 "Rohit Chandra")
In 2010, three former Ericsson employees teamed for a small and innovative, albeit challenging, business idea in an area where the government, with all its financial and managerial might, had failed for years. The trio planned to supply electricity to the unreachable - technically called off-grid consumers - in nondescript rural areas. Their aim was to replicate the telecom model, which had transformed the lives of millions in the hinterland through wireless mobile telephony, in the power sector.
Three years later, OMC Power, the company floated by them, is fast transforming the rural landscape, both social and economic, in Hardoi district of Uttar Pradesh. Villages covered by it are reaping the benefits of reliable, renewable and cheap electricity.
Last month, the World Economic Forum selected the company as one of the 36 most innovative global technology start-ups that had the potential to transform businesses and society. "The original idea was to get into the off-grid micropower space. The fact that we have got so much external validation doesn't make us complacent. We have a long way to go," says Rohit Chandra, chief operating officer and one of the three co-founders of OMC Power, at the company's office in Gurgaon.
The other two co-founders are Anil Raj, a telecom industry veteran and former chief executive of Hutchinson in India, and Sushil Jiwarajka, former chairman and managing director of Essjay Ericsson.
The business model
OMC Power's business rests on the fact that about a third of India's population doesn't have access to electricity. The bulk of this population resides in far-flung areas where the high cost of laying transmission lines and the uncertain recovery of that cost have led to their isolation from the national power grid. Typically, OMC Power sets up 10-Kw solar power plants in its area of operation, multiple villages that have no electricity. The power generated is used to charge solar lanterns and batteries that are rented to homes through a channel of dealers. In a single charge, a battery weighing two kg lights up household equipment, including a fan, a bulb and a television. The battery, locally called the bijli box, is replaced by a recharged one every evening by the company's employees. OMC Power charges Rs 120 a month for the lantern and Rs 250-350 a month for the battery. This is at least 20 per cent cheaper, non-polluting and reliable compared with kerosene lamps and other local power sources. OMC Power operates 10 power plants with a total capacity of 100 kw. It lights up about 5,000 households in a 300-village cluster 70 km away from Hardoi town. "These are places where grid power lines haven't reached. This is the off-grid market we serve," Chandra says.
At least three factors have helped the company successfully implement its plans - huge demand, the pre-paid nature of the model and the wireless set-up that reduces costs. Chandra said the demand was so huge the promoters were left surprised when, within 45 days of operation, OMC achieved 30 per cent reach in the targeted villages, against the original estimate of two years to cover 50 per cent houses. "One of the factors that often make a business case in a rural set-up risky is the limited paying capacity of the consumers. This is where our pre-paid model helps," he adds.
The financials
Only a third of the company's total revenue is accounted by community power supply. Two-thirds come from supplying green power to mobile towers run by telecom companies. Currently, about 400,000 mobile towers are operational across India. These are run on costly and polluting power generated by diesel generator sets. "The cost of power accounts for as much as 40 per cent of the cost of running a mobile tower. We are now replacing this costly and polluting model with our green and cheaper solar power," Chandra says. His company serves three large telecom companies, including Bharti Airtel. Chandra refused to share the figures for revenue or capital expenditure so far. He, however, said the share of revenue from telecom was static, while the share from community supply was rapidly rising.
Scalability
Chandra says the business model is innovative. Also, the company has a first-mover advantage. He insists the future of the company is bright, with mammoth demand for off-grid power waiting to be met. "In fact, we will not be able to meet this requirement for power and serve all the areas alone," he says. There is potential to set up 20,000 plants to serve the model. OMC Power has chalked a detailed plan to spread its coverage from Uttar Pradesh to West Bengal, Bihar, the northeast and Jammu & Kashmir.
The company's 10 plants have come up at a cumulative cost of about Rs 6 crore. The company wants to set up 100 more of 36 Kw each by March. These would cover 3,000 villages and require investment of about Rs 50 crore; the company is busy securing funds. "After months of discussions, we have been able to finalise two domestic financial institutions that would put in both debt and equity for the Rs 50-crore expansion. We are currently in the documentation phase for the deals. Also, the promoters are putting in additional equity," Chandra said, refusing to divulge the details.
The promoters are busy drawing plans for venturing into new, though related, areas.
Apart from 70 telecom towers, the company is serving two banks, two petrol pumps and a college. Another customer segment comprise the 5,000 rural households where every customer is registered and batteries and lanterns are distributed without any security deposit.
OMC Power is also trying to launch battery-operated cycles to be rented to the rural populace. In this model, its power plants would work as petrol stations; a cycle would run for about 60 km on a single charge. Another idea is to provide internet services to customers through its tie-up with telecom companies.
Future
The biggest challenge is on-ground execution. "It is an onerous task to run your plants with full efficiency and corporate-style functioning in the rural environment. It becomes difficult to make rural people adopt the corporate culture and values. It is a combination of a lot of training, education and discipline. We have managed this because we have a team that has the requisite experience in the area," Chandra said.
The company has managed to come this far without any institutional funding. The Rs 6 crore invested in setting up generation projects was through equity participation from promoters and Khattar Holdings, a Singapore-based firm run by angel investor Satpal Khattar, a founding member of the company.
A substantial amount has also been spent on developing human capital and designing and marketing strategies, apart from sourcing equipment such as rechargeable fans and lanterns.
A key determinant of growth would be potential demand from the community and its ability to hold on to mobile tower customers. "We have been able to offer affordable solutions so far, because we have institutional customers on the mobile side. We expect the community segment to take over revenues over a period of time," Chandra said.
The company doesn't specify the amount of revenue it needs to generate, say, every month, to ensure cost recovery. Chandra says in the infrastructure business, cost recovery takes a long time, owing to long payback periods from customers. He, however, adds OMC Power would record economies of scale after every power plant covers at least a 1,000 households.
What does the company expect from the government, apart from praise? Chandra says as it increases capacity from kilowatts to megawatts, it expects government support. "This is a capital-intensive business and, being an infrastructure project, the payback periods are relatively longer."
He added as a small company, OMC didn't have the wherewithal to go to the government and avail of various schemes and subsidies available for renewable energy players in rural areas. But the capital it deploys for building plants calls for subsidies.
Entrepreneurs and experts in the solar power sector, particularly in the off-grid market, caution one should be careful in adopting new technology and regions to ensure affordability of power.
"Rural energy access is a very exciting space in India and one can find some really credible start-ups trying to make headway there. OMC Power has identified the right pain points in the areas they are operating in. The opportunity is huge and they seem to be doing the right things to create value," said Kartik Wahi, co-founder and director at Claro Energy, which provides solar-powered water pumps in rural areas.
He adds, "Given their current business model, access to subsidies and their ability to raise capital (both debt and equity) shall be critical in scaling up operations. In the current economic environment that might be tough. Also, sale of electricity is a highly regulated affair in India. Any change in regulation might require modifications to their business model."
OMC Power is trying to solve a worthy problem, he says, adding though the fundamental demand drivers are strong, the market is still nascent. "They just need to ensure they are around long enough."
EXPERT TAKE
Rural electrification was accorded priority in the renewed Electricity Act in 2003 and opens up opportunities to address power issues in underdeveloped areas.
The concept of off-grid and low-cost power is innovative and provides a desired solution to the issue of rural electrification.
There are challenges, including technology, government support, affordability and scalability. But green and environment-friendly power is the future. The approach being adopted by OMC Power will certainly address the ever-growing socio-economic needs of the people. This would make populations from far-flung areas more productive and employable.
The next logical step would be integrating the proposed solution to provide safe drinking water, which would help communities prevent themselves from diseases. Uttar Pradesh offers immense opportunity due to its sheer size and population.
In fact, this is a global issue and about 20 per cent of the global population is deprived of power and, therefore, safe drinking water. In India, this ratio is probably more than half and it would be important for an OMC to have a sustainable model for long-term success. The company has the right experience and knowledge, which makes all the difference. Once logistics and deliverables are mastered, it can seek opportunities outside India, particularly in Africa.
For applications such as telecom, petrol pumps and banks, hybrid power is the answer. The rationale can be extended to other applications and sectors by providing roof-top equipment and having private 'power purchase agreements'. Companies would probably be willing to contribute to this, keeping in mind that renewable energy amounting to environment protection is corporate social responsibility, now mandated by law.
Overall, we see a great future for this and it makes a perfect business case, one that addresses the country's socio-economic factors, too.
Sameer Gupta, managing director, Jakson Power Solutions
