La Esperanza
Began: In 1999, CISA was established as a Honduran corporation by two small electric
sector companies (Honduran enterprise SIMET and Canadian enterprise UEE), for the
explicit purpose of owning and operating small hydro generation facilities in Honduras
and other Central American countries. CISA selected La Esperanza as its first project for
development in Honduras.
What: La Esperanza is a 13.5 MW run-of-river hydro facility located in Intibuca, in
western Honduras. It was built in 3 stages (stages 1a, 1b and 2) over several years using
each stage to demonstrate success and generate positive cash flow.
The Energy Need: From the outset, CISA sought to address both local and national
needs, while generating a business opportunity by rehabilitating an old hydroelectric
plant. The site, known as “La Pozona”, is located in La Esperanza’s communal lands and
had been abandoned in 1969 when La Esperanza’s power supply was integrated into the
national grid. The quality and reliability of power supply in the 10,000 inhabitant town
was poor due to the long distance to the substation from which ENEE (the national utility)
was sourcing it. CISA negotiated with the Municipality the land rights to the hydroelectric
site in exchange for undertaking several measures benefitting the community; these
included: repairing the access roads to the powerhouse, watershed forest protection, direct
and indirect job creation, and balancing the electric system by injecting power locally into
the grid, thus increasing the quality of electric services to La Esperanza. Additionally,
CISA committed to contribute resources for the extension of the grid for two additional
towns Santa Anita and San Fernando (750 inhabitants), which lacked access to electricity.
At the national level, Honduras was facing a strong energy supply crisis. Following
extreme shortages in 1993, the country had increasingly become dependent on fossil-fuel
generation that could be brought online quickly. This in turn drove up the cost of
electricity for the utilities and end users. By 2000 the country was using emergency plants
for generation.
E+Co Investment: $1,250,000 in two loans and one equity investment, starting in 2003.
Business Development: Business planning assistance provided by E+Co in 2003 as
well as help assessing and quantifying carbon offset potential, preparing the project to
become the first registered provider of Emission Reduction Credits under the Clean
Development Mechanism.
Now (2008): La Esperanza has now completed all major generation projects and is
continuing to operate profitably, paying down its debt obligations and performing routine
maintenance.
Outcomes/Impacts: La Esperanza now provides clean energy to the national
distribution company, ENEE. ENEE distributes the energy to its country-wide customer
base. The energy provided by La Esperanza is sufficient to supply over 12,000 customers.
The quality and reliability of electric service has been significantly improved for the 10,000
residents of the La Esperanza area. Additionally, 150 households in the neighboring
villages of Santa Anita and San Fernando are now connected to the grid though the
contribution of La Esperanza and other supporting organizations (including ENEE and the
World Bank). 75 jobs have been created; over 200,000 trees have been planted; and a
micro-lending program was started for CISA’s workers. In 2005, La Esperanza became one
of the first two projects worldwide to receive Emission Reduction Credits (ERCs) issued by
the Clean Development Mechanism. La Esperanza’s carbon offsets were estimated at
approximately 37,000 Tons CO2e/year.
Lessons learned:
1) Integrate local needs realistically
2) Start small
3) Establish alliances
1) Integrate local needs realistically:
CISA’s developers understood all along that the neighboring communities would be an
important stakeholder throughout the life of the project. They strove to develop a project
in a way that brought added value to the quality of life of the surrounding communities.
More importantly, they sought the input of the members of the communities about what
their specific needs were and the ways in which the project could work with the
community to address specific needs.
This is often a complex issue, because developers often fear that communities will make
unrealistic demands in exchange for supporting the project. These demands are often
rooted in their perception that the project is a “cash cow”, a view that overlooks the heavy
burden of debt service in the initial years of a project’s cashflow, particularly when the
developer is a small enterprise. This situation sometimes leads developers to try to avoid
as much as possible addressing communities’ perceptions of their local needs. Instead,
developers often make the argument that communities should see the project itself as a
local benefit, because it will generate clean energy needed by the country, provide local
employment (although the majority of the jobs are only for the construction period) and
yield other local benefits as a result of the construction process, such as the improvement
of some access roads.
CISA’s approach to working with communities seems to have achieved a reasonable
balance between addressing community needs and preventing the emergence of excessive
demands. From the outset, it identified how the project’s own activities could provide
benefits to the surrounding community: through employment, improved access roads,
reforestation and especially by improving the quality of electricity supply to the town of
La Esperanza. However, in its meetings with the surrounding communities it also listened
to what the local stakeholders perceived to be their own needs, and examined ways in
which the project could assist in meeting those needs. This latter case entailed additional
efforts that went beyond the normal activities of constructing the power plant and
maintaining the infrastructure and the water resource. CISA was willing to make a
contribution on this regard, but it also stressed that the communities themselves, and the
government agencies in charge of providing these services, should not be relieved of their
own responsibilities in relation to the provision of these services.
The need that was stressed by surrounding communities was the electrification of the
smaller towns surrounding La Esperanza, which were unable to afford on their own the
cost that the power distribution company (ENEE) would have charged them for extending
the grid. CISA supported the communities in their request of the grid extension and made
an in-kind contribution and a financial contribution of at least $12,000 that allowed the
electrification of 150 households in the neighboring communities of Santa Anita and San
Fernando. CISA worked in collaboration with the communities or the local power
distribution company (ENEE), thus ensuring that these other stakeholders recognized
their own responsibilities in pursuing the electrification of these villages. Hence, ENEE
also invested its own resources in the grid extension, and the community provided in-kind
work and sought loans to pay for the internal electric installation of their own homes.
CISA was also instrumental in obtaining additional funds from the World Bank to support
this electrification initiative.
2) Start small:
From the outset in 1999, it was envisioned that La Esperanza Hydroelectric facility would
be a 13.5 MW project. However, the project developers decided to start small by using an
existing WWII-era powerhouse and installing only 485 kW of capacity (stage 1a). Later,
once this stage was operational, the project was expanded to a total of 1 MW (stage 1b),
also employing that same powerhouse. Though money could no doubt have been saved
by developing both stages simultaneously, the phasing allowed the project to begin sooner
since smaller capital outlays were needed. Then, having tested the waters and proven that
the project was indeed viable, it was easier to search for and acquire subsequent loans.
La Esperanza
Installed Capacity by Year
16000
14000
Capacity (kW)
12000
10000
8000
6000
4000
2000
0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Year
Financing for La Esperanza
Level of Investment (K USD)
9000
8000
7000
E+Co Finance
(K USD)
3rd Party Finance
(K USD)
6000
5000
4000
3000
2000
1000
0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Year
Stages 1a and 1b, were more than demonstrative projects; they helped control water
flow for the eventual, much larger, stage 2 portion of the project. Stage 2 necessitated the
construction of a new powerhouse and dam. It became operational in 2006, the same year
that CISA signed a 15-year power purchase agreement with the Honduran national
electrical utility. This is three years after the stage 1a came on line and six years after CISA
was incorporated.
Comparing this timeline with other similar type projects in the region, it is fair to
say that three years of construction from start to finish is much longer than most other
developers anticipate, yet six years for total project completion is actually very respectable.
3) Establish collaborative relationships
CISA recognized that becoming a trailblazer in a new field, such as small
hydroelectric development, would be a complex undertaking with multiple issues to
address. The project’s long-term success would be dependent on good communication
and strong collaborative relationships with a number of stakeholders, including the
energy consumer (ENEE), the environmental regulator (SERNA), funding and investment
sources, carbon trade agents, surrounding communities, municipal governments, other
small-scale electricity developers, skilled local workers and experts in a number of fields.
The project developers devoted considerable attention to building good working
relationships and strong communication with all these stakeholders. CISA became very
engaged in the Honduran Association of Small Private Renewable Energy Producers
(AHPPER) and worked with decision-makers to promote legislation that established a
friendlier environment for renewable energy.
La Esperanza’s sponsors also developed a collaborative working relationship with
the communities surrounding La Esperanza, with ENEE and with the World Bank’s
Community Development Carbon Fund in order to promote the electrification of the
nearby villages of Santa Anita and San Fernando. The project also worked closely with the
Honduran Ministry of Energy and Natural Resources (SERNA), with several specialized
organizations, and with the World Bank in the complex process of certification and trade
for its carbon emission reductions; it was due to this positive collaboration and to the
project’s focus on incorporating social benefits that La Esperanza became, together with
another Honduran project, the world’s first recipient of Emission Reduction Credits under
the Clean Development Mechanisms. Furthermore, the World Bank, through its
Community Development Carbon Fund, was willing to provide an upfront partial
payment of its CERs, in order to support the implementation of community benefits.
Thumbnail Analysis:
The Policy-Technology-Enterprise balanced approach:
Policy:
Sought to overcome high dependency on fossil fuels and reduce GHG
emissions. It included incentives for small hydro, a framework for selling power
to the national utility and bundling of Carbon credits for the CDM.
Technology:
Hydro was well suited to the site. By rehabilitating an
abandoned site the project was able to move in gradual stages. New site
provided stability to the system, an immediate benefit to local communities.
Enterprise: Able to build strong collaborative relationships. Recognized
the importance of partnering with communities to address local needs.
Willing to demonstrate a track record of technical and managerial competency
by developing the project in successive stages.
The Enterprise-Customer connection:
e: Sponsors competent in electric
d: Rising national power system rates
infrastructure and in building national
and local stakeholder relationships
& overdependence on fossil fuel emergency plants. Unreliable or unavailable
power supply in surrounding towns.
t: Small hydro in 3 phases
k: State authorities needed a frame-
(485
kW, 1 MW, 13.5 MW) well suited to
the site and contributing to solve
national and local energy needs
Se: Assistance in business plan
work for purchasing power from independent producers. Organizational support
to unelectrified communities.
E
C
Sc: Support to unelectrified
development and in quantifying and
marketing carbon offsets
communities in completing the
procedures for acquiring credit for internal
household electric installation.
Fe: E+Co: 2 loans & 1Equity Inv.
Fc: Finance to support unelectrified
($1.25 M); CABEI: $6.0 M Loan;
FinnFund: $1.9 M Subord Loan; Hon
banks $8.5 M (substitutes CABEI).
communities with the cost of grid
extension.
e: Entrepreneur
t: Technology
Se: Services to the enterprise
Fe: Finance for the enterprise
E: Enterprise
C: Customer
d: Demand
k: Knowledge
Sc: Services to the customer
Fc: Finance for the customer