Renewable Energy for Microenterprise for Microenterprise

Cover Photos: Top left: A Nepali woman weaver under a solar-powered light in her home. (Selco/PIX08143) Left center: PV powers computers in a rural office in the Dominican Republic. (Enersol Associates, Inc./02618843) Right, top: A Nepali seamstress uses solar-powered light to extend her working hours into the evening. (April Allderdice, NREL/PIX07150) Right, bottom: Indonesian fishermen with catch they store in wind-powered refrigerators. (Winrock International/02618848) Renewable Energy for Microenterprise

Renewable Energy for Microenterprise

April Allderdice National Renewable Energy Laboratory John H. Rogers Global Transition Consulting, Inc.

November 2000

Published by the National Renewable Energy Laboratory 1617 Cole Boulevard Golden, Colorado 80401-3393 United States of America ii Renewable Energy for Microenterprise

FOREWORD

It has been said that authentic development is where the moral and the material come together; where our compassionate urges to improve the human condition become real through the expansion of commercial practices. In this regard, "Renewable Energy for Microenterprise" is an invaluable resource. Through clear language and compelling examples, this guide demonstrates how sustain- able energy sources can literally energize social, economic and political development. Human history is replete with glaring lessons of how individual prosperity and social equity flow from the efficient application of energy technologies. In an age where poverty remains the norm for millions upon millions of individuals throughout the world, the search for how to generate economic growth takes on an importance unparalleled in its significance. Amartya Sen, the Nobel laureate economist, persuasively argues that development and freedom are inextricably connected; that the "expansion of freedom is both the primary end and the principal means of development." In this light, this guide is at root, all about liberating the entrepreneurs and their families of the world from the tyrannous yoke of poverty by showing how renewable energy can help power their way to a better quality of life. Such instruction is both noble and necessary. Those who are familiar with renewable energy technologies and the efforts to commercialize them know that it is the institutional and financing issues that pose the greatest impediments to widespread adoption. The writers of this guide not only explain in clear detail, punctuated with successful real-world examples, the nature of the financial re-engineering required, but skillfully map out the entire social-technological-financial landscape that puts the human element in the foreground where it rightfully belongs. This guide is dedicated to the proposition that renewable energy technologies provide a critical and catalytic role in the realization of social and economic development. At the U.S. Agency for International Development’s Office of Energy, we are working hard to illuminate the linkages that exist between energy and poverty alleviation, improved health and education services, gender and inter-generational equity, and social justice. Our programs are designed to move energy from the margins to the mainstream of the development dialogue. Through the publication of this guide, the National Renewable Energy Laboratory (NREL) is making a major contribution to this effort of making more visible the central role energy plays in sustainable development. I congratulate and sincerely thank NREL, the authors, and all who have contributed to making this guide possible. I urge all development practitioners to read it and use it. And most importantly, congratulations to the countless entrepreneurs, past, present, and future, who tirelessly prove that microenterprise initiatives, fueled by renewable energy technologies, produce macro human benefits. Dr. Griffin Thompson Director, Office of Energy, Environment, and Technology United States Agency for International Development Renewable Energy for Microenterprise iii

PREFACE

Income generation is one of the keys to improving the quality of life in rural communities. Microenterprise, and the associated microcredit activity, have proven to be enormously successful in unlocking the human capacity in rural villages to provide income, that, in turn, can be used for improving the quality of life in both home and community. Rural economic development is an important national and international priority. However, the availability of electricity to support rural enterprise activities is less than adequate in many countries. In recent years, the development of reasonably priced and reliable renewable energy systems has made it possible to enhance the production and marketing of a variety of these income-generating activities, through the provision of electricity for motive power, lighting, computers, and telecommunications in remote areas. A number of international, national, and local institutions, nongovernmental organizations, foundations, and private companies are supporting the deployment of renewable energy systems in rural communities in the developing world where microenterprise is a national priority. Because renewable energy is regionally diverse, choosing the appropriate renewable energy system will depend on the needs of particular rural sites. Although photovoltaic (PV) lighting sys- tems have paved the way and are being deployed in many remote communities around the world, other small renewable sources of electricity should be considered. One of the objectives of this guide- book is to expand the remote electricity opportunity beyond PV to areas of good wind or hydro resources. Also, in the near future we expect to see micro-biomass gasification and direct combus- tion, as well as concentrated solar thermal-electric technologies, become commercial rural options. The three important factors driving the selection of the appropriate technology are the local natural resource, the size and timing of the electrical loads, and the cost of the various components, including fossil fuel alternatives. This guidebook reviews the considerations and demonstrates the comparisons in the selection of alternative renewable and hybrid systems for powering microenterprise activities. The National Renewable Energy Laboratory's (NREL's) Village Power Program has commis- sioned this guidebook to help communicate the appropriate role of renewables in providing rural electricity services for powering rural enterprise. The three primary authors, April Allderdice, John Rogers, and Tony Jimenez, combine the analysis, design, institutional, financial, and deployment experience that has made them such an effective team. This guidebook should prove useful to those stakeholders considering renewables as a serious option for electrifying rural enterprises, and associated rural enterprise zones. It may be useful as well to renewable energy practitioners seeking to define the parameters for designing and deploying their products to meet the needs of rural enterprise. This is the third in a series of rural applications guidebooks that NREL's Village Power Program has commissioned to couple commercial renewable systems with rural applications, such as water, health clinics, and schools. The guidebooks are complemented by NREL's Village Power Program's application development activities, international pilot projects, and visiting professionals program. For more information on this program, please contact our Web site, http://www.rsvp.nrel.gov/rsvp/. Larry Flowers Team Leader, Village Power National Renewable Energy Laboratory iv Renewable Energy for Microenterprise

CONTENTS

How to Use this Guide ...... vi Introduction ...... 1 Chapter 1. Microenterprise and Electrical Energy ...... 3 What Is Microenterprise? ...... 3 Microenterprise and Electrical Energy ...... 3 Enabling Factors in the Productive Application of Electrical Energy ...... 6 Chapter 2. Microfinance and Microenterprise Development Organizations ...... 7 What Is Microfinance? ...... 7 Microfinance and Energy System Financing ...... 9 Microenterprise Support Services ...... 10 Who Provides Microfinance? ...... 11 Chapter 3. Renewable Energy System Components ...... 13 System Overview ...... 13 ...... 13 Wind Turbine Generators ...... 14 Micro-Hydro ...... 16 Diesel, Gas, or Biofuel Generators ...... 17 Batteries ...... 17 Inverters ...... 19 Balance of Systems ...... 19 Chapter 4. System Selection and Economics ...... 20 Introduction ...... 20 Life-Cycle Cost Analysis ...... 20 Design Considerations and Economics ...... 21 Chapter 5. Institutional Approach No. 1: Providing End-User Credit for Individual Renewable Energy Systems ...... 27 Introduction to Institutional Approaches ...... 27 Introduction to End-User Financing ...... 28 Third-Party Financing ...... 31 All-In-One ...... 31 Energy Service Companies ...... 32 Renewable Energy for Microenterprise v

Chapter 6. Institutional Approach No. 2: Financing and Promoting the Productive Application of Energy in Community-Scale Systems ...... 34 Introduction ...... 34 Microenterprise Zones ...... 35 Renewable-Energy-Based Minigrids ...... 35 Financial Sustainability in a Community RE System ...... 39 Chapter 7. Institutional Approach No. 3: Supporting Energy Entrepreneurs ...... 41 Battery-Charging Stations ...... 42 Mini-Utilities ...... 44 RE System Retailers ...... 45 Chapter 8. Case Studies ...... 46 Introduction ...... 46 Grameen Shakti: Providing Energy Services within a Microcredit Framework in Bangladesh ...... 46 Global Transition Group: Renewable Energy for and through Microenterprises ...... 47 Winrock International: Community-Based Power for Microentrepreneurs in Indonesia . . .50 Intermediate Technology Development Group: Financing Micro-Hydro Entrepreneurs in Peru ...... 52 Teotonio Vilela Foundation: Franchising PV Power Entrepreneurs in Northeast Brazil . . . .53 World Bank: Strengthening Renewable Energy Financial Intermediaries in Sri Lanka . . . . .55 References ...... 59 Bibliography ...... 60 Glossary ...... 64 About the Authors ...... 68 vi Renewable Energy for Microenterprise

development organizations and programs to HOW TO USE THIS assist rural areas of developing countries. This chapter offers an introduction to the main con- GUIDE cepts of micro-credit and the MFIs that provide it. Chapter 3 discusses the components of stand- alone RE power systems, including their func- Who Is this Guide for? tion, costs, lifetimes, proper operation and This guide is targeted to the many types maintenance, and limitations. The first section of microfinance institutions (MFIs) and micro- of Chapter 4 contains an overview of life-cycle enterprise support organizations that are inter- cost (LCC) analysis, a valuable analytical tool ested in improving the profitability of their used to compare energy system options. The members’ microenterprises through renewable remainder of the chapter is devoted to dis- energy (RE) technologies. In addition, RE sup- cussing the factors that influence the design of pliers and technical organizations can use this stand-alone RE systems for particular applica- guide to strengthen efforts to incorporate micro- tions. Chapters 5 through 7 focus on three insti- finance institutions and practices into rural tutional approaches that have been used to electrification programs. combine RE technologies with microfinance for the benefit of microentrepreneurs. In the first arrangement, the MFI finances the purchase of What Is the Purpose of this a small RE system by a rural microentrepreneur Guide? or household. In the second arrangement, an This guide will provide readers with a broad MFI, microenterprise nongovernmental organi- understanding of the potential benefits that zation (NGO), or strategic partner develops a current RE technologies can offer rural micro- community-scale facility in which electricity enterprises. Moreover, it will introduce the insti- and other services are provided to microentre- tutional app