gy 

Microenterprise
Cover Photos:

Top left: A Nepali woman weaver under a solar-powered light in her home.

(Selco/PIX08143)

Left center: PV powers computers in a rural office in the Dominican Republic. 

(Enersol Associates, Inc./02618843)

Right, top: A Nepali seamstress uses solar-powered light to extend her working hours into the evening. 

(April Allderdice, NREL/PIX07150)

Right, bottom: Indonesian fishermen with catch they store in wind-powered refrigerators. 

(Winrock International/02618848)
Renewable Energy for

Microenterprise

April Allderdice

National Renewable Energy Laboratory

John H. Rogers

Global Transition Consulting, Inc.

November 2000

Published by the

National Renewable Energy Laboratory

1617 Cole Boulevard

Golden, Colorado 80401-3393

United States of America
FOREWORD

It has been said that authentic development is where the moral and the material come togethe

where our compassionate urges to improve the human condition become real through the expans

of commercial practices. In this regard, "Renewable Energy for Microenterprise" is an invaluable

resource. Through clear language and compelling examples, this guide demonstrates how sustain

able energy sources can literally energize social, economic and political development.

Human history is replete with glaring lessons of how individual prosperity and social equity

flow from the efficient application of energy technologies. In an age where poverty remains the

norm for millions upon millions of individuals throughout the world, the search for how to gener

economic growth takes on an importance unparalleled in its significance.

Amartya Sen, the Nobel laureate economist, persuasively argues that development and freedo

are inextricably connected; that the "expansion of freedom is both the primary end and the princip

means of development." In this light, this guide is at root, all about liberating the entrepreneurs an

their families of the world from the tyrannous yoke of poverty by showing how renewable energy

can help power their way to a better quality of life. Such instruction is both noble and necessary.

Those who are familiar with renewable energy technologies and the efforts to commercialize

them know that it is the institutional and financing issues that pose the greatest impediments to

widespread adoption. The writers of this guide not only explain in clear detail, punctuated with 

successful real-world examples, the nature of the financial re-engineering required, but skillfully

map out the entire social-technological-financial landscape that puts the human element in the 

foreground where it rightfully belongs.

This guide is dedicated to the proposition that renewable energy technologies provide a critic

and catalytic role in the realization of social and economic development. At the U.S. Agency for

International Development’s Office of Energy, we are working hard to illuminate the linkages tha

exist between energy and poverty alleviation, improved health and education services, gender an

inter-generational equity, and social justice. Our programs are designed to move energy from the

margins to the mainstream of the development dialogue. Through the publication of this guide, 

the National Renewable Energy Laboratory (NREL) is making a major contribution to this effort 

of making more visible the central role energy plays in sustainable development.

I congratulate and sincerely thank NREL, the authors, and all who have contributed to makin

this guide possible. I urge all development practitioners to read it and use it. And most important

congratulations to the countless entrepreneurs, past, present, and future, who tirelessly prove tha

microenterprise initiatives, fueled by renewable energy technologies, produce macro human 

benefits.

Dr. Griffin Thompson

Director, Office of Energy, Environment, and Technology

United States Agency for International Development
PREFACE

Income generation is one of the keys to improving the quality of life in rural communities.

Microenterprise, and the associated microcredit activity, have proven to be enormously successful 

in unlocking the human capacity in rural villages to provide income, that, in turn, can be used for

improving the quality of life in both home and community. Rural economic development is an

important national and international priority. However, the availability of electricity to support ru

enterprise activities is less than adequate in many countries. In recent years, the development of 

reasonably priced and reliable renewable energy systems has made it possible to enhance the 

production and marketing of a variety of these income-generating activities, through the provisio

of electricity for motive power, lighting, computers, and telecommunications in remote areas. 

A number of international, national, and local institutions, nongovernmental organizations, 

foundations, and private companies are supporting the deployment of renewable energy systems 

in rural communities in the developing world where microenterprise is a national priority.

Because renewable energy is regionally diverse, choosing the appropriate renewable energy 

system will depend on the needs of particular rural sites. Although photovoltaic (PV) lighting sys

tems have paved the way and are being deployed in many remote communities around the world

other small renewable sources of electricity should be considered. One of the objectives of this gui

book is to expand the remote electricity opportunity beyond PV to areas of good wind or hydro

resources. Also, in the near future we expect to see micro-biomass gasification and direct combustion, as well as concentrated solar thermal-electric technologies, become commercial rural options

The three important factors driving the selection of the appropriate technology are the local 

natural resource, the size and timing of the electrical loads, and the cost of the various components

including fossil fuel alternatives. This guidebook reviews the considerations and demonstrates 

the comparisons in the selection of alternative renewable and hybrid systems for powering 

microenterprise activities.

The National Renewable Energy Laboratory's (NREL's) Village Power Program has commissioned this guidebook to help communicate the appropriate role of renewables in providing rural

electricity services for powering rural enterprise. The three primary authors, April Allderdice, Joh

Rogers, and Tony Jimenez, combine the analysis, design, institutional, financial, and deployment

experience that has made them such an effective team. This guidebook should prove useful to tho

stakeholders considering renewables as a serious option for electrifying rural enterprises, and 

associated rural enterprise zones. It may be useful as well to renewable energy practitioners seekin

to define the parameters for designing and deploying their products to meet the needs of rural 

enterprise.

This is the third in a series of rural applications guidebooks that NREL's Village Power Program

has commissioned to couple commercial renewable systems with rural applications, such as wate

health clinics, and schools. The guidebooks are complemented by NREL's Village Power Program

application development activities, international pilot projects, and visiting professionals program

For more information on this program, please contact our Web site, http://www.rsvp.nrel.gov/rsvp

Larry Flowers

Team Leader, Village Power

National Renewable Energy Laboratory
CONTENTS

How to Use this Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .v

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 1. Microenterprise and Electrical Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

What Is Microenterprise? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Microenterprise and Electrical Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Enabling Factors in the Productive Application of Electrical Energy . . . . . . . . . . . . . . . . . . . . . .

Chapter 2. Microfinance and Microenterprise Development Organizations . . . . . . . . . . . . . . . . . . . . .

What Is Microfinance? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Microfinance and Energy System Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Microenterprise Support Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Who Provides Microfinance? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Chapter 3. Renewable Energy System Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

System Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Photovoltaics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Wind Turbine Generators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Micro-Hydro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Diesel, Gas, or Biofuel Generators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Batteries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Inverters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Balance of Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Chapter 4. System Selection and Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Life-Cycle Cost Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Design Considerations and Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Chapter 5. Institutional Approach No. 1: Providing End-User Credit for 

Individual Renewable Energy Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Introduction to Institutional Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Introduction to End-User Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Third-Party Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

All-In-One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Energy Service Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Chapter 6. Institutional Approach No. 2: Financing and Promoting the 

Productive Application of Energy in Community-Scale Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Microenterprise Zones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Renewable-Energy-Based Minigrids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Financial Sustainability in a Community RE System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Chapter 7. Institutional Approach No. 3: Supporting Energy Entrepreneurs . . . . . . . . . . . . . . . . . . . .4

Battery-Charging Stations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Mini-Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

RE System Retailers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Chapter 8. Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Grameen Shakti: Providing Energy Services within a Microcredit Framework 

in Bangladesh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Global Transition Group: Renewable Energy for and through Microenterprises . . . . . . . . . .4

Winrock International: Community-Based Power for Microentrepreneurs in Indonesia . . .5

Intermediate Technology Development Group: Financing Micro-Hydro 

Entrepreneurs in Peru . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Teotonio Vilela Foundation: Franchising PV Power Entrepreneurs in Northeast Brazil . . . .5

World Bank: Strengthening Renewable Energy Financial Intermediaries in Sri Lanka . . . . .5

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
HOW TO USE THIS

GUIDE

Who Is this Guide for?

This guide is targeted to the many types 

of microfinance institutions (MFIs) and microenterprise support organizations that are interested in improving the profitability of their

members’ microenterprises through renewable

energy (RE) technologies. In addition, RE suppliers and technical organizations can use this

guide to strengthen efforts to incorporate microfinance institutions and practices into rural 

electrification programs.

What Is the Purpose of this

Guide?

This guide will provide readers with a broad

understanding of the potential benefits that 

current RE technologies can offer rural microenterprises. Moreover, it will introduce the institutional approaches that have been developed

to make RE technologies accessible to microentrepreneurs and the challenges that these entrepreneurs have encountered. Readers should

then be better prepared to assess the energy

needs of their clientele and select appropriate

technical and institutional approaches to meet

those needs.

What Is in this Guide?

This guide gives a broad overview of the

relationship between microenterprise, microfinance, and energy, with an emphasis on decentralized RE. Chapter 1 begins with a discussion

of the diversity of rural microenterprises and

their energy needs, from lighting for artisan

tasks and selling during evening hours to powering motors for hulling, grinding, or freezing.

This section draws on a body of research that

has studied the economic benefits of electrification. Chapter 2, intended for RE practitioners,

describes the various types of microenterprise

development organizations and programs to

assist rural areas of developing countries. Thi

chapter offers an introduction to the main con

cepts of micro-credit and the MFIs that provid

it. Chapter 3 discusses the components of stan

alone RE power systems, including their func

tion, costs, lifetimes, proper operation and

maintenance, and limitations. The first section

of Chapter 4 contains an overview of life-cycl

cost (LCC) analysis, a valuable analytical tool

used to compare energy system options. The

remainder of the chapter is devoted to discussing the factors that influence the design o

stand-alone RE systems for particular applica

tions. Chapters 5 through 7 focus on three ins

tutional approaches that have been used to

combine RE technologies with microfinance f

the benefit of microentrepreneurs. In the first

arrangement, the MFI finances the purchase o

a small RE system by a rural microentreprene

or household. In the second arrangement, an

MFI, microenterprise nongovernmental organ

zation (NGO), or strategic partner develops a

community-scale facility in which electricity

and other services are provided to microentre

preneurs on a fee-for-service basis. In the thir

arrangement, a credit organization finances a

microentrepreneur owning and operating an

energy supply business, which may be a retai

operation, a battery-charging station (BCS), o

a minigrid. This guide presents advantages 

and disadvantages of each of these institution

approaches, with an emphasis on the experiences of existing programs. Chapter 8 present

five case studies of existing programs and

lessons learned. At the back of the guide 

are a list of references, a bibliography, and a

glossary of terms used in this guide.
INTRODUCTION

Microenterprise is alive and thriving in the

developing world. During the past decade, the

growing success of microfinance as a tool to help

alleviate poverty has brought attention to the

significance of the microenterprise economy.

Microenterprises (i.e., very small businesses)

have been increasingly identified as a key component in rural job creation and the raising of

income in rural economies.

If the microenterprise, or informal, economy

is so vital to rural development, to what extent

have past rural electrification programs targeted

the microentrepreneur? In the planning process

of many rural electrification programs, the existence of rural industry or agricultural electric

demand has been a major consideration in setting priorities for grid extensions. This focus

generally involves large enterprises rather than

the lower-profile microenterprises. Nevertheless, microentrepreneurs have readily taken

advantage of rural electrification programs. A

study from the Philippines Rural Electrificatio

Program found that about 25% of all "resident

connections were using electrification for som

type of income-generating activity. 1

Although microentrepreneurs can benefit

greatly from electrical services, they lack the fo

mal associations, the political connections, and

the financial leverage to affect the rural electri

cation planning process. By representing large

numbers of microentrepreneurs, microfinance

and microenterprise intermediaries are in a po

tion to challenge this trend. Both in its ability t

mobilize the finances of the informal sector an

its vision to target income-generating applications of electricity, the microfinance/microent

prise sector has an institutional capacity that c

help meet the electrification needs of the rural

microentrepreneur. Since the barriers to the ut

lization of renewable energy in microenterpris

are well matched to the capabilities of the micr

finance/microenterprise sector, the role of MF

and microenterprise development organizatio

in rural renewable energy dissemination will b

a major focus of this guidebook.

The Synergy

between MFIs, 

Microenterprise, and 

Renewable Energy

Microfinance:

• Provides credit for power systems, 

tools, machines, working capital

• Provides technical and business 

development training

Microfinance:

• Creates a bridge between 

RE suppliers and market

• Provides financing for RE products

• Brings a gender-conscious 

approach to RE marketing

Microenterprise:

• Constitutes an 

enormous potential 

market for RE supplier

Microenterprise:

• Leads to greater viability of MFI 

through economic development 

Renewable Energy:

• Makes microenterprises 

more profitable

• Provides a loan item with 

potentially low transaction costs

Renewable Energy:

• Provides electricity for businesses

• Provides power today

• Improves the local environment

Microenterprise

Microfinance

Institutions RE

Suppliers

Figure I.1. Graphical representation of the interdependence of microfinance, microenterprise, and

renewable energy
The microfinance sector

s innovative 

re-thinking of modern banking has provided

lending mechanisms specifically for the

microentrepreneur. Spurred by solid successes,

funding agencies such as the World Bank’s 

Consultative Group to Assist the Poorest program and the United Nations Development 

Programme's (UNDP’s) Capital Development

Fund have emerged to finance the growth of the

microenterprise sector. Microfinance institutions

are now challenged to funnel these resources as

efficiently as possible to their members. This

availability of capital, as well as demand for

energy from the microenterprises, creates an

opportunity for microfinance intermediaries 

to include loans for energy systems in their portfolios. Indeed, many already do provide loans

for diesel or gasoline generators. In many cases,

recent technical advances could create an opportunity to substitute cleaner, more cost-effective

RE technologies for traditional electrical energy

systems.

The renewable energy field has developed an

array of rural electrification technologies that, in

addition to being cleaner than conventional

energy sources, are designed to meet the needs

of people without access to grid electricity. The

options range from small, predesigned solar 

and wind system packages that offer a complete

basic electrical system (which can often be

owned by the microenterprise), to larger solar,

wind, micro-hydro, and biomass systems that

offer 24-hour, alternating current (AC) electricity

for ice-making, milling, and other commercial

applications.

The microenterprise development and rural

renewable energy supply sectors seem to be

highly complementary. Many microenterprises

can use electricity to increase their productivity,

enhance their local economy, and improve their

quality of life. Microfinance institutions find in

renewable energy a new loan item that will

strengthen their client microenterprises and

diversify their own lending portfolios. The

renewable energy industry has long suspected

that small, distributed users are a potentially

large market, but applications have been

restricted largely to subsidized government 

initiatives and small-scale commercial efforts. 

lack of adequate delivery capability, particula

for rural credit, has been a barrier to creating

programs that are affordable for end users and

that ensure cost recovery. Access to end-user

financing can open rural microenterprise and

household markets for RE technology; there a

many successful demonstrations of this all ove

the world.

Using microfinance as a framework for

renewable energy dissemination may have ad

tional benefits beyond end-user finance, such 

the following: 

• Microenterprise development practitioners

can facilitate the business development trainin

that needs to accompany the integration of RE

into microenterprises. 

• The existing rural networks of microfinance

organizations can facilitate promotion and hel

build credibility for the new technology.

• The microfinance banking and renewable

energy sectors each have their own networks o

financial intermediaries, which may increase t

overall capacity for financing. 

• Microfinance institutions often have a gende

focus. This may help target RE systems to the

needs of women, who constitute a large portio

of informal economy entrepreneurs.

Where appropriate energy technologies 

can help to increase the profitability of microe

terprises, the microfinance and renewable

energy sectors could be strong allies in facilita

ing dissemination. However, combining micro

nance with rural RE presents several challeng

For example, mismatches can occur between t

goals and operating philosophies of the powe

supplier and the MFI. This guidebook examin

such pitfalls and presents actual responses to

them drawn from a number of successful pioneering efforts that have combined renewable

energy with microenterprise development. Th

guidebook is intended to encourage and supp

these efforts to help rural entrepreneurs take

advantage of renewable energy technologies.
CHAPTER 1.

MICROENTERPRISE

AND ELECTRICAL

ENERGY

What Is Microenterprise?

A microenterprise is a very small business

that produces goods or services for cash income.

In general, microenterprises have limited access

to capital, have few employees, and are often

home-based. Not all microenterprises are familyoperated, but when family members do work for

the business, they frequently do so without pay.

Small cooperatives can also be microenterprises.

Microenterprises usually operate in the “informal sector” of a nation’s economy, not paying

taxes and not being tracked in official government statistics.

Microenterprises may be small and officially

invisible, but they are far from insignificant. In

Chile, one-fourth of the labor force works in

microenterprises; in Columbia, nearly one-half;

and in Bolivia, more than one-half of the labor

force is estimated to work in microenterprise.

From 1992 to 1995, 90% of the new jobs created in

Bolivia were in microenterprise and the informal

sector. 2

Rural microenterprises often suffer from the

general neglect of rural areas. Infrastructure is

usually very limited and characterized by a lack

of good roads, inadequate water supply, minimal telecommunications, and electrical distribution supplied only to concentrated population

centers. Nevertheless, entrepreneurs sell everything from cow dung to cellular phone time. The

very diversity of their activities and the scarcity

of their resources cause microenterprises to form

a uniquely dynamic engine for rural economic

development. 

Microenterprise and Electrica

Energy

The Electrical Needs of

Microentrepreneurs

Access to even limited amounts of electrici

for microenterprises in non-grid-connected ar

can be important to the establishment and

growth of those businesses. Electricity can hav

positive effects on the following:

• Operating Hours—Renewable energy syste

can provide lighting to allow microentrepreneurs to extend their working day and genera

more income. Mobile solar lanterns make it po

sible for street vendors to extend their selling

hours into the evening. Workshops use electri

ity from an RE system to extend their hours an

increase production. 

• Working Conditions—Electrical energy fro

renewable energy systems can offer much

cleaner and safer services than traditional ene

technologies. An electric fluorescent lamp for

area lighting or illumination for particular task

such as sewing, reading, or writing can be con

siderably easier to use than a kerosene wick or

pressurized gas lamp, eliminating the fear of

accident or damage to the home environment

from smoke and soot.

• Consumer Draw—In unelectrified rural are

electric lights, fans, radio, or television can all

draw people to a common location. Those

microenterprises able to access energy in orde

Figure 1.1. A solar lantern is used for agricultura

pest control in India.
provide an environment more conducive to congregation may profit from increased customer

contact and sales.

• Mechanization/Automation—Electricity to

run a motor for a sewing machine or grain mill

can transform a manual subsistence activity into

an income-generating enterprise, or help transform a barely viable enterprise into a more sustainable one. Uniform production and higher

quality may command a higher price, especially

in export markets. Consistent products also

serve to establish a regular clientele.

 Product PreservationElectricity can help

microenterprises tremendously in preserving

products for export or retail. Small rural stores

can expand their inventory by adding items th

need refrigeration. RE-powered icemakers can

assist industries such as fishing and produce.

Crop drying, by small electric fans that circula

air around a heated surface, can also be used t

preserve crops for export. 

• Communications—RE-operated cellular

phones can allow microentrepreneurs to inves

gate city market conditions before they decide

whether to send their product there, and when 

to send it.

Figure 1.2. In this Bangladeshi carpentry shop,

production increased by 200% with an RE system

payback of 2 months.

April Allderdice/02618831

Figure 1.3. Guatemalan woman in a store

powered by a solar system.

Hugo Arriaza/PIX08140

Figure 1.4. Indonesian fishermen with catch; the

fish can be preserved using RE-powered

refrigerators.

Figure 1.5. This Guatemalan workshop uses RE.
• Education—For many children, especially

girls, the lack of electricity translates into a

missed opportunity to attend school. Instead,

their labor is needed for tasks such as fetching

water and fuel during daylight hours. Electric

can both reduce the effort of these menial task

and provide lighting for classes in the evening

Microfinance Bank and NGO Offices

In addition to microenterprises, the nongovernmental organization offices and microfinance banks that serve them often need pow

themselves. Offices can use lights and fans to

prolong working hours and relieve eyestrain

caused by doing office work in inadequate lig

Inputs

Blender cost $ 100

Blender O&M $ 1

Blender depreciation months 36

System cost (prorated) $ 100

System O&M (prorated) $/month 1

System depreciation months 120

Battery cost (prorated) $ 20

Battery depreciation months 24

Labor (prorated) $/day 2.5

Work schedule days/mth 22

Raw materials $/drink 0.20

Selling price $/drink 0.50

Sales drinks/day 20

Monthly

Revenue

Sales of drinks 220

Expenses

Cost of goods sold 88.00

Blender depreciation 3.00

Blender O&M 1.00

System depreciation 1.00

System O&M 1.00

Battery depreciation 1.00

Labor 55.00

_______

Total Expenses 150.00

Profit/Loss 71.00

Enersol Associates, Inc/02618844

Figure 1.7. A Nepali

seamstress uses

solar light to extend

her working hours

into the evening. April Allderdice/PIX07150

Figure 1.6. This business analysis shows

the potential for income generation found

in expanding a solar PV system designed

for domestic use. Increasing the system

size and adding a DC electric blender

could allow the home-based enterprise 

to make a net monthly profit. While this

plan is hypothetical, similiar businesses

have been operating with solar power in

the Dominican Republic.
Gradually, some microfinance banks, even in

very remote areas, are computerizing their

offices and need power sources for this equipment, as well.

Enabling Factors in the

Productive Application of

Electrical Energy

Although electrical energy can be a powerful

enabling tool for microentrepreneurs in rural

areas, the impact it can have is mitigated by a

number of coexisting conditions. Microentrepreneurs may need support to purchase the appropriate electrical machine that will allow them to

take advantage of the electricity. In addition,

they may need training or other services to

ensure that their utilization of electricity translates into a sustained economic benefit. A program that addresses the obstacles to using

electricity to increase income and improve the

local economy is called a "productive uses of

energy program." Successful productive uses of

electricity programs address a number of factors

necessary for entrepreneurs to benefit from 

electrical resources. These factors include the 

following:

• Reliable and affordable electricity

• The availability of tools and machines for productive applications

 Credit for fixed assets (tools) and working 

capital

• The human resources necessary to master bo

the technical and business challenges incurred

by a new activity

• A market for increased quality and

production. 3

In the institutional approach sections, this

guidebook will discuss the ways in which MF

and microenterprise support organizations ca

provide a variety of services to enable microen

trepreneurs to use renewable energy resource

productively.

Figure 1.8. Computers increase capabilities and

efficiency in the rural office of the Dominican

NGO, ADESOL (see case study, p. 31).

Enersol Associates, Inc./02618830

Figure 1.9. In Guatemala, the National Rural

Electric Cooperative Association’s productive

uses of electricity program features a van

equipped with several electrical tools and

appliances. Villagers in soon-to-be-electrified

areas can try out and ask questions about the

equipment. NRECA then facilitates acquisition 

by putting the end user in touch with credit and

equipment suppliers.
CHAPTER 2.

MICROFINANCE AND

MICROENTERPRISE

DEVELOPMENT

ORGANIZATIONS

Many organizations have dedicated themselves to supporting microenterprise development through a range of services. Microfinance

(the provision of small amounts of credit) in particular has emerged as a significant tool to aid

microentrepreneurs who are excluded from the

formal banking sector. This section will describe

the basic concepts of microfinance banking. It

will also present some of the nonfinancial support services an organization may provide,

either linked with a credit program or independently. Finally, it will examine how these services

relate to renewable energy system finance and

energy service provision.

What Is Microfinance?

To bring financial services to the poor, microfinance providers have developed lending mechanisms that do not depend on the collateral,

credit history, and loan guarantees that the 

formal banking sector requires. Microfinance

programs can be characterized both by the 

mechanisms they use to reduce risk and by the

populations they target. Some of the more com

mon features of microfinance programs are

described below.

• Loan Amounts—Microfinance loans tend to 

very small (typically, $50 to $500), although th

actual amount varies widely from country to

country. By restricting the first loans to small

amounts, microfinance schemes target the poo

and provide them with a limited scale of finan

cial risk from which to gain experience manag

ing loans. Smaller loans also minimize the risk 

the implementing agency by requiring that th

borrower build a track record of payment befo

graduating to larger loans.4

After years of experience, some microfinan

organizations now offer larger loans ($1,000 to

$5,000) to repeat clients with proven credit his

ries. Raising the ceiling on loans, as both the

organization offering a microfinance program

and its clients gain experience, can allow or

encourage clients to diversify their enterprises

It can also reduce transaction costs and provid

higher return for the credit institution. Larger

loan sizes for successful microentrepreneurs a

in line with the financing of RE systems, which

can easily cost from $500 to $5,000 or more.

• Short-Term Working Capital—Microfinanc

loan cycles usually range from four months to

one year. Shorter cycles enhance new borrowe

chances of completing the cycle, thus building

their confidence. This policy also helps in man

aging lending risk assumed by the implement

agency.5

Loan items can include agricultural materi

als, livestock, stocks for stores, or raw materia

for cottage industries. Some programs also len

for fixed assets such as power tools, vehicles o

production machinery. Others have diversifie

their portfolio to include longer-term loans for

housing in rural communities, where microen

terprises are often home-based. Thus, housing

loans (including home improvement loans) an

investments in RE systems for microenterprise

can be linked. RE systems can play a significan

role in both home improvement and cost 

Figure 2.1. Microcredit bank members wait for a

loan disbursement.

April Allderdice/02618840
reduction (displacing kerosene and dry cells), 

in addition to enhancing the home-based

microenterprise.

• Repayment Schedules—Small, frequent payments allow borrowers to repay loans out of

their regular incomes and avoid relying on the

income generated from a specific investment.6

Moreover, they encourage the borrower to establish good repayment habits from the outset. This

short repayment schedule may be appropriate

for RE equipment financing, particularly

because traditional energy sources such as candles, kerosene, and dry cells are normally purchased in small quantities on a weekly or even

daily basis.

• Social Collateral—The group is the fundamental unit of most microfinance schemes. By

forming small groups whose members are

jointly liable for each individual's loans, microfinance clients create a form of social collateral to

substitute for material assets. Different programs devise their own criteria for the composition of peer groups. Usually, each group consists

of a small number (e.g., five) of members of the

same sex and of a similar age, class, and religion.

Single-gender peer groups are more likely to

share common goals, needs, and interests, which

can facilitate a higher level of solidarity. Women,

in particular, are more apt to develop and exercise leadership skills in a group that functions as

a source of support and social interaction.7

The group in microfinance schemes serves a

number of purposes. Compulsory group meetings discourage better-off people from taking

loans, thus increasing the funds available for

lending to the poor. Most transactions take place

in front of the group, which creates accountability for both borrowers and program staff. The

transparency prevents staff favoritism in the

allocation of credit and makes it immediately

apparent when a borrower falls behind in his or

her payments. Social pressure to repay a loan

may then be exerted on a delinquent member by

other members and by the staff. Where groups

are formed through self-selection, the individual

members effectively screen each other, externalizing a costly operation of the bank. This is 

especially true in the cases of small solidarity

groups.8

The group is also the setting for many of th

human development processes that accompan

microfinance. It creates a social network for

women, that often proves conducive to develo

ment of leadership skills; the groups can also

serve as a classroom where literacy and health

education can be provided. The social network

could also be valuable for the dissemination 

of information regarding RE systems and 

applications.

• Interest Rates—Most microfinance program

charge a higher interest rate than the commerc

rate. Charging interest rates that cover the full

costs of the loan serves to maintain fund levels

This policy is basic for any program that strive

for sustainability or financial independence. A

these goals are attained, more loans can be dis

persed. High interest rates discourage wealthy

borrowers from joining microfinance program

While interest rates for microfinance are high,

the rates are usually lower than the alternative

to which the poor often turn. In addition, the r

able availability of financing provides a level o

security conducive to making significant capit

investments (e.g., in RE systems). For example

a small store owner can retain a lower amount 

of emergency savings if she knows that in an

emergency a loan will be available to meet her

needs for working capital.

• Gender Focus—Women’s reliable repaymen

records, and the proven application of increas

income to directly serve the needs of their chil

dren, have resulted in a distinct gender focus 

in the field of microfinance. The social and eco

nomic factors that lead to higher repayment 

rates by women vary from culture to culture. 

The social norms of diverse cultures often hav

a similar effect of causing women to have less

mobility, fewer social freedoms, less access to

alternative forms of cash, and fewer economic

opportunities than men have. Regardless of th

cause, the sociological benefits of targeting

women for microfinance have been observed

worldwide. Many microfinance programs eith

limit their members to women, or strive to targ
women in their programs. In linking between

renewable energy and microfinance programs,

the gender focus represents a challenge and an

opportunity to develop products targeted to

women customers. 

• Savings—Clients of microfinance programs

often value a safe and easily accessible place to

save money. For this reason, a number of microfinance programs facilitate "village banking,"

whereby a savings component is included

within the program structure. Bank Rakyat

Indonesia, for example, has 14.5 million deposit

accounts and only 2.3 million loan accounts.9

Rural savings can be a local source of additional

capital for lending, and it represents an investment in the long-term sustainability of the

microfinance program. Rural savings can also

prepare potential users of RE systems for making

a substantial downpayment on such a system.

Microfinance and Energy

System Financing

Linking microfinance with renewable energy

for microenterprise can present challenges to

organizations already faced with many difficult

tasks. Mismatches may occur between the

financing needs of RE systems and established

microfinance practices.

Some of these potential

challenges and mismatches are described

next.

Loan Size and LoanTerm Priorities 

Loans provided by 

an MFI may be large

enough to finance only

the smallest renewable

energy systems. Access 

to capital is one of the

key factors that affect 

a credit institution’s 

priorities and viability. If access to capital is 

limited, a credit institution may respond by

imposing low loan ceilings and short loan term

in order to reach as many customers as possib

and meet social-impact goals. This may preve

them from lending the larger amounts often

needed for renewable energy systems. 

Reaching the Poorest Applicants

Although the goal of a microfinance progr

may be to reach as many members of the poor

social stratum as possible, an institution’s fina

cial viability is underpinned by the lower-risk

loans it gives to its veteran members. Thus,

growth depends on a balance between reachin

out to first-time members and building new,

larger loan opportunities for existing member

Energy systems are most likely to be sough

by more established members of a microfinan

program. These members may already have

businesses that could achieve greater profits

with electricity, or may already have repaid a

loan large enough to have financed an energy

system. Also, these members may be more con

dent, and thus more capable of incorporating 

technological change. New members are less

likely to have these qualities, and they may 

have more pressing needs than electrical energ

An energy program that targets very poor or

beginning borrowers would have significantly

different challenges than one that targets a mo

experienced group. However, it is important t

note that either approach, if implemented wel

could serve to meet the microfinance program

goals of client expansion and higher earnings.

For more information about designing a program to meet the needs of a particular target

audience, refer to the institutional approaches

described in Chapters 5, 6, and 7.

Fixed-Asset Lending

Many microfinance programs operate in

areas where the legal and regulatory environment is either corrupt or inaccessible to the ru

population. Even relatively well-off microfinance customers may turn to alternative credi

institutions when they are unable to establish

Figure 2-2. Members

gather in a microfinance

April Allderdice/02618833

bank office.
legal ownership of their land or other assets. The

social collateral mechanism of microcredit sidesteps the obstacles caused by ineffectual legal

networks. Although fixed-asset lending for items

such as a renewable energy system offers a

degree of self-collateral, these contracts are only

valuable where they can be reliably enforced. 

In uncertain legal environments, warranties, 

service guarantees, and collateral all must be

designed with extra care to minimize the risks to

both renewable energy organizations and MFIs.

Microenterprise Support

Services

Microenterprise development organizations

may offer the following support services to their

client microentrepreneurs: 

Business Development Training

Programs that are aimed at helping individuals develop a microenterprise often provide technical advice, simple bookkeeping, and business

management training. TechnoServe, Inc., is one

firm that operates a rural business development

and credit program. The company uses a participatory training approach that supports and

builds democratic pluralism and leads to local

self-reliance and equality. TechnoServe mobilizes

individual talent while providing training and

management assistance in all aspects of business

development, including production, marketing,

administration, finance, and accounting.

Infrastructure and Market Development

NGOs can be helpful in addressing macroissues in the business environment of the

microentrepreneur. This involves developing

relationships with both vendors and buyers, and

establishing a forum for microentrepreneurs in

which they can discuss the common challenges

they face. For example, the NGO Save the 

Children supports economic opportunities

through Microenterprise Networks, which 

provide support to microentrepreneurs working

in a specific industry or service. NGOs can also

help create bridges between microentrepreneurs

and receptive markets, including those located

outside of their local community. This can

include improving competitiveness by helpin

microentrepreneurs meet quality standards, p

viding communications links between the ent

prise and the market, increasing output capac

and assisting with legal issues such as licenses

and permits. 

Value-Added Technology Introduction

Helping microenterprises to adopt new tec

nologies can add value by increasing producti

ity and expanding product offerings. In order 

these new technologies to be successfully

adopted, however, training is often needed.

Appropriate Technology International (ATI) is

an NGO that uses a problem-solving approach

based on the "value chain"—the steps of produ

tion, processing, and marketing along which

value is added. By providing access to credit a

expert advice regarding technologies and con

nections to new markets, ATI-led value-chain

programs help small producers.

Gender Equalization

It is estimated that between 30% and 60%

percent of all microenterprises in Latin Ameri

and the Caribbean are owned and operated by

women.10 Other regions also have high propo

tions of women-led microenterprises. Microen

terprise development organizations that assis

women with income-producing activities provide valuable skills and training that often are

not available to women from other sources. In

addition, they help women achieve financial

self-sufficiency.

Electricity

Electricity, a high-value form of energy, can

be essential in facilitating improvements that

lead to profitability and growth. Many busine

activities simply are not possible without electricity. The supply of electricity, however, has

usually fallen under the jurisdiction of nationa

or state governments. Because NGOs have no

usually had much control over the availability 
of electricity, the provision of electricity to

microenterprises often does not figure prominently as a targeted supporting service offered

by microenterprise development organizations.

However, the initial efforts of the Grameen Bank

and BRAC (formerly, Bangladesh Rural

Advancement Committee) in Bangladesh, the

ACCION International affiliate-Genesis in

Guatemala, and Sarvodaya in Sri Lanka, for

example, indicate that the provision of electricity

may be an area in which microenterprise development organizations will provide a valuable

future service to microentrepreneurs.

Who Provides Microfinance?

The providers of microfinance are as varied

as the borrowers they serve. They range from

NGOs that have incorporated a lending program

into an integrated rural development program 

to regulated financial institutions (microfinance

banks) that focus solely on lending. Between the

microfinance banks and the formal banking 

sector lie several levels of mini- or small-credit

providers that may incorporate some of the

microfinance mechanisms into their program. 

The specialized microfinance bank approach

benefits from the ability to offer financial services

in a businesslike manner, maintaining a professional relationship with borrowers. Isolating

business practices from subsidized or charitab

services keeps the relationships clear to both t

bank and the customer. Some microfinance pr

titioners, however, feel that pure banking is in

equate to address the manifold needs of the ru

poor. They argue that microfinance alone does

not provide the necessary ingredients to help

people emerge from poverty. From this perspe

tive, many multifaceted programs have evolv

that offer microfinance with other rural develo

ment services.

The lively exchange of information in the

microenterprise development field allows suc

cessful models to be disseminated. Each instit

tion, however, necessarily develops in one wa

or another its own unique program and gains

experience unique to the conditions within

which its programs operate. The following are

four examples of well-known organizations

involved in microenterprise development tha

have a microfinance component in the program

ACCION International and Affiliates

ACCION International creates and suppor

a network of financially self-sustaining institu

tions that specialize in providing financial services to the poor on a massive scale. All of the

network affiliates provide small, short-term

loans at commercial rates for working capital,

02618818m

Energy Services Delivery Chain

Source: Sustainable Energy Solutions, 1998

Product flow Credit/investment Cash flow

Large

institutional

investors

Investment

banks

Regional

and

national

banks

Micro-finance

institutions

End user

Manufacturers

Assemblers

and

distributors

Local

suppliers

Figure 2.3. A delivery chain analysis is useful for illustrating the role MFIs can play in energy services

delivery. The proximity of the MFI to the customer makes it an invaluable link in the chain.
and most also provide business training to

microentrepreneurs in low-income communities. A few of the affiliates are offering additional

financial services, such as savings and financing

for fixed assets. The ACCION network has pioneered the solidarity group-lending program

and also offers loans to individual entrepreneurs. ACCION is also pioneering efforts to link

the world’s capital markets to enterprises of the

poor. ACCION works with 24 affiliates in 13

Latin American countries. Overseas NGO affiliates include Banco Solidario SA (BancoSol) in

Bolivia and FUNTEC/Genesis in Guatemala.11

CARE

CARE is an example of an international

development NGO that offers a wide range of

services to meet the needs of rural populations.

CARE, which celebrated its fiftieth anniversary

in 1995, was founded when 22 organizations

formed a cooperative to rush life-saving CARE

packages to victims of World War II. Since then,

CARE has been an early leader in long-term

development projects that enable impoverished

people to become self-sufficient. CARE programs offer technical assistance, disaster relief,

training, food, other material resources, and

management. CARE has a Small Economic

Activity Development program that is aimed at

both individual women and at local lending

organizations. CARE works with individuals to

expand their business skills and self-confidence.

At the same time, CARE works in partnership

with both formal and informal lending institutions to ensure that financial services are available to support microenterprises in the future.12

FINCA (Foundation for International

Community Assistance)

FINCA’s mission is to support the economic

and human transformation of families trapped

in severe poverty. This transformation is accomplished through the creation of "village banks,"

which are peer groups of 20-50 members—predominantly women—who receive three critical

services: 1) working capital loans to finance selfemployment activities, 2) a safe place to accum

late savings, and 3) mutual support for person

growth. FINCA’s loans are backed by "moral

capital," i.e., the collective guarantee of all mem

bers for each other. Village bank members ma

and sell crafts, foods, ceramics, clothing, and

many other market goods. Some women set u

shops, raise chickens, fruits or vegetables, and

others choose a collective project.13

Grameen Bank

The Grameen Bank in Bangladesh has provided microlending services to poor women

since 1976. The bank membership is overwhel

ingly female (94%). Grameen Bank targets the

poorest of the poor, requiring new members to

be functionally landless. Members are require

to learn to sign their name and to memorize 16

"commandments," which contain guidelines f

health, education, and prosperity. Loans are

accompanied by mandatory contributions to

savings and emergency funds. Grameen Bank 

an example of a "minimalist" MFI, as it primar

offers banking services. Other development

activities, such as education and health, are pr

moted through independently operated and

financed NGOs, which belong to the Grameen

family. Grameen Bank currently has more than

2.4 million members in Bangladesh served by

more than 6,000 branch offices. Its repayment

rates consistently range between 96% and 98%
CHAPTER 3.

RENEWABLE ENERGY

SYSTEM COMPONENTS

This chapter gives an overview of the main

components typically used in renewable energy

systems, including how they work, proper use,

cost, lifetime, and limitations.

System Overview

A stand-alone energy system comprises components that produce, store, and deliver electricity to the loads. Figure 2.1 shows a schematic of a

hybrid system with more than one source of

energy. Not all systems have all the components

shown, but most will have components from

each of four categories:

• Energy generation—To convert mechanical or

light energy into electricity. 

• Energy storage—To store energy and release it

when it is needed. The most common energy

storage device used in stand-alone energy systems is the battery.

• Energy conversion—To convert AC electricity

to DC or vice versa.

• Balance of systems (BOS)—To connect the

other components, monitor system performance,

and protect the system. 

Photovoltaics

Photovoltaic (PV) modules convert sunlight

directly into direct current (DC) electricity. PV

modules, which usually have no moving parts,

are highly reliable, are longlived, and require li

tle maintenance. PV modules can also be easily

assembled into an array that can meet any size

load. Despite its high capital cost, PV is often 

a cost-effective option, especially for small 

systems.

PV Module Construction

PV modules consist of individual cells wir

together to produce a desired voltage and current. The cells are usually encapsulated in a

transparent protective material and housed in 

aluminum frame. PV modules last a long time

with warranties up to 20 years. PV manufactu

ers use a variety of technologies; these are 

generally classified as monocrystalline, polycrystalline, thin-film, or amorphous. Amorpho

technologies are generally less efficient and m

be less robust, but they are easier to manufactu

and usually cheaper. For applications in which

space and weight are not big concerns, initial o

life-cycle cost and useable life may be the mos

important factors.

PV Module Performance

Characterization 

PV modules are rated in terms of peak wat

(Wp) or peak kilowatts (kWp), a function of

module size and efficiency. This rating scheme

makes it easy to compare modules and prices,

based on cost per rated Wp. The rating is an in

cation of the amount of power that the module

will produce under standard reference conditions (1 kW/m2; 20°C [68°F] module temperature)—roughly the intensity of sunlight at noo

on a clear summer day. Thus, a module rated a

50 Wp will produce 50 W when the insolation 

the module is 1 kW/m2 and the temperature i

average. Because power output is roughly pro

portional to insolation, this same module coul

be expected to produce 25 W when the insolat

is 500 W/m2.

Module energy production can be estimate

by multiplying the module’s rated power by t

site’s insolation on the module’s surface, typically 1400–2500 kilowatt-hours (kWh)/m2 per

year, or 4–7 kWh/m2/day. The resulting prod

Table 3.1.

02618819m

Energy GenerationStorageConversionBalance of System

PVBatteriesInverterControls

WindRectifierMeters

Micro-hydroWires

Diesel/Gas GeneratorsFuses

Biofuel
is then derated by 10%

20% to account for losses

caused by, for example, temperature effects

(modules produce less energy at higher temperatures), battery inefficiencies, and wire losses.

PV Module Operation 

The energy from PV modules can be used

directly or indirectly for the target load(s). Most

PV modules are designed to charge 12-V battery

banks. Larger off-grid systems may use other

DC voltages, commonly 24, 48, 120, or 240 V. 

For non-battery-charging applications, such as

when the module is connected directly to a water

pump, a maximum point power tracker can help

improve efficiency by matching the electrical

characteristics of the load and module.

PV modules are available in a wide variety of

ratings up to 100 Wp, and modules rated as high

as 300 Wp are manufactured. Individual PV

modules can be connected to form arrays of any

size. Modules may be connected in series to

increase the array voltage, and they can be connected in parallel to increase the array current.

This modularity makes it easy to start out with a

small array and add additional modules later.

PV modules are mounted facing toward the

sun on either fixed or tracking mounts. Because

of their low cost and simplicity, fixed mounts set

at an optimal angle are more common. They ca

be made of wood or metal, and can be purchas

or fabricated almost anywhere. Tracking mou

(single- or dual-axis) can increase energy production, particularly at low latitudes, but thes

add cost and complexity.

PV Module Capital and Operating Cos

The costs of a PV array are driven by the co

of the modules. Despite declining prices in the

last two decades, PV modules remain expensi

Retail prices for modules in 1998 were general

at least $5,500 per kWp; for bulk purchases,

prices can go below $4,000 per kWp. Warranti

are typically for 10 to 20 years. Current modul

can be expected to last in excess of 20 years.

Costs for mounts, wiring, and installation are

typically $1,000–$1,500 per kWp.

Despite its high initial cost, PV can be an

attractive option, particularly for smallerload situations, given its durability and modu

larity. PV modules themselves are virtually

maintenance-free. Mostly, they need only to 

be kept clean, and the electrical connections

inspected periodically for loose connections 

and corrosion.

Wind Turbine Generators

Wind turbines convert the energy of movin

air into useful mechanical or electrical energy.

Wind turbines need more maintenance than a 

array, but with moderate winds, 4.5 meters pe

second (m/s) or greater, they typically produc

more energy than a similarly priced array of P

modules. Like PV modules, multiple wind tur

bines can be used together to produce more

energy. Because wind turbine energy producti

tends to be highly variable, wind turbines are

often best combined with PV modules or a gen

erator to ensure energy production during tim

of low wind speeds. This section focuses on

small wind turbines with ratings of 10 kW or

less.

Figure 3.1. Multiple modules can be connected for

larger energy needs.

SOLUZ, Inc./02618842
Wind Turbine Components 

The components common to most wind turbines are shown in Figure 3.2. The blades capture

the energy from the wind, transferring it via the

shaft to the generator. In small wind turbines, the

shaft usually drives the generator directly. Mo

small wind turbines use permanent magnet

alternators as generators. These produce variable-frequency “wild” AC that the power elec

tronics convert into DC electricity. The yaw

bearing allows a wind turbine to rotate to acco

modate the changes in wind direction. The tow

supports the wind turbine and places it above

any obstructions.

Wind Turbine Performance

Characteristics

A wind turbine’s performance is character

ized by its power curve, which relates wind 

turbine power output to the hub-height wind

speed. Power curves for selected machines are

shown in Figure 3.3. Turbines need a minimum

wind speed—the "cut-in" speed—before they

start producing power. For small turbines, the

cut-in speed typically ranges from 3 to 4 m/s.

After cut-in, wind turbine power increases

rapidly with increasing wind speed until it sta

leveling off as it approaches peak power. The

energy production is dependent on the cube o

the velocity. Thus, wind turbines pro

duce much more power at higher win

speeds than at lower wind speeds, 

until the "cut-out" speed. Most small

turbines produce peak power at abou

12–15 m/s. Cut-out, usually at speed

of 14 to 18 m/s, protects the turbine

from over-spinning in high winds. M

small turbines cut-out by passively ti

ing (furling) the nacelle and rotor out 

the wind. After cut-out, wind turbine

power output usually does not end, b

remains at 30%–70% of rated power.

Wind turbines are rated by their

power output at a specified wind spe

e.g., 10 kW at 12 m/s. Usually, this ra

ing is at or near the wind turbine’s pe

power output. The wind speed at wh

a turbine is rated is chosen arbitrarily 

the manufacturer.

The nonlinear nature of the wind

turbine power curve makes it more d

ficult to predict the long-term energy

Blades

Generator

Tail

Tower

Yaw

bearing

Figure 3.2. One of several kinds of wind turbines

Bergey Windpower Co., Inc./PIX02103

3.5

3.0

2.5

2.0

1.5

1.0

0.50

0 0 5 10 15 20 25

Wind speed (m/s)

02618820m

Power (kW)

Wind Turbine Power Curves

World Power 

Whspr 3000

Bergey 

1500

SW Air 303

World Power 

Whspr 600

Bergey 

850

Source: Manufacturer's data

Figure 3.3. Selected wind turbine power curves
performance of a wind system than a PV system.

Predicting long-term performance requires data

on the wind speed distribution rather than just

the average wind speed.

Wind Turbine Capital and Operating

Costs

Wind turbine prices vary more than PV module prices. Similar-sized turbine installations can

differ significantly in price, because of wide pricing variations among turbine manufacturers and

widely varying tower costs based on design and

height. Installed costs generally vary from $2,000

to $6,000 per rated kW. Unlike PV, wind turbines

offer economies of scale, and larger wind turbines generally cost less per kW than smaller

wind turbines.

Maintenance costs for wind turbines vary.

Most small wind turbines require some preventive maintenance, mostly in the form of periodic

inspections. Most maintenance costs will probably be for unscheduled repairs—lightning damage or corrosion, for example. 

A wind turbine that will produce about

500 kWh/month of energy at a typical average

wind speed of 6 m/s will typically cost

$3,500–$5,000.

Micro-hydro

Micro-hydro installations convert the kine

energy of moving or falling water into electric

These installations may require more extensiv

civil works than other technologies; however, 

appropriate sites, micro-hydro can be, on a life

cycle basis, a very low-cost option. The water

resource of a micro-hydro installation may be

subject to seasonal weather extremes such as

drought or freezing. But unlike PV or wind tu

bines, a micro-hydro installation can produce

power continuously. Because of this continuou

power production, even a small installation w

produce large amounts of energy. 

Components

The components of a micro-hydro installation include the civil works, penstock, turbine

generator, and controls. The civil works, whic

consists of a water channel, diverts water from

the stream or river to the penstock. The pensto

conveys the water under pressure to the turbin

Piping used in the penstock must be large

enough to avoid excessive friction losses. Diffe

ent types of turbines are available, depending 

the head (pressure) and flow rate at the site.

Impulse turbines, such as the Pelton or Turgo,

have one or more jets of water impinging on th

turbine, which spins in the air. These types of

turbines are most often used at medium- and

high-head sites. Reaction turbines, such as the

Francis, Kaplan, and axial models, are fully

immersed in water. They are used more often 

low-head sites. The turbine is connected to a g

erator that produces electricity. Both AC and D

generators are available. Governors and contr

equipment are used to ensure frequency contr

on AC systems and to dump excess electricity.

Performance and Cost

The power output of a micro-hydro system 

a function of the product of the pressure (head

and flow rate of the water going through the tu

bine. Figure 3.4 shows estimates of generator

output in relation to various head and flow rat

The selection of a site is usually a compromise

between the head and flow rate available and 

Figure 3.4. Estimated hydropower generator

output as a function of head and flow rate

60

50

40

30

20

10

0

0 10 20 30 40 50 60

Flow rate (liters/second) 02618821m

Head (m)

Hydropower Electrical Output

Power

Output

(kW)

0.125

0.25

0.5

1.0

1.5

2.0

4.0

10.0
cost of the water channel and penstock. Because

micro-hydro systems produce continuous

power, even a small system will produce a large

amount of energy. For example, a 125-W system

will produce 3 kWh a day. The water resource of

a micro-hydro installation may be subject to seasonal variations such as winter freezes, spring

runoff, or drought. Where peak power demand

is greater than what the installation can supply, 

a battery bank can be used to store energy during

low-demand times for use in high-demand

times.

Because of varying requirements for water

channels and penstock, the cost of micro-hydro

systems varies widely from location to location.

In general, the cost for most systems is $1,000 to

$4,000 per kW. Maintenance costs are about 3%

of the capital cost per year. Much of the maintenance consists of regular inspections of the water

channel and penstock to keep them free of

debris. Micro-hydro installations can last very

long, and maintained systems last in excess of

50 years.

Unlike PV and wind systems, micro-hydro

installations are not modular. The available

water resource and size of the civil works and

penstock limit the power output of a given

micro-hydro system. Increasing the capacity of

the civil works is expensive. Thus, micro-hydro

installations require that longterm demand b

carefully considered.

Diesel, Gas, or Biofuel

Generators

Generators consist of an engine driving an

electric generator. Generators run on a variety 

fuels, including diesel, gasoline, propane, and

biofuel. They have the advantage of providing

power on demand without the need for batter

In comparison to wind turbines and PV modules, generators have lower capital costs but

higher operating costs. Diesel generators—the

most common type—are available in sizes ran

ing from under 2.5 kW to more than 1 megawa

Gasoline generators, though less common tha

diesels, cost less and are available in very sma

sizes—as low as a few hundred watts. They ar

however, short-lived, expensive to maintain, a

inefficient. Generators should usually be run a

high load (> 60%); low-load operation decreas

the fuel efficiency and may increase the need f

maintenance.

Batteries

Batteries are electrochemical devices that

store energy in chemical form. In energy syste

they can store excess energy for later use to

improve system availability and efficiency. By

far the most common type of battery is the lea

acid type. A distant second is the nickel-cadmium type. The remainder of this section 

discusses the lead-acid battery.

Figure 3.5. Generators run on many different fuels.

Ken Olson, SEI/PIX06495

Figure 3.6. A Shakti technician gives training on

battery maintenance.
Battery Selection Considerations

Deep-Cycle versus Shallow-Cycle 

Some batteries, known as deep-cycle batteries, can be cycled more deeply—have more

energy taken out before being recharged—without suffering as much damage as some others.

For remote power applications, deep-cycle batteries are generally recommended. They are

designed to be discharged down to a 20%–50%

state of charge. Shallow-cycle batteries, such as

car batteries, are often used in small PV systems

because of their broad availability and low initial

cost. But they can have considerably shorter lives

and may not weather deep discharges well.

Flooded versus Valve-Regulated 

The plates of flooded batteries are immersed

in a liquid electrolyte and need periodic rewatering. In valve-regulated batteries, the electrolyte

is in the form of a paste or contained within a

glass mat. Valve-regulated batteries do not need

rewatering. Flooded batteries generally have

lower capital costs than valve-regulated batteries

and can withstand more extreme operating conditions. With proper maintenance, they tend to

last longer. On the other hand, where maintenance is difficult, valve-regulated batteries may

be the better choice.

Lifetime

The life of a battery generally depends

greatly on its use. Batteries tend to last longer

when cycled less deeply. Even if it is never or

only occasionally used, however, a battery will

fail at the end of its float life, typically three to

eight years. High ambient temperatures can

severely shorten a battery’s float life—every

10°C (18°F) increase in average ambient temperature will approximately halve the battery float

life.

Sizes

The storage capacity of a battery is commonly given in amp-hours at a given rate of 

discharge. When multiplied by the battery’s

nominal voltage (usually 2, 6, or 12 V), this gives

the storage capacity of the battery in kWh. This

storage capacity is not a fixed quantity, but

rather depends somewhat on the rate at which

the battery is discharged. A battery will provid

more energy if it is discharged slowly than if it 

discharged rapidly. In order to facilitate unifor

comparison, most battery manufacturers give

the storage capacity for a given discharge time

usually 20 or 100 hours. Individual batteries

used in renewable energy systems are availab

in capacities ranging from 50 amp-hours at 12 

to thousands of amp hours at 2 V (0.5 kWh to

several kWh).

Cost

Because of variations in cycle and float life

comparisons of the cost-effectiveness of differ

batteries are not obvious. In general, however

costs are on the order of $70–$100 per kWh of

storage for batteries with lifetimes of 250 to 50

cycles and float lives in the range of three to ei

years. There may be additional one-time costs 

a shed, racks, and connection wiring.

Figure 3.7. A worker assembles inverters and

controllers at Lotus Energy plant in Nepal.
Inverters

Inverters convert DC—the output from PV

modules, batteries, and most small wind turbines, for example—to AC power. Many common electrical applications and devices require

AC power, which generally takes the form of a

sine wave. Inverter AC outputs can be crude,

square wave, a modified sine wave, or pure sine

wave. Many devices won’t operate properly on

the square-wave inverters. The modified sinewave inverters, which produce an improved

"staircase" square wave closely approximating 

a sine wave, can be used for most AC electronic

devices and motors. Manufacturing a pure 

sine-wave inverter is very expensive; modified

square-wave inverters are, therefore, the most

common choice. 

Inverter size ratings usually reflect their maximum power output when operated for an

extended period of time. Most inverters specify 

a capability to handle significantly more power

briefly (surge capacity) to meet the current

needed to start a motor, for example. The cost of

a high-quality modified sine-wave inverter is

roughly $500 to $1,000 per kW. At the low end,

small 100- to 200-W inverters are available for

around $100 to handle many simple applications. A wide number of larger sizes are available

above that, although inverters with a capacity

above about 5 kW can be more expensive per kW

of capacity.

Balance of Systems

Controllers and meters act as the brains and

nervous system of an RE or hybrid system. In

simple systems, controllers help the user protect

the battery by automatically regulating against

both battery overcharge and overdischarge.

Metering allows the user to assess system performance and to stay within operating guidelines.

In large, complex systems, various controlling

and metering functions can be spread out over

several different components. Because there

have been problems with controllers involving

reliability and damage from lightning, good RE

system designs pay close attention to controlle

design and lightning protection.

Controller Purposes and Functions 

Common controller functions include the 

following:

• System protection: A controller can include t

fuses or circuit breakers needed in a system to

protect against short circuits.

• Charge regulation: A controller with a prope

battery charge algorithm or high-voltage disco

nect protects the battery against overcharging

• Low-voltage disconnect: A low-voltage disc

nect can protect the battery against overdischarging.

• System monitoring: Monitoring the system

currents and voltages lets the user check that t

components and system are operating proper

• Component control: The controller can be pr

grammed to turn components on and off as

needed without user intervention. For system

with excess energy, a dump load—often one o

more big resistors—can help dissipate electric

by converting it to heat.

Balance of System

The BOS also includes items such as wiring

and switches and can include conduits and fu

or breakers.

DC Source Center Use

Several manufacturers now offer DC sourc

centers. These combine much of the system

wiring, fusing, and controllers into one tidy,

easy-to-install package. The use of source cent

increases system costs somewhat, but offers ea

ier installation, less complex wiring, and easie

system monitoring and control. A source cente

should be especially considered for systems in

remote sites that lack easy access to technical

assistance. The initial investment pays off in

reduced service costs over the long term.
CHAPTER 4. 

SYSTEM SELECTION

AND ECONOMICS

Introduction

The first section of this chapter describes lifecycle cost analysis and explains how and why it

should be used when analyzing the economics of

various options. The second part of this chapter

discusses the factors influencing system design,

load, available resource, component costs, and

desired level of service per these options.

Included are charts that show how typical system costs vary as a function of load and resource.

Life-Cycle Cost Analysis

Why and When to Use Life-Cycle Cost

Analysis

RE options tend to have high initial costs and

low operating costs. Generators, in contrast,

have low initial costs but high operating costs.

Choosing options based solely on initial cost

may lead to higher overall costs over the life of

the system.

Because the actual cost of an energy supply

system for a business includes both its initial

investment cost (depreciated over its life) plus its

future operating costs for fuel and maintenance,

a cost analysis must factor in complete costs over

the life of the project. Therefore, life-cycle cost

analysis should be used to compare energy system options. System options will have different

combinations of initial and future costs; the LCC

analysis can help in making consistent comparisons between the options. This type of analysis

also takes into account initial and future costs,

while recognizing the "time value of money" (i.e.,

a dollar in the future is worth less than a dollar

today).

LCC analysis is generally the preferred

method for evaluating the economics of different

projects with differing initial and future costs.

LCC involves a discounted cashflow calculat

whereby the total cost of an option (its net pre

sent cost) is determined by summing the discounted annual cash flows of that project over 

lifetime. Future cash flows (perhaps for fuel) a

"discounted" by a "discount rate." The rate at

which the future expense cash flows are discounted is usually set at a cost of capital (COC

which for a microenterprise can be very high.

Although soft-funded projects may have discount rates of 10% and U.S. corporations may

use a COC of 25% when comparing investmen

options, based on their perceived opportunity

cost, a rural microenterprise may need to use a

discount rate as high as 50%. An economics re

erence book would be useful in providing mor

details on how to perform a discounted cash

flow LCC analysis.

Although LCC can be used for any project

is particularly appropriate for RE projects of 5 

10 years or more in which the fuel and repair

costs of generators, for example, become cons

erable. The LCC analysis is less reliable in case

in which the future of a microenterprise is pre

dictable only for a few months or a couple of

years, unless the resale value of the RE system

can be assured. An LCC analysis is sensitive to

the inputs; thus, sensitivity analysis should be

done over a plausible range of input values. L

implicitly assumes that the options being com

pared provide comparable levels of service. If

the options provide differing levels of service,

this difference should be accounted for in the

option selection process. 

Some RE projects incur higher-than-expec

operating costs caused by improper installatio

and lack of operator training. Sufficient attent

should be paid to ensure that the RE system

installers in the project are properly trained an

that the end users and/or operators are prope

educated at the time of installation. The cost o

servicing single systems in dispersed commun

ties can also contribute to high operating costs

The cost of servicing RE systems can be greatly

reduced if the systems can be maintained by

locally based personnel who have sufficient R
business activity to ensure an efficient mainte

nance service. 

Fuel Subsidies

In many countries, fuel costs are artificially

low because of government subsidies. To fully

capture the potential operating cost savings

offered by RE, economic analyses of any project

for which the the government would pay for fuel

should use the unsubsidized fuel cost. Although

economic analysis of private systems should use

the subsidized fuel cost, project developers

should consider the probability and effects of the

removal of fuel subsidies some time during the

lifetime of the project.

Excess Energy

Less modular RE systems, such as microhydro, often produce excess energy, which can

be used to generate additional income. Finding

resourceful ways to use excess power improves

the economic viability of the system and can be

included in the LCC analysis.

Income Generation

An important part of the LCC analysis will 

be the capacity of the RE-generated power to

generate income. Larger or more sophisticated

systems may be worth the investment if they

increase the income-earning potential of the 

beneficiaries sufficiently. 

Design Considerations and

Economics

This section describes the factors that affect

system configuration and costs. The main considerations driving system selection are loads,

resources, costs (component, fuel, and operating), and quality of service.

Energy/Power Consumption (Loads)

The electrical consumption patterns of

microenterprises are a primary factor influencing energy system design. The person selecting

the renewable energy system needs to take into

account maximum power consumption (the load

measured in watts), energy consumption (a m

sure of the load hours used over a period of tim

or kWh/year), seasonal and daily energy consumption variations (a measure of load distrib

tion), and quality of service needed. 

The system is designed and components—

the generator, the batteries, the wiring and

power electronics—sized so that the system ca

both deliver the maximum power specificatio

and meet the average energy consumption spe

fication (kWh/month). Maximum power

requirements drive the size of wiring and cont

equipment. Energy consumption and variatio

over time will drive the type and size of the

energy-producing components and will also

influence the size of the battery storage. 

The RE technology selected may depend o

load variations over each day and during the

year. Summer and daytime loads, for example

can tend to favor PV because of the clear matc

between when the solar energy resource is ava

able and the time energy is needed. Heavy win

ter loads may be more suited for generators; if

winter is the windy season, however, then win

turbines could be appropriate. If the wind and

solar resource are seasonally complementary

(i.e., the wind resource is good during the low

insolation season), then a wind-PV hybrid sys

tem may be most appropriate.

Common microenterprise loads include th

following:

• Lights, radios, television sets, and cell

phones—These loads may be operated using

small PV systems (20-200 W) and wind-electri

systems (300-500 W). Most of these loads can b

operated using DC. For AC loads, such as thos

for color TVs and VCRs, a small inverter can b

included. Slightly larger PV systems (250-1,00

W) and wind electric systems (1,000-3,000 W) 

suitable for slightly greater needs, such as ligh

use motors for sewing machines, refrigerators

hand power tools and fans, or for small amoun

of heat (such as that needed for soldering iron

• Power tools, grain mills, or other large mot

for workshops and light industries—These

loads will typically need larger power system
Larger hybrid systems that contain some com

nation of solar PV, wind, gasoline or diesel gen

erator, battery, and inverter can meet these loa

as well as the loads described in the previous

paragraph. Where the resource is available,

micro-hydroelectric technologies can also mee

these loads, possibly without requiring fuel or

batteries.

• Water pumping, ice-making, and battery

charging—These loads occasionally can be 

operated by simple systems that do not requir

energy storage. Loads that do not need to be ru

at a particular time, but can be operated when

the resource is available, may not need a batte

resulting in significant cost savings. When the

“deferrable” loads are operated with other loa

they can be run whenever extra energy is avai

able, which also generates cost savings by allo

ing available energy to be used more efficientl

• Process heat, cooking, and drying for food

preservation—Thermal loads are generally be

ter met with a thermal technology than an elec

trical technology. Although electricity can be

used to create heat, it is usually much more

expensive than alternative technologies. Rene

able thermal technologies include solar water

heaters, solar cookers, and solar dryers—all of

which use the sun's heat rather than its light. B

gas can also be burned for heat. Most of the tec

nical discussion in this guidebook focuses on

electrical energy issues; for more information

about thermal technologies, please see the 

bibliography. 

Large enterprises, energy entrepreneurs, 

and microenterprise zones may supply severa

different types of loads with the same system.

Where many loads occur at once, demand-sid

management—the conscious timing of the ope

ation of each load, together with a special atten

tion to efficiency in the loads—can result in m

efficient energy use and significant savings in

initial investments and operating costs.

Figure 4.1. Bangladeshi electrical repair shop

uses solar-powered light and soldering iron to

increase productivity.

April Allderdice, NREL/PIX07151

Figure 4.2. A Nepali woman weaving under a solar

light in her home

SELCO/PIX08143
Resources

The availability of wind and solar resources

greatly influences both the configuration and the

cost of a renewable energy system. A good wind

resource will favor the use of wind turbines,

whereas a good solar resource will favor the use

of PV. Another consideration is the variability of

the resource, both daily and seasonally. The time

period of importance depends on the system

configuration. For a stand-alone RE system, the

designer will be more interested in the monthly

average resource and should size the PV array 

or wind turbines based on the lowest-resource

month. For a system with generator backup, 

sizing the RE components using average annual

resources may be more appropriate.

Virtually all locations experience seasonal

variations in solar insolation and wind speed

distribution. These variations mean that power

production from PV arrays and wind turbines is

not consistent. RE system designers must mak

up for this natural variation when they design

the system. Seasonal variations in insolation a

driven by the changing length of the day as th

season progresses and by seasonal climate pat

terns (e.g., rainy seasons). This type of variatio

can be partially overcome by tilting the PV mo

ules at an optimal angle. The wind resource is

also usually seasonally variable. Even areas 

with relatively good wind resource usually 

have a one- or two-month period of low avera

wind speeds. It is important to determine if th

microenterprise will be negatively affected by 

a low season for wind resource. If the business

using the RE system is also seasonal and the

business and wind seasons happen to coincide

the enterprise may benefit from a more econom

cal system. Where a low wind resource season

would negatively affect the microenterprise

operation, a PV system or a hybrid system usi

wind-PV, wind-diesel or wind/PV-diesel may 

preferable.

Although long-term averages

drive the sizing of the wind turbin

and PV capacity, short-term (on th

order of days) fluctuations in wind

and sunlight will influence the

amount of storage required. The

longer the lulls in wind and sun

resources, the larger the amount of

storage needed. These lulls drive u

the cost of 100% RE systems. Syste

with generator backup, however, d

not need batteries sized to meet th

longest anticipated lull in the

resource. 

The effect of resource on techno

ogy selection is illustrated in Figure 4.3. Figure 4.3 shows, for an

average load of 700 Wh per day

(766 kWh per year), how the configuration of the lowest-cost system

varies depending on the local sola

and wind resources. 

7.7

7.0

6.5

6.0

5.5

5.0

4.5

4.0

3.5

3.5 4.0 4.5 5.0 5.5 6.0 6.5 02618802m

Average wind speed (m/s)

WTG

Technology Selection

Annual Load: 766 kWh

Average insolation (kWh/m /day) 2

WTG & Generator

WTG & PV 

& Generator

PV

Figure 4.3. This graph shows how the least-cost configuration

for a microenterprise zone can vary as a function of wind speed

and solar insolation. These results are meant to show general

trends only. (WTG = wind turbine generator)
Costs

Figure 4.4 shows how the 

initial and operating costs will 

vary depending on the technology

chosen and financing terms.

Figure 4.5 shows the typical

range of costs for PV and WTG sy

tems over a range of loads. Each

graph shows two bands that refle

costs given two levels of resource

availability. Because these are 100

RE systems, the resource level is n

the annual average, but rather the

average for the "worst" month. A

couple of examples will clarify th

use of the graphs. Figure 4.5a show

that a PV system capable of handling an average daily load of

0.5 kWh, in a locale with worstmonth insolation (3.0 sun-hours/

day), is expected to have a 25-yea

net present cost of between $2,500

and $5,000. Figure 4.5b shows tha

WTG system that meets an averag

daily load of 1.0 kWh costs betwe

$4,000 and $8,000 in a location wit

a worst-month average wind spee

of 5.0 m/s.

Quality of Service

The last important load-relate

consideration is quality of service

This refers to the system’s capabil

to meet the load given the variabi

ity of the solar insolation and win

resources. There may be times wh

little of the natural energy resourc

is available, so the RE system may

not deliver sufficient power. For 

an RE system that does not have 

a diesel backup, the costs may be

excessive if the system needs to 

provide power without any "dow

time." If system components, espe

cially the battery bank, are sized f

the worst possible case, the system

Initial Investment$3,200$19,800$80,400

Annual Operating Costs–––

Net Present Value10%2,60015,30061,800

25%3,00018,60074,300

Annualized Capital10%4002,50010,100

Costs

25%2,5005,2002,500

Initial Investment$400$4,200$4,500

Annual Operating Costs7005002,200

Net Present Value10%5,8009,30030,700

25%3,6008,10019,900

Annualized Capital10%9001,5005,000

Costs

25%2,5002,0002,500

Initial Investment$3,800$8,800$21,500

Annual Operating Costs100200500

Net Present Value10%3,8008,50020,200

25%4,0009,10021,900

Annualized Capital10%6001,4003,300

Costs

25%2,5002,5006,100

02618811m

Wind Hybrid

at 6 m/s

Cost Comparison Chart

Diesel Battery

Hybrid at

$0.28/liter

PV at

5 kWh/day

Technology 

25 200 800 

Energy Demand (kWh/month)

Assumptions 

1) Project life = 10 years 

2) PV, inverter, and battery maintenance costs depend on local labor costs, present a marginal increase 

 in cost and are not included here. 

3) PV system (modules and mounting structure): Linear depreciation over 20 year life 

4) Diesel system: Linear depreciation over 2500 hour life 

5) Wind system (turbine and tower): Linear depreciation over 12 or 16 year life (depending on turbine size) 

 this color represents the system of choice for each load size and discount rate 

 

Notes 

1) "COC" is the cost of capital, or real discount rate. 

2) PV costs will vary linearly with resource. 

3) Diesel costs will vary linearly with cost of fuel. 

4) Wind costs will vary exponentially with resource. 

5) The system configuration is held constant in the COC comparisons. In the case of the 800 kWh load, 

 the optimal system at a 25% COC, a hybrid system using less wind, and more diesel, is not represented. 

6) PV-gas hybrids are not presented here. For the 25 kWh system, a PV-gas generator hybrid is optimal. 

COC

Figure 4.4. This cost comparison chart shows how the initial

and operating costs for a sample renewable energy system will

vary depending on the technology, load site, and financing

terms. The system with the lowest net present value of life-cycle

costs is highlighted. Incoming cash flows from user payments

are not considered here. In this case for small loads, solar PV 

is the most economical option, since economies of scale for

centralized technologies are not yet achieved. As the load size

increases, a wind or diesel system becomes more economical

than PV. If the cost of capital is 25%/year, diesel battery hybrid

is most economical because of its low initial costs compared 

to wind. If the cost of capital is only 10%/year, a wind hybrid

system will make sense, because its low operating costs give 

it a long-term advantage over diesel. 
will be oversized at all other time

If the microenterprise can operate

with little reduction in profits eve

if the power system has some dow

time—or, put another way, "with

proper load management"—

economy-seeking microentrepreneurs can save money on the capi

costs of a system without affectin

income-generating potential.

Generator Considerations

For larger loads (above ~1 kW

day), a big decision is whether or

not to use a generator. Ultimately,

this decision will depend on an

analysis of the site in question. Th

principal advantage of generators 

is their ability to provide power o

demand, which can help avoid

oversizing the RE generators and

batteries. The disadvantage of 

generators is their high operating

cost because of fuel and maintenance. Providing fuel and mainte

nance to remote sites is often

problematic. Figure 4.6 shows the

25-year net present cost of a 2.5-

kWh diesel generator as a functio

of average daily load and average

daily run time. The figure shows

how the number of operating hou

drives the cost of using a generato

If the number of operating hours 

low, generators can be cost compe

tive sources of energy. As operatin

hours increase, costs escalate. If th

loads are lights and water pumps

that are on only a few hours per d

then an all-diesel system may be

cost competitive.

If the generator must be run mo

than a few hours per day, another

solution is needed. One possible

solution is to use a generator-batt

system. When the generator runs

20,000

15,000

10,000

5,000

0

0.0 0.5 1.0 1.5 2.0 2.5

Average daily load (kWh)

02618803m

Net present cost ($)

Cost vs. Desired Performance (PV)

Resource levels below are 

for lowest resource month

3.0 sun-hrs/day

4.5 sun-hrs/day

25,000

20,000

15,000

10,000

5,000

0

0.0 0.5 1.0 1.5 2.0 2.5

Average daily load (kWh)

02618804m

Net present cost ($)

Cost vs. Desired Performance (WTG)

3.5 m/s average wind speed

5.0 m/s average wind speed

Resource levels below are 

for lowest resource month

Figure 4.5. These graphs show the typical cost range of the

technology (photovoltaics or wind turbines) for a system as a

function of the average daily load. The resource availability

listed (for both wind and sun) is the month with the lowest

resource availability.
charges a battery bank that then is used most of

the time. The savings from reductions in generator run time can vastly outweigh the conversion

losses caused by cycling energy through the battery and the initial cost of the batteries and

inverter.

The other solution is to combine the generator with PV modules, wind turbines or both. 

The RE components minimize the generator run

time, keeping generator operating costs to 

a minimum. The generator also precludes the

need to oversize the RE components, thus reducing capital costs.

$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

$0

0.0 0.5 1.0 1.5 2.0 2.5 3.0

Average daily load (kWh/day)

02618805m

Net present cost (25 years)

Cost of Diesel Systems

24 run hrs/day


20 run hrs/day


16 run hrs/day


12 run hrs/day


8 run hrs/day


4 run hrs/day


Figure 4.6. This graph shows the 25-year net present cost of using a diesel generator. The

two variables are average daily load (kWh/day) and daily run hours. Note that the costs vary

only slightly with load but escalate rapidly with increasing run hours.
CHAPTER 5.

INSTITUTIONAL

APPROACH NO. 1:

PROVIDING END-USER

CREDIT FOR INDIVIDUAL

RENEWABLE ENERGY

SYSTEMS

Introduction to Institutional

Approaches

Chapters 5–7 classify the many institutional

arrangements that work with microfinance practices or entities to enable microentrepreneurs to 

access renewable energy resources. The first

approach—which is described in Chapter 5—

addresses decentralized systems for individual

microentrepreneurs. In other words, a separate

RE system is used for each business, residence or

productive application. These include system

usually referred to as a solar home system (SH

or wind home system, names that inadequate

describe the breadth of commercial and cottag

industrial applications enabled by small RE sy

tems. This section also discusses both credit an

fee-for-service approaches for financing small

RE systems. Although some microenterprise

organizations have chosen to carry out both th

financial and technological functions in their

energy provision program, others have been a

to concentrate on their area of expertise by for

ing strategic alliances with RE suppliers who

carry out the technological functions. This sec

tion provides examples of situations in which

microfinancing is used for end-user financing 

of individual systems. 

The second approach—described in

Chapter 6—characterizes ways of promoting

productive applications of electricity through

community-scale systems, in which renewabl

are used to power an isolated minigrid or centralized microenterprise zone (MEZ). Microfinance institutions can either develop the

Institutional Role of Role of Role of Upstream 

Approach Microfinance Microenterprise Finance

 Support

End-User • Fixed-asset credit for RE • Target income • Capitalize revolving 

Finance system generation credit fund

 • Fixed-asset or working • Packaging • Provide working capital 

 capital for productive uses generators and for supplier-run credit 

 • Finance for a package that applications program 

includes an energy system, 

 tools, and working capital

Community-Fixed-asset or working capital • Business incubator Fixed asset lending for 

Based for productive use services community energy

System • Promoting system

productive uses

 

Energy • Working capital for energy Evaluate the Capitalize a revolving 

Entrepreneur entrepreneur covenant between credit fund or bank 

• Fixed-asset lending for the community and program

 RE system the entrepreneur 

 • Productive uses lending for 

community members

Table 5.1. Comparison of Three Institutional Approaches

02618815m
community power system themselves, or they

can work with a local electric cooperative,

energy services company (ESCO), or NGO to

bring electricity to their client entrepreneurs. In

either case, MFIs and microenterprise support

organizations can provide credit, training, and

other services to enable microentrepreneurs to

take advantage of available electricity. 

In the third case—described in Chapter 7—

the microfinance is extended to an "energy 

entrepreneur," who creates a business in which

electricity is the main product. This arrangement

has a two-tiered impact on the community. 

Not only does the energy entrepreneur create 

a sustainable livelihood, but the local business

community also may be able to improve its

microenterprises through the benefit of electricity access. These entrepreneurs include decentralized-system retailers, battery-charging

stations, and mini-utilities.

More than one approach can be applied in 

a given community. For example, an energy

entrepreneur may receive working capital for

his/her small RE business, and his/her customers may use credit to obtain the tools or

appliances that take advantage of the electricity.

Introduction to End-User

Financing

MFIs have experience providing working

capital and, in some cases, fixed-asset credit for

income-generating applications. In areas where

electricity is available, MFIs have financed 

tools or machines that depend on electricity to

function. With the availability of cost-effective

individual RE systems, it is a natural evolution

for MFIs in unelectrified areas to finance incom

generating applications packaged with the

energy source they need to run. However, man

MFIs are not familiar with energy technologie

and thus are hesitant to finance them. Moreov

they may not be familiar with the financing

issues that are specific to energy technologies.

This section gives examples of institutions tha

have undertaken financing for rural energy 

systems. 

Typically, only the wealthiest residents of

rural villages can afford to pay for an individu

RE system up front. Therefore, two main

approaches to end-user financing have emerg

The first involves a strategic alliance between 

a renewable energy supplier and a financial

intermediary. This is known as a third-party

approach because three entities (including the

customer) need to be involved in every sale. In

many cases, one institution carries out both th

financial and the technical tasks. This guidebo

refers to this approach as "all-in-one." The PV

industry and, to a lesser degree, the wind indu

try offer many examples of successful smallscale consumer financing. This section examin

how the end-user credit approach can take

advantage of microfinance strategies and

strengths to ease the burden of up-front costs 

for the customer and to expand market oppor

nities for the supplier and credit provider. 

Table 5.2. Highlights of Institutional Approach No. 1

02618816

End-User VariationEnergy system ParticipatingRisk

Finance ApproachownershipInstitutions

Third PartyCredit for salesEnd userFinancerDistributed between 

Supplier

two organizations

All-in-OneCredit for salesEnd userEnergy service Energy service 

ESCO ESCO

providerprovider
The Need for End-User Financing

A small percentage of rural villagers can

afford to pay for RE systems with cash, but credit

or rental options can expand the market significantly. One PV project developer estimated that

a fee-for-service option in Indonesia, for example, would expand the market from less than

30% for direct-dealer sales to at least 70%.13

The pyramid in Figure 5.1, illustrating estimates

by another PV developer for one Latin American

market, suggests a tenfold increase over the cash

market.

Is a Renewable Energy System an

Income-Generating Item?

A discussion of the many microenterprises

that can improve their viability through electrification is given in Chapter 1. For machine-driven

applications, such as icemakers or mills, the

return on investment may be straightforward.

However, most end-user financing provides

small RE systems that mainly offer lighting benefits (although some small motors and entertainment equipment can also be run [see Chapter 4]). 

In some cases, income generation is clearly

linked to the availability of electricity. A sawm

in Bangladesh was able to increase its operatin

hours and income by 50% simply by extendin

its operating hours. For many businesses, how

ever, the connection, while real, is less consiste

For example, a rural hardware store may expe

to benefit from more customers if it stays open

longer; however, it is difficult to anticipate how

many more customers will come. Moreover, th

increase may vary unpredictably. Thus, for the

store, buying a small RE system may be more

uncertain than investing the money in livestoc

or another traditional loan item that has an eas

anticipated return.

Perhaps the most successful customers are

those who are able to apply the system to both

household and business use. In this situation, 

the RE system provides savings in traditional

fuels, increased income from the business, and

02618810m

Cash sales 3%–5%

Credit 15%–20%

Fee-for-service 

 18%–25%

50% may not be able

to afford PV

Figure 5.1. The pyramid shows one estimate of the

proportion of end users that can afford PV under

different purchasing options. 

Renewable energy systems that provide

domestic lighting may have long-term effect

on the quality of life that are not as easy to

quantify as those incorporated in businesses

An analog is an MFI-run housing program.

Although the house is not considered an

"enterprise," it has many positive financial

implications for its residents. By protecting

the family from rain and cold, it reduces the

number of illnesses and medical costs. The

space can be used for storing grains that can

be sold later at a higher price. The sturdy

walls reduce the cost of constant replacemen

or repair of tin modules or palm leaves.

These constitute long-term economic benefits to the borrower. 

Likewise, a lighting system provides ligh

for study, which has long-term effects on the

employment potential of the children. Electric lights are safer than kerosene lanterns,

which can cause fires and produce smoke

that is harmful to the eyes and lungs. And,

finally, lighting systems may pave the way

for small cottage industries to be carried out

during evening hours.
long

term returns in the form of improved health

and education.

Can a Microfinance Organization Make

Money by Financing Renewable Energy

Systems?

The ability of a microfinance organization to

make a profit financing renewable energy systems depends on its ability to transpose the successful microfinance innovations of the past to

the new challenge of RE technologies. Such innovations include externalizing as many of the

operating costs as possible, using inexpensive

local labor, and generating economies of scale.

Meanwhile, RE has several advantages that traditional loan items do not offer. RE can diversify

a lending portfolio, bring down transaction

costs, reduce risk through collateral, and allow

access to governmental funds earmarked for

environmental and rural electrification 

purposes.

Operating costs may mount in a renewable

energy program if the MFI takes on too many 

of the responsibilities of technical supervision.

Such costs can be externalized from the microfinance program by entering into a strategic

alliance with one or more suppliers, or by creating an independent technical unit. Also, these

costs can be reduced as local personnel are

trained to take on program responsibilities, as in

the Ramakrishna Mission Program described

below. Choosing areas where economies of scale

can be achieved is another way to reduce operating costs.

Loan portfolio diversification fortifies a

credit program against sector-specific or clientele-specific disasters. Renewable energy 

systems facilitate diversification by providing

services useful to a broad range of productive

rural activities, from agriculture to commerce

and industry. In addition, renewable energy sy

tems may allow microfinance entities to target

segments of the population not currently repr

sented in their clientele base.

Unlike many items for which microfinance

loans are given (such as livestock), RE systems

offer the additional advantage to the lending

agency that the system itself can provide some

measure of collateral. This case is particularly

true with PV modules, which last a long time

and lose value slowly after installation. In add

tion, the systems are more costly than tradition

items. These larger transactions reduce the 

average transaction cost, which can increase 

profitability.

Finally, many countries view rural electrifi

tion and environmentally sound energy decisions as a policy priority. Microfinance agenci

may find themselves in a position to channel

government funds to programs that advance

these goals. One example is Brazil’s low-intere

line of credit for renewable energy. The 

Teotonio Vilela Foundation managed to access

this line of credit for photovoltaic batterycharging station microentrepreneurs.

As microfinance program members increa

their standard of living as well as their ability 

to borrow, they look for new items to invest in

Microfinance programs, such as the Grameen

Bank in Bangladesh, have experienced this

growth in their membership and have expand

their loan portfolio for items much more costly

than their original program allowed. By meeti

the demands of the more affluent customers, t

microfinance organization also improves its o

viability. Because these customers have established credit relationships with the organizatio

and because they have already been trained in

banking procedures, the larger loans bring in

higher interest payments with lower transacti

costs. This increased income to the microfinan

organization can be used to finance the expan

sion to new areas and training of new member

at the poorest levels. In this way, upward 

Ramakrishna Mission

The Ramakrishna Mission solar program

in West Bengal, India, found a way to externalize a large portion of its training, sales, and

maintenance costs. It certified hundreds of

low-cost rural technicians who carry out the

sales and maintenance tasks for a small fee,

which they charge the end user. 
diversification may advance the financial institu

tion's goal of providing credit to the most needy.

Third-Party Financing

The third party-financing approach allows a

microentrepreneur (the first party) to buy an RE

system from a supplier (second party) through

credit provided by an MFI (third party). This

arrangement offers both advantages and disadvantages for the parties involved. An advantage

of the third-party system for both the credit

provider and the RE system supplier is that it

allows each to fulfill specialized roles, focusing

on the capabilities each has already developed.

The MFI can process loans and collect payments

as part of its normal credit activities, without

entering into the technical and business aspects

of RE system supply and maintenance. Moreover, the market will benefit from a more sophisticated credit program. The RE system supplier

can focus on its normal technical and business

issues without having to develop an additional

capacity for rural credit administration.

Unlike sales based on a supplier's own credit,

third-party financing is a cash sale as seen from

the RE supplier's view, providing immediate

cash flow and related profit margins. Access to

credit from an MFI can expand an RE supplier's

market significantly beyond straight cash sales

in rural areas often underserved by traditional

sources of financing. Moreover, customers of the

MFI already have a credit history and an incomegenerating enterprise, making them good candidates to repay their loans.

Both for-profit and nonprofit organizations

are involved in third-party financing for small

renewable energy end users. Nonprofits range

from large microfinance organizations involved

in financing RE along with a wide variety of

other products, to small NGOs dedicated to RE

financing for qualified for-profit suppliers.

All-in-One

In the "all-in-one" approach to end-user

credit, an entity from either a financing or system-supply background, expands its capabilities

Grameen Shakti

Grameen Bank, a microfinance pioneer,

provides end-user financing for its members

The bank members purchase systems from

Grameen Shakti, an independent (but related

RE supply company. Credit for renewable

energy systems has fit easily into the bank’s

loan portfolio, which includes loans for such

items as houses, cellular phones, and diesel

generators. 

A supplier who is not in a position to pro

vide its own credit may find the growth of 

its business constrained by the financial or

organizational capacity of the financing orga

nization. In the case of Grameen Shakti, the

Grameen Bank’s membership was in genera

poorer than the initial target market for

renewables. For that reason, Grameen Shakt

was compelled to add its own credit scheme

to that of the Grameen Bank. As of Novembe

1999, Grameen Shakti had sold more than

1,000 systems.

ADESOL

The Dominican nonprofit ADESOL (the

Association for the Development of Solar

Energy) provides limited end-user financing

through a network of independent PV

microenterprises to give them experience

with credit sales. The microenterprises prequalify customers and act as financial intermediaries for the transactions, including

responsibility for collection; however, the

loan remains an asset of ADESOL’s development assistance revolving loan fund. Enerso

ADESOL’s nonprofit, U.S.-based affiliate, 

has catalyzed many other revolving credit

funds aimed at PV consumer financing.

Provincial development organizations 

such as ADEPE (the Association for the

Development of the Espaillat Province in the

Dominican Republic) and cooperatives such

as COMARCA (the Marcala Coffee Coopera

tive in Honduras) have added PV financing

to their regular microenterprise lending.
by handling the delivery of both the hardware

and the financing internally. This could also be

done by a new organization dedicated to both

hardware and financing. Having one organization responsible for both the financial and technical system aspects of RE system deployment

helps ensure that after-sales system performance

will be a priority. Thus, there is a built-in incentive to maintain high standards of equipment

performance and customer service. In addition,

the all-in-one approach eliminates problems 

arising from a discrepancy in priorities or modes

of operation between two organizations. 

The combined strategy also has potential 

disadvantages. It requires that established organizations become significantly involved in at

least one major area of activity in which they do

not necessarily have experience. Financial organizations, even rurally focused ones, may not be

sufficiently technically oriented to handle RE

system installation and maintenance. Likewise,

RE equipment suppliers will not necessarily

have financial and rural development personnel

suited for the complexities of rural credit-fund

management. 

An extension of the allinone strategy is le

ing. In this case, ownership of the RE system

remains with the system provider until the sys

tem is fully repaid. This reduces the risk to the

credit provider as it ensures recovery of the sy

tem salvage value in case of default. In additio

it reduces the risk to the end user because it is 

the interest of the RE supplier to ensure that th

system remains fully operational until the item 

fully repaid.

Matching credit and equipment suppliers

can also pose challenges for each; however, th

potential problems may be less severe if the

lessons learned from pioneering experiences a

incorporated in the planning process. A bank o

credit organization involved in small-system

financing is dependent on the integrity and 

follow-up capability of the hardware provider

If a system fails, the financier tends to be the

entity facing a default in payments. Covenant

or performance-based payment agreements

between the two organizations can mitigate th

risk to both financier and customer. The credit

organization can also establish criteria for qua

fying suppliers for access to end-user financin

or for establishing portfolio limits. Such decisions are based on criteria such as time in busi

ness, level of commercial sales, and credit

activity with the organization or other lender.

Similarly, a supplier who is not in a position to

provide its own credit may find the growth of 

business constrained by the financial or organi

tional capacity of the financing entity.

Several types of organizations have used 

all-in-one strategies, including for-profit companies, NGOs, and rural electric cooperatives.

For-profit companies that combine end-user

credit and technical support for RE system

installation include Soluz Dominicana, SELCO

Vietnam, and RESCO Sri Lanka.

Energy Services Companies

Energy services companies can provide

microenterprises with RE systems under a fee

for-service agreement by which the ownership 

of the equipment remains with the ESCO. A

SELCO

An example of the linkage between a for-profit product supplier and a for-profit financier is the SELCO India/Syndicate

Bank relationship. SELCO India, a for-profit subsidiary of

SELCO International, supplies RE systems in southern regions 

of India. For sales beyond the cash market, SELCO has linked

with the Syndicate Bank, a local banking institution with 1,600

branches and many programs aimed at rural customers. The

Syndicate Bank provides three- to five-year loans to consumers

for 90% of the cost of systems sold and installed by SELCO,

charging a "priority-sector lending rate" of 12%-12.5%. This linkage is the first involvement of a commercial bank in PV system

financing in India. Along with the cash and bank-financing

options, SELCO offers customers financing directly through a

World Bank line of credit. It also offers a lease-to-own option,

with the financing provided by nonbanking financing companies, which receive tax benefits. SELCO also works with local

rural institutions such as cooperatives, which offer system

financing for their members.15
number of private companies, 

wireless utili

ties," and rural electric cooperatives are emerg

ing around the world to provide ESCO service

The fee-for-service arrangement tends to b

strongly preferred by end users because it elim

nates the risk to the end user of technical failu

of the system. It is in the best interest of the ES

to ensure prompt and complete maintenance o

the systems. In addition, it eliminates the need

for the end user to undertake a large capital

investment. Soluz Dominicana, a leading PV

ESCO, has had a tremendous response to its 

fee-for-service offering.

Organizations that undertake ESCO opera

tions also take on a level of risk not faced by sa

operations. For example, a crucial component 

the life-cycle cost of all solar- and wind-based

household systems is the treatment of the battery. Because the battery is stored at the end-u

site, there is little the ESCO can do to prevent

mistreatment of the battery.

Microenterprise support organizations 

that do not want to handle the full delivery of

both hardware and financing may want to con

sider forming an alliance with ESCOs willing 

provide both of these components. Microenter

prise development organizations can play a 

crucial role in financing and supporting the 

productive applications that are enabled by th

electrical services of a local ESCO.

Soluz Dominicana

Since 1994, Soluz Dominicana, a majority-owned

subsidiary of the U.S.-based SOLUZ, Inc., has been providing systems on a fee-for-service basis—financing

systems through fixed monthly payments for basic electric service—or on short-term credit. Soluz Dominicana

installs and provides all maintenance for small, standalone PV systems, as well as a small number of pilot

wind systems, for rural households and small businesses in the Dominican Republic.

Grameen Shakti

Grameen Shakti of Bangladesh is an example of a

nongovernmental organization involved in both the

financial and technical aspects of system dissemination.

Grameen Shakti has been installing PV and wind systems on a credit basis for non-Grameen Bank members

since 1996, offering financing for up to 24 months.

CRE

Some rural electric cooperatives that already deliver

energy services for monthly fees have turned to standalone PV systems for more dispersed customers, offering the latter both the systems and the financing. One

example is CRE in Bolivia, which began installing PV

systems in 1995 on a fee-for-service basis. By 1998, it

was serving 1,300 rural customers.
CHAPTER 6. 

INSTITUTIONAL

APPROACH NO. 2:

FINANCING AND

PROMOTING THE

PRODUCTIVE

APPLICATION OF

ENERGY IN

COMMUNITY-SCALE

SYSTEMS

Introduction

The previous chapter discussed how entrepreneurs, when provided with financing and

institutional support, could obtain and utilize

their own power generation system to improve

their business. However, power generation is

often more cost effective when economies of

scale come into play. Community-scale systems

spread the cost of the power system among

many end users and effectively finance the 

capital cost over years or decades. Such arrangements are possible when:

1. There is a critical mass and density of end-u

loads.

2. Long-term financing is available for a powe

generation project.

3. There is a sufficient institutional capacity in

place to ensure cost recovery and managemen

02618814

Table 6.1. Highlights of Institutional Approach No. 2

Community- OperatorCustomersProsCons

Based System

Microenterprise • MFI• Microentrepreneurs• Target income • Requires moving existing 

Zone• NGO• Local MFI or generationenterprises to a new site

• ESCONGO office• Control over load

Minigrid• ESCO• Microentrepreneurs• Services loads• Load growth

• Electric • Householdsthat are site-specific• Repayment not necessarily

cooperative• Community • Includes linked to income generation

• Utilityloadsresidential and • Requires additional

community benefitsinvestment in grid

Figure 6.1. WIND Indonesia wind hybrid system
As with distributed individual

system

approaches, community-scale arrangements can

be implemented by either an exceptionally capable MFI or microenterprise development organization; they can also be done through a strategic

alliance with a partner whose specialty is energy

provision. Community-scale systems include

microenterprise zones, which provide a single

facility where energy is provided to microentrepreneurs on a fee-for-service basis, and minigrids, where energy is provided via an electric

grid to a host of end users (microenterprises,

community buildings, and households, among

others).

Microenterprise Zones 

One example of a community-scale renewable energy service that can be implemented by

an MFI, an NGO or an ESCO is a microenterprise

zone, or MEZ. 

An MEZ is a facility powered by a centralized electrical system that serves a strategically

located cluster of microenterprises in an area

without access to an electric grid. The MEZ can

function as both a business incubator and a permanent business haven conducive to nurturing

income-producing activities in rural, lowerincome areas. Physically, an MEZ can be a 

market-type structure with separate locales 

for various microenterprises serving the local

market or producing products for markets outside of the community. 

Concentrating the nonhousehold loads in

one area can lead to cost savings in technologies

that have economies of scale such as wind turbines and diesel or gas generators. An MEZ also

economizes on maintenance by concentrating it

in one area. The clustering of the loads within a

single structure yields opportunities for good

load management to hold down energy system

costs. The operator can mandate and ensure efficiency in the loads and orchestrate higher consumption loads to coincide with the availability

of the energy resource. This reduces the need for

oversizing the peak capacity of a power system.

For more information on load management, se

Chapter 4.

The minimum service an MEZ can provide 

reliable power during extended working hour

However, the concentration of microenterpris

lends itself to a variety of business support 

activities, including microenterprise assistanc

microfinance banking, and a higher quality,

more stable working environment. The

economies of scale from clustering may make 

public telephone or fax, photocopying service

or child care more affordable. In addition, syn

gies in the various productive activities within

the MEZ may lead to mutually beneficial busi

ness development. For example, the MEZ may

become a mini-export production zone or a on

stop shop for local customers.

MEZs require the following:

• Sufficient energy system financing

• The flexibility to move decentralized enterprises to a central area

• Institutions with the capacity to carry out bo

the technical and business development tasks

included in an MEZ.

Renewable-Energy-Based

Minigrids

A variation on the MEZ concept is to exten

a small minigrid around the MEZ. A grid coul

provide electricity for a market or commercial

area. The lines could also serve productive use

that cannot be transferred to the zone site. The

benefits need to be weighed against the disadvantages of increased cost, loss of control of th

load, and a possible emphasis on residential 

uses rather than productive uses of electricity. 

A useful document on low-cost electric grid co

struction is New Designs for Rural Electrification

by the National Rural Electric Cooperative 

Association.
Grameen Shakti Microenterprise Zones

In Bangladesh, Grameen Shakti has developed four wind-diesel hybrid systems to be used 

in microenterprise zones on the coast. The zones occupy Grameen Bank-owned cyclone shelters

that were underutilized. After several months of monitoring the performance of the systems,

project developers invited bank members and other local microentrepreneurs to open small bus

nesses on the premises. These microenterprises use the electricity on a fee-for-service basis. At

the same time, bank members take advantage of services at the bank offices housed in two of the

sites.

In preparation for this project, Grameen Bank

members and staff from the area were interviewed

to obtain their ideas about the need for and applica

tion of the microenterprise zones. The following 

recommendations were then incorporated in the

planning process for the installations:

• The members were willing to operate their businesses at the cyclone shelter (rather than at home) i

it meant that the cost of the power would be much

less than power from a minigrid.

• Many of the members had skills and business

ideas that would take advantage of electricity, with

little further training; however, the skill level of the

members varied greatly from region to region. Skill

in handicrafts and manufacturing were more preva

lent in areas that were generally more affluent and

where the Grameen Bank had been active for a

longer period of time. Members that relied chiefly

on agriculture and livestock for their businesses

tended to live in less affluent regions and areas

where the bank had become involved more recently

• The staff members were able to evaluate which electricity-using businesses would be most

lucrative in their areas, and were well versed in how to facilitate Grameen Bank loans for the 

necessary equipment. 

• The staff had insufficient lighting for the paperwork they needed to complete. 

One of the opportunities that Grameen Shakti faces is the seasonally variable wind speed in

Bangladesh. Although the systems are designed with back-up generators to reliably meet their

design load, the zones will be able to operate most cost effectively if they can utilize the greater

wind resource that exists during the summer (monsoon) months.

Figure 6.2. Grameen Shakti MEZ turbine

April Allderdice/02618855
Load/Resource Matrix Technique for MEZ System Selection

Designing an MEZ can be a time-consuming process. Even when sufficient technical expertise

is available, design efforts can be thwarted by the difficulty of ascertaining data about prospectiv

loads and energy resources. A load/resource matrix is a tool that can be used to simplify system

design while providing a reasonable number of options to MEZ developers.

In the sample load matrix shown (see Table 6.2), several hypothetical MEZs were created. Eac

MEZ incorporates a combination of common microenterprises in the Dominican Republic. The

hypothetical MEZs were then classified by their average monthly energy requirement. Optimal

system designs for each of the four load classes were then established using the hybrid design

tools, HOMER and Hybrid 2. The analysis used country-specific data on the cost and availability

of components, local fuel price, and solar insolation data. Separate designs were generated for

each of the load classes in three different wind regimes. A sample matrix (see Table 6.3) shows

least-cost designs for

load levels from 200 to

800 kWh/month and

wind speeds from 4.0 to

6.0 m/s.

The matrix can be a

useful tool in making in

tial decisions in situations where an exact

optimization is neither

possible nor meaningfu

The initial systems can

then be fine-tuned over

time as the loads are

implemented and the

MEZs begin to grow.

Some of the issues that

need to be considered in

the development and ut

lization of matrixes are

exceptionally large load

that may alter the peak

capacity needs, and surg

capabilities of power

equipment.

02618813m

Table 6.2. MEZ Load Matrix

Cafe I133 xxxxxxx

Cafe II68 xxx

Small Store75 xxxx

Cinema20 xxx

Laundry174 xxxxxxxx

Beauty Salon123 xxxxxx

Carpentry Workshop144 xxx

Electric Workshop36 xxxxxxx

Fish Store98 xxxx

Community Center I59 xxxx

Community Center II149 xx

TOTAL (kWh/month)200200400400600600600600800800

kWh/month

02618812m

Table 6.3. MEZ Loads/Resource-Sizing Matrix

6 m/s Wind Speed5 m/s Wind Speed4 m/s Wind Speed

200 kWh/month• 1 kW Wind• 1 kW Wind• 740 Wp PV

• 2.3 kW Gas Generator• 2.3 kW Gas Generator• 2.3 kW Gas Generator

• 8.4 kWh Battery Bank• 16.8 kWh Battery Bank• 16.8 kWh Battery Bank

400 kWh/month• 2 kW Wind• 1200 Wp PV OR 2 kW Wind• 1200 Wp PV 

• 4.8 kW Diesel Generator• 4.8 kW Diesel Generator• 4.8 kW Diesel Generator

• 16.8 kWh Battery Bank• 33.6 kWh Battery Bank• 33.6 kWh Battery Bank

600 kWh/month• 3 kW Wind• 3 kW Wind• 7.5 kW Diesel Generator

• 7.5 kW Diesel Generator• 7.5 kW Diesel Generator• 33.6 kWh Battery Bank

• 33.6 kWh Battery Bank• 33.6 kWh Battery Bank

800 kWh/month• 4.5 kW Wind• 4.5 kW Wind• 7.5 kW Diesel Generator

• 7.5 kW Diesel Generator• 7.5 kW Diesel Generator• 50.4 kWh Battery Bank

• 50.4 kWh Battery Bank• 50.4 kWh Battery Bank

Sample configurations for microenterprise zones of different load sizes in a region where solar radiation 

is constant but wind speed varies from location to location
Productive Uses of Electricity Programs

with Renewable Energy Service

Companies or Cooperatives

Not all MFIs and microenterprise support

organizations will be able to implement their

own MEZ or minigrid. By working with a utility,

electric cooperative, or ESCO, MFIs can both

influence the process of electrifying their community and assist microentrepreneurs in using

the electricity to benefit their businesses.

Through a program focused on productive

uses of electricity, an MFI can provide credit for

electric tools or machines vital to translating

energy into income generation. MFIs and

microenterprise development organizations 

that provide nonfinancial services may be well

positioned to provide training, market development, and other services to customers to further

leverage the benefit achieved from the energy

resource. Productive uses of electricity programs

can fit well into an MFI’s credit or leasing 

activities for several reasons. As the electrical

machines or appliances are clearly incomegenerating items, they pose less of a need for

modifications to MFI lending practices than do

the power systems themselves. In addition, as 

an ESCO or cooperative provides power on a

fee-for-service basis, the microentrepreneur is

relieved of the burden of a large capital investment in generation equipment. Thus, poorer

members of the MFI may be able to benefit from

the program.

Two examples of productive uses of energy

programs are given here. These relied mainly o

grid extension for their electrical sources; however, the results of these programs could have

El Vinto Productive Uses Program

The El Vinto Densification Project was implemented by the National Rural Electric Cooperative Association, ELFEC (the local utility), and PRODEM (a microfinance organization) to promote productive uses in 

the lower Cochabamba Valley of Bolivia. About $100,000 was invested in service drops and line extensions.

Another $103,000 was loaned for 83 productive uses. The loan amounts varied from $66 to $6,500; 77 of the

loans were for less than $1,000. Shortly after making the loans, PRODEM sold the portfolio to BancoSol,

allowing NRECA to invest the money in another productive-uses project. However, financial analysis (projected out to 20 years) for the service drop component of the project showed a loss. The main reasons were th

low average end-user consumption of only 36 kWh/month, and the high administrative cost that ELFEC

charged the project. Eighteen of the 83 productive uses that benefited from the loans were surveyed in a fina

evaluation of the loan component of the project. All but one showed an increase in production. Similarly, all

but one showed an increase in profit, though it was not the one that had reduced production. The 18 productive uses surveyed generated a total of 25 new jobs.16

Project ENSIGN—Financing Energy

Services and Income-Generating

Opportunities for the Poor

This UNDP-funded ENSIGN program,

coordinated by the Asian and Pacific Develo

ment Center in Malaysia, included 24 pilot

projects in seven Asian countries. These proj

ects provided modern energy services targeted to income-earning activities in 219

households in India, Indonesia, Mongolia,

Myanmar, Nepal, Philippines, and Sri Lanka

Most of the activities were based on grid elec

tricity, although some used solar PV or other

sources. The majority of the activities were

cottage industries producing items such as

bangles, bottle caps, mattress covers,

envelopes, and garments. Others included

services such as grain grinding, auto tire airfilling, and rice hulling. Project-wide, the

average income growth was 53%, increasing

monthly income from an average of $63

(U.S.)/month to $96.5 (U.S.)/month. One of

the participating organizations, the SEWA

Bank in India, has already begun to integrate

ENSIGN-type loans into its mainstream 

lending.17
been as easily achieved with a remote hybrid

minigrid fueled by renewable resources. 

Financial Sustainability in a

Community RE System

Like microfinance banks, electric cooperatives and utilities can provide reliable, long-term

service only when they are financially sustainable. In both MEZs and minigrids, the developer

retains ownership of the energy system. If the

developer of the MEZ is a bank, NGO, or ESCO,

it may have access to more favorable terms for

energy system financing than would a microentrepreneur. Sources of finance for MEZs may

include the following: 

• Governmental rural electrification funds 

• Renewable energy lines of credit 

• Local or regional development bank loans

• Donor agency programs

• Private investors.

The Impact of Load and Load Growth

Having sufficient load, and the associated

tariff payments, are vital for a financially sustainable system. Some ESCOs, utilities, or electric

cooperatives may be unwilling to consider an

area because of a perceived lack of load potential. Although microenterprises do not consume

energy on the level of large industries, they 

usually require greater amounts of power than

residences. Moreover, they contribute to the economic development of a community, a process

that leads to greater electricity consumption in

general. For these reasons, a microenterprise

organization may be able to encourage ESCOs,

utilities, and electric cooperatives to provide

power in their areas by demonstrating the needs

of their constituent microentrepreneurs.

The presence of electricity in a community

generally leads to significant load growth over

time. Depending on the power system, this load

growth can have disparate impacts, such as the

following.

 Wind or PVbattery hybrid systems: If there 

no dispatchable backup source of power, load

growth can overwhelm the system's capacity,

causing failures.

• Hybrid systems with diesel backup: Load

growth may lead to excessive use of the diesel

shortening its lifetime and increasing fuel cost

Load growth beyond the capacity of the system

will cause failures.

• Micro-hydro: Increased load reduces the un

cost of electricity up to the capacity of the pow

station, but will cause system failures if it

exceeds the capacity.

• Grid extension: Increased load reduces the u

cost of the grid extension up to the installed

capacity of the grid lines. 

In an MEZ, load growth is easy to manage

because the operator can decide what new 

enterprises are allowed to be connected. The

enhanced control also makes it easier to design

tariffs appropriately so that the applications 

do not have to be limited. With a minigrid, the

operator has less control over new loads that 

are added within individual households. Som

minigrid operators install current-limiting fus

in households to ensure that loads do not exce

manageable levels.

Setting an Appropriate Tariff

One way to manage loads is to design an

appropriate tariff to encourage reasonable

amounts of energy use. An end-user fee may 

be collected through metering, by using a fee

schedule that varies according to the type of

equipment used, or by charging a fee per connection, and limiting the available power by

using a current-limiting device. 

A tariff that is sufficiently high may deter

users from consuming more power than neces

sary as well as provide sufficient income to 

justify an expansion of the power system as th

load demands it. Some systems (such as micro

hydro stations) may not have the natural

resources necessary to increase the capacity 
of their power station, however. Many organiza

tions include a cross-subsidy within the tariff

structure to ensure that poorer customers are

also able to benefit from the electricity. A project

that focuses on microenterprise development

may prefer to provide service to microenterprises even when wealthier residential customers are willing to pay more for the power. 
CHAPTER 7. 

INSTITUTIONAL

APPROACH NO. 3:

SUPPORTING ENERGY

ENTREPRENEURS

Because energy is in high demand in areas

with no grid electricity, innovative microentrepreneurs often seek ways to make a profit by

selling electricity and energy-related products 

to their fellow villagers. Small, rural retail stores

sell dry-cell batteries, flashlights, kerosene, candles, and butane lanterns to local households.

Some individuals with generators connect

households to sell electricity; others sell batterycharging services. As renewable energy has

become better known in rural areas, these

“energy entrepreneurs” have also made use of

renewable energy systems as a means to meet

customer needs and develop business.

In spite of their many different approaches,

energy entrepreneurs share some elemental

advantages over other energy service providers.

Microentrepreneurs usually live in the communities that they serve. They are personally

impacted by the quality and reliability of the

energy service product, which legitimizes their

marketing claims in the eyes of their customers.

In addition, the customers know that the entre

preneur will be available with little notice to p

vide technical assistance and customer service

Thirdly, microentrepreneurs usually operate

with very small overhead margins. For examp

they may conduct business out of their homes

They may avoid high transportion costs, as th

live close to the communities they serve. Large

companies may need to invest in uniforms and

marked cars to establish their name recognitio

while microentrepreneurs are often already

known in the community.

The "micro-" nature of the energy entrepre

neur also creates its greatest vulnerability: its

dependence on the community. If the community's demand for energy service drops off, the

microentrepreneur is not able to shift to anoth

community. The business viability of an energ

entrepreneur depends on sustained need and 

the community’s willingness to pay for electri

service. While it is ultimately the microentrepr

neur's responsibility to accurately evaluate the

potential of the business, this may be very diff

cult to do in a community where there is no 

comparable service. In such cases, community

members' assertion of their demand for energy

can be critical in the decision to start. In other

words, the entrepreneur and the community

essentially create a covenant in which both 

parties have responsibility for the successful

energy service business. Entrepreneurs can try 

to formalize this covenant through the establis

ment of community com

mittees, membership 

fees, or service contract

Regardless of the mech

nism used, care must be

taken to clearly convey

the importance of the

commitment to commu

nity members who may 

be less predictable 

participants than the

entrepreneur.

02618817m

Table 7.1. Highlights of Institutional Approach No. 3

EnergyMicrofinance for Microenterprise Microfinance Microenterprise

Entrepreneur Entrepreneur Support for for Community Support for

 Entrepreneur Community

Battery-• Initial plant • Technical • Finance for battery • Promoting 

Charging training (if needed) productive 

Station • Licensing • Productive DC applications applications of 

• Covenant for electricity

Mini-Utility • Initial plant energy service • Finance for productive 

provision with applications

community

Retailer • Working capital • Finance for individual RE

 for inventory, systems bought from retailer 

 operating costs 
Battery-Charging Stations

What Is a Battery-Charging Station?

Battery-charging stations use a central power

source to charge portable batteries as needed.

The batteries are used in customers’ homes to

power television sets, lights, or other loads. 

Customers can pay per charge or a set monthly

fee for a certain number of charges. Other electrical equipment, such as electronics for battery

protection, may be provided by the user or by

the BCS enterprise.

The Advantages of a BCS

Centralization of the power system can capture the economies of scale offered by renewable

energy technologies such as wind and hydroelectric, as well as diesel generators. A BCS also

takes advantage of economies of scale in administration and operation and maintenance. It can

centralize technical aspects of energy production

and equipment maintenance with the power 

system located in a secure location near the 

target market. A locally based representative or

entrepreneur can perform the necessary maintenance along with operation.

As with users of other RE technologies, BCS

users enjoy the benefits of a smoke-free household and better quality of light. Electric systems

also reduce the likelihood of fire caused by

tipped lamps. In addition, a locally situated BC

is also more convenient than a distant, gridpowered one. For users, the low level of comm

ment—particularly with per-charge fees—me

that a BCS can closely match what customers

might have paid previously for battery chargi

kerosene, or dry cells.

Fee Payment Structure

As the capital cost for a renewables-based

BCS is much higher than that of a grid-connec

BCS, the user fees are likely to be higher, and t

investment may have a longer payback period

The BCS operator may choose to take paymen

on a per-charge basis, or may employ a month

subscription plan. The latter offers more secur

because the customers make a commitment to 

certain number of charges per month. 

Photovoltaic Battery-Charging Statio

versus Solar Home Systems

Battery-charging stations work best with

technologies, such as wind turbines and hydro

electric or diesel generators, that benefit from

economies of scale. In the case of photovoltaic

the quality of service from a BCS is much the

same as that from a solar home system.

Figure 7.1. Battery-charging station

SGA Energy Ltd., Ottawa, Canada/PIX07912

Teotonio Vilela Foundation

For-profit project developers can link 

with other entities, including nonprofit orga

nizations, government agencies, and local

entrepreneurs to provide efficient, costeffective service via a renewable-energypowered BCS. The Teotonio Vilela Foundatio

(FTV) launched a program in 1996 to help

energy entrepreneurs administer a photovoltaic BCS financed by the U.S.-based

Golden Genesis Company and the Northeas

Bank of Brazil. Under the Luz do Sol program

entrepreneurs from each community manag

the systems installed by FTV, taking responsibility for collection, administration, and

operation of each BCS and paying for the 

systems over time. 
Transportation of batteries can be inconve

nient, and carelessness may harm the batteries.

Although batteries may reach full states of

charge regularly and predictably (each time they

are brought to the BCS), the battery life can be

significantly shortened because customers will

usually want to drain them as fully as possible

before recharging. A low-voltage disconnect

incorporated into the battery or in-house wiring

can mitigate those effects to some degree. 

In spite of these drawbacks, photovoltaic

BCSs may make sense in off-grid situations

where:

• Demand for many customers is lower than the

amount of energy offered by standard standalone systems

• End-user financing is scarce

• The BCS is used as a transitional phase or 

in conjunction with stand-alone system 

dissemination

• The BCS institutional structure provides the

necessary income for a maintenance and customer service entrepreneur that cannot be 

developed through an SHS program. 

Institutional Structure of the BCS

The batteries can be owned by the BCS ope

tor/administrator or by the individuals. There

are advantages and disadvantages to each

option. On one hand, BCS ownership facilitate

standardization of the batteries, can allow for

bulk purchasing of the batteries, and can ensu

regular battery maintenance. This avoids the

technical difficulty of charging batteries of dif

ent specifications, lifetimes, and characteristic

However, customers may mistreat or overdischarge the batteries at home or in transport

Figure 7.2. Micro-hydro is commonly used to

supply minigrids.

IT Peru—Lending for Mini-Utilities

IT Peru, an affiliate of the U.K.-based Intermediate Technology Development Group (ITDG), has developed a suc

cessful program that provides financing to develop micro-hydroelectric mini-utilities in rural areas of Peru. A

nonprofit organization, IT Peru used long-term concessional financing from the Inter-American Development Bank

(IADB) to start a revolving loan fund for micro-hydro and to leverage many additional funds. By 1998, the organization had financed 15 systems, including 5 for individual clients and 10 for communities, with five-year, 8% loans for

$10,000 to $50,000. Financing was an important factor in allowing communities to access the technology. IT Peru set

up "Credit Operators" to handle the analysis and administration of the loans and to separate the financial decisions

from the technical and organizational ones.

Because of the high dispersion rate in the target market, IT Peru chose to aggregate the larger power loads in 

central locations and avoid the cost of minigrids, as in the MEZ concept. Thus, the hydro systems powered on-site

grain mills, for example, while providing battery-charging for the dispersed domestic market for lighting, radio, and

television.

When, despite its innovations and the relative successes of its financing plan, IT Peru still found that the rural

communities could not fully cover the costs of the energy systems, it was able to leverage the financing plan with

municipal grants to cover the total system infrastructure.18 More information about the ITDG Program is given in 

the case study section.
Individual ownership of the batteries, on the

other hand, can lead to greater user responsibility with regard to battery use and abuse, and

shifts the responsibility for maintenance onto the

customer.

From the point of view of the local entrepreneur, a single BCS can be a sustainable, profitable

operation. The entrepreneur might require

access to financing and technical assistance, but

can otherwise be self-sustaining. 

Mini-Utilities

What Is a Mini-Utility?

A second type of energy entrepreneur

extends electric lines to neighbors, creating a

local, decentralized mini-utility. The owner

charges a fee based on the expected loads, such

as a monthly per-bulb fee. Usually these arrangements involve quantities so small that they do

not warrant the cost of meters; although, for 

systems of sufficient size, metering can provide 

a more accurate distribution of cost. These

schemes are likely to be effective with renewable

energy systems based on wind or hydroelectric

generators, where economies of scale (or product 

availability) may lead to purchase of systems

larger than necessary for the primary user. 

Mini-Utilities and Energy Efficiency

Mini-utility entrepreneurs can benefit from

learning about energy-efficient products. For

example, a supplier able to serve 10 households

using 100-W incandescent bulbs will be able to

Enersol Training Program

Would-be solar entrepreneurs in the Dominican Republic

trained by Enersol Associates or ADESOL were subsequently provided access to end-user financing for their customers to help

them gain experience. Enersol and ADESOL not only trained the

entrepreneurs in the technology design, installation, and maintenance, but also touched on business development and microenterprise management. Such skills training may make the RE retailers

more appealing for working capital loans from microfinance 

organizations, as happened in certain cases in the Dominican

Republic.

Figure 7.3. South Africa solar shop

Gabriel/02618857

Biogas Support Program

Standardization

Although this guidebook focuses on elec

trical energy, valuable lessons can be learned

from a biogas development program in Nepa

The Biogas Support Program of the Netherlands Development Organization (SNV) and

the Government of Nepal trains and licenses

biogas-digester suppliers. The program prescribes the exact dimensions and materials o

every size system and enforces them through

follow-up checks. The improved reliability o

the biogas digesters helped catalyze market

penetration to more than 20,200 customers

between 1991 and 1997. Although the suppli

benefited from the legitimacy they acquired

through participating in the program, not all 

them appreciated the increased competition.

By standardizing the design so stringently, th

method has reduced the ability of different

suppliers to compete with each other based o

their design. By 1997, two of the licensed com

panies had closed their businesses because o

diminishing returns. However, this method

protected the consumer and led to a growth i

both the number of suppliers and the size of

the market.
serve 66 households using 15

W compact fluo

rescent bulbs providing the same quantity of

lumens.

Regulatory Environment

Entrepreneurs in some countries may 

be faced with prohibitions or restrictions 

concerning the sale of power. Some countries

offer concessions to private energy developers to

be the sole providers of electric services in a particular area. Other countries provide a monopoly

to a governmental or quasi-governmental utility.

In some cases, the law requires electric service

providers to meter and charge on a consumption

basis, or to set electric tariffs at a particular rate.

RE System Retailers 

What Is an RE Retailer?

Energy microentrepreneurs can take the 

form of local renewable energy system retailers/

installers. These operations may employ as few

as one to three employees, require under $5,000

in working capital, and benefit from being based

close to the rural market they serve. Such entrepreneurs can be crucial links in the renewable

energy product and financing delivery chain,

particularly in markets not served by larger 

businesses. Many rural PV technicians have

emerged throughout the world who sell small

PV systems for $500 to $2,000 each and install

perhaps 2 to 10 systems per month, managing 

to make a decent income from this service in the

process.

Training, Licensing, and

Standardization

Training, licensing, and standardization can

help strengthen RE system retailers, the market’s

acceptance of their product offerings, and their

access to financing. 

The Role of Working Capital

Microfinance in the form of working capital

loans can be important to the RE system retailers

who serve the rural markets. Solar retailers may

be able to sell single systems with little invento

by obtaining credit from distributors, paying 

off the credit after receiving payment for each

installed system. The accumulated profits 

eventually allow the retailers to maintain a sm

inventory of system components. Microfinanc

loans for working capital may help accelerate 

RE retailers’ businesses, allowing them to keep

inventory, expand their retail or storage space

ease transportation to reach clients, and equip

themselves more fully with tools and other 

materials. 

Microfinance to rural customers of energy

microentrepreneurs can help expand the mark

size for RE products. The existence of a micro

nance program for RE can also shift the burde

of providing end-user finance from the entrep

neur to the microfinance institution.

Noor Web—Blending Approaches

In Morocco, an innovative melding is

occurring between the three types of energy

entrepreneurs. Noor Web is offering a franchise for renewable energy businesses, whic

offer services combining the three models pr

sented earlier. These businesses will offer ba

tery-charging services from their in-house PV

systems, retail solar home systems, lanterns,

electric tools, appliances, and maintenance

supplies; they may also house a PV utility

company. In the future, such stores may offer

complementary income-generating activities

including movie showings and telecommun

cations. The franchise approach offers business training, access to financing, and

connections to equipment suppliers to support and strengthen the entrepreneurs.
CHAPTER 8. 

CASE STUDIES

Introduction

This chapter presents six case studies. In

some cases, a description of a benificiary entrepreneur’s business is given. This is followed by a

description of the institutional framework that

empowered the entrepreneur to access renewable energy. Each case highlights a different

interpretation of the institutional approaches

described earlier in the guidebook. Combined,

these cases provide valuable lessons that can be

used in designing future programs to provide

energy access to microentrepreneurs.

Grameen Shakti: Providing

Energy Services within a

Microcredit Framework in

Bangladesh

Hanif is a sawmill operator in the small village of Dhalapara in central Bangladesh. Hanif

earns $0.20 per cubic foot for sizing timber

brought to him by local villagers. He normally is

able to size 200 cubic feet per day, earning $548

per month after the salary of

his assistant and the cost of

fuel for the diesel-powered

mill are subtracted. In 1997,

Hanif was able to take advantage of a Grameen Shakti 

program that provided solar

energy systems on credit. 

For $270, Hanif was able to

purchase a 17-W PV system

including a PV panel, battery,

charge controller, and two

fluorescent lamps. The system enabled his business to

operate an additional four hours per day, incre

ing his cash flow by 50%. These profits are high

enough to repay the system within two month

and make his business prosper. He is now the

owner of a second sawmill in a neighboring 

village.

Recognizing the need for electricity for

microentrepreneurs such as Hanif, the Grame

Bank embarked on a renewable energy initiati

in 1996 by starting an affiliate not-for-profit co

pany called Grameen Shakti. Grameen’s expe

ence with several institutional models illustra

the comparative advantages of both the all-inone and strategic-alliance models for end-user

finance of renewable energy systems. Althoug

Grameen’s solution most closely fits in the all-

one category, the final outcome is a hybrid of t

two approaches. 

From the beginning, the Grameen Bank

decided to separate the renewable energy pro

gram from the banking program. The renewab

energy program needed to be able to stand on 

own and would not be allowed to adversely

affect the sustainability of the bank itself. Mor

over, bank officials were too busy to conduct t

time-consuming job of sales, marketing, and s

tem maintenance. As an independent compan

Grameen Shakti capitalized on the bank’s rura

network and reputation as it built its own network around the existing infrastructure. 

Although Grameen Shakti had originally

intended to target bank members, it soon foun

that the most eager customers fell in a higher

economic class. The wealthier villagers showe

the greatest interest because they had greater

resources and could more comfortably afford 

systems. Also, they tended to be leaders in the

community. When they bought a system, the r

of the village would come to look at it and dec

if they wanted one. Grameen intuitively found 

it useful to support this process. Because the 

customer base of Grameen Shakti was to inclu

this group in addition to the bank members,

Grameen Shakti needed to develop an additio

financing mechanism to serve these customer

Figure 8.1. A sawmill in

Bangladesh gets electricity

from PV.

April Allderdice, NREL/02618839
Realizing that they knew little about renew

able energy technologies, Grameen tried to bring

private-sector expertise to the project. Two solar

suppliers based in Dhaka, the capital, were

brought in to design and sell the SHSs through

the Shakti network and credit program. Through

this process, the Shakti engineers became familiar with the technology. It soon became apparent

that Shakti could lower the cost of the systems 

by putting their own engineers in the field to do

sales, installation, revenue collection, and maintenance full time. Grameen Shakti used the

bank’s approach of hiring low-cost, minimally

educated labor, and training them on the job.

This labor is much less expensive than the university-educated and city-based engineers

employed by the private-sector suppliers. Moreover, this approach sidestepped the expense of

travel from Dhaka to the village for every maintenance call.

The Grameen Bank experience is constantly

used as a reference in Shakti’s development.

Relying on their experience with scaling up the

bank’s branch network, Grameen Shakti did not

target the national market from the beginning.

The viability of the Shakti program, like that of

the bank, depends on the existence of the rural

sales and service network. In areas where that

network did not yet exist, Shakti did not advertise systems. Rather, Shakti targeted five small

regions of the country, within a day’s travel 

from each of their unit offices. Profits from those

areas will fuel new units in other areas as sales

increase. 

In the Bangladesh political environment,

removing an SHS from a poor villager’s house

may bring down negative publicity on the

Grameen name. In one particular instance in

which a Grameen Shakti customer was unable to

repay, Grameen Shakti used a mechanism that

Grameen Bank has used with other loans in the

past; it transferred the SHS and the repayment

schedule to another member of the community.

When a Grameen Bank member suffers a setback

that makes repayment difficult, Grameen Bank

usually tries to transfer the loaned item to

another member of the group. In this way, the

credit of the group remains strong, and the

group retains the benefit of the incomegenera

ing item. 

By 1999, Grameen Shakti had sold more th

1,000 SHSs from 10 unit offices. The organization’s initial successes and links with the stron

MFI helped to attract $750,000 in investment

from the IFC’s Small and Medium Enterprises

Program in 1997. In addition to these commer

solar sales operations, Grameen Shakti also

developed pilot projects for activities that fall

within its mission of developing energy

resources for rural microentrepreneurs. One

such major research effort was the developme

of microenterprise wind power zones, which

were discussed in Chapter 6. These microente

prise zones provide 24-hour AC power on a fe

for-service basis to entrepreneurs who carry o

electricity-utilizing enterprises on the premise

Systems were installed beginning in Novembe

1998.

Global Transition Group: 

Renewable Energy for and

through Microenterprises

Electricidad del Sol

Electricidad del Sol is a PV retail business 

in Partido, Dajabon, in the northwestern

Dominican Republic. Teofilo Cepeda, its

Figure 8.2. Training of Haitian

solar technicians

Enersol Associates, Inc./02618847
founder, proprietor, and sole full-time employee,

makes a living selling stand-alone PV systems 

to rural customers, both microenterprises and

households. Along with offering a variety of PVsystem sizes for different loads, Electricidad del

Sol is able to offer access to third-party financing

for PV customers through the company’s linkage

with the Dominican NGO Association for the

Development of Solar Energy, Inc. (ADESOL).

Electricidad del Sol sells systems with about

a 20% gross margin. With 50-watt systems priced

at around $800 and a low overhead, Cepeda can

make a good living selling two to six systems

monthly, with supplemental income from cattleraising. Between 1988 and 1998, Electricidad del

Sol sold over 500 systems.

ADESOL

Although many of Electricidad del Sol’s

clients have paid cash, consumer financing has

played an important role in catalyzing the market and extending the microenterprise’s reach.

That financing has generally come from

ADESOL , an organization that promotes innovative energy solutions for nonelectrified zones 

of the Dominican Republic. The strength of its

efforts, particularly in the field of PV, comes from

its support of a network of independent PV

microenterprises such as Electricidad del Sol. 

By financing the individual household and

small-business customers of the microenterprises through those same enterprises, ADESO

has sought to economically and efficiently join

product supply and third-party financing to 

catalyze microenterprises.

Since its conception, financing has been an

integral part of ADESOL’s mission. The organ

zation began in 1984 as a small community

group—Dominican Families for Solar Energy—

organized to seek financing for PV system 

acquisition. The families used seed money fro

the local United States Agency for Internation

Development (USAID) mission to start a 

revolving loan fund to finance initial purchase

ADESOL, in its original form and later as an

organized nonprofit, has always worked close

with Enersol Associates, Inc., a U.S.-based non

profit organization whose founder introduced

the first rural lighting system that led to the 

creation of ADESOL. 

Electricidad del Sol’s Cepeda has been

involved in ADESOL since its expansion beyo

the small community group, as a board memb

and now as president of the board, which is co

posed chiefly of representatives from different

PV microenterprises. ADESOL works closely

with the network of small, local PV enterprise

the Solar Network—which provide a crucial

product-supply link between importers/distr

utors and the rural customer base. Many of th

enterprises in the country have formed as a

result of Enersol/ADESOL training activities,

which focus on developing microenterprises a

on creating supportive environments within t

NGO and government communities. This tech

nical training has led to the creation of approx

mately 15 independent microenterprises. Thes

small businesses often have only one to three

employees, but are well-positioned to serve lo

rural markets. The businesses procure equipment from any of the country’s four to five dis

tributors of PV components and sell complete

installed, and guaranteed systems to househo

or small businesses for lighting, entertainmen

and other electrical energy needs.

Figure 8.3. ADESOL-supported RE retailer

business with wind turbine

Enersol Associates, Inc./02618846
ADESOL

s limited amounts of consumer

financing help support microenterprises. The

businesses in the Solar Network access ADESOL

credit for their customers and serve as financial

intermediaries—qualifying customers, processing loan agreements, charging down payments,

and collecting monthly payments after installation. New member businesses have access to

small amounts of ADESOL consumer financing

initially, then build up their access with a track

record of successful deployment and recovery 

of financing.

ADESOL has tailored its financing to local

conditions. In some respects, the terms of the

end-user financing match those of other types of

financing the rural customers might be able to

access. The interest rates, reflecting concerns

about devaluation of the Dominican peso, are

often as high as 2.5% per month over the original

balance—an implied rate of almost 50% for a

two-year loan. The term of the loans is up to 24

months—longer than the same customers could

typically access for other consumer items such as

domestic appliances. ADESOL customers sign

contracts indicating that the systems can be

removed for nonpayment, yet requires no other

guarantee (unlike other lenders). The success of

ADESOL’s financing, even at high interest rates,

demonstrates the significant value of financing

in rural markets, as well as the high cost of cap

tal for would-be rural customers for PV.

Financing from ADESOL has played a cruc

and successful role in extending the reach and

increasing the business experience of the Solar

Network microenterprises, particularly in the

early stages when clients are less inclined to ri

investing because of unfamiliarity with the tec

nology. Donations or loans from institutions

such as USAID, the Government of the Nether

lands, the Global Environment Facility (GEF),

and various U.S. foundations have allowed

ADESOL to finance systems for more than 600

households and microenterprises through the

Solar Network. That financing has accompani

a much greater number of cash sales by the So

Network and other companies: the microenter

prises that ADESOL works with have installed

more than 5,000 systems since the mid-1980s,

while the total for the Dominican Republic as 

whole is approximately twice that figure.

Soluz Dominicana

An outgrowth of the original model micro

enterprise involved with ADESOL is now one 

the country’s leading RE companies, Soluz

Dominicana, S.A. This company is implement

ing an important innovation by linking financ

and product supply. Based in the north-coast

province of Puerto Plata, it offers a PV fee-forservice option to rural microenterprises and

households in Puerto Plata and two neighbori

provinces. Customers pay set monthly fees for

service for any of several complete PV system

packages; the company maintains ownership

and responsibility for maintenance and repair

By late 1998, Soluz Dominicana was serving

almost 1,800 PV fee-for-service customers.

Soluz Dominicana’s customers include a

range of microenterprise types, including man

small country stores using the energy for light

ing, radio and television, thus helping them to

attract customers during longer working hour

Soluz Dominicana has also introduced a PV

refrigerator package, to meet increasing portio

of the stores’ energy needs with renewable

energy. In some areas, the fee-for-service or

Figure 8.4. Enersol supports PV for coffee

cooperative members in Honduras.

Enersol Associates, Inc./02618845
retailed PV systems power customers

 cellular

phones and blenders, products which can easily

translate into income generation. Through its

wholesale activity, Soluz Dominicana is among

the distributors supplying system components

to PV system installers in other regions.

Soluz Dominicana has served as a model for

operations elsewhere. The company’s parent,

SOLUZ, Inc., launched a similar operation in

northwestern Honduras in 1998, serving rural

microenterprises and households through a PV

fee-for-service offering. Soluz Dominicana’s key

personnel have been involved in ramping up the

Honduran enterprise to serve large numbers of

rural customers. 

Enersol, SOLUZ, and a joint-venture consulting firm together form the Global Transition

Group, an organizational alliance committed 

to the global transition to sustainable energy

through a variety of rural initiatives and 

innovations.

Lessons Learned

• Microenterprises: Microenterprises play key

roles in the growth of renewable energy use.

Small PV retailers can be crucial links in the

product supply chain between importers and 

distributors in larger cities and the rural market.

Where qualified, retail microenterprises can a

be effective conduits for consumer financing, 

acting as financial intermediaries for client qu

fication and payment collection. Microenterprises can also be important, early adopters of

PV technology because of the more immediate

return on their investments in higher-quality

energy services.

• Sustainability: ADESOL and Enersol have

consistently emphasized full-cost recovery in

financing to make the most efficient use of sca

funds and help attract more commercial mone

to the financing effort. Working directly throu

local microenterprises has helped strengthen

those businesses’ ability to supply systems an

operate their businesses responsibly.

• NGO All-in-One Financing: In some cases,

NGOs that have set up revolving credit funds

with help from ADESOL have used them in

ways that have undercut, rather than strength

ened, local PV microenterprises. In particular,

this undercutting has occurred when the NGO

used grant funds to subsidize marketing, sales

and installation of the PV systems, rather than 

offering just financing and promotion. These

practices appear to risk hampering the develo

ment of the local market as a whole. 

• Fee-for-Service: Soluz Dominicana’s feefor-service strategy can be an effective way to

combine product supply and financing within 

a commercial framework, bringing the necess

capital to bear to reach a significant portion 

of unelectrified rural microenterprises and

households.19

Winrock International:

Community-Based Power for

Microentrepreneurs in

Indonesia

An onion grower in Indonesia was accustomed to working 1,040 hours per season, 

hauling water to irrigate his crop. These effort

produced a crop valued at $550. Using a wind

powered community water pump, this farmer

was able to increase his crop and his income

Figure 8.5. SOLUZ customers in Honduras sewing

under light from a rented PV system

Paul Wormser/02618851
fourfold and reduce his labor to 100 hours per

season. In return for the water service, the farmer

pays a fee of $0.10 per cubic meter of water used

to the community committee that manages the

water-pumping system. This amounts to about

$40 per month in expenditures during the sixmonth dry season. His profit of more than $1,400

per season makes the cost worth it, particularly

for his children, who can now attend school

rather than work in the fields. 

This community wind pump and nine other

community-based wind energy systems were

made possible through a market development

initiative of Winrock International, Wind for

Island and Nongovernmental Development

(WIND).

Policy Framework

The purpose of the WIND project is to

strengthen the local capability to adapt windbased energy technologies to numerous applications. The project endeavors to build a sustained

interest in renewable energy and the potential

for economic development that it can bring to a

rural area. As the microenterprises build their

capability to utilize renewable energy, they create a market for future renewable energy development. By demonstrating that the cost of the

systems can be recovered through end-user fees,

project managers hope to attract private-sector

investments in energy enterprises. Private-sector

development of renewable energy would create

a sustainable means of providing power to fuel

long-term rural economic development. 

Funding

USAID provided funding to Winrock International to develop 10 windpower sites in

Indonesia as part of its contribution to the GEF.

Winrock was the ideal candidate based on its

long experience working in the region and the

existence of nearby Winrock programs that also

support and develop microenterprise. 

Institutional Mechanics

As of February 1999, nine community-ope

ated wind energy systems had been installed.

Each system has a working group, made up of

local technicians who carry out the routine ma

tenance and customer service tasks. When pos

ble, an NGO is involved in the project to condu

the revenue collection and fund the working

group. The end users are responsible for a service fee, which is metered according to energy

usage or volume of water. The NGO assumes

responsibility for revenue collection and recei

15% of the fees as operating costs. The remain

of the fees are put in a maintenance account.

Once the account reaches a certain amount, th

funds are used to expand the system in a mann

that the community decides. In a few situation

an NGO could not be identified to assume

responsibility for the systems. In those cases, a

community committee is formed to assume th

responsibility. In general, it is easier for an NG

or a committee to collect payments rather than

an individual because in these villages, it tend

to be culturally inappropriate for an individua

to press friends or family for payment, wherea

an NGO is sufficiently impersonal to complete

the task. 

Technical Systems

The systems use 10-kW and 1.5-kW Bergey

Windpower Company, Inc., energy systems.

Each system includes a wind turbine, at least o

inverter, a diesel backup, and a battery bank. 

Applications

• Irrigation—Six of the sites use wind energy 

irrigation. In these cases, entrepreneurs use th

water to diversify their agricultural activities t

include high-priced vegetables, citrus, or lumb

or to merely increase their present activities. T

citrus growers had access to a microenterprise

assistance program, which taught them to sele

products for size and consistency, establish eff

cient transportation links to the urban market

improve the freight packaging, and develop a

brand name for the produce. One vegetable
grower increased her production and profit 

fivefold.

• Ice-making—Several entrepreneurs used the

electricity to make ice for sale to local fishermen.

The availability of ice enabled the fishermen to

store their catch until the market demanded it.

Fishermen are now able to avoid the middlemen

who took advantage of their lack of options, and

now sell to trawlers that take their products as

far as South Africa. 

• Other Applications—One of the priorities of

the WIND project was to develop a wide range

of capabilities when applying renewable energy.

Entrepreneurs use the systems for a wide variety

of applications from power tools to corn grinding to chick incubation. As these local communities develop technical capacity in these

enterprises, they also increase their ability to

reap economic growth from renewable energy

resources.

Intermediate Technology

Development Group: Financing

Micro-hydro Entrepreneurs in

Peru

The El Tinte cooperative in Peru produces

fresh milk for a distribution company called

INCALAC. They have four cows and produce

about 500 liters of milk per day. Before they

installed their micro-hydro power plant, they

milked the cows by hand and carried the product to cool in the river. The inconsistent quality of

milk this method produced resulted in a low

purchase price of $0.06 per liter rather than the

full price of $0.11 per liter. The addition of energy

has improved the productivity of their enterprise

in several ways. They use a refrigerator to control the temperature of the milk, resulting in

higher quality and better hygiene, and a consistent sales price of $0.11 per liter. This provides an

additional income of $671 per month. As the

total system cost $35,000, the additional income

allows the cooperative to pay for the system

within five years. In addition, the cooperative

has reduced its labor expenditure by using electric milking machines. The houses near the dairy

have all been electrified, and distant houses 

are able to charge 12-V batteries for domestic

lighting. As a further benefit, the cooperative

installed a grain mill. The members save the co

of transportation to the city and create a viable

business in their own community. 

Revolving Credit Fund

El Tinte was able to acquire its micro-hydr

power station through a loan from a fund set 

up by the IADB, and managed by Intermediat

Technology Peru (IT Peru). The rotating fund 

for micro-hydro power plants has funded 15 

systems to date in rural Peru. The loans are

repaid in five years at 8% interest. The credit

amount varies from $10,000 to $50,000. The fu

is capitalized with $400,000 at a 1% interest rat

over 25 years plus a technical assistance grant

ITDG is currently seeking financing to expand

the fund, as demand exceeds the current avail

ability of funds.

Technical Assistance

ITDG has done significant research in micr

hydro power stations. Because of ITDG’s high

level of technical sophistication, it is able to pr

vide technical assistance in designing and

installing the system for the entrepreneurs.

Applications

• Battery Charging—Several of the micro-hyd

plants have decided to offer battery-charging

services to their communities. They usually

charge the same or a lesser price for the service

than is charged in the nearest electrified town.

Local villagers save not only on the service pri

but also on the substantial time and cost of 

transportation.

• Carpentry Workshop—Many of the microhydro plants use the electricity for some sort o

workshop (e.g., carpentry or blacksmithing).

One carpenter converted a diesel-powered

workshop to micro-hydro, powering a circula

saw, drill, planer, and a small 600-W generator

for lighting.
 Grain GrindingGrain grinding can be

accomplished using the motive power of microhydro without converting to electricity. 

• Minigrids—One of the entrepreneurs provides

power to 30 families in the vicinity of his station.

This entrepreneur controls the load to his customers through current-limiting fuses that disconnect at 150 W. Income from this enterprise, 

in addition to battery charging, allows this loan

to be repaid within five years.

Teotonio Vilela Foundation

(FTV): Franchising PV Power

Entrepreneurs in Northeast

Brazil

The Luz do Sol project provides resources for

microentrepreneurs in the remote rural communities of northeastern Brazil, allowing them to

start their own solar battery-charging stations.

This large FTV program works somewhat like a

franchise, with Luz do Sol providing a business

plan and training for the entrepreneurs, as well

as access to financing and equipment. A key benefit of the project will be the creation of a viable

commercial energy market where none previously existed, and thus increased income for the

families of microentrepreneurs and the potential

for more new microenterprises. Through this

and other projects, FTV has become one of

Brazil’s most experienced institutions in the field

of renewable energy. FTV is a private, nonprofit

foundation established in 1984 in Brazil. FTV’s

strengths are the staff’s technical abilities and

expertise in the installation and repair of solar

equipment. The institution has also demonstrated an ability to effectively organize lowincome rural communities around the issue of

renewable energy, while maintaining a business

approach to their activities. 

The Actors

• The Inter-American Development Bank—

In mid-1998, FTV requested financing and technical cooperation funding from the IADB for the

Luz do Sol program in order to introduce and

strengthen solar energy service microenterpri

in rural, northeastern Brazil. Under this proposal, FTV is specifically prohibited from beco

ing a financial intermediary; nevertheless, it m

act as the conduit between finance and equipment sources and solar energy microentrepreneurs at the community level. FTV arranges

financing for microentrepreneurs through the

Northeast Bank of Brazil (BNB) and the Golde

Genesis Company (GGC). By maintaining the

involvement of formal financial intermediarie

FTV reduces its risk and creates favorable con

tions for expanded financing in the future. 

• Northeast Bank of Brazil—BNB has made

$10.4 million ($U.S.) available to the Luz do Sol

project, sourced from a special government lin

of financing targeted to promote renewable

energy. As of May 5, 1998, the rate payable by 

Figure 8.6. A battery-charging station brings

household lighting and television to the

surrounding community members.

Figure 8.7. A Peruvian carpentry workshop
microentrepreneur on the BNB line of credit was

11.1% annually, compared to the open-market

rate of 19.5%. BNB finances 54% (or $14,850

[$U.S.]) of each microentrepreneur’s initial

equipment investment. The loan is amortized

over 12 years, including an initial grace period of

six months during which interest is payable at

the end of the third and sixth months.

• Golden Genesis Company—FTV has also

arranged up to $8.1 million ($U.S.) in financing

from the GGC. GGC will finance the remaining

$12,650 ($U.S.) of the initial investment and

charges the microentrepreneur a fixed rate of

11% per year. GGC pays 2% to BNB as a fee for

funds management. GGC financing is amortized

over 5.5 years, including an initial grace period

of six months during which interest is payable at

the end of the third and sixth months.

GGC supplies all of the solar energy equipment. FTV, in turn, installs the battery-charging

systems on the property of the microentrepreneur and the electrical fixtures in the homes of

users. GGC financed the start-up of the Luz do Sol

program in 1996–1997, and pays FTV $2,641

($U.S.) for each system installed. This fee-forservice payment is made in return for FTV’s 

services of identifying and mobilizing communities, establishing microenterprises, providing

business and technical training to microentrepreneurs, and monitoring the finances of the

program.

The Market

In the three states of Alagoas, Bahia, and Pernambuco, along with the northern portion of

Minas Gerais, there are more than 1.1 million

properties without electricity. Grid electrical services for these rural areas are unlikely in the near

future due to the combination of low industrialization, poverty, dispersed population, and 

difficult terrain. In this semi-arid region of northeastern Brazil, small farms and businesses are

vital to the survival of the majority of families. In

Bahia, for example, microenterprises and small

businesses generate 45% of the state’s gross

domestic product and 75% of employment.

Selecting Communities

Prior to the first installation, FTV carried o

significant work identifying and qualifying co

munities. 

A community must meet the following crit

ria to be considered for the Luz do Sol project: 

• It must be at least 3 kilometers from the electricity grid and have no electricity supply.

• It must indicate a willingness and ability 

to financially support an energy service micro

enterprise. FTV makes this determination

through meetings with family leaders from th

community.

• A minimum of 50 families must be willing an

able to pay a $10 ($U.S.) monthly energy bill in

order for the microenterprise to be commercia

viable.

• Finally, FTV asks community members to

select one person to manage the new enterpris

This person becomes the energy service 

microentrepreneur.

Figure 8.8. A battery-charging station
After screening and prior to establishing the

microenterprise, FTV requires at least 50 of the

prospective energy customers to pay $10 ($U.S.)

each, which is used as a down payment on the

energy equipment. A single photovoltaic solar

system can provide enough energy for 50 homes

and costs $27,500 ($U.S.).

Viability of the Microenterprise

In the Luz do Sol program, microenterprises

provide battery charging to end users under a

fee-for-service model. Each customer pays $10

($U.S.) per month for as many as four battery

charges, giving the entrepreneur a $500 ($U.S.)

base monthly income. If a user wishes to have a

battery charged more than four times, she must 

pay an additional $2 ($U.S.) per charge. (Typical

expenditures for candles, kerosene, diesel, and

batteries are $5 to $8 each month. These costs

have been reduced, or in some cases, eliminated

by the solar energy service.) 

Challenges

A low loan repayment rate by microentrepreneurs was considered the most significant risk to

the long-term viability of the Luz do Sol project.

Current and potential financing agents, including banks and energy suppliers, will not finance

the microentrepreneurs if they do not have confidence that the loans will be repaid. So far, the

three principal causes for poor repayment have

been technical problems with the equipment,

shortcomings in the financing model, and the

drought that has damaged the rural economy in

the region. 

The Learning Curve

As of 1998, payments in arrears were 8.3% of

the outstanding BNB/GGC portfolio. (As measured by amount of payments overdue divided

by the amount of loans outstanding [in the

repayment phase].) FTV is considering adjustments to the Luz do Sol project in an effort to

reduce the amount of payments in arrears to

5.0%. These modifications include:

 Elimination of the grace period to instill the

discipline of monthly payments

• Creation of a written policy on sanctions for

late payment by microentrepreneurs

• Introduction of a flexible pricing scheme,

which will allow the microentrepreneurs to ea

higher profits, depending upon the number of

users 

• Requirement of a greater number of "commi

ments to use" per community prior to the esta

lishment of a microenterprise, to safeguard

against users dropping out.20

World Bank: Strengthening

Renewable Energy Financial

Intermediaries in Sri Lanka

Sri Lanka has developed a wide array of

options for end-user finance of solar home sys

tems. The history of the relative success and fa

ure of these mechanisms illustrates the pitfalls 

of end-user finance and demonstrates that

microfinance institutions may well be the mos

suitable entities to facilitate finance for rural

energy services. 

Government/Donor Initiative

In Sri Lanka, efforts to provide credit to ru

consumers for the purchase of renewable ener

technology began in 1989. The governmentowned People’s Bank, which has an extensive

network of branches in rural regions, agreed t

target rural consumers, who earn an average o

less than $50 per month (for the SHS investme

of $200). Approximately 40 loans were extend

The failure of this program to effectively reach

poor rural borrowers is believed to lie in gener

apathy on the part of the branch staff toward

small loans and wariness of a new technology

The gulf between the formal financial instituti

culture and rural needs was too great to permi

effective energy dissemination.
The Energy Services Delivery Project

In 1996, a line of credit opened the door for

many types of renewable energy project developers and participating credit institutions (PCIs)

to provide solar home systems to the rural market. The World Bank’s Asia Alternative Energy

Unit and the Sri Lankan government funded the

Energy Services Delivery Project (ESD) in 1996.

The $50–$55 million fund promotes the use of

renewable energy in rural areas of Sri Lanka.

Ten million is allocated specifically for the dissemination of SHSs by providing financing for

the installation of 30,000 systems over five years. 

A key component of the venture is financing

for consumers. In some cases, the project developer includes an in-house financing unit to

assess potential customers, provide loans to eligible buyers, and ensure that a system is in place

for collecting repayment. In other cases, the project developer forms a strategic alliance with a

PCI to take care of the end-user financing. By

opening the door for nongovernmental organizations and private-sector entities to work

together, several improvements were gained

over the government-bank-led program.

Private-Sector SHS Vendors

Companies that import or sell PV systems are

generally strong in technical, marketing, and

after-sales support. However, they lack experience providing financing to end users. Solar

Power & Light Company, which by 1999 had

installed 150 SHSs since June 1997, has its dealers

serve as lenders and collection agents for loans

to buyers. Another vendor, Alpha Thermal, has

installed 100 SHSs in a similar manner. Both

companies are finding it difficult to collect 

repayments from many customers. 

One of the difficulties under this model is the

varying degree of ability and commitment each

dealer feels toward financing.

Energy Service Companies

Under this approach, an SHS is installed in 

a household, but ownership is retained by the

ESCO. The customer pays a monthly fee for the

service of electricity. One key to the success of 

an ESCO is density; the ESCO has to operate in

an area where customers are relatively closely

located in order to provide adequate service 

economically.

In Sri Lanka, RESCO, part of the SELCO-U

network, has already accessed the ESD fund to

install 1,000 SHSs. A portion of the fund will b

used to lend to end users and the other part to

operate as an ESCO.

Large Microfinance NGO

Sarvodaya Shramadana Society is one of th

largest NGOs in Sri Lanka. It has an extensive

rural network and is involved in education,

health care, and social, agricultural, financial,

and energy-related activities. Sarvodaya Rura

Technical Services, the technical division of 

Sarvodaya, has been involved in SHS since its

initial demonstration projects with the Solar

Electric Light Fund in 1991.

Sarvodaya already has a rural lending pro

gram administered by the Rural Enterprises 

Program. These organizations are managed by

village residents and provide microfinance for

agriculture, home improvement, and small 

business. 

Two divisions within Sarvodaya coordinat

to implement the SHS project, the Rural 

Enterprises Program, and the Sarvodaya Rura

Technical Services. The Rural Enterprises Program negotiates with the PCI to secure the ESD

funding while Sarvodaya Rural Technical Services markets, installs, and services the SHS.

Both divisions ensure that repayments are ma

on time.

Private Finance Companies

The Finance Company (TFC) is a private

company that provides funds for consumer

goods in rural areas. TFC has an extensive

regional network and operates in remote

regions. Currently, TFC continues to finance 

SHS through the local dealers of Solar Power 

& Light Company. Ironically, the financing of

SHS does not have the sanction of TFC’s head
office; the decision to finance was made by the

regional offices. As such, it does not get much

publicity. TFC’s management has expressed

interest in participating in the ESD, possibly 

with a private SHS vendor in the initial states.

Rural Cooperatives and Banks

The most prominent specialized rural lending organization in Sri Lanka is the Thrift and

Credit Cooperative (SANASA). Established in

1906, SANASA boasts more than seven million

member households. The organization has three

tiers (village cooperatives, regional centers, and

the country-level federation). A unique feature 

of SANASA is the autonomy the village-level 

cooperatives have in their operations. All the 

collected savings only get utilized in the village,

except for the membership fees for the federation. The federation, in turn, provides the financial management systems, training, and other

infrastructure inputs.

One of the latest developments with

SANASA is the establishment of the SANASA

Development Bank, which is a legitimate entity

to access the ESD funds as a PCI. Recently, discussions got under way to develop these areas

between SANASA and the administration unit 

of the ESD. 

Commercial Banks

Hatton National Bank (HNB) has started to

lend directly to SHS customers, with an SHS

vendor supporting the marketing and technical

sides of the operation. The vendor, Solar Power

& Light Company, has identified many interested SHS customers from an area near an HNB

branch. HNB has agreed to lend to 10 customers

as part of a pilot program. The potential customers have to be an HNB customer or open an

account with the branch. Then, after the bank

does the necessary credit evaluation, it will

finance 70% of the cost of the SHS for qualified

customers. 

As part of the ESD project, there is a $100

grant per system provided by the GEF. This

amount is to be held in the customer’s account 

at the HNB branch until the loan is repaid, thu

giving the bank some financial guarantee whi

serving as an incentive for the customer to pay

the loan. This amount is returned at the end of

the three-year period—which acts as a bonus 

for the customer, as part of it could be used to

replace the existing battery. The other option i

to discount the capital cost of the SHS by the

$100 initially. 

Further, HNB secured a guarantee from So

Power & Light Company, which ensures that t

PV module will be repurchased by the compa

in the event of a customer default.

Lessons from the Sri Lankan Experien

With many experiences still in the early

stages, it is difficult to draw concrete conclusio

from the Sri Lankan experience. However, som

trends stand out. The initial donor-led projects

did not focus on establishing a sustainable ma

ket or on providing the customer with the sort 

attention that was needed to attract a significa

number of users. This project depended on a

large urban bank to serve as a financial interm

diary. As the lending culture of private-financ

companies tends to be urban-oriented, such

institutions frequently view rural borrowers a

offering returns too small to be worth their att

tion. Moreover, rural people may distrust the

"urban formalities."

Private, supplier-led initiatives have had

more success because they tend to work more

closely with the villagers to provide reliable cu

tomer service. Moreover, their pricing policies

reflect market rates that foster sustainable mar

ket growth. These initiatives, however, often

experience difficulty in carrying out the functions of rural finance and cost recovery.

Sarvodaya, a microfinance NGO, has show

good progress by using its strength in both rur

finance and technology transfer. Finance

schemes are most successful when operated at 

"grassroots" level with some central supervisi

A "bottom-up" approach empowered the rura

community to understand the technology as w

as manage the micro-credit programs. 
Other rural finance institutions such as 

TFC, SANASA, and Hutton National Bank show

promise as being suitable financial intermediaries for rural energy. The success of these programs will depend largely on the strength of the

strategic alliance they are able to form with the

project developers, and their united ability to

confront several obstacles. These include the 

following:

• The market is isolated in remote areas of the

country.

 The cost of doing business in rural areas is

high.

• The cost of SHS is relatively high for the targ

rural market.

• The urban-based banking system is uncomfortable lending in rural areas and for rural 

projects.

• PV technology is relatively new to the financ

institutions, policy makers, and the market.21
REFERENCES

1. "Proceedings: Productive Uses of Electricity 

in Rural Areas." NRECA Conference: Dhaka,

Bangladesh, November 15–19, 1982.

2. Fraser, B. J. "Microcredit: Big Gain on a Small

Scale." Latinamerica Press. Lima: Latinamerica

Press, Vol. 30, No. 6. February 19, 1998; p. 2.

3. Kittleson, D. "Productive Uses of Electricity:

Country Experiences." Village Power Conference, Washington, DC, October 1998.

4. Nelson, C., MkNelly, B., Stack, K., and

Yanovitch, L. Village Banking, The State of the 

Practice. New York: The Small Enterprise 

Education and Promotion Network and the

United Nations Development Fund for 

Women, 1996; p. 14.

5. Ibid.

6. Johnson, S., and Rogaly, B. Microfinance and

Poverty Reduction. Oxford: Oxfam, 1997.

7. Hatch, J. K. A Manual of Village Banking for Community Leaders and Promoters. Washington, DC:

FINCA, 1989. 

8. Johnson, S. and Rogaly, B. Microfinance and

Poverty Reduction, 1997.

9. Robinson, M. "Saving mobilization and

microenterprise finance: the Indonesian experience." In Otero, M., and Rhyne, E. (eds.), The New

World of Microenterprise Finance. London: Intermediate Technology Publication, 1994, quoted in

Johnson, S., and Rogaly, B., Microfinance and

Poverty Reduction, 1997.

10. Inter-American Development Bank, Internal

Document. "Promotion of Rural Renewable

Energy Microenterprises in the Northeast

Region of Brazil," 1998.

11. Geoghegan, T. and Allen, K. "Interaction

Member Profiles 1997–8." Washington, DC:

InterAction, 1998.

12. Ibid.

13. Ibid.

14. Lilley, A. Challenges for Viable RESCOs.

Village Power Conference, Washington, DC,

October 1998.

15. Naidu and Arora; Pocantico Paper No. 2,

Rockefeller Foundation, 1995.

16. Kittleson, D. "Productive Uses of Electricity

Country Experiences." Village Power Conference, Washington DC, October 1998.

17. Ramani, K.V., "Financing Energy Services a

Income-Generating Opportunities for the Poo

A Case Study of Project ENSIGN." Workshop 

Institutional Co-operation for Solar Energy 

in the Mekong Riparian Countries, Hanoi, Ma

1998.

18. IT Peru. "Energía para el Area Rural del

Peru." Lima, Peru, 1998.

19. "Rural Electrification Based on Solar Energ

Small Grants Programme of the Global Enviro

ment Facility, 1998; John Rogers, personal obs

vations, 1993–99.

20. Inter-American Development Bank, Intern

Document." Promotion of Rural Renewable

Energy Microenterprises in the Northeast

Region of Brazil," 1998.

21. Gunaratne, L. "Funding and Repayment

Management of PV System Dissemination in 

Sri Lanka II." Workshop on Financial Services 

for Decentralized Solar Energy Applications II

Harare, Zimbabwe, October 1998. 
BIBLIOGRAPHY

Microcredit/Microfinance

Bornstein, D. (1996) The Price of a Dream. New

York: Simon and Schuster. 

Christen, R. P. (1997) Banking Services for the Poor:

Managing for Financial Success. Somerville, MA:

ACCION International. 

Fraser, B. J. (1998) "Microcredit: Big Gain on a

Small Scale." Latinamerica Press, Vol. 30 (6). Lima,

Peru: Latinamerica Press, February 19.

Goetz, A. M. and Gupta, R. S. (1996) "Who Takes

the Credit? Gender, Power, and Control Over

Loan Use in Rural Credit Programs in

Bangladesh." World Development. Vol. 24, No. 1;

pp. 45–63.

Hatch, J. K. (1989) A Manual of Village Banking for

Community Leaders and Promoters. Washington,

DC: FINCA. 

Holcombe, S. (1995) Managing to Empower: The

Grameen Bank’s Experience of Poverty Alleviation.

Dhaka, Bangladesh: University Press Limited. 

Holt, S.L. (1994) "The Village Bank Methodology:

Performance and Prospects." In Otero, M. and

Rhyne, E., (eds.). The New World of Microenterprise

Finance. London: Intermediate Technology Publications, quoted in Johnson, S. and Rogaly, B.

(1997) Microfinance and Poverty Reduction.

Oxford, UK: Oxfam.

Jain, P. S. (1996) "Managing Credit for the Rural

Poor: Lessons from the Grameen Bank." World

Development. Vol. 24, No. 1; pp. 79–89.

Johnson, S. and Rogaly, B. (1997) Microfinance and

Poverty Reduction. Oxford, UK: Oxfam. 

Levitsky, J. and Prasad, R. N. (1989) "Credit

Guarantee Schemes for Small and Medium

Enterprises." World Bank Technical Paper No.

58, Industry and Finance Series. Washington,

DC: The World Bank.

Nelson, C., MkNelly, B., Stack, K., and 

Yanovitch, L. (1996) Village Banking, The State of 

the Practice. New York: The Small Enterprise

Education and Promotion Network and the

United Nations Development Fund for Wome

Olivares, M. (1989) "ACCION International/

AITEC: A Methodology for Working with the

Informal Sector." Somerville, MA: ACCION

International, Discussion Paper #1.

Otero, M. and Rhyne, E. (eds.). (1994) The New

World of Microenterprise Finance. London, UK: 

Intermediate Technology Publications. 

Ramola, B. and Mahan, V. (1995) "Financial Se

vices for the Rural Poor in India: Policy Issues 

Access and Sustainablity." Sustainable Bankin

with the Poor. Occasional Papers 6. Washingto

DC: The World Bank.

Robinson, M. (1994) "Saving Mobilization and

Microenterprise Finance: the Indonesian Expe

enc." In Otero, M. and Rhyne, E. (eds.) The New

World of Microenterprise Finance (1994); quoted 

in Johnson, S. and Rogaly, B. (1997) Microfinan

and Poverty Reduction.

Srinivas, S. (1997) "Self-Employed Women’s

Association (SEWA) of India: Paving the Way 

Women’s Economic Progress." Berkeley, CA:

Women and Money.

Stearns, K. (1991) "The Hidden Beast: Delinquency in Microenterprise Credit Programs."

Somerville, MA: ACCION International, Discu

sion Paper #5.

The SEEP Network. (1995) Financial Ratio 

Analysis of Micro-Finance Institutions. New Yor

Pact Publications.

UNDP. MicroStart: A Guide for Planning, Startin

and Managing a Microfinance Programme.

Webster, L. and Fidler, P. (eds.). (1996) The Info

mal Sector and Microfinance Institututions in We

Africa. Washington, DC: The World Bank,

Regional and Sectoral Studies. 

Yaron, J., Bejamin, McDonald, and Piprek, G.

(1996) Rural Finance: Issues, Design, and Best 

Practices. Draft. Environmentally Sustainable

Development Studies and Monographs Series

Washington, DC: The World Bank.
Microenterprise/Productive Uses

Almeyda, G. (1996) Money Matters: Reaching

Women Microentrepreneurs with Financial Services.

Washington, DC: Inter-Amercian Development

Bank.

Aryeetey, E., Baah-Nuakoh, A., Duggleby, T.,

Hettige, H., and Steel, W. F. (1994) "Supply and

Demand for Finance of Small Enterprises in

Ghana." World Bank Discussion Papers, No. 251.

Africa Technical Department Series. Washington,

DC: The World Bank. 

Canadian Council for International Cooperation.

(1996) "Micro-Enterprise Lessons. Questioning

the Panacea: Lessons from a CCIC Learning 

Circle on Micro-Enterprise Development."

Ottawa: Canadian Council for International

Cooperation. September 1996. Available on the

Web at http:// www.web.net/ccic-ccci/policy/

doc13.html.

Creevey, L. (1996) Changing Women’s Lives and

Work: An Analysis of the Impacts of Eight

Microenterprise Projects." London, UK: Intermediate Technology Publications.

Flowers, L. and Phillips, K. (1995) "Renewable

Energy-Based Village Power and Economic

Development." Proceedings: APEC Workshop on

Renewable Energy. Prepared by the Pacific International Center for High Technology Research

(PICHTR). September.

Kittleson, D. (1998) "Productive Uses of Electricity: Country Experiences." Village Power Conference, Washington, DC, October.

Kropp, E. (1992) "Financial Systems for the 

Benefit of the Rural Poor: Appropriate Financial

Systems in Suport of Microenterprise Development." Report of the International Conference on

Savings and Credit for Development: Klarskovgard,

Denmark, 28–31 May 1990. New York: United

Nations; pp. 155–166.

NRECA. (1982) "Proceedings: Productive Uses of 

Electricity in Rural Areas." Dhaka, Bangladesh,

November 15–19.

Ramani, K.V. (1998) Financing Energy Service

and Income-Generating Opportunities for the

Poor—A Case Study of Project ENSIGN." Wor

shop on Institutional Co-operation for Solar

Energy in the Mekong Riparian Countries,

Hanoi, May.

USAID. (1995) "Proceedings: Taller Sobre 

Aplicaciones Productivas de la Energía Eólica 

Fotovoltaica." La Paz, Mexico, October 9–13.

Financing Renewable Energy

Annan, R. (1997) "Realities of Sustainable Dev

opment." In Proceedings of Village Power ‘97, 

April 14-15, Arlington, Virginia. Golden, CO:

National Renewable Energy Laboratory, pp. 3

Annan, R. H., Malbranche, P., and Hurry, S.

(1992) "Strategy for Disseminating/ Commercialising Proven Renewable Energy Technologies." Prospects for Photovoltaics. New York:

Advanced Technology Assessment System.

Department of Economics and Social Develop

ment, United Nations. Issue 8; pp. 153–159.

Arvidson, A. (1995) "From Candles to Electric

Light: Can Poor People Afford Solar Electricity

Renewable Energy for Development. Vol. 8, No. 4

Available on the Web at http://www.sei.se/

red/red9512d.html.

Cabrall, A., Cosgrove-Davies, M., and 

Schaeffer, L. (1996) Best Practices for Photovoltai

Household Electrification Programs: Lessons from

Experiences in Selected Countries. Washington,

DC: World Bank Technical Paper No. 324. Asia

Technical Department Series.

Cecelski, E. (1998) "Gender and Poverty Challenges in Scaling up Rural Electricity Access."

Paper prepared for Village Power ‘98, Washin

ton, DC.

Clement-Jones, R. and Mercier, J. (1995) Towar

Renewable Energy Strategy for Sub-Saharan Afric

Phase 1: Photovoltaic Applications. Paper No. 9.

The World Bank Environmentally Sustainable

Development Division, Africa Region.
Gregory, J., Silveira, S., Derrick, A., Conley, P.,

Allinson, C., and Paish, O. (1997) Financing

Renewable Energy Projects: A Guide for Development Workers. London, UK: Intermediate Technology Publications, and The Stockholm

Environment Institute; 157 pp.

Gunaratne, L. (1998) "Funding and Repayment

Management of PV System Dissemination in Sri

Lanka II." Workshop on Financial Services for

Decentralized Solar Energy Applications II,

Harare, Zimbabwe.

IT Peru. (1998) "Energía para el Area Rural del

Peru." Lima, Peru.

Lilley, A. (1998) "Challenges for Viable RESCOs."

Village Power Conference, Washington, DC.

Lovejoy, D. (1992) "Electrification of Rural 

Areas by Solar Photovoltaics." Prospects for 

Photovoltaics. New York: Advanced Technology

Assessment System. Department of Economics

and Social Development, United Nations.

Issue 8, Autumn; pp. 139–152.

Maldonado, P. and Márquez, M. (1996) "Renewable Energies: An Energy Option for Sustainable

Development." Renewable Energy: Energy, 

Efficiency and the Environment, World Renewable

Energy Congress, Denver, Colorado, 15–21 June

1996. A.A.M. Sayigh, ed. New York: Pergamon

Press; Volume II; pp. 1072–1075.

Northrop, M. F., Riggs, P. W., and Raymond, F. A.

(1996) Selling Solar: Financing Household Solar

Energy in the Developing World. Workshop at the

Pocantico Conference Center of the Rockefeller

Brothers Fund, October 11–13, 1995. New York:

Rockefeller Brothers Fund, Inc., Pocantico Paper

No. 2.

Twiddell, J. and Brice, R. (1992) "Strategies for

Implementing Renewable Energy." Energy Policy,

Vol. 20, No. 5, May; pp. 464–477.

Van Nes, W. and Lam, J. (1997) "Final Report on

the Biogas Support Programme (Phase I and II);

Development through the Market." Kathmandu,

Nepal: Biogas Support Programme; June.

Renewable Energy Technology

Barlow, R., McNelis, B., and Derrick, A. (1993)

"Solar Pumping: An Introduction and Update 

on the Technology, Performance, Costs and 

Economics." New York: World Bank Technical

Paper Number 168.

Cowen, W.D., Borchers, M.L., Eberhard, A.A.,

Morris, G.J., and Purcell, C. de V. (1992) Remot

Area Power Supply Design Manual. 2 vols. Cape

Town, South Africa: Energy for Development

Research Center, University of Cape Town.

Cross, B., ed. (1995) The World Directory of 

Renewable Energy Suppliers and Services 1995. L

don, United Kingdom: James & James Science

Publishers, Ltd.

Duffie, J. A. and Beckman, W.A. (1991) Solar

Engineering of Thermal Processes. 2nd ed. New

York: John Wiley & Sons, Inc.

Fowler Solar Electric, Inc. (1991) Battery Book fo

Your PV Home. Worthington, Massachusetts.

Gipe, P. (1993) Wind Power for Home and Busine

White River Junction, VT: Chelsea Green Publishing Company.

Hankins, M. (1993) Solar Electric Systems for

Africa: A Guide for Planning and Installing Solar

Electric Systems in Rural Africa, rev. ed. London

United Kingdom, and Harare, Zimbabwe: Com

monwealth Science Council & AGROTEC.

Hankins, M. (1993) Solar Rural Electrification in

the Developing World, Four Country Case Studies

Dominican Republic, Kenya, Sri Lanka, Zimbabw

Washington, DC: Solar Electric Light Fund.

Hunter, R. and Elliot, G., eds. (1994) Wind-Dies

Systems: A Guide to the Technology and its 

Implementation. Cambridge, UK: Cambridge 

University Press.

Jimenez, A. C. (1998) Optimal Design of StandAlone Power Systems for Remote Rural Health Fa

ities. Master’s Thesis; Fort Collins, CO: Colora

State University.
McNelis, B., Derrick, A., and Starr, M. (1992)

Solar Powered Electricity: A Survey of Photovoltaic

Power in Developing Countries. London: Intermediate Technology Publications. 

Nelson, V. (1996) Wind Energy and Wind Turbines.

Canyon, TX: Alternative Energy Institute, West

Texas A&M University.

Sandia National Laboratories. (1995) Stand 

Alone Photovoltaic Systems: A Handbook of 

Recommended Design Practices. Report # SAND87-

7023, Albuquerque, NM: Sandia National 

Laboratories.

Solar Energy International. (1998) Photovoltaic

Design Manual. 2nd ed. Carbondale, CO: SEI.

Special Thanks

Doug Barnes, World Bank

Todd Bartholf , Econergy International 

Corporation

Dipal Barua, Grameen Shakti

Brooks Browne, Environmental Enterprises

Assistance Fund

Kathleen Campbell, NREL

Christine Eibs, Singer E&Co

Larry Flowers, NREL

Charlie Gay

Lara Goldmark, Inter-American Developmen

Bank

Lalith Gunaratne

Richard Hansen, Global Transition Consulting

Hank Jacklin, UNDP, Special Unit on 

Microfinance

Tony Jimenez, NREL

David Kittleson, NRECA Bolivia

Peter Lilienthal, NREL

Art Lilley

Kendall Logan, UNDP, Special Unit on 

Microfinance

Susan McDade, UNDP, Sustainable Energy an

Environment Division (SEED)

Ellen Morris, UNDP, SEED

KV Ramani

Chris Rovero, Winrock International

Jerome Weingart

Ron White, NREL
GLOSSARY

Alternating Current (AC)—Electric current in

which the direction of flow oscillates at frequent,

regular intervals.

Altitude—The angle between the horizon (a horizontal plane) and the sun, measured in degrees.

Amorphous Silicon—A thin-film photovoltaic

(PV) silicon cell having no crystalline structure.

Ampere (amp)—Unit of electric current measuring the flow of electrons per unit of time.

Ampere-Hour (Ah)—The quantity of electrical

energy equal to the flow of current of one ampere

for one hour.

Angle of Incidence—Angle that references the

sun's radiation striking a surface. A "normal"

angle of incidence refers to the sun striking a 

surface at a 90° (or perpendicular) angle.

Annualized Cost—The equivalent annual cost

of a project if the expenses are treated as being

equal each year. The discounted total of the

annualized costs over the project lifetime is equal

to the net present cost (NPC) of the project.

Array—A mechanically integrated configuration

of modules together with support structure,

designed to form a DC power-producing unit.

Azimuth—Angle between true south and the

point directly below the location of the sun, 

measured in degrees.

Battery—Two or more "cells" electrically connected for storing electrical energy. 

Battery Capacity—Generally, the total number

of ampere-hours that can be withdrawn from a

fully charged cell or battery. The energy storage

capacity is the ampere-hour capacity multiplied

by the battery voltage.

Battery Cell—A galvanic cell for storage of electrical energy. After being discharged, this cell

may be restored to a fully charged condition by

an electric current.

Battery Cycle LifeThe number of cycles, to 

specified depth of discharge, that a cell or batt

can undergo before failing to meet its specified

capacity or efficiency performance criteria.

Battery Self-Discharge—Self-discharge is the

loss of otherwise usable chemical energy by

spontaneous currents within the cell or battery

regardless of its connections to an external 

circuit.

Battery State of Charge—Percentage of full

charge or 100% minus the depth of discharge

(see depth of discharge).

Charge Controller—A device that controls the

charging rate and/or state of charge for batter

Charge Rate—The current applied to a cell or

battery to restore its available capacity.

Concentrator—An optical component of a ph

tovoltaic array used to direct and increase the

amount of incident sunlight on a solar cell.

Conversion Efficiency (Cell)—The ratio of th

electric energy produced by a photovoltaic cel

(under full sun conditions) to the energy from

incident sunlight on the cell.

Cost of Energy—The cost per unit of energy th

if held constant through the analysis period,

would provide the same net present revenue

value as the net present cost of the system.

Crystalline Silicon—A type of PV cell made

from a single-crystal or polycrystalline slice of

silicon.

Current—The flow of electric charge in a conductor between two points having a differenc

potential (voltage).

Cut-In Speed—The minimum wind speed at

which a particular wind turbine will produce

energy.

Cut-Out Speed—The speed at which a particu

lar wind turbine will reduce its power output 

order to protect itself from excessive wind

speeds. Most small wind turbines do this by ti

ing out of the wind. 
Days of Autonomy

The number of consecutive

days a stand-alone system will meet a defined

load without energy input.

Deep-Cycle Battery—Type of battery that can be

discharged to a large fraction of capacity many

times without damaging the battery.

Demand-Side Management—Controlling

energy consumption through management of

the size or efficiency of the loads, and the time

during which they are allowed to operate.

Depth of Discharge (DOD)—The amount of

ampere-hours removed from a fully charged cell

or battery, expressed as a percentage of rated

capacity.

Design Month—The month having the lowest

RE energy-production-to-load ratio.

Direct Current (DC)—Electric current flowing in

one direction.

Discharge Rate—The current removed over a

specific period of time from a cell or battery.

Disconnect—Switch gear used to connect or disconnect components in a stand-alone system.

Duty Cycle—The ratio of active time to total

time. Used to describe the operating regime of

appliances or loads in stand-alone systems.

Efficiency—The ratio of output power to input

power, expressed in percent.

Electric Circuit—A complete path followed by

electrons from a power source to a load and back

to source.

Electric Current—Magnitude of the flow of 

electrons.

Electrolyte—A conducting medium in which 

the flow of electricity takes place by migration of

ions. The electrolyte for a lead-acid storage cell 

is an aqueous solution of sulfuric acid.

Energy Entrepreneur—Owner of a local business that sells energy services or products to the

surrounding community. 

Energy Services Company (ESCO)A com

pany that provides energy services on a fee-fo

service basis, retaining ownership of some or a

of the energy equipment, even if the equipmen

is housed at the customer’s site.

Equalization—The process of mixing the elec

trolyte in batteries by periodically overchargin

the batteries for a short period.

ESCO—See energy services company.

Fixed-Asset Lending—Lending for an asset

whose usefulness extends over many business

cycles.

Grid—The network of transmission lines, dist

bution lines, and transformers used in central

power systems.

HOMER—A computer model developed at

NREL used to derive an optimal configuration

for a hybrid renewable energy system based o

given resource, load, and cost data.

Hybrid II—A computer model developed at

NREL that runs simulations of renewable ener

hybrid system performance, used for advance

hybrid system design.

Informal Sector—The segment of a nation’s

economy that consists of businesses that are n

tracked in government statistics, do not pay co

porate taxes, and do not have access to formal

financial services.

Insolation—The solar radiation incident on an

area, usually expressed in watts per square

meter (W/m2).

Inverter—A solid-state device that changes a D

input to an AC output.

IV Curve—The graphical representation of th

current versus the voltage of a photovoltaic ce

module, or array as the load is increased from

zero voltage to maximum voltage. Typically

measured at 1000 watts per square meter

(kW/m2) of solar insolation at a specific cell 

temperature.

Kilowatt (kW)—One thousand watts.
Kilowatt

Hour (kWh)One thousand watt

hours.

Life-Cycle Cost—An estimate of the cost of

owning and operating a system for the period of

its useful life; usually expressed in terms of the

present value of all costs incurred over the lifetime of the system.

Load—The amount of electrical power being

consumed at any given moment. Also, any

device or appliance that is using power.

MFI—See microfinance institution.

Maximum Power Point—The operating point

on a PV array IV curve where maximum power

is delivered.

Microcredit—The provision of small amounts of

credit according to a set of nonconventional

banking practices, which may include short loan

cycles, frequent payments, social collateral, and

a gender focus.

Microenterprise—A small business, possibly

home-based, that produces goods or services for

cash income. 

Microentrepreneur—An individual who operates a microenterprise.

Microenterprise Zone (MEZ)— A center, housing multiple microenterprises, where electricity

is provided along with other business support

services.

Microfinance Institution (MFI)— An institution

that provides financial services that may include

microcredit, savings, and insurance to people

underserved by formal banking institutions.

Module (Panel)—A predetermined electrical

configuration of solar cells laminated into a protected assembly.

NEC—An abbreviation for the National Electric

Code, which contains safety guidelines for all

types of electrical installations. Article 690 pertains to solar photovoltaic systems.

Net Present Cost (NPC)—The value in the base

year (usually the present year) of all expenses

associated with a project.

NGONongovernmental organization.

Nominal Voltage—A reference voltage used t

describe batteries, modules, or systems (i.e., a 

12-volt or 24-volt battery, module or system).

Ohm—Aunit of electrical resistance measureme

Open-Circuit Voltage—The maximum possib

voltage across a photovoltaic array.

Orientation—Placement according to the dire

tions north, south, east, and west; azimuth is t

measure in degrees from true south.

Panel—See module.

Parallel Connection—The method of intercon

necting electricity-producing devices or powe

consuming devices, so that the voltage is

constant but the current is additive.

Peak Load—The maximum load or electrical

power consumption occurring in a period of

time.

Peak Sun Hours—The equivalent number of

hours per day when solar irradiance averages

1000 W/m2.

Peak Watt (Wp)—The amount of power a pho

voltaic device will produce during peak insola

tion periods when the cell is faced directly at t

sun.

Photovoltaic Cell—A cell that generates electr

cal energy when solar radiation strikes it.

Photovoltaic System—An installed aggregate 

solar array, power conditioning, and other sub

systems providing power to a given applicatio

Power Conditioning—The electrical equipme

used to convert power from a photovoltaic arr

into a form suitable to meet the power supply

requirements of more traditional loads. Loose

a collective term for the inverter, transformer,

voltage regulator, meters, switches, and contro

Power Curve—A graphical representation of a

wind turbine’s power output as a function of

wind speed.
Process Heat

Thermal energy that is used to

facilitate an industrial process such as boiling or

melting.

Remote Site—Site that is not located near a 

utility grid.

Renewable Energy (RE)— Energy not produced

by fossil fuel or nuclear means; includes energy

produced from PV, wind turbines, hydroelectric,

and biomass.

Series Connection—A method of interconnecting electricity-producing devices or power-using

devices so that the current remains constant and

the voltage is additive.

Short-Circuit Current—Current measured

when a PV cell (module) is not connected to a

load or other resistance.

SHS—”Solar Power System,” a small solar PV

system often used for domestic or microenterprise purposes.

Single-Crystal Silicon—A material formed from

a single silicon crystal.

Solar Cell—Photovoltaic cell.

Solar Thermal Electric—Method of producing

electricity from solar energy by concentrating

sunlight on a working fluid that changes phase

to drive a turbine generator.

Stand-Alone System—A system that operates

independently of the utility lines. It may draw

supplementary power from the utility but is not

capable of providing power to the utility.

State of Charge—The available capacity in a cell

or battery expressed as a percentage of rated

capacity. For example, if 25 ampere-hours have

been removed from a fully charged 100-amperehours cell, the new state of charge is 75%.

Surge Capacity—The ability of an inverter or

generator to deliver high currents for short periods of time, such as when starting motors.

Temperature Compensation—An allowance

made in charge controller set points for changing

battery temperatures.

Tilt Angle—Angle of inclination of collector as

measured in degrees from the horizontal.

Volt, Voltage (V)A unit of measurement of 

the force given to electrons in an electric circui

(electric potential).

Watt, Wattage (W)—Measure of electric powe

(watts = volts x amps).

Watt-Hour (Wh)—A quantity of electrical ene

for which one watt is used for one hour.

Wind Turbine—A device that converts the

energy of moving air into electricity.

Working Capital—The liquid assests needed 

an enterprise to complete a full business cycle
ABOUT THE AUTHORS

April Allderdice

April Allderdice is a renewable energy analyst who worked extensively with NREL's Village Power team on projects such as the Village

Power database and this guidebook. She is affiliated with Grameen Shakti in Bangladesh, where

she worked for two years in residence with the

assistance of the Fulbright Fellowship Program

and the Echoing Green Foundation. She has a

B.A. in physics from Wesleyan University 

(1994) and is currently pursuing her M.B.A. at

Columbia University.

John H. Rogers

John Rogers is a principal of Global Transition Consulting, a joint venture of Enersol Associates, Inc., and SOLUZ, Inc. He is also Vice

President of SOLUZ, a U.S.-based PV business

and technology development company. Rogers

has worked in the field of solar-based rural 

electrification in Latin America since late 1991,

when, during his third year of Peace Corps service in Honduras, he launched a country-wide

program in solar electrification patterned on 

the Enersol model first demonstrated in the

Dominican Republic. Rogers has since worked

on renewable energy activities in several countries in Latin America, the Caribbean, and elsewhere, under GTC, SOLUZ, Sandia National

Laboratories, and DynCorp I&ET. He holds an

A.B. from Princeton University and a master’s

degree in mechanical engineering from the 

University of Michigan.


Notice:

This report was prepared as an account of work sponsored by an agency of the United States government. Neither th

United States government nor any agency thereof, nor any of their employees, makes any warranty, express or implie

or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, appa

tus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference her

to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does n

necessarily constitute or imply its endorsement, recommendation, or favoring by the United States government or an

agency thereof. The views and opinions of authors expressed herein do not necessarily state or reflect those of the Un

States government or any agency thereof.

Available to DOE and DOE contractors from:

Office of Scientific and Technical Information (OSTI)

P.O. Box 62

Oak Ridge, TN 37831

Prices available by calling 423-576-8401

Available for sale to the public, in paper, from:

U.S. Department of Commerce

National Technical Information Service

5285 Port Royal Road

Springfield, VA 22161

phone: 800-553-6847

fax: 703-605-6900

email: orders@ntis.fedworld.gov

online ordering: http://www.ntis.gov/ordering.htm
Renewables for Sustainable

Village Power

This is the second in a series of rural applications guidebooks

that the National Renewable Energy Laboratory (NREL) Village

Power Program is commissioning to couple commercial

renewable systems with rural applications. The guidebooks are

complemented by NREL Village Power Program development

activities, international pilot projects, and the visiting

professionals program. For more information on the NREL Village

Power Program, please visit the Renewables for Sustainable

Village Power Web site:

http://www.rsvp.nrel.gov/rsvp/

Produced for the 

U.S. Department of Energy

1000 Independence Avenue, SW

Washington, DC 20585

by the National Renewable Energy Laboratory,

a DOE national laboratory

with support from the 

U.S. Agency for International Development

NREL/BK-500-261

November 2000

Printed with a renewable-source ink on paper containing at

least 50% wastepaper, including 20% postconsumer waste