5. Criteria for assessing the economic feasibility and financing options for solar home systems
Depending on the interest rate that is applied, households that
utilized an SHS to meet their energy needs for lighting and the operation of
radios and TV sets would pay between a fifth and a third more than they are
currently paying to meet these needs with candles, kerosene and batteries.
Consequently, if electricity is required exclusively for lighting purposes, an
SHS will continue to be considerably more expensive than the conventional
alternatives, even if the introduction of improved production methods leads to a
substantial decrease in solar cell prices. The picture changes in cases where
the energy demand is more highly differentiated, as In Group 2 and Group 3 (see
Table 1). At some time in the not- too-distant future, the prices of solar cells
may decline to the point that SHS will be competitive with - or perhaps even
cheaper than - the conventional alternatives for users in these two groups. In
all fairness, though, it should be pointed out that the above comparison does
not make allowance for the fact that, unlike the conventional options, the
purchase of an SHS involves a large initial outlay, and in most cases this means
that the users would have to take out a loan to finance the required investment.
However, the segments of the rural population that make up the target group for
SHS in developing countries rarely have access to formal-sector credits.
The purchase of an SHS involves a sizeable cash outlay, and the
amounts involved are quite substantial for rural households:
approx. 500 US$ for a 20-Wp system
approx. 800
US$ for a 50-Wp system
approx. 1,400 US$ for a 100-Wp system
Thus, if SHS are to be disseminated on a large scale, the
technology will have to be offered as part of a package that includes financing
arrangements.
The following barriers to financing solar home systems through
credit transactions supported by governmental development and private business
banks are commonly observed:
- Governmental development banks often do not follow
common economic rules. As a result, they are not likely not able to make a
special long-term credit offers. Due to exaggerated security (guarantee)
requirements, the banks often exclude the very target group in need of credit
- Private banks prefer cities; they are seldom active in rural
areas. The respective credit need is for the most part small so that the
specific administrative costs become excessive. Moreover, these banks work with
very high interest rates and demand guarantees which usually not can be provided
by rural borrowers.
In some instances, informal rural financial systems may be able
to cater to the credit needs of the prospective SHS users, especially in West
Africa. In rural areas, the informal financial sector includes not only
traditional moneylenders, who charge extremely high interest rates (not
infrequently in excess of 10 % per month), but also informal savings and loan
associations.
However, the most sensible approach is to let the people who
sell the systems organize the payment schemes themselves:
- SHS vendors have a very real incentive to grant
loans to their customers. They must, however, have some means of financing their
lending activities, and thus the banks will be involved in the credit extension
process indirectly.
- The vendors retain ownership of the systems until the last
instalment has been paid, and thus the entire problem of collateral is neatly
avoided (rural target groups are rarely able to provide bankable collateral). In
the event of breach of contract, they can simply demand that the equipment be
returned. At a practical level, however, this can be difficult because the
borrowers risk losing face with the other members of the household if the system
is repossessed by the vendor.
In addition to buyers taking out loans themselves and instalment
plans offered by vendors, there is a third, very interesting alternative, namely
distribution of the solar home systems by the government institutions
responsible for rural electric power supply. The panels themselves are "leased",
and the users are responsible for acquiring the rest of the system (charge
regulator, battery, lamps). The utilities or cooperatives finance the purchase
of the equipment with funds allocated from government budgets or loans from
international development banks.
However, all of these approaches have one problem in common:
each involves the collection of small loan instalments from users living in
widely scattered rural settlements, a time-consuming task which pushes up the
administrative costs to such a high level that private vendors - and many
utility companies as well - Will find that credit extension to SHS owners is
unprofitable. Thus, it is extremely important to encourage the initiation of
self-help financing activities by cooperatives, especially since these
institutions are also working to eliminate other infrastructural deficits in
rural regions (e. g. substandard drinking water supply, lack of
roads).
