Solar Home Systems in Bangladesh

Chapter 12 Solar Home Systems in Bangladesh Maliha Muzammil and Raihan Uddin Ahmed Abstract Access to electricity is an important part of the Sustainable Energy for All (SE4ALL) initiative under the United Nations. Globally about 1.2 billion of people are deprived of electricity, mostly concentrated in rural areas of developing countries including Bangladesh. About two-thirds of the rural population in Bangladesh are yet to enjoy this basic utility. Grid-based electricity is challenging for various reasons including technical, and commercial issues. Development partners including the World Bank started a formal approach for promoting renewable energy and more than 3 million solar home systems have been installed in the off-grid areas of Bangladesh. By replacing kerosene, solar energy has not only facilitated people with an option of a much greater quantity of far-higher quality of lighting, at a lower cost, it has reduced the safety and health risks associated with kerosene, particularly among women and young children. However, considering that only about 10% of people in off-grid areas have adopted solar systems to date, the remaining potential for carbon emission reduction and adaptation is large. In Bangladesh, solar systems are a proven renewable energy technology in dealing with climate change and enhancing socio-economic development. However, there are some remaining technical, commercial and attitudinal constraints which need to be addressed to ensure sustainable development. Keywords Solar home systems Solar
Electricity
Rural
Energy
Kerosene Maliha Muzammil, Environmental Change Institute, University of Oxford, South Parks Road, Oxford, OX1 3QY, United Kingdom, Corresponding Author, e-mail: maliha.muzammil@ouce. ox.ac.uk. Raihan Uddin Ahmed, Infrastructure Development Company Limited (IDCOL), UTC Building, 16th Floor, 8 Panthapath, Kawran Bazar, Dhaka-1215, Bangladesh. © Springer Nature Switzerland AG 2019 S. Huq et al. (eds.), Confronting Climate Change in Bangladesh, The Anthropocene: Politik—Economics—Society—Science 28, https://doi.org/10.1007/978-3-030-05237-9_12 175 176 12.1 M. Muzammil and R. U. Ahmed Introduction Bangladesh has made remarkable progress in the installation of solar home systems (SHS) in rural areas. Bangladesh has been able to create 114,000 jobs, making it the 6th largest renewable energy-related workforce in the world in 2013 (IRENA 2014), similar in size to Spain’s, according to a recent report by the International Renewable Energy Agency. According to Christine E Kimes, acting head of the World Bank in Bangladesh in 2014, the SHS programme has led to a reduction of carbon dioxide emissions by more than 538,000 tonnes a year. This chapter will set out the historical background to solar energy and then go on to analyse financial and institutional aspects and ambient regulatory measures. In addition, this chapter will try to reflect on the benefits of SHS and the low carbon, resilient development (LCRD) opportunities that they bring for Bangladesh, as well as the issues that are appearing as emerging challenges. In Bangladesh, only 62% of the population have access to grid electricity, and generation per capita is one of the lowest at 321 kWh per annum (Islam 2014). Almost 15 million rural households use kerosene lamps in their homes in the absence of electricity (Rai et al. 2015b). To overcome these challenges, the Solar Home System (SHS) programme in Bangladesh has grown to be one of the largest off-grid electrification initiatives in the world (Khandker et al. 2014). Moreover, with more than 70,000 solar home systems being installed every month, the programme has been described by the World Bank as the ‘fastest growing SHS programme in the world’ (World Bank 2014). The Infrastructure Development Company Ltd. (IDCOL) started its SHS programme in 2003 to ensure access to clean electricity for the energy starved rural areas of Bangladesh (IDCOL 2014). As of April 2014, three million units had been installed under IDCOL’s SHS programme (Khandker et al. 2014; IDCOL 2014). IDCOL now has a new target of reaching 6 million SHS beneficiaries by 2017, with an estimated capacity of 220 MW (IDCOL 2014). The fact that IDCOL outgrew its own target of 50,000 units installed in 5 years, within a month and went on to install three million units by 2014 (Khandker et al. 2014) attracted both government and international donor funding in the long term. IDCOL’s success in ensuring such large-scale coverage was possible due to the subsidies provided by donors to facilitate SHS adoption in remote and off-grid areas (Khandker et al. 2014). Around 10% of off-grid areas have been reached, which means there is still ample scope for SHS expansion (Khandker et al. 2014). IDCOL’s SHS programme has been particularly successful because it combines price support with quality assurance, installation, and after-sales support as a one stop solution to households (Khandker et al. 2014). 12 Solar Home Systems in Bangladesh 12.2 177 Basics of Solar Home System Technology A solar home system (SHS) offers households in developing countries such as Bangladesh a convenient supply of electricity for lighting and running small appliances (e.g., small television sets, radios, and mobile phone chargers) for about 3–5 hours a day, using energy from sunlight. Typically, an SHS consists of a small solar photovoltaic (PV) panel, charge controller, battery, compact fluorescent lamp (CFL) or light-emitting diode (LED) lights, and a universal outlet for charging mobile phones and small appliances (Fig. 12.1) (Khandker et al. 2014). The solar panel, also known as the photovoltaic (PV) module, is the heart of any SHS. Usually installed on the roof of a house at an angle designed to collect maximum sunlight, it converts sunlight into electrical energy. The rechargeable battery stores electricity for use at night and on cloudy days, and provides the voltage needed to run appliances; in Bangladesh, appliances are designed for 12 volt (V) operation (Khandker et al. 2014). The charge controller, positioned between the solar panel and the battery, protects the battery against overcharging (e.g., on bright sunny days) and discharging below a certain cut-off voltage, which can cause permanent damage. Watt-peak (Wp) is the unit of measure used to express the capacity or power generated by the SHS. The capacity range for most SHS units installed in Bangladesh is 20–120 Wp. A system with a 50 Wp capacity can power four lights, a mobile phone charger, and a television set (Khandker et al. 2014). Fig. 12.1 Schematic diagram of an operational SHS. Source Khandker et al. (2014: 11) 178 12.3 M. Muzammil and R. U. Ahmed History and Background of Solar Energy in Bangladesh In the 1980s, an assessment about the application and technological aspects of solar home systems (SHS) was initiated at Bangladesh University of Engineering and Technology (BUET), Dhaka University (DU) and Bangladesh Atomic Energy Commission (BAEC). In 1988 BAEC launched the Sandwip Solar PV Demonstration Program with money from the Bangladesh Government, which operated satisfactorily until it was significantly damaged by cyclones and water surges in April 1991. In 1993, the Rural Electrification Board (REB) was initiated to promote Renewable Energy Technologies in the Karimpur and Nazarpur unions under the Narsingdi Sadar Thana project of Narsingdi District, with financial support from the French Government (Islam 2012). The Local Government Engineering Department (LGED) subsequently installed solar systems in 1998 with financial support from UNDP. The Infrastructure Development Company Ltd. (IDCOL) also started to promote dissemination of SHS in remote rural areas through the Rural Electrification and Renewable Energy Development Project with financial support from the World Bank, Global Environment Facility (GEF), KfW, GTZ, ADB and IDB from 2003 (Islam 2012). BOX 12.1: IDCOL SHS at a Glance. Source IDCOL (2016). Programme started: January 2003 Programme target: 6 million SHSs by 2018 Programme achievement: 3.6 million by April 15 No. of beneficiaries: 15.50 million people Fossil fuel Saving: 200,000 ton/year worth $ 200 million Job creation: 70,000 people IDCOL investment: USD 600 million Solar energy is assumed to have the potential to serve a central role in solving the power crisis in Bangladesh. Bangladesh is situated between 20.30 and 26.38 degrees north latitude and 88.04 and 92.44 degrees east, which is an ideal location for solar energy utilisation (Hoque et al. 2013). Bangladesh receives an average daily solar radiation of 3.82–6.42 kWh/m2 (Ullah et al. 2012). The country has a total area of 147,570 km2. With a solar system efficiency of 10%, a total of 5.2  109 kWh units of electricity can be generated annually (Khan/Khan 2009). Ensuring access to electricity at a satisfactorily level is a pivotal challenge for Bangladesh in achieving its vision of progressing from its recent status of becoming a lower middle income country to becoming a middle-income country by 2021 (World Bank 2015), yet nearly three-fifths of rural households still lack access to electric power. The country’s limited ability to generate and distribute enough 12 Solar Home Systems in Bangladesh 179 grid-based electricity to meet growing demand (Barnes 2007; Zerriffi 2011), combined with its ample sunshine and high levels of energy poverty, point to a large potential market for SHS in poorer off-grid areas (Khandker et al. 2014). 12.4 Financial and Regulatory Aspects of SHS in Bangladesh Solar systems of 40–85 Wp in size are mostly used in the rural areas in Bangladesh. The cost of a 40 Wp system is around 17,000 Bangladeshi Taka (BDT), whereas that for an 85 Wp system costs about BDT28,000 in cash (IDCOL 2016). The average payback period is assumed to be 4.2 years and varies between 3.1 and 6.5 years (Hoque et al. 2013). The cash sale option is considered to be the best option to achieve the facility at the lowest cost. However, there are some other types of financing schemes that are provided by Partner Organisations to the customers, including the following (IDCOL 2016): Option 1: 15% down payment and the remaining 85% payable in 36 monthly instalments with a flat rate service charge of 12%. Option 2: 25% down payment and the remaining 75% payable in 24 monthly instalments with a flat rate service charge of 10%. Option 3: 35% down payment and the remaining 65% payable in 12 monthly instalments with a flat rate service charge of 9%. Option 4: 25% down payment and the remaining 75% payable in 12 monthly instalments without any service charges (only for mosques/temples/churches) (Fig. 12.2). Component % of total SHS system cost (%) Battery Solar PV panel 3 years after sales service and instalment collection Overhead cost Other accessories Lampshades Charge controller Fluorescent lamps Structure to install solar PV 30.00 28.00 13.50 10.00 7.50 5.00 3.00 2.00 1.00 SHS beneficiaries are required to make a down payment of only 10% to establish ownership of the system, while monthly instalments are made through a micro finance institution (MFI) to pay off the remainder. These monthly instalments are kept within the households’ affordability range (Rai et al. 2015a). Previously, many 180 M. Muzammil and R. U. Ahmed Fig. 12.2 Overview of SHS financing process of IDCOL. Source IDCOL (2016: page). Permission may be needed banks had been unwilling to lend to the poor or required a large down payment with exorbitant interest rates. However, with IDCOL’s support, the MFIs are able to access loans and provide the households with affordable credit (Rai et al. 2015a; Khandker et al. 2014). IDCOL also provides a refinance credit scheme so that MFIs can pay suppliers immediately. MFIs retain a 10% equity stake in the project, with the households owning another 10% equity and IDCOL providing the remaining 80% in the form of refinancing credit (Rai et al. 2015a). However, even though the upfront grant portion helps the poor gain access to solar energy, the most marginalised populations are still not able to afford it, as it is not specifically targeted to the ultra-poor populations (Rai et al. 2015b). Some aspects of the Bangladesh SHS programme are quite unique and may be difficult to replicate in other countries (Sadeque et al. 2014): the SHS programme in Bangladesh benefitted largely from a strong pre-existing network of competitive microfinance institutions (MFIs) with a deep and wide-ranging reach in rural areas, and a well-developed system for rural households to access credit. Other factors contributing to the success of the programme include the high density of Bangladesh’s rural population which allows for competition and economies of scale; the rising rural incomes and remittances from abroad; and the existence of entities interested in doing business with rural customers and the country’s entrepreneurial culture (Sadeque et al. 2014). 12 Solar Home Systems in Bangladesh 181 12.4.1 Incentives that Enable or Constrain Low Carbon Resilient Development (LCRD) Investments Low-carbon development is an approach that focuses on reducing greenhouse gas emissions through the development process. Resilience refers to building the capacity of society to recover after climate-related shocks and is associated with adaptation to climate change. As a result, low carbon resilient development involves bringing together the three policy areas of climate change mitigation, adaptation and development to find synergies and ‘win-wins’ at the level of a policy, an objective or within a financing mechanism (Fisher 2013). Low-carbon resilient development therefore seeks to link all three of these policy objectives in the context of national development (Fisher 2013). The Solar Home System (SHS) programme provides low-carbon energy in supporting co-benefits between some of these agendas, even though it was not originally intended as a comprehensive low-carbon resilient development approach. Bangladesh’s Climate Change Strategy and Action Plan (BCCSAP) includes both adaptation and mitigation approaches, and a plethora of strategic documents at the national level indicate a widespread interest by the government on how they can operationalise both aspects of the climate change agenda at the national level (Fisher 2013). Bangladesh’s Intended Nationally Determined Contributions (INDCs) set out a number of mitigation actions that will help limit the country’s GHG emissions. These mitigation actions will play a key role in realising the move to a low-carbon, climate-resilient economy and to becoming a middle-income country by 2021. Bangladesh’s existing strategies and plans, in particular the Bangladesh Climate Change Strategy and Action Plan (BCCSAP), Renewable Energy Policy 2008, the Energy Efficiency and Conservation Master Plan (EE&C Master Plan), the forthcoming National Adaptation Plan, the National Sustainable Development Strategy, the Perspective Plan (Vision 2021) and the Sixth (and forthcoming seventh) Five Year Plan, the National Disaster Management Plan and the Disaster Management Act all lie at the heart of the INDCs (MoEF 2015). LCRD investments involve a wide range of actors in both policymaking and implementation. Delivery of investments is shaped by how these various actors work with ideas, power and resources to make and implement decisions. Different actors have wide ranging incentives to invest in renewable energy in Bangladesh. The SHS programme primarily set out to achieve the objective of energy access. The government’s policies and mandates acted as drivers for more widespread dissemination of SHS (Rai et al. 2015a). The SHS programme is backed by Bangladesh’s national strategy, which calls for achieving universal access to electricity by 2021. Electricity has also been a critical input towards achieving the Millennium Development Goals (MDGs), affording households benefits such as clean energy for high-quality lighting, which improves health and enables children to study for longer periods after sunset, greater farm- and non-farm productivity, and women’s empowerment through better time allocation and access to information (Khandker et al. 2014). Affordable and clean energy are also part of the 182 M. Muzammil and R. U. Ahmed Sustainable Development Goals (SDGs) which aim to end poverty, fight inequality and injustice, and tackle climate change by 2030 (UNDP 2016). The Sustainable and Renewable Energy Development Authority (SREDA) was also set up to further promote and develop the sustainable and renewable energy landscape. Fiscal incentives, such as reduced import tariffs and taxes on renewable energy products, and policies to encourage private sector investment in the power sector using the independent power producer (IPP) model (Rai et al. 2015a), were all important factors in enabling widespread growth of the SHS programme. The Bangladesh Bank (BB) is the first central bank in the world to actively provide dedicated resources for sustainable development. The BB first set up a refinancing scheme for commercial banks on finance for green energy, including solar and biogas projects in 2005. In 2010, it introduced a US$26 million refinancing facility for investments in green energy and effluent treatment plants, thus allowing commercial banks to access capital at lower rates, increasing the profitability of green lending (Rai et al. 2015a). The Central Bank of Bangladesh allocates funds to commercial banks based on three mechanisms: refinancing, spontaneous financing and incentive-based financing (Masukujjaman/Aktar 2013 in Rai et al. 2015a). 12.5 Institutional and Policy Arrangements by the Bangladesh Government The Renewable Energy Policy was approved by the Bangladesh government in December 2008 and became effective from 2009. The objectives of this policy are to harness the potential of renewable energy resources and disseminate it to the people, and to enable, encourage and facilitate both public and private sector investment. The policy has set the target of generating 5% of electricity (800 MW) by end of 2015 and 10% of electricity by end of 2030 from renewable energy sources (GoB 2008; Power Division 2013; Christian Aid 2014). Solar energy is expected to contribute to around 500 MW of renewable electricity in order to achieve the 800 MW target (GoB 2008). Key objectives of the Renewable Energy Policy (GoB 2008) include: harnessing the potential of renewable energy resources and dissemination of renewable energy technologies in rural, peri-urban and urban areas; facilitating private sector investment in renewable energy projects; and scaling up contributions of renewable energy to electricity production. In addition, the policy facilitates various types of tax and tariff waivers for the renewable energy industry in Bangladesh. In 2007, the government also approved the Remote Area Power Supply System (RAPSS) Guidelines for power generation and the distribution and supply of electricity in remote and isolated areas. Bangladesh has developed a diverse set of policies to encourage energy access, the most recent of which is the government of Bangladesh’s vision to ensure ‘Electricity for all by 2021’ (Power Division 2013). Up to 70% of Bangladesh’s total commercial energy is provided by natural gas and the rest by imported oil 12 Solar Home Systems in Bangladesh 183 (Islam 2014). Natural gas is in short supply, which is another reason the government has been keen to push the renewable energy agenda forward. Access to electricity has also been a major factor achieving the Millennium Development Goals in Bangladesh (Khandker et al. 2014). Recognising urgent energy challenges, Bangladesh joined the global coalition under the United Nations’ Sustainable Energy for All Initiative, which calls on governments, businesses and civil society to achieve three goals by 2030 (World Bank 2012): universal access to energy, double the renewable energy share of power produced and consumed from 15 to 30%, and double the energy efficiency improvement rate. Bangladesh also published an ambitious INDC in 2015, in which it has outlined its intention of an unconditional contribution to reduce GHG emissions by 5% against Business as Usual (BAU) levels by 2030 in the power, transport and industry sectors, based on existing resources (MoEF 2015). The INDC also includes a conditional 15% reduction in GHG emissions against BAU levels by 2030 in the power, transport, and industry sectors, subject to appropriate international support in the form of finance, investment, technology development and transfer, and capacity building (MoEF 2015). In order to meet the unconditional contribution set above, Bangladesh already has a number of activities and targets driving action to reduce GHG emissions, including the Solar Homes Program. Under this programme, access to off-grid electricity is provided to rural areas and around 4 million Solar Home Systems have already been distributed across the country (MoEF 2015). In addition, aggressive targets have been set for scaling up the potential for solar irrigation pumps, solar mini and nano grids to address energy access in off-grid areas (MoEF 2015). Keeping in line with the vision of ensuring universal access to electricity by 2021, addressing carbon emissions, as well as reducing diesel imports and subsidies and diversifying fuel options as outlined in the 2010 Power System Master Plan, the government of Bangladesh has been actively prioritising renewable energy by establishing a national policy and financial incentives to implement it (Rai et al. 2015a). The Bangladesh Bank, the Central Bank of the country, has a green energy portfolio, and IDCOL was set up to catalyse private sector renewable energy finance. Bangladesh’s government has created financial incentives for investment in the renewable energy sector, including 20-year tax holidays, reduced levies on importation of renewable energy technology and reduced taxes on local manufacture and assembly of renewable energy equipment (Islam 2014). Other incentives, including feed-in tariffs and incentives to attract foreign investment in the sector, are under consideration (Islam 2014). Moreover, the private sector has been allowed to generate electricity from renewable sources and sell to chosen customers at preferential rates (Islam 2014). Concessional finance and capital buy-down grants have also been made available for renewable energy projects (Rai et al. 2015a). While implementing the Renewable Energy Policy 2008 and RAPSS Guidelines 2007, the need for an independent authority was widely felt. Accordingly, in December 2012, the government enacted legislation in Parliament to establish the SREDA. On 22 May 2014, SREDA was formally launched (SREDA 2014). The 184 M. Muzammil and R. U. Ahmed objectives of SREDA are to promote, develop and co-ordinate renewable energy and energy efficiency programmes in the country. This institution will also prepare short, mid and long term plans to meet government targets. It has set a target to achieve 2000 MW of electricity from renewable energy by 2021, i.e. 10% of total power generation. It also emphasises the need to improve energy intensity in 2030 by 20% compared to the 2013 levels, which is expected to result in savings of 95 million tonnes of energy during this period. Energy savings will total BDT768 billion in total or an annual average of BDT51 billion at the current weighted average natural gas price (SREDA and Power Division 2015). Renewable energy wings have also been set up at other organisations to assist in the implementation of renewable energy programmes and activities. Key Agencies and Actors The Sustainable and Renewable Energy Development Authority (SREDA) was set up as a focal point for the development and promotion of sustainable renewable energy for Bangladesh and is at the centre of Bangladesh’s renewable energy landscape (Rai et al. 2015a). SREDA monitors entities that promote and finance energy projects, and supports public-private partnerships in renewable energy projects (Power Division 2013). All activities relating to rural and renewable energy fall within the remit of the Ministry of Power, Energy and Mineral Resources (MPEMR). While the administrative oversight and support to SREDA is provided by the Ministry of Power, Energy and Mineral Resources, the Ministry of Finance manages the budget for SREDA, otherwise known as the ‘Pool Fund’, which is supported by international co-operation. The Ministry of Finance is also in charge of the renewable energy tax incentives and provides capacity building to financial institutions involved (Rai et al. 2015b). The Central Bank of Bangladesh is a key financial intermediary in the renewable energy landscape (Rai et al. 2015a). It is the primary regulator of the country’s monetary and credit system, and oversees all banking and non-banking financial institutions. It recently diversified into green lending, providing concessional finance to the financial sector in the form of green credit. The Infrastructure Development Company Ltd. (IDCOL) is a non-banking financial institution which, since its inception, has played a major role in Bangladesh’s renewable energy development (IDCOL 2014). It is hosted by the Ministry of Finance and governed by an independent board of directors from the Ministry of Finance, the Ministry of Information and Communication Technology, and the Ministry of Power, Energy and Mineral Resources (Rai et al. 2015a). By using donor funding from both domestic and international sources, IDCOL offers a range of measures including grants, subsidies, concessional loans and technical services for SHS (Fig. 12.3). 12 Solar Home Systems in Bangladesh 185 Fig. 12.3 Actors in Bangladesh’s renewable energy policy landscape. Source Rai et al. (2015a: 15) 12.5.1 Institutional Mechanisms IDCOL is a government-owned, public-private partnership, financial institution mandated to provide long-term financing for private infrastructure projects (Islam 2014; Rai et al. 2015a). It works in partnership with development partners, suppliers of solar home systems, SMEs, and participating MFIs, which are considered as Partner Organisations (PO). IDCOL’s concessionary financing and grant support, technical assistance, quality assurance and capacity development of stakeholders were fundamental to the success of the SHS programme (Islam 2014). IDCOL’s innovative delivery model and the availability of and access to funding from donors were key in contributing to the major success of IDCOL’s SHS Program (Rai et al. 2015a). Poor households are able to afford and access energy services by using microcredit financing from MFIs (microfinance institutions), as there are no upfront costs or payments for the operation and maintenance of the solar home systems (Rai et al. 2015a). IDCOL has used multiple means to target economic and financial barriers (as well as institutional, regulatory or information barriers), including grants, debts (concessional and non-concessional loans), equity and risk-mitigation instruments (Kato et al. 2014). The SHS programme has been able to unlock funding in the form of long-term soft loans and equity (Rai et al. 2015a). Awareness of demand for SHS in off-grid areas, and the Bangladesh government’s vision for energy access, have been key factors in supporting the programme’s exponential expansion (Fig. 12.4). The World Bank, Asian Development Bank (ADB), Islamic Development Bank (IDB), Department for International Development (DFID), Japan International Cooperation Agency (JICA), KfW Group, Gesellschaft für Internationale 186 M. Muzammil and R. U. Ahmed Fig. 12.4 Actors in IDCOL’s financing supply chain. Source Adapted from Rai et al. (2015b: 34) Zusammenarbeit (GIZ), Global Environmental Facility (GEF), United States Agency for International Development (USAID), and Global Partnership on Output Based Aid (GPOBA) all provide funding to IDCOL for the SHS programme, while the Bangladesh Climate Change Resilience Fund (BCCRF) provides its own grants (IDCOL 2014; Rai et al. 2014b). IDCOL has a total of 47 Partner Organisations (POs) all over the country, which are responsible for selling and installing solar home systems. These include private SMEs, MFIs, and NGOs. Pos, which were initially chosen for their widespread coverage and offices in rural areas, along with their experience in microcredit programmes, have enabled far reaching energy access for the poor (Rai et al. 2015b). Partnering with organisations with better coverage in rural areas can help ensure credit disbursement, credit collection, and after sales services (Khandker et al. 2014). IDCOL recruits the POs, which are responsible for selecting potential SHS and Solar Irrigation Pump (SIP) buyers in off-grid areas, installing the systems, providing after sales service and maintenance, and developing a robust market chain (Khandker et al. 2014). 12 Solar Home Systems in Bangladesh 187 Another reason for SHS programme success is the stringent screening by IDCOL’s PO selection committee, which assess the POs against eligibility criteria for inclusion in the programme. IDCOL has a technical standards committee that approves the suppliers and the SHS equipment to be used. The SHS programme has made systems affordable through a combination of consumer credit and (declining) subsidies (Khandker et al. 2014). In order to keep the system process affordable, IDCOL provides POs with capital buy-down grants; through market competition, the grants are passed on to household buyers in the form of a lower price. Buyers are also offered microcredit to make SHS more affordable. All these incentives work together to create a market chain that ensures quality products that are affordable and locally serviceable (Khandker et al. 2014). 12.6 Benefits and Growth of Solar in Bangladesh The SHS programme has been particularly successful because it combines price support with quality assurance, installation, and after-sales support as a one stop solution for households (Khandker et al. 2014). IDCOL involves multiple stakeholders, uses multiple instruments, and targets multiple barriers to increased deployment of low carbon and resilient SHS (Kato et al. 2014). Over the years, core agencies such as the Central Bank of Bangladesh have also begun to regulate and channel bank and non-banking finance towards renewable energy investments (Rai et al. 2015b). The bank plays both a regulatory and a licensing role with all financial intermediaries, commercial banks, and financial institutions within the country, including the regulation of IDCOL (Rai et al. 2015a). Actions and policies implemented by the government of Bangladesh and the Central Bank of Bangladesh also align with the key policy areas for energy access. Installing a SHS on the rooftop of a house can have immediate impacts: it enables the household to have light after nightfall, making it easier to study in the evenings, and allows people to watch TV and be informed of many useful and socially desirable things happening around them, perhaps inspiring them to take part in such activities (Khandker et al. 2014). Furthermore, it can lower levels of household air pollution (HAP) through reduced use of kerosene Solar electricity also has the potential positive externality of replacing fossil fuels for electricity generation, thus contributing to lowering carbon dioxide (CO2) emissions and the harmful effects of climate change. According to the World Bank (2012), by late 2012, an average 8% of off-grid rural households had adopted SHS. The divisions of Barisal and Sylhet had the highest take-up of SHS, at 13.4% and 13.2%, respectively; while the lowest adoption rates were found in Rajshahi and Rangpur, at 3.9% and 3.3%, respectively. Figure 12.5 clearly reflects the surge in SHS adoption in recent years, particularly from 2009 onwards. As of 2014, the country’s capacity to generate 188 M. Muzammil and R. U. Ahmed Fig. 12.5 SHS adoption by year from sample data. Source Khandker et al. (2014: 29) electricity from renewable sources such as solar energy, biomass and wind-based plants, stands at 363.8 megawatts, which is 3.51% of the total power generation capacity (Ministry of Finance 2015). In its inception year (2003), IDCOL installed 11,697 SHS, and between then and 2006, there was linear growth in the adoption of SHS by rural people. This take-up of SHS grew exponentially between 2007 and 2013. However, as the technology and management are well structured, a steady trend in adoption is projected from 2014 to 2018 (on an average about 600,000 SHS annually), which is around 500% higher than was seen at inception. Between 2012 and 16, the Bangladesh government has opted to generate 500 MW of energy from renewable energy sources; this is known as the 500 MW programme (SREDA 2016). Through this programme, 340 MW of energy is planned to be generated from commercial solar power projects, whereas, in the social sector, solar power projects are expected to contribute about 160 MW. SHS has been considered for commercial solar power projects. The other projects under this programme include solar irrigation, mini-grids and solar parks. Out of a total of 500 MW, the estimated contribution of SHS is about 30 MW (Islam 2012). 12.7 Emerging Challenges and Opportunities The SHS technology is now familiar to about 12 million rural people in Bangladesh. To ensure quality control, a testing lab with international standards has been set up at BUET. Policies including the Renewable Energy Policy, SREDA, the 500 MW Goal, tax waivers for SHS accessories and soft loan facilities through Bangladesh Bank, demonstrate strong government commitment to the sustainability of SHS. The availability of a considerable number of competent solar accessory suppliers indicates the sustainability of the industry in Bangladesh. At present, energy utilisation in Bangladesh is about 0.15 W/m2 land area whereas the availability of solar energy is 12 Solar Home Systems in Bangladesh 189 above 208 W/m2 (Assignment point 2015). Above all, there is still the bitter reality of the existence of about 50 million rural Bangladeshis without electricity, which clearly reflects the market demand (Assignment point 2015). Currently, in addition to the IDCOL SHS programme, a number of other SHS initiatives (both formal and informal) are operating in Bangladesh, where reliability or sustainability have appeared as concerns. The introduction of low quality batteries, panels and accessories have become a concern. Apart from the technological challenges of marketing SHS in remote areas, financing a solar power programme is challenging for a number of reasons. Given the cost of units and distribution problems, many poor households would find it difficult to purchase a solar unit out of their own pockets (Shahidur et al. 2013). Above all, due attention is required for the proper disposal of expired lead acid batteries and PV panels. The potential environmental health and safety hazards caused by improper disposal of expired lead acid batteries and PV panels could tarnish the success of SHS and the renewable energy industry. One recent challenge has been the rise of grid-connected electrical connections through Bangladesh Rural Electrification Board (BREB) since the end of 2015, with monthly new connections in range of 300,000–500,000 per month against earlier monthly connections of 100,000 per month. This may slow down take-up of new SHS. 12.8 Conclusions Bangladesh’s success in the field of off-grid renewable energy, specifically with SHS, has become a global model. The government, private sector and public entities have made significant progress in developing a sustainable renewable energy industry including SHS. However, according to Schwan (2011), there are some issues relevant to the economic and financial aspects, market performance and legal and regulatory aspects, which require further attention to increase the effectiveness of SHS in Bangladesh. For example, subsidies for fossil fuels, limited access to credit and inadequate distribution networks, as well as lack of industry-wide standards (Schwan 2011). Further research would be needed to identify which of these barriers still remain an issue for further expansion of SHS in Bangladesh. The IDCOL case study provides a number of key lessons that can be applied to energy access efforts in other countries (Rai et al. 2015b): • A strong policy foundation can drive the stakeholders along the value chain: the uptake of SHS in Bangladesh was largely driven by strong policy measures, targets and fiscal measures from the national level, which created incentives for actors across all levels of the value chain. The recent creation of SREDA to promote the development and use of renewable energy is one such example of a strong push from the higher level towards low carbon, resilient renewable energy pathways. 190 M. Muzammil and R. U. Ahmed • An innovative, integrated, and holistic financing model can create win-win opportunities for all stakeholders in the value chain: IDCOL’s SHS programme offers a complete package that incentivises market creation, creating delivery networks, access to capital, quality assurance, after-sales service, training and institutional strengthening support for partner organisations. • Increased support from donors allowed the programme to reach the poor, enhance market development, and catalyse finance for smaller players: Grants and subsidised credit were crucial within the IDCOL model to make SHS affordable for the target population and the poorer beneficiaries. Grants, low-interest loans, and microcredit arrangements also helped small-scale enterprises that have difficulty accessing finance from commercial markets access that finance. • IDCOL’s success lies within its transparent and accountable system: Its Technical Standards Committee, the partner organisation (PO) selection committee, and the monitoring and inspection team that reviews the reports from the PO, were essential in gaining increased credibility and support from the donors. • Enforcing technical quality: Strict quality standards, a 20-year warranty for the solar panel and a 5-year warranty for batteries, and strong enforcement of these standards ensured the uptake and popularity of more SHS amongst consumers (Rai et al. 2015b; Sadeque et al. 2014). • Financing instruments used in a sequential model can help in developing a long term sustainable financing structure that remains viable (Rai et al. 2015b): Due to the demand of SHS in Bangladesh a phase-out subsidy model and concessionary to semi-commercial credit have helped in the transition to a more sustainable financing arrangement, once the market has been developed. • Availability of a buy-back scheme: The presence of a buy-back scheme, which ensures that the PO will repurchase the solar home system within a year if the household obtains a grid connection, allows for further expansion (Sadeque et al. 2014). References Amin, A. 2013. Long-term Finance: Enabling environments and policy frameworks related to climate finance. Asaduzzaman, M., Yunus, M., Haque, A.K.E., Azad, A.K.M.A.M., Neelormi, S. and Hossain, M. A. 2013. Power from the Sun: An Evaluation of Institutional Effectiveness and Impact of Solar Home Systems in Bangladesh. Report submitted to the World Bank, Washington, DC. Assignmentpoint.com 2015; at: http://www.assignmentpoint.com/science/importance-and-impactof-solar-home-system-shs-in-bangladesh.html (6 September 2016). Chairman’s Message, 2014; at: http://www.sreda.gov.bd/index.php/chairman-s-message (6 September 2016). Christensen, K., Raihan, S., Ahsan, R., Uddin, A.M.N., Ahmed, C.S. and Wright, H. 2012. Financing Local Adaptation: Ensuring Access for the Climate Vulnerable in Bangladesh. Dhaka: ActionAid Bangladesh, Action Research for Community Adaptation in Bangladesh, Bangladesh Centre for Advanced Studies, and International Centre for Climate Change and Development. 12 Solar Home Systems in Bangladesh 191 Fisher, S. 2013. Low carbon resilient development in the least developed countries. IIED Issue Paper. IIED, London. Government of Bangladesh 2008. Renewable Energy Policy of Bangladesh; at: http://www. c4learn.com/current-affairs/2015/bangladesh-became-first-country-to-receive-funds-for-solarhome-systems-from-un.html (6 September 2016). Hoque, S.M.N. and Das, B.K. 2013. Analysis of Cost, Energy and CO2 Emission of Solar Home Systems in Bangladesh. International Journal of Renewable Energy Research, 3, No. 2. IDCOL, 2016. Infrastructure Development Company Limited. Internal information. Infrastructure Development Company Limited 2015; at: www.idcol.org. Islam, S.M.F. 2014. “Financing Renewable Energy in Bangladesh” Presentation by Deputy CEO of Infrastructure Development Company Limited (IDCOL) at the West African Power Industry Convention, Lagos, November 2014. Islam, Md.A. 2012. Past Experiences and Current Challenges of Solar Energy Usage in Bangladesh, Loughborough University, UK. Kato, T., Ellis, J., Pauw, P. and Caruso, R. 2014. Scaling up and replicating effective climate finance interventions. Climate change expert group, Paper No. 2014 (1), OECD. Fayyaz Khan, M., and Mahmud Khan, M. 2009. Journal of Electrical Engineering, The Institution of Engineers, Bangladesh, Vol. EE 36, No. II, December 2009. Khandker, S.R., Samad, H.A., Sadeque, Z.K.M., Asaduzzaman, M. Yunus, M. and Haque, A.K.E. 2014. Surge in Solar-Powered Homes: Experience in Off-Grid Rural Bangladesh. Directions in Development; Energy and Mining. Washington, DC: World Bank Group; at: http://documents.worldbank.org/curated/en/2014/10/20286806/surge-solar-powered-homesexperience-off-grid-rural-bangladesh (6 September 2016). Khandkere, S.R. et al. 2013. The benefits of solar home system in Bangladesh-An Analysis from Bangladesh. World Bank Group, Washington D.C, USA. Khandkere, S.R., Khandker, S.R., Samad, H.A., Sadeque, Z.K.M., Asaduzzaman, M., Yunus, M. and Haque, M. 2014. Surge in Solar-Powered Homes-Experience in Off-Grid Rural Bangladesh. World Bank Group, Washington D.C, USA. Ministry of Finance. 2015. Bangladesh Economic Review 2014. MoEF. 2015. Intended Nationally Determined Contributions; at: http://www4.unfccc.int/ submissions/INDC/Published%20Documents/Bangladesh/1/INDC_2015_of_Bangladesh.pdf (6 September 2016). Rai, Neha, Asif Iqbal, Asif Iqbal, Antara Zareen, Tasfiq Mahmood, Maliha Muzammil, Saqib Huq, Noor Elahi. 2015a. Financing Inclusive Low-Carbon Resilient Development: Role of Central Bank of Bangladesh and Infrastructure Development Company Limited, Country Report. London: International Institute for Environment and Development; at: http://pubs.iied.org/ 10139IIED.html (6 September 2016). Rai, Neha, Terri Walters, Sean Esterly, Sadie Cox, Maliha Muzammil, Tasfiq Mahmood, Nanki Kaur, Lidya Tesfaye, Simret Mamuye, James Knuckles, Ellen Morris, Merijn de Been, Dave Steinbach, Sunil Acharya, Raju Pandit Chhetri, and Ramesh Bhushal. 2015b. Policies to Spur Energy Access: Volume 2: Case Studies of Public-Private Models to Finance Decentralized Electricity Access. Golden, CO: National Renewable Energy Laboratory. Sadeque, Z., Rysankova, D., Elahi, R. and Soni, R. 2014. Scaling up access to electricity: the case of Bangladesh. Live Wire 2014/21, World Bank Group, 2014; at: https://openknowledge. worldbank.org/bitstream/handle/10986/18679/887020BRI0Live00Box385194B00PUBLIC0. pdf?sequence=1 (6 September 2016). Schwan, S. 2011. Overcoming Barriers to Rural Electrification, Masters Thesis, Aarhus University, Denmark. SREDA. 2015. Sustainable and Renewable Energy Development Authority website; at: http://www. sreda.gov.bd/index.php/sustainable-energy/renewable-energy/500-mw-solar-development-program (6 September 2016). SREDA and Power Division. 2015. Energy Efficiency and Conservation Master Plan up to 2030. 192 M. Muzammil and R. U. Ahmed The World Bank, 2012. Sustainable energy for all: Gearing up for the road ahead; at: http://www. worldbank.org/content/dam/Worldbank/document/SDN/Sustainable_Energy_for_All_World_ Bank_Outlook_2012.pdf (6 September 2016). The Daily Star. 2015; at: http://www.thedailystar.net/frontpage/bangla-lesson-carbon-polluters129517 August 20, 2015 (6 September 2016). The Daily Star. 2015; at: http://www.thedailystar.net/op-ed/the-potential-solar-home-systemsbangladesh-82837, May 17, 2015 (6 September 2016). UNFCCC. 2015. UNFCCC website on CDM; at: http://cdm.unfccc.int/ProgrammeOfActivities/ poa_db/ZSI6WP0ODGRQ8UYKXB3MHTL957JVAE/view (6 September 2016). World Bank. 2014; at: http://www.worldbank.org/en/news/press-release/2014/06/30/bangladeshreceives-usd-78-million-to-install-an-additional-480000-solar-home-systems (6 September 2016).