75876 May 2012 PPIAF Assistance in the Solomon Islands The Solomon Islands is the third largest archipelago in the South Pacific, comprising 992 islands and covering a sea area of more than 1.35 million square kilometers. Eighty-five percent of the total population of just over 500,000 lives in rural areas. For all islands, access to affordable electricity is critical for development. In 2008 the government of the Solomon Islands requested PPIAF assistance to help develop its renewable energy sector. Technical Assistance for Solomon Islands’ Energy Sector In 2008 the Solomon Islands Electricity Authority (SIEA) supplied the main grid around the capital city, Honiara, with diesel-powered electricity. The cost of this fuel had risen dramatically in recent years and was passed through electricity tariffs for residential and business consumers. The foreign exchange expenditure on diesel, which was putting the country’s reserves under pressure, was also of major concern to the Central Bank. In this context, the government requested PPIAF assistance in 2008 to fund an analysis to examine ownership and financing options for renewable energy projects in the Solomon Islands that were intended to be implemented through a public-private partnership (PPP). The PPIAF-funded technical assistance confirmed the pre-feasibility of a 22–66 MW hydropower plant based on economic conditions, and identified a possible ownership and financing structure. An Independent Power Producer (IPP) is being considered wherein its sole source of revenue will be payments from the SIEA, as specified in a Power Purchase Agreement. These will be principally for electricity (probably including payments for capacity, firm energy, and non-firm energy), together with lease rentals for the transmission line. The following next steps were recommended: i) drafting a Power Purchase Agreement and other associated agreements; ii) undertaking a feasibility study for the project to delineate the technical and economic aspects and develop a tender package; iii) creating a corporate vehicle for the IPP and the subscription of its equity; and iv) addressing land use. Following PPIAF’s assistance, the government decided to pursue a hydropower plant with a smaller capacity (7–9 MW vs. 22–66 MW originally). In 2011 the European Investment Bank financed a full technical and economic feasibility study for the development of the Tina River Hydro Project hydroelectric plant. The study aims to provide the essential technical and economic information necessary to enable private sector investors to submit tenders for a concession contract to build, own, and operate such a hydroelectric power plant. As of 2012, the study was still ongoing. Results of PPIAF’s Activity in Solomon Islands’ Energy Sector Category Outputs Enabling environment reform  Support mission to analyze ownership and financing options for Analyses/assessments prepared renewable energy projects in the Solomon Islands, July 2008 Category Outcomes Capacity and awareness building  Following PPIAF assistance, the government decided to pursue the development of a hydropower project as an IPP, and the Consensus achieved European Investment Bank is currently carrying out a feasibility study 1