SHS Financing and Delivery Models

1. MEE GARE REAP OFF GRID SHS Financing and Delivery Models Prepared By: A.M. Al-Ashwal Project Advisor

2. MEE GARE REAP OFF GRID 1. Cash Model • Applicability: Easy to apply but very dependant on economical situation • Main stakeholders: end-user / client, supplier and dealer • Advantages and Disadvantages

3. MEE GARE REAP OFF GRID 1. Cash Model • Advantages: • Minimal number of stakeholders • Infrastructures can be built as sales go in lowest demand for capital and the highest circulation rate • No need for explicit government or support

4. MEE GARE REAP OFF GRID 1. Cash Model ii) Disadvantages: • Limited market as a result of the high up-front investments • Minimal end-user training • Possible low quality of some components and system installation • Little interaction between supplier and user • Problem of Competition with cheap low quality products

5. MEE GARE REAP OFF GRID 1. Cash Model d) Success and failure factors • Success: Good maintenance structure and after-sales for long term sustainability and Proper installation, good user manuals, good design of the system • Failure: Market distortion by, grid-extension, etc. ; Mismatch between expected and real output of the system and Lack of supply/availability of spare parts.

6. MEE GARE REAP OFF GRID 2. Credit Models 2.1 Dealer Credit Model 2.2 Credit Institution Model

7. MEE GARE REAP OFF GRID 2.2 Credit Institution Model • Applicability: existence of capable and interested credit institutions • Main stakeholders: Credit institutions, Government as regulator, end-user, supplier and dealer • Advantages and Disadvantages

8. MEE GARE REAP OFF GRID 2.2 Credit Institution Model • Advantages: • It removes the need for a high initial investment; • No need to allocate a budget to run the credit scheme, • The credit institutions are better equipped to manage a credit scheme and • The rural network of the credit institution may also be used to promote sales

9. MEE GARE REAP OFF GRID 2.2 Credit Institution Model ii)Disadvantages: • This model is geographically restricted; • Often difficult to find suitable collateral for the credit; and • • Two separate structures are needed to handle the financial and the technical work,

10. MEE GARE REAP OFF GRID 2.2 Credit Institution Model d) Success and failure factors • Success: Successful rural financial institution, Good maintenance structure and after-sales for long term sustainability and Proper installation, good user manuals, good design of the system • Failure: Conflict of interest between company and credit institute, Credit organization is unsustainable due to rapid growth, low repayment rates and high running costs; and Unexpected high inflation

11. MEE GARE REAP OFF GRID 3. Hire-purchase (Lease) Model • Applicability: PV-companies having financial resources and administrative and technical infrastructure • Main stakeholders: PV-companies and dealer, End users, Government as a Regulator • Advantages and Disadvantages

12. MEE GARE REAP OFF GRID 3. Hire-purchase (Lease) Model • Advantages: • It removes the need for a high initial investment; • One single structure can handle both the fee collection and technical work • Maintenance can be kept at high standards • Good quality products are feasible

13. MEE GARE REAP OFF GRID 3. Hire-purchase (Lease) Model ii) Disadvantages: • Leasing is not a well-known concept in Yemen • End-users careless treatment of the systems; • The lease construction absorbs a lot of working capital; • PV-companies are usually not equipped and/or capable to run such program • This model is geographically restricted

14. MEE GARE REAP OFF GRID 3. Hire-purchase (Lease) Model d) Success and failure factors • Success: Clear design of the ownership structure, Effective fee collection system; and Reliable and effective O&M infrastructure • Failure: Unexpected high inflation rates; Theft/replacement/mismanagement of systems; Inadequate financial administration; and High recovery costs

15. MEE GARE REAP OFF GRID 4. Fee-for-Service Model • Applicability: SP and its partners should be able and willing to stay involved in the business for long time [long term investment] • Main stakeholders: SP, End users, Government as a Regulator and Financial Institution • Advantages and Disadvantages

16. MEE GARE REAP OFF GRID 4. Fee-for-Service Model • Advantages and Disadvantages i) Advantages: • Client does not have to invest • Client does not have to bother about maintenance • Due to long term investment feature, high quality systems will be used; • Proper recollection and recycling of components (mainly batteries) is achieved.

17. MEE GARE REAP OFF GRID 4. Fee-for-Service Model ii) Disadvantages: • Low Internal Rate of Return high financial risks; • Possible careless treatment of SHS • Expectations are often set too high, causing disappointment; • • The client is usually not allowed to skip a monthly payment • • Collection of the small fees is time consuming and expensive. • • Extensive infrastructure needed for recollection & OM

18. MEE GARE REAP OFF GRID 4. Fee-for-Service Model d) Success and failure factors • Success: Government should issue a clear long-term license to SP, Relatively stable economy, Clear definition of system boundaries, Effective fee collection system and Participation of local community; • Failure: End user unconcern of to make payments on time, Unexpected high inflation rates; Theft/replacement/mismanagement of systems; Inadequate financial administration; and High recovery costs

20. MEE GARE REAP OFF GRID THANK YOU FOR YOUR ATTENTION