Home Solar Systems Provide Appealing Solution to Increasing Electricity Demand

By Aedan Kernan, Greenwell Consulting
January 2012

Demand for electricity is growing in Bangladesh, but geographic barriers and the lack of economic influence in poor, rural areas have inhibited the government’s efforts to expand the electricity grid. Currently, 45% of the population has access to electricity from the grid.

To address the challenges of providing geographically distant and economically disadvantaged areas with access to electricity, entrepreneurs in Bangladesh began installing solar home systems in 1996. At that time, only 15% of the population of Bangladesh had access to electricity. Grameen Bank, the global pioneer in microfinance led by Dr. Mohammed Yunus, spearheaded the efforts to install solar and established a renewable energy program called Grameen Shakti. Dipal Barua was its first managing director.

Barua recalls their first solar home system used a 17-watt panel to power a solar light. In 1996, solar modules cost as much as US $7 per watt – far too high a price for Bangladesh’s rural poor. But, as costs decreased and financing became more accessible, there was tremendous interest in installing solar systems. Barua noted that the important tipping point was getting the payments on a solar system close to the weekly cost of kerosene. Barua explained that solar prices do not have to match the cost of kerosene to encourage the public to make the switch, because solar power has advantages that kerosene cannot match. “You can’t watch television using kerosene!” said Barua.

By 2003, there were 20,000 solar home systems in Bangladesh. But in a country of more than 150 million people, solar penetration was minimal.

Soft Loans

The popularity of solar home systems prompted the World Bank to supply soft loans beginning in 2003 to NGOs or microfinance organizations that invest in solar home systems. Other multinational donor agencies involved include the Asian Development Bank, the Islamic Development Bank, the UNDP and the German development Bank KfW. The international funding was provided through the Bangladeshi state’s development organization, IDCOL. Organizations providing solar systems to the public were loaned 80% of the cost of the systems plus a small grant of around US $90 to fund development and to subsidize the capital costs.

By 2011, about 30 organizations were installing more than 40,000 solar home systems a month. Grameen Shakti alone had installed more than 600,000 of the solar home systems.

Today, this strategy still proves a viable force for providing energy access in Bangladesh. In November 2011, the World Bank announced it would provide US $172 million in financing for solar home system installations in Bangladesh. The money will be provided to microfinance organizations to loan to the rural poor, enabling them to purchase solar systems over three years.

Keeping Costs Local and Low

Today, a typical householder installing a 50-watt peak system could expect to receive a three-year loan of around US $300 at 12% flat interest rate. Including interest payments over the term of US $110, the householder would expect to pay a monthly installment of US $11.50.

Villagers are trained to maintain the systems and were able to create additional services, such as repair and quality control, that added value and dynamism to the offer. The continuous drop in the cost of solar modules to below $2 per watt also helped stoke demand.

IDCOL has set a goal to install 2.5 million solar home systems by 2014. The government is also planning for 500 MW of renewable energy capacity by 2015. Approximately 340 MW of that new capacity will be generated from systems installed on residential, commercial and industrial buildings, as well irrigation pumps, mini-grid systems and solar parks. All new high-rise buildings in cities will be required to incorporate solar panels.
The two biggest barriers to achieving the ambitious targets for solar home systems are the cost of the batteries and the costs of payment collections, according to Dipal Barua. He believes that more competition in the battery market would help to keep some downward pressure on battery prices. In addition, it can be time consuming and expensive to make regular collection calls to homes with financed solar installations. When the resident is unavailable or does not have funds to hand, the collector may have to return two or three times.

But Barua is optimistic. “I believe that if the costs of the distribution mechanism can be brought down there will be a multiplier effect after 2015,” he said.

Grameen Shakti’s Solar Home System Offer

Capacity Home Appliances Other Components Total Price
40 Wp 3 lights, each 6-W capacity One 40 Wp solar panel
One 55 Ah industrial battery
22,500 taka (US$328)
50 Wp 4 lights, each 6-W capacity One 50 Wp solar panel
One 80 Ah industrial battery
28,000 taka (US$408)
65 Wp 6 lights, each 6-W capacity One 65 Wp solar panel
One 100 Ah industrial battery
34,000 taka (US$496)
85 Wp 7 lights, each 6-W capacity One 85 Wp solar panel
One 130 Ah industrial battery
42,500 taka (US$620)
120 Wp 10 lights, each 6 W capacity One 120 Wp solar panel
Two 100 Ah industrial batteries
65,000 taka (US$948)
130 Wp 11 lights, each 6-W capacity One 130 Wp solar panel
Two 100 Ah industrial batteries
68,000 taka (US$991)

Source: Komatsu, 2011