Overview of Financing Mechanisms for Solar Home Systems in Developing Countries

Abstract

Solar Home Systems (SHSs) are used as the household’s source of electricity primarily by rural households in remote villages in areas in developing countries in which the national or regional electricity grid has not been built. Like all renewable energy conversion systems, initial capital cost of a solar home system represents a high proportion of the system’s total life-cycle cost. This makes the system unattractive for providing electricity access to rural areas by the national or regional electric utilities. Those living in such areas tend to be the poorest of the poor with very low incomes and without the ability to pay the upfront costs of a SHS. An important prerequisite for a rural PV electrification programme in developing countries is the mobilisation of the financial means required for the acquisition of the systems. Local banks and finance institutions tend to categorise SHSs as a high risk investment, and therefore, showing lack of interest in providing finance for SHSs means that other financial mechanisms are required. Different types of financing schemes available and used in different SHS programmes around the world are presented in this chapter.