Solar home systems can help to bridge the electrification gap in developing countries—if certain conditions are met.
About a billion people have no access to electricity. While progress in lessening that figure has been steady, it is still likely to be at least 870 million in 2020.1Expanding the grid is part of the answer to the question of how to bring power to these people, but it is not the only one. Many countries in sub-Saharan Africa and South Asia,2which make up 90 percent of the world’s unelectrified population, are also exploring off-grid solutions, including solar home systems (SHSs). So are countries in the Caribbean and Southeast Asia, which account for most of the remaining unelectrified population. The global market for SHSs has grown 23 percent a year since 2012,3representing more than four million units installed.
Solar systems can serve homes that are too remote, that are too poor, or whose energy consumption is too low to make a grid connection economical (see sidebar “What a solar home system does”). They can also be useful for households connected to the grid whose power supply is still unreliable. Our assessment of the 39 countries that represent more than 90 percent of the unelectrified population found that, based on projected grid expansion, population growth, and consumers’ ability to pay, as many as 150 million households could benefit from SHSs by 2020 (Exhibit 1).
That number of households is the potential. For it to become reality—or perhaps even outperform projections—we have analyzed what countries are doing best when deploying SHSs and why they are succeeding. On that basis, we identified the key issues developing markets need to face if they want to encourage the formation of a healthy and sustainable SHS market. Our conclusion is a hopeful one: none of these problems is insoluble. In fact, there are good examples at work in each instance.
Conditions for success
The following five factors matter most in attracting investment to the sector:
-Off-grid regulations. A positive regulatory environment for SHSs includes recognizing them as a possible electrification solution; articulating how grid expansion will evolve; accepting global product standards; and imposing low or no import duties on solar products and accessories.
-Business environment. Solar companies need a stable environment in which to operate. This includes clear policies on licensing, employment practices, and repatriating profits. As SHS companies are usually financed in US dollars or euros but SHSs are paid for in local currencies, SHS companies value a stable local currency. Volatile exchange rates can wipe out their profits.
-Logistics and channels. Distributing SHSs in rural areas can be difficult. Therefore, good road networks and the ability to create broad networks of distribution partners, such as post offices, banking agents, microfinance institutions, and even gas stations, are critical to fostering large-scale deployment.
-Affordability and willingness to pay. There must be enough customers with sufficient cash flow either to purchase an SHS system outright or make a deposit and then follow up with regular payments (called “pay-as-you-go”). They must also be willing to pay based on trade-offs with their current energy spending and positive perceptions of solar products.
-Ease of payment. To keep the cost of collection low, when the pay-as-you-go model is used, an intermediary is required to facilitate payments. Access to these intermediaries, such as mobile money providers and microfinance institutions, is critical.
After evaluating these five factors, as well as other indicators, we evaluated countries according to their readiness for widespread SHS adoption (see sidebar “Understanding our analysis of SHS readiness”). This ranks the 39 countries that compose more than 90 percent of the global unelectrified population on how ready they are to increase SHS deployment (Exhibit 2).
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