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

UNCLAS SECTION 01 OF 02 KOLKATA 000291 SENSITIVE SIPDIS 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