Document of
The World Bank
Report No:
PROJECT BRIEF
ON A
PROPOSED GRANT FROM THE
GLOBAL ENVIRONMENT FACILITY TRUST FUND
IN THE AMOUNT OF USD9.48 MILLION
TO THE
FIJI, PAPUA NEW GUINEA, REPUBLIC OF MARSHALL ISLANDS, SOLOMON
ISLANDS, AND VANUATU
FOR A
SUSTAINABLE ENERGY FINANCING PROJECT
April 22, 2006
Energy and Mining Sector Unit
Infrastructure Department
East Asia and Pacific Region
CURRENCY EQUIVALENTS
(Exchange Rate Effective {Date})
Currency Unit =
= USD 1
USD = SDR1
FISCAL YEAR
July 1 – June 30
ABBREVIATIONS AND ACRONYMS
ADB
APC
ANZ
Asian Development Bank
Approval Product Catalogue
Australian and New Zealand Banking Group
Limited
The Australian Government's Overseas Aid
Program
Central bank of Solomon Islands
Community Carbon Fund
Community Development Scheme - AusAid
Carbon Dioxide
Calendar Year
Demand Side Management
East Asia Energy and Mining Sector
Development Unit
Executive Agency
MSP
MWE
NGO
Medium-Sized Projects
Ministry of Works and Energy
Non Government Organization
OED
Operations Evaluation Department
PCF
PEDF
PFI
PFnet
PIC
PICs
PID
Prototype Carbon Fund
Pacific Enterprise Development Facility - IFC
Participating Financial Institutions
Solomon Islands People First Network
Public Information Centre
Pacific Islands Countries
Project Information Document
PIGGAREP
PIREP
PNG
PNGSEL
PV
PVGAP
RE
REAF
RESCOs
RSF
RVP
SBD
SEFP
SF
SHLK
SIG
SME
SPREP
TA
Social Fund
Solar Home Lighting Kits
Solomon Islands Government
Small and Medium Enterprise
South Pacific Renewable Energy Project
Technical Assistance
kWh
LAC
European Energy Framework
Energy Efficiency Companies
Energy Services Delivery - Sri Lanka
Fiji Electricity Authority
Federated States of Micronesia
Financial Management System
Financial Support Fund
Global Development Learning Network
Global Environmental Facility
Government of Fiji
Government of Papua New Guinea
International Bank for Reconstruction and
Development
International Competitive Bidding
International Development Association
International Finance Corporation
Internal Rate of Return
Integrated Safeguards Data Sheet
International Organization for
Standardization
Kilowatt hour
Latin-American and Caribbean
Pacific Islands Greenhouse Gas Abatement
through Renewable Energy Project
Pacific Islands Renewable Energy Programme
Papua New Guinea
PNG Sustainable Energy Limited
Photovoltaic
PV Global Approval Program
Rural Electrification
Regional Executive Agency – Financial
Renewable Energy Service Companies
Risk Sharing Fund
Regional Vice-President
Standard Bidding Document
Sustainable Energy Financing Project
UNDP
UNDP
REP-POR
MC
MIS
MSEs
Management Contractor
Management Information Systems
Micro and Small Enterprises
UNEP
USP
United Nations Development Programme
United Nations Development Programme
Regional Energy Programme for Poverty
Reduction
United Nations Environmental Programme
University of the South Pacific
AusAid
CBSI
CCF
CDS
CO2
CY
DSM
EASEG
EA
EEF
ESCOs
ESD
FEA
FSM
FMS
FSF
GDLN
GEF
GoF
GoPNG
IBRD
ICB
IDA
IFC
IRR
ISDS
ISO
Acting Vice President:
Country Director:
Sector Manager:
Task Team Leader:
Jeffrey S. Gutman
Xian Zhu
Junhui Wu
Antonie De Wilde
PACIFIC ISLANDS
Sustainable Energy Finance Project
CONTENTS
Page
A.
STRATEGIC CONTEXT AND RATIONALE ................................................................. 1
1.
Country and sector issues.................................................................................................... 1
2.
Rationale for Bank/GEF involvement ................................................................................ 3
3.
Higher level objectives to which the project contributes .................................................... 3
B.
PROJECT DESCRIPTION ................................................................................................. 3
1.
Grant instrument ................................................................................................................. 3
2.
Project development objective and key indicators.............................................................. 4
3.
Project global environmental objective and key indicators ................................................ 4
4.
Project components ............................................................................................................. 4
5.
Lessons learned and reflected in the project design ............................................................ 8
6.
Alternatives considered and reasons for rejection .............................................................. 9
C.
IMPLEMENTATION ........................................................................................................ 10
1.
Partnership arrangements .................................................................................................. 10
2.
Institutional and implementation arrangements ................................................................ 11
3.
Monitoring and evaluation of outcomes/results ................................................................ 12
4.
Sustainability and Replicability ........................................................................................ 12
5.
Critical risks and possible controversial aspects ............................................................... 13
6.
Loan/credit conditions and covenants ............................................................................... 14
D.
APPRAISAL SUMMARY ................................................................................................. 14
1.
Economic and financial analyses ...................................................................................... 14
2.
Technical ........................................................................................................................... 15
3.
Fiduciary ........................................................................................................................... 15
4.
Social................................................................................................................................. 16
5.
Environment ...................................................................................................................... 16
6.
Safeguard policies ............................................................................................................. 17
7.
Policy Exceptions and Readiness...................................................................................... 18
Annex 1: Country and Sector or Program Background ......................................................... 19
Annex 3: Results Framework and Monitoring ........................................................................ 36
Annex 4: Detailed Project Description ...................................................................................... 41
Annex 6: Implementation Arrangements ................................................................................. 59
Annex 7: Financial Management and Disbursement Arrangements ..................................... 68
Annex 8: Procurement Arrangements ...................................................................................... 69
Annex 10: Safeguard Policy Issues ............................................................................................ 75
Annex 11: Project Preparation and Supervision ..................................................................... 76
Annex 12: Documents in the Project File ................................................................................. 77
Annex 13: Statement of Loans and Credits .............................................................................. 78
Annex 14: Country at a Glance ................................................................................................. 80
Annex 15: Incremental Cost Analysis ....................................................................................... 90
The project aims to significantly increase the adoption and use of renewable energy
technologies in participating Pacific Island states through a package of incentives to encourage
local financial institutions to participate in sustainable energy finance in support of equipment
purchase. The global environment objective is to contribute to mitigating climate change
through the reduction of greenhouse gas emissions in line with the United Nations Framework
Convention on Climate Change. ............................................................................................. 102
Annex 16: STAP Roster Review .............................................................................................. 111
Annex 17: Maps......................................................................................................................... 115
A. STRATEGIC CONTEXT AND RATIONALE
1. Country and sector issues
The Pacific island countries that will benefit from this project - Fiji, Papua New Guinea (PNG),
Republic of Marshall Islands (RMI), Solomon Islands (SI), and Vanuatu - face similar, complex
development challenges, stemming largely from their small, sparsely-distributed populations and
remoteness. Resulting weak economic growth, in a context of relatively high birth rates, has
caused high unemployment and hardship. Even those countries that have achieved positive
growth in average per capita income have been unable to fully translate this into adequate job
creation and poverty reduction.
The World Bank’s assistance strategy for the Pacific island countries (PICs) is to help them
establish a business environment conducive to faster and sustainable economic growth and to
higher employment. Access to electricity is one key to growth, but is generally low - ranging
from 10 percent in PNG to over 65 percent in Fiji. And power generation is heavily dependent on
diesel, both on and off the main grid, particularly in rural areas. In 2002, the islands’ cost of
energy was in the range of 4-8% of GDP. In 2005, its cost skyrocketed to 12-25% of GDP – a
severe drain on resources and barrier to growth. Increasing access to electricity and reducing its
cost are thus vitally necessary to promote economic growth and to improve the quality of life of
PIC households.
Fortunately the islands have good renewable energy endowments (solar, wind and hydro) and
considerable energy efficiency potential. Hence (a) renewable energy technologies are often the
least cost option for increasing access to modern energy services for rural households and micro
and small enterprises (MSEs); and (b) energy efficiency improvement can reduce energy import
costs. However, past donor (mainly bilateral) assistance efforts have been technology-focused,
fragmented, and have failed to establish efficient and commercially-sustainable energy service
delivery systems that can achieve these objectives.
With GEF support, the Pacific island states are now beginning to strategically address the major
barriers to renewable energy development and energy efficiency improvement. The first key
steps in that process are the UNDP/GEF Pacific Islands Renewable Energy Project (PIREP) and
its follow-up project, the Pacific Islands Greenhouse Gas Abatement through Renewable Energy
Project1 (PIGGAREP). These two regional projects are addressing the policy and regulatory,
technology standard and some of the awareness barriers to renewable energy development. This
proposed project, which has been developed in discussion with UNDP, will complement them by
addressing the two major remaining barriers – (i) the lack of a professional, accessible dealer
network to supply and help maintain renewable energy equipment, such as solar PV kits and/or
1
UNDP has a regional project under preparation, namely the Pacific Islands Greenhouse Gas Abatement through Renewable Energy
Project (PIGGAREP). It will contribute to the removal of the major barriers to the widespread utilization of RE technologies (RETs). The project
covering the PICs is expected to: (i) increase the number of successful commercial RE applications; (ii) expand the market for RETs applications;
(iii) enhance institutional capacity to design, implement and monitor RE projects; (iv) increase availability and accessibility of financing to
existing and new RE projects; (v) strengthen legal and regulatory structures in the energy and environmental sectors; and, (vi) increased
awareness and knowledge on RE and RETs among key stakeholders.
1
pico hydro units and (ii) the reluctance of local financial institutions to finance renewable
energy systems and energy efficiency investments on affordable terms.
These two major barriers are interlinked and mutually reinforcing. There is currently not enough
demand for renewable energy equipment for an accessible and highly professional RE equipment
dealer network to develop, because the equipment’s high initial investment costs prevent most of
the population from purchasing it for cash. Because of the low demand, retailers or renewable
energy service companies (RESCOs) don’t invest in stocks of SolarPV and/or pico-hydro
equipment. Similarly, local banks have not explored the option of financing such equipment,
have no experience in financing it, and hence view loans for renewable energy equipment as very
risky and are unwilling to grant them.
As local stores don’t carry renewable energy equipment, customers aren’t aware of there
existence and benefits. During identification of this project several store owners expressed an
interest and had a sense that there would be considerable demand, but lack of market
intelligence, prevented them from entering this market. Stores would only respond to mainly
donor or government financed bulk purchases and don’t stock up for individual sales.
To keep monthly expenses for renewable energy systems the same or less than for fossil fuel
options, renewable energy equipment buyers need loan-term loans of at least five to seven years.
But the financial institutions are reluctant to make loans of the required length. Finally, the
interest rates charged by banks on the few renewable energy and energy efficiency loans they do
make to individuals and MSEs often render them unaffordable.
On the other hand, many local financial institutions are looking for good projects to finance,
even in rural areas. For example, the Australian and New Zealand Banking Group Limited
(ANZ) have recently initiated rural banking operations in Fiji and Solomon Islands. And, in
response to a request for Expression of Interest published on the dgMarket website, a reputed
local bank has shown interest in renewable energy lending by its branches and subsidiaries in
four of the six countries involved in this project. Similarly, a number of other local financial
institutions have indicated their strong interest in renewable energy lending, though some,
particularly the smaller local institutions, would require significant technical assistance before
they would be able to do so.
By (i) helping local renewable energy equipment dealers with well researched market
intelligence to expand their businesses and develop their skills and (ii) exploiting the willingness
of capable local financial institutions to lend for renewable energy and energy efficiency projects
and removing the barriers to such lending, this proposed project will significantly increase the
adoption and use of renewable energy technologies and energy efficiency measures in the
participating Pacific Island states. The project’s proposed mechanisms of risk sharing
instruments, backed with GEF funds, plus targeted financial and dealer institutional capacitybuilding, is calculated to give the required stimulus to the financial institutions and renewable
energy dealers, without causing them to deviate from their normal business practices or
undermining their commercial viability.
2
2. Rationale for Bank/GEF involvement
In the Pacific Forum of the Finance Ministers of the Pacific Islands held in Washington, DC in
September 2005, several PICs requested the World Bank to provide urgent Bank assistance to
expand sustainable energy use and energy efficiency to offset the increased price of oil, which
has already had a significant adverse effect on their economies. The Bank and GEF are wellpositioned to provide the necessary funds and technical expertise to meet this request, which is
consistent with the Bank’s strategy for the Pacific region.2
The proposed project is consistent with GEF Operational Program (OP) Number 5 “Removal of
Barriers to Energy Efficiency and Energy Conservation” and OP Number 6 “Promoting the
Adoption of Renewable Energy by Removing Barriers and Reducing Implementation Costs.”
The specific priority is CC-2 Increased Access to Local Sources of Financing Renewable Energy
and Energy Efficiency.
The United National Development Programme (UNDP), with GEF financing, has under
preparation a project entitled Pacific Islands Greenhouse Gas Abatement through Renewable
Energy Project (PIGGAREP), which is also regional in scope. Discussions have been held with
UNDP to ensure that the proposed SEFP project is complementary to PIGGAREP; in particular,
the SEFP project focuses on the Bank’s comparative advantage – innovative financing.
3. Higher level objectives to which the project contributes
The project supports the higher-level sector and country development objectives of the Pacific
Island countries, as expressed in the Bank’s Pacific Regional Strategy for FY2006-2009, by
contributing to: (i) reducing poverty and increasing the quality of life for those persons living in
rural households and (ii) generating sustainable economic growth and employment opportunities.
It does so through facilitating increased access to electricity, reducing reliance on diesel power
generation, enabling income-earning activities, and contributing to the development of micro and
small enterprises.
B. PROJECT DESCRIPTION
1. Grant instrument
The proposed SEFP project is a stand-alone USD9.48 million GEF grant financed project to be
implemented over seven years.3 SEFP is a regional project that will start with Fiji , Papua New
Guinea, Republic of Marshall Islands, Solomon Islands, and Vanuatu and might expand to
include other countries in the region over time. The project is to be jointly implemented by the
World Bank and IFC, through the Sydney office. The Bank will take primary responsibilities for
Fiji., Papua New Guinea, and Solomon Islands. IFC will take primary responsibility for
Marshall Islands, and Vanuatu.
2
3
The countries are covered under the Bank’s Pacific Regional Strategy for FY 2006 - FY 2009.
For Fiji, at the request of the Government and Fiji Electricity Authority (FEA), a separate Bank project is being
developed to provide finance to FEA for grid-connected renewable energy power generation. This is expected
to be financed by an IBRD loan of USD23-45 million, depending on project scope, with no separate GEF cofinancing; however, the SEFP project will provide assistance with the development and implementation of the
FEA project.
3
Financing support commitments using SEFP funds will be made throughout the seven year
implementation period. The project is designed so that it will be capable of extension for a
second seven year implementation period; during any such extension, it is expected that the costs
of ongoing project management would be drawn from remaining project funds and that the
guarantee percentage would be set lower than the initial 50 percent level. When the project is
finally closed, no further financing support using project funds will be committed and World
Bank and IFC will consult with GEF and Governments of participating countries about future
use of project funds. These funds will include uncommitted funds immediately available as well
as committed funds as they are released under the terms of financing support commitments. The
project is designed so that, if it proves successful but cannot satisfy demand, other financiers,
including IFC, would be able to provide additional parallel guarantee support, with the
associated guarantee fee paid out of project funds.
2. Project development objective and key indicators
The project aims to significantly increase the adoption and use of renewable energy technologies
in participating Pacific Island states through a package of incentives to encourage local financial
institutions to participate in sustainable energy finance in support of equipment purchase. The
key indicators are:




Number of additional households and MSEs served by modern sustainable electricity
services;
Installed new renewable generation capacity by unit and kW;
Financial savings realized by switching from non-renewable fossil fuels (such as kerosene,
petrol and diesel) and non-reusable batteries (such as alkaline dry cells) to renewable supply
options including Solar PV, pico-hydro and coconut oil-fuelled generators; and
Number of kWh saved due to energy efficiency interventions;
3. Project global environmental objective and key indicators
The global environment objective is to contribute to mitigating climate change through the
reduction of greenhouse gas emissions in line with the United Nations Framework Convention
on Climate Change. The key indicators are:



CO2 emissions avoided;
Investments in sustainable energy supply and in energy efficiency measures; and
Financing provided by local financial institutions for sustainable energy and energy
efficiency purposes.
4. Project components
The SEFP project consists of four components that together will promote the financing of
sustainable energy and energy efficiency investments, as well as the early monitoring of the
effectiveness of these investments. The sustainable energy options to be supported under this
project are Solar PV, pico-hydro, and investments to switch fuel for stationary generating
engines from diesel to coconut oil.
The financing will all originate from local financial institutions that are willing, with support
from SEFP, to lend to individuals and MSEs for qualifying investments. The capacity of these
banks and non-bank financial institutions to lend to these types of borrower for such purposes
4
will be enhanced by technical assistance offered under SEFP. Further technical assistance will be
given to retailers and installers of qualifying equipment, to ensure that they are properly trained
in the technologies concerned. SEFP financing support has been designed to reduce to a
minimum any distorting effect on financial or commercial markets in the countries of operation.
The proposed mechanism of risk sharing instruments backed with GEF funds is calculated to
give the required stimulus to financial institutions, without causing them to deviate from their
normal spectrum of loan terms.
The four components of SEFP are presented below:
Components
1. Risk Sharing Fund and Renewable
Energy Investments
2.TA, Market surveys and Communications
a. TA to Financial institutions
b. TA, for Retailers and MSEs
c. Development of Product Catalogue
d. Participant Training
e. TA for Utilities and studies
d. Communications
3. Participant monitoring
4. Management & Evaluation
Miscellaneous
Total
Govts &
Utilities
NGO/EC
and IFC
parallel
financing
19.50
0.10
Local
Banks
1.70
19.67
0.27
0.10
0.41
0.24
0.10
0.17
0.08
2.58
20.16
Enterprises
Total
0.90
5.20
46.97
0.30
0.62
0.77
0.34
1.30
1.17
0.34
0.24
0.59
0.61
0.40
1.54
0.04
53.20
0.18
19.78
GEF
1.20
0.39
0.36
0.40
1.36
0.04
9.48
Component 1: Risk Sharing Fund (RSF) (GEF USD5.2 million, Financial Institutions
USD19.67 million, Enterprises USD0.9 million, NGOs USD1.7 million and Renewable
Energy Investments (19.5 million)
The RSF will be used to provide innovative financing support to facilitate the flow of finance
from local private sector financial institutions for sustainable energy and energy efficiency
investments. SEFP financing support will not be allocated between the participating countries,
although each country will receive an initial allocation for technical assistance to allow
operations to commence. The RSF will be administered by a Fund Manager, a first class regional
financial institution, chosen through a competitive process, with direct links with banks and other
financial institutions in the participating countries.
The RSF is targeting two groups of end-users: (i) households already using kerosene for lighting
needs and (ii) MSEs using kerosene, diesel or other fossil fuels to provide energy for use in their
business activities. The support would enable these end-users to finance purchases of sustainable
energy and energy efficiency equipment. Since the supply chain for such equipment is not well
developed in the region, the RSF will also provide financing support to MSEs to allow start-up
or expansion of their supply, design, maintenance and installation businesses in this sector.
Households. Household lighting using Solar PV or, in certain circumstances, pico-hydro
generators, will be promoted by SEFP. Using such sustainable sources will obviate the need for
such households to continue to use kerosene for oil lamps and diesel or petrol for small
generators, thus contributing to the reduction of fossil fuel consumption and emission of
5
greenhouse gases. The relatively high initial investment cost of this type of sustainable energy
equipment can be converted into periodic payments through the use of conventional loan finance.
A guiding principle of SEFP is that these payments should be held within the range of the current
average household expenditure on kerosene, diesel fuel or non-rechargeable dry cell batteries for
lighting. The RSF provided by GEF will support risk sharing commitments, with the local
participating financial institutions (PFIs) providing this loan finance, that will:


Facilitate loans with a tenor of up to five years, rather than the shorter loans offered now in
some participating countries. The longer tenor will allow payments to be reduced to an
affordable level, in accordance with the principle indicated above.
Share a significant part of the repayment risk with local financial institutions through a
partial guarantee mechanism. This mechanism will allow the supported finance to be on
terms, including interest rate, tenor and security, that will make the finance available and the
payments affordable.
Micro and Small Enterprises. The project provides financial and technical support to three types
of MSEs. The first type is a user of energy that intends, like the households described above, to
replace its current use of fossil fuels with energy from sustainable sources. The second type is an
MSE which is part of the supply chain to get sustainable energy products from the factory to the
end-user. These MSEs include wholesalers, retailers and installers; in some cases these firms
may also provide design, maintenance and repair services. The third type is an energy service
MSE that facilitates investments in energy efficiency schemes by providing some combination of
consultancy, design, supply, installation and maintenance services.
SEFP financing support will expand the availability of loan finance from private financial
institutions to these MSEs, mostly using the partial guarantee mechanism. In the case of some
MSEs, the principle of using avoided fuel costs to assess loan payment affordability is
inapplicable; however, the sample of MSE Business Plans (see Appendix of Annex 4) prepared
during SEFP pre-appraisal demonstrates the affordability of loan service payments on loans
supported by the RSF. Depending on the commercial lending criteria applied by the lending
institution in each case, such MSE loans supported by the RSF will have tenors of up to seven
years and interest rates at the lower end of the band conventionally offered to corporate
borrowers.
Approved Product Catalogue. For each participating country, through the technical assistance
component, a catalogue of products which qualify for financing under this project will be
developed and frequently updated to allow for price fluctuations, etc. Based on successful
experience in other projects, SEFP will focus on the introduction of high quality products. The
product catalogue will only contain products and systems which have been tested and certified
by local standards institutes and which comply with relevant international standards.
Supported Technologies. Project size and other practical considerations mean that SEFP can only
deal with a few sustainable energy and energy efficiency technologies. Based on demand surveys
conducted during project identification, SEFP will be restricted to supporting the following four
technologies: Solar PV, pico hydro, switching to coconut oil and improving energy efficiency.
For Solar PV systems, the loan finance supported by the RSF will be sufficient to cover the
initial cost of the equipment and its installation, as well as the cost of the first replacement
battery, expected to be required after three to five years and a single premium to pay for five
6
years of extreme climate loss and damage insurance. For pico-hydro systems, it is proposed to
finance the equipment and installation costs. For investments in fuel switching, it is proposed
that the financing will cover the costs of modification of the fuel supply system and other
components necessary to switch from diesel to coconut oil. Investments in Energy Efficiency
technologies are not limited by any specific technology. It is anticipated that technologies will
focus on more efficient lighting and air conditioning systems.
The Fiji Electricity Authority (FEA) is the public utility responsible for general electrification
through the national grid in Fiji. It has an extensive grid on Viti Levu and three other smaller
grids on Vanua Levu and Ovalau, supplied by 14 power stations with a total installed capacity of
194 MW, of which 80 MW is hydro. FEA, to meet existing and new demand with sustainable
energy solutions, based on least cost analysis, will with input from this project make investments
in renewable energy capacity with financing from IBRD (Board date January 2007). This new
capacity will replace all their diesel generation with renewable energy. While these studies will
assist FEA with their general investment strategy, in line with Bank policies none of these
studies is part of the preparatory work for the proposed IBRD loan.
Component 2: Technical assistance, market incentives and communications (GEF USD2.48
million, other sources USD1.7 million)
Technical assistance (TA) will be provided through SEFP, as follows to:








Strengthen the capacity of local financial institutions to service clients borrowing to purchase
Solar PVs, pico-hydros or fuel switching equipment. TA and training will be made available
to PFIs to establish and maintain a profitable sustainable energy portfolio, including support
with appropriate management information systems, risk mitigation and recovery techniques.
Provide relevant training to the Fund Manager, a first class bank with regional representation
that will administer the RSF.
Strengthen sales and after sales incentive structure for service providers through detailed
market surveys, thereby reducing the risk for retailers to stock too much or to little solarPV
and additional equipment.
Strengthen the financial and technical capacity of MSE sustainable energy service providers
to make them more bankable from the perspective of private sector lenders. This would, inter
alia, include support for renewable energy equipment suppliers to understand about PVGAP
certification and quality management standards (including ISO 9000 and local variants).
Strengthen customer understanding of the operational aspects of the sustainable energy
equipment to be purchased. The project will require the buyers of products supported by
SEFP to pass a computer-based interactive video training program. This program will be
focused on non-functionally literate clients, to assure that all possible clients will get a basic
understanding of the workings of the equipment. Completion of this training will be a
condition to be eligible for a loan supported by the RSF.
Provide assistance in sustainable energy repair and maintenance training to vocational
schools in areas where no such training is currently available
Facilitate other local training institutions including internet based learning centers to develop
and administer training in the repair and maintenance of sustainable energy equipment.
Provide technical support to produce and frequently update an Approved Product Catalogue
– covering products which meet certified quality standards – supplied by local retailers.
7



Financial support from the RSF will only be available for products meeting these quality
standards. To keep costs down, the project will encourage retailers to obtain quotes for Solar
PV and pico-hydro components from all global sources meeting PVGAP or equivalent
quality standards.
Assistance for local retailers and MSEs to attend international trade fairs and training
programs.
Provide technical assistance and support hydro basin and biomass resource studies in Fiji for
investments in large scale renewable energy generation capacity to be finance under an IBRD
loan. (Board date for this loan is January 2007). While these studies will assist FEA with
their general investment strategy, in line with Bank policies none of these studies is part of
the preparatory work for the proposed IBRD loan.
A communications plan (in coordination with the PIGGAREP project) that addresses all the
relevant stakeholders.
Component 3: Participant monitoring (GEF USD0.4 million, no other sources).
For the first three years of the project, household borrowers will be requested to fill out semiannually a short survey, reporting their technical, economic and social experiences resulting from
access to modern energy services. Borrowers participating will be rewarded for an acceptable
survey by receiving the equivalent of a fortnightly loan service payment on their loan. The
feedback from the surveys will help to fine tune the project interventions for improved
effectiveness and to monitor the environmental, economic and social impact of the project on the
beneficiaries.
Component 4: Management and Evaluation (GEF USD1.36 million, USD175,000 from
Local Governments)
The Executive Agencies (EAs) in the participating countries do not all have the specific technical
expertise in house to manage this project in their country. For that reason, EAs will procure the
services of Management Contractors (MCs) to assist them with the execution of the program.
Evaluations will be carried out by the end of year 2 and year 5.
5. Lessons learned and reflected in the project design
In the Pacific region, there have been many efforts to develop renewable energy and energy
efficiency in the Pacific region, but few examples of successful and sustainable development
outcomes. One promising example is a small Bank-GEF project4 with a grant of USD1 million
became effective in PNG in September 2005. The project’s objective is to catalyze commercial
finance from the Teachers Savings and Loan Association to its members for the purchase of
Solar PV systems. While it is still too early to draw any definitive conclusions, the following
tentative conclusions can be drawn from the limited experience:


4
Local financial institutions, such as the Teachers’ S&L Association, are interested in
expanding their loan portfolio, and are willing to finance renewable energy systems;
Teachers and other salaried employees with regular incomes are an attractive group for
financial institutions because it is possible to deduct their repayments ‘at source;’ and
In GEF terminology, this is a “Medium-sized Project.”
8

There is considerable demand among such target groups for renewable energy systems.
From the unsuccessful experiences, we also draw useful lessons through understanding the
reasons for failure:





Suitable technical and management skills must be available locally. Projects which do not
address these long-term training needs have been unsuccessful at least in part due to technical
failures resulting in unreliable service. Such failures can be caused by a range of factors
including poor system design and installation; lack of maintenance or after sales service; low
quality or inappropriate components; lack of end-user training resulting in incorrect operation
and maintenance; and use of unproven technologies.
Need to ensure good financial management is in place at relevant financial institutions. Good
outcomes can be compromised as a result of, inter alia, a lack of appropriate management
and administrative skills and inappropriate ownership models, weak institutional capacity
and support, ineffective long-term budgeting, and dependency on politically vulnerable
subsidy schemes.
It is important to carefully consider the ability and willingness of end-users to pay service
fees or make loan payments. Failure to match or manage expectations of quality and type of
electricity service; poor scheme administration, failure to enforce tariffs, and a lack of
affordable finance may all impact the willingness or ability to pay.
Having relevant cost-benefit information for renewable energy and energy efficiency
measures is necessary. Without such info, households and enterprises are reluctant to invest
and financial institutions are unwilling to lend. Uncertainty results in weak political drivers
for energy development and schemes often fail to deliver cost-effective livelihood benefits.
Schemes focused on private and/or community ownership have a high rate of success, while
projects involving renewable energy installed in public buildings such as schools and
hospitals show less successful outcomes.
The recently launched Renewable Energy Toolkit: An Operational Guide for Electric Services
(www.worldbank.org/retoolkit) highlights the lessons from renewable energy programs
supported by the World Bank, GEF and others. For stand alone renewable energy systems,
successful programs have managed to provide solutions for six core issues during the
introduction phase concurrently: (i) provide access to finance to overcome high initial cost of
systems for end users and service providers; (ii) establish delivery infrastructure to connect the
remote and dispersed markets to the often urban based suppliers; (iii) adopt inclusive rural
electrification policy to clearly define the roles of grid extension and off-grid options, and ensure
a level playing field for the stand alone service providers to fairly compete with traditional
utilities; (iv) guarantee minimum quality of (after sales) service to ensure the quality of the
products and services; (v) understand customer needs and increase service awareness to know
consumers' ability to pay and offer products that are tailored to consumers' needs; and (vi) scale
up capacity building to rapid increase understanding of the industry's specifics to all business
partners involved. The proposed project has been designed taking these lessons into account.
6. Alternatives considered and reasons for rejection
Financing support mechanism. The main alternative considered was to use GEF funds for
investment subsidies for institutional systems run by the public sector, instead of catalyzing
commercial finance. This alternative was rejected because the utilization of commercial finance
9
increases the development of a commercially viable market for systems, and thus increases the
likelihood of sustainability and replication. It would be also possible to deploy GEF financial
resources for use in SEFP in the form of a direct credit line, used to finance sustainable energy
and energy efficiency investments. In such a scheme, the Bank and IFC would lend the money to
selected local FIs, which would in turn make loans to SEFP’s individual and MSE beneficiaries.
The credit line approach would require a detailed credit assessment of each local intermediary
institution. It would also require complex arrangements for disbursement and recovery of SEFP
funds directly to and from each local institution. Flexibility between countries would be
jeopardized.
For these reasons, the risk sharing fund (RSF) approach is proposed. This would only require a
credit assessment of the Fund Manager (FM), which would be the fund holder for all the RSF
monies dedicated to financing support. Other institutions would only receive RSF monies when a
default had occurred in an underlying credit and a partial guarantee payment had been called.
Disbursement and recovery of funds would be much simpler and, with a single pool of funds
held by the FM, flexibility between countries would be preserved.
Selection of participating countries. The selected five countries for initial support through SEFP
all have very limited electrification penetration rates, in the range of 10 to 65 percent. This
demonstrates a sizeable market potential for absorption of sustainable energy investments. Three
additional countries, Federated States of Micronesia, Samoa and Tonga, were assessed for
inclusion in SEFP but were either found to be almost fully electrified (Samoa 95 percent and
Tonga 90 percent) or decided not to participate (FSM). Considering the limited size of SEFP
resources, and the availability of REEF resources through the Asian Development Bank (ADB),
Samoa and Tonga were not included as participating countries in SEFP.
Selection of supported technologies. Due to the limited funding available to the SEFP, only
three small-scale renewable energy technologies will be supported under this project: these being
Solar PV, pico-hydro and coconut oil fuel switching. These have been selected on the basis that
the capital cost was such that typical loan repayments would be affordable (i.e., monthly
repayments are not more than avoided fuel costs for households and MSEs); they provide
coverage of the different renewable energy resource settings in the region (i.e. pico-hydro and
Solar PV in highlands; Solar PV, pico-hydro and fuel switching in coastal areas; Solar PV and
fuel switching in outer islands); they are suitable for a range of end-uses (i.e. Solar PV is most
suited to lighting; pico-hydro is suited to light and low power end-uses; fuel switching is suited
to light and higher power end-uses); and, there is a reasonable level of local experience. Other
small-scale technologies were also considered using the same criteria however these were found
to be less suitable, these included small-scale wind, biomass (small gasifiers) and biogas.
C. IMPLEMENTATION
1. Partnership arrangements
The most important partnership under this project is with the UNDP REP project as well as with
the South Pacific Renewable Energy Project (SPREP), which is executing the PIGGAREP
project on behalf of UNDP. The project also works together with the EC delegations in the
country. In Solomon Islands and PNG, the EC Micro-Project Programme Phase II will provide
parallel financing for pico-hydro and fuel switching for rural training centers and farmers field
schools. In RMI, SEFP works together with the EC funded REP-5. In all countries, local NGOs,
10
community groups and Universities have offered their assistance with the implementation of the
project (letters of support in the Documents on File). Some foundations in Fiji and in PNG will
make financial contributions to the project or provide parallel financing for project related
activities.
2. Institutional and implementation arrangements
The technical implementation of the project will be done within each country by the following
Executive Agencies (EAs):




Fiji: Ministry of Works and Energy (MWE) for off-grid components and the Fiji Electricity
Authority (FEA) for studies of on-grid sustainable energy opportunities.
PNG: PNG Sustainable Energy Ltd. (PNGSEL). This agency is already responsible for
implementing the ongoing PNG Teachers’ Solar Lighting Project.
Solomon Islands: The Central Bank of the Solomon Islands (CBSI).
Marshall Islands and Vanuatu: To be selected based on tender process following IFC
procurement procedures.
A Fund Manager, which will serve all participating countries, will administer the finance
component of the Project. A first class, highly reputed regional Bank has responded to a request
for expressions of interest for the function of Fund Manager. Negotiations are in an advanced
stage and will be finalized during appraisal.
Responsibilities of EAs. The general duties of EAs in each country will be as follows:




Implementation of SEFP in country, including liaison with local PFIs;
Handling all technical assistance procurement in compliance with World Bank and or IFC
and local procurement requirements;
Managing all technical assistance contracts; and
Submitting periodic reports on the performance and status of the project components.
To address institutional capacity constraints, such as a shortage of qualified staff, each EA will
execute the project through a Management Contract (MC), as/if needed. The MC will be an
autonomous unit under contract to and supervised by the EA.
Responsibilities of the Fund Manager. The Fund Manager will be the custodian of the RSF
monies, which will be administered in a prudent fashion to provide the financing support for
loans by PFIs to SEFP beneficiaries. Administration will include holding the SEFP RSF, making
risk sharing agreements with Participating Financial Institutions (PFIs), transferring funds in
accordance with such agreements, monitoring commitments and reporting to WB and IFC.
Considering that commitments of RSF resources will be in the local currencies of the
participating countries, and that outstanding commitments will change constantly as loan
balances are repaid, the Fund Manager’s monitoring function is most important.
Reporting by EAs and Fund Manager. Semi-annual reports on the status of SEFP in each country
will be prepared by the EAs. For continuity, consistency and reasons of geographical
convenience, IFC will be in charge of collecting and collating these reports and forwarding the
resultant combined reports to WB and GEF. The Fund Manager will also prepare a semi-annual
11
report on the status of the RSF. Again, IFC will receive this report from the Fund Manager and
forward it together with the EA reports.
Details of the above implementation arrangements are presented in Annex 6.
3. Monitoring and evaluation of outcomes/results
Executive agencies in each country will provide detailed data on project outcomes through the
semi-annual reports extracted from a performance-based monitoring scheme, which is described
as a separate competent of this project (Component 3).
For the households, the management consultant hired by each of the EA will collect and process
(twice a year for the first 3 years) the surveys filled out by program participants. The survey will
address both technical implementation questions (for example, the time taken to obtain a
replacement lamp), and economic and social impact of the new or improved access to modern
energy services (for example, increased income and savings due to lower cost for energy,
additional productive hours for, men and women, and improved literacy among others by
children studying in the evenings using electric light). This aspect of the monitoring will stop
after the third year.
For the MSEs, the collection of data will be done through direct interviews and will focus on the
business characteristics of the supported enterprises such as balance sheet, profitability and
growth of the business.
For PFIs, the EAs will collect information on the size and quality of their portfolio for this
project. Based on the PFI data, the EAs will also track and interview retailers which have not
received financing through this project. All data combined will result in semi-annual reports,
which will inform the implementing agencies also on the renewable energy systems installed, the
quality and reliability of services provided by suppliers and the results in actual CO2 emissions
avoided.
The first participant monitoring survey (Component 3) and interviews will collect baseline data
for key performance indicators, which will inform the two planned evaluations for the project.
The first evaluation is scheduled at the end of the second year. Beside traditional evaluation
issues, including social and economic impact, this evaluation will inform the implementing
agencies about the possible need to expand the guarantee fund through a mechanism described in
Annex 4: (See section entitled “Leveraging the project”.) The second evaluation will take place
at the end of year five and will address the success or failure of the project, and will also need to
inform the implementing agencies about the exact exit procedures. If the project is successful,
the released guarantees can provide financing for a second project term, with significantly lower
guarantees from the fund freeing up funds to finance the supervision and management contracts
for the extension of this project without recourse to fresh GEF funding (See Annex 4, section
titled “Exit Strategy”.)
4. Sustainability and Replicability
Sustainability. Coupled with UNDP’s PIGGAREP project outputs, the access to equipment,
information and finance in renewable energy and energy efficiency provided under this project is
expected to lead to rapid increase of the use of modern energy services in the Pacific Islands both
at the individual and micro and small enterprise level. Such increase will lead to the
12
establishment of a mature market for renewable energy and energy efficiency in the participating
countries.
By working with the private sector to support commercially viable and demand-driven
investments with financial support only in the form of risk sharing, facilitating lower interest
rates and longer loan tenor, the projects insures that local FI establish a direct stake in this
market. Experience with other housing and micro finance loan schemes suggests that the
proportion of loan losses would be modest.
The sustainability of the investments is expected to come from the fact that banks and financial
institutions, once they have explored the renewable energy and energy efficiency market with the
assistance of the risk sharing guarantee facilities offered under this project, will assess it as being
a sound, viable, and profitable line of business. They will therefore generate lending products to
address the market, and lower or eliminate their risk sharing requirements.
Replicability. The project is already a partial replication from the Teachers Solar Lighting
Project in PNG which is providing valuable information nine months after its start. The basic
concept of replacing kerosene and diesel with renewable energy solutions at a monthly cash flow
equal or less than what households and MSEs now pay for their fossil fuel based energy, through
a financial intermediation method, is already considered for wide spread replication in Africa and
other countries in Asia (Mongolia). Within each of the countries, replication of this commercial
model is facilitated among other through active donor coordination by the Bank and the local
governments to assure that donor programs by distributing free Solar PVs and other renewables
don’t disturb the market place and that donations are in support of establishing a commercial
market.
It is expected that after the first period of 7 years, banks will have recognized that lending for
renewable energy is a profitable product line and will lower their guarantee requirements or
altogether lend to the sector without guarantees. The funds freed up in this way will facilitate the
project to be financed for a second period of seven years, inclusive of all GEF and IA
supervision and monitoring costs, and will also facilitate the possibility to expand the range of
products to include other renewables such as windmills and/or bio gas installation.
5. Critical risks and possible controversial aspects
The project does not include any controversial aspects. However, the project does have some
significant risks: there may be macro-economic and political instability; natural disasters might
occur in one or more of the included countries; or installed equipment may be stolen or
vandalized as has happened in the past in some of the PICs. If future problems are confined at
any one time to only one or two countries, the project will be able to function effectively in the
other countries. Similarly, if any one technology is no longer appropriate due to changes in the
natural or social situation then the project can move focus to the other technologies. The
flexibility built into the project design will enable the shift of resources and focus to meet these
changing circumstances.
Risks
Households and MSEs are not
prepared to commit to long-term
Risk Mitigation Measures
The project will be promoted and marketed as replacing the
cost of fuels and dry cell batteries, rather than a long-term
13
Risk Rating
M
loans.
Participants in remote areas do
not participate due to the
difficulties of transporting
equipment.
PFIs or retailers fail to perform
in accordance with performance
agreements.
Local retailers are unable to
access international markets for
sustainable energy equipment,
resulting in higher-thanprojected prices and slower
supply to the project.
Macro-economic and political
instability.
Natural disasters such as
drought, cyclone or tsunami
cause widespread damage to
schemes, leading to defaulting
on loans.
Repayments stop due to theft or
vandalism of equipment.
loan program. Participants can also choose from a range of
products of different cost, thereby reducing repayments.
There will be a range of technologies offered under the
scheme and each will be available in a range of sizes and
options which will permit those in remote areas to select an
appropriate system to suite their transport options.
The project will monitor performance via the participant
monitoring scheme. This knowledge will be used to adapt
agreements, provide training to help overcome problems,
redirect support to new FIs or retailers, and screen out nonperformers.
Provide technical assistance, training and intelligence on
international procurement of sustainable energy components.
If the supply of one technology is diminished then emphasis
can be shifted to the other technologies.
Project will work with strong institutions but many of the
factors will be beyond the project’s control. Inherent
flexibility between countries will mitigate this risk.
Project technical standards will ensure installations take
account of local factors. Also, the countries selected are
geographically dispersed thereby reducing the risk of
concurrent disasters. The three technologies supported are
differently susceptible thereby mitigating risk to overall
project. PFIs will be supported to diversify sustainable
energy lending portfolio to ensure a mix of borrowers and
technologies.
Each technology will include optional security measures (e.g.
pole mounting and security clamps for PV panels) and
training on theft prevention. Also, the scheme inherently
focuses on individual or clan-based ownership which
experience has demonstrated reduces the likelihood of theft
or vandalism by local people as compared to schemes where
ownership is less well defined.
Overall Rating
S
S
M
S
S
S
S
6. Loan/credit conditions and covenants
There are no conditions or covenants.
D. APPRAISAL SUMMARY
1. Economic and financial analyses
Economic Analysis: Economic benefits for households and MSE end-users will derive from the
removal of financial and technical barriers which now prohibit these consumers from switching
from the use of kerosene and dry-cell batteries for lighting, and the use of diesel for energy
generation, to the use of cheaper renewables. The cost of kerosene and diesel, in the Pacific
Islands in general and particularly in remote areas and isolated islands, has dramatically
increased over the last two years. Data on the amounts households spent on their energy needs in
the Pacific is scattered and unreliable. While the Governments of Solomon Islands and Papua
New Guinea have tried to control the price of kerosene, the reality is that the cost of kerosene
14
outside the capital cities is three to four times the price set by the Government. The average cost
of energy in 2002 was between 4 – 8 percent of GDP per capita. Estimated cost due to the high
cost of oil and the transportation of oil itself has skyrocketed to between 12 -25 percent of GDP
per capita in 20055. The economic analysis based on the above mentioned avoided cost
methodology shows an EIRR of 8.7% for the largest, Solar PV component of the project.
Limited availability of data did not allow including the consumer surplus and externalities in the
analysis. Analyses conducted in other countries show a three fold increase in EIRR when
consumer surplus is included (Philippines) and a more than five times of EIRR increase when
externalities were accounted for (India). For this project it suffices to indicate that the EIRR
based on only the avoided cost calculation is a conservative outcome.
Financial Analysis
Two types of financial analyses were conducted: (i) an overall analysis for the main component
of the project i.e. solar PV systems and (ii) a financial analysis of micro and small enterprises
participating under the program. Financial analysis for the project, import duty for the three
largest participating countries ranged from 5% in Fiji to 20% in PNG and a weighted average of
18% was used. For the value added tax, PNG charges 10% while SI has 15%, and 11% was used
in the calculations. The result is a FIRR of 14%. Investments in MSE projects to be financed
under the scheme will be screened by PFIs. It is assumed, as PFIs do not provide loans to loss
making enterprises, that these investments will be financially justified. Illustrative projects were
analyzed for the following MSEs: retailer and technical service providers of Solar PV, energy
services enterprise engaged in the installation and maintenance of fuel switching equipment,
pico-hydro end user, and energy efficiency systems provider. The analyses show that these
enterprises are profitable, with IRRs ranging 10 to 24%, with one exception of a high 74%. This
assumes that they have access to loan funds with terms and conditions as described in the
implementation plan. Summaries of these analyses, which should be considered as illustrative
examples, are presented in Annex 4.
2. Technical
There are no significant technical issues related to Solar PV systems, pico-hydro systems or fuel
switching. The Solar PV and Pico hydro systems will follow the same standards that have been
widely used in earlier Bank-GEF projects in several countries. While fuel switching is a new
commercial activity, it has been used and practiced for many years in individual projects spread
out over the Pacific and other countries in Asia. For each country, the EA, with GEF support,
will assemble an Approved Product Catalogue containing products offered by retailers which
meet pre-defined quality standards. The catalogue will be updated every half year. Participating
Financial Institutions can only extend credit under this scheme for items and systems from this
Approved Product Catalogue.
3. Fiduciary
The Bank’s and IFC’s procurement and financial management arrangements will be agreed at
appraisal based on the recommendations of procurement and financial management capacity
assessments to be completed during appraisal.
5
Estimates based on IEA and PIREP reports, and rapid appraisals undertaken during identification.
15
4. Social
The main social impacts of the project will be on rural households and MSEs. There are no
major social issues that could have an adverse effect on the project, apart from the prospect of
overall political instability. The major stakeholders/beneficiaries for sustainable energy are:



households, who will benefit from access to electricity
MSE retailers and technical service providers, which will extend their market and benefit
from economies of scale that this project will provide
MSEs which will benefit from a cheaper and more reliable form of energy
The major stakeholders for energy efficiency are:


energy using MSEs, and potential energy efficiency service companies
power utilities
The major stakeholders common to both sustainable energy and energy efficiency are:

financial institutions

Individuals and enterprises whose capacity will be built.
These groups have been consulted, many individually as well as through public consultation
sessions,6 during which the participants had adequate time to express their views, which have
been taken into account in project design. The key findings from these sessions are:




Access to electricity services in rural areas is a priority for households and enterprises.
Sustainable energy is generally perceived as the most feasible means of accessing electricity
services, although past experience has not always been good resulting in some negative
preconceptions. Women, now responsible for lighting the house, will benefit most from
access to modern energy services.
The role of government in delivery of rural electricity services is unclear and the private
sector has limited financial, management and technical capacity for the task. However,
people are aware that previous government subsidized models are unsustainable and that new
approaches are required and, most important of all, are willing to pay for working services.
General awareness of the cost and benefits of sustainable energy and energy efficiency
measures is low; this is especially the case for energy efficiency. There is also a need for
training in the technical and management aspects of sustainable energy and energy
efficiency.
Affordable finance for households and enterprises for any capital investment, including
sustainable energy, is generally unavailable even though people are willing to pay reasonable
rates of interest.
5. Environment
This project is expected to have minimal adverse environmental impacts. The East Asia and
Pacific Safeguards Secretariat has reviewed the Project Concept Note and the Integrated
6
Minutes and record of attendance from these consultations in Fiji, PNG and Solomon Islands are in the documents
on file.
16
Safeguards Data Sheet (ISDS), and has given this project a Category “C” rating. The major
issues are:


Safe disposal of the batteries in Solar PV systems; and
Any land-use issues associated with the lines coming from pico-hydro systems, which might
have to pass over land not belonging to the owner of the pico-hydro.
6. Safeguard policies
The technical assistance and investments in Solar PV, pico-hydro and fuel-switching in the
project are expected to present minimal environmental risk. Apart from the lead acid batteries in
the Solar PV lighting kits, no hazardous materials are involved.
Solar PV battery disposal risk. The project was designed to alleviate the disposal risk of these
lead acid batteries, which arises for each user when the battery reaches the end of its useful life
every three to five years. The initial loan to Solar PV end-users will incorporate an element
dedicated to the purchase of the first replacement battery. Arrangements will be made such that,
before the finance for the replacement battery is released by the PFI, the old battery is handed in
to the retailer. There are environmental laws in all participating countries which categorize
batteries as low hazard waste, but enforcement is patchy or non-existent. Project EAs, using
project TA funds, will work with the various national environment authorities to develop Codes
of Conduct for battery disposal. In Fiji and PNG, battery disposal is now available on a
commercial basis for the recovery of the lead. Solar PV suppliers under SEFP in all target
countries will be required to use commercial battery disposal points when available and adhere to
officially mandated procedures when in place.
Low voltage transmission line for pico-hydros. There is a minimal social risk associated with
pico-hydro generators where the end-use for the power is located close, but not adjacent to the
site of the generator; in such circumstances, a short low voltage transmission line across the
intervening land will be needed. PFIs offering finance supported by the RSF will be required to
check that the permission of all users of affected lands has been obtained, in accordance with
local practices.
Monitoring. During implementation, a post audit review will be conducted by the Bank and IFC
of (i) the management of battery disposal and (ii) agreements to pass transmission cables across
neighbors’ land.
Safeguard Policies Triggered by the Project
Environmental Assessment (OP/BP/GP 4.01)
Natural Habitats (OP/BP 4.04)
Pest Management (OP 4.09)
Cultural Property (OPN 11.03, being revised as OP 4.11)
Involuntary Resettlement (OP/BP 4.12)
Indigenous Peoples (OD 4.20, being revised as OP 4.10)
Forests (OP/BP 4.36)
Safety of Dams (OP/BP 4.37)
Projects in Disputed Areas (OP/BP/GP 7.60)
17
Yes
[ x]
[]
[]
[]
[]
[]
[]
[]
[]
No
[]
[ x]
[ x]
[ x]
[ x]
[ x]
[ x]
[ x]
[ x]
Projects on International Waterways (OP/BP/GP 7.50)
[]
[ x]
7. Policy Exceptions and Readiness
The project does not require any exceptions from Bank policies and meets the readiness criteria.
18
Annex 1: Country and Sector or Program Background
PACIFIC ISLANDS: Sustainable Energy Finance Project
Overview
The Pacific Island Countries (PICs) can be divided into three major groups in terms of electricity
access: (i) PNG, Solomon Islands and Vanuatu, which have less than 20 percent of the
population with electricity access; (ii) Fiji, Federated States of Micronesia (FSM), Republic of
Marshall Islands (RMI) and Kiribati, with a range of 30 to 65 percent; and (iii) the remainder
(Samoa, Tonga, Palua, Tuvalu, Nauru, Niue, Cook Islands and Tokelau), with almost complete
access. For the lower and middle group countries, the increase in availability of electricity
services will be the result of a combination of increased urbanization (people coming to locations
where electricity supply is available) and rural electrification programs (bringing electricity to
the people). The provision of electricity in urban areas is dominated by the utilities, with
coverage of greater than 85 percent. Substantial support for rural electrification, despite the fact
that electrification coverage in rural areas is less than 25 percent of urban coverage, has not been
undertaken. This has principally been due to the high costs associated with grid extension or offgrid generation with typical costs of generation over USD1 per kWh for small diesel generators.
Despite the very low extent of rural electrification, a widespread program that rapidly expands
the proportion of rural electricity consumers will be very expensive and risky. Such an approach
is not affordable for public or private sector, and is unlikely to get support from donors.
These countries have large and diverse renewable energy resources. They also have large
informal rural economies, with most people engaged in subsistence agriculture with low
household incomes. As a result, the per capita energy use is low but at the same time constitutes
up to 20 percent of household expenditure, most of which is for kerosene and dry cell batteries
for poor-quality lighting. This suggests that the rural hardship for many people could be
appreciably reduced by improving access to low-cost and affordable electricity services for
households and micro and small enterprise.
Increasing access to electricity services is therefore a necessity for the promotion of economic
growth and improving the quality of lives of rural households. However, the high cost of oil
means that, without reducing the dependence on diesel generation, it is not possible to achieve
this in a sustainable way. Further, it is unlikely, given the probable scenario that oil prices will
continue to rise, that current levels of access can be maintained. The promotion of energy
efficiency and the use of low cost off-grid technologies which utilize local renewable energy
resources are therefore likely to be a major component of any rural electrification strategy.
In this context, renewable energy technologies and energy efficiency interventions offer costeffective options for increasing access to modern energy services for rural households and MSEs.
Unfortunately, there are barriers hindering the development of the markets for renewable energy
and energy efficiency as shown below in Table 1. Assuming these barriers can be overcome,
then substantial market potential exists in the targeted countries as outlined in Table 2 in
Attachment 1.
19
 Table 1: Barriers to market development for renewable energy
and energy efficiency in the Pacific Region
Type
Technical
Market
Institutional
Financial
Renewable Energy
 Lack of demonstration renewable
energy schemes
 Absence of appropriate technical
skills and specifications
 Lack of knowledge about the
renewable energy resources potentials
 Lack of retail outlets for RE products
 Lack of private sector involvement in
service delivery
 Perceived high costs of delivering
services
 Inadequate public awareness
campaigns
 Negative past experience creating low
consumer confidence in Solar PV
 Previous donor funded government
programs failed to develop local
ownership
 Inadequate capacity to address the
challenges of climate change,
including the design and
implementation of projects
 Ineffective coordination among
stakeholders
Energy Efficiency
 Lack of knowledge on practical
energy savings measures and
cost-benefit

Lack of affordable commercial
finance
Low investor confidence due to lack
of awareness and information

Legislation and policies are either not
in place or ineffective.


Legislative,
regulatory
and policy






Lack of private sector
experience
Inadequate public awareness
campaigns
Policies and programs that only
provide information may have
some positive effect but do not
address or overcome behavioral
barriers and inertia.
Governments tend to begin
programs but are seldom
consistent in long-term policies
and resources
Projected savings aren’t believed
to justify the investment in time
and effort.
Finance institutions are not
familiar with these investments
and consider them as risky.
Legislation and policies are
either not in place or ineffective.
Source: Collated from PIGGAREP Project Brief, PIREP Regional Report 2005, and Bank missions.
As in many other developing countries, potential investors face significant difficulties in
financing renewable energy schemes and energy efficiency measures. This is especially the case
for the private sector, particularly local entrepreneurs, who find it difficult to obtain the
necessary debt finance from the financial institutions. Those enterprises engaged in the supply of
renewable energy and energy efficiency goods and services are also limited by this lack of
available finance. This difficulty does not reflect a lack of liquidity in the PICs financial sector,
as there is adequate liquidity. Rather, the financial institutions are reluctant to finance these
20
systems for three reasons. First, the financial institutions have no experience in financing such
investments, and view them as risky. Second, these systems generally have high upfront capital
costs and low operational costs, which implies that the initial debt requirements are high, leading
to a necessary loan term of five to seven years. However, there are often legal or internal barriers
that restrict the financial institutions from making loans of the required tenor. Third, the interest
rates charged by banks on loans to individuals and MSEs can be high enough to render
unaffordable the acquisition of renewable energy systems using bank finance. On the other hand,
a number of financial institutions are looking for good projects to finance, including in the rural
areas, and provided the other barriers can be mitigated, then favorable loan terms are likely to
become available.
Fiji Islands
Fiji is the second largest of the PICs, with a population in excess of 840,000 growing at a rate of
1.4 percent per year. The nation is an island group located in the tropic zone centered at about
18°S 180°E with two main islands (Viti Levu and Vanua Levu), and approximately 120 sparselyinhabited outer islands. Between 1987 and 2000, Fiji was politically unstable and underwent
three coups, partly motivated by racial tensions between ethnic and Indo- Fijians. Presently, GDP
is approximately USD2700 per capita with economic growth over the last few years moderate
and estimated at 3.0 percent in 2005. However, the proportion of households living in poverty is
increasing from an estimated 15 percent in 1983 to nearly 30 percent in 2000. Approximately 48
percent of the population lives in rural areas. The economy is heavily dependent on sugar and
other agricultural exports, garments and other manufactured goods, gold and other primary
products (timber, timber products, fish) and tourism. The sugar industry, for which
approximately 25 percent of households are directly dependent for income, has been in decline
since 1994.
The Fiji Electricity Authority (FEA) is the public utility responsible for general electrification
through the national grid. It has an extensive grid on Viti Levu and three other smaller grids on
Vanua Levu and Ovalau, supplied by 14 power stations with a total installed capacity of 194
MW, of which 80 MW is hydro. FEA is presently embarking on an investment program aimed at
full renewable supply by 2011. However, only profitable grid extension is undertaken unless
funded from external sources. The Fiji Department of Energy (DoE) is therefore the primary
agency responsible for rural electrification through its Rural Electrification Unit. The existing
policy of the MWE is to support rural electrification through a 90 percent subsidy scheme of
households which includes grid extension, as well as off-grid schemes such as micro-hydro or
small diesel generator schemes. Lack of technical and management skills and the cost of
maintenance and operating costs for the community diesel schemes has meant earlier failure of
the majority of schemes. This has led to a low coverage rate and poor quality of access to
electricity services and a growing dependency on subsidies. The MWE has also instigated a
Renewable Energy Service Companies (RESCO) scheme which provides Solar PV home
lighting systems to more than 500 households on a rental basis. The Public Works Department
(PWD) also operates diesel generators at five government stations where the cost of supply is
estimated as averaging FJD2.44/kWh. As a result, approximately 35 percent of households do
not have access to any form of electricity service.
21
For the households without access to electricity (including those in defunct DoE diesel schemes),
there is a reliance on electricity substitutes such as kerosene/benzine, dry-cell batteries, and
Liquefied Petroleum Gas (LPG). These households have an average monthly expenditure on
kerosene/benzene for lighting and dry-cell batteries of approximately FJD19 with 36 percent
spending between FJD22 and FJD42 monthly and 37 percent between FJD12 and FJD22. For the
19,000 households in the MWE community diesel schemes, of which more than 650 schemes
have been installed, the communities spend FJD150-250 per month on diesel alone. These
groups exhibit different energy expenditure patterns some of which can be avoided through the
adoption of renewable energy household systems. Solar PV or pico-hydro has the potential to
avoid the majority of expenditure on kerosene and dry-cell batteries. Switching from diesel to
locally-produced coconut oil has the potential to reduce diesel fuel costs by between 20 percent
and 60 percent. The MWE estimates 12,000 un-electrified households are potential users of solar
PV, another 5,000 (especially those in mountainous high rainfall areas where solar is less viable)
are viable for pico-hydro, and a potential 3000 households in the community diesel schemes are
viable for fuel switching. This indicates a potential market of 20,000 households to gain access
to electricity services. The barriers to development of these markets include: lack of awareness
of renewable energy options, high initial capital cost and lack of affordable finance, and limited
access to technical services.
Papua New Guinea
Papua New Guinea is the largest of the Pacific Island Countries (PICs) with a population of
approximately 5.6 million, presently growing at a rate of 3.5 percent, dispersed over 600 islands.
Nearly half the population is under 17 years of age and the life expectancy is the lowest of the
PICs. Approximately 87 percent of the population lives in rural areas. Over the last 10 years,
economic growth has averaged less than 3 percent annually in real terms resulting in an effective
drop in real GDP per capita to USD582. In 2000, some 2 million people, 37.5 percent of the
population lived in households where the real value of consumption per adult equivalent was
below the poverty line. Almost 94 percent of these poor households live in rural areas, mostly in
the highlands and Mamose regions. There are more than 860 languages in PNG, a third of the
world’s languages.
The dual economy, a characteristic common in many developing countries, is particularly
pronounced in the case of PNG. The formal economy is dominated by mining and petroleum
sector, which is also the largest exporter and provides more than a third of government revenue.
Formal agricultural activities also contribute substantially to GDP. Only 18 percent of rural
households are engaged in the formal sector whereas the majority of the population leads a
subsistence lifestyle. The expenditure on energy is closely linked with wealth as poor households
expend up to 32 percent more of their income to meet their energy needs than wealthy
households.
The corporatised national utility, PNG Power, operates three interconnected distribution systems
and about 15 mini-grids at the main provincial centers serving a total of 73,000 customers. There
is a total installed capacity of 350 MW -- half of which is hydro and half diesel with
approximately 40 MW of this de-rated due to lack of maintenance. PNG Power is operating well
below the government required 10 percent rate of return and, as grid extension is unprofitable,
there is no extension activity unless it is funded from external sources. There are also about 80
22
small rural electricity schemes which serve key administrative and service centers called Ccenters. These C-centers are operated by district or provincial authorities although most are out
of service or provide only limited duty periods. Industrial auto-producers (mostly mines), many
small stand-alone generators or hydros, and one IPP increase the total installed capacity to
approximately 600 MW providing about 2,600 GWh per annum. PNG Power provides power to
only 5 percent of the households nationally, accounting for 82 percent of customers but 11
percent of sales with the domestic tariff at PGK0.40 per kWh (USD0.13). It is likely that more
than 90 percent of the population is not electrified by any means -- grid, self-generation, nearby
industry, small-scale hydro or solar -- which makes PNG one of the lowest electricity coverage
areas in the world.
The energy consumption patterns of rural households reveal a high dependence on traditional
fuels, low or no access to electricity and reliance on electricity substitutes (especially kerosene
and dry-cell batteries) for basic lighting. In some cases, wealthier households, family groups or
small enterprises may purchase a small generator although the high cost of operation and
unreliable supply of fuel means it is rarely used. Household expenditure on kerosene varies
considerably depending on income and access to supply. A typical salaried household such as a
teacher or health worker may spend 65 Kina per month on kerosene for lighting, whereas a
farmer with some small cash income from beetle nut or fishing may spend only 25 Kina per
month. Other income-earning households, such as those engaged in coffee, cocoa or palm oil, or
who are recipients of resource rental payments, will also have comparable expenditure on
kerosene. Households in remote areas, leading purely subsistence lifestyles, are unlikely to use
kerosene at all.
PNG has substantial untapped hydro, solar and biomass resources. Investment by individual
households and micro- and small enterprises in Solar PV and pico-hydro has the potential for
substantial savings by avoiding expenditure on kerosene and dry-cell batteries. There are
presently more than 130,000 salaried people working in rural areas, more than 520,000 engaged
in reliable cash cropping activities such as coffee, cocoa and oil palm; more than 36,000 micro
enterprises such as local commodity resellers, artisans and sewing; more than 15,000 small
enterprises such as coffee processing, trade stores and food shops. If 11% percent of this market
was developed then this would result in a potential 80,000 households and 5,100 MSEs with
access to electricity. Solar PV home lighting systems presently retail for PGK42-52 per Wp;
pico-hydro systems for PGK 15-20 per Wp; and using locally-produced coconut oil instead of
diesel can reduce fuel costs by between 10 and 30 percent (e.g., presently in Bougainville,
refined coconut oil retails for PGK2 per litre whereas diesel is PGK2.80 per litre representing a
21 percent reduction in fuel costs). The high initial investment costs, difficulty in accessing
technologies and technical services, low awareness of renewable energy options and lack of
affordable finance pose the main barriers to improving access to these electricity services.
Republic of Marshall Islands
The Republic of Marshall Islands (RMI) is made of 29 atolls of which 22 are inhabited, covering
about 181km2 (less than 10m above the mean sea level). The population of more than 51,000 live
in approximately 6,500 households, with 68 percent living in the two main atolls of Majuro and
Ebeye. The typical outer atoll will have about 80 to 100 islets and anywhere from three to four
modest-sized communities, ranging from 100 to 400 people. RMI remains heavily dependent on
external assistance with foreign aid, mostly from the USA, representing 60 percent of GDP. The
23
GDP per capita is approximately USD1,817 and has dropped by up to 35 percent since 1995 due
principally to a reduction in aid grants.
The workforce represents 51 percent of the population, though less than a third of these are in
rural areas; however, 45 percent are in paid employment with the rest engaged in subsistence
activities. For rural households, small cash incomes from agricultural products (essentially
copra) are supplemented by remittances from family living in urban centers. In 1999, the average
income for urban households was USD10,930 whereas rural households received USD3,880
(with a large variance). The ADB estimates that 66 percent of the population in the outer areas
(1,400 households) lives below the poverty line.
The energy sector is managed at the national level by the state-owned utility, Marshall Energy
Company (MEC), which supplies Majuro, Jaluit and Wotje with an installed capacity of 29 MW
diesel (de-rated) delivering 81.3 GWh to 3,528 customers in 2003. The second largest power
system is KAJUR on Ebeye, with an installed capacity of 2.5 MW, providing 19.2 GWh to 937
customers. The domestic tariff is presently USD0.225 per kWh. The expansion of coverage of
these two schemes has remained steady at 5 percent for the last few years. There are additional
small diesel schemes run by local authorities in two outer atolls, supplying roughly 100
customers. There is also substantial experience with Solar PV, and in 1999 it was estimated that
5 percent of households were using this supply. Solar PV is also widely used in schools and
health centers. MEC has contracted to the government to coordinate these Solar PV activities
possibly via a RESCO approach. In 1999, 37 percent of households did not have access to
electricity, it is likely that this figure has declined and is estimated at approximately 25 percent
of households due to gradually increase to almost complete coverage in the main population
centers, but also expansion of Solar PV coverage in rural areas. However, the 25 percent (1,650)
of households without access are almost all in the rural areas.
The frequent energy forms used for lighting in rural households include electricity from a
generator supply (13.4 percent), kerosene wick lamps (70.8 percent), Solar PV system (15
percent) and other (0.7 percent). Wood is the predominant fuel for cooking for rural households
(78.5 percent), with kerosene the next most prevalent (40.5 percent), and with charcoal growing
in popularity. Typical household expenditure on kerosene for lighting and dry-cell batteries for
radios and torches is USD22-40 per month. The availability and utilization of Solar PV has
penetrated more widely here than in PNG or the Solomon Islands. The opportunities for
economic activity from improved access to electricity include fish and food storage, small fresh
product retailing, battery recharging, eco-tourism, improved communications and community
activities.
RMI is a low-lying atoll country and, as such, there is no potential for hydro. However, there is
excellent insolation and so Solar PV is widely used and desired. Solar PV has been supported by
donor programs and schemes involving RESCO type approaches have been undertaken by the
Government Energy Office. These projects installed 75 to 100 Wp systems for a monthly rental
charge of up to US10 and have had mixed success for a range of technical and management
reasons. These schemes are about to be contracted to MEC which, it is anticipated, will address
many of these problems. There is one solar retailer in RMI and installed systems cost
approximately USD18-20 per Wp. MEC imports equipment from the United States and installed
cost is USD22.5 per Wp. There is also local experience using coconut oil as a diesel substitute
and coconut oil is available for USD1.50 per gallon (compared to diesel at USD1.90 per gallon).
24
In 2004, RMI produced 4,500 tons of copra, which is sold via the Pacific International Inc (PII)
company, who also produced coconut oil for export and for use in vehicles and small generators.
PII estimates that copra production could be expanded to 18,500 tonnes. Local retailers estimate
a potential market of at least 2,000 Solar PV systems; with fuel switching of small diesel
generators accounting for a possible 50 installations. No potential for pico-hydros is evident.
Solomon Islands
The Solomon Islands is the third-largest island nation. It has a population of more than 460,000
dispersed over 300 islands, living in approximately 65,000 households. A population growth rate
of 2.8 percent, and per capita GDP of USD600 contribute to making the Solomon Islands one of
the poorest and most vulnerable of the PICs. Poverty remains widespread particularly in rural
areas where 85 to 90 percent of the population lives, with most relying on subsistence agriculture
and fishing as a primary source of income. The country is slowly recovering from civil unrest
that erupted into open conflict in June 2000. Since mid-2003, security has improved significantly
with the arrival of the Australian Regional Assistance Mission to Solomon Islands which is
expected to remain in place for many years.
The formal sector is mainly government, agriculture, forestry and fishing and involves
approximately 21,000 employees of which at least 12,000 are in rural areas. The informal sector
includes activities such as copra, cocoa, forestry, commodity selling, vegetable growing, home
sewing, fishing and similar part-time activities and is by far the dominant income producing
activity for rural communities. A high proportion of informal sector workers are women and
these activities provide small, but important, income streams necessary to meet family needs
including school fees.
The Solomon Islands Electricity Authority (SIEA) is the corporatised public utility which is
responsible for electric power supply and distribution in the capital (Honiara), the nine provincial
centers, and the township adjoining the Noro fish processing facility. The present installed
capacity is in excess of 22 MW of which 0.18 MW is from two micro-hydro schemes, giving a
total consumption in excess of 30 GWh. The SIEA management has recently undergone review
with the assistance of the World Bank and a management contractor about to be appointed.
Domestic tariff is SID1.3175 per kWh (USD0.18 per kWh). Other generation is provided by
private companies (2 percent) typically plantations and fish processing plants, individually
owned systems (1 percent) and other sources such as shared connections, mission or community
schemes (1 percent). In Honiara, 73 percent of households have electricity whereas in the
provinces access is only 9 percent. Overall, at least 90 percent of the population is without access
to any electrical supply. In the rural areas, more than 95 percent (which equates to 56,000 rural
households) are without service.
There is good renewable energy resource potential in the form of small-scale hydro, solar, and
coconut oil as a substitute for diesel. The high insolation rates mean that Solar PV is a viable
option in most parts of the nation. There are also significant hydro resources, with at least 326
MW of small-scale hydro potential identified across seven of the islands. Coconut oil production
is well established and local experience has verified its use as a diesel substitute in generators.
Coconut oil production levels peaked at more than 10,000 tonnes in 1999 and it is reported, at
that time, that 47 percent of rural households are involved in copra production. Given the relative
importance of copra as a cash crop to rural households, the use of coconut oil as a fuel has the
25
potential to improve domestic copra markets in such a way as to produce broad rural
development benefits.
As in most PICs, the energy consumption of rural households is dominated by traditional fuels
such as firewood and coconut shells. For lighting in un-electrified rural households, kerosene is
widely used as are dry-cell batteries for torches and radios. Salaried workers, including private
sector as well as teachers and health workers typically spend in the order of SID90-120 per
month on kerosene and dry-cell batteries. Other informal cash earning households engaged in
agricultural activities, such as cocoa, copra, fishing, forestry spend SID30-50 per month,
provided they have access to a reliable supplier. More able households, micro and small
enterprises, or institutions such as schools and missions, may have a generator; however, access
to petrol or diesel is unreliable and expensive so generator use is not as widespread as in many
other PICs.
Investment in Solar PV, pico-hydro and fuel switching has the potential to avoid much of the
expenditure of households and enterprises on kerosene and dry-cell batteries for lighting, and on
diesel. The main barriers are the lack of awareness of renewable energy options, high initial
capital cost and lack of affordable finance, and limited access to technical services. The retail
sector for Solar PV and pico-hydro is particularly limited with only one specialized retailer of
Solar PV and no marketing of pico-hydro. Presently, Solar PV is retailing for approximately
SID86 per Wp and imported pico-hydro costs SID 45 per Wp. However, there are 12,000 rural
households receiving salaries and more than 18,000 engaged in key income producing activities
such as agriculture, copra, cocoa and fishing. MSEs represent another potential market of at least
2000 customers. The potential market for Solar PV is estimated to be at least 9,000 Solar PV
systems and an estimated 500 pico-hydro and 500 fuel switching installations, mostly for MSEs.
While it appears possible for these moderate-consumption groups to fund these investments from
the avoided costs of kerosene and batteries, this is unlikely to be the case for the many lowconsumption households.
Vanuatu
Vanuatu is a nation of over 80 islands, of which 65 are inhabited with a population of 205,000
living in approximately 40,000 households. The population is growing at an average annual rate
of 2.6 percent, with 42 percent of the population below 15 years of age. The three most populous
islands -- Efate, Santo and Tanna -- are home to 50 percent of the population, and 78 percent of
the population lives in the rural areas. Presently, GDP per capita is USD699 and while real
growth is approximately 3 percent, it is barely keeping pace with population so that the growth
per capita is marginal. There are more than 100 spoken languages of which Bislama is spoken
by 25 percent of the population.
Nearly 80 percent of the population is engaged in subsistence agriculture and contributes only 10
percent to the formal economy, where the formal economy is characterized by a small, high-cost
modern sector. Rural incomes are less than 10 percent of urban incomes although this data does
perhaps not reflect the large proportion of urban salaries which are remitted to rural areas. The
last 10 years has seen a change in the main economic activities away from the primary sector to
services. The main income producing activities in rural areas is copra, cocoa, Kava, cattle and
forestry, with approximately 10 percent of the formal sector based in rural areas.
26
Vanuatu has largely privatized its electricity supply sector through the use of long-term
concessions, with the government retaining a 16 percent share of the company. This private
utility, UNELCO, has provided electricity to the capital Port Vila and Luganville for several
decades, recently extending to two townships on other islands. The transfer of management to
the private sector has raised the quality of service. However, the absence of open competition in
tendering for the concession and the lack of legal and regulatory basis for monitoring and
constraining the monopoly held by UNELCO has resulted in relatively high power tariffs for
consumers, and electricity supply is focused primarily in the urban centers. Domestic electricity
costs in Vanuatu are relatively high for the region at around USD0.25 per kWh (compared to
USD0.18 per kWh in Solomon Islands). In 2002, UNELCO had a peak demand of 8.2MW and
sold 34 GWh in Port Vila, which accounts for 85 percent of demand and 70 percent of
customers. Diesel accounted for 93 percent of generation and hydro the rest. The Energy Unit
within the Ministry of Lands, Geology, Mines, Energy, Environment and Water Resources
formulates energy policy; however, this is about to be reformed. The Energy Unit has also
undertaken at least eight rural Solar PV projects with mixed success. There are many small
generators in operation in able households and at missions and service centers, although these
provide very limited service. Overall, at least 60 percent of urban households -- but only 6.9
percent of rural households -- have access to electricity services of any kind.
More than 86 percent of rural households (24,000) use kerosene as their primary source of light,
typically costing households on the main islands VUV1,300 to 6000 per month. Additional
expenditure on dry-cell batteries and candles can be of the order of VUV 1,500 per month. On
outer islands, possibly due to unreliable supply and also low household incomes, this energy
expenditure drops to VUV400 to 800 per month. Due to the unreliable supply of fuel, generators
operated by MSEs in rural areas are often under utilized.
Vanuatu has good renewable energy resources and solid experience with Solar PV, micro-hydro,
and coconut oil as a substitute for diesel. Presently hydro provides 7 percent of national supply
and there is another 75 kW scheme being prepared. Presently, there is limited local technical
capacity and only one retailer of pico-hydro equipment. The Energy Unit has identified suitable
sites presenting more than 1.5 MW of micro-hydro potential. Solar PV is a viable option for most
areas in the country due to the high insolation rates and, as such, this technology has received
wide support from donors and government. There are several retailers offering a range of
products and small solar lighting kits are available for VUV3,000 to 4,500 per Wp. Retailers
estimate a potential of more than 4,000 systems. Vanuatu also has probably the most experience,
of all the PICs, with coconut oil as a diesel substitute. With an annual output of around 40,000
tonnes of copra, there is potential to locally produce about 29.7M liters of coconut oil which, in
principle, would completely displace imported diesel. There are two established private firms in
Port Vila producing and retailing coconut oil for use in diesel vehicles and generators.
Financial System Structure in Participating Countries
Fiji (Source IMF 2003)
Fiji’s banking system is highly intermediated for its relative size, predominantly foreign owned
and with major banks operating as branches rather than subsidiaries of their overseas parent
fund. The system consists of five commercial banks (ANZ, Westpac, Colonial National Bank,
Baroda and Habib, all foreign owned, totaling 35 percent of financial system assets); three credit
27
institutions (4 percent of assets), 10 insurance companies (9 percent), one development bank (6
percent), one pension fund (FNPF – holding 45 percent of finance system assets) and a series of
small non-bank institutions (less than 1 percent).
ANZ and Wespac hold 80 percent of the commercial banking market but Colonial holds the most
of the rural segment since it holds the postal deposit function (8 percent of total market share).
Oversight is the responsibility of the Reserve Bank of Fiji, which has specific rules for
commercial banks on single client exposure (maximum 25 percent of capital base), specific riskcapital ratio (8-10 percent depending on type of capital), and maximum foreign currency
exposure (maximum 25 percent of capital base), and it enforces loan classification and the
corresponding provision requirements.
PNG (Source BPNG website 2005, IMF 2006)
The financial system comprises four commercial banks -- ANZ, Westpac, Bank South Pacific
(BSP), Maybank -- and 10 other licensed financial institutions as well as 10 superannuation
(pension) funds and 21 savings and loan societies. The rural development bank, RDB, is being
restructured after being declared insolvent in 2004. All are supervised by the Bank of Papua New
Guinea (BPNG). BSP holds 55 percent of the commercial banking market, with the other three
sharing almost equally in the balance. The BPNG has specific rules on single client exposure
(max 25 percent of capital base), on loan classification and gradual provisions, on risk-capital
ratio (6-12 percent) and on foreign currency exposure (max 15 percent of capital base).
Republic of Marshall Islands (Source IMF 2006)
In the RMI, the US Dollar is the domestic legal tender, there is therefore no central bank and the
key banking rules are from the US Federal Reserve Bank. It should be noted that while RMI was
removed in 2002 from the list of non-cooperative countries with regards to money laundering, it
is still on the OECD tax haven list. The financial sector comprises two commercial Banks: Bank
of Marshall Islands (BoMI) and Bank of Guam (BoG), a few insurance agencies, one money
remitter and a development bank. The banking sector is characterized by high intermediation
costs and low level of domestic lending. A substantial proportion of the lending is held outside
the country which makes BoG the dominant bank since it is the only one which can conduct
external banking operation after BoMI lost its international banking correspondents in 2004.
Solomon Island (source IMF 2004)
Solomon’s financial system assets equate to 85 percent of total GDP. The system includes a
Central Bank (CBSI, at 22 percent of GDP), three commercial banks (ANZ, Westpac, and
National Bank of Solomon Island-NBSI totaling 30 percent of GDP), one pension fund (NPF, at
24 percent of GDP), one development bank (DBSI, at 3 percent of GDP), and a few relatively
small non-bank institutions. The foreign-owned banks, ANZ and Westpac, hold close to 50
percent of the commercial banking market, with NBSI holding the other half. NBSI is the only
bank substantially represented outside the capital region. The pension fund NPF also plays a
crucial role in lending to households, since members can use up to 66 percent of their
contributions as collateral for commercial bank loans.
28
The CBSI has specific rules on single client exposure (max 25 percent of capital base), on loan
classification and provisions, and on risk-capital ratio (10-15 percent). No data is available on
maximum foreign currency exposure.
Vanuatu (source IMF 2005)
Vanuatu’s financial system met substantial changes following the 1998 crisis but is still
composed of both an on-shore and an off-shore system. Assets of the on-shore system equate to
175 percent of total GDP. The system includes a central bank (RBV, at 20 percent of GDP),
three commercial banks -- ANZ, Westpac, and National Bank of Vanuatu (NBVI), totaling 140
percent of GDP, one pension fund (VNPF, at 15 percent of GDP), and a few non-bank
institutions that are relatively small. There was a development bank (DBV) which was closed
following the 1998 crisis; there are ongoing discussions to restart it. ANZ has the largest market
share in commercial banking; however, only NBVI extends its lending to the rural areas and
across the islands even if in a limited fashion.
The off-shore system is composed of seven active banks (assets totaling 140 percent of GDP), a
dramatic decrease down from the 100 plus existing before the 1998 and September 11, 2001
crises, and following the work done on money laundering that led to the passing of the
International Banking Act in 2003. The RBV has specific rules on single client exposure (max 25
percent of capital base), on loan classification and provisions, on risk-capital ratio (8 percent)
and on foreign currency exposure.
29
Attachment 1 of Annex 1
Table 2: Potential market share by country and technology
Technologies
Potential Investors
Targets
Market Share (%)
PNG
Solar PV
80,000
16,000
20%
Pico-hydro
Fuel switching
8,000
3,000
300
400
4%
10%
Solar PV
12,000
2000
17%
Pico-hydro
Fuel switching
5,000
3,000
150
220
3%
7%
9,000
1750
19%
Pico-hydro
500
65
13%
Fuel switching
500
50
10%
4,000
800
20%
Pico-hydro
Fuel switching
100
400
20
50
20%
13%
RMI
Solar PV
2000
450
23%
0
50
0
20
40%
TOTAL
Solar PV
109,500
21,000
19%
Pico-hydro
Fuel switching
13,610
7,150
535
740
3%
9%
Fiji
Solomon Islands
Solar PV
Vanuatu
Solar PV
Pico-hydro
Fuel switching
30
ANNEX 2: MAJOR RELATED PROJECTS FINANCED BY THE BANK AND/OR OTHER AGENCIES
This annex lists the major projects and programs that are related to the SEFP project and that are
developed either by the World Bank Group or other agencies. These projects are listed by
participating country and grouped under three headings: (i) Energy-related programs; (ii) Other
non-energy World Bank Group programs; and (iii) Other non-energy programs developed by
other agencies.
(i)
Energy-related programs relevant to the SEFP project
World Bank
In the last five years, the Bank has undertaken only one directly connected project in this region
in the energy sector: the PNG Teachers Solar Lighting Project, which became effective in
September 2005. The project will improve the life of rural human services providers by making
available affordable, environmentally sound, basic electricity services from Solar PV. This will
help improve teacher and health worker retention by reducing isolation (through access to radio
and other communications) and providing safer and better living conditions (through access to
lower-cost, better quality lighting). The main global environmental objective is to create early
markets for Solar PV household electrification and build the capacity on the part of all market
participants (providers, purchasers, and lenders) needed to rapidly scale up renewable energy
applications.
In Solomon Island, the Improve Energy Supply TA is also being prepared. It will provide
technical assistance for the financial restructuring of Solomon Islands Electricity Authority
(SIEA), for regulatory reform and capacity building.
ADB
REEP is a technical assistance project of the Asian Development Bank (ADB), funded by the
Danish Government and is intended to provide capacity building assistance to Fiji and Samoa.
The overall goal of the project is to help Fiji and Samoa increase their capacity to develop, fund
and implement RE and energy efficiency projects while emphasizing market driven structures.
ADB has also been working on a Rural Electrification lending project scheduled for 2005 in Fiji
for an amount of USD10 million, which was canceled. ADB and the World Bank are now
working together on financial support for FEA to meet existing and new demand with
sustainable energy solutions, based on least cost analysis, to help ensure that Fiji has a secure,
continuous and reliable power supply. This replace all their diesel generation with sustainable
energy. This GEF project also contributes to achieve this objective.
European Union
Under the 9th European Development Fund (EDF) (2002-2007), the EU is financing energyrelated projects, programs and technical assistance in one of the countries involved in the SEFP,
namely RMI. RMI will use 65 percent of Euro3.5 million from the EDF to focus on developing
cost effective and reliable renewable energy sources – an activity which also receives parallel
31
support from the Government of France and the United Nations Department of Social Affairs.
The Project will work closely with this project, Training and TA provided under this programme
will dovetail with the technologies financed by the RSF. (Letter of intent to collaborate in
Documents on File)
UNDP
UNDP has started implementation of its Regional Energy Programme for Poverty Reduction
(REP-PoR) in the Pacific Islands. Its focuses on providing access to energy through technical
assistance to local communities. One of the activities started under this program is assistance to
local entrepreneurs in Fiji and Solomons Islands, with the development of business plans to be
financed under this project.
UNDP has a regional project under preparation, namely the Pacific Islands Greenhouse Gas
Abatement through Renewable Energy Project (PIGGAREP). It will contribute to the removal of
the major barriers to the widespread utilization of RE technologies (RETs). The project covering
the PICs is expected to: (i) increase the number of successful commercial RE applications; (ii)
expand the market for RETs applications; (iii) enhance institutional capacity to design,
implement and monitor RE projects; (iv) increase availability and accessibility of financing to
existing and new RE projects; (v) strengthen legal and regulatory structures in the energy and
environmental sectors; and, (vi) increased awareness and knowledge on RE and RETs among
key stakeholders.
(ii) Other non-energy World Bank Programs relevant to the SEFP project
Pacifics
Support for small to medium enterprises (TA). The IFC program in the Pacifics will continue to
be delivered by the Pacific Enterprise Development Facility (PEDF). PEDF, will focus work on
providing access to finance, by providing TA and training to local financial institutions, and
strengthening of business associations. Under this program IFC will include training to PFI in
this project, focusing on building and implanting a successful energy portfolio. Under the
business association’s work, PEDF will assist this project with TA and training for associations
of Solar PV retailers. From 2006/2008, the program will be extended to include agribusiness and
urban poor initiatives reflecting the shift in emphasis by PEDF to Melanesia.
Fiji
Increasing efficiency of public expenditure (TA, initiated 10/18/2004). A continuation of the
upward trends in fiscal deficit and public debt would pose a risk to economic growth. The
government has launched a far-reaching program of public sector reform consisting of financial
management reform, civil service reform and public enterprise reform. The Bank is looking to
develop a program of targeted assistance for public sector reform to help the government achieve
its objectives for fiscal consolidation, in particular a reduction in wages and salaries from 11 to 9
percent of GDP.
Developing alternative sources of private sector growth (TA). To cushion the employment and
poverty impact of a contraction of the sugar and textiles sectors, structural reforms to boost
private sector growth and job creation will be important. To contribute to this agenda, a WBG
32
trust fund, the Foreign Investment Advisory Services (FIAS) to provide technical assistance for a
private sector development program focused on regulatory reform, initially supporting the
government’s reforms to the foreign investment legislation and approval process (later
broadening to other ‘Doing Business’ priorities).
Reducing telecommunications costs (TA, initiated 10/29/2004). Reducing Fiji’s high
telecommunications costs and improving access could significantly boost private sector
investment and growth. There is currently a monopoly arrangement for the provision of
telecommunication services with the government, including holdings controlled by the National
Provident Fund, being the main shareholder. This arrangement constrains the ability to introduce
a more competitive cost regime and improve services. The Bank is providing the government
with technical advice to highlight the options possible through a more liberalized sector.
Micronesia
The Bank does not have an active program currently, but stands ready to build its relationship
with the FSM over 2005 to 2008. The Bank recognizes that the FSM has access to substantial
grant assistance from other development partners, particularly the US and Japan. Any potential
Bank involvement will hinge on our ability to effectively leverage the key donor resources and
build local capacity. The Bank has held initial consultations with the government on areas of
possible support and expects an agreement on these to be concluded in the near future.
Tentatively, the discussions encompass two broad areas: (i) to assist in encouraging the growth
of the private sector through targeted interventions (e.g., through support for tax, and
infrastructure reforms), and (ii) to further the public expenditure management reform agenda,
such as by enhancing the government’s ability to maintain key assets, particularly as the FSM
strives to adapt to scheduled reductions in direct US Compact funding.
Marshall Islands
The Marshall Islands became a World Bank member in 1992. Since that time, the Bank’s
assistance has been limited to the involvement in a range of regional initiatives and a few
specific technical assistance activities. With the presence of other donors, particularly the United
States (under the Compact of Free Association), the Bank will be seeking to play a selective role
in the Marshall Islands, focusing on policy advice to leverage donor resources and build local
capacity. The Bank has held initial consultations, which will continue, with the government.
Solomon Islands
Economic/Structural Reform (TA). The World Bank intends to work closely with other partners,
in particular Australia and the ADB, on economic analysis and advice, including in the areas of
decentralization and inter-governmental fiscal relations. The World Bank will provide technical
support to the Economic Reform Unit.
Reduce telecommunications costs and improve service (TA, initiated 02/12/2004). The
availability of telecommunications services is low in absolute terms, particularly in rural and
remote areas. Mobile and internet use are also comparably low. The market structure is
monopolistic and the government’s capacity to regulate the provider is limited. The Bank is
providing technical assistance to the government to look at the ways to introduce a more
competitive environment, thereby lowering costs and improving service quality and coverage.
33
Financial sector recovery and development: Central Bank Capacity Building Project (TA, IDF
Grant of USD254,000; initiated December 2003) and National Provident Fund (TA). All
financial institutions in the Solomon Islands were under stress due to the breakdown in fiscal
discipline which resulted in government defaulting on its debts to both banks and non-bank
financial institutions. While the private sector remains constrained by limited access to credit,
near term efforts have focused on arrears repayments and financial reconstruction. The Bank has
contributed to these efforts through technical assistance and policy support to the National
Provident Fund and the Central Bank. The Bank has also mobilized an Institutional Development
Fund (IDF) to help strengthen the Central Bank’s capacity for effective economic and financial
management.
Vanuatu
Regulatory reform to reduce the costs of doing business (TA). The Bank proposes to facilitate a
discussion with the government on its priorities for improving the environment for private sector
development, and potential options for the Bank to contribute to this. The recent work on “Doing
Business” indicators will be used to contribute to this, as will FIAS work on the development of
Vanuatu’s national investment policy statement and possible follow-up.
Improving the performance of public utilities: Developing a Multi-sector Utilities Regulatory
Body (USD227,500 PPIAF Grant for TA; approved 12/01/2003). In line with a focus on the
business environment, the Bank sees potential for improving the service of key public utilities.
Vanuatu has taken significant steps to improve delivery of utility services, approaches which
have potential application in other Pacific countries. The Bank has completed an initial analytical
assessment focusing on electricity, water and telecommunications, and is willing to work with
the government to identify areas where institutional and technical capacity can be strengthened.
Subject to further discussions with the government, the Bank will aim to follow up on this work
to assist in putting improvements in place. The Bank sees an opportunity to include Vanuatu in
its regional focus on telecommunications reform.
PNG
Road Maintenance and Rehabilitation Project (Loan, USD40 million, Approved 2002). This
project promotes an efficient, safe, and reliable roads transport system in participating provinces.
The six components provide for national and provincial road and bridge maintenance and
rehabilitation, including replacement of bridges on national roads as well as purchase of
emergency bridges and bridge parts.
(iii) Non-energy Programs developed by other agencies but relevant to the SEFP project
ADB
ADB is active in all SEFP countries. It provides private sector support and infrastructure
development. In Fiji, the ADB has three active lending operations with commitments totaling
USD103.8 million (Suva-Nausori Water Supply and Sewerage project, Third Road Upgrading
project, and Fiji Ports Development.). Five lending operations are scheduled: Airports
34
Rehabilitation and Upgrading, Road Upgrading, Urban Sector Development, Rural and Outer
Islands Development and Energy Sector Reforms, in collaboration with the World Bank. In the
Marshal Islands, ADB has active or planned lending operations in the outer island infrastructure
and urban waste. In Solomon Island, due to the debt situation, and in consideration of the
availability of significant external grant funding, the decision has been taken not to pursue
further lending in the short- to medium-term. Non-lending products include Inter-island
Transport Reforms, Business Environment Reforms, Ministry of Infrastructure Development
Reform, and Private Sector Participation Program. In Vanuatu, ADB has no active loans at
present with none identified in the pipeline. Non-lending products include: Corporatization of the
Ports Authority and Rural Productive Skills Development.
AusAid (Australia)
Although with solid presence in the PIC region, AusAid concentrates on in the health, education
and justice sectors with an emphasis on improved service delivery of public services to rural and
peri-urban areas. Programs include: support to civil society groups, support of the Government’s
law and order strategy, planning, management, provision of monitoring of education services, the
Australian Development Scholarship program, training of community health staff, and
refurbishment of existing hospitals. In PNG, AusAid also gets involved in substantial
infrastructure projects such as road and bridge maintenance and restoration, airport maintenance
and civil aviation reforms. The AusAid supported Community Development Services will be
working actively with this project, by facilitating communities’ access to the resources this
project has to offer (Letter of Support in Documents on File).
Japan
Japan has very little lending in the region but provides TA in industrial development, vocational
training, SME development, infrastructure (SIWA, Solomon Islands), environmental
conservation and waste management.
United States
In Micronesia and Marshall Islands, the USA provides support under the Compact of Free
Association. This compact is structured in terms of a sector grant and a Trust Fund, with a
gradual increase in trust fund contributions offset by a corresponding annual reduction in the
sector grants. Funds are allocated to activities in six priority sectors: infrastructure, education;
health care; private sector development; environment, and; capacity building.
Others
Other key actors are NZaid, which provides funds towards community development and
governance; EU, which provides support s through its EDF program micro-projects and small
business development, (Letter of Collaboration with EU-Micro-Project Programme Phase II
(Solomon Islands) in Documents on File), with governance and education; and most of the UN
agencies, which participate in various activities.
35
Annex 3: Results Framework and Monitoring
PACIFIC ISLANDS: Sustainable Energy Finance Project
Results Framework
PDO
Significantly increase the adoption
and use of renewable energy
technologies in participating Pacific
Island states through a package of
incentives to encourage local
financial institutions to participate in
sustainable energy finance in
support of equipment purchase and
private sector energy service
delivery.
The global environment objective is
to contribute to mitigating climate
change through the reduction of
greenhouse gas emissions in line
with the United Nations Framework
Convention on Climate Change.
Intermediate Outcomes
Project Outcome Indicators
1. Increased market for renewable
energy and energy efficiency goods and
services in the target country markets, as
measured by the number of units and
2. aggregate generation capacity
3. and kWh saved through energy
efficiency investments
Use of Project Outcome
Information
During the project: refine and
expand the approach and replicate
to other PICs.
At end of project: determine overall
impact of project.
4. Increased financial resources that are
allocated by FIs, individuals and MSEs
to fund the growth of sustainable energy
and energy efficiency.
5. CO2 emissions avoided.
Intermediate Outcome Indicators
Use of Intermediate Outcome
Monitoring
Component 1: Risk Sharing Fund
Suitable financial products are
offered and utilized for renewable
energy and energy efficiency.
6. Number of financial institutions that
offer suitable financial products.
7. Number of clients who utilize these
financial products and repay in a timely
manner”
During the project: refine and
expand financial products to
increase the volume of finance
available for renewable energy
goods and services and decrease the
GEF subsidy required.
At project end: evaluate
contribution to financial sector and
provide information on future
development alternatives.
Component 2: Technical Assistance
FIs have established renewable
energy/energy efficiency loan
portfolios
Increase in commercially viable
retail outlets for RE products.
Interactive video training modules
for each of the technical components
utilized by participating households
and MSEs.
Mass media and general public are
8. Volume of current and historically
aggregated energy portfolio FIs
9. Number of new RE products outlets
and their financial performance
10.Participants use knowledge obtained
during training on the maintenance of
their equipment.
11.Number of articles and broadcasts on
36
During the project - Refine and
expand technical and financial
products so that they are more
attractive to participants; and adjust
training and communication scope
and focus.
At project end – evaluate
effectiveness and appropriateness
of technical and financial products
and training for target country
markets.
regularly communicating the
the benefits or renewable energy and
benefits of renewable energy and
energy efficiency
energy efficiency
Component 3: Incentive/Output based participant monitoring
Timely and accurate feedback on the
status of the project, and impact on
their lives, as perceived by the
participants
12. Surveys received and accepted
During the project – Refine and
expand the project based on the
participant feedback
At project end – Evaluate impact on
economic and social characteristics
of participating households
Component 4: Management and Evaluation
Developed capacity in the target
countries for the implementation of
renewable energy and energy
efficiency programs
Two comprehensive evaluations
with recommendations for (i)
expanding the RSF (or not) and (ii)
exit strategy
13. Effectiveness of project
implementation according to the project
plan
14. Agreement on expansion of the
RSF
15. Agreement on exit strategy
37
During the project – monitoring
effectiveness of management and
administrative structure of project;
At project end – Evaluate the
management approach and identify
lessons for replication to other
projects
Arrangements for results monitoring
Data Collection
and Reporting
Target Values
Project Outcome
Indicators
Baseline
YR2
YR3
YR4
YR5
YR6
YR7
1000
2000
4000
4000
4000
3000
3000
Picohydro
20
40
75
100
100
100
100
Fuel
Switching
30
60
110
120
130
140
150
Solar PV
1000
1. Number of
households and MSEs
using RE
YR1
20
40
2. New RE capacity
installed (kW)
3. Amount of kWh
saved through
investments in Energy
Efficiency Services
4. Increased financial
resources that are
allocated by FIs,
individuals and MSEs to
fund the growth of
sustainable energy and
energy efficiency
800
2945
3220
3470
3690
3940
To be provided before GEFSEC meeting and adjusted during appraisal
Zero
(million USD)
Solar PV
5. CO2 emissions
avoided. (ton CO2)
1600
Zero Ton
CO2
Picohydro
Fuel
Switching
1.48
1.91
2.0
2.8
2.8
2.75
2.8
243
963
2367
4221
6075
7704
9108
60
239
653
1366
2204
3042
3880
1020
4080
9520
1700
25500
34680
44540
Intermediate Outcome Indicators
Component 1: Risk Sharing Fund
38
Data
Collection
Instruments
Responsibility
for Data
Collection
Bi-annual, project
evaluations in
years 2 and 5
Dealer and FI
reports
Country EA
Bi-annual, project
evaluations in
years 2 and 5
Dealer, FI
reports and
participant
monitoring
Country EA
Bi-annual, project
evaluations in
years 2 and 5
Reports form
MSE
Country EA
Bi-annual reports
and
First (in year 2)
and Second (in
year 5) project
evaluation
Reports from
FI’s
Fund manager
Country EA
Frequency and
Reports
Bi-annual reports
and
First (in year 2)
and Second (in
year 5) project
evaluation
Year 1-3
participant
monitoring
surveys
Year 4-7
dealer and
MSE reports
Country EA
6. Number of financial
institutions that offer
suitable financial
products
Financial Institutions
currently don’t provide
any financing for RE
investments
7. Number of clients
who utilize these
financial products and
repay in a timely manner
0
Component 2: Technical Assistance
8. Volume of current
Zero
and historically
aggregated energy
portfolio of FIs (‘000)
9. Financial
performance of
participating MSEs
6
998
743
Financial statements of
MSE (if expansion) or
zero (if start-up)
6
8
10
12
12
12
Annual, 2 and 5th
year project
evaluation
Reports from
FIs
Country EA
2993
6959
10977
14996
18055
21009
Annual, 2 and 5th
year project
evaluation
Reports from
FIs
Country EA
1,485
None
2997
3,011
2,349
2,363
To be provided during appraisal
10. Participants use
knowledge obtained
during training on the
None
945
2835
maintenance of their
equipment
11. Number of articles
and broadcasts on the
Average 2 year per
benefits or renewable
5
7
country
energy and energy
efficiency
Component 3: Incentive/Output based participant monitoring
12.Surveys received and
accepted
2950
945
2835
Annual, 2 and 5th
year project
evaluation
Annual
financial
statements of
MSEs
Country EA
Participant
surveys
Country EA
Newspapers
and
broadcasts
Country EA
Participant
Surveys and
project
evaluation
reports in
years 2 and 5
Country EA
6593
10391
14198
17114
20000
7
8
10
11
12
Bi-annual
Bi annual reports
Component 4: Management and Evaluation
39
Country EA
Annual, 2 and 5th
year project
evaluation
First 3 year reports
from Participant
Monitoring, 2 and
5th year project
evaluation
6593
Bi-annual
portfolio
reports by FI
13.
Effectiveness
of project
implementation
according to the project
plan
14. Agreement on
expansion of the
RSF
None
--
1
--
--
--
1
Go/no
-go
decisi
on on
expan
sion
--
project evaluations
in years 2 and 5
Bi-annual progress
report
Second year
Evaluation Report
Exit
strateg
y
decide
d upon
15. Agreement on exit
strategy
40
Fifth Year
Evaluation Report
Annual, 2
year and 5
year project
evaluation
reports
WBG, Country
EA
2 year
Implementing
Organizations
WB and IFC in
consultation
with GEF
5 year
Implementing
Organizations
WB and IFC in
consultation
with GEF
Annex 4: Detailed Project Description
PACIFIC ISLANDS: Sustainable Energy Finance Project
Introduction
The USD9.48 million SEFP project aims to promote the use of sustainable energy and
application of energy efficiency enhancements in, initially, six island countries in the South
Pacific region. In so doing, the lives of many rural households will be improved through the use
of Solar PV or pico-hydro generators for lighting and light power uses. The businesses of some
MSEs in the region will also gain by the use of clean energy sources, while others involved in
the supply chain for related equipment will be assisted to expand.
Two of GEF’s implementing agencies, WB and IFC, will be directly involved in this project,
while another, UNDP, is already involved in a parallel GEF project in the region, PIGGAREP.
The WB will deal with SEFP matters in Fiji, PNG and Solomon Islands, where there are existing
WB offices or operations, while IFC, through its Pacific Enterprise Development Facility
(PEDF) Sydney office that works in many Pacific islands, will deal with SEFP matters in the
Republic of Marshall Islands and Vanuatu.
SEFP seeks to exert its impact through using GEF grant resources to facilitate the financing of
qualifying investments by individuals and MSEs. This financing will emanate from local PFIs in
each of the countries of operation, making use of their entrenched positions in respective local
economies and proven ability to advance and administer loans. It is clear that these PFIs do not,
at present, offer enough suitable loans to such borrowers for this type of expenditure: the most
likely obstacles being lack of normal banking collateral, short term or high interest rate loans
with unaffordable loan service payments and PFIs’ general ignorance of sustainable energy
activities. Considerable care has gone in to design the SEFP intervention to overcome such
obstacles, partly through providing financing support that renders loan transactions attractive to
both borrower and lender and partly through providing suitably tailored technical assistance to
improve understanding of the benefits of sustainable energy.
SEFP will focus its limited resources on development of a commercial market, in the six
countries, for three technologies: Solar PV, Pico-hydro and switching diesel generators to work
with coconut oil. To assure that the loans provided by the PFIs are utilized for high-quality
products, the project will develop, in each country, an Approved Product Catalogue, which will
be updated frequently. In addition, the project will provide information to mass media on these
products and develop individual training programs to teach end-users about the basic installation
and maintenance aspects of these products.
The project is designed to be flexible and responsive to market demand; accordingly, no
allocations are made of financing support for different supported technologies. However, as a
general guide, using current pricing and demand indications, it is projected that the following
numbers of sustainable energy equipment types could be financed using SEFP support during a
seven year period:
41
Table 1:
Technology
Count
Solar PV (capacity 20-300Wp)
21,000
Pico-hydro (capacity 200-5,000W)
535
Fuel switching (for diesel generating sets of 5-75kW)
740
As there are a number of innovative features in this project, it is important to gain early feedback
on progress so that fine-tuning and, if necessary, component re-design can be accomplished to
improve project outcomes. To achieve this, an intensive program of incentive-based participant
monitoring will be operated during the first three years of the project’s initial seven-year life.
Project Execution Arrangements. A regional project of this type needs careful execution to
ensure that project proceeds smoothly in each country, yet at the same time adheres to the
prudent financial and administrative norms demanded of WB Group and GEF projects.
Significant budgetary allocations have been made for the engagement of Executive Agencies
(EAs) in all participating countries to fulfill the required project management tasks. A first-class
bank with a strong regional presence will be engaged through a competitive process as the Fund
Manager to hold GEF funds and to provide financing support commitments to PFIs. It is
proposed and will be confirmed during appraisal that the Fund Manager will be paid a fee for its
services, while the RSF balance will earn interest at commercial rates. The Fund Manager may
have lending operations in the participating countries and will not be excluded from becoming a
PFI; however, it will be required to assure WB and IFC that the two functions are kept separate.7
Exit strategy. The SEFP project is designed with a seven-year implementation period, although
the possibility of extension for a further seven years is built into the project design; during any
extension, the financial support percentage would be reduced below 50 percent by negotiation
with PFIs and project management costs would be paid out of the RSF. Financing support and
technical assistance will be offered throughout the initial period. As indicated below, the
financing support will be backed up by a Risk Sharing Fund (RSF) funded with GEF resources.
The RSF will, as project implementation gathers momentum, divide into two elements: one
element will cover existing financial support commitments, while the second element will be the
uncommitted funds. As supported loans by PFIs are repaid, the RSF committed element will
contract, augmenting the uncommitted element. In effect, the RSF will be a revolving fund, able
to support a sequential series of loans.
At the end of the project’s implementation period, whether seven or fourteen years, consultations
on the disposal of remaining project funds will be held between WB, IFC, GEF and the
Governments of participating countries. It should be noted that, even when project termination
has occurred, the Fund Manager will still need to hold the committed element of SEFP funds to
reflect the outstanding value of financing support commitments, although this will gradually
contract as loans are paid off.
_______________________________________
7
In a similar GEF project in Sri Lanka, separation arrangements were successfully made.
42
Leveraging the Project
If the project succeeds and there is unsatisfied demand for SEFP financing support, the
possibility exists of leveraging the project with guarantees from other funding sources, such as
IFC, other multi-lateral or bi-lateral development lenders. The project has been designed in
anticipation of such leveraging, under which these other financiers would augment the remaining
SEFP financing support with parallel guarantees, for which a negotiated guarantee fee would be
paid by the RSF.
The need for such an amplification of the project’s effect and the enhancement of the leveraging
of GEF resources, together with the precise modalities that could be utilized, will be assessed
during an evaluation planned for the end of the second year.
The discrete components of the SEFP project are described below:
Component 1: Risk Sharing Fund (RSF) (GEF USD5.2 million, Financial Institutions
USD19.67 million, Enterprises USD0.9 million, NGOs USD1.7 million and Renewable
Energy Investments (19.5 million)
This component will provide innovative financing support that will facilitate the flow of finance
from private sector financial institutions, NGOs, MSEs and utilities for sustainable energy and
energy efficiency investments. RSF monies lodged with the Fund Manager will be used for loan
term extension or as backing for partial loan guarantees.
SEFP financing support will not be allocated between the participating countries, but would
operate on a first come first serve basis, to allow the market to develop naturally. If by the end
of the second, year demand justifies expansion of the Fund, then this would be done by using a
small portion of the Fund to finance guarantee fees for a parallel commercial fund, which could
be provided by IFC or other IFIs. The RSF will be administered by the Fund Manager, a first
class regional financial institution, chosen through a competitive process, with direct links with
banks and other financial institutions in participating countries.
Eligible PFIs. Based on an assessment of market position and loan administration capacity in the
country concerned, interested prospective PFIs might be approved by the World Bank Group as
eligible, prior to project commencement by the WB or IFC, as appropriate. The initial group of
eligible PFIs could be expanded of expansion once the project is under way. (See PFI criteria for
participation in Appendix C)
Eligible Borrowers. The SEFP is targeting household end-users already using kerosene, petrol or
diesel for lighting needs and MSE end-users using these fuels to provide energy for their
business activities or intending to install energy efficiency measures. The support is aimed at
making finance available to these end-users to purchase sustainable energy and energy efficiency
equipment. The RSF will also support MSEs involved in the supply chain for these types of
equipment. No specific limits are imposed at the beginning of the project. It is expected that
Borrowers on average would require RSF support of USD1,500 (individuals) and USD50,000
(MSEs).
Eligible Investments
Solar PV
43
Solar PV
Component
Producers
Wholesalers
of Solar PV
equipment
Provide 50
percent
Guarantee
Retailers
For Solar PV system end-users, loans will cover the initial cost of the equipment and its
installation, as well as the first replacement battery and a single premium for five years of
extreme climate loss and damage insurance8.
Energy
Service
Companies
End-Users
Provide 50 percent
Guarantee
Provide 50
percent
Guarantee
Pico Hydro
Pico Hydro
Component
Producers
Retailers
For pico-hydro system end users, loans will cover the cost of equipment and installation.
Energy Service
Companies
Provide 50 percent Guarantee
End Users
Provide 50
percent
Guarantee
Fuel Switching
Fuel Switching
Component
Producers
Provide 50
percent
Guarantee
Retailers
For fuel switching end users, loans will cover the cost of modification of the fuel supply system
and other components necessary to switch from diesel to coconut oil.
Energy Service
Companies
Provide 50 percent Guarantee
8
End Users
Provide 50
percent
Guarantee
The diagrams indicate which units in the value chain are eligible to receive a loan guaranteed for a maximum of
50% by the project.
44
Energy Efficiency
For energy efficiency end users, loans will cover the cost of equipment and installation.
SME Supply Chain
For MSE supply chain borrowers, the scope of loans will be individually appraised by the PFI to
allow start-up or expansion of enterprises.
Limits on guarantees. Given that in the Pacific islands, there is still limited experience with the
financial products offered, there project didn’t want to start with guarantee limits. However the
progress of the Fund will be closely monitored, for the following two aspects: (i) no one country
should get more than 50% of the available RSF. It is particularly important that guarantees
remain available for the smaller of the six countries and second that a significant portion of
guarantees (over 50% of the RSF) remain available for households. If during the course of the
project these targets aren’t endangered, the implementing agencies will impose limits on
guarantee size for the various categories.
Households. Household lighting using Solar PV or, in certain circumstances, pico-hydro
generators, will be promoted by SEFP. Using such sustainable sources will obviate the need for
such households to continue to use kerosene for oil lamps and diesel or petrol for small
generators, thus contributing to the reduction of fossil fuel consumption and emission of
greenhouse gases.
The relatively high initial investment costs of this type of sustainable energy equipment can be
converted into periodic payments through the use of loan finance. A guiding principle of SEFP is
that these payments should be held within range of the current average household expenditure on
kerosene, diesel fuel and non-rechargeable dry cell batteries for lighting.
SEFP will develop appropriate financing support instruments, backed by GEF resources, with
local PFIs in each country. The instruments will catalyze the provision of medium term credit by
these institutions on terms that will make sustainable energy solutions affordable to households.
These financing support instruments have been devised in outline but may need to be modified to
reflect specific conditions in the credit markets in each country of operation. The outlines are
described below:
The partial loan guarantee mechanism envisaged for use in all participating countries will
involve a 50 percent partial risk guarantee to the PFI by the RSF. This guarantee will refund to
the PFI 50 percent of principal losses on any guaranteed loan following default. In return for this
security enhancement, the PFI will offer to provide loans to individuals and MSEs for SEFP
qualifying purposes. Indications of unsupported loan terms currently offered by financial
institutions in some of the countries, together with terms for SEFP supported loans that have
been indicated by (but not yet fully negotiated with) a bank that proposes to become a PFI in
most of the participating countries, are shown later in this Annex.
45
Provision of financing support in this way should raise no regulatory concerns, as it simply
enhances the security available to an authorized financial institution in respect of a normal
lending transaction. The reduction in risk to the PFI would justify the improvement in terms
offered to the qualifying borrower, yet the resulting terms would remain within the range
customarily offered by the PFI. There should, therefore, be no anxiety about the potential for any
major distortion of the financial sector through the SEPF guarantee support mechanism. And in
terms of magnitude, loans supported in this way are projected to amount to well under 1 percent
of the total loan assets of the banking sectors in the countries concerned. By way of
confirmation, the Deputy Governor of the Bank of PNG has stated to the WB that this type of
guarantee scheme for commercial bank loans in PNG would not require supervisory approval.
In PNG, the prototype GEF project introduced a loan extension mechanism for use by the
Teachers’ S&L to enable that institution’s typical three year loan to be extended to an effective
five year term, with the loan service payments thus becoming affordable to individual borrowers
for solar lighting equipment purchase. The S&L regulatory body was concerned about additional
medium-term risks to the lending portfolio of the S&L, as well as liquidity exposure. The
mechanism utilized in that project, which should be folded into the SEFP, assuaged those
concerns by ensuring that the credit risk and the liquidity burden resulting from the term
extension were taken entirely by SEFP’s RSF. The arrangement consisted of a sale by the S&L
to the RSF of the outstanding loan balance at the three year point, secured by an advance deposit,
and the return to the RSF of funds as repaid by the borrower throughout years four and five of
each loan. The S&L remains the lender of record and loan administrator during this latter period
and acts under contract as fiduciary agent of the RSF.
Although it seems, at this stage, that the loan extension mechanism may not be needed except for
PFIs that are PNG Sols, it remains available under the SEFP for application in suitable
circumstances.
Micro and Small Enterprises. The project provides financial and technical support to three types
of MSE. The first type is a user of energy that intends, like the households described above, to
replace its current use of fossil fuels with energy from sustainable sources. The second type is a
MSE which is part of the supply chain to get renewable energy products from the factory to the
end-user. These MSEs include wholesalers, retailers and installers; in some cases these firms
will also provide maintenance and repair services. The third type is an energy service MSE that
facilitates investments in energy efficiency schemes by providing some combination of
consultancy, design, supply, installation and maintenance services.
SEFP financing support will expand the availability of loan finance from private financial
institutions to these MSEs, mostly using the partial guarantee mechanism. In the case of MSEs,
the concept of using avoided fuel costs to assess loan payment affordability may be only partially
applicable; however, the sample of MSE Business Plans prepared during SEFP pre-appraisal
demonstrates the affordability of loan service payments on loans supported by the RSF. These
sample Business Plans have been lodged in the Project File and are catalogued in Annex 12.
Summaries of these Business Plans, with the identities of MSE and sponsor deleted for reasons
of business confidentiality, are presented in Appendix A to this Annex 4. Depending on the
commercial lending criteria applied by the PFI in each case, such MSE loans supported by the
RSF will have tenors of up to seven years and interest rates at the lower end of the band normally
offered for conventional loans to corporate borrowers.
46
Given the uncertainty of the market, for the first two years no size limits have been imposed.
Estimates based on Business plans developed for this project and experiences in other projects
suggests that as MSE guarantees will be below USD50,000, which means loan sizes lower than
USD100,000. While loans to individuals would be in the range from USD400 – 800 with
exceptional requests for USD1500 for larger systems.
Indicative Loan Terms for SEFP supported loans. Expressions of interest have been obtained
from some financial institutions in becoming PFIs under this Project. Indications of loan terms
currently offered by such institutions (see Appendix B to this Annex 4) illustrate why, without
SEFP support, few borrowers are able to access or afford financing for sustainable energy or
energy efficiency investments. The onerous collateral requirements and/or high existing interest
rates for individual and SME borrowers are major deterrents to the types of borrowers of interest
to the project. However, there appear to be few critical limitations on the tenor of existing loan
products and there are currently no major liquidity constraints for banks in the six project
countries.
Since banks’ and other institutions’ cost of funds and resultant loan pricing differ in detail within
each country and between countries, rates and terms will have to be negotiated with each PFI.
One bank, when supported with a 50 percent SEFP guarantee of the type indicated, is in principle
(but subject to negotiation) willing to offer loans on the terms shown in Table 2 below to SEFP
qualifying borrowers. It is noteworthy that interest rates will be on a fixed basis for households,
allowing confident affordability decision making.
Table 2: Indicative loan terms
Individual borrowers
Tenor: 5 years
USD800
Interest rate: fixed
10.75 percent pa
Fiji
9.2 percent pa
PNG
Solomon Islands 13.75 percent pa
11.75 percent pa
Vanuatu
Region wide
Indicative size
MSE borrowers
Tenor: 5-7 years
USD100,000
Interest rate: floating
10.75 percent pa
9.2 percent pa
13.75 percent pa
11.75 percent pa
Component 2: Technical Assistance (GEF USD2.48 million, other sources USD1.7 million).
This Technical Assistance (TA) Program is designed with a strategic focus to ensure that the
market for small-scale sustainable energy and energy efficiency technologies develops rapidly
and in such a way as to ensure high quality and cost effective electricity services and the long
term sustainability of the sector. There are two objectives of this program: (i) to facilitate and
enhance the development of the market in the Region for sustainable energy and energy
efficiency activities, products and services; and (ii) to strengthen the capacity of PFIs, technical
intermediaries and supply chain MSEs to operate in this market and to deliver global
environmental benefits.
47
The TA Program will be responsive to country specific needs and priorities but will in general
target three areas:
1.
2.
3.
Country specific sustainable energy and energy efficiency markets
Technical intermediaries (including EAs and MCs)
Financial institutions
Country Specific Sustainable Energy and Energy Efficiency Markets

Market building promotional activities through the private sector9 and creating broad general
awareness of sustainable energy and energy efficiency will be undertaken with local media,
public information networks, government information channels, and NGOs. This will also
include the promotion of local and relevant international exemplars and demonstration
systems for sustainable energy and energy efficiency schemes used by households and
MSEs.

Strengthen the technical skills of target households and MSEs through pre-approval training
programs for each of the technology options. The project will require the clients/buyers of
products offered under this project to successfully complete a computer based interactivevideo training programs. This will enable these potential sustainable energy and energy
efficiency customers to make informed decisions on the most appropriate technologies to
purchase and will assist them in the operation and maintenance of their systems.

Support retailers to source sustainable energy and energy efficiency equipment components
from all global sources, meeting appropriate quality standards. This will include facilitation
of trade exchange visits with other countries involved in production or suitable technologies
to promote market linkages and lesson sharing.

Provide retailers with detailed market surveys regarding demand and ability to pay under this
project for SolarPV kits, pico hydro and fuel switching equipment.
Technical intermediaries

Raise awareness of improved quality management with sustainable energy and energy
efficiency equipment suppliers and technical service providers

Employing ESMAP funding, support local educators to develop or improve renewable
energy and energy efficiency technical training modules in national curriculum for secondary
and tertiary technical education programs including rural vocational training centers and
distance education

Produce a catalogue of approved products for households and MSEs. The catalogue will be
updated regularly in accordance with feedback from participants, performance of retailers
and changing market demand. Participants will only be eligible for finance under the scheme
for equipment identified in the catalogue. Retailers can only list items in the catalogue which
meet appropriate international quality standards.

Provide training to EAs and MCs to enable them to discharge their SEFP duties.
9
PIGGAREP will work with the public sector to enhance the policy framework in this area
48
Financial institutions
The IFC PEDF program will be responsible for this component in all five countries. IFC makes a
substantial contribution from its own resources to this program. GEF funds will be used to
augment IFC’s program to include the focus on developing and monitoring a sustainable energy
portfolio. The TA consists of:

Train PFIs in the appraisal of renewable energy and energy efficiency investments. This will
include estimation of potential climate (e.g. CO2 emissions) and environmental impacts

Assist PFIs to establish effective Management Information Systems (MIS) and debt recovery
schemes relevant to SEFP-supported loans

Assist PFIs and the Fund Manager to administer the financial support instruments offered
under the project

Identify, encourage and train financial institutions that, whilst not yet fully capable of
becoming PFIs, are interested in gaining the capacity to do so.

Negotiate with local insurance companies, with the assistance of PFIs, to secure bulk
insurance arrangements to protect SEFP supported Solar PV installations from damage or
loss due to extreme climate events, such as cyclones or flooding.
Utilities
In addition to the above support, GEF support will also be used to finance a number of studies
which will facilitate the investment by the Fiji Electricity Authority in Biomass and Hydro
generating capacity. FEA has requested both the World Bank and ADB for financing these
investments. ADB will finance all the transmission and distribution lines in relation to this
project will IBRD will finance the foreign exchange costs of the investments in the generating
capacity. These investments will replace the diesel now being used to generate over 40% of
electricity in Fiji. While these studies will assist FEA with their general investment strategy, in
line with Bank policies, none of these studies are part of the preparatory work for the proposed
IBRD loan.
Component 3: Incentive/Output based participant monitoring (GEF USD0.4 million, no
other sources).
For all systems, household borrowers will be requested to fill out a short survey semi-annually
during the first three years of the project, regarding their experience both technically,
economically and socially of having access to modern energy services. Borrowers will be
rewarded for a fully completed survey acceptable to the local Executive Agency by receiving the
equivalent of one fortnightly repayment of their loan. The feedback will help fine-tune the
project interventions to make the project more effective.
Component 4. Management and Evaluation (GEF USD1.36 million, USD 175,000 from
Local Governments).
The EAs in the participating countries do not all have the specific technical expertise in house to
manage this project in their country. For that reason an EA will be able, where required, to
procure the services of a Management Contractor to assist with the execution of the project.
49
Two evaluations are scheduled for this project. In addition to the normal evaluation activities,
the first evaluation, which would take place at the end of year two would focus on the need to
expand the Guarantee Fund and to explore if the incentive payments to retailers can be stopped at
this stage of the project. The second evaluation, at the end of year five, would focus on the exit
strategy to be followed as described above.
50
Appendix A to Annex 4
Brief Summaries of Six Sample MSE Business Plans
These comprise four MSEs in Fiji (one energy efficiency design/supply/install contractor, two
sustainable energy retailer/installers and one end-user of Solar PV), one MSE in PNG (an enduser of a pico-hydro generator) and one MSE in the Solomon Islands (an end-user of fuel
switching).
Company A- Fiji
Project Name:
Project Description:
Market / Marketing:
Estimated Project Cost and
Financing:
Financial Ratios (averages
over 2008-2013):
Company A ESCO- Fiji
The existing company is planning to expand its building services and will set up a
subsidiary company separate from its existing electrical and mechanical
engineering consulting services. The new company, an ESCO, would provide
energy efficiency and energy conservation equipment and maintenance services.
Maintenance services and equipment would be provided not only to large
companies or government offices, but also to housing developers, hotels and
individual homes.
Working Capital : F$41,000;
Purchase of Fixed Assets (including contingencies): F$119,000
Sponsor Equity and Internally Generated Cash: F$115,000
Long Term Loans (FSF): F$45,000
IRR= 24 percent
Debt Service Coverage Ratio DSC= 3.0
Profitability of Sales (F/Sales) percent= 13.6 percent
Note: (FSF)= Financial Support Fund under the World Bank/GEF funded project
Company B- Fiji
Project Name and Purpose:
Project Description:
Market / Marketing:
Estimated Project Cost and
Financing:
Financial Ratios (averages over
2006-2010):
Company B is a private Fijian registered company which specializes in the application of
renewable energy technologies.
The project involves the company’s expansion into several emerging and existing
Renewable Energy (RE) markets in Fiji. These markets are:
 Outer Island and remote Backpacker Resorts
 Lower Income Rural Households
 RE Consulting.
In order to achieve this, the company will need to expand its capacity to supply equipment
and services. This will require additional fixed assets including permanent working capital
and staffing.
With the availability of financing, the company expects a steady growth in the ability
and willingness of rural communities to purchase RE power systems. Tourism show a
steady 7 percent growth in visitor arrivals, at all levels. Also with the large increases in
diesel fuel prices over the last year in Fiji sales for the existing market segments for
renewable energy for the High Income Rural and retail sales are expected to continue
increasing.
Working Capital : F$437,000
Purchase of Fixed Assets (including contingencies): F$326,000.
Sponsor Equity and Internally Generated Cash: F$513,000;
Long Term Loans (FSF): F$250,000.
IRR (for enterprise + project)= 61percent
IRR (for project alone)= 75 percent
Debt Service Coverage Ratio DSC= 4.26
51
Company C- Fiji
Project Name:
Company C Retail Food Shop Project- Fiji
Project Description:
The project is to set up a small food retail shop with a solar powered freezer unit.
The company will be able to provide village families with foodstuffs which require
refrigeration, not presently available in the village.
It was thus estimated that a total of 122 units (ranging from baked beans to
matches) would be sold daily with daily revenues of about F$162 and yearly
revenues of about F$47,000.
Working Capital : F$1,000;
Purchase of Fixed Assets (including contingencies): F$19,700.
Sponsor Equity and Internally Generated Cash: F$8,700;
Long Term Loans (FSF): F$12,000.
IRR= 28 %, Debt Service Coverage Ratio DSC= 2.4
Profitability of Sales (F/Sales) percent= 3.1 %
Market / Marketing:
Estimated Project Cost and
Financing:
Financial Ratios (averages
over 2006-2010):
Company D-Fiji
Project Name:
Project Description:
Market / Marketing:
Estimated Project Cost and
Financing:
Financial Ratios (averages
over 2006-2011):
Company D- Renewable Energy Services- Fiji
The project involves the company’s expansion of its renewable energy equipment
supply and servicing in order to reach an estimated 3,000 homes in the Vanua
Levu Island, 300 homes in Taveuni Island and about 170 homes in Noroi Island.
The areas targeted presently are outside the electricity grid network and are
unlikely to be serviced by community diesel and grid extension programs. Thus,
the potential for the company to expand its services is high and competition is
limited.
Working Capital : F$94,000;
Purchase of Fixed Assets (including contingencies): F$262,000.
Sponsor Equity and Internally Generated Cash: F$286,000
Long Term Loans (FSF): F$70,000
IRR (for enterprise + project)= 17 percent
IRR (for project alone)= 36 percent
Debt Service Coverage Ratio DSC= 4.5
52
Company E- PNG
Project Name:
Project Description:
Market / Marketing:
Estimated Project Cost
and Financing:
Financial Ratios
(averages over 20062010):
Company E Coffee Project- PNG
The project covers the development of a new 20 hectare coffee plantation and several
key enhancements to the wet mill processing facility which will serve to, (i) improve
the energy efficiency of the wet process; (ii) reduce the dependence on diesel fuel for
supply of electricity by utilising local hydro resources.
The company’s objective is to produce the type of Starbucks quality coffee that will
give it the highest price differential. In order to achieve this, a number of measures
that will need to be taken in order to qualify for eco-friendly verified producer and
thus achieve the highest price differential. The demand for such quality coffee is
virtually unlimited and is likely to grow further in the coming years.
Working Capital : USD20,000;
Additional Investment in New Plantation: USD130,000
Purchase of Fixed Assets (including contingencies): USD69,300.
Sponsor Equity and Internally Generated Cash: USD174,300;
Long Term Loans (FSF): USD45,000.
IRR (Enterprise + Project)= 10 percent
IRR (Project alone)= 40 percent
Debt Service Coverage Ratio DSC= 5.5
Company F- Solomon Islands
Project Name:
Project Description:
A marketing association in the Solomon Islands, with 250 producer members
involved in food crop, fish, cocoa and copra production, has formed a copra
processing company
The company plans to repair some existing processing facilities to augment members’
capacity to produce copra, as well as to install a diesel generator at the factory and
convert it to run on coconut oil.
The company will have a firm contract with the largest Solomon Islands
copra processor that will ensure the full off take of copra produced by the
company
Estimated Project Cost Working Capital: USD7,000
Purchase of fixed assets (incl. contingencies): USD56,000
and Financing:
Equity: USD8,000 (sponsor) + USD10,000 (ASTAE)
Long term loans (RSF): USD45,000
Market / Marketing:
Financial Ratios
(averages over 20062010):
Debt service coverage ratio (DSC): 4.5:1
Profitability of sales: 23%
53
Appendix B to Annex 4
Loan term indications (unsupported by SEFP)
Visits to financial institutions in Fiji, PNG and the Solomon Islands have revealed the
information in the Table below about the loan products currently offered to individual,
MSE and larger corporate borrowers:
Table 3: Currently offered Loan terms in selected PICs
Personal loan
MSE loan
Bank A - Fiji
 Unsecured
 18 percent pa
interest
 22 month term
Bank B – Fiji
 Salary deduction
 11 percent pa
interest
 3 years
Bank C - PNG
 Unsecured
 12.25 percent pa
interest
 3 year term
 >100 percent
collateral
 10 percent pa
interest
 5 year term
 150 percent
collateral
 8 percent pa
interest
 5 year term
-
Bank D - PNG
 170 percent
collateral
 13 percent pa
interest
 10 year term
 100 percent
collateral +
 salary deduction
 12 percent pa
interest
 3 year term
 Unsecured
 14 percent pa
interest
 5 year term
S&L E - PNG
Bank F – SI
Bank G - SI
 100 percent
collateral
 14 percent pa
interest
 3 year term
Large corporate
loan
 >100 percent
collateral
 8 percent pa
interest
 10 year term
-
-
 >100percent
collateral
 7.5 percent pa
interest
 7 year term
 >100 percent
collateral
 9.45 percent pa
interest
 7 year term
-
 100 percent
collateral
 11 percent pa
interest
 5 year term
-
 >100 percent
collateral
 9 percent pa
interest
 7 year term
-
 Lease finance
 14 percent pa
lease rate
 3 year term
54
Appendix C to Annex 4 Eligibility Criteria for Participating Finance Institutions
Participating Finance Institutions (PFIs) shall satisfy the criteria given in section (A)
below, as well as those identified for specific classes of institutions as applicable.
A. For all Participating Credit Institutions
In order to become eligible to participate in the Sustainable Energy Finance Project
(SEFP) partial loan guarantee facility or loan purchase facility (together, loan support
facilities) and to maintain their eligibility, credit institutions must be privately owned and
controlled, and meet the following criteria:
(a) The World Bank Group (WBG) should receive a satisfactory statement approved by
the Board of Directors of the institutions outlining:



A proposal as to how they would plan to utilize the partial loan guarantee facility,
to become internally organized to market the SEFP scheme, to evaluate the
subproject proposals and to manage subsequent follow-up monitoring and loan
recoveries
Name of the senior officer who will be in charge of loans made using the SEFP
partial loan guarantee facility operation and key team staff;
Lending institutions should submit the institution's business strategy and
operating policies, and
(b) Except as WBG shall otherwise agree, a profitable operation for at least two full
years of operation preceding its application for participation, attested to by
unqualified audit reports from independent private auditors acceptable to WBG.
(c) A majority of the share capital of the PFI should be held by the private sector
(d) The PFI should furnish to WBG, a certificate from the external auditors within 90
days of the date of audited financial statement, that the financial performance of the
PFI concerned is in conformity with the applicable financial criteria outlined below.
The PFI shall physically forward this certificate to the World Bank’s office in
Sydney who will receive it on behalf of WBG.
(e) After fulfilling the eligibility criteria, the PFI shall continue to meet the eligibility
criteria aforementioned to the satisfaction of WBG, which will monitor the PFIs'
compliance therewith semiannually. If the PFI fails at any time to satisfy the above
specified criteria the WBG reserve the right to suspend use of the partial loan
guarantee facility under the SEFP Project until the PFI has taken specific steps to
address its problems in a manner acceptable to WBG.
55
B. For Commercial Banks
Commercial banks may extend loans guaranteed by the partial loan guarantee facility to
all eligible products in the Approved Product Catalogue as well as to MSEs described in
this annex.
Commercial banks must be in compliance with local guidelines on prudential regulations,
capital adequacy, classification of risk assets, provisioning, single borrower exposure
limit, sector exposure limits, and disclosure and reporting requirements.
Commercial banks must furnish a confirmation from external auditors acceptable to
WBG that, at the date of its application for participation and subsequently at the end of its
financial year, the credit institution met the following financial criteria, ratio
requirements and exposure limits calculated in accordance with WBG standard
guidelines:
(a) A minimum total cash collection ratio of principal and interest of 80 percent on term
loan portfolio calculated on a rolling twelve-month basis;
(b) A minimum total cash collection ratio of principal only of 80 percent on term loan
portfolio calculated on a rolling twelve-month basis;
(c) A minimum after tax profit equivalent to 9 percent p.a. on average shareholders'
funds;
(d) A maximum portfolio infection rate of 20 percent;
(e) A maximum debt equity ratio of 8:1;
(f) Compliance with minimum capital adequacy ratios for tier-1 and tier-2 as required
by prevailing Central Bank guidelines in the PIC where the Bank is located.
(g) Credit exposure (loans and leases) to one party or any one group of companies must
not exceed 30 percent of the PFI's total capital funds (shareholders’ funds);
(h) Credit exposure (loans and leases) to any one sector, as defined in the UN Standard
Classification of Economic Activities, must not exceed 30 percent of PFI's total
credit portfolio.
C.
For Savings & Loan Associations and Credit Unions (collectively described
as non-bank financial institutions or NBFIs)
NBFIs may extend loans guaranteed by the partial loan guarantee facility or supported by
the loan purchase facility to all eligible products in the approved product catalogue as
well as to MSEs described in this annex.
NBFIs must be in compliance with local guidelines on prudential regulations, capital
adequacy, classification of risk assets, provisioning, single borrower exposure limit,
sector exposure limits, and disclosure and reporting requirements.
NBFIs must furnish confirmation from external auditors acceptable to WBG that, at the
date of its application for participation and subsequently at the end of its financial year,
the credit institution met the following financial criteria, ratio requirements and exposure
limits calculated in accordance with WBG standard guidelines:
56
(a) A minimum total cash collection ratio of principal and interest of 80 percent on term
loan portfolio calculated on a rolling twelve-month basis;
(b) A minimum total cash collection ratio of principal only of 80 percent on term loan
portfolio calculated on a rolling twelve-month basis;
(c) Generating a financial surplus on operations
(d) A maximum portfolio infection rate of 20 percent;
(e) Compliance with minimum prudential ratios as required by prevailing Central Bank
guidelines in the PIC where the NBFI is located.
(f) Credit exposure (loans and leases) to one member must not exceed 30 percent of the
PFI's total capital funds (shareholders’ funds);
57
Annex 5: Project Cost
PACIFIC ISLANDS: Sustainable Energy Finance Project
Estimated Project Cost and Financing in (USD millions)
Component
Financing Renewable
1 Energy
Equipment and Services
Technical Assistance and
2 Communications
TA to Financial Institutions
TA to Energy Service
Providers and Retailers
TA to Develop Product
Catalogues
TA for interactive video
training (ESMAP)
TA for Utilities and
Government (resource
studies)
Communications
3 Participant Monitoring
4 Management and evaluation
5 Miscellaneous
Total
Total
Cost
Local
Banks
GEF
40.10
5.20
10.40
1.32
0
.61
0.41
1.53
1.13
0.34
0.34
Local Institutions
Micro and
Small
NGO/Foundations Enterprises
1.70
3.30
46.70
Gov. Depts
and Utilities
19.5
0.30
0.3
0.24
0.59
0.61
0.40
1.53
IFC
and
Trust
Funds
0.10
0.24
0.39
0.36
0.40
1.53
0.04
10.00
0.08
0.17
10.89
1.87

3.6
0.10
0.10
0.74
19.6
This amount is the initial amount of the SEFP risk sharing fund, which is lodged to support loans disbursed by local banks and, other than for
loan losses, will not be expended.
58
Annex 6: Implementation Arrangements
PACIFIC ISLANDS: Sustainable Energy Finance Project
Introduction
This project is implemented by The World Bank Group. The World Bank is responsible for
implementation in Fiji, Solomon Islands (SI) and Papua New Guinea (PNG). The International
Finance Corporation (IFC) is responsible for implementation in Vanuatu, and Republic of
Marshall Islands (RMI). Depending on the availability of other Trust Funds, GEF allocations,
other Pacific Islands States might be able to participate in the project at a later stage.
Both the World Bank and IFC will follow their own rules for the purpose of implementing the
project. The World Bank will sign Grant agreements with the countries they serve. The Grant
agreement will identify the Executive Agent or agencies in each country, and will set out the
procurement guidelines, plans and rules for each country, following World Bank Procurement
Regulations (AMS 15.0). IFC will run a tender for and appoint a private sector firm to act as
Executive Agent, and sign a Memorandum of Understanding with this firm specifying the
procurement rules for goods and services as defined by IFC, in the countries in which they
implement the project.
World Bank IFC Coordination
Both the World Bank and the IFC will appoint a Task Team Leader (TTL), who on behalf of its
institution is responsible for the implementation of this project. Twice a year the Task Team
Leaders will meet formally in a meeting chaired by the Bank’s country Director for the Pacifics.
Before the meeting, each will prepare their input in the reports to GEF and Implementation
Status Report (ISR) for this project. The meeting will review these inputs and as well as the
progress made against the targets set in the PAD and GEF Brief. The outcome of the meeting
will result in a joint report to GEF and joint ISR reports for both the Bank and IFC.
Executive Agencies and Management Consultants
The project will be executed through an Executive Agent (EA) in each of the six countries. In
Fiji, and SI, the EA will tender for and appoint a Management Consultant (MC) with
responsibility to administer the project. In PNG, the Government has already designated
PNGSEL as MC for this project. For RMI and Vanuatu, IFC will run the tender and appoint the
MC.
For the purpose of managing the Risk Sharing Fund, a first-class regional financial institution
has responded to a request for an expression of interest to be the Fund Manager which was
posted on the UN Business and dg Market websites. During appraisal draft final agreements
(pending GEF and Board approval) will be signed.
The responsibilities of the Fund Manager are to enter into guarantee agreements with
Participating Financial Institutions (PFI) to support loans made under this project by PFIs to
qualifying individuals or companies. The Fund Manager will be required to operate a Trust
Account following World Bank procedures for the operation of such accounts to make and
receive payments in accordance with the terms of the guarantee agreements. The Fund Manager
will also be required to transfer monies to and from sub-accounts of the Trust Account
59
denominated in the local currencies of the participating countries to balance the foreign exchange
exposure of SEFP funds.
The Fund Manager will be required to monitor the aggregate commitments (by country and type
of borrower), including a timing analysis, as well as the cash flows of SEFP funds. The Fund
Manager will be required to submit to the World Bank and IFC periodic reports on the
performance and status of the funds. The operations of the Fund Manager will be subject to
independent audit.
The Fund Manager will be required to pay commercial deposit rates on SEFP funds held in the
Trust Account.
The Fund Manager will be paid a negotiated fee for performing the duties described above.
Executive Agencies
Next to the Fund Manager, who acts as an EA, the World Bank-supervised countries will have an
MC, who reports to the EA in the country. The EAs identified are: (i) Fiji: Ministry of Works
and Energy (MWE) and the Fiji Electricity Authority (FEA); and (ii) PNG: PNG Sustainable
Energy Ltd. (PNGSEL). This agency is already responsible for implementing the ongoing PNG
Teachers’ Solar Lighting Project; and (iii) Solomon Islands: The Central Bank of the Solomon
Islands (CBSI). In the other countries, the EAs will be decided on the basis of a tender run by
IFC.
General Responsibilities of Executive Agencies in this project
Each country exhibits some unique characteristics which will require specific modification of the
general duties, as follows:
In Fiji, there will be two EAs:

The MWE will administer the off-grid components, including solar PV, pico-hydro and fuel
conversion for, among others, the small engines used in Fiji’s community energy projects.
Given the shortage of qualified staff, MWE will execute the project through a Management
Contractor (MC). The MC will be an autonomous unit under contract to and supervised by
the MWE. The MC’s remuneration will include a component based on performance against
project objectives, including the operational status of all schemes financed under the project.

The FEA will carry out studies including a Wailoa basin study to explore the feasibility of
expansion of the hydro scheme, a resource study for small hydro, a biomass resource study
and a study of the extension of FEA’s energy efficiency activities. While these studies will
assist FEA with their general investment strategy, in line with Bank policies, none of these
studies are part of the preparatory work for the proposed IBRD loan;
The responsibilities to be undertaken by MWE as the EA for the MWE component will include:




Implementation of the MWE component of the project;
Handling all procurement in compliance with World Bank and GoF requirements;
Managing all contracts;
Submitting periodic reports on the performance and status of the MWE project component
60
Given the shortage of qualified staff, MWE will execute the project through an MC, which will
be an autonomous unit under contract to and supervised by the MWE. The MC’s remuneration
will include a component based on performance against project objectives, including the
operational status of all schemes financed under the project.
The responsibilities to be undertaken by FEA as the EA for the FEA component will include:




Implementation of the FEA component of the project;
Handling all procurement in compliance with World Bank and GoF requirements;
Managing all contracts;
Submitting periodic reports on the performance and status of the FEA project component;
In PNG and Solomon Islands, arrangements similar to those in Fiji would be put in place, with
the following changes:
 In PNG the EA will be PNG Sustainable Energy Limited (PNGSEL). This agency is already
responsible for implementing the ongoing PNG Teachers’ Solar Lighting Project, as
mentioned earlier. PNGSEL is competent to fulfill the functions of an EA, so there will be no
need for the engagement of an MC in PNG.

In the Solomon Islands, the Central Bank would have the role of the EA. While this choice is
somewhat unusual, there is no other agency with suitable authority or standing. The
Governor of CBSI has expressed a definite interest in participating in the project. An MC
will be engaged on similar lines to those in Fiji.

In Vanuatu, Marshall Islands and Federated States of Micronesia, MCs will be selected
following an IFC procurement process for these services.
Guidelines and Procedures- Flow of Information, Funds and Guarantees
General. A key aspect of SEFP will be to keep administrative procedures as simple as possible
to facilitate quick approval of financing for qualified borrowing support to the client. A second
key aspect will be to maximize the benefits of SEFP’s financial support by allocating resources
to individuals MSEs that will mitigate CO2 emissions by using sustainable energy and
implementing energy efficiency improvements. The project will facilitate switching from the
expensive, polluting and inefficient use of kerosene and diesel to sustainable energy sources. The
sustainable energy options to be supported under this project are Solar PV, pico-hydro, and
locally produced bio-fuel (coconut oil) to be used in diesel generators. In exceptional
circumstances, based on market demand, other options may be supported.
Organizational Structure. The loans for the project originate from PFIs and the required
financial support in the form of guarantees or term extension schemes, from GEF resources. The
commitments for the financing support scheme will be channeled through eligible PFIs that will
offer affordable credit terms to borrowers in return for the reduced credit risk. Affordable in this
case is defined as the current cost incurred for the purchase of kerosene and/or diesel and dry cell
batteries. This implies that customers will pay less, on a monthly cash flow basis, than they do
before the purchase of the sustainable energy equipment.
61
Fund Manager. The funds for the support of the financing will be administered by the Fund
Manager which will receive the necessary financing support funds from the GEF. Each PFI will
be responsible for the credit review and approval based on its own credit procedures and will
request the required support from the Fund Manager in the form of a guarantee. The level of this
financial support will be based on specific Guidelines and Procedures set out for the use of these
funds. The responsibilities to be undertaken by the Fund Manager would include:








Administration of the Risk Sharing Fund (RSF) in accordance with prudent banking practices
and legal agreements;
Making commitments of financial support from the RSF to participating financial
institutions, in line with agreed criteria;
Making payments to participating financial institutions in accordance with the terms of the
financial support commitments;
Receiving payments from participating financial institutions in accordance with the terms of
financial support commitments;
Monitoring the aggregate commitments (including a timing analysis) by country and
category of borrower, ensuring that the allocated amounts to each category are not exceeded;
Monitoring the cash flows of the RSF;
Submitting periodic reports on the performance and status of the RSF;
Consulting with the World Bank Group on any aspects of the Project that appears to require
attention.
The Risk Sharing Fund(RSF) will initially be held in (USD), but as each commitment is entered
into by the Fund Manager, the appropriate amount will be converted into matching local
currency and held as such by the Fund Manager. As each commitment is reduced or released
completely, the corresponding local currency amounts will be reconverted to USD. The EA/MC
will be notified by the PFI via a Short Form Checklist of Eligibility immediately after each
commitment is made by the Fund Manager. The PFI will submit to the EA/MC on a quarterly
basis a summarized status report of all the transactions carried out under the scheme.
Executive Agency and Management Contractor Responsibilities
The EA/MC will verify ex-post that all the transactions performed by the PFI under the scheme
are in accordance with the required eligibility criteria. In case any transaction does not meet the
required eligibility criteria, the EA/MC will inform the World Bank Group which, in turn, will
take the necessary action. The EA/MC will not make any further evaluation of the viability of the
loan or credit worthiness of the client, as this will be the responsibility of the PFI. In addition, the
EA/MC will be responsible for:




Handling all procurement in compliance with World Bank/ GEF and relevant Government
requirements;
Managing all TA contracts, including making payments from a special account;
Monitoring and quality control of the Project. This should include approval of equipment
retailers, installers and maintenance contractors;
Preparing and updating regularly the Approved Product Catalogue of sustainable energy and
energy efficiency equipment;
62





Monitoring and facilitating regular audits for the technical and financial activities under
EA/MC control;
Administration of the participant monitoring scheme, under which clients who borrow for the
purchase of solar PV or other sustainable energy equipment will receive the equivalent of one
month repayment for two survey reports during each of the first three years of borrowing.
The reports will describe in detail the borrower’s experience with the project and, in the case
of individual borrowers, the impact of the project on social and economic aspects of their
life;
Submitting to the World Bank semi-annual reports on the performance of the project;
Maintaining a database of eligible borrowers and retailers; and
Maintaining a database of the status of the project.
The EA/MC will, in certain cases, undertake specific promotional activities and instigate TA
aimed at mitigating potential detrimental effects of the program on certain stakeholder groups,
principally village level resellers of kerosene and diesel. Assistance will be provided to permit
these micro-enterprises to transform their business activities towards the supply of renewable
energy goods and services.
The diagram below for Fiji summarizes the above mentioned implementation arrangements.
Arrangements in other countries will be similar, substituting their particular EAs and MCs as
appropriate.
World Bank
Department of Energy,  Supervise MC (Fiji
Ministry of Works and  Sector monitoring & data collection
Energy (Fiji)
 Public awareness & training
 Regulation, Standards & policy
Management Contractors ( MC)
Fund Manager
1. Handling all procurement;
2 .Managing all TA contracts;
3 .Monitoring guarantees;
4. Monitoring and quality control;
5. Submitting periodic reports.
Financial Institutions
ANZ (Rural Lending) Fiji
Retailers of solar,
pico-hydro and fuel
switching
Other banks and credit
unions
Households
Participating Financial Institutions in Fiji
63
Eligible borrowers under the Scheme
Eligible borrowers will include:
(i) Individuals who require funding to purchase qualifying Solar Home Lighting Kits
(SHLK), Pico-Hydro sets or fuel switching equipment from the Approved Product
Catalogue;
(ii) End-user MSEs which require funding to purchase Approved Product Catalogue items
(SHLK, Pico-Hydro sets, fuel switching equipment) and for related working capital and
fixed assets;
(iii) MSE Sustainable Energy/ Energy Efficiency Equipment Retailers which require funding
to increase the supply of Approved Product Catalogue items (SHLK, Pico-Hydro sets,
fuel switching equipment) and related working capital and fixed assets; and
(iv) MSE Sustainable Energy Service Companies (RESCOs) and Energy Efficiency Service
Company (ESCOs), which require funding to increase the supply of sustainable energy
and energy efficiency services and for related working capital and fixed assets.
Eligible Expenditures under the Risk Sharing Fund (RSF)
Individuals
(i) Solar PV home lighting kits;
(ii) pico-hydro equipment;
(iii) diesel to coconut oil switching equipment.
Companies
• MSE End-users• MSE Sustainable Energy/ Energy Efficiency Equipment Retailers;
• MSE Sustainable Energy Service Companies (RESCOs) and Energy Efficiency
Servicing Companies (ESCOs)(i) Solar PV lighting kits;
(ii) Pico-hydro equipment;
(iii) Diesel to coconut oil switching equipment;
(iv) Other equipment for the production of sustainable energy or the reduction in use of nonsustainable energy and the purchase of associated fixed assets and provision of working
capital as described in a Business Plan.
Screening of Applicants Approvals
PFIs will receive requests for financing from potential borrowers and will review such requests
to ensure that they meet the above eligibility criteria for financing under the scheme. Individual
end-users will need to present pro-forma invoices of the equipment they intend to finance. The
PFI will carry out a credit worthiness assessment of the end user based on its pre-established
procedures.
64
The analysis carried out by the PFIs for MSEs will establish the financial viability of the firm
based on an analysis of its business plan and other information and its compliance with the above
listed eligibility criteria. In addition, the enterprise will be required to provide a detailed
breakdown of the fixed and current assets (including stock) to be financed, in order to assess the
potential CO2 emissions abatement content of such assets. The information thus collected, will
be summarized in the RSF Application Form (on file), which together with a Checklist of
Eligibility Form (on file), will be forwarded to the Fund Manager for an allocation of an RSF
guarantee. Copies of these forms, together with the detailed repayment schedule of each loan
approved, will be forwarded periodically to the EA/MC for verification of compliance with
eligibility criteria.
The PFI will periodically review the utilization of the allocated amounts from the RSF. As each
commitment is reduced or released completely, the Fund Manager will periodically be informed
so that the corresponding amounts released can be reallocated to new RSF commitments. Figure
1, presented below, illustrates the approval and reporting procedures depicted as a flow chart.
65
Figure Flows
1: Flows
of Information,
of Information,
Funds
Funds
and and
Guarantees
Guarantees
Reports
Fund Manger
World Bank
Financial
Support
Agreement
Document
Financial Support
Application Form;
Checklist of Eligibility.
Managing
Contractor ( MC)
Reports and
TA
Financial
Institution
Checklist of
Requirements
(including catalogue)
for FSF support
Technical
Assistance
Business Plan
Including
Environmental
Impact
Loans to
Individuals
Request for
Financing
MSE
Borrowers
Individual
Borrowers
Retailers
Request for
Pro forma
Invoice
Other Features
Interest Rates. The interest rate to individual end users is determined by country, reflecting the
financial sector characteristics in each country. A commitment fee of 1 percent per annum shall
be charged to the borrower for the approved but un-disbursed loan amounts. For Households, the
interest rate will be fixed for the duration of the loan. For SMEs, the interest rate is variable.
Repayment Period. The repayment period for individual end-users shall be such that the
monthly amount paid shall not exceed the current cost of kerosene and diesel paid by the end
users. In several instances this requires a five-year tenure. For MSEs the repayment period shall
be between five and seven years, as determined by the PFI based on the projected cash flow and
Debt Service Coverage Ratios indicated in the business plan and reviewed by the PFI.
66
Grace Period. The grace period for principal repayment shall be zero for loans to individuals
and up to three months for loans to MSEs, as determined by the PFI based on the projected cash
flow indicated in the business plan.
The RSF commitments shall not be applied for retroactive financing of prior expenditures.10
A PFI may not finance a borrower’s expenditures prior to the approval of an FSF commitment. Should any PFI
do so, it will be carrying the full risk of such advances.
10
67
Annex 7: Financial Management and Disbursement Arrangements
PACIFIC ISLANDS: Sustainable Energy Finance Project
This annex will be prepared during the course of project preparation.
68
Annex 8: Procurement Arrangements
PACIFIC ISLANDS: Sustainable Energy Finance Project
The details of this annex will be prepared during the course of project preparation.
A. General
Procurement for the proposed project would be carried out in accordance with the World Bank’s
"Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004; and
"Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May
2004, and the provisions stipulated in the Legal Agreement. For IFC the following Guidelines
apply:
The various items under different expenditure categories are described in general below. For
each contract to be financed by the Grant, the different procurement methods or consultant
selection methods, the need for pre-qualification, estimated costs, prior review requirements, and
time frame are agreed between the Recipient/Executive Agency and the Bank and or IFC in the
Procurement Plan. The Procurement Plan will be updated at least annually or as required to
reflect the actual project implementation needs and improvements in institutional capacity.
Procurement of Goods: Goods procured under this project would include models of Solar PVs,
Pico hydros and fuel switching equipment, as well as software packages. The procurement will
be done using the Bank’s Standard Bidding Document (SBD) for all International Competitive
Bidding (ICB) and National SBD agreed with or satisfactory to the Bank.
Procurement of non-consulting services: Services such as preparation of videos for local
broadcasting, preparation of newspaper articles and other mass media will be procured from
local broadcasting corporations. If there is more than one broadcasting company, standard
national SBD will be used, otherwise it will be sole sourced.
Selection of Consultants : The Management contractors as well as technical consultants required
for the verification of the draft product catalogues, training and implementation support will be
procured following the relevant respectively Bank and IFC guidelines. Short lists of consultants
for services estimated to cost less than $ 50,000 equivalent per contract may be composed
entirely of national consultants in accordance with the provisions of paragraph 2.7 of the
Consultant Guidelines.
Others: The project will facilitate participating executive agencies, and SMEs to attend
international training programs and/or attend international fairs. The project will only finance
part of the costs and for travel only economy class travel fares will be reimbursed.
69
B. Assessment of the agency’s capacity to implement procurement
Procurement activities will be carried out by [name of the Executive Agency]. The agency is
staffed by [describe the key staff positions], and the procurement function is staffed by [describe
the staff who will handle procurement].
An assessment of the capacity of the Implementing Agency to implement procurement actions
for the project has been carried out by [name of the procurement staff] on [date]. The assessment
reviewed the organizational structure for implementing the project and the interaction between
the project’s staff responsible for procurement Officer and the Ministry’s relevant central unit for
administration and finance.
The key issues and risks concerning procurement for implementation of the project have been
identified and include [describe the risks/issues]. The corrective measures which have been
agreed are [Describe the corrective measures].
The overall project risk for procurement is [give the risk rating].
C. Procurement Plan
The Recipient/Executive Agency, at appraisal, developed a procurement plan for project
implementation which provides the basis for the procurement methods. This plan has been
agreed between the Recipient/Executive Agency and the Project Team on [date] and is available
at [provide the office name and location]. It will also be available in the project’s database and
in the Bank’s external website. The Procurement Plan will be updated in agreement with the
Project Team annually or as required to reflect the actual project implementation needs and
improvements in institutional capacity.
D. Frequency of Procurement Supervision
In addition to the prior review supervision to be carried out from Bank offices, the capacity
assessment of the Executive Agency has recommended [frequency] supervision missions to visit
the field to carry out post review of procurement actions.
70
Annex 9 Economic and Financial Assessment
Introduction: This annex presents an economic analysis of photovoltaic-based solar (Solar PV)
systems for home and enterprise application in selected Pacific Island Countries (PIC). 11 Even
though other renewable energy technologies, pico hydro and coconut fueled generator sets, are
supported under the program, the solar systems are expected to be the main technology
application for rural consumers who are unlikely to gain access to grid electricity services. Solar
PV options are likely to dominate because of the availability of private firms and NGOs capable
of delivering products/services extensive rural financial network for credit delivery positive
experiences and good implementation models emerging from other countries.
In the six participating countries there were over 1.4 million households without access to grid
electricity in 2005. This number is unlikely to chance significantly over the coming years.
Studies in the several of the PICs and elsewhere find that solar PV can be the least cost solution
to providing basic electricity services for lighting, communications and other household,
community and SME needs in areas with small dispersed populations and remote from the grid.
Methodology: The economic analysis for solar systems is based on an avoided cost
methodology. Through this approach the benefits are assessed as the avoided costs of the
services in non-electrified households that would be replaced by the PV system. These services
include lighting provided largely by kerosene lamps and some by candles and torch cells; and,
TV and radio energized by dry cells and rechargeable batteries. An analysis following this
approach provides conservative results as it does not account for: (i) consumer surplus12 or (ii)
externalities13. Even though there is considerable variation in expenditure among households
close to all end users use mainly kerosene for lighting and can be considered as the baseline
scenario for the analysis.
The cost of the solar PV system is based on information from several solar dealers in the region,
for the analysis, the weighted average of the three main countries has been used. The assumed
dealer gross margin is 100%, which is based on the Sri Lanka experience where high margins
and good access to consumer credit have resulted in attractive business environment, and a
successful PV-system program. In contrast, gross margins are very low in China due to lower
costs of labor and local materials, and lower expectations of profits by the rural PV companies.
Gross margins are also low in Indonesia where there is strong pressure to keep prices low due to
lack of financing.
Assumptions: The assumptions are derived from actual data on Solar PV Systems in several of
the supported countries:
11
The methodology of the analysis is based on the innovative financial and economic work conducted by the World
Bank (Anil Cabraal, Peter Meier) for the Solar Home Systems component of the Philippines Rural Energy Project.
12
For example, a PV system provides a greater level of service; a 20Wp system is capable of providing 10 times as
many lumen-hours as the kerosene lamp(s).
13
For example indoor pollution caused by exhaust of the kerosene lamp and stove or global climate effects through
the emission of greenhouse gasses by a kerosene or wood stoves.
71











A solar home system of 30 Wp is considered for the analysis. The total cost of the system
is assumed to be USD473 with a life of 15 years;
Battery life is considered to be one year. The cost of a battery is assumed to be US$25
and would be replaced at the owner’s cost;
Controller life is considered to be of 7 years. The cost of a controller is assumed to be
US$35 and would be replaced at owner’s cost;
Bulbs and other accessories usually have a short life (2 months) and would be replaced at
owner’s cost;
Indoor wiring and switches are considered for a lifetime of 15 years;
Kerosene lamp life is considered 2 years. The cost of the lamp is US$20 and would be
replaced at owner’s cost;
Cost of a liter kerosene is US$0.42/liter and a household is assumed to use 67 liters of
kerosene per annum;
The scheme would be administered by the executive agencies of the project through
providing guarantees to PFIs to extend micro finance to households and enterprises to
buy Solar PV Systems;
The PFI would extend a loan to the households maximum of 90 percent of the total cost
of the system to purchase SHS;
GEF guarantees 50 percent of the loan amount made by PFIs;
The balance amount comes as the equity financing of the households collected as a cash
or sweat equity.
Results: The resulting economic rate of return (ERR) based on the avoided cost calculation alone
is 8.7%. The incremental cost analysis shows that the incremental cost per Wp is equivalent to
US$ 2.1. However, to make the program sustainable without the grant at the end of this project it
is decided to reduce the grant amount from the SHS over the years. See Table 1 below
Including consumer surplus: Experience in other countries shows high willingness to pay for the
improved level of lighting provided by PV. Yet as noted, the analysis of the previous section
does not take into account the benefits of the higher levels of services provided, for example in
the case of lighting, more lumens delivered, or in the case of radio/cassette, more hours of
listening. Furthermore, kerosene lighting also contributes to indoor air pollution damage costs,
whose avoidance is a benefit to the PV system. The incremental contribution to indoor pollution
levels from kerosene lighting may be difficult to identify given the much higher contribution
from wood-based cooking stoves, but it is certainly not zero. Kerosene lighting also causes a
significant number of burn injuries, house fires and related deaths. There exist other indirect
benefits that can plausibly be claimed as a benefit of PV systems, for which there is significant
logical rationale and anecdotal evidence, but which still lack the necessary research studies to
permit monetization. These include: (i) income effects: for example, traders in India who used
solar lanterns at their roadside stalls found that the quality of lighting and absence of kerosene
fumes attracted more customers during the main early evening business hours, with 50%
increases in their daily income (Rs 50-100/day); and (ii) educational benefits:
72
Table 1: Economic analysis for solar home systems: avoided costs only
Solar Home Systems (30Wp system)
Incremental cost and least cost calculations
yr5
yr6
yr7
NPV
yr1
yr2
yr3
yr4
Supply projection
Market projections (# of hhs)
250
750
1,500
2,500
4,000
Cummulative market projections (# of hhs)
250
1,000
2,500
5,000
9,000
Base case - kerosene lighting
Capital cost - kerosene lamps (US$)
15,000
45,000
105,000
195,000
345,000
Kerosene fuel cost (US$)
7,128
28,514
71,285
142,569
256,624
O&M cost (wick, gauzes)
4,782
16,128
38,821
74,642
133,156
Total Economic Avoided Costs (US$)
5,610,779
26,911
89,642
215,106
412,211
734,780
GEF alternative - SHSs
Capital cost SHS
118,250
354,750
709,500
1,182,500
1,892,000
Battery and controller replacement
7,500
22,500
45,000
75,000
O&M cost - light bulbs
4,500
13,500
27,000
45,000
Total Economic Costs (US$)
6,191,821
118,250
366,750
745,500
1,254,500
2,012,000
Nett Economic Flows (US$)
(91,339) (277,108)
(530,394)
(842,289)
(1,277,220)
EIRR
9%
Assumptions: average specific kerosene consumption: 67.89 liters/households/year; Kerosene price: 0.42US$/liter
O&M kerosene lighting: wick, gauzes: 1 replacement per month; Replacement cost of kerosene lamp: US$ 60 for 3 lamps every 2 years
Capital solar home system: US$473/system; Replacement cost of battery: US$30/year; Replacement cost of light bulbs: US$18/year
Discount rate:
12%
Data sources: World Bank team
yr8
yr9
yr10
yr11
yr12
yr13
yr14
yr15
5,500
14,500
6,500
21,000
21,000
21,000
21,000
21,000
21,000
21,000
21,000
21,000
525,000
413,450
208,363
1,146,813
735,000
598,790
296,697
1,630,487
525,000
598,790
254,697
1,378,487
735,000
598,790
296,697
1,630,487
525,000
598,790
254,697
1,378,487
735,000
598,790
296,697
1,630,487
525,000
598,790
254,697
1,378,487
735,000
598,790
296,697
1,630,487
525,000
598,790
254,697
1,378,487
735,000
598,790
296,697
1,630,487
2,601,500
120,000
72,000
2,793,500
(1,646,687)
3,074,500
120,000
72,000
3,266,500
(1,636,013)
120,000
72,000
192,000
1,186,487
120,000
72,000
192,000
1,438,487
120,000
72,000
192,000
1,186,487
120,000
72,000
192,000
1,438,487
120,000
72,000
192,000
1,186,487
120,000
72,000
192,000
1,438,487
120,000
72,000
192,000
1,186,487
120,000
72,000
192,000
1,438,487
Input - Solar Household
60 US$ 3 lamps; 2 yr lifetime
0.42 Kerosene price - US$/liter
473 Capital cost solar - system
Table 2: Financial Analysis
Solar Home Systems (30Wp system)
Financial Analysis
yr5
yr6
yr7
NPV
yr1
yr2
yr3
yr4
Supply projection
Market projections (# of hhs)
250
750
1,500
2,500
4,000
Cummulative market projections (# of hhs)
250
1,000
2,500
5,000
9,000
Base case - kerosene lighting
Capital cost - kerosene lamps (US$)
19,350
58,050
135,450
251,550
445,050
Kerosene fuel cost (US$)
9,196
36,783
91,957
183,914
331,045
O&M cost (wick, gauzes)
6,169
20,806
50,079
96,289
171,771
Total Economic Avoided Costs (US$)
7,237,904
34,715
115,639
277,486
531,753
947,867
GEF alternative - SHSs
Capital cost SHS
137,543
412,628
825,255
1,375,425
2,200,680
Battery and controller replacement
9,675
29,025
58,050
96,750
O&M cost - light bulbs
5,805
17,415
34,830
58,050
Total Economic Costs (US$)
7,299,008
137,543
428,108
871,695
1,468,305
2,355,480
Nett
Flows (US$)
(102,828) (312,469) (594,209)
(936,552) (1,407,613)
EIRREconomic
(%)
12%
FIRR
12%
Assumptions: average specific kerosene consumption: 67.89 liters/households/year; Kerosene price: 0.5418US$/liter
O&M kerosene lighting: wick, gauzes: 1 replacement per month; Replacement cost of kerosene lamp: US$ 77.4 for 3 lamps every 2 years
Capital solar home system: US$550.17/system; Replacement cost of battery: US$38.7/year; Replacement cost of light bulbs: US$23.22/year
Discount rate:
12%
Importy duty: 18%; Taxes: 11%; and US$2/Wp
Data sources: World Bank team
yr8
yr9
yr10
yr11
yr12
yr13
yr14
yr15
5,500
14,500
6,500
21,000
21,000
21,000
21,000
21,000
21,000
21,000
21,000
21,000
677,250
533,351
268,788
1,479,388
948,150
772,439
382,740
2,103,329
677,250
772,439
328,560
1,778,249
948,150
772,439
382,740
2,103,329
677,250
772,439
328,560
1,778,249
948,150
772,439
382,740
2,103,329
677,250
772,439
328,560
1,778,249
948,150
772,439
382,740
2,103,329
677,250
772,439
328,560
1,778,249
948,150
772,439
382,740
2,103,329
3,025,935
154,800
92,880
3,273,615
(1,794,227)
3,576,105
154,800
92,880
3,823,785
(1,720,456)
154,800
92,880
247,680
1,530,569
154,800
92,880
247,680
1,855,649
154,800
92,880
247,680
1,530,569
154,800
92,880
247,680
1,855,649
154,800
92,880
247,680
1,530,569
154,800
92,880
247,680
1,855,649
154,800
92,880
247,680
1,530,569
154,800
92,880
247,680
1,855,649
Input - Solar Household
77 US$ 3 lamps; 2 yr lifetime
0.5418 Kerosene price - US$/liter
550.17 Capital cost solar - system
38.7 Battery per year - US$
73
the Philippines survey data shows that members of electrified households attain about two years
more formal education than their non-electrified counterparts, resulting in earnings increases of
$37-$45/household. Solar PV home systems may result in a somewhat smaller impact on
reading and studying habits than full electrification, but again, the effect is unlikely to be zero.
All of these benefits are represented by the increase in consumer surplus. Given the lack of
empirical data from cross-country studies, an estimate had been made based on the study for the
Philippines.
The ERR taking into consideration the consumer surplus benefits is expected to be almost three
times higher (26.1%) than the base case founded on the calculations done for the Philippines.
Even though the actual ratio will differ for the PICs it does provide comfort that the project is a
healthy contribution for the countries participating under the project.
Externalities: PV-system generated electricity avoids the air-emissions associated with kerosene
lighting. The avoided damage costs represent a benefit, and need to be considered in the
economic analysis. Other negative impacts of kerosene whose avoidance is not included in the
above analysis include occasional burn injuries, bad odors, and the inconvenience of having to
buy and store the fuel. Their monetization, even if possible, would be so small that they would
make no material difference to the economic analysis. However, in the case of avoided air
emissions, the avoided damages do make a significant difference to the economic analysis,
notably in the case of carbon emissions.14
Financial Analyses: Two types of financial analyses were conducted: (i) an overall analysis for
the main component of the project i.e. solar PV systems and (ii) a financial analysis of micro and
small enterprises participating under the program.
Financial analysis for the project, import duty for the three largest participating countries ranged
from 5% in Fiji to 20% in PNG and a weighted average of 18% was used. For the value added
tax, PNG charges 10% while SI has 15%, and 11% was used in the calculations. A co-financing
grant of US$2/Wp was included as benefit. The result is a FIRR of 12%. (See Table 2 above)
Financial analysis for the beneficiaries: Investments in MSE projects to be financed under the
scheme will be screened by PFIs. It is assumed, as PFIs do not provide loans to loss making
enterprises, that these investments will be financially justified. Representative projects were
analyzed for the following MSEs: Retailer and technical service providers of Solar PV, energy
services enterprise engaged in the installation and maintenance of fuel switching equipment, pico
hydro end user, and energy efficiency systems provider. The analyses show that these
enterprises are profitable, with IRRs ranging 10 to 24%, with one exception of a high 74%. This
assumes that they have access to loan funds with terms and conditions as described in the
implementation plan. Summaries of these analyses, which should be considered as illustrative
examples, are presented in Annex 4, appendix A.
14
For example in the case of Indian PV solar homes, the ERR was claimed to have increased from 30% to 108%
when global environmental benefits were considered.
74
Annex 10: Safeguard Policy Issues
PACIFIC ISLANDS: Sustainable Energy Finance Project
This project is expected to have minimal adverse environmental impacts. The EAP Safeguards
Secretariat has reviewed the Project Concept Note and the Integrated Safeguards Data Sheet
(ISDS), and given this project a Category “C” rating. The major issues are:
Solar PV battery disposal risk. The project was designed to alleviate the disposal risk of these
lead acid batteries, which arises for each user when the battery reaches the end of its useful life
every three to five years. The initial loan to Solar PV end-users will incorporate an element
dedicated to the purchase of the first replacement battery. Arrangements will be made such that,
before the finance for the replacement battery is released by the PFI, the old battery is handed in
to the retailer. There are environmental laws in all participating countries which categorize
batteries as low hazard waste, but enforcement is patchy or non-existent. Project EAs, using
project TA funds, will work with the various national environment authorities to develop Codes
of Conduct for battery disposal. In Fiji and PNG, battery disposal is now available on a
commercial basis for the recovery of the lead. Solar PV suppliers under SEFP in all target
countries will be required to use commercial battery disposal points when available and adhere to
officially mandated procedures when in place.
Low voltage transmission line for pico-hydros. There is a minimal social risk associated with
pico-hydro generators where the end-use for the power is located close, but not adjacent to the
site of the generator; in such circumstances, a short low voltage transmission line across the
intervening land will be needed. PFIs offering finance supported by the RSF will be required to
check that the permission of all users of affected lands has been obtained, in accordance with
local practices.
Monitoring. During implementation, a post audit review will be conducted by the Bank and IFC
of (i) the management of battery disposal and (ii) agreements to pass transmission cables across
neighbors’ land.
Safeguard Policies Triggered by the Project
Environmental Assessment (OP/BP/GP 4.01)
Natural Habitats (OP/BP 4.04)
Pest Management (OP 4.09)
Cultural Property (OPN 11.03, being revised as OP 4.11)
Involuntary Resettlement (OP/BP 4.12)
Indigenous Peoples (OD 4.20, being revised as OP 4.10)
Forests (OP/BP 4.36)
Safety of Dams (OP/BP 4.37)
Projects in Disputed Areas (OP/BP/GP 7.60)
Projects on International Waterways (OP/BP/GP 7.50)
75
Yes
[ x]
[]
[]
[]
[]
[]
[]
[]
[]
[]
No
[]
[ x]
[ x]
[ x]
[ x]
[ x]
[ x]
[ x]
[ x]
[ x]
Annex 11: Project Preparation and Supervision
PACIFIC ISLANDS: Sustainable Energy Finance Project
PCN review
Initial PID to PIC
Initial ISDS to PIC
Appraisal
Negotiations
Board/RVP approval
Planned date of effectiveness
Planned date of mid-term review
Planned closing date
Planned
9/27/05
4/02/2006
4/02/2006
8/01/2006
11/08/2006
01/09/2007
03/05/2007
02/15/2009
03/04/2014
Actual
9/27/05
Key institutions responsible for preparation of the project:
IBRD and IFC
Bank staff and consultants who worked on the project included:
Name
Antonie de Wilde
Robert James Simms
Elisabeth Jane Mealey
David Chandler
Cristiano Costa e Silva Nunes
James Monday
Mara Baranson
Perry Bradford
Dalcy Lagoni Tozaka
George Failace
Jon Exel
Andrew Mears
David Smith
Title
Coordinator
Investment Officer
Communications Officer
Financial Management Specialist
Procurement Specialist
Safeguards Specialist
Project Coordinator
Program Assistant
Intern
Consultant
Consultant
Consultant
Consultant
Unit
EASEG
CEASF
EACNF
EACNF
EACNF
EASEN
EASEG
EASEG
EASEG
Bank funds expended to date on project preparation:
1. Bank resources: USD109,081.90
2. Trust funds: USD184,379.07
3. Total: USD393,460.97
Estimated Approval and Supervision costs:
1. Remaining costs to approval: USD565,221
2. Estimated annual supervision cost:USD180,000 (The project covers more than 6
countries, with significant travel costs between each of the countries. This would bring the
supervision cost to 12.6% of project cost.
76
Annex 12: Documents in the Project File
PACIFIC ISLANDS: Sustainable Energy Finance Project
1.
Regional Engagement Framework FY2006-2009 for Pacific Islands, Report No: 33261EAP, May 3, 2005, International Bank for Reconstruction and Development, International
Development Association.
2.
Pacific Islands Greenhouse Gas Abatement through Renewable Energy Project
(PIGGAREP), Project Number: 2699 / PIMS Number: 3462, United Nations Development
Programme / Global Environment Facility.
3.
PNG, Teachers Solar Lighting Project, Project ID P088940, GEF Medium Sized
Program, Global Environment Facility / World Bank.
4.
Pacific Islands Renewable Energy Project (PIREP) –(9 documents)
United Nations Development Programme / Global Environment Facility
1. Project Document 2002
2. Pacific Regional Energy Assessment 2004
3. Report on financial mechanisms for PIREP
4. FS Micronesia report
5. Fiji report
6. Marshall Islands report
7. PNG report
8. Solomon Islands report
9. Vanuatu report
5.
Selected Issues and Statistical Appendix (6 IMF Reports): Country Reports, International
Monetary Fund
FS Micronesia report; Fiji report; Marshall Islands report; PNG report; Solomon Islands
report; Vanuatu report.
6.
Reports of Public Meetings during identification
Fiji report; PNG report; and Solomon Islands report.
7.
Reconnaissance and Identification Mission Reports :
FS Micronesia report; Fiji 2 aide memoires report; Marshall Islands report; PNG 2 aide
memoirs ; Solomon Islands 2 Aide memoires; Vanuatu, Samoa and Tonga Field visit
reports.
Letters of Support Collaboration from:
CDS PNG
World Vision Solomon Islands
EC- Micro Project Solomon Islands
EC- REP-5 PMU
University of the South Pacific's Institute of Applied Science
77
Annex 13: Statement of Loans and Credits
PACIFIC ISLANDS: Sustainable Energy Finance Project
STATEMENT OF IDA Solomon Islands
Held and Disbursed Portfolio In Millions of US Dollars
Difference between
expected and actual
disbursements
Original Amount in US$ Millions
Project ID
FY
Purpose
IBRD
IDA
SF
GEF
Cancel.
Undisb.
Orig.
Frm.
Rev’d
P058358
2000
SB-HEALTH
SECTOR
DEVELOPMENT PROJECT
0.00
4.00
0.00
0.00
0.00
0.84
0.57
-0.28
0.00
4.00
0.00
0.00
0.00
0.84
0.57
-0.28
Total:
STATEMENT OF IFC’s
Held and Disbursed Portfolio In Millions of US Dollars
FY Approval
Company
Committed
Disbursed
IFC
IFC
Loan
Equity
Quasi
Total Portfolio:
No approvals pending
78
Partic.
Loan
Equity
Quasi
Partic.
Fiji
NO IBRD or IDA Loans or Credits
STATEMENT OF IFC’s
Held and Disbursed Portfolio In Millions of US Dollars
Committed
Disbursed
IFC
IFC
FY Approval
Company
Loan
Equity
Quasi
Partic.
Loan
Equity
Quasi
Partic.
1998
Hillview Ltd
0.00
0.00
5.27
0.00
0.00
0.00
5.27
0.00
0.00
0.00
5.27
0.00
0.00
0.00
5.27
0.00
Total Portfolio:
Papua New Guinea
IDA STATEMENT
Original Amount in US$ Millions
Difference between
expected and actual
disbursements
Project ID
FY
Purpose
IBRD
IDA
SF
GEF
Cancel.
Undisb.
Orig.
Frm.
Rev’d
P004397
2002
PG-ROAD MAINT. & REHAB
40.00
0.00
0.00
0.00
0.00
24.58
19.66
0.00
P066954
2000
PG-GAS DEV TA
7.00
0.00
0.00
0.00
0.00
0.34
0.26
0.00
P054238
2000
PNG-GAZELLE
RESTORATION II
25.26
0.00
0.00
0.00
0.00
7.35
7.35
0.17
72.26
0.00
0.00
0.00
0.00
32.27
27.27
0.17
Total:
STATEMENT OF IFC’s
Held and Disbursed Portfolio In Millions of US Dollars
FY Approval
2005
Total Portfolio:
Committed
Disbursed
IFC
IFC
Company
Loan
Equity
Quasi
Partic.
Loan
Equity
Quasi
Partic.
PNG MicroFinance
0.00
1.20
0.00
0.00
0.00
0.00
0.00
0.00
0.00
1.20
0.00
0.00
0.00
0.00
0.00
0.00
79
Annex 14: Country at a Glance
PACIFIC ISLANDS: Sustainable Energy Finance Project
80
81
82
83
84
85
86
87
88
89
Annex 15: Incremental Cost Analysis
PACIFIC ISLANDS: Sustainable Energy Finance Project
Introduction
Fiji, Papua New Guinea (PNG), Republic of Marshall Islands (RMI), Solomon Islands (SI), and
Vanuatu, along with other countries in the Pacific region, face similar development challenges,
despite notable differences in their history, culture, and endowments. The inequitable distribution
of wealth and insufficient economic growth in the face of increasing population has contributed
to unemployment and hardship in the region. Even those countries that have seen positive growth
in per capita income have been unable to fully translate this into adequate job creation and
poverty reduction. The World Bank strategy for the Pacific region focuses on creating an
environment conducive to generating sustainable economic growth and employment, while
recognizing that the small sparsely distributed populations and remoteness of the Pacific Island
countries (PICs) pose significant development challenges to this region.
In the participating PICs, access to electricity is low in most countries -- ranging from 10 percent
in PNG to over 65 percent in Fiji. Power generation is heavily dependent on diesel, on and off
the main grid, but particularly in rural areas. The average cost of energy in 2002 was between
four to eight percent of GDP per capita. Estimated cost due to the high cost of oil and the
transportation of oil itself has skyrocketed to between 12 to 25 percent of GDP per capita in
2005.
Increasing access to electricity is necessary to promote economic growth and improve the quality
of life in PIC households. In this context, sustainable energy technologies and energy efficiency
interventions offer cost effective options for increasing access to modern energy services for
rural households and micro and small enterprises (MSEs) as the least cost option. However, as in
many other developing countries, potential users face significant difficulties in financing
sustainable energy equipment and investing in energy efficiency measures. This difficulty does
not reflect a lack of liquidity in the PIC’s financial sectors, as there is adequate liquidity. Rather,
the financial institutions are reluctant to finance these systems, for three reasons. First, the
financial institutions have no experience in financing such equipment, and view them as risky.
Second, these systems generally have high upfront capital costs and low operational costs, which
implies that the initial debt requirements are high, leading to a necessary loan term of five to
seven years; however, in the PICs there are sometimes legal or internal barriers that restrict the
financial institutions from making loans of the required tenor. Third, the interest rates charged by
banks on loans to individuals and MSEs can be sufficiently high to render unaffordable the use
of such finance to acquire these systems.
On the other hand, a number of financial institutions are looking for good projects to finance,
including in the rural areas. For example, Australian and New Zealand Banking Group Limited
(ANZ) Bank has recently initiated its rural banking operations in Fiji and Solomon Islands and in
response to a request for Expression of Interest published on the dgMarket website, a reputed
Bank has shown interest to participate in the Sustainable Energy Financing Project (SEFP) of its
branches and subsidiaries in four of the five countries covered by this project. Similarly, a
number of other financial institutions have indicated their strong interest in participating, though
90
some, particularly the smaller local institutions, would require significant technical assistance
before they would be able to do so.
Fiji Islands
Fiji is the second largest of the PICs with a population in excess of 840,000 growing at a rate of
1.4 percent per year. The nation is an island group located in the tropic zone centered at about
18°S 180°E with two main islands of Viti Levu and Vanua Levu, and approximately 120
sparsely inhabited outer islands. Between 1987 and 2000 Fiji was politically unstable and
underwent 3 coups, partly motivated by racial tensions between ethnic and Indo- Fijians.
Presently GDP is approximately USD 2700 per capita with economic growth over the last few
years moderate and estimated at 3.0 percent in 2005. However, the proportion of households
living in poverty is increasing from an estimated 15 percent in 1983 to nearly 30 percent in 2000.
Approximately 48 percent of the population lives in rural areas. The economy is heavily
dependent on sugar and other agricultural exports, garments and other manufactured goods, gold
and other primary products (timber, timber products, fish) and tourism. The sugar industry, for
which approximately 25 percent of households are directly dependent for income, has been in
decline since 1994.
The Fiji Electricity Authority (FEA) is the public utility responsible for general electrification
through the national grid. It has an extensive grid on Viti Levu and 3 other smaller grids on
Vanua Levu and Ovalau, supplied by 14 power stations with a total installed capacity of 194
MW, of which 80MW is hydro. FEA is presently embarking on an investment program aimed at
full renewable supply by 2011. However, only profitable grid extension is undertaken unless
funded from external sources. The Fiji Department of Energy (DoE) is therefore the primary
agency responsible for rural electrification through its Rural Electrification Unit. The existing
policy of the MWE is to support rural electrification through a 90 percent subsidy scheme of
households which includes grid extension, as well as off-grid schemes such as micro- hydro or
small diesel generator schemes. Lack of technical and management skills and the cost of
maintenance and operating costs for the community diesel schemes has meant earlier failure of
the majority of schemes. This has led to a low coverage rate and poor quality of access to
electricity services and a growing dependency on subsidies. The MWE has also instigated a
RESCO scheme which provides Solar PV home lighting systems to more than 500 households
on a rental basis. The Public Works Department (PWD) also operates diesel generators at five
government stations where the cost of supply is estimated as averaging FJD$2.44/kWh. As a
result approximately 35 percent of households do not have access to any form of electricity
service.
For the households without access to electricity (including those in defunct MWE diesel
schemes), there is a reliance on electricity substitutes such as kerosene/benzine, dry-cell
batteries, and LPG. These households have an average monthly expenditure on kerosene/benzene
for lighting and dry-cell batteries of approximately FJD$19 with 36 percent spending between
FJD$22 and FJD$42 monthly and 37 percent between FJD$12 and FJD$22. For the 19,000
households in the MWE community diesel schemes, of which more than 650 schemes have been
installed, the communities spend FJD 150-250 per month on diesel alone. These groups exhibit
91
different energy expenditure patterns some of which can be avoided through the adoption of
renewable energy household systems. Solar PV or pico-hydro has the potential to avoid the
majority of expenditure on kerosene and dry-cell batteries. Switching from diesel to locally
produced coconut oil has the potential to reduce diesel fuel costs by between 20 percent and 60
percent. The MWE estimates 12,000 un-electrified households are potential users of solar PV,
another 5,000 (especially those in mountainous high rainfall areas where solar is less viable) are
viable for pico hydro, and a potential 3000 households in the community diesel schemes are
viable for fuel switching. This indicates a potential market of 20,000 households to gain access
to electricity services. The barriers to development of these markets include: lack of awareness
of renewable energy options, high initial capital cost and lack of affordable finance, limited
access to technical services.
Papua New Guinea
Papua New Guinea is the largest of the Pacific Island Countries (PICs) with a population of
approximately 5.6 million presently growing at a rate of 3.5 percent dispersed over 600 islands.
Nearly half the population is under 17 years of age and the life expectancy is the lowest of the
PICs. Approximately 87 percent of the population lives in rural areas. Over the last 10 years
economic growth has averaged less than 3 percent annually in real terms resulting in an effective
drop in real GDP per capita to USD 582. In 2000, some 2 million people, 37.5 percent of the
population lived in households where the real value of consumption per adult equivalent was
below the poverty line. Almost 94 percent of these poor households live in rural areas, mostly in
the highlands and Mamose regions. There are more than 860 languages in PNG, a third of the
world’s languages.
The dual economy, a characteristic common in many developing countries, is particularly
pronounced in the case of PNG. The formal economy is dominated by mining and petroleum
sector, which is also the largest exporter and provides more than a third of government revenue.
Formal agricultural activities also contribute substantially to GDP. Only 18 percent of rural
households are engaged in the formal sector whereas the majority of the population leads a
subsistence lifestyle. The expenditure on energy is closely linked with wealth as poor households
expend up to 32 percent more of their income to meet their energy needs than wealthy
households.
The corporatised national utility, PNG Power, operates three interconnected distribution systems
and about 15 mini-grids at the main provincial centers serving a total of 73,000 customers. There
is a total installed capacity of 350MW half of which is hydro and half diesel with approximately
40MW of this de-rated due to lack of maintenance. PNG Power is operating well below the
government required 10 percent rate of return and as grid extension is unprofitable there is no
extension activity unless it is funded from external sources. There are also about 80 small rural
electricity schemes which serve key administrative and service centers called C-centers. These
C-centers are operated by district or provincial authorities although most are out of service or
provide only limited duty periods. Industrial auto-producers (mostly mines), many small standalone generators or hydros, and one IPP increase the total installed capacity to approximately
600MW providing about 2,600GWh per annum. PNG Power provides power to only 5 percent of
the households nationally, accounting for 82 percent of customers but 11 percent of sales with
92
the domestic tariff at PGK 0.40 per kWh (USD 0.13). It is likely that more than 90 percent of the
population is not electrified by any means: grid, self-generation, nearby industry, small-scale
hydro or solar, which makes PNG one of the lowest electricity coverage areas in the world.
The energy consumption patterns of rural households reveal a high dependence on traditional
fuels, low or no access to electricity and reliance on electricity substitutes especially kerosene
and dry-cell batteries for basic lighting. In some cases wealthier households, family groups or
small enterprises may purchase a small generator although the high cost of operation and
unreliable supply of fuel means it is rarely used. Household expenditure on Kerosene varies
considerably depending on income and access to supply. A typical salaried household such as a
teacher or health worker may spend 65 Kina per month on Kerosene for lighting, whereas a
farmer with some small cash income from beetle nut or fishing may spend only 25 Kina per
month. Other income earning household such as those engaged in coffee, cocoa, palm oil or who
are recipients of resource rental payments will also have comparable expenditure on kerosene.
Households in remote areas leading purely subsistence lifestyles are unlikely to use Kerosene at
all.
PNG has substantial untapped hydro, solar and biomass resources. Investment by individual
households and micro- and small enterprises in Solar PV and pico-hydro has the potential for
substantial savings by avoiding expenditure on kerosene and dry cell batteries. There are
presently more than 130,000 salaried people working in rural areas, more than 520,000 engaged
in reliable cash cropping activities such as coffee, cocoa and oil palm; more than 36,000 microenterprises such as local commodity resellers, artisans and sewing; more than 15,000 smallenterprises such as coffee processing, trade stores and food shops. If 10 percent of this market
was developed then this would result in a potential 65,000 households and 5100 MSEs with
access to electricity. Solar PV home lighting systems presently retail for PGK 42-52 per Wp;
pico-hydro systems for PGK 15-20 per Wp; and using locally produced coconut oil instead of
diesel can reduce fuel costs by between 10 percent and 30 percent (e.g. presently in Bougainville
refined coconut oil retails for PGK 2 per litre whereas diesel is PGK 2.80 per litre representing a
21 percent reduction in fuel costs). The high initial investment costs, difficulty in accessing
technologies and technical services, low awareness of renewable energy options and lack of
affordable finance pose the main barriers to improving access to these electricity services.
Solomon Islands
The Solomon Islands is the third-largest island nation. It has a population of more than 460,000
dispersed over 300 islands, living in approximately 65,000 households. A population growth rate
of 2.8 percent, and per capita GDP of USD$600 contribute to making the Solomon Islands one of
the poorest and most vulnerable of the PICs. Poverty remains widespread particularly in rural
areas where 85-90 percent of the population lives, with most relying on subsistence agriculture
and fishing as a primary source of income. The country is slowly recovering from civil unrest
that erupted into open conflict in June 2000. Since mid-2003, security has improved significantly
with the arrival of the Australian Regional Assistance Mission to Solomon Islands which is
expected to remain in place for many years.
93
The formal sector is mainly government, agriculture, forestry and fishing and involves
approximately 21,000 employees of which at least 12,000 are in rural areas. The informal sector
includes activities such as copra, cocoa, forestry, commodity selling, vegetable growing, home
sewing, fishing and similar part-time activities and is by far the dominant income producing
activity for rural communities. A high proportion of informal sector workers are women and
these activities provide small, but important, income streams necessary to meet family needs
including school fees.
The Solomon Islands Electricity Authority (SIEA) is the corporatised public utility which is
responsible for electric power supply and distribution in the capital Honiara, the 9 provincial
centers and the township adjoining the Noro fish processing facility. The present installed
capacity is in excess of 22MW of which 0.18MW is from two micro hydro schemes, giving a
total consumption in excess of 30GWh. The SIEA management has recently undergone review
with the assistance of the World Bank and a management contractor about to be appointed.
Domestic tariff is SID 1.3175 per kWh (USD 0.18 per kWh). Other generation is provided by
private companies (2 percent) typically plantations and fish processing plants, individually
owned systems (1 percent) and other sources such as shared connections, mission or community
schemes (1 percent). In Honiara 73 percent of households have electricity whereas in the
provinces access is only 9 percent. Overall, at least 90 percent of the population is without access
to any electrical supply. In the rural areas more than 95 percent of households are without service
which equates to 56,000 rural households.
There is good renewable energy resource potential in the form of small-scale hydro, solar, and
coconut oil as a substitute for diesel. The high insolation rates mean that Solar PV is a viable
option in most parts of the nation. There are also significant hydro resources with at least
326MW small-scale hydro potential identified across seven of the islands. Coconut oil
production is well established and local experience has verified its use as a diesel substitute in
generators. Coconut oil production levels peaked at more than 10,000 tonnes in 1999 and it is
reported at that time that 47 percent of rural households are involved in copra production. Given
the relative importance of copra as a cash crop to rural households the use of coconut oil as a fuel
has the potential to improve domestic copra markets in such a way as to produce broad rural
development benefits.
As in most PICs the energy consumption of rural households is dominated by traditional fuels
such as firewood and coconut shells. For lighting in un-electrified rural households, kerosene is
widely used as is dry cell batteries for torches and radios. Salaried workers, including private
sector as well as teachers and health workers typically spend in the order of SID 90-120 per
month on kerosene and dry cell batteries. Other informal cash earning households engaged in
agricultural activities, such as cocoa, copra, fishing, forestry spend SID 30-50 per month
provided they have access to a reliable supplier. More able households, micro- and small
enterprises or institutions such as schools and missions may have a generator however access to
petrol or diesel is unreliable and expensive so generator use is not as widespread as in many
other PICs.
Investment in Solar PV, pico- hydro and fuel switching has the potential to avoid much of the
expenditure of households and enterprises on kerosene and dry cell batteries for lighting and
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diesel. The main barriers being the lack of awareness of renewable energy options, high initial
capital cost and lack of affordable finance, limited access to technical services. The retail sector
for Solar PV and pico-hydro is particularly limited with only 1 specialized retailer of solar PV
and no marketing of pico- hydro. Presently, Solar PV is retailing for approximately SID 86 per
Wp and imported pico-hydro are SID 45 per Wp. However, there are 12,000 rural households
receiving salaries and more than 18,000 engaged in key income producing activities such as
agriculture, copra, cocoa and fishing. MSEs represent another potential market of at least 2000
customers. Considering a penetration of 10 percent of these relatively moderate income
households then a potential market of 3000 customers is feasible, the majority being Solar PV in
conjunction with an estimated 500 pico-hydro and 500 fuel switching installations mostly for
MSEs. Whilst it appears possible for these moderate consumption groups to fund these
investments from the avoided costs of kerosene and batteries, this is unlikely to be the case for
the many low consumption households.
Vanuatu
Vanuatu is a nation of over 80 islands, of which 65 are inhabited with a population of 205,000
living in approximately 40,000 households. The population is growing at an average annual rate
of 2.6 percent, with 42 percent of the population below 15 years of age. The three most populous
islands -- Efate, Santo and Tanna -- are home to 50 percent of the population, and 78 percent of
the population lives in the rural areas. Presently, GDP per capita is USD699 and while real
growth is approximately 3 percent, it is barely keeping pace with population so that the growth
per capita is marginal. There are more than 100 spoken languages of which Bislama is spoken
by 25 percent of the population.
Nearly 80 percent of the population is engaged in subsistence agriculture and contributes only 10
percent to the formal economy, where the formal economy is characterized by a small, high-cost
modern sector. Rural incomes are less than 10 percent of urban incomes although this data does
perhaps not reflect the large proportion of urban salaries which are remitted to rural areas. The
last 10 years has seen a change in the main economic activities away from the primary sector to
services. The main income producing activities in rural areas is copra, cocoa, Kava, cattle and
forestry, with approximately 10 percent of the formal sector based in rural areas.
Vanuatu has largely privatized its electricity supply sector through the use of long-term
concessions, with the government retaining a 16 percent share of the company. This private
utility, UNELCO, has provided electricity to the capital Port Vila and Luganville for several
decades, recently extending to two townships on other islands. The transfer of management to
the private sector has raised the quality of service. However, the absence of open competition in
tendering for the concession and the lack of legal and regulatory basis for monitoring and
constraining the monopoly held by UNELCO has resulted in relatively high power tariffs for
consumers, and electricity supply is focused primarily in the urban centers. Domestic electricity
costs in Vanuatu are relatively high for the region at around USD0.25 per kWh (compared to
USD0.18 per kWh in Solomon Islands). In 2002, UNELCO had a peak demand of 8.2MW and
sold 34 GWh in Port Vila, which accounts for 85 percent of demand and 70 percent of
customers. Diesel accounted for 93 percent of generation and hydro the rest. The Energy Unit
within the Ministry of Lands, Geology, Mines, Energy, Environment and Water Resources
formulates energy policy; however, this is about to be reformed. The Energy Unit has also
95
undertaken at least eight rural Solar PV projects with mixed success. There are many small
generators in operation in able households and at missions and service centers, although these
provide very limited service. Overall, at least 60 percent of urban households -- but only 6.9
percent of rural households -- have access to electricity services of any kind.
More than 86 percent of rural households (24,000) use kerosene as their primary source of light,
typically costing households on the main islands VUV1,300 to 6000 per month. Additional
expenditure on dry-cell batteries and candles can be of the order of VUV 1,500 per month. On
outer islands, possibly due to unreliable supply and also low household incomes, this energy
expenditure drops to VUV400 to 800 per month. Due to the unreliable supply of fuel, generators
operated by MSEs in rural areas are often under utilized.
Vanuatu has good renewable energy resources and solid experience with Solar PV, micro-hydro,
and coconut oil as a substitute for diesel. Presently hydro provides 7 percent of national supply
and there is another 75 kW scheme being prepared. Presently, there is limited local technical
capacity and only one retailer of pico-hydro equipment. The Energy Unit has identified suitable
sites presenting more than 1.5 MW of micro-hydro potential. Solar PV is a viable option for most
areas in the country due to the high insolation rates and, as such, this technology has received
wide support from donors and government. There are several retailers offering a range of
products and small solar lighting kits are available for VUV3,000 to 4,500 per Wp. Retailers
estimate a potential of more than 4,000 systems. Vanuatu also has probably the most experience,
of all the PICs, with coconut oil as a diesel substitute. With an annual output of around 40,000
tonnes of copra, there is potential to locally produce about 29.7M liters of coconut oil which, in
principle, would completely displace imported diesel. There are two established private firms in
Port Vila producing and retailing coconut oil for use in diesel vehicles and generators.
Republic of Marshall Islands
The Republic of Marshall Islands (RMI) is made of 29 atolls of which 22 are inhabited, covering
about 181km2 (less than 10m above the mean sea level). The population of more than 51,000 live
in approximately 6,500 households, with 68 percent living in the two main atolls of Majuro and
Ebeye. The typical outer atoll will have about 80 to 100 islets and anywhere from three to four
modest-sized communities, ranging from 100 to 400 people. RMI remains heavily dependent on
external assistance with foreign aid, mostly from the USA, representing 60 percent of GDP. The
GDP per capita is approximately USD1,817 and has dropped by up to 35 percent since 1995 due
principally to a reduction in aid grants.
The workforce represents 51 percent of the population, though less than a third of these are in
rural areas; however, 45 percent are in paid employment with the rest engaged in subsistence
activities. For rural households, small cash incomes from agricultural products (essentially
copra) are supplemented by remittances from family living in urban centers. In 1999, the average
income for urban households was USD10,930 whereas rural households received USD3,880
(with a large variance). The ADB estimates that 66 percent of the population in the outer areas
(1,400 households) lives below the poverty line.
The energy sector is managed at the national level by the state-owned utility, Marshall Energy
Company (MEC), which supplies Majuro, Jaluit and Wotje with an installed capacity of 29 MW
diesel (de-rated) delivering 81.3 GWh to 3,528 customers in 2003. The second largest power
96
system is KAJUR on Ebeye, with an installed capacity of 2.5 MW, providing 19.2 GWh to 937
customers. The domestic tariff is presently USD0.225 per kWh. The expansion of coverage of
these two schemes has remained steady at 5 percent for the last few years. There are additional
small diesel schemes run by local authorities in two outer atolls, supplying roughly 100
customers. There is also substantial experience with Solar PV, and in 1999 it was estimated that
5 percent of households were using this supply. Solar PV is also widely used in schools and
health centers. MEC has contracted to the government to coordinate these Solar PV activities
possibly via a RESCO approach. In 1999, 37 percent of households did not have access to
electricity, it is likely that this figure has declined and is estimated at approximately 25 percent
of households due to gradually increase to almost complete coverage in the main population
centers, but also expansion of Solar PV coverage in rural areas. However, the 25 percent (1,650)
of households without access are almost all in the rural areas.
The frequent energy forms used for lighting in rural households include electricity from a
generator supply (13.4 percent), kerosene wick lamps (70.8 percent), Solar PV system (15
percent) and other (0.7 percent). Wood is the predominant fuel for cooking for rural households
(78.5 percent), with kerosene the next most prevalent (40.5 percent), and with charcoal growing
in popularity. Typical household expenditure on kerosene for lighting and dry-cell batteries for
radios and torches is USD22-40 per month. The availability and utilization of Solar PV has
penetrated more widely here than in PNG or the Solomon Islands. The opportunities for
economic activity from improved access to electricity include fish and food storage, small fresh
product retailing, battery recharging, eco-tourism, improved communications and community
activities.
RMI is a low-lying atoll country and, as such, there is no potential for hydro. However, there is
excellent insolation and so Solar PV is widely used and desired. Solar PV has been supported by
donor programs and schemes involving RESCO type approaches have been undertaken by the
Government Energy Office. These projects installed 75 to 100 Wp systems for a monthly rental
charge of up to US10 and have had mixed success for a range of technical and management
reasons. These schemes are about to be contracted to MEC which, it is anticipated, will address
many of these problems. There is one solar retailer in RMI and installed systems cost
approximately USD18-20 per Wp. MEC imports equipment from the United States and installed
cost is USD22.5 per Wp. There is also local experience using coconut oil as a diesel substitute
and coconut oil is available for USD1.50 per gallon (compared to diesel at USD1.90 per gallon).
In 2004, RMI produced 4,500 tons of copra, which is sold via the Pacific International Inc (PII)
company, who also produced coconut oil for export and for use in vehicles and small generators.
PII estimates that copra production could be expanded to 18,500 tonnes. Local retailers estimate
a potential market of at least 2,000 Solar PV systems; with fuel switching of small diesel
generators accounting for a possible 50 installations. No potential for pico-hydros is evident.
Broad development goals
The project supports the higher-level sector and country development objectives of the Pacific
Island countries, as expressed in the Bank’s Pacific Regional Strategy for FY2006-2009, by
contributing to: (i) reducing poverty and increasing the quality of life for those persons living in
rural households and (ii) generating sustainable economic growth and employment opportunities.
It does so through facilitating increased access to electricity, reducing reliance on diesel power
97
generation, enabling income-earning activities, and contributing to the development of micro and
small enterprises.
The United Nations Framework Convention on Climate Change (UNFCCC) was signed and
ratified by all participating countries (Fiji, Feb 25, 1993; PNG, March 16, 1993; Republic of
Marshall Islands, April 15, 1994; Solomon Islands, December 28, 1994; Vanuatu, March 25
1993). During the preparation of this project, all the Convention Focal Points confirmed their
country’s strong commitment to the promotion of environmentally-sustainable energy systems.
Barriers to accelerated sustainable energy market growth
Even though differences exist for the participating countries, several common barriers can be
identified15:
Lack of Access to Finance: One of the key financing issues for private entrepreneurs and end
users is to overcome the high upfront costs of stand-alone renewable energy systems, and gain
access to financing for initial investment and growth. For example, for an energy service
company (ESCO) longer term loans are required to better match the cash flow of the operation;
for a dealer working capital is needed when the business is rapidly expanding; while for end
users financing is needed to reduce the high initial cost of a system. So far, local financing
institutions have not entered the market for renewable energy and there is generally a lack of
understanding with respect to the long term financing needs for renewable energy projects.
Lack of delivery infrastructure: Most of the population is widely dispersed with poor access to
infrastructure. On an individual country basis and in smaller PICs in particular, that makes
delivery of services difficult, maintenance of installed facilities costly, and investments on RET
applications high. The disperse nature of the business provides a profound challenge to build this
infrastructure when sales are low and the expenses for transportation, communication, training
and after sales service are high. A successful growth of this infrastructure balances the use of
existing rural networks with the introduction of easily replicable business models. Solar dealers
should generate revenues sufficient to recover capital investment, service debt, pay for
administrative and support services, cover payment defaults and, in the case of for-profit
operations, provide satisfactory returns for investors. In the past, the fees charged under many
donor- and government-sponsored programs were set at levels comparable to the monthly cost of
kerosene for low-income households. This was based on the assumption that rural consumers
have a very limited capacity to pay. Such stand alone programs are intrinsically unsustainable
over the long term. Experience shows that consumers are often willing and able to pay more for
highly valued services than has previously been assumed.
Lack of Awareness: Governments and end users are often unaware of the promising renewable
energy resources and technologies. Information about the benefits of renewable energy has not
been well disseminated in most PICs. Public leaders, private citizens and private sector
entrepreneurs have too limited an understanding of renewable energy to be able to make
15
See also Pacific Islands Greenhouse Gas Abatement through Renewable Energy Project (PIGGAREP)
implemented by UNDP
98
informed decisions about policies, purchases or investments. There is inefficient distribution of
information about experiences with renewable energy technology applications. Furthermore,
there is a general lack of understanding of the rural energy markets. An evidence of this is the
assumption that end users should receive the same capacity.
Lack of conducive policy and regulations: Very few PICs have environment and energy
legislations and none has GHG and/or RE targets in place. A lot of the PICs are in the process of
developing their climate change and energy policies. As a result, implementation of renewable
energy projects is usually ad hoc without a more systematic and predictable longer term
approach. This has resulted in many projects being implemented that repeat the same errors of
design as earlier projects by other agencies in the same country. Grid extension and off-grid
options should complement each other rather than compete. In locations where stand alone
systems are the most economically viable option, governments should explicitly consider and
encourage diffusion of stand alone systems in lieu of grid extension. This should be articulated in
rural electrification policies not only to raise awareness and acceptance among policy makers,
financiers and potential beneficiaries but to counter grid extension plans rendered unreliable by
politicians overriding them through ad hoc decisions. With the dispersed market and the often
multitude of service providers, the role of government is to encourage business expansion and
competition through the establishment of a conducive institutional and regulatory environment.
This includes rationalization of duty and tax structures if these discriminate against stand alone
system development. Relatively high import duties and other taxes can severely limit the
potential for commercially viable, market-driven stand alone systems program.
Lack of ownership and quality of products: Often businesses of stand alone systems do not have
industry-wide technical standards to ensure quality, safety and longevity and thus reduce
commercial risks. It is recommended that a stand alone systems program introduces technical
specifications for these systems. The World Bank has supported several countries in developing
these technical specifications and a guideline has become available. There is a lack of support
after the installation has taken place. Furthermore, one of the major barriers for private
penetration is the supply of donor projects that provided renewable energy systems for free or
against very small nominal charges. This has created expectations amongst populations to be
served free of charge, an attitude that makes it difficult for private sector suppliers to enter the
market. Poor technical designs of some RE projects have resulted in poor quality of service and
the confidence level of stakeholders for new RE projects is therefore low. Communities have
been known to reject solar PV electrification even when provided as an outright gift because they
anticipated poor service and accepting PV meant rejecting the possibility of receiving another
electrification technology in the future.
Several more specific barriers are summarized in table 1.
Table 1: Barriers to market development for renewable energy and energy efficiency
Type
Technical
Renewable Energy
Few demonstrations of renewable energy schemes.
Absence of human technical skills and equipment
technical specifications.
Lack of knowledge about RE resource potentials.
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Energy Efficiency
Lack of knowledge on practical energy
savings measures and cost-benefit
Market
Institutional
Lack of retail outlets for RE products. Few capable,
accessible and sustainable private sector service
delivery suppliers.
Perceived high costs of delivering services.
Inadequate public awareness campaigns.
Negative past experience creating low consumer
confidence in solar PV.
Previous donor funded government programs failed
to develop local ownership.
Inadequate capacity to address the challenges of
climate change, including the design and
implementation of climate-friendly projects.
Ineffective coordination among stakeholders.
Financial
Lack of affordable commercial finance.
Low investor confidence due to lack of awareness
and information on products and performance.
Legislative,
regulatory
and policy
Legislation and policies are either not in place or
ineffective.
Lack of private sector experience in
provision of equipment and services.
Inadequate public awareness campaigns.
Policies and programs that only provide
information may have some positive
effect but do not address or overcome
behavioral barriers and inertia.
Governments tend to begin programs
but are seldom consistent in long-term
policies and resource inputs.
Projected savings aren’t believed to
justify the investment in time and effort.
Finance institutions are not familiar with
these investments and consider them as
risky.
Legislation and policies are either not in
place or ineffective.
Source: Collated from PIGGAREP Project Brief, PIREP Regional Report 2005, and Bank missions
Barrier removal strategy
The thrust of the barrier removal strategy is for the private sector to lead renewable energy
transactions based on end users demand and for the government to assist in creating an enabling
business environment, which among others would foster the establishment of commercially
viable retail outlets for RE products. The finance sector with interactions at all stages of the
value chain will play a pivotal role for the implementation of the proposed sustainable energy
program. The sustainable energy program can be divided in three more or less distinct phases.
The first phase is to complete the preparation of the sustainable energy agenda with some initial
trials up till August 2006. During the second phase the industry will grow out of its infant stage
through capacity building, business development and increasingly accelerating investments. In
the third phase proven success models are scaled up. This GEF project supports the second phase
of this program.
Phase 1- Preparing the agenda for action: To finalize the agenda for action, the following
activities are completed or have been started: (i) several studies on the potential for isolated and
grid-connected small hydro power systems; (ii) study on design and plan to meet high-priority
electricity needs through private delivered stand alone renewable energy systems; (iii) financial
sector and institutional support.
100
Phase 2 – Capacity building, business development and initial investment: During the second
phase, the activities will be supported through a framework of incentives, rather than individual
assignments. The Government would play a market enabling role, distancing itself from
implementation of activities and creating an environment in which private sector activities can
develop. The Government will play key-facilitating roles during this stage. The proposed GEF
assisted SEFP project supports this phase of the program.
Phase 3 – Up scaling of proven business models: Phase three falls outside the first SEFP time
period. Activities at this phase will focus on accelerating the success models that have evolved
during the second phase of the program.
Baseline Scenario
The baseline scenarios will be slightly different for each country although they will have many
common features. The key differences can be roughly grouped as follows: for PNG, Solomon
Islands and Vanuatu the business-as-usual scenario implies an unreliable and contracting
generation situation in particular when it comes to the isolated areas, although some additional
generation associated with industrial auto producers is possible; in RMI the scenario is one of
maintaining the present situation in the face of declining overseas aid, although some small Solar
PV projects are commencing these are unlikely to impact significantly on electrification ratios;
for Fiji the national utility, Fiji Electricity Authority is undertaking substantial investment in grid
based renewable generation and grid supply is likely to be substantially improved although offgrid services, which are the mandate of the Department of Energy are, due to budget constraints
unlikely to improve.
In all cases for all countries, the majority of load centers in rural areas will continue to rely on
expensive diesel based systems that are mainly run by government or local utilities at a loss,
undermining the operational quality of the plants. Investments for additional off-grid generation
facilities are not forthcoming as no long-term alternative financing is likely to emerge and the
market is unable to grow despite the potential that is evident. In other areas, where large scale
generation is developed the weak transmission network and high cost of grid extension restrict
the actual use of this power. For the more remote customers no alternatives are offered other than
a few pilot programs supported by international donors. Policy and regulatory reforms, supported
by bilateral, multilateral and intergovernmental agencies improve the operations of some utilities
even though there continues to be limited encouragement for private sector investment in
renewable energy or energy efficiency especially with regard to demand side management. The
renewable energy sector and micro- and small enterprises will continue to rely on ad-hoc
initiatives which have limited impact on: a sustained growth of these industries; their efficiency
improvement; and cost reduction of their products. Rural households will continue to expend
disparate proportions of their meager cash incomes on fossil fuels in exchange for low quality
services.
Global environmental objective and key indicators
The project’s global environmental objective is to abate greenhouse gas emissions through use of
sustainable energy in rural areas for provision of electricity. The key global performance
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indicators are: (a) number of additional households and MSEs served by modern sustainable
electricity services; (b) installed new renewable generation capacity by unit and kW; (c) number
of kWh saved due to energy efficiency interventions and (d) avoided carbon dioxide (CO 2)
emissions. Total estimated emission reductions from facilities installed during the projects life
are estimated at 0.2 million metric tons of CO2, over the lifetime of the systems. The long term
national impact of this Project is expected to be much larger than this number, as broad
replication is expected to occur through the establishment of a legal and regulatory framework
for grid connected renewable energy systems. The specific GEF objective is to assist with the
growth of a market for sustainable energy systems and a local sustainable energy industry.
Proposed GEF co-financed interventions fall under Climate Change Focal Area, Operational
Program 5 and 6. See Section III – “Prior experience, current status, and other initiative” – above
as well as Section V – “Potentials for, and Barriers to, Renewable Energy/Energy Efficiency”.
The activities proposed here conform to the relevant guidelines and are similar to those
incorporated in various other GEF projects under OP 5 (e.g., electricity end use efficiency) and
OP 6 (e.g., solar PV for rural public institutions, micro hydro,).
Project development objectives
The project aims to significantly increase the adoption and use of renewable energy technologies
in participating Pacific Island states through a package of incentives to encourage local financial
institutions to participate in sustainable energy finance in support of equipment purchase. The
global environment objective is to contribute to mitigating climate change through the reduction
of greenhouse gas emissions in line with the United Nations Framework Convention on Climate
Change.
The GEF Alternative
The SEFP project consists of four components that together will promote the financing of
sustainable energy and energy efficiency investments, as well as the early monitoring of the
effectiveness of these investments. The sustainable energy options to be supported under this
project are Solar PV, pico hydro, and investments to switch fuel for stationary generating engines
from diesel to coconut oil.
The financing will all originate from local financial institutions that are willing, with support
from SEFP, to lend to individuals and MSEs for qualifying investments. The capacity of these
banks and non-bank financial institutions to lend to these types of borrower for such purposes to
will be enhanced by technical assistance offered under SEFP. Further technical assistance will be
given to retailers and installers of qualifying equipment, to ensure that they are properly trained
in the technologies concerned. SEFP financing support has been designed to reduce to a
minimum any distorting effect on financial or commercial markets in the countries of operation.
The proposed mechanism of risk sharing instruments backed with GEF funds is calculated to
give the required stimulus to financial institutions, without causing them to deviate from their
normal spectrum of loan terms.
The four components of SEFP are presented below:
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Components
1. Risk Sharing Fund and Investments
2.TA, Market Incentives and
Communications
a. TA to Financial institutions
b. TA, market surveys for MSEs
c. Development of Product Catalogue
d. Participant Training
e .TA for Utilities and studies
f. Communications
3. Participant monitoring
4. Management & Evaluation
Miscellaneous
Govts &
Utilities
NGOs
/EC and
IFC
parallel
financing
19.50
0.10
Local
Banks
1.70
19.67
0.27
0.10
0.41
0.24
0.10
0.17
0.08
2.58
20.16
Enterprises
Total
0.90
5.20
46.97
0.30
0.62
0.77
0.34
1.30
1.17
0.34
0.24
0.59
0.61
0.40
1.54
0.04
53.20
0.18
19.78
GEF
1.20
0.39
0.36
0.40
1.36
0.04
9.48
Total
Component 1: Risk Sharing Fund (RSF) (GEF USD5.2 million, Financial Institutions
USD19.67 million, Enterprises USD0.9 million, NGOs USD1.7 million and Renewable
Energy Investments (19.5 million)
The RSF will be used to provide innovative financing support to facilitate the flow of finance
from local private sector financial institutions for sustainable energy and energy efficiency
investments. SEFP financing support will not be allocated between the participating countries,
although each country will receive an initial allocation for technical assistance to allow
operations to commence. The RSF will be administered by a Fund Manager, a first class regional
financial institution, chosen through a competitive process, with direct links with banks and other
financial institutions in the participating countries.
The RSF is targeting two groups of end-users: (i) households already using kerosene for lighting
needs and (ii) MSEs using kerosene, diesel or other fossil fuels to provide energy for use in their
business activities. The support would enable these end-users to finance purchases of sustainable
energy and energy efficiency equipment. Since the supply chain for such equipment is not well
developed in the region, the RSF will also provide financing support to MSEs to allow start-up
or expansion of their supply, design, maintenance and installation businesses in this sector.
Households. Household lighting using Solar PV or, in certain circumstances, pico-hydro
generators, will be promoted by SEFP. Using such sustainable sources will obviate the need for
such households to continue to use kerosene for oil lamps and diesel or petrol for small
generators, thus contributing to the reduction of fossil fuel consumption and emission of
greenhouse gases. The relatively high initial investment cost of this type of sustainable energy
equipment can be converted into periodic payments through the use of conventional loan finance.
A guiding principle of SEFP is that these payments should be held within the range of the current
average household expenditure on kerosene, diesel fuel or non-rechargeable dry cell batteries for
lighting. The RSF provided by GEF will support risk sharing commitments, with the local
participating financial institutions (PFIs) providing this loan finance, that will:
103


Facilitate loans with a tenor of up to five years, rather than the shorter loans offered now in
some participating countries. The longer tenor will allow payments to be reduced to an
affordable level, in accordance with the principle indicated above.
Share a significant part of the repayment risk with local financial institutions through a
partial guarantee mechanism. This mechanism will allow the supported finance to be on
terms, including interest rate, tenor and security, that will make the finance available and the
payments affordable.
Micro and Small Enterprises. The project provides financial and technical support to three types
of MSEs. The first type is a user of energy that intends, like the households described above, to
replace its current use of fossil fuels with energy from sustainable sources. The second type is an
MSE which is part of the supply chain to get sustainable energy products from the factory to the
end-user. These MSEs include wholesalers, retailers and installers; in some cases these firms
may also provide design, maintenance and repair services. The third type is an energy service
MSE that facilitates investments in energy efficiency schemes by providing some combination of
consultancy, design, supply, installation and maintenance services.
SEFP financing support will expand the availability of loan finance from private financial
institutions to these MSEs, mostly using the partial guarantee mechanism. In the case of some
MSEs, the principle of using avoided fuel costs to assess loan payment affordability is
inapplicable; however, the sample of MSE Business Plans (see Appendix of Annex 4) prepared
during SEFP pre-appraisal demonstrates the affordability of loan service payments on loans
supported by the RSF. Depending on the commercial lending criteria applied by the lending
institution in each case, such MSE loans supported by the RSF will have tenors of up to seven
years and interest rates at the lower end of the band conventionally offered to corporate
borrowers.
Approved Product Catalogue. For each participating country, through the technical assistance
component, a catalogue of products which qualify for financing under this project will be
developed and frequently updated to allow for price fluctuations, etc. Based on successful
experience in other projects, SEFP will focus on the introduction of high quality products. The
product catalogue will only contain products and systems which have been tested and certified
by local standards institutes and which comply with relevant international standards.
Supported Technologies. Project size and other practical considerations mean that SEFP can only
deal with a few sustainable energy and energy efficiency technologies. Based on demand surveys
conducted during project identification, SEFP will be restricted to supporting the following four
technologies: Solar PV, pico hydro, switching to coconut oil and improving energy efficiency.
For Solar PV systems, the loan finance supported by the RSF will be sufficient to cover the
initial cost of the equipment and its installation, as well as the cost of the first replacement
battery, expected to be required after three to five years and a single premium to pay for five
years of extreme climate loss and damage insurance. For pico-hydro systems, it is proposed to
finance the equipment and installation costs. For investments in fuel switching, it is proposed
that the financing will cover the costs of modification of the fuel supply system and other
components necessary to switch from diesel to coconut oil. Investments in Energy Efficiency
technologies are not limited by any specific technology. It is anticipated that technologies will
focus on more efficient lighting and air conditioning systems.
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The Fiji Electricity Authority (FEA) is the public utility responsible for general electrification
through the national grid in Fiji. It has an extensive grid on Viti Levu and three other smaller
grids on Vanua Levu and Ovalau, supplied by 14 power stations with a total installed capacity of
194 MW, of which 80 MW is hydro. FEA, to meet existing and new demand with sustainable
energy solutions, based on least cost analysis, will with input from this project make investments
in renewable energy capacity with financing from IBRD (Board date January 2007). This new
capacity will replace all their diesel generation with renewable energy. While these studies will
assist FEA with their general investment strategy, in line with Bank policies none of these
studies is part of the preparatory work for the proposed IBRD loan.
Component 2: Technical assistance, market incentives and communications (GEF USD2.48
million, other sources USD1.7 million)
Technical assistance (TA) will be provided through SEFP, as follows to:









Strengthen the capacity of local financial institutions to service clients borrowing to purchase
Solar PVs, pico-hydros or fuel switching equipment. TA and training will be made available
to PFIs to establish and maintain a profitable sustainable energy portfolio, including support
with appropriate management information systems, risk mitigation and recovery techniques.
Provide relevant training to the Fund Manager, a first class bank with regional representation
that will administer the RSF.
Strengthen sales and after sales incentive structure for service providers through detailed
market surveys, thereby reducing the risk for retailers to stock too much or to little solarPV
and additional equipment.
Strengthen the financial and technical capacity of MSE sustainable energy service providers
to make them more bankable from the perspective of private sector lenders. This would, inter
alia, include support for renewable energy equipment suppliers to understand about PVGAP
certification and quality management standards (including ISO 9000 and local variants).
Strengthen customer understanding of the operational aspects of the sustainable energy
equipment to be purchased. The project will require the buyers of products supported by
SEFP to pass a computer-based interactive video training program. This program will be
focused on non-functionally literate clients, to assure that all possible clients will get a basic
understanding of the workings of the equipment. Completion of this training will be a
condition to be eligible for a loan supported by the RSF.
Provide assistance in sustainable energy repair and maintenance training to vocational
schools in areas where no such training is currently available
Facilitate other local training institutions including internet based learning centers to develop
and administer training in the repair and maintenance of sustainable energy equipment.
Provide technical support to produce and frequently update an Approved Product Catalogue
– covering products which meet certified quality standards – supplied by local retailers.
Financial support from the RSF will only be available for products meeting these quality
standards. To keep costs down, the project will encourage retailers to obtain quotes for Solar
PV and pico-hydro components from all global sources meeting PVGAP or equivalent
quality standards.
Assistance for local retailers and MSEs to attend international trade fairs and training
programs.
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

Provide technical assistance and support hydro basin and biomass resource studies in Fiji for
investments in large scale renewable energy generation capacity to be finance under an IBRD
loan. (Board date for this loan is January 2007). While these studies will assist FEA with
their general investment strategy, in line with Bank policies none of these studies is part of
the preparatory work for the proposed IBRD loan.
A communications plan (in coordination with the PIGGAREP project) that addresses all the
relevant stakeholders.
Component 3: Participant monitoring (GEF USD0.4 million, no other sources).
For the first three years of the project, household borrowers will be requested to fill out semiannually a short survey, reporting their technical, economic and social experiences resulting from
access to modern energy services. Borrowers participating will be rewarded for an acceptable
survey by receiving the equivalent of a fortnightly loan service payment on their loan. The
feedback from the surveys will help to fine tune the project interventions for improved
effectiveness and to monitor the environmental, economic and social impact of the project on the
beneficiaries.
Component 4: Management and Evaluation (GEF USD1.36 million, USD175,000 from
Local Governments)
The Executive Agencies (EAs) in the participating countries do not all have the specific technical
expertise in house to manage this project in their country. For that reason, EAs will procure the
services of Management Contractors (MCs) to assist them with the execution of the program.
Evaluations will be carried out by the end of year 2 and year 5.
Table 2 Physical targets
A1Solar PV 30 Wp systems
A2 Pico hydro (1kW/unit)
A3 Fuel Switching (7.5kW/engine)
Total
Target
Systems
21,000
535
740
Target
Households
21,000
535
740
Target
MWs
0.63
0.54
5.5
22,265
22,565
6.67
Incremental costs summary
The total incremental cost calculated for the SEFP is US$9.48 million derived as the difference
between the baseline scenario (US$24.15 million) and the Alternative (US$33.63 million). An
Incremental costs analysis was conducted for the main sub-components. The result of the
analysis was that the solar enterprise and home systems have an incremental cost of US$1.3
million for 630kW or US$2.1/Wp. The economic rate of return of the project based on avoided
cost only is 8.7%. For further detail on the incremental cost see the incremental cost matrix
provided below.
Incremental cost matrix
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Based on the description of the context, development goals, barriers, objectives, baseline, GEF
alternative, and sustainability provided above, a summary of the incremental cost can be found in
the following table.
Table 3 Incremental cost matrix
Domestic Benefits
Baseline
1. Access to electricity
services will continue to
be low and the demand
suppressed;
Alternative
1. Stimulation of rural and
energy businesses to
expand operations while
including sustainable
energy solutions
Increment
1. Main barriers
(information, first cost,
etc.) to commercial
development removed.
2. Process of economic
development in rural
areas will continue to
hamper due to lack of
electricity
2. Successful
2. Large scale intervention demonstration of a wide
to support isolated systems range of alternative
through the private sector. technologies and business
approaches.
3. Power availability
remains constrained, with
prices high and reliability
low.
3. Institutional
strengthening in
development of regulation,
pricing, contracts and
financing.
4. Very limited
development of the
commercial market of
sustainable energy
technologies.
4. Sustainable energy as
integral part of rural
electrification and power
supply development
strategies
3. Sustainable energy
businesses provide
improved technologies to
complement generation
capacity and grid
extension for rural
households/institutions on
a competitive basis under
an established regulatory
framework.
4. Experienced
sustainable energy
businesses ready for up
scaling of rural
investments and grid
supply
5. Significant offset of
5a. About 0.1 million tons
Global Environmental 5. Power supply
development and rural
GHG emissions through
of directly avoided CO2
Benefits
energy services largely
range of sustainable energy emissions
rely on grid connected
options displacing several
diesel based systems,
dozen MWs what would 5b. Opening market for
independent diesel
otherwise be diesel
commercial sustainable
systems, kerosene and car generator sets, 21,000
energy business
batteries.
kerosene households, and
2,000 diesel powered
businesses.
Cost by Areas of
(million US$)
(million US$)
(million US$)
Intervention
22.27
27.47
5.2
1. Risk Sharing Fund
1.70
4.18
2.48
2. TA, market
incentives and
communications
0.0
0.4
0.4
3. Participant
monitoring
0.18
1.54
1.36
4. Management and
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evaluations
Miscellaneous costs
GEF Incremental
Costs
0.
24.15
0.04
33.63
0.04
9.48
Global Environmental Benefits
The direct global environmental benefits of the Project are 0.5 million tons of CO2 over a period
of fifteen years. The largest benefits will come from the switching of diesel fueled generators to
coconut oil which accounts for nearly 0.4 million tons. The solar PV home components
contributes about 80 thousand tons of CO2. Considering that at most 7% of the guarantee funds
will be used or US$0.36 million, the total expected usage of total GEF funds under the program
is US$4.64 million. The average cost of a ton of CO2 for this Project is US$9/ton CO2.
Sustainability and Replicability
Sustainability. Coupled with UNDP’s PIGGAREP project outputs, the access to equipment,
information and finance in renewable energy and energy efficiency provided under this project is
expected to lead to rapid increase of the use of modern energy services in the Pacific Islands both
at the individual and micro and small enterprise level. Such increase will lead to the
establishment of a mature market for renewable energy and energy efficiency in the participating
countries.
By working with the private sector to support commercially viable and demand-driven
investments with financial support only in the form of risk sharing, facilitating lower interest
rates and longer loan tenor, the projects insures that local FI establish a direct stake in this
market. Experience with other housing and micro finance loan schemes suggests that the
proportion of loan losses would be modest.
The sustainability of the investments is expected to come from the fact that banks and financial
institutions, once they have explored the renewable energy and energy efficiency market with the
assistance of the risk sharing guarantee facilities offered under this project, will assess it as being
a sound, viable, and profitable line of business. They will therefore generate lending products to
address the market, and lower or eliminate their risk sharing requirements.
Replicability. The project is already a partial replication from the Teachers Solar Lighting
Project in PNG which is providing valuable information nine months after its start. The basic
concept of replacing kerosene and diesel with renewable energy solutions at a monthly cash flow
equal or less than what households and MSEs now pay for their fossil fuel based energy, through
a financial intermediation method, is already considered for wide spread replication in Africa and
other countries in Asia (Mongolia). Within each of the countries, replication of this commercial
model is facilitated among other through active donor coordination by the Bank and the local
governments to assure that donor programs by distributing free Solar PVs and other renewables
don’t disturb the market place and that donations are in support of establishing a commercial
market.
108
It is expected that after the first period of 7 years, banks will have recognized that lending for
renewable energy is a profitable product line and will lower their guarantee requirements or
altogether lend to the sector without guarantees. The funds freed up in this way will facilitate the
project to be financed for a second period of seven years, inclusive of all GEF and IA
supervision and monitoring costs, and will also facilitate the possibility to expand the range of
products to include other renewables such as windmills and/or bio gas installation.
Monitoring and evaluation, and dissemination
Executive agencies in each country will provide detailed data on project outcomes through the
semi-annual reports extracted from a performance-based monitoring scheme, which is described
as a separate competent of this project (Component 3).
For the households, the management consultant hired by each of the EAs will collect and process
(twice a year for the first 3 years) the surveys filled out by program participants. The survey will
address both technical implementation questions (for example, the time taken to obtain a
replacement lamp), and economic and social impact of the new or improved access to modern
energy services (for example, increased income and savings due to lower cost for energy,
additional productive hours for, men and women, and improved literacy among others by
children studying in the evenings using electric light). This aspect of the monitoring will stop
after the third year.
For the MSEs, the collection of data will be done through direct interviews and will focus on the
business characteristics of the supported enterprises such as balance sheet, profitability, growth
of the business.
For PFIs , the EAs will collect information on the size and quality of their portfolio for this
project. Based on the PFI data, the EAs will also track and interview retailers which have not
received financing through this project. The all data combined will result in semi-annually
reports, which will inform the implementing agencies also on the renewable energy systems
installed, the quality and reliability of services provided by suppliers and the results in actual
CO2 emissions avoided.
The first participant monitoring survey (Component 3) and interviews will include the collection
of baseline data for key performance indicators, which will inform the two planned evaluations
for the project. The first evaluation is scheduled at the end of the second year. Beside traditional
evaluation issues, including social and economic impact, this evaluation will inform the
implementing agencies about the possible need to expand the guarantee fund through a
mechanism describe in Annex 4: Leveraging the project. The second evaluation will take place at
the end of year five and will addressing the success or failure of the project will also need to
inform the implementing agencies about the exact exit procedures. If the project is successful,
the released guarantees, can provide financing for a second project term, with significant lower
guarantees from the fund, freeing up funds to finance the supervision and management contracts
for the extension of this project without recourse to fresh GEF funding.
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Productive uses
Special attention will be given to educate the users of the benefits of productively using the
electricity provided by the renewable energy system. This applies in particular to the stand-alone
systems for entrepreneurs and households. In coordination with the PIGGAREP a structured
awareness creation program will be implemented to improve the general awareness of the
benefits of electricity as well as a more specific program for the new users of electricity (through
the dealers, developers and NGOs). The awareness program will explain the higher quality enduses that can be created through the efficient use of electricity. Best practices from other
countries (like Indonesia and Sri Lanka) will be incorporated in the design. It is expected that the
affordability of the systems will increase with this program and that the general level of income
will increase.
GEF Role / catalytic involvement
In the Pacific Forum of the Finance Ministers of the Pacific Islands held in Washington, DC in
September 2005, several PICs requested the World Bank to provide urgent Bank assistance to
expand sustainable energy use and energy efficiency to offset the increased price of oil, which
has already had a significant adverse effect on their economies. The Bank and GEF are wellpositioned to provide the necessary funds and technical expertise to meet this request, which is
consistent with the Bank’s strategy for the Pacific region16.
GEF provides three catalytic elements to the program: (i) guarantee funds to provide the finance
sector with the backing to issue tailored loans for the renewable energy sector; (ii) co-financing
grants to provide the private sector with incentives to grow while at the same time covering some
of the incremental costs; (iii) technical assistance to remove barriers as defined by the
stakeholders; and, (iv) best practice expertise from other countries with similar renewable energy
programs.
Consultation, coordination and collaboration
The most important partnership under this project is with the UNDP-RoP project as well as with
the South Pacific Renewable Energy Project (SPREP), which is executing the PIGGAREP
project on behalf of UNDP. The project also works together with the EC delegations in the
country. In Solomon Islands and PNG, the EC Micro-Project Programme Phase II will provide
parallel financing for pico-hydro and fuel switching for rural training centers and farmers field
schools. In RMI, SEFP works together with the EC funded REP-5. In all countries, local NGOs,
community groups and Universities have offered their assistance with the implementation of the
project (letters of support in the Documents on File). Some foundations in Fiji and in PNG will
make financial contributions to the project or provide parallel financing for project related
activities.
16
The countries are covered under the Bank’s Pacific Regional Strategy for FY 2006 FY 2009.
110
Annex 16: STAP Roster Review
PACIFIC ISLANDS: Sustainable Energy Finance Project
To:
adewilde@worldbank.org, jexel@exelonline.org
Address:
Antonie de Wilde
Coordinator Asia Sustainable and Alternative Energy Program (ASTAE)
The World Bank, East Asia Energy Unit,
1818 H Street, NW, Washington, DC 20433
Te1: .202.473.7436
Cel: 1.202.361.1491
Fax: 1.202.522.1648
From:
Daniel M. Kammen
Class of 1935 Distinguished Professor of Energy
Energy and Resources Group #3050
University of California
Berkeley, CA 94720-3050
Review:
Pacific Islands Sustainable Energy Finance Project
Date:
March 22, 2006
Overall:
This is an excellent project that should be supported, and I recommend approval.
The scale of the funding appears sufficient, and the diversity of particular technologies and
allowable innovations give the overall structure an important level of robustness. The risks
identified for the project (page 16, several of which are conservatively listed as ‘Significant’,
are really no more than generic risks when technology introduction is involved. Personally,
I would have assessed this project as ‘M’ risk.
The only structural change I would recommend is the inclusion of explicit metrics of job creation
in the overall design (see item on page 7 under ‘Specific Comments’). The only place this sort
of analysis really appears is p. 97, ‘Broad[er] development goals’.
Response: staff additions by the different companies or supplementary sub-contracting to
local specialists or individuals by participating companies will be an outcome of normal
commercial practices. Experiences from other countries show that the employment
generated by the sustainable energy industry is relatively easy to obtain and good to link to
111
the assistance provided under a larger-scale program. The project supports the idea to
monitor job creation and has included it as a measurable indicator in the monitoring and
evaluation component.
The incremental cost analysis, Appendix 15, could be significantly more analytic, and it would
be helpful so that cost comparisons across technologies and island can be made.
Response: the available data for the incremental cost analysis was rudimentary in part as a
result of the relative small number of commercial transaction in the supported countries.
Data for financial analyses and cost comparisons will be collected under the program and
published as part of the Approved Product Catalogue. More detail review and analysis of
this data will take place as part of the two evaluations scheduled during project
implementation.
Specific Comments:
Project Goals, Page 7: Why not include local employment growth as a quantifiable project
goal? If this program is to work well, and certainly well enough to be re-authorized for the
second seven-year stint, building local companies (as simple as installers, as extensive as
local manufacturing) would seem both likely, and a crucial bench-mark of performance.
Response: see response to first general comment above.
Section D (financial analysis). The project would do well to take a more extensive look at
the solar PV dissemination process and market in East Africa. The reason for this is that the
spectrum between the very well evolved Kenyan PV solar home system market (>30,000
system sales/year, Duke, et al,, 2002) and the nearby more embryonic (Uganda, Tanzania)
markets. The lack of price supports/subsidies in East Africa contrasts with the support
systems that this project will have, which in each case makes the Pacific Islands projects
appear all the more attractive. In the ‘References’ section below, a number of references, a
well as a link to this set of papers is attached.
Response: agree with the comment; lessons from other countries (for example PNG, Sri
Lanka, Bangladesh, China) have been included in the design of the project. One of which is
the challenge to overcome the initial cost barrier for retailers and installers through
performance based co-financing grants. The grant is only available for the first 10,000
systems installed under this project. The co-financing amount, based on the incremental
cost analysis is USD2 for each Wp installed. This amount will be disbursed after the sale
and installation have been completed satisfactory (as indicated through the customer
acceptance receipt) and after sales arrangements have been agreed upon with the customer.
Page 13: The co-financing grant of US$2/Wp is particularly interesting and important as it
reflects, to many analysts, the clearest way to build a market for a potentially very useful but
unfamiliar technology. The management of these funds, as were seen in East Africa,
however, can be better used if the support goes to installers, with a (difficult to enforce)
requirement for pass-through of savings. The reason for this is that such a structure builds
112
both consumer demands as they see lower up-front costs, and because this puts funds in the
pocket of the fledgling entrepreneurial community, which must be grown to make this
industry sustainable.
Response: agree with the comment; essential for the growth of the industry is a relatively
quick increase of transactions by dealers up to their break-even point. The co-financing
grants provide the dealers with an additional incentive to complete transactions of qualified
products including after sales service agreements.
Page 25: Both the Fiji and Solomon Island situations – and others I suspect, but the PCD
does not make this explicit -- appear to be ripe for an investment simply in education. The
dry-cell costs, while large on a $/kWh basis (often over $2/kWh) are very high compared to
long-term PV costs, but the familiarity with this ongoing cost, that a program to educate
people about their different energy costs, may be exceedingly effective.
Response: agree with the comment; the program(in association with UNDP’s implemented
PIGGAREP program) will support general awareness creation of the cost-effectiveness of
alternative energy products for potential users through mass media and promotions. It will
further assists dealers to design marketing material explaining that the avoided cost of
current energy sources used by the consumer (kerosene, dry cell batteries) could cover the
monthly installments of an alternative energy system.
Page 36: The proposal makes it unclear how a relationship may be restarted with
Micronesia.
Response: Micronesia is a participant of the project.
Page 37: The PNG Road Maintenance project, hardly seem relevant beyond the basics of
needed access.
Page 71: The economic assumptions used the calculation of the LCA costs and benefits of a
30 Wp solar system need not be assumptions. There is plentiful data on systems of this size
in the East Africa and Indonesian markets.
Response: the cost of a solar system has been based on initial data provided by several of
the solar dealers in the larger countries assisted under the program.
References:
Moner-Girona, M., Ghanadan, R., Jacobson, A., and Kammen, D. M. (2006) “Decreasing
PV costs in Africa,” ReFocus: The International Renewable Energy Magazine,
January/February, 40 – 45.
Jacobson, A. and Kammen, D. M. (2005) “ Science and engineering research that values the
plant”, The Bridge: Journal of the National Academy of Engineering, Winter, 11 –
17.
113
Duke, R. D. and Kammen, D. M. (2003) “Energy for Development: Solar Home Systems in
Africa and Global Carbon Emissions “Climate Change for Africa: Science,
Technology, Policy and Capacity Building, Pak Sum Low, editor (Kluwer Academic
Publishers), 250 - 266.
Duke, Richard. D, Jacobson, Arne, and Daniel M. Kammen (2002) “Product quality in the
Kenyan solar home industry”, Energy Policy, 30 (6), 477-499.
Solar PV papers available online at http://rael.berkeley.edu/solar.html
114
Annex 17: Maps
PACIFIC ISLANDS: Sustainable Energy Finance Project
115