Energy and environmental technology Environment

Posted November 1999

Preliminary paper

Impact of solar photovoltaic systems on rural development: FAO study for rural electrification in the 21st century

by Bart van Campen, Rural Energy Development Officer
Daniele Guidi, Renewable Energy Consultant
Gustavo Best, Senior Energy Coordinator
Environment and Natural Resources Service (SDRN)
Paper presented at the 17th Latin American Conference on Rural Electrification, Recife, Brazil, 7-11 November 1999


Outline/questionnaire | Preliminary paper | Syria project


1. Introduction

1.1. Background and justification

In the 1970s and 1980s large advances were made in extending rural electrification worldwide, but by the end of the 1980s most developing countries - especially in Latin America and the Caribbean (LAC) - were confronted by an economic crisis, which made the maintenance of the existing model for the electricity sector prohibitively expensive. Evaluation research of rural electrification projects in general showed lower impacts than targeted, and higher costs than expected at the initiation of these projects.

Most LAC-countries started an Electricity Sector Reform programme based on deregulation and privatization. In the newly emerging structures new rural electrification projects are still being initiated, but with a tighter focus on the economic feasibility of these projects. In the search for the least-cost rural electrification, decentralized energy options are being considered more and more as an alternative option to traditional grid extension. These decentralized technologies have new advantages, but also some limitations, especially in the field of power consuming (productive) uses.

Solar photovoltaic systems (PV) in particular have shown their potential in the area of decentralized rural electrification - in the technical as well as in the organizational, economical and financial sense. PV systems are now being integrated in large rural electrification programmes in different parts of the world (Argentina, India, Mexico, South Africa, United States, Zimbabwe). In general PV technology is reaching commercial maturity and the recent investments in new production capacity by multinational manufacturing companies are expected to create the conditions for further price drops and higher competitiveness. Programmes and studies now address the issues related to large-scale market development in rural areas: access to affordable credit, local market infrastructure for installing and servicing the systems, and mechanisms for conducive local policy-making. While several studies have been produced on these aspects, what has been much less studied is the actual impact of PV technology diffusion on rural development and the potential and limitations as a means of rural electrification, especially concerning productive activities.

The impact of energy on rural development has been discussed extensively in the Latinamerican context in the framework of the 'Grupo Latinoamericano de Trabajo sobre la Energización Rural Sostenible' (GLAERS)[1]. In this framework 'Energización Rural' is conceived as a 'continuous process in which energy is used to fulfill the demands of household activities, transport, services and production, to improve living conditions and the quality and quantity of production, compatible with the preservation of the rural environment. Therefore the 'Energizing' process needs to be seen as a strategic component in a wider framework of Integrated Rural and Agricultural Development, whereby energy is a necesary, but not sufficient component.

1.2. FAO's study on the impact of PV systems on rural development

With the above in mind, FAO initiated a study to assess the impact of PV systems on rural development - both concerning the area and the intensity of the impact (e.g. agricultural, social or rural industry development) and concerning the main beneficiaries of the impact, and to contribute to the improvement of this impact.

Accepting the importance of PV programmes for bringing light to households as a respectable goal in itself, this study hopes to go beyond that and try to measure or describe the impact PV systems have on the social and economic development of communities in rural areas. An important focus of the study is therefore to identify opportunities for PV systems to generate income and employment and provide community services - such as drinking water, health centres, etc., which can have a major impact on the economic and social well-being of whole communities.

It is, in fact, of paramount importance to identify the key elements of the contribution of PV rural electrification to rural development in order to support the design of PV programmes with the highest opportunity to have a significant and sustainable impact on rural development and to gain further financial and political commitment for PV projects, but at the same time know the limits of PV-electrification and avoid false expectations.

This study is intended to be the first step of a process in which FAO will seek the collaboration of other institutions and major stakeholders in the field of rural electrification, aiming at:

  1. further investigation on the relationship between rural energy and rural development; and

  2. identifying ways of implementing the most promising PV-applications.

FAO is aware of the various existing institutional programmes for PV development and rural electrification and, rather than creating another programme, would aim at playing a catalysing role for the further development of the existing efforts in directions which can show the highest level of efficacy in supporting social and economic welfare growth in remote and off-grid villages. The linkages with food security and sustainable agriculture would be important elements of these efforts.

2. Trends and experiences in rural electrification

2. 1. Rural electrification in Latin America and the Caribbean

In the 1970s and early 1980s - in a period characterized by high economic growth - the countries of Latin America and the Caribbean (LAC) experienced a large increase in electricity demand, service penetration and generating capacity. With major support from national governments and international organizations state-owned electricity enterprises initiated large rural electrification projects. To illustrate some of the advances; between 1970 and 1990[2]:

Rural electrification was aimed at spurring socio-economic development of disadvantaged people and areas. Shramm (1993) reviewed several programmes and distilled the following main objectives:

  1. to function as a catalyst for agricultural, industrial and commercial development, including electricity for irrigation pumps;

  2. to replace more costly energy sources such as kerosene for lighting, diesel for motors, irrigation pumps and generators;

  3. to improve quality of life (better lighting, electro-domestic appliances such as irons, resulting in time-savings especially for women);

  4. to improve standard of living for the rural poor;

  5. to lessen migration from rural to urban areas;

  6. to improve security, political stability and/or correct regional imbalances;

  7. to redress urban/rural bias

  8. to reduce deforestation by replacing firewood or charcoal.

In line with the above-mentioned development objectives electricity tariffs were subsidized to reach also the poorer parts of the populations. Sources differ on the exact amounts, but agree that in most LAC-countries residential tariffs did not cover marginal production costs, even in urban areas. Tariffs generally being geographically uniform, the high connection and distribution costs of rural electrification projects generally put high pressure on the financial resources of electricity companies.

In the 1980s most of the region's countries experienced an economic crisis, characterized by high inflation, rising interest rates and currency. Electric utilities found themselves with increasing cost due to increasing debt service and maintenance costs; and lowering returns due to low tariffs and lower than expected electricity demand growth[3]. This triggered a process in which lack of capital for investment and maintenance resulted in declining performance[4] with a negative impact on electricity-dependent economic activities.

On top of that evaluations of several large electrification programmes[5] around the world showed considerable less impact than targeted for. In general these studies concluded that rural electrification in itself does not bring development. Electricity may contribute to economic growth when introduced under the right circumstances and in conjunction with many other resources and (infrastructure) inputs and if markets are available to absorb increasing production in rural areas. Also it was found that the costs of rural electrification - with their dispersed populations - were often much higher than planned for, both in distribution and connection costs[6], while forecasts of electricity demand growth in rural electrification projects were often over-optimistic.

Finally, it was recognized that in most cases rural electrification did not contribute to diminishing the gap between rich and poor, moreover exacerbated these differences, because - despite subsidies - it was often only the richer households which could afford to pay for the electricity and electric appliances. This misdirection of subsidies raised doubts on the justifcations for the large investments in rural electrification.

Reforms

The poor performance of the electricity sector, in connection with the economic crisis in the 1980s, and the international trend towards deregulation, competition and privatization, prompted most of the governments in the region to consider reforming their electric power sectors according to the following lines:

The reform programmes generally address the failure of existing institutional arrangements to meet these objectives by clarifying the role of the state in the sector, separating policy-making and regulation; and introducing competition and private capital to ensure efficient operation. Compared to other regions, most LAC-countries have advanced significantly in this process of deregulating and privatizing the electricity sector.

After the reform process, rural electrification is still a major target for many governments as a tool for development and because of its high political value. However, after the reforms these targets have to be met within a tighter economic financial framework. One of the results of the reform process is the increased attention for decentralized energy technologies as the least cost-option for rural electrification in remote areas. The cost reductions and technological progress achieved in the last two decades for decentralized energy options, has obviously made them more attractive. Also environmental concerns have helped to promote and finance renewable decentralized energy technologies. Among these options photovoltaic technologies have drawn particular attention for their potential to economically service low-electricity demands (lighting and radio/TV), their durability, modularity and ease of installation and maintenance.

2.2. The dynamics of the solar PV rural electrification experience

From early on, PV and other renewable energy systems have been seen as alternatives for grid extension, as their small and modular character makes them particularly suitable for remote, dispersed populations with low energy demands. PV systems have proven their potential for lighting in the home (SHS), but slowly more options are becoming available that may have major impacts on rural development.

The developments of PV technology for rural electrification can be roughly described in the following three phases: from the very first demonstration efforts in the 1970s, to new approaches to disseminate (especially) solar home systems in the 1980s, and finally the start of the large scale commercialization phase in the 1990s.

1970s: PV demonstration projects

During the 1970s rural applications of PV systems were generally medium-sized stand-alone systems for uses such as water pumping and community centres. Initial efforts in rural electrification introduced stand-alone diesel generators, with a gradually increasing interest and experimentation in wind and solar systems.

Because of their demonstration character, the focus with these PV systems was often a technical one and projects often failed due to the introduction of "hardware without software" i.e. overlooking the needs of local technical training, local maintenance service, user education and awareness programmes[7]. In addition, most pilot demonstration projects were implemented as aid projects, using a donor approach which presented no financial burden to the beneficiaries, thereby diminishing their sense of ownership and responsibility. Similar failures were recorded in the initial experience with decentralized electrification with stand-alone diesel generators, which carry the additional problems related to high fuel and maintenance requirements.

The defaults and lessons in project design were documented extensively[8], providing a basis for later initiatives in PV rural electrification.

1980s: Dissemination of SHS by grassroots NGOs

In the mid-80s new approaches were experimented to introduce small solar systems on a commercially and managerially sustainable basis. This was made possible - in part - by a significant decrease in production costs. NGOs and grassroots groups, such as the pioneering Enersol/Adesol in the Dominican Republic, initiated a new approach of rural electrification based on the analysis of rural household energy demand and spending, observing that rural areas often present a very dispersed energy demand for small loads (especially lighting and audiovisuals) and that people tend to fulfil these energy needs with costly and low quality traditional energy sources (candles, flashlights, kerosene lamps, car batteries). The systems they introduced were small PV systems that could provide a small amount of energy to one household mainly for lighting and radio/TV - the so-called solar home systems (SHS). The approach included training of local technicians/entrepreneurs, user training and the first trials with credit or leasing of PV systems to lower the barrier of initial capital costs of solar systems.

1990s: Lessons learned and applied in wide-scale dissemination

At the end of the 1980s, the development lending and donor institutions started to take up the lessons learned in the field, and by the mid-90s various initiatives were launched to scale up into large commercialization programmes or into large government sponsored and subsidized SHS programme. Some pilot programmes initiated in the early '90s were also redesigned and re-financed on a larger scale.

The principal lessons learnt from experiences in the 1970s and 1980s can be summarized as follows:

  1. project design originating from participatory assessment of the energy needs and present energy expenses;

  2. establishment of rural credit mechanisms;

  3. establishment of infrastructure for distribution, installation, maintenance and repair of PV systems;

  4. training of solar technicians and solar dealers/micro-enterprises.

With these lessons in mind SHS-projects multiplied rapidly - the World Bank estimates that by 1996 there were more than 400,000 SHS-systems installed worldwide[9] - and have been replicated in many countries. Besides the non-profit sector, the private sector has in some instances successfully driven this commercialization process. In Kenya, for example, today at least 15 PV systems distributors and more than 100 agents are operating with a total of about 25,000 SHS installed, and a similar SHS market growth has been experienced in Indonesia.

Also, in some instances SHS programmes were initiated and carried on by the public with a subsidized approach and a degree of private sector involvement. In Mexico, for instance, one of the first subsidized large programmes was launched in the late 1980s by the government and the national electricity utility (CFE) as a "least cost" rural electrification plan - the so-called Pronasol programme. Wherever the PV option for basic service could be introduced more economically than grid extension and with the acceptance of the rural communities, the CFE would issue tenders for PV suppliers to install and maintain the SHSs, for which the users would pay a fixed monthly service fee. Between 1991 to 1994, more than 5 MW of PV systems were installed in over 10,000 rural homes and by the end of 1998 more than 40,000 SHS had been installed[10]. Similar PV programmes have now been started in Argentina, China, India, Morocco and South Africa with varying degrees of private sector involvement.

During the 1990s a new basic product was developed for the poorest customers, the portable solar lantern. Although technical problems are still reported, mainly on the battery storage management, these small units have experienced a large market penetration. According to 1996 sales estimates, more that 110,000 units had been sold worldwide, totalling more than 0.6 MW of installed power and making it one of the fastest growing PV markets. Solar battery charging stations are another interesting PV-system that was further developed in the 1990s to service low rural electricity demand at low cost.

2.3.The new challenge for rural PV systems: Beyond the light bulb

In the last decades a strong emphasis has been placed on SHS-systems and their successful dissemination in rural areas. Despite all the success stories, however, the same barriers (high investment costs, lack of affordable credit, lack of infrastructure and unfavourable energy policies) are repeated time after time. Improvements are introduced slowly, but at present most PV programmes still require a large component of subsidies. In many cases subsidies and donor programmes for PV systems have the negative side effect of distorting the development of a commercial infrastructure - e.g. through direct import - although new programme approaches are now being experimented that specifically take this into consideration.

The support for PV programmes - like other rural electrification programmes - is often justified by the impact these systems have on the lives of the rural poor. In reality very little is known about the impact of these systems and the fear exists that the target group is not always reached. Where limited research has been done on the impact of SHS, (even) less attention has been devoted to the development of other rural energy markets that can carry an important social (e.g. health clinics and schools) or economic impact (e.g. income-generating activities).

With continuing advances in price, technology and organization in the PV sector, new and innovative approaches and uses become possible and are being experimented with. As with the lessons learnt in the 1980s on the SHS-approach, lessons can be learnt from new successful innovative approaches to replicate them on a larger scale. There is scope, for instance, for investigating to what extent PV systems can have an impact on rural income generation, that can help pay for the systems and increase the trust of banks or other credit institutions to provide loans for PV systems to rural people.

These new applications and approaches can come from PV-project developers and system integrators, but many of the more non-orthodox examples of applications come directly from the rural people; and are created as a reaction to their need to solve concrete problems or to develop a business idea. Examples exist of projects tapping this creative sense of entrepreneurship of the villager.

Should the results show that the time is ripe for the development of solar systems that go beyond the supply of household lighting and audiovisuals, a new paradigm of support for "solar powered business" may be formulated and new ideas could be distilled to create the basis of a new solar PV electrification phase that goes "beyond the light bulb". The on-going FAO study aims at contributing to this field with an assessment of the impact that small solar electricity loads can produce on rural income generation and rural social welfare.

3. Study outline and methodology

Based on the aforementioned new developments and promising potential of PV systems and the observation of a serious lack of monitoring and evaluation data on the impact of PV systems, the FAO decided to initiate its study on the "Impact of PV systems on Rural Development".

Recalling that the main objective of the FAO study is to assess the impact of PV systems on rural development and to contribute to the improvement of this impact, the following specific objectives were formulated:

  1. to make an overview of PV projects/systems in rural areas, their major uses and impact on rural development;

  2. to make an inventory of PV projects/systems with a significant impact on rural development, especially income generation;

  3. to establish collaboration with other agencies and organizations interested in furthering the impact of PV rural electrification on rural development;

  4. to draw conclusions on the potential and limitations of PV projects/systems and their impact on rural development;

  5. to distill the lessons of the projects studied on ways to maximize the positive impact of PV projects/systems on rural development;

  6. to publish and discuss the results of the research with different actors active in the field (governments, distributors, NGOs, international organizations, etc.).

It was realized, however, that to do an impact assessment of PV projects, in-depth field assessments should be done, including analysis of detailed technical and socio-economic data and study of the opinions/perceptions of users; preferably on a representative selection of PV projects. With no overview of PV projects such a selection would be impossible. Therefore it was decided to first do a questionnaire-type pre-phase, with more limited objectives:

  1. to establish the main areas of impact of PV systems installed around the world, their potential and limitations and the (general) lessons to be learnt from them;
  2. to make an inventory of PV projects and applications with a major impact on rural development, especially focused on income-generating activities.

The main elements of the questionnaire are:

  1. the area of impact

  2. beneficiaries of the PV systems and their impact;

  3. inventory of uses of PV systems, especially for income generation;

  4. details of economic and social impact (quantification);

  5. organization and financing.

The questionnaire was sent to key-persons in PV projects and commercial PV-companies to ask their ideas and opinions on the impact of PV systems on rural development. The impact "measured" in the questionnaire is, therefore, not the actual impact, but the interpretation of the impact by key-persons involved in and knowledgeable about the projects. This should give us a clear outline of areas of impact and a basis for selection of continuing research (see chapter 5). Apart from the questionnaire, a search was started for existing material, research and publications on interesting PV projects and existing impact studies to complement this inventory phase with secondary material.

4. Preliminary results

Because the research is still on-going, it is too early to draw conclusions, but the preliminary analysis of questionnaires and secondary material points towards:

1. the major part of the projects involves SHS mainly used for lighting and radio/TV. Almost all cases report that these SHSs are used for work and education in the evening. There is not enough data however to come to a conclusion on the impact this has on income generation.

An evaluation study by the World Bank[12] on PV projects in four countries, concluded that the major impact of SHS is on the living conditions women and children, giving them more time for domestic tasks, homework, leisure, etc.; in general providing more flexibility in their leisure-work choice. No conclusive evidence was found for a significant impact on rural income generation. A DANIDA-sponsored study in Nepal[13] registered a positive impact of SHS through improved health and hygiene and time-saving on household chores. These impacts are often not registered in economic terms because of the non-monetary nature of women's household work, but they can be significant and ways should be found to value this.

2. a considerable amount of productive uses are reported by projects:

The examples of ENERSOL/ADESOL in the Dominican Republic, Genesis in Guatemala and Grameen Shakti in India show that small PV systems on credit can help rural people - even in some of the poorest rural sectors - to develop business opportunities, if accompanied by a SMME-approach[14]. In the case of Grameen Shakti, most of the loans go to female entrepreneurs since they have proven to be more reliable, registering a 98% recovery rate on loans. Recorded benefits are: extended working hours, extended selling and shopping hours, increased income in microenterprises led by women, including basket making, electronic repairs, carpentry workshop, tailoring, fish net weaving, and installing and servicing PV systems. These are a few cases in which detailed data on income generation is available.

3. PV projects for social and community services mainly include PV for health-care centres, schools and telecommunication. More than a third of the projects indicate an impact of these systems on productive activities, like handicraft-making and sowing. Other impacts include: higher health standards, time liberation especially for women, education and homework in the evening and improved information and communication.

In several countries innovative approaches have been used to provide rural communities with PV for social and community services. In Colombia PV systems for rural health clinics have been combined with a station charging batteries for a fee that more than covers costs, thereby making the community help finance the clinic's system.

Initiatives in India and South Africa effectively implement the concept of integrated rural energy delivery by combining the financing, installation and servicing of PV systems with the distribution of LPG for cooking. In South Africa different "packages" are available for different needs and income levels, based on extensive research[15].

Another emerging trend is the use of hybrid systems, e.g. PV/wind or PV/diesel to power minigrids or high power-consuming appliances, where diesel sets can be seen as a more economic back-up energy source for PV systems than batteries for large loads.

5. The road ahead

At present FAO study is taking stock of PV projects and their areas of use and impact, identifying in the process what other needs for information there are.

First evidence from materials collected, questionnaires received and interviews give the impression that PV systems are not only providing "quality of life" improvements, but can also have their impact on home and village economics. Other examples show that - although PV still has a limited application range - combinations of PV and other energy technologies can provide the desired energy demands in rural areas starting from the basic question: How to satisfy the variety of energy needs of the population of a given area over a given period of time most efficiently and at least cost.

In many cases a combination of supply options, e.g. PV for high-quality lighting and refrigeration, kerosene/candles for ordinary lighting; wood, charcoal, kerosene or LPG for cooking and heating; PV/windmills/diesel for water pumping, etc. may well satisfy basic demands at much lower costs.

It should be restated that the results described in chapter 4 are preliminary and not necessarily representative. More questionnaires are still to be returned and projects to be analyzed. Until now very low response was received from PV projects in the African region. Also the main part of the returned questionnaires has come from "projects" in the sense of development projects sponsored by NGOs, governments and international organizations, while a large part of the PV-distribution (especially Solar Home Systems) is done through direct commercial sales. These flaws will be targeted in the remaining part of this inventory phase, which will last until the end of 1999.

Another drawback, which will have to be addressed in the next phase however, is the lack of quantitative or even more detailed data on impacts, despite specific efforts to search for this type of information. The hypothesis that little of this type of data is available seems to come true. In identifying interesting projects and applications with a significant and sustainable impact on rural development, the aim is to identify those applications that are replicable and under which conditions. What is their Cost/Benefit ratio? Can the benefits be measured in monetary terms or in another more qualitative way? Some innovative PV-applications might be interesting but not prove to be sustainable or replicable (yet), but are worth further investigation. Apart from the innovative PV-applications, programmes and approaches are identified which can maximize the diffusion and impact of PV systems, through credit, accompanying (integrated) programmes or integrated energy approaches. All of this requires more, detailed research.

Follow-up: signalling the way forward

After the inventory phase, a clearer picture should exist of areas of further research and this should be the input to:

  1. in-depth impact assessment of some of the projects identified with a major impact on rural development (especially on income generating activities), including field assessments;

  2. a discussion including interested parties worldwide on how to organize PV projects to optimize the impact on rural development and subsequent implementation. Depending on the interest generated, the discussion could be in the form of meetings, a round-table, (electronic) conferences, discussion groups, etc.

In this follow-up process FAO is actively looking for cooperation and alliances with other interested parties in the field of PV rural electrification. Reactions so far have shown a keen interest in cooperating in the process of generating better data on impact and performance of PV systems in the field as a basis for future action.


Notes

1. GLAERS was created in 1989 with the support of FAO and has its Permanent Secretariat together with the Conferencia Latinoamericana de Electrificación Rural (CLER) in Uruguay.

2. World Bank, 1996; and World Bank 1995

3. In Latin America and the Carribean, the annual growth of electricity demand declined from 9.8% over 1975-1980 to 5.7% in 1980-1985; and 4.6% in 1985-1990

4. In 1980 only 3 countries in the region had total system losses (% of net generation) higher than 20%; in 1992 this had risen to 9

5. Fluitman, 1983; Pearce and Webb, 1987; Desai, 1988; Foley, 1990; Munasinghe, 1990; Ramani, 1992; Schramm (1993)

6. Costs of rural connections in these periods varied between 230 and 1800 US$ (Cabraal, 1996)

7. Barozzi,/Guidi, 1993

8. amo others Amado/Blamont, 1992

9. Cabraal et Al., 1996

10. Wouters e.a., 1997

11. referring to SHS

12. ASTAE, 1994

13. Karki, 1999

14. reminding of the productive uses programmes in the 'conventional' rural electrification programmes

15. EDRC, 1996



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