Read a pdf version of CIFs Monitor 9

Pipeline management

A proposal on how to improve SREP pipeline management was discussed at the October 2013 sub-committee meeting. It was agreed that SREP will introduce an over-programming allowance of up to 30 per cent, but noted that the minimum allocation agreed for the pilot countries must be safeguarded. It also recognised that it could disadvantage low-income countries, in particular least developed countries and fragile states, which should be monitored. Furthermore, countries on the reserve list whose investment plan has been endorsed will now be included in the list of pilot countries, as long as the requested funding doesn’t exceed the available funds and the over-programming allowance.

The May semi-annual operational report noted that the “slower than anticipated” progress with implementation is partly since the projects often form a component of a larger project. In addition: “While blending SREP funds with MDB and other sources of funding helps leverage other sources of financing … it tends to require longer preparation and processing time to combine different financing instruments and components into one integrated project. Some of the co-financing anticipated during the preparation of the investment plans also did not materialise during project preparation.” Other observations included the renewable energy market dynamics in the pilot countries, as well as delays due to political situations, such as in Mali and Honduras.

Proposal for new pilot countries

As Norway announced a potential pledge for additional SREP resources, “primarily for new countries”, at the October 2013 sub-committee meeting, a proposal for how to consider potential additional pilot countries was discussed. The sub-committee noted that any additional funds “could also usefully be utilised to deepen programmes in existing pilot countries or to expand the SREP set aside for enhancing engagement with the private sector.”

It was agreed that the CIF administrative unit should “invite countries eligible for SREP funding to submit an expression of interest in participating”, through a new template. Priority should be given to a focus on energy access and indicative allocation of resources should be based on “country characteristics”. The late February proposal, which was approved early March, extended the list to five key criteria, including relative poverty and good governance within the sector. A late May report by the expert group, appointed in 2013 to advise on the process, noted that out of 55 countries invited, 40 had submitted an expression of interest. The report recommended 12 countries for consideration by the sub-committee at the late June meeting: eight in Africa, two in South and East Asia and the Pacific, and two in Latin America and the Caribbean. Approved countries will be provided with funding to prepare an investment plan.

Private sector funding

Out of twelve concept notes received, four concept notes for the new private sector set aside (see CIFs Monitor 8) were endorsed in the October sub-committee meeting, with a total of $60 million:

• Honduras: Strengthening of the ADERC H-REF (IDB)
• Mali: Scatec solar PV 33 MW (AfDB)
• Kenya: Kopere solar park (AfDB)
• Nepal: ABC business models for off-grid energy access (IBRD)

The sub-committee agreed that a second round should be organised, but asked the CIF administrative unit to first revise the criteria for reviewing concept notes. It also asked the unit to “further analyse the effectiveness and value-added” of the set aside, with the MDBs. At least $30 million in primarily concessional lending is available for the second round, with grants only accepted on “an exceptional basis”. After the revised criteria were approved by mail in mid February, three new concept notes were recommended by the set-aside expert group, with an allocation of $33 million in funding to further develop the projects, pending approval by the sub-committee:

• Kenya: Olkaria VI geothermal power plant (AfDB)
• Kenya: Climate venture facility (KCFV) Project (IBRD)
• Self-supply renewable energy guarantee program, Honduras (IDB)

Updates on investment plans

Liberia: grant request questioned

Less than a year after being accepted as a new SREP pilot country Liberia’s investment plan was endorsed at the October 2013 SREP sub-committee meeting, together with preparation grants for two projects.

Key donor questions and concerns prior to approval

The sub-committee noted a “request for the government of Liberia to receive all indicative allocation in the form of grants”. However, it also referred to the 2011 decision for “no more than 70 per cent of the indicative funding” for countries with a low risk of debt distress to be drawn from grant contributions. It called on Liberia and the MDBs to provide “sufficient justification for grant financing” when submitting project proposals.

Norway asked for more information about how the “serious challenge of low capacity in central and local institutions crucial for the implementation of the SREP [investment plan] will be dealt with.” The US also raised potential risks, including that “SREP projects need protection against unknown and arbitrary risks or unexpected actions that may impact project operations and ownership.”

Armenia: concerns over deadlines, projects

Armenia’s investment plan was circulated for approval in mid April, with an aim of approval by early May, however, donor countries raised several concerns. Switzerland called for an extension: “we have materially not enough resources to appraise an investment plan within the short time you gave us … any investment plan should be discussed in a sub-committee meeting or at least by .”

The UK agreed, and also raised concerns “particularly regarding the substantial objections noted by the independent reviewer regarding the focus on geothermal power. This does not appear to be satisfactorily resolved, and would like to see additional evidence and/or review before the sub-committee is asked to endorse the plan.”

The US seconded this: “The problems with the geothermal project expressed by the independent reviewer raise some serious concerns and they are not sufficiently addressed”. Furthermore, “We are concerned about the lack of strong commitment to policy reform tied directly to SREP support, and a strategic framework for implementing it. The document identifies major barriers to investment in renewables, but the mitigation options are not clearly identified”. Following the concerns, the investment plan will be discussed in the June sub-committee meeting.

Selected project updates

Ethiopia: questions on energy export and affordability

Project details

“The development objective of geothermal sector development project (GSDP) is to develop geothermal resource for electricity generation in Ethiopia.”

Key donor questions and concerns prior to approval

The UK: “why is it proposed that the SREP funds are used for an entirely donor-funded, state-delivered project? Might this in fact have a negative impact on market perception and investment?” IBRD responded that the SREP funding goal is to “unlock the future potential of private sector investment in the sector which will have long-term benefits for reducing energy poverty in Ethiopia.”

Switzerland: “In our eyes the additionally produced electricity should be destined with priority to increase electricity access and productive use in Ethiopia. Only surplus electricity should be exported.” IBRD responded: “Given the estimated timeline and GoE [Government of Ethiopia] power plant expansion plan, at that time, while GSDP will have a production capacity of 70 MW, Ethiopia’s total power generation capacity will be around 10, 000 MW. This is considerable higher than Ethiopia’s domestic peak demand, and GoE plans to export the surplus power to neighbouring countries.”

Project description

“The project will provide the advisory services/technical assistance component of the IFC-managed SREP Project 2 ‘Clean Energy SMEs Capacity Building and Investment Facility’, included in Ethiopia’s endorsed investment plan.”

“The overall project goal is to increase access to better, cleaner and safer off-grid lighting for 2 million people in Ethiopia”, including to “develop a local private sector supplier market”, “accelerate the development of a sustainable commercial market for quality off-grid lighting products”, “develop the capacity of local SMEs” and “mitigate climate change by switching from fossil fuel-based lighting to clean lighting”.

Key donor questions and concerns prior to approval

The Netherlands: “There seems to be no clear and urgent reason to submit this proposal as ‘confidential’. We prefer SREP to be completely transparent and SREP information public, in order to allow for maximum synergy and alignment.” Furthermore, “The proposal does not describe the ownership of the government of Ethiopia and the participation of Ethiopian stakeholders in its design”.

On transparency, the IFC referred to the CIF administrative unit, and clarified that “a public version of the programme proposal has been posted.” While it listed several stakeholders in its response, including NGOs and financial intermediaries, it did not clarify their participation.

The UK: “Although lantern costs at $10 is very low, this remains not insignificant to a family at the ‘bottom of the pyramid’ – and further information on safeguards (such as warranties) for poorer consumers would be welcome.” Also, “While gender benefits are important, these should not be assumed. … It would also be useful to understand the gender strategy for the project.”

The IFC responded “the challenge is not the cost of the lantern, but the ability of poorer consumers to pay for the lantern in smaller instalments that falls within their capacity to pay within their household cash-flow patterns/disposable incomes”. To address this the programme will work with six regional micro-finance institutions “to provide training on clean energy products and link with them with the supply chain and local distributors in an attempt to bridge this affordability gap.” On gender, it clarified: “The gender strategy for the programme will center on: (i) seeking to involve women in the supply chain for solar lanterns and (ii) identifying income generation activities undertaken by women that can be enhanced by better or more hours of lighting.”

Nepal: affordable energy questioned

Project details

“The project will directly finance mini-grid development …  of solar and/or wind” through “mini-grid based renewable energy systems in off-grid, rural communities” and “capacity development support to”, the Alternative Energy Promotion Center, the national implementing agency for the project.

Key donor questions and concerns prior to approval

Switzerland: “What implications does the use of the two commercial banks instead of [Central Renewable Energy Fund] have on the affordability of the [renewable energy] projects on the local communities and consumers? What is the level of an ‘affordable’ tariff to be paid by end users to cover [operations and maintenance] and battery replacement costs?”

ADB responded: “as the subprojects will be community owned and developed, the financial intermediaries are of secondary importance with respect to affordability”. Furthermore, the level of affordable tariff is “specific to the subprojects and customers”. Commenting on the response, Switzerland argued “that such economies of scale and higher efficiencies shall be transferred to the end-users and thus lead to a higher affordability of rural electrification.” Furthermore: “We understand that the costs depend on the technology and vary. … But this statement about the costs does not say anything about the affordability of the tariffs for households and small businesses.”

Mali: questions on labour costs

Project description

“The project is expected to increase the renewable energy installed capacity in approximately 50 of the existing rural mini-grids and facilitate subsequent gradual expansion of renewable energy fueled mini-grids to underserved areas. In addition to infrastructure investments, the project will promote the market for energy efficient products and will provide extensive capacity building in the rural energy services sub-sector and for the institutional strengthening of [Agence Malienne pour le Développement de l’Energie Domestique et d’Electrification Rurale].”

Key donor questions and concerns prior to approval

Switzerland: “As the components are standard products, we still do not see how in Mali, where the labour costs are a fraction of those in Germany, the overall costs can be more than twice as high as in Germany.” IBRD responded: “it should be noted that for existing projects, installation of hybrid systems has been carried out by expatriate engineers and technical experts with very high associated costs (especially for small project). For this reason, the development of a national capacity for installation necessary to drive down unit cost is a key objective of the project.”

Furthermore Switzerland asked: “Please also specify the mechanism of tariff setting that should make sure that the benefits of the programme, in terms of lower electricity prices in rural areas, will be transferred to the intended beneficiaries (i.e. the consumers – households and small enterprises in rural areas of Mali).” IBRD responded that additional clarifications will be included in the final document.

The UK added: “We are concerned that the treatment of the political and security situation in Mali does not present a clear conflict analysis, and although the coup is acknowledged, there is limited discussion about the potential impact of insecurity and fragility on the outcomes of the project.” Moreover: “our approval of this project is on the condition that SREP funds will under no circumstances be used for the diesel components of the project since support to fossil-based generation is outside the investment scope.” IBRD responded: “we do confirm that implementation will take into account the post conflict situation of the country. We also confirm that SREP funds will not under any circumstances be used for fossil-based generation.”

Maldives: reaching women?

Project details

“The project development objective … is to increase [solar photovoltaics] generation in Maldives with private sector investment.”

Key donor questions and concerns prior to approval

The Netherlands sought clarification on “how the project will reach women in particular. … When talking about training, in the first para it says that women ‘can’ be trained. We would prefer ‘shall be trained’.” IBRD responded: “please note that women headed households are not expected to be treated differently, since the PV power generated will be sold into the grid. … we confirm that targeted trainings shall be provided to women.”