course on regulation and sustainable energy in developing countries - session 2

Delivery mechanisms for Rural Energy Services with Renewable Energies in Developing Countries

Selected case studies

Leonardo Webinar 8th December 2011

Dr Xavier LEMAIRE, Research AssociateSustainable Energy Regulation Network - REEEP

University College London – Energy Institute

Course on Regulation and Sustainable Energy in Developing Countries – session 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

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

Large-scale dissemination of PV systems





2. Cases of large-scale dissemination of RET in China Bio-digesters Mini–hydro Small wind

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?

International funding

Government

Energy service companies

Loan or capital grant

End-users

Install and maintain SHS

Soft loan or grant

Monthly fee

International funding

Government

Energy service companies

Loan or capital grant

End-users

Install and maintain SHS

Soft loan or grant

Provide a creditReimburse credit

Micro-finance institutions

Fee-for service scheme Micro-credit scheme

Source: X. Lemaire, 2011

Fee-for service scheme vs. micro-credit scheme

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 clients

2. 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.

Photovoltaic ESCOs in Zambia (1)

1. Energy Service Companies are small existing local enterprises selected in 1998 and staff trained

2. Government gave a loan to the ESCOs and bought SHS

3. ESCOs installed & maintain SHS in the houses of their clients

4. Clients pay installation cost of 100-150 US$ and a monthly fee of 8-13 US$ which covers running costs

5. ESCOs reimburse the loan over 10 years & benefit from a capital subsidy of 50% of SHS

Source: M Gustavsson, 2008.

A house between Lundazi & Chipata


A school near Chipata



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


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

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.

The Nura Concession

The biggest and one of the most successful concession in South Africa

Very large concession of 10.000 Km2 with 11.000 Solar Home Systems

Eight energy stores (LPG + solar electricity) + Headquarters

Economies of scale and more than 70 jobs created

Organisation of the reporting system

Clients Energy stores

Tokensfrom SHS

Headquarters

Technicians

Source: X. Lemaire, REEEP,2006.

Energy store in Kwazulu Natal

A house in Kwazulu Natal

Cost off-grid /on grid in South Africa

Solar Grid

Capital Cost perHousehold

R 4,000(530 US$)

R 10,000 – 15,000(1,300 – 2,000 US$)

Subsidy perHousehold

R 3,500(460 US$)

R 4,000(530 US$)

Utility Cost perHousehold

R 500(70 US$)

R 6,000 – 11,000(770 US$ - 1,470 US$)

Source: NuRa, 2006.

Pre-paid monthly fee = 61 Rands (8 US$)

Free Basic Alternative Energy = 50% of the fee

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,

Solar Vision

NuRa

KES

(Shell Eskom)

Sharp increase of installations?

Small or large rural energy companies?

Very small companies (e.g. Zambia, Pacific)

100-150 clients each 900 US dollars/SHS 2-4/5 jobs Only photovoltaic

Specialised technicians Low maintenance

Proximity with the client

Cost of systems remain highCustomer basis limitedFragile-only highest income

Large companies(e.g. South Africa)

11,000 -30,000 clients each 550 US dollars/SHS + 70 jobs Multi-energy

LPG, paraffin,… Other RE and diesel

Reduction of costs

Logistic difficultiesComplexity management

- Local stores - System of reporting

Break-even point?

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

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 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.

Source: Mondal, 2009


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


Source: Komatsu, 2011

Source: Komatsu, 2011

Yearly installation of SHS by Grameen Shakti

Size of SHS proposed by Grameen Shakti


Options Cash Basis Loan 2 years

Loan 3 years

Initial payment

100% initial payment with 4% discount

25% initial payment

15% initial payment

Interest rate

8% interest rate

12% interest rate

Options for purchase of SHS with Grameen Shakti (after loan from IFC/World Bank)

Source X. Lemaire, 2011 from Miller, 2009.

Moved today from 3 options to 6 options


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

(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

Cash flow /costumer base

Source: World Bank, 2008.

Reach higher number of households

Cash flow for PV company

Source IEA, 2003

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

Large-scale dissemination of RET in China





2. Cases of large-scale dissemination of RET in China Bio-digesters Mini–hydro Small wind

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

Dissemination of bio-digesters in China (2)

Source: Zhang, 2009.

http://greeningchina.wordpress.com/

Fiberglas reinforced plastic digesters

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

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

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


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


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

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

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

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.

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.

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

http://homerenergy.com/ RET-Screen

http://www.retscreen.net/

http://homerenergy.com/

http://www.retscreen.net/

Contact

University College London -Energy Institute. Central House - 14 Upper Woburn Place London WC1H 0NN United Kingdom [email protected]

REEEP - Sustainable Energy Regulation Network http://www.reeep.org/830/sern.htm

mailto:[email protected]

http://www.reeep.org/830/sern.htm