Increasing access to energy services in rural areas - REEEP ...

MODULE 10: INCREASING ACCESS TO ENERGY SERVICES IN RURAL AREAS
page 10.85
The original idea that the ESCOs would be able to obtain the necessary start-up
capital from commercial banks to procure their initial PV systems was abandoned
due to the high interest on commercial loans which were around 40 per cent annually.
These loan conditions would have made it impossible for the companies to
be profitable in the early stages of their development. To address this, the
Government procured PV systems and loaned them to the ESCOs using grant funds
obtained from Sida.
2.2. Project Phase II
Phase II of the project lasted from October 2001 to December 2003 and was
focused on establishing the framework and conditions necessary to sustain the
ESCOs and extend the project to other parts of Zambia. The most important component
of this framework was the establishment of a funding facility to lend to
ESCOs on terms that would make them sustainable. The funds would be applied
towards expanding existing ESCOs as well as establishing new ones. Secondly the
facility would also provide capacity building for the ESCOs in business management
and PV technical skills.
By the end of phase II, three ESCOs were operational with about 100 to 150 clients
each. ESCOs continued to receive training. The issues regarding loan repayment
and transfer of ownership of the PV systems were discussed. Due to the low number
of clients serviced by each ESCO, it was not possible for the ESCOs to generate
sufficient profit and cash flow to repay the loans. Consequently the issue of
ownership transfer remained unresolved at the end of phase II.
The objective of extending the project to other parts of Zambia could also not be
achieved because the guidelines for repayment of the old debts and availability
of new credit remained unresolved.
2.3. Project Phase III
Phase III of the project lasted from September 2004 to September 2005. The main
objective of phase III was to consolidate the experiences from the first two phases
and develop the necessary framework to ensure long-term sustainability of the
PV-ESCOs concept. The following were the main areas of focus:
• Develop credit agreements between the MEWD and the ESCOs to provide for
the repayment of start-up capital and the ownership transfer of the PV systems;