Closing Gaps and Financing Taps

This article is taken from World Energy (WE) number 46 – Water stories

Filling one bucket is easy. Filling buckets of water for an entire rural village is doable. But ensuring clean water for an entire sub-Saharan country can prove difficult. There are two fundamental reasons why half of the rural population in many sub-Saharan countries lack access to safe water. First, rural water systems break down frequently. Second, rural water systems are expensive. These seemingly simple reasons mask a remarkably complex reality. That’s because a body of evidence points to a multitude of challenges affecting the sustainability of rural water supply. This includes funding, where the combined financing capacity of donors and governments is far exceeded by the resources required to close the existing funding gap. In the meantime, thousands of rural villages lack safe water. This begs the question: what should a deep-well rural water system look like in the future? How will it avoid breaking down? And perhaps most importantly, how should it be financed? A new model in Tanzania is experimenting with a bold solution combining blended financing with emerging technologies. 

Achieving sustainability involves perfecting a range of complex issues. The advancement of technology, the Internet of Things and its increasing affordability and applicability allow for a range of improvements potentially favorable to sustaining rural water schemes. Remote monitoring of pumping systems is now widely available and allows operators to remotely monitor and troubleshoot pump performance and groundwater levels. Solar pumping significantly reduces the cost of water extraction and could potentially return financially struggling village water utilities back to profitability. Over the last seven years, the technology and price of solar pumping have evolved dramatically and opportunities have therefore increased.  Water pumping via solar energy, once a niche market, is now being mainstreamed. Driven by low PV prices, improved technology is now able to pump higher volumes of water and reach even deeper sources of groundwater.

Solar photovoltaic water pumping (SWP) uses energy from solar photovoltaic (PV) panels to power electric water pumps. The entire process, from sunlight to stored energy, is elegant and simple. A solar pumping system includes the solar panel itself, the pump and a power conditioner. SWP systems are now flexible and can work in tandem with a back-up generator and the electrical grid.  

• SWP system capacity and ability have expanded. Early solar pumps (1980-2007) had limited performance and were restricted to pumping installations with a shallow water source and low water demand. Today, pumps can reach deeper wells (500 meters (m) compared to the previous 200 m) and push larger volumes of water (1,500 m3 /day, compared to the previous 500 m3 /day at low head). Efficiencies have also increased considerably as new pump and motor designs have increased water outputs over the entire pump range
• Prices of PV panels have dropped exponentially. High demand for PV modules for grid-tied applications has resulted in massive economies of scale in production as well as competition among vendors. The commodity price of silicon, the key material, has also dropped substantially
  
• The number of SWP manufacturers and suppliers has increased. Old monopolies have been broken, and although the technology leaders continue to innovate, competition is fierce on price, performance and quality
  
• SWP is being mainstreamed and awareness is growing. Good news travels fast, and markets are increasingly demanding SWP in place of conventional pumping solutions. Further opportunities are arising as intensive awareness campaigns support and elaborate on the details of system performance and savings. Retrofits to diesel pump systems represent a market for further potential savings.

There are several technically viable options for new pumping systems, generally distinguished by their energy source—diesel pump, wind or solar. Cost-benefit analysis (CBA) is often used to assess the economic merits of alternative investment options. Pumping systems typically have a 20-year lifespan, and over that period they incur various costs, some at the outset, and others at different times throughout the system lifetime. Consideration of all costs incurred during the system lifetime is often referred to as a life-cycle cost analysis (LCCA). LCCA is particularly important for renewable energy projects because of  high initial investment costs. More conventional options based on fossil fuels may appear cheaper due to lower initial costs; however, operating costs can be considerable over the project life.

An example from Tanzania illustrates the economic benefits of solar pumping. Exactly 418 existing operational diesel pump water schemes (i.e., water pumps running on diesel generators) were studied in rural areas. Data were collected on these schemes to compare the LCC of a typical system with the LCC of solar pumping.

The initial average cost of a diesel fueled genset pumping system is around USD 13,000. During its 20 years of operation, the system incurs substantial annual costs for diesel fuel (the average yearly expenditure in fuel is over USD 5,000, or 40 percent of initial costs), as well as periodic replacement costs. Solar pumping systems by comparison, have higher initial costs (around USD 30,000) and there would be significant expenditure in year 10 to replace the pump, but these costs are more than compensated for by the vast reduction in energy costs. If a diesel-powered pumping scheme were converted to solar, the calculation shows that the life-cycle cost would be about USD 59,000, 36 percent down from USD 93,000 for the diesel pumping with a return on investment in 2-3 years compared to a diesel-fueled pump. Particularly compared with diesel pumping, solar is not only more energy efficient, but the financial benefits far  outweigh the costs. 

Considerations for designing a solar pumping system include various parameters that include water demand (volume), water storage, water depth (head), location of PV panels and solar irradiance among others. Fortunately, modern software provides a free and user-friendly tool that enables engineers to easily design and size solar pumping system. To increase awareness, the World Bank has produce a simple handbook as part of a larger package on solar pumping produced by the World Bank Water Global Practice, which includes a comprehensive knowledge base, video tutorials, case studies, and more. 

Rural communities may not always have the full capacity to service and maintain modern pumping systems, and the private sector has traditionally only been involved during the construction phase. However, what if contractors were obliged to commit to a four-year service agreement, including extended warranties through the so-called “build and operate” contracts enforced by a performance bond? Such long-term contracts are often expensive due to the remoteness of rural villages. Nevertheless, economies of scale in the provision of service and maintenance could be achieved by clustering 50 neighboring villages and awarding the works and service provision to just one contractor. This approach would further benefit from standardization of equipment, remote sensing of all 50 sites and the long-term sustainability enhanced by an option for the participating villages to extend the service contract beyond the initial four-year service period.

While the above mentioned model may contribute to the sustainability of rural water schemes, the financing gap in the sector is perhaps the largest obstacle to achieving Sustainable Development Goal 6: ensure availability and sustainable management of water and sanitation for all. Closing this financing gap has historically been a tall order for government and donors, especially considering that about one-in-five newly constructed water schemes breakdown within the first few years. Taking Tanzania as an example, let’s presume that there are 6,000 rural villages without access to safe water. And for argument’s sake, let’s assume that a new rural water scheme for 3,000 people costs USD 100,000, leaving an investment gap of USD 600 million for new rural water schemes (discounting the rehabilitation needs of existing water schemes and the need to expand existing schemes to meet the demand of the growing population). In summary, there is a dire need for rethinking the traditional financing model for the rural water sector.

This project in Tanzania combines the above-mentioned technologies and approaches and targets existing rural water schemes powered only by diesel generators and where water customers are used to pay for water. The pilot seeks to demonstrate that rural communities can repay 40 percent of the capital investment and maintenance service contracts without increasing the price of water. The 40 percent will be financed through a four-year loan from the TIB Development Bank. The other 60 percent will be subsidized through a grant funded by SIDA and the Dutch Government through the World Bank’s Global Partnership on Results-based Approaches (GPRBA). The pilot also received assistance from Global Water Security and Sanitation Partnership.

The benefits from this initiative are two-fold. Firstly, it harnesses the power of private sector financing in community development through blended subsidy-loan combinations. Secondly, transitioning from diesel pumps to solar pumps leads to demonstrable environmental and economic advantages in the form of lower CO2 emissions and high life-cycle cost savings.

Collecting monthly revenues from rural remote villages poses obvious challenges. Mobile-money-enabled pre-paid water dispenser technology has been around for about a decade. The price was previously prohibitive for mainstreaming, but recent pilots in East-Africa have demonstrated that it is dropping rapidly. By digitizing revenue collection to a ring-fenced bank account, this technology has anecdotally increased revenue collection by 50-400 percent in remote rural villages in Tanzania.

Over the next two years, the project will find out whether this new model will create the envisioned synergies. A successful pilot could be transformational in that the loans could be extended from four years to possibly 15-20 years, potentially enabling the communities to cover a larger portion of the capital investment of their water scheme while keeping the price of water constant, thereby helping bridge the financing gap.We are entering a period where sound financial engineering is just as important as civil engineering and closing the financing gap will open new opportunities for reaching the SDGs.

He is a World Bank water and sanitation specialist based in Washington DC. After obtaining two master’s degrees in Economics and Econometrics from University of Essex (UK) he has held positions at the World Bank in Washington D.C. and the UN World Food Programme. He has spent the last 8 years in East Africa and specifically focused on strengthening the sustainability of rural water supply and mainstreaming solar powered water pumping.