99298 NOTE NUMBER 8 June 2015 LESSONS LEARNED e Global Partnership on Output-Based Aid Biogas Support Program in Nepal DEVELOPMENT CHALLENGE Results Achieved In late 2006, Nepal was recovering from a decade- long conflict and was one of the poorest countries yy The project resulted in the installation of 27,139 in the world. About 82 percent of its population of biogas plants (‘outputs’) in low-income households, around 26 million lived in rural areas and depended including more than 16,000 disadvantaged almost exclusively on agriculture. Rural households, families (Dalits, Janajatis). This figure represents an which accounted for about 90% of total energy achievement of 98 percent of the revised target of use in Nepal, lacked access to modern energy 27,593. More than 90 percent of the plants were sources and used biomass (a mixture of wood, operational at the end of the project. The project dung, and agricultural residue) for cooking and effectively targeted low-income beneficiaries by heating. The demand for firewood was identified using the remote location of households as the main as a contributor to deforestation and indoor air targeting criteria, combined with a self-targeting pollution, with average smoke levels in kitchens using method whereby poorer households, which typically biomass fuels about three times higher than levels own fewer bovines, received higher levels of program in those using cleaner fuels (kerosene, liquefied subsidy as a percentage of total plant cost. Plant petroleum gas, and biogas). The 10th Five Year cost varied according to plant size and site location, Plan of Nepal (2002–2007) outlined the need for ranging from $475–$3,400 per plant. Only farmers strong expansion in renewable energy, especially with the financial means to run a biogas plant could in rural areas. Under this plan, a long-term program participate, and these participants reported positive for household biogas plants—the Biogas Support outcomes. When surveyed, the farmers said that the OBA Lessons Learned Program IV (BSP IV)—was being implemented using plants enabled them to save money on energy. They Series is a forum the public-private partnership approach. The Global also consistently reported reductions in indoor air for discussing and Partnership on Output-Based Aid (GPOBA) Biogas pollution and improvements in sanitation. By making disseminating project Support Program in Nepal built on the foundation the independent verification reports available to all insights at the conclusion established by BSP IV. stakeholders, the project promoted transparency of projects in supporting about progress and allowed effective course the delivery of basic THE PROJECT AND ITS correction, thereby strengthening quality control services to the poor. of the overall Biogas Support Program partnership. GPOBA is a partnership PARTNERS Upon successful completion of the project, the established in 2003 In 2006, the government of Nepal requested Government of Nepal indicated its willingness to use by the UK (DFID) and support from the World Bank and GPOBA to OBA in the renewable energy sector. It requested the World Bank. Its promote biogas plants in rural areas and enhance further support from GPOBA to assess the feasibility other donors are the the sustainability of the energy sector. A GPOBA of such scale-up through the Central Renewable International Finance grant was approved with the objective of increasing Energy Fund (CREF) of the National Rural and Corporation (IFC), the the number of households sustainably using Renewable Energy Program (NRREP). The government Netherlands (DGIS), biogas plants under the government’s existing BSP has been able to mobilize substantial resources from Australia (DFAT), IV program. Consistent with the output-based development partners through NRREP, which is now and Sweden (Sida). aid (OBA) approach, the private sector service implementing the domestic biogas program. Some For more information providers bore the operational risks—identifying lessons from the GPOBA-funded project are already visit www.gpoba.org new eligible customers, delivering the biogas plants, being used to design results-oriented approaches for or email us at and collecting user contributions set at 60–70 a wider range of renewable technologies. gpoba@worldbank.org. percent of costs. Service providers were reimbursed Supporting the delivery of basic services in developing countries All photos courtesy of Martin Wright/Ashden the output-based subsidies—the remaining 30–40 percent of adverse health effects from indoor air pollution, but can costs—upon annual quantitative and qualitative verification of the also provide improved sanitation. It underlines the need, in outputs by an independent verification agent. These companies Nepal and other countries, to establish closer collaboration were responsible for maintenance of the plants for three years mechanisms between toilet construction and biogas after construction. The project was implemented by the Alternative promotion programs. Energy Promotion Center (AEPC) and the Biogas Sector Partnership Nepal (BSP-N), an NGO that provided training to biogas companies 3 Using geographic criteria is not sufficient to achieve biogas penetration in remote areas. The project progressed slowly in the initial years. On the demand side, and users and carried out verification of biogas plant installation for AEPC. The Netherlands’ Directorate-General for International despite significant promotional efforts by AEPC and the biogas Cooperation, Kreditanstalt für Wiederaufbau (Kf W), and Stichting companies, user uptake was slow, especially in the poorer and most remote districts. On the supply side, in targeted Nederlandse Vrijwilligers (SNV) also supported specific technical districts where distributors were already present and had made aspects of the project. One of the most innovative features of this investments in building local delivery capacity, and where there project was the concomitant use of GPOBA and the Community was already client demand, distributors performed well. In Development Carbon Fund (CDCF), another World Bank- those districts where they had no supply network, and where administered trust fund that could purchase Emission Reductions there were steep increases in the costs of materials and after- (ERs) resulting from use of household biogas. One finalized sales service due to relative inaccessibility, their results were far transaction (Nepal Biogas Program) helped approve the sale of one below potential. One key measure taken was the decision by million tons of ERs to the CDCF. the government in 2010 to revise the official subsidy structure to address the cost increases. It requested that the World Bank increase the subsidy amount per plant, and lower the number Lessons Learned of target households to stay within the grant amount approved for the project. 1 Aligning the OBA intervention with a national program capitalized on experience and leveraged coordination; this proved particularly useful in a fragile context. The 4 Innovative technical solutions and further access to credit can increase both penetration in remote areas and user uptake. By design the project required OBA project built on earlier phases of the government’s biogas customers to pay nearly two-thirds of the cost of the program, a public-civil society-private partnership implemented biogas plant. Nevertheless, the demand-side issues noted by the NGO, SNV, which used OBA features. Relying on the above show that even higher biogas plant sales could be existing institutional set-up allowed the project to quickly and achieved using consumer financing through banks and other effectively mobilize all local stakeholders. In particular, the financial institutions. To this end, it would be useful to have project relied on the same local private companies that for a comprehensive picture of the both demand and supply over a decade had stepped in to bridge the gaps in funding needs of credit in the biogas sector in the country, including and implementation capacity resulting from the weak public sources of credit, credit flows, delivery mechanism, reach, and sector, and had proven ability to operate in the volatile political bottlenecks for households to access credit. Currently, the environment. available biogas plant model is very expensive to install and 2 Sanitation initiatives can harness the potential for co-financing biogas plants. Since the biogas plant design included capability to link to latrines, most customers also built maintain in the hilly villages. The development of alternative designs and materials will bring costs down to make plants more affordable to potential users in these locations. But toilets to link to the plants, thereby benefiting from financing given the high cost of acquiring customers in remote districts, provided by international, national and local sanitation a key consideration may be the need for greater financial programs implemented at the same time. Customers thus incentives, along with greater support for promotional saved themselves the cost of constructing a separate pit for activities to the private companies working in these areas. the toilet and could use the money saved to partially finance These issues are the topic of an ongoing assessment by the the biogas plant—a savings that increased the uptake of International Finance Corporation (IFC), which has joined biogas. This complementarity shows that biogas plants not with GPOBA to support private sector approaches in Nepal’s only result in savings in household energy costs and reduced renewable energy sector. The case studies are chosen and presented by the authors in agreement with the GPOBA program management team and are not to be attributed to GPOBA’s donors, the World Bank Group, or any other affiliated organization, nor do any of the conclusions represent official policy of the aforementioned organizations.