Figure Size of solar systems installed in Sri Lanka over time as a percentage of total market

Source: Finucane (2005), p9

This policy step would have unduly impacted the quality of the Sri Lankan customers' experience. Because customers were encouraged to buy smaller systems, they were buying systems that may not have fully met their needs. Many customers will not have understood that buying a 40-watt system with four lights, as opposed to 50- or 60-watt system with five or six lights, will mean that they cannot use much radio or TV in addition to their lighting needs. And this will have been problematic, as customers in Sri Lanka generally wanted to run all these loads on their systems. This policy measure therefore created a risk of customers overusing the system, widespread customer dissatisfaction and potentially negative referencing that would damage the interests of longer-term diffusion.

In addition, the fall-off in sales of solar systems of 40-60 watts (or more) from 50 per cent of the market to just 20 per cent would have seriously damaged the margins and earnings of all the solar companies active in the market. Smaller systems do not have the same overall margin associated with each sale. So a company must sell many more of these systems just to keep up. Furthermore, there were other factors in the market that would have resisted the necessary up-tick in sales, such as delays in processing by SEEDS and other banks, and the lack of availability of small modules in the global market at affordable prices. And so the net result would have simply been a reduction in earnings, with an overall impact on the strength and durability of the country's market infrastructure.

Moreover, with the impending removal of the grant for even 21-40-watt systems, things were going to get worse. The same World Bank consultant referred to earlier did an analysis of a firm's earnings on a 40-watt system and arrived at the results presented in Table 7.3.

Table 7.3 Estimated monthly profit of solar company in Sri Lanka with and without grant on a 40-watt system (US$)
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