Dealer Model

A dealer-sales model means that a dealer purchases systems or components from manufacturers and sells them directly to households, usually as an installed system. The customer owns the system and is responsible for maintenance following whatever warranty period is provided by the dealers/manufacturers. Dealers can be private companies or NGOs. This more market-oriented business model works well in areas in which an existing marketing and financing infrastructure is already established. Commercial marketing channels, firmly rooted in the private sector, can offer services in a competitive and efficient manner. These commercial markets may be more responsive to consumer requirements and can offer a broader array of products than ESCOs. Dealers can sell there systems on cash and on credit basis.

With the dealer model, a key issue to address is how to make the systems more affordable to rural households. Two main approaches have been tried: 1) offering rural consumers low-cost, small-scale solar home systems on a cash sale basis that are affordable for the low-income population; or 2) providing rural households with consumer credits. In China, which has been the leading example of sales of small size systems, the average size of the 40,000 certified systems sold per year is 18 Wp, reflecting the low buying power in remote areas of Western China. These are plug and play systems that are sold over the counter, and thus do not require the costly installation by a trained technician as is the case with larger systems. In Kenya and Uganda, experience has demonstrated that it is an effective approach to disseminate solar home systems in very poor areas or countries by deepening market penetration in the household segment with certified systems by focusing on sales of affordable but also good quality smaller size systems. For an example see China case study. 

If the systems are sold on a credit basis an agreement is reached between the dealer and the finance organization. In Sri Lanka this is a formal agreement in the form of a signed Memorandum of Understanding currently used by 11 solar companies and four finance organizations. The key characteristics of the agreements include duties and responsibilities of the two organizations; allow parties to exit for valid and good reasons; stress importance of consumer satisfaction; allow dealers to work with other financiers; potential clients are directed by solar vendor; predetermined processing time for credit approval, system installation and releasing of payments to dealers; buy back option with the supplies when customer defaults or grid power is obtained; after sales services procedure especially during period when finance facility is active; and, reporting requirements including model name, number and retail price of SHS. In the case of a loan, the SHS is used as collateral together with two guarantors. To select a potential client the sales person and the loan officers have a set of criteria in mind. These include: size and appearance of house; client should be the resident and owner of the house the panel will be installed on; clients repayment capacity (main source of income and other sources); customer reputation in the area; customer should be holder of a national identify card; monthly rental not to exceed 40% of the net monthly income of households; ability to pay down payment (15%); other assets of the customer (movable & immovable); and two guarantors with same income criteria and in possession of national identify card. The average loan is US$450, with an average duration of 35 months, a 14% annual interest rate and a monthly payment of about US$12. Under these circumstances more than 70,000 rural household have taken out a solar loan. In other countries, the MFI can also be a dealer. This is for example seen in Bangladesh by Grameen Shakti.

Once the dealer model is established, it is robust in many ways. Most importantly the dealers’ revenue is directly retrieved from the rural market which requires the companies to continue to ensure customer satisfaction. Low customer satisfaction not only undermines the long term growth of the industry but increases the immediate risk of reduced willingness to repay loans by the end users. It also distances the industry from political interference even though the industry in many countries seeks a public endorsement (possibly with a small co-financing grant) from the government to increase trustworthiness of the system.    In countries were the industry is not yet established, experience shows that it is enough of a challenge to start a solar business. The idea to also sell stand alone systems on credit out of the company has failed in many occasions. Providing credit is a separate line of business and is better done by specialized organizations. Successful establishment of the dealer model requires a strong commitment from the parties involved for the long term. The learning curve for all parties is steep and often requires several years before sales and service provisions have reached a level where the companies can break-even or make a profit. Early withdrawal by any of the parties could leave substantial investments without returns. In particular, larger scale procurements out of Government or donor programs could provide the dealers sufficient incentive to make a quick return undermining the building of a rural infrastructure and after sales service system.

UNEP has supported the preparation of a Toolkit for Energy Entrepreneurs.