www.soluzusa.com market structure & policy environment smes for decentralized energy service...
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SOLUZwww.SoluzUSA.com
Market Structure & Policy Environment
SMEs for Decentralized Energy Service Provision
Loyda Alonso, General ManagerSoluz Honduras, S.A. de C.V.
&
Richard Hansen, PresidentSoluz, Inc.
Energy Week 2006
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Rural Electrification – Market for PV
PV is viable for pre-electrification, for:
• Dispersed households and enterprises,
• With low energy needs,
• Seeking high value from more energy at a lower cost per unit of energy
Household Density (HH/Km2)
Ho
use
ho
lds
Ser
ved
PV and grid costs are equal
MV grid extension is least-cost
PV systems are least-cost
Adapted from Cabraal, et al., "Accelerating Sustainable PV Market Development", World Bank
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Rural Market – Honduras
• Population: 6+M
• Population without grid access: 2.5M
• Households off-grid: 500,000+
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Honduras - 1998
0%
20%
40%
60%
80%
100%
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Expenditures ($US)
Pe
rce
nt
of
Ho
us
eh
old
s a
bo
ve
Median = $5.60
Target
Monthly Energy Expenditures
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Initial Policy Environment
• Structure: open market, off-grid/private• Business benefited from national policies:
– Foreign investment law
– Reduced import tariffs
– Decent access to utility planning information
• Company engaged under international policy:– “Subsidized Venture Fund” Intervention Model
– Mismatched to rural energy delivery sector, “Base of the Pyramid” (BOP)
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Attracted International Financing
Debt EquityOct 97 Soluz, Inc. $50KJan 98 EEAF/CFA $50KJun 98 SunLight Power $250KJun 98 E+Co (Heinz) $100KJun 99 E+Co (IDB/MIF) $100KJul 00 IFC/SME (GEF) $400K $100KOct 00 CFA $125K $125KNov 00 SIF $125K $125K
$900K $650K
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Created Private Delivery Structure
National Office
ServiceCenter
ZoneSupervisor
Microcenter
Customer
ServiceCenter
Microcenter
ZoneSupervisor
Customer Customer
ServiceCenter
Customer Customer
Microcenter
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Targeted Households, Micro-Enterprises
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Used Payment PlansTo Reach Into the Rural Pyramid
• Cash (2-3%)
• Micro-Credit (5-20%)
• Micro-Rental (20-50%)
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PV Rental Penetration
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• Raised $1.55M investment • Built innovative business model • Reached >5,000 rural customers with unsubsidized offers:
– Cash
– Micro-credit - >1,300 systems sold• Company-financed (no MFI)
– Micro-rental - >2,500 customers served• ~100,000 payments collected - >$1M
• Total collections - >$2.6M
Soluz Honduras – Progress since 1998
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• 1998/1999 – Survived Hurricane Mitch unassisted– but it slowed roll-out– consumed company capital (lost $400k by 2000)
• January 2002 – Reached 1500 rental customers– Experienced significant customer turnover – Grid extension, customer’s economic instability
• July 2003 – Began financial/business restructuring– To address “venture fund” debt obligations
• May 2005 – Reached restructuring MOU– Lenders required liquidation of rental assets to pay debt– Focus on cash sales/“cream-skimming” for profitability
Soluz Honduras – Challenges
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Under MOU:• Company is decapitalizing
– >$550,000 paid out on debt obligations– Final $125,000 due June 2006
• Company has dramatically reduced local rural service capacity (rural agents and employees)
• Company is selling on cash basis– Moving “up the pyramid” – Over wide area, through dealers– Profitable
Soluz Honduras – Challenges
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Expanded “Cash Sales” ChannelsNATIONAL
OFFICE
Service Center
Service Center
DEALER
DEALER
DEALER
DEALER
DEALER
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Evolving Policy Environment
• Increased government interest in potential of distributed renewable energy for rural areas
• Movement toward “Government/WB Project” intervention model– Top-down planning (2 yrs so far)
– Consumer subsidies for poor
– Lessons drawn from other WB activity such as Sri Lanka (engage MFIs & companies)
– Goal: 5,000 households with PV over 4 yrs
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Anticipated Effects on Business
• Positives (not clear)– Government Coordination-could reduce risks– Consumer Subsidies-may increase affordability– Consumer loan capital-perhaps through MFIs– With OBA-perhaps move down the pyramid
• Negatives (not clear)– Gov. Specs.-may lose service flexibility– Bureaucracy-high sales cost/transaction times– Subsidies-could distort market
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100%0%Cost Recovery from User
SystemsDonated
CustomerPays
?
The Subsidy Factor
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• Where government provides consumer subsidy:– Use private-sector capacity, market-driven approach– No more than 50% of small system– Fixed subsidy, target poor over many years – Divert kerosene subsidies to PV
• Integrating the subsidy into the sale– Customer buys at least the battery – Government provides indoor components (donated)
• wiring, controller, lamps, etc., plus installation– Private sector provides PV module (at market price)
• cash, micro-credit or micro-rental with clear ownership
Recommendations – Subsidies