New drivers for solar PV market development in Tanzania

Background

Market development for solar PV in Tanzania requires new drivers apart from tax based incentives and subsidies. More applications with economic value to end users are required in order to create more market for solar PV products and services. Market penetration by solar PV products is slow but is growing. It has been learnt that market development is a process and not a “one time” activity; it requires continuous and consistent support from different actors.

Over the last three decades, private initiatives by NGOs have been fundamental in developing human capacity, popularizing the technologies, engaging financing institutions and supporting suppliers in the market development through public awareness raising campaigns and implementation of demonstration projects.

On the other hand, there has been positive enforcement by the Government of Tanzania by introducing investment subsidies and tax reductions and exemptions which have contributed significantly as an incentive for market development for solar PV.

Approximately more than 70% of the Tanzanian population has heard about solar PV, though only 50% of the population might have already seen the systems. There is potential for solar electricity in more than 5.85 million households which aren’t connected to national electricity grid. This potential is roughly equivalent to 300 MW, if each household is installed with a 50Wp system.

In 2002, the total annual PV sales were estimated to be in the order of 62 kWp and the installed solar PV capacity equal to 1.2 MWp. In 2006 this capacity is estimated to be 1.7 MWp. The sales of solar electric systems capacity doubled between 2005 and 2006 from 100 kWp to 206 kWp. The number of active solar PV companies has increased from around 3 to more than 10 in 2010 to take advantage of the growing market. This has allowed for a greater competition, choice and pricing in the market place.

Solar PV has traditionally been promoted to complement grid based power in providing energy access to meet energy needs by rural population. Out of the total sales volume, solar home systems, SHS, accounts for around 40% of the total solar PV sales. However, household market is limited by low purchasing power and lack of appropriate means of financing.

Not all rural household can own a solar system but can pay for services from the technology. This market segment can be further expanded if energy services from solar PV can be used to support productive uses and income generation activities.

New drivers

TaTEDO has developed energy supply and business units named Sustainable Energy and Enterprise Centre, SEECE. This approach combines elements of technology and business development in response to specific energy demands in a specific area. One unit can be powered by solar PV of capacity ranging from 1-2 kW and house 1-10 businesses.

There is a possibility to undertake multiple functions with SEECE and enable owner to develop a wide range of productive and income generating activities such as secretarial services; typing, photocopying, printing, etc, telecommunication services; call center, fax, internet access, etc; information/entertainment; TV shows, multimedia library, etc, beauty; barber shop, hair styling, etc, professional services; electronics repair shop, tailoring, etc, energy shop; battery charging, replacement parts and spares shop, and general retail shop with a possibility of refrigeration.

The SEECE will solve other challenges faced by microenterprises regarding lack of electricity and others such as lack of designated work premises, weak business management skills and organization capacity and limited information for access to other markets outside the villages in rural areas.

The centers, regarded as a “shopping mall” in a village, can enable access to modern energy services for a large part of the population even for those who cannot buy and own the solar PV technologies themselves. They can as well be utilized to establish agents/ outlets for products, technical and business services related to other solar PV products such as solar home systems, lanterns, water pumps and multiphone chargers.

Opportunities and challenges

The best performing centres should meet the realistic expectations of the end users that they serve. Ideally, they should be able to power the intended appliances, be of reasonable initial capital cost and at affordable financing terms. SEECE will be operated as a viable business in order to be sustainable. They should generate sufficient revenues to recover investment and provide satisfactory returns to investors. If the centre is obtained on a loan/credit, the revenues should also be sufficient to service debt.

Financial viability can be unrealistic in some cases because of high equipment costs. Many targeted entrepreneurs/owners cannot afford to pay in cash, it definitely requires some reasonable financing arrangement. Many financing institutions such as banks and saving and credit cooperatives societies, Saccos, they now understand potential business opportunities in solar PV. However, the targeted entrepreneurs have limited possibilities to access financing.

In order to ease the financing issues, there should be supports interms of affordable financing package or even subsidies on capital investment. This will improve the cash flows and the businesses can be more attractive to entrepreneur owners. TaTEDO is working on agreements with financing institutions to develop a financing model which can minimize commercial risks associated with long term credit repayments.

On the equipment and services, TaTEDO is arranging a bulk purchase in order to benefit from economy of scale in procurement and in delivery of support services such as installation, end user training and maintenance. This will also improve units standardization and quality assurance. Local solar PV installation contractors at district and villages levels have been identified and trained to serve the market for this technology.

Experts in business development services will be engaged to analyze businesses and advise on setting objectives, planning and implementation. Thereafter, business coaching will be provided to the entrepreneur owners until when the businesses are operating smoothly. Both public and private business development services providers will be engaged.

Conclusion

SEECE are typical infrastructure projects for rural energy access and electrification. Just like the grid electricity, SEECE can spur the creation of microenterprises and stimulate economic development by engaging local people in harnessing clean energy resources and providing energy services.

SEECE can be utilized as platforms to support market development of other solar PV products and services in all villages where there is potential for development of microenterprises. This application of solar PV is well integrated in the developmental and priority needs in the society. Approximately 20% of the labor force in Tanzania is engaged in microenterprises and they contribute about one third of the national GDP. The SEECE package is therefore an important aspect for Tanzania’s long term economic growth plan.

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