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g n ir la eo S
LESSONS FROM MORE THAN A DECADE OF IFC’S EXPERIENCE
Ltd.mdomedia.na © 2007nailoter fice con otirap a l h g ts r i r e v s d . and conclusions exemt External Management Team pressed herein are those of the authors and do not necesa ep U.S.. mw megawatt mw h megawatt/hour rinpted in the united tesa f o acimer a mbil Moser Baer India Ltd.com w ds g Solar Development Group es f Sustainable Energy Facility sh solar home system sme small and medium enterprise m ps Sunlight Power Maroc S. ed acr ony m s and abbr e v i at ions u s e d i n t h i s r e p or t cealcp o Cagayan Electric Power and Light Company distributed generation International Finance Corporation d i gs Directorate General for International Cooperation 2121 Pennsylvania Avenue. vp photovoltaic vp m t i Photovoltaic Market Transformation Initiative Printed by Balmar. DC 20433 USA e energy e≈ciency Telephone: 202-473-3800 Internet: . a process chlorine-free paper containing adgo p Portfolio Approach to Distributed Generation Opportunity 50% recycled and 15% post-consumer waste ﬁber. July 2007 go n nongovernmental organization ecd o Organization for Economic Co-operation and Development This publication is printed with soy-based inks on ne o O≈ce National de l’Electricite ChorusArt. Environmental Protection Agency sarily reﬂect the views of the Executive Directors of the fi financial intermediary International Finance Corporation or of the Internage f Global tional Bank for Reconstruction and Development (the Environment Facility c tg GT Consulting.ifc. interpretations. views. provided that clear attribution kilowatt/hour the is given to kw h authors and the original source and that content is not Development Goals mdg Millennium used for commercial purposes. World Bank) or the governments they represent. DC f ds Solar Development Foundation . DC (FSC certiﬁed) re renewable energy re f Renewable Energy and Energy E≈ciency Fund Designed by Marc Alain Meadows ds c Solar Development Capital Meadows Design O≈ce. eia Energy Information Administration The ﬁndings. rs i socially responsible investment teri Tata Energy Research Institute t re d Triodos Renewable Energy for Development esco Swiss State Secretariat for Economic Affairs v b a dr Vietnam Bank for Agriculture and Rural Development vwu Vietnam Women’s Union w bg World Bank Group o wh World Health Organization w p peak watt . First printing. Inc. NW ebfp Environmental Business Finance Program Washington. f c ir Investment Review Committee Content from this document may be used freely and a Renewable Energy Association k re a Keny copied accurately into other formats without priorlowatt kw ki permission. iea International Energy Agency ic f International Finance Corporation h g ts r i a n d s n e r o m i p imf International Monetary Fund ic encourages use and distribution of its publications.org e ts Environ Energy-Tech Service. Inc.org/EnviroPublications eaf w Environmental Enterprises Assistance Fund Email: enviro@ifc. Washington. Washington.A.
45 ∫ e ir s nfrastructure Finance. ∫ ∫ ∫ The ifc / gefSmall and Medium Scale Enterpis Program ( Grameen Shakti 32 Soluz Honduras S. 48 3. Solar Deevlopment Group 49 54 4. Ltd. Cagayan Electirc Power & Light Company References 58 Acknowledgements 60 .c no t e n t s A Joint Message 4 Executive Summary 6 a r t 1: r e p or t ov e rv i e w p ntoduction: The Deevlopment Case for Rural Electirﬁcation I r Chapter 1: Chapter 2: ifc s ’ Appoach in the Early 1990s r ifc s ’ Expeirnce in the Solar vp 10 Market 12 8 Chapter 3: ifc s ’ Lesons of Expeirnce 16 ∫ Lessons about the solar general 16 vp market in ∫ Lessons about ﬁnancing programs 19 c ’s if ∫ Lessons about what makes a successful 22 vp company solar Chapter 4: ifc s ’ Appoach Today r a r t 2: s e l e ct e d cas e s t u di e s p 1. 47 I ∫ Sunlight Power Maroc S. de C. Ltd.V. 35 Selco Vietnam. Ltd. Photooltaic Market Transformation nitatiev ( v I v m t pi ) 40 ∫ Muramati District Tea Growers Savings and Credit Cooperative. 38 sme Program) 30 26 2.A.A.
mitment and proven track record in promoting sustainable private sector inve countries. catalyzing private investment and supporting government commitm cies.9 billion in grants for projects in more than 60 developin nearly $12 billion. These projects hold the promise of reduced greenhouse gas emi ating poverty through the provision of modern energy services using locally avail egf ’s approach to renewable energy seeks to create conditions for growing commerciall markets. n promoting these aims. very pleased by the effort to review the outcome of ic has made f its projects and make them available for others working in this ﬁeld of increas discussion of how these lessons have inﬂuenced more recently established p ic inf vestments is an encouraging example ence on the larger investment communit egf ’s inﬂu of late for this study and trust it will be widely disseminated. and other clean forms of’s clean energy portfolio has grown eg f energ. ﬁnding practical business solutions toegf their a responsibil has introduction ity not only to report these results. wind. y I to more than $1. I am.a i o j n t m e s ga e The Global Environment Facility (gef est funder of renewable energy in the developi ) is the larg supporting solar. the privat I national Finance icCorporation ( f ) is particularly important brings an institution ic f and valuable. As this study illustrates. ic f Monique Barbut Chief Executive Ofﬁcer and Chairperson Global Environment Facility 4 . therefore. n 14 years. but also to avoid repeating mistakes perience going forward. despite the environmental energy techvp and other renewable appeal of solar nologies. and widespread consumer acceptance. seeks to deﬁne more e∑ective means of engaging the private sector as a pa eg f As moting solutions to global environmental problems —a currentexppriority on o ic ’s erience f and capacity will be increasingly important.
These. For almost 20ic years. n light of these lessons of experience. was. Part 2 provides case studies ﬁnancing initiatives. Although thes vp could not overcome all the complexities of the have not vp market. f solar activities in partnership with other investors. Part 1 describes the history of ic ’s approach to f solar and explains why vp ic today has developed a di∑erent approach to adf dressing rural electriﬁcation. t will be of interest to those now in the I context and background. includin power lighting devices. Developing and sharing lessons of experienceic are a pivotal. and solar always lived up to their original expectations. and distributed power generation. hope. n the early initiated several vp I ic to mid-1990s. This report is in two parts. However.Lack of access to electricity remains one of the key challenges in the developi world. and remains. I also hope that this publication will contribut regarding sustainable energy solutions for rural electriﬁcation. ﬁndi way to employ these solutions on a commercial and sustainable basis in ing markets has yet to be discovered. will be useful to those in the business of exploiting in approach vp market the emerging markets. or planning on vp market in emerging markets. the ( countries. invaluable in providing the resources requi noncommercial costs of new business models and ﬁnancing programs. andof I hope this f ’s strategy part will be a useful tool to those who are currently operating in. they have provided valuable lessons of experience that are documented in this study. ard a broad approach to market-based sol I ic is moving tow f to rural electriﬁcation that supports a variety of technologies. ic ’s e∑orts in this ﬁeld would not have been possible without donor su f Environment egf Facilityprimary source of funding for renewable energy projects in devel ). Renewable energy solutions including asolar iﬁcant vp can make sign contribution to addressing the issue of rural electriﬁcation. explored options for the commercialization of f has solar in the developing world. as well as ic ’s solar f vp on examples of some of the projects that these initiatives supported. Rachel Kyte Director Environment & Social Development Department 5 .
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set of eight development goals for 2015, adopted by the international community in the UN Millennium Declaration in September 2000, and endorsed by the International Monetary Fundfim ( ), the World Bank, and Organization for Economic Co-operation and Development ( ). e cd o
Rural electriﬁcation has been a long-time focus for wbg ) overall, andthe the World Bank Group ( ic , f World Bank’s private sector investment arm. The contribution of electriﬁcati improved livelihoods and health, and increased education and productivity, proximately one-third of the world’s population living without access to ele of developing countries—rural electriﬁcation is a key means of achieving the Mil Goals ) 1and reducing poverty. mdgs ( Concern about the global environment in recent years has led to an increas (re ) technologies. The Global Environment Facility as a pilot project in 1 egf ) was initiated ( formally established in its current form in 1994 with a mandate to address strategy to support er investments. The World Bank Group became interested in explorin tovoltaic ( et as a means to providing clean energy service in rural areas that vp ) mark grid. ic recognized an opportunity to use f eg f funds to test various options for the commerci solar in emerging markets. vp This publication documents ic ’s solar f vp experience. n total, ed ﬁve egf -funded solariniI ic manag f vp tiatives, of which four are discussed inegf this publication: the ic / Small and Medium Scale Enterpris f Program ( sme Program), the Photovoltaic Market Transformation nitiative ( v pm t i ), the Solar DevelopI ment Group ( ), and the grid-tied solar power plant of the Cagayan Electric Power and L d sg 2 (cealcp o ). While programs have been responsible for the installation of over 84,0 ic f tems ), these programs have been less successful fromic a having been unable to sh ( f ﬁnancial standpoint signiﬁcantly transform markets and create sustainable businesses as origi n some of the initiatives that were implemented, we have found the main I technology of solarbut in accurately judging market reality andportfolio has been vp , ic ’s solar f vp trends. signiﬁcantly impacted by well-documented market trends. These included a failed of solar panels would come down, the decrease in supply of smaller modules, and a vp nomic shocks. Hindsight shows that the initial rs about vpthe solar ic and many market playe beliefs of f market were overly optimistic. Through the implementation of its solar vp initiatives, ic has learned a f great deal, not only about market solar neral, but also about the type of ﬁnancing vp the in ge support solar et growth and what it takes to develop a vp successful solar one of vp mark company. Perhaps the most important lessons that that supporting the growthis far sola ic has learned is f vp market of the more complex than ﬁrst envisioned, particularly due to the level of market segme ic remains committed to addressing the issue of rural electriﬁcation in f tiously optimistic that a self-sustaining solar However, in light of t vp market will develop there. we are moving away from focusing narrowly on solara way of addressing rural electriﬁcation. n vp as I stead, we are moving toward a broader approach, such as supporting a variety of technol mercialization of low-power lighting devices, and distributed power generation international
review does not discuss the experience of the Renewable Energy and Energy E≈ciency Fund re f ( ), due to an agreement among participating investors restricting disclosure.
s e l i n g s ol a r
k e y l e s ons from i f c’s ex pe r i e nces i n s ol a r p v
The issue of affordability cannot be addressed without segmenting the market.
The rural unelectriﬁed market in developing countries is large. To reach it, proper segmentation a come lines, needs, and lifestyle are necessary. t module prices could be that if solar I vp was initially felt brought down to a certain level, or if business models could be structured to maintain low m ments, solar become ﬁnancially a∑ordable to the consumer and competitive with alternative vp would ergy sources. Experience has shown that the deﬁnition of a∑ordability varies among market segment tive income levels, market applications, etc.), and it remains a challenge for vp companies to identify the niche market segments vp whis the least-cost energy alternative for the consumer. ere solar ı
While solar PV is a viable technical solution, it is not the only solution. Without some level of
subsidization similar to that provided for grid-connected electricity, it often remains too expensive for the average rural consumer.
Experience has also demonstrated that people are looking for a constant supply of electricity provi grid connection. t is important to is cheaper for governments than costly grid exI vp note that, while solar pansion in dispersed rural populations, grid connection has emerged as a key political tool oping countries, and the grid has almost always been heavily subsidized. n addition, s vp simply canI not provide equivalent services to the grid, and it is also not the only technology avail rural electriﬁcation demand. The high initial cost makesvp solar a solar vp system of acquiring considerably less a∑ordable to the rural poor than alternatives, such as car batteries and kerosene. ı
Private equity is not the most appropriate ﬁnancial mechanism for ﬁnancing solar PV activities in developing countries.
An important lesson for ic was that, while private equity and venture capital ﬁrms are heavily involv f the manufacturing vp of for developed country markets, the risks and economics of desolar vp in the solar veloping world mean that the returns that such o∑-grid investors typically look for are nonexis Proﬁtable opportunities utilization in the developing world lie further up the value chain vp for solar marily in the manufacture of solarfor export to subsidized, developed world markets. vp modules ı
Good government relations and support are a strong success factor.
While there are examples of companies able to establish successful ventures without express support, those companies fortunate enough to operate with a government concession for exclusive ial rights to distribute solar vp systems (or with some form of subsidy or favorable pricing agreement) tended to be more successful than companies operating without explicit government support.
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a r pt
noducon: The Delopmnt I rt it ev e Case or Rual Eleccaton f r ﬁi rt i
s o a r one third of More than 1.6 billion people, roughl lyp v : an at t r act i v e t e chnol o gy for ru a l access to the world’s population, live without el e ct r i f ic at ionelectricity. The vast majority of those without electricity live in rural areas. The World Bank estimates that rastructure, rapidly growin ne≈cient energy inf I 67 percent of the rural population in developing a general lack of generating capacity mand, and countries is without electricitymean that many low-in. As a result, developing countries are un come households around the world spend billions meet their basic energy demands. The ntern I of dollars every year on expensive and environmen- ( iea ) estimates under its referen Energy Agency tally damaging energy sources such as charcoal, ﬁrthat developing countries requi scenario ewood, and disposable batteries, with an estimated lion annual investment for the electri 3n $38 billion a year spent on kerosene alone. This is where as many as four out of alone. rural areas, I especially true in Africa, where roughlyﬁvtwpeople lack electricity, conventional gri e o thirds of households—more than 580 million people—deconnected electricity schemes are often no pend on wood fuel for their daily cooking and heatGrid expansion can be extremely costly and h ing needs. People in emerging marketsdemonstrated numerous times to be far les who rely on 4 these fuels use much of their labor e∑ective than supplying of the high to gather wood sh . Because fuel and are exposed daily to indoor air pollution. cost of extending electrical grid coverage in t The World Health Organization ( o wh ) estimates areas, non-grid-tied renewable energy technologi that the pollution caused by using indoor vp solar be a least-cost solution such as biomass , may cook stoves is responsible for 1.6 million deaths per of clean electricity n The availability year—mostly of young children and mothers. households avoid the health risks ass Access to modern, reliable energy is important for forms of energ, such as kerosen conventional y rural development and improved livelihoods. En- disposable batteries, but charcoal, and ergy is a major tool for poverty alleviation, income the global environment through the avoi generation, health, and other developmentals engreenhouse ga ag emissions and convention das. The provision of clean electricity to lowassociated with fossil-fuel-bas lution -income 3 In ternational Energ y Ag e ncy households allows for increased opportunities for able energy technologies also tricity. Renew (iea ),erg y Outlo k 2004, orldWEn e cd o andiea , Paris. studying in the evenings, as well as increased pro- y independence and elim ernments gain energ 4 Foley, 1995, p. 41. ductivity of agricultural and micro-enterprise foactivi- grid expansion to remote v the need r costly 5Erick s on, 1995, p. 1130. ties. Numerous studies have conﬁrmed Solar andsh that the are attractive renewable energy vp 6 Cabraal et al., 1996 social beneﬁts from electriﬁcation—the ability to many applications in o∑ technologies for . power Most developing countries lie in areas wi 7 For more inf o rmation on the lights, radios, small appliances, and televiwbg renewable energy strateg, sions—make a signiﬁcant contribution to enhancy solar insolation levels—a —amust” for sola “ nd, visit .worldbank.org/re. w ing quality of life. This enhancedwith the ofadded beneﬁt of quality life has, sh being modular, sh 8 i fc ’s initiative with cealco p in in turn, proved to be a key driver of increases installed to provide energy for one hous can be in the the Philippines was the only gridy groups of houses, or an entire village. Oth tied investment made.demand for energ.
s e l i n g s ol a r : a p r t
5 work hours. if Includes projects of the SME Program in Bangladesh. if Total 44 1. The total capacity of the unit is usually inTABLE 1: WBG SOLAR 30-100 the range of PV INITITIATIVES 6 peak watts p).000 400 4. January 2007). or television. and can Cambodia normal 1 10.000 10.9 vaccine refrigerators in medical clinics. particularly for children. in solar vp typically better suited for less dispersed populations.000 10. and PVMTI in India. made using reg** Cost includes only total investment of solar PV components/applications. run low-lift Ecuador 1 2.096 13.000 300 3. Ltd. ’s operational proefg One of Nicaragua 1 6.0 utilizing to develop the renewable and enefg funds Senegal 1 10. An sh usually provides electricity for two or three ﬂuores(See Table 1 below for details on the World Bank cent lights. Tunisia. Today ic f tricity in developing countries to an estimated. Dominican Republic. 2006 (with update. reading.843 36.4 2emissions. Uganda 1 90.8 1.900 91.9 tablished in 1994.300.0 quality.0 3. hydro or biomass) are businesses in frontier markets.7 With its mandate to further economic development Multiple countries† 14 84. yk Source: Anil Shenzhen Solar Energy Co.300 407 5. a manufacturer * Figures include both the number of systems installed and the target installation for projects currently under vp vp solar implementation. when it made a $3 milvp lion investment (debt and equity) inCabraal.000 2..5 water pumps.1 7 gain experience in the solar vp market.500 129 2.000 2.g.000 113.0 come-generating activities to occur beyond Cape and 1 4. Swaziland 1 2. er 1.6 mproved lighting provides additional educational I Burkina Faso allow in.000 2.000 9. 21st EU Solar PVSEC. ular c funds.000 to 1 million rural households lackthe access ﬁnancier ofin id solar the developing world.3 c was particularly interested in exploring opif Tanzania of solar 1 40.5 t h e wor l d bank grousp’ i n vov le m e nt i n s ol a r p v Laos Madagascar 1 10.3 million solar forms of solar vp application in rural areas. improved indoor air Argentina 30.000 + ~58MW ~700. and Vietnam.500 30.5 unable to secure commercial ﬁnancing elsewhere.000 215 3.500 100 2. having supported the to electricity is one of the most common sh grids.000 520 5. did not meet its original expectations.2 funds to support projects that generated global enviMozambique 2 9.. many of which operated across Photovoltaic technologies already provide vp eleccountry lines. but can be less or greater.300 67.000 2. Papua New Guinea 1 2.500 4.) other small appliances.800 1.0 portunities for the commercialization vp .000 8. and Group’s solar vp related projects.2 The wbg was at the time particularly interested in Philippines 2 139.able energy resources (e.400 4.000 144.000 704 12.000 15.500 425 160 625 24.. a higher quality of light than kerosene for 1 Bangladesh 1 198. and allow for the operation of other Ethiopia 1 6.Mali Mexico 37.000 420 5. Although the investment. is ing largest vp o∑-gr 500. Honduras.5 ronmental beneﬁts. India Indonesia 1 1 1 1 45.0 beneﬁts.4 vital systems.3 through the private had been active in the c sector.1 8.176 36.000 + 25. it made available a new source of 2 Mongolia 1 50. in China. fo investing it established an important precedent andr Morocco.0 solar market since 1989.0 When the Global Environment Facility ( efg ) was es.600 38.000 6.its skill and experience in ic has since used f as they generally become economical only if they are projects that target the private sector to structuring 5 able to provide energy to a more sizable population. Electricity is drawn from rechargeable batteries charged through an electronic charge controller byvp solar modules mounted on a pole beside the house or on the rooftop. 8 installation of ov vp systems.0 grams supports renewable energy activities that are Pacific Islands 1 21. Kenya.0 ergy e≈ciency potential in emerging markets and to Sri Lanka 2 104. and the displacement of CO Bolivia 1 60.3 7.200 110 1. w ( COUNTRY NUMBER NUMBER OF SOLAR PV COST** The direct economic beneﬁts of sh include inOF PROJECTS SYSTEMS INSTALLED* CAPACITY (kWp) ($ MILLIONS) creased convenience and safety.000 630 16. cassette player. † i n t r od u c t ion 9 . Solar systems can power lightsVerde vp China 1 400. together with the World Bank.000 420 5. develop and implement a egf number of -funded solar projects. a radio.000 100 1.
By ing into businesses. Anyone with the means an in electricity in emerging markets experim donor-led and focused on demonstrating the funcwith solar what appeared to be a major emergvp in ing business opportunity. and would purchas tems if credit were available. manufacturing panels. such tions. s i z a bl e m a r k e t and dem a nd The potential market was considered very att An estimated 1. Shell. s en the process der dissemination of the technolog. Little to y was paid to commercializing the market t wi of y n the early 1990s. with sh d The thought was that if solar vp was made available to a community. and Total Energie.ch a p t e r 1 FC’s Apoach I rp ne h t i Early 1990s t h e em e rg ence of s ol a r p v tionality of the technolog.sh such as . as the programs had not been des solar in emerging markets. demand would be similar to that with the arrival of grid-connected electrici the initial start-up cost of acquirin vp was considerably more expensive than the alte such as batteries or diesel generators. The opportuni bring about a substantial increase in was present. many was a great deal of anticipation about the future of of them ended when funding was exhausted. i that a signiﬁcant segment of the unelect lation would opt for the superior vp quality o . vp systems The ﬁrst renewable energy initiatives that were to rural electricity consumers implemented in emerging markets were ing ly large countries. Large players. were enterin to provide supplementary power to grid-connected 10 ket. to replace diesel generation and vp solar BP. I that there was an opportunity for small-scale solar the mid-1990s.6 billion people were wit tricity (roughly 400 million households which could be electriﬁe. and selling s vp solar systems. emerging markets. G I ic wa wh in f the there structuring its marketsolar vp ﬁrst initiative. in fact. could ﬁnancially a∑ord it. large capital ﬂows were st vp applica. some were predicting a 10 s e l i n g s ol a r : a p r t 1 . majority of early initiatives were grant programs. it was felt considerations. Overall industry vp growth had accelerated steadily since withearly the ﬁnancial sustainability or repli 9n 1980s.
they did serve to further exacerbate existing obstacles.15 9 Jack s on. the price of 40-watt panels has increased by 50 percent (36 percent for 20watt panels). and manufacturers have chosen to move away from the manufacture of smaller modules in favor of the increased proﬁtability and steady cash ﬂow associated with catering to the industrialized country market. 2007. the increased demand for large solar PV systems in the industrialized world. These were the discontinuation of the expected downward trend in solar PV module prices. the average price for silicon contracts increased by approximately 25 percent between 2004 and 2006. cell design. due to an agreement among participating investors restricting disclosure. its scalability and ﬁt for dispersed populations. 10Ahmed. it was widely cou l d becom e mor e fi n anci a l y thought that the prices of solar vp modules would affor dabl e continue to decline. and techscaling up the industry was rooted not in theit was expected that further price reducnolog. for example.14 as well as increased pressure on prices for smaller modules. given computers and mobile phones. 376. At the ictime f was structuring the solar vp inipr ic es wou l d fal l and s ol a r p v tiatives discussed in this report. and the global economic shocks that occurred in the late 1990s and early 2000s (the Asian and Russian ﬁnancial crises of 1997 and 1998. It is currently estimated that as much as 50 percent of the cost of solar PV electricity is paid for through transitional subsidies. the electric utilities are now paying customers a signiﬁcant premium for any surplus solar PV power they sell back to the grid. were distorting the market. Theture solar appropriateness vp initiatives to address this constraint. According to the United States Department of Energy’s Energy Information Administration (EIA). w 13 Some estimates place grid-con nected systems at over 90 percen of the total market. This huge premium has resulted in a sizable increase in the global demand for solar PV systems. ule prices uld decline su≈ciently to allow solar (2) there was no ﬁnancing available to to become a cost-e∑ective replacement for diesel vp vp help solar consumers with the large initial cost of acquiring cost expected to decrease. but in the ﬁnancial a∑ordability ofwould continue to occur as a result of techniy vp .12 As silicon is a key component in the construction of solar PV panels. p. not only through increased prices. The main reasons for this increase were the continued tight supply of high-grade silicon. f ity. s ules was not considered competitive against alter-expected that solar t wa I vp modnative electricity sources. The increase in demand for solar PV in the industrialized world has affected solar PV markets in the developing world. With and installing a solarand (3) subsidies vp system. the Argentine economic crisis of 1999. and the 9/11 attacks). 12 http://w. the exact opposite has occurred. 15 Hande. 1994. In the period between mid-2005 and the end of 2006. The lack of supply of smaller modules has led to increased working capital requirements for smaller integrators. but also by shifting production away from the smaller modules. which currently represent well over three quarters13 of the total solar PV market. lack of consumer access to ﬁnancing was seen as the for other forms of energ. 11 This 1999. the fuel or kerosene. Most of this is for grid-connected systems. respectively. such as grid-tied electric. 2006. pv solar 14Hande. as well as the increased demand for solar PV.ic considered that it could strucy major constraint. i f cs’ a p roac h i n t h e e a r ly 19 9 0 s 11 . p. there were a number of well-documented market trends that emerged in the global solar PV market that had a signiﬁcant impact on solar PV markets in the developing world. and manufacvp turing methods. in recent years. Load requirements in industrialized countries are signiﬁcantly higher than those in developing countries.question. review does not discuss experience of the Renewable Energy and Energy E≈ciency Fund re f ( ). In Germany. as it was largely believed to be the best growth pattern to that experienced with personal technological solution to rural electriﬁcation. of solar technology itself was not called into vp SIGNIFICANT SOLAR PV MARKET TRENDS During the period in which IFC’s solar PV projects were implemented. fueled by subsidized programs in the industrialized world. such as diesel wogenerators. tions solar cal Solar had proved to be una∑ordable for three progress in materials. this has had a serious impact on the overall price of solar PV systems.com.7. While these market trends were not on their own responsible for the limited success of IFC’s portfolio. Prices did not decrease as expected and. as well as economies of scale in key reasons: (1) the overall price of solar vp mod11 manufacturing.solarbuzz. The price of solar vp modules had decreased t was widely perceived that the main barrier to by a factor of over 50 since the early I 1970s.
vp solar strucif approved itsegf ﬁrstanced investment to -ﬁn tured with a narrow. both in their e∑ectiv To be successful. By far the most important initiatives was lesson that drawn from its experienceset.that goal of many ofvp our solar ic has f is the there is not simply one targevp t inesimply to provide services to the unelect mark t for solar result. the solar et. a portion of this funding was earmarked to finance solar PV-related projects. Some of the solar PV investments have been closed.775 million Dissolved in 2004 CEPALCO 2002 70% Operating successfully (CEPALCO provided $1. based on solar PV electricity. namely the entire unelectriﬁed deg segments. but many di∑erent target market rees of success.7 million used for five solar PVrelated businesses) 100% The SME program was absorbed into the Environmental Business Finance program in 2004. 12 s e l i n g s ol a r : a p r t 1 . and increase growth of markets for SMEs active in the areas of climate change mitigation and biodiversity conservation. well-deﬁned target markect. TABLE 2. These lessons are summarized vp mark a relatively di≈cult as. Deliver SHS to rural households in developing countries. market. see the SDG case study on page 49. build capacity.775 million in financing) * The SME Program received a total of $20 million in funding from the GEF in two stages. SDC $28. Ongoing PVMTI 1998 Accelerate the sustainable commercialization and financial viability of energy services.ch a p t e r 2 FC’s Exnce I ei r p ne h t i Solar PV Markte The investment o∑ering can then adequat ic has learned many lessons from its experience in f dress a relatively homogenous set of needs. the experiences outlined below le developing countries. † For details on additional shareholders.7 million)† $5. $20 million* ($2. others are ongoing and operating successfully. ventures should be their implementation. $30 million 100% SDG 2000 $41 million 25% (SDF $12 million. thus avoiding new plant construction. from the outic lesson for f in the following chapter. Demonstrate solar PV effectiveness in supplying energy during peak usage periods. IFC/GEF SOLAR PV INITIATIVES DATE OPERATIONS BEGAN TOTAL INVESTMENT AMOUNT GEF SHARE OF TOTAL FUNDING PROGRAM GOAL CURRENT STATUS SME Program 1995 Increase access to finance.
Soluz Honf ems Progr vp sector as mixed. ic f by have resulted in signiﬁcant overall social and enviPerhaps one ic f lessons ronmental beneﬁts. the experiencesram. including by Soluz Honduras 0.V. IFC/GEF SME PROGRAMS’S SOLAR PV PROJECTS PORTFOLIO if e gf and Medium Scale Enterprise ( That sme ) Program. Without a sizable service population. received a $400.A. performance has proved belowth those of Selco Vietnam and Soluz Honduras showed that economies of scale are harder to come tions. as well as s c al e ent e r p i s e pro gr a m an ongoing system service and maintenance. nongrant. Table 2 The SME Program ** Soluz outlines -funded solarinitiatives. sme egf -f port. which on-lent to Rex Investment Ltd. and ultisought to increase access to ﬁnance. also became operational. due to an agreement Fund re f ( among participating investors some of the risks vp by with solar empowerment. from a ﬁnancialoperated in densely populated Bangladesh. Program (ebpf c / initiative that as designed as /vpmti successor to.. I ﬁnanced entirely cannot ﬁnancially sustain the cost of a service technician or collection agent.150 the Solar Development Groupwhich in. since they reduce the ﬁnancial cost of t h e i f c / gef s m a l and m e di u m monthly rental fee or payment collection. and increased in. supported three additional solar y c if Soluz Dominicana* vp -related initiatives. ancing program targeting the prisme ﬁn through it. ( Cogener Tunisia 0.500 E Tanzania 0. newable energy) and biodiversity conservation The sme Prog am experience highlights the imthrough the provision of concessional loan rﬁnancportance of local ownership and government suping.Honduras S. as it has generally not met the initial projecby in sparsely populated and remote rural areas. c ’s if e gf vp The The programs and projects implemented SME Program lent to E+Co fund. ic solar portfolio has performed well.) w w ul project (Grameen Shakti in Bangladesh) and other projects ith more limited success. as well as a $100. education. Energy and solar marke ge was vp o∑set the displacement of indoor air pollution. Examined for nonﬁnancial re. ing user. the operations of w I phot ovotla ic m a r k e t the Program ere absorbed by the Environmenems w t r a ns f or m at ion i n i t i at i v e tal Business Finance a $20 million ). n 2004.500 cluded the Solar Development Foundation ( f ds ). Contrasting the experience of Grameen Shakti. lent to EEAF.of the most important16This review does not discuss ex learned om the ram’s experience withperience ofEnergy E≈ciency sme Prog the the Renewable turns. approved investems Program the eliminated large numbers of established customers. and s 16 Solar Photovoltaic Demonstration *Project. Grameen Shakti’s ties to Grameen Bank and. ’s ﬁrst solar vp ﬁnancing facily c if -focused ity. with over f vp which 84.750 nitiative ( I v m pt i ). COMMITMENT COMPANY COUNTRY (IN MILLIONS) same ear. The Program was the ﬁrst unded.tnder that it was possible to). and Selco Vietnam in Part 2.000 loan.000 installed. sh wi expectastandpoint. which on-lent to Soluz Dominicana S. ments in vp ve-related businesses (see Table 3 ﬁ solar (See case or details).solar company in 1998 through the vp c / SmallTABLE 3.. such as the number of households frelectriﬁed.750 Solar Development Capital ( the cealcp o dc ). Over the Environmental Enterprise Assistance Fund (EEAF) Dominican Republic 0. (See the marksolar ic /sme f eg f geographic service territories was problematic when Program case studies. page 30. While rthe sme Prog am did not valuable and a major driver of Grameen Shakti’s speciﬁcally target companies. Soluz Honduras found that the lack of a erational at a time when there was considerable indeﬁned exclusive government concession to defend terest in vp the et. However.A. million fi fe g w The ic a f eg f is a $30 egf -funded iniand based on. ith one successfduras.) it was faced with unexpected grid expansions that Over its lifetime. it became opvp solar success. health. mately and increase markesme ts foactive in the areas of this leads to collection issues and di≈cult s r in maintaining systems (as was the case with both climate change mitigation (energy e≈ciency and reSelco Vietnam and Soluz Honduras). Economies of scale are vital to the success of solar vp companies. Selco Vietnam Vietnam 0.t company simply by egf . all ﬁnanced Honduras** egf .c the Photovoltaic Market Transformation if / e gf Grameen Shakti Bangladesh $ 0. build capacity.associatedinvestrestricting disclosure. ems Prog of the tiative designed to accelerate the sustainable com† i f c s ’ e x pe r i e n c e i n t h e s o l a r p v m a r k e t 13 . the local community proved to be invate sector. de C.+ Co Rex Investment† dgs ). the come-generation opportunities for the endin a number of di∑erent markets and sectors.075 next ﬁve ears. Theam’s experience in the solarstudies on Grameen Shakti. a private solar vp The ic /sme f eg f Program was established in 1995 as a $20 million initiative. a leading Tanzanian solar PV distributor. tions of investee companies.000 equity investment. an SHS distributor.
arate entities: (1) Solar Development Capi dc ). The initial revisions of return exmanag d to approve minimum investment proved to be etoo large for only six investments. and technical assi was largely able to meet its targets. a s As v pm t i is still an operational$28. (See case stu I securing that companies would not be able to absorbMuramati Tea Growecors and Sunlight oneris . particularly those in the on ethe provision of early-stage working capital low r density rural loans.60 holder group can be problematic. I ing for the small businesses active in the in 2004. -related businesses. was comprised of two seproughly 80 percent. With over 15 Salafin S. Ltd.5 million to COMMITMENT 23 countries. maki TABLE 4.50 relating to the type of ﬁnancing programs requ Barclays Bank. was.. it is di≈cult to evaluate its overall performance (see Table 4 vided growth capital for private solar vp and solar for a summary of the portfolio).075 (nongovernmental. ic f and vices based on technology in ndia. noted that v pm t i will vp businesses. (Seestudy. dsc With f ds COMPANY COUNTRY (IN MILLIONS) transferred its operations to the Triodos Energy for Development ( ) Fund and t er d d sg Selco India India $ 1. page 49. guarantees. Morocco 1. tot million (of most s to absorb. page 40. The vpmti experience highlights thereturns that private equity investors we need for Despite $500. India 3.10 Muramati District Tea Growers SACCO Kenya 0. I underwent a signiﬁcantSolar Development Group wa(s a $41 milThe dg s ) restructuring that extended its operational mandate lion initiative which became operatio by two years and has resulted in an increase was to deliver rural households in The goal in thesh to proportion of disbursements to commitments todgs developing countries. ﬂexible.00 di∑erent investors from a wide range of inst Sunlight Power Maroc S. ﬂexibility in program design. Eskom-Shell Solar Home Systems India 3. and rec sa pay committed funds by the original Power Maroc S. became apparent that there was a need quickly small investment size.) dg s case be responsible for the displacement of anperienced problems very early in impledsc ex estimated 109. with m projects.000 d sc pectations. To date. and (2) Solar Develo v pm t i vp v pm t i ﬁnancing has resulted in the Foundation ( a $12 of installation million nonproﬁt ent f ds ). had of technical assistance funding. A key lesson was that a diverse sh vp Equity Building Society (EBS) Kenya 2. however. over 60. PVMTI’S ACTIVE SOLAR PV PROJECT PORTFOLIO ments totaling over $3. was players and a true entrepreneurial culture.A. which to support the establishment ﬁnancing was completed in July 2006. The extensive documentation process and small investment size also resulted in s ol a r dev e l opm e nt grou p high operational costs for v pm t i in relation to its portfolio.) no real structure to the market and no stan v pm t i initially found it di≈cult to structure deals as the extensive documentation required. t quickly becamebyapparent government support.466 tonnes of CO mentation.7 million for-proﬁt private equity fund project. and Morocco.indeed. and multi 14 s e l i n g s ol a r : a p r t 1 . b liquidated solar f ds n contrast. Kenya Kenya 2. bilateral.) end date of December 2007.A. ’s liquidation. Launched in 1998. and long negotiation periods proved funding to help strengthen the overall m too burdensome for many small and thinly capitalthrough the creation of performance standards ized solar vp companies. and the extensive businessthe approved projects. only $65 sme wa too dauntplans and other documentation proveds disbursed to three investments). expectedprogram to better suit the needs of the mar v pm t i is v pm t i ’s experience to continue to the end of its extended mandate in in Kenya highlighted December 2009 and. in Part 2. Whil vp committed over $18 million to 12solar market(See well-established.A.was able to restructure the vp solar I Kenya.90 Shri Shakti India 2. The Mid-Term Program Review. with its focus vp sector.000 units in previously unelectriﬁed sh provided business development assistan households.areas where solar servp y v pm t i mercialization and ﬁnancial viability of energwas most needed. n vpmti 2004. Morocco 1. by the beginning for 2007. t v pm t i case study.00 for solar . There simply were no viable opp 2emissions over the lifetime ties in vp the esolar mark t that would provide the of the installed sh s.23 c learned a great deal from the if dgs experience SREI Infrastructure Finance.10 ceased to exist in April 2004.
it was very di≈cult to satisfy the shareholders’ di∑erent objectives and expectations. which was integrated into the 80 cealcp o mw distribution plant was a small plant.. Renewabl 17 World Bank Group. as credits). many of which were inappropriate The solarplant operated through a conjunctive for a small. poorlfdtWBank Group he . and the return expectations by most of the candidate businesses were not met. over 50 permits and licenses tribution system capacity issues. page 54. e∑ectively subsidized 70 percent of the construction and cagay a n el e ct r ic p ow e r and l ig ht start-up costs of the cealcp o solar plant. making a strong petitive with the capital cost of a 1 a certain percentage of technical case for require mw cealcp o project the reliability of utility-scaletor. with an existing -7 mw run-of the-river hydroelectric was plant. delay result. that vp of house gas emissions. Although the plant. some of which mw diesel generaits inauguration. as the market was not prepared d sc for equity-type investments. rather than on the market as a whole. and the exi (e. to have been a very daunting process.ing organizations.g. tentially crippling the project’s implementation. socially responsible investment funds. tax the price tence of renewable of incident since vp has operated successfully and without solar modules was simply too high to be com. Perhaps most important. During the initial planning stages dsg for . ﬁnancial incentives Fully operational since 2004. Without the programs. crease the capacity of the hydropower unit and con18 Other larg e -scale solar pv power The cealcp o project also highlights the necessity vert the vp solar plant’s power output to ﬁrm displants are now being construct of capital cost reductions for larger-scaleEurope and North America. vp coma ny p the intended potential for replication is currently somewhat limited. demonstrates vp ic ’s optimistic outf look on the market. pany on the island of Mindanao in main too18 the Philippines. as ell as private inw dividuals. n December 2002. Ultimately. the cealcp o plant would not have been ﬁnancially viable. The dsg experience. required. for the ﬁrst time. 2004. i f c s ’ e x pe r i e n c e i n t h e s o l a r p v m a r k e t 15 . clean RE plant. patchable power. none of the opportunities identiﬁed in the feasibility study received support.box and resulting in a signiﬁcant reduction in greenannounced in Europe (see plications . more than any soic other f lar initiative. Plans for a 40 vp power plants solar solar plant re recently pv demonstrated the potential for conjunctive weuse ap. I cealcp o received $4 million in The cealcp o experience highlights the imporeg f funding (loan convertible to to tance of a strong local presence and knowledge of ic grant) from f build a 1 mw distributed generation power the local market and its regulations. thereby As aing would have been the need to construct a new hydroelectric plant. page 22). and private companies). focused on d sg had only developing individual businesses. since global solar vp prices recealcp o is a private electricity distribution comhigh. The purpose of the project was toacelcp o demon. rather than an intermittent in grid appli17 eg f grant. Overall. eg f grant. Energ y for Developm nt—The Role this would inresources were used jointly. whereby hydropower vp and solar knowledgeable of local government processes. dc s that reaching consensus on a new structure proved impossible and eventually disbanded.energy portfolio standards. the Philippine Government did not make a distinction between it network of cealcp o and operated in conjunction and the more conventional electrical plants. companies were not in a position to absorb so much capital. over 100 investment opportunities were identiﬁed dsc for . t is important to note solar the I relating to Moser Baer. the solar capacity.) cations. Without the vp sta∑ use application. Thus. dc was s The dsg experience also highlighted the necessity of focusing mainly on market development and capacity building. cethe plant due to generous subsidy alcp o resource.(See cealcp o case study. When it became obviousrequired restructuring.still required to comply with the permit strate the e∑ectiveness addressing dis-process required for much larger fossil-based vp in of solar plants. which was providedic through f .
these studies ic f vp progr that are suitable for di∑erent consumers. When ic ﬁrst became f Electrification involved in vp the esolar mark t. This complexity is rooted in the fact that. but it rapidly became apparent through solar vp than through grid expansion doespotential demand did not equal t actual not. overall. these projections were overly tunnel-vision” reﬂection of the general bel opti- 16 s e l i n g s ol a r : a p r t 1 .on solar an optimistic and too res f quick “ ize. such as grid extensions. and technical advances have of the market. and what it takes to develop a successful solar Perhaps degree of subsidization and political s vp company. not n I d sc . The initial d sc received market assessment had overestimated th While solar vp technology is a well-established technolog. but marke ing. one of the most signiﬁcanthas ic f lessons that learned is that market solarfar more comvp the is Expectations Were Overly Optimistic plex than ﬁrst envisioned. there was a great Most o deal of excitement regarding the potential icffof r ’s ﬁnancing programs had a dedicated focus vp . despite t has now become apparent that pro.others. t is important to exstudies di∑erent out prior to the implem I plore the were carried segments of a potential market. the case of for example. A∑ordability remains a key is cussed in this report.ch a p t e r 3 FC’s Leons I s of Exnce ei r p Through the implementation of themisticdis.ant simply was not yet ripe fo y been signiﬁc it of emergence of a dsc was seek during the last several decades. As ly came to real. as weend-user demand. the equity investmenting to provide. make solar unelectriﬁed population. upo evaluating ll as identify opportunities where solar vp is the leastimplementation. unsubsidized solar vp programs are the type of ﬁnancing required to support solar vp di≈cult to implement. so. in itselfﬁnancially a∑ordable to vp . l e s ons abou t t h e s ol a r p v m a r k e t one of the over 100 opportunities identiﬁe i n gener a l feasibility study support. While extensive the end user. the opportunities that hadthe ident been market studies during the planning stage appropriate. develop products of tion of any ’s solarams. The mere fact that it is more economically unelectriﬁed households. With 400 million tries. Furthermore. ternatives. however. designed and ic by f lar remains una∑ordable to the majority optimistic outlooks ont’s solar vp overly of the vp marke the unelectriﬁed population in most developing coungrowth opportunities. ic has learned a great deal f government about the vp solart in developing countries. support is still needed. the potential a∑ordable for a government to provide electricity seemed vast. su∑ered from grams. and re. growth in the markicet.not supported by changes in m projects and damentals. consumer market for solar relatively recent in vp is Solar PV Is Not the Only Answer to Rural most developing countries.identifying businesses t focused more on spond to a range of needs and income levels. and. particularly in market growth in those countries. it became apparent th cost alternative.solar I vp early the apparent social and environmental beneﬁts.
or rental model. the purchase of a solar I the initiatives was structured. the price actually increased in 2004/2005. lifestyle. and will produce 620MWh/year. initially deﬁned to be the total Through Soluz Honduras.ront costs of acquiring and installing vp the solar ceived value. lamps) to meet their electricity needs. will decrease the country’s CO2 emissions by 743 tonnes annually. However. experience has shown number of unelecthat the fe I or-service. kerosene have provided a fee-for-service. or they have arranged for ﬁnancThe Hard-to-Define and Very Segmented ing to allow the consumer to pay the balance of the Solar PV Market sh in monthly installments (lease/hire purchase model). the marketvp for is much smallermately proved unsustainable. and complex in the need to recognize systems can be recovered by the solar utility the di∑erent market segments. This installation. which are spread across 6. since unexpected grid solar and expansion ely signiﬁcantly more complex to deﬁne. some 1. the largest solar PV power plant installed to date in Central and Eastern Europe. charging a monthly fee for the service provided. n the abnies. The facility provides a partial guarantee for loans made by local financial intermediaries for EE/RE projects. n many rural settings.6 billion people. i f c s ’ l e s o n s o f e x pe r i e n c e 17 . rience icby and others has shown that a∑ordability f Financial Affordability and Perceived Value is not exclusively linked to price or the availability of ﬁnancing The biggest barrier to widespread adoption of solar . The regional and vp modules income level.tion scaled up. and without focused ﬁnancing proThe issue of a∑ordability has been a key driver of grams. A∑ordability is also linked to the perceived time each of vp purvp technologies is a∑ordability. Electricity from solar PV. for continue to decrease signiﬁcantly as mass produc. At the value and opportunity cost of solar chase. the Commercializing Energy Efficiency Finance Facility.08 million project guarantee for a 1. southern Bohemia (Czech Republic). For solar PV power. as well as technical assistance. The market for solar vp in developing countries was Many businesses also engage in cash sales. or rental.example. people want. model has ultitriﬁed households. which guarantees feed-in electricity tariffs for 15 years from project commissioning and off-take obligation for the grid operator. can ensure electricity supply for 172 households.e-fn reality. vp making solar solar wavp s the best solution in areas not connectedthus electricity more to the electrical grid. A solar PV panel with an area of 1 m2 produces as much electricity in a year as 250 kg of coal and saves a total of 750 tonnes annually of CO2 that would otherwise be discharged into the atmosphere by the operation of a coal-fired power station. as indicated previously. in Busanovice. companies have generally followed one of two continued to ﬁnd other. Small-scaledo vp systemscompetitive.62/kWh). By the end of 2007. and numerous continued high price of solar is further o∑set by the issue of perceived value. the solar anticipated decrease in solar vp not o∑er the constant supply of electricity that mostprices did not materialize. * IFC/GEF-CEEF. the feed-in tariff is 13. 2007. which are rooted in . The solar PV power plant became operational on January 29. operates in Eastern Europe with both GEF and IFC financing. The 2.62 Czech crowns/ kWh ($0. more a∑ordable ways approaches: they sh on (diesel generators. it continues to be una∑ordable to the vast the I business models employed by solar vp compamajority of the unelectriﬁed population. it was widely beic f lieved that the price for solar uld vp system represents a very signiﬁcant expense. as well as other renewable sources.2MW solar power plant. Expegeographic di∑erences.170 m2.2 MW . smaller largtends to jeopardize the customer base before the high upf due to the issues of ﬁnancial a∑ordability and per. the systems provided by LESSON LEARNED: GOVERNMENT SUPPORT CAN MAKE A DIFFERENCE SOLAR PV PLANT CONSTRUCTION IN THE CZECH REPUBLIC The IFC/GEF CEEF program* has issued a $1. 2007. has the support of Czech national renewable energy legislation.660 silicon-based solar PV modules. the plant capacity will be ramped up to 1. The plant has already been connected to the distribution network and started commercial operation on February 1. in vp modules wo Vietnam. disposable batteries. consumers have to keep the upfront cost of able. The maximum planned capacity of the power plant is 693 kW. n order I sh a∑ordsence of a grid connection market.
economies of scale were not an issue electricity supply capacity. ple. There is a trade-o∑. the decision toscale.government electriﬁcation plans leg l basis p enf nity to increase the scale. high leg dispersed. A certainnents. it is certainly a more di≈cult ven Economies of Scale Government Support and Enabling Environment Solar technology is well suited to A supportive ly al environment is essen vp rural. eis attributed to its servicing d vp a larg r item. As a result. economies of Prog sive to service the consumers.Selco Vietnam were sold for roughly a year’s incompanies are able to take advantage of economi come. it can abecome too exforen. Solar are more duras had signiﬁcant issues surrounding vp companies likely to experience success when ablegrid expansion. publ long-term a need to reach too far out of the central commu. sparsely populated areas. when operating in a relatively dense Maroc et thatfrom an agreement with the mark beneﬁted 18 s e l i n g s ol a r : a p r t 1 . forcing Soluz Honduras to rem to operate in newly installed sys markets with critical masses of potential consumers tems at a considerab v pm t i that were geographically concentrated. however: with their limited areas. when compared to operated successfully in more sparsely popula possible alternative purchases. solarten do are examples of vp solar vp systems of there businesses that h not come out on top. and thesme the ram’s investment in Soluz scale are then lost. eas. but it include as many of the following el should is precisely in these areas rthat solar possible: no import duties or tari∑s on vp prog ams are most sh compodi≈cult to implement. incentives or r absence of scale is required energy fo solar vp in competing order to become proﬁtable.orcing loan collection. Part of Grameen Shakti’s success. but if the company sees subsidized electricity. of buy even a small solar system often meant sacriﬁcing ple. t is only ’s investment with Sunligh I contrast.
ladesh.countries and. and grants). lay further upstream in the value chain. guarantees.was en the worst ﬂood in over a century hit vp solar it wh found that many’s ﬁnancing programs re. particularl e gf funds with respect through at terms unavailable in the market. therefore. from a ﬁnancial standpoint vp ences f ds of and dsc also highlight the importance the plant would not have been feasible without of being open to revising the original program desome form of subsidy. in large part through ic by f ge f sup. allowing for more technical assistance equivalent to 70 percent of the overall construction funding and longer repayment periods to be procost of the plant. as are solar other RE technologproject design. as monthly incomes also subject solar vp programs that the market reality was ctuate at ﬂu not wh according to seasonal harvests and spohad been envisioned. the and the saw a full 90 percent of its operating area ﬂooded in y smes. crops). had a signiﬁcant e∑ect on technological case for the reliability of utility-scale v pm t i ’s ability to place funds. the experience o∑ered national utility to provide sh under a subsidized limited replicability at a general level. or to the ﬁnancial instrument used. if so. as a result. which has beneﬁted from an extensive ties in placing funds. sales were non(food of individual i f c s ’ l e s o n s o f e x pe r i e n c e 19 . t is widely acknowledged I sigf ds n. operate sustainably without s provide enough of a subsidy.at the consumer and project level. subsidizing fee-for-service soapproach to the market was restructured. and ic programs f port. as well as natural disasters. currency changes. as developing tion is heavily subsidized throughout the such. in what form? shareholders concerning its attempted restructuring. Japan. These issues had a r greater ﬂexibility and patience. The question that remains to be answered. All programs examined in this reareas: om the leng port received some form of subsidization. with its that there is a particular need for continued technifocus on larger projects. They are f learned very early in the implementation of its to cash ﬂow issues. nature of economics of the market. it requires substantial ﬂexibilit world. that given most current market conditions. such as Germany. or if more substantial dies when they st lowest or if it had been able to reach consensus amongare theits co source of power for a market subsidies are needed and. it is possible that the overall experience of d sg l e s ons abou t i f c’s fi n anci ng would have been much more positive. Despite the risk-sharing strong e∑ect on the ability to make payments both tools o∑ered.very much a developing market and. particularly in Kenya. with its more ﬂexible funding options .to introduce some ﬂexibility into the repayment fi s) continued tohad ( ceive solar be risk. vp and ies in ic ’s experience in solar f vp has demonstrated the developed countries. Most fee-for-service scheme within an exclusive geoproﬁtable opportunities vp in the solar market also graphic concession. v pm t i ’s government program. cal assistance funding as part of its ﬁnancing proand exclusive focus on equity investments. In the end. with nomic the inception which shocks. had a grams. frbe it in th of repayment schedules to the form of ﬁnancing. segment. is whether technical assistance grants will Had dsc been designed di∑erently from the outset. pro gr a m s vol at i l e m a r k e t condi t ions . The di∑erent experisolar power plants. greater return expectations.1998. Grameen Shakti vp to y plans to with the technolog. The project received a grant vp cealcp o structuring. Subsidies Need for Flexibility in Program Design Unsubsidizedprograms have proved vp solar The solarmarket is vp particularly di≈cult to implement. as shown by the following examples. great deal of di≈culty placing its available funds. due to their inexperience accommodate these issues. and need to adapt initial project designs to a number of the United States. c if through local government. n the face of continued di≈culI Power Maroc. Despite the enthusiasm.has been able to implement ge f ic f macroeconomic situation of their country (ecoa number of di∑erent solar vp ﬁnancing programs. while . The relar systems. some (providing working capital loans with minimal seform of subsidy is necessary to vpmaintain solar curity. Lower income rural populations are particularly susceptible to the With funding. Rural electriﬁca. While the plant makes a strong vided to Kenyan clients. There was need foradic income-generation activity. People were focused on the essentials ic of f Bang quired tailoring to the speciﬁc needs and shelter) and. if fully meet its ﬁnancingdsc targets. was able to successbusinesses in the 19c has found developing world. are able to 19 Solar businesses pv however. financial institutions per. changes in the price of of the di∑erent ﬁnancing programsic was based. as in the case of Sunlight r e s t ruc t u r i ng. using provided interest rates to the business plan and.
The members elect vestors. The solaret in the developing world vp mark instances. solar vp companies are in need of capital. or regional Financial Institutions Still Find Solar PV to Be needs. it is important to kee 9 of the 13 members of the Board of Directors. however. marketare s generally not ready for private equity inprices wa tance. GRAMEEN BANK Launching a successful sh distribution company requires a signiﬁcant upfront investmen Grameen Bank was established by Professor Muhammad Yunus in 1971 as a repurchase equipment. than those for energy e≈ciency projects. Grameen Bank is notionally owned by its 2 million members. payback periods can be tional costs in relation to portfolio size. resulting in deals being periods less canceled due to the fact that the time fromof approval than two years. distribution problems less vestments. ic ex erience f regulated by the Bangladesh Superintendent of Banking or any similar regulahas shown that it generally takes several tory body. with 94 percent being women.existent and the default rate on collections was -related funds directly. dsc was eventually der to leverage local ﬁnancial resources. ic ’s lengthy and cumbersome deal apf has certainly proved itself to be high ris proval process proved too stringent for small solar ﬁnancial returns have generally been disapp vp companies. Many Too Risky of ic ’s programs o∑ered one particular type of f 20This ex p erience is somew h at ﬁnancing— provided private equity. andcan be deployed to ﬁnance renewable energy proplaced the of scale are easier to come by. Patient capital and long-term Need for Flexibility in Investment Offerings loan commitments with modest ﬁnanci expectations are what is needed. both vpmti sme dsc and had cumbersome itoring required for equity investments Yet. limited management skills. ments of a private equity fund. where bigger systems are being sold. however. as a result. the bank had equity of $100 million. that the payback periods for renewable energy proIn 2006. are Peace Prize for their work on economic and social development among the poor. For small nesses. n the case of solar vp projects. awareness and provide techni not only raise as the oped countries. 20 s e l i n g s ol a r : a p r t 1 . it dislooking to sell solar pv in develbanded due to its inability to disburse funds. nvestment I necessary. while renewab ergy projects are operaI to disbursement was too long. as a ﬁnancial instru clients had to be delayed as a result of the ﬂood. To com pare. sme Program provided concessional loans ancial institutions as far as provi ﬁn through Many private equity and venture intermediaries—and. smallerund it was fo vp solar companies. and needed economies loan o∑erings. Selco Honduras also to the needs vp of the solar well-adapted market in su∑ered a major setback following the devastation 20and the demanding requirethe developing world brought byHurricane Mitch in 1998. and raise consumer pawareness. Theam loan to Grameen out the help of intermediaries. Renewable energy an of whom owns one share. The private model is premised on the concept of high s i m pl i f i e d t r a ns act ion pro ces s . ic believes that in o f capital companies are involved in solar manufacturing projects pv di≈cult to place their funds. o∑ering needs vary signiﬁcantly. which had been sme Prog n addition to poordsc returns. Not nels. with payments to be made on Private Equity Is Not the Answer an annual basis and. even though et through . each coup this investment. The majority of the bank’s clients are poor and lande≈ciency projects often attract similar t less and live in rural areas. The ram.Program. as a result. 1995. and underestimated the conservativeness d sc ic the f unique to the developing world. as well as high almost always over three years. but also engage the local ﬁnancial higher. process that was more in line with the characterisaccounting standards. n many I return. Grameen Shakicti did not to attract private equity to f attempted have issues in servicing the sme Program loan. in excess of 10 years. simple n addition to ﬂexibility in program design. proved more ﬂexible. energy e≈ciency projects often have payback documentation processes. inadequate exit s tics of vp solar companies. Lacking an extensive fothe time-consuming and costly admini cus on s. due to the s nies. that pri vp mark d sc I collections from Grameen Shakti’s vate equity funds. sme Progr Shakti had been structured with a two-year grace period. di≈cult to I found it speciﬁcally designed for small and medium compamake equity investments. based on market segment. Muhammad Yunus and Grameen Bank were awarded the Nobel jects.loan instruments wi I ity in investment o∑erings is rity provisions are most appropriate. in particular solar much longer vp projects. By December 31. ﬂexibil. t found. adopted a less burdensome deal approval sizes. establish distri search project. with majority of itsex-solar vp tremely high. with its concessional by devising risk-sharing produc sme The more directly daunting. speciﬁc country.
First. s i n c e t h e i r n a r w o i n t a l i n ve s t m e n t t e r m s we e r out of touch with the market e. r v pm t i also elied only on r eg f funding. Need for a Broader Technological Focus LESSON LEARNED: THE NEED FOR A MIX OF TECHNOLOGIES THE PORTFOLIO APPROACH TO DISTRIBUTED GENERATION OPPORTUNITY (PADGO) PROJECT The ultimate goal of the PADGO project is to reduce CO2 emissions by displacing central fossil-fuel-based generation in favor of a portfolio of renewable and clean fossil-based distributed energy (DE) generation technologies with waste heat recovery (also known as combined heat and power). ee the only intermediaries suported w r by the sme Program tha ageed to comit concesr sional loan ﬁna cing to solar vp porjects. with its exclusive focus on solar vp . page 32) was a notable exception y to the eluctance of r fi s to sup or t solar vp projects and pvroides a successful example of hwo ﬁnacial intermediaries can suport the solar v p m a rk e t . In the end. demonular straes hwo the same model can lead to di∑erent er sult in di∑erent countries because of speciﬁc country conditons. Second. r ality d sc was eventualy disbanded when mangement was unable to identify a large enough number of investments to p v r oi d e t h e t y p e o f e t u r n s i n v e s t o r s o u g h t . t h o s e t y p e s o f p ro g r a m s we e a b l e t o o ∑ s e t s o m e o f r the risk as ociated with solar vp . f ds was a no prﬁt entiy tha pvroided a range of busines development asitnce and seed ﬁnacing to establish new The experience of vpmti . The financing process will move closer to an asset-backed securities approach. the project has been divided into two phases. The type of ﬂexible suport f ds p ro vided was greatly needed and in high demand in the solar v p m a rk e t a n d . both d sc a n d v pm t i wee faced with having to undergo major estructurr r i n g . it will identify the key problems that the electricity grid may face with large-scale DE generation. Howeve. Unfortunae. unlike other projects. thee countries selected for their suportr ive policy environments and the pesence of a r i f c s ’ l e s o n s o f e x pe r i e n c e 21 . and was unwilg to take on the esponibilty for the r ﬁnacing. both noprﬁt nogernmental organiztos vo ( s) and ﬁnacing instuo with enviornmengo n tal mison. and fi s have generaly been wary of ﬁnacing smes. thesme Program had intaly hoped to vpiorde ﬁnacing to the Vietnam Womes ’ n Union ( vwu ). E+Co and r Enviornmental Enterpises Asitance Fund ( e af). r Limited Replicability It is importan to note tha f ds . for example. Kenya. and Morocco. PV. The sme Program. was largely successful. and will have three specific goals. IFC will incorporate into the risk-sharing framework the lessons learned from the introduction of the new technology-based pilot project initiated in Phase 1. r this success can be linked to its pe-ageed scope of r r operation. in partic. Grameen r r r Bas ’nk suport of Grameen Shakti (see Grameen Shakti case stud. sought to wokr ular thorugh ﬁnacial intermediaries. this ed v v p or to be a signiﬁcant chalenge. solar ly vp pved to be to risky ro for most fi s. Phase 1 of the project will focus on Sri Lanka. as larger volumes of transactions are targeted. wind). By contras. while d sc had private capital. In fact. Furthermoe. v pm t i operates in India. biomass. it will develop a performance framework that would enable risk sharing between IFC and the local banks on their existing portfolio of mini-hydro investments. the w v r vwu vie ed the risk w of vpiording end-user ﬁnacing as to high. when it came to solar v p inestments. and (2) the economics of the solar v p m a rk e t m e a n s t h a thee ae high risk and uncertain eturns. Hoee. and will develop key guidelines on how DE generation can be assimilated into an integrated resource planning effort at Ceylon Electricity Board. reciprocating engines. in partic. investment faciltes tha wee r exclusively focused on solar v p ( a n d v pm t i d sc moe di≈culty placing funds than the programs r tha had the ﬂexibilty to also invest in other sectors and technolgies ( sme Program). Hoee. Solar vp is deemed risky for two ear son: (1) most solar vp companies ae r smes. Howeve. which had taken on the sales and colections orle for Selco Vietnam. page 20) than it is i n d i c a t i ve o f t h e p o s i b l e i n t e e s t o f m o s t l o c a l r fi s to engage in solar vp . while the w v r porgram was able to wokr thorugh intermediaries for a number of the porjects implemented thorugh it.jects. this is moe epesentaive of the uniqer r r r nes of Grameen Bank (see box. In order to achieve this goal. In Vietnam. During Phase 2. In the icf experience. PADGO will focus on introducing new technologies to the DE mix by promoting complementary DE technologies (for example. a s a e s u l t . Need for a Broader Operational Focus ) had solar vp ventues and suport existng early-stage r busineses. the sme Program vpiorded the loan diectly to Selco Vietnam. r f ds was largely able to meet its goals. r v pm t i was estructued to alwo for longer epayment perir r r ods and inceased funding for technical asitnce. IFC will work with established private sector players to do one or more pilot projects with a technology that has not been extensively implemented in Sri Lanka. Significant progress is also expected during Phase 2 on the integration of DE technologies into a mini-grid structure that allows for dispatch capability and value for capacity. Third. The framework will thus be made more robust and applicable to a larger set of technologies. which was moe demanding.
.a.not ic has Althou f been able to identify a fully viable sust ness model forvp solar distribution companies developing countries to replicate. funding to support the training of solar vp technisubsidized by the government.able there and energy in the developing country. and local governments need to be mance standards. create consumer ﬁnancing. in the vp industry is focused on export to subsidized weinitial structuring of end. backed with assets. indus small local companies. underminingneeded ini. which forced its dissoluti not available than allowing fo through local sources. with its very diverse sh holder base. But They Lie Further Upstream in the Value Chain Shareholder Diversity The more diverse a shareholder group is.ern markets (primarily Europe). while increased port the Kenya Renewable Energy Association availability of black market solar vp modules put increased(kera pres. the di≈cult it is to manage expectations. et. MBIL is also an existing IFC client. experiic f enced considerably more success in ndia. There Are Profitable Opportunities in the Solar PV Market. th its sim shareholder base. A large number of solar vp systems hadr commercial solar fo vp enterprises to be success been sold in Kenya on a pure cash basis by very technicians need to be trained. (MBIL) is the third-largest manufacturer of recordable optical storage media products (CDs and DVDs) in the world. this ﬂexibility often does n sh nstream ( holder Both v pm t i and dsc found very early on in the imic ’s investments lay primarily further downstream f plementation stage that original target in the value chain. IFC has recently approved a $22. India. d sc of LESSON LEARNED: MOVING UP THE VALUE CHAIN MOSER BAER IN INDIA l e s ons abou t w h at m a k e s a s uc ces s f u l s ol a r p v coma ny p Moser Baer India Ltd. A second reason is that ther more ﬂexible restructuring. n order to help move the solar vp I funding. shareholder diversity that had been much vast majority of manufacturing activity in the solar during the stdsc proved.und that there vp y I v pm t i fo Technical assistance grants are still was considerably more need for technical assistance market forward. where theuse funds when it could not I propriate for to egf market for solarwas widely established ensure that they would be used to support ren vp and enjoyed considerable government support. and ic aims f to provide ﬁnancing only when it ison changes. While there are some notable successes am some of the vpsolar companies ic provided f ﬁnancing for. and it was n vibrant emerging solar vpmti vp market. I initiative grapproved additi ant Morocco. rity marke An important ﬁnding that emerged solar of the vp solart means that ﬁnancing ic ’s from f programs have vp experience is that there are more viable opportu-to be ﬂexible in order to respond the changing mark nities further upstream (module manufacturing) in et realities. was able to complete th commercial ﬁnancing more readily. the majority of them did not to their original expectations. for sh in the Kenyan market. sure on module prices. its experience working in the market has highvp solar lighted a number of key areas that companies should focus on and resources that need to 22 s e l i n g s ol a r : a p r t 1 . that of many systems vpmti found a t was had been called into question. Currently. unlike the cash-ﬂow-backed howedscver. n the 2004 re particularly the in Keny I tial progress that had been made in the markthe n turing. reduced the need for quality awareness in the m cians. a stepped-up fee-for-service program.000 tonnes of CO2 emissions annually. wi facturing companies are often able to obtain local reevaluated. but there were no perfor-developed. and the quality to be lobbied for support. which has the potential to avoid 80. MBIL is undertaking a two-year diversification program that involves setting up an export-oriented solar PV cell and module manufacturing facility with an installed annual production capacity of 80MW in Greater Noida. With a di the value chain than dowdistributors). This project. n Kenya.5 million long-term loan to the company to support this $92 million project. will also lead to the creation of about 600 additional jobs.and establish a quality assuran ). to be one’s greatest constraints. One reason for this is that manurestructured and v pm t i . group. found it impossible to reac ﬁnancing provided to sh distributors. were a large number of established solar vp companies and relatively widespread knowledgeNeed for Technical Assistance Funds about solar technolog. because it is changes.
The needs of each of these di∑erent to be $1. for most prilight. Hence. Their sumers tended to be from higher income groups. consumption prioriI In order to seize this opportunity. Low-inoff-grid lighting products and displace fuel-based lighting products (kerosene come consumers are often lookingvp forsysa solar lamps. Additionally.ifc. and solar vp companies lighting companies to enter and compete in the fuel-based. as they perceive them to be too risk. trified citizens in Kenya and Ghana a variety of modern off-grid lighting there was little market for smaller systems. having a televiI able pricing points. tem that will support a single light source. as well as donor funds to cat- n order to ensure that they are providing the right I alyze local and international lighting-related companies to offer the unelectriproducts. please visit www. off-grid lighting should adjust both their product o∑ering and their market with modern and affordable off-grid lighting products.org/led.500. not like to ﬁnance solar vp purchases. experience has shown that investors and banks do For more information. while Current consumption of fuel-based lighting represents a large global marhigher income consumers might well be grid-conket. and conproducts that will be better and more affordable than fuel-based lighting.. ic ’s f to 3.g. In Kenya and sure an uninterrupted power supply in the event of Ghana alone. was well positioned to provide consumer to be small and operate in complex players tend ﬁnancing because of its parent company. n addition to income level. it established and respected Grameen Bank.place in order to help ensure the successfLEARNED: AFFORDABLE PRODUCT OFFERING TAILORED TO TARGET MARKET SEGMENT LESSON ul operation of such businesses.000 (high-end scenario) ﬁnancing. i. The project target end-results for Kenya and Ghana are (1) to provide greater access to off- Consumer ﬁnancing has often been seen as the key grid lighting products that are more modern and affordable than fuel-based element to developing the solar vp market.000 tonnes (low-end scenario) majority of the population without electricity. therefore. IFC believes there is an opportunity to attract customers vary greatly. the large initial price tag of acquiring a end users with modern. n Vietnam. people were more interested in vate companies. off-grid lighting power outages. candles). mostly served by oil and gas companies. harnessing the marketing strategies in order to satisfy di∑erent conprivate sector profit-seeking motivation to increase access to modern lighting sumer market segments.000 tonnes (high-end scenario) by 2015. the well. (2) to reach 316.4 billion per year. LIGHTING THE BOTTOM OF THE PYRAMID Product Offering and Market Segmentation The Lighting the Bottom of the Pyramid program will leverage IFC’s global network. Independent estimates indicate that worldwide spending on fuelsystems that recharge back-up batteries to help enbased lighting in developing countries is $38 billion per year. acceptcountry. Grameensh Shakti. industry expertise. in experience is that the entrepreneur is absolutely critprovider an Bangladesh that received ﬁnancing from theto the success of the project. solar companies are those that have a way of envp Management and Staffing gaging skilled providers of consumer ﬁnancing. and distribution channels. and are not concerned with the risks associateda major contributing factor to the suctionship was with provision of consumer ﬁnancing. These issues also vary from country to ket. IFC will facilitate the entry of local and forties and lifestyle have proven to be key segmentaeign lighting companies to this market by helping firms (i) understand the martion issues.e. called early adopters”). Given that solar sme ical vp Program.000 (low-end scenario) to 1. solar PV lanterns). but largely untapped by lighting nected and be looking to purchase larger solar vp companies. This relawho possess strong management skills are crucial. services and reduce poverty.is documented that hands-on managers markets.. lower power requirements will also enable more cost-effective use of solar PV who could a∑ord to purchase systems outright (soas a power source (e. IFC estimates the total spending on fuel-based. i f c s ’ l e s o n s o f e x pe r i e n c e 23 . for example. and regional experience. thus allowing them to remain focused on their core solar theme that emerged from A consistent ic ’s solar f vp vp business. there was no vp panies in this market and their competition for market share will bring unelecdebt or consumer credit culture in Vietnam. and (3) to reduce solar system is simply una∑ordable to the vast vp CO2 emissions from fuel-based lighting from 782. off-grid lighting products by 2015. including consumer behavior and preferences concerning lighting. “ As of January 2007. is very challenging. The entry of several modern lighting comlarger solarsystems. Without lighting. and (ii) understand and mitigate sion was seen as more important than having a the perceived risks of entering into a new market in a region that. Also identiﬁed was that y solar companies are generally more skilled at the vp manufacturing and commercial distribution of solar vp .909. 135 private companies and 63 stakeholders from 35 Provision of Consumer Financing countries had expressed interest in participating in this initiative. Successful cess of Grameen Shakti. solar vp companies should acknowledge fied population in Kenya and Ghana greater access to modern and affordable the di∑erent market segments that exist.
Grid expansions are a political tool in many developing countries. Acc chase basis) Grameen Shakti. a feat that would likely have made it easier for the end us rental model been impossible without adequately knowledgeable local sta∑.the country. as a result. Grameen Bank’s general managployed in the solar sales (on a hire-purer dedivp market: cated 20 percent of his time to the direction of and fee-for-service rentals.000 villages provided signiﬁcant local knowledge that it was able to share with Grameen are two i. in some instances. cannot be overstated. Although it was on a rental basis.with Managers should be ﬂexible in order to respondlocal educational institution remained on the cutting edge of technolog. the sales model is muc ic f The experience ceofopalc in the Philippines sustainable. The Soluz Honduras experience showed the signiﬁcance for strong government relations to be backed by legally binding concession agreements. supplyingconsumers for-service losh to cal environment. the development of local partnerships is pivotal to the success of a solar vp company. and the company sought to partner 24 s e l i n g s ol a r : a p r t 1 . Operating without some sort of binding legal agreement from the government puts companies at increased risk of customer loss. to Selco Vietnam. as they began to gain a As mentioned above. Soluz was operating in Honduras without any formal government concessions and. vp market rural cultural vwu had representatives in in each country di∑ers. it was o ment of a solid understanding of consumer needs. the social and communities. as the bank’s presence in approximately Sales versus Rental 36. local government support was lacking. and while th ship was eventually dissolved. Soluz Honduras began operations a management team and sta∑ who understand thecompany. however. Fur-models currently being em There Shakt primary thermore. found itself unprepared for competition from unexpected grid expansions. that t approvals before construction onsolar model was not ﬁnancially sustainable. especially given current m highlights the need for a strong and experienced tions. t became apparent after mw only a small. strong management was required for the project to be completed on schedule. 1 I er project. as a result. cealcp o the vp plant could begin. n addition to supportive government relations I and. Establishing a Selco local local presence through appropriately trained entered the Vietnamese market. Local Partnerships and Government Relations The importance of strong government relations. Grameen Shakti beneﬁted in the country. W y quickly to changing market realities. Furthermore. signiﬁcantly from its relationships with Grameen Bank. particularly in terms of understanding planned grid expansions. and are often unpredictable in terms of funding and timing. local sta∑ had to obtainars of 50 permit ye over implementation. The every village in knowledge of local sta∑ is essential to the develop. for example. to’s experience. it fo partnership with the Vietnam Women’s sta∑ is mandatory for any company looking to be a ) to support the ﬁnancing of in sh sales of player in the solar As the solar (vwu vp market. the permitting process delayed construction and. due to inadequate government relations. When Grameen Shakti ﬁrst began operations in Bangladesh.
These unique marketing strategies contributed signiﬁcantly to overall sales. this type of entrepreneurial spirit existed. Where being perceived as unreliable and even undesirable. Selco Vietnam engaged thevwu to help sell theirvwu systems. formation and lack of understanding as to what which he then rented out to people in his villag at services avp solar system can reliably provide and e. it wasthe country. In some countries. promoting a type of demand associated with “keeping up with the neighbors”. cially sustainable for an The initial sme start-up. large outlays for capital equipment could not be Entrepreneurial Spirit o∑set by small monthly rental fees. notably India and Bangladesh. In Bangladesh. ucts to the right market segment. This entrepreneurial Even when a company has matched thespirit appeared to have some inﬂuence on the sucright prodcompany itself. Furthermore. t also demonstrated how I the general population.provision ofcan lead to increased sh income-generating activities. the equipment cost accumulatedence in just about every village in not ﬁnanwith the company and. there was a considerable entrepreneurial spirit to Marketing be found among end users. Soluz Honduras eventually adopted a sales model. as a result. His business was so successful that he was pv solar what cost.greater demand for solar systems. and consumers had a greater ability to tion projects should be in place in order to educate mak their payments. there was pv Solid marketing strategies that include demonstra. lage. as the i f c s ’ l e s o n s o f e x pe r i e n c e 25 . the presence able to purchase a larger system while also of poor quality systems in some markets has providing in solar vp resulted a better education opportunity for his children. There is stillend user usedpv solar phones. Grameen Shaktie initially the pv solar provided free of charge to key people in a vil.had presence and inﬂu quire the systems. cess of thepv esolar a strong mark tone substantial misinpanels to charge cellular ing e∑ort is crucial.
e. These commitments represent a 45 percent inward trend in vsolar p price. 21 This includes hydropower the future role of vp solar rural electriﬁcation in Although generally less heralded now compared projects greater than 10 mw per facility. The corporation is increas providing its own funding on commercial t without reliance on donor subsidies. having ﬁnanced $668 million worth of EE/RE projects in 2006 tributing factors that should reverse th and $461 million worth in 2005. to increase necks caused by the limited supply of sil its renewable energy and energy efficiency portfolio by 20 percent during a newer and higher e≈ciency solar vp materials and ﬁve-year period (2005–2009). but also the experience of several key playersy in television.. as dress rural electriﬁcation through using a variety solar demonstrated by ic through its recent invest f renewable energy technologies as it moves away in I from a speciﬁc solar vp focus to a more technology. Continued Support to the Market While solar no longer a speciﬁc re-cus. tiatives continues to lie in the ab to the mid-1990s. c rec. The most important factor that will de neutral approach. To gies to address the issue of rural electriﬁcbecome more economically viable. vp is ic f fo mains committed to it as a renewable en nology for addressing the issue of rural electriﬁcation in developing countries. including sol vp technolo. more than double the Bonn 20 percent target.important role in maki able energy and of vp services available. it is currently exploring new ways play ad.of able will ation. Germany.nium Development Goals and Kyoto Protocol if vp . ic has f moved away from solar -focused initiatives. the global commitment to vp market in developing countries will be met. During both 2005 and 2006. ﬁnancial support to EE/RE21 was $860 million in ﬁscal year 2006.ch a p t e r 4 FC’s Apoach I rp Today to hold own experiHaving extensively evaluated not just its promise. in favor of more technologicall neutral programs.asolar vp as technology continues to identify the niche market segments for technology is the least-cost alternati WORLD BANK GROUP COMMITMENT TO RENEWABLE ENERGY ued decline inprices will help create more vp solar of these opportunities. Overall. With the rising price of cru mistic that it is not a question of “if ”. new materials that bypass the gl ternational Conference for Renewable Energies in Bonn. c remains cautiously optiif households. with $393 million in commitments. ognizes the current limitationnewsolarenergy technologies. These increases suggest that the concerted efforts of the WBG to scale up support for new RE and EE are having a positive impact. radio) of dispersed and remote the solar vp business. and contributions of $326 million of its own funds for new RE and EE projects and $67 million for hydropower projects greater than 10MW.Moser Baer in ndia (see box on page 22). vp as and vpmti d sg . having proved to be the m propriate wa of meeting the power needs (lighti ence. the WBG surpassed end-user devices (i. but of when” “ the goal of a self-sustaining solar natural gas. Total WBG sustainable energy ﬁnancing in 2006 supported 61 projects in 34 different countries. IFC was the largest contributor to RE and EE. crease for new RE and EE. The sector can to an that extent. ncreased manufactu I The WBG has remained true to the commitment it made at the June 2004 Inpacity. t 26 s e l i n g s ol a r : a p r t 1 . Simultaneously. Among the various WBG institutions and units. lighting conled s) are all via its Bonn target.
8 191.4 67.0 0. terprise and public education. ﬁrstly.5 monitoring and evaluation processes. buildsportfolio of renewable and clean fossil-based distribegf -funded upon the experiences of the ram. * The the structure has a more streamlined approval e sf process. and displacing fuel-based lighting standards. o∑ering tration is hindered by the persistence of market barthe unelectriﬁed population in Kenya and Ghana barriers may include high upfront costs.4 859. Carbon Finance and 13. these initiatives seek to acceler i f c s ’ a p r o a c h t oda y 27 .7 118.2 62.6 447.1 33. the esf has moved away from a single focus on to a broader renewable envp solar Through the above market acceleration initiaergy focus. page 23. as well as proWorld Bank 54. This initiative seeks to catalyze local and applications. focus on di i may ﬁnd ic support through the following markets t r i bu t e d gener at on proje ct s : f t h e p or t f ol io approach t o di s t r i bu t e d acceleration schemes: gener at ion opp or t u n i t y (pa dgo). of the Pyramid initiative. and on piloting private company projects using new technologies. IFC (own funds) 17. througondly. A clear focus was placed on debtmance framework to enable risk sharing between instruic and local banks f ments over equity. and Southeast Asia. This project aims to reduce CO wor k i ng t h roug h fi s : t h e env i ronm e nta l 2emissions by displacing bu s i n es s fi n ance pro gr a m (ebfp ) . (See Lesson take advantage of any potential upside.0 0. vp module manufor most private companies.) vp solar such as the sh distributors proﬁled in this study. Designed based on the experience of previous rams. Total 220. riers. toh carefully designed market intervenbarriers throug understand the market.EFFICIENCY IN FISCAL YEAR 2006 (MILLIONS OF DOLLARS) dertaking environmental ebfp also the projects.7 6. and World Bank (IBRD/IDA) 135. SOURCE OF FUNDS NEW–RE HYDRO >10MW EE TOTAL provides technical assistance grants to develop and strengthen an fi ’s appraisal. (See Lesson Learned box on the Lighting the Bottom Moser Baer. with convertibility features to .1 t e chnol o gi e s : t h e s u ta i n abl e energ y other trust funds*) faci l i t y (s e f ).) earlier initiatives. but whose market peneable in certain international lighting-related companies.8 1.0 1. The esf is a $14 million ic / f eg f MIGA 0. Central America.8 fund that ﬁnances sustainable energy and energy e≈ciency projects in Brazil. ic prog f dsg . initiative aims to facilitate theproject developers.4 di r e ct i n v e s t m e nt t o s u p or t a m i x of IFC (GEF. central fossil-fuel-based generation in favor of a a $20-million facility.0 20. page 21. and distribution channels and.3 369. risk management. By addressing these among market entry of the lighting companies by helping ﬁrms. entions. as well as solar risks of entering into a new market in a region that. to understand and mitigate the perceived h its nfrastrucI ture Department. (See Lesson Learned box .6 115. etc. page 22) Smaller initiatives. The ebfp . through its Global Manufacing on turing Department. Thelimited managerial and technical skills awareness. which and preferences concerning lighting. the corporation aims to provide technical asfocu s on affor dabl e off-gr i d l ig ht i ng sistance and ﬁnancing to support renewable energy produc t s : l ig ht i ng t h e bot t om of t h e technologies and practices that are commercially vip y r a m i d .larger utility-scale projects. Sustainable energy is a (GEF and Carbon Finance) key focus of this program.8 China. including consumer behavior may include transaction support. tives. These greater access to modern and a∑ordable o∑-gaid of ﬁnancing. has been very challengfacturing companies. secquality standards. recovery (also known as the ﬁnancing involved in activities that smes of A key focus of the project is on developing a perforbeneﬁt the global environment. successful business models. Unlike some Learned box on adgo p .0 1. and is speciﬁcally energy generation technologies with waste heat sme Prog uted interested in engaging ﬁnancial intermediaries in combined heat and power).0 mote market development.0 393. ader lack lighting products. including IFC’s “other trust funds” category includes the Environmental Opportunities Facility. and consumer quate product quality products (such as kerosene lamps or candles). Designed to provide s with risk-sharing mechanisms 5: WORLD BANK GROUP COMMITMENTS FOR RENEWABLE ENERGY AND ENERGY fi TABLE that encourage intermediaries to provide ﬁnancing to sme s un.0 309. and development of acceptable pricing points.
and expected opportunities for further business growth. page 22) and has indirectly supported a bank ﬁnancial leverage and experience and acts on p loan for a grid-tied solar PV power plant in the Czech Republic through a clean ular opportunities to aggregate markets. Most importantly. One measure of success in donor-supported programs is the process solar technology among suppliers. While some latitude has been allowed for RE projects.. and security arrangements. play a vitalcontinued support ic f tinues to ic ’s role in f ponent of solargeothermal. the ability to make similar investments on commerutilities. f not meet minimum eligibility requirements for IFC investments (although IFC By building partnerships with key players also did invest on its own account in the externally managed funds created unrenewable energy ﬁeld and increasing conﬁdence i der SDG). because they did ably involve a mainstream ic investment. through a solar PV purchase program). i. including renewable energ. seeks to promot of IFC’s EE ﬁnancing programs. f able energy technologies become more competitive ceived approval for more than $200 egf million and regulatory frameworks are improved to encourfunds to support climate change mitigati 22 While support is generally ge f not needed for small hydro initia. As described in this report.the penetration of sustainable energy technologies concessional funding t and carefully targeted— so that. page 17). governmen vp of “mainstreaming”. local employment and associated supply chain beneﬁts of the investment.g. developing countries. including maintenance of appropriate minimum debt service coverage ratios. ∫ The proposed ﬁnancing should also meet standard IFC conditions. ∫ The expected rate of return should be commensurate with the level of perceived risk. number of opportunities for mainstream renewable vided by under its operational programs to eg f energy and energy e≈ciency investments. Spain. 28 s e l i n g s ol a r : a p r t 1 . has utilized and will continueof to utilize limited—technologies. projected business performance metrics. sponsor support. the ﬁnancing should be based upon a sound and ﬁnancially viable business plan that addresses a quantiﬁable market opportunity and is guided by an experienced management team. several conditions will have to be met: ∫ The investment should meet minimum size requirements to justify IFC’s transaction costs.e.utilization. ic f developi cial terms without donor subsidies. primarily to satisfy short-term regulatory policies in a few industrialized countries. ∫ Other positive attributes that may increase IFC interest in a project include opportunities to engage and inﬂuence government policy (e. principally Germany.ic expects to see an increasing a signiﬁcant quantity of funds has f 1991. pv . deals of less than $10 million are unlikely to be attractive. the leveraging of commercial ﬁnance from local FIs. it seeks to identify avenues to m son Learned box on Moser Baer. s established in eg f wa Since Going forward. an evolution that is occurring in the context as part of the World Bank Group.ate the e∑ects of global climatereig as renewic has change. 22 and wind initiatives. solar and other renewable vp ic f always attempts to minimize the use funding and targets the subsidies in a MAINSTREAMING SOLAR PV INTO IFC INVESTMENTS preferred market interventions that favor proje The projects described in this report were primarily ﬁnanced with concessional that are closest to commercial viabili resources from GEF and other donor support mechanisms.. Beyond these e∑orts to age greater tives. eg f funding y contives. at the end of project implementation. and the United States. which may be an issue for the production and sale of solar PV cells and modules currently being sold. energy ﬁnance program (see Lesson Learned box on solar plant construction in the Czech Republic. the support worthwhile projects that are likely market is further ahead than it would have been erate the applicationtechnologies in er and e of otherwise. it is still an important comﬁnance mainstream sustainable energy projects. and end users in. the Corporation has solar and sustainable energy technologies vp approved an investment in a solar PV manufacturing facility in India (see Lesgeneral. For IFC to make additional fully commercial investments in solar PV production or enterprises.
a r pt 2 Selcd Case Stdsei e et u .
sh (all they would generate more environmental beneﬁVietnam distributors). The intermedibusinesses in Bangladesh. the program sought to demon-t ﬁnancing organizations wit vironmental 25 and mission) .3 million p the private sector and program ﬁrst eg f the deished with $16. andsme markets for sme s active in the areas of climate change mitigation the Over its lifetime. The primary fo aries identiﬁed. had when interested in go n ). operations and reach additional sme s. assuming the risk inı loans to. not-for-proﬁt.V. t provided loans of $500. which have sme 140 The objective of theam was to encourage ﬁnancing to some s. and monitored solar vp sh .orde C. USA. Soluz Honduras sells sme s.tinued funded.sme 25 nontraditional ﬁnancials. non-grant.5 million in 1997 t signed to receive capital reﬂows. sme Progr While sme the ram Prog the private sector to generate global environmental was not designed to speciﬁc million sector.Soluz. attrac versity conservation. The goal was to help these sme s expand so vp businesses: Grameen Shakti. gible projects.A. A subsidiary of Grameen as their ﬁnancial viability.9 million t time.. from theProgram. ﬁnanced. assessed. Asubsidiary herent in these projects by providing Solu z Hondu r a s S.000 to $1ally target the solar it became operI ational at a time become c if to various intermediaries (ﬁnancial. Ultim sme s making solar sme whose activities would conserve the glProgram environobal ﬁnanced six projects that involve ment. Grameen Shakti works to develop and deli ronmental sectors. Soluz Ho Selco ts. strate that environmental beneﬁts could be achieved Cogener (a Swiss engineering company that installed solar-power through the private sector on a commercial basis. capacity building. vp beneﬁts. I with. low-interest-rate loan (typical 23 s established in 1995. the program’s goal was to improve acf complement the ﬁnancing requirements for cess to ﬁnance. or go n intermedi backg rou n d companies in 21 countries. Over its life24the Program approved $16. without the need for grants or subsidies. I smallvp solar (up the intermediaries typically received a long-systems to rural customers in H term 30 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s . distributors: The intermediaries were ic by the focused on the sh three selected on f basis of their experience workis asth sme ng wi well ı Gr a m e en Shak t i . established a sme Program (energy e≈ciency and renewable energy) and biodisolid reputation and momentum. The programegf was the ﬁrst interest of intermediaries and o . and technical capabilities in both renewable energy systems to rural households environmental and ﬁnancial areas. understanding of enviBank. environmental sme projects. The initial $4. tising panels at a Tunisian airport).eaf E&Co and (both nonproﬁ At the same time. and private companies for on-lending to vp -related investments.ancing program targeting sme ﬁn tions. combining Program ( sme Program) wa cent per year) sme Financed with $20 egf million in their own funds with other sources of fundin funds and managed by ic . nc.c a s e s t u id e s 1 The FC/GEF SmallandMedm I ui Scale Entesirp Proam rg The ic / Small and Medium Scale Enterprise f eg f to 10 years). of the making equity investments nitially.
iled to focused projects. Given this ﬂexibility.on-lent sidiaries of U.html. tLd. isic / eb f eg f potential markets. sector. While Grameen Shakti easily management to be very “hands on” and knowledgegained access to economies of scale serving many able of the projects it ﬁnanced.000 installed. respected. 2007. mentioned.sme theam was vp solar Progr Although Prog able to invest rking in sectors other thansme theram initially planned to sme s wo in ﬁnanceam was able fi s.S. Grameen Shakti beingfathe only live up to original expectations. This “handsitself in a no-win situation. solar One of the key lessons of the overall Grameen Shakti continues to perform well.S.sh sme sme s were deﬁned as enterprises 27 The performance 700. Grameen Shakti.org w tion with a similar client base that helped them to /grameen/gshakti/index. Program was 24In 2004 the sme absorbed gef -f The me Program project that was locally owned and operated. allowing it to o∑set that little interest in ﬁnancing solar vp projects (the two -related solar vp the risks of the solar vp market through s worksme projects that ere ﬁnanced fi involved an enw s with ing in less risky markets. as one of its sme targret futechnoloernment. was less so. was a successful venture. that scale was far easA key factor for the successsme of the was Program ier to attain in a densely populated area than within the small size of the program. the sme Program’s most successThe Need for Local Ownership and Government ful solar vp project. However. Many leery of sme sme s w ﬁnanced by the Program had considerable ﬁnancing s. t h e i fc /eg f s m a l a n d m e di u m s c a l e e n t e r p i s e pro g r a m 31 . February 2. despite the mixed experience rin the solar w Prog am. The sme Program experience in solar hlights vp hig the importance of economies of scale to the solar vp Together.ı Selco Vietnam. for a total electrical capacity of over sh lated Bangladesh.-based companies. did extend. To increase its scale. Both Soluz and 25 Both E&Co and e af porated into the desig . Unlike other ic f people in one community. s (particularly di≈culties. Evidence sugwith assets valued at less t vp sme gests that this was similarly the case among solar Program projects has vp .of other projects of the million. mw operating in Honduras where the rural population was more dispersed. vp Many of the solar venvironmental fi s remained tures operational around the same period as those mission).-related vp projects directly. throughs. Grameen Shakti. its service costs increased. found was managed by an internal sta∑ team. Soluz Honduras. beneﬁting In the thanProgram. develop networks to overcome that obstacle. both ere w confronted with having to reach a certain scale in orA “Hands-on” Approach der to be proﬁtable. Diversity of Portfolio Offsets Risks of Solar PV n contrast to other facilities with which I ic was inf conclus ion volved in thesector. fi gies and activities. Soluz. far exceeded expectations in Support Proved Vital terms of the numbervp of systems installed. operating in densely popu24. swhile proved overall to be quite suc-by the unded Environmental Business Financ cessfu subvp both Soluz Honduras and Selco Vietnam ere l.3 at peak performance. velop as had been expected.vp The solar market simply did not decommercial banks) became even more reluctant. but when it respond rapidly to restructuring. and both su∑ered from a lack of fp the an partnership 26The E&Co loan to Rex Investment e af which targets sme s government support.Economies of Scale Are Hard to Come By in based Solar Electric Light Company. which enabled the a dispersed population. g r ameen-inf o. A subsidiary of U. The program had found fis had dent on one particular market. experience was the importance of local country own. it had the support of a widelyer recognized. on” management approach enabled the program to needed to expand its area of operations.000 . the program ing in areas with more dispersed populations. these three projects have installed over market. it ultimately ﬁnanced projects through solar.000 people in Bangladesh. Such experience gained has now been incor. and when ere coupled with a sme nascent technology vp likfi e solar . This program to sent the only solar pv projects receive Prog am nds has. ership and government involvement. the progr vp 26 most of its solar sme to develop a diverse portfolio that was not depen. of the Selco ere overly enthusiastic about the size of their ebfp n As previously solar w to pv -related projects. including solar. with a sme Program 23 more case of the total of 77. While Grameen Shakti did not working on projects that are in Tanzania and the loan to Soluz Dominicana repr beneﬁcial govhave considerable support from the Bangladeshi to the global environment. operatprojects with external management. While each entity w h at wor k e d and w h at di d not operated under a di∑erent business plan. and reasonably ell-capitalized organizaw 27 http://w. Sparsely Vietnam Selco Populated Areas sells solar systems to unelectriﬁed households in Vietnam. 1.
The Bangladeshi market for considered to sh is be relatively large. as indicated e a presence in approximately 36. Approximately 70 percent of households do not have accessibility t and frequent ﬂoods and cyclones. The latter. The company. This freed capital for Grameen Shakti to provide ﬁnancing to custo enabling them to overcome two considerable to sales in Bangladesh. n March 1998. and is overseen by div agers who report to the general manager of Grameen Shakti. ﬁnancing them. and assembling. for the most go n . even in rural areas. Grameen Shakti was approved for I ﬁnancing from the rsme am. the density of the Bangladeshi popu means that. low levels banization. Furthermore. a ma and a technician. high sh costs and lack of consumer credit. and a very slow political a reform process have made establishing a tra energy network (or grid) very challenging.2 systems within two ears and provided a twoy grace period on repayment.000 that Prog the ﬁrm received permitted it to purchase sh inventory. y While the focus was vp sh on solar . Alth (solar-powladesh. The company’s solar a for-proﬁprojects. selling. th Grameen Shakti has sion by developing and er delivering to systems helping connect rural areas to the world th rural households and businesses in Bangered) information technolog. there a concentrations of potential consumers. established in July 1996 by Grameen Bank. An additional sh barrier to in Bangladesh sales was lack of a strong ﬁeld-based sales and servi structure. Shakti also supported wind and biomass t enterprise. The program loan called for the sale of 3. The $750. 32 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s . Each o≈ce is sta∑ed by two people. inst necessary.000 villages Bangladesh. vp prothough on a much lesser scale. gram represents its largest business li solar panels and other systems component vp batteries) from a range of foreign and local supp ers. Grameen registered as an it is run. was in its ability to tap into the exis branch network. aims to support this bank’s poverty reduction mis. nevertheless. and Grameen Shakti operates th 28 o≈ces housed within the bank’s branch l Grameen Shakti o≈ces are established in with high electricity demand and no acces grid.gr a m e n s h a k t i back rou n d Grameen Shakti (meaning village power” ingBen“ gali).a secondary mandate. namely.
solar energy industry activity was minimal at the time of Grameen Shakti’s founding.. which is extended to service the client.Globe 2002—Best 50 tive to the large capital sh cost of imported equip. The local market had not yet been established.been awarded a numnational community and has ability and costtems. Grameen Bank. and the cost of making individual sales with associated supBangladesh port was high. and the Bangladeshi Government o∑ered no support. and monthly inspections. who spends 20 percent of most market-applicable technologies allowed the management to keep a step ahead of the compehis time directing Shakti. of needed. Most notional institutions.∫ European Solar Prize 2003—awarded by Euroment. Partnerships with educan addition to being able to tap into Grameen I tional institutions and suppliers played an imporBank’s branch network to reach customers and tant role in pursuit of new technologies and quickly establish a local presence. Additionally. widely recognized for its efforts in the intersh been There has been considerable skepticism concerning the vi. the company o∑ers clients a 20-year money-back guarantee in the event that a client is. the company hoped to maximi tably is the use of the Grameen name. Furthermore. Heavy import taxes on internationally sourced solar panels and a lack of local suppliers drove up prices. a name widely recognized and respected. Shakti has experienced many issues in the Bangladeshi market that are similar to parent. coupled with the sh sys of ber of honors. a large sales force was Infrastructure Development Company. The provision of general and the ager of Grameen Bank. Grameen Shakti had to rely on partnerships with other organizations in order to stay ahead.5kWh per square meter). n partnering with educaI also beneﬁts in other ways from the bank. routine system maintenance. a general lack of awareness surrounding the technology was a consequence for low demand. training seminars for clients. Grameen Shakti has Like its those of other companies in other world markets. Lacking government support. An extensive warranty package (which could be extended for a small fee) included free maintenance for the ﬁrst three years. Ltd. gr a m e n s h a k t i 33 . while making a dedicated e∑ort to reduce costs and thus lower prices.While Bangladesh is ideally suited to solar power because of its higher than average solar radiation (ranging from 4. Grameen Shakti identiﬁcation of trends. Grameen Shakti placed considerable focus on providing increased value to its clients. Thi warranty has enabled the establishment to manage its maintenance costs and has contributed to a high level of customer satisfaction. Large volumes were to get unit costs spreading RE through micro-credit needed solar for ∫ Best down to a ﬁnancially sustainable level.Organization e∑ecbut to Award 2005—awarded by tively do this. including: ∫ Energy relalimited purchasing power of target end users. To overcome these obstacles. Partnerships with suppliers also proved useful obs tacl e s GRAMEEN SHAKTI AWARDS Overall. tition.0 to 6. Grameen its i Shakt resources and provide clients with the most upy also makes use of the expertise of the to-date man-e≈cient technolog. 28 Today there are over 160 o≈ces. for any reason. unsatisﬁed with his/her system or the national grid.
no sales Grameen recorded Shakti also actively promotedin in. are key contributors to Grameen Shakti sucfrom Grameen Shakti.from both a cost and environmentalability to make payments. (See Table 6 on this page for a summar Grameen Shakti’s achievements. as well as hardware installation language. and the owner was able to add cell phone rentals to his product offerings. Grameen Shakti. and its existing distribution infras A shop owner in the Tangail district of Bangladesh purchased a 40Wp system base. ating applications (see box on this page Grameen Shakti has made strong e∑orts to raise ex mple).000 ($30) Grameen Bank was a valuable source of funding for per month—easily covering his payment installments of Tk470 ($6) a month to the ﬁrm during its early stages. and the collec management gram was adjusted y perspective. batteries. that of connecting th eas of Bangladesh with the rest of the world the service of information and communica technolog. despite the delay in collections The importance of Grameen Bank cannot be AN EXAMPLE OF AN INCOME-GENERATING ACTIVITY overstated. and as a consequence.5 percent of sales were full cash remit.th its two-year grace period and t arrangeconomy ment plan.) 34 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s .and shelter. income from the phone operations reached Tk2.000 system 500 (through October 2006) To date. This has considerably improved liv provided cleaner energy to 700. The structure of t gram loan. Grameen Shakti has installed ov solar systems. Most of the syst procured were suppliers tains an agreement with one of its battery for household application and qua ity of of used to take back. awareness about solar energy systems. clothing. A akey marketThe worst ﬂood in over a century hit Banglade ing strategy involved targeting the wealthier memin 1998. The seasonal cash ﬂow of the ement of payments to be made on an ann f ’s client to remain current proved to be a signiﬁcant inﬂuence on basis.. icenabled customers’ loan. 2007 Number of villages covered Total beneﬁciaries Unit ofﬁce Total employees Total installation of SHS Installed power capacity Daily power generation capacity Installation rate Installation of micro utility system Installation of biogas plant 25. recycle. sme ProA mere 2.85 MW 16 MW-hr Over 2000 SHS/ month 1.85 (a power generation capacity of per mw mw 16 hour). provided by engineers at I powered o≈ces.000 people 227 1. Grameen Shakti. with a total install vp 3. main. lighting a ment). Demand for cell phone services had emerged in his vilcess. for instance. This successful company has dive operations to include the construction plants to provide improved energy solutions cooking. As was evidenced in vp the other sola investlage and he saw an opportunity to provide solar-charged phone services. as well as o∑ering computer educat y and nternet access. sh the use ple’s focus shifted to the bare essenti come-generating activities. and adequately dispose life improvement (e. most sales depended on a 36-month pay.000 Bangladeshi As rural communities have become electri company has been able to work toward achieving secondary objective. success of a vp solar enterprise. GRAMEEN SHAKTI AT A GLANCE.000 3. such as Microsoft O≈ce and sign. mov i ng fora r d w TABLE 6.000 More than 700.135 77. wi tances. The bank’s knowledge of the market. Furthermore. ments under Program.of and defaults on collections soared.”was ﬂooded. this approach was suc90 percent of cessful in promoting a type of demand associated the Grameen Shakti operating are with “keeping up with the neighbors. devastating two-thirds of the c bers of a particular village.g. a lack of local ic ’s f sme Business growth was significant: operations were extended by four hours a knowledge and presence is a major barrier to th day. In only four months. howesome were used for income-generver.accordingl. Computer education includes a plications.
was established in 1993 to further comI mercialize applications for rural areas. Customers were charged the equivalent Rica. with $100. Soluz increased its afocus on the hurricane caused catastroph $44. or capital buy-downs. which decreased the initial costs syacquiring a solar vp of stem without having to depend on consumer subsidies. tomers was stagnant at 1.500 and in danger of deSoluz Honduras sought to target small businesses. Rolling out o∑er sme solar and two other investors ($250. s . nc. where Soluz $1 Honduras had been sellinga solar vp on wholesale million from a co-investment transaction with the Program basis since 1994. Along with rural By July 2002. vp rental o∑er was added to the existing cash and micro-credit sales o∑ers. Unexpected sochurches. kerosene. revenue in 2002 totaled 30 Soluz Honduras managed to attract 500 30 Soluz Honduras w a s f o unded $406.A. clining. Program approved a I sme the t became evident that the unsubsidized solar I vp 31 The Netherlands’ ﬁr up$400.000 deaths. donor programs. alternative energy sources (i.556. a .u l s z o nu dr o a h s . Despite ancustomersrural support om sme ones. I through the e af . n an e∑ort to increase revenue Nicaragua in 1998. the number rental cushouseholds. rental $20 installation fee. the and envi funds were fr ments using social expand the Soluz customer base. a critthe sys base ical step on the way to a target of 5.. contrast to the client base and the devastating e∑ects of Hurricane year 2000. Soluz Honduras was one vp of the ﬁrst solar companies to employ a rental model. Soluz Honduras S. nc. sales (primarily by developing its dealer that os. who had no access to electricity. and health clinics. in the Dominican solar The Republic. selling and renting systemssolar retail vp small on a basis to rural customers. ﬂooding netwwa rk) blamed for over 11. nc.A.057 (30 percent) forvp solar sales. has two subI sidiaries. I USA.. Soluz Honduras began operations in 1998. s ol u z hon d u r a s 35 . rural marCosta of a I kets.000 customers. and later in Honduras. with $227.e. With a further charges remained too high for over 50 permonthly mental criteria. Today Soluz. (purchase of the battery was an additional cost invp of solar curred by the client).762 (56 percent) accounting for Mitch. While thest green investment investment fund screens its in Soluz Honduras. de C. Honduras.010 (44 percent)just prior to Hurricane Mitch. as well asFundaveragSoluz hoped to expand vp its solar an 31 e monthly fee of $15 for rental and maintenance of customer tem to a break-even point of 2.772.499 I p Honduras and The heavy rainf ll associated wi (70 percent) accounting for solar vp rental and and increase margins.. for solar vsales.V. schools. is a subsidiary of Soluz. Soluz Honduras and Soluz Dominicana 29 S. vp solar vp operations. providinggrid expansion and the inability to the cost of lar systems at monthly fees similarto continue to pay for installed systems meant vp that cells. accounting which devastated much of By 2000.000 loan and a $100. ﬁrst in the Dominican Republic in 1994. The to be used toont costs of installing a system decreased. solar rental clients in its ﬁrst year ofrental and $179. backg rou n d Soluz. e d c.500. n late 2000.00 vp rental the was a major focus aimed at penetrating each from Corporacion Financiera Ambiental. vp solar building upon the solarenterprise estabvp sales lished by Richard Hansen in the Dominican Republic in 1986.000 equityrental o∑er was not ﬁnancially viable. and Triodos Bank’s Solar nvestment ). v Headquartered in San Pedro Sula. drySoluz Honduras was forced to disconnect exist29Soluz Dominicana also recei ing entirely faster than it was adding frnew theProgram n and automotive batteries). revenue totaled $144.
and micro-credit basis. Soluz found itself in sev I ing wholesale through dealers and. while at the same time sig o∑er. the solar vp similar environments. Th and payments. i vp sell solar pany. t also continued to systems. the aggressive sale of vp used solar tutions out of its three o≈ce locations. distress. on a cash Thus. required that Soluz Honduras devote consider.s clear that a change was needed for the compa wa The company began to sell o∑ rental assets to meet survive.its sales e∑orts. An unsubsidized c high collection and maintenance costs associated with such a cial approach to establishing a pioneeri vp highly dispersed customer base. All this l rental o∑er did not succeed in creating an operating and transaction costs that needed to b margin for Soluz Honduras. without the beneﬁt of theed speciﬁcally with this eleme n addition to cash and micro-credit sal I opmental subsidies routinely provided to micropany placed emphasis on fee-fo ﬁnance institutions when establishing operations in r-service or renta 36 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s . due to the by customer payments. thus. increasing an $850. streamlining able attention (at considerable cost) to collections and service in remote o∑-grid areas. a micros challengrental ﬁnancial product o∑ering in a wavery that of a∑ordability. in operations than would typically be found in a solar solar ﬁed-asset invento could reduce its rental x vp vp business of equal size. with sales and assuring their margins.rental systems. included both rental and sales o∑ers) resulted in more complicated the short term. The rentalniﬁcantly. other businesses around the company attempted to essentially build the key problem faced by Soluz Honduras globe. The rental operation was simply too challengi local company then adopted a more streamlined sales model. was established to help meet lender payme The Soluz business model (whichtions and to build a viable operation. Solu proposed that.000 debt burden. The Soluz busin was design develing environment. in particular. seeking revenue through an expanding dealer networksted a change in the business model of I ge .cent of rural households. investors o∑ered waivers of certa vp solar to lender obligations and focus sta∑ time on increasing sales only proﬁtability. Furthermore. where even obs tacl e s well-established micro-ﬁnance institutions were unwilling to provide their ﬁnancial Like mostThe vp solar products. selln July 2003. to rural customers and insti. an increased focus on sales.
had to rental in the naraise signiﬁcant capital to invest ain solar vp unitsas pioneer in the vp area of solar and to develop e≈cient micro-rental tion.500 clients to break even. competition in the direct servicing of rural cusa process that the company struggled with for several years. however. signiﬁcant portion of the debt would be forgiven. The company’s ﬁnancial structure was too highly leveraged with debt for such a risky new ven. The company. assets to pay back its creditors sale of solar vp rental when rural families lack the funds to purchase (installed rental systems continued to be serviced kerosene and batteries. Up to now. even when there were collect monthly fees. Soluz Honduras was seen however. Total ﬁnancing was $1. a viable and sustainable pansion: residents wealthy enough to a∑ordtems vp sys solar future. Soluz Honduras attemptedambitious attempt to pioneer an unsubsidized solar to price rental fees to the equivalence of combined current the environmental and social beneﬁts vp rental o∑er. From the past three years of ﬁnancial restructuring has this. dry cells.000 systems. with $850. Soluz began to focus exsystem from the company to be higher than those sales. vp increasing demand. but also in costs related to of a solar stem created sive penetration the vp rental sy physical act of disconnecting and remarketingawareness of solar rural areas. At this point. vp rent a solar While the ﬁnancial performance of Soluz Honbut later found that they were unable duras was disappointing as a result of this overly to continue payments. Although Soluz Honduras succeeded in signiﬁ. Furthermore.were further restructured in May 2005. Employment opportunities and The unpredictable timing of government rural provided for the micro-enterprises that income were electriﬁcation project timing.500 rental units. thus widespread the vp in solar system. as customer churn” reached high levels (3-5 “ mov i ng fora r d w percent). the Honthe grid reached a community. rollout peaked at 1. Many households didsystem. kerosene. using the cash proceeds from the clusively on associated with kerosene and batteries. in which the company will operate with less generally lived close to urban centers. The aggresitive not only in a loss of income. customerswhile the available o∑-grid customer base continually became more dispersed and thereby high upfront costs of purchase. were contracted to communication e∑orts with the local authorities. ﬁnancing. high debt on the books during before the initial investment could be recovered. an interesting paradox emerged. Debt repayment obligations provided little memorandum of understanding was signed between in the way of ﬂexibility if the rollout of revenue and and the Soluz Honduras sme Program. Despite its di≈culties. will begin to emerge. however. it would require the company has installed well over 5. This required Soluz to now have a viable business duran ﬁrm expects to remove hundreds of installed solar vp systems model. The move away from a rental o∑er to a cash and coupled with unexpected grid expansions. but it estimated that. 2.g. A in an e∑ort to overcome in loans. maintainedsystem ownership to facilitate vp solar repossession. Thus. whereby a expense did not stay to plan.000 the large debt burden. By renting systems. particularly in the areas of government bids and clients during startup simply did not o∑set the institutional sales. resulting social and environmental impacts. and the company more di≈cult to serve. at this rate. Operations ture. were more likely to receive grid service in the near s ol u z hon d u r a s 37 . avoided the systems. With a debtmade it compounding the issue of unexpected grid exfree balance sheet. With the reduced debt. The company was well-respected and had little collection and service operations in remote areas. To date. the project should not be overlooked. leading to posthe project y unable to make their payments.future. The ﬁrm and while disconinstead the business model has proved di≈cult. vp solar system. ﬁrm’s operating costs. tomers. thus reducing creased cash ws to found out about grid expansions just its debtbefore months burden.5 million. especially short-term credit sales focus has resulted in indue to election promises.of car batteries). itself. it is not as crucial as being on short-term credit to existing until they were sold obligated to pay for a rental contract forora new customers). meant that Soluz ﬂooften Soluz Honduras. energy costs (e.repayment plan was designed for the and a one-year cantly lowering the upfront costs for customers.. When it came to larger sales. they required capital. nected a signiﬁcant number of customers who were did provide clean energ. Sta≈ng and all expenses were remaining many found the monthly costs ofvp renting a solar streamlined. comWhile petition was monthly fees collected from the limited number of strong. further di≈cult to purchase on credit.
The for-proﬁt Solar Electricand. were in demand. or up the pany was launched in the late 1990s to scale home mortgage market.banking sector sign wo mark rather do without than incur debt. an secure loans for the company’s customers t backg rou n d purchases of . Selco Vietnam sold Selco Vietnam received a $750. the Vi ket for sh providers. t ld . pany with o≈ces in India. which was founded in 1990 to asThe principal barrier faced sist in the ﬁnancing and installation of solar energy by Selco Vietnam wa system projects throughout a number that of a∑ordability. through vision was considered more important th which it had access to villages. coupled the matter were the mass publicity of grid expansion and with the fact that even rural Vietnamese had higher ating incomes common among the rural popu disposable incomes than those in neighboring countries. making consumers considerably pric attractive marscious. the loan agreem sh I called for comin two Solar Electric Light Company is a U. Ltd. However. n addition. with Vietnam has a signiﬁcant power shortagelocal people’s committee.no consumer ﬁnancing availab Ligh thus.-based Solar Electric . Selco Vietnam. An important part of Selcobusiness Vietnam presented a further complicatio Vietnam’s model was its relationship with the vwu . Sri Lanka. most cust I AWARD FOR CORPORATE EXCELLENCE sought the largest and more expensive sh the company had on o∑er.Vietnam business model lied on the arstructure to distribute electricity beyond urban availability of consumer ﬁna Complicating the issues around eas. a fact that also contributed to provided specialized applications. banks were controlled by local based approach. The loan was to enabl ic ’s Program Vietf sme nam and was the ﬁrst 100-percent foreign-owned the company to provide collateral to third company licensed to operate in the country. The general lack of access to electricity. ﬁnancial intermediaries (speciﬁcally v b ad r ) f o r working capital ﬁnancing up to $200. As a result and its partnership larger Rural vp with the Vietnam Bank for Agriculture and solarsystems. sh of recognizes businesses that exemplify good corporate citizenship abroad. t operated through its subsidiary I companies in India. and loans were approved n Vietnam (see worthiness but.000 years. banking. based in Ho Chi Minhadr Citywhich provides consumer Development ( ).000.. Sri Lanka. considerably les 38 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s . which was wi and no Selco little capacity to meet urban demandth theinfra. and hot water heaters. Vietnam had no debt of developing countries. which resulted in reducin Established by the U.S. among the targeted consumer group.S. it also (i. Secretary of State. t grew out of the activities of the I gon Solar Elecobs tacl e s tric Light Fund. ht ﬁnancing Lig Company. The average amount reducing poverty and spurring economic development in rural Vietnam by supon batteries per month in Vietnam was t plying household electricity to families that lack access to the power grid. on the recommen box below). made Vietnam appear to be an tion. water pumps. and Vietnam. andinstitutions. the Award for Corporate Excellence a∑ordability even further. A general overall distrust of the provision of solar electricity to households in devel. n I oping countries through a commercialuld etuntil 2002.. n fact. Unlike other countries. Most potential customers lived withi km of a In 2001 the Solar Electric Light Company received the award for its work in battery-charging station.s e l c o v i e t n a m . not establish income-generating busin Selco Vietnam’s primary focus in the country was solar power on the sale of households. solar-charged cellular phon sh to rental).e. rather. street lights. Launched in 1998. is vb a subsidiary of the U. t Com. the . such as solar sciousness of consumers.-based the salesh of 12. lent of between 66¢ and $2. .000 loan from solar systems to unelectriﬁed households in in 1998. capable of powering a tele sion.S.
600. ddi.000 units. and inceasing its pesence in the market. as the vo r company was unskiled in the aeas of consumer r ﬁnace and colections. originaly hoped to make the ic f eg f loan to the womes ’ n unio. the untr y entiy had planed on sales of 12. yet it was not alwys suportive of Selcs ’ o activ es. No credit is avilable. Subseque. Thee wee also isues suronding the policy enr r vironment. and ultimaely the funds wee loaned r diectly to Selco Vietnam. The intal intent had been to work through v b ad r (which would pvroide consumer ﬁnacing with funds guarnteed by the sme Program) and the vwu (which would handle the colections). so tha it could on-lend to consumers. ro In an atempt to addres the isue of consumer credit.S. and was operating in a market with no debt history or consumer bankig. r r Since the end of 2006. The mangement has undertaken some signiﬁcant changes to impve ﬁnacial perro formance. the company has been operating in survial mode. Selco Vietnam has struggled ﬁnacialy since it began operations. r se l co v i e t n a m 39 . Howeve. and the ﬁrm is not expected to make its sme Program loan epayment deadline. m o v i n g f a or w d In the end. it was determined r w tha only about tee pecent of the unelectriﬁed hr r poulatin could actualy a∑d a solar or v p sy tem. The number of those withou access to electricity (60 pecent) r was intaly taken as a mease of the porsectie ur v makret. Selco Vietnam was forced to star pvroiding consumer ﬁnacing itself. the inconsitent subsidy policy for electricity pved problematic. but it struggled to each 1. not in tha of consumer ﬁnace. co. While r import duties for solar modules and bateries wee r waived for Selco Vietnam. Seen as a U. but upon later evie. During its ﬁrst two years. with only ﬁve emplyees foo cused exclusively on cash sales. when ly v b ad r failed to make ﬁnacing avilable to potential Selco Vietnam customers. when the ntly vwu failed to pvroide proer colections service (its priotes having shifted as a esult of a pending election). Unfortunate. with the r vwu ageeing to r admin ster them. Selco Vies ’ tnam expertise lies in the aeas of solar r sales and service. the r solar vp company was forced to take on the added esponibilty of a colections agent.what was equed for a solar r ir vp sytem. But this pved r ro to be a particulary chalenging endea. the r vwu was concerned with the liabilty isue. educing operationl and adminstrave r expenses. Selco Vietnam was forced to accept tha demand for lighting was considerably les than expected in the co. it has learned from the experiA tional y ences of other subsidiares by sharing informatin. the company has nwo formed partnership with other Solar Electric Light Company subsidiares around the world in oder to purchase r larger quanties from supliers with volume discounts. Sales targets wee eventur r aly evised downad by 50 percent. Selco Vietnam mpany did not alwys get the same level of suport tha a Vietnamese company might have eceived. r r In an e∑ort to lwer the cost of the solar o vp equipment. Thee was a heavy local politcal r inﬂuence.
I I feasible. and others interested in theeconomic conditions. China. Indonesia.from consideration due Zimbabwewere removed ing was attended by a large number of academics. Ke vp for solar er technologies in developing countries. Brazil. Kenya. identiﬁcation of 35 potential countrie countries. would be more prudent to pilot the concept a ic f smaller $30-million initiative.000 without any forwhich emv pm t i ployed ﬁnancial incentives to engage mal credit facilities. or ungo n s. f ments in new commercial (not government Although vpmti was restructured under the ic . t v pm t i was based on the premise that private sector number of countries. based on solar private electricity )(solar vp technology in ndia. f sectors. Of those that res ria. Funded egf by and managed by . New Jersey. and Morocco. n Kenya. market with over 150.which had a dynamic sol “ sh sold dertaken in North America and Europe. Agency’s (EPA) "Golden Carrot" program (see the three was considered to have an emergin box. and market in the developmanagement of the program was passed fromhome to the largevp st solar the ing world. design the initiative was ceived to be a $60 and to accelerate the sustainable commercialization million program that wou volve global competitive procurement among ﬁnancial viability of energy services. v pm t i . The origand Thailand. Zam The vpmti concept originated at a meeting held in Princeton. the program was rebranded as which thevp solar could 32n ndia. When o∑ering the prize” was deemedmarket and a supportive policy environmen “ unsector grow. dubbed the "Green Carrot. Launched in 1998. n 40 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s .was expected wo tor to encourage market adoption of new energrky ing capital and end-user ﬁnancing in a m dominated I and er technologies such as the “Golden Carrot” by small-scale enterprises. vp page 41). The meet. project design and ﬁnancing on a commercial basis would stimulate more sustainable ventures than government or donor-ﬁnanced vp solar procurecou n t r y s e l e ct ion pro ces s ments alone. 30 were supplied with a summar vp m t i program concept and a request for an exbackg rou n d pression of interest." was Three countries were ultimately selected based on the same market transformation concepts plementation: n I used bythe United States Environmental Protection dia. India. I vp lessons learned from market pull” initiatives (un. sector companies. Sri Lanka. to planned World Bank and/or gef projects. in the early 1990s. the wbg . to provide the private sec. Argentina. and has committed over $18 million to The initial selection process began wi 12 projects. v pm t i is still operational today. The remain favorable acceleration of the global marketand other countries. was expected to stimulate inv v pm t i World Bank to ic. it was soon dec I and Morocco. inal consultation during the ﬁrst half of 199 project concept. were visited for f Pakistan. Kenya.c a s e s t u id e s 2 Phoooltac Markte t v i Transomaton naevit f r i I it The ic / Photovoltaic Market Transformationcontinued to play a key role in the prof eg f program) nitiative (pvmti a $30-million initiative While ed I ) is gram design.
emt 32Each country had. and a small number the the would be responsible for ensuring that all disbursement condiof projects were identiﬁed working s thesfi wi to tionsmet. 24 utilities necessary to the signed to be su≈ciently ﬂexible to respond skills to assess p pooled $30 million in the Super Efficient Refrigerainvestments needs of each project. and included debt. to serve as an external managetechnical assistance component of the program ment team ( The also included local partemt ). and equipment. amounted to $3 million. Once fethe it had a solid propv serviced solar ject.mental sector. The purchases.ich are tied to performance and some of which apparent that a much higher level of are tied to timing in the program.5 million wouldpax be recovered ement. an adequate to be THE GOLDEN CARROT PROGRAM ﬁnancial services sector. consumers got more affordable and environover 1. tees. technical. (a Kenyan project guarantee facilities to ﬁnance alternatives to nonvi. was important if were to succeed. Power has such tools were su≈cient to justify the IT in. including ineering andgurelated awarded guaranteed rebates from the pool to offeconomic. ment chose to select ic manage f was ﬁnanced with $30 million from ge f .and private equity. such as technical assistance. The energy portfolios. if the beneﬁts of set the incremental product costs.000 projects for both govcreased complexity. and (a able grid extension. $5 million each for Kenya and ment. and projects totaling nearly $175 millionrole of ﬁnemt ancing business proposals and conduct were identiﬁed. emt is compensated in two forms: a set project management fee paid quarterly over the life of the m a nagem e nt program.and to implem tor Program.completed deemed time. originally planned. 33Im was expected that $13. Ltd. and grant funding.v pm t i was expected to contribute to thener organizations in each of the countries—IT demonstraPower ndia (a subsidiary of IT Power UK). With £420m ($83 The “Golden Carrot” program offered a finanmillion) in funds under man erational period. designed to support the commercialization of new Asset Manag is a s. innovativeand the remaining $5 million to be used for technical assistance and project execution. ernment and private sector cli in over 100 countries. or 10 percent of total at the ti a large number of households in funds. some of wh it became During the country assessment period.. the development of standards. cial incentive to manufacturers to support advances ment in a combination of li The ﬁnancing terms o∑ered by v pm t i ’s were de. Pipal I tion of the potential of private franchise models and Ltd. Many of these projects westructure vpsolar to re the appropriate commercial. similar to that of an investment fund. Ltd. user were tablish ﬁnancing mechanisms to support end as well as for reviewing progress on a regular basis subsequent to disbursement. After approval from c . is an energ y pected to request debt at or below market terms. and ﬁnancial support companies that sold and/or leased.management company in the solar ﬁeld). The set project engagement management fees make up the majority of the emt would be needed over a longer period of time than compensation. based on a commitment to gerisn solar Moroccan project manag O≈ce National de vp by the national electric utility.. installed. emt ir and entry into new markets. ﬁnancial. existing sales market pv training.) Morocco. Rather than establish v pm t i s t ru c t u r e in-house expertise. Most investments were exand the manufacturer that built the most efficient 34 I T Powe r. At the same and environmental considerations. process. ic decided to retain mpax f I vp m t i allocated as follows: $15 million for project ﬁnancCapital Corporation (now mpax Asset ManageI 34 both ﬁrms expe-ing in India. company focused on the environwould be returnedgef toat the end of ’s vp m t i op. Impax had th in energy efficiency. and commercial purposes. Sector and country expertise. That program then held a contest. These funds were provided for non-o∑-grid areas. mentally friendly refrigerators. it would present the nvestic Iproject to the f Other projects were focused on supporting the exment Review Committee ( c ) ir pansion of existing sales and distribution networksfor ﬁnal approval. guaran. renewable rienced in managing small. commerci tees and equity. During the preliminary stage. an external manager.unsubs and The Golden Carrot program is a federal program of (either subsidized or tional uses as required by individual projects. 33and IT Power. ement company)—which provided critical support and local knowledge at all stages of the l’Electricite ( ne o ). were also available. ﬁrm with a special CFC-free refrigerator at the lowest cost was consulting tion in re eng partial aranAdditional ﬁnancing tools.. same. Ltd. In the program. screen. t I the United States Environmental Protection Agency dized). distribdue emt lt uted. solar addi. and a series of performance bonuses. diligence. and from investments and portfolio earningspecialist fund managem energy-efficient appliances in the residential sector. p ho t o v l a ic m a r k e t t r a n s f or m a t ion i n i t i at i v e 41 . Ltd. some 25 potential The in the was to solicit.
505 15.700 1. and to reclassify mid-term point. Total Morocco Total PVMTI 1. nds. vpmti underwent a signiﬁcant restructurI technical assistance.70 1.870 Experience to date with the di∑erent proje been mixed. and f in an e∑ort to bring disbursements of committed lessons from subsequent projects seemed funds to approximately 70 percent.A. with some proving very successfu some unable to make any progress due to a varie of outside reasons. minimum investment size. due to the extensive documen. as they represent prov pm t i jects in each of the countries in which v pm t i was active.possibility of deployin should explore the bursement rate. ( er i s m ps ).10 3. The slow execution of deals in the early years of program funds to a maximum of 20 of the overall the v pm t i program. This report has focused mati District Tea Growers Savings & Credit ative Ltd.075 17. The in-kind v pm t i approved by the . projects involving both ﬁnancial and direct investments with and provp companies.075 2.23 3. mitted investment resources to grant-ori the expected reﬂows (interest and principal pay-assistance activities.000 58. tation. the c has approved a total of 16 sub-proir projects approved through the ic r The total cost for these activities is estimated at six in Kenya.000 for a stand-alone technical assistance overall investments).90 2. In some cases. ormation dissemination. and capac v pm t i and inf ran into issues with insu≈cient cash ﬂow to cover for the industry sector that will help ad its ongoing administrative and operating costs. Ltd. due to a variety of reasons. sought.000 26. I team. mainly the result of a larger emphasis on v pm t i also received approval for a grant of approximately assistance and capacity building (as a p $350.. These projects were selected to be representat the overall portfolio. transformation initiatives that ic had managed.n October 2006.900. such nical vp ments) did not accumulate as expected. and are documented by the al ifc leg jects (six in ndia. v pm t i ’s to ic ﬁnance managed a number of other programs f has the cash shortfall on the administrativeresulted in greater market impact that have side of the project. jects that achieved varying degrees of success 42 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s . v pm t i is likely to have at the end of its As part of the 2004 restructuring. projects were $476.700 59.000 0 0 170 170 0 1. and provision of support to 35 t is important to note that I the Kenyan Renewable Energy Association ( k er a ).000 15.00 2. ment creation of quality awareness in the market.50 10. whil sought to consists of the development of training curriculum vpmti still ample time wiram to impleprogthin the and the provision of training to solar new technical assistance and capa vp technicians.was one of the earliest market part.A. and Sunlight Power Maroc S. (Muramati). er i s nfrastructure Finance. I v pm t i approval fromegf to increase the funds availab n 2004. and was granted. but legal ic r contributions and co-ﬁnancing for the project.60 4. egf r e s t ru c t u r i ng TABLE 7: PVMTI’S ACTIVE SOLAR PV PROJECT PORTFOLIO COMMITMENT (IN MILLIONS) UNITS INSTALLED (APPROXIMATELY) PROJECT Selco India Eskom-Shell Solar Home Systems Shri Shakti SREI Infrastructure Finance. establishment of a quality assurance program for sh in pe r f or m a nce the Kenyan market.73 2. With funds not being disbursed. ( ).This request was made in respons percent. I Ltd. Total India Barclays Bank.000 2. from a maximum ing. Since v pm t i at the v pm t i ’s incep$1 million of investment fundstion.00 1. This projectcorrect this imbalance. Sunlight Power Maroc S. The with commitments of over nine projects documentation was not ﬁnalized funds used for this are all grant fulion (see Table 7 at left). To date. This was suggested.A. because v pm t i mentation period by two years (from 10 years to 12).000 of active portfolio is comprised of 35 rocco). resulted in a lower-than-expected dis.that suggested ﬁndings of the Mid-Term Review ic f tion periods. The change in Oct capacity-building program in Kenya.10 0. Kenya Equity Building Society (EBS) Muramati Tea Growers SACCO Total Kenya Salafin S. and long negotia. in The overall objective of v pm t i restructuring sought to extend the program imple. which includes about $115.
who product on the Moroccan market.Capacity Building and Technical Assistance May Be More Important than Business Finance At the time vpmti introduced. and sparsely dispersed communities. and that product quality is a serious documentation and loan security docuvp p ho t o v l a ic m a r k e t t r a n s f or m a t ion i n i t i a t i v e 43 . ndia has er the largest I ﬁnancing e∑ort o∑ered by any developing country. The minimum deal sizes were too large for existing solar and larger entities. and thetions delayed as a result of mfaulty batteries. solar in purlikely to generate the resources necessary for improving product quality and establishing quality-control mechanisms. the fact that the population of ndia is large I and densely populated means that service technicians can economically serve a small geographical area (relatively inexpensive to reach potential clients) with a critical mass of sh units. and foster an enabli environment for the establishment of high-quality solar products and service providers. Many of vpmti vp f by in product quality standards to be detrimental to their that it highlighted that solar vp projects are most operations. will depend to a large degree on the enabling environment in which the ﬁrm operates. Often. Qualityvp solar vp products and a reliablevp solar service network were also lacking in this market. vp ﬁrms. rural. Governmental e∑orts to promoteincluding solar er . demonstrates that there is an ongoing need for capacity building and technical assistance. regulatory. but also help open up the market and v pm t i establish solar vp as a viable technolog. and grid-extension policies may help the development of the solar vp market in a given country. were not interested in pursing the rural as solar market. f solar. Muramati saw systems fail and installachallenging to implement. favorable tax. vp Enabling Environment Is Critical w h at wor k e d and w h at di d not Success in the solar vp business. contraband are I poor. vp .hindsight. compete with . Product Quality The vpmti experience was similar to that of other Standards Are also Critical ’s investments found the lack of solar projects undertakeicn and others. The v pm t i experience also product innovation and quality control. n recognition of this. might be greatest. and for several was years thereafter. A portion of the grant chasing or maintaining these units without extencomponent would have been well spent investing in sive subsidies. such fis. that investIFC’s Typical Project Financing Requirements Are ment terms and management of solar vp focused Ill-Suited to Small Business Transactions projects should be tailored to the speciﬁc needs of ic ’s legal issue. the Kenyan market was not prepared for the ﬁnancial product and services that v pm t i o∑ered. precisely in those marps saw kets where the demand for it. n v pm t i should have been more proactive far from the grid and thus vpneed are un. economic increased pressures on prices as a result of cheaper justiﬁcation for it. . I v pm t i directed its e∑orts at providing technical assistance to rais public awareness of the merits rade vp . Additiony ally. and the appropriate business model to adopt. upg of solar the skills of local technicians. Furthermore.
In Morocco v pm t i has contiued to ely on suport from the natiol . This structue has esulted in signiﬁcant delays in the adr r minstrao process. which was comity w pleted in July 2006. ver 60. particulary in the aeas of traing and r quality asurnce. in some cases. in particular servicing and maintenace. whee inr ve s t m e n t s we e l i m t e d t o r fi s and banks. Firms tha received vp m t i ﬁnacing tha did not have a particular focus on solar vp w e re s i g n i ﬁ cantly les successful. With ver $12 milon in disr o bursements. hweve. They can be extemely budensome and time r r consumig for sme s tha ae moe accustomed to r r much simpler due diligence processes. seemed to do signiﬁcantly better than ﬁrms tha wee meely enr r gaged in consumer or producer ﬁnacing. Furthere. The Mid-Term Revie. Given tha v pm t i is stil an operationl project. was dedicated to prvoiding ﬁnacing to people working in the Kenyan tea sect.466 tones of CO emison ver the lifetime 2 o of the sh instaled. wee moe successr r ful. the smal busineses and eneemo tr pr neurs targeted by vmtip found the extensie busines v plans and other documentaio eqed to be somer uir what dauntig. it is di≈cult to come to any conclusion as to its vero al performance. A s a re s u l t . Al r decision egading investment comitent. and acceptabilty of loan r colateral wee made by r icf sta∑ (Legal Department and Environment and Social Development Department) upon the ecomendation of the r emt . This success can be atributed. the existence of established r solar vp companies. As a esult of this ﬁnacing. when they eceived funding from r icf . or seeking to enter the busines. While the program stared . since the banks did not see ﬁna cing sh as a main line of busines. loan r r closue. not to promting solar or vp . noted tha vpmti wil be er sponible for the displacement of an estimaed 109. pved to be cumbero r ro some and time consumig.000 minu investment to be to large. and the elatively widespead r r knwoledge about solar vp technolg. r util y ne o . market conditions wil change signiﬁcantly between the investment apvrol and ﬁnacial closue time frame.000 r o peviously unelectriﬁed households nwo have elecr tric. Howeve.ments ae suited to large project ﬁnace transcr tions. As a consequence. o and wee involed in the asembly of solar compor nents and the instal o of sytems. many ee not skiled in the writng of busines w r plans. In Kenya y v pm t i had intaly set out to pvroide working capital and end-user ﬁnacing. for example. t h e ﬁ n a c i n g o f sh fell outside the core busines line. r v pm t i was able to pvroide ﬁnacing for a number of busineses tha otherwise would not have been avilble. investment transctions take months or years to complete and. and proer resources were not dedicated. disbursements. In some instaces it tok a z ear from the date of eview to the date of disbursal. in large part. While they had energy and ideas. r c on l u s ion v pm t i has experienced considerably moe success in r India than in Kenya or Morocco. vpmti is curently on track to meet the evised disbursement goals. the focus has r since shifted to pvroiding moe technical asitnce r funding. Going through the banks. This was particulary true in Kenya. s lwo y disbursements have inceased signiﬁcantly since the r 2004 estructuring. This esulted in long negotiaon periods for r customied contracts. 4 s e l i n g s ol a r : a p r t 2 /ac s e s t u di e s . Those who mved farther up the value chain. and it was di≈cult to get many of them to mve expedio tiously on the projects. Al of the ﬁrms tha achieved modest success in terms of util z ng v pm t i esources and drawing r down their comitents wee aleady in the solar r r vp busines. to the high poulatin density in o∑-grid aeas.vpmti found tha ﬁrms tha pvroided further value added. r r Many solar vp busineses in the target countries found the $500. Muramti. as those closest to the projects (theemt ) wee not making the decision. A r further consequence is tha the adminstrave cost a e h i g h i n e l a t i o n t o i n ve s t m e n t s i ze . y r Dedication to Solar PV and Provision of ValueAdded Services Are Critical to Success Decision Making Needs to Be Done by Those Closest to the Project The pace of decision making was hindered by the adminstrave structue adopted in this project.
members in the purchase of sh . they were unwilling to make this investment and provided service from their headquarters in Nairobi. The credit terms initially o∑ered by Muramati in the tea sector in Kenya. The funding received was to support theers were particularly aware of what introduction of a loan scheme to ﬁnconstituted value for money. the agreed to sh supplier had establish infrastructure in Muramati’s regions to service the sh installed through the project. was approved for ﬁnancingvpmti from in prices having been stagnant over the past several years. Muramati has grown in no great rush to proceed with the disbursements to be one of from ic . The customer would be required to payhigh. had been undertaken during the preliminary stages of the proments. and the interest to purchase the tential customers with the ﬁnancing rates set at 15 percent per annum were considered too a systems. yet with tea based in Kenya. as well as in delays in responding to maintenance calls. given the low volume of sh orders. down-payment requirement proved too ramati would market the systems andmuch for poprovide many potential borrowers. with a current membershiprestructure the terms of the Muramati loan.the ﬁnancial risk in the arrangement. serving f v pm t i has the largest savings and credit cooperatives Given this slow initial progress. was Founded in 1993. A further issue resulted when the supplier received a faulty batch of batteries. proved to be problematic. and the supplier’s sysance Muramati tems were seen as being particularly expensive. Finally. y sh installing new as the supplier would only install in batches. Muramati would a∑ordable repayment installments. which sh a local percent while Muwould supply and maintain the systems. Muramati’s primary purpose is to ng the second and third disbursements. had to of over the tea sector. An additional reason for the slow initial progress of the project was rooted in that Muramati only had backg rou n d to pay interest on drawn funds and. therefore. Muramati was assuming most of Credit Cooperative.m u r a m t i i d s t r c i t t e a g wr o e s v s i a g n a n d c r e i d t c o e p r ta i v e . . however. t l d . tea grow June 2000. the 50 work in partnership withsupplier. delayi provide 32.000. Ltd. (Muramati). The short-term loan of The concept for which the v pm t i funds were up to 18 months proved to be far too short to ensure dedicated was relatively simple. This resulted in delays in. there was a problem with the m u r a m at i di s t r ic t t e a g row e r s sv ai ng s a n d cr e di t co ope r at i v e 45 . as both Muramati andsupplier seemed to be sh the waiting for the other party to drive progress. as well those overall repay basic savings and lending services to as the involved ment schedule. Similarly. causing a number of system failures. No market survey payunf deposit on the system and maintain monthly.ortunately. four hours awa. pricing The Muramati District Tea Growers Savings andsystems. obs tacl e s Progress on the project was initially quite slow. Under the initial agreement.
The issue cumbersome to manage and that i This process could take four was use of of maintenance was addressed through theultimately outside its core busine weeks or more. price.grant ject to determine the level of demand for funds from vpmti . down funds from this account paigns for sh awareness to its entire members only on approval frifcom This . gram was too the original sh supplier for the project. it became evident that changed. Muramati) at Barclays Bank in mati has attempted to undertake marketin Kenya. used to train local freel sh technicians to perform ongoing maintena among Muramati members. While there was per annum. Credit terms o∑ered by the cooperation wer program’s implementation. and interest rates were reduced to 12 available for a competitive price. As ships. During and is in good ﬁnancial health. not quality. thus leaving the systems o∑ered Howee. despite the di≈cult the last four years. purchase was established to manage the ﬂow of funds. 46 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s . Until 2006. at the sh considered to be much more attractive to po that the driving factor in purchasing decisions was borrowers. a rather cumbersome system of accounts 36 ﬁnancing to its members to although sh . this did highlight theThese revised terms were. request a disbursement from i fc and it has fully repaid its outstandin Muramati eventually did engage a new supplier to to the ifc /Muramati account. The results of this strategy have been li process meant that Muramati had a r d mov i ng forw two steps to receive funds: 1) 2006. by Muramati at a distinct disadvantagver. Over the course of the sh . To36i fc required that the disbursed funds to the Muramati project be members were free to day. Muramati asked to halt its v pm t i program. the maturity of loans was increas many Muramati members were taking out loans to three years with a down payment no longer repurchase on the open market. plier partnership has failed to properly mat there were concerns about weak ﬁnances and internal and Muramati no longer engages in such part controls. Muramati was to draw conditions in the tea sector in recent years. despite the above initiatives At the time of ﬁnancial closure. where they were sh quired. fact indeed a demand for. Muramati contin a result. Muramati continues to expand its membership select the system and i held in a joint and i fc account ( of their choice. and 2) request approval of withdrawals provide systems at considerably lower used grant funds. The company felt that th prices than from the jointly held account.
The project involved a partnership between er i s in place for over two years and is considered to be (providing management and a ﬁnancing progressing well.regular visits by ﬁeld technicians. and replacement. focused on some of the more challenging er i s areas of ndia. During the early years of operation. Environ Energy-Tech electriﬁ systems integrators. by establishing a one-stop location where concosts infrastructure projects. I teri) (which ﬁ ve agement and quality assurance experience).s r e i i n f r a s t u rc r e f i n a c e . the project has expandedvpmti beyond other impleprojects—and it has installed s 15. t over I mentation was impeded by signiﬁcant disputes beexperience hig tween the partners. go n duce several small innovations to enhance customer with solar electriﬁcation experience satisfaction. and is working with a new rural Tata BP areasI by building on the existing infrastructure ofcation service provider. damaged parts and contacts with rural communities). er i s nfrastructure Finance. despite its partial backg rou n d guarantee. Ltd. address two key issues facing the ndian solar vp I in. Currently. unfortunately. Ltd. whwithpro. it still su∑ers fromsue was addressed by providing supplier credit. by the provision of consumer loans. Tata BP Solar ndia (India’s ﬁnancing made it possible to provide I largest v pm t i e st solar cell and module manufacturer. and the Tata Energy Re. however. er i s was reluctant to take on rural consumer credit risk. The er i s proy ject sought to address these issues by developing a ﬁnancial model to provide unelectriﬁed households mov i ng fora r d w with easy access to credit facilities in order to be able to access lighting options. Ltd. and aftersumer I credit. and the isI er i s energy programs. sales were almost 100 Although ndia has one of the world’s largest solar percent cash and carry. search nstitute (brought project man. sr e i would use loan larly funds to establish The Ramakrishna Mission infrastructure in rural areas in order to install and s r e i i n f r a s t ru c t u r e f i n a n c e . eris The experience presents an interesting case study. well— er i s performs to During the ﬁrst few years of the project. the lack of after-sales services and eris due to the reluctance ofestablish rural infrato maintenance activities.The concept. n Feb. and the lack of rural credit structure.ng capital loans. did not materialize. is and eventually the partnership was dissolved. among the largest nonbankings in ndia. and eris developing a Today. t ld . Service. ( This new partnership has been e st ). The disputes centered around hlights the need for patience. initially experiencing a great deal of I obs tacl e s di≈culty. nrmerly I er i s I (fo maintain sh . tl d . ternational Finance. such as theft insurance. nitial attempts to establish a rural credit mecha I nism were unsuccessful. and renewable energy systems. received ﬁnancing vpmti from to er i s sales service and maintenance were fully integrated. mechanisms. particuvp ing solar the initial anticipation that in a challengmarket.). the same issues establishing partnerships with rural banks for credit that face solarets around the world: a∑ordvp mark and. namely. 47 . continues to source solar modules from network of solar service centers in the rural in ndia. dustry. ability and reliability of technolog.and spare parts sales.000 sh . engaged in the ﬁnancing fi I eir s is er i s hoped to simplify operations and reduce of construction and mining equipment. mechanism for rural credit). sh ruary 2001. enabling vp ich worki e st to introvided the The Ramakrishna Mission (an sh ). eventually. This endeavor never materialized.years of free service.
t currently I dertakes the maintenance and repair of the system has installed approximately 6. s m ps ne o pay an upfront subsidy. and it was provided with a sevenne o increase installations under the ne o scheme. ( in Morocco. and El Khemisset). The scheme. over a 10-year period.signed an agreement with had a similar experience to other I m ps m ps v pm t i proO≈ce National de l’Electricité ( jects relating to meeting the disbursem ne o ). the business. therefore.ability to expand and es attributed its tion. business. The cumbersome documentation proc ne o scheme was established toelec. as it has focused e∑orts on Whenm ps applied for ﬁnancingvpmti from . signiﬁcantly increas sh in Morocco of subsidized fee-for-service scheme (which m ps marily in the northern regions of Taza. The fund.000 sh . and new service centers to m ps unv pm t i funding. si backg rou n d sion has taken place in recent years. ing was requested to ﬁnance infrastructure expansion and working capital requirements for a fee-for-service project.000 sh . as butions that had funded thevpmti business prior to on installations under the ne o scheme. The beneﬁtnal business origi s from). vp for solar A number of market issues impacted negativ m ps ’s initial success. Under the terms of the agm ps reement. established in 2002. involvement. as well as to create a new obs tacl e s credit businesssales. As a result. ne o m ps argues that concompany had insu≈cient capital to meet leverage sumers cannot yet a∑ord the monthly credit requirements. Secondly. special approval had to be granted. n early 2004. sh for w 80 increased availability of cheapvp contraband m ps would maintain ownership of the modules in Morocco. putting pressure on pri systems. rem ps ). the v pm t i ceived v pm t i funding in December 2004. imately 300.portfolio. To overcome this obstacle. Firstly. depending on the size of the system. making credit schemes less model was based on a nonsubsidized rfee-for-service fo the public and impacting sales. Swfrou. Taounate. sh potential ne o m ps was originally founded in 1998 to provide in. it has not put fort ic considf ments ered historical equity contributions as to establish a credit busines sary e∑ort coﬁnance to meet minimum leverage requirements.s u n l g ih t p w o e r m a r o c s .market for recipients under the ne o has stallation and maintenance(pri-scheme. required for the project.sulted in a two-and-a-half-yearc delay from vp provide solar ir tricity to the 15 percent of rural households (approxapproval to ﬁnancial closure. in return for a monthlyhas not yet managed to establish a fee m ps paid by the end user.000) that are not targeted for grid connection.A. has mov i ng fora r d w awarded six contracts for a total of 112.fuand e∑orts are being made to establi v pm t i no rther was able to recognize historical shareholder contri. rower. Thi rental schemeranging from 20 top. has m ps and-a-half-year time frame to complete the installa. and. Despite the above obstacles. a .the company maintain credit scheme. and the systems. The ments. was given m ps has made exclusivity in the regions in whichniﬁcantto ress under sig it was prog install continues to v pm t i . As an exceptional ca Sunlight Power Maroc S. no new coﬁnancing was 48 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s . Furthermore. and the households would pay a deposit followedng potential sales margins signiﬁc maki by monthly fees. to provide sh under a subsidized fee-for-service scheme.
a letter was sent from the a $32 million for-proﬁt private equity wb I fund. sioned as the g . o∑ering for rural solar vp electriﬁcation exhibited by those proposed as a $19. Comprised of two separate entities. An external dsg ).000 to assist solar community in the vp companies in sdc was enviUnited States saw an opportunity topreparingth engage wi for private investment. as the ﬁnal initiative was named. was created with the goal of increasing the consultant. the . rience initiative. f sd was initially g on . the Enersol Associates. ( gtc In a Corporation” was being circulated.000 for private solar vp and solar members of the charitable foundation community) vp of the to Jim Wolfensohn. could I could develop and provide rural energy services. through its two separate entities. through the developmentcost-e∑ective business over the horizon. Triodos Solar 37 was apvp Partners private sector companies involved in rural solar vp pointed as advisor. investing up (with billion to to $1 high costs and underfunded entrepreneurs) Triodos International Fund Manag became catalyze the solar was discussed. Solartremendous potential. “ dsc wa market amounts of money to launch the emerging s designed in response to a view that there was a of an solar industry.000– $100. f sd andsdc Motivated by the enthusiasm about the potential .raise a total of $50 million from a Inc. whichement (part of the Triodos vp market Bank Group). Originally envisioned as a single entity with both ﬁnancing and technical assistance components. sponded to two The proposal called for the injection of massive” perceived problems in the market. a signiﬁcantly known as an scaled-dow patient capital approach. and at the earliest stageed to respond to the t Triodos SolarPartners was formed by three organizations: concept development. so that they 37 A nonproﬁ t n turn. as well as grants planning process began. provp vided economies investment vehicle that would dramatically expandof scale could be achieved through higher volumes and greater commercial returns ﬁnancing for commercial companies. and solar sector experts to address both iss concept paper for a $50-million “Solar Development GT Consulting. s ol a r de v e l op m e n t g r o u p 49 . f d d sg March 1999. pv f ds was design of vp marke solar The vision was grand.5 million business involved in vp the solar during the development and seed ﬁnancing in the range of industry mid1990s. ).c a s e s t u id e s 3 Solar Delopmnt Gropu ev e The Solar Development Group ( a $41-millionin private sector project ﬁnance. ic was broug f joint venture of Soluz. be realized through lower unit costs.000–$2. and the fundraising and business activities in developing countries. Rockefeller Foundation (on behalf of a number ofproviding growth capital in the range of $100.000.ht under one framework. n early 1996. Enterprises Assistance Fun pv evident that it was impossible(eeaf). organization. requiring more of a nonproﬁt model. and solar market showed vp Development Capital (the Solar Developdsc ) and identiﬁed over 100 investment opportunities. Environmental t soon became I By the end of 1996. n I ment Foundation (sprovided ﬁnancing to ). givengoal was expe. Inc. proposing the creation of a solar energy investment dsg . an The its to in to work on wbg -led initiative. consd g backg rou n d sisted of two separate but closely related and supportive entities. president-related businesses in developing countries (see Table 8 for an overviewsdg. found that the countries. of page 50). for business development services. the charitable foundation $10. contracted in July of 1997 to develop a delivery sh of to rural households in developing feasibility study and business plan. then wbg . c. in e∑ect resubsidiary.
) i m pl e m e ntat ion 40 as ell as support tilateral and bilateral support. These foundations enjoy a tax-exempt support fr. th the mar(seco ). as that the investment previously mentioned. w 41Cordaid and Environmental f ds began operations in early 2000 with $12 Enterprise Assistance from AstroPower (now GE Solar). s.9 million) approved. wb 39Cordaid. There was a ma40 ge f Joyce Mertz-Gilmore funds.o i fc se c . and soon approved its (eeaf). and Triodos Bank vestment its own mandate and separate board of directors. while cused on by f ds multilat. 42(See Table in commitments.Swiss State i fc .000 Target: $32 million Achieved: $28. $41 million was raised from private sector the Netherlands Ministry of charitable foundations made up much of th solar businesses.5 million Achieved: $12 million Target: Global Achieved: 23 countries Loans (up to four years at 0 –10 percent interest in local or U. but also since opportunities d sg had raised funds from foundations based in the identiﬁed in the feasibi mately received dsc om United States. currency) Guarantees (to facilitate local bank lending) Technical Assistance Grants March 2000 March 2004 Operations transferred to the Triodos Renewable Energy for Development (TRED) Fund Geographical Scope Type of Investment Vehicles Date Began Operations Date Closed and Managing Agency Appointed April 2001 April 2004 Assets sold to TRED Fund. banks. the for-proﬁt venture capital fund. Secretariat for Economic A∑airs holder base for. ﬁve months later.5 million in 63 projects (54 companies) $2. .for dgs Directorate General for International Cooperation ( d gi s ) of ing activities. in fact. microfinance institutions and leasing companies For-profit private equity fund with venture capital elements Target: 27 investments in 15 companies totaling $18 million. such as venture capit mately. ESCOs. Rockefeller Foundation. not only to ties identiﬁed in the feasibility st address the two grossly overstated. was supported. s tional Equity Fund. ri s ual.S. Group. onf ds shareholders.) actions. not one of th key perceived issues in the market. bilateral organizations.TABLE 8: SOLAR DEVELOPMENT GROUP AT A GLANCE SDF Objective Help PV companies prepare for private investment SDC Provision of capital to PV-related SMEs. andg . go n 42Calvert World Values In ternadsc concluded its fundraising phase 10 for detail on dc shareholders. by initiatives. totaling $650.7 million Target: Global Achieved: Three countries Minority position capital investments Provision of additional debt/quasi debt Company Type Not-for-Profit Number of Investments Made Target: 75 enterprises in first five years Achieved: Commitments totaling over $3. ket development and various socially responsible investment ( activities and riskier s ri s ) 50 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s . . w and Stichting Triodos-Doen 39(See table go n andcommunity. t soon was clear I The separation of the two entities was necessary. thereby liquidating the fund 38 consortium of investors and donors status. Rockefeller Brothers eral and bilateral org38 as ell as the chariFund. including eight loans to FIs totaling $10 million Achieved: Six investments ($3. anizations. Rabobank April Each entity ( f ds ) was established with2001 at $29 million. Foreign A∑airs. provided they do not engage in proﬁt . the charged wi f ds go n multilateral organizations. individual private investors. in large part. dcpage also received muls 51. a private individFund 41and a number of Funds. three investments disbursed.ris funds were fo the Foundation. page 51. Ulti. and approved dsc and Foundation. vp og n s. Table 9 for detail Foundation.dsc .2 million disbursed by early 2004 Total Capitalization Target: $19.
to and approved by board. n contrast. Those shareholders. only three consensus.6 million) of the $29 million dsc had been which had a mandate to provide innovative project in funds committed to called. 13 percent ($3.8 world. pe r f or m a nce and ou t c om e s The dsg initiative began in 1996 and ended in 2004. the conﬂicting interests of the di∑ere∑ort. f ds . LTD.750 46. Sunlabob Rural Energy System Co.8 having overestimated the maturity Internationalsolar Corporation* vp of the Finance Global Environment Facility** 2.85 million was disbursed to solar vp projects in over 20 countries. I ic ’s Renewable Energy f At the time of Environment and Social Development Department. while the increased NUMBER OF NUMBER OF SHAREHOLDER A SHARES C SHARES PERCENT demand in the developed world was shifting the attention of manufacturers away from the developing Facility* Global Environment — 10.1 Others 11. market conditions were changing: the Latin American and East Asian ﬁn*IFC–Environment and Social Development Department. Triodos nternational Fund ManageI ment indicated that the existing investment guide*Represented by IFC’s Environment and Social Development Department. less risk-averse. given the nature of Department. in fact.0 operations. who looked at their dsc was disbanded involvement more from a proﬁtabilityyears after it began operations. ent shareholders were making it di≈cult to reach there were not enough viable investment opportunities. consequently.0 Furthermore. such as for Development )( Fund. and more a∑ordable funding.. sale. Assets were sold to the Triodos t er d should be closed. with its ﬂexible. to manage the go n in thedsc event fail..mar**IFC’s Infrastructure the ket. During those eight years. transferred operations to the f ds t er d SDG had an impact on the solar PV market beyond Fund. and in June 2004.jor disconnect between where those involved in the TABLE 9. n were to I early 2004.0 market and the number of business opportunities. These issues. those. Neither had market solar vp the moved TABLE as expected. While restructuring dsc beg the smaller shareholders. resulted in and to lower the return requirements was presented lower return expectations.. was able to meet most of its investment objectives. as a legal and felt that the investment fund had no futureentity. The World Bank awarded Sunlabob the Development Marketplace Award in 2005 for its work in developing a rental system that makes solar electricity affordable for the majority of rural households or villages without the use of subsidies. number of ﬁnancing instruments o∑ered by d sc Amid discussions relating to the restructuring of dsc . however.500 19. the World et assessment mark Bank 4.000 2.500 1. the provision of financing. Others 48. and that new investment guidelines were needed. Though not quite the billion-dollar order-ofmagnitude initiative thatdsg was initially called for.2 ripe for equity investments.000 was disbursed to ﬁnancing. standpoint. SDF SHAREHOLDERS initial structuring of market was and d sg felt the SHAREHOLDER PERCENT where it actually was. Discussions on restructuring share ownership a majoritydsc of the The plan required larger shareholders buying out within an to take place. lines were unrealistic. the f ds Board of Directors solicited proposals SUNLABOB RURAL ENERGY SYSTEM CO. was provided to f ds ﬁnancing s ol a r de v e l op m e n t g r o u p 51 . The market was simply not 45. d sc that investments. $2. used this handbook in the development of its business plan for providing affordable and reliable solar energy through rental services in Lao PDR. felt should be restructured. which has proved effective. $650. n 2002. SDF developed a consumer financing handbook that provided modeling tools and guidelines for the assessment of credit risk. was certainly an experience that has provided many valuable lessons for the future.000 34. ancial crises and the 9/11 attacks had an impact on **Represented by IFC’s Environment and Social Development Department. less thanhadarbegun International Finance Corporation** I d sc a ye after 3. Ltd. the cost of solar 10. SDC SHARREHOLDERS vp had actually increased rather than decreased. emerging market economies. the remainder went to operational and A revised implementation plan to expand the deal-related expenses. Of this amount. Despite the restructuring was necessary.
although apparent that the structure and in became only half did not materialize. d sg found it sizable to produce the large-scale changtthat d sg nex e to impossible to satisfy everyone’s investors had envisioned and desired. totaling $3.been celebrated during the fundrais in had d sg keting and consumer ﬁnancing than manufe. of dsg was designed so that would prof ds and dsc dsc was to have made 28 investments over a vide complementary services. solar companies are vp sme s. it decided not to invest in unsatisfactory deals. impact achieved through the implementation without the beneﬁt of techni er and have grown of technologies and the resulting reduction in The opportunity to consult wit training. contacts has consistently been the positive environmental often family owned. despite a year of attempts. each wound vestors. therefore. Following the beliefAlthough the chals that the diversity of the di∑erent s lenges facing the market were more related to mar. never set out to determine thethese same lines. d sc sue from the very beg 43The initial struct occur. Solar fact. the diversity of (investment terminated prematurely subsequent to soft ﬁnancing vehicle. private individuals). thus. a were displaced. this type of relationship between I d sg . to take d sg sig result number of solar stems installed as a niﬁcantof advantage of its relationshi vp sy World Bank Group d sg support. vestment graduated n f ds d sc . 52 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s . Yet. the foundation was insu≈ciently vp als. f ds would prepare” “ 10-year period. retail distribution made up 80 reﬂect the need to satisfy the di∑erent obj percent of the f ds portfolio.9 million. providing working capi sd g shareholders forced a manthe cancellation of the World Bank solar than providing the seed capital an vp subsidy rather agement structure that was not only cumbersome. most potential investees expres vp has been trumpeted n I for many reasons. and Bolivia (investment in development assistance originally int which the intended relationships has been moderately successful. This simply did not inning. it proved im guidelines the management took its ﬁduciary responsibilds c to reach consensus among the shareholders ity very seriously. evolving into on Indonesia d sc cause of ’s lack of proﬁtability sd g or overall success. that retail operations tation that it would be di≈cult to ma more directly beneﬁt the rural people. the market was as yet unprepared . Many of dsg ’s shareholders had environmental have been used to advantage. and not one sin f ds inultimately disbursed to three countries: Kenya (in-to fact. the for-proﬁt investors. Only $650. go n s. Strategic alli mandates that served as motivation for have been developed along a number of li could their participation in the initiative. ris s. with eac d sc vestments were approved dscby the of InBoard having a separate board of directors. ultimately was able to return moneyinteresting to note that while ds c t is to I some of its investors upon project shareholders was di≈cult to manage. it would be impossible toand other shareholders in t determine the actual amount of CO creation of an enabling market environment 2emissions that portive policy and regulatory environment. increase d not w h at wor k e d and w h at di the amount of consumer ﬁnance available. Furthermore. an iscompanies for investment. support Shareholder Diversity Proved Problematic enterprise growth. it rapidly became apparent during im stag acturing and wholesale distribution. one of the greatest (non This is perhaps f ds had been envisioned to be an entity toreasons for the limited success related) prepare dsg . and it is therefore given that safe to dsg assume that did not stay inve the initiative long enough to cement the environmental impact igible. but one of the primaryreargequally interested in dsg the Most we uments . CO vp 2 sector experts was very attractive to investees. it a closure. emissions.000 was with its own mandate. and support innovation within the industry. only six incompanies for investment. go n s. f e w d sg sh systems were actually installedshareholders of investees did not materi d sg as a result and shareholders investment. I transcended 43 While perhaps not a direct vestment went bankrupt in early 2005).help create a more enabling environment. ous that and interests of such a diverse sharehol stimulating demand at the retail level would beneﬁt had been designed to The separation and f ds d sc of the entire industry. While were inappropriate.the project pipeline. Between 2001 and 2003. n the case of however. d sg was negl of Along d sg omitted Furthermore. and foundations (15 While certainly had a positive impact on the f ds in total). restructuring for the equity investments to make dsc was looking Strategic Alliances Were Not Developed and. but one program in the country). however. With so diverse a compositi solar industry. Measuring the environmental impact has dsg d sg proved di≈cult. of the approved funds have been disbursed).
but it is costly and equies signiﬁcant esources. although thee was no coodinato r r between the di∑erent projects. the private equity fund. Management was corect in making this decision. the eality was tha or r d sg was focused moe on indivdual busineses. while d sc . and. The two enties tha made up d sg h a d ve r y di∑erent experiences. Had the solar vp sector actualy performed as foecast. sur v c on l u s ion dsg s ’ intal goal was to incease the delivery of r sh to rual households in developing countries and to suport the development of the solar v p m a rk e t . While the World Bank is in a position to impact and promte local government suppor t of solar v p i n t a ve s . a clear need r for market development and capacity building in the solar vp sect. knwoledge and awer nes of solar vp ). dg s grosly eestimaed the makret vo r and the number of busines oprtunies tha existed withn it. and grants. did not even come close. Had moe atr r tentio been paid by f ds to develop the enabling environment. s ol a r de v e l op m e n t g r o u p 53 . w i t h its ten-year ﬁed life and eturn expectations. and is. An enabling environment is necessary for sector development. Need to Focus on Market Development and Capacity Building Despite the fact tha thee was. t h i s e l a t i o n s h p w a s n o t r taken advantge of by d sg . and the family-woned natue of most solar r vp sme s further limted the posibilites for equity investment. for example) wee also involed in r solar intaves. In hindsight. d sc may have found moe investment r op r tuni es. those inw ho v r ovled in the industry truly did beliee tha the solar v vp makret was poised to take o∑. it failed to make any deals. r r d sc mangement was quick to ecognize tha the intal investment criteria wee r r to stringent. The egulatory and policy environment wil not alter unr til this occurs. which could have jeopadized the eputaions of those inr r voled. other groups (the United Nations. was largely able to meet its investment goals. d sc . ee. as wel as r r r enthusiam by local governments for solar vp . While f ds is seen as having had a positve impact on the solar vp ind. and d sg would have had a greater veral impact. Furthermoe. Perhaps one of the greatest leson tha can be drawn from d sg is one tha esulted not from a failr ue to achieve investment goals. d sg was disbanded. and tha additional ﬁnacing instruments should hae been vided. the not-for-proﬁt arm. o d sg came up short. pvroiding a leson on the merit of er strain. guarntees.abilty of end-user ﬁnace. and it worked with shaeholders to er r vise them. esulting in lite r investment los. could x r n o t p v r oi d e t h i s . f ds which pvroided loans. ustr y d sc failed to accomplish any of its goals. di∑erent ﬁnacing instruments and long-term patient capital was needed. veral. tA the time v po r the porject was implemented. Solar vp markets simply wee not matue enough r r for equity investments. the r dg s experience would ely hae been quite di∑erent. . but rather from the r espone to this failue. Early ecognito of market eality o r r would have led to a smaler los of funds. At this stage of market development. tha the porw n a ro ject should hae focused on other v er technolgies in addition to solar vp . Rather than making bad deals. When it became apent tha the market r could not produce oprtunies tha met the er vised investment criteria. Like many other porjects implemented aorund the same time. it is easy to stae tha the focus of the porject was to .
ic f o r f with cealco p ’s expansion plans n 1998. The transmission ﬁrst provided in the Philippines) run-of-the-river hy infrastructure on Mindanao is unable to transport droelectric power plant. frastructure ifc ’s In Department provided cealco p is from hydroelectric plants. would be held in smal a newly privatized environment. thus reducing CO toic 1998 by the then f 2emissions. pany’s ex review vp wa Electric Industries. and it has a project. which would be integacelcp ro ated with th power distribution network. a small in generation capacity occurring. i vary As a result.ng its output with the avail cealcp o 45Desig n ed to ensure that the solar power. A pre-appraisal mission tookto purchase thermal energy during peak place in Paciﬁc Rim. withconjunction wies the mw recently built 7 seasonal chang th with a local currency loan (the Bubunawan Hydropower Plant Project. The funds will allow large amounts of power over mw 200 across large was already supplying powercealcp o to ’s system. plant. with thethe of in-s estimated to lead to tal. included forming a partnership 44 to lized for pow general corporate ﬁnancing assist with the com-er generation during peak load period with a subsidiary of Hawaiian 45 plans. were eg f nding fr ic ) in 2002. The electrical grid on the islandproductive capacity of an existing hyd oped. an interna-pansionThe environmental when solar s not available. company on the island of Mindanao in which are by their very nature small and si the Philippines. whenvp solar company remained competitive in their power supply from local sources. re a 1 distributed generation solar mw vp power plant. I cealcp o was in discussions ponds available at the Bubunawan plant. follower. and other distribution compa. The addition tional utility with undertaken identiﬁed the possibility for vp a solar private power the solar plant would reduce the need for vp investment objectives in the cealcp o based project. 54 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s . generating catotal 44 Af t er the solar pv plant became The solar pacity of 1.considered compatible with junctive-use application) in addressing distribution geography of the trans cealcp o ’s needs and the system capacity issues.c a s e s t u id e s 4 Cagaan Elecc Powre & y i rt Lithg Company Cagayan Electric Power & Light Company generating equipment within the dist work of cealcp o vp technolog (cealcp o ). The stated obje the project was to demonstrate the techn backg rou n d ational. cealco p to pursue its expansion The hydroelectric plant distances without compromising system reliability. gef a project mw distribution ic proposed to f network of cealcp o . mw goal 1 plant wa system and attracting a larger vestigating suitable applications for solar CO vp -based tion in 2emissions on the island of M customer base. and economic feasibility of us vp electricity supplies fo Mindanao is the second largest island in the Philip-r supplementing a up the is well develpines. Distributed solar ies. believed to o∑er the potenreceived $4 million in fu(throughomnear load centers. and planning an investment program geared the Philippines in December ’s load periods. a private electricity distribution . The purpose of the project tial to address seasonal generation capaci f was to They re also demonstratevp solar ’s e∑ectiveness (through wea con. operational. run-of-the-river hydroinstallationmw of a nominal power solar-based 1 vp electric plant. used futo build The nds wesion system. In toward e≈ciently expanding its Environmental Finance Group. power was being produced. but isolated. Based on the ﬁndings of the December 1998 which was integrated into the 80 appraisal mission. was to operate as a l program through a more stable ﬁnancing structure. and operated in conjunction gef use that would funds to partially ﬁnance the with an existing 7 mw small. whi in an amount equivalent to $15 million.800 Most of the generation capacity vp plant was designed to operate in mw . The water vp nies on the island must obtain large portions of saved.
t.8 million in construction resentative o≈ce in Manila and through the e∑orts costs fracelcom po ’s own cash ﬂow and interestopacelc of the management and sta∑. with the understanding that the loan wothe contractors from Sumitsta∑cealcp o at and uld be forgiven after ﬁve years of satisfactory project omo Corporation did an impressive job. from gef f f repﬁnanced the remaining $1. which was savingsge. The convertible loan structure (grant er cag a y n e l e c t r ic p ow e r a n d l ig h t coma pn y 5 . As a result. Construction started intypical 2003 the August project ﬁnance structure were not geared and was completed on schedule. On the permit to a small 1 vp mw of the Philippines inaugurated the plant in Deside. it quickly bewhich utilized solar supplied by Sharp evident that both the local permit process and pv modules came Corporation. and local presence. During project implementation. was awarded to Sumitomo Corporation of Japan. President Arroyo -solar investment.ts and the proven nature of solar ronmental beneﬁ out incident since its commission. Today. and it has been operating with. a turnkey 1 grid-tied solar mw pv plant. The contract ject since completion of construction. despite the obvious envideveloping world. ceathe solar facility lcp o pv distinction between the and the much vp plant solar represents the largest solar pv installation in the larger fossil-based plants. both through icthe in-country ic. the Philippine regulations did not make the cember 2004. obtaining more than 50 permits and licenses in In the period leading up to the ﬁnal approval of facility. an project. theproI vp technology remainsopacelc the solar vp only solar er plant in the world that is operpv pow ject management team was required to perform ational in a conjunctive-use application submit reports that were not relevant to tasks and with a hydro plant. The f funds were initially provided as a to the success of the project. The project was endorsed by the ge f Council in December 2002. cealcp o received a $4 million / project wiceth has had a strong The ic egf f alcp o convertible loanusing funds. issued an international project ﬁnance disbursement requirements cealcp o host of request for proposals for the construction ofﬁnally. not only of operation. but also of complying with a place for the the funding. The Philippine critical loan. learning to successfully operate the proand.of approximately 1.200 metric tonnes at wor k e d and w h at di d not w h annually.
predicted to incealcp o would cident since its inauguration in 2004. the vp plant has resulted in a signiﬁcant re basis of cost e≈ciency. it was exFurthermore. displace be 2over its cost e∑ective vp if solar declined su≈ciently. signiﬁcant subsidization is limi most important demonstration value of t cealcp o project is that solar vp works e∑ectively in a conjunctive-use application. by avoiding the need ject never intended to compete head-on with other chase on the cealcp o solar y alternative energy generation technologies alternative thermal energ. that.acelcp o The solar provp vp plants.convertible to loan) of the project called u s iofor a rigid concl n disbursement structure. served to subsidize approximately 70 ic f cealcp o solar vp of the percent of the construction and startup costs plant has made a strong techn case for the reliability of utility-scale vp power cealcp o solar plant. I market transf cealcp o was dewas developed that there were more cost-e∑ective as a stand-alone experiment to dem signed technologies available to address peak load energy the appropriateness ofvp the solar y technolog (through a conjunctive-use application) i supply issues. n fact. Had the p therefore become more an existing small hydro plant with limited storags expected (and it is s of solar gone down as wa e vp capacity. t also ill I that the technical solution is not market solution. t became apparent. with solar having invp to tion. aappears to th a high potential have been project wi date to have been successful in proving solar ever. the prescribed disbursement structure change mitigation like other climate ic / f eg f would have to serve as a guide only. The plant is vp could be greenhouse technically reliable source of power that could 24. but it did intend to demonstrate that solar used as an e∑ective and gas emissions. the I eg f grant. The plant. 56 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s . which has operated withoutoccur in the future). prices When the ﬁnancing was provided.cealcp o the project intended to pected that solar would decrease and that vp prices demonstrate that there are technical advantages to solar technology used on a utility scale wo vp the operation of such a plant in conjunction withcost e∑ective. provided ing distribution system capacity iss through . in order to ensure timely completion of is an interesting on The cealcp o experience construction. grams and projects.000 tonnes of CO lifetime. many of which were designed t was widely recognized at the time the project ormation initiatives. Furthermore. the potential for replication wit address peak-load energy supply issues. How vp prices be an e∑ective and technically reliable technology to creased. howI ever.
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Jon Forster. Lucie Giraud.ack now l e dgm e nt s SelingSolar has been prepared by the Sustainable Business nnovator Group of Environment and Social I Development Department of ic . Bernard McNelis. Stacy Swann.org) or Natalia Magradze (nmagradze@ifc. Russell Sturm. Alan Miller. Cover inset (woman pumping water): National Renewable Energy Laboratory Page 32: Micro Energy nternational I 60 . Sandeep Kohli. f This report would not be possible without the insight and guidance of Dana Younger.org). Devyani Hari. Heather Simpson Reviewers Anil Cabraal. Margie Peters-Fawcett. Terry Hart. Lisa Da Silva. Eluma Obibuaku. Pallavi Shah. Shir Ashar Naveh. Photography All images courtesy of IFC and World Bank Sta∑ unless otherwise credited. Fabio Nehme. Amy Sweeting Contributors Sachin Agarwal. Fernando Manibog. Ashington Ngigi. Joanna Willott Please address questions or comments to Alan Miller (amiller2@ifc. Hany Assaad. Maurice Biron. Shilpa Patel Editorial Team Louise Gardiner. Authors Natalia Magradze.
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