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Rural Electrification with Solar Energy as a Climate Protection Strategy Conclusions and Recommendations |
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Conclusions SHSs can a make a small but important contribution to climate change mitigation. Typical SHSs of 10 to 50 Wp will directly displace roughly 0.15 to 0.3 tons of CO2 per year through fuel substitution. While modest on a per household basis, reaching the first 10% of the potential SHS market would directly offset an estimated 10 million tons of CO2-the equivalent of Zimbabwe's 1995 fossil fuel CO2 emissions-and extend new electric service to 35 million homes. At a 50% market penetration level, SHSs would directly offset the equivalent of Switzerland's 1995 CO2 emissions from fossil fuel. There are also significant indirect GHG benefits from SHS dissemination including support for PV market transformation and the potential to avoid substantial grid-based emissions. Widespread use of SHS has the potential to put developing countries on a low-carbon path for rural electrification while providing an important market niche to help make PV more competitive for a range of applications worldwide. SHSs have a high rate of CO2 displacement per installed Wp. Due to the tremendous inefficiency of kerosene lighting, rural household electrification in developing countries is among the highest impact PV applications for climate change mitigation per installed Wp. Displacing kerosene lamps typically reduces far more CO2 per installed Wp than grid-connected PV applications, in some cases by a factor of ten. SHSs have significant social, economic, and non-GHG environmental benefits. SHSs dramatically improve rural life by providing high quality light. By reducing the need to store and burn kerosene for lighting, SHSs improve household health and safety. The systems also ease access to information and entertainment via radio and television. Furthermore, socio-economic impact studies have found that many of the systems contribute to income generation. Numerous barriers still constrain potential SHS markets. While markets are starting develop in many countries, SHS dissemination still faces substantial constraints. Barriers include: lack of information about SHSs and grid extension plans; lack of capital for SHS businesses and consumer financing programs; and lack of trained technicians, managers and other human infrastructure needed for system delivery and maintenance. Market distortions stemming from import duties on SHS equipment and subsidies for kerosene also constrain SHS dissemination in many countries. International initiatives and host country policies can help to remove these barriers, accelerate SHS markets, and ensure that potential GHG mitigation and development benefits are realized. The Clean Development Mechanism could accelerate SHS dissemination. Since SHS dissemination advances the CDM's climate change mitigation and sustainable development goals, with the exception of installations directly supported by ODA or the GEF, most SHS activities would probably be CDM eligible. Furthermore, SHS activities tend to benefit rural areas in poorer countries and would thus promote the distribution of CDM benefits to areas and countries that might otherwise be left out. Unless CO2 values exceed $20 per ton, however, CDM funding alone is unlikely to generate more than about $3 to $6 per typical SHS each year or about 10% of initial wholesale equipment costs when discounted at 10% over twenty years. Still, if CDM transaction costs are kept low, this funding could prove quite valuable in improving marginal project economics and making the systems more widely affordable. For example, the additional CER income could increase the profitability of an SHS fee-for-service business sufficiently to make the difference in attracting the capital needed to reach critical scale economies. Recommendations The following actions can help ensure that the potential climate protection and development benefits outlined in this paper are achieved and maintained. National delegates and nongovernmental participants in the climate change negotiations should advance CDM policies conducive to SHS participation. Most important, monitoring and certification processes should be streamlined to minimize transaction costs. For example, standardized approaches to baseline setting could easily be developed for SHS activities, offering consistency and simplicity without sacrificing accuracy. In addition, managers might prequalify all SHSs installed after a certain date (such as 2001) for the CDM, provided that they do not directly receive GEF or ODA support. While this would allow credit for some installations that would occur even without the CDM, the environmental consequences would be small and would be offset by the market catalytic affect of the truly additional SHS sales induced by the CDM. Categorical CDM eligibility for emerging technologies such as SHS would be particularly justified if it were to remain effective only until a predetermined national, regional, or global utilization rate is reached. To encourage early action, CDM eligibility for SHSs, or at least the rules by which SHS projects could participate, should be declared as early as possible, even if work is still being done to determine how to treat other activities that are less obviously consistent with the CDM's goals. Projects indirectly benefiting from GEF or ODA assistance-for example, through public education or simply because they are in countries where GEF or ODA support helps to catalyze SHS markets-should not be excluded from the CDM, as this would be counterproductive and unfair. Government agencies in developing counties should take advantage of the incremental funding available for climate protection to help them promote sustainable SHS markets. In addition to CDM participation, other international monies may be available to countries though various climate-motivated market development initiatives supported by the GEF and other multilateral and bilateral institutions. While SHS projects receiving direct GEF and ODA support may not be CDM-eligible, a blend of complementary activities could be implemented simultaneously. For example, GEF and ODA funds could be used to cover the cost of developing and enforcing product quality standards, while CDM monies helped system rental companies maintain profitability while lowering their fees to reach a broader customer base. To maximize potential penetration levels, countries should make every effort to encourage sustainable private markets for SHSs. Governments should clarify and publicize grid extension plans in order to minimize consumer and business uncertainty about whether to invest in SHSs in a given area. They should require imported equipment to meet international quality standards. And finally, governments should ensure that pricing is efficient by lowering import taxes on SHS components and, where kerosene and/or rural electrification subsidies exist, eliminating them or providing equal treatment for SHSs. To the extent that governments subsidize private SHS markets, they should embed the support in the most stable framework possible and, where feasible, use a competitive mechanism to keep subsidy levels as low as possible. Bilateral and multilateral agencies and foundations should support SHS market development. These groups should expand support for SHS technician and business training, technical assistance, feasibility studies, public education, and government capacity building in the areas of renewable energy and the environment. These activities can catalyze renewable energy markets and yield environmental, social, and economic dividends. International public and foundation support can also play a useful role by providing seed capital and credit enhancement (such as loan guarantees) for SHS businesses and end-user credit programs. Ideally these investments should be offered as co-financing that leverages larger private investments in order to promote sustainable commercial markets. Large subsidies and system donations should generally be avoided, as these can undermine commercial markets and are unsustainable. Socially and environmentally oriented investors concerned about climate change should consider investing in SHS activities. To date, opportunities to invest in SHS businesses and consumer financing programs have been limited, but numerous private investments have been made and additional investment opportunities are emerging. The level of risk, rate of return, and amount of CO2 displaced per dollar invested will vary, but all such investments can simultaneously help to elevate rural living conditions and mitigate climate change. |
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Rural Electrification with Solar Energy |
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