Impacts of Locally-Assembled Systems on Local Businesses and Economy

Overview

Locally-assembled renewable energy systems can lower costs, reduce imports and stimulate the development of national commercial renewable energy markets by increasing the local value-chain share. They allow more people to gain access to off-grid electricity, particularly in rural areas. Locally-assembled renewable energy systems are also found in a wide variety of forms – from solar PV to wind turbines to improved cook stoves. It should, however, be noted that locally-assembled systems potentially have some weaknesses.

These weaknesses may include: less regulation, insufficient training or a lack of supervision during the assembling of the product resulting in lower quality merchandise. Incorrectly assembled systems can also result in technology being discredited, thereby potentially reducing the product’s dissemination rate for years to come. It is therefore vital that the national implementation and usage of locally-assembled systems is well managed to maximise positive economic development and renewable energy expansion.

Initiating Locally-Assembled Systems

The first step towards increasing the prevalence of locally assembled systems is to encourage the spread of local assembly kits. This encouragement can be from a local government or an external organisation by contributing of funds, training or assembly kits. Once a locally assembled kit is properly regulated and ingrained within a country’s renewable energy strategy, components of the kit can also be manufactured locally. Manufacturing is more likely to be successfully undertaken in developing countries that have a well-developed industrial infrastructure sector (such as the Philippines) while less industrialised developing countries (such as Zimbabwe) are less likely to have the manufacturing capacity and will therefore be more reliant on importing kits to be locally assembled in their entirety.

Another method of encouraging locally assembled systems is by reducing or abolishing import duties and taxes on the incoming kits. While this will reduce the overall cost of the locally-assembled kits, it could potentially hinder efforts to establish local production.

Experiences with Locally-Assembled Systems

India is one country that is particularly focused on locally-assembled solar. During 2010 the Indian Government mandated that all national solar projects were required to use modules and cells manufactured in India. After this policy was implemented the Gujarat Solar Park was developed in less with the co-operation of 21 international companies. Investment in the Indian solar energy sector also increased to $4.2bn in 2011 from almost nothing in 2010. Along with larger investments it has also resulted in smaller scale solar usage, particularly in rural areas.

More recently India offered financial incentives for new solar manufacturing facilities, subsidising up to 25% of capital cost under the Modified Special Incentive Package Scheme (M-SIPS). These initialtives is also supports larger, international solar corperations such as Renesolar who announced plans to supply 250 MW of locally-assembled modules in India in 2016.

Solar Lamps

Solar lamps aim to replace less efficiency, fossil fueled lighting technology such as kerosene lamps. While there are different varieties of solar lamps, the majority are relatively simple and therefore have a high potential to be locally-assembled. Moonlight is one example of a locally-assembled solar lamp that has been successfully distributed to 12,000 households in Cambodia with the help of the World Bank. This lamp is waterproof and the solar panel can be detached and charged outside while the lamp component remains safely inside. The Moonlight is able to produce a maximum of 30 lumens for 4 hours and 40 hours of lights at a lower lumen intensity.

PicoPV

PicoPV systems refer to mini solar appliances such as mini reading lamps, torches, multifunctional devices as well as micro-solar home systems. They are particularly useful on a household level and are being locally-assembled by a number of companies in developing countries. Fosera Manufacturing PLC is an one example of a locally-assembled PicoPV. The Ethio-German Joint-Venture aims to increase the distribution of solar systems in rural Ethiopia while also seeding the Ethiopian solar industry.

Locally-Assembled Cookstoves

One example of a locally-assembled cookstove is the atmosfair-ENEDOM Save80 Stove. The Save80 stove is maufactured in Germany but locally assembled in Kigali, Rwanda. It relies on fuelwood for household cooking needs but the amount required is reduced by up to 80% compared to traditional fires. As of 2011, Save80 could only be purchased in Germany, however, as as the initiative scales it is likely that local manufacturing will occur. The Save80 stove has a relatively large value chain, impacting the purchase, transport, drying, and retailing of improved fuelwood. The oversight of this value chain by ENEDOM aims to reduce the large inefficiency previously prevelant at each stage in the value chain. For example, by providing the Government of Rwanda an estimation of the fuelwood demand created by Save80, the use of large, public plantations for sustainable fuelwood harvesting may be considered over the private, small-scale forest owners that are currently being utilized. This will result in greater autonomy, price stability and may reveal opportunities to link the benefits of REDD+ finance directly to issues of energy poverty.

Although the retail price of each stove is approximately €110, however atmosfair plans to sell the stove to ENEDOM at a price of approximately €40. atmosfair carries a balance of €70/stove as risk which it aims to recoup through the sale of Gold Standard CERs from the CPA (and presumably, the eventual PoA). The expected carbon finance revenue stream, currently sized to be provided by 40,000 CERs/year, will accrue directly to atmosfair. However, an internal agreement between atmosfair and ENEDOM allows ENEDOM to profitably sell the stove far below the stated retail cost to end users. (Who works in this field? How big is the value chain? Where? Comparablility to locally produced and/or imported stoves?)

The Berkeley-Darfur Stove is another version that can be locally assembled. A video of the assembly process can be viewed here.

Makobu Enterprises is an example of a locally assembled cookstove enhancing rural regions both economically and socially. These stoves bring employment to Tulubolo (a village 81 km West of Addis Ababa) through the development of a small industrial area that produced approximately 50 stoves per day as of May 2008. Makobu Enterprises distributes their stoves throughout rural Ethiopia, including to the refugee community. Not only this, but Makobu Enterprises employs four members of the refugee community and invites all refugee community leaders to stove training sessions to ensure correct usage of the stoves. The quality of stove production is regulated and every stove has a serial number.

Further benefits and potetnial challenges of using improved cookstoves in refugee camps has been outlined by energypedia and can be found here.

What Impacts do locally-assembled Systems have on Businesses and the Local Economy?

The impact of locally-assembled systems on local businesses and the local economy are varied. To a large extent, the economic impact of locally-assembled systems is steered by the policies of the national and regional governments. For example, while eliminating import taxes on locally assembled kits is likely to reduce the overall cost of the kits, increase productive use (potentially also boosting the local economy) it could potentially hinder efforts to establish the local production of solar energy.

Encouraging the region to manufacture the kits or components of the kits is likely to further economic growth. However, many developing countries do not have an industrial sector well established to ensure reliable production. An inept industrial sector or insufficient regulation could lead to ineffectual locally-assembled or manufactured.

The economic success of locally-manufactured components is also dependent on the cost of production. For example, although Turkey previously had a policy that favoured locally manufactured components, the locally-assembled components were still uncompetitive due to the 20-25% higher production cost.

By considering certain factors, governmental institutions and major energy stakeholders can enhance the economic benefits of locally-assembled renewable energy kits and minimise the potential risks.

Some of these factors include:

• The current demand for energy within the country / region
• Whether off-grid or on-grid technologies are better suited to the regions requiring more energy services
• The cost of locally assembled products compared with products assembled abroad
• The certifications, Guarantees, and warranties provided by the locally-assembled kit manufacturer compared with products assembled abroad
• The current import taxes and whether they should be reduced or whether subsidies should be provided (this will also impact the cost of the locally assembled kit)
• How the product will be disseminated throughout a particular region or the entire country
• The current level of industrial infrastructure and whether some components of the locally-assembled kit can also be locally produced
• The availability of raw materials (cells, glass, backsheets, encapsulants, etc.) if components will also be locally assembled
• The number of locally assembled kits likely to be installed annually over a set period of time (e.g. 5 years)
• The training required for locally-assembled kits to be as efficient and productive as possible

If initiated thoughtfully and in the right economic conditions, locally-assembled renewable energy technology not only provides all the benefits of regular off-grid systems, but also has the potential to have further positive impacts due to the reduced cost of the kits, increased training opportunities and longer value-chain share.

Anticipated Uptake and Impact of Locally-Assembled Systems

Several assumptions can be made that may increase the demand for locally-assembled renewable energy systems.

• A major driver for locally-assembled kits is the potential for greater consumer affordability.
• Increased awareness about the potential business opportunities and domestic economic benefits of locally-assembled systems is likely to increase the rate of dissemination.
• As locally-assembled kits increase in popularity, the feasibility of locally-manufactured components will also increase.
• Developing countries that have a small industrial sector are likely to initially benefit more from importing locally-assembled kits, rather than locally-manufacturing components.
• Locally-assembled kits are likely to increase in prevalence with reduced import tariffs (however, this may decrease the country’s viability to locally-manufactured components).
  
• Locally-assembled kits are likely to be more successful with greater assembly-training and regulation as this is likely to improve the efficiency of the kits.

Conclusion

In summary, locally-assembled renewable energy kits can provide a cheaper, more sustainable source of energy to developing countries and rural populations. Ensuring the kits are regulated and local employees are trained to assemble the kits correctly is vital in ensuring their efficiency and continued dissemination. The economic benefits of the locally-assembled kits are highly dependent on the policies implemented by the government (e.g. import tariffs). The success of locally-manufacturing components of the kit is also dependent on the local industrial sector, expenses and parameters.

Further Information

• Please click here for more examples of locally assembled renewable energies around the globe.