Market analysis of : India, Bangladesh, Nepal, Pakistan, 1 Indonesia, Cambodia, and Philippines 72700 Lighting Asia: Solar Off-Grid Lighting With support provided by: M E N T OF A RT ST P AT DE MINISTERO DELL’ AMBIENTE E E DELLA TUTELA DEL TRRITORIO E DEL MARE UNI A IC TE ER D ST AT E S O F AM Market analysis of: India, Bangladesh, Nepal, Pakistan, Indonesia, Cambodia and Philippines This publication was written for the International Finance Corporation (IFC) by Intellecap (Intellectual Capital Advisory Services Private Limited). It was made possible through support provided by the United States Department of State (under the terms of Award S-LMAQM-11-GR1011) and the Government of Italy. The opinions expressed herein are those of the author(s) and do not necessarily reflect the views of the United States Department of State and of the Government of Italy. Cover page photographs: Children with a solar light, Cambodia (M Young) Tailor with a solar light, India (A Jacobson) Market analysis of : India, Bangladesh, Nepal, Pakistan, 3 Indonesia, Cambodia, and Philippines February 2012 With nearly 800 million people living in Asia with intermittent or no access to the electrical grid, these people experience greater health risks due to unclean lighting alternatives and fewer income-generating opportunities. There is an urgent need to provide clean, sustainable and affordable lighting solutions to reduce such risks and a significant opportunity for business to provide such solutions. This ‘IFC Lighting Asia Solar Off Grid Lighting Report’ provides a valuable insight into the sector potential, regulatory and business environment across seven major Asian off-grid lighting markets. It explains critical success factors for the Asian off-grid lighting sector with details of business models, price points and market scoping information. It presents a valuable resource to active players, market practitioners and investors with a vested interest in this particular market. Since access to quality lighting has a significant positive impact on productivity, education and quality of life, this report will assist in developing the necessary activities to address these challenges. Rodd Eddy Executive Director & Acting Chairman 4 Lighting Asia: Solar Off-Grid Lighting Table of contents Common abbreviations��������������������������������������������������������������������������������������������������������� 8 Currency exchange rates����������������������������������������������������������������������������������������������������� 9 LIGHTING ASIA�������������������������������������������������������������������������������������������������������������������������� 10 EXECUTIVE SUMMARY�������������������������������������������������������������������������������������������������������������� 13 1 ASIA OVERVIEW��������������������������������������������������������������������������������������������������������������������� 20 2 INDIA MARKET SCOPING�������������������������������������������������������������������������������������������������������� 37 2.1 The current state of off-grid lighting�������������������������������������������������������������������������������������������� 37 2.2 Overview of the solar off-grid lighting market���������������������������������������������������������������������������� 41 2.3 Demand scenario���������������������������������������������������������������������������������������������������������������������������� 43 2.4 Supply scenario������������������������������������������������������������������������������������������������������������������������������� 44 2.5 Overview of the regulatory environment������������������������������������������������������������������������������������� 51 2.6 India conclusion������������������������������������������������������������������������������������������������������������������������������� 52 3 BANGLADESH MARKET SCOPING������������������������������������������������������������������������������������������� 53 3.1 The current state of off-grid lighting�������������������������������������������������������������������������������������������� 53 3.2 Overview of the solar off-grid lighting market���������������������������������������������������������������������������� 54 3.3 Overview of the regulatory environment������������������������������������������������������������������������������������� 63 3.4 Bangladesh conclusion������������������������������������������������������������������������������������������������������������������� 64 4 NEPAL MARKET SCOPING������������������������������������������������������������������������������������������������������� 65 4.1 The current state of off-grid lighting�������������������������������������������������������������������������������������������� 65 4.2 Overview of the solar off-grid lighting market���������������������������������������������������������������������������� 67 4.3 Overview of the regulatory environment������������������������������������������������������������������������������������� 73 4.4 Nepal conclusion����������������������������������������������������������������������������������������������������������������������������� 74 Market analysis of : India, Bangladesh, Nepal, Pakistan, 5 Indonesia, Cambodia, and Philippines Table of contents 5 PAKISTAN MARKET SCOPING������������������������������������������������������������������������������������������������� 75 5.1 The current state of off-grid lighting�������������������������������������������������������������������������������������������� 75 5.2 Overview of the solar off-grid lighting market���������������������������������������������������������������������������� 76 5.3 Overview of the regulatory environment������������������������������������������������������������������������������������� 79 5.4 Pakistan conclusion������������������������������������������������������������������������������������������������������������������������� 80 6 INDONESIA MARKET SCOPING����������������������������������������������������������������������������������������������� 81 6.1 The current state of off-grid lighting�������������������������������������������������������������������������������������������� 81 6.2 Overview of the solar off-grid lighting market���������������������������������������������������������������������������� 83 6.3 Overview of the regulatory environment������������������������������������������������������������������������������������� 85 6.4 Indonesia conclusion����������������������������������������������������������������������������������������������������������������������� 86 7 CAMBODIA MARKET SCOPING  � ���������������������������������������������������������������������������������������������������� 87 7.1 The current state of off-grid lighting�������������������������������������������������������������������������������������������� 87 7.2 Overview of the solar off-grid lighting market���������������������������������������������������������������������������� 90 7.3 Overview of the regulatory environment������������������������������������������������������������������������������������� 97 7.4 Cambodia conclusion���������������������������������������������������������������������������������������������������������������������� 98 8 PHILIPPINES MARKET SCOPING� ��������������������������������������������������������������������������������������������������� 99 8.1 The current state of off-grid lighting�������������������������������������������������������������������������������������������� 99 8.2 Overview of the solar off-grid lighting market���������������������������������������������������������������������������� 99 8.3 Overview of the regulatory environment����������������������������������������������������������������������������������� 103 8.4 Philippines conclusion ������������������������������������������������������������������������������������������������������������������ 104 9 APPENDIX����������������������������������������������������������������������������������������������������������������������������� 105 6 Lighting Asia: Solar Off-Grid Lighting Table of contents Table of figures Figure 1.1: Access to electricity by region (2009)�������������������������������������������������������������������������������� 20 Figure 1.2: Off-grid population in regions across Asia (2009)����������������������������������������������������������� 21 Figure 1.3: Population without access to electricity by country (2009)�������������������������������������������� 22 Figure 1.4: Annual kerosene expenditure by country������������������������������������������������������������������������ 23 Figure 1.5: Market segmentation of the solar off-grid lighting market������������������������������������������� 24 Figure 1.6: Market segmentation by population density������������������������������������������������������������������ 27 Figure 1.7: Typical prices of solar off-grid lighting products in Asia������������������������������������������������� 32 Figure 2.1: Rural-urban distribution of off-grid households in India (2008)������������������������������������ 37 Figure 2.2: Distribution of primary sources of lighting in rural India (2004-05)������������������������������ 38 Figure 2.3: Primary sources of lighting in households across states (2007-08)�������������������������������� 39 Figure 2.4: Annual expenditure on kerosene for lighting by rural and urban households������������ 40 Figure 2.5: Comparison of lifetime costs of solar off-grid lighting products and kerosene lanterns��������������������������������������������������������������������������������������������������������� 41 Figure 2.6: Market potential for solar lanterns and SHS in rural India��������������������������������������������� 43 Figure 2.7: Comparison between sales of CFL and LED lanterns������������������������������������������������������� 44 Figure 2.8: Price vs. panel wattage of LED lanterns��������������������������������������������������������������������������� 45 Figure 2.9: Mapping loan amounts against the SHS panel wattage under the JNNSM program�� 49 Figure 3.1: Rural-urban distribution of off-grid households in Bangladesh������������������������������������ 53 Figure 3.2: Electrification rates and kerosene usage for lighting by region (2004)������������������������ 54 Figure 3.3: Schematic diagram of IDCOL solar program�������������������������������������������������������������������� 55 Figure 3.4: Cumulative number of SHS installed through the IDCOL solar program����������������������� 56 Figure 3.5: Cumulative number of targeted installations of SHS until 2014������������������������������������ 56 Figure 3.6: Cumulative sales of different POs (2009)������������������������������������������������������������������������� 57 Market analysis of : India, Bangladesh, Nepal, Pakistan, 7 Indonesia, Cambodia, and Philippines Table of contents Figure 3.7: Mapping product features and prices of SHS������������������������������������������������������������������� 58 Figure 3.8: Sales mix of SHS and mapping against the consumer household income segment����� 59 Figure 3.9: Subsidies provided and the cumulative growth of SHS installed (2010)������������������������ 61 Figure 4.1: Rural-urban distribution of off-grid households in Nepal (2008)���������������������������������� 65 Figure 4.2: Primary sources of lighting in rural households of Nepal (2005)����������������������������������� 66 Figure 4.3: Solar Tuki����������������������������������������������������������������������������������������������������������������������������� 67 Figure 4.4: Cumulative number of SHS installed through AEPC subsidy program�������������������������� 67 Figure 4.5: Schematic diagram of the AEPC subsidy program����������������������������������������������������������� 68 Figure 4.6: Subsidy structure of AEPC������������������������������������������������������������������������������������������������� 68 Figure 4.7: Annual SHS installations through AEPC��������������������������������������������������������������������������� 69 Figure 4.8: Mapping of product features and prices of SHS�������������������������������������������������������������� 70 Figure 5.1: Rural-urban distribution of off-grid households in Pakistan������������������������������������������ 75 Figure 5.2: Monthly household kerosene consumption value across income quintiles (2004-05)� 76 Figure 5.3: Mapping of product features and prices of SHS�������������������������������������������������������������� 78 Figure 6.1: Rural-urban distribution of off-grid households in Indonesia���������������������������������������� 81 Figure 6.2: Number of SHS installed trough the government tender scheme��������������������������������� 83 Figure 7.1: Distribution of households by primary source of lighting (2007)����������������������������������� 87 Figure 7.2: Retail price of SHS available in Cambodia������������������������������������������������������������������������ 91 Figure 8.1: Distribution of off-grid Households in the Philippines (2008)���������������������������������������� 99 Figure 8.2: Retail price (non-subsidized) of SHS in the Philippines������������������������������������������������� 101 Figure 8.3: Schematic of CARD partnership with SunTransfer and Barefoot��������������������������������� 102 Figure 9.1: Schematic diagram of JNNSM program in India������������������������������������������������������������� 109 8 Lighting Asia: Solar Off-Grid Lighting Common abbreviations AEPC Alternative Energy Promotion Center AMORE Alliance for Mindanao Off-grid Renewable Energy Bn Billion BOP Bottom of the Pyramid CAGR Compounded Annual Growth Rate CBO Community Based Organisation CFL Compact fluorescent lamp EMI Equal Monthly Installments ESAP Energy Sector Assistance Program (Nepal) FMCG Fast Moving Consumer Goods IEA International Energy Agency IDCOL Infrastructure Development Company Limited kWh Kilo Watt Hour JNNSM Jawaharlal Nehru National Solar Mission LaBL Lighting a Billion Lives LED Light-Emitting Diode LFL Linear Fluorescent Lamp MFI Microfinance Institution Mn Million MNRE Ministry of New & Renewable Energy, India MW Megawatt NGO Non-governmental Organization PDS Public Distribution System PE Private Equity PO Partner Organization PV Photovoltaic REF Rural Electrification Fund RRB Regional Rural Bank RPP Rural Power Project SHS Solar Home Systems SME Small and Medium Enterprise TERI The Energy and Resources Institute USD United States Dollars VAT Value Added Tax VC Venture Capital W / Wp Watt / Watt-Peak Market analysis of : India, Bangladesh, Nepal, Pakistan, 9 Indonesia, Cambodia, and Philippines Currency exchange rates Country Local currency value equivalent to 1 USD India INR 45.9 Bangladesh BDT 70.8 Nepal NPR 74.4 Cambodia Riel 4245 Indonesia Rupiah 9123 Pakistan PKR 85.9 Philippines PHP 45.2 Note: The currency conversion rates listed above are derived from the average of the rates over 2010 Source: http://www.oanda.com/currency/historical-rates/ 10 Lighting Asia: Solar Off-Grid Lighting Lighting Asia Nearly 800 million people in Asia[1] live in a state of Modern off-grid lighting has emerged with the ascent near darkness, coping with unreliable or non existent of solar energy, battery and LED technology and has or no access to electricity on a daily basis. The effects a rapidly growing demand from those living off-grid. on these vulnerable communities are severe. Medical This report provides an overview of the off-grid lighting and educational opportunities and services are severely market in seven nations across southern Asia – India, constrained, health risks are heightened by unclean Bangladesh, Nepal, Cambodia, Indonesia, Pakistan lighting alternatives and opportunities for income- and the Philippines – and presents the opportunity generating activities are reduced. Many people also for investors and industry players to make a real and pay a great deal over time for paltry service offered necessary impact by serving communities without access by most fuel based lighting. There is a great need for to reliable electricity. clean, sustainable and affordable products to bring light to these households. Pakistan Nepal India Cambodia Bangladesh Philippines Indonesia [1]  IEA figure for 2009 (developing Asia) Market analysis of : India, Bangladesh, Nepal, Pakistan, 11 Indonesia, Cambodia, and Philippines The Report Objectives “Lighting Asia: Solar Off-grid Lighting” provides analysis Modern lighting products include a range of technology to support the Asian off-grid lighting market by: but are primarily rechargeable solar off-grid lighting devices. There are several broad main product categories– • Guiding enterprises: in formulating their portable lanterns and Solar Home Systems (SHS). strategy to enter / scale up in these markets. Basic Lanterns: Lighting products that are often designed • Assisting investors: financial institutions with a similar look and feel to that of traditional kerosene and regulatory authorities in understanding lanterns and that could be used as handheld devices. these markets and in identifying potential These products vary greatly in performance, with a range opportunities to catalyze their growth of light output and accordingly a range of solar power ratings from 0.25-4 Watt-peak[2] (Wp) Scope Multifunctional lanterns: Covers devices such as solar lanterns and torches, which offer functions over and above There is a strong demand among off-grid consumers in lighting. A common function found in such products is Asia for reliable, clean and cost-effective alternatives to mobile phone charging. Typical wattage for these products fuel-based lighting, in particular the kerosene lantern. range from 4-10 Wp. This is not “as a consequence” only of the demand for alternatives, it is also dependent on the availability of A complete inventory of these products will be covered in alternatives and modern off-grid lighting products are more detail in the section 1 “Asian Overview”. rapidly emerging as an alternative. Basic lantern Basic SHS [2] Measure of the nominal power generated by a photovoltaic energy device under laboratory conditions 12 Lighting Asia: Solar Off-Grid Lighting A tailor in Bihar using a solar lantern (India) Photos: A. Jacobson In each of the seven focus countries a parallel analysis was • Government and donor-driven programs to completed to facilitate their comparison. First, the market promote solar lighting potential was assessed by examining current expenditure on kerosene for lighting and other lighting products by • Supply and demand characteristics and the households. product trends The report traces the evolution of solar off-grid lighting • Product consumer financing and Small and market in these countries, the forces affecting their Medium Enterprise (SME) financing development and the current penetration of these products in these markets. Country-by-country market • Market barriers analyses focus on the following key components: The report concludes with high-level opportunities for private sector enterprises to engage in this market. Market analysis of : India, Bangladesh, Nepal, Pakistan, 13 Indonesia, Cambodia, and Philippines Executive Summary Introduction Nearly 1.3 billion people worldwide[3]-almost a quarter of the world’s population-live without access to electricity. More than half reside in Asia, where they face severe challenges to basic lighting access; 85% of off-grid Asians are in the seven focus countries of this report. India alone has 400 million people who live without the distinct advantages offered by modern lighting of any kind, about half of the continent’s off-grid population. An even larger number of people in these countries are under-electrified, facing constant outages that beg for new solutions. Given the slow pace of grid expansion on the continent, this situation is expected to remain for years to come unless innovative, low-cost alternatives are introduced. Currently, off-grid households largely depend on conventional fuel burning (mainly kerosene) that are inefficient, polluting and damaging to both health and the environment. Solar off-grid lighting alternatives offer a better cost-performance option[4] with health, safety and environmental benefits. Despite their potential, these products have yet to make a significant impact in the market. The current limitations in distribution models, the small size of market players and their inability to scale the market are among the reasons for lack of penetration. It does not help that in India and in Indonesia kerosene is heavily subsidized by the government, distorting the market for lighting. Across countries, it is mostly SMEs and social enterprises that are currently engaging with the low-income off-grid consumers to promote solar off-grid lighting products, while larger enterprises have yet to make significant investments to serve this segment. While purely commercial models[5] that demonstrate profitability through delivering solar off-grid lighting products exist, they are few and far between. A majority of the business models covered in the seven countries are semi-commercial, they are usually able to recover running costs but are still partially dependent on external grants and subsidies. In some countries, the solar off-grid lighting market is fully subsidized by the government, and the private sector has yet to establish businesses with significant scale and profitability. [3] IEA (2009) [4] From a lifecycle cost perspective [5] No dependence on external grant / subsidized capital 14 Lighting Asia: Solar Off-Grid Lighting An opportunity exists for investors and enterprises alike in these under served markets. In order to make these opportunities viable, enterprises need to focus on the following critical success factors: Consumer awareness: Given the low awareness of solar off-grid lighting products and their benefits, investors and enterprises need to generate demand by educating potential consumers about solar off-grid lighting products. Substantial resources may be required to reach them, some of which are in remote regions. Consumer finance: Since most off-grid households are low-income, they tend to lack access to financing options. There is a large market for providing credit to such households to invest in solar off-grid lighting products. However, banks and microfinance institutions (MFIs) are typically unwilling to offer the loans owing to a lack of awareness of the market potential, after-sales challenges and other issues which can be systematically addressed. Credit access for SMEs: Lack of readily accessible debt and equity capital is a major constraint for SMEs in the solar off-grid lighting market. There is an opportunity for investors and financiers who can offer financing tailored for emerging SMEs. Product quality: With the market dominated by cheap and sub-standard solar lighting products, there is a need for appropriate solutions to prevent market spoiling and to differentiate good quality products. Consumer mistrust in solar or LED technology can be addressed by providing reliable information about better quality products. Distribution network building: Because most off-grid households are often in remote areas, there is a need to create efficient distribution and after-sales networks. Policy advocacy: In some countries, there is scope to create awareness amongst policymakers and governments regarding market-distorting policies such as subsidies on kerosene (in India) or free distribution of SHS (in Indonesia). Highlighting the cost-competitive, health and environmental benefits of solar off-grid lighting products in the long term could potentially promote the growth of commercial and sustainable models and open up the market. Market analysis of : India, Bangladesh, Nepal, Pakistan, 15 Indonesia, Cambodia, and Philippines A school with an installed SHS in India Image courtesy of SELCO Country Assessment Based on the market-scoping exercise, the focus Maturity of solar off-grid lighting industry: This factor countries were compared across the following helps private sector enterprises understand the extent of parameters, which are critical factors to attract private the industry in the country. The relative maturity of the sector participation: private solar off-grid lighting industry is measured by the presence of local manufacturing capacity of products and/or Market potential: This factor aims to capture components, product quality testing capacity, prevalence of the potential of the market as defined by the total industry standards and the presence of commercial models. number of off-grid households and their current spending on kerosene for lighting and other lighting Overall policy environment and government support: products. This is one of the key determinants of This factor aims to capture the attractiveness of the policy private sector participation. and regulatory support available to the solar off-grid lighting industry by examining the presence of favorable Availability and quality of critical enabling import duties, taxation policies, and subsidiary frameworks. infrastructure for commercial models: This factor aims to capture the presence of key enabling Presence and quality of existing energy access initiatives infrastructure for private sector enterprises to scale for promoting private sector models: Government/donor the market in the countries. This covers distribution supported lighting access programs with a market-based and retail networks to reach out to rural consumers, approach that are focused on facilitating the growth of access to finance for consumers and businesses commercial private sector models (versus fully subsidized and the presence of local stakeholders such as programs that may be hampering a burgeoning private community-based organizations (CBOs) and MFIs, sector play) are a key enabler for private sector enterprises. who can undertake grass-root level marketing and This factor aims to capture the presence of such initiatives promotion activities. in the countries. 16 Lighting Asia: Solar Off-Grid Lighting The following table provides a summary of the country assessments based on these parameters: Market Overall policy Presence and Potential (off- environment quality of any grid households’ and government Availability and Maturity of private existing energy total spend support (energy Country quality of local solar off -grid access program(s) on major access policies, infrastructure lighting industry for promotion conventional subsidies on of commercial sources of conventional models[i] lighting) fuels etc.) The industry has Low/no import Upcoming 75 million Deep rural reach only become active duties and government households; established by in the last 3 -4 years favourable taxation subsidy program, India USD 2.2 billion FMCG companies with tremendous policies negated by JNNSM no track (Kerosene spend) and the market potential for the huge subsidy on record but huge future kerosene expectations Insignificant On high growth subsidy on 17 million Strong presence trajectory following IDCOL program kerosene; households; of MFIs for the start of the - successful in Bangladesh Low/no import USD 0.36 billion distribution and IDCOL program; market building duties; (Kerosene spend) marketing poised to grow more and growth Favourable in the coming years taxation policies AEPC program - Transportation 3 million Relatively slow market dependent and distribution No subsidy on households; market growth, on solar subsidies Nepal to the remote rural kerosene; Low/no USD 0.19 billion but the potential and several donor and hilly areas import duties (Kerosene spend) is still there programs in is a challenge planning stages Strong presence of Sector is nascent battery charging and only a limited 2.2 million stations in remote number of players No subsidy World Bank households; areas which could in the market. on kerosene; supported REF Cambodia USD 0.11 billion be a potential However, innovative Import duties revised program to (Kerosene and distribution players (Kamworks) and taxes levied be implemented Battery spend) partner . MFIs are experimenting mostly located with business and in urban areas distribution models [i] For abbreviations please refer to the Abbreviations definition at the beginning of this report. For each program description, please refer to the individual contry sections. Market analysis of : India, Bangladesh, Nepal, Pakistan, 17 Indonesia, Cambodia, and Philippines Market Overall policy Presence and Potential (off- environment quality of any grid households’ and government Availability and Maturity of private existing energy total spend support (energy Country quality of local solar off -grid access program(s) on major access policies, infrastructure lighting industry for promotion conventional subsidies on of commercial sources of conventional models[i] lighting) fuels etc.) No private sector initiatives to target Large archipelago the BOP on a which is difficult commercial basis, 20 million Free distribution to access. MFIs everything through households; Subsidized of SHS under Indonesia solely operate in a government USD 1.34 billion kerosene; the government urban and semi- tender process. No (Kerosene spend) tender scheme urban areas on financing support the main islands for companies who would like to target them directly. Strong presence 11 million of MFIs and Political instability; households; developmental aid No program Pakistan Very nascent market High import USD 0.11 billion organizations; rural currently duties (Kerosene spend) networks not well established Transportation and distribution to remote areas is Well developed solar a challenge, MFIs industry with a large World Banks RPP 2.5 million located mostly number of players. and, USAIDs households; in urban areas. Government funded Philippines Taxation AMORE subsidy USD 0.18 billion Law and order in programs targeting driven and had (Kerosene spend) some remote areas the BOP, have little impact remain an issue, helped the market for the lack of to develop reliable distribution channels The table above shows that India offers the largest home to approximately 150 million off-grid households opportunity in terms of market potential and is also or approximately 20% of Asian off-grid households, relatively ahead of the other countries in terms of maturity present the most barriers for private enterprises to enter of private sector-led models. Indonesia and Pakistan, these markets. 18 Lighting Asia: Solar Off-Grid Lighting Recommendations Following are some key observations for private Instances of such unsuccessful programs can sector companies and investors interested in the solar be seen in the Philippines, Indonesia, Pakistan, off-grid lighting space. These points are based on the etc. However, in Bangladesh, the Infrastructure report findings on enterprise, government and donor Development Company’s (IDCOL) solar program, driven activity in solar off-grid lighting markets which has effectively managed its after-sales network across the seven countries. through its partner organizations, has been relatively successful in scaling up. • Solar lanterns and SHS can help to reduce the number of un- and under-electrified • Grass-roots organizations are critical for rural households promoting the use of solar off-grid lighting Each country profiled in this report is home to a The lack of consumer awareness on solar lighting significant number of off-grid households. The slow products and their benefits is a key barrier facing the rate of electrification and the lack of technical and/ sector. The barrier is further heightened by the push[6] or economic feasibility make extending the grid to nature of the products and the limited resources these households a distant reality. Grid extensions available to SMES in this market enterprises to aside, the challenges of generating adequate power promote solar off-grid lighting. Last mile delivery to meet the current demand leave many grid- to rural consumers is another significant challenge. connected households under-electrified. Given In this context, local CBOs can play a vital role in these realities, both solar lanterns and SHS offer an increasing the use of these products. As we have seen immense potential to provide clean lighting to low- in Bangladesh, a critical factor driving the IDCOL income households. Some governments have already solar program’s success has been the presence and built in the provision of these products into their local outreach of its partner organizations, which electrification plans. For instance, the Government are primarily CBOs. The partner organizations have of Bangladesh considers a household with a SHS built high levels of consumer trust and easy access to installed as electrified, which is not the case in India. rural households over many years. These factors have allowed the program to overcome some of the above- • Any program or pilot project design must mentioned challenges. Similarly, in India, larger include an effective mechanism to ensure enterprises, such as Tata BP Solar and Schneider etc., product quality and offer after-sales support are looking to or have partnered with local CBOs to support their solar off-grid lighting business plans. Many programs / pilots have failed despite huge investments due to the lack of quality assurance and • The sector at its current stage requires monitoring and/or the lack of adequate planning to patient[7] / subsidized capital to scale set-up an efficient after-sales network. The success of consumer financing efforts depends heavily on The market for solar off-grid lighting products is product performance. Channeling poor quality nascent, and a pure commercial approach to serve products or failing to service a faulty product during the off-grid market will take some time to evolve. the financing term is a significant credit risk borne by the financial institutions. [6]  Push products are those where the consumer demand is low and companies need to aggresively market and sell their products to create demand [7]  An investor with patient capital is willing to make financial investment into a business (social enterprise) which has relatively longer gestation period of generating profits Market analysis of : India, Bangladesh, Nepal, Pakistan, 19 Indonesia, Cambodia, and Philippines The market today is characterized by long payback The Bangladesh program has, so far, focused on periods, given the challenges set our above and the strengthening the capacity of the entire value chain end-consumer profile. - from provision of soft loans to facilitate consumer financing, to providing marketing and promotion SMEs dominate the sector today. While large support, to quality control support. The program’s enterprises with deep pockets have the potential to current scale depends less on the equipment price sustain themselves and scale up, the market is yet to subsidy, allowing it to progressively scale back its witness significant activity from these companies. price support. The program has been able to catalyze SME enterprises operating in the market are severely market demand for solar off-grid lighting products constrained by a lack of resources to scale up. and aims to scale up aggressively in the coming years. There is a mismatch between the current supply On the other hand, Indonesia’s program, based on of financing (debt and equity) and the demand for free distribution of Solar home systems, is stifling financing in terms of risk profile, return expectations, the entry of the private sector enterprises through collateral requirements, etc. The current need is its rigid tender-based approach and is resulting in capital (debt and equity) that is characterized by long significant user dropouts. time horizons and a high risk tolerance. Enterprises that have successfully started to scale up operations As these examples of programs suggest, it is extremely in this market have been supported with patient / critical that any intervention be designed and subsidized capital. implemented to create an eco-system for solar off- grid lighting that can gradually become self-sufficient The following observations on current policies point and wholly sustainable. out the need for both direct policy and advocacy by the donor organizations and multilaterals to catalyze • Kerosene subsidy is a major challenge to the the solar off-grid lighting market growth. development of solar off-grid lighting market • Policy and subsidies that strengthen the Indian and Indonesian governments provide whole value chain are more effective than significant subsidies on conventional fuel sources a direct subsidy intervention that simply such as kerosene for domestic usage (lighting and reduces the end-consumer price cooking). Heavy subsidies on kerosene make it difficult for the solar off-grid lighting market to Nearly all the markets studied have a government scale up, as the conversion costs for the consumers subsidy program to support solar off-grid lighting. increase manifold. In such a scenario, it makes However, every program adopted a different it more challenging to convince consumers approach, with varying levels of success. to change to the cleaner, more efficient solar off-grid lighting products. 20 Lighting Asia: Solar Off-Grid Lighting 1. Asia Overview Asia has the largest off-grid population in the world, with without access to electricity. Of this, over 700 million or 55% of the global off-grid population. This translates into 90% are located in rural Asia. 22% of the population in Asia and 798 million people 1500 1200 Off-grid population (Mn) 798 900 1441 600 587 300 31 22 3 0 World Asia Africa Latin Middle Transition America East economies & Region OECD countries Source: International Energy Agency, Intellecap analysis Figure 1.1: Access to electricity by region (2009) Market analysis of : India, Bangladesh, Nepal, Pakistan, 21 Indonesia, Cambodia, and Philippines ASIA South Asia accounts for 65% of the off-grid population[8] Other Asian countries =(North Korea, Taiwan, Brunei, Singapore, Other East Asia) 4000 26 (3%) Other Asian countries 92 (12%) Middle East (Pakistan and Afghanistan) 3500 160 (20%) East Asia and Pacific 3000 Population (Mn) 2500 2895 2000 3693 520 1500 South Asia (65%) 1000 500 798 0 Total Population Population population with access without access in Asia to electricity to electricity Note: South Asia comprises of Bangladesh, India, Nepal and Sri Lanka; East Asia and Pacific comprises of Cambodia, East Timor, Indonesia, Laos, Malaysia, Philippines, Thailand, Vietnam, China, Burma and Mongolia; The Middle East comprises Pakistan and Afghanistan; Other Asian Countries comprises of North Korea, Taiwan, Brunei, Singapore and Other East Asia Source: International Energy Agency, UN Habitat, Intellecap analysis Figure 1.2: Off-grid population in regions across Asia (2009) [8]  2009 data has been used for overall electricity access for countries in this report, but as the rural and urban electrification rates were not available for 2009 at the time of writingthis report, 2008 data was used as a proxy 22 Lighting Asia: Solar Off-Grid Lighting The seven focus countries constitute the Kerosene is the dominant off-grid lighting majority of the Asian off-grid population option in these countries These countries together represent 86% of the overall Our estimates are that the total expenditure on off-grid population in Asia. India alone contributes to kerosene for lighting in these countries is approximately approximately 50% of the off-grid population with USD 3.68 billion per annum. The bulk of this is approx. 400 million people[9] without access to electricity. contributed by India, where the kerosene expenditure for lighting is estimated to be approximately USD 2.2 billion per annum. Electrification rate (%) 100 798 mn Philippines 90 80 70 Indonesia India Pakistan 60 50 Nepal Bangladesh 40 30 Cambodia 20 10 0 0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 Population without electricity Focus countries Other countries Source: IEA, Intellecap analysis Figure 1.3: Population without access to electricity by country (2009) [9]  The 2011 Census Report indicates a 67% electrification rate and a population of 1.2 billion people which implies an off-grid rate of 33% and approximately 400 million people off grid Market analysis of : India, Bangladesh, Nepal, Pakistan, 23 Indonesia, Cambodia, and Philippines ASIA According to the IFC and WB Group ‘Lighting Africa’ report, the annual expenditure on conventional fuels for lighting in Africa is estimated to be USD 10.5 billion. Despite the off-grid population in the 7 focus countries being higher than the whole African continent, the expenditure in Asia is relatively lower. 70% of the off-grid population of these countries is in India and Indonesia, where governments provide huge subsidies on kerosene. Annual Kerosene expenditure (Bn) 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 Asia (7 focus countries) 3.77 India 2.22 Indonesia 0.56 Solar off-grid lighting products are emerging Bangladesh 0.36 as key alternatives Pakistan 0.20 Solar off-grid lighting products such as lanterns and Solar Home Systems (SHS) are emerging as key Nepal 0.19 alternatives in meeting the basic lighting needs (and limited electrification needs in the case of SHS), of off- Philippines 0.18 grid households in the focus countries. These products are characterized by their ease of use, safety, brighter and cleaner light, long product life, and significantly Cambodia 0.06 lower lifecycle costs compared to conventional sources of lighting – mainly kerosene. Source: UN data, Primary research, Intellecap analysis A wide variety of solar off-grid lighting products currently exist in their markets, including solar torches and Figure 1.4: Annual kerosene flashlights, desk and working lamps, solar lanterns, solar expenditure by country multifunctional devices, solar home systems. 24 Lighting Asia: Solar Off-Grid Lighting In the focus countries, single light point systems such as solar torches, flashlights, lanterns and multifunctional devices, are typically referred to by the catch-all term ‘solar lanterns’, disregarding the marginal technical nuances between them. SHS are considered separately as they are more expensive and have a larger feature set and applications. Solar lanterns and SHS target different market segments The market segments targeted by solar lanterns and SHS are quite different. The market potential for a SHS is much higher amongst higher-income customers whereas the primary market for solar lanterns is the lower-income customer segment that needs lighting at affordable prices. This is represented below. Image courtesy of BP Tata solar Off-grid solar lighting market segmentation in Asia Total number of rural households Basic solar lanterns Multi-functional solar lanterns and basic SHS Advanced SHS Household income range per month Figure 1.5: Market segmentation of solar off-grid lighting market Market analysis of : India, Bangladesh, Nepal, Pakistan, 25 Indonesia, Cambodia, and Philippines ASIA There are five key product categories in the off-grid These lanterns can perform only one or two basic lighting space that are highlighted in the table below. functions such as acting as a task light and/or as a Products can be categorized based on a combination of solar torch/flashlight. the functionality, portability, and overall service level. Multi-functional solar lanterns: Basic solar lanterns: This product’s distinguishing characteristic is that it In addition to usage amongst the lower-income comes with more functionality than the basic solar households, solar lanterns are used extensively for portable lantern. These features include outlets for mobile phone applications by certain professions such as fishermen, silk charging, radio charging and charging through dual farmers, and night security guards. Their demand is also modes – solar and AC points. Some lanterns in the driven by the need to work early in the morning and/or market even come with built-in radios. While all income late in the evening, coupled with the benefits of brighter levels find these products more useful than basic solar and safer light that solar lanterns provide. lanterns, many cannot afford them. Basic lanterns Multifunctional Torch Light Task Light Ambient Light Basic SHS Advanced SHS lantern Portable Portable Portable Portable Permanent Permanent Images courtesy of Schatz Energy Research Center (R. Hosbach) Basic SHS: These are quite similar in functionality and in target customer segment to the multi-functional solar lanterns. Their key distinguishing feature is that their lights are separate from the charging/battery unit. This allows the lighting to be provided in different rooms as per the customer’s need unlike lanterns that can only supply lighting at one location at a time. Multifunctional SHS: Typically larger lighting systems (10 – 40 Wp) that offer lighting for multiple points with additional functions such as mobile phone charging and power for running loads such as radios, black & white television, etc. Photo of a traditional Kerosene lantern 26 Lighting Asia: Solar Off-Grid Lighting Advanced SHS: As the income level increases further, the ability to pay one light and for using fans, TVs, radios and other small for lighting and other electricity needs increase as well. electrical appliances as needed. Very large systems (>40 Amongst the customers that are the key target segment for Wp) that offer power to run loads such as multiple fans, advanced SHS, the typical applications are for lighting up color television, large number of lights etc., over and above houses with multiple rooms that would need more than the functionalities provided by Multifunctional SHS. Technology drives the off-grid lighting market Light Sources The solar products in the market today typically have either CFL or LED lamps LED’s (Light Emitting Diodes): LED’s are characterized by their low power requirements CFL’s (Compact Fluorescent Lamps): CFL’s use much less power compared to traditional incandescent lamps but considerably more power when compared to LED Batteries Batteries can be of the following 3 types: Lead-acid batteries: These are the oldest type of rechargeable batteries and are typically used in SHS Lithium-ion batteries: These batteries have seen more application in portable products as they have one of the best energy densities NiMH batteries: Nickel-Metal Hydride cells have a high energy density but a high self- discharge rate, which leads to lower battery life Market analysis of : India, Bangladesh, Nepal, Pakistan, 27 Indonesia, Cambodia, and Philippines ASIA Market potential for solar off-grid and mini-grid solutions Min i- grid Cost to consumer Solar lighting Market for solar lighting products Market for mini-grid solutions Population density Figure 1.6: Market segmentation by population density Applicability of solar off-grid lighting products is population-density dependent Multiple solutions such as solar lanterns, SHS and mini- Once a high enough population density is reached and if grids[10] have emerged to cater to the lighting needs of mini-grid solutions are available to customers, they may off-grid households. The applicability of these solutions be a more economical option than standalone lighting depends on the population-density of an area. products. The key consumer benefit of this option is that the costs may decrease with corresponding increases in the The diagram above illustrates how when the population population density of consumers in that area. density is low enough, solar off-grid lighting products are the more economical option for the consumer. [10] A minigrid is a small local electricity utility producing power using a small generator. The power is distributed over wires to households and businesses in localities neighboring the generator 28 Lighting Asia: Solar Off-Grid Lighting Husk Power Systems Biomass minigrid in Bihar, India Photo: A. Jacobson Market penetration of solar off-grid lighting products is still insignificant The market penetration of solar off-grid lighting products estimated sales of good quality solar lanterns and SHS in is insignificant when compared to the vast number of our focus countries. off-grid households. The following table shows the Countries Solar Lantern Sales[i] Solar Home Systems Sales [i] India 2.3 - 3.2 million 1.0 – 1.2 million Indonesia NA 260,000 Bangladesh NA 680,000 Nepal NA 229,000 Philippines approx. 3,000 40,000 Pakistan NA NA Cambodia 10,000 10,000 – 20,000 Total 2.3 - 3.2 million 2.2 – 2.4 million [i] Table includes both subsidized products sold as well as unsubsidized products Market analysis of : India, Bangladesh, Nepal, Pakistan, 29 Indonesia, Cambodia, and Philippines ASIA Significant presence of sub-standard solar lanterns The issue of sub-standard solar off-grid lighting There is currently no globally harmonized framework products entering the markets is primarily restricted for testing and certifying products although efforts, e.g. to the solar lantern market. High levels of variation by the International Electrotechnical Committee, are are currently observed in the price-performance underway. Such requirements and certifications would ratios of lanterns available in the market today. The ensure that only good quality products enter the market performance of electronic circuits in these lanterns also and that poor quality lanterns do not lead to consumer varies widely with respect to charging, efficiency and mistrust in good quality solar lanterns too. type of circuit protection. Lighting Global’s Quality Assurance Framework Lighting Global has developed a global quality assurance framework for off-grid lighting. The framework includes a test protocol, sampling requirements, Minimum Quality Standards, Recommended Performance Targets, and Standardized Specifications Sheets. Any organization can adopt their own set of Standards and Targets, working within the Lighting Global QA framework to suit their needs. The Lighting Global QA framework originated with Lighting Africa, but since then has been applied for global projects, including the UNFCCC CDM methodology for carbon credits. See www.Lighting Africa.org for more details 30 Lighting Asia: Solar Off-Grid Lighting Solar off-grid lighting companies have adopted four key distribution models focus countries are still experimenting with multiple distribution models. Based on this study, four major Distribution is a critical success factor for solar off-grid distribution models used by private sector initiatives lighting companies. Most companies operating in the across the seven countries have been identified: Model description Channel evaluation Advantages •  Access to wide and deep distribution channels •  Opportunity to leverage on the partner’s ready client base Institutional partnerships: Challenges Manufacturers tie up with •  Ambiguity on cost sharing and risk sharing institutions (either for-profit or •  Concept selling would be a challenge. For example, in India, Tata BP Solar non-profit) that have significant could not leverage on the Tata Chemicals’ channel because solar off-grid presence in rural areas lighting products, unlike fertilizers, do not have a ready pull and need to be pushed aggressively •  May not work for SHS as it is not an off-the-shelf product. Most organizations consider SHS to be a customized technical solution Advantages •  Stronger control on margins, brand, and supply chain •  Can drive and ensure concept selling of SHS effectively by working closely with Company owned branches: sales staff Branches set up in the target geographies for distribution Challenges •  High initial investment required to set up branches and therefore potentially more relevant for SHS •  Management and coordination of staff across branches is challenging Advantages Micro-franchising: •  Works well at a local level for a company to begin operations Manufacturers identify micro- Challenges entrepreneurs at a village level, work •  Sales are entirely dependent on the micro-entrepreneur closely with them on distribution, •  Likelihood of up-front payment to the suppliers by the micro-franchisee is low marketing and servicing •  Identification of a micro-entrepreneur in every village and regular coordination can be a time-consuming and cumbersome process Traditional distribution channel: Advantages Manufacturers sell their products •  Common and well-understood model to the distributors, who in turn •  Potential for higher market penetration sell them to dealers. The dealer generally has a network of sub- Challenges dealers or micro-entrepreneurs •  Inadequate and underdeveloped number of distributors with a nationwide reach depending on the remoteness of the •  Ensuring after-sales service through various distributors and dealers areas. The distributors are usually •  Reputation risk to the brand of 3 types – consumer durables, electrical goods and exclusive solar •  Concept selling is a challenge Market analysis of : India, Bangladesh, Nepal, Pakistan, 31 Indonesia, Cambodia, and Philippines ASIA Solar off-grid lighting companies are adopting various marketing and promotion practices to drive uptake Given the low levels of awareness and some to communicate a host of marketing messages to the misconceptions about solar off-grid lighting due to customers using different media and collaborations as unsatisfactory experiences from sub-standard products, represented below. it is imperative for businesses in this market to invest resources into education, marketing and promotion. In spite of the various company-level promotional Social marketing[11] is especially critical in driving efforts, the collective impact is still insignificant across uptake. Companies are testing various approaches the countries with the rural off-grid population needing further education on solar off-grid lighting products and their benefits. [11] Please refer to the Appendix for successful social marketing examples in India Key marketing messages • Better lighting for education • Longer hours of work for income generation • Partnerships with co- • Quality of lighting (brightness etc.) operatives, NGOs trusted by consumers. Example: Tata • Improved health & safety in comparison to BP Solar tie-up with the kerosene lamps Ramakrishna Mission in India • Long term savings • Collaborations with banks • In case of SHS, higher energy needs and MFIs for referrals and for • Aspirational positioning product promotion through credit camps Marketing medium ns • Door-to-door selling tio ra • Stalls in village fairs bo lla • Wall paintings, pamphlets, Co Point of Sale banners, collateral 32 Lighting Asia: Solar Off-Grid Lighting Access to finance for low-income consumers remains a key challenge While a select few off-grid households are able to The following figure depicts the typical price range of purchase solar off-grid lighting products easily on a cash these products in Asia. The pricing range for lanterns basis, many low-income customers find it difficult to pay is very broad (e.g. 20-70 USD for basic lanterns) the upfront costs associated with these products. A survey whereas for SHSs, pricing is in a tighter range (with the conducted by Intellecap in 2009 of rural low-income exception of Philippines). Indian households that owned solar lanterns (costing USD 15-20) revealed that the provision of access to The market for providing finance for customers of solar finance had positively influenced their purchase decision. off-grid lighting products remains unaddressed in most SHS Lantern Basic SHS Multi use SHS Advanced SHS Basic lantern Multi use lantern (<10 Wp) (10-40 Wp) (>40 Wp) (<4 Wp) (4-10 Wp) 790 100 700 612 600 566 566 Price (USD) Price (USD) 70 510 510 379 380 420 379 306 303 280 40 210 250 226 220 25 165 180 102 99 20 70 118 India Indonesia 17 Bangladesh Cambodia India 37 50 Nepal Philippines Cambodia Pakistan Figure 1.7: Typical prices of solar off-grid lighting products in Asia Market analysis of : India, Bangladesh, Nepal, Pakistan, 33 Indonesia, Cambodia, and Philippines ASIA Photo: A. Jacobson of the focus countries. Commercial banks as well as In light of these difficulties in working with individual microfinance institutions shy away from extending credit, customers and products, some banks and MFIs are citing high transactional and operational costs in the face interested in supporting models of off-grid lighting that of low demand for solar lighting products and remote aggregate customers. This could be through providing location of most target customers. Additionally, given the micro-entrepreneurs with financial support to start their low-income status of such consumers, they also see a high own solar lantern charging stations or providing small default risk, part of it stemming from their distrust of the dealers with credit to buy products from companies product quality – if it dies before the loan terms, chances for distribution to customers on direct sale or flexible of recovery decrease. Product quality is a key factor for repayment terms. ensuring the viability of the off-grid lighting market across multiple dimensions. An example of this financing support can be seen in the pilot being run by Yes Bank, an Indian bank, to provide All the above mentioned issues are more acute in solar microfinance loans to “Lighting a Billion Lives (LaBL)” lanterns because of their small loan ticket size, low entrepreneurs with the disbursement and on-ground repossession or collateral value and relatively lower monitoring to be handled by a partner MFI. warranty period (usually no more than a year). Moreover, providing after-sales service is a bigger challenge in the case of lanterns compared to SHS as lanterns are low- value products and need scale for it to be viable for the companies selling them. 34 Lighting Asia: Solar Off-Grid Lighting Innovative models are emerging across the globe to overcome barriers in accessing finance Model 1: Fee-for-service / rental model for SELCO, Barefoot and Schneider are some of the solar lanterns companies that are piloting such models in India. Recently, the LaBL program implemented by TERI has In this model, a micro-entrepreneur who has a bank also adopted this model (see images). The advantages of of batteries, panels and lanterns rents the charged the model are: batteries/lanterns to the users. The user pays a fee for charging services (in case of batteries) or a rental fee • Flexibility to rent or recharge the lantern only (in case of lanterns). The micro-entrepreneur could when required either buy the inventory upfront or pay the supplier on installments. • Maintenance and servicing issues are not faced by the customer Image Courtesy of Simpa Networks Market analysis of : India, Bangladesh, Nepal, Pakistan, 35 Indonesia, Cambodia, and Philippines ASIA Picture Courtesy: Lighting a Billion Lives - A TERI initiative Model 2: ‘Pay-as-you-go’- loan repayment over mobile: Advantages of the model are that: A technology company called Simpa is piloting a • Increasing mobile penetration in rural areas ‘pay-as-you-go’ model in collaboration with SELCO has led to a vast mobile airtime distributor in the state of Karnataka in India. In this model, network–the model aims to leverage this consumers pay for energy credits through the “easy network for its operations recharge” agents, which mimics the mobile airtime recharge process. Simpa then collects from the agents • Customer can make payments at his/ (in kilo watt per hour - kWh). her convenience based on his/her usage requirements- this advantage puts the model Each payment accumulates towards the final purchase on par with kerosene price and once fully paid, the system unlocks permanently and delivers free solar energy from that point onwards. • Lender can better manage bad Simpa collects the payments from the mobile airtime debt/non-payments, through increased distributors and pays the SHS supplier after deducting a leverage through the ability to turn off the solar service charge. system remotely 36 Lighting Asia: Solar Off-Grid Lighting Model 3: Acquisition of solar off-grid lighting Model 4: Financing SHS through monthly products through remittances: payroll deductions: A few companies are still developing this model. The Under this program, companies would partner with large idea is to provide SHS loans to people working in agri-businesses, who would deliver solar lighting products semi-urban / urban areas whose families may be living to farmers and deduct repayments on behalf of banks in off-grid villages. Banks are to make an upfront from the crop payments made to the farmers. A payroll payment to the supplier and collect loan repayments deduction program to finance the sale of SHS for palm- from the working people. It would be the responsibility oil farmers has been proposed by UNEP[13] in Indonesia. of the suppliers to deliver the product to the respective This scheme is targeted at these farmers as they often have households in the villages. a stable and regular income. An example of an existing program that attempts this Model 5: Increase affordability through is the FOMIN[12] project in Honduras and Haiti, modular design: which aims to finance solar off-grid lighting products through remittances. Companies such as Sundaya in Indonesia are focusing on the modular construction of their solar off-grid lighting products. This enables the low-income segment consumer to purchase the basic system with one light initially and then add more lights and other accessories as and when their purchasing power increases. While this is not a microfinance strategy per se, it can achieve some of the same goals - spreading out the cost of a lighting system over time. [13]  Financing Mechanisms and Public/Private Risk Sharing Instruments for Financing Small Scale Renewable Energy Equipment [12]  Multilateral Investment Fund (member of IDB group) and Projects, UNEP Market analysis of : India, Bangladesh, Nepal, Pakistan, 37 Indonesia, Cambodia, and Philippines INDIA 2. India Market Scoping 2.1  The current state of off-grid lighting India faces the most acute challenge of electricity access in Of the off-grid population, a vast majority (94% or the world with 75 million of its 226 million households 71 million households) is spread across rural India where off the grid, the largest such demographic globally[14]. In the electrification rate dips to 52.5% (Figure 2.1). addition, it has a very high population that faces under- electrification (assuming that households consuming less than 50 kWh[15] of electricity per month are under-electrified[16]). 80 70 No. of off-grid households 60 75 50 (Mn) 40 75 30 ~94% 71 20 10 ~6% 5 0 Electrification Rate Total Rural Urban (2008) 64.5% 52.5% 93.1% % of total off-grid households in India Source: International Energy Agency, Intellecap analysis Figure 2.1: Rural-urban distribution of off-grid households in India (2008) [17] [14] Average household size in India is 5.3 person/HH. Source: Census 2001 [15] World Energy Council’s minimum level of modern energy services for a household per month is 50 kWh [16] Under-electrification as presented here does not distinguish between unreliable grid supply and low usage of power by the [17]  2009 International Energy Agency data is available for overall household. The extent of under-electrification is estimated to be around electricity access for Asian countries in this report, but the rural and 420 million people in 2005. Source: “Overview of Indian Energy”, urban electrification rate distinction is not available for 2009. Due to Prayas Energy Group this, the report refers to 2008 data for which this split is available 38 Lighting Asia: Solar Off-Grid Lighting Kerosene is the dominant source for lighting in off-grid households Kerosene is the most commonly used source of lighting Kerosene is predominantly used for lighting in seven by off-grid and under-electrified rural households, low-income states – Bihar, Uttar Pradesh, Jharkhand, across income segments[18]. As the household income Orissa, Assam, West Bengal and Rajasthan. These decreases, the percentage of households using kerosene states collectively account for two-thirds of the total for lighting increases, as shown in Figure 2.2. Kerosene off-grid rural households (or approximately 50 million expenditure[19] for lighting constitutes 0.6% - 2.1% of households) in India (Figure 2.3 (next page)). the monthly expenditure of rural households and sees a decrease as a percentage of household consumption with rising income levels. 100 % 28 31 35 80 % 40 45 49 53 59 63 72 80 86 60 % 40 % 70 69 64 59 54 20 % 50 46 41 36 27 19 14 0 0-5.1 5.1-5.9 5.9-7 7-8 8-8.9 8.9-9.9 9.9-11.1 11.1- 12.6 12.6 - 15 15-19.4 19.4- -25.2 25.2 - more Monthly per capita expenditure (USD) Kerosene Electricity Other sources (other oils, candles & solar products) Note: Monthly per capita expenditure is used as an indicator for income Source: Energy Sources of Indian Households for Cooking and Lighting (NSSO) (2007), Intellecap analysis Figure 2.2: Distribution of primary sources of lighting in rural India (2004-05) [18] The segments on the X-axis of the chart represent monthly expenditures that are assumed to be proportional to the corresponding monthly incomes [19] The kerosene expenditure is based on Public Distribution System (PDS), which is the subsidized kerosene Market analysis of : India, Bangladesh, Nepal, Pakistan, 39 Indonesia, Cambodia, and Philippines INDIA States with >20% of households using Kerosene States with < 20% of households using Kerosene 100 0 11 10 10 8 7 12 24 24 23 80 43 53 66 64 61 71 60 % of households 84 92 96 87 89 89 89 91 40 75 75 76 55 20 46 34 36 37 28 14 0 Uttar Pradesh Assam West Bengal Rajasthan Madhya Pradesh Chhattisgarh Andhra Pradesh Tamil Nadu Punjab Jharkhand Gujarat Bihar Orissa Maharashtra Haryana Kerala Karnataka Source: Household Consumer Expenditure in India (NSSO) (2010), Intellecap analysis Kerosene Electricity Other sources Figure 2.3: Primary sources of lighting in households across states (2007-08) Total annual expenditure on kerosene for lighting is USD 2.2 billion The annual expenditure on kerosene for lighting by off- Kerosene subsidy is a highly political subject as the grid and under-electrified households in India is estimated majority of consumers are rural and low-income to be approximately USD 2.2 billion, of which USD 1.8 households, a critical voter base for any political party. billion is spent by rural households. The total expenditure Though there have been recommendations that the is estimated by considering the weighted average of the kerosene subsidies be reduced or phased out, they have kerosene price, based on the prices of kerosene sold never been implemented. through the subsidized Public Distribution System and that of kerosene sold in the black market. India’s budget announcement to move to a direct transfer of cash subsidy holds implications for the solar Kerosene consumption is driven by off-grid lighting market, the exact nature of which will depend on the mechanism of transfer and use of the heavy subsidization cash subsidy transferred. It could have a significant positive impact on the market in case the cash subsidy India has one of the highest subsidy levels for kerosene is not linked to kerosene and the consumer is free to in the world. The government incurs an annual bill of choose an energy product. approx. USD 4 billion on kerosene subsidies. Of this, the implied subsidy for lighting is USD 2 billion. 40 Lighting Asia: Solar Off-Grid Lighting Despite high levels of kerosene subsidization, solar off-grid lighting is already a cost-effective option for the consumer As shown in Figure 2.5 (next page), over a 2-3 year timeframe for lanterns (and 10 year timeframe for SHS), the lifetime costs (product plus battery) for the solar lighting products range from USD 18 to 310. In comparison, kerosene costs (averaging 3-4 liters per month) for the same timeframes are higher at USD 38 to 860. Urban No. of households using Estimated monthly Weighted average kerosene (off-grid & kerosene consumption by kerosene price under-electrified) (2010) household on lighting USD 0.76 42.7 Mn USD 0.47 Liters 1.6 Rural USD 1.1 138 Mn USD 0.39 Liters 2.9 0.0 0.5 1.0 1.5 2.0 Annual kerosene consumption (USD Bn) Figure 2.4: Annual expenditure on kerosene for lighting by rural and urban households Source: UN data, Viable and Sustainable System of Pricing of Petroleum Products(2010), Primary Research, Intellecap analysis Another measure of affordability is the payback period[20]. For SHS (5 Wp and 15 Wp systems are considered for the For a solar lantern, this could vary from 1-2 years analysis), this period ranges from 2-3 years. depending on the panel wattage of the lantern (ranging from 0.5 Wp to 3 Wp)[21]. These payback periods are estimated using the weighted average price of kerosene. The payback periods will shrink considerably in the scenario of households purchasing kerosene only at black market prices or in the scenario where government withdraws or reduces subsidies. [20] Period taken by consumer to recoup high initial costs through savings accrued from forgone kerosene consumption [21] Payback period for households that use unsubsidized kerosene is much shorter (by as much as 3-4 times) as they spend much more in comparison to households that buy subsidized (PDS) kerosene. Market analysis of : India, Bangladesh, Nepal, Pakistan, 41 Indonesia, Cambodia, and Philippines INDIA 1000 860 800 600 USD 493 400 310 200 154 76 46 18 38 25 38 34 38 0 0.5 Wp 0.7 Wp 2 Wp 3 Wp 5 Wp 15 Wp Solar Kerosene Figure 2.5: Comparison of lifetime costs of solar off-grid lighting products and kerosene lanterns 2.2  An overview of the solar off-grid lighting market Current market penetration of solar off-grid lighting products is very low It is estimated that roughly 2 to 3 million solar lanterns and primary research, we estimate that the current annual 1 million SHS have been sold to date[22] in India. Assuming market size for solar lanterns could range between 300,000 that there are 75 million off-grid households in India, the and 500,000 units per annum. Similarly, we estimate that estimated penetration of solar lanterns and SHS is extremely annual sales of SHS could be approx. 100,000 units[24]. low at approx. 4-5%. If the under-electrified households were also taken into account, these penetration levels would Market led by government efforts until recently decrease further. Until 2007-08, the market in India was led by semi-commercial There are no clear estimates available on the annual and non-commercial approaches. These were driven by the market size for solar lanterns and SHS in India. A recent Ministry of New and Renewable Energy (MNRE), which survey of solar off-grid lighting companies by The is responsible for promoting PV systems in the country and Energy and Resources Institute[23] (TERI) found that oversees programs for promoting solar lanterns and SHS. These 16 survey respondents sold approx. 270,000 lanterns in programmes did not kick start the commercial market as had 2010. However, this may not be representative of total been hoped with a still limited penetration rate of solar products. lantern sales in India, as sales data of enterprises such as D Light and Reliance are not reflected in the survey. In the absence of other sales data sources and based on our [24] A Solar lanterns of 0.5 to 2 Wp is assumed to replace 1 kerosene lantern, a 3 Wp lantern to replace 2 kerosene lanterns and SHS of 5 Wp and 15 Wp- 3 kerosene lanterns Each solar lantern is assumed to have a capacity of 4 litres and households [22] Please refer to the Appendix for the detailed methodology and the are eligible to buy this quantity at PDS price (USD 0.26 per liter). We also assumptions assume that households using more than one kerosene lantern have to purchase [23] TERI is an independent, not-for-profit, research institute focused on additional kerosene at a higher retail price (USD 0.76 per liter). energy, environment and sustainable development, devoted to efficient and Also, please refer to the Appendix (9.9, page-117) for the detailed methodology sustainable use of natural resources and the assumptions 42 Lighting Asia: Solar Off-Grid Lighting Photo A. Jacobson Summary of MNRE solar lantern and MNRE subsidy has distorted the market to SHS programs an extent; going forward, the situation is likely to improve Solar lantern program: Some solar companies believe that the market has The program provides solar lanterns to off-grid households been distorted by subsidized/free distribution to an through a grant subsidy of approximately USD 52 per extent. Households in certain regions, especially those lantern to households in off-grid villages identified as a classified by the government as unreachable through ‘special category’. The subsidy is provided through State the grid, are aware of the free distribution/subsidy and Nodal Agencies (SNAs) and exclusive retail outlets called their purchase decisions have become dependent on Akshay Urja Shops. The cumulative number of lanterns the subsidy provision. As a result, cost competitive distributed through this program (2010) is approximately and good quality products that do not come with a 800,000. Primary research indicates that this program will subsidy are not preferred in those regions. be merged with the new government led Jawaharlal Nehru National Solar Mission (JNNSM) program. The JNNSM that aims to install 20 million SHSs by 2022, to serve the lighting needs of Remote Village Solar Lighting Program (RVSLP): approximately 100 million people, an ambitious target. At this stage, even though the specifications for RVSLP aims to provide a single-light SHS to 9,000 villages receiving MNRE support under JNNSM are not clear, (of 100 households each) that cannot be covered under the manufacturers are optimistic that the specifications government’s two rural electrification programs. However, will not be as restricting in nature as earlier. There villages covered under the RVSLP will continue to be is also an ongoing dialogue between manufacturers designated as ‘un-electrified. The program provides subsidy and the MNRE on the specification requirements. support for up to 90% of the system cost or USD 160 whichever is less. It has distributed 600,000 SHS (2010). This program will be continued as a component of the JNNSM program. Market analysis of : India, Bangladesh, Nepal, Pakistan, 43 Indonesia, Cambodia, and Philippines INDIA Strong emergence of private sector models An increasing number of companies are looking to serve is driven by the efficiencies through better product the market by adopting pure commercial approaches components and innovative product designs. i.e. by not depending on MNRE subsidy support. This segment of companies is characterized by young SMEs, 2.3  Demand scenario most of which have been in operation for less than 5 years. These companies have especially contributed to The Indian market offers significant potential the increase in sales of solar lanterns in the last 2-3 years. for solar lanterns and SHS Most of these companies focus on the solar lantern market Based on our primary research with companies, and undertake their own product R&D. They develop households earning less than USD 65 per month are products that currently do not meet subsidy requirements, targeted primarily for lanterns and they do not constitute but are significantly cheaper and offer a better or an the target customer segment for SHS. As shown in the equivalent performance to that of MNRE-certified Figure 2.6, the target income segment for SHS ranges products. For instance, MNRE primarily promotes CFL from USD 65 and above per month. based lanterns, which have a luminosity of approximately 370 lumens and are typically priced at USD 90-100. The proposed cash transfer subsidy system for kerosene However, there are LED based lanterns available today in the 2010-11 national budget may have implications that do not meet the subsidy requirements, but deliver on the target customer segment of solar off-grid lighting. equivalent lumen output and are priced at around USD Assuming that the criteria for transfer of the cash subsidy 50-60. The lower cost of manufacturing such products will be possession of a Below the Poverty Line (BPL) card, 120 Total no. of rural households (Mn) Market segmentation based on income segments 100 80 Targeted market for basic solar lanterns Targeted market for multi- - 60 functional solar lanterns and 40 basic SHS Targeted market for advanced SHS 20 0 Less than 45 45 to 65 65 to 110 110 to 220 More than 220 Household income range per month (USD) Usage of electricity based on IRS 2007 survey data Lighting only Lighting plus other energy services Monthly expenditure on kerosene for lighting for off-grid HHs Potential market for lanterns Potential market for SHS Mini-grid viability Figure 2.6: Market potential for solar lanterns and SHS in rural India 44 Lighting Asia: Solar Off-Grid Lighting an estimated 50-55 million households[25] who currently 100% enjoy the kerosene subsidy, are likely to be excluded from the scheme. In such a scenario, they will be an attractive 80% 35% customer segment for solar off-grid lighting companies. CFL and LED lanterns 58% Percentage sales of Consumer preferences and needs for solar 60% off-grid lighting are highly localized 40% Consumer preferences are seen to vary with location 65% and profession. For instance, street hawkers and farmers have varied product preferences. As higher customization 20% 42% adds to costs, some enterprises are working on modular designs that can be used to produce customized systems at reduced cost. 0% 2008 2010 CFL LED An example of a product that is designed to address Note: About 20 lantern manufacturers participated in the varied consumer preferences is a solar lantern with long 2008 survey and 16 in the 2010 survey range focus manufactured by InteliZon. The product Source: The Solar Quarterly 2010, TERI, Intellecap analysis can be used to both illuminate a room and as a torch for farmers when they are in the farm fields during early Figure 2.7: Comparison between sales of mornings and evenings. CFL and LED lanterns SELCO[26] offers customized SHS based on consumer Increase in the market share of LED lanterns needs. Their portfolio includes approximately 20 SHS compared to CFL lanterns variants to cater to different customer segments and usage requirements. In the recent years, manufacturers have moved from CFL lanterns to LED lanterns, this trend is partly due to the fact 2.4  Supply scenario that some LEDs can be more efficient but also because of their scalability and the relative flexibility in altering the Fragmented solar lantern market directionality of LEDs of the higher efficiency of LEDs and their greater lumen package, which decreases the cost Though the solar lantern market in India is characterized of production. Besides, consumer preference towards LED by a large number of enterprises, both small and large, lanterns is on the rise due to their higher performance of there is still vast untapped market potential. The battery life, ease of use, lightweight and robust build which industry is fragmented with no clear leaders in the space. are all preferable for rural conditions and for portable Multinational enterprises such as Philips and Schneider applications. Currently, 3 Wp LED lanterns dominate the have also only recently entered the market. market with their prices[27] varying from USD 20 to 70. Having said that, some consumer segments still prefer [25] According to NSSO 2004-05 survey, approx. 104 million rural households purchase subsidized kerosene and approx. 18 million CFL lighting due to higher brightness level perception purchase both subsidized and unsubsidized kerosene. However, the and better color temperature. For instance, SELCO has number of rural BPL cardholders is estimated to be approx. 70 million. observed that micro-entrepreneurs preferred CFL lighting This implies that the number of rural households purchasing as they feel it lights up their stalls better. subsdiized kerosene without BPL cards could be in the range of approx. 50-55 million [26] SELCO is a social enterprise, which provides sustainable energy solutions to the under-served households and businesses. Focused in [27] Please refer to the Appendix for the price points of various LED the state of Karnataka. SELCO is prominent in the SHS market based lanterns available in the market Market analysis of : India, Bangladesh, Nepal, Pakistan, 45 Indonesia, Cambodia, and Philippines INDIA There are huge variations in price, quality and performance among LED-based solar lanterns High levels of variation are observed in the price- performance ratios of different LED lanterns available in the market today. The LED lamp wattages in the market range from 0.5 to 5 Wp, with lumen[28] output ranging from 55 to 450 lumens and LED efficacy from 20 to 110 lumen/watt. The performance of electronic circuits in these lanterns also varies widely with respect to charging, efficiency and type of circuit protection. Of course, consumer benefits and acceptance are also influenced by less technical aspects such as product design, ergonomics and usability. Currently there is no quality assurance standard for consumers in India (status 2102)[29]. The MNRE specifications for the subsidized products prescribe not just quality but also very specific performance and design aspects. Image courtesy of SELCO 80 SHS market dominated by a few enterprises 60 The SHS market is comprised of established enterprises Price (USD) such as Tata BP Solar and SELCO on one hand, and small 40 emerging companies such as Duron, ONergy, Barefoot, and Advait on the other. Large multinationals such as 20 Schneider and Philips are recent entrants to this market. Currently, Tata BP Solar is the largest player in the SHS category with approximately 25-30% market share. 0 0 2 4 6 8 A wide range of SHS products available Panel Wattage (Wp) in the market Source: The Solar Quarterly 2010, TERI, Intellecap analysis CFL and LED-based SHS are available in the market with Figure 2.8: Price vs. panel wattage the latter emerging as the dominant product. The panel wattage of products in the market varies from 2.5 Wp to of LED lanterns 75 Wp with corresponding prices[30] varying from USD 40 [28]  A lumen represents a specific perceived amount of light, and takes to 600. A majority of products are priced in the USD 150- into account the sensitivity of the human eye (the eye is more sensitive 200 range. Some companies are striving to bring down the to green light and less sensitive to deep red and deep blue/purple). cost of the SHS to introduce low-priced but good quality Luminous flux, measured in lumens (lm), is typically used to describe SHS to serve the needs of low-income households. the total amount of light that a light source produces in all directions. Source: www.LightingAfrica.Org Briefing Notes [29]  Bureau of Indian Standards is developing a quality assurance [30] Please refer to the Appendix for the price points of various SHS framework fr LED products (status January 2012) available in the market 46 Lighting Asia: Solar Off-Grid Lighting India offers local manufacturing capacity of key components except for LEDs There is an adequate manufacturing capacity of PV Most solar off-grid lighting companies undertake product components in India. There are 9 companies producing design in-house and procure the key components such solar cells and close to 20 companies producing solar as panels, batteries, controllers and housing domestically panels. Annual growth of domestic production of panels and only import LEDs. Such companies also assemble has been 20-25% the last few years, with one-third used locally. Smaller companies do not assemble the products, for solar off-grid lighting. instead importing the products in an assembled or in a CKD/SKD[31] form, mainly from China and Taiwan. However, this manufacturing capacity is currently under-utilized with most solar manufacturers operating at only 40% capacity. Image courtesy of Schneider Electric [31] CKD stands for Completely Knocked Down and SKD stands for Semi Knocked Down Market analysis of : India, Bangladesh, Nepal, Pakistan, 47 Indonesia, Cambodia, and Philippines INDIA Distribution models adopted by companies in India [32] Model Prominent examples Following are the three different types of institutional partnerships: Partnership with another organization to piggyback on its distribution channel: Examples – D.Light with ITC e-Choupal[32]; Visual Lighting Equipment (VLE) and Schneider are evaluating battery manufacturers for potential partnerships Institutional • Partnership with local entities: Example – Tata BP Solar with Ramakrishna Mission partnerships Solar Energy Unit in West Bengal, which provides installation and after-sales service through village youth clubs • Partnership with third party service providers who undertake distribution, after sales service, consumer awareness programs and promotion of solar lighting products. For instance, ONergy, a company based out of East India provides these services for Barefoot Power by setting up Renewable Energy Centers Company owned SELCO is the most prominent in this category. With 25 branch offices and 150 branch staff, branches SELCO has focused its operations in the state of Karnataka An example of company relying on micro-franchising model is Greenlight Planet Micro-franchising Distribution and sales are conducted through micro-entrepreneurs, who are well-known in their villages A variety of companies from large ones such as Tata BP Solar, Philips, and Schneider to SMEs such as Solkar, Duron and Advait Energy adopt this. For example: Tata BP Solar has 150 exclusive distributors throughout India Traditional • Apart from regular electrical and consumer durable shops, innovative channels such distribution channel as chemists and meat shops are also being tried out • A dominant player like Tata BP Solar dictates credit terms to distributors whereas some of the new and smaller enterprises need to work with existing credit terms [32]  E-Choupal is an initiative to link farmers and the agricultural markets via the internet mainly for procurement 48 Lighting Asia: Solar Off-Grid Lighting Image courtesy of Schneider Electric Companies partner with MFIs and Regional Rural Banks for consumer financing Since the loan size for solar lanterns is too small for The loan tenure varies from 6 months to 1 year depending commercial banks, solar lantern companies have partnered on the loan size with an interest rate close to that of their (or are attempting to partner) with MFIs for providing existing loan products. Certain MFIs also assume the credit to consumers. responsibility of sales and distribution as they are closely connected to the local communities. The lantern loans offered by MFIs are typically provided as top-up loans[33] to the regular income generation loans. In the case of SHSs, MFIs are currently not a major source of consumer financing for SHS because of the larger loan size requirements and related risks. After-sales service is also [33]  Top-up loans are loans provided to existing loan customers having more critical in case for SHSs and MFIs face a higher risk a good credit history of loan default in the absence of effective after-sales service. Market analysis of : India, Bangladesh, Nepal, Pakistan, 49 Indonesia, Cambodia, and Philippines INDIA 80 70 70 ; USD 229 60 50 50 ; USD 163 40 37 ; USD 121 30 20 18 ; USD 59 10 10 ; USD 33 0 0 50 100 150 200 250 Panel Wattage (Wp) Wattages 10W 18W 37W 50W 70W Typical Retail ~USD 130- 170 ~USD 150 -220 ~USD 270-330 ~USD 500-600 ~USD >550 Price Capital Subsidy USD 20 USD 35 USD 73 USD 98 USD 137 Figure 2.9: Mapping loan amounts against the SHS panel wattage under the JNNSM program The government led JNNSM program[35] is expected to push consumer financing for SHS; however, there are concerns on the adequacy of financing Enterprises have partnered (or held discussions) with The program makes a provision for institutionalizing MFIs to offer consumer finance for their SHSs. However, the consumer financing mechanism for SHSs through most partnerships have not been successful due to commercial banks, regional rural banks and non-banking various challenges faced by the MFIs, such a credit risk, finance companies (NBFC). The program assumes a brand risk (if consumers start associating faulty product benchmark price of SHSs to be USD 6.5/Wp, i.e. a with an MFI), cost of funds especially when directed 10 Wp SHS is assumed to be available at USD 65 in in non-income generating loans, high transaction costs the market. 30% of the benchmark SHS price will be for low-cost products and lack of sales and distribution offered as capital subsidy and 50% of the price is to be capability. A majority of the lantern and SHS enterprises financed by banks at an interest rate of 5%. However, are still looking to leverage the MFI channel for end- there is ambiguity on this financing provision, as the SHS consumer financing, given its unique set of advantages typically costs more than the benchmark price assumed such as last mile reach, captive client base, consumer trust by MNRE – for example, the minimum price of a 10 Wp and low cost of sales and distribution. However with SHS in the market is USD 175, much higher than the the recent regulatory uncertainties[34] around MFIs the benchmark price of USD 65. Credit through Regional potential of this channel is expected to be in question. Rural Banks (RRBs) and commercial banks are on hold until there is greater clarity on this. [34] Refer to whitepaper published by Intellecap on implications of MFI regulatory changes - http://goo.gl/7NM2g [35] See Appendix for further details on the program 50 Lighting Asia: Solar Off-Grid Lighting Traditional debt financing a challenge, but new Companies attracting equity funding funding facilities are emerging Until recently, there was very limited venture capital (VC) Most of the solar lighting companies are young SMEs and private equity (PE) activity in the renewable energy needing both working capital and growth capital to scale up. space, but the situation is gradually changing. Dedicated However some companies are unable to raise debt financing VC/PE funds have been formed for investing into clean due to the following reasons: energy companies and solar lighting is beginning to be recognized as a clear opportunity. Examples of such funds • Solar off-grid lighting SMEs usually require debt include: Climate Change Capital, Aloe and Nexus. of less than USD 1 million which falls below the typical loan amounts offered by banks Some off-grid lighting companies have been quite successful in attracting private equity investment. Following are • Bank financing is available only if the company some examples: Acumen, Omidyar Network, Nexus, Gray shows three years of continuous profitability Matters Capital, Draper Fisher Jurvetson (DFJ) are among the investors who have invested in D Light; E+Co invested into SELCO; Venture East invested into InteliZon. • High fixed asset collateral requirements of banks and their unwillingness to accept product inventory (SHS and lanterns) as collateral Equity investments into solar are pouring into large scale PV projects, but there is a plenty of scope for investments into solar off-grid lighting SMEs if some of the key concerns of • Poor quality of financial management in some of investors are addressed: the SMEs There is limited information/understanding of the business • Investors in this market have expressed concerns that most companies do not have robust models for these companies and no readily available financial distribution and after-sales service models yet, benchmarks that banks can use to understand working capital which are critical to scale and fixed investment needs. This information asymmetry further increases the risk perception held by banks. • Perception that the margins would be low in serving the base-of-the-pyramid market There are ongoing efforts to increase access to debt financing. In 2010, the Shell Foundation partnered with Intellecash, a wholesale and retail lending NBFC, to establish a credit • Low visibility for an investor into exit options facility for SMEs in the clean energy space which has now been moved to the NBFC “Intellegro”. The facility will Some of the companies also highlighted the important role provide short-term loans at competitive interest rates for a that needs to be played by emerging paradigms of impact tenure of less than one year, with no collateral or three-year investments[36] and patient capital that can handhold the profitability history requirements. The maximum loan size sector in its current stage. that can be accessed under this facility is approximately USD 220,000. Scope for companies to explore carbon-financing mechanisms There is also the recently launched Oasis Energy – Solar for All Fund which is the first specialized sector fund for solar Some companies are looking to leverage carbon finance energy investments at the Base-of-the-Pyramid. The Fund markets to partly meet their financing need. This will be a global fund investing in solar energy companies is strengthened by the United Nation’s Framework whereby investments will be made as equity or debt in Convention on Climate Change (UNFCCC) having an companies across the PV supply chain, from manufacturing approved methodology for carbon financing for solar and distribution to end-user finance. Investments will be in the range of USD 0.5 - 4 million, and the Fund will be looking to co-invest alongside other partners. [36] Investors focused on impact investments aim to make positive social/environmental gains alongside profits through their investments Market analysis of : India, Bangladesh, Nepal, Pakistan, 51 Indonesia, Cambodia, and Philippines INDIA lanterns, based on Lighting Global’s quality standards. Literature review and primary research suggests that carbon revenue is typically channeled towards product promotion and strengthening of after-sales service by companies that receive them. 2.5  Overview of regulatory environment Kerosene subsidies are the biggest regulatory hurdle The MNRE has been creating a conducive environment for the solar off-grid lighting market. Low to nil duties on components and favorable taxation policies are indicative of its efforts. The huge kerosene subsidy however remains Image courtesy of Schneider Electric a key barrier, stopping the full potential of the market being achieved. Overview of regulatory environment - India Status Impact on SHSs Impact on solar lanterns Financing • JNNSM has aggressive support • MNRE offers capital subsidies on SHS and targets for SHSs, and is • MNRE focus on Solar – Solar lanterns. Provision for consumer financing for SHS expected to propel the lanterns has reduced lighting under the JNSSM program market through easy products financing for SHSs Subsidies – • Government offers a subsidy of 0.5 USD per litre. • Kerosene price is highly subsidized reducing the conventional The kerosene price pre-subsidy is USD 0.8 and competitiveness of the solar products fuels post-subsidy is 0.3 USD per litre • Import duties on solar lanterns discourages Import • No import duty for solar cells, modules, panels, • No import duties imports of good LEDs and charge controllers[i], 10% import duty on tariffs and on PV modules and quality lanterns batteries and 5% solar lanterns duties • Ambiguous codes are applied leading to different LEDs supports local • Import procedures assembling of SHS and codes applied are import duties ambiguous and marred in red-tape • 5% VAT as opposed to higher rates for other products and services • No industrial clearances required • Central excise duty exempted • Encouraging regulatory environment for manufacturers Taxation • Financial support is available for the PV and investors (domestic and foreign) to enter solar policies industry for R&D projects in association with market and set up capacity technical institutions • Proposals for up to 100% FDI in a JV qualify for an automatic approval [i] For all the countries except Bangladesh, customs duty on charge controllers is considered as customs duty applicable on controllers under the category ‘electronic integrated circuits’. Sources: India Customs Tariff, Primary research 52 Lighting Asia: Solar Off-Grid Lighting 2.6  India conclusion With approximately 400 million people off the grid and many more under-electrified, India offers a tremendous potential for the solar off-grid lighting market, given the minimal market penetration. Off-grid lighting products are affordable over a period of time despite the significant subsidy given for kerosene by the government. Other positive factors are the presence of local manufacturing capacities, favorable regulatory scenario, new financing models that are being piloted and the transition of the market from a ‘subsidy driven’ to a ‘strong private sector led’ market. To realize the market potential, companies need to meticulously formulate their distribution and after-sales service strategies and collaborate with partners on ground to deliver the marketing messages in a localized manner. Market analysis of : India, Bangladesh, Nepal, Pakistan, 53 Indonesia, Cambodia, and Philippines BANGLADESH 3. Bangladesh Market Scoping 3.1  The current state of off-grid lighting Kerosene is the dominant source for lighting in off-grid households Bangladesh has population of 163 million (or 29 million households) and a low electrification Primary research suggests that there is a heavy rate of 41% with 17 million households being off-grid. dependence on kerosene for lighting in Bangladesh. Of the off-grid population, a vast majority (89% or 15 This is also borne out by a 2004 World Bank study million households) is concentrated in rural Bangladesh (Figure 3.2) that shows kerosene usage across regions in where the electrification rate dips to 28% (Figure 3.1). Bangladesh as high as 90-100% amongst rural households A large segment of the on-grid population is also (both off-grid and under-electrified). under-electrified, facing significant daily power outages. 20 No. of off-grid households (Mn) 15 89% 10 17 15 5 11% 2 0 Electrification Rate (2008) Total Rural Urban 41% 28% 78% % of total off-grid households in Bangladesh Figure 3.1: Rural-urban distribution of off-grid households in Bangladesh 54 Lighting Asia: Solar Off-Grid Lighting 98% 99% 100% 97.20% 100% 92% 80% % of households 60% 44% 39% 40% 29% 20% 20% 11% 0% Chittagong Dhaka Khulna Rajshahi All Divisions Region Electrification rates Kerosene usage Source: Bangladesh’s Rural Energy Realities (World Bank), Intellecap analysis Figure 3.2: Electrification rates and kerosene usage for lighting by region (2004) Total annual expenditure on kerosene for lighting is USD 0.36 billion The typical expenditure on kerosene is around 1 to 2% Bank. Currently, the program is operational only of the monthly incomes of Bangladeshi households. With in areas recognized as off-grid by the government 94%[37] of this kerosene being consumed for lighting, of Bangladesh (covering approximately 17 million the resulting expenditure on kerosene for lighting is off-grid households). Only SHS are supported in the approximately USD 0.36 billion. program as the government considers households using SHS as electrified. 3.2  An overview of the solar off-grid The program works with donor agencies, the lighting market SHS suppliers, technical experts and with Partner The IDCOL[38] solar program drives the solar Organizations (POs) that have experience in micro- credit. To reduce the cost to the consumer, the program off-grid lighting market subsidizes the upfront cost of the SHS through a grant and provides soft loans to the POs so that the consumers The Infrastructure Development Company Limited’s can access credit at low interest rates. The following figure (IDCOL) solar program was launched in 2003 as part (Figure 3.3) represents the schematic diagram of the of the Rural Electrification and Renewable Energy program. The common financing types are explained in Development Project (REREDP) of the World further detail in this section. [37] Source: Bangladesh’s Rural Energy Realities, World Bank, 2010 [38] IDCOL is a government owned financial institution. One of it’s mandate is to provide financing for infrastructure and renewable energy projects in Bangladesh Market analysis of : India, Bangladesh, Nepal, Pakistan, 55 Indonesia, Cambodia, and Philippines BANGLADESH Donors (World Bank, ADB, SHS/ component KfW, GTZ, SNV and Suppliers[i] IDB) Provides grants and soft loans for SHS program Provides Partner grants and Distributes, sells Organizations IDCOL soft loans (for and installs SHS; Consumers (POs)- NGOs redirecting and provides loan MFIs and PBS refinancing) Loan repayment Loan repayment Financing terms to PO Credit terms to consumer • Soft loan: 80% of the SHS price for • 15% down payment refinancing (cap of 230 USD per system), 10- • Loan tenor varies from 1 year to 5 years- year maturity with 2-year grace period at 6% generally it is 3 years p.a. interest, no collateral or security except for a lien created on project accounts • Interest rate varies from 4 to 6% per annum • Grant subsidy: ~USD 26 as grant subsidy • Repayment frequency is monthly per SHS per household to be redirected to end-consumer [i] Note: Most NGOs procure components such as solar panels, batteries, charge controllers, lights and assemble SHS such as Grameen Shakti while few others procure complete systems Figure 3.3: Schematic diagram of IDCOL solar program [39] 680,000 SHSs have been installed to date under IDCOL’s The program aims to reach a scale of 4 million SHS solar lighting program. The program has been quite installations by 2014, implying an annual growth rate of successful in stimulating the market and driving growth over 115% and a market penetration of approximately – it has grown at over 60% CAGR since inception 25%. These high projections are going to be driven by the and covered 485 Thanas (sub-districts) out of 509 in recent inclusion of low-wattage SHS[40]. These SHS can Bangladesh. However, there is ample scope for further be sold aggressively to low-income households. growth, as the current installations imply a market penetration rate of only 4% of the 17 million off-grid households. In contrast, the solar lantern market in Bangladesh is almost negligible. [39]  Sources: IDCOL presentation at DIREC 2010; [40] Until recently, POs were selling SHSs of wattages above 30 Wp Intellecap estimation and analysis through the program 56 Lighting Asia: Solar Off-Grid Lighting Grameen Shakti contributes to approximately 64% of the program sales ~4% penetration of current off-grid households [i] by 2010 800 680 600 No. of systems (in 000’s) Figure 3.4: 60% 385 Cumulative 400 number of 284 SHS installed through IDCOL 190 200 solar program 100 75 50 25 0 2003 2004 2005 2006 2007 2008 2009 2010 ~25% penetration of current off-grid 4500 4230 households[i] targeted by 2014 3020 No. of systems (000’s) Figure 3.5: 3000 117 % Cumulative number of 2040 targeted installations of SHS till 2014 1500 1280 680 0 2010 2011E 2012E 2013E 2014E E= Estimate [i]~17 Million Off-grid households in Bangladesh Source: Overview of the policies - Bangladesh (RENDEV), IDCOL solar home systems model, Financial model design- Bangladesh (RENDEV), Intellecap analysis Market analysis of : India, Bangladesh, Nepal, Pakistan, 57 Indonesia, Cambodia, and Philippines BANGLADESH 300 64% No. of units installed in (000’s ) 245 250 200 150 100 14% 10% 51 2% 2% 1.5% 1.5% 1% .8% .8% 2.4% 50 40 11 8 7 6 4 3 3 8 0 Grameen BRAC RSF Srizony UBOMUS HFSKS BRIDGE IDF COAST CMES Others Shakti Foundation Trust # of branches 991 379 52 Represents % of total IDCOL sales till 2009 Type of Non-profit NGO NGO NGO NGO NGO NGO NGO NGO organization company Source: Overview of the policies - Bangladesh (RENDEV), IDCOL solar home systems model, Financial model design- Bangladesh (RENDEV), Intellecap analysis Figure 3.6: Cumulative sales of different POs (2009) The number of Partner Organizations (POs) has risen production, installation and after-sales service from 5 in 2002 to 30 in 2011. Of all the POs, Grameen with approximately 7,500 trained technicians. It Shakti (GS) is the most prominent one, accounting for has also established Grameen Technology Centers 64% of the SHS installations so far. The reasons for its to train and recruit locals as solar technicians dominant position in the market are: • In-house assembly of SHS: Grameen Shakti • An extensive network and outreach: Grameen assesses the needs of the consumers and then Shakti has a deep rural network with 991 designs and assembles the appropriate SHS branches; it has coverage across all the through its 15 manufacturing units in rural areas districts and approximately 40,000 villages and 1 in Dhaka (approximately 50% of villages) in Bangladesh 80-85% of the overall sales of SHS are in the range • Consumer trust and goodwill: Grameen Shakti of 20-85 Wp with 50 Wp systems accounting for an enjoys first mover advantage as it has been estimated 35% of all sales. In terms of technology used, working in this market from 1996 and has built larger systems (>20 Wp) primarily use Linear Fluorescent the SHS market from the ground-up. It has also Lamps (LFL). However, our research suggests that there created a strong awareness amongst people about is a shift to CFL with 20 Wp systems available today SHS and its benefits being primarily CFL-based. There is no noticeable penetration of LEDs yet. Once systems with a Wp of • Strong sales and after-sales network: Grameen lower than 20 Wp are introduced, they are expected Shakti has significant trained manpower for to be LED based. 58 Lighting Asia: Solar Off-Grid Lighting Image courtesy of Grameen Shakti 600 8 CFL lamps (7 W each), Mobile charger, TV point 85Wp 500 400 5 CFL lamps (7 W each) 50Wp Price (USD) 300 40Wp 4 CFL lamps (7 W each) 200 20Wp 2 CFL lamps (5 W each) 100 10Wp 2 CFL lamps (3.5 W each) 0 0 10 20 30 40 50 60 70 80 90 Panel wattage (Wp) Source: Primary research, Intellecap analysis Figure 3.7: Mapping product features and prices of SHS Market analysis of : India, Bangladesh, Nepal, Pakistan, 59 Indonesia, Cambodia, and Philippines BANGLADESH As shown in Figure 3.8, more than 60% of the systems the income segment earning between USD 55-125 are sold to households earning more than USD 125 per per month, constitutes approximately 20% of the month. 20 Wp SHS, specifically introduced to cater to overall SHS sales. Typical monthly income of the 100% consumer HH (USD) 18% 80% 15% 60% >125-140 35% 40% 12% 20% 20% >55-70 0% Sales Mix (%) 20Wp 40Wp 50Wp 85Wp Others[i] [i} Others includes <20 Wp and >85 Wp systems Source: Primary research, Intellecap analysis Figure 3.8: Sales mix of SHS and mapping against the consumer household income segment Grameen Shakti and the Rural Services Foundation As batteries in the low wattage systems do not allow (RSF) have introduced systems with wattages of less the POs to offer loans at standard tenure (2-3 years), than 20 Wp, such as 10 Wp and 7.5 Wp SHS. The key they have to reduce the loan tenure to match the life issue is the low battery life of these systems. Battery life of the batteries (less than 1 year). This means that is a critical factor for the POs to manage credit default the financing terms of POs become unattractive for risk. This is because the loan tenures of POs are usually low-income households. This is the reason Grameen less than or equal to the battery life to ensure consistent Shakti has temporarily withdrawn from promoting repayment from the consumers. the 10 Wp system. 60 Lighting Asia: Solar Off-Grid Lighting Easy consumer financing is one of the key reasons for high uptake of SHS Easily available financing has allowed solar to be • Flat interest rate of 4-6% per annum. This is a cost-competitive to conventional sources of lighting such low interest rate in comparison to the market as kerosene. The typical consumer financing terms offered rates and is made possible by soft financing that by POs under the IDCOL solar program: POs receive from IDCOL • Loan amount of up to 80% of the SHS price • Loan repayments on a monthly basis (or USD 230, whichever is lower), consumers pay a 15% deposit with the remaining sum Following is an illustration of the solar home system’s being covered by the IDCOL buy-down wattage and price, the corresponding income segment and grant[41] (or subsidy) of USD 26 per SHS [42][43] the monthly loan repayments. • Three-year loan tenure. The loan tenure is Other payment models such as fee-for-service have not set below the duration of the SHS warranty been successful in Bangladesh. Consumers did not own to minimize the default risk in the event of the SHS in the fee-for-service model and it led to poor product failure handling and maintenance of the product. Monthly income of target Monthly repayment by consumer on SHS segment (price) consumer segment Solar loan 50 Wp (approx. USD 380) More than USD 125 approx. USD 9.7[42] 20 Wp (approx. USD 165) approx. USD 3.7 More than USD 55 approx. USD 1.9 (36 months term) or 10 Wp (approx. USD 100) approx. USD 3.5[43] (20 months term) [41] A grant given to reduce the upfront cost to be paid by the consumer [42]  Assuming 6% flat interest rate (effective interest rate would be approx. 12%) and term of 3 years, 15% down payment and approx. USD 29 grant subsidy [43]  Assuming 6% flat interest rate and term of 20 months, 15% down payment and approx USD 26 buy-down subsidy Market analysis of : India, Bangladesh, Nepal, Pakistan, 61 Indonesia, Cambodia, and Philippines BANGLADESH Reducing dependence on IDCOL subsidies The buy-down grant subsidy has reduced from USD 70 to its current level of USD 26 over the last 7 years. A further reduction or a complete phase-out of the buy- down grant is expected in the near term. This is not expected to hurt the market growth as it will be offset by a corresponding reduction in the cost of the systems due to the decreasing trend in component prices. Primary research with POs suggests that even a complete phasing out of the grant subsidy will not affect growth, as it would result in an effective increase of just around USD 1 in monthly repayments. However, the soft loan facility that has driven consumer financing is expected to continue. Image courtesy of Grameen Shakti 80 800 70 Buy -down subsidy per unit Cumulative no. of SHS 60 55 600 installed (in ‘000s) 40 39 39 39 (USD) 40 400 33 26 20 200 0 0 In the order of SHS installations --> Source: Primary research, IDCOL, Intellecap analysis Figure 3.9: Subsidies provided and the cumulative growth of SHS installed (2010) 62 Lighting Asia: Solar Off-Grid Lighting Solar lanterns market penetration is currently Local panel manufacturing is expected negligible in Bangladesh to grow in the next few years driven by market potential The presence of solar lanterns in Bangladesh is currently negligible. Due to strong promotion of SHS and The Bangladesh solar off-grid lighting industry is exclusion of lanterns in the IDCOL solar program, the heavily dependent on imports for its component and solar lantern market has not been established yet. POs product requirements. Almost the entire requirement such as RSF are piloting LED based solar lanterns. These of PV panels / modules is currently imported from lanterns are affordable, being in a price range of USD manufacturers such as India, Japan, China and the United 30-40 and would be the best solution for households that States. Although batteries and charge controllers are cannot afford low wattage SHS. However, battery life and mostly locally manufactured, most of their components product quality are the concerns that POs have regarding are imported. In lamps, CFLs are manufactured locally the promotion of the lanterns. with LED being imported. On the product side, solar lanterns are entirely imported. There is an opportunity for enterprises with good quality solar lanterns to enter the market, partner with POs and However, greater domestic procurement is expected cater to the lighting needs of the low-income segment. as a domestic solar panel manufacturing and assembly industry is emerging. This is driven by the huge market potential and increasing government support. Rahimafrooz and Allied Solar are among a few local solar manufacturers who are setting up PV panel assembly plants. Through local manufacturing, the market will be assured of a regular supply of panels with lower lead times. However, the ability of the local industry to maintain the quality of components to a level similar to that of international suppliers remains to be established. Market analysis of : India, Bangladesh, Nepal, Pakistan, 63 Indonesia, Cambodia, and Philippines BANGLADESH 3.3  Overview of the regulatory environment The policy and regulatory scenario in Bangladesh is As noted earlier, solar lanterns would be an appropriate highly favorable for SHS. Consumers are able to access solution for households that cannot afford the low affordable finance and enjoy affordable prices as a wattage systems, such as 20 Wp SHS available in the result of zero import duty on solar panels. Insignificant market today. However, the lack of focus on solar lanterns subsidy support for kerosene has also ensured that solar has been a hindrance to growth in this sector. Solar off-grid lighting remains competitive for consumers. lanterns face high import duties of 25% and are also hobbled by the fact that they do not enjoy coverage under Companies have also benefited from the relaxed the IDCOL solar program. taxation policies that are encouraging new enterprises to enter the solar off-grid lighting market at different stages of the value chain. Overview of the regulatory environment- Bangladesh Status Impact on SHS Impact on solar lanterns Financing • Program has been • Solar products made affordable through • Solar lanterns are support – a huge success in financing on easy terms through IDCOL’s not included in Solar lighting soft-loan program reaching out to the program products off-grid households • The subsidy on Kerosene is not too high to negatively Subsidies – • Retail price of Kerosene is ~1.1 USD per impact SHS / solar lantern adoption conventional litre compared to a subsidized price of • IDCOL program has put SHS on a level playing field fuels ~0.8 USD per litre with Kerosene • No import duty on solar photovoltaic cells, modules/panels and LEDs • No import duties • High import duties Import tariffs • Charge controllers- 40% on PV modules and on solar lanterns and duties • Batteries- 25% for finished battery; 7.5% LEDs supports local discourages imports of for raw lead manufacturing good quality lanterns • CFL- 26% • 25% - solar lanterns • Renewable energy equipment, related raw materials to produce such equipment is exempted from 15% VAT • Encourages local manufacturers to set up and increase Taxation • Renewable energy project investors solar PV panel capacity policies (public / private) are offered a tax • Approval process is not too difficult holiday subject to extension based on impact assessment of exemption on renewable energy Source: Literature review, Primary research 64 Lighting Asia: Solar Off-Grid Lighting 3.4  Bangladesh conclusion Approximately 17 million households or 96 million people are off-grid and at least an equivalent number of people are under-electrified. The absence of kerosene subsidies in Bangladesh increases the cost competitiveness of solar lighting products by far compared to kerosene based lighting. Though the IDCOL solar program has led the way for the solar lighting market, it has achieved only 4% market penetration so far. Even with aggressive growth projections, the IDCOL program can cover only 25% of the off-grid households by 2014. This means that there is a vast under served market for solar lanterns and small SHSs (10 Wp or less), both of which are currently outside the purview of the IDCOL solar program due to shorter battery life and quality issues – issues that have technical solutions. Moreover, the IDCOL solar program needs to raise approximately USD 400 – 500 million in soft loans to meet their target sales projections by 2014. In the event of IDCOL being unable to raise funds, a significant market disruption can be expected. Private sector enterprises that have affordable products and credit linkages with MFIs in the country can be at the forefront of filling up this gap. The unique opportunity to leverage PO infrastructure, high consumer awareness of solar lighting and the emerging local PV panel industry position Bangladesh as a key destination for the enterprises keen on tapping the solar lighting market in Asia. Market analysis of : India, Bangladesh, Nepal, Pakistan, 65 Indonesia, Cambodia, and Philippines NEPAL 4. Nepal Market Scoping 4.1  The current state of off-grid lighting There are 3 million off-grid households in Nepal, the The electrification rate in rural Nepal is as low as majority (approx. 97%) of which is in rural areas. 34% (in 2008) compared to the national average of 44%. Almost all the on-grid households (approx. 2.4 million) in Nepal face severe power shortages or at least 12-14 hours of load-shedding[44] every day[45]. 3 No. of off-grid households 2 96.9% (Mn) 3.0 2.9 1 3.1% 0.1 0 Electrification Rate (2008) Total Rural Urban 43.6% 34% 89.7% % of total off-grid households in Nepal Source: International Energy Agency, Intellecap analysis Figure 4.1: Rural-urban distribution of off-grid households in Nepal (2008) [44] Load Shedding: Power cuts [45] Source: Load shedding schedule, Nepal Electricity Authority 66 Lighting Asia: Solar Off-Grid Lighting Kerosene is the primary source of lighting for these off-grid households A study conducted by the World Food Program found kerosene still remains the primary source of lighting for that kerosene is the predominant source of lighting across off-grid households and the secondary source of lighting all regions in Nepal. Interviews with stakeholders in for under-electrified households. the solar off-grid lighting industry validate the fact that 100% Oil or gas lamp Battery Flashlight 80% No Lighting % of households 60% Pinewood 40% Tube/Florescent Light Solar Panels 20% Electricity 0% Kerosene Far Mid Western Central Eastern West West Region Source: Comprehensive Food Security and Vulnerability Analysis (World Food Programme) Note: Graph is approximate as the graph has been created based on a chart image Figure 4.2: Primary sources of lighting in rural households of Nepal (2005) With 90%[46] of kerosene consumption going for lighting, With nearly all households (off-grid and under-electrified) at a current price of approximately USD 0.9 per liter, using kerosene, 0.19 billion translates into an approximate an estimated USD 0.19 billion is spent on kerosene for expenditure per household of USD 2.9 (3% of rural lighting. This is a conservative estimate, since in remote household expenditure[47]), or an average 3.2 liters of regions of Nepal, the kerosene price increases drastically kerosene consumption per household per month. up to approximately USD 2 per liter due to lack of road infrastructure and corresponding distribution challenges. [46] Kerosene is primarily used for lighting; Most common cooking sources in Nepal are biomass and biogas [47] Based on expenditure of lowest income quintile Market analysis of : India, Bangladesh, Nepal, Pakistan, 67 Indonesia, Cambodia, and Philippines NEPAL 4.2  An overview of solar off-grid lighting market The Nepalese market for solar off-grid lighting is Nepal’s market for solar lanterns is almost negligible. dominated by SHS. The market has a unique product that Discussions with business practitioners indicate that this is is known as “Solar Tuki” which is a Small SHS (SSHS). due to the lower warranty periods and the lack of battery availability for timely replacements. This is because the lanterns are primarily imported today. Moreover, the presence of affordable Solar Tukis in the market has led to a low demand for lanterns. Majority of the SHS installed in Nepal are through the AEPC program The SHS market is heavily dependent on the government’s subsidy program. This program is overseen by the nodal organization for Renewable Energy promotion in the country, the Alternative Energy Promotion Centre Figure 4.3: Solar Tuki (AEPC). It is estimated that SHS installations through A Solar Tuki or a SSHS in Nepal is typically configured the AEPC program constitute approximately 75-80% of with a 3 Wp to 5 Wp solar panel, two LED lamps that use the overall installations. AEPC has installed 229,000 SHS Nickel Metal Hydride rechargeable batteries. The lamp so far (Figure 4.4) at a CAGR of 52% since program unit also has an outlet for connecting a FM/AM radio. inception, and is targeting another 90,000 systems by Tukis are priced in the range of USD 50 to 70 and come 2012. There has also been a sharp rise in the number of with a one-year warranty. suppliers from 3 to 70 within the same timeframe. 350 320 Cumulative no. of units installed (‘000s) 300 18% CAGR 250 229 200 176 150 52% CAGR 135 100 85 64 70 47 50 35 18 5 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (end of Phase 2) ESAP Phase 1 ESAP Phase 2 Source: Primary research, Energy Sector Synopsis report (Government of Nepal), AEPC, The Tuki: Lighting Up Nepal, Intellecap analysis ESAP=Energy Sector Assistance Program Figure 4.4: Cumulative number of SHS installed through AEPC subsidy program 68 Lighting Asia: Solar Off-Grid Lighting Up to 60% of system cost covered by subsidy based on wattage and location On a base of approx. 3 million off-grid households in The higher the panel wattage and the more remote Nepal, SHS installations of approx. 229,000 through the location of the household, the higher the subsidy AEPC suggest a penetration of approx. 8%. Considering provided. Subsidies range from USD 67 to 134 that only 75-80% of the overall sales occur through the depending on the remoteness of the location of the AEPC program, the overall penetration can be estimated households as defined by AEPC, and the system wattage. to be a maximum of 10%. 160 Subsidy per SHS per household 134 AEPC supports the solar off-grid lighting market through its SSP component 120 108 94 ( USD) 81 81 AEPC administers the Solar Energy Support 80 67 Program (SSP) that is the nodal program for the promotion of solar off-grid lighting. The role of SSP entails setting the technical standards for SHS, qualifying 40 the suppliers, approving the subsidies and monitoring the program implementation. 0 Very remote Remote Accessible locations locations locations Source: AEPC 10 - 18W More than 18 W Figure 4.6: Subsidy structure of AEPC Donors of SSP / REFDANIDAi, KfWii, Company Governments of branches Norway and Nepal Provides grants for • Distributes, and sells SSP and REF SHS at subsidized price Provides grant to off-grid consumers subsidies to be SHS Suppliers • Installation and Off-grid AEPC redirected to (qualified by AEPC) aftersales service consumers the consumer provided through technicians trained and certified by AEPC Dealers and agents i. DANIDA (Danish International Development Agency) is the funding agency of the Government of Denmark ii. KfW is the funding agency of the Government of Germany Source: AEPC Nepal, Renewable Energy Subsidy Policy and Subsidy Delivery Mechanism of Nepal, Primary research Figure 4.5: Schematic diagram of the AEPC subsidy program Market analysis of : India, Bangladesh, Nepal, Pakistan, 69 Indonesia, Cambodia, and Philippines NEPAL SHS sales are capped by the available subsidy funding For a 20 Wp system priced at approximately USD 220, SHS sales are heavily dependent on the subsidy provided the subsidy is 30-60% of the price, depending on the by AEPC that in turn are capped by the funding provided remoteness of the location. by donors. This can be seen in Figure 4.7, where sales plunged in 2006 as subsidies were withdrawn temporarily The total subsidy amount disbursed by AEPC up to due to donor funding being exhausted. Sales in 2008, September 2010 was in the range of USD 20-25 million. however, recovered sharply as the subsidy program was renewed post-infusion with fresh funds from the donors. 60 53 50 No. of units used annually (000’s) 50 41 40 30 20 17 17 15 13 12 10 6 5 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 ESAP Phase 1 ESAP Phase 2 (till 2012) Bridging phase Source: Primary research, Energy Sector Synopsis report (Government of Nepal), AEPC, Intellecap analysis Figure 4.7: Annual SHS installations through AEPC 70 Lighting Asia: Solar Off-Grid Lighting 20 Wp SHS account for 80% of SHS sales A 20 Wp solar home system, which can light three 5W power backup. Amongst them, 60 Wp systems are quite tube lights, is the most dominant model sold in the common and are sold at a price of USD 565. market. This system is typically sold for USD 220 and is targeted at the low-income segment. Urban grid- In terms of technology aspects of product components, connected households use higher wattage systems as a SHS in Nepal use LFL for products sold in rural areas. 600 SHS, Seven 5W TL lamps 60 Wp 500 Unsubsidized price (USD) 400 SHS, Five 5W TL lamps 40 Wp 300 20 Wp 200 SHS, Three 5W TL lamps 100 Solar Tuki, Two LED lamps 5 Wp 3Wp Solar Tuki, Two 0.3W LED lamps 0 0 10 20 30 40 50 60 70 Source: Primary research, AEPC Panel wattage (Wp) Figure 4.8: Mapping of product features and prices of SHS Solar Tukis have been recently included in the subsidy program However, systems sold in urban areas (higher wattage) Solar Tukis have been included in the AEPC’s subsidy are shifting towards CFLs. LFLs are manufactured program since 2008. The subsidy support is limited locally while CFLs need to be imported. There is no to Tukis that have a minimum capacity of 5 Wp with evidence of LEDs being used. On the batteries, lead-acid the subsidy amount being a uniform USD 27 across batteries are predominant. locations. As 5 Wp Tukis are priced around USD 70, the subsidy is approximately 40% of the cost. SHS are typically offered with a warranty of five years on battery and ten years on the panel. The Centre for Renewable Energy (CRE), Global Environment Fund (GEF), the United Nations Development Program’s (UNDP) Small Grants Program, Development Marketplace, Clean Energy Industry, Market analysis of : India, Bangladesh, Nepal, Pakistan, 71 Indonesia, Cambodia, and Philippines NEPAL Home Employment Lighting Program are some of the Assurance (NEPQA) standards. The standards are organizations that have promoted Solar Tukis in Nepal. specified for all the product components such as solar panel, battery, lamps, charge controllers, mounting The major objectives of these programs are to create structure for panels, cables, switches, sockets and awareness among the local community about solar off- protections. The standards are divided into two types: grid lighting, to disseminate information on UNDP/ mandatory and recommended. GEF Small Grants Program, to provide microfinance to purchase Solar Tukis and to mobilize technical manpower • Companies interested in selling their products through at the local level. the program have to get certified by AEPC to confirm that their components meet at least mandatory standards Despite low sales so far, Tukis have good as tested by the Renewable Energy Test Station (RETS), which is the government mandated testing center. market potential So far, 62 companies have been certified by AEPC to supply through the subsidy program. Affiliated to these There are an estimated 24,000 Solar Tukis installed in the qualified companies are more than 500 branches, offices, country so far. Of this, 9,176 have been sold through the dealers and agents. AEPC subsidy program (against a target of 300,000 Tukis from 2008 to 2012) and approximately 14,500 as a result • Creation of skilled manpower: AEPC provides training of the donor group’s efforts. for solar technicians who provide installation and after-sales service. Around 2,700 technicians have been The reasons for the lackluster sales of the Tukis through trained and certified so far. These technicians have to be the AEPC program are: hired by the private sector companies for any installation or servicing activity. • 3 months waiting period for quality certification of Tukis by AEPC discourages many companies • Close program monitoring: AEPC conducts field from introducing this product monitoring to verify the installation of SHS at the households. The suppliers are evaluated on different • Higher demand for SHS in comparison to Tukis: parameters such as quality of installation, performance Primary research indicates that many households of SHS, consumer satisfaction, price and financing of in remote locations live in multiple room SHS, degree of consumer awareness of using the product houses in Nepal, due to which the demand for well, after sales services and benefit to users from SHS. SHS is higher • To ensure after-sales service, 10% of the subsidy However, there are a significant number of households amount is retained by the AEPC. Based on the that would not be able to afford SHS even with subsidies supplier evaluation, the retained subsidy is deducted in and financing support. For such households, Tukis can be proportion to the suppliers’ deficiency in fulfilling the an effective lighting solution. committed after-sales service. The evaluation also leads to grading of companies into three categories based on In addition to subsidy provision, AEPC has their performance. Based on these grades, companies adopted several measures to promote the are penalized (sometimes disqualified) for any non- compliance to the quality and after-sales commitments. market for quality solar off-grid lighting • Ensuring product quality: All the companies • Marketing and promotion: AEPC develops and disseminates various types of promotional material such supplying SHS (or Solar Tukis) through AEPC as informational booklets on SHS, Tukis and the SSP. have to adhere to the Nepal Photovoltaic Quality The SSP is also promoted on radio and TV. 72 Lighting Asia: Solar Off-Grid Lighting However, the program has challenges that Efforts are underway by AEPC to establish a need to be addressed consumer financing mechanism SHS targets are often achieved before time resulting in In 2009, AEPC piloted a new model for credit financing the market getting capped: For example, the SSP Phase 1 of SHS called ‘Credit Financing SHS - 2065.’ Partner target was 40,000 SHS to be installed during the period organizations for this project are Winrock International, 1999 to 2004. However, this target was achieved much SKBKS[48] and the National Cooperative Federation. The earlier by 2002-03. Similarly, the target for 2010-11 was objectives of this pilot are two-fold: initially 50,000 SHS. Despite the AEPC extending it to 65,000 this has also fallen short of the demand. Therefore, • Enhance the capacity of selected Local Financial it has now stopped accepting subsidy applications due to Institutions (LFIs) to provide loans for SHS installation an exhaustion of funds. • Facilitate linkages between commercial/development In such a situation, it is difficult for companies to sell banks, LFIs and solar companies because consumers wait for the release of the next subsidy round. Also, the supplier faces risk of financial loss if the The pilot, launched in 6 districts, was successful, as banks sales are made on expectations that the subsidy will be provided wholesale loan to LFIs, which in turn financed provided by AEPC and the subsidy window gets closed. consumers for purchasing SHS. In 2010, the number of districts was expanded to 14 and the number of LFIs Three months wait time for approval of Solar Tukis: offering loans increased to 43. The cumulative number of According to AEPC norms, the Tukis have to be certified systems installed under the program so far is 3,500. The to qualify for subsidy, which takes at least 3 months. This pilot is expected to run until September 2011. duration is in contrast to SHS, where the testing is done at a component level and monitoring is done on a sample, The most encouraging aspect of this pilot is that even when post installation. Solar Tuki importers / suppliers are the subsidy funds were depleted, some of the consumers discouraged with the 3 months wait time due to the risk started to purchase SHS on loans without the support of a of product rejection by AEPC. To compound this, their subsidy. Though there were only 50 such consumers at the working capital gets tied up and there is a delay in their time of writing this document, this shows that the program order-sales cycle. if promoted and implemented effectively, could succeed in creating a market that is not subsidy-dependent. Delay in the release of subsidies: Ideally, AEPC is supposed to release the subsidies to the manufacturers Plans are to expand the pilot into a program covering all within 21 days of application from the companies. Due off-grid locations in Nepal with MFIs and rural banks to the scarcity of funds, the process sometimes takes 2 to also being included. With the Central Bank of Nepal 3 months. The companies face working capital issues due issuing circulars to include lending to RE under priority to this delay. sector lending, a further impetus to lending activity is being provided. AEPC subsidy is likely to continue in the medium to long-term (5 to 10 years) Ace Development Bank, a leading development bank in Nepal, is working with Winrock International, the Currently, the market is extremely dependent on the Frankfurt School of Finance & Management and UNEP subsidies and there is no established financing mechanism to expand the above mentioned pilot[49]. in place yet. AEPC believes that subsidy is essential for a few more years. There could be a change in the subsidy [48] Sana Kisan Bikash Kendriya Sangh, an rural co-operative which is policy such as providing subsidies only in very remote also a local financial institution (LFI) locations. However, AEPC has not taken any final [49] Source: http://www.ace.com.np/?page=micro- decision on this at the time of writing this report. finance&modee=Contents&cms_cd=69 Market analysis of : India, Bangladesh, Nepal, Pakistan, 73 Indonesia, Cambodia, and Philippines NEPAL Solar component industry in Nepal is 4.3  Overview of regulatory environment primarily import driven Scope for the regulators to shift focus from Nearly all the major SHS components are imported. subsidy onto consumer financing Solar panels are mostly imported from India and China. Batteries are imported from India, China and Bangladesh. There is a strong focus of the AEPC on the promotion LFL are manufactured locally, but CFLs are imported. of solar off-grid lighting, mainly through subsidies and Charge controllers are locally manufactured while lanterns quality control. However, most manufacturers believe that and Tukis are imported. the irregular and inadequate subsidy is proving to be more damaging than beneficial. They believe that attractive policies on consumer financing are more likely to enhance the market of solar off-grid lighting than subsidies. Overview of regulatory environment- Nepal Impact on solar Status Impact on SHS lanterns • The inclusion of Subsidies • Market is heavily small wattage Solar • Offers up to 50% subsidy on the solar lighting dependent on Tukis in the program – Solar product price the subsidies and has provided an lighting • Currently there is no established credit irregularities in funding affordable option products financing mechanism are impacting the scale to low income households • Currently there is no subsidy, however, there is Subsidies – a government proposal for providing a subsidy • Assuming that subsidy on Kerosene comes into effect, conventional of ~ 0.13 USD per litre (up to 5 litres1 every it is not too high to negatively impact SHS / solar fuels month) to people in off-grid areas. Students to lantern adoption get subsidy on 10 litres per month Import • No import duties on • No import duty on solar photovoltaic cells, PV modules and LEDs • Lanterns are currently tariffs and modules/panels, LEDs supports local assembly imported and duties • 1% duty on batteries • No import duty on face duties • 10% ready-made solar lanterns Solar Tukis Taxation • VAT is free on components used in • Encourages manufacturers to set up more policies SHS and SSHS manufacturing assembly units Source: Literature review, Primary research 74 Lighting Asia: Solar Off-Grid Lighting 4.4  Nepal conclusion Nepal has a sizable market potential of about 3 million households. Solar off-grid lighting products would be extremely cost competitive in this market given how expensive kerosene is in the country. There is already awareness in the market of off-grid lighting solutions and private sector enterprises could leverage and build on this. There are indications that the dependence on government subsidy is going to reduce in the future, as the consumer financing pilots by AEPC and Ace Development Bank are progressing well. The increasing focus on the promotion of more affordable Solar Tukis is likely to bolster affordability further. Private sector companies have the potential to increase the effectiveness of these developments by increasing engagement with regulators, investors and other companies for promoting the market and reducing the dependence on subsidy-supported sales. Market analysis of : India, Bangladesh, Nepal, Pakistan, 75 Indonesia, Cambodia, and Philippines PAKISTAN 5. Pakistan Market Scoping 5.1  Current state of off-grid lighting The total population of Pakistan is 197 million (or approximately 11 million households). Approximately 44% of the households are off-grid with 81% in rural areas. 12.0 10.0 8.0 6.0 8.7 10.7 4.0 81% 19% 2.0 2.0 0.0 Total Rural Urban Electrification Rate (2008) 57.6% 46% 78% % of total off-grid households in Pakistan Source: International Energy Agency, Intellecap analysis Figure 5.1: Rural-urban distribution of off-grid households in Pakistan A World Bank survey[50] indicates that 30-45% of rural households in Pakistan use kerosene as a primary or secondary source of lighting. The study also indicates that 80-90% of kerosene users in rural Pakistan are off-grid. As kerosene is not a major cooking fuel in Pakistan, it is safe to assume that this usage of kerosene is used to meet lighting needs. Anecdotal evidence also suggests that in a few regions, candles are also an important source of lighting owing to the high price of kerosene. According to the survey, rural households consume approximately 2-3 liters of kerosene per month while [50] Source: Changing Patterns of Household Expenditures on Energy, World Bank, 2009 76 Lighting Asia: Solar Off-Grid Lighting urban households consume approximately 1-5 liters household expenditure[51]) by rural households and per month. As noted earlier, the majority of this USD 1-3.5 by urban households on kerosene for lighting. is consumed for lighting. At the current price of Assuming 40% of rural households and 11% of urban USD 0.8 per liter of kerosene, this suggests a monthly households[52] consume kerosene, which translates into an expenditure of USD 1.5-2 (around 2% of rural annual expenditure of approximately USD 200 million. 4.0 3.8 Kerosene consumption per month 3.0 2.6 2.6 2.1 2.2 2.0 (USD) 2.0 1.8 1.8 1.6 1.1 1.0 0.0 1 2 3 4 5 Income quintiles Kerosene consumption by rural households Kerosene consumption by urban households Source: Changing Patterns of Household Expenditures on Energy, 2009 (World Bank), Survey conducted in 2004-05, Intellecap analysis Figure 5.2: Monthly household kerosene consumption value across income quintiles (2004-05) 5.2  An overview of solar off-grid lighting market No government efforts to promote solar off- grid lighting market in Pakistan currently; past efforts have failed Currently, there is no national level program by the In 2005, AEDB launched a pilot to distribute SHS in government to promote SHSs or solar lanterns. This is rural areas. The objective of the pilot was to distribute despite the presence of the Alternate Energy Development the systems for free and collect fees to provide after- Board (AEDB), a dedicated government agency tasked sales service through a trained village representative. with the promotion of renewable energy in Pakistan. The pilot was implemented in three phases covering 68 villages. Depending on each household’s need, the [51] Based on the expenditure of lowest income quintile [52] Based on data from World Bank; 40% of rural HHs is approx. 6.5 million and 11% of urban HHs is approx. 1 million Market analysis of : India, Bangladesh, Nepal, Pakistan, 77 Indonesia, Cambodia, and Philippines PAKISTAN capacity of the systems varied from 40 Wp to 120 Wp. and under-electrified households. Though there are The monthly fees for 40 Wp, 80 Wp and 120 Wp some companies that are trying to sell lower wattage systems were USD 1.2, 1.7 and 2.3 respectively. The pilot SHS (20 Wp to 50 Wp), the outreach has been minimal. was to distribute approximately 15,000 SHS, but only 3,000 SHS were distributed. The pilot did not meet its Most solar off-grid lighting companies are interested goals for the following reasons: in working with institutional clients such as schools, telecom companies, military and housing projects, • Lack of adequate funds where large systems are installed. Another large customer segment is affluent households in urban areas, • Inadequate prior planning in the areas of after- who use SHS as a backup. sales service and fee collection mechanism Due to the limited number of companies addressing • There was no ownership by the users and as the commercial market there are only a few distribution a result, the systems were poorly maintained models followed and sales depend on ad hoc customer demand. Some companies such as Pakistan Solar Power • The users did not pay the fees as expected and Solarwell, with presence in the agriculture sector, and AEDB, due to its inexperience in look to leverage their existing distribution channels of collection and recovery; faced difficulties in agricultural equipment and fertilizers. the fee collection process Suppliers have opined that favorable policy environment • AEDB was also unable to ensure effective and coordinated industry building effort by the after-sales support government and donor agencies would help them in development of supporting infrastructure and in • Lack of autonomy to AEDB from the building a distribution channel for off-grid rural areas. government is also understood to have impeded the implementation process Huge market potential for private sector activity in solar lanterns From the donor community, the activity on solar off-grid lighting has also been sporadic. For example, donors such Primary research indicates that NGOs and donors at as United Nations Industrial Development Organization no cost or subsidized cost, as part of relief programs, (UNIDO), UNDP and Pakistan Poverty Alleviation have distributed most of the lanterns currently Fund have been distributing solar lanterns as part of their used by off-grid households. This has led to some rehabilitation initiatives in the country. market distortion. Based on our interactions with some business practitioners in Pakistan, there is no Very few solar companies are catering to the evidence of companies selling lanterns commercially to rural off-grid areas consumers today. There are no reliable estimates available on the solar This implies that there is a huge untapped market off-grid lighting market penetration. Primary research potential for solar lanterns arising out of more than 10 indicates that the market penetration in rural areas is million off-grid households and its cost-competitiveness nearly zero in comparison to the number of off-grid against unsubsidized kerosene. 78 Lighting Asia: Solar Off-Grid Lighting Within the limited rural off-grid SHS market, 20 Wp and 50 Wp SHS sell the most 20 Wp and 50 Wp are the most commonly sold SHS Some manufacturers provide a three-year warranty on in the rural areas. SHS price varies from USD 250 maintenance batteries (that require regular maintenance (for 20 Wp) to USD 700 (for 80 Wp). Comparison of by the consumer or after-sales service representatives) different SHS is available in the market. (Figure 5.3) whereas some offer only one year warranty in case of maintenance-free batteries. In terms of technology used in the systems, lead acid batteries are dominant. CFLs and LEDs are equally used for lamps. 800 700 80 Wp 3 CFL lamps, Fan, TV 600 50 Wp 500 Price (USD) 4 CFL lamps, mobile charging 400 300 30 Wp 2 CFL lamps, mobile charging 20 Wp 200 2 LED lamps, mobile charging 100 0 0 10 20 30 40 50 60 70 80 90 Panel Wattage (Wp) Source: Primary research, Intellecap analysis Figure 5.3: Mapping of product features and prices of SHS Small-scale pilots are underway to provide consumer financing for SHS The Deutsche Gesellschaft für Internationale Different products will be offered under the pilot, ranging Zusammenarbeit (GIZ) is partnering with Tameer Bank, from 30 Wp to 90 Wp. The target customer segment for a microfinance bank in Pakistan, to launch a pilot for a 30 Wp product would be households with a monthly promoting SHS through provision of micro-credit. The income of approximately USD 45-70. The following pilot is expected to begin in 2011 in the Punjab region credit terms would be offered to the consumer: with targeted installation of 20,000 SHS in the first 2 years. Tameer Bank will leverage 100 of its existing • Interest rate on the SHS loan would be at least customer touch points for this pilot. 35% per annum • Loan tenure of 3 years Market analysis of : India, Bangladesh, Nepal, Pakistan, 79 Indonesia, Cambodia, and Philippines PAKISTAN • Approximately USD 35-45 (approximately 10% are both imported (from China) and locally procured, of the product price) would be down payment some importers have expressed concerns on the quality for a 30 Wp product of the locally made batteries and therefore prefer to have them imported. Tameer Bank plans to launch a company called Green Technology. This company will ensure the supply, sales 5.3  Overview of regulatory environment and after-sales of service of the SHS. There is a need for favorable policy The interesting aspect of this pilot is that the operating environment; reduction of import duties model is similar to that of the IDCOL program in on PV panels is a priority Bangladesh to the extent that the supply and financing of SHS is undertaken by the same organization. The pilot No subsidy on kerosene, no import duty on some key is yet to be implemented and its effectiveness needs to be components and VAT exemption on SHS components seen. The success of the pilot will enable organizations are among the progressive policies in Pakistan that such as Tameer Bank to invest in this market more are helping the sector. Primary research indicates aggressively, and more importantly, it will create a that though AEDB has recommended the waiver of demonstration effect in Pakistan. import duties, the customs department in the country continues to levy 30-35% import duties on PV panels SHS components are entirely imported, but and 15% on assembled SHS and solar lanterns. SHS are assembled in Pakistan The lack of political stability has also been thwarting Manufacturers rely on imports for the product the prospects of private investments into the country components and assemble SHS locally. The solar panels in general, and by extension, the solar off-grid lighting are primarily imported from Japan, China and Germany industry as well. whereas LEDs are imported from China. While batteries Overview of regulatory environment- Pakistan Impact on solar Status Impact on SHS lanterns Subsidies – • High kerosene prices offer an opportunity for conventional • No subsidy is offered on Kerosene consumers to evaluate alternative options such as fuels solar for lighting Import • 32% import duty levied on solar photovoltaic • Import duties on PV modules increases the cost of cells modules/panels overall SHS or a lantern and raises the affordability tariffs and • 0% on LEDs barrier. There is an opportunity to decrease the panel duties • 10% duty on batteries cost by 20% if the import duties are not levied on • 15% ready-made solar lanterns solar panels • Though SHS suppliers are exempt from VAT, they Taxation • VAT is free on components used in SHS need to pay General Sales Tax of 17%, which the policies • General Sales Tax of 17% is applicable suppliers consider very high Source: Literature review, Primary research 80 Lighting Asia: Solar Off-Grid Lighting 5.4  Pakistan conclusion Despite its nascent market, Pakistan holds a promising market given its large off-grid population. The high kerosene prices mean that kerosene usage for lighting is an expensive proposition for the rural and low-income off-grid households. Therefore, the cost-effectiveness of solar lighting would be far higher in Pakistan compared to other countries where kerosene is heavily subsidized. The emergence of industry associations such as the Renewable and Alternative Energy Association of Pakistan and new ventures such as Tameer Bank’s consumer financing pilot are an indication that private sector activity in the market has potential. Private sector enterprises need to create and spread consumer awareness widely about solar lighting products in rural areas to drive demand for such products. They must also vigorously engage with policymakers to reduce or remove import duties on PV panels and solar lanterns. An industry association should work closely with the government for a favorable regulatory environment to support the growth of the solar off-grid lighting industry. Market analysis of : India, Bangladesh, Nepal, Pakistan, 81 Indonesia, Cambodia, and Philippines INDONESIA 6. Indonesia Market Scoping 6.1  Current state of off-grid lighting Indonesia is a large archipelago of islands with a total or 20 million households are currently off-grid. 91% of population of approximately 231 million people these households are located in rural areas and remote (or 57 million households[53]). Of this, an estimated 35% islands such as Nusa, Maluku, and Papua.[54] In these areas, the electrification rate is just 32%. 20 Number of off-grid households 91.1% (Mn) 10 20 18 8.9% 2 0 Electrification rate Total Rural Urban (2008) ~65% 32% 94% % of total off-grid households in Indonesia Source: International Energy Agency, Intellecap analysis Figure 6.1: Rural-urban distribution of off-grid households in Indonesia [54] The electrification rates on remote islands such as the islands of [53] Source: International Energy Agency Nusa, Maluku, and Papua are very low ranging from 20 to 50% 82 Lighting Asia: Solar Off-Grid Lighting Remote areas unlikely to be on-grid in the Kerosene, heavily subsidized in Indonesia, is near future due to unviable economics a major source for lighting in off-grid areas; over USD 0.5 billion is spent on kerosene for As per government estimates[55], 40% of the off-grid lighting annually villages today, largely located outside of Java, are unlikely to be reached by the national electrification grid owing Kerosene is heavily subsidized and is available for to their remoteness and the scattered population.[56] approximately USD 0.27 per liter. Though there have been efforts to provide electricity through diesel genset mini-grids, due to the nation-wide A 2005 survey by the World Bank estimates that uniform electricity tariff applied by the government, these approximately 80-90% of the rural and urban households mini-grids have incurred losses and discouraged private across income quintiles consume kerosene. Furthermore, sector participation. Under these circumstances, the solar the study found the monthly consumption of kerosene off-grid lighting systems such as lanterns and SHS are an for lighting varies from 2-5 liters in rural and 4-6 liters in appropriate solution. urban households[57]. The total expenditure on kerosene by off-grid and under-electrified households for lighting is estimated at approximately USD 0.56 billion[58]. This translates to around 2% (USD 1 per household) of the monthly rural household expenditure. [57] Source: Changing Patterns of Household Expenditures on Energy, World Bank, 2009 [58] Calculated as total kerosene consumption of 8.18 billion liters, [55] Source: Perusahaan Listrik Negara (PLN), the largest energy 25% of which is used for lighting. Current kerosene price stands at provider in the country approximately USD 0.27 leading to total expenditure of approximately [56] Source: Indonesia Energy Assessment. USAID, November 2008 USD 0.56 billion on kerosene by off-grid households Market analysis of : India, Bangladesh, Nepal, Pakistan, 83 Indonesia, Cambodia, and Philippines INDONESIA 300 ~264,000 250 1.3% Number of SHS ‘000 200 150 100 77 75 50 41 37 31 2 0 2005 2006 2007 2008 2009 2010 SHS units Cumulative Market penetration in Indonesia Note: 2010 number is based on estimates. Primary research indicated 50,000-100,000 SHS installed Source: Primary research, AFEEC – FAPECA meeting, Kuala Lumpur Figure 6.2: Number of SHS installed trough the government tender scheme 6.2  An overview of solar off-grid lighting market SHS market is driven by the government’s rural electrification program Under the rural electrification program, the government tenders. The most common product distributed is the procures SHS from local companies and provides 50 Wp SHS with a 6W fluorescent lamp and a 70 Ah them to a limited number of households for free. lead acid battery. The Laboratorium Sumber Daya Energi (LSDE)[59], a government body, accredits the products procured An estimated 260,000 SHS have been installed through tenders/bids, while the suppliers are responsible under the government scheme, constituting a market for installation and training of the local technicians to penetration of only 1.3%. ensure after-sales services. The costs for providing these services are included in the cost quoted to the government The government program faces many issues, mainly arising out of the lack of ownership by beneficiaries, the lack of after-sales service and maintenance and inadequate [59] A governmental organization engaged in the field of energy to assist monitoring and evaluation by the implementing agencies. the government in national development 84 Lighting Asia: Solar Off-Grid Lighting Commercial models for SHS are emerging outside the government program Most of the solar off-grid lighting companies targeting the off-grid lighting companies would partner with large BOP segment sell SHS through the government tender agri-based companies, who would deliver products to process and other donor programs. Other companies farmers and deduct payments from the crop payments target the more affluent urban classes and institutional made to them. SHS dealers such as PT Mambruk clients with some stating that they would not go into rural Energy International and Shell Solar Indonesia areas because of the government program and the market have already demonstrated retail sales amongst distortions created by it. palm oil farmers. However, a few companies are trying to reach out to TERI solar multi utility (SMU) program: TERI has rural customers in a commercial way. One example is partnered with PT Azet has piloted a program based of a major importer of solar panels that has 95% of its on the LaBL rental program in India and currently SHS sales through the government program. It now aims has three installations in Bandung province. The to pilot commercial sales of a 20 Wp product (priced program seeks to leverage the large number of solar at approximately USD 220) and build a network of panels lying idle in the country as a result of failed technicians to overcome servicing and maintenance issues. government programs. By leveraging this infrastructure, each of the SMUs would generate electricity to No established market for solar lanterns yet charge approximately 10 lanterns and provide lighting to 10 households. Currently, the government program does not include solar lanterns, and in Intellecap research, we have not Each of the SMUs would be managed by a local come across any private sector or donor-led initiative that entrepreneur who would receive a daily rental fee for is promoting solar lanterns. Industry experts point to a renting out lanterns (currently USD 0.10-0.15/lantern/ significant presence of a black market for solar lanterns day) and would also provide after-sales services. TERI leading to quality concerns, and indicate that there is an believes that there is potential to setup 200,000 SMUs opportunity for enterprises with good quality lanterns to in the country at a cost of USD 90 million (Cost/SMU enter the market. is USD 450). TERI believes that this model will address the issue of inefficient after-sale services today and mobilize local banks to provide financing to companies Upcoming programs hold promise to and entrepreneurs[60]. commercialize SHS and lantern market There have been some significant donor-backed efforts to PV panel market in Indonesia is completely promote solar off-grid lighting that have not succeeded. import driven Some new efforts are being tried that hold promise: With the exception of one company, PT Len, that UNEP payroll deduction program: This scheme is produces PV modules locally, almost entire demand for mainly targeted at palm oil farmers as they often have PV modules is imported. Batteries, charge controllers a stable and regular income. Under this program, solar and DC lamps are however produced locally. [60] Source: Scoping Mission Report – Indonesia under Solar Lantern Working Group, TERI, March 2010 Market analysis of : India, Bangladesh, Nepal, Pakistan, 85 Indonesia, Cambodia, and Philippines INDONESIA Solar lending to end-consumers nearly non- 6.3  Overview of regulatory environment existent despite a strong MFI sector Subsidized kerosene and free The microfinance sector in Indonesia possesses a SHS distribution are the biggest strong infrastructure and expertise in urban and semi- regulatory hurdles urban areas. However, its reach in rural areas is low, limiting the ability to extend credit to off-grid households Following is a snapshot of the regulatory issues impacting in remote areas of the country. MFIs in Indonesia solar off-grid lighting in Indonesia. collateral with land records being the most commonly used instrument. Solar off-grid lighting products are not accepted as collateral[61]. A past pilot project by Bank Rakyat Indonesia (BRI), a leading MFI, Shell Solar and PT Mambruk International faced issues due to low consumer densities in rural areas leading to distribution, after-sales and payment collection challenges. In addition to this, customers perceived the down payment as too high and moreover, market distortion by free distribution by the government led to the initiative’s failure. Overview of regulatory environment- Indonesia Status Impact on SHS Impact on solar lanterns Financing • Leading to market support • Free dissemination of Solar Home Systems distortions, inhibiting • Government tenders – Solar to end-consumers as part of the rural engagement of do not include lighting electrification program private sector players to solar lanterns products grow market Subsidies – • Kerosene is heavily subsidized and is available • The subsidized kerosene price makes solar lanterns and conventional at USD 0.27 per liter (subsidized) solar home systems less competitive fuels Import • No import duties on solar panels tariffs and • No import duty on • Duties of 5-10% on solar lanterns • Lanterns are imported; duties/ solar panels encourages • Duties of 5-10% on charge controllers market is too small Taxation local assembly • VAT 10% policies [61] Source: Reinforcing provision of Energy Services in Bangladesh and Indonesia for Poverty Alleviation and Sustainable Development, RENDEV and IT Power 86 Lighting Asia: Solar Off-Grid Lighting 6.4  Indonesia conclusion With over 20 million off-grid households, Indonesia offers the second largest market potential for solar off-grid lighting products in Asia after India. The government has been attempting to address the lighting need by distributing SHS freely, but it has managed to cover mere 1.3% of the off-grid households. The need and opportunity for private sector intervention is clear. The favorable import duty allows companies to manufacture the products affordably. Commercial models such as PTBBM and the UNEP payroll deduction program are pioneering efforts to provide solar lighting in rural Indonesia. Private sector enterprises entering Indonesia should look to leverage the strong MFI presence to reach out to the masses and scale up rapidly. Market analysis of : India, Bangladesh, Nepal, Pakistan, 87 Indonesia, Cambodia, and Philippines CAMBODIA 7. Cambodia Market Scoping 7.1  Current state of off-grid lighting Cambodia has a low electrification rate of 24%; kerosene and batteries are the dominant lighting sources in off-grid areas Cambodia has a population of approximately 15 million Under the Master Plan for Rural Electrification, people (or 2.9 million households) and has the lowest the Government plans to electrify approximately electrification rate amongst the countries in this report, 872,000 households in approximately 14,000 villages at just 24%. Cambodian households have very limited by 2020. However, this would cover less than 40% of access to electricity and clean energy with the majority the off-grid households in Cambodia today, estimated at depending on kerosene and batteries for lighting. 2.2 million households. 99% 100% 80% % of households 62% 60% 45% 42% 40% 38% 36% 24% 24% 20% 14% 11% 2% 0% 0% 1% 0% 2% 0% Cambodia Phnom Penh Other urban Other rural Electricity Battery Kerosene Others Number of ~2.94 Mn ~0.26 Mn ~0.29 Mn ~2.39 Mn households Note: 1. Electricity includes on-grid public and private generated electricity 2. Other includes candle, etc. Source: Housing Conditions 2007 (NIS) , Intellecap analysis Figure 7.1: Distribution of households by primary source of lighting (2007) 88 Lighting Asia: Solar Off-Grid Lighting Image courtesy of Yejj Solar/Barefoot Power (Photo D Pacheo) Market analysis of : India, Bangladesh, Nepal, Pakistan, 89 Indonesia, Cambodia, and Philippines CAMBODIA Kerosene and batteries are the key off-grid lighting sources An estimated 1.06 million households in Cambodia are believed to be using kerosene as their primary source for lighting while 1.12 million households are using batteries as their primary source for lighting (Figure 7.1). The high percentage of households relying on car batteries is unique to Cambodia, when compared to the other six countries analyzed in this report. A survey conducted by UNDP Cambodia in 2006 shows that households are using a combination of kerosene and batteries for lighting. Also, income levels are directly linked to the households’ ability to use either or both kerosene and batteries. For lighting, poorer households predominantly use only kerosene, whereas higher income households with higher energy needs, use batteries. USD 112 million is spent annually on off-grid lighting Battery Bank in Cambodia Image courtesy of Kamworks With 90%[62] of kerosene consumed by households for entrepreneurs, charging approximately 90-100 cents/Kwh, lighting, at the current price of approximately USD which is over five times the cost of electricity supplied 0.74 per liter, an estimated USD 60 million is spent on through the national grid[65]. These BCS also create a kerosene for lighting. This leads to an average household heavy environmental impact, producing an estimated monthly expenditure of approximately USD 2.7 153,337 tons of CO2 annually[66]. (approximately 4.9% of rural household expenditure[63]) or consumption of approximately 3.6 liters per month.[64] Consumers spend approximately USD 2.5 per month (approximately. 4.5% of rural household expenditure) to After kerosene, second most dominant sources of energy charge the battery for about five times. While 1.12 million in rural Cambodia are battery banks. In general, 50 households are using batteries as their primary source of ampere-hour (Ah) battery is used for home lighting, 70 lighting, an additional 0.62 million households[67] are Ah for lighting and TV, and 100 Ah for also running estimated to use batteries as a secondary source of lighting, video players. when the primary source is pre-dominantly grid or mini- grids. This leads to an estimated annual expenditure of over USD 52 million on battery charging. Over 13,000 villages in Cambodia are covered by battery charging stations (BCS). These BCS are run on diesel generators and are operated by local [65] Tariff set by Electricité du Cambodge (EDC) varies from USD 9 to [62] Residential energy demand in rural Cambodia; Source: UNDP USD 23 cents/kWh Cambodia [66] Based on: http://sgp.undp.org/web/projects/12855/solar_battery_ [63] Based on the expenditure of lowest income quintile charging_project.html [64] Calculated as USD 60 million spent per annum on kerosene [67] Approximately 73 % rural HHs and 6% of urban HHs are using divided by the total of 69% of rural households (approximately 2.5 Battery based on survey of 2,000 HHs conducted in Svay Rieng and million) and 24% of urban households (approximately 441,000) Kampong Speu by UNDP 90 Lighting Asia: Solar Off-Grid Lighting 7.2  An overview of solar off-grid lighting market The market for modern off-grid lighting in Cambodia is nascent… Companies such as Khmer Solar, Solar Energy Cambodia This is leading to a major loss of trust among the rural and Comin Khmere mainly supply SHSs catering to population about the benefits of solar off-grid lighting middle-higher income segments, institutions and to and is resulting in market spoilage. Currently, there is no donor programs. Only a handful, such as Kamworks and agency regulating quality issues of solar off-grid lighting Yejj Solar, are directly targeting the BOP with innovative products or certifying imported products. products and distribution models. The main challenges they face are the lack of efficient distribution channels and 40 Wp and 80 Wp SHS are the most popular lack of access to finance. SHSs available targeting the rural affluent and rural rich Primary research indicates that only approximately 10,000-20,000 SHSs and less than 10,000 solar lanterns have been installed in Cambodia so far. Based The retail price of SHS in Cambodia ranges between on estimates, the penetration rate of solar off-grid USD 7-9 per Wp. lighting products in Cambodia is extremely low, standing at 1-1.5%. As shown in the Figure 7.2, solar lighting companies are targeting the rural affluent and rural rich households Due to this low market penetration and issues in technical earning an annual income of above USD 1,100. The competence, availability of skilled staff and investment very poor and poor households are currently not a target issues, there is minimal local manufacturing capacity in segment for the SHS. Cambodia. Product components are primarily imported and then assembled locally. In the case of solar lanterns, Solar lanterns from professional companies they are almost entirely imported. Kamworks is the sole are available for USD 15 to 25 company that assembles its lanterns locally. While the majority of the lanterns available in the market …and a large presence of sub-standard are of poor quality and smuggled into the country, two products major organized enterprises focusing on low-income segments are Yejj Solar, which imports Barefoot Power Interviews with major stakeholders indicate that the products for distribution, and the locally assembled majority of SHS and solar lanterns sold in the market MoonLight lantern by Kamworks. today are sub-standard, often smuggled in from China. Primary research indicates that the presence of sub- Most products are sold for cash; however, Yejj and standard products is as high as 50% for the SHS market Kamworks are piloting rental and MFI partnership and even higher for solar lanterns. models to provide energy access to households that cannot afford the upfront cost of the product. Market analysis of : India, Bangladesh, Nepal, Pakistan, 91 Indonesia, Cambodia, and Philippines CAMBODIA 700 600 500 SHS price (USD) 400 300 200 100 0 0 20 40 60 80 100 Panel wattage (Wp ) Source: Primary research, Intellecap analysis Figure 7.2: Retail price of SHS available in Cambodia Private enterprises have piloted various On Consumer Financing: market-building approaches Yejj Solar partnership with Vision Fund Yejj is partnering Most initiatives by private enterprises to address with Vision Fund, an MFI, to offer access to finance for issues such as financing, consumer awareness, and both end consumers and rural entrepreneurs willing to accessibility are currently in the research and pilot act as agents of SHS products it sells. Further, there is stages. Kamworks is at the forefront of piloting ACLEDA Bank and Local Capacity Builder (LOCAB)[68] various market approaches in Cambodia to increase partnership. With over 230 branches across the country its outreach to low-income segments. of which approximately 75% are located in rural areas, ACLEDA Bank has recently entered into a Memorandum of Understanding (MOU) with the NGO LOCAB. LOCAB would provide technical expertise and after- sales maintenance of the systems while ACLEDA would provide the financing[69]. [68] Local Capacity Builder (LOCAB) is a non profit organization founded in 1997 that works on the promotion of solar technologies in the country [69] Primary research 92 Lighting Asia: Solar Off-Grid Lighting Image courtesy of Kamworks (Mathieu Young) On Improving Accessibility and Servicing: Rental models: These are also being tested where rural Kamworks partnered with PicoSol in setting up a training entrepreneurs are renting out lanterns on a daily basis, facility – “The Solar Campus”. The facility provides recharging these lanterns with solar or diesel powered trainings on solar energy. Kamworks also offers a discount charging stations as detailed below. of USD 15 on its SHSs if the customer participates in a training course. On Creating Consumer Awareness: On SME Financing: To address the consumer awareness issue Yejj Solar, selects NGOs with a track record of at least five years to provide The lack of SME financing is one of the major barriers training to the local entrepreneurs, who then sell lanterns in Cambodia. Normally solar off-grid lighting companies to their communities. have to pay 18-20% in interest rate and also have to deal with high collateral requirements (up to approx. 200% of Kamworks implements various marketing initiatives the loan amount). The solar components and products are such as educational games and school campaigns to not accepted as collateral. improve consumer awareness. It also has a sales team of approximately 25 people who engage with the village chiefs and pitch to wealthier households in each village. Market analysis of : India, Bangladesh, Nepal, Pakistan, 93 Indonesia, Cambodia, and Philippines CAMBODIA Kamworks case study MoonLight rental scheme Kamworks, a solar off-grid lighting start-up, is experimenting with a MoonLight rental scheme since 2009, whereby village entrepreneurs are renting out solar lanterns at rates matching daily kerosene expenditure. So far, approximately 130 lights have been provided through three locations. Kamworks is collaborating with Pico Sol in a project called Enabling Access to Sustainable Energy (EASE) supported by ADB’s Energy for All program, which aims at scaling up the MoonLight village entrepreneur rental scheme. 94 Lighting Asia: Solar Off-Grid Lighting Rural Electrification Fund (REF) is the key donor program in the country Solar Guarantee Fund: Kamworks and Pico Sol (an The World Bank, under its Energy Sector NGO) are currently developing a solar guarantee fund for Management Assistance Program (ESMAP), solar lantern entrepreneurs thereby facilitating access to formulated the Rural Electrification Fund in 2004 finance for them. to electrify 12,000 households with SHS. As part of its design, the Fund was to provide financial Financing solar off-grid lighting entrepreneurs: Amret assistance for the installation of 12,000 SHS with the Microfinance and ACLEDA Bank are financing support of a USD 100 grant per SHS of a minimum entrepreneurs in setting up BCS. Between them, they capacity of 40 Wp. have financed over 400 entrepreneurs operating these stations. While these banks have also financed solar Despite the grant facility, the program did not SMEs, the scale of financing is unknown. achieve its intended target; only approx. 95 SHS were Image courtesy of Yejj Solar/Barefoot Power (Photo D Pacheo) Market analysis of : India, Bangladesh, Nepal, Pakistan, 95 Indonesia, Cambodia, and Philippines CAMBODIA Image courtesy of Kamworks (Mathieu Young) distributed through this facility. Lack of credit financing of 50 Wp and approx. 10% of 30 Wp) in bulk from a for the consumer was the key reason for its failure as private sector company that will also be responsible for it was difficult for most rural households to afford a installing them. The households will be selected from USD 400 SHS even with a USD 100 subsidy. areas that are not likely to be connected to the wider grid in the next 3 to 5 years. They will have the choice to To address the issues with the program design, the pay in full upfront or in interest free installments over a program has recently been restructured. Under its new period of maximum five years and are also entitled to the design, the Fund will procure 12,000 SHS (approx. 90% original USD 100 subsidy under the program. 96 Lighting Asia: Solar Off-Grid Lighting Image courtesy of Yejj Solar/Barefoot Power (Photo D Pacheo) Additionally, the REF will also select an organization for the supervision and maintenance of the SHS (post responsible for marketing the Rural Electrification Fund warranty period) as well as payment collection of the program and creating greater awareness on the benefits monthly installments. The Fund is designed to be a of solar off-grid lighting among the rural population. revolving fund, whereby the collected payments are used Further, a third-party private company will be responsible for procurement of additional systems at a later stage. Market analysis of : India, Bangladesh, Nepal, Pakistan, 97 Indonesia, Cambodia, and Philippines CAMBODIA 7.3  Overview of the regulatory environment High import duties and taxes are the biggest regulatory hurdles for the industry High duties on components (35%) and favorable import obtain special tax cuts, SHS providers would need to have duties (7%) for solar lanterns discourage companies from a minimum investment of USD 1 million, which only a assembling products locally and promote the import of very small number of companies have today. completed products. To counter these issues, select companies in the country In addition to high duties on electronic components, the are contemplating setting up an Association of Solar Off- cost of doing business in Cambodia is a heavy burden for grid Lighting Companies to lobby with the government smaller local companies. Primary research indicates that on policies and address major issues including lack of companies have to pay high fees for procuring customs awareness and market spoilage with sub-standard products and clearance documents, further increasing the end smuggled into the country. consumer price of solar off-grid lighting products. To Overview of regulatory environment- Cambodia Status Impact on SHS Impact on solar lanterns Financing support • REF has been set up however has not yet • Impact of the REF is yet • No financing support – Solar disbursed subsidies on SHS to be seen for lanterns lighting products Subsidies – • Current price of kerosene is • Kerosene price is not subsidized making the usage of conventional USD 0.74 per litre; subsidies solar lanterns and solar home systems more competitive fuels are not available • 7% duty on solar • 7% import duty on solar lanterns • The import duties on solar panels have Import panels, need for a further • High import duties for been recently brought down, however, there reduction in rates finished products tariffs and is still scope for further reduction. Other • Difficult to prove that • Difficult to prove duties duties include 15% for batteries, 15% for LEDs, are components of that LEDs, are plastic, 35% for electronics SHS and don’t fall under components of SHS • 7% duty on solar lanterns “electronics” duties and don’t fall under “electronics” duties • To obtain special tax • 10% Value Added Tax cuts for SHS providers, Taxation • High taxes and cost of doing business a company has to have policies (~USD 200-500 for customs and a min. investment of clearance document) USD 1 Mn to fall under this category Source: USDAID SME Development Framework, Primary research. Customs Department of Cambodia 98 Lighting Asia: Solar Off-Grid Lighting 7.4  Cambodia conclusion Cambodia holds significant potential for solar off-grid lighting with an electrification rate that is merely 24%, lowest among the seven focus countries. Despite the government’s aggressive rural electrification plans, it is estimated that about 50% of the households will still remain off-grid by 2020. Most of the off-grid households use either batteries or kerosene for lighting today. The off-grid households, on average, spend more than USD 30 per annum on these sources for lighting. There are companies selling solar lanterns priced at USD 15-25 aiming to displace the kerosene and battery based lighting with solar off-grid lighting. However, the market faces a threat from the high influx of poor quality products. Enterprises need to ensure that the consumers are educated about the importance of the product quality. There are ongoing efforts by the private sector to spread consumer awareness along with efforts to improve distribution, after-sales service, consumer financing and SME financing through collaborations. Market analysis of : India, Bangladesh, Nepal, Pakistan, 99 Indonesia, Cambodia, and Philippines PHILPPINES 8. Philippines Market Scoping 8.1  Current state of off-grid lighting The Philippines has a population of approximately there is still a sizeable off-grid population comprising 90 million (or 19 million households) and has an of 2.5 million households. 86% of these households electrification rate of 86%, which is very high in are located in rural areas where the electrification rate comparison to the other countries in this report. However, drops to 65%. 3 Number of households (Mn) 2 2.5 85.9% 1 2 14.1% 0.4 0 Electrification rate Total Rural Urban (2008) 86% 65% 97% % of total off-grid households Source: International Energy Agency, Intellecap analysis Figure 8.1: Distribution of off-grid Households in the Philippines (2008) Total annual expenditure on kerosene for 8.2  An overview of solar off-grid lighting is USD 180 million lighting market Based on a 2004 survey[70], 44% of the Filipino There are few enterprises in the solar off-grid lighting households (off-grid and under-electrified) use kerosene market – across solar lanterns and SHS. Key suppliers for lighting. At the current price of approximately of SHS in the Philippines are Pamatec, Gendiesel, Del USD 1 per liter of kerosene, the total annual expenditure Genta, Adtel Incorporated and SURE. on kerosene for lighting is estimated at USD 180 million. Compared to the SHS market, the lantern market is even smaller. Hybrid Solutions and Barefoot Power are considered to be the major enterprises here. Their products are being sold to households – both off-grid and under-electrified. There are also some occupations such as street hawkers and fishermen that are being targeted by the companies. As in other countries, there is a presence of sub-standard, cheap, imported lanterns in the country. [70] Sources: Household Energy Consumption Survey, National However, the extent of their usage is difficult to estimate. Statistics Office, Philippines. 2004 100 Lighting Asia: Solar Off-Grid Lighting Companies are mainly dependent on government and donor programs In the SHS market, a majority of the sales happen In the solar lantern market, it is estimated that over through public-private partnership programs such as the 7,000 lanterns have been deployed, of which nearly 3,000 World Bank-funded Rural Power Project (RPP), Project have come from the RRP program. Solar lanterns used BEACON[71], AMORE[72]. Across these programs, an to receive a government subsidy of USD 35 per lantern estimated 40,000 – 50,000 SHS have been deployed so far and a GEF grant of USD 2.5 per Wp. However, this was in the country. The different programs support these sales terminated in October 2009. in two ways: • Grant is given for free distribution of SHS. The customer is then made to pay for the SHS Lease-to-own is an important distribution received through a lease-to-own model. model for SHS in the country • High levels of subsidies are given for the Unlike in other countries, the lease-to-own model has purchase of SHS. been used by several prominent programs - AMORE, RPP, Solar Power Technology Supports Program For example, in the RPP program, the government (SPOTS)[74], Philippines Rural Electrification Service provides subsidies of USD 180 on a 20-30 Wp and Project (PRES)[75], PNOC SHS Distribution Project[76] USD 90 on a 30-50 Wp range SHS and does not provide for SHS sales in Philippines. anything for systems above 50 Wp. Additional subsidies are received from GEF which credits subsidies based on This model has faced challenges due to the lack of wattage and provides approximately USD 2.5/Wp for ownership by most users. Their incentive to pay the lease a 20-50 Wp SHS and approximately USD 1.5/Wp for amount as well as to ensure proper maintenance and 50-100 Wp and nothing for systems above 100 Wp[73]. usage of the SHS have been low. The lack of adequate Through these subsidies, an amount as high as 40-50% of maintenance personnel and facilities compounds the the system procurement price is funded. The program was issues faced by this model, as well. terminated in mid-2011 with no further plans to extend it. [71] BEACON – Barangay Electrification Assistance for Countryside [74] Program of the Department of Agrarian Reform (DAR) and British Development Petroleum (BP) [72] Funded by USAID [75] Program of the French Filipino Loan Protocol, implemented by the Filipino company Pamatec [73] Source: End-user Finance for Access to Clean Energy Technologies in South and South-East Asia, Frankfurt School of Finance and [76] Program of the Philippine National Oil Company (PNOC), Shell Management, January 2011 and the Dutch Government Market analysis of : India, Bangladesh, Nepal, Pakistan, 101 Indonesia, Cambodia, and Philippines PHILPPINES 20 Wp and 30 Wp SHS are the most widely sold versions non-subsidized price of the systems, available in in the country, as the government and donors had chosen Philippines, as compared to the other countries studied in them for distribution. this report is very high. For instance, a 20 Wp system in Bangladesh is available for approximately USD 165, while The 20-30 Wp products are available at a retail price in Philippines, the non-subsidized 20 Wp system ranges of approximately USD 20 to USD 27 per Wp. The from USD 450-550. 800 600 SHS price (USD) 400 200 0 0 5 10 15 20 25 30 35 Panel wattage (Wp ) Source: Primary research, Intellecap analysis Figure 8.2: Retail price (non-subsidized) of SHS in the Philippine s Case study of lease-to-own model: The USAID funded program AMORE provides energy services through SHS, PV charging stations and micro-hydro facilities. It was started in 2002. Under this program, SHS were given out on a grant basis and community organizations were set up by USAID and trained to ensure proper operation and after-sales maintenance. Households had to pay a monthly lease-to-own fee (USD 2.2) over a period of five years, covering 25% of the cost of the SHS, thereby increasing the sense of ownership. In addition, households paid USD 2.3 for battery replacement, USD 1 for technical fees and transportation costs etc. The total monthly fees amounted to USD 5.5. 102 Lighting Asia: Solar Off-Grid Lighting Consumer finance beginning to see activity As most MFIs are located in urban centers, a large section entrepreneurs – Nanays – are leveraged to sell lanterns to of the rural population lacks access to finance. This lack consumers on a consignment basis. CARD partnered with of consumer finance in rural areas has made it difficult for TERI to source and train technicians that provide after- solar off-grid lighting companies to increase their reach. sales services and maintenance. There is increasing interest in providing microcredit in rural areas as seen in two recent efforts in the country: During the pilot phase of six months, more than 300 solar lanterns had been sold for a unit price of approximately CARD partnership with SunTransfer and Barefoot USD 70-90, 70% of which were sold through solar loans. CARD aims to increase its network to over 30 CARD has entered into a partnership with SunTransfer community stores in the near future. and Barefoot to sell their respective solar lanterns through the wide network of Hapinoy community stores. Female SunTransfer ADB Barefoot Capacity building Local purchase of imported lanterns Import of CARD through Hystra lanterns Solar lanterns on consignment Hapinoy / Community TERI Hapinoy Store Community Stores Training Nanays Solar loans for CARD Sale of lanterns on cash eligible borrowers MRI1 End Users Note: 1. CARD Mutually Reinforcing Institutions  Source: Primary and secondary research Figure 8.3: Schematic of CARD partnership with SunTransfer and Barefoot Market analysis of : India, Bangladesh, Nepal, Pakistan, 103 Indonesia, Cambodia, and Philippines PHILPPINES Paglaum Multi-Purpose Cooperative and 8.3  Overview of the regulatory environment Gendiesel partnership While the government and donor programs are Paglaum Multi-Purpose Cooperative (PMPC), a large encouraging only a few selected private sector enterprises, cooperative with approximately 40,000 members, has and the subsidy, being offered, only for certain product partnered with Gendiesel through the RPP. PMPC specifications, the programs end up hampering private offers solar loans of USD 250 to 350 for a 20 Wp sector enterprises from innovating both on products and and 30 Wp SHS at a monthly interest of 2.5% and business models. With the system prices in the Philippines loan term of 2 years. It has so far sold approximately much higher than that in other countries, the effectiveness 40 SHS of Gendiesel. The cooperative is targeting to of the subsidy program and the focus of the government install another 200 SHS in 2011. It is also partnering on promoting competitive products come into question. with Hybrid Solutions to distribute lanterns and has so far sold approximately 100. Solar panels, charge controllers and fluorescent lamps for both SHSs and lanterns are mainly imported often from China, however batteries are locally produced. Import duties on solar photovoltaic cells, modules, panels and LEDs are quite low, thus encouraging local assembly of SHS. The import tariffs for solar lanterns vary from 5%-7%. VAT of 12% is considered high, and companies are lobbying with the government to remove VAT on solar systems. Overview of the regulatory environment- Philippines Status Impact on SHS Impact on solar lanterns • Supporting presence Financing of few private sector support • The market is dominated by government players to serve the low • No current impact as – Solar and donor funded programs providing income segment the subsidy for lanterns lighting subsidies on SHS • Restricting product ran out in 2009 products specifications available in the market Subsidies – • No subsidy given out on kerosene, current • Absence of subsidy on kerosene allows fair competition conventional price is ~USD 1 / litre for solar lighting fuels • No import duty on solar photovoltaic cells, Import modules, panels and LEDs • Import tariffs, 5-7% for solar lanterns • Since majority tariffs and • Import duties on batteries are15% and other • Promotes local assembly lanterns are imported, duties components (controller, lights, wires) 3% of SHS import duties hinder / Taxation • Import duties on complete SHS competitiveness policies vary from 0-7% • VAT is 12% 104 Lighting Asia: Solar Off-Grid Lighting 8.4  Philippines conclusion Despite a relatively high electrification rate, the Philippines still has approximately 2.5 million off-grid households. Kerosene is the dominant source of lighting used by them. With the market penetration of SHS and lanterns being less than 2%, the Philippines could be a lucrative solar off-grid lighting market. Private enterprises are beginning to look beyond government and donor schemes to tap the low-income segment of the market. An encouraging aspect to the private sector is that the government subsidies on the solar lighting products that are disrupting the market are going to end in 2011. This opens up the scope for further commercial models emerging in the market. Market analysis of : India, Bangladesh, Nepal, Pakistan, 105 Indonesia, Cambodia, and Philippines APPENDIX 9. APPENDIX 9.1  Examples of successful social marketing in India Issue / Problem Intervention Marketing Messages Program Impact Unsafe drinking water • Improve hygiene 19,350 bottles sold in & safe drinking 12 months Social Message: safe water practices Targeted 2.5 lakh Organization: Safewat drinking water and better population Product: Water disinfectant management of diarrhea • Better product (chlorine solution), Communication : management of costing ~ USD .25 education on water- diarrheal cases Donor: USAID contaminated diseases, (USD 200,000) importance of clean Duration: July’ 03-Dec’05 drinking water Location: Uttaranchal Channels: schools, stalls Customer Segment: at fairs and public places, targeted households with community water resources young children Partnerships with health providers Before intervention: Lack of sanitation Only 460 toilets sold by • Focused on WaterAId out of target of demand creation, 1,100 in 12 months social marketing Organization: WaterAid After: 5,000 sold in Product: low-cost pour 6 months • Provide access flush pit latrine (~USD 40) Marketing messages: to credit Donor: Supported by health benefits, privacy, DFID convenience, safety, • Develop reliable Duration: 1997-1998 status / prestige, cost supply of Location: AP and savings, income generation sanitation goods Tamil Nadu Partnerships with schools and services Customer Segment: to implement school health targeted at school children education program • Redirection of who in turn convince their subsidy from parents for a toilet construction to hygiene promotion 106 Lighting Asia: Solar Off-Grid Lighting APPENDIX 9.2  Estimation of the market penetration of Solar lanterns in India 1997-02 2002-07 2007-10 Total Cumulative PV module deployed for solar 4.9 7.5[i] N/A - lanterns (MWp) Average PV module rating assumed for a solar approx. 10 approx. 10 N/A - lantern (Wp) approx. No. of solar lanterns produced 490,000 750,000 - 1.2- 2 million No. of solar lanterns exported NA 259,000 187,000 - Assumed No. of solar lanterns imported 35,000[ii] 368,000 negligible Solar lanterns sold through subsidized programs 335,000 67,259 400,000 800,000 Total no. of solar lanterns sold / 490,000 approx. approx. 526,500 distributed in India 1.2 – 2. million 2.3 – 3.2 million Note: Export data from 1997-02 is unavailable. Imports from 1997-02 are estimated to be negligible as the imports in 2004 were very low (approx. 15,000 units). Final sales estimates till 2010 could be higher or lower by 5-10% owing to this assumption Assuming average annual sales of 300,000 - 500,000 solar lanterns per year from 2007-2010 (based on primary research and TERI survey- detailed further below); one can expect 2-3 million lanterns to have been deployed so far. These numbers do not account for any sales prior to 1997 but the number is expected to be small Sources: [i]. Solar PV Industry Global and India Scenario, The Photovoltaic Program in India (MNRE); [ii]. Data available from 2004-2006 only; Ministry of Commerce, Export Import Data Bank, Primary research, Intellecap analysis Market analysis of : India, Bangladesh, Nepal, Pakistan, 107 Indonesia, Cambodia, and Philippines APPENDIX 9.3  Estimation of the market penetration of SHS in India 1997-02 2002-07 2007-10 Total Cumulative PV module deployed for SHS (MWp) 9.2 16.5 N/A - Average PV module rating assumed for a SHS (Wp) approx. 35[i] approx. 35 - - No. of SHS produced 262,857 471,429 - - No. of SHS exported - - - - No. of SHS imported - - - SHS sold through subsidized programs 165,000 107,000 347,000 619,428 approx. approx. Total no. of SHS sold / distributed in India 262,857 471,429 300,000- 1 – 1.2 million 400,000[ii] Note: [i]. MNRE specifications for SHS are 18 Wp, 37 Wp, 74 Wp [ii]. Tata BP Solar has sold approx. 100,000 SHS from 2007-2010; Primary research indicates that Tata BP Solar SHS sales constitute 25-30% of the market Source: Solar PV Industry Global and India Scenario, The Photovoltaic Program in India (MNRE), Ministry of Commerce- Export Import Data Bank, Primary research, Intellecap analysis 108 Lighting Asia: Solar Off-Grid Lighting APPENDIX 9.4  Proposed JNNSM program of Ministry of New and Renewable Energy in India This is a program that was launched in November Following are the sequence of steps and the flow chart 2010 and performance is yet to be seen. An earlier representation of the RVSLP program: demonstration program by NABARD and RRBs achieved a disbursement of 38,000 systems in FY 2009-10 (against • Customer approaches the RRBs/SCBs to avail a a target of 120,000 systems) with over 80% of sales being loan in UP (and nearly 70% of the State sales happening through one bank – Aryavart Gramin Bank). • Banks sanction loan and capital subsidy as per guidelines for MNRE specified products Key characteristics of the program: • Banks raise refinance for the loans extended by • This program is available for only SHS them on a monthly basis from NABARD • Subsidy amount is limited to USD 6.5/Wp • NABARD raises finance from IREDA on a (INR 300/Wp) for SHS regular basis as needed for meeting refinancing needs of the banks • Systems up to a limit of 1 kWp can be supported through this scheme • Customer pays back the loan at 5% interest over up to 5 years Market analysis of : APPENDIX India, Bangladesh, Nepal, Pakistan, 109 Indonesia, Cambodia, and Philippines APPENDIX MNRE Customers Provides funds to IREDA The customers have The repayment to pay 20%of the period for the loan Vendors do IREDA (50% of the system installations, and system cost as down- payments cost) is up to 5 years provide 5 years warranty Provides funds to NABARD to meet refinancing Provides re- financing for loans at 2% The banks interest rate) pass-through NABARD RRBs/SCBs financing to Vendors Capital subsidy the vendors for of 30% of systems benchmark cost is provided Figure 9.1: Schematic diagram of JNNSM program in India 110 Lighting Asia: Solar Off-Grid Lighting APPENDIX 9.5  Price points of CFL based solar lanterns in India • 5 W panel, 5 W lamp, • 10 W panel, 7 W lamp, Ritika 250 lumen, 6 V 4.5 Ah 427 lumen, 12 V 7 Ah Systems Lead Acid battery (USD 31) lead acid battery (USD 57) • 8 W panel, 7 W lamp, • 5 W panel, 5 W lamp, Solid Solar 6 V 9 Ah Lead Acid battery 6 V 4.5 Ah Lead Acid • 10 W panel, 9/7 W lamp (USD 93) (USD 40)[1] battery (USD 42)1 Reliance • 10 W panel, 7 W lamp 371 lumen, Industry 12 V 7 Ah Lead Acid battery (USD 97) Arsh • 10 W panel, 7 W lamp 420 lumen, Electronics 12 V 7 Ah (USD 68) • 5 W panel, 150 lumen Solkar (USD 44) • 10 W panel, 7 W lamp 371 lumen, Jain 12 V 7.5 Ah (USD 90) • 10 W panel, Irrigation 9 W lamp 558 lumen, 12 V 7.5 Ah (USD 95) Suntechnics • 10 W panel, 7 W lamp Energy 371 lumen, 12 V 7 Ah Systems (USD 59) • 7 W panel, 1 lamp • 11 W panel, 1 lamp BPL Solar (USD 22) • 6 W panel, 2 (USD 32 tube lights (USD 29) Price Range Up to USD 30 USD 30-40 USD 40-50 USD 50-60 Over USD 60 Note: 1. Lumen output date unauthenticated Sources: TERI, the solar quarterly Market analysis of : India, Bangladesh, Nepal, Pakistan, 111 Indonesia, Cambodia, and Philippines APPENDIX 9.6  Price points of LED based solar lanterns in India • 0.7 W panel, Greenlight ~60 lumen (USD 19) Global • 3 W panel, 100 lumen • 5 W panel, 100 lumen Telelinks (USD 33) (USD 44) • 3 W panel, 180 lumen • 3 W panel, 350 lumen, • 2 W panel, Ritika (USD 35) 2.5 W LED (USD 44) 110 lumen Systems • 3 W panel, 280 lumen • 3 W panel, 330 lumen, (USD 26) (USD 39) 3 W LED (USD 47) • 2 W panel, 100 lumen (USD 54) • 3 W panel 120 lumen (USD 61) • 3 W panel, • 3 W panel, 120 lumen (USD 64) Solid Solar 100 lumen • 3 W panel, 120 lumen (USD 66) (USD 56) Price diff. based on lamp size • 5 W panel, 150 lumen (USD 56) • 3 W panel, 180 lumen • 8 W, 360 Avni Energy (USD 33) lumen (USD 54) • 3 W, 128 Moser Baer lumen (USD 54) • 3 W panel, (USD 44) Solkar Solar • 3 W panel, (USD 46) Reliance • 3.3W panel, 200lumen (USD 70) Industry • 3 W panel, Suraj Solar 240 lumen (USD 29) • 5 W panel, Halonix 225 lumen (USD 54) Price Range Up to USD 30 USD 30-40 USD 40-50 USD 50-60 Over USD 60 Sources: TERI, the solar quarterly 112 Lighting Asia: Solar Off-Grid Lighting APPENDIX 9.7  Price points of SHS in India SELCO offers products with • 10 W panel, 1 CFL SELCO prices up to USD 1,020 with light (USD 174) 10 lights • 2.5 W panel, 2 LED lamps, • 5 W panel, 4 LED • 15 W panel, 2 TL, Barefoot 120 lumen lamps (USD 106) 2 LED (USD 214) (USD 37) • 37 W panel, Tata BP • 18 W panel, 2 CFL light • 75 W panel, 2 CFL light 2 CFL light Solar (USD 265) (USD 590) (USD 325) • 12 W panel, 1 LED. 330 lumen, (USD 118) InteliZon • 18 W panel, 3 LED, 465 lumen, (USD 180) • 3* 15 W panels, 3 LED lights, • 15 W panel, 3 LED • 2* 15 W panels, 300 lumen (USD 510) Solkar lights, 300 lumen 3 LED lights, 300 • 4* 15 W panels, 3 LED lights, (USD 224) lumen (USD 347) 300 lumen (USD 612) • 3 W panel, 2 LED Su-Kam lights, 75-90 lumen (USD 82) • 18 W panel, 2 LED light Philips (USD 220) • 4.5 W panel, LED Schneider (USD 107) • 5 W panel, 3 LED Duron lights (USD 130) • 30 W panel, • 10 W panel, 2 LED • 20 W panel, 4 LED Advait 6 LED lights lights (USD 102) lights (USD 204) (USD 306) Price Range Up to USD 100 USD 100-200 USD 200-300 USD 300-400 Over USD 400 Sources: TERI, the solar quarterly Market analysis of : India, Bangladesh, Nepal, Pakistan, 113 Indonesia, Cambodia, and Philippines APPENDIX 9.8  List of organizations interviewed for primary research Country Category Organization • Barefoot Power Solar lighting companies • Frankfurt School of Management Global • ADB Development and donor agencies / NGOs • UNEP Industry experts • IFC Lighting Africa team • Advait Energy • D Light • Duron • InteliZon • Greenlight Planet • Philips Solar lighting companies • Prakruti Power • Schneider Electric • SELCO • Simpa Networks • Solkar • Tata BP Solar • Visual Lighting Equipment India • MNRE Government (or affiliated organizations) • TERI • Shell Foundation Development and donor agencies / NGOs • LED Foundation • World Bank Financiers (investors, banks and MFIs) • Yes Bank • Indiaco • Ecoforge • New Ventures India Industry experts • IFMR • Crestar Capital 114 Lighting Asia: Solar Off-Grid Lighting APPENDIX Country Category Organization • Allied Solar • Rahimafrooz Solar lighting companies • Grameen Shakti • Rural Services Foundation Bangladesh Government (or affiliated organizations) • IDCOL • Grameen Shakti Financiers (investors, banks and MFIs) • Rural Services Foundation • Sunshine Energy • Lotus Solar lighting companies • Solar Electric Company / Nepal Solar Energy Society • Surya Power Company Nepal Government (or affiliated organizations) • AEPC • Ace Development Bank Development and donor agencies / NGOs • SNV • Winrock Nepal • Solar Systems Pakistan Solar lighting companies • Pakistan Solar Power Government (or affiliated organizations) • AEDB • GIZ Pakistan Development and donor agencies / NGOs • Winrock Pakistan • UNIDO Financiers (investors, banks and MFIs) • Tameer Bank Industry experts • Renewable Energy Association Market analysis of : India, Bangladesh, Nepal, Pakistan, 115 Indonesia, Cambodia, and Philippines APPENDIX Country Category Organization • Kamworks • Yejj Solar Solar lighting companies • SME Renewable • Khmer Solar Government (or affiliated organizations) • Rural Electrification Fund • GRET Cambodia Development and donor agencies / NGOs • GERES • Pico Sol • IFC • AMK Cambodia Financiers (investors, banks and MFIs) • Sathapana • Acleda Industry experts • KC Strategy Design • Contained Energy • Sundaya Indonesia • Petrosea Solar lighting companies • PT Bangun Baskara Mandiri • Wika Intrade • Azet Surya Lestari • Schneider Indonesia • Indonesian Committee for CDM Government (or affiliated organizations) Indonesia • Kadin Business Support Desk • YBUL Development and donor agencies / NGOs • UNEP • Planet Finance Investors • Bank Rakyat Indonesia • New Ventures Indonesia Industry experts • Asian Pacific Energy Group 116 Lighting Asia: Solar Off-Grid Lighting APPENDIX APPENDIX Country Category Organization • Gendiesel • First Philec • Pamatec Solar lighting companies • Del Genta Philippines • Adtel Energy • Hystra Philippines • Solutions Using Renewable Energy • Electric Power Industry Management Bureau Government (or affiliated organizations) • Renewable Energy Association Philippines • Rural Power Project • AMORE • USAID Development and donor agencies / NGOs • Negros Women for Tomorrow • Bank of the Philippines Islands • Paglaum Multi Purpose Cooperative • IFC Financiers (investors, banks and MFIs) • CARD Foundation • Microfinance Council of the Philippines • MICRA Market analysis of : India, Bangladesh, Nepal, Pakistan, 117 Indonesia, Cambodia, and Philippines APPENDIX 9.9  Table summarizing the relationship between kerosene prices (based on consumption) and panel wattage of solar lanterns and SHS Product cost Number of Kerosene and battery kerosene Kerosene price Wattage Lifespan expenditure per cost over lanterns considered month (USD) lifespan (USD) considered USD 1.05 0.5 Wp, (@ USD 0.26 per Solar lanterns 0.7 Wp and 3 18 to 46 1 PDS liter and 4 liters 2 Wp per lantern) USD 4.1 (@ USD 0.26 per liter in Blended (PDS Solar lanterns 3 Wp 3 154 2 PDS 0.76 per liter and retail) in retail and 4 liters per lantern) USD 7.2 (@ USD 0.26 per 5 Wp and 15 Blended (PDS liter in PDS 0.76 SHS 10 310 3 Wp and retail) per liter in retail and 4 liters per lantern) A maximum of 4 liters of kerosene per household is assumed to be available for PDS price (USD 0.26 per liter). APPENDIX Acknowledgements Sheetal Sethi, Sagar Siva Shankar, Srikanth Pulavarthy, Pramod Majety, Stefan Pellech and Manju George (Intellecap) and Hemant Mandal, Patrick Avato, Anjali Garg, Swati Sawhney, Sakshi Varma, Naomi Bruck (IFC), Rodd Eddy (GOGLA), Peter Alstone (Schatz Energy Center), Arne Jacobson (Humboldt State University) Contact Information International Finance Corporation Maruti Suzuki Building 3rd Floor, I Nelson Mandela Road, Vasant Kunj, New Delhi - 110070 India T: +91 11 4111-1000 F: +91 11 4111-1001 www.ifc.org 2012