Electrifying rural households with solar energy in Cambodia-
Cambodia, with its abundant sunshine and its large share of off-grid households (estimated at more than 70 per cent), is ideally suited for solar energy development. Based on our market experience, there are several developments in the current market of Cambodia which make it attractive for solar power development:
- Improving financial services in rural areas;
- Steps towards an improved regulatory framework;
- Increased distribution of solar products;
- Need to expand the solar sector; and
- Falling solar prices of systems due to maturing technology.
Improving financial services in rural areas and applying different business models
The uptake of solar energy has typically been limited by high upfront costs. Financing allows potential customers to spread this upfront cost over a certain period. Solars energy’s ability to repay quickly makes this arrangement attractive.
With 38 microfinance institutions (MFIs) active in Cambodia, most rural areas are now covered by at least one provider; in fact, many areas have multiple active providers. Although interest rates remain high (25 per cent per year or higher), loan default rates have traditionally been low (less than 3 per cent). The sector is highly aware of the risk of overlending.
In addition to the availability of microfinance, mobile phone payment schemes are on the rise, with at least three service providers in the Cambodian market. These developments could facilitate the delivery of new solar services to the off-grid population. Kamworks has been developing solar product rental models in various pilot projects since 2007.
Kamworks has been developing and piloting different business models for its off-grid solutions since 2007. In our MoonLight solar lantern rental pilot project, we offer products that provide cost-effective lighting to households, either through purchase or rental. An essential aspect of operating the rental scheme is accurate bookkeeping by local village entrepreneurs. However, bookkeeping and credit management can be intensive; thus, success is dependent on the entrepreneurial skills that often need to be developed. Sometimes, these skills are cultivated through NGOs like Choice Cambodia or PicoSol Cambodia.
Kamworks has also rented out larger solar home systems (SHSs). In 2011-12, Kamworks was the local contractor for the Rural Electrification Fund (World Bank project) in Cambodia in which 12,000 SHSs were installed under a credit scheme.
In comparing rental models with cash sales, an important advantage of rental models lies in the fact that they are risk-free for the client. Cambodian villagers cannot really assess the quality of the solar product and often worry that they would lose their investment should the product fail. Even if they had the cash to buy the product directly, they might not want to take the risk. Rental models allow villagers to try out the product and gain confidence in the technology.
Improving the regulatory framework
Government policies and regulations have been steadily improving with regard to the market for solar energy in Cambodia. However, there are still a few much-needed steps that should be undertaken:
- Feed-in tariff (FiT) and net metering: With generation capacity shortages and the highest electricity tariffs in the region (around $0.2 per kWh and even more occasionally), Cambodia has a huge opportunity for on-grid solar power generation. Therefore, FITs are not needed; instead, net metering policies should be used. Without net metering policies and wheeling regulations, it is hard to see how this opportunity can be taken forward. Kamworks has piloted the first grid-connected solar systems in Cambodia and taken the initiative to demonstrate the practice of net metering in an EEP-Mekong supported a project that is planned to start later this year. Net metering refers to the ability to get rollbacks of the energy meter when feeding energy into the grid.
- Zero per cent import duty on solar products: With the current import taxes on solar products, the cost of importing solar equipment is still high, thus suppressing the rate of market development. It also plays into the hands of “cowboy” companies that smuggle in solar panels, often of dubious quality, which can undermine the solar market. Reducing import barriers for solar products will greatly enhance the possibility of a thriving solar industry that generates local jobs.
- Reduction of paperwork for importing and exporting solar products: High document costs and inefficiencies at the port and customs place an additional burden on legitimate solar companies. It also undermines the competitiveness of the export of solar products, assembled in Cambodia, on the global stage. The reduction of these constraints will greatly improve one’s ability to export directly from Cambodia to other countries, thus creating a conducive environment that promotes competition. The reduction in paperwork would also help boost the image of Cambodia as a place to do solar business.
Measures 2 and 3 have already been proven to be successful on a project basis.
Increased distribution of solar products to rural areas
Much of rural Cambodia is thinly populated and expansion of the energy grid away from high density populations is a potentially expensive and inefficient proposition. Yet, at the same time, rural populations still have electricity needs.
Most households have a TV, some lights, and a mobile phone to charge. Currently, this power is provided by charging a car battery at one of the many battery charging stations. However, this practice is rather cumbersome (transporting the battery to the charging station and back); thus, it is not a preferred option for villagers. Poorer households use a kerosene light.
Solar lanterns, mini-kits, and home systems are the lowest-cost option for rural electrification in Cambodia. The lower cost of solar products enables the distributor to take up more stock and decrease the upfront cost of inventory. Thus, retail channels are able to increase their take-up rate of solar products in their portfolio, which boosts the availability of solar products via retail channels.
Good product quality has bolstered the market acceptance for solar products. Building the confidence of the customer base is key, as villagers cannot really assess the quality of the product. There have been cases of scams, poor quality products, and even reports of counterfeit products in the market. As good quality and good service are vital, they need to be backed up by financially sound solar panel suppliers. Providing good quality products helps distributors to resell better, as satisfied customers would talk to their neighbours and provide word-of-mouth advertising.
Need to expand the solar sector
In order for solar energy to overtake car batteries as the most widely used option for rural electrification, Cambodia needs to expand its solar energy sector. With cheap labour available and a growing industry base, the logical next step would be to start manufacturing solar products in Cambodia. Kamworks has already started doing this on a small scale with its MoonLight solar lantern assembly.
There are many benefits for the Cambodian economy through the creation of jobs. In addition, and more importantly, solar energy expertise is brought into the country, which allows for solar products to be repaired, rather than discarded. This further increases the competiveness of solar products, as spare parts are available locally through local assembly. Hence, villagers can get much better value for money because their product can be repaired and its useful life can be extended.
Falling solar prices and maturing LED technology
With solar panel prices falling rapidly over the last few years, solar energy has now come within reach for many off-grid households in Cambodia. A less obvious development is the miniaturisation of efficient lighting due to the rising maturity of LED technology. When Kamworks’ founders started the development of their first solar lantern back in 2005, compact fluorescent lights (CFLs) were used to produce efficient light at just 3 Watts or more. The cost of a solar light, using that technology, would easily be $75, and this would be the entry level for the customer to utilise solar technology. Now, with Light-emitting diode lights producing super efficient light at 1 W or even less, the cost of a high efficiency solar light can be as low as $15, thus greatly increasing the potential customer base for such products.
Increased household productivity with solar energy
One of the key benefits of electrifying a house is having an electric light. In Cambodia, the availability of electric light has been shown to help increase productivity to generate income. For example, it has aided in fishing in the evening, transporting goods early to market when it is still dark, chasing chickens at night, or bringing in cattle safely.
The quality of life of Cambodians has also improved, first from the increased income achievable from the higher productivity. In addition, the health hazard of kerosene lighting is reduced when they switch from polluting kerosene to solar lighting. In addition fire hazard is reduced. Finally, solar energy also saves households’ the time taken in making repeated trips to recharge a car battery; this time could then be spent on some income generating activities.
Sunnier prospects ahead
With the development of the financial services sector in Cambodia, the growing maturity of solar technology and the solar market, along with the rising affluence of rural Cambodians, solar energy looks set to take off. However, the government needs to adopt policies to promote market development and build a healthy and strong solar sector in Cambodia. It could improve the situation through budget-neutral measures such as providing a net metering allowance and streamlining procedures for imports and exports.
About the Author
Jeroen Verschelling is the Chairman and Co-Founder of Kamworks Solar, Cambodia’s leading solar energy company and provider of advanced sustainable solar solutions worldwide. Established in 2006, Kamworks currently operates in Cambodia and exports to 10 countries in South America, Africa, and the Asian-Pacific region. Learn more at www.kamworks.com.
