And then what happened? A retrospective appraisal of China’s Renewable Energy Development Project (REDP)

Renewable Energy 36 (2011) 3154e3165

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And then what happened? A retrospective appraisal of China’s Renewable Energy Development Project (REDP) Anthony L. D’Agostino*, Benjamin K. Sovacool, Malavika Jain Bambawale Lee Kuan Yew School of Public Policy, National University of Singapore, 469C Bukit Timah Road, Singapore 259772, Singapore

a r t i c l e i n f o

a b s t r a c t

Article history: Received 14 January 2011 Accepted 10 March 2011 Available online 5 April 2011

From 2002 to 2007, more than 400,000 photovoltaic (PV) solar home systems (SHS) were sold in northwestern China under the US$316 million World Bank/Global Environment Facility-supported Renewable Energy Development Project (REDP). REDP has been hailed as a best practice example in SHS deployment for its unprecedented scale and the combination of technology improvement and market development support components to strengthen the country’s renewable energy industry. While the World Bank has itself conducted post-project evaluations, our paper presents the first independent review with the intent of determining if anticipated project impacts have been sustained. We adopt a case study format supported by in-depth interviews with the project’s relevant stakeholder groups and find that solar home systems (SHS) provide monetary and non-monetary benefits to users and that their portability complements the lifestyle of the region’s nomadic herders. However, we also find that purchasing decisions are still based on price more than quality, after-sales service networks remain weak, and households in REDP’s coverage area are gradually gaining access to hydropower-based grid electricity. Ó 2011 Elsevier Ltd. All rights reserved.

Keywords: Rural energy Energy poverty Energy security

1. Introduction China has made tremendous strides towards achieving universal electrification over the last 60 years. By 1978, 63% of the population had access to electricity, rising to 99% in 1998 and now to a present level exceeding 99% [1]. However, 8 million people located primarily in rural areas where low population densities and energy demand render grid connection cost-prohibitive still lack electricity access [2]. In such areas, renewable energy technologies (RETs) like wind and solar have been identified as least-cost options [3] and therefore the technologies of choice for many rural applications. The installation of RETs as one rural electrification component also reflects China’s broader ambition of growing its renewable energy (RE) sector. The passage of the Renewable Energy Law in 2005 further catalyzed national support for RE with concomitant environmental and energy security benefits. Two years later medium- and long-term RE targets were established, including one for cumulative solar capacity reaching 1.8 GW by 2020 [4]. To offer perspective, 160 MW of capacity was installed in 2009, or less than 2.5% of global added capacity. Abundant solar resources on expansive tracts of land increase the feasibility of achieving solar targets. According to UNEP’s SWERA Programme, * Corresponding author. Tel.: þ65 6516 8693; fax: þ65 6468 4186. E-mail address: [email protected] (A.L. D’Agostino). 0960-1481/$ e see front matter Ó 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.renene.2011.03.017

western and northern China receives 5e7.2 kWh/m2/day of solar radiation with an average of more than 3000 h of sunlight per year. The technical potential for photovoltaics (PV), an estimated 180 TW per the available literature according to Cherni and Kentish [5], therefore far outstrips current production levels. Additional policies at the provincial level have been introduced to spur local development, both in manufacturing and installation [6]. China’s status as a global manufacturing power in clean technologies is a recent development. In 1997, the country’s production capacity for photovoltaics (PV) was only 5.5 MW in comparison to the 3850 MW of output in 2009 [7]. These industries had long been dominated by companies from Japan, Germany, and the United States whereas Chinese firms only became internationally competitive after 2000. China has now secured a sizable lead ahead of these other countries and in 2009 invested more than US$33 billion in clean energy, edging out the United States for top position for the first time ever, with 10% of that sum directed towards solar energy [8]. However, domestic RE installation remains negligible against current production volumes; more than 98% of the 10.5 GW of PV systems manufactured in China in 2009 was exported [9], with Europe and the United States as primary destinations. Solar home systems (SHS) have been one RE application that enable households without grid access to use electrical devices for both productive and leisure purposes. With sizes ranging from 10 Wp to more than 150 Wp, SHS can be an affordable solution for

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low-income users and hence have become a key component of development aid projects addressing energy poverty. Such projects throughout the developing world are numerous and well-documented (e.g., [10e15]). Lessons from these projects are used to improve the design of similar projects implemented elsewhere, based on project evaluations conducted by involved staff which are often publicly available [16,17]. Unless follow-up programming is planned in the project area, this evaluation will likely be the last investigation. If this is the case, as appears from the evaluation literature, then no measures are taken to revisit project stakeholders to identify the sustainment of benefits or newly arising needs several years after project completion. Many papers have investigated RE potential and implementation in addressing electricity access in rural China. For example, Ma et al. (2010) provide a comprehensive literature survey of papers on renewable energy in China. Others have covered the variety of solar energy technologies currently in operation [18], or broader reviews of RE resource availability, policies, and barriers [19e21]. Li et al. [22] focus on a single province, Yunnan, whose rural residents rely on a diversity of RE sources including biogas, small hydro, fuelwood, and solar energy for hot water heating, solar cookers, and lighting. Zhou et al. [23] draw attention to the environmental problems caused by rural energy use in China. Wallace [24] describes cooperative efforts between the US Department of Energy and China to expand rural RE access and promote market development. The US National Renewable Energy Laboratory, which supported that work, has also allied with Zhou and Byrne [3] who conduct a household survey to determine least-cost options for satisfying rural energy demand in western China. Martinot [17] reviews the broad portfolio of energy projects in China receiving World Bank support from 1984 to 1999 and finds that RE deployment projects align with the Bank’s key strategies for environmental protection in the energy sector. Although these papers have profiled individual RE projects, none have undertaken a comprehensive ex post facto review to discern the continuity of project benefits after project funds expire. This paper does just that for a World Bank/Global Environment Facility (GEF) supported project that concluded in 2007 and had concurrent goals of expanding RE use in China and strengthening the RE industry. Our interest in researching the Renewable Energy Development Project (REDP) is to explore post-project effects and to acquire qualitative feedback from the various stakeholders about their current circumstances. Though similar efforts were commissioned by the World Bank upon project completion, no studies have yet been undertaken to meet all stakeholder groups to gain a comprehensive view of the project’s longer-term implications. While REDP was designed to expedite the growth of both PV and wind energy, our work focuses on the PV aspect which encompassed a greater number of stakeholders and offered more tangible benefits for the rural poor. To answer the relevant questions regarding the duration of project impacts and the effects of RE subsidy withdrawal, we adopt a case study format using qualitative research methods. As such, the paper is structured as follows. Section 2 provides an overview of the research methodology used and the stakeholders interviewed during our fieldwork. Section 3 offers a brief background on other RE programs in China, followed by Section 4 that outlines REDP’s structure and its three main components. Section 5 features findings drawn from our interviews with various stakeholder groups. Section 6 discusses the findings against the project’s objectives and Section 7 concludes. 2. Research methodology and aims The REDP was selected for investigation because of several reasons. First, even through the time of the project’s start, REDP

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was the largest household PV program the World Bank had supported [25] and as such offers insights into the role of scale in program design. At a projected total sales volume of 350,000 SHSs, the project was anticipated to simultaneously create administrative difficulties and offer opportunities for economies of scale to push down production costs. Second, the REDP was able to achieve its targets even in the absence of consumer credit availability and therefore presents possible lessons to other contexts where credit is tight or non-existent. Third, REDP is a well-regarded success story in PV deployment as evidenced by winning an Ashden Award for Sustainable Energy in 2008, a leading award in the field judged by representatives from organizations including Christian Aid, Oxfam, Climate Care, and GVEP International. Our research relied on a literature review of both publicly available reports and unpublished documents forwarded to us by program staff, as well as fieldwork and semi-structured research interviews undertaken in May and June 2010. To ensure we received comprehensive inputs about the program, we conducted 30 semi-structured, in-person interviews with stakeholders involved in all capacities of the project over the course of two months: staff involved in implementation, employees at renewable energy companies, retailers in direct contact with the end users, and end users themselves. Stakeholder groups were given separate sets of questions and interviews, typically lasted 1 h, and addressed issues pertinent to REDP as well as broader questions on renewable energy in China and households’ energy use patterns. Interviews in Beijing were primarily in English whereas we relied on a translator in Xining for both Tibetan and Mandarin language support. Interviewees’ organizational affiliations are listed in Table 1, though to adhere to participants’ wishes we present specific data from these interviews as anonymous. REDP was implemented throughout western China, but resource constraints prevented us from traveling to all coverage areas to interview project stakeholders. Instead, our visit focused on Beijing (where most of the former project staff are based), Xining (the capital of Qinghai province where the top four participating PV companies by sales revenue are located), and Shanghai (the location of the two completed windfarm projects). A majority of the SHS units sold during REDP came from Xining-

Table 1 List of research interviewees. Interview participants

Date

Location

World Bank Energy Team Member Sino-Danish Renewable Energy Development Programme Chinese Renewable Energy Society Photovoltaic Committee World Bank TÜV SÜD Photovoltaic and Wind Power Systems Quality Test Center of Chinese Academy of Sciences Beijing Jike New Energy Technology Development Company Gesang Solar Qinghai Tianpu Solar Energy Company Xining Moonlight Solar Science and Technology Co. Dawa Xining New Energy Development Co. (NIDA) PV Dealers (5) PV Dealer (1) End users Nanhui Wind Farm Shanghai Austri

May 2010 June 2010

Via Email Beijing Beijing Beijing Beijing Beijing

Beijing Xining Xining Xining Xining Xining Xining Rebgang Qinghai Province Shanghai Shanghai

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based companies and from 2002 to 2007, 12 such companies were responsible for close to 70% of the total capacity sold by Wp [26]. PV retailers in Xining are primarily located in the Tibetan market and we met with more than three-quarters of the stores in operation. At the time of our visit, only one retailer remained in Rebkong, 170 km south of Xining, and she informed us that her two competitors had gone out of business. Interviewed end users were selected on a non-randomized basis since no agency maintains centralized information on household locations or which households are currently using SHSs. Interview responses are therefore intended as a case study that profiles the experience and use habits of a select group of SHS users, rather than a representative sample of all households adopting SHSs through the REDP scheme. As a result, we limited our end user interviews to households visible from the trunk roads, selected at periodic intervals, which had at least one solar panel outside the house. In Qinghai Province’s rural areas, population density is low and households may be located several kilometers away from the main road, making access to them both difficult and time-consuming. REDP evaluators experienced similar problems when attempting sales verification and later abandoned the field survey because of logistical and financial impracticalities [25]. Additionally, nomadic herders shift to the mountains in the summer for three months, reducing our overall number of potential interviewees. 3. China’s renewable energy promotion programs Before discussing the dynamics of the REDP, it is necessary to explore the legal and regulatory environment surrounding renewable energy and solar electricity in China. The Chinese government initiated several renewable energy promotion programs over the last two decades, with support from bilateral and multilateral agencies. The programs arose from poverty reduction measures and focused on coverage territory outside the scope of immediate grid extension efforts. Programs were implemented only after the initial design of REDP, which began in the mid-1990s and received final approval by the government in 1998. The Brightness Rural Electrification Program, for example, originated in 1998 and aimed to bring electricity to 23 million people by 2010, using RETs at both the household and village level [27]. The Song Dian Dao Xiang (SDDX), or Township Electrification Program was implemented across a different coverage area than REDP and employed small hydro, wind, and PV technologies to expand electricity to nearly 1 million people living in 1,000 townships in Western China [21]. The Song Dian Dao Cun (SDDC) program arose from SDDX as the second round of village electrification with a goal of electrifying 20,000 villages by 2010 [28]. Table 2 lists other major programs in operation between 1998 and 2008. While there was some overlap in target areas through ‘parallel initiatives,’ many projects were implemented in relatively more accessible areas than REDP’s targeted coverage, and consequently created less scope for overlap. For programs initiated after REDP, REDP companies were

often contracted and had already benefited from production cost reductions made possible through participation in REDP’s Technology Improvement components. Just as programs supported a variety of technologies and operated at household and township scales, the financial incentives they offered to participating companies also varied. Producer subsidies under the Dutch Silk Road program, for example, accounted for 62% of production costs, in comparison to REDP’s 20e25% [29]. Companies were selective in their participation and would sometimes forego an existing program for one with more lucrative returns awaiting implementation. This was especially the case for programs that included after-sales support opportunities [25]. In areas with available electricity, programs also competed with the existing energy infrastructure which could produce electricity at lower costs. As one former project management office (PMO) member recounted, “People are hardly aware of the Inner Mongolia Hybrid Household project. The big issue there was how to charge for the difference between coal energy and wind which is 2.5 times more costly.” 4. REDP background and organization In line with the “New and Renewable Energy Development Program, 1996e2010,” developed by the Ministry of Science and Technology and the erstwhile State Development Planning Commission, and a series of sequential five-year plans developed by the same, the World Bank/GEF designed the REDP to address prevailing concerns over the country’s rural energy sector. Of paramount importance at the time were inadequate electricity access among rural households, barriers to private investment in renewable energy manufacturing, and excessive reliance on coalbased power generation [30]. With initial targets of installing 10MW of solar home systems (approximately 350,000 units) and 190 MW of wind power across several farms, REDP would address those concerns and provide environmental benefits through avoided emissions of SOx, NOx, and total suspended particulates. GEF assistance supported the Global Environment Objective of avoiding an estimated 56 million tons of CO2 emissions by 2007, to be achieved primarily through the wind component. Aside from environmental motivations, support for renewable energy also stemmed from the economic toll of air pollution. A 1997 World Bank study estimated the total costs of urban pollution, indoor air pollution, and impacts from acid rain at 6.9% of GDP, using willingness to pay valuations [31]. The State Economic and Trade Commission established the PMO to coordinate the REDP, which as a result of government restructuring was transferred to the National Development and Reform Commission (NDRC) in 2003 [25]. Consisting of 10 full-time employees assigned to the Technology Improvement or Photovoltaic components, as well as Financial and Contracts Management, the PMO was responsible for making all management decisions at the central government level. This included tasks like selecting

Table 2 Selected PV programs operating in rural china and their estimated duration. Program NEDO PV Program Brightness Program Pilot Project IM Electrify Silk Road Brightness Program Township Electrification Program (SDDX) Renewable Energy Development Project (REDP) KfW Entwicklungsbank/Ministry of Finance Village Electrification GTZ and Department of Commerce, Tibet Autonomous Region

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

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participating companies, authorizing grant payments, and designating certification procedures for sub-components [30]. Over the course of the program they engaged in promotion efforts, like the production of TV and movie content to expand awareness about RE, as well as initiated training capacity-building courses and conferences for PV companies [32]. While the PMO was an independent body, their decisions still required approval from the NDRC and the World Bank [33] with whom they had regular contact (Table 3). Project developers from the Bank’s side were experienced in designing RE programs in the region including India’s Renewable Resources Development Project and Indonesia’s Solar Home Systems Project. As a result, safeguards were instituted in REDP to avoid replicating the same barriers to project effectiveness of earlier programs. Poor SHS performance, premature equipment lifetimes (with systems often lacking load controllers), and inadequate credit access were all previous, documented barriers that REDP’s design intended to overcome. The REDP was structured as three components e Solar Photovoltaic (PV), Commercial Wind Energy, and Technology Improvement (TI) e with PMO staff tasked to oversee both the PV and TI portions. At inception, State Power Corporation of China (SPCC) was tasked with managing the wind energy component through its Hydropower and New Energy Development Department, as it would receive IBRD financing to be onlent to the windfarm companies [30]. The initial target areas for the PV component were Inner Mongolia, Gansu, Qinghai, Western Sichuan, Tibet, and Xinjiang, and later extended to Shanxi, Ningxia, and Yunnan provinces. As of 1995, more than 9 million people were without electricity across these 10 provinces and autonomous regions which range in population density from 0.2 to 2.3 households per km2. Data from Table 4 indicates that western provinces have trailed behind national averages in rural electricity access rates by several percentage points over the described period. According to the World Bank’s Project Appraisal Document, per capita incomes in the six provinces of initial implementation were 15e43% lower than the national average in 1997 [30]. REDP did not have an explicit poverty alleviation objective aside from satisfying the energy needs of populations “that would otherwise not receive services,” though government-led anti-poverty programs operated in the area [34]. 4.1. Photovoltaic (PV) component The central priorities under the REDP’s PV component were to improve product quality, reduce production costs, and install a total of 10MWp of SHS capacity (originally over the course of 1999e2004, but in actuality from 2002 to 2007), under the three cost centers of investment, market development, and institutional strengthening. In actuality, the 28 participating companies surpassed the capacity target in 2007 and sold 11.1 MWp of SHS units.

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Table 4 Percent of rural households with electricity access. Northeast North 1991 1992 1993 1994 1995 1996 1997 1998 2000 2001

Northwest East

South- Southwest National Central average 80.00%

99.40% 99.56% 99.68% 99.68% 99.81%

96.36% 96.67% 97.26% 97.26% 98.04%

80.96% 83.46% 85.58% 85.58% 89.36%

92.83% 95.09% 97.10% 97.10% 98.91%

88.75% 90.82% 93.22% 93.22% 96.07%

79.49% 82.95% 84.76% 84.76% 89.90%

89.61% 91.33% 93.30% 93.30% 95.86% 95.86% 98.03% 98.40%

Source: [35].

The PMO verified a sales volume of at least 400,000 [25], while companies claimed an even higher unofficial figure of some 500,000 SHS sold during REDP’s implementation. SHS units 10 Wp and larger were eligible for sub-grant support and the average size of sold units gradually climbed from 18 Wp in2002 to 45 Wp in 2007 [25,36]. Annual sales data by unit volume and capacity (kWp) are plotted in Fig. 1. Initially, participating companies received a $1.5/Wp sub-grant for each SHS sold that passed certification standards. The companies pushed for sub-grants to be increased to $2.5/Wp [29], but after the mid-term review in May 2005 were instead increased to $2/Wp in compensation for the compliance costs incurred by producers in upgrading their equipment to tighter standards [25]. By the completion of the program, an average sub-grant of $1.22/Wp was distributed for the $10 million in verified sales [26]. Non-compliance penalties for improper documentation, restrictions implemented after 2005 on grants for high-capacity systems, and the exhaustion of funds led to an average grant size below the nominal rate. The PMO managed the disbursement of sales grants through several verification procedures and a claims tracking database. Penalties for failing to comply with quality standards amounted to more than $1.1 million of sales grant deductions from 2004 to 2007 [37]. Companies failing quality inspections three times were permanently removed from the approved supplier list [25]. The PMO also penalized companies not in compliance with established financial verification measures. Starting in 2004, random spot checks were conducted on-site at the manufacturing facilities and companies who failed were removed from the approved product list. This was carried out for modules, controllers, inverters, and batteries. Sales grant penalties of 10% were levied on companies whose products failed quality testing at sales outlets [37]. A Market Development Support Facility (MDSF) was introduced in June 2003. Activities supported under the facility were grouped under the three categories of market development, business development, and product development and included functions

Table 3 Overview of Renewable Energy Development Project (REDP).

Project management Key objectives

Project costs Key stakeholders

Photovoltaic component

Wind component

Technology improvement component

REDP PMO, under State Economic and Trade Commission (later NDRC)  10MW of installed SHS capacity, reaching 350,000 households  Avoided emissions  Reduction in capital costs, measured by $/Wp $96.6 million World Bank, NDRC, PMO, PV companies, retailers, end users

Shanghai Municipal Electric Power Company

REDP PMO, under State Economic and Trade Commission (later NDRC)  To improve quality and reduce manufacturing costs of PV equipment

 190 MW of wind capacity, downgraded to 21 MW during 2001 project restructuring  Avoided emissions  Reduction in capital costs, measured by $/kW $27.08 million World Bank, NDRC, Shanghai Municipal Electric

$191.95 million World Bank, NDRC, PMO, component manufacturers

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Fig. 1. REDP’s reported and verified SHS sales for 2002e2007. Source: [25].

like product promotion, financial management system improvement, and ISO certification [38]. Eligible companies were expected to pay at least 50% of project costs and submitted proposals through a competitive process evaluated by an expert team. By its closing, 30 companies benefited through participation in 190 MDSF-supported projects that released more than $880,000 in grants [38]. Advertising was the largest expenditure category and accounted for 36% of total MDSF spend. Support was provided in small amounts, averaging less than $5,000 per activity across all categories and participating companies were under no obligation to publicly disclose how the grant support affected their profits. 4.2. Wind component The initial Project Information Document prepared in 1988 anticipated 190 MW of commercial wind farms to be built. However, power sector reforms at the time split large grid authorities into provincial operators, reducing the potential customer base across which incremental costs of more expensive power could be distributed. With no guarantee that power companies would agree on the terms in the power purchase agreement (PPA), the Bank approved a restructuring of the component in 2001 and dropped all wind power projects aside from the two projects outside Shanghai which were deemed to have value as demonstration technologies.1 In the process, the wind component target was downgraded to 20 MW with a revision in the GEO expectations. Actual World Bank and GEF financing amounted to $14.5 million for the 21 MW of capacity installed at the Nanhui and Chongmin sites, as seen in Fig. 2 [39]. 4.3. Technology improvement component The technology improvement (TI) component was modeled on initiatives in Western countries [34] and designed to “accelerate technology innovation, with the aim of reducing costs of equipment available in China, while providing high-quality products and

1 A similar episode occurred in 2000 for a planned World Bank 100 MW windfarm project in Inner Mongolia. The restructured provincial utilities were unwilling to sign purchase agreements for the more expensive wind power (see [17]).

performance” [30]. The TI component encompassed both investment and institutional strengthening, the former consisting of a Competitive Grant Facility (CGF) and a Quick Response Facility (QRF). The PAD explicitly outlined which activities would be supported, such as the production of prototypes and the field testing of new equipment, and the “standard business transactions” that would not be covered, including basic R&D and license purchasing [30]. Like the MDSF, the TI projects operated on a cost-sharing basis through a Competitive Grant Facility (CGF) with companies responsible for at least 50% of activity costs. Total CGF funding of $2.8 million was awarded and 133 projects successfully completed. Since CGF applications were reviewed only annually, the QRF was established as an alternative vehicle to provide faster turnaround for TI proposals that were smaller than those submitted through the CGF. With 55 successful projects and $454,000 in grant awards, the QRF was significantly smaller and less successful than the CGF. According to the Bank’s project evaluation, the QRF’s cumbersome approval process compromised the urgent disbursement of awards and the projects funded were too similar to CGF awardees to merit a separate facility [39]. Improving the quality of SHS products on the market was a core objective of REDP. To qualify for REDP support, PV companies were required to demonstrate that all system components complied with prevailing standards. With support from an international expert, the PMO created a PV Technical Standards Committee which outlined all technical specifications for sub-components, such as the solar module, inverter, controller, battery, and DC lights. The PMO then acted as the intermediary to connect qualified suppliers with PV companies [30] and circulated the technical guidelines in 1998 to national and international companies. Along with a laboratory based at Arizona State University, four centers e Tianjin Institute of Power Sources (TIPS), Post and Telecommunications Industry Products Quality Surveillance and Inspection Center (PTPIC), National Center for Quality Supervision and Testing of Electric Light Sources (NCQSTL), and Shanghai Institute of Space Power Sources (SISP) e were selected to conduct product testing, with funding available through TI grants for manufacturing companies to have their products tested. Other institutes were later added, such as the Photovoltaic and Wind Power Systems Quality Test Center (PWQTC) of the Chinese Academy of Sciences. In addition to testing random product samples in the laboratory, engineers would travel

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Fig. 2. Wind turbines at Nanhui Wind Farm, south of Shanghai.

to the western provinces to obtain products for quality inspection and stage spot checks at manufacturers [37]. One of the hallmarks of REDP was the Golden Sun label which initial project documents did not feature. In response to companies applying unapproved REDP labels on their panels, the PMO developed the Golden Sun label which certified compliance with REDP’s standards which were gradually tightened across the project’s duration in response to manufacturers attaining higher quality levels. The first standard to be implemented was the “Photovoltaic/Wind Hybrid System Specifications and Qualifying Requirements” standard, developed in 1998 by the standards committee. The following year, revised procedures were released that addressed minimum requirements for each system subcomponent. The REDP PMO observed that many sub-components outperformed the minimum requirements and in 2003 issued a new national standard [37]. These were again replaced, and in December 2005 the “Solar Home Systems Implementation Standard” took effect and was modeled on the international standard for SHS quality, the IEC 62124, and its local adaptation, GB 95351998. The rationale for this standard was to focus on system quality, which does not necessarily follow from all components exceeding quality benchmarks [37]. One employee at TÜV SÜD explained that the Chinese government will adopt a Mandarin translation of the IEC’s third version. 5. Research findings This section presents our research findings, focusing exclusively on REDP’s SHS component since it was oriented around rural electrification with anticipated direct, end user benefits to households lacking electricity access. In contrast, the wind component was commercially driven with the resulting power to be fed into an existing grid network. 5.1. PV companies Even before REDP’s introduction, China’s domestic SHS market was active and competitive. By 1999, at the time of the Project Appraisal Document’s preparation, approximately 90,000 PV systems were in use. According to pre-implementation data, the top four companies jointly held a 36% market share and most of these companies had been in existence for less than two years. In the target areas, 25 public and private companies were selling SHS and the 17 companies responsible for 90% of SHS sales were invited

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to participate in REDP [26]. One PMO member stated that “preproject growth in the PV market was strong, but the companies in operation before the project started were at risk of collapse.” Another PMO staff elaborated that “In the six year period before REDP, companies heard about the program and ramped up business or set up shop. This explains some of the rapid growth before the project began.” Insufficient access to enterprise capital was seen as a key impediment for the PV companies and hence why the MDSF and TI components were widely welcomed by participating companies [40]. A different marketplace has emerged with the completion of the technical assistance and the PV sub-grant program. In our interviews, several companies claimed an overall increase in sales despite low annual growth rates and contracting profit margins. Firms near-universally stated that the market for SHS has already reached its saturation point and that their domestic sales volumes have been on the decline. Company representatives connect this to current market conditions where households lack the liquidity to upsize their existing systems and the increasing number of communities that are receiving, or anticipate receiving, grid connections. Another explanation is that household load requirements have not increased enough to justify the purchase of new equipment. While demand for SHS units from herder households will persist, this has been insufficient to draw SHS sales upwards. Additionally, the Bank identified competing donor PV projects and subsidy-laden government programs as contributing factors to the decreased SHS sales of 2006 and 2007 [40]. As a result of their REDP experience, several companies have won contracts for efforts similar to the REDP such as the Qinghaibased Three Rivers Project [25]. Considering the shrinkage of the domestic commercial market, the contract market of sales to government bodies purchasing large volumes of units for traffic lights, streetlamps, communications systems, and groundwater pumping for irrigation has provided an alternative growth market. Exports of technology to regional Asian and European markets have provided another, with some participating companies bidding for World Bank supported PV programs outside China. While the World Bank evaluation team states that the contracts would have been awarded even if TI support was not available, their REDP experience instilled a culture of quality that increased the likelihood of success [39]. PV companies are also independently expanding their exports and looking to international markets to compensate for slackening domestic sales. Interviewed companies indicated existing or proposed inroads to countries including Kazakhstan, Myanmar, and Nepal whereas PMO results from 2008 indicate a significantly broader geographic sweep. 5.2. SHS retailers In addition to hearing firsthand from end users how they use and do not use SHS, we interviewed five Xining dealers, one of which is picture in Fig. 3, and the sole operating dealer in Rebkong, Qinghai Province. No shop was exclusively dedicated to selling SHS equipment; each shop featured a variety of electronics, Buddha statues, hygiene products, and apparel among other merchandise. Their primary customers are nomadic herders and dealers rely on word of mouth and repeat customers instead of advertising. Still, customers may ask for specific brands like NIDA or NIMA who advertise on the radio. As many nomads have been using solar for more than a decade, customers often do not need information about systems or assistance in their installation and care. Several shops operate on concession agreements with the local PV companies, sometimes through exclusive arrangements. One owner stated that he keeps no sales records, only delivery

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5.3. SHS end-users

Fig. 3. PV retailer in Xining, Qinghai Province.

records, and weekly payments are made to the supplier based on inventory levels. Consequently, dealers claimed to not be able to provide average sales data, but did still remark that sales dropped during the summer season when herders are away. At least one shop has recently begun selling 2.5 W solar lanterns at RMB 100 apiece. When asked whether customers choose systems based on quality or price, shop owners provided views contradicting feedback from end users, and claimed that quality was the more important criterion. Store-owners had at best heard about Golden Sun, but none actively promoted certified products on the basis of proven quality. Retailers informed us that they effectively followed the warranty guidelines extended by the company, typically 10 years for the panel and 1 year for the battery. Dealers themselves provide after-sales support which in itself is sufficient reason for the sole shopowner in Rebkong to maintain her business. She told us, “I cannot stop selling solar products because I am the only one in this area who is. I must provide a guarantee for the warranty of these products. Otherwise people know where I live and would find me.” The same shopowner who has been selling solar for 15 years cites growing access to county hydropower as contributing to a recent decline in SHS sales.

As part of the project evaluation process, local consultants conducted face-to-face interviews in 2007 with 1,203 households in the Tibetan Autonomous Region and Gansu Province. Of this sample, 69% were PV system users and 31% without electricity access. Survey questions addressed usage patterns of the SHS and time-use behavior of various members in the household. They encountered accessibility challenges when attempting to visit selected locations as well as translation difficulties since consultants were not from local ethnic groups. The survey intended to highlight differences between SHS adopting households and others, but suffers from several shortcomings. For example, the study states that interviewees were selected randomly without offering further information about how this was performed. Their analysis did not control for non-SHS factors that could contribute to observed changes, such as uneven development, education programs, or the effects of poverty alleviation programs referred to in REDP documents. Despite these factors, the evaluation team concluded that SHS use had a positive effect on household income for more than 53% of respondents. Among other benefits, they also estimate improvements in family communication levels, increased workable hours, and improved access to information through radio and television. Use of alternative lighting sources, such as ghee and kerosene lamps, declined as a result of SHS penetration [36]. Conversely, Meier (2008) uses the same dataset and finds no difference in per capita income between households with and without SHS, as well as overall increased demand for dry cells among SHS adopters, as depicted in Fig. 2. With the same survey data, the World Bank concludes that “there are strong indications that poverty impacts have been achieved among a considerable number of people” [39] (Fig. 4). The REDP survey featured a contingent valuation study across a smaller respondent pool of 372 non-SHS users including those who have never owned an SHS and those who are former users. Again, neither the method for household selection nor price elicitation was disclosed. In spite of this, 88% of surveyed non-users indicated willingness to pay ceilings of RMB 1000 or lower for PV products in excess of RMB 10,000 [42]. Respondents stated that government subsidies were a necessary but still insufficient condition for system purchase. When the same question was asked about products exceeding RMB 1000, 97% of the 182 respondents stated a WTP of RMB 500 or lower. This contrasts with the average REDP sale which was of an 18e25 Wp SHS to either an animal herder or farmer for RMB700-1000 [39]. Fig. 5 depicts the average selling price of an SHS over time, with the 40Wp and 50Wp systems seeing the largest 2002e2007 price reductions, at 35% and 24%, respectively. To supplement the Bank’s own evaluation, we interviewed end users in various parts of Qinghai province, including Dulan, Henan, Nima Te, Zekog, and Zeku Counties. They are primarily nomadic herders, as in Fig. 6, with at least one household member spending summer months in the hills. More often than not they had never heard of REDP since the retailers themselves did not advertise the systems as part of the REDP scheme. Compared with results from the 2007 survey, responses we received by interviewing end users were consistent for some questions and divergent for others. For example, our interviewees expressed significantly lower interest in listening to the radio and stated greater benefits of SHS ownership through lighting and electricity for mechanical milk separators (see Fig. 7). In contrast, the ICR states that butter separators were present in only 1% of households surveyed in 2007, or 15% as per a similar survey conducted in Qinghai, Tibet, and Xinjiang. Endusers would typically not carry out maintenance on their panels

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Fig. 4. Change in monthly energy consumption among SHS users after SHS purchase, by quintile. Source: [41].

which were by and large positioned near the entrance of their house at an angle. We saw no units using azimuthal tracking nor did herders discuss changing the panel’s orientation to increase its efficiency. In the site areas we visited, PV adoption was near universal though not all units were operational. Households with SHSs in poor condition cited various reasons for postponing maintenance and repair. One user told us that wind had blown away and broken his household’s panel which had powered their TV and lighting for the previous seven years. Because Xining was the nearest location for repairs (yet still a day’s journey by bus), they had not been able to get it fixed. One shopkeeper we interviewed in Henan County had received an SHS from the government four years earlier. She said the battery was not fully charging, but had not replaced it because of prior experiences purchasing batteries that also performed poorly. We cannot

determine to what degree improper usage has reduced the equipment lifetime of interviewed households, but the several stories of dissatisfaction with SHS performance demonstrated fixed beliefs about equipment unreliability and risk aversion to new purchases. As per other purchasing habits, the interviews indicated a mismatch between consumer demand and the PV certification program. Former PMO staff have stated that end-users are making decisions based on price alone, a belief confirmed by end users who expressed no preference for particular brands or models. Only one interviewed end user had heard of REDP and recalled a neighbor who had purchased an REDP-affiliated SHS, indicating that the quality improvement benefits of REDP and Golden Sun-approved systems were not a key selling point for Qinghai end users. This may be idiosyncratic to Qinghai Province where retailers may

Fig. 5. Average SHS prices across time, in real RMB (2002). Source: [40].

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Fig. 6. Nomadic herder using SHS in Qinghai Province.

commit fewer resources to advertising than retailers in the other targeted areas, or because repeat customers have grown to expect systems whose performance is imperfect and therefore have less trust in the benefits of a certified SHS. We asked SHS users which they would prefer if they had the choice between an SHS and grid electricity. This is a timely question since the areas in Qinghai we visited are becoming increasingly connected to electricity generated from mini-hydropower. Maintenance requirements, “system replacement every 10e15 years,” and overall unreliability are downsides that interviewees associate with using SHS. Others stated that both are necessary, a grid connection for the winter home and an SHS for their nomadic needs. As discussed in several of the REDP documents, nomadic herders bring SHS to provide lighting for when they summer in the mountains. There they collect Cordyceps Sinensis, an ingredient in traditional Chinese medicine also known as caterpillar fungus and frequently priced higher than RMB 100,000 per kilogram, as well as other herbs. Since they may travel to the mountains for weeks at a time, the SHS provides services matched to their mobility that

a fixed grid connection cannot. We also visited brick-constructed winter homes that were grid-connected to local micro-hydropower projects and in some cases an SHS would provide supplemental power. Xining SHS dealers told us that beekeepers also purchase SHS units, usually under 50 W, and use them only for lighting.

6. Lessons learned World Bank evaluations of REDP have appeared in three separate products: the Implementation Completion and Results (ICR) Report, the ICR Review, and the Project Performance Assessment Report. All reviews rated the outcome, bank performance, and borrower performance as satisfactory or moderately satisfactory, and provided feedback on REDP’s practices and evaluation methods, as well as suggestions for how these areas could be improved in future projects. We agree with many of them based on feedback from our stakeholder interviews and other information available from available REDP documents.

Fig. 7. An SHS-powered electrical milk separator in Henan County.

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What, then, can we learn from the experience with the REDP? The identification of success factors is of paramount interest in REDP documentation and the broader literature on SHS programs, but the numerous endogenous and exogenous forces complicates the attribution of causality. Bidirectional relationships are also present. For example, project success in early stages likely contributed to the passage of the 2005 Renewable Energy Law which in turn may have fostered greater investments in product quality and the development of effective business models. As well, the Bank’s Internal Evaluation Group in their Project Performance Assessment Report fault earlier evaluation studies for using evaluation techniques too weak to validate causal factor hypotheses. The following points therefore do not attempt to tease out causal relationships, given the nature of our case study methodology, but rather emphasize key points relevant to the project that also have application to other SHS projects and energy assistance programs in developing countries. 6.1. Credit access The PMO was originally tasked with investigating, recommending, and supporting mechanisms that would encourage consumer credit access for purchasing SHS. Various intermediaries were to be considered, including consumer banks, rural credit cooperatives, and the PV companies themselves [30]. However, the credit pilot was dropped in September 2005. Despite this fact, the project successfully achieved its numerical targets of cumulative PV capacity installed, production cost per Wp, and number of SHS units sold. Onlookers not involved in REDP’s implementation might then ask if the targets were ambitious enough, or if raising them would not have also resulted in even greater sales. As Bank evaluations have indicated that approximately 2 million people have directly benefited from SHS access through REDP, that means some 6 million people, according to IEA figures, still are without electricity access (albeit not necessarily in the targeted provinces). Had consumer credit access been made available, perhaps the number of beneficiaries would have increased. While some interviewees claimed that rural Chinese, both Han and ethnic minorities, are averse to borrowing, recent studies indicate that micro-finance and rural finance channels have been effective instruments for economic empowerment. Tsai [43] cites the typical barriers like high service provision cost in isolated areas and state promotion of industrialization strategies to the neglect of rural development as factors contributing to a supply shortage of credit and formal, rural financial institutions. Likewise, Tang et al. [44] find formal credit constraint through on-site interviews in Heilongjiang Province, due to lower payment flexibility and higher transaction costs in comparison to the available informal credit markets. The authors are unaware of literature that identifies cultural predispositions as significant factors resulting in rural credit constraints. Just as retailers and PV companies stated that end users are gradually upsizing their SHS units as growing household incomes allow, PV companies also plan on increasing the size of their products. Several interviewees identified 3 kW and larger, gridconnected systems as the future of their businesses, not SHS units. They also expressed interest in receiving technical assistance to help with product development in new areas like solar pumping systems, solar lanterns for parks, and building-integrated photovoltaics, which paid consultants could provide. Getting to that point requires financial assistance and companies said they would like to see enterprise credit facilities that would lend on the scale of RMB 3e5 million with repayment terms stretching beyond five years. Consequently, assuming the companies in question are indeed credit-worthy, rural credit constraints have impeded both end user and corporate investments in capital stock. It is worth speculating

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what the current state of formal credit availability would be for such lenders had a stronger push for rural financial services been made during the early stages of REDP. This is especially pertinent given the aversion commercial banks in other countries have had in lending to RE projects or R&D activities, because of asymmetric information about project risk and regulatory uncertainty. Were these channels to have been established earlier, lenders would have had a longer period of time to gain familiarity with the RE industry and increase their lending willingness. 6.2. Effects of SHS ownership on poverty As discussed, REDP-supported studies on the effects of SHS ownership on income and development indicators were compromised by research designs with weak predictive power. More robust results would require using methods like randomized controlled trials (RCTs) that control for sample-specific factors biasing the results. While RCTs encounter ethical criticisms for withholding intervention from the control group, any SHS deployment project likewise is selective in geographic area or income level and therefore this is not a valid concern. The authors can find no examples of RCTs applied to SHS deployment, but studies of district solar power in Benin [45] and solar ovens in Senegal [46] have been conducted. A shift towards RCTs would provide evaluators greater certainty about the transferability of impacts, positive and negative, from SHS ownership. 6.3. After-sales service Improving the quality and availability of after-sales service at the township and provincial level was another core objective of project developers, but from our interview responses with end users indicated that service channels were weak. Damaged or partially operating systems were common among the households we visited and end users appeared to possess inadequate knowledge about proper system maintenance. Because retailers in these areas were the primary service centers, operating at the countylevel and therefore oftentimes remote from rural nomads, to repair a damaged SHS would incur transportation costs and time. According to the 2007 survey conducted in Gansu Province and Tibet, 38% of respondents cited difficulty finding manufacturers as a reason for stopping SHS use [42]. Further research is therefore needed to investigate what after-sales service models are most pragmatic, given low incomes and dispersed populations. Instead of end users outright owning SHS, and therefore devising subsidy schemes to make their capital costs affordable, rural energy service companies (RESCOs) and other leasing or fee-for-service models [16] may be more palatable and increase the number of SHS users. Advocates of fee-for-service arrangements would argue that end users ultimately only need the energy services an SHS provides, not the physical equipment. As a result, such business models include after-sales care as part of the service agreement, potentially solving the issue of barriers to service access. 6.4. SHS as a transition technology The SHS usage habits of REDP beneficiaries highlight the nuanced relationship between off-grid households and the electricity grid. For some, SHS provides a temporary solution en route to higher wattage power sources such as grid-fed electricity. However, this is not necessarily a linear progression; many, if not all, households in the surveyed area will eventually be connected to the grid through small-scale, local hydropower, though some interviewees expressed skepticism about the reliability, cost, and timeframe for receiving a connection. One household in Henan

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County explained that she was awaiting the installation of a meter and fuse and had not been informed by the power company when this would be completed. In the meantime, she expressed satisfaction with her SHS, though believes that her “life will change when the grid is connected,” reflecting a sentiment shared among other end users that grid connectivity will enable them to power multiple appliances that were not possible with SHS alone. Even when that happens, SHSs will not be entirely phased out, but will instead complement grid electricity. Nomadic herders demonstrate this through their SHS usage while in the highlands and grid use when living in their winter homes. In this regard, SHSs cannot be interpreted as a transition technology since they are not phased out with the advent of grid electrification. On the other hand, nonnomadic rural users who gain grid access may no longer need their SHSs. For these users, SHS deployment projects provide a stream of benefits up until that point. As evidenced by the REDP surveys, the broader literature on SHS impacts, and our interviews, SHS provision enables immediate access to lighting and other energy services, such as milk separation, with potential increases in household income. SHSs that become redundant before the end of their operating life because of grid connectivity have a shorter window of accrued savings from avoided kerosene or candle purchases, decreasing their cost-effectiveness. At the same time, forgoing the implementation of SHS programs on the grounds that SHS use will eventually yield to grid electricity keeps households reliant on primitive fuels and subject to the uncertainty of when infrastructure will actually be installed. 6.5. Focus on whole-cycle quality improvement REDP successfully executed a “start to finish” quality process in that it established manufacturing standards and practices, facilitated access to product certification, and introduced a randomized testing regime which penalized companies at the production-line and retail stages for non-compliance with system performance requirements. These efforts strengthened the quality of SHS at multiple ends of the supply chain. This start to finish aspect is a key contribution of REDP, without which SHS sales may have accelerated anyway (since a growing market already existed and numerous other rural electrification projects were ramping up operations in neighboring areas), but might have stagnated in later years without lasting product quality improvements. It is also likely that participating companies would not have as quickly entered export markets had the quality standards not been imposed, especially those markets where IEC compliance is a threshold requirement. 7. Conclusion The Renewable Energy Development Project exceeded its targets of installed PV capacity, met its revised targets for commercial wind energy, and contributed to renewable energy suppliers manufacturing products in compliance with international standards, enabling them to enter export markets. While some of its 2 million SHS beneficiaries would have ultimately received SHS units from other programs, or gained grid connections, the project expedited the process in areas where energy poverty had become chronic and widespread. The relative contribution of REDP to China’s evolving RE policy landscape is difficult to measure, but likely played a significant role in highlighting RE’s merits in combating air pollution, offering energy amenities to households reliant on less modern energy carriers, and supporting the development of the country’s growing RE industries. The NDRC, for example, in 2007 instituted cumulative PV capacity targets in remote rural areas of 150 MW by 2010 and 300 MW by 2020 [4]. At

the same time, the SHS experience of beneficiaries is far from universal, with some end users very satisfied with their systems and others holding onto damaged units with no expectation of undertaking repairs. As with other SHS deployment programs, the after-sales service component of the REDP was one of the more neglected aspects of project execution, most likely because profit margins on servicing are low and project designers were preoccupied in the pre-project phase with the marketing and delivery aspects of the project, dedicating less attention to what follows after the SHS units have been installed. Though the evidence we gathered in Qinghai Province is anecdotal, it seems unlikely that the challenges of equipment maintenance and repair access there are unique. Towards that end, SHS users would benefit from greater information about system care and maintenance to reduce the incidence rates of damaged systems. As some herders have relied on solar energy for more than a decade, retailers may falsely assume that all customers have familiarity with the technology (or at least have neighbors who do), and therefore consider such information irrelevant. Still, interviewed end users demonstrated imperfect knowledge about how the system functions as well as how they can derive the greatest benefit from an SHS, hence we believe providing this information in the local language would not be superfluous. We also see scope for expanding the number of local outlets or mobile service workers who possess the necessary skills and access to spare parts to fix damaged SHS units. Further research is merited to investigate the barriers preventing this from naturally occurring and exploring interventions that might improve the affordability of procuring spare parts and training such individuals. Given that REDP surpassed its PV targets, exhausted its TI and MDSF funding, and contributed to China’s evolving RE policy environment, the weak after-sales support component seems anomalous. REDP was highly successful in demonstrating the value of SHS ownership and strengthening the fledgling PV market to improve their business operations and technical capacity through product development, testing, and certification. As evidenced by our interviews with PV companies, they are becoming internationally competitive with exports comprising a growing share of their revenue, made possible by the introduction of quality standards and adherence to international certification criteria. Companies benefited from knock-on effects, not only by transferring technology advancements from the TI component to nonSHS product lines and improving their competitiveness, but also leveraging these gains to win SHS contracts both inside and outside of China. Though an untestable hypothesis, the words of one interviewee are likely to hold true; the synergy of simultaneously focusing on industry strengthening, tightening quality standards, incentivizing sales into remote areas through PV sub-grants, and showcasing the value of SHS through road shows and videos was responsible for REDP’s success. As such, a key takeaway for PV deployment design consists of identifying each stage of the project life-cycle, from product design to after-sales care, and devising components that target the stakeholder’s immediate needs without fostering long-term dependence. Acknowledgements The authors are appreciative to the Centre on Asia and Globalisation and the Lee Kuan Yew School of Public Policy for some of the financial assistance needed to conduct the research interviews, field research, and travel for this project. The authors are also extremely grateful to the National University of Singapore for Faculty Start-up Grant 09-273 as well as the MacArthur Foundation for Asia Security Initiative Grant 08-92777-000-GSS, which have supported elements of the work reported here. Any opinions,

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