Assessing markets for renewable energy in rural areas of Northwestern China

34085 ASSESSING MARKETS FOR RENEWABLE ENERGY IN RURAL AREAS OF NORTHWESTERN CHINA Tuntivate Voravate Douglas F. Barnes V. Susan Bogach  (copyright page)  CONTENTS Abstract............................................................................................................................vii Acknowledgments...........................................................................................................viii Abbreviations and Acronyms..........................................................................................ix Currency Equivalents ....................................................................................................... x Units of Measure................................................................................................................ x EXECUTIVE SUMMARY............................................................................................... 1 Background ............................................................................................................. 1 The Survey Region.................................................................................................. 2 Results and Recommendations................................................................................ 2 Target Population Characteristics ........................................................................... 3 Familiarity with Credit............................................................................................ 3 Awareness of Benefits of Electricity....................................................................... 3 Existing Use of Renewable Energy Technologies .................................................. 4 Characteristics of Existing Owners of photovoltaic systems .................................. 4 Experience with Photovoltaic Systems ................................................................... 5 Potential Markets for Photovoltaic Systems ........................................................... 5 Conclusions............................................................................................................. 6 1. Background.................................................................................................................... 7 Electricity in China.................................................................................................. 7 Purpose of the Study................................................................................................ 8 2. Background on Areas Targeted by the Survey ........................................................ 11 Background on Provinces in Study ....................................................................... 11 Current Photovoltaic System Business.................................................................. 12 Description of Typical Photovoltaic Systems Used in Rural Areas in China ....... 14 Brief Description of the Study Design .................................................................. 14 Conclusion............................................................................................................. 15 3. Survey Results: Socioeconomic Characteristics of Households without Electricity......................................................................................................................... 17 Income, Occupation, and Education...................................................................... 17 Value of Rural Household Assets ......................................................................... 19 Experience with Banking and Credit..................................................................... 22 Current Energy Use and Expenditure for Household Lighting ............................. 25  - iv - Attitudes and Preference toward Energy Services ................................................ 31 Knowledge of and Access to Photovoltaic Systems............................................. 35 Conclusion............................................................................................................. 36 4. Profile of Households with Photovoltaic Systems..................................................... 37 Profile of Photovoltaic System Owners ................................................................ 37 The Type of Photovoltaic System Purchased by Households ............................... 41 System Performance and Quality of Service......................................................... 43 Conclusion............................................................................................................. 45 5. Potential Market for Photovoltaic Systems in Four Provinces ............................... 47 Ability to Pay Cash for Photovoltaic Systems ...................................................... 47 Potential Demand for Larger Systems................................................................... 49 Attitudes and Preferences for Types of System and Payment Methods................ 50 Conclusion............................................................................................................. 52 6. Conclusions and Recommendations .......................................................................... 53 The Market for Photovoltaic Systems Exists and Is Growing .............................. 53 Households Appear to Have Little Interest in Using Credit to Purchase Photovoltaic Systems ............................................................................................ 54 Sales and After-Sales Networks Need to Be Expanded........................................ 55 Standards and Specifications May Be Important for Market Development.......... 55 Conclusion............................................................................................................. 55 Appendix A: Descriptive Statistics from the Northwest China Rural Energy Survey............................................................................................................................... 57 Appendix B: Data and Sampling Methods ................................................................... 79 Target Population .................................................................................................. 79 Sample Size and Design........................................................................................ 81 Purposive Selection of Photovoltaic Households.................................................. 84 Questionnaire and Conduct of the Survey............................................................. 85 Data Processing..................................................................................................... 86 Data Weighting Procedures................................................................................... 86 Estimation of Standard Errors and Confidence Interval........................................ 87 Appendix C: Questionnaire............................................................................................ 90 Bibliography .................................................................................................................. 138 Map IBRD 30439  Tables 2.1 Socioeconomic Characteristics of Four Provinces in Survey, 1997 2.2 Households without Electricity in Counties and Provinces 3.1 Household Monthly Income by Type of Occupation of Household Head 3.2 Average Value of Livestock Classified by Occupation of Head of Household and Type of Asset 3.3 Household Borrowing Patterns in Villages without Electricity in Four Provinces 3.4 Household Use of Loans in Villages without Electricity in Four Provinces 3.5 Comparison of Income and Value of Livestock between Households that Have Not and Have Taken a Loan Before 3.6 Household Energy Use for Lighting by Income Class 3.7 Household Monthly Spending for Lighting Energy 3.8 Monthly Spending on Lighting for Households Using Renewable Energy Systems 3.9 Household Energy Attitudes and Lighting Preferences 3.10 Satisfaction with Lighting Source According to Electricity Source 3.11 Household Knowledge of Renewable Energy Systems 4.1 Owners of Photovoltaic Systems Whose Household Monthly Income Falls within Each Income Category of All Households 4.2 The Nature of Photovoltaic System Purchases in Four Provinces 4.3 Experiences with Repairs and Services 5.1 Households That Could Afford Small Photovoltaic Systems 5.2 Households That Could Afford to Purchase Large Photovoltaic Systems 5.3 Households Interested in Buying a Different Size Photovoltaic System Using Cash or Credit A-1 Socioeconomic Indicators A-2 Households' Experience with Credit A-3 Household Energy Use for Lighting A-4 Households' Energy Expenditure A-5 Household Energy Attitude and Lighting Preferences A-6 Households That Have Heard about or Have Seen 20-Watt Photovoltaic Systems A-7 Households That Are Interested in Buying 20-Watt Photovoltaic Systems A-8 Reason for Not Being Interested in Purchasing 20-Watt Photovoltaic Systems A-9 Households That Have Heard about or Have Seen 50-Watt Photovoltaic Systems A-10 Households That Are Interested in Buying 50-Watt Photovoltaic Systems A-11 Reason for Not Being Interested in Purchasing 50-Watt Photovoltaic Systems A-12 Households That Have Heard about or Have Seen Small Hybrid Photovoltaic- Wind Systems A-13 Reason for Not Being Interested in Purchasing Hybrid Photovoltaic-Wind Systems A-14 Photovoltaic Systems Owned by Households A-15 Attitude toward Photovoltaic Systems among System Owners A-16 Reasons for Photovoltaic System Owners to Obtain Systems A-17 Perceived Benefits of Photovoltaic Systems among System Owners A-18 Attitude of Photovoltaic System Owners toward System Performance  - vi - A-19 Changes in Lifestyles of Photovoltaic System Owners B-1 Rural Households and Unelectrified Households B-2 Targeted Households in Villages without Grid Electricity in Four Selected Provinces B-3 Households in Villages without Grid Electricity in Sampled Counties and All Other Counties B-4 Sample Selection for Photovoltaic Market Survey in Four Selected Provinces in China B-5 Sample Size Broken Down by Random and Purposive Selection of Households B-6 Weight Adjustment for County B-7 Weight Adjustment for Province B-8 Final Weight Adjustment Procedure B-9 Estimated Variance and Standard Errors of Household Monthly Income in Gansu B-10 Summary of Standard Error and Confidence Interval Figures 3.1 Total Monthly Spending on Lighting Fuel in Energy and Electricity 3.2 Total Monthly Spending on Lighting Energy and Electricity 4.1 Distribution of Owners of Photovoltaic Systems Based on Income Deciles 4.2 Distribution of Photovoltaic Owners Based on Income and Assets Owned 4.3 Average Size of Photovoltaic System Owned by Income  ABSTRACT The main objective of this study was to determine the market potential for photovoltaic systems in the remote areas of China, especially in villages without access to grid electricity. A number of photovoltaic systems have been sold in the remote provinces, but the size and nature of this market was not well understood. The study produced data that addresses several needs. It yielded an estimate of the size of the potential market for photovoltaic systems in four Chinese provinces; provided important information on the characteristics, ability to pay, and preferences of potential customers; detailed positive and negative experiences with existing photovoltaic systems; and developed recommendations to increase the penetration of photovoltaic systems in rural China as part of the upcoming China Renewable Energy Development Project. The main conclusion of the report is that there is significant desire by households in remote areas for electricity, and that there is significant potential market demand for photovoltaic systems.  - viii - ACKNOWLEDGMENTS We gratefully acknowledge the support of the Japanese Grants for Preparation of the Renewable Energy Development Project and assistance from the Netherlands Alternative Energy Policy and Project Development Trust Fund in Support of the Asia Alternative Energy Program, which provided funding to carry out the survey in China and supported analysis of the data by local and international experts. The efforts of the staff of the Center for Renewable Energy Development (CRED) deserve special mention for organizing and supervising the field survey work under very difficult conditions, for entering and verifying the data, and for drafting a report on the findings of the survey. CRED's team was led by Ms. Li Jingjing in the early stages of the survey work and by Mr. Li Junfeng throughout most of the work. Many other CRED staff members made substantial contributions to this project. The authors would like to acknowledge the guidance provided throughout the course of the project by Mr. Noureddine Berrah, the Task Team Leader, who supervised, reviewed, and provided extensive support for the completion of the work. Mr. Liu Hongpeng, of the State Economic and Trade Commission, also provided extensive guidance, support, and comments during the survey. The report owes much to their guidance and support. We would like to thank Jeremy Levin, who wrote the executive summary and abstract and assisted in the report's preparation, as well as Rebecca Kary of Alpha-Omega Services, Inc., who edited the report. We would also like to thank several reviewers of the report, who made useful contributions. The reviewers included Messrs. Richard Spencer, Anil Cabraal, and Enno Heijndermans (World Bank); and Mr. Jim Finucane and Ms. Miao Hong (consultants).  ABBREVIATIONS AND ACRONYMS CRED Center for Renewable Energy Development ESMAP Energy Sector Management Assistance Programme GEF Global Environment Facility PV Photovoltaic TVE Township and village enterprise  - x - CURRENCY EQUIVALENTS (1998) U.S. dollars ($) = currency equivalent $1.00 = 8.3 yuan UNITS OF MEASURE GW Gigawatt kW Kilowatt kWh Kilowatt-hour Mu Chinese unit of land measurement MW Megawatt W Watt  Executive Summary 1 EXECUTIVE SUMMARY There is a growing consensus that renewable energy will play a significant role in future development programs. This consensus has grown out of such reports as the United Nations Development Programme's "Energy after Rio," Shell Petroleum's "Energy for Development," and the World Bank's recent papers on "Fuel for Thought" and "Rural Energy and Development." In spite of this acceptance, surprisingly few studies have been made on the emerging markets for renewable energy in most countries. The main purpose of this study was to determine the market potential for photovoltaic systems in the remote areas of China, especially in villages without access to grid electricity. A number of photovoltaic systems have been sold in the remote provinces, but the size and nature of this market is not well understood. The study produced information that addresses several needs. It estimated the size of the potential market for photovoltaic systems in four Chinese provinces. It provided important information on the characteristics, ability to pay, and preferences of potential customers. It detailed positive and negative experiences with existing photovoltaic systems, and it developed recommendations to increase the penetration of photovoltaic systems in rural China as part of the upcoming China Renewable Energy Development Project. The main conclusion of the report is that households in remote areas have a significant desire for electricity, and that a significant potential market exists for photovoltaic systems in many regions. BACKGROUND During the last 40 years, the Chinese program to provide electricity to rural populations achieved remarkable success. Today the percentage of households with access to electricity from large and small grid systems is approximately 93 percent, representing more than 96 percent of the villages in China. Despite this success, a great many people still have no access to electricity in the remote areas of China. Approximately 75 million people do not have access to electricity from a local or regional grid system. In these remote provinces, the people are relatively poor, and the population density is low. Compared with other areas of China, little business or commercial activity exists. The low demand and sparse populations make it very expensive to reach these areas through grid extension. Hence, they are unlikely to be connected to the national grid for many years. Retailers have been very active in selling renewable energy systems in the northwestern provinces of China, both wind and photovoltaic. Based on reports from  2 Executive Summary photovoltaic companies, an estimated 45,000 photovoltaic systems were sold in 1997 alone, primarily on a cash basis. Little is known, however, about the potential size of the market for photovoltaic systems in these remote areas. None of the photovoltaic system retailers and distributors servicing these areas has conducted any type of formal survey to determine the size of the market for renewable energy systems. The World Bank has recently approved a loan and Global Environment Facility (GEF) grant to China for the Renewable Energy Development Project (LN 4488-CHA, 1999), which includes a large photovoltaic component. This component will provide assistance to photovoltaic system companies to market, sell, and maintain an estimated 300,000