Further information on these operational models and other less common models
are discussed in an Ashden Awards End-User Finance Report.38
3.3.
End-user finance mechanisms
Renewable energy products in general suffer from high initial costs compared to
fossil-fuel based energy technologies. While life-cycle costs may be far less than
those of conventional energy options (which usually have high operational costs via
fuel costs), renewable energy products’ high capital costs make them unaffordable
to many poor people. Innovative end-user finance mechanisms are required to
increase access for poor people and increase sales volumes for energy
enterprises, which in turn lowers costs. There are three successful mechanisms
commonly used:
• Consumer finance – the energy product is purchased on credit by
making an initial down payment and financing the balance with periodic
payments on the capital and interest. The customer is responsible for
maintenance following the warranty period provided by the dealer. Lending
to individuals and peer groups is usually done with simple and informal
financial assessments. In this case, the customer is often required to make
a large down payment since loan defaults are less likely if a large
investment has already been made. The product is commonly used as
collateral for the loan. Lending for larger projects, to CBOs say, is more
complex and requires more thorough financial arrangements.
The Renewable Energy Foundation solar PV case study in Chapter 2
describes how individual consumers obtain loans to purchase solar
products through a tripartite agreement with REF, the retailer, and a local
financial organization.
Energy end-users, as well as being individuals, may be organised into groups to
facilitate the finance mechanism and delivery models.
Peer group lending typically involves between three and ten people from a group
of relatives, neighbours or colleagues and often women, forming a peer group. 42
An individual group member can obtain a loan to purchase an energy product.
Members of the group can only obtain subsequent loans once the initial loan has
been repaid, thus encouraging high repayment rates. Peer group lending is typical
for inexpensive energy products such as solar lanterns or cook stoves. The product
is usually used as collateral for the loan.
Community based lending requires an organisation representing the community
(such as an NGO, enterprise or local government unit) to be the proponent of the
loan. Community based lending is typical for larger projects, such as micro-hydro,
since large loans are required and not accessible for individuals. In-kind
contributions from the community, and sometimes loan guarantees by supportive
partners, are typically required as collateral to secure the loan.
• Leasing – the company provides the energy service for a monthly fee paid
by the customer through a service agreement. The company owns the
hardware and ensures the maintenance for the period of the agreement,
typically 5 years. Ownership and maintenance is transferred to the
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