ENERGY POVERTY ACTION Sustainable rural electrification through local empowerment

Size: px
Start display at page:

Download "ENERGY POVERTY ACTION Sustainable rural electrification through local empowerment"

Transcription

1 ENERGY POVERTY ACTION Sustainable rural electrification through local empowerment Jan-Inge Gidlund, Anders Ellegård, Arve Andersson, Vattenfall, Sweden T h e E n e r g y P o v e r ty A c tio n A llia n c e o f th e W o rld E c o n o m ic F o ru m

2 ENERGY POVERTY ACTION Initiative at World Economic Forum, Switzerland in January, 2005 CEOs of several large energy corporations participated Decision to take action in order to reduce energy shortage in unserved areas of the world ENERGY POVERTY ACTION

3 Experiences Many technical solutions exist, and work There is limited financial capacity, and limited payment capacity in rural areas High investment cost is the main reason that rural electrification projects do not happen High variable costs (fuel, O&M) is the main reason for lack of sustainability of projects that do happen

4 Summary Technology is not the problem. However, this should be no testing-ground for emerging technologies Investments need to be covered through public funds, or from other non-profit sources. There is no profit to be made in the short to medium term. Variable costs need to be covered by users. O&M needs to be provided at the local level: Local empowerment is the key to sustainability

5 Action Development of model concept Sustainable Replicable Scaleable Development of platform Participant companies formal commitment in Alliance Alliance to contribute technical, financial and administrative support Pilot projects to be created at Alliance expense Selection of pilot study sites Criteria Willingness to participate

6 Selection criteria Country Politically and economically stable Laws conducive to independent power production/distribution Policy for rural energy Project site Availability of energy resources (water, solar wind, biomass) Environmental conditions Needs, ability and willingness to pay Potential for productive use of energy Synergies with other developments Organisational and administrative skills and resources

7 Lesotho - Selected pilot project Long list of 20+ countries, most in Africa Short list with Ghana, Lesotho, Mozambique and Zambia Lesotho selected on account of conducive laws and strong support from government Three candidate project areas considered, Mphaki selected on account of availability of hydropower potential

8 Setbacks Several of the participating companies opted out during the process. This led to inability to self-fund the pilot project(s) Hydropower turned out to be infeasible in Mphaki, due to cost and environmental concerns. This lead pilot to be a grid extension project with some solar energy components.

9 Mphaki pilot project Target about 1850 customers, of which 1500 through grid extension and 350 solar photovoltaic installations Empowerment of local users through creation of local user association, the Mphaki Electricity Distribution Association (MEDA) MEDA will be responsible for operation and maintenance on commercial principles. Infrastructure to be leased by MEDA from the Government of Lesotho (GoL) on long-term contract Bulk power to be purchased by MEDA from existing supplier(s) Commissioning expected by December 2009

10 Mphaki project location Maseru Lesotho location in southern Africa Project location in Lesotho

11 Mphaki pilot project, technical Approx 125 km 33 kv lines with 30 step-down transformers (33/0.4 kv) and 70 km 0.4 kv low voltage distribution grid. 350 solar home systems of 100 Wp.

12 Project status EPA Alliance consisting of ESKOM, BC Hydro and Vattenfall together with GoL have pledged contribution in kind for the development and implementation of the project (value about 17 million Rand) Project documentation has been developed Project is included in an Aide Memoire signed in April 2008 between the GoL and the African Development Bank (AfDB). (c. 36 million Rand). AfDB Board final approval expected this fall

13 Project status cont. The registration of MEDA approved by Lesotho authorities. Permanent Board for MEDA constituted in February, 2008 Environmental study completed Tender documents for ICB & LCB (solar PV) completed

14 Critical success factors Final approval of the financing for the capital infrastructure by the AfDB Completion of the tender documents and tendering process Technical and administrative support at the start up of the MEDA commercial operations Empowerment and capacity building of MEDA to operate and maintain the distribution system Completion of negotiations to between MEDA and the stakeholders, e.g.: Leasing Agreement, Power Purchase Agreement, License Agreement, Contractors Agreements, Connection Agreements, etc. Completion of the Contractors works

15 Achievements Solid concept developed, with sustainability and local empowerment as key objectives Strong commitment by partner companies in EPA Alliance Strong support by government of the Kingdom of Lesotho Enthusiastic approval by local communities in Mphaki area. Electricity distribution association MEDA formed. Positive attitude by AfDB for financing the project on request of GoL

16 Achievements cont. EPA Management Unit (EPAMU) established to serve as a centre of excellence for replication and scaling up Development Bank of Southern Africa provides offices and support World Energy Council and World Business Council for Sustainable Development joined EPAMU BC Hydro (Canada), ESKOM (South Africa) and Vattenfall (Sweden) comitted to EPAMU

17 EPA Management Unit (EPAMU) Management Unit established to serve as a centre of excellence for match-making for the replication and scaling up of projects Partner organizations, Private sector Finance organizations, Donors EPAMU Coordination Governments, Local communities Local distribution / user associations

18 Conclusions - energy poverty The problem of energy poverty is most acute in rural areas where a commercial return is unlikely to be achieved on the upfront capital. Solutions lie in: Appropriate regulatory frameworks Innovative financing mechanisms New operating models financially viable with local content/control The private sector can bring technology, finances and capacity to the table Governments and the donor community can leverage this to develop scalable and replicable models to solve energy poverty

19 Conclusions - financing Grant/ donor / development financing most commonly used source of funding for the initial upfront capital investment; presents its own unique challenges often linked to country development strategy EPA is currently investigating the concept of financing partners bringing funders on board to specifically support and fund projects EPA is looking to draw on the experiences of others to find ways/ means for financing projects aimed at reducing energy poverty in the developing world

20 Conclusions financing cont. EPA has recognised a need for: Development of innovative financing mechanisms Increased private sector participation investigating public-private-partnerships (PPPs) Investigating a clean energy investment framework and exploring concepts related to the Clean Development Mechanism (CDM)