SDC’s narrow ocus on “PV solarhome system electrication in rural, o-grid areas, tar-geting low-income people, with service provided throughSMEs” and high expected rates o return was too ambi-tious, considering the resources ultimately available to theproject, and more appropriate or a more mature or aster-growing market than PV solar. Few deals met both SDC’snonnancial and nancial criteria. SDC’s ten-year xedlie required management to seek investments promisingrelatively rapid exits; whereas the PV solar home systemsindustry appears to require long-term patient capital. Theamily-owned nature o small businesses in emerging mar-kets and low rm valuations made it similarly dicult toidentiy potential investees. Moreover, capital markets inemerging countries tend to be very small, minimizing theopportunities or exit. In addition, similar initiatives tar-geting solar PV in promising markets, also sponsored by IFC and GEF, and eaturing more o a subsidized conces-sional nance approach and utilizing no IFC capital hadalready been launched (e.g., PVMTI). Pursuing the SDCproject would have been more justiable ollowing a moreextended trial period with such other complementary solarPV nancing programs. Perhaps SDC then could havebeen justied or its nancing structure modied on thebasis o the success o a similar, smaller-scale initiative.
Structure and implementation.
Although the projectbeneted rom the diverse experience o the managementteam—consisting o a nonprot U.S. environmental undmanager, a U.S. solar PV consulting rm, and a Euro-pean und management company—issues o distance,culture, organizational style, language, and ownership o SDC and o the managing company, overlaid by a com-plex stang arrangement and undamental questions con-cerning its relationship to SDF, complicated SDC opera-tions. Nevertheless, considering its complex structure, theorganization worked surprisingly well and operated ru-gally, demonstrating a high degree o commitment andproessionalism. Although SDC was very successul in mobilizing asubstantial capital base rom a range o investors—secur-ing commitments totaling $28.75 million o a targeted$32 million—managing ten shareholders rom across thedevelopment/nance spectrum also proved challenging.Disagreements among shareholders led to stalemate andultimately early termination o SDC.
The SDC experiment oers many lessons related to devel-opment o the PV solar industry and to any project devel-opment process, including investment strategy and undmanagement:
The PV Solar Home Systems Market
• For initiatives intended to meet standard commercial
objectives, no substitute exists or rigorous market anal-ysis. It allows or planning, enables the relevant entity toset realistic internal rates o return, determine appropri-ate payback periods, and estimate customer uptake andlong-term sustainability. Although this kind o analysis will oten be too expensive or use in small transactions,it would be invaluable or larger transactions or a port-olio o small transactions. Eective mechanisms oughtto be established to implement this process.
• Protability for the industry may take years to improve
unless the challenges o distribution and client nanc-ing are resolved, even with technological breakthroughsand dramatic price declines in PV panel production.Considering the current state and cost o the technol-ogy which ahs been rising rather than alling, PV solarhome system delivery can only be protable given (a)sucient population density and purchasing power, andlittle likelihood o medium term grid electrication, (b)a supportive tax regime (i.e., no excessive import dutiesor sales taxes), and (c) the presence o appropriate con-sumer nancing options. In early stage market devel-opment, existence o ecient and appropriate subsidies(e.g., sustainable and perormance based) generally con-tributes to an initially acceptable level o protability. A stable economic environment (limited business, politi-cal, and currency risk) supports long-term protability.Nevertheless, PV rms are quite vulnerable to externalactors such as equipment supply and pricing trends.
• Provision of efcient maintenance services is also criti
-cal to success. Protable PV solar home systems haveemphasized maintenance in their business model. PV practitioners estimate that one-ourth to one-third o the two to three million solar home systems installed inthe world no longer unction.
• End-user nancing is, in many cases, the only way for
low-income customers to pay or the oten high uprontcosts o PV systems. But customers must be able to a-ord monthly payments or two to three years— whichis still not the case in many countries. Moreover, end-user nancing cannot always help with low product de-mand and awareness or inadequate development o thenancial sector. Credit schemes and collection methodsmust be fexible enough to allow access to credit or thepoor and help ensure high repayment rates. The strongcommitment o any end-user nancier and its involve-ment with the vendor in program conception is essen-tial. The number o parties involved should be limitedto reduce the chances o ailure.
MONITOR: Measuring development results in IFC Issue No.13, April 2007