EnergyStudiesRevi ew Vol,14, No.2. 2006pp 154-170
Renewable energy financing
-what can we learn from experience in
developing countries?
J
YOTI
PRA
SAD
P
A
INUL
Y
&
NORB
ERT
WOH
LGEMUTH
ABSTRACT
Renewabl e energy (RE)hasbeen consi de redas oneofthe stro ngerconte nders to improve the pligh t of nearl y two billion peopl e, mostly in rura l areas, witho ut access to mod ern forms of ene rgy. Altho ugh the econo mics of renewab le energy technolog ies (RETs) have yet to reach a stage whe re these could rep lace fossil fue ls on a significant scale, man y experts argue that technolog ies suc h as solar, wind, and small-sca le hyd ropower are no t only econo mica lly viab le but also ideal for rural areas. The mism atch betwe en the pot enti al and actua l use of RE can be attr ibuted to barriers in its implem entation . Amo ng othe rs, a lack of financing has been one of the important bar rie rs adverse ly affecting the wides prea d use of RET s. In develop ing count ries, a majority of initia tives have focused on finan c ial incent ives.The re are successes as well as failures from the models ado pte d. The paper discu sses probl em s related to fina nc ing RETs, by focus ing on small-sca le off-grid RET s in develop ingcountr ies,and reviews some ofthese model s to bring out the lesson sthat we canlea rn to acceleratethe availabi lity of fina nce to RETs.
Keywords.renewab leene rgy; finan c ing; policy instruments.
Jyoti Prasad Painuly is a Senior Energy Plannerat UNEPRise CentreonEnergy. Climateand SustainableDevelopment, RIS0NationalLaboratory,Roskilde. Denma rk.IppgjjJu.bJ[?.rL~'Q.~':.,.dk
Painu ly& lVohl gellllllh 15 5
1. WHYFOCUS ON FINAN CING'!
The World Summit for Sustainab le Development's decision to hold a conference on renewable energy can be considered a break through in the deep e ning of internationa l cooperation in supporting a globa l transition toward s a more sustainab leenergydevelopme nt(Spalding-Fec her et al.,2005; World Bank, 2005a).The object ive ofthediscu ssions onfinancial dimen s ion of the RE (besi de the pol itical and policy, and human and insti tuti on al dimen sion s ) inthe Bonn 2004 confere nce was to inc rease private and public financi ng in orde r to secure a reliab le supply of RE. In the broader context, financing has been identi fied as a key issue in achievi ng development. The role of energy in that process has only recently bee n officially acknowledged. For developing countries, there is a clear connection between access to modern forms of energy and development; a fact which is reflected in the recentagenda ofthe UN Commiss ion onSustainab leDevelopmentalso .
Wiserand Pickle (1998)find that one ofthekey reasons that RE poli ci es are not more effective is that proj ect developme nt and financi ng processesare frequ entl y ignored or misund erstood when designing and implem enting renewabl e energy pol icies. Man y RETs are no lon ger conside re d exper ime nta l; they have proven to work well in commercia l settings througho ut the world. In many countr ies publ ic policies and governme nt regulations change marke t conditions, making it easier for non-conve ntio na l technologies to compete. Even though many sustainable energy investments are "bankable", the financial community overa ll has been slow to provide financingfor projects (Sonntag-O'Brienand Ushe r,2004).
Decision -m akers receive mixed signa ls fro m the investment literature abo ut the issue of whe n it is appropria te to develop RET s as substitutes for fossil fue ls. In the case of renewabl e energy investm ent s, caut iou s financi al instituti on s often overestimate the risk s and decide agains texte ndi ng loan s or providing other forms offinancial SUpp0l1 for othe rwise sound projects.In the end,projects that migh t be goodinvestmentsandyielda global environme nta l benefit fail to go forward because of a misperceptio n of the risks involved (UNEP,2004).
/56 Energy StudiesReview Vol. /4.No.2.
hinder the market penet ration of techno logies, including problem s ans mg froma lack of awareness of,and expe rience with new techn olog ies and lack of a suita ble institutiona land regul atory struc ture.Fina lly, thereare socia land environme nta l barriers which result mainl y from a lack of experience with planning regu lations that hinder the public acceptance of a techn olo gy. A sound stra tegy to increase the mar ket penetr ation of renewa bles will need to address all these barrier s.
However, the largest bar rier to greater ren ewabl e energy use is its cost, despite the cost redu ction s achieve d over recent years. Other obs tac les, particularl y for the increase d use of renewabl e electricity, includ e subs idies and othe r support for compe ting conve ntiona l fuels (especially coal and nuclear power). Lack of full cos t pricin g whe n determinin g the cos t of competing ene rgy supp lies also hindersthedevelopment of renewa bleene rgy since the cost of enviro nmenta l impacts are usually not included in ene rgy prices.High discountrates and compe tition on short-te rm electrici ty prices,as seeninelec tricity mark etsundergoin g a change inregulatoryframework,may disadvant age proj ects with high cap ital cos ts but low running costs, suc h as renewabl e electr icity systems - unless govern ments set up schemes design ed to replace and substitute for estima ted deficien cies of the market place. The high cos tofren ewabl es and percept ion s abo ut thetechn ol ogymake itdi fficult for RET s to access financ e. As a result,finan cial barriers appea rto be most prominent for developing renewables.Severa l financial suppo rt programmes have been taken up by intern at ional agencies and public as well as private funds have been created to pro vid e access to fina nce (Wohlge muth and Painul y,2002).
This pap er is struc ture dasfoll ows.Chapter two gives a gener icoverview of mech ani sm s in the "finance continuum" used in developin g countries to suppo rt renewabl e energy. Case studies are present ed in chapter three and chapter fourpresent slessonslearned from these case studies.
2. RENEWABLE ENERGYFINANCI NG APPROACHES
In industrialised countries, there is already of lot of expe rience with financia l instrume nts to promote RE for elect ricity genera tion (see for example the publica tions of Bolinger et al., 2005; Men anteau et al., 2003; Mitchell and Conno r, 2004; Ringel, 2006; Sawin and Flavin, 2004). ' In principl e, there are several classificatio ns for mechanism s to financ ially support RE. One class ification would be along the development chai n of RETs. Accord ing to this classification, RETs can be supported at the R&D,
Pain ulv& Wohlgennuh /57
the investm ent , the production and the cons umptio n stages. Another
classi fication would be whether supp ly and/or demand or price and/or quantity of RE are supported. Finally, differen tiat ion can be made whethe r
regulatory orvolun tary and/ordirect or indirect mech anisms are employed. Success or failure ofaproj ectneedsto be assessed with refer ence to the objectives for which it was established . The optim al set of instrume nts to
promote renewa b le ene rgy depend s on these objecti ves(Komor and Bazilian, 2005; Gaunt, 2005). Various obj ecti ves for promoting RE as seen in the
literature include ene rgy access to the poor, promotion of clean ene rgy,
promotion of sustaina ble energy sources, reducing dep end en ce on imported
fossil fuels, reduc ing gree nhouse gas emiss ions and shifting to zero or low
gree nhouse gas emitt ing sources (Gold emberg , 2004; World Bank 1996 ; World Energy Counci l, 1996; Blyth and Lefevre , 2004). Althoug h
sustainability of a proj ect and wide-scale ado ptio n of RE is an implic it objective ofmost ofthe RE projects, comme rc ia lisa tion does not figure as an objective in man y cases. How ever, comme rc ia lisa tion is one of the most
important requirem ent s for large sca le implem entation of RE, and henc e a
successfu l financing model should eventually lead to commerci ali sation or near commercialisation (con siderin g still high cost compared to conve ntiona l
ene rgy in man y circums ta nces) oftheREit seeksto promote. It implies that a success ful project should be able to promote use of renewable energy with minimal effortsafteritscomp letion.
Besid etheobjec tives, it is not immediately clear whatcriter ia should be applied to assess the success of a proj ect or programme. Possib le crite ria
according to which support mech an ism s can bejudged include: effective ness (e.g., total capacity install ed or total kWh of elec tric ity generated ), co st-effective ness (kW/E,kWh/E),short term economic effic iency (short term cos t minimisation), long term economic effic iency (inc entives for innovation), equ ity (fair distribution of costs and ben efits), certainty for industry,
tran sparen cy, transaction costs, and mark et conformity (esp eci ally important in liberali sed electricity markets). Sonntag -O' BrienandUsher (2004) classify the finan c ing models based on the stage at which finan cial support is provided. Their categorisation is followed her e with some modi fication s to
brin g out thelesson s.
•:. Star t-up capit al suppo rt to meet up-frontcosts forraisin g capital, building
market awaren ess, and transaction cos ts, which are generally high for renewabl es. Business development gra nts and seed capital financing fall
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.:. Ope ratin g capital support, which includes lines of cred it, cred it enhance me nts for loan provi sion, and sma ll and medium scale energy ente rprises growthcapita l funds.
}- Lines ofcredit refer tocreation of creditwindows in nation al or local banks,with support from interna tiona lfinance institutions/donors, for lending to RE ente rpr ises. For example, the India Alterna te Energy Proj ect , initiated by the World Bank/Global Env ironme nt Facility (G EF)in 1991, provid ed lines of credit to Indian Renewable Ene rgy Agency topromoteren ewabl e energy .
}- Credit enha nce me nts refer to various subs id ies provid ed by intern ation al finan ce ins titut ions/donors to so ften loan finan cin g, either for the lend er orthe borrower through risk sharing or interest-rat e redu ctions.These assume the forms of(i) partial risk guarantees, which ensure debt- ser vicing paym ent s to the lend er, and (ii) partial credit guara ntees, whic h are used to exte nd loan repaym ent periods,
improving theproject ' s cash flowsin theprocess.The guara ntees can motivatebanksto lend for projectstheyperceive as risky.
}- Cre dit enhance me nt can also be achieve d through interest rate subsi dies which lower the cost of finan cing for the borrower. The credit risk in this case remains with the local bank/instituti on providin g the cre dit, and hen ce can be applied only if the mark et potential is big and ripe for developm ent. The approach has been successfu lly app lied by the Government of India for solar hot water syste ms, and recentl y UNEP applied the same approac h for photo volt aic so lar home syste ms in India.Credit enhance me nt lead s to access to business finance to the RE enterp rises,one of the maj or objec tives ofsevera l World Ban k/G EF renewabl e energy proj ects. In some cases, they combine credit enhance me nt with support to the manu facturer s and/or deal ers to meet a pa rt of their busin ess development costs in initial stages,with aview to develop the supply side of the RE market. In yet other cases, they combine the credit enhance ment with subsi dies tied to the performan ce (for each unit sold) to lower the high initial costs of the RE equipme nts with the view to develo p the market, whic h, in turn, is expec ted to lead to lower the cost of RE equ ipme nt throu gh economies of scale and learning.
l' aiI/IIZ" &Wohlgennuh 159
Programme"of the World Bank, one of the largest financiers of RE andenergy efficiency in developing countries(World Bank, 2005b), is anexample ofa successful fund. It has exceeded the target of 10 percent share of alternative energy in its Asian power sector loan portfolio. The trend continued and Asia Alternative Energy Programme increased the lending portfolio for alternative energy projectsfrom about US$ 2.0 million in 1992 toover USS 1.3billion between 1993-2004.
•:. End userfinancinghas severalvariations,including:
>-
The suppliercredit model,in whichtheRE enterprise provides a short term (3- I2 month) credit to the end user for purchase of the RE equipment/system. The equipment manu facturer could also extend credit to the RE enterprise for thispurpose.>-
The consumer credit (or micro credit) model, in which local financeinstitutions provide loans to users (households, for example) to buy
the RE system. RE enterprise in this case transacts on commercial basis with the users. Credit enhancements, using part ial guarantees and interest rate softening, have also been applied with consumer credit.
,. Several World Bank solar home systems projectshaveused what they refer to as a 'dealer sales model' , which uses the consumer credit approach with creditenhancement. In this model, the dealer sells the system to the end user,which can besometimes on credit. The dealer is provided support through access to business financing. Some additional support (performance based subsidy to dealers) has also
been provided to develop the market. The model has beenapplied in
Indonesia, India, Sri Lanka , Vietnam, Bangladesh and China by the
World Bank. A part of the cost in this case was covered by the project, which involved deal er training and dealer business financing. Consumer credit (supplemented with credit enhancement) has been experimented through three channels in World Bank projects: in Bangladesh and Indonesia, a dealer-credit model was applied, whereby dealers provide credit to the end user, and commercial financers provide business financing to dealers. In the case of Bangladesh,International Finance Corporation,theprivate sector arm of the World Bank, provided loan to the dealer, Grameen Shakti, under their Small and Medium Scale Enterprise Program, who, in turn,extendedcredit tocustomers. Dealer creditwas triedbut rej ected
160 EnergyStudiesReview Vol.14.No. 2.
by the deal ers in Sri Lank a in favour of consumer credi t through Sarvod ay a,a micro finan ce organi sation , whic h in turn borr ows from comme rc ial financers,A development finan ce institution provid es the credit to consumers through an NGO in Vietnam. The con sum er micro cred it model has also been applied by UNEP for so lar hom e syste ms in India in a United Nations Fund funded project, in partner sh ip with two commerci al banks, Synd icate Bank and Canara Ban k.
In the fee-for-ser vic emodel,cus tomers pay for the energy serv ice that is provided to them by an ene rgy service company. It makes the ene rgy afforda bleand minimi sesthelong-t erm risksfor the cus tome rs as the own ership and maint enan ce of the equipment lies with the energy service company. The World Ban k used this mod el in Arge ntina, Benin, Togo, Dominican Republic, and Cape Verde .The Wor ld Ban k project aime d at establishing ene rgy serv ice compan ies for sola r home syste ms installation s in Benin andTogo, and also to provid e busin ess finan cin g and support for initial market development. The energy serv ice company model was also tried out in Sri Lanka but given up afte r initial probl em s in fav our of the consume r credit model. In the World Bank energy serv ice company del ivery models, financin g for energy service compa nies was provid ed throu gh either govern me nt or multilat eral sources, but cha nne lled through comme rcial financiersin many cases .
>-
The lea se model is simi lar to the fee-for-service model as the ownership of the equipme nt lies with the leasing compa ny, which typi call y are spec ialised financial institutions. It has been used for big,mostlyon-grid power,generationequipme nt.3. CASESTU DIES
A number of initiati ves to prom ote RE have been supporte d by intern ational finance instit utions and donors, as most of the developing countrieseither did not havenecessary infrastru cture andexpertise,ordidnot consider it desi rabl e to adopt regul ato ry models used in develop ed cou ntries. Several initiati ves are of recent origin and it istoo early to give a verdic t on their success in promoting renewabl e energy.Evenwhe re proj ect s have been completed, in abse nce of independ ent assessme nts or even objective assessment s by project sponsors/impleme nte rs, in most of the cases it is difficult tojudge successofthe applied models.
Painulv& Wohlgcnn ttl:161
the above end user approach to support custome rs. Ther e are man y other enco urag ing projec ts that could be prese nted. How ever, the broad message and lessonsaresimilartothat ema nating from the case studies coveredbelow.
3.1 Energy Enterprise DevelopmentbyE+Co
E+Co has been engaged in promotin g sma lland medium scale energy
enterprises through seed finance . Working on Rural Energy Ente rprise Development (REED) project initiated in 2000 by UNEP, E+Co provid ed SUpp0l1 to 25 energy ente rprises in six developing countries inareas suc h as start-up finan cin g (in the form of deb t and equ ity ), enterpr ise development services suc h as busin ess planning, managem ent structur ing and financi al planning, and assistance in securi ng later -stage financi ng. The countries include Ghana, Mali, Senegal,Tanzani a,Zambia and Brazil withente rprises coverin g crop dryin g,charcoa l production , biofuels, wind pumps, solar water
heating, and efficie nt cook stoves. E+Co sta rted operations in 1994 and its overall portfolio had rea ched , by March2005, about II million dollars with
112 investments in Africa, Latin Americ a, and Asia, of which more tha n 85 per cent is debt. The levera ge has been more than 10, with addi tional
investm ent in these enterprises at US$ 120 million. E+Coexpe rience hasbeen
that money is not always the problem; it is the linkbetween mon ey and the good ideas that isoften missingin this sector. Their opinionisthat the need to
prom ote and strengthe nprivate enterprises is a key eleme nt to overcome these
Issues.
3.2 Seed Funding For Solar HomeSystemsin Banglades h
Grameen Bank in Ban glades hsetup anot- for-pro fit subsidiary,Grameen
Shakti, which is involved in the mark eting, sales, serv icing, credit provision and other activities related to photovoltaic solar home syste ms business. Gramee n Shak ti started opera tio ns in 1996 and plann ed to install 100,000 solar hom e systems by the year2000 (Lew is, 1997)but found the process of
buildin g cus tomer confi de nce in syste ms time consumi ng and costly . In
addit ion, long distan ces, poor tran sport infrastructure, impassabl e roads during mon soon s, low literacy rates, cash-a nd-ba rter based tran sactions and
lack of technical skills contributed to the tra nsaction costs of ope rating the
rural photo volta ic business (G8 Renew able Energy Task Force, 200I). In 1998, International Finance Corp oration provid ed access to GEF funds
through its Sma ll and Medium Scale Ente rp rise Program, which enabled
Grameen Shakti to offer better cred it terms to thei r custome rs and their sales
162 EnergyStudiesReview Vol.14.No. 2.
installation base of 100,000 by 2008 (Barua, 2004 ). The financing scheme that started with 50 per cent of the syste m price as down paym ent and the
remaining 50 per cent in 6 months in six equa l monthly instalment s was
modified from time to time and now requiresonly IS per cent of the syste m cost as down paym ent and the remain ing 85 per cent can be paid within 3 years timeinequa l monthlyinstalment swith 12per cent serv icecharge on the
outstanding amount. Grameen Shakti plans to introduce a 4 to 5 years
financing scheme for poor rural peopl e.Photovolt aic syste ms are also used for income generation activities suc h as for lighting inshops, clinics, restaurant s,
saw mills,rice millsand for cellu lar phone serv ice . Grameen Shaktiact ivities,
besid es provid ing cred it, included training of local people to install and maint ain photovolt aic syste ms, training of custom er s in applica tion and maint en anc eofphotovolt aic systems (Barua , 200 I ).
The experience at Gram een Shakti indicat ed that the processof building cus tome r confidence and demand became lesstimeconsuming after acritical mass of installations and they bel ieve that after three to four years of profitabl e growth they will be able to obtain additional financin g from commercialbank s.
3.3 The World Bank/GEFIndiaAlternateEnergy project
The World BanklG EF India Alte rnate Energy project (also known as India Renew abl e Resources Development project), with co-financing from three other agencies, provid ed low-intere st loans to wind farm developers in the nineti es. At the same time, favourable investm ent tax polici es and a supportive regulatory fram ework result ed in unpreced ent ed market grow th for wind power. Inve stm ent tax cred its, supportive power purchase tariffs,
provision for wheelin g, permission for third-p art y sales, power-purcha se contrac ts with local utility and possibilityof power "ba nking" contributed to
the development of the mark et. More than 1200 MW of wind capacity had
been installed by the privat e sector by 2000. Of this, direct financ ing by the
GEF project was only 41 MW. Manufacturing ofwind turbines had started
with several compa nies operating in this area. Seve ral local financ ial institutionsalso started financing wind farms which continued thereaft er also as capa bilities had been developed anda supportive regul atoryframewo rkhad been established.
3.4SriLankaEnergyServices Deliveryproject
Painulv& Wohlgemuth /63
energyserv ices.This included minihydro plants(grid connec ted),community hydro sche mes (off-grid) and solar ho me syste ms. The Sri Lanka Energy
Services Del ivery project resulted in an instal lation of 31 MW of g
rid-connected mini hydro power by mid 2002 by the private sector against an origina l targ et of 21 MW. The progress continued after completion with addition of 7 MW by 2004, 41MW under constructio n, and letter ofintents for another 200 MW (Nagendra», 2004). Off-grid community owned village hydro sche mes also performed satisfac torily.
Conce rn ing so lar hom e syste ms, the project has also been considered successfu l with about 21,000 systems install ed by four compa nies through Sarvodaya (a micro finan ce institution) by 2002, against an re vised targe t of 15,000 (origina l ta rget 30,000). After comp letion of the Sri Lanka Energy Services Delivery proj ect, another 24,000 syste ms hadbeenaddedby March 2004.
3.5PhotovoItaic solar home system financing in India
In 2003 UNEP initiated a credit fac ility in Southern India to help rural household s finance the purchase of so lar home systems . Two of India' s largest bank s, Canara Bank and Synd icate Bank, along with their eig ht associa te RegionalRural Ban ks (orGramee n Bank s),establishe da Solar Loan Programme thro ug h thei r branch offices across Karna taka State and par t of the ne ighb ourin g Ke rala State. Previous to this prog ramme,only abo ut 140 0 solar home systems had beenfinan ced in Karn atak a. In additio ntoproviding financ ial suppo rt in the form of interest rate subsi d ies for borrowers, the programmeprovid es assista ncewith techn ical issues, vendorqual ification and other activities to devel op the institutional capacit y for this typ e of finan ce. As of January 2005, the programme had financed nearly 12,000 loans, through more than 2000 part icip atin g bank branches. Sal es volume had reach ed 1000 syste ms per month.The fastest grow th in loans is currently in rural areas, than ks in part to the increasing partic ipation of the Grameen banks.The three-year Prog ram me with US$ I million in support to banks is on targetto finance between 20,000 and25,000solar home system s,maki ng it one ofthe largest solar hom e syste ms loan programmes globally . Inresponse, other Indian ban ks have recently laun ch ed compet ing solar home systems
loan programmes. The programme is supporte d by the United Natio ns
Foundation and the She llFounda tion.
3.6 Revolvin gFund for Sm all Hydro Schemes in Peru
164 EnergyStudiesReview Vol.14. NO.2.
and ITDG-Peru , a NGO. The project is an example of a successfu l financial model that combines subs idise d loansand techn ical assistance through shared efforts between technical co-operation agenc ies and gove rnme nt insti tutions (G8 Renewabl e Ene rgy Task Force,200 1). Theproject was initiated with the view to provid e electric ity toremote areas not reach abl e through conventional grid.The fund has provid ed loan finance to 15 rural elec trifica tion projects of municip aliti es, 5 proj ects of the private sector and one proj ect of the co-operat ive. A loan amount of US$ 700,000 was given,which leveraged US$ 2.5 million from govern me nt and other agencies to provid e electric ity to
15,000 people . Techni cal assista nce for proposal preparation was provid ed and regional and local works hops were arranged to crea te awareness. The proj ect need ed socia l intermedi ation, forming pre-el ect rificat ion commi ttees or other ad hoc organi sations to operate and maint ain the plant (Barne tt,
199 8), and required techni cal interm edi ation in addition to financial inter med iation. Rep aym ent level s have been high but conside rable time and effort had to be expe nded to mark et both the fu nd and the idea of hydro powe r. Overall, the project expe rience implies that micro hydro is not viable without some support,as households had to beprovid ed subsidised power to makeit accessibl e to them.
3.7International Finance Corporation projects
Paiuul v& Wohlg ellluth /65
and conservation. and renewab le energy/effic iency produ ct manu facturing and fina nc ing . It is too early to evaluate Internat ion a l Finance Corpo ratio n projects,except theSmallandMediumScaleEnterpriseProgram .
4. LESSO NSLEAR N ED
.:. World electricity genera ting capac ity is likel y to increase by more than 70% by 203 0,and this offersan oppor tunity to develop ren ew abl e ene rgy technologi es up to a stage where they are fu lly compe titive with co nve ntio na l techn ol og ies.Most ofthe incr ease is expec te d to tak e place in devel oping countries(EIA, 2006).
•:. Ren ewab les face several barriers today, impedi ng their de ploym ent on a commercial scale. Cost competi tive ness combi ned with risk percept ions relatedto new technologieshas resultedin alac k of availab ility of fina nce to ren ewabl es, par ticul arl y in devel op ing countries. Fina nc ing probl em s thus represent one of the most important barri er s in expa nding ren ewabl es ' usage. Severa l national as well asintern ational agenc ies have tried to address this barrier through a variety of measures in both develop ed aswell as developing countries .
•:. Direct and indi rect investment subs id ies, operating incen tives throu gh re gu latory measures that requ ire higher payment to power generated from ren ewabl es and gree n ene rgy marketin g strategiesare some ofthe supply side mech ani sm s successfully used, mostly in devel oped countr ies . The sc he mes havebeen carriedout throu gh regu lato ry measures, obviati ng the need for direct intera ction with end users, and thus avoid ing high tran saction costs. This has worked well in dev eloped countries in introducin g renew abl es for elec tric ity gene ra tio n. Prefer ential financin g for ren ewabl es has also been made availab le in severa l countries. Finan c ing mech ani sms on the end user side have also evolve d; thus revolving funds have been used to provide cred it to the end users, renting and leasing sche mes have been promoted by utilities or th ird parties,and hire purc hase optionshave also been explored .
•:. Other market based instrume nts suc h as green certificates; green fun ds etc. are also in use. This however has limited utility in a developing co untry contex t wher e major initiati ves have been for decentrali sed option s, ofte n at the end user level. End user face the twin probl em of access to credit and high cost of credit, even if availab le, due to risk perception of the financial institutio ns of the renewable tec hnol ogies as
166 EnergyStudiesReview Vol.14. No.2.
solar home systems in India and Bangladesh seek to address these twin issu es. However, a favourabl e regulatory framework, along with credit support and incenti ves can be instrumental in drivin g upward s rene wable energy capac ity, as evide nced in case ofIndia ' s wind power programme.
•:. Altho ug h supp ly side initiati ves have been around for some time, initiati ves on end user side are relatively new and still evo lving . With increasin g expe rience, these are expec te d to improve and address the barri er sto ren ewabl esfinan c ing.
•:. The World Bank/GEF projects have also tried to address broader issues related to mark et development for rene wab les.This included support for policy development through assistance to regulatory agencies, encourag ing inclusion of rura l elec tr ification in countries' policy planning, import duty reduction on RE equipme nt, and power sector reform etc.
•:. Need for infrastructure: One of the objecti ves ofthe most of the World Bank/G EF project s has been to develo p market infrastructure for RE equipme nts. The other important issue dealt with successfully by the World Ban k is development of standards, testin g, and cert ifica tion facilities.
•:. Exit strategy: Design ofan exit strate gy is another important requirement for any RE support project. Grant and subsidi es shou ld be phased out smoothly . The mark et can cras h, lea vin g deep scar s as happen ed in case of World Ban k/G EF so lar wate r heatin g systems project in Tunisia : the mark et started falling as soon as the proj ect was over and redu ced by 50 per cent within two years of project -ending, and continued to fall thereaft er also.
•:. Implem entation expe rience and roleofstake holders:Expe rience hasbeen important but sti ll limited with international agenc ies. It is best summa rise d by Martinot(200 I):
'M ost World Bank Gro up project s are relati vely new and offe r little implem entation expe rience so far. Five leading projects in Bangladesh, the Dominican Republic, India, Sri Lanka and Vietnam have install ed morethan 8,000 systems.Ther e is still a long way to go; installation tar get s fro m all project s total more than500,000.'
Painu ly& Wohlgenuuh /67
.:. Importance ofbuilding both dem and and supply side : Wh ile developi ng the marke t for RE, stres s in most projects has been on the supply side. Even if there is pote ntial, demand may not materialise. Therefore, it is equa lly imp ortant to look at the demand side and design appropr iate stra tegies. In many cases the mechanis ms need ed may be unique to the typ e of renewa ble and socio-econo mic pro file of the end users. That mean s the project s seeking to develop and test mech ani sm s shou ld be flexibl e enoug h to accommodate spec ific need s and yet with potent ialfor applicatio n in a large area . It is importa nt to note that no sing le mech ani sm can succeed everyw here, and there fore a variety of mechani sm s on the supp lyas wellas end user side are need ed.
•:. Capacity Build ing and awareness raising: Capacity bui ld ing of financ ia l instituti on s, investors and other stakeho lders depend ing on thei r familiarit y with the RE technol ogy, awareness raising of stakeholde rs, including customers of the techn ology, are othe r areas of importanc e, which traditionallyhavebeen apart of the strategy in most REproject s.
•:. Risk sharing/mitiga tion: One of the objec tives ofthe financ ialapproac hes is risk mitigation or risk shar ing with the financia l institution in devel op ing countries.In some projects,the approac h initiall y taken had to be aba ndo ne d. Therefore, be fore zeroing on an approac h, it is best to consult the stake ho lde r financia l institution rath er than passing on the approach asfaitaccompli.
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