Martina Schäfer, Noara Kebir, Daniel Philipp (editors) - TU Berlin

PROCEEDINGS Conference MPDES 2011
1997/8 hit Indonesia, demand for micro-credit ceased and
sales were far below the target. However, many
stakeholders became familiar with SHS and the market
was still supported at a lower level by provincial
government programs in parts of Indonesia. Despite the
failure to introduce SHS in Indonesia via the market, other
countries have successfully introduced SHS
commercially, such as the Philippines and countries in
Latin America and Africa. In Indonesia today, economic
conditions are favorable for a transition from a solely
government-supported SHS market to a commercial
market in rural areas for PV-based technologies.
A substantial change in the concept is also needed,
namely to utilize the government development of public
facilities as an anchor for the private sector to introduce
SHS commercially in rural areas. In this model, the
government competitively bids public facilities together
with a component for marketing and retail services of
solar technologies in the same area. Under a government
contract, the private sector provides equipment and after
sales service, as well as carrying the responsibility for
maintenance and operation of public facilities. Private
companies can and should work together with local
community organizations.
Recently, this concept has become known as the
Sustainable Solar Market Package (SSMP), 6 introduced
initially in the Philippines. It aims to tackle the
challenges of making PV systems sustainable in off-grid
rural areas. The concept addresses the problems of low
sales and high prices of household systems, as well as the
lack of after sales services in remote areas.
From a government perspective, the concept is to
combine the provision of PV-based public utility services
with the sale of solar home systems for rural households
in the same areas. Thus, the government contract includes
terms that specifically obligate the company to market and
sell Solar Home Systems (SHS) on a credit basis within a
certain time period. The company has both a financial
incentive as well as a possible penalty related to its sales
performance. 7 This incentive is an encouragement for the
companies to stay in rural areas, to provide after sales
services for PV-based public utilities, and to develop
commercial markets for solar home systems. In addition
the company has the opportunity to sell other products
such as spare parts, lighting, batteries and other items
during the contract period. The credit arrangement can be
made in cooperation with local banks or micro-finance
institutions. Currently, the Indonesian Solar Lending
program, managed jointly by the Frankfurt School of
Management and UNEP, and funded by the German
6 The concept is summarized in the report, “Photovoltaics for
Community Service Facilities; Guidance for Sustainability,”
published by the World Bank, December 2010. The main
authors are Mr. Jim Finucane, PhD and Mr. Anil Cabraal, PhD
who managed the SHS World Bank project.
7 A financial penalty or incentive can be included in the
contract for the public facility. As an illustration, the contract
amount for a public facility can be 15% higher if the company
also sells a target number of SHS systems within, say 24
months, on a credit basis. As a penalty, if the company retail
sales do not reach a given target, then the contract amount will
be lowered 10% from the fixed price agreed in the contract.
government, has an ongoing project to introduce this
concept to several micro-finance institutions and banks in
Indonesia. The prospective banks include BRI, Bank
Mandiri and Bank Niaga.
In summary, SSMP consists of two parts that can be
dealt with simultaneously. First, establishing the public
facility (through government tender), and second,
introducing retail sales of solar home systems via microcredit
within the same region.
Types of facilities which can be established through
government tender include:
1. Social infrastructure: clean drinking water facilities,
rural health center facilities and school buildings
2. Energy/ electricity infrastructure: lighting for
mosques, schools, community halls, and streets
3. Transportation: village roads and bridges
4. Information and telecommunication: communication
and information shops
5. Economics: solar dryers, hand tractors, and livelihood
related equipment
While the ongoing discussion focuses on public-private
partnerships, a purely commercial approach is also
possible. One potential strategy is to have solar energy
technology, financed by a commercial loan, which
supports community income generation.
Theoretically, the public-private concept can be
implemented in line with the existing infrastructure
improvement program. Thus, the levels and types of
services must be tailored to the specific needs and budgets
of government funded projects. These public facilities
and services will be funded by the KPDT (through
regional budgets, or APBN), procured through public
tender, and if necessary, funded in partnership with
international donors.
Companies that successfully bid for the contracts will
be obliged to sell PV systems commercially. Some of the
basic rules stipulate that SHS sales to rural households
comprise a minimum of 10 to 25 percent. Sales must also
be conducted within 18 to 24 months. The company may
work together with micro-finance institutions, such as
BRI, or directly retail to customers. The company may
also establish recharging services at kiosks for poorer
households with basic lighting needs. Some government
funding may be used to subsidize households and other
customers to improve the affordability – with levels
determined based on ability to pay (e.g., $2-3 USD per
Wp). Funding may also be used for additional cost-shared
support to the contractor for market development.
Based on discussions with local governments, including
certain incentives and penalties into the contract is
important to encourage the companies to continue the
business of retailing Solar Home Systems in rural areas.
Lessons learned
The lessons learned can best be derived from the
current KPDT–P2IPDT program, since the Sustainable
Solar Market Package is still in the discussion stage prior
to implementation 8 .
8 KPDT is in the process of funding the initiative jointly with
the World Bank under the project, “Increasing Electricity Access
in the Disadvantaged Regions” and Asian Development Bank
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