Energy and environmental technology Environment

Posted April 1998

Project proposals

Renewable energy development in Al Badia region, Syrian Arab Republic


from "Renewable energy options for the Bedouins of Al Badia region: Initial step of a market development programme for renewable energy in Syria", (FAO PROJECT GCP/SYR/003/ITA). See also Table of contents and Introduction of the report. The full report is also available for downloading by FTP (Word 6.0 for Windows, .ZIP, 56K)


Proposal 1. Pilot Solar Demonstration Project in Al Badia region

Introduction

Solar technology applications are virtually unknown in the Syrian Arab Republic (with the exception of some local scientific and industrial know-how on solar thermal energy systems) and especially in Al Badia region of the Syrian steppes. A pilot project should therefore aim at the local demonstration of the technology and at gathering the feedback necessary to design a thorough large scale market development initiative.

The pilot project should be kept simple and target a reasonable number of end-users so that it can be implemented in the short term and offer a significant testing ground for a general model of renewable energy market development. For these reasons, following the field observations and the consultations with Bedouin families and their cooperative leaders, the pilot operation is designed to test just 2 types of applications: solar photovoltaic systems for electricity supply and solar cookers.

Based on the mission findings and on the first feedback from a solar workshop organized in the tent of a Bedouin leader, the following section shows the steps to be taken for the pilot project implementation. Below is an outline of the major steps for the implementation of the pilot project focusing on the case of Solar Home Systems (SHS), but the same structure with some marginal differences should be used for the delivery of the solar cooker and other renewable energy (RE) technologies.

For the implementation of a pilot solar demonstration project a first "field testing" phase has been requested by the beneficiaries. In this phase, 4 families should be selected from the four cooperatives to receive SHSs and test their performance. The same field testing phase should also introduce in the Talila Reserve a prototype Bedouin tent equipped with RE technologies (SHS, solar cooker, and solar water heating system) and a solar PV vaccine refrigeration unit for the Talila veterinary clinic. Following the assessment of the initial field-testing phase, about 50-100 families will be selected as first PV SHS buyers , by means of the following selection criteria:

  1. The migrating habits of end-users are well known and they are relatively easily accessible, making installation and servicing of the systems easier. Previous experiences of SHS diffusion showed that it is essential to have basic service facilities at the local level so that repair and supply of spare parts can be done quickly;
  2. The potential market in the selected area is of a substantial size so that the first phase of the dissemination programme can generate a considerable demand;
  3. The population in the area has sufficient financial means to pay for a PV-SHS; iv. In the selected area both the Cooperative Leaders and the Contact Bedouins will have to be willing and able to co-operate in the promotion, marketing and servicing of solar systems.
  4. At least some of the first end-users should be selected for their high social status/strategic location in order to enhance the visibility of the technology.

Given the high local income level, the explicit need for high quality electricity service, and the fact that the pilot operation will target the "risktaker"families, a delivery via a cash-sales mechanism could be justified. The pilot project, however, is also an opportunity to test how Bedouin and local cooperatives can deal with credit schemes (which, in fact, often enlarge the market demand as they increase affordability). Therefore the suggestion is to market the SHS with two purchasing options for the end-user:

1. Cash sales. The richer households who are willing and able to pay cash for the SHS can do so and will obtain an incentive or "innovator" premium from the project: a discount on the regular market price of the system (20 %-30%).

2. Credit facility. The only present experience of the target group with financing is the special credit line established by the government-owned Agricultural Credit Bank: this institution offers short term credit (1 year term) to the cooperatives and to the rural private sector at interest rates that range between 4% and 8 % (depending on the priority given by the MAAR to each type of loan). The Cooperative is the liable entity for the loan, which has to be payed in one sum at the end of the 12 month period. A renewable energy credit facility can then be organized at the cooperative level on similar terms. Due to the limited FAO project staff, it si recommended that the solar loan facility to be handled by the Cooperatives through a Letter of Agreement. The facility should take the form of a revolving loan fund functioning with the following structure:

  1. Solar Loan terms of 6 to 18 months.
  2. Payments to be collected every 6 months at a most favourable interest rate.
  3. The interest charged, however, should be designed with an administration cost recovery basis included, so that a cooperative member could be an employee in charge of fee collection and accounting. The interest could/should also include a component for default risk minimization.

In this pilot phase, a first structure for after-sale services should be designed as the first block of a future network of local service centres. These centers should be provided with sufficient stock and trained professional staff (payed by the programme not volunteers). In every area there will have to be a service station which is responsible for the installation and servicing of the systems. The number of service stations and the locations are to be determined by geographical circumstances and by the typical migration routes. The maximum distance between service station and customer should preferably be not more than a few hours travelling.

An idea that is worth exploring further is the set up of a basic service and spare parts unit in the mobile (caravan) community service units proposed within the Extension program. The caravans are supposed to function as mobile schools and health care units. These units can be solar power and become energy suppliers for community energy needs: refrigeration of medicines and vaccines, color TV with VCR. The solar caravans could be very instrumental to the provision of basic maintenance services and spare parts supply. They would be readily available on site, they could provide basic end-user training also through the use of audiovisual material. The access to audiovidual equipment and material will be instrumntal to the promotion of other technological options as well and supplement demonstration meetings and workshops.

The institutional set-up for the pilot solar demonstration project should be designed in two steps.

A first phase, dedicated to what has been indicated as "field testing phase", should be fully managed and coordinated by Palmyra FAO office and may have a 3 month time-frame (October-December 1997). The direct procurement of hardware and basic system design could be done via FAO HQ and a local engineering firm could be subcontracted for the installation work. The procurement should include some spare parts such as extra fuses, lighting fixtures, charge controls. This delicate phase of technology introduction needs to be supervised carefully, probably with some FAO Extension program staff in charge of supervising the development of a) basic training of beneficiaries on how to properly operate the systems and how to maintain them; b) a basic technical support infrastructure equipped with some spare parts. During this phase, it is recommended to train a local technician who could be in charge of monitoring and servicing the testing equipment in Talila Reserve and the systems for the Bedouin families.

The second step can be initiated, if supported by positive feedback from the field testing, after a couple of months. The procurement of hardware should still be organized through FAO HQ or FAO Damascus so that the pilot operation can benefit of tax exception, but a higher level of responsibility for the local installation and management of the project should be given to government and private partners. The coordination and supervision unit should be formed in Palmyra FAO office and could include staff from the Extension program. In the initial stage, it is recommended that technical assistance be offered by an international expert to the local staff in order to set up the management infrastructure, the promotion and marketing tools, the end-user financing scheme, the after-sale service unit. Also, a training program should be developed for both technical and managerial training of staff in the Cooperatives for the implementation of a first service center and of a loan revolving fund facility. These service center and credit facility should be managed by the system of Cooperatives and regulated through a Letter of Agreement with FAO. The time-frame of this pilot inititiative could be extended for a period of 12-18 months.

The budget of FAO pilot project would mainly have to cover a) the project start-up costs related to project design; b) a large portion of administrative overhead costs unrecoverable from the end-users (the first group of Bedouin "customers" should not pay the heavy burden of small scale project implementation costs); c) the short-term financial cost related to the financing of the solar revolving fund facility. FAO then should be able to buy the technology hardware and use it as "seed capital" of the revolving loan fund: as the first cash sales and the first downpayments of loans will be collected, FAO can start to recover the financial resources or, if the project is successful, decide to keep its "investment" at work in the solar fund.

For further information on this project proposal, contact the FAO Senior Energy Coordinator, Gustavo Best (e-mail: gustavo.best@fao.org)


Proposal 2: Framework for a Renewable Energy Plan for Al Badia Region

The mission identified the opportunity to seek funding for the development of a Renewable Energy Plan (REP) designed as a "transition to market" initiative. The first step for such initiative should be the preparation of a fully stretched market development study in order to define the potential demand for renewable energy services, the institutional framework necessary for program implementation and monitoring, the financial issues and credit scheme models, the technical assistance and training aspects; in other terms, the prospects for the foundation of a rural market infrastructure for renewable energy technology which can be sustainable in the long term. Based on the identification mission findings, the market study of the REP should study the feasibility of using various energy sources in satisfying the local energy demand:

Phase 1: Formulation of a Transition-to-Market Programme (TMP). A well designed market development plan, based on reliable socio-economic information and feedback from the pilot project, is the starting point of the Transition to Market Programme (TMP). The plan will describe step by step:

Phase 2: the implementation phase. With this well designed plan, the TMP can be implemented. The programme can be divided into two important periods of 2-3 years each. In the first period, the main investments for building the required infrastructure are to be made, whereas the second period will be used for maintaining the structures and increasing the annual sales of RE systems.

During the formulation of the TMP the following remaining technical aspects will be investigated:

  1. Technical procedures (installation, inspection, maintenance, after-sales).
  2. Local production of solar cookers, solar water heaters and SHS components (lamps, batteries and controllers) in Syria.
  3. The distribution infrastructure for RE systems.
  4. Recycling of used batteries. The only negative environmental impact of PV-systems is the improper disposal of used batteries. The programme will have to take resposibilityfor the collection and recycling of these batteries. The plan will describe guidelines on how to do this in a environmental and financially sustainable way.
  5. Quality control (inspection, certification, malus/bonus system). Particularly in the beginning a strict quality control system is necessary to enforce quality in all aspects. Procedures will be described to set up a quality control system to ensure the quality of products and services.
  6. Research and Development (monitoring, technical problems and improvements). The dissemination programme will monitor a small part of the installed systems by means of data-loggers in order to keep track of actual performance in the field.

The program implementing agencies

The institutional framework of the pilot project will serve as a basis for the large scale programme. However, when expanding this project to a much larger scale and a longer timeframe, there are some management issues that need to be taken into consideration. Of most importance is that the size and the complexity of the programme demand more from all project partners. Therefore there should be a development of the institutional framework in which different division of tasks and responsibilities evolve, together with cooperation agreements with new istitutions. At this stage of development, FAO's role will be reduced and focused on the agency's mission of catalizing and supporting the local institutional rosources and private market forces.

FAO: FAO could act both at the level of policy advisory, for the national governmental agencies in charge of energy policy, and at the level of project implementation. FAO could play a role of coordination and supervision of project management in cooperation with the local Directorate of Al Badia and Sheep Development, the Peasant Union and the Cooperatives . There seems to be a scope for integrating the rural energy activity with programs such as initiatives for job creation and women participation, and technical training.

Government offices. Several national government bodies could be involved in the program implementation. The Government of Syria could provide support for the establishment of a large revolving fund through the public banking system. Also a cooperation effort with the national utility and the academic institutions could be investigated for R&D, technical assistance and training.

The cooperation of the Ministry of Agriculture (MAAR) is paramount as its operational body in Al Badia is the Directorate of Al Badia and Sheep Management in Palmyra. In addition, the MAAR could cooperate with providing funding for the rural credit schemes via the government-owned Agricultural Credit Bank.

The Ministry of Finance and the Ministry of Industry will be instrumental in cooperating with the Ministry of Energy for designing a series of RE market incentives, starting from import duty policies and enterprise development support.

The Ministry of Energy and the Electricity Utility (PEDEEE) can play a role of technical cooperation, in particular after the experience on solar rural electrification which is in its initial stage in the project financed by JICA and partially managed by the UNDP.

Further governmental assistance could take form within the Ministry of Environment which may support RE development in Al Badia as an action for CO2 emissions reductions in order to meet the committments of the Convention on Climate Change.

Cooperatives. The Peasant Union and the system of Cooperatives will be a very important target of local capacity building efforts by FAO. At the level of program implementation these Bedouin community bodies can become the vehicle for the creation of a rural RE market infrastructure in Al Badia.

Other partners. In order to build the local capacity for a process of transfer, adaptation, and full appropriation of renewable energy technologies, thus setting up the private market infrastructure and the appropriate public sector support system, it may be important to identify and involve in the project implementation (also in the pilot phase) some new partners with specific roles which can support the work of FAO/Directorate.

The UNDP office in Syria just started managing a pilot solar rural electrification project financed by the Japanese Cooperation (JICA). First contacts during the mission indicate that ther is scope for cooperation.

In the private sector, in particular, a local engineering firm is needed, with the capability of carrying out tasks such as the support import activities and customs clearance procedures, as well as coordination of local installation and maintenance services.

Organizational Structure

At this stage of the Syrian transition to a market economy period the creation of an independent programme management unit is recommended which takes full responsibility for the programme and which can assist all programme partners with the implementation of their respective activities. The following preliminary set-up is proposed:

Financial and economic considerations

Within the formulation phase a detailed programme budget will be determined. As the programme is a transition to market programme, a clear division will be made between one-time investment costs for building the infrastructure and recurrent costs. The TMP can roughly be divided in two periods of 2-3 years each.

The first period is to establish all the necessary infrastructure such as the service centres, administration system, revolving loan fund, quality control system, promotion and awareness raising, etc.. The costs for these initial investments are essential to create a market of substantial size and cannot be covered by the users at the present market volume. It is a goal of this phase to create a "critical mass" which would enable the TMP to access the international development lending/donor arena and to have bulk purchase power in order to negotiate advantagious terms with the international manufacturers. The costs for hardware and installation can be recovered by the end-users.

The second period of the programme may be used to further expand the sale volume and commercialize the project. The necessary investments to create a critical mass have been made to a large extend in the first period and now the focus is on expanding the sales by using the revolving fund. This credit mechanism, which originates (during the first phase) from the seed capital in the form of SHS hardware shipment, in the very short term is replenished by the deposits of the first group of end-users, thus providing the additional lending capacity for new potential SHS credit customers. The fund keeps revolving as the cooperative network collects the loan payments and this way additional loans can be offered. The interest rate built into the credit scheme is intended to cover the administration costs of fee collection (commissions and incentives) as well as the bank commissions and the risks of potential default by users.

Gradually responsibilities of the RESU will be transferred to Syrian partners and the importance of the RESU will be reduced.

At the end of the complete programme the market on RE systems should be self-sustainable: sufficient awareness, established infrastructure, critical mass is reached, and both cash sales and revolving fund credit enable the ongoing expansion of the use of systems.

Within the formulation phase more attention will be paid to the financial and economical aspects of the TMP:

  1. Programme budget, specified budget for hardware, labour costs, personnel costs, costs for maintenance and repair (operation of the service stations), financial costs (financing of stock, financing loans to the end-users), transportation costs, duties and taxes;
  2. Financing of the programme costs. Donors can contribute to the costs of overhead and building infrastructure for a large scale dissemination programme and give some subsidy on hardware but the balance will be financed by the users through direct purchase or through the revolving fund credit purchase;
  3. Financial procedures and responsibilities. The procedures of channelling funds, conditions and trigger points, are described in detail;
  4. The cash-flow of the programme will be described: the cash requirements during the complete lifetime of the programme at an international, national and provincial level;
  5. Credit requirements: based on the previous information (budget, cash flow) the requirement for additional subsidy on hardware can be calculated;
  6. Financial Internal Rate of Return for the project;
  7. Economical Internal Rate of Return;
  8. Profitability for all implementing organizations.

Solar Home Systems (SHS) estimated market potential

According to the national Statistical offices there are about 650,000 people living in the steppe of Al Badia, which can translate in 80,000-85,000 Bedouin families.

Without having conducted a detailed socio-economic survey it is difficult to estimate the market potential for solar energy in exact numbers. However, a preliminary potential market penetration of solar PV systems can be assessed on the basis of some socio-economic information gathered on the target group. If we assume that the 4 target cooperatives (450 households) are representative of the Bedouin society, we can consider that a conservative estimate describes the average household as owner of 200 sheeps. Each adult ovine can value from $ 60 to $ 100 on the market depending on its sex, age and weight, which means that a typical Bedouin family with 200 sheep has an income/patrimony of animals equivalent to SP 600,000-1,000,000 ($ 13,300-$22,200). About 95% of the 450 cooperative members own a truck. The monthly expenditure for energy (both cooking energy and lighting/TV) ranges between $ 20 and $ 24. The fact that at present many households (40-60 %) have a TV set powered by their truck battery and that these households are using all possible alternatives such as butane gas lamps and portable lighting batteries, illustrates the demand for electricity.

It is safe to assume that the majority of the Bedouins in Al Badia will keep their migrant lifestyle in the next decade, therefore excluding the already remote probability of grid connection. Out of this large group, several hundreds families should be considered able and willing to invest in a solar PV system: if the top 20 % households were able to purchase a $ 600 SHS, the cash-sale market size would amount to at least $ 14.4 million. The introduction of credit schemes would certainly make the investment more affordable for a larger number of families increasing the volume of market sales.

For further information on this project proposal, contact the FAO Senior Energy Coordinator, Gustavo Best (e-mail: gustavo.best@fao.org)



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