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Rural Energy Service Companies (ESCOs) Project - Solar Home Systems, Zambia
[top] [end]Project summary[top] [end]LocationThe Rural Energy Service Companies (ESCOs) project is in the Eastern Province of Zambia. The province experiences moderate seasonal rainfall. The rural areas in the Eastern Province benefiting from the Energy Service Companies (ESCOs) have no access to electricity from the national grid.The ESCOs project in the Eastern Province is the first of its kind in Zambia; electrifying rural areas with solar P.V systems. [top] [end]Key statisticsLocation: The Eastern Province of Zambia, Nyimba Energy Service Company (NESCO). In Nyimba, Chipata Energy Service Company (CHESCO) in Chipata, Lundazi Energy Service Company (LESCO) in Lundazi.Scale: Medium pilot project Number of clients - (by the year 2000): 100; - projected: 400 kWp installed >5 [top] [end]Contact detailsESCOs Project,Department of Energy, Ministry of Energy and Water Development, P.O BOX 51254, LUSAKA. TEL: 260 01 251819/254491 FAX: 260 01 252339 E-MAIL: doe@... [top] [end]Replication potentialThe project's replication is good because ESCOs show some indication of sustainability even after the project phase is over. The concept of the project is to have energy services provided through profit making companies at affordable prices, and since a lot of rural areas need such services the project idea would most likely work in other locations.[top] [end]FundingThe following are the organisations and departments that funded the project and their contributions;
[top] [end]BackgroundThe ESCOs project was a result of collaboration between the GRZ through DoE and SIDA. Contracts between the DoE and SIDA were signed in June 1998. The consultancy and feasibility studies were carried out from August 1998 to March 1999. The Eastern Province of Zambia was chosen as the project site because its rural communities are amongst those with the least access to electricity in the country, and yet the province has one of the country's best financial bases, which depends on agriculture. SIDA would provide the bulk of the funding, and GRZ would offer office space, staff (project coordination), communication, liaison and counterpart funding. In July 1998, representatives from the DoE and SEI undertook the first mission with the following objectives:
Information was collected using questionnaires, interviews and observations. The areas visited included Nyimba, Chipata (Chiparamba, Kalichelo, Mokwe Basic School, Katawa School) and Chadiza (Zemba and Chainda Boarder Post). In Lusaka, the capital city of Zambia, various stakeholders were interviewed. Interviewees included existing PV dealers, NGOs (involved in aid work in the Eastern Province), ZESCO and government representatives. The results of the mission revealed that there was inadequate infrastructure for the dissemination of PV systems in the Eastern Province of Zambia. Due to the high PV prices in Zambia, it was unlikely that an average income household could afford to buy a system outright. According to the survey, monthly expenditure on energy in the communities visited was between ZMK 2000 and ZMK 20,000 ($4.00). Up to 13% of the respondents were prepared to pay ZMK 30,000 per month while the majority indicated willingness to pay ZMK 10,000 monthly for improved energy services. The ESCO concept was designed to bring down the monthly fee for the use of the PV, per household. Under this arrangement, the members of the community would only pay for the service and not ownership of the PV, while the energy service companies collect the fees to operate as a profitable business and maintain the PVs on behalf of MEWD/DoE and SIDA. The survey also revealed some potential problems which included: some households with the ability to pay for the service are dispersed over a large area, hence the overhead costs of the ESCO may be increased, some businessmen are more interested in selling the actual systems, rather than selling the service and difficulties in getting payments from the people. [top] [end]Project descriptionThe original concept of the ESCOs project was to support the formation of a local company that could supply energy services to the rural services to the rural people. Such a company would be called Energy Service Company or ESCO. The project Administration (DoE and SIDA) was to provide credit and training through university of Zambia (UNZA) Physics Department and SEI to the company, and the companies that would continue independent operations. The main thrust of the project was to identify the conditions for the Solar PV in a rural region, locate prospective entrepreneurs and help start operating the ESCOs. It was important that the companies make business connections and utilise the existing market, so as not to disrupt the emerging market for solar PVs in Zambia. The companies would be autonomous and any subsequent development would be on the conditions of sound business rather than government control. Thus the three pillars of the project would be:
[top] [end]Development of projectProject development followed a planned outline. Social-economic and market surveys were carried out and prospective entrepreneurs were identified and interviewed. After rigorous screening, four (4) companies (Care Farmers Cooperative of Nyimba to be known as Nyimba Energy Service Company-NESCO, Dice Limited of Lundazi to be known as Lundazi Energy Service Company- NESCO, Mundea Investments of Petauke to be known as Petauke Energy Service Company- PESCO, SIMIC enterprises of Chipata to be known as Chipata Energy Service Company- CHESCO), who were interested in going into the business of supplying energy services in rural areas were selected. These were then later trained both in the technical aspects and in the business and management aspects of the project.The initial idea to only supply a credit was abandoned after some time due to a number of reasons. The major reason being that supply of a credit through the banking system means that commercial rates would have to be applied, and this would make the undertaking unprofitable since interest rates a very high in Zambia. Another reason was that there was the risk of the entrepreneur using the credit for something more profitable than the solar PV business. The Hardware has currently been provided to the ESCO's on loan basis. It was then necessary to demonstrate that the ESCOs could operate profitably and that people would pay for the service and the systems could be well maintained and technically operational in the long run. Training in various areas of technology, business management training and logistic planning were deemed essential in order to achieve success in these areas. It was also decided to change the parallel strategy for the four ESCOs and go forward with only one during a trial period. The change in strategy necessitated the extension of the project in order to draw conclusions from all the four ESCOs. Thus, in June 1999, DoE and SIDA signed a contract extending the project from the initial three years to five years. The contract also contained the provision of increasing the number of systems to be supplied to each ESCO from 50 to 100 systems each, and also increasing the budgets for training and technical support. So far three ESCOs have been established. The Petauke ESCO was not established due to discontinuation in the operations of Mundea Investments upon the demise of the owner. The three ESCOs that have been established include Nyimba Energy Service Company (NESCO), Chipata Energy Service Company (CHESCO) and Lundazi Energy Service Company (LESCO). NESCO was the first to start off with eight demonstration sites in 1999, while CHESCO and LESCO followed up with two demonstration sites each in December 1999. The demonstration sites were used as marketing points to attract potential customers. By December 2000, NESCO was fully operational with 100 clients supplied with PV systems, which were inspected by Energy Regulation Board (ERB). CHESCO and LESCO had, , signed contracts to be supplied with 150 PV units by December 2000. The money for the extra 50 units in each case was from the allocation that was supposed to be given to the Petauke ESCO. The basic design specifications of the PV system in the ESCO project is as in table 1. Table 1: specification of components for SHS system in ESCO
[top] [end]Cost of servicePotential clients desiring to acquire a solar electricity connection have to demonstrate that they are willing and able to pay for the service through making a down payment for the system. The amount of money the down payment costs is agreed upon when the customer enters into a contractual agreement with the ESCO. Furthermore the client enters into a contractual agreement to pay a monthly fee to the ESCO for the purpose of servicing the system and capital cost repayment of the system. The fees for various sizes of PV systems are as in table 2. The client is urged to protect the SHS installed in their household from theft and damage.Table 2: Monthly fee (estimates in 1998 ZMK) for the solar electricity service spread out over 10 years
Each of the ESCOs is required to pay a fee towards the battery replacement fund, such that the ESCOs can be able to replace the battery in each system once every three years. Though the funds come from the clients, the battery does not become the property of the client. To protect the fund against currency fluctuations, the fund is deposited in US Dollar dominated account. [top] [end]MaintenanceThe service fee covers all system components, cost of employing technicians for the ESCOs, as well as administrative costs. The ESCOs should be able to make their profits from the service fee. The ESCO technicians were trained by the UNZA, Department of Physics and undertake maintenance works.[top] [end]Delivery structureAs the project has evolved, it has been resolved that for now the Government of the Republic of Zambia through the Department of Energy (DoE) is the rightful owner of the systems, hence SIDA has been providing Doe with the funds for the purchase of the systems. Discussions between DoE, SEI, the ESCOs and a project technical expert in early 1999 resulted into the decision that credit for the purchase of the PV system would not be extended to the ESCOs and also that the revolving fund concept be abandoned. There is however an option that the ESCOs can start leasing the system after being operational for one year, and after a period of five years, they have an option to buy the system at a residual subsidised price. An early transfer was avoided in order to allow the ESCOs to prove themselves viable and able to operate their business according to the project standards. The danger of an ESCO selling off a system after transfer however remains. The other reason for postponing the ownership of the system by an ESCO is that the interest payments would result into a large financial burden for the service companies. Thus at present the project combines public ownership of the systems with private supply of service. This entails that the ESCOs have full control over the operations and receive the benefits, hence ensuring efficiency in operations and management. The ESCOs clients are only covering the costs of servicing and maintenance including a battery replacement every three years. In the event that a client stops paying or accesses grid electrification, the SHS system can be moved to another potential client.[top] [end]Implementation progressSo far three ESCOs have been established. The Petauke ESCO was not established due to discontinuation in the operations of Mundea Investments upon the demise of the owner. The three ESCOs that have been established include Nyimba Energy Service Company (NESCO), Chipata Energy Service Company (CHESCO) and Lundazi Energy Service Company (LESCO). NESCO was the first to start, with eight demonstration sites in 1999, while CHESCO and LESCO followed up with two demonstration sites each in December 1999. The demonstration sites were used as marketing points to attract potential customers. By December 2000, NESCO was fully operational with 100 clients supplied with systems, which were inspected by Energy Regulation Board (ERB). CHESCO and LESCO had by December 2000 signed contracts to be supplied with 150 PV units each. The money for the extra 50 units in each case, was from the allocation that was supposed to be given to the Petauke ESCO). The 100 systems in Nyimba were supplied and installed by Electrical Maintenance Lusaka Limited (EML), which was contracted to do so after a tender procedure conducted by DoE. Pre installation inspections were done by the Physics Department, UNZA, which noted that batteries were not fully charged and that some controllers were not functional. Post installation inspection of the Nyimba systems was done by Energy Regulation Board (ERB), an SEI consultant and the UNHZA team, which noted that there were some anomalies such as incorrect positioning of the modules. The most serious anomaly being that the batteries were not fully charged. These anomalies had already been noted by the NESCO technicians. At a review meeting it was agreed that ESCO technicians should take a more active role in guiding the technicians of the supplier.[top] [end]Project management[top] [end]Implementation organisations
[top] [end]Project management teamOscar S. Kalumiana, Project Coordinator, DoE; Clotilda Mwanza, Project Assistant, DoE; Anders Avidson, Project Manager, SEI; Anders Ellegard, Project Advisor, SEI; Mattias Nordtrom, Assistant Project Manager, SEI; Margareta de Goys, Business Advisor, SPM; Prof. Jain, PV Training coordinator, UNZA; Mr. Mbewe, PV Training Supervisor, UNZA; Elizabeth Mudenda, Business Consultant, SPM Consultants; Mats Anderson, Technical Consultant, Energibanken; Herbet Wade, Technical Consultant, SEI; Themba Munyani, Technical Consultant, Biomass Users Zimbabwe; Lisa Ashford, Field Assistant, SEI; Samantha Armstrong, Field Assistant, SEI.[top] [end]Lessons learnt[top] [end]SocialEnd-user acceptability of project process. The project has been successful in creating interest and awareness around solar PV technology and in the concept of making people pay for a service rather than for the ownership of equipment, in the Eastern Province of Zambia.End-user perception of service. Generally households are happy with their SHSs and the additional benefits that it has brought. The benefits are largely restricted to better lighting, TV and radio. The customers would wish for a system, which provides power for functions like cooking and ironing. The commercial customers would also like to have power, which could drive motors and could be used for welding. Politics. The lengthy tender procedures played a part in delaying supply of PV systems to the ESCOs and hence delaying the project implementation. Some politicians especially from the opposition have been discouraging potential customers to get the SHS because they view them to be temporary energy solutions. Connection fee. A connection fee of US$4.2 was required before one could be supplied with the system. A lot of people paid in advance because the fee was affordable. Theft. Theft has not been a big problem in the project because the installations are on top of the houses. The customers have taken care of the installations and the members of the villages look after one another's system. So far there have been three thefts of panels, one of which was subsequently retrieved. This translates into an aggregated risk of theft of 0.2-0.3 % or one theft in 500 panels per year. [top] [end]EconomicAffordability. From the results of the survey taken before the project implementation, it was concluded that most people could afford to pay for the PV SHS as they were already spending about the same amount of money on kerosene.Critical size of an ESCO. With information starting to emerge on the actual operating costs of an ESCO, it appears that the minimum size needed for profitable operation including paying for the initial capital is when a company has 150-200 clients on fee-for-service programme. Payment history. The payment morale among clients is reasonably high, and although sometimes there are delays in monthly payments, all clients eventually pay. The ESCO clients in Zambia are relatively wealthier than the average rural Zambian, and there is a greater proportion of formally employed people than in general population. This may have contributed to the good payment record. [top] [end]TechnicalSolar Module and Batteries. It was noted during the post installation inspection of SHSs installed in Nyimba that some modules were installed wrongly. It was also noted that the batteries were not fully charged. It was therefore recommended that ESCO technicians should actively guide technicians of the suppliers during installation of SHS systems. In the early stages there was substantial ignorance from the side of the technicians on how to best ascertain continued operation of batteries. During this period some batteries failed prematurely and this was largely because the systems were overused and although the users in time learnt that they should not overuse the batteries, some of the batteries were not fully recharged ever, and were therefore rendered useless.[top] [end]Ecological / environmentalThe project is using solar energy, which is a renewable energy, and the project has very little negative environmental impact. The project has contributed to the reduction in production of carbon dioxide and general indoor air pollution since those clients who were using kerosene for lighting are now using solar for lighting. No data has been made available on the issue of disposal of batteries.[top] [end]Implementation lessonsProximity to clients is a key element for success in providing energy services. Service technicians should be able to reach the clients on foot or bicycle. It is also important in enabling fee collection.Procurement through international competitive tender reduces possible local market development and excludes small local companies Providing credit through formal financial institutions in rural areas in a country like Zambia is virtually impossible, due to lack of local presence and high interest rates charged by the banks Issues to do with mode of ownership should be decided well before the project is implemented [top] [end]References and documentationStockholm Environment Institute (SEI) / Department of Energy, Ministry of Energy and Water Development, Government of the Republic of Zambia (DoE, MEWD, GRZ) (2001) Rural Energy Service Companies- Experiences in Zambia, Final Report Phase 1 1998-2000 | ||||||||||||||||||||||||||||||||||||||||
 Page created:
06 June 2004; Last edited:
06 June 2004; Version: 0 | ||||||||||||||||||||||||||||||||||||||||
Pagename: RuralESCOSolarHomeSystemsZambia @HEDON: GEBA | ||||||||||||||||||||||||||||||||||||||||
