|Photovoltaic Household Electrification Programs - Best Practices (WB)|
5.23 Potential support for household PV programs from multilateral development organizations such as the World Bank, the United Nations, regional development banks, the GEF, bilateral aid and development agencies, and philanthropic organizations, should be integrated into broad rural energy or rural development plans. Donor efforts are most effective when coordinated with governments, local organizations, other donors, and private sector stakeholders. The donor community can facilitate PV electrification programs, provide technical assistance, and help fund both pilot and large-scale projects. Donor roles include:
· Promoting policy dialogue. Donors can encourage governments to adopt policies and practices that will be most beneficial to rural electrification programs, implementing regulatory reforms, least-cost planning and effective financial mechanisms, and improved fiscal policies.
· Providing investment financing. Donor funds are often essential for implementation of household PV programs due to the high up-front investment costs of these programs and the limited availability of long-term capital in many developing countries. However, local financial institutions need to participate in projects in order to ensure the commitment of stakeholders.
· Technology transfer. Donor agencies can help disseminate information on technological innovation, best practices, training, and demonstration projects. Effective donor support can improve project and program design, evaluation procedures, technical designs, standards and specifications, quality assurance, manufacturing methods, installation practices, and operation and maintenance of new technologies.
5.24 The World Bank and other multilateral lending institutions can encourage client countries to recognize PV and other renewable energy options as sustainable rural energy alternatives, complementary to grid extension. While assisting rural development and rural electrification project preparation, World Bank staff should explicitly consider renewable energy technologies and suggest their application where they best match the demand. World Bank/GEF support is particularly critical for up-front infrastructure investments to support the start-up of large-scale household PV programs in rural areas. Two innovative World Bank/GEF-supported operations are presently under preparation in Indonesia and Sri Lanka (see Boxes 5-3 and 5-4). Both rely heavily on implementation of PV household electrification programs through the private sector.
In a project that is presently under preparation, the World Bank and the Global Environment Facility (GEF) are planning to assist the Government of Indonesia in providing electricity services using solar home systems to about 200,000 households in West Java, South Sulawesi and Lampung provinces. The households targeted are in areas where the electric utility (PLN) grid service is not expected for at least three years or where it is uneconomic for PLN to provide such service. The estimated cost of the project is $72.0 million with $26.0 million from the users and suppliers, a $24.0 million grant from the GEF, $20.0 million from the International Bank for Reconstruction and Development (IBRD), and the balance from the Government of Indonesia. GEF cofinancing is based on the potential for the PV systems to displace kerosene and other fossil fuels that produce global warming gases. The project is designed to overcome the principal constraints to solar home system market development: (a) the high initial cost and the limited availability for term financing; (b) lack of information at the household level; and (c) undeveloped supply and service networks.
The project will finance only certified products that meet specified standards. Each 50Wp or larger system must power at least three fluorescent lights (each providing more than 200 lumens of light), and a black and white 14-inch TV for four hours or more per day, on a day with average solar radiation.
The project will use a commercial approach where dealers sell solar home systems directly to rural customers. It is expected that at least eight dealers will participate in this project. The project will offer loans through commercial banks to dealers for up to five years at market interest rates. Dealers will provide installment payment programs to solar home systems customers. The commercial banks will apply for their standard loan appraisal procedures to decide whether to make loans to the dealers. The Government of Indonesia refinances the commercial bank loans using on-lending arrangements for an IBRD credit. While each dealer will set the payment terms, typically, a customer will make a down payment of about Rp. 200,000 and an installment payment of about Rp. 20,000/month for 42 to 48 months. Each dealer will receive a GEF grant of approximately $90-$125 for each unit sold. This grant helps increase the penetration of sales within the market areas allowing dealers to make the initial investments required to create a sustainable commercial SHS market. In addition, the GEF grant will fund market development activities including promotion, business development, quality assurance, and technical support.
The Sri Lanka Energy Services Delivery (ESD) Project is expected to support the installation of approximately 30,000 solar home systems over a five-year implementation period. Financing for these installations would be available to private sector and NGO developers through an ESD Credit Line established under the Project. In addition to the PV systems, the ESD Credit Line is expected to support development of approximately 20 village micro-hydro systems and related distribution network and 20 mini-hydro plants (connected to the central electricity grid). An estimated $12 million will be requested for the PV subprojects. Half of this funding would come as commercial credit, supported by World Bank (IDA) funds. Project developers would provide $3 million in equity, and the GEF would provide $3 million in grant cofinancing. The Project is designed to remove the principal obstacles to widespread dissemination of renewable energy technologies. With respect to solar home systems, these obstacles are: (i) a lack of access to term financing; (ii) unfamiliarity of consumers, private sector developers, and the financial community with the technology; and (iii) an underdeveloped sales and distribution infrastructure. GEF grant support under the Climate Change Operational Program will help overcome these obstacles to commercialization of this climate-friendly technology. Once the necessary infrastructure is in place, and a competitive market prevails, solar home system costs will drop, allowing continued sales after the ESD Project is completed.
The ESD Credit Line will provide commercial financing through participating credit institutions for subprojects which meet standard appraisal criteria. All systems sold must conform with equipment standards developed for the Project. It is expected that NGO and private sector developers will utilize the ESD Credit Line to provide term financing to their solar home system customers. During the Project period, developers will receive a GEF grant of $90 to $100 for each 30- to 50-W solar home system sold. To be approved, business plans submitted by project developers in support of their ESD credit application must show financial viability and continued solar home system sales well beyond the Project period. GEF grant funds will also support business development and technical support.