Solar solution to rural electricity needs

Solar solution to rural electricity needs

Han Phoumin is Energy Economist at the Economic Research Institute for ASEAN and East Asia (ERIA). The views expressed in this article are personal. (Photo by EIRA)
Han Phoumin is Energy Economist at the Economic Research Institute for ASEAN and East Asia (ERIA). The views expressed in this article are personal. (Photo by EIRA)

As the country with the lowest electrification rate in Southeast Asia, Cambodia's effort to connect rural households with electricity through solar home systems can provide a good business model for other countries when it comes to getting buy-ins from locals and making the system a popular option.

In its innovative initiative, the Cambodian government promotes the use of standalone solar home systems to increase access to electricity in the country's rural areas as part of its rural electrification master plan.

As a result of the country's prolonged underinvestment in the electricity sector, the proportion of households with electricity connection in Cambodia stood at just 34% in 2013, a bare increase from the figure of 31% recorded in 2012. Meanwhile, those rural households with access to electricity mainly rely on power generated by independent diesel engines and bear high costs charged on them by individual operators. Others have to opt for any available option such as the use of kerosene lamps.

To address the problem of high electricity costs, the government's electrification plan aims to ensure that 70% of Cambodian households are connected to the national electricity grid by 2030. In the medium term, the plan promotes the development of both mini-grids, generating power from small hydropower projects and solar photovoltaic (PV) systems, and stand-alone solar home systems as means to provide electricity to people in rural areas.

Cambodia, at the same time, has tried and learned from its rural electrification. The government's previous five-year project, implemented through the World Bank-funded Rural Electrification Fund (REF) from 2008-2012, has provided a good lesson learned for other Southeast Asian countries with low electrification rates.

Initially, the rate of uptake of these systems by rural households was very low. This was mainly due to a requirement for people signed up for the systems to pay an installation cost upfront, amounting to US$260 for a 30-watt peak system and $333 for a 50-watt peak one. Many poor households were unable to afford these costs.

Thus, after the cause of the low rate of uptake was identified, a new business model was adopted. This time, households were given a new option to pay for electricity on the basis of a daily rate, spreading their costs across time. It resulted in a rapid uptake of the system towards the end of the project which saw 12,000 households installed solar home systems.

After the end of this project, the REF, under the management of Electricity of Cambodia (EDC), sold and installed additional 13,240 50-Watt peak systems to more households in remote areas. The lessons learned from Cambodia's experience could be valuable for a number of countries in Southeast Asia, the region where approximately 134 million people still do not have access to regular supplies of electricity.

As of 2012, Cambodia's electrification rate of 31% was the lowest in the region, followed by Myanmar where the rate stood at 32%. In addition, the electrification rate in rural areas stood below 50% in the Philippines and Laos.

Lack of access to electricity has hindered human development, posing obstacles to improvement in health care and education. It also constrains economic activity and can exacerbate environmental degradation. In fact, Cambodia recorded significant success in promoting solar home systems even though associated cost in the country was relatively expensive compared to costs of similar systems elsewhere in the world.

To better understand the success of solar power adoption by Cambodia's rural households, the Economic Research Institute of Asean and East Asia (Eria) undertook an analysis of the levelised cost of electricity provided by solar home systems and compared it to other electricity prices charged by diesel engine operators.

The study finds that the average current cost of electricity in Cambodia is high, ranging from $0.15 per kilowatt-hour for grid-connected power in Phnom Penh to $1 for electricity provided by diesel engine operators in rural areas. This might explain the high level of solar home system adoption, despite the relatively high upfront cost.

The study finds the levelised cost of electricity of solar home systems, without any government subsidy, is about 50% cheaper than the current electricity price in rural areas charged by electricity providers using diesel engines. With a government subsidy of $100 per unit, the cost falls to about one third of the current electricity price in rural areas.

In particular, it finds that the high initial cost of installing solar home systems was a major barrier to buy-ins from rural communities. To penetrate local markets, the study recommends that it is very important to design a business model appropriate for rural households.

For example, it is more viable to charge a daily fee for electricity use from consumers rather than requiring them to pay upfront the entire system installation cost. It also emphasised the importance of efficiency through the whole SHS value chain, from procurement to instalment, to ensure that transition complications and system costs are minimised.

The study also noted that even though the standalone solar home systems is a success in Cambodia, another solar option -- mini-grids powered by solar photovoltaic (a linked collection of solar panels) has proved it can provide more significant economies of scale and thus potentially offers lower costs. Thus, the Association of Southeast Asian Nations (Asean) should consider measures to attract investments in the mini-grid option as an alternative.

Finally, the study noted that while these various systems show potential for increasing the rate of electrification, particularly in remote rural areas, the expansion of solar home systems and solar mini grid systems required technicians and small business owners who possess appropriate skills. So, to ensure the success of these options, measures to provide those technicians and operations with competency are essential.

Han Phoumin

Energy economist

Han Phoumin is energy economist, Economic Research Institute for Asean and East Asia (ERIA).

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