This is the second in a two-part series about my time in Mae Sot, Thailand, working with the Border Green Energy Team (BGET). In my first post, I discussed a national government program that installed solar home systems (SHS) on unelectrified homes, as well as the program’s shortcomings. Now I will discuss how BGET has attempted to remedy the situation and keep as many of these systems functioning as they can.
BGET asked me to try to develop an alternative energy program that the organization could operate independently, without grant funding. This would require another a separate source of income, the most logical source being payments from the end user.
Why would BGET want to develop such a program in the first place? For one, the organization would be more self-sufficient and earn income that isn’t dependent on outside grants or contracts. In addition, however, research shows that distributed generation projects that include financial contributions from end users are more successful. End users treat the equipment with more care and are more invested in the project. Technology “dumps,” once popular, are now widely acknowledged as less than ideal.
I focused on the largely non-functioning SHS as a business opportunity for the taking. From 2006 to 2008, BGET put tremendous effort and expense into helping households along the Thailand-Myanmar border file warranty claims, as well as training local technicians to perform basic maintenance and repairs. By the time I arrived in the region, however, the warranties had expired, and the vast majority of the systems were still either partially or completely broken. If BGET was going to continue working on the SHS, it was going to need to find a new way to do so.
I started by reading up on the many organizations around the world trying to make financially viable distributed generation work, using fascinating and innovative business models. For example, there are efforts to use small solar arrays to charge lanterns that are rented out by the light-hour; to monitor and control SHS remotely to avoid costly and lengthy travel; and to allow end users to buy time credit for their systems via their cell phones. Such advanced ideas were either beyond our capacity as a small organization or infeasible due to the constraints of using solar panels that are already in place. But they helped me understand the principles at play in making a system financially sustainable.
The most important consideration for almost any system is the villagers’ ability and willingness to pay for solar power. Even though rural households in the developing world are often willing to spend a higher share of their money on electricity than people in developed countries, their overall cash flow is usually very low. Therefore, any fees would have to be collected in small installments.
I also realized quickly that it would be critical to limit the number of trips that BGET staff would need to make to each village. Even restricting the project’s area to the border districts of Tak province (where BGET currently operates) would include some villages an entire day’s drive away along poor mountain roads, and others not accessible by car at all.
These two considerations led me to conclude that local franchisees would be needed to do as much of the work as possible. It also meant that BGET could not simply repair the broken components, as originally planned. We had hoped to use the existing equipment installed by the government whenever possible, but it was old and of low quality, and so even if we fixed or replaced, say, the charge controller, the battery would likely fail before long.
Luckily, the solar panel, the most expensive piece of equipment, was still functioning on almost every system—a major advantage. With the goal of traveling as little as possible, BGET could not afford to rely on suspect equipment. Therefore the project evolved from repairing the existing systems to installing our own with components we could trust.
Increasing the lifetime of the equipment would be particularly important to our bottom line because we were choosing to rent the systems to customers. In other words, the household pays a monthly fee for the energy service we provide—lighting and power for appliances—but never owns the equipment. If a household decides it no longer wants the system, or stops paying, we take the system away and use it in another location.
Therefore, we bear the entire cost when a component needs to be replaced, but we also get to use each component for its entire lifetime, as even a used piece of equipment can be put into an otherwise new system and simply replaced when it no longer functions. We believe this arrangement will help attract customers, as they will not be tied to a long-term ‘mortgage’ and also will be able to more easily compare the cost of the SHS to their current energy expenditures.
Because BGET bears complete responsibility for the systems, we needed to make sure that the customers could not tamper with the equipment. In many households I visited, SHS equipment had been moved, wires reconfigured, or components tampered with. There is rarely bad intent, but amateur repair work often damages equipment. For this reason, BGET designed a system (although were not the first to do so) where all the electrical equipment is kept within a locked container.
Having created a workable product, we then had to figure out how such a business might operate. Of critical importance would be our relationship with local governments. After the Thai national government installed its systems in 2004–05, it handed ownership of the systems over to the sub-district governments (a sub-district might contain between 200 and 1,000 households), so we would need to have some sort of arrangement with them both to replace the old equipment with our own components and to use the panels. We hope to get more than just permission to operate from the local governments, however. They could also provide significant logistical assistance by helping us find reliable franchisees, managing fee collection, and storing equipment and revenue.
We also had to consider how to compensate the franchisees and how much responsibility we could safely give them. To address the latter issue, BGET decided that our franchisees would handle customer recruitment, installation, and basic maintenance. It would be beneficial to put franchisees in charge of fee collection and more complicated repairs as well, but we had concerns about how effectively franchisees could be trained and whether we could trust them with large sums of money.
These concerns could partially be allayed depending on how the franchisees are compensated. It is important to encourage franchisees to recruit and keep as many customers as possible by aligning their incentives with BGET’s own. Therefore we will give them a portion of each monthly fee paid by their customers. But an annual salary could make the job more attractive and perhaps remove temptation to steal money if franchisees are doing fee collection.
BGET is currently in negotiations with a sub-district government and expects to be operating a pilot project in the coming months—ideally. The organization will install 50-100 systems and test out different franchisee arrangements. Such experience will be invaluable in determining the future of the program, and we will undoubtedly find that many of the assumptions we have operated under are invalid and that there are problems we have not even considered yet.
The ultimate question remains: having done all we can to make the systems affordable, will we be able to find customers? The prospects are a little bleaker because households previously received solar power for free and therefore may not want to pay now. It is possible, if not likely, that our product will be within the reach only of wealthier households. This obviously doesn’t mean the scheme isn’t worth running, and maybe within a few years, as incomes grow and as others see the benefits of the scheme, we might find wider interest. It does mean, however, that BGET will pursue funding options that will allow us to lower our price.
And even if that means that the project cannot be strictly defined as financially independent, it will still provide many of the advantages we originally sought. The end users will still have a stake in the project’s success, and BGET will have a stable source of revenue. And, most importantly, households currently relying on candles or battery-powered headlamps will have access to clean, reliable, solar power.
Sam Shrank is a MAP Fellow with the Worldwatch Institute.