g n ir la eo S

LESSONS FROM MORE THAN A

DECADE OF IFC’S EXPERIENCE
© 2007nailoter ficna e con otirap acr ony m s and abbr e v i at ions u s e d i n t h i s r e p or t
a l h g ts r i r e v s d .
cealcp o Cagayan Electric Power and Light Company
International Finance Corporation ed distributed generation
2121 Pennsylvania Avenue, NW d i g s Directorate General for International Cooperation
Washington, DC 20433 USA ebfp Environmental Business Finance Program
Telephone: 202-473-3800 e energy e≈ciency
Internet: . w ifc.org/EnviroPublications eaf Environmental Enterprises Assistance Fund
Email: enviro@ifc.org e ts Environ Energy-Tech Service, Ltd.
eia Energy Information Administration
The findings, interpretations, views, and conclusions ex-
emt External Management Team
pressed herein are those of the authors and do not neces-
a ep U.S. Environmental Protection Agency
sarily reflect the views of the Executive Directors of the
fi financial intermediary
International Finance Corporation or of the Interna-
tional Bank for Reconstruction and Development ge f Global
(the Environment Facility
World Bank) or the governments they represent. c
t g GT Consulting, Inc.
iea International Energy Agency
icf International Finance Corporation
h g ts r i a n d s n e r o m i p imf International Monetary Fund
icf encourages use and distribution of its cir publications.
Investment Review Committee
Content from this document may be usedkrea freely and Kenya Renewable Energy Association
copied accurately into other formats without kw prior
kilowper-att
mission, provided that clear attribution kw h kilowagi
is ven to the
tt/hour
authors and the original source and that mdg content
Millennium is not Development Goals
used for commercial purposes. mw megawatt
mw h megawatt/hour
rinpted in the united tesa f o acmeri a mbil Moser Baer India Ltd.
First printing, July 2007
go n nongovernmental organization
eco d Organization for Economic Co-operation and Development
This publication is printed with soy-based inks on
ne o O≈ce National de l’Electricite
ChorusArt, a process chlorine-free paper containing
adgo p Portfolio Approach to Distributed Generation Opportunity
50% recycled and 15% post-consumer waste fiber.
vp photovoltaic
vp m t i Photovoltaic Market Transformation Initiative
Printed by Balmar, Washington, DC (FSC certified)
re renewable energy
re f Renewable Energy and Energy E≈ciency Fund
Designed by Marc Alain Meadows
ds c Solar Development Capital
Meadows Design O≈ce, Inc., Washington, DC
. w mdomedia.com f ds Solar Development Foundation
ds g Solar Development Group
es f Sustainable Energy Facility
sh solar home system
sme small and medium enterprise
m ps Sunlight Power Maroc S.A.
rs i socially responsible investment
teri Tata Energy Research Institute
t re d Triodos Renewable Energy for Development
esco Swiss State Secretariat for Economic Affairs
v b a dr Vietnam Bank for Agriculture and Rural Development
vwu Vietnam Women’s Union
w bg World Bank Group
o wh World Health Organization
w p peak watt
c no t e n t s

A Joint Message 4
Executive Summary 6

ap r t 1: r e p or t ov e rv i e w

n
I to
r duction: The Deevlopment Case for Rural Electirfication 8

Chapter 1: ifc s ’ Appo

r ach in the Early 1990s 10

Chapter 2: ifc s ’ Expeirnce in the Solar vp Market 12

Chapter 3: ifc s ’ Lesons of Expeirnce 16

∫ Lessons about the vp marksolar
et in general 16
∫ Lessons about cif ’s financing programs 19
∫ Lessons about what makes a successf vp company
ul 22
solar

Chapter 4: ifc s ’ Appo

r ach Today 26

ap r t 2: s e l e ct e d cas e s t u di e s

1. The ifc / gefSmall and Medium Scale Enterpis Program ( sme Program) 30
∫ Grameen Shakti 32
∫ Soluz Honduras S.A. de C.V. 35
∫ Selco Vietnam, Ltd. 38

2. Photoov ltaic Market Transformation n

I i t a t i ev ( v m t pi ) 40
∫ Muramati District Tea Growers Savings and Credit Cooperative, Ltd. 45
∫ e ir s n
I frastructure Finance, Ltd. 47
∫ Sunlight Power Maroc S.A. 48

3. Solar Deevlopment Group 49

4. Cagayan Electirc Power & Light Company 54

References 58
Acknowledgements 60
a i o j n t m e s ga e

The Global Environment) Facility is the larg (gef est funder of renewable energy in the developi
supporting solar, wind, and other clean forms egf of’s
energclean
.y n
I 14energ
years,y portfolio has grown
to more than $1.9 billion in grants for projects in more than 60 developin
nearly $12 billion. These projects hold the promise of reduced greenhouse gas emi
ating poverty through the provision of modern energy services using locally avail
egf ’s approach to renewable energy seeks to create conditions for growing commerciall
markets, catalyzing private investment and supporting government commitm
cies, and widespread consumer acceptance. n I promoting these aims, the privat
national Finance icf Corporation
) is particularly
( important icf bring
and valuable.
s an institution
mitment and proven track record in promoting sustainable private sector inve
countries. eg f seek
Ass to define more e∑ective means of engaging the private sector as a pa
moting solutions to global environmental problems —a current icf ’s exppriority
erience on o
and capacity will be increasingly important.
As this study illustrates, despite the vp and
environmental
other renewable energ appeal
y tech-
of solar
nologies, finding practical business solutions toegf their has aintroduction
responsibil
ity not only to report these results, but also to avoid repeating mistakes
perience going forward. I am, therefore, very pleased by icf the haseffomade
rt to review the outcome of
its projects and make them available for others working in this field of increas
discussion of how these lessons have influenced more recently established icf in- p
vestments is an encouragi egf ng
’s example
influenceof on the larger investment communit
late icf for this study and trust it will be widely disseminated.

Monique Barbut
Chief Executive Officer and Chairperson
Global Environment Facility

4
Lack of access to electricity remains one of the key challenges in the developi
world. Renewable energy solutions including vp can make asolarsignificant
contribution to addressing the issue of rural electrification. However, findi
way to employ these solutions on a commercial and sustainable basis in
ing markets has yet to be discovered.
For almost 20icf years, has explored options for the commercialization of
solar in vp the developing world. n I the early icf initiated
to mid-1990s, several
solar activities
vp in partnership with other investors. Although thes
could not overcome all the complexivp ties market, of the
and have
solarnot
always lived up to their original expectations, they have provided valuable
lessons of experience that are documented in this study.
This report is in two parts. Part 1 describes icf ’s approach
theto
history of
solar and vp explains icf wh
today
y has developed a di∑erent approach to ad-
dressing rural electrification. t I will be of interest to those now in the
context and background.
Part 2 provides case studiesicf ’s solar
vp fin
onancing initiatives, as well as
examples of some of the projects that these initiatives supported. These,
hope, will be useful to those in the business of exploiting vp market in the approach
emerging markets.
n
I light of these lessons icf is of experience,
moving toward a broad approach to market-based sol
to rural electrification that supports a variety of technologies, includin
power lighting devices, and distributed power generation.
icf ’s e∑orts in this field would not have been possible without donor su
Environment egf Facility ), the primary
( source of funding for renewable energy projects in devel
countries, was, and remains, invaluable in providing the resources requi
noncommercial costs of new business models and financing programs.
Developing and sharing lessons of experienceicf are’s a pivotal
strateg,y part
andof I hope this
will be a useful tool to those who are currently operating in, orvp planning market on
in emerging markets. I also hope that this publication will contribut
regarding sustainable energy solutions for rural electrification.

Rachel Kyte
Director
Environment & Social Development Department

5
e x cu t i v e s u m a ry

Rural electrification has been a long-time focus for wb the g ) overall,

World Bank icf and Group
, the (
World Bank’s private sector investment arm. The contribution of electrificati
improved livelihoods and health, and increased education and productivity,
proximately one-third of the world’s population living without access to ele
of developing countries—rural electrification is a key means of achieving the Mil
Goals mdgs)( 1and reducing poverty.
Concern about the global environment in recent years has led to an increas
(re ) technologies. The Global Environment egf ) was initiated Facility as ( a pilot project in 1
formally established in its current form in 1994 with a mandate to address
strategy to support er investments. The World Bank Group became interested in explorin
tovoltaic vp ) mark( et as a means to providing clean energy service in rural areas that
grid. icf recognized an opportunity eg f to
funds
useto test various options for the commerci
solar in vp emerging markets.
This publication icf documents
’s solar
vp experience. n I total,
icf managed five egf -funded solar vp ini-
tiatives, of which four are discussed in icf /egf thisSmallpublication: and Medium Scale the Enterpris
Program ( sme Program), the Photovoltaic Market Transformation v pm t i ),n I the itiative Solar Develop- (
ment Group dsg ( ), and the grid-tied solar power plant of the Cagayan Electric Power and L
(cealcp o ).2While icf programs have been responsible for the installation of over 84,0
tems sh ), ( these programs have been less successful fromicf a having financial beenstandpoint
unable to
significantly transform markets and create sustainable businesses as origi
n
I some of the initiatives that were implemented, we have found the main
technology of solar vp , but in accurately judging market reality icf ’s and solar
vp portf trends.
olio has been
significantly impacted by well-documented market trends. These included a failed
of solar pvp anels would come down, the decrease in supply of smaller modules, and a
nomic shocks. Hindsight shows that icf and the manyinitial
market players belief
about s vpthe
of solar
market were overly optimistic. Through the implementation vp initiatives, icf has of its learned solar
a
great deal, not only about vp mark
the et solar
in general, but also about the type of financing
support solar vp market growth and what it takes to develop a vp successf company.ul Perhaps solar one of
the most important icf lessons
has learned that is that supporting the vp mark growt
ethis of the far sola
more complex than first envisioned, particularly due to the level of market segme
icf remains committed to addressing the issue of rural electrification in
tiously optimistic that vp amark
selfet -sustaining
will develop there. solar However, in light of t
we are moving away from focusing narrowly on solar vp as a way of addressing rural electrification. n I
stead, we are moving toward a broader approach, such as supporting a variety of technol
1A set of eight mercialization of low-power lighting devices, and distributed power generation
international
development goals for 2015,
adopted by the international com-
munity in the UN Millennium
Declaration in September 2000,
and endorsed by the International
Monetary Fundimf ( ), the World
Bank, and Organization for
Economic Co-operation and
Development eco d ( ).
2This review does not discuss the
experience of the Renewable
Energy and Energy E≈ciency
Fund re f ( ), due to an agreement
among participating investors
restricting disclosure.

6 s e l i n g s ol a r
k e y l e s ons from i f c’s ex pe r i e nces i n s ol a r p v

ı The issue of affordability cannot be addressed without segmenting the market.

The rural unelectrified market in developing countries is large. To reach it, proper segmentation a
come lines, needs, and lifestyle are necessary. t I vp module
was initially
prices could
felt
be that if solar
brought down to a certain level, or if business models could be structured to maintain low m
ments,vp solarwould become financially a∑ordable to the consumer and competitive with alternative
ergy sources. Experience has shown that the definition of a∑ordability varies among market segment
tive income levels, market applications, etc.), vp companies
and it remains
to identifa challeng
y the e for
niche market segments vp whis ere solar
the least-cost energy alternative for the consumer.

ı While solar PV is a viable technical solution, it is not the only solution. Without some level of
subsidization similar to that provided for grid-connected electricity, it often remains too expensive for the
average rural consumer.

Experience has also demonstrated that people are looking for a constant supply of electricity provi
grid connection. tI is important to vp is
notecheaper
that, for governments
while solar than costly grid ex-
pansion in dispersed rural populations, grid connection has emerged as a key political tool
oping countries, and the grid has almost always been heavily vp simply
subsidized.
can- n
I addition, s
not provide equivalent services to the grid, and it is also not the only technology avail
rural electrification demand. The high initial vp syscost
tem makof acquiring
esvp solar
consider-
a solar
ably less a∑ordable to the rural poor than alternatives, such as car batteries and kerosene.

ı Private equity is not the most appropriate financial mechanism for financing solar PV activities in
developing countries.

An important lesson
icf was that, for while private equity and venture capital firms are heavily involv
the manufacturing vp of fosolar
r developed country markets, the risks and economics vp in theof de-
solar
veloping world mean that the returns that such o∑-grid investors typically look for are nonexis
Profitable opportunities vp utilization
for solar in the developing world lie further up the value chain
marily in the manufacture vp modules
of solarfor export to subsidized, developed world markets.

ı Good government relations and support are a strong success factor.

While there are examples of companies able to establish successful ventures without express
support, those companies fortunate enough to operate with a government concession for exclusive
ial rights to distribute
vp systems solar
(or with some form of subsidy or favorable pricing agreement)
tended to be more successful than companies operating without explicit government support.

e xe cu t i ve su m a ry 7
 a r pt 1

n
I ort duco it n: The Delev opmn e t
Case o
f r Ruar l Eleccfiirt ato
i n

More than 1.6 billion people, roughs ol ly a r pv :oneanthird at t r act i v e t e of chnol o gy

the world’s population, live without for ru a l elaccesse ct r i f ic atto ionelec-
tricity. The vast majority of those without electricity
live in rural areas. The World Bank estimates I e≈cient that
n energy infrastructure, rapidly growin
67 percent of the rural population inmand, developing and a general lack of generating capacity
countries is without electricitymean . As that a result, many low -in-
developing countries are un
come households around the world spend meet billions their basic energy demands. The n I tern
of dollars every year on expensive and environmen- Energy Agency ( iea ) estimates under its referen
tally damaging energy sources such as charcoal, scenario firthat e- developing countries requi
wood, and disposable batteries, with lion an estimated
annual investment for the electri
$38 billion a year spent on kerosene alone. alone. 3n
I This rural areas, is where as many as four out of
especially true in Africa, where roughlyfivtw o thirds
e people lack electricity, conventional gri
of households—more than 580 million connected people—de-electricity schemes are often no
pend on wood fuel for their daily cooking and Gridheat- expansion can be extremely costly and h
ing needs. People in emerging marketsdemonstrated who rely on numerous times to be far les
these fuels use much of their labor e∑ective to gather than wood supply
sh . 4 Because
ing of the high
fuel and are exposed daily to indoor air pollution. cost of extending electrical grid coverage in t
The World Health Organization o wh ) estimates
( areas, non-grid-tied renewable energy technologi
that the pollution caused by using such indoor as vp solar biomass
, may be a least-cost solution
cook stoves is responsible for 1.6 million The availability deaths per of clean electricity n
year—mostly of young children and mothers. households avoid the health risks ass
Access to modern, reliable energy is important for forms of energ,
conventional y such as kerosen
rural development and improved livelihoods. charcoal, En- and disposable batteries, but
ergy is a major tool for poverty alleviation, the glincome obal environment through the avoi
generation, health, and other developmental greenhouse gasagen- emissions and convention
das. The provision of clean electricity lution to lowassociated -income with fossil-fuel-bas
3 In ternational Energ y Ag e ncy

(iea ),orldWEnerg y Outlo k 2004,

households allow s f o r increased opportunities
tricity . Renewf o r a ble energ y technologies also
eco d andiea , Paris. studying in the evenings, as well as increased
ernments gainpro- energy independence and elim
4 Foley, 1995, p. 41. ductivity of agricultural and micro-enterprise the need foactivi- r costly grid expansion to remote v
5Erick s on, 1995, p. 1130. ties. Numerous studies have confirmed Solar that vp and the sh are attractive renewable energy
6 Cabraal et al., . 1996 social benefi t s f r om electrifi c ation— t he
technolog ability i es tofor many applications in o∑
7 For more inf o rmation on the power lights, radios, small appliances, Most developing and televi- countries lie in areas wi
wbg renewable energy strateg, y sions—make a significant contribution solarto enhanc-
insolation levels—a —am “ nd,ust” for sola
visit . w worldbank.org/re.
ing quality of life. This enhancedwi quality
th the ofadded lifbenefi e has,
sh t being
of modular,
sh
8 i fc ’s initiative cealcp o in with
the Philippines was the only grid-
in turn, proved to be a key driver of increases can be installed in the to provide energy for one hous
tied investment made.demand for energ. y groups of houses, or an entire village. Oth

8 s e l i n g s ol a r : a p r t 1
 able energy resources (e.g., hydro or biomass) in are solar
vp businesses in frontier markets.
typically better suited for less dispersed icf has populations,
since used its skill and experience in
as they generally become economical only structuring
if they are projects that target the private sector to
able to provide energy to a more sizable 5 develop
population. and implement a egf number -funded of
Photovoltaic technologies already provide solar projects,vp elec- many of which operated across
tricity in developing countries tocountry an estimated lines. icf ,Todaytogether with the World
500,000 to 1 million rural households Bank, is lackthe largest financiervp ofin
ing access o∑-grid solar
to electricity sh is
grids.
one of the most common the developing world, having supported the
forms of solar vp application in rural sh installation
areas. An er 1.3 million
of ov vp systems. 8
solar
usually provides electricity for two or three (See Table fluores-1 below for details on the World Bank
cent lights; a radio, cassette play er, or television;
Group’s solar
vp related projects.) and
other small appliances. Electricity is drawn from
rechargeable batteries charged through an electronic
charge controller byvp solar
modules mounted on a
pole beside the house or on the rooftop. The total
capacity of the unit is usually inTABLE the range of 30-100
1: WBG SOLAR PV INITITIATIVES
peak wattsw p),
( but can be less 6 or greater.
COUNTRY NUMBER NUMBER OF SOLAR PV COST**
The direct economic benefi sh t
include
s of in- OF PROJECTS SYSTEMS INSTALLED* CAPACITY (kWp) ($ MILLIONS)
creased convenience and safety, improved indoor air
quality, a higher quality of light Argentina
than kerosene for 1 30,000 2,843 36.0

reading, and the displacement 2emissions.of CO Bangladesh 1 198,000 9,900 91.4

m
I proved lighting provides additional Bolivia educational 1 60,000 2,600 38.6
Burkina
benefits, particularly for children, and can allow in- Faso 1 8,000 300 3.0

come-generating activities to occur beyond normal Cambodia 1 10,000 400 4.0

work hours. Solar vp systems can power lights Cape Verdeand 1 4,500 129 2.5

vaccine refrigerators in medical clinics, China run low-lift 1 400,000 10,000 144.9

water pumps, and allow for the operation of other Ecuador 1 2,200 110 1.5

vital systems. Ethiopia 1 6,300 407 5.4

India 1 45,000 2,500 24.0
Indonesia 1 8,500 425 3.8
t h e wor l d bank grousp’ Laos 1 4,000 160 1.3
i n vov le m e nt i n s ol a r p v Madagascar 1 15,000 625 7.5

When the Global Environment es- Mali

efg ) was Facility ( 1 10,000 420 5.0

tablished in 1994, it made available Mexico a new source of 2 37,000 704 12.9

funds to support projects that generated global envi- Mongolia 1 50,000 520 5.2

ronmental benefits. efg ’sOne operational

of Mozambique
pro- 2 9,800 1,096 13.5

grams supports renewable energy activities Nicaragua that are 1 6,000 215 3.0

unable to secure commercial financing elsewhere. Pacific Islands 1 21,000 630 16.5

The wbg was at the time particularly interested Papua New Guinea in 1 2,500 100 2.2

utilizing efg funds to develop the renewable and en- Philippines 2 139,000 10,000 113.0

ergy e≈ciency potential in emerging markSenegal ets and to 1 10,000 420 5.0

gain experience in the 7

vp marksolar
et. Sri Lanka 2 104,400 4,176 36.1

cif was particularly interested in exSwaziland ploring op- 1 2,000 100 1.3

portunities for the commercialization vp . Tanzania of solar 1 40,000 2,500 30.0

With its mandate to further economic Uganda development 1 90,000 6,300 67.7
Multiple countries † 14 84,000 + 25.3
through the private cif had sector,
been active in the
solar mark vp et since 1989, when it made Totala $3 mil- 44 1,300,000 + ~58MW ~700.0

lion investment (debt and equity yk ) in

Source: Shenzhen
Anil Cabraal, 21st EU Solar PVSEC, 2006 (with update, January 2007).
Solarvp Energy Co., Ltd.,vp a manuf solaracturer * Figures include both the number of systems installed and the target installation for projects currently under
implementation.
in China. Although the investment, made using reg-
** Cost includes only total investment of solar PV components/applications.
ular cif funds, did not meet its origi nal † ex p ectations,
Includes projects of the SME Program in Bangladesh, Dominican Republic, Honduras, Tunisia, and Vietnam, and PVMTI in
it established an important precedent for Morocco.
India, Kenya, and investing

i n t r od u c t ion 9
 ch a p t e r 1

F
I C’s Apo
rp ach n
i eht
Early 1990s

t h e em e rg ence of s ol a r p v tionality of the technolog. y Little to

was paid to commercializing the market t
n
I the early 1990s, icf was when
in the process widerof dissemination of the technolog. y G
structuring its vp mark first etsolar
initiative, the majority
there of early initiatives were grant
was a great deal of anticipation aboutprogthe rams, future many of of them ended when funding was
solar in vp emerging markets. Overall industry exhausted, as the programs had not been des
growth had accelerated steadily since wi thearly
the financial sustainability or repli
1980s.9nI emerging markets, it was felt considerations.
that there
was an opportunity for small-scale vp applica-
solar By the mid-1990s, large capital flows were st
tions,sh such , toas replace diesel generationing into and vp solarbusinesses. Large players, such
to provide supplementary power to grid-connected BP, Shell, and Total Energie, were enterin
systems. 10 ket, manufacturing vp panels,
solar and selling s
The first renewable energy initiatives vp sythatstems were to rural electricity consumers
implemented in emerging markets were ing countries. Anyone with the means an
largely
donor-led and focused on demonstratingin the electricity
func- in emerging markets experim
with solar vp in what appeared to be a major emerg-
ing business opportunity.

s i z a bl e m a r k e t and dem a nd
The potential market was considered very att
An estimated 1.6 billion people were wit
tricity (roughly 400 million households
which could be electrifish e.
d wi
The
th thought
was that ifvp solar
was made available to a commu-
nity, demand would be similar to that
with the arrival of grid-connected electrici
the initial start-up cost vp wasof acquirin
considerably more expensive than the alte
such as batteries or diesel generators, i
that a significant segment of the unelect
lation would opt for the superior vp quality
, o
could financially a∑ord it, and would purchas
tems if credit were available. The opportuni
bring about a substantial increase in
was present; in fact, some were predicting a

10 s e l i n g s ol a r : a p r t 1
growth pattern to that experienced with question,
personal as it was largely believed to be the best
computers and mobile phones. technological solution to rural electrification, given
its scalability and fit for dispersed populations.
At the icf time was structuring the vp ini-solar
pr ic es wou l d fal l and s ol a r p v
tiatives discussed in this report, it was widely
cou l d becom e mor e fi n anci a l y
thought that the prices vp modules
of solar would
affor dabl e
continue to decline. The vp price
modules of solar
I was widely perceived that the mainhad
t decreased
barrier to by a factor of over 50 since the early
scaling up the industry was rooted not 1970s, in the and it was expected that further price reduc-
tech-
nolog, y but in the financial a∑ordability vp . tions ofwould solar continue to occur as a result of techni-
Solarvp had proved to be una∑ordable for three cal progress in materials, cell design, and manufac-
key reasons: (1) the overall price vp mod-
of solar turing methods, as well as economies of scale in
ules was not considered competitive manuf acturing
against 11
I .was expected that
alter-
t vp solar
mod-
native electricity sources, such as ulediesel
prices wogeuld nerators;
decline su≈ciently to allow solar
(2) there was no financing available vp to
vp to help becomesolara cost-e∑ective replacement for diesel
consumers with the large initial fuelcost of acquiring
or kerosene. With cost expected to decrease, the
and installing vp sysatem; solarand (3) subsidieslack of consumer access to financing was seen as the
for other forms of energ, y such as grid-tied majorelectric-
constraint. icf considered that it could struc-
ity, were distorting the market. Theture appropriateness
solar
vp initiatives to address this constraint.
of solar vp technology itself was not called into

SIGNIFICANT SOLAR PV MARKET TRENDS

During the period in which IFC’s solar PV projects were implemented, there were a number of well-docu-
mented market trends that emerged in the global solar PV market that had a significant impact on solar PV
markets in the developing world. These were the discontinuation of the expected downward trend in solar
PV module prices, the increased demand for large solar PV systems in the industrialized world, and the
global economic shocks that occurred in the late 1990s and early 2000s (the Asian and Russian financial
crises of 1997 and 1998, respectively, the Argentine economic crisis of 1999, and the 9/11 attacks). While
these market trends were not on their own responsible for the limited success of IFC’s portfolio, they did
serve to further exacerbate existing obstacles.
Prices did not decrease as expected and, in recent years, the exact opposite has occurred. According to
the United States Department of Energy’s Energy Information Administration (EIA), the average price for
9 Jack s on, 1999, p. 376.
silicon contracts increased by approximately 25 percent between 2004 and 2006.12 As silicon is a key com-
10Ahmed, 1994, p.7.
ponent in the construction of solar PV panels, this has had a serious impact on the overall price of solar PV
11This review does not discuss
systems. The main reasons for this increase were the continued tight supply of high-grade silicon, as well experience of the Renewable
as the increased demand for solar PV, fueled by subsidized programs in the industrialized world. Energy and Energy E≈ciency
Fund re f ( ), due to an agreement
It is currently estimated that as much as 50 percent of the cost of solar PV electricity is paid for through
among participating investors
transitional subsidies. Most of this is for grid-connected systems, which currently represent well over three restricting disclosure.
quarters13 of the total solar PV market. In Germany, for example, the electric utilities are now paying cus- 12http://w.
w solarbuzz.com.
tomers a significant premium for any surplus solar PV power they sell back to the grid. This huge premium 13Some estimates place g r id-con

has resulted in a sizable increase in the global demand for solar PV systems. nected systems at over 90 percen
of the total
pv mark
solaret.
The increase in demand for solar PV in the industrialized world has affected solar PV markets in the de-
14Hande, 2006.
veloping world, not only through increased prices, but also by shifting production away from the smaller
15Hande, 2007.
modules. Load requirements in industrialized countries are significantly higher than those in developing
countries, and manufacturers have chosen to move away from the manufacture of smaller modules in fa-
vor of the increased profitability and steady cash flow associated with catering to the industrialized coun-
try market. The lack of supply of smaller modules has led to increased working capital requirements for
smaller integrators,14 as well as increased pressure on prices for smaller modules. In the period between
mid-2005 and the end of 2006, the price of 40-watt panels has increased by 50 percent (36 percent for 20-
watt panels).15

i f cs’ a p roac h i n t h e e a r ly 19 9 0 s 11
 ch a p t e r 2

F
I C’s Exneirp ce n
i eht
Solar PV Markte

icf has learned many lessons from its The exinvestment

perience in o∑ering can then adequat
the solar dress a relatively homogenous set of needs.
vp market. These lessons are summarized
in the following chapter. By far the most a relatively
important di≈cult icf as,
lesson
from the
for out-
has drawn from its experienceset,
lessonicf that is that the goal of many ofvp ourinitiatives
solar was
there is not simply one targevp t in markesimply
t for solar to provide services to the unelect
developing countries, namely the entire result, the experiences
unelectrifi ed outlined below le
market, but many di∑erent target market degrees
segmofents.
success, both in their e∑ectiv
To be successful, vp ventures
solar should be theirstruc- implementation.
tured with a narrow, well-defined target markecif t.approved itsegf first-financed investment to

TABLE 2. IFC/GEF SOLAR PV INITIATIVES

DATE TOTAL GEF SHARE

OPERATIONS INVESTMENT OF TOTAL CURRENT
PROGRAM BEGAN GOAL AMOUNT FUNDING STATUS

SME Program 1995 Increase access to finance, $20 million* 100% The SME program was
build capacity, and increase ($2.7 million absorbed into the
growth of markets for SMEs used for five Environmental Business
active in the areas of climate solar PV- Finance program in 2004.
change mitigation and related Some of the solar PV
biodiversity conservation. businesses) investments have been
closed; others are ongoing
and operating successfully.

PVMTI 1998 Accelerate the sustainable $30 million 100% Ongoing

commercialization and
financial viability of energy
services, based on solar
PV electricity.

SDG 2000 Deliver SHS to rural $41 million 25% Dissolved in 2004
households in developing (SDF $12 million,
countries. SDC $28.7 million)†

CEPALCO 2002 Demonstrate solar PV $5.775 million 70% Operating successfully

effectiveness in supplying (CEPALCO
energy during peak usage provided
periods, thus avoiding new $1.775 million
plant construction. in financing)

* The SME Program received a total of $20 million in funding from the GEF in two stages; a portion of this funding was earmarked to finance solar PV-related projects.
† For details on additional shareholders, see the SDG case study on page 49.

12 s e l i n g s ol a r : a p r t 1
 solar vp company in 1998 throug cif h/egf the SmallTABLE 3. IFC/GEF SME PROGRAMS’S SOLAR PV PROJECTS PORTFOLIO
and Medium Scale Enterprise sme ) Program. ( That COMMITMENT
same ey ar, cif ’s first solar -focusedvp financing facil- COMPANY COUNTRY (IN MILLIONS)

ity,cif the /egf Photovoltaic Market Transformation

Grameen Shakti Bangladesh $ 0.750
n I itiative v m pt i ), (also became operational. Over the
Environmental Enterprise Assistance Fund (EEAF) Dominican Republic 0.075
next five ey ars, cif supported three additional SoluzsolarDominicana*
vp -related initiatives, egf , all including financed by
Soluz Honduras** Honduras 0.500
the Solar Development dgs Group ), wh ( ich in-E + Co Rex Investment† Tanzania 0.150
cluded the Solar Development Foundation f ds ), Cogener ( Tunisia 0.500
Selco Vietnam Vietnam 0.750
Solar Development Capital dcs ), and( the cealcp o
Solar Photovoltaic Demonstration 16Table 2 Project.
* The SME Program lent to EEAF, which on-lent to Soluz Dominicana S.A., an SHS distributor.
outlines cif ’s egf -funded solar vp initiatives. ** Soluz Honduras S.A. de C.V. received a $400,000 loan, as well as a $100,000 equity investment.
† The SME Program lent to E+Co fund, which on-lent to Rex Investment Ltd., a leading Tanzanian solar PV distributor.
The programs and projects implemented icf by
have resulted in significant overall social and envi-
ronmental benefits. Examined for nonfinPerhaps ancialone re- of the most important icf lessons
16This review does not discuss

experience of the Renewable

turns, such as the number of households learned frelectrifi om the sme Proged,
ram’s experience withEnerg the
y and Energy E≈ciency
the displacement of indoor air pollution, solar mark vp etgender was that it was possible Fund to o∑set
re f ( ), due to an agreement
among participating investors
empowerment, education, health, and some increasedof the risk in- s associated vp by invest-
with solar
restricting disclosure.
come-generation opportunities for theing endin user, a number
the of di∑erent markets and sectors.
icf solar portf vp olio has performed well, with Contrasting over the experience of Grameen Shakti,
84,000 sh installed. However, from a financial which operated in densely populated Bangladesh,
standpoint, performance has proved below with expecta- those of Selco Vietnam and Soluz Honduras
tions, as it has generally not met showthe ed that initial economies projec-of scale are harder to come
tions of investee companies. by in sparsely populated and remote rural areas.
Economies of scale are vital to the success of solar
vp companies, since they reduce the financial cost of
t h e i f c / gef s m a l and m e di u m
monthly rental fee or payment collection, as well as
s c al e ent e r p i s e pro gr a m
an ongoing system service and maintenance. With-
The icf /egf sme Program was established in out1995 a sizable as service population, vp a private solar
a $20 million initiative, eg f . t I fincompany
anced entirely simply bycannot financially sustain the cost
sought to increase access to finance,of build a service technician
capacity , or collection agent, and ulti-
and increase markesme ts s foactiver in themately areas of this leads to collection issues and di≈cult
climate change mitigation (energy e≈ciency in maintaining and re- systems (as was the case with both
newable energy) and biodiversity conservation Selco Vietnam and Soluz Honduras).
through the provision of concessional Theloan sme Progrfin
amanc- experience highlights the im-
ing. The sme Program was the first egf -funded, portance of local ownership and government sup-
nongrant, sme financing program targeting the port. pri-Grameen Shakti’s ties to Grameen Bank and,
vate sector. While sme Progrthe
am did not through it, the local community proved to be in-
specifically target vp companies,
solar it became valuable op- and a major driver of Grameen Shakti’s
erational at a time when there was considerable success. Soluz in-Honduras found that the lack of a
terest in vp the markesolart. (See the icf /egf sme defined exclusive government concession to defend
Program case studies, page 30.) geographic service territories was problematic when
Over its lifetime, ems Program approved the invest- it was faced with unexpected grid expansions that
ments in vp v fi e-related
solar businesses (see eliminated Table 3 large numbers of established customers.
of r details). ems The Program’s experience in the (See solar case studies on Grameen Shakti, Soluz Hon-
vp sector aw s mixed, i w th one successfduras, ul project and Selco Vietnam in Part 2.)
(Grameen Shakti in Bangladesh) and other projects
i w th more limited success. n I 2004, the operations of
phot ovotla ic m a r k e t
the ems Program ew re absorbed by the Environmen-
t r a ns f or m at ion i n i t i at i v e
tal Business Finance ), aProg$20 ram million (ebpf
cfi /feg initiative that aw s designThe ed as icf /aegf vpmti successor is to, a $30 million
egf -funded ini-
and based on, the experiences ems Program. of the tiative designed to accelerate the sustainable com-

i f c s ’ e x pe r i e n c e i n t h e s o l a r p v m a r k e t 13
 mercialization and financial viability areas where ofsolar vp way s
energ ser- most needed. v pm t i was,
vices based on vp technolog solar y in n I dia,indeed, Kenya, flexible, icf was and able to restructure the
and Morocco. Launched invpmti 1998, is expectedprogram to better suit the needs of the mar
to continue to the end of its extended vpmti mandate ’s experience in in Kenya highlighted
December 2009 and, by the beginning foofr 2007, technical had assistance funding. Whil
committed over $18 million to 12solar projects. vp market(See was well-established, with m
v pm t i case study, page 40.) players and a true entrepreneurial culture, t
v pm t i initially found it di≈cult no to real structure
structure deals to the market and no stan
as the extensive documentation required, quickly became small in- that there was a need
apparent
vestment size, and long negotiation fundingperiods to help proved strengthen the overall m
too burdensome for many small and thinly throughcapital- the creation of performance standards
ized solar companies.
vp t
I quickly becamebyapparent securing government support. (See case stu
that companies would not be able toonabsorb er i s and re-
, Muramati Tea Growecsa cors and Sunlight
pay committed funds by the original Pow end er Maroc dateS.A. of in Part 2.)
December 2007. The extensive documentation
process and small investment size also resulted in
s ol a r dev e l opm e nt grou p
high operationalvpmti costs in forelation
r to its
portfolio. n I vpmti 2004, underwent a significant The Solar Development Group dgs ) wa(s a $41 mil-
restructuring that extended its operational lion initiative mandate which became operatio
by two years and has resulted in an increase The goal wain s to the deliver
sh to rural households in
proportion of disbursements to commitments developing countries. todgs was comprised of two sep-
roughly 80 percent. arate entities: (1) Solar Development dcs ), a Capi
Asvpmti is still an operational$28.7 project, million it isfor-profi di≈- t private equity fund
cult to evaluate its overall performance vided (see growtTable
h capital 4 for private vp andsolar solar
for a summary of the v pm t i portfolio). To date,vp -related businesses; and (2) Solar Develo
v pm t i financing has resulted in the Foundation installation f ds ),( a $12 ofmillion nonprofit ent
over 60,000 sh units in previously unelectrifi provided business ed development assistan
households. The Mid-Term Program Review,finwh ancing ich to support the establishment
was completed in July 2006, vpmti noted will that
vp businesses. dg s case (Seestudy, page 49.)
be responsible for the displacement ofdsc an estimated
experienced problems very early in imple-
109,466 tonnes of CO
2emissions over the mentation. lifetime There simply were no viable opp
of the installed sh s. ties in vp the markesolar t that would provide the
The vpmti experience highlights thereturns need for that private equity investors we
flexibility in program design. The initial Despite revisions $500,000 of return dsc exman-pectations,
minimum investment proved to beagetoo d tolarg approve
e for only six investments, tot
most sme s to absorb, and the extensive million business (of the approved projects, only $65
plans and other documentation proved wastoo disbursed
daunt- to three investments), b
ing for the small businesses vp activeliquidated in the in solar 2004. f ds , n
I wi contrast,
th its focus
sector, particularly those in the on lowethe r density provision rural of early-stage working capital
loans, guarantees, and technical assi
was largely able to meet its targets, maki
TABLE 4. PVMTI’S ACTIVE SOLAR PV PROJECT PORTFOLIO ments totaling over $3.5 million to
COMMITMENT 23 countries. dsc ’s With liquidation, f ds however,
COMPANY COUNTRY (IN MILLIONS)
transferred its operations to the Triodos
Selco India India $ 1.10 Energy for Development terd ( ) Fund and d sg
Eskom-Shell Solar Home Systems India 3.90 ceased to exist in April 2004.
Shri Shakti India 2.23 cif learned a great deal from dgs the experience
SREI Infrastructure Finance, Ltd. India 3.50
Barclays Bank, Kenya Kenya 2.00
relating to the type of financing programs requ
Equity Building Society (EBS) Kenya 2.10 for solar vp . A key lesson was that a diverse sh
Muramati District Tea Growers SACCO Kenya 0.60 holder group can be problematic. With over 15
Salafin S.A. Morocco 1.00
di∑erent investors from a wide range of inst
Sunlight Power Maroc S.A. Morocco 1.075
(nongovernmental, bilateral, and multi

14 s e l i n g s ol a r : a p r t 1
 ing organizations, socially responsible investment
funds, and private companies), as ew ll as private in-
dividuals, it was very di≈cult to satisfy the share-
holders’ di∑erent objectives and expectations. When
it became obvious dcs required
that restructuring,
reaching consensus on a new structure proved im-
possible dcs and was eventually disbanded.
The dsg experience also highlighted the necessity
of focusing mainly on market development and ca-
pacity building. dsg Overall,
had only focused on
developing individual businesses, rather than on the
market as a whole.
The dsg experience, more than any icf so- other
larvp initiative,icf demonstrates ’s optimistic out-
look on the market. During the initial planning
stages dsg for , over 100 investment opportunities
were identified dsc for . Ultimately, none of the op-
portunities identified in the feasibility study re-
ceived dsc support, as the market was not prepared
for equity-type investments, companies were not in
a position to absorb so much capital, and the return
expectations by most of the candidate businesses
were not met.
eg f grant, which was providedicf throug , e∑ec-
h
tively subsidized 70 percent of the construction and
cagay a n el e ct r ic p ow e r and l ig ht
start-up costs cealcp o of the solar plant. vp Thus,
comap ny
the intended potential for replication is currently
cealcp o is a private electricity distribution somewhat limited, com- since vp prices global
re- solar
pany on the island of Mindanao in main the Philippines. too18high.
n I December 2002, cealcp o received $4 million The incealcp o experience highlights the impor-
eg f funding (loan convertible to icf togrant)tance from of a strong local presence and knowledge of
buildmw a 1 distributed generation power the plant, local market and its regulations. Although the
which was integrated into mw distribution
the 80 cealcp o plant was a small plant, the Philippine
network of cealcp o and operated in conjunction Government did not make a distinction between it
with an existing mw run-of-7the-river hydroelectric and the more conventional electrical plants.
plant. The purpose of the project was tocealcp o demon- was still required to comply with the per-
strate the e∑ectiveness vp in addressing of solar mit dis-process required for much larger fossil-based
tribution system capacity issues, plants. thereby As delayai result,
ng over 50 permits and licenses
the need to construct a new hydroelectric would plant.have been required, many of which were in-
The solar vp plant operated through a conjunctive appropriate for a small, clean RE plant. Without the
use application, whereby hydropower vp and solar sta∑ knowledgeable of local government processes, 17 World Bank Group,Renewabl

resources were used jointly, for the firstthis time, would

to have in- been a very daunting process, Energ y for Developm nt—The Role po-
orlfdtWBahe nk Group , 2004.
crease the capacity of the hydropower unit tentially
and con- crippling the project’s implementation.
18 Other larg e -scalepv solar power
vert the vp solar plant’s power output to firm dis- The cealcp o project also highlightsplants the necessity are now being construct
patchable power, rather than an intermittent of capital cost reductions for larger-scale in Europe grid and appli-
North America,
resource. 17 (See cealcp o case study, page 54.) cations. Without eg f grant, the cethe
alcp o plant due to generous subsidy
programs, financial incentives
Fully operational since cealcp o 2004, plant thewould not have been financially viable, (e.g.,as the price
tax credits), and the exi
has operated successfully and without of solar
incident m
vp odules since was simply too high to be com- tence of renew able energy portfo-
lio standards, some of which
its inauguration, making a strong petitive technical with case the for capital mw dieselcostgenera-
ofrequire a 1 a certain percentage of
the reliability of utility vp power plants -scaletor. solar Perhaps most important, cealcp o project
the solar capacity. Plans mw for a 40
solar pv plant were recently
and resulting in a significant reduction demonstrated in green- the potential for conjunctive announced in Europe (see box
use ap-
house gas emissions. t I is important plications to note vp .of solar that the relating to Moser Baer, page 22).

i f c s ’ e x pe r i e n c e i n t h e s o l a r p v m a r k e t 15
 ch a p t e r 3

F
I C’s Leo
s ns of Exn
eirp ce

Through the implementation of themistic projects dis- and not supported by changes in m
cussed in this icf has report,
learned a great deal damentals. A∑ordability remains a key is
about the vp solar market in developing countries, government support is still needed, but
the type of financing required to support vp ing ; and, overall, unsubsidized
solar vp programs are solar
market growth in those countries, and di≈cult
what it to tak implement,
es particularly in
to develop a successfvp ul company
solar . Perhaps degree of subsidization and political s
one of the most significant icf has
lessons ternatives,
that such as grid extensions.
learned is that vp mark the et solar
is far more com-
Expectations Were Overly Optimistic
plex than first envisioned.
This complexity is rooted in thet I fact has that,
now become despite apparent that vp pro-
early solar
the apparent social and environmental grams, benefi
desig ts, nicf ed so-
and
by others, su∑ered from
larvp remains una∑ordable to the majority of the
overly optimistic outlook vp smarkon
et’s
the solar
unelectrified population in most developing coun-
growth opportunities. With 400 million
tries. The mere fact that it is more economically
unelectrifi ed households, the potential
a∑ordable for a government to provide electricity seemed vast, but it rapidly became apparent
through solar than vp through grid expansion actual doespotential demand did not equal t
not, in itself vp fin,ancially
make solara∑ordable to
unelectrifi ed population. While extensive
the end user. t I is important to exstudies plore the di∑erent were carried out prior to the implem
segments of a potential market, develop tion products
of any
icf of’s solar vp programs, these studies
that are suitable for di∑erent consumers, focused more andon re- identifying businesses t
spond to a range of needs and income levels, evaluating as weend-userll demand. Furthermore, upo
as identify opportunities vp is where
thesolar
least-
implementation, it became apparent th
cost alternative. the opportunities that hadthe been ident
market studies during the planning stage
appropriate. the n
I case dsc of, for example, not
l e s ons abou t t h e s ol a r p v m a r k e t
one of the over 100 opportunities identifie
i n gener a l
feasibility study dsc support.
received The initial
While solar vp technology is a well-established market assessmenttech- had overestimated th
nolog, y and technical advances have ofbeen thesig markn
et; ificant it simply was not yet ripe fo
during the last several decades, the of equity
emergenceinvestment
of a dsc was seeking to provide.
consumer market for solar vp is relatively recent in
Solar PV Is Not the Only Answer to Rural
most developing countries. icf first Whenbecame
Electrification
involved in vp the markesolar
t, there was a great
deal of excitement regarding the potential Most icfoffor ’s financing programs had a dedicated
growth in the markicf et. quick
As ly came to real- focus on solar vp , an optimistic and too res
ize, howethese ver, projections were overly t “ unnel-vision” reflection of the general bel
opti-

16 s e l i n g s ol a r : a p r t 1
 solar wavp s the best solution in areas tion not scaled
connected up, thus vp electricity
making solar more
to the electrical grid. Small-scale vp systemscompetitive.
dosolar However, as indicated previously, the
not o∑er the constant supply of electricity anticipated thatdecrease most vp prices
in solar did not mate-
people want, and without focused financing rialize; pro- the price actually increased in 2004/2005.
grams, it continues to be una∑ordable Theto issuethe vast of a∑ordability has been a key driver of
majority of the unelectrified population. the n I business
the ab- models employ vp compa- ed by solar
sence of a grid connection market, consumers nies. have n
I order to keep the upfront sh a∑ord-
cost of
continued to find other, more a∑ordableable, ways companies have generally followed one of two
(diesel generators, disposable batteries, approaches: they have provided
kerosene sh on a fee-for-ser-
lamps) to meet their electricity needs. vice, or rental model, charging a monthly fee for the
service provided, or they have arranged for financ-
The Hard-to-Define and Very Segmented
ing to allow the consumer to pay the balance of the
Solar PV Market
sh in monthly installments (lease/hire purchase
The market for solar vp in developing countries model). was Many businesses also engage in cash sales.
initially defined to be the total Throug number h Soluz of unelec- Honduras, experience has shown
trified households, some 1.6 billion thatpeople. the fee-fn I or-service,
real- or rental, model has ulti-
ity, the marketvp for is solarmuch smallermately and proved unsustainable, since unexpected grid
significantly more complex to define; smaller expansion largtends
ely to jeopardize the customer base be-
due to the issues of financial a∑ordability fore the hig andhper- upfront costs of acquiring and in-
ceived value, and complex in the need stalling
to recognize vp the systems
solar can be recovered by the
the di∑erent market segments, which solar utility
are rooted in .
income level, lifestyle, and numerous The continued
regional andhigh price vp modulesof solar is
geographic di∑erences. further o∑set by the issue of perceived value. Expe-
rience icf by and others has shown that a∑ordability
Financial Affordability and Perceived Value
is not exclusively linked to price or the availability
The biggest barrier to widespread adoption of finofancing
solar . A∑ordability is also linked to the per-
vp technologies is a∑ordability. At ceivedthe value time and eachopportunity
of cost
vp pur- of solar
the icf initiatives was structured,chase. it wasn I wimany
dely be- rural settings, the purchase of a solar
lieved that the price for solarwould vp system represents a very significant expense; in
vp modules
continue to decrease significantly as Vietnam,
mass produc- for example, the systems provided by

LESSON LEARNED: GOVERNMENT SUPPORT CAN MAKE A DIFFERENCE

SOLAR PV PLANT CONSTRUCTION IN THE CZECH REPUBLIC

The IFC/GEF CEEF program* has issued a $1.08 million project guarantee for a 1.2MW solar power plant, the
largest solar PV power plant installed to date in Central and Eastern Europe. The solar PV power plant
became operational on January 29, 2007. This installation, in Busanovice, southern Bohemia (Czech Re-
public), will decrease the country’s CO2 emissions by 743 tonnes annually, and will produce 620MWh/year.
Electricity from solar PV, as well as other renewable sources, has the support of Czech national renew-
able energy legislation, which guarantees feed-in electricity tariffs for 15 years from project commission-
ing and off-take obligation for the grid operator. For solar PV power, the feed-in tariff is 13.62 Czech crowns/
kWh ($0.62/kWh).
The plant has already been connected to the distribution network and started commercial operation on
February 1, 2007. The 2,660 silicon-based solar PV modules, which are spread across 6,170 m2, can ensure
electricity supply for 172 households. The maximum planned capacity of the power plant is 693 kW. A
solar PV panel with an area of 1 m2 produces as much electricity in a year as 250 kg of coal and saves a
total of 750 tonnes annually of CO2 that would otherwise be discharged into the atmosphere by the oper-
ation of a coal-fired power station. By the end of 2007, the plant capacity will be ramped up to 1.2 MW .

* IFC/GEF-CEEF, the Commercializing Energy Efficiency Finance Facility, operates in Eastern Europe with both GEF and IFC financing. The fa-
cility provides a partial guarantee for loans made by local financial intermediaries for EE/RE projects, as well as technical assistance.

i f c s ’ l e s o n s o f e x pe r i e n c e 17
Selco Vietnam were sold for roughly a year’s in-
companies are able to take advantage of economi
come. As a result, the decision to buy even Part
of scale. a small
of Grameen Shakti’s success,
solar sy
vp stem often meant sacrificing ple, a largeis
r item.
attributed to its servicing d
There is a trade-o∑, however: with their limited
areas; economies of scale were not an issue
electricity supply capacity
vp sys, tems
solar often do are examples of vp solar
there businesses that h
not come out on top, when compared to operated
possible al- ully in more sparsely popula
successf
ternative purchases. eas, it is certainly a more di≈cult ven

Economies of Scale Government Support and Enabling Environment

Solarvp technology is well suited to Arural, supportive highly legal environment is essen
dispersed, sparsely populated areas, but shouldit include is pre- as many of the following el
cisely in these areas vp progrthat
ams aresolar
mostpossible: no import duties sh compo-
or tari∑s on
di≈cult to implement. A certainnents; scale is incentives
requiredvp energ
iny orfor absence
solar of
order to become profitable, but if the company competingsees subsidized electricity; publ
a need to reach too far out of the central long -term government electrification plans
commu-
nity to increase the scale, it can legabecome
l basis too exfopren-
enforcing loan collection.
sive to service the consumers, andple, thesme the Program’s investment
economies of in Soluz
scale are then lost. Solar are more duras had significant issues surrounding
vp companies
likely to experience success when ablegrid to exoperate
pansion, in forcing Soluz Honduras to rem
markets with critical masses of potential newly installed consumers systems at a considerab
that were geographically concentrated. t I contrast,
is only v pm t i ’s investment with Sunligh
when operating in a relatively dense Maroc benefi
market ted from an agreement with the
that

18 s e l i n g s ol a r : a p r t 1
national utility sh under
to provide countries and, therefore, the experience o∑ered
a subsidized
limited
fee-for-service scheme within an exclusive geo- replicability at a general level. Most
graphic concession. profitable opportunities vp in
markthe
et also
solar
lay further upstream in the value chain.
Subsidies
Need for Flexibility in Program Design
Unsubsidized vp progsolar rams have proved
particularly di≈cult to implement. The Rural solar market is
vp electrifi ca- very much a developing mar-
tion is heavily subsidized throug kethand, out the as such,
developing it requires substantial flexibilit
world, as are solar vp and other RE technologproject ies in design, as shown by the following examples.
developed countries, such as Germany, icf Japan,’s experience and in
vp has solardemonstrated the
the United States. All programs examined need toin adapt
thisinitialre- project designs to a number of
port received some form of subsidization, areas: frbe om it thein length of repayment schedules to
the form of financing, funds provided interest rates to the business plan and, particularl
egf using
through cif at terms unavailable in the with respect
mark et, or to the financial instrument used.
through local government, as in the case of Sunlight
r e s t ruc t u r i ng. n
I the face of continued di≈cul-
Power Maroc, which has benefited from an extensive
ties in placing funds, particularly v pm t i ’s in Kenya,
government program, subsidizing fee-for-service so-
approach to the market was restructured. The re-
larvp systems. cealcp o The project received a grant
structuring, allowing for more technical assistance
equivalent to 70 percent of the overall construction
funding and longer repayment periods to be pro-
cost of the plant. While the plant makes a strong
vided to Kenyan clients, had a significant e∑ect on
technological case for the reliability of utility-scale
v pm t i ’s ability to place funds. The di∑erent experi-
solar vp power plants, from a financial standpoint
ences f ds of and dsc also highlight the importance
the plant would not have been feasible without
of being open to revising the original program de-
some form of subsidy. t I is widely acknowledged
sigf ds n., with its more flexible funding options
that given most current market conditions, some
(providing working capital loans with minimal se-
form of subsidy is necessary to vpmaintain solar
curity, guarantees, and grants), was able to success-
businesses in the 19 developing world.
cif has found
fully meet its financingdsc targ ,ets, with wh its
ile
that there is a particular need for continued techni-
focus on larger projects, greater return expectations,
cal assistance funding as part of its financing pro-
and exclusive focus on equity investments, had a
grams. The question that remains to be answered,
great deal of di≈culty placing its available 19Solar
funds.
however, is whether technical assistance grants will pv businesses are able to
Had dsc been designed di∑erently from the outset,
operate sustainably without s
provide enough of a subsidy, or if more substantial dies whenamong they are
or if it had been able to reach consensus sthe lowest co
t its
subsidies are needed and, if so, in what form? source of power for a market
shareholders concerning its attempted segment. restructuring,
it is possible that the d sg overall experience of
l e s ons abou t i f c’s fi n anci ng would have been much more positive.
pro gr a m s
vol at i l e m a r k e t condi t ions . Lower income
With ge f fundingicf ,has been able to implement rural populations are particularly susceptible to the
a number of di∑erentvp solar financing programs. macroeconomic situation of their country (eco-
Despite the enthusiasm, with nomic which the shockinception
s, currency changes, changes in the
of the di∑erent financing programsicf was based, price of crops), as well as natural disasters. They are
learned very early in the implementation also subject of its to solar
cash flow issues, as monthly incomes
vp programs that the market reality wasfluctuate not what according to seasonal harvests and spo-
had been envisioned. There was need foradic r greaterincome-generation activity. These issues had a
flexibility and patience. Despite the strong risk -sharing
e∑ect on the ability to make payments both
tools o∑eredicf ,by in large part throug ge f sup-
h at the consumer and project icf level,
programs and
port, financial institutions fi s) continued tohad per-
( to introduce some flexibility into the repayment
ceive solar vp to be risk, y due to their inex plans perience to accommodate these issues. Grameen Shakti
with the technolog, y the
smes, and
naturetheof saw a full 90 percent of its operating area flooded in
economics of the vp mark
solaret. In the end,1998, it was when the worst flood in over a century hit
found that many icf ’s of financing programs re- Bangladesh. People were focused on the essentials
quired tailoring to the specific needs (food and of individual
shelter) and, as a result, sales were non-

i f c s ’ l e s o n s o f e x pe r i e n c e 19
 existent and the default rate on collections majority of its was ex-solar funds directly, with
vp -related
tremely highsme . The Program loan to Grameen out the help of intermediaries.
Shakti had been structured with a two-year grace
period, with payments to be made on Private Equity Is Not the Answer
an annual ba-
sis and, as a result, Grameen Shakicf ti did not to
attempted haveattract
is- private equity to
sues in servicing sme Programthe loan, even thougvp mark h et through .dsc t I found, however, that pri
collections from Grameen Shakti’s vate clients
equityhad funds, to be as a financial instru
delayed as a result of the flood. Selco Honduras well-adaptedalso to the needs vp of the marketsolar
in
su∑ered a major setback following the devastation the developing20woand rld the demanding require-
brought byHurricane Mitch in 1998. ments of a private equity fund. The private
model is premised on the concept of high
s i m pl i f i e d t r a ns act ion pro ces s . n
I many
return. The solar vp market in the developing world
instances, icf ’s lengthy and cumbersome deal ap-
has certainly proved itself to be high ris
proval process proved too stringent for small solar
financial returns have generally been disapp
vp companies. sme The Program, which had been
nI addition to poordsc returns, found it di≈cult to
specifically designed for small and medium compa-
make equity investments, due to the s
nies, adopted a less burdensome deal approval
sizes, limited management skills,
process that was more in line with the characteris-
accounting standards, inadequate exit s
tics of vp solar companies. Lacking an extensive fo-
the time-consuming and costly admini
cus on sme s, bothdsc and vpmti had cumbersome
itoring required for equity investments
Yet, solar
vp companies are in need of capital.
GRAMEEN BANK Launching a successf sh distribution
ul company
Grameen Bank was established by Professor Muhammad Yunus in 1971 as a re- requires a significant upfront investmen
search project. By December 31, 1995, the bank had equity of $100 million. Not purchase equipment, establish distri
regulated by the Bangladesh Superintendent of Banking or any similar regula- nels, and raise consumer icf expawerience
areness.
tory body, Grameen Bank is notionally owned by its 2 million members, each has shown that it generally takes several
of whom owns one share. The majority of the bank’s clients are poor and land- coup this investment. Renewable energy an
less and live in rural areas, with 94 percent being women. The members elect e≈ciency projects often attract similar t
9 of the 13 members of the Board of Directors. vestors; however, it is important to kee
In 2006, Muhammad Yunus and Grameen Bank were awarded the Nobel that the payback periods for renewable energy pro-
Peace Prize for their work on economic and social development among the poor. jects, in particular vp projects, solarare much longer
than those for energy e≈ciency projects. To com
documentation processes, resulting pare, in energ y e≈ciency
deals being projects often have payback
canceled due to the fact that the time from approval periods of less than two years, while renewab
to disbursement was too long, as well ergy projects
as higare h almost opera- always over three years. n I
tional costs in relation to portfolio size. the case of solar
v p projects, pay b ack periods can be
in excess of 10 years.capital Patient and long-term
Need for Flexibility in Investment Offerings loan commitments with modest ex- financi
pectations are what is needed. For small
nI addition to flexibility in programnesses, design, flesimple xibil- loan instruments wi
ity in investment o∑ering n s is rity
I vestment provisions
necessary . are most appropriate.
o∑ering needs vary significantly, based on market
segment, specific country, or regional Financial needs.Institutions
Many Still Find Solar PV to Be
Too Risky
of icf ’s programs o∑ered one particular type of
20This ex p erience is somewfin hat ancingdsc— provided private equity, and the
icf underestimated the conservativeness
unique to the developing world.
sme Program provided concessional loans through institutions as far as provi
financial
Many private equity and venture
capital companies are involved intermediaries— in and, as a result, smaller it was found vp solar
companies. icf believes that in o
solarpv manufacturing projects di≈cult to place their dsc was fueventually
nds. derdis-to leverage local financial resources, it
looking to sell pv in
solar
devel-
oped countries, where bigger banded due to its inability to disburse
not onlyfunds, raise awas arenessthe and provide techni
systems are being sold, mark prices etarewas generally not ready for private equity tance, in-
but also engage the local financial
higher, distribution problems less
daunting, and needed economies
vestments. sme ProgThe
ram, with its concessional more directly by devising risk-sharing produc
of scale are easier to come byloan . o∑erings, proved more flexible, andcan placed theed to finance renewable energy pro-
be deploy

20 s e l i n g s ol a r : a p r t 1
jects. Unfortunae, ly solar v p pve ro d to be to risky LESSON LEARNED: THE NEED FOR A MIX OF TECHNOLOGIES
for most fi s. Solar vp is deemed risky for two e r a- THE PORTFOLIO APPROACH TO DISTRIBUTED GENERATION OPPORTUNITY (PADGO) PROJECT
son: (1) most solar vp companies ae r smes, and fi s
The ultimate goal of the PADGO project is to reduce CO2 emissions by displac-
have generaly been wary of finacing smes, and (2)
ing central fossil-fuel-based generation in favor of a portfolio of renewable and
the economics of the solar v p m a rk e t m e a n s t h a
clean fossil-based distributed energy (DE) generation technologies with waste
thee r ae r high risk and uncertain e r turns. Grameen
heat recovery (also known as combined heat and power). In order to achieve
Bas ’nk suport of Grameen Shakti (see Grameen
this goal, the project has been divided into two phases.
Shakti case stud, y page 32) was a notable exception
Phase 1 of the project will focus on Sri Lanka, and will have three specific
to the e r luctance of fi s to sup or t solar vp projects
goals. First, it will develop a performance framework that would enable risk
and pvroides a successful example of hwo finacial
sharing between IFC and the local banks on their existing portfolio of mini-hy-
intermediaries can suport the solar v p m a rk e t .
dro investments. Second, PADGO will focus on introducing new technologies
Howeve, r this is moer e r pe r s e n t a i ve o f t h e u n i q e -
to the DE mix by promoting complementary DE technologies (for example, rec-
nes of Grameen Bank (see box, page 20) than it is
iprocating engines, biomass, PV, wind). IFC will work with established private
i n d i c a t i ve o f t h e p o s i b l e i n t e e r st of most local fi s to
sector players to do one or more pilot projects with a technology that has not
engage in solar vp .
been extensively implemented in Sri Lanka. Third, it will identify the key prob-
The sme Program, in partic, u l a r s o u g h t t o w o kr
lems that the electricity grid may face with large-scale DE generation, and will
thorugh finacial intermediaries. Hoe w e v , r while the
develop key guidelines on how DE generation can be assimilated into an inte-
porgram was able to wokr thorugh intermediaries
grated resource planning effort at Ceylon Electricity Board.
for a number of the porjects implemented thorugh
During Phase 2, IFC will incorporate into the risk-sharing framework the
it, when it came to solar v p ine v stments, this e v p or d
lessons learned from the introduction of the new technology-based pilot pro-
to be a significant chalenge. In Vietnam, for exam-
ject initiated in Phase 1. The framework will thus be made more robust and ap-
ple, thesme Program had intaly hoped to vpiorde
plicable to a larger set of technologies. The financing process will move closer
finacing to the Vietnam Womes ’ n Union ( vwu ),
to an asset-backed securities approach, as larger volumes of transactions are
which had taken on the sales and colections orle for
targeted. Significant progress is also expected during Phase 2 on the integra-
Selco Vietnam. Hoe w e v , r the vwu vie e w d the risk
tion of DE technologies into a mini-grid structure that allows for dispatch ca-
of vpiording end-user finacing as to high, and was
pability and value for capacity.
unwil g to take on the e r sponibilty for the
finacing. In the end, the sme Program vpiorded the
loan die r ctly to Selco Vietnam. In fact, E+Co and
Enviornmental Enterpises Asitance Fund ( e af), solar vp ve n t u e
r s and suport existng early-stage
both noprfit noge v o rnmental organiz t o s busineses. The type of flexible suport f ds p ro -
( go n s) and finacing instuo with enviornmen- vided was greatly needed and in high demand in the
tal mis on , e w e r the only intermediaries suported solar v p m a rk e t a n d , a s a e r sult, f ds was largely able
by the sme Program tha age r ed to comit conces- to meet its goals. By contras, both d sc a n d v pm t i
sional loan fina cing to solar vp porjects. we e r faced with having to undergo major e r str uctur-
i n g , s i n c e t h e i r n a r w o i n t a l i n ve s t m e n t t e r m s we e r
Need for a Broader Technological Focus
o u t o f t o u c h w i t h t h e m a rk e t e r .ality d sc was even-
In the icf experience, investment faciltes tha wee r tualy disbanded when mangement was unable to
exclusively focused on solar vp ( d sc a n d v pm t i ) had identify a large enough number of investments to
moe r di≈culty placing funds than the programs p v r oi d e t h e t y p e o f e r t u r n s i n ve s t o r s o u g h t . v pm t i
tha had the flexibilty to also invest in other sectors was e r str uctue
r d to alwo for longer e r payment peri-
and technolgies ( sme Program). Furthermoe, ods and ince r ased funding for technical asitnce.
t h o s e t y p e s o f p ro g r a m s we e
r able to o∑set some of v pm t i also e
r lied only on eg f funding, while d sc
the risk as ociated with solar vp . had private capital, which was moe r demanding.

Need for a Broader Operational Focus Limited Replicability

It is importan to note tha f ds , with its exclusive The experience of vpmti , in partic,
ular demon-
focus on solar vp , was largely successful. Howeve, r straes hwo the same model can lead to di∑erent e r -
this success can be linked to its pe r -age r ed scope of sult in di∑erent countries because of specific coun-
operation; unlike other projects, f ds was a no prfit try conditons. v pm t i operates in India, Kenya, and
entiy tha pvroided a range of busines develop- Morocco, the r e countries selected for their suport-
ment asitnce and seed finacing to establish new ive policy environments and the pe r sence of a

i f c s ’ l e s o n s o f e x pe r i e n c e 21
 vibrant emerging vp solar
market. v pm t i experi- ern markets (primarily Europe), and it was n
enced considerably more success in n I propriate
dia, where foicf r the
to use eg f funds when it could not
vp was widely established ensure
market for solar and en-that they would be used to support ren
joyed considerable government support,able energy in the developing country.
and there
were a large number of established vp compa-solar
nies and relatively widespread knowledgeNeed about for Technical Assistance Funds
so-
larvp technolog. y n I Keny
v pm t i a, found that there Technical assistance grants are still
was considerably more need for technical toassistance
help move the vp mark solar
et forward. nI order
funding. A large number ofvp solar systems hadfor commercial solar vp enterprises to be success
been sold in Kenya on a pure cash basis technicians by very need to be trained, indus
small local companies, but thereneed were no
to perf
beor-developed, and local governments
mance standards, and the quality to of many systems
be lobbied for support.
v pm t i found that a t was
had been called into question, undermining particularly needed the ini- in Kenya. n I the 2004 re
tial progress that had been made inturing the mark , the et. n I initiative grapproved ant additi
Morocco, a stepped-up fee-for-service program, funding to support the training vp techni- of solar
subsidized by the government, reduced cians,the need for quality awareness in the m
create
consumer financing, while increased port availability
the Kenya Renew of able Energy Association
black market solarvp modules put increased(kera pres- ), and establish a quality assuran
sure on module prices. for sh in the Kenyan market.

There Are Profitable Opportunities in the Shareholder Diversity

Solar PV Market, But They Lie Further Upstream
The more diverse a shareholder group is, the
in the Value Chain
di≈cult it is to manage expectations.
An important finding thaticf emerg fromrity of the vp solar
’sed solar market means that financing
vp experience is that there are more viable programsopportu- have to be flexible in order to respond
nities further upstream (module manuf the acturingchangi ng market realities. With a di
) in
the value chain than nstream ( holder group, this flexibility often does n
sh dowdistributors).
icf ’s investments lay primarily fuBoth rther vpmti downand
streamdsc found very early on in the im-
in the value chain. One reason for this plementation is that stag
manu- e that original target
facturing companies are often able to obtain restructured and reevaluated.
local v pm t i , with its sim
commercial financing more readily, because shareholder it isbase, was able to complete th
backed with assets, unlike the cash-fl chang ow-back es;
ed howedscver, , with its very diverse sh
financing providedsh to
distributors,icf aims holder base, found it impossible to reac
and
to provide financing only when it ison not chang es, which forced its dissoluti
available
through local sources. A second reason than
is that allowithe ng for more flexible restructuring.
vast majority of manufacturing activity shareholder in thediversitysolar that had been much
vp industry is focused on export to subsidizedduring the weinitial st- dsc structuring
proved, in the
of
end, to be one dsc ’s of greatest constraints.

LESSON LEARNED: MOVING UP THE VALUE CHAIN

l e s ons abou t w h at m a k e s a
MOSER BAER IN INDIA s uc ces s f u l s ol a r p v comap ny
Moser Baer India Ltd. (MBIL) is the third-largest manufacturer of recordable op-
While there are some notable successes am
tical storage media products (CDs and DVDs) in the world. MBIL is also an ex-
some of the vpsolar
companiesicf provided
isting IFC client. Currently, MBIL is undertaking a two-year diversification pro-
financing for, the majority of them did not
gram that involves setting up an export-oriented solar PV cell and module
to their original expectations. icf has not
Althou
manufacturing facility with an installed annual production capacity of 80MW in
been able to identify a fully viable sust
Greater Noida, India.
ness model forvp solar
distribution companies
IFC has recently approved a $22.5 million long-term loan to the company to
developing countries to replicate, its
support this $92 million project. This project, which has the potential to avoid
experience working in thevp mark
solar
et has high-
80,000 tonnes of CO2 emissions annually, will also lead to the creation of about
lighted a number of key areas that companies
600 additional jobs.
should focus on and resources that need to

22 s e l i n g s ol a r : a p r t 1
place in order to help ensure the successf ul opera-
LESSON LEARNED: AFFORDABLE PRODUCT OFFERING TAILORED TO TARGET MARKET SEGMENT
tion of such businesses. LIGHTING THE BOTTOM OF THE PYRAMID

Product Offering and Market Segmentation The Lighting the Bottom of the Pyramid program will leverage IFC’s global net-
work, industry expertise, and regional experience, as well as donor funds to cat-
n
I order to ensure that they are providing the right
alyze local and international lighting-related companies to offer the unelectri-
products, solar vp companies should acknowledge
fied population in Kenya and Ghana greater access to modern and affordable
the di∑erent market segments that exist. Low-in-
off-grid lighting products and displace fuel-based lighting products (kerosene
come consumers are often lookingvp forsy
assolar
-
lamps, candles).
tem that will support a single light source, while
Current consumption of fuel-based lighting represents a large global mar-
higher income consumers might well be grid-con-
ket, mostly served by oil and gas companies, but largely untapped by lighting
nected and be looking to purchasevp larger solar
companies. Independent estimates indicate that worldwide spending on fuel-
systems that recharge back-up batteries to help en-
based lighting in developing countries is $38 billion per year. In Kenya and
sure an uninterrupted power supply in the event of
Ghana alone, IFC estimates the total spending on fuel-based, off-grid lighting
power outages. The needs of each of these di∑erent
to be $1.4 billion per year. Hence, IFC believes there is an opportunity to attract
customers vary greatly, andvp companies
solar
lighting companies to enter and compete in the fuel-based, off-grid lighting
should adjust both their product o∑ering and their
market with modern and affordable off-grid lighting products, harnessing the
marketing strategies in order to satisfy di∑erent con-
private sector profit-seeking motivation to increase access to modern lighting
sumer market segments.
services and reduce poverty.
n
I addition to income level, consumption priori-
In order to seize this opportunity, IFC will facilitate the entry of local and for-
ties and lifestyle have proven to be key segmenta-
eign lighting companies to this market by helping firms (i) understand the mar-
tion issues. These issues also vary from country to
ket, including consumer behavior and preferences concerning lighting, accept-
country. n I Vietnam, for example, having a televi-
able pricing points, and distribution channels, and (ii) understand and mitigate
sion was seen as more important than having a
the perceived risks of entering into a new market in a region that, for most pri-
light; therefore, people were more interested in
vate companies, is very challenging. The entry of several modern lighting com-
larger solarvp systems. Additionally, there was no
panies in this market and their competition for market share will bring unelec-
debt or consumer credit culture in Vietnam; i.e.,
trified citizens in Kenya and Ghana a variety of modern off-grid lighting
there was little market for smaller systems, and con-
products that will be better and more affordable than fuel-based lighting. Their
sumers tended to be from higher income groups,
lower power requirements will also enable more cost-effective use of solar PV
who could a∑ord to purchase systems outright (so-
as a power source (e.g., solar PV lanterns).
called e“ arly adopters”).
As of January 2007, 135 private companies and 63 stakeholders from 35
Provision of Consumer Financing countries had expressed interest in participating in this initiative. The project
target end-results for Kenya and Ghana are (1) to provide greater access to off-
Consumer financing has often been seen as the key
grid lighting products that are more modern and affordable than fuel-based
element to developing vp the
market.
solar Without
lighting; (2) to reach 316,000 (low-end scenario) to 1,500,000 (high-end scenario)
financing, the large initial price tag of acquiring a
end users with modern, off-grid lighting products by 2015; and (3) to reduce
solar sy vp stem is simply una∑ordable to the vast
CO2 emissions from fuel-based lighting from 782,000 tonnes (low-end scenario)
majority of the population without icf ’s electricity.
to 3,909,000 tonnes (high-end scenario) by 2015.
experience has shown that investors and banks do
For more information, please visit www.ifc.org/led.
not like to finance vp purchases,
solar as they per-
ceive them to be too risk. y Also identified was that
solar vp companies are generally more skilled at the
manufacturing and commercial distribution of solar
vp , and are not concerned with the risk s associated
tionship was a major contributing factor to the suc-
with provision of consumer financing. cessSuccessf ul
of Grameen Shakti.
solar companies
vp are those that have a way of en-
Management and Staffing
gaging skilled providers of consumer financing , thus
allowing them to remain focused on their A consistentcore solar theme that icf ’s emerg
solar
vp ed from
vp business. Grameensh Shak provider
ti, in an experience is that the entrepreneur is absolutely crit-
Bangladesh that received financing sme from
icaltheto the success of the project. vp Given that solar
Program, was well positioned to provideplay consumer
ers tend to be small and operate in complex
financing because of its parent companymark , the
ets, well-
it is documented that hands-on managers
established and respected Grameen Bank who.possess
This rela- strong management skills are crucial.

i f c s ’ l e s o n s o f e x pe r i e n c e 23
 Managers should be flexible in order to respond with local educational institution
quickly to changing market realities. remainedEstablishingon the cutting a edge of technolog.
y W
local presence through appropriately trained Selco entered local the Vietnamese market, it fo
sta∑ is mandatory for any company looking partnership
to be a with the Vietnam Women’s
player in the vp solar
market. As the market (vwu
vp solar ) to support the financingsh of in sales of
in each country di∑ers, the socialrural and communities.
cultural vwu hadTherepresentatives in
knowledge of local sta∑ is essentialevery tovillag e in the country, and while th
the develop-
ment of a solid understanding of consumer ship needs. was eventually dissolved, it was o
As mentioned above, Grameen Shakti tobenefi Selco ted Vietnam, as they began to gain a
significantly from its relationships in the with country
Grameen.
Bank, as the bank’s presence in approximately
Sales versus Rental
36,000 villages provided significant local knowledge
that it was able to share with Grameen There are Shak twto i.
primary Fur-models currently being em
thermore, Grameen Bank’s general managploy er dedi-
ed in the vp solar
market: sales (on a hire-pur-
cated 20 percent of his time to thechase direction basis) of and fee-for-service rentals. Acc
Grameen Shakti. toicf ’s experience, the sales model is muc
The experience ceofalcp o in the Philippines sustainable, especially given current m
highlights the need for a strong and experiencedSoluz Honduras began operations a
tions.
management team and sta∑ who understand for-service thecompany
lo- , supply sh i
tongconsumers
cal environment. Although it mw was on only a small,
a rental basis. 1 t
I became apparent after
er project, local sta∑ had to obtain yearsoverof 50 permit
implementation, however, that t
approvals before construction cealcp o onsolar
the model was not financially sustainable.
vp plant could begin, a feat that would rental likely have made it easier for the end us
model
been impossible without adequately knowledgeable
local sta∑. Furthermore, the permitting process de-
layed construction and, as a result, strong manage-
ment was required for the project to be completed
on schedule.

Local Partnerships and Government Relations

The importance of strong government relations,

particularly in terms of understanding planned grid
expansions, cannot be overstated. The Soluz Hon-
duras experience showed the significance for strong
government relations to be backed by legally bind-
ing concession agreements. Soluz was operating in
Honduras without any formal government conces-
sions and, as a result, found itself unprepared for
competition from unexpected grid expansions.
Grid expansions are a political tool in many devel-
oping countries, and are often unpredictable in
terms of funding and timing. Operating without
some sort of binding legal agreement from the gov-
ernment puts companies at increased risk of cus-
tomer loss.
n
I addition to supportive government relations
and, in some instances, due to inadequate govern-
ment relations, the development of local partner-
ships is pivotal to the vp company
success
. of a solar
When Grameen Shakti first began operations in
Bangladesh, for example, local government support
was lacking, and the company sought to partner

24 s e l i n g s ol a r : a p r t 1
quire the systems, the equipment had costpresence and influence in just about every vil-
accumulated
with the company and, as a result,lag e in
it wasthenotcountryfinan- . These unique marketing strate-
cially sustainable sme start-up. gies contributed significantly to overall sales.
for an The initial
large outlays for capital equipment could not be
Entrepreneurial Spirit
o∑set by small monthly rental fees. Soluz Honduras
eventually adopted a sales model. In some countries, notably India and Bangladesh,
there was a considerable entrepreneurial spirit to
Marketing
be found among end users. This entrepreneurial
Even when a company has matched thespirit right prod- appeared to have some influence on the suc-
ucts to the right market segment, cess a strong of themarkpv esolar
company itself. In Bangladesh,
t-
ing e∑ort is crucial. There is still one end user usedpv solar
substantial panels
misin-to charge cellular
formation and lack of understanding as phones,
to what which he then rented out to people in his
services avp solar system can reliably provide villag and eat . His business was so successful that he was
what cost. Furthermore, the presence able of poor to
qual-purchase a largpv er sy
solar
stem while also
ity systems in some markets has vp providing
resulted in a better solareducation opportunity for his
being perceived as unreliable and even children.
undesirable. Where this type of entrepreneurial spirit
Solid marketing strategies that include existed, there was greater demand
demonstra- pv for solar
tion projects should be in place in sysorder
tems, to educate and consumers had a greater ability to
the general population. Grameen Shakt makie initially
their payments. t I also demonstrated how
providedsh the provisionpv ofcan
free of charge to key people in a vil- solar
lead to increased
lage, promoting a type of demand associated income-g with enerating activities.
“keeping up with the neighbors”. Selco Vietnam en-
gaged thevwu to help sell theirvwu systems, as the

i f c s ’ l e s o n s o f e x pe r i e n c e 25
 ch a p t e r 4

F
I C’s Apo
rp ach Today

Having extensively evaluated not just to its hold promise,own experi- having proved to be the m
ence, but also the experience of several propriate
key playersway in of meeting the power needs (lighti
the solarvp business, cif remains cautiouslytelevision, opti- radio) of dispersed and remote
mistic that it is not a question households. of “if ”, but With of wh the rising price of cru
“ en”
the goal of a self-sustaining vp market in solar natural gas, the global commitment to
devel-
oping countries will be met. rec- nium Development
cif Simultaneously , Goals and Kyoto Protocol
ognizes the current limitation vp technolo-new able energy technologies, including
of solar vp , sol
gies to address the issue of rural electrifi will cbecome ation. more To economically viable. The
that extent, it is currently exploring sector newcanways play
to ad- an important role in maki
dress rural electrification through using able aenerg y and solar
variety of vp services available, as
renewable energy technologies as it moves demonstrated
away icf by through its recent invest
from a specific solarvp focus to a more technolog in y- Moser Baer in n I dia (see box on page 22).
neutral approach. The most important factor that will de
21This includes hyd ropowe r

projects greater than

mw per 10
Although generally less heralded nowthe compared future role of vp solar in rural electrification
facility. to the mid-1990s, vp as asolar
technology continuestiatives continues to lie in the ab
to identify the niche market segments for
technology is the least-cost alternati
WORLD BANK GROUP COMMITMENT TO RENEWABLE ENERGY ued decline in vp prices solar will help create more
The WBG has remained true to the commitment it made at the June 2004 In- of these opportunities. n I creased manufactu
ternational Conference for Renewable Energies in Bonn, Germany, to increase pacity, new materials that bypass the gl
its renewable energy and energy efficiency portfolio by 20 percent during a necks caused by the limited supply of sil
five-year period (2005–2009). During both 2005 and 2006, the WBG surpassed newer and higher e≈ciency vp solar
materials and
its Bonn target, having financed $668 million worth of EE/RE projects in 2006 end-user devices (i.e.,led lig s) h
areting
all con-
via
and $461 million worth in 2005. These commitments represent a 45 percent in- tributing factors that should reverse th
crease for new RE and EE, more than double the Bonn 20 percent target. Over- ward trend in vsolar p price.
all, financial support to EE/RE21 was $860 million in fiscal year 2006. Total WBG
Continued Support to the Market
sustainable energy financing in 2006 supported 61 projects in 34 different
countries. While solar vp is no longer a specifi icf c re-
focus,
Among the various WBG institutions and units, IFC was the largest contrib- mains committed to it as a renewable en
utor to RE and EE, with $393 million in commitments, and contributions of $326 nology for addressing the issue of rural
million of its own funds for new RE and EE projects and $67 million for hy- electrification in developing icf has countries.
dropower projects greater than 10MW. These increases suggest that the con- moved away from solarvp -focused initiatives,
certed efforts of the WBG to scale up support for new RE and EE are having a asdsg and vpmti , in favor of more technologicall
positive impact. neutral programs. The corporation is increas
providing its own funding on commercial t
without reliance on donor subsidies, t

26 s e l i n g s ol a r : a p r t 1
larger utility-scale projects, througondly h its , ton I understand
frastruc- and mitigate the perceived
ture Department, as well vp moduleas solarmanu-risks of entering into a new market in a region that,
facturing companies, through its Global for mostManuf privateac- companies, has been very challeng-
turing Department. (See Lesson Learneding box .on(See Lesson Learned box on the Lighting the
Moser Baer, page 22) Smaller vp initiatives,
solar Bottom of the Pyramid initiative, page 23.)
such assh the distributors profiled in this study,
may find icf support through the followingfocu s onet
mark di s t r i bu t e d gener at oi n proje ct s :
acceleration schemes: t h e p o r t f ol i o approach t o di s t r i bu t e d
gener at ion opp or t u n i t y (pa dgo). This pro-
wor k i ng t h roug h fi s : t h e env i ronm e nta l ject aims to reduce CO
2emissions by displacing
bu s i n es s fi n ance pro gr a m (ebfp ) . The ebfp , central fossil-fuel-based generation in favor of a
a $20-million egf -funded facility, buildsportf upon olio theof renewable and clean fossil-based distrib-
experiences of the sme Program, and is specificuted ally energy generation technologies with waste heat
interested in engaging financial intermediaries recovery (also knownin as combined heat and power).
the financing smes involved
of in activities A key focus that of the project is on developing a perfor-
benefit the global environment. Designed to pro-
vide fi s with risk-sharing mechanisms TABLE 5:that WORLD BANK encour-
GROUP COMMITMENTS FOR RENEWABLE ENERGY AND ENERGY
age intermediaries to providesme fins ancing
un- EFFICIENCY
to IN FISCAL YEAR 2006 (MILLIONS OF DOLLARS)
dertaking environmental eb projects,
fp also the
SOURCE OF FUNDS NEW–RE HYDRO >10MW EE TOTAL
provides technical assistance grants to develop and
strengthen fi ’s anappraisal, risk management, and
World Bank (IBRD/IDA) 135.7 118.6 115.3 369.5
monitoring and evaluation processes, as well as pro-
mote market development. Sustainable Worldenerg Bank y is a 54.7 6.0 1.2 62.0
key focus of this program. (GEF and Carbon Finance)

IFC (own funds) 17.4 67.0 309.0 393.4

di r e ct i n v e s t m e nt t o s u p or t a m i x of
IFC (GEF, Carbon Finance and 13.0 0.0 20.1 33.1
t e chnol o gi e s : t h e s u ta i n abl e energ y
other trust funds*)
faci l i t y (s e f ). The esf is a $14 million icf /egf
fund that finances sustainable energMIGA y and energy 0.0 0.0 1.8 1.8
e≈ciency projects in Brazil, Central Total America, 220.8 191.6 447.4 859.8
China, and Southeast Asia. Designed based on the
experience of previous icf programs, including dsg , * The IFC’s “other trust funds” category includes the Environmental Opportunities Facility.
the esf structure has a more streamlined approval
process. A clear focus was placed on debtmance instru- framework to enable risk sharing between
ments over equity, with convertibility icf and local features bankto s, and on piloting private com-
take advantage of any potential upside.pany projects
Unlik e some using new technologies. (See Lesson
earlier initiatives, esf has movedthe away from a Learned box onadgo p , page 21.)
single focus on vp to solar
a broader renewable en-
ergy focus. Through the above market acceleration initia-
tives, the corporation aims to provide technical as-
focu s on affor dabl e off-gr i d l ig ht i ng sistance and financing to support renewable energy
produc t s : l ig ht i ng t h e bot t om of t h e technologies and practices that are commercially vi-
p y r a m i d . This initiative seeks to cataly ablezin e local certain and applications, but whose market pene-
international lighting-related companies, tration iso∑ering hindered by the persistence of market bar-
the unelectrified population in Keny riers.a and Ghana These barriers may include high upfront costs;
greater access to modern and a∑ordable o∑-garid lack of financing, successful business models, ade-
lighting products, and displacingquate fuel-based product lig hting standards, and consumer
quality
products (such as kerosene lamps or candles). awareness; Thelimited managerial and technical skills
initiative aims to facilitateamong theprojectmarket developers,
entry of the etc. By addressing these
lighting companies by helping firms, barriers firstlythroug , toh un-carefully designed market interven-
derstand the market, including consumer tions, behavior which may include transaction support, en-
and preferences concerning lighting, terprise acceptable and public education, and development of
pricing points, and distribution quality channels standards, and, sec- these initiatives seek to acceler

i f c s ’ a p r o a c h t oda y 27
 the penetration of sustainable energ andy technolog
carefully targ ies
eted—concessional funding t
so that, at the end of project implementation, support worthwhile the projects that are likely
market is further ahead than it woulderate havethe beenapplication er and e technolog of ies in
otherwise. developing countries. eg f was Since
established in
Going forward,icf expects to see an increasing 1991, a significant quantity of funds has
number of opportunities for mainstream vided renew
byegf ableunder its operational programs to
energy and energy e≈ciency investments, igate as the
renew- e∑ects of global climate icf has re-change.
able energy technologies become more competitive ceived approval for more than $200 egf million
22While ge f and regulatory frameworks are improved to encour-
support is generally funds to support climate change mitigati
age greater utilization. Beyond these
not needed for small hydro initia- tives, e∑orts to including renew egf ablefunding energ. y con-
tives, it is still an important com-
ponent of solar
pv , geothermal,
fi n ance mainstream sustainable i c
f energ y
tinues projects, to play a vital
i c
f ’s continued
role in support
and wind initiatives. has utilized and will continueof to solar utilize avp nd otherlimited—
renewable technolog 22icf ies.
always attempts to minimize the use
funding and targets the subsidies in a
MAINSTREAMING SOLAR PV INTO IFC INVESTMENTS
preferred market interventions that favor proje
The projects described in this report were primarily financed with concessional that are closest to commercial viabili
resources from GEF and other donor support mechanisms, because they did ably involve a mainstream icf investment.
not meet minimum eligibility requirements for IFC investments (although IFC By building partnerships with key players
also did invest on its own account in the externally managed funds created un- renewable energy field and increasing confidence i
der SDG). One measure of success in donor-supported programs is the process solar technolog
vp y among suppliers, governmen
of “mainstreaming”; i.e., the ability to make similar investments on commer- utilities, and end users in icf ,developi
cial terms without donor subsidies, an evolution that is occurring in the context as part of the World Bank Group, seeks to promot
of IFC’s EE financing programs. As described in this report, the Corporation has solar and vp sustainable energy technologies
approved an investment in a solar PV manufacturing facility in India (see Les- general, it seeks to identify avenues to m
son Learned box on Moser Baer, page 22) and has indirectly supported a bank financial leverage and experience and acts on p
loan for a grid-tied solar PV power plant in the Czech Republic through a clean ular opportunities to aggregate markets.
energy finance program (see Lesson Learned box on solar plant construction
in the Czech Republic, page 17). For IFC to make additional fully commercial in-
vestments in solar PV production or enterprises, several conditions will have to
be met:

∫ The investment should meet minimum size requirements to justify IFC’s

transaction costs. While some latitude has been allowed for RE projects, deals
of less than $10 million are unlikely to be attractive.

∫ The expected rate of return should be commensurate with the level of per-
ceived risk, which may be an issue for the production and sale of solar PV cells
and modules currently being sold, primarily to satisfy short-term regulatory
policies in a few industrialized countries, principally Germany, Spain, and the
United States.

∫ Other positive attributes that may increase IFC interest in a project include
opportunities to engage and influence government policy (e.g., through a solar
PV purchase program), the leveraging of commercial finance from local FIs, lo-
cal employment and associated supply chain benefits of the investment, and
expected opportunities for further business growth.

∫ The proposed financing should also meet standard IFC conditions, including
maintenance of appropriate minimum debt service coverage ratios, projected
business performance metrics, sponsor support, and security arrangements.
Most importantly, the financing should be based upon a sound and financially
viable business plan that addresses a quantifiable market opportunity and is
guided by an experienced management team.

28 s e l i n g s ol a r : a p r t 1
a r pt 2

Selce det Case Stdu sei

 c a s e s t u id e s 1

The F
I C/GEF SmallandMedm
ui
Scale Entesirp Proarg m

The icf /egf Small and Medium Scale Enterprise to 10 years), low-interest-rate loan (typical
Program ( sme Program) 23was established in cent 1995. per year) from the sme Program, combining
Financed with $20 egf million funds and in man-their own funds with other sources of fundin
aged by icf , the program’s goal was to improve complement ac- the financing requirements for
cess to finance, capacity building, gi andble sme markprojects.
ets for
sme s active in the areas of climate chang Over its e mitig lifaetion time,
sme Program the established a
(energy e≈ciency and renewable energy) and biodi- solid reputation and momentum, attrac
versity conservation. The programegf was - the
tinued first interest of intermediaries and o
funded, non-grant, sme financing program targeting tions. The initial $4.3 million p
the private sector and eg f prog
the ram first
de- ished with $16.5 million in 1997 t
signed to receive capital reflows. operations and reach additional sme s. Over its life-
time, 24the sme Program approved $16.9 million t
25 nontraditional financial go n s, intermedi
or
backg rou n d
companies in 21 countries, which have
The objective ofsme the Program was to encourage financing to some sme s.140
the private sector to generate global environmental While sme the Program was not designed to
benefits. t I provided loans of $500,000specifi to $1 callymillion target the vp sector, solar it became oper-
to various intermediaries (financial, ational not-for-profi att a, time cif had wh become
en interested in
go n ), and private companies for on-lending sme s makingto solar vp -related investments. Ultim
whose activities would conserve thesme glProg obal ram environ-financed six projects that involve
ment. The goal was to help sme expand so vp businesses: Grameen Shakti, Soluz Ho
s these
they would generate more environmentalSelco benefiVietnamts. sh distributors);
(all eaf E&Co and
At the same time, the program sough(both t to demon- nonprofit financing organizations wit
strate that environmental benefitvironmental s could be achieved 25
mission)
; and Cogener (a Swiss engi-
through the private sector on a commercial neeringbasis, company that installed solar-power
without the need for grants or subsidies. tising panels at a Tunisian airport).
The intermediaries selected were icf byon the focused on the sh three distributors:
basis of their experience wosme rkis ng as
with well
ı Gr a m e en Shak t i . A subsidiary of Grameen
as their financial viability, understanding of envi-
Bank, Grameen Shakti works to develop and deli
ronmental sectors, and technical capabilities in both
renewable energy systems to rural households
environmental and financial areas. The intermedi-
businesses in Bangladesh. The primary fo
aries identified, assessed, financed, and monitored
solar vp sh .
environmental sme projects, assuming the risk in-
herent in these projects by providing ı Solloans
u z Hondu r ato, s S.A.orde C.V. Asubsidiary
making equity investments sme s. n I wiitially
th, of Soluz,
the, n I c., USA, Soluz Honduras sells
the intermediaries typically received smalla long vp solar-sy
termstems (up to rural customers in H

30 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s
ı Selco Vietnam, tLd. A subsidiary of U.S.-
based Solar Electric Light Company, Sparsely
sells solar systems to unelectrified households in
Vietnam.
Together, these three projects have installed over
24,000 sh , for a total electrical capacity of over
1.3 mw at peak performance.
w h at wor k e d and w h at di d not
A “Hands-on” Approach
A key factor for the successsme of theProgram was
the small size of the program, which enabled the
management to be very “hands on” and knowledge-
able of the projects it financed. icf Unlike other
projects with external management, the program
was managed by an internal sta∑ team. This “hands-
on” management approach enabled the program to
respond rapidly to restructuring.
Diversity of Portfolio Offsets Risks of Solar PV
Economies of Scale Are Hard to Come By in
Selco Vietnam
Populated Areas
The sme Program experience in solar
vp highlights
the importance of economies of scale vp to the solar
market. Grameen Shakti, operating in densely popu-
lated Bangladesh, was a successful venture; Soluz,
operating in Honduras where the rural population
was more dispersed, was less so. While each entity
operated under a di∑erent business plan, both ew re
confronted with having to reach a certain scale in or-
der to be profitable. However, that scale was far eas-
ier to attain in a densely populated area than within
a dispersed population. While Grameen Shakti easily
gained access to economies of scale serving many
people in one community, Soluz Honduras, operat-
ing in areas with more dispersed populations, found
itself in a no-win situation. To increase its scale,
needed to expand its area of operations, but when it
did extend, its service costs increased.

n
I contrast to other facilities icf was in- wiconcl th wh u s ion ich
volved in the vp sector,
solar sme the Program was
able to invest sme s worki in ng in sectors other Althoug than hsme the Program initially planned to
solarvp . Given this flexibility, the program was able fi n ance projects throug fi s, hit ultimately financed
most of its -related
solar s m e v p projects directly 26 .
to develop a diverse portfolio that was not depen-
dent on one particular market, allowi The ng it programto had found that
o∑set fis had little interest in
the risks of the vp marksolar
et througsme h s work- fi n ancing solarv p projects (the two -related solar vp
ing in less risky markets. vp Many ven- projects
of the solar that e
w re fi n anced f i involved
s w i th an en-
tures operational around the same period as those vironmental mission). f i s remained Many leery of
financed by the sme Program had considerable financing sme s, and wh sme en s ew re coupled with a
di≈culties.vp The marksolar
et simply did not de- nascent technolog y v p lik ,s fi e solar
(particularly
velop as had been expected. commercial bank s ) became even more reluctant.
Grameen Shakti, sme the
Program’s most success-
The Need for Local Ownership and Government ful solar vp project, far exceeded expectations in
Support Proved Vital
terms of the numbervp of sy solar
stems installed.
One of the key lessons of the sme Progoverall
ram Grameen Shakti continues to perform well, with a
experience was the importance of local country totalown of -77,000 sh installed, benefiting 23In more
the than case ofsme the Program,
ership and government involvement. 700,000
Evidence people sug-in Bang 27l The adesh. performance sme s were defined as enterprises
with assets valued at less t
gests that this was similarly vp - the of other case vp projects among solar of the sme Program projects has million.
focused projects, Grameen Shakti beingfathe iledonly to live up to original expectations. 24In 2004 the sme Program was
project that was locally owned and operated, The swh me ile Program proved overall to be quite suc-by the
absorbed gef -funded Envi-
ronmental Business Financ
both Soluz Honduras and Selco Vietnam cessf ew reul, sub-despite the mixed experience vp in the solar
Program.
sidiaries of U.S.-based companies. Both sector. Soluz Such and experience gained has now been 25Both E&Co and
incor- e af on-lent
Selco ew re overly enthusiastic about the porated size into the desig
of their ebfp n . As of the previously to solar pv -related projects.
potential markets, and both su∑eredmentioned, from a lack ofebfp the isicf an /egf partnership 26The E&Co loan to Rex Invest-
government support. While Grameen Shakwh tichi did targnot
sme ets s working on projects thatment are in Tanzania e af and the
loan to Soluz Dominicana repr
have considerable support from the Bangbenefi ladeshi cial to gov- the global environment. sentThis the only pv prog ram to
projects
solar
ernment, it had the support of a widely has ,n
er recog including
ized, solar, as one of its receive sme targ Progream t futechnolo-
nds
through fi s.
respected, and reasonably ew ll-capitalized gies and organiza-activities.
27 http://w. w grameen-info.org
tion with a similar client base that helped them to /grameen/gshakti/index.html,
develop networks to overcome that obstacle. February 2, 2007.

t h e i fc /g e f s m a l a n d m e di u m s c a l e e n t e r p i s e pro g r a m 31
gr a m e n s h a k t i
Grameen Shakti (meaning v“ illage power” in
gali), established in July 1996 by Grameen Bank,
aims to support this bank’s poverty
sion by developing and er delivering
systems tohelping connect rural areas to the world th
rural households and businesses in
While the focus was vp sh on solar
, Grameen
Shakti also supported wind and biomass
though on a much lesser scale.
32
backgBen- r ou n d
reduction
Grameen Shaktmis-i has a secondary mandate, th
(solar-powBangel adesh.
red) information technolog. y Alth
registered as gon an
, it is run, for the most
a for-profit projects,
enterprise. The companyvp ’pro- s solar
gram represents its largest business li
solar vp panels and other systems component
batteries) from a range of foreign and local supp
ers; and assembling, selling, inst
necessary, financing them.
The Bangladeshi mark sh etis
for considered to
be relatively large. Approximately 70 percent of
households do not have accessibility t
and frequent floods and cyclones, low levels
banization, and a very slow political a
reform process have made establishing a tra
energy network (or grid) very challenging. Further-
more, the density of the Bangladeshi popu
means that, even in rural areas, there a
concentrations of potential consumers.
n
I March 1998, Grameen Shakti was approved for
financing from the Progrsme am. The $750,000 that
the firm received permitted it sh to
inven-
purchase
tory. The program loan called for the sale of 3,2
systems within two ey ars and provided a two-
grace period on repayment. This freed capital for
Grameen Shakti to provide financing to custo
enabling them to overcome two considerable
tosh sales in Bangladesh, namely, high
costs and lack of consumer credit.
An additional sh barrier salesto in Bangladesh
was lack of a strong field-based sales and servi
structure. The company, nevertheless, was
in its ability to tap into the exis
branch network. The latter, as indicated e
a presence in approximately 36,000 villages
Bangladesh, and Grameen Shakti operates th
o≈ces housed within the bank’s 28 branch l
Grameen Shakti o≈ces are established in
with high electricity demand and no acces
grid. Each o≈ce is sta∑ed by two people, a ma
and a technician, and is overseen by div
agers who report to the general manager of
Grameen Shakti.
s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s
 While Bangladesh is ideally suited to solar power
because of its higher than average solar radiation
(ranging from 4.0 to 6.5kWh per square meter), so-
lar energy industry activity was minimal at the time
of Grameen Shakti’s founding. The local market
had not yet been established, and the Bangladeshi
Government o∑ered no support. Heavy import
taxes on internationally sourced solar panels and a
lack of local suppliers drove up prices. Furthermore,
a general lack of awareness surrounding the technol-
ogy was a consequence for low demand.
To overcome these obstacles, Grameen Shakti
placed considerable focus on providing increased
value to its clients, while making a dedicated e∑ort
to reduce costs and thus lower prices. An extensive
warranty package (which could be extended for a
small fee) included free maintenance for the first
three years, training seminars for clients, routine
system maintenance, and monthly inspections. Thi
warranty has enabled the establishment to manage
its maintenance costs and has contributed to a high
level of customer satisfaction. Additionally, the
company o∑ers clients a 20-year money-back guar-
antee in the event that a client is, for any reason,
unsatisfied with his/her system or the national grid,
which is extended to service the client.
Lacking government support, Grameen Shakti
had to rely on partnerships with other organizations
n
I addition to being able to tap into in orderGrameen to stay ahead. Partnerships with educa-
Bank’s branch network to reach customers tional and institutions and suppliers played an impor-
quickly establish a local presence, tant GrameenroleShak
in pursuit of new technologies and
ti
also benefits in other ways from the bank identifi. Most cation
no- of trends. n
I partnering with educa-
tably is the use of the Grameen name, tional a nameinstitutions, the company hoped to maximi
widely recognized and respected. Grameen its Shakti resources and provide clients with the most up-
also makes use of the expertise of the to-date
general man- and e≈cient technolog. y The provision of
the
ager of Grameen Bank, who spends 20 percent of most market-applicable technologies allowed
his time directing Shakti. the management to keep a step ahead of the compe-
tition. Partnerships with suppliers also proved useful
obs tacl e s
GRAMEEN SHAKTI
Overall, Shakti has experienced many issues inAWARDS
the
Bangladeshi market that are similar Liketo those
its parent, of
Grameen Bank, Grameen Shakti has
othersh companies in other world markets. There recognized for its efforts in the inter-
been widely
has been considerable skepticism concerning
national communitythe andvi-
has been awarded a num-
ability andsh cost
systems,
of coupled withber the
of honors, including:
limited purchasing power of target end users, rela-2002—Best 50
∫ Energy Globe
tive to the large capital sh cost
equip-
of imported
∫ European Solar Prize 2003—awarded by Euro-
ment. Large volumesneeded
were to get unit costssolar for spreading RE through micro-credit
down to a financially sustainable level, but to e∑ec-
∫ Best Organization Award 2005—awarded by
tively do this, a large sales force was Infrastructure
needed, and the
Development Company, Ltd., of
cost of making individual sales with associated sup-
Bangladesh
port was high. 28 Today there are over 160 o≈ces.

gr a m e n s h a k t i 33
 from both a cost and environmentalability
perspective. Grameen Shakti, for instance,
tains an agreement with one of itsprocured
to take back, recycle, and adequately dispose
batteries.
Grameen Shakti has made strong e∑orts
awareness about solar energy systems. Aexakemple).
ing strategy involved targeting the wealthier
bers of a particular village; this approach
cessful in promoting a type of demand associated
with “keeping up with the neighbors.”was
Shakti also actively promoted sh inthein- recorded
use
come-generating activities.
A mere 2.5 percent of sales were full cash
tances; most sales depended on a 36-month
ment plan. The seasonal cash flow of the
proved to be a significant influence on basis,
AN EXAMPLE OF AN INCOME-GENERATING ACTIVITY
A shop owner in the Tangail district of Bangladesh purchased a 40Wp system
from Grameen Shakti. Demand for cell phone services had emerged in his vil-
lage and he saw an opportunity to provide solar-charged phone services.
Business growth was significant: operations were extended by four hours a
day, and the owner was able to add cell phone rentals to his product offerings. knowledge and presence is a major barrier to th
In only four months, income from the phone operations reached Tk2,000 ($30)
per month—easily covering his payment installments of Tk470 ($6) a month to
Grameen Shakti.
TABLE 6. GRAMEEN SHAKTI AT A GLANCE, 2007
Number of villages covered 25,000
Total beneficiaries More than 700,000 people
Unit office 227
Total employees 1,135
Total installation of SHS 77,000
Installed power capacity 3.85 MW
Daily power generation 16 MW-hr
capacity
Installation rate Over 2000 SHS/ month
Installation of micro utility 1,000 system
system
Installation of biogas plant 500 (through October 2006)
34
management to make payments, and the collec
gram was adjusted main- accordingl. y Most of the syst
battery were fosuppliers
r household application and qua
ity of lif of used e improvement (e.g., lighting a
ment); howesome ver, were used for income-gener-
ating applications (see box on this page
to raise
y market-
The worst mem- flood in over a century hit Banglade
in 1998, was suc- devastating two-thirds of the c
90 percent of the Grameen Shakti operating are
flooded, and as a consequence, no sales
Grameen
of and defaults on collections soared,
ple’s focus shifted to the bare essenti
clothing remit- , and shelter. The sme structure
Pro- of t
gram loan,paywi - th its two-year grace period and t
arrangeeconomy
ment of payments to be made on an ann
customers’ icf enabled
’s client to remain current
loan, despite the delay in collections
The importance of Grameen Bank cannot be
overstated. The bank’s knowledge of the market,
and its existing distribution infras
base, are key contributors to Grameen suc- Shakti
cess. As was evidenced in vp the invest-
other sola
ments under icf ’s sme Program, a lack of local
success of a vp solar enterprise. Furthermore,
Grameen Bank was a valuable source of funding for
the firm during its early stages.
mov i ng foraw r d
To date, Grameen Shakti has installed ov
solar sy vp stems, with a total install
3.85 mw (a power generation capacitymw of per
16
hour). This has considerably improved liv
provided cleaner energy to 700,000 Bangladeshi
As rural communities have become electri
company has been able to work toward achieving
secondary objective, that of connecting th
eas of Bangladesh with the rest of the world
the service of information and communica
technolog, y as well as o∑ering computer educat
and n I ternet access, provided by engineers at
powered o≈ces. Computer education includes a
plications, such as Microsoft O≈ce and
sign, as well as hardware installation
language. This successful company has dive
operations to include the construction
plants to provide improved energy solutions
cooking. (See Table 6 on this page for a summar
Grameen Shakti’s achievements.)
s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s
u l s z o nu dr o a h s , s . a . e d c..v

Headquartered in San Pedro Sula, Honduras, Soluz

Honduras S.A. de C.V. is a subsidiary of Soluz, n I c.,
USA. Soluz Honduras began operations in 1998,
selling and renting vp sy
small
stemssolar on a retail
basis to rural customers, who had no access to elec-
tricity. Soluz Honduras was one vp of the first solar
companies to employ a rental model, which de-
creased the initial costs vp sy
of acquiring
s- a solar
tem without having to depend on consumer subsi-
dies, donor programs, or capital buy-downs.

backg rou n d
Soluz, n I c. was established in 1993 to further com-
mercialize vp applications
solar for rural areas,
building upon the vp sales solarenterprise estab-
lished by Richard Hansen in the Dominican Re-
public in 1986. Today Soluz, n I c. has two sub-
sidiaries, Soluz Honduras and Soluz Dominicana
S.A. in the Dominican 29The solar
Republic.
vp
rental o∑er was added to the existing cash and mi-
cro-credit sales o∑ers, first in the Dominican Re-
public in 1994, and later in Honduras, where Soluz
Honduras had been selling vp on a solar wholesale $1 million from a co-investment transaction with
basis since 1994. Rolling vp rental the
out o∑er
the Program and two other investors ($250,00
sme solar
was a major focus aimed at penetrating each ruralfrom mar-Corporacion Financiera Ambiental,
kets. Customers were charged the equivalent Costa Rica, of a and Triodos Bank’s Solar n I vestment
$20 installation fee, as well asFund an 31 ), Soluz
averag e monthly hoped to expand vp its rentalsolar
fee of $15 for rental and maintenance of customer the system base to a break-even point of 2,500, a crit-
(purchase of the battery was an additional ical cost step in- on the way to a target of 5,000 customers.
curred by the client). Along with rural Byhouseholds, July 2002, the number vp rental
of solar cus-
Soluz Honduras sought to target small tomers was stagnant at 1,500 and in danger of de-
businesses,
churches, schools, and health clinics, clining. providing Unexpected grid
so- expansion and the inabil-
larvp systems at monthly fees similar ity to tocontinuethe cost to of pay for installed systems meant
alternative energy sources (i.e., kerosene, thatdrySoluz cells, Honduras was forced to disconnect exist-
29Soluz Dominicana also recei
and automotive batteries). Despite ing ancustomers
entirely rural faster than it was adding new
support from the sme ones.
Program nI
client base and the devastating e∑ects contrast to the year 2000, revenue in
of Hurricane 2002
throug e af totaled
h the .

Mitch, 30 Soluz Honduras managed to attract $406,772, 500 with $227,762 (56 percent) accounting for
30 Soluz Honduras w a s f o unded

just prior to Hurricane Mitch,

solar rental
vp clients in its first solar year ofrental
vp operations. and $179,010 (44 percent)whaccounting
ich devastated much of
By 2000, revenue totaled $144,556, fowi th $100,499
r solar vs
p ales. n I an e∑ort to increase revenue
Honduras and Nicaragua in 1998.
(70 percent) accounting fovp r solar rental and and increase margins, Soluz increased The heavy rainfafo
its llcus associated
on wi
the hurricane caused catastroph
$44,057 (30 percent) forvp solar sales. sales (primarily by developing its dealer netwowas
flooding that rk).blamed for over
nI late 2000, sme Prog
the ram approved a t
I became evident that the unsubsidized vp 11,000 deaths. solar
$400,000 loan and a $100,000 equityrental investment o∑er was not financially viable. While the up-
31The Netherlands’ fi r st g reen

investment fund screens its

in Soluz Honduras. The to funds be used were tofront costs of installing a system decreased, the
ments using social and envi
expand the Soluz customer base. With a further charges remained too high formental
monthly over 50criteria.
per-

s ol u z hon d u r a s 35
 cent of rural households. Furthermore,vp similarthe solar environments. All this l
rental o∑er did not succeed in creating and an operating
transaction costs that needed to b
margin for Soluz Honduras, due to the byhig h collec-
customer payments. An unsubsidized c
tion and maintenance costs associated cial approach withto such a
establishing vp a pioneeri
highly dispersed customer base. The rental local company operation was simply too challengi
then adopted a more streamlined sales I model,
n July 2003, sell- Soluz found itself in sev
ing wholesale through dealers and, thus, distress, increasing with an $850,000 debt burden.
sales and assuring their margins. wasThe company
clear that be- a change was needed for the compa
gan to sell o∑ vp rental
solar assets to meet lender
to survive, investors o∑ered waivers of certa
obligations and focus sta∑ time on andincreasing
payments, sales seeking only profitability. Th
revenue through an expanding dealer netwogerksted
. tI a change in the business model of
also continued to vp sy
sell
stems,
solaron a cash
pany. Thus, an increased focus on sales, i
and micro-credit basis, to rural customers
the aggressive and insti- sale of vp used rentalsolarsystems,
tutions out of its three o≈ce locations. was established to help meet lender payme
The Soluz business model (whichtions included and bothto build a viable operation.
rental and sales o∑ers) resulted inproposed more complicated
that, in the short term, Solu
operations than would typically be found could in a solar
reduce its vp solar
rental fiex d-asset invento
vp business of equal size. The rental signo∑er, ificantly in , partic-
while at the same time
ular, required that Soluz Honduras devote streamliningconsider- its sales e∑orts.
able attention (at considerable cost) to collections
and service in remote o∑-grid areas, where even
obs tacl e s
well-established micro-finance institutions were un-
willing to provide their financial Lik products.
e mostThe other vp solar
businesses around the
company attempted to essentially build globe, the a micro- key problem faced by Soluz Honduras
rental financial product o∑ering in a wavery s that
challeng of a∑ordability
- . The Soluz busin
ing environment, without the benefi wastdesig of the neddevel-
specifically with this eleme
opmental subsidies routinely provided n
I addition to micro-to cash and micro-credit sal
finance institutions when establishing pany placed emphasis operations onin fee-for-service or renta

36 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s
systems. By renting systems, customers future, whavoided ile the theavailable o∑-grid customer base
high upfront costs of purchase, and the continually company became more dispersed and thereby
maintained vp sy
solar
stem ownership to facilitate more di≈cult to serve.
repossession. The company, itself, Despite however, had its to di≈culties, Soluz Honduras was seen
raise significant capitalvp to units
invest as ain pioneer solar in the vp area rental
of solarin the na-
and to develop e≈cient micro-rental tion. collection The company and was well-respected and had little
service operations in remote areas, competition a process thatin thethe direct servicing of rural cus-
company struggled with for several years. tomers. While When it came to larger sales, however, com-
monthly fees collected from the limited petition number wasof strong, particularly in the areas of gov-
clients during startup simply did ernment not o∑set bids the and institutional sales.
firm’s operating costs, rollout peaked at 1,500 rental
units, as c“ ustomer churn” reached high levels (3-5
mov i ng foraw r d
percent). The company’s financial structure was too
highly leveraged with debt for such a risk Operationsy new ven- were further restructured in May 2005,
ture. Total financing was $1.5 million, in anwie∑ort th $850,000to overcome the large debt burden. A
in loans. Debt repayment obligations memorandum providedof little understanding was signed between
in the way of flexibility if the rollout Soluz of revenue
Honduras and and sme the
Program, whereby a
expense did not stay to plan. significant portion of the debt would be forgiven,
Although Soluz Honduras succeeded in andsig a one-ynifi ear- repayment plan was designed for the
cantly lowering the upfront costs for customers, remaining financing. Sta≈ng and all expenses were
many found the monthly costs ofvp renting streamlined. a solar At this point, Soluz began to focus ex-
system from the company to be higher than clusively those on sales, using the cash proceeds from the
associated with kerosene and batteries. sale Furthermore, of solar
vp rental assets to pay back its creditors
when rural families lack the funds to purchase
(installed rental systems continued to be serviced
kerosene and batteries, it is notuntil as crucial theyas were being
sold on short-term credit to existing
obligated to pay for a rental contract vp forora new solar customers).
system. Many households did vp sy
rent
stem, a solar While the financial performance of Soluz Hon-
but later found that they were unable duras to continue was disappointing as a result of this overly
payments. Soluz Honduras attemptedambitious to price attempt to pioneer an unsubsidized solar
rental fees to the equivalence of combined vp rental currento∑er, the environmental and social benefits
energy costs (e.g., kerosene, dry cells,of car the batteries),
project should not be overlooked. To date,
but it estimated that, at this therate, company it has would require
installed well over 5,000 systems,
2,500 clients to break even. The firm and instead while discon- the business model has proved di≈cult,
nected a significant number of customers the wh o were did provide clean energ,
project y leading to pos-
unable to make their payments, resulting itive social not onlyand environmental impacts. The aggres-
in a loss of income, but also insive costs related to
penetration vp ofthe
rental
a solarsystem created
physical act of disconnecting and remark widespread etingawathe reness of solar vp in rural areas, thus
solar vp system. increasing demand. Employment opportunities and
The unpredictable timing of government income rural were provided for the micro-enterprises that
electrification project timing, even were wh en there weto
contracted re collect monthly fees.
communication e∑orts with the local The authorities,
move away from a rental o∑er to a cash and
coupled with unexpected grid expansions, short-term especially credit sales focus has resulted in in-
due to election promises, meant that creased Soluz cash floofws ten to Soluz Honduras, thus reducing
found out about grid expansions just its months debtbef ore
burden. With the reduced debt, the Hon-
the grid reached a community. This required duran firmSoluz expects to now have a viable business
to remove hundreds of installedvp systems solar be-
model. Up to now, high debt on the books during
fore the initial investment could thebepast recovered. three Fromyears of financial restructuring has
this, an interesting paradox emerged, made further
it di≈cult com- to purchase on credit. With a debt-
pounding the issue of unexpected grid exfrpee ansion:
balance sheet, however, a viable and sustainable
residents wealthy enough to vp a∑ord
systemssolar future, in which the company will operate with less
generally lived close to urban centers. required Thus, they
capital, will begin to emerge.
were more likely to receive grid service in the near

s ol u z hon d u r a s 37
s e l c o v i e t n a m , t ld .

Selco Vietnam, Ltd., based in Ho Chi Development Minh vbadr City( ), wh ,ichis provides consumer
a subsidiary of the U.S.-based Solar Electric financing. Light
Company. Launched in 1998, Selco Vietnam Selco sold Vietnam received a $750,000 loan from
solar systems to unelectrified households icf ’s sme Progin
ram in Viet- 1998. The loan was to enabl
nam and was the first 100-percent foreign the -ownedcompany to provide collateral to third
company licensed to operate in the country financial . intermediaries vbadr (specifi
) for cally
working capital financing up to $200,000, an
secure loans for the company’s customers t
backg rou n d
purchasessh of . n I addition, the loan agreem
Solar Electric Light Company is a U.S.-based called for the com- salesh of 12,000 in two years.
pany with o≈ces in India, Sri Lanka, and Vietnam.
t
I grew out of the activities gon Solar
of the
Elec-
obs tacl e s
tric Light Fund, which was founded in 1990 to as-
sist in the financing and installation The principal barrierenerg
of solar facedy by Selco Vietnam wa
system projects throughout a number that of developing of a∑ordability. Vietnam had no debt
countries. The for-profit Solar Electricand, Light thus,Com- no consumer financing availab
pany was launched in the late 1990s bank to iscale
ng, or home up the mortgage market. A general over-
provision of solar electricity to households all distrust in devel- of the banking sector sign
oping countries through a commercial would markerather
t- do without than incur debt. n I
based approach. t I operated through itsuntil subsidiary 2002, banks were controlled by local
companies in India, Sri Lanka, andinstitutions, Vietnam (see and loans were approved n
box below). worthiness but, rather, on the recommen
Vietnam has a significant power shortag the elocal , with people’s committee, which was
little capacity to meet urban demand with and the no inf Selco ra- Vietnam business model
structure to distribute electricity lied beyond on urban
the availability
ar- of consumer fina
eas. The general lack of access to electricity Complicating
, coupled the matter the issues were around
with the fact that even rural Vietnamese the mass had hig publicityher of grid expansion and
disposable incomes than those in ating neig incomes
hboring coun- common among the rural popu
tries, made Vietnam appear to be an tion, attractive makimar- ng consumers considerably pric
ket for sh providers. scious. Unlike other countries, the Vi
Selco Vietnam’s primary focus in the not country establish was income-generating busin
on the sale sh toof households. However, it solar power (i.e., solar-charged cellular phon
also
provided specialized applications, rental),such asa solar fact that also contributed to
street lights, water pumps, and hot sciousness water heaters. of consumers.
An important part of Selcobusiness Vietnam’sVietnam presented a further complicatio
model was its relationship vwu , throug h vision
with the was considered more important th
which it had access to villages, among and its the targ eted consumer group. As a result
partnership
with the Vietnam Bank for Agriculturelarg and er solar vp systems, capable of powering a tele
Rural
sion, were in demand. n I fact, most cust
AWARD FOR CORPORATE EXCELLENCE sought the largest and more sh exthepensive com-
Established by the U.S. Secretary of State, the Award for Corporate Excellence pany had on o∑er, which resulted in reducin
recognizes businesses that exemplify good corporate citizenship abroad. a∑ordability sh even
of further.
In 2001 the Solar Electric Light Company received the award for its work in Most potential customers km livedof a withi
reducing poverty and spurring economic development in rural Vietnam by sup- battery-charging station. The average amount
plying household electricity to families that lack access to the power grid. on batteries per month in Vietnam was t
lent of between 66¢ and $2, considerably les

38 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s
what was e r que ir d for a solar vp sytem. The number having shifted as a e r sult of a pending election), the
of those withou access to electricity (60 pecr ent) solar vp company was forced to take on the added
was in t al y taken as a mease ur of the porsectie v e
r sponibilty of a colections agent. But this pve ro d
makret, but upon later e r vie, w it was determined to be a particulary chalenging endea, vo r a s t h e
tha only about te hr e pecr ent of the unelectrified company was unskiled in the ae r as of consumer
poulatin could actualy a∑d or a solar v p sy tem. finace and colections, and was operating in a mar-
Thee r we e r also isues suronding the policy en- ket with no debt history or consumer bankig.
vironment. Thee r was a heavy local polit cal
influence, yet it was not alwys suportive of Selcs ’ o
m o v i n g f a or w d
activ es. Seen as a U.S. co, mpany Selco Vietnam
did not alwys get the same level of suport tha a In the end, Selco Vietnam was forced to accept tha
Vietnamese company might have e r ceived. While demand for lighting was considerably les than ex-
import duties for solar modules and bateries wee r pected in the co. untry During its first two years, the
waived for Selco Vietnam, the inconsitent subsidy entiy had planed on sales of 12,000 units, but it
policy for electricity pve ro d p ro b l e m a t i c . struggled to e r ach 1,600. Sales targets wee r eventu-
In an atempt to addres the isue of consumer al y e r vised downad r by 50 percent.
credit,icf originaly hoped to make the eg f loan to In an e∑ort to lwe o r the cost of the solar vp
the womes ’ n unio, so tha it could on-lend to con- equipment, the company has nwo formed partner-
sumers. Howeve, r the vwu was concerned with the ship with other Solar Electric Light Company sub-
liabilty isue, and ultimaely the funds wee r loaned s i d i a r e s a ro u n d t h e w o r l d i n od r er to purchase
die r ctly to Selco Vietnam, with the vwu age
r eing to larger quanties from supliers with volume dis-
admin ster them. counts. d A di, tionaly it has learned from the experi-
Selco Vies ’ tnam expertise lies in the ae r as of solar ences of other subsidiares by sharing informatin.
sales and service, not in tha of consumer finace. Selco Vietnam has struggled finacialy since it
The intal intent had been to work through v b ad r began operations. The mangement has undertaken
(which would pvroide consumer finacing with some significant changes to impve ro fi n a c i a l p e r -
funds guarnteed by the sme Program) and the vwu formance, e r ducing operationl and adminstrave
(which would handle the colections). Unfortu- expenses, and ince r asing its per s e n c e i n t h e m a rk e t .
nate, ly when v b ad r failed to make finacing avil- Since the end of 2006, the company has been oper-
able to potential Selco Vietnam customers, Selco ating in survial mode, with only five emplye o es fo-
Vietnam was forced to star pvroiding consumer cused exclusively on cash sales. No credit is avil-
finacing itself. Subseque, ntly when the vwu failed able, and the firm is not expected to make its sme
to pvroide proer colections service (its priotes Program loan e r payment deadline.

se l co v i e t n a m 39
 c a s e s t u id e s 2

Phoo
t o
v ltaci Markte
Transof m
r atoi nnI ait evit

The icf /egf Photovoltaic Market Transformation program) continued to play a key role in the pro-
n I itiative ) is (pvmti a $30-million initiative gram design. While designed the initiative was
to accelerate the sustainable commercialization ceived to be a $60 million and program that wou
financial viability of energy services, volve based global competitive procurement among
on solar
electricity vp )(solar
technology in n I dia, Keny private a, sector companies, it was soon dec
and Morocco. Funded egf by and managed byicf , would be more prudent to pilot the concept a
v pm t i was based on the premise that private smaller $30-million initiative, t
sector
project design and financing on a commercial number basis of countries.
would stimulate more sustainable ventures than
government or donor-financed vp solar procure-
cou n t r y s e l e ct ion pro ces s
ments alone. Launched v pm t i inis1998, still opera-
tional today, and has committed over The $18 initial million selection to process began wi
12 projects. identification of 35 potential countrie
countries, 30 were supplied with a summar
vp m t i program concept and a request for an ex-
backg rou n d
pression of interest. Of those that res
The vpmti concept originated at a meeting ria, held Argentina, in Indonesia, Sri Lanka, Zam
Princeton, New Jersey, in the early 1990s. Zimbabw The ewere meet-
removed from consideration due
ing was attended by a large number of academics, to planned World Bank and/or projects,
ge f or un-
go n s, the , wb and
g others interested in favorable theeconomic acceler- conditions. The remain
ation of the global markevp tand for solar
other
er countries, Brazil, China, India, Ke
technologies in developing countries. Pakistan, The origand inal Thailand, were visited for f
project concept, dubbed the "Green Carrot," consultation was during the first half of 199
based on the same market transformation Threeconcepts
countries were ultimately selected
used bythe United States Environmental plementation: Protection n
I dia, Kenya, and Morocco.
Agency’s (EPA) "Golden Carrot" program (see the box, three was considered to have an emergin
page 41). When o∑ering the p“ rize” was deemed vp mark un- et and a supportive policy environmen
feasible, the program was rebranded v pm t i , as and which thevp solar sector could 32 grow.
n
I n I dia,
management of the program was passed fromhome the to the largevp st marksolar
et in the develop-
World Bank to icf . ing world, v pm t i was expected to stimulate inv
Although vpmti was restructured under icf , thements in new commercial (not government
lessons learned from m “ arket pull” initiatives sectors. n I Keny a, which had avp dynamic sol
(un-
dertaken in North America and Europe, mark et wi
which em- th over 150,000 sh sold without any for-
ployed financial incentives to engage mal the credit
privatefacilities, sec-
v pm t i was expected to provide
tor to encourage market adoption of new energ worky ing capital and end-user financing in a m
and er technologies such as the “Golden dominated Carrot” by small-scale enterprises. n I

40 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s
v pm t i was expected to contribute to thener demonstra-organizations in each of the countries—IT
tion of the potential of private franchise Power n I diamodels (a subsidiary and of IT Power UK), Pipal
guarantee facilities to finance alternatives Ltd. (a Keny to annonvi- project management company in
able grid extension, based on a commitment the solar to field), gerisn solar and
(a Moroccan project
vp by the national electric utility manag , eO≈ce
ment National company)—whde ich provided critical
l’Electricite ne o ). ( support and local knowledge at all stages of the
During the preliminary stage, some process. 25 potential
projects totaling nearly $175 million The role inof fin the emt ancing was to solicit, screen, and
were identified. Many of these projects to westructurere vpsolarbusiness proposals and conduct
support companies that sold and/orthe leased, appropriate distrib- commercial, technical, and financial
uted, installed, and pv equipment.
serviced solar due diligence. Once emt fethe
lt it had a solid pro-
Other projects were focused on supportingject, the exit - would present the icf n Iproject
vest-to the
pansion of existing sales and distribution ment Review Committee netwcir orks ) for final ( approval.
and entry into new markets, and a small After approval number from the cir , the emt would be re-
of projects were identified workingfi s with
to es- sponsible for ensuring that all disbursement condi-
tablish financing mechanisms to tions support met,
were end as userwell as for reviewing progress on
purchases. a regular basis subsequent to disbursement. The
emt is compensated in two forms: a set project
management fee paid quarterly over the life of the
m a nagem e nt
program, and a series of performance bonuses, some
During the country assessment period, of which it are becametied to performance and some of which
apparent that a much higher level of are engtied agement to timing in the program. The set project
would be needed over a longer period of timemanag than ement fees make up the majority emt of the
originally planned. Sector and country compensation.
expertise,
similar to that of an investment fund, was impor-
tant vpmti if were to succeed. Rather than establish s t ru c t u r e
in-house expertise, icf management chose to select
an external manag icf edecided
r. to retain m I pax
vp m t i was financed with $30 million ge f , from
Capital Corporation (now m I pax Asset Manag allocated e- as follows: $15 million for project financ-
ment, 33 Ltd.)and IT Power, Ltd., 34 both firms expe-ing in India, $5 million each for Kenya and

rienced in managing small, innovative Morocco, and renewthe able remaining $5 million to be used
energy portfolios, to serve as an external for technical manage- assistance and project execution. The
ment team emt ).( Theemt also included local technical part- assistance component of the program
32Each country had, at the ti
amounted to $3 million, or 10 percent of total
a large number of households in
funds. These funds towerebe provided for non-o∑-grid areas, an adequate
THE GOLDEN CARROT PROGRAM commercial purposes, such as technical financial assistance, services sector, and
existingpv solar sales market
The Golden Carrot program is a federal program of training, the development of standards, and
(either subsidized or unsubs
addi-
the United States Environmental Protection Agency tional uses as required by individual dized). projects. t I
designed to support the commercialization of new was expected that $13.5 million would 33Im pax be recovered
Asset Management, Ltd.,
energy-efficient appliances in the residential sector. from investments and portfolio earning is a specialist s, and fund managem
company focused on the environ-
The “Golden Carrot” program offered a finan- would be returnedgef toat the end vp m t i of ’s op- mental sector. With £420m ($83
cial incentive to manufacturers to support advances erational period. million) in funds under man
ment in a combination of li
in energy efficiency. In the program, 24 utilities The financing terms o∑ered v pm t i by’s were de- and private equity, Impax had th
pooled $30 million in the Super Efficient Refrigera- signed to be su≈ciently flexible to respond necessary sk to
ills the to assess p
investments and to implem
tor Program. That program then held a contest, needs of each project, and included debt, same.
g u aran-
and the manufacturer that built the most efficient tees, and grant funding. Most investments ex- were
34 I T Powe r, Ltd., is an energ y

CFC-free refrigerator at the lowest cost was pected to request debt at or below market terms.
consulting firm with a special
awarded guaranteed rebates from the pool to off- Additional financing tools, including tion re in engi neering andgurelated
partial aran-
economic, financial, commerci
set the incremental product costs. At the same tees and equity, were also available, if the
and environmental considera- benefi t s of
time, consumers got more affordable and environ- such tools deemed were su≈cient to justif tions. y the IT in- Power has completed
over 1,000 projects for both gov-
mentally friendly refrigerators. creased complexity. ernment and private sector cli
in over 100 countries.

p ho t o v l a ic m a r k e t t r a n s f or m a t ion i n i t i at i v e 41
 r e s t ru c t u r i ng n
I October 2006, v pm t i sought, and was granted,
approval fromegf to increase the funds availab
n
I 2004, vpmti underwent a significant restructur- technical assistance, from a maximum
ing. The slow execution of deals in the of the early years of program funds to a maximum of 20
overall
the v pm t i program, due to the extensive documen- percent. This request was made in respons
tation, minimum investmentfinsize, dings of and thelong Mid-Term negotia-
Review that icf suggested
tion periods, resulted in a lower-than-ex p ected
should explore the possibility of deployin dis-
bursement rate. With funds not being mitted disbursed, investment resources to grant-ori
the expected reflows (interest and principal nical pay-assistance activities, vp such
ments) did not accumulate as v pm t i expected, and
information dissemination, and capac
ran into issues with insu≈cient for the cash industry flow to cover sector that will help ad
its ongoing administrative and operating overall objective costs. v pm t i .ofThe This was suggested, in
restructuring sought to extend the progpart, ram imple- because v pm t i was one of the earliest market
mentation period by two years (from 10 years transf to 12), ormation initiatives icf had managed,that and
in an e∑ort to bring disbursements lessons of committed from subsequent projects seemed
funds to approximately 70 percent, and tovpmti reclassif at they mid-term point. v pm t i ’s Sinceincep-
$1 million v pm t i ’s
of investment fundstion, to icf finance
has managed a number of other programs
the cash shortfall on the administrative that have resulted side of the in greater market impact
project. v pm t i is likely to have at the end of its
As part of the 2004 restructuring v pm t i also , mainly the result of a larger emphasis on
received approval for a grant of approximately assistance and capacity building (as a p
$350,000 for a stand-alone technical overall assistance investments). The change in Oct
capacity-building program in Kenya. This project
sought to correct this imbalance, whil
consists of the development of training still curriculum ample time v pm t i wi
progrthin
am to imple- the
and the provision of training vp technicians, to solarment new technical assistance and capa
creation of quality awareness in the market, estab-
lishment of a quality assurance sh in program for
the Kenyan market, and provision of support to
pe r f or m a nce
35t
I is important to note that
the Kenyan Renewable Energy Association k er a ). To date, ( the
cir has approved a total of 16 sub-pro-
projects approved through icr the
are documented by the
ifc legal The total cost f o r these activities is
jects (six in n estimated I dia, at six in Kenya, and
team. In some cases, projects $476,900, were which includes about $115,000 35
rocco). The active of in-k v pm t i i nd portfolio is comprised of
approved by the
icr , but legal
documentation was not finalized
contributions and co-financing for the nine project. projects The with commitments of over
due to a variety of reasons. egf funds used for this are all grant fulion nds. (see Table 7 at left).
Experience to date with the di∑erent proje
been mixed, with some proving very successfu
TABLE 7: PVMTI’S ACTIVE SOLAR PV PROJECT PORTFOLIO
some unable to make any progress due to a varie
COMMITMENT UNITS INSTALLED of outside reasons. This report has focused
PROJECT (IN MILLIONS) (APPROXIMATELY) mati District Tea Growers Savings & Credit
ative Ltd. (Muramati), er i s n
I frastructure Finance,
Selco India 1.10 15,000
Ltd.eris ( ), and Sunlight Power Maroc m ps S.A.
). (
Eskom-Shell Solar Home Systems 3.90 26,000
These projects were selected to be representat
Shri Shakti 2.23 2,000
the overall v pm t i portfolio, as they represent pro-
SREI Infrastructure Finance, Ltd. 3.50 15,000
jects in each of the countries v pm t i was in
ac- which
Total India 10.73 58,000
tive, projects involving both financial
Barclays Bank, Kenya 2.00 0
and direct investments vp companies, with and pro-
Equity Building Society (EBS) 2.10 0
jects that achieved varying degrees of success
Muramati Tea Growers SACCO 0.60 170
Total Kenya 4.70 170
Salafin S.A. 1.00 0
Sunlight Power Maroc S.A. 1.075 1,700
Total Morocco 2.075 1,700
Total PVMTI 17.505 59,870

42 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s
 Capacity Building and Technical Assistance May Be
More Important than Business Finance

At the time wasvpmti introduced, and for several

years thereafter, the Kenyan market was not pre-
pared for the financial product and services that
v pm t i o∑ered. The minimum deal sizes were too
large for existingvp solar firms, and larger entities,
such fis as , were not interested in pursing the rural
solar markvp et. Qualityvp solar products and a re-
liablevp solar service network were also lacking in
this market. n I recognition
v pm t i directed
of this,
its e∑orts at providing technical assistance to rais
public awareness of the merits vp , upgrade
of solar
the skills of local technicians, and foster an enabli
environment for the establishment of high-quality
solar products
vp and service providers.

Enabling Environment Is Critical

Success in the vp business,

solar and the appropriate
business model to adopt, will depend to a large de-
gree on the enabling environment in which the firm
operates. n I dia has er the financing
largeste∑ort
o∑ered by any developing country. Governmental
e∑orts to promote er , including vp , solar
compete
with v pm t i , but also help open up the market and
establish vp assolar
a viable technolog. y Addition-
ally, the fact that the population of n I dia is large
and densely populated means that service techni-
cians can economically serve a small geographical
area (relatively inexpensive to reach potential
clients) with a critical sh units. mass Further-
of
more, favorable tax, regulatory, and grid-extension
policies may help the development vp of the solar
w h at wor k e d and w h at di d not market in a given country.

Product Quality Standards Are also Critical

The vpmti experience was similar to that of other
solar vp projects undertakeicf n and by others, Many in of vpmti ’s investments found the lack of
that it highligvp hprojects ted that are solar
most product quality standards to be detrimental to their
challenging to implement, precisely operations.
in those Muramati
mar- saw systems fail and installa-
kets where the demand for it, and thetions economic delayed as a result of mfaps ulty
saw batteries.
justification for it, might be greatest. increased Often, pressures
rural,on prices as a result of cheaper
poor, and sparsely dispersed communities, contraband who product
are on the Moroccan market. n I
far from the grid and thus vpneed , are un- hindsig
solar vpmti ht, should have been more proactive
likely to generate the resources necessary infor improving
pur- product quality and establishing qual-
chasing or maintaining these units ity-control without mechanisms.
exten- A portion of the grant
sive subsidies. v pm t i experience
The also component would have been well spent investing in
demonstrates that there is an ongproduct oing need innovation
for ca- and quality control.
pacity building and technical assistance, that invest-
IFC’s Typical Project Financing Requirements Are
ment terms and management vp focused
of solar
Ill-Suited to Small Business Transactions
projects should be tailored to the specific needs of
solar,vp and that product quality is icf a’s legal documentation
serious issue. and loan security docu-

p ho t o v l a ic m a r k e t t r a n s f or m a t ion i n i t i a t i v e 43
ments ae r suited to large project finace transc- Decision Making Needs to Be Done by Those Clos-
tions. They can be exte r mely bud r ensome and time est to the Project
consumig for sme s tha ae r moe
r accustomed to
much simpler due diligence processes. As a conse- The pace of decision making was hindered by the
quence, investment transctions take months or a d m i n s t r a ve s t r u c t u e
r adopted in this project. Al
years to complete and, in some cases, market condi- decision e r gad r ing investment comitent, loan
tions wil change significantly between the invest- closue r , disbursements, and acceptabilty of loan
ment apvrol and finacial closue r time frame. A colateral wee r made by icf sta∑ (Legal Department
further consequence is tha the adminstrave cost and Environment and Social Development Depart-
ae r high in e r l a t i o n t o i n ve s t m e n t s i ze . ment) upon the e r comendation of the emt . This
Many solar vp busineses in the target countries str uctuer has e r sulted in significant delays in the ad-
found the $500,000 minu investment to be to minstrao process, as those closest to the projects
large. This was particulary true in Kenya, whee r in- (theemt ) we er not making the decision.
ve s t m e n t s we e r lim ted to fi s and banks. Going
through the banks, hwe o ve, r pve ro d to be cumber-
c on l u s ion
some and time consumig, since the banks did not
see fina cing sh as a main line of busines, and it v pm t i has experienced considerably moe r success in
was di≈cult to get many of them to mve o expedi- India than in Kenya or Morocco. This success can
tiously on the projects. be atributed, in large part, to the high poulatin
Furthere mo , the smal busineses and ene tr e
pr - density in o∑-grid ae r as, the existence of established
neurs targeted by vmtip found the extensie v busines solar vp companies, and the e r latively widespe r ad
plans and other documentaio e r qe uir d to be some- knwoledge about solar vp technolg.y In Kenya
what dauntig. While they had energy and ideas, v pm t i had intaly set out to pvroide working capi-
many e w e r not skiled in the writng of busines tal and end-user finacing. Howeve, r the focus has
plans. This e r sulted in long negotiaon periods for s i n c e s h i f t e d t o p v r oi d i n g m o e r technical asitnce
customiez d contracts. In some instaces it tok a funding, particulary in the ae r as of train g and
e
y ar from the date of e r view to the date of disbursal. quality asurnce. In Morocco v pm t i has contiued
to e r ly on suport from the natiol , util y ne o .
Dedication to Solar PV and Provision of Value-
Given tha v pm t i is stil an operationl project, it
Added Services Are Critical to Success
is di≈cult to come to any conclusion as to its ve o r-
Al of the firms tha achieved modest success in al performance. While the program stared , s lwo y
terms of util z ng v pm t i e
r sources and drawing disbursements have ince r ased significantly since the
down their comitents wee r ale r ady in the solar 2004 e r structuring. With ve o r $12 milon in dis-
vp busines, or seeking to enter the busines, when bursements, vpmti is curently on track to meet the
they e r ceived funding from icf .vpmti found tha e
r vised disbursement goals.
firms tha pvroided further value added, in particu- v pm t i was able to pvroide finacing for a number
lar servicing and maintenace, wee r moe r success- of busineses tha otherwise would not have been
ful. Those who mve o d farther up the value chain, avil ble. As a e r s u l t o f t h i s fi n a c i n g , ve o r 60,000
a n d we e r involed in the asembly of solar compo- per viously unelectrified households nwo have elec-
nents and the instal o of sytems, seemed to do tric.ity The Mid-Term Revie, w which was com-
significantly better than firms tha wee r mee r ly en- pleted in July 2006, noted tha vpmti wil be e r -
gaged in consumer or producer finacing. sponible for the displacement of an estimaed
Firms tha received vp m t i finacing tha did not 109,466 tones of CO2 emison ve o r the lifetime
have a particular focus on solar vp w e re s i g n i fi - of the sh instaled.
cantly les successful. Muramti, for example, was
dedicated to prvoiding finacing to people working
in the Kenyan tea sect, o r n o t t o p ro m t i n g s o l a r
vp . A s a re s u l t , t h e fi n a c i n g o f sh fell outside the
core busines line, and proer resources were not
dedicated.

4 s e l i n g s ol a r : a p r t 2 /c a s e s t u di e s
 m u r a m t i i d s t r c i t t e a g wr o e s
v s i a g n a n d c r e i d t c o e p r ta i v e , t l d .

The Muramati District Tea Growers Saving pricing

Credit Cooperative, Ltd. (Muramati),the
Kenya, was approved for financingvpmti from in prices having been stagnant over the past several
June 2000. The funding received was to support
introduction of a loan scheme to finconstituted
members in the purchase sh . of
backg rou n d
Founded in 1993, Muramati has grown in
the largest savings and credit cooperatives
the tea sector, with a current membership
32,000. Muramati’s primary purpose is
basic savings and lending services
in the tea sector in Kenya.
The concept for which vpmti thefunds were
dedicated was relatively simple. Muramati
work in partnership with sh supplier,
a local wha∑ordable
would supply and maintain the systems,
ramati would market the systems andmuch
tential customers with the financing
systems. The customer would be required
deposit on the system and maintain
ments.
s andsystems. Muramati was assuming most of
based financial
in risk in the arrangement, yet with tea
years, tea the growers were particularly aware of what
ance Muramati value for money, and the supplier’s sys-
tems were seen as being particularly expensive.
An additional reason for the slow initial progress
of the project was rooted in that Muramati only had
to pay interest on drawn funds and, therefore, was
to beno one great of rush to proceed with the disbursements
from icf . Given serving this slow initialv pm t i has progress,
had to restructureof over the terms of the Muramati loan,
delay toing the second and third disbursements, as
provide
well to as
those the involved
overall repayment schedule.
The credit terms initially o∑ered by Muramati
proved to be problematic. The short-term loan of
up to 18would months proved to be far too short to ensure
ich repayment installments. Similarly, the 50
percent dow whnile-payment
Mu- requirement proved too
provide for po-
many potential borrowers, and the inter-
est rates to purchase set at the15 percent per annum were consid-
ered totoopayhig a h.
No mark et survey,pay-unfortunately, had been un-
monthly
dertaken during the preliminary stages of the pro-

obs tacl e s
Progress on the project was initially quite slow, as
both Muramati and sh supplier
the seemed to be
waiting for the other party to drive progress. Under
the initial agsh reement,supplierthe
had agreed to
establish infrastructure in Muramati’s regions to ser-
vice thesh installed through the project, however,
given the low volume sh orders,
of they were un-
willing to make this investment and provided ser-
vice from their headquarters in Nairobi, four hours
awa.
y This resulted in delays in sh ,installing new
as the supplier would only install in batches, as well
as in delays in responding to maintenance calls. A
further issue resulted when the supplier received a
faulty batch of batteries, causing a number of sys-
tem failures. Finally, there was a problem with the

m u r a m at i di s t r ic t t e a g row e r s sv ai ng s a n d cr e di t co ope r at i v e 45
 ject to determine the level sh of demand grant for funds from vpmti , used to train local freel
among Muramati members. Over the course technicians
of the to perform ongoing maintena
program’s implementation, it became sh . evidentCredit terms thato∑ered by the cooperation wer
many Muramati members were taking out loans changed;to the maturity of loans was increas
purchase sh on the open market, where theythree were years with a down payment no longer re-
available for a competitive price. While quired; there andwas interest rates were reduced to 12
indeed a demandsh for, this did highlig per annum.
ht theThese fact revised terms were, at the
that the driving factor in purchasing considered decisions to be wamuch
s more attractive to po
price, not quality, thus leavingborrow the ers. systems o∑ered
by Muramati at a distinct disadvantag However,
e. despite the above initiatives
At the time of financial closure, plier there partnership
were con- has failed to properly mat
cerns about weak finances and internal and controls.MuramatiAs no longer engages in such part
a result, a rather cumbersome systemships. of accounts Until 2006, Muramati contin
was established to manage theTo- flow of funds. 36 financing to its members sh to
, althoug
purchaseh
36i fc required that the disbursed
funds to the Muramati project day, beMuramati continues to expand its members membership were free to select the system and i
held in a joint ifc and
account (
Muramati) at Barclays Bank in
and is in good financial health, despite of their the choice. During the last four years,
di≈cult
Kenya. Muramati was to draw conditions in the tea sector in mati recenthas years. attempted to undertake marketin
down funds from this account
paigns for sh awareness to its entire members
only on approval frifcom. This
process meant that Muramati had The results of this strategy have been li
two steps to receive funds: 1)
mov i ng foraw r d
2006, Muramati asked to vpmti halt program,
its
request a disbursement i fc from
to the ifc /Muramati account, and Muramati eventually did eng a g e a new and
supplier it to has f u lly repaid its outstandin
2) request approval of withdraw provide
als systems at considerably lower used prices grant than funds. The company felt that th
from the jointly held account.
This process could take four
the origi sh nalsupplier for the project. The gram issuewas too cumbersome to manage and that i
weeks or more. of maintenance was addressed through the was ultimately
use of outside its core busine

46 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s
s r e i i n f r a s t u rc r e
f i n a c e , t ld .

er i s n
I frastructure Finance, Ltd. er i s n
I (formerly
- maintain sh . This endeavor never materialized,
ternational Finance, Ltd.), is and among the largest
eventually the non- partnership was dissolved.
banking fi s in n I eirs dia.
is engaged in the financing er i s hoped to simplify operations and reduce
of construction and mining equipment, costs byinf rastruc-
establishing a one-stop location where con-
ture projects, and renewable energy systems. sumer n I credit, Feb-
sh and spare parts sales, and after-
ruary 2001, er i s received financing vpmti from to sales service and maintenance were fully integrated.
address two key issues facing the vp n I in-
dian
The solar concept, unfortunately, did not materialize,
dustry, namely, the lack of after-salesdueservices to the and reluctance er i s toofestablish rural infra-
maintenance activities, and the structure. lack of rural credit
mechanisms. n I itial attempts to establish a rural credit mecha
nism were unsuccessf er i s was ul.
reluctant to take
on rural consumer credit risk, despite its partial
backg rou n d
guarantee. During the early years of operation, sales
Although n I dia has one of the world’s were larg almostest solar 100 percent cash and carry, and the is-
energy programs, it still su∑ers fromsue the wassame addressed eris by providing supplier credit,
issues
that face solar vp markets around the world: a∑ord- establishing partnerships with rural banks for credit
ability and reliabilityeris of technolog pro- and, .
y The eventually, by the provision of consumer loans.
ject sought to address these issues by developing a
financial model to provide unelectrified households
mov i ng foraw r d
with easy access to credit facilities in order to be
able to access lighting options,Today and , eris developing
continues a to source solar modules from
network of solar service centers in the Tata rural BP in areasn I bydia, and is working with a new rural
building on the existing infrastructure electrifiofcation systems service provider, Environ Energy-Tech
integrators. Service, Ltd. e st ).( This new partnership has been
The project involved a partnership er i s betw
ineen place for over two years and is considered to be
(providing management and a financing prog mechanism ressing well.
for rural credit), Tata BP Solar n I dia (India’s v pm t i larg
fin ancingest made it possible e st to provide
solar cell vp and module manufacturer, whwi ich thpro- working capital loans, e st toenabling
intro-
vided the sh ), The Ramakrishna Mission go n duce(an several small innovations to enhance customer
with solar electrification experience satisf and contacts action, such as theft insurance, damaged parts
with rural communities), and thereplacement, Tata Energy Re- regular visits by field technicians, and
search n I stitute teri) (which (brought project man- five years of free service.
agement and quality assurance experience). The eris experience presents an interesting case
studyeris . focused on some of the more challenging
areas of n I dia, initially experiencing a great deal of
obs tacl e s
di≈culty. Currently, eris howperfever,
orms well—
During the first few years of the project, the imple- project has expandedvpmti beyond to other
mentation was impeded by significant projects— disputes and it be-has installed sh . t I s
over 15,000
tween the partners. The disputes centered experience highlights the need for patience, particu-
around
the initial anticipation sr e i would use loan larly in a challeng
that vp mark inget.solar
funds to establish The Ramakrishna Mission infra-
structure in rural areas in order to install and

s r e i i n f r a s t ru c t u r e f i n a n c e . tl d . 47
s u n l g ih t p w o e r m a r o c s . a .

Sunlight Power Maroc S.A. m ps ),( in Morocco, re- required for the project. As an exceptional ca
ceived v pm t i funding in December 2004. The the fuvpmti nd- portfolio, special approval had to be
ing was requested to finance infrastructure granted. expan-
sion and working capital requirements for a
fee-for-service project, as well as to create a new
obs tacl e s
credit business vp sales.
for solar
A number of market issues impacted negativ
m ps ’s initial success. Firstly, si
backg rou n d
sion has taken place in recent years, sh
m ps was originally founded in 1998 to provide potential in- market for recipients ne o under the
stallation and maintenance sh in Morocco (pri- of scheme. Secondly ne o has
, significantly increas
marily in the northern regions of Taza, subsidized Swfrou, fee-for-service scheme m ps (which
Taounate, and El Khemisset). The benefi origi tnal s from),business making credit schemes less
model was based on a nonsubsidizedforfee-f the or-service
public and impacting sales. Thi
rental scheme sh rang
for ing from 20 to w p.
80 increased availability of cheapvp contraband
m ps would maintain ownership of the modules systems, inand Morocco, putting pressure on pri
the households would pay a deposit follow maki edngby potential sales margins signific
monthly fees, depending on the size rower.of the system.
n
I early 2004, m ps signed an agreement with m ps had a similar experience v pm t i to pro-other
O≈ce National de l’Electricité ne o ), to provide ( jects relating to meeting the disbursem
sh under a subsidized fee-for-service scheme. ments. TheThe cumbersome documentation proc
ne o scheme was established to vp elec-
provide sulted solar in a two-and-a-half-yearcir delay from
tricity to the 15 percent of rural households approval to (approx financial - closure.
imately 300,000) that are not targeted for grid con-
nection. The scheme, established in 2002, has
mov i ng foraw r d
awarded six contracts for a total sh of.112,000
Under the terms of the agm ps reement, was given Despite the above obstacles, m ps has made
exclusivity in the regions in which sign it
ificant was to progress install
vpmti under , and continues to
the ne o systems, and it was provided wi increaseth a seven- installations ne o scheme. under
m ps has the
and-a-half-year time frame to complete the attributed installa- its ability to expand and es
tion. ne o pays m ps an upfront subsidy m ps ,un- and new service centers v pm t i to
funding. t I currently
dertakes the maintenance and repair ofhas theinstalled system approxish mately . 6,000
over a 10-year period, in return for a monthly m ps fee
has not yet managed to establish a
paid by the end user. business, as it has focused e∑orts on
Whenm ps applied for financingvpmti from , the ne o business. Furthermore, m ps argues that con-
company had insu≈cient capital tosumers meet leverag cannot e yet a∑ord the monthly credit
requirements. To overcome this icf consid- obstacle, ments and, therefore, it has not put fort
ered historical equity contributions sary e∑ort as tocofinestablish
ance to a credit busines
meet minimum leverage requirements, v pm t i no fuand rther e∑orts are being made to establi
was able to recognize historical shareholder credit scheme, contri- as the company maintain
butions that had funded thevpmti business on installations prior to ne o scheme. under the
involvement. As a result, no new cofinancing was

48 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s
 c a s e s t u id e s 3

Solar Delev opmn

e t Gropu

The Solar Development Group dsg ),( a $41-million rience in private sector project finance. An external
initiative, was created with theconsultant, goal of increasing contractedthe in July of 1997 to develop a
delivery sh of to rural households in developing feasibility study and business plan, found that the
countries. Comprised of two separate entities, solar mark vp et show Solar
ed tremendous potential, and
Development Capital dsc ) and (the Solar Develop- identified over 100 investment opportunities. n I
ment Foundation ),dsg (sprovided
fd financing to March 1999, Triodosvp Solar Partners 37 was ap-

private sector companies involved vp in pointed rural solar as advisor, and the fundraising and business
activities in developing countries, planning as well process as grants
began.
for business development services. Originally envisioned as a single entity with
both financing and technical assistance components,
the sdg , as the final initiative was named, con-
backg rou n d
sisted of two separate but closely related and sup-
Motivated by the enthusiasm about portive the potential entities,
f sd andsdc . f sd was initially
for rural solar vp electrification exhibited those proposed by as a $19.5 million g on , o∑ering business
involved in vp the solar during the development
industry mid- and seed financing in the range of
1990s, the charitable foundation $10,000– community $100,000 in the to assist vp companies solar
in
United States saw an opportunity topreparing engage with for private investment. sdc was envi-
the w bg . n I early 1996, a letter was sent sioned from the as a $32 million for-profit private equity
Rockefeller Foundation (on behalf of a number fund, ofproviding growth capital in the range of
members of the charitable foundation $100,000–community $2,000,000 ) for privatevp andsolar
solar
to Jim Wolfensohn, then wb president
g , vp -related of the businesses in developing countries (see
proposing the creation of a solar energy investment Table 8 for an overviewsdg, of page 50).
subsidiary. dsg , through its two separate entities, in e∑ect re-
The proposal called for the injection sponded of m to two perceived problems in the market.
“ assive”
amounts of money to launch the emergi dsc ngwas mark desig
et ned in response to a view that there
solar industry
vp , through the development was a cost-e∑ective of an business over the horizon, pro-
investment vehicle that would dramatically vided economies expandof scale could be achieved through
financing for commercial companies, so hig that her volumes they and greater commercial returns
could develop and provide rural energy services. could be realized through lower unit costs. 37 A nonprofi t org n
I anization,
turn,
The vision was grand, and at the earliest f ds was desig stag needof to respond tovp the market Triodos Solar
solar pv Partners was
formed by three organizations:
concept development, investing up (wi toth high costs
$1 billion toand underfunded entrepreneurs) Triodos International Fund
catalyze the market was discussed. requiring more of a nonprofit model, which
vp solar became
Management (part of the Triodos
Bank Group), Environmental
By the end of 1996, a significantly kn own as an
scaled-dow patient capital approach. Enterprises t
I soon became Assistance Fun
concept paper for a $50-million “Solar Development evident that it was impossible(eeaf), toandaddress
solar pv sectorboth iss
experts
GT Consultinggtc , ), Inc.a (
Corporation” was being circulated. icf was brought under one framework. joint venture of Soluz, Inc. an
in to work on wb g -led initiative, giThe
the vengoal its was exto pe- raise a total of $50 million Enersol Associates, from a Inc.

s ol a r de v e l op m e n t g r o u p 49
 TABLE 8: SOLAR DEVELOPMENT GROUP AT A GLANCE

SDF SDC

Objective Help PV companies prepare for Provision of capital to PV-related SMEs,

private investment ESCOs, banks, microfinance institutions and
leasing companies

Company Type Not-for-Profit For-profit private equity fund with venture

capital elements

Number of Target: 75 enterprises in first five years Target: 27 investments in 15 companies

Investments Made
Achieved: Commitments totaling over
$3.5 million in 63 projects (54 companies)
$2.2 million disbursed by early 2004
totaling $18 million, including eight loans to
FIs totaling $10 million
Achieved: Six investments ($3.9 million)
approved; three investments disbursed,
totaling $650,000

Total Capitalization Target: $19.5 million Target: $32 million

Achieved: $12 million Achieved: $28.7 million

Geographical Scope Target: Global Target: Global

Achieved: 23 countries Achieved: Three countries

Type of Investment Vehicles Loans (up to four years at 0 –10 percent Minority position capital investments
interest in local or U.S. currency) Provision of additional debt/quasi debt
Guarantees (to facilitate local bank lending)
Technical Assistance Grants

Date Began Operations March 2000 April 2001

Date Closed and Managing March 2004 April 2004

Agency Appointed Operations transferred to the Triodos Assets sold to TRED Fund, thereby liquidating
Renewable Energy for Development (TRED) the fund
Fund

38 Directorate General for Inter- consortium of investors and Ulti-status,

. donors for dg s provided they do not engage in profit
national Cooperation ) of (
d gi s
mately, $41 million was raised froming activities,
private sector such as venture capit
the Netherlands Ministry of
Foreign A∑airs, ifc , Swiss State solar
vp businesses, individual og n s, charitable
private investors, foundations made up much of th
Secretariat for Economic A∑airs multilateral organizations, bilateralholder base for, the
orgaf ds nizations,
go n charged with the mar-
(seco ), and
w bg .
and various socially responsible
ri s ) ket development
investment ( activities and riskier s
39Cordaid,
Joyce Mertz-Gilmore
funds.
Foundation, Rockefeller Founda-
f ds was supported, in large part, by initiatives,
multilat- ris funds while
were focused
the on by
tion, Rockefeller Brothers eral and bilateral org38
Fund, anizations, , the for-profit venture capital fund.
as ew ll as thedsc chari-
and Stichting Triodos-Doen 39(See
Foundation.
table go n andcommunity . Table 9 for detail
onf ds shareholders, dcs page also 51.) received mul-
40 ge f ,ifc ,seco .
40 as e
i m pl e m e ntat ion
41Cordaid and Environmental
tilateral and bilateral w llsupport,
as support
Enterprise Assistance from FundAstroPower (now GE Solar), a private individ- f ds began operations in early 2000 with $12
(eeaf). ual, go n s,41and a numberris of Funds. 42(See Table in commitments, and soon approved its
10 for detail
42Calvert World Values In terna-
dcs shareholders, page 51.) actions.
on dsc concluded its fundraising phase
tional Equity Fund, Rabobank
Foundation, and Triodos Bank
Each entity
d s c and( f d s ) w a s established April w i th 2001 at $29 million, and approved
Group. its own mandate and separate board of directors. vestment five months later.
The separation of the two entities was t
I necessary
soon was, clear
as that the investment
previously mentioned, not only to ties addressidentifithe two ed in the feasibility st
key perceived issues in the market, but grossly also overstated;
since in fact, not one of th
d sg had raised funds from foundations based opportunities in the identified in the feasibi
United States. These foundations enjoy mately a tax received
-exempt support
dsc fr.
omThere was a ma-

50 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s
jor disconnect between where those involved TABLE 9. SDF in SHAREHOLDERS the
initial structuring d sg felt theof market was and SHAREHOLDER PERCENT
where it actually was. The market was simply not
ripe for equity investments, the World markeBank
t assessment 45.2
having overestimated the maturity vp International
of the solar Finance Corporation* 4.8
Global Environment Facility** 2.0
market and the number of business opportunities. Others 48.0
Furthermore, market conditions were changing: the
Latin American and East Asian fin*ancial IFC–Environment and crises and
Social Development Department.

the 9/11 attacks had an impact on **Represented emergingby IFC’s markEnvironment

economies. Neither had
as expected; in fact, the
et and Social Development Department.
vp mark the
et solar moved
vp cost
had actually of solar TABLE 10. SDC SHARREHOLDERS

increased rather than decreased, while the increased NUMBER OF NUMBER OF

demand in the developed world was shifSHAREHOLDER ting the at- A SHARES C SHARES PERCENT

tention of manufacturers away from the developing Global Environment Facility* — 10,000 34.8
world. n I 2002, less than dsc had
a yearbegafu tner International Finance Corporation** 3,000 2,500 19.1
operations, Triodos n I ternational Fund Others Manage- 11,500 1,750 46.0
ment indicated that the existing investment guide-
*Represented by IFC’s Environment and Social Development Department.
lines were unrealistic, given the**IFC’s nature
Infrastructure of Department.
the mar-
ket, and that new investment guidelines were
needed. These issues, consequently, resulted in
lower return expectations. and to lower the return requirements was presented
Discussions on restructuring share to and ownership approved by a majoritydsc of the board.
within dsc began to take place. While restructuring The plan required larger shareholders buying out
was necessary, the conflicting interests the smaller of the di∑er- shareholders. Despite the restructuring
ent shareholders were making it di≈cult e∑ort, tohow ever, there were not enough viable invest-
reach
consensus. Those shareholders, whoment looked at opportunities,
their and in June 2004, only three
involvement more from a profitabilityyears after it began operations,
standpoint, dsc was disbanded
felt that the investment fund had as no a leg al entity
future and . Assets were sold to the Triodos
should be closed. n I contrast, icf ’s those,Renewable such Energ asy for Development t er d )( Fund.
Environment and Social Development At Department,
the time of sale, 13 percent ($3.6 million) of the
which had a mandate to provide innovative $29 million project in funds dsc committed had been to
financing, felt dsc should
that be restructured. called. Of this amount, $650,000 was disbursed to
A revised implementation plan to investments;
expand the the remainder went to operational and
number of financing instruments d sc deal-related
o∑ered by expenses.
Amid discussions relating to the restructuring of
dsc , the f ds Board of Directors solicited proposals
SUNLABOB RURAL ENERGY SYSTEM CO., LTD. to manage the go n in thedsc event were to fail. n I
SDG had an impact on the solar PV market beyond early 2004, f ds transferred operations terd to the
the provision of financing. SDF developed a con- Fund.
sumer financing handbook that provided modeling
tools and guidelines for the assessment of credit
pe r f or m a nce and ou t c om e s
risk, which has proved effective.
Sunlabob Rural Energy System Co., Ltd., used The dsg initiative began in 1996 and ended in
this handbook in the development of its business 2004. During those eight years, $2.85 million was
plan for providing affordable and reliable solar en- disbursed to vp solarprojects in over 20 countries.
ergy through rental services in Lao PDR. Though not quite the billion-dollar order-of-
The World Bank awarded Sunlabob the Devel- magnitude initiative thatdsg was initially called for,
opment Marketplace Award in 2005 for its work in was certainly an experience that has provided many
developing a rental system that makes solar elec- valuable lessons for the future.
tricity affordable for the majority of rural house- f ds , with its flexible, less risk-averse, and more
holds or villages without the use of subsidies. a∑ordable funding, was able to meet most of its in-
vestment objectives.
f ds financing was provided to

s ol a r de v e l op m e n t g r o u p 51
 help create a more enabling environment, w h at wor k e d increase and w h at di d not
the amount of consumer finance available, support
Shareholder Diversity Proved Problematic
enterprise growth, and support innovation within
the industry. Following the beliefAlthoug s that h the the chal- diversity of the di∑erent s
lenges facing the market were more relatedin to
d sg mar- had been celebrated during the fundrais
keting and consumer financing than manuf stagea, cturing it rapidly became apparent during im
and wholesale distribution, that tation retail that operations it would be di≈cult to ma
more directly benefit the rural people, ous and that interests of such a diverse sharehol
stimulating demand at the retail Thelevel separation would dsc benefiandof tf ds had been designed to
the entire industry, retail distribution reflect the need made to up satisf 80 y the di∑erent obj
percent of the f ds portfolio. the for-profit investors, go n s, and foundations (15
While f ds certainly had a positive impact in total). on the With so diverse a compositi
solar industry vp , the foundation was insu≈ciently als, go n s, ris s, private individuals), d sg found it
sizable to produce the large-scale d sg chang next e that to impossible to satisfy everyone’s
investors had envisioned and desired. This Furthermore, is perhaps one of the greatest (non
f ds had been envisioned to be an entity related) toreasons prepare for the limited dsg , an success
is-
companiesdsc for investment. This simply sue from did thenot very beginning 43The initial . struct
occur. of dsg was designed sof ds that and dsc would pro-
dsc was to have made 28 investments videover a
complementary services;
f ds would p“ repare”
10-year period. Between 2001 and 2003, only companies six in- dsc for investment. Yet, with eac
vestments were approved dscby the Board of In- having a separate board of directors, each wound
vestors, totaling $3.9 million. with Only its $650,000 own mandate, was and f ds not in-one sin
43 While perhaps not a direct
ultimately disbursed to three countries: vestment Keny a (in-
graduated dsc .to nI fact, f ds transcended
cause ofsdg ’s lack of profitability vestment w e nt bank r upt in early 2005), on the I nd s c donesia project pipeline, evolving into
or overall success, the diversity (investment of terminated prematurely sofsubsequent
t financing vehicle, to providing working capi
sd g shareholders forced a man-
agement structure that was not
the cancellation of the World vp subsidy Bank solar rather than providing the seed capital an
only cumbersome, but one prog in ram in the country), and Boliviadevelopment (investment assistance originally int
which the intended relationships
did not materialize.
has been moderately successf u l, althoug became h only
apparent half that the structure and in
of the approved funds have been disbursed). guidelines While were inappropriate, it proved im
the dsc management took its fiduciary responsibil- to reach consensus among the shareholders
ity very seriously, the market was as yerestructuring t unprepared , despite a year of attempts.
for the equity investments dsc was looking to make
Strategic Alliances Were Not Developed
and, thus, it decided not to invest in unsatisfactory
deals. dsc ultimately was able to return tI money is interesting to to note that while
some of its investors upon project shareholders closure. was di≈cult to manage, it a
Many of dsg ’s shareholders had environmental have been used to advantage. Strategic alli
mandates that served as motivation could for have their been partici-
developed along a number of li
pation in the initiative. vp has been trumpeted Solarn I fact, most potential investees expres
for many reasons, but one of the primarywereargequally umentsinterested in dsg the . Most
contacts
has consistently been the positive solar environmental companies
vp sme ares, often family owned,
impact achieved through the implementation er and have grown wi of thout the benefit of techni
technologies and the resulting 2 reduction
training in . The CO opportunity to consult vp wit
emissions. Measuring the environmental sector experts impact was very has attractive d sg investees; to
proved di≈cult, however. n I the
dsg ,case fe w of however, this type of relationship d sg between
sh systems were actually installed d sg shareholders
as a result dsg ofand investees did not materi
investment, and it is therefore gi saf ven e tothat dsg assume shareholders that did not stay inve
the environmental dsg impact
was neglig of ible. the initiative long enough to cement
Furthermore, d sg never set out to determine Along thethese same d sg lines,
omitted to take
number of solar vp systems installed as siga n result ificantof advantage of its relationshi
d sg support; therefore, it would be impossible World Bank Group toand other shareholders in t
determine the actual amount 2emissions of CO creation that of an enabling market environment
were displaced. portive policy and regulatory environment, a

52 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s
 abilty of end-user finace, knwoledge and awe r - the private equity fund, did not even come close.
nes of solar vp ). Furthermoe, other groups (the Solar v p m a rk e t s s i m p l y we e
r not matue r enough
United Nations, for example) wee r a l s o i n vo l e d i n for equity investments, and the family-woned na-
s o l a r i n t a ve s , a l t h o u g h t h e e
r was no cood r inat o tue r of most solar vp sme s further limted the posi-
between the di∑erent projects. An enabling environ- bilites for equity investment. At this stage of mar-
ment is necessary for sector development, but it is ket development, di∑erent finacing instruments
costly and e r quie r s significant er sources, as wel as and long-term patient capital was needed; d sc , w i t h
enthusiam by local governments for solar vp . The i t s t e n - ye a r fi e x d life and e r turn expectations, could
e
r gulatory and policy environment wil not alter un- n o t p v r oi d e t h i s .
til this occurs. While the World Bank is in a posi- Like many other porjects implemented aorund
tion to impact and promte local government sup- the same time, dg s grosly e
vo e r s t i m a e d t h e m ak re t
por t of solar v p i n t a ve s , t h i s e r lationsh p was not and the number of busines oprtunies tha ex-
taken advantge of by d sg . isted withn it. In hindsight, it is easy to stae tha
the focus of the porject was to , w n a ro t h a t h e po r-
Need to Focus on Market Development and
ject should hae v focused on other er technolgies in
Capacity Building
addition to solar vp , and tha additional finacing
Despite the fact tha thee r was, and is, a clear need i n s t r u m e n t s s h o u l d h ae
v been vid por ed. tA the time
for market development and capacity building in the porject was implemented, e w ho e v , r those in-
the solar vp sect, or the e r ality was tha d sg was fo- ovled in the industry truly did beliee v tha the solar
cused moe r on indivdual busineses. Had moe r at- vp makret was poised to take o∑. Had the solar vp
tentio been paid by f ds to develop the enabling sector actualy performed as foe r cast, the dg s experi-
environment, d sc may have found moe r i n ve s t m e n t ence would e s u r l y h ae v been quite di∑erent.
op r tuni es, and d sg would have had a greater
ve
o ral impact. Early e r cognito of market e r ality
would have led to a smaler los of funds.
Perhaps one of the greatest leson tha can be
drawn from d sg is one tha e r sulted not from a fail-
ue r to achieve investment goals, but rather from the
er spone to this failue r . d sc mangement was quick
to e r cognize tha the intal investment criteria wee r
to stringent, and it worked with shae r holders to e r -
vise them. Rather than making bad deals, which
could have jeopad r i ze d t h e e r puta ions of those in-
voled, it failed to make any deals, e r sulting in lit e
investment los. Management was corect in making
this decision, pvroiding a leson on the merit of e r -
strain. When it became ape r n t t h a t h e m a rk e t
could not produce oprtunies tha met the e r -
vised investment criteria, d sg was disbanded.

c on l u s ion
dsg s ’ intal goal was to ince
r ase the delivery of sh
to rual households in developing countries and to
suport the development of the solar v p m a rk e t .
While f ds is seen as having had a positve impact on
the solar vp ind, ustr y d sc failed to accomplish any
of its goals, and, ve o ral , d sg came up short.
The two enties tha made up d sg h a d ve r y
di∑erent experiences.f ds , the not-for-profit arm,
which pvroided loans, guarntees, and grants, was
largely able to meet its investment goals, while d sc ,

s ol a r de v e l op m e n t g r o u p 53
 c a s e s t u id e s 4

Cagaay n Eleccirt Powre &

Lithg Company

Cagayan Electric Power & Light Company generating equipment within the dist
(cealcp o ), a private electricity distribution work of cealcp o .com- Distributed vp technolog
solar ies,
pany on the island of Mindanao in wh the ich are by their very nature small and si
Philippines,
received $4 million in ndinghfromnear load centers,
egf fu(throug believedwere to o∑er the poten-
icf ) in 2002. The purpose of the project tial was to to address seasonal generation capaci
demonstratevp solar ’s e∑ectiveness (throug They h weare con- also considered compatible with
junctive-use application) in addressing cealcp o ’s distribution
needs and the geography of the trans
system capacity issues. used The futo nds build
wesion
re system.
a 1mw distributed generation vp power plant, solar Based on the findings of the December 1998
which was integrated into mw distribution
the 80 appraisal mission, icf proposed to gef a project
network of cealcp o , and operated in conjunction that wouldgef use funds to partially finance the
with an existing mw small, 7 run-of-the-river installation hydro- mw of asolar
nominal
vp -based pow1er
electric plant. plant, which would be integcealcp ro ated with th
power distribution network. The stated obje
the project was to demonstrate the techn
backg rou n d
ational, and economic feasibility vp of us
Mindanao is the second largest island electricity in the supplies
Philip-for supplementing a
pines. The electrical grid on the island up the productive is well capacity devel- of an existing hyd
oped, but isolated, and it has a project. total generating ca-
44 Af t er the solar
pv plant became
operational, ifc ’s Infrastructure pacity of 1,800
m w . Most of the g e neration The solar
capacity vp plant was designed to operate in
Department provided cealcp o is from hydroelectric plants, withconjunction seasonal chang wieth s the mw recently built 7
with a local currency loan (the
first provided in the Philippines)
in g e neration capacity occurring . The Bubunaw
transmission a n Hy d ropow e r Plant Project, a small
in an amount equivalent to $15 inf r astructure on Mindanao is unable run-of to - the-river transport hy d roelectric power plant, whi
million. The funds will allow
large amounts of power over mw 200 across large was already supplying powercealcp o to ’s system.
cealcp o to pursue its expansion
program through a more stable distances without compromising sy The stem hydroelectric reliability plant . was to operate as a l
financing structure. As a result, cealcp o and other distribution followcompa- er, varying its output with the avail
45Desig n ed to ensure that the
nies on the island must obtain solar vp epowportions
larg er. The waterof saved, whenvp solar
company remained competitive in
a newly privatized environment,
their power supply from local sources. power was being produced, would be held in smal
cealcp o ’s expansion plans n I 1998, cealcp o was in discussions icf for ponds with available at the Bubunawan plant,
included forming a partnership 44 to assist with
general corporate financing lized the com- for power generation during peak load period
with a subsidiary of Hawaiian
pany ’ s ex p ansion 45The
plans.environmental w h en
review solar vp was not available. The addition
Electric Industries, an interna-
tional utility with undertak private poweer n identified the possibility vp - the fosolar r vp a solar plant would reduce the need for
investment objectives in the
Pacific Rim, and planning an based project. A pre-appraisal mission ce
a l c
p o took toplace purchasein thermal energy during peak
investment program geared the Philippines in December icf ’s1998load by the periods, then thus reducing 2emissions. CO to- In
toward e≈ciently expanding its
system and attracting a larger
Environmental Finance Group, w i th tal, the m w g
the o alplant of
1 in- w a s estimated to lead to
customer base. vestigating suitable applications vp -based tion for solar in 2emissionsCO on the island of M

54 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s
of approximately 1,200 metric tonnesw h atannually wor k e d and.w h at di d not
The project was endorsed bygef the Council in
December 2002. cealcp o received a $4 million The icf /egf project wiceth alcp o has had a strong
convertible loan icf , usingfrom gef funds, and local presence, both through icf the rep- in-country
financed the remaining $1.8 million resentative in construction o≈ce in Manila and through the e∑orts
costs frcealcompo ’s own cash flow and interest of the cealcp o management and sta∑, which was
savingsge. f The funds were initially provided critical as a to the success of the project. The Philippine
loan, with the understanding that sta∑ the cealcp o at loan and wotheuld contractors from Sumit-
be forgiven after five years of satisfactory project omo Corporation did an impressive job, not only of
operation. obtaining more than 50 permits and licenses in
In the period leading up to the final placeapproval for the of facility, but also of complying with a
the funding cealcp o , issued an international host of project re- finance disbursement requirements
quest for proposals for the construction and, offinaally, learning to successfully operate the pro-
turnkey 1 mw grid-tied solar pv plant. The contract
ject since completion of construction.
was awarded to Sumitomo Corporation of Japan, During project implementation, it quickly be-
which utilized pv modules solar supplied by Sharp
came evident that both the local permit process and
Corporation. Construction startedthe inty Aug ust 2003
pical project finance structure were not geared
and was completed on schedule. President to a small Arroy
mw o -solar 1 investment.
vp On the permit
of the Philippines inaugurated the plant
side, the in De-
Philippine regulations did not make the
cember 2004. Today, ceathe lcp o solar
pv facilitydistinction betw vp een plant
the and
solar the much
represents the largpv est installation
solar larginer fossil-based the plants, despite the obvious envi-
developing world, and it has been operating ronmental with- benefits and the proven nature of solar
out incident since its commission. vp technolog t
I .y remains
As a result, cealcp o the solar
thepro-
vp
only solar pv power plant in the world that jectis manag oper-
ement team was required to perform
ational in a conjunctive-use application tasks and submit with a hyreports - that were not relevant to
dro plant. aner project. The convertible loan structure (grant

cag a y n e l e c t r ic p ow e r a n d l ig h t coma pn y 5
convertible to loan) of the project called conclus iofon r a rigid
disbursement structure. t I became apparent, how-
ever, that, in order to ensure timely The completion
cealcp o experience of is an interesting on
construction, the prescribed disbursement like other icf /egf structureclimate change mitigation
would have to serve as a guide only. grams and projects, many of which were designed
t
I was widely recognized at the timemark theet project transformation initiatives, cealcp o was de-
was developed that there were more cost-e∑ective signed as a stand-alone experiment to dem
technologies available to address peak the load energy
appropriateness ofvp the technolog solar y
supply issues. n Iegf fagrct, ant,
theprovided (through a conjunctive-use application) i
through , icf served to subsidize approxiing mately distribution 70 system capacity iss
percent of the construction and startup cealcp o solar plant
costs vp of the has made a strong techn
cealcp o solar plant.
vp cealcp o The solar pro-vp case for the reliability of utility vp power -scale
ject never intended to compete head-on plants. with other Furthermore, by avoiding the need
alternative energy generation technolog chase ies alternative on the thermal cealcp o energ solar
,y the
basis of cost e≈ciency, but it didvp intend plant has to demon- resulted in a significant re
strate that vp could
solar be used as an e∑ective greenhouse and gas emissions. The plant is
technically reliable source of power that displace could 24,000 be tonnes
2over its of CO lifetime.
cost e∑ective vp ifprices solar declined su≈ciently When the . financing was provided, it was ex-
Furthermore,cealcp o the project intended topected thatvp solar prices would decrease and that
demonstrate that there are technical solar advantag
technolog
vp es to y used on a utility scale wo
the operation of such a plant in conjunction therefore becomewimore thcost e∑ective. Had the p
an existing small hydro plant with of solar limited govp ne downstorag as was e expected (and it is s
capacity. The plant, which has operated predicted without to occur in- in the cealcp o future),
would
cident since its inauguration in have2004, been aappears projectto with a high potential
date to have been successful in vp to proving
tion. solarHowever, with vp prices
solar having in-
be an e∑ective and technically reliable creased, technolog the potential y to for replication wit
address peak-load energy supply issues. significant subsidization is limi
most important demonstration cealcp o value of t
project is that vp workssolare∑ectively in a con-
junctive-use application. t I also ill
that the technical solution is not
market solution.

56 s e l i n g s ol a r : a p r t 2 /ca s e s t u di e s
r e f r e cn s

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58 s e l i n g s ol a r
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r e f e r e nc e s 59
ack now l e dgm e nt s
SelingSolar has been prepared by the Sustainable
Business n I novator Group of Environment and Social
Development Department icf . of
This report would not be possible without the insight
and guidance of Dana Younger.

Authors

Natalia Magradze, Alan Miller, Heather Simpson

Reviewers

Anil Cabraal, Bernard McNelis, Shilpa Patel

Editorial Team

Louise Gardiner, Lucie Giraud, Margie Peters-Fawcett,

Amy Sweeting

Contributors

Sachin Agarwal, Hany Assaad, Maurice Biron,

Lisa Da Silva, Jon Forster, Devyani Hari, Terry Hart,
Sandeep Kohli, Fernando Manibog, Shir Ashar Naveh,
Fabio Nehme, Ashington Ngigi, Eluma Obibuaku,
Pallavi Shah, Russell Sturm, Stacy Swann, Joanna
Willott

Please address questions or comments to Alan Miller

(amiller2@ifc.org) or Natalia Magradze
(nmagradze@ifc.org).

Photography

All images courtesy of IFC and World Bank Sta∑

unless otherwise credited.
Cover inset (woman pumping water): National
Renewable Energy Laboratory
Page 32: Micro Energy n
I ternational

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