Info

Gross margin

24%

12%

Net profit on sales

11.6%

-1.5%

Source: Finucane (2005), p1513

Source: Finucane (2005), p1513

Thus it was the consultant's conclusion that the RERED should continue with grants for systems up to 40 watts, and should even reverse the decision to eliminate subsidies for 60-watt systems. Instead of pegging the grant to a particular system size, the study recommended 'lowering the grant to $60 at the end of 2005, and then $40 at the end of 2006' on all systems, regardless of size.14

Thus, based on this experience in Sri Lanka, we should note that a key feature of the grant per unit installed is that it must remain consistent in its disbursement. Policymakers should avoid an overnight elimination of the grant based on, for instance, the size of the system. An alternative route is to instead gradually reduce the grant for all systems, bearing in mind that it might not be advisable to eliminate the grant entirely.

Unlike Indonesia or Sri Lanka, Bangladesh took the measure of determining how much of the grant would be passed on to the customer, and how much could be retained by the firm as an 'institutional development grant' to build capacity. Although it is by and large preferable for a business and the market to be left to decide on this matter, this aspect of the grant programme has not seemed to unduly diminish its success.

Moreover, because the Bangladesh programme envisaged the ultimate 'commercialization' of solar in the country, it has sought to eliminate the grant over time. But it has not done this by tying it to the size of the system for poverty alleviation reasons, or stopping it overnight. Rather, as Table 7.4 shows, it has sought to gradually reduce it in a phased and consistent manner over the process of selling and installing 200,000 systems.

Table 7.4 Gradual decline in grant under Bangladesh programme

Item

Total

Buy-down

Institutional

Grant

0 0

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