WHAT IS A VPU?
A Virtual Power Utility (VPU) is a system of distributed power generation installations, such solar photovoltaic (PV) power systems, wind-turbines, and small hydropower units, the units of which are individually operated, but are linked to a central business for bundled services, including leasing (and eventual ownership), installation, technical support and billing. In this paper, we are providing an example in solar energy for lighting, water heating, running small appliances and lifting water for drinking and irrigation purposes.
The closest relatives of this business model in Pakistan are community-based microhydel units and power utilities promoted by Aga Khan Rural Support Programme (AKRSP) in Gigit-Baltistan and Chitral (GBC), and biogas units promoted by Rural Support Programes Network (RSPN) in Punjab.
Solar technology has come a long way in terms of advances in technology and cost, but it is still relatively expensive, especially for low income households to pay an upfront amount of say, PKR 30,000 for a water geyser, about PKR 20,000 for a domestic lighting unit, and a higher amount for a solar water pump. Amortizing the capital cost and staggering the payment over a 3-5 year period brings the cost down to a near equivalent of the monthly bills for electricity, and after that it is free.
High cost of conventional energy sources
The cost of grid-supplied electricity is escalating month by month, year by year, and the supply is increasingly unreliable, as small towns and rural areas are experiencing power outages for 15-18 hours a day, and this situation is likely to get worse in the foreseeable future. The loss of business and the opportunity cost of idle workforce, adds to the overall cost.
Climate change mitigation and carbon financing
Globally, climate change has emerged as a serious challenge and Pakistan is among the top ten countries vulnerable to climate change in, such as extreme weather swings, inducing floods and droughts. Pakistan needs to reduce its dependence on the import of fossil fuels to generate electricity, or purchases from private companies and rented plants at very high cost, and borrows money to pay for it. The burning of fossil fuels emits more CO2 emissions that contribute to global warming and climate change thus, we are digging a deep hole for ourselves and for our generations.
The solar option gives us a way out of our predicament, and a chance to get out of this hole. Being a semi-arid country, Pakistan can harness its huge solar energy potential. Specifically, a viable CDM project can be developed around this business and the resulting carbon revenue can further reduce the cost of solar units to the end consumers.
A TRIPLE BOTTOM-LINE UTILITY
Under the right policy conditions, this can be a viable business to provide clean and reliable electricity to potentially tens of millions of consumers in Pakistan at affordable prices, remain solvent and ensure wider social and environmental benefits to the society. The business idea involves installing, maintaining, and repairing solar PV power systems, water geysers, solar water pumps, and high energy-efficient LED lighting solutions, for lighting and running of appliances in individual homes and businesses or small clusters. The capital cost will be amortized over several years, and consumers will have the option to determine their own monthly “utility” installments and associated amortization period. The business will team up with a microfinance institution for financing, and a mobile phone company for monthly payments using a mobile phone. The technology will be sourced from competitive suppliers.
The utility business can install, maintain, and repair solar photovoltaic power systems of different capacities for a range of end-uses, including lighting, heating, cooling, refrigeration, running appliances, water lifting and heating, among others. The business will concentrate on social marketing or its services through community organizations (COs), Local Support Organizations (LSOs) and other mission-similar professional civil society organizations (CSOs), for greater outreach and coverage of rural and urban populace.
The solar system components can be ordered in lots from reliable manufacturers on competitive basis and installed in individual homes, businesses or clusters thereof. After installation, the business should provide scheduled maintenance and necessary repairs on the systems. The business can recruit installation /maintenance crews from the user groups themselves, who will be trained. Consumers will be given simple maintenance manuals and mobile phone number of nearest maintenance supervisor for easy access. As the number of installed systems increases, maintenance needs will create demand around geographic clustering of the systems. At that point maintenance services can be ‘privatized” to trained individuals in that area, thus creating jobs through useful and demand-driven services.
The contributor is the former CEO of AKRSP. He can be reached at email@example.com