. All firms have been anonymized in the reporting of information. Appendix B provides overviews of the seven firms. Table 1 summarizes important attributes about the firms. Firms A, B and C, primarily make solar lanterns, while E, F and G, assemble and sell lighting systems. Firm D sells a product that is an intermediate between lanterns and lighting systems as will be described later. Firms vary by age from over 20 years (firm G) to two years (firms C and D). Similarly, the volume of sales too vary greatly as tabulated in Table 1, although a direct comparison might mislead as the products are very different. Here we summarize the characteristics of these firms over three major dimensions- product configuration (3.1), pricing and financing (3.2), and distribution and after sales maintenance (3.3). {INSERT TABLE 1 HERE}

iii

The questionnaire is available as online supplementary material

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3.1 Products The panel size, battery type, and lighting loads supported in the products have been summarized below in Table 2. All the three firms that make lanterns use LEDs, as does Firm D. Among the larger system manufacturers, some configurations are based on LED lights or are a combination of CFL and LED lights. {INSERT TABLE 2} The choice of the product sizes manufactured seems to depend on the firms‟ views on the appropriateness of products for the poor. For instance, the interviews showed that Firms F and G are strongly against lanterns- both sell lanterns only for projects targeting special categories of users such as street hawkers. They argue that unlike lighting systems, lanterns are not a long lasting asset because they are susceptible to breakage. Moreover, unlike for lanterns, PV panels of SLS are fixed and installed at an optimal inclination to maximize solar energy harnessed. In contrast, Firm B is strongly against SLS and believes that selling such expensive products to the poor is not appropriate. Furthermore, the mobility of the lanterns may have additional utility to the consumer (going to the field at night, for instance). A potentially important variant in the product configurations relates to the inclusion of small table fans that use DC power. While two firms have integrated a DC fan into their product, others felt that higher wattage and unpredictable usage hours made their inclusion difficult. However, it was also acknowledged that the inclusion of a fan could significantly improve the value proposition for solar PV systems in regions with stifling summers and low grid penetration in parts of Central and North India. 3.2 Pricing The prices of major products for each firm are plotted with respect to the PV panel size in Figure 1. The prices of small wattage lanterns made by firms A and B are an order of magnitude lower than those of the lighting systems of other firms. To be sure, this may not be such a meaningful comparison; for instance, are three lanterns comparable in their utility to a three-light system? Firm D‟s 3 lighting system combines the characteristics of these two categories. Each of the three lights is of 1.5 W, a power similar to that of a lantern, and the lighting system is priced somewhere between a lantern and a multi-unit systems. The cost per watt would depend on the

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system configuration (lighting technology, sizing of battery, number of fixtures). From Figure 1 it can be seen that the cost per watt varies from Rs. 325 to Rs. 1,200 ($6.5 to $ 24). {INSERT FIGURE 1 HERE} 3.3 Financing and Distribution channels Table 3 provides an overview of the financing agencies and the forms of support available to the customers of the firms. Rural Regional Banks (RRB) and their network of branches, and Microfinance Institutions (MFI) that have a local presence, provide the end-users with loans and often help the firms identify the prospective customers. There are also variants of this basic model. For example, for firm A the role of the MFI is as a distribution channel and not as a provider of credit to customers. {INSERT TABLE 3 HERE} Formal banking infrastructure and RRBs in particular, play a critical role in the marketing of SLS systems. Respondents from all firms claimed that the presence of willing banking partners was crucial to entering a new region. RRBs are important in initiating a dialogue between the firms and consumers. In addition to their core function of providing flexible loan terms to suit the individual customer‟s cash flow, they indirectly ensure the systems are maintained well. If the system fails the customer‟s loan repayment might stop. Moreover, RRBs interface with the government or appropriate agency to apply for financial subsidies. (Given these reasons, it is not surprising that over 70% of the solar lighting systems of each of the firms E, F, and G are purchased through loans. RRBs are thus central to the process of „market-making‟, but they also result in the creation of local monopolies and shape the market thrusts of a specific product or a specific firm. Though the MFIs and RRBs might often form the initial point of contact with the customers, the distribution chain or channel partners actually do the sales, and are responsible for after sales maintenance. These channels are described in Table 3. In the case of home lighting systems, trained technicians who are either on the permanent or temporary payroll of the firms help install individual home lighting systems. Most of the firms provide a 1-year warranty. In the case of larger systems, during the first year of operations, technicians make home visits to ensure that the system is working as slated and train the residents on maintenance.

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System maintenance requires keeping the PV panel from getting covered by foliage or dust and ensuring that the battery has an appropriate recharge and discharge profile. The latter is very important for maintaining battery life. Hence, the availability of trained technicians or a service center in the region is important for continued operation of the system. In the case of smaller systems with dry batteries, there is no requirement for periodic maintenance. These have to be changed in 2-3 years, but the costs are much lower. In the case of larger systems, the lead acid batteries need to be replaced anywhere between 5-8 years, depending on the usage. The costs are quite significant, and because they are not amortized, they can be prohibitive for cashstrapped rural consumers. In summary, lantern manufacturers, firms A and B, have had sales in the hundred thousands, with products that that are an order of magnitude smaller and cheaper than the lighting systems. Because of the low price of lanterns, they are sold through cash transactions. The significantly more expensive lighting systems depend on the rural banks for facilitating their sales through the provisioning of credit. Furthermore, unlike for the lanterns, dedicated distribution channels are necessary to install and maintain lighting systems. Lighting systems are currently not amenable for becoming an off-the-shelf product, although two of the interviewed firms are attempting to develop this. 4. Assessing the CFL-LED transition For solar lanterns, the transition to the use of LEDs from CFLs is almost complete. As described by the respondent from Firm A, lanterns used to be based on CFL, and were relatively bulky with a large battery. The shift to LED allowed for smaller panels, smaller and less expensive dry batteries, and has resulted in lanterns that are more robust and portable. Further, given the nature of the use of lanterns, a certain degree of ruggedness and ease of mobility is required and the shift to LEDs facilitated this. Furthermore, the LED costs have also decreased, and with time, the level of luminosity of the LEDs being used in the lanterns has improved. Lighting systems appear to be ripe for the use of LEDs. But would a shift to LED based lighting systems have a similar impact on home lighting systems‟ market? If so, should policies be aimed at promoting the diffusion of LED based systems? Before we engage in a discussion on policies to promote LED lighting systems, several techno-economic aspects of LED systems remain to be analyzed. These range from the technical (e.g. the quality of light or luminosity of different lighting technologies), economic (e.g. effects of pricing of these technologies) and 8 / 21

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institutional (e.g. ease of financing and maintenance of the lighting products).In the following sections we focus on these questions, and compare LED solar lighting systems with Kerosene, the form of lighting used by the overwhelming majority of India‟s poor without grid access, as well as to CFL systems. 4.1 Technical Considerations: Comparing Power and Luminosity As described in Azevedo et al. (2009), the luminous efficacy- the light output in lumen per Wattof CFL lights has saturated and is 40-60 lm per Watt at low power loads. In contrast, the luminous efficacy of white LED lights has been rapidly improving. Azevedo et al. (2009) estimate it at 80 lumen/W, and the US DOE had projected this to increase to 174 lumen/ W by 2015 (Navigant Consulting Inc., 2008). There is likely to be some degree of catch-up needed for the actual lights used in solar applications. Our respondents estimated that a 3.6 W LED is roughly equivalent to a 7 W CFL- pegging the efficacy of the LED lights used at about 80-120 lumen/ W. Simple wick-based kerosene “chimney” lanterns are commonly used especially among poor households. They have a light output of about 10 lm (Mills, 2003). Another variety called the hurricane lantern, is mass manufactured in China, and has a higher output of about 50 lumen (Apte et al., 2007), though these are not as commonly used. Lantern outputs can vary within a large range depending on factors like the level of the flame, the wetness of the wick, and soot accumulation (Mills, 2003; Apte et al., 2007). It is in this context, that the relative utility of kerosene lanterns and solar lighting systems must be understood. Table 4 compares the light output of CFL and LED bulbs of wattage currently used in the solar products. For the sake of comparison, a 40 W incandescent bulb has a luminosity of about 480 lm. As standards for LED lights are not yet in place, a range of 40-100 lm per watt for luminous efficacy is used below. Not surprisingly, the output of most lights is significantly greater than that of a kerosene lantern. However, for the small lanterns (1 W or lesser), these results are less certain. In terms of utilization of primary energy, the efficiency of kerosene lanterns is almost two orders of magnitude lower than the solar alternatives. {INSERT TABLE 4 HERE} As LED technology evolves and becomes more efficient than CFLs, the number of lighting fixtures that a solar PV panel and battery combination can accommodate will likely increase. 9 / 21

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Conversely, lower wattage solar PV panel and battery combinations can have lower costs for a fixed number of light fixtures vis-à-vis CFLs. We turn to issues of pricing and cost-effectiveness in the next section. 4.2 Economic Considerations: Comparing Price and Cost-Effectiveness To demonstrate the difference in costs of LED and CFL technologies, we compare the cost of two similar systems – a three light system with 7 W CFL fixtures to a three light system with3.6 W LED fixtures which are roughly equivalent in their output. The two systems are designed for the entire load to operate for 5 hours, 2 days autonomy. The systems are configured with the further assumption of 6 hours of sunshine per day. 10 years is considered as the life of the system, with replacement of the batteries once in 5 years and replacement of the CFL lights once in 3 years. With the efficiency assumptions and for the given system configuration the PV panel sizes will be 40 W for the CFL system and 20 W for the LED system. The battery sizes will also change- 40 Ah (12 V) lead acid battery with CFL and 22 Ah with LED. (Detailed assumptions on configuration provided in Appendix D). The LED systems have an initial purchase price that is estimated to be about 20% lower, costing about Rs.9,900 compared to about Rs.12,800 for the CFL system. The breakup of the lifetime costs of both these systems are illustrated in Figure 2. {INSERT FIGURE 2 HERE} The 20% reduced purchase price of LED systems when amortized over a period of 5 years at an annual interest rate of 12% corresponds to a monthly installment of Rs. 180. This is about Rs.50 lesser than the monthly installment for the CFL system. When compared with survey estimates of household expenditure on kerosene for lighting and fuel for each of the ten income deciles (figure 3), the costs of CFL and LED SLS vis-à-vis expenditure of lighting and heating appear to be particularly high for the lower decile households. Monthly costs of SLS viewed as a percentage of total household expenditure for the poorest deciles are 9% for CFL and 7% for LED respectively (figure 4). {INSERT FIGURE 3 HERE} {INSERT FIGURE 4 HERE} A reduction of payment of Rs. 50 accounts for about 2% of monthly expenditure even for the poorest deciles. If affordability is the major barrier, this price reduction is not likely to increase the consumer adoption dramatically. Anecdotally, this was supported by Firm F‟s experience of 10 / 21

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introducing LED systems. While the volume of sales almost remained flat, the new LED and LED-CFL combination systems contributed to 35-40% of the sales, resulting in decreased revenues. This suggests that the introduction of LED based systems by Firm F might have led to the substitution of its CFL based systems without increasing the market size.

We now consider two scenarios for SLS systems based on credit purchases, and compare them to equivalent lighting needs provided for by multiple kerosene lanterns (1 or 3). We use a „market‟ based scenario (20% down payment and the rest borrowed at 12%) and a „policy‟ scenario based on the subsidies available under the government of India‟s national solar mission for small scale off-grid solar PV application (30% capital subsidy along with a subsidized loan at 5% for a benchmark cost of Rs. 270 per watt) (MNRE, 2010; MNRE, 2011). Since the costs per watt of both systems are higher than this benchmark cost, a second loan at market rate of 12% is needed in the second case. The costs of these lighting systems are compared with the costs of lighting one and three kerosene lamps in Table 5. It is assumed that each lamp is used for 5 hours every day. A fixed amount of subsidized kerosene is available to poor households on a monthly basis from „fairprice‟ shops, whose primary usage is for lighting, though a portion is also used as cooking fuel. Kerosene consumption with hurricane lanterns is estimated to be about 0.03 liters/hour (Mills, 2003). If the monthly consumption exceeds the subsidized amount (assumed here to be 4 liters, though actual amounts vary across the states), consumers must purchase kerosene at market prices where it is significantly more expensive. In 2009-10, the average market price was about Rs. 25/l and the subsidized cost Rs. 10/l (National Sample Survey Organization (NSSO), 2011). Over a period of 10 years, the cost of a three fixture LED based system is similar to costs of using two kerosene lamps. With three kerosene lamps, the costs are higher than those of both the three fixture systems (CFL and LED). With or without policy support, LED systems appear to be preferable from a cost perspective to both kerosene lamps and CFL lighting systems. {INSERT TABLE 5 HERE} Table 5 also shows the cost of replacing kerosene lamps with LED based solar lanterns (costing Rs. 1600 with a lifetime of about 5 years and with batteries costing Rs. 150 with a lifetime of 2 years). Assuming that a second lantern is purchased at the same cost after five years, the expenditure incurred is similar to the costs of a single kerosene lamp. This appears to validate the high volume of sales observed in the cases of Firm A and B. In fact, a study on the lighting 11 / 21

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usage before and after the introduction of LED based lighting (with a battery chargeable by grid supply or solar), in a village in Malawi, found a dramatic reduction on households‟ reported use of kerosene and candle usage (Adkins et al., 2009). The cost of useful energy is an indicator of the cost-effectiveness of each lighting alternative. As expected, kerosene is significantly more expensive than the solar alternatives. The LED based SLS have the least costs per klm-hr delivered. 4.3 Institutional Considerations While the techno-economic calculations done above confirm that LED systems would be the outcome of choice after accounting for luminosity and cost, other market considerations and institutional support mechanisms will also influence how widespread the use of the technology might become. These considerations include, inter alia, product design, credit mechanisms, distribution channels, and service & maintenance. In principle, custom-built designs are needed including the choice of number of fixtures, their wattage and type, thus allowing households to choose according to their needs and willingness to pay. In contrast with grid-connected household where inhabitants make purchasing choices about individual fixtures based on evolving needs, SLS are „packaged‟ and require the purchase of the entire system. How firms present these choices to customers is then critical to the acceptance of SLS. In India, relationships between the solar firm and rural consumers are mediated through local „channel‟ partners, who facilitate product choice and consumer credit. These partners, such as the local bank, an NGO or a dealer, enters into a relationship with a solar firm, and typically presents a single or a limited menu of solutions to households in a village. The need for a local partner often creates a systemic bottleneck in rural locations where capacity might be lacking. However, recent introduction of plug and play systems could help circumvent these bottlenecks. Firm E recently introduced a new plug and play model that is precisely doing this – looking to use new approaches to circumvent the need for local partners. An individual with minimal training can install Firm E‟s plug and play systems and all sales so far have been cash transactions. As described below, the transition to LEDs can also facilitate SLS servicing and maintenance. After the product is specified, the installation of lighting systems requires trained technicians- a role that is typically taken up either by the firms or by dealers. Once the system is installed, service and maintenance play an important role in determining the longevity and proper 12 / 21

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functioning of a lighting system. Lanterns do not require much attention and their batteries can be replaced more easily. While the large lighting systems of the firms E, F and G, use lead acid batteries that need maintenance, the smaller systems use maintenance free batteries. Shifting to LED lights could lead to a change in the system components and configuration. This is especially the case with the battery. With smaller battery capacities required, LEDs allow for an easy maintenance battery type, for instance, moving from flooded electrolyte lead acid batteries to Sealed Maintenance Free (SMF) or perhaps, to dry rechargeable cell types like NiMH (NickelMetal Hydride), NiCd (Nickel-Cadmium) or Li- based batteries. While lead acid batteries are currently less expensive when compared to these alternatives, the latter are easier to maintain. 5. Can Government Policy Help? For millions of rural households in rural India, in the absence of grid, kerosene lanterns are the choice for lighting. In this context, it is worth looking at the cost of kerosene subsidy to the government. While kerosene is estimated to cost Rs. 25/l in the open market, its subsidized price is Rs 10/l. The government itself estimates the unsubsidized price of kerosene to be about Rs. 45/l (Petroleum Planning and Analysis Cell, 2013). Using this latter number, the annual cost of kerosene subsidy per household is about Rs.1,500, assuming household monthly consumption of 3.5 liters of subsidized kerosene. Kerosene subsidies constitute a recurring annual cost to the government. Hence, over a ten year period, the government is currently spending about Rs. 8,300 (with a discount rate of 12%) on kerosene subsidy per household. This could be a reference amount for the government in computing solar subsidy, as the new market for SLS will likely be households currently using kerosene for lighting. Improvement in quality of lighting would not be the only benefit. If kerosene usage for lighting can be reduced, the excess kerosene would be used by households for cooking, thus reducing the consumption of biomass. The health benefits due to such a shift could be substantial (Grieshop et al., 2011). As noted in section 4.2, the costs of LED lighting systems purchased with a loan are lower than the costs of using two kerosene lanterns daily. Furthermore, the quality of lighting is substantially better. The Government of India has subsidized SLS for over two decades. The National Solar Mission (NSM), announced in 2009, has specific targets and financial subsidies directed towards SLS. Under the NSM the policy is an improvement of previous approaches with the subsidies routed through the rural banks and offers a 30% capital subsidy, and subsidized loans (at an interest rate of 5%) for 50% of the capital cost up to Rs 270 per watt peak. The quantum of subsidy here 13 / 21

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would depend on the panel size of the system. There is another recent scheme (March 2012) wherein the government provides a 40% subsidy for the capital cost up to Rs. 270 per Watt peak, but with no interest subsidy (MNRE, 2012a). This scheme targets the installation of 120,000 SLS and small PV based applications by 15 March, 2013.The rural banks continue to be the route of subsidy disbursal and are free to provide loans at market rates for the remaining costs. While both these schemes seem to be agnostic to the lighting technology, guidelines have been provided only for CFL based lanterns and SLS in a more recent document (May 3, 2012) (MNRE, 2012b). In addition, it also specifies SLS configuration for eligibility of subsidies – number of lights, battery size, and panel size. This is a step backward as this policy measure does not support customizing technology to suit local needs and may stifle innovation. Wattage based subsidies (in the form of PV panel sizes) also disadvantage LED systems. Panel size provided a reasonable reference for the subsidy when it directly translated to greater load usage and hence, greater utility. With the introduction of energy efficient LEDs, the panel size required for equivalent light output is lower. Hence, there is an argument to be made for changing the reference attribute to one that reflects the actual utility of the product- for example, light output in lumen-hours. In our example in section 4.2, three fixture LED and CFL systems were estimated to require panel sizes of 20W and 40W respectively. Because of the structure of the present subsidy, the LED system receives lesser subsidy in terms of both actual amount received and as a percentage of price. Arguably, the two should receive equal amounts of subsidy, as they are equivalent in terms of output. On the other hand, the current wattage based framework does have certain advantages: while panel size is understood widely, light output measurements may not be so, making it difficult to implement; furthermore, LED standards have not been developed and hence, actual quality may differ. With time however, the reference for subsidies should be reconsidered. A major area for policy intervention is in providing access to the market for rural consumers. Currently, rural consumers depend on local intermediaries like banks and are often presented with a limited set of options in terms of product configurations and firms. The central government could work with the state renewable agencies and rural regional banks to assist a broader range of customers – including public buildings, hospitals and schools to showcase varied solar products, thus increasing the awareness of solar solutions. The market for LED based lighting systems in India is large and lowering costs could make it affordable for the millions that are dependent on kerosene for lighting. Further, the economics of 14 / 21

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LEDs make SLS systems that use LEDs robust to a number of different designs. The transition to LED will lead to smaller systems and lower prices and so could make SLS more affordable for rural Indian households. Furthermore, firms might develop plug and play systems that could further help transcend some bottlenecks –installation and maintenance, and perhaps, even the need for financing. Government policies should continue to evolve so as not to stifle innovation and to provide households with increased choice. The effect on rural development of the shift from CFL to LED based SLS might be hard to quantify. SLS based on CFL or LED, will remain medium term solutions till the consumers can get access to a reliable central grid or a well-designed and maintained micro-grid. However, given that grid based lighting is still a distant reality to millions of households with continued dependence on kerosene, if LED based packages help in larger dissemination of solar based lighting, they do offer substantial benefits. With the smaller loads, LED based SLS could result in cost and size reductions that may result in new products incorporating larger loads- ceiling fans, televisions, and perhaps even appliances with income generation potential like sewing machines.

References Aanesen, A., Heck, S., Pinner, D., 2012. Solar Power: Darkest before Dawn, McKinsey on Sustainability and Resource Productivity, McKinsey and Company Adkins E., Eapen S., Kaluwile K., Nair G., Modi V., 2010. Off-grid energy services for the poor: Introducing LED lighting in the Millennium Villages Project in Malawi, Energy Policy 38, Issue 2, 10871097 Apte, J., Fuller, M., Gopal, A., Lindgren, K., Kammen, D., Gadgil, A., Mills, E., 2007. Developing the Means for the Use of Modern Lighting: How can WLED technology bring high quality to India‟s poor?, University of California, Berkeley Azevedo, I.L., Morgan, G., Morgan, F., 2010. The Transition to Solid-State Lighting, Proceedings of the IEEE, Vol. 97, No.3 Cabraal, A., Cosgrove-Davies, E., Schaeffer, L., 1996. Best Practices for Photovoltaic Household Electrification Programs- Lessons from experiences in selected countries, World Bank Technical Paper no.324 Census of India, 2011. House listing and Housing Census Data Highlights – 2011. Government of India, 2011. (http://www.censusindia.gov.in/2011census/hlo/hlo_highlights.html) Viewed on 10 October 2012. Chaurey, A. , Kandpal, T.C., 2009. Solar lanterns for domestic lighting in India: Viability of Central Charging Model”, Energy Policy 37, 4910-4918

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Dutt, G.S., 1994. Illumination and sustainable development Part 1: Technology and economics. Energy for Sustainable Development 1(2) 23-35 Grieshop, A.P., Marshall, J.D., Kandlikar, M., 2011. Health and climate benefits of cookstove replacement options, Energy Policy 39, 7530-7542 Gustavsson, M., Ellegard, A., 2004. The impact of solar home systems on rural livelihoods. Experience from the Nyimba Energy Service Company in Zambia, Renewable Energy 29, 1059-1072 Harish, S. M., Raghavan, S.V., 2011. Redesigning the National Solar Mission for Rural India, Economic and Political Weekly Vol. XLVI, No. 23 Khandker, S.R., Samad, H.A., Ali, R., Barnes, D.F., 2012. Who Benefits Most from Rural Electrification? Evidence in India. World Bank. Policy Research Working Paper 6095 Mahapatra, S., Chanakya,H.N., Dasappa, S., 2009. Evaluation of various energy devices for domestic lighting in India: Technology, economics and CO2 emissions. Energy for Sustainable Development 13 (2009), 271-279 Mills, E., 2003. Technical and Economic Performance Analysis of Kerosene Lamps and Alternative Approaches to Illumination in Developing Countries, LBNL Mills, E., 2005. The Specter of Fuel-Based lighting. Science 2005; 308:1263-64 Ministry of New and Renewable Energy (MNRE), 2010. Guidelines for Off-Grid and Decentralized Solar Application, http://mnre.gov.in/file-manager/UserFiles/jnnsm_g170610.pdf (accessed on April 30,2012) MNRE, 2011. Revised Capital Subsidy and Benchmark cost of the SPV system w.e.f. 01.04.2011, http://mnre.gov.in/filemanager/UserFiles/Revised_Capital_Subsidy_and_Benchmark_costofthe_SPV_system.pdf (accessed on April 30,2012) MNRE, 2012a. Directive regarding Capital Subsidy Scheme(March 2012),http://mnre.gov.in/filemanager/UserFiles/bank_subsidy_scheme_jnnsm_st_29022012.pdf (accessed on April 30,2012) MNRE, 2012b. Directive regarding Technical Specifications for CFL based Solar Photovoltaic Lighting Systems(May 2012), http://mnre.gov.in/file-manager/UserFiles/cfl_spls_2012_13.pdf (accessed on June 6, 2012) Navigant Consulting, Inc., 2008. Solid-state lighting research and development portfolio: Multi-year program plan FY‟07-FY‟12, prepared for Lighting Research and Development Building Technologies Program, Office of Energy Efficiency and Renewable Energy, U.S. Dept. of Energy th

National Sample Survey Organization (NSSO), 2010. 66 Round, Household Expenditure Survey 200910, Ministry of Statistics and Programme Implementation NSSO, 2011. Level and Pattern of Expenditure 2009-10, National Sample Survey Report No. 538 (66/1.0/1), Ministry of Statistics and Programme Implementation Nieuwenhout, F. D. J., van Dijk, A., Lasschuit, P.E., van Roekel, G., van Dijk, V.A.P., Hirsch, D., Arriaza, H., Hankins, M., Sharma, B.D., Wade, H., 2001. Experience with solar home systems in developing countries: a review. Prog. Photovolt: Res. Appl. 9, 455–474

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Petroleum Planning and Analysis Cell, 2013. Price Buildup of sensitive products. Ministry of Petroleum and Natural Gas, Government of India. http://ppac.org.in/writereaddata/Price%20Build%20up%20Sensitive%20Products.pdf Accessed on February 25, 2013. Raghavan, S.V., Bharadwaj, A., Thatte, A.A., Harish, S., Iychettira, K.K., Perumal, R., Nayak, G., 2010. Harnessing Solar Energy: Options for India, Center for study of Science, Technology and Policy report Rogers, J., Hansen, R., Graham, S., Covell, P., Hande, H., Kaufman, S., Rufin, C., Frantzis, L., 2006. Innovation in Rural Energy Delivery, Navigant Consulting, Inc./ Soluz, Inc. study van der Vleuten, F., Stam, N., van der Plas, R., 2007. Putting solar home system programmes into perspective: What lessons are relevant?, Energy Policy, Volume 35, Issue 3, 1439-1451 World Bank, 2008. Designing Sustainable Off-Grid Rural Electrification Projects: Principles and Practices

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Appendix A- Summary of respondents Firm A B C D E F G

Designation of interviewees Head- Marketing and Communication *(Senior executive for the firm‟s solar lantern sales) Senior Manager VP-Product Development, Chief Executive Officer Chief Executive Officer Chief Operating Officer Chief Executive Officer

Date of first interview July 1, 2011 July 26, 2011 (By telephone) July 11, 2011 (By telephone) July 12, 2011 June 21, 2011 August 3, 2011 August 3, 2011

Appendix B- Introduction to the firms studied Firm A, headquartered in the United States, assembles its products in China and is currently operating in about 40 countries. India accounts for about a quarter of their sales so far. Their portfolio consists of 3 single light products of wattages from 0.5 W- 1.5 W. They are looking to introduce lighting systems based on LED in the near future. Their sales so far have been primarily in the states of Uttar Pradesh (60%), Bihar (25%) and Maharashtra (10 %,) in north and central India. In the very short period of operation, within a year, they have sold 250,000 lanterns. Firm B manufactures a range of products, but their primary product is an LED based lantern of wattages from 1-3 W. They procure PV cells and have a manufacturing unit to prepare the modules and assemble the systems. Firm B has recently introduced two LED based lighting systems as well, primarily targeting the Uttar Pradesh market. They work in 11 countries and within India, in 14 states- the North East and Uttar Pradesh being among the important markets. Firm B has also set up kiosks (or, central charging stations) in 150-200 villages mainly in the states of Uttar Pradesh, Jharkhand, and Chhattisgarh, north and northeast of India. This firm has sold about 300,000 lanterns over a 4-5 year period. Firm C is a major international manufacturer of electrical equipment. Their foray into solar lighting systems space is primarily a corporate social responsibility initiative. They manufacture two single light systems- one of which is chargeable by both solar and AC power. They have operated so far primarily in 5 states, with roughly equal sales in North and South India (about 35% each) and the rest equally in the West and North-East. They are also looking to introduce larger LED based systems.

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Firm D is also an international firm operating primarily in India. They make an LED based three light system. The systems are assembled by a contract manufacturer. Their sales are in Karnataka (60% of sales) and Uttar Pradesh (40%), and they have a few trial projects in the Philippines and in some countries in Africa. They are looking to introduce larger systems in addition to investing in better battery management. Firm E produces a range of lighting systems: six DC systems with panel sizes ranging between 20 W and 60 W, and AC power packs in the kW scale for residential buildings and commercial enterprises. They also make solar water heaters. Primarily based in Karnataka, they also operate in the neighboring states of Andhra Pradesh, Maharashtra and Kerala. Most of their current products are based on CFL, and they have recently developed an LED based plug and play model. Firm F is one of the oldest firms in this space. Unlike some of the others, their primary focus is on providing energy products targeted at rural households. Although their primary segment is lighting systems, they also sell lanterns based on a central charging station model for street hawkers and school children. In addition, they make commercial power packs and water heaters. F has also begun exploring the cook stoves market. While they almost completely work in Karnataka, they are looking to seed entrepreneurs in other states following a similar business model. Firm G is another early starter and has the largest product range among the firms interviewed here. They are among the leading manufacturers of PV panels in India. Their solar lighting business cuts cross sizes – lanterns, rural home lighting systems and street lights all the way to large urban rooftop modules, moreover, they have set up solar based micro-grids for over 600 villages. In addition, they manufacture solar water heaters and solar based refrigerators to store vaccines in villages. Firm G has sold lighting systems in most of the states in the country.

Appendix C- Model Inputs and Assumptions The systems were sized using the two formulae given below.

Equation D.1 where, L, hL and nL are the wattages of each (identical) load, daily duration of usage (in hours) and the number of such loads; , and are the charging, discharging and load efficiency; 19 / 21

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, the dust factor; fDOD is the depth of discharge; hEHFS are the number of effective hours of sunshine per day- that is, the level of solar radiation is translated into number of hours of sunshine that provides 1kW/m2

Equation D.2 where, in addition to the variables defined above, daysautonomy is the autonomy (in days), and Vterminal is the terminal voltage. As exact required sizes are unlikely to be available, the next commonly available size was used. For battery sizes and costs, the website www.batterymart.com was used, and the bulk prices in USD were converted using (1 USD= Rs. 50). Table D.1 Model inputs and assumptions Discount Rate Load assumptions Number of lighting fixtures, nL Daily hours of operation, hL CFL light wattage, L LED light wattage, L Number of hours of sunshine, hEHFS Efficiency assumptions Load efficiency, Charging efficiency, Dust factor, Discharging Efficiency, Battery sizing Number of days of autonomy, daysautonomy Terminal voltage, Vterminal Depth of Discharge, fDOD Lifetime of CFL (hrs) (approx.) Lifetime of LED (hrs) Lifetime of Battery (years) Costs Panel CFL light bulb LED light bulb Battery (bulk prices from www.batterymart.com): 12 V 22 Ah Sealed Lead Acid 12 V 40 Ah Sealed Lead Acid

12% 3 5 7W 3.6 W 6 0.8 0.9 0.9 0.9 3 12 0.8 5000 >30000 5 Rs.100/W Rs. 200 Rs. 500 Rs.2,500 Rs.4,300

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The Balance of Systems cost for the CFL system was estimated such that it accounts for 30% of the overall costs. This was based on the inputs received during the interviews. The Balance of Systems cost for the LED systems were assumed identical to those for the CFL, as the change in technology is not likely to affect this.

Figure captions Figure 1 Price vis-à-vis panel size of the major products of the firms ( 100 thousand) lighting systems (37 W and higher)

B

C

Not- for- profit social enterprise Not-for-profit division of a multi-national corporation

D

For profit, private sector

2010

E

For profit, private sector

2007

F

For profit social enterprise

1995

G

For profit, private sector

1989

1,000

300 thousand 1.5-3 W lanterns

Table 2

Table 2 Product Configuration (*- Information not available) Firm A

B

Panel Size (W) Lanterns :1.5- 2 W

Lanterns: 0.5- 3W

Lighting systems: 20 W and 40 W C D

Lanterns:10 W Lighting Systems: 5 W

Battery type Nickel Metal Hydride (NiMH) Smaller lanternsNiMH; Larger lanternSealed Maintenance Free (SMF) Lead Acid

* *

Lighting Systems: 5- 60 W

SMF Valve Regulated Lead Acid Li-Fe for 10 W plug and play Lead Acid for larger systems

Lighting Systems: 10- 100 W Lanterns: 3-12 W

Lead Acid *

E

F

G

Lead Acid Lighting systems: 37- 74 W

Lights supported One 0.5- 1.5 W LED Lanterns One under 3 W LED

Combinations 20 W- three 3W LEDs 40 W- four 3W LED+ 1 fan One 4.5 W/ 5.5 W LED Three 1.5 W LEDs Combinations 2-4 1.5W LED 7/ 11 W CFL7/11 W CFL +DC fan Combinations 5-11 W CFL 3.6 W LED Lanterns 3- 7 W CFL Combinations 9 W/ 11 W CFL 1.8 W/ 3.6 W LED

Table 3

Table 3 Financing and institutional support

Firm

Financial institutions

Mode of purchase

A

None. MFIs act as distribution channel in regions they operate in.

All are through direct cash purchases

Distribution channels

Institutional partners-WB, NGOs, MFIs

B

MFIs provide short term loans with terms of 6 months- 1 year. Interest rates of 10- 24% depending on transport charges/ access

30 % through MFIs, restgiven for free/ direct cash purchase

16 service centers (10 of which are in Andhra Pradesh)and work through partners like the World Bank, Government, NGOs, MFIs)

C

None; dealers provide informal loans sometimes

20-30% purchase through informal loans. Rest, direct cash purchases

Dealers – Approximately, 350 dealers, mostly based in cities. NGOs etc. purchase from dealers.

D

District cooperative banks provide loans with 20% down payment over terms of 1-3 years. MFIs provide loans of loan terms of 2 years with Rs.1000 (about 17% of costs) and Rs. 60/week

80% direct cash purchase; 20% through loans

Dealers-firm is new and is building a network

E

Rural regional banks provide loans at market rates of interest and over terms of 5 years typically. Down payment not always necessary

70 % take loans; the rest opt for direct cash purchases

Local service centers- has over 80 branches across the 4 states

F

Rural regional banks and cooperative banks provide loans at market rates. Has an arrangement with some banks to allow for zero down-payment.

90% through bank loans

Local service centers- there are 24 in Karnataka. In addition, about 250 salespersons work part time.

G

Rural regional banks provide loans at market rates

Lighting systems- almost entirely through rural banks

Dealers- there are 155 across the country

Table 4

Table 4 Comparison of the light output of typical light fixtures in lanterns and lighting systems with kerosene lamps

Kerosene wick lamp a

Lamp power Light output Efficacy rating (W) (lm) (lm/W) 202-504 10-100 0.02-0.5

Solar lantern with LED 1.5 CFL lamps in SLS 7 LED lamps in SLS 3.6 a

60-150 280-420 144-360

40-100 40-60 40-100

Power rating (in W) for non electricity-based lamps is estimated using the approach followed by Mahapatra et al. (2009). Given the fuel usage rate, f, the calorific value of the kerosene fuel, CV, and the density, d, power rating is estimated as Power rating= (f (l/h)X CV(J/kg)X d(kg/l))/ For the kerosene lamp, f is taken to be 0.02-0.05l/h. CV and d of kerosene are taken to be 45MJ/kg and 0.806kg/l respectively. All these values are based on Mahapatra et al.(2009)

Figure 2

18,000 Future Battery and Bulb replacement

Lifetime Costs (in Rs.)

16,000 14,000

Panel

12,000 10,000

Lighting

8,000 Upfront system costs

6,000 4,000

Battery

2,000 Balance of Systems

0 With LED

With CFL

Figure 3

Expenditure (in Rs.)

600 Monthly expenditure on fuel and light

500 400

CFL- monthly installment

300 200

LED- monthly installment

100 0 1 2 3 4 5 6 7 8 9 10 Deciles of Monthly Per Capita Expenditure

% of total monthly expenditure

Figure 4

12% 10% Monthly exp on fuel and light

8%

CFL- monthly installment

6% 4%

LED- monthly installment

2% 0% 1 2 3 4 5 6 7 8 9 10 Decile of Monthly Per Capita Expenditure

Table 5

Table 5 Comparison of discounted 10 year costs and costs of useful energy for lighting alternatives Number PV over Light output Cost of useful energy of lamps 10 years (Rs.) (klm-hr/ year) (Rs./klm-hr)b Kerosene a lamps Solar LED lantern -with 1.5W LED

1

3,900

18-180

3.7-37

3

19,700

55-550

6.3-63

1

3,100

110-270

1.8-4.6

Solar lighting systems CFL- without subsidy

16,200

1.2-1.9 1,500-2,300

CFL- with subsidy

11,200

0.9-1.3

3 LED- without subsidy

11,400

1.0-2.5 790-2,000

LED- with subsidy a

8,800

0.8-2.0

Cost of useful energy is estimated as the annualized cost of the alternative divided by the annual light output in klm-hr. The annualized cost has been estimated by multiplying the present value of the costs 10 10 with a factor of (d*(1+d) )/((1+d) -1), 10 years being the duration considered. For analysis with other types of kerosene lamps and lighting alternatives, see Dutt (1994), Mills (2005) and Mahapatra et al. (2009) b Kerosene lamps are assumed to have a capital cost of Rs.100/lamp, and an annual maintenance cost of Rs.20. The lifetime of these lamps is assumed 5 years (All values based on Mahapatra et al. (2009))

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