Rural Energy Access: Promoting Solar Home Systems In Rural Areas In Zambia A Case Study O.S. Kalumiana Department of Energy, Ministry of Energy & Water Development, P.O. Box 51254, Lusaka ZAMBIA; Tel: ++260-1-254491, Fax:++260-1-254491; Email: Oksibote@zamnet.zm Abstract With about 60% of the Zambian population living in rural areas and only 2% of the rural population having access to electricity, the Government has prioritised rural electrification. A pilot project intended to develop a mechanism for providing electricity services to rural households is currently using Solar Home Systems, which are run by rural based Energy Service Companies (ESCOs). Each beneficiary household pays a monthly average service fee of about US$8. Payment of service fees is on average more than 80% of ESCO expected income. When compared to agricultural credit schemes in the same area, the level of service fees paid is very high. At current service fee levels, there is great market potential for commercial driven SHS. From these results, preliminary conclusions have been made: a) the capital cost for SHS need to be subsidized to enable rural people access PV services; b) a substantial number of rural households who desire SHS are able and willing to pay the service fee, which in some cases is higher than that paid by urban electricity consumers, and; c) technical expertise can be built at rural level to ensure long service time of SHS. These preliminary findings are being used to drive policy for rural energy service access as well as further refine the ESCO concept as an option for rural electrification in Zambia. Introduction In 1994, the Zambian Government adopted a National Energy Policy whose objective is to promote optimum supply and utilization of energy, especially indigenous forms, to facilitate the socioeconomic development of the country and maintenance of a safe and health environment (MEWD, 1994). In view of the fact that over 70% of total primary energy is supplied by biomass fuels, the energy policy document seeks to promote accessibility to modern forms of energy, especially electricity by the majority of the people. In order to achieve this for the over 60% of the population living in rural areas, A rural electrification levy was introduced in 1995. The levy constitutes 3% of the value of every electricity bill paid by those already connected to electricity. Despite the introduction of the levy, not much progress has been made in providing electricity to rural areas, mainly due to the following reasons: - The cost of extending the grid to remote areas in very high. Since the load demand for most rural areas, is very low, the cost of most projects cannot be justified even from the social perspective. - Since the levy of the fund is usually low, preference is given to economically productive and socially projects. Household connections are not financed by the levy.
Given the above constraints, it was realized that success in electrifying large parts of the population through conventional grid services would not be attained. Although electricity from stand alone systems could be an option, the poor distribution and the lack of maintenance makes electricity from stand alone systems such as diesel generators both expensive and unreliable. The latter can cost more than 1 per kwh and is often non-functional for more than half of the time [Hill et al, 1995]. In order to be able to reach large sections of these rural communities, new methods, other than grid electrification, have to be found. One such alternative is through photovoltaic solar systems. However, few of the attempts, in the developing world in general, so far had been successful in attaining an energy supply that is long lived as far as the financial and technical matters are concerned or is equitable in that it targets the larger part of the rural population. A more equitable alternative that has proven successful in the Pacific region is providing solar-based electricity services through Energy Service Companies (ESCOs) (Wade, 1997). This experience could be transferred to Zambia. Body of paper The strategy of this project is to provide increased access to electricity-based services in rural areas where the population is willing and able to pay for amenities like electric lighting, listening to the radio and watching television. The strategy is to demonstrate a framework through which electric services based on solar energy can be provided in rural areas in an economically sustainable manner. At the end of the project, a framework for providing credit, technical support and operational support to rural based ESCOs will have been initiated and tested. This project is targeting three rural communities/areas in the Eastern province of Zambia (Map 1). Envisaged benefits of the Project include the following: i. The rural population out of reach of the national electricity grid will benefit by getting a framework for accessing modern electricity services, which they could not afford to acquire on their own. ii. iii. iv. The rural based energy service companies will benefit by being able to earn money on a new type of service activity. The PV industry will benefit through a widened customer base in the form of ESCOs. Zambian as a whole will benefit in the long run as improved access to electricity creates opportunities to reduce/eradicate poverty through improved health, education and the possibility for increased economic activity in rural areas.
Map 1: Location of Eastern Province in Zambia The project, started in June, 1998, was aimed at installing, on pilot basis, Four Hundred (400) Solar Home Systems (SHS). Each SHS has a 50Wp panel, 4 lights (9-11W), battery (80-105 Ah) and a power point for a radio or small TV. The total cost of each SHS (including installation costs) is roughly US$1,100). The SHS are run by a locally based Energy Service Company (ESCO). The locally based ESCO is operational at the community level and installs, maintains (Photo 1) and collects fees from rural customers to whom PV-system services are supplied. The profits of the ESCO are proportional to the number of customers that are serviced and thus act as an incentive to identify and contract new customers. While in the initial project phase, ESCO runs the systems on behalf of the Department of Energy as they could not afford to repay the capital cost at commercial interest rates. The long-term objective however, is that the ESCO has the ownership of the PV equipment and thus the responsibility for the proper maintenance of it. What the ESCO sells is an electricity service and not the technical equipment. Contracts between the ESCO and the local customer regulate the proper functioning of the equipment as well as the timely payments of service fees. Most of 1999 and 2000 was spent on groundwork to select suitable ESCOs, train them in both technical and business issues of their operations. By the end of 2000, all ESCOs had received adequate training to enable them commence activities, each with two (2) trained technicians and in a position to produce a business plan. Photo 1: Keeping order is a key issue in business management. These keys are for the battery boxes, kept at NESCO headquarters. Each box contains a battery and charge/discharge controller. The box is locked in to ensure that only the ESCO technician has access to it during his monthly maintenance visits. In this way, customers are unable to misuse the battery. (Photo: O.S. Kalumiana) In order to avoid replicating mistakes, the operations of the ESCOs were phased as follows: ESCO Name Completion of SHS installation Number installed Nyimba Energy Service Company (NESCO) December, 2000 100
Lundazi Energy Service Company (CHESCO) Chipata Energy Service Company (CHESCO) December, 2001 150 March, 2002 (expected) 150 For the first installed 100 SHS at NESCO, the monthly service fee was pegged at K25,000 (about US$8 in 2000). Since most of the customers are farmers, they were given the option to pay monthly, quarterly or annually depending on when they sell their crop. Payment of service fees is on average 80% of the total expected income from the connected households (Figure 1). These levels of fee paying are far great than those achieved by agricultural credit schemes in the same area in the last 10 years. Most agricultural credit schemes rarely achieve 50% collection rate since they usually require payments of large amounts of money within a short time. Further agricultural credit schemes are usually based in urban areas, thus making supplierclient relationships purely commercial, a situation alien to rural African households. Experiences gained so far show that it is not possible for the service fee to fully capture the capital cost, unless the repayment cost is long e.g., 20 years. The fee is however able to cover the ESCO running costs. At current service fee levels, there is great market potential for commercial driven SHS. After completion of the 100 SHS for NESCO, 300 customers were already on the waiting list. By end of 2001, 75 and 100 un-serviced customers were already demanding for the systems in Chipata and Lundazi, respectively. With these results, preliminary conclusions have been made: a) the capital cost for SHS need to be subsidized to enable rural people access PV services; b) a substantial number of rural households who desire SHS are able and willing to pay the service fee, which in some cases is higher than that paid by urban electricity consumers, and; c) technical expertise can be built at rural level to ensure long service time of SHS. These preliminary findings are being used to drive policy for rural energy service access as well as further refine the ESCO concept as an option for rural electrification in Zambia. Figure 1: Monthly Service fee (US$8 per customer) received by NESCO as a % of total expected income. The proportion is for systems that were operational during the month. The month of August reflect advance payment after most of the customers sold their agricultural produce.
The issue of subsidies is important in the project, as it will determine how ownership of the systems will be transferred to the ESCOs. Since the ESCOs can receive the systems freely, they have to meet part of the capital cost. The level of subsidy is yet to be determined. This project raises several energy policy issues: (i) when given proper assistance, households can commit enough resources to acquire modern energy services, even if those energy services do not meet their heating requirements,(ii) payments for energy services should be flexible enough to accommodate rural settings since rural incomes sources are limited and income is only realized at particular times of the year, and (iii) it is not possible to provide rural people with modern energy services without considering the issue of subsidies. References Hill R., O Keefe P.O, Snape C. (1995). The Future of Energy Use, Earthscan, 1995. R. Hill, Economic aspects of Rural Electrification by Photovoltaics, undated paper. Ministry of Energy and Water Development MEWD, (1994). Energy Policy for Zambia. Lusaka. Wade H., (1997). Solar Photovoltaics for Rural Electrification - What Happened to the Promise?, in renewable Energy for Development, Vol. 10. No. 1.