Information

This is an official funding.

KfW/AFD Rural Solar Photovoltaic Electrification Project (Morocco)

[ tags: Africa , Morocco , Equity , Grant , Loan , Other , Mitigation , Bilateral , Energy , Renewable Energy , Grant , Renewable Energy , Other , Renewable Energy , Equity , Renewable Energy , Loan , Renewable Energy ]
Snapshot
Financing Types Stakeholders Amount Share Sector
GrantNational Energy Office$23.5 million66%Renewable Energy
OtherCustomer payments to RESCO$3.5 million10%Renewable Energy
EquityRESCO$6 million17%Renewable Energy
LoanRESCO$2.5 million7%Renewable Energy
Total:$35.5 million
Project Summary

In June 2002, Morocco's Office National de l'Electricité (ONE) entered into a fee-for-service partnership with a renewable energy services company (RESCO) to electrify rural households by using solar PV systems to produce electricity. The RESCO is responsible for the installation and maintenance of solar equipment as well as the collection of users' fees in 24 of Morocco's 62 prefectures and provinces.

In the fee-for-service model, customers pay an initial connection fee and a monthly service fee. ONE also provides an equipment subsidy to consumers that enables the partnership to offer electrical service at affordable rates, by offsetting the high installation and maintenance costs associated with solar home systems.

Financing

The total investment budget of this project is $35.5 million. An equipment grant from the ONE covers 66% of the costs. The equipment grant was financed through a $6.5 million grant from the German Bank KfW, a $6.5 million soft loan from the French Development Agency (AFD) and a $1.5 million grant from the French Fund for the World Environment (FFEM) which was used in the start-up phase to provide technical assistance for the project.

The private operator contributes 24% of the project cost: $1.5 million in equity, with a loan for $2.5 million was borrowed in the form of loans. The company's shareholders provided $4.5 million in additional financing. Monthly fees collected by the RESCO enable it to cover the amortization of its initial investment, replace equipment and cover running costs.

Customers provide 10% of the initial financing through connection fees. However, this cost to consumers is reduced because rural solar customers receive a 40% subsidy from ONE to make the renewable energy competitive with urban electricity rates.

Lessons Learned

High up-front costs: The average cost (including equipment, installment and maintenance) of a photovoltaic kit is twice the cost of connecting a household to a mini-grid supplied by a diesel generator system. Without the subsidy from the ONE, the solar project would not have been implemented at the scale desired. The subsidy is replenished by a two percent tax on Moroccan consumers already connected to the grid.

Build-Operate-Transfer model: The fact that solar powered households would be customers of the ONE and not the private operator created a challenge. This is because the private company bears the responsibility of recruiting clientele and providing customer service. By maintaining an informative marketing and sales presence at souks (local markets), the operator has strengthened its contacts with existing and potential customers.

Pilot projects guide large-scale programs: The various studies and pilot programs operated by ONE provided technical, social and economic data validation on the need and design of such a program. This information assisted the Moroccan government in opting for the fee-for-service model, instead of the sale of equipment model that has been adopted in other countries implementing rural solar electrification projects. The fee-for-service business model helped to make the project viable and sustainable.

Adaptive customer service: Having local offices and local representation at the weekly markets has helped the company develop a reputation for acessability and trustworthiness throughout the communities. This attention to customer support has resulted in the low payment default rate.

Maintaining predictable cash flows: In the electrification scheme in Morocco, the RESCO is obliged to advance the money for the equipment before being reimbursed through the subsidy from the ONE. Notable delays in payment for the installation of the equipment have led to cash-flow problems for a smaller scale company like the RESCO in question. However, the RESCO has the backing of French oil and electricity companies, which allowed the operator to survive short-term cash-flow issues.

Two policy interventions removed barriers to rural solar electrification in Morocco by developing capacity for conventional and renewable rural electrification, establishing electricity markets, and by updating and maintaining the grid:

  1. The Rural Electrification Pilot Program (PPER) was launched in Morocco in 1995 under a Franco-Moroccan memorandum of understanding and a fourparty agreement made by the Moroccan General Directorate of Local Communities (DGCL), the Moroccan Energy Ministry, the French Ministry of Foreign Affairs (MAE) and the French Agency for the Environment and Energy Management (ADEME). This program led to the installation of 2,000 photovoltaic systems, funded in part by the users, as well as several group systems such as small hydraulic or diesel power plants linked to micronetworks. PPER demonstrated that rural customers could become accustomed to making payments with the help of an appropriate organizational structure, and that solar power was an appropriate means of rural electrification in Morocco. The key issue raised by PPER concerned the long-term maintenance of the facilities as the pilot project transition to a larger scale.
  2. The Global Rural Electrification Program (PERG) began in 1996 to supply electricity throughout the country by 2007. With the village connection rate at only 18% in 1995, the program goal aimed to increase rural connection rate from 18% to 80%, or 12 million people by 2007. The ONE decided to provide electricity to 91% of the villages by connecting them to the national power system, and to the other nine percent by means of a decentralized system of electrification based on mini-networks driven by wind and hydroelectric power or individual photovoltaic systems.

 

With the implementation of the large-scale PERG beyond ONE's capacity, the decision was made to form public-private partnerships with a RESCO to contribute to the operating costs, manage electricity services, and be in charge of fee recovery. The government supplied financial support to make the program viable for the operators and affordable for consumers. The government also established a legal framework to define the local operator's mission: whenever it costs more than $3,250 USD to connect a household up to a grid, the house would be electrified using a photovoltaic kit.


Morocco's decentralized rural electrification program is based on a sale of service model to ensure the long-term success of the photovoltaic systems. When a rural household decides to install a solar home system, they sign a contract with the ONE and the private operator. This private company buys and installs the equipment within 15 days of the signing of the contract. Installation is performed by trained local technicians.

Once installed, the solar equipment's ownership transfers to the ONE. The consumer is considered to be a customer of the ONE, even though the operator is responsible for managing the technical and financial aspects of the program. The operator is compensated for these services through the monthly fee that it collects from the consumers. The monthly fee provides users with annual routine system maintenance and breakdown service within 48 hours after a maintenance call is placed. The operator guarantees the solar equipment for 10 years after purchase, so the company is also responsible for equipment replacement (including light bulbs). Replacement costs are built into the initial connection fees. The state is able to collect revenue from the project through taxes. A 20% value added tax (VAT) is placed on service charges, income taxes are collected on salaries and benefit taxes are collected from private companies.

The monthly service fees are adapted to the budgets of the local households: approximately the same amount was being paid for candles, gas, batteries or battery recharging. However, families are less inclined to overly restrict their use of energy while using solar because the monthly fee is fixed, regardless of the amount used. In 2005, the payment rate exceeded 98%.

By July of 2005, more than 14,000 households in 400 villages had received solar home systems with an installation rate of 500-700 homes per month. The 16,000 customers of the first phase were connected before the end of 2005, one year in advance of the contract schedule. The second phase started in the second quarter of 2005.

The private operator is a renewable energy service company (RESCO) selected through a competitive tendering process, is in charge of implementing the solar program, managing the technical and financial aspects of the program, performing maintenance on the installed systems, replacing equipment and collecting users' fees in 24 Moroccan provinces.

The Office National de l'Electricité manages the overall coherency of the rural electrification project. Prior to implementation, the ONE defined the specifications of the project and selected the solar systems' operator. Currently, the ONE ensures that the solar power operator maintains its commitments to the project and measures the satisfaction of the operator's customers. The agency also provides subsidy funding, which enables the operator to provide the service at rate that is more affordable for rural Moroccan residents. The subsidy is made possible through grants and loans from bilateral aid agencies.

cfo@ntt