Rural communities looking for a source of electricity usually have very limited options. Though it is broadly agreed that solar generators are a cheaper option in the long run compared to diesel generators, diesel remains a very popular choice. Why is this and how can funds like the EKOenergy Climate Fund help address this issue?
Access to electricity can be a tremendous boon to rural communities. Water pumps save hours of manual labour transporting water. Indoor lighting or air conditioning extend the length of the working day. Refrigeration allows for storage of medicines and vaccines. Lighting decreases the need to burn fuel, reducing the risk of fire and inhalation of harmful fumes (estimated to have caused 4.3 million premature deaths in 2012). Well designed electrification projects can free up valuable time and labour allowing people to focus on other economic or social priorities.
Rural communities that lie far from the national grid require self-contained generators to provide their electricity. Unless they are close to a large body of flowing water where they can build a hydropower scheme, their options are mostly limited to either solar generation or diesel generation.
Solar installations have a large initial capital cost, yet they have very low running costs. Washing the panels, replacing the inverter (which is usually sold with a warranty of 5-10 years) and some standard electrical maintenance is generally all that is required.
Solar panels also have a very long lifetime. Manufacturers advertise a lifetime of 20 to 25 years, with output decreasing to around 80% of the original yield after this time. The reason for this longevity is that solar panels have no moving parts. It is only the slow degrading effects of UV that wear the panels down.
On the other hand, diesel generators have a constant running cost due to the need for fuel, cleaning and filter changes. Though diesel generators are cheap to begin with, their net cost slowly accrues over time. Diesel generators are also unreliable and often require expensive overhauls to be repaired. For this reason, a range of case studies conclude that Solar generators are a cheaper option over the long term. This includes research by the Solar Electric Light Fund; Universitas Gadjah Mada; Abubakar Tafawa Balewa University; Arba Minch University; and Indian Institute of Technology.
Despite this, diesel generators remain a very common choice of electricity generation. Why? Because the initial cost of a solar generator can be anywhere from 5 to 10 times higher than a diesel generator. Communities with limited access to capital just do not have the resources to pay the large upfront costs for solar. Additional factors like risk of theft, difficulty to repair and vulnerability to lightning strikes also increase the financial risk associated with an investment in solar instead of diesel.
A gap therefore exists in which initiatives like the EKOenergy Climate Fund can play a valuable role. Two exemplary projects which the Climate Fund financed between 2016 and 2018 include solar installations in Togo and in Jinotega, Nicaragua. The essence of these projects was to subsidise the cost of solar power to make investment in solar a more viable option for communities with limited access to capital.
For example, the project in Nicaragua established a revolving loan fund for a cooperative of coffee producers. The fund provided affordable, low-interest credit to businesses so that they could buy solar panels. Over time, as the business pays back its loan, this money goes to providing loans to other businesses so they can do the same. In this way, the fund ‘revolves’, creating a sustainable model in which businesses can gain access to required capital.
The Climate Fund supports projects like these all over the world. We focus on projects that involve strong community engagement and addresses multiple sustainable development goals. The Climate Fund is entirely financed by the sales of energy tariffs supporting the EKOenergy ecolabel. If you want to buy renewable energy that causes minimal damage to the environment and supports this work, get in touch with EKOenergy.
Written By Cameron Boggon
Posted on 21 January 2019