Marketing and Financing of Solar Home Systems in
Bangladesh: Assessment of Success
Shakila Aziz1*, Shahriar A. Chowdhury2, Hirak Al-Hammad3
Faculty of Business Administration, American International University, Banani, Bangladesh
Department of Electrical and Electronic Engineering, United International University, Dhaka, Bangladesh
Infrastructure Development Company Limited (IDCOL), Dhaka, Bangladesh
Corresponding author, email@example.com
Abstract: The commercial success of solar home systems in condition of Bangladesh do not allow immediate
Bangladesh depends on the extent to which it can fulfill the solution of power crisis by imported fuels. These
needs of the end users, which will motivate users to invest
money in SHS systems. This paper has explored the factors causes slow down the grid extension in rural areas.
that can make SHS commercially viable in Bangladesh, and To fulfill the national plan set by the government
how far the SHS industry in the country has come to being “Make electricity available for all by 2020”  alternate
commercially viable. The customers in Bangladesh have off grid power solution should be sought.
found that the SHS have satisfactory technical performance, This paper will attempt to identify the factors
an adequate financing infrastructure and good after sales
support. The commercial distributors of SHS units also
necessary for the commercial success of SHS technology
show increasing annual sales across Bangladesh, despite in a developing country, and how successfully the SHS
declining subsidies and rising prices of SHS. industry of Bangladesh has been able to fulfill the
necessary conditions towards full commercialization.
Keywords: Solar Home System (SHS), technical The financial and distribution figures for SHS
performance, Micro financing, After sales service dissemination are taken from the database of
Infrastructure Development Company Limited (IDCOL),
1. Introduction a non bank financial institution established by the
Access to electricity is one of the major factors that affect Government of Bangladesh.
the socio-economic development of a population. This is
why electrification is one of the targets of any
2. The Consumer Decision Process in
development or poverty alleviation drive. Availability of Adapting PV SHS
adequate electricity is also an indicator of the standard of Research shows that the factors that influence the target
living of a population . consumers to adapt and pay for renewable energy
Bangladesh, an example of a developing nation, technology based solutions are a concern for the
enjoys an electricity distribution of 42% , but large environment, knowledge about the efficiency and role of
segments of the rural populations live in remote and off- renewable energy in the environment and society, and a
grid areas, where the purchasing power of the consumer belief that the adoption of such technologies will have a
population and the low density of habitation do not make positive outcome for the environment .
it cost effective for the national grid to distribute grid Moreover, the demographic segments that tend to
electricity to such locations. adopt solar energy technologies tend to be younger, better
The success of any new renewable energy technology educated, having higher income and occupational status,
among the target market depends on the extent to which and earlier in the family life cycle. The product quality,
the technology is able to fulfill the needs and demands of efficiency and cost, the cost of alternatives, and the
the target market, while being financially affordable, motivation of social responsibility are important factors
practically reliable and user friendly . that influence the decision making process for potential
At present, a major portion (81.43%) of the power adopters .
generation capacity of the country is gas based .
The reserves of gas in Bangladesh are decreasing 3. Traditional Barriers to the
with time, while demand for energy is increasing. Dissemination of SHS in Developing
The gas reserve is expected to last until 2019 and Countries
supply will start declining after 2011, if no new gas A study shows that rural grid extension for electricity
field is discovered . As of now Bangladesh is on a small scale would cost in the range of 2 to 10
experiencing a shortage of power generation than US$/kWh in some developing countries while stand alone
the demand, which causes load shedding, and this is PV electricity might be in the range of only 1 to 3
more pronounced in rural areas. The economic US$/kWh . This makes PV electricity an ideal
candidate to fill the energy void of rural areas in Table 1 Sources and amounts of grants given to the SHS
developing countries. Furthermore at present the rural project under RREDP up to June 2009.
population is using Kerosene, candles or dry cell batteries
for lightings, where the monthly average cost is
comparable to that of SHS , and also these fuels are Grant Credit
health hazardous and accident prone. Therefore, what
stands in the way to the widespread commercialization of Number Number
PV is not its intrinsic cost compared to conventional of SHS of SHS
energy, but rather the adequate financing and distribution
of SHS in rural areas. IDA & USD 54
75,000 USD 7 m 246,000
The distribution and financing mechanism of the SHS GEF m
may be inadequate or unsuitable, making end users
unwilling to pay. Martinot, Cabraal and Mathur  cite EUR 16.5
KfW 372,000 - -
ten barriers to the adoption of SHS in the developing
countries, out of which four are financial barriers, namely
GTZ 108,000 EUR 5 m - -
high transaction costs, high first cost and affordability,
lack of consumer financing and lack of business and USD 33
financing skills. ADB - - 120,000
Furthermore, according to Martinot et al , a highly
subsidized program to fund SHS will fail commercially in
the long run, because the subsidies destroy the IDB - - 50,000 USD 16
commercial markets. m
USD 7 m
4. SHS Financing and Marketing Sub-
555,000 & EUR 416,000
Mechanism in Bangladesh total 103 m
The loans to fund the purchase and distribution of solar
Possible sources (Expected sources in the near future)
home systems comes from international donor agencies
like the World Bank, GTZ, KFW, and the Asian
Development Bank. The amount of grants and loans from IDA &
140,000 USD 7 m 320,000 USD 91
various donor agencies is given in table 1. This fund has GPOBA
financed 320,000 solar home systems in Bangladesh up to
May 2009. Since then, further grants to finance an GTZ 50,000 EUR 2 m - -
additional 350,000 SHS were given or promised.
The SHS program of IDCOL is being implemented USD 14
through the Partner Organizations (POs). The role of the Total 745,000 m & EUR 736,000
PO is to select the project areas and potential customers, 22.5 m
extend loans, install the systems and provide maintenance system. IDCOL makes the disbursement within 21 days
support. IDCOL provides grants and refinance, sets from the receipt of disbursement request.
technical specification for solar equipment, develops The households can buy SHS either in cash or on
publicity materials, provides training, and monitors PO’s credit. POs extend loans to the households for purchases
performance. of SHSs. Different POs extend credit on different terms
IDCOL offers soft loans of 10-year maturity with 2- and conditions. The loan duration varies from 1 to 5 years,
year grace period at 6% per annum interest to its partner and the interest rate varies from 8% to 15% per annum on
organizations. Usually, IDCOL does not require any a declining balance method, and from 10% to 15% per
collateral or security for the loan, except for a lien created annum on an equal principal payment method. In all the
on the project accounts. Unless and until there is an event instances, the repayment frequency is monthly.
of default, POs are authorized to operate the project
accounts of their own. 5. The Commercial Success of SHS in
Under the plan, the households are required to pay Rural Bangladesh: Findings
minimum ten percent of the system cost as down-payment.
On receipt of the down-payment, the POs enter into a IDCOL achieved its first target i.e. installation of 50,000
sale/lease agreement (provisions of which are approved by SHS in August 2005, three years ahead of the project
IDCOL), install the system (mostly on credit) and make completion period and US$ 2 million below the estimated
electronic disbursement requests to IDCOL for refinancing costs.
and grants, as applicable. After in-house checking, IDCOL Figure 1 shows the price trend of various SHS
conducts physical verification of the SHSs installed. packages whereas Figure 2 shows the trend of SHS sales
IDCOL releases grants and refinancing only if the in Bangladesh. We can see that the price of the SHS
inspection result is satisfactory. The refinancing amount packages increases gradually over the years and this
does not exceed US$285 equivalent in Taka per increase is due to the rising costs of the raw materials
necessary to manufacture solar panels. IDCOL also
lowers the amount of grants to the POs in successive EnDev, a donor organization, funds SHS distribution
stages, according to table 2. projects in seven countries. According to a cost and
Despite increasing prices and decreasing grant subsidy share comparison of EnDev SHS projects in
amounts, the annual sales of SHS packages increases seven countries, the SHS of Bangladesh is subsidized
consistently over the years. between 15 and 34% by EnDev, the lowest of all seven
countries. This subsidy includes the direct cost of SHS
equipment and its installation, excluding operation and
maintenance . An indirect subsidy and investment
cost is borne by the government and NGOs for public
education, infrastructure and market development and
creation of financing institutions. The subsidy cost is
lower in Bangladesh, due to the existing microfinance
infrastructure and the higher rural population density.
Consequently, of all the countries with EnDev SHS
projects, Bangladesh shows the highest cost efficiency
The SHS sales in Bangladesh do not follow a
geographically centralized pattern. SHS units are sold in
Fig. 1 Price trend of IDCOL’s SHS packages. comparable numbers in all areas of Bangladesh (Figure 3)
Fig. 3 Division-wise sales of SHS up to July 2009.
6. Consumer Satisfaction with SHS
Fig. 2 Annual sales of SHS in numbers.
Financing and Marketing: Findings
A survey of 40 households or small businesses in
Table 2 Decreasing amount of Grant Available in (US$/€) different villages of Bangladesh has revealed that the
per SHS. customers are largely satisfied with the availability and
Grant per SHS quality of the financing and sales services of the partner
organizations. The study has measured the satisfaction
Item Institutional level of the consumers in eight areas of the SHS service.
Total Development They are:
Grant 1. Number of appliances supported
2. Stability of electricity
First 20,000 $90 $70 $20
3. Quality of electricity
4. Frequency of breakdowns
Next 20,000 $70 $55 $15
5. Helpful information from the company
Next 30,000 $50 $40 $10 6. Financing facilities of the company
7. Troubleshooting services
Next 88,160 €38 €30 €8 In the first seven measures, the satisfaction level of
the consumer was measured on a scale of very
Next 35,000 €36 €30 €6 dissatisfied, a little dissatisfied, satisfied, highly satisfied
and not sure. The findings of the consumer levels of
Next 185,000 €34 €30 €4 satisfaction are represented in figure 4.
The responses indicate that most of the consumers are
either satisfied or highly satisfied with the SHS they use
Next 100,000 €28 €25 €3
in their homes or rural small businesses. No respondent
reported a high level of dissatisfaction regarding any of
Next 72,000 €22 €20 €2
the parameters, and overall dissatisfaction is low. The
consumers seem to have no dissatisfaction regarding the
helpfulness and financing facilities of the SHS the energy solution of choice in large parts of Bangladesh
distributors. that are not yet reached by grid electricity.
In assessing the frequency of malfunctions of SHS,
the customers were asked to report if their SHS had
malfunctioned never, once, twice, or three or more times.
These customers have been using the SHS for a duration
of six months to five years. The responses are
summarized in figure 5.
Fig. 5 Projected yearly unit sales of SHS up to 2012.
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