So-called developing countries are home to more than three-fourths of the world population while accounting for less than a third of the global commercial energy consumption. This is no surprise, given that an estimated 1.64 billion people worldwide live without access to grid electricity. Extension of the electricity grids to many of these locations is not a realistic option in the near future due to high costs, low energy demands, and the dispersed nature of the mainly rural communities. In the past, grid connections were regularly established in remote areas, even if econom
ically not viable, primarily motivated by political priorities and a lack of alternatives. A World Bank study that included a variety of countries in the Asian and Latin American region concluded that an average US $10,000 per kilometer was being spent on grid extension.1 Meeting the broad development needs in these nations places numerous competing demands on limited financial resources. Because electrification is just one of these demands, it is even more important that alternative approaches be researched, validated, and reviewed to further the efficient use of resources for sustainable energy supply.
In recent times, select renewable energy sources have matured to play an increasingly important role in meeting energy demand. Issues such as energy independence and mitigation of greenhouse gas emissions from energy generation are becoming important to the nations around the world. Coupled with these attributes, renewable energy technologies (RETs) are rapidly advancing into the mainstream of sustainable development initiatives after being at the periphery for the last couple of decades. Many of the RETs have proved to be economically viable options for electrification and have considerable potential to meet the needs of rural populations in a sustainable way.
The characteristic distributed nature of renewable energy sources requires local installation, operation, and maintenance capabilities, which implies a vital role for local entrepreneurs in the development of the market. Further, the modular nature of the technology allows sizing of systems to the present need of the end user for an initial investment that would be much less than the investment in major infrastructure such as grid extension for the predicted energy needs for the next couple of decades.
Despite the reasons above, it is only recently that significant market forces have come into play for the deployment of RE technologies. The market-development approach for renewable energy has undergone a paradigm shift. In the past, technical demonstration projects found favor with the donor agencies and were important markets for the industry. In this technology-driven paradigm, the focus was on assessment and demonstration of a technology and, to a lesser extent, the life-cycle cost. The new paradigm focuses on market assessment, policy and institutional issues, and demonstrations of sustainable business and social models.
In this chapter, we look at the factors that need consideration before embarking on a project to market photovoltaic (PV) systems, different types of implementation models that are currently being employed, their merits and demerits, and finally the financing of PV projects. Also discussed is a case study of a solar pumping initiative. An overview of the status of the PV market in South and Southeast Asian countries is also presented.
16.2 PV APPLICATIONS: PRESENT STATUS AND EMERGING TRENDS
PV systems that are being currently deployed can be broadly classified as off-grid domestic systems, off-grid nondomestic systems, and grid-connected systems (distributed and centralized). Off-grid systems also include hybrid energy systems when PV is combined with other renewable or fossil fuel sources.
Off-grid domestic systems to provide electricity to households and villages that are not connected to the utility grid have been widely installed worldwide. Usually electricity is provided for lighting and other low-power loads. Figure 16.1 and Figure 16.2 show DC and AC solar-powered home systems, respectively. Systems ranging in size from a few watts to a few hundred watts have been installed. Solar home systems (SHS) for households (typically 20 to 150 W) and village power stations (typically 500 to 2500 W) are some of the types of systems that are being deployed. Solar home systems can displace or reduce the need for candles and kerosene in rural homes. An estimated 1.1 million solar home systems and solar lanterns have been installed in rural areas of developing countries.
Off-grid nondomestic systems provide power for a wide range of applications, such as telecommunications, water pumping, vaccine refrigeration, and navigational aids. These are remote-area applications where small amounts of electricity have a high value, thus making PV commercially cost competitive with other small generating sources.
A combination of renewable energy sources — such as photovoltaic arrays, biogas generators, or wind turbines — with engine-driven generators and battery storage are generally classified as hybrid energy systems (Figure 16.3). Just as for PV off-grid systems, the potential market for hybrid systems is considered to be huge, in the GWe (gigawatt-electric) range, especially for pumping systems.
Grid-connected PV systems can be grid-connected-distributed or grid-connected-centralized systems. Distributed systems supply power to a building or other loads that are also connected to the utility grid. Typical systems are between 1 kW and 100 kW in size. Electricity is often fed back into the utility grid when the on-site generation exceeds the building loads. Grid-connected centralized systems have been installed as an alternative to conventional centralized power generation or to strengthen the utility distribution system. Experience with grid-connected systems in weak grid areas has been limited, and efforts are under way to develop inverter technology suitable for such applications.
Although instances of commercialization when market forces coming into play are on the increase (for example, in Kenya, a self-sustaining PV market has thrived), the majority of the PV systems currently being installed worldwide are still driven from the top-down approach (i.e., subsidized) through national targets or bilateral or multilateral development programs. Table 16.1 lists the installed capacity of PV systems in developing countries, mainly Asian countries, that are aggressively pursuing deployment of PV systems.
Among the Asian countries, India and China have led in the manufacture of PV equipment for many years, while Taiwan has recently emerged as a strong
PV Systems Status in Asia and Africa
Total Installed Capacity (MW)
Annual Sales (MW) and Key Targets
16 MW (2003); 280 MW of solar power by 2012
(includes solar thermal) 10.5 MW (2003); 450 MW by 2010
China (incl. Tibet)
Indonesia Morocco Thailand
(projected 15 MW by 2010) 250 MW by 2011, includes 300,000 SHS (36 MW) by end of 2005
Vietnam Kenya Nepal Sri Lanka
2.7 40,000 SHS
>0.5 MW (around 20,000 SHS) 0.7 MW (around 20,000 SHS) 1 MW (around 22,000 SHS)
manufacturing center with ambitious plans for future growth.2 Thailand also appears set for a significant manufacturing growth in the next few years.
TATA BP Solar, a joint venture between the Tata Power Company and BP Solar, is the leading producer in India and accounted for nearly 50% of national production in 2003. The firm has a module-manufacturing capacity of as high as 38 MW and clocked a sales turnover of US $107.5 million in 2004-2005, with exports reaching US $77.26 million. WEBEL, Maharishi Solar Technology, Bharat Electronics, Bharat Heavy Electrical, Central Electronics, and Udhaya Semiconductors are the other significant Indian producers whose manufacturing capabilities include modules, cells, and wafers manufactured from ingots produced in-house.
Despite huge market potential, the manufacturing capacity of Chinese companies has been limited so far, but the situation is expected to change soon. Combined annual production in 2003 was about 8 MW in China, and over 96% of the output was crystalline silicon cells. Nevertheless, production capacity is expected to increase to over 100 MW in 2005. Baoding Yingli is currently the largest Chinese PV cell/module manufacturing firm. Wuxi Snitch Solar Power Company and Xi'an Jiayang are other significant players. Kyocera has established a PV-module manufacturing plant in Tianjin that uses cells imported from the Japanese parent company. Shandong Linuo and Shenzhen Clean Energy Company are both constructing cell/module production plants with capacities of 10 to 12 MW.
In Taiwan, Motech is rapidly emerging as an important international cell manufacturer, increasing production to 17 MW in 2003. The company's cells are supplied to module manufacturers worldwide. Planned further expansions are expected to take production capacity to beyond 50 MW by 2005. In Thailand, Solartron has established a 15-MW module manufacturing (encapsulation) facility, while Bangkok Solar has bought the Hungarian firm Dunasolar's 5-MW amorphous-silicon manufacturing plant.
As can be seen in Table 16.1, many countries have ambitious targets for PV system capacity, and growth rate of PV system deployment has been impressive in many countries and spectacular in some countries. Hence, there appears to be enormous emerging potential for marketing PV systems. In the next section, we look at various models that have been employed in PV programs worldwide. These models are indicative only; many times, what is actually implemented in the field may be a combination of more than one model.
16.3 MARKET DEVELOPMENT OF PV SYSTEMS: SUMMARY OF MODELS FOR IMPLEMENTATION
Studies looking into market introduction of products have identified distinctive stages of customers (Figure 16.4).3 "Pioneer customers" make up for 2.5% of the market; they are willing to pay a high price for a new and attractive product or solution, even if it is not economical. The pioneer customers influence the "opinion leaders," and if a critical number of pioneer customers have developed, then the stage is set for the entry of opinion leaders. Pioneer customers could be the governments or educational institutions such as universities, but they could also include individual investors. Opinion leaders, who make up 13.5% of the market, include professionals such as engineers, doctors, lawyers, etc., who have enough free cash to spare. The "early majority" account for 34% of the market, and these investors expect the product to be technologically mature and economically viable. A significant 34% of the market is termed "late majority," and they are hard to catch. It is almost impossible to sell the product to the "hesitators," who make up 16% of the market.
PV systems, which are relatively new for many regions, have to pass through these stages before achieving an expanded market; however, many factors have proved to be advantageous for rapid implementation of PV projects. These are discussed in the next section.
Market development of new product
Market development of new product
Pioneer Opinion Early Late majority Hesitator customers leaders majority
FIGURE 16.4 Market development of a new product.
Pioneer Opinion Early Late majority Hesitator customers leaders majority
FIGURE 16.4 Market development of a new product.
16.3.1 Considerations in Selecting an Implementation Model
An informed choice of implementation model tailored to local conditions would be crucial for developing a new market for PV products. Some of the factors that merit consideration before embarking on a PV project include:
The electricity and energy service needs and expectations of the end users, the competing/conventional practices to cover the needs, and the expenditure for it.
Economic activity and source of income (agriculture, services etc.) of the end users, the seasonal influences on income, and the willingness to pay for renewable energy services.
Geographic location of the end users and the transport/communication infrastructure in the region.
Experience of the end users with credit and the existence of microcredit organizations.
Opportunities to enhance productive use of electricity/energy by the end users.
Government policies toward rural electrification, existing electrification plans, and the potential role for PV.
Role for private entities to generate and provide electricity.
Role of utilities in electrification; their attitude, approach, image, and relationship with the customers. (Utilities are increasingly being restructured in many countries.)
Cost of grid connection, the lead time to secure grid connection, and the current electricity fees for customers and subsidies within the energy and electricity sector. Government policies are only as good as the manner in which they are implemented. Hence, assessing a level playing field for different technology options is an important step (subsidies on fuel, PV component, grid extension; exemption of import duties; etc.).
Ways of reaching the potential market; the distribution, installation, and servicing network for the hardware; and the collection of payments from the end users for systems sold on credit. It might be advantageous to use any existing infrastructure (e.g., agricultural cooperatives). Commercial practices suitable for PV implementation should be harmonized with prevailing practices and not disturb the often-fragile existing economies.4 It is thus necessary to identify banks and other credit institutions with local presence, PV dealers/companies, other retail networks (who may not be dealing with PV presently, but who might have strong credibility with the user groups, for instance a rural retail shop for agricultural tools or irrigation equipment).
The experience (success/failure) of the existing renewable-energy companies and the existing/ongoing electrification or renewable-energy programs and initiatives.
In this model, the end user purchases the system by presenting full payment for the cost of the system to a PV supplier. The supplier may assume the responsibility of installation with an eye toward ensuring the long-term sustainability of the system, and the supplier's desire to preserve its reputation as a reliable vendor is also a factor. However, in many cases, the end user assumes the responsibility for installation, given that the initial cost of the system is often the biggest consideration in this transaction. The operation and maintenance of the system is the responsibility of the end user.
The criticism of this model is that it is prone to the initial-investment barrier, resulting in a small market, and it also tends to encourage the sale of smaller products, such as solar lanterns, or of cheaper, low-quality systems. The purchasing power of the end user might also have strong seasonal fluctuations, for instance, during post-harvest periods in agricultural societies. Further, unlike most other after-sales agreements, the PV supplier is expected to honor the warranty on its PV module for a lengthy period (as many as 20 years), enforcement of which might be difficult. Competition with cheap, low quality products is a problem, especially if the market is just starting, as there is no common knowledge within the market yet about good-and poor-quality brands. Insufficient attention to end-user training for operation and maintenance is yet another issue that can affect this model.
A factor in favor of this model is the limited number of players involved, which keeps the model simple and the transaction cost to a minimum. It is also self-sustaining, as it relies on market forces and is not dependent on external sources such as government or program support. Finally, this model can promote the growth of local infrastructure for installation, maintenance, after-sales services, and even some of the accessories or balance of systems that go with a PV system. Capital demand for the PV supplier is also among the lowest for this model.
16.3.3 Dealer Credit/End-User Credit Model
To expand its market, a PV supplier might choose to offer the PV system on credit, either with its own funds or from borrowed funds. Normally, these kinds of end-user credits are for short terms (mostly between 1 month and 1 year), involve high up-front payments (up to 75%), and relatively high interest rates (rates can be in the range of 15 to 25%). In some cases, the credit is through an informal arrangement involving the local representative/dealer of the PV supplier and the end-user client based on mutual trust. There is considerable experience in most countries in consumer-credit systems that are used to sell/buy consumer durables such as televisions and refrigerators. To minimize risks, the dealer usually employs a cautious approach to assess the creditworthiness of the client (the client must, for example, be an employee of a reputed firm or should have a support letter from a local credit organization such as a cooperative society).
The fact that one institution handles the sales, installation, and credit/recovery as well as the maintenance, training, and other after-sales services is seen as a major advantage of this model. Little involvement of the government or external agencies is also advantageous in some ways.
Criticism of this model is that it channels the expensive working capital of the PV supplier and excludes the poorest segment of the households due to high down payments, the short credit period involved, and more importantly, because of the strict credit track record that is usually required of the end user. PV companies oftentimes lack the skills and are not equipped to administer a credit scheme, as this requires special expertise and is time consuming. The operations of a particular supplier may also become geographically restricted in view of the infrastructure needed for the collection of the payments and possible retrieval of the collateral. The main risk lies with the PV company/dealer from nonpayment of the credit from the end user. This can be mitigated by thoroughly evaluating the creditworthiness of the client before the sale is made as well as by using the PV system as a collateral. Clear advice to the clients on the limitations of the system as well as sufficient attention to maintenance are some factors that can influence the success or failure of the system.
There are two variations of the dealer/user credit model, namely, end-user credit and hire purchase. Sometimes a sound financial institution, with rural outlets having credibility with the end users, is interested in financing PV credits. If the financial institution can implement the credit scheme, the PV supplier is relieved of the responsibility and risks of financing the project, and the valuable working capital remains available for the PV company. Although this can be advantageous, strong rural credit institutions are scarce, and such rural institutions often have economic development as their main objective and may have their focus on income-generating credits. Further, such institutions might be lacking in the knowledge of PV systems and might promote low-initial-cost systems, thereby compromising on maintenance costs.
In the case of the hire-purchase model, either the PV company or an intermediary credit institution offers the PV system on a hire-purchase basis. The client (lessee) makes periodic payments for a limited period, typically 2 or 3 years. The company (lessor) remains the owner of the system during the rental or lease term, and the ownership is handed over to the lessee at the end of the period. The installation and after-sales service is carried out by the PV company. The advantages of this model include the reduced initial down payment and prolonged repayment period. With this model, there is a good chance that higher-quality products are selected because of the long repayment period involved, which makes maintenance a higher priority.
Criticism of this model includes the citing of instances where end users may not have treated the systems with care, as the initial maintenance and ownership do not lie with them. In addition, PV companies are usually not capable of running a hire-purchase program, as it requires additional financial administration skills and can be time consuming.
In this model, an energy service company (ESCO) invests in PV systems and sells an energy service to the end users, who might be in remote locations. The ESCO remains the owner of the hardware and is responsible for installation, maintenance, and repair/replacement of components. The end user pays a connection fee and makes a periodic payment (usually monthly). The end user pays as long as he receives the energy service and never becomes the owner of the system. However, most of the time, the end user owns the electrical loads (lamps, fans, and other appliances).
As the end user does not invest in a solar system but only has to make periodic payments for the energy delivered, a large segment of the population can choose to have access to electricity. Because long-term agreements will be in place, the quality of the installed systems will usually be high, and the maintenance will receive a professional approach.
Barriers and limitations to this model include the low rate of return and long payback period to the ESCO. The end user is not the owner of the system and hence may not treat the system with care. Also, the PV system should be theft and tamper proof, and monthly collection of the fees is time consuming and expensive. These high risks and high transaction costs may result in high monthly fees to the end user and may reduce affordability for the poor. End-user expectations are also often high, which might result in disappointments at certain times, such as when systems run out of energy purely due to weather conditions.
Once a particular model is selected for implementation and the role players are identified, the project developer has to determine the financial sources for the project on an urgent basis, for it is financing that makes or breaks most PV projects.
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