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

  1. 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. 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. 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. 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. 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. 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. 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. 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. 9. Source: M Gustavsson, 2008.
  10. 10. A house between Lundazi & Chipata Source: X. Lemaire, 2006
  11. 11. A school near Chipata Source: X. Lemaire, 2006
  12. 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. 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. 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. 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. 16. Organisation of the reporting system Tokens from SHS Clients Energy stores Technicians Headquarters Source: X. Lemaire, REEEP,2006.
  17. 17. Energy store in Kwazulu Natal
  18. 18. A house in Kwazulu Natal
  19. 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. 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. 21. Sharp increase of installations? Solar Vision NuRa KES (Shell Eskom)
  22. 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. 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. 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. 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. 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. 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. 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. 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. 30. Cash flow /costumer base Reach higher number of households Cash flow for PV company Source IEA, 2003 Source: World Bank, 2008.
  31. 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. 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. 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. 34. Dissemination of bio-digesters in China (2) Fiberglas reinforced plastic digesters Source: Zhang, 2009.
  35. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 45. Contact  University College London -Energy Institute. Central House - 14 Upper Woburn Place London WC1H 0NN United Kingdom   REEEP - Sustainable Energy Regulation Network 