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close this bookCase for Solar Energy Investments (World Bank, 1996)
close this folderA solar initiate
close this folderPreparation and finance of commercial and near-commercial applications
View the documentSources of finance
View the documentBuilding a project pipeline
View the documentPre-pipeline activities: education and training
View the documentPricing policies and openness to private investment
View the documentPitfalls in implementation

Pricing policies and openness to private investment

The move in many countries to establish more commercial arrangements for electricity supply and to be open to private investment should also help improve the returns to solar energy investments. The marginal costs of electricity supply are typically 4¢/kWh at off-peak and 15 to 20¢/kWh at peak in urban areas; the marginal costs at peak are sometimes higher in the developing countries because demands are spikier. Average costs are about 10¢/kWh in urban areas and may range from 20 to 40¢/kWh in rural areas.

Yet until recently average prices fell far short of these levels (around 4 to 5¢/kWh in 1990), and peak-load pricing was rarely applied, notwithstanding many attempts to introduce it over the past 20 years. If the reforms now ongoing in many countries are successful, they will move prices toward marginal costs, and this in turn will favor the use of solar energy in both urban and rural areas and for large- and small-scale applications. Peak-load pricing would also stimulate the development of technologies for short-term storage, thus making some of the renewable technologies better equipped to supply dispatchable power.

Box 3. A PV Program in India: A Worrying Experience

"PV systems are easy to transport and install, require no fuel for operation, have no moving parts, are noise and pollution free and require very little maintenance. They are thus ideally suited for applications in rural areas, remote and isolated locations, and other places where conventional electricity is not available or is unreliable. The programme has four major applications viz. Street Lighting system, Domestic Lighting System, Community Light and TV System, and Water pumping system for drinking water and micro irrigation.

Rs. 69.11 crores was spent on the Solar Photo-Voltaic Programme, during the period 1986-92, constituting 62% of the total expenditure of the Solar Energy Programme. But there were substantial shortfalls in achievements of the systems installed. Most of them were not working due to lack of proper maintenance, subquality performance of the systems and apathy of the local users. Out of the 5,496 street lighting systems surveyed 56.5% were not working. The average failure rate ranged from 33 to 100% in various states. In the case of domestic lighting systems the failure rate ranged from 25 to 94% in four states. In six states not a single community IV system had been installed. In the case of water pumps, 1,181 pumps had been installed till 31 st Dec. 91. The failure rates of the pumps ranged from 41 to 100% in the five states surveyed. There were many cases of these systems having been installed at offices and residences of high officials contrary to the guidelines for the programme.

Coordination between receipt and issue in the inventory was wanting resulting in overstocking, non-availability of closing stock and materials. Systems costing Rs. 1.28 crores could not be utilised in two States due to coordination problems."

- From "Report of the Comptroller and Auditor General of India for Year Ending March 1993" (typescript).