IMPACT Issue 15 | April 2019 © James Wagstaff | Alamy Stock Photo OFF-GRID INNOVATION IMPROVES THOUSANDS OF LIVES IN RURAL PERU The positive impact of electricity and the development opportunities that come with it can be life changing. The introduction of electricity into homes and communities makes them safer and healthier, and it expands opportu- nities for education and productivity. A decade of World Bank support has helped rural communities in Peru to realize the profound benefit of energy access. Innovative efforts, such as scalable models for solar home sys- tems and the promotion of productive uses of electricity, funded by the Energy Sector Management Assistance Program (ESMAP), were instrumental in reaching the poorest and most remote communities while contributing to Peru’s efforts to diversify the energy mix with renewables. Peru boasts one of the strongest economies in Latin Amer- KEY ACHIEVEMENTS ica. With prudent macroeconomic policies, Peru has been able to sustain a continuous recovery and increase per FIRST RURAL ELECTRIFICATION capita income by 50 percent over the course of a decade. PROJECT (RE1) Between 2004 and 2010, historic growth helped lift more than 4 million people out of poverty and decreased the rate • 105,000 new connections of extreme poverty to less than 10 percent of the population. • 450,000 beneficiaries However, disparities between rural and urban areas • 3,000 schools, clinics, remained high. By 2010, the national poverty rate had fallen and community centers from almost 50 percent to 31 percent, but it was still close to • 7,000 solar home systems (SHS), 61 percent among Peru’s rural and indigenous communities. benefiting 31,500 people One explanation for the gap: access to electricity. While the national rate of access was 74 percent, only 29 percent of rural households had access to electricity. This meant 6 mil- SECOND RURAL ELECTRIFICATION lion people were still without power, representing one of the PROJECT (RE2) lowest rates of electrification in Latin America. • 143,000 people provided with The government had to act. new or improved electricity services • 36,500 new connections • 12,000 solar home systems • 73 percent of all connections located in remote rural areas • 33 percent of all connections were made using SHS in areas that were too isolated to be served cost effectively by grid extension © Geoff A. Howard | Alamy Stock Photo PARTNERING WITH of electricity distribution companies, already serving urban areas, to expand coverage to rural communities. THE WORLD BANK The companies prepared, executed, and operated rural electrification subprojects as part of their regular The government launched an ambitious development commercial operations. Nine distribution companies agenda to overcome social gaps and improve equity. in 16 regions participated in co-financing the project, With the goal of providing equal access to basic ser- mobilizing an average of 25 percent of co-­ investment, vices and reducing extreme poverty while keeping high for a total of US$29 million, surpassing the original rates of economic growth, the government looked to the target of US$23 million. World Bank for support. With the World Bank’s assis- tance, a new general framework for rural electrification The project was highly successful—installing 105,000 was prepared in 2005, and a dedicated fund was cre- connections in rural and poor households, benefitting ated to mobilize, manage, and disburse funding solely 450,000 people. The project also brought electricity for rural electrification. connections to almost 3,000 schools, clinics, and commu- nity centers. This increased rural electricity coverage by BRINGING ELECTRICITY almost 6 percent. TO RURAL COMMUNITIES TAPPING INTO RENEWABLE In 2006, with a US$50 million World Bank loan and a US$10 million Global Environment Facility (GEF) RESOURCES grant, the Rural Electrification Project (RE1) set out The GEF grant sought to fully incorporate renew- to increase rural access to efficient and sustainable able energy options into the project by supporting electricity services. The project had a unique design— investment studies on off-grid renewable energy pre-­ introduce incentives to encourage the existing network sources and the promotion of productive uses of electricity. The World Bank’s Energy Sector Management Assis- tance Program (ESMAP) complemented the GEF com- ponent by supporting the development of an innovative model for bringing power to remote populations that could not be economically reached by the grid. Solar Home Systems (SHS) A stand-alone photovoltaic (PV) system can supply power for lighting and appliances. In remote off-grid households that are not connected to the grid, SHS can be used to meet a household’s energy demand, fulfilling basic electric needs. SHS typically includes one or more PV modules consisting of solar cells, a charge controller that distributes power and protects the batteries and appliances from damage, and at least one battery to store energy for use when the sun is not shining. © Geoff Marshall | Alamy Stock Photo 2 ESMAP Impact | Issue 15 An ESMAP-funded pilot program provided regulated services through two distribution companies using solar PROMOTING PRODUCTIVE home systems. While the pilot successfully delivered USES OF ELECTRICITY power to 2,000 customers and the distribution compa- When communities understand how energy can nies strongly supported the model, an ESMAP analysis boost productivity, the impact of electricity access found that incomplete regulatory frameworks limited can significantly enhance quality of life. Women and growth in the off-grid renewable energy market. Based children especially benefit from the introduction of on this analysis, the government passed a law and electricity through increased opportunities for income, established regulations that created standards, tariffs, lower indoor air pollution, enhanced lighting for educa- and subsidies for rural electricity systems and the pro- tion, and reduced labor burdens from the adoption of motion of renewable energy. appliances. The government then implemented the model, estab- Despite these benefits, international experience has lishing a nationally regulated tariff that allowed for shown that promotional efforts are often needed to electricity distribution companies to provide service encourage the adoption of electrical equipment for using solar home systems to off-grid customers. Cross-­ production. subsidies were introduced to ensure affordability for customers. This resulted in the installation of more than ESMAP supported the design and implementation of a 7,000 solar home systems, delivering power to more pilot program to increase productive uses of electricity than 31,000 people in remote rural areas. as part of RE1. In villages near Cusco, a city in south- eastern Peru, the pilot program partnered with local EXPANDING IMPACT WITH nongovernmental organizations (NGOs) to assess the INNOVATIVE SOLUTIONS market for the presence of small enterprises with the potential to increase electricity consumption. The NGOs Based on the success of RE1, the government then carried out promotional activities to encourage requested an additional loan to continue the application people to adopt tools and equipment that would further of the rural electrification model. The Second Rural their productivity. Electrification Project (RE2) aimed to provide electricity The results of the pilot were promising—almost 1,500 service in localities that were even more distant from families adopted electric equipment to process cere- the grid and with more dispersed populations. als, coffee, cocoa, baked goods, meat products, milk, Expanding on the off-grid model introduced in RE1, wood, and metal products, as well as to pump water for ESMAP helped Peru to establish regulated service from expanded agricultural production and processing. the electricity distribution companies to the solar home The World Bank then aimed to replicate and scale systems. With ESMAP support, training was provided up the Cusco pilot in other rural communities and to for staff of the distribution companies, and online tools incorporate the effort into the design of RE2. The World were developed to help utilities manage the solar home Bank funding allowed for local NGOs to be competi- systems, optimizing service and reducing costs. In addi- tively selected, capitalizing on their links to the com- tion, effective commercial arrangements were estab- munity and specific field experience. The NGOs then lished for billing and collection among the dispersed deployed marketing and outreach, not only to family households. This was a pioneering effort for Latin Amer- producers, but also to micro-, small-, and medium-size ica and provided an important model for future projects. enterprises and cooperatives to adopt electricity and RE2 successfully connected almost 143,000 house- explain how it can be used for multiple purposes. They holds to the grid and installed an additional 12,000 often used innovative methods—such as live theater solar home systems, exceeding targets by 10 percent. performances—to communicate and connect with the Approximately 34 percent of the beneficiaries were local communities. Finally, the NGOs worked with the women, and 15 ­ percent—21,000 people—were part of individual producers and cooperatives to build capacity Peru’s indigenous population. ESMAP Impact | Issue 15 3 © Nicholas Gill | Alamy Stock Photo and implement business plans using the newly adopted electrified equipment. STRENGTHENING THE GOVERNMENT’S INVESTMENT The effort ultimately assisted 10 NGOs in 18 Peruvian provinces across 3 major geographical and dispa- Peru’s rural electrification efforts have had a tremendous rate regions, benefiting more than 25,000 rural family effect on the people living in those communities. These producers and enterprises, including women-led micro projects have also been instrumental in promoting new and small businesses, to adopt electrical equipment models for project delivery and design. The success that increased their productivity and incomes. At project of RE1 and RE2 has institutionalized a new system closure, participating producers had increased their for rural electrification whereby distribution companies incomes by an estimated 6 percent annually, and their can be effectively tapped for the delivery and opera- average electricity consumption increased from 56 to tion of grid extensions and solar home systems. The 240 kWh/month—an increase of more than 300 percent. promotion of the productive uses of electricity helped to confirm that economic sustainability is more likely to be Overall, about a third of the promotion’s beneficiaries achieved in rural electrification efforts if there are direct were women. This came about naturally, as women impacts on livelihoods and revenue generation. Based entrepreneurs are active in bakeries, dairy production, on the government’s investment, along with the coordi- ceramics, and textiles. In Cusco, that rate was much nated and innovative support of the World Bank, GEF, higher—almost two-thirds of participants were women. and ESMAP, it is estimated that the electricity coverage The program identified an association of women bakers in rural areas of Peru more than doubled, from 30 per- who specialized in artisanal cookies made from the cent in 2007 to 78 percent by 2015. amaranth plant, a high-­ nutrition traditional crop native to Peru. The women adopted machinery to increase production of bakery products and to more effectively brand, label, and market the goods. ESMAP MISSION The Energy Sector Management Assistance Program (ESMAP) is a global knowledge and technical assistance program administered by The World Bank. It provides analytical and advisory services to low- and middle-income countries to increase their know-how and institutional capacity to achieve environmentally sustainable energy solutions for poverty reduction and economic growth. ESMAP is funded by Australia, Austria, Canada, ClimateWorks Foundation, Denmark, the European Commission, Finland, France, Germany, Iceland, Italy, Japan, Lithuania, Luxembourg, the Netherlands, Norway, the Rockefeller Foundation, Sweden, Switzerland, the United Kingdom, and the World Bank. 1818 H Street, NW Washington DC 20433 www.esmap.org esmap@worldbank.org 4 Ap r il 20 19