Environment

Analysis

Scaling Up Renewable Energy Program (SREP)

CIFs Monitor 12

4 November 2015

Photo: Asian Development Bank

Read a pdf version of CIFs Monitor 12

Concerns over slow progress

While the May SREP sub-committee meeting acknowledged “the challenges caused by unforeseen events in many pilot countries”, it noted “with concern the slow progress and delays in the preparation and implementation of SREP investment plans, programmes and projects”. The sub-committee also noted “the low conversion of concepts to approved projects” in the private sector set-aside, and called on the MDBs “to bring set-aside concepts with good prospects forward for approval as soon as possible.” It asked the CIF administrative unit to conduct “a thorough analysis and propose measures to improve future private sector engagement”. Moreover, it encouraged “further collaboration between SREP pilot countries, MDBs, the GCF, and the CIF administrative unit on the development of SREP investment plans to facilitate compatibility with GCF’s future investment criteria.”

 

Updates on investment plans

The investment plans for Mongolia, Bangladesh, Rwanda and Uganda will be discussed in the November sub-committee meeting.

Nepal’s investment plan revised

Nepal’s revised investment plan was approved in early May. A $20 million ADB and IFC small hydro programme was cancelled, with the funding reallocated to an ADB programme titled Public and private partnership for solar development.

Key donor questions and concerns prior to approval

Switzerland commented that it understood the reasoning for cancelling the small hydropower programme since it is now easier to find financing for this, but sought clarification on why it had been deemed unsuccessful, asking: “why no disbursements could be made from the allocation until now”. It also questioned the assumption that the leveraging of SREP funds will increase compared to the original investment plan, as the revised plan shows lower figures for expected leveraging.

The UK asked for a number of clarifications, including on the actual use of the proposed funds: “What percentage of project funds will be used for grant/subsidy and/or credit? How will this revised investment plan work towards reducing subsidy dependence in the sector? How will the IP avoid excessive grant proportions going to captive generation projects with more limited wider benefits?” It also asked for “more consideration of the gender and poverty alleviation dimensions” in the project.

The ADB clarified that the dropped programme had not been put forward for MDB approval, since “conditions justifying SREP intervention changed considerably after sub-committee approval.” On leveraging it explained that “SREP funds are expected to achieve greater leverage with respect to long-term market development than [small hydropower], as the upside potential is larger and more energy service companies and independent power producers participate in the market.” On the use of funds the ADB responded that: “the details requested on grant vs. credit will be addressed during project preparation. The principle of minimum concessionality will be applied to the proposed project design.” It also stressed that the SREP funds “will be deployed as output-based or results based aid, i.e., disbursed based on achievement of solar development milestones. A learning-by-doing approach will be adopted.”

 

Ghana investment plan

 

Investment plan Amount and date approved MDB services Key project documents
Ghana  $40 million request noted ($30 million grant, $10 million loan)
27 May 2015
Investment plan
Renewable mini-grids and stand-alone systems $899,800 (preparation grant) AfDB
$200,000, first tranche (total of $400,000)
Net metered solar PV for SMEs and lighting project $610,500 (preparation grant) AfDB
$200,000, first tranche (total of $400,000)
Utility-scale solar PV/wind power generation IFC
$450,000 request noted

 

Ghana’s investment plan was endorsed, subject to further comments being taken into account, at the May sub-committee meetings. The sub-committee reconfirmed “that all allocation amounts are indicative for planning purposes and that approval of funding will be on the basis of high quality investment plans and projects.”

Key donor questions and concerns prior to approval

Switzerland asked a number of questions, including: “How is the requested SREP contribution split in grants and capital/loans? This split must be in compliance with the new rules for grant attribution, which provide that Ghana, as a country under moderate debt distress, is allowed to get 55 per cent of the SREP contribution in grants.”

 

Haiti investment plan

 

Investment plan Amount and date approved MDB services Key project documents
Haiti $30 million request noted ($23 million grant, $7 million loan)
27 May 2015
Investment plan
Renewable Energy for the metropolitan area IBRD
$128,000, first tranche (total of $428,000)
Renewable energy and access for all IBRD
$128,000, first tranche (total of $428,000)
Off‐grid electricity services for productive, social and household uses project IFC
$440,000 request noted

 

Haiti’s investment plan was endorsed at the May sub-committee meetings, subject to further comments being taken into account. The sub-committee reiterated “that all allocation amounts are indicative for planning purposes and that approval of funding will be on the basis of high quality investment plans and projects.”

Key donor questions and concerns prior to approval

Switzerland questioned the PPP model proposed for the national electricity company, noting that “the technical and financial recovery … is a critical condition for the success of a PPP.” It also asked “What is meant by wind-solar hybrid?” It further noted that the government of Haiti “has not provided for any financial contribution”, which would be “welcome” given the “large amount of subsidies.” Furthermore: “The projected private sector contribution of 43.5 per cent over the whole investment plan seems very ambitious. How realistic do the MDBs consider these projections?”

Norway also questioned the PPP model and the expected private sector contribution, noting that: “the assumed private sector leverage should be assessed into more detail.” It also referred to the lack of “references to lessons from SREP projects in other countries”, noting that as a fragile state “the enabling environment for successful implementation of SREP in Haiti is much more challenging”. Furthermore: “Corruption is not listed as a risk and there is only one reference to corruption in the document.”

IBRD argued that “the PPP remain the preferred and most likely option”, noting that there is a dedicated government team supporting PPPs. It further confirmed that ‘wind-solar hybrid’ is “a hybrid between wind and solar that would feed into the existing diesel system.” It clarified that the government will contribute, primarily “with budgetary resources for the implementation of the plan, including the staff time.” The IBRD further agreed that the private sector contribution “seems high compared to similar projects. However, we are quite sure to meet this target … due to the large share of relatively attractive market segments covered”, further noting that the “private sector contribution explicitly includes user payments.” The government of Haiti added that “the estimates for private sector leveraged financing are conservative and based on feedback gathered through several rounds of consultations with relevant stakeholders in the energy sector (including representatives from the private sector) as well as a preliminary assessment of the project pipeline.” It agreed that “the environment for successful implementation of SREP funded components [in Haiti] … is particularly challenging.”

Nicaragua investment plan

 

Investment plan Amount and date approved MDB services Key project documents
Nicaragua  $30 million request noted ($16.5 million grant, $13.5 million loan)
27 May 2015
Investment plan
Geothermal development and integral development of rural areas project IDB
$214,000, first tranche (total of $428,000)
Geothermal development project IBRD
$128,000, first tranche (total of $428,000)

 

Nicaragua’s investment plan was endorsed during the May sub-committee meetings, subject to further comments being taken into account. The sub-committee reiterated “that all allocation amounts are indicative for planning purposes and that approval of funding will be on the basis of high quality investment plans and projects.”

Key donor questions and concerns prior to approval

Switzerland noted that the plan “relies to a significant extent on contributions from the GCF already in phase I” and asked what efforts are “planned or under way … to tap GCF resources”. Furthermore, it questioned to what extent the executing agencies “foreseen for the implementation of these programmes [are] already in the accreditation process with the GCF?” It also argued that “the projected private sector contribution for the geothermal component seems rather high in particular the expected readiness of private sector investors to share in the risk of resource confirmation”, adding that “the results listed under ‘transformative impact’ seem far more ambitious than what may be reasonably expected from the SREP intervention.”

IDB responded that Nicaragua has already appointed the ministry of environment as the national designated authority for GCF, also noting that “the ministry of energy, focal point for SREP, has expressed the interest to consider geothermal power as a technology to be promoted also in the context of GCF.” It explained that “the geothermal development component … was designed to unlock investments in this sector through PPPs” with two approaches being explored relying on either the private or public sector taking the lead: “We think that this combination of approaches will at least lead to the development of two sites which would unlock the private investments presented in the table.”

Selected project updates

Pacific region: project risk rating and capacity building

 

Project name Amount and date approved MDB services Key project documents
Sustainable energy industry development project $1.92 million (grant)
11 May 2015
IBRD
$445,000
Decision
Project document

 

Project details

The project forms part of the Pacific regional programme approved in 2012 and aims to “assist power utilities in Pacific Island countries (PICs) to increase their capacity to better exploit the potential benefits of renewable energy technologies in a sustainable manner. The proposed project will support (i) phase 1 resource mapping assessment of solar and/or wind capacity across ten PICs, (ii) technical assistance activities designed to increase capacity within the utilities of ten PICs on planning for and management of the integration of variable renewable energy in their systems, data collection and management, and the sharing of knowledge, and (iii) project management within the implementing agency. The grant funding from the SREP will be used to support technical assistance and project management activities under components (ii) and (iii).”

Key donor questions and concerns prior to approval

The UK noted “the substantial risk rating of this programme, based on the capacity of the partner organisation. The approach to capacity building also seems to largely rely on training, and while we agree that training may have a strong role to play, we consider that a more holistic approach to building capacity and delivery … will be required in order to achieve results now, and sustain those into the future.”

 

Scaling up Renewable Energy Program in Low Income Countries (SREP) explained

SREP was launched in 2009. It aims to catalyse scaled up investment in renewable energy markets in low-income countries by enabling government support for market creation and private sector implementation.

SREP is piloted in 25 countries and one region. Six countries were selected in 2010: Ethiopia, Honduras, Kenya, the Maldives, Mali and Nepal. All the investment plans of the original pilot countries have been approved. A reserve list for new pilot countries has been agreed. Tanzania and Liberia’s investment plans were approved in 2013 and Armenia, Solomon Islands and Vanuatu’s plans in 2014. Two countries remain on the reserve list: Mongolia and Yemen. In 2014 a further fourteen countries were invited to join SREP: Bangladesh, Benin, Cambodia, Ghana, Haiti, Kiribati, Lesotho, Madagascar, Malawi, Nicaragua, Rwanda, Sierra Leone, Uganda and Zambia. The investment plans for Ghana, Haiti and Nicaragua were approved in May 2015.

As of end June 2015, $798 million had been pledged to SREP. A total of $511.5 million had been allocated to 16 projects and programmes and $92.4 million for seven projects and programmes under the SREP private sector set-aside. Out of this $165 million had been approved for 17 projects and programmes, including one for the set-aside.

Donors: Australia, Denmark, Japan, Korea, Netherlands, Norway, Spain, Sweden, Switzerland, UK, US