Microfinancing Renewable Energy Technologies

Overview

The following article documents the proceedings of the session “Potential Analysis of Microenergy Systems” of the International Conference “Micro Perspectives for Decentralized Energy Supply”, February 27 - March 1, 2013.

Moderator: Yasemin Erboy, Program Associate, Energy and Climate, United Nations Foundation
Session Facilitator: Mathias Koepke, Consultant, MicroEnergy International

Aim of the session:

The session “Potential Analysis of Microenergy Systems” gave insights into current research that aims at determining the potential for microenergy technologies in North and East Africa. Moreover, it was intended to improve the understanding about the influence various actors have on exploiting this potential. After a brief introduction of three studies conducted in Kenya, Egypt and Tanzania, the presenters as well as the participants discussed upcoming questions and developments of research in this field.

“Exploring the Niche” in Kenya

Presentation by Sandra Hannappel: The Potential for Linking Microfinance Practices and Renewable Energy Technologies in Kenya

Background

Access to modern energy services is key to reduce negative impacts on health and the environment as well as to boost socio-economic development. In Kenya, 16% of the total population has access to electricity and 7.16% have access to financial services (World Bank, 2012). Moreover, 83% of households rely on traditional biomass resources and fossil fuels (World Energy Outlook, 2011).

Objective

The conducted research aimed at identifying the potential for microfinancing Renewable Energy Technologies (RETs) in Kenya. It was assumed that microfinancing RETs can essentially contribute to poverty reduction in the country.

Methodology

The researchers applied a qualitative analysis including 16 interviews with experts of Microfinance Institutions (MFIs), Savings and Credit Cooperatives (SACCOs), Providers of Renewable Energy Technologies (RETs), NGOs and the Government (Ministry of Energy). In addition, the analysis involved focus group discussions.

Results

MFIs are not only valuable to clients who lack financial means to use RETs. MFIs are moreover important for RET providers, as they can offer access to new potential clients. However, credits for RETs have so far rarely been integrated into the portfolio of MFIs, as they are for example not willing to take the risk of clients not paying back their loan. Moreover, insufficient technological know-how, high administrative costs and interest rates for loans between 22-42% pose challenges for microfinancing in this sector.

In addition, providers of RETs who provide the technological know-how can offer after-sales services, assistance and training as well as raise awareness and advertise their technology. It is assumed to be necessary that providers integrate the rural population and adapt their products to local conditions such as climate and cultural impacts.

The researchers argue that a cooperation structure is needed that increasingly links MFIs, providers of RETs and potential clients. NGOs which consider the access to modern energy sources as an essential tool for poverty reduction are seen to be in the right position to link these actors. As NGOs are usually trusted and have good access to the local population, they can provide information and raise awareness among people. Moreover, NGOs can reduce the potential risks for MFIs, as they could step in, if clients were not able to pay back their loan. Thus, supporting NGOs could improve the cooperation between MIFs and providers of RETs as well as increase the potential of using RETs among clients who often need financial assistance to obtain RETs.

Conclusion

There is a huge potential for microfinancing RETs in Kenya. RETs such as improved cooking stoves, biogas plants and particularly solar lanterns could be provided more easily to the clients with the proposed cooperation structure. However, various challenges need to be faced.

Questions and Answers

Q: How willing is the NGO to accept the risk to make the proposed cooperation structure work?

A: Drawing conclusions from the interviews, it can be assumed that NGOs face a rather small risk. As NGOs have a relatively close contact to people implying more social pressure, clients are more willing to pay back their loan.

Q: What measures could be taken, if clients were not able to pay back their loan?

A: Not only the NGO, but also the MFI has the possibility to contact the client. However, it makes a huge difference, if MFIs want to make profit or only intend to survive. If they care about their costumers, they can apply more flexible mechanisms which involve for example that clients are able to skip their payment for a week depending on the availability of financial means.

Q: Did the researchers especially look at the underlying reasons why the interest rate of MIFs is that high (40%)?

A: The interest rate is that high, as MIFs obtain the money from banks. It is moreover difficult to reduce transaction costs due to operational fixed costs such as travelling to villages to collect the money. Operating with mobile banking could possibly decrease interest rates to some extent.

Comment: Savings and Credit Cooperatives (SACCOs) have lower interest rates (2%) and lower transaction costs. They are preferred, however not everyone has direct access to SACCOs.

Q: It could be argued that transaction costs are supposed to increase, if the NGO as a further actor steps in and gets integrated in the cooperation structure. Would it not be better to think of a business model that aims at reducing transaction costs?

A: Involving NGOs in the business strategy is not a long time solution. NGOs are thought to rather kick off and support the whole process. In general, it is difficult to reduce transaction costs, as the involved actors need to sell their products and costumers have to be guided how to use them.

Q: What measures could be taken to raise awareness among people?

A: As people are not yet aware of the huge potential of RETs, it is important to create awareness and convince them to trust in these sustainable technologies. Direct contact, trainings and workshops are needed to integrate local communities and teach them how to use the devices. Moreover, cooperation with mobile companies could help to advertise the products.

Potential of Energy from Waste in Informal Setting in Cairo

Presentation by Sherif Sheta: Appropriate Microenergy Techniques - A Shortcut to Balancing the Social Systems of Informal Settlements in Cairo, Egypt

Background

Cairo is currently facing huge challenges such as overpopulation, lack of education, daily gridlocks, heavy air pollution and a dilapidated sewage system. Moreover, solid and hazardous waste contributes to natural capital degradation and severe health problems. It is assumed that focusing on informal sectors has a huge potential for improving solid waste management in the city. Thus, the presented project focuses on the informal settlement being located on the outskirts of Cairo, in Moqattam. The area is also known as the “garbage city”.

Objective

The researcher aimed at examining microenergy systems in the form of Waste to Energy (W2E) as a combined approach to balancing and promoting the quality of life and social systems of informal settlements in Cairo. A W2E plant facility (biogas produced from waste) is assumed to contribute to growth and a sustainable development of the city.

Project

The project W2E is a potential microenergy solution for Cairo’s environmental and socio-economic problems. It is planned to implement a self-sufficient recycling prototype for the informal settlement in Moqattam by mainly applying microenergy production techniques using garbage. If the project gets realized, it is assumed to achieve positive impacts such as a segregation of waste in the selected district, to lower the costs of the segregation process, to increase the efficiency of recycling and renewable energy supply and to produce energy from waste in the W2E plant facility. The realization contributes to create green jobs as well as improve the poor living and working conditions in the area.

The research approach is based on the governmental strategy towards the Egyptian urban and rural areas and adopts the techniques being available by international expertise. However, it is still needed to establish an incentive system that encourages investment in the microenergy efficient technology for the urban poor. Cooperation between the government, the private and financial sector as well as other stakeholders could help to realize the approach.

Moreover, future challenges include that biogas can be converted directly into electricity using a fuel cell. However, very clean gas and an expensive fuel cell would be needed for this process. This issue is therefore still a matter for research and currently not a practical option.

Conclusion

The current obstacles that currently prevent the transition to green energy in Cairo need to be tackled. Political discussions involving various actors, further research and investments are necessary to facilitate W2E for the urban poor.

Questions and Answers

Q: What impact do governments have on the transition process?

A: NGOs are working hard to get the idea to the government and municipalities as well as to establish cooperations to tackle the pollution.

Q: How feasible is the project?

A: Very optimistic that a combined system with decentralized units of making W2E could be implemented.

Potential of Energy Products and Services in Tanzania

Presentation by Hannes Kirchhoff: Analysis of the Potential for Energy Products and Services in Rural Areas of Tanzania

Background

The use of energy products and services has not yet reached its full potential, particularly in the rural areas of Tanzania.

Objective

Remoteness factors as well as the energy consumption of households and businesses were analyzed to determine the potential for energy consuming businesses and efficiency improvements in rural areas of Tanzania.

Methodology

The research focused on four different villages with different cultural and environmental settings located all over Tanzania (Salawe, Bunduki, Kanyezi and Umbwe). After quantitatively comparing statistical data for the four villages, the researcher took a qualitative approach. Thus, a field study was carried out by spending 5 days in each village to locally investigate and conduct 77 guided open end-interviews.

Results

First, remoteness factors such as the population of the village, the road density in the district, the population density in the districts, the GDP per capita for the region, the distance to the next town, the distance to the next paved road and the relation of the kerosene price in the next town in relation to the kerosene price in Dar Es Salaam, were compared by statistical data. Moreover, the field research allowed to analyze further remoteness factors such as the price for charging a cellphone, the price for a „500TSH“ voucher, the fare to the next town, the kerosene price and the relation of the kerosene price to the price in the next town. Both, the quantitative and qualitative analysis of remoteness factors have identified that the sum of relative values are highest in Kanyezi and lowest in Umbwe. Thus, Umbwe is the least, whereas Kanyezi the most remote among the four selected villages. This is for example reflected as the price of charging a cell phone is more expensive in more remote areas.

Moreover, the energy consumption of households was analyzed by categorizing households according to the number of energy consuming devices:

< 4 energy consuming devices: low level

4 to 8 energy consuming devices: medium level

> 8 energy consuming devices: high level

The findings indicate that households with the highest spending on energy belong to the households with a high level of energy consuming devices. Households in the high level category also possess more diversified energy consumer devices than households belonging to other categories. One household was identified to use solar power and two households to utilize a lot of AC being connected to a micro-grid. Households with low level of energy consuming devices mainly spend money on kerosene and partly on D-cells, but e.g. not on firewood.

In addition, the research focused on the energy consumption of businesses by categorizing them in electrical, mechanical and thermal businesses. Electrical businesses were identified to have the lowest and thermal businesses the highest energy consumption per day. Mechanical businesses seemed to have the highest energy costs per day. The local investigations revealed that there is still a huge potential for efficiency improvements. This is for example reflected as there are 37% transformation losses with AC charging.

Conclusion

The study has shown that remoteness factors help to identify tendencies for the potential of energy products and services in a certain village context. Moreover, it was shown that the number of energy carriers increases with the spending on energy. Finally, the analysis revealed that there are various energy consuming businesses and that there is a huge potential for efficiency improvements.

Questions and Answers

Q: Does the researcher have a consistent definition for the remoteness factor ‘distance to town’?

A: There is no constant definition. The researcher did choose the four villages according to the availability of statistical data.

Q: Who is providing kerosene in the villages?

A: Little shops with local venders provide kerosene which is always available and stored as it is hard to get during the rainy season.

Q: What are the energy costs per week?

A: The average expenditure was not calculated due to the limited number of observations in the sample.

Comment: For the local population it is easier to spend money on other thinks than electricity. Light is seen as not being really needed, but rather being nice to have. In the villages in Tanzania, kerosene is moreover used in small cups and tablespoon sizes depending on the amount of money which is available per day.

Summary of the Discussion

The discussion hinted at a huge potential for renewable microenergy systems in developing countries. This potential does not only apply for households, but also facilities such as schools, hospitals and businesses. Moreover, the potential for the use of renewable energy technologies is particularly given in informal settlements.

In addition, it was discussed that local people have to get used to RETs. It is therefore important to involve the local community and enhance capacity building to give people a better understanding about the products they could use and buy. Involving other actors such as NGOs to kick-off new cooperation structures between MIFs, providers of RETs and clients can moreover contribute to foster RETs usage among the local population. While taking the sustainability of projects into account, the support and investments of various actors are needed. It is necessary to approach the transition to RETs step by step. Thus, while having the big picture in mind, a bottom up approach is needed to facilitate microenergy in a decentralized way – which can significantly contribute to poverty reduction.