IMPACT ISSUE 13 | MARCH 2018 Image Source: ©Meriem Gray | World Bank BRINGING POWER TO LAO PDR’S RURAL POOR Lao People’s Democratic Republic (Lao PDR) is one of the fastest growing economies in East Asia and the Pacific. It has improved access to electricity and has become an important energy exporter. Lao PDR presents a remarkable success story in rapid national electrification integrated within a broader strategy of national and rural development. The Energy Sector Management Assistance Program (ESMAP) provided vital support throughout the country’s compre- hensive electrification efforts that increased access and helped communities achieve social and economic growth. Ms. Pan weaves mats and fishing nets in one of the rural villages of Lao PDR. Weaving, a tedious task that cannot be performed in the dark, is one of the main economic activities in the village and the primary source of Ms. Pan’s income. As a widow, having to raise her children alone, she struggled to make ends KEY ACHIEVEMENTS meet. Ms. Pan’s life changed after she gained access to electricity. “My life is normal now, not like in the past when we couldn’t see well,” says  With direct support from the Pan. “Since we’ve had electricity, we can save 40,000 to 50,000 Kip (US$5-6) a month because we can make more mats and fishing nets. Before, we World Bank and ESMAP, Lao couldn’t make any more money, but now we can do whatever we want, PDR has increased electricity whenever we want to do it.” access from 16% in 1995 to Like Ms. Pan, many people in Lao rural communities benefitted from the 90% of the population in 2017 government’s efforts over the past 20 years to make sufficient, reliable, and  ESMAP support has helped to affordable electricity widely available, and to create opportunities for growth. bring power to 14,000 house- Today, 90 percent of the population is connected to the power grid, an increase from 16 percent in 1995. holds in 230 villages through Image Source: ©Meriem Gray | World Bank individual solar home systems and to 52,000 households in 570 villages through grid extension  Unique initiatives like Power to the Poor and Productive Uses of Electricity have helped to increase connectivity rates from 60% to 90% and to grow small and medium enterprises The World Bank and ESMAP have been key partners country’s power utility and expand electricity to the rural in this journey. During two decades of World Bank poor in the seven southern provinces. support, nearly US$84 million has been allocated to ESMAP supported analysis that examined off-grid help expand the country’s main grid, scale up off-grid development and explored financing options for elec- renewable energy technologies, and strengthen the tricity grids. The study defined the linkage between capacity of the Department of Electricity and the nation- electrification and economic development and poverty al power utility. Much of this investment was spurred by alleviation. This enabled the government to outline the ESMAP’s US$500,000 contribution, which provided the program’s economic benefits and impact on poverty analytical underpinnings needed to push this agenda and helped leverage a US$10 million World Bank loan forward. approved in 2006 for the Rural Electrification Phase I Project (2006-10), one in a series of electrification LAYING THE GROUNDWORK projects financed by the World Bank since 1988. FOR GRID EXPANSION OFF-GRID ELECTRIFICATION: Taking advantage of the favorable economic environ- ment in the country in the early 2000s, the government REACHING THOSE BEYOND set clear targets for electricity access—70 percent by THE GRID 2010 and 90 percent by 2020—to be achieved through aggressive grid extension complemented by off-grid For villages beyond the reach of the power grid, the electrification, where cost effective. government had explored individual solar home sys- tems and other off-grid technologies. However, funding ESMAP, through its Asia Sustainable and Alternative for this type of electrification was insufficient. Energy (ASTAE) program, helped lay the groundwork for the first phase of the World Bank’s Lao PDR Rural ESMAP support came at a crucial moment. Electrification Program, designed to strengthen the Through advice and financing, ESMAP helped create capacity of the Department of Electricity and the alternative financing mechanisms, including the Rural Electrification Fund (REF). The self-sustaining REF Image Source: ©Stanislas Fradelizi | World Bank collects repayment from beneficiary households for solar home systems installed under the program and provides subsidies to encourage further scale-up and build local capacity. The REF also mobilized additional financing from other players such as the government, donors, the private sector, other financial institutions, and customers themselves. This type of dedicated support helped to bring power to over 14,000 households in 230 villages through solar home systems and to 52,000 households in 570 villages through grid extension. Overall access rates exceeded the project’s original targets and, at project closing in 2012, stood at 80 percent. Solar home systems and other off-grid technologies have changed people’s lives. Almost overnight, these households switched from traditional and unsafe fuels to clean and safe solar power. Now, businesses and markets can operate in the evening and families can power modern appliances such as fans, televisions, and even refrigerators—previously only available only to those connected to the main electricity grid. 2 IMPACT | ISSUE 13 Image Source: ©Meriem Gray | World Bank TARGETING THE POOREST The program demonstrated that targeting the poorest households and providing low-cost financing can be a HOUSEHOLDS AND WOMEN simple and effective means of reaching the poorest, especially women and children, ensuring that they, too, The Lao PDR electrification program proved to be a benefit from access to power. success. However, after electricity reached the villages, authorities realized that about one-third of the house- The Productive Use of Electricity initiative supported holds (30 percent) were still not connected, even local communities and rural households to use electrici- though they were located near to the grid. A careful ty for income generation. The ESMAP-funded study look at the situation found that the poorest rural house- Powering Up Productivity in Rural Lao PDR: Stimulat- holds could not afford the upfront cost of grid connec- ing Small and Medium Enterprises to Use Electricity for tion and internal wiring, roughly US$60-80. Through the Income Generation examined electricity use among second phase of the Lao PDR’s Rural Electrification businesses, services, and agricultural income- Program, ESMAP was able to help address the issue of generators. It found that while the majority of business better targeting. It supported two main initiatives owners recognized the benefit of electricity access for implemented by Lao PDR’s national electricity utility, expanding their enterprises, they faced critical chal- Electricité du Laos (EDL)—Power to the Poor and the lenges, such as upfront investment cost or insufficient Productive Use of Electricity. information. Power to the Poor made interest-free credits available The study proposed specific measures such as con- to poor families to enable them to afford a grid connec- sumer education and financing to promote productive tion. The monthly payment—including both electricity uses of electricity among communities and to help them consumption and repayment for the credit—was de- maximize electricity benefits. signed to be equal to the cost of lighting generated by Results from the initiative indicate that in newly electri- candles, diesel lamps, or car batteries. ESMAP’s East fied villages, an average of 30 new businesses were Asia and Pacific Gender and Energy Facility ensured established, which allowed women to work well into the that this scheme particularly benefitted female-headed evening hours, creating and selling handicrafts to households, like Ms. Pan’s. increase their income. Since the program’s implementation, connection rates Existing enterprises, such as saw and rice mills, in previously electrified villages jumped to above 90 decreased their operating costs by switching to less percent—83,000 households, of which almost 8 per- expensive and more reliable grid power. In addition, cent were female-headed—and repayments rates are farmers made use of grid-powered irrigation pumps for 100 percent. greater agricultural output. Households reported in- comes three times higher on average, less share of their income spent on energy, and an increase in owned assets. IMPACT | ISSUE 13 3 LEAVING BEHIND THE TITLE OF “LEAST DEVELOPED” Lao PDR is on the threshold of graduating from Least-Developed Country status and the power sector has been a crucial element in the country’s development. With the World Bank and ESMAP’s continuous and dedicated support, the government of Lao PDR has made significant strides in the sector by already reaching over 90 percent of the population with reliable electricity. Image Source: ©Meriem Gray | World Bank 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, Denmark, the European Commission, Finland, France, Germany, Iceland, Italy, Japan, Lithuania, Luxemburg, the Netherlands, Norway, the Rockefeller Foundation, Sweden, Switzerland, and the United Kingdom, as well as The World Bank. 1818 H Street, NW Washington DC 20433 www.esmap.org esmap@worldbank.org