99732 NOTE NUMBER 10 June 2015 LESSONS LEARNED e Global Partnership on Output-Based Aid Bangladesh Rural Electrification and Renewable Energy Development – SHS Project DEVELOPMENT CHALLENGE The strong partnerships created under RERED helped to make the SHS program extremely successful, with Access to infrastructure is a key driver for reducing about 50,000 SHSs currently installed per month. poverty and promoting shared prosperity. In Bangladesh, where economic growth has accelerated The OBA project was implemented by the steadily over the past decades, about a third of the Infrastructure Development Company Limited country’s estimated 166 million inhabitants remain (IDCOL), a government-owned finance company, below the poverty line, and a large portion of the in partnership with participating organizations population still has little or no access to electricity or (POs)—mostly NGOs with a strong focus on clean energy sources. In rural areas of the country, microfinance—selected by IDCOL. The financing where more than 70 percent of Bangladesh’s inhabitants mechanism of the project consisted of IDCOL live, the electrification rate is about 50 percent. The extending a credit line to the POs and capital dispersed nature of rural settlements and the presence subsidies for the SHSs, making solar energy affordable of numerous rivers make grid electrification difficult to the poor in remote, off-grid areas. and often prohibitively expensive. Off-grid renewable POs offered microfinance loans to households and energy is therefore the only realistic option for were responsible for system installation. SHSs ranged electricity provision in many areas of the country. In in size from 10 to 135 watt peak (Wp), and a capped response to these needs and challenges, Bangladesh OBA Lessons Learned OBA subsidy was provided for all sizes. Households has developed the world’s largest and most dynamic Series is a forum made a down payment of 10–15 percent of the cost national off-grid electrification scheme, a Solar Homes for discussing and of the system, with the remainder being repaid in System (SHS) program benefitting more than 18 million disseminating project two to three years at prevailing market interest rates people to date, and yielding lessons that may be insights at the conclusion of 12–15 percent. Seventy to eighty percent of the applicable to other countries considering off-grid of projects in supporting credit that the POs extended to the households was solutions for energy access. the delivery of basic eligible for concessional refinancing from IDCOL. Following installation of the systems, POs submitted services to the poor. THE PROJECT AND ITS a loan refinancing and grant application. After GPOBA is a partnership established in 2003 PARTNERS inspections and verifications of installed SHSs, IDCOL by the UK (DFID) and In 2010, a Global Partnership on Output-Based Aid released the credit and the subsidy to the POs. the World Bank. Its (GPOBA) grant for $13.95 million was approved to Because of the scale of the project, inspection by other donors are the improve electricity access for poor households in IDCOL was done on a random sample basis. IDCOL International Finance rural Bangladesh in remote, off-grid areas through the verified that the installations were in off-grid areas, POs Corporation (IFC), the provision of SHSs. This project was part of a larger SHS had used certified products, technical requirements Netherlands (DGIS), program using the OBA approach that began in 2003 had been met and systems were fully operational. A Australia (DFAT), with financial and technical support from the World technical audit by an independent third party was and Sweden (Sida). Bank under the Rural Electrification and Renewable conducted in alternate years. POs were responsible for For more information Energy Development (RERED) project. The International providing maintenance and customer training during visit www.gpoba.org Development Association (IDA) has strongly supported the loan-repayment period. Based on the SHS warranty or email us at the program, and a significant number of other obligations, they also offered after-sales service gpoba@worldbank.org. development partners have joined since its inception. contracts to households that had repaid their loans. Supporting the delivery of basic services in developing countries Lessons Learned systems if they are to invest a significant share of their income in them. That confidence was built in Bangladesh through ensuring technical quality (the setting and enforcement of stringent 1 A vibrant microfinance environment is key to project success. A pre-existing network of competitive microfinance institutions had well established relationships with clients in quality standards, including a 20-year warranty for the solar panel and a five-year warranty for batteries); the provision of strong after-sales service; and raising consumer awareness about rural areas to whom they could offer an additional service. the use of SHSs, which helped to foster a sense of ownership The historical presence of these organizations allowed for and ensure proper maintenance. cost-effective and efficient outreach, while their familiarity to rural consumers led to greater trust in the project POs and resulted in larger uptake of SHSs. It was also found that selling RESULTS ACHIEVED SHSs on credit encouraged system upkeep – when POs visited This project exceeded its initial targets, and positive households to collect payments, they were able to provide outcomes for rural households were recorded. The project’s after-sales maintenance service at the same time. original aim was to support installation of 315,000 SHSs, benefitting 2 about 1.4 million people. As the subsidy amount per SHS gradually The presence of a competent and committed decreased from $50 per connection to $20 per connection for implementing agency enabled the project to succeed. smaller systems, it was possible to install about 497,608 SHS, One of the early challenges that RERED encountered in benefitting over 2.2 million people. An impact assessment funded Bangladesh was that traditional financiers were unwilling to 1 by GPOBA has shown that the use of SHSs in rural Bangladesh finance ‘nonproductive loans’ such as those for SHSs. An has had several positive outcomes. The replacement of smoke- alternative source of funding was found in IDCOL, which is emitting kerosene lamps with solar-powered lights reduced governed by an independent and qualified board of directors levels of household air pollution. Solar-powered lighting allowed drawn from government and the private sector. IDCOL turned schoolchildren to study for longer periods in the evening, and out to be an enthusiastic promoter of off-grid solutions and it enhanced mobility and security, particularly for women and an extremely effective implementer, with a strong capacity to girls. SHSs enabled the charging of mobile devices and increased manage an off-grid electrification program. household use of television and radio, which enabled greater 3 Supporting technical and commercial sustainability connectivity to the outside world and allowed access to information has been a key to the success of the solar energy that could improve health and have other positive social benefits. program. Technical assistance resources included in the Enhanced sustainability of the solar energy program. The project have aided IDCOL in establishing a market for SHSs introduction of LED bulbs allowed smaller, less costly systems (under and managing the growing program. IDCOL’s independent 30 Wp) to deliver energy levels that had previously required larger Technical Standards Committee approves the standards for systems. This technology, coupled with the project’s support for SHSs, and IDCOL practiced constant enforcement with the increased competition among POs and the decreasing market POs of technical and performance standards. They provided price of solar panels, resulted in the decline of unit prices so many recourse if customers experienced problems, and ensured that households that previously could not afford a SHS, even with any problems were quickly addressed. Moreover, IDCOL aims subsidies, are now able to buy one. to make the SHS program fully commercial, with POs eventually Successful implementation by IDCOL has allowed for borrowing funds at market terms from commercial sources. Both expansion of the agency’s activities. Given the size of the the refinancing rate and the capital subsidy have been gradually SHS program, IDCOL has established regional offices to ensure reduced as the market responds to the project’s success. inspection and monitoring in a cost-effective manner. Building on 4 High population density reduced the cost of project the implementation experience in the SHS program, IDCOL has now implementation and contributed significantly to its ventured into mini-grids, solar irrigation pumps, improved cookstoves success. As one of the most densely populated countries in (which require less fuel and reduce smoke emissions), and biogas the world, Bangladesh was able to leverage economies of scale, digesters, to further increase access to clean energy in rural Bangladesh. helping to bring down unit costs. High population density The project is being scaled up. An additional GPOBA grant of also supported competition in the market, as POs competed $15 million under RERED II aims at scaling up access to clean energy vigorously to provide attractive credit packages to consumers. for the poor in rural Bangladesh. It will benefit over 1.2million While economies of scale can be achieved in less densely people and covers installation of four clean energy technologies, populated countries, the mechanisms for achieving it may with 225,000 SHSs; two mini-grids benefitting; 330 solar irrigation need to be different than those operating in Bangladesh, as pumps; and 9,850 biogas plants. The scale-up will more effectively competition for customers will likely be less intense. target poor households in rural, remote areas by providing subsidies for small systems only (below 30 Wp). By leveraging the capacities 5 Making SHSs affordable through a combination of consumer credit, subsidies, and product choice opened the way to their widespread adoption. However, even of microfinance institutions and the private sector, the grant will further contribute to strengthening the ongoing development of a commercial market for SHSs and other renewable energy solutions. with affordable financing, actions to foster consumer trust in new technologies were needed. The project showed 1 that rural households will pay for a SHS if monthly costs are Shahidur Khandker, Hussain Samad, Zubair Sadeque, Mohammed Asaduzzaman, Mohammad Yunus and Enamul Haque. “Surge in Solar-Powered Homes. Experi- commensurate with current expenditure on other energy ence in Off-grid Rural Bangladesh.” Directions in Development. World Bank. sources. However, consumers must have confidence in the The case studies are chosen and presented by the authors in agreement with the GPOBA program management team and are not to be attributed to GPOBA’s donors, the World Bank Group, or any other affiliated organization, nor do any of the conclusions represent official policy of the aforementioned organizations.