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Renewable Energies series

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UNESCO TOOLKIT OF LEARNING AND TEACHING MATERIALS

Solar Photovoltaic
Project Development

Herbert A. Wade

UNESCO PUBLISHING
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In the same series:

Geothermal energy
Solar detoxification
Solar photovoltaic systems: technical training manual

The designations employed and the presentation of material

throughout this publication do not imply the expression of any
opinion whatsoever on the part of UNESCO concerning the legal
status of any country, territory, city or area or of its authorities,
or concerning the delimitation of its frontiers or boundaries.

The author is responsible for the choice and the presentation of the
facts contained in this book and for the opinions expressed therein,
which are not necessarily those of UNESCO and do not commit the
Organization.

Published in 2003 by the United Nations Educational,

Scientific and Cultural Organization
7, place de Fontenoy F-75352 Paris 07 SP
Typeset by S R Nova Pvt. Ltd., Bangalore, India
Printed by Jouve

ISBN 92-3-103903-2
© UNESCO 2003
All rights reserved
Printed in France
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Developing countries face an overall situation of limited
energy resources and applications, particularly in rural
areas, and there is an urgent need to address this
situation. Limited energy resources and applications pose
a serious constraint and barrier to social and economic
development, and present significant challenges and
opportunities for renewable energy. Renewable energy
sources include biomass, solar energy, wind and
hydropower. Many of these energy sources have been
used for millennia — the sun and wind in drying and other
direct or ‘passive’ applications, while biomass has been
the ‘active’ staple energy source since our ancestors
discovered fire. Moreover, water and wind power have
been used as energy sources since the earliest driven
machinery. Most recently, the use of solar power in
photovoltaic systems has become synonymous with
renewable energy at the smaller household level.
Renewable energy is also synonymous with sustainable
development and has been linked, more recently,
with poverty reduction. While the use of renewable
energy is the epitome of sustainability, whether and to
what extent such applications will reduce poverty is a
more complex question. Solar PV systems are most
applicable in rural and remote areas that have no access
to electricity grids — places that are often the habitats of
poor people in developing countries. But PV systems are
very expensive for these people, who also have other
priorities such as water, housing and education. Although
there are undoubted benefits, a crucial issue in the
Preface
introduction of PV household systems is the need for
suitable financial support systems. If the need for such
loan or rental arrangements is not recognized and
addressed, the users will undoubtedly face additional
burdens. Other forms of renewable energy also require
promotion as part of an overall approach to energy
sustainability and poverty reduction. These include
biomass stoves, ovens and related applications,
solar drying, water heating, wind and hydropower — the
form of energy chosen depending on the local situation.
Measures to address the problems of global warming
and sea-level rise and promote sustainable development
have been strongly advocated since the Earth Summit
in Rio in 1992, and have cited the development,
innovation and utilization of renewable energy
technologies as an effective means of addressing these
problems. There have been widespread calls for the
reduction of greenhouse gas emissions, highlighting
the importance of domestic actions and the benefits of
encouraging renewable energy and energy efficiency.
This was again a focus of the World Summit on Sustainable
Development in Johannesburg in 2002, with renewable
energy forming a component of the WEHAB agenda.
The challenge is to translate high-level political
commitments into concrete activities that are of benefit to
the world as a whole. Fifty years from now,
few will doubt the important role that renewable energy
plays in sustainable development. The challenge is
how to move towards this future. This toolkit, consisting of
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vi Preface

two companion volumes — Solar Photovoltaic Systems:
Technical Training Manual and Solar Photovoltaic
Project Development, will help us to move in this direction
in the field of household PV systems.
I would particularly like to thank Herbert Wade for the
development of the toolkit. I would also like to thank my
colleague, Tony Marjoram, for his role in bringing this
about, and Akio Suzuki, for the development of the
UNESCO Renewable Energies series.
Walter Erdelen
Assistant Director-General for the Natural Sciences
UNESCO
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Contents

Foreword xiii

Acknowledgements xv

Chapter 1 Development 1
Introduction 1
Development as change 1
Defining development 1
Requirements for economic development 1
Perceived value of development at international level 2
Perceived value of development at community level 2
Development and electrification policy 3

Chapter 2 Project design for photovoltaic electrification 5

Introduction 5
Pre-electrification or electrification 6
Assessing the needs of users 6
Economic assessment of projects 7
Technical design of installations 7
Choice of equipment 8
Installing PV systems 8
Maintenance organization and user education 9
Conclusion 10
Summary 10
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viii Contents

Chapter 3 Rural electrification for developing countries 11

Introduction 11
Rural economic development considerations 11
Advantages of rural electrification in economic development 12
Rural electrification and development policy 13
Non-technical problems in rural electrification in developing countries 15
Organizing for rural electrification 16
Determining the mode of electrification 16
Basic criteria for rural electrification 16

Chapter 4 Development of rural electrification policy 19

Basic policy concepts 19
Basic requirements of a national rural electrification policy 20
Policy layers and policy stability 20
Developing policy 21
Bringing it all together 22
Policy considerations 23
Summary 26

Chapter 5 Basics of rural electrification project design 29

Introduction 29
Project quality 29
Determining goals 29
Goals and terms for rural electrification projects 30
Project goals 31
Project design 32
Determining available resources 32
Detailed design 33
Summary of project design basics 34

Chapter 6 User needs assessment through site surveys 35

Surveys as project design tools 35
Pre-survey data collection and analysis 35
Selecting surveyors 36
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Contents ix

Selecting units to be surveyed 37

Survey questions 38
Who supervises? 39
What questions are asked? 40
Analysing the results 42
Project decisions based on user surveys 44
Summary 44

Chapter 7 Forecasting rural demand for electricity 45

Importance of accurate forecasts of demand 45
Methods of forecasting demand 45
Your forecast will never be 100% accurate 47

Chapter 8 Project organization 49

The task 49
Skills required 49
Creating an effective organizational structure 50
Creating the organization 51
Changing the organization as the project develops 51
Institutional organization for rural electrification 54
Conclusions 56

Chapter 9 Obtaining and using consultants 57

What are consultants? 57
Why hire consultants? 57
Establishing consultancy specifications 58
Locating suitable consultants 58
Evaluating consultant responses 59
How do consultants set their fees? 60
How much do you pay? 60
Negotiating with consultants 61
When do you pay? 61
Working with consultants 62
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x Contents

Chapter 10 Economic and financial analysis 63

Economic versus financial analysis 63
Absolute versus relative analysis 64
Financial analysis overview 65
Life cycle cost 67
Procedure for life cycle cost analysis 68
Analysis for decision-making 69
Sensitivity analysis 71

Chapter 11 Determining the best type of rural electricity system 73

The technology decision 73
Centralized power versus individual solar power systems 75
Disadvantages of individual solar PV systems over central power 77
Determining the mode of electrification 78
Fitting photovoltaics into rural electrification policy 79
Barriers to individual system implementation 79
Conclusions on solar power for rural electrification 81

Chapter 12 Funding for projects 83

External funding is usually needed 83
Sources of funds 83
Arranging combinations of funding 86
Finding the available funding agencies 88
Fitting the project proposal to the funding source 88
Funding agencies want to give money 89
Help in locating funding 89
Summary and conclusions 90
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Contents xi

Chapter 13 Preparation and submission of a proposal 91

Understand the approval process 91
Obtain pre-approval as much as possible 91
Appearance is important 91
Weight does not count 92
Contents of proposal 92
Who do you submit the proposal to? 93
Learn from successes and failures 93

Chapter 14 Technical design processes 95

Introduction 95
When is technical design done? 95
Who does the technical design? 95
Technical design cost 96
Technical design criteria 97
The completed design 97

Chapter 15 Budgeting 99
Why budget? 99
What to budget 99
Using budgets in project management 101

Chapter 16 Specifying and purchasing equipment 103

Direct purchase 103
Agency purchase 104
Competitive tendering 105
Open tender 106
Successful tendering 106
The tender process 106
Evaluating tenders 109
Who does the evaluation? 110
Making the final selection 111
Good tender evaluations follow good tender specifications 111
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xii Contents

Chapter 17 Keeping a PV project operating 113

What is maintenance? 113
Records 113
Preventive maintenance for solar electricity systems 114
Maintenance functions 114
Repairs 115
Checklist of maintenance activities 115
Summary 115

Chapter 18 Spare parts systems 117

Spare parts requirements 117
Obtaining historical data 118
Security 119

Chapter 19 Special considerations for solar utilities 121

What is a solar utility? 121
Service not solar 121
Sales versus rental (RESCO) 121
RESCO structure 123
Characteristics of a RESCO 124
Advantages of RESCO structure 124
Disadvantages of RESCO structure 125

Chapter 20 Solar utility management 127

Introduction 127
Comparing sales and RESCO approaches 127
Technical and customer monitoring 128
Life cycle cost, not first cost, should determine design 129
Fee collection 131
Customer records 134
Company records 136
Operations management 138
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A variety of smaller-scale solar and renewable energy
technology applications were developed and promoted in
the 1970s and 1980s. These include solar photovoltaic
systems for lighting, battery charging, refrigeration,
communications and water pumping. Direct or ‘passive’
solar applications included water heating, crop drying
and solar architecture. Wind, used over generations for
water pumping and power, was applied to electricity
generation. Hydropower was also developed at
micro- and mini-hydro level. Improved cooking stoves
and ovens enhanced the efficiency and use of biomass
resources. More recent technological applications include
hybrid systems, energy cogeneration, small-scale
distribution systems and solar desalination.
With few models to follow and such a variety of
innovative technologies and approaches, it is not
surprising that success was equally varied. There was an
emphasis on technological hardware rather than the
‘software’ of innovation, operation and management that
was often supply-driven rather than demand- or user-
driven. In the case of relatively expensive photovoltaic
solar home systems, for example, this included the
problems of affordability and the ‘front-end loading’ costs
of PV systems — and the consequent need for financial
support through small loans or rental schemes.
Lessons were learned and improved technology and
management systems developed. Many developing
countries are now looking to expand and enhance the use
of technology applications for solar and renewable energy
Foreword
resources. Solar photovoltaic home systems, mainly for
household lighting, are a particular area of interest.
Many challenges, constraints and barriers remain,
however, to the use of renewable energy and promotion
of associated technologies. These include awareness-
raising, advocacy, information, communication,
management, maintenance and the development of
human and institutional resources. Policy and planning
frameworks and instruments are required to promote
institutional awareness and innovation of renewable
energy systems in the public and private sectors.
Awareness-raising and advocacy are necessary to
promote renewable energy to policy-makers, planners, the
general public, the private sector, schools, the media and
other potential stakeholders and interested parties.
Advocacy activities include the need to promote solutions
to constraints and barriers. Renewable energy
technologies are innovations and require conventional and
innovative approaches for promotion and support. This
includes demonstration pilot projects and the promotion
of good practice through networking and centres of
excellence. The development and provision of appropriate
payment facilities for households, entrepreneurs and small
businesses are vital in promoting the use of renewable
energy systems.
Information and communication strategies include the
need to use ‘conventional’ materials, information and
communication technologies (ICTs) and multimedia
approaches to serve an advocacy role in both promoting
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xiv Foreword
renewable energy applications and providing learning
and teaching materials for education and training.
Management and maintenance are required of
renewable energy systems in terms of monitoring and
evaluation performance, maintenance needs and
durability. Maintenance and rehabilitation are required
to promote efficiency and sustainability of existing
renewable energy systems and the sustainability of new
systems.
The development of human and institutional resources
is essential to support this process, and education and
training at primary, secondary and tertiary levels are of
particular importance to demonstrate and promote the
concept and use of renewable energy. This includes
projects in science and technology teaching and the
use of photovoltaic lighting and other equipment in
‘solar schools’. Training in the application, installation and
management of solar and renewable energy systems is
also vital, as is the need for good learning and teaching
materials in this area.
The toolkit consists of two companion volumes — Solar
Photovoltaic Solar Systems: Technical Training Manual
and Solar Photovoltaic Project Development.
The technical manual, in landscape format, has greater
detail, text and graphics. Solar Photovoltaic Project
Development has no graphics and smaller font text, and
is intended more as a text for teachers both to support
the technical training manual — making it easy to relate
student and teacher materials, and to discuss wider issues
relating to project development for solar photovoltaic
systems.
The overall objective of this toolkit is to provide
comprehensive training material on the innovation,
application, installation, operation, monitoring and
evaluation, management maintenance and rehabilitation
of PV systems as well as providing useful information for
advocacy, awareness raising, innovation, policy and
planning.
The toolkit has comprehensive technical, educational
and geographical coverage. It provides a complete course
in PV applications for rural electrification at three levels:
instructor, senior technician and field technician.
The toolkit is based on experience gained in the
Pacific, where renewable energy was pioneered,
and the islands served as a particular ‘laboratory’ for solar
photovoltaics and rural electrification in the 1970s and
1980s. Pacific Island communities face particular problems
of small size, remoteness and isolation — by sea on
smaller islands and by land on larger islands. Over 75% of
Pacific islanders live in small, scattered communities in
rural areas and outer islands, and over 70% of islanders,
mainly those in rural areas and outer islands, have no
access to electricity. The Pacific Islands have a high
dependency on imported hydrocarbon fuels — often the
major import. As the islanders face threats of global
warming and sea-level rise, it is appropriate that
recognition is given to the pioneers of renewable energy
in the Pacific and the small island states that have such a
particular interest and concern in the success of
renewable energy and sustainable development.
This toolkit is based on two excellent manuals of
training materials produced in the 1980s by Herb Wade,
a specialist in PV practice and applications then working
with the Pacific Energy Development Programme. That
material has long been out of print and Herb has been
happy to revise and update it for wider publication and
distribution, creating the attractive and useful toolkit we
see here. Herb Wade therefore deserves particular thanks
and acknowledgement for the preparation and production
of this toolkit, as does Gloria McConnaghy for the
illustrations.
Tony Marjoram
Basic and Engineering Sciences
UNESCO
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Acknowledgements
This text is a major revision of a 1980s teachers’ source
book prepared by the author for a course sponsored by
the South Pacific Institute for Renewable Energy in
Mahina, Tahiti, French Polynesia. The revisions are the
benefit of twelve more years of PV rural electrification
experience by the author plus the expansion of that
experience to include many Asian and African projects.
The book in its present form would therefore not be
possible without the specific support and assistance of PV
project personnel from Bhutan,
the Cook Islands, Federated States of Micronesia, Fiji,
India, Indonesia, Kiribati, Marshall Islands, Morocco, Palau,
Papua New Guinea, the Philippines, Sri Lanka, Tahiti,
Thailand, Tonga, Tuvalu, Zambia and Zimbabwe.
The readability of this book is largely due to the efforts
of Ms Caroline Lawrence who did a great job of translating
my English into the real thing and ensuring that the text is
consistent and accurate. I would also like to thank
Mr David McDonald of UNESCO who was a genuine pleasure
to work with in the publishing of this book.
Particular thanks are due to Mr Tony Marjoram of
UNESCO, whose vision and support made possible the
revision and publication of the material.
Herbert Wade
Bangkok, 2002
Chapter-1.qxd 11/8/03 11:02 AM Page 1
Introduction
Rural electrification is a component of rural development.
Several definitions of development are in common use
and one of the first considerations in designing rural
electrification projects must be to decide what the
development goals are for the programme.
Development as change
Development implies change. Whether the changes that
follow development are advantages or disadvantages
depends on the observer’s point of view.
Most governments consider a change to be for
the better if:
· it results in better integration of the country into a
nation rather than just a loose conglomeration of
individual districts
· trade increases within the country
· the affected population wants the change to occur,
i.e. it is politically popular
· the rate of rural migration to urban areas decreases
· the financial dependence of rural areas on urban areas
decreases
· social tension decreases in the affected district.
Some governments also consider a change to be an
improvement if it increases Westernization, while other
governments consider this a disadvantage.
Development 1 CHAPTER 1
Defining development
Rural development is most commonly defined in the
economic sense. The goal of economic development
programmes is basically to change economic patterns
from locally based barter and communal subsistence to
a money-oriented economy with economic interactions
extending far beyond the local level.
Another valid definition of rural development is the
improvement of living conditions. This is usually achieved
through advances in housing, sanitation, water supply,
health services and communications, and often referred
to as social or quality of life development.
These two approaches to development philosophy are
linked. Improving personal living conditions generally
produces conditions favourable to economic development
and economic development usually leads to an increased
cash flow in a community that is often used to improve
living conditions. Programmes directed towards both
modes of development may be operating simultaneously,
with some emphasizing economic development and others
social development.
Requirements for
economic development
Which approach is used depends on the development
philosophy adopted by government and what it perceives
to be needed in rural districts. To succeed in economic
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2 Solar Photovoltaic
Project Development
development, the following must be true of the
development site:
· There is a production facility that can produce goods
for sale at an acceptable price.
· There are sufficient willing, trained people to operate
and administer the facility.
· Local financial institutions are available so there is
access to capital and easy money transactions.
· There is a stable, long-term market for the goods that
can continuously absorb the quantity produced at an
acceptable price.
· There is a stable, long-term source of raw materials
that can supply the quantity needed at an acceptable
price.
· There is transport available at a low enough price and
often enough to provide adequate access to suppliers
and markets.
· The project provides a profit to the community
without a long-term subsidy from outside, though it
may be reasonable to subsidize initial capitalization
and sometimes even start-up operations.
· The project has the support of the community where
it is located.
· There is access to adequate supplies of economically
acceptable energy to operate the project.
If any one of these factors is not present at a site,
economic development generally does not occur.
Sites proposed for social development must also meet
a set of criteria before success is possible:
· The proposed development project must be desired by
the recipients.
· The recipients must be willing and able to bear
preferably all, but at least a major portion of, the
recurring costs associated with the project.
· Adequate willing and trained labour must be available
locally for operation and maintenance of project
hardware.
· Adequate financial, administrative and technical
support must be available. If not present within
the community, it must be made available from
outside.
Development through standard of living improvement can
be expected to succeed only if all these factors are
present.
Perceived value of development
at international level
A goal of the governments of industrial nations and
developing countries is to lessen the gap in living
standards that exists between the two groups of
countries. The ‘North/South’ polarization that now exists
largely because of this development gap is recognized as
causing international stress and its reduction and ultimate
elimination has resulted in such activities by the industrial
North nations as the Lomé series of development
agreements and the creation of numerous international
development organizations, as well as extensive
development plans on the part of the non-industrial
South nations.
Electrification is one of the factors in the disparity
between North and South. By making electricity available
to the minimally developed rural areas of the South,
national governments of developed and developing
countries believe that there will be some closing of the
development gap.
Partly as a result of this international belief, rural
electrification has become a significant component of
developed country aid budgets and developing country
funding requests.
Perceived value of development
at community level
In any social development project, the actual value of the
project is in direct proportion to the value of the project
as perceived by the community. If a community really
wants rural electrification, it will be much more likely to
operate and maintain the system properly and pay the
inevitable price for having electricity than a community
that sees electrification as a low priority. Unlike
grid-extension rural electrification, stand-alone electricity
systems must have the solid support of the community
even when a national electricity agency owns, operates
and maintains the system. Community-scale grid-based
systems, such as micro-hydro or small diesel generators,
are very sensitive to the undisciplined use of high-load
appliances such as electric frying pans and electric kettles.
Without community-wide cooperation in the use of
high-load appliances, system reliability suffers. In the case
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of individual home solar photovoltaic systems, community
discipline is also needed to ensure that systems are
operated correctly and are not modified in ways that
lower their reliability and lessen component life.
A reasonable measure of the genuine desire of a
community for rural electrification is its willingness to pay
for it both in terms of money and commitment in time and
effort. Rural electrification should not be considered an
essential service such as sanitation and water supply, and
should be installed only where communities provide
adequate evidence of their willingness to accept significant
financial and operational responsibility for the project.
Development and
electrification policy
In designing rural electrification projects, both economic
and socially-oriented development should be considered.
For economic development, electrification policy should be
designed to facilitate increased investment in commercial
activity. For socially-oriented development, electrification
programmes should aim to improve personal and community
health and comfort through such things as better lighting,
food storage, entertainment, communications, education,
health services, sanitation and water supply.
Role of rural electrification
in economic development
Although electricity is often necessary for economic
development, there is no evidence that industry is
attracted to rural areas simply because electricity is
available. The reasons behind this conclusion are:
1) Other factors are more limiting. The relative
isolation of many rural districts is a major factor in
limiting economic development. The difficulties in
obtaining supplies and transporting finished products
to market are far more limiting than the lack of an
electricity supply.
2) Electricity is a small part of production cost. With
the exception of some mineral-processing industries,
electricity costs represent less than 10% of
production costs for most rural industry. This means
that any price differential between diesel
self-generation and commercial power usually has
little effect on the cost of production and is
Development 3
therefore not a major factor in deciding for or
against development of these industries.
Because electricity is a minor factor in rural economic
development, it is not cost-effective for government to
allocate more than a minor amount of economic
development funding for rural electrification. A rural
electrification policy directed towards economic
development should not attempt to electrify rural areas
in the hope of attracting industry, rather the policy
should be directed towards assisting industry by providing
electricity at the industry site after the major problems of
raw material supply, capitalization, marketing and
transportation have been solved.
Conclusions
The presence or absence of commercial electrical power
in a rural area generally has little effect on the
economic development in that area. Providing electricity
has even been known to slow economic development of
a rural community because community resources have
been diverted to operating and maintaining the
electrical system instead of being invested in productive
activities. While it is true that rural areas that are
economically developed usually have electrical power,
investigation usually shows that the presence of
commercial electrical power is usually a result of the
development and not the reason for it.
Role of rural electrification
in social development
A summary of the relationships between social
development and rural electrification:
Advantages
1) Electricity is desired by most rural dwellers.
As rural dwellers perceive electricity as an improvement
in the quality of life, it fills a social need.
2) Gradual integration of rural areas into modern
technological systems. Rural electricity directly
affects individual households, bringing them into
closer contact with modern technology. Most other
rural development is either low technology, such as
community sanitation and water supply developments,
or high technology that only affects a specialized
group of people at an industrial or government site.
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4 Solar Photovoltaic
Project Development
3) Increased quality of public communications. The
availability of rural electricity for telecommunications,
radio, television and video presentations can provide
rural districts with more varied entertainment, better
national integration and improved public health and
safety.
4) Better-quality education. Improved home lighting for
study, electric lighting for school study rooms, the
availability of electrically powered audiovisual
equipment, computers, improved living conditions for
teachers and electrically powered office equipment to
support teacher efforts, can all help to achieve higher
standards of education in rural schools.
5) May encourage the return of migrants to urban
areas. There is reason to believe that those who have
migrated to urban areas for economic reasons are
more likely to ultimately return to their rural homes,
bringing their skills and wealth with them, when
electricity is available.
Disadvantages
It must always be remembered that rural electrification for
social development always reduces the amount of money
in a community because of the need to pay outside the
community for electrical service and appliances. Thus, it
may actually reduce the rate of economic development
because the loss of funds in the community will reduce the
funds available for capitalizing and operating productive
projects. Therefore any community selected to receive
electricity should already have a substantial economic base
so that the addition of electricity does not reduce the
ability of the village to invest in projects that will make
more money and allow future economic development.
There have been several cases in developing countries of
electrification projects that substantially lowered the rate
of economic development of villages because of this net
cash outflow. In one case known to the author, the village
ultimately abandoned the electrification because it was
bankrupting the village. For villages with little money
available, electrification should be accompanied by projects
that will increase cash input to the community from
outside. Note that certain projects made possible by access
to electricity, such as providing films for the community,
organizing dances or community entertainment for a fee,
do not improve the community’s cash position, they only
move money around within the community. To improve
the community’s cash position, money must come in from
outside through the sale of goods or services to urban
areas or other communities.
1) Electrification may increase the migration of
young people to urban centres. There is a widely
believed development myth that providing electricity
reduces urban drift. In fact, electricity generally
increases urban drift — at least in the first few years
of service. In the early stages of rural development
while little opportunity exists for making money in the
area, young people may be sent by rural families to
urban areas to work for the money to pay for
electrical services and appliances.
2) Other rural quality of life development may be
slowed. The resources necessary for rural
electrification could often be used for other rural
quality of life developments such as water supplies,
health services, roads and sanitation.
3) Increased dependence by rural areas on urban
areas. As more rural families become integrated into
the money economy, rural areas will become
increasingly dependent on urban areas for the supply
of goods and services. Financial dependence is also
increased as money is scarce in rural districts and
improvements in the rural quality of life will have to
be largely financed by urban wealth passed down
through family members living in urban areas.
4) Social tensions resulting from change. The social
distance between young and old members of a rural
community can be expected to markedly increase as
change is demanded by the young and resisted by the
old. While these tensions have always existed, the
social change brought about by imported technology
is far greater and more easily introduced than the
usual changes likely to be made in a static,
subsistence-based, agrarian society. Thus the tensions
can be correspondingly greater.
Conclusions
Rural electrification offers significant social advantages
and disadvantages. In general, government development
goals will determine whether the advantages, which all
point towards increased Westernization of the economy,
or the disadvantages, which tend to be social disruptions
following increased Westernization, are considered the
most important.
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Project design for
photovoltaic electrification
Introduction
Photovoltaic (PV) electrification is a relatively recent
innovation and much of the industry does not yet have
extensive experience, nor is there a well-developed
professional core of designers and installers. Most
projects have emphasized the sale of PV systems to users
although there is increasing use of the RESCO (system
rental, see Chapter 19) model for projects. Promoters of
PV projects have usually been implementing such projects
for less than five years and have no long-term experience
with their designs. As a result, many projects have failed
in the long term.
The most frequent reasons for PV project failures are:
1) Use of a design that is not appropriate to the
need, resulting in poor customer satisfaction. Most
PV-based rural electrification projects have provided
identical systems to all users, ignoring the desire of
wealthy users to have greater service availability and
that of non-wealthy users for minimum service. The
resulting poor customer satisfaction leads to
unauthorized addition of appliances, failure to pay
user fees and lobbying for the replacement of PV
systems with another more ‘useful’ generating
technology. The RESCO model in particular needs
several options for users in order to meet different
customer needs.
2) Incorrect component specification or selection. PV
systems are indeed systems. All components must be
matched for the system to work properly. Components
2CHAPTER 2
are often purchased without adequate consideration of
their integration into a system. Also, in an attempt to
reduce first costs, components that do not have
adequate capacity or are of poor quality may be
specified. RESCO systems need a different design
approach to systems intended for sale. Selling systems
requires close attention to first costs so designs tend
to provide the absolute minimum in component
capability for the system to survive for the warranty
period, usually one year. With RESCO, the company has
to live with the systems for the long term, so
components must be selected on a life cycle basis, not
a first cost basis.
3) Incorrect installation. Incorrect panel placement
and orientation, incorrect wire size, poor-quality
connections and incorrect battery placement leads to
lowered reliability, shortened battery life and reduced
system capacity. All installations should be checked
before commissioning.
4) Inadequate arrangements for continuing
maintenance. Without an adequate system for the
provision of spare parts, user training, PV technician
training and continuing financial support, long-term
project success is impossible.
If a PV project is to succeed, it must have a suitable
technical design and a suitable institutional design, it must
be affordable and the users’ needs must be met. The
process of PV project design and implementation is one
that, in a step-by-step fashion, determines users’ needs,
creates the technical and institutional designs, determines
Chapter-2.qxd 11/8/03 11:05 AM Page 6
6 Solar Photovoltaic
Project Development
the relative economics of the project, specifies and
purchases the necessary components and services to
implement the project, and ensures that installation,
operation and system maintenance are carried out
correctly.
Pre-electrification or electrification
Pre-electrification
In many countries, the demand for rural electrification is
much greater than the ability of the electricity supply
system to extend the grid. Delays of five or more years
are common between a request for electrical service and
its provision. One approach to reducing the political
pressure from rural communities for grid extensions is to
provide small photovoltaic systems for rural households
unlikely to receive grid extensions within an acceptable
time. The aim is not to provide long-term electrical
service from the solar PV systems but very basic service
for five to ten years.
Because these pre-electrification solar units are
specifically intended to be just a temporary measure
with ‘real’ electrical service following a few years
later, they are designed as cheaply as possible with a
‘one size fits all’ philosophy that generally only allows
the use of one or two lights and a radio or small black
and white television. Minimum institutional support is
provided, with users often made responsible for
maintenance.
Such systems may be accepted by rural customers as a
short-term solution but the limited system capacity and
low long-term reliability owing to inadequate
maintenance will give little satisfaction.
Pre-electrification projects usually cannot be logically
justified because:
· They are an inefficient use of development funds.
The funds expended on the pre-electrification projects
would usually be better spent on improving market
access roads, sanitation and communications.
· Poor long-term customer satisfaction. Customer
satisfaction with the minimum electrification provided
by pre-electrification schemes is short-lived and the
return of pressure for grid extensions is delayed only
a few years.
· High maintenance costs. The low-cost design with
minimum panel capacity results in short battery life,
lack of reliability and high maintenance cost. The
resulting poor reputation of PV as a medium for rural
electrification further lowers customer satisfaction.
Electrification
Where photovoltaic systems have been chosen to supply
the needs of a rural community and there is no intention
of providing power from another source in the
foreseeable future (10 years or more), pre-electrification
methods will not be acceptable. In this situation, the PV
systems should be designed to provide end service
comparable in quality and quantity to that which would
be provided by grid-based electricity delivery systems.
This requires individually designed systems to fit the
varying requirements and ability to pay of each rural
user. A RESCO operation is specifically intended to be a
long-term electrification process and must be designed to
meet the actual needs of the customers, not just to
provide minimum capacity while customers are waiting for
a grid connection.
Adequate long-term maintenance requires an
institutional structure that is comparable in complexity
and size to that of a grid-based electricity utility with a
similar number of customers. This requires an institution
that has adequate financial and personnel resources to
maintain the systems indefinitely. It also requires
competent management and a dedication to customer
service.
Assessing the needs of users
The systems to be installed must fulfill the desire of the
users for electrical service, to the extent of their
financial capability to meet the costs involved.
Costs
In the case of private solar electricity, where the user
pays for both the initial installation and subsequent
maintenance costs, system capacity is usually determined
by the initial cost of the system. Operating and
maintenance costs are modest but tend to occur with
long periods between relatively large expenditures for
Chapter-2.qxd 11/8/03 11:05 AM Page 7
battery replacement, making it difficult for the private
user to adequately budget for these expenses.
The most successful solar electrification projects are
those that include some process for spreading the cost of
the systems over a long period, usually through the
collection of regular small amounts sufficient to cover the
replacement of batteries and other costs of the systems.
The RESCO type of structure does this best. The customer
sees a predetermined, constant, acceptable cost and the
variations in maintenance cost are absorbed by the
company providing the service.
Needs
Assessing individual user needs is more important for
PV-based rural electrification than for grid-based systems.
This is because the PV systems are almost always individual
systems and must be matched to each individual user’s
needs. Diesel systems, local hydroelectric systems or other
grid-delivered electrification schemes can be sized on the
basis of expected load for the entire community that can
generally be estimated using load figures from comparable
communities that have already been electrified.
The most common method for PV rural electrification
has been to install the same size of PV system on each
house of an entire village or even in an entire country,
with no differentiation between the financial capability
and wishes of the different users. This is certainly the
simplest approach for project design but long-term
customer satisfaction suffers and such projects usually
have problems with unauthorized addition of appliances
and system abuse, resulting in shortened battery life and
high maintenance costs for many customers.
In areas more economically developed, where people
can afford and therefore desire more power-hungry
appliances such as colour televisions and videos, the size
of the PV systems, and as a consequence the monthly
fee, must fit each user’s needs and ability to pay or the
electrification project will be considered a failure when
compared with conventional grid supply.
Economic assessment of projects
The second step in any solar electrification project is to
assess its economic impact compared with that of other
generating technologies. The financial capability of
Project design for 7
photovoltaic electrification
developing countries is too limited to be able to afford
solar projects that are not competitive with conventional
energy sources. The decision should be economic not
financial, however. Financial factors must be weighed
against other factors such as:
· a desire for greater national energy independence
· the reduction of continuing foreign expenditures for
fuel
· continuity and reliability of the service supplied
· preservation of the environment through lowered
noise, lessened pollution, and improved aesthetics
· safety for the users (danger of electrocution, etc.).
A solar project may be higher in cost than a conventional
project but nevertheless may be preferred if the
non-financial factors swing the balance to solar. The
difficulty faced in analysis is quantifying these other
factors as their weight varies according to the attitudes
of the decision-making authority. It is up to the owner of
the project, whether private or public, to decide whether
solar or another energy source provides the best overall
technical solution.
Technical design of installations
A project must be entirely conceived on paper before
construction. Although it seems obvious, too many
projects have been carried out without completing
thorough designs that envision all aspects of the use of
the system. This technical design leads to a complete and
detailed technical specification that is used for purchasing
and installing the systems.
Among the various errors of technical design, the
following are particularly serious:
1) Central instead of individual systems. For domestic
photovoltaic electrification, the temptation is great to
design a centralized power station connected to a grid
that connects the village homes, instead of building
individual systems for each house. A central power
station with its connecting grid is often much more
costly, particularly if the housing is scattered. More
serious is the fact that over-consumption by a few
users penalizes the entire community while with
individual systems over-consumption only penalizes
the offending user.
Chapter-2.qxd 11/8/03 11:05 AM Page 8
8 Solar Photovoltaic
Project Development
2) Incorrect project sizing. Not only must the total
capacity of the installation fit the needs of the user
but the various components, such as modules,
batteries, controllers and wiring, must be correctly
matched. Many sales representatives for PV systems,
in an attempt to keep initial costs low, tend to
recommend systems with capacities inadequate for the
service required. This has been a particular problem
with systems including colour televisions and videos
which are relatively large consumers of energy.
3) Inadequate battery specification. In order to save
on capital cost, batteries are often undersized or of
inadequate quality, leading to power outages and
more frequent replacement of batteries with resulting
higher ongoing costs.
Choice of equipment
Even a well-engineered installation cannot function
properly with defective or unreliable components.
Paradoxically, the difficulties do not arise from the
new technology, the PV modules. They are the most
reliable part of the system. Appliances, batteries and
controllers are the causes of most malfunctions.
Batteries as delivered from manufacturers present two
types of problem for the technical design:
1) Lower than design capacity. Their storage capacity
in ampere-hours is almost always less than that stated
by the manufacturer.
2) Their energy efficiency may be low. The energy
available from the battery is less than 85% of
the energy that comes from the panels. A low battery
energy efficiency may be offset only by increasing the
number of modules which is, of course, costly.
Controllers can also pose problems:
1) Poor reliability. If the controller fails, the user has a
tendency to bypass it and battery failures increase as
there is no longer any protection against overcharge
and excess discharge.
2) Unstable operation. Controllers whose settings
change over time create many system problems. Poor
design that makes controller settings sensitive to
temperature, vibration, humidity or just ageing are not
unusual.
3) Excessive energy consumption. Some controllers
require an excessive amount of energy for their own
operation. Such controllers reduce the amount of energy
available to the user, which means increasing the
number of panels installed in order to meet user needs.
The appliances used with the PV system, such as lights,
televisions, pumps, etc., must also be selected for good
reliability and efficiency of operation. The appliances best
used with PV systems are those designed to be connected
directly to the direct current from the system. They are
not only as reliable as the more common ac mains
equipment but are usually more efficient users of energy.
Remember that providing high-quality and expensive
components for a PV system is a waste of money if the
appliances selected are not equally high in quality and
reliability. Often top-quality panels, controllers and
batteries are specified in a project but cheap, unreliable
lights are fitted. The ability to use appliances is the sole
reason for installing a PV system. It makes good sense to
provide appliances that work efficiently and reliably.
The equipment intended for use in PV systems in the
tropics must have been proven through test or field
experience to meet technical specifications and reliability
requirements for a difficult, hot, high-humidity,
sometimes salt-laden environment. For this reason,
various organizations, such as the Florida Solar Energy
Center, the Asian Institute of Technology and the South
Pacific Institute for Renewable Energy (S.P.I.R.E.) have
conducted long-term, systematic tests of the main
components used for solar installations. This helps to
provide the knowledge necessary to select the best
available components to ensure that installed systems will
meet their design specifications.
Installing PV systems
An economically viable project, well designed and using
the best available components, will still not function
properly if the installation is poorly carried out.
The installation must be made in accordance with a
distinct technical specification that clearly defines the
process.
Among the more common faults in installation are:
1) Errors in positioning the solar panels. Many
installers attempt to orient the panels without
Chapter-2.qxd 11/8/03 11:05 AM Page 9
reference to a compass and rely on their own
guesswork or that of the local inhabitants for
direction. Almost always, this leads to orientation
mistakes and therefore to lower power availability.
The other mistake in location is inadequate
consideration of shade from vegetation or structures,
even from other solar modules in the same array.
2) Wiring mistakes. Reversing the polarity of a single
module in an array containing many modules is a
common error that drastically reduces the power
available from the array.
3) Voltage loss due to poor connections or
undersized wire. The quality of the connections in a
low-voltage PV system is much more important than
in 120 V or 240 V wiring. Poor connections tend to
cause contact heating and excessive voltage drops
that are detrimental to the performance of the
installation. Likewise, PV system wire sizes must be
larger than those for ac mains use or excessive
voltage drops result.
4) Incorrect protection and location of batteries. The
batteries should be placed in a locked, ventilated
enclosure inaccessible to children. This is important for
safety because there is some risk of accidental
explosion of a battery and the acid is corrosive and
dangerous.
At the time of acceptance of an installation, a
commissioning inspection and report should be made. It
must be carried out according to a specific commissioning
procedure that gives the measurements and inspection
steps necessary for acceptance and commissioning. This
ensures that the installation meets the technical
specifications originally set out.
Maintenance organization and
user education
Organization
Experience has shown that most rural domestic systems
are not well maintained by the users and a centralized
maintenance system has to be organized. While it
is true that system maintenance is simple and could
theoretically be done by users, only a few households
that happen to include a member with genuine interest
Project design for 9
photovoltaic electrification
in the system have been found to perform even the
most basic preventive maintenance procedures a few
months after installation. It is not a problem of
inadequate training or the absence of written guidelines
for maintenance, it seems to be simply a lack of real
interest. So long as the systems provide a reasonable
number of hours of light, nothing is done. By the time
they are no longer providing satisfactory service,
problems have accumulated and battery life has been
seriously shortened.
This is a complex problem because of the interaction
of economic, technical, political and social considerations.
The solution is to create an organization that:
1) collects fees. There must be an organized system to
collect regular payments from the users to cover the
operating and maintenance costs and, if required, the
amortization of the capital and installation costs.
2) provides preventive maintenance and repair. The
organization must ensure, either directly or through
contracts, the periodic checking of the systems and
their repair when needed.
A most important step to be taken by this organization
is to explain in clear detail what the users can expect
from their systems and what fees will have to be paid.
Before the system installation, the recipients should be
required to sign a contract describing their benefits and
obligations. The contract should also define what the
company will provide by way of services.
Several types of structure are possible, using either a
municipal organization or a company having a contract
with the community. At this point there will be no
attempt to discuss this aspect in more detail, but its
complexity and extreme importance is emphasized.
User education
It is not necessary to give the users of a domestic solar
installation extensive technical training. However, it is
important to clearly explain to them how to use the
system properly, particularly the availability of power.
Many failures are caused by abuse of the system
either by over-consuming energy or by carelessness.
A permanently affixed plate should be included in the
installation that clearly explains in the local language the
capacity of the system and directions for its operation.
Chapter-2.qxd 11/8/03 11:05 AM Page 10
10 Solar Photovoltaic
Project Development
In particular, users should be advised of the need to
conserve energy during and immediately after cloudy
periods.
Experience shows that installers rarely take the time
to provide instructions to users and as a result the
users have a tendency to tinker with the installation,
sometimes causing serious damage. These instructions
must be posted and explained verbally to users before
commissioning.
User instruction has also been found to work best a
few weeks after the installation. Giving detailed
instructions at the time of installation does not work well
because users have no experience of the systems and
many of the things explained will have no meaning until
there is some practical experience.
Training of maintenance technicians
Technicians living near the installations should generally
be used for basic system maintenance. This allows
frequent, low-cost maintenance and rapid response to
problems. While some complicated problems may have to
be solved by a well-trained technician external to the
community, the great majority of problems are easily
solved and can be handled by a basically trained local
technician. These maintenance technicians do not need to
have extensive technical training, only the amount of
training necessary to maintain that specific type of
installation.
Conclusion
Unfortunately we must recognize that there are very few
cases where all the steps described have actually been
carried out. Most solar installations have been made
without sufficient economic study, without adequate
technical specifications, without proper installation
specifications, with equipment that has not been field
tested, without meeting commissioning requirements and
without taking into consideration user instruction and
later maintenance. Nevertheless, the rate of failures in
even these installations is less than that of small diesel
systems for community rural electrification. This is an
indication of the basic soundness and reliability of
photovoltaic technology and the technology is clearly
preferable for any installation where there is to be
electrification of remote sites with low consumption
requirements.
When solar installations are made following the
principles of good design and adequate follow-up
maintenance is performed, the number of satisfactory
installations and satisfied users will approach 100%.
Summary
Steps necessary but often ignored in carrying out
photovoltaic projects should include:
· An economic evaluation that must include
non-financial factors such as energy independence,
the reduction of continuing foreign expenditures,
continuity and reliability of the service, preservation
of the environment and safety, as well as the usual
monetary considerations.
· A design phase including in particular the correct
sizing of the installation.
· Selection of the components with regard to reliability
and energy efficiency.
· An installation phase that includes the definition of
the installation process to be followed and an
inspection upon completion.
· Education of the users and organization of
maintenance.
Chapter-3.qxd 11/8/03 11:07 AM Page 11
Rural electrification
for developing countries
Introduction
The enormous economic success of rural electrification in
the United States is often cited to demonstrate that
‘development follows electrification’. When carefully
examined, the American experience actually demonstrates
that ‘electrification follows development’. In the 1920s
and 1930s, electrification was demanded by rural areas
to support development already well under way. The
large US Government expenditures to capitalize rural
electrification during those years was not primarily to
provide electricity for remote areas that did not have
power, it was usually to provide lower-cost electricity to
rural communities already generating their own power
using diesel engines. This was accomplished by a
combination of price subsidy and grid extensions from
efficient, large-scale power plants. While the availability
of low-cost power certainly improved the profitability of
existing industries and allowed increased income for
formerly marginally profitable industries, it was and still is
a minor factor in the progress of rural economic
development in the USA.
There is no doubt that the availability of electricity is
an important factor in many economic development
projects. Because it is important to development, it is
often perceived that the presence or absence of rural
electricity is a major determining factor in the rate of
progress of rural economic development. In fact,
worldwide experience has clearly demonstrated that
simply having electrical power available in a rural area
3CHAPTER 3
rarely provides strong impetus to economic development.
For rural electrification to cause economic development,
all the many other factors necessary for economic
development must already be present. As this situation is
rare, rural electrification projects that have triggered
economic development are also rare.
Rural economic development
considerations
One of the most basic reasons rural electrification does
not by itself attract economic development is that it is
but one of many factors that are necessary to a
successful development project, and not even a very
important one at that.
Of the many factors that interact complexly in
successful economic development projects, those that
must all be present before success can be hoped
for are:
· A stable market for the products of the project that is
strong enough to absorb output of the project
without price depression.
· Cost-effective and dependable transport adequate to
meet the needs for transporting goods to market and
bringing items needed for production to the
development site.
· Adequate capital to fund the project and keep it going
during what is often a lengthy start-up period.
· Sufficient skilled labour to operate the facility.
Chapter-3.qxd 11/8/03 11:07 AM Page 12
12 Solar Photovoltaic
Project Development
· A reliable supply of raw materials whose price is stable
enough not to rise as a result of increased demand by
the project.
· A production facility that can economically produce
the items for sale.
· No requirement for long-term subsidies.
· Commitment on the part of the participating
community.
· Energy to run the project.
The only one of these factors that rural electrification
touches upon is energy. With so many factors that must
be simultaneously present for a development project to
succeed, it is poor development strategy to expend large
sums of money on general rural electrification when it is
only one aspect of development. Indeed, spending a
country’s limited development capital on broadly based
rural electrification reduces the capital available for
investment in other factors more important to economic
development.
Need for excess capacity
to attract development
Before development projects can be attracted to a rural
area by the availability of electrical power, there must be
enough excess capacity available in the system for the
development needs for at least a five-year period. When
general rural electrification is installed for social
development, the generating equipment should have just
enough capacity to serve the people in the community.
If this same electrical system is intended to attract
industry, then it must have enough extra capacity to
handle that industry as well as the community needs.
It is not at all unusual for a rural industry to need as
much or more electricity for its operations as the entire
community uses for household purposes. This means that
the electricity delivery capacity installed in a rural district
with a view to attracting industry must be at least double
the size of that needed just to service the households.
Where rural electrification is by means of urban grid
extensions, this is usually not a problem unless the
project’s energy needs are very large. However,
stand-alone electricity systems not interconnected with
an urban grid will often be necessary. For such systems,
providing excess capacity — resulting in higher capital,
operating and maintenance costs — on the off-chance
that it will attract development is usually unreasonable
because of the additional cost and the uncertainty that
development will in fact follow.
Availability of electricity at a rural site
usually provides little or no cost advantage
to development projects
It is common for the least-cost solution for rural
development to have different electricity supply systems
for households and for industry and commerce. Typically,
diesel generation for the high, concentrated loads found
in industry and commerce combined with solar PV systems
for the low, dispersed loads of households will prove to
be the least costly overall approach to off-grid
electrification.
Even in the case of projects located in urban areas,
for some countries with high generating costs, such as in
most of the smaller Pacific Island nations, there is usually
little difference in cost between project-generated power
and power purchased from the public grid (unless
subsidized by government) and it is not unusual for
hotels, industrial facilities and large commercial
enterprises to generate their own electricity owing to its
comparable cost and the often unreliable operation of
the public supply.
Most rural development projects are of a type that
use little electricity per economic unit produced.
Of existing development projects functioning profitably in
rural areas of developing countries, only mining devotes
more than 15% of its operating costs to the use of
electrical energy. The majority of rural economic
development projects are agriculturally oriented and their
energy costs are generally of the order of 5% of
production costs, certainly not a large enough percentage
for the difference in energy price between grid-delivered
power and self-generation to be a major determining
factor in the decision to locate in a particular place.
Advantages of rural electrification
in economic development
Although it is clear that the presence of electricity in
a rural environment is not a requirement for economic
Chapter-3.qxd 11/8/03 11:07 AM Page 13
development, rural areas that are electrified do have
some advantages over non-electrified areas when
development finally comes.
1) Community introduction to technology. The
community will be accustomed to using devices whose
workings they do not really understand — a basic fact
of life in any technically oriented, i.e. developed, area
but an alien concept to most rural peoples of
developing countries.
2) Increase in technically oriented labour pool. In
general, the labour to be found in a community that
has electricity will be more familiar with technology
and will be quicker to become accustomed to working
with the machinery and modern tools of industry and
commerce.
3) Introduction to financial systems. The periodic
payments that are made for the electrical service and
the various commercial aspects of that service further
introduces people just emerging from a barter
economy to the more complex concepts of the
money economy with its written contracts, the idea
of making money payments for having services
available rather than just payments for services
already rendered, and many other small aspects of
the world of commerce not usually part of the
average developing country rural dweller’s life.
As economic development invariably includes many
commercial problems, this introduction through the
commercial aspects of electrification improves
villagers’ understanding of the problems and needs of
any development project.
The presence of rural electrification therefore usually
helps to prepare rural people for economic development,
but its cost cannot be justified on this basis or on its
limited advantages in economic development.
Rural electrification
and development policy
Rural electrification has definite effects on rural society.
Whether those effects are advantages or disadvantages
depends on the observer’s point of view. As the
decision-makers for development are generally
governments, it is their view that prevails.
Rural electrification 13
for developing countries
National integration
Creating a nation from many isolated communities
requires a good-quality two-way communications system
that can be used by everyone. The national government
must be accessible to the rural population and the
population must be kept informed of matters of national
as well as local interest.
At the present time, many unelectrified rural
communities can access the national telephone system
through existing, usually solar-powered, radio-telephone
units. Nevertheless, the majority of rural dwellers cannot
be said to have easy access to a national communications
system. Where rural electrification has occurred, almost
always a local radio-telephone installation is immediately
installed or follows shortly. This has obvious advantages
such as the ability to obtain emergency services more
rapidly, but also has the more subtle effect of closing
the gap between community and national awareness.
With electricity available, some improvement
in personal communications may result, though in
general most households already have one or more
battery-operated radios and electrification does not
seem to have much effect on their number. Television,
however, is much more limited in rural areas as it requires
more energy than is readily available from batteries
alone. Its increased availability could have a marked
affect on rural dwellers’ national awareness and the
nation’s system of communication. Rural electrification
by itself will not bring about a national television system
but is an essential part of any national, household-level
communication scheme.
Effect on migration to urban centres
The argument that rural electrification helps to stop
people from migrating to urban areas is often made,
but no substantial evidence is available to support that
theory. Rather, the pattern has been for increasing levels
of development to increase rather than decrease
urbanization. The most economically and physically
developed countries of the world generally have the
highest levels of urbanization.
Certainly the effect of rural electrification on urban
drift varies from country to country and from
circumstance to circumstance. In general, however,
Chapter-3.qxd 11/8/03 11:07 AM Page 14
14 Solar Photovoltaic
Project Development
there is no hard statistical evidence that rural
electrification, by itself, has an impact on rural to urban
migration, but analysis of the effect of rural
electrification on the economy of isolated rural areas
indicates that it probably tends to increase the migration
of young people to urban areas. The primary reason for
expecting this increased migration is the need for
additional money in the electrified rural district to pay for
electricity and appliances. It is common practice for rural
families to send their young people to urban areas to
make money to cover purchases that cannot be made
within the scope of the very limited money generated by
most rural communities. Though in many cases the young
people return to their rural homes when they have
earned enough for the immediate needs of their family,
they often do not.
On the other hand, there is reason to believe that the
presence of rural electricity increases the probability that
older urban dwellers will return to their ancestral home
in the rural districts later in life. Government employees
often retire in their late 40s or early 50s and move back
to their community of birth. This is partly to be with the
family group, partly because they usually have land there
and partly because the small retirement income available
to them goes much further in rural areas than in urban
centres. The primary disadvantage to returning is the
lower standard of living to be found in the rural
homeland and the presence or absence of electricity can
be a positive factor in the decision to return.
Effect on education
Electricity in rural schools can have a benefit on
the quality of education in several ways. Advantages
cited are:
1) Increased practicality of evening study. It is difficult
to obtain a high enough level of illumination for a
study room using kerosene, even kerosene pressure
lamps.
2) Availability of new teaching modes. Computers and
electrically powered audiovisual aids, particularly
video, can stimulate and improve education.
3) Reduce student discomfort. As personal discomfort
is detrimental to learning, fans and better lighting
for classrooms and various electrical amenities in
the dormitories and teachers’ dwellings can improve
students’ learning and instructor performance.
4) Administrative improvements. The capability to use
electrically powered office equipment, particularly
copy machines and computers, can improve the quality
of education by allowing the use of higher-quality
teaching materials and a wider range of educational
source material.
Unfortunately, though electrification can have the above
beneficial effects on education, actual cases indicate that
those benefits only appear where the administration
and teachers have the understanding, skills and
particularly the desire to take advantage of the increased
educational capabilities that electricity provides. In those
schools where student test scores have risen following
electrification, the school staff have adapted their
teaching processes to take full advantage of electricity
in improving education.
Effect on other development
The financial resources available to a nation for rural
development are limited. Investment in electricity means
less investment in some other area of development.
Embarking on a massive rural electrification programme
before the more basic health, sanitation, water supply
and road developments have been accomplished may
actually be detrimental to rural districts. Unless rural
electrification is integrated carefully into overall
development plans, any advantages that could be gained
by electrification may not be realized owing to the lack of
other supporting development.
For electricity to be of maximum value to a community,
the community itself must provide the priority for
development. Forcing a community to accept electrification
when the community’s priorities place it below other
types of development increases friction between the
community and national government that is counter to
the usual goals of development.
Effect on the economic development
of the community
There is a limited amount of money available in most
rural communities. For economic development to take
Chapter-3.qxd 11/8/03 11:07 AM Page 15
place, that money has to be used to develop resources
and markets to increase the cash flow into the village.
The addition of rural electrification causes cash to flow
away from the community and often reduces its ability to
fund projects that improve cash flows into the
community. Only villages that already have sufficient
access to money to be able to pay the external costs of
electrification — the operating fees and the purchase
of appliances — can be electrified without compromising
their ability to develop projects that bring more money
into the community.
Social tensions resulting
from rural electrification
Any change affecting a community introduces tensions
and electrification is no exception. In most agrarian,
subsistence-based economies, the political power resides
in a group of elders. Change is usually considered a
threat by older people and pressure for change usually
comes from the younger members of the community.
In the case of a technological development such as
electrification, the gap between young and old is even
greater and the tensions more acute.
Electrification of a community can create a technical
hierarchy in parallel with the traditional one. This
new hierarchy is based on technical training rather than
on the experience gained by age. Often the youngest
adult members of the community are the best trained
and stand highest in this technical hierarchy. Unless this
new hierarchy is well integrated into the traditional
hierarchy, tensions can become so great that the
electrical system may be abandoned rather than allow
the community to become strongly polarized. This has
happened in several solar projects. The high rate of
failure of community operated rural electrification is
mainly due to inadequate training of operation and
maintenance personnel but also can be the result of
the unwillingness of a community to accept the social
changes and stresses that result from electrification.
For rural electrification to be a success, the technical
hierarchy that develops within the community must
clearly be subservient to the traditional leadership and
the traditional leadership of a community must genuinely
be willing to accept the resulting social changes.
Rural electrification 15
for developing countries
Non-technical problems in
rural electrification in developing
countries
The technical problems of rural electrification are generally
well known but a number of non-technical problems
have not received much attention. Some of the more
important of these are:
1) The cost of rural electrification is unknown. In very
few cases has the real cost of rural electrification
projects been recorded. As a result it is very difficult
to budget for rural electrification. Policy must be
flexible enough to allow for actual costs that are
significantly different from those projected initially.
2) Political pressures can be strong to electrify
certain areas or in certain ways. Rural electrification
policy should create a process for electrification as
independent of the political system as possible.
Probably more solar projects have failed through
political meddling than through any other cause.
Forcing projects on recipients that do not have an
internal priority for electrification, or providing
unrealistic, unsustainable subsidies, are two major
political errors commonly found — both of which
ultimately lead to project failure.
3) Donor policies. Funding agencies often work outside
country policy constraints and sometimes propose
certain projects or certain technologies for rural
electrification that may not be locally appropriate.
Governments should not automatically accept funding
agency projects but should carefully evaluate them for
social and technical appropriateness before approval.
4) Inadequate inter-agency linking. Government should
create links between rural development agencies and
the rural electricity organization or an energy
authority to ensure interaction.
5) The cost of rural electrification cannot be controlled
locally. Electrification costs can be too dependent on
foreign technology and foreign currency fluctuations.
Wherever it is practical, locally available fuels, materials
and labour should be involved in rural electrification.
6) Once electricity subsidies are put into effect, it is
very difficult to eliminate them. Subsidies should be
limited to initial capitalization or contractually limited
in term at the time of inception. No subsidies should
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16 Solar Photovoltaic
Project Development

be instituted for operating and maintenance costs of operating the stand-alone system should be weighed
systems installed for social development purposes, against the installation and maintenance cost of
and those for economic development should be for a extending the grid. Government subsidy will be
limited period only. involved in either task, as it is rarely possible for the
rural village itself to afford the investment necessary
to initially bring electricity to the community.
Organizing for rural electrification In addition, the source of funds must be considered.
Money may be readily available for grid extensions
While urban-based electricity authorities have successfully
but not for stand-alone power plants, or vice versa.
carried out the grid-extension type of rural electrification
2) The impact of adding this village on the ability of
in a number of countries, in most places urban electricity
the electricity supply agencies to provide service
authorities are not properly equipped, either
to existing customers. If the urban system is at the
administratively or technically, to deal with the large
limit of its capacity, adding more load through grid
number of small-scale power plants required for
extensions is not appropriate. If the rural electricity
remote-area rural electrification where grid interconnects
authority is having severe problems keeping its
are not practical. A separate organization specializing in
present inventory of power plants running, adding
stand-alone system rural electrification is therefore
another one to the system is unwise.
needed. In most cases, the off-grid rural electricity
3) The preference of the village involved. Although it
authority should consider contracting private organizations
probably should not be binding, the preference of the
for the support of remote electricity systems.
village should always be sought and, if this preference
The policy evolved for rural electrification in a country
cannot be allowed, a clear explanation of the reasons
must therefore deal with two interconnected but
for the government decision should be given.
separate electricity authorities — the urban authority with
4) The electrical load structure of the village. A large
its urban grid extensions to rural areas, and the rural
village with several commercial establishments or an
authority with its off-grid, stand-alone power plants.
industry likely to have significant electrical load would
A single government department should have both
usually be better served by a grid extension; while for
electricity authorities under its policy control. It is not
a small village with a small load that is mainly evening
appropriate, for example, to have a Rural Development
lighting, a stand-alone plant may be the better choice.
Ministry in charge of rural electrification and an Energy
Department in charge of urban electricity matters.
Basic criteria for rural electrification
Determining the mode
of electrification For national electrification to provide the maximum
development benefits with the minimum of initial cost
In those countries with many villages that can be and upkeep expense, rural electrification projects should
electrified either by stand-alone systems or by urban grid be designed in such a way that the operating costs of the
extensions, there must be a mechanism to determine electricity supply can be borne by the recipients, thereby
which electricity authority should provide services. Often requiring no ongoing subsidy.
the decision as to which form of electrification prevails is
one of chance and opportunity seized by competing
Capital subsidies, not continuing
grid-based and stand-alone-based electricity authorities.
operating subsidies
This should not be the case. The decision should be made
Capital costs occur once and can largely be borne by
by the government department overseeing the two
donor-country participation or soft loans. Operating
electricity authorities and should be based on a balanced
expenses continue indefinitely and can rarely be financed
consideration of several factors:
with aid or soft loans. For heavily urbanized countries, a
1) Relative life cycle cost of grid extension versus continuing subsidy for rural electricity may be economically
stand-alone generation. The cost of installing and acceptable as the strong urban economy can support
Chapter-3.qxd 11/8/03 11:07 AM Page 17
a small rural subsidy for electricity. In most developing
countries the majority of the population is in rural areas
so it may be possible to subsidize a few rural electrification
projects, but the country’s urban population cannot
reasonably subsidize the operating costs of a national rural
electrification programme.
In the case of rural electrification for social
development, the people using the electricity should pay
for all operating costs (fuel, repairs, maintenance labour,
etc.). Where rural electrification is for economic
development, the development project should be capable
of bearing the electricity system operating costs without
subsidy. Though a subsidy during the early years of
operation may be appropriate, subsidies lasting longer
than five years should not be required.
The best electricity system for a rural village would be
one with minimum operating costs. A diesel system may
have the lowest initial cost but the long-term cost can be
much higher than hydro, solar or biomass-fuelled power
systems.
Maintenance should be carried out locally
Day-to-day maintenance and operation of power systems
must be the responsibility of local people with basic
technical training. A central pool of trained maintenance
staff located in a city can only service a few isolated rural
electrification projects at high cost. The rural pool of
well-trained electrical and mechanical maintenance
technicians is small and its growth is slow. Either an
expensive, large-scale, long-term, technical training
programme must be included in a rural electrification
programme or the electrification scheme must allow for
maintenance by people with only basic training.
Technically oriented development projects will often
include staff with the technical and management skills
necessary to correctly operate and maintain a relatively
complex power-generating system. On the other hand,
electricity systems for social development must be
capable of administration, maintenance and repair by
basically trained people.
Spare parts must be readily available
The availability of spare parts can be a major problem for
remote power system maintenance. Even with a large
Rural electrification 17
for developing countries
central stock of parts, transport to the remote site is
often slow. For rural electrification to meet the desired
social and economic development goals, the power must
be reliable. Long periods without power waiting for spare
parts can destroy the profitability of businesses
depending on that power and reduce the social value of
rural electrification.
To meet these criteria, the rural electrification
programme should be designed around simple, standard
generating modules as much as possible. Keeping an
inventory of spare parts for a wide variety of different
generating systems is very costly. In general, photovoltaic
power systems require the smallest spare parts inventory
while diesel systems require the largest.
Services should meet the long-term
requirements of users
Services initially provided must meet the immediate
needs and expectations of the rural population with the
capability of being expanded easily and at reasonable
incremental cost to meet increased power requirements
as development proceeds. If rural electricity installations
do not meet the minimum expectations of the
community, they will not be effective tools for either
social or economic development. Neither will
installations that have little capacity for expansion to
meet increased needs. Many attempts at PV-based rural
electrification have provided only very basic lighting
with no provision for adding capacity to operate videos,
refrigerators or other electrical appliances. As time
passes and expectations change, these minimal systems
become inadequate and communities apply strong
pressure to change to other, more costly generating
schemes in order to provide more services. Had the
photovoltaic programme been designed with load
growth in mind, the increased needs could have been
fully met at much lower cost than by conversion to
diesel or other more expensive generation. However,
it is not appropriate to initially oversize rural electrical
systems to allow for long-term load growth. Oversized
systems have higher initial costs, lower operating
efficiency and generally higher maintenance costs. It is
much better to provide systems that can be upgraded at
modest incremental cost, with those costs mainly being
borne by the individuals requiring increased services.
chapter-4.qxd 11/8/03 11:08 AM Page 19
Development of rural
electrification policy
Basic policy concepts
For there to be a direction to rural electrification, some
overall guidelines or policy must be established. Without
a policy backdrop, rural electrification becomes haphazard
and arbitrary.
Policy levels
Every level of government establishes policy. The Energy
Department may have a rural electrification policy and
the Public Works Department may also have its own rural
electrification policy. It is generally true that such
departmental, or lower-level, policies apply only to
that department. Thus in the case of rural electrification,
different policies may be established by the
Energy Department, Public Works Department,
Marine Department, Telecommunications Department,
Health Department, Education Department, Rural
Development Department and any other government
office that may require electricity at a rural facility
operated by that department.
For rural electrification to be manageable on any but
the smallest scale, it is important to establish a national,
rather than departmental, rural electrification policy that
provides a common set of guidelines for the development
of rural electrification for all departments. To have many
solar installations in remote communities, each of which
is conceived differently, uses different equipment, has
different standards for installation and is serviced by
4CHAPTER 4
different technicians is an administrative mess and a
great waste of money and trained labour.
Policy implementation
For any policy to be useful, it must be followed. This
means that the people who are expected to use the
policy must know that the policy exists, be able to
interpret it as intended, and follow it.
Knowledge. Rural electrification projects have been
conceived, designed, funding located and carried to the
brink of implementation before the discovery is made
that they are ‘against policy’. Besides being a waste of
effort, such cases demonstrate a breakdown of the most
basic rule of policy implementation: those affected by a
policy must be aware of its existence and content.
Clarity. Even when a policy is known to exist, it may
be vague, not quite applicable to the project in question
or, worse, a policy that is unwritten and based on
precedents or discussions with high-ranking officials. Such
informal ‘policies’ do not provide the stable guidelines
needed for long-term rural electrification development
and usually result in conditions not much better than
having a multitude of departmental policies. Such policies
violate the rules that policies must be written, well
defined and specific enough to keep interpretation within
reasonable limits.
Enforcement. Even when a policy is clearly defined
and widely published, projects that do not conform
can proceed if no one enforces the policy. For example,
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20 Solar Photovoltaic
Project Development
a policy that places all rural electrification responsibility
with the Public Works Department will fail if the
department ignores its responsibility and no one forces
its implementation. So the third rule of policy-making is
that policies must be enforced. There must be some
agency with responsibility for enforcement, with
authority from the highest levels of government to carry
out that task.
Basic requirements of a national
rural electrification policy
To be useful, a rural electrification policy must:
· fit the needs and capabilities of the country
· be specific enough to keep projects within
predetermined limits
· be general enough to allow for changing conditions
and differing needs in different parts of the country
· have the support of a high enough level in
government to ensure enforcement.
Fitting the needs and capabilities
of the country
Rural electrification policy must be in agreement with
national development goals. The policy must provide for
the needs of the rural districts and their development
goals. The policy must be capable of implementation with
the trained labour and financial resources that are
available to the country. A beautifully designed policy
that cannot be carried out with the resources available
is useless.
‘All rural villages will be electrified within the next five
years’ would be a policy that probably violates both the
rules of need and capability. Not all rural villages need or
want rural electrification and it would be impossible to
find enough technicians or enough money to carry out
such a massive project in such a short time.
Specific enough to keep projects
within limits
Establishing who is responsible for carrying out the
policy, who enforces it, its geographical limits and how
projects are to be financed are some of the specifications
that help to define the policy and limit its application to
what is desired.
Policy example for a Pacific Island country: ‘Rural
electrification on all communities excepting the Capital
Island is the responsibility of a Rural Electrification
Authority established under the Department of Energy
who will provide specific guidelines to the authority for
implementation. All operational costs and at least 20% of
capital costs will be borne by recipients of electrical
services provided by the Rural Electrification Authority.
Electrification will be carried out as requested by
communities on a community-by-community basis as
resources become available. Should more communities
request electrification than there are available resources,
communities will be placed on a waiting list in the order
of receipt of 20% of the estimated capital cost of their
electrification project.’
The specifics in this sample policy are:
· who is responsible: Rural Electrification Authority
· who has enforcement supervision: Department of
Energy
· financing: at least 20% of capital and 100% of
operational costs come from the recipients with the
rest inferred to come from outside sources
· who gets electrified: all rural communities not on the
Capital Island may request electrification and if all
who apply cannot be serviced immediately, a waiting
list of communities in the order of their deposit of the
20% capital requirement will be established.
General enough to meet changing
conditions and different needs
in different parts of the country
Too restrictive a policy can be as unworkable as one that
is too general. For example, it would be too restrictive for
a rural electrification policy in most countries to specify
the generating technology to be used. In some locations
small hydro will be best, in others solar, in yet others
diesel. Thus a policy that restricts rural electrification
to diesel generation would usually not be a good one.
Policy layers and policy stability
In practice, rural electrification policy is developed in
layers with national policy the topmost and each
chapter-4.qxd 11/8/03 11:08 AM Page 21
successive layer of authority below the national level
having an increasingly detailed policy for its increasingly
narrow range of activities.
Each layer of policy has authority over all lower levels.
Thus the national policy sets the limits of all other
levels of policy. A ministry policy sets the limits of
department policy that in turn sets the limits of divisional
policy and so on down the hierarchy of authority.
Proceeding down the hierarchy, each level has a
narrower, more detailed range of activity than the one
above. The policy to govern the actions at each level
likewise becomes more detailed on the way down. For
example, the national policy may be that users pay the
operating cost of their facility; ministerial policy then may
be that each consumer of electricity pays according to
the wattage of the appliances in use and, within that
guideline, the departmental policy may be that for each
kilowatt demand of installed appliances the consumer
must pay US$30 per month.
The more detailed the policy, the more likely it is that
it will have to be changed due to changing conditions.
For this reason, we expect lower-level detailed policies to
be frequently updated while top-level national policies
should remain intact for decades if they are to be
effective for long-term development.
Developing policy
Who develops policy?
As a policy is of no value unless implemented, and
implementation depends on the cooperation of all
affected by the policy, it is very important that policy
development takes place in full view of all those who will
be involved in its implementation. It will do no good to
establish policy that states that the urban electricity
agency will do all rural electrification if the management
of that agency is not willing to take on the task. They
will find every possible excuse to limit their rural
electrification activity and even sabotage projects so that
they can say ‘it cannot be done’.
An important rule of policy development:
Involve all who will be affected by a policy in
the process of policy development.
Development of rural 21
electrification policy
One common approach to this rule is the use of a
policy development committee with representatives from
each of the affected parties. This rarely works for policy
development though committees do provide a good
forum for airing the expectations of the represented
groups prior to policy development. A committee of
this type is most useful in the final stages of policy
development where it provides some assurance that
each of the groups understands and agrees to the
policy. During the actual development stage, however,
a committee is unworkable except possibly as a sounding
board for ideas.
If progress is to be made, policy development must be
handled by a single person or by a group of no more
than three. A larger group may serve to monitor the
progress of policy development but when asked to do the
actual development, larger groups invariably get bogged
down in interpersonal disputes and seemingly insoluble
problems involving minute details, making progress slow
and the results, if any, generally weak and ineffective.
Policy development inputs
Although it is possible to develop a comprehensive rural
electrification policy with little input beyond the
experience and capabilities of the people carrying out the
development, that approach will rarely provide the best
results. The developers should seek information from a
number of sources and integrate it into their process of
policy development. For rural electrification policy
development some useful inputs are:
· National development goals and plans. What form
of development is acceptable? What priority should
rural electrification have at the present stage of
national development?
· Prior policies and precedents. Though there may not
have been a national rural electrification policy,
undoubtedly some rural electrification has taken place.
What has been its governing policy? Have any
precedents been set that provide a good model? Have
any precedents been set that must be specifically
rejected?
· Other affecting policies. There may be other
government policies that will affect rural electrification
and limit what can be achieved. For example, it may
be a policy of the national government to leave the
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22 Solar Photovoltaic
Project Development
final decision for rural development to local
governments. Such a policy would have to be included
in a rural electrification policy.
· Using policies enacted by other countries.
The direct use of rural electrification policies
developed for other countries is unwise, but good
ideas can be gleaned and problem areas illuminated
by close examination of other countries’ experience
with rural electrification.
· The experience of other rural development
projects. By examining the problems and successes of
other rural development projects, potential problems
and solutions may become evident. If a particular type
of problem, for example the collection of money from
rural recipients, has occurred in other projects then
the same problem will probably occur with rural
electrification. If a rural project has proven particularly
successful, the design that led to its success may also
fit rural electrification.
· Prior government and consultancy reports. In most
countries, interest in rural electrification has existed
for a long time and often a search through piles of
old reports will yield useful information for policy
development, always adjusting for the age of the
reports and the assumptions under which they were
prepared.
· New consultant and international agency reports.
For a task as large in scope as rural electrification,
funding for consultancies, either private or public, may
be available. Though outside consultants rarely have
sufficient understanding of the rural situation in a
developing country to actually design a workable
policy, these consultants can often highlight problems
and solutions that are overlooked by people without
the breadth of international experience they can bring
to bear.
· Political and civic leaders. As rural electrification has
a direct effect on the majority of a nation’s population
and an indirect effect on the rest, everyone seems to
have an opinion on how it should take place. Informal
talks with leaders from both rural and urban areas will
help the policy developers to understand what people
want in the rural districts and what the urban districts
(where the money actually comes from) will support.
· Planning departments. Ideally, national planning
departments have the best knowledge and
understanding of national development goals and of
the road to reach these goals. While this ideal is
not always reached, they can still provide a lot of
useful information about development projects, rural
development in general and national development
goals.
· Surveys. As a method of determining attitudes and
predicting what people will do regarding rural
electrification, surveys have not been very useful. As a
method of learning what people actually are doing,
they seem to work well. It is difficult for people who
have never had electricity to predict what they will do
with it. On the other hand, surveys can tell reasonably
accurately what people are now using for lighting and
electricity in the rural districts and this information is
useful as a predictor of minimum use.
Bringing it all together
Gathering the data and creating a rational, well-designed
rural electrification policy is a long and difficult task but
even when that is complete, the process of policy
development is far from over.
No matter how logically developed a policy may be, it
must fit the often illogical and hostile environment of
the real world. Powerful people or agencies can either
destroy or render ineffective the best policy man can
devise. To be useful, a policy must have more powerful
supporters than detractors. In reality, for a policy to be
successful, everyone affected must grant at least
grudging approval to the policy and not actively fight its
application.
Therefore, once the developers have produced what
they feel is the best possible policy, then it has to
undergo the scrutiny of those it will affect and
negotiation take place with those parties at odds with
the policy concepts. As modifications to suit one party
may make another party unhappy, this process is long,
involved and will require a great deal of diplomacy and
tactful editing of the policy itself. The policy committee
referred to earlier can be a useful forum for this process,
though it will be necessary to conduct much of the work
informally.
If the final product is judged workable and has the
support of the important groups that it affects, it is time
to place it on the table for written ratification at the
chapter-4.qxd 11/8/03 11:08 AM Page 23
highest level consistent with its purpose. If it is a national
policy, it should be ratified by the senior executive
committee of government, often called the Cabinet. If it
is a ministerial policy, the minister should ratify it, a
department policy should be ratified by the department
head, and so on.
Policy considerations
Although policy must always be designed to fit the needs
of a particular set of conditions and a general policy
cannot be designed to fit all circumstances, the following
are specific and general concepts that should be
considered in establishing a policy for rural electrification:
Policy concepts for rural electrification
with emphasis on economic development
1) Provision for development assistance for a specific
term. The policy would allow the provision, where
needed, of assistance in the development of an
electrical power-generating facility, and up to five
years of subsidy to offset some of the cost of local
electricity production, for a rural industry that has
met the basic criteria for rural industrial development
of: adequate capitalization, labour, raw material
supply, access to markets and transportation. The
amount and type of assistance should be determined
on a site-by-site basis.
Although electrical availability and cost is a factor
in the profitability of rural industry, it is generally a
minor factor except in the mining industry. Assistance
by government in development of electrical generation
at an industrial site should be viewed in the same vein
as short-term tax relief: a method of improving
profitability to increase the viability of the business
during the difficult first years of its operation. It may
be reasonable to provide short-term assistance in the
development of an electricity supply as an added
incentive to commercial development, but long-term
survival of the business is not closely linked to
electricity prices. Therefore government should not
take on the long-term burden of a continuing
electricity supply subsidy agreement as there will be
little benefit to overall development. The willingness
Development of rural 23
electrification policy
of government to provide subsidies should be linked
to the willingness of the commercial enterprise to use
electricity efficiently. The fact that government is
making lower-cost power available should not result
in waste of power by the project. To receive a
subsidy, the project should be required to follow
energy-conservation guidelines provided by the rural
electricity authority.
Each site at which industrial development is
proposed will have different requirements for
electrification and the policy should be flexible enough
to be of assistance in all cases.
2) Use flexible power systems for industrial and
commercial development projects. High capital cost
power-generating facilities such as solar, hydro or
steam power are not recommended for new,
stand-alone industrial-development type electrification
projects. They are recommended, if cost-effective,
only for industries with a history of five or more
years of successful operation.
Experience with rural commercial and industrial
development has shown that projections for
long-term electricity needs are rarely accurate.
Furthermore, the failure rate for rural development
projects is high. The installation of hydro, solar or
other high capital cost electricity-generating systems
is not recommended in the initial stages of an
economic development project. It is more
cost-effective to subsidize the extra operating cost
of a diesel plant for the early years of operation of
the rural industry than to invest in a high-cost
generating facility that will probably prove to be the
wrong size or will not be needed at all because the
venture fails. Diesel plants are relatively low in cost,
can be moved to another site if a venture fails,
and changing the size of a diesel generating facility
is not difficult or prohibitively expensive. On the
other hand, hydro or steam-generating systems are
inflexible as to size and cannot usually be
economically moved to another site.
The effective life of a diesel facility is of the order
of 10 years and it is appropriate that as soon as a
new industrial facility is operational, plans should
be made for converting the diesel generating facility
to one that has a lower operating cost or uses
indigenous fuel but that no actual installations should
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24 Solar Photovoltaic
Project Development
be made until the industrial venture has stabilized and
realistic electricity use projections can be made.
Though advantages may be obtained by combining
electrification for a rural commercial project and
nearby rural homes, serious problems may arise:
· If the commercial venture fails, either the difficult
political decision will have to be made to no longer
provide electrical power to the homes previously
serviced, or the difficult financial decision of
continuing to provide electricity from a plant much
too large to efficiently provide power for the small
domestic load.
· If the commercial venture is very successful,
increasing its load faster than expected, either the
difficult political decision will have to be made to
disconnect the domestic users thus freeing up
capacity for the commercial venture, or the costly
financial decision to immediately increase the
generating capacity of the plant just to service
low-profitability domestic loads.
Where possible, it is recommended that domestic
users should not be integrated into a commercially
based rural electrical system until the commercial
entity has stabilized to the point where accurate
projections of energy use can be made.
3) Limited subsidy life. It is recommended that any
subsidy towards the actual cost of electricity delivered
to a rural industrial facility should be for no more than
five years and that the amount of subsidy should not
result in the cost of electricity to the user being lower
than that paid by a similar industry in an urban area
of the country.
The goal of rural economic development policy
should be to establish efficient, stable, economically
sound businesses in rural areas. While it is reasonable to
provide incentives for the establishment of such
businesses, there is no indication that long-term
subsidies for electrical power are effective in keeping
industry in a rural location. There is strong evidence that
long-term electrical power subsidies tend to encourage
an increase in energy use without a commensurate
increase in productivity, resulting in a waste of energy
and of the government money used to subsidize power.
It is recommended that power subsidies should be
subjected to a gradual phasing out with a 33% cut in
subsidy each of the last two years. This phasing
process reduces the fiscal shock of a sudden loss of
subsidy and provides incentives for the gradual
improvement of plant facilities to more efficient
energy use.
4) Provide technical assistance for development. Rural
electrification policy should include a provision for
technical evaluation services and technical assistance
to development projects to ensure that the project is
designed for the most efficient use of electricity.
Because electricity is not a major cost of
production for most rural development projects,
developers pay little attention to the need for
efficient energy use. If government is to subsidize the
power plant installation and up to five years of power
production costs, the government energy agency
should take part in the project design at the earliest
possible stage to examine the energy needs of the
proposed facility and offer alternatives to
the proposed design if they would result in the
more efficient use of energy.
The technical assistance should extend to preparing
operational guidelines for energy conservation
measures to ensure minimal waste of electrical power.
Subsidies for electricity production should be tied to
the project’s willingness to follow these energy
conservation guidelines and the correct operation and
maintenance of the generating equipment.
5) Ownership should not be local. Generating
equipment and associated wiring for the distribution
of power should be owned by the rural electricity
authority, not locally. The basic assumption underlying
this policy is that the majority, if not all, the capital
for installation of rural generating equipment is from
public funds and public ownership can therefore be
justified. If users or user groups such as village
cooperatives are given ownership of the generating
equipment it will be impossible to control abuse of
the equipment or maintenance costs. If the generating
equipment is to be locally owned, then the only
acceptable approach for maintenance is for the local
owners to also be fully responsible. Experience shows
clearly that this is rarely successful and the public
funds used for the project are wasted.
This policy is consistent with normal practice for
urban electrical systems where the electricity agency
chapter-4.qxd 11/8/03 11:08 AM Page 25
owns and maintains all generating and wiring
components up to the point of entry to the user’s site.
Policy concepts for rural electrification
with emphasis on social development
1) Subsidies for the capitalization of domestic-type
rural electrification projects should be provided as
required but the operating cost should not be
subsidized. A typical PV-based village electrification
project is to provide lighting power for 50 to
100 houses clustered in a small village. The cost of
providing this service may exceed US$1,000 per house.
Most rural families do not have access to that much
money. On the other hand, money is usually already
being spent on lighting, generally around US$5 per
month with many households spending over US$20 on
lighting fuel and lantern maintenance, and considerably
more on dry cells for radios and torches.
It is reasonable to provide a major capital subsidy
for the initial installation though there should still be
investment by the recipient to the greatest extent
possible. It is recommended that no less than 20% of
the total capital investment should be provided by the
recipient village. This local investment increases the
capability of the country to provide electricity to
more people but, more importantly, ensures that
recipients feel they have an investment in the system
and therefore some responsibility to see that it is
correctly used.
2) Periodic fees based on services rendered should be
collected. A system for collection that includes an
authority outside the community should be provided.
Though capital funding in the form of grants and
soft loans may be readily available to governments, it
is difficult to obtain funding to cover recurrent costs
from outside sources. As there is an existing cost to
villagers for energy in the form of kerosene or
benzine fuel, it is reasonable to charge at least a
comparable amount for the electrical service that
eliminated the need for lanterns and their fuel. The
total cost of operation and maintenance of the village
electrical system should be borne by the village.
Furthermore, the individual family cost should be
assessed in direct accordance with the amount of
services received. Ideally, power should be metered.
Development of rural 25
electrification policy
This is not often practical, however, and service cost is
applied in accordance with other demand factors such
as the size of appliances in service and their energy
requirements. In the case of individual home power
systems, such as solar PV systems, charges based on
the system capacity are appropriate.
It is important that fees should be collected on
behalf of the rural electricity authority rather than the
village. Experience has clearly shown that funds
collected by a village for power use are rarely used for
maintenance of the generating systems. Pressure on
the village treasurer to make the collected funds
available for other, more immediately urgent,
purposes appears to be overwhelming. In none of the
many cases known to the author has a village fund
that was established specifically for maintaining the
electrical power system lasted longer than six months
without having been diverted to other village uses.
Fees collected should go to the authority or its agent
and not be kept by the village, though actual
collection by village administration may be
appropriate.
The authority must enforce payment by users
through service disconnection or other punitive
means. If the authority does not enforce payment,
experience clearly shows that payment will never be
received from many users with the short-term result
being heavy, unintentional subsidization of rural
electrification. The long-term result is an overall
degeneration of rural electrification services as the
recurring costs are too high to be borne by the
authority.
3) Domestic-type rural electrification should be
community oriented and should have community
involvement in system design, financing and
maintenance. Electrification projects have the best
success rate in communities that see electricity as a
priority. Therefore, electrification should be provided
only to those communities that clearly express a desire
for it and show that desire through payment of part of
the capital investment in the system.
The rural electricity authority should visit the site
and meet with villagers several times to ensure that a
full understanding is reached by both parties
concerning the requirements of the villagers for
service, the size of the system to be installed and the
chapter-4.qxd 11/8/03 11:08 AM Page 26
26 Solar Photovoltaic
Project Development
specific responsibilities of the authority and the
village in installation, maintenance and administration
of the project.
4) Continuing training programmes for system
installation and maintenance should be a part of
rural electrification projects. Because it is impossible
to efficiently operate and maintain a large number of
small-scale rural electrification projects from a central
location, a relatively large number of people from the
rural districts will have to be trained in the installation,
operation, maintenance and repair of the systems.
A training facility specifically to meet that need
should be included as an integral part of a rural
electrification effort. The facility should be controlled
by the rural electricity authority though it is reasonable
for it to be part of an existing instructional institution.
Training should also be provided to rural users of
electricity. That training should be designed to help
individuals understand what the electricity system can
do and what it cannot. Users should be shown how to
make the best use of their appliances and how to get
the longest life from their system. Instruction in the
safe use of electricity is also important.
5) System design should allow for load growth
through a cost-effective system expansion
process, not by initial oversizing. Although electrical
load growth in most rural districts has been much
lower than that of urban customers owing to the
limited money available for appliance purchase and fee
payments, there is strong evidence that as more
money becomes available in rural areas load growth
does occur. Therefore, rural electricity systems should
be designed to allow increased generating capacity
that can provide power unit costs comparable to that
of the original installation.
In grid-reticulated systems, it is generally good
practice to install distribution wiring of a size large
enough to handle at least double the initial village
needs. The extra cost of increased wire size is very
small compared with the cost of wire replacement,
particularly if an underground reticulation system is
installed. The larger wire size also slightly increases
the efficiency of the power distribution system at the
original, lighter loads.
In a small hydro system, it may be appropriate to
install a large enough penstock to permit water flows
up to the limit of the source or, in the case of a large
water source, up to twice the initial village load.
Again, the extra cost of increased pipe size is small
compared with the cost of replacement and system
efficiency is somewhat improved with the larger pipe.
On the other hand, it is bad practice to install
oversized diesel-generating equipment as fuel
efficiency is poor on a lightly loaded diesel and
maintenance costs higher per unit of power delivered.
Oversizing turbines in a hydro plant also results in
lowered efficiency of generation and is not
economically appropriate.
Biomass-fuelled steam-generating systems are
particularly inflexible and increasing their operating
capacity generally means adding another complete
unit. Incremental increases in capacity are not usually
practical. For this reason, steam plants are best suited
to projects that have reached load maturity and
significant load growth is thus unlikely.
Individual solar photovoltaic systems are the most
flexible power producers for changing load conditions.
Adding or subtracting panels and batteries is simple
and no more costly per unit of power than the original
installation.
6) Generating equipment and any associated wiring
for the distribution of power should be owned by
the rural electricity authority, not locally. The basic
assumption is that the majority if not all the capital
for installation of rural generating equipment is from
public funds and public ownership can therefore be
justified. If users or user groups such as village
cooperatives are given ownership of the generating
equipment it will be impossible to control abuse of
the equipment or maintenance costs. If the generating
equipment is to be locally owned, then the only
acceptable approach for maintenance is for the local
owners to also be fully responsible. Experience shows
clearly that this is rarely successful and the public
funds used for the project are wasted.
Summary
The steps in producing a policy are as follows:
· Establish a dialogue with the affected parties to
understand their positions, needs and restrictions.
chapter-4.qxd 11/8/03 11:08 AM Page 27
· Gather as much background data at home and abroad
as possible.
· Draft the best policy you can.
· Negotiate the terms of the policy with those affected
until the policy is acceptable to all parties.
· Have the policy ratified and proclaimed at the highest
level consistent with its nature.
· Enforce it.
To summarize the main concepts that are desirable in a
rural electrification policy:
· There should be provision for an independent rural
electricity authority specializing in off-grid
electrification that may share technical and physical
resources with the urban electricity authority but has
separate administration and funding. The authority
should be set up in such a way that it can seek
finance from aid agencies or international
development banks with minimum interaction with
other government agencies or departments.
· The same department that makes policy for rural
electrification should make policy for urban
electrification and should supervise both rural and
urban authorities.
· The rural electricity authority should specialize in
independent village-scale or individual-scale systems,
while the urban authority should specialize in
multi-village grid-delivered power systems. The
supervising department should decide which authority
has jurisdiction in a service area.
· Electrification for economic development should be
tied to specific economic development projects.
Subsidies for capitalization and plant operation during
the early years should be made available based on the
Development of rural 27
electrification policy
type of installation and the importance of electricity
to profitability of the project. A requirement for
minimizing power waste through energy-conservation
measures as directed by the supervising department
should be tied intimately to these subsidies.
· Electrification for social development should have no
subsidy for operation and only a partial subsidy for
installation.
· The authority, not the user, should own the
generating equipment and all wiring. The appliances
using the electricity should be the responsibility of
the user, though they may be financed by the
authority.
· All those associated with administration, fee collection
or system maintenance should be full employees of
the rural electricity authority. A village cooperative
may be set up to finance electrification but should not
provide administration or technical services.
· The policy should state and the authority should
enforce disciplinary measures against users that violate
their agreement to pay periodic fees or in some way
modify the system to its operational detriment.
· Community leaders, in the case of social development
electrification, or project management, in the case of
economic development projects, should be involved in
all stages of system selection, design, financing and
installation.
· The technology used for rural electrification should
not be fixed but should vary according to the needs of
the user and the characteristics of the site.
Technology selection should emphasize recurring
costs, not initial cost. Different selection criteria
should be used for economic development and social
development electrification.
Chapter-5.qxd 11/8/03 11:09 AM Page 29
Basics of rural electrification
project design
Introduction
The term ‘project design’ is very broad in scope and
covers everything that must be determined before a
project can proceed. This includes establishing what
the project is intended to accomplish, locating funding,
locating people to carry out the project, preparing the
technical design, specifying and ordering materials,
organizing the project, scheduling, budgeting, auditing
and management. The process of designing a project
can be broken into three subprocesses: (1) goal
determination; (2) determination of resources available;
and (3) detailed design of the project.
Project quality
We are all familiar with the terms ‘good project’ and
‘bad project’ but it is not so easy when it comes to
deciding what determines whether a project is good or
bad. Every project has many different participants.
Virtually everyone has some interest in a rural
electrification project and can be considered a
participant. Each participant will have a goal in mind for
the project and criteria of success or failure. A project
may be considered bad by one participant and good
by another.
For the rural energy project designer to develop a
‘good’ project, there have to be some common criteria
for what is good and bad. To help decide, the
5CHAPTER 5
designer must ask some questions:
1) How well does the project fit into established
government policy for rural development? If not
very well, does it go against any established
government policy? ‘Good’ projects do not go against
established policy.
2) Who are the most important participants and will
the project fit their idea of what a good project
should be? Remember that the recipient of the
project is always one of the most important
participants. In all cases, the attitude of the recipient
can make or break a project. ‘Good’ projects meet the
requirements of the important participants.
3) Will the form of the project establish a precedent
that may prove to be a problem in the future? For
example, rural electrification ‘demonstrations’ where
power is provided with heavy subsidies may make it
politically impossible to develop or finance full-scale
rural electrification without continuing the expensive
subsidies. Thus the demonstration effectively destroys
the very concept it was intended to demonstrate.
‘Good’ projects will not create a long-term burden for
any of the important participants.
Determining goals
Where do goals come from?
All projects inherently include some goal. The goal of the
project will be a major determinant of its form and the
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30 Solar Photovoltaic
Project Development
design of the project is the direct result of its goal as set
by the designer. The project designer may never actually
define a project goal but a project cannot come into
existence without the designer having some end result in
mind. Vague and formless goals often result in vague and
formless projects, so it is important that the first step in
project design should be the formal determination of
a project goal.
Rarely, however, can the designer of a project decide on
the goal of a project without responding to pressures from
others whose idea of the appropriate goal for the project
may be very different. For example, in a project intended to
provide some solar electrical services to a rural community,
the goal of the aid agency providing the funds may be to
have a highly visible, easily accessible project that can be a
showplace for their country’s products and for the aid
agency’s efforts. The goal of the politicians involved may be
to fulfill campaign promises to supply electricity to rural
districts. The goal of the planning office may be to make
another step towards completion of their five-year plan.
The goal of the community receiving the project may be to
be as modern as the neighbouring village that already has
electric lights. The goal of the implementing office may
be to do something reasonably useful with the money
offered by the aid agency while keeping the politicians, the
planning office and the recipients happy. All these goals are
reasonable and in fact all may be achieved in the course of
a project. Indeed, one valid measure of the success of a
development project is how many of the different groups
that have some interest in it are happy with the results.
It is up to the project designer to recognize the larger
set of interacting goals of all the direct and indirect
participants in the project and to create a well
defined — and achievable — set of goals that is the best
overall compromise.
Immediate design goals versus long-term
development goals
The goals we are talking about here are the real ones
that directly affect how the project is carried out. It is
common to have vague and idealistic goals set out in
project documents but to have rather different real goals
in mind when the project is designed and carried out.
For example, the project document may state that the
goal of a project that places electric lights and power for
a video in a rural village community centre is ‘to increase
the level of social interaction and to improve the quality
of life in the village’. This goal is sufficiently worthy,
idealistic and vague to satisfy all parties to the project
but no one can design an actual project around this goal
because it is impossible to determine whether or not it
has been achieved until long after the project is
completed. So many other factors enter into ‘quality of
life’ and ‘social interaction’ that no reliable measurement
of goal achievement is possible. The most basic and
important characteristic that a design goal must have
is the possibility of immediate measured achievement.
When the project is complete, we have to be able to
say whether the goal has actually been reached or not.
While some of the real design goals of a project may
seem crass, base or venal, they must still be determined if a
good design is to result. If the very real and immediate goal
of a project is to finally silence a persistent parliamentarian
who has been after your department for years to put a
solar-powered water pump in his home village, you as
project designer had better have that as an unwritten but
definite goal for the project design. If you are competent,
you will also strive to make the project fit into overall
development policy and attempt to make it as useful as
possible to the recipients, but you must not forget that the
basic goal is to please the insistent parliamentarian.
Goal testing
The true test of project design goals are whether the
goals can be met and, if so, whether you will know it in
time for the knowledge to be useful. Goals that cannot
be achieved are not a useful basis for project design.
Goals that are so vague that no one can tell whether or
not they have been achieved are equally useless for
project design. Goals that take more than five years to be
achieved are rarely useful for project design purposes.
Goals and terms for rural
electrification projects
What are the goals of those involved
in the project?
Every group of people involved in a rural electrification
project has its own goals for the project. These can
Chapter-5.qxd 11/8/03 11:09 AM Page 31
generally be categorized into four main classes:
· recipients
· funding agency
· elected government
· civil service.
These four classes rarely have the same goals. The main
task of the designer is to assign project goals that are
acceptable to the recipients, the funding agency, the
politicians and the bureaucracy.
Determining the goals of each group
It often seems like an exercise in mind reading to
determine the real goals for each of the four participant
classes. Virtually everyone will say one thing but mean
another. It is the job of the project designer to learn
what is really required.
Each class has a set of goals, not a single goal, that
the project is expected to achieve. Some of the goals are
more important than others and the less important ones
may be ignored. It can safely be assumed that all groups
really do have as a goal the improvement of the life and
wealth of the rural people receiving the project, but this
may not be the most important goal for some of the
groups.
In every situation, the different needs of the groups
lead to different project goals. Some of the likely goals
for the different groups are:
Recipients:
· better lighting for night work
· better lighting for children’s school work
· less cash outlay through savings in kerosene and dry
batteries
· a feeling of pride
· employment for villagers
· training for villagers
· access to television and video entertainment.
Funding agency:
· a high-visibility project to demonstrate that their
money is doing something
· easy access
· a project that tests new equipment in the field
· a showplace for the products of a donor country in
the hope that future sales will be generated
Basics of rural electrification 31
project design
· a project that will look good to the home office
· a better way to spend the allocated project money
than other projects proposed.
Elected government (politicians):
· sets no precedents for future projects that cannot be
supported in the long term
· no recurring expenses that will be a future burden on
government
· fulfills political promises or policy declarations
· provides a project for a district that has been ignored
in the past
· provides a project for a district that is the home
district of an important politician
· will not be criticized by the electorate.
Civil service (bureaucracy):
· can be easily administered with available resources
· fits the plans developed by the bureaucracy for rural
development
· does not conflict with other activities of the
bureaucracy
· establishes no unacceptable precedents
· has a clear beginning and ending, with no
long-term, vague responsibility attached
· has a reasonable chance of success.
This is a representative, if not exhaustive, list of goals.
For each project the goals will change as attitudes and
resources change. What is important to the project
designer is to know that a diverse set of goals must be
merged into the project if it is to receive the support of
these four important groups. Without the support of each
of these groups, the project may go ahead if pressures
are strong enough, but its long-term success is unlikely.
Project goals
1) Design using your own goals. The first step is to
roughly design the project to meet your goals.
Then examine this project design objectively, relating
the project to what you believe to be the goals
of the recipients, funding agency, politicians and
bureaucracy. Where your goals are in clear conflict
with what you believe to be the goals of the other
groups, attempt to find a compromise that is
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32 Solar Photovoltaic
Project Development
acceptable to you and you believe will be acceptable
to the others.
2) Refine using your perception of others’ goals.
Once you have finished the above exercise, you should
have a draft project design that, if your estimate of
the reactions of the other project participants is
correct, will probably be approved.
3) ‘Test fly’ the draft. Discuss the project with members
of each of the four groups whom you feel to be
important to the final approval of the project. If they
clearly approve of your design, then you can
reasonably assume that you have understood what
they require from the project and have met those
requirements with your draft design.
It is likely, however, that you will find resistance to some
of the terms of the project in one or more of your
discussions. This means that your project draft has not
met one or more of the goals that particular person
considers important. Determining the real problem can
require some detective work. A politician is not likely to
admit the project is unsatisfactory because it is making a
rival politician look good. Sometimes you can simply ask
‘well, what changes do you think I should make?’ and at
least determine which aspect of the project is causing
the difficulty. Once that is understood then a series of
‘would it be acceptable if …’ questions can usually be
asked until a compromise is found.
This first round is best handled verbally, not by written
submissions. If you formally submit your draft for written
comment, you are placed in the position of submitting
what may be an unacceptable project, thereby starting
the approval process off on the wrong foot. First
informally iron out the major problems before submitting
a formal draft for comment. In an informal discussion you
have the opportunity to explain the reasons for particular
aspects of the project that you may not have made clear
in the written draft. Though your draft may seem
perfectly clear to you, it may not be to other people less
familiar with the ideas you wish to communicate. This first
verbal session helps to point out parts of your draft that
are not clear and could be a source of misinterpretation
or confusion in the final project document.
If compromises are involved in the rewriting of the
project, another round of informal discussions is
necessary to ensure that you have read the participants’
requirements correctly and that the compromise you have
worked out is acceptable to all parties.
These informal negotiations may require considerable
time and effort but the result is a project document that
has a reasonable guarantee of passing through the
approval processes with minimal difficulty and delay. The
overall time required is usually far less than trying to
salvage a formally submitted project document that has
been rejected or has become stalled on the desk of
someone who dislikes the project but is unwilling to come
right out and kill it.
Project design
The initial project document that is submitted for
approval by government and funding agencies should
have only sufficient detail to make it possible to estimate
results and costs. The detailed technical design and
operating budgets of time, money and labour are usually
prepared after the general project concept is approved.
While it is possible to complete a detailed design before
approval is sought, the initial design will rarely be
accepted and in the process of negotiations with funding
agencies, government officials and recipients so
many changes will be made in the concept that the
implementation details will need complete revamping.
The approval of a project concept carries with it the
approval of the use of a certain amount of resources to
carry out the project. However, just because approval is
granted does not always mean that the resources
approved for use are actually available. Before creating a
detailed project design the limits of the resources
available to implement the project must therefore be
clearly established.
Determining available resources
All projects require resources to accomplish. The three
basic resources are money, labour and time. Generally
the three are somewhat interchangeable so an excess of
time or labour may make up for a shortage of money.
Shortage of labour can be partially overcome by
additional money and time and lack of time can often be
surmounted by increased money or labour.
Chapter-5.qxd 11/8/03 11:09 AM Page 33
To be feasible, the project design must work within
the limits of resource availability. The task of the project
designer before beginning the detailed design is to list
the money, labour and time resources that might be
made available to the project together with their possible
sources.
At no point in the development of the project design
should the requirement for resources exceed those that
can be made available. This resource list is therefore
constantly referred to as the detailed project design is
developed. When the requirement for one resource
exceeds that available, the designer can consider
increasing the use of other resources as a replacement.
Where replacement is not possible, the project design
must be adjusted to stay within the available resources.
Detailed design
Once project design goals are determined and a list has
been made of time, money and human resources available
for the project, detailed project design can begin.
The principal items addressed in detailed project
design are:
1) Specific technical purpose of the project. What is
the project meant to achieve? For example, a
reasonable purpose is to provide sufficient electrical
power in a remote village to operate a video that
requires 150 W of power at 240 V, 50 Hz, for 4 hours
per week. As this purpose is the basis for the
technical design of the project, it must be clearly
and correctly determined.
2) Recipients of the benefits of the project. Where
are the project sites and who will be the recipients
of the services provided by the project? This is
usually determined only after a great deal of
discussion and compromise. In many cases, the
recipients who would be most suitable for the
project will not be chosen owing to political, social
and economic pressures. The project design must be
geared specifically to the actual recipients rather
than to the ideal or average recipient.
3) Organization to design, administer, build and
operate the project. Obviously, there must be an
adequate organization for building the project, but
less obvious is the need for an administrative and
Basics of rural electrification 33
project design
support organization after the physical completion of
the project. Many, if not most, rural energy projects
fail through lack of adequate post-completion
support in the form of maintenance, fuel supply,
spare parts or training. The collection of fees for
project services is often left to chance or the hope
that what amounts to voluntary donations by the
user will suffice. It is the responsibility of the project
designer to ensure that there is an adequate support
organization to run the project as well as the more
immediate need for an organization to carry out the
design and construction.
4) Technical design. Who will do the actual hardware
design for the installations? Who will check the
designs to make sure that they fit the needs of the
project? If consultancies are needed, how will they
be chosen? Are there any restrictions placed by the
funding agency on who can perform services on
the project?
5) Supply of materials and labour for the project.
The project design must include some process for
specifying and purchasing the components and
services for the project. Does the recipient have to
provide any materials or labour? Is there a
requirement by the funding agency for purchasing
from a particular source? If tendering is required,
who evaluates the tenders? Who writes the
specifications?
6) Budgeting resources (time, money and labour).
As resources are the constraints on the project,
budgets of those resources are required as guides
for their allocation. Budgets actually used for the
project design should be as detailed and accurate as
possible.
7) Preparation of a cash-flow estimate and sourcing
of adequate and timely funds. Where do the funds
come from and how are they spent? Sometimes
funding is assured before a project is designed.
Often the project is designed then money is sought.
In either case, the project designer has to ensure
that funding is sourced in amounts adequate to the
needs of the project and that the funds must be
available when the expenditures have to be made.
8) Arrangements for receiving materials from
suppliers and shipping them to site. Will there
be a need to test components when received? Will
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34 Solar Photovoltaic
Project Development
there be a need to store materials between receipt
from suppliers and shipment to the project site?
What kind of storage will be needed at the project
site and for how long?
9) Ownership of the project. Although very important,
the actual ownership of the project is often not
specified in the project design. There has been at
least one case where a village received an expensive
diesel rural electricity plant for their use — with most
of the cost borne by the government — and a short
time later sold the unit at a considerable profit and
equivalent loss to the government. There have been
a number of instances where solar panels and
batteries installed as part of a rural electrification
project have been used for other things, with the
excuse being that they belonged to the users rather
than the government and they could therefore do as
they pleased with them.
10) Resolution of land questions. Obtaining land for
power-plant sites, power-line access rights, dam
sites, release of land for flooding by hydro dams,
the felling of trees to provide solar access, building
access roads and obtaining sand and stones for
construction are typical requirements for a rural
electrification project. Ignoring these items during
the project design phase can be either a money or
time budget disaster. If negotiations are not held
until after much work has gone into the project
preparations, the cost of the land or rights being
purchased is likely to be much higher than if the
negotiations take place in a leisurely fashion with
little pressure on project management to bring them
to an early conclusion.
A major determinant of the success or failure of a project
is the quality of the detailed project design. It is
worthwhile spending considerable effort and expense in
the preparation of a very good project design in order to
foresee and avoid even more expensive problems during
project implementation.
Summary of project design basics
Summary of general project design for rapid project
approval:
· Write the project to best fit what you think should be
the goals.
· Examine the resulting first draft in the light of what
you believe to be the requirements of the recipients,
funding agency, politicians and bureaucrats.
· Modify the first draft to best fit the requirements of
the four participant groups.
· Hold one or more rounds of informal talks with
important (to your project) representatives of each of
the four groups and negotiate the terms to best fit
the real requirements of all the participant groups.
· Write a final draft and submit it for approval.
Summary of factors to be considered for detailed
project design:
· specific technical purpose of the project
· recipients of the benefits of the project
· organization to design, administer, build and operate
the project
· technical design
· supply of materials and labour
· budgeting resources
· cash-flow estimate to ensure funds will be available
when needed
· arrangements for shipping, receiving and storage of
components
· ownership of the project
· resolution of land questions.
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User needs assessment
through site surveys
Surveys as project design tools
One of the methods used to determine the size of a rural
electrification project is to carry out a needs survey of
the prospective recipients of the project. This survey
should be designed to determine several factors as
accurately as possible:
· the electricity needed to replace energy obtained from
other sources
· the desire of the recipients for additional electrical
energy for new purposes
· the relative importance to the recipients of lighting,
radio, refrigeration, video, water pumping and other
common uses of electricity
· the ability of the recipients to pay the cost of
whatever system is installed
· any physical, cultural or economic constraints to
installing an electricity system at the recipients’ site
· the relative importance of community versus individual
use of appliances such as irons, refrigerators and
videos
· any other aspects specific to the recipients’ situation
that would affect the size and type of project
required.
Pre-survey data collection
and analysis
As a survey visit to a remote rural site is costly and often
difficult, it is important to collect as much information as
6 CHAPTER 6
possible from sources in the country and from
international organizations prior to the actual survey.
This information can also help in the survey design.
Important pre-survey information that should be
gathered includes:
· Access and infrastructure. Is there transport in and
out of the site? What does it cost to reach the site
from the urban area in time and money?
Are communications reliable and reasonable in cost?
What other government officials and departments
have facilities in the district?
· Demographic information. Population, per capita
income, age distribution, percentage of rural citizens
working elsewhere in the country or abroad.
· Meteorological data. Hours of sunshine, rainfall,
cloud conditions, temperature, wind, humidity,
the frequency and severity of storms.
· Geographical. Shape and size of district, topography
that may cause problems with shading for PV systems
or with transmission and distribution wiring. The
topological and hydrological character of local streams.
· Agricultural and fisheries development prospects.
What products are commercially produced? Will
electrical power be needed for agricultural or fish
processing? Are trees considered an important resource
that should not be felled to provide shade-free solar
exposure or a right of way for transmission and
distribution lines?
· Past projects, existing projects and planned
projects for that district’s development. What is
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36 Solar Photovoltaic
Project Development
the expected energy impact of the existing and
planned projects in the short and long term?
Assessment of the reality of planned projects, as
many are planned and few are implemented. What has
been the success rate for past development projects?
If they have failed, for what reasons?
· Economic information. How do people in the rural
district obtain money?
· Health and education information. The size and
type of facilities devoted to schools and health
centres. The location, quality and availability of water
supplies.
· Politics. What administrative and social structure is
present in the rural districts? Are there community
factions that may have a bearing on the project’s
success? Is it important to balance the project
resources among the factions? What organizations
exist that might be used for local administration of
the project?
Other resources that should be tapped include people
from the district currently living in the urban area and
government officials familiar with the district,
its resources and any problems with projects there.
Selecting surveyors
The goal is to obtain the genuine attitudes of the project
recipients. Unfortunately, every person surveyed will have
some bias towards the person doing the survey and every
person surveying will have some bias to those surveyed.
The response of surveyed to surveyor changes with
culture so there are no general rules for preventing bias,
but observations in many developing countries show
strong similarities in the way local people being surveyed
respond to different categories of surveyors.
Response to a foreigner on the survey team.
Consultants, foreign volunteer workers or expatriate
government employees are rarely successful in collecting
data through personal contact. Language barriers prevent
accurate surveys, a lack of intimate knowledge of the
cultural context limits their ability to ‘read between the
lines’ of responses and to probe for deeper meanings.
Even without the language problems, responses are
usually strongly biased towards what the respondent
thinks the foreigner wants to hear.
Response bias is rendered unimportant when a
foreigner is used to supervise survey staff, to collect
data from written sources or to assist in analysing the
collected data. On the other hand, sometimes
the presence of a foreigner makes the survey seem
more important and increases the level of cooperation by
the community. Foreigners are often equated with aid,
however, and there can be a tendency for people to
exaggerate their resources, their desire for development
and their needs when a foreigner is a part of the survey
team.
Response to national government officials from
outside the community. Although more likely to avoid
the language and cultural problems of the foreigner,
other problems bias their survey information.
In some cultures, government officials from outside
the district are viewed as gift givers. There is a
tendency to inflate needs and to overstate the
desire to receive development projects. Presumably the
expectation is that the person doing the survey has
some control over the allocation of resources,
so exaggerating needs increases the possibility that
more will come to the community than otherwise.
In other cultures, government officials are viewed with
suspicion and the opposite bias will occur. People hide
their resources and blatantly lie about what they believe
should be done about problems.
Like foreigners, externally based government officials
may be somewhat exotic and help to focus community
attention, but they are not usually good surveyors.
Response to local government officials. As local
government officials are often selected on the basis of
political ability, they can be expected to have
considerable personal bias themselves when relating to
the various sub-groups within the district population.
Likewise, the people being surveyed often have very
positive or very negative biases towards these local
government officials. There is also a definite self-interest
problem, as a survey bias that causes an increase in the
level of development will also increase the power and
responsibility of local government officials.
The best use of local government officials is in
arranging the logistics of the survey (transport, food,
lodging, etc.) but not as surveyors.
Response to a young person as a surveyor. The
use of upper-secondary school students as surveyors has
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been tried several times with reasonable success. Though
not always the case, people under the age of 20 are
usually seen as too unimportant to lie to. They are not
a threat nor are they seen as likely to be able to use
information given for the survey in a harmful manner.
Both young men and young women seem to do equally
well, though there is some sexual bias in that questions
relating to women’s activities will have more detailed
answers when women are surveying while if a man is
surveying, men’s activities usually elicit more detailed
responses.
Experience with rural energy and other types of
survey in many developing countries indicates that the
least-biased survey interviews are usually obtained by
sending a young (under 20) male/female team to each
location and having the male surveyor interview the men
of the household and the female surveyor interview the
women. There are no data to indicate whether or not it
is important that the surveyors are from the surveyed
district, though that is likely to vary with the culture
and particularly whether or not intercommunity rivalry or
distrust is involved.
Summary
The survey team that is likely to obtain information
with the least bias will consist of teams of young men
and women supervised by government officials or
foreigners. A local government official should be
included for introductions and logistic support but
should not directly participate in the survey itself.
Selecting units to be surveyed
Random selection of survey units
Although energy surveys are almost always of people,
the unit of survey may be several people, such as
a household, rather than an individual. So in discussing
who is surveyed, we use the term ‘survey unit’ instead of
person. In each survey unit, therefore, one or more
people are interviewed.
In some cases, no selection process is required: every
unit is surveyed. Often, however, there are too many
units, they are spread over too large an area or for some
other reason there is not enough time or money to survey
User needs assessment 37
through site surveys
every unit in the survey area. The goal of any good
selection process is to select those to be surveyed in such
a way as to end up with the same survey results as if the
entire population were surveyed. There are several
common methods of selection with this goal in mind but
the most common for rural surveys is random selection.
When all the surveys are similar in nature, in particular
when there is a very large number of them, random
selection is the method usually chosen. First, the whole
group is numbered, laid out geographically or organized in
some fashion, then the units to be surveyed are selected
by randomly picking out names, numbers, locations or
some other identifier. In fact, any selection method that
ensures a genuinely random selection of survey recipients
will be satisfactory. For this to be a valid method of
selection it is important that (a) all the surveys are for
the same thing (you cannot mix household surveys with
surveys for commercial or community needs, for example);
(b) survey units include about the same number of people
(you should not mix household units with six people
with extended family units of 30, for example);
and (c) the selection is genuinely random.
For less than 1,000 units, the higher the percentage of
the total population surveyed, the better the accuracy
of the results, but the accuracy improves most between
0% and 15%. Above 15% the accuracy still improves,
but more slowly. Also, the greater the number of units
surveyed, the better the accuracy, but the accuracy
improves most dramatically up to about 20 units.
Above about 20 surveyed units, the accuracy still
improves, but more slowly. Thus as a general rule of
thumb for these types of small survey, no less than 15%
of the total group should be surveyed and no less than
20 surveys should be taken when using this random
selection method.
RULE FOR SMALL RANDOMLY BASED SURVEYS:
No less than 15% of the total number of units,
or 20 units, whichever is larger, should be
surveyed to obtain an acceptably accurate
estimate of total needs.
In a community with 40 households, 15% of them is only
six, so the minimum of 20 units should be surveyed,
i.e. half (50%) of the households.
If there are fewer than 20 possible units to survey,
then all of them should be surveyed. For example,
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38 Solar Photovoltaic
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if there are five secondary schools in the district being
considered for a project, all five should be surveyed for
their needs. If the entire country is to be surveyed and
there are 100 secondary schools in the country, at least
20 should be surveyed. If there are 500 secondary
schools in the country being considered for the project,
at least 75 should be surveyed (15%).
These rules of thumb mainly apply to the relatively
small surveys usually needed in isolated rural districts.
When a few thousand units are involved, and the basic
rules of uniformity and random selection apply, the
percentage of units surveyed can be reduced without
seriously reducing the accuracy of the survey. However,
the quality of the survey design becomes increasingly
important. When such large surveys are required,
specialists in survey design should be employed.
The implication of large surveys is that major economic
decisions affecting the lives of thousands are involved,
so attempting to save money on the survey may result in
the wasting of larger sums later.
Selecting people with appropriate
knowledge for survey
If the person being interviewed for the survey has no
knowledge of the subject of the interview, the results are
not going to be very useful. In the case where specialized
knowledge is required to make an intelligent response to
the survey, people with that knowledge must be selected.
For example, if the subject is the amount of firewood
needed for cooking, in most households the men will not
be able to provide accurate estimates as the women
usually gather and use the wood. In most rural cultures,
it would be a poor-quality fuel-wood survey that was
based only on interviews of the senior male person in
a household.
To determine the amount of fish likely to be collected
for freezing and resale, people who are currently in the
fish business are better survey subjects than those who
only fish for their families. A group of fishermen of any
type would be better survey subjects than a group of
people who have spent their lives growing yams.
Because a single survey unit may contain many people,
it may be important to interview several people from each
unit to cover all the areas of knowledge needed for an
accurate survey response. It is poor survey practice to
arbitrarily select one person from a survey unit of several
persons and make no effort to gather information from
the others.
The person or persons interviewed must not only have
the information the surveyor is interested in, there must
be a willingness to be interviewed. People who are very
shy, who are junior members of the survey unit and are
uncomfortable or forbidden to speak for the survey unit,
who are embarrassed about having little education or are
simply not interested in helping, will not be good sources
of information.
A significant problem with surveys of households is
to find people from the household who not only have
the information but are willing to give it to the surveyor.
The time of day that the survey is carried out may make
a difference. If a time is chosen when the only people
left at home are the very young and very old members of
the household, there may be many more problems
obtaining accurate information than at other times when
the leading household members are available.
Survey questions
The survey is no better than the questions asked.
A series of questions can be devised that force the
results into almost any predetermined mould. Other sets
of questions may yield results so random as to yield no
useful information. The questions should be prepared by
someone who has intimate knowledge of the group being
surveyed but who also has an intimate understanding of
the processes needed for analysis of the survey and the
effect the questions have on that analysis. Rarely will all
those skills be present in a single person. A team
generally has to be involved to prepare the questions
and the team should include someone from the culture
being surveyed who clearly understands the goals of
the survey, someone who understands the mechanics of
surveying and of survey analysis, and someone who is
knowledgeable on the subject of the survey.
For example, suppose we need to design a question
for a survey that is intended to help forecast the change
in firewood usage that would come about as a result of
wood stoves being provided for cooking. Someone who
knows how firewood is used in the village is very
important. If a primary use of firewood is for
underground ovens, wood stoves will affect firewood
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usage differently than if most is used for cooking over
open fires.
Someone who has experience with other communities
and their reactions to the use of different types of wood
stoves will be important. What are the alternative fuels in
the area that are not now being tapped but could be
used in stoves, what about the different methods of
cooking needed to take advantage of stoves, the reaction
to different foods that may be prepared on stoves but
not on open fires, the reaction to different types of
stoves, and many other considerations that will have an
impact on the actual use of stoves if they are installed.
Finally, there must be someone who knows how to
convert the answers to the questions into a form that can
be used for the purpose of the survey. That person will be
mainly responsible for the form of the questions to ensure
that the answers are definite enough to be useful.
Though general impressions are an important part of a
survey, the actual data must be in a form that is either
numerical or represents a very limited choice of responses.
This sounds very complex, and it can be,
but realistically most surveys are based on other surveys.
Once a set of reasonable survey questions and analysis
methods has been found for surveying a particular
subject, the same general set can be adjusted to fit
the local situation and used again. There are many
advantages in using the same or a very similar set of
questions as used in other surveys. Some of
the advantages are:
1) Using survey questions that have worked
elsewhere increases the likelihood that they will
work for you. Once you are convinced that the other
survey was similar enough to yours in goals and in the
character of the place being surveyed, you can be
fairly sure that the questions that were acceptable in
the other survey will be usable in yours.
2) Your survey results can be directly compared with
those of the other survey. Few surveys have no
meaning at all, the problem is trying to find out what
the meaning is! If the same survey is used again and
again, in time a correlation between the results of
the survey and what actually happens can be made.
The more times and places the survey is made,
the more correlation possibilities there are and the
more confidence you can have in the survey results
providing a true understanding of the situation being
User needs assessment 39
through site surveys
surveyed. The main danger is that the other survey
was not a good one so yours will not be either.
You must first judge the other survey and its results
and be convinced that it is appropriate for your use.
3) Refinements are included. If a very similar survey
has been made a number of times and the
organization creating and carrying out the survey is
reasonably competent, the survey will be refined with
each use. You will have the benefit of this experience
and refinement.
4) The organization preparing the other surveys may
be able to assist you in preparing and analysing
yours. It will have had considerable experience and
may be able to point out potential problems well in
advance so that they can be avoided.
A final, but important point: though the survey may
initially be prepared in English or other metropolitan
language, the questions actually used must be in the
local language. If they are not, the surveyor will have to
translate and experience has clearly shown that this will
introduce major biases into the responses. The very
careful wording of questions to eliminate bias will be
useless if the questions have to be explained by someone
else in a different language. The translations should be
carefully checked by people from the same cultural
background as those being surveyed. Someone who is
fluent in the original metropolitan language as well as the
local language should translate them back to ensure that
the intended meaning has been preserved.
Who supervises?
Someone has to be in charge of the survey team. Usually,
the field representative of the organization paying for
the survey is in overall charge. If the representative is not
a national of the country being surveyed, the cultural and
language problems may make it impractical for that
person to be the direct supervisor of the people actually
doing the survey. A responsible local person who can
effectively communicate both with the foreigner in
charge and the local surveyors is a very important part of
the survey team. That person should be the overall
supervisor of the survey with the foreigner having the
authority to step in should there be a problem and be
the ultimate arbiter of disputes.
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What questions are asked?
It takes many questions to get one answer
It is usually not appropriate to come right out and ask
the very question that is most important to your survey.
You must, instead, ask several related questions and
determine the result from the combination of answers.
There are several reasons for this ‘beating around the
bush’ in surveying.
1) People who are being surveyed usually think that
what they say will have some impact on what they
will receive from the government. In most cases,
they are right. Unfortunately, they often strongly bias
their answers to questions in a manner that they think
will increase what they receive later.
2) In surveys relating to the introduction of new
technology in a rural environment, the survey is
often related to things few people have
experienced. As a result their answers are based on
imagination rather than experience. For example,
if electrification of a rural village is being considered,
most of the people in the village will not be able to
accurately answer the question, ‘How much electricity
will you use?’. They have no experience of electricity
and their answer to that direct question will not be
very accurate.
3) Even knowledgeable, experienced, unbiased people
usually have trouble answering questions about
what they would do ‘if’ without considerable
thought. By asking a number of supporting, relevant
questions that are easy to answer, an answer can be
determined more accurately than if a straight
‘what will you do if’ question is asked. It is definitely
relevant to ask that direct question, but the
supporting questions are no less important in the final
analysis and should be asked before the direct
question.
Therefore suppose your real question is ‘How much
electricity will your household use if we electrify your
village?’. Relevant but indirect questions that should be
asked include questions about existing energy use
because
· people who are used to many kerosene and pressure
lights will also want many electric lights
· people with small generators of their own will have a
higher electricity use than people with no past history
of electricity use
· people who are now buying 20 or 30 dry cells a month
to run radios and portable lights can be expected to
have higher electricity use than those buying
very few.
Asking about the economic situation of the family is
another subject area that supports the key question of
energy use because it is known that families with a lot
of money tend to use more electricity than those with
little. The number of people in the household is a relevant
question. The number and type of electrical devices
(cassette players, portable lights, etc.) is a relevant
question. Questions relating to what people would be
willing to pay for differing levels of electrical service help
to indicate their real priorities for energy use.
Misdirection as a device to reduce bias
Ideally, the people surveyed should not know why they
are being surveyed if unbiased answers are required.
Sometimes surveys are deliberately misnamed or their
purpose falsely stated in the hope that the real area of
interest will seem incidental to the stated subject and the
responses will be unbiased. Another ruse used where
the subject is already known to the people is to have two
questionnaires, one clearly about the subject with obvious
straightforward questions but the other questionnaire,
claimed to be a survey that some other agency wanted
done while the surveyors were in the area, contains the
real detail with all the supporting and background
questions that will be the principal source of information
about the surveyed area. Note that the surveyors
themselves are told the same thing, so they are less likely
to ask leading questions or coach the respondents to give
answers that the survey organizers want.
Generally only about a quarter of the questions asked
in a good survey are directly relevant to the subject.
The rest are of varying degrees of importance, with many
questions being actually irrelevant but included to keep
people from knowing which questions are really important
and to provide some easy questions along with the
difficult ones so people do not feel too intimidated.
When instructing the surveyors, they should be
warned not to coach or instruct beyond the basic need to
Chapter-6.qxd 11/8/03 11:10 AM Page 41
tell people what is wanted. It is important that the
questions be clearly worded so that little or no assistance
is needed from the surveyor. The more the surveyor is
involved in assisting, the more the answers become
biased towards the surveyor’s opinions instead of those
of the person being interviewed. For example, in a wood
fuel survey one of the questions was to list the species
of trees that were used for fuel and about 10 blank lines
were provided. When the results were tabulated there
was a very strong correlation between the primary
species listed and the person asking the question.
Apparently each surveyor had a favourite type of wood
fuel which was usually written down as the answer given
by the person being interviewed. It was so obvious
that when, say, ironwood was given as an answer,
one particular surveyor was sure to have been the one
asking the question. When coconut fronds appeared on
the list, it was almost always another particular surveyor.
Such biases make the answers useless.
This example points to another important aspect of
the questions: use checklists or yes/no responses instead
of blanks to be filled in from memory. What should have
been done was to list the species known to be in the
area and the surveyor should have asked about each.
Another technique used to improve the accuracy of
survey questionnaires is to ask the same question several
times but in a different context or manner. For example,
people could be asked how many kerosene lights are
kept lit and for how many hours a day. Later they could
be asked how much kerosene they use in lamps every
week. Finally, they could be asked where each light is
used in the household and how long each one is left
burning. By asking the same thing in different ways you
will learn whether or not the person being interviewed is
giving you useful data. If the answers are reasonably
consistent, the answer is yes. If very inconsistent, no.
Subjective information can be valuable if the same
person collects all the data. For example, the size and
quality of the house and furnishings is an indicator of the
economic situation of the household. As long as the same
person reports on what they perceive as the relative
quality of the house and furnishings, there is some value
in that information. For any form of subjective
information, however, no two people view the same
situation in the same way and subjective information from
several people is not satisfactory for comparative analysis.
User needs assessment 41
through site surveys
How the questions are asked
How the questions are asked is almost as important as
the questions themselves. The surveyor should ask all
questions in the same manner. There should be no clue
that any questions are more important than others. The
questionnaire should not require a dialogue between
the surveyor and the surveyed as the questions should all
be multiple choice, yes/no or other types of question that
require little or no assistance from the surveyor.
Estimates of numerical quantity are often poor
unless the respondent can visualize the quantity.
Questions that require a numerical answer, such as how
many litres of kerosene are used per week, should be
based on sample sizes rather than just asking for a
number. For example, to determine litres of kerosene
used per week, the person surveyed could be shown
several different sizes and types of containers and asked
to identify how many are used per week. If the question
is how much wood is burned for cooking every day, then
the respondent should be asked to make a pile of wood
about the same size as is used in a day and that pile
weighed by the surveyor.
Quality responses require a quality environment.
Placing the subject under stress by having more than two
people visiting the site at a time, allowing the team to
arrive at times that are inconvenient to the person being
interviewed, using a language that is foreign to the
person being surveyed or in any way violating the local
concept of good manners, will all reduce the usefulness
of the response. Always remember that the surveyors are
literally guests of the people being interviewed and it is
important that they follow the unwritten rules of custom
that apply to guests. Although the surveyors should not
be encouraged to linger and take advantage of their
guest status, they must still be allowed to stay the
minimum time that is considered polite, have a cup of tea
and a biscuit or whatever is the local custom in these
circumstances. In many cultures it is impolite to come
immediately to the point of a visit and considerable time
may be spent in small talk before the actual purpose of
the visit can be broached.
In most cultures, it is appropriate to bring a small
gift when visiting. Most remote families appreciate
something from the outside and a small gift from a store
in the city may be more appreciated than a large gift of
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local produce. Find out from people knowledgeable of the
culture what is appropriate and make arrangements well
in advance for gift giving if it is appropriate. In some
cultures a particular type of gift is always given for
a particular type of visit, so always obtain the advice of
someone from the area being surveyed as to what is
appropriate.
Many village-based cultures also expect a formal
ceremonial visit to be paid to the village governing
council, be they a formal group or an informal gathering
of elders. Some cultures have quite strict rules of gift
giving and conduct for these meetings, other cultures
require little more than a handshake with the village chief.
This initial formal meeting will set the tone for the entire
visit so it is particularly important that no rules of custom
be violated at this time. A local member of the team or
a trusted advisor who knows exactly what is expected
should make all arrangements and coach all the team
members on the proper conduct and the appropriate
ceremonial responses. For the foreign members of the
group a rehearsal may be useful. Though the days appear
to be past when you might lose your head over a minor
customs breach, you may still lose your welcome and the
quality of your survey will be in jeopardy.
Checking daily
Every questionnaire should be checked at least daily by
the person on the team with the most experience in
survey work. The checker should look for:
1) Wildly varying responses between respondents
who are obviously similar. This usually indicates
a poorly asked question or one that has a strong
emotional impact. The question should be rephrased
or eliminated.
2) Notable differences in the number of people
questioned by the different surveyors. A surveyor
doing an unusually large or small number in
comparison with the others should be suspect.
3) Very consistent responses to questions asked by
particular surveyors in comparison to the
consistency of response found by other surveyors.
This indicates too much coaching or leading of the
subjects by the surveyor. It can also mean that
the question is not being asked at all and the surveyor
is filling it in.
4) Questions that are consistently left unanswered or
answered by the equivalent of ‘I don’t know’
indicate a problem with that question. The question
needs revision. The solution is not to instruct the
surveyors to more fully explain the question.
This is almost certain to introduce major biases into
the response so that the opinion of the surveyor will
be reflected in the response rather than that of the
person surveyed. The surveyors should not coach or
other than minimally instruct the people being
surveyed.
In addition to checking the actual responses, the person
in charge of the survey team should continuously tour
the survey area to ensure that the surveyors are in fact
working in the right area and that there are no particular
problems to be solved.
Analysing the results
A survey is a closed circle. In order to create an
appropriate set of questions, you must know in advance
the methods that will be used for analysis. To find the
best methods for analysis, you must have some idea of
the responses that will result from the questions.
As much analysis as possible should be undertaken in
the field so that if there are problems with specific parts
of the survey, they can be redone or at least the reasons
for the problems can be determined. Once you leave the
survey site, it is very difficult to work out why a particular
set of data is dramatically different from the rest or why
one question seems greatly at odds with others asking
essentially the same question. Doing much of the analysis
in the field always involves the possibility of yielding to
the temptation to try and ‘clean up the data’ by taking
all the data on the fringes of the main group and trying
to ‘find out what is wrong with them’. That is not the
intention. All sets of data will have a few points at either
extreme. It is not the extremes but rather what is
happening in the core group that reveals how good the
survey is. If the data are widely distributed with no
particular concentration, there is reason to believe that
the question was not well phrased or it is not relevant
to the subject. That sort of data does not provide much
information other than the fact that whatever was asked
does not seem to matter much. Relevant data will have
Chapter-6.qxd 11/8/03 11:10 AM Page 43
one or more clear concentrations and the relative
importance of the question (or else how well it was
phrased!) can be seen by how sharp the peak is. If
virtually everyone says that something is true, that is
strong evidence for assuming it is true in planning for
development. If half the people say that something is
true and the other half that it is false, considerably less
confidence can be placed in that question.
Checking for questionable data
The first step in analysing the data from the survey is to
locate questionable data and set them aside for special
study. An attempt should be made to find out why the
data are so unusual. The reason may be simply an error,
poor reporting by the surveyor, or that the person
surveyed did not understand the question and therefore
gave a strange answer, but the reason may also relate to
the survey analysis. No data should ever be actually
discarded. Even those that are clearly absurd should be
noted and annotated even though they may not be used
in final data tabulations.
After noting questionable data, which in a good
survey should never be more than 10% of the total
collected, the problem is to present the useful data in
a form that is easy to understand.
Correlating responses
The correlation of different data items is an important
part of analysis. When preparing the questionnaire, the
point was made that the same question should be asked
in several different ways. In the analysis phase, those
questions should be compared to see if the answers are
consistent. The stronger the correlation, the more
confidence you can have in the correctness of the
response. If the correlation is very poor, the response
should not be used as a determining factor in the project.
Presenting the data in usable form
The two most common formats are tabular and graphical.
Tables are best suited to data with many unrelated
variables concerning one data subject. For example, the
subject may be a person, the variables might be age, sex,
educational level, number of children, height, weight, etc.
User needs assessment 43
through site surveys
Also, where numerical accuracy in the presentation is
important, a tabular presentation is usually better than
a graphical one.
Graphical representations work best where data
variables are related and can be plotted side by side for
comparison. For example, plotting the size of different
age groups for a population sample will show at a glance
whether the population is largely young, middle-aged or
old. Graphical presentations of data are almost always
easier to understand than tabular ones. Most people find
it much easier to relate to a graph than to raw numbers.
For example, seeing the number 10 next to the number
1,000 is much less dramatic than a line 1 mm long next to
one 100 mm long. Correlation between different data
items and the relative importance of different responses
are usually much more clearly represented graphically
than in a table.
Map-based graphics can be very useful if the data
vary according to location and location is significant to
the end use of the survey.
Determining survey quality
The quality of a survey determines what level of
importance its results should have in project decisions.
While determining the quality of a survey is largely
a matter of judgement based on experience and training,
there are some indicators of quality that anyone
can use:
1) Answers are not clustered. Survey questions where
all the answers are about the same or the answers are
fairly evenly distributed among the possible choices
are probably not good ones. Good survey questions
usually result in answers that tend to be clustered
among a few responses but have some responses
outside the cluster too. If the questions that are
relevant to the end use of the survey are not good
ones, then the survey is not good either.
2) Responses can be seen to vary according to who is
surveying. If one surveyor consistently has a
particular answer to a question on the response
sheets but the other surveyors are different,
the quality of that surveyor — and therefore of the
survey itself — is placed in doubt.
3) The sample size is small or not randomly selected.
In general, the larger the sample, the more reliable
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44 Solar Photovoltaic
Project Development
the results when applied to the whole community. It is
reasonable to be suspicious of the quality of a survey
if the sample size is small or if there is reason to
believe that the sample used was not truly randomly
selected.
4) The survey methodology or questions have not
been used before. With a particular set of survey
questions or mode of surveying it usually takes three
or four tries, with modifications on each try, to obtain
high-quality results. There should be less confidence in
the results of a new set of survey questions or a new
approach to a user survey than one that has been
successfully used many times before.
Project decisions based
on user surveys
The primary use of a user survey is to determine what
energy is being used and to help in determining how
much of this energy can reasonably be replaced by
electricity from a rural electrification project.
Under the best of conditions, a user survey carried out
prior to electrification will provide a good basis for
predicting the minimum use of electricity after
electrification. A rural electrification project can be
expected to replace most of the energy used for lighting
and the energy used in operating personal generating
equipment. A good survey should accurately determine
these two classes of use.
User surveys of this type should not be used to
predict actual or maximum use of electricity. Some of the
information, such as the economic situation of the users,
may be useful in forecasting the total demand for
electricity, but a survey of users who have never had
electricity is not likely to yield an accurate forecast of
how it will actually be used.
Summary
Surveys play an important role in determining the
probable uses of electricity in a rural district but they
should not be the sole method used in deciding on the
type and size of a rural electrification project.
For a survey to be useful, the following points in
preparing and administering it should be remembered:
· The survey sample must be large enough to be
relevant (over 20 units surveyed and over 10%
of the total units randomly selected).
· The survey questions should be in the language
of the people being surveyed.
· The survey questions should be brief and not require
elaborate directions or long written responses.
For best results, they should be answered by a check
from a list of possible responses.
· Surveyors should be selected to cause the least bias on
the part of both the units being surveyed and the
surveyors themselves. To avoid sexual bias, survey teams
with both male and female members should be used.
· Constant checking should take place during the survey
to ensure that surveyors and survey questions are
satisfactory.
· The resulting data must be placed in a form that
shows the relationships between responses and the
questions intended to be answered by the survey.
· The weight the survey has in project decision-making
depends on the quality of the survey and the
availability of other information.
Chapter-7.qxd 11/8/03 11:13 AM Page 45
Forecasting rural demand
for electricity
Importance of accurate forecasts
of demand
When designing any electrical system, whether for a single
house or a continent, there must be advance knowledge
of how much total energy (watt-hours) will be needed and
the maximum power (watts) that will be required. Without
that knowledge, the size and type of the system needed
cannot be calculated.
The more accurate the estimate of the needs of the
customer, the better the designer is able to provide a
system that will meet those needs without excess cost
due to oversizing or customer dissatisfaction due to
undersizing.
Methods of forecasting demand
There are two basic approaches to forecasting the
demand for electricity, top-down and bottom-up.
Bottom-up method
The bottom-up method (sometimes called the build-up
method) sums the estimates of a large number of small
units into an overall estimate of total demand. For
example, in a small village, each appliance in the village
might be listed with an estimate of its individual electrical
7CHAPTER 7
requirements then all appliance use estimates totalled to
obtain the overall village estimate.
This approach is only as accurate as your knowledge
of what appliances will be used and how they will be
used. In the case of solar photovoltaic electricity, this
method is almost always used because each house
is a separate generating unit and has to be treated
individually.
Top-down method
In the top-down approach, the estimate is made on
the basis of known use by comparable installations
elsewhere. The basic assumption is that for similar groups
of users the individual use of electricity may differ
greatly but that of the group will be comparable to other
groups of similar size.
So if the task is to electrify a village of 50 houses and
data from another village of 75 houses are available, we
can compute the per house use from the electrified village
(by dividing total village use by 75), then multiply the result
by the 50 houses in the new project village to estimate its
total electricity needs.
The accuracy of this approach depends on how
comparable the two villages really are. As many factors,
both economic and social, affect electricity use in a
village, finding two villages that have the same use
patterns is not easy.
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46 Solar Photovoltaic
Project Development

To achieve the best forecast using the top-down the electrified village. If you need the number in
method, the following criteria for the project user group kilowatt-hours, simply divide the total watt-hours
and the comparison user group should be met as closely per day by 1,000. If you need the monthly average,
as possible: multiply the daily use by 30.
4) Divide that monthly electrical usage and peak watts by
1) Both groups should have similar per capita income
the number of houses in the village to find average
levels. Energy use is tied closely to income, so
monthly household use and average peak household
estimating the use of a poor village on the basis of
demand.
the use of a rich one will not provide an accurate use
5) Multiply the average monthly household use and the
forecast.
average peak household demand by the number of
2) Both groups should be culturally similar. Taking the
houses in the project village to estimate the monthly
use of an electrified suburban village inhabited by
electrical requirements for the project village.
workers with jobs in the urban areas to forecast the use
6) Add any special loads that will be connected to the
of a remote rural village will not be accurate. Neither
project village electrical system. Note that stores
will the usage figures from a village that depends on
supplying domestic needs such as food and clothing
agriculture for its subsistence necessarily result in a
are automatically included in the regular top-down
good estimate of electricity use in a fishing village.
estimate (as their load is approximately in proportion
3) Both groups should be similar in size. Use patterns
to the number of households served) and only special,
in large villages are often different to small ones.
non-domestic loads should be added to the figure
4) Both groups should have similar types of
obtained from the top-down method.
generating systems. Estimating use for a village that
is to receive a diesel system based on the use of a Where suitable comparable villages can be found and
village electrified from the grid may result in where the generating system is to serve an entire village,
inaccurate estimates. the top-down method generally yields the best estimate of
project village consumption. Where good comparisons are
These four criteria are listed in the approximate order of
not available or where individual generating systems for
their importance to an accurate forecast. Thus it is more
each home are to be installed (as with photovoltaics), this
important that the villages have a similar economic
method is not so good and the bottom-up method should
structure than that they get their electricity from similar
be used.
generators.
Note that this method automatically compensates for
If any special electrical loads must be connected in the
the fact that not all houses will connect to the electrical
project village that have no counterpart in the village
service by assuming the same percentage of connection
used for comparison, they should be added to the
as the comparable village. If there is reason to believe
top-down estimate. For example, a freezer is to be
that this will not be the case in the project village and a
installed for freezing fish before shipment to market. The
good estimate is possible of the number of households
freezer constitutes a significant special load that should
that will elect to receive electricity, a similar process of
be added to the general load of the houses that has
estimation may be carried out by just including electrified
been estimated by the top-down method.
houses in the villages rather than all houses. Stores and
commercial establishments must be added separately in
Making a top-down estimate for this case.
designing a village electrical system
Making a bottom-up estimate
1) Locate a village that is electrified and is comparable in
economic base, culture and size to the project village. As the electrical energy used by an appliance, as
2) Find the number of houses in both villages. measured in watt-hours, equals the number of watts an
3) Find the monthly electrical usage in kilowatt-hours appliance uses multiplied by the number of hours it
(kWh) and the peak demand in watts (peak watts) for operates, watt-hours per month (or day, week, etc.) is
Chapter-7.qxd 11/8/03 11:13 AM Page 47
easily calculated if the appliance power requirements
and hours of use per month (or day, week, etc.) are
known.
The bottom-up method of estimating monthly
electricity use for a village requires knowledge of
appliance power requirements and use patterns:
1) List all the appliances to be used in the project village
with their individual watt ratings and the number of
hours each will be used per day.
2) Multiply each of their wattage requirements by their
daily use in hours to find the watt-hour per day figure
for each appliance.
3) Total all the appliance watt-hours per day to find the
total village watt-hours per day. If you need the
number in kilowatt-hours (kWh), simply divide
the total watt-hours per day by 1,000. If you need the
monthly average, multiply the daily use by 30.
With solar electricity, this calculation is best carried out
for each house, rather than the village as a whole.
The accuracy of such a calculation is no better than
the estimate of the appliances that will be used and the
estimate of their period of use. Usually, at the time of
initial installation of a rural electrification project, the
appliances to be used can be determined with good
accuracy. With PV systems, the appliances are usually
installed at the same time as the solar panels and there is
no doubt about their number or characteristics.
The time of appliance use per month (or day or week)
is much more difficult to estimate, however. If the
prospective users are asked how many hours a day
(week, or month) they will use the appliances, you may
get an answer but remember that it is only a guess. The
villagers have never had electricity before and they are
imagining how they will use it, not judging by past
experience.
As with the top-down method of estimation, the use
of comparables is valuable. If another similar village has
received a similar electrification project, how appliances
are used in that village can be a very valuable source
of information for estimating use in the project
village — usually better than the estimates made by the
project village population. Even comparable users in other
Forecasting rural demand 47
for electricity
countries can yield useful information about how villagers
in your project village will respond to the new electrical
system.
In the bottom-up method, you will be in error if
you ignore special situations that change use patterns.
For example, Saturday and Sunday may have completely
different use patterns than the rest of the week. While
these unusual but predictable variations in energy use are
automatically taken care of in the top-down method, you
must manually correct for them in the bottom-up
method.
Your forecast will never be
100% accurate
Remember that only a certain level of electricity use will
actually occur. The chances are very low of your forecast
corresponding exactly with that. What you are striving
for is a forecast that will not be so much smaller than
reality as to cause hardship or strong complaints
from the customers, or so much larger as to leave a
significant part of the system (and its capital
investment) unused.
In solar PV installations at least, the error in
forecasting has usually been on the small side. People
seem to use the systems more than they initially
estimate. If money is available, it is a reasonable practice
to assume at least a 15% greater electrical load than the
forecast predicts.
As a general observation, the demand for electricity
tends to increase with time, though that is not at all a
universal law. There have been a number of cases where
the demand for electricity decreased after the initial
installation. This decrease has been attributed to the
difficulty of obtaining money in a remote rural village
where an attempt is made to reduce cash outflow or
where appliances have failed and the money to repair
them is not available.
What does seem to be almost universal is the increase
in energy use with an increase in the money available. If
a village (or household) increases its prosperity, it tends
to increase its use of electricity and vice versa.
Chapter-8.qxd 11/8/03 11:15 AM Page 49
Project organization
The task
Project management includes deciding what the project is
meant to accomplish, obtaining funding, obtaining people
to carry out the project, performing the technical design,
specifying and ordering materials, organizing the project,
scheduling, budgeting, auditing, arranging for spare
parts, and organizing maintenance and fee collections.
For any project, even a small one, a team is required
and for large, complex projects, hundreds of people may
be involved.
Bringing that team together and working towards
the common goal of an operating project is what project
management means.
Skills required
The organization will be required to perform many
technical and administrative functions, so the personnel
involved, and the organizational structure itself, must
reflect this requirement. To carry out the project, a
number of skills must be available to the rural
electrification project organization:
Management. This is the skill necessary to assemble a
project team, organize it, budget resources and keep
the project on track within the resources of the team
and the restrictions of the budget. After installation of
the project, management must organize and administer
fee collection and maintenance. Management skills are
needed throughout the project period.
8 CHAPTER 8
General project design. The skills to perform this
task include a good understanding of the socio-economic
situation of the recipients, knowledge of the bureaucracy
and what is needed to get a project approved,
understanding of the political situation, knowledge of
funding sources and their requirements, and broad
knowledge of rural development project successes and
failures. This skill is needed primarily in the
pre-implementation phase of project development.
Data gathering. Familiarity is required with data
resources in the country, with surveys and their analysis
and with the basic statistical processes needed to analyse
numerical data. Computer skills will be useful and are
increasingly a requirement as CDs and the Internet are
used for storing and distributing data. Data-gathering
skills are needed up to completion of the project design.
Economic and financial analysis. A clear
understanding of the costs and benefits of the project is
vitally important. This is necessary to compare costs of
different options, to provide cost analysis to funding
agencies, for project approval within government and for
determining the recurrent cost of the project to respond
to subsidy and user fee requirements. This skill is also
important in the pre-implementation phase of project
development.
Technical design. This is the ability to design the
physical plant necessary to perform the project tasks, to
specify components that must be purchased and to
estimate installation and maintenance requirements. This
skill is mainly required at the actual time of technical
design, though some technical input will be necessary in
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50 Solar Photovoltaic
Project Development

the early general design stage. There is a minimal involved, particularly those near the top. So the first, and
requirement for design skills after the project installation probably most important, rule for creating an organization
has begun. is to fill the top positions with the most capable people
Purchasing. Knowledge of vendors, tender procedures, possible. Without good people in the guiding positions,
market prices for equipment of the type being purchased, no organization will perform well. Of course, having a
and skill in evaluating vendor responses is necessary here. workable organizational structure is going to help a good
Generally this skill is required only briefly when actually manager to do an excellent job and may be the
purchasing components. There is a minimal requirement difference between success and failure for an
for purchasing skills after project installation commences. organization with a mediocre manager.
Shipping and warehousing. Skills for this task include When structuring an organization, two basic rules
an understanding of the different relative advantages and should be observed to obtain the best results:
disadvantages of various shipping methods, knowledge of
Have no more than seven people and no less
the time required to move materials from one place to
than three reporting to one supervisor.
another, getting components through arrival processes
quickly and at minimum cost to the project, and a For decision-making in an organization, one
knowledge of the quality of storage necessary for person is best, but never more than three and
extended holding of components before installation. preferably not two.
This skill is generally little required before purchasing
commences and minimally after installation.
Training. An ability to train people with basic formal
Rule one — the rule of sevens
education to carry out installation and maintenance of
Long experience with many different kinds of
technical components is required after the technical
organization shows that one person cannot effectively
design is complete and periodically after the installation
supervise the work of more than about seven others.
is complete.
When more than seven people are assigned a manager
Installation. An understanding of the processes for
for supervision, either the quality of supervision falls
installing the rural electrification components is required,
dramatically and people become essentially
including the standards to be met. The ability to cope
self-supervising, or the supervisor keeps up the level of
with changing conditions is essential. This skill is required
supervision and the work pace falls dramatically because
when installation commences and sporadically after project
everyone is standing around waiting their turn for a
installation is complete.
decision. Seven also seems to be the maximum effective
Maintenance. Knowledge of the correct operation of
size for committees and other operating groups in an
the systems and the procedures for troubleshooting,
organization. If there are less than three people
repair and maintenance is required. This skill is needed
reporting to a supervisor, the supervisor’s job should
after the installations are complete.
probably be eliminated or merged with another.
Fee collection. Honesty and the ability to keep good
In effect, this means that increasing numbers of
records are the main requirements here, coupled with a
employees, say maintenance staff, at a particular level
friendly but firm attitude. There must be a willingness
will require increasing numbers of supervisors in the ratio
and ability to carry out unpopular tasks such as the
of seven employees to one supervisor.
disconnection of non-paying customers. This skill is
required continuously after project installation is complete.
Rule two — decision-making

Creating an effective Decision-making requires weighing all the available

organizational structure information and determining the right course of action.
As each person sees things differently, no two people will
The success of an organization is often much less come to exactly the same conclusion when given the
dependent on its physical structure than on the people same data. One person can come to a decision easily as
Chapter-8.qxd 11/8/03 11:15 AM Page 51
no one is disagreeing with the weighting of the factors
involved. If that person has experience, intelligence and
competence the decision will probably be satisfactory.
Three people will weigh the available information
three different ways and will probably disagree on many
points, but generally two of the three can come to an
agreement and force the third into a consensus.
Two people can easily become deadlocked and
outside arbitration (or dictates from above) may be
required to force a decision. More than three people
have so many different views of the same problems and
interact in so many different ways that it takes much
longer to reach a decision and often that decision
involves so many compromises that it is not a good one.
For this reason, committees are not useful tools for
decision-making.
Putting this rule into practice, if the decision-making
(i.e. management) position can be filled by a
well-qualified person with the respect and confidence
of others in the organization, do it. If not, have the
important decisions made by a triumvirate of managers.
This last does not mean that you must hire three people
to do the job of one, rather it means that the person
sitting in the manager’s seat has restricted authority and
must act together with two others in the organization to
make decisions for actions beyond that authority.
Creating the organization
There are three main categories of employment within an
organization:
1) Long-term employees. Those who have terms
extending beyond the project period. Maintenance
personnel are an example.
2) Project employees. Those whose term ceases with
the acceptance of the completed project. The project
manager is an example.
3) Temporary employees. Those with terms significantly
shorter than that of project employees. Technical
designer would be one such job.
Category 1 staff, long-term employees, are generally
hired specifically to work on the project and have no
other responsibilities, though in the case of very small
projects they may share their time with other projects.
Project organization 51
Categories 2 and 3 staff may be permanent employees
temporarily assigned to the project or may be hired as
temporary employees from the outside. For large
government projects, it is common practice to hire a
commercial project management firm to provide all these
short-term employees.
For small projects, one person may take care of
several (sometimes all) of the tasks. Typically, however,
specialized tasks such as technical design and economic
analysis are carried out by consultants or specialists made
available from other organizations for work on the
project; while general tasks, such as project management
and purchasing, would be carried out part-time by an
existing employee.
Changing the organization
as the project develops
An organization that is excellent for designing a project is
not usually good for operating it after completion. For
any project, the organization should evolve along with
the project itself.
Initial organization: Phase 1
The first task of project organization is to do a general
design of the project, obtain the necessary funding and
the approval and cooperation of the project participants. In
fact, this stage should probably be called the ‘pre-project’
organization as an actual project does not exist until this
phase ends.
To accomplish this task requires only a small team,
often a single person. At this point, cost must be kept to
the minimum as no commitments of money or local
support have yet been achieved. But the organization
must be strong enough to develop the project concepts
and terms well enough to obtain funding and approval
commitments.
The minimum project information usually required at
this point includes:
1) Intended class of recipient. General consumer, health
centre, school, commercial establishment, industrial
user, etc. Note that at this stage it is not necessary to
specify actual recipients, indeed providing such detail
may slow down or prevent approval.
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52 Solar Photovoltaic
Project Development
2) General project development goals. What is the
project meant to achieve?
3) Scope of the project. How many of the designated
class of recipients will be served by the intended
project? One village? All primary schools?
4) General technical concepts. Is this to be a
photovoltaic, diesel, biomass or hydro project? A
central system or individualized power? List any
special technical aspects that may be important to
either the funding agency or the approval committees,
such as the ability to use the system for both
daytime commercial activities and nighttime domestic
lighting.
5) Budgets. Reasonable estimates of money, time
and personnel needed to do the project. Make sure
that between 10% and 15% of the total project
cost is included for the process of detailed project
design.
6) Justification. How the project fulfills the needs of the
recipients. How the project fits into development
plans. How the project meshes with other development
projects being undertaken.
Most rural electrification projects of the scale found in
smaller countries are initially designed by people in
energy offices or electricity authorities who are not
assigned full time to this task. There is generally no
justification in assembling a special project organization
or hiring people specifically for project development until
a project concept is approved for funding and
implementation. However, just because there is no formal
project organization does not mean that no organization
exists. One person must, even at this stage, be
designated ‘in charge’ of the project development and
must be given the resources and authority necessary to
carry out this responsibility.
The director of the energy office, electricity
authority or company sponsoring the project should
choose a project manager at this point who will be
capable — in terms of both skill and time — not only of
developing the project to the point of approval, but
carrying it on to its successful completion. It is poor
practice to have one person to design a project and
another to implement it. There will be a strong desire
on the designer’s part to see that the concepts are
carried out in the best possible fashion so that the
design works.
Detailed project design organization:
Phase 2
Detailed project design not only requires the technical
capability to design the hardware aspects of the project,
but also considerable negotiation with the various groups
interested in the project to determine actual location,
specific recipients and the exact scale of the project
to be implemented. Numerous administrative matters
must be handled, such as detailed budgeting of money,
time and personnel; determining procedures for
purchasing; preparing optimal shipping and warehousing
procedures; developing procedures for labour procurement;
arranging for any special bank accounts needed for the
project and arranging consultancies.
For this phase, a project manager with two to three
people assigned to the project will usually suffice. The
three- or four-person team should include the necessary
technical, financial analysis and administrative skills to
either directly carry out the tasks or to select the
necessary consultants. Though this organizational phase
should include site visits and some fieldwork, there is
generally no requirement for personnel to be assigned in
the field.
This phase is very important to the success of the
project. If adequate plans and budgets have been
developed, the project administration becomes routine
and can proceed smoothly with management only having
to respond to emergencies that are few and far between.
If the detailed design is inadequate, the implementation
phase will become one long emergency; an extended
series of crises with resulting inefficiencies destroying
budgets and requiring many compromises to meet
unplanned activities, all resulting in a poor quality
project.
Project implementation: Phase 3
Once detailed project planning has been completed
and the necessary approvals obtained for proceeding,
the actual implementation of the project can begin.
The organizational structure needed for the project
immediately becomes more complex and requires careful
design to maintain efficiency and minimal-cost operation.
Tendering, tender evaluation, purchasing, shipping,
warehousing and testing of received components are the
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initial tasks, which are typically done in the office. Once
materials are received, the focus of the project shifts to
the field.
The organization necessary for this phase shifts in
emphasis, as do the tasks. Initially the only field
personnel to be hired will be those needed as field
supervisors — often only one person for projects being
installed in a single location. Local labour for installation
will not be put on the payroll until just before
construction starts, though it is important that field
personnel are selected and their commitment obtained as
soon as the need for them is established. If locating local
labour is delayed until the last minute, either labour
availability or labour cost (usually both) may prove to be
a problem.
Supervisors need direct access to the people being
supervised. Having a supervisor consistently out of
contact with those supervised is unworkable. If work
locations are widely separated, it will be necessary to
assign supervisory responsibility to a person in each of
the locations. No team should be put to work without
one person on that team having supervisory
responsibility.
Prior to the actual start of construction, the field
supervisors should make final preparations for installation
and carefully check lists of materials to ensure that all
needed items are being shipped. When the materials arrive
in the field, the field labour should be put on the payroll or
under contract and the overall focus of the project shifted
to the field.
According to the type and size of the project, the
project manager may remain in the home office or may
shift to the field at this stage. Generally, it is best
practice for the manager to shift to the field at least
until the installation process appears to be functioning
smoothly.
As there is still a need for financial management and
technical support, the project design team should usually
remain intact during the construction phase.
Project acceptance: Phase 4
When the construction phase of the project is complete,
acceptance by the various participating groups should
take place. Before declaring the construction phase
complete and asking for acceptance, the project
Project organization 53
manager, and if appropriate the technical advisors, should
carefully inspect the project and ensure that all the
installation has been properly carried out. If something is
not correctly installed at this time, the chances are that it
never will be. It is common for managers, in the press of
completion schedules, to decide to ‘fix those problems
after the commissioning’ and then the job never quite
gets done. Always assume that the condition of the
project at the time of acceptance will be the best it will
ever be.
Project operation: Phase 5
The organization necessary to operate a project is
generally very different from that needed to design and
construct it. Usually, a completely different team takes
over after commissioning and provides for operation,
maintenance, spare parts control, fee collection and the
other tasks that continue as long as the project is
operational.
Experience with rural electrification projects shows
that there is always a need for both field and home
office members of the operating organization. It is rarely
successful for the complete maintenance, administration
and fee collection for a rural electrification project
to be taken care of in the field. Technical assistance and
spare parts are required from urban areas. To turn the
project over completely to a local government, village
cooperative or other wholly rural organization is to
separate the project from its very roots: the technical
expertise and financial capabilities of an urban
organization.
Even the most capable local organization will need
technical support and the administrative ‘distance’ of an
externally based parent. To ask members of a community
to act without prejudice against family members, close
friends, or for that matter traditional enemies, is asking
too much. The impartiality of an external organization
is needed when unpleasant tasks, such as service
disconnection, must be carried out or whenever impartial
distribution of resources, such as spare parts, is required.
Although members of a community can deal with the
practical aspects of such tasks, the responsibility and
authority must be located outside the community so that
the local organization can properly claim an impartiality
enforced from outside.
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54 Solar Photovoltaic
Project Development
Institutional organization for
rural electrification
Although it is possible for a government Energy
Department or urban power authority to successfully
carry out a few rural electrification projects, any attempt
at large-scale rural electrification requires a specialist
organization.
· The rural electricity organization must be capable of
managing the funding, installation, operation,
maintenance, repair and upgrading of large numbers
of small power-generating systems.
· The organization must have a dispersed administrative
structure owing to the remote location of most of its
plants.
· The organization must have the capability of training
large numbers of rural people having basic but
adequate technical knowledge of the installation,
operation and maintenance of remote power
systems.
· The organization must have access to the financial
and technical means to fund, design and repair the
systems.
Many different institutional approaches to rural
electrification have been tried in developing countries.
The most common have been:
1) Government-provided systems turned over to
communities for operation and maintenance. This
has been generally unsatisfactory. While some
communities do an excellent job of operation and
maintenance, most do not and either government
must regularly provide additional, unbudgeted support
or the project fails.
2) Government-provided systems maintained by
government on a fee basis. In most cases this has
not been successful. Government agencies are rarely
flexible enough to meet the changing demands of a
rapidly growing rural electrification programme.
Village-based fee collections are not effective and
transport of government technicians to the rural site
is expensive, so visits are not as frequent as good
maintenance requires.
3) Village cooperatives. These have not generally been
satisfactory. It has been difficult for villages to collect
money from their own people consistently. At the
village scale, management, technical and financial
skills may not be adequate to the task of
electrification. Again, in a few cases there have been
successes, particularly in large communities, but as a
general method for rural electrification the experience
has not been good.
4) National or regional electricity cooperatives. Where
the population being served goes beyond the
community and the size of the electrification project is
large enough to allow for the hiring of professional
managers and adequate technical support, this has
been satisfactory. In this case, the basic approach is
commercial and differs from a commercial utility only
in that the ownership is with the users and there is no
profit motive. Abuses of financial responsibility have
been common, however, and external audits and fiscal
supervision are advisable.
5) Independent rural electricity utilities. A rural utility
organization owns and maintains all generating and
electrical distribution equipment using locally based
technicians for maintenance. Payment is through fees
charged for service rendered with customers being
disconnected for non-payment of fees. This has been
a particularly successful structure for solar PV-based
electrification. See Chapters 19 and 20 for more
details.
An analysis of the relative successes and failures of the
different types of rural electricity organizational
structures indicates that consistent success requires:
1) Professional management. Management skills for
technical projects are usually weak at community level.
To attract good managers, the project level must be
at least regional in nature.
2) Quality technicians, most of whom are locally
based. Maintenance usually cannot be handled from an
urban location. Local technicians must be available and
adequately trained. Village-based owners can rarely
arrange for continuing and adequate technical support.
3) System disconnection for failure to pay fees. If
there are no disconnections, fee payments will not be
regular or sufficient. A village administration usually
lacks the will to disconnect systems for non-payment.
An external organization is necessary to enforce a
disconnection policy.
4) An organization with a strong enough base to be
able to finance expansion and modification as load
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structures change. Village-based electrification
schemes usually cannot raise the necessary money for
system improvement or expansion.
Therefore, a major rural electrification programme should
be designed around an organizational structure equivalent
to that of an urban electricity utility though it must be
more decentralized. The following points are
recommended for consideration in the institutional design:
1) The organization should have links with the existing
urban electricity authority and the government energy
agency, but financially and administratively independent.
2) Developing countries rarely have the technical or
financial resources to be able to afford duplication in
rural and urban electricity organizations, but as the
administrative structure of the two is quite different,
they cannot be effectively shared. Very few off-grid
rural electrification projects have been successful
when implemented by urban electricity authorities.
3) The rural electricity organization should not duplicate
physical resources already present in the existing
electricity supply system but should have access to
them. Shared facilities, such as rural warehousing, is
an example of possible physical links between the
urban and rural electricity agencies.
4) The rural electricity organization should have close
formal links with other organizations relating to the rural
environment. Rural development agencies, development
banks, rural affairs bureaus, rural transport authorities
or any other organizations that directly relate to rural
development should be represented on the board of
directors, an advisory board or have some other formal
link with the organization.
5) Community representation by the rural electricity
organization at both technical and administrative levels
should be full-time employees, paid by the authority
rather than the community, and their independence
from the local political structure should be rigorously
maintained.
Though actual collections may be carried out by
the traditional community leadership, the rural
electricity organization must have maintenance staff
operating within each electrified community and they
must have the clear authority to disconnect users who
have not paid the established fees when so ordered
by the area manager. While these local maintenance
staff are expected to be members of the community
Project organization 55
being served, they must be responsible only to the
rural electricity organization in their work. They should
be formal employees and be paid directly by the
organization with no compensation from the
community itself.
Without this administrative distance between the
organization’s representatives in the village and the
village leadership, it will be impossible for them to
disconnect systems for defaulting on payment or to
enforce regulations regarding safety and system
modifications.
6) The rural electricity organization should have
operational administrative management dispersed to
the areas where service is concentrated. Central
management should provide direction and supervision
but day-to-day operations should be carried out in the
rural districts being served.
The size of the administrative facility should be
related to the number of users serviced in that area.
A single village might have one technician both as a
representative of the rural electricity organization and
to carry out maintenance, while a district with a large
number of users might require a permanent office and
several technical and administrative employees.
These administrative centres should be fully
responsible for the correct operation of the
generating systems in their district, the collection of
user fees in their district, appropriate preventive
maintenance of the systems under their jurisdiction
and the rapid repair of failed systems.
The central office should provide policy directives,
support services for field offices, central accounting,
government interface and financial services. While the
central office should provide direction and supervision,
the field offices should make all day-to-day decisions
relating to field installations and users. Disconnections,
however, are probably best ordered from the central
office.
7) The rural electricity organization should have formal,
direct links with government offices obtaining and
disbursing aid and soft-loan capital funding.
Large amounts of capital will be required for rural
electrification and if the organization does not have
direct access to those in government that negotiate
for and distribute aid money, it will be unlikely to be
able to obtain the sums necessary to expand
services.
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56 Solar Photovoltaic
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Usually this means having close ties to government
Finance and Planning Departments. These close ties
can be horizontal through governing or advisory board
members, or vertical through the government
department that has responsibility for supervising the
rural electricity organization.
Conclusions
The organizational structure for a project changes
continuously from project conception to final operation.
Two distinct and very different organizational
structures are required, the first being the organizational
structure necessary to design and build the project and
the second the organizational structure needed to
operate it.
Of the two, the operating organization is much more
important. No matter how quickly and efficiently a
project is designed and installed, if it is not operated
correctly the project is a failure. Unfortunately, the
organization that creates the project usually receives all
the attention and the ultimate operation (and success)
of the project is left to chance.
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Obtaining and
using consultants
What are consultants?
Basically, consultants sell knowledge. An architect hired
to design a building is performing a professional service
and is not a consultant. The same architect is however a
consultant when hired to assist you in the selection of
competing architectural designs. As a general rule, what
you get from a consultant is information. Admittedly
there is considerable overlap between the concept of
professional services and a consultancy but the end result
is the same: you pay for specialized knowledge.
There are consultants for just about everything
imaginable. Public-relations consultants for the politician,
hair-replacement consultants for the balding, tennis
consultants for the athlete. The type of consultant most
likely to be involved in rural electrification projects are
technical consultants. They are simply people with
sufficient knowledge in a technical field to be able to
convince others to pay them for that knowledge.
Why hire consultants?
The most common reason for hiring a consultant is that
information or knowledge needed for designing or
implementing a project is not available to the project
staff and someone from the outside with that
information or knowledge must be hired in order to
successfully complete the project.
Even if the information or knowledge needed is
available to the project staff, there may be other reasons
9CHAPTER 9
for hiring a consultant, such as:
1) Requirements of the funding organization. Even
though local staff may have more knowledge than any
foreign consultant regarding the project, the funding
agency may still require an external consultant. Many
international funding sources such as the Asian
Development Bank, the European Union and some
country’s bilateral aid agencies commonly have such
requirements written into project funding agreements.
2) Lack of confidence in local staff. There is always a
tendency to assume that an external expert is
somehow superior to someone local. Higher levels in
an organization may lack confidence in local
capabilities and require external consultancies, even
though the local staff may be well qualified for the
particular project envisioned.
3) The need for someone external to the system to
kill an unworkable project approved by higher
authority. Ill-defined and unworkable projects are
sometimes forced upon local staff for design and
implementation. An outside consultant may be able to
convince the project sponsors of its unworkable
nature where local staff cannot. Remember that the
consultant’s recommendation cannot be defined in
advance and the result may not be what you want.
4) The need for someone external to the system to
recommend a good project rejected by higher
authority. Where a project is considered necessary
and appropriate by local staff but government powers
at higher levels do not accept the concept, sometimes
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58 Solar Photovoltaic
Project Development
positive recommendations from external consultants
will pave the way for implementation. Again, remember
that the consultant’s recommendation cannot be
defined in advance and the result may not be what
you want.
Establishing consultancy
specifications
Sometimes the person required for a consultancy is
known in advance and in that case negotiations can be
opened directly with that person. In other cases, what
amounts to a consultancy tender must be made and
specifications for the consultancy must be written.
Specifying the services required from a consultant is a
similar process to specifying equipment for purchase.
First you must decide what is required then express it in
terms clear and specific enough to ensure valid
responses. These specifications are usually called the
consultancy ‘terms of reference’ or TOR.
It is not sufficient to ask for prices on ‘a solar panel’
nor is it sufficient to ask for the cost of services to ‘design
a solar house’. The term ‘specification’ includes the word
specific and that is what you must be in order to elicit
meaningful responses from consultants. The consultancy
specification must include full details of what services are
required, when they are required, where they are required
and when and to whom a response should be made.
Some of the items often overlooked in specifying for a
consultancy are:
1) Special equipment to be provided by the
consultant. If someone is to be hired to evaluate a
micro-hydro site, equipment to accurately determine
the vertical height between the source and the
turbine is necessary. If you expect the consultant to
bring it, you must include that in the specification.
Computers are increasingly considered a necessity
for consultants. What do you have available? Should
the consultant bring one? What about software?
2) Report language. In what language do you want the
report? You may hire a German consultant to do the
job but require the report to be submitted in English.
3) Measurement units. If you want metres, kilograms
and litres you should say so. Otherwise you may get
imperial gallons, pounds and feet.
4) Currency of response and of payment. You want all
respondents to your consultancy tender to use the
same currency in calculating their fees. Also in matters
of fee payment, it may cost you several extra percent
to pay in a currency other than that of your home
country, so take that into consideration in your cost
determinations. Foreign consultants may not accept
payment in your local currency but your calculations
have to be based locally. If a currency must be
converted, who pays the conversion fees may be one
of the negotiable points in the final contract.
5) Unusual requirements and special hazards.
Consultants should be prepared for normal situations in
their field. A hydro consultant hired to make a field
survey should expect to be hiking over rough ground
and living in temporary camps. If that is the actual
case, then this need not be specified. But if an unusual
situation exists, for example if the consultant will be
expected to parachute into the site and paddle a canoe
out, it had better be specified. If the project entails
special hazards such as the requirement to enter a
zone of civil unrest, that should be spelled out also.
6) Whose laws prevail in the case of contract
questions. Unless you specify where litigation will
take place if it is necessary, you may face the task of
making a case in a court of law in the consultant’s
home country instead of yours.
7) Penalties for non-performance. It is common for
penalties to be charged if a consultant does not
complete the task on schedule. Penalties can be
applied for other areas of non-conformance but may
be difficult to enforce. Meeting schedules, however, is
clear-cut and there are good precedents for enforcing
penalties for late completion. Before actually
enforcing a penalty make sure that the tardiness on
the part of the consultant cannot be traced directly to
someone in the client country not fulfilling their part
of the consultancy agreement.
Locating suitable consultants
There is no publication or other simple method of
advertising for consultants. It is usually necessary to
send consultancy tenders to individuals who are known
to have an interest in the type of consultancy proposed.
The problem is locating these individuals.
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When there has been good prior experience with yes/no answer possible. If the answer is yes, then price is
consultants in a particular field, then it is reasonable to the determining factor. Evaluating consultancy tender
consider using them again. When no one is known to responses is generally more complex than evaluating
meet the requirements of the consultancy, then outside hardware purchase tenders.
advice is needed. Some sources of advice in locating Unless known to the evaluator, a consultant’s
consultants are: representation of his capability through a CV and job list
is all there is to go on. Poor consultants can sometimes
1) Government departments. Consultants that are
provide a very good CV and an impressive job list while a
familiar with your country and have some prior
consultant that is perfect for the job at hand may not
insight into the needs and cultural context of its
look so good on paper. If a consultant is not known to
people should be sought. This usually means
the evaluator, it is wise to call around to see if anyone
someone who has had a prior consultancy contract in
whose judgement you trust knows the person and can
your home country. One of the first places to seek
give an idea of the person’s capabilities and qualifications
names of possible consultants is in government
as applied to your project.
departments.
In evaluating consultancy tender responses, price is
2) Regional organizations. Knowledge of conditions in a
usually ignored until after completing the evaluation of
multi-country region is not as good as country-specific
the capabilities of the consultants responding. This is
experience but is better than no experience with
done by keeping prices separate from CVs and other
local conditions at all. Regional organizations, such
statements of qualifications. The respondents are
as United Nations regional projects, often use
grouped according to the evaluator’s estimate of the
consultants and would be willing to share information
suitability of their skills and experience to the project.
about those known to them.
One group will be excellent, another good, and so on
3) Professional organizations. Some fields, such as
down to the group who are ill-suited to your project and
architecture and medicine, have strong professional
should not be considered.
organizations that can assist you in locating
One approach to the price question is to then take
consultants within the profession. Some general
the respondents from the top group and see who is the
organizations, such as the International Solar Energy
lowest price in that group. This is an attempt to get
Society, maintain membership lists and sometimes
the best price from the best qualified. If you have a
actual lists of consultants and their specialities.
fixed budget, you may have to go down the levels of
4) Manufacturers and vendors. Used with caution,
competency to find someone within your budget. If no
manufacturers and vendors can assist in locating
respondents who have been judged as competent for the
competent consultants. You can reasonably expect a
project meet your budget, you will have to re-tender or
bias towards that company’s products, however.
enter into negotiations with one or more of the
5) Trade journals. Periodicals that specialize in a
respondents to try to bring the price down.
particular profession often carry advertisements or
Price should be viewed as definitely secondary
news relating to consultants in that profession.
to the quality of the consultant, however. A cheap but
6) Embassies. The commercial attaché at a foreign
poor-quality consultant may result in a project that
embassy generally will be able to assist in locating
costs far more to implement than one supported by a
consultants from that country. Sometimes lists are
more expensive but excellent consultant. As the final
published, sometimes the embassy is willing to make
project costs many times what is to be spent on the
limited enquiries for you.
consultancy, an error at the consultancy stage can cost
large sums at the implementation stage.
Evaluating consultant responses On the other hand, do not make the error of
believing that the most expensive consultant is the best
Whether or not a hardware item meets the tender one. As seen in the following section, the price charged by
specifications is usually a straightforward task with a consultants includes a premium for competence but many
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60 Solar Photovoltaic
Project Development
other factors may enter into the pricing formula. A
consultant with excellent qualifications based in the region
may charge far less than a consultant from a distant
country who has never been to the region and knows little
about dealing with the specific problems to be found
there.
How do consultants set their fees?
Consultants generally charge by the day. The cost of
using consultants is primarily determined by the market.
If everyone has plenty of hair, then hair-replacement
consultants are not much in demand and they are not
expensive. If everyone’s hair is falling out, such
consultants become quite expensive because they are in
great demand.
Besides being dependent on the demand for their
services, the market price of a particular consultant is
dependent on:
1) Qualifications. Those with long experience or
university degrees from top institutions tend to
command higher market prices than those with lesser
qualifications.
2) Success rate. A consultant that consistently solves a
client’s problems will have a greater market value than
one with a lower success rate.
3) Prior fees received. Once a particular fee is received
from one client, that automatically becomes the
market value for that consultant and that fee can be
expected to be asked from others.
In reality, it is not quite so straightforward as many other
factors enter into the final price quoted for consultant
services — though the market price is always a major
factor. Some of the other factors are:
1) Personal. Does the particular consultant have a great
like (or dislike) for the organization doing the hiring?
If a consultant particularly likes to work with the client
organization or in the area of the project, or has
friends and relatives there, a lower fee may be
acceptable. If the consultant has had bad experiences
or simply dislikes working for the client organization,
the fees may be greater than that set by the market.
2) Professional. Does the job have any professional
benefits or potential problems? A consultant that has
never worked in the Pacific region but has excellent
qualifications from the Caribbean or Africa may be
willing to work at a lower rate on a Pacific project to
gain entry to the Pacific regional consultant’s market.
A consultant who suspects that a scapegoat may be
required should a marginal project fail may demand a
higher fee to compensate for the professional risk.
3) Time. The job may come at a time when there are no
other demands for the consultant’s services. A lower
price may be agreeable to fill the gap in the work
schedule. If the consultant’s schedule is nearly full, a
high price may be asked because your work is
competing with other work.
4) Where the consultant comes from. The market price
for consultants in the same field is not the same all
over the world. European consultants tend to
command higher fees than those with comparable
qualifications from Australia. Consultants from India
are generally lower paid than those with comparable
qualifications from North America. This reflects only
the conditions of their home country market, not their
relative competence.
5) Side benefits. The consultant may be able to take
care of other business on the trip to and from the
client country and will accept a lower fee to help
attract your business. A lower fee may be acceptable
to allow a consultant to look for more work in your
country, using your job as a springboard to increased
business in the future.
6) Who is paying. Consultants may charge higher fees
when the sponsor is an organization known for long
delays in payment or has complicated billing
requirements. Many international organizations take
three to six months to make payment after billing.
Employers known to be slow payers are often charged
more than those with rapid payment records.
The meaning of all this is that consultancy fees vary. You
should shop around if possible. Negotiation is appropriate
and expected. As timing often has something to do with
price and availability of consultants, you should try to
keep the schedule as flexible as possible if you want the
best price.
How much do you pay?
Knowing the daily fee of a consultant is not enough to
determine the total cost, even if the number of days is
fixed. There are many opportunities for a consultant
to add on other costs to the daily rate. Some of
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using consultants

these extra costs may be: and those that are flexible. Consultants have different
ideas of which terms are flexible and which are not. One
1) Payment of full daily fees during travel. Although the
consultant may absolutely insist on business-class airline
consultant is not actually providing you with services
tickets to the client country then take a taxi to the hotel
during his travel time, there may be a charge for time of
from the airport, while others will accept cut-rate economy
travel anyway. Some consultants do, some do not. At
tickets but demand to be picked up at the airport.
today’s rates for international consultants, this may
The negotiator also needs a clear idea of what
make several thousand dollars difference to your costs
the priorities are for the consultancy. In the heat of
when long or complex travel arrangements are involved.
negotiations for lowered cost, the goal of the
2) Payment of fees for calendar days rather than
consultancy must not be forgotten. For the best price,
working days. Some consultants charge on the basis
negotiations should be attempted, but remember that the
of a five-day working week, some on a six-day
quality of your final project — something that usually
working week, some on the seven-day calendar week.
costs some 10 times as much as the consultancy — is
3) Payment of expenses. The consultant may ask for a
directly dependent on the quality of the consultancy and
daily expense allowance, refund of bills receipted, or
saving a few dollars through hard negotiations may lower
expenses may be built into the daily fee. Refunding of
the quality of the consultant’s product and ultimately
bills receipted is dangerous because you have no control
cost much more due to problems with the project.
over what the consultant spends on hotels and food.
Enter into negotiations prepared to negotiate on
A daily allowance is safer, but you must know in
anything. Lower fees may be offered for schedule
advance what the actual rates are, so do not accept
changes favourable to the consultant. Consultants may
such phrases as ‘at internationally accepted Daily
make concessions for staged payments during the work
Subsistence Allowance (DSA) rates’ or some similar
instead of a lump sum at the end of the consultancy.
undefined amount. Note that the consultant may expect
Items, such as government-supplied ground transport,
different daily rates during travel or if there is to be
that cost you little may be seen as important and cause
work at different locations for your project.
the consultant to make important concessions in other,
4) Insurance. Although not common, some consultants
more costly, areas.
require countries to provide insurance during their stay.
From the consultant’s point of view, a reduction in the
Such insurance usually includes guarantees that the
length of the consultancy offers the best way to reduce
consultant will be provided air transport to a foreign
overall cost. This allows the consultant to maintain an
hospital if injured or seriously ill. Liability insurance to
acceptable daily fee structure and not make special fee
protect the consultant from civil proceedings during the
precedents just for your job, yet the goal of reducing the
performance of work may also be required.
overall cost to the client is attained. Do not hesitate to
5) Ground transport. Some consultants require
ask the consultant to offer suggestions for reducing
continuous access to client-paid ground transport.
the time needed in the client country through prior
This usually means a rental car. Others ask for
work by local people in collecting information needed
reimbursement for taxi or bus fares. Some are happy
for the consultant’s work, or the provision of local
with access to government transport when needed for
assistance during the work. Make sure of having a clear
specific tasks in the consultancy and take care of their
understanding of what the consultant expects to be done
personal transport out of daily fees.
before arrival and check that this preliminary work is
actually done beforehand.
Negotiating with consultants
When do you pay?
The response to a request to negotiate terms of a
consultancy varies from outright rejection to an open Before a consultancy begins, payment for transport
willingness to adjust everything from schedule to fees. to the consultancy site and return to the consultant’s
The negotiator must determine what aspects of home base is usually expected, in the form of prepaid
fees are important to the consultant (and therefore fixed) airline tickets. Some consultants require full or partial
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62 Solar Photovoltaic
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prepayment of travel per diem and other incidental
costs of travel. Some require prepayment of a percentage
of the expected total consultancy fee. As arranging
prepayments on contracts can be difficult, allow plenty of
time for this task.
After arrival, a consultant may expect reimbursement
for expenses on a periodic basis (weekly, for example) if
the stay in the country is more than a few days.
Fees are not generally billed until the consultancy is
complete and all requirements fulfilled by the consultant.
This may not be the case in some longer consultancies
where progress is made in stages and bills for fees are
presented at the completion of each stage.
Working with consultants
1) Smooth the way through arrival formalities. One
sure way to get a consultancy off on the wrong foot
is to fail to make adequate preparations with customs
and immigration for the consultant’s arrival. If a
work permit or visa is required, make arrangements
with immigration in advance. If the consultant will
be bringing in special equipment that customs may
consider holding for duty payment, make sure that
arrangements are made in advance with customs for
clearance of the items. Be at the airport to help to
get through the formalities of arrival.
2) Keep personal distractions to a minimum. Once
the person is hired, it is up to you to use your
consultant’s rather expensive time in the most
efficient manner. As unhappy workers are not
good workers, you should check that the consultant
is settled into satisfactory lodging, has access to
good food, and that adequate transport is available
for getting to and from the place of work. Remember
that preferences in lodging and food differ widely
from individual to individual. If the conversation the
first day on the job includes a stream of complaints
about the hotel, the meals served or difficulty in
catching the right bus to get to the office, you have
not been doing your job. While it is not necessary to
treat the consultant like a visiting dignitary, a better
job will be done for you if the consultant concentrates
on your work, not petty annoyances.
3) Facilitate access to all relevant data sources. As
the quality of the information provided to the
consultant determines the quality of service, you
must make sure that the consultant has all the
information needed and that it is as accurate and up
to date as possible. You should be willing to assist
the consultant in finding the way through your
government’s bureaucracy to locate specific
information and reports.
4) Be as honest and candid as possible about
information relevant to the project. If you change
the facts to meet your own ideas of what they should
be, you might as well do the consultancy rather than
pay a large fee for a report that ends up as biased as
the information you provided.
5) Brief the overseas consultant new to your country
on local culture and etiquette. While local people
may forgive a foreigner for an inadvertent breach of
good social conduct, the consultant may not forgive
you for letting that sort of embarrassing situation
occur.
6) Give the consultant as private a place to work as
possible. If the consultant can have an office with
phone, desk and computer so much the better. At
least there should be a place where the consultant
can leave papers and work materials without fear of
them being disturbed before returning. You should
ensure reasonable access to office machines such as
copiers, typewriters, computers, faxes, etc.
7) Be flexible about work. There is no way you
can accurately predict what will be needed to
successfully complete a consultancy. Be prepared to
visit places or do things that were not anticipated in
the original consultancy plan. Likewise, where
possible, let the consultant be flexible about work.
For report writing or reading background reports,
some consultants may work best at night in their
hotel, because of jet lag, others may prefer to work
in the office after hours.
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Economic and
financial analysis
Economic versus financial analysis
One of the most important aspects of making a decision
regarding which generating technology to use for rural
electrification is relative cost. Two types of cost can be
considered. The first is money cost: those costs that can
be directly accounted for by the exchange of money. The
second is economic cost. This is more subtle but no less
important than the money cost. Economic cost includes
the money cost but also considers the costs that are
not paid through money exchange. These are often
opportunity costs that result from using limited
resources for a project thereby making them unavailable
to others.
Businesses usually use financial analysis when they
want to compare the cost of different approaches to a
project. A business is interested mainly in cash flow and
the non-money aspects of a project are generally not
considered. Financial analysis is therefore usually all that
is done. Public projects, however, rarely use money as
the sole criterion of success or failure and it is important
that non-money aspects of a project be considered in
addition to finances.
For public projects, one way to look at the uses of the
two types of analysis is to say that the financial analysis
reveals whether we have enough money to do it or not.
The economic analysis reveals if the overall value of the
project to the country is enough to make it worthwhile.
A few examples of non-financial factors that
might be considered in an economic analysis of a rural
10 CHAPTER 10
electrification project are:
· Foreign exchange cost. This is the cost of using a
country’s foreign exchange reserves to purchase
components and services for the project from
external sources. This is an economic cost because
foreign exchange reserves are limited and using these
reserves for this project makes them unavailable for
other uses that could be of more value to the
country. There is also a cost if the exchange rate
between the local currency and the external currency
is artificially maintained by government so that the
exchange rate is not the market value for the local
currency.
· Trained labour limits. Technically trained personnel
are generally in short supply in developing countries.
When a technical project is put into service the
trained labour involved in that project is no longer
available for other projects, which may have to be
delayed unless labour is obtained from outside the
country.
· Release of untrained labour for other tasks.
Although rural electrification removes trained labour
from the market it often releases untrained labour for
other uses. For example, electricity may be used for
pumping and moving water that may have been done
by hand before electrification. The people who were
pumping or carrying water can now work on other
tasks for the community. If that released labour is
used to the benefit of the community, there is a net
economic income to the community. If the released
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labour is not useful for other tasks, then those people
become a net economic drain on the community and
are a cost.
· Resulting changes in the money economy of the
recipient group. When a community receives a rural
electrification project, its use of money may increase,
decrease or stay the same. This change should be
considered in an economic analysis. If the net money
available to the community decreases because
of additional expenditures on fuel, labour,
maintenance and appliances, there is a cost to the
community. If the available money increases because
new sources of income are generated or productivity
of old sources improves, there is an economic income
to the community.
· Opportunity cost of capital. The use of local capital
investment funds or aid money for the rural
electrification project makes those funds unavailable
for other projects that may be of more economic
value to the country.
· Environmental effects. There are environmental
costs to all projects. Some have greater effects than
others and should be analysed specifically for the
project at hand.
Many other non-financial costs and benefits could
be considered in an economic analysis, ranging from
relatively easy to define changes in a community to
subtle, very difficult to evaluate social modifications that
result from rural electrification. Whether these items are
considered in an economic analysis depends on the
importance assigned to them by government and to the
level of impact caused by rural electrification projects.
Absolute versus relative analysis
In analysing projects in either the financial or the
economic sense, we can make an absolute analysis,
where the economic costs and benefits are calculated on
the basis of a single project concept and all factors are
considered. The end result of such an analysis should be
the net cost or benefit of the project. An absolute
analysis is often made to decide whether or not to go
ahead with a project at all.
In other cases, the problem is to decide between
several possible approaches to a project. For example, the
decision has been made to provide rural electrification
but should the project use diesel or photovoltaics to
produce the electricity. In this type of analysis, the
differences between the two technologies are important.
This is a relative analysis because we are comparing one
project to another to see what the differences are. The
result is not the overall cost or benefit of the project but
rather the difference in cost between two approaches to
the same project.
Relative analysis is generally easier and more accurate
than absolute analysis. This is simply because the
number of costs that should be considered is lower
because many are the same and therefore do not need
to be calculated.
For example, many of the vague, difficult to evaluate
economic changes that take place in a community as a
result of rural electrification will be the same whether
photovoltaics or diesel generators are used to produce
the electricity. These changes have to be considered in an
absolute analysis, but not in a relative analysis where
only differences are evaluated. In fact, only financial
differences have to be considered in most relative
analyses because the non-financial factors are about the
same for both approaches to the implementation of the
rural electrification project.
When comparing technologies for a rural electrification
project, the economic factors are often converted to what
are considered equivalent money values so that they can
be combined easily with money costs and benefits in an
analysis. In some cases, such as foreign exchange costs,
this can be done with some justification. In other cases,
such as the cost of cultural changes to a community or
the cost (or benefit) of the change in use of untrained
labour after rural electrification, cannot easily be equated
with money. Such conversions are arbitrary and depend on
the point of view of the person making the conversion.
Another approach to comparing the relative economic
cost of different technologies for a project is to make a
numerical analysis for the financial part and then to make
a comparative list of non-monetary costs and benefits
that result from the use of the different technologies.
The financial analysis gives a numerical result that can
be compared. The list of non-monetary costs and benefits
is examined for major differences between the two
technologies. Where costs and benefits do not differ, they
are ignored. Where there is a difference, some arbitrary
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weight is given to the difference and an overall judgement
made of the importance of the differences in deciding on a
technology for rural electrification.
For example, suppose that a rural community of 2,000
is to be electrified either by a stand-alone diesel system
or by connection to a diesel-powered grid that already
serves 250,000 people in urban areas. There probably will
be little difference in the non-financial results of the
project and only the relative cost of the two approaches
to the project will have to be calculated. If the analysis
included individual solar units as one of the technologies
proposed, then some non-financial factors would have to
be considered such as the economic value of not having
recurring costs tied to foreign fuel prices. Imported fuel
may have to be used for both diesel and grid-generated
electricity, so if those were the only two technologies
being compared, the fuel requirement would be about
the same for either approach. If solar PV were one of the
options being compared, then imported fuel would not
be needed for the PV but would be needed for the diesel,
so the economic cost to the country in foreign exchange
reserves and energy independence would have to be
included in the analysis.
Financial analysis overview
Interest
A number of specialized terms are used by consultants
and professionals when discussing financial analysis.
Probably the most important of these is ‘interest’.
The concept of interest is a simple one. It is the same
concept as rent. When a house is rented, the person
using the house is expected to pay a sum for the use of
the house. Interest is nothing more than the rent charged
for the use of money. Just as the amount charged for
renting a house changes with time and the market
conditions, so does the rental charged for the use of
money. Interest is what is charged for not being able to
use the money for something else.
If I buy a house for US$20,000 and rent it to someone
for US$200 a month, then my US$20,000 is making me
money: US$200 a month less the cost of maintaining the
house. The idea of interest is that if I lend someone else
the money that I could have used to buy the house, then
Economic and 65
financial analysis
they should pay something like the US$200 a month that
I would have received if I had bought the house and
rented it out.
Generally, for financial analysis, interest is expressed
as a percentage. The word percent comes from the Latin
words per and cent, where per means ‘for each’ and cent
means ‘hundred’. So percent in financial terms means
how many dollars are charged for each US$100 being
used for the period of time being considered. As a year is
usually the time period for expressing interest charges,
percent usually means ‘the number of dollars charged for
the use of US$100 for one year’. In formal financial
terms, this is ‘annual interest’.
So if I want to borrow US$500 from a source that
charges an annual interest rate of six percent (usually
written 6%) then for every US$100 I borrow, I will have
to pay US$6 a year. I am borrowing US$500, so my
interest charge in one year will be 500 × US$6 = US$30.
The term for this kind of interest is ‘simple interest’.
You just multiply the number of hundreds of dollars
(or whatever monetary unit you are using) by the interest
rate in percent, and you have the annual cost of using
the money.
The term for the money being lent is the ‘principal’.
So if I borrow US$2,000 at 7% for one year and I am
charged US$140 in interest, the US$2,000 is the
principal, the 7% is the interest rate and the US$140 is
the interest.
Note that what we are really doing to make the
calculation is to divide the total amount of money by
100 then multiply that answer by the interest in
percent:
Borrowing US$2,000 for one year at 7% will
cost what in interest?
US$2,000 ÷ 100 = US$20 (there are
20 hundreds of dollars in US$2,000)
US$20 × 7 = US$140 interest in a year.
When you look at books on financial analysis, you will
find that the usual way the calculation is made is to
divide the interest rate by 100 instead of the principal,
and then multiply. The end result is the same, whichever
method you use:
7 ÷ 100 = 0.07
US$2,000 × 0.07 = US$140 (simple interest).
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Compound interest
Most of the actual interest calculations that are used
in financial analysis are not for simple interest but
for compound interest. As you may have suspected,
compound interest calculations are not so simple as
simple interest calculations.
Suppose that I can lend money and receive 8%
interest on it. Suppose also that I own a house and have
rented it to someone who pays US$200 a month. Every
month, I receive US$200 from the house rental. If
every month I then take the US$200 and lend it to
someone else, I will receive an additional 8% from that
loan. So not only do I receive payment for the use of my
original US$20,000 that I used to buy the house that I
rent, but I can even make a little more by lending the
money I receive in rent.
Compound interest assumes that as soon as any
money is received, then that money can be immediately
lent and more interest received. In calculating compound
interest, you need to know how often the money is
received. In the house example, the money is received
monthly, so the interest is said to be compounded
monthly.
Future value
Because money can be lent and interest received, the
amount available changes with time. If US$20,000 is lent
at 9% for one year, at the end of the year when the loan
is paid back the lender will have US$20,000 plus interest
of 20,000 × 0.09 = US$1,800 or a total of US$21,800.
This total amount that will be received one year in the
future is called the future value of the money that is
held today.
If I have US$5,000 and I can lend it at 6% annual
interest, then the future value of my money after three
years will be (using simple interest calculations):
US$5,000 × 0.06 = US$300 (interest per year).
So, in three years, the total interest received will be:
US$300 (interest per year) × 3 years = US$900
(total interest).
Thus the future value in three years of US$5,000 lent at
6% simple interest will be:
US$5,000 (principal) + US$900 (interest) =
US$5,900.
To calculate future value you need to know:
1) the amount of the principal
2) the interest rate
3) the number of years to the time when future value is
to be calculated.
Present value
While future value determines the value of today’s money
sometime in the future, present value says how much a
future sum of money is worth today.
Another way of explaining present value is that
present value of a future sum of money is that amount
that must be invested today at the prevailing rate of
interest to result in the amount needed in the future.
Suppose I expect to have to replace US$960 worth
of batteries in a PV system in five years. So five years
from now I will have to spend US$960. If I can get 4%
interest on my money over that five-year period, then I
will not need US$960 today in order to have US$960 in
my hands in five years. The present value of US$960
five years from now is therefore the amount of money I
have to invest today in order to have US$960 in five
years. Suppose that I have US$800 today and I invest it
at 4% for five years. How much money will I have in
five years?
The simple interest received from US$800 at 4% will be
US$32 per year (800 × 0.04) so over five years I will
receive US$160 (5 × 32) in interest and my total will be
the original US$800 plus US$160 in interest or US$960.
The future value of US$800 invested at 4% simple
interest for five years is therefore US$960. Also, the
present value of US$960 received five years in the future
at 4% simple interest is US$800.
Present value and future value are therefore two ends
of the same process of having money at interest for a
period of time.
One way to calculate the present value of a future
sum of money is to try starting with different amounts
and seeing how much money will result in the future at
the prevailing interest rate. When an amount is found
that results in the amount required in the future, you
have the present value.
For example, we want to know how much we need
today in order to pay US$1,000 for battery replacements
five years in the future. The highest interest we can get
on our money is 4%.
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We know that the amount needed today
will be less than the US$1,000 we need in
five years because the interest will add
money to our original amount. Pick a smaller
number than US$1,000 and work out how
much we will have at the end of five years.
Try, say, US$600.
Interest per year on US$600 at 4% will be
US$24. So in five years we will accumulate
US$120, so the total at the end of five years
will be US$600 plus US$120 = US$720. We
need US$1,000, so US$600 is not enough to
start with. Try US$800.
The interest per year on US$800 at 4% will be
US$32, so at the end of five years we will
have US$160 in interest plus the original
US$800 principal for a total of US$960. Still
not quite enough. So try US$900.
Interest per year on US$900 at 4% is US$36.
Over five years that will yield US$180.
US$900 + US$180 = US$1,080, which is more
than we need. The actual amount will
therefore be between US$800 and US$900.
Try US$850.
Annual interest at 4% on US$850 = US$850
× 0.04 = US$34. Over five years that will total
US$170. So at the end of five years, the total
available to buy batteries would be US$850
+ US$170 = US$1,020. Still not exactly right.
Note that this calculation means that the
future value of US$850 placed at 4% interest
for five years will be US$1,020 and at the
same time it means that the present value
of US$1,020 five years in the future with
4% interest is US$850.
We can try US$840 if we need to get even
closer.
US$840 × 0.04 × 5 = US$168.00.
US$840 + US$168 = US$1,008. Still closer to
the goal of exactly US$1,000.
We can keep changing our trial number until the answer
is exactly US$1,000 but it may take a number of trials to
find the exact amount.
Economic and 67
financial analysis
Calculating when there is compound interest is much
more difficult. Fortunately a formula can be used to find
the exact present value of a future amount of money
placed in an account with compound interest:
present value = future value divided by the
annual interest rate plus one raised to a
power equal to the number of years;
or, in mathematical terms:
PV = FV/(1 + I)n
PV = present value
FV = future value
I = annual interest rate (expressed as a
decimal, i.e. 4% = 0.04)
n = number of years from the present to the
future date.
This can be calculated with a computer or with a scientific
calculator.
Doing the example problem of US$1,000 in five years
at 4%, the result is:
PV = 1,000/(1 + 0.04)5
PV = 1,000/(1.04)5
PV = 1,000/1.2763
PV = US$821.93.
So the present value of US$1,000 five years in the future
with a 4% interest rate continuously compounded is
US$821.93. This means that if I place US$821.93 in a
bank today at 4% compounded interest, when the time
comes to buy batteries in five years, I will be able to
withdraw US$1,000 from the bank. Note that the actual
amount in the bank after five years will probably be a
little less than US$1,000 because the bank may only
compound the interest quarterly. The formula is still a
reasonable method to use as the difference is small and
the overall accuracy of the estimate is good, given that
other factors are also uncertain, particularly the interest
rate which will probably change over the five-year period.
Life cycle cost
When analysing a project either in the financial or the
economic sense, it is not enough just to look at the initial
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cost of the project. In the future, there will be the cost
of operating the project, repairing and maintaining the
equipment and ultimately disposing of the remains when
it wears out. Often these costs will be greater than the
initial cost of purchase. If these recurring or future costs
are ignored when analysing a project, the analysis will
not provide a true picture of the real cost of the project.
The method for analysis that includes all the costs
associated with a project over its life is called life cycle
costing or LCC.
Simply put, a life cycle cost analysis is an attempt to
produce today the set of project accounts that will exist
when the project is finally disposed of at the end of its
useful life. We are placed in the position of predicting the
life of the project, estimating all the costs associated
with it and forecasting when those costs will occur. As
the result of the analysis is no better than the quality
of the ‘estimating’ ‘predicting’ and ‘forecasting’
mentioned above, whoever does a life cycle cost analysis
must understand the project in detail, what it does and
what will be required to keep it running.
To do an absolute life cycle analysis, where all the
costs must be exact in order to yield exact results, there
must be an excellent understanding of the project
costs and how the project will be used, operated and
maintained. Usually, such accurate cost information will
only be available for projects that duplicate others
that have been in place for long periods of time. Grid
extensions are of this type in most countries. Many rural
grid-extension projects have been carried out in past
years and it should be relatively easy to make an
accurate estimate of how much it will cost to install and
operate another one. On the other hand, solar rural
electrification is not common enough in most countries
for there to be enough data to accurately predict future
costs for new projects.
Fortunately, most of the analyses that must be made
for rural electrification projects require relative rather
than absolute analysis. That is, we compare the life cycle
cost of two different types of installation and try to
decide which would be better. In this case, a number of
factors are the same for each type of installation and
therefore do not enter into the comparison. Only a few
major differences will exist that will have to be estimated.
A further aspect of a relative analysis is that when
someone estimates costs, the errors in judging costs tend
to be similar for the different technologies being
considered. As it is the differences, not the exact dollar
amount that we are interested in, these errors tend to
cancel and the result will still be useful in deciding which
technology to use.
Unfortunately, an absolute life cycle analysis has
to made in order to determine what to charge for
rural electricity services. As the charge must equal the
cost, cost estimates have to be accurate if the
charge — whether to the consumer or to the consumer
plus a government subsidy account — is to cover the
actual cost of rural electrification. This is the most
difficult part of analysing rural electrification projects and
will usually require frequent revision as the project ages
and more accurate data become available. For this
reason, fees usually have to change with time.
Procedure for life cycle
cost analysis
It is important that not only do all costs appear in the
analysis but that the timing of the costs is accurate.
Because of the time value of money, the present value
of money is less and less the further in the future
an expenditure must be made. Thus, the effective
present-day cost of US$1,000 for batteries five years in
the future with an interest rate of 4% we have already
determined to be US$821.93. If the battery life is eight
years instead of five, and the US$1,000 will not have to
be spent until the project has been in operation for eight
years, then the present value (the equivalent present-day
cost) will be:
PV = FV/(1 + I)n = 1,000/(1.04)8 = US$730.69
instead of US$821.93. This is simply saying that it costs
less in a solar project if batteries last longer.
A typical life cycle analysis for a rural electricity
system will include the following costs:
1) Initial cost of installing the project. This includes
the cost of buying the components, shipping, storage,
labour, administration and any other costs incurred
prior to the actual commencement of the project
operation. These costs are usually lumped in year one
of the project accounts even if it took over a year to
get the project running.
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2) Replacement of components when they wear out.
All components wear out, though not all at the same
rate. In a solar project, batteries are often assumed to
have a five- to eight-year life, controllers seven to
ten years and panels 15 to 20. If similar components
have been used in other projects, then there may be
historical data as to their actual service life, otherwise
educated guesses are the best that can be made.
3) Regular maintenance. This includes labour, travel
costs, administrative costs, the cost of storing spare
parts, minor material costs and the various other
periodic costs that are part of regular maintenance.
Do not forget to include such mundane but significant
things as power-house repairs. All maintenance costs
that can be predicted should be included.
4) System overhaul costs. In the case of some types
of rural electricity systems, the equipment must
periodically receive special maintenance, often called
an overhaul, in order to maintain system reliability.
For example, a diesel engine usually requires regular
maintenance plus every five years or so it must be
stripped down and many worn parts replaced at
considerable cost. These overhaul costs should be
listed as a separate item and placed in the accounts
at the time they are expected to be carried out. So
if an engine costs US$10,000 and the manufacturer
(or local experience) indicates an overhaul cost of
US$3,000 every five years and replacement after
fifteen years, then the LCC accounts should show the
initial cost of US$10,000 in the first year, additional
US$3,000 costs for overhaul in years 5 and 10 and
another US$10,000 replacement cost in year 15.
Note that this is in addition to the regular
maintenance costs for oil, replacement of minor
parts, labour, etc.
5) Operating costs. This is the cost of field personnel
operating the project and those field costs that may
be directly allocated to the project, such as local
transport costs, local housing for employees, fuel and
oil for operating a diesel generator and local spare
parts storage costs.
6) Administrative and overhead costs. Sometimes
lumped with either maintenance or operating costs,
the cost of administering the project once it is
operating is best treated as a separate item in the LCC
accounts. The salary of the manager, of secretaries,
Economic and 69
financial analysis
accountants and others who are not directly involved
with the operation or maintenance of the project are
part of administrative costs. If one manager oversees
several projects, the manager’s salary should be
divided among them. The cost of telephones, of
electricity for the office, office rent and other such
expenses that are not directly incurred in operating
the project come under this account heading.
Term for life cycle costing
In making accounts for every year of the life of a project,
one of the first things to decide upon is the number of
years that the project is expected to be in operation
without major modification. Usually, this is the effective
life of the most expensive components or the period of
time that the project will be in use before being replaced
by another.
Photovoltaic projects are often analysed using a
15- to 20-year life, diesel 10 to 15 years, grid extensions
20 to 30 years, hydro 15 to 20, and so on. There is no
specific rule that should be followed in deciding the
useful life of a project, but the period chosen has a
definite effect on the results so there should be some
rational reason for it. If the LCC analysis is to be used for
securing an external loan, most lending agencies assume
a 15-year effective life for electrification projects.
Analysis for decision-making
Once the LCC accounts are complete, an analysis can be
carried out to decide the best design for a project.
For rural electrification projects, several key pieces of
information can be obtained from the LCC accounts:
1) Capital cost. This is generally the figure that begins the
accounts. It is the cost of the project up to the point of
commencing the delivery of electricity. Capital cost for
rural electrification projects is generally borne by either
the utility company or the government — although the
actual funds may be obtained through grants from
funding agencies.
2) Recurring cost. This is the cost per year of the project
after it begins operation. Generally, this cost is borne
by the user, though part may be borne by the utility or
government if subsidies are involved. This figure will
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70 Solar Photovoltaic
Project Development
provide a means of determining how much money will
have to be available from the user community to help
to decide if the community actually has the necessary
resources to pay for the electricity delivered.
3) Cost per unit served. For conventional power systems
(grid-based central generation such as diesel or
hydro) this may be per unit of electricity, usually the
kilowatt-hour cost. For PV systems, kilowatt-hour
costs are less meaningful and the costs for specific
services (such as lighting, refrigeration, pumping, etc.)
are calculated. Also, per household cost or per person
cost can be calculated and may be useful for
comparison purposes.
4) Maximum funding requirement. As the LCC
accounts are made with at least annual — and
sometimes monthly — detail, it is easy to see the
maximum amount of money that will be needed at
any one period over the life of the project. This is
useful because for most electrification schemes,
particularly solar, the early years have very low
funding requirements. After five or so years,
however, major expenditures for replacing batteries
or engine overhaul become necessary and if funds
are not available then the project fails. The LCC
accounts are very useful in helping administration,
government and users avoid the common mistake of
lowering electricity charges after a few years
because there is a large surplus in the account, then
when a major expenditure for battery replacement or
engine overhaul is required, insufficient funds have
been collected and the project cannot be repaired.
In comparing projects, one method often used is to
determine the total present value of each project. What
this means is that the income and expenditures for each
future year are converted to present value then totalled
for a net present value (NPV) for each of the projects
to be compared. The NPV gives a relative overall value
for the project over its entire life. For this comparison
to be appropriate, the analysis must use the same total
life for all the technologies being compared, typically
fifteen years.
As we have to separately calculate the present
value for the expenditures in each year of the life of
the project, when comparing several different projects
each with a 15- or 20-year life, this becomes a
time-consuming and error-prone manual task. Excel,
Lotus 1-2-3 or other computer-based spreadsheet
programs allow the computation of NPV quickly,
accurately and easily.
Effect of interest on analysis results
If we use the NPV method of comparing project costs,
the results will be affected by the interest rate used. In
projects, the term ‘discount rate’ is often used instead of
interest rate. For our purposes they are the same thing.
The term discount rate has a slightly broader definition
than interest rate but for the purposes of analysis as
defined here, the difference need not be considered.
As a general guide, the discount rate used should not
be lower than the interest that local banks provide on
savings accounts nor higher than the interest charged for
loans from the local development bank.
Effect of inflation on analysis results
Inflation means that, as time passes, it will cost more
and more to purchase goods and services. What is
actually happening is that the value of money changes
with time. It is much like having interest charged on all
money in circulation. So an inflation rate of 5% per year
means that things that cost US$100 will cost US$105 a
year later.
In terms of project analysis, inflation and interest
rates interact. For rough analysis — as here — the
effective time value of money involved in the project will
be the bank interest rate minus the inflation rate. When
inflation is high, banks must charge high interest because
money is losing its value over time and there are strong
pressures to spend money today when it is worth more.
To convince someone to put aside money for a long time,
they must be convinced that despite the lowered value of
money over time, that the interest is high enough to
cover that as well as provide a reasonable additional
amount.
Inflation changes dramatically with changes in world
economic conditions, with changes in the local economy
and sometimes seemingly for no reason at all. It is usually
impossible to accurately predict inflation rates years in
advance and, as a result, analysis using inflation rate
adjustments are often inaccurate. Fortunately, there is a
way around this problem. Though inflation rates (and the
chapter-10.qxd 11/8/03 11:19 AM Page 71
interest rates that occur at the same time) may change
radically over time, the difference between the inflation
rate and interest rates is fairly constant. This usually is
from 4% to 8%. So if inflation is rampant at 15%, interest
rates usually are around 20%. If inflation is low, say
2% per year, then interest rates are around 7%.
Because we are making a relative analysis (comparing
the financial characteristics of different projects) we
can ignore both the actual inflation rate and the actual
interest rate and use as the effective interest rate this
4% to 8% difference. An interest rate of 6% is suggested
as one that is suitable for general use in the present
value calculations for a comparative LCC analysis.
Sensitivity analysis
The result of the LCC analysis is a powerful tool to assist
the decision-maker in determining the best design for
a project. It is a particularly useful tool when used to
determine what aspects of a project have the most
financial impact on its overall cost. The way to analyse
the sensitivity of project cost to changes in component
costs is to create a number of LCC account sheets with
changing values for various items in the accounts. For
example, what effect does the life of the battery have
on the overall LCC of a PV project? Creating several
Economic and 71
financial analysis
LCC account sheets and changing only the number of
years between battery replacements will show how much
effect battery life has on overall project cost. If the
project cost is particularly sensitive to changes in a
particular component cost, then that component should
be carefully selected for minimal cost and its interaction
with other component costs considered.
For example, PV system costs are very sensitive to
changes in battery life. The life of a battery is sensitive
to the average level of discharge taking place while in
service. This in turn is determined by the size of the
solar panels charging the battery. Changing the cost of
the panels does not change the overall project cost as
rapidly as changing the life of the batteries. Thus by
increasing the size of the panels (not a very sensitive
cost) the battery can be made to last longer (which is a
cost-sensitive factor) and the overall system LCC reduced.
Creating just one LCC by hand is a slow process with
many opportunities for errors to creep in. To make
several, as is necessary for sensitivity analysis, becomes a
task few people would be interested in undertaking
manually. However, by using a computerized spreadsheet
representation of the LCC accounts, such changes can be
made almost instantly and it is easy to find out what
effect different parts of the cost picture have on the
overall cost of the project.
Chapter-11.qxd 11/8/03 11:20 AM Page 73
Determining the best type
of rural electricity system
The technology decision
Five major technology groups have been successfully used
for rural electrification: (1) grid extensions; (2) small
hydro; (3) steam from biomass; (4) diesel; and (5) solar
photovoltaics. Though wind, biogas, gasifier and ocean
energy systems have all been tried for rural electrification
at one time or another, their long-term success rate has
been low and should be considered as still experimental
for the purpose of rural electrification.
Each technology has advantages and disadvantages to
the user and the installer. Following is a list of the
principal advantages and disadvantages of each
technology for rural electrification:
Diesel central system
Advantages:
· lowest initial cost
· fuel generally readily available though dependent on
shipping and external suppliers
· fuel easily stored and not bulky
· replacement parts readily available
· rapid speed response on load changes
· short time between start and availability to system
· rapid, simple shutdown process
· moderate in bulk and weight
· little operator training required.
11 C H A P T E R 11
Disadvantages:
· fuel often requires use of foreign exchange
· generally there is foreign control over fuel price and
availability
· noise, noxious smoke and smell
· fuel is toxic and may damage land and sea
environment
· short useful life of fuel and machinery
· functions inefficiently and with higher
maintenance requirements at light loads
· relatively high training and maintenance cost
· rural fuel availability is controlled by outside forces
such as shipping schedules, labour availability,
access to urban fuel stocks, etc.
Biomass-fuelled steam central system
Advantages:
· locally supplied fuel
· moderate to low maintenance requirements
· exhaust heat sufficient for process heat use
· quiet operation
· fast response on load changes
· mechanically simple
· long useful life.
Disadvantages:
· intermediate capital cost
· smoke
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74 Solar Photovoltaic
Project Development

· large space needed for fuel storage and drying Solar PV central generating system
· high labour requirement for operation and fuel handling
· long time (up to 1 hour) between start and availability Advantages:
to system
· no fuel requirements
· long time needed for shutdown (up to 1 hour)
· instantaneous response to load changes with excellent
· treated fresh water needed
voltage and frequency regulation
· bulky and heavy
· unattended operation
· limited availability of spare parts
· special appliances not required
· well-trained operators needed for safe operation
· no moving mechanical components
· inefficient at light loads
· low environmental impact.
· large fuel volume used can produce serious
environmental damage Disadvantages:
· use of biomass for power generation may reduce · high capital requirement
availability of fuel for households · power quality may not be good, causing problems with
· long-term availability and cost of fuel uncertain. some appliances
· highly trained electronic technician required for
Small hydro central system maintenance
· system reliability poorer than most other competing
Advantages: technologies
· long useful life · spare parts not readily available
· low maintenance · limited systems experience except in monitored
· unattended operation except at start-up and demonstration projects
shutdown · lowered efficiency at light loads
· no fuel requirements · requires a large, shade-free area
· quiet and no smoke · specialist engineering services required
· reasonably rapid response to load changes · power capacity is weather dependent.
· short time between start and availability of power
to system
Solar individual systems
· short shutdown time
· possible secondary use for water behind dam or at
Advantages:
turbine exit
· high percentage of local component in total cost · simple proven designs available
usually possible · easily serviced
· usually low environmental impact although water · components modular and few in number
diversion, civil works construction and water output · little training needed for installation and field
from the turbine may have a negative impact. maintenance
· size can be optimized to load
Disadvantages:
· moderate capital cost (high component cost but no
· long construction time grid cost)
· high capital cost · readily available spare parts
· poor replacement parts availability · all the advantages of individual systems over central
· availability of power tied to weather systems
· not many suitable sites · system easily modified to accommodate changed
· flood damage likely appliance mix
· specialists in design and supervision of construction · rapid installation possible
required. · no cost premium for 24-hour power availability
Chapter-11.qxd 11/8/03 11:20 AM Page 75
· very low environmental impact
· no noise or smoke
· little change in efficiency with load changes
· instantaneous response to load changes
· simple design can be done locally
· no fuel required.
Disadvantages:
· power availability somewhat dependent on weather
· expensive low voltage appliances or expensive power
converters required
· requires shade-free mounting location
· requires more customer attention and training than
other systems
· maintenance personnel must always travel to
customer’s site for service, carrying with them all
necessary tools and parts.
Conclusions
Combining advantages and disadvantages, we can rank
the power-generating technologies as follows:
Individual systems
· Only solar photovoltaics should be considered.
Central systems
· Where cost competitive, small hydro provides
the simplest, most reliable option.
· Where a continuing, adequate supply of low-cost
biomass fuel is available, small steam systems should
be considered.
· Diesel systems should be considered if biomass or
hydro systems are shown to be technically or
economically inappropriate.
· Central solar PV systems should be considered only
after other technologies have been eliminated and
then only for concentrated loads associated with
important social or economic units such as
government centres, telecommunications or
community water supplies, but not for general village
electrification.
The first consideration for new rural electrification should
be the extension of an existing grid. For reliability, power
capacity and operating cost, grid supply is generally the
best of all rural electricity supply options. Initial capital
Determining the best type of rural 75
electricity system
cost, however, may be too high to be justified and
individual or community electricity supply systems will be
necessary.
Where the grid extension is too costly and a
stand-alone system must be installed, the primary choice
is between central power and individual solar power.
Where the load is almost exclusively domestic, individual
power systems are clearly technically and socially superior
to any central system. Individual systems are usually also
financially superior unless the houses are very close
together, a community grid already exists or a grid
extension to that community can reasonably be expected
to occur within five years of the initial installation.
Where a significant industrial or commercial load exists
within the community, the decision to interconnect all
consumers with a central power source or to keep the
commercial and domestic loads separate must be made
on the basis of (1) the type of commercial load;
(2) the timing of the commercial and domestic load
peaks; and (3) the relative scale of the commercial and
domestic loads. Cost analysis and experience indicate that
unless the commercial load peaks are about equal to the
domestic load peaks and occur at distinctly different
times, the best choice is usually to keep commercial
generation and domestic generation separate.
Again, individual systems for the domestic load are
usually the most satisfactory though the commercial load
may require diesel, hydro or steam central generation
if it is over a few kilowatt-hours per day.
Centralized power versus individual
solar power systems
Of all stand-alone rural electrification technologies, only
solar offers an acceptable individual power system option.
There are substantial economic and social advantages to
individual power in remote, rural sites making solar an
important option for national-scale rural electrification.
When compared with stand-alone central systems,
the major advantages of individual systems are:
1) There is no power grid. The resulting cost savings,
particularly for communities having widely separated
houses, is often greater than the capital cost
differential between diesel and solar power.
The experience in the Pacific Islands is that for new
rural electrification it is usually cheaper to provide
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76 Solar Photovoltaic
Project Development
equivalent electrical services using individual solar
than small diesel with a grid.
2) Individual systems can be sized to fit individual
needs, making power cost truly proportional to
energy use. Wealthy families requiring refrigerators,
videos, fans and other capabilities beyond lighting
can have a system large enough for their needs,
while the family requiring only basic lighting need
have only a small system at correspondingly lower
cost. In the case of a central system, the capacity
of the system is usually dictated by the demands of
a few affluent consumers who rarely pay their
proportionate share of the system cost.
3) Central systems are easily overloaded resulting in
the loss of power to the entire community, while
overloads of individual systems result in
individual loss of power. The activation of a single
large-demand appliance, such as an electric frying
pan, during peak demand times can overload a small
village central system creating a power loss for the
entire community. It has proved very difficult to
control the use of such appliances and the resulting
friction within the community is not easily resolved.
With individual PV systems, excess energy use results
in early loss of power only to the consumer
concerned and may result in friction between
the power authority and the user but not within the
community itself.
4) The power levels and technical complexity of
stand-alone PV systems are far less than central
systems. An individual PV system is comprised of
only a solar array, charge/discharge controller and
batteries. The power levels are low and the
components simple. All three components are easily
maintained and technicians do not require extensive
training. Central systems, with much higher power
levels and a transmission/distribution system, require
a much higher level of technical competence for
operation, maintenance and repair. Note that the
higher the level of technical training someone
receives, the less likely they are to stay in a rural
environment. The turnover rate for people
sufficiently highly trained to operate and maintain
central power systems is likely to be far higher than
that for the person trained for individual PV system
maintenance.
5) Appliances designed for low-voltage dc must be
used rather than standard mains appliances.
Although this may appear to be a disadvantage at
first glance, it turns out to be a major advantage of
individual systems. The primary advantage results
from the higher efficiency of ‘solar’ type appliances
compared with standard commercial models. In the
case of refrigerators, ‘solar’ units often have half
the energy requirements of standard ac units for an
equivalent amount of cooling. This directly translates
to requiring half as large a generating capacity.
Furthermore, the ready availability of cheap,
inefficient, high-demand appliances such as electric
teapots, electric frying pans and immersion water
heaters makes it inevitable that consumers will buy
and attempt to use such devices on the low-capacity
power systems used for stand-alone rural
electrification. Such appliances are not available for
low-voltage dc applications and, even if they were,
their use would not create a community-wide
problem.
6) Centralized PV systems are less efficient.
Distribution losses of 10% to 20% are usually
present. Additionally, if the central system is itself
powered by solar, there are extra inefficiency and
technical problems associated with power conversion
from solar-generated dc to the high ac voltages
necessary for grid power distribution.
7) The location of houses is not fixed by a grid. It is
not unusual in many rural cultures to change house
locations regularly along with changes in the location
of tilled land or for family reasons. Individual PV
systems are easily moved to the new location but
grid systems are costly to change once installed.
8) System size can be easily increased or decreased
according to changing needs. Central power
systems can provide increased capacity only by
changing the entire generation, and sometimes
distribution, system. The resulting change affects
the entire community. Individual PV systems can be
easily changed in size to meet changing family
power requirements without affecting anyone but
the family concerned.
9) The practical limit to the maximum power
demand from individual PV systems is very high,
while central systems are severely limited by
Chapter-11.qxd 11/8/03 11:20 AM Page 77
generator and distribution capacity. Individual PV
systems operating from lead-acid batteries can
provide very high power levels and are limited by
watt-hours available rather than instantaneous watt
demands. Thus a small individual PV system having
only 120 W in peak panel (generation) capacity can
power a movie projector drawing 1,500 W for a few
hours per week while a central system must be sized
to generate and distribute the full 1,500 W no
matter how short a time the projector is to be
operated.
10) Power is available 24 hours a day at no increase
in cost. Many rural central systems operate only
a few peak demand hours per day as the cost of
operating during times of low demand is too great.
Individual PV systems have continuous power
available to the user so long as the use rates are
commensurate with system watt-hour capabilities.
11) Overall community power reliability is higher.
The failure of a component in a central facility
causes the loss of power to the entire community.
A similar failure in an individual system is limited to
one user.
12) Maintaining a spare parts inventory is easier.
Large numbers of essentially identical individual PV
systems require a spare-parts inventory comprised
only of panels, batteries and controllers. Central
systems, particularly diesel or steam, must stock
large numbers of different small parts to repair
engines, generators, switchgear and the distribution
system. Furthermore, different-sized systems require
different sets of parts, making the spare parts
management of a national-scale rural electricity
system very complex.
13) Individual PV systems are safer. In order to
distribute power efficiently, central system voltage
levels are high enough to be dangerous. Individual
systems are usually 12 V or 24 V and do not
constitute a shock hazard.
14) It is easy to add customers after the initial
installation. With individual PV systems, there is
little or no cost penalty for late installations.
With central power systems, particularly those with
underground grids, the cost of adding customers
after the installation team and heavy equipment
have departed may be very high.
Determining the best type of rural 77
electricity system
Disadvantages of individual solar
PV systems over central power
Though the advantages of individual PV systems over
stand-alone central systems for domestic rural
electrification are impressive, there are disadvantages
as well:
1) Central systems can take advantage of load
diversity to allow smaller-sized installations.
Individual PV systems must each have sufficient
capacity to provide the maximum power requirements
of that user. As all customers on a central system are
not simultaneously using all appliances, the system
can be smaller than the sum of all user’s maximum
power requirements. In the case of urban systems
with many diverse customer types, this saving can be
large. In the rural environment with customers who
have little diversity, the advantage is small.
2) Later interconnection to a larger grid is more
expensive where individual PV systems have been
installed. If the community is near enough to be
reached by a grid extension in five years or less, the
cost advantage of the individual PV system is usually
lost and a central system will be the best option.
3) In communities with a daytime commercial power
demand comparable to night-time domestic
demand, central systems can often fill both needs
with little capital cost increase. If the night-time
domestic load is comparable to the daytime
commercial load, the same generating system may be
used for the commercial and the domestic load with
little increase in capital cost, only operating cost.
Central systems increase in capital cost with increased
power (watt) demand but do not increase with
increased energy (watt-hour) demand until the system
is fully utilized 24 hours per day. Solar PV systems,
both central and individual, increase in capital cost
almost linearly with increased energy (watt-hour)
demand. For individual systems there is little capital
cost penalty for quite large instantaneous power
demand increases thanks to the low internal
resistance of the lead-acid batteries used for storage.
4) Urban power authorities, which often manage
rural electrification programmes, are structured
around and understand central generation better
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78 Solar Photovoltaic
Project Development
than individual generation. Different systems of
management and technical training are required for
operating and maintaining individual PV systems than
for central systems. Where urban power authorities
are also rural electricity managers, considerable effort
must be expended to provide the management,
operation and maintenance structures necessary for
large numbers of individual systems. The transition to
numerous small grid systems is less difficult.
5) As system size requirements increase, the cost
advantages of solar decrease. This is the result of
decreasing marginal cost for increasing generating
capacity with non-solar systems but constant marginal
cost for increasing generating capacity with solar.
Typically, when the average energy use of individual
households is more than about 2 kWh per day,
conventional central systems begin to become more
cost-effective than individual solar.
6) In areas with dense vegetation, solar access can be
difficult and system costs increased. If it becomes
necessary to place the solar array at some distance
from homes, the cost advantage of not having a grid
is reduced.
Determining the mode
of electrification
In those countries with two types of rural electricity
authorities, one serving off-grid systems and one with
extensions from an urban grid, a decision must be made
on which authority is to provide electricity for a specific
village. There must be a mechanism to determine which
electricity authority should provide services. The decision
should be made by the government department
overseeing the rural electrification process and should be
based on a balanced consideration of several factors:
1) Relative life cycle cost of grid extension versus
stand-alone generation. The cost of installing and
operating the stand-alone system should be weighed
against the installation and maintenance cost of
extending the grid. Government subsidy will be
involved in either task, as it is rarely possible for the
rural village itself to afford the investment necessary
to initially bring electricity to the community.
In addition, the source of funds must be considered.
Money may be readily available for grid extensions but
not for stand-alone power plants, or vice versa.
2) The impact of adding this village on the ability of
the electricity supply agencies to provide service
to existing customers. If the urban system is at the
limit of its capacity, adding more load through grid
extensions is not appropriate. If the rural electricity
authority is having severe problems keeping its
present inventory of power plants running,
adding another one to the system is unwise.
3) The preference of the village involved. The
preference of the village should always be sought and,
if this preference cannot be allowed, a clear
explanation of the reasons for the government
decision should be given.
4) The electrical load structure of the village. A large
village with several commercial establishments or an
industry likely to have significant electrical load would
usually be better served by a grid extension; while for
a small village with a small load that is mainly evening
lighting, a stand-alone plant may be the better choice.
The primary constraints on grid extensions and multi-
village grid schemes are:
1) Economic. The cost of grid extensions often exceeds
US$10,000/km. As villages are usually separated by
several kilometres and total village loads can be 5 kW
or less, in many cases the life cycle cost of individual
systems is lower than that of a grid extension.
2) Geographic. Countries with rural districts consisting of
many small islands cannot interconnect the islands.
Countries with tropical rainforests and rugged interior
mountains have very high costs for transmission line
extensions.
3) Climate. Many developing countries are troubled by
seasonal tropical storms. High temperatures and high
humidity, also common in developing countries,
create a very harsh environment for electrical
systems.
4) Social/Legal. Land rights are complex in many rural
areas where there is a mixture of traditional and
statutory land systems. Obtaining and retaining land
for power plants and a right of way for transmission
and distribution systems is often very difficult.
5) Technical. The small number of adequately trained
technical staff limits the capability of a country to
expand and maintain grids.
Chapter-11.qxd 11/8/03 11:20 AM Page 79
Generating and delivering electricity
to rural areas
Because many rural communities cannot be economically
connected to a large-scale grid, rural power systems will
develop at scales ranging from individual households to
multi-village grid. The mode of development will depend
on the geographical, economic and social conditions
specific to each rural district.
Solar PV is the only generating technology that can be
more economical in individual rather than central
installations. Diesel, biomass-fired steam and small hydro
are the other technically proven options for rural
electrification, but none can economically provide power
on an individual home basis. The basic choice that must
be made is whether or not to provide power from
individual solar units or a central village generator fed
through a small grid.
Fitting photovoltaics into
rural electrification policy
Although the small diesel power plant has been used for
more stand-alone rural electricity systems than any other
technology, these systems have a high operating cost and
a poor reliability record. The reasons for their popularity
are basically their relatively low first cost and familiarity.
Their poor reliability stems primarily from the problems of
supplying remote rural communities with fuel of adequate
quality, replacement parts and technical support for
maintenance and repair. Where these materials and
services have been adequately provided, system reliability
is much improved. Unfortunately the cost of providing
these materials and services has turned out to be much
higher than most governments initially estimated.
A reliable stand-alone, village-scale diesel power system
in a remote rural location places power costs, based on
operating costs alone, in the US$1 to US$2 per
kilowatt-hour range and the total cost per unit is about
three to four times that found with urban systems based
on diesel generation.
While a small number of systems of such high
operating cost can be supported, a national rural
electrification programme using small, stand-alone diesels
can be a major financial burden that is impossible to
justify on economic grounds.
Determining the best type of rural 79
electricity system
For large-scale rural electrification to be successful,
the technology used must have an operating cost that
can be met by the consumers. Ongoing operational
subsidies that are tied to uncontrollable market prices
for fuel, spare parts and technical services cannot be
maintained for the decades necessary for rural districts
to become affluent enough to cover their own power
costs.
On the other hand, one-off capital costs are easily
budgeted in known, fixed dollar terms and capital funding
is much more easily obtained from funding agencies than
recurrent cost funding.
For these reasons, many governments consider high
capital cost, low operating cost technologies as the best
choice for national-scale rural electrification, with low
operating costs receiving much more emphasis than
capital costs.
Of the remaining four rural electrification
technologies, all have substantially higher first costs and
substantially lower operating costs than stand-alone
diesel power. There are other constraints as well:
nearness to the grid for line extensions, nearness to an
easy-to-develop site for small hydro, and the availability
of low-cost biomass fuel in sufficient quantity for
biomass steam plants. These constraints make it a
requirement that there be careful matching of these
technologies to the rural site. On the other hand, solar
photovoltaics has the least dependency on physical site
characteristics and can be used virtually anywhere,
though the capital cost will vary as the level of solar
availability varies.
It is of interest to note that after careful examination
of rural electricity options, at least one Pacific Island
country has formally adopted photovoltaics as the sole
method for new, stand-alone, rural electrification,
while many other nations consider photovoltaics to be
appropriate for rural electrification in remote areas
unlikely to be reached by a grid for one or more
decades.
Barriers to individual system
implementation
Despite the clear advantages of individual solar over
central systems for much domestic rural electrification,
only a few countries have embraced solar programmes
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for rural electrification beyond the early trial stage.
There are several reasons for this:
1) Poor projects in the past. Many over-optimistic
promises followed by a few poorly conceived solar
projects have damaged the credibility of solar in
general. In particular, in developing countries
experimental projects using solar as a central power
generator have been installed with a high rate of
failure. These demonstration projects have had a high
capital cost and a low reliability and have been neither
an economic nor a technical success.
2) Poor systems support. A number of villages have
been provided with well-designed individual PV
systems and then the projects were essentially
abandoned by the implementing agency without
providing access to parts or technical assistance.
The result was, once again, failed projects and a loss
of confidence in the technology.
That individual PV systems can be installed,
operated and maintained in a fashion that yields
economic, technical and social advantages has been
well demonstrated by projects in the Pacific Islands
that have been in operation 10 years and more with
continued good customer acceptance and no loss of
enthusiasm for the future of the technology.
This success has required the establishment of a
specialist solar electricity organization, a long-term
commitment to the project and a great deal of
money. Exactly the ingredients of any successful
rural electrification project regardless of the
generating technology.
3) Technical and managerial inertia. The experts in
electrification in any developing country are from
the urban power sector. All their experience,
technical education and professional commitment
revolve around centrally generated, grid-delivered
power. Rural electrification using large numbers of
stand-alone systems, whether village-scale central
generation or individual solar installations, requires
different management, technical and support
structures. It is difficult for a government to overrule
their own electrical power experts and establish
different standards and structures for rural
electrification. Note, however, that the most
successful rural electrification projects are almost
always characterized by a separate organization
specifically designed for rural electrification rather
than relying on existing urban power authorities.
4) Inadequate and inflexible designs. The most
common mistake in rural electrification using
individual PV systems is to not make allowances for
the differing needs of the people being served.
To date, virtually all solar rural electrification projects
have provided a single-design, minimum PV system for
all customers. What happens is that the wealthy,
and often politically powerful, users who justifiably
expect electrification to allow them to use videos and
other conveniences within their economic reach,
are frustrated by the inadequacy of the project,
publicly deride the technology and often lobby for its
replacement by a government-subsidized central
system. Had there been a mechanism available for
these users to obtain a sufficiently large PV system to
meet their expectations and perceived needs,
this problem would not have arisen. Even if the
purchase of this extra solar capacity is subsidized,
the end cost to government is almost always much
less than the cost of subsidies for equivalent central
system purchase and operation.
5) Limited genuine expertise is available. Although
almost every engineering firm contacted claims to be
capable of designing PV systems, the number of
people with actual experience of designing and
implementing community-scale rural electricity systems
using solar photovoltaics is very small. A great deal of
trial and error is still going on and bad advice is much
easier to come by than good. Seemingly intelligent
and otherwise rational people have an amazing
tendency to treat others’ clear mistakes in project
design as flukes that will not cause trouble when
repeated in their own projects.
6) Promises of better things tomorrow. The continuing
claim that solar prices are going to fall dramatically in
the future has a negative effect on the market today.
While it is probably true that panel prices will continue
to fall, the cost of panels in the overall solar rural
electrification equation is a minor one. A cost
reduction of 50% in panel prices would result in less
than 20% reduction in overall rural electrification
capital costs because of the unchanged cost of labour,
the balance of system costs, project overheads and
transport costs.
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Conclusions on solar power
for rural electrification
Sufficient experience has now been gained in the
large-scale implementation of individual PV systems for
domestic rural electrification to understand where the
technology best fits into national programmes.
For successful rural electrification, the most significant
problems have turned out to be ones of management and
policy rather than of technology. Some of the important
lessons learned are:
· With solar as the power source, only individual systems
should be considered. Where individual systems are not
appropriate, do not use solar for rural electrification in
developing countries.
· There should be a decentralized organization
specifically designed and staffed to handle the special
problems of installation, operation and maintenance
Determining the best type of rural 81
electricity system
of large numbers of individual PV systems in remote
sites.
· The programme must be flexible enough to meet the
needs of consumers ranging from the one-light
household up to at least that of lights, video and
refrigerator.
· Unless ever-spiralling subsidy costs can be handled
in government budgets, fees covering operation and
maintenance costs must be collected from
customers.
There is no single technical solution to rural
electrification. Any national programme must be flexible
enough to deal with several generating technologies and
philosophies. Solar electrification should be a part of any
developing country’s national rural electrification
programmes and should be considered for domestic rural
electricity at most sites unlikely to be connected to a grid
system for the foreseeable future.
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Funding for projects
External funding is usually needed
Although rural electrification policy should be for the
districts being electrified to pay for the operation and
maintenance of the electricity system, few rural districts
have the financial resources necessary to make the initial
capital investment. Virtually all rural electrification
projects require external funding of some sort.
Sources of funds
A number of funding sources are available, though not all
may be available at the same time. Most projects use a
combination of funding sources. Often, different sources
are used for different stages of a project.
Payments from recipients
of rural electricity system
All rural electrification capital projects should have some
financial input from the recipients. If a rural district
cannot afford a 10% to 30% investment in the project,
then their ability to continue to pay the operating and
maintenance cost is highly suspect. Furthermore, a rural
district with so little income will be unable to obtain the
appliances necessary to make full use of the available
electricity. Also, if so little money is available then adding
rural electrification is likely to slow development because
it will take a high percentage of available money out of
the village, leaving nothing for development.
12 C H A P T E R 12
Finally, requiring the district to share the cost helps to
ensure that there is a genuine desire and need for
electrification, not merely a passive willingness to have
government provide a free project.
As the generating equipment should not belong to
the users, an appropriate charge for the installation of the
rural electricity system is one that pays for those parts of
the system that are not part of the generation and
distribution system but actually will belong to the user.
Such items are usually limited to house wiring, appliances
and labour for connecting buildings to the system. Usually,
for a village-scale scheme, those components of the project
will comprise between 10% and 20% of the overall cost.
Payments from government treasury
In those governments where the priority for rural
electrification is high enough to justify budgeting
treasury funds, a portion of the capital cost for rural
electrification projects comes directly from government.
The actual source of the treasury funds may be taxes or
may be external to the country, but the allocation is
made through the national budgetary process and does
not directly involve external funding agencies.
Rural electrification that involves government facilities,
such as schools, health centres and government offices,
will usually be funded from the budgets of the respective
departments responsible for the facilities. Sometimes,
electricity produced for these facilities will be made
available to private citizens living nearby.
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Urban electricity authority investment
Some electricity authorities are statutory
bodies — companies that are government owned but
separate from normal government processes. Some are
government departments and some are privately owned.
Most developing countries have electricity authorities that
are closely tied to government. Because rural extensions
of the grid rarely generate enough revenue to pay for
the investment, the decision to provide rural
electrification through grid extensions is political rather
than commercial. Government may directly subsidize
these extensions through subsidies to the electricity
authority specifically for rural electrification, or indirectly
through general subsidies to the electricity authority.
It may also require the authority to ‘cross-subsidize’,
making the relatively wealthy urban customers pay higher
rates to cover the cost of rural electrification in
cash-poor areas of the country.
It is important to realize that although the electricity
authority is making the rural electrification investment,
the source of money for that investment is not from
charges made to rural districts but subsidies from
government, urban users or both.
Commercial loans
These are loans obtained from commercial banks or
private lenders at rates and under conditions available to
general commercial-class borrowers such as businesses.
Typical commercial loans have interest rates between
10% and 20% and pay-back periods from five to ten
years.
For rural electrification that involves industry, such as
a coconut-oil mill, or a major commercial activity,
such as a tourist resort, the expected return on
investment may be great enough to pay back the capital
cost even at the relatively high interest and in the
relatively short time associated with commercial loans.
This source of funding is usually considered the last
resort for a project as the cost of obtaining the money is
higher than that of other sources. Commercial loans do
have the advantage of generally being the easiest to
obtain, as long as the project is financially sound.
Arrangements for commercial loans can be completed in
a month or less while other, cheaper sources may literally
take years of negotiations before the money becomes
available.
Soft loans
These are low-interest loans, often with very long
pay-back periods. Payment terms are much better than
commercial loans.
Soft loans are usually provided by international
development banks, such as the Asian Development Bank
(ADB) or World Bank, or by government banks in
relatively wealthy countries. The loans are generally given
to governments or, if given to an electricity authority,
with a requirement that their payment be guaranteed by
government. These loans may have interest rates of only
a few percent and pay-back periods of several decades.
However, they often require more than a year to obtain
and may include a number of restrictions. Restrictions are
requirements considered by the lender to be necessary to
ensure that the funds are correctly applied. These may
include the requirement for lender-designated
consultancies to determine the appropriate location,
budget and type of rural electrification for the country;
specific fee structures for users; particular organizational
structures for the rural electricity authority; onerous
periodic reporting requirements; or other terms that
reduce the borrower’s flexibility in the use of the money.
Loans from local development banks
Most developing countries have a national development
bank. Their terms lie between commercial loans and soft
loans. Interest rates are usually a little better than
commercial rates but pay-back periods are usually much
longer.
Local development banks are funded by governments,
often with external funding as a basis, and are usually
intended for economic development only. They would not
usually be a source of funds for domestic rural
electrification but might be for electricity related to
a commercial or industrial project.
The quality of the project, in terms of its likely
economic success or failure, does not need to be as high
as for a commercial loan. Borrowers, however, are usually
restricted to certain classes and uses of borrowed funds
are usually restricted to certain classes of projects.
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The time period for obtaining development bank loans
is generally six months or more and considerable effort is
usually needed to pass the application through the various
levels of bank bureaucracy. The primary advantage is a
longer pay-back period than commercial loans and, once
the loan is made, more flexibility in modifying payment
structures to meet changing conditions.
For rural electrification, the primary use will be for
economic development of rural districts through industry
or commerce. Unlike the usual commercial loans,
however, domestic rural electrification sometimes may be
included in a loan provided that the overall project is for
economic development.
Bilateral or multilateral grants-in-aid
This is funding from countries or international
organizations that is provided with no pay-back or
interest requirements.
Bilateral aid is negotiated directly between the donor and
the recipient country. Broad terms are usually set by the
donor government, but within those limits terms may vary
considerably and must be negotiated on a case-by-case
basis. As aid terms change with donor government policies,
a change in government in the donor country may
precipitate a major change in the amount and terms of aid
available to the recipient countries. Such changes may be
sudden and a series of negotiations on a project may have
to be started all over again following sudden changes in the
ground rules set by the donor country.
Bilateral aid funds may be provided for a specific
project or may be part of a general aid package to
government negotiated around a group of projects.
The terms of bilateral aid vary. Some donor countries
restrict the use of the money to purchases from donor
country suppliers, while others have virtually no
restrictions on where the money is spent so long as it is
directed towards the completion of the approved project.
Though pay-back is not required, the donor country
usually expects the recipient government to maintain
a friendly attitude towards the donor government and for
there to be some trade preference or commercial
advantage to donor-country businesses. If these
expectations are not met, it is common for bilateral aid to
become difficult to obtain or additional restrictions to be
applied to aid-funded projects.
Funding for projects 85
Bilateral aid typically requires a year to two years of
negotiations, though some donor countries have small
grant programmes that can result in project funding in
less than six months.
Multilateral regional aid is provided by a country,
an international agency such as the United Nations
Development Programme (UNDP) or a group of countries
such as the European Union, to a group of designated
recipient countries. Generally a specific amount is
provided for the entire region so an increase in project
funding for one country will reduce the amount available
to others in the region. Such aid is therefore negotiated
as a group, often with a regional intergovernmental
agency representing the recipient nations in
negotiations. Regional aid may have designated uses,
such as for energy development only, or may be
a general fund with no specific use designated in
advance and individual projects being negotiated after
the funding is allocated.
Regional aid is usually the slowest and most
cumbersome. Long negotiations between the recipient
and donor countries for the amount and type of aid,
long negotiations between recipient countries to divide
up the aid, long project approval times and complex
systems for project development, approval and
implementation are common. Five years or more may pass
between initial negotiations and project implementation.
Terms for regional aid tend to be more stable than
those for bilateral aid and the availability of the specified
funding can be treated as certain. The best use for this
type of funding is long-term, non-critical projects whose
requirements are not likely to change over a five- to
ten-year period. Domestic rural electrification often fits
this category of project and can successfully use regional
funding to advantage.
Commercial aid
These are basically gifts from manufacturers or
distributors. A manufacturer seeking to enter a market
may donate components for a ‘demonstration’ project.
Such aid is rare and available only under very special
circumstances and then only in small amounts.
Such projects are rarely genuinely useful to the
recipient and often involve considerable hidden costs in
administrative overheads and unscheduled maintenance.
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In a few specialized cases such aid can be useful, but the
recipient must constantly be aware that the donors are
providing the equipment to meet their own needs for
commercial advantage and, for the project to be useful,
those needs should not in any way conflict with the
utility of the project to the recipient.
One of the most common requirements for a project
of this type is unlimited access for the donor company.
The users of the equipment must be prepared to host
the donor company representatives and their clients at
any time. Often government representatives are
expected to accompany client tours. The time spent
hosting and touring with such groups can be a serious
problem and may end up costing more than the value of
the project.
Another type of project that is sometimes funded by
a manufacturer is in reality a field trial for prototype
equipment. In this type of project, new components that
seem to work at the manufacturer’s facility are placed in
the field to see if they work properly under actual use
conditions. This type of project is acceptable as long as
everyone involved knows that it is in fact an experiment,
the manufacturer agrees to bear all the cost of
maintenance and the system is to be used in an
application where reliability is not essential. Unhappily,
manufacturers often call such projects ‘pilot projects’
or ‘demonstrations’, implying that the technology is
proven and reliable. Both the user who is the butt of
such an experiment and the government office that has
to try to keep it working may suffer.
Energy planners should be aware that aid agencies of
donor countries sometimes offer such projects as aid
rather than as the commercial field trials or
manufacturer’s overstocks that in fact they really are.
Energy officers should be wary of projects initiated by aid
agencies that are restricted to the use of a specific type
of hardware, as these can be assistance to manufacturers
in need of field trials disguised as assistance to
developing countries.
When equipment is offered that has not been
successfully used elsewhere over a period of five years or
more, some form of sharing of the costs of replacing the
equipment should it prove inadequate over the life of
the project must be included in the project funding.
The usual one-year warranty is not sufficient under these
circumstances.
Arranging combinations of funding
Most rural electrification projects are funded from
a combination of sources. All rural electrification capital
investment projects should have some funding input,
no less than 10% and preferably more, from the
recipients. Government often provides some input,
at least in the form of project management and
sometimes as capital subsidies. The remainder of the
funding is most often obtained from aid sources or from
soft loans guaranteed by government. Commercial loans
or local development bank loans are little used for rural
electrification projects and then only as a component of
a much larger economic development project that can
reasonably be expected to generate sufficient income to
pay back the loan on schedule.
Combining aid grants
When putting together a funding package for a rural
electrification project, the lowest cost funding should be
sought first. That will be bilateral aid or regional aid
funding that need not be paid back and has no interest
charges. Typical sources are aid programmes of the
European Union, Japan, the United States and other
developed countries. Also, various UN organizations,
particularly the UNDP, have provided rural electrification
development grants. The World Bank and regional
development banks, such as the Asian Development Bank,
have provided technical assistance grants for rural
electrification development. Some of these sources have
wholly funded rural electrification projects, others have
funded components of projects such as specific hardware
or consultancies. Diesel, hydro, photovoltaic, gasifier,
wind and biomass-fired steam systems as well as grid
extensions have all been funded from these sources.
To obtain grants from international sources, a project
prospectus should be given to some or all of the grant
agencies operating in your country for examination.
This should be followed up with a personal visit to their
offices to discuss the possibility of complete or partial
funding of the project.
Be aware that many grant agencies will not be
interested in partially funding a project when other grant
agencies are to provide another part of the funding.
This is called co-financing and it is rarely successful.
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To overcome this problem, break the project into a group
of smaller projects each of which is funded differently.
Thus as an example of the division of a large rural
electrification project into smaller packages for joint
funding, the United States might fund the electricity
installation for rural schools, France the health centres,
the EU the domestic users and Japan the commercial users.
Another approach to packaging a project for multiple
agency funding is to divide it into projects for
implementation at different times. Thus a pilot project for
domestic solar electrification might be funded by Japan,
two years later there could be a first-stage project with
basic PV lighting installations funded by the EU,
then three to five years later an upgrade project by the
USA to increase the level of power available to the users
to allow for other appliances.
A third method is to divide up a large project
geographically, one community to be funded by one
agency, another community by a second agency and so
on. This often leads to difficulties in maintaining
consistent technical designs, however, and should be
approached with caution.
A fourth approach is to divide the project into
functions: one agency funds the design consultancy, a
second the hardware, another the training component,
a third the labour and so on. This approach sometimes
permits tapping sources that would be otherwise
unavailable. Also, it avoids the problem of retaining a
consistent design for different installations as the entire
project design is done by one agency and the entire
hardware procurement by another. This approach requires
good-quality coordination and is perhaps the most
difficult to make function efficiently.
In each case where funding is divided among several
agencies, the technical design should be as unified as
possible. You should not place yourself in a position
where as many different types of equipment are being
installed as there are funding agencies, which would
make maintenance and spare parts control difficult.
Loans for rural electrification
Before even considering a loan for rural electrification,
the most basic question, ‘will the recipients of the project
be able to repay the capital plus interest’, must be
answered. If the recipients cannot be expected to pay back
Funding for projects 87
the loan, government must do so from other sources
thereby effectively diverting money from other
development projects. If the government’s priority for rural
electrification is high enough to justify a 30- or 50-year
commitment to what amounts to a subsidy for rural
electrification, then a loan can be considered. It should be
noted that in most developing nations, there is little social
or economic justification for placing rural electrification
higher in priority than the development of rural roads,
water supply and health services.
Even if the recipients can pay back the cost of the
loan, the payments by the recipients will take money out
of the rural economy that could slow the rate of local
development. Prior to accepting loans for rural
electrification, implementing agencies must carefully
weigh the options for development and make sure that
the loan and interest payments made by either
government or recipients is money best spent on rural
electrification or on other forms of rural development.
If loans are to be sought, the objective is to have the
rural electrification capital investment made with the
least overall cost to the receiving electrification agency
or government. Some industrialized country governments
offer soft loans for development projects as a type of
aid. Basically these are bank loans with the pay-back
guaranteed by the lending government and part of the
interest subsidized as well. If the recipient agency pays
back the loan as scheduled, the cost to the donor
country is much less than an outright grant and a donor
country’s aid budget can be stretched much further.
From the point of view of the receiver, these loans have
similar interest rates and length of pay-back period to
those of international development bank soft loans but
usually are much less restrictive in their terms.
Often these soft loans have no more restrictions than
aid grants, except for the important difference that they
have to be paid back with interest. The procedure for
applying for these soft loans is generally the same as for
aid grants.
Soft loans from international development banks such
as the World Bank have low interest rates and long
pay-back periods and are generally the first choice for
borrowing capital for development projects if the less
restrictive direct loans from donor governments cannot
be arranged. However, be aware that international
development bank loans often include requirements that
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Project Development
may add significantly to the effective cost of the loan.
Complex accounting systems may have to be established
to meet reporting requirements. There may be
restrictions on the use of the capital even within the
scope of the project. There may be restrictions on
the structure of the electricity agency implementing
the project. There may be minimum electricity rate
requirements, business profitability requirements and
many other restrictions on the borrowing organization
that can raise the effective cost of the loan. Costly
consultancies may have to be carried out and paid from
the loan. While most of the restrictions are intended to
ensure that the agency receiving the money uses it in
a businesslike manner and for the purposes intended,
none the less the additional cost to the borrower must be
considered when using these sources.
Local development banks and commercial banks are
rarely used for general rural electrification because their
loan periods are too short and their interest rates too
high for this type of project. They may be used,
however, when borrowing for the electricity supply
system for a commercial or industrial project, where the
bank can reasonably expect that the loan can be paid by
the business without undue hardship. Usually, such
loans are negotiated with the project developers and
energy planners are not involved directly other than
sometimes as technical advisors and economic analysts.
Combining grant and loan funding
While loans usually should not be used to wholly finance
rural electrification when a project can be largely
capitalized by grants, the use of a soft loan to complete
the project may be reasonable. To arrange such a
combination of funding will probably mean dividing the
project into sub-projects as described above. The aid
money is used for some sub-projects and the loan for
others. In general, it is often best to tie the loan
component to the part of the project relating to
government, commercial or industrial use, as these are
the type of users usually preferred by lending
institutions. Thus a soft loan might be arranged to cover
the electrification costs of rural public works facilities,
government field offices, dispensaries, schools,
navigational aids, airports and harbour facilities;
while grants are used for domestic electrification.
As with combining various grant sources for a
project, though the funding is compartmentalized,
the project itself should not be divided into
sub-projects but rather integrated into a general
rural electricity system.
Finding the available
funding agencies
In locating funding, you must think like a salesperson.
One of the most important rules of selling is to know
what the customer wants. You cannot prepare a good
funding proposal unless you know what type of project
the funding agencies are looking for. You must know the
usual terms and conditions of the funding agencies. It is
important to make early contact with all the possible
sources of funds available for rural energy projects, get
to know the people involved and learn the requirements
for applying for funding, what size projects they prefer
to fund, what terms you can expect from them, how long
it usually takes to obtain a funding decision and any
special conditions that are likely to be imposed.
Part of this information can be obtained directly from
the funding agencies but much is best learned from others
who have experience dealing with the agencies. By talking
with others who have had projects funded from the
agencies you are interested in, you can learn a great deal
about how the agency operates that you cannot learn
from the agency itself. It is particularly important to find
out what projects have recently been funded by the
agencies. This will give insight into the current thinking of
the agency regarding funding and, if you can study the
documents for the projects that have been funded,
you will have a better idea of what the agency is looking
for in projects and in the way proposals are presented.
It is also worthwhile to learn about projects that were
submitted but rejected for funding to give you an idea of
what the agencies are not looking for.
Remember also that you will be dealing with specific
people at the agency and their personal requirements and
ideas about how projects should be submitted may differ
from those of another person in the same agency.
Get to know the agency as an organization but, more
importantly, get to know the individuals you will have to
deal with.
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Fitting the project proposal
to the funding source
Once you have a good idea of the type of project that is
likely to be funded, you can prepare a project document
fitted to the agencies you are contacting. When dealing
with several funding agencies with very different
approaches to project funding, you can even prepare
several project dossiers, each tailored specifically to
a funding agency that you believe might fund the project.
This is not to recommend that you should modify the goals
of the project to fit funding agency requirements. The idea
is to modify aspects of the project that are unimportant to
meeting the goals in order to fit particular funding agency
requirements. Do not, however, modify the project to the
point where its ultimate goals are not being realized. You
may get the funding but end up with a poor project.
In many cases, just changing the emphasis of parts of
the project document is sufficient. In the case of a
donor-country aid agency, emphasizing the possible
improvements to rural quality of life may be more
important than emphasizing fuel savings. In the case of
a development bank, the document might emphasize the
economic, rather than the social, development potential
of the project. Sometimes, a funding agency will receive
policy directives regarding particular features to look for
in funding projects. For example, a few years ago, the US
Agency for International Development (USAID) was
emphasizing the concept of ‘privatization’ and projects
that appeared to move economic endeavours away from
government and into private hands were looked upon
with special favour. Currently, there seems to be a lot of
political interest in ‘the environment’ and ‘poverty
alleviation’ so it would not be surprising to find that rural
energy project proposals that emphasize environmental
concerns and reducing poverty are more likely to be
funded than those that do not.
Funding agencies want
to give money
Do not go into a funding agency with hat in hand and the
feeling that you are begging for help. The funding agency
exists either as an arm of some government’s foreign
policy or as a commercial enterprise just for the purpose of
Funding for projects 89
funding projects. By giving the agency a good-quality
project to fund you are doing it a favour, as the home
office judges both by the quality of the projects funded
and whether or not the budgeted funding for your country
has been spent. If you can design a good project and
present it with terms that are at all acceptable to the
funding agency, you will get the money.
Some funding agencies will actually encourage
increased project funding in order to help them to meet
a funding quota. Remember that the sole purpose of
development banks is to lend money to countries
for development. Regional development banks have been
known to encourage far greater investment in rural
electrification than is appropriate to the needs of the
receiving country in order to get their money into projects
in developing countries. Design your project around the
needs and capabilities of your country and only accept
funding to the level needed. Remember that you must
have a balance of resources to carry out a project
properly and money is only one of them. An excess of
money usually leads only to waste of that money and not
to an improved project. If you accept excess money for a
project from a granting agency, you are wasting money
that could have been used in your country for another
project. If you take excess money offered by a bank, you
are still wasting your country’s resources as it has to be
paid back from your government’s income.
Help in locating funding
While it is true that almost any good rural electrification
project can be funded through grants or soft loans,
locating sources is not always easy. International and
regional development organizations such as UNDP may be
able to direct you to a source of funding and may even
be willing to assist you in preparing the documents
necessary to obtain the money. Such organizations have
close contact with international development banks and
the aid organizations of the countries funding rural
electrification projects. Provided you have a good project,
they can arrange meetings, supply letters of introduction
or in other ways pave the way for you to meet the
appropriate funding agency officials.
As funding agencies often fund similar projects in
different countries, it is useful to ask other country
representatives who is currently funding their rural
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electrification projects. Some funding agencies seem to
prefer certain types of project. For example, Japan has
funded many fishery-type projects in the Pacific. These
‘specialities’ often change with governments and with
changes in the people administering the funding agencies
concerned, so you should not be discouraged if the
funding sources readily available in your country do not
seem to have a history of funding projects such as yours.
Summary and conclusions
The ease of obtaining funding for projects is usually
directly related to the quality of the project request.
Project requests provided in the format of the funding
agency, with supporting information, with clearly defined
project goals and showing that the means for their
accomplishment can be provided, will be much more likely
to be funded than requests that are poorly prepared and
incomplete.
There are many sources of funds for projects.
Although it is most convenient to have a single source,
the combination of a number of sources is often
necessary. The project may have to be divided into many
sub-projects, each funded by a different source,
in order to assemble sufficient funding.
Chapter-13.qxd 11/8/03 11:23 AM Page 91
Preparation and submission
of a proposal
Understand the approval process
Before even starting to write a project proposal,
you must understand the details of the approval process
for the proposal. If delays or rejection are to be avoided,
it is vitally important that the needs of every agency
involved in the approval process are provided for in the
proposal. To do that, you must know what agencies are
going to act on the proposal during its passage to final
approval or rejection.
Another important reason for determining the
approval path before the project is submitted is so that
you can discuss the project with all parties to the
approval process in order to clear up problem areas
before submission and to smooth the way through the
system. If you know the path the proposal will take
through the bureaucracy, you can keep track of its
progress and, should it halt along the way, it will be
much easier to expedite if you can go directly to the
person causing the problem.
Obtain pre-approval
as much as possible
Once you know who will be examining your project
proposal, try to discuss it with them before the
final proposal is written. This allows you to reduce
misunderstandings and to change those parts of the
proposal that could pose a problem before submitting
the written proposal.
13 C H A P T E R 13
Once the proposal has been submitted, try to keep
track of its progress and if it stalls along the way,
be prepared to give it a push if necessary. In many cases,
people who are continually reviewing project proposals
will give priority to proposals that have someone pushing
them while others will wait at the bottom of the pile.
Sometimes proposals stall on someone’s desk because the
evaluator does not understand some aspect and requires
additional information. Though the request for that
information will ultimately be sent to you, it may be much
quicker if, when you learn that your proposal is spending
an excessive time in one place, you drop in and ask
pleasantly how the review is coming along and if you can
be of any assistance.
Appearance is important
Although the submission of a proposal may be preceded
by a long period of discussion and negotiation and you
feel that the way has been well prepared for approval,
the actual document submitted has a great effect on how
a proposed project is judged. A sloppy, confusing
proposal will be more likely to be rejected or delayed
than one that is neat, complete and informative.
Graphs, photographs, tables and other visual
components can be used to improve the appearance of
the proposal and make it easier to understand. Just make
sure that the visual presentations are relevant and really
do add to comprehension. Also make absolutely sure that
tables and graphs agree with what is written.
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It often happens that during the course of revisions of
the proposal, numbers listed in tables or on graphs are
not changed when numbers in the text are revised. At
best this is confusing, at worst, the evaluator may use
the wrong numbers and reach the wrong conclusions
about the project.
Weight does not count
To be approved, the proposal has to be read. An error
frequently made in preparing project proposals is thinking
that they must be long in order to be good. If they must
be long in order to tell their story properly, fair enough,
but adding pages and pages of useless data to a project
proposal will be annoying to the recipient and will lessen
the chances of your proposal, not increase them.
An aid agency may receive hundreds of proposals and
an evaluator will appreciate proposals that are concise
and to the point. Long rambling proposals with pages of
information not directly applicable will not be read
beyond the first few pages before being deposited in the
‘do not fund’ pile.
A general rule of thumb is to keep the proposal itself
to 15 pages or less, although 10 pages is better. If more
information is needed, put it in specialized annexes. If the
proposal is more than 20 pages, it is wise to provide a
three- or four-page ‘Executive Summary’ as that will
probably be read in its entirety while the lengthy
proposal may not.
Contents of proposal
The exact contents of a proposal document and the order
they appear in the document will change slightly
according to the recipient, but certain items must be
present in almost all project proposals.
Unless the funding agency has a specific format to
follow, the proposal should follow that of a sales
brochure: a first section to catch the attention of the
reader (the goals and objectives), a central section to
provide necessary details and specifications, and a last
section to say how much it will cost in money and time.
Typical contents include:
1) Goals of the project relevant to the agency
receiving the proposal. Every project has many
different goals. Some of the goals may be of
importance to the agency receiving the proposal,
others may not. In listing goals, emphasize those that
are important to the receiving agency, not just those
important to the proposer of the project. For example,
a goal such as ‘reducing greenhouse gas production’
may be better received by an environmentally oriented
agency than one that states as a goal ‘improving the
quality of life in rural districts’. Specific, measurable
goals such as ‘electrifying 3,500 rural homes’ should
be included as well as altruistic but vague goals such
as ‘poverty reduction’.
2) Justification for the project. Why should this project
be carried out? What is its place in the overall
development plan of the country? How does it fit in
with other projects? For what reasons is this project
needed? Why should resources be spent on this
project instead of others? Why carry out the project
now instead of later?
3) The agency responsible for the project. The proposal
should list the agency responsible for the project and
the contact persons in that agency. The address,
telephone, email and fax numbers for the contact
person should be included.
4) Location of the project. If the location is relevant to
the success of the project, be specific but otherwise
keep the location as general as possible to avoid
having to justify location changes later. Sometimes
the location will be determined as part of the process,
after a rural needs assessment, for example.
5) Brief technical description of the project. What
technology is being used? For rural electrification,
such factors as what type of generator is to be used,
its generating capacity, the voltage of delivery to
users, hours of operation and total energy to be
provided should be stated.
6) Mark the completion of the project. Every project
should have a clearly defined beginning and an equally
clearly defined end.
7) Provisions for operating and maintaining the
project. Who will receive the project for operation
and maintenance after its completion? Will any fees
be charged? If so, who collects them and what is done
with the money? What about spare parts?
8) Time budget. Unless a specific date must be used,
use the final approval date of the project
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as the starting point and project the time for
accomplishment of specific parts of the project as so
many days, weeks, months or years after that initial
approval date. Do not make an elaborate schedule of
exact dates for project activities, as the dates will
almost always end up being wrong.
9) Financial budget. For some small projects, only a
total cost will have to be shown. Other projects will
need to have the cost broken down into several
categories. Labour, materials, travel, communications,
consultancies, administration and overheads are
several cost categories often required by funding
agencies.
Include what is needed, leave out the rest
The project proposal must be complete enough to meet
the requirements of the agency whose approval is being
sought, but remember that you will be expected to
implement the project in the fashion described in your
project document. The fewer details there are in that
document, the more flexibility you will have in carrying
out the project.
For example, if the funding agency does not require
the actual installation site to be listed in the project
document, do not list one. If you list a site in the
project document then later have to change the site,
the funding agency may have to approve the
modification, losing time and possibly causing problems
with other aspects of the project. Keep such details as
project site, material suppliers, time schedules, money
budgets and work assignments as general as possible yet
adequate for evaluation.
Who do you submit
the proposal to?
Although it is often obvious who should receive project
proposals, sometimes it is not. In particular, large aid
agencies and international agencies such as the United
Nations often maintain several types of office located in
different places. Each office may specialize in a
particular category of assistance. If you send your
proposal to the wrong office, it may ultimately be sent
Preparation and submission 93
of a proposal
to the right one, but it also may be returned to you with
a rejection letter. If you are not aware of the existence
of the other offices, you may assume, incorrectly,
that the rejection from one prevents you from obtaining
funding from the entire agency. In fact, the rejection
from one office of a multi-office agency may have no
impact on how you are treated at another office.
If you intend to submit proposals for approval,
you need to know the organization and structure of
the funding agencies so that you can make sure that
you submit to the right place. Talk to other people who
have had projects approved by the agency concerned and
find out how they submitted their proposal and what
path it took in the approval process.
Talk to several people in the funding agency
and obtain their advice on submissions and any special
problems that may arise in submitting proposals.
Use the correct format
Some organizations require very specific formats for
proposals, for example the Global Environment Facility
(GEF). Others have no special format but require
certain information to be included. Find out in advance
what kind of format is required and use that format.
If specific forms must accompany the proposal, first fill
out a copy and find out if the way you did so is what
was expected by the agency. Sometimes what is really
wanted on a submission form is not obvious from the
form itself.
Learn from successes and failures
When a project is approved, try to find out what was
particularly liked about the proposal and use that
information in preparing the next one. If a proposal is
rejected, do your best to find out why and do not make
the same mistakes again if the problem was within your
power to resolve.
In addition to learning from the results of your own
proposal submissions, learn from the experience of
others. Even submissions from other countries can help
you to find out what an agency likes and dislikes about
proposals.
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Technical design processes
Introduction
Technical design is primarily the sizing and determination
of component requirements for a project. When the
technical design is complete, it should be possible to
immediately specify the components needed and place
orders or request tender submissions for purchasing.
When is technical design done?
Prior to the technical design, estimates of materials
requirements must be made in order to prepare cost
estimates and operating budgets for the project proposal,
but the actual components needed for the project are
not usually specified until after the project is approved.
This is mainly because of the time and effort required
for detailed technical design and the fact that outside
assistance in the form of consultancies is often required.
If the technical design is completed before a project is
approved, there is always the chance that the concept
will be changed or the project will be rejected and the
design will have to be discarded and a new one prepared
at considerable additional cost.
In order to prepare the project budget, there must be
a preliminary design and a generalized component list
with approximate costs estimated. This preliminary design
is often nothing more than a copy of the design used in
a prior project. If the project management is experienced
and has carried out similar projects in the recent past,
these preliminary designs may require little change before
14 C H A P T E R 14
they can be used as the actual technical design. In other
situations, the preliminary designs bear little resemblance
to the final technical design.
In most projects, the actual technical design is done
after project approval and allocation of funds. Therefore
it is best that the preliminary design is realistic. If the
preliminary design is realistic and the funds allocated are
adequate, then the detailed technical design can be
carried forward based solely on the project requirements.
On the other hand, if the preliminary design was
inadequate, there may not be sufficient funds for the
full scope of the original project or corners may have to
be cut in the final design to lower the cost to an
acceptable level.
Who does the technical design?
Technical design may be wholly or partly done by the
sponsoring department staff. Often for types of project
that have not been done before, external consultants are
necessary.
External technical design assistance may come from
several sources. The most common are:
1) Aid agency consultants. It is not unusual for a
project funded by an aid agency to include design
services. Sometimes, the agency requires its
consultants to do the technical design. The quality and
appropriateness of these services varies widely.
Unfortunately the consultant may well be unfamiliar
with local conditions, have little understanding of the
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Project Development
needs of the community being electrified and be
unwilling or unable to work closely with the local
agency. The resulting design will show this lack of
understanding and sensitivity. Be very wary of such
arrangements and always seek an outside opinion
from a technical organization that you trust regarding
the appropriateness of a design produced under these
conditions.
2) Equipment manufacturers or sales organizations. As
the equipment manufacturer or sales organization
wants the equipment to work correctly, it is
reasonable to consult them about designs to ensure
that their equipment is capable of handling the
operating conditions. However, few manufacturers or
sales organizations maintain a real capability to assist
in designs. Usually, design assistance is provided
haphazardly by staff whose primary responsibility
is sales. They should not be relied upon for technical
designs without a review by a competent technical
organization. Also, vendors usually only recommend
the products they sell, which may severely limit the
choice and the quality of the resulting designs.
3) Private, external consultants. There are good and
bad consultants, as in any other profession, but in
general the private consultant is the most flexible and
most likely to provide a reasonable cost design that
meets the project needs. Also, the private consultant
is most likely to agree to directly involve local agency
staff in the design process. The private consultant is
also usually the most expensive option as far as
consultancy costs are concerned, though the
high-quality design provided by good private
consultants may result in a project with lower overall
costs. The main advantage of the private consultant
is that, during the contract period, the consultant
works for you and you alone. The other classes of
design consultants have you as a temporary boss and
another agency as a permanent boss. Their natural
reaction is to try to please both bosses but the
permanent boss (not you!) will win in any conflicts
that arise.
The private consultant depends on your good will
and satisfaction for future business and will usually
attempt to provide you with what you want in a
project technical design. If you know what you want,
this works well. If not, a poor design may result from
the consultant trying to meet design specifications
that are not well thought out or too vague.
4) Public, external consultants. Design consultants are
often available from the United Nations, international
banks, aid agencies and non-governmental
organizations. It is sometimes possible to use a
public consultant to create a design but this class of
consultant is best at reviewing someone else’s design.
Usually little or no cost is involved and, as should be
expected with any no-cost programme, scheduling may
be difficult and the quality of service variable.
Obtaining a timely response is often a problem,
though some agencies that specialize in energy
problems can often provide a design review of a
simple project in a matter of days.
5) Government employees of other departments and
local consultants. Local people working for other
government departments, electricity authorities or
private industry may have a better understanding of
the technical design problems for a rural electrification
project in your country than outside consultants. Even
if someone cannot be found locally who has the
specific technical knowledge necessary, a technical
design team should include at least one local technical
person who at the very least can help the external
consultants to understand conditions at the site and
the availability of labour and materials for
construction and maintenance.
Technical design cost
As a general rule of thumb, the technical design of a
major rural electrification project should not cost more
than about 10% of the hardware cost. Pilot projects
involving few installations or complex designs will have
technical design costs that are a much larger percentage
of total cost, sometimes exceeding the hardware costs,
but the expectation is that those designs will later be
repeated at several sites (assuming the pilot is successful
and the design is satisfactory) thereby sharing the cost
over many installations. For example, a pilot project to
install a two-panel solar-lighting installation on 20 rural
homes might cost US$20,000 for the equipment but the
technical design may cost more than US$10,000 if
outside assistance is necessary. If the pilot is successful
Chapter-14.qxd 11/8/03 11:24 AM Page 97
and a major rural electrification programme follows, there
will be several hundreds, if not thousands, of similar
two-panel systems installed so that the design cost can
be spread over so many future installations that the cost
per system meets or is better than the 10% cost
guideline.
Technical design criteria
No matter how good the designer, if the information
provided for the basis of the design is wrong
or inappropriate, the resulting design will also be
inappropriate.
It is the responsibility of the project manager to
ensure that the technical designer knows the technical
goals of the project and has all the information needed
to carry out the design task properly.
For rural electrification projects, some of the important
design information that the technical designer requires is
as follows:
1) Number of households that will be receiving
electricity. This should be broken down into classes
related to the appliances that households are
expected to use. For example, the designer must
know how many households are expected to have
refrigerators, how many will want to use videos, the
number of lights to be installed in different houses,
and any other appliances that will have a significant
effect on user loads.
2) Number and type of other anticipated users of
electricity. This includes stores, industries, government
offices, schools, dispensaries and all users that are not
domestic in nature.
3) Detailed map. The project map should not only show
the important topographical features of the project
Technical design processes 97
area but also the location of all sites that will be
receiving electricity, identifying the type of user at
each site.
4) Expected load for each user type. This is required
in peak watts per user and watt-hour usage per
month (or average energy use per day in the case
of solar).
5) Special requirements. This includes anything related
to the project that will require the designer to include
restrictions imposed from outside. Some possible
requirements are that the design must meet
installation standards set by an urban electricity
authority; the equipment may only be purchased from
certain vendors or country sources; the wiring must all
be underground; or solar panels must be mounted on
poles rather than on buildings.
6) Project financial budget. A major design restriction
is usually the amount of money available. The
designer must know how much money can be spent
on the system being designed if the result is to be
practical. Often this aspect of the design is the
hardest to meet.
The completed design
When the technical design is complete, it should include a
complete, detailed materials list divided into lists for each
individual system type and for the project as a whole.
Detailed specifications for the purchase of individual
components should be included. Recommendations for
specific brand and models of components should be
provided. Drawings showing the wiring and assembly of
each different system should be provided. Preparation of
a complete, detailed cost estimate should then be
possible with little additional effort.
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Why budget?
A budget is an outline of the predicted allocation of
resources over the life of a project. As the resources
used in a rural electrification project are primarily
personnel, time and money, there will almost always be
budgets for these items. Financial and personnel budgets
will include entries for the time when resources will have
to be made available.
There are several reasons for making budgets:
· To estimate the need for resources. To obtain
funding and to determine the capability of available
resources to carry out a project, the need must be
estimated. This budget begins with the project
concept and goals and develops the requirement
for funding and labour to make the project
possible.
· To permit efficient management of resources. A
budget allows management to predict what resources
will be needed and when. This allows advance
arrangements to be made to ensure that the
resources will in fact be available when needed.
· As part of ‘management by exception’. A powerful
management tool that should be used is that
of management by exception. This simply means that
top management decides in advance what acceptable
performance is and will allow subordinates to run the
project as long as that performance is achieved.
Budgets are the primary gauge of performance. As
long as everything is going as budgeted, lower levels
15
Budgeting
C H A P T E R 15
of management can make the decisions needed to
keep the project on track. However, if something goes
over budget, then higher levels of management are
called in for decision-making in order to get the
project back on to an acceptable path. For this
process to work well, budgets must be realistic and
should be prepared at the same level as will be used
for performance rating.
· As a focusing device. Making money and personnel
budgets requires a detailed visualization of the project
from start to finish. Problem areas and possibilities for
savings are often realized because attention has been
focused on details of the project through the process
of budgeting.
· As part of a project proposal. Budgets are usually
required by funding agencies. A time budget and a
money budget are almost always included in requests
for project funding. Additionally, personnel budgets
may be required for some projects.
What to budget
Any resource used in a project can be budgeted.
Examples are money, labour, time, equipment,
management resources, fuel and materials. Generally
(except in the case of time itself), the resource is
budgeted against time as well as quantity. When this
is done, it is immediately clear what, how many and
when resources are expected to be needed for
the project.
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Time budget
The time budget shows the start and stop times of project
stages. As some stages can be carried out simultaneously
(these are ‘parallel processes’ such as ordering equipment
and preparing sites) some of the stages overlap in the
budget. Other stages depend on the completion of prior
stages (these are ‘serial processes’ such as wiring
following the purchase of wire) and the beginning of one
stage must be budgeted to start after the completion of a
prior stage. In preparing time budgets, the goal is to be as
realistic as possible. A reasonable approach is to:
1) Divide the project into sub-projects that can each be
carried out as a unit. For example, ordering materials
can be considered a separate sub-project to doing
a technical design, even though one depends on
the other.
2) Create a computer spreadsheet with columns
corresponding to time. Short projects may use one
day per column, long ones months per column. Rows
should correspond to tasks.
3) Colour the cells for each task that correspond to the
time the task is carried out. For example, if orders are
to be placed 30 days into the project and deliveries
expected 60 days later, the columns corresponding to
days 30—90 on the row for the task of materials
delivery should be coloured.
4) Determine which sub-projects must follow others and
in what order. Decide how much time each stage takes
and lay out the tasks in the right order, allocating the
estimated number of days to each. If any of the tasks
cannot start prior to a certain date, make sure that the
budget shows them starting later than that date.
5) Determine which projects can be carried out
simultaneously and locate them on the timeline at
points where other resources are not limiting. An
example of a limiting resource might be labour. Suppose
a project is to install PV systems on the houses in two
villages. While it is possible to install the systems on
houses in two villages at the same time, there may not
be enough trained people to do so. Then the two
villages will have to be treated as serial projects (one
after the other) rather than parallel (occurring at the
same time). The difference between this and what was
done in item four is that either activity can be carried
out first, they do not have to be in any special order.
6) Check all sub-projects shown on the time budget to
make sure that there is no interference and that enough
resources will be available to carry out the projects as
budgeted. Make sure that everything is labelled and
clear to a reader not already familiar with the project.
The result is a budget of the time needed to do the
project in the most time-efficient manner.
Financial budget
A financial budget lists the financial requirements for
components of the project. For example, a simple
financial budget for a PV installation might allocate
money for materials purchases, shipping, installation
labour, administrative costs, training, testing of
completed systems, travel costs for technicians not living
locally and an amount for contingencies. Each one of
these categories in the budget would be a money amount
that has been estimated to be sufficient to provide the
materials or services listed in that category.
Money budgets may be developed top-down or
bottom-up. The top-down approach starts with the total
sum allocated to the project and the budget is developed
so that the sum of all the budgeted amounts equals
the allocation. The bottom-up approach starts with the
budgeted amounts for the various tasks in the project
and the project sum is the total of those component
amounts. It is reasonable to do a first draft of a budget
using the bottom-up method to see if the total amount is
greater than the amount allocated for the entire project.
This allows the project designer to first determine what
level of funding is really needed for the project. If that
amount significantly exceeds the amount available, then
it will be necessary to shrink the scope of the project,
redesign parts of it so that less cost is involved, or seek
additional funding.
Time/money budgets
A combined time and money budget that shows at a
glance how much and when money must be spent is very
useful. Making this budget is similar to making a time
budget. A reasonable approach is to:
1) Break the project into sub-projects that can be
considered as one class of expenditure. Note that the
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sub-projects considered here may be the same as, or
different to, the sub-projects that were created for
the time budget. It is often more convenient if they
are the same but this is not essential.
2) Create a timeline chart for the duration of the project
like the one created for the time budget.
3) Mark the times when money is expected to be
received and show the amounts.
4) List the sub-projects and note the amount of money
needed for each of them.
5) Mark the times when the sub-projects have been
budgeted to take place. This comes from the original
time budget.
6) Determine the money required for the sub-projects to
be carried out between receipts of money. If the
amount of money needed for the sub-projects during
a certain period exceeds the amount provided for
the same period, then the time budget will have to
be modified to fit or more money must be allocated
at points where there is a shortfall.
The end result is a reconciliation and display of the two
most important resources needed for a project: time and
money. The same process can be followed for budgeting
any resource such as labour or fuel.
Using budgets
in project management
Although a budget may be developed wholly for inclusion
in a project document and never used later, budgets are
very useful management tools. Time and money budgets
at least should be made for every project with the
intention of using them to help to manage the project.
When a project has been well designed and budgets
of the important aspects of the project have been
developed, managers of parts of the project can be given
considerable autonomy and the higher levels of the
project management not brought in unless the budgets
are in danger of being exceeded.
For example, say that the project manager of a major
rural electrification project works from an office in the
capital city. The construction phase of the project has
been carefully planned and detailed budgets of time,
time/money and money have been created for each
Budgeting 101
installation site. The site managers are responsible for
the installation. They are each briefed and given copies
of the budgets for their site. As long as they are able to
keep the project within the time and money allocated
in the budgets, only periodic reports of progress are
required. The project manager in the capital city can
spend time in other areas of work instead of closely
monitoring or even personally managing the field projects.
Should overruns in cost or time seem likely, the site
manager notifies the project manager in the city who will
then have to take action.
Of course, this system only works if the project as
designed and the budgets as constructed are realistic and
have a good chance of being carried out as intended.
If the project has unrealistic budgets or is poorly
designed, the project manager will be constantly on call
because budgets are rarely met. In that case, the direct
control of the project manager is necessary and the
budgets and project plan as prepared are essentially
useless for management.
Budget flexibility
The requirement to meet budgeted amounts in carrying
out a project ranges from absolutely crucial to totally
irrelevant. When there is no flexibility, it is usually because
the project has been constrained by outside forces that
cannot be controlled by the project manager. For example,
a project that must install an electrical generator in
time for a holiday festival has no flexibility in its time
budgeted for completion. If it is not ready for the festival
on the date of the holiday, it is a failed project.
A money budget may be inflexible in its totals but
flexible in its components. This is because the total
funding available is fixed, but the cost of different parts
of the project can be juggled so that different parts are
allocated different amounts, so long as the total does not
increase.
The fact that a project is far under budget for money
or way ahead of schedule on a time budget is just as
much reason for the manager to step in as are overruns.
While the reason may be very efficient field managers or
unrealistic budgets, it may also be that something has
been forgotten in the project and therefore less time and
money were needed than were budgeted.
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Specifying and
purchasing equipment
Direct purchase
For small lots of spare parts, replacement items and
commodity goods such as wire, bolts or terminal blocks,
simply contacting a supplier and making a direct purchase
is a reasonable practice. For replacement parts, there is
often no choice of vendor so a direct purchase is made
even for items of relatively large value.
In general it is good practice to obtain price and
delivery quotations from several vendors for the same
product. As the item is the same in all cases, the vendor
with the best terms should receive the order. Price alone,
however, should not be the determining factor. Often a
vendor will provide a lower price but cannot provide
the item in a reasonable time. Also, warranty service
varies between vendors and should be considered for
many items.
It is typical for purchase regulations to require three
or more quotations for an item and the lowest price must
be chosen. While on the surface this appears to be a
good system and should keep costs low, in fact there are
many opportunities for abuse. Product substitutions are
common, for example. In this case, the vendor gives a low
price for a specific item then, on receiving the order a
few weeks later, states that the item is now out of stock
and substitutes a lower-quality item. The purchaser
usually will not want to go through the process of
changing the vendor and goes ahead with the purchase
of the lower-quality item. In reality, the item originally
ordered may never have been in stock or may still
16 C H A P T E R 16
be in stock, the whole purpose on the part of the vendor
being to get the order by offering a low quote and
then switching to another item of lesser value at the
same price.
Abuses on the purchaser side of the system are also
common. For example, if a purchaser favours a particular
vendor, other quotations can easily be obtained and the
favoured vendor given these prices so that a slightly
lower price can be offered. Purchasers also soon learn
which vendors are consistently the most expensive so,
when another vendor is favoured, only quotations from
the favoured vendor and from the most expensive
vendors are sought, almost guaranteeing that the
favoured vendor will be chosen.
Advantages of direct purchase
When a particular manufacturer or model of equipment is
strongly preferred, direct purchase is the only sure way to
obtain exactly what is wanted. With a direct purchase, the
purchaser has complete control over what is purchased
and who supplies the item.
With a direct purchase, factors other than price can
sway the purchase decision. With solar equipment,
particularly controllers, low-voltage appliances and
batteries, the reliability of the component may be
far more important than the lowest possible price.
Particularly for installations that will be remotely located
where maintenance visits are very expensive, it often
makes sense to pay a substantial price premium for
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104 Solar Photovoltaic

Project Development

high-quality components to ensure long, trouble-free
life. As reliability and inbuilt quality are notoriously
difficult to specify in a competitive tender situation,
tender-based purchasing often forces the purchase of
lower-cost, lower-reliability components than would be
obtained through a knowledgeable direct purchase.
Disadvantages of direct purchase
The primary disadvantage of direct purchase is the lack
of price competitiveness. The lowest possible price will
rarely be obtained through direct purchase.
Direct purchase also offers a great opportunity for
dishonesty. Special vendor arrangements with
under-the-table payments to the purchaser, special
treatment of purchasers by vendors, and other violations
of the trust placed in the purchaser and the vendor, are
common.
A secondary disadvantage is that the quality of
the item obtained is often a direct reflection of the
knowledge and capability of the purchaser, because
the purchase decision is essentially a personal one. If the
purchaser is very knowledgeable and has the best
interests of the project in mind, the resulting purchase
will be optimal. If the purchaser depends on advertising
or the vendor’s recommendations to decide what item to
purchase, it is much more likely that a less than optimal
item will be selected.
Agency purchase
An agent is often engaged to purchase on behalf of the
project. This decision is made because:
· The equipment is not available locally and it is
difficult to make arrangements for international
purchase — usually due to shipping, customs clearance
or foreign exchange problems — from the project
country.
· The project staff do not have the technical knowledge
to make an informed selection of components so an
agent with specialist technical knowledge may be
chosen to select the appropriate components and
purchase on behalf of the project.
· There is a pre-existing arrangement with an external
agent by the government purchasing department and
the agent is used for all foreign purchases of a
particular type that happen to include the items
sought by the project.
One common arrangement, not usually considered as an
agency purchase but effectively the same thing, is to ask
a dealer in solar equipment to provide specific items
that are not normally part of the vendor’s catalogue of
available products. The dealer then purchases the item
from another dealer or manufacturer and charges the
purchaser slightly higher than cost price, effectively
adding an agency fee for that service.
Advantages of purchasing
through an agent
The greatest advantage of dealing through an agent is
convenience, particularly with foreign purchases. When a
number of different items are needed from different
external suppliers, to arrange for their purchase is
complicated, time-consuming and expensive. An agent in
the other country can make the arrangements for
purchase quickly and simply, combine the purchases into
one shipment and take care of all the complexities of
export licences, shipping and customs clearance.
When the agent has superior technical knowledge
about the products being purchased, it is an advantage
to use that knowledge to ensure the purchase of the
best components for the project. Some caution must be
used, however, as agents are not paid on the basis of
providing the best components, but rather on the basis
of the cost of the components. So, rather than select
what is best for the project, an unscrupulous agent may
obtain a particularly expensive component in order to
maximize the agent’s fee.
In general, agency arrangements are based on
a great deal of trust. Once an agent has proved to be
trustworthy and competent, the value to the foreign
purchaser can be much greater than the fee charged for
the service. Often the fee charged by the agent will be
less than the external communications would have cost to
place orders with many different foreign vendors.
Disadvantages of purchasing
through an agent
Agents charge fees. The fees are usually based on the
type of materials being purchased, the complexity of the
Chapter-16.qxd 11/8/03 11:26 AM Page 105
order and the amount of money involved. The purchase
of large quantities of trade goods such as wire may incur
an agency fee of less than 5%, while the purchase of a
single dc/ac converter may result in a 20% agency fee.
The purchaser is also very much at the mercy of the
agent in negotiating prices with vendors. The agent does
not have much incentive to seek the lowest price as the
agency fee is usually an add-on percentage of that price.
Unless you are willing to do the price negotiations
yourself (in which case you would probably be better off
doing the purchasing too) you must depend on the
agent. Most agents are well aware that their long-term
success depends on customer satisfaction with both
service and price and generally attempt to get reasonable
prices from vendors. Rarely will they get the best
price, however.
While a good, trusted purchasing agent is valuable
and worth much more than the fee charged, a dishonest
or incompetent agent can be a disaster. When choosing
agents for long-term use, make sure that you fully
investigate their capabilities in purchasing the type of
materials you want and their reputation for honesty and
competence.
Competitive tendering
While direct purchase and agent purchase arrangements
have a number of advantages for small quantity
purchases, when larger quantities of goods and money
are involved, competitive purchase arrangements, often
called tendering or bidding, are generally used.
The process of purchasing through tenders consists of
six distinct steps:
1) determination of what is to be purchased and when
it is needed
2) writing technical and procedural specifications
3) distribution of tenders
4) tender evaluation
5) selection of vendor and purchasing
6) receiving test and acceptance.
The process of tendering can be expensive, so for
low-value purchasing the lower prices that can be
obtained through tendering may not save enough to
cover the cost of the tender process. Most government
purchase regulations allow direct purchase for values
Specifying and 105
purchasing equipment
lower than a specified amount and require tendering for
purchases above that amount.
Restricted tender
A tender that is open only to certain vendors is called a
restricted tender. In the most common type of restricted
tender, only vendors from a pre-approved list are allowed
to submit prices and no other tenders will be accepted.
This type of tender is often used to supply spare
parts or to add on to a previous lot of goods purchased
under tender. The organizations that supplied the earlier
lot or the equipment that requires spare parts may be
requested to tender for additional equipment or spare
parts. In some situations, the purchasing agency
maintains a list of ‘qualified’ vendors and only
vendors on that list may submit tenders for goods.
Advantages of restricted tender
The primary advantage is speed and ease of
administration. There is no need to advertise for
respondents, the tender is automatically sent to the list
of selected vendors. The number of vendors is controlled
so there is no chance of receiving a very large number of
tenders to evaluate, as can happen with open tenders.
By restricting the tender to those companies known to
supply the required items, the responses are comparable
and easier to evaluate. Additionally, you are reasonably
assured that you will in fact receive qualified tenders
from companies providing the required goods. With an
open tender, this may not be the case.
Companies known to be reliable and to provide
adequate after-sales service can be selected and
companies that may provide very low prices but are
unreliable may be left off the list.
Disadvantages of restricted tender
The restricted tender process is more open to manipulation
because it is not truly competitive. The person who selects
the companies who will be allowed to tender wields a
considerable amount of power and is subject to many
temptations to abuse that power to personal advantage.
Restricted tenders also do not usually provide the best
prices. In particular, if a long-term ‘qualified company’ list
is used over and over, the tendency is for the companies
to become less and less competitive over time.
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106 Solar Photovoltaic
Project Development
Companies not on the tender list may complain
bitterly, often applying considerable political pressure on
the purchasing organization. For this reason, politically
sensitive organizations tend to avoid the use of restricted
tenders.
Open tender
This is open to any company wishing to submit a
response. In fact it is often a form of restricted tender
because there are geographical restrictions. For example,
bilateral aid projects often only allow the use of
equipment made in the donor country. However, any firm
within the stated geographical area may submit and be
considered. This form of tender is usually the most formal
and tightly structured. It is usually the form used for
high-value purchases.
Advantages of open tender
The process is generally considered the least likely to be
manipulated for personal gain. While there are abuses, if
administered correctly the open tender is the most likely
of the several purchasing methods to obtain a truly
competitive price.
Disadvantages of open tender
It is a costly, slow process. It is not uncommon for the
time between commencement of the tender process and
the actual selection of vendors to be six months or more.
It is costly for the tendering companies too. The strict
structure of the open tender must be followed exactly
or the tender will be thrown out during the initial stages
of qualification. Usually there are many requirements
for details about the product, the company and even
company personnel that must be included in a very
specific format. The conditions of the tender are usually
complex and difficult to understand, often requiring a
specialist or lawyer to interpret. For this reason, small
companies are much less likely to submit a response than
large companies with staff well experienced in the
complexities of open tenders. This can be a problem with
solar projects because the industry is not large and many
of the companies supplying quality products are still
small. Therefore, the tender responses may not include
equipment that would best fit the needs of the project.
The quality of the product finally selected is directly
related to the quality of the specifications. As price
is always a major issue in an open tender, if the
specifications are not written correctly, a low-cost,
low-reliability component may be approved for purchase.
One of the most common problems with solar projects is
that an inadequate set of tender specifications may result
in low-cost but also low-reliability equipment being
purchased.
Successful tendering
In general, a tender can be considered a success if the
equipment ultimately supplied does the required job
properly at an acceptable cost.
The technical specifications generally determine the
quality and appropriateness of the equipment purchased
therefore preparation is very important.
The cost of the supplied materials in relation to the
amount budgeted for them will generally be determined
by the experience and capability of those doing the cost
estimates for the budget and those administering the
tender process. The cost of materials supplied by tender is
often much greater than the project budget yet the prices
quoted are competitive within the market place. This is not
a fault of the tender process, rather it reflects on the
quality of the cost estimate used to develop the purchase
budget. One relatively common reason for this is the fact
that many larger projects, particularly within government,
have cost estimates prepared many years before the actual
project is implemented. Worse, these budgets may also be
based on costs incurred in an even earlier project. When
the tender is finally prepared, the cost figures are not
brought up to date and the budget is much too low to
allow purchase of the materials in the quantity specified.
The tender process
Determining what is to be purchased
under tender
For most projects, specific rules have been set by the
government or the project financing agency that
determine what must be purchased under tender and
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what can be purchased without tender. When this is not
the case, you should consider tendering for:
· high-cost speciality items. As these usually have
relatively high profit margins, significant reductions in
price can sometimes be obtained through competitive
tender.
· unusually large quantities.
· When you have not purchased the item
competitively for more than a year. If you do not
know the competitive market price for an item, you
cannot know what price you should be paying.
Competitive tenders provide an arena for competition
in which true market prices may be found.
· When miscellaneous items are to be purchased as
a group rather than individually. For example, if you
wish to have suppliers provide a complete PV lighting
system, you will want them to assemble all the
components and state a price for a package, not the
individual components. By tendering, you have better
control over the specifications of the individual
components and can take advantage of some vendors’
ability to supply many components and give a better
overall price.
You should consider not tendering for items when:
· the items are peripheral to the project and represent
a small part of the overall cost. For example, hand
tools will probably be better purchased separately than
as a part of a project tender. Generally the respondents
to the tender will be specialists in supplying the main
project items and will provide a competitive price but for
peripheral items not within that speciality, they will
simply purchase the equipment from other vendors and
increase the price to cover their costs plus their profit.
You can thus purchase at about the same price as the
supplier and can save much of the add-on cost.
· the items are commodities. A commodity is basically
a standardized product produced and marketed in
such large quantities by many manufacturers that the
market is already highly competitive. Wire and wall
switches are two such commodity items. Indeed, such
items often end up costing more when priced by
tender than by quotation because the vendor has to
prepare a complicated tender response.
· you want to purchase very specific items because
of their long field experience or the availability of
Specifying and 107
purchasing equipment
local service. The risk of tendering for such items is
that you may receive an offer that fully meets the
specifications at a lower cost but which is for an item
known to be inferior. While it is possible to write
tender specifications that exclude most unwanted
items, you may have to accept an unwanted item
simply because it does in fact meet the specifications
and has a lower price.
Writing technical specifications
For rural electrification projects, writing technical
specifications is the most critical step and the one where
most problems originate. To obtain products that are
satisfactory for your application you should follow these
guidelines:
· Write specifications around equipment that has
been proven in the field. Once you find a piece of
equipment that works reliably under your field
conditions, write detailed specifications around that
piece of equipment. Choose very specific details about
that equipment that are not common to other,
less-acceptable equipment.
· If you are tendering for an item that has no field
experience in the conditions of the project site,
seek assistance from those who do have field
experience under those conditions. Never base
tender specifications on manufacturer’s brochures or
advertisements. If you want to know how the unit
works in the field, you must have access to actual
field experience.
· Clearly state the environmental conditions that
will be found at the project site. Equipment
intended to be mounted inside a Western-style frame
or masonry house may have serious problems if placed
in a local-style house with open walls or walls made
from woven bamboo or other materials that sun, dust
and rain can penetrate. Temperatures are especially
critical with electronic items. The presence of salt
spray, dust and very high average humidity can
severely stress mechanical equipment and must be
noted in the specifications.
· Use other tenders as models. If items of the type you
wish to purchase have been received before in response
to a tender, use those tender specifications as the basis
for your tender. But do not blindly copy other tenders,
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108 Solar Photovoltaic
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especially if you do not know how successful the tender
was in obtaining the appropriate components.
· Seek external, expert advice. If you are not familiar
with writing tender specifications for the items being
purchased, consider obtaining expert assistance. As
the expert can do the assistance without travel, the
cost need not be high. In a major project the possible
cost of having to use inadequate equipment can be
very high and even fees amounting to several percent
of the tender value can often be justified. At the very
least, send the technical specifications to someone
with experience and ask for comments.
· Use manufacturer tender specification sheets. If
you have a particular manufacturer’s product in mind
that you specifically wish to purchase, ask the
manufacturer to send you a tender specification sheet
for that product. Many manufacturers prepare
technical specification sheets for tendering that are
generally written in a manner intended to almost
guarantee the purchase of their product.
When there is no specific manufacturer’s product that
you wish to purchase, you must write the tender
technical specifications with enough detail to guarantee
a satisfactory product, without adding so much detail
that no manufacturer can meet the specifications. A
common mistake is to add specifications that are not
really necessary but you believe would be useful. For
example, in a PV charge controller specification you
might add the requirement for an indicator light to
show when the battery is fully charged. If that light is
not very important to the functioning of the controller
in your application, do not include it in the tender
specification because an excellent controller that does
not include an indicator light will not then meet the
specification. Specify only those characteristics you
must have for the item to function correctly in your
application.
Adding general and special conditions
General conditions typically apply to all tenders. Most
offices that prepare many tenders will have created a set
of general conditions that are included with all tenders.
These conditions will include such things as payment
terms, warranty terms, shipping procedures, liability
information and legal jurisdiction for disputes.
Shipping should usually be for CIF (Cost, Insurance and
Freight — the sum of the cost of the item, freight to your
port of entry, offloading on to the dock and shipping
insurance). It is common for suppliers to quote FOB (Free
On Board) their factory (FOB does not include shipping,
offloading or insurance) or FOB your port (does not
include insurance or offloading but does include shipping)
that can make comparison of responses difficult. Tenders
may even specify door-to-door shipping where every cost
incurred between the factory and your receiving point
is included. Use caution with specifying door-to-door
shipping, however. It may be very difficult for the foreign
respondent to find out the real cost of delivery from the
dock to your site and the shipping cost may be inflated
to cover that uncertainty.
Special conditions that apply just to the tender at
hand must be written to cover details such as the
tendering address and acceptable method of delivery of
tenders, number of copies of tenders required, shipment
address for delivery of goods and other terms and
conditions that are not in the general conditions.
Also in the special conditions there often must be a
section that modifies or supersedes some of the general
conditions that do not exactly apply to the tender at
hand. For example, the general conditions may state that
full payment will be made for materials within 45 days
after receipt. For this tender, suppose you wish to pay
90% upon receipt and withhold 10% until the warranty
expires, then you must include in the special conditions
a section that cancels that part of the general conditions
relating to payments and add the new conditions.
Adding schedules and response
format sheets
An important part of the evaluation process is the
inclusion of forms for the tender response that organize
the information in a way that simplifies comparisons
between respondents. Without a standardized format,
every respondent will provide the required information in
a different way and it can be time-consuming to
assemble the information for easy comparison.
In comparing technical specifications, it is particularly
useful to provide a sheet for each component of
the technical specification, requiring the respondent
to specifically state for each important aspect of the
Chapter-16.qxd 11/8/03 11:26 AM Page 109
specification the characteristics of the proposed product.
This ensures that the respondent clearly states whether
or not the product is claimed to meet the individual
specifications, ensures that no important specifications
will be overlooked either by the respondent or in the
evaluation, and puts the information in a comparable
format.
Setting a date for tender receipt
The amount of time needed between announcing the
availability of the tender and the cut-off time for receipt
of responses depends on the complexity of the tender,
whether it is a restricted or an open tender and
the needs of the project.
The time needed is a combination of the time
necessary for the prospective respondents to learn of the
tender, the time needed to prepare the response and
the time needed to deliver the response.
· Time necessary for respondents to learn of the
availability of the tender. For a restricted tender
where the respondents are automatically provided
with the tender document, about two weeks should be
allowed for the tender to arrive at their place of
business. For open international tenders, an additional
four weeks are needed for respondents to learn of
the tender through advertisement and word of mouth
then request that a copy be sent.
· Time necessary for response preparation. This varies
according to the item being sought and the complexity
of the tender. If the respondent is expected to provide
one or two simple items, two weeks may be sufficient.
If the respondent must assemble a number of items
into a combined package, several months may be
necessary. Typically, at least one month should be
allowed for response preparation.
· Time necessary for response delivery. Unless your
location is unusually poorly served by air transport,
two weeks is generally sufficient for even
international open tender responses.
Advising of availability of tender
A requirement for successful tendering is that the tender
documents are sent to a wide range of probable
respondents. It is rarely useful to simply advertise a tender
Specifying and 109
purchasing equipment
in one or two periodicals, though that may be the
minimum legal requirement. No publications serve a wide
enough geographical range of solar suppliers to make such
an advertisement likely to bring in the wide range of
respondents desired. Solar suppliers are often relatively
small businesses and have neither the time nor the
money to subscribe to and carefully examine the many
publications in which international tenders are listed.
For tender distribution to be successful, the tendering
agency must actively seek out companies that supply the
required products and encourage them to respond. As it is
not a trivial task to locate manufacturers and suppliers of
equipment, assistance should be sought from embassies,
trade associations, aid agencies, United Nations offices
and others involved in purchasing similar equipment
internationally.
Providing clarification and amendments
as required
It is not unusual that some sections of a tender are
either completely wrong or are so difficult to understand
that many requests for clarification are received. If the
tender is essentially correct and a response should be
possible, then a direct clarification to the enquiring
party may suffice. If there is an error or if important
information needed to respond properly has been left
out, it may be necessary to issue an amendment to the
tender. This has to be advertised in the same manner as
the original tender plus those firms that have requested
clarification must be sent the amendment directly. Usually
an amendment also changes the date of the required
tender receipt by several weeks as the notification
process takes extra time.
Evaluating tenders
Once tenders are received they must be evaluated. There
are four separate steps in the evaluation process:
1) Procedural evaluation. Did the respondents do what
they were meant to do? Did they submit the tenders
on time, are all the required papers included, is the
required form followed? Note any errors that could
disqualify a respondent.
2) Technical evaluation. Do the items proposed in
the tender meet the specifications? Are there any
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110 Solar Photovoltaic
Project Development
technical details missing or details that need
clarification? What are the technical problem areas
and how serious are they? How do each respondent’s
proposals for equipment compare with the others?
Note all specifications that are not met or that require
additional information from the vendor.
3) Price evaluation. Do the prices quoted include
everything asked for in the tender? That is, were such
things as freight and insurance meant to be in the
price quotation and if so, are they? Are all the prices
in the proper currency and presented with the proper
conditions? If not, they should be converted to the
correct format. How do the prices of the different
tenders compare? Note any prices that are incomplete
or whose form does not fit the requirements of
the tender.
4) Overall evaluation. Taking the technical and
the price evaluation together, which of the tenders
provides the best value? By definition, the lowest
priced response that meets all specifications is the
best value. If no one meets all specifications (true
about 90% of the time for technical tenders) then
the combination of price and the importance of
the specifications that are not met must be weighed
to find the best value. The same is then done to
determine which is next best, and so on.
Who does the evaluation?
Procedural evaluations can be performed by anyone
who can follow instructions and is careful about details.
All that is required is an understanding of the exact
requirements of the tender and the ability to check to see
if the respondents have carried out those requirements.
The answer is usually yes or no and little judgement is
required. The person who wrote the tender documents is
ideal for this task because, if anyone knows what
procedures should have been followed, the preparer will.
Technical evaluations are more complex. Sometimes a
clear yes or no decision can be made without much
thought but often a good understanding of the
technology and experience in judging what is and what is
not important comes into play. For a proper technical
evaluation, you need one or more technically competent
people with experience of projects of the type
being tendered.
International tenders in particular can be difficult
because of foreign languages, terminology different from
that used locally and units from a different system of
measurement to that used in the specifications.
For small purchases one person may have to do the
complete evaluation, so the person who wrote the tender
documents is often the best choice. But if the technical
evaluation is at all complex or if there are difficult choices
to make, it is important to obtain outside assistance. After
all, the quality of the project can only be as good as the
quality of the components and making the wrong choice
at the tender evaluation can condemn a project to failure.
Obtaining evaluation assistance
For large purchases, the best approach is to hire a
specialist and funding is often set aside for that purpose.
For smaller purchases, the need for outside assistance
may be just as great but funding is not available. In that
case, there are several possibilities:
1) An expert from another branch of government.
There may be someone in another department that
has the experience and skills to assist. A competent
person will require very little time to evaluate a small
set of tender responses and this can often be fitted in
as an interdepartmental favour.
2) An expert from an international agency or
institution. The United Nations, the regional
government associations, the European Union, the
Commonwealth Scientific and Industrial Research
Organization (CSIRO) and many other such
organizations may be able to assist either by
providing a staff expert to assist in the evaluation or
by putting you in contact with another organization.
For small jobs of this type, the task will usually be
done without fee, particularly if the organization is
approached politely and asked to assist only in the
part of the evaluation that cannot be properly done
by local staff.
3) An expert from a university. It is more difficult to
obtain free evaluation services from universities as
they usually have budget problems themselves, but it
does no harm to try. When fees are charged, they
may be moderate enough to be acceptable.
Do not, however, make the mistake of taking advantage
of these ‘free’ services when they are not genuinely
Chapter-16.qxd 11/8/03 11:26 AM Page 111
needed. If you get the reputation of continually farming
out your work to others, you will soon get refusals
instead of assistance. Seek assistance only for those
knotty problems that you cannot solve at home and put
them into the simplest possible form first.
Making the final selection
If the best value response also offers the lowest price,
there should be no problem in selecting that vendor. If it
is not the lowest price, and the tender regulations you
have to use do not allow you to choose any but the
lowest-price vendor of the qualified respondent list, then
you must see if you can disqualify the lower-priced but
lower-value respondents.
It has been the experience of those doing tender
evaluations for technical product purchases that, strictly
speaking, about 90% of all tender responses could
be disqualified on the basis of procedural errors or
the fact that the products offered do not exactly meet
specifications. It is far harder to qualify most vendors
than it is to disqualify them.
If you wrote the specifications correctly, then the
response judged the best value should have no
lower-priced competition in the tender responses that
meet your specifications. If no respondent meets all the
specifications and the technical evaluator gives a
best-value response that is not the lowest price, then you
must convince the agency that oversees the award of
tenders that your choice is sufficiently better technically
than the lower-priced offers to justify the additional cost.
If the agency cannot be convinced, as is often the case,
you have the option of retendering or of accepting the
lowest-price response. This decision is wholly dependent
on the situation and the reasons for not wanting the
Specifying and 111
purchasing equipment
lower-priced equipment. If you are tightly constrained
by time, the extra few months necessary to retender may
not be worth a small improvement in the quality of the
purchased goods. If the lowest-priced equipment is so
bad that your project will suffer as a result, it may be
better to start again with better specifications than to
proceed with inferior equipment.
In most tender evaluations, tenders that provide
favourable terms to the buyer are rarely disqualified,
even for fairly flagrant violations of the procedural terms
and sometimes of technical specifications as well. On the
other hand, tenders are often disqualified on minor
points when they offer poor-quality goods, even though
the price is very good. These practices are generally
ignored where the expenditure involved is not too great.
Large-value tenders are usually handled with greater
rigour because of the likelihood of close scrutiny by
respondents that are not selected. There must be very
solid grounds for having selected one respondent who did
not meet all the tender requirements rather than many
other respondents who also did not meet all the tender
requirements but did offer a lower price.
Good tender evaluations follow
good tender specifications
Most of the problems of tender evaluation and justification
of vendors offering the right equipment can be avoided if
tender specifications are well written. Where high-quality
evaluations with clear choices between acceptable and
unacceptable vendors is necessary, as when large
purchases are involved, hiring specialists to assist in the
writing of the tender documents may save a great deal in
the evaluation process and may avoid having to purchase
goods of inferior quality simply because of their low price.
chapter-17.qxd 11/8/03 11:27 AM Page 113
Keeping a PV project operating
What is maintenance?
The term ‘maintenance’ is often used to describe what is
in fact ‘repair’ — fixing something that has failed. For our
purposes, maintenance is used in the much broader sense
of keeping a system working at its optimum. Maintenance
includes repair but it also includes regular checks to
make sure that all the components of a rural electricity
system are working the way they are intended to. It includes
the regular replacement of materials that are consumed
in the operation of the system, such as battery water with
PV systems or engine oil with diesels. Most failures of PV
systems are not abrupt, dramatic failures but are the result
of a long series of minor problems. If these problems are
resolved instead of being allowed to accumulate, failures
are much less likely and component life much longer.
Periodic checking to ensure that minor problems are taken
care of before they become major problems is preventive
maintenance. Solar PV is a technology that benefits greatly
from preventive maintenance.
Records
One of the most important but least observed maintenance
tasks is adequate record keeping. It is much easier to
diagnose problems, obtain the right parts and make
satisfactory repairs when the following are available:
1) Component list. A complete record of the
manufacturer, model and serial number of all parts
installed at the site.
17 C H A P T E R 17
2) As-built plan. This is an accurate plan of the
installation as the system was actually built. It is not
the same as the plan prepared before the installation.
The actual installation will normally differ in some
respects from the original design and these changes
must be part of the plan kept for maintenance
purposes.
3) Installation test records. To be able to tell when a
system is not performing correctly, it is first necessary
to know how it performs when it is working correctly.
At the time of installation, tests should be carried out
on all the components and their results recorded. These
tests not only prove that the components are working
to specifications, they also provide a benchmark for
later tests when problems are encountered.
4) Maintenance log. At the very least, a book with the
date of each maintenance visit, the name of the
technician, and a brief description of the scope of the
maintenance and of anything unusual that was
observed.
5) ‘Readings’ log. Where part of the maintenance
procedure includes reading voltages, temperatures or
any other meters, these should be written in a log to
indicate whether a slow but progressive change in
the readings is occurring. With PV systems, if battery
hydrometer and voltage readings are logged at each
visit, it is easy to see if problems with the battery are
developing.
6) Repair and change records. If components are
replaced or changed, whether because of failure or in
order to modify the system, the manufacturer, model
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114 Solar Photovoltaic
Project Development
and serial number of each new component should
be added to the component list. Any components
that have been replaced should be crossed off the
component list. Any changes to the as-built plan
should be made if it is affected by the repair or
modification.
These records should be kept together in a water-resistant
package at the installation site as well as keeping an office
copy. Copies of the component list and the as-built plan
should be kept in a file at the maintenance organization
offices and updated when changes are made to the
installation.
Preventive maintenance
for solar electricity systems
It is always better to stop a boat from leaking by regular
care instead of waiting until it sinks before fixing it. With
a rural electricity system, it is much better to regularly
check everything and to resolve small problems before
they become major ones.
Because preventive maintenance of solar electricity
systems is so simple and so little seems to be done
at each visit, it may seem unimportant. It is not
unimportant. Small problems, like minor cracks in a boat
hull, soon become major problems if not resolved. By
carrying out regular maintenance, major repairs are less
likely to be needed.
How often maintenance visits must be made depends
on the type of equipment installed and the way it is used.
For new photovoltaic projects, there is not usually much
point in scheduling maintenance visits more frequently
than once a month, but neither should more than about
two months pass without a regular check. After a few
years, the maintenance schedule can be adjusted. If little
maintenance is required for about three months at a time,
then a three-monthly schedule could be implemented. If
problems frequently occur between maintenance visits,
then a more frequent schedule is indicated.
Maintenance functions
The goal of preventive maintenance is to prevent
situations from arising that will result in component
failure.
Detecting problems early
As preventive maintenance is intended to resolve small
problems before they threaten the overall operation of
the system, it is first necessary to recognize that problems
exist. This requires a thorough understanding of how the
system should work. Maintenance technicians should be
very familiar with the signs that the system being
maintained is working properly. They should know how to
test the components for correct operation and know
which test values show good components, which indicate
marginal components and which indicate problems.
As a technician only comes into contact with the
system once every month or two, it is essential to discuss
with the people using the system every day how it has
been working. The user of the PV system is most familiar
with how well it works. Just as when you are becoming ill
you notice changes in the way your body works, when a
PV system is beginning to have problems the user will
notice changes in the way it works. When the user starts
to notice changes in the way the system works, it is
time to do an exceptionally careful check. Even if no fault
is found, the technician should always write down what
changes the user has noticed so that if a problem does
develop there will be a record of how it started.
Changes in the way the system works, or in the
behaviour of the components, indicate a potential
problem. If the electrolyte level in the battery begins to
fall at a more rapid rate than before, the maintenance
technician should carefully check the controller, the
battery and the system usage to see if there is really a
problem or if the battery is simply ageing. The ability to
identify changing conditions is important to preventive
maintenance and is the point of good record keeping. No
technician who has to maintain dozens of systems can
remember the hydrometer readings of each cell in a
battery. If the hydrometer readings are changing in a
pattern that indicates problems, without prior records the
technician will not see that pattern or realize that a
problem exists until it has become so serious that it
probably cannot be cured without battery replacement.
Preventing problems
By inspecting all parts of the system during maintenance
visits, potential problem areas can be found. In addition,
the simple but important task of keeping all operating
chapter-17.qxd 11/8/03 11:27 AM Page 115
components clean and connections tight should be part
of every maintenance visit. The quality of connections
and size of wiring in low-voltage systems are much more
important than in ac mains power systems. A battery
connection that looks correct but in fact has internal
corrosion or is loose can dramatically reduce the amount
of power that is stored from the panels or delivered to
the appliances.
Unauthorized modifications can cause serious
problems. Adding appliances, changing wires or relocating
wires almost always creates problems with system
reliability. Users should be allowed to have a system that
fits their requirements, but modifications must be made
by someone who understands the effect of those
modifications on the system and can take steps to ensure
that no component is damaged as a result.
Maintenance technicians should know how to detect
consistent excessive consumption of energy by the
user and discuss with the user how to either reduce
consumption to an acceptable level or increase the
capacity of the system to meet the higher load. If
excessive use is suspected, the technician should check
the charge level of the battery late in the afternoon
after a series of sunny days. If it is not at full charge,
consumption probably exceeds the design value and will
have to be reduced, or panel capacity increased, for the
unit to continue to produce electricity reliably.
Repairs
Repairs should always be carried out using the correct
replacement components. One of the most serious
problems with user maintenance is a strong tendency to
replace components with units that cannot provide the
level of service needed, often because the appropriate
parts are simply not available in rural areas. The
spare-parts system implemented under the project must
make these components available for repairs.
Checklist of maintenance activities
1) The user is questioned about the operation of the
system to see if there are any problems. The user
of the PV system is most familiar with how well it
works. When changes in system operation are noticed
by the user, it is time for an exceptionally careful
check of the system.
Keeping a PV project operating 115
2) Every part of the solar PV system is checked
for correct operation, cleanliness and good
connections. There are few parts in a PV system, but
problems with any part will cause the entire system to
work poorly. In particular, problems with wiring, panels
or the controller can damage the battery and greatly
shorten its life. Dirt and corrosion always cause
problems with electrical equipment. Loose or corroded
connections will cause problems. Every part should be
checked at every maintenance visit.
3) Components that are not in good condition are
repaired or replaced. If a component is not working
correctly, if it is not immediately repaired or replaced
with a good unit, the system will not work well and
other components, particularly the expensive battery,
may be damaged.
4) The system is checked to make sure that no
unauthorized changes have been made. It is
common for a user to add more appliances to a solar
PV system. Because the system has been carefully
designed around the original set of appliances,
adding any new appliances will cause problems and
shorten the battery life. If more appliances are
required, sufficient additional panels and a large
enough battery must be installed at the same time
as the new appliances otherwise the system will
soon fail.
5) A record is made of any action taken during the
maintenance visit. Problems with PV systems often
develop slowly. If careful records are kept, it will be
much easier to see what repairs are required when
the system finally does break down. Also, a record
of maintenance activities will point out particular
components that are not working properly and the
manufacturers can be contacted for improved
models.
Summary
Preventing failure of a PV system is usually more
cost-effective than repairing a failed system. Good
preventive maintenance can dramatically increase the life
of the battery and keep user satisfaction at a high level.
Spare parts should be of comparable quality and
specification to the original components otherwise the
system will not meet the performance level it was
designed for.
Chapter-18.qxd 11/8/03 11:29 AM Page 117
Spare parts systems
Spare parts requirements
When a project is first made operational, though there
will certainly be a need for spare parts for repairs, what
parts will be needed or when those needs will arise may
not be easy to predict.
If too large a stock of parts is initially provided, the
extra cost of purchasing and storing the parts will not be
a good use of the project funds. Also, spare parts that
remain in storage for a long time before use are often
corroded, damaged or lost. Also, there is always the
possibility that someone in a fit of cleaning will throw out
all those ‘old bits and pieces’ that have been lying around
for so long.
If too small a stock of parts is provided, frequent
purchase orders will have to be placed to obtain parts for
what should be routine repairs. This can be costly both
in the time and the money needed to expedite shipment
of the parts.
The goal of spare parts management should be to
have enough parts on hand so that a high percentage of
all repair requirements can be met from that stock but
only a low percentage of the spare parts sit on the shelf
for a long time. Reasonable goals for rural electrification
projects are for at least 90% of all parts needed for
repairs to come from spare parts and less than 10% of
the spare parts to stay in stock for longer than three
years. Certainly, these goals are flexible and must be
adjusted for special circumstances. For example, parts
that are particularly difficult to obtain quickly but are
18 C H A P T E R 18
essential for the operation of the project should probably
be stocked, even though they may sit on the shelf longer
than three years. If there is a well-stocked dealer in the
country that can be depended on for a quick response to
spare part needs, it may not be necessary to maintain a
diverse enough stock to meet 90% of repair needs.
New project parts estimate — using
estimated failure rates
As the need for parts is directly related to the rate of
failure of the parts when in use, the first step in
estimating the number of parts to be kept in stock is
to estimate the life of those components in service.
Suppose a controller used in PV systems is estimated
by the manufacturer to have a life of 10 years without
replacement. The project using the controller is new and
you do not have any field experience with the controller.
There are 100 controllers installed in the project. Assume
further that it takes three months to obtain replacement
parts from the supplier. How many controllers should be
in the parts inventory?
A simplified approach is to assume that all the
controllers will fail sometime in the first 10 years and that
the failures are distributed evenly over that period. This
means that with 100 controllers installed, 10 are estimated
to fail each year. As the lead time for obtaining controllers
is three months, the minimum number would be the
number of controllers estimated to fail in a three-month
period: 2½. Therefore three controllers would be required.
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118 Solar Photovoltaic
Project Development
This simple system of estimating may be useful for
some types of parts but the assumption that the failures
will be evenly distributed over the average life of the
components is usually not valid.
Typically, there will be an early flurry of component
failures as those that work initially but have some
weakness will fail. Then there will be a period with few
failures up to the time when the age of the components is
about 70% of their average life. When the age of the
components begins to approach their average life, failures
will begin to increase, with most of them failing around
the average life mark. After that the number of failures
will gradually fall until all units have been replaced.
Hence it is wise to have a larger stock of parts initially
available than the quantity predicted by the simplified
method in order to cover the expected flurry of early
failures. A suggested initial parts inventory is about
double that indicated by the simplified analysis. For the
controller example, at first five or six would be stocked
instead of just three.
For a project that is old enough for there to have
been three or four replacements of the component in
question, there will be a much more even distribution of
failures because the average age of the components will
not all be the same, as it was when the project began.
This means that as the project ages and parts have gone
through several replacement cycles, the simplified method
will be closer to reality than when the project was new.
Older project parts prediction — using
historical data
Manufacturers’ predictions of component life are often
too optimistic, but when the project is new they may be
the only details available for predicting the use of spare
parts. Once a project has been in place long enough
for a particular part to have been replaced two or three
times, the actual service life of those components will be
known. Also, by then, the time of replacement will have
become more and more random so the simple approach
of dividing the number of installations by the average
life of the components in years will give a reasonable
estimate of the number of those components that will be
used in a year. The time required to obtain the parts is
determined and the number of parts to be used in that
time is predicted. First divide the number of parts
expected to fail in a year by 365. This decimal fraction is
the expected number of failures of that part in a day.
Multiply this fraction by the number of days that it takes
to obtain replacements from the supplier. The result is
the minimum stock that should be on hand.
For example, suppose there are 150 installations of
solar lights in the project. Experience over the last five
years has shown that the bulbs have an average life of
90 days. It takes 60 days to receive a shipment from the
dealer of replacement bulbs. How many bulbs should be
kept on hand as spare parts?
Each installation will be expected to require four
bulbs per year (365 ÷ 90). So 150 installations may need
600 bulbs a year. 600 ÷ 365 = 1.64 bulbs per day.
It takes 60 days to obtain the bulbs from the supplier, so
1.64 × 60 = 98.4 bulbs. The minimum number of bulbs to
have on hand at any one time would therefore be 99. If
the number on hand falls to 99 more should be
immediately ordered.
Obtaining historical data
For spare parts management, the most important records
are those indicating when parts have been replaced.
Without these records, it is difficult to predict what the
failure rate will be.
Records of parts usage are often kept for a spare-
parts inventory, but not often for those parts purchased
directly from suppliers as replacements. All replacement
of parts should be recorded. Each individual installation
should have a record sheet with full details of the
operational and repair history of that installation. Ideally,
a copy should stay with the installation and another copy
be kept in the office of the administrator of the project.
Whenever an old part is replaced by a new one — for
whatever reason — details should be entered on the
installation record sheet. Not only is this important for
spare parts management, it will immediately indicate any
unusually high rates of failure for components of that
particular installation. Unusual failure rates often point to
abuse of the system or design errors that have placed
under-rated or low-reliability components in the
installation.
Using historical data from other projects
When a project is new, historical data are not available. If
similar projects using some of the same components have
Chapter-18.qxd 11/8/03 11:29 AM Page 119
been installed elsewhere, it may be possible to obtain
data on failure rates from that older project to help in
determining the quantity of those components to stock
as spare parts for the new project. The closer the other
installation is to the design of the new one, the more
accurate the information will be.
Often, component reliability data can be used from
projects using the same components in other developing
countries with similar field conditions. As long as the use
of the component is similar, such data are useful.
Test data from organizations not associated with
manufacturers, such as S.P.I.R.E. and CSIRO, are useful in
estimating life and spare parts requirements as long as
the actual equipment tested is exactly the same as that
being used in your project. It is less useful to have test
data for even a slightly different component because
small changes can have a major impact on reliability.
Security
Spare parts usually represent a considerable financial
investment. It is important that they be kept where
theft or physical damage from rain, heat or other
Spare parts systems 119
environmental conditions is unlikely to occur.
Administrative procedures should also be in place to
ensure that someone is clearly responsible for the
inventory of parts and that parts are regularly checked.
It is particularly important that inventories are
regularly taken of the spare parts stock. A complete,
detailed inventory should be taken at least annually
and all records checked against the actual stock.
Unannounced spot checks by supervisors every few
months is also a good idea. This not only discourages the
unauthorized use of spare parts by the local technicians,
it also means that all parts are examined so that there is
some guarantee that they are still usable and have not
been damaged while in store. All too often, spare parts
are found to be unusable due to corrosion, insect
damage or other reasons.
The person responsible for the parts should also be
trained to clean and maintain them where required. For
example, batteries shipped filled with electrolyte must be
kept in a fully charged condition if the batteries are to
last a long time. Someone must therefore arrange for
battery charging at least every two months if the spares
are to be kept in good condition.
Chapter-19.qxd 11/8/03 11:30 AM Page 121
Special considerations
for solar utilities
What is a solar utility?
The ‘solar utility’ structure for PV electrification
originated in Fiji in 1983 when the Department of Energy
installed three village PV electrification projects. The
users did not own or maintain the PV installations
but paid a fixed fee every month for their use and
maintenance. Users had no responsibility for maintenance
or any technical aspect of the project, only for the
intelligent use of the systems and the payment of the
fee. Although those early projects were unsuccessful
owing to both technical and structural flaws, the
knowledge gained resulted in the successful development
of solar utility concepts in other parts of the Pacific. The
solar utility structure has recently been used in a number
of projects worldwide and has proved to be the most
consistently successful approach to PV-based rural
electrification in developing countries. When the concept
was developed in the Pacific, the term ‘solar utility’
was coined but that has proved to have unfortunate
associations in donor-analyst minds with large, monopoly
companies so the name RESCO (Renewable Energy Service
Company) has now been applied to the concept of a solar
utility, though technically an energy service company
does not always supply only electricity. While ‘solar
utility’ is actually more accurate and descriptive of the
concept, common usage of the term ESCO or RESCO
has made the term obsolete. Also popular in some
development circles is the term ‘fee for service’ (FFS).
They all mean the same. Whatever the name, the solar
19 C H A P T E R 19
utility, RESCO or fee for service approach consists of
renting PV systems instead of selling them.
Service not solar
Rural households do not want solar PV systems, they
want electrical services. People have been willing to pay
surprisingly high prices for reliable, adequate electrical
services and the successful projects have been those
emphasizing long-term quality of service rather than the
sale of PV systems.
The development of the RESCO structure is
specifically to shift the emphasis of PV electrification
from encouraging people to buy solar systems to the
provision of electrical service to rural households.
Sales versus rental (RESCO)
Creating a RESCO can be difficult, complex and expensive.
Why should a RESCO be used instead of the much simpler
sales approach? Essentially, it is because the sales
approach has not worked well in the long term. Few
households can or will buy PV systems because the price is
too high and people’s confidence that they will get their
money’s worth is too low. With few households buying, it
is difficult for the selling company to provide
cost-effective after-sales support. As time passes, systems
develop problems and customers learn that repairs are
difficult and expensive. The service that people want is
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122 Solar Photovoltaic
Project Development
not being provided, the word gets around and soon there
are so few sales that the company fails.
How do the operating characteristics of sales
companies and RESCOs compare?
· Market penetration and customer density
Sales : Cash sales in rural areas of developing countries
can typically be made to no more than 5% of
households. Providing credit terms for two or three
years may increase this to more than 10% but there
is still little benefit to the great majority of rural
households.
RESCO : Provides finance over the real life of the
systems, 15 to 20 years. This cannot be done by
direct commercial sales to individuals as no bank or
commercial lender is willing to finance a PV system for
more than three to five years due to the risk and high
cost of servicing such a small account over such a long
time. Long-term finance can be arranged, however,
for the purchase of a large number of PV systems to
be owned and installed by a company providing
electrical service from the systems to fee-paying
customers. Furthermore, thanks to the large
purchasing power of such a company, the initial cost
of the systems will probably be 30% or more below
the cost paid by individual households, making it
possible to further lower the cost to the user.
Experience has shown that where a sales company can
only expect to sell to less than 5% of rural
households, a RESCO can reach over 50%.
· Maintenance quality
Sales : Because the market for selling PV systems is
such a small portion of the rural population, the
customers are spread thinly over a large geographical
area. The cost of transport and time for moving
between these widely separated customers is high,
causing maintenance costs to be very high. As a
result, few customers are willing to pay for
professional maintenance and rely on family members
or local handymen to maintain the PV systems.
RESCO : The RESCO must provide all maintenance so
professional maintenance is assured. The maintenance
cost is kept low by the high customer density made
possible by the low rental fee.
· System design
Sales : System purchases by households are almost
always based on first cost considerations rather than
life cycle considerations. Therefore systems sold are
usually undersized in an attempt to keep the sales
cost as low as possible. This results in marginal
performance, poor quality of service and low customer
satisfaction.
RESCO : There is a strong incentive for a RESCO to
design systems for minimum life cycle cost rather than
first cost as it must operate and maintain the systems
indefinitely. As long-term maintenance costs,
particularly battery replacement costs, are most
economically lowered by increasing panel capacity,
systems are likely to be designed with more than
adequate capacity. This also increases system
reliability and quality of service, so customer
acceptance is high.
· Installation quality
Sales : Installation is often poorly carried out, in
particular where customers are expected to do the
installation, or where a local handyman is employed
for the installation. Customers are rarely willing to pay
the cost of professional installation.
RESCO : System performance is the responsibility of
the company, not the individual user. Installations will
be carried out professionally as it is in the best
interest of the company to provide customers with
optimal performance.
· Replacement components
Sales : With user ownership of systems, there is a
strong tendency to purchase replacement batteries,
controllers, lights and other components on the basis
of lowest cost and immediate availability, rather than
attempting to match the operating characteristics
of the original equipment. The end result is usually
degraded performance, reduced customer satisfaction
and increased maintenance costs.
RESCO : This approach automatically results in the right
replacements being made, as long-term profitability of
the RESCO depends on minimizing life cycle costs and
maximizing customer satisfaction. For both to occur,
replacement components of the correct size and
quality must be provided.
· System abuse
Sales : The argument is often made that people will
take better care of PV systems they own than those
provided as rentals. Experience has not backed up this
argument. Users who are owners feel no responsibility
Chapter-19.qxd 11/8/03 11:30 AM Page 123
to anyone outside their own household because it
is their own system to use or abuse as desired. When
there is no external agency to impose discipline, users
have a strong tendency to push their systems beyond
design limits for their immediate benefit even though
they have been well informed of the probable
long-term adverse effects.
Solution: There is an external owner who may remove
the system or increase fees when abuse is found.
To maintain profitability, a RESCO must perform
preventive maintenance. This requires periodic visits
by a company technician who can see at first hand
if a household is abusing the system. The customer
can then be penalized through increased fees or
disconnection of the system.
· Perceived risk
Sales: The decision to purchase a system is a
significant one for most rural households, even those
of relative wealth. Households often fail to make the
major investment in PV systems because they fear
that they will not work well or that the grid may soon
be extended to their area.
RESCO: The cost of receiving the use of a system is
a modest one-off connection fee and the monthly
rental fee. If the system does not work well or if a
better electricity source becomes available, the
household can at any time stop paying for the system
and the RESCO will move the system to another
customer’s house. So there is little risk to the
customer in taking a system.
RESCO structure
Based on project experience, a successful RESCO has the
following characteristics:
· Ownership of all major components of the system
by the RESCO. Panels, controllers, batteries and
wiring up to the load connection point are owned and
maintained by the RESCO. Appliances and house wiring
after the load connection are usually owned and
maintained by the householder.
· Locally based service structure. The RESCO services
small rural electrification districts, each covered by a
locally resident technician who is a full-time employee
of the utility. A district is defined as the area that can
Special considerations 123
for solar utilities
be cost-effectively covered by a single field-based
technician for monthly visits to all serviced households.
A district must have at least as many households
accepting service as are needed to pay for a locally
based technician visit every month. In most developing
countries, where labour rates in rural areas are quite
low, this is about 75 systems. No installations are made
in a district until this minimum number of customers
agrees to accept service. A single technician can
adequately maintain about 150 systems (if the district
is compact in size) and this would be the maximum size
of a district. Note that these figures are assuming
monthly preventive maintenance visits as usually
needed in the early years of a PV rural electrification
project. The figures can be doubled for a mature
programme where bimonthly visits are adequate.
Maintenance visits more than two months apart are
unlikely to provide adequate service to customers.
· Service contract. The RESCO contracts with users to
provide them with a specified level of electrical service
and to keep the electricity supply in satisfactory repair,
replacing all failed parts at no additional cost to the
user except for user-owned house wiring, lights and
appliances. Users contract to pay an installation fee
usually consistent with the cost of wiring their house
and after installation they agree by signing the service
contract not to tamper with any of the RESCO-owned
equipment, to maintain the panel area free of shade, to
allow RESCO technicians free access to the system, to
pay the periodic fee on time and to use the system in
accordance with published RESCO guidelines. Should the
user not conform with the agreed terms, the system
can be disconnected or removed by the RESCO. Should
the RESCO not meet its obligations, the customer can
stop paying fees and return the system.
· Periodic service fee. This is based on the actual cost
of operation and maintenance that is the sum of the
costs of battery replacement, replacing the controller
at the end of its useful life, capital repayment and the
operating cost of the RESCO. Fee collection methods
must be adapted to the income characteristics of
the customers.
· Field technician supervision. A few times a year,
a senior technician from the home office visits each
district and audits the field technician’s performance.
Additionally, the senior technician is available on call
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124 Solar Photovoltaic
Project Development
to assist field technicians in troubleshooting and
repairs that are beyond the level of their training and
experience.
· Customer feedback. It has been found to be
important that the RESCO should have some method
for user feedback on service quality and the
performance of the field technician in each district.
A district users’ committee consisting of five to
seven people elected by the users in that district is
the approach successfully used in one project. Local
government representatives fulfil this purpose with
good results in another project. It is the responsibility
of the feedback system to carry complaints and
requests from users to the RESCO management and to
communicate RESCO matters, mainly reasons for fee
and service changes, to the users. There is also the
possibility of arbitration through the feedback system
in the case of proposed disconnections owing to
customer failure to pay fees.
A problem with the RESCO system is the
impersonality and relative remoteness of the
organization. A feedback system helps the community
to keep the RESCO in focus as a community service
provider through developing good relations between
the parties and a high level of user service and
therefore high level of fees collected on time. An area
of particular friction between RESCOs and users is that
of disconnections for non-payment of fees. In rural
areas, income is often sporadic and a local arbitration
arrangement to determine whether a request for delay
of payment is appropriate or not is essential for good
community relations.
· A system for continuing training and retraining of
all technicians is provided by the RESCO for its
technical employees. A common problem with the
implementation of PV projects is inadequate training
opportunities for technical personnel after the first
few years of the project. Successful solar utilities
provide at least annual training for all technicians.
It has also been found that the turnover of field
technicians is relatively high as the training provided
is often sufficient to allow a technician to find a good
job in the city.
Clearly this structure has much in common with that
of a conventional utility, though there are significant
differences arising from the distributed generation base.
Integration into a conventional utility will usually require
setting up a subsidiary organization specifically for the
solar installations.
Characteristics of a RESCO
However RESCO structures are referred to — ‘fee for
service’, ‘PV system rental company’ or ‘solar
utility’ — their primary characteristic is an emphasis on
the provision of electrical services, not on the provision
of PV systems. In general a RESCO:
· never gives up ownership of the PV systems. The
RESCO usually retains ownership of at least the
primary PV components including the panel, the
controller and the battery.
· charges a fee that includes all maintenance and
repair services. Users are not allowed to participate
in the installation, maintenance or repair of PV
systems. These are all carried out by professional
technicians under the control of the RESCO.
· disconnects or removes systems following failure
to pay fees. Customers are expected to pay a
predetermined fee at a specified time. Failure to do so
results in disconnection and ultimately removal of the
systems.
· bases system designs on life cycle costs, not first
costs. The RESCO is responsible not only for the initial
investment in the PV system but also for all its
maintenance and repair costs. Therefore the design of
the system needs to minimize the long-term costs, not
just the initial cost of the PV system.
Advantages of RESCO structure
For users, there are three main advantages of the
RESCO approach:
· It requires the least annual cost outlay by users.
Rural households usually cannot afford to purchase a
PV system, even under time credit terms, because the
cash outlay is too great. The RESCO approach spreads
the cost of the system over 10 or more years thus
making the payments much more affordable.
· The user does not have to worry about repairs or
maintenance. Experience has shown that rural users of
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PV systems have neither the interest nor the technical
knowledge to effectively maintain PV systems. In most
cases, users have a greater tendency to damage
systems than to maintain them. The RESCO approach
takes maintenance out of user hands and provides
trained technicians whose sole responsibility is to keep
the PV systems operating at optimal level. This also
means that users do not have to worry about a large
unbudgeted cost should a major part fail. The fee
charged by the RESCO operator covers replacement of
batteries, controllers and panels.
· There is little risk to the user. People in rural areas
are hesitant about purchasing PV systems even if they
have sufficient money. They are worried that the
systems will not work as claimed, or that the grid
will soon become available and their investment in a
PV system will be wasted. The RESCO approach allows
customers to return the systems to the operator at
any time they are not happy with the way they work
or if another, more convenient electricity source
becomes available to them.
The advantages of the RESCO structure for a
PV company are:
· There can be a greatly increased customer density.
The lower monthly cost of the RESCO systems allows
more households in a region to take PV systems.
This often is an increase of four or five times the
customer density that can be achieved by the sale of
PV systems. This increased customer density allows
the company to provide maintenance at a much lower
cost and may even allow a local office to be created
that further helps the company to develop its
customer services and marketing.
· Income is predictable and for a long term. PV sales
vary greatly from year to year because customers are
transient and the market volatile. The RESCO operator
has a fixed customer base that provides a predictable
and steady income in the long term.
· There are far fewer technical problems with the
PV systems. As the design, installation and
maintenance is all carried out by the RESCO, technical
problems tend to be much less than when users install
and care for systems themselves. Fewer technical
problems means better acceptance of the technology
by users and a more receptive market.
Special considerations 125
for solar utilities
· The maintenance system for the RESCO can also
support PV sales. A major problem with specializing in
the sale of PV systems is the fact that it is costly to
provide an after-sales support system. When a company
has a RESCO operation, it can use the maintenance
capability that has been established for the RESCO to
support the highly profitable sales of PV systems to
wealthy households, non-governmental organizations
and governments.
Disadvantages of RESCO structure
For the user, there are no significant disadvantages. For
the RESCO, certain problems must be resolved:
· It takes more capital than a sales approach. As
users are paying the system cost back over 10 years
or more, the company must be prepared to finance
the systems for a much longer period than if they
were to be sold to users.
One way around this has been for government to
purchase the PV systems then to lease them to the
RESCOs, often at a heavily subsidized rate. This
removes the need for a RESCO to finance the capital
investment.
· Short-term profits may be low. Due to the high
investment required, it takes longer to develop profits
than is the case with direct sales of PV systems. Over
the long term, however, profits tend to be substantially
better than with sales.
· Management is more complicated. There are many
more customer transactions to handle and a wider
range of activities to manage than in the sales
organization. Where sales typically turn over every few
months, management must deal with a 10 year or
longer horizon when budgeting for a RESCO.
· Profitability requires many systems to be
installed. While a profit may be made on the sale
of just a few systems, a RESCO needs hundreds of
systems installed before profitability can be
achieved. This is because operating costs change
little from just a few systems to a thousand or more
installations. So the more systems installed, the
lower the management cost per system. RESCOs
typically have their break-even point between 1,000
and 2,000 systems.
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Solar utility management
Introduction
Providing the same group of customers with long-term
service is quite a different management problem to
selling merchandise to a constantly changing customer
group. The ‘fee for service’ company must look to the
long term. Decisions made today can affect operations
for years to come and should be based on sound
information, carefully considering how the company
operations will be affected over both the short and the
long term.
Sales-based operations
Short-term contact with customers
Transfer of goods
Maintenance responsibility limited
Limited activity away from company base
Operational feedback based on limited-term
warranty repairs
Requirements are usually expressed once
at the point of sale
Sales fluctuate a great deal due to external
market forces; not very predictable
Service support is needed and is important to
continuing sales, but is a minor component
of income
20 C H A P T E R 20
Comparing sales and RESCO
approaches
There are major differences between the sales model and
the RESCO model for a business. The hire-purchase
model has some characteristics of both models as it
effectively acts as a RESCO during the hire phase but,
when the customer has paid the total cost of the system,
the customer becomes the owner of the system and
the relationship between the company and the customer
becomes more like the sales model.
RESCO operations
Based on continuing, low-level customer contact
Provision of service
Maintenance responsibility complete
Most activity away from company base
Operational feedback based on life cycle
performance
Requirements change over time and are expressed
through continuing interaction
Sales are relatively stable and predictable
Sales opportunities exist but are a minor part of
operations, though they may represent significant
income
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Technical and customer monitoring
For a service company to be profitable, the customer
must receive the service required but the company must
also respond to changes in customer needs. Also there
must be some way of tracking the operation of the
installed systems to ensure that the components selected
are adequate and the maintenance processes are working
properly.
Customer monitoring
Patterns of energy use
How people use the electricity from a PV system is
important to both the design and the maintenance of the
system. Customer satisfaction depends on reliable
electrical service in the amount and at the time needed.
Monitoring of battery charge levels and repeated
customer interviews provide information about changes in
use patterns that may affect system performance and
service reliability. Records of the nature of customer
complaints and records of the charge level of customer
batteries relative to that of other customers are
important in discovering changing demand for electricity.
In a RESCO project, the discharge controller should be
considered as an emergency disconnection and the
system design be such that the load is only automatically
disconnected no more than once or twice a year. More
frequent automatic disconnections imply either a problem
with the charging of the battery or a problem with
increased use beyond the design level. Therefore it is
important to keep records of low-voltage disconnections
both to ensure that the system is checked for correct
operation and that the customer is not increasing the
demand for electricity.
Appliance requirements
The most common cause of changes in service
requirements is the addition or removal of appliances. A
change from a system that only provides lighting to the
inclusion of television in a household may make a great
difference to the way the system is used and may require
a change in components to make the adjustment. It is
important to keep a record of ‘authorized’ appliances
and implement some system for tracking changes in
appliances. This can both help to predict usage and
requirements for the system and discourage the use of
appliances that exceed the capability of the system.
Payment patterns
Every household has a unique pattern of income and a
unique approach to paying bills. The company goal should
be to adjust the payment schedule to match income
patterns. The ‘one size fits all’ approach does not work
for either system design or for customer payments.
Where records show a repeated pattern of problems with
payments, that household can be targeted for discussions
about alternative payment methods or a change in the
payment schedule. To arbitrarily set a payment schedule
and rigidly enforce it may alienate customers when there
are alternatives that would be agreeable both to the
customer and the company.
Technical monitoring
Spare parts requirements
To provide acceptable service, spare parts must be readily
available to the field technicians for repairs. These spare
parts must however be closely controlled to ensure that
they are not being used for purposes other than those
intended. Periodic inventories and tracking through a
continuous record for each major component for its full
operational life are usually considered the minimum
requirements in monitoring spare parts use.
Battery life
A crucial cost factor in maintenance is the working life
of the system battery. Leaving batteries for extended
periods at partial charge levels causes sulphation, a major
cause of decreased life in batteries. Sulphation can often
be reversed if caught early enough.
It is usually cost-effective to record battery operating
parameters frequently and to statistically compare each
battery with other batteries in the service area. A
battery that is consistently lower in charge level than the
norm for the service area indicates either a technical or
a user problem that must be addressed. Sulphation is
easily detected by a comparison of the battery voltage
(when not connected to the panel or a load) and the
hydrometer reading. If a battery voltage reading
indicates a significantly higher level of charge than
is indicated by a hydrometer reading, sulphation
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probably has occurred. If a controlled overcharging
process (equalizing charge) is carried out within a few
weeks of detection of sulphation, it can often be
reversed. But if left without equalization, the battery life
will probably be reduced.
Maintenance frequency
Another crucial cost factor is the frequency of service
visits. It is clearly true that depending on customers to
request maintenance may result in decreased battery
life. By the time a PV system has degraded to the point
where a customer is experiencing problems, the battery
has probably been damaged and its life reduced. Wide
experience has shown the value of scheduled, preventive
maintenance but the optimal frequency depends on the
system design, the cost of battery replacements and the
cost of the maintenance visits. Service visits that are
more frequent than necessary will increase labour and
travel costs and may annoy the customer. Service
visits that are too far apart may worsen customer
relations through the accumulation of minor problems
and may shorten the life of batteries if technical
problems are caught later than optimum. Only through
careful analysis of maintenance and customer payment
records can the optimum frequency be determined.
RESCO operators commonly hire someone living in the
local service area to provide preventive maintenance
services. This is particularly important when the service
area is isolated and access difficult or seasonal. In most
developing countries, the cost of hiring a local technician
to make frequent preventive maintenance visits is
modest and much more cost-effective than attempting
to provide maintenance services from a distant urban
area. Minimal training is required, as the primary tasks of
the local technician are to take battery measurements,
replace lost battery water and clean connections and
components. In most cases these operations will keep
serious problems to a minimum and a senior technician
will rarely be needed to perform more complex service
procedures.
Most project experience has indicated in the first year
or two of operation that a preventive maintenance visit
every month is required for best system performance and
customer satisfaction. When customers are familiar with
the systems, use patterns stabilized and systems
optimized, a visit every two months is often adequate.
Solar utility management 129
Life cycle cost, not first cost,
should determine design
Most conventional approaches to household PV-system
design are intended to provide barely adequate
performance in order to offer the minimum purchase
cost. This is a direct result of designs being optimized
for selling systems where the first cost is the major
factor in purchase decision-making. Systems intended for
RESCO applications need a different design approach
because the company will have to live with those
systems for their entire life cycle. Selling a controller
that fails in three years may not be a detriment to
continuing sales, but installing a controller in a RESCO
system that fails every three years may seriously reduce
profits. A panel size that is the minimum to provide
acceptable service will stress the battery much more
than one that is comfortably oversized. The extension
of battery life and the improved customer relations
from a more reliable system may prove to be worth a
significant increase in panel cost over the conventional
design value.
For selling systems, even on credit terms, first cost is
critical. Also attractive packaging, minor but interesting
extra features such as an array of indicator lights, spikes
to discourage birds from perching on panels and indicator
caps for battery cells may attract customers away from
the competition. For the RESCO operator, the first cost is
a factor but the cost of continuing operation and
maintenance is of greater concern. The design goal must
be to achieve the optimal balance between first cost and
operation and maintenance cost. A system that is cheap
in first cost may have high maintenance requirements,
while a highly reliable system may have low maintenance
costs but too high a first cost.
The battery is the most expensive
part of a system
The PV panel may last more than 20 years. During that
time there will be many battery replacements. So, when
considered on a life cycle basis and bearing in mind the
recent cost reductions in panels, the battery is likely to be
the most costly component. One of the principal reasons
for preventive maintenance visits is to extend the life of
the battery through direct maintenance of the battery and
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indirectly through optimizing other components in the
system — including the user.
Controller affects battery life
While field experience does not show much difference
between exotic, highly technical controllers and basic
controllers that simply turn charging on and off relative
to battery conditions, it is clear that the control
set-points, the conditions under which charge and
discharge are established, are a major factor in battery
life and in system reliability. Controls that are unstable
or are set incorrectly can seriously shorten battery life.
A failed controller can markedly shorten battery life if
not repaired quickly. High reliability and stability seem
more important design parameters than the provision
of complex control algorithms that attempt to fine-tune
control to battery type.
In particular, the charge cut-off (high-voltage
disconnect or HVD) setting has a major effect on battery
life. Most commercial charge controllers are set at a
voltage that minimizes water loss from the battery. This
is a good idea for systems that depend on users to
maintain the battery water level as it has been found
that users are unlikely to check battery water levels very
often. Unfortunately, in order to keep water loss very
low, the HVD has to be set at a level that stops the
battery becoming fully charged. Most commercial charge
controllers only allow the battery to come to 90% of
full charge, not 100%. When 10% of the battery is not
charged, the result is early sulphation and shortened
battery life. While it is true that the battery life would be
even shorter if the water level fell too low, the battery
life is much less than optimum. In a RESCO operation
where frequent preventive maintenance is included, a
higher controller HVD setting allows the battery to come
to full charge and the maintenance personnel ensure that
the water level does not fall below the minimum. In that
case, the battery may last for years longer than it would
with a lower controller voltage setting.
For this reason, only controllers with adjustable
set-points should be used in a RESCO system and the
set-points adjusted to the highest value possible without
causing so much water loss that the maintenance
technician cannot keep it at the correct level on the
preventive maintenance schedule. In most cases, a 14.4 V
to 14.6 V HVD setting will allow full charge in the battery
but not cause water levels to fall too far within one to
two months.
Panel size affects battery life
Power reliability — a factor closely linked to customer
satisfaction that in turn is closely linked to the need
for frequent customer visits and fee collection
problems — increases rapidly when panel capacity is
increased 20% to 30% above the minimum usually
considered acceptable in PV design calculations. Also,
the average battery charge level is usually much higher
simply because the battery will much more frequently
come to a full charge. Batteries that have a high average
level of charge, particularly batteries that are regularly
brought to full charge conditions, have a significantly
longer useful life than batteries operated for long
periods under partial charge conditions. With the falling
cost of panels, it is becoming increasingly cost-effective
to add panel capacity with the aim of lowering
maintenance costs through fewer maintenance visits and
increased battery life.
Installation quality affects battery life
With low-voltage dc systems, connection quality and
losses in wiring have a strong effect on system reliability
and battery life. Wires that are too small or too long,
using poor-quality switches, using connection methods
that introduce voltage drops, panel location and
orientation can all lower system efficiency and the
average level of charge of the battery, which in turn
increases maintenance costs and lowers customer
satisfaction.
Use patterns affect battery life
The customer is one of the major components of the
PV system and needs as much or even more attention
than the battery, panel or other components. This is
particularly true in the early months after the installation
when user habits are formed and the level of satisfaction
with the system is also established by the customer. First
impressions are often lasting. Frequent visits by RESCO
staff to discuss problems and to provide user advice have
proved very worthwhile in the long term. Attempting to
cut costs by visiting new customers only on demand has
not been shown to be cost-effective in the long term, as
early customer satisfaction is often low through lack of
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understanding about how to best use the PV system,
resulting in abuse of the system and the formation of a
costly, long-term adversary relationship with the RESCO
operator.
Battery type affects battery life
In some circumstances, low-cost batteries that are
replaced often may be the least costly solution, while in
sites where access is costly and battery supply irregular,
high-quality deep-discharge batteries that last a decade
may be the most cost-effective over the life of the
system. Experience indicates that in most rural areas of
developing countries, a mid-range, mid-cost battery with
a five- to seven-year practical life provides the best
compromise. Low-cost, locally made vehicle batteries
that must be replaced every two years or so may
indicate the lowest life cycle cost when mathematically
analysed. However the RESCO operator must consider
the gradually lowering reliability of the system as the
battery approaches the end of its life. This increases
the number of calls for maintenance and the associated
service costs. With hundreds of households in a service
area having a battery replacement cycle of only two
years, the operator could face a never-ending reliability
problem and end up with such a high volume of service
calls that additional technicians have to be hired,
reversing the cost saving expected from the use of a
cheap battery.
Maintenance frequency affects battery life
The minimum frequency for maintenance of a PV system
is related to the frequency of the need to check battery
water. Theoretically, in a system with a sealed battery,
no preventive maintenance is necessary. However
experience shows that scheduled preventive maintenance
visits, even with sealed battery systems, can dramatically
increase battery life. This relates to the control of user
actions and prevention of user abuse, to the periodic
cleaning and tightening of connections that have
gradually increased their voltage losses, and to the
control of shading on panels as nearby plants grow. As a
general practice, when a technician is in a service area
for a demand service call, a short visit is warranted to all
nearby customers both as a show of customer service and
to clean and adjust the systems to optimal efficiency.
Customer records should include such unscheduled visits
Solar utility management 131
and where a customer area has not been visited for an
extended period, a special service visit is probably
warranted.
Fee collection
One of the most controversial aspects of the RESCO
operation is the approach to fee collection. Many
different approaches have been tried with varying levels
of success, and two important points have emerged from
all this experience: (1) the customer must consider the
method of fee collection to be reasonable and have
minimal intrinsic annoyances; and (2) the method has to
fit the conditions that exist. These conditions include
such factors as income patterns, cultural issues, the
presence of other collection systems in the service area,
the remoteness of the site, the distance between
serviced households, the ability of the company to
disconnect customers that do not pay and many other
factors specific to a service area.
It is clearly a mistake to attempt a collection process
that is mainly intended to fit the convenience and needs
of the company. Successful collection schemes always
consider the needs of the customer as a priority at least
as high as those of the company. It is simply not good
business to annoy customers on a persistent basis.
Choose a fee-collection process
that fits customer and site
Visiting households solely to collect fees can be
expensive, but if combined with scheduled service visits it
may in the end be the cheapest approach. Where local
technicians are in place and the cost of frequent visits to
customers low, technical visits on a monthly basis may be
cost-effective and collecting fees during those visits may
be the least-cost method that also results in the minimum
customer annoyance. The main problem with this
approach is controlling the funds collected by technicians
and their tendency to extend credit beyond acceptable
limits, especially for friends and family.
At the other extreme is a service area that is
expensive to service on an individual household basis
and systems are designed to require little preventive
maintenance. Using contracted fee-collection services
through the sale of prepayment tokens or cards at a local
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store, or payment through a local public agency, may
prove the most cost-effective.
Determining the appropriate
payment period
Because of the payment habits deeply ingrained in urban
areas — whose residents usually design rural projects — the
monthly payment scheme is almost universally considered
as the way to collect money. In principle, this is a
reasonable length of time as it is short enough to avoid
heavy losses if payment is not received on time yet long
enough to avoid too much cost in making the collections.
In rural areas there are few monthly pay cheques,
however, so customers may do better making payments on
very different time scales. Some Pacific islanders have been
successfully offered a daily payment scheme through
purchase of tokens at the local store to provide power for
24 hours (thereby emulating their habit of purchasing
kerosene daily for the lights at night), while in Africa
commercial farmers prefer to pay in advance every six
months to coincide with crop sales.
Long payment periods are risky unless
collected in advance
Long periods between payments minimize the number of
collections per year but also increase the risk of long
periods before non-payment is recognized and may
increase the probability that a household will be unable
to meet the full payment at the assigned time. Where
payment is being made for services already rendered,
three months probably represents the longest period that
is generally acceptable. However, where advance payment
for services is possible, longer periods are certainly
acceptable so long as periodic visits are made to ensure
that systems are not being abused and are continuing to
work properly. Semiannual and annual payments in
advance are attractive enough to allow companies to
offer a discount over what would be paid for shorter
collection terms or for post-payment instead of
prepayment.
Shorter periods (and smaller payments) can make
payment easier for some
In the Pacific Island project where a 24-hour token was
purchased daily at the local store, households were eager
to pay US$0.60 a day for the use of two 8 W lights
for a total of US$18 per month. But in other projects
providing similar services to households it proved very
difficult to collect even US$6 each month for that service.
Because the income pattern tended to be the receipt of
a small amount each day for producing copra or selling
vegetables in the market, making payments in the same
pattern worked much better than trying to force people
to follow the unaccustomed pattern of saving money for
monthly payments, even though the total payment per
month was much less.
Prepaid tokens or cards for a fixed payment period
The use of prepaid tokens, codes or smart cards can be
used to collect fees. While technically interesting, care
must be taken that the extra complexity will not
introduce hidden costs of lowered system reliability and
distance the company from its customers too much.
Results have been mixed and clearly depend a great deal
on the particular system and how well it meets the
payment needs of the customer as well as the company.
Technical ‘solutions’ to social problems risk creating
different social problems that may offset any expected
advantages. And there is always an additional technical
risk when complex technology is operated in remote
rural areas.
Confusion sometimes arises between prepayment
cards or tokens offered by electricity utilities for rural
customers and the prepayment systems for RESCO PV.
The prepayment system for the utility company is based
on kilowatt-hour use, so a high-usage customer will
run out of money before a low-usage customer. The
prepayment approaches for RESCO PV are so far all based
on time period rather than energy use. Thus when
purchasing a prepayment card for utility service the
customer is buying energy, when purchasing a
prepayment card for RESCO PV service, the customer is
buying time of use. The social and use effects can be
quite different and caution should be exercised in
transferring the experience of prepayment card use by
utilities to RESCOs.
Payment is made by users for reliable,
adequate service
Customer visits during the early months of service
provision is usually very cost-effective because it helps
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the customer to understand the constraints of the limited
service being provided and to understand how to
prioritize use to fit these constraints. While initial user
training is necessary, experience indicates that only after
actually using the system for some time can the customer
really understand what the training meant.
Correct system sizing is also vital to customer
satisfaction. No matter how cheap, if the services that are
the customer’s high priority are not met, payments will be
considered excessive. While it is true that every customer
would like to operate a colour television, multiple fans and
a refrigerator, they are probably not very high priority for
a rural dweller in a developing country. Some services are,
however, considered essential and if they are not provided
by the RESCO, payment will be made only with the
greatest reluctance. It is very important to the success of
the RESCO that each customer has a system sized to meet
the very essential services as perceived by the customer.
For one customer being able to operate only lights is
essential. Others may consider four hours of television the
absolute minimum of acceptable service. Field experience
has generally been that people are quite realistic about
paying for services that they consider essential and will
pay a surprisingly large percentage of their available
money to receive those services — but will baulk at paying
anything for less.
Payment records must be timely
and accurate
It is almost always easier to arrange to collect late
payments soon after a default than later. While the
actual payment may have to wait until a specific income
transaction is made by the customer, if the customer is
not faced with the problem of non-payment soon after
the default occurs, their priorities may shift to other
more pressing debts that are likely to be accumulating
simultaneously. So payment records have to be updated
very soon, preferably within a few days, after the
scheduled collection time. With the distance, both
cultural and physical, between the company and the
customer it is easy for payment records to take weeks to
reach the point where a manager can note a payment
default. As frequently a default is not even recognized
until at least one payment period, typically one month,
has elapsed it may be two to three months before a
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service visit is made and a collection attempt made. To
be most effective in collection of defaulting payments,
the customer should be informed by the company
representative that a default has occurred and an
attempt to collect made within days of the time of
actual default. As the reason for defaulting is sometimes
a malfunction of the system, rapid response may also
lower the risk of battery damage caused by a failed
system sitting for months without charge.
One particular advantage of collection by local agents
visiting the customer is the fact that the company
knows right away when a default occurs and a promise
for future payment can be extracted on the spot. With
secondary payment systems, such as through a
government office, the company is somewhat at the
mercy of the efficiency of the collection agent. Care
should therefore be taken in setting up a collection
system to ensure rapid notification of payment defaults.
Accurate payment records are also an important factor
in keeping customers paying on time. Customer records
should show prior payment history as this both highlights
problem payers and allows extra leeway to customers
who have irregular incomes but always pay when money
is received.
Establish a reasonable disconnection
policy and stick with it
The threat of disconnection is not enough, actually
disconnecting customers after prior warning is absolutely
essential. The main advantage of prepayment cards is
that immediate disconnection for non-payment is
assured. The corollary disadvantage is that it allows no
leeway at all and indicates a certain lack of regard for the
customer on the part of the company and may cause
the customer to rationalize abuse of the system.
In most rural cultures, it is difficult if not impossible
for a local agent to perform disconnections. In such
cases, company officials from outside the community
should perform disconnections to avoid putting the local
agent in a socially untenable position. If the RESCO is
well managed and customer needs are being met,
disconnections will generally be rare and the cost
minimal. Any need for disconnection should however be
investigated by a company official, as it may indicate
deeper problems that should be addressed.
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In any case, it is vital to ensure that the customer is
aware of the disconnection policy and sees evidence that
it is enforced. Without clear objective evidence that
the policy is carried out on the terms presented,
collection rates can be expected to fall and the cost of
collection rise. Not disconnecting promptly when a
payment default occurs is a major cause of loss of
income by fee for service companies.
Customer records
The 80—20 rule
A general rule for service companies is that 80% of the
problems are from 20% of the customers. Harsh action
against the ‘good’ 80% customers because of the
problems caused by the ‘bad’ 20% is unjustified, nor does
it result in good customer relations. Identifying the
problem customers allows them to be treated differently
from the customers that rarely have problems. According
to the reasons for the problems, this can improve
customer relations where the problems are external or
can reduce losses where the customer is a poor risk.
Service contract
Because the RESCO is entering into a long-term
relationship with the customer, the terms of
that relationship must be clearly spelled out in a contract.
In the contract, the services to be provided by the RESCO
must be defined as well as the responsibility of the
customer to prevent damage to the system and pay the
required fees. In particular, a specific person should be
identified by each household as personally responsible
for the payments and that person should be the
signatory to the contract. Also the specific house that
has the installation must be clearly identified in the
contract. Many rural areas have ill-defined addresses and
local people rely on the relationship of the site to other
landmarks. While the traditional approach for locating the
house should be used, if a different approach is used by
government agencies to locate a rural house, that should
also be included in the contract.
The disconnection policy and any penalties for damage
to the system or non-payment should be clearly spelled
out in the contract.
Detailed list of components installed
In order to ensure adequate maintenance and local
availability of spare parts, as well as facilitating the
recovery of stolen components, a detailed list should be
made of the components installed on each house with
their model numbers and identifying codes. Batteries
may be permanently marked with identification codes
by carefully using a soldering iron or engraving tool to
write on the plastic case. Controllers and panels
usually have identification labels but may be more
permanently marked by inscribing identity marks on
metal components.
Many RESCO contracts limit the appliances that can
be attached to the system and may specify that different
or additional appliances may only be used with the
permission of the RESCO provider. In that case a list of
authorized appliances with their identification should be
included.
The installed components will change over time
as old components fail and are replaced or as system
modifications are made. Components removed from
service should be deleted from the list and new
components and their identification details added along
with the date the exchange is made.
Maintenance records
As the maintenance requirements of system components
form a vital part of the company knowledge base,
whenever any maintenance is carried out that affects any
of the components, a detailed record should be kept. For
preventive maintenance, a checklist is useful as the tasks
are specific and repetitive. When repairs are needed, a
description of the problem and the action taken to carry
out the repair should be entered. Quality maintenance
records can be an invaluable source of information for
selecting more cost-effective components and creating
better maintenance procedures. But to be of value the
records must be (1) systematic in content so that they
can be statistically analysed; (2) completed by the
technicians at the time maintenance is carried out; and
(3) actually used as data by the management.
Whenever a technician visits a house for any reason,
the preventive maintenance checklist should be
followed. This will typically include checks of
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connections, shading, cleanliness, battery water and
measurements of important system parameters such as
battery voltage.
Customers should be required to sign any maintenance
activity records because it helps to prove that the
technician did carry out the maintenance, to ensure that
the maintenance records are created on the spot and not
filled out later, and because the customer must be clearly
aware that maintenance service was provided.
Battery records
Because the battery is such a critical part of the
system and is relatively easy to damage, records of
battery maintenance are potentially very useful in
cost-effective maintenance. Where open-cell batteries are
used, a record of the amount of water used per cell since
the last filling is useful information, particularly if some
cells use a lot more water than others.
In those cases where a field technician provides
periodic preventive maintenance services, measurement
of battery voltage and cell hydrometer measurements
can be of considerable value. Hydrometer measurements
are the most accurate measure of level of charge for
each cell and significant differences between cells is a
good indicator of potential battery problems. If caught
early, inequalities in cell charge can be equalized through
deliberate, controlled overcharging but, if allowed to
continue for months, permanent damage often results.
The level of charge in the battery compared with that of
other batteries in the service area at similar times can
also be a good indicator of potential problems. A battery
that shows a consistently low level of charge when
compared with other batteries operating under similar
conditions may be the result of undercharging due to
system component problems, or over-discharge that
is typically caused by the user. In either case, if left
uncorrected, sulphation damage may progress more
rapidly than it should and earlier failure may result. If
the problem is identified through the maintenance
records, correction is possible and early failure
prevented.
Correlation between battery voltage and hydrometer
readings helps to indicate the presence of sulphation in
the battery. As in many cases sulphation can be halted
or reversed if caught early, these battery diagnostics
Solar utility management 135
can be cost-effective. However collecting battery data
and never using them is a waste of time and resources;
benefit will only result if there is a system for using the
data to diagnose problems and if action is taken on
the result.
Payment records
The recording system must be such that a payment
can be easily matched with the household making the
payment. While this sounds very basic, in practice
payments are often received based on a person’s name
or some other subjective identification. Providing the
household with payment coupons that include a customer
number, a customer identification card that is to be
presented with payment or devising some other means
of positively identifying the household for which the
payment is being made, can greatly reduce problems
when disputes about payments occur. Receipts that
have a company-specific stamp or other unique
identification should be used and always provided when
payments are received.
The accounting system should provide rapid
notification to management of the ageing of accounts
and customers with arrears should be clearly identified
along with the length of time the payment is overdue.
Typically this is in the form of a list of customers in
arrears provided a few days after the due date for
payments. Where a customer makes a partial payment
on an arrears account this should be noted to show that
the customer is making some effort to bring the
account up to date.
Disconnect/reconnect records
When a system is disconnected, the agent doing the
disconnection should provide the household with a
notification that states when the disconnection was made,
why, and what the customer has to do to reconnect.
Temporarily leaving the house vacant to work elsewhere
or visit relatives in a distant town may lead to
disconnections as well as simple non-payment of the bill.
The conditions at the house at the time of disconnection
must be noted, as a system left on a vacant house should
be treated differently to one installed with a reasonable
expectation of a reconnection.
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Removal records
In cases where a household has been vacated or clearly
will not require a reconnection, the system must be
removed and made available for installation elsewhere.
The specific reason for ceasing to use the system
should be determined and the household record closed.
As removal is expensive and disruptive, analysis of the
reason should be carried out in each instance and some
thought given to how to avoid it in future. A special
‘removal’ logbook devoted to such problems can be
of value.
A common reason for the removal of systems is
the perception by the household that a competing
electrical service provider offers better value than the
RESCO. Connection to a private grid or the purchase
of a generator commonly occur in some countries
and, in such cases, it is important to understand the
exact reasons for the shift in electrical suppliers. While
the reason may seem to be price, often there are other
reasons of perceived value or level of service. If the
customer is switching to a personal generator or a
private grid, it may be through frustration with the
service the RESCO has been providing rather than the
cost or the level of power.
System modification records
Moving a system to another site for the same customer
is not common but does happen. A record of the move
inserted in all the customer records and accounts is
important to ensure continuity of customer records and
to avoid confusion when maintenance visits are scheduled
or collection stops made.
Company records
Spare parts control
Having the correct spare parts available for rapid repair
of systems is very important to customer relations and
timely payment of fees. This does not happen without
the implementation of a system to keep spare parts
in the right place and in adequate quantity. Furthermore,
spare parts should be carefully controlled as considerable
cost is associated with them and because they are a good
target for thieves and for misapplication by company
employees.
Effective spare parts control includes estimating the
failure rate of each component installed in service-area
systems and having sufficient spares to ensure that, during
the time between using a part and restocking that part
from outside sources, there will be enough additional
spares to cover additional failures. This is relatively easy
for small, high-turnover items such as light bulbs but is
difficult for expensive, long-lived items such as batteries
where a long time in storage may reduce the service life of
the battery after it is installed. PV panels rarely fail, so
keeping a local stock of spares may not be justified
because the risk of theft or misallocation is probably much
greater than the risk of a panel failing.
There is no simple rule of thumb for controlling spare
parts, as each service area has different characteristics of
access and parts use. In general, the easier the area is
to access, the less important it is to keep large local
stocks of spares. Also, small components that have
indefinite storage life, such as lights, controllers, switches
and dc/dc converters are better candidates for local
storage than components that have a limited storage life,
such as batteries. High-value components with a low
failure rate, such as panels or inverters, are probably
better stocked in a regional site than locally.
‘Shrinkage’ of spare parts stocks can be a major
cost. Periodic inventories at each stocking point and the
creation of a paper trail for each part placed in stock
helps to reduce this to a low level. Certainly locked,
secure storage is an important part of control. Those
who have access to spare parts stores should be made
directly responsible for accountability, but inventories
should be checked by someone else and transfer or use
records submitted periodically for comparison with
inventory records.
A common method for field personnel to gain control
of components for their own use or private sale is to
claim that a part has failed on a system and has been
replaced, when in fact there has been no failure. All
failed components should be returned to the company for
identification, repair or disposal. This not only helps to
prevent fraud but also allows the company technical
personnel to try to determine the reason for failure with
the hope of future prevention.
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Computerized customer accounts
While many small utilities in developing countries try to
manage several thousand customer accounts manually,
with more than a few hundred customers computerized
accounts can be an advantage, not because of the speed
of entry of information which is not really much of a time
saver, but because of increased accuracy and the ability
of the computer to provide account summaries almost
instantly.
Most packaged business accounting programs can
handle thousands of customer accounts with little problem
and allow the customer accounts to be integrated with
the regular business accounts. If a business accounting
program is not being used already, make sure that
the program selected can automatically add the periodic
charges to each customer’s bill at the appropriate time
and can easily provide a receivables ageing report showing
which customers have not paid on time and how long
payments are overdue.
Customer codes are essential to identify which
customer account is being accessed, as names on different
accounts may be the same or payments may be made
under different names for the same account. So when
establishing the RESCO customer accounts, it is essential to
assign a unique code to each customer.
For the system to work well, when payments
are made the collection agent must use the customer
code. The speed of the computer is lost if the person
entering the data has to look up the customer code.
But at the time of payment the name and address
of the payer should also be noted, as a mistake in
writing the customer code will leave the company with
no possible way of determining who actually made the
payment.
In setting up a customer code, thought should be
given to reducing the chance of data entry error. Just
using a number is very prone to error as it is easy
for a payment to be allocated to the wrong account,
something that can be difficult to locate afterwards.
A customer code that uses part of the name of the
head of the household is often used, as it is easy to
remember and much less likely to be entered in
error in a way that will result in the wrong account
receiving the money. The computer will fail to match
the code with any in the accounts and it will be
Solar utility management 137
immediately clear that an error has been made. Also
codes that are related to service areas will allow the
computer to generate a list of defaulting customers
in a particular service area. As an example, suppose
there are four customers in the list named Kumar with
two in service area 1, one in service area 2 and one in
service area 4. A coding system to serve our purpose
would use the service area number, a hyphen, part
of the head of household name, and a final number
if more than one entry in that service area has the same
name:
1-Kumar1
1-Kumar2
2-Kumar
4-Kumar.
In creating a new customer account, all accounting
programs show an error if a new account has the same
name as an old one, so there is no difficulty in ensuring
that unique customer codes are assigned.
Technician tool control
Field technicians need the correct tools and test
equipment to do their job properly. But such equipment is
expensive. Because tools are often difficult to find in a
rural village, company tools tend to be borrowed and then
disappear or are broken. Tools may be permanently
marked as belonging to the RESCO, even painted a bright
identifying colour to help in recovering borrowed or stolen
tools. That will not help where a tool is broken through
misuse, however. For successful tool control, the field
technician should be made directly responsible for keeping
the company tools together and in good condition. A
periodic inventory of technicians’ tools should be made by
a senior technician and some mechanism of paying for at
least part of the replacement cost of damaged tools and
full replacement cost for lost tools should be imposed. For
this to be successful, each tool issued must be identified
and tracked in an inventory. If a lost tool has to be
replaced, the technician must be made fully responsible
for the purchase of a replacement and the money
deducted over time from salary payments. If the
technician is made to pay only part of the replacement
cost, he may be tempted to become a discount tool
salesman to friends and neighbours. For damaged or
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broken tools, some consideration should be given for age
and the nature of the damage, but there should be at
least a nominal fine for any breakage that is clearly the
fault of the technician.
Various approaches to tool management have been
tried with varying degrees of success. The provision of a
lockable tool box is essential, though bear in mind that
the technician will be carrying the tools from place to
place and one huge, heavy tool box may not be as
practical as several smaller ones.
Much of the damage to tools (and equipment) is the
result of incorrect use. The use of screwdrivers as pry bars
and wrenches as hammers should be firmly discouraged. A
tool control system should always include training in the
correct use of each tool provided. While it may seem trivial
to have a training session in the use of simple hand tools,
observations of actual use has clearly shown that it is
needed.
Travel and communications cost records
Control of travel and communications costs is a problem
for RESCO field operations and good, detailed records
are essential. Budgeted cost control is important. If a
budget is prepared that assigns a reasonable level
of expenses to these categories, staff can be rewarded
or penalized according to whether the actual amount
expended is under or over the budgeted amount.
Preparing a budget must, however, be an interactive
process with the staff involved to allow them to
explain in detail what they think is an appropriate
communications and travel budget and why. Without
their agreement to the budget, their cooperation in
containing expenses within the budgeted amount
will be difficult to obtain.
Personnel training records
Continuing training of technical and administrative staff
is a vital part of RESCO operations. Training is not a
one-off thing. Each staff position should have a
long-term training programme associated with it and
each staff member should have a record showing what
training processes have been completed, when they
occurred and an evaluation of performance.
Operations management
For management to function properly, timely and
appropriate information must be available. Too much
information can, however, cause as many problems as too
little. While company data must be readily accessible on
demand, because most company activities are routine and
repetitive only exceptional matters should be addressed in
regularly presented reports. The term ‘management by
exception’ has been coined for this process, where a range
of acceptable conditions is established, for example a
budget, and as long as the operations are within this
acceptable range, no specific management decisions are
needed. As soon as some company operation goes outside
these limits, for example if a service area technician
exceeds his travel budget for the month, then the problem
is brought to the immediate attention of management.
In addition to these exceptional problems, status
reports created from timely information are needed. For
a RESCO, some important periodic operational status
reports for management would be:
· ageing of accounts by service area
· disconnection and reconnection report
· spare parts usage by service area
· system installation and removal report
· customer complaint report
· service call records and maintenance report
· operational expenditure report (communications,
travel, spare parts, operations, labour, etc.).
Typically, these reports would be presented in a periodic
management meeting by the managers responsible for each
area of operation. Each report should include not only the
data for the reporting period but also information about
trends over the past year or more. RESCO operations are
usually not characterized by rapid, highly disruptive changes
but by slow processes of change that may develop into
problems so unobtrusively that by the time they are
recognized in current activities, correction may be much
more difficult than if the trend had been recognized earlier.
Operational communications
With operating staff
The RESCO operation with a large, geographically dispersed
customer base must somehow develop a fast and reliable
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communications system that allows queries and operations
data to flow quickly and accurately from the field and
instructions and data to flow equally well to the field.
Neither the field staff nor the customers should be
isolated from management. Where communications are
poor, local staff may have to effectively form a small
company of their own and establish their own operating
procedures as RESCO management is difficult to reach
when decisions are needed. While this may work, most
often it does not. The efficient use of rural radio-phones,
telephones, faxes and computer data links should be
integrated into company operating procedures wherever
possible. Control over their use must be maintained as rural
communications are often expensive, but without frequent
and open communications, control of field operations
becomes tenuous and may result in large costs
accumulating in other areas.
With customers
Some direct communications link should be arranged so
that customers can access management without going
through the local operations staff. Without this link,
complaints about the activities of operating staff will
never reach management. Service complaints delivered
directly to ‘the top’ make the customer feel less helpless
and dependent on the local technician who may not be
universally liked.
To facilitate direct customer to management
communications, a users’ committee may be formed with
the responsibility of reporting to management problems
that are not being resolved by the local operating staff.
This link can work the other way as a communication
Solar utility management 139
medium for disseminating information about fee changes,
service changes and other actions that affect the
customer directly.
Operational travel
Transport costs can be the largest component of
field operations when the service area covers a wide
geographical area. A balance should be reached between
the cost of adding field staff to service a small area
versus the cost of transport for existing staff to service a
larger area. In any case, every effort should be made to
increase the customer base within a given service area
rather than increasing the customer base by extending
the service area. The higher the customer density in a
service area, the more efficiently field staff can work.
Marketing efforts should be directed towards increasing
the percentage of households with systems installed
within a service area.
Transport provided by the company should be of a
type common to the area and meet the need with
minimum capital and operational cost. Where a bicycle
will work well, do not provide staff with motorcycles. Use
commercial transport such as buses or local trucking firms
where practical. Cost overruns in the use of company
transport are common and very difficult to control.
Renting transport services may seem expensive on a
per unit basis but it will usually be much easier to
control than company transport, it will remove the
costly and time-consuming problem of transport
maintenance, and in the end it may well be much
cheaper than providing company transport.