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Solar
Fee-for-service Photovoltaic Systems
a report by
Xavier Lemaire
Research Fellow, Centre for Management Under Regulation, Warwick Business School, University of Warwick
Photovoltaic systems present a number of advantages for rural Fee-for-service concessions help to overcome the two main barriers to
electrification in developing countries. First, investments in the implementation of photovoltaic systems at the same time:
generating energy with solar systems are adjustable precisely to the
demand of electricity, which, for many users in rural areas, is quite the high initial investment cost is covered by a fee-for-service
low. Second, solar systems can directly reach end-users in remote concession – the initial investment is not borne by the final user but
locations and deliver electricity without waiting for grid connection. by the concessionaire; and
Third, the cost of solar photovoltaic panels is decreasing; combined maintenance of the systems is covered by a fee-for-service
with the abundance of sunshine in many developing countries and concession – the maintenance is not borne by the final users but by
progressively better designed and larger-scale programmes, this the concessionaire, whose staff have been trained.
tends to make solar home systems an increasingly competitive
method of electrification. Fourth, once maintenance is carried out, Unlike conventional installers, these enterprises are not paid for the
the reliability of solar energy systems is high; depending on the installation of a product (the initial fee covers just a small part of the cost
location, the operating costs of solar energy systems can be lower of installation), but for the delivery of an energy service, and are
than those of stand-alone diesel generators with their dependence paid as long as electricity is provided to the customers. Therefore, the
on the supply of mechanical parts and the requirement of a enterprises are given incentives to ensure the continued operation of the
permanent supply of fuel. systems. That is why these small enterprises can be considered similar to
conventional utilities that would charge a low cost for connection to the
Therefore, photovoltaic systems today are considered to be one of the grid and receive a monthly payment from their customers for the
most efficient and cost-effective ways of delivering energy to meet basic delivery of electricity.
energy needs in remote areas. Nevertheless, the initial investment cost
for these systems remains unaffordable for the majority of the end-users The Question of Costs
living in rural areas of developing countries. Like grid connection, giving The monthly payment is voluntarily kept low (in the range of US$8–12)
access to solar electricity relies on subsidies. As with conventional so as to reach the majority of rural inhabitants, but high enough to
electricity, a commercial and technical network is also needed to keep cover the running costs of the small companies. This monthly payment
the systems running. is often equivalent to what the rural inhabitants already spend on their
energy needs from traditional sources (candles, paraffin, batteries,
How to Promote the Large-scale kerosene) with a higher quality of service (e.g. the light provided by an
Dissemination of Solar Home Systems 8W solar fluorescent lamp can reach 400 lumens compared with 10–40
As conventional utilities do not have knowledge of solar systems, it lumens for a kerosene lamp).
seems sensible to create small utilities specialised in the installation
and maintenance of photovoltaic systems. In this scheme, small Compared with grid electrification, capital costs are generally lower.
local companies benefit from a long-term concession and The systems are smaller and can cover only basic loads (a 50W peak
obtain a loan from the government to buy the systems (often funded panel with a 90–105Ah battery can enable the connection of four
by an international agency). The concessionaire receives a monthly bulbs and a power point for a small TV/radio), but more often than
fee from the clients that covers the maintenance costs and the not, as has been demonstrated in multiple surveys, the majority of
cost of replacing batteries. The concessionaire then acts like a rural inhabitants (or even poor urban inhabitants) cannot afford to
small local utility that provides an energy service in exchange pay for the more important loads and/or buy white goods. The
for remuneration. modularity of photovoltaic systems can also enable the local provider
of solar energy services to follow the needs of users. Compared with
the costs of stand-alone diesel generation (see Table 1), which most
Xavier Lemaire is a Research Fellow at the Centre for
Management Under Regulation at Warwick Business
of the time are very high in rural areas (in the magnitude of 15–32 US
School, University of Warwick. He is also co-ordinator
cents/kWh, and even US$1–3/kWh in the most remote places), the
of the Sustainable Energy Regulation Network (SERN),
fee-for-service solar utility can provide basic continuous loads in a
part of the Renewable Energy and Energy Efficiency
Partnership (REEEP). He has conducted research on
more cost-effective way. Diesel generation remains useful for more
solar projects in remote areas of developing countries,
sporadic important load.
focusing on the institutional and policy framework
needed for the large-scale dissemination of solar home
systems in rural areas. Benefits and Pitfalls of Fee-for-service Companies
E: Xavier.Lemaire@wbs.ac.uk
The creation of small fee-for-service companies seems a good way to
bring a solution to this issue of long-term maintenance, enabling the
© TOUCH BRIEFINGS 2009
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