Emerging Diffusion and Business Models for Stand-Alone PV

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1 Emerging Diffusion and Business Models for Stand-Alone PV Organization of Africa Electrification Initiative (AEI) Practitioner Workshop, Dakar, Senegal November 14-16, 2011 Samson Tolessa, Deputy Director, GIZ ECO, Ethiopia

2 The General Picture: Access to electricity of any sort Household income and electricity access in developing countries, IEA, World Energy Outlook 2010

3 Solar PV Off Grid Market Potential (Ethiopia as example) Target market analysis: Ethiopia s Solar Energy Market, BMZ/GIZ, 2009

4 Main trends in the diffusion of stand alone PV Fee for service: Utility stile Users pay a fixed amount per month Service provider owns the system assures service provision Up side Induces good service delivery System can be retrieved in cause of payment default Down side Relatively high service cost Lack of ownership by users could lead to careless handling and damage Various challenges in Fee collection examples Namibia (totally failed) South Africa (Shell Eskom, Raps): partly failed) Ethiopia : (SEF, Solar Mann,): partialy failed Morocco (Tenesol, BP, Isofoton): project still running)

5 Main trends in the diffusion of stand alone PV Fee for service Examples of Problem cases Namibia (Suntechnics) Due to persistent technical problems user stoped to pay System was then converted to normal SHS South Africa (Shell-Eskom) Due to technical problems users defaulted regularly Fee Collection proved to be mory costly than revenue collected Finally systems were given for free to the users Ethiopia (SEF) Charity based intervention with users paying only nominal fees ( no comercial considerations) SEF gradually shifting to commercial dissemination of Pico solat sustems Ethiopia (Solar Man) Due to technical problems users defaulted regularly Fee Collection proved to be mory costly than revenue collected Finally systems were given for free to the users

6 Main trends in the diffusion of stand alone PV.. Micro credit User get a micro credit User is owner of the system Sometimes the bank business and system integration are separated Up side: Avoidance of high upfront cost Customized service delivery Users empowered to choose suppliers User ownership enhances careful handling Down side High interest rates for loans Relatively high transaction costs for fee collection (for the service provider) Examples: Bangladesh (ITCOL): a resounding success (standardized and well regulated service delivery, smart subsidy to reduce system cost) Uganda (Finca Ltd): as well going very good Ethiopia (REF): not so succesfull: extremely slaw procurement process by the public sector (MoWE/REF)

7 Main trends in the diffusion of stand alone PV.. Other variants and possibilities The community center battery charging stations Rural Schools Serve as community Centers provided with solar power: electricity for lab and school mini-media Night education Infotainment for local communities Battery charging and other energy kiosk services Up side: Access to loans or finance for procurement of systems relatively easier Proper administrative structures in place Down side Relatively high possibility of inefficiency through bureaucracy,, miss handling and neglect Example Ethiopia (GIZ): Under trial

8 Main trends in the diffusion of stand alone PV.. Other variants and possibilities Hardware Step by Step Principle User buy a battery and bring this battery weekly to the charging station After some time user buy one solar module and is partly independent User buy a second module and is completely independent Up side User pay only small amount per step No micro credit necessary Ownership and responsibilities are clear at any moment Down side: Reqires careful planning by the user to procure the items in good time Example Kenya :3-4 Millions Kenyans are electrified throgh a similar process over the years Similar principlea apply for currently available Pico systems

9 Main trends in the diffusion of stand alone PV.. Other variants and possibilities. The Medium Term Service Contract (MSCs): Bolivia (a PPP) Balanced tender design Medium term service contract A pre-set area exclusively awarded to a service provider under strict service conditions and time bound subsidy (4 years) Transparent and reliable process: Well balanced business proposal for the private sector Well informed freedom of choice Users choose from broad yet manageable menu of options for system size and financing options Providers strictly obliged to inform users well Local international alliance Selecting service area size small enough for micro small and medium enterprises and yet large enough to interest international bidders Balanced disbursement schedule Pay as much subsidy as possible late in the game without overly increasing providers risk exposure and financing costs Contracting out technical assistance to providers where possible Including tasks such as market development, data collection in the contracts This encourages the service providers to forge alliance with other entities (e.g. with microfinance institutions if required by contract to provide users various payment options

10 Ethiopian context: Major challenges Undeveloped market and weak structural arrangements in the sector Lack of awareness Lack of financing mechanisms Lack of competent quality product provision and technical services delivery chains that reaches the potential market ( no repair and maintenance services in the rural areas where the majority of the people live) Reluctance by the political system and the regulatory organs to support enhanced private sector involvement in the provision of solar PV technology services by provision of access to foreign currency, government agencies being organized in a manner to replace the private sector, Lack of or weak regulatory and services for product/service quality assurance as well as enforcement of business arrangements and contracts (weak governance) No worked out national strategy to promote RE and support their market penetration (tax exemption, attractive feed in tariffs.) (in the Ethiopian case unduly exclusive focus on Big hydro and main grid based provision of access by the development planners)

11 Ethiopian context :Some emerging opportunities Growing political will and ambitious plans in Ethiopia Carbon neutral economy by 2020 Electricity access increased to by 2025 Middle income country status by 2025 Sustained economic growth in Ethiopia creating demand for services (lighting, mobile phone charging and communication) that can be better met by solar PV technologies Opportunities in the global carbon financing Concerted efforts to improve the technical vocational as well as engineering education in Ethiopia (UCBP, ECBP, creation of IoTs and Centers of excellence for RE technologies.

12 Ethiopian context Conclusions and recommendations To enhance energy services for development in Ethiopia requires a concerted and synchronized effort of all stakeholders To further enhance current developments the political leadership needs to consider the following: Strengthen the energy structures, draft comprehensive strategies and master plans, scrutinize and repair any disconnect between energy strategies and strategies elsewhere in the economy, Improving access and a full menu of options should be considered for providing energy services to the poor, specially access to finance is critical Encourage partnerships and attract private investment in energy services; provide access to finance at all levels, reduce costs; and design smarter subsidies: State should steer, not row