Financing Models for Solar Home Systems

PV has considerable potential to contribute to meeting the energy needs of rural and remote communities in developing countries. However, the high capital cost of photovoltaic (PV) systems means that new and innovative implementation models are needed in order to encourage widespread use of the technology.

SHS have been implemented both in donor supported programmes and projects as well as through market initiatives world-wide. However, in many cases a sustainable PV market has not developed. This is due to a number of factors including the high capital cost of PV and lack of financing resulting in a small market for any entrepreneur. Other factors include the lack of clear ownership of the technology, lack of maintenance and the ultimate failure of the PV system with consequent rejection of the technology. There are a number of innovative PV implementation models that have been developed and used in order to encourage the widespread affordability and acceptance of PV. These range from direct sales of SHSs through to charging a fee for the electricity service from a solar home system.<o:p></o:p>

For the dissemination of solar home systems (SHS) three different approaches are considered, from direct sales, credit sales and hire purchase to a fee-for-service model.

Model 1: Cash Sales: A PV system is sold directly or via a dealer to the end-user. The enduser immediately becomes owner of the system.

Model 2: Credit Sales: The end-user acquires the PV system on credit. Credit sales are divided into three categories:

• 2A Dealer Credit: The PV supplier/dealer sells the PV system to the end-user, who enters into a credit arrangement with the PV dealer. Depending on the arrangements, the end-user immediately becomes the owner of the system, or becomes the owner when all payments are made.
• 2B End-user Credit: The PV supplier/dealer sells the PV system to the end-user, who obtains consumer credit from a third party credit institution. Usually the end-user becomes the owner of the system immediately, but this can be delayed until all payments are made. The PV system can be used as collateral against the loan.
• 2C Lease / Hire purchase: The PV supplier/dealer or a financial intermediary leases the PV system to the end-user: At the end of the lease period, ownership may or may not be transferred to the end-user, depending on the arrangements. During the lease period, the lessor remains owner of the system and is responsible for its maintenance and repair.

Model 3: Fee for service: An energy service company (ESCO) owns the system, and provides an energy service to the end-user, who pays a periodic fee (e.g., monthly) to the ESCO. The end-user is not responsible for the maintenance of the system and never becomes the owner.

Source: International Energy Agency, PVPS: Summary of Models for the Implementation of Photovoltaic Solar Home Systems in Developing Countries, Part 1: Summary, 2003.

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