Rural financing supports move from kerosene lamps, unreliable power;
Four-year, $1.5 million pilot drives 13-fold jump in rural solar installations;
Expansion plans also target China, Algeria, Egypt, Mexico, Indonesia, Ghana
Life for an estimated 100,000 people in poverty-stricken rural India has been improved dramatically by several hours of reliable solar-powered lighting every night, made available by a UN-led pilot project to facilitate household financing for solar home systems.
The $1.5 million pilot, managed by the United Nations Environment Programme (UNEP), has improved so many lives in India that sister programmes to boost energy access are being initiated in other developing countries.
Even a few hours of 20 to 40-watt solar-powered lighting in homes and small shops nightly has been credited with better grades for schoolchildren, better productivity for needlework artisan groups and other cottage industries, and even better sales at fruit stands, where produce is no longer spoiled by fumes from kerosene lamps.
Behind these quality-of-life upgrades is an innovative UN-led project to persuade Indian bankers to finance small loans for solar systems - typically $300 to $500 for a system to power two to four small lights or appliances. A report on the programme will be offered at the UN Commission for Sustainable Development, the annual two-week meeting of which opens in New York Monday April 30 with a focus on energy issues.
"Kerosene used by the poor for lighting is often unaffordable, unavailable, unsafe and unhealthy while the electricity power grid is unreliable. To provide even this little degree of electricity reliability and independence is to empower the poor in ways that can profoundly alter lives for the better," says Timothy E. Wirth, President of the UN Foundation (www.UNFoundation.org), which, with the Shell Foundation (www.shellfoundation.org), provided the project's core funding.
He notes that international study after study has established strong, direct links between electricity use and financial success and well-being.
"The project underlines the multiple benefits accruing by providing clean and renewable energies in developing countries," says UNEP Executive Director Achim Steiner. "These range from reducing the emissions that are causing climate change to overcoming poverty and the serious health toll taken by dirty fuels - especially on women and children and particularly in the home. In doing so, such projects can help towards achieving the Millennium Development Goals by 2015.
"The success of this project should also serve as a catalytic blue-print for similar schemes across the developing world and lead to the scaling up of renewable energies everywhere."
"To average citizens of most developed countries, with perhaps dozens of lights and unlimited electric power on every floor of a home, conditions in rural parts of India may seem unimaginable," says Jyoti Painuly, Senior Energy Planner at the UNEP Risoe Centre on Energy, Climate and Sustainable Development. "We aren't talking about operating a toaster, kettle, computer or microwave oven - just a handful of low-wattage lights, and perhaps a small fan, radio or TV for a few hours nightly - but even that can make a world of difference.
"The 45% or so of people in India hooked up to a power grid suffer chronic, daily electricity outages. Others trek long distances to buy a few expensive liters of polluting kerosene for lamps, often finding no supplies, much of it sold on the black market as an illegal way to dilute gasoline and diesel fuel.
"This project removes one of the main barriers to the shift to solar power - lack of financing. Asking customers previously to pay cash for solar systems meant asking them to pay upfront an amount equal to 20 years of electricity bills."
With just $1.5 million, the project has posted very high returns in four years, causing a 13-fold increase in the number of solar systems financed in the pilot area of Karnataka state, Southern India, from 1,400 to 18,000. In addition to the many social and health benefits produced, the project has created much new employment at factories producing solar panels and related products, at sales dealerships and for maintenance workers.
Although in 2003 the solar sector was mostly a cash-only business, today more than 50% of sales are bank financed. It recently won a top-of-category Energy Globe "World Award for Sustainability," considered today's most prestigious energy-related environmental prize.Please see International Winners - Fire First Prize .
Free market forces and competition is changing the complexion of and expanding the market, says Eric Usher, head of UNEP's Renewable Energy and Finance Unit, UNEP Division of Technology, Industry and Economics, Paris.
Encouragingly, Indian banks not included in the initial partnership have launched competing solar loan products and competition is heating up.
"Lack of access to affordable energy produces one of poverty's most powerful grips," he says. "This project empowers people to invest and helps free them from reliance on government interventions."
The India programme's success has already inspired a sister effort in Tunisia, where the market for solar water heaters has been shifted from cash to credit, with over 16,000 systems financed. Similar programmes are upcoming for China, Indonesia, Egypt, Mexico, Ghana, Morocco and Algeria.
How the project works
When the programme began, only 31% of India's rural households had electricity connections compared to 76% of urban households. On average, power went down for one hour of every six in peak periods. And tariffs for grid power, up drastically in recent years, are expected to rise even further.
Despite high capital costs ($500), Solar Home Systems have emerged as an attractive long-term option - relatively simple, reliable and quickly installed. However, even if a solar home system was the best option from a villager's economic standpoint, little or no access to credit meant it was simply beyond reach.
Two of India's largest financial institutions became the project's initial partners: Canara Bank and Syndicate Bank. Two more banks, the Bank of Maharashtra and Sewa Bank, were added as partners this year.
Although banks in India are required to make 40% of their loans in priority sectors (e.g. causes with strong social objectives), "bankers seldom lend for an unfamiliar product," according to Mr. Usher. "Solar Home Systems were unfamiliar gambles. The Indian Loan Programme used a competitive market development model to help banks enter the sector, remove information and perception barriers while creating standards for quality products, sales and service."
The programme involved an interest rate buy-down, marketing support and a vendor qualification process. The commercial interest rate for equivalent loan types at programme inception was 12%. UNEP's subsidy initially brought this rate down to 5%, the subsidy phased out over time. Loans were offered through more than 1,000 Canara and Syndicate branches and over 1,000 branches of the rural regional banks (the so-called Grameens) affiliated with Canara and Syndicate.
Solar vendors, once qualified, could direct any interested customer to their local Canara, Syndicate or Grameen bank branch for financing. Five solar vendors achieved qualification to take part in the programme, therefore there were plenty of competitive products. Vendors offered long-term warranties and five-year maintenance contracts and agreed to recondition systems for resale in the event of a loan default.
Partner banks agreed to let borrowers pay only 15% of their purchase up front, as opposed to the conventional 25% deposit, loans could be repaid over five years instead of the usual three years allowed for non-mortgage loans, and security and documentation requirements were simplified.
Initially, banks were paid 300 Rupees (approx US $7) per loan account to help with publicity and information sessions, and defray processing costs.
As the subsidies phased out and project-inspired competition began, the UNEP-sponsored banks gradually surrendered predominance in solar loan financing. Loans are now available across several thousand mostly rural bank branches - a development considered the key growth driver for home solar systems.
A survey showed borrowers' average annual household income was 50,000 Rupees (US $1,200) or more. It also revealed the #1 reason behind buying a system: chronic grid power failures and shortages.
The typical home system comprised a roof-mounted solar photovoltaic module, storage battery, charge controller, interior wiring and switches and electric lighting fixtures. The solar panels have generally been in the 18Wp to 40 Wp range, capable of powering up to 4 CFL lights and a DC fan.
In addition to private homes, the project found household clusters (30-40 houses each) in an estimated 50 villages pooling resources to install solar home systems as an alternative to the grid.
As well, an independent initiative by the Small-Scale Sustainable Infrastructure Development Fund (S3IDF), an international NGO, in collaboration with vendor Selco, has spawned several small street hawker solar lighting projects. More and more small town hawkers are switching from kerosene lamps to solar lights.
Most kerosene lamps, especially the open wick type commonly used in rural India, provide very low lighting intensities, far below those required to meet reading needs adequately. The efficiency of these lamps is not even 10 percent of the most in-efficient incandescent electric lighting. This means high costs for lighting and undesired emissions. A study shows kerosene and similar fuels account for 20% of global lighting costs but provide only 0.1% of lighting energy services. In terms of greenhouse gas emissions, a single wick burns about 80 litres of kerosene, producing more than 250 kg of carbon dioxide per year.
Kerosene emits several other harmful gases while burning, and due to its low efficiency contains large amount of unburned hydrocarbons and soot. And since a majority of homes in rural India are poorly ventilated, it poses a health hazard, commonly causing respiratory, and eye problems. Eye, nose and throat irritation are caused by inhalation of the fumes.
Kerosene use in lamps is also a safety risk - lamps can easily get knocked over setting fire in the home. An estimated 100 million families use kerosene for lighting in India, exposing themselves to these health and safety hazards.
"Our bank takes great pride in contributing to social change in association with UNEP," says Mr. M. B. N. Rao, Chairman and Managing Director of Canara Bank. "Putting Solar Home Lighting Systems and reliable energy supplies within the reach of the common citizen kindles hopes and aspirations of many for a better life and well being."
"As governments meet next week in New York for the 15th Session on the Commission on Sustainable Development, the topic of energy will be at the top of the agenda, and particularly how to finance the global shift to a cleaner energy mix," says Mr. Steiner. "This programme has shown one important area where this is being done on the ground, bringing together local banks, a clean energy technology and the entrepreneurial drive of modern India."
Mr. Terry Collins +1-416-538-8712; +1-647-284-8712 (m); email@example.com
Mr. Robert Bisset, UNEP, Paris +33 1 4437 7613, +33 6 2272 5842 (m); firstname.lastname@example.org
Mr. Jyoti Painuli, UNEP RISOE Centre, Denmark, +45 4677-5167; email@example.com
Mr. H.V. Kumar, India, +91-22-228-19944; +91-982-1045-167; firstname.lastname@example.org