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Financing mechanisms of solar home systems for rural electrification in developing countries

Anisuzzaman, M. and Urmee, T.P. (2006) Financing mechanisms of solar home systems for rural electrification in developing countries. In: International Conference on Energy for Sustainable Development: Issues and Prospects for Asia, 1 - 3 March, Phuket, Thailand



Photovoltaic (PV) based solar home systems (SHS) are often the least expensive electrification option in sparsely populated areas with low electric loads. This makes the SHS appropriate for rural electrification in the developing countries. However, the acquisition of a SHS requires high initial investment and moderate operating and maintenance cost. The lack of financial services for users of SHS is often regarded as the main barrier for their commercial dissemination. Several financing approaches have been practiced in different countries and reflected both positive and negative impacts. This paper reviews various financing mechanisms used worldwide for dissemination of SHS and discusses the potential of commercialization of SHS in remote rural areas in presence of a financial service. The success of a mechanism depends on various factors ranging from selection of the right mechanism for right location to implementation strategy of the selected mechanism. Donated or highly subsidized projects are found not to sustain for long term. Cash sale approach has lower market penetration record. Hire purchase and fee-for-service approaches are found to have higher success records than the others. However, financial schemes should be designed in such a way that financing institutions and financial intermediaries can recover their operational costs.

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