Business Plan. Clean Energy and Water Project in Mozambique. June Project Proponent. Funded by

Transcription

1 Clean Energy and Water Project in Mozambique Business Plan Project Proponent Action Group for Renewable Energies and Sustainable Development. General D Eca Street, Nr. 214, P. O. Box 379, Maputo, Mozambique Tel: Fax: office@ged.org.mz URL: Funded by REEEP project: Securing financing for Renewable Energy and Energy Efficiency Projects in Southern Africa through Gold Standard CDM. Emily Tyler emily@southsouthnorth.org June 2007

2 TABLE OF CONTENTS ABBREVIATIONS AND ACRONYMS...3 Introduction...4 Executive Summary...4 Project Contact Information...5 Project Description...6 Project Status...7 Technology Description...7 Project Returns...8 Project Institutional Architecture...9 Project Implementing Parties...10 Risk Analysis...10 Analysis of Alternatives...12 Project Financial Requirements...12

3 ABBREVIATIONS AND ACRONYMS GED SSN FUNAE INGC DNA NGO PV MOPH REEEP MICOA DNGA DNDR MPD UEM STEP Action Group for Renewable and Sustainable Development South South Africa Energy Fund National Disaster Management Institute National Directorate of Water Non-Governmental Organization Photovoltaic Ministry of Public Works and Housing Renewable Energy and Energy Efficiency Project Ministry for Coordination of Environmental Affairs National Directorate of Environmental Management National Directorate of Rural Development Ministry of Planning and Development Eduardo Mondlane University Solar Technology for Electricity Provision

4 Introduction The following business Plan has been designed to provide basic information investors and financiers need in order to consider a project. This is a water pumping project using renewable energy which reduces emissions of greenhouse gases to the atmosphere. The project also addresses a number of problems in the proposed sites of implementation, problems of droughts where water plays a pivotal role and lack of electricity. Executive Summary Mozambique faces many natural disasters, like cyclones, droughts, flooding, earthquakes, and land slides, among others. Some of these disasters are a consequence of climate change and variability due to concentration of greenhouse gases in the atmosphere. Although most developing countries, like Mozambique, are not emitting substantial quantities of greenhouse gases to the atmosphere, due to their weak industrial infrastructure, they should be encouraged to follow a development path different from that followed by the actual industrialised countries, in benefit of the environment. One of the most important sectors to be targeted is that of energy, since energy production and use is the one responsible for the most greenhouse gas emissions in the world. Mozambique is signatory of the United Nations Framework Convention on Climate Change (UNFCCC), of the Kyoto Protocol. Right now a process of establishing the Designated National Authority (DNA) is going, after the Government of Mozambique has appointed the Ministry for Coordination of Environmental Affairs (MICOA) to host the DNA. This means that the country is committed to contribute to reduce the emissions of greenhouse gases, by following a cleaner development path. As recognized by the Johannesburg Plan of Action, renewable energy technologies are now developed that they can play a significant role in enhancing development in rural areas, like for instance in water supply. Presently, the average level of coverage in rural water supply in the country is estimated at about 30 percent. According to the National Water Policy the coverage should be increased to about 50% up to the year 2010, in accordance with the goal 7 and target 10, of the millennium development goals (MDG) and the Programme on Alleviation and Reduction of Absolute Poverty. One of the reasons for the low coverage lies in the fact that, although the Government has made efforts in drilling more boreholes for rural water supply, the pumping technologies mostly used, based on hand pumps, are inefficient and unreliable for high water levels (above 50 metres) and/or large number of users. Presently 50% of the boreholes drilled have water levels above 50 metres, thus hand pumps cannot be used. In order to increase the water supply coverage in rural areas, it is required to promote the use of more efficient and reliable water pumping systems. The options are electrical, diesel and renewable energy pumps. Electrical pumps should be out of consideration due to lack of electrical infrastructure in rural areas. Diesel pumps represent the most common option where hand pumps cannot operate. Nevertheless they are emitters of greenhouse gases. Thus from the

5 climate change point of view the alternative is to use renewable energy pumps, both photovoltaic and wind pumps, depending on availability of the resources. Thus, the purpose of the present project is to demonstrate the viability and effectiveness of using renewable energy technologies (solar photovoltaic and wind pumping systems) for rural development objectives, by contributing to the improvement of water supply coverage for rural communities through introduction of innovative water pumping technologies, instead of the conventional hand or diesel pumps, enhancing their social and economic standards and reducing their level of poverty, and also contributing for reduction of greenhouse gases. Six provinces of Mozambique will benefit from the project; Maputo, Inhambane, Gaza, Sofala, Manica and Tete. The project will cover the installation of renewable energy equipment for community water supply. About 100 families (about 500 people) and their animals will be served by the project in each of the six provinces mentioned. This initiative, envisaging undertaking a pilot experience on the use of renewable energy pumping systems in rural communities in six arid and semi arid provinces of the country, should contribute to improve rural water supply coverage in the country, by its replication in other communities, enhancing their social and economic standards, reducing their level of poverty, and also contributing for the preservation of local, national, regional and global environment. PV powered water pumping presents the opportunity for more efficient access to water, a key component of poverty reduction. Project Contact Information This project will be implemented and managed by GED (Action Group for Renewable Energies and Sustainable Development) and in coordination with its partners local Communities, SouthSouthNorth (SSN), Local Authorities and Community Based Organisations who will manage the project. In this project GED/SSN will work in partnership with the Energy Fund (FUNAE), the National Disaster Management Institute (INGC), the National Directorate of Water (DNA), the National Directorate of Environmental management (DNGA), the National Directorate of Rural Development (DNDR), and the Energy, Environment and Climate Research Group. Most of these institutions work with the authorities and communities at local level. This business plan has been funded by the REEEP project: Securing financing for Renewable Energy and Energy Efficiency Projects in Southern Africa through Gold Standard CDM. Contact Details: GED Dr. Boaventura Cuamba - boaventura.cuamba@uem.mz Zacarias Zandamela- zzandamela@gmail.com

6 SouthSouthNorth Steve Thorne Emily Tyler Project Description Water is a key component of poverty reduction as outlined in the Government Action Plan for the Reduction of Absolute Poverty and is also noted as having social significance, but rural water supply in the country is only around 30%. This is partially due to inappropriate pumping technologies installed at boreholes. This project intends to address the problem of water scarcity in the rural of Mozambique those mostly affected by cyclic droughts and the shortage of water for castle supply and agriculture production in the provinces of Maputo, Gaza, Inhambane, Sofala, Manica and Tete. A PV water pumping scheme also presents the opportunity for more efficient access to water and enhance the standard of living of farmers in referred provinces. Apart from the benefits outlined above this project poses a number of other benefits such as: The project is in line with the MDG; The project has a very strong adaptation component but also some mitigation aspects; The use of PV pumping systems contributes to reduce GHG emissions, taking as baseline diesel pumping systems; The activities to be undertaken consist firstly in identifying the strength of the droughts in the referred areas and their relationship with water supply for both activities. For this purpose appropriate interviews will be developed and administrated in selected communities. Potential of ground waters for minimizing the program will be assessed, depending on groundwater availability in each area. The direct beneficiaries of this project will be the communities of the target provinces that will be the end-user of the project. The empowerment component in the project is very high, and the goal is to create ownership of the project by the communities that they benefit. Greater accessibility to water will be of particular benefit to women in Mozambique, who are largely responsible for household activities that should be made easier through better water supply. Other beneficiaries include government, who will be helped to reach their poverty alleviation and energy targets. The focus is also to ensure replicability where other communities will benefits as well. The design timeframe of the project will be of six months and other six months for the project implementation. The maintenance frequency will be of every five years for major components and cleaning modules. The project once installed and operational will receive monthly monitoring that can be performed by a technician with the help of community members. GED is already working in some districts of these provinces in similar projects funded by FUNAE and in others by Ministry of Technology. Most of the above problems are being addressed

7 already. One of the projects already implemented and working successfully is in Palmeira in Maputo and Massingir in Gaza province. Project Status The project so far is still at the PIN stage and the present Business Plan presents the feasibility studies towards financing the projects. Substantial stakeholder consultation has occurred and a well infrastructure already in place. The communities will be trained on installation and upkeep of the systems, leading to the creation of skills and job opportunities and there is potential for the replication of these pilot projects throughout the country where 380 sites have been identified. The project will be managed by the communities who will be mobilized through village meetings, which will create awareness on the opportunities and benefits of the project. Experience with the current projects that are being implemented one in Palmeira about 100Kms from Maputo city and another in Catuane will be used. In both projects the village members were involved together with local authority since the design up to the implementation. GED manages both projects and were financed by the Ministry of Technology science and IUCN. The proposed project still needs a technical feasibility studies whose financial feasibility studies is part of this business plan. Technology Description The technology to be used can be acquired both nationally and regionally and the barrier is the cost of technology itself. The practice as far as water supply is concerned in rural areas is to drill boreholes and install hand pumps. Nevertheless when the water levels of the boreholes are higher than 50 metres, a very common situation in Mozambique, handpumps are not effective to lift water. This means that other pumping technologies have to be considered. A PV water pumping system consist of a PV array with the corresponding motor/pump unit and conditioning devices, although produced in industrialised countries, the technology is commercialised everywhere. There are companies which supply and install the equipment in the country; Major barriers with the technology: awareness, operation and maintenance; they can be overcome through appropriate campaigns.

8 Project Returns This project will contribute to poverty alleviation by providing clean and potable water to communities and their animals. Thus the project has a very high socio-economic value. In order to take benefit of the project the target communities will have to organise themselves in terms of associations, according to the existing laws in the country. Cash Flow Analysis For the purpose of the cash flow analysis a number of six pumps one per province will be considered and each pump serving about 100 families (500 people) totalizing 3000 people for the whole project. For the calculation of carbon credit revenue we will consider a diesel pumping system which emits whereas each motor pump is sized to 3 Kw and works 8 hours per day in order to produce 20,000 litres, 10,000 for the families (20 litres per day/person) and 10,000 litres for irrigation. This will emit in total 37 tons (6.1 tons/site) Since this is a social project with no profit objective, the only source of income will be carbon credits that totalize 37 tons (6.1tons/site) that would be emitted if diesel or other system was used. Each carbon credit is $5 according to the international market price, thus total expected income of the project is $185. Cost of technologies corresponds to purchase, transport and installation of all the pump water components which include solar panel, the module, PVP technologies. These costs include part of the technology which is procured outside the country from South Africa suppliers. Operational costs comprise costs of maintenance costs, monitoring costs and changes of some components at intervals of five years. The life of the project to be considered in the calculation of cash flow is 10 years. The Net Present Value will be calculated at 14% (10.75% risk free plus spread of 3%)1. The project Cash Flow Analysis is shown below. Discounted cash flow analysis (in USD) Assumptions and Variables Exchange rate Inflation 0 5% Years Capital costs Technology Training and commissioning Installation costs $60,000 $3,000 $23,500 1 Source: Central Bank of Mozambique

9 Insurance Provision for contingencies Sub-total Operating costs $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $2,000 $91,500 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 Maintenance & labour $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 Sub-total $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 Income Sale of product $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 $17,000 Carbon credit $23,500 2 Other income $185 $185 $185 $185 $185 $185 $185 $185 $185 Sub-total $23,500 $17,185 $17,185 $17,185 $17,185 $17,185 $17,185 $17,185 $17,185 $17,185 Accounting for tax Total Internal Rate of Return Net Present Value (@14%) Nominal Payback Period 18% $14, Project Institutional Architecture GED together with government institutions of the different sectors working with energy and water and the following output will be delivered: 1. Guidelines on use of renewable energies technologies for rural water supply. 2. Training kits and awareness raising materials. 3. Report on training and information dissemination activities about renewable energies and their applications for different stakeholders, and also on establishment of networking of organisations and people. 4. Report on: i. major problems of water supply affecting the communities; ii. potential of the integrated water resources use; iii. techno-economical comparative assessment of different water pumping technologies; iv. adequate organisational structure to support installation, operation, maintenance and management of water systems; 5. Installation of physical infrastructure for water pumping based on solar or wind energy, namely boreholes, solar and wind pumping systems. 6. Creation of job opportunities. 7. People trained. 2 30% of community contribution towards Capital costs

10 Project Implementing Parties GED is the project owner and designer and will be implementing partner, REEEP has funded the Business Plan and further steps will be undertaken by SSN until full financing of the project. GED was set up in 2002 specifically to address issues of energy and climate change in Mozambique is well networked amongst government, NGOs and academia both nationally and regionally. GED s staff members are skilled in the areas of renewable energy technologies, climate modelling, adaptation and mitigation of the impacts of climate change, greenhouse gas inventories, and the CDM. Other institutions that will be involved in the success implementation of the project include National Disaster Management Institute (INGC), the National Directorate of Water (DNA), the National Directorate of Environmental management (DNGA), the National Directorate of Rural Development (DNDR), and the Energy, Environment and Climate Research Group. Most of these institutions work with the authorities and communities at local level: The Energy Fund (FUNAE) is a governmental agency with the task to implement renewable energy projects in rural areas, like electrification of schools, clinics, communities, small scale enterprises, among others. FUNAE has a vast experience in undertaking water pumping projects, using solar and wind technologies. The National Disaster Management Institute (INGC) has long experience in dealing with disaster issues, like droughts, floods, cyclones, etc., in the country. As mentioned in previous sections, droughts are cyclic phenomena in Mozambique. The National Directorate of Water (DNA), in the Ministry of Public Works and Housing (MOPH), has a large department dealing with rural water issues. Activities include harnessing of groundwater resources, among others, whereby DNA contributed for the drilling of a significant number of boreholes. The National Directorate of Environmental Management (DNGA), in the Ministry for Coordination of Environmental Affairs (MICOA), is the one dealing with the implementation of major issues related to conventions, like the United Nations Framework Convention on Climate Change, including the Kyoto Protocol, the Convention on Biodiversity and the Convention on Droughts and Desertification. Right now DNGA is involving in community projects related with the synergies of the three conventions. The National Directorate of Rural Development (DNDR), in the Ministry of Planning and Development (MPD), supervises all projects implemented in the rural context. DNDR has vast experience in social issues for implementation of rural projects. The Energy, Environment and Climate Research Group, based in the Faculty of Sciences of the Eduardo Mondlane University (UEM), is the leading research group in matters related to climate studies and modelling, environmental pollution studies. Risk Analysis This section intends to demonstrate to the reader that there is awareness of the risks associated to the project and below are the risk categories with some likelihood of occurrence and how to mitigate them.

11 Construction - For the implementation of the project, the technology is available both locally and international. The barrier is the cost of acquisition of the technology which is high but the maintenance costs are low. Operation and Maintenance- The cost of running the project will be supported by the funder or financier and need to be specified right at the beginning of the project. These costs include salary of the technician, insurance and maintenance of the modules. This section does not pose significant level of risk if the community is trained properly. Financial SSN under REEEP project has funded the project business plan and for the implementation of the project external funds are needed. The cash flow analysis shows very little income from the sale of the carbon credits which does not cover the investment necessary to start the project. It is true that funds can be raised from the village farmers but in medium and long term. Demand for the project s product- the demand for the project is unquestionable, water and energy are still scarce goods and still will be in the next decade and clean energy is favourable even where there is electricity. The project incorporates a replication component in order to target more people. Ownership The project will be owned by the communities and the community leaders have to take the management responsibility. Public ownership may pose challenges but since the community will be trained and sensitized the public goods management risk will be minimized. Legislative No risk associated with regulations. The project or aspects of the project are not obligatory under national regulations Location in terms of location there are aspects related to the distance especially in the provinces of Manica, Tete and Sofala which will impact on the cost of transport of the main components of the project. Investment environment this is a sustainable project which reduces greenhouse gas. Institutional Capacity there is capacity in-house; GED personnel have long experience in undertaking renewable energy projects their level of motivation which will contribute to remove most of the barriers.

12 Availability of resources - photovoltaic and wind technologies uses local resources in contrast to diesel systems which are dependent on importation of fuels. These resources are environment risk free and renewable. Analysis of Alternatives It is evident above that other alternatives to address the problem of water scarcity in the proposed sites are diesel and electrical pumps. The level of electrification of the country is very low and in most of the region where the project will take place there is no electricity and even where there is electricity the communities would not manage to bear the operational costs. The diesel pumping instead of the proposed solution is an alternative but with emissions, thus is not a sustainable solution not to mention the high costs of diesel. The proposed project presents a solution which solves basic needs of the mentioned communities, water for drinking and for castle and clean energy. Project Financial Requirements This project is a public sector project, with possible revenue stream from savings the families will have for not spending money on water. The income from the farmers will lower or even cover the operational costs of the project. The families of the community that will benefit from the project will contribute toward the capital costs by 30% through community committee which will be responsible in collecting the contributions. Large portion of income will come from the sale of the Water through community committee on an agreed rate per 20 litres. About $235.84/month per system will be generated as income totalizing $2,830 per Year per system.