PROSOL: Financing Solar Water Heating in Tunisia
The PROSOL programme stimulated the market for solar thermal heaters in Tunisia, where 270,000 new systems were installed between 2005 and 2015. The programme enabled consumers to purchase solar water heaters with minimal upfront costs by providing investment subsidies on a loan with a duration of 5 years. The programme worked with banks to reduce their risk by having the electricity utility acting as a debt collector, helping to increase the supply of finance available for the systems.
The challenge:
The renewable energy potential in Tunisia is very high, especially for solar power. However, despite this the penetration of solar water heating in the country was very limited. Compared to traditional methods solar water heaters were capital intensive, requiring large up-front investment for which financing was not readily available. In addition to this, the most common alternative – Liquefied petroleum gas (LPG) – was heavily subsidised by the state.
The measure:
In 2005, the Tunisian government initiated its Solar Programme, PROSOL, which aimed to develop the solar thermal market in the country. PROSOL is a joint initiative of the Tunisian National Agency for Energy Conservation (ANME), the state utility Societe Tunisienne de l'Electricite et de Gaz (STEG), the United Nations Environment Programme (UN Environment) and the Italian Ministry for the Environment, Land and Sea.
The PROSOL programme enables consumers to acquire a solar water heater through a five year loan, which is repaid through their monthly electricity bill. This arrangement removed the large up-front outlay – only a 10% down-payment was required – and the cost was offset by the energy savings achieved by consumers.
As the loan is organised in cooperation with the state utility STEG (the repayment of the loan is collected through the electricity bill), banks are providing finance more willingly because the risk of non-payment is lowered. Correspondingly, banks also charge lower interest rates. For a period a UN Environment grant ensured that interest rates were kept at 0%, making the offer very appealing to consumers. The sign-up process for consumers was also made as simple as possible, supporting private demand.
In order to create a level playing field between solar water heating and LPG, the Italian Ministry for the Environment, Land and Sea underwrote 20% of the system cost of new installations – equivalent in monetary terms to the existing LPG subsidy.
This combination of measures caused new installations of solar water heaters in Tunisia to soar. Over 270,000 systems were installed between 2005 and 2015, helping to mitigate 700,000 tonnes of CO₂. USD 71 million was mobilizing from the banks and USD 224 million from Private Finance. More than 3,500 direct jobs were created and the number of qualified installers rose by factor twelve.
The success of the PROSOL programme was also a driver for policy change. The 20% capital cost subsidy first funded by Italy was brought into Tunisian law, and solar water heaters were made VAT exempt and liable for reduced customs duties. PROSOL 2 was launched in 2007. Independent of UN Environment funds, this programme was entirely developed and run by local actors.
UN Environment helped ANME to replicate PROSOL’s success with photovoltaic technology and launched in 2010 Prosol Elec programme.
Lessons learnt:
This comprehensive programme was a success because it effectively addressed multiple barriers. By working with lenders, and reducing their risk, the programme was able to make available large amounts of finance. On the other hand, the programme stimulated demand among consumers by providing incentives (capital subsidy, cheap finance), simplifying the application procedure, and raising consumer awareness through a dedicated campaign.
Further deployment:
Similar programmes have already been implemented in other countries and regions so the potential for transferability is high, being estimated at GML 9.
Links:
http://climatepolicyinitiative.org/wp-content/uploads/2011/12/Touhami-and-Hannane_PROSOL.pdf
https://sustainabledevelopment.un.org/index.php?page=view&type=99&nr=39&menu=1449
Image source: By Mmz.alonso (Own work)[CC BY-SA 4.0(https://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons