Energy Governance Case Study #08

A Bangladeshi household proudly displays their new Solar Home System

Contents Executive Summary 2 Introduction 4 Research Methods 4 Background of the Soura Shakti Programme 8 Benefits of the Soura Shakti Programme 12 Challenges to the Soura Shakti Programme 18 Conclusions 20 Appendix 22 References 23 Acknowledgements 24 About the Authors 25

2 Soura Shakti (SS) is the homegrown Solar Home Systems (SHS) programme of Bangladesh’s Infrastructure Development Company Limited (IDCOL). The programme has successfully distributed 650,000 SHS units like those in Figure 1 serving more than two million individuals throughout Bangladesh, and SS is on target to reach 2.2 million units sold by 2012. To put this number in perspective, despite being one of the poorest countries in the world, Bangladesh has nine times the residential solar capacity of the United States, home to the fourth largest market for solar photovoltaic installations after Germany, Japan and Spain. In 2009, more than 99 percent of all SHS installations in Bangladesh occurred as part of the SS programme. Even more impressive, the programme achieved its targets three years ahead of schedule without a single customer defaulting on a loan and at $2 million below cost.

This report investigates how the SS programme did it. It begins by explaining the selection of Bangladesh as a case study for SHS and noting primary methods of data collection involving research interviews, site visits, and a literature review. It then discusses various dynamics of IDCOL’s SS programme.

The final sections elucidate benefits to the programme, remaining challenges, and implications for practitioners of energy development.

The report argues that SS is so successful in part because it actively promotes high quality technology and specifications through rigorous inspections and technical standards. It selectively chooses high quality participating organisations, those that show they can make a return on investment, collect payments, and build a national community-based network to assist with implementation and commercialisation. The programme particularly targets the provision of energy services for both extremely poor households and for income generating activities like learning, selling items, and sewing at night as well as enabling the use of mobile phones, televisions, and radios. A final element of its success is a reliance on an innovative financial model with a phased reduction of grants combined with subsidies, low-interest loans, and a down payment by households themselves.

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Figure 1: The installation of a 100 Watt-peak solar home system in rural Bangladesh

4 Bangladesh is one of the world’s most population dense and poorest countries. About four-fifths of its rapidly growing population of 144 million inhabitants lives in rural areas, 40 percent of the entire population lives below the poverty line and one-fifth of all Bangladeshis live in what the World Bank calls “extreme poverty.”1 Much of the country’s low-lying areas are prone to perennial flooding, erosion, and saltwater intrusion of water supplies. Per capita-Gross Domestic Product (GDP) is an extremely low $480 and about one-quarter of young adults aged 15 to 24 are still reported to be illiterate.2 Bangladesh is also one of the world’s lowest producers and users of energy, with total energy supply at only about 150 liters of oil per capita per year and two-thirds of all households lacking reliable access to electricity. Almost four decades after the country’s independence, shortages in natural gas, which provides 70 percent of commercial energy, are now common.

Moreover, no single political party has been elected for two terms in a row for the past two decades, creating a lack of continuity in energy policy planning and implementation.

Such socioeconomic, climatic, and political vulnerabilities make it all the more impressive that the Infrastructure Development Company (IDCOL), a government-owned investment company, has distributed more than 650,000 solar home systems (SHS) to rural users and is set to install more than 2.2 million units by 2012. To put this number in perspective, in 2008 Bangladesh had almost nine times the number of installed residential solar systems in the United States,3 the fourth largest market for photovoltaic (PV) installations after Germany, Japan and Spain. Even more salient is that the programme has achieved such rapid commercialisation in less than ten years, ahead of schedule, and below estimated costs.

This article explores how and offers lessons for other energy development policies and donors. It begins by explaining the selection of Bangladesh as a case study and noting primary methods of data collection involving research interviews, site visits, and a literature review. It then discusses IDCOL’s SHS programme or Soura Shakti (SS) in Bengali, which means “solar energy.” The final sections elucidate benefits to the IDCOL programme, remaining challenges, and implications for practitioners of energy development.

This section justifies the selection of Bangladesh and SHS for analysis and summarises the primary research methods utilised to collect data for the study.

The authors chose Bangladesh because it is one of the most energy poor countries in the world, and considering its incredible population density, is ostensibly most in need of better energy technologies and policies. A whopping 65 percent of all energy needs in the country are met with “non-commercial” forms of wood, twigs, agricultural residues, and other forms of biomass. Kerosene, natural gas, and electricity combined meet less than one percent of rural household energy needs.4 Put another way, energy consumption is Bangladesh is less than one-tenth the global average, only 45 percent of the population has access to the electricity grid, electricity consumption per capita is less than 145kWh per year, and 96 million people lack access to the grid.5 National planners expect the need for $10 billion worth of investment by 2020 only to maintain the grid and stop load shedding, and given the current rate of electrification rural Bangladeshis will have to wait 40 years for likely grid coverage, a feat complicated due to the country’s many rivers and waterways that make transmission and distribution of electricity difficult.6 Figure 2, for example, shows transmission infrastructure being flooded on the Jamuna River. When compared to other countries, Figure 3 shows that total primary energy supply in Bangladesh is lower than every other developing Asian economy, even Nepal, which is not only the poorest country in South Asia but has a significantly smaller population than Bangladesh. Moreover, considering the power sector’s high dependency on increasingly scarce natural gas and Bangladesh’s vulnerability to natural disasters, there is an urgent need for the country to diversify its sources of electricity.

Given the formidable challenges to further developing grid electricity, it is no wonder that the government has been looking for alternative means that are more accessible and affordable. In particular, the current administration of Begum Khaleda Zia has been making a considerable effort to support the development of renewable energy technologies such as solar photovoltaics, biogas cookstoves, and biomass fueled power stations. This approach is in stark contrast to previous administrations that focused more on increasing the capacity of centralised power plants.

We chose to focus on the development of solar home systems (SHS) rather than other renewables energy sources, not only because of the success of IDCOL’s SS

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Figure 2: Flooded electricity transmission infrastructure on the Jamuna River, Bangladesh

Figure 3: Per capita energy use and oil intensity for selected Asian countries, 1995 to 2005

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programme, but also because of the compatibility of developing solar energy to the unique environment of Bangladesh. Located near the equator, Bangladesh receives an abundant amount of radiation (about 4kWh–6.5kWh per square meter). Moreover, Bangladesh has a history of SHS use going back to the 1970s, when the Rural Electrification Board (REB) started promoting it in rural areas as a substitute to grid extension. SHS can be easily installed and maintained with minimal amounts of training, have lower operating costs than other renewable energy options, and do not produce unpleasant smells or pollution (unlike biogas units) (Islam 2010a). As one of our interview respondents explained: Î We don’t even know the technical potential for small-scale wind energy in Bangladesh, no one has done the assessments or wind mapping, the country has no fossil fuels other than natural gas, which is running out, and we sit on a really flat delta, meaning we have lots of water but it’s not moving, making hydroelectricity difficult. Our susceptibility to natural disasters also creates a strong incentive to decentralise and diversify sources of energy production.

Demarcation and political issues prevent us from importing a large amount of electricity from West Bengal (India) or Myanmar. SHS are an obvious fit to the contextual challenges facing Bangladesh.

These factors likely explain why SHS constitute more than 90 percent of current renewable energy deployment in the country (Islam 2010a).

The typical SHS consists of a solar photovoltaic module, battery, charge controller, and lamp shown in Figure 4. Customers in off-grid and rural areas could initially choose from a variety of systems and technologies from a 20 Watt-peak (Wp) system to a 130Wp system presented in Table 1 (though the inventory of systems was later expanded to include 10Wp systems to better accommodate the poorest customers).

We relied on research interviews and field research as our primary sources of data, qualitative methods, for multiple reasons. The use of semi-structured questions, sometimes referred to as “intensive interviewing” or “responsive interviewing,” asks participants a set of standard inquiries but then allows the conversation to build and deviate to explore new directions and areas.8 Though this method has some challenges, we relied on it because many of the variables of interest to us, such as the ongoing energy challenges facing Bangladesh, or the benefits of SHS programmes, are difficult to measure, and to describe them with quantitative methods would amount to “conceptual stretching” by “lumping together dissimilar cases to get a larger sample.”9

Figure 4: A typical solar home system (SHS) in Bangladesh

Operating Hour

Cost in US$

Lamp: 2 (5W each) Mobile Charger: 1

4–5 hours

170

50Wp

Lamp: 4 (7W each) Black & White TV: 1 Mobile Charger: 1

4–5 hours

380

85Wp

Lamp: 9 (7W each) Black & White TV: 1 Mobile Charger: 1

4–5 hours

580

130Wp

Lamp: 11 (7W each ) Black & White TV: 1 Mobile Charger: 1

4–5 hours

940

Capacity

Total Load

20Wp

7

Table 1: Details of eligible solar home systems under IDCOL’s SS programme

Sector

Examples

Government

Ministry of Environment and Forestry, Rural Electrification Board, IDCOL

Civil society

Grameen Shakti, Bright Green Energy Foundation, Hilful Fuzul (HFSKS), Bangladesh Solar Energy Society

Business International Donors Academia

Figure 5: Dr. Benjamin K. Sovacool visiting United Nations Development Program-Bangladesh, a stakeholder in fighting energy poverty

Phocos Bangladesh, Grameen Technology Centers GTZ Bangladesh, USAID Bangladesh, UNDP Bangladesh Bangladesh Centre for Advanced Studies, Bangladesh Institute of Development Studies, Bangladesh University of Engineering & Technology, University of Dhaka

Table 2: List of interview participants

Additionally, semi-structured interviews enabled us to use face-to-face interaction, or words and images, rather than text to solicit information. Our case studies involved site visits and discussions with farmers, rural community leaders, and end-users. Some of these participants were illiterate, making textual collection of data impossible. Moreover, the visual element of the interviews enabled us to look for nonverbal cues to decide whether a respondent understood a question.

We conducted 48 of these research interviews and meetings with 19 institutions and communities in five locations over the course of June 2009 to October 2010 — research trips summarised in Appendix 1, and partially shown in Figures 5 and 6. In each case, we had simul-

Figure 6: Researcher Ira Martina Drupady touring solar panels at Grameen Shakti in Bangladesh, one of the distributors of SHS for the SS Programme taneous real time translation into local languages and dialects. We relied on a purposive sampling strategy to select participants, meaning experts were carefully cho-

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sen to represent different aspects of the SS programme, and also a critical stakeholder analysis framework that required us to include a broad spectrum of respondents from government, civil society, business, academia, and local communities as demonstrated in Table 2.

Participants were asked to (a) identify the most serious energy related concerns facing Bangladesh to corroborate the importance of SHS programmes, (b) summarise what they saw as the most successful SHS programmes, and (c) explicate expected costs and benefits for those efforts. Due to Institutional Review Board guidelines at the National University of Singapore, as well as the request of some participants, we present such data in our article as anonymous, though information from the interviews was often recorded and always carefully coded, and the Appendix provides a list of all institutions visited.

We supplemented these interviews with a review of reports and peer reviewed articles relating to solar energy and energy development in Bangladesh (though there were not many of these), as well as site visits to speak with more than fifty community members and renewable energy users at two Grameen Technology Centers and communities in Dhaka and the surrounding areas of Singair, Manikgunj, and Mawna.

SHS programmes were supported by government outfits such as Bangladesh Council for Scientific Industrial Research (BCSR) and the Rural Electrification Board (REB) as early as the 1970s, but with limited success.10 IDCOL began its SS programme in 2003 with assistance from the World Bank and Global Environment Facility and set a target of installing 50,000 SHS by 2008. In a departure from previous “grant-based” approaches, IDCOL was asked to focus on “developing a consumer-focused integrated sustainable model” that would “encourage customers to install a system because it was fulfilling their needs and not because of any subsidy.”

IDCOL itself is an entity created by the Bangladeshi government in 1997 to finance infrastructure projects. IDCOL is currently a government owned company that attempts to “create a vehicle for the government to invest in infrastructure” that the private sector ignores. It receives most of its funding from multilateral development institutions such as the World Bank, Asian Development Bank, Islamic Development Bank, GTZ, and KfW. IDCOL’s largest sector is energy and power, and renewable en-

ergy (SHS, biogas, and biomass) represent 43 percent of their investment in energy, or about 32 percent of their entire $300 million investment portfolio.

Respondents suggested IDCOL is the “largest financial institution in the country promoting renewable energy” and is “ideally focused” on “community based projects” in “off grid areas.” One advantage the institution has is that it is exempt from provisions by central banks on capitalisation of financing, which require commercial banks to operate with certain debt to equity ratios and short payback periods. IDCOL, in contrast to these banks, is permitted to operate with longer paybacks and lower interest rates because “the government recognises that different financial models are needed to finance development and infrastructure projects” with the organisation “designed to serve as a catalyst to fill the gap in development financing” as opposed to “rapidly making money like commercial banks.”

IDCOL established three committees to oversee and manage the SS programme. A Participating Organisation (PO) committee consists of representatives from IDCOL and relevant government ministries and selected organisations that implement the programme on the basis of experience in microfinance and institutional strength. POs are expected to make money on their SHS projects and expand to form a national distribution network (Islam 2010b). The Programme initially had five POs but has expanded now to 24. A Technical Standards Committee consists of technical experts from local universities and engineering departments of government bureaus and determines standards, reviews product credentials, and approves eligible equipment. An Operations Committee consists of programme heads from all POs and representatives from IDCOL and manages and monitors “all operational aspects of the programme.”

Under their financial model, IDCOL first recruits POs through a request for proposals and competitive bidding process. Once selected POs sign a Participation Agreement, or PA, to distribute SHS but IDCOL gives financial support only through a four-stage process.

The first segment involves a capital buy down grant, or “Grant A,” which enables POs to sell SHS at a slightly reduced price so that they can sell technology at more affordable rates. The second segment involves an institutional development grant, or “Grant B,” given to POs to extend credit to households, and also enables POs to build their capacity by hiring staff, and training employees in microfinance and credit monitoring. Grants A and B are intended to enable POs to purchase the technology below market rates and also provide loans

Amount of grant available per SHS Item Total

Buy-down grant

Institutional Development Grant

First 20,000 SHS

$90

$70

$20

Next 20,000 SHS

$70

$55

$15

Next 35,000 SHS

$50

$40

$10

Next 88,160 SHS

€38

€30

€8

Next 35,000 SHS

€36

€30

€6

Next 235,000 SHS

€34

€30

€4

Next 100,000 SHS

€28

€25

€3

Next 72,000 SHS

€22

€20

€2

Table 3: Phased reduction of buy-down and institutional development grants under the IDCOL SS

to customers, in essence lowering the price of SHS and increasing the institutional strength of distributors at the same time. To promote competition, such grants are reduced in amount over time as more SHS capacity is installed, an element called “a phased reduction of

SHS Cost

grants” depicted in Table 3.11 The third segment, once a certain amount of capacity has been reached, involves a Technical Assistance grant, which can be utilised by POs for advanced training and promotional campaigns, such as selling SHS via motorbikes, purchasing and using computers, and tweaking advertising efforts. The fourth segment is a low-interest refinancing loan, sponsored by the World Bank and Bangladeshi government, extended to the POs when they need extra resources to improve quality and operations. It enables refinancing 80 percent of the credit sale granted to households, or about $232 of every $290 in sales, over seven to ten years at a 6–8 percent interest rate (including a one to two year initial grace period).

Taken collectively, these elements combine to lower the cost of purchasing a SHS. A 50Wp system that would normally cost $380 would require a household to pay only $51.24 for that system up front, the rest formulated into a low-interest loan paid back over three to seven years with monthly payments of about $10. Table 4 summarises the process.

Most interestingly, IDCOL attempted to “design their programme to learn from past failures” and “rigorously matched specific programme elements to overcome identified challenges.” They wanted to create a programme where “all aspects of the SHS supply chain

$380

System Buy-Down Grant A

$38.40

Remaining cost

$341.60

Household down payment

$51.24

Credit to customer

$290.36

Loan to households

$290.36

IDCOL refinance (80 percent)

$232.29

Loan duration

3 years

PO Contribution (20 percent)

$58.07

Total interest (12 percent per annum flat)

$104.53

Institutional Development Grant B

$10.24

Total household payment

$394.89

Monthly household payment

$10.97

Table 4: Typical financing method for a 50Wp SHS in Bangladesh under the SS Programme

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Identified Challenges

IDCOL Solar Programe Components

Lack of capacity of the government, private sector and financial sector

A private-public partnership model was selected as the implementation and monitoring agency of the programme and would use micro-financing and outreach capabilities at a grass-roots level to build capacity and harmonise efforts

Lack of tailored financing package

A Capital Buy-down Grant was created to reduce the system price along with an Institutional Development Grant and long-term refinancing channeled to POs

High initial cost of solar equipment

Capital Buy-down Grant reduces system price and systems are also sold on credit to households to ensure affordability

Adequate institutional capacity of the executing agencies

Institutional Development Grant and long-term refinancing are channeled to the executing agencies for capacity building

Lack of business model

A social enterprise model is used for implementation of the programme with the ultimate goal of commercialisation and the presence of multiple POs ensures healthy competition

Lack of awareness among potential customers

Joint training, marketing and promotional activities are continually undertaken to increase awareness among potential customers

Absence of uniform quality product and lack of tools for ensuring quality

Technical Standard Committee must approve standard equipment and accessories are used in the programme and POs provide after sales service and stringent monitoring

Absence of any administrative agency to monitor quality of product and service

Three-tiered monitoring system in place consisting of IDCOL Inspectors, re-inspection by regional supervisors, and donor inspection by POs

Absence of local related and support industries

Programe has spawned a domestic manufacturing base for SHS components such as batteries and charge controllers and also solar photovoltaic assembly plants in Bangladesh

Table 5: Identified challenges and matched IDCOL programme components

could be concentrated in one place, from supply and financing to installation, maintenance, and tariff collection.” They sought to “permanently deploy outlets in villages that would be financially self sustainable.” And they “matched specific programme components to a series of barriers that previous household surveys and studies had identified,” summarised in Table 5.

Four things stand out to make the programme unique: a focus on commercial viability, institutional diversity, quality technology, and distributing risk. Rather than previous approaches, which were largely grant-based, perhaps the most distinct element of the SS programme is its focus on commercial viability and an innovative financing model not only for households and end users, but also development organisations and partners. As one respondent put it, “The intention is to get rid of the grant component altogether at some point. If a nation is hooked on charity, they will only want more charity.

The survivor attitude will disappear.” Thus, the central idea was “to make SHS projects commercially viable, and only support partners and institutions that could run like a business; if they would not turn a profit, we would not do a project.” As another participant noted, “you have to collect money for SHS, to be serious about payments and

not giving technologies away for free, you need a strict but humane form of collection, or else people don’t take care of their systems.” After the capital buy-down grant, a client or user must still finance a pecentage of the cost of a system through an upfront down payment. POs, too, must demonstrate that they are collecting a majority of payments on time or they are suspended from the programme. As one respondent articulated, “we are serious about the performance of POs, if any particular branch or village office falls below 50 percent collection efficiency, we stop the financing and suspend them temporarily until they reach efficiency again.” Or, as another respondent surmised, “the IDCOL model is a successful one because everyone has a stake, everyone is invested.”

Second, the programme emphasises institutional diversity by involving a network of five types of collaborators that all have their “skin in the game”. IDCOL covers project finance and management, multinational and national donor agencies provide additional funding, nongovernmental organisations and micro-finance institutions operate as POs, manufacturers and suppliers interact with the IDCOL Technical Standards Committee, and energy development professionals assist with expansion and rural development. The “most important chain in

this link” is the POs, or as one respondent put it, “getting good quality implementing agencies is the hardest part, especially here in Bangladesh, which is why every PO is chosen carefully through peer review and competitive bidding.” Fifteen POs, including Grameen Shakti, the BRAC Foundation, Integrated Development Foundation, and Hilful Fuzul Samaj Kallyan Sangstha, were operating in 2009 with nine more enlisted in 2010.

Many of the POs are quite innovative themselves and have earned accolades for being “progressive,” “award winning,” and “internationally recognised” development intuitions. Grameen Shakti, for example, is a nonprofit company that provides finance and technical assistance for renewable energy projects to the rural population of Bangladesh. Based on experiences from the Grameen Bank’s microcredit programme, GS promotes solar home systems, small-scale biogas plants, and improved cook stoves to reduce deforestation, fight poverty, and provide energy services. Other novel factors in the approach taken from GS include a focus on matching energy supply with income generating activities, relying on local knowledge and entrepreneurship, utilising community awareness campaigns, and innovative payment methods including fertiliser, livestock, and cash.12 In 2009, GS operated 750 offices throughout every district of Bangladesh, had installed 250,000 solar home systems, 40,000

cook stoves, and 7,000 biogas plants among 2.5 million recipients, and as of November 2010, they were selling an estimated 25,000 SHS each month.

Another PO, Hilful Fuzul Samaj Kallyan Sangstha, does not focus only on renewable energy projects like GS, but also address a wider range of poverty concerns, such as water supply for agriculture, post-disaster relief, and microcredit schemes. It is focused on helping “only women” and has a history of funding training sessions on microfinance as well as biogas and SHS for women entrepreneurs and technicians. Similar to GS and other POs, they offer a 3-year warranty for service as well as a 20 year warranty on panels. In 2010 they sold 4,800 SHS and repayment of loans was 100 percent, and they are targeting 16,000 units by 2011. While they do not consider other POs as rivals, they claim that by “keeping it small”, they can provide better quality of service than the bigger POs, such as GS and BRAC, that have apparently been criticised for neglecting their customers.

Third, the programme focuses in improving technology.

Respondents argued that “Bangladesh has no problem with fake or substandard panels or equipment because suppliers are always following specifications; every panel has a serial number and a warranty, and all SHS are checked by a technician to be fully operational before

Figure 7: Solar home systems and total installed capacity achieved under the IDCOL Program, 2004 to 2012

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customers have to make payments.” Another mentioned that “IDCOL does strict internal auditing to ensure quality standards are met by POs and all manufacturers.” Yet another remarked that “we have a big team of about 50 people doing quality control and standardisation, traveling every day to check on systems installed who verify about 50 percent of all installations in a given area, and who also have the power to penalise unsatisfactory performance.” The Technical Standard Committee and these teams, headed by professors and engineering experts, not only improved the quality of panels, but also “set standards for inverters, charge controllers, batteries, and installation procedures, along with adhesives, mounting, and maintenance.”

Fourth, the programme essentially distributes risk for POs and SHS users in a variety of ways. Households must pay only 10 percent of the upfront cost of a SHS, the remaining amount is split between IDCOL and the particular PO. So if a SHS were to cost $100, a customer would have to pay $10 upfront and then the remaining $90 would be split so that IDCOL takes responsibility for $72 and the PO takes responsibility for $18. As one respondent put it, “the programme nicely distributes risk to all three key players: households have to put up a share, the PO has an investment, and IDCOL is at risk as well, though this risk is minimised since the POs are responsible for collecting payments directly from consumers. The 10 percent risk to households may not sound like much, but it’s up to three months of household income, so it is taken seriously.” Also, once a household is connected to the electricity grid, it can resell the SHS back to the POs at cost so that customers don’t “lose out” by grid electrification.

By almost any measure, the IDCOL’s SS has been an unqualified success. Their initial target was to finance 50,000 SHS by June 2008, something they achieved in September 2005 three years ahead of schedule and at $2 million below projected costs. As Figure 7 shows, at the end of 2009 they had installed 420,000 SHS and as of July 2010 had surpassed the 650,000 mark, meaning their systems at that time benefitted about 3.25 million people. By the end of 2010 they are expected to install 800,000 and if all goes well will reach one million in early 2011 and 2.2 million by 2012. Currently the SHS installed amount to more than 34MW of capacity, 32,456 systems were installed in June 2010 alone, and the programme overall has contributed to reducing annual carbon dioxide emissions by 165,112 tons.

They have financed $84 million under the programme but not a single customer has defaulted on a loan, and not a single PO has fallen below 50 percent collection efficiency. IDCOL reported a return on equity of 25.5

percent in 2008 and 28.2 percent in 2009, and in 2009 more than 99 percent of all SHS installations in Bangladesh occurred as part of the programme. Following their success, the World Bank, Asian Development, Islamic Development Bank, and other actors have extended their support and scaled up financing, and officials from Ethiopia, Ghana, India, Nigeria, and Tanzania have approached IDCOL about replicating the programme in their own countries.

Respondents identified five distinct benefits to the IDCOL programme. The most direct was employment related to POs and distributors of SHS equipment as well as local jobs in maintenance and installations. As one respondent put it, “now more than 12,000 people have full time jobs directly related to the programme, whether it is installing SHS on household roofs or manufacturing components for SHS like batteries and inverters.” Benefits for rural communities can be “significant” as women become trained in maintenance and installation. Figure 8, for example, shows a technician near Dhaka repairing and refurbishing inverters, load controllers, and other SHS-related equipment.

A secondary benefit was reliable off-grid electrification.

For various reasons, respondents suggested that “a tremendous shortage of energy exists in Bangladesh” so much that “more than 40 million people don’t even own a single light bulb.” The most recent numbers offered by the Rural Electrification Board (REB) show an estimated 71 percent of households without access to the electricity grid, numbers presented in Table 6.13 Indeed, Table 7 shows that due to natural disasters some years, such as 2008 to 2009, actually saw a negative electrification rate. Grid electricity is available predominately around the urban areas of Chittagong and Dhaka. An unreliable grid, as well as “stalled” plans to extend grid electrification to rural areas, combines to make SHS “the only real option for getting energy services to poor, rural populations.” As one respondent elabourated: ÎÎ There is a motivation for SHS systems in both urban and rural areas. In urban areas, the power system is notoriously unreliable, it goes off and on all the time. Power generation is managed by the government, but they are inefficient and their equipment is aging. The Rural Electrification Board, responsible for grid extension, has no real plan to extend the grid anytime soon. This means for the near term,

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Figure 8: A women technician repairing SHS components near Dhaka, Bangladesh

people can either live completely without access to energy services, or they can adopt SHS. A second respondent stated that: ÎÎ Groups like USAID invested $1.5 billion in the Bangladeshi electricity grid from the 1970s to today, but I think their efforts have stopped now that more than 70 cooperatives exist. International

donors as well as local politicians and managers seem content to let the grid rest where it is. Making matters worse, by my count two-thirds of rural electric cooperatives under the REB are running at a loss. It’s not exactly a financial climate conducive to expansion.

Another noted that “it’s generally agreed in the government and private sector that because rural people

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Division

% villages grid connected

% households grid connected

Chittagong

78

39

Dhaka

80

44

Khulna

50

11

Rajshahi

53

20

All

66

29

Table 6: Electrification of villages and households in Bangladesh in Bangladesh are spread over such a large geographic area, there is no real market for providing them with grid electricity.” Others called plans for rural electrification through grid extension “corrupt,” “flawed,” and “unlikely.” One respondent even joked that while the power companies say they are concerned with extending the grid, “they speak more about the issue at the same time they work less to achieve it.” Part of this is speed: respondents noted it can take two years just to get a new power plant approved and another five to get it built, whereas SHS can be deployed “in a matter of days.”

Other respondents cautioned that the private sector was unlikely to fill the gaps left in grid coverage. As one noted: ÎÎ Most banks and companies in the private sector are not interested in energy poverty, they are not concerned about development or infrastructure. There are some minor players, but the private banks like bigger chunks of money, more capital intensive projects. They are comfortable with power plants or LNG facilities, but not interested beyond 5–7 years. Yet successful energy poverty programmes need to run for 10 to 20 years. With major private players earning a 12 percent return on investments in five years, they see no incentive to earn 3–4 percent over 10–20 years with poor communities.

A third benefit relates to the relative affordability of energy services. While SHS represent a significant capital investment for poor households, they tend to pay for themselves within the first five years. This is because most rural households meet their energy needs with kerosene which can cost $0.70 per liter or $12 per month.

As one respondent put it: ÎÎ In fact, poor people pay a lot for various energy services in Bangladesh, especially those using kerosene lamps. The amazing thing about SHS installment payments is that they tend to be slightly less than monthly expenditures on kerosene.

Even better, the SHS will usually pay for itself within the first few years of operation, producing net savings thereafter.

Indeed, the most recent numbers from the REB presented in Table 8 show kerosene usage to be the primary source for lighting across all districts in Bangladesh, including grid-electrified Chittagong and Dhaka (ostensibly underscoring the unreliability of those grids). 14 One interesting dimension of this benefit is the targeted nature of the IDCOL programme for “ultra poor” households, that is, those living in “extreme poverty” on less than $1 per day. Figure 9 shows that access to energy in Bangladesh is highly uneven between income groups, with the lowest decile using slightly more than two KGOE per capita per month but wealthier deciles using almost three times are much.15 To account for these inequalities of access, IDCOL started promoting cheaper, smaller 10Wp systems to be explicitly targeted at the poorest households. This has resulted in what one respondent called “a segmentation of the market” with “10Wp and 20Wp systems selling predominately to the poorest households,” “40Wp and 50Wp selling to the average rural family that needs enough electricity to run a small fan, four lights, and possibly a black and white television,” and “130Wp systems selling to what might be considered

Year

2003–04

2004–05

2005–06

2006–07

2007–08

2008–09

2009–10

Villages electrified

41,125

44,224

45,794

46,720

48,327

47,641

48,682

% of increase

7.06

7.54

3.55

2.02

3.44

-1.42

2.19

Number added

2,711

3,099

1,570

926

1,607

-686

1,041

Table 7: Rates of grid electrification in Bangladesh, 2003 to 2010

Energy type

Chittagong

Dhaka

Khulna

Rajshahi

All divisions

Kerosene

27.86

18.64

25.30

17.62

22.38

Grid electricity

11.82

9.70

1.86

3.29

6.86

Candle

2.60

0.09

0.30

0.02

0.79

SHS

0

0.04

0.13

0

0.04

Storage cell

0

0.05

0

0

0.01

2,711

3,099

1,570

926

1,607

Number added

Table 8: Energy sources for lighting (annual kilograme of oil equivalent per household)

the lower middle class of Bangladesh with enough energy for fans, lights, a TV, mobile phone charger, and radio.” To ensure that wealthier families do not take undue advantage of the programme, however, IDCOL limits the subsidy to one system per family (so no household can purchase multiple systems) and set a ceiling on eligible capacity (130Wp is the highest that is covered) and a limit on subsidies (no more than $285 per system per household).

A fourth benefit relates to income generation among SHS households. As one respondent noted, “the IDCOL programme is supposed to be commercially viable but we don’t try to control people’s behavior or limit what they can use their electricity for, we don’t tell them they have to purchase lights or whether they should have a television or not.” Because of this flexibility, SHS households use their systems to promote a rich mosaic of income generating activities. One family we met utilised their 50Wp system

Figure 9: Energy end use consumption by income in Bangladesh

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16

Figure 10: A SHS tea house near Chittagong, Bangladesh

Figure 11: A rural vendor using his SHS to light his shop items at night

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Figure 12: A store owner selling groceries under SHS-powered light

to keep one light for themselves and rent out three lights to their neighbours, earning about $8 per month (or more than three-quarters of their monthly installment fee). Others utilised their SHS to charge mobile phones, making $0.14 per each phone charged. Still others have started rural commercial enterprises at the household scale, by converting their home into a restaurant or building a SHS tea stand on their property (See Figure 10), refrigerating vaccines for local health clinics, starting mini-cinema halls (think a TV, DVD player, and six plastic chairs), creating studying areas for students at night, pumping water for farmers, sewing in the evening, or selling goods after dusk (See Figures 11 and 12). As one respondent put it succinctly, “the biggest advantage of a SHS is its ability to generate income for families and communities, its ability to increase working hours, learning hours, productive hours, SHS is a revolution to these communities, a quiet revolution in their social and economic structure.”

Indeed, these benefits have even been confirmed by a recent REB survey of more than 11,000 residential, commercial, and industrial energy users, including those with SHS and without, and those with electricity and without (Chowdhury 2010). The survey found that the biggest differences between SHS users and non-users was more income earners per household, with non-SHS-

electfrified homes having 1.5 to 1.6 but SHS-electrified homes boasting 2.4 to 2.5. Following through with a qualitative study of six districts — Barisal, Bagerhat, Moulavibazar, Manikganj, Rangpur and Comilla — the study also found that before grid connection or reliance on SHS houses were dependent on kerosene lamps and hurricane lamps which emitted soot and fumes indoors, causing pollution and health problems, constrained the ability for children to study and shops to stay open after dark, and limited the networking and income generating abilities of women. These communities had limited use of mobile phones and did not receive timely information about current events and news.

Electrified homes, by contrast, were cleaner and more prone to children studying and staying in school. Electricity enabled shops, stores, rice mills, and small traders to remain open for longer hours and women to feel more secure when traveling to hospitals, schools, and learning centers. Women became more involved in community activities such as sewing at night and running shops, and were able to rely on mobile phones and televisions to become more aware about issues relating to reproductive health, children’s health, family planning, early marriage, dowries, and forestry. Many were even able to talk directly to doctors during medical emergencies. Indeed, the survey found

Barisal

Chittagong

Dhaka

Khulna

Rajshahi

Sylhet

Total

Lighting

73.6%

76.3%

80.3%

84.9%

78.1%

81.0%

78.0

Cooking

5.6%

3.1%

0%

1.9%

0%

0%

2.3

Both

1.4%

5.6%

1.6%

.0%

1.6%

9.5%

3.2

TV/Radio

18.1%

4.4%

9.8%

3.8%

9.4%

9.5%

8.4

All

1.4%

10.6%

8.2%

9.4%

10.9%

.0%

8.1

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Table 9: Use of solar electricity by Bangladeshi households

Module manufacturer

Annual capacity per shift (MW)

Current status

Electro Solar

5

Started commercial operation

Tata BP

India

2.30

Rahimafrooz

5

is in construction phase

Kyocera

Japan

2.40

Maxtech

5

is in construction phase

Solarworld

Korea

2.40

Radiant Solar

5

is in construction phase

Suntech

China

2.00

Module manufacturer

Country of origin

Landed price ($/Wp) (including insurance, freight & banking charges)

Table 10: Existing and proposed Bangladeshi solar module manufacturers, November 2010

Table 11: Solar module pricing structure in Bangladesh, November 2010

that SHS produced a variety of services well beyond lighting to include cooking, television, and radios (see Table 9).16

manufacturing and assembling 5MWp of solar panels in 2010 and three other manufacturing facilities have been approved and will likely start producing 15MWp more of panels in 2012, summarised in Table 10. One respondent put it bluntly that “the IDCOL programme has opened the door to a robust domestic manufacturing capability for SHS panels and components.� Table 11 also implies that the result has also been improved quality and lowered costs, with landed prices of about $2 per installed Wp.

A fifth and final benefit relates to better technology and domestic manufacturing. At the start of the IDCOL programme, all technology had to be imported from Japan, India, and China and there were few domestic manufacturers of components and none for panels or assembly. The market was also dominated by one company, Kiyosera, which had an 80 percent share. Now, however, respondents reported that thirty suppliers of SHS components have facilities in Bangladesh from twenty countries in addition to seven local manufacturers of batteries, charge controllers, and inverters. Tubular plate batteries and flat type batteries are now entirely made within Bangladesh, more than 80 percent of charge controllers are locally assembled, and three-quarters of the fluorescent lamps attached to SHS are now made within the country.

For panels and modules, Kiyosera still dominates the market but must now complete with Tata BP, Solar World, Suntech and others. One company, Electro Solar, is set to begin

Notwithstanding the benefits to the IDCOL programme, respondents also identified five ongoing challenges.

The first relates to a continuing awareness gap among end users and politicians about SHS. One respondent noted that “a huge awareness gap about SHS exists among most Bangladeshi families, with some clients actually visiting demonstration facilities 40 times before

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Figure 13: A SHS near Singair, Bangladesh

they are convinced a SHS will work as we claim, most people do not believe a solar panel can provide them light or energy, for them seeing is believing, meaning the only way they are convinced is by showing them, often repeatedly.” Another talked about a cultural barrier where components and panels produced in Bangladesh and China are seen as less valued than Western or Japanese systems. As they noted: ÎÎ Chinese electronics, and even Bengali technology, are widely believed to be of universally poor quality. It is a challenge trying to get people here to buy a Chinese made system or a domestically manufactured system, people are unwilling to invest so they end up preferring the more expensive American, German, or Japanese systems, that’s how negative the reputation of local technology is.

Respondents added that such gaps of awareness exist not only for users but also political leaders. As one put it, “even our political leaders do not know much about renewable energy, we need to educate them alongside households through workshops, television ads, billboards, and training campaigns. Otherwise they will likely remain ignorant about solar energy.”

A second challenge concerns the affordability of SHS for the ultra poor. Even though IDCOL has tried to target use among families most in need, one respondent critiqued that “SHS for all intents and purposes are still for upper and middle class rural houses, or joint families or big families that have enough people and resources to afford the down payment, SHS are still beyond the reach of the poorest in Bangladeshi society.” Others noted that “there are more poor people in Bangladesh than in all of Sub-Saharan Africa, these people cannot even afford a light bulb, how are they supposed to afford a SHS?,” that “SHS is a costly technology, well above what poor Bangladeshi family can make in a year,” and that “SHS are a very expensive item, only the richest people in a poor community can afford it.” Still others argued that SHS sit near the top of an “energy ladder,” with solar lanterns and improved cookstoves in use for poor and ultra poor households but SHS and biogas units in use “only for wealthier families.” This could be why one of the SHS homes we toured near Singair was occupied by a large family of 30 that had many livestock, depicted in Figure 13. As one critic of the IDCOL programme mused, “by my count 40 percent of Bangladeshis in rural areas still cannot afford SHS being subsidised through IDCOL, they

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are simply too poor, and IDCOL seems more interested in numbers and making returns on investment than in helping poor people.”

A third challenge encompasses overall installed capacity. While the number of systems installed is impressive, one respondent noted that “from a larger picture SHS have yet to make a true dent in the national supply of electricity, we’re talking less than half of one percent of total demand for power.” As one respondent put it, “the hundreds of thousands of SHS being installed in Bangladesh sounds impressive, but this is small compared to the global market for such systems, Bangladesh is still a small market with not a lot of competition, and I don’t see SHS replacing centralised generation anytime soon.”

Rising costs and technical challenges serve as a fourth challenge. Solar panels in Bangladesh are still years away from reaching grid parity. Better batteries, warranties on imported solar panels, recycling and disposal of panels and their operation during longer periods of reduced sun during the monsoon season are all of concern, along with a dearth of opportunities for local research institutes to become more involved in SHS research and development. However, IDCOL’s dependence on funds from international development agencies means that local capacity building has taken “the backburner.” One respondent cautioned that the SS programme has become a platform “to sell foreign equipment—German panels, Japanese batteries—to Bangladesh”, keeping costs high and innovations low. Another respondent stated that “Bangladesh also lacks a really good supply chain, and the country had serious problems with supply in 2007 and 2008 due to a global shortage of panels that really didn’t abate until the beginning of the global recession.” This too could have been an opportunity to encourage local technological innovations.

Moreover, the fact that IDCOL is both the implementing as well as the monitoring and evaluating agency for its SS programme has also been criticised as a clear conflict of interest. There have been calls for IDCOL to involve more stakeholders in the process.

A fifth challenge is natural disasters. Floods, landslides, and tsunamis are among only a few of the recent events that have directly destroyed SHS and indirectly destroyed cultivated and arable land thereby reducing the capital villagers have available to make the down payment for systems. One respondent noted that “Cyclone Sidr in 2007 destroyed hundreds of SHS installed on the coast in a matter of hours and flooded thousands of hectares of arable land. People there still haven’t fully recovered and an investment in SHS in the coastal areas has since

plummeted.” Another remarked that “the sheer uncertainty and frequency with which natural disasters strike Bangladesh complicates any decision to invest in a SHS. People are too worried it will just literally blow away.”

To conclude, despite the mitigating effects of a persistent awareness gap, affordability concerns, inability to displace large power plants, technical challenges and natural disasters, the IDCOL’s Solar Home Systems programme has disseminated 650,000 units servicing more than two million individuals. It has created thousands of local jobs, improved the distribution and reliability of energy services such as lighting and entertainment, displaced the use of more expensive kerosene, generated income for thousands of communities, and supported the establishment of a domestic manufacturing center for solar panels and SHS components. A variety of key lessons seem relevant for other energy development programmes and institutions.

One lesson would be actively promoting high quality technology and specifications through rigorous inspections and technical standards. Another lesson would be choosing high quality participating organisations, those that show they can make a return on investment, collect payments, and build a national community-based network to assist with implementation and commercialisation. Yet another lesson would be specifically targeting services for both extremely poor households and for income generating activities like learning, selling items, and sewing at night as well as enabling the use of mobile phones, televisions, and radios. One would be mimicking the innovative financial model of the programme that relies on a phased reduction of grants combined with subsidies, lowinterest loans, and a down payment by households themselves. One would be designing a programme to overcome specific challenges in a given sector and to be explicit about overcoming them. Taken together, IDCOL’s experience implies that if one follows all of these lessons, the result is more educated, affluent, resilient communities like the one depicted in Figure 14.

If IDCOL can achieve such rapid diffusion of with SHS in Bangladesh, a land of extreme poverty afflicted by perpetual cyclones and natural disasters in a constantly changing political environment, it makes us wonder: where can’t it be done?

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Figure 14: A rural village celebrates their first SHS

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• Bright Green Energy Foundation • Bangladesh Centre for Advanced Studies • Bangladesh Institute of Development Studies • Bangladesh Solar Energy Society • Bangladesh University of Engineering & Technology • Bangladesh Agricultural Research Initiative • Grameen Bank • Grameen Shakti • Grameen Technology Center • GTZ • Hilful Fuzul Samaj Kallyan Sangstha • Infrastructure Development Company Limited • Macquarie University • Ministry of Environment and Forestry • Phocos Bangladesh • Rural Electrification Board • United Nations Development Programe Bangladesh • University of Dhaka • USAID Bangladesh

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1. Asaduzzaman, M., Douglas F. Barnes, Shahidur R. Khandker. 2010. Restoring the Balance: Bangladesh’s Rural Energy Realities (Washington, DC: World Bank Working Paper No. 181).

2. Chowdhury, Belayet Hossain. 2010. Survey of Socio-Economic Monitoring & Impact Evaluation of Rural Electrification and Renewable Energy Programe (Dhaka: Rural Electrification Board, June 24).

3. Wiser, Ryan, Galen Barbose, Carla Peterman, and Naïm Darghouth. 2009.

Tracking the Sun II: The Installed Cost of Photovoltaics in the U.S. from 1998 to 2008 (Berkeley: Lawrence Berkeley National Laboratory, October, LBNL-2674E).

4. United Nations Development Program. 2007. Energy and Poverty in Bangladesh: Challenges and the Way Forward (Bangkok: UNDP Regional Center).

5. Quoted in Islam, Sharif. 2010. “IDCOL SHS Program—A Sustainable Model for Rural Lighting.” Presentation to the Promoting Rural Entrepreneurship for Enhancing Access To Clean Lighting Conference, Delhi, October 28; and Kamal, Abser and M. Shahidul Islam. 2010. “Rural Electrification Through Renewable Energy: A Sustainable Model for Replication in South Asia.”

Presentation to the SAARC Energy Centre, August 7-9, 2010, Hotel Sheraton, Dhaka, Bangladesh.

6. Islam 2010.

7. United Nations Development Program. 2007. Overcoming Vulnerability to Rising Oil Prices: Options for Asia and the Pacific (Bangkok: UNDP Regional Center).

8. O’Sullivan, Elizabeth, Gary R. Rassel, and Maureen Berner. 2010. Research Methods for Public Administrators (New York: Pearson Longman, 2010).

9. George, Alexander L. and Andrew Bennett. 2004. Case Studies and Theory Development in the Social Sciences (Cambridge, MA: Harvard University Press), p. 19.

10. For more general SHS and energy development concerns, see Sovacool, BK and IM Drupady. “Summoning Earth and Fire: The Energy Development Implications of Grameen Shakti in Bangladesh,” Energy (in press, 2011); and Komatsu S, Kaneko S, Ghosh PP. “Are micro-benefits negligible? The implications of the rapid expansion of Solar Home Systems (SHS) in rural Bangladesh for sustainable development,” Energy Policy (in press 2011).

11. Islam 2010.

12. United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP). 2008. Energy Security and Sustainable Development in Asia and the Pacific, ST/ESCAP/2494 (Geneva: UNESCAP, 2008).

13. Asaduzzaman et al. 2010: 17.

14. Asaduzzaman et al. 2010: 16.

15. Barnes, Douglas F., Shahidur R. Khandker, Hussain A. Samad. 2010. Energy Access, Efficiency, and Poverty: How Many Households are Energy Poor in Bangladesh? (Washington, DC: World Bank Development Research Group, June, Working Paper 5332).

16. Chowdhury 2010.

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The authors are appreciative to the Centre on Asia and Globalisation and the Lee Kuan Yew School of Public Policy for some of the financial assistance needed to conduct the research interviews, field research, and travel for this project. The authors are also extremely grateful to the National University of Singapore for Faculty Start-up Grant 09-273 as well as the MacArthur Foundation for Asia Security Initiative Grant 08-92777-000-GSS, which have supported elements of the work reported here. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the Centre on Asia and Globalisation, Lee Kuan Yew School of Public Policy, National University of Singapore, or MacArthur Foundation. Also, the views of the author(s) expressed in this study do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

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Benjamin K. Sovacool is an Assistant Professor at the Lee Kuan Yew School of Public Policy. Dr Sovacool has worked as a researcher, professor and consultant on issues pertaining to energy policy, the environment and science and technology policy. He has served in advisory and research capacities at the U.S. National Science Foundation’s Electric Power Networks Efficiency and Security Programme, Virginia Tech Consortium on Energy Restructuring, Virginia Centre for Coal and Energy Research, New York State Energy Research and Development Authority, Oak Ridge National Laboratory, Semiconductor Materials and Equipment International, U.S. Department of Energy’s Climate Change Technology Programme and the International Institute for Applied Systems and Analysis near Vienna, Austria.

Dr Sovacool has published or edited six books, more than 100 academic articles and presented at more than 60 international conferences and symposia in the past few years. His email is bsovacool@nus.edu.sg Ira Martina Drupady is currently a research associate at the Lee Kuan Yew School of Public Policy, where she also graduated with a Masters in Public Policy in 2010. She currently researches energy security, rural electrification, and energy development and poverty. Before joining the LKY School, she worked as a Project Assistant with the Asia-Europe Foundation. She can be reached at iramartina@nus.edu.sg

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Energy Governance Case Studies Series 1. Lighting Laos: The governance implications of the Laos rural electrification programme 2. Gers just want to have fun: Evaluating the renewable energy and rural electricity access project (REAP) in Mongolia 3. Living up to energy governance benchmarks: The Xeketam hydropower project in Laos 4. Settling the score: The implications of the Sarawak Corridor of Renewable Energy (SCORE) in Malaysia 5. What went wrong? Examining the Teacher’s Solar Lighting Project in Papua New Guinea 6. Summoning the sun: Evaluating China’s Renewable Energy Development Project (REDP) 7. Rural energy development on the “Roof of the World”: Lessons from microhydro village electrification in Nepal 8. The radiance of Soura Shakti: Installing two million solar home systems in Bangladesh

A manager at Grameen Shakti, one Soura Shakti’s Participating Organisations, displays a 50Wp solar panel

27

28

A solar powered bulb lights the roof of a rural home near Singair

29

Strategic partners

The Lee Kuan Yew School of Public Policy is an autonomous, professional graduate school of the National University of Singapore. Its mission is to help educate and train the next generation of Asian policymakers and leaders, with the objective of raising the standards of governance throughout the region, improving the lives of its people and, in so doing, contribute to the transformation of Asia. For more details on the LKY School, please visit www.lkyspp.nus.edu.sg