Over the past four years, a thriving market for household solar panels has sprung up in India, with the help of a United Nations programme which assists local banks in offering cheaper loans for the panels.
Since 2003, the $1.5 million programme has helped 16,600 Indians living in the southern state of Karnataka buy solar power systems for their homes and small businesses.
Jyoti Painuly, senior energy planner for the UN Environment Programme (UNEP), lists examples of people who have profited from the scheme: “There is the food vendor who told us ‘Now my food doesn’t smell of kerosene, so I sell more of it,’ and the tailor who said that he can work a few extra hours during the day, bringing in more money.”
The project began by selecting five vendors of household solar panel systems in Karnataka. With funding from the UN Foundation and the Shell Foundation, UNEP helped train the vendors, who were having limited success selling their wares in India – despite some of them having businesses exporting to Germany.
In parallel, UNEP went to two local banks and discussed ways to make it easier for rural people to afford solar systems. They then matched up the banks and the vendors so that people seeking to buy solar systems at any of the five vendors would be directed to the two banks which could help them make the purchase affordable.
“In 2003, close to 70% of people in India did not have access to electricity,” says Painuly. “Even being connected to the national grid did not ensure power because of frequent power cuts. There might be electricity when you don’t need it and then the power is not there when you do need it.”
Household solar systems work by storing up energy in a battery which is then connected, for example, to a few light bulbs, a small radio or a small black-and-white television. But the system costs between $300 and $500, making them prohibitive for many of India’s rural poor.
“The banks decided that we should subsidise lower interest rates for loans to buy solar systems,” says Painuly.
Before the UNEP project, banks loaned money for people to buy these systems at an interest rate of 12%. Through the project, the two participating banks dropped that rate down to 5% and UNEP paid the difference. UNEP also convinced the banks to extend the loans from three to five years and accept lower down-payments.
The result was that buying household solar systems became more affordable. And within a couple years other banks realised that UNEP’s village talks about the usefulness of solar systems had created a demand for them and began to offer similar low-interest rate loans.
“The potential for using innovative financial mechanisms to accelerate the uptake of these technologies in markets is absolutely enormous,” Friends of the Earth executive director Tony Juniper told New Scientist. “But in the end it won’t go far enough or fast enough without the active involvement of governments.”
Painuly notes that the government of India has supported similar schemes to subsidise loans for solar water heaters. He says the government scheme has been successful, but worries that it does not have an “exit strategy”. Because the scheme is revived every couple years, people simply wait for the next round of subsidies to buy their water heater, meaning the scheme is ultimately not self-sustaining, Painuly says.
UNEP’s involvement ends in May 2007, but Painuly is convinced that a market has now been created that will not disappear with the project’s end.
“Two vendors have told us that they are now selling 70% of their solar systems in cooperation with banks outside the programme,” he told New Scientist.
Similar projects are now being initiated by UNEP in Tunisia, China, Indonesia, Egypt, Mexico, Ghana, Morocco and Algeria.