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Case Studies
Sustainable markets for SPV products - SELCO Photovoltaic Electrification Pvt Ltd.
About SELCO:
SELCO Photovoltaic Electrification Pvt. Ltd., with registered offices in Bangalore, Karnataka, is the Indian subsidiary of SELCO International USA. Founded in 1995, it is the first solar company engaged wholly in designing, marketing, and servicing a wide range of solar-powered equipment and installations for lighting, TV and radio, water pumping and purification, and many other applications.
SELCO customers in the Southern Indian states of Karnataka, Kerala, and Andhra Pradesh who are either without access to grid electricity (mainly in rural areas) or those who suffer from regular power cuts (regardless of where they are located). Its customers include rural households and farms, banks, shops, artisans, restaurants, cooperatives, clinics, community centres, temples, churches, mosques, utilities, and small-scale industry.
The SELCO model represents a viable example of a RESCO (Rural Energy Service Company). Till date SELCO has sold and installed more than 2050 Solar Home Systems (SHS) and 80 solar PV water pumping systems. It is perhaps the only solar energy services company in the world that has been able to generate profits, in the second year of its operation.
Implementation strategy:
SELCO designs and installs solar systems to meet consumers' requirements. SELCO solar home "kits" use components manufactured exclusively for SELCO under its stringent specifications and integrated with PV modules produced by Indian companies with state-of-the-art technology. The Company provides warranties and after-sales maintenance on all its products. Back-up service is provided through its network of local SELCO Solar Service Centres.
SELCO offers a 'lease to own' scheme wherein the consumer pays one-quarter of the system cost as an upfront payment and the rest is given to him as a loan at 12% interest per annum. SELCO procures systems from reputed manufacturers only after securing factory guarantees of quality, which are passed on to the consumer as performance guarantees. It has set up branches in villages and has a team of local technicians on motorcycles to ensure quick after sale service and regular collection of loan installments. A typical SELCO Branch has its own set of technician-cum-salesmen and collection agents in the chosen villages, all hired locally. The technicians work for SELCO on an income-cum-commission basis thus infusing interest to sell more systems.
An important and effective part of its strategy has been to tie up with financial institutions like the Syndicate Bank to provide loans for SPV systems. One such partner is the Malaprabha Grameen Bank (MGB), which is a rural development bank with highest recovery rates in the country. With its 200 branches in Dharwad and Belgaum districts of Karnataka, MGB is known for its innovative micro-credit schemes. The Solar Lighting scheme of these banks offer three-to-five-year loans to consumers for 90% of the solar system cost at an interest rate of 12 to 12.5% (priority sector lending rate). SELCO takes the total responsibility of performing all the other tasks: (a) Organizing awareness campaigns in rural areas including SPV system demonstration, (b) Identification and pre-qualification of potential beneficiaries, (c) Training of local technicians, installers and service personnel, (d) Installation of solar home systems purchased through the lending bank, (e) Educating users, and (e) After-sales service and maintenance.
In parts of Karnataka where no other type of financing is available, SELCO has set up its own financing arm using loans from IREDA. Rural farmers buy systems from SELCO on a lease-to-own basis. SELCO finances SHS to a certain class of customers by providing them loans at low interest rate with IREDA re-financing @ 2.5% p.a. (World Bank Line of Credit). It has also tied up with rural/local institutions such as cooperatives, farmer societies/associations, plantation companies, societies, etc, to promote solar energy.
The local people run these institutions themselves. They function like localized banks and provide loans to its members for installing SELCO solar PV systems.
Lessons:
The SELCO experience established that the distribution of PV systems via commercial channels (without unreasonable dependence on government subsidies), can be a profitable business in the rural areas. The main factors that have contributed to the success of the SELCO model are as follows:
Collaboration with local existing financial institutions that helped in (a) gaining the confidence of the people initially and (b) made the task of installation collection easier for SELCO, at no additional cost.
Through its credit schemes, SELCO has been able to get around the high capital cost problem of SPV devices, which is normally the biggest hindrance in their promotion, especially in rural areas.
By setting up rural branches and training local people as technicians, SELCO was able to elicit local involvement as well as employment opportunities.
By creating a local infrastructure for repair, SELCO is able to provide quick and effective service in case of any faults with the systems.
By establishing local branches and operating them as independent entities, SELCO has kept the management system decentralized and simple.
By offering commissions to technicians, SELCO has ensured that they have a direct stake in promotion of solar technologies.
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