NAE Case Study: Bangladesh, IDCOL Solar Home Systems

Description

IDCOL started its Solar Home System (SHS) program in January 2003 to supply off-grid rural people that are beyond the convenient reach of the PBSs (rural electricity cooperatives).  IDCOL sets technical standards, certifies products and provides loans and grants (funded by multilateral agencies through the Government) to selected Programme Operators (POs), thereby reducing SHS costs and building local capacity. IDCOL also provides soft loans (through refinancing 70% of the full loan for the system), provides training and promotional support, and monitors the implementation undertaken by POs.  The POs identify customers, install SHSs, extend micro-credit to households and provide after sales services.  Each household receiving a SHS is obliged to maintain the system and to make loan repayments in monthly instalments over a period of 3-10 years, depending upon affordability.

Context

Rural electricity co-operatives have been the main mode of grid extension in Bangladesh. The Rural Electrification Board (REB), a Government body, was established in 1977 - it builds electricity lines and sub stations and is responsible for co-ordination of the co-operative programme.  A co-op (rural electric society, locally "PBS") - which owns, operates and manages a rural distribution system within its area of jurisdiction - is an autonomous organization registered with the REB. The member consumers participate in policy making of the PBS through elected representatives to the PBS governing body known as the Board of Directors. The PBSs buy wholesale power from Bangladesh Power Development Board (BPDB) and sell to users. Retail tariffs are limited so that the margin over the specified bulk supply tariff is only $0.0024/kWh. There are currently (Jan 2017) 78 PBSs, serving 61 districts and connecting over 65,000 villages.  The PBSs are well known for their high connection rates and efficiency of operation, with low losses and good collection rates. Despite the success of the REB programme for increased access to the grid, there remain many communities that are too remote to be targeted by the PBSs and IDCOL established its solar PV programmes using mini-grids and stand-alone systems to supplement the REB efforts with support from a range of international donors.  IDCOL has approved 18 Solar Mini-Grid Projects, among which 7 are operational  providing access to low-emission electricity for almost 5000 rural households, and is aiming to install 50 solar mini-grids by 2018.

Objectives

The Government vision is to ensure access to electricity for all by 2021. IDCOL's original objectives for its solar home system (SHS) programme were quickly exceeded and it now has a target of 6 million SHS by 2021, with an estimated generation capacity of 220 MW of electricity.

Legal Basis

The Rural Electrification Board Act, 2013 replaced the Rural Electrification Board Ordinance, 1977, and confirms REB's responsibility for electrifying rural Bangladesh. IDCOL (Infrastructure Development Company Limited) is a government owned non-bank financial institution that finances renewable infrastructure projects in Bangladesh. In selecting partner organizations to implement the programme, IDCOL effectively grants the POs concessions to operate within the SHS market.

Institutions, Roles and Responsibilities

The Ministry of Power, Energy and Mineral Resources (MPEMR) manages all actions related to rural and renewable energy.  The Sustainable and Renewable Energy Development Authority (SREDA) was set up in 2012 to increase generation and the use of renewable energy. The Infrastructure Development Company Limited (IDCOL) is a government-owned financial institution hosted by the Ministry of Finance and regulated by the Central Bank of Bangladesh. The Ministry finances IDCOL at 3% and acts as a conduit for funding from international donors.  IDCOL is managed by an eight-member independent Board of Directors comprising four senior government officials, three representatives from the private sector and a full time Executive Director and Chief Executive Officer. It has a small and multi-skilled work force comprising financial and market analysts, engineers, lawyers, IT experts, accountants and environmental and social safeguard specialists. At present, 56 Partner Organizations (POs) are implementing the SHS programme.  The Rural Electrification Board (REB, an agency of the government MPEMR)  was established in 1978 and manages loans and grants provided by international donor agencies to finance infrastructure development.   REB has funded 63 rural electric cooperatives, known as Palli Bidyut Samities (PBSs).

Interventions

The US$420  cost of each SHS is financed by a 3-year loan to the end-user at 12% pa with a 15% down payment and a monthly instalment of US$12; this is supplemented by refinancing from IDCOL for US$250 of the cost over 5-7 years at 6-9% pa, with a 1-2 year grace period).  IDCOL initially (2003) financed the Partner Organisations (POs) with a subsidy of $90/SHS and an 80% loan @ 6% pa interest over 10 years.  By 2014, this was reduced to a $20 subsidy and 70% loan  at 6-9% pa over 5-7 years.  Financial barriers are further overcome with measures including a tax holiday and import duty exemption.  IDCOL’s total investment under the SHS program is USD 696m, comprising loans of USD 600m and grants of USD 96m.  IDCOL initially received credit and grant support from the World Bank and GEF to start the program. Additional financial support has since been received from a range of international donors for expansion of the SHS Program.  IDCOL has set quality standards and certifies SHS for use in the programme and quality control has been addressed through 12 offices with 120 Quality Inspectors and 11 Field Auditors.  A wide range of training has been completed for PO officals and field staff, local technicians and customers (over 395,000 households).  Customers have also been engaged through extensive awareness campaigns, and a customer call centre.

Impacts Achieved

About 4.1 million SHSs have been installed (Oct 2016), providing solar electricity to 18 million people i.e. 12% of the country’s total population who previously used kerosene lamps for lighting purposes.   IDCOL's target is to install 6 million SHS (providing 220MW of electricity) as part of the Government's goal to bring electricity for all by 2021.  It is expected that, after the next 15 years, SHSs will have saved over 4.6m tons of kerosene worth about US$1.7bn. The phasing out of the subsidy initially provided has enabled a sustainable financing mechanism based upon concessional credit.  A social enterprise business model has been successfully demonstrated, with the ultimate goal of full commercialisation.  Following IDCOL's success, other developing countries (including Uganda, Sudan, Ghana, Ethiopia, and Guinea) have expressed interest to replicate a similar programme.

Lessons Learned

To ensure full ownership and lasting commitment from all those involved, it was necessary for IDCOL to enable a wide range of stakeholders, including enterprises, to provide input for programme & policy design.  There was a need to introduce an innovative financing scheme, combining grants and low-interest loans.  With market expansion, it was possible to phase out the grant payments for upfront costs, and develop a more commercial market.  However, interest rates and collateral requirements from commercial banks have remained high, with the programme still unable to unlock fully commercial finance. A lack of quality standards outside the programme has led to a profusion of poor quality products on the market.

Effectiveness

The IDCOL programme is widely regarded as one of the most successful off-grid renewable energy programmes in the world. It has provided electricity access for over 4 million households at a cost to government of ~US$700m, equating to ~US$170/system.  The programme has leveraged finance of ~US$15 billion from end-users to cover the balance of the capital cost of ~$400/system (through up-front payments and repayment of loans issued to end-users), with the only ongoing costs being for maintenance and eventual system replacement. This cost of provision reflects in part the conditions in Bangladesh (where labour costs are relatively low), and the economies achieved through a programme of this scale, but also the low level of energy provided, with systems averaging only about 40W (i.e. Tier 1 under the SE4All multi-tier tracking framework), sufficient for e.g. lighting and a radio or TV, but not for any larger appliances.