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Published: 12:24 AM, 01 April 2019

Solar energy and poverty alleviation: Financing Model

M S Siddiqui

Bangladesh is starving for energy for last few decades due to rapid industrialization and steady
economic development. The present government has successfully increased electricity
generation, yet grid electricity is not reachable in the remote areas of the country due to lack of
infrastructure and longstanding distribution facilities. On the other hand, Bangladesh the fastest
growing Solar Home System program in the world with over 50,000 SHS unit installations per
month in the recent past.

As of 2017, Bangladesh has the world's largest SHS program with about 5 million household
installations of SHS. Over 30 million people are benefitting directly from solar energy and over
100,000 new employments have already been created. SHSs were considered economically
beneficial by 71 percent of the householders.

Bangladesh is blessed with year round sunshine (over 300 days per year) and has an enormous
potential for solar energy. Bangladesh is located between 20.30 - 26.38 degrees north latitude
and 88.04 - 92.44 degrees east which is an ideal location for solar energy utilization. Here, the
daily average solar radiation varies between 4 to 6.5 kWh per square meter. Maximum amount
of radiation is available on the month of March-April and minimum on December-January.

We have been utilizing solar power wisely and using its experience towards diversifying
renewable energy (RE) for maximum use. SHS became popular among the rural people of
Bangladesh for its affordable monthly installment-based financial model at the price of
kerosene. Even then, solar energy has very small share in the present energy mix in
Bangladesh.

Some NGOs are working closely with Infrastructure Development Company Limited (IDCOL),
Grameen Shakti (GS), Bangladesh Rural Advancement Committee (BRAC), Rural Electrification
Board (REB), Bangladesh Power Development Board (BPDB), Centre for Mass Education in
Science (CMES), Local Government and Engineering Department (LGED).

Grameen Shakti (GS), a non-profit village renewable energy scheme, linked to the micro-credit
lender Grameen Bank, has pioneered in promoting 'green energy', since 1996 they were only
NGO engaged in promotion of SHS.
An SHS also saves its users time, money, and energy for purchasing and transporting kerosene
from markets. Moreover, due to efficient lighting, householders were able to pursue commercial
activities for small household businesses. Owners of tea stalls and local shops reported longer
evening business hours and increased pro?ts since the installation of an SHS.

This profit money could be further invested for business expansion. Grocery shop owners who
were using kerosene lamps for their business extended their working activities by around 2
hours as a result of introduction of the SHS.

Other countries have some experience and good example for us. Chinese State Energy Board
and the State Council Poverty Alleviation Office issued a "Photovoltaic (PV) poverty alleviation
work program" on October 11, 2014. The duration of this poverty alleviation program proposed
to carry out for 6 years. Bangladesh may take experience of China for management and finance
of SHS.

This initiative aims to add over 10 GW capacity and benefit more than 2 million households from
around 35,000 villages across the country by 2020. A high degree of rural electrification; and the
growing income gap between rural and urban populations are the three major factors driving the
initiative since 2014.The policy aims to generate additional annual income of over 3,000 RMB
for each household, mainly through rooftop and small-scale solar systems.

The development of photovoltaic poverty-relief power stations provides a new way for China's
precision poverty alleviation. PV poverty alleviation has a "hematopoietic function", and is a
clean energy which can play a positive role in the protection of the environment. PV power plant
not only broadens the new channels for farmers to increase income, but also for the collective to
provide economic income, and for the healthy operation of the energy economy to provide a
good platform.

The successful PV alleviation program has been financed by three models: government funds,
Loan to farmers, and Enterprise donation type. In some provinces like Guangdong and Hefei,
the fund has been given by government and local governments for such projects. All the poverty
alleviation funds in the region are paid by the government, and the proceeds are all owned by
the poverty alleviation target. Hefei PV eradication project build a total of 100 3KW family of
distributed power stations which cost 3 million Yuan.

Municipal finance need to pay 2 million Yuan while the county-level financial need to pay 1
million Yuan. Hefei power Supply Company pay the full amount of poor farmers on the Internet
charges in accordance with the settlement cycle. Those power station have the priority to enjoy
the national electricity price subsidies, and income all owned by poor farmers.

In addition, it is essential to select qualified conditions and social responsibility of solar

photovoltaic enterprises through open tender. Operation services are provided by the
construction enterprises, it also need to provide basic training and the use of manuals.

Routine maintenance is carried out by specialized companies. The costs incurred by specialized
companies are incorporated into the local government budget. System suppliers provide
maintenance and the establishment of after-sales service network.
Government-funded financing model is currently the most viable and most extensive model.
Relying on government financial support, it is easy to fully mobilize the funds needed for the
construction of photovoltaic power plants. However, this is due to the government's focus and
policy support efforts.

In the early stages of PV Poverty Alleviation, the Government should play a guiding role.
However, once the PV poverty has become mature, the government propose to withdraw from
it.

Farmers' loans have also become a more feasible model of PV poverty alleviation. When the
government is not enough attention, or the local government financial strength is lacking, the
farmer loan-type financing model has become a better choice. The funding model the funding
came from Banks, local government and corporates for these categories of project.

The successful models are Guizhou Luodian Mu cited town and Jiangsu Xuyi West Lake Village
PV poverty alleviation project. Unlike in the case of government funding, in this case, neither
government nor is it funded by the firm or by the farmer to the bank.

In the Guizhou Luodian Mu cited the town of PV poverty alleviation project, a total of 38 villagers
install household PV power generation system. In this financing model, the local government
invested 80 percent, photovoltaic enterprises advance 20 percent. After the income is
generated, the farmer repays the enterprise with the power generation income instalment, and
the rest is personal income.

In the Second successful program is the Xuyu West Lake Village, Jiangsu photovoltaic poverty
alleviation project. The total investment of the project is 2.61 million Yuan, of which the
government invested only 90,000 Yuan, accounting for 3.4 percent of the total investment funds;
the rest by the third party guarantee company guarantees, farmers from the local agricultural
firms loan more than 95 percent.

According to estimates, if farmers pay 2000 Yuan per month to the bank in the loan period of 15
years, the net income of farmers is 1,000 Yuan. After 15 years, farmers earn an annual income
of 3,000 Yuan. Under conditions permitting that kind of financing model will increase the
economic pressure of farmers. But in the long run, the model will also benefit farmers.

The last model is a corporate donation under CSR. It is also financed by charitable
organizations, social individuals and other forces which will together help PV poverty alleviation.
The best example of such financed model is the Jinzhai County PV poverty alleviation project.
The source of funds is more diversified, but also contains the enterprise's free donation with
individual bank loans.

Anhui Jinzhai County has a total of 2008 poor households. The project installs 3kW of PV
system for each household. Each household needs to invest 24,000 Yuan. The local
government invested 8,000 Yuan, the company Xinyiphotovoltaic's investment 8,000 Yuan. The
poor households who are unable to raise their own funds got loan from banks and pay back in
installments.
Rapid urbanization fuelled by stable economic growth, has created a huge energy demand in
Bangladesh. It is well known that energy plays a vital role in poverty eradication, economic
growth, sustainable infrastructure development, and ensuring security of a country. Bangladesh
has a population of 161 million, nearly 75 percent of the population lives in rural areas and only
about 30 percent of the rural households in Bangladesh have access to grid electricity.
Bangladesh government may take the experience China and involve local government, bid
business groups and Banks to finance similar SHS to promote use of electricity in small houses
for small businesses. This is a successful poverty elevation model of China.

NGOs are already active in rural area with finance and technology and with policy support, they
can implement their project with involvement of local government and big business houses with
their fund and other supports. Bangladesh also can achieve electricity for all, high income in
rural area, reduction of gap between rural and urban area from such initiative.

The writer is a legal economist.

Email: mssiddiqui2035@gmail.com