NOTE NUMBER 12 June 2016 LESSONS LEARNED e Global Partnership on Output-Based Aid Improving Rural Energy Access through Solar Home Systems in Ghana DEVELOPMENT CHALLENGE AT remaining 20 percent. The service providers for the project were approved private dealers who were PROJECT PREPARATION members of the Association of Ghana Solar Industries In 2008, when GPOBA was preparing the solar PV (AGSI). The AGSI served as a key interlocutor for systems project for the rural poor in Ghana, the the project, working on raising awareness of SHSs, country had a relatively high electricity grid access capacity building, and helping the service providers rate for Sub-Saharan Africa, at 54 percent of the to access finance. GPOBA provided subsidies to population.1 However, nearly four million people the service providers of 50–60 percent of the total lived in small rural communities, including isolated cost of purchasing and maintaining SHSs. Service islands in Volta Lake, that are too remote to reach providers were required to (i) supply and install in a cost-effective manner through extension of the systems; (ii) provide satisfactory maintenance national grid. The most cost-effective option for and timely repair service over three years; and low-density rural areas to access electricity is through (iii) provide one battery replacement at year two or solar home systems (SHSs) and photovoltaic (PV) three. The project disbursed a tiered flat subsidy for lanterns, but awareness of the potential benefits of four products: US$40 for solar lanterns, US$300 for solar power was low in rural areas, and attitudes to small SHSs (10–20 Wp), US$450 for medium SHSs solar power had been adversely affected by the poor quality equipment available from local traders. OBA Lessons Learned In addition, while prices of quality solar equipment 1 As of 2015, 64 percent of Ghanaians have access to electricity. Series is a forum Source: World Bank data indicators. had declined over the preceding years, SHSs and PV for discussing and lanterns remained beyond the ability to pay of most disseminating project rural households. insights at the conclusion RESULTS ACHIEVED of projects in supporting THE PROJECT AND ITS yy The project exceeded its targets, supporting the the delivery of basic purchase of 8,831 SHSs and 7,991 lanterns for services to the poor. PARTNERS 16,500 households, benefiting approximately GPOBA is a partnership In 2009, the Global Partnership on Output-Based 100,000 residents in remote, off-grid areas. established in 2003 Aid (GPOBA) approved a US$4.35 million grant to yy Approximately US$1.6 million in consumer by the UK (DFID) and support electricity access for 15,000 households loans for SHSs were accessed through 12 rural the World Bank. Its in off-grid areas in Ghana through SHSs and PV banks. Seven banks had a 98 percent or higher other donors are the lanterns. The project was part of the Renewable repayment rate; overall loan recovery rate was International Finance Energy component of the US$90 million Ghana 78 percent. Corporation (IFC), the Energy Development and Access Project (GEDAP), Netherlands (DGIS), complementing its focus on grid extension. ARB Apex yy The number of participating solar equipment Australia (DFAT), Bank, which serves as a mini-central bank for Ghana’s suppliers increased from three to seven. and Sweden (Sida). 133 rural/community banks, was the implementing yy There was a significant reduction in the use of For more information partner. ARB Apex Bank managed an IDA-supported kerosene, from 86 percent of clients prior to visit www.gpoba.org line of credit to refinance 80 percent of loans acquiring SHSs/lanterns to 21 percent at the or email us at from 12 participating rural banks for their clients close of the project. gpoba@worldbank.org. to purchase SHSs; the rural banks contributed the Supporting the delivery of basic services in developing countries (21–49 Wp), and US$550 for large SHSs (50 Wp). Users paid the facilitated dealer responsiveness to technical problems. As the remaining 40–50 percent of costs through loans for the SHSs and dealers were concentrated in Accra, the capital city, far from out-of-pocket for lanterns. the project communities, and had little local presence after installation, the Solar Project Officers were the only reliable The project substantially increased consumer awareness of solar point of contact for clients needing technical support or power and demonstrated the latent willingness to pay for it. In experiencing maintenance issues with their SHS or lantern. This a beneficiary assessment, over 93 percent of clients expressed local capacity, which the project helped to build, was key to strong satisfaction with their SHS/lantern, and 97 percent expressed project success. willingness to pay for maintenance and repairs, if delivered promptly. The best-liked feature overall was increased lighting, and about 91 percent of clients reported that children in their homes 3 Availability of financing was important for both consumers and suppliers, and needed to be in place at the earliest phase of project implementation. used SHSs/lanterns for studying or reading at night. Eighteen percent of SHS owners and 29 percent of lantern users reported using the Affordability of SHSs for consumers was enhanced by the equipment for direct income generation. availability of loans for 12–36 months, despite relatively high interest rates (which more or less offset the value of the subsidy). However, small- and medium-scale solar dealers Lessons Learned tended to have limited access to affordable commercial bank financing or had already pledged their available collateral. 1 Therefore, the project team needed to assist dealers in Rural households in Ghana are willing to pay for quality obtaining trade finance and working capital in order to enable energy services. Vendors were surprised by the breadth and them to purchase systems in bulk and build their retail networks depth of the market once they began servicing remote rural up-country. areas. Willingness to pay was strengthened by the growing affordability of LED color TV, reflecting consumer aspirations for modern energy services. As an effort was made to ensure that all systems supported under the project met quality 4 Quality assurance and timely after-sales service were critical and affected loan repayment rates. Engagement of independent verification agents (IVAs) to verify the quality standards (Lighting Africa2 certified), the chance of low-quality of installed systems and monitor consumer satisfaction was products killing or dampening market growth was minimized. important in assuring value for consumers and establishing a The market varied considerably for different systems, with sales good relationship between vendors and consumers. While of large SHSs (over 50Wp) and lanterns (the most affordable costly and logistically challenging, a verification system helped option, but without loans available) substantially exceeding to instill confidence in both consumers and funders. Although expectations, while sales of smaller SHSs were lower than overall satisfaction was very high (over 93 percent of consumers expected. Clients expressed a strong willingness (97 percent) to expressing strong satisfaction with SHSs and lanterns), delays in pay for the cost of future repairs and maintenance. repairs tended to adversely affect loan repayment. Strong local 2 capacity, in the form of the Solar Project Officers, contributed An intermediary was essential to facilitate the market to a decrease in the likelihood of loan default as the Officers between potential consumers and potential suppliers, helped to improve responsiveness and system maintenance. and helped to build community ownership and trust. The Solar Project Officers engaged by the rural banks (initially subsidized by the project for two years) made a strong, positive impact on moving the project forward. These Officers, who were all from the localities, helped to jump-start the market by mobilizing groups of potential clients, increasing Lighting Africa is part of the World Bank Group’s contribution to Sustainable 2 Energy for All (SE4All). It is implemented in partnership with the Energy Sector consumer openness to adopting new solar technologies, Management Assistance Program (ESMAP), the Global Environment Facility (GEF) processing paperwork, enabling loan recovery, and establishing and the governments of Australia, Austria, Denmark, Finland, France, Germany, relationships with local dealer representatives. They also Iceland, Italy, Lithuania, the Netherlands, Norway, Sweden, the UK, and the US. 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.