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Course on Regulation and Sustainable Energy in Developing Countries - Session 2


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schemes for the large-scale dissemination of renewable energy technologies in developing countries. Market-based mechanisms overcome partly the limits of donor aid-projects. They build on …

schemes for the large-scale dissemination of renewable energy technologies in developing countries. Market-based mechanisms overcome partly the limits of donor aid-projects. They build on public-private partnerships where a network of local entrepreneurs contributes to the maintenance of systems.

Solar home systems
Rural energy services companies.
Case studies: Zambia, South Africa, Bangladesh, China...
Institutional and regulatory framework

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  • 1. Delivery mechanisms for Rural Energy Serviceswith Renewable Energies in Developing Countries Selected case studies Leonardo Webinar 8th December 2011 Dr Xavier LEMAIRE, Research Associate Sustainable Energy Regulation Network - REEEP University College London – Energy Institute Course on Regulation and Sustainable Energy in Developing Countries – session 2
  • 2. Summary 1. Cases of large-scale dissemination of photovoltaic systems  Fee-for service rural concessions  Small companies: Zambia  Large concessions: South Africa  Micro-credit schemes  Indonesia  Bangladesh  Non-regulated market in Kenya 2. Cases of large-scale dissemination of RET in China  Bio-digesters  Mini-hydro  Small wind
  • 3. Criteria selection of case studies Decentralised generation with RET Large-scale dissemination  Several hundreds to ten thousands units (small wind generators, mini-hydro)  Ten thousands to several hundred thousands or even million units (bio-digesters or solar home systems) Market-driven approach  Market for installation  Number of systems disseminated justify local installers  And even the implementation of local manufacturers  Market for maintenance  End-users pay for maintenance contract  Enable small operators in rural areas to run an energy business Public organisations / State  Subsidy / Capacity building  Create an enabling environment
  • 4. Large-scale dissemination of PV systems 1. Cases of large-scale dissemination of photovoltaic systems  Fee-for service rural concessions  Small companies: Zambia  Large concessions: South Africa  Micro-credit schemes  Indonesia  Bangladesh  Non-regulated market in Kenya 2. Cases of large-scale dissemination of RET in China  Bio-digesters  Mini–hydro  Small wind
  • 5. Large-scale dissemination of solar home systems Regulated rural energy services concessions (regulation / price + quality) “fee for service model”  South Africa (currently 34,000+), Zambia, Uganda, Ghana, Benin, Togo, Cap Verde, Morocco (80,000+), Argentina (70,000+), Peru, Bolivia, Kiribati, Fiji, ,… (Un)regulated competitive private sector (regulation / quality) “dealer sales model”  Micro-credit: Indonesia, Bangladesh, Sri Lanka, China, Vietnam, India, The Philippines,…  Cash sale: Kenya (200,000+) Other variants: leasing (=hire-purchase) TOTAL world wide 2,400,000+ / 3.000,000 households?
  • 6. Fee-for service scheme vs. micro-credit scheme Fee-for service scheme Micro-credit scheme International funding International funding Soft loan or grant Soft loan or grant Government Government Loan or capital grant Loan or capital grant Energy service companies Micro-finance institutions Energy service companies Install and maintain SHS Provide a credit Install and maintain SHS Monthly fee Reimburse credit End-users End-users Source: X. Lemaire, 2011
  • 7. Fee for service – Utility model (“(R)ESCOs”)1. Government give a subsidy to an enterprise to buy PV solar systems & install them in the houses of their clients2. Clients pay a monthly fee to get the small utility to maintain the PV solar systems for them.  This kind of scheme helps to solve the question of up front cost and the question of maintenance (unlike a simple loan).  It helps also to: - centralise decisions and aggregate environmental benefits of individual systems (bulk purchase, climate funding) - facilitate enforcement of standards and codes of practices  therefore lower costs of systems for users.
  • 8. Photovoltaic ESCOs in Zambia (1)1. Energy Service Companies are small existing local enterprises selected in 1998 and staff trained2. Government gave a loan to the ESCOs and bought SHS3. ESCOs installed & maintain SHS in the houses of their clients4. Clients pay installation cost of 100-150 US$ and a monthly fee of 8-13 US$ which covers running costs5. ESCOs reimburse the loan over 10 years & benefit from a capital subsidy of 50% of SHS
  • 9. Source: M Gustavsson, 2008.
  • 10. A house between Lundazi & Chipata Source: X. Lemaire, 2006
  • 11. A school near Chipata Source: X. Lemaire, 2006
  • 12. Photovoltaic ESCOs in Zambia (2) Multiple actors:  Swedish International Development Agency for funding  Stockholm Environment Institute, University of Zambia and Department of Energy involved in monitoring/training  Regulator issues of licences and definition of codes of practice and standards In 2006, 3 ESCOs, more than 400 clients + waiting list of several hundred clients  2 fully operational – one had financial difficulties  Good record of payment - Few thefts  4-5 jobs consolidated/concession
  • 13. Photovoltaic ESCOs in Zambia (3) Good social impact  Extended hours of business for small shops  Improved results for pupils in schools with solar systems ESCOs fragile financial equilibrium  Limited customer base  High inflation rate in Zambia (400%  10-20%) Pilot project  Huge investment – limited number of system  Only standard 50 Wp  Pre-electrification Extension of the grid to the three towns  Reduce customers base to outskirts  Disruption of activities
  • 14. Rural electrification in South Africa Massive rural electrification effort since 1994, end of apartheid. More than 2.5 million households connected to the grid BUT more than 1.5 million households in remote areas unlikely to be connected. Concessionaire fee-for service with solar photovoltaic has been adopted in 1999 to install more than 300,000 Solar Home Systems. Currently 3 concessions, only 34,000 SHS. Subsidies for extension stopped while other PV projects went on (schools, health centres). Project initially monitored by the national regulator, now Department of Mineral and Energy.
  • 15. The Nura ConcessionThe biggest and one of themost successful concession inSouth AfricaVery large concession of10.000 Km2 with 11.000 SolarHome SystemsEight energy stores (LPG +solar electricity) +HeadquartersEconomies of scale and morethan 70 jobs created
  • 16. Organisation of the reporting system Tokens from SHS Clients Energy stores Technicians Headquarters Source: X. Lemaire, REEEP,2006.
  • 17. Energy store in Kwazulu Natal
  • 18. A house in Kwazulu Natal
  • 19. Cost off-grid /on grid in South Africa Solar Grid Capital Cost per R 4,000 R 10,000 – 15,000 (530 US$) (1,300 – 2,000 US$) Household Subsidy per R 3,500 R 4,000 (460 US$) (530 US$) Household Utility Cost per R 500 R 6,000 – 11,000 (70 US$) (770 US$ - 1,470 US$) Household Pre-paid monthly fee = 61 Rands (8 US$) Free Basic Alternative Energy = 50% of the fee Source: NuRa, 2006.
  • 20. Successes and difficulties in South Africa Proximity with clients and delay in maintenance?  good human resource management  Software + system of reporting + GPS Complaints mainly linked:  To small size of the systems (no colour TV! no cooking!)  Cost of the fee (4-8 US dollars) even subsidised remain high for rural people  Understanding of the contract? Question of ownership of the systems Difficulties linked to:  Lack of coordination with grid authorities  Differentiated fees due to non-homogeneous interpretation of free tariff  Fees can vary according to the policy of the municipalities who give or not a subsidy (Free Basic Electricity for first 50 kWh/month) (since 2007 Free Basic Alternative Electricity of 55 R)  Lack of continuous support  No more/limited subsidies to buy new systems and increase the number of systems managed from 2006 to 2010,
  • 21. Sharp increase of installations? Solar Vision NuRa KES (Shell Eskom)
  • 22. Small or large rural energy companies?Very small companies Large companies(e.g. Zambia, Pacific) (e.g. South Africa) 100-150 clients each  11,000 -30,000 clients each 900 US dollars/SHS  550 US dollars/SHS 2-4/5 jobs  + 70 jobs Only photovoltaic  Multi-energy  Specialised technicians  LPG, paraffin,…  Low maintenance  Other RE and dieselProximity with the client Reduction of costsCost of systems remain high Logistic difficultiesCustomer basis limited Complexity managementFragile-only highest income - Local stores - System of reporting  Break-even point?
  • 23. Credit sales model: Indonesia Company called Sudimara Energi  More than 30,000 systems installed  Company installed 50 Wp systems and provided maintenance contracts by trained technicians  Credit reimbursed in 4 years – more than 95% repaid  Cost systems remained low as manufactured in Indonesia Financial crisis of 1997  devaluation = increase prices solar modules  company folded Main lessons  Loan and maintenance by the same company who install the system and has a direct interest to keep them running to keep customers satisfied and get them pay the credit  Solar business = fragile
  • 24. Credit sales model in Bangladesh (1)  IDCOL – Government Owned financial institution Infrastructure Development Company Limited (IDCOL) was established on 14 May 1997 by the Government of Bangladesh  IDCOL is playing a major role in bridging the financing gap for developing medium and large-scale infrastructure and renewable energy Source: Mondal, 2009 projects in Bangladesh.  The company now stands as the market leader in private sector energy and infrastructure financing in Bangladesh.  RE investment portfolio – 174 million US$ - 97% on SHS.
  • 25. Credit sales model in Bangladesh (2) Grameen Shakti  Established in 1996  Company install mainly 50 Wp systems and provide maintenance contracts by trained technicians so systems function and provide reliable electricity  Belongs to the family of companies set around Grameen Bank  Grameen Bank set up in 1983  Grameen Shakti can rely on the network of micro-retailers of the Grameen Bank Activity  Till 1999, only 1,147 systems installed!  Only after a loan from the International Finance Corporation/ World Bank, solar activity took off  More than 464,000 SHS installed in September 2010  636,322 SHS installed in May 2011
  • 26. Credit sales model in Bangladesh (2) Yearly installation of SHS by Grameen ShaktiSize of SHS proposed by Grameen Shakti Source: Komatsu, 2011 Source: Komatsu, 2011
  • 27. Credit sales model in Bangladesh (2) Options for purchase of SHS with Grameen Shakti (after loan from IFC/World Bank) Options Cash Basis Loan 2 Loan 3 years years Initial 100% initial 25% initial 15% initial payment payment with payment payment 4% discount Interest 8% 12% interest rate interest rate rate Source X. Lemaire, 2011 from Miller, 2009.  Moved today from 3 options to 6 options
  • 28. Credit sales model in Bangladesh (3) Main lessons  Need to keep solar systems running to keep customers satisfied and get them reimburse the loan:  annual visit from technicians during the financing period  one year maintenance contracts for few dollars per month afterwards  Diversification of loans and systems (10 Wp to 130 Wp) proposed to end-users  Importance of training:  6,700 women trained as technicians;  they receive a 4 year technical degree in one of the 45 Grameen Technology Centres Reasons of success  Costs systems are low as manufactured in Japan  Cost of 50 Wp = around 400 US$  Support from an international organisation to expand customer base  Existing dense network of retailers for micro-credit Limits  Quality of installation and components could fluctuate
  • 29. (Modular) cash sales models in Kenya Advantages of direct sales  Base of hundreds of owner shops who sell PV system  They can (or not) install the system  End-users buy components by components of the PV system  More than 200,000 SHS disseminated but very small systems 10-14 Wp for less than 200 US$ Limits  Only a minority (5% of rural inhabitants) can afford to buy directly a system without credit  People buy the cheapest components – size too small so customers not satisfied  Installation is not properly done leading to low system performance from the start and lack of maintenance leads to early system failure
  • 30. Cash flow /costumer base Reach higher number of households Cash flow for PV company Source IEA, 2003 Source: World Bank, 2008.
  • 31. Conclusion on delivery mechanism for SHS No best delivery mechanism  Choice and adaptation  according to existing institutional framework and cultural habits in a country  according to target / number of people to reach Finance  Necessity of external funding to cover capital cost & expand scheme to new customers  Difficult to do without subsidies at the start  Equilibrium of solar companies always fragile  Tension between high fees <-> capacity of payment of end-users Coordination between different actors needed  E.g. MFIs and installers Future  Mobile phones  Generate a demand for small load (0.5 billion mobile phone users do not have electricity)  Reduce transaction costs for micro-payments
  • 32. Large-scale dissemination of RET in China 1. Cases of large-scale dissemination of photovoltaic systems  Fee-for service rural concessions  Small companies: Zambia  Large concessions: South Africa  Micro-credit schemes  Indonesia  Bangladesh  Non-regulated market in Kenya 2. Cases of large-scale dissemination of RET in China  Bio-digesters  Mini–hydro  Small wind
  • 33. Dissemination of bio-digesters in China (1) A long story  First institutions to promote biogas in the 30s  State support from beginning 70s with high priority to rural biogas digester for small farms  Opening of the countries in the 80s with numerous environmental laws and regulations and standards to support bio-energy  National Rural Biogas construction Plan 2003-2010   Above 30 million bio-digesters Two types of bio-digesters (280-300+ US$ for 8m3)  Concrete: small/big maintenance every 2-3 years/every 4-5 years  Glass Fiber Reinforced Plastic from 2000 – no maintenance
  • 34. Dissemination of bio-digesters in China (2) Fiberglas reinforced plastic digesters Source: Zhang, 2009.
  • 35. Dissemination of bio-digester in China (2) 60% of biogas digesters were operating in 2007 Mainly the ones constructed before 1990 in China not operating  Poorly constructed – leakage  Technology  temperature well above 10C  Level of biogas production acceptable low in cold regions  North China 5-8 months per year  Central China 7-9 months per year  Southern China 10-12 months per year  Lack of maintenance and technical support  In the past financial support only for construction  Not enough follow-up : most provinces have small rural energy offices with lack of staff
  • 36. Dissemination of bio-digester in China (3) Technology and policy changes in China  Modern biogas technologies  Scheme of Low-temperature Biogas Production and Commercialized Utilization Technology  Size of bio-digesters tend to increase  Linked to increase size of farms  Increase productivity to provide gas/heat, cooking  10,000 pig farm = 100 kW electricity capacity  Standardization engineering equipment and materials used in construction  31 standards for biogas construction  From 2003 to 2009, 3 billion US$ invested  82% for households bio-digesters (subsidy around 150 US$ for 8m3 +/- half of the price)  10% medium & large scale bio-digesters  8% to finance service system  Encourage creation of local consultancy and service providers
  • 37. Dissemination of small hydro in China (1) SHP < 50 MW SHP integrated most of the times with the grid Small hydro responsibility of local government while large hydro responsibility of central government  Preferential tax policy  Profit reinvested in SHP and local grids  State subsidy to multi-channel fund (local self-financing + loan from banks)  ratio state funding : private& individual funding 1:25  More and more Independent Power Producers End 2007:  54,317 SHP power stations  47,389 MW installed capacity  28,934 SHP business with shareholders
  • 38. Dissemination of small hydro in China (2) SHP < 50 MW SHP integrated most of the times with the grid End 2007:  54,317 SHP power stations  47,389 MW installed capacity Source: CREIA, REN21, 2009
  • 39. Dissemination of small hydro in China (3) Research  Increased efficiency of SHP station  More stringent technical specifications  Established standard planning procedures Limits  Low quality of equipment  Only few stations uses new technology when upgrading  Low cost of sale of electricity to large grid  Sub-optimal use of equipment  Low annual utilization hours  High distribution losses  Low automation
  • 40. Dissemination of small wind in China Off-grid turbines for rural electrification  100W to 100 kW Promotion of local manufacturing  From 1983 to end 2008, China has produced more than 500,000 small wind turbines  36 turbine production companies + 28 parts production companies Network of retailers for maintenance Particular efforts:  Training technicians  Users manual
  • 41. Conclusion on RETs in China China emerging country  Huge customer base <->small fragmented markets like most developing countries  State/public banks facilitate access to funding at low costs Lessons  Some renewable energy technologies are mature and already very cheap  Nurture a local market for manufacturing takes time  Tax breaks, customs barriers, stable policy framework,…  Importance of creating also a local market for maintenance & follow-up of installations
  • 42. References for solar home systems (1) Delivery models for solar home systems  Schultem B., van Hermert B. H., Sluijsc Q. Summary of Models for the Implementation of Solar Home Systems in Developing Countries. Report IEA PVPS T9-02. IEA, Paris, France, 2003.  Krause M., Nordstrom S. (eds.). Solar Photovoltaics in Africa – Experiences with Financing and Delivery Models. UNDP and GEF, New York, USA, 2004. Zambia  Lemaire X., 2009. Fee-for service companies for rural electrification with photovoltaic systems: the case of Zambia. Energy for Sustainable Development. 13, 18-23.  Gustavsson M. 2008. Solar Energy for a Brighter Life – A Case Study of Rural Electrification Through Solar Photovoltaic Technology in the Eastern Province, Zambia, PhD dissertation.
  • 43. References for solar home systems (2) South Africa  Lemaire X., 2011. Off-grid electrification with solar home systems. The experience of a fee-for-service concession in South Africa. Energy for Sustainable Development, 15, 277-283.  Integrated Rural Energy Utilities – A review of Literature and Opportunities for the Establishment on an IREU, REEEP – Restio Energy, July 2008.  NuRa In-depth Case study – Integrating further?, REEEP – Restio Energy, March 2009. Bangladesh  Barua D. 2001. Strategy for promotions and development of renewable technologies in Bangladesh: Experience from Grameen Shakti. Renewable Energy. 22, 205-210.  Komatsu D. 2011. Are micro-benefits negligible? The implications of the rapid expansion of Solar Home Systems in Bangladesh for sustainable development. Energy Policy. 4022-4031.  Mondal A. M. 2010. Economic viability of solar home system: Case study of Bangladesh. Renewable Energy. 35, 1125-1129.  Sovacool B. K., Drupady I. M. 2011. Summoning Earth and Fire: The energy development implications of Grameen Shakti (GS) in Bangladesh. Energy, 36, 4445- 4459.
  • 44. Other references China  Chen Y. et al., 2010. Households Gas use in rural China: A study of opportunities and constraints. Renewable and Sustainable Energy Review. 14. 545-549. 6073-6081.  Jiang. X. 2011. A review of the biogas industry in China, Energy Policy, 39.  Zhang et al. 2009. Renewable Energy in China: Pattern and Policy, Renewable Energy, 2813-2823.  CREIA/REN21, Background paper: Chinese Renewable Status report, October 2009. To go further  Designing sustainable off-grid rural electrification projects: principles and practices, World Bank/ESMAP, 2008.  Lemaire X., Kerr D. SERN literature review 2010 – an annotated bibliography and reference guide on off-grid and rural electrification, REEEP. Softwares  HOMER   RET-Screen 
  • 45. Contact  University College London -Energy Institute. Central House - 14 Upper Woburn Place London WC1H 0NN United Kingdom   REEEP - Sustainable Energy Regulation Network 