The Sustainable Development Goals, consisting of 17 interconnected goals, provide a worldwide roadmap to achieve sustainability and prosperity from 2015 to 2030. My research at the University of London focuses on goal number 7, which aims to “ensure access to affordable, reliable, sustainable and modern energy for all.”
Currently, there are over 770 million people worldwide who live without access to electricity. This leads us to the question: how can we guarantee long-term energy access to over half a billion people?
In this article, we examine a case study conducted in Bangladesh on how 12.5% of the nation’s population has access to renewable energy in 2018. Due to the success of the Bangladesh solar energy programme, a model has been attempted for other developing countries to replicate similar off-grid rural electrification projects.
In addition, our study aims to answer the question: what are the factors behind the growth of access rates to renewable energy, and more importantly, why did a previously highly successful program begin to fail?
A genius model for rural electrification
Bangladesh had the world’s most successful renewable off-grid energy programme, Solar Home Systems (SHS). It provided solar energy to rural areas of the country. These systems are small solar energy units that are attached to single houses, providing different levels of electricity, enough to power appliances such as fans, televisions or fridges, and a lightbulb.
The SHS was successful due to the government-owned Infrastructure Development Company Limited’s (IDCOL) new way of marketing, selling and servicing the systems to customers through partner organisations, as illustrated in Figure 1.
The interconnected network behind the high access rates
The SHS programme started in 1997. During its peak in 2013, it installed over 861,000 units, ensuring renewable electricity to over 20 million people. This made it the most successful off-grid solar programme in the world.
The number of units sold has been revolutionary as most of the targeted customers were rural people living in extreme poverty without disposable income. IDCOL managed to market and sell the SHS by (note figure 1) combining a public-private partnership model with a microcredit scheme.
The key to sustaining the SHS programme was the provision of grants from the Bangladeshi government and international development agencies. From IDCOL, micro-financing was used to pass down the funds from the different partner organisations to the SHS customers. This model allowed SHS customers to receive a loan and after-sales services provided by IDCOL partners across Bangladesh.
The key to success
The funding model was the key to the SHS programme’s long-term success, and it received initial start-up funding from the World Bank and Global Environment Facility. The programme relied heavily on financial support from several international development agencies.
The initial funding to IDCOL was $696 million, which was distributed to the partner organisations as a twelve-year loan with a 6% interest rate charged. The partner organisations could use this loan to offer end-users micro financing to purchase an SHS.
An ill-suited pricing strategy
In 2003, the programme loans included a $90 subsidy to cover the total cost of each solar system. The amount of loan per system was gradually reduced, and by 2013-2014, the partner organisations only covered $20 per system. This resulted in the SHS prices rising substantially, leading to price pressures on the rural communities who were unable to afford the SHS.
New installations declined from the peak of 70,000 installations a month in 2013 to 1,000 installations in all of 2018. The programme’s detailed development through the years is highlighted in Figure 2.
Further trouble ahead
The revolutionary SHS model entered a vicious debt cycle due to the removal of the subsidies funded by loans and grants from IDCOL. Without the subsidies, customers could not afford the expensive systems, leading to partner difficulties in servicing the IDCOL loans, and eventually, bankruptcy.
Additionally, the SHS programme faced competition from the government. As the prices of the SHS started to rise, the Bangladeshi government launched a solar energy project that has been completely free. This led to customers substituting the expensive SHS programme with the free solar energy offered by the government.
The curious case of free energy
The government’s free energy programme, TR-Kabikha, caused over 1.2 million SHS customers to abandon the systems, leaving their debts unpaid. However, offering free energy can lead to numerous problems.
Free energy programmes do not achieve long-term energy access in rural communities. A free system provides limited electricity for a single light bulb usage as well as charging small mobile devices. It does not provide sufficient energy for powering larger machinery that is essential to productivity.
There are fewer financial incentives to maintain the system or upgrade to high levels of energy usage. Consequently, systems with lower electricity output will lead to lower economic output since they hamper the use of bigger machinery.
Will we achieve sustainable energy for all?
The SHS programme moved from being a celebrated success story to a potential tragedy. Still, it is unclear how it will end. This study provides several valuable lessons on the difficulties of delivering “sustainable modern energy for all”.
We advocate for governments to centrally plan and guide future energy policy strategies. The attempt to achieve higher energy access rates by any means can produce unexpected and unwanted consequences; paradoxically, free energy can result in lower energy access rates.
The puzzle of providing “energy for all” is still unresolved. As shown by the SHS case study in Bangladesh, the global community still has a long way to go before we can achieve SDG 7 by 2030.
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Reference
Hellqvist, L., & Heubaum, H. (2022). Setting the sun on off-grid solar?: Policy lessons from the Bangladesh Solar Home Systems (SHS) programme. Climate Policy, 1–8. https://doi.org/10.1080/14693062.2022.2056118
