renewable energy for microenterprise

Renewable Energy for Microenterprise


Cover Photos:Top left: A Nepali woman weaver under a solar-powered light in her home.(Selco/PIX08143)

Left center: PV powers computers in a rural office in the Dominican Republic. (Enersol Associates, Inc./02618843)

Right, top: A Nepali seamstress uses solar-powered light to extend her working hours into the evening. (April Allderdice, NREL/PIX07150)

Right, bottom: Indonesian fishermen with catch they store in wind-powered refrigerators. (Winrock International/02618848)


Renewable Energy forMicroenterprise

April AllderdiceNational Renewable Energy Laboratory

John H. RogersGlobal Transition Consulting, Inc.

November 2000

Published by theNational Renewable Energy Laboratory

1617 Cole BoulevardGolden, Colorado 80401-3393United States of America

ii Renewable Energy for Microenterprise

FOREWORD

It has been said that authentic development is where the moral and the material come together;where our compassionate urges to improve the human condition become real through the expansionof commercial practices. In this regard, "Renewable Energy for Microenterprise" is an invaluableresource. Through clear language and compelling examples, this guide demonstrates how sustain-able energy sources can literally energize social, economic and political development.

Human history is replete with glaring lessons of how individual prosperity and social equityflow from the efficient application of energy technologies. In an age where poverty remains thenorm for millions upon millions of individuals throughout the world, the search for how to generateeconomic growth takes on an importance unparalleled in its significance.

Amartya Sen, the Nobel laureate economist, persuasively argues that development and freedomare inextricably connected; that the "expansion of freedom is both the primary end and the principalmeans of development." In this light, this guide is at root, all about liberating the entrepreneurs andtheir families of the world from the tyrannous yoke of poverty by showing how renewable energycan help power their way to a better quality of life. Such instruction is both noble and necessary.

Those who are familiar with renewable energy technologies and the efforts to commercializethem know that it is the institutional and financing issues that pose the greatest impediments towidespread adoption. The writers of this guide not only explain in clear detail, punctuated with successful real-world examples, the nature of the financial re-engineering required, but skillfullymap out the entire social-technological-financial landscape that puts the human element in the foreground where it rightfully belongs.

This guide is dedicated to the proposition that renewable energy technologies provide a criticaland catalytic role in the realization of social and economic development. At the U.S. Agency forInternational Development’s Office of Energy, we are working hard to illuminate the linkages thatexist between energy and poverty alleviation, improved health and education services, gender andinter-generational equity, and social justice. Our programs are designed to move energy from themargins to the mainstream of the development dialogue. Through the publication of this guide, the National Renewable Energy Laboratory (NREL) is making a major contribution to this effort of making more visible the central role energy plays in sustainable development.

I congratulate and sincerely thank NREL, the authors, and all who have contributed to makingthis guide possible. I urge all development practitioners to read it and use it. And most importantly,congratulations to the countless entrepreneurs, past, present, and future, who tirelessly prove thatmicroenterprise initiatives, fueled by renewable energy technologies, produce macro human benefits.

Dr. Griffin ThompsonDirector, Office of Energy, Environment, and TechnologyUnited States Agency for International Development

Renewable Energy for Microenterprise iii

PREFACE

Income generation is one of the keys to improving the quality of life in rural communities.Microenterprise, and the associated microcredit activity, have proven to be enormously successful in unlocking the human capacity in rural villages to provide income, that, in turn, can be used forimproving the quality of life in both home and community. Rural economic development is animportant national and international priority. However, the availability of electricity to support ruralenterprise activities is less than adequate in many countries. In recent years, the development of reasonably priced and reliable renewable energy systems has made it possible to enhance the production and marketing of a variety of these income-generating activities, through the provision of electricity for motive power, lighting, computers, and telecommunications in remote areas. A number of international, national, and local institutions, nongovernmental organizations, foundations, and private companies are supporting the deployment of renewable energy systems in rural communities in the developing world where microenterprise is a national priority.

Because renewable energy is regionally diverse, choosing the appropriate renewable energy system will depend on the needs of particular rural sites. Although photovoltaic (PV) lighting sys-tems have paved the way and are being deployed in many remote communities around the world,other small renewable sources of electricity should be considered. One of the objectives of this guide-book is to expand the remote electricity opportunity beyond PV to areas of good wind or hydroresources. Also, in the near future we expect to see micro-biomass gasification and direct combus-tion, as well as concentrated solar thermal-electric technologies, become commercial rural options.

The three important factors driving the selection of the appropriate technology are the local natural resource, the size and timing of the electrical loads, and the cost of the various components,including fossil fuel alternatives. This guidebook reviews the considerations and demonstrates the comparisons in the selection of alternative renewable and hybrid systems for powering microenterprise activities.

The National Renewable Energy Laboratory's (NREL's) Village Power Program has commis-sioned this guidebook to help communicate the appropriate role of renewables in providing ruralelectricity services for powering rural enterprise. The three primary authors, April Allderdice, JohnRogers, and Tony Jimenez, combine the analysis, design, institutional, financial, and deploymentexperience that has made them such an effective team. This guidebook should prove useful to thosestakeholders considering renewables as a serious option for electrifying rural enterprises, and associated rural enterprise zones. It may be useful as well to renewable energy practitioners seekingto define the parameters for designing and deploying their products to meet the needs of rural enterprise.

This is the third in a series of rural applications guidebooks that NREL's Village Power Programhas commissioned to couple commercial renewable systems with rural applications, such as water,health clinics, and schools. The guidebooks are complemented by NREL's Village Power Program'sapplication development activities, international pilot projects, and visiting professionals program.For more information on this program, please contact our Web site, http://www.rsvp.nrel.gov/rsvp/.

Larry FlowersTeam Leader, Village PowerNational Renewable Energy Laboratory

iv Renewable Energy for Microenterprise

CONTENTS

How to Use this Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vi

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Chapter 1. Microenterprise and Electrical Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

What Is Microenterprise? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Microenterprise and Electrical Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Enabling Factors in the Productive Application of Electrical Energy . . . . . . . . . . . . . . . . . . . . . .6

Chapter 2. Microfinance and Microenterprise Development Organizations . . . . . . . . . . . . . . . . . . . . .7

What Is Microfinance? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Microfinance and Energy System Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Microenterprise Support Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Who Provides Microfinance? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Chapter 3. Renewable Energy System Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

System Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Photovoltaics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Wind Turbine Generators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Micro-Hydro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Diesel, Gas, or Biofuel Generators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Batteries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Inverters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

Balance of Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

Chapter 4. System Selection and Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Life-Cycle Cost Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Design Considerations and Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Chapter 5. Institutional Approach No. 1: Providing End-User Credit for Individual Renewable Energy Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Introduction to Institutional Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Introduction to End-User Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

Third-Party Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

All-In-One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Energy Service Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

Renewable Energy for Microenterprise v

Chapter 6. Institutional Approach No. 2: Financing and Promoting the Productive Application of Energy in Community-Scale Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

Microenterprise Zones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

Renewable-Energy-Based Minigrids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

Financial Sustainability in a Community RE System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

Chapter 7. Institutional Approach No. 3: Supporting Energy Entrepreneurs . . . . . . . . . . . . . . . . . . . .41

Battery-Charging Stations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42

Mini-Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

RE System Retailers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

Chapter 8. Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46

Grameen Shakti: Providing Energy Services within a Microcredit Framework in Bangladesh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46

Global Transition Group: Renewable Energy for and through Microenterprises . . . . . . . . . .47

Winrock International: Community-Based Power for Microentrepreneurs in Indonesia . . .50

Intermediate Technology Development Group: Financing Micro-Hydro Entrepreneurs in Peru . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52

Teotonio Vilela Foundation: Franchising PV Power Entrepreneurs in Northeast Brazil . . . .53

World Bank: Strengthening Renewable Energy Financial Intermediaries in Sri Lanka . . . . .55

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64

About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68

vi Renewable Energy for Microenterprise

HOW TO USE THISGUIDE

Who Is this Guide for?This guide is targeted to the many types

of microfinance institutions (MFIs) and micro-enterprise support organizations that are inter-ested in improving the profitability of theirmembers’ microenterprises through renewableenergy (RE) technologies. In addition, RE sup-pliers and technical organizations can use thisguide to strengthen efforts to incorporate micro-finance institutions and practices into rural electrification programs.

What Is the Purpose of thisGuide?

This guide will provide readers with a broadunderstanding of the potential benefits that current RE technologies can offer rural micro-enterprises. Moreover, it will introduce the insti-tutional approaches that have been developedto make RE technologies accessible to microen-trepreneurs and the challenges that these entre-preneurs have encountered. Readers shouldthen be better prepared to assess the energyneeds of their clientele and select appropriatetechnical and institutional approaches to meetthose needs.

What Is in this Guide?This guide gives a broad overview of the

relationship between microenterprise, micro-finance, and energy, with an emphasis on decen-tralized RE. Chapter 1 begins with a discussionof the diversity of rural microenterprises andtheir energy needs, from lighting for artisantasks and selling during evening hours to pow-ering motors for hulling, grinding, or freezing.This section draws on a body of research thathas studied the economic benefits of electrifica-tion. Chapter 2, intended for RE practitioners,describes the various types of microenterprise

development organizations and programs toassist rural areas of developing countries. Thischapter offers an introduction to the main con-cepts of micro-credit and the MFIs that provideit. Chapter 3 discusses the components of stand-alone RE power systems, including their func-tion, costs, lifetimes, proper operation andmaintenance, and limitations. The first sectionof Chapter 4 contains an overview of life-cyclecost (LCC) analysis, a valuable analytical toolused to compare energy system options. Theremainder of the chapter is devoted to dis-cussing the factors that influence the design ofstand-alone RE systems for particular applica-tions. Chapters 5 through 7 focus on three insti-tutional approaches that have been used tocombine RE technologies with microfinance forthe benefit of microentrepreneurs. In the firstarrangement, the MFI finances the purchase of a small RE system by a rural microentrepreneuror household. In the second arrangement, anMFI, microenterprise nongovernmental organi-zation (NGO), or strategic partner develops acommunity-scale facility in which electricityand other services are provided to microentre-preneurs on a fee-for-service basis. In the thirdarrangement, a credit organization finances amicroentrepreneur owning and operating anenergy supply business, which may be a retailoperation, a battery-charging station (BCS), or a minigrid. This guide presents advantages and disadvantages of each of these institutionalapproaches, with an emphasis on the experi-ences of existing programs. Chapter 8 presentsfive case studies of existing programs andlessons learned. At the back of the guide are a list of references, a bibliography, and aglossary of terms used in this guide.

INTRODUCTION

Microenterprise is alive and thriving in thedeveloping world. During the past decade, thegrowing success of microfinance as a tool to helpalleviate poverty has brought attention to thesignificance of the microenterprise economy.Microenterprises (i.e., very small businesses)have been increasingly identified as a key com-ponent in rural job creation and the raising ofincome in rural economies.

If the microenterprise, or informal, economyis so vital to rural development, to what extenthave past rural electrification programs targetedthe microentrepreneur? In the planning processof many rural electrification programs, the exis-tence of rural industry or agricultural electricdemand has been a major consideration in set-ting priorities for grid extensions. This focusgenerally involves large enterprises rather thanthe lower-profile microenterprises. Neverthe-less, microentrepreneurs have readily takenadvantage of rural electrification programs. A

study from the Philippines Rural ElectrificationProgram found that about 25% of all "residential"connections were using electrification for sometype of income-generating activity. 1

Although microentrepreneurs can benefitgreatly from electrical services, they lack the for-mal associations, the political connections, andthe financial leverage to affect the rural electrifi-cation planning process. By representing largenumbers of microentrepreneurs, microfinanceand microenterprise intermediaries are in a posi-tion to challenge this trend. Both in its ability tomobilize the finances of the informal sector andits vision to target income-generating applica-tions of electricity, the microfinance/microenter-prise sector has an institutional capacity that canhelp meet the electrification needs of the ruralmicroentrepreneur. Since the barriers to the uti-lization of renewable energy in microenterpriseare well matched to the capabilities of the micro-finance/microenterprise sector, the role of MFIsand microenterprise development organizationsin rural renewable energy dissemination will bea major focus of this guidebook.

Renewable Energy for Microenterprise 1

0261

8809

mThe Synergy

between MFIs, Microenterprise, and

Renewable Energy

Microfinance: • Provides credit for power systems, tools, machines, working capital • Provides technical and business development training

Microfinance: • Creates a bridge between RE suppliers and market • Provides financing for RE products • Brings a gender-conscious approach to RE marketing

Microenterprise: • Constitutes an �enormous potential market for RE suppliers

Microenterprise: • Leads to greater viability of MFI through economic development

Renewable Energy: • Makes microenterprises more profitable • Provides a loan item with potentially low transaction costs

Renewable Energy: • Provides electricity for businesses • Provides power today • Improves the local environment

Microenterprise

Microfinance Institutions

RE Suppliers

Figure I.1. Graphical representation of the interdependence of microfinance, microenterprise, andrenewable energy

The microfinance sector’s innovative re-thinking of modern banking has providedlending mechanisms specifically for themicroentrepreneur. Spurred by solid successes,funding agencies such as the World Bank’s Consultative Group to Assist the Poorest pro-gram and the United Nations Development Programme's (UNDP’s) Capital DevelopmentFund have emerged to finance the growth of themicroenterprise sector. Microfinance institutionsare now challenged to funnel these resources asefficiently as possible to their members. Thisavailability of capital, as well as demand forenergy from the microenterprises, creates anopportunity for microfinance intermediaries to include loans for energy systems in their port-folios. Indeed, many already do provide loansfor diesel or gasoline generators. In many cases,recent technical advances could create an oppor-tunity to substitute cleaner, more cost-effectiveRE technologies for traditional electrical energysystems.

The renewable energy field has developed anarray of rural electrification technologies that, inaddition to being cleaner than conventionalenergy sources, are designed to meet the needsof people without access to grid electricity. Theoptions range from small, predesigned solar and wind system packages that offer a completebasic electrical system (which can often beowned by the microenterprise), to larger solar,wind, micro-hydro, and biomass systems thatoffer 24-hour, alternating current (AC) electricityfor ice-making, milling, and other commercialapplications.

The microenterprise development and ruralrenewable energy supply sectors seem to behighly complementary. Many microenterprisescan use electricity to increase their productivity,enhance their local economy, and improve theirquality of life. Microfinance institutions find inrenewable energy a new loan item that willstrengthen their client microenterprises anddiversify their own lending portfolios. Therenewable energy industry has long suspectedthat small, distributed users are a potentiallylarge market, but applications have been

restricted largely to subsidized government initiatives and small-scale commercial efforts. Alack of adequate delivery capability, particularlyfor rural credit, has been a barrier to creatingprograms that are affordable for end users andthat ensure cost recovery. Access to end-userfinancing can open rural microenterprise andhousehold markets for RE technology; there aremany successful demonstrations of this all overthe world.

Using microfinance as a framework forrenewable energy dissemination may have addi-tional benefits beyond end-user finance, such asthe following:

• Microenterprise development practitionerscan facilitate the business development trainingthat needs to accompany the integration of REinto microenterprises.

• The existing rural networks of microfinanceorganizations can facilitate promotion and helpbuild credibility for the new technology.

• The microfinance banking and renewableenergy sectors each have their own networks offinancial intermediaries, which may increase theoverall capacity for financing.

• Microfinance institutions often have a genderfocus. This may help target RE systems to theneeds of women, who constitute a large portionof informal economy entrepreneurs.

Where appropriate energy technologies can help to increase the profitability of microen-terprises, the microfinance and renewableenergy sectors could be strong allies in facilitat-ing dissemination. However, combining microfi-nance with rural RE presents several challenges.For example, mismatches can occur between thegoals and operating philosophies of the powersupplier and the MFI. This guidebook examinessuch pitfalls and presents actual responses tothem drawn from a number of successful pio-neering efforts that have combined renewableenergy with microenterprise development. Thisguidebook is intended to encourage and supportthese efforts to help rural entrepreneurs takeadvantage of renewable energy technologies.

2 Renewable Energy for Microenterprise

CHAPTER 1.MICROENTERPRISEAND ELECTRICALENERGY

What Is Microenterprise?A microenterprise is a very small business

that produces goods or services for cash income.In general, microenterprises have limited accessto capital, have few employees, and are oftenhome-based. Not all microenterprises are family-operated, but when family members do work forthe business, they frequently do so without pay.Small cooperatives can also be microenterprises.Microenterprises usually operate in the “infor-mal sector” of a nation’s economy, not payingtaxes and not being tracked in official govern-ment statistics.

Microenterprises may be small and officiallyinvisible, but they are far from insignificant. InChile, one-fourth of the labor force works inmicroenterprises; in Columbia, nearly one-half;and in Bolivia, more than one-half of the laborforce is estimated to work in microenterprise.From 1992 to 1995, 90% of the new jobs created inBolivia were in microenterprise and the informalsector. 2

Rural microenterprises often suffer from thegeneral neglect of rural areas. Infrastructure isusually very limited and characterized by a lackof good roads, inadequate water supply, mini-mal telecommunications, and electrical distribu-tion supplied only to concentrated populationcenters. Nevertheless, entrepreneurs sell every-thing from cow dung to cellular phone time. Thevery diversity of their activities and the scarcityof their resources cause microenterprises to forma uniquely dynamic engine for rural economicdevelopment.

Microenterprise and ElectricalEnergy

The Electrical Needs ofMicroentrepreneurs

Access to even limited amounts of electricityfor microenterprises in non-grid-connected areascan be important to the establishment andgrowth of those businesses. Electricity can havepositive effects on the following:

• Operating Hours—Renewable energy systemscan provide lighting to allow microentrepre-neurs to extend their working day and generatemore income. Mobile solar lanterns make it pos-sible for street vendors to extend their sellinghours into the evening. Workshops use electric-ity from an RE system to extend their hours andincrease production.

• Working Conditions—Electrical energy fromrenewable energy systems can offer muchcleaner and safer services than traditional energytechnologies. An electric fluorescent lamp forarea lighting or illumination for particular taskssuch as sewing, reading, or writing can be con-siderably easier to use than a kerosene wick orpressurized gas lamp, eliminating the fear ofaccident or damage to the home environmentfrom smoke and soot.

• Consumer Draw—In unelectrified rural areas,electric lights, fans, radio, or television can alldraw people to a common location. Thosemicroenterprises able to access energy in order to


Figure 1.1. A solar lantern is used for agriculturalpest control in India.

Win

rock

Inte

rnat

iona

l/02

6188

50

provide an environment more conducive to con-gregation may profit from increased customercontact and sales.

• Mechanization/Automation—Electricity torun a motor for a sewing machine or grain millcan transform a manual subsistence activity intoan income-generating enterprise, or help trans-form a barely viable enterprise into a more sus-tainable one. Uniform production and higherquality may command a higher price, especiallyin export markets. Consistent products alsoserve to establish a regular clientele.

• Product Preservation—Electricity can helpmicroenterprises tremendously in preservingproducts for export or retail. Small rural storescan expand their inventory by adding items thatneed refrigeration. RE-powered icemakers canassist industries such as fishing and produce.Crop drying, by small electric fans that circulateair around a heated surface, can also be used topreserve crops for export.

• Communications—RE-operated cellularphones can allow microentrepreneurs to investi-gate city market conditions before they decidewhether to send their product there, and when to send it.


Figure 1.2. In this Bangladeshi carpentry shop,production increased by 200% with an RE systempayback of 2 months.

Apr

il A

llder

dic

e/02

6188

31

Figure 1.3. Guatemalan woman in a storepowered by a solar system.

Hug

o A

rria

za/

PIX

0814

0

Figure 1.4. Indonesian fishermen with catch; thefish can be preserved using RE-poweredrefrigerators.

Win

rock

Inte

rnat

iona

l/PI

X07

889

Figure 1.5. This Guatemalan workshop uses RE.

Hug

o A

rria

za/

PIX

0814

1

• Education—For many children, especiallygirls, the lack of electricity translates into amissed opportunity to attend school. Instead,their labor is needed for tasks such as fetchingwater and fuel during daylight hours. Electricitycan both reduce the effort of these menial tasksand provide lighting for classes in the evening.

Microfinance Bank and NGO OfficesIn addition to microenterprises, the non-

governmental organization offices and micro-finance banks that serve them often need powerthemselves. Offices can use lights and fans toprolong working hours and relieve eyestraincaused by doing office work in inadequate light.


InputsBlender cost $ 100Blender O&M $ 1Blender depreciation months 36System cost (prorated) $ 100System O&M (prorated) $/month 1System depreciation months 120Battery cost (prorated) $ 20Battery depreciation months 24Labor (prorated) $/day 2.5Work schedule days/mth 22Raw materials $/drink 0.20Selling price $/drink 0.50Sales drinks/day 20

MonthlyRevenue

Sales of drinks 220Expenses

Cost of goods sold 88.00Blender depreciation 3.00Blender O&M 1.00System depreciation 1.00System O&M 1.00Battery depreciation 1.00Labor 55.00

_______Total Expenses 150.00Profit/Loss 71.00

Ene

rsol

Ass

ocia

tes,

Inc/

0261

8844

Figure 1.7. A Nepaliseamstress usessolar light to extendher working hoursinto the evening.

Apr

il A

llder

dic

e/PI

X07

150

Figure 1.6. This business analysis showsthe potential for income generation foundin expanding a solar PV system designedfor domestic use. Increasing the systemsize and adding a DC electric blendercould allow the home-based enterprise to make a net monthly profit. While thisplan is hypothetical, similiar businesseshave been operating with solar power inthe Dominican Republic.

Gradually, some microfinance banks, even invery remote areas, are computerizing theiroffices and need power sources for this equip-ment, as well.

Enabling Factors in theProductive Application ofElectrical Energy

Although electrical energy can be a powerfulenabling tool for microentrepreneurs in ruralareas, the impact it can have is mitigated by anumber of coexisting conditions. Microentrepre-neurs may need support to purchase the appro-priate electrical machine that will allow them totake advantage of the electricity. In addition,they may need training or other services toensure that their utilization of electricity trans-lates into a sustained economic benefit. A pro-gram that addresses the obstacles to usingelectricity to increase income and improve thelocal economy is called a "productive uses ofenergy program." Successful productive uses ofelectricity programs address a number of factorsnecessary for entrepreneurs to benefit from electrical resources. These factors include the following:

• Reliable and affordable electricity

• The availability of tools and machines for pro-ductive applications

• Credit for fixed assets (tools) and working capital

• The human resources necessary to master boththe technical and business challenges incurredby a new activity

• A market for increased quality andproduction. 3

In the institutional approach sections, thisguidebook will discuss the ways in which MFIsand microenterprise support organizations canprovide a variety of services to enable microen-trepreneurs to use renewable energy resourcesproductively.


Figure 1.8. Computers increase capabilities andefficiency in the rural office of the DominicanNGO, ADESOL (see case study, p. 31).

Ene

rsol

Ass

ocia

tes,

Inc.

/02

6188

30

Figure 1.9. In Guatemala, the National RuralElectric Cooperative Association’s productiveuses of electricity program features a vanequipped with several electrical tools andappliances. Villagers in soon-to-be-electrifiedareas can try out and ask questions about theequipment. NRECA then facilitates acquisition by putting the end user in touch with credit andequipment suppliers.

Hug

o A

rria

za/

0261

8838

Hug

o A

rria

za/

0261

8837

CHAPTER 2.MICROFINANCE ANDMICROENTERPRISEDEVELOPMENTORGANIZATIONS

Many organizations have dedicated them-selves to supporting microenterprise develop-ment through a range of services. Microfinance(the provision of small amounts of credit) in par-ticular has emerged as a significant tool to aidmicroentrepreneurs who are excluded from theformal banking sector. This section will describethe basic concepts of microfinance banking. Itwill also present some of the nonfinancial sup-port services an organization may provide,either linked with a credit program or indepen-dently. Finally, it will examine how these servicesrelate to renewable energy system finance andenergy service provision.

What Is Microfinance?To bring financial services to the poor, micro-

finance providers have developed lending mech-anisms that do not depend on the collateral,credit history, and loan guarantees that the formal banking sector requires. Microfinanceprograms can be characterized both by the

mechanisms they use to reduce risk and by thepopulations they target. Some of the more com-mon features of microfinance programs aredescribed below.

• Loan Amounts—Microfinance loans tend to bevery small (typically, $50 to $500), although theactual amount varies widely from country tocountry. By restricting the first loans to smallamounts, microfinance schemes target the poorand provide them with a limited scale of finan-cial risk from which to gain experience manag-ing loans. Smaller loans also minimize the risk tothe implementing agency by requiring that theborrower build a track record of payment beforegraduating to larger loans.4

After years of experience, some microfinanceorganizations now offer larger loans ($1,000 to$5,000) to repeat clients with proven credit histo-ries. Raising the ceiling on loans, as both theorganization offering a microfinance programand its clients gain experience, can allow orencourage clients to diversify their enterprises. It can also reduce transaction costs and providehigher return for the credit institution. Largerloan sizes for successful microentrepreneurs arein line with the financing of RE systems, whichcan easily cost from $500 to $5,000 or more.

• Short-Term Working Capital—Microfinanceloan cycles usually range from four months toone year. Shorter cycles enhance new borrowers'chances of completing the cycle, thus buildingtheir confidence. This policy also helps in man-aging lending risk assumed by the implementingagency.5

Loan items can include agricultural materi-als, livestock, stocks for stores, or raw materialsfor cottage industries. Some programs also lendfor fixed assets such as power tools, vehicles orproduction machinery. Others have diversifiedtheir portfolio to include longer-term loans forhousing in rural communities, where microen-terprises are often home-based. Thus, housingloans (including home improvement loans) andinvestments in RE systems for microenterprisescan be linked. RE systems can play a significantrole in both home improvement and cost


Figure 2.1. Microcredit bank members wait for aloan disbursement.

Apr

il A

llder

dic

e/02

6188

40

reduction (displacing kerosene and dry cells), in addition to enhancing the home-basedmicroenterprise.

• Repayment Schedules—Small, frequent pay-ments allow borrowers to repay loans out oftheir regular incomes and avoid relying on theincome generated from a specific investment.6

Moreover, they encourage the borrower to estab-lish good repayment habits from the outset. Thisshort repayment schedule may be appropriatefor RE equipment financing, particularlybecause traditional energy sources such as can-dles, kerosene, and dry cells are normally pur-chased in small quantities on a weekly or evendaily basis.

• Social Collateral—The group is the funda-mental unit of most microfinance schemes. Byforming small groups whose members arejointly liable for each individual's loans, microfi-nance clients create a form of social collateral tosubstitute for material assets. Different pro-grams devise their own criteria for the composi-tion of peer groups. Usually, each group consistsof a small number (e.g., five) of members of thesame sex and of a similar age, class, and religion.Single-gender peer groups are more likely toshare common goals, needs, and interests, whichcan facilitate a higher level of solidarity. Women,in particular, are more apt to develop and exer-cise leadership skills in a group that functions asa source of support and social interaction.7

The group in microfinance schemes serves anumber of purposes. Compulsory group meet-ings discourage better-off people from takingloans, thus increasing the funds available forlending to the poor. Most transactions take placein front of the group, which creates accountabil-ity for both borrowers and program staff. Thetransparency prevents staff favoritism in theallocation of credit and makes it immediatelyapparent when a borrower falls behind in his orher payments. Social pressure to repay a loanmay then be exerted on a delinquent member byother members and by the staff. Where groupsare formed through self-selection, the individualmembers effectively screen each other, external-izing a costly operation of the bank. This is

especially true in the cases of small solidaritygroups.8

The group is also the setting for many of thehuman development processes that accompanymicrofinance. It creates a social network forwomen, that often proves conducive to develop-ment of leadership skills; the groups can alsoserve as a classroom where literacy and healtheducation can be provided. The social networkcould also be valuable for the dissemination of information regarding RE systems and applications.

• Interest Rates—Most microfinance programscharge a higher interest rate than the commercialrate. Charging interest rates that cover the fullcosts of the loan serves to maintain fund levels.This policy is basic for any program that strivesfor sustainability or financial independence. Asthese goals are attained, more loans can be dis-persed. High interest rates discourage wealthyborrowers from joining microfinance programs.While interest rates for microfinance are high,the rates are usually lower than the alternativesto which the poor often turn. In addition, the reli-able availability of financing provides a level ofsecurity conducive to making significant capitalinvestments (e.g., in RE systems). For example, a small store owner can retain a lower amount of emergency savings if she knows that in anemergency a loan will be available to meet herneeds for working capital.

• Gender Focus—Women’s reliable repaymentrecords, and the proven application of increasedincome to directly serve the needs of their chil-dren, have resulted in a distinct gender focus in the field of microfinance. The social and eco-nomic factors that lead to higher repayment rates by women vary from culture to culture. The social norms of diverse cultures often have a similar effect of causing women to have lessmobility, fewer social freedoms, less access toalternative forms of cash, and fewer economicopportunities than men have. Regardless of thecause, the sociological benefits of targetingwomen for microfinance have been observedworldwide. Many microfinance programs eitherlimit their members to women, or strive to target


women in their programs. In linking betweenrenewable energy and microfinance programs,the gender focus represents a challenge and anopportunity to develop products targeted towomen customers.

• Savings—Clients of microfinance programsoften value a safe and easily accessible place tosave money. For this reason, a number of micro-finance programs facilitate "village banking,"whereby a savings component is includedwithin the program structure. Bank RakyatIndonesia, for example, has 14.5 million depositaccounts and only 2.3 million loan accounts.9

Rural savings can be a local source of additionalcapital for lending, and it represents an invest-ment in the long-term sustainability of themicrofinance program. Rural savings can alsoprepare potential users of RE systems for makinga substantial downpayment on such a system.

Microfinance and EnergySystem Financing

Linking microfinance with renewable energyfor microenterprise can present challenges toorganizations already faced with many difficulttasks. Mismatches may occur between thefinancing needs of RE systems and established

microfinance practices.Some of these potentialchallenges and mis-matches are describednext.

Loan Size and Loan-Term Priorities

Loans provided by an MFI may be largeenough to finance onlythe smallest renewableenergy systems. Access to capital is one of thekey factors that affect a credit institution’s

priorities and viability. If access to capital is limited, a credit institution may respond byimposing low loan ceilings and short loan termsin order to reach as many customers as possibleand meet social-impact goals. This may preventthem from lending the larger amounts oftenneeded for renewable energy systems.

Reaching the Poorest ApplicantsAlthough the goal of a microfinance program

may be to reach as many members of the poorestsocial stratum as possible, an institution’s finan-cial viability is underpinned by the lower-riskloans it gives to its veteran members. Thus,growth depends on a balance between reachingout to first-time members and building new,larger loan opportunities for existing members.

Energy systems are most likely to be soughtby more established members of a microfinanceprogram. These members may already havebusinesses that could achieve greater profitswith electricity, or may already have repaid aloan large enough to have financed an energysystem. Also, these members may be more confi-dent, and thus more capable of incorporating atechnological change. New members are lesslikely to have these qualities, and they may have more pressing needs than electrical energy.An energy program that targets very poor orbeginning borrowers would have significantlydifferent challenges than one that targets a moreexperienced group. However, it is important tonote that either approach, if implemented well,could serve to meet the microfinance program’sgoals of client expansion and higher earnings.For more information about designing a pro-gram to meet the needs of a particular targetaudience, refer to the institutional approachesdescribed in Chapters 5, 6, and 7.

Fixed-Asset LendingMany microfinance programs operate in

areas where the legal and regulatory environ-ment is either corrupt or inaccessible to the ruralpopulation. Even relatively well-off microfi-nance customers may turn to alternative creditinstitutions when they are unable to establish


Figure 2-2. Membersgather in a microfinancebank office.A

pril

Alld

erd

ice/

0261

8833

legal ownership of their land or other assets. Thesocial collateral mechanism of microcredit side-steps the obstacles caused by ineffectual legalnetworks. Although fixed-asset lending for itemssuch as a renewable energy system offers adegree of self-collateral, these contracts are onlyvaluable where they can be reliably enforced. In uncertain legal environments, warranties, service guarantees, and collateral all must bedesigned with extra care to minimize the risks toboth renewable energy organizations and MFIs.

Microenterprise SupportServices

Microenterprise development organizationsmay offer the following support services to theirclient microentrepreneurs:

Business Development TrainingPrograms that are aimed at helping individu-

als develop a microenterprise often provide tech-nical advice, simple bookkeeping, and businessmanagement training. TechnoServe, Inc., is onefirm that operates a rural business developmentand credit program. The company uses a partici-patory training approach that supports andbuilds democratic pluralism and leads to localself-reliance and equality. TechnoServe mobilizesindividual talent while providing training andmanagement assistance in all aspects of businessdevelopment, including production, marketing,administration, finance, and accounting.

Infrastructure and Market DevelopmentNGOs can be helpful in addressing macro-

issues in the business environment of themicroentrepreneur. This involves developingrelationships with both vendors and buyers, andestablishing a forum for microentrepreneurs inwhich they can discuss the common challengesthey face. For example, the NGO Save the Children supports economic opportunitiesthrough Microenterprise Networks, which provide support to microentrepreneurs workingin a specific industry or service. NGOs can alsohelp create bridges between microentrepreneurs

and receptive markets, including those locatedoutside of their local community. This caninclude improving competitiveness by helpingmicroentrepreneurs meet quality standards, pro-viding communications links between the enter-prise and the market, increasing output capacity,and assisting with legal issues such as licensesand permits.

Value-Added Technology IntroductionHelping microenterprises to adopt new tech-

nologies can add value by increasing productiv-ity and expanding product offerings. In order forthese new technologies to be successfullyadopted, however, training is often needed.Appropriate Technology International (ATI) isan NGO that uses a problem-solving approachbased on the "value chain"—the steps of produc-tion, processing, and marketing along whichvalue is added. By providing access to credit andexpert advice regarding technologies and con-nections to new markets, ATI-led value-chainprograms help small producers.

Gender EqualizationIt is estimated that between 30% and 60%

percent of all microenterprises in Latin Americaand the Caribbean are owned and operated bywomen.10 Other regions also have high propor-tions of women-led microenterprises. Microen-terprise development organizations that assistwomen with income-producing activities pro-vide valuable skills and training that often arenot available to women from other sources. Inaddition, they help women achieve financialself-sufficiency.

ElectricityElectricity, a high-value form of energy, can

be essential in facilitating improvements thatlead to profitability and growth. Many businessactivities simply are not possible without elec-tricity. The supply of electricity, however, hasusually fallen under the jurisdiction of nationalor state governments. Because NGOs have notusually had much control over the availability


of electricity, the provision of electricity tomicroenterprises often does not figure promi-nently as a targeted supporting service offeredby microenterprise development organizations.However, the initial efforts of the Grameen Bankand BRAC (formerly, Bangladesh RuralAdvancement Committee) in Bangladesh, theACCION International affiliate-Genesis inGuatemala, and Sarvodaya in Sri Lanka, forexample, indicate that the provision of electricitymay be an area in which microenterprise devel-opment organizations will provide a valuablefuture service to microentrepreneurs.

Who Provides Microfinance?The providers of microfinance are as varied

as the borrowers they serve. They range fromNGOs that have incorporated a lending programinto an integrated rural development program to regulated financial institutions (microfinancebanks) that focus solely on lending. Between themicrofinance banks and the formal banking sector lie several levels of mini- or small-creditproviders that may incorporate some of themicrofinance mechanisms into their program.

The specialized microfinance bank approachbenefits from the ability to offer financial servicesin a businesslike manner, maintaining a pro-fessional relationship with borrowers. Isolating

business practices from subsidized or charitableservices keeps the relationships clear to both thebank and the customer. Some microfinance prac-titioners, however, feel that pure banking is inad-equate to address the manifold needs of the ruralpoor. They argue that microfinance alone doesnot provide the necessary ingredients to helppeople emerge from poverty. From this perspec-tive, many multifaceted programs have evolvedthat offer microfinance with other rural develop-ment services.

The lively exchange of information in themicroenterprise development field allows suc-cessful models to be disseminated. Each institu-tion, however, necessarily develops in one wayor another its own unique program and gainsexperience unique to the conditions withinwhich its programs operate. The following arefour examples of well-known organizationsinvolved in microenterprise development thathave a microfinance component in the program.

ACCION International and AffiliatesACCION International creates and supports

a network of financially self-sustaining institu-tions that specialize in providing financial ser-vices to the poor on a massive scale. All of thenetwork affiliates provide small, short-termloans at commercial rates for working capital,


02618818m

Energy Services Delivery Chain

Source: Sustainable Energy Solutions, 1998

Product flow Credit/investment Cash flow

Largeinstitutionalinvestors

Investmentbanks

Regionaland

nationalbanks

Micro-financeinstitutions

End user

ManufacturersAssemblers

anddistributors

Localsuppliers

Figure 2.3. A delivery chain analysis is useful for illustrating the role MFIs can play in energy servicesdelivery. The proximity of the MFI to the customer makes it an invaluable link in the chain.

and most also provide business training tomicroentrepreneurs in low-income communi-ties. A few of the affiliates are offering additionalfinancial services, such as savings and financingfor fixed assets. The ACCION network has pio-neered the solidarity group-lending programand also offers loans to individual entrepre-neurs. ACCION is also pioneering efforts to linkthe world’s capital markets to enterprises of thepoor. ACCION works with 24 affiliates in 13Latin American countries. Overseas NGO affili-ates include Banco Solidario SA (BancoSol) inBolivia and FUNTEC/Genesis in Guatemala.11

CARECARE is an example of an international

development NGO that offers a wide range ofservices to meet the needs of rural populations.CARE, which celebrated its fiftieth anniversaryin 1995, was founded when 22 organizationsformed a cooperative to rush life-saving CAREpackages to victims of World War II. Since then,CARE has been an early leader in long-termdevelopment projects that enable impoverishedpeople to become self-sufficient. CARE pro-grams offer technical assistance, disaster relief,training, food, other material resources, andmanagement. CARE has a Small EconomicActivity Development program that is aimed atboth individual women and at local lendingorganizations. CARE works with individuals toexpand their business skills and self-confidence.At the same time, CARE works in partnershipwith both formal and informal lending institu-tions to ensure that financial services are avail-able to support microenterprises in the future.12

FINCA (Foundation for InternationalCommunity Assistance)

FINCA’s mission is to support the economicand human transformation of families trappedin severe poverty. This transformation is accom-plished through the creation of "village banks,"which are peer groups of 20-50 members—pre-dominantly women—who receive three criticalservices: 1) working capital loans to finance self-

employment activities, 2) a safe place to accumu-late savings, and 3) mutual support for personalgrowth. FINCA’s loans are backed by "moralcapital," i.e., the collective guarantee of all mem-bers for each other. Village bank members makeand sell crafts, foods, ceramics, clothing, andmany other market goods. Some women set upshops, raise chickens, fruits or vegetables, andothers choose a collective project.13

Grameen BankThe Grameen Bank in Bangladesh has pro-

vided microlending services to poor womensince 1976. The bank membership is overwhelm-ingly female (94%). Grameen Bank targets thepoorest of the poor, requiring new members tobe functionally landless. Members are requiredto learn to sign their name and to memorize 16"commandments," which contain guidelines forhealth, education, and prosperity. Loans areaccompanied by mandatory contributions tosavings and emergency funds. Grameen Bank isan example of a "minimalist" MFI, as it primarilyoffers banking services. Other developmentactivities, such as education and health, are pro-moted through independently operated andfinanced NGOs, which belong to the Grameenfamily. Grameen Bank currently has more than2.4 million members in Bangladesh served bymore than 6,000 branch offices. Its repaymentrates consistently range between 96% and 98%.


CHAPTER 3.RENEWABLE ENERGYSYSTEM COMPONENTS

This chapter gives an overview of the maincomponents typically used in renewable energysystems, including how they work, proper use,cost, lifetime, and limitations.

System OverviewA stand-alone energy system comprises com-

ponents that produce, store, and deliver electric-ity to the loads. Figure 2.1 shows a schematic of ahybrid system with more than one source ofenergy. Not all systems have all the componentsshown, but most will have components fromeach of four categories:

• Energy generation—To convert mechanical orlight energy into electricity.

• Energy storage—To store energy and release itwhen it is needed. The most common energystorage device used in stand-alone energy sys-tems is the battery.

• Energy conversion—To convert AC electricityto DC or vice versa.

• Balance of systems (BOS)—To connect theother components, monitor system performance,and protect the system.

PhotovoltaicsPhotovoltaic (PV) modules convert sunlight

directly into direct current (DC) electricity. PVmodules, which usually have no moving parts,

are highly reliable, are long-lived, and require lit-tle maintenance. PV modules can also be easilyassembled into an array that can meet any sizeload. Despite its high capital cost, PV is often a cost-effective option, especially for small systems.

PV Module ConstructionPV modules consist of individual cells wired

together to produce a desired voltage and cur-rent. The cells are usually encapsulated in atransparent protective material and housed in analuminum frame. PV modules last a long time,with warranties up to 20 years. PV manufactur-ers use a variety of technologies; these are generally classified as monocrystalline, poly-crystalline, thin-film, or amorphous. Amorphoustechnologies are generally less efficient and maybe less robust, but they are easier to manufactureand usually cheaper. For applications in whichspace and weight are not big concerns, initial orlife-cycle cost and useable life may be the mostimportant factors.

PV Module PerformanceCharacterization

PV modules are rated in terms of peak watts(Wp) or peak kilowatts (kWp), a function ofmodule size and efficiency. This rating schememakes it easy to compare modules and prices,based on cost per rated Wp. The rating is an indi-cation of the amount of power that the modulewill produce under standard reference condi-tions (1 kW/m2; 20°C [68°F] module tempera-ture)—roughly the intensity of sunlight at noonon a clear summer day. Thus, a module rated at50 Wp will produce 50 W when the insolation onthe module is 1 kW/m2 and the temperature isaverage. Because power output is roughly pro-portional to insolation, this same module couldbe expected to produce 25 W when the insolationis 500 W/m2.

Module energy production can be estimatedby multiplying the module’s rated power by thesite’s insolation on the module’s surface, typi-cally 1400–2500 kilowatt-hours (kWh)/m2 peryear, or 4–7 kWh/m2/day. The resulting product


Table 3.1.

02618819m

Energy Generation Storage Conversion Balance of System PV Batteries Inverter Controls Wind Rectifier Meters Micro-hydro Wires Diesel/Gas Generators Fuses Biofuel

is then derated by 10%–20% to account for lossescaused by, for example, temperature effects(modules produce less energy at higher tempera-tures), battery inefficiencies, and wire losses.

PV Module Operation The energy from PV modules can be used

directly or indirectly for the target load(s). MostPV modules are designed to charge 12-V batterybanks. Larger off-grid systems may use otherDC voltages, commonly 24, 48, 120, or 240 V. For non-battery-charging applications, such aswhen the module is connected directly to a waterpump, a maximum point power tracker can helpimprove efficiency by matching the electricalcharacteristics of the load and module.

PV modules are available in a wide variety ofratings up to 100 Wp, and modules rated as highas 300 Wp are manufactured. Individual PVmodules can be connected to form arrays of anysize. Modules may be connected in series toincrease the array voltage, and they can be con-nected in parallel to increase the array current.This modularity makes it easy to start out with asmall array and add additional modules later.

PV modules are mounted facing toward thesun on either fixed or tracking mounts. Becauseof their low cost and simplicity, fixed mounts set

at an optimal angle are more common. They canbe made of wood or metal, and can be purchasedor fabricated almost anywhere. Tracking mounts(single- or dual-axis) can increase energy pro-duction, particularly at low latitudes, but theseadd cost and complexity.

PV Module Capital and Operating CostsThe costs of a PV array are driven by the cost

of the modules. Despite declining prices in thelast two decades, PV modules remain expensive.Retail prices for modules in 1998 were generallyat least $5,500 per kWp; for bulk purchases,prices can go below $4,000 per kWp. Warrantiesare typically for 10 to 20 years. Current modulescan be expected to last in excess of 20 years.Costs for mounts, wiring, and installation aretypically $1,000–$1,500 per kWp.

Despite its high initial cost, PV can be anattractive option, particularly for smaller-load situations, given its durability and modu-larity. PV modules themselves are virtuallymaintenance-free. Mostly, they need only to be kept clean, and the electrical connectionsinspected periodically for loose connections and corrosion.

Wind Turbine GeneratorsWind turbines convert the energy of moving

air into useful mechanical or electrical energy.Wind turbines need more maintenance than a PVarray, but with moderate winds, 4.5 meters persecond (m/s) or greater, they typically producemore energy than a similarly priced array of PVmodules. Like PV modules, multiple wind tur-bines can be used together to produce moreenergy. Because wind turbine energy productiontends to be highly variable, wind turbines areoften best combined with PV modules or a gen-erator to ensure energy production during timesof low wind speeds. This section focuses onsmall wind turbines with ratings of 10 kW orless.


Figure 3.1. Multiple modules can be connected forlarger energy needs.

SOL

UZ

, Inc

./02

6188

42

Wind Turbine Components The components common to most wind tur-

bines are shown in Figure 3.2. The blades capturethe energy from the wind, transferring it via theshaft to the generator. In small wind turbines, the

shaft usually drives the generator directly. Mostsmall wind turbines use permanent magnetalternators as generators. These produce vari-able-frequency “wild” AC that the power elec-tronics convert into DC electricity. The yawbearing allows a wind turbine to rotate to accom-modate the changes in wind direction. The towersupports the wind turbine and places it aboveany obstructions.

Wind Turbine PerformanceCharacteristics

A wind turbine’s performance is character-ized by its power curve, which relates wind turbine power output to the hub-height windspeed. Power curves for selected machines areshown in Figure 3.3. Turbines need a minimumwind speed—the "cut-in" speed—before theystart producing power. For small turbines, thecut-in speed typically ranges from 3 to 4 m/s.After cut-in, wind turbine power increasesrapidly with increasing wind speed until it startsleveling off as it approaches peak power. Theenergy production is dependent on the cube of

the velocity. Thus, wind turbines pro-duce much more power at higher windspeeds than at lower wind speeds, until the "cut-out" speed. Most smallturbines produce peak power at about12–15 m/s. Cut-out, usually at speedsof 14 to 18 m/s, protects the turbinefrom over-spinning in high winds. Mostsmall turbines cut-out by passively tilt-ing (furling) the nacelle and rotor out ofthe wind. After cut-out, wind turbinepower output usually does not end, butremains at 30%–70% of rated power.

Wind turbines are rated by theirpower output at a specified wind speed,e.g., 10 kW at 12 m/s. Usually, this rat-ing is at or near the wind turbine’s peakpower output. The wind speed at whicha turbine is rated is chosen arbitrarily bythe manufacturer.

The nonlinear nature of the windturbine power curve makes it more dif-ficult to predict the long-term energy


Blades

Generator

Tail

Tower

Yaw bearing

Figure 3.2. One of several kinds of wind turbinesB

erge

y W

ind

pow

er C

o., I

nc./

PIX

0210

3

3.5

3.0

2.5

2.0

1.5

1.0

0.50

00 5 10 15 20 25

Wind speed (m/s)

0261

8820

m

Pow

er (k

W)

Wind Turbine Power Curves

World Power Whspr 3000

Bergey 1500

SW Air 303

World Power Whspr 600

Bergey 850

Source: Manufacturer's data

Figure 3.3. Selected wind turbine power curves

performance of a wind system than a PV system.Predicting long-term performance requires dataon the wind speed distribution rather than justthe average wind speed.

Wind Turbine Capital and OperatingCosts

Wind turbine prices vary more than PV mod-ule prices. Similar-sized turbine installations candiffer significantly in price, because of wide pric-ing variations among turbine manufacturers andwidely varying tower costs based on design andheight. Installed costs generally vary from $2,000to $6,000 per rated kW. Unlike PV, wind turbinesoffer economies of scale, and larger wind tur-bines generally cost less per kW than smallerwind turbines.

Maintenance costs for wind turbines vary.Most small wind turbines require some preven-tive maintenance, mostly in the form of periodicinspections. Most maintenance costs will proba-bly be for unscheduled repairs—lightning dam-age or corrosion, for example.

A wind turbine that will produce about500 kWh/month of energy at a typical averagewind speed of 6 m/s will typically cost$3,500–$5,000.

Micro-hydroMicro-hydro installations convert the kinetic

energy of moving or falling water into electricity.These installations may require more extensivecivil works than other technologies; however, atappropriate sites, micro-hydro can be, on a life-cycle basis, a very low-cost option. The waterresource of a micro-hydro installation may besubject to seasonal weather extremes such asdrought or freezing. But unlike PV or wind tur-bines, a micro-hydro installation can producepower continuously. Because of this continuouspower production, even a small installation willproduce large amounts of energy.

ComponentsThe components of a micro-hydro installa-

tion include the civil works, penstock, turbine,generator, and controls. The civil works, whichconsists of a water channel, diverts water fromthe stream or river to the penstock. The penstockconveys the water under pressure to the turbine.Piping used in the penstock must be largeenough to avoid excessive friction losses. Differ-ent types of turbines are available, depending onthe head (pressure) and flow rate at the site.Impulse turbines, such as the Pelton or Turgo,have one or more jets of water impinging on theturbine, which spins in the air. These types ofturbines are most often used at medium- andhigh-head sites. Reaction turbines, such as theFrancis, Kaplan, and axial models, are fullyimmersed in water. They are used more often atlow-head sites. The turbine is connected to a gen-erator that produces electricity. Both AC and DCgenerators are available. Governors and controlequipment are used to ensure frequency controlon AC systems and to dump excess electricity.

Performance and CostThe power output of a micro-hydro system is

a function of the product of the pressure (head)and flow rate of the water going through the tur-bine. Figure 3.4 shows estimates of generatoroutput in relation to various head and flow rates.The selection of a site is usually a compromisebetween the head and flow rate available and the


Figure 3.4. Estimated hydropower generatoroutput as a function of head and flow rate

60

50

40

30

20

10

00 10 20 30 40 50 60

Flow rate (liters/second) 02618821m

Hea

d (m

)

Hydropower Electrical Output

Power Output

(kW)

0.125

0.25

0.5

1.0

1.5

2.0

4.0

10.0

cost of the water channel and penstock. Becausemicro-hydro systems produce continuouspower, even a small system will produce a largeamount of energy. For example, a 125-W systemwill produce 3 kWh a day. The water resource ofa micro-hydro installation may be subject to sea-sonal variations such as winter freezes, springrunoff, or drought. Where peak power demandis greater than what the installation can supply, a battery bank can be used to store energy duringlow-demand times for use in high-demandtimes.

Because of varying requirements for waterchannels and penstock, the cost of micro-hydrosystems varies widely from location to location.In general, the cost for most systems is $1,000 to$4,000 per kW. Maintenance costs are about 3%of the capital cost per year. Much of the mainte-nance consists of regular inspections of the waterchannel and penstock to keep them free ofdebris. Micro-hydro installations can last verylong, and maintained systems last in excess of50 years.

Unlike PV and wind systems, micro-hydroinstallations are not modular. The availablewater resource and size of the civil works andpenstock limit the power output of a givenmicro-hydro system. Increasing the capacity ofthe civil works is expensive. Thus, micro-hydro

installations require that long-term demand becarefully considered.

Diesel, Gas, or BiofuelGenerators

Generators consist of an engine driving anelectric generator. Generators run on a variety offuels, including diesel, gasoline, propane, andbiofuel. They have the advantage of providingpower on demand without the need for batteries.In comparison to wind turbines and PV mod-ules, generators have lower capital costs buthigher operating costs. Diesel generators—themost common type—are available in sizes rang-ing from under 2.5 kW to more than 1 megawatt.Gasoline generators, though less common thandiesels, cost less and are available in very smallsizes—as low as a few hundred watts. They are,however, short-lived, expensive to maintain, andinefficient. Generators should usually be run at ahigh load (> 60%); low-load operation decreasesthe fuel efficiency and may increase the need formaintenance.

BatteriesBatteries are electrochemical devices that

store energy in chemical form. In energy systemsthey can store excess energy for later use toimprove system availability and efficiency. Byfar the most common type of battery is the lead-acid type. A distant second is the nickel-cad-mium type. The remainder of this section discusses the lead-acid battery.


Figure 3.5. Generators run on many different fuels.

Ken

Ols

on, S

EI/

PIX

0649

5

Figure 3.6. A Shakti technician gives training onbattery maintenance.

Apr

il A

llder

dic

e/02

6188

32

Battery Selection Considerations

Deep-Cycle versus Shallow-Cycle Some batteries, known as deep-cycle batter-

ies, can be cycled more deeply—have moreenergy taken out before being recharged—with-out suffering as much damage as some others.For remote power applications, deep-cycle bat-teries are generally recommended. They aredesigned to be discharged down to a 20%–50%state of charge. Shallow-cycle batteries, such ascar batteries, are often used in small PV systemsbecause of their broad availability and low initialcost. But they can have considerably shorter livesand may not weather deep discharges well.

Flooded versus Valve-Regulated The plates of flooded batteries are immersed

in a liquid electrolyte and need periodic rewater-ing. In valve-regulated batteries, the electrolyteis in the form of a paste or contained within aglass mat. Valve-regulated batteries do not needrewatering. Flooded batteries generally havelower capital costs than valve-regulated batteriesand can withstand more extreme operating con-ditions. With proper maintenance, they tend tolast longer. On the other hand, where mainte-nance is difficult, valve-regulated batteries maybe the better choice.

LifetimeThe life of a battery generally depends

greatly on its use. Batteries tend to last longerwhen cycled less deeply. Even if it is never oronly occasionally used, however, a battery willfail at the end of its float life, typically three toeight years. High ambient temperatures canseverely shorten a battery’s float life—every10°C (18°F) increase in average ambient temper-ature will approximately halve the battery floatlife.

SizesThe storage capacity of a battery is com-

monly given in amp-hours at a given rate of discharge. When multiplied by the battery’snominal voltage (usually 2, 6, or 12 V), this givesthe storage capacity of the battery in kWh. This

storage capacity is not a fixed quantity, butrather depends somewhat on the rate at whichthe battery is discharged. A battery will providemore energy if it is discharged slowly than if it isdischarged rapidly. In order to facilitate uniformcomparison, most battery manufacturers givethe storage capacity for a given discharge time,usually 20 or 100 hours. Individual batteriesused in renewable energy systems are availablein capacities ranging from 50 amp-hours at 12 Vto thousands of amp hours at 2 V (0.5 kWh toseveral kWh).

CostBecause of variations in cycle and float life,

comparisons of the cost-effectiveness of differentbatteries are not obvious. In general, however,costs are on the order of $70–$100 per kWh ofstorage for batteries with lifetimes of 250 to 500cycles and float lives in the range of three to eightyears. There may be additional one-time costs fora shed, racks, and connection wiring.


Figure 3.7. A worker assembles inverters andcontrollers at Lotus Energy plant in Nepal.

Apr

il A

llder

dic

e/02

6188

52

InvertersInverters convert DC—the output from PV

modules, batteries, and most small wind tur-bines, for example—to AC power. Many com-mon electrical applications and devices requireAC power, which generally takes the form of asine wave. Inverter AC outputs can be crude,square wave, a modified sine wave, or pure sinewave. Many devices won’t operate properly onthe square-wave inverters. The modified sine-wave inverters, which produce an improved"staircase" square wave closely approximating a sine wave, can be used for most AC electronicdevices and motors. Manufacturing a pure sine-wave inverter is very expensive; modifiedsquare-wave inverters are, therefore, the mostcommon choice.

Inverter size ratings usually reflect their max-imum power output when operated for anextended period of time. Most inverters specify a capability to handle significantly more powerbriefly (surge capacity) to meet the currentneeded to start a motor, for example. The cost ofa high-quality modified sine-wave inverter isroughly $500 to $1,000 per kW. At the low end,small 100- to 200-W inverters are available foraround $100 to handle many simple applica-tions. A wide number of larger sizes are availableabove that, although inverters with a capacityabove about 5 kW can be more expensive per kWof capacity.

Balance of SystemsControllers and meters act as the brains and

nervous system of an RE or hybrid system. Insimple systems, controllers help the user protectthe battery by automatically regulating againstboth battery overcharge and overdischarge.Metering allows the user to assess system perfor-mance and to stay within operating guidelines.In large, complex systems, various controllingand metering functions can be spread out overseveral different components. Because therehave been problems with controllers involvingreliability and damage from lightning, good RE

system designs pay close attention to controllerdesign and lightning protection.

Controller Purposes and Functions Common controller functions include the following:

• System protection: A controller can include thefuses or circuit breakers needed in a system toprotect against short circuits.

• Charge regulation: A controller with a properbattery charge algorithm or high-voltage discon-nect protects the battery against overcharging.

• Low-voltage disconnect: A low-voltage discon-nect can protect the battery against overdis-charging.

• System monitoring: Monitoring the systemcurrents and voltages lets the user check that thecomponents and system are operating properly.

• Component control: The controller can be pro-grammed to turn components on and off asneeded without user intervention. For systemswith excess energy, a dump load—often one ormore big resistors—can help dissipate electricityby converting it to heat.

Balance of SystemThe BOS also includes items such as wiring

and switches and can include conduits and fusesor breakers.

DC Source Center UseSeveral manufacturers now offer DC source

centers. These combine much of the systemwiring, fusing, and controllers into one tidy,easy-to-install package. The use of source centersincreases system costs somewhat, but offers eas-ier installation, less complex wiring, and easiersystem monitoring and control. A source centershould be especially considered for systems inremote sites that lack easy access to technicalassistance. The initial investment pays off inreduced service costs over the long term.


CHAPTER 4. SYSTEM SELECTIONAND ECONOMICS

IntroductionThe first section of this chapter describes life-

cycle cost analysis and explains how and why itshould be used when analyzing the economics ofvarious options. The second part of this chapterdiscusses the factors influencing system design,load, available resource, component costs, anddesired level of service per these options.Included are charts that show how typical sys-tem costs vary as a function of load and resource.

Life-Cycle Cost Analysis

Why and When to Use Life-Cycle CostAnalysis

RE options tend to have high initial costs andlow operating costs. Generators, in contrast,have low initial costs but high operating costs.Choosing options based solely on initial costmay lead to higher overall costs over the life ofthe system.

Because the actual cost of an energy supplysystem for a business includes both its initialinvestment cost (depreciated over its life) plus itsfuture operating costs for fuel and maintenance,a cost analysis must factor in complete costs overthe life of the project. Therefore, life-cycle costanalysis should be used to compare energy sys-tem options. System options will have differentcombinations of initial and future costs; the LCCanalysis can help in making consistent compar-isons between the options. This type of analysisalso takes into account initial and future costs,while recognizing the "time value of money" (i.e.,a dollar in the future is worth less than a dollartoday).

LCC analysis is generally the preferredmethod for evaluating the economics of differentprojects with differing initial and future costs.

LCC involves a discounted cash-flow calculationwhereby the total cost of an option (its net pre-sent cost) is determined by summing the dis-counted annual cash flows of that project over itslifetime. Future cash flows (perhaps for fuel) are"discounted" by a "discount rate." The rate atwhich the future expense cash flows are dis-counted is usually set at a cost of capital (COC),which for a microenterprise can be very high.Although soft-funded projects may have dis-count rates of 10% and U.S. corporations mayuse a COC of 25% when comparing investmentoptions, based on their perceived opportunitycost, a rural microenterprise may need to use adiscount rate as high as 50%. An economics ref-erence book would be useful in providing moredetails on how to perform a discounted cashflow LCC analysis.

Although LCC can be used for any project, itis particularly appropriate for RE projects of 5 to10 years or more in which the fuel and repaircosts of generators, for example, become consid-erable. The LCC analysis is less reliable in casesin which the future of a microenterprise is pre-dictable only for a few months or a couple ofyears, unless the resale value of the RE systemcan be assured. An LCC analysis is sensitive tothe inputs; thus, sensitivity analysis should bedone over a plausible range of input values. LCCimplicitly assumes that the options being com-pared provide comparable levels of service. Ifthe options provide differing levels of service,this difference should be accounted for in theoption selection process.

Some RE projects incur higher-than-expectedoperating costs caused by improper installationand lack of operator training. Sufficient attentionshould be paid to ensure that the RE systeminstallers in the project are properly trained andthat the end users and/or operators are properlyeducated at the time of installation. The cost ofservicing single systems in dispersed communi-ties can also contribute to high operating costs.The cost of servicing RE systems can be greatlyreduced if the systems can be maintained bylocally based personnel who have sufficient RE


business activity to ensure an efficient mainte-nance service.

Fuel SubsidiesIn many countries, fuel costs are artificially

low because of government subsidies. To fullycapture the potential operating cost savingsoffered by RE, economic analyses of any projectfor which the the government would pay for fuelshould use the unsubsidized fuel cost. Althougheconomic analysis of private systems should usethe subsidized fuel cost, project developersshould consider the probability and effects of theremoval of fuel subsidies some time during thelifetime of the project.

Excess EnergyLess modular RE systems, such as micro-

hydro, often produce excess energy, which canbe used to generate additional income. Findingresourceful ways to use excess power improvesthe economic viability of the system and can beincluded in the LCC analysis.

Income GenerationAn important part of the LCC analysis will

be the capacity of the RE-generated power togenerate income. Larger or more sophisticatedsystems may be worth the investment if theyincrease the income-earning potential of the beneficiaries sufficiently.

Design Considerations andEconomics

This section describes the factors that affectsystem configuration and costs. The main con-siderations driving system selection are loads,resources, costs (component, fuel, and operat-ing), and quality of service.

Energy/Power Consumption (Loads)The electrical consumption patterns of

microenterprises are a primary factor influenc-ing energy system design. The person selectingthe renewable energy system needs to take intoaccount maximum power consumption (the load

measured in watts), energy consumption (a mea-sure of the load hours used over a period of timeor kWh/year), seasonal and daily energy con-sumption variations (a measure of load distribu-tion), and quality of service needed.

The system is designed and components—the generator, the batteries, the wiring andpower electronics—sized so that the system canboth deliver the maximum power specificationand meet the average energy consumption speci-fication (kWh/month). Maximum powerrequirements drive the size of wiring and controlequipment. Energy consumption and variationsover time will drive the type and size of theenergy-producing components and will alsoinfluence the size of the battery storage.

The RE technology selected may depend onload variations over each day and during theyear. Summer and daytime loads, for example,can tend to favor PV because of the clear matchbetween when the solar energy resource is avail-able and the time energy is needed. Heavy win-ter loads may be more suited for generators; ifwinter is the windy season, however, then windturbines could be appropriate. If the wind andsolar resource are seasonally complementary(i.e., the wind resource is good during the low-insolation season), then a wind-PV hybrid sys-tem may be most appropriate.

Common microenterprise loads include thefollowing:

• Lights, radios, television sets, and cellphones—These loads may be operated usingsmall PV systems (20-200 W) and wind-electricsystems (300-500 W). Most of these loads can beoperated using DC. For AC loads, such as thosefor color TVs and VCRs, a small inverter can beincluded. Slightly larger PV systems (250-1,000W) and wind electric systems (1,000-3,000 W) aresuitable for slightly greater needs, such as light-use motors for sewing machines, refrigerators,hand power tools and fans, or for small amountsof heat (such as that needed for soldering irons).

• Power tools, grain mills, or other large motorsfor workshops and light industries—Theseloads will typically need larger power systems.


Larger hybrid systems that contain some combi-nation of solar PV, wind, gasoline or diesel gen-erator, battery, and inverter can meet these loadsas well as the loads described in the previousparagraph. Where the resource is available,micro-hydroelectric technologies can also meetthese loads, possibly without requiring fuel orbatteries.

• Water pumping, ice-making, and batterycharging—These loads occasionally can be operated by simple systems that do not requireenergy storage. Loads that do not need to be runat a particular time, but can be operated whenthe resource is available, may not need a battery,resulting in significant cost savings. When these“deferrable” loads are operated with other loads,they can be run whenever extra energy is avail-able, which also generates cost savings by allow-ing available energy to be used more efficiently.

• Process heat, cooking, and drying for foodpreservation—Thermal loads are generally bet-ter met with a thermal technology than an elec-trical technology. Although electricity can beused to create heat, it is usually much moreexpensive than alternative technologies. Renew-able thermal technologies include solar waterheaters, solar cookers, and solar dryers—all ofwhich use the sun's heat rather than its light. Bio-gas can also be burned for heat. Most of the tech-nical discussion in this guidebook focuses onelectrical energy issues; for more informationabout thermal technologies, please see the bibliography.

Large enterprises, energy entrepreneurs, and microenterprise zones may supply severaldifferent types of loads with the same system.Where many loads occur at once, demand-sidemanagement—the conscious timing of the oper-ation of each load, together with a special atten-tion to efficiency in the loads—can result in moreefficient energy use and significant savings ininitial investments and operating costs.


Figure 4.1. Bangladeshi electrical repair shopuses solar-powered light and soldering iron toincrease productivity.

Apr

il A

llder

dic

e, N

RE

L/

PIX

0715

1

Figure 4.2. A Nepali woman weaving under a solarlight in her home

SEL

CO

/PI

X08

143

ResourcesThe availability of wind and solar resources

greatly influences both the configuration and thecost of a renewable energy system. A good windresource will favor the use of wind turbines,whereas a good solar resource will favor the useof PV. Another consideration is the variability ofthe resource, both daily and seasonally. The timeperiod of importance depends on the systemconfiguration. For a stand-alone RE system, thedesigner will be more interested in the monthlyaverage resource and should size the PV array or wind turbines based on the lowest-resourcemonth. For a system with generator backup, sizing the RE components using average annualresources may be more appropriate.

Virtually all locations experience seasonalvariations in solar insolation and wind speeddistribution. These variations mean that powerproduction from PV arrays and wind turbines is

not consistent. RE system designers must makeup for this natural variation when they designthe system. Seasonal variations in insolation aredriven by the changing length of the day as theseason progresses and by seasonal climate pat-terns (e.g., rainy seasons). This type of variationcan be partially overcome by tilting the PV mod-ules at an optimal angle. The wind resource isalso usually seasonally variable. Even areas with relatively good wind resource usually have a one- or two-month period of low averagewind speeds. It is important to determine if themicroenterprise will be negatively affected by a low season for wind resource. If the businessusing the RE system is also seasonal and thebusiness and wind seasons happen to coincide, the enterprise may benefit from a more economi-cal system. Where a low wind resource seasonwould negatively affect the microenterpriseoperation, a PV system or a hybrid system usingwind-PV, wind-diesel or wind/PV-diesel may be

preferable.

Although long-term averagesdrive the sizing of the wind turbineand PV capacity, short-term (on theorder of days) fluctuations in windand sunlight will influence theamount of storage required. Thelonger the lulls in wind and sunresources, the larger the amount ofstorage needed. These lulls drive upthe cost of 100% RE systems. Systemswith generator backup, however, donot need batteries sized to meet thelongest anticipated lull in theresource.

The effect of resource on technol-ogy selection is illustrated in Fig-ure 4.3. Figure 4.3 shows, for anaverage load of 700 Wh per day(766 kWh per year), how the con-figuration of the lowest-cost systemvaries depending on the local solarand wind resources.


7.7

7.0

6.5

6.0

5.5

5.0

4.5

4.0

3.53.5 4.0 4.5 5.0 5.5 6.0 6.5

0261

8802

m

Ave

rage

win

d sp

eed

(m/s

) WTG

Technology SelectionAnnual Load: 766 kWh

Average insolation (kWh/m /day)2

WTG & Generator

WTG & PV & Generator

PV

Figure 4.3. This graph shows how the least-cost configurationfor a microenterprise zone can vary as a function of wind speedand solar insolation. These results are meant to show generaltrends only. (WTG = wind turbine generator)

CostsFigure 4.4 shows how the

initial and operating costs will vary depending on the technologychosen and financing terms.

Figure 4.5 shows the typicalrange of costs for PV and WTG sys-tems over a range of loads. Eachgraph shows two bands that reflectcosts given two levels of resourceavailability. Because these are 100%RE systems, the resource level is notthe annual average, but rather theaverage for the "worst" month. Acouple of examples will clarify theuse of the graphs. Figure 4.5a showsthat a PV system capable of han-dling an average daily load of0.5 kWh, in a locale with worst-month insolation (3.0 sun-hours/day), is expected to have a 25-yearnet present cost of between $2,500and $5,000. Figure 4.5b shows that aWTG system that meets an averagedaily load of 1.0 kWh costs between$4,000 and $8,000 in a location with a worst-month average wind speedof 5.0 m/s.

Quality of ServiceThe last important load-related

consideration is quality of service.This refers to the system’s capabilityto meet the load given the variabil-ity of the solar insolation and windresources. There may be times whenlittle of the natural energy resourceis available, so the RE system maynot deliver sufficient power. For an RE system that does not have a diesel backup, the costs may beexcessive if the system needs to provide power without any "down-time." If system components, espe-cially the battery bank, are sized forthe worst possible case, the system


Initial Investment $3,200 $19,800 $80,400 Annual Operating Costs – – – Net Present Value 10% 2,600 15,300 61,800 25% 3,000 18,600 74,300 Annualized Capital 10% 400 2,500 10,100 Costs 25% 2,500 5,200 2,500 Initial Investment $400 $4,200 $4,500 Annual Operating Costs 700 500 2,200 Net Present Value 10% 5,800 9,300 30,700 25% 3,600 8,100 19,900 Annualized Capital 10% 900 1,500 5,000 Costs 25% 2,500 2,000 2,500 Initial Investment $3,800 $8,800 $21,500 Annual Operating Costs 100 200 500 Net Present Value 10% 3,800 8,500 20,200 25% 4,000 9,100 21,900 Annualized Capital 10% 600 1,400 3,300 Costs 25% 2,500 2,500 6,100

02618811m

Win

d H

ybri

d at

6 m

/s

Cost Comparison Chart

Die

sel B

atte

ry

Hyb

rid

at

$0.2

8/lit

er

PV a

t 5

kWh/

day

Technology

25 200 800

Energy Demand (kWh/month)

Assumptions 1) Project life = 10 years 2) PV, inverter, and battery maintenance costs depend on local labor costs, present a marginal increase in cost and are not included here. 3) PV system (modules and mounting structure): Linear depreciation over 20 year life 4) Diesel system: Linear depreciation over 2500 hour life 5) Wind system (turbine and tower): Linear depreciation over 12 or 16 year life (depending on turbine size) this color represents the system of choice for each load size and discount rate Notes 1) "COC" is the cost of capital, or real discount rate. 2) PV costs will vary linearly with resource. 3) Diesel costs will vary linearly with cost of fuel. 4) Wind costs will vary exponentially with resource. 5) The system configuration is held constant in the COC comparisons. In the case of the 800 kWh load, the optimal system at a 25% COC, a hybrid system using less wind, and more diesel, is not represented. 6) PV-gas hybrids are not presented here. For the 25 kWh system, a PV-gas generator hybrid is optimal.

COC

Figure 4.4. This cost comparison chart shows how the initialand operating costs for a sample renewable energy system willvary depending on the technology, load site, and financingterms. The system with the lowest net present value of life-cyclecosts is highlighted. Incoming cash flows from user paymentsare not considered here. In this case for small loads, solar PV is the most economical option, since economies of scale forcentralized technologies are not yet achieved. As the load sizeincreases, a wind or diesel system becomes more economicalthan PV. If the cost of capital is 25%/year, diesel battery hybridis most economical because of its low initial costs compared to wind. If the cost of capital is only 10%/year, a wind hybridsystem will make sense, because its low operating costs give it a long-term advantage over diesel.

will be oversized at all other times. If the microenterprise can operatewith little reduction in profits evenif the power system has some downtime—or, put another way, "withproper load management"—economy-seeking microentrepre-neurs can save money on the capitalcosts of a system without affectingincome-generating potential.

Generator ConsiderationsFor larger loads (above ~1 kWh/

day), a big decision is whether ornot to use a generator. Ultimately,this decision will depend on ananalysis of the site in question. Theprincipal advantage of generators is their ability to provide power ondemand, which can help avoidoversizing the RE generators andbatteries. The disadvantage of generators is their high operatingcost because of fuel and mainte-nance. Providing fuel and mainte-nance to remote sites is oftenproblematic. Figure 4.6 shows the25-year net present cost of a 2.5-kWh diesel generator as a functionof average daily load and averagedaily run time. The figure showshow the number of operating hoursdrives the cost of using a generator.If the number of operating hours islow, generators can be cost competi-tive sources of energy. As operatinghours increase, costs escalate. If theloads are lights and water pumpsthat are on only a few hours per day,then an all-diesel system may becost competitive.

If the generator must be run morethan a few hours per day, anothersolution is needed. One possiblesolution is to use a generator-batterysystem. When the generator runs, it


20,000

15,000

10,000

5,000

00.0 0.5 1.0 1.5 2.0 2.5

Average daily load (kWh)

0261

8803

m

Net

pre

sent

cos

t ($)

Cost vs. Desired Performance (PV)

Resource levels below are for lowest resource month

3.0 sun-hrs/day

4.5 sun-hrs/day

25,000

20,000

15,000

10,000

5,000

00.0 0.5 1.0 1.5 2.0 2.5

Average daily load (kWh)

0261

8804

m

Net

pre

sent

cos

t ($)

Cost vs. Desired Performance (WTG)

3.5 m/s average wind speed

5.0 m/s average wind speed

Resource levels below are for lowest resource month

Figure 4.5. These graphs show the typical cost range of thetechnology (photovoltaics or wind turbines) for a system as afunction of the average daily load. The resource availabilitylisted (for both wind and sun) is the month with the lowestresource availability.

charges a battery bank that then is used most ofthe time. The savings from reductions in genera-tor run time can vastly outweigh the conversionlosses caused by cycling energy through the bat-tery and the initial cost of the batteries andinverter.

The other solution is to combine the genera-tor with PV modules, wind turbines or both. The RE components minimize the generator runtime, keeping generator operating costs to a minimum. The generator also precludes theneed to oversize the RE components, thus reduc-ing capital costs.


$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

$00.0 0.5 1.0 1.5 2.0 2.5 3.0

Average daily load (kWh/day)

0261

8805

m

Net

pre

sent

cos

t (25

yea

rs)

Cost of Diesel Systems

24 run hrs/day

20 run hrs/day

16 run hrs/day

12 run hrs/day

8 run hrs/day

4 run hrs/day

Figure 4.6. This graph shows the 25-year net present cost of using a diesel generator. Thetwo variables are average daily load (kWh/day) and daily run hours. Note that the costs varyonly slightly with load but escalate rapidly with increasing run hours.

CHAPTER 5.INSTITUTIONALAPPROACH NO. 1:PROVIDING END-USERCREDIT FOR INDIVIDUALRENEWABLE ENERGYSYSTEMS

Introduction to InstitutionalApproaches

Chapters 5–7 classify the many institutionalarrangements that work with microfinance prac-tices or entities to enable microentrepreneurs to access renewable energy resources. The firstapproach—which is described in Chapter 5—addresses decentralized systems for individualmicroentrepreneurs. In other words, a separateRE system is used for each business, residence or

productive application. These include systemsusually referred to as a solar home system (SHS)or wind home system, names that inadequatelydescribe the breadth of commercial and cottage-industrial applications enabled by small RE sys-tems. This section also discusses both credit andfee-for-service approaches for financing smallRE systems. Although some microenterpriseorganizations have chosen to carry out both thefinancial and technological functions in theirenergy provision program, others have been ableto concentrate on their area of expertise by form-ing strategic alliances with RE suppliers whocarry out the technological functions. This sec-tion provides examples of situations in whichmicrofinancing is used for end-user financing of individual systems.

The second approach—described inChapter 6—characterizes ways of promotingproductive applications of electricity throughcommunity-scale systems, in which renewablesare used to power an isolated minigrid or cen-tralized microenterprise zone (MEZ). Microfi-nance institutions can either develop the


Institutional Role of Role of Role of Upstream Approach Microfinance Microenterprise Finance Support

End-User • Fixed-asset credit for RE • Target income • Capitalize revolving Finance system generation credit fund • Fixed-asset or working • Packaging • Provide working capital capital for productive uses generators and for supplier-run credit • Finance for a package that applications program includes an energy system, tools, and working capital Community- Fixed-asset or working capital • Business incubator Fixed asset lending for Based for productive use services community energy System • Promoting system productive uses Energy • Working capital for energy Evaluate the Capitalize a revolving Entrepreneur entrepreneur covenant between credit fund or bank • Fixed-asset lending for the community and program RE system the entrepreneur • Productive uses lending for community members

Table 5.1. Comparison of Three Institutional Approaches

02618815m

community power system themselves, or theycan work with a local electric cooperative,energy services company (ESCO), or NGO tobring electricity to their client entrepreneurs. Ineither case, MFIs and microenterprise supportorganizations can provide credit, training, andother services to enable microentrepreneurs totake advantage of available electricity.

In the third case—described in Chapter 7—the microfinance is extended to an "energy entrepreneur," who creates a business in whichelectricity is the main product. This arrangementhas a two-tiered impact on the community. Not only does the energy entrepreneur create a sustainable livelihood, but the local businesscommunity also may be able to improve itsmicroenterprises through the benefit of electric-ity access. These entrepreneurs include decen-tralized-system retailers, battery-chargingstations, and mini-utilities.

More than one approach can be applied in a given community. For example, an energyentrepreneur may receive working capital forhis/her small RE business, and his/her cus-tomers may use credit to obtain the tools orappliances that take advantage of the electricity.

Introduction to End-UserFinancing

MFIs have experience providing workingcapital and, in some cases, fixed-asset credit forincome-generating applications. In areas whereelectricity is available, MFIs have financed tools or machines that depend on electricity to

function. With the availability of cost-effectiveindividual RE systems, it is a natural evolutionfor MFIs in unelectrified areas to finance income-generating applications packaged with theenergy source they need to run. However, manyMFIs are not familiar with energy technologies,and thus are hesitant to finance them. Moreover,they may not be familiar with the financingissues that are specific to energy technologies.This section gives examples of institutions thathave undertaken financing for rural energy systems.

Typically, only the wealthiest residents ofrural villages can afford to pay for an individualRE system up front. Therefore, two mainapproaches to end-user financing have emerged.The first involves a strategic alliance between a renewable energy supplier and a financialintermediary. This is known as a third-partyapproach because three entities (including thecustomer) need to be involved in every sale. Inmany cases, one institution carries out both thefinancial and the technical tasks. This guidebookrefers to this approach as "all-in-one." The PVindustry and, to a lesser degree, the wind indus-try offer many examples of successful small-scale consumer financing. This section examineshow the end-user credit approach can takeadvantage of microfinance strategies andstrengths to ease the burden of up-front costs for the customer and to expand market opportu-nities for the supplier and credit provider.


Table 5.2. Highlights of Institutional Approach No. 1

02618816m

End-User Variation Energy system Participating Risk Finance Approach ownership Institutions Third Party Credit for sales End user Financer Distributed between Supplier two organizations All-in-One Credit for sales End user Energy service Energy service ESCO ESCO provider provider

The Need for End-User FinancingA small percentage of rural villagers can

afford to pay for RE systems with cash, but creditor rental options can expand the market signifi-cantly. One PV project developer estimated thata fee-for-service option in Indonesia, for exam-ple, would expand the market from less than30% for direct-dealer sales to at least 70%.13

The pyramid in Figure 5.1, illustrating estimatesby another PV developer for one Latin Americanmarket, suggests a tenfold increase over the cashmarket.

Is a Renewable Energy System anIncome-Generating Item?

A discussion of the many microenterprisesthat can improve their viability through electrifi-cation is given in Chapter 1. For machine-drivenapplications, such as icemakers or mills, thereturn on investment may be straightforward.However, most end-user financing providessmall RE systems that mainly offer lighting bene-fits (although some small motors and entertain-ment equipment can also be run [see Chapter 4]).

In some cases, income generation is clearlylinked to the availability of electricity. A sawmillin Bangladesh was able to increase its operatinghours and income by 50% simply by extendingits operating hours. For many businesses, how-ever, the connection, while real, is less consistent.For example, a rural hardware store may expectto benefit from more customers if it stays openlonger; however, it is difficult to anticipate howmany more customers will come. Moreover, theincrease may vary unpredictably. Thus, for thestore, buying a small RE system may be moreuncertain than investing the money in livestockor another traditional loan item that has an easilyanticipated return.

Perhaps the most successful customers arethose who are able to apply the system to bothhousehold and business use. In this situation, the RE system provides savings in traditionalfuels, increased income from the business, and


02618810m

Cash sales 3%–5%

Credit 15%–20%

Fee-for-service 18%–25%

50% may not be able to afford PV

Figure 5.1. The pyramid shows one estimate of theproportion of end users that can afford PV underdifferent purchasing options.

Renewable energy systems that providedomestic lighting may have long-term effectson the quality of life that are not as easy toquantify as those incorporated in businesses.An analog is an MFI-run housing program.Although the house is not considered an"enterprise," it has many positive financialimplications for its residents. By protectingthe family from rain and cold, it reduces thenumber of illnesses and medical costs. Thespace can be used for storing grains that canbe sold later at a higher price. The sturdywalls reduce the cost of constant replacementor repair of tin modules or palm leaves.These constitute long-term economic bene-fits to the borrower.

Likewise, a lighting system provides lightfor study, which has long-term effects on theemployment potential of the children. Elec-tric lights are safer than kerosene lanterns,which can cause fires and produce smokethat is harmful to the eyes and lungs. And,finally, lighting systems may pave the wayfor small cottage industries to be carried outduring evening hours.

long-term returns in the form of improved healthand education.

Can a Microfinance Organization MakeMoney by Financing Renewable EnergySystems?

The ability of a microfinance organization tomake a profit financing renewable energy sys-tems depends on its ability to transpose the suc-cessful microfinance innovations of the past tothe new challenge of RE technologies. Such inno-vations include externalizing as many of theoperating costs as possible, using inexpensivelocal labor, and generating economies of scale.Meanwhile, RE has several advantages that tra-ditional loan items do not offer. RE can diversifya lending portfolio, bring down transactioncosts, reduce risk through collateral, and allowaccess to governmental funds earmarked forenvironmental and rural electrification purposes.

Operating costs may mount in a renewableenergy program if the MFI takes on too many of the responsibilities of technical supervision.Such costs can be externalized from the micro-finance program by entering into a strategicalliance with one or more suppliers, or by creat-ing an independent technical unit. Also, thesecosts can be reduced as local personnel aretrained to take on program responsibilities, as inthe Ramakrishna Mission Program describedbelow. Choosing areas where economies of scalecan be achieved is another way to reduce operat-ing costs.

Loan portfolio diversification fortifies acredit program against sector-specific or clien-tele-specific disasters. Renewable energy

systems facilitate diversification by providingservices useful to a broad range of productiverural activities, from agriculture to commerceand industry. In addition, renewable energy sys-tems may allow microfinance entities to targetsegments of the population not currently repre-sented in their clientele base.

Unlike many items for which microfinanceloans are given (such as livestock), RE systemsoffer the additional advantage to the lendingagency that the system itself can provide somemeasure of collateral. This case is particularlytrue with PV modules, which last a long timeand lose value slowly after installation. In addi-tion, the systems are more costly than traditionalitems. These larger transactions reduce the average transaction cost, which can increase profitability.

Finally, many countries view rural electrifica-tion and environmentally sound energy deci-sions as a policy priority. Microfinance agenciesmay find themselves in a position to channelgovernment funds to programs that advancethese goals. One example is Brazil’s low-interestline of credit for renewable energy. The Teotonio Vilela Foundation managed to accessthis line of credit for photovoltaic battery-charging station microentrepreneurs.

As microfinance program members increasetheir standard of living as well as their ability to borrow, they look for new items to invest in.Microfinance programs, such as the GrameenBank in Bangladesh, have experienced thisgrowth in their membership and have expandedtheir loan portfolio for items much more costlythan their original program allowed. By meetingthe demands of the more affluent customers, themicrofinance organization also improves its ownviability. Because these customers have estab-lished credit relationships with the organization,and because they have already been trained inbanking procedures, the larger loans bring inhigher interest payments with lower transactioncosts. This increased income to the microfinanceorganization can be used to finance the expan-sion to new areas and training of new membersat the poorest levels. In this way, upward


Ramakrishna MissionThe Ramakrishna Mission solar program

in West Bengal, India, found a way to exter-nalize a large portion of its training, sales, andmaintenance costs. It certified hundreds oflow-cost rural technicians who carry out thesales and maintenance tasks for a small fee,which they charge the end user.

diversification may advance the financial institu-tion's goal of providing credit to the most needy.

Third-Party FinancingThe third party-financing approach allows a

microentrepreneur (the first party) to buy an REsystem from a supplier (second party) throughcredit provided by an MFI (third party). Thisarrangement offers both advantages and disad-vantages for the parties involved. An advantageof the third-party system for both the creditprovider and the RE system supplier is that itallows each to fulfill specialized roles, focusingon the capabilities each has already developed.The MFI can process loans and collect paymentsas part of its normal credit activities, withoutentering into the technical and business aspectsof RE system supply and maintenance. More-over, the market will benefit from a more sophis-ticated credit program. The RE system suppliercan focus on its normal technical and businessissues without having to develop an additionalcapacity for rural credit administration.

Unlike sales based on a supplier's own credit,third-party financing is a cash sale as seen fromthe RE supplier's view, providing immediatecash flow and related profit margins. Access tocredit from an MFI can expand an RE supplier'smarket significantly beyond straight cash salesin rural areas often underserved by traditionalsources of financing. Moreover, customers of theMFI already have a credit history and an income-generating enterprise, making them good candi-dates to repay their loans.

Both for-profit and nonprofit organizationsare involved in third-party financing for smallrenewable energy end users. Nonprofits rangefrom large microfinance organizations involvedin financing RE along with a wide variety ofother products, to small NGOs dedicated to REfinancing for qualified for-profit suppliers.

All-in-OneIn the "all-in-one" approach to end-user

credit, an entity from either a financing or sys-tem-supply background, expands its capabilities


Grameen ShaktiGrameen Bank, a microfinance pioneer,

provides end-user financing for its members.The bank members purchase systems fromGrameen Shakti, an independent (but related)RE supply company. Credit for renewableenergy systems has fit easily into the bank’sloan portfolio, which includes loans for suchitems as houses, cellular phones, and dieselgenerators.

A supplier who is not in a position to pro-vide its own credit may find the growth of its business constrained by the financial ororganizational capacity of the financing orga-nization. In the case of Grameen Shakti, theGrameen Bank’s membership was in generalpoorer than the initial target market forrenewables. For that reason, Grameen Shaktiwas compelled to add its own credit schemeto that of the Grameen Bank. As of November1999, Grameen Shakti had sold more than1,000 systems.

ADESOLThe Dominican nonprofit ADESOL (the

Association for the Development of SolarEnergy) provides limited end-user financingthrough a network of independent PVmicroenterprises to give them experiencewith credit sales. The microenterprises pre-qualify customers and act as financial inter-mediaries for the transactions, includingresponsibility for collection; however, theloan remains an asset of ADESOL’s develop-ment assistance revolving loan fund. Enersol,ADESOL’s nonprofit, U.S.-based affiliate, has catalyzed many other revolving creditfunds aimed at PV consumer financing.Provincial development organizations such as ADEPE (the Association for theDevelopment of the Espaillat Province in theDominican Republic) and cooperatives suchas COMARCA (the Marcala Coffee Coopera-tive in Honduras) have added PV financingto their regular microenterprise lending.

by handling the delivery of both the hardwareand the financing internally. This could also bedone by a new organization dedicated to bothhardware and financing. Having one organiza-tion responsible for both the financial and tech-nical system aspects of RE system deploymenthelps ensure that after-sales system performancewill be a priority. Thus, there is a built-in incen-tive to maintain high standards of equipmentperformance and customer service. In addition,the all-in-one approach eliminates problems arising from a discrepancy in priorities or modesof operation between two organizations.

The combined strategy also has potential disadvantages. It requires that established orga-nizations become significantly involved in atleast one major area of activity in which they donot necessarily have experience. Financial orga-nizations, even rurally focused ones, may not besufficiently technically oriented to handle REsystem installation and maintenance. Likewise,RE equipment suppliers will not necessarilyhave financial and rural development personnelsuited for the complexities of rural credit-fundmanagement.

An extension of the all-in-one strategy is leas-ing. In this case, ownership of the RE systemremains with the system provider until the sys-tem is fully repaid. This reduces the risk to thecredit provider as it ensures recovery of the sys-tem salvage value in case of default. In addition,it reduces the risk to the end user because it is inthe interest of the RE supplier to ensure that thesystem remains fully operational until the item isfully repaid.

Matching credit and equipment supplierscan also pose challenges for each; however, thesepotential problems may be less severe if thelessons learned from pioneering experiences areincorporated in the planning process. A bank orcredit organization involved in small-systemfinancing is dependent on the integrity and follow-up capability of the hardware provider. If a system fails, the financier tends to be theentity facing a default in payments. Covenantsor performance-based payment agreementsbetween the two organizations can mitigate therisk to both financier and customer. The creditorganization can also establish criteria for quali-fying suppliers for access to end-user financingor for establishing portfolio limits. Such deci-sions are based on criteria such as time in busi-ness, level of commercial sales, and creditactivity with the organization or other lender.Similarly, a supplier who is not in a position toprovide its own credit may find the growth of itsbusiness constrained by the financial or organiza-tional capacity of the financing entity.

Several types of organizations have used all-in-one strategies, including for-profit com-panies, NGOs, and rural electric cooperatives.For-profit companies that combine end-usercredit and technical support for RE systeminstallation include Soluz Dominicana, SELCOVietnam, and RESCO Sri Lanka.

Energy Services CompaniesEnergy services companies can provide

microenterprises with RE systems under a fee-for-service agreement by which the ownership of the equipment remains with the ESCO. A


SELCOAn example of the linkage between a for-profit product sup-

plier and a for-profit financier is the SELCO India/SyndicateBank relationship. SELCO India, a for-profit subsidiary ofSELCO International, supplies RE systems in southern regions of India. For sales beyond the cash market, SELCO has linkedwith the Syndicate Bank, a local banking institution with 1,600branches and many programs aimed at rural customers. TheSyndicate Bank provides three- to five-year loans to consumersfor 90% of the cost of systems sold and installed by SELCO,charging a "priority-sector lending rate" of 12%-12.5%. This link-age is the first involvement of a commercial bank in PV systemfinancing in India. Along with the cash and bank-financingoptions, SELCO offers customers financing directly through aWorld Bank line of credit. It also offers a lease-to-own option,with the financing provided by nonbanking financing compa-nies, which receive tax benefits. SELCO also works with localrural institutions such as cooperatives, which offer systemfinancing for their members.15

number of private companies, "wireless utili-ties," and rural electric cooperatives are emerg-ing around the world to provide ESCO services.

The fee-for-service arrangement tends to bestrongly preferred by end users because it elimi-nates the risk to the end user of technical failureof the system. It is in the best interest of the ESCOto ensure prompt and complete maintenance ofthe systems. In addition, it eliminates the needfor the end user to undertake a large capitalinvestment. Soluz Dominicana, a leading PVESCO, has had a tremendous response to its fee-for-service offering.

Organizations that undertake ESCO opera-tions also take on a level of risk not faced by salesoperations. For example, a crucial component inthe life-cycle cost of all solar- and wind-basedhousehold systems is the treatment of the bat-tery. Because the battery is stored at the end-usersite, there is little the ESCO can do to preventmistreatment of the battery.

Microenterprise support organizations that do not want to handle the full delivery ofboth hardware and financing may want to con-sider forming an alliance with ESCOs willing toprovide both of these components. Microenter-prise development organizations can play a crucial role in financing and supporting the productive applications that are enabled by theelectrical services of a local ESCO.


Soluz DominicanaSince 1994, Soluz Dominicana, a majority-owned

subsidiary of the U.S.-based SOLUZ, Inc., has been pro-viding systems on a fee-for-service basis—financingsystems through fixed monthly payments for basic elec-tric service—or on short-term credit. Soluz Dominicanainstalls and provides all maintenance for small, stand-alone PV systems, as well as a small number of pilotwind systems, for rural households and small busi-nesses in the Dominican Republic.

Grameen ShaktiGrameen Shakti of Bangladesh is an example of a

nongovernmental organization involved in both thefinancial and technical aspects of system dissemination.Grameen Shakti has been installing PV and wind sys-tems on a credit basis for non-Grameen Bank memberssince 1996, offering financing for up to 24 months.

CRESome rural electric cooperatives that already deliver

energy services for monthly fees have turned to stand-alone PV systems for more dispersed customers, offer-ing the latter both the systems and the financing. Oneexample is CRE in Bolivia, which began installing PVsystems in 1995 on a fee-for-service basis. By 1998, itwas serving 1,300 rural customers.

CHAPTER 6. INSTITUTIONALAPPROACH NO. 2:FINANCING ANDPROMOTING THEPRODUCTIVEAPPLICATION OFENERGY INCOMMUNITY-SCALESYSTEMS

IntroductionThe previous chapter discussed how entre-

preneurs, when provided with financing andinstitutional support, could obtain and utilizetheir own power generation system to improvetheir business. However, power generation isoften more cost effective when economies ofscale come into play. Community-scale systemsspread the cost of the power system amongmany end users and effectively finance the capital cost over years or decades. Such arrange-ments are possible when:

1. There is a critical mass and density of end-userloads.

2. Long-term financing is available for a powergeneration project.

3. There is a sufficient institutional capacity inplace to ensure cost recovery and management.


02618814m


Community- Operator Customers Pros Cons Based System

Microenterprise • MFI • Microentrepreneurs • Target income • Requires moving existing Zone • NGO • Local MFI or generation enterprises to a new site • ESCO NGO office • Control over load Minigrid • ESCO • Microentrepreneurs • Services loads • Load growth • Electric • Households that are site-specific • Repayment not necessarily cooperative • Community • Includes linked to income generation • Utility loads residential and • Requires additional community benefits investment in grid

Figure 6.1. WIND Indonesia wind hybrid system

Win

rock

Inte

rnat

iona

l/02

6188

49

As with distributed individual-systemapproaches, community-scale arrangements canbe implemented by either an exceptionally capa-ble MFI or microenterprise development organi-zation; they can also be done through a strategicalliance with a partner whose specialty is energyprovision. Community-scale systems includemicroenterprise zones, which provide a singlefacility where energy is provided to microentre-preneurs on a fee-for-service basis, and mini-grids, where energy is provided via an electricgrid to a host of end users (microenterprises,community buildings, and households, amongothers).

Microenterprise Zones One example of a community-scale renew-

able energy service that can be implemented byan MFI, an NGO or an ESCO is a microenterprisezone, or MEZ.

An MEZ is a facility powered by a central-ized electrical system that serves a strategicallylocated cluster of microenterprises in an areawithout access to an electric grid. The MEZ canfunction as both a business incubator and a per-manent business haven conducive to nurturingincome-producing activities in rural, lower-income areas. Physically, an MEZ can be a market-type structure with separate locales for various microenterprises serving the localmarket or producing products for markets out-side of the community.

Concentrating the nonhousehold loads inone area can lead to cost savings in technologiesthat have economies of scale such as wind tur-bines and diesel or gas generators. An MEZ alsoeconomizes on maintenance by concentrating itin one area. The clustering of the loads within asingle structure yields opportunities for goodload management to hold down energy systemcosts. The operator can mandate and ensure effi-ciency in the loads and orchestrate higher con-sumption loads to coincide with the availabilityof the energy resource. This reduces the need foroversizing the peak capacity of a power system.

For more information on load management, seeChapter 4.

The minimum service an MEZ can provide isreliable power during extended working hours.However, the concentration of microenterpriseslends itself to a variety of business support activities, including microenterprise assistance,microfinance banking, and a higher quality,more stable working environment. Theeconomies of scale from clustering may make apublic telephone or fax, photocopying services,or child care more affordable. In addition, syner-gies in the various productive activities withinthe MEZ may lead to mutually beneficial busi-ness development. For example, the MEZ maybecome a mini-export production zone or a one-stop shop for local customers.

MEZs require the following:

• Sufficient energy system financing

• The flexibility to move decentralized enter-prises to a central area

• Institutions with the capacity to carry out boththe technical and business development tasksincluded in an MEZ.

Renewable-Energy-BasedMinigrids

A variation on the MEZ concept is to extend a small minigrid around the MEZ. A grid couldprovide electricity for a market or commercialarea. The lines could also serve productive usesthat cannot be transferred to the zone site. Thesebenefits need to be weighed against the disad-vantages of increased cost, loss of control of theload, and a possible emphasis on residential uses rather than productive uses of electricity. A useful document on low-cost electric grid con-struction is New Designs for Rural Electrificationby the National Rural Electric Cooperative Association.



Grameen Shakti Microenterprise ZonesIn Bangladesh, Grameen Shakti has developed four wind-diesel hybrid systems to be used

in microenterprise zones on the coast. The zones occupy Grameen Bank-owned cyclone sheltersthat were underutilized. After several months of monitoring the performance of the systems,project developers invited bank members and other local microentrepreneurs to open small busi-nesses on the premises. These microenterprises use the electricity on a fee-for-service basis. Atthe same time, bank members take advantage of services at the bank offices housed in two of thesites.

In preparation for this project, Grameen Bankmembers and staff from the area were interviewedto obtain their ideas about the need for and applica-tion of the microenterprise zones. The following recommendations were then incorporated in theplanning process for the installations:

• The members were willing to operate their busi-nesses at the cyclone shelter (rather than at home) ifit meant that the cost of the power would be muchless than power from a minigrid.

• Many of the members had skills and businessideas that would take advantage of electricity, withlittle further training; however, the skill level of themembers varied greatly from region to region. Skillsin handicrafts and manufacturing were more preva-lent in areas that were generally more affluent andwhere the Grameen Bank had been active for alonger period of time. Members that relied chieflyon agriculture and livestock for their businessestended to live in less affluent regions and areaswhere the bank had become involved more recently.

• The staff members were able to evaluate which electricity-using businesses would be mostlucrative in their areas, and were well versed in how to facilitate Grameen Bank loans for the necessary equipment.

• The staff had insufficient lighting for the paperwork they needed to complete.

One of the opportunities that Grameen Shakti faces is the seasonally variable wind speed inBangladesh. Although the systems are designed with back-up generators to reliably meet theirdesign load, the zones will be able to operate most cost effectively if they can utilize the greaterwind resource that exists during the summer (monsoon) months.

Figure 6.2. Grameen Shakti MEZ turbine

Apr

il A

llder

dic

e/02

6188

55


Load/Resource Matrix Technique for MEZ System SelectionDesigning an MEZ can be a time-consuming process. Even when sufficient technical expertise

is available, design efforts can be thwarted by the difficulty of ascertaining data about prospectiveloads and energy resources. A load/resource matrix is a tool that can be used to simplify systemdesign while providing a reasonable number of options to MEZ developers.

In the sample load matrix shown (see Table 6.2), several hypothetical MEZs were created. EachMEZ incorporates a combination of common microenterprises in the Dominican Republic. Thehypothetical MEZs were then classified by their average monthly energy requirement. Optimalsystem designs for each of the four load classes were then established using the hybrid designtools, HOMER and Hybrid 2. The analysis used country-specific data on the cost and availabilityof components, local fuel price, and solar insolation data. Separate designs were generated foreach of the load classes in three different wind regimes. A sample matrix (see Table 6.3) shows

least-cost designs forload levels from 200 to800 kWh/month andwind speeds from 4.0 to6.0 m/s.

The matrix can be auseful tool in making ini-tial decisions in situa-tions where an exactoptimization is neitherpossible nor meaningful.The initial systems canthen be fine-tuned overtime as the loads areimplemented and theMEZs begin to grow.Some of the issues thatneed to be considered inthe development and uti-lization of matrixes areexceptionally large loadsthat may alter the peakcapacity needs, and surgecapabilities of powerequipment.

02618813m

Table 6.2. MEZ Load Matrix

Cafe I 133 x x x x x x x Cafe II 68 x x x Small Store 75 x x x x Cinema 20 x x x Laundry 174 x x x x x x x x Beauty Salon 123 x x x x x x Carpentry Workshop 144 x x x Electric Workshop 36 x x x x x x x Fish Store 98 x x x x Community Center I 59 x x x x Community Center II 149 x x

TOTAL (kWh/month) 200 200 400 400 600 600 600 600 800 800

kWh/month

02618812m

Table 6.3. MEZ Loads/Resource-Sizing Matrix

6 m/s Wind Speed 5 m/s Wind Speed 4 m/s Wind Speed

200 kWh/month • 1 kW Wind • 1 kW Wind • 740 Wp PV • 2.3 kW Gas Generator • 2.3 kW Gas Generator • 2.3 kW Gas Generator • 8.4 kWh Battery Bank • 16.8 kWh Battery Bank • 16.8 kWh Battery Bank 400 kWh/month • 2 kW Wind • 1200 Wp PV OR 2 kW Wind • 1200 Wp PV • 4.8 kW Diesel Generator • 4.8 kW Diesel Generator • 4.8 kW Diesel Generator • 16.8 kWh Battery Bank • 33.6 kWh Battery Bank • 33.6 kWh Battery Bank 600 kWh/month • 3 kW Wind • 3 kW Wind • 7.5 kW Diesel Generator • 7.5 kW Diesel Generator • 7.5 kW Diesel Generator • 33.6 kWh Battery Bank • 33.6 kWh Battery Bank • 33.6 kWh Battery Bank 800 kWh/month • 4.5 kW Wind • 4.5 kW Wind • 7.5 kW Diesel Generator • 7.5 kW Diesel Generator • 7.5 kW Diesel Generator • 50.4 kWh Battery Bank • 50.4 kWh Battery Bank • 50.4 kWh Battery Bank

Sample configurations for microenterprise zones of different load sizes in a region where solar radiation �is constant but wind speed varies from location to location

Productive Uses of Electricity Programswith Renewable Energy ServiceCompanies or Cooperatives

Not all MFIs and microenterprise supportorganizations will be able to implement theirown MEZ or minigrid. By working with a utility,electric cooperative, or ESCO, MFIs can bothinfluence the process of electrifying their com-munity and assist microentrepreneurs in usingthe electricity to benefit their businesses.

Through a program focused on productiveuses of electricity, an MFI can provide credit forelectric tools or machines vital to translatingenergy into income generation. MFIs andmicroenterprise development organizations that provide nonfinancial services may be wellpositioned to provide training, market develop-ment, and other services to customers to furtherleverage the benefit achieved from the energyresource. Productive uses of electricity programscan fit well into an MFI’s credit or leasing activities for several reasons. As the electricalmachines or appliances are clearly income-generating items, they pose less of a need formodifications to MFI lending practices than dothe power systems themselves. In addition, as an ESCO or cooperative provides power on afee-for-service basis, the microentrepreneur isrelieved of the burden of a large capital invest-ment in generation equipment. Thus, poorermembers of the MFI may be able to benefit fromthe program.

Two examples of productive uses of energyprograms are given here. These relied mainly ongrid extension for their electrical sources; how-ever, the results of these programs could have


El Vinto Productive Uses ProgramThe El Vinto Densification Project was implemented by the National Rural Electric Cooperative Associa-

tion, ELFEC (the local utility), and PRODEM (a microfinance organization) to promote productive uses in the lower Cochabamba Valley of Bolivia. About $100,000 was invested in service drops and line extensions.Another $103,000 was loaned for 83 productive uses. The loan amounts varied from $66 to $6,500; 77 of theloans were for less than $1,000. Shortly after making the loans, PRODEM sold the portfolio to BancoSol,allowing NRECA to invest the money in another productive-uses project. However, financial analysis (pro-jected out to 20 years) for the service drop component of the project showed a loss. The main reasons were thelow average end-user consumption of only 36 kWh/month, and the high administrative cost that ELFECcharged the project. Eighteen of the 83 productive uses that benefited from the loans were surveyed in a finalevaluation of the loan component of the project. All but one showed an increase in production. Similarly, allbut one showed an increase in profit, though it was not the one that had reduced production. The 18 produc-tive uses surveyed generated a total of 25 new jobs.16

Project ENSIGN—Financing EnergyServices and Income-GeneratingOpportunities for the Poor

This UNDP-funded ENSIGN program,coordinated by the Asian and Pacific Develop-ment Center in Malaysia, included 24 pilotprojects in seven Asian countries. These proj-ects provided modern energy services tar-geted to income-earning activities in 219households in India, Indonesia, Mongolia,Myanmar, Nepal, Philippines, and Sri Lanka.Most of the activities were based on grid elec-tricity, although some used solar PV or othersources. The majority of the activities werecottage industries producing items such asbangles, bottle caps, mattress covers,envelopes, and garments. Others includedservices such as grain grinding, auto tire air-filling, and rice hulling. Project-wide, theaverage income growth was 53%, increasingmonthly income from an average of $63(U.S.)/month to $96.5 (U.S.)/month. One ofthe participating organizations, the SEWABank in India, has already begun to integrateENSIGN-type loans into its mainstream lending.17

been as easily achieved with a remote hybridminigrid fueled by renewable resources.

Financial Sustainability in aCommunity RE System

Like microfinance banks, electric coopera-tives and utilities can provide reliable, long-termservice only when they are financially sustain-able. In both MEZs and minigrids, the developerretains ownership of the energy system. If thedeveloper of the MEZ is a bank, NGO, or ESCO,it may have access to more favorable terms forenergy system financing than would a microen-trepreneur. Sources of finance for MEZs mayinclude the following:

• Governmental rural electrification funds

• Renewable energy lines of credit

• Local or regional development bank loans

• Donor agency programs

• Private investors.

The Impact of Load and Load GrowthHaving sufficient load, and the associated

tariff payments, are vital for a financially sustain-able system. Some ESCOs, utilities, or electriccooperatives may be unwilling to consider anarea because of a perceived lack of load poten-tial. Although microenterprises do not consumeenergy on the level of large industries, they usually require greater amounts of power thanresidences. Moreover, they contribute to the eco-nomic development of a community, a processthat leads to greater electricity consumption ingeneral. For these reasons, a microenterpriseorganization may be able to encourage ESCOs,utilities, and electric cooperatives to providepower in their areas by demonstrating the needsof their constituent microentrepreneurs.

The presence of electricity in a communitygenerally leads to significant load growth overtime. Depending on the power system, this loadgrowth can have disparate impacts, such as thefollowing.

• Wind or PV-battery hybrid systems: If there isno dispatchable backup source of power, loadgrowth can overwhelm the system's capacity,causing failures.

• Hybrid systems with diesel backup: Loadgrowth may lead to excessive use of the diesel,shortening its lifetime and increasing fuel costs.Load growth beyond the capacity of the systemwill cause failures.

• Micro-hydro: Increased load reduces the unitcost of electricity up to the capacity of the powerstation, but will cause system failures if itexceeds the capacity.

• Grid extension: Increased load reduces the unitcost of the grid extension up to the installedcapacity of the grid lines.

In an MEZ, load growth is easy to managebecause the operator can decide what new enterprises are allowed to be connected. Theenhanced control also makes it easier to designtariffs appropriately so that the applications do not have to be limited. With a minigrid, theoperator has less control over new loads that are added within individual households. Someminigrid operators install current-limiting fusesin households to ensure that loads do not exceedmanageable levels.

Setting an Appropriate TariffOne way to manage loads is to design an

appropriate tariff to encourage reasonableamounts of energy use. An end-user fee may be collected through metering, by using a feeschedule that varies according to the type ofequipment used, or by charging a fee per con-nection, and limiting the available power byusing a current-limiting device.

A tariff that is sufficiently high may deterusers from consuming more power than neces-sary as well as provide sufficient income to justify an expansion of the power system as theload demands it. Some systems (such as micro-hydro stations) may not have the naturalresources necessary to increase the capacity


of their power station, however. Many organiza-tions include a cross-subsidy within the tariffstructure to ensure that poorer customers arealso able to benefit from the electricity. A projectthat focuses on microenterprise developmentmay prefer to provide service to microenter-prises even when wealthier residential cus-tomers are willing to pay more for the power.


CHAPTER 7. INSTITUTIONALAPPROACH NO. 3:SUPPORTING ENERGYENTREPRENEURS

Because energy is in high demand in areaswith no grid electricity, innovative microentre-preneurs often seek ways to make a profit byselling electricity and energy-related products to their fellow villagers. Small, rural retail storessell dry-cell batteries, flashlights, kerosene, can-dles, and butane lanterns to local households.Some individuals with generators connecthouseholds to sell electricity; others sell battery-charging services. As renewable energy hasbecome better known in rural areas, these“energy entrepreneurs” have also made use ofrenewable energy systems as a means to meetcustomer needs and develop business.

In spite of their many different approaches,energy entrepreneurs share some elementaladvantages over other energy service providers.Microentrepreneurs usually live in the commu-nities that they serve. They are personallyimpacted by the quality and reliability of theenergy service product, which legitimizes theirmarketing claims in the eyes of their customers.

In addition, the customers know that the entre-preneur will be available with little notice to pro-vide technical assistance and customer service.Thirdly, microentrepreneurs usually operatewith very small overhead margins. For example,they may conduct business out of their homes.They may avoid high transportion costs, as theylive close to the communities they serve. Largercompanies may need to invest in uniforms andmarked cars to establish their name recognition,while microentrepreneurs are often alreadyknown in the community.

The "micro-" nature of the energy entrepre-neur also creates its greatest vulnerability: itsdependence on the community. If the commu-nity's demand for energy service drops off, themicroentrepreneur is not able to shift to anothercommunity. The business viability of an energyentrepreneur depends on sustained need and the community’s willingness to pay for electricservice. While it is ultimately the microentrepre-neur's responsibility to accurately evaluate thepotential of the business, this may be very diffi-cult to do in a community where there is no comparable service. In such cases, communitymembers' assertion of their demand for energycan be critical in the decision to start. In otherwords, the entrepreneur and the communityessentially create a covenant in which both parties have responsibility for the successfulenergy service business. Entrepreneurs can try to formalize this covenant through the establish-

ment of community com-mittees, membership fees, or service contracts.Regardless of the mecha-nism used, care must betaken to clearly conveythe importance of thecommitment to commu-nity members who may be less predictable participants than theentrepreneur.


02618817m


Energy Microfinance for Microenterprise Microfinance Microenterprise Entrepreneur Entrepreneur Support for for Community Support for Entrepreneur Community

Battery- • Initial plant • Technical • Finance for battery • Promoting Charging training (if needed) productive Station • Licensing • Productive DC applications applications of • Covenant for electricity Mini-Utility • Initial plant energy service • Finance for productive provision with applications community Retailer • Working capital • Finance for individual RE for inventory, systems bought from retailer operating costs

Battery-Charging Stations

What Is a Battery-Charging Station?Battery-charging stations use a central power

source to charge portable batteries as needed.The batteries are used in customers’ homes topower television sets, lights, or other loads. Customers can pay per charge or a set monthlyfee for a certain number of charges. Other electri-cal equipment, such as electronics for batteryprotection, may be provided by the user or bythe BCS enterprise.

The Advantages of a BCSCentralization of the power system can cap-

ture the economies of scale offered by renewableenergy technologies such as wind and hydro-electric, as well as diesel generators. A BCS alsotakes advantage of economies of scale in admin-istration and operation and maintenance. It cancentralize technical aspects of energy productionand equipment maintenance with the power system located in a secure location near the target market. A locally based representative orentrepreneur can perform the necessary mainte-nance along with operation.

As with users of other RE technologies, BCSusers enjoy the benefits of a smoke-free house-hold and better quality of light. Electric systemsalso reduce the likelihood of fire caused by

tipped lamps. In addition, a locally situated BCSis also more convenient than a distant, grid-powered one. For users, the low level of commit-ment—particularly with per-charge fees—meansthat a BCS can closely match what customersmight have paid previously for battery charging,kerosene, or dry cells.

Fee Payment StructureAs the capital cost for a renewables-based

BCS is much higher than that of a grid-connectedBCS, the user fees are likely to be higher, and theinvestment may have a longer payback period.The BCS operator may choose to take paymenton a per-charge basis, or may employ a monthlysubscription plan. The latter offers more security,because the customers make a commitment to acertain number of charges per month.

Photovoltaic Battery-Charging Stationsversus Solar Home Systems

Battery-charging stations work best withtechnologies, such as wind turbines and hydro-electric or diesel generators, that benefit fromeconomies of scale. In the case of photovoltaics,the quality of service from a BCS is much thesame as that from a solar home system.


Figure 7.1. Battery-charging station

SGA

Ene

rgy

Ltd

., O

ttaw

a, C

anad

a/PI

X07

912

Teotonio Vilela FoundationFor-profit project developers can link

with other entities, including nonprofit orga-nizations, government agencies, and localentrepreneurs to provide efficient, cost-effective service via a renewable-energy-powered BCS. The Teotonio Vilela Foundation(FTV) launched a program in 1996 to helpenergy entrepreneurs administer a photo-voltaic BCS financed by the U.S.-basedGolden Genesis Company and the NortheastBank of Brazil. Under the Luz do Sol program,entrepreneurs from each community managethe systems installed by FTV, taking respon-sibility for collection, administration, andoperation of each BCS and paying for the systems over time.

Transportation of batteries can be inconve-nient, and carelessness may harm the batteries.Although batteries may reach full states ofcharge regularly and predictably (each time theyare brought to the BCS), the battery life can besignificantly shortened because customers willusually want to drain them as fully as possiblebefore recharging. A low-voltage disconnectincorporated into the battery or in-house wiringcan mitigate those effects to some degree.

In spite of these drawbacks, photovoltaicBCSs may make sense in off-grid situationswhere:

• Demand for many customers is lower than theamount of energy offered by standard stand-alone systems

• End-user financing is scarce

• The BCS is used as a transitional phase or in conjunction with stand-alone system dissemination

• The BCS institutional structure provides thenecessary income for a maintenance and cus-tomer service entrepreneur that cannot be developed through an SHS program.

Institutional Structure of the BCSThe batteries can be owned by the BCS opera-

tor/administrator or by the individuals. Thereare advantages and disadvantages to eachoption. On one hand, BCS ownership facilitatesstandardization of the batteries, can allow forbulk purchasing of the batteries, and can ensureregular battery maintenance. This avoids thetechnical difficulty of charging batteries of differ-ent specifications, lifetimes, and characteristics.However, customers may mistreat or over-discharge the batteries at home or in transport.


Figure 7.2. Micro-hydro is commonly used tosupply minigrids.

Hug

o A

rria

za/

0261

8856

IT Peru—Lending for Mini-UtilitiesIT Peru, an affiliate of the U.K.-based Intermediate Technology Development Group (ITDG), has developed a suc-

cessful program that provides financing to develop micro-hydroelectric mini-utilities in rural areas of Peru. Anonprofit organization, IT Peru used long-term concessional financing from the Inter-American Development Bank(IADB) to start a revolving loan fund for micro-hydro and to leverage many additional funds. By 1998, the organiza-tion had financed 15 systems, including 5 for individual clients and 10 for communities, with five-year, 8% loans for$10,000 to $50,000. Financing was an important factor in allowing communities to access the technology. IT Peru setup "Credit Operators" to handle the analysis and administration of the loans and to separate the financial decisionsfrom the technical and organizational ones.

Because of the high dispersion rate in the target market, IT Peru chose to aggregate the larger power loads in central locations and avoid the cost of minigrids, as in the MEZ concept. Thus, the hydro systems powered on-sitegrain mills, for example, while providing battery-charging for the dispersed domestic market for lighting, radio, andtelevision.

When, despite its innovations and the relative successes of its financing plan, IT Peru still found that the ruralcommunities could not fully cover the costs of the energy systems, it was able to leverage the financing plan withmunicipal grants to cover the total system infrastructure.18 More information about the ITDG Program is given in the case study section.

Individual ownership of the batteries, on theother hand, can lead to greater user responsibil-ity with regard to battery use and abuse, andshifts the responsibility for maintenance onto thecustomer.

From the point of view of the local entrepre-neur, a single BCS can be a sustainable, profitableoperation. The entrepreneur might requireaccess to financing and technical assistance, butcan otherwise be self-sustaining.

Mini-Utilities

What Is a Mini-Utility?A second type of energy entrepreneur

extends electric lines to neighbors, creating alocal, decentralized mini-utility. The ownercharges a fee based on the expected loads, suchas a monthly per-bulb fee. Usually these arrange-ments involve quantities so small that they donot warrant the cost of meters; although, for systems of sufficient size, metering can provide a more accurate distribution of cost. Theseschemes are likely to be effective with renewableenergy systems based on wind or hydroelectricgenerators, where economies of scale (or product availability) may lead to purchase of systemslarger than necessary for the primary user.

Mini-Utilities and Energy EfficiencyMini-utility entrepreneurs can benefit from

learning about energy-efficient products. Forexample, a supplier able to serve 10 householdsusing 100-W incandescent bulbs will be able to


Enersol Training ProgramWould-be solar entrepreneurs in the Dominican Republic

trained by Enersol Associates or ADESOL were subsequently pro-vided access to end-user financing for their customers to helpthem gain experience. Enersol and ADESOL not only trained theentrepreneurs in the technology design, installation, and mainte-nance, but also touched on business development and microenter-prise management. Such skills training may make the RE retailersmore appealing for working capital loans from microfinance organizations, as happened in certain cases in the DominicanRepublic.

Figure 7.3. South Africa solar shop

Gab

riel

/02

6188

57

Biogas Support ProgramStandardization

Although this guidebook focuses on elec-trical energy, valuable lessons can be learnedfrom a biogas development program in Nepal.The Biogas Support Program of the Nether-lands Development Organization (SNV) andthe Government of Nepal trains and licensesbiogas-digester suppliers. The program pre-scribes the exact dimensions and materials ofevery size system and enforces them throughfollow-up checks. The improved reliability ofthe biogas digesters helped catalyze marketpenetration to more than 20,200 customersbetween 1991 and 1997. Although the suppliersbenefited from the legitimacy they acquiredthrough participating in the program, not all ofthem appreciated the increased competition.By standardizing the design so stringently, thismethod has reduced the ability of differentsuppliers to compete with each other based ontheir design. By 1997, two of the licensed com-panies had closed their businesses because ofdiminishing returns. However, this methodprotected the consumer and led to a growth inboth the number of suppliers and the size ofthe market.

serve 66 households using 15-W compact fluo-rescent bulbs providing the same quantity oflumens.

Regulatory EnvironmentEntrepreneurs in some countries may

be faced with prohibitions or restrictions concerning the sale of power. Some countriesoffer concessions to private energy developers tobe the sole providers of electric services in a par-ticular area. Other countries provide a monopolyto a governmental or quasi-governmental utility.In some cases, the law requires electric serviceproviders to meter and charge on a consumptionbasis, or to set electric tariffs at a particular rate.

RE System Retailers

What Is an RE Retailer?Energy microentrepreneurs can take the

form of local renewable energy system retailers/installers. These operations may employ as fewas one to three employees, require under $5,000in working capital, and benefit from being basedclose to the rural market they serve. Such entre-preneurs can be crucial links in the renewableenergy product and financing delivery chain,particularly in markets not served by larger businesses. Many rural PV technicians haveemerged throughout the world who sell smallPV systems for $500 to $2,000 each and installperhaps 2 to 10 systems per month, managing to make a decent income from this service in theprocess.

Training, Licensing, andStandardization

Training, licensing, and standardization canhelp strengthen RE system retailers, the market’sacceptance of their product offerings, and theiraccess to financing.

The Role of Working CapitalMicrofinance in the form of working capital

loans can be important to the RE system retailerswho serve the rural markets. Solar retailers may

be able to sell single systems with little inventoryby obtaining credit from distributors, paying off the credit after receiving payment for eachinstalled system. The accumulated profits eventually allow the retailers to maintain a smallinventory of system components. Microfinanceloans for working capital may help accelerate RE retailers’ businesses, allowing them to keepinventory, expand their retail or storage spaces,ease transportation to reach clients, and equipthemselves more fully with tools and other materials.

Microfinance to rural customers of energymicroentrepreneurs can help expand the marketsize for RE products. The existence of a microfi-nance program for RE can also shift the burdenof providing end-user finance from the entrepre-neur to the microfinance institution.


Noor Web—Blending ApproachesIn Morocco, an innovative melding is

occurring between the three types of energyentrepreneurs. Noor Web is offering a fran-chise for renewable energy businesses, whichoffer services combining the three models pre-sented earlier. These businesses will offer bat-tery-charging services from their in-house PVsystems, retail solar home systems, lanterns,electric tools, appliances, and maintenancesupplies; they may also house a PV utilitycompany. In the future, such stores may offercomplementary income-generating activities,including movie showings and telecommuni-cations. The franchise approach offers busi-ness training, access to financing, andconnections to equipment suppliers to sup-port and strengthen the entrepreneurs.

CHAPTER 8. CASE STUDIES

IntroductionThis chapter presents six case studies. In

some cases, a description of a benificiary entre-preneur’s business is given. This is followed by adescription of the institutional framework thatempowered the entrepreneur to access renew-able energy. Each case highlights a differentinterpretation of the institutional approachesdescribed earlier in the guidebook. Combined,these cases provide valuable lessons that can beused in designing future programs to provideenergy access to microentrepreneurs.

Grameen Shakti: ProvidingEnergy Services within aMicrocredit Framework inBangladesh

Hanif is a sawmill operator in the small vil-lage of Dhalapara in central Bangladesh. Hanifearns $0.20 per cubic foot for sizing timberbrought to him by local villagers. He normally isable to size 200 cubic feet per day, earning $548

per month after the salary ofhis assistant and the cost offuel for the diesel-poweredmill are subtracted. In 1997,Hanif was able to take advan-tage of a Grameen Shakti program that provided solarenergy systems on credit. For $270, Hanif was able topurchase a 17-W PV systemincluding a PV panel, battery,charge controller, and twofluorescent lamps. The sys-tem enabled his business to

operate an additional four hours per day, increas-ing his cash flow by 50%. These profits are highenough to repay the system within two monthsand make his business prosper. He is now theowner of a second sawmill in a neighboring village.

Recognizing the need for electricity formicroentrepreneurs such as Hanif, the GrameenBank embarked on a renewable energy initiativein 1996 by starting an affiliate not-for-profit com-pany called Grameen Shakti. Grameen’s experi-ence with several institutional models illustratesthe comparative advantages of both the all-in-one and strategic-alliance models for end-userfinance of renewable energy systems. AlthoughGrameen’s solution most closely fits in the all-in-one category, the final outcome is a hybrid of thetwo approaches.

From the beginning, the Grameen Bankdecided to separate the renewable energy pro-gram from the banking program. The renewableenergy program needed to be able to stand on itsown and would not be allowed to adverselyaffect the sustainability of the bank itself. More-over, bank officials were too busy to conduct thetime-consuming job of sales, marketing, and sys-tem maintenance. As an independent company,Grameen Shakti capitalized on the bank’s ruralnetwork and reputation as it built its own net-work around the existing infrastructure.

Although Grameen Shakti had originallyintended to target bank members, it soon foundthat the most eager customers fell in a highereconomic class. The wealthier villagers showedthe greatest interest because they had greaterresources and could more comfortably afford thesystems. Also, they tended to be leaders in thecommunity. When they bought a system, the restof the village would come to look at it and decideif they wanted one. Grameen intuitively found it useful to support this process. Because the customer base of Grameen Shakti was to includethis group in addition to the bank members,Grameen Shakti needed to develop an additionalfinancing mechanism to serve these customers.


Figure 8.1. A sawmill inBangladesh gets electricityfrom PV.

Apr

il A

llder

dic

e, N

RE

L/

0261

8839

Realizing that they knew little about renew-able energy technologies, Grameen tried to bringprivate-sector expertise to the project. Two solarsuppliers based in Dhaka, the capital, werebrought in to design and sell the SHSs throughthe Shakti network and credit program. Throughthis process, the Shakti engineers became famil-iar with the technology. It soon became apparentthat Shakti could lower the cost of the systems by putting their own engineers in the field to dosales, installation, revenue collection, and main-tenance full time. Grameen Shakti used thebank’s approach of hiring low-cost, minimallyeducated labor, and training them on the job.This labor is much less expensive than the uni-versity-educated and city-based engineersemployed by the private-sector suppliers. More-over, this approach sidestepped the expense oftravel from Dhaka to the village for every main-tenance call.

The Grameen Bank experience is constantlyused as a reference in Shakti’s development.Relying on their experience with scaling up thebank’s branch network, Grameen Shakti did nottarget the national market from the beginning.The viability of the Shakti program, like that ofthe bank, depends on the existence of the ruralsales and service network. In areas where thatnetwork did not yet exist, Shakti did not adver-tise systems. Rather, Shakti targeted five smallregions of the country, within a day’s travel from each of their unit offices. Profits from thoseareas will fuel new units in other areas as salesincrease.

In the Bangladesh political environment,removing an SHS from a poor villager’s housemay bring down negative publicity on theGrameen name. In one particular instance inwhich a Grameen Shakti customer was unable torepay, Grameen Shakti used a mechanism thatGrameen Bank has used with other loans in thepast; it transferred the SHS and the repaymentschedule to another member of the community.When a Grameen Bank member suffers a setbackthat makes repayment difficult, Grameen Bankusually tries to transfer the loaned item toanother member of the group. In this way, thecredit of the group remains strong, and the

group retains the benefit of the income-generat-ing item.

By 1999, Grameen Shakti had sold more than1,000 SHSs from 10 unit offices. The organiza-tion’s initial successes and links with the strongMFI helped to attract $750,000 in investmentfrom the IFC’s Small and Medium EnterprisesProgram in 1997. In addition to these commercialsolar sales operations, Grameen Shakti alsodeveloped pilot projects for activities that fallwithin its mission of developing energyresources for rural microentrepreneurs. Onesuch major research effort was the developmentof microenterprise wind power zones, whichwere discussed in Chapter 6. These microenter-prise zones provide 24-hour AC power on a fee-for-service basis to entrepreneurs who carry outelectricity-utilizing enterprises on the premises.Systems were installed beginning in November1998.

Global Transition Group: Renewable Energy for andthrough Microenterprises

Electricidad del SolElectricidad del Sol is a PV retail business

in Partido, Dajabon, in the northwesternDominican Republic. Teofilo Cepeda, its


Figure 8.2. Training of Haitiansolar technicians

Ene

rsol

Ass

ocia

tes,

Inc.

/02

6188

47

founder, proprietor, and sole full-time employee,makes a living selling stand-alone PV systems to rural customers, both microenterprises andhouseholds. Along with offering a variety of PV-system sizes for different loads, Electricidad delSol is able to offer access to third-party financingfor PV customers through the company’s linkagewith the Dominican NGO Association for theDevelopment of Solar Energy, Inc. (ADESOL).

Electricidad del Sol sells systems with abouta 20% gross margin. With 50-watt systems pricedat around $800 and a low overhead, Cepeda canmake a good living selling two to six systemsmonthly, with supplemental income from cattle-raising. Between 1988 and 1998, Electricidad delSol sold over 500 systems.

ADESOLAlthough many of Electricidad del Sol’s

clients have paid cash, consumer financing hasplayed an important role in catalyzing the mar-ket and extending the microenterprise’s reach.That financing has generally come fromADESOL , an organization that promotes innov-ative energy solutions for nonelectrified zones of the Dominican Republic. The strength of itsefforts, particularly in the field of PV, comes fromits support of a network of independent PV

microenterprises such as Electricidad del Sol. By financing the individual household andsmall-business customers of the microenter-prises through those same enterprises, ADESOLhas sought to economically and efficiently joinproduct supply and third-party financing to catalyze microenterprises.

Since its conception, financing has been anintegral part of ADESOL’s mission. The organi-zation began in 1984 as a small communitygroup—Dominican Families for Solar Energy—organized to seek financing for PV system acquisition. The families used seed money fromthe local United States Agency for InternationalDevelopment (USAID) mission to start a revolving loan fund to finance initial purchases.ADESOL, in its original form and later as anorganized nonprofit, has always worked closelywith Enersol Associates, Inc., a U.S.-based non-profit organization whose founder introducedthe first rural lighting system that led to the creation of ADESOL.

Electricidad del Sol’s Cepeda has beeninvolved in ADESOL since its expansion beyondthe small community group, as a board memberand now as president of the board, which is com-posed chiefly of representatives from differentPV microenterprises. ADESOL works closelywith the network of small, local PV enterprises—the Solar Network—which provide a crucialproduct-supply link between importers/distrib-utors and the rural customer base. Many of theenterprises in the country have formed as aresult of Enersol/ADESOL training activities,which focus on developing microenterprises andon creating supportive environments within theNGO and government communities. This tech-nical training has led to the creation of approxi-mately 15 independent microenterprises. Thesesmall businesses often have only one to threeemployees, but are well-positioned to serve localrural markets. The businesses procure equip-ment from any of the country’s four to five dis-tributors of PV components and sell complete,installed, and guaranteed systems to householdsor small businesses for lighting, entertainment,and other electrical energy needs.


Figure 8.3. ADESOL-supported RE retailerbusiness with wind turbine

Ene

rsol

Ass

ocia

tes,

Inc.

/02

6188

46

ADESOL’s limited amounts of consumerfinancing help support microenterprises. Thebusinesses in the Solar Network access ADESOLcredit for their customers and serve as financialintermediaries—qualifying customers, process-ing loan agreements, charging down payments,and collecting monthly payments after installa-tion. New member businesses have access tosmall amounts of ADESOL consumer financinginitially, then build up their access with a trackrecord of successful deployment and recovery of financing.

ADESOL has tailored its financing to localconditions. In some respects, the terms of theend-user financing match those of other types offinancing the rural customers might be able toaccess. The interest rates, reflecting concernsabout devaluation of the Dominican peso, areoften as high as 2.5% per month over the originalbalance—an implied rate of almost 50% for atwo-year loan. The term of the loans is up to 24months—longer than the same customers couldtypically access for other consumer items such asdomestic appliances. ADESOL customers signcontracts indicating that the systems can beremoved for nonpayment, yet requires no otherguarantee (unlike other lenders). The success ofADESOL’s financing, even at high interest rates,demonstrates the significant value of financing

in rural markets, as well as the high cost of capi-tal for would-be rural customers for PV.

Financing from ADESOL has played a crucialand successful role in extending the reach andincreasing the business experience of the SolarNetwork microenterprises, particularly in theearly stages when clients are less inclined to riskinvesting because of unfamiliarity with the tech-nology. Donations or loans from institutionssuch as USAID, the Government of the Nether-lands, the Global Environment Facility (GEF),and various U.S. foundations have allowedADESOL to finance systems for more than 600households and microenterprises through theSolar Network. That financing has accompanieda much greater number of cash sales by the SolarNetwork and other companies: the microenter-prises that ADESOL works with have installedmore than 5,000 systems since the mid-1980s,while the total for the Dominican Republic as awhole is approximately twice that figure.

Soluz DominicanaAn outgrowth of the original model micro-

enterprise involved with ADESOL is now one ofthe country’s leading RE companies, SoluzDominicana, S.A. This company is implement-ing an important innovation by linking financingand product supply. Based in the north-coastprovince of Puerto Plata, it offers a PV fee-for-service option to rural microenterprises andhouseholds in Puerto Plata and two neighboringprovinces. Customers pay set monthly fees forservice for any of several complete PV systempackages; the company maintains ownershipand responsibility for maintenance and repairs.By late 1998, Soluz Dominicana was servingalmost 1,800 PV fee-for-service customers.

Soluz Dominicana’s customers include arange of microenterprise types, including manysmall country stores using the energy for light-ing, radio and television, thus helping them toattract customers during longer working hours.Soluz Dominicana has also introduced a PVrefrigerator package, to meet increasing portionsof the stores’ energy needs with renewableenergy. In some areas, the fee-for-service or


Figure 8.4. Enersol supports PV for coffeecooperative members in Honduras.

Ene

rsol

Ass

ocia

tes,

Inc.

/02

6188

45

retailed PV systems power customers’ cellularphones and blenders, products which can easilytranslate into income generation. Through itswholesale activity, Soluz Dominicana is amongthe distributors supplying system componentsto PV system installers in other regions.

Soluz Dominicana has served as a model foroperations elsewhere. The company’s parent,SOLUZ, Inc., launched a similar operation innorthwestern Honduras in 1998, serving ruralmicroenterprises and households through a PVfee-for-service offering. Soluz Dominicana’s keypersonnel have been involved in ramping up theHonduran enterprise to serve large numbers ofrural customers.

Enersol, SOLUZ, and a joint-venture consult-ing firm together form the Global TransitionGroup, an organizational alliance committed to the global transition to sustainable energythrough a variety of rural initiatives and innovations.

Lessons Learned• Microenterprises: Microenterprises play keyroles in the growth of renewable energy use.Small PV retailers can be crucial links in theproduct supply chain between importers and distributors in larger cities and the rural market.

Where qualified, retail microenterprises can alsobe effective conduits for consumer financing, acting as financial intermediaries for client quali-fication and payment collection. Microenter-prises can also be important, early adopters ofPV technology because of the more immediatereturn on their investments in higher-qualityenergy services.

• Sustainability: ADESOL and Enersol haveconsistently emphasized full-cost recovery infinancing to make the most efficient use of scarcefunds and help attract more commercial moneyto the financing effort. Working directly throughlocal microenterprises has helped strengthenthose businesses’ ability to supply systems andoperate their businesses responsibly.

• NGO All-in-One Financing: In some cases,NGOs that have set up revolving credit fundswith help from ADESOL have used them inways that have undercut, rather than strength-ened, local PV microenterprises. In particular,this undercutting has occurred when the NGOsused grant funds to subsidize marketing, sales,and installation of the PV systems, rather than offering just financing and promotion. Thesepractices appear to risk hampering the develop-ment of the local market as a whole.

• Fee-for-Service: Soluz Dominicana’s fee-for-service strategy can be an effective way tocombine product supply and financing within a commercial framework, bringing the necessarycapital to bear to reach a significant portion of unelectrified rural microenterprises andhouseholds.19

Winrock International:Community-Based Power forMicroentrepreneurs inIndonesia

An onion grower in Indonesia was accus-tomed to working 1,040 hours per season, hauling water to irrigate his crop. These effortsproduced a crop valued at $550. Using a wind-powered community water pump, this farmerwas able to increase his crop and his income


Figure 8.5. SOLUZ customers in Honduras sewingunder light from a rented PV system

Paul

Wor

mse

r/02

6188

51

fourfold and reduce his labor to 100 hours perseason. In return for the water service, the farmerpays a fee of $0.10 per cubic meter of water usedto the community committee that manages thewater-pumping system. This amounts to about$40 per month in expenditures during the six-month dry season. His profit of more than $1,400per season makes the cost worth it, particularlyfor his children, who can now attend schoolrather than work in the fields.

This community wind pump and nine othercommunity-based wind energy systems weremade possible through a market developmentinitiative of Winrock International, Wind forIsland and Nongovernmental Development(WIND).

Policy FrameworkThe purpose of the WIND project is to

strengthen the local capability to adapt wind-based energy technologies to numerous applica-tions. The project endeavors to build a sustainedinterest in renewable energy and the potentialfor economic development that it can bring to arural area. As the microenterprises build theircapability to utilize renewable energy, they cre-ate a market for future renewable energy devel-opment. By demonstrating that the cost of thesystems can be recovered through end-user fees,project managers hope to attract private-sectorinvestments in energy enterprises. Private-sectordevelopment of renewable energy would createa sustainable means of providing power to fuellong-term rural economic development.

FundingUSAID provided funding to Winrock Inter-

national to develop 10 windpower sites inIndonesia as part of its contribution to the GEF.Winrock was the ideal candidate based on itslong experience working in the region and theexistence of nearby Winrock programs that alsosupport and develop microenterprise.

Institutional MechanicsAs of February 1999, nine community-oper-

ated wind energy systems had been installed.Each system has a working group, made up oflocal technicians who carry out the routine main-tenance and customer service tasks. When possi-ble, an NGO is involved in the project to conductthe revenue collection and fund the workinggroup. The end users are responsible for a ser-vice fee, which is metered according to energyusage or volume of water. The NGO assumesresponsibility for revenue collection and receives15% of the fees as operating costs. The remainderof the fees are put in a maintenance account.Once the account reaches a certain amount, thefunds are used to expand the system in a mannerthat the community decides. In a few situations,an NGO could not be identified to assumeresponsibility for the systems. In those cases, acommunity committee is formed to assume theresponsibility. In general, it is easier for an NGOor a committee to collect payments rather thanan individual because in these villages, it tendsto be culturally inappropriate for an individualto press friends or family for payment, whereasan NGO is sufficiently impersonal to completethe task.

Technical SystemsThe systems use 10-kW and 1.5-kW Bergey

Windpower Company, Inc., energy systems.Each system includes a wind turbine, at least oneinverter, a diesel backup, and a battery bank.

Applications• Irrigation—Six of the sites use wind energy forirrigation. In these cases, entrepreneurs use thewater to diversify their agricultural activities toinclude high-priced vegetables, citrus, or lumber,or to merely increase their present activities. Thecitrus growers had access to a microenterpriseassistance program, which taught them to selectproducts for size and consistency, establish effi-cient transportation links to the urban market,improve the freight packaging, and develop abrand name for the produce. One vegetable


grower increased her production and profit fivefold.

• Ice-making—Several entrepreneurs used theelectricity to make ice for sale to local fishermen.The availability of ice enabled the fishermen tostore their catch until the market demanded it.Fishermen are now able to avoid the middlemenwho took advantage of their lack of options, andnow sell to trawlers that take their products asfar as South Africa.

• Other Applications—One of the priorities ofthe WIND project was to develop a wide rangeof capabilities when applying renewable energy.Entrepreneurs use the systems for a wide varietyof applications from power tools to corn grind-ing to chick incubation. As these local communi-ties develop technical capacity in theseenterprises, they also increase their ability toreap economic growth from renewable energyresources.

Intermediate TechnologyDevelopment Group: FinancingMicro-hydro Entrepreneurs inPeru

The El Tinte cooperative in Peru producesfresh milk for a distribution company calledINCALAC. They have four cows and produceabout 500 liters of milk per day. Before theyinstalled their micro-hydro power plant, theymilked the cows by hand and carried the prod-uct to cool in the river. The inconsistent quality ofmilk this method produced resulted in a lowpurchase price of $0.06 per liter rather than thefull price of $0.11 per liter. The addition of energyhas improved the productivity of their enterprisein several ways. They use a refrigerator to con-trol the temperature of the milk, resulting inhigher quality and better hygiene, and a consis-tent sales price of $0.11 per liter. This provides anadditional income of $671 per month. As thetotal system cost $35,000, the additional incomeallows the cooperative to pay for the systemwithin five years. In addition, the cooperativehas reduced its labor expenditure by using elec-tric milking machines. The houses near the dairy

have all been electrified, and distant houses are able to charge 12-V batteries for domesticlighting. As a further benefit, the cooperativeinstalled a grain mill. The members save the costof transportation to the city and create a viablebusiness in their own community.

Revolving Credit FundEl Tinte was able to acquire its micro-hydro

power station through a loan from a fund set up by the IADB, and managed by IntermediateTechnology Peru (IT Peru). The rotating fund for micro-hydro power plants has funded 15 systems to date in rural Peru. The loans arerepaid in five years at 8% interest. The creditamount varies from $10,000 to $50,000. The fundis capitalized with $400,000 at a 1% interest rateover 25 years plus a technical assistance grant.ITDG is currently seeking financing to expandthe fund, as demand exceeds the current avail-ability of funds.

Technical AssistanceITDG has done significant research in micro-

hydro power stations. Because of ITDG’s highlevel of technical sophistication, it is able to pro-vide technical assistance in designing andinstalling the system for the entrepreneurs.

Applications• Battery Charging—Several of the micro-hydroplants have decided to offer battery-chargingservices to their communities. They usuallycharge the same or a lesser price for the servicethan is charged in the nearest electrified town.Local villagers save not only on the service pricebut also on the substantial time and cost of transportation.

• Carpentry Workshop—Many of the micro-hydro plants use the electricity for some sort ofworkshop (e.g., carpentry or blacksmithing).One carpenter converted a diesel-poweredworkshop to micro-hydro, powering a circularsaw, drill, planer, and a small 600-W generatorfor lighting.


• Grain Grinding—Grain grinding can beaccomplished using the motive power of micro-hydro without converting to electricity.

• Minigrids—One of the entrepreneurs providespower to 30 families in the vicinity of his station.This entrepreneur controls the load to his cus-tomers through current-limiting fuses that dis-connect at 150 W. Income from this enterprise, in addition to battery charging, allows this loanto be repaid within five years.

Teotonio Vilela Foundation(FTV): Franchising PV PowerEntrepreneurs in NortheastBrazil

The Luz do Sol project provides resources formicroentrepreneurs in the remote rural commu-nities of northeastern Brazil, allowing them tostart their own solar battery-charging stations.This large FTV program works somewhat like afranchise, with Luz do Sol providing a businessplan and training for the entrepreneurs, as wellas access to financing and equipment. A key ben-efit of the project will be the creation of a viablecommercial energy market where none previ-ously existed, and thus increased income for thefamilies of microentrepreneurs and the potentialfor more new microenterprises. Through thisand other projects, FTV has become one ofBrazil’s most experienced institutions in the fieldof renewable energy. FTV is a private, nonprofitfoundation established in 1984 in Brazil. FTV’sstrengths are the staff’s technical abilities andexpertise in the installation and repair of solarequipment. The institution has also demon-strated an ability to effectively organize low-income rural communities around the issue ofrenewable energy, while maintaining a businessapproach to their activities.

The Actors• The Inter-American Development Bank—In mid-1998, FTV requested financing and tech-nical cooperation funding from the IADB for theLuz do Sol program in order to introduce and

strengthen solar energy service microenterprisesin rural, northeastern Brazil. Under this pro-posal, FTV is specifically prohibited from becom-ing a financial intermediary; nevertheless, it mayact as the conduit between finance and equip-ment sources and solar energy microentrepre-neurs at the community level. FTV arrangesfinancing for microentrepreneurs through theNortheast Bank of Brazil (BNB) and the GoldenGenesis Company (GGC). By maintaining theinvolvement of formal financial intermediaries,FTV reduces its risk and creates favorable condi-tions for expanded financing in the future.

• Northeast Bank of Brazil—BNB has made$10.4 million ($U.S.) available to the Luz do Solproject, sourced from a special government lineof financing targeted to promote renewableenergy. As of May 5, 1998, the rate payable by the


Figure 8.6. A battery-charging station bringshousehold lighting and television to thesurrounding community members.

ITD

GPe

ru/

0261

8841

Figure 8.7. A Peruvian carpentry workshop

ITD

GPe

ru/

0261

8835

microentrepreneur on the BNB line of credit was11.1% annually, compared to the open-marketrate of 19.5%. BNB finances 54% (or $14,850[$U.S.]) of each microentrepreneur’s initialequipment investment. The loan is amortizedover 12 years, including an initial grace period ofsix months during which interest is payable atthe end of the third and sixth months.

• Golden Genesis Company—FTV has alsoarranged up to $8.1 million ($U.S.) in financingfrom the GGC. GGC will finance the remaining$12,650 ($U.S.) of the initial investment andcharges the microentrepreneur a fixed rate of11% per year. GGC pays 2% to BNB as a fee forfunds management. GGC financing is amortizedover 5.5 years, including an initial grace periodof six months during which interest is payable atthe end of the third and sixth months.

GGC supplies all of the solar energy equip-ment. FTV, in turn, installs the battery-chargingsystems on the property of the microentrepre-neur and the electrical fixtures in the homes ofusers. GGC financed the start-up of the Luz do Solprogram in 1996–1997, and pays FTV $2,641($U.S.) for each system installed. This fee-for-service payment is made in return for FTV’s services of identifying and mobilizing communi-ties, establishing microenterprises, providingbusiness and technical training to microentre-preneurs, and monitoring the finances of theprogram.

The MarketIn the three states of Alagoas, Bahia, and Per-

nambuco, along with the northern portion ofMinas Gerais, there are more than 1.1 millionproperties without electricity. Grid electrical ser-vices for these rural areas are unlikely in the nearfuture due to the combination of low industrial-ization, poverty, dispersed population, and difficult terrain. In this semi-arid region of north-eastern Brazil, small farms and businesses arevital to the survival of the majority of families. InBahia, for example, microenterprises and smallbusinesses generate 45% of the state’s grossdomestic product and 75% of employment.

Selecting CommunitiesPrior to the first installation, FTV carried out

significant work identifying and qualifying com-munities.

A community must meet the following crite-ria to be considered for the Luz do Sol project:

• It must be at least 3 kilometers from the elec-tricity grid and have no electricity supply.

• It must indicate a willingness and ability to financially support an energy service micro-enterprise. FTV makes this determinationthrough meetings with family leaders from thecommunity.

• A minimum of 50 families must be willing andable to pay a $10 ($U.S.) monthly energy bill inorder for the microenterprise to be commerciallyviable.

• Finally, FTV asks community members toselect one person to manage the new enterprise.This person becomes the energy service microentrepreneur.


Figure 8.8. A battery-charging station

SGA

Ene

rgy

Ltd

./PI

X07

906

After screening and prior to establishing themicroenterprise, FTV requires at least 50 of theprospective energy customers to pay $10 ($U.S.)each, which is used as a down payment on theenergy equipment. A single photovoltaic solarsystem can provide enough energy for 50 homesand costs $27,500 ($U.S.).

Viability of the MicroenterpriseIn the Luz do Sol program, microenterprises

provide battery charging to end users under afee-for-service model. Each customer pays $10($U.S.) per month for as many as four batterycharges, giving the entrepreneur a $500 ($U.S.)base monthly income. If a user wishes to have abattery charged more than four times, she must pay an additional $2 ($U.S.) per charge. (Typicalexpenditures for candles, kerosene, diesel, andbatteries are $5 to $8 each month. These costshave been reduced, or in some cases, eliminatedby the solar energy service.)

ChallengesA low loan repayment rate by microentrepre-

neurs was considered the most significant risk tothe long-term viability of the Luz do Sol project.Current and potential financing agents, includ-ing banks and energy suppliers, will not financethe microentrepreneurs if they do not have confi-dence that the loans will be repaid. So far, thethree principal causes for poor repayment havebeen technical problems with the equipment,shortcomings in the financing model, and thedrought that has damaged the rural economy inthe region.

The Learning CurveAs of 1998, payments in arrears were 8.3% of

the outstanding BNB/GGC portfolio. (As mea-sured by amount of payments overdue dividedby the amount of loans outstanding [in therepayment phase].) FTV is considering adjust-ments to the Luz do Sol project in an effort toreduce the amount of payments in arrears to5.0%. These modifications include:

• Elimination of the grace period to instill thediscipline of monthly payments

• Creation of a written policy on sanctions forlate payment by microentrepreneurs

• Introduction of a flexible pricing scheme,which will allow the microentrepreneurs to earnhigher profits, depending upon the number ofusers

• Requirement of a greater number of "commit-ments to use" per community prior to the estab-lishment of a microenterprise, to safeguardagainst users dropping out.20

World Bank: StrengtheningRenewable Energy FinancialIntermediaries in Sri Lanka

Sri Lanka has developed a wide array ofoptions for end-user finance of solar home sys-tems. The history of the relative success and fail-ure of these mechanisms illustrates the pitfalls of end-user finance and demonstrates thatmicrofinance institutions may well be the mostsuitable entities to facilitate finance for ruralenergy services.

Government/Donor InitiativeIn Sri Lanka, efforts to provide credit to rural

consumers for the purchase of renewable energytechnology began in 1989. The government-owned People’s Bank, which has an extensivenetwork of branches in rural regions, agreed totarget rural consumers, who earn an average ofless than $50 per month (for the SHS investmentof $200). Approximately 40 loans were extended.The failure of this program to effectively reachpoor rural borrowers is believed to lie in generalapathy on the part of the branch staff towardsmall loans and wariness of a new technology.The gulf between the formal financial institutionculture and rural needs was too great to permiteffective energy dissemination.


The Energy Services Delivery ProjectIn 1996, a line of credit opened the door for

many types of renewable energy project devel-opers and participating credit institutions (PCIs)to provide solar home systems to the rural mar-ket. The World Bank’s Asia Alternative EnergyUnit and the Sri Lankan government funded theEnergy Services Delivery Project (ESD) in 1996.The $50–$55 million fund promotes the use ofrenewable energy in rural areas of Sri Lanka.Ten million is allocated specifically for the dis-semination of SHSs by providing financing forthe installation of 30,000 systems over five years.

A key component of the venture is financingfor consumers. In some cases, the project devel-oper includes an in-house financing unit toassess potential customers, provide loans to eli-gible buyers, and ensure that a system is in placefor collecting repayment. In other cases, the proj-ect developer forms a strategic alliance with aPCI to take care of the end-user financing. Byopening the door for nongovernmental organi-zations and private-sector entities to worktogether, several improvements were gainedover the government-bank-led program.

Private-Sector SHS VendorsCompanies that import or sell PV systems are

generally strong in technical, marketing, andafter-sales support. However, they lack experi-ence providing financing to end users. SolarPower & Light Company, which by 1999 hadinstalled 150 SHSs since June 1997, has its dealersserve as lenders and collection agents for loansto buyers. Another vendor, Alpha Thermal, hasinstalled 100 SHSs in a similar manner. Bothcompanies are finding it difficult to collect repayments from many customers.

One of the difficulties under this model is thevarying degree of ability and commitment eachdealer feels toward financing.

Energy Service CompaniesUnder this approach, an SHS is installed in

a household, but ownership is retained by theESCO. The customer pays a monthly fee for the

service of electricity. One key to the success of an ESCO is density; the ESCO has to operate inan area where customers are relatively closelylocated in order to provide adequate service economically.

In Sri Lanka, RESCO, part of the SELCO-USAnetwork, has already accessed the ESD fund toinstall 1,000 SHSs. A portion of the fund will beused to lend to end users and the other part tooperate as an ESCO.

Large Microfinance NGOSarvodaya Shramadana Society is one of the

largest NGOs in Sri Lanka. It has an extensiverural network and is involved in education,health care, and social, agricultural, financial,and energy-related activities. Sarvodaya RuralTechnical Services, the technical division of Sarvodaya, has been involved in SHS since itsinitial demonstration projects with the SolarElectric Light Fund in 1991.

Sarvodaya already has a rural lending pro-gram administered by the Rural Enterprises Program. These organizations are managed byvillage residents and provide microfinance foragriculture, home improvement, and small business.

Two divisions within Sarvodaya coordinateto implement the SHS project, the Rural Enterprises Program, and the Sarvodaya RuralTechnical Services. The Rural Enterprises Pro-gram negotiates with the PCI to secure the ESDfunding while Sarvodaya Rural Technical Ser-vices markets, installs, and services the SHS.Both divisions ensure that repayments are madeon time.

Private Finance CompaniesThe Finance Company (TFC) is a private

company that provides funds for consumergoods in rural areas. TFC has an extensiveregional network and operates in remoteregions. Currently, TFC continues to finance SHS through the local dealers of Solar Power & Light Company. Ironically, the financing ofSHS does not have the sanction of TFC’s head


office; the decision to finance was made by theregional offices. As such, it does not get muchpublicity. TFC’s management has expressedinterest in participating in the ESD, possibly with a private SHS vendor in the initial states.

Rural Cooperatives and BanksThe most prominent specialized rural lend-

ing organization in Sri Lanka is the Thrift andCredit Cooperative (SANASA). Established in1906, SANASA boasts more than seven millionmember households. The organization has threetiers (village cooperatives, regional centers, andthe country-level federation). A unique feature of SANASA is the autonomy the village-level cooperatives have in their operations. All the collected savings only get utilized in the village,except for the membership fees for the federa-tion. The federation, in turn, provides the finan-cial management systems, training, and otherinfrastructure inputs.

One of the latest developments withSANASA is the establishment of the SANASADevelopment Bank, which is a legitimate entityto access the ESD funds as a PCI. Recently, dis-cussions got under way to develop these areasbetween SANASA and the administration unit of the ESD.

Commercial BanksHatton National Bank (HNB) has started to

lend directly to SHS customers, with an SHSvendor supporting the marketing and technicalsides of the operation. The vendor, Solar Power& Light Company, has identified many inter-ested SHS customers from an area near an HNBbranch. HNB has agreed to lend to 10 customersas part of a pilot program. The potential cus-tomers have to be an HNB customer or open anaccount with the branch. Then, after the bankdoes the necessary credit evaluation, it willfinance 70% of the cost of the SHS for qualifiedcustomers.

As part of the ESD project, there is a $100grant per system provided by the GEF. Thisamount is to be held in the customer’s account

at the HNB branch until the loan is repaid, thusgiving the bank some financial guarantee whileserving as an incentive for the customer to paythe loan. This amount is returned at the end ofthe three-year period—which acts as a bonus for the customer, as part of it could be used toreplace the existing battery. The other option is to discount the capital cost of the SHS by the$100 initially.

Further, HNB secured a guarantee from SolarPower & Light Company, which ensures that thePV module will be repurchased by the companyin the event of a customer default.

Lessons from the Sri Lankan ExperienceWith many experiences still in the early

stages, it is difficult to draw concrete conclusionsfrom the Sri Lankan experience. However, sometrends stand out. The initial donor-led projectsdid not focus on establishing a sustainable mar-ket or on providing the customer with the sort ofattention that was needed to attract a significantnumber of users. This project depended on alarge urban bank to serve as a financial interme-diary. As the lending culture of private-financecompanies tends to be urban-oriented, suchinstitutions frequently view rural borrowers asoffering returns too small to be worth their atten-tion. Moreover, rural people may distrust the"urban formalities."

Private, supplier-led initiatives have hadmore success because they tend to work moreclosely with the villagers to provide reliable cus-tomer service. Moreover, their pricing policiesreflect market rates that foster sustainable mar-ket growth. These initiatives, however, oftenexperience difficulty in carrying out the func-tions of rural finance and cost recovery.

Sarvodaya, a microfinance NGO, has showngood progress by using its strength in both ruralfinance and technology transfer. Financeschemes are most successful when operated at a"grassroots" level with some central supervision.A "bottom-up" approach empowered the ruralcommunity to understand the technology as wellas manage the micro-credit programs.


Other rural finance institutions such as TFC, SANASA, and Hutton National Bank showpromise as being suitable financial intermedi-aries for rural energy. The success of these pro-grams will depend largely on the strength of thestrategic alliance they are able to form with theproject developers, and their united ability toconfront several obstacles. These include the following:

• The market is isolated in remote areas of thecountry.

• The cost of doing business in rural areas ishigh.

• The cost of SHS is relatively high for the targetrural market.

• The urban-based banking system is uncom-fortable lending in rural areas and for rural projects.

• PV technology is relatively new to the financialinstitutions, policy makers, and the market.21


REFERENCES

1. "Proceedings: Productive Uses of Electricity in Rural Areas." NRECA Conference: Dhaka,Bangladesh, November 15–19, 1982.

2. Fraser, B. J. "Microcredit: Big Gain on a SmallScale." Latinamerica Press. Lima: LatinamericaPress, Vol. 30, No. 6. February 19, 1998; p. 2.

3. Kittleson, D. "Productive Uses of Electricity:Country Experiences." Village Power Confer-ence, Washington, DC, October 1998.

4. Nelson, C., MkNelly, B., Stack, K., andYanovitch, L. Village Banking, The State of the Practice. New York: The Small Enterprise Education and Promotion Network and theUnited Nations Development Fund for Women, 1996; p. 14.

5. Ibid.

6. Johnson, S., and Rogaly, B. Microfinance andPoverty Reduction. Oxford: Oxfam, 1997.

7. Hatch, J. K. A Manual of Village Banking for Com-munity Leaders and Promoters. Washington, DC:FINCA, 1989.

8. Johnson, S. and Rogaly, B. Microfinance andPoverty Reduction, 1997.

9. Robinson, M. "Saving mobilization andmicroenterprise finance: the Indonesian experi-ence." In Otero, M., and Rhyne, E. (eds.), The NewWorld of Microenterprise Finance. London: Inter-mediate Technology Publication, 1994, quoted inJohnson, S., and Rogaly, B., Microfinance andPoverty Reduction, 1997.

10. Inter-American Development Bank, InternalDocument. "Promotion of Rural RenewableEnergy Microenterprises in the NortheastRegion of Brazil," 1998.

11. Geoghegan, T. and Allen, K. "InteractionMember Profiles 1997–8." Washington, DC:InterAction, 1998.

12. Ibid.

13. Ibid.

14. Lilley, A. "Challenges for Viable RESCOs."Village Power Conference, Washington, DC,October 1998.

15. Naidu and Arora; Pocantico Paper No. 2,Rockefeller Foundation, 1995.

16. Kittleson, D. "Productive Uses of Electricity:Country Experiences." Village Power Confer-ence, Washington DC, October 1998.

17. Ramani, K.V., "Financing Energy Services andIncome-Generating Opportunities for the Poor—A Case Study of Project ENSIGN." Workshop onInstitutional Co-operation for Solar Energy in the Mekong Riparian Countries, Hanoi, May1998.

18. IT Peru. "Energía para el Area Rural delPeru." Lima, Peru, 1998.

19. "Rural Electrification Based on Solar Energy."Small Grants Programme of the Global Environ-ment Facility, 1998; John Rogers, personal obser-vations, 1993–99.

20. Inter-American Development Bank, InternalDocument." Promotion of Rural RenewableEnergy Microenterprises in the NortheastRegion of Brazil," 1998.

21. Gunaratne, L. "Funding and RepaymentManagement of PV System Dissemination in Sri Lanka II." Workshop on Financial Services for Decentralized Solar Energy Applications II,Harare, Zimbabwe, October 1998.


BIBLIOGRAPHY

Microcredit/MicrofinanceBornstein, D. (1996) The Price of a Dream. NewYork: Simon and Schuster.

Christen, R. P. (1997) Banking Services for the Poor:Managing for Financial Success. Somerville, MA:ACCION International.

Fraser, B. J. (1998) "Microcredit: Big Gain on aSmall Scale." Latinamerica Press, Vol. 30 (6). Lima,Peru: Latinamerica Press, February 19.

Goetz, A. M. and Gupta, R. S. (1996) "Who Takesthe Credit? Gender, Power, and Control OverLoan Use in Rural Credit Programs inBangladesh." World Development. Vol. 24, No. 1;pp. 45–63.

Hatch, J. K. (1989) A Manual of Village Banking forCommunity Leaders and Promoters. Washington,DC: FINCA.

Holcombe, S. (1995) Managing to Empower: TheGrameen Bank’s Experience of Poverty Alleviation.Dhaka, Bangladesh: University Press Limited.

Holt, S.L. (1994) "The Village Bank Methodology:Performance and Prospects." In Otero, M. andRhyne, E., (eds.). The New World of MicroenterpriseFinance. London: Intermediate Technology Pub-lications, quoted in Johnson, S. and Rogaly, B.(1997) Microfinance and Poverty Reduction.Oxford, UK: Oxfam.

Jain, P. S. (1996) "Managing Credit for the RuralPoor: Lessons from the Grameen Bank." WorldDevelopment. Vol. 24, No. 1; pp. 79–89.

Johnson, S. and Rogaly, B. (1997) Microfinance andPoverty Reduction. Oxford, UK: Oxfam.

Levitsky, J. and Prasad, R. N. (1989) "CreditGuarantee Schemes for Small and MediumEnterprises." World Bank Technical Paper No.58, Industry and Finance Series. Washington,DC: The World Bank.

Nelson, C., MkNelly, B., Stack, K., and Yanovitch, L. (1996) Village Banking, The State of the Practice. New York: The Small Enterprise

Education and Promotion Network and theUnited Nations Development Fund for Women.

Olivares, M. (1989) "ACCION International/AITEC: A Methodology for Working with theInformal Sector." Somerville, MA: ACCIONInternational, Discussion Paper #1.

Otero, M. and Rhyne, E. (eds.). (1994) The NewWorld of Microenterprise Finance. London, UK: Intermediate Technology Publications.

Ramola, B. and Mahan, V. (1995) "Financial Ser-vices for the Rural Poor in India: Policy Issues onAccess and Sustainablity." Sustainable Bankingwith the Poor. Occasional Papers 6. Washington,DC: The World Bank.

Robinson, M. (1994) "Saving Mobilization andMicroenterprise Finance: the Indonesian Experi-enc." In Otero, M. and Rhyne, E. (eds.) The NewWorld of Microenterprise Finance (1994); quoted in Johnson, S. and Rogaly, B. (1997) Microfinanceand Poverty Reduction.

Srinivas, S. (1997) "Self-Employed Women’sAssociation (SEWA) of India: Paving the Way forWomen’s Economic Progress." Berkeley, CA:Women and Money.

Stearns, K. (1991) "The Hidden Beast: Delin-quency in Microenterprise Credit Programs."Somerville, MA: ACCION International, Discus-sion Paper #5.

The SEEP Network. (1995) Financial Ratio Analysis of Micro-Finance Institutions. New York:Pact Publications.

UNDP. MicroStart: A Guide for Planning, Startingand Managing a Microfinance Programme.

Webster, L. and Fidler, P. (eds.). (1996) The Infor-mal Sector and Microfinance Institututions in WestAfrica. Washington, DC: The World Bank,Regional and Sectoral Studies.

Yaron, J., Bejamin, McDonald, and Piprek, G.(1996) Rural Finance: Issues, Design, and Best Practices. Draft. Environmentally SustainableDevelopment Studies and Monographs Series.Washington, DC: The World Bank.


Microenterprise/Productive UsesAlmeyda, G. (1996) Money Matters: ReachingWomen Microentrepreneurs with Financial Services.Washington, DC: Inter-Amercian DevelopmentBank.

Aryeetey, E., Baah-Nuakoh, A., Duggleby, T.,Hettige, H., and Steel, W. F. (1994) "Supply andDemand for Finance of Small Enterprises inGhana." World Bank Discussion Papers, No. 251.Africa Technical Department Series. Washington,DC: The World Bank.

Canadian Council for International Cooperation.(1996) "Micro-Enterprise Lessons. Questioningthe Panacea: Lessons from a CCIC Learning Circle on Micro-Enterprise Development."Ottawa: Canadian Council for InternationalCooperation. September 1996. Available on theWeb at http:// www.web.net/ccic-ccci/policy/doc13.html.

Creevey, L. (1996) Changing Women’s Lives andWork: An Analysis of the Impacts of EightMicroenterprise Projects." London, UK: Inter-mediate Technology Publications.

Flowers, L. and Phillips, K. (1995) "RenewableEnergy-Based Village Power and EconomicDevelopment." Proceedings: APEC Workshop onRenewable Energy. Prepared by the Pacific Inter-national Center for High Technology Research(PICHTR). September.

Kittleson, D. (1998) "Productive Uses of Electric-ity: Country Experiences." Village Power Confer-ence, Washington, DC, October.

Kropp, E. (1992) "Financial Systems for the Benefit of the Rural Poor: Appropriate FinancialSystems in Suport of Microenterprise Develop-ment." Report of the International Conference onSavings and Credit for Development: Klarskovgard,Denmark, 28–31 May 1990. New York: UnitedNations; pp. 155–166.

NRECA. (1982) "Proceedings: Productive Uses of Electricity in Rural Areas." Dhaka, Bangladesh,November 15–19.

Ramani, K.V. (1998) "Financing Energy Servicesand Income-Generating Opportunities for thePoor—A Case Study of Project ENSIGN." Work-shop on Institutional Co-operation for SolarEnergy in the Mekong Riparian Countries,Hanoi, May.

USAID. (1995) "Proceedings: Taller Sobre Aplicaciones Productivas de la Energía Eólica yFotovoltaica." La Paz, Mexico, October 9–13.

Financing Renewable EnergyAnnan, R. (1997) "Realities of Sustainable Devel-opment." In Proceedings of Village Power ‘97, April 14-15, Arlington, Virginia. Golden, CO:National Renewable Energy Laboratory, pp. 3–5.

Annan, R. H., Malbranche, P., and Hurry, S.(1992) "Strategy for Disseminating/ Commer-cialising Proven Renewable Energy Technolo-gies." Prospects for Photovoltaics. New York:Advanced Technology Assessment System.Department of Economics and Social Develop-ment, United Nations. Issue 8; pp. 153–159.

Arvidson, A. (1995) "From Candles to ElectricLight: Can Poor People Afford Solar Electricity?"Renewable Energy for Development. Vol. 8, No. 4.Available on the Web at http://www.sei.se/red/red9512d.html.

Cabrall, A., Cosgrove-Davies, M., and Schaeffer, L. (1996) Best Practices for PhotovoltaicHousehold Electrification Programs: Lessons fromExperiences in Selected Countries. Washington,DC: World Bank Technical Paper No. 324. AsiaTechnical Department Series.

Cecelski, E. (1998) "Gender and Poverty Chal-lenges in Scaling up Rural Electricity Access."Paper prepared for Village Power ‘98, Washing-ton, DC.

Clement-Jones, R. and Mercier, J. (1995) Towards aRenewable Energy Strategy for Sub-Saharan Africa,Phase 1: Photovoltaic Applications. Paper No. 9.The World Bank Environmentally SustainableDevelopment Division, Africa Region.


Gregory, J., Silveira, S., Derrick, A., Conley, P.,Allinson, C., and Paish, O. (1997) FinancingRenewable Energy Projects: A Guide for Develop-ment Workers. London, UK: Intermediate Tech-nology Publications, and The StockholmEnvironment Institute; 157 pp.

Gunaratne, L. (1998) "Funding and RepaymentManagement of PV System Dissemination in SriLanka II." Workshop on Financial Services forDecentralized Solar Energy Applications II,Harare, Zimbabwe.

IT Peru. (1998) "Energía para el Area Rural delPeru." Lima, Peru.

Lilley, A. (1998) "Challenges for Viable RESCOs."Village Power Conference, Washington, DC.

Lovejoy, D. (1992) "Electrification of Rural Areas by Solar Photovoltaics." Prospects for Photovoltaics. New York: Advanced TechnologyAssessment System. Department of Economicsand Social Development, United Nations.Issue 8, Autumn; pp. 139–152.

Maldonado, P. and Márquez, M. (1996) "Renew-able Energies: An Energy Option for SustainableDevelopment." Renewable Energy: Energy, Efficiency and the Environment, World RenewableEnergy Congress, Denver, Colorado, 15–21 June1996. A.A.M. Sayigh, ed. New York: PergamonPress; Volume II; pp. 1072–1075.

Northrop, M. F., Riggs, P. W., and Raymond, F. A.(1996) Selling Solar: Financing Household SolarEnergy in the Developing World. Workshop at thePocantico Conference Center of the RockefellerBrothers Fund, October 11–13, 1995. New York:Rockefeller Brothers Fund, Inc., Pocantico PaperNo. 2.

Twiddell, J. and Brice, R. (1992) "Strategies forImplementing Renewable Energy." Energy Policy,Vol. 20, No. 5, May; pp. 464–477.

Van Nes, W. and Lam, J. (1997) "Final Report onthe Biogas Support Programme (Phase I and II);Development through the Market." Kathmandu,Nepal: Biogas Support Programme; June.

Renewable Energy TechnologyBarlow, R., McNelis, B., and Derrick, A. (1993)"Solar Pumping: An Introduction and Update on the Technology, Performance, Costs and Economics." New York: World Bank TechnicalPaper Number 168.

Cowen, W.D., Borchers, M.L., Eberhard, A.A.,Morris, G.J., and Purcell, C. de V. (1992) RemoteArea Power Supply Design Manual. 2 vols. CapeTown, South Africa: Energy for DevelopmentResearch Center, University of Cape Town.

Cross, B., ed. (1995) The World Directory of Renewable Energy Suppliers and Services 1995. Lon-don, United Kingdom: James & James SciencesPublishers, Ltd.

Duffie, J. A. and Beckman, W.A. (1991) SolarEngineering of Thermal Processes. 2nd ed. NewYork: John Wiley & Sons, Inc.

Fowler Solar Electric, Inc. (1991) Battery Book forYour PV Home. Worthington, Massachusetts.

Gipe, P. (1993) Wind Power for Home and Business.White River Junction, VT: Chelsea Green Pub-lishing Company.

Hankins, M. (1993) Solar Electric Systems forAfrica: A Guide for Planning and Installing SolarElectric Systems in Rural Africa, rev. ed. London,United Kingdom, and Harare, Zimbabwe: Com-monwealth Science Council & AGROTEC.

Hankins, M. (1993) Solar Rural Electrification inthe Developing World, Four Country Case Studies:Dominican Republic, Kenya, Sri Lanka, Zimbabwe.Washington, DC: Solar Electric Light Fund.

Hunter, R. and Elliot, G., eds. (1994) Wind-DieselSystems: A Guide to the Technology and its Implementation. Cambridge, UK: Cambridge University Press.

Jimenez, A. C. (1998) Optimal Design of Stand-Alone Power Systems for Remote Rural Health Facil-ities. Master’s Thesis; Fort Collins, CO: ColoradoState University.


McNelis, B., Derrick, A., and Starr, M. (1992)Solar Powered Electricity: A Survey of PhotovoltaicPower in Developing Countries. London: Interme-diate Technology Publications.

Nelson, V. (1996) Wind Energy and Wind Turbines.Canyon, TX: Alternative Energy Institute, WestTexas A&M University.

Sandia National Laboratories. (1995) Stand Alone Photovoltaic Systems: A Handbook of Recommended Design Practices. Report # SAND87-7023, Albuquerque, NM: Sandia National Laboratories.

Solar Energy International. (1998) PhotovoltaicDesign Manual. 2nd ed. Carbondale, CO: SEI.

Special ThanksDoug Barnes, World Bank

Todd Bartholf , Econergy International Corporation

Dipal Barua, Grameen Shakti

Brooks Browne, Environmental EnterprisesAssistance Fund

Kathleen Campbell, NREL

Christine Eibs, Singer E&Co

Larry Flowers, NREL

Charlie Gay

Lara Goldmark, Inter-American DevelopmentBank

Lalith Gunaratne

Richard Hansen, Global Transition Consulting

Hank Jacklin, UNDP, Special Unit on Microfinance

Tony Jimenez, NREL

David Kittleson, NRECA Bolivia

Peter Lilienthal, NREL

Art Lilley

Kendall Logan, UNDP, Special Unit on Microfinance

Susan McDade, UNDP, Sustainable Energy andEnvironment Division (SEED)

Ellen Morris, UNDP, SEED

KV Ramani

Chris Rovero, Winrock International

Jerome Weingart

Ron White, NREL


GLOSSARY

Alternating Current (AC)—Electric current inwhich the direction of flow oscillates at frequent,regular intervals.

Altitude—The angle between the horizon (a hor-izontal plane) and the sun, measured in degrees.

Amorphous Silicon—A thin-film photovoltaic(PV) silicon cell having no crystalline structure.

Ampere (amp)—Unit of electric current measur-ing the flow of electrons per unit of time.

Ampere-Hour (Ah)—The quantity of electricalenergy equal to the flow of current of one amperefor one hour.

Angle of Incidence—Angle that references thesun's radiation striking a surface. A "normal"angle of incidence refers to the sun striking a surface at a 90° (or perpendicular) angle.

Annualized Cost—The equivalent annual costof a project if the expenses are treated as beingequal each year. The discounted total of theannualized costs over the project lifetime is equalto the net present cost (NPC) of the project.

Array—A mechanically integrated configurationof modules together with support structure,designed to form a DC power-producing unit.

Azimuth—Angle between true south and thepoint directly below the location of the sun, measured in degrees.

Battery—Two or more "cells" electrically con-nected for storing electrical energy.

Battery Capacity—Generally, the total numberof ampere-hours that can be withdrawn from afully charged cell or battery. The energy storagecapacity is the ampere-hour capacity multipliedby the battery voltage.

Battery Cell—A galvanic cell for storage of elec-trical energy. After being discharged, this cellmay be restored to a fully charged condition byan electric current.

Battery Cycle Life—The number of cycles, to aspecified depth of discharge, that a cell or batterycan undergo before failing to meet its specifiedcapacity or efficiency performance criteria.

Battery Self-Discharge—Self-discharge is theloss of otherwise usable chemical energy byspontaneous currents within the cell or batteryregardless of its connections to an external circuit.

Battery State of Charge—Percentage of fullcharge or 100% minus the depth of discharge(see depth of discharge).

Charge Controller—A device that controls thecharging rate and/or state of charge for batteries.

Charge Rate—The current applied to a cell orbattery to restore its available capacity.

Concentrator—An optical component of a pho-tovoltaic array used to direct and increase theamount of incident sunlight on a solar cell.

Conversion Efficiency (Cell)—The ratio of theelectric energy produced by a photovoltaic cell(under full sun conditions) to the energy fromincident sunlight on the cell.

Cost of Energy—The cost per unit of energy that,if held constant through the analysis period,would provide the same net present revenuevalue as the net present cost of the system.

Crystalline Silicon—A type of PV cell madefrom a single-crystal or polycrystalline slice ofsilicon.

Current—The flow of electric charge in a con-ductor between two points having a difference inpotential (voltage).

Cut-In Speed—The minimum wind speed atwhich a particular wind turbine will produceenergy.

Cut-Out Speed—The speed at which a particu-lar wind turbine will reduce its power output inorder to protect itself from excessive windspeeds. Most small wind turbines do this by tilt-ing out of the wind.


Days of Autonomy—The number of consecutivedays a stand-alone system will meet a definedload without energy input.

Deep-Cycle Battery—Type of battery that can bedischarged to a large fraction of capacity manytimes without damaging the battery.

Demand-Side Management—Controllingenergy consumption through management ofthe size or efficiency of the loads, and the timeduring which they are allowed to operate.

Depth of Discharge (DOD)—The amount ofampere-hours removed from a fully charged cellor battery, expressed as a percentage of ratedcapacity.

Design Month—The month having the lowestRE energy-production-to-load ratio.

Direct Current (DC)—Electric current flowing inone direction.

Discharge Rate—The current removed over aspecific period of time from a cell or battery.

Disconnect—Switch gear used to connect or dis-connect components in a stand-alone system.

Duty Cycle—The ratio of active time to totaltime. Used to describe the operating regime ofappliances or loads in stand-alone systems.

Efficiency—The ratio of output power to inputpower, expressed in percent.

Electric Circuit—A complete path followed byelectrons from a power source to a load and backto source.

Electric Current—Magnitude of the flow of electrons.

Electrolyte—A conducting medium in which the flow of electricity takes place by migration ofions. The electrolyte for a lead-acid storage cell is an aqueous solution of sulfuric acid.

Energy Entrepreneur—Owner of a local busi-ness that sells energy services or products to thesurrounding community.

Energy Services Company (ESCO)—A com-pany that provides energy services on a fee-for-service basis, retaining ownership of some or allof the energy equipment, even if the equipmentis housed at the customer’s site.

Equalization—The process of mixing the elec-trolyte in batteries by periodically overchargingthe batteries for a short period.

ESCO—See energy services company.

Fixed-Asset Lending—Lending for an assetwhose usefulness extends over many businesscycles.

Grid—The network of transmission lines, distri-bution lines, and transformers used in centralpower systems.

HOMER—A computer model developed atNREL used to derive an optimal configurationfor a hybrid renewable energy system based ongiven resource, load, and cost data.

Hybrid II—A computer model developed atNREL that runs simulations of renewable energyhybrid system performance, used for advancedhybrid system design.

Informal Sector—The segment of a nation’seconomy that consists of businesses that are nottracked in government statistics, do not pay cor-porate taxes, and do not have access to formalfinancial services.

Insolation—The solar radiation incident on anarea, usually expressed in watts per squaremeter (W/m2).

Inverter—A solid-state device that changes a DCinput to an AC output.

IV Curve—The graphical representation of thecurrent versus the voltage of a photovoltaic cell,module, or array as the load is increased fromzero voltage to maximum voltage. Typicallymeasured at 1000 watts per square meter(kW/m2) of solar insolation at a specific cell temperature.

Kilowatt (kW)—One thousand watts.


Kilowatt-Hour (kWh)—One thousand watt-hours.

Life-Cycle Cost—An estimate of the cost ofowning and operating a system for the period ofits useful life; usually expressed in terms of thepresent value of all costs incurred over the life-time of the system.

Load—The amount of electrical power beingconsumed at any given moment. Also, anydevice or appliance that is using power.

MFI—See microfinance institution.

Maximum Power Point—The operating pointon a PV array IV curve where maximum poweris delivered.

Microcredit—The provision of small amounts ofcredit according to a set of nonconventionalbanking practices, which may include short loancycles, frequent payments, social collateral, anda gender focus.

Microenterprise—A small business, possiblyhome-based, that produces goods or services forcash income.

Microentrepreneur—An individual who oper-ates a microenterprise.

Microenterprise Zone (MEZ)— A center, hous-ing multiple microenterprises, where electricityis provided along with other business supportservices.

Microfinance Institution (MFI)— An institutionthat provides financial services that may includemicrocredit, savings, and insurance to peopleunderserved by formal banking institutions.

Module (Panel)—A predetermined electricalconfiguration of solar cells laminated into a pro-tected assembly.

NEC—An abbreviation for the National ElectricCode, which contains safety guidelines for alltypes of electrical installations. Article 690 per-tains to solar photovoltaic systems.

Net Present Cost (NPC)—The value in the baseyear (usually the present year) of all expensesassociated with a project.

NGO—Nongovernmental organization.

Nominal Voltage—A reference voltage used todescribe batteries, modules, or systems (i.e., a 12-volt or 24-volt battery, module or system).

Ohm—Aunit of electrical resistance measurement.

Open-Circuit Voltage—The maximum possiblevoltage across a photovoltaic array.

Orientation—Placement according to the direc-tions north, south, east, and west; azimuth is themeasure in degrees from true south.

Panel—See module.

Parallel Connection—The method of intercon-necting electricity-producing devices or power-consuming devices, so that the voltage isconstant but the current is additive.

Peak Load—The maximum load or electricalpower consumption occurring in a period oftime.

Peak Sun Hours—The equivalent number ofhours per day when solar irradiance averages1000 W/m2.

Peak Watt (Wp)—The amount of power a photo-voltaic device will produce during peak insola-tion periods when the cell is faced directly at thesun.

Photovoltaic Cell—A cell that generates electri-cal energy when solar radiation strikes it.

Photovoltaic System—An installed aggregate ofsolar array, power conditioning, and other sub-systems providing power to a given application.

Power Conditioning—The electrical equipmentused to convert power from a photovoltaic arrayinto a form suitable to meet the power supplyrequirements of more traditional loads. Loosely,a collective term for the inverter, transformer,voltage regulator, meters, switches, and controls.

Power Curve—A graphical representation of awind turbine’s power output as a function ofwind speed.


Process Heat—Thermal energy that is used tofacilitate an industrial process such as boiling ormelting.

Remote Site—Site that is not located near a utility grid.

Renewable Energy (RE)— Energy not producedby fossil fuel or nuclear means; includes energyproduced from PV, wind turbines, hydroelectric,and biomass.

Series Connection—A method of interconnect-ing electricity-producing devices or power-usingdevices so that the current remains constant andthe voltage is additive.

Short-Circuit Current—Current measuredwhen a PV cell (module) is not connected to aload or other resistance.

SHS—”Solar Power System,” a small solar PVsystem often used for domestic or microenter-prise purposes.

Single-Crystal Silicon—A material formed froma single silicon crystal.

Solar Cell—Photovoltaic cell.

Solar Thermal Electric—Method of producingelectricity from solar energy by concentratingsunlight on a working fluid that changes phaseto drive a turbine generator.

Stand-Alone System—A system that operatesindependently of the utility lines. It may drawsupplementary power from the utility but is notcapable of providing power to the utility.

State of Charge—The available capacity in a cellor battery expressed as a percentage of ratedcapacity. For example, if 25 ampere-hours havebeen removed from a fully charged 100-ampere-hours cell, the new state of charge is 75%.

Surge Capacity—The ability of an inverter orgenerator to deliver high currents for short peri-ods of time, such as when starting motors.

Temperature Compensation—An allowancemade in charge controller set points for changingbattery temperatures.

Tilt Angle—Angle of inclination of collector asmeasured in degrees from the horizontal.

Volt, Voltage (V)—A unit of measurement of the force given to electrons in an electric circuit(electric potential).

Watt, Wattage (W)—Measure of electric power(watts = volts x amps).

Watt-Hour (Wh)—A quantity of electrical energyfor which one watt is used for one hour.

Wind Turbine—A device that converts theenergy of moving air into electricity.

Working Capital—The liquid assests needed foran enterprise to complete a full business cycle.


ABOUT THE AUTHORS

April AllderdiceApril Allderdice is a renewable energy ana-

lyst who worked extensively with NREL's Vil-lage Power team on projects such as the VillagePower database and this guidebook. She is affili-ated with Grameen Shakti in Bangladesh, whereshe worked for two years in residence with theassistance of the Fulbright Fellowship Programand the Echoing Green Foundation. She has aB.A. in physics from Wesleyan University (1994) and is currently pursuing her M.B.A. atColumbia University.

John H. RogersJohn Rogers is a principal of Global Transi-

tion Consulting, a joint venture of Enersol Asso-ciates, Inc., and SOLUZ, Inc. He is also VicePresident of SOLUZ, a U.S.-based PV businessand technology development company. Rogershas worked in the field of solar-based rural electrification in Latin America since late 1991,when, during his third year of Peace Corps ser-vice in Honduras, he launched a country-wideprogram in solar electrification patterned on the Enersol model first demonstrated in theDominican Republic. Rogers has since workedon renewable energy activities in several coun-tries in Latin America, the Caribbean, and else-where, under GTC, SOLUZ, Sandia NationalLaboratories, and DynCorp I&ET. He holds anA.B. from Princeton University and a master’sdegree in mechanical engineering from the University of Michigan.



Notice:This report was prepared as an account of work sponsored by an agency of the United States government. Neither theUnited States government nor any agency thereof, nor any of their employees, makes any warranty, express or implied,or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, appara-tus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference hereinto any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does notnecessarily constitute or imply its endorsement, recommendation, or favoring by the United States government or anyagency thereof. The views and opinions of authors expressed herein do not necessarily state or reflect those of the UnitedStates government or any agency thereof.

Available to DOE and DOE contractors from:Office of Scientific and Technical Information (OSTI)P.O. Box 62Oak Ridge, TN 37831

Prices available by calling 423-576-8401

Available for sale to the public, in paper, from:U.S. Department of CommerceNational Technical Information Service5285 Port Royal RoadSpringfield, VA 22161phone: 800-553-6847fax: 703-605-6900email: [email protected] ordering: http://www.ntis.gov/ordering.htm

Renewables for SustainableVillage Power

This is the second in a series of rural applications guidebooksthat the National Renewable Energy Laboratory (NREL) VillagePower Program is commissioning to couple commercialrenewable systems with rural applications. The guidebooks arecomplemented by NREL Village Power Program developmentactivities, international pilot projects, and the visitingprofessionals program. For more information on the NREL VillagePower Program, please visit the Renewables for SustainableVillage Power Web site:

http://www.rsvp.nrel.gov/rsvp/

Produced for the U.S. Department of Energy1000 Independence Avenue, SWWashington, DC 20585

by the National Renewable Energy Laboratory,a DOE national laboratory

with support from the U.S. Agency for International Development

NREL/BK-500-26188November 2000

Printed with a renewable-source ink on paper containing atleast 50% wastepaper, including 20% postconsumer waste

renewable energy for microenterprise

Documents