017
November 2
RE
NEW
AB L E
ENERGY
IN LOW
INCOME
COUNTRIES
SREP
Investment Plan
for
Lesotho
Department of Energy
Ministry of Energy & Meteorology
Government 9of Lesotho
Tel. +1 (202) 413-5192•denzel@dhinfrastructure.com
½ Market Street Suite 3B•NORTHAMPTON, MA 01060•USA
www.dhinfrastructure.com
Table of Contents
1 Investment Plan Summary 1
1.1 Brief Country and Energy Sector Context 1
1.2 Challenges in the Energy Sector 1
1.3 Renewable Energy in Lesotho 3
1.4 Proposed Investment Program for Lesotho 4
2 Country Context 7
3 Overview of the Energy Sector 13
3.1 Institutional, Legal, and Regulatory Framework 15
3.2 Electricity Supply 18
3.3 Electricity Demand 22
3.4 Key Challenges in the Energy Sector 24
4 Overview of the Renewable Energy Sector 26
4.1 Potential for On-Grid Renewable Energy Technologies 27
4.2 Potential for Off-Grid Renewable Energy Technologies 37
4.3 Availability of Financing for Renewable Energy Projects and
Technologies in Lesotho 46
4.4 Key Barriers to Scaling-Up Renewable Energy and Proposed
Mitigation Measures 51
5 Financial and Economic Viability of Renewable Energy
Technologies 55
5.1 RE Technology Costs 55
5.2 Economic Viability Analysis 56
5.3 Financial Viability Analysis 59
5.4 Cost of Other Distributed RE Technologies 62
6 Prioritization of Renewable Energy Technologies 64
7 Program Description 72
7.1 Component 1: On-Grid RE Technologies 73
7.2 Component 2: Distributed RE Solutions 75
7.3 Environmental and Social Co-Benefits 78
7.4 Environmental and Social Risks 79
8 Financing Plan and Instruments 81
9 Responsiveness to SREP Criteria 83
10 Implementation Potential with Risk Assessment 89
11 Monitoring and Evaluation 91
Appendices
: Project Concept Briefs 93
: Assessment of Lesotho’s Absorptive Capacity 102
: Stakeholder Consultations 105
: Co-Benefits 111
: Comments from the Independent Technical Reviewer 113
: Overview of the Concept of LCOE 118
: Preparation Grant and MDB Payment Requests 119
Appendix Tables
Appendix Table A.1: Proposed Financing Plan for Distributed RE
Solutions 101
Appendix Table A.2: Proposed Schedule 101
Appendix Table B.1: GDP Growth and Projected GDP Growth in Lesotho,
2010-2020 102
Appendix Table B.2: Lesotho’s Debt-to-GDP Ratio and IMF Projections,
2012-2020 103
Appendix Table C.1: Stakeholders met during the Scoping Mission 105
Appendix Table C.2: Stakeholders met During the Joint Mission 108
Appendix Table D.1: Co-Benefits Associated with SREP Impacts and
Outcomes 111
Appendix Table E.1: SREP Project Preparation Grant Request (On-Grid RE
Technologies) 113
Appendix Table G.1: SREP Project Preparation Grant Request (On-Grid RE
Technologies) 119
Appendix Table G.2: MDB Request for Payment for Project
Implementation Services 121
Appendix Table G.3: SREP Project Preparation Grant Request
(Distributed RE solutions) 122
Appendix Table G.4: MDB Request for Payment for Project
Implementation Services 124
Tables
Table 1.1: Summary of RE Technical Potential 4
Table 1.2: Lesotho SREP IP Financing Plan 6
Table 2.1: Effects and Impact of Climate Change in Lesotho 11
Table 3.1: Key Sector Legislation 17
Table 3.2: Key Regulations and Guidelines 18
Table 3.3: Generation Assets in Lesotho 19
Table 4.1: Summary of RE Technical Potential 26
Table 4.2: Existing and Proposed Utility-Scale Solar PV Projects 28
Table 4.3: Solar Parks Technical Potential by District, Case 2 29
Table 4.4: Technical Potential of Proposed Solar Park Projects 30
Table 4.5: Planned and Proposed Utility-Scale Wind Power Projects 30
Table 4.6: Buildable Capacity of Wind Farms by Capacity Factor 32
Table 4.7: Potential Wind Farm Projects 32
Table 4.8: Potential Small Hydropower Plant Sites Proposed in the
Hydrogeneration Master Plan 33
Table 4.9: Summary of Potential Small Hydropower Sites 35
Table 4.10: Summary of Waste Resource Potential in Four Districts 36
Table 4.11: Technical Potential for Microgrids 39
Table 4.12: Technical Potential of Proposed Floating Micro-Hydro
Projects 40
Table 4.13: Technical Potential for SHS 42
Table 4.14: Existing Solar Water Heating Projects in Lesotho 44
Table 4.15: Summary of Key Private Sector and NGO Entities in RE 47
Table 4.16: Summary of Ongoing Development Partner Projects 49
Table 4.17: Summary of Barriers to RE and Potential Mitigation Measures
52
Table 5.1 Costs Assumptions for On-grid RE Technologies 55
Table 5.2 Costs Assumptions for Off-grid RE Technologies 56
Table 5.3: Financing Terms of Financial Viability Scenarios 59
Table 6.1: SREP Criteria for Technology Prioritisaton 64
Table 6.2: Government Criteria for Technology Prioritization 66
Table 6.3: Evaluation of RE Technologies against SREP and GoL Criteria 67
Table 6.4: Prioritization Results 71
Table 8.1: Lesotho SREP IP Financing Plan 82
Table 9.1: Summary of Proposed Projects’ Responsiveness to SREP
Criteria 83
Table 10.1: Risk Assessment of the SREP Programme in Lesotho 89
Table 11.1: Lesotho SREP Investment Plan Results Framework 91
Figures
Figure 2.1: Administrative Districts in Lesotho 7
Figure 2.2 Population Composition, 1990 – 2015 8
Figure 2.3: Structural Changes to the Economy of Lesotho, 1975 – 2015 8
Figure 2.4 Economic Growth in Lesotho and South Africa, 2005-2015 9
Figure 2.5: Poverty Headcount Ratio at US$ 1.25 a Day in Sub-Saharan
Africa 10
Figure 2.6: Poverty Rates and Sources of Income 10
Figure 3.1: Energy Demand and Supply 13
Figure 3.2: Final Energy Consumption by Sector and Source (TJ), 2010 14
Figure 3.3: Sources of Heating, Cooking, and Lighting for Households in
Lesotho 14
Figure 3.4: LEC Purchases, 2012 - 2016 19
Figure 3.5: LEC Bulk Purchases by Intake Point, April 2015 to March 2016
(GWh) 20
Figure 3.6: Variable Tariff Path, 2007-2017 21
Figure 3.7: LEC’s Cost of Service from 2010-2016 22
Figure 3.8: Yearly Electricity Sales by Customer Class, 2009-2015 (GWh) 23
Figure 3.9: Average Peak Electricity Demand, 2010-2016 (MW) 23
Figure 3.10: Load Forecast, 2016-2035 (MW) 24
Figure 4.1: Solar Park Resource Maps 29
Figure 4.2: Wind Resource Maps 31
Figure 4.3: Proposed Small Hydropower Plant Locations 34
Figure 4.4: Production Cycle for Proposed Waste-to-Energy Facilities 36
Figure 4.5: Floating Micro-Hydro Systems 40
Figure 4.6: Proposed Locations for Floating Micro-Hydro Projects 40
Figure 4.7: Progress in Rural Water Supply Solar Water Pump Retrofits,
2017 43
Figure 4.8: Solar Street Light, Lesotho Agricultural College 45
Figure 5.1: Economic Viability On-Grid RE 57
Figure 5.2: Economic Viability Off-Grid RE 59
Figure 5.3: Financial Viability (Commercial Financing) On-Grid 60
Figure 5.4: Financial Viability (Commercial Financing) Off-Grid 60
Figure 5.5: Financial Viability (Concessional Financing) On-Grid 62
Figure 5.6: Financial Viability (Concessional Financing) Off-Grid 62
Table of Abbreviations
ACE African Clean Energy
ATS Appropriate Technologies Services
CAPEX Capital expenditure
DoE Department of Energy
DFI Development finance institution
EDM Electricidade de Moçambique
ESCO Energy Services Company
FEPA Freshwater Ecological Protected Areas
FiT Feed-in-Tariff
GDP Gross domestic product
GHG Greenhouse gas
GEF Global Environment Facility
GoL Government of Lesotho
HPP Hydropower plant
IMF International Monetary Fund
INDC Intended Nationally Determined Contributions
ICS Improved Cook Stove
IP Investment plan
IPP Independent power producer
IUCN International Union for Conservation of Nature
LCOE Levelized cost of energy
LEA Lesotho Electricity Authority
LEC Lesotho Electricity Company
LED Light-emitting diode
LEWA Lesotho Electricity and Water Authority
LHDA Lesotho Highlands Development Authority
LHWP Lesotho Highlands Water Project
LPG Liquid Petroleum Gas
LREBRE Lesotho Renewable Energy-Base Rural Electrification
M&E Monitoring and evaluation
MDB Multilateral Development Banks
MEM Ministry of Energy and Meteorology
MHP Muela Hydropower Plant
MW Megawatt
NAPA National Adaptation Programme of Action
NGO Non-governmental organizations
NSDP National Strategic Development Plan
PPA Power purchase agreements
PRG Partial risk guarantee
PV Photovoltaic
PSP Private sector participation
PPP Public Private Partnership
RE Renewable energy
REU Rural Electrification Unit
SACU Southern African Customs Union
SADC Southern African Development Community
SHPP Small hydropower plants
SHS Solar home system
SREP Scaling-Up Renewable Energy Program
SWHS Solar water heating system
TA Technical Assistance
UAF Universal Access Fund
UNDP United Nations Development Programme
UNEP United Nations Environment Programme
UNSD United Nations Statistics Division
WB World Bank
1 Investment Plan Summary
1.1 Brief Country and Energy Sector Context
The Kingdom of Lesotho is a mountainous country in Southern Africa. Roughly 80
percent of Lesotho’s land is more than 1,800 meters above sea level; the average
elevation is 2,161 m.1 Lesotho has a population of two million people of which more
than 99 percent are ethnic Basotho. 23 Sixty-four percent of Basotho live in the districts
of Berea, Leribe, Maseru, and Mafeteng, in the arable lowlands. The remaining
population lives in six districts that include the Senqu River Valley and comparatively
more mountainous land. Population growth has slowed since the early 1990s, from
two percent a year to slightly more than one percent. Most people live in rural areas,
but the share of the urban population has increased substantially, from 14 percent in
1990 to 27 percent in 2015.
Lesotho’s economy has changed structurally; once based on remittance and
agriculture, the country’s economic growth is now driven by value-added output in
the service sectors such as wholesale and retail trade and in manufacturing sectors
such as textile manufacture and mining. Economic growth is steady, but has slowed
down since 2011. As a result, unemployment and poverty levels are high. In 2015, the
broad unemployment rate was 28 percent and 43 percent among the youth (ages 15
to 24).4 The national poverty rate was 56 percent, among the highest in Africa.
Lesotho’s energy sector is characterised by a reliance on biomass (wood and dung)
and imported coal and petroleum. As of 2016, electricity, which makes up only 4
percent of Lesotho’s energy balance is supplied to 38 percent of the population with
generation from the Muela hydropower plant (72MW), and imports from
Mozambique and South Africa. The rest of the population relies on multiple fuel
sources to meet their energy needs. In rural areas, biomass is used for cooking and
heating, and candles and paraffin for lighting. In urban areas, households rely less on
biomass and more on paraffin and gas for heating and cooking. For lighting, urban
households rely on a combination of electricity, paraffin and candles.
1.2 Challenges in the Energy Sector
The energy sector in Lesotho faces challenges which include: low access to modern
and clean forms of energy, reliance on imported electricity and fuels (an energy
security problem), and dwindling forest reserves. The Government of Lesotho
recognizes that these challenges are a barrier to the country’s development and has
set targets to expand electricity access to 75 percent and increase the use of RE
sources by 200MW by 2020.5 The Government of Lesotho (GoL) is also committed to
promoting the safe use of biofuels, reversing environmental degradation, and
increasing the use of RE sources to increase energy security.
1 GoL, “2016 Population and Housing Census Preliminary Results Report”,2017.
2 “World Development Indicators,” World Bank, accessed January 25, 2017.
3 The term “Basotho” also refers to the demonym for Lesotho.
4 The broad unemployment rate includes discouraged workers.
5 GoL, “Vision 2020”, 2000.
1
Lack of access to modern and clean forms of energy
One of the primary challenges in Lesotho’s energy sector is the low rate of household
access to electricity and modern, cleaner sources of energy for lighting, heating, and
cooking.6 Access to affordable, modern energy sources reduces poverty, enables
economic growth, improves health, and increases productivity.7 Nationwide, only
about 38 percent of households have access to electricity. Electricity access rates are
60 percent for urban and peri-urban households and 18 percent for rural households.8
Without electricity, households rely on paraffin and candles as sources of energy for
lighting. For heating and cooking, majority of households use wood and dung. Burning
these fuels in the home can lead to negative health outcomes. Gathering these fuels
can also be time-consuming for households; according to African Clean Energy’s 2015
survey of 2,652 rural households in Lesotho, households spent 31 hours per month
travelling for fuel, covering an average distance of 58 km.9
Energy security
Lesotho imports all its petroleum needs, some of its fuelwood needs, and 35 percent
of its annual electricity needs (2016). At any given time, Lesotho has a maximum of 3
days of petroleum reserves. In 2012, petroleum imports made up 6 percent of gross
domestic product (GDP). Electricity demand outstrips supply. Peak demand for
electricity in 2016 was about 153 MW, but Lesotho’s only functional hydropower
plant, Muela, has a capacity of just 72 MW. Peak demand is expected to grow to 304
MW by 2020 and 432 MW by 2030. The Lesotho Electricity Company (LEC) forecasts
that it must import over 282 GWh of electricity from South Africa (Eskom) and
Mozambique (EDM) in 2016-2017 at prices, which range from Maloti (M10) 0.77 to 1.50
per kWh, substantially higher than purchases from Muela (M 0.13 per kWh). In 2015,
electricity imports amounted to 66 percent of LEC’s supply costs.
Rapidly declining biomass stock
Deforestation is a serious problem in Lesotho. From 1990 to 2010, the country lost
forest cover at the rate of 0.5 percent a year, largely because of rural household
demand for wood fuel.11 In 2012, Lesotho’s forested areas made up only about 1.6
percent of the country’s land area. With the demand for wood outpacing its supply,
Lesotho has begun importing wood fuel and households turn to substitutes such as
crop waste, dung, and Liquid Petroleum Gas (LPG). The use of crop waste and dung
for heating and cooking deprive agricultural land of manure, contributing to a loss of
6 The UN Secretary-General’s Advisory Group on Energy and Climate Change (AGECC) defines modern energy
sources as fuels such as natural gas, liquid petroleum gas (LPG), diesel and biofuels such as biodiesel and
bioethanol; or technology, such as improved cooking stoves, that can enable cleaner and more efficient delivery
of traditional fuels. AGECC, “Energy for a Sustainable Future,” April 2010.
7 International Energy Agency, World Energy Outlook, “WEO – Modern Energy for All: Why it Matters,” accessed
February 16, 2017, available:
.
8 Electricity access is assumed for any household responding that electricity is their main source of fuel for lighting
in the 2016 national census.
9 African Clean Energy, “Summary Statistics Overall,” accessed February 15, 2017, available
, 2015.
10 1 M = 0.07 United States Dollars (US$) as of 1 November 2017.
11Lesotho Ministry of Energy and Meteorology, “Lesotho’s Intended Nationally Determined Contributions (INDC),”
2015.
2
soil fertility.12 Other fuels LPG are considerably more expensive, can put strains on
household budgets. Households that still gather wood now spend more time and
travel greater distances to collect it, a burden that disproportionately falls on women.
1.3 Renewable Energy in Lesotho
Lesotho is fortunate to have an abundance in solar, wind, and hydropower resource
potential that well surpasses its relatively modest energy needs. Realizing the
potential of these resources is a focus of the Government’s Vision 2020 strategy and
viewed to be a potential catalyst for job creation and growth in private sector
investment. Investment in RE is viewed as a means for addressing many of the energy
sector challenges faced by Lesotho. Increased generation capacity from utility-scale
solar photovoltaics (PV), wind, and hydropower could reduce Lesotho’s dependence
on imports from South Africa. While decentralized technologies powered by solar,
wind, or biomass could bring access to modern energy services to the Basotho who
currently rely on biomass and kerosene to meet their energy needs.
The GoL, with the help of development partners has made some progress in RE
development. Lesotho’s main source of power generation is the 72MW Muela
hydropower plant. There is a small 281kW solar photovoltaic (PV) installation at the
Moshoeshoe I International Airport and several small hydropower plants in the
country.
Despite the significant potential, larger scale developments and private sector
investment have not materialized. The constraints limiting RE development in Lesotho
include:
▪ Regulatory and institutional barriers such as an incomplete legal and
regulatory framework, overlapping institutional mandates of various energy
sector entities, and the lack of technical standards on RE installations and
appliances that creates an uncertain investment climate for RE investors
and development;
▪ Technical and capacity barriers such as irregular, outdated, and incomplete
renewable energy resource and energy baseline studies and limited
knowledge and capacity from the institutional to the end-user level which
hinders RE uptake;
▪ Environmental barriers such as declining biomass stock, increasingly
variable rainfall and periods of drought, and limited availability of suitable
land for RE development increases the cost of RE deployment;
▪ Financial barriers such as limited access to financing and underdeveloped
delivery mechanisms for households and private sector, and the high cost
of distributing RE technologies to dispersed and remote communities in
Lesotho limits the scaling-up of RE deployment; and
▪ Social barriers, in particular the lack of awareness among Basotho about
the health and cost saving benefits of RE technologies limits RE uptake.
12 B.M. Taele, K.K. Gopinathan, and L. Mokhuts’oane, “The Potential of Renewable Energy Technologies for Rural
Development in Lesotho,” Renewable Energy 32 (2007), 609-622.
3
1.4 Proposed Investment Program for Lesotho
An assessment of technical potential for various RE technologies that can be used in
Lesotho was carried out to support the preparation of the SREP IP. The results of the
resource assessment are shown in Table 4.1.
Table 1.1: Summary of RE Technical Potential
Generation Capacity Annual Generation
Technology Resource
(MW)1 (GWh)
Utility-Scale Solar
Solar 118* 372
PV13
Utility-Scale Wind Wind 2077* 5,157
Small-Scale Hydro
Water 36 193
(<10 MW)
Waste-to-Energy City Waste 10 62
Solar
Solar Microgrids 31* 85
Battery
Floating Micro-Hydro
Water 0.50 1.75
Microgrids
Solar
Solar Home Systems 1.2 3
Battery
Micro-Solar
Solar 38* 92
Technologies2
Total 2,311.70 5,965.75
Note: *Estimates for all solar PV (case 2), all wind (case 2), all solar microgrids, and all solar home
system (SHS) that is possible in non-excluded areas. For other technologies, it only includes
the proposed plants.1 Only includes known estimated potential of solar street lights, solar
water pumps and solar irrigation.
A national resource assessment with consistent data gathering techniques, analysis assumptions and
methodologies has not been conducted in Lesotho. Therefore, the technical assessment was
based on a variety of sources – each described in the following technology sub-sections –
that are used by RE researchers and developers worldwide. The datasets used were also
cross-referenced against comparable regional RE developments and isolated studies on
resource potential.
1
Excludes battery storage component of some technologies. 2Additional information is needed to
determine more specifically, the technical potential of micro-solar technologies.
Each of the potential RE resources were then evaluated against national and SREP
criteria, and prioritized accordingly. The criteria reflect the Government’s strategic
objectives, and the clear recognition that SREP funding should be used to overcome
barriers to technologies that will have the potential to have a transformative impact
on the energy sector. The Government priority criteria favored technologies that
13 PV refers to photovoltaic
4
would result in job creation, improve energy security, and promote increase private
sector investment.
SREP funds will be used to support investments in two on-grid technologies (solar and
small hydro) and two off-grid technologies (microgrids, SHS) that were identified
through the prioritization exercise. The program consists of two core investment
focused components and a third technical assistance component. Due to the different
challenges and business models for the on-grid and off-grid technologies it was
decided to separate the program into components for each area. A third component
was added to address GoL concerns that a lack of data on project sites would limit the
possibility of private sector HPP investment.
The exact financing modalities will be determined at the time of appraisal, but it is
expected that:
▪ US$5 million of SREP funding, in the form of a concessional loan, would be
used to leverage US$11.5 million in grants and private concessional loans
(or a partial risk guarantee, PRG) from African Development Bank (AfDB),
US$7.5 million in equity contributed from the developers of a 20 MW solar
PV project, and US$6.9 million in additional financing from either a private
lender or other development finance institution (DFI).
▪ US$12 million of SREP funding (US$4 million in grants, US$8 million in
concessional financing) would be used to leverage US$ 10 million in
financing from the World Bank, and US$20 million in investment from other
private sector investors in microgrids and other distributed RE technologies.
These funds will be complemented by another US$4.8 million from other
donors.
▪ US$1.5 million in SREP grants would be used for: an AfDB managed RE
integration study (US$0.6 million); and World Bank managed site specific
pre-feasibility studies (US$0.9 million).
The GoL will contribute by facilitating fiscal incentives for services associated with the
financing plan. These incentives will possibly include: waiving corporate profit tax for
the first 10 years of operation and excluding RE technology sales from VAT.
On the next page Table 1.2 shows, US$ 18.50 million of SREP funding is expected to
catalyze over four times as much investment, most of it from the private sector (as
equity or debt), and the Multilateral Development Banks (MDB) co-sponsors.
5
Table 1.2: Lesotho SREP IP Financing Plan
Private
AfDB
Government Sector /
SREP Project SREP WB Private AfDB Other DFIs Total
of Lesotho Sponsor
Window
Equity
On-Grid RE
Investment in Utility-Scale Solar PV Plant 5 10i 0.6 TBDii 14.4iii 30
RE Integration Study 0.6 0.6
Resource mapping study 1.4iv 1.4
Project Implementation Support + Site Studies 1.5ii 1.5
Subtotal: On-Grid RE 5.6 11.5 0.6 1.4 14.4 32.1
Distributed RE Solutions
Investment in microgrids 8 6 4.1 3.2iv 15 36.3
Investment in distributed RE technologies 4 4 1.8 2.6v 5 17.4
Small Hydropower plants (SHPP) technical support 0.9 0.9
Subtotal: Distributed RE Solutions 12.9 10 5.9 5.8 20 54.6
Grand Total: 18.5 10 11.5 6.5 7.2 34.4 86.7
SREP Leverage 4.68
Note: i) Financing instrument/AfDB window has yet to be determined. Two options being considered are to provide direct project financing through the AfDB private sector window or use
an AfDB PRG to attract other private sector or DFI financing; ii) Project implementation support and site studies will be funded through a grant from the AfDB managed Sustainable
Energy for Africa (SEFA) fund. iii) Total private sector contributions include sponsor equity (US$7.5 million). The remaining US$6.9 million could come from a private financial
institution or DFI; iv) Government of Italy; v) EU US$2.3 million + UNDP-GEF US$0.9 million; vi) EU US$2.3 million + UNDP-GEF US$0.3 million.
6
2 Country Context
The Kingdom of Lesotho is a mountainous country in Southern Africa. Roughly 80
percent of Lesotho’s land is more than 1,800 meters above sea level; the average
elevation is 2,161 m.14 Sixty percent of the land is within the Drakensburg and Maloti
mountain ranges.15 The country’s three river system consisting of the Senqu,
Mohokare and Makhaleng rivers represents a significant freshwater resource. Lesotho
is divided into four agro-ecological zones—lowlands, foothills, Mountains, and the
Senqu River Valley—and ten administrative districts.16 The administrative districts are
further divided into 80 constituencies, each represented by a single seat in the
National Assembly. The map in Figure 2.1 displays the ten administrative districts in
Lesotho, overlaid on the four ecological zones. The chart in Figure 2.1 shows the
population of each district. The most populous districts overlay the lowlands and the
foothills; the least populous districts are in the mountains.
Figure 2.1: Administrative Districts in Lesotho
Agro-Ecological Zones and Administrative
Districts
Lesotho Bureau of Statistics, “2016 Population and Housing Census: Preliminary Results Report,”2016
Lesotho Bureau of Statistics, “Statistical Yearbook 2010,” 2010
Demographics
Lesotho has a population of two million people.17 More than 99 percent of the
population are ethnic Basotho.18 Sixty-four percent of Basotho live in the districts of
Berea, Leribe, Maseru, and Mafeteng, in the arable lowlands. The remaining
population lives in six districts that include the Senqu River Valley and comparatively
more mountainous land.
Population growth has slowed since the early 1990s, from two percent a year to
slightly more than one percent. Most people live in rural areas but, as shown in Figure
14 GoL, “2016 Population and Housing Census Preliminary Results Report”,2017.
15 Lesotho Meteorological Services, “Climate Change in Lesotho: A Handbook for Practitioners”, 2001.
16 The ten administrative districts in Lesotho are: Berea, Botha-Bothe, Leribe, Mafeteng, Maseru, Mohale’s Hoek,
Mokhotlong, Qacha’s Nek, Quthing and Thaba-Tseka.
17 “World Development Indicators,” World Bank, accessed January 25, 2017.
18 The term “Basotho” also refers to the demonym for Lesotho.
7
2.2, the share of the urban population has increased substantially, from 14 percent in
1990 to 27 percent in 2015.
Figure 2.2 Population Composition, 1990 – 2015
Source: World Bank World Development Indicators.
Socio-economic challenges and opportunities
Lesotho’s economy, once based on remittances and agriculture, is now driven by
value-added output in services. Some of the largest industries in Lesotho are mining,
construction, food products, and textiles; in services wholesale and retail trade. As
shown in the rightmost chart in Figure 2.3, agriculture’s value addition to Lesotho’s
economy declined from 41 percent in 1975 to 6 percent in 2015. Remittances declined
from nearly 100 percent of GDP in the early 1980s to just 16 percent in 2015.
Figure 2.3: Structural Changes to the Economy of Lesotho, 1975 – 2015
Source: World Bank World Development Indicators.
These structural changes to the economy have been accompanied by modest
economic growth. As shown in Figure 2.4 economic growth in Lesotho has been
positive since 2005 but susceptible to external shocks. The country quickly recovered
from the global financial crisis in 2009, but growth has stagnated since 2011 because
of slow economic growth in South Africa and increasingly volatile revenues from the
Southern African Customs Union.19 In 2015, GDP was 23.7billion M and per capita GDP
19 International Monetary Fund, “IMF Country Report,” 2016.
8
was M 12,327 (about US$ 920)20. Figure 2.4 shows Lesotho’s GDP and compares the
country’s GDP growth rates to South Africa’s growth rates in real terms since 200521.
Figure 2.4 Economic Growth in Lesotho and South Africa, 2005-2015
Source: World Bank World Development Indicators.
Unemployment and poverty remain critical problems in Lesotho despite the country’s
steady economic growth. The unemployment rate has been consistently high: 27
percent in 1999, 35 percent in 2008, and 24 percent in 2013.22 In 2015, the broad
unemployment rate, which includes discouraged workers, was 28 percent.23 Among
the youth (ages 15 to 24)— about 20 percent of the population—unemployment was
even higher, at 43 percent.24 The largest formal sector employers are the Government
and the textile assembly industry.2526 Other formal sectors of employment in Lesotho
include mining, industry, farming, and services.27 Subsistence farming is the most
common form of informal employment.
The poverty rate in Lesotho is 56 percent, among the highest in Africa.28 Figure 2.5
compares the poverty headcount ratio at US$ 1.25 a day among Sub-Saharan African
countries.
20 Lesotho Bureau of Statistics, “National Accounts 2015”
GDP figures are in 2012 prices.
21 Real term growth refers to price-adjusted value of gross domestic product.
22 ILOSTAT Database (accessed February 8, 2016)
http://www.ilo.org/ilostat
23 World Bank, “Report 97812: Lesotho – Systematic Country Diagnostic,” 2015.
24 Lesotho Bureau of Statistics, “2016 Population and Housing Census: Preliminary Results Report,” 2016
25 World Bank, “Report 97812: Lesotho – Systematic Country Diagnostic,” 2015.
26 World Bank, “Report 97812: Lesotho – Systematic Country Diagnostic,” 2015.
27 Manufacturing, including textiles, employs around ten percent of the workforce. Around seven percent of the
workforce are employed in each of these sectors: mining; construction; agriculture, fishing and forestry; and
retail trade. Over 40 percent of the workforce is employed in subsistence farming.
28 World Bank, “Report 97812: Lesotho – Systematic Country Diagnostic,” 2015.
9
Figure 2.5: Poverty Headcount Ratio at US$ 1.25 a Day in Sub-Saharan Africa
Source: AfDB, 2015. Countries limited to those reporting after 2007, and exclude Mauritius and Seychelles.
Note: Poverty headcount ratio is based on 2005 PPP US$
There is also a rural-urban divide in poverty levels: 61 percent of the rural population
are considered poor compared to 39 percent in urban areas. This divide can be
explained by the rural population’s reliance on farming, which tends to be a low source
of income. As shown in Figure 2.6 farming is the most common source of income in
rural areas, at the same time, poverty rates among households headed by subsistence
farmers or unpaid family workers are the highest.
Figure 2.6: Poverty Rates and Sources of Income
Source: World Bank, “Country Diagnostic Report”, 2015.
The GoL is keenly aware of the socio-economic challenges that Lesotho faces and has
as objectives the enhancement of the Basotho skill base, the embrace of technological
adoption as a foundation for innovation, and the creation of jobs for inclusive
10
economic growth.29 Lesotho’s economic outlook is promising in the short- to medium-
term. Opportunities such as the expansion of diamond mining in 2017 and phase two
of the Lesotho Highlands Water Project promise to provide a capital boost to GDP.3031
In the long-term, job creation—especially for the youth—remains a key precondition
for sustainable and inclusive economic development.
Climate change adaptation and mitigation challenges
Climate change is already affecting Lesotho, which experiences variable and extreme
weather conditions that the GoL expects to worsen in intensity and frequency. 32 By
2030, Lesotho is expected to see a 1 degree Celsius increase in annual mean
temperature, and experience drier autumn and winter months and wetter spring and
summers. Sectors on which Basotho livelihoods depend such as the water, agriculture,
forestry, and ranching/fishing sectors will be especially susceptible to the effects of
climate change.33 Table 2.1 summarizes the likely impact of climate change in Lesotho.
Table 2.1: Effects and Impact of Climate Change in Lesotho
Sector Impact of climate change
temperature
variations in
Increasing
Reduced
weather
Extreme
rainfall
Water Droughts, water stress, water scarcity, and
increased levels of water-borne diseases
Agriculture Increased impact of crop diseases and pests can
lead to famine and loss of traditional livelihoods
Forestry Reduced levels of forest cover, effectiveness of
reforestation programs, and availability of
traditional energy supplies
Ranching/ ▪ Weak recovery of grasses/vegetation
Fishing ▪ Reduced number/quality of livestock and
production of wool, meat, and milk
▪ Loss of traditional livelihoods
Environment ▪ Soil erosion from extreme weather will result in
decreased soil fertility, higher silt levels in rivers
▪ Drought will result in disappearance of wetlands
and reduced vegetation and eventually loss of
29 Government of Lesotho, “Lesotho National Vision 2020,” 2000.
30 International Monetary Fund, “Country Report No. 16/33, Kingdom of Lesotho: 2015 Article IV Consultation –
Press Release; Staff Report,” 2016.
31 The Lesotho Highlands Development Project, established in 1986, is a joint venture between Lesotho and South
Africa with the dual objective of providing water for South Africa and generating electricity for Lesotho. Phase I
of the Project was completed in 2003 and involved the construction of the Katse and Mohale dams and the
Muela hydropower plant.
32 Lesotho Ministry of Energy and Meteorology, “Lesotho’s Intended Nationally Determined Contributions (INDC),”
2015.
33 Lesotho Meteorological Services, Ministry of Natural Resources, “Lesotho’s National Adaptation Programme of
Action (NAPA) on Climate Change under the United Nations Framework Convention on Climate Change,” 2015.
11
habitat and food for many animal and plant
species
Source: Lesotho Meteorological Services, Ministry of Natural Resources, “Lesotho’s National
Adaptation Programme of Action (NAPA) on Climate Change under the United Nations
Framework Convention on Climate Change,” 2015.
The GoL recognizes the need to undertake adaptation and mitigation measures to
ensure that Lesotho’s development is not hampered by climate change. In its National
Strategic Development Plan, the GoL has integrated climate change into sectoral plans
and programmes, improve environmental governance, and upgrade infrastructure
development standards to include climate proofing.
12
3 Overview of the Energy Sector
Lesotho’s energy mix is dominated by biomass. As shown in the leftmost chart on
Figure 3.1, biomass constitutes over half of Lesotho’s energy balance. The rightmost
chart on Figure 3.1 shows that most biomass derives from wood. Fossil fuels such as
coal and petroleum also make up a substantial portion of Lesotho’s energy mix while
electricity contributes very little. Since Lesotho has no proven reserves of oil or gas, it
imports nearly all its fossil fuel from South Africa. Because of dwindling forest reserves
Lesotho has also started importing fuelwood to meet energy demand needs. In 2012,
fuel imports accounted for 13 percent of total trade from South Africa, and 7 percent
of Lesotho’s GDP.34
Figure 3.1: Energy Demand and Supply35
Source: Lesotho Bureau of Statistics, “2010/2011 Household Budget Survey Analytical Report Volume
1,” 2014, and United Nations Statistic Division, “Energy Statisics Database“ 2017
The residential sector is the largest consumer of energy by far. Figure 3.2 shows
Lesotho’s final energy consumption by sector and source. The pie chart on the right of
Figure 3.2 shows the residential sector’s fuel consumption by source. Biomass and coal
provide more than 90 percent of households’ consumption by energy content.
34 UN Comtrade Database, accessed February 14, 2017, https://comtrade.un.org/data/
Data derived from SITC revision 2 classification; since Comtrade uses current dollar values, the GDP comparison is
based on current 2012 values. In terms of constant PPP US$, fuel imports represent 3% of Lesotho’s GDP.
35 Data from the Lesotho Bureau of Statistics have no values for LPG consumption. Data from the United Nations
Statistics Division (UNSD) Energy Statistics Database contain estimates for fuel production and imports by
weight. These weights are converted into their energy content using rough estimates. Data are not available for
fuelwood imports.
13
Figure 3.2: Final Energy Consumption by Sector and Source (TJ), 2010
Note: Data do not include consumption by the agricultural sector or data of LPG consumption.
Source: Lesotho Bureau of Statistics, “2010/2011 Household Budget Survey Analytical Report Volume
1,” 2014.
Because many households in Lesotho lack access to electricity (38 percent in 2016),
they rely on traditional fuels such as biomass for their energy needs. Biomass (wood
and dung) is used for cooking and heating, especially in rural areas. Urban households
are less reliant on biomass and mainly use paraffin and gas for heating and cooking.
Paraffin (kerosene) is the main source of fuel for lighting: 60 percent of all households
use paraffin while the rest use electricity or candles.36 Figure 3.3 shows the main
sources of heating, cooking, and lighting used by households in Lesotho.
Figure 3.3: Sources of Heating, Cooking, and Lighting for Households in Lesotho
36 Lesotho Bureau of Statistics, “2011 Lesotho Demographic Survey: Analytical Report, Vol. 1,” 2011.
14
Note: Other: Heating (Solar, Gas, and Crop waste); Cooking (Solar, Coal, and Crop waste); Lighting
(Generator, Solar, Battery, and Gas)
Source: Bureau of Statistics, "Environment and Energy Statistics Report," 2012
The GoL recognizes that the low electrification rate, reliance on imported fuels, and
dwindling forest reserves are fundamental challenges in the energy sector and barriers
to economic development. In its Vision 2020 strategy, the GoL has set goals to expand
electricity access and promote the use of RE sources by 2020. The GoL has also
included in its National Strategic Development Plan from 2014 to 2017 a commitment
to promoting the safe use of biofuels, reversing environmental degradation, and
increasing the use of RE sources to increase energy security.
The following sections provide more details on the energy sector. Section 3.1 provides
an overview of the institutional, legal, and regulatory framework of the energy sector,
and sections 3.2 (supply) and 3.3 (demand) provide an overview of the electricity
sector. Section 3.4 summarizes the key challenges facing the energy sector.
3.1 Institutional, Legal, and Regulatory Framework
The GoL envisions the energy sector playing an important role in the strategic
development of the country. Lesotho’s Vision 2020 (2004) is an overarching
framework for the country’s development by the year 2020, identifying seven pillars:
democracy, unity, peace, education and training, economic growth, management of
the environment, and advancement in technology. Vision 2020 foresees the
development of electricity networks as an important component in establishing strong
economic infrastructure in Lesotho, and it calls for expanding electricity access to
households. RE is also a major component of this vision, and is intended to contribute
to electrification and environmental goals.
The National Strategic Development Plan (NSDP) 2012/13 to 2016/17 (2012) serves
as an implementation strategy for Vision 2020. The NSDP was implemented to align
GoL strategy over a five-year period across six strategic goals37 related to Vision 2020
objectives. In the energy sector, the NSDP calls for increased clean energy production
to attain self-sufficiency and export potential; expanded electricity access; and better,
more efficient use of domestic energy resources.
The following sub-sections summarize the institutional, legal, and regulatory
framework in the energy sector. Section 3.1.1 provides information on important
institutions in the energy sector, including those responsible for policy, regulation,
37 The goals are: create high, shared, and employment-generating growth; develop key infrastructure; enhance
skills base, technology adoption, and foundation for innovation; improve health, combat HIV and AIDS, and
reduce vulnerability; reverse environmental degradation and adapt to climate change; and promote peace,
democratic governance, and effective institutions
15
generation, transmission, distribution, and electrification. Section 3.1.2 summarizes
key energy sector policies, legislation, and regulations in the energy sector of Lesotho.
3.1.1 Institutional framework in the electricity sector
The Ministry of Energy and Meteorology (MEM) is responsible for overall
policymaking and financial planning in Lesotho’s energy sector. The Department of
Energy (DoE), part of MEM, is responsible for coordinating, monitoring, and evaluating
programs and activities in the energy sector. The DoE has three division: conventional
energy, RE, and planning. Each division is responsible for collecting data on sector
activities and supporting coordination among stakeholders relevant to their focus
area.
The state-owned LEC is Lesotho’s monopoly electricity transmission, distribution, and
bulk electricity supply company. LEC imports electricity from South Africa’s state-
owned electricity company, ESKOM, and can import and export electricity via the
Southern African Power Pool. While LEC does own, and operate a few SHPP attached
to its distribution network, the only significant domestic generation comes from the
Muela hydropower plant (MHP) operated by the Lesotho Highlands Development
Authority (LHDA). The LHDA is responsible for the implementation, operation, and
maintenance of Lesotho’s portion of the Lesotho Highlands Water Project (LHWP), a
water (jointly with South Africa) and hydropower generation (Lesotho only) project.
Lesotho Electricity and Water Authority (LEWA) is the economic regulator for the
electricity sector, created in 2002. Its mandate was expanded in 2011 to regulate the
water sector. LEWA is responsible for issuing licenses for electricity supply activities;
setting tariffs for generation (including feed-in tariffs), transmission, distribution, and
supply; regulating the quality of supply; and resolving disputes. LEWA also monitors
the single buyer of renewable electricity (LEC) and manages the UAF.
Rural electrification efforts involve a mix of sector institutions. LEC is responsible for
rural electrification projects within its service territory (within 3.5 km from the existing
distribution network). The Rural Electrification Unit (REU), established in 2004, is a
project implementation unit under the DoE that coordinates and manages the
implementation of off-grid and rural electrification projects outside the LEC service
area. REU projects are funded through a Universal Access Fund (UAF) that is managed
by LEWA.38
3.1.2 Key energy sector policies, laws, and regulations
The main document that has been developed to guide the strategic vision of the
energy sector is the Lesotho Energy Policy 2015-2025. This policy aims to align energy
sector policy with the goals described in Vision 2020 and the NSDP. The 15 policy
statements in the document aim to reliably and affordably ensure energy access to
improve the economy of Lesotho and the livelihoods of its citizens. Policy objectives
include: introduction of an appropriate institutional and regulatory framework for the
sector; sufficiency and availability of energy sector data; sustainability of bioenergy
resources; improved access to RE services and technologies; promotion of energy
efficiency; security of electricity supply; development of a reliable and efficient
38 The UAF receives funding from the Gol and international donor partners.
16
transmission network; increased access to electricity for all socio-economic sectors;
development of a transparent and competitive electricity market; creation of an
enabling environment attractive to investment and financing; and introduction of a
transparent price-setting structure that ensures cost recovery.
Although not specifically an energy sector policy, Lesotho’s Intended Nationally
Determined Contributions (INDC) (2015) includes several energy related objectives as
part of the country’s commitments towards mitigating and adapting to climate
change. Committed actions related to the energy sector include: continued
development of hydropower resources; implementation of demand-side
management techniques to ensure efficient use of existing distribution infrastructure;
promotion and development of RE, particularly wind and solar; improved distribution
efficiency; and development of a low energy IP. Lesotho’s INDC also sets certain
targets for the energy sector including targets to improve energy efficiency, increase
electricity coverage, and increase RE generation by 2020
Lesotho does not currently have an Energy Act in place that formally enacts energy
policy and establishes the mandates of sector institutions. As part of an ongoing EU
capacity building program, the DoE is planning to formulate an Energy Act in 2018.
Absent an overarching law the sector is currently governed through several pieces of
legislation. Table 3.1 provides an overview of important energy sector laws in Lesotho.
Table 3.1: Key Sector Legislation
Legislation Overview
Establishes the Lesotho Electricity Corporation as
the Lesotho Electricity Company, vested with all of
Lesotho Establishing and Vesting Act
its assets, liabilities, rights, and obligations as the
(2006)
national electricity transmission and distribution
company
Lesotho Electricity Authority (LEA) Establishes the Lesotho Electricity Authority as
Act (2002) regulator for electricity sector
Amends LEA Act (2002) regarding composition of
Board, funding, powers to enter and use land for
LEA Amendment Act (2006)
regulated activities, and acquisition of land
required for regulated activities
Amends LEA Act (2002) to give the Authority power
to regulate Lesotho’s water and sanitation sector
LEA Amendment Act (2011)
and renaming the regulator as the Lesotho
Electricity and Water Authority
The Act empowers the Minister to impose and
Fuel and Services Control Act (1983)
collect a levy on fuel, except paraffin
The LEA act 2002 give LEWA the authority to draft economic regulations for the
electricity and water sector. The Ministry of Energy is responsible for approving the
regulations. Table 3.2 summarizes important regulations in the energy sector in
Lesotho.
17
Table 3.2: Key Regulations and Guidelines
Regulation Purpose
Electricity Price Review and Structure
Regulates reviews of tariff structure and prices
Regulations (2009)
License Fees and Levies Regulations Regulates funding Regulator activities via licensing
(2009) fees and customer levies
Regulates dispute resolution between licensees
Resolution of Disputes Rules (2010)
and between licensees and customers
Establishes a fund for electrification and sets
UAF Rules (2011)
administrative rules
Sets procedures and requirements for license
Application for Licenses Rules (2012)
applications and exemptions
Although a formal RE regulatory framework has not been adopted, the AfDB and EU
are supporting an elaboration of the regulatory framework in the electricity sector. In
2015, LEWA, with the support of AfDB, developed a draft Regulatory Framework for
the Development of Renewable Energy Resources in Lesotho (“RE regulatory
framework”) for expanding the use of renewable energy resources. The framework
specifies the procurement and regulatory approaches for both on-grid and off-grid RE.
Specifically, the RE regulatory framework includes: feed-in-tariff rules; procurement
guidelines; and templates for various licenses, tenders, and power purchase
agreements (PPAs). The proposed regulatory framework has not been adopted by
Government, but LEWA has published the PPA template to guide prospective power
producers and off-takers who are interested in buying or selling electricity to the
Lesotho grid. The GoL will look to formally adopt many of the components of the
framework as part of the Energy Act that is planned for 2018.
The EU, as part of its technical assistance to the DoE is assessing the regulatory
framework’s robustness to support private sector participation in off-grid
electrification and eventual integration to the main grid.
3.2 Electricity Supply
Lesotho’s electricity system has nearly 76 MW of installed capacity, most of which
comes from the 72 MW MHP. The MHP is owned and operated by the LHDA, and only
produces electricity when water is sent through the plant to be delivered to South
Africa. LEC also owns four micro-hydropower plants: Semonkong and Mantsonyane,,
but only the Semonkong plant is operational, as work is still ongoing in Mantsonyane
to remove slit that is trapped in the pond.39 A backup diesel generator produced most
of the electricity at the Semonkong plant during the 2015-2016 period because of
drought.40 The LHDA owns one micro-hydropower plant (HPP), the 540 kW Katse HPP.
Table 3.3 shows the generation assets in Lesotho.
39 “Generation”, Lesotho Electricity Company (Pty) Ltd, accessed February 16, 2017, available
40 Lesotho Energy Company (Pty) Ltd., “LEC Annual Report 2015-2016,” 2016,.
18
Table 3.3: Generation Assets in Lesotho
Asset Connectio Technology Installed Capacity Available
n (MW) Hydro
Capacity
Muela Grid Hydro 72 72
Mantsonyane Grid Hydro 2 2
Katse Grid Hydro/diesel 0.54 (0.8*) 0.54
Semonkong Off-grid Hydro/diesel 0.18 (0.4*) 0.18
Total 74.72(hydropower 74.72
capacity only)
Note: * Capacity of backup diesel generators.
Sources: Wim Jonker Klunne, Council for Scientific and Industrial Research, “Small hydropower in
Southern Africa - an overview of five countries in the region”, 2013, and LHDA, “Annual
Report 2002/2003”, 2002, 20
Transmission and distribution lines in Lesotho are owned by LHDA and LEC. LHDA owns
the transmission and distribution lines that were developed under Phase I of the
LHWP. LEC owns and operates the transmission and distribution lines in the rest of the
country, which includes 132 kV, 88 kV, 66 kV, 33 kV and 22 kV transmission lines. The
LEC also owns 132 substations in Lesotho, with 75 distribution substations located in
Maseru.41
Electricity imports
Lesotho imports 36 percent of its electricity needs from the South African electricity
supplier, ESKOM, and Mozambican electricity supplier Electricidade de Moçambique
(EDM).42 Imports decreased from 310 GWh in 2012 to 280 GWh in 2015, but are
increasingly used to meet peak demand—roughly 55 percent of imports are used to
meet peak demand. Figure 3.4 shows LEC’s bulk purchases, by origin.
Figure 3.4: LEC Purchases, 2012 - 2016
41 Thuloane B. Tsehlo, United Nations Economic Commission for Africa, “Assessment of energy for rural
development in Lesotho,” 2012.
42 Lesotho Electricity Company (Pty) Ltd, “Annual Report 2015 -2016,” 2016.
19
Source: LEWA
Between April 2015 and March 2016, LEC imported around 280 GWh of electricity
from South Africa and Mozambique. As shown in Figure 3.5, 31 percent of annual
imports were purchased in the summer, between January and March because these
months coincide with the rainy season, when South Africa is less reliant on water
imports from Lesotho and less water flows through the Muela power plant.
Figure 3.5: LEC Bulk Purchases by Intake Point, April 2015 to March 2016 (GWh)
Source: LEC, “Annual Report 2015-2016”, 2016.
Electricity cost and tariffs
As described in section 3.1.1, one of LEWA’s responsibilities as the economic regulator
is to set end-user electricity tariffs. LEWA has several regulations that outline its tariff-
setting principles and filing procedures. The revenue requirement for LEC is set using
a rate-of-return approach.43 Electric companies have the option to submit single- or
multi-year tariff proposals—although LEC has historically filed for tariff changes each
year. LEC uses a single-part variable tariff (per kWh) for residential, general purpose,
and street lighting customers and a two-part tariff (with fixed and variable charges)
for commercial and industrial customers.44 All electricity consumers also pay customer
and electrification levies per kWh on top of the variable portion of the tariff. The
customer levy covers a portion of LEWA’s operating costs and the electrification levy
funds REU’s electrification projects.
LEWA is in the process of hiring consultants, with the support of AfDB, to conduct a
cost of service study that will be used to design tariffs based on the principal of cost
causation. Absent this information, tariff increases have recently been applied
uniformly across all tariff classes regardless of the cost LEC incurs to serve each class.
Figure 3.6 shows the variable tariff paths for the past eight years. Tariffs have
increased, on average, 11 percent per year over this period.
43 Under the rate-of-return approach, a utility’s costs of service are assumed to include operating and maintenance
expenses, depreciation expenses, and an allowed rate of return on invested capital (often referred to as the
“rate base” or “regulated asset base”).
44 General purpose customers include certain social service institutions such as schools and churches as well as
small and medium size enterprises (SMEs).
20
Figure 3.6: Variable Tariff Path, 2007-2017
The tariff-setting process has shown to provide a sufficient level of revenue for LEC to
cover its annual operating costs. LEC operated with a net profit of M 56.3 million (US$
4.35 million) in 2015/2016. As shown in Figure 3.7, the average tariff approved was
sufficient to cover actual cash operating cost per kWh delivered in four of the past six
years. These results show that tariffs are currently being set at levels that allow LEC to
cover its cash operating expenses, but it is unclear whether LEC is earning a sufficient
return on its investments. Until their 2017/2018 tariff application, LEC did not have an
asset registry to submit with their annual tariff filings, as required in LEWA’s filing
procedures. Without an asset registry LEWA did not have enough information to
determine LEC’s regulatory asset base and was forced to set the return on asset
discretionally each year.45 The lack of an asset registry also has meant that LEWA has
not had sufficient information to verify the depreciation cost LEC includes in its annual
filings.46 Now that LEC has completed the asset registry it is anticipated the tariff will
include a return on assets based on the actual regulatory asset base—and thus will be
fully reflective of costs going forward. Figure 3.7 shows LEC’s cost of service from
2010/11 to 2015/2016.
45 In the rate-of-return approach capital investment costs are intended to be recovered through both the
depreciation and return on asset components included in the revenue requirement.
46 Despite not having sufficient information to verify costs LEWA has annually approved LEC's depreciation
requests. This has been done with the intention of ensuring LEC had sufficient revenue to cover capital
maintenance. LEWA has ordered LEC to maintain a ring-fenced depreciation account to allow for proper
monitoring of how depreciation revenue is being used.
21
Figure 3.7: LEC’s Cost of Service from 2010-2016
Note: Annual costs are the actual costs reported in the subsequent year’s tariff determination. For
example, the 2014/2015 costs were taken from LEWA’s 2015/2016 LEC Tariff Determination
report.
The most important omission in the current tariff scheme is a lack of any social
protections for low income domestic customers. As the delivery network expands into
rural areas, households may now have the opportunity to receive electricity service
but may not be able to afford even a basic level of consumption. At 2016/2017 tariff
levels, the cost of 50 kWh represents at least 10 percent of monthly income for nearly
half the households in the country.47 Connection fees, currently M 2,000 (US$155) are
another obstacle the could prevent the poor from gaining access to electricity.
3.3 Electricity Demand
Average per capita consumption of electricity in Lesotho is 253 kWh, about half the
Sub-Saharan African average of 488 kWh, but has been growing at an average of three
percent a year since 2009 because of new household connections.48 The commercial
and industrial sectors have been the largest consumers of electricity, accounting for
65 percent of LEC sales while residential consumption (34 percent) and other general
purpose (one percent) made up the remainder of sales in FY2015, as shown in Figure
3.8.
47 A 2010 Houehold Budget Survey (HBS) conducted by the BoS shows that 68 percent of the households earn less
than M 1,000 per month.
48 World Bank, “World Development Indicators: Electricity Consumption per Capita”, 2013.
22
Figure 3.8: Yearly Electricity Sales by Customer Class, 2009-2015 (GWh)
Source: LEC
Electricity demand peaks during the winter months of June to August, when there is
high demand for heating, and is lowest in the summer. Daily demand peaks around
0900 hours, as operations in the commercial and industrial sectors commence. A
second peak is observed around 1900 hours, driven by domestic activity such as
television, radio, and lighting. Figure 3.9 shows peak demand for electricity by month
and hour. The monthly chart also contains the average hourly generation per month
from the Muela power plant during the 2015-16 period. Across the year, domestic
generation meets about half of Lesotho’s peak energy demand.
Figure 3.9: Average Peak Electricity Demand, 2010-2016 (MW)
Note: The monthly peak demand is an average of 2010 to 2016 due to outliers in the data.
Source: LEC.
In 2016, peak demand was 153 MW, more than double the installed capacity of MHP.
By 2020, Lesotho’s electricity demand is expected to reach 304 MW and by 2035, 432
MW.49 Demand will be driven by electrification efforts, developments such as the
Letseng diamond mine, and load growth over time. Additional capacity investments
will be needed to meet the electricity supply gap. Figure 3.10 shows the electricity
load forecast for Lesotho from 2016 to 2035.
49 Lesotho National Development Corporation, “Lesotho Energy Sector Profile,” 2017.
23
Figure 3.10: Load Forecast, 2016-2035 (MW)
Source: Consultant’s estimates based on DoE data
Note: Peak demand is assumed to increase by 2.3 percent each year. Letseng diamond mine is
assumed to begin operations in 2017. LEC customer base includes domestic, commercial,
and industrial customers.
3.4 Key Challenges in the Energy Sector
The key challenges facing Lesotho’s energy sector are low energy access, energy
security, and declining biomass stocks.
3.4.1 Energy access
One of the primary challenges in Lesotho’s energy sector is the low rate of household
access to electricity and modern, cleaner sources of energy for lighting, heating, and
cooking.50 Access to affordable, modern energy sources reduces poverty, enables
economic growth, improves health, and increases productivity.51 Nationwide, only
about 38 percent of households have access to electricity. Electricity access rates are
60 percent for urban and peri-urban households and 18 percent for rural households.
Electrification is challenging because of the costs of extending grids to mountainous
areas and to populations spread out in small clusters. In 2017, the GoL set an
electrification target to bring electricity to 75 percent of households by 2020.
Absent electricity access, many households rely on gas, paraffin, wood, coal, or dung
as sources of energy for lighting, heating, and cooking. Burning these fuels in the home
can lead to negative health outcomes. Gathering these fuels can also be time-
consuming for households; according to African Clean Energy’s 2015 survey of 2,652
rural households in Lesotho, households spent 31 hours per month travelling for fuel,
50 The UN Secretary-General’s Advisory Group on Energy and Climate Change (AGECC) defines modern energy
sources as fuels such as natural gas, liquid petroleum gas (LPG), diesel and biofuels such as biodiesel and
bioethanol; or technology, such as improved cooking stoves, that can enable cleaner and more efficient delivery
of traditional fuels. AGECC, “Energy for a Sustainable Future,” April 2010.
51 International Energy Agency, World Energy Outlook, “WEO – Modern Energy for All: Why it Matters,” accessed
February 16, 2017, available:
.
24
covering an average distance of 58 km.52 The GoL wants to promote the safe, efficient
use of cleaner fuels that will reduce health problems and ensure the sustainability of
biofuel stocks. However, access to alternative technologies is limited by cost,
availability, and lack of private sector suppliers.
3.4.2 Energy security
As described in Sections 3.2 and 3.3, energy demand in Lesotho outstrips available
domestic supply, leaving the country reliant on expensive electricity imports. Peak
demand in 2016 was about 153 MW, but is expected to grow to 304 MW by 2020 and
432 MW by 2030. Lesotho’s only functional hydropower plant, Muela, has a capacity
of just 72 MW. LEC forecasts that it will import over 282 GWh of electricity from South
Africa (Eskom) and Mozambique (EDM) in 2016-2017 at prices ranging from M 0.77 to
1.50 per kWh, while purchases from Muela are just M 0.13 per kWh. In 2015,
electricity imports accounted for 66 percent of LEC’s supply costs. The persistence of
expensive fuel imports that are denominated in Rand or US dollars also has a toll on
Lesotho’s monetary policy. The long-term impact of purchasing Rand (also to maintain
the currency peg) and US dollars would cause the Maloti to depreciate, increasing the
cost of all imported goods and services into Lesotho.
The energy supply gap is not limited to electricity. Lesotho imports all its petroleum
(16 percent of primary energy demand) needs from South Africa and only has a
maximum of three days of fuel reserves in country at any time. In 2012, petroleum
imports made up six percent of GDP. The GoL wants to reduce this dependence on
electricity imports and increase energy security by exploiting Lesotho’s vast, untapped
RE potential. The GoL hopes developing RE may also allow the country to export
electricity to its neighbours.
3.4.3 Rapidly declining biomass stock
Lesotho has very low rates of forest cover (about 1.6 percent in 2012), made worse by
the unsustainable use of wood for fuel, and leading to potentially severe
environmental and social consequences. 53 With the demand for wood outpacing its
supply, households often turn to substitutes. Use of other biomass sources, like crop
waste and dung, deprive agricultural land of manure, contributing to a loss of soil
fertility.54 Other fuel sources, such as paraffin and LPG, are considerably more
expensive, putting a strain on household budgets. Continuing to rely on wood as a fuel
source means spending more time and travelling greater distances to collect it, a
burden that disproportionately falls on women. The GoL has set a target for increasing
tree cover to five percent by 2020, and has called for financial support to subsidize
fuel-efficient cook stoves and alternative fuels and techniques for cooking.
52 African Clean Energy, “Summary Statistics Overall,” accessed February 15, 2017, available
, 2015.
53 Ministry of Energy and Meteorology, “Lesotho’s Intended Nationally Determined Contributions,” 2015.
54 B.M. Taele, K.K. Gopinathan, and L. Mokhuts’oane, “The Potential of Renewable Energy Technologies for Rural
Development in Lesotho,” Renewable Energy 32 (2007), 609-622.
25
4 Overview of the Renewable Energy Sector
The GoL has set targets to increase RE generation by 200 MW by 2020 as part of efforts
to mitigate the effects of climate change and solve Lesotho’s energy sector challenges.
In its Energy Policy, the GoL has committed to improving access to RE specifically to
increase Lesotho’s energy security and Basotho access to modern energy sources, and
reduce the carbon intensity of the energy sector.
As described in section 3.2, Lesotho relies heavily on imports from South Africa – 93
percent of which is produced from coal – to meet its electricity demand needs55 and
many rural Basotho still rely on inefficient sources of fuel to meet household energy
needs. Investments in RE can help change these trends. A variety of options are
available to Lesotho, including on-grid technologies such as utility-scale wind, solar,
waste-to-energy, and small hydro; and off-grid technologies such as microgrids and
distributed RE technologies.
An assessment of technical potential for various RE technologies that can be used in
Lesotho was carried out to support the preparation of the IP. The results of the
resource assessment are shown in Table 4.1.
Table 4.1: Summary of RE Technical Potential
Generation Capacity Annual Generation
Technology Resource
(MW)1 (GWh)
Utility-Scale Solar
Solar 118* 372
PV56
Utility-Scale Wind Wind 2077* 5,157
Small-Scale Hydro
Water 36 193
(<10 MW)
Waste-to-Energy City Waste 10 62
Solar
Solar Microgrids 31* 85
Battery
Floating Micro-Hydro
Water 0.50 1.75
Microgrids
Solar
Solar Home Systems 1.2 3
Battery
Micro-Solar
Solar 38* 92
Technologies2
Total 2,311.70 5,965.75
Note: *Estimates for all solar PV (case 2), all wind (case 2), all solar microgrids, and all SHS that is
possible in non-excluded areas. For other technologies, it only includes the proposed plants. 1
55 World Bank, “World Development Indicators: Electricity Production from Coal Sources”, 2014.
56 PV refers to photovoltaic
26
Only includes known estimated potential of solar street lights, solar water pumps and solar
irrigation.
A national resource assessment with consistent data gathering techniques, analysis assumptions and
methodologies has not been conducted in Lesotho. Therefore, the technical assessment was
based on a variety of sources – each described in the following technology sub-sections –
that are used by RE researchers and developers worldwide. The datasets used were also
cross-referenced against comparable regional RE developments and isolated studies on
resource potential.
1
Excludes battery storage component of some technologies. 2Additional information is needed to
determine more specifically, the technical potential of micro-solar technologies.
The technical potential for RE in Lesotho is high, but its development and deployment
is slow because of several barriers including: an unestablished enabling environment,
limited financing and delivery options, insufficient experience of GoL in managing and
implementing RE projects, and general lack of awareness among the Basotho of the
availability and benefits of RE technologies.
The sub-sections below provide an overview of the RE sector in Lesotho. Sections 4.1
and 4.2 describe the current use of and potential of various RE technologies in
Lesotho. Section 4.3 describes the availability of financing for RE projects in Lesotho,
and section 4.4 summarizes barriers to scaling-up RE and proposes measures to
overcome them.
4.1 Potential for On-Grid Renewable Energy Technologies
As described in Section 3.2, Lesotho does not have sufficient domestic generation
capacity to meet peak demand and relies on imports to bridge the supply gap. The
electricity supply gap is likely to increase as Government electrifies the population and
exploits new diamond mines, further weakening Lesotho’s security of supply. Based
on discussions with stakeholders, existing reports, and data, utility-scale solar
photovoltaic (PV), utility-scale wind farms, SHPP, and waste-to-energy plants were
selected as potential on-grid RE technologies for elaboration in this IP to help the GoL
reach its goal of meeting base load demand needs. The sub-sections below provide an
overview of existing use and technical potential of each technology.
4.1.1 Utility-scale solar photovoltaic (PV)
Utility-scale solar currently makes up a small proportion of Lesotho’s generation
capacity, but there is substantial potential because Lesotho receives more than 300
days of sun each year. There are two operational small utility-scale solar park projects,
both in Maseru district, with a total installed capacity of just 0.035 MW. A 281 kW
small solar installation at the Moshoeshoe I International Airport is used primarily to
serve the airport’s electricity demand during the day. The system does not have
storage capability and excess power generated flows back to the national grid. A 2.4
kW small solar installation is in Roma at the National University of Lesotho and is used
largely for research and educational purposes.
There has been substantial interest from the private sector and the GoL in developing
larger scale solar parks in recent years; six larger solar park projects have been
proposed by the GoL and private developers, with a total installed capacity of 50 MW.
27
Table 1.2 below summarizes the existing and proposed utility-scale solar PV projects
in Lesotho.
Table 4.2: Existing and Proposed Utility-Scale Solar PV Projects
Project Name District Resource Project Status Capacity (MW)
Moshoeshoe I Maseru Small Solar Operational 0.281
Roma Maseru Small Solar Operational 0.024
Maseru Maseru Solar Park Proposed 20
Hlotse – 1 Leribe Solar Park Proposed 2
Mafeteng – 1 Mafetang Solar Park Proposed 2
Maputsoe Leribe Solar Park Proposed 1
Mohales Hoek - 1 Mohale’s Hoek Solar Park Proposed 5
Neo 1 Mafetang Solar Park Proposed 20
Total 50.305
Sources:
1) Lesotho Power Generation Master Plan, Lesotho Electric Company – SSI, 2010
2) Lesotho’s first utility-scale solar PV Power Plant Proposal, OnePower
3) “Yield and performance analysis of the first grid-connected solar farm at Moshoeshoe I
International Airport, Lesotho”, Renewable Energy Journal
The potential for solar energy depends on the intensity and duration of exposure to
sunlight at a given location. Data on solar insolation were from the VAISALA/IRENA
3km Global Solar Dataset.57 The technical potential of solar parks was determined by
first evaluating the overall resource potential, in terms of solar insolation, and then
applying exclusions to limit this potential only to areas practical for development.
Areas that were excluded included forests, wetlands, urban areas, locations farther
than 20 km from the nearest transmission line, protected areas (existing and proposed
National Parks and Forests), and Freshwater Ecological Protected Areas (FEPAs).
The final exclusion criterion was land slope: two cases were developed to show
resource potential after the other exclusion criteria were applied. In Case 1, all land
with a slope greater than 10 percent was excluded. In the more restrictive Case 2, all
land with a slope greater than 5 percent was excluded. Figure 4.1 shows the results of
the resource assessment after applying the exclusion criteria. Table 4.3 shows the
results of the resource assessment by district under the more restrictive Case 2.
57 The VAISALA 3Tier v1.2 dataset has Typical Meteorological Year (TMY) data for Lesotho, developed based on the
historical time series dataset available at a 3 km spatial resolution from 1998 to the present (19 years); TMY thus
provides a better representation than using a single historical year. The dataset is validated against multiple
ground stations globally. The uncertainty of the dataset is five percent.
28
Figure 4.1: Solar Park Resource Maps
Case 1 Case 2
Table 4.3: Solar Parks Technical Potential by District, Case 2
Capacity Annual Generation
District Land (km2) Capacity (MW)
Factor (%) (GWh)
Berea 111 16 35.3% 49
Leribe 145 21 35.0% 64
Maseru 157 22 34.7% 67
Mokhotlong 17 2 36.3% 6
Quthing 17 2 35.2% 6
Butha-Buthe 23 3 35.2% 9
Mafeteng 248 35 35.1% 108
Mohale’s Hoek 100 14 34.8% 43
Thaba-Tseka 18 3 36.0% 9
Total 836 118 362
Note: A conservative estimate of technical potential for solar park development (50 percent of
available land post exclusions) is shown here to take into account Lesotho’s agricultural land
use needs.
The technical resource assessment also identified six potential project sites
(highlighted in green markers) for utility-scale solar PV project development in
Lesotho. These sites met the exclusion criteria: areas with high levels of solar
insolation and in proximity to the transmission network. Capacity factors were
29
calculated for these locations based on standard system design parameters and solar
resource data obtained for these locations. Table 4.4 lists the potential projects, their
locations, proposed capacity, and estimated annual electricity production.
Table 4.4: Technical Potential of Proposed Solar Park Projects
Proposed Estimated Annual
Proposed
District Capacity Capacity Factor Production
Project
(MW) (%) (GWh)
Tsupane Gate Mafeteng 10 35.0 30.7
Mafetang – 2 Mafeteng 10 35.6 31.2
Makhalinyane Maseru 15 34.8 45.7
Lithabaneng Maseru 10 34.7 30.4
Matbang Berea 10 35.8 31.4
Maputsoe – 2 Leribe 10 35.0 30.7
Total 65 200.0
4.1.2 Utility-scale wind power
There are currently no wind farms operating in Lesotho but attempts have been made
by various developers to undertake wind measurements and conduct feasibility
studies at potential sites in Letseng, Semonkong, and Oxbow. The development that
has made the most progress is the 35 MW (42 x 850 kW) Letseng windfarm project.
The project, which was initially stalled over concerns of endangered Cape and Beard
Vulture species is now awaiting a power purchase agreement, land acquisition rights,
and equity investors. Table 4.5 summarizes the planned and proposed wind power
projects in Lesotho.
Table 4.5: Planned and Proposed Utility-Scale Wind Power Projects
Administrative
Project Name Resource Project Status Capacity (MW)
Division
Wind Park at
Mokhotlong Wind Planned 35.7
Letseng*
Wind Park at
Maseru Wind Proposed 15.0
Semonkong*
Wind Park at
Butha-Buthe Wind Proposed TBD
Oxbow**
* Source: Lesotho National Development Corporation
**Source: Wind farms Threaten Southern Africa’s Cliff Nesting Vultures
The technical potential of wind energy depends on wind speeds at certain altitudes
above ground level. Data on wind speeds were from the University of Denmark (DTU)
Global Wind Atlas, measuring mean wind speeds at heights of 50, 100 and 200 meters
above ground level. A set of geographical exclusions were applied to limit the technical
30
potential of wind energy to areas of practical and environmentally sound
development. There are substantial environmental risks associated with wind farms
such as the impact on local bird and bat populations. Design and deployment should
avoid the ridgetops of Lesotho. Exclusion areas included places that were further than
20 km from the nearest transmission line, wetlands, forests, National Forests, and
FEPAs.
Land slope was the final exclusion. It is possible to construct wind farms on slopes
between 8 and 15 percent, but there are additional challenges such as foundation
instability and difficulty delivering equipment. Two cases were developed to evaluate
the wind potential at two different slope levels: Case 1 excluded slopes greater than
15 percent and the more restrictive Case 2 excluded slopes greater than 8 percent.
Figure 4.2: displays the results of the resource assessment with applied exclusions. For
both cases the potential areas are concentrated towards the west of the country, in
the lowlands. These areas are close to urban centres, facilitating transmission.
Figure 4.2: Wind Resource Maps
Case 1 Case 2
31
Table 4.6 shows the buildable capacity of wind farms by capacity factor. Most of the
buildable wind capacity—82 percent—has capacity factors that range between 25-30
percent.
Table 4.6: Buildable Capacity of Wind Farms by Capacity Factor
Capacity Area Average Net Buildable Percentage of
MW
Factor Range (Sq. Km) Capacity Factor MW* Buildable capacity
25% – 27.5% 718 1795 26.3% 898 43%
27.5% – 30% 638 1594 28.6% 797 38%
30% – 35% 259 648 31.6% 324 16%
35% - 45% 46 115 36.9% 58 3%
Total 1,661 4,152 28.3% 2,077 100%
Note: *Buildable MW assumes 50% of available land coverage
The technical evaluation further identified six potential sites for wind projects. These
projects met the more stringent Case 2 criteria (8 percent slope) and are listed below
in Table 4.7:. Feasibility studies need to be conducted to determine the buildable
capacity for each site.
Table 4.7: Potential Wind Farm Projects
Name District Capacity Factor (%)
Bokong Thaba-Tseka 37.9
Hlakametsa Butha-Buthe 34.0
Mokhotlong Mokhotlong 39.1
Nyane Thaba-Tseka 38.6
Poqa Mohale’s Hoek 40.5
Thabana Morena Mafeteng 39.5
Note: Capacity factors were calculated using mean wind speeds from the DTU Global Wind Atlas and
from power curves for the IEC class turbine. A 20 percent reduction from gross production
was assumed (amount accounts for losses from turbine availability, utility downtime,
electrical efficiency, blade degradation, extreme weather, power curve performance and
wake loss.) Actual losses will vary by location.
4.1.3 Small hydropower (<10 MW)58
There is substantial potential for small hydropower development in Lesotho; the
estimated generation capacity from unexploited hydro resources is about 361 MW.59
Technical assessments for small hydro were conducted as part of the Power
Generation Master Plan in 2009. The Master Plan proposes 11 SHPP with a total
58 Potential sites only included generation under 10 MW of capacity because large-scale hydropower projects are
currently being considered under phase II of the LHWP.
59 SSI: a DHV Company, “Lesotho Power Generation Master Plan: Final Milestones Report” Volume 1, Part 1.1:
Hydro Power Generation Option, Project LEC/GEN/1-2009. (2009)
32
combined capacity of nearly 88 MW.60 Table 4.8 provides a summary of the proposed
hydropower sites.
Table 4.8: Potential Small Hydropower Plant Sites Proposed in the Hydrogeneration
Master Plan
Expected Annual
Potential Capacity
Site Name of the River Generation
(MW)
(GWh)
Hlotse HPP61 Hlotse 6.5 39.7
Phuthiatsana HPP Phuthiatsana 5.4 18.87
Khubelu HPP Khubelu 14.6 64.26
Polihalie HPP Mokhotlong 19.3 83.89
Tsoelike HPP Tsoelike 17.7 69.86
Makhaleng 1 HPP Makhaleng 2 15
Makhaleng 2 HPP Makhaleng 1.4 6.15
Makhaleng 3 HPP Makhaleng 8.9 39.4
Makhaleng 4 HPP Makhaleng 9.1 58.3
Quthing 1 HPP Quthing 0.63 2.31
Quthing 2 HPP Quthing 2.4 9.61
Total 87.93 407.35
Source: SSI: a DHV Company, “Lesotho Power Generation Master Plan: Final Milestones Report”
Volume 1, Part 1.1: Hydro Power Generation Option, Project LEC/GEN/1-2009. (2009)
The technical potential of each proposed site was re-evaluated for the IP. In addition,
non-operational SHPPs (described in Section 3.2) were also included in the analysis
because they can be rehabilitated. The exclusion criteria for the technical analysis
included urban areas; proximity to wetlands, protected areas, and FEPA areas; and
areas within 20 km of the nearest transmission line. Potential sites that are greater
than 10 MW were also excluded because medium and large hydropower projects are
currently being considered under phase II of the LHWP. Figure 4.3 displays the results
of the technical assessment after the exclusions were applied. Four of the original 11
sites proposed in the Master Plan and two existing but non-operational SHPPs,
Tsoelike and Tlokoeng met eligibility criteria. In addition, the analysis revealed one
previously unidentified site.
60 SSI: a DHV Company, “Lesotho Power Generation Master Plan: Final Milestones Report” Volume 1, Part 1.1:
Hydro Power Generation Option, Project LEC/GEN/1-2009. Table 1. (2009) [ibid.]
Table 1 of the report in fact lists 12 hydropower plants, but the Quthing-3 Pumped Storage Plant was omitted from
consideration since its potential capacity was rates at 1.8GW and so does not count as a small hydropower plant.
61 HPP refers to hydropower plant
33
Figure 4.3: Proposed Small Hydropower Plant Locations
BV Proposed site
Proposed/ Operational site
Non-operational site
The total capacity of the technically feasible sites is 69.8 MW. Table 4.9: summarizes
each site’s installed capacity, annual generation, and estimated capacity factors.
34
Table 4.9: Summary of Potential Small Hydropower Sites
Installed Capacity Annual
District River Name Type Capacity Factor Generation
(MW) (%) (GWh)
Leribe Hlotse Hlotse R 6.5 70 39.7
Maseru Phuthiatsana Phuthiatsana R 5.4 40 18.9
Maseru Makhaleng Makhaleng-3 ROR 8.9 51 39.4
Maseru Makhaleng Makhaleng-4 R 9.1 73 58.3
Thaba-Tseka Malibamat’so Thaba-Tseka R 4.5 76 30.0
Qacha’s Nek Senqu Tsoelike* ROR 0.40 103 3.61
Total 34.8 189.91
Note: R = reservoir and ROR = run-of-river
Data in the Power Generation Master Plan did not include specific data that shows monthly or
quarterly water flows; as such generation capacity and generation of proposed plans are
only indicative.
Source: SSI: a DHV Company, “Lesotho Power Generation Master Plan: Final Milestones Report”
Volume 1, Part 1.1: Hydro Power Generation Option, Project LEC/GEN/1-2009. (2009) and
Black and Veatch.
4.1.4 Bioenergy
There are currently no existing utility-scale biomass or biogas power generation
facilities in Lesotho, but there is some interest among Government and private sector
stakeholders in developing future projects to reap the benefits of improved urban
waste management, increased power generation capacity, and domestic fuel (liquid
and gas) production. Waste-to-energy plants also have very high capacity factors (70-
95 percent) and can be dispatched, a benefit for a net importer that relies on non-
dispatched hydro generation like Lesotho.
Projects have not been realized for several reasons. As described in Section 3.4.3,
biomass stock in Lesotho has steadily been declining since 1999. There is no central
waste collection or segregation—about 50 percent of waste generated in is not
segregated and seeps into waterways—and more importantly, the mass collection of
biomass for electricity production is often difficult and cost prohibitive. However, a
private developer from the United Kingdom has conducted a feasibility study to
determine the viability of developing waste-to-energy facilities in urban areas. The
proposed waste-to-energy facilities would produce refuse derived fuel by breaking
down waste into medium calorific gas or “syngas” in a fluidized bed gasifier. The
syngas, which is ideal for producing electrical energy, is then combusted in an internal
combustion engine to produce electricity. Figure 4.4 illustrates the production cycle.
35
Figure 4.4: Production Cycle for Proposed Waste-to-Energy Facilities
Source: Prime Enviro Energy, “Waste-to-Energy in the Kingdom of Lesotho: Project Outline/Executive
Summary”, 2013.
The feasibility study excluded areas that were close to 33 kV distribution lines and
settlement areas with a population of less than 100,000 and no sizable industrial
waste, narrowing down potential areas for waste-to-energy facility development to
urban centres in four districts: Maseru, Leribe (only includes Hlotse, Mapotsoe, and
rural areas), Butha-Buthe, and Mafeteng
The study assessed the resource potential for bioenergy in the four districts by
analysing each district’s waste characteristics and determining the potential fuel and
syngas that can be derived from the waste segregation. Waste characteristics of
Maseru City were extrapolated from a baseline assessment for waste management in
Maseru City conducted by the United Nations Environment Programme (UNEP).6263 For
urban areas in other districts the quantity and characterisation of waste was
determined by adjusting data from the UNEP study to local economic and
demographic conditions, conducting site visits, interviewing stakeholders, and
analysing dumpsite waste samples. Table 4.10 shows the results of the resource
potential.
Table 4.10: Summary of Waste Resource Potential in Four Districts
Dry Waste Potential Waste energetic Energy
Districts
(ton/ year) Potential (kWt) Potential (kW)1
62 UNEP, “Baseline Assessment of Waste Management in Maseru City”, 2006.
63 The baseline assessment used a quantitative and consultative approach, which included detailed questionnaires
for residential, commercial, administrative, and industrial, segments of the population on the volume and
characteristic of waste produced; and field measurements of the weight of waste produced to verify survey data;
and interviews with various government stakeholders, drivers of cleaning vehicles, and street cleaners.
36
Maseru 70,916 35,992 9,988
Butha-Buthe 9,368 7,290 1,786
Leribe 7,480 5,542 1,358
Mafeteng 19,135 14,589 3,574
Total 106,899 64,413 9,216
Note: 1 Includes electricity, liquid and gaseous fuels that will be produced.
Source: Prime Enviro Energy, “Waste-to-Energy in the Kingdom of Lesotho: Project Outline/Executive
Summary”, 2013.
The logistics of collection and separation of waste will determine whether the
resources can be tapped for electricity generation. While these four districts show the
potential to have sufficient waste resources for generation, the technical viability of
some of the sites is still unclear. Developing efficient and reliable waste collection may
be more difficult to achieve outside of the less densely populated areas outside of
Maseru. Additional and up-to-date analysis of waste production and the logistics of
waste collection and segregation should be conducted to further validate the technical
potential for waste-to-energy facilities in Butha-Buthe, Leribe, and Mafeteng.
However, given the population density and potential to more efficiently collect waste
in Maseru the 9.98MW waste-to-energy facility in Maseru City is considered
technically viable.
4.2 Potential for Off-Grid Renewable Energy Technologies
As described in Section 2, 73 percent of the population in Lesotho lives in rural areas,
of which 22.9 percent have access to electricity. Most rural households rely on lower
quality fuels for their energy needs such as biomass for heating and cooking, and
paraffin for lighting. In addition, Lesotho’s challenging topography means that grid
extension is costly and often unfeasible. Off-grid RE solutions provide solutions to the
rural population’s energy needs. The sub-sections below discuss existing penetration
and technical potential off-grid RE technologies. Section 4.2.1 describes microgrid
solutions, section 4.2.2 describes SHS, and section 4.2.3 describes distributed RE
technology solutions.
4.2.1 Microgrids64
Government and non-governmental organizations (NGO) have implemented several
microgrid projects in Lesotho. The GoL implemented two microgrids – one micro diesel
and one micro-hydro – pilots as part of the World Bank Utilities Sector Reform Project
(2007).
The use of microgrids is likely to increase in the coming years. The United Nations
Development Programme (UNDP) and European Delegation (EU) have recently
allocated funding for microgrid pilots in rural villages around the country. The UNDP
will conduct pre-feasibility studies in 20 pre-identified villages to determine the
64 The terms micro- and mini-grid are sometimes used interchangeably and other times used to refer to the varying
sizes in isolated systems. For this IP, we use the term microgrid to refer to an isolated grid with less than 10 kW
system capacity.
37
appropriate microgrid technology for implementation. The EU will call for proposals
to pilot two microgrid projects in rural areas with substantial economic growth
potential. There is also some private sector interest in developing small hybrid PV
microgrids to serve rural populations outside of the LEC service areas. Microgrids are
often considered in areas where grid extension is not viable or cost prohibitive. They
are also used to strengthen centralized grid systems because they operate
autonomously.
Small PV microgrid
There are currently no solar PV microgrids in Lesotho, but there is substantial private
sector and development partner interest in developing them.
Solar PV microgrids, depending on their size and the types of populations they serve,
are considered viable in areas that are of a certain population density. The technical
potential for 5 kW (type A) and 8 kW (type B) microgrids were assessed. The type A
microgrid is viable when 15 households (with an average of four members) live within
one square kilometer of each other. Type B microgrids are viable when 25 households
(100 persons) live within one square kilometer of each other.65 Areas with sufficient
population density were derived from GIS data provided by the Centre for
International Earth Science Information Network. It was assumed that areas with
more than 60 persons living in one square kilometer could be served by a type A
microgrid while areas with more than 100 persons in a square kilometer were
assumed to be served by a type B microgrid. In addition, several of the same exclusion
criteria used to estimate the potential for other RE technologies were applied. They
include areas close to wetlands, protected areas, FEPA areas; and districts outside of
the highlands. Table 4.11 shows the technical potential for solar PV microgrids by
district.
65 Population density thresholds were determined based on OnePower and B&V experience. Two microgrid types
presented cover a range of economic activity.
38
Table 4.11: Technical Potential for Microgrids
Number of PV capacity Battery energy
District Microgrid type
Microgrids (kW) (kWh)
Type A1 1,546 7,730 29,374
Mohale’s Hoek
Type B2 387 3,096 12,384
ype A 14 70 266
Mokhotlong
Type B - 0 0
Type A 588 2940 11,172
Qacha’s Nek
Type B - 0 0
Type A 1,236 6,180 23,484
Quthing
Type B 376 3,008 12,032
Type A 1,530 7,650 29,070
Thaba-Tseka
Type B - 0 0
TOTAL Type A 4,914 24,570 93,366
Type B 763 6,104 24,416
Note: 1Type A microgrids are sized to serve 15 households (60 persons), with an annual load of
14MWh. A PV size of 5kW and battery size of 19kWh is assumed. 2Type B microgrids are
sized to serve 25 households (100 persons) with an annual load of 23 MWh. A PV size of 8kW
and batter size of 32kWh is assumed. An average 2.5kWh/day load per household is
assumed.
A private developer has identified 25 specific sites for solar PV hybrid microgrids
ranging in size from 8-109 kW that will provide continuous service to rural
communities. The developer is currently working with the GoL and UNDP to introduce
pilot microgrids at some of the sites.
Floating micro-hydro
A floating micro-hydro system is an alternative to solar microgrids. An advantage of
floating micro-hydro systems is ease of deployment. The system involves a blade
turbine mounted on a prefabricated platform or pontoon that floats in the middle of
a river that only requires a minimum current velocity of 2 m/s and a minimum water
depth of 1 m for operation. When two units are on one platform, there must be at
least 0.5 m space between units (measured from blade to blade). These systems are
approximately 100 kW in size, but several can be strung together. They are best
located near communities or where there is load. To date, there are no off-grid micro-
hydro systems in Lesotho. Figure 4.5 displays deployed floating micro-hydro systems.
39
Figure 4.5: Floating Micro-Hydro Systems
Source: B&V
The resource assessment for floating micro-hydro was based on the Lesotho Hydro
Master Plan’s historical river flow estimates. Exclusion criteria (like those of solar
microgrids) were applied to determine practical areas for deployment of floating
micro-hydro; excluded areas include wetlands, protected areas (existing and proposed
National Forests), and FEPAs. Locations should also be close to small and medium-
sized settlements where the energy generated could be consumed. Figure 4.6 below
shows the locations of five proposed floating micro-hydro projects. Table 4.12
summarizes the technical potential at these sites.
Figure 4.6: Proposed Locations for Floating Micro-Hydro Projects
BV Proposed site
Table 4.12: Technical Potential of Proposed Floating Micro-Hydro Projects
Site River Capacity (MW) Annual Generation (GWh)
40
Malibamatso Malibamatso 0.1 0.35
Makhaleng Makhaleng 0.1 0.35
Senqu 1 Senqu 0.1 0.35
Senqu 2 Sengu 0.1 0.35
Senqunyane Senqunyane 0.1 0.35
Total 0.5 1.75
4.2.2 Solar home systems
A SHS is an off-grid system consisting of a combined solar panel and battery unit that
provides a small amount of electricity that can power basic appliances such as lights,
radios, and fans; it can be an electrification option for households living in areas where
a microgrid is not viable. About one percent of rural households in Lesotho currently
use SHS, with a total installed capacity of 61.6 kW.
The GoL has some experience introducing SHS to the Basotho.
The GoL with assistance from the UNDP and GEF, began in 2007 to promote the use
of RE for basic household energy requirements like lighting, radios, and cellphone
charging through the Lesotho Renewable Energy-Base Rural Electrification Project
(LREBRE). The project installed 1,537 SHS in Mokhotlong, Thaba-Tseka, and Qacha’s
Nek Districts over five years. Each SHS installation had a 70 or 75 W PV system with a
300 W DC/AC inverter. The terminal evaluation of the program noted that quality
control of installations was low. At the time of the evaluation in 2013, it was estimated
that half of the systems installed are no longer functioning or are providing low quality
service because of a project design change, which did not take into account increased
current from switching from alternating current lights to direct current lights that
quickly degraded existing electrical wires. During the preparation of the IP, the DoE
reported that none of the systems are still functioning because batteries have not
been replaced.
The technical potential for further SHS deployment was determined using the same
method used for solar microgrids. SHS deployment was assumed for areas with less
than 40 people (10 households) living in one square kilometer. Population density was
derived from GIS data provided by the Centre for International Earth Science
Information Network. In addition, several of the same exclusion criteria used to
estimate the potential for to other RE technologies were applied. They include areas
close to wetlands, protected areas, and FEPA areas. Finally, existing SHS deployed as
part of the LREBRE program was subtracted from the gross technical potential to avoid
double counting. Table 4.13 shows the technical potential for SHS in Lesotho.
41
Table 4.13: Technical Potential for SHS
Net Technical
Total technical Potential
Agro- No. of potential (subtracting
installed systems) Generation
ecological District SHS
(kWh)
zone systems PV Energy PV Energy
Capacity Stored Capacity Stored
(kW) (kWh) (kW) (kWh)
Lowland Berea 19 1.235 23 1.2 22.8 2,605
Butha-
Lowland 1,573 102.245 1,888 102.2 1,887.6 215,676
Buthe
Lowland Leribe 1,347 87.555 1,616 87.6 1,616.4 184,689
Mafete
Lowland 77 5.005 92 5.0 92.4 10,558
ng
Lowland Maseru 2,727 177.255 3,272 177.3 3,272.4 373,903
Mohale
Highland 2,770 180.05 3,324 180.1 3324 379,799
's Hoek
Mokhot
Highland 5,483 356.395 6,580
long
Qacha's
Highland 2,229 144.885 2,675 726.4 13,410 1,532,221
Nek
Thaba-
Highland 5,000 325 6,000
Tseka
Highland Quthing 2,395 155.675 2,874 155.7 2874 328,M&E2
Grand
23,620 1,535.3 28,344 1,177.8 26,499.6 3,027,834
Total
Note: 1,537 Systems installed in Mokhotlong, Thaba-Tseka and Qacha's Nek with UNDP/GEF-
supported LREBRE Project. Data not available by district.
4.2.3 Other distributed RE technologies
Microgrids and SHS are potential solutions for working towards universal access to
electricity. For both technical and financial reasons, however, these technologies may
not be realistic solutions for providing improved energy access to everyone. Other RE
technologies could still be used to provide households and rural villages with the
benefits of modern energy. The distributed RE technologies described below can
replace or increase the efficiency of existing fossil fuel-based technologies. Others
provide a service that would typically be delivered using a fossil fuel-based system.
The sub-sections below describe several micro-solar technologies including SHSs, solar
water pumps, solar water heating, solar irrigation, solar street lights; and clean cook
stoves.
42
Solar water pumps
Solar water pumps use solar PV to power pumps to deliver drinking water. Systems
are often sized to supply small communities with a consistently accessible water
source. The solar PV system is tied to an underground pump that draws water up from
an identified underground source into a storage tank. The storage tank may then be
tapped into, as needed, by community members seeking water. In Lesotho, solar
water pumps are also used to provide reticulation from springs.
The Rural Water Supply Department in Lesotho is systematically retrofitting diesel
pumps in all its service areas and making substantial progress. As of 2017, 80 percent
of rural water supply systems identified under the program have been retrofitted.
Solar arrays for the water pumps vary from 300 W to 1.5 kW, and can serve hydraulic
load ranging from 300 to 1,100 m3/day. Discussions with the Rural Water Supply
Department revealed that there were more supply systems that can be retrofitted but
government funding for the program varies from year to year slowing the program’s
expansion. Figure 4.7 shows the progress of rural water supply solar water pump
retrofits by district.
Figure 4.7: Progress in Rural Water Supply Solar Water Pump Retrofits, 2017
Source: Department of Rural Water Supply, Ministry of Water.
Solar water pumps can also support efforts to expand improved water access in the
rural areas of Lesotho. In 2014, about 303 thousand of the rural population in Lesotho
did not have access to an improved water source. Assuming an average pump capacity
of two horsepower that is powered by 1.8kWp PV panels, and a basic needs demand
for water of 30 liters person per day, about 148.99kW of pump capacity will generate
364.9MWh and result in universal access to improved water sources for all rural
Basotho.66
66 Number of pumps and capacity are rough estimates. Water depth and terrain will differ by site and impacting
pump and PV panel specifications required for each system.
43
Solar water heating
There are several methods to heat water using solar power, but all involve obtaining
clean heated water using thermal energy converted from solar energy obtained from
solar collectors. Collector fluid is heated by the solar collector and run through an
exchanger which transfers heat between fluid sources. The incoming cold water
supply is heated and the collector fluid returns to the solar collector for additional
heating. Lesotho’s Energy Policy 2015-2025 recommends replacing all electric geysers
with solar water heaters in the commercial and residential sectors. It also requires that
all new public buildings requiring hot water will need to install solar water heaters.
The Southern African Solar Thermal Training and Demonstration Initiative (SOLTRAIN)
installed 200 solar thermal water heating systems throughout Southern Africa
between 2009 and 2015, including ten systems in Lesotho. The Initiative has been
extended for a second phase that includes a target of an additional 20 installations in
Lesotho. Table 4.14 provides information on existing solar water heating projects in
Lesotho.
Table 4.14: Existing Solar Water Heating Projects in Lesotho
Water
Collector Collector
Collector Storage
Location Year Area Power Circulation
type Capacity
(m2) (kW)
(L)
Mt. Moorosi
BBCDC67 Training 2014 Flat plate 7.05 4.9 500 Pumped
System 1
Mt. Moorosi BBCDC Evacuate
2014 3.70 2.5 200 Thermosyphon
Training System 2 d tube
Ha Ramabanta,
Maseru: Nazareth 2015 Flat plate 5.55 3.9 300 Pumped
Health Centre
Mohlakeng,
Mohale’s Hoek: St.
2014 Flat plate 9.92 6.9 800 Thermosyphon
Camillus
Orphanage*
Roma: St. Joseph
2015 Flat plate 14.1 9.8 1,000 Pumped
Hospital
Note: * Four systems were installed at this location.
Source: SOLTRAIN
Solar irrigation
Solar irrigation uses electric pumps powered by solar technology to deliver water to
croplands. As part of the LREBRE project, one solar PV water pumping project in
67 Bethel Business and Community Development Centre
44
Mokhotlong at Matsoaing village was built. The project was successfully implemented
and helped increase crop yields.68
There are 2.28 million hectares (ha) of agricultural land in Lesotho; as of 2014 about
0.05 percent of this land or 1,200 ha was irrigated.69 The GoL in Vision 2020 has set a
goal to increase irrigation to 20,000 ha by 2020. Assuming 5 kWp70 solar irrigation
pumps are used to achieve the 2020 goal there is the potential for 7,500 solar
irrigation systems or 37.5 MW of solar irrigation capacity.
Solar street lights
Solar street lighting uses a solar PV module to accumulate power in a digitally
controlled battery. The power is discharged at night to power efficient light-emitting
diode (LED) light sources. Such systems can also be used as public charging stations
for small electronic devices. Solar LED street lights can last up to 15 years (60,000
working hours), three times longer than conventional lighting technologies. Solar
street lights are available from 10 W to 100 W in different capacities; batteries
typically come with a five-year warranty. A 50 W LED street light would have 160 W
solar panels, and 820 W battery pack, PVM charging, and dimming and day/night
timing sensors. Figure 4.8 shows a solar street light installed at Lesotho Agricultural
College.
The available data on solar street lighting was limited to Maseru. As of March 2017,
the Municipal City Council of Maseru has installed 21 solar street lights in Maseru
along Hilton and Orpen roads. There remains 707 conventional street lights in Maseru
City that could be replaced with solar lights, representing a potential to install 133
kWp in solar that would produce approximately 129 MWh annually71. Additional
opportunities exist for solar street lights to replace conventional street lights in other
towns or to bring street lighting to areas where it does not yet exist, but information
was not sufficient to provide an estimate of this potential.
Figure 4.8: Solar Street Light, Lesotho Agricultural College
Source: Sunfor Technologies
68 Draft Terminal Evaluation Report of the Lesotho Renewable Energy-Based Rural Electrification Project, 2013.
69 World Bank Development Indicators.
70 A horsepower system is typically appropriate for irrigation of 2 ha (GiZ. “Frequently asked questions on Solar
Irrigation Pumps”). Therefore, we assume a 5 kW pump can be used to irrigate approximately 2.5 ha.
71 Assumes that a 50 W lamp produces light for 10 hours a day.
45
Clean cook stoves
Cook stoves that use biomass, such as fuel wood, are the primary source of thermal
energy used throughout Lesotho. Current cook stove technology consumes almost 90
percent of biomass fuels, including shrubs, firewood, crop residue, and animal waste.
Improved cook stoves are up to 50 percent more efficient compared to traditional
stoves and provide health benefits by reducing the amount of emissions in the home.
Approximately 4,560 African Clean Energy (ACE) and 10,000 Solar Lights cook stoves
have been sold in Lesotho; the estimated total available market is about 353,000
households.72 The GoL through its research and development centre, Appropriate
Technologies Services (ATS), is also developing affordable efficient cook stoves that
have a dual function for space heating. ATS is also trying to develop other energy
efficient household technologies including solar fruit and vegetable driers, commercial
scale solar box cookers, and solar hot water collectors.
Solar clean cook stoves have also been tested in Lesotho. A study conducted by the
Program for Biomass Energy Conservation asked households to test various types of
solar cookers to determine the acceptance level of these technologies, including large
parabolic solar cookers, small parabolic solar cookers, and solar box cookers. The
study found that most users wanted to own a solar parabolic cooker because of the
time and energy saved from not having to gather firewood for cooking.73 It is estimated
that over 900,000 metric tons of common biomass could be saved annually in Lesotho
with full conversion to clean cook stoves.
4.3 Availability of Financing for Renewable Energy Projects and
Technologies in Lesotho
The commercial banking sector in Lesotho is small and access to credit is considered
the greatest challenge to doing business.74 Private credit, which has increased in recent
years, has been attributed to growth in personal loans and mortgages, while credit for
the private sector has remained stagnant at around 15 percent of GDP since 2010.75
There are no commercial financing facilities specifically for RE projects. Existing
projects are mostly financed by development partners. The sub-sections below
describe RE projects and technologies that are being financed by development
partners and Government, as well as private sector RE activities.
4.3.1 Role of private sector and NGOs in financing RE
In the absence of commercial financing from banks in Lesotho, the private sector relies
on grants and vendor innovation for ways to deliver RE technologies to the Basotho.
Private sector and NGO activity in the RE sphere is mostly limited to seven players that
focus their efforts on distributed RE technologies such as efficient cook stoves, SHS,
and bio-digesters. There are also some private companies with interest in becoming
independent power producers. Table 4.15 summaries the key private sector players in
Lesotho’s RE sector.
72 African Clean Energy Survey (Lesotho); Berkley Air ACE Study Cambodia, 2015; GEF SGP Project Proposal –
Improved Stoves, 2012.
73 ProBEC, Final Assessment of Cooker Testing in Lesotho.
74 International Monetary Fund, “IMF Country Report,” 2016.
75 International Monetary Fund, “IMF Country Report,” 2016.
46
Table 4.15: Summary of Key Private Sector and NGO Entities in RE
Type of Financing and Delivery
Business Name RE Technology
Entity Mechanism
Efficient cook
stoves with
battery of up to
Private African Clean 150kWh charge, Microfinance loans
RE vendor
sector Energy 5W PV panel, through Kiva
LED light, and
USB charging
port
Efficient cook 12-month payment
stoves with heat plan; carbon credit
Private
RE vendor Solar Lights retaining bag, scheme which
sector
three pots and subsidies cost of
lids product
Solar geysers,
Private Venus Dawn No information
RE vendor solar PV, solar
sector Technologies available
street lights
Price include
Private The Solar Solar PV, Solar
RE vendor installation and 2 years
sector Company thermal
maintenance
Two-part payment plan
Technologies
Biomass (40 percent down
NGO Re vendor for Economic
digesters payment, 60 percent
Development
upon installation)
Monsun Clean Solar PV, Solar
Private RE
Energy SHS, SWH, Upfront payment
sector vendor/IPP76
Technologies Utility-scale solar
Power purchase
agreement (post-pay
for utility-scale
Solar Microgrids, projects)/
Private One Power
IPP Utility-Scale Pay-as-you-go and
sector Africa
Solar payment plan for
connection (pre-
payment for
microgrids)
Bethel
Business &
50 % grant, remaining
Community
NGO RE Vendor SWH portion paid by
Development
consumer
Centre/
SOLTRAIN
47
Absent support from Government or MDBs the availability of financing is vendor-
specific. As shown in Table 4.15, some vendors require upfront payments for the RE
technology while others offer financing mechanisms to enable poorer households to
finance their purchases. ACE, an RE vendor that manufactures and distributes clean
cook stoves in Lesotho, works with Kiva, an international microfinance NGO to provide
micro loans to rural households for the purchase of the stove(s). The loans are interest
free and spread out the cost of the cook stove (US$ 99) minus an upfront deposit over
9 months. Solar Lights, another RE vendor that assembles and distributes efficient
cook stoves and heat retaining containers in Lesotho, subsidizes the cost of investment
though a carbon credit agreement with Deutsche Post and offers its customers a 12-
month interest free payment plan to payback the reduced upfront cost of the stove
and heat retaining container.
There are no IPPs operating in Lesotho, but the GoL is in the process of procuring a 20
MW solar park. When the DoE has completed negotiations with its preferred bidder,
a PPA will be established to finance the construction and deployment of the solar park.
Development partner activities
There are four bilateral and multilateral development partners that currently provide
technical assistance and financing for RE projects in Lesotho. The indicative funding
envelope for these activities is M 773.6 million (US$ 58.1 million).77 Most of the funding
is dedicated to technical assistance to develop the RE enabling environment and pilot
off-grid RE solutions. Table 4.16 summarizes ongoing development partner projects.
76 IPP refers to independent power producer
77 Official exchange rate as published on the Lesotho central bank website: 1US$ = 13.3078 Maloti.
48
Table 4.16: Summary of Ongoing Development Partner Projects
Development Funding
Objective/
Partner Projects RE Sources (M
Description
Million)
Support to Climate Change Preparation of National Climate Change Policy & Strategy and National
Various 1178
Response Planning Strategy Sustainable Energy Strategy
▪ Preparation of sector plans, electrification Master Plan, capacity
development plans, and resource maps
EU ▪ Redefining mandates of institutions in the energy sector Microgrid,
Support to Reform in the Energy ▪ Establishment of pilot microgrid solutions in economically suitable distributed
105
Sector areas RE
▪ Pilot distribution of energy efficient household devices (clean cook technologies
stoves, SHS)
▪ Development of the Energy Law
▪ Development policies and strategies to promote private sector
investment in microgrids
▪ Development of SEA4ALL country agenda and investment prospectus
Development of Cornerstone Microgrid,
▪ Conduct national energy baseline survey
Public Policies and Institutional distributed
UNDP/GEF ▪ Harmonization of energy data with national energy policy and climate 300
Capacities to Accelerate SE4ALL RE
change strategy
Progress technologies
▪ Pilot 10 microgrids
▪ Pilot 10 energy centres (for distribution and demonstration of RE
technologies)
7878 Funding for EU projects are based on a 1€ = 15M exchange rate.
49
Development Funding
Objective/
Partner Projects RE Sources (M
Description
Million)
Implementation of Memorandum
of Understanding in the Field of
Government Solar, wind,
Climate Change Vulnerability, Risk Development of RE resource maps 6.9
of Italy hydro
Assessment, Adaptation and
Mitigation
Urban Distribution Rehabilitation
Rehabilitation and expansion of distribution and transmission network Solar, wind,
AfDB and Transmission Expansion 188
Preparation of energy resource map hydro
Project
50
4.4 Key Barriers to Scaling-Up Renewable Energy and Proposed
Mitigation Measures
Investments in RE can be a solution to Lesotho’s energy sector challenges—such as
energy security, energy access, and declining biomass stocks—and serve as a
cornerstone to improving economic and health prospects of the Basotho.
As described in Table 4.16 above, some RE projects are underway with development
partner and private sector support, but a substantial proportion of Lesotho’s RE
potential remains untapped. There are regulatory and institutional, technical,
financial, environmental, and social barriers that must be addressed to enable the
uptake of RE technologies. Table 4.17 summarizes the key barriers to scaling-up RE
and some proposed mitigation measures.
51
Table 4.17: Summary of Barriers to RE and Potential Mitigation Measures
Category Specific Barrier Potential Mitigation Measure
Regulatory and Incomplete legal and regulatory framework ▪ Prioritize the update and adoption of the
Institutional Lesotho Energy policy (2015-2025) and
First, while the Lesotho Energy Policy (2015-2025) provides a strategy for the
energy sector for the next decade, this strategy has not been legally enactment of an Energy Law that sets the
established creating uncertainty over the plan for the sector. Second, a draft policy into Law.
RE framework policy (what are we referring to?), legislation (I am not aware of ▪ Prioritize the adoption of the remaining pieces
this legislation), and regulations have has been developed with instruments for of LEWA’s draft RE Regulatory Framework.
procuring both off-grid and on-grid RE but many parts of the framework have This will done formally within the Energy Act
not yet been adopted creating an uncertain investment climate for RE to be put in place in 2018.
investors. Moreover, specific regulations for off-grid RE deployment need to be ▪ Develop separate regulations (technical,
developed. (section 3.1.2) process, and economic) for private sector
participation in off-grid electrification,
including clear provisions for areas that will
eventually be served by the main grid
▪ Establish clear RE targets
Overlapping institutional mandates of various energy sector entities ▪ Prioritize the adoption of proposed mandate
The institutional responsibilities of various energy sector entities such as the revisions by the EU
DoE, LEC, LEWA, and REU overlap resulting in an underdeveloped legal and ▪ Invest in capacity building for energy sector
regulatory framework, and slow implementation of projects in the energy entities to prioritize, develop, manage, and
sector. (section 3.1.1)79 implement energy sector projects
79 Draft findings of the EU EDF-11 Scoping Study noted that there is a lack of clarity on institutional mandates in the energy sector. For example: the mandate for on grid extension can be made
clearer as both the REU and LEC are conducting grid extension projects, with less resources being dedicated to off-grid electrification. The DoE’s mandate includes both policy development
and implementation. Best practice suggests that those two roles should be separate. Additionally, the energy regulator LEWA is also currently responsible for administering the UAF, a role
that is typically delegated to a policy development entity, which decides how the fund should be used, while the funds are managed by a finance entity. LEWA also set electricity connection
targets, another role that is typically delegated to a policy development entity.
52
Lack of technical standards for RE installations and appliances ▪ Develop RE technical standards for
Imported distributed RE technologies are often low quality construction, buildings, and appliances
Buildings do not meet any energy efficiency standards
▪ Technical/Capacity Inadequate baseline data and studies ▪ Support to prepare up-to-date and
Irregular, outdated, and incomplete statistical reports and surveys hinders comprehensive energy baseline studies
informed policy making ▪ Incorporate training for officials in data
collection and analysis (ongoing80)
Lack of centralized waste collection and segregation facilities Conduct a study to determine the feasibility of
waste collection and segregation services in the
Absence of waste collection and sorting facilities raises upfront costs for
districts
waste-to-energy plants
Need for training from the institution to end-user level ▪ Provide on-the-job training to government
Lack of experience and capacity within government limits their ability to officials to manage, coordinate, and
coordinate and implement RE projects. implement RE projects
▪ Expand RE technologies curriculum at the
Little domestic expertise to install and maintain RE technologies National University of Lesotho
Environmental Increasingly variable rainfall and risk of drought Invest in flood protection measures such as dam
Variable output from HPPs limits their financial viability monitoring equipment and spillways
Increased flooding and siltation impacts the operational performance of HPPs
Limited availability of suitable land for RE development Integrate RE technology with existing structures
Competing land resources such as agriculture, expanding settlements, and and promote small-scale RE development
protected areas limits development
Mountainous topography limits areas for RE development
80 The UNDP’s Development of Cornerstone Public Policies and Institutional Capacities to Accelerate SE4ALL Progress project is providing support to the GoL in this area.
53
Financial Limited access to financing and underdeveloped delivery mechanisms Formulate or leverage existing financing
mechanisms such as microfinance, and mobile
Low income and rural households have limited or no access to RE technologies
banking
and often cannot afford them
Difficulty for private sector to access RE financing ▪ Establish renewable energy funding schemes
Lack of access to credit limits the scaling-up of RE investments to incentivize investment
▪ Introduce economic incentives for utility-scale
RE development
High cost of distributing RE technologies Establish energy distribution centres and
microgrids in remote villages (proposed by EU
Challenging topography and underdeveloped transmission and transport
and UNDP)
infrastructure raises costs for distributing RE technologies
Social Lack of awareness and aversion to change Market the benefits of new-technologies through
awareness programs and mobile demonstrations
Lack of awareness about the health and cost benefits of RE technologies
among Basotho limits RE uptake
54
5 Financial and Economic Viability of Renewable Energy
Technologies
This section goes beyond the assessment on resource and technical capacity to provide
additional factors for consideration when determining a technology’s viability and
attractiveness for inclusion in Lesotho’s SREP IP. The next steps in screening potential RE
investments are to consider the economic and financial viability of the identified technical
capacity. Both economic and financial assessments use the levelized cost of energy (LCOE)
of the various on-grid and off-grid RE technologies to evaluate the viability of the
estimated production of each of those technologies. Appendix F provides an explanation
of how LCOEs are calculated and their general use in evaluating energy investments.
Section 5.1 summarizes the cost assumptions used in the LCOE calculations. Sections 5.2
and 5.3 present the assessments for economic and financial viability, respectively. Finally,
Section 5.4 discusses the costs and affordability for the distributed technologies where
LCOE calculations were not appropriate.
5.1 RE Technology Costs
The cost assumptions for calculating the LCOEs of each RE technology are based on a
combination of costs identified in project documents and where information was either
not available or determined to be inconsistent with current market prices we used
international costs adjusted for the country context.81 The cost of grid-connected RE
options are “all-in” costs meaning that they are inclusive of all project costs including grid-
connection.82 Assumptions used for grid-connected projects are presented in Table 5.1.
Table 5.1 Costs Assumptions for On-grid RE Technologies
Capital Fixed O&M Variable O&M Capacity Asset Life
cost cost cost factor (years)
(US$/k (US$/kWy) (US$/kWh) (%)
W)
Utility-Scale 20
1,620 16 0 35-36†
Solar Park
Wind Farm 2,500 32 0 25-40† 20
Reservoir HPP 4,200 175 0 40-100† 30
Run-of-River HPP 3,500 175 0 40-100† 30
81 International data was gathered from IRENA; SNL Energy; and UNEP’s Green Economy Report.
82 In addition to technology components the all-in costs include: land, civil engineering, DC cables, SCADA system, data
system, transmission line, and installation and design. The inclusion of these costs might make the capital costs used
in the IP appear to be relatively high compared to other CAPEX estimates that only include the technology specific
components.
55
Small HPP 30
2,800 175 0 50-100†
Rehab*
Waste-to-Energy 25
3,750 115 0.0243 70
Plant
Note: Variable O&M cost includes the cost of fuel; with the case of solar microgrids this is the cost of fuel
for backup generators. Fuel costs for waste-to-energy plants assume a heat factor of 18,000
BTU/kWh.
* Parameters for rehabilitation of the Tsoelike and Tlokoeng HPPs.
†
Capacity factor varies by location
The technologies included in the off-grid LCOE analysis were microgrids, SHS, solar water
pumps, and solar irrigation. As with on-grid options the cost assumptions for off-grid
technologies were identified from existing project documents and supplemented with
international cost data. Assumptions used for off-grid RE technologies are presented in
Table 5.2.
Table 5.2 Costs Assumptions for Off-grid RE Technologies
Technology Capital Cost Fixed O&M Variable O&M Capacity
(US$/kW) Cost Cost Factor
(US$/kWy) (US$/kWh) (%)
Solar Microgrid 5,500 (Type A)
50* 0.0020 31-33†
5,750 (Type B)
Floating HPP
6,405* 125 0 40
Microgrid
Solar Home Systems 14,600 324 0 24†
Solar Irrigation
2,600 175 0 35
Pumps
Note: Microgrid costs include representative cost of wires and meters needed to serve local customers.
* O&M costs for solar microgrids includes the cost of fuel for diesel back up.
†
Capacity factors for microgrids and SHS are based on end-user consumption, not generation potential.
5.2 Economic Viability Analysis
The goal of the economic viability analysis is to understand how the identified RE capacity
in Lesotho compares with its opportunity cost of generation. For this purpose, LCOEs of
the on-grid options are compared to the avoided cost of imported electricity and off-grid
RE options are compared to the avoided cost of off-grid diesel generation. The technology
costs—not including financing costs—are discounted over the lifetime of each option at
56
the social cost of capital (six percent).83 The economic analysis is meant to demonstrate
how competitive each RE option would be in Lesotho regardless of the cost of financing.
Supply curves are used to present the results of the LCOE calculations under the economic
viability scenario. A supply curve84 is the cumulative generation of the technically viable
identified RE options ranked from lowest to highest in accordance to the calculated
LCOEs. When reading the supply curves, technologies that have lower economic costs are
lower on the curve and any technology that falls below the opportunity cost of generation
(represented by the dashed line) are demonstrated to be economically viable. The
economic scenario supply curves for on-grid and off-grid are shown in Figure 5.1 and
Figure 5.2 below.
Figure 5.1: Economic Viability On-Grid RE
83 Because different technologies have different asset lives a discount rate is used to bring all costs to a net present
value so that there is a common point of comparison across technologies. Historically the social opportunity cost or
economic cost of capital has been set at standard 10-12 percent by most MDBs when evaluating projects in
developing countries. In recent years, notes at the World Bank (“Discounting Costs and Benefits in Economic Analysis
of World Bank Projects” Guidance note, 2016.) and United States Federal Reserve (Warusawitharana, Missaka. “The
Social Discount Rate in Developing Countries.” FEDs Notes. 9 October 2014) have questioned whether this standard
should be continued. The Guidance Note recommends that a base of six percent be used going forward and that a
sensitivity analysis be done to see the effects of increasing/decreasing the rate to ensure that projects are not being
eliminated/selected based on some arbitrary cut-off. When preparing the IP, a 10 percent social cost of capital was
tested. The most significant outcome when the 10-percent standard is that all grid-connected wind projects, even
the best resources, are no longer economically viable. This result, however, is not particularly interesting because
the overall ranking of the projects stayed relatively the same with solar PV still showing to be the most economic
option. Therefore, the six percent rate recommended in recent studies was used in development of the IP.
84 The supply curves and LCOEs presented in this IP are meant to be indicative of technology costs and not the actual
costs of project sites. Additional resource assessments and specific site surveys are needed to get precise estimates
for specific projects.
57
Note: Wind farm capacity factors are classed as Very High (>45%); High (35-45%); Medium (30-35%); and
Low (27.5-30%); the import price is the average import price LEWA approved for inclusion in
LEC’s 2016/2017 revenue requirement.
RoR SHPP: Run-of-River Small Hydropower Plant.
Figure 5.1 shows that most on-grid technologies are economically viable in Lesotho with
solar PV proving to be consistently among the cheapest options—only some wind and
small HPP projects with low capacity factors are not economically viable options. These
results should be expected given the high resource potential identified in Lesotho and a
relatively high cost of imports—average of US$0.10 /kWh in 2016/2017.
Off-grid economic viability results for all technologies are not as pronounced. The LCOEs
of microgrids powered by floating hydropower, solar water pumps, solar irrigation
pumps, and solar PV-battery microgrids all fall below the cost of off-grid diesel
generation. Conversely, all SHS are far above the cost of this economic viability threshold.
The results for both types of microgrids and water pumps are consistent with results seen
elsewhere in Africa and other developing countries where the high cost of transporting
diesel fuel to rural areas makes a strong economic case for RE powered services. SHS is
shown to not be economically viable when compared to the cost of off-grid diesel
generation.
While diesel generation may be an appropriate comparison for the services provided by
a microgrid or solar pump, diesel generation may not be the most representative
replacement for the basic energy services offered by SHS. The more appropriate
comparison is likely to be household expenditure on candles and kerosene. Rural
households are estimated to spend around US$24 per month on these items. 85 If the use
of SHS can completely replace these products the value of the energy provided by SHS
could be as much as US$ 2.25 per kWh86—well above the USc 77 per kWh LCOE for SHS
shown below.
85 Africa Clean Energy (ACE) survey of rural households prior to purchasing
86 This estimate assumes 0.35 kWh of energy use per day (or 10.5 kWh per month) from a 65w SHS. US$ 24 / 10.5 kWh
= US$ 2.25 per kWh.
58
Figure 5.2: Economic Viability Off-Grid RE
Note: 5kW microgrids are classified as Type A and 8 kW microgrids are classified as Type B. The cost of off-
grid diesel generation is calculated using the following assumptions: a capacity factor of 50%;
cost of diesel at US$ 1 per liter; a hear rate of 10,000 BTU per kWh; capital expenditure (CAPEX)
of US$ 800 per kW; and an asset life of 10 years.
SHS = Solar Home Systems
5.3 Financial Viability Analysis
The financial viability analysis seeks to identify the RE technologies that will be most
attractive to investors. The financial analysis LCOEs are calculated inclusive of financing
and again compared to the cost of imported electricity (on-grid) and diesel generation
(off-grid). As a first-level assessment commercial financing terms were used to evaluate
financial viability to demonstrate the potential for each technology to attract private
investment. An alternative scenario based on concessionary financing is also considered.
Terms for both scenarios are presented in Table 5.3.
Table 5.3: Financing Terms of Financial Viability Scenarios
Commercial Concessional
Debt/equity split (%) 70/30 100/0
Debt rate (%) 13* 3.3
Equity return (%) 20.00 0
Debt term (years) 7 (off-grid); 12 (on-grid) 20
* Prime interest rate in Lesotho as of December 2016 is 12.3 percent.
59
The supply curve results for financial viability under private sector financing of on-grid
and off-grid RE technologies are shown in Figure 5.3 and Figure 5.4 below. When reading
the figures, any investment at or below the viability threshold (represented by the dotted
line) are considered financially viable. The premise of “viability” here means the cost of
energy being produced is on par or cheaper than the cost of energy being replaced (i.e.,
imports or off-grid diesel generation).
Figure 5.3: Financial Viability (Commercial Financing) On-Grid
Figure 5.4: Financial Viability (Commercial Financing) Off-Grid
60
As evident in Figure 5.3 most of the on-grid generating potential is not currently financially
viable. These results are to be expected in a country where there is little to no experience
with many of these technologies on a utility-scale. The cost assumptions used are based
on the costs of a “first-mover” project that are likely to incur higher costs developing a
supply chain and building local capacity than similar projects in an established market.
Once the market for these technologies is established costs are anticipated to drop over
time and the financial viability would improve. For example, if the capital costs for wind
fall from the US$2,500 per kW assumed to US$2,000 per kW the LCOE of the highest
capacity wind projects achieve financial viability—dropping from US$0.13 /kWh to
US$0.10 /kWh under the same financing scenario. Increased experience and a more
supportive regulatory framework could also reduce the cost of financing. If the interest
rate and return on equity in the private financing scenario both drop by 300 basis points
(i.e. to 10 and 17 percent) the LCOE of the identified Thaba-Tseka HPP falls from US$ 0.14
/kWh to US$0.095 /kWh, and the plant becomes financially viable.
The results for off-grid financial viability also show that most technologies are not
currently financially viable. Microgrids, however, appear to be on the verge of being
competitive, but this is purely on a project cost basis. If, as Figure 5.4 shows, that
microgrids could be delivered at this cost already one would expect there to already be
an active market in Lesotho. The fact that there is not an active microgrid market shows
there is another factor barring investment. One hypothesis is that developers considering
or investigating a microgrid project may be finding it not financially viable once they
account for the greater risks of acting both a generator and service provider, often to less
affluent rural customers.
SREP funds could play a key role in improving the financial viability of RE technologies in
Lesotho. Concessional funds, such as those from SREP, are often used to the support
pioneer projects that will establish an RE market and help bring down both the technology
and financing costs for subsequent projects. SREP funds would bridge the gap between
the economic and financial viability scenarios to bring RE capacity online that will be
beneficial to Lesotho but may not currently be attractive to investors at market rates. To
emphasize this point, an additional financing viability scenario was run using concessional
debt terms (see Table 5.3 above) and provided in Figure 5.5 and Figure 5.6. The switch
from private financing terms to concessional financing makes all but a couple
options/projects financially viable.
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Figure 5.5: Financial Viability (Concessional Financing) On-Grid
Figure 5.6: Financial Viability (Concessional Financing) Off-Grid
5.4 Cost of Other Distributed RE Technologies
An LCOE is not the most appropriate measure to assess the cost viability of the remaining
technologies. Instead in this section we present a summary of the costs of the remaining
technologies and provide a basis for comparison where data was available.
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Solar street lights
The Maseru City Council estimates that it would cost M 300 million (US$ 23.56 million) to
both replace the existing 707 conventional street lights and meet additional street lighting
needs in the city district with solar street lights. Additional information is needed on the
exact number of street lights that would be installed under this plan. As a comparison,
the capital cost of one solar powered street light in South Africa ranged from US$ 1,440
to US$ 1,800.
Efficient cook stoves
A financial assessment of cook stoves can be conducted by comparing current household
energy expenses to the amount they could be spending with a clean cook stove – the cost
of cook stoves vary by vendor. In Lesotho, the private sector offers interest free financing
to households to purchase a clean cook stove. According to ACE – one example of a
private sector cook stove vendor – estimates, households spend on average M 324 on
energy each month. The cost of an ACE stove is US$ 99, or M 1330. An initial down
payment of M 250 is required for the stove while the remainder is collected in monthly
payments of M 120 over the course 9 months. Because the ACE stove comes with a small
solar PV panel, LED light, and charging outlet, Basotho households can substantially
reduce household expenditures on energy. Moreover, the payment plan helps rural
Basotho households that have cash flow problems afford the product.
Solar water heating
A solar water heating system (SWHS) consists of a solar water heating panel and an
adjoining water tank. Capital costs varies by size, type and source of the manufacturer
but are approximately US$ 2,000 per watt. Average lifetime of these systems is about 20
years, but typical manufacturer warranties are for 5 years. Additional information on
targets for SWHS and the systems available for sale in Lesotho are needed to better assess
the costs.
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6 Prioritization of Renewable Energy Technologies
Many of the technologies described in Sections 4 and 5 are important for Lesotho, but
some are better candidates for SREP support than others. This section prioritizes
technologies based on SREP criteria and criteria identified during the Inception Mission
and follow-up consultations with stakeholders and then provides recommendations.
Each technology was scored against the SREP and government criteria. A scoring scale of
one to five was used; one being the lowest score, and five being the highest. Table 6.1
defines and describes how the technologies were evaluated against the SREP selection
criteria. Table 6.2 defines and describes how selection criteria that are in line with the
GoL’s national goals were evaluated.
Table 6.1: SREP Criteria for Technology Prioritisaton
Criteria Description
Increased installed Technologies that increase installed generation (MW) of RE
capacity from RE sources sources are ranked higher. Technologies were ranked
based on the technical potential results presented in
section 4.1.
Increased access to Technologies that directly increase the number of Basotho
energy through RE with access to modern energy services are ranked higher.
Technologies with an indirect impact on access to modern
energy sources are ranked lower.
Low emissions Technologies that have the lowest carbon emissions when
development operating were ranked higher.
Increased affordability Technologies that increase the affordability of RE
and competitiveness of technologies and competitiveness of RE markets in Lesotho
RE sources are ranked higher. On-grid technologies with lower LCOEs
were ranked higher. Off-grid and distributed technologies
that are cheaper than diesel generators and the most
affordable for households were ranked higher.
Increase in the productive Technologies that contribute to increasing income levels
use of energy and productivity of the Basotho are ranked higher. On-grid
technologies that are likely to provide firm power during
peak demand hours were ranked higher. Off-grid and
distributed technologies that directly contribute to specific
productive purposes that result in increased income levels
were ranked higher.
Economic, social, and Technologies that result in positive economic, social, and
environmental environmental development impact are ranked higher.
development impact Technologies that result that collectively increase
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economic, social, and environmental abatement are
ranked higher.
Level of economic and Technologies that have a higher level of economic and
financial viability financial viability (lower LCOE) are ranked higher.
Technologies that are financially viable are ranked higher.
Technologies that require subsidies or highly concessional
financing are ranked lower.
Leverage Technologies that trigger additional projects, result in
investments from other donors or private sector, and
catalyze energy sector reforms are ranked higher.
Technologies with proven private sector and donor
interest, and a high number of potential investment
opportunities were ranked higher.
Gender Technologies that directly promote gender inclusiveness,
increase opportunities for women, and decrease the
domestic burden on women are ranked higher.
Co-benefits of RE scale-up Technologies that result in additional benefits in other
sectors are ranked higher; e.g., improved solid waste
management, or increase in agricultural productivity etc.
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Table 6.2: Government Criteria for Technology Prioritization
Criteria Description
Job creation Technologies that directly create jobs for the Basotho are
ranked higher than those that result in temporary
employment during construction.
Increases energy security Technologies that increase Lesotho’s energy security
(reduces imports, increases reliability of energy supplies)
are ranked higher. On-grid technologies are ranked by the
average resource capacity factor. Off-grid and distributed
technologies that provide higher quality and more reliable
energy to households are ranked higher.
Promotes private sector Technologies that directly support or catalyze private
involvement in energy sector participation in the energy sector are ranked higher.
sector On-grid technologies that have greater potential for a
demonstrative impact with SREP support are ranked
higher. Off-grid technologies that can be scaled-up with
SREP support are ranked higher.
Table 6.3 shows the ranks each technology by each criterion, and provides brief
explanations for why each technology received a particular ranking.
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Table 6.3: Evaluation of RE Technologies against SREP and GoL Criteria
On-Grid Off-Grid
Solar PV Wind Small HPP Waste-to-Energy Microgrids SHS Other solar Cookstoves
Criteria
SREP Criteria
Increased installed 4 5 3 2 3 1 2 1
capacity from RE Technical
potential in
Second highest 35 MW identified Depends on
Highest buildable Maseru but Highest buildable High potential of Technologies
buildable capacity, technology,
capacity (286 unclear if MW capacity for installed units, mostly provide
capacity (119 resource studies some include
MW) of on-grid possible in other off-grid, 31.5 but low in services, not
MW) of on-grid could identify built-in
technologies districts without MW capacity, 1.4 MW energy capacity
technologies more battery/solar PV
established
waste collection
Increased access to 2 2 2 2 5 4 1 4
energy through RE Indirectly Indirectly Indirectly Indirectly Technologies
Highest potential Technology
supports access, supports access, supports access, supports access, lower fuel
to directly Will directly provides other
new supply new supply new supply new supply requirements,
provide provide access to benefits, not
potentially potentially potentially potentially thus providing
electricity access households direct access to
enables more enables more enables more enables more easier access to
to households energy
connections connections connections connections energy
Low emissions 5 5 5 2 5 5 5 3
development Substantial
reduction in GHG
Lower emissions
output but not all
than fossil fuel-
improved
Zero GHG Zero GHG Zero GHG based Zero GHG Zero GHG Zero GHG
cookstove
emissions emissions emissions generation, but emissions emissions emissions
technologies
higher than other
eliminate
RE options
emissions
completely
RE affordability & 5 2 3 2 3 1 3 5
competitiveness Competitive with Only best Second lowest Higher cost than Competitive with Subsidies needed Solar pumps Investment pays
imported energy resources average cost of imports, subsidy diesel for affordability competitive with for itself within a
67
On-Grid Off-Grid
Solar PV Wind Small HPP Waste-to-Energy Microgrids SHS Other solar Cookstoves
Criteria
under both competive with grid-connected required to be generators, cost diesel pumps, few months from
financing imports under technologies, competitive might still be too other tech. offset fuel costs
scenarios private financing, requires small high for rural unclear
other sites subisdy to be customers
require subsidies competitive with
imports
Productive use of 3 2 4 5 5 2 4 2
energy Only for personal
Resource
use, indirectly
availability aligns HPPs that can Provides power Power used for
Resource may be increases
closely with provide firm that is only specific
at available at Provides reliable Provides reliable productivity by
demand of power offer sufficient for productive
peak, but not firm power for firm power for lowering time
commercial and more operation of purposes such as
reliable enough productive uses productive uses spent on
industrial opportunities for lights and small improved
for firm power collecting
customers that productive use appliances agricultural yields
biomass and
drive daily peak
keeping fire
Economic, social, & 3 3 3 4 4 4 5 5
environmental (+) off-grid (+) off-grid
development impact (+) better waste (+) Lower GHG
(+) Offset (+) Offset (+) Offset economic activity economic activity
management (-) (+) local jobs (+) (+) health
imports of coal imports of coal imports of coal (+) in-home (+) in-home
need to health & safety benefits (+) social
power (-) land power (-) gen. power (-) lighting (-) need lighting (-) need
safeguard against (+) improved benefits (+)
competes with Bird/wildlife potential water to properly to properly
waste water yields deforestation
agriculture concerns flow issues disopose of disopose of
disposal benefits
battery battery
Economic and 5 3 3 3 3 1 4 5
financial viability Viability is site Economically
Economically Economically Pumps are Economic and
Economically and specific, viable, and close Low viability
viable, financially viable, financially econ.+ financially financially viable
financially viable financially to financially compared to
viable with viable with viable; other if investment is
now viability requires viable compared diesel generator
subsidies subsidies tech. unclear financed
subsidies to off-grid diesel
Leverage 4 4 3 1 5 5 2 3
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On-Grid Off-Grid
Solar PV Wind Small HPP Waste-to-Energy Microgrids SHS Other solar Cookstoves
Criteria
GoL already
Existing resource Donors already
High number of funding water
Already private info. limited, funding projects Donors already Some private
potential Limited pumps and
sector interest, resource study and developers funding projects; activity and
projects; once investment streetlights,
many potential may attract have interest; many potential donors already
proven costs will opportunities unknown donor
projects private sector many potential projects funding projects
fall or private
and donors projects
interest
Gender 3 3 3 3 4 5 4 5
Potential job Potential job Potential job Potential job Mostly benefits Benefits
Safety benefits
creation and/or creation and/or creation and/or creation and/or households/wom households/wom Greatly reduces
from streetlights,
increased increased increased increased en by reducing en by reducing burden of fuel
improved access
economic activity economic activity economic activity economic activity burden of fuel burden of fuel collection/purcha
to water reduces
improve lives of improve lives of improve lives of improve lives of collection/purcha collection/purcha sing on women
collection times
women women women women sing sing
Co-Benefits 3 3 3 5 4 4 5 5
Enables
Waste collection increased
Tech. can Supports forest
Higher resource Higher resource establishes new economic activity Increased safety
improve access conservation
potential may potential may Less long-term job market, in off-grid to households,
to clean water, goals, improves
result in more result in more job potential improved waste villages, reduces extends study
crop yields, and household air
long-term jobs long-term jobs management dependence on hours of students
public safety quality
practices more costly
energy sources
Additional National Criteria
4 4 4 5 3 3 2 4
Multi-year Construction
Higher resource Higher resource Technologies
Job creation construction jobs, waste Supply chain, Domestic
potential may potential may Vendor and enable
jobs, less long- collection would vendor, and manufacturing
result in more result in more technician jobs improvements of
term job establish new job technician jobs and vendor jobs
long-term jobs long-term jobs existing jobs
potential market
3 2 4 5 5 5 1 3
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On-Grid Off-Grid
Solar PV Wind Small HPP Waste-to-Energy Microgrids SHS Other solar Cookstoves
Criteria
Reduces
Peak generation Peak generation Sufficient power imported fuel
Best sites can Can provide High quality Tech. not meant
Ensures energy around peak does not always to meet requirements,
provide reliable reliable base load reliable power in to displace or
security demand, but not align with household needs more if fuel
base load power power off-grid areas provide energy
reliable demand in off-grid areas produced
domestically
5 5 4 2 5 4 3 3
Demonstrative
Distribution
Promote private impact of utility- Several potential One private Innovative
Demonstrative Services offered centres and
sector involvement in scale pilot can opportunities, company Demonstrative financing
impact of utility- by technologies financing will
energy sector increase private resource interested, but impact of pilots mechanisms can
scale pilot can most likely best help the private
sector assessment could few other can increase PSP incentivize PSP in
increase PSP provided by GoL sector scale-up
participation attract more PSP opportunities the sector
their businesses
(PSP)
Source: Emoji icons courtesy of EmojiOne.
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Table 6.4 provides a ranking of the technologies based on the SREP and national
criteria. The top four scoring technologies are recommended for consideration for
SREP funding.
Table 6.4: Prioritization Results
Waste-
Microg Solar Cook Small to- Other
rids PV stoves HPP SHS Wind Energy solar
Score 54 49 48 44 44 43 41 41
Rank 1 2 3 4 4 5 6 6
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7 Program Description
The prioritization exercise in Section 6 identified two on-grid technologies (solar and
small hydro) and three off-grid technologies (microgrids, SHS, and improved
cookstoves) that best fit the GoL and SREP objectives for RE investments. At a meeting
held to discuss these results in May 2017, the members of The National Task Force87
agreed that this set of technologies has the most potential to contribute to the primary
challenges facing the energy sector: energy security and energy access. These results
are also consistent with feedback from the development partners, private sector
representatives, and other stakeholders consulted throughout this process (see
Appendix C for a list), many of whom emphasized that the sector challenges cannot
be overcome with a single resource or technology, but will require a mix of
technologies. Based on this feedback the GoL is proposing an SREP IP program that
aims to enable a scale-up in all five priority technologies.
Lesotho’s proposed SREP program consists of two core investment focused
components. Due to the different challenges and business models for the on-grid and
off-grid technologies it was decided to separate the program into components for
each area. The technical assistance sub-component addresses GoL concerns that a lack
of data on project sites limits the possibility of private sector distributed HPP
investment. The two components under the program for which the Government will
request SREP support are as follows:
▪ Component 1: On-grid RE technologies
▪ Component 2: Distributed RE Solutions
The overall goal of this program is to enable increased adoption of the priority
technologies through the development of commercial on-grid and off-grid RE markets.
This focus aligns with the Government’s Vision 2020 goals to increase private sector
investment in infrastructure and promote increased use of RE. SREP funds will be used
to facilitate private investment with support to the first privately funded RE projects
and provision of technical assistance to develop missing pieces of the enabling
environment. With SREP support Lesotho hopes to have a self-sustaining market for
on-grid and off-grid investment by the early 2020s.
The DoE will provide overall guidance to the implementation of the proposed SREP
program. As the institution responsible for policy setting and sector coordination, the
DoE has the functional authority needed to coordinate the activities of the three SREP
components. The DoE is already managing the preparation of an RE Mapping Study,
Electricity Masterplan, and Energy Action Plan that will be key pieces of the enabling
framework used when projects are subsequently prepared. Preliminary
implementation arrangements and MDB co-sponsors for each individual component
are described in the sections below.
87 The National Task Force is a group of representatives from government agencies, private sector and, non-
governmental organizations that was organized to provide guidance to the DoE and their consultant team
throughout the IP process.
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Sections 7.1 through Error! Reference source not found. describe the component
activities to be supported with SREP and MDB co-sponsor funds as well as the
complementary activities to be carried out by other donor partners. The remainder of
the section (7.3and 7.4) then describe the expected co-benefits and environmental
and social risks associated with each project.
7.1 Component 1: On-Grid RE Technologies
The rising cost of imported electricity and concerns about long-term national energy
security make increasing investment in grid-connected RE a strategic choice for
Lesotho. The GoL has plans to attract private investors through a FiT scheme to help
it achieve its goal to meet base load demand with domestic power. The reason a FiT
approach has been selected is that it avoids the complex and often lengthy process of
managing and evaluating bids and then negotiating a PPA with the winning developer.
A challenge to implementing this scheme is the lack of any existing projects to
demonstrate that grid-connected RE can succeed in Lesotho. In the absence of a
demonstration project, outstanding questions regarding off-taker arrangements, land
use agreements, and transmission integration could act as barriers to investors
interested in participating in the FiT scheme.
The on-grid RE component will attempt to overcome these challenges by using SREP
funds to support the first privately-owned utility-scale RE plant in Lesotho and a study
on RE integration that will help LEC and the GoL formulate a strategy for managing the
addition of intermittent resources into the national grid. Additional technical
assistance will be provided by the MDB co-sponsor to conduct site specific studies for
solar PV. The project funding and site studies of this component will specifically focus
on development of solar PV projects as the means for establishing an on-grid RE
market because the high resource potential and competitive cost of solar make it the
technology most likely to attract private investors in the early stages of development.
These SREP supported activities will be complemented by a resource mapping study
that will provide investors with a list of potential solar, wind, and HPP project sites
that could be pursued under the FiT scheme.
7.1.1 SREP supported activities
SREP funds will be used to support the first privately-owned utility-scale RE plant in
Lesotho and development of an RE integration study. These activities will be
implemented by AfDB. AfDB was chosen to co-sponsor this project because the SREP
activities and other complementary activities are related to two of AfDB’s previous
projects in Lesotho. AfDB is currently working with the DoE and LEC on a transmission
and distribution rehabilitation project and previously worked with LEWA to prepare
the RE framework that includes the FiT policy to be implemented in parallel to the
SREP activities. The familiarity between AfDB staff and many of the stakeholders
involved in these activities should enable better communication and collaboration.
While it is envisioned that the DoE will be the implementing institution for this
component, AfDB will evaluate their readiness and capacity at the time of project
appraisal to ensure they are the best institution to manage these activities.
Investment in first commercial utility-scale RE project
The GoL views the successful completion of a privately-owned utility-scale RE plant as
an essential step towards the advancement of the on-grid RE market. As a first of its
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kind, the project would chart the path for licensing, landowner compensation, and
environmental impact assessments (EIAs) for future IPPs. SREP and MDB support is
desired to help bring an initial utility-scale RE project to financial closure.
A 20 MW solar PV project the DoE is procuring through a competitive bidding process
has been identified as the best option where SREP funds could help this milestone be
reached within the next 18 months. The DoE ran a competitive tender for the project
in 2016 and currently has a preferred bidder that is in the process of negotiating with
LEC. While other projects88 were considered as possibilities for receiving SREP support
this 20 MW solar PV project is the only one that meets AfDB’s (the MDB co -sponsor)
criteria to fund competitively procured projects.
A mix of SREP and AfDB funds will be used to ensure this project successfully achieves
financial closure. The exact financial instrument to be used to support the transaction
is yet to be determined but can be one of two options: concessional financing through
the AfDB private sector window or a PRG to guard against off-take defaults on the part
of LEC.
Technical assistance to develop an RE integration study
The addition of wind, solar, and small hydro plants pose several new operational
challenges for LEC. Before the FiT scheme is implemented, the GoL recognizes that it
needs to demonstrate to investors that LEC can accept the additional intermittent
load. This requires identifying the transmission investments that will be needed to
support the integration of new RE capacity into the national grid. SREP support would
be used to help the GoL prepare a study on RE integration. The study will develop
operational procedures and identify investments that will support load balancing.
Solar PV site specific studies
In parallel with the implementation of the FiT scheme, AfDB will support site specific
studies for solar PV projects. These studies will aim to attract initial FiT investors by
removing the costs and risks related to conducting site specific studies.
7.1.2 Complementary activities
The SREP funded activities will complement other ongoing donor programs.
RE resource mapping exercise
Another missing piece in the enabling framework for RE development in Lesotho has
been the absence of an RE resource atlas that identifies potential project sites by
resource type. The on-grid RE component will be complemented by a resource
mapping study that is being funded by the Government of Italy.89 The study will lower
project preparation costs for potential developers by eliminating the need to conduct
preliminary site assessments. [Preliminary resource maps by September 2018]
Advisory support to enable adoption of fiT framework
88 For example, the 35 MW Letseng Wind Farm and 20 MW Solar PV project in Maseru were considered.
89 Italian Ministry of the Environment, Land and Sea
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In support of the on-grid RE component, DoE and the GoL will adopt the FiT rules
proposed in the RE regulatory framework prepared for LEWA.90 The FiT framework will
be used for the procurement of solar PV and wind projects (30 kW and less than 50
MW) and small hydro projects less than 10 MW. The EU, as part of its ongoing capacity
building program with DoE, will provide technical support to DoE staff to assist with
adoption of the framework, determination of the tariff levels by technology, and
release of a public announcement. The GoL intends to adopt the FiT framework in
2018.
7.1.3 Overview of priority activities
▪ Investment in a 20 MW solar PV project
▪ RE Integration Study
▪ Site specific studies for a solar PV project
7.2 Component 2: Distributed RE Solutions
Nearly two-thirds of Basotho do not have access to electricity and rely mostly on
biomass to meet their energy needs. The reliance on biomass has detrimental health,
economic, and ecological effects. The GoL views improving access to modern energy
services as a necessary step to improving lives and increasing economic opportunities.
Microgrids are viewed as the preferred option for delivering electricity service to off-
grid households clustered closely together. For the people who live outside areas with
microgrid potential, other distributed RE technologies will be needed to reduce
reliance on biomass. While SHS is the closest equivalent to on-grid electricity, other
options such as the powerhub stoves being made in Lesotho, improved cookstoves,
solar water pumps, and solar water heaters also provide various health and social
benefits that can still reduce biomass dependence and meet basic energy needs.
Both UNDP-GEF and the EU have ongoing pilot projects for both microgrid and RE
business centre schemes. The Distributed Energy Solutions project will aim to build off
the lessons learned from these pilots and seek to expand electricity access by scaling-
up the most successful pilots. First, SREP funds will be used to fund a study to identify
which scheme is appropriate for each off-grid area. Then, based on the results both
SREP and MDB funds will be used to support investments in microgrids and other
distributed RE (via business centres).
7.2.1 SREP supported activities
The SREP funded portion of this project consists of financing support for microgrids
and other distributed RE technologies. The World Bank will implement the activities
under the off-grid component. The World Bank was selected to co-sponsor this
component because the intended outcomes align with an on ongoing effort at the
World Bank to focus on improving access to energy. For example, projects in Kenya
and Zambia are both testing the effectiveness of various business models for
attracting private sector investment to off-grid areas. It was viewed there is a potential
90 The FiT rules specify that tariffs and installation targets will be set separately for each technology. FiTs will be
calculated using the methodology defined in the rules and operators delivering energy to the grid will receive
the tariff for 20 years. All operators that deliver energy to the grid from an eligible RE project will need to obtain
a license from LEWA (application and procedures have already been adopted) and sign a PPA with LEC (a PPA
template has already been prepared in the RE Regulatory Framework).
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to eventually bring the lessons learned from these and other World Bank projects into
the project preparation of the off-grid activities in Lesotho. The implementation
institution cannot be definitively identified at this time due to potential reorganization
of off-grid responsibilities.91 The World Bank will evaluate the status of this process
and identify who the best institution is for this component at the time of project
appraisal.
Investment in Microgrids
The microgrid pilot projects to come out of the UNDP-GEF and EU projects are the
initial stage in development of a private sector microgrid market. The pilots
implemented from these projects will provide lessons on technical and financial
operations of private microgrid systems will inform subsequent investors. With the
support of SREP, the next stage in development of the off-grid RE market will be to
scale-up microgrid investments by establishing a competitive bidding process.
The GoL’s plan to attract private sector microgrid developers is to implement a system
of area-based concessions. The Electricity Masterplan will identify which areas will be
tendered for microgrid concessions. The DoE and REU will run the tenders per the
tender rules specified in the RE regulatory framework. A draft set of tender rules,
licensing procedures, technical standards, an off-taker PPA92, and an implementation
agreement have already been developed as part of LEWA’s RE regulatory framework.
Private developers will bid own and operate microgrids in specified areas and sell
service directly to rural customers, just like a typical distribution company. Consumers
would pay the same price paid by customers of LEC, with the gap in recovery being
covered through a levy charged to all electricity customers.
SREP funds would be used to support an initial round of tenders to procure microgrid
concessionaires. SREP funds could be made available in the form of grants or loans to
lower the subsidy required in the first round of tenders. If the tariff for a specific zone
are found to be too high or well outside prices being offered in other zones then a
blend of SREP and World Bank funds could be on-lent to the developer at more
concessional rates, through the Ministry of Finance, to buy-down the tariff. The
intention of using SREP funds to support these initial tenders would be to increase
developer interest with the aim of attracting highly qualified bidders with a track
record of successfully operating other microgrids in order to avoid the maintenance
problems that have occurred in Lesotho, and other parts of Africa.
Investment in other distributed RE
Establishment of local energy business centres is viewed by many stakeholders as the
most realistic option for bringing RE technologies to the dispersed areas where
microgrids are not viable options. This project will look to build off the lessons learned
from the EU and UNDP-GEF initiatives. Once these initial business centres have
demonstrated the potential of the model, one area of interest is making it easier for
RE vendors and their customers to gain access to capital. There is currently no local
financial institution that offers RE financial products. SREP funding could be used to
91 The EU capacity building program has recommended that the REU, currently under the DoE, be separated into
its own independent institution.
92 Off-taker agreement with LEC is for compensation when/if national grid encroaches microgrid service area.
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solve this problem. An option being considered is the development of a green
financing facility at a local bank. One of the advantages of a financing facility approach
is that it can be technology agnostic and would allow consumers to decide what
technology is best for them. The technologies supported under this activity, therefore,
could go beyond SHS and ICS devices to include solar irrigation, solar water pumps,
and solar water heaters. The exact set of technologies the financing facility would offer
products for would be determined at the time of project preparation based on
discussion with the DoE and results from pilot projects.
The preliminary plan for this approach is for SREP and World Bank funds to be sent to
a local bank for on-lending to RE developers, vendors, and possibly even individual
commercial or residential borrowers. As part of project preparation, the World Bank
will evaluate the capacity of the local financial institutions to provide RE financial
products. Additional donor support could also be used to provide training to local bank
staff on different RE financial products, how to critically evaluate RE projects, and how
to ensure the bank and their borrowers comply with MDB environmental and social
impact requirements. Other support could be provided to the local bank to develop
an education or marketing campaign to help promote the new facility. The goal would
be to help develop a self-sustaining financing facility that will support investments in
distributed RE well beyond the time frame envisioned for SREP investments.
Small Hydropower plants (SHPP) Technical Support
The GoL has made it a priority to develop sufficient domestic generation capacity to
meet the country’s electricity demand. While the solar PV projects to be supported in
Component 1 will contribute to the reduction of energy imports during the hours of
the day when demand is highest, it cannot be relied on as base load supply.
Hydropower is viewed to be the best option for providing a consistent, reliable source
of power for achieving this goal and one that is complimentary to the solar PV activities
that would be supported by SREP in Component 1. A significant challenge facing
development of SHPPs has been a lack of data on potential sites. The resource
mapping study underway will provide a preliminary assessment of areas where there
is hydropower potential, but additional in-depth information will be needed to
determine the exact potential of individual sites. Compared to wind and solar, these
in-depth assessments of hydropower sites can take up to twice as long, and can be up
to five times more expensive. There is concern that the combination of the prohibitive
costs of these studies as well as the challenges and associated risk of being the first
developers of private SHPPs will act as barrier specific to the SHPP investors.
The SHPP Technical Support will aim to overcome this barrier by using SREP funds to
conduct pre-feasibility studies of HPP sites among the most promising ones identified
in the mapping study.93 The results of the studies will be made available to potential
developers and procured either through the FiT scheme (if the sites identified are 10
MW or below) or a reverse auction competitive tender94 (if over 10 MW).
93 The intention is to conduct studies on sites that are within the range of small HPPs used in this IP (less than 10
MW), but should sites with slightly more than 10 MW potential be identified as being among the best then it is
desired to have flexibility to study these sites as well.
94 A reverse auction is a lowest tariff base procurement approach.
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The World Bank would help conducting this technical assistance, given that they are
already providing technical assistance (TA) to LHDA to identify potential medium and
large HPP sites, it was viewed that this SHPP TA is a natural extension of that activity.
7.2.2 Complementary activities
The SREP funded off-grid activities will also complement other ongoing donor
programs.
Electrification Masterplan
As part of the EU’s ongoing capacity building program with the DoE it is funding the
preparation of an electrification masterplan to guide sector planning, and formally
establish what areas are destined for grid extension. The masterplan will define the
areas that will be served by the grid and the areas that will require decentralized
services. The masterplan will also define the roles and responsibilities for DoE, REU,
LEC, and the private sector, to enable improved coordination as electrification
investments increase.
Pilot off-grid RE programs
As mentioned above, both the EU and UNDP-GEF are financing separate RE pilot
programs in off-grid areas. The use of both grants (EU) and performance-based
incentives (UNDP-GEF) will be helpful in determining how best to use SREP and MDB
funds to support the microgrid and business centre schemes.
7.2.3 Summary of off-grid RE activities
▪ Investment in microgrids
▪ Investment in SHS or other stand-alone systems
▪ Technical assistance for preparation of microgrid tenders.
7.3 Environmental and Social Co-Benefits
The technologies included in this IP all have environmental and social co-benefits.
Many of these benefits are the same across the RE technologies, but each technology
also has its own unique benefits to be considered. Sections 7.3.1 to 7.3.5 describe
some of the benefits related to these technologies.
7.3.1 Employment benefits
▪ A mix of utility-scale and off-grid technologies offers tailored solutions that
can increase access to electricity in urban centres and in remote villages.
Electrification can create jobs in construction and electrical appliance
manufacturing and retailing, as well as sustain general business activities.
▪ Off-grid technologies have the best potential for increasing access to
electricity for remote areas where expansion of the grid network is not
viable. Increased access to electricity can help these communities grow by
facilitating income-generating activities.
▪ Lesotho can diversify its economy by developing a previously non-existent
wind energy industry.
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▪ Investment in solar PV can build Lesotho’s skill base by supporting
community training institutions such as the Bethel Business and Community
Development Centre.
7.3.2 Social services and infrastructure benefits
▪ Increased access to electricity can make it easier to provide social services.
▪ RE technologies can improve the reliability and quality of electricity,
improving service delivery at schools and clinics, leading to better health
and educational outcomes.
▪ Utility-scale technologies require the most investment in transport
infrastructure, thus the population can benefit from improved road
networks.
7.3.3 Natural resource management and land use benefits
▪ Better access to modern energy services through electrification and
distributed technologies can mitigate Lesotho’s over-exploitation of
biomass resources.
▪ Unlike fossil fuel and hydropower plants, solar PV will not require a lot of
water for operation.
▪ For microgrids, the potential sites in Lesotho that were proposed by
OnePower have one unique environmental opportunity: The projects
propose planting a perimeter of indigenous trees and grass around the
power plant to reforest the area, reduce soil erosion, and create grazing
grounds for livestock.
7.3.4 Climate change effects and local air pollution benefits
▪ Lesotho is vulnerable to climate change, which could increase the risk of
droughts, flooding, land degradation, and loss of biodiversity. Adopting RE
technologies results in lower greenhouse gas emissions compared to fossil
fuel-based electricity imports on which Lesotho relies.
▪ Rural households are reliant on paraffin and biomass for energy; off-grid
solutions provide an environmentally friendly alternative to these
traditional fuels.
▪ Clean cook stoves eliminate noxious fumes that impact residents’ health,
particularly the vulnerable, such as children.
7.3.5 Financial and time-saving benefits
▪ Extra power could potentially be exported to the Southern African
Development Community (SADC), providing revenue for the economy.
▪ Recent technological progress has made solar PVs more efficient and
cheaper to construct.
▪ Clean cook stoves allow women and children to spend less time collecting
biomass.
▪ Clean cook stoves are portable, allowing for shared use.
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7.4 Environmental and Social Risks
The technologies included in this IP all have environmental and social risks. Many of
these risks are the same across the RE technologies, but each technology also has its
own unique risks to be considered. Sections 7.4.1 to 7.4.4 describe some of the risks
related to these technologies.
7.4.1 Pollution risks
▪ RE development may result in pollution from construction and operations.
The effects of pollution may be critical in protected areas, such as FEPAs.
▪ Chemicals involved in utility-scale solar PV or solar microgrids, such as
arsenic and cadmium, may be used during construction and may be harmful
to local animal and human populations if not properly disposed. Distributed
solar technologies also require the handling of hazardous chemicals for
construction that could endanger the local area if exposed.
7.4.2 Biodiversity conservation, and land use risks
▪ RE site construction has the potential to impact some of the 377 animal
species (of which 14 are Endangered and Vulnerable) and 98 plant species
(of which four are Endangered and Vulnerable) on the International Union
for Conservation of Nature Red List of Threatened Species for Lesotho.
▪ Certain projects such as the Letseng wind farm have raised concerns that
they could threaten endangered Cape and Bearded Vulture species.
▪ Some utility-scale solar PV sites may compete with existing agricultural or
ecologically protected land, or reduce the availability of land for alternate
uses.
7.4.3 Noise pollution and other disturbance risks
▪ Solar PVs can cause glare for birds or airplanes, affecting flight paths.
However, effects on airplanes may not be a likely risk for solar microgrids
given that the existing microgrid at the Moshoeshoe I International Airport
has not yet presented any problems.
7.4.4 Financial and effectiveness risks
▪ Uptake of clean cook stoves may be slow because they are expensive. Equity
concerns may occur if the poorest are unable to afford clean cook stoves,
as they may be most affected by indoor air pollution.
▪ Clean cook stoves may not reduce biomass dependency substantially since
they cannot provide the same level of heating as traditional stoves.
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8 Financing Plan and Instruments
Table 8.1 presents a plan for financing the projects described in Section 7. It shows the
proposed credits and grants from SREP as well as estimates of the amounts anticipated
from MDBs, Government, other donors, and the private sector.
As the table shows, US$ 18.50 million of SREP funding is expected to catalyze over three
times as much investment, most of it from the private sector (as equity or debt), and the
MDB co-sponsors. These funds will be used to build off the more than US$ 7 million in
funds already committed by the EU, UNDP-GEF, and Government of Italy to develop parts
of the enabling framework and pilot projects that are laying a strong foundation for SREP
funded projects.
The exact financing modalities will be determined at the time of appraisal, but it is
expected that:
▪ US$5 million of SREP funding, in the form of a concessional loan, would be
used to leverage US$11.5 million in grants and private concessional loans
(or a PRG) from AfDB, US$7.5 million in equity contributed from the
developers of a 20 MW solar PV project, and US$6.9 million in additional
financing from either a private lender or other DFI.
▪ US$12 million of SREP funding (US$4 million in grants, US$8 million in
concessional financing) would be used to leverage US$ 10 million in
financing from the World Bank, and US$20 million in investment from other
private sector investors in microgrids and other distributed RE technologies.
These funds will be complemented by another US$4.8 million from other
donors.
▪ US$1.5 million in SREP grants would be used for: an AfDB managed RE
integration study (US$0.6 million); and World Bank managed site specific
pre-feasibility studies (US$0.9 million). The studies to support the
development of an enabling environment will be complemented by another
donor grant (US$1.4 million) for an RE mapping study.
The GoL will contribute by facilitating fiscal incentives for services associated with the
financing plan. These incentives will possibly include: waiving corporate profit tax for
the first 10 years of operation and excluding RE technology sales from VAT.
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Table 8.1: Lesotho SREP IP Financing Plan
Private
AfDB
Government Sector /
SREP Project SREP WB Private AfDB Other DFIs Total
of Lesotho Sponsor
Window
Equity
On-Grid RE
Investment in Utility-Scale Solar PV Plant 5 10i 0.6 TBDii 14.4iii 30
RE Integration Study 0.6 0.6
Resource mapping study 1.4iv
Project Implementation Support + Site Studies 1.5ii
Subtotal: On-Grid RE
Distributed RE Solutions 8 6 4.1 3.2iv 15 8
v
Investment in microgrids 4 4 1.8 2.6 5 4
Investment in distributed RE technologies 0.9 0.9
12.9 10 5.9 5.8 20 12.9
Subtotal: Distributed RE Solutions 4.68
Grand Total: 1.5ii
SREP Leverage 5.6
Note: i) Financing instrument/AfDB window has yet to be determined. Two options being considered are to provide direct project financing through the AfDB private sector window or use
an AfDB PRG to attract other private sector or DFI financing; ii) Project implementation support and site studies will be funded through a grant from the AfDB managed SEFA fund.
iii) Total private sector contributions include sponsor equity (US$7.5 million). The remaining US$6.9 million could come from a private financial institution or DFI; iv) Government of
Italy; v) EU US$2.3 million + UNDP-GEF US$0.9 million; vi) EU US$2.3 million + UNDP-GEF US$0.3 million;.
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9 Responsiveness to SREP Criteria
The IP developed for Lesotho is responsive to all of the SREP criteria. Table 9.1 summarises how each project responds to the SREP criteria.
Table 9.1: Summary of Proposed Projects’ Responsiveness to SREP Criteria
Criteria On-Grid RE Project Distributed RE Solutions Project
SREP Criteria
SREP resources would be used to finance ▪ SREP resources would be used to finance the development of 9 MW of
Increased installed
the development of a 20 MW solar PV solve PV-battery hybrid microgrids through an off-grid concession
capacity from RE
plant, the first commercial utility-scale plant scheme.
in Lesotho. ▪ SREP resources would be used to finance the development of 0.77 MW
of SHS, other solar technologies, and improved cookstoves.
▪ SREP resources would be used to finance an in-depth study to assess
the economically feasible potential of small hydro in Lesotho.
Increased
▪ Microgrids have high potential to directly provide electricity access to
access to
The utility-scale RE project indirectly
through
energy
supports electrification because new supply households.
potentially enables more connections. ▪ SHS directly provides electricity access to households.
RE
▪ Microgrids produce no GHG emissions.
▪ SHS and other solar technologies produce no GHG emissions. Improved
emissions
The technologies included under the utility-
cookstoves substantially reduce GHG output, but not all stoves
scale RE project produce no GHG emissions.
Lower
eliminate emissions completely.
▪ Power generation from small hydro does not produce any GHG.
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Criteria On-Grid RE Project Distributed RE Solutions Project
▪ Microgrids are competitive with diesel generators, but the cost might
Utility-scale solar is competitive with still be too high for rural customers.
imported energy under both financing
competitiveness ▪ Improved cookstoves pay for themselves within a few months because
scenarios. Only the best utility-scale wind
Affordability &
of offset fuel costs. SHS needs subsidies to be affordable. Solar pumps
resources are competitive with imports
are competitive with diesel pumps, but it is unclear if other solar
under private financing; other sites require
technologies are also competitive.
subsidies. Small HPPs require a small
subsidy to be competitive with imports. ▪ The results of the feasibility study may identify hydro sites that have a
lower LCOE than other RE technologies.
▪ Micro-girds provide reliable firm power for productive uses.
Productive use of energy
▪ SHS provides power sufficient for operation of lights and small
appliances. Other solar technologies provide power for specific
productive purposes, such as improved agricultural yields. Improved
Utility-scale RE technologies provide firm
cookstoves are only for personal use, but indirectly increase
baseload power.
productivity by reducing time spent on collecting fuel.
▪ The results of the feasibility study may identify hydro sites that can
provide firm baseload power, providing more reliable power supply for
productive uses.
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Criteria On-Grid RE Project Distributed RE Solutions Project
(+) Microgrids can improve off-grid economic activity.
(+) Microgrids provide in-home lighting.
(-) Batteries need to be disposed of properly.
(+) SHS provides in-home lighting and can improve off-grid economic
activity.
(+) Other solar technologies can create local jobs, improve health and
safety, and improve agricultural yields.
(+) Improves cookstoves reduce GHG emissions and have health, social,
Economic, environmental, and social impact
and deforestation benefits.
(+) These technologies offset imports of coal (-) SHS batteries need to be disposed of properly.
power. (+) Small hydro generation would offsets power imports generated from
(-) Land used for solar competes with coal.
agriculture. (+) Small hydro could provide local flood protection and irrigation if
properly designed.
(-) Some potential sites may be in Strategic Water Source Areas, which are
sources of Lesotho’s and South Africa’s important water sources. Sites that
deteriorate the quality and quantity of water would have cumulative
impacts downstream.
(-) Sites may be vulnerable to extreme weather impacting the reliability of
generation in the case of droughts or flooding.
(-) Sites may damage nearby ecosystems and farms from the displacement
of water or entrapment of river species inside the generation plants.
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Criteria On-Grid RE Project Distributed RE Solutions Project
▪ Microgrids are economically and financially viable now, compared to
off-grid diesel.
Economic and financial viability ▪ Improved cookstoves are economically and financially viable if
Utility-scale solar is economically and investment is financed. Solar pumps are both economically and
financially viable now. Wind is economically financially viable, but the viability of other solar technologies is unclear.
viable, but only financially viable with SHS has low viability compared to diesel generators.
subsidies. The economic viability of small ▪ Supply curves shown in section 5 show that SHPPs are theoretically
HPPs is site specific; small HPPs require lower cost than other RE technologies such as waste-to-energy or wind.
subsidies to be financially viable. Because SHPP is site specific, a feasibility study confirming the technical,
economic, and financial viability of the technology will offer Lesotho
authorities an critical advantage for preparation of partnerships with
potential sponsors.
Investments from the private sector, MDBs,
Leverage
Investments from the private sector, MDBs, and government are estimated
and government are estimated to leverage
to leverage 3.4 times the amount contributed by SREP.
4.7 times the amount contributed by SREP.
▪ Microgrids mostly benefit households and women by reducing the
The utility-scale RE project has the potential
burden of collecting and purchasing fuel.
to create jobs and/or increase economic
▪ SHS and improved cookstoves both reduce the burden of purchasing
Gender
activity, thereby improving the lives of
and collecting fuel, which largely falls on women. Solar streetlights
women.
improve safety while solar pumps reduce collection times for water.
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Criteria On-Grid RE Project Distributed RE Solutions Project
▪ Microgrids enable increased economic activity in off-grid villages and
reduces dependence on more costly energy sources.
▪ SHS increases household safety and extends study hours for students.
The utility-scale RE project may result in
Other solar technologies can improve public safety, crop yields, and
multi-year construction jobs as well as long-
Co-benefits
access to clean water. Improved cookstoves support forest conservation
term jobs.
goals and improve household air quality.
▪ SHPP designed to provide irrigation to farms can improve agricultural
yields.
Additional National Criteria
▪ The microgrid project will provide opportunities for jobs as vendors and
technicians.
The utility-scale RE project may result in ▪ The distributed generation project will create supply chain, domestic
Job creation
multi-year construction jobs as well as long- manufacturing, vendor, and technician jobs. Other solar technologies
term jobs. may also enable improvements of existing jobs.
▪ Since Lesotho has existing SHPPs, additional development may result in
higher utilization of local labor for operation and maintenance.
▪ The microgrid project will provide high quality, reliable power in off-grid
Output from 20 MW solar PV plant will be areas.
Ensures energy
delivered during daily peak hours when ▪ SHS has sufficient power to meet households needs in off-grid areas.
imports are typically needed, thus Improved cookstoves reduce the need for fuel imports.
contributing to GoL goal of reducing ▪ Identified hydro sites may have relatively higher capacity factors than
security
reliance on imports. other RE options that can help the GoL meet base load with domestic
supply.
87
Criteria On-Grid RE Project Distributed RE Solutions Project
▪ The demonstrative impact of the microgrid project can increase PSP.
involveme
Promote
The demonstrative impact of the utility- ▪ The availability of detailed resource data may increase private sector
private
energy
sector
sector
scale project can increase PSP. willingness to invest in small hydro in Lesotho.
nt in
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10 Implementation Potential with Risk Assessment
The implementation risk of the IP in Lesotho is moderate. Table 10.1 summarizes key
risks that can impact the implementation of projects under the SREP Programme in
Lesotho.
Table 10.1: Risk Assessment of the SREP Programme in Lesotho
Risk category Description Mitigation measure Residual
risk
Legal and Incomplete (not adopted) Energy Act and RE regulatory Moderate
regulatory legal and regulatory framework need to be
framework for RE creates adopted
an uncertain investment
climate for potential
project sponsors
Institutional Overlapping institutional Adopt mandate revisions Moderate
and capacity mandates slows down the proposed by the energy sector
implementation of projects reform study being conducted
causing private sector to by the EU
lose interest
Outdated/inaccurate The Government of Italy is Moderate
energy baseline and supporting the GoL to develop
resource data RE resource maps and UNDP is
supporting a national energy
baseline survey. Results of the
survey will be harmonized
national energy policy and
climate change strategies
Energy sector entities have MDBs to carefully identify High
limited experience capacity of institutions at time
coordinating and of project appraisal and
implementing RE projects identify training and TA
outside of hydropower and activities need to enable
high turnover of staff energy sector entities to
manage, coordinate, and
implement RE projects
Technology Technical specifications of MDBs will support the Low
specific proposed projects are not preparation of project
optimized feasibility studies to ensure
that they meet the highest
technical specifications
Distributed technologies Provide training to local Moderate
are poorly installed and technicians to ensure
maintained equipment is installed and
maintained to highest
standards
89
Provide training to target users
on proper use and
maintenance of technology.
Financial Access to commercial Provide concessional financing Low
financing for Project to improve the financial
sponsors is limited viability of Projects
Provide training to financial
institutions on appraising RE
projects
Risk of off-taker default or Provide loan or payment
arrears guarantees to reduce Project
sponsor credit risk
Customers unable and or Conduct willingness to pay and Moderate
unwilling to pay for affordability studies to inform
electricity the development of subsidies
and targeted social protection
schemes for low income
customers
Environmental RE projects may negatively Each RE project will undergo Low
impact surrounding areas MDB approved environmental
during construction or assessments and due diligence
operations (noise processes to ensure
pollution, land use environmental risks are
changes, chemical and addressed
other pollutant discharge)
Social RE projects may have Each RE project will undergo Low
unintended social impacts MDB approved social
during construction or assessments and due diligence
operations (foreign or processes to ensure social risks
migrant worker inflow, are addressed
power dynamics among
local population)
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11 Monitoring and Evaluation
The investments proposed in this IP can have a transformative impact on Lesotho’s
energy sector. Utility-scale investments can help the country diversify and increase its
generation capacity to meet future demand and reduce its dependence on expensive
electricity imports. Investments in microgrids and distributed technologies can
accelerate electrification and energy access in rural areas, improving the quality of life
and livelihoods of the population.
An M&E system will be established by the Government, in cooperation with MDBs and
other donor partners to track and report the Programme’s progress towards achieving
its objectives. The M&E framework will be coordinated by the Renewable Energy
Division of the DoE. MDBs and other development partners such as the UNDP have
pledged to provide the Renewable Energy Division with support and training to
facilitate data collection, analysis, and reporting for SREP IP M&E framework. Table
11.1 describes the proposed M&E framework for the Lesotho SREP IP.
Table 11.1: Lesotho SREP Investment Plan Results Framework
Result Indicators Baseline Targets Means of
Verification
SREP Transformative impact indicators
Support low Percentage of 38% (2016) 75% (2022) National M&E
carbon total households (Census data)
development with access to
pathways by electricity95
reducing energy 18% (2016) 75% (2022) IPPs and DoE
Percentage of
poverty and/or
rural households
increasing with access to
energy security
electricity96
Annual electricity 54% 65% (2020) DoE and IPPs
output from RE97
Avoided CO2 0 125,000 t CO2 DoE
emissions
(tons/year)
SREP outcomes
Increased supply Increased annual 0 91.5 GWh, DoE, LEC, IPPs
of renewable electricity output including 61.5
energy (GWh) as a result GWh from the 20
of SREP MW solar PV
interventions plant (on-grid RE
project) and 30
GWh from the
95 The Revised SREP results framework (2012) says that this indicator should be a “National measure of ‘energy
poverty’ such as the Multi-dimensional Energy Poverty Index (MEPI), or some equivalent mutually agreed
measure.” Energy poverty is indeed a multi-dimensional problem which includes problems associated with a
lack of access to sufficient energy supply, a lack of access to clean energy, and a lack of access to affordable
energy.
96 A household is considered to have access to electricity when the service provided allows for charging of cell
phones and lighting at night.
97 Assumes that all domestic electricity production is renewable and all imports are non-renewable.
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technologies in
the Distributed
RE Solutions
project
Increased access Number of 0 32,500 men Project M&E
to modern women and men,
energy services businesses and
32,500 women
community
services
benefitting from 500 SMES &
improved access Community
to electricity and services
fuels as a result
of SREP
interventions
New and Leverage factor: 0 3.53 DoE
additional US$ financing
resources for RE from other
projects sources
compared to
SREP funding
Volume of Total private RE 0 US$ 34.4 million DoE
private sector financing in US$
finance in RE from private
sector
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: Project Concept Briefs
A.1 On-Grid RE Technologies
Problem statement
1. Lesotho has abundant RE potential but relies heavily on expensive electricity imports
from South Africa and Mozambique to meet demand. In 2016, Lesotho imported 36
percent of its electricity needs, of which, 55 percent was used to meet peak demand.
Because Lesotho has a similar load profile to South Africa and Mozambique, imports
to meet peak demand are especially expensive. In 2016, the price of imported
electricity ranged from M 0.77 to M 1.50 per kWh, at least 83 percent more expensive
than the cost of electricity (M 0.13/KWh) purchased from the country’s M HP. In
addition, because Lesotho pegs its currency to the South African Rand, purchasing
Rand or US dollar denominated electricity imports puts depreciation pressure on the
Maloti, increasing the cost of all imported goods in the long run.
2. The private sector recognizes the potential for Lesotho’s electricity supply ga p to be
met by RE generation and has expressed substantial interest in developing utility-
scale solar facilities. Several projects have been proposed and developed to various
stages, but none have been implemented. In 2015, with the support of AfDB, LEWA
drafted a regulatory framework for the development of RE resources in Lesotho. The
draft PPA template developed by the project has been published by on LEWA’s
website to guide LEC and potential power producers who are interested in entering
into a bilateral contract. As of June 2017, negotiations for the first commercial utility-
scale solar facility is underway. However, additional steps need to be taken to ensure
that the project achieves financial closure and RE integration to the grid is
sustainable.
Project objective
3. The Project objective is to increase the diversity and reliability of electricity supply in
Lesotho. The Project’s objective will be achieved through (a) investments of 20MW
of utility-scale solar to offset expensive and Rand denominated electricity imports
from South Africa; (b) technical assistance to create an enabling environment for on-
grid renewable integration and investments in utility-scale solar. The Project will
include three components:
▪ Component 1: Investments in utility-scale solar. SREP contributions would be
used to leverage additional African Development Fund and private sector
financing to achieve financial closure. Two options will be considered for
financing the investment: (a) mobilizing concessional private sector financing
for the debt portion from the AfDB private sector windows and other DFI; or
(b) the AfDB would offer PRG ) to guard against off-take defaults on the part of
LEC and de-risk debt financing if required by private sector.
▪ Component 2: Study on renewable integration to the grid. The introduction of
intermittent RE generation such as wind and solar increases variability and
93
unpredictability to the grid. AfDB will commission a study on RE integration to
the grid to develop operational procedures and identify investments that will
support load balancing for the power system operator.
▪ Component 3: Technical assistance for project preparation and solar PV site
studies. SEFA and Africa Climate Technology Center funds will be used to
support project preparation activities required for the PPA to reach bankability
and proposed project to reach financial close. Components under the SEFA
Project Preparation Grant (PPG) comprise Technical and Financial Services,
Environmental and Social Impact Assessment (ESIA) and Lenders’ Due Diligence
& Risk Allocation. AfDB will support the best possible structuring of the project
and strive to turn it into a replicable solar PV reference for the SADC Region. In
addition, AfDB will look to support the next solar PV projects by funding up to
two pre-feasibility studies of solar PV sites that are identified in the resource
mapping study that will be complete in 2018.
Proposed contribution to initiating transformation
4. The proposed investment component of this Project will contribute to the GoL’s
Vision 2020 strategy to increase the use of RE by 200MW by 2020 and reduce the
country’s reliance on imports to meet peak demand. Because the investment is for
the first commercial IPP in Lesotho, it may have a demonstration effect on the RE
sector by signaling to potential investors that the business environment for RE is
commercially viable and showing the necessary steps required to initiate RE
investment. The technical assistance provided under this project improves the
enabling environment for RE integration to the grid by identifying investments to
improve grid reliability as intermittent generation is introduced, and developing the
necessary processes for load balancing.
Implementation readiness
5. The MEM is in the process of completing a competitive tender for a 20 MW solar PV
project. The project has secured a government buy-in and authorization, and the
preferred bidder is currently in PPA negotiations with off-taker LEC (June 2017). A
PPA is expected to be signed in the third quarter of 2017.
6. The project is the first potential PPA to reach the advanced PPA negotiation stage.
SREP funds together with AfDB contributions will be used to mitigate the risk of off-
taker default, ensure successful financial closure, and prepare the grid for integrating
solar generation.
Environmental and social impact mitigation plan
7. An EIA has been conducted and cleared by the Department of Environment.
Additionally, an environmental and social management framework, consistent with
the requirements of the AfDB, will be developed as part of project preparation. The
SEFA PPG will cover the costs for a full ESIA to build upon the existing environmental
clearance granted by Department of Environment of the Ministry of Tourism,
Environment and Culture.
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Rationale for SREP financing
8. SREP financing will create an enabling environment for RE by supporting a study to
understand how to integrate safely and efficiently integrate RE generation in
Lesotho’s grid beyond the proposed project. SREP financing for this project wi ll
leverage AfDB funds, which will be used to mitigate against perceived off-taker and
country risk to facilitate financial closure of the transaction. SREP financing to
support the financial closure of the proposed project – the first commercial IPP in
Lesotho – will also serve as a demonstration effect to the private sector by signaling
the viability of RE technologies in the country, and the readiness of the GoL and
regulatory regime to support additional investments.
Results indicators
9. The expected outcomes of the project include the following:
▪ 20MW of utility-scale solar generation capacity installed;
▪ Increased supply of electricity generated from RE;
▪ Private sector investment leveraged;
▪ Site studies for new solar PV projects;
▪ Increased government and private sector experience and capacity to develop
large-scale RE projects; and
▪ GHG emissions reduced or avoided98.
10. Results indicators will be determined during the project preparation stage.
Financing plan
Components Sponsor Private Other DFI SREP ADF/ AfDB private Govt. SEFA and Total
Equity sector PRG sector window ACTC
grant
Component 1
Option1 - PRG 7.5 6.9 5 10 NA 0.6 30
Option2 -
Concessional 7.5 6.9 5 10 0.6 30
debt
Component 2
RE integration
0.6 0.6
study
Component 3
Project
1.5 1.5
preparation
Component 4
98
95
Project
0.42
implementation
Lead Implementing agencies
11. The project will be implemented by the AfDB and selected private investor. The AfDB
will consider providing a PRG to guard against off-take defaults on the part of LEC
and de-risk debt financing in case they are not able to mobilize concessional financing
from other DFIs. SEFA grant will support project preparation.
Project preparation timetable
12. The AfDB will proceed with component 2 and 3 using SREP project preparation, SEFA
and ACTC grants. The AfDB intends to proceed to board presentation for the
investment approval during the 4th quarter of 2018, subject to the progress of
preparation activities with SEFA and ACTF grant.
Project preparation grant
13. The Government of Lesotho is requesting a project preparatory grant of US$ 0.6
million to undertake RE integration study.
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A.2 Distributed RE Solutions
PROBLEM STATEMENT
14. Access to modern energy services is important for fostering economic growth and
reducing poverty. The energy sector in Lesotho faces challenges which include: low
access to modern and clean energy, supply security issue due to dependence on
imported electricity and fuels, and deterioration of forest reserves. The Government
of Lesotho recognizes these challenges as a barrier to the country’s development and
has established targets to increase electricity access to 75 percent by 2022 and
increase the use of RE sources by 200MW by 2020.
15. One of the sector main challenges is the low rate of household access to electricity
and modern, cleaner sources of energy for lighting, heating, and cooking. Access to
affordable, modern energy sources reduces poverty, fosters economic growth,
improves health, and increases productivity. Nationwide, only about 38 percent of
households have access to electricity. Household electrification rates are 60 percent
in urban and peri-urban areas and only 18 percent in rural areas. Increased access
to electricity facilitates the delivery of the basic social services, reduce inequality,
thus contributes to poverty reduction.
16. Because of lack of access to electricity and modern and cleaner energy, households
use paraffin and candles for lighting and wood and dung for cooking and heating.
Burning these fuels inside the house may create health problems. The collection of
these wood fuels can also be time-consuming for households; according to ACE’s
2015 survey of 2,652 rural households in Lesotho, households spent 31 hours per
month travelling for fuel, covering an average distance of 58 km.
17. The mountainous areas of the country and the low population density of remote
villages are unlikely to make rural electrification using grid extension financially
viable. Therefore, the Government may have to consider other alternatives such as
microgrids and stand-alone systems.
18. At lower population densities, grid extension and microgrids can be challenging in
terms of economic viability in the short run. For such situation, the latest generation
of stand-alone technologies (for example, SHS) could be a solution to provide basic
electricity service. In Lesotho, solar project is technically feasibility because of high
solar irradiation. In addition, the project could build on current initiatives of some
private sectors on the distribution of stand-alone systems to rural households using
microfinancing mechanism.
19. Microgrid technologies: This would mainly be implemented in remote areas where
grid expansion is not likely to happen in the next 10-15 years and would cover
technologies including solar PV and/or mini-hydro less than 10MW and/or hybrid
system
20. Distributed RE technologies: It concerns the promotion of pre-wired solar systems
for lighting and cell phone charging and of energy efficient cooking stoves, solar
97
water pumps, solar water heating to scale-up the current approach to provision of
energy services to the peri-urban and rural population.
21. Assessment of SHPP potential sites: Analysis of technical parameters for pre-
identified small hydropower sites would substantially contribute to attract private
sponsors and operators, in particular in remote areas.
PROJECT OBJECTIVE
22. The project will transform lives of rural households through increased access to
energy by implementing the following three components:
23. Component 1: Microgrid technologies. Financing would be grant based/on-lent to
the government; on-lent to the implementing agencies; and channelled to sponsors
or end-users.
24. Component 2: Distributed RE technologies. Financing would be grant based/on-lent
to the government; on-lent to the implementing agency using financing structures
and models tested in the market; before being channelled to end-users.
25. Component 3: Technical assistance for project preparation of components 1 and 2,
including business models; possible participation of private sector; related
regulation; and other implementation capacity strengthening activities identified as
being necessary to implement the procurement approaches for components 1 and
2.
26. Component 4: Technical assistance to conduct pre-feasibility studies of HPP sites
among the most promising ones identified in the mapping study. The results of the
studies will be made available to potential developers.
PROPOSED CONTRIBUTION TO INITIATING TRANSFORMATION
27. The Scaling-up Renewable Energy Program in Low Income Countries (SREP) financing
will reduce the gap in the climate finance architecture by facilitating the
development of low carbon energy technologies towards increased RE generation to
improve rural energy access. Investments proposed in this project will contribute to
the achievement of government’s target to increase RE capacity by 200MW by 2020.
The proposed off-grid project will install up to 10 MWp of microgrids (to be
confirmed during project appraisal) and will contribute to the achievement of the
country’s electricity access target of 75% by 2022. The off-grid systems would provide
about 38,000 new household connections in peri-urban and rural areas that are not
identified for grid extension in the Electricity Masterplan currently in development.
IMPLEMENTATION READINESS
28. Government and NGO have implemented minigrid projects in Lesotho. Two minigrids
– one diesel generation and one hydro generation– have been installed as pilots
under the World Bank Utilities Sector Reform Project (2007). In addition, the UNDP
and European Delegation (EU) have recently allocated funding for microgrid pilots in
rural villages in the country. The UNDP is conducting pre-feasibility studies in 20
selected villages to determine the appropriate microgrid scheme for
98
implementation. The EU has launched call for proposals to pilot two microgrid
projects in rural areas with substantial economic growth potential. There is also some
private sector interest in developing small hybrid PV microgrids to serve rural
populations outside of the areas served by the utility LEC. The operation of minigrids
is likely to increase in the coming years.
29. Solar PV minigrids have not yet been installed in Lesotho, but there is substantial
private sector and development partner interest in developing them. Solar PV
minigrids, depending on their size and the types of populations they serve, are
considered viable in areas with a certain population density. 25 sites for solar PV
hybrid microgrids ranging from 8-109 kW have been identified by a private developer
to provide electricity service to rural communities. This developer is currently
working with the GoL and UNDP to commence the installation of minigrids at some
of the sites.
30. The GoL already has some experience implementing SHS activities. About one
percent of households (approximately 11,000) in Lesotho currently use SHS, with a
total installed capacity of 61.6 kW. The REU, through a World Bank- and Global
Environment Facility (GEF)-financed pilot project, distributed SHS to 300 households
in the Linakaneng region in the eastern highlands. Moreover, since 2007 the LREBRE,
a GoL program with assistance from UNDP and GEF, has promoted the use of RE to
satisfy basic household needs like lighting, radios, and cellphone charging. The
project installed 1,537 SHSs in Mokhotlong, Thaba-Tseka, and Qacha’s Nek Districts
over five years.
31. To implement the execution of programme support under SREP financing, a project
unit will be established within the Ministry of Energy, Meteorology and Water Affairs
to implement the project. This will be manned by technically competent
professionals. The Government has used this approach to implement projects which
are specific in nature for them to be completed within project time frame and with
minimal interference from the Government. This approach would also ensure that
funds allocated to projects are used more effectively and efficiently deepening
transparency of budget absorption.
RATIONALE FOR SREP FINANCING
32. The World Bank strongly supports the efforts being deployed by the GoL to
implement “transformational change” towards low carbon development with the
use of public and private sector investments in the energy sectors. The SREP funding
will help the country to significantly reduce environmental pollution, to improve
climate resilience, and to reduce greenhouse gas emissions (GHG) from the use of
wood fuels.
33. Climate finance will play a critical role in assisting Lesotho to build more
environmentally sustainable energy system, and to meet development objectives
including increased rural energy access; improved energy security and reduced
poverty.
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ENVIRONMENTAL AND SOCIAL IMPACT MITIGATION PLAN
34. Environmental and social impacts from the installation and operation of RE minigrids
are generally not substantial given the small size of the system and the type of
installation. Similarly, distributed RE technologies are low impact systems.
35. The main challenges identified at the international level on the use of PV
technologies are the following:
▪ The decommissioning of PV modules is likely to generate an environmental
challenge. As a solution, an international PV industry recycling program was
established in Europe in 2009 under PV CYCLE.
▪ Emissions in the PV life cycle are mostly form the material extraction and
production stages. The largest concern is the fluorinated GHG emissions but
releases of these gases have declined because of more efficient manufacturing
processes and the use of alternative substances.
▪ The amount of water used in the life cycle of PV technologies is not significant
since it is necessary only during manufacturing and cleaning of modules.
Moreover, the impacts on water quality are minimal.
36. No social impacts or resettlement are expected
RESULTS INDICATORS
37. Results indicators will be determined during the project preparation stage and will
be firmed up during the project appraisal. Expected results and outcomes of the
project include the following:
▪ Public and private sector investment leveraged
▪ Countrywide deployment of off-grid PV technologies provides people,
businesses and community services improved access to electricity
▪ At least 9,000 households connected to proposed minigrid systems
▪ At least 10 MWp of functioning off-grid PV infrastructure
▪ At least 29,000 households provided with access to electricity by stand-alone
SHSs or other distributed technologies
▪ At least 200 water points (drinking water or irrigation) provided with access to
electricity by solar pumps
▪ At least 30,000 MWh/year in supply of electricity generated from RE in off-grid
areas.
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FINANCING PLAN
Appendix Table A.1: Proposed Financing Plan for Distributed RE Solutions
Private SREP WB Government Other a Total
sector
(Million US$)
1. Component 1: Investment 15 8 6 4.1 TBD 33.1
in microgrids
2. Component 2: Investment 5 4 4 1.8 TBD 14.8
in distributed RE
technologies
TOTAL 20.0 12 10.0 5.9 47.9
LEAD IMPLEMENTING AGENCIES
38. The implementation agencies for the microgrid component and the RE distributed
technologies will be defined during project preparation. The GoL is assessing the
capacity of sector institutions and agencies and will set-up the implementation
arrangement.
PROJECT PREPARATION TIMETABLE
Appendix Table A.2 below shows the proposed schedule for project preparation.
Appendix Table A.2: Proposed Schedule
Task Timeline and milestones*
1. Internal approval mini-grid technologies Q3 2017
2. Internal approval RE distributed Q3 2017
technologies
3. SREP Sub-Committee approval of the IP Q4 2017
4. WB tentative Board approval Q4 2018
*Based on World Bank’s fiscal year – July 1 to June 30
Project preparation grant
39. The Government of Lesotho is requesting a project preparatory grant of US$ 0.9
million to undertake pre-feasibility studies for SHPP sites.
101
: Assessment of Lesotho’s Absorptive Capacity
This appendix contains an assessment of Lesotho’s ability to absorb the financing
envisioned as part of the IP. It describes the macroeconomic, debt sustainability, and
institutional dimensions of the country’s absorptive capacity.
B.1 Macroeconomic Outlook
Lesotho has experienced a sustained period of economic growth. The country recovered
quickly from the global financial crisis, with GDP growing at an average rate of about 4.5
percent per year between 2010 and 2014, before dipping to 1.6 percent in 2015 because
of weak manufacturing and construction sectors and relatively slow economic growth in
South Africa. The IMF projects GDP to grow 2.5 to 3 percent in 2016, depending on the
severity of drought conditions, and to rebound to an average of about 3.5 percent growth
by 2020 because of increased diamond production and the start of construction for the
water transfer component of LHWP.99 Appendix Table B.1 shows Lesotho’s GDP growth
since 2010 and IMF projections to 2020.
Appendix Table B.1: GDP Growth and Projected GDP Growth in Lesotho, 2010-2020
Source: World Bank Development Indicators; International Monetary Fund Country Report, 2016.
Lesotho faces several economic challenges. The broad unemployment rate, which
includes discouraged workers, was 28 percent in 2015, while the youth unemployment
rate (ages 15 to 24) was 43 percent.100 Lesotho’s incidence of poverty is 56 percent, among
the highest in Africa, and has shown little improvement over the last decade. Many health
99 International Monetary Fund, “IMF Country Report No. 16/33: Kingdom of Lesotho Staff Report for the 2015 Article
VI Consultation,” 2016.
100 Lesotho Bureau of Statistics, “2016 Population and Housing Census: Preliminary Results Report,” 2016.
102
and social have likewise seen little improvement despite high rates of Government
spending (about 30 percent of GDP).
The economy is also susceptible to external shocks. As mentioned above, a weak economy
in neighbouring South Africa can dramatically slow growth in Lesotho. Moreover, Lesotho
is particularly reliant on revenue from the Southern African Customs Union (SACU) for
government financing, but these revenues are volatile and have fallen sharply from 29
percent of GDP from 2012 to 2014 to a projected 16 percent in 2017. The IMF projects
that this decline in revenues will persist in the short- and medium-term.101
B.2 Debt Sustainability
The IMF projects Lesotho’s debt-to-GDP ratio to increase from about 43 percent in 2014
to 51 percent in 2016 before leveling off in the medium-term at about 47 percent, as
shown in Appendix Table B.2.
Appendix Table B.2: Lesotho’s Debt-to-GDP Ratio and IMF Projections, 2012-2020
Source: IMF Country Report 2016.
However, Lesotho is at moderate risk of external debt distress. Negative shocks to exports
or exchange rate depreciation pose a risk to debt sustainability. The projected, sustained
reduction in SACU revenues, especially if of greater magnitude or duration than currently
projected, could lead to unsustainable fiscal deficits without proper adjustment by
Government, threatening debt sustainability further. Lesotho’s debt sustainability is
especially sensitive to risks associated with the LHWP—cost overruns, deterioration of
financing conditions, and lower electricity demand than projected. Substantial cost
101 IMF Country Report.
103
overruns could lead to public debt reaching 90 percent of GDP, bringing the country’s
prospects for growth into question. Low foreign demand for electricity would also
threaten debt sustainability, even if there are no cost overruns associated with the
project.
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: Stakeholder Consultations
The Lesotho SREP IP is the result of a consultative process, led by the GoL and represented
by the DoE to identify priority RE technologies for development in Lesotho. The
consultations included a broad range of government agencies and representatives from
the private sector, civil society, and international development partners. There were four
consultations over the course of the IP’s preparation. A Scoping Mission, conducted in
January was used to discuss the overall strategic approach of the IP with Government and
energy sector stakeholders, commence data collection, understand Government’s
strategic priorities and challenges facing the energy sector. Following the mission, an
Options Study (OS) was prepared and shared with GoL, National Task Force, and MDBs
for review (March 2017). The OS laid out the energy sector background, the assessment
of the potential of various RE technologies in Lesotho as well as the main barriers to their
development. Based on comments received on the OS, a draft IP was developed and
distributed in April 2017 for comments and discussion with the main stakeholders. In May
2017, a Joint Mission was conducted to verify the correctness of the overall approach,
identify priority projects and to gather additional materials needed for updating and
finalizing the draft IP. During the Joint Mission, discussions were conducted with the DoE,
private sector, NGOs, and donor agencies to ensure that the technology and models
proposed in the draft IP were coherent and complementary with ongoing activities in
Lesotho in terms of RE development and the energy access expansion program. The sub-
sections below briefly describe the key findings and discussions from each consultation.
C.1 Scoping Mission
The Consultant and World Bank teams participated in the Scoping Mission from January
9 to January 18, 2017 to kick start the preparation of the SREP. The main goal of the
mission was to establish a strategic approach for the IP with Government and energy
sector stakeholders so that it supports Government’s priorities and addresses challenges
in the energy sector. Appendix Table C.1 lists the stakeholders met during the Scoping
Mission.
Appendix Table C.1: Stakeholders met during the Scoping Mission
NAME POSITION/ORGANIZATION EMAIL
GOVERNMENT ORGANIZATIONS
Seitlheko Jerry DoE, Deputy Director seitlhekojerry@gmail.com
Tlohelang Aumane Ministry of Development mamotebang.lekoekoe@gov.ls
Planning, Principal Secretary
of Development Planning
Tom Mpeta Ministry of Finance,
Principal Secretary
105
Tsepiso Thabane; Lesotho Bureau of Statistics, tl_thabane@yahoo.com;
Malehloa Molato Head of Environment emolato@gmail.com
Statistics;
Acting Director
Thuso Ntlama LEWA, Manager-Economic tntlama@lewa.org.ls
Regulation
Tsibela Mochaba Lesotho Highland tsibela.mochaba@lhwp2pmu.c
Development Authority, o.ls
Discipline Lead-Hydropower
Nchemo Maile Ministry of Agriculture, nchemo@yahooo.co.uk
Principal Secretary
Felix Malachamela Rural water supply felixmalachamela@gmail.com
department, Principal
Engineer
Leloko Mokhutsoane REU, Project Manager projectmanager@reu.gov.ls
Monica Moeko LEC, Transmission and moeko@lec.co.ls
Distribution Manager
PRIVATE SECTOR /NGOS
Prof B.M. Taele University of Lesotho bm.taele@nul.ls
Science & Technology
Department
Stephen Walker Africa Clean Energy, Stephen.walker@ace.co.ls
Manufacturing Director and
Co-founder
Limpho Kokome Mos-sun Clean Energy limphokokome@gmail.com
Technologies, Head of
Design and Technical Team
Kopano Tsenoli Appropriate Technology ktsenoli@gmail.com
Services, Chief Engineer
Matthew Orosz 1PowerAfrica, CEO and mso@mit.edu
Managing Director
Michael Hones Solarlights, Founder solarlights@web.de
Mantopi Martina de Porres Technologies for Economic mantopi@yahoo.com
Lebofa Development, Director
DEVELOPMENT PARTNERS
Dan Croft International Finance dcroft@ifc.org
Corporation
106
Limomane Peshoane UNDP, Climate Change limomane.peshoane@undp.org
Policy Specialist
Sjaak De Boer European Union Delegation, jacobus.deboer@eeas.europa.e
Operations- Water, Energy u
& Climate Change
Farai Kanonda AfDB e.kanonda@afdb.org
Stakeholders identified key challenges that inhibit private investment and uptake of RE in
Lesotho’s energy sector that the IP should aim to address. They include: lack of up -to-
date baseline data and studies, limited access to financing, incomplete legal and
regulatory framework, limited capacity for project implementation and maintenance
from the institution to end-user level, high costs of delivering electricity and RE
technologies to rural areas and cash flow problems among the rural population.
The Consultant Team met with the DoE, LHDA, the REU, and private sector RE vendors to
develop a long-list of potential RE technologies for consideration in the SREP IP. It was
agreed that the following RE technologies would be considered in the IP: utility-scale
wind, solar, and waste-to-energy; microgrids; and distributed technologies such as clean
cook stoves, SHSs, and SWHSs.
During the Mission, the DoE also agreed to organize a National Task Force that will be
responsible for reviewing various drafts of the IP and facilitating its eventual approval.
The National Task Force consists of staff from different government agencies, private
sector and, NGOs.
C.2 Comments on the Options Study
In March 2017, the Consultant Team submitted an OS to the GoL, National Task Force,
and MDBs for review. The OS provided an overview of Lesotho’s economy and energy
sector, barriers to RE development, and results of the technical, financial, and economic
analysis of potential RE technologies considered for the country. The stakeholders
provided valuable feedback on the sources used to estimate RE resource potential,
assumptions used in the economic and financial analysis, and prioritization of RE
technologies.
C.3 Joint Mission
The Consultant Team, World Bank, AfDB, and International Finance Corporation
participated in a Joint Mission from May 15 to May 18 to decide on priority investments
for RE, determine implementation arrangements such as a monitoring and evaluation
framework for the IP and potential financing arrangements for the investments.
Consultations were also held with Government and various stakeholder groups to seek
feedback on the draft IP. Appendix Table C.2 lists the stakeholders met during the Joint
Mission.
107
Appendix Table C.2: Stakeholders met During the Joint Mission
Name Position/Organization Email
MINISTRY OF ENERGY AND METEOROLOGY
Mathabo Mahahabisa Principal Secretary MEM a.i mmahahabisa@gmail.com
Majakathata Thakhisi Principal Secretary MDP thabam@rocketmail.com
Thabang Phuroe Director Energy tphuroe@yhaoo.com
Ramokuinihi Motai Senior Economic Planner rmotai@ymail.com
Mokhethi. J. Seitlheko Deputy Director peo.re@energy.gov
Hlalele Hlalele Programme Officer hlalele@trc.org.ls
Khotso Moleleki Director Public Debt kmoleleki90@gmail.com
Lekhooa Fokothi Principal Forestry Officer lfokothi@yahoo.com
Lengeta Mabea Principal Energy Officer mabeald@yahoo.com
Mamashea Motabotabo Senior Environment Officer motabotabo@gmail.com
Nthabeleng Moorosi Finance Assistant nthabymoor@gmail.com
Rafael Ben Energy Specialist
Makhahliso Nokana Senior Economic Planner Mnokana@yahoo.com
Nthomeng Seepheephe Principal Energy Officer nthomeny1@gmail.com
Matseleng Sepiriti Technical Officer maspyp@gmail.com
K. Jobo Economic Planner
Lehlohonolo Teba Power Engineer
PRIVATE SECTOR /NGOS
Thabo Qhesi CEO Info.psfi@gmail.com
Molibeli Taele Ass. Professor bm. taele
Thabang Motsoasele Strategy & Dev Lead thabang.motsoasele@gmail.com
Limpho Kokome Technician Info.moscet@gmail.com
Moruti Mphatsoe Director Mrimphatsoe87@gmail.com
Limakatso Mafelesi Consultant mafelesi@yahoo.co.uk
Khotso Mokitimi Local Project Manager Khotsi1981@gmail.com
Molepi Lelimo Soultrain Technician
Nthateng Mpofu Engineer nthateng@stginternational.org
Stephen Walker GM walker@ace.co.ls
Puleng Mosothoane Soultrain project mosothoanepuleng@gmail.com
Coordinator
Mantopi Lebofa TED mantopi@yahoo.com
Motlatsi Mosaase Prime Operations motlatsimosaase@gmail.com
Molepi Lelimo Soultrain Technician
Puleng Mosothoane Soultrain project mosothoanepuleng@gmail.com
Coordinator
108
L. Mokhutsoane Project Manager
DEVELOPMENT PARTNERS
Tom Jardine EU Technical Assistance tom@energy-mrc.com
Facility
Deboer Jacobus EU jacobus.deboer@eeas.europa.eu
Hilary Mwale USAID Deputy Director hmwale@usaid.gov
Mabohlokoa Tau Project Manager Mabohlokoa.tau.undp.org
During the Mission, it was agreed that the World Bank would support the implementation
of off-grid RE technologies such as microgrid technologies (solar, hydro, hybrid), Solar
Rooftop, Stand-Alone Systems such as SHS. AfDB would support on-grid solar, wind, and
small hydro investments. Private sector communicated important lessons learned
regarding the implementation of off-grid RE technologies. They advised development
partners to consider the use of micro financing through financial intermediation, which
has been a successful mechanism for delivering distributed RE technologies such as clean
cookstoves to the rural areas.
The Mission also agreed on several next steps to ensure the finalization of the IP and long-
term sustainability of the proposed investments. It was reiterated to Government the
importance of adopting several remaining pieces of the RE regulatory framework that was
developed by LEWA and AfDB in 2015 and identifying implementing agencies for the
proposed investments and M&E framework.
C.4 Final Mission
The Consultant Team, World Bank, and AfDB participated in a Joint Mission from
September 27 to September 29 to: 1.) review and validate the investment priority areas
with DoE following the comments received and discussions with stakeholders during the
Joint Mission in May 2017; and 2.) discuss the measures that the GoL needs to implement
to allow the timely submission of the SREP IP to the SREP Sub-Committee. Consultations
were held with MEM; Ministry of Finance; and the Bureau of Statistics under the Ministry
of Development Planning.
During the Mission, a third component was added to the IP after discussions with the DoE.
It was decided that technical assistance should be provided to conduct detailed studies
on the feasibility of small hydro generation. The Mission put forward suggestions of
implementation agencies for the off-grid and on-grid projects for Government’s
consideration. For the off-grid project, the Mission suggested that the REU, which is
mandated to implement rural electrification projects could serve as the implementing
agency. For the on-grid project, the Mission suggested that a project implementation unit
with the necessary expertise be created outside the LEC but preferably within the DoE to
implement the project. A suggestion was also put forward that the DoE be responsible for
implementing the technical assistance project as well as the overall monitoring and
evaluation of the IP at the sector level. The Mission nevertheless reiterated to
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Government the importance of 1.) providing confirmation on the entities that would be
responsible for the implementation arrangements and monitoring evaluation related to
the three proposed SREP activities and 2.) identify areas of weaknesses of the selected
implementing entities that need capacity strengthening to ensure readiness for
implementation, and monitoring and evaluation of the implementation of the SREP IP.
The Mission agreed to finalize the IP by October, 06 2017, which would be sent to SREP
independent evaluators and also allow sufficient time for the GoL to endorse the IP by
the end of October for submission to the SREP Sub-Committee in November 2017.
110
: Co-Benefits
Section 7.3 highlighted some of the environmental, social and gender co-benefits likely to
result from Lesotho’s SREP IP. This section focuses specifically on the co-benefits tracked
under SREP’s Revised Results Framework (as of June 1, 2012). Appendix Table D.1 lists the
co-benefits considered under SREP’s Revised Results Framework, and describes how
those co-benefits will be achieved in Lesotho.
Appendix Table D.1: Co-Benefits Associated with SREP Impacts and Outcomes
SREP Transformative Impact
Results Co-benefits Description
Support low carbon Avoided GHG ▪ All of the technologies in Lesotho’s SREP IP could
development emissions result in reduction of GHG emissions in line with
pathways by global and national efforts to fight climate
increasing energy change.
security. ▪ Each kWh generated domestically from the 20
MW solar plant will potentially offset a kWh of
imported energy from South Africa—an offset of
approximately 0.99 kg CO2 per kWh102.
▪ Each household that can reduce the use of
traditional cookstoves from improved access to
energy (electricity or ICS) through the SREP IP
could have an offset of 1-3 t CO2 per stove103
replaced
Employment ▪ The 20 MW solar PV plant and the microgrid
opportunities projects both have the potential to create short
term construction jobs.
▪ All technologies supported will allow for
opportunities of long-term jobs in maintenance or
retail sales (i.e. business centres).
▪ Access to energy will provide job opportunities
for marginalized groups in rural areas and
empowerment of women by reducing need to
collect biomass.
SREP Programme Outcomes
Results Co-benefits Description
Increased supply of Increased ▪ All of the technologies in Lesotho’s SREP IP will
RE reliability results in increased domestic capacity.
New and additional ▪ Rural households will have improved access to
resources for modern energy services such as electricity and ICS
102 In EKSKOM’s Integrated Report 2016 the CO2 output for the previous year was
103 Stockholm Environment Institute. “Assessing the Climate Impacts of Cookstove Projects: Issues in Emission
Accounting.” Policy Brief. 2013. Link.
111
renewable energy (that use solar, pellets, paraffin, etc.), and be less
projects/programmes dependent on increasingly scarce domestic
biomass.
Reduced ▪ Bids for the 20 MW tender were already
costs of RE competitive with imports from South Africa
▪ Demonstration of the first commercial project will
attract investors in wind and hydro, where the
cost might not currently be competitive, but will
fall over time
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: Comments from the Independent Technical
Reviewer
Appendix Table E.1 below presents the recommendations received from the independent
technical review of the IP and the Consultant Team’s response to each recommendation.
Appendix Table E.1: SREP Project Preparation Grant Request (On-Grid RE Technologies)
# Recommendation Response
1 It is recommended to identify It is difficult to definitively specify the
institutional arrangements for projects institutional arrangements now because
preparation and implementation. capacity, as the reviewer notes, is limited and
Designated institution should be the mandate of some of the institutions is in
involved at early stages of preparation
flux. As we discuss more in the response to #3
of the projects to gain knowledge and
below, a capacity building program
experience benefitting from the
consultants to be hired. supported by the EU has resulted in updated
mandates for the sector institutions. This
program is providing training to improve the
DoE staff’s ability to manage projects and
implement sector policy. One
recommendation is to turn the REU, which is
currently under the DoE, into a separate
independent institution. Because this work is
ongoing it was determined the best approach
is to wait to project appraisal to identify the
responsible institutions.
Along with an assessment of capacity building
needs (see below) both AfDB and the World
Bank will evaluate the institution that is best
suited to implement the project at the time
of project appraisal. Language has been
added in 7.1.1 and 7.2.1 to clearly identify the
above point in the program description.
2 It is recommended to envisage Agreed, capacity building will be needed to
capacity building activities. It should ensure that these programs are successful. An
be designed for all institutions exact program was not specified because there
involved in RE development, as well as are several ongoing initiatives, such as the EU’s
for technical and engineering staff of DoE capacity building project and EU and UNDP
private service providers or off-grid programs, all aim to address some of the
individuals. This will support the capacity gaps. Due to this ongoing work, it was
market creation and thus support determined that the capacity of the
transformative changes. implementing institutions and other
stakeholders will have to be evaluated at the
113
project appraisal stages. Both AfDB and the
World Bank then build capacity building
programs into each project to address any
identified gaps.
The Consultant Team found three priority areas
where capacity support is needed. The proposed
program does aim to address these three areas
as follows:
• RE Integration and load balancing. The
main concern related to on-grid capacity
is whether LEC is ready to manage the
intermittent load of RE resources. Part of
the RE integration study will evaluate
LEC’s preparedness to manage new RE
load and identify a possible capacity
building program to prepare staff.
• RE maintenance. Past attempts to install
SHS and microgrids failed because the
installed technologies were not
maintained over time. The business
models favored for both SHS and
microgrids aim to address this problem
by.
• RE financing. As discussed in Section
7.2.1, part of the plan to establish a
green financing facility notes that if
necessary the World Bank will fund
training on RE financial products and
project evaluation. Another sentence
has been added to make it clear the level
of training will be further evaluated at
the time of project appraisal.
3 It is recommended to attach a timeline It may be helpful to provide some explanation
agreed with the government regarding for why the legal-regulatory documents have yet
adoption of the legal-regulatory to be implemented. Many of the components of
documents that will enhance enabling the RE regulatory framework that was prepared
environment for RE investments. for LEWA in 2015 have yet to be adopted for a
couple reasons. First, changes in government
and the political climate in recent years have
slowed the law setting process. Elections in mid-
2017 are believed to have created a friendlier
political climate for adopting the outstanding RE
framework pieces.
Second, historically there has been confusion
over the responsibilities of the various sector
stakeholders, with both overlapping and missing
114
responsibilities. This has made implementing the
RE procurement schemes proposed in the RE
framework challenging. The ongoing capacity
building program being funded by the EU has
proposed individual mandates for each
institution (LEC, DoE, REU, and LEWA) that
removes the ambiguity on sector responsibilities.
Now that the above issues have been resolved,
Ministry of Energy has committed to adopt the
framework pieces needed to run the tender
processes described in the IP. The Government
plans to enact a new Energy Law in 2018 that
will cover institutional mandates and tender
processes. We have added some language in the
policy overview section to explain that this is
planned for 2018.
4 Examine the situation with the The main problems with past attempts to install
previous off-grid installations to SHS and microgrids has been a lack of
identify the reasons of failure and maintenance following installation. There was no
minimize the potential risks by market for technicians to upkeep the technology
planning respective actions and once it was installed in rural areas.
measures.
The WB project design will aim to address the
problem by selecting the business models that
ensure maintenance of technology after it has
been installed. The project design will draw on
practices from other countries in Africa where
there are examples of successfully building
maintenance it into the business model.
5 Clarify LCOE for solar, hydro and wind. The lower LCOEs for solar are driven by the
lower CAPEX cost and extremely high capacity
factors for solar. The CAPEX presented in Table
5.1 show that costs for wind is 50 percent and
for SHPP is 115-160% higher than solar CAPEX.
The resource potential for solar in Lesotho is also
excellent.
6 Clarify FiT approach selection as a For the reasons discussed in #3 above the FiT
policy and the ongoing tender for solar policy has not yet been adopted. The draft policy
PV IPP. What method is used for 70 is for solar PV and wind projects 30 kW and less
MW solar PV plant. than 50 MW and small hydro projects less than
10 MW. The draft RE framework also includes a
PPA template that will be used to establish the
agreement between LEC and the RE operators.
Due to the delay in establishing the RE
framework the DoE decided to initiate its own 20
115
MW tender to test the market. The tender
process was used to both see what market
potential existed and what the private sector
would willing to charge.
The 70 MW FOCAC project mentioned in the IP
was discussed in initial meeting with the
Consultant Team held in January 2017. Due to
uncertainty about the future of this project the
DoE has decided to remove it from the IP.
7 It is recommended to consider Agreed, the first two points on the
replacement of the feasibility studies disadvantages of hydro due to both
for two hydro power plants with the environmental and cost concerns are well
site specific studies for solar or other stated. It is true that both solar and wind were
necessary activities for enabling identified as having greater resource potential
environment. First of all, the droughts, and a lower cost than small HPPs. The GoL,
water stress, agriculture issues are however, finds that the potential advantage of
potential climate change impacts for HPPs being more reliable to meet baseload
Lesotho, and construction of hydro demand outweighs its disadvantages. To achieve
power plant may have negative impact its goal to meet baseload power with domestic
on environment. Development of HPP resources, the GoL made it a priority to include
requires careful consideration of these support for hydro in the IP.
issues. Second, the cost of HPP
construction is more expensive as On the third point, the size of the HPPs sites to
shown in the IP. Third, it is not clear if be studied was left vague intentionally. The
the envisaged hydro power plants are Consultant Team had received feedback from CIF
small or large. If they are more than 10 that while financing for HPP investment is
MW, the SREP normally does not limited to 10 MW, there is no set cap on the size
finance it. And finally, to have scale of HPPs to be studied. The intention is to
effect it is better to focus finance and conduct studies on sites that around 10 MW
efforts on one or two technologies. shown to have the best potential identified in
the ongoing RE mapping exercise. However, it
was desired that size of the HPPs to be studies
allow for some flexibility in the case that sites
slightly more than 10 MW are shown to have
high potential.
We have added in the following footnote in the
program description to explain this desire:
The intention is to conduct studies on sites
that are within the range of small HPPs used
in this IP (less than 10), but should sites with
slightly more than 10 MW potential be
identified as being among the best then it is
desired to have flexibility to study these sites
as well.
116
8 Clarify if the added generation of The additional grid-connected capacity
electricity will increase access through supported through the ong-rid component
the connection of new households to mostly aims to replace electricity imports,
the grid or it will replace the electricity though it will also indirectly support new
import. connection of customers within the LEC service
area.
The off-grid RE component is envisioned to be
most impactful in increasing electricity access in
the rural areas where access is currently lowest.
9 It is recommended to introduce Thank you, we agree with this recommendation.
gender disaggregated monitoring We have disaggregated the “Increased access to
indicators where applicable. modern energy services” target of 75,000 such
that it is now 32,500 men; 32,500 women; and
500 SMES/community services. The target is
derived from our estimate of the number
microgrids and SHS that can be installed with the
proposed financing. This disaggregation is like
what was done in the Nicaragua SREP IP.
10 It is recommended also to include as We have added the following indicator: Volume
an indicator the total volume of of private sector finance in RE. The target is set
increased investments in RE to track at US$ 34.4 million, or the amount of private
the leverage and transformative finance in the financing plan.
impact.
117
: Overview of the Concept of LCOE
The LCOE “levelizes” or amortizes the total costs of a power plant over its lifetime. It
is calculated as the discounted sum of expenditures divided by the discounted
electricity generation over the asset’s lifetime. This is given as the formula below:
+ +
∑
=1 (1 + )
∑
=1 (1 + )
Where
▪ t is the reference year,
▪ is the investment expenditure in year t,
▪ is the operating expenditure in year t,
▪ is the fuel expenditure in year t,
▪ is the electricity generated in year t,
▪ r is the discount rate, and
▪ n is the life of the plant104.
The LCOE of each technology can then be ordered and summed to create a supply
curve. A supply curve displays the cheapest generation on the lower left and the most
expensive generation in the upper right. A threshold, such as the average cost of
imports or cost of fossil generation, can be used to compare which technologies may
be more competitive than current alternatives.
The main limitation of the LCOE model is that because it is simple, it ignores other
important considerations. LCOE models also do not consider system costs, such as
transmission upgrades need to accommodate intermittent RE105. Intermittency
presents another problem: although the levelized cost over a lifetime may be cheaper
for a wind turbine, market prices may be lower when it is operating. Conversely, a
fossil fuel plant that has a higher levelized cost can be dispatched anytime the market
price exceeds their marginal cost of generation106. Data can also be subjective: each
parameter relies on assumptions. For example, LCOE calculations are sensitive to
interest rates, which are usually held static. Interest rates are rarely stable over the
asset life of a power plant. Therefore, care must be taken when evaluating different
technologies using LCOE. It is a useful comparative tool but should not be used in
isolation.
104 Office of Indian Energy, U.S. Department of Energy, “Levelized Cost of Energy,” 2015.
https://energy.gov/sites/prod/files/2015/08/f25/LCOE.pdf
105 Alex Gilbert, “9 Reasons Why LCOE Can Mislead,” 2016.
https://www.sparklibrary.com/9-reasons-why-lcoe-can-mislead/
106 Paul L. Joskow, “Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies,”
2011.
118
: Preparation Grant and MDB Payment
Requests
Appendix Table G.1: SREP Project Preparation Grant Request (On-Grid RE
Technologies)
SREP INVESTMENT
PROGRAM
Project Preparation Grant Request
1. Country/Region: Lesotho/Sub- 2. CIF Project ID#: (Trustee will
Saharan Africa assign ID)
3. Project Title: On-grid RE technologies
4. Tentative SREP Funding Request Grant: Loan:
(in US$ million total) for Projecta at • US$ 0.6 million • US$ 5 million
the time of Investment Plan
submission (concept stage):
5. Preparation Grant Request (in US$ 0.6 million MDB: AfDB
US$):
6. National Project Focal Point: Mokhethi Seitlheko, Deputy Director, DoE
7. National Implementing Agency Ministry of Energy and Meteorology
(project/program):
8. MDB SREP Focal Point and Focal point: TM: Farai Kanonda
Project/Program Task Team Leader Leandro Azevedo Chief Energy Investment
(TTL): CIF Private Sector
Specialist
Description of activities covered by the preparation grant:
The grant will cover activities related to the preparation of a renewable energy integration
study to identify necessary investments to the grid to absorb intermittent load from RE
sources such as wind and solar.
9. Outputs: Policy Framework
Deliverable Timeline
Renewable energy grid integration study March 2018
10. Budget (indicative):
Amount (US$ ‘000’) – estimates
Expendituresb
Consultants/technical assistance 70
Equipment 0
Workshops/seminars/trainings 10
Travel/transportation 22
Others (admin costs/operational costs) 5
Contingencies (max. 10%) 13
Total cost 120
Other contributions:
119
11. Timeframec (tentative): -
12. Other partners involved in project design and implementationd:
DoE
13. If applicable, explanation for why the grant is MDB executed: N/A
14. Implementation Arrangements (including procurement of goods and services):
AfDB will administer the total amount of the SREP grant.
AfDB will hire a consulting firm and individuals in accordance with its Rules and Procedures
for the Use of Consultants (May 2008 Edition , Revised July 2012).
The Consultants will be engaged through the fixed-budget selection method. The technical
assistance proceeds will be disbursed in line with AfDB’s Disbursement Handbook.
Consultancy services will be announced in the United Nations Development Business
Journal.
a. Including the preparation grant request.
b. These expenditure categories may be adjusted during project preparation according to emerging needs.
c. In some cases, activities will not require approval of the MDB Board.
d. Other local, national, and international partners expected to be involved in project design and implementation.
120
Appendix Table G.2: MDB Request for Payment for Project Implementation Services
SCALING-UP RENEWABLE ENERGY PROGRAM IN LOW INCOME COUNTRIES
MDB Request for Payment of Implementation Services Costs
1. Country/Region: Lesotho / Sub- 2. CIF Project ID#: (Trustee will assign ID)
Saharan Africa
3. Project Title: On-Grid RE Technologies
4. Request for At time of country At time of project approval (tentative):
project funding program submission
(US$ mill.): (tentative):
US$ 5.6 million
5. Estimated costs Initial estimate - at MDB: AfDB
for MDB project time of Country
implementation program submission:
services (US$ US$ 420,000
Date: February 2018
mill.):
Final estimate - at time
of project approval:
6. Request for First tranche: US$ Subject to the availability of investment financing
payment of MDB US$ 210,000 for the project
Implementation
Services Costs Second tranche:
(US$.mill.):
7. a - Investment financing - additional to ongoing MDB project □ ☐
Project/program
financing b- Investment financing - blended with proposed MDB project □ ☒
category:
c - Investment financing - stand-alone □ ☐
d - Capacity building - stand-alone □ ☐
8.Expected project 3 years
duration
9. Explanation
(no. of years): of N/A
final estimate of
MDB costs for
implementation
services:
10. Justification for proposed stand-alone financing in cases of above 6 c or d: N/A
a
lone financing in cases of above 6 c or d:
121
Appendix Table G.3: SREP Project Preparation Grant Request (Distributed RE
solutions)
SREP INVESTMENT
PROGRAM
Project Preparation Grant Request
2. Country/Region: Lesotho/Sub- 2. CIF Project ID#:
Saharan Africa
3. Project Title: Distributed RE Solutions
4. Tentative SREP Funding Request Grant: Loan:
(in US$ million total) for Projecta at US$4.9 million US$ 8 million
the time of Investment Plan
submission (concept stage):
5. Preparation Grant Request (in US$ 0.9 million World Bank
US$):
6. National Project Focal Point: Mokhethi Seitlheko, Deputy Director, DoE
7. National Implementing Agency Ministry of Energy and Meteorology
(project/program):
8. MDB SREP Focal Point and Focal point: TTL:
Project/Program Task Team Leader Monyl Toga Vonjy Miarintsoa
(TTL): Energy Specialist Rakotondramanana
Senior Energy Specialist
Description of activities covered by the preparation grant:
The grant will cover activities related to the preparation of pre-feasibility studies for small
hydropower sites identified as having high potential in the national resource mapping study.
9. Outputs: Policy Framework
Deliverable Timeline
Pre-feasibility study for (at least one) of SHPP site 2019
10. Budget (indicative):
Amount (US$ Million) –
Expendituresb
estimates
Consultants/technical assistance US$0.9 million
Equipment
Workshops/seminars/trainings
Travel/transportation
Others (admin costs/operational costs)
Contingencies (max. 10%)
Total cost US$0.9 million
Other contributions:
11. Timeframec (tentative): -
12. Other partners involved in project design and implementationd:
122
13. If applicable, explanation for why the grant is MDB executed: Given the lack of national
experience preparing site specific studies, and the World Bank’s ongoing experience with
medium and large hydropower in Lesotho, a Bank-executed grant is requested.
14. Implementation Arrangements (including procurement of goods and services):
The procurement will be conducted by the World Bank following its guidelines.
a. Including the preparation grant request.
b. These expenditure categories may be adjusted during project preparation according to emerging needs.
c. In some cases, activities will not require approval of the MDB Board.
d. Other local, national, and international partners expected to be involved in project design and
implementation.
123
Appendix Table G.4: MDB Request for Payment for Project Implementation Services
SCALING-UP RENEWABLE ENERGY PROGRAM IN LOW INCOME COUNTRIES
MDB Request for Payment of Implementation Services Costs
1. Country/Region: Lesotho / Sub- 2. CIF Project ID#: (Trustee will assign ID)
Saharan Africa
3. Project Title: Distributed RE Solutions
4. Request for At time of country At time of project approval:
project funding program submission
(US$ mill.): (tentative):
US$ 12.9 million
5. Estimated costs Initial estimate - at MDB: World Bank
for MDB project time of Country
implementation program submission:
services (US$ US$ 420,000
mill.):
Date: June 2018
Final estimate - at time
of project approval:
6. Request for First tranche: US$ Subject to the availability of investment financing
payment of MDB 210,000 for the project
Implementation
Services Costs Second tranche:
(US$.mill.):
7. a - Investment financing - additional to ongoing MDB project □ ☐
Project/program
financing b- Investment financing - blended with proposed MDB project □ ☒
category:
c - Investment financing - stand-alone □ ☐
d - Capacity building - stand-alone □ ☐
8. Expected 5 years
project duration
9. of years): of N/A
Explanation
(no.
final estimate of
MDB costs for
implementation
services:
10. Justification for proposed stand-alone financing in cases of above 6 c or d:
a
lone financing in cases of above 6 c or d:
124
Independent Technical Review of the Investment Plan for Lesotho
1. Title of the investment plan: Investment Plan for Lesotho
2. Program under the SCF: Program for Scaling up Renewable Energy in Low Income
Countries (SREP)
3. Name of the reviewer: Tamara Babayan
Introduction
The main objective of this quality review is to support the development of the Lesotho’s SREP
Investment Plan and to facilitate the process of endorsement. The review was done without visiting
the country and participating in the meetings with stakeholders. This may have an impact on some
interpretations. The final report of the review will reflect all the clarifications and details received.
The review was done based on the draft provided on October 30, 2017. All abbreviations used in
this report are the same as provided in the IP. The review report is structured according to the
requirements of the TOR for Independent Review. The Section 5, provides information on
compliance with the general criteria and the Section 6. presents whether the investment plan meets
the SREP specific criteria.
Background
According to the IP the energy sector in Lesotho faces challenges which include:
i) low access to modern and clean forms of energy;
ii) reliance on imported electricity and fuels (an energy security problem);
iii) dwindling forest reserves.
The Government of Lesotho recognizes that these challenges are a barrier to the country’s
development and has set targets to expand electricity access to 90 percent and increase the use of
renewable energy sources by 200MW by 2020. The Government of Lesotho (GoL) is also
committed to promoting the safe use of biofuels, reversing environmental degradation, and
increasing the use of renewable energy sources to increase energy security.
The proposed SREP IP aims to overcome the mentioned challenges through the following
activities supported by SREP under the IP respective components:
a) Component 1: On-grid RE technologies.
a. Investment in utility-scale solar PV plant
b. Development of RE integration study
c. Solar PV site specific studies
b) Component 2: Off-grid RE technologies
a. Investment in microgrids
b. Investment in SHS or other stand-alone systems
c. TA for preparation of microgrid tenders
1
c) Component 3: SHPP Technical Assistance
a. Preparation of two feasibility studies for hydropower plants
The exact financing modalities will be determined at the time of appraisal, but it is expected that:
US$5.6 million of SREP funding, in the form of grants or concessional loans, would be
used to leverage US$11.5 million in grants and private concessional loans (or a PRG)
from AfDB, $7.5 million in equity contributed from the developers of a 20 MW solar
PV project, and $6.9 million in additional financing from either a private lender or other
DFI.
US$12.9 million of SREP funding would be used to leverage US$ 10 million in
financing from the World Bank, and US$20 million in investment from other private
sector investors in microgrids and other distributed RE technologies.
US$1.5 million in SREP funding would be used towards the preparation of two
hydropower pre-feasibility studies.
The GoL will contribute by facilitating fiscal incentives for services associated with the financing
plan. These incentives will possibly include: waiving corporate profit tax for the first 10 years of
operation and excluding RE technology sales from VAT.
Part I: General criteria
The Lesotho’s Investment Plan is a comprehensive document with impressive informative and
analytical details about the country, energy sector, IP preparation processes, prioritization of RE
technologies, MDB and development partners’ relevant activities, private sector and NGO
participation, etc. It is consistent with the general criteria and SREP operational criteria. Comments
and concerns aim to further strengthen the GoL commitment to promote RE in Lesotho. Below the
results of the review is presented according to the general and specific criteria stipulated for the
SREP.
1.1. Compliance with the principles, objectives and criteria of the relevant program as
specified in the design documents and programming modalities
The Investment Plan generally complies with principles, objectives and criteria of the SREP1. It
was prepared through broad participatory process, it takes into account the strategies and long-
term policies of the GoL, it envisages private sector participation, seeks wider economic, social
and environmental co-benefits, etc.
1.2. Does the IP take into account the country capacity to implement the plan?
The IP is quite ambitious both for on-grid and off-grid technologies. At the same time, the IP
mentions a lack of implementation capacity in the country or it does not reflect all institutions
involved in the project preparation and implementation. During the IP preparation the GoL has not
identified institution that will be responsible for implementation of the proposed projects. The
decision was postponed to the project preparation stage. This creates risks for smooth
commencement of the relevant activities envisaged in the IP. Proposed MDB administration
(implementation) and engagement of consultants reduces the implementation risk but at the same
1
The aim of the SREP is to pilot and demonstrate, as a response to the challenges of climate change, the economic, social and
environmental viability of low carbon development pathways in the energy sector by creating new economic opportunities
and increasing energy access through the use of renewable energy.
2
time it hinders promotion of country institutions growth and enhancement of the institutional
capacity, which is critical for sustainability of the efforts under the IP and overall transformational
change success.
1.3. Has the IP been developed based on the sound technical assessments
The Investment Plan was developed based on the solid technical, analytical studies and the most
recent data available in the country. It provides detailed analytical information about all aspects of
the IP. It introduces the country context and macroeconomic indicators, energy sector situation
and challenges, demand and supply study, different renewable energy technologies’ cost analysis,
projections, etc. It contains information about all RE technologies, not only on those included in
the proposed projects. Detailed review and prioritization of all technologies based on agreed
evaluation criteria allows assess the reasons of selecting priority technologies and activities under
the SREP IP. During preparation of IP the information, surveys and studies conducted by MDBs
and development partners were taken into account.
1.4. Does the IP demonstrate how it will initiate transformative impact?
The IP envisages engagement of private investors, IPPs, vendors and service providers for on-grid
and off-grid RE generation. It also involves local banks for financing of RE investments. These
are the key preconditions to initiate transformational changes in the country. Another precondition
is creation of institutional mechanisms to support sustainability and replication of the efforts and
activities. Here the IP does not provide adequate information to show how the GoL will ensure
results of the proposed projects and continue the development of the sector, particularly it is not
clear what institutions will be responsible for tenders for on-grid and off-grid technologies. The
lessons from the previous solar home system installations shows that as a result of the lack of
capacity the installed systems stopped their operation. Extensive capacity building is important not
only to ensure quality of the tender processes for different components of the IP, but also to develop
the market by enhancing potential suppliers’ capacity. The other critical component of the
transformational change is the legal regulatory framework that enables investments in the RE
sector. The IP presents in details the current legislation regulating the sector. It has serious lacks,
including the absence of the Law on Energy. Nevertheless, the IP describes also activities initiated
by MDBs and donor institutions toward improvement of the energy sector legislation.
1.5. Does the IP provide for prioritization of investments, stakeholder consultation and
engagement, adequate capturing and dissemination of lessons learned, and
monitoring and evaluation and links to the results framework?
The Investment Plan was prepared through the extensive participatory process in Lesotho,
including meetings with participation of the MDB representatives. An assessment of technical
potential for various RE technologies that can be used in Lesotho was carried out to support the
preparation of the SREP IP. Each of the potential RE resources were then evaluated against
national and SREP criteria, and prioritized accordingly. The criteria and prioritisation ranking is
included in the IP. The national priority criteria preferred technologies that would result in job
creation, improved energy security, and increased private sector investment. The IP reflects
previous experience in Lesotho with regard to the RE development, including pilot projects
implemented by different organizations during the past years. The IP also mentions that the MDBs
will take into account the experience and lessons learned in other countries during the preparation
of the projects. An M&E system will be established by the GoL, in cooperation with MDBs and
other donor partners to track and report the Program’s progress and results. The monitoring and
3
evaluation framework will be coordinated by the Renewable Energy Division of the Department
of Energy. The gender disaggregated indicators should be introduced.
1.6. Does the IP adequately address social and environmental issues, including gender?
The IP identifies the main social and environmental risks and benefits for all planned technologies.
The IP prioritizes technologies that will prevent the deforestation of the country, reduce local
pollution and health issues due to the replacement of the paraffin and kerosene with clean energy.
Gender issue is also reflected in the IP. The “gender” was one of the criteria for ranking the
technologies to include into the IP. Technologies that directly promote gender inclusiveness and
increase opportunities for women were ranked higher.
1.7. Does the IP support new investments or funding additional to on-going/planned
MDB investments?
The IP presents the on-going projects in RE development financed by private sector, NGOs and
development partners. All activities are described in the IP. The main partners, EU, AfDB,
UNDP/GEF and Government of Italy provide about $58.1mln financing for TA for enabling
environment and investments. The China-Africa Cooperation funded project will build a 70 MW
solar park. Regarding the latest there is no information about possible intersection of the solar PV
development approaches.
1.8. Does the IP take into account institutional arrangements and coordination?
The IP presents the institutional structure of energy sector. There is serious legislative gap for
regulation of responsibilities and relationship between energy sector institutions. The overlapping
institutional mandates is one of the barriers for private investors. The IP clearly mentions that the
overall coordination of the SREP IP activities will be coordinated by the Department of Energy of
the Ministry of Energy and Meteorology. However, there is no designated institution for
implementation of the preparation and implementation of the SREP projects.
1.9. Does the IP promote poverty reduction?
One of the key objective of the IP is the increased access to modern clean energy services in urban
and rural areas. It will help to reduce energy expenses of the families given the energy poverty
situation in the country, as well as to address some issues related to the human poverty, such as
health improvement due to the cleaner options for heating, lighting and cooking, opportunities for
women and child to have more time for self-development. The extensive development of
standalone RE systems will create new opportunities for business, as well as create sustainable
jobs thus fighting unemployment and poverty.
1.10. Does the IP consider cost effectiveness of investments?
The IP has a detailed analysis of the LCOE for all potential RE technologies applicable in Lesotho.
All assumptions and methodologies are presented in the IP that helps to assess a viability of the
selected technologies. Presented LCOE for solar PV, wind and hydro are different from those
published by IRENA for 2016. Although it is clarified that the cost of technology adapted to
Lesotho, and it includes cost of connection and necessary investments in the grid infrastructure,
however the relative costs are also different. In the assumptions the capital cost of the solar PV is
2-4 times less than the costs of wind and hydro. Additional clarification may be useful to
understand the reasons for costs difference. The cost analysis confirms the selection of solar PV
4
as a priority project under the IP, however it raises question regarding the need for feasibility study
for hydropower plants given the much higher capital cost needed for hydro power plant option.
2. Part II: compliance with the investment criteria of the SREP
2.1. Catalyze increased investments in renewable energy in total investment
The investment plan envisages engagement of private developer for large scale solar PV project,
with possible private lending or PRG from AfDB and equity funding of the private IPP. According
to the IP the GoL will contribute by facilitating fiscal incentives for services associated with the
financing plan. These incentives will possibly include: waiving corporate profit tax for the first 10
years of operation and excluding RE technology sales from VAT. Although this shows the
willingness of government to support RE development, however VAT exemption has negligible
impact if there is no VAT exemption on imported PV equipment. It may create administrative
barriers for investors. The off-grid component is also designed to have a catalyzing effect through
engagement of local banks and vendors, demonstration of benefits and viability of options, creation
of market of vendors and service providers.
2.2. Enabling environment
The investment plan presents the country’s long-term commitment to promoting renewable energy
as part of its energy sector strategies and energy access goals. It envisaged some activities to
enhance the enabling environment for RE investments. At the same time the IP presents relevant
on-going and planned activities of other donors aimed to remove the barriers and increase
attractiveness for private investments. There is confusing information in the IP regarding the
preference of the FIT approach for the GoL and the current tender for solar PV plant development.
Additional clarification will be useful here.
2.3. Increase energy access
Lesotho’s IP aims to increase the access to modern clean energy through on-grid and off-grid
renewable energy technologies scale up. Particularly a 20 MW Solar PV park generation indirectly
will support the additional connections. Microgrid and off grid technologies selected under the IP
will help residents to replace paraffin, candles and wood by the clean energy options. Results
framework provides access level indicators for electricity and modern energy options. It is not
clear if the added electricity generation will replace the import or increase the connections given
the GoL goals to reduce dependence on imported energy.
2.4. Implementation capacity
The implementation arrangements are not specified in the IP. The GoL will identify implementing
agency (es) later at the project preparation stage. At the same time IP mentions about the lack of
implementing capacity in the country. The preparation of the projects will be implemented by the
MDBs. This reduces risk of implementation, but also does not give an opportunity to local
institutions to enhance their capacity for implementation of further similar projects.
2.5. Improve the long-term economic viability of the renewable energy sector
The IP presents the results of economic viability analysis by comparing on-grid options to the cost
of imported electricity and the off-grid options are compared to the cost of off-grid diesel
generation. All selected on-grid technologies are viable, except the hydro. All selected off-grid
technologies are viable except the SHS, however the latest is viable if compared to cost of paraffin,
kerosene, candles. This analysis shows that these options will be even more viable and attractive
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for private sector after implementation of the SREP projects due to the demonstration effect,
enhanced skills, as well as due to the competitive market development.
2.6. Transformative impact
The investment plan demonstrates transformative impact by installation of the first utility-scale
solar PV power plant, which will create interest and confidence of private sector investors to invest
in RE technologies; by introduction of the business model for off-grid technologies and
engagement of local banks in the process. However there is risk that the existing gaps of legal-
regualtory framework, lack of implementation capacity and technical/professional capacity, the
sustainability of the projects is questioned. It is also important to focus the efforts under the SREP
to one or two technologies to have a scale effect.
Part III. Recommendations
1. It is recommended to identify institutional arrangements for projects preparation and
implementation. Designated institution should be involved at early stages of preparation of
the projects to gain knowledge and experience benefitting from the consultants to be hired.
2. It is recommended to envisage capacity building activities. It should be designed for all
institutions involved in RE development, as well as for technical and engineering staff of
private service providers or individuals. This will support the market creation and thus
support transformative changes.
3. It is recommended to attach a timeline agreed with the government regarding adoption of
the legal-regulatory documents that will enhance enabling environment for RE
investments.
4. Examine the situation with the previous off-grid installations to identify the reasons of
failure and minimize the potential risks by planning respective actions and measures.
5. Clarify LCOE for solar, hydro and wind.
6. Clarify FIT approach selection as a policy and the on-going tender for solar PV IPP. What
method is used for 70 MW solar PV plant.
7. It is recommended to consider replacement of the feasibility studies for two hydro power
plants with the site-specific studies for solar or other necessary activities for enabling
environment. First of all, the droughts, water stress, agriculture issues are potential climate
change impacts for Lesotho, and construction of hydro power plant may have negative
impact on environment. Development of HPP requires careful consideration of these
issues. Second, the cost of HPP construction is more expensive as shown in the IP. Third,
it is not clear if the envisaged hydro power plants are small or large. If they are more than
10 MW, the SREP normally does not finance it. And finally, to have scale effect it is better
to focus finance and efforts on one or two technologies.
8. Clarify if the added generation of electricity will increase access through the connection of
new households to the grid or it will replace the electricity import.
9. It is recommended to introduce gender disaggregated monitoring indicators where
applicable.
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10. It is recommended also to include as an indicator the total volume of increased investments
in RE to track the leverage and transformative impact.
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