Business Operation Models for Solar Home Systems (SHS) - Revision history

Ranisha at 09:42, 1 August 2018

2018-08-01T09:42:25Z

Ranisha: /* Further Information */

2017-01-23T12:46:12Z

‎Further Information

Johanna at 11:06, 13 January 2017

2017-01-13T11:06:17Z

Wiki Gardener: Wiki Gardener moved page Business Operation Models to Business Operation Models for Solar Home Systems (SHS)

2014-10-13T15:07:35Z

Wiki Gardener moved page Business Operation Models to Business Operation Models for Solar Home Systems (SHS)

Wiki Gardener at 15:07, 13 October 2014

2014-10-13T15:07:10Z

Wiki Gardener at 15:06, 13 October 2014

2014-10-13T15:06:03Z

Ranisha at 13:07, 15 August 2014

2014-08-15T13:07:40Z

Ranisha: /* Further Information */

2014-08-04T12:36:29Z

‎Further Information

Ranisha: /* Further Information */

2014-08-01T14:08:41Z

‎Further Information

Ranisha at 16:20, 8 July 2014

2014-07-08T16:20:49Z

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+[[Portal:Solar|►Back to Solar Portal]]
 = Overview =
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 <references />
 [[Category:Solar]]

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 *[[Inclusive_Energy_Distribution_Strategies_for_Energy_Access_Programmes_and_Companies|Inclusive Energy Distribution Strategies for Energy Access Programmes and Companies]]
 *[[Portal:Financing and Funding|Financing and Funding Portal on energypedia]]
 *[http://www.scribd.com/full/16858051?access_key=key-3run7c9pjie71hi4fhc Selling Solar: Lessons From More than a Decade of IFC's Experiences] by IFC, 2007
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 <br/>
 = References<br/> =

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 <u>Many variables need close attention throughout each '''business stage''':</u>
 *Research on markets (see also market analyis for [[Market for Solar Home Systems (SHS)|Solar Home Systems (SHS)]] and [[Market for PicoPV|PicoPV]]) and [[PicoPV Field Tests|customer demographics]]
 *Design of the system
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 How can expanding a business to rural areas be made attractive?
 *Incentives to establish businesses in rural areas.
 <br/>
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 <u>Two human capital constraints affect the penetration of solar PV in developing countries:</u>
 #insufficient quantity and quality of PV industry entrepreneurs
 #stock of PV installers/maintenance technicians
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 In most developing countries, despite an abundance of qualified entrepreneurs in traditional sectors, there are insufficient PV entrepreneurs. Why is this?
 *First, there is a lack of general knowledge/awareness of the PV industry and its possibilities and profitability. There are few if any precedents or models of private sector entrepreneurs who have launched successful PV businesses and who are making money. It stands to reason that entrepreneurs would instead devote their limited investment capital to better known businesses.
 *Second, the stock of entrepreneurs interested in SHS often involves individuals who do not have the track record, credibility, and capitalization that is generally sought by traditional sources of debt or equity financing.
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 <u>Even if an entrepreneur starting a solar PV business has done all the right homework </u>(i.e., studied the demographics, mapped out a staged business plan, raised debt and equity financing, and started in the cash market business),<u>he or she will still face major macrolevel risks, among them:</u>
 #politically driven changes in fuel subsidies before an election
 #unanticipated extension of the grid (or just the promise thereof) into the operating territory of the company
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 <u>In addition, the entrepreneur will face the microeconomic business risks associated with any new business and new industry, namely:</u>
 #improper system or balance-of-system design
 #poor cost accounting
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 = Further Information<br/> =
 *[[Portal:Financing and Funding|Financing and Funding Portal on energypedia]]
 *[http://www.scribd.com/full/16858051?access_key=key-3run7c9pjie71hi4fhc Selling Solar: Lessons From More than a Decade of IFC's Experiences] by IFC, 2007
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 <references />
 [[Category:Mali]]

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 = Overview =
 There are different ways of operating a '''[[Solar Home Systems (SHS)|Solar Home Systems (SHS)]]''' business.
 <u>Although each SHS program has unique characteristics, there are two general approaches to bringing [[Photovoltaic (PV)|Photovoltaic (PV)]] to customers in the developing world:</u>
@@ Line 42: / Line 42: @@
 *Installation
 *Management of [[After Sales Service for Solar Systems|after-sales service]]
-*[[Recycling_of_Photovoltaic_(PV)_Batteries|Recycling of batteries]]
+*[[Recycling of Photovoltaic (PV) Batteries|Recycling of batteries]]
 *Repossession of units from nonpaying customers
 *Accounting and record-keeping
@@ Line 135: / Line 135: @@
 The intervention of [[Energising Development (EnDev)|Energising Development (EnDev)]] was the first attempt to bridge the local service delivery gap by allowing energy as “the missing link”, to cross-fertilize with private sector development and decentralisation dynamics. So far, the experiences are encouraging: schools offer evening classes, women benefit from light during birth.
-► [[Mali_Energy_Situation|Mali Energy Situation]]
+► [[Mali Energy Situation|Mali Energy Situation]]
 <br/>
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 = Further Information<br/> =
-*[[Portal:Financing_and_Funding|Financing and Funding Portal on energypedia]]
+*[[Portal:Financing and Funding|Financing and Funding Portal on energypedia]]
 *[http://www.scribd.com/full/16858051?access_key=key-3run7c9pjie71hi4fhc Selling Solar: Lessons From More than a Decade of IFC's Experiences] by IFC, 2007
 *[[Portal:Solar|Solar portal on energypedia]]<br/>
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 <references />
 [[Category:Solar]]

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-There are different ways of operating a '''[[Solar Home Systems (SHS)|Solar Home Systems (SHS)]]''' business. Although each SHS program has unique characteristics, there are two general approaches to bringing [[Photovoltaic (PV)|Photovoltaic (PV)]] to customers in the developing world:
+= Overview =
 <u>'''Open market approach'''</u>
-In the most common approach, described by the World Bank as the open market approach, there is a roughly unrestricted market in which PV dealers and developers can conduct direct sales and — with government, donor, and nongovernmental organization involvement — establish PV microcredit, leasing, or direct sale programs.
+In the most common approach, described by [http://www.worldbank.org/ the World Bank] as the open market approach, there is a roughly unrestricted market in which PV dealers and developers can conduct direct sales and — with government, donor, and nongovernmental organization involvement — establish PV microcredit, leasing, or direct sale programs.
 <u>'''Dispersed area concession approach'''</u>
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 <u>Many variables need close attention throughout each '''business stage''':</u>
-*Research on markets (see also market analyis for [[Market_for_Solar_Home_Systems_(SHS)|Solar Home Systems (SHS)]] and [[Market for PicoPV|PicoPV]]) and [[PicoPV_Field_Tests|customer demographics]]
+*Research on markets (see also market analyis for [[Market for Solar Home Systems (SHS)|Solar Home Systems (SHS)]] and [[Market for PicoPV|PicoPV]]) and [[PicoPV Field Tests|customer demographics]]
 *Design of the system
 *Who supplies the business with the system components? (Local manufacturers, [[Import of Energy Products|import]] of components)
 *Raising equity and managing working capital
-*Training and oversight of both technical and sales staff, as well as [[After_Sales_Service_for_Solar_Systems#Customer_Training|End-user training]]
+*Training and oversight of both technical and sales staff, as well as [[After Sales Service for Solar Systems#Customer Training|End-user training]]
-*Development of a [[Use_of_Microfinance_Institutions_(MFI)_for_Renewable_Energy_Technologies|microfinance]] approach that is appropriate for the customer base
+*Development of a [[Use of Microfinance Institutions (MFI) for Renewable Energy Technologies|microfinance]] approach that is appropriate for the customer base
 *Management of the microfinance process (or strategic alliances with microfinance organizations)
 *Installation
-*Management of [[After_Sales_Service_for_Solar_Systems|after-sales service]]
+*Management of [[After Sales Service for Solar Systems|after-sales service]]
 *[[Recycling_of_Photovoltaic_(PV)_Batteries|Recycling of batteries]]
 *Repossession of units from nonpaying customers
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 <br/>
-The choice of a certain business structure / operation model also depends on the [[Financing_Models_for_Solar_Home_Systems|financing models]] offered to the costumers and [[Subsidies#Subsidies_for_Solar_Home_System_Promotion|grants and subsidies]] provided either to the costumers or the business itself.
+The choice of a certain business structure / operation model also depends on the [[Financing Models for Solar Home Systems|financing models]] offered to the costumers and [[Subsidies#Subsidies for Solar Home System Promotion|grants and subsidies]] provided either to the costumers or the business itself.
 <br/>
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 == PV Installation and Maintenance Personnel ==
-Apart from the shortage of entrepreneurs willing to enter the high-risk PV business, there is a shortage of [[After_Sales_Service_for_Solar_Systems#Employee_Training|trained technicians]] familiar with PV systems. The availability of trained PV installers and service technicians is essential to maintain continued operation of financed systems so that payments can be made. But people take time to be trained; then, even if they are successfully trained, they can get recruited away.
+Apart from the shortage of entrepreneurs willing to enter the high-risk PV business, there is a shortage of [[After Sales Service for Solar Systems#Employee Training|trained technicians]] familiar with PV systems. The availability of trained PV installers and service technicians is essential to maintain continued operation of financed systems so that payments can be made. But people take time to be trained; then, even if they are successfully trained, they can get recruited away.
 For these reasons, it is essential that training programs for PV installation and maintenance personnel be ongoing. A number of countries have established permanent training courses. In Tanzania, the [http://www.karadea.org/kstf/ Karadea Solar Training Facility], with a permanent staff of four, provides basic and advanced training for students from Tanzania, Uganda, Kenya, and Nigeria on how to install and maintain PV systems. It also provides guidance on PV projects for nongovernmental organizations, businesses and relief agencies.<ref>Frank Jackson, “East Africa’s First Solar Training Centre,” The World Directory of Renewable Energy Suppliers and Services 1997 (London: James and James, 1997), p. 108</ref><ref>Philips, Michael/Browne, Brooks H.: Accelerating PV Markets in Developing Countries</ref>
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 == Concepts Promoting Commercial Products<br/> ==
-Different steps projects should pay attention to, are mentioned within these different [[Promotion_of_Commercial_Products|concepts]] to introduce new commercial products to the market.
+Different steps projects should pay attention to, are mentioned within these different [[Promotion of Commercial Products|concepts]] to introduce new commercial products to the market.
 <br/>
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 In Mali communal '''solar battery charging stations (SBCS)''' are operated by private service providers, who run them on a fee-for-service basis. The income generated from the SBCS is supposed to cover the maintenance and upgrade costs of the SBCS themselves and the PV systems generating power for key public buildings (schools, health centres, town halls).
-The private operators have begun to install solar home systems, sell solar lanterns and provide after-sales services that go beyond the '''[http://www.pact-mali.org/index.php?option=com_content&task=view&id=20&Itemid=25 ELCOM] (Électrification Communale) '''intervention.
+The private operators have begun to install solar home systems, sell solar lanterns and provide after-sales services that go beyond the [http://www.pact-mali.org/index.php?option=com_content&task=view&id=20&Itemid=25 ELCOM] (Électrification Communale) intervention.
 Electrifying key public services with solar energy, and linking it with electricity provision for private use, will improve living conditions of the population, besides strengthening local government’s performance and legitimacy.
 The intervention of [[Energising Development (EnDev)|Energising Development (EnDev)]] was the first attempt to bridge the local service delivery gap by allowing energy as “the missing link”, to cross-fertilize with private sector development and decentralisation dynamics. So far, the experiences are encouraging: schools offer evening classes, women benefit from light during birth.
 <br/>
 = Further Information<br/> =
-*[http://www.scribd.com/full/16858051?access_key=key-3run7c9pjie71hi4fhc Selling Solar: Lessons From More than a Decade of IFC's Experiences]by IFC, 2007
+*[[Portal:Financing_and_Funding|Financing and Funding Portal on energypedia]]
 *[[Portal:Solar|Solar portal on energypedia]]<br/>
-*[[Import_of_Energy_Products|Import of Energy Products]]<br/>
+*[[Import of Energy Products|Import of Energy Products]]<br/>
 <br/>
 = References<br/> =
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 <references />
 [[Category:Solar]]

@@ Line 1: / Line 1: @@
 = Introduction =
-There are different ways of operating a '''[[Solar Home Systems|Solar Home Systems (SHS)]]''' business. Although each SHS program has unique characteristics, there are two general approaches to bringing [[Photovoltaic (PV)|Photovoltaic (PV)]] to customers in the developing world:
+There are different ways of operating a '''[[Solar Home Systems (SHS)|Solar Home Systems (SHS)]]''' business. Although each SHS program has unique characteristics, there are two general approaches to bringing [[Photovoltaic (PV)|Photovoltaic (PV)]] to customers in the developing world:
 <u>'''Open market approach'''</u>
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 Few PV programs in developing countries, regardless of approach, have achieved independent financial sustainability. Although they are aiming eventually to become financially sustainable, most of these programs — while perhaps successful by other standards — have been unable to wean themselves from grant support.
-The few success stories on record — that is, PV programs in developing countries that have managed to become financially sustainable without continuing to rely on subsidies — involve a comprehensive, phased approach toward stimulating the market for PV, creating a financing program, and providing servicing for the installed systems. In the Dominican Republic, for example, SOLUZ has established a 1,000 or more unit leasing program, which is now cashflow positive.
+The few success stories on record — that is, PV programs in developing countries that have managed to become financially sustainable without continuing to rely on subsidies — involve a comprehensive, phased approach toward stimulating the market for PV, creating a financing program, and providing servicing for the installed systems. In the Dominican Republic, for example, SOLUZ has established a 1,000 or more unit leasing program, which is now cash flow positive.
-Why have so few PV programs in developing countries achieved financial sustainability? There are several reasons. The most common problem is extra costs arising from unanticipated maintenance, component replacement, outreach efforts, and training. In cases where extra funds are available to cover these activities, the “human software” to provide the maintenance or training often is not. In Kenya, a PV program did not address the middle -market consumers — i.e., consumers who cannot afford to pay the entire cost of a PV system up-front in cash but who are not so poor that they need the PV system price subsidized; the program in Kenya focused only on the cash market, thereby preventing the next level of penetration and precipitating a long-term decline in sales. In Sri Lanka, the lack of working capital and slim margins at the dealer level prevented the PV program from thriving, let alone expanding. A program in the Philippines suffered from, among other things, poor financial management and a lack of understanding of the terms and conditions of its own loan program on the part of key officers in the implementing institution.<ref>Eufemia C. Mendoza, “Development Bank of the Philippines Window III Experience on Financing PV SHS,” Proceedings of the Regional Workshop on Solar Power Generation Using Photovoltaic Technology (Manila: Asian Development Bank, 1997), p. 368</ref>
+Why have so few PV programs in developing countries achieved financial sustainability? There are several reasons. The most common problem is extra costs arising from unanticipated maintenance, component replacement, outreach efforts, and training. In cases where extra funds are available to cover these activities, the “human software” to provide the maintenance or training often is not. In Kenya, a PV program did not address the middle -market consumers — i.e., consumers who cannot afford to pay the entire cost of a PV system up-front in cash but who are not so poor that they need the PV system price subsidized; the program in Kenya focused only on the cash market, thereby preventing the next level of penetration and precipitating a long-term decline in sales. In SriLanka, the lack of working capital and slim margins at the dealer level prevented the PV program from thriving, let alone expanding. A program in the Philippines suffered from, among other things, poor financial management and a lack of understanding of the terms and conditions of its own loan program on the part of key officers in the implementing institution.<ref>Eufemia C. Mendoza, “Development Bank of the Philippines Window III Experience on Financing PV SHS,” Proceedings of the Regional Workshop on Solar Power Generation Using Photovoltaic Technology (Manila: Asian Development Bank, 1997), p. 368</ref>
 In some countries, well-meaning government subsidies for PV have undercut the existing private PV industry, so that while an individual program may be successful, the sustainability of the overall PV market is damaged. This unintended outcome occurred, for example, with a United Nations-sponsored program in Zimbabwe. Subsidies, while certainly stimulating near-term PV sales, can work against financial sustainability in the long term. The Agricultural Development Bank of Nepal provided 50% subsidies of SHS hardware costs;<ref>RSVP (Renewables for Sustainable Village Power), National Renewable Energy Laboratory, Golden, Colo., Web site: http://www.rsvp.nrel.gov.</ref> and some donor programs continue to provide large subsidies for PV and other products in order to promote sales of domestically manufactured products.
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 Access to working capital is key for PV firms. Even if technical assistance is available to research the markets, there will be a need for working capital to pay for advertising and cover early start-up costs, inventory, and accounts receivable. Growth businesses consume working capital as they grow to finance larger inventories and accounts receivable. A shortage of that working capital will choke a business.
-Furthermore, PV businesses cannot rely on cash markets indefinitely. In time, any geographically efficient cash market will become saturated. At that point, PV businesses must finance middle-market consumers — i.e., consumers who cannot afford to pay the entire cost of a PV system up-front in cash but who are not so poor that they need the PV system price subsidized. But if the PV business becomes stalled in its middle -market financing stage before it achieves breakeven system installations (up to 1,000 units, depending on finance margins), it will collapse. Thus, customer financing instruments and service/collection infrastructures will be needed.
+Furthermore, PV businesses cannot rely on cash markets indefinitely. In time, any geographically efficient cash market will become saturated. At that point, PV businesses must finance middle-market consumers — i.e., consumers who cannot afford to pay the entire cost of a PV system up-front in cash but who are not so poor that they need the PV system price subsidized. But if the PV business becomes stalled in its middle -market financing stage before it achieves break even system installations (up to 1,000 units, depending on finance margins), it will collapse. Thus, customer financing instruments and service/collection infrastructures will be needed.
-In sum, to operate an SHS assembly, distribution, or retail sales business in a profitable manner, an entrepreneur must have sufficient operating capital as equity; must be successful in making sales to customers in the cash market; and soon thereafter must be able to reach a breakeven point via sales to middle-market consumers who rely on customer financing instruments to make purchases.
+In sum, to operate an SHS assembly, distribution, or retail sales business in a profitable manner, an entrepreneur must have sufficient operating capital as equity; must be successful in making sales to customers in the cash market; and soon thereafter must be able to reach a break even point via sales to middle-market consumers who rely on customer financing instruments to make purchases.
 In some countries, system design and balance-of-system requirements have not been addressed — that is, PV systems have been sold in smaller sizes than what was really needed by customers, or the customers were left to buy the lighting or other components, do the rest of the wiring, etc. The result was that the whole system did not perform because some components were poorly integrated, incompatible with the rest of the systems, or had poor battery controls. The best approach to these risks is for a company to design a system that can withstand some abuse, and which is carefully tailored to what people want to use it for.
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 <references />
 [[Category:Solar]]