The potential of solar home systems in Bangladesh

Bangladesh has made questionable decisions, both economic and environmental, to bring electricity to its 160 million people. About 65 percent of its capacity for generating electricity is gas-based and therefore underutilised. Although natural gas is environmental friendly, the decision to build gas-based generators has been a questionable one economically; Bangladesh lacks a sustainable supply of gas and the infrastructure necessary to import it. In order to meet the growing demand for electricity, the administration has resorted to leasing it from oil-based rental power plants that are costly, economically and environmentally.

On the other hand, Bangladesh's push into solar power has largely been a success story. Its flagship, the Solar Home Systems (SHSs) that power rural households is both economically feasible and environmentally friendly. SHSs gained popularity among multiple parties for various reasons. The government and international community prefer it because it produces power in an eco-friendly and sustainable manner. The end-users, who are mostly poor rural inhabitants, prefer it because the monthly instalments for each set-up are less than the equivalent monthly amount spent on kerosene to meet their power needs.

Since the inception of Infrastructure Development Company Limited's (IDCOL) programme in 2003, about 3.8 million SHSs have been installed that generate a total of 135MW of electricity and benefit 13 million people. However, about 50 million rural Bangladeshis still lack electricity, prompting IDCOL to commission the financing of six million SHSs by 2017. As recently as 2014, the World Bank, spurred by the success of the SHS program, offered the government USD 78.4 million to finance 480,000 SHSs.

However, the ongoing political turmoil in Bangladesh has taken a toll on the programme. Customers are unable to operate their businesses due to strikes and blockades, and therefore unable to make their monthly instalments. As a result, customers are returning about 2-3 percent of the total SHSs installed each month—a figure that has decreased in turn, as SHS operators are unable to get them to the customers because of the turmoil. According to one SHS operator, it used to implement more than 4000 SHSs per month on average, whereas now it installs 2400 systems a month because of the turmoil. Unlike Bangladesh's flagship RMG industry, where (despite the turmoil at home) the end-users are mostly abroad in turmoil-free nations, the SHS business is gridlocked. For both customers and operators are equally affected by the turmoil.

IDCOL operates through its 47 partner organisations (POs) that sell SHSs to off-grid customers, as well as implementing, maintaining, and often assembling them. POs demand a 10-15 percent payment upfront from the customers upon installation, and collect the rest on a monthly basis that extends up to three years. POs are responsible for collecting instalments, which, as mentioned, is problematic during political turmoil.

Almost all of the main components of SHSs, including the solar panel, are manufactured locally, although there are players that assemble the system while importing most of the components from China. Regardless, each SHS and its constituents must meet the standards mandated by IDCOL to ensure quality control. POs are either vertically integrated in that they manufacture or assemble their own SHSs or they purchase them from dedicated manufacturers and assemblers.

Although SHSs are generally accompanied by 20-year guarantees, occasional repairs are common, which has encouraged POs to gradually set up more and better  customer response teams, particularly in remote areas. The most recent development includes a call-centre for customer concerns.

The current government is a strong advocate of solar power, and as a result, the industry has been a big   beneficiary of its support. Directly, the government allows companies to import solar panels free of duties, provides loans and grants to POs through IDCOL and even offers refinancing options. Further, companies that manufacture solar modules or those that use solar modules to contribute solar power to the national grid are privy to tax benefits and feed-in tariffs. Indirectly, the government lends its weight to POs to help them navigate the socio-political nuances of rural municipalities; it also ensures that IDCOL is not tangled in red tape—a fact that has contributed considerably to the programme's success.

As mentioned, IDCOL provides loans to its POs at competitive rates, and even small grants to small households to mitigate the burden of financing SHSs. Since the central bank's promise to offer single digit interest rate loans to companies working toward a green economy, IDCOL has reduced its rates as well to remain competitive.

The market for SHSs and solar powered possibilities in general is limitless. Close to four million SHSs have been installed since 2003, which brings the total number of beneficiaries to only 13 million. In addition, an estimated 45 million city dwellers have the opportunity to harness solar power and contribute to the national grid in exchange for government subsidies, similar to the UK's Clean Energy Cash Back Scheme. In fact, with rapid advancements in technology, solar panels are becoming smaller as their generating capacities get bigger, making it easier than ever before to mount solar panels in seemingly unaccommodating places. Besides powering households, possibilities extend to solar irrigation pumps, solar industrial parks, commercial roof top panels, street lighting, and solar powered BTS among others.

Of course, there are obstacles to these possibilities, such as collection problems and cheap, unreliable alternatives that are flooding the market. Collecting instalments is often problematic due to political turmoil, poor harvests, difficult customers as well as collection agents. Alternatives in the form of cheap but low-end solar   modules are detrimental to the market. Such alternatives are offered for a one-time payment with no post-purchase support. Because they are relatively cheaper, these packages appeal more to customers, who are primarily poor rural inhabitants unlikely to see past the low price point until it is too late. In the short run, these packages could potentially squeeze out small, but legitimate companies that focus on quality and customer care.

Environmentally, the solar power technology has zero carbon footprint. And economically, a population of 160 million offers enormous demand for solar modules because of their price point, efficiency, and ability to alleviate, even if marginally, the broader problem of  electricity in the LDC.

The writer is an Economic Affairs and Trade Adviser at the Royal Norwegian Embassy.