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close this bookPhotovoltaic Household Electrification Programs - Best Practices (WB)
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The role of governments and donor agencies

5.17 Providing electricity to rural populations is a complex task. Though the private sector's role in rural electrification is growing, governments must provide the framework for rural electrification activities and donors can accelerate the process.

5.18 Governments. The case studies on which this report is based show a range of government involvement in household PV programs. In the Indonesian BANPRES Project, the government acts as the primary implementor, although village cooperative and private sector equipment vendors also play important roles. This contrasts with the passive role of government in the Dominican Republic in PV electrification. While the level of government involvement in household PV projects may vary, these case studies and other experiences indicate that governments can best support programs by focusing on: decentralizing the delivery of rural energy services; developing local and national markets; and supporting transparent institutional and regulatory frameworks.

5.19 A Multimodal Approach to Delivering Rural Energy. Many rural electrification programs are run by a single institution, usually the state-owned electric utility which supplies power to both urban and rural areas. The utility, which seeks to provide all customers with similar levels of service, is responsible for planning all rural electrification programs. In urban areas, this model has worked well. In rural areas, however, it is often unworkable (see Chapter 2) because most rural electrification programs center on grid extension, which is only one option among many that can meet the energy needs of rural populations. The rural energy planning process needs to incorporate technologies such as household PV which can complement grid extension when PV is the least-cost economic option and reflects local needs (for lighting, the operation of household appliances, commercial and industrial loads, or other uses) and the ability and willingness of customers to pay (not all customers need or can pay for 24-hour grid power). The rural electrification process should allow delivery of energy services through a range of institutions, both public and private, as well as local cooperatives and NGOs. In regions or markets where the private sector or local organizations can take the lead in project planning and implementation, the government should adopt a facilitating and oversight role. Elsewhere, governments can take a more direct role by including household PV options in rural electrification programs.

5.20 Indonesia is currently incorporating renewable energy options, including household PV systems, into its Rural Electrification Master Plan, partially funded under the World Bank-supported Second Rural Electrification Project (World Bank 1995a). Indonesia is also preparing a World Bank/GEF-assisted project to support private sector installation of 150,000-200,000 solar home systems. In Mexico, the PRONASOL Program has incorporated a solar home system component into its rural electrification efforts. This provides privately installed solar home systems in areas where grid service is unavailable or too costly (Huacuz and Martinez 1994). Approximately 30,000 solar home systems have been installed under the PRONASOL Program (see Box 5-2). In Argentina, some unelectrified areas will be offered household PV systems under a new program for dispersed rural populations (SEN 1995). Private sector companies will compete for concessions to supply electricity using solar home systems and minigrids; the concessions will go to companies requiring the lowest subsidy and meeting other performance criteria. The $314-million program will supply electricity services to 1.4 million inhabitants and 6,000 public services in areas with very low population densities, and where grid extension is unlikely. Beneficiaries will contribute $142 million, subsidies from existing provincial government funds will add $75 million, and the national government will provide $97 million.

5.21 Market Development. Most governments are seeking to move away from highly subsidized rural electrification programs to more economically sustainable alternatives. In general, this shift results in a more consumer-oriented, market-based approach to rural energy services for which solar home systems are ideally suited. To promote sustainable household PV electrification, governments should assure the following:

· Rationalized import duties and taxes. Import taxes and duties on PV components and solar home systems should be avoided since they can increase the costs of solar home systems dramatically, limiting the potential market.

· Equal fiscal treatment of rural electrification options. Although market-based pricing is the appropriate goal, the poorest households may still require subsidies in order to buy and maintain solar home systems. To reach the poor, PV systems should receive similar financial support as that provided under conventional grid extension or isolated grids in rural areas.

· Public investment in PV. Public financial assistance should be provided for PV electrification efforts, just as public sector equity financing and long-term loans have flowed to grid-based rural electrification projects, when economically justified. Even if a government is not involved in procuring solar home systems directly, it can play a key advocacy and demonstration role in support of PV systems by using PV equipment in education, health, and other social programs.

· Access to affordable financing. Financing mechanisms such as credit lines, loan guarantees, and hire-purchase and leasing schemes expand the PV home systems market. Governments should support innovative financing mechanisms that allow lenders to offer long-term credit on reasonable terms. Investment funds currently provided for such programs include the World Bank-supported India Renewable Resources Development Project (under which IREDA offers eight-year solar home system financing), the GEF-assisted Zimbabwe Solar Home Systems project, the projects in Mexico that will provide credit for private sector sales of solar home systems, as well as the Indonesia and Sri Lanka projects discussed above.

· Local participation in rural electrifcation programs. Local cooperatives, NGOs, and grass-roots organizations are better suited than centralized power utilities to provide PV home systems to dispersed rural populations. Government policies and programs should help enable these groups to participate in PV dissemination by offering them training in business practices, installation and servicing, among other things as well as improved access to credit.

Box 5-2
Mexico's PV Rural Electrification Program

In 1989, the Mexican Government launched the National Solidarity Program (PRONASOL), an infrastructure development program, in poor regions and communities. This program included a rural electrification component and provided a special budget for the electric utility, Comision Federal de Electricidad (CFE), and another to provide PV electricity services to remote communities. To date, 40,000 solar home systems (rated at 48 to 100 Wp per system) have been installed; some 29,000 have been supported by PRONASOL.

Implementation: The CFE is responsible for technical aspects of PV electrification. Private contractors and local NGOs disseminate information. Villagers wishing to acquire solar home systems submit applications to the local government and organize themselves into a local electrification committee. The requests are then submitted to PRONASOL for approval. Sites are selected on the basis of remoteness, distance from the grid, and lack of near-term grid connection plans. The CFE then contracts with private companies to install systems. Users must participate in the construction, operation, and maintenance of the system; the CFE is responsible for quality assurance and acceptance testing.

Financing: PRONASOL supports both productive and "quality-of-life improvement" uses. Productive uses of PV (for agro-industrial and related applications) are financed as "soft" loans by Mexican development banks. "Quality-of-life" uses (household lighting and entertainment, public lighting, telephones, and vaccine refrigerators) are supported by the federal government, which has budgeted $10 million annually in grant funds. The federal government pays about 50 percent of the total cost. The remainder is borne by the state government (30 percent) and local governments and the participating communities (20 percent). This includes the users, who can pay with in-kind contributions such as labor, materials, and transportation of equipment. Communities are responsible for setting up fee-collection mechanisms to cover the costs of maintenance, repair, and future expansion of the systems.

Sustainability: The PRONASOL program has identified four key elements of sustainable infrastructure programs: (i) strong, locally based industries that assure a ready supply of quality products; (ii) a clear, comprehensive framework under which industry can operate; (iii) adequate financing; and (iv) local availability of hardware and consulting, engineering, installation, commissioning, and maintenance services. To encourage service quality over sales, the CFE collaborates closely with the solar PV industry to support information dissemination, international technology transfer, trade shows, industry-to-industry interactions, and system design guidance. Technical specifications have been developed collaboratively with the PV industry, which has adopted them voluntarily. The Mexican Government's firm commitment to PV technology as a viable option for rural electrification, its continued collaboration with NGOs and the private sector, and a careful assessment of potential users' attitudes toward electricity have made PRONASOL an effective and sustainable program.

5.22 Institutional and Regulatory Frameworks. If the private sector and NGOs are to assume greater responsibility for planning and implementing rural electrification projects, they will need a transparent, "enabling" institutional and regulatory framework. Governments should ensure fair and not overly restrictive credit laws and regulations. Governments can also help develop appropriate technical standards, encourage a diversity of rural electricity service providers, assume responsibility for monitoring and oversight, and disseminate information.

· Setting technical standards. Baseline quality and safety standards can be used by the implementing organizations that procure systems, by the financial institutions that appraise loans, by local equipment suppliers, and by solar home system users in making their purchases. Government institutions can develop these standards themselves, as was done by BPPT in Indonesia and IREDA in India, or they may collaborate with industry, consumers, and other stakeholders to form an independent standards-setting body.

· Encouraging a diversity of service providers. In some countries, regulations governing rural electrification programs effectively rule out service providers other than the public electrical utility. If a PV market is to develop, such restrictions must be lifted. In Argentina, the government specifically encourages and supports alternative service providers.

· Providing monitoring and oversight and information disseminating. Monitoring and oversight of PV programs are important to gauge progress and to identify successful practices to replicate elsewhere. Governments should collect and disseminate such information and promote PV technology (but not specific products). These functions are especially important in new markets in which the private sector is weak.