The Rice Husk Power Experiment

In 2007, Gyanesh Pandey set up Husk Power Systems (HPS) in his native state of Bihar after he quit a well-paying job in in the US. He roped in three friends — Ratnesh Yadav, Charles Ransler and Manoj Sinha — who shared his vision to bring reliable and affordable power to India's hinterland, especially Bihar.

It took five years of research to identify the technology, one that would make use of non-conventional fuel — rice husk — and suit the economics of rural electrification. That done, in 2008, a remote village in West Champaran district of Bihar called Tamkuha was lit up for the first time, 60 years after Independence.

HPS had the ingredients for success in place. Rice husk was available at Rs 60 per quintal (100 kg); it took an average of three quintals of rice husk a day to generate 32 kilowatts of power, enough for 500 households. The running cost of a plant came to about Rs 20,000 a month. Power was supplied at Rs 80 a month; it could power two CFL bulbs (15 watt each) and a mobile charging point. HPS supplied 7-8 hours of power to these villages after sundown.

Dream Start
In three years, HPS built 24 plants and electrified 80 villages (about 12,000 households). And it brought many smiles. Says Ramashish Ram, a panchayat member in Tamkuha village, "We are very happy that electricity has come to our village which was totally disconnected from the rest of the state."

In 2009, HPS won the 2009 DFJ and Cisco Global Business Plan Competition; in 2010, it was honoured by The Tech Museum of Innovation for applying technology to benefit humanity. In 2011, it won the  International Ashden Award for Sustainable Energy and Africa Enterprise Challenge Fund (AECF) Award for its operations in Tanzania. Pandey also bagged the 2011 Real Heroes Award. And HPS ranked second in the BW  Young Entrepreneurs Awards held in March 2010.

With awards came subsidies from the Centre and direct investments. On the HPS investors' list figured Acumen Fund, Shell Foundation, Draper Fisher Jurvetson (DFJ), Ministry of New and Renewable Energy, International Finance Corporation, LGT Venture Philanthropy, Bamboo Finance and CISCO. By 2010, it had raised more than Rs 5 crore in funding. Buoyed by investors' enthusiasm, HPS saw reason to spread its wings.

In 2010, the number of unelectrified villages in India stood at 125,000. It was estimated that there was enough husk to power 200,000 villages. Shell Foundation, which supported Husk Power with donor capital, came on board in 2008 as a strategic partner. HPS began building a plant every month (earlier, it was one plant every three months). By early 2009, it had scaled-up its capability to building a plant every two and a half weeks. HPS's focus on R&D helped it cut power plant equipment costs by 25 per cent. "We are highly impressed with the speed at which Husk Power has innovated in its field and we believe its biggest achievements are ahead of it. The team continues to drive down costs to the lowest level at its scale, and improve the efficiency of its model to empower its customers," says Simon Desjardins, programme manager, Access to Energy, Shell Foundation.

3000: The number of plants HPS expects to build by 2017; it has built 90 plants in four years

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HPS also earned money through char monetisation — it trained rural women to make incense sticks, which were sold to big brands — and door-to-door sales of electrical appliances and FMCG products to villagers. HPS has just begun providing LED lamps powered by solar energy for Rs 150 a unit to far off hamlets of 20-50 households. The company has planned to sell carbon credits generated by operating a clean technology. In fact, it has already sold forward credits to Shell Foundation and expects to earn $1,000 per plant per year.

While cheers have come HPS's way, there is a big gap between the dream and the reality.

Hiccups On The Way
HPS started with a minimum monthly charge of Rs 80; it is now Rs 125. This is attributed to an increase in the cost of rice husk and higher salaries. But the cost of rice husk has gone up by only Rs 0.5 in the past three years to Rs 1.50 per kg. Also, villagers talk of disruptive and low voltage at times, though they acknowledge that the company adjusts the monthly charge in such cases. HPS had set out an ambitious plan to develop and install 10,000 mini-power plants by 2014 (BW's issue dated 18 March 2010 had mentioned this number, but Pandey now claims that "it was 10,000 villages through 2,014 plants by 2014"). It would have meant power to more than 50 lakh households by 2014. Two years down the line, HPS has now brought down its target to 3,000 plants by 2017 (582 plants per year). It has built 90 plants in almost four years.

"The Franchise Model Was Devised To Be Our Engine Of Growth, But It Could Not Take Off" Puneet Rustagi, Director of business planning and strategy, HPS

Bihar has 1,89,40,629 households (rural: 1,69,26,958 and urban: 20,13,671), but only 30,98,435 have electricity. Plus, you have  2,058 villages with access to energy, but no electricity in the grid. This represents a great opportunity for HPS.  But to HPS's disadvantage, the average cost of power supplied by Bihar State Electricity Board (BSEB) to villages stands at Rs 5.50 per unit. It is Rs 9 per unit for power from HPS's plants. Thus, grid power would be HPS's biggest challenge once it reaches these villages which, going by its slow  progress, seems a distant dream.

In addition to spending more than half a million dollars on research and development and on technology aggregation (retrofitting plants with the advanced systems), HPS had to invest a lot to train unskilled folk to run the plants. It also decided to set up a vocational training institute: Husk Power University.

The Status Quo
HPS has added some 66 plants in the past two years. It has trained and employed nearly 400 unskilled locals and, the Husk Power University is a "work-in-progress". Says Pandey, "We were supposed to get funds for the next round of expansion by the third quarter of last year, but it has been delayed. I would rather reserve my comments on the reasons for the delay. We just were not seasoned enough to know the game as it is played. The government's subsidy has not been disbursed in time as well."

The BSEB is sceptical of the entire enterprise. "The scope for expansion is a bit limited (for husk power). I do not see much hope," says a senior BSEB official.

Investors, however, are upbeat: "The past year has been one of consolidation for the company, developing systems and new technologies including an in-house training facility for plant operators. Husk's management has a solid strategy. And with the support of investors, it will be exciting to see them provide electricity to 300 villages, serving more than 500,000 people by 2014," says Karthik Chandrasekar, energy portfolio manager, Acumen Fund. These plants will come up in Bihar, eastern Uttar Pradesh, Jharkhand, Orissa and Chhattisgarh as well as Nepal and Africa. "Outside of India, our major thrust would be in Africa where we plan to have close to 25 plants by the year-end," says Puneet Rustagi, director of business planning and strategy at HPS.



HPS intends to build up to 200 plants of its own, while 2,800 more would be franchises.  "When we started, the model was build, own and operate. We realised that if we wanted to achieve our vision of installing 2,000-3,000 plants, we had to devise a different model," explains Rustagi.

The franchise model was welcomed by local entrepreneurs and NGOs but "financing for local entrepreneurs," admits Pandey, "has been a big challenge. "The  franchise model was devised to be our engine of growth, but it couldn't really take off," says Rustagi. HPS is working towards raising $5 million in investments. The funds would be largely invested in unlocking financing for local entrepreneurs, in char monetisation and in the Husk Power University.

 "HPS and my personal focus has not been just numbers, but developing a self-sustainable ecosystem. Investors have a different view. The social investment space is full of mad, dirty games. If I have to engage in another round of funding, I will change the plan," says a disgruntled Pandey.

He confesses to a timeline of 4-5 years before he quits as CEO to assume a less active role in HPS. What about the vacuum in his absence? Pandey turns philosophical. "Every leader has a lifespan and every organisation needs a change at the top. Even Muhammad Yunus left Grameen Bank (in Bangladesh) so that a new management could take over."

chhavi(dot)tyagi(at)abp(dot)in

(This story was published in Businessworld Issue Dated 14-05-2012)