U.S. RENEWABLE ENERGY COMPANY LIGHTS INDIA'S VILLAGE OF

UNCLAS SECTION 01 OF 02 KOLKATA 000291

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STATE FOR SCA/INSB, EEB/ESC, S/SECC, OES
DEPT OF ENERGY (SANDALOW/OCONNOR/GINSBERG/CUTLER)
DEPT OF COMMERCE FOR ITA/MAC/OSA (DROKER/STERN/RUDD)
DEPT PASS TO USTR (CLILIENFELD/AADLER/CHINCKLEY)
DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA (NUGENT)
DEPT PASS TO OPIC (TABERNACKI)
TREASURY PASS TO FRB/SAN FRANCISCO (CURRAN)

E.O. 12958: N/A
TAGS: ENRG SENV EAGR EINV KGHG IN
SUBJECT: U.S. RENEWABLE ENERGY COMPANY LIGHTS INDIA'S VILLAGE OF
DARKNESS

REF: 08 New Delhi 2943

KOLKATA 00000291 001.2 OF 002



1. (SBU) Summary: Since 2007 Husk Power Systems (HPS) has lit
remote, un-electrified villages in Bihar, one of the poorest
states in India. HPS uses widely-available rice husk to
generate and sell electricity to rural villagers, who would
otherwise be without power. A privately-held U.S. renewable
energy startup, HPS is profitable without the GoI's renewable
energy subsidy. HPS plans to double production capacity by the
end of the year and has tapped venture capital and an OPIC loan
for financing. As the GoI addresses the twin challenges of
energizing the nation and conserving the environment, it is
worth considering what role U.S. and Indian entrepreneurs, such
as HPS, can play and how the USG can best support them. HPS
co-founder informed PolOFF that the White House had invited HPS
to attend a social entrepreneurial event in January 2010.




2. (SBU) PolOFF and EconFSN visited the mini-power plants and
villages in early September with HPS co-founder Ratnesh Yadav.
In late September PolOFF and USAIDOFF met with HPS founders at
Embassy New Delhi.



Targeting Areas Outside of GoI's Rural Electrification Programs




3. (SBU) In 2007 three Indians from Bihar, along with
an American from Virginia, founded Husk Power Systems.
Headquartered in Virginia, HPS currently owns and operates ten
35 - 50 kiloWatt (kW),off-grid mini-power plants in Bihar's
West Champaran district, approximately 210 kilometers from the
state capital. HPS initially selected villages that were
without power and not a part of the GoI's rural electrification
program. By December 2009, HPS plans to have a total of twenty
power plants online (total production capacity of 640 kW) and an
additional thirty plants by the end of 2010. While HPS will not
address the huge deficits in rural power supply, it will reach
remote villages which are beyond the boundaries of national and
state rural electrification programs.



Running Rice-husk Biomass Gasifiers without Operating Subsidies




4. (SBU) Unlike other biomass projects that use both
rice husk and diesel, HPS power plants run exclusively on rice
husk. Rice husk biomass electricity generation is effectively
carbon neutral over its lifecycle - as it absorbs carbon when
growing and releases it upon gasification and combustion. HPS
plants are also profitable without government operating subsidy.
While the federal Ministry of New and Renewable Energy provides
a one-time subsidy of Rs 15,000 (approx USD 300) per kW of
installed capacity, according to HPS co-founder Ratnesh Yadav
the plants have a positive return on investment without the
capital subsidy.



Bringing Light to the Village of Darkness




5. (SBU) HPS's commissioned its first mini-power plant
on India's Independence Day, August 15, 2008 in the West
Champaran village of Tampuha. Tampuha, literally translated,
means "village of darkness". Before HPS, people used kerosene
lamps or diesel generators to power electric bulbs. Today,
approximately 2000 households in this village are connected to
the HPS power plant and distribution network. Households pay
Rs. 40 (approximately USD 0.80) per month for two CFL lamps for
six hours every evening. Commercial establishments are charged
more: Rs. 60 (approximately USD 1.20). To promote energy
efficiency, HPS mandates CFL as opposed to incandescent bulbs.
Payment is collected in advance and circuit breakers are
installed to prevent excess power consumption. HPS is

KOLKATA 00000291 002.2 OF 002


investigating the possibility of using pre-paid electricity
meters, but is deterred by the relatively high cost. Yadav
estimated that each plant yields a monthly operating profit of
approximately Rs. 25,000 (USD 500). According to him, the
company is not subject to government regulation or operational
interference as it has limited its operations to rural areas,
outside of regulated municipalities. HPS currently employs and
has trained 60 local residents to operate and maintain the
plant, which has encouraged community ownership.



Funding Ambitious Expansion Plans




6. (SBU) HPS plans to double production capacity by the end of
the year. It raised USD 3 million from venture capitalists and
was approved for an OPIC loan of USD 750,000. HPS won several
business plan competitions: in 2009 from Draper Fisher Jurvetson
and Cisco, and in 2008 from two of the co-founders' alma mater,
the Darden School of Business. The Shell Foundation has also
provided seed capital for HPS's expansion and assisted with
technology and personnel.



Challenges on the Horizon: Reliable Rice Husk Supply, Reduced
Costs, Growth Pains




7. (SBU) While Bihar is rich in rice, a reliable supply
of dry rice husk is essential to this renewable energy business.
Operations are adversely affected by drought (decreased rice
production) or heavy rains (less efficient gasification). Rice
husk is an agriculture byproduct and had little commercial value
before it was discovered as an effective source of biomass gas.
HPS is constantly looking to improve the profitability of the
business by reducing component costs (generators or pre-paid
meters) or improved equipment maintenance training. As a
startup, HPS is also faced with the challenges of growth:
introducing senior and mid-level management to the company.



Comment




8. (SBU) Post suggests further examination of HPS
operations as one way to promote U.S. - India cooperation in
clean energy. The cooperation may take the form of generating
public awareness about the business, extending funds, technology
consultancy or building up their professional management
expertise. The company is open and willing to working with the
USG to grow the business and light more villages of darkness,
albeit in an environment friendly manner. As the GoI addresses
the twin challenges of energizing the nation and conserving the
environment, it is worth considering what role U.S. and Indian
entrepreneurs, such as HPS, can play and how the USG can best
support them. India's energy mix will be just that - a mix of
thermal and renewable, on- and off-grid, public and private, big
and small - and HPS has found what appears to be its profitable
market niche. HPS' model of small, off-grid, low-tech
decentralized power production may be applicable in rice
producing regions, not only in India, but also in other
countries in the region struggling to electrify and develop
their remote villages, such as Afghanistan.
ROWLAND