6. PV, Wind, and Other Dispersed Energy Sources

JOSMA. BLANCO¹

This chapter examines the context, barriers, and opportunities that dispersed technologies encounter in the energy market, as another way of addressing the lack of power experienced by most of the population, especially at the household level in rural areas. The electricity sector in Central America is used as a case study to introduce some general concepts that may be adapted to other regions of the world.

Beginning in the 1950s, the energy sector in many developing countries was characterized by the predominance of large centralized power generation facilities financed through a heavy foreign debt burden, large price subsidies, and the absence of both efforts at demand-side management and strong private sector participation. Governments were assumed to be the sole managers and providers of services; national utilities made nearly all decisions about the development and operation of energy projects.

This energy paradigm dominated until the middle of the 1980s, when it began to collapse for a number of reasons. First, because of the economic situation in most developing countries, development banks no longer wanted to lend exclusively or even primarily to large-scale, state-owned, centralized projects; the increased foreign debt from additional external funding would be too difficult under current economic constraints. Second, the global community became increasingly concerned about the environmental impacts of large-scale energy projects and dependence on thermal generation. And third, private developers of power projects and non-governmental organizations (NGOs) became active in establishing new alternatives for addressing development needs.

Throughout the developing world, public utilities have become unable to provide quality services on a continuing basis or to respond adequately to rapidly increasing demand. It is, therefore, essential to assess what alternatives exist for supplying electricity in a sustainable manner. One possible approach is to do nothing, letting demand continue to grow at random, even as public investments in energy decline still further. Under this scenario, the quality of energy services would decline, dependence on thermal plants would increase, and the population and industry would experience frequent blackouts. In short, this option would significantly reduce the quality of life of that portion of the population that still has access, even if it is unreliable, to the public grid. A significant portion of the population would simply not have access at all.

Since the mid-1980s, however, a new environmental paradigm has been emerging in response to declining global economic conditions, the imperative of environmental regeneration, and the demands for a better quality of life for the majority of the population. This new environmental paradigm recognizes that energy is crucial to development. It integrates some aspects of the traditional approach based on grid-connected systems, with dispersed energy technologies, which for the purposes of this paper are defined as "stand-alone," "freestanding," or "decentralized," i.e., not connected to the utility or supplied by unsustainable means.

Dispersed energy systems have emerged as an important alternative to cope with the minimum needs of the poorest sectors, especially at the household level. They are the appropriate solution, where conventional sources of energy are not available or not convenient to use.

In other words, the new environmental paradigm involves new means of transforming and managing energy. It generally includes a number of important components:

· The rates paid by those with access to national power systems are set to be consistent with the long run marginal costs;

· Decisions about both large and small energy projects take account of their potential environmental impact. In particular, attention is given to the high dependence of the majority of people on biomass, especially firewood consumption for cooking and heating;

· Regional and municipal power distribution companies and cooperatives not directly owned by the central governments are often consolidated;

· The inability to meet demand through state-built, debt-financed, centralized projects creates new opportunities for small grid-connected, as well as stand-alone, energy enterprises; and

· Regional and community development organizations provide energy to low-income populations, especially in rural areas, in a sustainable way, with dispersed energy sources.

The Central American Energy Context

Central America consists of seven countries located near the equator. Only half of these countries' combined population of 46 million inhabitants has access to electricity services.

THE ECONOMIC CONTEXT

In Central America, like most Third World regions, the energy-demand growth rate is higher than the economic growth rate. As a result, countries often seek high levels of foreign investment to finance construction of large energy projects, to maintain existing state-owned systems, to fund new grid extensions, as well as to pay for the oil imports consumed in operating existing thermal power plants and in the transportation sector. However, not only is foreign funding a heavy load for the economy, but financing the counterpart costs is also an extra burden since allocating money from the national budget requires an increase in tariffs and/or taxes.

Public sector debt is a significant portion of the overall external debt for most Central American countries; in some countries, electricity alone will account for about 45 per cent of the total external debt, projected to the year 2002, if the state-owned utilities assume the development of all on-line projects. Open markets, severe structural adjustment, privatization of public services, and significant reductions in public investment make economic development and socio-economic growth even more difficult.

In recent years, a number of new players have entered the energy market, including private power producers and regional and community service companies, or non-governmental organizations. These new players provide non-conventional energy sources such as small and mini hydro, photovoltaic (PV)-systems biomass-based cogeneration (sugar, rice, sawmills), wind farms, and small wind turbines. They supply energy for small-scale uses, thus, creating improved living conditions for the population. One example is the introduction in Guatemala and Honduras by local community groups, with the support of public utilities, of photovoltaic (PV)-systems for rural home electrification through the creation of small energy ventures at the community level.

RAPID GROWTH IN ENERGY DEMAND

The emergence of peace and democracy in Central America has helped to bring about rapid economic growth since 1990. It has also created pressure for improved social conditions for the majority of the population. Together, the growing desire for basic energy and other services and an increase in the available stock of electrical appliances have led to unexpected increases in demand for power.

The growth in demand for electricity in the region as a whole is more than 7 per cent per year. There are, however, significant differences among countries. For example, the percentage of homes with access to electricity varies from country to country, ranging from 40 per cent in Guatemala to a high of 90 per cent in Costa Rica. Despite such differences, the growth in demand for electricity is high throughout the region. In El Salvador, demand in 1993 increased 12 per cent over the previous year; in Costa Rica, where demand was projected to increase 6 per cent from 1992 to 1993, it increased 9 per cent, according to the national utility. With growth rates this high, the region must double its installed electric capacity by the year 2000, a difficult task to carry out under the economic restrictions mentioned above.

Public utilities in general have based their plans for expansion on centralized means of power generation, particularly large hydroelectric projects and conventional grid extensions. However, this approach - carried out mainly in the 1960s and 1970s - has not been enough to keep up with growing demand. In recent years, the lack of scheduled maintenance, planning, and capital investment has led to poor service and a shortage of available power. In Guatemala alone, some 6,000 villages are waiting to be linked to the grid. Honduras had blackouts of up to 10 hours per day in 1994.

One important issue limiting expanded services is the high degree of dependence on fossil fuels. Except for small deposits under exploitation in Guatemala, fossil fuels must be imported into the region. Even Costa Rica, which long prided itself on its 98 per cent reliance on hydroelectricity, now faces serious reservoir depletion problems on existing hydropower plants and serious debt-financing limitations on the construction of new facilities; as a result, Costa Rica, too, is increasingly dependent on fossil fuels.

ENVIRONMENTAL AND SOCIAL CONSIDERATIONS

The demand for such natural resources as food, water, and energy and for services such as transportation and education have a tendency to increase more rapidly than the physical and financial capacity to satisfy them adequately. Central America's current population of some 46 million is expected to double in less than 30 years. In other words, even to keep up with current levels, the supply of resources and services must at least double in that short period of time.

In most Central American countries, the energy establishment has not adequately assessed the long-term availability of power from renewable energy resources. First, severe droughts on major reservoirs and the lack of appropriate planning and maintenance have led to serious power shortages in Honduras, Guatemala, and Nicaragua. Second, the hydrological basins are deteriorating at an accelerated rate; overgrazing and intensive farming of the surrounding slopes without the use of appropriate soil conservation practices have resulted in erosion. Together with the disposal of urban wastes in the rivers, this affects the operation of the large hydro projects and the quality of the water available for producing electric power.

Current conditions in the energy sector also have negative effects on social development in Central America. First, as already noted, only half of the Central American population currently has access to electricity services.² In other words, there is a large unmet demand for basic energy services, especially at the rural level. Second, firewood consumption accounts for over 50 per cent of total energy consumption in the region, mainly to satisfy the energy needs for cooking at the household level in the rural areas;³ this not only has serious environmental implications, but also affects women's health, education, and opportunities. Central American women must spend a great deal of time in gathering, transporting, preparing, and burning firewood for cooking, a fact that reduces their involvement in education, worsens their health conditions, and limits their opportunities for getting additional income for their families. (Editor's Note: See chapters 2, 3, and 7, this volume, for more detailed discussion of the amount of time women in many parts of the world spend on such activities.)

The Transitional Path: Decentralized Small-Scale Renewable Energy Systems

This context - the economic situation, high growth in energy demand, and environmental and social considerations requiring urgent action - has moved the community of non-governmental organizations (NGOs) to move from the progressive role that a few groups have played in disseminating renewable energy technologies toward more active involvement in addressing the challenges facing the energy sector.

These new players are helping to define the new energy paradigm. They are responding to the need for changes in the way energy is considered, looking not just at energy delivery, but at the whole question of how to integrate energy into social and economic development. They are attempting to catalyze energy as an important instrument for social change and for a range of diverse productive uses, including crop processing and crop-waste disposal, revitalizing artisanal trades, small power sources for education and communications, water pumping for sanitation and agriculture, household electrification, refrigeration, battery charging, heating, etc.

DISPERSED TECHNOLOGIES

An important part of the new approach to energy is the potential of dispersed energy technologies to meet the monumental energy challenge facing Central America. Of the many available dispersed energy sources in Central America, a number appear particularly promising, including photovoltaic-based home electrification, solar thermal devices, stand-alone wind turbines, small wind/PV-diesel hybrid units, small diesel-power generators, extension of the conventional grid, and micro and mini hydropower.

Photovoltaic-Based Home Electrification

Photovoltaic (PV) electricity transforms sunlight into electricity, storing it in batteries to use any time. A PV system is made up of a module, at least one battery, a charge controller, and an inverter, plus the electrical end-use equipment (i.e., for lighting, communication, refrigeration, water pumping, etc.). It requires minimum maintenance, is well suited for remote locations, and costs approximately $0.75 per kilowatt hour (kWh). By contrast, according to one study by Sandia National Laboratories, the average combined price for batteries, candles, and kerosene is in the range of $US1.00 to $2.00 per kWh, while dry-cell batteries cost on the order of $30.00 to $60.00 per kWh.⁴ Not only are PV systems less expensive than present alternatives, they can provide an energy source to areas that are not, or cannot be, reached by grid service.

Due to its geographical position near the equator and high levels of sunshine all year-round, PV systems are a cost-effective means of making power available to remote users. This has now been demonstrated by a number of projects. For example, Enersol Associates, a nonprofit group, has incorporated photovoltaics into an innovative financial and institutional system to create a self-sustaining PV energy market in Honduras and the Dominican Republic. Throughout Central America, the PV market is increasing; about 1,500 systems are added yearly, each with an installed capacity in the range of 30 to 50 W each.

Solar-Thermal Devices

Hot water requirements at the household level and in specific productive activities are another need that can be fulfilled by renewable energy technologies. Solar collector technology has matured enough to provide water with output temperatures up to 200 degrees Celsius, depending on the physical characteristics of the materials used, the available solar resource, and the engineering design of the installation. But in residential applications, which do not operate under high pressures, the highest temperatures achieved are on the order of 100 degrees Celsius. In off-grid locations, solar water heaters may not only provide hot water to domestic users for comfort purposes, but may also contribute to improved sanitation in community health centers. In addition, solar water heaters can also have industrial applications; by helping to meet hot water requirements, they can optimize the proportion of energy provided by the solar system relative to the energy provided by other available resources (i.e., gas combustion, electricity from diesel systems, etc.).

The main difficulties this type of system has encountered are technological prejudices in some segments of the population, lack of information about the systems, and the amount of initial investment needed for the purchase of this technology In individual systems for domestic use, the price varies from U.S. $650 to $1,300 (including a 40-50 gallon water tank), depending on the brand name, materials, and installation costs. For industrial purposes, investment costs depend on the size of the system (amount of collector area). However, since the operating cost associated with solar water heaters is virtually nil, the investment cost will be compensated throughout the life of the system.

Stand-Alone Wind Turbines

In many parts of the world, small wind systems (from 50 to 300 kilowatts) provide energy for applications, including village electrification, water pumping, battery charging, small industrial uses, etc. In Central America, however, the use of wind as an energy source is at a preliminary stage.

With the assistance of the National Rural Electrification Cooperatives Association (NRECA) and the American Wind Energy Association (AWEA), a regional programme is evaluating wind potential. This effort consists of plans for wind data monitoring and instrumentation, data processing and evaluation, and site-specific resource assessment. Although the programme has identified several sites at which wind energy could potentially be utilized, no commercial market has yet been developed for small remote power applications. A few old systems (the multi-bladed farm windmills) are under operation around the countryside in Guatemala and Costa Rica, mainly for water pumping for irrigation and potable water.

Small Wind/PV-Diesel Gas Hybrid Units

In a number of places, combining photovoltaic or wind systems with diesel offers potentially greater benefits than stand-alone renewable systems. Such hybrid units offer greater reliability, especially for remote applications such as land-based and naval communications, park management, etc., while at the same time attempting to minimize the use of the diesel fuel. In these combined systems, the electrical energy generated by the wind turbine or the PV array is converted to chemical energy in the batteries, which in turn can be converted to electricity for later use. The diesel/gas generator can be used either to charge the batteries or to supply electricity directly.

In such combined systems, it is preferable to have control mechanisms that permit turning off the diesel generators whenever the renewable energy technologies can supply the load, since a continuously running diesel engine operates very inefficiently when supplying a small fraction (less than 40 per cent) of its rated capacity. In hybrid systems that supply electricity to small villages, the electric power is produced in AC and fed directly to the load. Storage systems (such as batteries and other hydro-pneumatic systems) act as "buffers," maintaining a stable output during short periods of time, such as when low winds occur. In much smaller hybrid power systems, with outputs at the household level, the energy is produced in DC and sent entirely into a battery bank that in turn feeds a DC load, or an AC load through an inverter.

Small Diesel-Power Generators

Conventional diesel-generating systems have been the traditional way to address the problem of lack of electricity in remote or off-grid applications. They can be rapidly installed, and provide a good solution to common electric power shortages and blackouts in the region. The main advantage of this old and proven technology is its reliability, but the costs associated with this technology (e.g., initial investment, imported fuel, transportation) are not suitable for low-income villages dispersed throughout rural areas. These systems can, however, solve the problem of providing energy for such activities as agroprocessing industries, small municipal electric enterprises, etc.

Extension of the Conventional Grid

Extension of the conventional grid can help ease access to electric energy use not only for residential lighting, but also for productive activities in rural areas. It can provide energy options for small shops, artisans, micro-enterprise development, small industrial manufacturing, etc.

Several NGOs recognize the development implications of these activities and are offering technical management assistance and loans for extending conventional electric grids and easing access for individuals and groups. This approach addresses underlying social development needs associated with energy services by helping to implement programmes that promote productive uses of energy, as a complement to electrification efforts. It looks beyond the potential market for energy suppliers and focuses instead on the actual needs that the provision of energy seeks to fulfill.

NGOs are best equipped to promote this type of programme, and a few of these are currently in place in Central America, like the successful cases of GENESIS (see Box 6.1) and FUNDAP in Guatemala, ADHEJUMUR in Honduras, etc. One of the main findings of existing programmes is that, by providing basic electric equipment to already existing enterprises in newly electrified villages, the number of jobs provided by these enterprises can readily be tripled.⁵

Micro and Mini Hydropower (up to 1000 kW)

A hydraulic turbine connected to a generator can convert water flows into electricity. This technology is the most developed due to the geographic and climatic characteristics in all Central American countries. Since the scope of this study is limited to nontraditional stand-alone systems for remote locations, this technology will not be discussed further.

In addition to electricity, other dispersed energy sources in rural areas include dissemination of improved firewood stoves, solar cookers, solar crop drying systems, etc. These dispersed energy technologies are all too small to attract conventional sources of funding.

BOX 6.1

GENESIS: A Case Study in Success GENESIS is a nonprofit, private-sector organization created in 1988. It has an exceptional track record in credit programmes for micro-enterprise development in Guatemala, giving financial assistance, management advice, and capacitation. Its general objective is to strengthen and develop micro enterprises by helping to increase incomes and generate job opportunities - by promoting the socio-economic situation of workers and their families. Its active loan portfolio has grown from under $50,000 to $3,500,000 in six years. By early 1995, GENESIS had provided more than 37,000 loans, creating or strengthening nearly 10,000 jobs and benefiting nearly 60,000 family members. The impact on the beneficiaries has been very positive. Net incomes for enterprises with individual loans increased an average of 74 per cent, and 20 per cent in the case of loans provided to groups. Net profits for individuals increased an average of 72 per cent, and for groups an average of 40 per cent; and net assets increased 33 per cent and 48 per cent, respectively, for these same categories. Women have benefitted especially in the well-established groups. In September 1992, GENESIS initiated a programme to finance productive uses of energy for micro entrepreneurs with access to the grid. In 1993, the programme was expanded to include grid extension to communities that could not afford the investment of interconnection. In 1994, GENESIS initiated a parallel programme to finance rural electrification through decentralized renewable sources for communities for which grid extension was not a viable alternative.

NEW PLAYERS

The large unmet demand for basic energy services in rural areas has prompted a number of efforts to create markets for small-scale energy sources, particularly photovoltaic projects for home rural electrification. Although these projects vary from country to country, and from project to project, a number of generalizations can be made.

Private Power Generation Investors

This category includes all those projects that primarily focus on generating electricity for captive uses or for sale to the national grid, mostly oriented toward small hydropower (above 1000 kW), biomass-based cogeneration (sugar, rice, sawmills, etc.), large-scale wind power systems (wind farms), geothermal, and of course, private power generation projects based on diesel oil.

Their common innovative feature is the participation of the private sector in the previously monopolized energy generation market. Because this is essentially an opening market, developers are forced to find new financial mechanisms, mainly foreign capital. Local capital is generally not available for investing in this kind of activity.

The viability of these projects is linked to the changes in the electric regulatory and legal frameworks; however, only in Costa Rica is the new legal framework reasonably clear yet.

Local Development Organizations

This category includes all those players with the innovative goal of integrating energy into rural development. These players tend to include mainly municipalities, cooperatives, and non-governmental organizations. In contrast to projects by private investors, projects initiated by local development organizations are primarily directed at decentralized energy supply systems. Their aim is to meet the social and productive needs of off-grid communities through non-traditional energy services and to promote renewable energy and energy-efficient technologies.

THE CONTRIBUTION OF LOCAL DEVELOPMENT ORGANIZATIONS

From the sustainable development perspective, local development organizations contribute to the transition to a new energy paradigm in three important ways:

1. They are concerned about a just distribution of energy services and improvements in quality of life. Local development organizations can make a significant contribution toward social equity by rectifying the deficiencies of the centralized and urban-centered focus of public utilities throughout Central America. An emerging focus for these efforts is rural electrification, i.e., providing energy services to communities and villages isolated from the grid. Some promising approaches include the establishment of small energy enterprises, the establishment of credit programmes to finance grid extensions, and the dissemination of dispersed renewable energy technologies appropriate to local resource availability.

2. They regard energy as a means, not an end, in the development process. The concerns of local development organizations go beyond increasing the amount of energy generated and delivered toward enhancing the capacity to derive social and economic benefits from the integrated use of existing and new energy sources. Essentially, this requires remedying wasteful or inefficient use of energy before generating more energy The goal is not just to increase the amount of energy being produced, but to increase the benefits that derive from access to energy

This approach requires reducing energy consumption through the introduction of more energy efficiency standards on appliances, lighting, and buildings, as well as implementing productive uses of energy as a complement to rural electrification. Energy provision, in other words, is linked to the social context and consumer behavior.

3. They contribute to environmental and financial sustainability by seeking to reduce the negative impacts of conventional energy generation and to provide cleaner alternatives. Local development organizations have gotten involved with energy issues because of the need to decrease the environmental degradation associated with conventional energy generation. Their potential to promote dispersed energy sources and energy efficient technologies is immense since these are appropriate to the local resource available and adapted to social, economic, and cultural conditions.

Furthermore, local development organizations contribute not only by promoting renewable energy technologies, but by formulating and validating new approaches for making the environmentally superior energy solutions a viable facet of the new paradigm. This requires going beyond the conventional mentality of international assistance and technology transfer; it requires recognizing local capabilities for making improvements in their own quality of life. A big contribution to this effort, for example, is the work of groups like the Biomass Users Network (BUN) in Central America. With the support of the Rockefeller Foundation, BUN and the E&Co Initiative (discussed below) are fostering early stage development of commercially viable environmental enterprises that are currently outside the scope of interest of conventional financial institutions.

The benefit of this approach is that once the initial demonstration phase is complete, such enterprises may then attract private capital. It assures local and international financial institutions of the validity of these small enterprises, especially if small-scale and initial risk concerns are compensated through project aggregation and in-depth evaluation.

On the other hand, there is a need for local capability development and strengthening of the terms of international exchange. In a worldwide open market scheme, new mechanisms for supporting the takeoff of commercially viable projects and financing sustainable resource management are needed.

BARRIERS TO PROMOTING DISPERSED ENERGY SOURCES

The various energy initiatives of local development organizations throughout Central America all faced a number of significant barriers:

· The existing gap between what conventional sources of capital are willing to finance and what the new enterprises seek to do.

· Lack of players experienced in linking small-scale projects to available funds. Local development organizations should facilitate a process that incorporates community-level participation from the beginning and enhances the community's access to funding sources.

· Lack of human resource and organizational capacity to turn good ideas into proposals. In other words, projects must be well-defined and involve participants, who are capable and organized to proceed. Most project proponents need strengthened capacities to clearly define projects.

· Language differences. The lack of command of English by project proponents and the lack of command of Spanish by funders forces too much time to be spent on document translations.

THE CONCEPT OF SMALL ENERGY ENTERPRISE

At the international level, most funders and major donors are changing the way they assist developing countries. They are moving from providing core-funding to supporting projects that can be self-sustaining, using the following criteria for small energy enterprise:

1. Innovation. Increasingly, projects must employ technologies or techniques that show the potential of new approaches to energy production, transportation, and end-use. In addition, in view of the need to generate local capacity in the formulation and execution of sustainable development ventures, projects should have innovative institutional and financial framework that will lead to the establishment of a new enterprise.

2. Integration. In order for a dispersed energy technology to achieve market penetration, the energy enterprise should integrate technical, legal/institutional, and financial aspects. These can also encourage the local banking community to participate in financing the dispersed energy sources once their effectiveness and viability have been demonstrated.

The technical considerations that must be integrated are specific to each project. The technologies applied should be well-established in both industrialized and developing countries, although the projects should be innovative in how they are carried out.

The institutional aspects that must be integrated consist of the conditions that must be observed in order to be able to operate legitimately in each country, the legal considerations in establishing contracts and agreements with other players, and the steps necessary to establish a structure that will progressively ease the development of new projects.

The financial aspects that must be integrated include selecting the best financial mechanism to manage the project's disbursements, repayments, and terms as well as attracting additional sources of capital investment.

3. Diffusion. The development of a small energy venture should have adequate support not only from the potential beneficiaries at the community level, but also from the political actors in the national context, especially in the energy sector, in order to make it replicable either in the same country or elsewhere.

4. Demonstration and Validation. Projects must have the potential to be self-supporting and, if successful, to attract private sector investment that can eventually repay this early support. The central goal of early stage enterprise development is to formulate new approaches that make environmentally superior energy solutions commercially viable and able to access private capital. Support for early stage enterprise development involves activities like:

· providing technical expertise and support to the project developer in securing bank credit and in writing the project proposal;

· providing pre-investment funding;

· setting up revolving fund mechanisms, in which the repayments on initial loans can be used by other borrowers for other renewable energy ventures;

· bundling small projects together to create a package large enough to interest conventional financial institutions; and

· providing financing via the equipment supplier and other entities operating in concert with the supplier in order to minimize transaction costs.

5. Environmental Benefit. Projects must also offer clear environmental benefits that are demonstrably more successful economically than the local alternative.

Photovoltaic Systems for Rural Development in Guatemala: A Case of NGO/Utility/Financial Entity Collaboration

The following case shows a successful collaborative effort to make electric energy available and affordable to low-income communities in the outskirts of the City of Guatemala. This example illustrates that support for enterprise development can act as a catalyst, enabling innovative concepts to overcome financial, technical, and legal/institutional barriers in order to make energy services and the related social benefits accessible to more people.

THE DISTRIBUTION OF ENERGY SERVICES IN GUATEMALA

Guatemala's electricity sub-sector consists of the National Power Generation Utility (Instituto Nacional de Electrificaci INDE); the Guatemalan Electric Enterprise (EEGSA), which distributes power to three departments (or states) around the capital, Guatemala City; municipal electric enterprises that distribute power to rural municipalities; and private energy enterprises that generate and distribute power on a private basis to other areas in the country. INDE is the primary institution in charge of power generation, transmission, and electrification for most rural and urban areas. As of 1991, the Guatemalan power grid serviced 40 per cent of the population, including 16 per cent of the rural population.⁶

The average electricity consumption per capita is 125 kWh/inhabitant/year, about a tenth of the Latin American average of 1,200. Table 6.1 summarizes the percentage of homes without electricity in the twenty-one departments that make up the Republic of Guatemala.

Through concerted efforts, such as the Third National Rural Electrification Project (PER-III), the Guatemalan government has sought to increase the coverage of rural areas. PER-III aims to bring electricity to 280 rural communities that do not have services, and to expand the available services to 95 other communities by 1996. But the financial barriers confronting the electricity sub-sector, the growing energy demand in the rural areas, the deterioration of INDE's large-scale power plants, and the physical constraints to serving a dispersed population through a centralized power system, all indicate that the proportion of the Guatemalan population unserviced by the national grid could increase, possibly reaching two thirds of the country's inhabitants by the turn of the century.

TABLE 6.1 - Homes Not Serviced by Electricity in Guatemala

Department	% Unserviced	Department	% Unserviced
Alta Verapaz	86.0	Suchitepez	50.1
Pet	80.2	Chimaltenango	48.7
El Quich/TD>	80.0	Totonicapan	45.3
Huehuetenango	79.8	Retalhuleu	42.0
San Marcos	70.9	El Progreso	41.2
Chiquimula	68.3	Escuintla	40.9
Baja Verapaz	68.2	Zacapa	40.1
Jalapa	64.8	Quetzaltenango	39.6
Izabal	56.2	Sacatepez	19.7
Jutiapa	54.9	Guatemala	12.9
Santa Rosa	53.0

Source: International Fund for Renewable Energy and Efficiency (IFREE), Central American Renewable Energy and Energy Efficiency Project, Country Study: Guatemala (March 1994), p. 24.

Facing the Challenge: EEGSA's Approach

The Guatemalan Electric Enterprise is responsible for power distribution in the departments of Guatemala, Escuintla, and Sacatepez. EEGSA is a private corporation, although the large majority of its shares are owned by INDE. Because its service area surrounds Guatemala City, it has greater access to a variety of services (including electricity) than the rest of the country; nevertheless, a large proportion of homes in this area, especially in Escuintla, do not have access to grid power.

Furthermore, EEGSA's Rural Electrification Department estimates that it is only able to service 5 per cent of the nearly 100 new requests for electrification it receives every year because of the high costs of grid extensions. This situation was aggravated in November 1994, when EEGSA was forced to begin rationing electricity to areas it already services because of problems in meeting existing demand. In this power supply crisis, costly grid extensions to provide power to dispersed unserviced users are likely to have lower priority than meeting demand in already serviced areas.

Fortunately, EEGSA's Planning Department has chosen to regard the problem as an opportunity to introduce decentralized renewable energy technologies that can meet the basic energy needs of remote rural homes without increasing stress on the power grid. In this effort, they have been supported by CrediEEGSA, a credit corporation founded in March 1993 and affiliated with EEGSA. One of CrediEEGSA's main objectives is to provide financing, without subsidies, to unserviced communities in EEGSA's area of influence to enable people to acquire energy services.

The Role of Photovoltaic Systems

EEGSA's Planning Department became interested in the concept of solar photovoltaic (PV) systems to provide basic energy services to communities on the outskirts of Guatemala City that were at a considerable distance from the grid. It identified a number of advantages to this technology: it is modular, that is, initially small systems can be expanded as the household's energy demand and ability to pay increase; it has a long useful life since PV systems have no moving parts that can wear away; it has low maintenance costs since the only component that needs routine care is the battery; easy and quick installation allows a home system to be fully installed in under a day; and it creates less air or water polluting emissions since no combustion processes are involved.

The standard stand-alone system used for basic electrification of rural homes in Central America consists of one or more photovoltaic panels, each capable of converting solar radiation into 35 to 100 watts of electric power, depending on the panel rating, under favourable atmospheric conditions; one or more 12 volt batteries similar to those used in cars or motorboats to store the electricity for later use (for example, for lighting at night); control units to regulate battery charge and protect the system; efficient fluorescent lamps; and an optional DC to AC inverter for running small appliances.

Increasing the number of panels or the number of batteries can broaden the possible uses of energy, but it also increases the cost. The size of the system, and particularly the number of batteries, is designed according to how much solar radiation is available on site; if the site tends to have relatively long periods of insufficient sunlight, then the storage capacity of the batteries needs to be higher to maintain system operation. The user also needs to control how much power is consumed in order to make the best use of the available energy and to prevent the battery from discharging below the minimum working charge because this could greatly decrease its useful life.

In some cases, rural dwellers are already familiar with how car or boat batteries operate, or they may even be using them for powering radios or lights at home and taking them periodically to a nearby town for recharging. This makes the introduction of PV technology easier because the customer is already used to working with DC power. Conversely, PV systems are not cost effective, where the power demand can be met by extending the power grid or where users are accustomed to a wide range of uses of grid electricity. Electricity from small PV systems cannot support such uses as thermal showerheads, electric ovens, or large appliances, and conventional appliances cannot be used without having a DC to AC inverter. However, for many rural dwellers, PV is the alternative to having no electricity. Once they purchase a PV system, they have a guaranteed power supply and are not subject to blackouts due to excess demand on the grid. Moreover, they do not have to pay anyone for the electricity they consume, or for candles, kerosene, or dry-cell batteries.

Figure 6.1 - Economic Break-Even of Photovoltaic* Installation

Source: Guatemalan Electric Enterprise (EEGSA), 1993.

* PV is to be preferred for the combination of parameters located above the respective bars in this figure.

EEGSA undertook a pre-feasibility study to assess how viable PV systems would be. They compared the economic feasibility of introducing photovoltaic systems to a remote village with that of extending the power grid. The study showed that financial feasibility of PV systems over grid extensions is determined by four factors: distance from the grid, number of homes, dispersion of the homes (average distance between each home), and energy consumption per home. An increase in the number of homes or in the energy consumption per home makes grid extension more feasible. Conversely, an increase in the dispersion of the homes and the distance from the grid makes PV systems more feasible. In addition, since the buyers of PV systems need only pay for the investment cost of the system and not for the energy they consume, once they have purchased the system, the price per kWh sold by the grid also affects the feasibility of installing a PV system. Figure 6.1 compares the economic viability of PV systems and grid extension for two different consumption levels (62 kWh/month and 36 kWh/month); for the points located above the shaded areas, at both consumption levels, the PV-based home electrification option is economically more feasible than grid extension.

EEGSA then identified a number of villages along the Motagua River Basin, about 50 kilometres north of Guatemala City, along the boundary between the departments of Escuintla and Baja Verapaz, that fulfilled a number of the requirements that would make PV systems feasible. The villages were all more than 10 kilometres from the power grid, their requirements for power consumption were about 12-15 kWh/month, they had dispersions of about 100 metres, and the number of households ranged from 100 to 300 per village. The economic calculations suggested that in this situation, the cost of installing PV systems in some of these villages could be as low as one third the cost of extending the grid.

In order to encourage local villagers to invest in the new solar technology, EEGSA and CrediEEGSA, with the assistance of several international agencies, carried out a pilot project to introduce photovoltaic systems for rural electrification. For this one-time pilot project, they sought one of the lowest income villages and offered to subsidize two thirds of the costs of the PV systems. CrediEEGSA provided credits to the users for the remaining third of the costs, which the users were required to re-pay over two years. Through this pilot project, EEGSA was able to install 42 PV systems in the village of San Buenaventura in the Department of Guatemala.

ENTERPRISE DEVELOPMENT: BUILDING SUSTAINABLE QUALITY OF LIFE IMPROVEMENTS

The next step for EEGSA in making PV systems as a commercially viable substitute to costly grid extensions was to develop the financial mechanisms that would allow rural communities to cover the full costs of decentralized energy systems, without the need for paternalistic subsidies. However, EEGSA was limited by a lack of available funding for such an initiative; the Guatemalan banking system and the traditional international assistance programmes were not interested in the concept of providing low-income farmers with small credits to finance a new technology for providing electricity in remote areas. They considered it a high risk venture with a high administrative and paperwork load for a small sum of money. There were also no conceptual models to guide the management of a commercial venture of this kind.

However, the potential of EEGSA's PV rural electrification project was readily apparent to the Energy Enterprise Development Initiative for Central America (E&Co. Initiative). The E&Co. Initiative is a new investment venture being carried out by the Biomass Users Network's Regional Office for Central America and the Caribbean (BUN-CR) with the support of the Rockefeller Foundation; its objective is to nurture early stage energy enterprises in developing countries and help them evolve to the stage where they can be considered for funding by conventional financial institutions. BUN-CR is a nonprofit, non-governmental organization working out of San Jose, Costa Rica, whose mission is to support community groups and small enterprises that are actively involved in the productive use of renewable energy and biomass resources, as a means of advancing social and economic well-being in the Central American and the Caribbean regions.

BUN-CR saw the EEGSA project as the core of a revolving fund that could operate for a specific period of time supporting the commercial introduction of autonomous PV systems, and then expand to support the development of a wider range of commercially viable renewable energy ventures throughout Guatemala. Through an initial evaluation, BUN-CR analysts agreed with EEGSA and CrediEEGSA officials that the EEGSA project met all the criteria of the E&Co. Initiative. The project involved new players (both energy users and funders) in the provision of energy services; the revolving credit fund was an innovative means for making energy accessible to remote locations without subsidies; it introduced new environmentally friendly technologies, providing a substitute for diesel generators and dependence on candles, kerosene, and batteries for lighting; and the results could be replicated to other developing regions.

In July 1994, EEGSA and CrediEEGSA staff prepared a proposal for funding from the Rockefeller Foundation under the E&Co. Initiative, with the assistance of BUN-CR. The request was for US$65,075 to finance the installation of no less than 95 PV systems, in the La Canoa Village, on the Motagua River Basin. In accordance with this proposal, CrediEEGSA has been contracted to administer the $65,075 fund for six years.

Each of the players will have a specific role in project implementation. CrediEEGSA's administrative functions will include signing the credit agreements with each user and handling the collection of repayments and the monitoring of the accounts for each credit, ordering the purchase of the PV systems on behalf of the users, retaining the bill of purchase as security for the credit and, if necessary, repossessing the equipment in case of default. EEGSA will be contracted by CrediEEGSA at zero-subsidy costs to provide the design of the PV systems, to procure the equipment, and to carry out the installation, supervision, and training of the local committee. BUN-CR will supervise the operation of the fund and promote the dissemination and replication of the experience at the regional level. In the communities, Local Solar Energy Committees will handle training of individual users, organize the collection and the trips to Guatemala City for the monthly payments, and carry out routine inspections and maintenance of the systems.

The financial terms for the project take account of both Guatemalan financial market conditions and the project's objective of making energy services available to low-income rural dwellers. The cost of each individual system will range from US $560 to $670. With financing for up to three years at a variable interest rate that will start at 18 per cent and be adjusted for local inflation, the purchasers will have to make monthly payments ranging from $12 to $24, depending on the size of the system and their downpayment. CrediEEGSA will pay interest of around 12 per cent on the fund's balance and charge a transaction fee for collecting the payments and administering the fund. It is estimated that after 36 months, the fund's accumulated revenues will be $94,000. This estimate allows for a 5 per cent delinquency rate, based on CrediEEGSA's prior record of a delinquency rate of less than 2 per cent. All project costs, including management of the fund and all resources allocated by EEGSA, will be internalized into the cost of the system paid by the user.

Financial analysis shows the project is sustainable. At the end of the third year, the present value of the fund will be $77,925. Therefore, the net present value of the accumulated investment will be $12,850. The project has a payback period of approximately 2.5 years and a benefit to cost ratio of 1.20. In keeping with the E&Co. Initiative's objective of involving new players in innovative energy services, a major private Guatemalan bank has started to follow the project's progress with great interest, and could possibly consider investing capital in subsequent replications of this experience.

SOCIAL BENEFITS AT THE COMMUNITY LEVEL

As the pilot project has demonstrated, the introduction of PV systems will yield a variety of quality of life improvements to households that purchase a system, and to the community as a whole. For EEGSA, the main goal is providing clean, reliable lighting to the households in the community. The PV systems will provide better quality light, while simultaneously eliminating a source of pollution and a fixed cost of about $9.00 per month for candles, kerosene, and batteries. Electric light can increase the hours available for work, recreation, and education. This is especially important in poor rural communities in Guatemala, where the literacy rate is very low, and both children and adults have little chance to study during the day.

In addition, the PV systems designed for this programme can power radios, small black and white television sets, and small appliances like blenders for household and commercial uses. The project also provides training to the users in the management of their energy systems, which is vital since PV power cannot be squandered as often happens with grid electricity; and it strengthens the local institutions that will handle basic system inspection and repairs. Furthermore, the project aims to promote micro-enterprise development in the community, with activities ranging from small-scale productive uses of the new energy source to the creation of a maintenance and spare parts shop for the upkeep of the systems.

An equally important outcome is the empowerment of the community to participate in credit programmes. Many credit applicants say that they had never before had a bank account, much less considered themselves eligible for reimbursable financing. Traditionally, they thought their only option was to wait for the government to extend the grid (in some villages, the wait is estimated to be seventy years). However, through the application process, they have attained self-confidence and experience in dealing with financial institutions, and after the conclusion of the project, they will have a positive credit record that will help them in pursuing other productive activities.

Conclusion

Dispersed energy sources can partially provide the energy to sustain the social and economic change needed for development. By moving away from waiting for all the answers from a single player, the public utility, it is possible to create a new transitional paradigm in which, under certain circumstances, systems that use dispersed sources of energy offer lower marginal costs for supplying power for social change than centralized energy facilities.

In non-grid connected villages, dispersed energy systems offer a quick, economic, and reliable answer to the need for power. The rapid decrease in the cost per kWh of decentralized energy technologies, and the opening of commercial markets on a global scale, represent a great opportunity to develop new schemes. Converting sunlight into electricity through PV module arrays at the household level offers a good example. Several programmes are already underway in the developing world, particularly in countries in which the public utility has been unable to cope with the growing demand for power in due time by traditional means.

The experience of these programmes offers a number of lessons:

1. A quick response is needed to meet the energy requirements of development and of improving the quality of life of the people of developing countries. No single measure can fully meet these requirements. The role of local governments and public utilities can be complemented with the participation of local development organizations and private developers.

2. Socio-economic development is taking place in the context of more open market economies and a growing number of competitors from outside the region. Indigenous financing systems are unable to fully meet the capital requirements of the less developed countries' economies. So, there is a definite niche for stimulating investment in environmentally friendly technologies and innovative approaches for providing energy services on a sustainable basis; this investment can come from private power investors, private banks, large development banks operating through their private-oriented initiatives (such as the International Finance Corporation), the European Community, etc.

3. Although local development organizations must be involved in energy issues, their role should be clearly defined and their scope of work well integrated into the new energy paradigm; otherwise, they may distort the new market of decentralized energy systems. False expectations in terms of unclear benefits and the continuation of paternalistic practices should be avoided.

4. Enhancing the quality of life in rural areas can help reduce the pressure caused by the unsustainable use of the rural natural resource base and decrease people's migration to the cities. In this way, dispersed energy sources help to address the major causes of social and environmental degradation in developing countries.

5. It should not be overlooked that firewood is pivotal to the rural energy economy; thermal uses of dispersed energy sources, such as solar cookers and agriculture crop dryers, have a niche to fill in using energy as an instrument for a better quality of life.

NOTES

¹ Josa. Blanco is Regional Director, Biomass Users Network, Regional Office for Central America and the Caribbean (BUN-CR), Guadalupe, Costa Rica.

² Central America Renewable Energy and Energy Efficiency Project (San Jose, Costa Rica: IFREE/BUN/CISAT, March 1994), p. 4.

³ Conferencia Regional de Alto Nivel de Lideres Centroamericanos de Sector Energia (San Jose: Los Alamos National Labouratory/INCAE, May 1991), pp. 184-89.

⁴ Lisa W. Shepperd and Elizabeth H. Richard, "Solar Photovoltaics for Development Applications," Sandia National Laboratories (August 1993), p. 3.

⁵ Genesis Empresarial, Evolucion y Resultados (Guatemala: September 1992), p. 22.

⁶ Ing. Olga Dalila Diaz Paz, Beneficios Econos en Viviendas Electrificadas en el Area Rural (Instituto Nacional de Electrificacion, INDE, April 1991), p.2.