July 2006
CORPORATE FOCUS

Nepal ’s solar electric energy field too seems overcrowded with about 30 players. But only about 13 of them are really active and five of them are considered the major ones as they are importing the inputs and making products to sell on to the customers directly or through wholesalers and retailers. The rest are functioning more as dealers or subcontractors of the larger ones rather than producing goods independently. Solar Electricity Company (P) Ltd. (SEC) is the biggest among them, as claimed by its Managing Director, Yug R Tamrakar.

To substantiate this claim, Tamrakar provides us with some data. First, the annual sales of the company are around Rs. 100 million and second, it has already installed solar power systems in about 30,000 houses across the country while the total number of such houses is about 100,000, thus giving the company a market share of about 30 per cent.

Energy is perhaps the only business which can grow and not decline. With the fast increasing demand for energy coupled with the threat of global warming and imminent depletion of fossil fuel resource, the whole world is searching for new and renewable sources of energy and in this process they are opting more for solar power. But Nepal ’s SEC is thinking to divert from solar business despite those achievements. Why?

There are two major reasons and both of them are a bit surprising. As Tamrakar says, the market for solar business is almost saturated and, as a result of the Kyoto Protocol, the cost of solar power systems did not come down as initially expected.

The company was set up in the early 1990s after the donors showed interest in providing grant for solar electrification to the remote Nepali villages through the private sector. As Tamrakar already had some experience with solar power technology while supplying the solar power systems and other equipment for setting up telecommunication systems in remote areas, it was a good opportunity for him to jump into this business. Earlier he also ran, in cooperation with RONAST, a solar pumping programme in Dang virtually free of cost and installed a $2 million solar water pump system at Bode of Bhaktapur, which he claims to be the largest such project still existing in South Asia.

Though the beginning of rural electrification through solar power saw some problems, the solutions were found very quickly and the achievements were pretty fast, both of which can be considered as rare things in Nepal .

The idea of rural electrification through solar power was generated after Nepal faced fuel crunch during the Nepal-India trade impasse of the late 1980s. As he recalls, the government approached him through RONAST for his advice on how to go about it and his suggestion was to bring down the cost by reducing the import duty. The government immediately agreed to it but different traders were found trying to take undue benefit from that. “Some people started claiming the duty rebate also on solar powered watches and calculators,” he says. “It was exactly due to that reason that I had to register a separate company as an industrial unit so that the goods imported by us for the production of solar power systems could be granted duty concession.”

Then the National Planning Commission included a programme in the periodic plan for rural electrification through solar system. Under it, it was planned to set up 36,000 systems at the rate of one system in each of the wards of the 4,000 village development committees. When the programme was included in the plan, DANIDA came forward to help set up 25,000 systems within five years and his company was chosen the implementing agency. But the programme was completed within two and a half years. “Perhaps it is the only programme till then in Nepal that was completed before the deadline,” he chuckles. One of the most important installations is in Pulimarang of Tanahun which is the first stand-alone community solar home system in the country and is benefiting 68 houses.

The products

Solar is common name for both electric and heating. “But are in lighting system business not in solar thermal business,” says Tamrakar. As such, SEC does not make solar water heaters or cookers. “We are mainly in solar photovoltaic cells and equipment,” he adds. The company imports the parts and manufacturers all the components of solar lighting system except the modules as the latter will be feasible only when the solar power projects in Nepal will be big enough. Thus the products include charge controllers, fluorescent lights, inverters, and AC-DC and DC-DC converters. Production of low power consumption white LED (i.e. Tukimara as they are called in villages) is generally subcontracted to the dealers nearby the villages as it is simple product to fabricate. Only about 50 per cent of the value of the final product (e.g. LED, electric components, cells etc.) is imported thus giving about 50 per cent domestic value addition from this industry. Also the subcontractors (or dealers) can make them. “In fact, the solar power industry is the second largest industry in the country in the electronics sector after the television set assembling industry,” he claims. According to him, some industrial units such as in cable making are heavily dependent on the solar industry.

Though it is good to note that the industry is able to make over 50 percent of the components, Tamrakar says it is forced to use more of imported components as that is the only way to sustain under the WTO regime. However, he also mentions that for Nepali consumers, it is better to use domestic component as they can be repaired while the imported one needs to be replaced when it starts malfunctioning.

The company has 25 centrally located staff, about 100 subcontractors and 45 dealers or retailers. The dealers directly retail higher value items while in case of small value items (such as Tukimara which is priced about Rs. 100-300 per unit) they distribute also through the retailers. As the production is simple, the major focus of the company is in marketing and providing the services. Therefore, almost 50 per cent of the company’s staff are related to marketing and service.

Problems

The solar power programme is running so far with the subsidy provided by the government and the donors. The remote villages are classified in three categories with the subsidy rate of 50 per cent for the A category village and 25 per cent for the C category village. The C category covers about 94 per cent of the area of rural Nepal . Thus substantial subsidy is available only in about 6 per cent of the area. Any of the 13 recognised companies can sell and set up the solar home power system in any of these villages to any person and with the documentary proof of the job can file claim for the reimbursement of the subsidy.

In this process, almost all the ho uses in the villages in category A where it is possible to install solar power system from the cost point of view have got one. Thus it is very difficult to find new customers there. In a way, the market has become saturated.

The other problem is related with the Kyoto Protocol. After this Protocol came into force, the demand for solar power modules has gone up internationally while the supply has not increased at the same pace. Thus the price of the components has not decreased as expected 10 years ago.

Similarly, the company, as well as its competitors, is facing the problem of bad debt. Though the margin is about 20-25 per cent, about 10 per cent of SEC’s sales is stuck up as bad debt. The reason is credit sales to survive in the competition. The customers are normally poor households. Some of them have gone abroad after installing the solar system and it is not possible to realize the dues from the family members. It is not so easy to make follow up calls in remote villages. Therefore, the company has to depend on the local dealers who are not so effective. Due to the high bad debt ratio, a solar company must make an annual sales of Rs. 10 million to survive, says Tamrakar.

A more important problem, according to him, however, is related to the fact that the existing subsidy scheme is not able to benefit the poorest of the poor who cannot arrange the equity. Though the operating expenses are almost zero, the initial investment is very high which is beyond the reach of the poorest people despite the subsidy. Hence the market saturation though many villagers are still without the solar system installed.

Interestingly, the Maoist problem did not cause so much hurdle in the expansion of solar electrification. The Maoists too saw that the programme was benefiting the poor and they were cooperative, Tamrakar says.

For the solution, one of his suggestions is to encourage banks to invest in this sector. While this will enable even the poorest to install solar system, it will also help companies realise their dues. “For example, when the banks invest, it will be easier to get the loan or the solar system insured,” he points out. “This is helpful also for the banks to expand into rural areas and grow their investment portfolio.”

New ventures

Whether policy makers will pay heed to his suggestions or not to expand the rural electrification through solar system, Tamrakar has already started diverting into other alternate sources of energy. In this process, his attention is on biogas.

“If everything goes the way we have figured it out, the entire structure of Nepali economy and society will go a tremendous transformation from biogas,” he claims. “We are interested in waste management, bio-gas and organic fertiliser in an integrated way.”

A proposal has been already submitted to the government to provide subsidy also on biogas. So far, there are about 100,000 biogas plants in Nepal and if his proposal is approved, it will be possible to increase the number by 100,000 units per year, he claims.