2022/123 Supported by K NKONW A A WELDEGDEG E OL N ONTOET E S ESREI R E ISE S F OFRO R P R&A C T HTEH E NEENREGRYG Y ETX ITCREA C T I V E S G L O B A L P R A C T I C E THE BOTTOM LINE Learning from Large-Scale Solar Home System The Bangladesh Solar Home Systems (SHS) Program contributed Electrification in Bangladesh significantly to achieving near- universal access to electricity by What made the Bangladesh Solar Home System them, and provided credit to make them affordable. During the SHS installing over 4 million SHSs from Program’s life, the costs of solar home systems dropped, and the Program unique? 2003 to 2018, serving 16 percent quality of products improved; these benefits were passed on to rural of rural households by 2016. The The Bangladesh SHS Program was the world’s customers. government mobilized USD 683 largest and longest continuously running off-grid Financially, SHS users gained the most, followed by the govern- million in loans and grants from electrification program ment and the implementing organizations. Only kerosene dealers did international development partners not gain. The net financial benefit of the SHS Program is about USD for roll-out financing, which Bangladesh has given high priority to electricity access to help trans- 1.9 billion from 2003 to 2042 (discounted at 10 percent to 2018 in leveraged an additional USD 412 form rural areas. Rural access to electricity reached 95.2 percent constant 2018 USD). million from domestic sources. by 2020, up from 66 percent in 2016 (World Bank 2022). Between From the environmental perspective, Bangladesh avoided The Program provided significant 2003 and 2018 the program installed 4.1 million solar home systems burning 4 billion liters of kerosene for lighting and emitting over 9 benefits to all participants, (SHSs). At the SHS Program’s peak in 2016, SHSs provided electricity million tCO2. especially rural households. to 16 percent of the country’s rural households. Though local manufacturing was not a goal of the program, the These experiences are relevant to Over 15 years, 20 million rural people in Bangladesh obtained demand for SHSs led to investments in domestic solar modules Sub-Saharan Africa, where nearly access to basic electricity services using SHSs, far sooner than and system components, expanded battery manufacturing, and the 600 million people lack electricity if they had waited for the electricity grid. These families enjoyed founding of several battery recycling plants. access and 40 percent of electricity modern lighting, a cleaner and safer home environment, and power connections will need to be off-grid for recharging phones, TVs, radios, and small appliances. They also How did this come about? to achieve universal access by avoided the risk of home fires as well as respiratory illnesses from 2030. This Live Wire is based on breathing kerosene smoke. Eventually, their 10 million children will From 2003 to 2018, the government of Bangladesh Cabraal et al. 2021. gain upward mobility through improved education and health due in carried out a market-based program to supply SHSs part to electricity. to rural customers across the country Anil Cabraal was On the business side, some 200,000 rural enterprises and social formerly a lead energy facilities were able to extend their operating hours and offer better Universal rural access to electricity is enshrined in the Bangladesh specialist at the World Bank. services at lower costs by using SHSs for lighting, communications, 1972 constitution (Government of Bangladesh 1972). The Bangladesh and powering small appliances. At the peak of the program, 29,000 Rural Electrification Board (BREB) was founded in 1977 to achieve people were employed by a partnership of Bangladeshi microfinance this goal. In 2002, the government committed to achieving universal V. Susan Bogach was institutions, nongovernmental organizations, and private companies access to electricity by 2021; making the power sector financially formerly a senior economist at the World Bank. that assembled SHSs, marketed and delivered the systems, serviced viable, improving sector efficiency, and increasing the reliability and 2 L E A R N I N G F R O M L A R G E - S C A L E S O L A R H O M E S YS T E M E L E C T R I F I C AT I O N I N B A N G L A D E S H affordability of electricity (Government of Bangladesh 2002). But in The government appointed the Infrastructure Development 2003, the rural electricity access rate was only 27 percent; over 15 Company, Ltd. (IDCOL) to manage the SHS Program, as BREB was million rural households did not have access. Urban-rural disparities fully engaged in grid electrification. IDCOL is a government-owned and the health and safety impact on the rural population from lack of non-bank financial institution that had the financial and management electricity access were great, especially for women and children. At strengths to implement such a program. Through the SHS Program, the current pace of grid electrification, the government realized that the government leveraged the capacity of the private sector, it would take over 30 years to achieve universal access using grid microfinance institutions, and nongovernmental organizations as electricity alone (World Bank 2002). partner organizations to deliver SHSs to rural customers. The partner SHSs offered an alternative technology and delivery model to organizations competitively marketed, financed, and delivered SHSs help meet the universal access goal. The technology had shown to rural customers. Without this partnership and the facilitating role promise in the mid-1990s in pilot applications in Bangladesh. It had of IDCOL the program would not have taken off in Bangladesh. the potential to lower the cost of supplying basic electricity services With government support, the SHS Program systematically mobi- in areas that would not be connected to the grid soon. Deployment lized enormous financial resources from international development could be quick, and there was interest among private firms and partners. With the World Bank in the lead, those partners provided nongovernmental organizations. financing of USD 683 million in loans and grants over the course of 15 years, leveraging an additional USD 412 million from customers, Figure 1. Solar home systems installation progress, 2003–18 retailers, microfinance organizations, and the supply industry. Details on the financing of the SHS Program appear further on. 1,000,000 4,500,000 Sales under successive phases of the program grew rapidly from 900,000 2003 and peaked in 2013 with over 861,000 SHSs installed that year 861,172 4,000,000 (figure 1). Cumulatively 4.1 million SHSs were sold between 2003 and 800,000 3,500,000 2018. The motivations for purchasing SHSs included a low expecta- Cumulative SHS installations 726,512 Annual SHS installations tion of getting an electricity connection and the promise of improved 700,000 3,000,000 electricity services, including better light and more hours for activity 612,373 600,000 575,580 and improving children’s education (especially in women-headed 2,500,000 households). After 2013, SHS sales began to decline as the pace of 500,000 425,788 grid electrification accelerated rapidly. 2,000,000 400,000 As the SHS Program was a market-based, competitive one, SHS 295,597 1,500,000 sales were widely spread out across the country. The sales con- 300,000 centration varied, with 39 percent of households using SHSs in one 200,000 175,990 1,000,000 administrative division versus only 6 percent in another. At a district 156,827 35,731 level, SHS adoption ranged from a high of two-thirds households in 100,640 100,000 500,000 18,499 62,574 one district to a low of 0.2 percent in a highly urbanized district. 26,196 29,475 9,075 3,455 - - 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 SHS Cumulative SHS Source: Cabraal et al. 2021. 3 L E A R N I N G F R O M L A R G E - S C A L E S O L A R H O M E S YS T E M E L E C T R I F I C AT I O N I N B A N G L A D E S H Faces of the SHS Program: Power for Learning How did the SHS Program benefit rural Bangladeshis? SHSs brought the benefits of basic electricity services to rural consumers before the grid was available to them Brighter lighting allowed By purchasing a solar home system, families and businesses gained children to study longer. access to electricity services immediately, with no need to wait for Children with solar lights a grid electricity connection. Electricity brought many benefits— studied 50–60 hours more modern lighting as well as the ability to operate appliances and communication devices. per year than those using Rural families benefitted in myriad ways. Brighter lighting kerosene lamps. allowed children to study longer. Children with solar lights studied 50–60 hours more per year than those using kerosene lamps. SHS households enjoyed greater safety, comfort, and convenience compared to non-SHS households. More indoor and outdoor lighting gave a greater sense of security. SHS households could power their TVs, radios, fans, and mobile phones at a cost lower than alternatives such as generators or batteries recharged at charging stations. SHSs had a positive influence on women’s mobility, economic deci- sion-making, and sense of security. They spent more time tutoring children, reading, socializing, and visiting friends and neighbors after adopting a solar home system. TV, radio, and mobile phones enabled rural people to connect to the rest of the world and brought about a greater understanding of their rights (Bangladesh Institute of Development Studies 2012). SHSs benefited 200,000 enterprises and social services with better quality light, extended hours of operation, and power for small appliances. These organizations included (i) offices, educational institutions, restaurants, and retail shops (11 percent); and (ii) mosques (89 percent). The competitive business model permitted SHS con- sumers to benefit from technology improvements, especially more efficient LED lighting and direct-current appliances. Consumers benefited from cost reductions due to increased appliance efficiency, price drops for solar modules, and economies of scale. 4 L E A R N I N G F R O M L A R G E - S C A L E S O L A R H O M E S YS T E M E L E C T R I F I C AT I O N I N B A N G L A D E S H Faces of the SHS Program: Power for Women Faces of the SHS Program: Power for Business “The solar home system has enabled us to break out of darkness and live in light.”—Muktilia Bhrumo, SHS user in Thakugaon District, in a conversation with Noara Razzak and others from BRAC University in 2012. The program helped develop the local solar PV industry, manufacture. IDCOL regularly inspected those facilities. The program including SHS retailers, service providers, finance companies, and set up four battery recycling centers. All participating battery manufacturers. Given Bangladesh’s industrial capabilities, the suppliers had to send their spent batteries for recycling. program induced backward integration of manufacturing from The SHS Program avoided the burning of about 4 billion deep-cycle batteries and other components to solar PV modules in liters of kerosene from 2003 to 2021. The CO2 emissions later years. avoided by the program are estimated at 9.6 million tCO2, equivalent The SHS Program improved standards for battery man- to the CO2 emissions from a 300 MW coal plant over a 6-year period. ufacture and battery recycling capabilities. Battery manufac- The value of the kerosene saved between 2003 and 2018 is esti- turers were required to adopt international standards for battery mated at more than USD 900 million (in constant 2018 USD). 5 L E A R N I N G F R O M L A R G E - S C A L E S O L A R H O M E S YS T E M E L E C T R I F I C AT I O N I N B A N G L A D E S H How was the SHS program organized? SHSs to rural customers. New SHS technologies were adopted as they emerged, under the watchful eye of a Technical Standards IDCOL managed a national network of Committee. nongovernmental organizations, microfinance The organizational arrangements, flow of funds, and relationships institutions, and private companies with rural between various entities are shown in figure 2 and described further IDCOL combined its outreach that competitively marketed, financed, below. expertise in infrastructure The partner organizations provided warrantied SHS products, installed, and serviced quality-certified SHSs spares, and repair services. They sold SHSs on credit, with affordable financing with Bangladesh’s IDCOL combined its expertise in infrastructure financing with financing terms. SHS customers repaid loans to partner organiza- pioneering work in Bangladesh’s pioneering work in microfinance and early attempts at tions, IDCOL refinanced the partner organizations while repaying the microfinance and solar electrification to build an off-grid electrification business model. government, and the government financed IDCOL with funds from early attempts at solar Most of IDCOL’s network of 57 partner organizations were nongov- international agencies. IDCOL’s approach was adaptive—responsive ernmental organizations and microfinance institutions that compet- to changes in market and other conditions. The Program scaled up electrification to build itively marketed, financed, installed, and serviced quality-certified gradually, with participants learning along the way. an off-grid electrification business model. Figure 2. Organization of the SHS Program Provides foreign currency grants and loans on soft terms Government of Development partners Bangladesh Repays loans Provides grants and loans in BDT Repays loans on soft terms Independent PO IDCOL Independent Technical Selection Committee Ap Standards Committee plie s fo Ap ra pro pp oin ves tm PO en Provides grants Seeks Provides s t Repays loans and loans approval approval Seeks operational Supplies equipment IDCOL Operations interventions Committee Partner organizations Suppliers Provides oversight Pays for equipment guidance and solutions Sells and services Pays for SHS SHS Customers (households) Source: Cabraal et al. 2021. BDT = Bangladesh taka. 6 L E A R N I N G F R O M L A R G E - S C A L E S O L A R H O M E S YS T E M E L E C T R I F I C AT I O N I N B A N G L A D E S H The partner organizations offered customers choices among How was the SHS Program financed? SHSs with assorted sizes, prices, and functions. Customer choice was an important feature. Customers could choose from SHSs that Roll-out financing of USD 1.1 billion came from ranged from 10 peak watts (Wp) for basic lighting and mobile phone development partners, partner organizations, charging to 300 Wp for powering TVs and fans. Early on, the size customers’ down payments, and manufacturers’ The partner organizations averaged about 50 Wp. As more efficient LED lamps began replacing equity; ultimately SHS purchasers paid for much of provided warrantied fluorescent tube and compact fluorescent lights, the average size the program decreased to about 30 Wp by 2013, increasing affordability. As SHS SHS products, spares, prices continued to fall with decreases in PV module costs and Credit support of USD 602 million came from the World Bank, and repair services. They reductions in the minimum battery size requirement, the average Asian Development Bank, Japan International Cooperation Agency, sold SHSs on credit, with SHS size increased to 40 Wp to obtain a greater level of electricity and Islamic Development Bank. Grant funds of USD 81 million affordable financing service. In 2003, the installed unit cost averaged USD 12 per Wp; this came from the Global Environment Facility, Global Partnership dropped to USD 10 per Wp in 2010 and to less than USD 5 per Wp by on Output-Based Aid, United States Agency for International terms. SHS customers about 2017 (constant 2018 USD). This cost included free maintenance Development, Kreditanstalt für Wiederaufbau, German Agency for repaid loans to partner services for three years, a five-year warranty for batteries, and tax of International Cooperation (Deutsche Gesellschaft für Internationale organizations, IDCOL about 12 percent. Zusammenarbeit), and UK Department for International refinanced the partner Several specialized committees played key roles in program Development. Equity from partner organizations, customers’ down management. Quality was enforced by an independent Technical payments, and manufacturers’ equity investments in their factories organizations while Standards Committee. Selection of the partner organizations was contributed USD 412 million. The sources of total up-front financing repaying the government, are given in figure 3. governed by the Independent Partner Organization Selection and the government Committee. The Operations Committee was singularly important Consumer financing was the essential instrument to improve financed IDCOL with and enabled constant monitoring and adaptation. The CEO of IDCOL affordability by helping to match payment terms to customer’s ability funds from international chaired the committee comprised of IDCOL staff and representatives to pay. The Bangladesh government, through IDCOL and then the of partner organizations. Its monthly meetings enabled IDCOL to partner organizations, delivered the international financing to rural agencies. obtain timely information from the field, respond to partner orga- families in micro-loans. The government lent to IDCOL in Bangladesh nizations’ suggestions, convey consistent messages to the partner taka, with the government carrying the foreign exchange risk. IDCOL organizations and efficiently manage the program. The meetings refinanced a portion of the partner organizations’ loans to customers. offered a venue for learning from each other. Today, with the advent The partner organizations financed sales and secured the loan with of online conferencing technology, such meetings could be con- the SHS. The financial flows and on-lending terms are illustrated in ducted more efficiently, conveniently, and at lower cost. figure 4. Availability of financing and its accessibility by partner organi- zations with minimal collateral requirements were key to the rapid uptake of the SHSs. It also meant that IDCOL and the government were carrying greater risk than a typical commercial bank. The part- ner organizations also carried a risk, as repossessing a solar home system installed on a defaulting customer’s roof was difficult, and, with SHS prices dropping steadily, the residual value of the system declined relatively quickly. 7 L E A R N I N G F R O M L A R G E - S C A L E S O L A R H O M E S YS T E M E L E C T R I F I C AT I O N I N B A N G L A D E S H Figure 3. Source of the SHS Program’s roll-out loans, equity, and grants (millions of USD, percent) Loans = USD 601.9 million; grants = USD 80.9 million; equity and down payments = USD 412.2 Customer down payments Partner organization 160.3 (14.6%) equity KfW Consumer financing was 219.7 (20.1%) 19.6 (1.8%) the essential instrument IsDB Loan, Industry equity to improve affordability by 16.5 (1.5%) 32.1 (2.9%) GIZ 16.8 (1.5%) ADB helping to match payment 2.0 (0.2%) Grants terms to customer’s ability 80.9 (7.4%) USAID to pay. 3.1 (0.3) DFID 18.6 (1.7%) GEF ADB loan 7.0 (0.6%) 88.0 (8.0%) GPOBA JICA loan 14.0 (1.3%) World Bank loans 416.3 (38%) 81.1 (7.4%) Source: Derived from data in Cabraal et al. 2021. Note: ADB = Asian Development Bank; JICA = Japan International Cooperation Agency; IsDB = Islamic Development Bank; GEF = Global Environment Facility; GPOBA = Global Partnership on Output-Based Aid; USAID = United States Agency for International Development; KfW = Kreditanstalt für Wiederaufbau; GIZ = German Agency for International Cooperation; DFID = UK Department for International Development. Figure 4. Financing flows and terms Refinance 70–80% of PO loan to customers at 4% to 8% interest, RDT loan at Financed International Concessional 10 to 5 years tenor, Government of 3% interest, Partner ~85% of cost SHS development financing in IDCOL 1 to 0.5 year grace. Bangladesh 20-year tenor, organizations at 12–16% flat customers partners USD, JPY, etc. Terms were 5-year grace rate repayable tighter for larger, in 1–3 years established POs and terms tightened over time for all POs Source: Derived from data in Cabraal et al. 2021. BDT = Bangladesh taka; PO = partner organization; SHS = solar home system. 8 L E A R N I N G F R O M L A R G E - S C A L E S O L A R H O M E S YS T E M E L E C T R I F I C AT I O N I N B A N G L A D E S H Necessary in the early stages of the program, the role of What led the SHS Program to stop marketing SHSs in grants diminished in later years. Grants were used to provide a 2018 and to shut down in 2021? results-based, end-user subsidy to increase affordability and to enable partner organizations to strengthen their sales and service The SHS market declined sharply after 2014, mainly infrastructure. In 2003 the grant was USD 90 per SHS (19 percent of because of an unprecedented acceleration in grid Necessary in the early cost on average) irrespective of size, with USD 70 for an end-user electrification stages of the program, the subsidy and USD 20 for institutional strengthening. By 2011, when 1 million SHSs had been sold, the subsidy had gradually been reduced After 11 years of strong sales growth, the SHS market declined role of grants diminished precipitously after 2014 as an unprecedented acceleration in grid to USD 28 per SHS, or 7 percent of its cost (of which USD 25 was an in later years. Grants were end-user subsidy). After 2012, only an end-user subsidy of USD 25 electrification (figure 5) came together with more reliable service on used to provide a results- was given for SHSs below 30 Wp. The higher subsidy in the early the rural grid. This was coupled with competition from the govern- years was justified as helping to overcome the wariness of early ment’s poverty-targeted SHS give-away program—the TR/KABITA based, end-user subsidy adopters. Program—and the expansion of commercial SHS sales, which ben- to increase affordability efited from the good reputation of the systems sold under the SHS and to enable partner Program. By 2018 there were fewer unelectrified rural households organizations to strengthen than the number of SHSs installed under the program, and BREB was continuing rapid grid extension. their sales and service infrastructure. Figure 5. Increasing pace of grid-based rural electrification after 2014 BREB cumulative consumer grid connections 30,000 26,500 25,000 20000 (thousands) 15,000 9,390 10,000 7,641 5,395 5,000 2,379 396 931 108 0 1980 1885 1990 1995 2000 2005 2010 2015 2020 Source: Derived from data from Bangladesh Rural Electrification Board 2020. 9 L E A R N I N G F R O M L A R G E - S C A L E S O L A R H O M E S YS T E M E L E C T R I F I C AT I O N I N B A N G L A D E S H Popular preference for grid electricity and the public resources At the government’s request, IDCOL also took over management devoted to grid expansion were not secrets. However, closer of the TR/KABITA Program, using its network of partner organizations cooperation with BREB could have helped IDCOL plan better to wind to supply and service the systems supplied under that program. This down the SHS Program as grid expansion ramped up. That said, improved services to the TR/KABITA beneficiaries and helped the IDCOL did take steps to adapt—first to counteract the market decline partner organizations repay their outstanding debts to IDCOL. The prospect of securing a (unsuccessful) and then to bring the SHS Program to an orderly end Better coordination between grid and off-grid electrification plan- grid connection dampened (successful). ning and earlier actions by IDCOL could have lessened the problems In 2011, IDCOL had estimated that the market for SHSs was about IDCOL and its partner organizations faced when their market shrank. demand for SHSs, as 6 million households, or about 50 percent of the unelectrified rural Similar coordination among government agencies and with develop- consumers preferred households in Bangladesh. At that time, the pace of grid electrifi- ment partners that were simultaneously increasing financing to grid unlimited access to cation was slow, so the government sought additional financing for and off-grid electrification would also have been beneficial. electricity at subsidized low SHSs, and development partners responded with USD 377 million prices. in credits and grants between 2012 and 2014, enough to finance an Who were the program’s winners and losers? additional 2.7 to 3 million SHSs. IDCOL had recruited 17 new partner organizations in 2013 and 11 more in 2015 in the expectation that the Rural households gained the most, but all major SHS market would continue to grow. However, in 2015, BREB began stakeholders, except kerosene dealers, gained from rapidly accelerating its grid electrification with support from the the SHS Program government and development partners, significantly depressing the The costs and benefits of the SHS Program were analyzed to market for SHSs. determine its net contribution to the country’s economy, the global The prospect of securing a grid connection dampened demand impact of CO2 emission reductions, and the net financial benefits for SHSs, as consumers preferred unlimited access to electricity at from the perspective of project participants (SHS customers, partner subsidized low prices. It also created cut-throat competition among organizations, IDCOL, kerosene dealers, and the Bangladesh govern- partner organizations and led some SHS customers to default on ment) (table 1). their loan payments. As the partner organizations’ profitability The economic and financial analysis of aggregate households declined, their inability to service their debt to IDCOL affected IDCOL’s extends from 2003 to 2029, when the last SHSs installed in 2018 are financial position. assumed to stop operating. The financial analysis of stakeholders’ IDCOL began winding down SHS operations. It worked with the net benefits extends to 2042, when IDCOL will have repaid the loans partner organizations to restructure their debt and help them recover it received from the government. The analysis of the impact on the arrears from customers. With help from an interest-rate reduction government of the development funds it received extends to 2054, on its own debt to the Bangladesh government, IDCOL extended when the government repays the final concessional loan for the partners’ debt repayment from 2023 to 2026 and waived interest on program. SHS loans. IDCOL’s efforts have succeeded in improving the quality The economic internal rate of return of the SHS Program is of the partner organizations’ loan portfolio, with below-standard estimated at 20 percent using the avoided cost of kerosene and debt reduced from BDT 11.9 billion in 2018 (USD 143 million) to grid electricity for lighting to estimate benefits.1 When the additional BDT 2.4 billion by 2019 (USD 28.6 million in 2018 USD). This is very small compared with the net present value of the benefits the SHS Program brought to the main stakeholders (as discussed in the next 1. Defining benefits simply as the avoided kerosene costs for lighting in both the economic and financial analyses overlooks the important benefits of the program to households reviewed section). earlier. Although these other benefits were prime motivations for households to buy a solar home system, they were excluded from the cost-benefit study because they are difficult to estimate. In any case, the avoided costs for lighting alone justify the program in economic and financial terms. 10 L E A R N I N G F R O M L A R G E - S C A L E S O L A R H O M E S YS T E M E L E C T R I F I C AT I O N I N B A N G L A D E S H Table 1. Distribution of financial benefits to stakeholders in the SHS Program, 2003–42 Net financial benefits 2003–42 (constant 2018 USD million) Present value in 2018 Stakeholders Undiscounted 10% discount rate 5% discount rate When the additional benefit Households’ net savings on kerosene and electricity savings, with grants 1,348 745 1,088 to the global community and loans factored in Government taxes collected on SHS sales and savings on kerosene 200 474 313 from carbon emissions subsidies reduction is added, the IDCOL’s earnings from on-lending to partner organizations 54 379 223 economic rate of return Partner organizations’ profits on SHS sales 147 310 214 increases to 25 percent. Kerosene distributors’ forgone profits (47) (56) (51) TOTAL 1,702 1,852 1,787 Source: Cabraal et al. 2021. Note: All discounted figures are in constant 2018 USD. The duration of benefits varies. Only IDCOL benefits extend to 2042, reflecting debt servicing payments to the government. The societal discount rate of 10 percent in constant terms is excessive for IDCOL and the partner organizations. Since IDCOL’s opportunity cost of capital is estimated at 2.5 percent in constant terms, the NPV of its financial benefits would more appropriately be estimated at USD 139 million (constant 2018 USD) when discounted at 2.5 percent. Similarly, the NPV of the partner organizations’ net gains would be estimated at USD 262 million in constant 2018 USD, discounted at 2.5 percent. benefit to the global community from carbon emissions reduction (see table 1). At any discount rate, households benefitted the most, is added, the rate of return increases to 25 percent. Using an followed by the government. On a cumulative present value basis alternative approach that estimates the benefits using a willing- discounted at 10 percent to 2018, the total net benefits are estimated ness-to-pay estimate of USD 2.23 per kWh (2018 USD) yields an EIRR at USD 1,852 million, of which SHS households gained USD 745 of 51 percent. million. The government benefitted from on-lending concessional The financial internal rate of return (FIRR) of the aggregate par- funds to IDCOL on less favorable terms, in addition to the direct ticipating households based only on the energy savings is estimated benefits from taxes and reduced kerosene subsidies.2 at 17 percent—including grants and assuming an average interest rate of 14 percent for SHS loans and the repayment defaults near the end of the program. If there had been no defaults, the FIRR would have been 13 percent since the households would have repaid more. 2. For the period from 2003 through 2054, the national treasury’s forecasted net gain on IDCOL payments minus repayments of international concessional loans is USD 1 million in constant If there had been no loans or grants, the households’ FIRR would 2018 USD on an undiscounted basis and USD 180 million when discounted to 2018 at 10 per- have been 14.7 percent—though it is likely that far fewer households cent. On a cumulative present value basis discounted at 10 percent to 2018, the treasury’s total net gain from the SHS Program is estimated at USD 655 million, made up of USD 384 million could have afforded the systems. from taxes on SHS, USD 90 million from avoided kerosene subsidy, and USD 180 million from the The financial analysis showed that all major stakeholders, except pass-through of official development assistance. The relative stability of the Bangladesh taka (it depreciated at 2.5 percent per annum against the U.S. dollar from 2003 to 2018), is an important kerosene dealers, have reaped significant gains from the program reason why the government reaped a significant pass-through benefit. 11 L E A R N I N G F R O M L A R G E - S C A L E S O L A R H O M E S YS T E M E L E C T R I F I C AT I O N I N B A N G L A D E S H What has the SHS Program taught us? • Adapt the program continuously based on built-in lines of communication. In Bangladesh, the monthly Operational The Bangladesh SHS Program shows that SHSs can Committee meetings where all participants were represented make a large-scale contribution to rural electricity enabled real-time monitoring by IDCOL and rapid response and access in advance of the arrival of the grid; the adaptation to challenges. Regular consumer surveys and means Give customers a choice of systems are well accepted by rural households and for consumers to contact the implementing agency are important SHSs to match their needs for early feedback. businesses • Adopt new technologies that offer better quality and more and abilities to pay. One The experience of the Bangladesh SHS Program suggests the follow- reliable services (e.g., LEDs), as well as new business practices size does not fit all. ing main building blocks for success. Although the Bangladesh model such as pay-as-you-go technology, mobile pay, and computerized may not be exactly replicable in other countries, its experience offers management information systems. valuable lessons for large-scale off-grid programs elsewhere. • Provide users with solid, practical information and training in simple maintenance and safe operating procedures. Planning the program • Assign responsibility for program management to a strong Additional hard-won tips on designing and implementing a success- institution, preferably one with good financial management ful program are offered in box 1. experience, that provides close and timely supervision as well as financial discipline. • Work with capable partner organizations (private firms, non- governmental organizations, and microfinance institutions) that Box 1. Additional tips for planning and managing a have strong rural outreach and a stake in the program’s success. successful SHS program Agencies responsible for grid electrification may be too busy to • Build the program around a clearly defined goal such as take-on the added responsibility for off-grid electrification. reaching universal access by a certain year. • Coordinate grid and off-grid electrification closely. Since consum- • Avoid running parallel initiatives with similar objectives but ers prefer grid electricity, foresee from the start an adaptation different operating and management modes. and exit strategy that manages shared risks as grid electrification • Use geo-spatial planning tools to coordinate grid and off-grid proceeds. Plan for an off-grid service and spare part supply electrification. infrastructure beyond the program. • Build on the strengths of existing organizations and enterprises • Provide access to consumer finance for SHSs on affordable rather than creating new ones, wherever possible. payment terms, including credit, that approximate household • View government and the private sector as complements, not expenditure patterns. Use subsidies judiciously. They are most alternatives or competitors. useful in the early stages of a program to overcome unfamiliarity • Seek development partners’ support for technology and of the product. knowledge transfer and not just as sources of money. Use development partner financing to leverage domestic financing. Implementing the program • Adhere to sound economic, technical, and business principles even when adapting to changed circumstances. • Give customers a choice of SHSs to match their needs and abilities to pay. One size does not fit all. Protecting the customer • Rationalize duty and tax structures to level the playing field for SHSs and alternatives. by ensuring the quality of products, components, installations, and support services builds the sustainability and the reputation Source: Adapted from Cabraal et al. 2021. of the program. 12 L E A R N I N G F R O M L A R G E - S C A L E S O L A R H O M E S YS T E M E L E C T R I F I C AT I O N I N B A N G L A D E S H Other countries may lack Bangladesh’s capability with microfi- References MAKE FURTHER nance and its rural infrastructure, but they can apply these lessons Bangladesh Institute of Development Studies. 2012. Household CONNECTIONS to accelerate off-grid access programs while benefiting from today’s Survey Data on Impact Evaluation of Solar Home Systems in more effective, efficient, and less costly technology and approaches, Bangladesh. Report prepared for the World Bank. Live Wire 2014/20. “Scaling Up Access to which include (i) using mobile pay and pay-as-you-go technologies Electricity: The Case of Lighting Africa,” Bangladesh Rural Electrification Board. 2020. Annual Report. Dhaka, to reduce collection costs and risks; (ii) relying on mobile phones, by Daniel Murphy and Arsh Sharma. Bangladesh. social media, and on-line conferencing to facilitate communications Cabraal, A., W.A. Ward, V.S. Bogach, and A. Jain. 2021. Living in Live Wire 2014/21. “Scaling Up Access to with partners and customers; (iii) engaging in geospatial planning to Electricity: The Case of Bangladesh,” by the Light: The Bangladesh Solar Home Systems Story. World coordinate grid and off-grid electrification; and (iv) deploying program Zubair Sadeque, Dana Rysankova, Raihan Bank, Washington, DC. https://openknowledge.worldbank.org/ Elahi, and Ruchi Soni. management platforms designed for off-grid electrification. handle/10986/35311 The SHS Program made a significant contribution to meeting Live Wire 2015/34. “Scaling Up Access Government of Bangladesh. 1972. Constitution of the Peoples’ the rural access requirement of Bangladesh’s 1972 constitution by to Electricity: Pay-as-You-Go Plans in Republic of Bangladesh: Part II—Fundamental Principles of State Off-Grid Energy Services,” by Alejandro providing rural electricity service to 20 million people in advance Policy. Dhaka, Bangladesh. http://www.commonlii.org/bd/legis/ Moreno and Asta Bareisaite. of grid access. It provided very significant financial benefits to all const/2004/part2.html parties, most importantly to the rural residents of Bangladesh. Live Wire 2014/35. “Planning for ———. 2002. “Vision Statement.” Power Division, Ministry of Energy Electricity Access,” by Debabrata The authors hope that sharing these experiences will help other and Mineral Resources. Dhaka, Bangladesh. https://policy. Chattopadhyay, Rahul Kitchlu, and countries achieve their electrification goals. Rhonda Jordan. asiapacificenergy.org/sites/default/files/VSPSPSectorReform.pdf World Bank. 2002. “Bangladesh Rural Electrification and Renewable Live Wire 2015/51. “Scaling Up Access to Energy Development Project.” Project Appraisal Document. Electricity: Emerging Best Practices for Mini-Grid Regulation,” by Chris Greacen, Washington, DC: World Bank. http://documents.worldbank.org/ Stephanie Nsom, and Dana Rysankova. curated/en/226581468741678811/pdf/multi0page.pdf ———. 2022. World Development Indicators. Database. https://data- Live Wire 2017/86. “Data as an Enabler in the Off-Grid Sector: Focus on Tanzania,” bank.worldbank.org/source/world-development-indicators by Christopher James Arderne, Yann Tanvez, and Pepukaye Bardouille. Live Wire 2019/106. “Planning Models for Electricity Access: Where Do We Go from Here?” by Rahul Srinivasan and Debabrata Chattopadhyay. Live Wire 2021/113. “Tracking Advances in Access to Electricity Using Satellite- Based Data and Machine Learning to Complement Surveys,” by Milien Dhorne, Claire Nicolas, Christopher Arderne, and Juliette Besnard. Live Wire 2022/121. “Access to Clean Cooking and Electricity: Righting the Policy Balance in Sub-Saharan Africa and Fragile Settings,” by Sharmila Bellur, Paul Mathew, and Juliette Besnard. Find these and the entire Live Wire archive at www.worldbank.org/energy/livewire.