GLOBAL STATUS REPORT Renewables 2011

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GLOBAL STATUS REPORT Renewables 2011 ( global-status-report-renewables-2011 )

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05RuRal Renewable eneRGy n Trends in financing Off-Grid The government estimates that 300,000 isolated rural households cannot be reached by extending the electric- ity grid and will need to be served by renewable energy.41 With support from the project, distribution companies that own individual PV systems will provide regulated electricity service to the country’s most isolated consum- ers, who will in turn pay a tariff for this service. Other countries in Latin America are considering similar financing models. Renewable energy In many cases, the high initial capital costs of renewable energy systems relative to household incomes have resulted in the slow adoption of renewables in off-grid rural areas. Historically, the main problem for financing such projects has been the small project size, which has discouraged financial institutions from providing loans. Problematic legal frameworks, poor tax or subsidy structures, and the dearth of local groups or retailers to develop local markets have deterred private investors as well. Grid-based electricity systems generally do not face such barriers because their financing needs tend to be larger, and loans can be provided directly to dedicated electricity companies. Carbon credits are another growing source of project finance. One such project, initiated in China in late 2008, involves the promotion of biogas digesters to produce energy for domestic heating, lighting, and cooking using animal waste.42 More than 33,000 households in low- income rural communities (or approximately 165,000 people) are benefiting from the installation of domestic digesters, displacing carbon-intensive domestic fuels such as coal and coke.43 Many governments have come to realize that such challenges can be addressed in ways other than simply providing subsidies for grid extension. Increasingly, the trend has been to integrate grid extensions and off-grid renewable energy into the same project. Grants and other forms of technical assistance are becoming a common means for supporting rural solar home systems markets and sustainable access to other modern energy services.44 A variety of grant sources are available to public agencies and private firms to cover items such as training, delivery networks, business model development, product development, and pilot projects.45 Another form of grant – social and community block grants – provides assistance to entire communities, which can lead to more equitable and socially-appropri- ate approaches to off-grid renewable energy services. Lines of credit from microfinance organizations are often enhancing these approaches. With regard to the financing of off-grid and mini-grid power projects, the trend during the past decade has been to provide large amounts of funding to local private or public financing institutions that are committed (or trained) to support rural and renewable energy projects. Typically, such banks or funds develop a portfolio of pos- sible projects, although they also can react to requests for new lines of financing by reviewing project proposals. They do not provide financing to households directly; rather it is up to the private companies, concessionaires, NGOs, and microfinance groups to organize the demand for the energy service and to apply for project funding after developing a sound business plan to serve rural consumers. In summary, several key trends have emerged in off-grid and rural renewable energy markets. The first is that off- grid renewable solutions are increasingly acknowledged to be the cheapest and most sustainable options for rural areas. This will have an impact on market development in the long term, especially if the barriers to accessing information and financing products are addressed. Second is the broadening of the focus of energy access This successful model has been implemented in many countries, including Bangladesh, Mali, Senegal, and Sri Lanka. As a result, renewable household systems, improved biomass stoves, and village or community small-grid systems can all be serviced by the same financing agency. In practice, many of these funds spe- cialize initially in a single technology, such as solar home systems, but they are expanding increasingly to other renewable energy systems as well as to non-renewable energy access. to include “enhanced” access (targeting beyond the most simple electricity needs) and “sustainable” access (addressing the problem of security of diesel supply). Third, it is clear that the increasing diversity of support programs and their more-dispersed nature will further complicate the process of monitoring, documenting, and learning from these experiences. Another emerging option involves utility financing of solar home systems. In Peru, with the support of the government, electricity distribution companies have initiated a new program to reach out to remote residents by providing SHS at no initial cost; instead, households pay a monthly fee.39 The fee-for-service approach has been used in many other countries, including extensively in Africa.40 Argentina, meanwhile, has introduced a nationally regulated tariff for solar PV systems in certain provinces, 70 making it the first Latin American country to do so.

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