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8.1 Although the technical, financial, and institutional aspects of solar home system programs vary significantly, successful initiatives must overcome the high first cost of solar home systems, establish sustainable infrastructure, provide quality products and service, and ensure appropriate support from governments and donors.

Overcome the first cost barrier

8.2 The preceding Chapters have identified financing arrangements, pricing and cost-recovery strategies, areas for use of grants and subsidies, and the need to rationalize or eliminate discriminatory import taxes and duties.

8.3 Financing. Given the first initial cost of solar home systems, some form of term financing is essential and can be accessed through ESCOs, hire-purchase and leasing arrangements or financing through dealers or the banking system. Consumer loans which feature high down payments (to minimize defaults) and short maturities (three or four years) limit solar home system purchases to high-income groups. ESCOs that can obtain relatively low-interest, long-term loans and reduce equipment costs by purchasing in bulk may greatly increase the affordability of solar home systems. Any long-term leasing or ESCO financing arrangement should incorporate provisions for battery replacement, since batteries are a significant cost over the lifetime of the system. To increase rural customers' access to financing, solar home system program design should include streamlined loan application procedures and flexible arrangements for securing and repaying loans. Loan officers must be familiar with the PV system in order to facilitate and accelerate loan processing. Finally, banking facilities or outreach efforts will stand a better chance of success if they are conveniently located to users who need to make regular loan payments.

8.4 Pricing Strategies and Cost-Recovery Mechanisms. Solar home system pricing and repayment arrangements should reflect consumers' willingness and ability to pay. In government-sponsored programs, payments have often been set too low (at the same level as expenditures for kerosene), even though consumers (recognizing the improved quality of PV systems services) are often willing to pay more. Prices and fee structures should be low enough to attract customers but high enough to cover capital, financing, servicing, equipment replacement, and administrative costs, as well as possible defaults. The size of the down payment appears to affect the ability and willingness to pay for a solar home system more than the number or the size of the monthly payments. Rural households with irregular income streams may require seasonal rather than monthly payment schedules. Fee collection and enforcement are best handled by appropriate local and/or national organizations.

8.5 Grants and Subsidies. Judicious use of grants and subsidies may help catalyze a PV program but should be limited to market-conditioning activities or (under the appropriate conditions) limited injections of equity to buy down capital costs. Since there is no guarantee that subsidies and grant money will continue indefinitely, these funds should not be used to finance operating costs.

8.6 Rationalize or Eliminate Tax and Duty Structures. High import duties, particularly on PV modules, artificially inflate PV pricing and hinder development of large-scale, commercially viable, market-driven solar home system programs. A reduced market raises the cost of maintenance and other support services. This in turn decreases user satisfaction. The resulting market distortions may also induce local suppliers to use poor quality components that make systems less reliable.

Establish a sustainable infrastructure

8.7 The start-up phase of solar home system marketing requires special attention to sustainable infrastructure development. This requires careful market niche identification, reliance on local capabilities for implementation, and appropriate training programs for technicians and users.

8.8 Target Specific Areas. The economic niche for solar home systems covers remote or isolated areas where loads and load densities are low. Rural electrification programs should explicitly consider solar home systems as part of a portfolio of technologies that can provide least-cost electricity services. Careful market research should identify which type of service is best suited to each community. Targeting helps solar home system programs serve appropriate rural concentrations and facilitates cost-effective energy service delivery.

8.9 Use Local Organizations. Local grass-roots organizations are best equipped to implement solar home system programs in sparsely populated areas. A community organization, NGO, or locally-based private firm knows its potential customers and understands local traditions, customs, and constraints. This eases troubleshooting and problem solving. Local organizations can respond to calls in a matter of hours or days rather than the weeks that might be required with a central agency. A suitable local organization can serve as an ESCO. A new organization should be created only as a last resort and requires the full support of the government and community. It is better to build on existing marketing and retail networks or to use leasing, consumer financing, or cash sales arrangements to deliver PV services than to create a new organization.

8.10 Ensure Training Technicians. Rapid, responsive service will satisfy customers and satisfied customers are important marketing agents. For this reason, well-trained technicians are needed to install, maintain, and repair solar home systems. While some users can perform simple maintenance procedures, trained technicians are still required after installation since experience has shown that, in the long term, reliance on users for maintenance can impair the performance of solar home systems. When systems fail, users are less likely to pay fees regularly. This affects a program's financial sustainability. To avoid unexpected "down-time" in service, technicians should be available locally and equipped with adequate tools and spare parts. Follow-up training is also important after a program has been under way for a number of years. Equipment will require more frequent care, new technicians must be trained, and existing staff will need to upgrade their skills.

Quality products and services

8.11 Sustainable PV household electrification requires satisfactory performance, guaranteed by quality products, uniform standards as well as attention to battery replacement/recycling and customer education.

8.12 PV Standards. Governments and standard-setting agencies should establish performance standards for solar home systems or require that modules, controllers, other electronic components, and batteries meet internationally recognized performance standards. All standards should be consistent with the level of reliability and performance users expect, and all should be strictly enforced.

8.13 Quality Control. Solar home systems should be designed to meet customers' expectations (subject to ability to pay) and use only quality components. Assembly and installation procedures need to be standardized and modifications and additions made only by qualified technicians. Performance warranties for modules, controllers, other electronic components, batteries, and, if possible, the system itself so as to ensure optimum performance. If consumers in solar home system programs have limited capacities to pay, technical quality should not be compromised in the interest of reducing costs. These customers should be offered small but high-quality systems.

8.14 Battery Recycling. PV modules and deep-cycle or automotive batteries are the most costly components of the solar home system. While the average life of a module is more than ten years, automotive batteries may fail within three. Battery recycling both reduces costs and is environmentally sound. However, unless appropriate arrangements or incentives are in place to collect used batteries, consumers are unlikely to assume individual responsibility for battery recycling.

8.15 Consumer Education. Users must understand and be prepared to accept the level of service a given solar home system will provide. This understanding is the key to effective solar home system programs. Customer satisfaction is a prerequisite for effective cost recovery and increased sales.

Government support

8.16 Despite the various initiatives of the private sector, NGOs, and donors in dissemination of solar home systems, governments still have a major role to play in PV market development. Governments can best support the deployment of solar home systems by focusing on:

8.17 A Demand-Driven Approach to Rural Energy Planning. Solar home systems are only one of many options that complement traditional central grid extension and meet the energy needs of rural populations. The choice of system should be based on the technology's ability to provide the most economical service consistent with energy needs such as lighting or power in household appliances or meeting commercial and industrial loads. The choice should also reflect the willingness of customers to pay for services. The process should also allow rural energy services to be delivered through a range of institutions, including public and private sector agencies, local cooperatives, and NGOs. Governments that invest directly in PV equipment for education, health, and other social programs can encourage further use of solar energy through visible demonstration of the technology's benefits. Governments can also facilitate access to credit lines, loan guarantees, and other financing mechanisms.

8.18 Institutional and Regulatory Frameworks. Governments should ensure a transparent, supportive institutional and regulatory framework to encourage market expansion. This can be done by rationalizing import duties and taxes, as well as incentive or subsidy programs, so as to put PV equipment on an equal footing with other means of supplying power. Governments should also ensure technical standards for PV components and systems; encourage a diversity of service providers, such as NGOs, the private sector, and local communities; participate in program implementation; provide monitoring and oversight services; and disseminate information on PV technologies as well as on the performance of solar home system initiatives.

Donor support

8.19 Donor assistance is most effective when integrated into a broader rural energy or rural development plan. Donors should coordinate their support with those of governments, local organizations, other donors, and private sector stakeholders. Donor help is needed for investment financing and technology transfer. Isolated "demonstration" programs should be avoided unless they have adequate long-term support and the prospects for replication are strong. The World Bank and other multilateral banks can actively help governments develop solar and other renewable energy options, where these options meet economic, technical, and institutional needs. Donors can encourage governments to reduce or remove barriers to the economic use of solar home systems. Donors should also strengthen their own ability to identify and assess rural energy options, and make financial resources available through their bilateral and multilateral aid programs to help prepare and implement household PV projects.