An estimated two million households lack access to grid electricity in this country. Recent studies indicate that at least 10% of these households could afford a SHS at current prices, based on a monthly household income of Rs. 5000 (about €85) [53]. A market study commissioned by the National Development Bank of Sri Lanka in 1991 indicated that a market of 360 000 households could afford a PV system [54]. However, so far only about 15000 such systems had been sold commercially for cash by 2002 through a retail network.
Many reasons have been cited for this low penetration level. As in other places, the biggest barrier for the exploitation of this market has been a lack of consumer financing. Political promises for grid extensions in rural areas and the government sponsored “Electricity for All by the Year 2000” campaign, which was perceived as grid electricity for all, have also been major barriers. Lack of government-level endorsement for solar photovoltaics, along with other renewables, was a hindrance to both private sector and NGO promoters. Nevertheless, four companies retail PV systems in Sri Lanka: Shell Renewables, Resco Asia (a subsidiary of the US Selco), Alpha Thermal Systems and Access International. Sarvodaya SEEDS, a local NGO, provides micro-financing in partnership with some of these companies.
In the late 1980s, solar PV modules, 12-V lamps and simple electronic charge controllers were assembled in Sri Lanka by Solar Power & Light Company (SPLC), a private venture established as Power & Sun in 1986. However, manufacturing of solar modules ceased as the advantage over imported products was eroded, in part because of the high import duties on raw materials. Thus, SPLC essentially developed into a marketing organization by creating an infrastructure to market, install and maintain PV systems in rural areas. SPLC uses retailers to stock solar home systems; trained technicians and individual agents, called corresponding agents (CA), are used to canvass sales, install systems and provide customer service. SPLC, which has just been bought over by Shell International Renewables, has sold over 3000 PV systems directly to consumers, mostly for cash.
Apart from cash sales of SHS, there are examples in Sri Lanka of both successful and “deemed as failed” projects, using loan repayments by the consumer as the measure of success. Projects implemented with total community involvement by NGOs, such as Sarvodaya and Solanka, have been quite successful. Sarvodaya’s already successful micro-credit operation was adapted to market SHS, and implemented a pilot project with 250 installations through its Rural Technical Services branch, with assistance from the US-based NGO Solar Electric Light Fund (SELF, now the private company Selco) and a seed fund from a US foundation. Further activities by Sarvodaya using funds from a credit line for renewable energy provided to Sri Lanka by the World Bank, led to the installation of 300 more systems. Plans to install 5000 more within the next five years have already been drawn up. Sarvodaya SEEDS has become a Participating Credit Institution of the Energy Services Delivery Project. It can now access the fund directly and on-lend to customers. In January 2001, it has been reported that Sarvodaya SEEDS’ lending portfolio exposure is Rs 89 million (about US $1 million) for solar photovoltaics.
Solanka Sun Associates, created community-level capabilities to do complete projects, including evaluation of potential customers, providing financing; designing, installing and maintaining the solar home systems; collecting repayment and managing the project with the inherent difficulties of managing projects from cities. This model has shown that success can be achieved with proper training and incentives to the operators at the village level. With the lower than commercial rates of interest provided to its customers, Solanka has targeted the lower economic category of the market, having thus far installed two projects, one with 84 solar home systems in the village of Morapathawa, and the other with 77 systems in Thorawa. This has been possible since the funds for lending have been provided as grants. However, it will be difficult to sustain this scheme with commercial level funding, unless interest rates are increased and the loan repayment period is reduced. However, this will naturally exclude the current target market of this organization. Thus, the challenge for Solanka is to secure further grant funding to replicate such projects. Its biggest merit has been to prove that the village has the capacity to implement and manage PV electrification projects. Solanka had the provincial government’s patronage and support when the selection of areas for implementation was made jointly. The project has an interesting feature in that the
12- V lamp units and the simple electronic controllers are manufactured at the village level. Also, a village level repair unit has been started where defective battery cells can be replaced to lengthen the life of the battery. Loan repayments to date for both projects are 100% due to the grass roots level service that is provided to users. For instance, even when a battery fails, the user immediately gets a replacement while the old one is being repaired or serviced. The Colombo-based head office focuses on long-term strategic planning and also imposes the accounting controls, with audits of all accounting operations in the process of selecting recipients and collecting repayments. On the basis of the experience of these two projects, its original promoter has established a commercial solar company called RESCO as a subsidiary of Selco-USA.
A counterexample is the Pansiyagama 1000 homes project, funded by the Sri Lankan and Australian governments, which has a very low repayment rate in spite of the very favorable finance scheme applied. Hence, it can be considered a failure, although technically over 90% of the systems are still operating. This project was politically motivated, and was implemented by the National Housing Development Authority (NHDA) of Sri Lanka, which attempted to implement a “grass roots” level program. However, the top-down manner in which it was done resulted in poor community level involvement and poor management infrastructure. The systems installed were more sophisticated than the normal SHS being installed elsewhere in the country and had a typical cost ranging from Rs 20 000 (US $571) to Rs. 32 000 (US $914), depending on the size of the module and number of lamps. This led to a monthly payment from Rs. 75 (US $2.14) to Rs. 135 (US $3.85), depending on the cost of the unit (US $1 = Rs. 35 in 1990), which turned out to be unrealistically low. According to a socioeconomic survey conducted by the Marga Institute of Sri Lanka, it was found that most households could afford to pay much more for the system. However, since the payments by households were set at nominal terms, their value has been eroding with inflation. At some point in time, the infrastructure for collecting repayments broke down as a result of bureaucratic problems, and some initial technical problems in the systems set a precedent for nonpayment, which was most difficult to break later. Some of these problems have been fixed after the NHDA handed over the maintenance and money collection duties to Power & Sun in 1991. However, the repayments remain around 50%, as the cost of collecting the money is much more than the actual collections due to the low monthly payment. This means that over-subsidizing solar photovoltaics has a negative effect on the dissemination of solar photovoltaics through the business route. This project has demonstrated that solar photovoltaics is an appropriate technology, but the implementing methodology used for the project was not sustainable and as a result was found to be detrimental to the commercial dissemination process of solar home systems in Sri Lanka.
