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close this bookPhotovoltaic Household Electrification Programs - Best Practices (WB)
close this folderThe place for photovoltaics
View the document(introduction...)
View the documentThe solar home system
View the documentThe cost of solar home systems
View the documentThe solar home system niche
View the documentConsumer perceptions

(introduction...)

2.1 Electricity provides services such as lighting, power for agriculture and industry, water pumping, refrigeration, telecommunications, and entertainment. The most familiar delivery mechanism for electricity is the conventional power grid which consists of generation facilities, long-distance transmission lines, and local distribution equipment. Other energy sources such as PV systems, batteries, diesel engines, kerosene or gas lighting, candles, wood, agricultural residues, or animal power have a role to play in rural energy service provision.

2.2 Photovoltaic systems are already used in a broad array of rural energy applications. They provide households and small businesses with services such as lighting, refrigeration, and entertainment; they are used to pump water for agricultural purposes; to deliver public services, including health care, water purification, and street lighting and to power remote telecommunications facilities (Shepperd and Richard 1993). PV systems are modular. They can thus serve loads ranging in size from milliwatt (for instance, a pocket calculator) to megawatt (for bulk power supply). Over the past decade, considerable experience has been gained in designing and implementing solar home system programs in remote areas. The current costs of PV systems make them an economical option in situations where conventional power is too expensive for the small amount of power required, where the supply must be absolutely reliable (as for vaccine refrigerators in rural health clinics) or in areas too remote or geographically isolated for grid connectors.

The solar home system

2.3 A typical solar home system includes a 20- to 100-Wp photovoltaic array'; a rechargeable battery for energy storage; a battery charge controller; one or more lights (generally fluorescent); an outlet for a television, radio/cassette player, or other low-power-consuming appliance; switches; interconnecting wires; and mounting hardware (see Figure 2-1). Both the array size and the sunlight availability will determine the amount of electricity available for daily use. In a country such as Indonesia, a 50-Wp system can provide enough energy to operate four small (6- to 10-W) fluorescent lights and a small 1 5-inch black-and-white television for up to five hours. In areas with longer hours of sunlight, a similar level of service can be obtained from a smaller system. Solar home systems can also help households generate income from business activities.


Figure 2-1. Typical System Components

The cost of solar home systems

2.4 The cost to consumers of solar home systems varies significantly from country to country (see Table 2-1). This is due to:

· The sophistication of the system;

· The number of systems purchased,

· Duties, taxes and subsidies;

· The scale of the manufacturing and assembly processes;

· The scale and cost of marketing and other services, including the number of "reseller" steps in the distribution chain;

· The degree of competition in the marketplace;

· Capacity utilization in manufacture, sales and servicing; and

· The cost of funds for working capital and capital investments.

Table 2-1. Solar Home System Prices in Selected Countries

Country

Year

Size (Wp)

Price ($)

Unit Price ($/Wp)

Kenya

1993

53

1,378

26.00

China

1994

10

93

9 33



20

160

8.00



20

280

14.00

Indonesia

1994

6

125

21.00



12

215

18.00



40

400

10.00



53

425-700

8.02-13.10



53

620a

11.68



100

715

7.15

Philippinesb

1993

48

640

13.33



53

900

16.98

Sri Lanka

1995

20

340

17.00



30

460

15.33



40

560

14.00



50

674

13.48

Brazil

1994

50

700

14.00



100

1,100

11.00

Dominican Republic

1993

25

450

18.00



35

575

16.42



48

700

14.58

Mexico

1994

50

700

14.00

USA





—Idaho Power Company

1994

1,000

10,000c

10 00

—Navajo Housing Services Dept.


90

1,500

16.67

(DC and AC output)





Note: All costs are in US dollar equivalents. Some programmatic costs, particularly for government or donor-assisted programs, may not be included.

a Government program sales.

b The private sector cost of a system in the Philippines is significantly higher than the cost of a system in the donor-assisted project because of taxes and duties.

c Present-value estimate including battery replacement and service), based on a 5 percent down payment, a monthly cost-recovery factor of 1.6 percent of net installed cost, and an expected minimum monthly charge of $150, as proposed by the utilities.

Sources: ASTAE Case Studies and field investigations in China, the Dominican Republic, Indonesia, the Philippines, and Sri Lanka; World Bank 1994a; US PV trade newsletters; Shepperd and Richard 1993; and Personal Communication, Chris Rovero, Meridian Corporation, Alexandria, VA, USA, 1996.

2.5 Figure 2-2 identifies some reasons for unit price ($US/Wp) variations in selected countries. The price of a solar home system in many parts of Indonesia is as low as $7.15/Wp for a 100Wp system. However, in some areas of Indonesia, where sales volumes are low and the population is more dispersed, manufacturers have to offer significantly higher margins to their retailers. This can add about $300 to the retail price (more than $5.00/Wp higher) of each system. As sales volumes increase, manufacturing and marketing infrastructure matures, and financial distortions are reduced, there is every reason to expect that prices in many countries will reach the low unit prices of solar home systems now generally available in Indonesia and China.


Figure 2-2. Some Reasons For Unit Cost Variations of Solar Home Systems

Note: Programmatic costs of government and donor-led efforts may not be fully reflected in the cost of PV systems. Cost per Wp is also affected by the size of the PV system, variations in the quality and features of systems and components, services provided by the seller or implementor, and input factor cost differences among countries.

Source: Table 2-1.

2.6 Table 2-2 compares unit costs for solar home systems by component in the Dominican Republic, Indonesia, and Kenya. There are significant opportunities for reducing costs through high-volume purchases of modules and other components; assembly line solar home system manufacture/integration; better utilization of production, sales and service capacities; reduced taxes and duties on PV panels and components; and larger sales volumes which would allow dealers to reduce their margins (see Box 2-1).

Table 2-2. Variations in PV Costs by Components in Selected Countries

Country

Dominican Republic

Indonesiab

Kenya

PV Module Size (Wp)

48

53

53

Battery Capacity (Ah)

90

70

100

Implementing Agency

Private business/NGOs

Private

Private

Component

Cost

Percent

Cost

Percent

Cost

Percent

—Module & Support

340

49

200

47

340

25

—Battery

70

10

40

9

115

8

—Controls

44

6

35

8

66

5

—Lamps, wiring, switches

47

7

35

8

138

10

—Deliver/lnstall/Retail Margins

129

18

75

18

456

33

Duties and Taxes

70a

10

40

10

263

19

Total Cost

700

100

425

100

1,378

100

Note:

a. Import duty only.

b. Based on annual sales of 5,000 systems per manufacturer and 200+ per dealer.

Sources: ASTAE Case Studies and field investigations, World Bank 1994a.

Box 2-1
Cost Reduction Opportunities for Solar Home Systems

Promising opportunities for reducing unit costs in the near future include the following:

Photovoltaic Modules. PV modules can be purchased in bulk at about $4/Wp (Indonesia). With smaller orders, unit prices can exceed $8/Wp (the Dominican Republic). For large procurements, some PV module suppliers are also offering interest-free supplier credit for six months.

Electronic Components. Evidence from China and Sri Lanka demonstrates that significant cost savings can be achieved by purchasing electronic components in bulk.

Batteries. While deep-cycle (marine-type) batteries are preferable for use in solar energy systems, they are relatively expensive and difficult to procure locally. For these reasons, automotive batteries are more commonly used. Should the demand for deep-cycle batteries increase, then lower-cost local manufacture of such batteries can help reduce life-cycle costs.

Economies of Scale in Production and Sales. Production costs depend heavily on volume. As demand increases, the costs of manufacturing solar home systems should fall. As more suppliers enter the market, competition should also drive prices down.

Support Service Costs. Support services costs will also fall as sales volume per dealer increases, spreading the fixed costs of sales and servicing over a larger number of units.

Local Manufacturing and Assembly. If there is a comparative local advantage in manufacturing and assembling the units, capability may be developed to realize cost savings, as long as quality is not compromised. On the other hand, import barriers to support domestic production will increase the prices and reduce demand. In Sri Lanka, tariff barriers to protect a local module encapsulation plant increased module costs by $2.50/Wp. Indonesia's low duties on PV module imports have resulted in relatively low unit costs.

Duties and Taxes. Duties and taxes significantly increase the cost of solar home systems. Reducing or eliminating these fees can help make systems more affordable.

2.7 At present, varying degrees of backward integration in solar home system production are occurring in developing countries. These range from the importation of complete systems to incountry production of all components, including the PV array. For example, as a direct result of its national industrial development policy, India produces single-crystal wafers as well as all system components. In other countries, only low-technology components, such as mounting poles, wires, light fixtures, and automotive batteries, are manufactured locally.

The solar home system niche

2.8 Household PV electrification is typically suitable for households located in remote unelectrified locations. However, households in "electrified" communities may also be good targets for solar home systems. Many households in "electrified" areas are too far from the grid (200 meters or more), or have too small a load to warrant a connection. In Bali, Indonesia, for example, while 98 percent of the villages are classified as "electrified," only 41 percent of the households are connected. Of the remaining 59 percent of households, many may never receive grid service, given their distance from the grid lines or their location in difficult terrain. PV home systems are a practical and permanent source of electricity for these households. In other areas, households may gain access to grid-based services as electricity demand increases due to a rise in personal and community incomes. Here, solar home systems can still serve as an effective interim measure. When the grid does arrive, the used solar panels can be sold (if the household owns the system), or the utility can transfer them to another location, thereby recovering a sizable portion of the initial cost.

2.9 Rural households that currently use kerosene lamps for lighting and disposable or automotive batteries for operating televisions, radios, and other small appliances comprise the principal market for solar home systems. In Sri Lanka, there are about 300,000 such households (about 10 percent of unelectrified households). Java, Indonesia, has an estimated 1 million such households, or about 12.5 percent of unelectrified households. On average, a single such household uses about 0.5-1 liter of kerosene daily and about 2-16 dry cell batteries per month; automotive batteries are recharged about four times a month at a cost of $1-$2 per recharge and must be replaced every two to three years at a cost of $40-$60. Recurring costs for these households are estimated to range from $10-$30 per month. Solar home systems, at today's prices, are an affordable alternative for such families.

Consumer perceptions

2.10 Solar home system users in Indonesia, Sri Lanka, the Philippines, and the Dominican Republic indicate that the systems are valued for more than just monetary savings in kerosene or battery costs. Consumer income and expenditure surveys show that a willingness to pay for a solar home system is greater than what might be expected from a simple avoided-cost analysis. Rural consumers frequently note the following non-monetary advantages of PV home systems over kerosene lighting and rechargeable batteries:

· Higher-quality light, both in terms of lumen output and color rendering ability, making such tasks as reading and studying easier;

· Improved safety levels. Solar home systems eliminate dangers from accidental fires and burns from kerosene devices, candles, or acid spills from batteries;

· Cleaner indoor air, due to reduced (or eliminated) soot and fumes from kerosene and candles;

· Greater reliability and freedom from fuel need;

· Convenient, instantly available light and access to services such as TV and radio, without the need to purchase and transport supplies; and

· An elevated social status associated with electrification.

2.11 Field observations indicate that women and children generally benefit the most from PV electricity services. In both Indonesia and the Dominican Republic, women account for about 25 percent of the signatories on loans for solar home units. Case studies of the Dominican Republic and the Philippines show that women value good-quality lighting, which allows them to perform domestic tasks in the evening, leaving time for activities outside the home during the day. In the Dominican Republic, 10 percent of the women interviewed revealed that the time they saved with their improved lighting allowed them to carry out additional income-generating activities. Similarly, in the Philippines, solar home systems helped women earn money by affording them time to manage local cooperative stores. Women also note that better lighting enables them to respond more quickly to infant needs at night. Children value the additional time to study, watch television or listen to the radio provided by a solar home system.

2.12 While consumers clearly prefer PV home systems to kerosene lamps or candlelight, the solar home systems currently used in developing countries are considered inferior to grid electricity for several important reasons:

· Solar home systems services are limited. The amount of electricity available from a solar home system depends on the capacity of the PV array and the available sunlight. The incremental cost of obtaining more electricity from a solar home system is relatively high for the consumer. In contrast, grid service can offer unlimited amounts of low-cost electricity (unless utilities curtail service hours, impose capacity constraints on consumers, or are unreliable). For example, in Indonesia, rural household power consumption is limited to 450 W with a circuit breaker; diesel-powered isolated grid service is limited to 4-12 hours at night.

· Solar home systems usually require DC appliances. While DC black and white televisions, radios, and some other small appliances are generally available, other DC appliances are not widely available or cost more than their AC equivalents.

· Subsidized grid connection fees are generally lower than down payments required for credit sales of solar home systems.

· Since most rural electrification programs are heavily subsidized, grid-based electricity tariffs are also significantly lower than fees or finance charges for solar home systems.

2.13 Consumer education is directly related to consumer perceptions. It is important that customers understand the capabilities of a solar home system before acquiring it. In the past, unrealistic perceptions (such as the belief that small 50-Wp systems can power large household appliances) have led to customer dissatisfaction. Widespread dissatisfaction can sabotage efforts to promote the use of solar home systems.