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Financing Village Electrification

Demand for electricity in industrialized nations, with well-established electric power systems and relatively steady per capita electric consumption, is unlike the increased demand experienced by the developing nations. As rural electrification continues to assume global proportions, the world's population grows. Well into the next century, the axiom that eventual demand outpaces current demand will surely to be true for electrical consumption. Still, there is long term potential for profitable business, only if local economies can afford to pay an asking price above real cost of supply.

Therefore, any source of electricity must compete economically, with delivery technologies that both reflect and satisfy local demographics. Power for water delivery to agriculture, access to telecommunications, area lighting, widescale education as well as dental and medical attention combine to provide the roots of economic growth. Over the next decade virtually all of the developing countries will account for increasing shares of installed electric power.

Internationally, electricity is industrial society's prehensile appendage, limited only by its marginal cost of delivery. Currently local needs, fossil fuel prices, as well as initial costs for conventional and renewable technology systems, combine to determine the types of electric plants to be built. Electric power delivery is highly capital-intensive, and therefore the major requirement, for the foreseeable future, is capital.

Availability of credit / financing
Historical perspective
In the years before World War II, most capital for electric plants was financed through private means. Most power companies were privately owned and sought foreign and domestic markets for their capital needs.

After the war, popular demand combined with widescale government recognition of the electric delivery sector to champion economic growth. This paradigm shift resulted in a massive trend, in the industrialized nations, toward electric companies becoming state and municipal enterprises, thereafter relying on government programs and credit to finance expansion.

In the developing countries most installed base of power delivery systems received substantial support from the World Bank as well as other multi and bilateral funding institutions.

As the developing nations urbanize and industrialize, the capital requirements for electric power accelerate compared to those for rural societies just beginning the growth process.

This accelerated growth has traditionally placed huge demands on the limited resources of the public sector. between 2000-2002 it will not be unusual to see as much as one-third of all public investment resources going to electric power.

There are advantages and disadvantages to relying on public-sector ownership and public-sector credit. For example, in many developing areas, isolating the power sector from the inefficiencies of local government has been very costly. In such cases, inadequate maintenance of capital-intensive equipment has resulted in equipment losses compounded by the loss of output revenues to local industry, compounded by loss of critical electricity to power local industry.

Lessons learned from early prototypes show most advantages gained have been due to proper systems integration, followed by local infrastructural development & training blended with ongoing monitoring and maintenance programs. When these latter components are financed in the original mix, alongside initial capital requirements, there is a higher likelihood for project sustainability.
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