Sustainable Rural Electrification through Innovative Financing in Southeast Asia

1. Supported by the European Commission through the EC – ASEAN Energy Facility Innovative Financial scheme for sustainable development of RE in Rural Area in Indonesia, Philippines & Vietnam (IFRERA) Dr. Tuan NGUYEN, IED Dissemination and Training workshop, Hanoi December 19-20, 2005 Overview

2. Project objectives • Develop small-scale hydropower based rural electrification in area not yet covered by the main grid systems • Develop a “ready to implement” package and ESCO implementation modality for investors in RE projects • Based on actual site feasibility studies • Identified and mobilised project partners • Ensure local level integration: can take different forms • PPA and contractual elements – understanding of regulatory frameworks • Financial package • Capacity building: Policy and decision makers, financial community, beneficiary communities

3. Project facts data • Financing : • 50% from EC through EAEF • 50% from partners (in kind contribution…) • Start : July 2004 • End : April 2006 • Partners : • Innovation Energie Development (IED, France) – Leader • ETC foundations (Netherlands) • Agency for Environment & Energy Management (ADEME, France) • Institute of Energy (IE, Vietnam) • MBA (Philippines)

4. Stakeholders and impact on beneficiaries • Stakeholders and beneficiaries : • Local developers : Fully implementation packages of SHP for business development • Local authorities and communities : Beneficial consequences on those who do not have access to electricity • National utilities and authorities : New scheme of economic and financial analysis; Regulatory framework review and analysis • Outputs : • FS documents • Tender documents (technical, financial, contractual and BIM) • Reports, Workshop proceeding and newsletters, Participation in regional meetings within the framework of existing groups – HAPUA, NRSE SSN, AEBF/SOME

5. Project’s activities • Tec. FS Studies / reviews (as applicable) • Economic Analysis / review • Analysis of the Regulatory, Legal and Fiscal Framework • Financial Analysis • Local level integration • Preparation of full implementation package • Dissemination, management and reporting

6. Project’s Scope • Indonesia : The institutional and contractual frameworks were negotiated locally. Promising sites have been identified and screened in Sulawesi. The need and interested of the local authorities is established; a national developer was identified; financial and contractual schemes are to be developed  • The Philippines: A full batch of sites has been identified and developed at the pre F/S stage and 1 sites to technical and economic F/S. The issue now is of mobilising interested national developers / investors and integrating in the framework under development. EIA & SIA is underway  • Vietnam: A number of sites have been pre-identified. Looking at the approaches under development in Indonesia and the Philippines, the technical FS of one site proposed by IoE was validated and a contractual framework proposed  More information will be presented in following presentations.

7. Project status – Indonesia (1)

8. Project status – Indonesia (2) In the Sulawesi province of Indonesia, the three identified sites have the following characteristics : • Mikuasi 1838 kW. • Ratelimbong 1365 kW • Sambilambo 3149 kW • Their respective estimated annual productions amount to 12.5 GWh, 8 GWh and 23 GWh ; • Investment package : <10 MUS$

9. Project status – Indonesia (3) • In Indonesia, the implementation package is adapted to the situation where the PLN is the main authority • It’s daughter company IP is the identified developer, willing to invest 30% equity. • A financial analysis was conducted based on the criteria, assumptions and method wished by IP. • The objective of this study : to identify the PPA tariff price that enables IP’s profitability target (IRR = WACC + 5%).

10. Project status – Indonesia (4) • The most sensitive variables are investment costs and hydrology. • Recommendations : Invest 100% in US$, PPA in US$ (if possible).

11. Project status – the Philippines (1)

12. Project status – the Philippines (2) • The Catanduanes Power system is isolated from the main grid. The distribution is in the hands of FICELCO (32,724 customers). • The Lower Dugui site is located in the mountainous area spreading on the north of Virac • Pinst = 3.1 MW & 11.4 GWh • Investment : 393 millions pesos (7.1 million US$) • Criteria for investment (Power One Corporation POC – private investor) : Overall discounted cost < Bunker C diesel reference cost.

13. Project status – the Philippines (3) • The Lower Dugui MHPP price is very sensitive to the discount rate that POC will choose, the cost of access to capital that POC faces. • With access to a cost of capital of 7%, Lower Dugui is already competitive with the March 2005 oil price of 13 Peso/L

14. Project status – Vietnam • Krong Pa 2 SHP in Dak Rong commune, KBang district, Gia Lai province • Supply electricity to the national network and local villages • Installed P = 5.8 MW; 24.48 GWh/y • More information will be presented in details in following presentations : • IoE/ Krong Pa 2 developer on development of Krong Pa 2 • ETC on EIA and SIA • IED on Economic and financial analysis

15. SWOT Conclusions Strengths • High energy resources potential still largely under exploited  Competitive sites for MHPP can still be found • Investment costs are significantly lower than in developed countries. • Reduces dependence on fossil fuels and reduces environmental costs. • Need for local and national government support • Need for local partners involvement, for accurate data collection. • Need for private funding. • Regulatory frameworks are being adapted to foster investments in RE resources. • Demand growth is sustained. • The demand growth is very fast. This triggers quick returns on investment. • Collaboration with government bodies at both the local and national levels. • The exchange rate risks have to be mitigated. • The importance of demand growth in the investment profitability requires to secure a good demand forecast. • Accurate investment costs are very hard to forecast. Good local knowledge is essential to mitigate this. Weaknesses Opportunities Threats

16. Thank you