IDCOL Solar Irrigation Projects Farzana Rahman Unit Head (Investment), Renewable Energy Infrastructure Development Company Limited (IDCOL) Bangladesh Kathmundu, Nepal 19 February 2015
Overview of IDCOL A fully Government owned financial institution Started operation in 1997 Mission: to catalyze private sector participation in infrastructure, renewable energy, and energy efficient projects Largest financier in private sector infrastructure projects Market leader in renewable energy sector Funded by the government and multiple development partners i.e. the World Bank, ADB, IDB, KfW, GIZ, GEF, GPOBA, USAID, DFID, JICA and SNV
What We Offer Infrastructure Sector Long-term local and foreign currency loans Debt and equity arrangement Corporate and financial advisory services Renewable Energy & Energy Efficiency Initiatives Concessionary financing and grant supports Technical assistance and quality assurance Capacity development of stakeholders Arranger of Carbon Credits Training Programs* Project Finance Financial Modeling Renewable Energy *Trained about 1,500 professionals so far
Snapshot of RE Activities Project/Program Target Achievement SHS Program 6 ml by 2017 3.5 ml Domestic Biogas Program 100,000 by 2018 36,000 Solar Irrigation 50,000 by 2025 (1,500 by 2017) 241 Solar Mini-grid 50 by 2016 7 Solar Telecom BTSs As per demand 98 Biogas based Power Project 450 by 2017 9 Improved Cook stove 1 ml by 2015 Recently launched
Solar Irrigation Contents Irrigation scenario on Bangladesh Implementation status Business models Challenges, mitigation and recommendations
Sector Outlook of Irrigation Irrigation pumps run by electricity Total : 0.27 ml pumps Area coverage : 1.7 ml hectares of land Electricity Consumption : 1500 MW Irrigation pumps run by diesel Total Area coverage Fuel Consumption Subsidy : 1.34 ml pumps : 3.4 ml hectares of land : 1 ml tons diesel/yr worth USD 900 ml : USD 280 million
Implementation Status Approved Installed Under installation Pipeline projects : 241 pumps : 108 pumps : 133 pumps : 250 pumps Target : 50,000 by 2025 (Pilot: 1,500 up to 2017 Next: 48,500 within 2018-2025) Funding sources : Grant: BCCRF, KfW, GPOBA, USAID, ADB : Loan: IDA, JICA
Division-wise Location of SIPs 140 121 Approved Installed 120 100 80 61 70 60 47 40 23 22 20 0 2 1 1 1 Rangpur Rajshahi Chittagong Dhaka Khulna
No. of pumps Installation Projection of IDCOL Program 16000 15,872 14000 12000 11,533 10000 8000 6000 4000 2000 0 1,519 2,278 9 80 300 450 661 1,013 5,126 3,417 7,689 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Pilot project (2013-2017) Beyond 2018 (2018-2025)
Selection of Pump Location Areas should not be inundated during rainy season Farmers are presently using diesel pumps Potential for 3 to 4 crops per year Depth of water table Potential for alternative uses 4
Business Models Fee for Service Model Ownership Model
Fee for Service Model
Fee for Service Model - Program Structure Suppliers Seeks pump approval Approves pumps TSC Supply Equipment Sells water Sponsor* Pay for Equipment Pays irrigation charges Provide grant & loan Seeks grant & loan Grant & soft term credit IDCOL Farmers Development Partners *So far, 17 organizations have implemented projects under the program.
Key Features of a typical 11.0 kwp SIPS Particulars Description PV capacity Flow rate Total head Major equipment 11.0 kwp 800,000 liter/day 14.0 m Pump and PV panel Project cost USD 31,343 Grant USD 12,537 Land coverage Irrigation charges Boro :40 bigha; Others: 135~140 bigha USD 35~40/bigha for paddy (Boro) 9
Financing Structure Financing structure: Financing terms: Particulars (%) Equity 20% Debt 40 % Grant 40% Total 100% Facility Interest rate Tenor Grace Repayment frequency Security Term loan 6% p.a. 8 years 9 months 29 quarterly installments Bank guarantee or land mortgage
Positive Outcomes Solar irrigation is now a proven technology and accepted by farmers. Local capacity has developed to support the demand created by IDCOL. Pump price has reduced considerably, making SIP financially more viable. Alternative use of solar energy during idle hours of pumps has been identified. Smaller capacity pumps may also be installed targeting farmers with more lands/diesel pump operators.
Issues Identified Water management and payment collection are challenging which require more training of pump operators. Once installed, farmers in many areas tend to offer lower rate. Farmers in project areas need to be trained to ensure optimum utilization of costly water.
Ownership Model
Ownership Model - Program Structure Supply Equipment Sells pump on cash/credit Suppliers PO Pay for Equipment Pays installments Seeks pump approval Approves pumps Provide grant & loan Seeks grant & loan TSC Grant & soft term credit IDCOL Farmers Development partners
Key Features of a typical 4 kwp SIPS Particulars Description PV capacity Flow rate Total head Major equipment 4 kwp 250,000~300,000 liter/day 14.0 m Pump and PV panel Project cost USD 8,461 Grant USD 3,385 Land coverage Irrigation charges Boro :16 bigha; Others: 60~70 bigha USD 35~40/bigha for paddy (Boro) 9
Financing Structure (contd.) Amount (USD) Pump cost without grant [a] 8,461 Grant (40%) [b] 3,385 Price to farmer [c = a b] 5,076 Down-payment by farmer (20% of c) [d] Loan from PO to Farmer at 15% interest rate [e = c d] IDCOL loan to PO (40% of pump cost) Tenor 8 years, 6% interest rate 1,015 4,061 3,385 PO s contribution 677 Financing terms for farmers Loan USD 4,061 Loan tenor 5 years Interest rate 15% Yearly installment by farmer USD 1,117 Farmer remains in break-even position in first 5 years. However, they will be benefited after loan repayment. Average equity IRR is19%.
Challenges & Mitigation Challenges High upfront cost Funding constraints for equity injection Collateral requirement Inefficient water usage Long installation timeline Water charges collection Mitigation Local capacity for manufacturing of pump components Development of more suppliers to increase competition Introduction of ownership model to distribute the burden of equity injection between sponsor and farmers Collateral amount reduced from 100% to 50% of the loan mount Development of a guarantee fund Appointing agriculturist to train farmers Ownership model Efficient inventory management Capacity development of suppliers/pos Ownership model Participation of farmers in pump operation Integrated agricultural services
Challenges & Mitigation Challenges Idle hours of pumps Scaling up of program Mitigation Use of excess electricity for husking, grinding. threshing, oil press, household electricity etc. Collected data on water requirement for more than 200 upazillas Technical standards have been finalized. Organized seminars at different areas of the country Published EoI to attract potential sponsors Will shortly undertake more promotional activities Government support More funding will be required during post-pilot phase. New grid connection to pumps may be stopped.
Thank You
Return for Farmers Price : USD 8,461 Yearly installments : USD 1,117 Pump capacity Average water flow Cost savings for farmer* : Season Crop Coverage (Bigha) : Pump - 2.5 kw, Panel 4 kw : 250,000-300,000 liters/day Cost/Bigha (USD) Total Cost (USD) Season 1 Boro 16 35.90 574.36 Season 2 Aman 30 10.26 307.69 Season 3 Potato 30 6.41 192.31 *Cost incurred from using diesel pumps 1,074.36 Farmer remains in break-even position in first 5 years. However, they will be benefited after loan repayment. Average equity IRR is19%.
Cost component of typical 11.0 kwp SIPS Costs Items Cost (USD) Percentage a. Equipment costs 23,078 75% Solar panel 11.0 kwp 8,615 28% Solar pumping system 7.0 kw 7,389 23% Module mounting structure 1,846 6% Cable & accessories 615 2% Boring and related work 3,077 10% Supply, testing, installation, transportation 1,536 5% b. Construction Costs 7,385 24% c. Legal and other fees 880 2% Total project cost 31,343 100% 9
Financing Structure of a 11 kw SIP Project cost (USD) 31,343 Grant (USD) (40% of the project cost) 12,573 Remaining (USD) 18,806 IDCOL loan (USD) (40% of the project cost) Equity (USD) (20% of the project cost) 12,573 6,410 Financing terms Loan 12,573 Loan tenor Interest rate 6% Principal Security 8 years (9 months grace) 29 quarterly installments Bank guarantee or land mortgage Quarterly installments 513 Average equity IRR for the project sponsors is 15%.
Fund Allocation and Utilization for RE Projects Amount in USD million Donor Grant Loan Allocation Utilization Balance Allocation Utilization Balance IDA - - - 21.1 1.1 20.0 JICA - - - 18.6-18.6 GPOBA 6.5 0.5 6 USAID 2.9 0.6 2.3 ADB Grant 0.7 0.7 - BCCRF 9.0-9 DFID 3.2 0.5 2.7 KfW 14.3 1.3 13.0 TOTAL 36.7 3.5 33.1 39.7 1.1 38.6
Smaller Capacity Pumps Cost Components Cost Components Cost (USD) Percentage Solar panel (4 kwp) 3,077 36% Pump (2.5 kw) 769 9% Control unit (Schneider) 769 9% Module mounting structure 1,282 15% Accessories 641 8% Civil construction (pump house, water tank, fencing) 513 6% Transportation, installation & erection 641 8% Sub-total 7,692 91% Mark-up (10% on cost) 769 9% Total 8,462 100%
Salient Features Sponsor is the owner of pump; farmers avails services for fee Sponsor identifies farmer group, selects suppliers, operates the pump and sells water to farmers IDCOL provides grant, soft loan and technical supports to Sponsor Supplier installs the pump and provides after sales service TSC sets technical standards and approves pumps
Salient Features Farmer is the owner of pumps like SHS The owner may use the pump for its own land or sell water to other farmers PO identifies farmers, selects suppliers, sells pump to farmers on credit and collects installments from farmers Supplier installs the pump and provides after sales service Role of IDCOL and TSC is same as fee-for service model Bangladesh has more than 87,000 villages. Some farmers from each village can afford such pumps.
Approval Process Submission of Project Proposal to IDCOL Equity (20%) Injection by Sponsor Installation by Supplier Site Survey by IDCOL CRM Approval Output Verification by IDCOL Evaluation of Quotations collected by PO Supplier Selection Disbursement of Grant & Loan 7
Key Information Target : 1,550 pumps by 2017 * Beneficiaries Average capacity Dynamic head Average water flow Area coverage/pump : 30,000 45,000 farmers : pump - 7 kw, Panel:11 kwp : 10-18 meters : 750,000 liters/day : 35 bigha/season (paddy) 70 bigha/season (vegetables) *50,000 pumps by 2025.
The Way Forward IDCOL is currently trying to introduce the proposed ownership model. This will be a breakthrough in irrigation if promoted successfully. The uptake may require some time for development of local capacity for installation and after sales service. Price is also expected to go down which will make the ownership model attractive to the farmers. Capacity development as well as price reduction may make the irrigation program as successful as IDCOL Solar Program. 9
Financing Structure Average pump capacity : 250,000 300,000 liter/day Average pump cost (4 kwp): BDT 6.6 lac Financing structure: Financing terms: Particulars (%) Owners contribution 8% Farmer s Contribution) 12% Debt 40 % Grant 40% Total 100% Facility Term loan Interest rate 6% p.a. Tenor Grace Repayment 8 years 9 months Annuity Repayment frequency Quarterly