NICARAGUA : SUSTAINABLE OFF-GRID ELECTRICITY SERVICE DELIVERY MECHANISMS A study funded by the Public-Private Infrastructure Assistance Facility (PPIAF) August 2001 Coordinated by Ernesto Terrado and Kilian Reiche, Energy Cluster, Latin America and Caribbean Region, The World Bank Main report byPierre Mathieu (service delivery models), based on contributions of INEC (Market Survey), Douglas French Barnes (Market Survey), Jose Eddy Torres (Market SurveyAnalysis), Christophe de Gouvello (Market Survey Analysis) and George Sterzinger (financial modeling) 1 1 PROJECT COMPLETION REPORT ­ BY ERNESTO TERRADO AND KILIAN REICHE............................................................................................................. 5 1.1 BACKGROUND FOR THIS STUDY............................................................................ 5 1.2 LISTING OF THE ACTIVITIES AND SUB-STUDIES DELIVERED (TORS SEE ANNEX) .. 6 1.3 SUMMARY OF THE OVERALL FINDINGS................................................................. 6 1.3.1 Demand survey............................................................................................ 6 1.3.2 Draft business models for offgrid electrification ........................................ 7 1.3.3 Cash flow analysis for the offgrid energy suppliers ................................... 7 2 PREFACE.................................................................................................................. 8 3 OVERVIEW.............................................................................................................. 9 3.1 NICARAGUA ELECTRIFICATION STATISTICS........................................................ 10 3.2 PRIVATIZATION PROCESS ................................................................................... 11 3.2.1 Status of the privatization process ............................................................ 11 3.2.2 Electrification law..................................................................................... 13 3.3 CURRENT OFF GRID APPROACHES AND PERSPECTIVES: ...................................... 14 3.3.1 Electrification objectives and costs:......................................................... 14 3.3.2 Cooperation agreements........................................................................... 15 3.3.3 Institutional arrangements........................................................................ 16 3.3.4 Tariffs and capacity to pay ....................................................................... 20 3.3.5 Technical options and base line situation: ............................................... 27 3.3.6 Electricity consumption............................................................................. 30 4 METHODOLOGY ................................................................................................. 32 4.1 INTRODUCTION .................................................................................................. 32 4.2 MARKET SURVEY............................................................................................... 32 4.2.1 Survey Design and Implementation .......................................................... 32 4.3 DELIVERY MECHANISMS AND ECONOMIC MODELING......................................... 34 5 MARKET CHARACTERIZATION .................................................................... 35 5.1 PRESENTATION OF PILOT SITES........................................................................... 35 5.2 SOCIO ECONOMIC PROFILE ................................................................................. 35 5.2.1 Characteristics of Dwellings..................................................................... 36 5.2.2 Educational Attainment............................................................................. 36 5.2.3 Economic Activities................................................................................... 37 5.2.4 Agriculture and Livestock Raising............................................................ 37 5.2.5 Household businesses ............................................................................... 39 5.2.6 Household Income..................................................................................... 40 5.2.7 Energy use and Energy expenditures........................................................ 43 5.2.8 Consumer preferences............................................................................... 48 5.3 WILLINGNESS TO PAY........................................................................................ 55 5.4 SUBSTITUTABLE MONTHLY EXPENDITURES DISTRIBUTION ................................. 55 5.4.1 Market segmentation................................................................................. 57 6 SERVICE PROVISION OPTIONS: FINANCIAL MODELING OF TWO CASES.............................................................................................................................. 60 2 6.1 SELECTION OF TWO SITES................................................................................... 60 6.2 DELIVERY MECHANISMS.................................................................................... 61 6.3 FINANCIAL CONSTRAINTS AND MODELING......................................................... 63 6.4 ROLE OF ENEL.................................................................................................. 64 6.5 ELCUA-BOCAY................................................................................................. 65 6.5.1 Financial modeling:.................................................................................. 71 6.5.2 Results and comments............................................................................... 78 6.5.3 Sensitivity analysis:................................................................................... 79 6.5.4 Conclusion: ............................................................................................... 81 6.6 ELAYOTE.......................................................................................................... 81 6.6.1 Financial modeling ................................................................................... 88 6.6.2 Results and comments............................................................................... 93 6.6.3 Sensitivity análisis..................................................................................... 98 6.6.4 Conclusion .............................................................................................. 100 7 CONCLUSIONS AND RECOMMENDATIONS.............................................. 101 8 ANNEX ­ FINANCIAL MODELING / CASH FLOW ANALYSIS ............... 105 8.1 REPORT ............................................................................................................ 105 8.1.1 EXECUTIVE SUMMARY: ...................................................................... 106 8.1.2 OVERVIEW OF ANALYSIS .................................................................... 110 8.1.3 EL CUA: Project Definition................................................................... 111 8.1.4 EL AYOTE: Project definition ............................................................... 117 8.2 EXAMPLES CASH FLOW MODELING (XLS SAMPLES ­ BY GEORGE STERZINGER) 124 8.3 SENSITIVITY ANALYSIS ­ BY GEORGE STERZINGER......................................... 130 8.3.1 El Ayote Case.......................................................................................... 131 8.3.2 El Bote Case............................................................................................ 132 9 ANNEX ­MARKET SURVEY............................................................................ 133 9.1 REPORT ............................................................................................................ 133 9.1.1 Introduction............................................................................................. 134 9.1.2 Survey Design and Implementation ........................................................ 135 9.1.3 Survey Results......................................................................................... 138 9.1.4 Consumer preferences and ability to pay ............................................... 162 9.1.5 Conclusions and Recommendations ....................................................... 170 9.1.6 ANNEX A - Commercial and Public Power Demand in Cuá ­ Bocay, El Ayote and Nueva Guinea......................................................................................... 173 1.1.1........................................................................................................................... 173 9.1.7 ANNEX B - The Estimation of Household Income and Other Issues from the 2000 Nicaragua Rural Electrification Survey .................................................. 178 9.2 ADVANCED ANALYSIS OF MONTHLY SUBSTITUTABLE ENERGY EXPENDITURES IN THE MUNICIPIOS OF AYOTE, CUA-BOCAY AND NUEVA GUINEA (NICARAGUA). .......... 184 9.2.1 Introduction............................................................................................. 184 9.2.2 Comments on the database..................................................................... 184 9.2.3 Analysis of substitutable monthly expenditures distribution and probability densities 186 3 9.2.4 Substitutable monthly expenditures distribution..................................... 186 9.2.5 Probability densities ............................................................................... 186 10 ANNEX ­ TERMS OF REFERENCE PPIAF STUDIES ............................. 189 11 ANEX - CNE - EVALUACIÓN ECONÓMICA Y FINANCIERA DEL BOTE CON INTEGRACIÓN DE LAS COMUNIDADES DE LA UNIÓN, LOS CEDROS Y LA CAMALEONA. ................................................................................ 208 12 ANNEX ­ CNE - ESTIMATES PRODUCTIVE USES AND PROJECTIONS ELECTRICITY DEMAND FOR EL BOTE, EL AYOTE AND LA UNIÓN......... 215 13 ANNEX - CNE ­ MODEL CALCULATION DIESEL EL CUA................. 223 14 ANNEX ­ CNE ­ MODEL CALCULATION EL BOTE ............................. 224 4 1 PROJECT COMPLETION REPORT by Ernesto Terrado and Kilian Reiche (LCSFE) 1.1 Background for this study Reducing poverty in Nicaragua requires special attention to rural areas because the majority of Nicaragua's poor live in the countryside. Improving access to electricity in those areas is key to economic growth and increased quality of life. In Nicaragua, three quarters of the rural population have no electricity service. Nationally, 40% of the total population, or about 300,000 households, are not electrified. To electrify 90 % of the total population, over US $200 millions of investment would be needed. The Government aims at reaching this objective by 2012. About half of the total unserved households can be reached through grid extension, which is done best through the existing and new private distribution companies. However, the majority of households in rural areas are too far away from the existing grid and/or too dispersed to allow for economically viable grid extension. For those households, offgrid electrification is a solution. As an integral part of Nicaragua's national rural electrification strategy which is currently being formulated by CNE, Bank support has been requested on the design and implementation of innovative, private-sector led offgrid electricity service provision models that would provide sustainable solutions for these offgrid users. To this end, PPIAF financing has been granted for a study that would implement a market study in selected rural villages of Nicaragua, and design preliminary business models for these areas as illustrative case studies. The scope of the present study funded by the Public-Private Infrastructure Assistance Facility (PPIAF) covers: a market surveys, stakeholder consultations; identification of micro-business opportunities and social applications made possible by electrification; technical project design and economic analysis; and a financial cash flow analysis to determine the conditions under which the service provision business would be attractive to the private sector. The objective of the study is not to provide a detailed and final feasibility analysis of the pilot projects. Detailed engineering and cost analysis would be required before a final assessment of the situation can be made. However, the study will provide recommendations regarding the organization of electrification services in two off grid areas and a general financial sensibility analysis of various technical options, providing thus sound pre-feasibility information. All essential output reports produced during this study are compiled in the following overview report and its Annexes. It should be noted, that the business models and incentive schemes presented in the consultant reports do not necessarily reflect the opinion of the Task Team regarding the optimal solution for the real sites that have served as pilot cases for the two case studies. The identification of such an optimal solution, for example as part of potential future project identification and preparation activities for Nicaragua, would use the models presented in this report as options to CNE as a starting point, but revisit them in the light of an overall national strategy and more detailed information on real project costs. 5 1.2 Listing of the activities and sub-studies delivered (TORs see Annex) Activity Responsible (i) Field Visits Bank Task Team (ii) Demand Survey INEC (iii) Analysis Demand Survey Jose Eddy Torres (iv) Analysis of substitutable monthly Christophe de Gouvello expenditures distribution and probability densities (v) Design and analysis of private Pierre Mathieu sector led service delivery mechanisms for two representative offgrid cases (vi) Financial modeling of offgrid George Sterzinger business models (vii) Assembly of results Bank Task Team 1.3 Summary of the overall findings. 1.3.1 Demand survey The demand survey conducted on the three already identified pilot sites has assessed the households' willingness to pay for electricity and has identified the types and status of local MSBs. The main findings of the study are described below. The average current non-cooking energy expenditures (which determines the minimum capacity to pay for electricity service) found for the three pilot sites are US$ 4.9 (El Cuá), US$ 6.65 (El Ayote) and US$ 4.77 (La Unión). Based on international experience from similar projects, the willingness to pay can be estimated between 120% to 130% of this. This is enough to cover all M&O costs for SHS, and part of the investment costs. However, is not enough for covering the managerial and operating (M&O) costs of diesel generation in these three areas. The distribution of willingness to pay determines the amounts of subsidies needed to reach a given target for local market penetration. In areas with existing electricity service (e.g. El Cuá), tariff history has a strong effect on the willingness to pay for future service levels. The average monthly household incomes (at average 6.5 household members) are estimated at US$ 270 (Cuá), US$ 500 (Ayote) and US$ 203 (Unión). In all municipalities, the active population is mainly employed in the agriculture and livestock fields ­ 69% in El Ayote, 84% in El Bote-Cua and 77% in Nueva Guinea. In El Ayote and Nueva Guinea, the main source ofincome is the production and sale of milk, eggs and other animal products, while in El Bote-Cua, earnings come predominantly from crop sales. A number of households are involved in manufacturing and commercial activities, often in addition to and in conjunction with their agricultural work. In El Ayote, there are 555 household businesses, 366 of which (67%) are involved in wholesale and retail commerce, and 92 (17%) in manufacturing. In addition, there are about 46 restaurants, bars and other food selling establishments (8% of all business activities). Of the 195 household businesses in Nueva Guinea, 113 (58%) operate in retail commerce, while the rest are equally split among wholesale, manufacturing and 6 community services. Finally, of the 94 household businesses in Cua-Bocay, 39 (41%) operate in wholesale, and 34 in retail commerce and manufacturing (18% in each field). According to the results of a market survey, lack of access to new markets (i.e., low demand and low prices in the actual markets) is the most challenging problem that the household businesses are facing, followed by lack of access to credit. For 65% of the businesses in El Bote-Cua, 46% of those in El Ayote and 41% of those in Nueva Guinea, access to new markets is a high priority. In addition, 60% of the businesses in El Bote-Cua, 25% in Nueva Guinea and 14% in El Ayote are in need of more access to credit. 1.3.2 Draft business models for offgrid electrification Two of the three sites have been selected for case studies on the preliminary design of locally adopted business plans that would serve as a basis for (i) pilot project development and (ii) later replication of the models in other sites. The sites are: El Ayote and El Cuá-Bocay. In spite of the higher capacities to pay in El Ayote, El Cuá shows a potential for deeper market penetration at given subsidies, because of relatively lower energy generation costs due to a low-cost mini-hydro site close by. The draft business models that have been selected are: (i) for El Cúa an existing local Energy-Coop operating both the hydro-minigrid and SHS for dispersed users, allowing for economies of scale and optional cross-subsidies between the two user groups; and (ii) for el Ayote a new local multi-service-Coop or ESCO operating the existing diesel- minigrid (and potentially including a future hydro-generation), plus separate licensed dealers providing SHS services to the dispersed households with short term microfinance and under guarantee of M&O for the first 5 years (this avoids the crowding-out of an existing local entrepreneur that has already installed about 80 SHS in El Ayote). There are two interested candidates for the El Ayote minigrid. 1.3.3 Cash flow analysis for the offgrid energy suppliers Cash-flow analysis for the preliminary business planfor El Cuá shows a positive NPV for the combined concession at a monthly minigrid tariff of US$ 0.20, a user down-payment of US$ 100, and concessional financing at 8% for the hydro investment. The El Ayote business model depends highly on the cost of an optional future run-of-the-river hydro- generator (at 12 km distance) and requires relatively high tariffs (or high subsidies). In both cases, it is recommended to offer various low-end electricity service levels (e.g. SHS below 50Wp and battery charging stations that would use the access energy of a hydro generator in off-peak times), optionally combined with targeted subsidies, to match the stratification in willingness to pay and come closer to near universal service. Recent initiatives taken by ENEL and INE in the first quarter of 2001 (installation of a new diesel-minigrid in El Ayote, and award of a concession contract in El Cua ­Bocay with a predetermined low tariff) will have a direct impact on the structure of future pilot projects, by limiting the spectrum of possible delivery mechanisms and tariff schemes for the pilot projects planned by CNE. There is a need for reinforced communication and coordination between the three entities for the success of a sustainable offgrid program. 7 2 PREFACE Nicaragua, with a population of about 4.4 million people, has the largest land area among Central American countries (about 120,000 sq. km.). Nicaragua borders on Honduras to the north and Costa Rica to the south, is mountainous in the west, with fertile valleys, and a plateau slopes eastward toward the Caribbean. After emerging from almost a decade of internal strife, its fragile economy was ravaged by Hurricane Mitch in 1998. Today, Nicaragua ranks among the poorest countries in the Western Hemisphere: It is the second poorest country in Latin America and the Caribbean with a yearly GNP per capita which is only one-third of the regional average (US$430 in 1999). In relative terms, poverty and extreme poverty remain overwhelmingly rural. Two out of three people in rural areas are poor, compared to one out of three in urban areas. In rural areas, 77 percent of the population lack potable water, about a third have no access to latrines, 57 percent have no access to electricity, and 94 percent use only firewood for cooking. (Nicaragua Poverty Reduction and Local Development projects, Project appraisal document, World Bank , 2001). Reducing poverty in Nicaragua requires special attention to accelerating the growth of the rural economy because the majority of Nicaragua's poor live in the countryside. Improving access to electricity by rural populations is keyto this growth. At present about one-half of the population in Nicaragua have electricity, and only about 20 percent of rural population have access to grid-based electricity systems. This is a significant increase from the low levels of electricity access that existed in the early 1970s of less than 10 percent with access to service, but based on the income level of the country it is still very low. 8 Nicaragua's power sector is in the process of unbundling and privatization. The country's main electricity consumers (located in the Western, Central and Northern zones) have been divided into two electricity distribution regions, DISNORTE and DISSUR, both acquired by Union Fenosa. While the restructuring of the power sector is expected to improve its overall efficiency, the obligation to serve of the privatized distribution companies extends up to only 190 meters from the grid. Of the approximately half a million unelectrified households, only about 40% are estimated to be in areas suitable for line extensions while 60% are in areas remote from the main grid (e.g., in the Northwest and Atlantic Side) and highly unlikely to have access to electricity in the foreseeable future under current plans. Therefore, there is a need to develop a strategy to provide access to electricity for communities in Nicaragua that will not be served in a foreseeable future. The term "Offgrid" is used in this document for all electricity systems that are not connected to the national backbone grid, nor are part of an existing large minigrids (above 10,000 users). It includes both isolated systems (e.g. Solar Home Systems ­ SHS) and micro-grids for agglomerated users. The Comision Nacional de Energia (CNE) is the government body in charge of policies and programs for rural electrification. While most of the currently drawn plans are for line extensions, CNE shares the Bank's concern for off grid areas and is actively seeking assistance to develop a suitable program for this purpose. The CNE has asked for Bank support to identify innovative delivery mechanisms based on international experience that would provide effective solutions for off grid populations. The overall objective of the study is the improvement of the quality of life of people in remote rural areas of Nicaragua through improved access to modern energy. To help achieve this goal, the study will design viable market-based options for the delivery of electricity to poor off-grid communities, in case studies for selected real sites, featuring practical public/private partnerships that maximize the participation of the private sector, extend the reach of available public resources for improving social welfare and have the potential for replication in all parts of the country. The specific objective of the study is to identify viable rural electrification models that could serve as the basis for (i) a future implementation in two pilot sites located in off grid areas, and (ii) a replication on a larger scale in the rest of the country on a later stage. The principles to be used in the models are: - innovative service provision mechanisms assuring operational sustainability, - use of appropriate least cost technologies, especially renewable energy systems, - maximization of private sector involvement , - minimization of subsidies, 3 OVERVIEW 9 3.1 Nicaragua electrification statistics In 1999, Nicaragua had the lowest energy consumption by capita for the Central American Region. With a total of less than 305 KWh on average per inhabitant per year (835 Wh /day), energy consumption was only 22 % of Costa Rica and slightly lower than Guatemala (the second lowest consumer of energy in the region). On a residential level, energy consumption was less than 90 KWh/year (246 Wh/day). These figures reflect a low grid electrification coverageand the high level of poverty resulting in low domestic and productive consumption of energy (see table below). Energy Consumption per capita in Central American Countries: 1999 Electricity Consumption (KWh/inhabitant) Countries Total Residential Costa Rica 1,383.0 637.6 El Salvador 569.3 222.3 Guatemala 318.1 101.5 Honduras 433.7 226.6 Nicaragua (2) 304.9 89.9 Panama 1,240.5 403.2 In 1995 the total population of Nicaragua was 4,357,099 inhabitants, of which 54.52% (2,375,499) lived in urban areas and 45.48% (1,981,600) in rural areas. 74.43% of the rural population, had no electricity service by then. Nationally, about 40% of the urban and rural population is not electrified(approximately 300,000 households). NATIONAL ELECTRIFICACION1 households people % P/V RURAL POPULATION 324,153 1,981,600 100.00% 6.11 WITH ELECTRICITY 85,857 506,735 25.57% 5.90 WITHOUT ELECTRICITY 238,296 1,474,865 74.43% 6.19 URBAN POPULATION 427,484 2,375,499 100.00% 5.56 WITH ELECTRICITY 377,697 2,092,353 88.08% 5.54 WITHOUT ELECTRICITY 49,787 283,146 11.92% 5.69 (1) "Estimación de la Inversión en Electrificación Rural Regiones Central y Pacifico de Nicaragua", BID-Enero del 2000. (2) Datos extraxtos del Ben-99. Nicaragua Source: Sistema de Informacíon Economico-Energetico, SIEE-OLADE 10 TOTAL POPULATION 751,637 4,357,099 100.00% 5.80 WITH ELECTRICITY 463,554 2,599,088 59.65% 5.61 WITHOUT ELECTRICITY 288,083 1,758,011 40.35% 6.10 The majority of the population (89 percent) live on the Pacific and Central Regions (called "production corridor"), and the remaining 11 percent of the population, (560,000) live on 50,000 Km2 of the Atlantic coast. The country is not evenly populated. Density is as large as 458.5 inhab/Km2 in the Pacific Region and as small as 7.3 inhab/Km2 in the North Atlantic Region (Region Autonoma Atlantico Norte), making service provision much more difficult along the Atlantic Coast. The majority of unelectrified rural households are located in areas remote from the main grid (e.g., in the Northwest and Central Regions, and on the Atlantic coast). From the Poverty assessment and Poverty Map 2000, it is evident that the Atlantic Coastal Region (RAAN and RAAS) is among the country's poorest (Nicaragua Poverty Assessment, Vol 1, June 2000). The zone "Atlantic Rural" was the second poorest region in 1993 after "Central Rural", but it is now the poorest region with nearly 80 percent of the population living in poverty. The Nicaragua poverty Assessment 2000 reveals that the region has the highest extreme poverty rates in the country, 17 percent urban and 41 percent rural. Its social indicators are not only the worst compared to other regions, but they show very little progress since 1993. Housing and infrastructure conditions are also outstandingly poor, and access to safe water, latrines and electricity shows a deterioration since 1993. One of the largest areas of extreme poverty is that which includes all of the municipalities of RAAN, the North of RAAS, and part of the department of Jinotega, namely Cua Bocay and Wiwilí. Access to modern energy, particularly electricity, is a key element that cuts across all sectors in rural development. Whether it is used to provide higher quality lighting for rural homes accustomed to kerosene lamps, power small vaccine refrigerators in clinics, pump water for irrigating small plots, or provide power to a household-based micro- business, the availability of even small amounts of electricity can make dramatic changes in the lives of people in remote rural areas. The Government of Nicaragua recognizes these benefits of electrification and is allocating funds from the proceeds of the power sector privatization for electrification of rural areas unlikely to be served by the new private distribution companies. 3.2 Privatization process 3.2.1 Status of the privatization process Nicaragua's electricity sector is in a process of privatization that is aimed improvement of the overall sector efficiency. Similar to other countries that have undergone power 11 sector reform, power sector reform and privatization focus on the national grid. Prospects of increased access rates in remote off-grid areas remain low, as these markets are unprofitable for purely commercial service provision without public incentives. On September 12, 2000, the distribution division of ENEL was sold for the amount of $ 115 MM to Union Fenosa from Spain. GEMOSA, GEOSA, HIDROGESA and GECSA, the electricity generation companies will be privatized in the near future, whereas the electricity transmission company, ENTRESA, will probably remain public. The privatized concession area for electricity distribution covers the Western part of the country along the Pacific Coast and divides Nicaragua in two equally sized parts by a North-South frontier. The privatized grid area has been divided into two concessions both controled by Union Fenosa: DISNORTE and DISSUR. DISNORTE covers the administrative Departments of: León, Chinandega, Matagalpa, Estelí, Nuerva Segovia and the western Part of Managua. DISSUR Covers the administartive Departments of Carazo, Granada, Masaya, Boaco, Chotales, Rivas, Rio San Juan and the eastern part of Managua (see table below). Electric Distribution: Concession areas Main data by Administrative Departments Area Population Surface Km2 Clients Density inhab./km2 DISNORTE 2,163,753 28,596 235,760 76 DISSUR 1,728,622 21,371 198,541 81 OPEN AREA 457,409 74,466 15,584 (1) 06 TOTAL 4,349,784 124,433 449,885 35 (2) More than half of the country by the Atlantic and Caribbean coast, including half of the Rio San Juan Region, the Region Autonoma Atlantico Sur (RAAS), the Region Autonoma Atlantico Norte (RAAN) and 2/3 of the Jinotega region, Matagalpa, Boaco, Chotales y Rio San Juan remains out of the concession area. This area not covered by the National Interconnected Electric Grid is called the "Open Area". This area remains open to be divided into smaller concession areas on a case by case basis. The "Open Area" is characterized by the very low density of its population (only 6 inhabitants/km2 - 15,584 households live in an area of 124, 433 km2 - while density in (1)Includes : Bluefields (6,028 clients), Puerto Cabezas (3,604 clients) (2)Average density per Km2 for the 3 areas. Source INE 12 the two concessions areas reaches approximately 80 inhabitants /km2). Population is highly dispersed and access is often difficult (e.g. only by river for most of the Atlantic Region). These two parameters prevent provision of electric services by the conventional grid, and require site specific offgrid solutions. In the Central and Northern mountain areas, populations are often concentrated in and around agglomerated villages that serve as the economic center of the area, with a market place and some services and productive activities. People from dispersed households around these regional centers visit the village on a regular basis to trade their agricultural production and buy goods. Those villages are called "Puertos de Montaña". These villages often benefit from collective services such as a school, a police and a health center. In the mountainous regions, villages are sometimes located in the vicinity of a potential or already developed mini- hydro site. 3.2.2 Electrification law The Electricity Law (Ley # 272, April 1998) covers generation, transmission, distribution, commercialization, importation and exportation of electric energy. It also defines the role, competencies and responsibilities of different public agencies involved in the energy sector. It distinguishes between generation, transmission and distribution. The same economic agent is not authorized to perform more than one of the three functions, except in isolated areas where the three functions can be accumulated (Art 26 and 31 de la Ley de la Industria Elécrica). In terms of access to electric services the law stipulates that any person located within a concession area is entitled to electricity supply (art 35). However for new investments that were not planned in the investment plan, the distributor can ask the user to provide part of the financing (Art 37). In rural areas, or in areas where new connections show insufficient levels of return for the concessionaire, the law foresees that the State can provide subsidies (Art 38). The law establishes INE (Instituto Nicaraguense de Energia) as the regulatory agency. INE awards concessions for transmission and distribution, and approves tariffs. The generation is open to market competition. The law establishes the CNE (Comisión Nacional de Energia) as the administration in charge of formulating policies and strategies for the energy sector. The objectives of the CNE include theformulation of national energy policies (Including Tax policies in coordination with the Treasury Department to encourage investments in alternative, clean and renewable energy sources), the development of Rural Electrification initiatives in coordination with multilateral and bilateral agencies and the promotion of national and foreign investment. The CNE is also the structure in charge of administrating the National Electricity Development Fund (Fondo para el Desarollo de la Industria Electrica - FODIEN). FODIEN is a public fund created in October 2000, to finance the development of Rural 13 Electrification in Nicaragua. FONDIEN can finance, feasibility and pre feasibility studies, project design, execution of projects, education and communication campaigns in the field of rural Electrification. FODIEN resources could come from multilateral agencies, bilateral donors, from the States via the general budget of the Republic. The funds collected by the Government during the award of concessions will be used as a resource by the National Fund for the development of the Electric Industry. FODIEN could finance projects through grants, soft interest loans, loans without interests, commercial loans. The Government of Nicaragua, through the CNE, has decided to encourage the development of abundant clean and renewable energy resources in the country as an essential element in the growth of the national energy system, especially in the off grid areas. A total US $ 80 MM from the proceeds of the privatization has been reserved through presidential decree for fostering rural electrification in areas not covered by the new concessionaires (open area). 3.3 Current Off grid approaches and perspectives: 3.3.1 Electrification objectives and costs: To electrify a total of 4.5 millions inhabitants (698,259 users), or 90.54 % of the population, investment costs would reach an estimated total of US $207 MM. The Government aims at reaching this objective by 2010 (see graph next page). CNE has segmented the rural electrification market according to the distance to the grid and defined the estimated costs associated with the expansion of the service. Increasing electricity to 78% (ie connecting an additional 160 000 users located within 5km from the grid) would require about US$80 million, assuming $500 average connection costs. To cover an additional 41,000 users located within 5 to 10 km from the grid, about 66 M$ would be required (assuming $1,603 per user). To reach an extra 6% of the population located over 10km from the grid (33,500 users), total invest has been estimated at 60 MM, assuming an average investment cost per user would be $1,761. 14 2 Over 10 Km 33,504 users 5 to 10 Km 220,000 inhabitants 0 to5 Km 41,170 users US$ 59 MM 271,722 inhabitants (US$ 1,761/user) Actual 463,554 users 160,031 users US$ 66 MM Coverage: 90.54% 2,982,500 1,024,198 inh. (US $ 1,603/user) 698,259 users inh cov: US $82 MM Coverage:80.66% 59.65% (US$512/user) 664,755 users Coverage: 77.8% 623, 585 users 3.3.2 Cooperation agreements In order to reach the electricity coverage objectives, CNE has engaged a group of cooperation agreements with bilateral organizations and multilateral financiers. An ongoing project financed by the Swiss Cooperation agency for rural electrification in the Northern Region of the country (US $ 4 MM) is based on grid extension. The 2Source CNE: Estrategia de Electification de Poblacion no servida en Nicaragua, April 2001 15 Canadian Government through CIDA within the Regional Energy Program for the Central American Isthmus (PREEICA) is supporting the implementation of a Geographic Information Systemand a national rural electrification masterplan. CNE is also coordinating a project with the IDB for the implementation of a rural electrification component within the Hybrid Program for the Development of the Electric Sector. The IDB is financing the preparation of a Master Plan for Rural Electrification with focus on grid extension into the open area, and on large new hydro-minigrids. NRECA has been selected as the consultant for the initial project study. CNE has recently signed an agreement with UNDP for a $250,000 GEF grant to conduct a study on possible mini-hydro development. The World Bank has recently started the prepartion an offgrid rural electrification project in the country, programmed for Fiscal Year 2002. 3.3.3 Institutional arrangements CNE plans to engage the private sector in commercially sustainable activities that would reduce the long-term implementation costs and offer a strong potential for replication in Nicaragua and other countries. Public funds and user contributions would be associated to private capital in a manner that would make the service provision economically and financially sustainable. A number of models of off-grid service delivery provision implemented by the private sector, have emerged in recent years in various countries and several of these mechanisms may be adoptable to the local context of Nicaragua. 3.3.3.1 Concessions and licenses in the open area The Electricity Law foresees the institutional possibility for private operators to intervene in rural sectors of the "Open Area". Two institutional structures are envisaged: licenses and a concessions. A license is a right awarded by INE to an economic agent to generate electric energy using natural resources, or to transport electricity (transmission). A license can be authorized for a period as long as 30 years. Licenses can be awarded without competitive bidding. The law also foresees to award concessions. A concession is a right awarded by INE to a distributor on energy, to sell electricity in determined geographic area, for a period that can be as long as 30 years (Art 66). The concessionaires will be awarded the exclusive right to distribute electricity to small and middle sized users. Concessions can be awarded via competitive bidding or via a negotiation with INE (Art 71). Tariffs for sales of energy to end users are regulated by INE. The principles used for the definition of tariffs are the following: (1) regulated tariffs should be approximately 16 equivalent to what they would be if they were fixed in a competitive environment, (2) they must enable the economic sustainability of the project by recovering investment, operation and maintenance costs and improvements in service, (3) they must be easy to implement en control, (4) they must not discriminate between users and must be equal for all users within one category. Tariffs can be set as a price (1) per unit of energy sold, (2) according to the power made available, (3) guaranteeing the availability of service, or (4) per connection (Art 115). Tariffs can evolve according to an indexation formula to be approved by INE. This formula is established for a period of 5 years. 3.3.3.2 Off grid Models By and large, private sector participation in electricity generation and distribution has been dominant in Central America during the first 60-70 years of this century. In that period of time, electrification coverage reached about 12-20 percent of the population (mainly in the urban centers), with the exception of Costa Rica where electrification coverage reached 65 percent by 1975. Government participation became dominant in the late 60 and early 70s, and focused its efforts on expanding coverage. While coverage increased dramatically, the underlying programs were unsustainable, inefficient and drained public resources. The distribution of benefits still concentrated in the cities, except Costa Rica, where overall energy access reached 95 percent by 1997. Below is a summary of basic new service provision models that have recently been or are being applied to off-grid systems that have been utilized in both Latin America and other parts of the world. Community-Based Cooperatives. In the past Nicaragua has had a positive experience with cooperatives for the provision of various services. In addition, there is a successful program in Costa Rica that is based on the cooperative approach to rural electrification. For existing offgrid areas, the cooperative model may offer a good way to combine an approach that is based on local participation with a strong business management. This is a model extensively used in the rural areas of the USA. However, there are significant problems in existing coops around the world regarding transparency, efficiency and sustainability of operations. Rural electric cooperatives are organizations focusing primarily on the distribution of electricity within a service territory. Electricity is normally bought in bulk from a generating company, and sometimes generated decentrally with diesel generators. When customers pay their initial connection fee, they automatically become cooperative members, all of whom have a vote in the election of the cooperative' board of directors. The business focus of the cooperative is electricity distribution within a service territory. 17 Rural electric cooperatives always have institutions that support them. International experience shows that outside support and interaction among cooperatives is necessary for their long term survival. They often profit from financing through a rural electrification fund or a cooperative bank. There is usually an external group that provides all cooperatives in a region or country with technical assistance and support. In addition, cooperatives generally must adhere to certain standards, which is overseen by the group that provides the technical support. Finally, cooperatives should be businesses that are run on a cost-plus basis, with a regulatory agency overseeing pricing and other legal issues. Cooperative approaches to rural electrification have been used in many different countries. The reason for this is partly the successful experience of the United States in developing this approach during the 1930s and extending all the way through the 1960s. The most prominent examples in Latin America of successful programs are in Costa Rica and Chile. In Costa Rica the cooperatives were formed in the 1960s because of the inaction of the public sector interest in extending electricity service to remote areas, due to all the inherent problems in serving rural populations. In Chile, the cooperatives were developed in the context of the privatization of the electricity sector, in which generation, transmission and distribution were privatized. For remote areas, electricity distribution cooperatives were formed from existing companies, and they were permitted to tap a rural electricity fund (originating from a tax on electricity service) that would offset part of the investment cots for new lines and customers. As indicated, Costa Rica has reached over 85 percent of rural consumers, through a combination of cooperative and public sector approaches. In Chile, over 60 percent of rural consumers have been served by the cooperative electricity model. There is also no reason why private sector companies interested in distribution could not participate in such a program. Some examples in countries such as Brazil show the involvement of conventional agricultural cooperatives in the distribution of electricity in off grid areas. Members of the cooperative are small farmers who often have a daily based relationship with the coop to purchase agricultural entrants or sell their production. This model offers the advantage of creating links between the electricity users and the cooperative that go beyond the sale of energy. This ensures trust between the parties and creates collateral for the cooperative that are a way to guaranty payments. This model may also offers the user the option to pay the electricity bill in kind (can be indexed on the price of agricultural products), and creates futures that enable to index tariffs (and sometimes connection costs) on future incomes, reducing thus distortion risks between monetary incomes and energy payments. Concessions by Private Operators The concession model has been implemented with some success in Argentina, Brazil and in parts of Peru. In this model, franchise rights for geographic areas of influence or territories are granted to concessionaires who offer bids with the lowest subsidy and highest financing for start-up costs to service rural households. Technology choice is left 18 to the concessionaire. Cost recovery is through consumers, who pay a connection tariff and monthly service fee, and a declining subsidy to the concessionaires. The Electricity Law in Nicaragua has general provisions for the operation of concessionaires. For example, the law identifies the Fondo para el Desarrollo de la Industria Eléctrica (FODIEN) as a facility that will be managed by the National Energy Commission (CNE) to finance electrification projects, and states that fees and fines assessed to concessionaires, among other sources of capital will be used to provide the financial resources for FODIEN. The law also states that FODIEN may provide grants to distribution concessionaires to partially or totally cover investment costs of rural electrification projects. The concessionaire model could be effective for some of the market niches in Nicaragua, based on demand density and payment capacity. Concession based models have been used successfully in many different ways, but mainly for services other than offgrid electricity. In the case of Argentina, there is a recently initiated World Bank project. In this project bids are to be accepted for an exclusive concession territory that requires near universal service to the region. The bid with the least subsidy is accepted, and the private company must abide by regulations and agreements. With such a program, there is a significant responsibility of the government for oversight of the concessionaires, ensuring they live up to their agreements. Small Energy Service Companies and Retailers Under this model a community, organization (NGO), or a local entrepreneur develops a business plan to serve a community. The plan is financed either by local capital (one case in Honduras for a 1 MW hydro plant) or by an off-grid's electrification agency, which provides partial financing. The provider deploys the system and recovers its cost and profit through a fee-based system. This model requires low cost, credible and enforceable standards on installations, adequate consumer protection system, strong ESCOs, clear regulation to use natural resources, and credit enhancement facilities that reduce transaction costs and hence lower cost of capital. This model may have application in Nicaragua, but this would depend on the existence of ESCOs or community business leaders willing to invest in such businesses. Entrepreneurs - and to a more limited extent communities - have been providing electricity to isolated areas through small businesses. The typical pattern is that a business already has the need for a generator during the day, and they then provide electricity to households or commercial enterprises during the evening. Many examples can be cited worldwide. For example, in Laos it was found that 5 percent of households in an off grid area were served by small entrepreneurs. China's massive rural electrification program (over 500 million rural people with electricity) was based in the beginning on the development of relatively small, local county or municipal businesses to serve first rural towns, and then villages, and then remote farmers. In most countries, these businesses are very small businesses, often serving only 5-15 households. However, there are many very small demand centers where such coverage would make the most sense from an financial and economic point of view. The advantage of this approach is that the 19 community or entrepreneur identify the demand, and then they can apply for assistance to serve that demand with electricity. Equipment Suppliers / Dealers. The dealer model is well known in Central America. Equipment suppliers provide equipment and maintenance on a cash basis. Barriers for its dissemination and replication include lack of information to consumers on options and costs high initial costs. The Bank has tackled these barriers in recent projects through a credit mechanism arranged by dealers through the banking system, and by establishing a best practice office at the off- grid electrification agency. This model finds applications in the Atlantic area of Nicaragua. The most obvious example of the dealer approach has been in Kenya. In Kenya the private sector has sold over 60,000 household photovoltaic systems. In Honduras there is a PV dealer working with the Ministry of Education and coffee growers in providing PV systems to isolated areas. The approach has been tried by the Bank with less success in India, Indonesia (due to the financial crisis), and Sri Lanka. Currently there is a program that is about to be implemented in China that involves the strengthening of dealers, combined with GEF for systems that are sold. Also, there is a hybrid of the electricity retailer and equipment dealer model in the Dominica Republic being carried out by Enersol. The program involves installing home photovoltaic systems in rural areas on a fee for service basis. The households have to pay a monthly fee, as they would to a grid electricity company. Critical macro success factors for future implementation of any offgrid business model in Nicaragua There is not one single model that could be applied allover Nicaragua. Based on demand assessments, supply options and on the local conditions, a combination of models needs to be proposed that would include the following elements: · Synergies with rural development programs; · A phase out subsidy system combined with payment options by consumers; · Participation of local Government agencies as facilitators for private entrepreneurs, concessionaire companies or cooperative distribution companies; and · Participation of GEF to reduce transaction cost. 3.3.4 Tariffs and capacity to pay 3.3.4.1 Upfront user down payments For off grid electrification, down payments -usually called connection costs- are often requested by the operator in addition to the tariff. 20 The role of the down payment for the operator is to: -generate working capital , -reduce his total financial exposure via the user, -confirm the commitment of the user for the long term. Down payments usually correspond to the costs that the operator could not recover in the case he would have to remove an installation. For SHS, connection costs could correspond to the costs of civil work, internal and external wiring, purchase of efficient lamps, manpower costs for installation. Connection costs typically vary between US $100 and 200, depending on the users capacity to pay. In the absence of precise data about saving capacities in a project area, it is difficult to ascertain users can afford to pay connection costs. In this case operators might consider providing short term financing via a micro-credit organization to help users overcome this hurdle. A micro credit organization (La Caruna) met during the project preparation confirmed the possibility of financing connection costs. However they would prefer financing the operator who then would lend on to the users, rather than financing the end users directly (risk). For mini grid projects (diesel or hydro), prepayments often correspond to the purchase of the meter. In addition to the down payment and the monthly tariff, users may be requested to pay punctual payments associated to a specific maintenance operation that would not be included in the tariff. Penalties and bonuses can also be implemented to encourage users to pay on time. 3.3.4.2 Tariffs and economic sustainability Tariffs have to ensure the sustainability of the service by covering the costs associated with operation and initial investment. Monthly tariffs should ideally cover the following costs: - cost of infrastructure depreciation, - infrastructure maintenance including renewal of components, - operation costs (fuel, manpower, etc...), and other general business expenses, - operation risks (commercial risks), - non operation risks (political risks), - operator's remuneration, - in some cases tariffs can also contribute to service expansion by generating cash flows for new investments. 3.3.4.3 Distributive function of tariffs 21 Public authorities sometimes decide to set tariffs that do not cover the full costs in rural areas, and in turn subsidize part of the cost. In this case, the political decision implies a redistribution of wealth through subsidies. Governments may also decide to encourage the use of particular technologies or specific economic or social activities. Tariffs, as such, are a way to reinforce positive externalities generated by electricity supply in rural areas such as improvement in quality of life, improvement of basic health services (refrigeration of vaccines, access to clean water, lighting of rural clinics, telemedicine), improvement of basic and adult education (lighting of classrooms, access to TV and video, distance learning), access to new infrastructures (water pumping for both human and agriculture applications, rural telephony). Numerous countries have decided to use different subsidized tariffs for specific applications. We could mention social tariffs (heavily subsidized), small productive applications (handy craft), industrial tariffs, public lighting tariffs, water pumping tariffs etc. Tariffs must enable to cover costs and enable sustainability of operation, but at the same time they also need to be affordable to users. In poor rural areas, the upper limit of tariffs is defined by the capacity to pay of potential users. In areas not electrified yet, households incur given levels of energy expenses before the arrival of electricity. They correspond to the purchase of lighting substitutes such as candles, batteries, flashlights, kerosene lamps etc, or other energy needs such as cooking. The supply of electricity would only replace part of the current energy needs. In most cases, expenses related to cooking application (high energy consumers), are not included in electricity expenses and remain an additional cost for the household. The minimum capacity to pay of users for electricity can be determined by the actual expenses that can be substituted by electricity. However, in most cases, households are willing to pay more for a better service quality, and thus accept to reduce other expenses that are judged to be less of a priority (leisure, savings, transportation, clothing, food etc). On average, a realistic number could be to expect capacity to pay to be 25 % superior to actual energy expenses that can be substituted by electricity. If household income is significantly higher then in "typical" rural offgrid areas of client countries, capacity to pay and willingness to pay can be much higher then this (El Ayote in Nicaragua might be such a case ­ see further below). In some other cases on the contrary, willingness to pay can be much lower than capacity to pay, as people perceive the proposed tariffs to be to high compared to the price paid per KWh in another place benefiting from more favorable generation conditions. In areas where tariffs have already been implemented and do not reflect the economic reality of the costs, it can be extremely difficult to make users accept to pay more for an equivalent service. In other areas where users are used to paying a relatively high tariff for an expensive source of energy (such as diesel), the willingness to pay for a higher tariff could be utilized to generate revenues for the development of the service, if and when a less expensive source of generation is implemented (such as hydro). This could generate an internal source of subsidies. 22 3.3.4.4 Subsidies The main difficulty in the implementation of a tariff in rural electrification relates to the fact that, in most cases, costs of service is higher than the user's capacity to pay. An adjustment variable for market potential is the injection of a subsidy to make the service affordable to users. For PV applications, international experience shows that without public support, penetration rate among users is usually between 3 to 10 % depending on the area. Subsidies enable to reach over 50% of the population. Pyramid of population (1) Cash Sales < 5 % Micro Credit < 15 % Fee for Service < 25 % Subsidies > 50 to 60 % Subsidies can be applied to investments or operation: Investment subsidies have the objective to reduce the initial investment cost supported by a private operator in a concession contract. Thus tariffs will take into account a lower investment amount. The advantage of a one shot investment subsidy at the beginning of a project lies in the fact that no other subsidies would be needed on a later stage to ensure sustainability of the operation. As energy projects have a long life span it is often difficult to implement subsidies mechanisms that would be operational for 10 or 20 years. It is the main reason why investment subsidies are generally preferred than operation subsidies. However this rationale can only apply to projects with high investment costs and low operation and maintenance costs such as solar or hydro projects. As investment is the main cost of the project, subsidizing investment can ensure projects sustainability. Subsidies capped at a fixed percentage of investment costs treat traditional technologies less favorable. (1)Source, World Bank, Kilian Reiche 23 Operation subsidies: For projects based on diesel generators, initial investment is relatively low and Operation and Maintenance (O&M) costs are high. In this case subsidizing even 100 % of initial investment might not be sufficient to ensure sustainability if O&M are not subsidized. In Nicaragua, numerous diesel generators are installed in sites where no other source of energy could be competitive, economically or in terms of quality of service. In this case the option of subsidizing O&M could be considered to ensure sustainability of operation (and is in fact common practice in many developing countries). In this case a financial mechanism would have to be implemented which would ensure availability of resources over a long period of time. As the funds have to be long lasting it is preferable the funds to be independent from political changes in the country. The advantage of M&O subsidies for all technologies is that they allow improved application of the concept of performance based incentives: while upfront subsidies only control for installation rates (which is already performance based), ongoing subsidies can be linked to the actual service delivery and quality. Subsidies are usually public, when there is a political willingness to electrify more people than the ones that could afford it without support. In this case, wealthier users pay for poorer users and in most cases, profits from urban areas enable to transfer funds to non profitable rural areas, via cross subsidies mechanisms. When the electricity sector is privatized, private sector operators are reluctant to use additional internal cross subsidy mechanisms as their responsibilities are most of the time limited to the distribution grid in concentrated areas and its immediate vicinity (usually 50 to 200 m, depending on the country). Unless specifically specified in the concession contract, private operators will not deploy their services in money losing areas. In some specific rural areas, where new smaller private operators are requesting concessions, an internal cross subsidization mechanism could be implemented, either by choice of the operator (as is the case for all utilities when charging the same tariff for users with varying service costs) ­ or even as a condition to be eligible for public subsidies. In cases where different technologies are used simultaneously in one area, to enable the supply of energy at low costs for concentrated users and ­ usually at a much higher cost - for dispersed users, such a principle of cross subsidies could be utilized for tariff equalization. For example in an area where a mini hydro plant could generate electricity for a concentrated rural village at a cost of US $ 0.04 or 0.05 per KWh, a high enough tariff (US$ 0.16 to 0.20) could generate cash flows enabling the deployment of SHS for dispersed populations in the area of the project. In this case cross subsidies from the hydro to the SHS would be generated by the private operator, by overcharging (within acceptable limits) concentrated users and undercharging dispersed users, to match their capacity to pay. In some cases, average monthly electricity bills could be almost equal between concentrated rural users and dispersed rural users. The advantage of private cross subsidies in such small local projects would be: - Implementation of a larger project with limited use of public subsidies, 24 - Improved social fairness, by almost equalizing electricity costs for poorer dispersed populations and more concentrated populations. The disadvantage would be the decreased efficiency of service provision in that local area, and artificially high electricity prices in the agglomerated areas that could hamper local economic development and further agglomeration. Lump sum subsidies: For mini-grid applications, when consumption is low (supply a few hours per day), projects often elect to implement lump sum tariffs to avoid investment in meters and guarantee fixed revenues per user. This approach is associated to different levels of services such as: 1 lamp, 2 lamps, 3 lamps and TV etc. Costs are broken down in a pro rata method by level of service to define tariffs. Fuses can enable to ensure that power used does not exceed agreement with provider. The drawback of such a system is the development of fraud and the risk to see consumption go beyond what was initially anticipated, as for diesel generators operation costs are directly a function of usage. For SHS the lump sum billing is well accepted and is becoming the norm. Users pay for a level of service that corresponds mostly to the investment. As usage is limited by the numbers of hours of energy supplied ­depending the design of the solar systems installed - there is no need to bill per quantity of energy used. Lump sum tariffs is also easy to understand by the users. 3.3.4.5 Billing In dispersed areas, one of the difficulties for an operator is the collection of payments. Populations usually do not have access to the telephone and it is often difficult to confirm their presence at home when the person in charge of collection will visit them. In addition distance and sometimes difficulty of access make the operator's visit complicated and expensive compared to the low payments to be collected. Pre payment meters are a possible answer to this issue. Different meters are available on the market. Their operating principles are the following: · users bring payment to the main town (market place in general) where the collection office is located, on a regular basis (monthly usually), · in exchange to their payment users receive a credit of X days of service and a computer generated code, · when they return home they key in the code on their meter, which will give them X days of service, 25 · when credit is over, electricity is cut automatically by the meter, and users need to replenishtheir credit. These meters are particularly useful associated with SHS in remote areas. They provide an interesting alternative to higher personnel and vehicle costs and usually enable to improve collection rates significantly. 3.3.4.6 Financial structure In rural electrification for projects under a concession scheme, investment, operation costs and remuneration of investment are paid In Fine by the tariff and by public subsidies. Even though some projects require the private operator to invest in the project by bringing some level of equity, the cost of these funds will later be re-financed by the user. In many cases offgrid projects are financed by soft (concessional) loans from international financial institutions and grants from Governments and specialized institutions such as the GEF. Part of the investment cost is sometimes paid by the user as connection costs. Commercial loans or equity may be necessary to complete the financing. The latest have of course the highest cost. Public financiers may require equity financing from the private operator to guarantee its commitment to the project. However it is important to understand that equity and commercial loans will increase the global cost of financing as they have the highest interest rate or request a high internal Rate of Return to be paid under the form of dividends to the investors. It is also important to understand that except from government and other subsidies, all other costs will be paid In Fine by the end user. Nature of Funds Financiers Cost bearer In fine International Subsidy GEF and Government Community and Government Cash Users Soft loans Bilateral or Users Multilateral loans Commercial loans Commerial bank or or equity private operator * Proportions are indicative only 26 3.3.5 Technical options and base line situation: In areas located out of the reach of the national grid, several technical electrification options can be used according to the characteristics of the population's density and the availability of natural sources of energy. The three main for generation options are: · diesel generators · pico-, micro- and mini-hydro turbines · solar energy (and wind energy in selected areas with adequate resource). · Biomass generators · hybrid" combinations of two or more of the above main options to optimize the system All of these can power either isolated single users or several agglomerated users through a micro-grid. Diesel generators and mini-hydro plants are well adapted in rural areas with concentrated populations, where a mini distribution grid can be implemented. Wind energy can also be distributed via a mini grid or be used as an isolated system for small individual applications. Solar energy is well adapted to isolated applications where each household need to have a solar system at his disposal as electricity distribution costs would be to high. Typical Advantages Drawbacks location Diesel Generators Rural Fast installation, -High operation and concentrated Light maintenance costs, habitat infrastructure, (Fuel and lubricant costs tied Low initial to international prices), investment cost -Requires delivery of consumables on a regular basis to remote areas (access problem), -Requires skilled technical maintenance (frequent breakdowns), -noise nuisance, -availability of electricity 27 limited to several hours a day (fixed by provider). Mini hydro plants Rural -Low operation -High investment costs, concentrated and maintenance -Site specific (need a good habitat near costs, and regular water resource hydro site -renewable source over the year) of energy, -can have negative impact on the environment, Solar Home systems Rural dispersed -individual system -Availability of electricity area with enables limited to 3 to 5 h a day sufficient sun independence (when the user needs it), resources from energy -low power availability (only (almost supplier, enables marginal productive everywhere in -fast to install applications), Nicaragua) (minimum -high investment costs infrastructure), (initial + periodic renewal of -can be components) implemented almost everywhere in rural Nicaragua, -clean and renewable source of energy, - low operation cost, Wind Home systems Rural dispersed -Individual -Availability of electricity areas with good system, enables limited to 3 to 5 h a day wind resource independence (when the user needs it), from energy -low power availability (only supplier, enables marginal productive -fast to install applications), (minimum -high investment costs infrastructure), (initial + periodic renewal of - renewable components) source of energy, -site specific (requires an - low operation adequate wind resource), cost, Large Wind Rural Low operation and -High investment cost generators concentrated maintenance costs -site specific (requires an areas with good adequate wind resource wind resource 28 Offgrid electrification in Nicaragua today consists mainly of installing a few diesel mini- grids to serve concentrated customers in remote rural areas. Most of these operate at a loss at current tariffs, and receive operation subsidies. ENEL (Empresa Nicaraguense de Electricidad), is currently in charge of supplying energy to the areas located out the privatized concessions, via the department of isolated systems ("Sistemas Aislados"). A Dispersed system is defined as any generation system and distribution system not interconnected to the National Transmission System. ENEL is operating 32 diesel plants located out of the privatized concession area.(19 in RAAN, 6 in RAAS, 6 in The Northern area, 1 in the Southern area) generating some 19,330 MWh per year of electricity and serving between 1,000 to 12,500 users. While fairly significant activity is directed at mini-hydro, there have been little efforts to promote other renewable energy applications. Some bilateral funded activities in the past have resulted in the installation of photovoltaic systems in a few places. However, these efforts tended to be small demonstrations of the technology rather than an attempt to develop sustainable service provision mechanisms. In some remote areas with high economic activity, such as El Ayote, many private individuals have purchased solar home systems for household lighting or small businesses. For diesel generators, long hours of operation provide a better quality of service for users, but generate high operation and maintenance costs -both consumables (fuel mostly) and personnel costs- which are only partially charged to users via the tariff. 38% of the plants managed by ENEL are operated between 16 and 24 hours per day, 62% between 4 and 8 hours per day. Most of ENEL's plants operate at a loss at current tariffs. Tariffs ranged between 1.8 and 7.8 C$/KWh during the last quarter of 2000, the national average being C$3.15 (see table below). Region Tariff in C$ 4th Quarter 2000 RAAN 3.44 RAAS 2.61 Nothern 2.75 region Southern N/A Region National 3.15 Average (1) (1)Source: Gerencia de Sistemas Aislados ENEL 29 The high operation and maintenance costs supported by ENEL are subsidized by the Government. In case of transfer to the private sector, tariffs will have to take into account operation and maintenance (O&M costs) and also investment costs. 3.3.6 Electricity consumption Off grid Electricity Consumption statistics provided by ENEL for the year 2,000 for their diesel generators, show that monthly electricity sales can vary greatly from one site to the other according to the capacity to pay and the hours of service available. Sales vary from 2.79 KW/month in Layasiksa (RAAN) to 217 KW/month in Puerto Cabeza (RAAN). However average electricity sales are homogenous for RRAN and RAAS ­ respectively 31.80 and 31.82 KWh/month per user- and a little bit higher in the Region North of the Country 37.99 KWh/month (in El Cua, located in this Region, energy sales reached 37.99 KWh/month per user in 2000) (see next table). 30 EMPRESA TOTAL KWh USERS CONSO/USER/MONTH REGIONAL AVG CONSO Total Aislados 14,829,835 KWh KWh Total RAAN 10,680,191 31.80 Puerto Cabezas 8,636,313 3311 217.36 Siuna 809,344 1,237 54.52 Rosita 532,676 777 57.13 Waspam 417,789 508 68.53 Wawabar 20,910 159 10.96 Karata 6,541 53 10.28 Sahsa 17,134 85 16.80 Santa Martha 9,699 79 10.23 Mulukuku 169,950 528 26.82 Sisin 13,091 108 10.10 Bull Kiamp 6,258 44 11.85 Leymus 3,363 20 14.01 Sandy Bay 18,853 163 9.64 Comunidad Km 43 2,542 33 6.42 Wany 6,988 70 8.32 Krukira 6,199 109 4.74 Layasiksa 2,541 76 2.79 El Guineo 0 Alamikamba 0 Total RAAS 3,502,189 31.82 Bluefields 2,680,108 Laguna de Perlas 273,079 463 49.15 Kukra Hill 157,088 394 33.23 Tasbapounie 33,727 166 16.93 El Bluff 344,616 376 76.38 Pueblo Nuevo 8,107 57 11.85 Tortuguero 5,464 135 3.37 Norte del País 647,455 37.99 El Cua 240,222 485 41.28 Wiwili 343,701 603 47.50 El Jobo 3,823 San Juan del Norte 50,774 168 25.19 Sitio Histórico Pancasán 5,421 El Corozo 3,514 Sur del País 0 NA Isla de Ometepe 0 Fuente: Gerencia de Sistemas Aislados, ENEL. Dirección de Políticas Energéticas 31 4 METHODOLOGY 4.1 Introduction The study's objective was to determine the general feasibility of implementing new delivery mechanisms for the supply of electricity in two off grid rural areas of Nicaragua. The study evaluated the general economic feasibility of the pilot projects in order to ensure technical, commercial and institutional sustainability. The two pilot cases would then be used as a reference for expanding the service on a larger scale to the rest of the non privatized rural areas. 4.2 Market survey The first step was to conduct a market survey in three potentialoff-grid areas. The survey was conducted in November 2000. The potential pilot sites were chosen by the GON with assistance by the World Bank task team: Cuá Bocay, El Ayote and Nueva Guinea.The three potential sites are located out of the privatized concession area. The market survey's objective was to · collect socio-economic data on the 3 selected pilot areas, · enable the selection of two sites, and · provide economic information to enable financial modeling of service delivery in the two selected sites. Site selection was made based on the following criteria: (1) willingness of the populations to be electrified, (2) representativity of the area enabling reproduction of models in sites with similar characteristics, (3) economic and technical capacity to implement a pilot project on a short term basis. In all three sites, data collection for a market survey was undertaken in late 2000 by the Instituto Nacional de Estadísticas y Censos (INEC), and complemented with information on commercial electricity use by the CNE, as the second step. The questionnaires for this survey were produced jointly by INEC, CNE and the World Bank. The survey was intended to provide information on: (a) current energy expenditures of households, and public and productive uses; (b) household income (monetary and non monetary) and savings; (c) an estimate of ability/willingness to pay for various levels of off-grid energy service; and (d) the potential of the latter to increase the productivity of local productive micro-enterprises. 4.2.1 Survey Design and Implementation The household survey was conducted with a structured questionnaire that combines an LSMS approach to individual members' socioeconomic characteristics, income and expenditures, with questions on overall household energy use and expenditure patterns. Most questions were presented in a format and phrasing familiar to INEC enumerators 32 and field supervisors from previous household surveys, and the energy specific questions were designed by CNE and World Bank sector experts. The final version of the questionnaire has 273 questions (over 500 variables) divided into 13 sections: · Characteristics of the dwelling · Household characteristics and composition · Household education · Economic activities of household members · Home businesses and self-employed workers · Household agricultural, livestock and forestry activities · Household expenditure, credit and other income sources · Household appliances and equipment · Savings and loans · Energy use by fuel or source · Familiarity with and preferences for renewable energy sources · Attitudes and perceptions towards electrification · Preferences, ability and willingness to pay for electricity The survey sample was designed to cover off grid concentrated markets, reachable with a mini grid, and dispersed markets where only SHS could be used. In the cases of Cuá ­ Bocay and El Ayote, this means the whole municipalities. The sample designed for Cuá ­ Bocay covered all the 1995 census segments, whereas in the case of El Ayote 9 representative segments out of 19 were chosen (47%), with a total number of 605 dwellings (44%) out of the 1388 in the municipality. In the case of Nueva Guinea, the potential market for off-grid electricity is circumscribed to a radius of 15 to 40 kilometers away from the municipal seat, housing approximately 20% of that municipality's total population, with epicenter in La Unión. The sample was distributed over 17 communities representative of each segment. The 344 households surveyed represent a total of 2,916 households and a population estimated at 18,364 people in the survey area. The household survey data were captured by INEC using SPSS (Statistical Package for the Social Sciences). The survey results are presented in the following sections. A total of 344 households wee surveyed , of which 93 were located in Jinotega on the site of Cua Bocay, and 251 in RAAS, 90 in El Ayote and 161 in La Union. Detail of samples is shown in Table 1: Table 1 Distribution of Households Surveyed by Locality Selected Rural Communities ­ Nicaragua 2000 Number of Percent of Households Sample 33 Department Municipality Name of Community Households Sample Jinotega Cuá ­ Bocay La Camaleona 38 11.0 Los Cedros 22 6.4 El Bote 33 9.6 3 Communities 93 27.0 RAAS El Ayote La Parra 11 3.2 Nawawas 21 6.1 Nawawasito 10 2.9 El Ayote 37 10.8 La Concha 11 3.2 5 Communities 90 26.2 RAAS Nueva Guinea El Zapote 30 8.7 Naciones Unidas 8 2.3 San Martin 12 3.5 El Areno 12 3.5 San Ramón 12 3.5 Serrano 31 9.0 La Fonseca 19 5.5 Los Laureles 10 2.9 La Unión 27 7.8 9 Communities 161 46.8 Jinotega 1 municipality 3 communities 93 27.0 RAAS 2 municipalities 14 communities 251 73.0 TOTAL 344 100.0 Source: INEC/WB Rural Electrification Survey, November 2000 In order to generalize the results of the survey, the characteristics of the households interviewed were weighted according to the populations represented, so the weighted sample approximates the attributes of the whole population in the area. This is a large sample (nearly 12% of all households in the study area), and well distributed in space, so the weighted results are truly representative of the population under study. 4.3 Delivery mechanisms and economic modeling Based on market data collected on part 2.2, the objectives of this step are: (a) to identify and design locally suited delivery mechanisms and (b) to model cash flows for private sector operators to enable sustainable attendance of service for the concentrated and dispersed markets. The study proposes delivery mechanisms and technical choices; and financial models have been run in order to propose a baseline case and a working case for each pilot project, determining the amount of subsidies required based on a positive NPV over 20 years. The base case scenario presents the situation taking into account current parameters (interest rates, capacity to pay, energy prices). It will show a negative Net Present Value (NPV) for most projects over 20 years, because of the low demand an willingness to pay in rural areas. Then working case models will be presented taking into account the 34 injection of a level of subsidies enabling a positive NPV. A sensitivity analysis will be conducted on the most influential parameters. 5 MARKET CHARACTERIZATION 5.1 Presentation of pilot sites Three pilot sites have been identified and surveyed: · El Ayote, a boisterous municipal seat of approximately 17,000 inhabitants in the Región Autónoma del Atlántico Sur (RAAS). Located 50 km away from the grid, it has become a bustling center with a variety of economic activities (cattle raising, milk production, commercial markets). Electricity for these activities is supplied by small individual gasoline or diesel generators, and there are approximately eighty 75-watt photovoltaic systems installed in the area. · "El Bote­El Cuá", which consist of several communities in the municipality of El Cuá ­ Bocay, in the department of Jinotega. The population of El Cuá ­ Bocay is approximately 16,000 inhabitants, including very disperse settlements. The total population in the town nucleus is around 5,000 (3,500 in El Cuá, the rest in Bocay). El Cuá has a diesel-based mini-grid (two generators of 98 kW and 88 kW installed in 1999, servicing 450 homes). Near the locality of El Bote (Bocay) the construction of a 450 to 900 kW mini-hydropower has been initiated by a local NGO as a substitute to the dieselk generators. · La Unión, a community of about 17,000 inhabitants located 38 km from the town of Nueva Guinea in RAAS. It is less organized than El Ayote, but has also become a commercial center for neighboring communities. It has no gasoline or diesel generators but many households use automobile batteries to watch television. 5.2 Socio economic profile Table 2 shows the distribution of family sizes in the area. Of the three potential project areas, El Ayote has the largest number of households (1388) and Cuá ­ Bocay the smallest (513). Nueva Guinea has the largest family size, an average of 6.58 members per household, and over 34% of its households have 8 or more members. 35 Table 2 Population and Household Distribution by Family Size Selected Rural Communities ­ Nicaragua 2000 Total Population and Cuá ­ Nueva All Family Size Bocay El Ayote Guinea Households Weighted Sample Households 513 1388 1015 2916 Population 3,144 8,544 6,676 18,364 Members/Household 1 2.2% 3.3% 1.2% 2.4% 2 ­ 3 11.8% 22.2% 9.9% 16.2% 4 ­ 5 32.3% 23.3% 24.8% 25.4% 6 ­ 7 30.1% 25.6% 29.8% 27.8% 8 or more 0.0% 25.6% 34.2% 24.1% Persons per Household 6.13 6.16 6.58 6.30 Source: INEC/WB Rural Electrification Survey, November 2000 The population of the three municipalities is relatively young: 71.1% of the male population and 68.0% of the female population is less than 25 years old, and in the three cases the average age is between 20.1 and 20.8 years old. 5.2.1 Characteristics of Dwellings Houses in the 3 areas, have an average of 2 rooms (over 70% of the households in all three municipalities live in one or two rooms), excluding kitchen and toilet facilities, with negligible differences between the 3 sites. On average, there are 3.08 people per room in El Ayote, 3.16 in Nueva Guinea and 3.28 in Cuá ­ Bocay. Over 70 % of the houses have earth floors and zinc roofs. None has access to paved roads, but primarily to dirt roads (68.5%) and paths (19.1%). In El Ayote, 71.1 % of households draw their water from manual wells, while most others seek it from rivers and streams, and in Cua Bocay, only 19.4% are equipped with meters. In Nueva Guinea, 16% have access to water either at home or at the lot level, and another 27% at a public post. 46 % of the population pay for water in Nueva Guinea. In Cuá ­ Bocay, a fixed monthly rate of C$ 10 is charged per dwelling in 19.4% of households. In El Ayote, a monthly rate of C$ 20 is charged with meter or an average of C$ 17 without. The unmetered charge in Nueva Guinea, currently the largest commercial market for water, is C$7, equivalent to US$0.54 cents. Over 80 % of the households in Cua ­Bocay and El Ayote do not pay for pay for their water supply. 5.2.2 Educational Attainment The level of education attained by household members in this area is very modest, with 52.3% of the population not having completed one year of formal education. No family members were detected to have reached tertiary education in any of the municipalities, and only 4.3% have some secondary education. 36 5.2.3 Economic Activities The households are predominantly devoted to agricultural and livestock production: 83.5% in Cuá ­ Bocay, 76.8% in Nueva Guinea and 68.8% in El Ayote, for a weighted average of 74.2% in the three areas (Table 3). Tertiary activities follow, employing 23.4% of the economically active population in wholesale and retail commerce; community, social and personal services; the hotel, restaurant and bar sector, and the transport and communications sector. Manufacturing and construction are only marginal activities and there is no mining in the area. The work force is occupied an average of 282 days a year in Cuá ­ Bocay, 281 in Nueva Guinea and a high of 326 days per year in El Ayote. Table 3 Distribution of Economically Active Population and Days Worked per Year by Sector Selected Rural Communities ­ Nicaragua 2000 Cuá - Bocay El Ayote Nueva Guinea All Households Sector % Work % Work % Work % Work occupied days/yr occupied days/yr occupied days/yr occupied days/yr Agriculture/livestock 83.5 285 68.8 329 76.8 274 74.2 302 Manufacturing 1.9 260 2.5 338 1.9 121 2.2 249 Construction - - - - - - 0.6 360 0.3 210 0.4 - - - Commerce 7.6 266 13.4 341 8.0 339 10.8 327 Hotels, bars, rests. - - - - - - 6.4 360 0.3 360 3.1 - - - Transp, communics. 0.6 360 2.5 158 0.3 360 1.4 264 Community, personal & social services 6.3 248 5.7 283 12.2 309 8.1 286 Total 282 326 281 302 Source: INEC/WB Rural Electrification Survey, November 2000 Two thirds of the male population (67.3%) aged 6 or over were employed and 27.7% were minors or students. Among the women, 21.2% were employed, 35.0% were housewives and 32.8% were minors or students. Within their occupations, 39.0% were self-employed, 24.5% were unpaid family workers, 19.6% were hired laborers or farm hands, 9.0% were employees and 7.5% were employers or business owners. El Ayote has proportionally more day laborers (32.2%) and employees (9.1%) among the male population than Cuá ­ Bocay and Nueva Guinea, where self-employed males are proportionally much higher (44.8% and 42.7%, respectively). Nueva Guinea has the highest porportion of unpaid family workers (28.9%), a fact that will lower the average monthly income per economically active household member. 5.2.4 Agriculture and Livestock Raising The main economic activity in the three municipalities is agriculture and livestock raising, although there are important differences among them in the areas under cultivation, the types of crops cultivated and the importance of cattle raising. One major difference is that in Cuá ­ Bocay practically all households (93.5%) own, rent or otherwise work their own farms, but in relatively smaller land holdings than in RAAS (4.4 hectares versus 6.9 in Nueva Guinea and 20.1 in El Ayote). On these smaller farms, however, 37 they cultivate permanent crops like coffee and sugar cane as well as seasonal crops, which are the staple in RAAS. Table 14 shows the agricultural profile for the area. In El Ayote, only 60% of the households work their own, larger farms; 80.8% of the land under cultivation in the surveyed households3 was dedicated to growing corn. In Nueva Guinea, this crop reached 84.0%, whereas in Cuá ­ Bocay only 43.2% of the land is devoted to corn, second to coffee growing (44.2%). Cattle raising is an essential occupation, particularly in El Ayote where 81.5% of the households own (or raise in partnership), an average of 40.7 heads of cattle (Table 15). In Nueva Guinea, 58.5% of the households own cattle (an average of 18.5 heads). In Cuá ­ Bocay, dependence on cattle is less but still 27.6% of households raise an average of 11.3 heads. Many also raise pigs and most raise poultry, although not in large quantities. Nueva Guinea's households tend to own more horses and mules (42.3%), almost 4 per family. Table 4 Agricultural Profile Selected Rural Communities ­ Nicaragua 200 Concept C u a E l Nueva All Bocay Ayote Guinea Households Households with farms 93.5% 60.0% 80.7% 73.1% Average farm size in manzanas (local measure) 19.1 87.1 29.9 55.2 in hectares 4.4 20.1 6.9 12.8 in acres 10.9 49.7 17.1 31.6 Main use of Farms Seasonal crops 72.2% 94.4% 88.2% 88.4% Permanent crops 24.7% 3.7% 8.8% 9.2% Pasture 2.1% 1.9% 2.9% 2.3% Woodlands 1.0% 0.2% Total area in 2 major crops (sample) in manzanas (local measure) 1854 4701 4069 10624 in hectares 429 1087 941 2457 Distribution of area in 2 major crops Manioc 0.1% 0.0% Quequisque 0.1% 0.0% Beans 6.8% 4.3% 12.7% 7.7% Maize 43.2% 80.8% 84.0% 75.3% Sugar cane 2.4% 0.4% Coffee 44.2% 7.8% Plantain 4.3% 2.1% Banana/Jocote 4.3% 2.0% Unspecified/mixed 3.4% 6.4% 3.1% 4.7% Average area per crop (manzanas) Manioc 3 1 Quequisque 3 1 Beans 13 100 37 63 Maize 13 81 29 51 Sugar cane 44 8 Coffee 37 7 Plantain 102 49 Banana/Jocote 100 48 Unspecified/mixed 21 300 146 3 Households were surveyed on the basis of a demographic sample, which means household characteristics can be expanded to the overall population. However, in order to determine the distribution of land use for crops, cattle, and others, a different sampling technique based on maps or aerial photographs would have to be made. Thus, the discussion in this section refers to the surveyed households only. 38 5.2.5 Household businesses Though the majority of the population is involved in agriculture and animal husbandry, nearly one third of households in the area also undertake non-agricultural business activities, primarily in their own dwellings. An average of 29% of households reported independent commercial, manufacturing, service or other economic activities: 40% in El Ayote, 19.3% in Nueva Guinea and 18.3% in Cuá ­ Bocay (Table 16). Reflecting its bustling commercial life, El Ayote has the highest proportion of wholesale commerce (38.9%), whereas retail commerce (primarily "pulperías" or general stores) dominates in the other two. Overall, 40.7% of household businesses are retail stores, 26.1% are wholesale, 15.5% are manufacturing, 8.2% are service related and 6% are restaurants and bars. Table 5 Distribution of Household Businesses Selected Rural Communities ­ Nicaragua 2000 Type of businesses Cuá ­ Nueva All Households Found in households Bocay El Ayote Guinea · Manufacturing industry 17.6% 16.7% 12.9% 15.5% · Wholesale Commerce 17.6% 38.9% 12.9% 26.1% · Retail Commerce 41.2% 27.8% 58.1% 40.7% · Transportation Services 3.2% 1.1% · Entrepreneurial Activities 2.8% 1.3% · Community, social and Personal services 5.9% 5.6% 12.9% 8.2% · Vehicle maintenance 5.9% 1.0% · Restaurants, bars and other Food selling establishments 11.8% 8.3% 6.0% Weighted number businesses 94 555 195 712 As a % of households 18.3% 40.0% 19.3% 29.0% Source: INEC/WB Rural Electrification Survey, November 2000 The vast majority of these businesses are located within the households' homes in Cuá ­ Bocay (88.2%) and Nueva Guinea (75.0%), and less so in El Ayote (48.6%), where 45.9% of the households set up improvised or fixed stands away from home to sell their merchandise (Table 17). Nueva Guinea and El Ayote have the more established businesses, whereas in Cuá ­ Bocay the majority are less than one year old. These figures indicate that new businesses are being established quite dynamically, and only 1.9% of all households (not shown) report that they closed a business within the last 12 months. The majority of these establishments depends on personal savings and loans from relatives and friends as their main source of investment finance. Formal bank loans or loans from cooperatives or other NGOs only account for 2% of their seed capital. Nonetheless, particularly in Cuá ­ Bocay, lack of access to credit or finance is perceived as a major problem for the normal development of household businesses (Table 6). The lack of experience with formal institutional loans is a factor to be taken into account during the next phase of the project, when designing the institutional mechanisms to finance access to new electricity solutions. 39 Table 6 Household Business Profile Selected Rural Communities ­ Nicaragua 2000 Concept Cuá ­ Nueva All Bocay El Ayote Guinea Households Where the business works Inside the house, no special installations 76.5% 40.5% 37.5% 45.8% Inside the house, with sp. Installations 11.8% 8.1% 37.5% 19.0% Main source of investment financing Private bank loans 5.9% 1.0% Loans from NGOs 5.9% 1.0% Loans by relatives/friends 11.8% 13.5% 12.5% 12.9% Loans by customers/suppliers 5.9% 2.7% 9.4% 5.6% Personal savings 52.9% 54.1% 37.5% 48.1% Sale of other assets 5.9% 5.4% 21.9% 11.2% Donations, inheritance 5.9% 16.2% 12.5% 13.1% Others 5.9% 16.2% 12.5% 13.1% Source: INEC/WB Rural Electrification Survey, November 2000 Table 18 Main Problems Face by Household Businesses Selected Rural Communities ­ Nicaragua 2000 Concept Cuá ­ Nueva All Bocay El Ayote Guinea Households Lack of credit or finance Very much 58.8% 13.5% 25.0% 27.7% Little 23.5% 5.4% 25.0% 15.4% Nothing 17.6% 81.1% 43.8% 56.9% Lack of electricity Very much 82.4% 5.4% 40.6% 31.2% Little 2.7% 37.5% 14.3% Nothing 17.6% 91.9% 21.9% 54.5% Source: INEC/WB Rural Electrification Survey, November 2000 Businesses in Cuá ­ Bocay are very dissatisfied with the current electricity service and 82.4% perceive the lack of electricity as a major obstacle. On the other hand, 91.9% of business households in El Ayote feel no problem at all with their lack of power supply, apparently satisfied with their small private generators and PV systems. In Nueva Guinea, which has no electricity generation or supply at all, 40.6% of household businesses do feel the lack of electricity is a major problem, 37.5% that it is a minor problem and a minority of 21.9% feel the lack of electricity does not affect their business. Most businesses do not face staffing problems nor are concerned with security, but many do face problems with their sales efforts due to low demand or low prices. 5.2.6 Household Income A breakdown of average monthly income per person (worker or entrepeneur) occupied in the different economic sectors shows significant variations among sectors within each municipality and between municipalities. El Ayote, which reported the highest number of days worked per year (Table 13), also reports the highest average monthly income per worker (C$ 1056, equivalent to US $53.68 per month). This average results from the 40 relatively high incomes earned by its large and dynamic commercial sector (C$ 2971 or US $230.33). Its average monthly income per person occupied in the agricultural sector is also 5% above the national average agricultural wage of C$6614. Table 7 Average Monthly Income per Person Occupied by Sector Selected Rural Communities ­ Nicaragua 2000 Economic Cuá ­ Nueva All Activity Bocay El Ayote Guinea Households (C$/mo) (C$/mo) (C$/mo) (C$/mo) Agricultural and livestock sector 580 692 301 537 Manufacturing industry 1054 594 268 468 Construction 1200 1600 2130 Wholesale and retail commerce 906 2971 2127 1429 Hotels, bars and restaurants 1447 1200 2130 Transport, communications 2000 900 1680 1429 Community, social & private services 649 1104 688 1224 All sectors 619 1057 421 851 (US$/mo)* (US$/mo)* (US$/mo)* (US$/mo)* Agricultural and livestock sector 44.97 53.68 23.37 41.60 Manufacturing industry 81.72 46.03 20.79 36.29 Construction 93.04 124.05 51.52 Wholesale and retail commerce 70.21 230.33 164.91 165.17 Hotels, bars and restaurants 112.19 93.04 110.80 Transport, communications 155.06 69.78 130.25 92.88 Community, social & private services 50.31 85.59 53.32 94.93 All sectors 48.02 81.95 32.64 66.02 Average income earners/household 2.31 2.13 2.66 2.35 Average work income/household (C$) 1431 2251 1120 1998 Average work income/household (US$) $110.94 $174.55 $86.82 $154.88 * Exchange rate November 2000: C$12.898 = US $1 Source: INEC/WB Rural Electrification Survey, November 2000 The large share of unpaid family workers, compounded by the larger family size already mentioned, is responsible for the relatively lower C$ 301/month earned on average by agricultural workers in Nueva Guinea (US $23.21/month). The overall earnings reported from primary occupations in the region are around C$ 850, or US $66, per income earner. Given the average number of income earners per household, a first estimate of monthly household income from their main occupation ranges from C$ 1120 in Nueva Guinea and C$ 1431 in Cuá ­ Bocay to C$ 2251 in El Ayote, for an overall average of practically C$2000 (US $155). A more encompassing estimate of household income must take into account the multiple economic activities of all household members, and is presented in Table 8. 4 In August 2000. See Banco Central de Nicaragua, Gerencia de Estudios Económicos "Salario Promedio a Partir de Encuesta del MITRAB por Sector de Actividad Económica", www.bcn.gob.ni. 41 Table 8 Average Monthly Household Income by Source Selected Rural Communities ­ Nicaragua 2000 Income Source Cuá ­ Nueva All or Concept Bocay El Ayote Guinea Households (C$/mo) (C$/mo) (C$/mo) (C$/mo) Economically active members' income Net income from home businesses 207 1 175 285 695 Net wage income 1 072 2 231 1 180 1 662 Rents, remittances, pensions, donations, other 46 79 135 135 Household income excluding agriculture 1 325 3 485 1 600 2 449 Agriculture, livestock and forestry income Net income from milk, eggs, animal products 68 2053 258 1079 Sale of live animals and meat 38 211 62 129 Net income from crop sales 1470 15 137 313 Income from forestry 1 32 4 17 Net farm income 1576 2310 461 1537 Non-monetary income From self-consumed meat products 31 50 38 42 From self-consumed milk, eggs, others 181 312 85 210 From self-consumed food crops 408 264 436 349 Total non-monetary income 619 626 559 601 Total household income (Córdobas) Total monetary income 2 901 5 795 2 061 3986 Total income (monetary & non-monetary) 3 521 6 421 2 620 4 588 Per capita monetary income 473 942 313 633 Per capita total income 574 1 043 398 728 (US$/mo) (US$/mo) (US$/mo) (US$/mo) Total household income (US $ equivalent)*** Total monetary income 224.94 449.33 159.79 309.07 Total income (monetary & non-monetary) 272.97 497.84 203.14 355.70 Per capita monetary income 36.70 73.00 24.29 49.08 Per capita total income 44.54 80.88 30.88 56.48 * Exchange rate November 2000: C$12.898 = US $1 Source: INEC/WB Rural Electrification Survey, November 2000 The average household income from wages was C$ 1662, complemented with C$ 695 from household businesses and C$ 135 from other recurrent sources, for a total of C$ 2449 (almost US $190) per household without including profits from the sale of agricultural products, dairy products and livestock. Net sales of milk, eggs and other animal produce constitute the largest part of farm income: an average of C$ 1079 (approximately US $84) in the region and a high of C$ 2053 (US $159) in El Ayote. Gross income from crop sales reaches a high of C$ 1470 (US$114) in Cuá ­ Bocay, and a weighted average of C$ 313 in the three areas. Nueva Guinea shows the lowest overall household income from agricultural and animal product sales. Households also leave agricultural and animal produce for self-consumption, valued at C$601 in the region, with small differences among households in the three municipalities. This share of "non-monetary" income is normal for rural areas of developing countries, but monetary income constitutes the primary basis for subsistence. Total monthly monetary household income reaches C$ 3986 (US $309), fluctuating from a low of C$ 2061 (US $160) in Nueva Guinea to a high of C$5795 (US $449) in El 42 Ayote. On average, this income is increased by 15% in the region due to non-monetary income (11% in El Ayote, 21% in Cuá ­ Bocay and 27% in Nueva Guinea). To put these figures in the overall context of Nicaragua, Table 8 also includes per capita income estimates. For 1999, statistics from the Central Bank of Nicaragua indicate that the country's per capita income was equivalent to C$ 404 or US $38.27 per month5. In all senses, El Ayote clearly surpasses this performance and Cuá ­ Bocay hovers around the national average and Nueva Guinea reaches only 63% of the national average (81% considering non-monetary income as well). 5.2.7 Energy use and Energy expenditures 5.2.7.1 Energy use The two main energy uses by households are cooking and lighting, the former predominantly accomplished with firewood and the latter with kerosene (Table 22). Between 90% and 99% of households use firewood for cooking, and 29.4% of households also use firewood or charcoal embers to heat flat clothes irons, a practice most extensively observed in Cuá ­ Bocay (two thirds of rural households there use irons, compared to a bit over 20% in the other two). Most firewood is self-appropriated by households at no cash expense, but commercial firewood is used by 11% of all households, higher than the 6.5% which use commercial LPG to prepare their food. Rural households in El Ayote have the highest use of commercial energy for cooking (23.3% versus 14.9% in Nueva Guinea and only 6.5% in Cuá ­ Bocay). LPG is the only fuel used for cooking besides firewood. Kerosene is used strictly for lighting in these rural areas of Nicaragua. In fact, 83.7% of all households in the region use kerosene for lighting, but 88.1% also use dry cell batteries for lighting, radios and other uses. In El Ayote, 50% of households use candles either as a main or a complementary source of lighting, bringing the regional use of this source to 33.6%. Other energy uses are relatively minor, and include car batteries (3.3%), electric generators (3.4%) and photovoltaic systems (2.0%). Kerosene consumers use "candiles" or oil lamps an average of 2.3 hours per night, ranging between 2.11 hours/night in Cuá ­ Bocay to 2.36 hours/night in El Ayote (Table 23). Flashlights are used an average of 1.3 hours daily by their users, although this result might be overestimated due to the way the question was posed in the survey6. 5 Estimated from Banco Central de Nicaragua, Gerencia de Estudios Económicos "Producto Interno Bruto", www.bcn.gob.ni. 6 Questions on lighting referred to full hours/day, not registering minutes or fractions of hours. 43 Table 9 Distribution of Households by Energy Use Selected Rural Communities ­ Nicaragua 2000 Cuá ­ Nueva All Type of Energy Energy Use Bocay El Ayote Guinea Households Commercial firewood Cooking 5.4% 13.3% 10.6% 11.0% Self-appropriated firewood Cooking 93.5% 76.7% 85.1% 82.6% Total Firewood Cooking 98.9% 90.0% 95.7% 93.5% Firewood/charcoal Ironing 66.7% 22.2% 20.5% 29.4% LPG Cooking 1.1% 10.0% 4.3% 6.5% LPG Refrigeration 1.0% 0.5% Kerosene Lighting 98.9% 73.3% 90.1% 83.7% Dry cell batteries Lighting, radio, 86.0% 93.3% 82.0% 88.1% others Candles Lighting 15.1% 50.0% 3.7% 33.6% Car batteries TV, lighting 2.2% 3.3% 3.7% 3.3% Electric generators TV, radio, others 4.4% 3.7% 3.4% Phovoltaic systems Lighting 3.3% 1.2% 2.0% Photovoltaic systems TV 1.1% 0.5% Local grid electricity All 1.2% 0.4% Does not add to 100%; households use more than one source of energy. Source: INEC/WB Rural Electrification Survey, November 2000 Table 10 Number of Hours/Day Consumer Households Use Sources* Selected Rural Communities ­ Nicaragua 2000 Energy Source Cuá ­ Nueva All And Use Bocay El Ayote Guinea Households Lighting Kerosene 2.11 2.36 2.32 2.30 Dry cell batteries 1.24 1.27 1.36 1.30 Other Dry cell batteries ­ radio 3.00 3.71 3.96 3.67 Car batteries ­ TV 1.07 3.75 2.27 2.76 Generators ­ all uses 4.00 4.00 4.00 * Refers to consumers, not all households. The proportion of households using each energy source is shown in Table 22. Source: INEC/WB Rural Electrification Survey, November 2000 Radios and cassette players are used an average of 3.0 hours daily in Cuá ­ Bocay, 3.71 hr/d in El Ayote and 3.96 hr/d in Nueva Guinea, for a weighted average of 3.67 hr/d among all users in the region. The power generators in El Ayote and Nueva Guinea are all used an average of 4 hours daily, 30 days a month. Households which own car battery systems use them between 1.07 hours daily in Cuá ­ Bocay and 3.75 hours a day in El Ayote, for a regional average of 2.76 hours daily. A breakdown of dry cell and car battery use is presented in Table 11. This table confirms the extent to which dry cell batteries, an expensive source of energy, are used widely throughout the region. Roughly 85% of dry cell battery consumers use radios and 83% use flashlights. Car batteries are predominantly used for watching television, though some are also used for lighting. These uses are eminently substitutable with electricity, once available. 44 Table 11 Distribution of Battery Uses by their Consumers* Selected Rural Communities ­ Nicaragua 2000 Type of Battery Cuá ­ Nueva All & use Bocay El Ayote Guinea Households* Dry Cell battery use Flashlights 89.9% 90.6% 68.1% 82.6% Lanterns 0.0% 0.0% 7.2% 2.5% Radios, cassette players 82.3% 85.9% 84.8% 84.9% Clocks 1.3% 1.2% 2.2% 1.5% Toys 0.7% 0.3% Others 1.2% 0.7% 0.8% Car battery use Television (B & W) 100.0% 66.7% 100.0% 84.1% Lamps 33.3% 15.9% * Refers to consumers, not all households. The proportion of households using each type of battery is shown in Table 22. Source: INEC/WB Rural Electrification Survey, November 2000 5.2.7.2 Energy expenditure and energy prices Although there are relatively few users of commercial energy sources for cooking, those households that do not gather firewood spend an average of C$ 130 (about US $10) if they purchase LPG or C$ 107 (US $8.27) if they purchase firewood. Commercial firewood is predominantly sold in "Rajas" (82.4%). The average composite monthly cash expenditure by households is highest for kerosene and dry cell batteries- Expenditure on batteries is almost C$ 34 for all households, and slightly over C$ 41 in El Ayote. The use of kerosene shows little variation from one area to the next, ranging between C$ 28 and C$ 31. Cooking takes an average of C$ 23 per month, expenditure on candles C$ 8 and recharging car batteries require approximately C$ 2.5 45 Table 12 Average Monthly Expenditure by Type of Energy Selected Rural Communities ­ Nicaragua 2000 Cuá ­ Nueva All Type of Energy Currency Bocay El Ayote Guinea Households Cooking use Commercial firewood (C$/mo) 5.16 12.48 21.25 14.25 LPG (C$/mo) 1.24 15.08 4.75 9.05 Total cooking fuels (C$/mo) 6.40 27.56 26.00 23.30 Other uses Kerosene (C$/mo) 30.97 28.59 28.87 29.11 Dry cell batteries (C$/mo) 27.69 41.22 26.33 33.66 Candles (C$/mo) 2.60 13.28 3.86 8.12 Car batteries (C$/mo) 1.91 2.67 2.46 2.46 Total non ­ cooking (C$/mo) 63.17 85.76 61.52 73.35 Total non ­ cooking (US $/mo) 4.90 6.65 4.77 5.69 Total Expenditure (C$/mo) 69.56 113.52 87.52 96.64 (US $/mo) 5.39 8.79 6.79 7.49 Source: INEC/WB Rural Electrification Survey, November 2000 Total energy expenditure per month for non-cooking uses ranges from C$61.52 (US $4.77) in Nueva Guinea to C$85.76 (US $6.65) in El Ayote. Including cooking fuels, total expenditure for all sources of energy in the region reaches an average of C$ 96.64 (US $7.49) in the total population. 5.2.7.3 Household appliances Because electricity is not widespread in the region, there are few electrical appliances, owned by those households that have generators, photovoltaic systems or are connected to Nueva Guinea's local grid. However, most households own several appliances . The most numerous ones found are lighting and communications devices, typical of many rural areas around the world, and grinders used for processing maize for tortillas, a Central American staple. 46 Table 13 Appliance Ownership by Households (%) Selected Rural Communities ­ Nicaragua 2000 Cuá ­ Nueva All Appliance Energy source Bocay El Ayote Guinea Households Lighting Flashlights Dry cell batteries 76.3 81.1 70.8 76.7 Coleman lamps Kerosene 4.3 4.4 3.7 4.2 Communications & entertainment Radio Dry cell batteries 69.9 82.2 67.7 75.0 Electricity 0.6 0.2 Radiocassette player Dry cell batteries 12.9 5.6 16.1 10.5 Car batteries 1.1 0.5 Generator 1.1 0.5 Electricity 0.6 0.2 Black & white TV Dry cell batteries 0.6 0.2 Car batteries 1.1 7.5 2.8 PVS 1.1 0.5 Generator 0.6 0.2 Electricity 0.6 0.2 Color TV Generator 1.1 0.5 Other devices Grinder None (manual) 96.8 67.8 47.2 65.7 Iron Firewood/charcoal 66.7 22.2 20.5 29.4 Electricity 1.2 0.4 Other 2.2 1.2 1.5 Sewing machine None (manual) 11.8 7.8 8.1 8.6 Refrigerator Generator 1.1 0.5 LPG 1.1 0.5 Cooking range/stove LPG 3.2 7.8 2.0 6.0 Firewood 1.1 1.1 0.7 Source: INEC/WB Rural Electrification Survey, November 2000 Flashlights are the most abundant devices owned: 76.7% of households possess them. Traditional kerosene lamps, used by over 80% of households, were not accounted for as "appliances," but more sophisticated Coleman lamps are also present in about 4% of households regionally. Next to lighting, the most commonly available appliances are used for communications and entertainment: 75% of households have transistor radios and 11.7% have larger radio-cassette recorders. El Ayote has the highest level of radio ownership, while Nueva Guinea has the greatest presence of larger sound equipment. Television sets still have little presence in the region due to the lack of electricity supplies (3.9% of households own black and white television sets and 0.5% have color TV), but rapidly become one of the most abundant appliances used in rural areas once a steady electricity supply is established. 47 Among the other devices found, the most widespread is the manual maize grinder or mill ­ particularly abundant in Cuá ­ Bocay (96.8% of all households there own them) and less extensively used in Nueva Guinea (47.2%). This is followed by irons in 31.3% of households and sewing machines in 8.6%. In rural areas of Latin America, the concept of "stove" refers to industrially manufactured cooking devices, not traditional open-hearth or other improvised stoves, so only 0.7% of households replied that they owned firewood stoves. Except for radio-cassette recorders and television, households in Nueva Guinea tend to own less appliances than in El Ayote and Cuá ­ Bocay, consistent with its lower incomes. Ownership of recorders and television sets may indicate cultural preferences for entertainment despite low incomes. 5.2.8 Consumer preferences The survey ended with 40 questions on consumer knowledge, attitudes and preferences for renewable energy systems and electrification. The results of this opinion section are an appropriate setting to discuss the households's ability to pay for future electrification projects, which can be estimated on the basis of the quantitative results presented. The majority of households had not heard of NRES prior to the survey: 63.0%. Cuá ­ Bocay showed the best informed households, with 38.7% having heard about these systems through word of mouth. This is also the area in which more households had heard of minihydro power generation (39.8%). In the other two municipalities, households were better informed on solar PV systems. The interview provided insufficient information for 52.0% of households to manifest preferences on the different alternatives, which favored minihydro power solutions in Cuá ­ Bocay, PV systems in El Ayote and "other" (unspecified) systems in Nueva Guinea. 48 Table 14 Household Perception of Benefits from Electrification Selected Rural Communities ­ Nicaragua 2000 Statements and opinions Cua El Nueva All Bocay Ayote Guinea Households Electricity in a home is important for children's education Strongly agrees 72.0% 38.9% 77.0% 58.0% Agrees 25.8% 58.9% 10.6% 36.2% Disagrees 2.2% 1.1% Strongly disagrees 2.5% 0.9% No option 2.2% 9.9% 3.8% Does not know 0.0% With (electric) lighting, the children can study better at night Strongly agrees 51.6% 46.7% 78.3% 58.5% Agrees 40.9% 47.8% 16.8% 35.8% Disagrees 6.5% 5.6% 3.8% Strongly disagrees 1.2% 0.4% No option 1.9% 0.6% Does not know 1.1% 1.9% 0.8% It is easier to read with electric lamps than with kerosene lamps Strongly agrees 53.8% 58.9% 68.9% 61.5% Agrees 33.3% 28.9% 17.4% 25.7% Disagrees 7.8% 9.9% 7.2% Strongly disagrees 8.6% 1.1% 2.0% No option 1.2% 0.4% Does not know 4.3% 3.3% 2.5% 3.2% Electricity is very beneficial for productive activities Strongly agrees 28.0% 26.7% 50.9% 35.3% Agrees 44.1% 34.4% 13.7% 28.9% Disagrees 15.1% 14.4% 4.3% 11.0% Strongly disagrees 10.8% 1.9% No option 5.6% 1.9% Does not know 2.2% 24.4% 25.5% 20.9% Electricity is very important for our water supply Strongly agrees 8.6% 14.4% 25.5% 17.3% Agrees 41.9% 22.2% 6.2% 20.1% Disagrees 24.7% 27.8% 23.0% 25.6% Strongly disagrees 11.8% 7.8% 1.9% 6.4% No option 2.2% 0.0% 5.0% 2.1% Does not know 10.8% 27.8% 38.5% 28.5% Source: INEC/WB Rural Electrification Survey, November 2000 An overwhelming 94.2% of households in the region agrees or strongly agrees that electrification is important for children's education, and place corresponding value on the importance of electric lighting for them to be able to study at night (Table 33). The strongest feeling on both questions arises in Nueva Guinea, which has the least access to electricity from small-scale private solutions. These households also strongly agree in 68.9% of the cases that reading is easier with electric lighting than with kerosene lamps, in 50.9% that electricity is important for productive or self-supporting activities and in 25.5% of the cases that electricity is beneficial for the water supply systems. The beneficial relationship between electricity and water supply, however, draws 49 the least consensus among households, which have split opinions or simply manifest they do not know in 28.5% of the cases. Households also lack consensus as to how their current energy supply systems negatively impact their lives. The five questions presented in Table 34 try to discern household perceptions on day­ to­day problems that could arise from using other energy sources instead of electricity. In the first one, 68.3% of households agree or strongly agree that they have more difficulty receiving news and information under current supply patterns than they would have if they counted on electricity (for radios, television, etc.). 58.4% disagree or strongly disagree that it is currently easy to read at home in the afternoons, though 33.9% do not believe it difficult. The majority of households are not pleased with their current lighting sources: 58.9% disagree or strongly disagree that they are happy with them. There is also a strong perception, particularly in El Ayote (58.9%), that the monthly expenditure they incur on fuels for lighting and other purposes place a financial burden on their budgets. Finally, feelings are high that kerosene combustion can cause health problems, particularly in Nueva Guinea, where 69.6% of households strongly agree with that statement. Further analysis of energy preferences indicates a certain degree of non-commitment to invest in individual family solutions: 56.9% of households agree or strongly agree that they would rather wait for the grid to arrive than to invest in stand alone generators, and only 16.4% would agree or strongly agree that purchasing a generator is an investment priority for their households (Table 35). Many preferred to reply that they "do not know" whether unfamiliar technologies ­ be they photovoltaic or conventional car batteries ­ could be a good source of electricity, although there do not seem to be strong opinions against renewables. In fact, more households (48.3%) agree or strongly agree that photovoltaic systems are good sources of household energy than those who believe the same about car batteries (42.9%) But asked pointblank if buying a solar PV system was an investment priority for their family, only 14% agree or strongly agree with it. Such decisions require more market preparation, information and finance mechanisms to increase willingness to invest. 50 Table 35 Household Preferences of Energy Options Selected Rural Communities Nicaragua, 2000 Statements and opinions Cua El Nueva All Bocay Ayote Guinea Households Car batteries are a good source of electricity for the household Strongly agrees 23.7% 22.2% 11.2% 18.6% Agrees 20.4% 28.9% 19.9% 24.3% Disagrees 16.1% 10.0% 30.4% 18.2% Strongly disagrees 0.0% 0.0% 3.7% 1.3% No option 12.9% 0.0% 5.0% 4.0% Does not know 26.9% 38.9% 29.8% 33.6% Photovoltaic systems are a good source of electricity for the household Strongly agrees 7.5% 23.3% 19.3% 19.1% Agrees 31.2% 38.9% 14.9% 29.2% Disagrees 2.2% 3.3% 8.1% 4.8% Strongly disagrees 2.2% 0.0% 0.0% 0.4% No option 12.9% 0.0% 1.2% 2.7% Does not know 44.1% 34.4% 56.5% 43.8% I would prefer to wait for the grid rather than invest in a power generator Strongly agrees 47.3% 53.3% 42.2% 48.4% Agrees 1.1% 34.4% 5.6% 18.5% Strongly disagrees 11.8% 4.4% 11.2% 8.1% Disagrees 29.0% 1.1% 4.3% 7.1% No option 2.2% 0.0% 0.0% 0.4% Does not know 8.6% 6.7% 36.6% 17.4% I would prefer to wait for the grid rather than invest in a NRE System Strongly agrees 36.6% 34.4% 37.9% 36.0% Agrees 15.1% 21.1% 5.6% 14.6% Strongly disagrees 8.6% 13.3% 12.4% 12.2% Disagrees 20.4% 7.8% 9.9% 10.8% No option 6.5% 0.0% 3.7% 2.4% Does not know 12.9% 23.3% 30.4% 24.0% Buying a generator is one of my family's investment priorities Strongly agrees 7.5% 6.7% 2.5% 5.4% Agrees 11.8% 15.6% 4.3% 11.0% Strongly disagrees 20.4% 45.6% 37.3% 38.3% Disagrees 54.8% 18.9% 18.6% 25.1% No option 2.2% 0.0% 5.0% 2.1% Does not know 3.2% 13.3% 32.3% 18.2% Buying a domestic solar PVS is one of my family's investment priorities Strongly agrees 0.0% 6.7% 4.3% 4.7% Agrees 3.2% 13.3% 6.8% 9.3% Strongly disagrees 8.6% 42.2% 37.3% 34.6% Disagrees 69.9% 26.7% 16.1% 30.6% No option 8.6% 0.0% 6.8% 3.9% Does not know 9.7% 11.1% 28.6% 16.9% 51 There is strong consensus that if the community itself were involved in providing electricity, households would be strongly inclined (51.4%), and another 26% would also agree, to purchase it. The strongest commitment to community-based electric projects is in El Ayote (60%) and Nueva Guinea (51.6%), whereas in Cuá ­ Bocay 85% do agree but only 28% feel strongly about it. Households in general do not seem to shun whatever costs might be associated with access to electricity: 44.7% strongly disagree and another 9.6% disagree that electricity bills would be a financial burden on the household budget. Again, the households from Nueva Guinea seem to be the most pressed to find a solution to this problem: 52.2% strongly disagree that bills worry them. What they need is electricity. While 57.0% of households would prefer to have access to electricity 24 hours a day, 36.9% would be satisfied to receive it 4 hours daily (from 6:00 to 10:00 p.m.; Table 37). Except in Cuá ­ Bocay, where 22.6% would like all night service, households in the region perceive little need for electricity between 10:00 p.m. and 6:00 a.m. The vast majority ­ 89% ­ would prefer to make monthly payments of their electricity bills, strictly in cash (88.4%). There may be no need to explore alternative schemes developed to collect dues for PV systems according to harvest times ­ particularly in El Ayote which relies on daily milk sales. 52 Table 37 Household Preferences for Electricity Services, Payments and Appliances Selected Rural Communities Nicaragua, 2000 Questions and options Cua El Nueva All Bocay Ayote Guinea Households How much time of day do you think your household needs electricity? All day (24 hours) 44.1% 68.9% 47.2% 57.0% From 6:00 pm to 10:00 pm 30.1% 30.0% 49.7% 36.9% From 6:00 pm to 6:00 am 22.6% 1.1% 3.1% 5.6% Other 3.2% 0.0% 0.0% 0.6% What frequency would you prefer to make payments (of electricity)? Weekly 0.0% 3.3% 3.1% 2.7% Monthly 96.8% 82.2% 94.4% 89.0% Bimonthly 3.2% 7.8% 1.2% 4.7% Quarterly 0.0% 6.7% 1.2% 3.6% Other 0.0% 0.0% 0.0% 0.0% Which form of payment do you wish? Payment in cash 77.4% 86.7% 96.3% 88.4% Other 7.5% 10.0% 0.6% 6.3% No response 15.1% 3.3% 3.1% 5.3% Do you have plans to buy the following electrical appliances? (yes responses) * Radio-cassette recorder 33.3% 65.6% 66.5% 60.2% Black & white television 7.5% 54.4% 35.4% 39.6% Color television 31.2% 28.9% 29.8% 29.6% Washing machine 0.0% 7.8% 2.5% 4.6% Fan 6.5% 12.2% 51.6% 24.9% Refrigerator 5.4% 22.2% 45.3% 27.3% Electric iron 17.2% 43.3% 64.6% 46.1% Other 14.0% 6.7% 12.4% 10.0% * Households may wish to purchase more than one device. Source: INEC/WB Rural Electrification Survey, November 2000 When questioned on their expectations regarding appliances, communications and entertainment devices expectedly received high preferences: 60.2% of households would like to purchase radio- cassette recorders or otherwise substitute their dry cell radios with electrical versions. In El Ayote, over 80% of households wish to purchase television sets, either black and white or color. In Cuá ­ Bocay, preferences are for color TV sets (31.2%), after radio ­ cassette recorders. In this municipality, which had relatively more charcoal flat irons, there is less perceived need for electrical irons ­ but these are desired by 64.6% of households in Nueva Guinea and 43.3% in El Ayote. 53 Technically, this survey did not apply the contingency valuation methodologies associated with estimating the "willingness to pay" for goods and services not yet available to consumers in particular market areas, such as electricity for this rural area of Nicaragua7. Therefore, a robust figure for willingness to pay for electrification solutions cannot be categorically defined. Nonetheless, on the basis of the information obtained we can reasonably define a range of capacities or abilities to pay for electricity by the households in the region. The lower threshold of household capacity or ability to pay is equivalent to the current expenditure on energy sources susceptible to substitution with electricity ­ kerosene, batteries, candles, all those not used for cooking. This is the minimum amount households are able to pay for lighting, communications and other end uses of an inferior quality to electricity. It has been demonstrated that households are willing to pay more than that minimum threshold for the superior lighting, communications, entertainment and other services provided through electricity. How much more? One rule of thumb is that households should be capable and willing to pay between 25 % over their current energy (non cooking expenses) and 5% of their average monthly income for electricity. In this case, the later would be the upper limit or threshold of the range. Let's look at the results. At a minimum, households can pay their current expenditure of C$ 73 (US$5.69) per month for electricity ­ ranging from a minimum of C$ 62 or C$ 63 in Nueva Guinea and Cuá ­ Bocay, respectively, to a maximum of C$ 86 (US $6.65) in El Ayote. Depending on the investment costs of the technologies to be disseminated and the operational and financial mechanisms for delivery of electricity, US $5/month could be adequate to cover household commitments8. Using the criterion of 5% of average monetary income, however, household commitments could be much higher: approximately US $8/month in Nueva Guinea, US $11/month in Cuá ­ Bocay and a high of US $22.50 in El Ayote. Using the criterion of 25 % over current expenditures the amounts would be: US $5.96/month in Nueva Guinea, US $6.12/month in Cuá ­ Bocay and US $8.31 in El Ayote. 7 A contingency valuation methodology was applied in August 1995 by IADB to establish willingness to pay for waste water treatment in Managua by different socioeconomic strata, so there are local precedents to the application of these approaches. 8 In Bolivia, 5000 PV systems are being "rented" to households for US$1.50/month, with a 50% subsidy of marginal costs donated by the Government of the Netherlands. 54 Table 38 Indicators of Ability to Pay for Electricity Selected Rural Communities ­ Nicaragua 2000 Energy Source Cuá ­ Nueva All And Use Bocay El Ayote Guinea Households In Cordobas (C$/month) Average work income/household 1431 2251 1120 1998 Total monetary income 2901 5795 2061 3986 Per capita monetary expenditure 473 942 313 633 Total non-cooking energy expenditure 63 86 62 73 Total energy expenditure 70 113 88 97 3.2 Willingness to pay a) non cooking energy expenditure 63 86 82 73 b) 5% of total monetary income 145 290 103 199 c) 5% of average work income 72 113 56 100 d) 25% over current expenditures 79 108 103 In US $/month Average work income/household 110.94 174.55 86.62 154.88 Total monetary income 224.94 449.33 159.79 309.07 Per capita monetary expenditure 44.54 80.88 30.88 56.48 Total non-cooking energy expenditure 4.90 6.65 4.77 5.69 Total energy expenditure 5.39 8.79 6.79 7.49 5.3 Willingness to pay a) non cooking energy expenditure 4.90 6.65 4.77 5.69 b) 5% of total monetary income 11.25 22.47 7.99 15.45 c) 5% of average work income 5.55 8.73 4.34 7.74 d) 25% over current expenditures 6.12 8.31 5.96 Source: INEC/WB Rural Electrification Survey, November 2000. 5.4 substitutable monthly expenditures distribution A model has been developed to determine a distribution of the populations in the three sites based on their substitutable expenditures. The model obtained by logarithm regression is the following type : y = a.Ln(%) + b (1) (2) where ? % is the cumulative percentage of households when aggregated according to decreasing energy expenditures. We observed once more here that there is a good and simple correlation between the energy expenditure level and the cumulative percentage of households according to decreasing expenditures (see Figures n°1 to 4). The correlation is weaker in the case of Cua-Bocay (R2 =0,74), but is excellent in the cases of Nueva Guinea (R2 = 0,90) and Ayote (R2 = 0,96), and for the global sample (R2 = 0,92). Thus, it can be considered that the model provides a satisfactory estimate of the substitutable monthly expenditure for the whole areas from which the three samples where selected. (1)Source Christophe de Gouvello CIRED (2)tested in several field surveys : Brazil: 4 surveys, Argentine: 4 surveys, Bangladesh: 1 survey. 55 Figure n°1c: Susbsitutable energy expenditure (with battery cost + with 25% additional willingness to pay ) - Ayote - USD 40 USD 35 y = -7,0891Ln(x) + 1,8665 R2 = 0,97 USD 30 US$ per month+25% USD 25 Logarithmique (US$ per month+25%) USD 20 USD 15 USD 10 USD 5 USD 0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of households - decreasing monthly expenditure Figure n°2c: Susbsitutable energy expenditure (with battery cost + with 25% additional willingness to pay ) - Cua-Bocay - USD 40 USD 35 y = -6,0245Ln(x) + 0,5778 R2 = 0,784 USD 30 US$ per month+25% USD 25 Logarithmique (US$ per month+25%) USD 20 USD 15 USD 10 USD 5 USD 0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of households - decreasing monthly expenditure Figure n°3c: Susbsitutable energy expenditure (with battery cost + with 25% additional willingness to pay ) - Nueva guinea - USD 40 USD 35 y = -5,1103Ln(x) + 1,2692 R2 = 0,9129 USD 30 US$ per month+25% USD 25 USD 20 Logarithmique (US$ per month+25%) USD 15 USD 10 USD 5 USD 0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of households - decreasing monthly expenditure Figure n°4c: Susbsitutable energy expenditure (with battery cost + with 25% additional willingness to pay) - Global Sample (Ayote, Cua Bocay, Nueva guinea) - USD 40 USD 35 y = -5,9155Ln(x) + 1,1103 R2 = 0,9315 USD 30 US$ per month+25% USD 25 Logarithmique (US$ per USD 20 month+25%) USD 15 USD 10 USD 5 USD 0 0% 10% 20% 30% 40% 50% 56 60% 70% 80% 90% 100% Percentage of households - decreasing monthly expenditure Such a representation enables a quick observation of the fraction of the population that could pay more than a determined value for good quality energy services substituting the traditional solutions). In El Ayote, more than 30 % of the population is expected to be willing to spend over US$ 10 per month, and 70 % over US$ 5 per month for their electricity expenses. In El Cua, 30% are willing to spend over US$7.5 and 50% over US$ 5, and in Nueva Guinea, 50% are willing to spend over US$ 5. In El Ayote, a second peak in estimated willingness to pay can be observed around US$ 15 per month. A detailed segmentation should be done in a final project preparation to adapt tariff structure and level of services (especially for the off grid market), where tariffs would grow faster than cost of equipment, to enable some cross subsidies between users. As the purpose of this study is to show the viability of models for model cases­ and as a more detailed feasibility study for any concrete site needs to be done at a later stage ­ for most purposes of this study the average values of US$6.12 in El Cua, US$ 8.31 in El Ayote and US$5.96 in Nueva Guinea will be used as willingness to pay for the total market, instead of using market segments for the financial modeling. For part of the working cases in the cash flow calculations below, a slightly higher willingness to pay has been used for both El Ayote ($ 9.9) and El Cua ($7.6), motivated out of the very high results in WTP for both real sites when using the method based on average work income. Also for purposes of simplification and clarity, at this stage one level of service only will be proposed in the off grid market (50 Wp SHS), while in future real project preparation several service levels would be adopted to the distributions in willingness to pay (see above). It must be noted that for El Cua, the average WTP indicated applies only to the off grid market, as for the concentrated market (diesel mini grid) electricity payment reach on average US$ 8.4/ month based on current KWh consumption of 42 KWh/ month and tariff in vigor of US$ 0.20/KWh). 5.4.1 Market segmentation The off grid market in Nicaragua is not homogenous. It can be segmented into different sub markets according to socio economics, and environmental parameters. This paragraph intends to propose a segmentation based on population characteristics and access to renewable sources of energy and crosses this parameters with capacity to pay (CTP) according to the economic activity of the area. The exercise will not provide final threshold figures for public intervention, but will serve as a guideline. Final thresholds can be determined on a later stage on the light of the first pilot projects. 57 High CTP Average CTP Low CTP Cattle breeding areas + Small land Agricultural maize, beans ,rice owners and workers production areas + other grain (coffee), agro-business or producing and mines commercial activities areas. workers (Puerto de montaña) areas. 1. Densely concentrated A B C communities near a source of Renewable Energy (mini hydro or wind) surrounded by dispersed households 2. Densely concentrated A B C communities with no significant local source of R.E surrounded by dispersed households 3. Widely scattered household A B C far from concentrated community 1. Densely concentrated communities near a source of Renewable Energy (mini hydro or wind) surrounded by dispersedhouseholds: This market segments corresponds to areas where a connection to a renewable source of energy (mini hydro or wind) can be established or is already operational. There are a number of sites with good potential for using mini hydro plants connected to mini-grid to serve concentrated communities. These sites are at different levels of development. Some sites have already benefited from financing from bilateral donors or local funds and are already operational and connected to communities. In some cases the initial financing has only enabled to finance part of the investment needs. Most sites still require technical analysis of potential, and full investment for generation and distribution. Public financing could be awarded to the projects in the following cases: - total connection cost per user is below US$ X - subsidies enable tariff to be below US$ 0.X/JKWh - delivery mechanism enables sustainability of service. Some sites are already equipped with diesel generators. These should be replaced by lower cost sources of energy whenever investment costs/user remains in an acceptable range (to be determined). 58 Dispersed market: the concentrated areas are often surrounded by dispersed populations located partly by the main communications arteries but also very scattered around the village nucleus. These populations cannot be connected at economic costs to the village's mini-grid, and would have to be electrified via Solar Home systems. The energy provided would enable them to benefit from basic lighting, and access to media appliances such as a radio and a TV set. Some productive applications could also benefit from solar electrification such as water pumping for cattle watering and mini-irrigation. The conditions of award of public financing could depend on the following parameters: - total subsidy is below US$X per system. X can be a fixed amount or vary according to different level of service (for example 20 W, 50 W, 100 W) - subsidy enables monthly tariff to remain below US$ X/ month. - According to the CTP of populations medium (high CTP) to long tern financing (low CTP) could be offered, as well as financing of full replacement of components (low CTP) over time or not (high CTP). Financing needs: · For concentrated areas: Technical and economic studies will be needed, Relatively high cost of investment would require long term financing (20 to 30 years), According to A, B, or C areas, terms of financing might be blended. · For dispersed areas: Medium term financing for investment for A, Long term financing for Band C, and possibly short term financing for connection costs for B and C. 2. Densely concentrated communities with no significant local source of R.E surrounded by dispersed households: Concentrated areas: Diesel generators have the particularity to have low initial investment costs and high O&M costs. Even subsidizing 100% of initial cost may not be sufficient to most diesel generators installed in the country as most of them are operate at a loss and are heavily subsidized by the government. Private sector involvement in the sector in substitution to ENEL would require O&M subsidies to be able to be sustainable. Hybrid solar/diesel systems can be used to reduce the use of diesel and supply the grid at peak hours. Financing needs: This would require having access to a recurrent source of subsidy over the years. Another solution would be not to privatize the diesel generators. Dispersed areas: the same approach can be developed as for the first segment. In this case however, transfer of income from the concentrated market to the dispersed market is less relevant, as diesel generation does not enable to produce electricity at low cost. In 59 this case there is no reason rationale for bundling together the dispersed and concentrate market, which could be treated separately. 3. Widely scattered household far from concentrated community: In this market segment, only SHS can be used. As this market segment is not located close to a population concentration, access may be a problem. As a consequence, it is probable, the private operator will have limited interest for supplying long term electrification services on a concession base. In this case vendor approaches may be retained with a high level of subsidy in order to enable a percentage of the populations to be able to have access to the products as it is probable that no financial institution would lend on credit because of collection difficulties. Smaller SHS may be designed (20 W) to limit purchase cost for end users. 6 SERVICE PROVISION OPTIONS: FINANCIAL MODELING OF TWO CASES 6.1 Selection of two sites Based on the following criteria: (1) willingness of the populations to be electrified, (2) representativity of the area, enabling reproduction of models in sites with similar characteristics, (3) economic and technical capacity to implement a pilot project on a short term basis, El Cua ­Bocay and El Ayote have been selected. The sites of El Cua and El Ayote already have access to natural hydro resource that makes them attractive for the development of an alternative solution to diesel generators. In addition, local operators have been identified for these two sites. Finally the sites are representative of two market segments and the experience could be duplicated in order areas of the country with similar characteristics. Finally Nueva Guinea, was the site with the poorer population of the three sites with the lowest capacity to pay amongst the three and limited productive application potential. Implementing the service will have required more subsidies and would have been less attractive to the private sector. El Cua -Bocay offers the advantage to be located near a good hydro site where part of the investment has already been made. For the distribution side also, a mini grid is already installed. El Cua is a poor area, which has the characteristic to be made up of a big concentrated nucleus of families and a much smaller number of dispersed household. This structure associated to a low cost of energy with the hydro generator will enable to test (1) the feasibility of implementing cross subsidies between the two markets and (2) try to level tariifs between concentrated and dispersed market. The interest of the El Ayote as a pilot site is mostly in the high level of economic activity that is already taking place in this area. It is believed that the impact of electricity in El Ayote will greatly contribute to the development of new, more value added economic activities. This process is supported by local entrepreneurs who have decided to play an active role in the distribution of electricity in their area. El Ayote has the particularity to 60 have a small concentrated market associated to a larger dispersed market. A mini grid associated to a diesel generator has been recently installed (like 32 other sites in the country), and a potential connection to a relatively high cost hydro plant can be considered, subject to cost analysis This case will offer the possibility to validate (1) what source of energy is more adequate for both the dispersed and concentrated markets, (2) validate that medium term consumer credit can be introduced in a in a relatively well off area with this type of habitat (2) on the longer term, measure the impact of electricity on the development of productive applications. 6.2 Delivery mechanisms The purpose of this task is to design sustainable delivery mechanisms for electrification of the two pilot sites. The mechanisms will be patterned after models that have been successfully used in other countries and adapted to suit various types of unserved communities in Nicaragua. These mechanisms are for the most part private-sector oriented, have appropriate cost-recovery features, provide financing to consumers to hurdle high first cost barriers and combine public sector funds with consumer down payments to finance investment requirements. In the two considered sites, we are facing a situation where two distinct off grid markets have to be served. In both cases there is a concentrated market, represented by a village and a dispersed market made up of dispersed houses located in a radius of 20 km approximately around the village. The village is in both cases an attraction point where the dispersed people tend to go on a regular basis to buy o r sell goods. The dispersed and concentrated market, even in off grid areas, have different characteristics (capacity to pay, density, social organization, working habits etc...) that 61 have direct implications in terms of service delivery. The tables below analyzes the main advantages and drawbacks of having only one operator for both markets or having both markets bundled together. Advantages Drawbacks Markets treated -easier definition of - each market, taken separately responsibilities, separately, might prove too -each market would be small and insufficiently technically easier to serve economically attractive for as each of them would be external private operators, based on a different technology - duplication of structure - operation would be costs and part of operation easier to understand and costs, manage by the private sector Markets treated jointly - create economies of - most operators do not have scales by sharing the double technical management and competence (diesel mini operation costs, grid and off grid). Off grid - enables implementation (SHS) market might be a of solidarity mechanisms deterrent for non specialized between both markets private sector operators, (cross subsidies), - ensures a presence of the operator for the long run in the area as hydro projects and grid management require long term amortization and thus presence on site. 62 6.3 Financial constraints and modeling Taxes and constraints A recent amendment to law 176 (Reforma de la Ley de prestamo entre Particulares) has fixed the maximum interest rate of loans to 16.7 % /annum from May 2001 on. All loans to private operators or end users will have to carry an interest inferior to this threshold Custom duties on SHS equipment are 5%. In addition local VAT (IGV) is 15 % of sale price. A decree in the electricity law which terminated in March 2001 (Art 131) gave a three year exemption period for IGV. Diesel is exempt from IGV (Art 130). The financial modeling will be done taking the two taxes into account. Any regulatory change going in the direction of a total or partial exemption of one or the two of the taxes would improve the economy of the project and reduce the need to benefit from external, subsidies. The cancellation of the two taxes would correspond to a 20% subsidy that could be originated locally. Financial modeling The net present value (NPV) of the net operating income for the life of the project is the single factor used to determine financial viability. The off grid analysis uses a twenty (20) year financial analysis to determine the conditions necessary to produce a financially viable project. The analysis develops a detailed investment and expense analysis. The financial modeling will analyze a base case and different working case scenari. The Base Case intends to look at the project without any government intervention and uses commercial interest rates and affordable tariffs or monthly payments. At both sites the Base Case will prove not to be financially viable. The Working Cases change the effective interest rate for the projects (part of the loan will carry a commercial interest rate and part will benefit from a 0% interest rate, creating a weighted average subsidized interest rate), increase customer down payment and monthly tariffs in order to make at least the off-grid system financially viable. Commercial interest rate will be set at 16%. Exchange rate is set for the base case at the most current Cordoba/dollar exchange. Rate: C$ 13.2 to US$ 1. Micro-grid service will be metered. A uniform monthly tariff will be set. Off-grid service will be analyzed assuming one type of SHS only. A 50 watt SHS, is proposed. Additional options, in sizes and configurations that preserve the basic cost-to- watt ratio, can easily be offered as part of an expanded project. In addition, expanded uses for off-grid solar applications in productive uses can also be added in the future. It must be stressed that at this stage of analysis, the financial results of the modeling that will be done for each of the pilot cases, can only be used to illuminate the conditions and policies that must be adopted if the project is to be successful. The analysis uses quantitative estimates for aspects of the modeled operations that present an image of certainty beyond any that can be attached to the actual ability of projects on the ground to 63 deliver them. Nevertheless, the analysis does provide a road map that can be used to pursue further project definition and precision. 6.4 Role of ENEL In both sites ENEL operates diesel generators associated to a mini-grid. However most of the diesel plants in the country are operated at a loss and in most cases current tariffs do not enable to cover operation and maintenance costs, the Government subsidizing the deficit. The two pilot site are no exception. It has not been possible in the course of the preparation of this study to obtain detailed information from ENEL about the precise operation and maintenance cost of the El Cua site. The partial information supplied indicate that the C$ 2.68 per Kwh charged as the current tariff does not enable to cover O&M costs. The cost of diesel only is estimated to be C$3.35/Kwh. A detailed costs analysis should be done to enable estimate with more precision the costs of oil (lubricants), personnel, depreciation of equipment and other expenses to evaluate the total amount of current public subsidy on this site, and the tariff that should be theoretically charged to cover this cost, plus allowing a return to the private operator. The El Ayote site has been equipped with a diesel generator a month ago and does not enable to provide historic cost data at this point. However, INE has agreed to give ENEL the authorization to charge up to US$ 0.30/Kwh or C$3.96/Kwh. There is an apparent official willingness from ENEL to transfer its diesel plants and mini- grids to private operators if there is an interest from the private sector to get involved. In case of transfer to the private sector new tariffs should be implemented in order to ensure sustainability of service and replace the current government subsidy. The new tariff should enable to cover O & M costs, payment of equipment and remuneration of operator. However the tariff increase will probably have the effect to considerably reduce electricity consumption if it is not subsidized. The modalities of transfer of ENEL's assets to the private sector are not defined yet (competitive bidding or negotiated sale, rental, leasing, transaction terms...). Sale of assets would require a heavy administrative procedure requiring Parliament's approval. However rental of the plants to the private sector can be envisaged. This last solution would also give more flexibility to the future private operators to switch to another technology (such as hydro) on a later stage if needed. ENEL is currently working on defining the conditions of transfer of their off-grid assets In order to maximize the learning experience from the two pilot applications two different models will be used which will take into account the specificity's of each site. 64 6.5 El Cua-Bocay Joint operator: full concession for concentrated and dispersed markets, with cross subsidies between concentrated and dispersed markets Geography: ElCua-Bocay is located in the department of Jinotega out of the concession area. The Cua-Bocay Municipality is the largest in Nicaragua. Population is concentrated in the south-eastern third of its territory, in three micro-regions: El Cua, Bocay and Ayapal. It is a mountainous region located in the North of the Country, with abundant rain which generate numerous rivers with fast current and water falls. This environment creates the appropriate conditions for the implementation of mini hydro generation facilities. The northern two third of the territory is known as the Bosawas Natural reservation, land of the Sumu and Miskitu Indian communities. Ayapal and Bosawas are plane areas which do not offer potential for the development of mini-hydro facilities. This region has been severely affected by the by war in the 80ies both economically and socially, but since 1993, the economy has been progressively recovering. The areas has become a production center of coffee in the highest lands, and basic grains, bananas, cattle and other productions in the lower lands. Diesel generators: In El Cua, ENEL operates two diesel generators of respectively, 75 Kw (works from 4 am to 9 pm) and 90 Kw (works from 4 pm to 12 pm)., connected to a minigrid covering 485 users, all equipped with a meter. The average monthly consumption per user was 41.25 Kwh/month on average in 2000 (42.85 Kwh/m in March 2001). Total use is 17 h/day during the week and 18 during the week ends. The tariff used, imposed by INE, is C$2.5 /KWh or US$ 0.19/Kwh. A tariff increase is planned in January to bring them up to C$3.5 /KWh. At an average monthly consumption of 40 Kwh/month, electricity expenses per household reach on average C$100/ month or US$ 7.57/ month + IVG (15 %) or C$ 115 / month or US$ 8.71/month. 65 Summary Table El Cua, diesel generators and mini grid Number of users (March 2001) 485 Electricity sales (2000) 240,222 Kwh Diesel consumed (2000) 28,987 gallons Average price of diesel (delivery C$ 27.79/ gallon included) Average price of electricity C$2.68/ Kwh (tariff/Kwh) Cost of diesel/Kwh C$ 3.35 Life length of generators 7,000 to 8,000 h and 10,000 to 12,000 h Gross generation 310,960 Kwh Technical and non technical 22.7% losses (1) The operation team is made up of 8 employees, a manager, an operations manager, an accountant, on person in charge of clients relations and billing, one grid maintenance operator, 3 plant operators (3 shifts of 8 hrs). The team operates without vehicle and with minimum office equipment (all reports are hand written). Electricity losses reach almost 23%. Losses are mostly technical as it seems that everybody pays the electricity bill, except from the municipal government (all other public users school, police, health center pay their bill). Hydro potential: Four mini hydro plants are either in construction or in operation in the region: · In El Cua, (pop.3,500), there is a small hydro plant of 100Kw capacity, (effective capacity is 82 Kw) which was operational for 12 years (1986-1998) and used to be operated by the municipality, which was not charging a tariff. In 1998 the plant was put out of service by the new Municipal administration as it was not supplying enough energy to the population in the dry season. The plant got replaced by two diesel Generators. This plant has been tested recently and seems to be operational, however it has not been put back in operation as off yet. The reasons why it is not connected to the mini grid to form an hybrid system with the diesel generators, are unclear (seems to be because of lack of operating budgets). · In San Jose de Bocay (pop. 3,000) a mini hydro plant of an installed capacity of 230 Kw has been in operation since 1994. The plant was designed and built by a local NGO, ATDR-BL. This plant is operating satisfactorily, except some power (1)Source CNE. 66 outages during the dry season (March and April) due to the scarcity of water and the demand fast increase in the area. · In the Pita del Carmen area, (a group of 60 houses located 12 km east of El Cua), a small 30 Kw plant isnoperating also installed by ATDR-BL with the assistance of the local population. The civil Work is completed, and the electro-mechanic components were installed in 2000. · In El Bote (located some 20 km Est of El Cua), a mini-hydro plant is under construction by ATDR-BL. The initial idea was to install a 155 Kw capacity plant to serve the municipalities of El Bote and Galope. However due to the demand increase, the idea is now to build a 450 Kw plant, with pipes and turbine house designed to install another 450 Kw in a second phase. The initial investment (civil Works)was financed by a bilateral grant from the USA. ATDR-BL is currently looking for funds to complete the project (purchase of electro-mechanic components, pipes, construction of turbine houses, construction of primary lines). Institutional background The NGO, Asociacion de Trabajodores de Electrificacion Rural "Benjamin Linder" (ATDER-BL) was granted on April 3, 2001 by the regulatory body INE, an exclusive concession contract for the right to generate from an installed capacity of 155 KW (upgraded later to 900 KW), distribute and commercialize electric energy in the municipality of El Bote. A similar concession was granted to APRODELBO a sister organization, for the Municipality of San Jose de Bocay in the department of Jinotega. For 230 KW, and another one for ASOLPIC for 30 KW in the Municipality of Cua Bocay, department of Jinotega. The concession contract is valid for 30 years. The price of Kwh authorized by INE is US$ 0.145/KWh. ATDR-BL is a Nicaraguan NGO, dedicated to rural development projects in the Cua- Bocay and other Northern areas of Nicaragua. For the past 13 years ATDR-BL, has been working with local communities for the development access to electricity via mini-hydro electric plants. The NGO bears the name of a young American engineer Benjamin Linder who got killed by the contras during the war in 1987 as he was working in the field for the development of the new hydro site in San Jose de Bocay. Since his death a group of preofessionals and technicians both local and Americans have decided to pursue the task of Benjamin Linder and created the association ATDR-BL in 1987. Since then ATDR- BL has developed the hydroelectric system of: San Jose de Bocay (from project design to implementation including training of operators), of the Pita de Carmen site, maintenance and repairs of the hydroelectric plant and grid in El Cua, initial works for the El Bote Hydro Plant, as well as numerous drinking water systems, and has developed a mechanic workshop in El Cua.. ATDR-BL has developed a good competence for the design and implementation of mini ­hydro projects, the implementation of primary and secondary distribution lines and in the capacity building of local manpower. However for very dispersed populations, ETDR ­BL does not have any experience in the solar energy area. 67 Project justification and challenges: The diesel generators in El Cua serve some 485 clients at the relatively high cost of US$ 0.20 Kwh while operating at a heavy loss. In San Jose de Bocay, another 450 families benefit from the services of the hydro plant. However, in a radius of about 15km centered half way between San Jose de Bocay and El Cua ­including the villages of El Cua, El Bote, El Galope, Bocaycito, El Cedro, La Union, and San Jose de Bocay­ another 520 concentrated families and 500 dispersed families do not benefit from any electricity service at this point. Without a new investment and the implementation of the project, these families have no hope to benefit from an electrification service in a foreseeable future. The table below summarizes populations characteristics in El Cua. Population in the El Cua area (in inhabitants) El Bote, El Galope and Chico Estrada 847 Villa Nueva, El Chilamate and 638 Bocaycito El Cua and neighboring communities 2,728 San Jose de Bocay 2,640 La Union 550 El Cedro 275 La camaleona 220 Communities between Bocaycito and 550 the Union (estimated) Communities between San jose de 475 Bocay and Camaleona (estimated) Total concentrated population 8,923 Total concentrated potential users 1455 Total already electrified in El Cua 485 with diesel generators Total Electrified in San Jose de 450 Bocay with mini hydro plant. Estimated potential client to be 520 connected to grid Estimated off grid clients 500 Total clients (dispersed and 1955 concentrated) In addition, The San Jose de Bocay plant suffers from power outages during the dry season -March and April- because of insufficient water. CNE anticipates the population in the region to be growing at a rate of 5 to 7% a year for the next ten years, and 3 % for the following 15 years (for simplification purposes a fixed rate of 5% will be used in the financial models). 68 The current technical solution in El Cua would not be attractive for the private sector to be involved. In the concentrated area, people are already reaching the upper limits of the capacity to pay wit the current tariff. Any increase in tariff would have to be subsidized. The total electricity consumption for the clients of the area in 2002 is expected to be 740,676 KWh, corresponding to a maximum demand of 198 KW. CNE anticipates the needs to be 1,982,960 KWh for a maximum demand of 638 KW, in 2027 for Residential and non residential applications(1), in the concentrated area only. For the dispersed area the needs are evaluated in terms of availability of service or not rather than in terms of KWh consumed per year. The dispersed market being relatively small in size, it is doubtful that any private sector operator will be interested to position itself as a service provider uniquely for it. This will require to bundle the two markets under one service contract. The challenge in the area is thus: - to provide a source of electricity for 500 dispersed families, - to provide a low cost reliable source of electricity for 1,455 concentrated families living in villages or small communities (500 of which are new users), - bundle the dispersed and concentrated markets in one project under one operational global responsibility, - involve in the project the new local concessionaires and complement their capacities for the technologies they are not familiar with ie: solar energy, - design a project structure and delivery mechanisms, minimizing public subsidies while enabling sustainability of service. Delivery model: The delivery model chosen for this site is based on the concession contract that the new concessionaires have recently been awarded to. It will be provide financing to the new concessionaires for the investment phase under the following scheme and conditionalities: 1. take responsibility for the concentrated and dispersed market, 2. operate and distribute electricity from a mini-hydro plant as a substitute to the existing diesel generators. To invest in distribution of electricity and operate the service for a period of 30 years as per concession agreement. The investment will be made in the El Bote site for an installed capacity of 450 Kw. A second 450 Kw investment in El Bote and the Camaleona plant which had been envisaged, will be postponed until further notice. 3. serve The dispersed market with solar home systems (SHS) under a concession contract. Financial simulations have been made for a twenty year contract. The (1)Source CNE 69 service provided will include the financing, installation and maintenance of a 50 Wp SHS equipped with a prepayment meter, 4. transfer part of the revenues generated by the hydro plant in the concentrated market to cross subsidize the dispersed market, 5. Project's financial structure will be made up of combination of loans at commercial conditions and a level of grants enabling a positive net present value of cash flows over a period of twenty years for the global operation (dispersed and concentrated markets bundled). Access to financing will be subject to the respect of the above points. For the dispersed market ATDR-BL has no knowledge of electrification via SHS. A solution could be to subcontract installation to a specialized system integration company which would provide training and build capacities within ATDR-BL. ATDR-BL would be then responsible for maintaining the systems after installation is completed. Installers may be requested to provide maintenance for the initial 3 years and after sales support after this period of time (availability of parts and components). Suppliers may be selected by competitive bidding. As SHS will be extremely dispersed, it is recommended that systems are equipped with prepayment metering enabling ATDR-BL to receive payments in anticipation of service provision. By enabling users to pay at a payment center at the village on a monthly basis, for example, pre payment meters available on the market enable to secure tariff payments and avoid costly cost of payment recovering. Project map San Jose de Bocay La Camaleona 230 Kw Hydro plant La Union El Cedro El Galope Bocaycito El Bote Hydro plant El Cua 70 6.5.1 Financial modeling: In a project presented to the CNE, ATDR-BL was proposing the following project: develop 900 KW in El Bote, to distribute Electricity to the Area of El Bote El Cua, Build a grid between the two cities (20km).Develop the La Camalaeona site (250 KW) to serve the san Jose de Bocay area and sell over capacity from El Bote to DIS Norte (Union Fenosa), the grid concessionaire, at a tariff of $0.03 KWh. The total Investment was $1.78 M. Alternatively the current project is proposing to develop the El Bote Site only with a 450 KW capacity, and to build a distribution line to cover El Galope, Bocaycito, El Cua, on one line and El Cedro, La Union, San Jose de Bocay on another line. Total Cost is estimated to be: US $ 1.281 M). The Hydro plant in San Jose de Bocay (230 KW), in La Pita del Carmen (30 KW), would also supply the common grid. The old hydro plant in El Cua (85 KW) could also be reactivated subject to a technical evaluation). Investment Nature of investment Amounts in US$ Primary line: El Bote /El Cua 352 ,700 Primary line: Split of lines / la 229,400 Union Primary lines:La Union/Bocay 140,000 Distribution: La Union/Bocay 36,000 El Bote Hydro Plant 522,980 (remaining) Total 1,281,080 El Bote Already invested 151,895 Total Cost (without 1,500/KW distribution) /KW installed Operation and maintenance: In the previous project, operation and maintenance costs for El Cua El Bote were: $53,549/year, and $49,060/year for La Camaleona-Bocay. The current project would enable to reduce management and plant operation costs by having only one hydro plant (in El Bote), but would increase line maintenance costs. Management will be concentrated in El Cua covering the site sof El Cua and San Jose de Bocay. Technicians would be divided in two teams, one operating from El Cua, and the other one based in San Jose de Bocay. Total O&M costs for the concentrated market is anticipated to be:$ 75,546 per year. (See table next page). 71 For the dispersed market, SHS installation costs will be included in investment costs and will be sub-contracted. Payments recovery is thought to be done by pre-payment meters and will not require extra payment collection personnel in addition to the staff in charge of payment recovery for the concentrated market. Maintenance of systems will be done by 2 technicians (one based in El Cua and the other in San Jose de Bocay. Administration of service will be shared with the staff of the concentrated market. El Bote El Cua Operation and Maintenance costs (in US$ per year) Description of cost Annual cost US$ Salaries 3 plant operators 5,082 1 substitute operator 1,232 3 line men 8,316 1 general manager 4,620 1 admin manager 2,772 1 accountant 1,540 3 customers accounts clerks (payment recovery) 3,927 Maintenance Civil woks (0.3% of value) 1,004 Electro mechanic equipment 3,075 Lines, transformers, substations, etc (1.5% of 6,790 value) Other expenses Vehicles depreciation 1,750 Vehicles maintenance 6,000 Radios (communication) 400 Office equipment 1,040 Legal fees 2,000 Total 49,548 Total operation costs for the dispersed market are estimated to reach US$ 6,900 /year (See table below).This does not include renewal of components. 72 San Jose de Bocay office Operation and maintenance (in US$ per year) Description of cost Annual cost US$ Salaries 2 line men 5,440 3 customers accounts clerks (payment recovery) 3,927 1 manager/accountant 3,100 Maintenance Lines, transformers, substations, etc (1.5% of 4,941 value) Other expenses Vehicles depreciation 1,750 Vehicles maintenance 5,400 Radios (communication) 400 Office equipment 1,040 Total 25,998 SHS Operation costs (in US$/year) Description of cost Annual cost US$ Salaries 2 maintenance technicians 3,100 Vehicles ( 2 motorized tricycles) depreciation 800 Operation 3,000 Total 6,900 73 Flow of Funds (El Cua-Bocay) 5 Reimbursement of loan FODIEN FODIEN USERS 5 LOAN GRANT Connection fees 1 1 Project Financing 4 Cross subsidies for SHS, Renewal of investment. Concessionaire 4 2 Initial 2 Investment and Maintenance Hydro Plant Solar Home El Bote + Systems distribution Mini grid 3 3 Sales of electricity Operating Operating Profit Loss Consolidated Operating Profit 74 Cost of capital: The cost of capital is set at a commercial rate of 16% for all cases (Base case and working cases) In Working Case 1, the cost of capital is blended by providing 50% of the financing from a zero interest loan. The off grid project continues to pay a commercial rate of 16%, however, the analysis allows for the transfer of 50% of the net income from the micro- grid to the off-grid. Tariff: The monthly tariff for the solar home systems is raised from C$ 80 in base case to C$100 in working case 1. In Working Case 2, the tariff rate per kWh for the micro grid is increased to US$ 0.17 in order to raise the average monthly cost for micro-grid consumers to approximately the off-grid cost of service. Cross subsidies: The income transfer from the micro grid to the off grid is increased to 75%. The off-grid projects are assumed to have access to the same zero cost capital. Other variables: Working Case 2 assumes that the monthly tariff pre-collects the replacement costs for batteries and controllers. This adds to the cost but greatly improves the quality of off-grid service. Critical Variables: definitions and initial risk/sensitivity analysis This section reviews the variables used in the financial model. First, the variables are defined. For those variables judged to be "at risk" an initial analysis of the range and sensitivity of results to changes in the variables is presented. One measure of risk is to determine the extent to which the variables are likely to fluctuate. The fluctuation can sometimes be controlled by project management and in that case those mitigation actions can become Decision Points for the project. At this stage of the project, the discussion of risk, possible mitigation measure to control or reduce risk, and the likelihood for the success of those mitigation measures can only be assessed preliminarily. Decision Points at this stage involve the identification of important variables and mitigation measures and a description of the actions proposed over the next 6 ­ 12 months to further define project risk. Detail of analysis is as follows: 1. Module 50 watts ­ The module includes the PV panel and connections, controller, battery or support structures, pre payment meter cables, lamps installation. Price C$10,428 (installation included). Risk Analysis: Fluctuations in module cost affect the NPV for the project. Module system specification will be designed and a Request for Proposals prepared in order to obtain the lowest international price. 75 2. Micro Grid Generation and Distribution Cost. The cost for the turbine is taken from an international consultation. The cost for completion of the primary distribution system that will link El Bote to other villages is from estimates given on ­site Risk Analysis: The investment cost for the hydro system is low and is assumed to be well documented and not subject to great fluctuation. The cost for completion and extension of the primary system is subject to more variation. 3. Micro Grid Operations and Maintenance: Estimate of O&M costs is taken from cost estimates given by ATDR-BL. It represents only 5.6% of the total investment and is meant to cover replacement equipment and labor costs. Risk Analysis: The level assumed for total O&M is low. Project success will depend upon establishing the reasonableness of this estimate. 4. Income Transfer from Grid to Off Grid: This transfer is very important for the El Cua off grid project in part because the market size for the off-grid is small compared to the micro grid market. Once the micro grid becomes profitable, the net transfer to the off- grid provides an important per system capital cost reduction. Working Case 2 transfers C$286,143 to the off-grid, or C$572 per system. Risk Analysis: The transfer depends upon the ability of the micro grid to be run efficiently. The estimated O&M costs could erode the transfer if the actual costs are above the estimates used in the analysis. 5. Exchange Rate ­ This is set for the base case at the most current Cordoba/dollar exchange. Range: 13.2 to 1 initial estimate. Risk Analysis: Exchange rate fluctuations are important to project success. The rate and all available mechanisms to lock in desirable rates and provide insurance against future variations should be used. 6. Taxes ­ There are two taxes: a Duty tax of 5% and a VAT of 15% that apply only to solar home system purchases. Range: Taxes did not vary between the base case and Working Cases. Risk Analysis: The level of taxes for solar home systems is high. The cost burden the taxes impose is severe. An analysis for the Base Case shows the taxes place a burden of C$ 1200 per off grid household. Removing the unique tax burden faced by solar home systems would greatly improve the financial performance of the systems. 7. Installation ­ 50 watts ­ Installation costs include the estimated cost of transporting materials as well as the actual material and labor costs. These costs are also roughly based on current commercial installation costs. Range: To be determined. Risk Analysis: Installation costs have the potential for reduction due to economies of scale in a large, pre-committed program. 8. Total Market size and Usage ­ Market size is as stated. Usage is assumed to grow at 7% for years 1 ­ 5, at. 5% for years 6 ­ 10, and at 3% for the remainder of the period. 9. Risk Analysis: Usage is critical because it determines the level of sales from the micro grid. Investment in the grid is largely fixed for this analysis, as a result increasing usage will increase revenues and improve financial results. 10. Customer down payment ­ Customer down payments are set at C$ 1,300. This payment reduces the capital investment, reduces the monthly payment, and provides a strong incentive to consumers to operate and maintain systems properly. Range: N/A Risk Analysis: A down payment is generally considered to increase the likelihood of customers continuing to pay for service. They do not want to lose the down payment as 76 well as the service. However, it has the downside of making the service unaffordable for any consumer unable to make the down payment. 11. Grant: All possible grant sources variables have an identical impact on project finances and so are considered together. The micro grid and off grid analysis uses a composite cost of capital structure to determine the recurring cost of carrying the investment. Grants are used as a zero cost of capital. Range: The capital structure ranges from 100% commercial to 50% commercial financing. 12. Risk Analysis: The availability of zero cost capital, at the levels assumed in the two Working Cases is critical in determining project success. 13. Tariff for 50 Watt system ­ This is stated as a monthly tariff. It can be pre-collected in systems that are capable of using pre payment meters. In addition, the tariff could be collected in a number of other ways if flexibility for consumers is judged desirable. Risk Analysis: Tariff level will affect affordability. Universal service requires affordability. Tariff will also affect the Probability of Payment. 14. Probability of Payment ­ This figure estimates the amount of unpaid bills as a percent of tariff revenue. This figure will be influenced by regulatory treatment of unpaid bills. (See below.) 15. Transfer Payments ­ a percentage of the profits generated by the sales of energy from the Mini hydro plant is transferred to the dispersed market , creating cross subsidies. 16. O&M Efficiency ­ Total O&M costs are composed of replacement materials and maintenance and billing costs. These costs are analyzed in considerable detail. However, it is also recognized that there can be fluctuation in these costs. The efficiency factor simulates that uncertainty. 17. Battery Cost for 50 Watt ­ Battery cost is estimated for the base case using current experience. Battery life will be based upon warranted life obtained from suppliers. 18. Controller ­ Controller cost and life are calculated similarly to battery costs. 19. Lamps ­ Lamp and fixtures are included as part of the system costs for the initial investment. Replacement will be the responsibility of users. 20. Fixtures ­ See above. Interest rate for debt ­ The interest rate used to determine the annual repayment on and of capital is a composite cost. It uses the commercial rate for the portion of the project financed with that type of funds and the below market rate and percent of project. The two sources are then used to create a composite cost or interest rate. 77 6.5.2 Results and comments Summary table of parameters: Parameters Base case Working case Working case 1 2 Commercial Loan at 100% of Hydro 50% of Hydro 50% of Hydro 16% interest / year investment investment investment 0 % interest loan 0 50% of Hydro 50% of hydro investment investment Interest rate 16% 8% 8% Income transfer rate 50% 50% 80% from concentrated to dispersed mkt Monthly SHS tariff C$ 80 C$ 100 C$ 100 Subsidy SHS C$ 0 C$ 1,300 C$ 1,300 Connection costs C$ 1,300 C$1,300 C$1,300 (down payment) Replacement of No No Yes battery and controllers Mini Grid Tariff US$ 0.145 US$ 0.145 US $ 0.20 TABLE 1: EL CUA CASE SUMMARY CASE CHANGES RESULTS Base Case Off grid and micro grid are not viable. Off grid losses are C$ 2.8 million. Micro grid loses are C$16.5 million Working Case 1 Interest rate is reduced. Off grid Off grid losses drop to C$ 1.3 systems receive C$ 1300 grant million. Micro grid losses are and monthly tariff is raised to C$5.5 million. C$ 100. Working Case 2 Micro grid tariff is raised from Off grid and micro grid are both $.145 to $.20. The net income financially viable. Micro grid net transfer from the micro grid to revenues are use in part as a off grid is 80%. The zero interest transfer to the off-grid. subsidy is extended to the off- grid project. The off grid tariff covers battery and controller replacement for the life of the project. 78 Base case: With full commercial conditions of financing only, both the micro-grid and off-grid projects have substantial negative NPV for the base case and are not feasible. Working case 1: By introducing 50 % of financing at a 0 % interest, the remaining 50 % being at 16%, the performance, improves dramatically although the project still loses money. Working Case 2: In this case, the financial structure of the project remains the same as Working case 1, but micro grid tariffs are raised to US$ 0.20 (same as current situation with diesel generators), but the case is financially viable if the values assumed for the analysis can be obtained. The project is viable and enables to ensure sustainability of both the concentrated and dispersed markets. In this case, the off grid users will pay C$ 100/month, and concentrated market users will pay on average C$ 108 /month (based on a 41 KWh consumption per month). External subsidy to SHS is only US $98/system (12.4 % of initial investment value). Subsidy due to Direct Total Total Total Cross lowering subsidies C$ per per subsidies interests rates user user C$ C$ US$ Mini grid 6,028,961 0 6,028,961 4,143 313 Off grid 2,048,396 650,000 2,698,396 5,397 409 3,565 The total subsidy for the concentrated market is $ 313/user, or a total of $ 455,415 for the whole concentrated population. This amount corresponds e.g. to mixed financing with 50% of the investment financing being made by a 0% loan, and 50 % at commercial conditions (16%), compared to a baseline situation where 100 % of the loan carried a 16% interest rate. The subsidy for the dispersed market (including direct subsidy and impact of loan at 0% interest) is $409/user, or 51% of initial investment cost of SHS. The subsidy enables full O&M service including replacement of components, batteries and controllers during project life). Total subsidy needed for the whole dispersed population is US$ 204,500. 6.5.3 Sensitivity analysis: The analysis looks at how changes in critical variables can change the financial viability of the project. For this case we look at four variables: system cost, population change, exchange rate fluctuations, and tax changes (particularly tax exemption for off-grid systems.) The measure of sensitivity is taken by noting the change in the net present value of the Working Case 2 results to express changes in variables. 79 SENSITIVITY ANALYSIS Hydro Working Case 2 ANALYSIS AND ASSUMPTIONS O&M Analysis Initial Value +10% Percent Change Monetary -10% Percent Change Monetary in NPV of a 10 % Change in NPV of a 10 % Change increase in parameter decrease in parameter Reference Net Present Value 2,476,056 O&M Analysis Investment 15,219,230.40 Estimate of Labor costs 861300 Total O&M 861300 947 430 -44.15% -1093243 775 170 24.15% 598031 Households 1445 Year 1 - 5 7% 7.70% 25.90% 641334 6.30% -25.43% -629625 Year 6 - 10 5% 5.50% 16.06% 397641 4.50% -15.79% -390872 Year 11 - 25 3% 3.30% 7.17% 177416 2.70% -7.05% -174492 Monthly Tariff 101.8116 Average Usage per month 42.85 47.14 116.24% 2878228 38.57 -116.24% -2878228 Exchange Rate 13.2 14.52 10.00% 247606 11.88 -10.00% -247606 System Cost: The off grid system costs, including installation and all taxes is C$10428 per system. If those costs increase by 10%, to C$11471, the net present value becomes negative. It drops from C$17,150 to negative C$363,788. Population Change: The population growth assumed for the El Cua micro grid plays an important role in the overall viability of the project since it determines the level of micro grid sales and revenues. Since the El Cua micro grid is served by a fixed, low cost hydro generation resource the increase in sales will increase system profitability. If the population grows at half the assumed rate, I,e, 3.5%, 2.5%, and 1.5 % over the twenty year period, the profitability of the micro grid drops from C$2,476,056 to negative C$2,866,316. Every change of 1% in the population growth will decrease net profit for the micro grid by C$2.1 million. Exchange Rate: This sensitivity is examined for the off grid system installations alone. Exchange rate fluctuations will affect the off grid system costs. A devaluation that increased the exchange rate from C$13.2 to C$15, an increase of about 15% would change the net profitability from the break even level of C$17,150 to negative C$420,017. Tax Immunity Duty and sales taxes on off grid systems amount to nearly a twenty percent increase in the installed system costs. Tax immunity will increase system profitability by C$540,994. 80 6.5.4 Conclusion: At this stage of initial analysis, the prospects for a combined micro and off grid project in El Cua are good. Several factors contribute to this. The hydro electric generating station in El Cua is low cost and sized appropriately for the market. The relative size of the micro and off grid markets favor a joint project. The low costs for the hydro plant will generate positive net income, part of which could be transferred to the off grid systems. One desirable aspect of this combination is that for the areas in question it opens the possibility for a more equal price (per month and household, not per kWh) for electricity service for dispersed and concentrated areas. In addition, combining the micro-grid and off-grid projects allows for some economies of scale, particularly with respect to M&O staff and administrative functions related to the provision of grid and off-grid service. Compared to the current situation the project would: · serve 500 dispersed families with new SHS, · enable quality and sustainability of service for a larger population (about 55% more in concentrated area, from 935 users to 1,455 users at the start of the project, later allowing for 5% growth over time), · keep tariffs even at US$ 0.20 for the concentrated market while cross subsidizing the dispersed market (diesel tariffs were supposed to increase to US$0.30 by January 1St 2002) · enable fairness of tariff for both dispersed and concentrated (almost even tariffs at around C$ 100/month), · enable the use of renewable non polluting sources of energy (hydro and solar) in substitution to diesel generators contributing to reduce the emissions of C02. 6.6 El Ayote Separated operators: concession for dispersed market and credit sales for dispersed market Geography: The municipality of El Ayote is part of the Atlantico Sur (RAAS) which is located in the South East part of the Nicaraguan Caribbean between the Rivers Matagalpa and Indio. It is an almost flat territory which declines slowly from the mountainous regions of the Center of the Country to the eastern coast towards the Perlas and Butterfield costal lakes and the sandy beaches located between the mouths of the Punta Gordas and Indio Rivers. The Region receives abundant precipitations all around the year, and the climate is warm and humid. The area was originally mostly covered by a tropical rain forest, which has been largely impacted in the last decades by the development of agriculture. Rivers are the main way of communication in this region. The El Ayote Municipality, is located 260 km from Managua, 120 Kms from the city of Juigalpa, and 50 km from the grid in the mountainous part of the region. It is a boisterous 81 community, with well developed agricultural and commercial activities. The main productive activity is cattle breeding. 81 % of the population own or raise cattle, with an average of 40.7 heads of cattle per breeder, and 60 % of the population own its own farm- for meat and milk production (crude milk and also derived products such as cheese). In comparison, in El Cua, only 27.6 % of the population raised cattle and the average, was 11.3 heads per breeder. The main crop is corn (80% of the land is used for this production). It is also a well developed market place and populations from the whole area come regularly to town to buy goods and trade their production. In El Ayote, more than 22% of the population is involved in commercial activities or business services, compared to only 8 % in El Cua. El Ayote counts a city hall, a market place, a primary school, a health center, and several NGOs. It is estimated that approximately 17,000 inhabitants live in the municipality or 2,759 families. Approximately 1,000 live in the concentrated area, and 1,759 are dispersed in a radius of 20 km around the nucleus. The capacity to pay in El Ayote is estimated to be approximately US$ 8.31 (C$ 110) or 35 % more than in El Cua. In addition as El Ayote was a war area, a lot of families have relatives who emigrated and now live abroad and send money back home. Even if this element is difficult to quantify, it should contribute to increase the savings capacity of local households. El Ayote is surrounded by 4 smaller concentrations of 20 families each approximately, Naguaguas, Piñuela, Cusuca and Tapalguas, located approximately at 8 km from El Ayote. Each of the sites counts approximately 20 small farms located at about a distance of 1km from each other. The rest of the population is very dispersed. Baseline situation: Diesel generators In the first quarter of 2001, ENEL, started to invest in El Ayote in an electricity distribution mini-grid and recently installed 2 diesel generators to serve 1000 users. 1000 meters have also been supplied by ENEL. The two generators have a capacity of respectively 280 KW and 180 KW. Estimated consumption per user estimated to be is 50 KW h/month for residential clients and 80 KWh/month for non residential (source CNE). For simplification purpose modeling will use the same tariff for both segments. Productive applications: Several productive applications are planned to be developed in the next coming years by the members of Coope El Ayote or by the Coope itself. They include: a milk plant, an industrial refrigerator, a slaughterhouse, a water pumping system... About 80 SHS have been installed in the region by Technosolar, and purchased cash. This indicates that a small percentage of the population has the capacity to buy without subsidies, however this market segment is probably almost saturated by now. A number of farms and local businesses are equipped with small diesel generators. 82 Summary Table El Ayote, diesel generators and mini grid Number of potential concentrated users 1,000 Price of electricity (tariff/Kwh) US $ 0.30 Anticipated Average consumption 50 KWh/month Residential Anticipated Average consumption non 80 KWh/month residential Residential clients 650 Non residential clients 350 Estimated total maximum gross demand 322 KW in 2002 Estimated total maximum gross demand 694 KW in 2021 (1) · Hydro potential: There is a hydro site located 15 km from El Ayote, which has not been used since the 30ies. The totality of investment needs to be done again (generation and primary distribution lines) as nothing remains from the former plant. Based on the preliminary evaluation of INE an installed capacity of 700 KW would be necessary to cover the needs of the residential and non residential clients for the next 20 years, taking a population growth of 7% for the first 5 years, 5% for the next 5 years and 3 % thereafter (for simplification purposes in the financial models a fixed 5 % will be taken). (1)source CNE 83 Preliminary estimated investment is as follows: Nature of costs Capacity 700 KW in US$ ,000 Feasibility and site assessment 30 Project preparation, and 30 financial structuring Engineering 30 R. E Equipment 600 Balance of plant (civil work) 700 Transmission lines (15km) and 270 substation Miscelaneous 140 Total 1.800 Total cost (without 2,185/KW distribution) / KW (1) The preliminary investment costs submitted by CNE seem high compared to the costs presented in El Cua ($1,500/KW) by ATDR- BL. A more detailed cost evaluation will be necessary to complete the analysis. A sensitivity modeling will be done takin g US $1,500 as a reference to calculate investment costs. Institutional background and potential operators At this point ENEL the ex-public Utility, is the operator of the electricity service since May 14, 2001. ENEL would be willing to transfer their assets to a private operator. Two private entities have already demonstrated an interest for becoming the operator of El Ayote in substitution to ENEL. One is a rural cooperative in constitution, Coope El Ayote. The Cooperative de Servicios Multiples para el Desarollo Integral del Ayote (Coope El Ayote), is an association of 26 local farmers (8 more are supposed to join shortly), who have decided to joint their efforts to provide collective services to the members of the association. This organization has an office in Managua that provides limited services to their members such as negotiation of joint seed purchases for several members, price negotiations for veterinary services, and sometimes sales of products. However, the services provided by Coope El Ayote are at an embryo stage as it is not a legal entity yet. The bylaws to become a rural cooperative have been deposited to the administration on April, 2001. They include the 84 possibility for Coope El Ayote to be an electricity distributor. Simultaneously, Coope El Ayote has sent a letter of interest to ENEL on April 19 by which it applied for acquiring or renting the generators. Coope El Ayote wishes to take the responsibility of becoming an electricity provider to be able to supply energy for their own needs primarily. They have the objective to develop agro-business activities in the area for which the access to a reliable source of electricity is of critical importance. They have the intention to invest in a milk processing plant, a small slaughter house, a grain and seeds warehouse, and if possible a small meat refrigeration center. Coope El Ayote is also willing to extend the service to other users provided the activity is economically viable. Potential delivery mechanisms and financial structuring have been presented to them during the last mission. Coope El Ayote does not have any experience yet as a cooperative and as an electricity distribution company. They would need to bring the capacity in house and would benefit from a technical assistance to start the process if they happened to become the operators. Coope El Ayote represents a strong and the main economic power in the region of the pilot. It is estimated that each of the members owns approximately 200 heads of cattle worth $230 a piece ($ 46,000 of assets) which may constitute valuable potential collaterals. Technosol: Created in 1995 Technosol is one of the leading companies supplying renewable energy equipment in Nicaragua. The company specializes mostly in Photovoltaic applications, but has also done some wind and mini hydro projects. Most of the products supplied by Technosol come from major manufacturers in Europe and the USA. Technosol knows the region of El Ayote, where they have already sold and installed about 80 SHS, without providing any financing scheme. They are currently negociating a line of credit with an international specialized fund to provide 4 years financing at 14 % interest rate to their clients. They are asking CNE that the pilot project do not distort market conditions in the area. Technosol has shown a big interest in being part of the project. They would be interested in being the operator for the dispersed market as well as the concentrated market. Other potential operators may apply when the opportunity is officially publicized. Project justification and challenges: The Municipality of El Ayote, counts a big dispersed population (1,759 potential clients) who live in isolated farms. These potential users can only be reached by off grid source of energy. Solar Home Systems are the most adapted source of energy for small, non directly productive applications, such as lighting. Larger needs are already often already covered by small diesel generators. On the other hand the concentrated population (1,000 potential clients) served by the diesel generators have started to charged a high tariff of US$0.30/KWh by ENEL, in an attempt to cover O&M costs. This high tariff may act as a deterrent for the development of productive applications. At current estimated consumption (50 KWh/month), monthly electricity bill would be US$ 15/month, well above average estimated average capacity to pay of US$8.1/month. This may result in a large proportion of the population either not being able to afford the service, or 85 constrained to reduce artificially their consumption, limiting thus the impact of electricity on the development of productive applications. Population and potential clients in El Ayote (in inhabitants) Concentrated households 1,000 Dispersed Households 1,759 Total households 2,759 Total Population 17,050 Total clients already 1,000 electrified with diesel (in progress) generators The challenge is then to: - identify ways to reduce user's electricity monthly payments, by possibly introducing an alternative technology (mini hydro), in order to support the development of the area, - provide a source of electricity (via SHS) to 1,759 dispersed households, - find a technical and organizational solution enabling to reduce the cost of energy for the concentrated families, and make it accessible to most people, - design a project structure and delivery mechanisms, minimizing public subsidies, enabling the use of investment subsidies (by preference to O&M subsidies) while enabling sustainability of service. Delivery model: Concession for the concentrated market and credit sales for the dispersed market: In El Ayote payment capacity are higher than in Al Cua (almost 30% on average). A private operator met during the study is already considering the possibility to intervene in the region via a credit financing scheme to sell SHS. At the same time, high generation costs from the diesel plant, or the high investment cost from any substitute hydro plant would not enable to generate much excess incomes permitting cross subsidies between the concentrated market and the dispersed market, as is proposed in El Cua. As such there is no real justification (other than creating management economies of scale) to have both markets be bundled together. It is thus proposed that the concentrated market and the dispersed market be handled separately. The financial modeling will look at the feasibility of this option, and the conditions of its feasibility. For the dispersed market, the model recommended would then be to accompany the private vendor current initiatives. By introducing some level of subsidies in the process, 86 the project would aim at enabling a larger population coverage to benefit from SHS. The subsidies would be used to reduce investment costs and bring them on line with capacity to pay (around 8.1 $ per household on average). Vendors may submit a list of clients on a monthly basis to a dedicated fund such as FODIEM, who in turn, would pay the vendor the corresponding agreed subsidy per system. Users would be requested to pay connection costs as a deposit. The vendor agents will in this case, have the responsibility to: - promote the service to populations, - supply the SHS at the best price, - install the SHS, - train the users for operation and basic maintenance of their SHS, - maintain the systems for the first 5 years (under commercial conditions), SHS might be equipped with pre payment meters. It is thought that clients would use their weekly visit to the El Ayote market to buy energy credits for their pre payment meters. For the dispersed area the vendor would be responsible for: - keeping available an inventory of spare parts for the first 5 years at least, - optionally, providing short term financing, for the purchase of replacement components. Micro credit organization might be involved at this stage, to provide short term financing to users. Vendors may be given coverage objectives with incentive/penalty mechanisms. Several vendors may be pre qualified to provide the service based on their references. For the concentrated market, The model would be a concession contract over a period of 20 years for the exclusive distribution and generation of electricity. At the current tariff of US$ 0.30 /KWh, a large par of the population might not be able to have access to electricity. Monthly average payments at this tariff level would be US$ 15/month, well above average capacity to pay.. In this case two possibilities remain: 1. subsidize O&M to reduce tariff 2. find an alternative source of energy such as hydro The following financial models will look at two technology options to feed the mini grid: a diesel case and an alternative Hydro case, under a concession scheme. 87 6.6.1 Financial modeling The following tables indicate the investment costs taken by ENE for the purchase of the diesel generators and the construction of the mini grid, as well as the anticipated O&M costs supported by ENEL at this moment. At this stage, no final decision regarding the costs of transmission of the assets to the private sector has been determined. The figures presented in Table: "operation and maintenance costs" are an estimate presented by ENEL for the O& M costs. However they are just indicative as no final decision has been made regarding the final transaction. However it seems that ENEL is in favor of renting the assets rather than selling them. This would avoid ENEL to solicit a parliament approval, and would offer more flexibility to the private operator to switch to a different technology if needed. Investment Completed by ENEL for the Mini Grid and the diesel generators (In US $) Nature of investment Amounts Distribution Mini grid 124,580 Transformers 15,171 Public lights 150 W/240v 7,020 Total grid 148,774 Generators house 3,600 Diesel generator 180 KW 23,900 Diesel generator 280 KW 28,100 Total generators 55,500 Total 202,371 (1) (1)Source ENEL 88 Operation and maintenance: Operation and Maintenance costs (in C$ per year) Description of cost Annual cost in C$ Production costs 135,500 Operation costs 15,340 Total generation costs 151,040 Annual rental cost of Generator and mini-grid 335,802 Total costs 486,842 On the dispersed market, vendors will have to ensure maintenance of the systems for 5 years. Maintenance will be charged to the users in addition to the SHS. Maintenance costs are estimated to be US$ 14,100/year. The other costs are structural costs for the operation and would not be charged to clients in addition to their initial purchase. This structure is based on SHS equipped with pre-payment meters to limit payment recovery costs. Two to three persons would be employed for this function part time (one or two days a week) as it is expected that most of the payments would be made during the market day. Installation costs are included in sales price of C$ 10,428 per system. SHS Operation costs (in US$/year) Description of cost Annual cost US$ Salaries 4 maintenance technicians 6,200 Manager 3,840 Account managers/payment collection 2,300 Vehicles ( 4 motorized tricycles) depreciation 1,800 Operation 6,000 Office Rent 1,800 Office equipment and supplies 3,600 Total 25,540 89 Flow of Funds El Ayote 4 Reimbursement of loan FODIEN FODIEN USERS 4 LOAN GRANT Connection fees 1 1 Project Financin Concessionaire Off grid dealer 2 Initial 2 a Credit sales Investment and 2 and installation of Maintenance SHS Hydro Plant /diesel plant + Solar distribution Home Mini grid Systems 3 Sales of 3 electricity Operating Profit Operating profit 90 Critical Variables : definition, range and initial risk analysis 1. Module 50 watts ­ The module includes the PV panel and connections, batteries, controller, prepayment meters, lamps and support structure. Total installed cost is C$ 10,428. Risk Analysis: Fluctuations in module cost affect the IRR for the project. Module system specification will be designed and a Request for Proposals prepared in order to obtain the lowest international price. 2. Micro Grid Hydro Generation and Distribution Cost. All costs are initial estimates.. Range: Hydro site development is $1,800,000 for a 700 KW plant. Primary and secondary distribution lines and substations are US$ 270,000. Risk Analysis: The investment cost (without distribution costs) for the hydro system is high compared to El Cua (US$ 1,500/ KW in Wel Cua and US$2,185/ KW source CNE ). A sensitivity analysis will be done below to verify the impact on project. 3. Micro Grid Diesel ­ The diesel genset is already installed in El Ayote. The costs are assumed to be accurate. 4. Micro Grid Operations and Maintenance: The operations and maintenance of the diesel micro grid depends heavily upon the operating costs for diesel generators. The estimates are taken from Nicaraguan operating statistics. Risk Analysis: Future fuel costs are subject to exchange rate fluctuations. The level assumed for the distribution system O&M is more controllable. Project finances will depend upon controlling fuel costs. 5. Exchange Rate ­ This is set for the base case at the most current Cordoba/dollar exchange. Range: 13.2 to 1 initial estimate. Risk Analysis: Exchange rate fluctuations are important to project success. The rate and all available mechanisms to lock in desirable rates and provide insurance against future variations should be used. 6. Taxes ­ There are two taxes: a Duty tax of 5% and a VAT of 15% that apply only to solar home system purchases. Range: Taxes did not vary between the base case and Working Cases.. 7. Risk Analysis: The level of taxes for solar home systems is high. The cost burden the taxes impose is severe. An analysis for the Base Case shows the taxes place a burden of C$ 1200 per household. Removing the unique tax burden faced by solar home systems would greatly improve the financial performance of the systems. 8. Total Market size and Usage ­ Market size is as stated. Usage is assumed to grow at 5% for the entire project. Risk Analysis: Usage is critical because it determines the level of sales from the micro grid. Investment in the grid is largely fixed for this analysis. However, the high variable cost of diesel generation means that increasing usage will decrease loses and worsen financial results. 9. Customer down payments are set at C$ 1300 for the Base Case and raised to C$1950 for the Working Case. This payment reduces the capital investment, reduces the monthly payment, and provides a strong incentive to consumers to operate and maintain systems properly. Range: N/A 91 Risk Analysis: A down payment is generally considered to increase the likelihood of customers continuing to pay for service. They do not want to lose the down payment as well as the service. However, it has the downside of making the service unaffordable for any consumer unable to make the down payment. 10. Grant: All possible grant sources variables have an identical impact on project finances and so are considered together. The micro grid and off grid analysis uses a composite cost of capital structure to determine the recurring cost of carrying the investment. Grants are used as a zero cost of capital. Range: The capital structure ranges from 100% commercial to 25% commercial financing. 11. Risk Analysis: The availability of zero cost capital, at the levels assumed in the two Working Cases is critical in determining project success. 12. Tariff for 50 Watt system ­ This is stated as a monthly tariff. It can be pre-collected in systems that are capable of using pre payment meters. In addition, the tariff could be collected in a number of other ways if flexibility for consumers is judged desirable. Risk Analysis: Tariff level will affect affordability. Universal service requires affordability. Tariff will also affect the Probability of Payment. 13. Probability of Payment ­ This figure estimates the amount of unpaid bills as a percent of tariff revenue. This figure will be influenced by regulatory treatment of unpaid bills. (See below.) 14. Amortization Period for Dealer: The Dealer model used here assumes that the financing period will be of shorter duration than would occur in a concession model. In this case amortization would be 5 years. The amortization allows capital recovery by the dealer and will provide ownership to consumers. Risk Analysis: The amortization period effects monthly payments. The short period will result in high monthly payments which in turn will reduce the population able and willing to purchase solar home systems. 15. O&M Efficiency ­ For the Dealer model total O&M costs are higher than for a combined micro grid / off grid operation. Economies of scope that allowed the off grid to avoid labor and office expenses are built into the Dealer O&M costs. These costs are analyzed in the same detail as they are for the concession model. 16. Battery Cost for 50 Watt ­ Battery cost is estimated for the base case using current experience. Battery life will be based upon warranted life obtained from suppliers. 17. Controller ­ Controller cost and life are calculated similarly to battery costs. 18. Lamps ­ Lamp and fixtures are included as part of the system costs. Replacement will be the responsibility of users 19. Fixtures ­ See above. 20. Interest rate for debt ­ The interest rate used to determine the annual repayment on and of capital is a composite cost. It uses the commercial rate for the portion of the project financed with that type of funds and the below market rate and percent of project. The two sources are then used to create a composite cost or interest rate. 92 6.6.2 Results and comments Three "Main Cases" were considered. For each Main Case, this analysis looks at a Base Case, Working Case 1 and Working Case 2. Calculations shown are for illustration purposes only: Main Case 1: "The diesel generator case". The dispersed market is served by a vendor (dealer) model and the concentrated market with a concession model, using a micro- grid served by a diesel generator, the latter reflecting the current reality in El Ayote, Main Case 2: "A high cost hydro case" looks at an alternative technology: The dispersed market is still served by a dealer model and the concentrated market by a concession model. The financial analysis now considers a provider who uses the diesel generators for two years and then brings a 700 KW hydro facility on-line in the third year, assuming a veryhigh cost (taken from initial estimations of CNE). Main Case 3: " A low cost hydro case". A variation of case 2, with a low cost hydro investment (costs taken from El Cua feasibility study) , enabling the two markets to be bundled together under a concession model. For each case a base case and two working cases were analyzed. A sensitivity analysis was then completed on the most influent parameters. 6.6.2.1 Main Case 1: DIESEL MINI GRID CONCESSION and DEALER MODEL For this case the recommendation was to proceed with an analysis of the micro grid and off grid projects separately. In this case, the micro grid uses diesel generating plants. The new diesel generators have very high variable running costs, which makes it difficult to raise tariff prices to cover costs and still preserve some measure of universal service. In the model the financing structure will be made up of commercial loans and subsidized loans will be introduced in the working cases. O&M costs do not enable to transfer funds via cross subsidies to the off grid market, so it has been decided to separate the two markets and to serve the off grid market with a private dealer. Subsidies are injected in the model to enable the off grid tariffs to be in line with capacity to pay. 93 TABLE 1 a: main input parameters Parameters Base case Working case Working case 1 2 Commercial Loan at 100% 50% 50% 16% interest / year 0 % interest loan 0% 50% 50% Interest rate 16% 8% 8% Income transfer rate 0 0 0 from concentrated to dispersed mkt Monthly SHS tariff C$ 261 C$190 C$112 Subsidy SHS 0 C$1,300 C$ 3,500 Connection costs C$1,300 C$1,950 C$1,950 (down payment) Replacement of No No No battery and controllers Mini Grid Tariff/KWh C$105.6/US$0. C$105.6/ US$ C$ 200 / US$ 16 0.16 0.25 TABLE 1b: main changes and results Diesel Only with Dealer Model. CASE CHANGES RESULTS Base Case Dealer off grid monthly payments are C$ 261. Micro grid loses are C$ 13.8 million. Working Case 1 Interest rates reduced for Dealer of grid monthly micro grid. Off grid down payments are C$ 190. payment raised to C$1950. Micro grid loses are C$ A grant of C$1300 per 12.0 million. system is given to the off grid installations. Working Case 2 Off grid interest rates are Dealer off grid monthly reduced. Micro grid tariff is payments are C$ 112. The raised to $.25 per kWh to micro grid breaks even. break even. At a tariff rate of $.185 per kWh the project loses C$8.6 million. For the Dealer Model, the subsidy must be increased to C$3,500 per system. 94 This case is not satisfactory: even with a soft financing structure of 50 % commercial loan and 50 % no interest loan, and higher tariffs for the concentrated market the NPV is heavily negative. A tariff of US$ 0.25 would enable to break even. However given the estimate use of electricity per month of 50 KWh/ user, average monthly payments would reach US$ 12.5, well above capacity to pay. To match capacity to pay substantial O& M subsidies would have to be introduced or operation time would have to be reduced. For the Off grid market served by a dealer model, a 42% initial investment subsidy enables the feasibility of the project. However the dealer model does not offer the same level of services as the concession model described in El Cua, where replacement of components and full O&M service were proposed over a period of 20 years. Il this case the model only considers, initial SHS investment. Service and replacement of components would have to be supplied and purchased by users at additional costs. Alternative options should be contemplated for the concentrated market. 6.6.2.2 Main Case 2: HIGH COST HYDRO CONCESSION AND DEALER MODEL This case is an attempt to identify an alternative technology to the diesel case (case 1). In this case the dispersed market and the concentrated market are separated. The concentrated market is served by a mini grid connected to a hydro electric facility to be dimensioned at 700 KW. The estimated cost of investment is US$ 1.8 M (source CNE). The off grid market is served by a dealer of SHS, using a 5 years credit scheme. A level of subsidy is introduced to enable tariff to match capacity to pay. TABLE 2 a: Main input parameters Parameters Base case Working case 1 Working case 2 Commercial Loan at 100% 50% 25% 16% interest / year 0 % interest loan 0 50% 75% Interest rate 16% 8% 4% Income transfer rate 0 0 0 from concentrated to dispersed mkt Monthly SHS tariff C$261 190 112 Subsidy SHS C$ 0 C$ 1,300 C$3,500 Connection costs 1300 1950 1950 (down payment) Replacement of NO NO NO battery and controllers Mini Grid Tariff C$128/US$0.16 C$128/US$ 0.16 C$128/US$0.16 95 TABLE 2b: main changes and results: 700 KW Hydro and dealer CASE CHANGES RESULTS Base Case Dealer off grid monthly payments are C$ 261. Mini grid loses are C$19 million. Working Case 1 Off grid down payment Dealer of grid monthly raised to C$1950 and a C$ payments are C$ 190. Mini 1300 system grant is given. grid loses are C$6.5 million. Interest rate for mini grid is reduce. Working Case 2 Subsidized interest rates are Dealer off grid monthly increased to cover 75% of payments are C$ 112. Mini hydro mini grid investment. grid has net present value of Off grid interest rates income of C$2.4 million. reduced. Off Grid subsidies are increased to C$ 3,500. Off grid interest rates are reduced. The dilemma for El Ayote is that the hydro investment is very large for the size of the market connected to it. The high per capita investment requires a monthly payment well in excess of the population's ability to pay even with a 50% percent subsidized loan. It is only by increasing the interest rate subsidy to 75% of the project investment that the monthly tariff can be reduced to an affordable level. his case shows that the model for the concentrated market, with a financing structure made up of a 75% subsidized loan -or a 4% overall interest rate- (working case 2), could have a positive NPV. The high investment costs for a limited concentrated population penalizes the project and creates the need for high subsidies. Further investigation should be done to try to find technical solutions enabling to reduce investment costs. Off grid market is served by the same SHS dealer model as case 1, and shows similar results. 6.6.2.3 Main Case 3: LOW COST HYDRO MINI GRID AND OFF GRID CONCESSION The final Case considered proposed a 700 KW Low Cost hydro facility at an installed cost of US $1500 per KW installed (without distribution) to match the costs used in El Cua. As investment costs have been reduced, cross subsidies become available between the concentrated and the dispersed market as in El Cua, enabling the two markets to be served together under a 20 years concession scheme. 96 TABLE 3 a: main input parameters Parameters Base case Working case Working case 1 2 Commercial Loan at 100% 50 50 16% interest / year 0 % interest loan 0% 50 50 Interest rate 16% 8 8 Income transfer rate 0 50% 75 from concentrated to dispersed mkt Monthly SHS tariff 100 130 130 Subsidy SHS 0 1300 1300 Connection costs 1300 1300 1300 (down payment) Replacement of NO No Yes battery and controllers Mini Grid Tariff US$ 0.16 US$ 0.16 US$ 0.16 TABLE 3b: main changes and results Low Cost Hydro and off grid concession CASE CHANGES RESULTS Base Case Micro grid losses are C$6.5 million. Off grid losses are over C$4.7million. Working Case 1 Interest rates for micro grid Micro grid profits are C$3 are reduced to 8%. Tariff million. An annual transfer for off grid is increased to form the micro grid to the C$ 130 per month. A grant off grid is C$154,000. The of C$1300 per system is off grid is also financially given to the off grid viable. installations. Working Case 2 The micro grid tariff is kept The micro grid net income at US$.16 per kWh. The stays the same. The off grid interest rate subsidy is systems are viable even available for off grid as well with the provisions for as micro grid. The net battery and regulator income transfer from the replacement. The monthly micro grid to the off grid is cost for grid and off grid is increased. The off grid approximately the same. tariff covers battery and regulator replacement for the life of the project. 97 The results from this case are better, although it must be stressed that at this time the calculations must be seen as initial. Substantial hydrographic and financial work remains to be done to determine the actual costs of the hydro installation. Taking the initial estimates and using the same Case scenario approach, the Low Cost hydro shows results that are similar to El Cua. The micro grid can be profitable. The Low Cost case review shows that the project is viable in Working Case 1. Working Case 2 adds battery and regulator replacement to the quality of service offered for off grid. A portion of these profits can be transferred to the off grid project. As a result, it would be possible to set grid and off grid monthly cost of service at roughly the same level and still have the total system be financially viable. It is important to also point out that in the Low Cost case the micro grid tariff is lower in the Working Case 2 than for either of the two previous case. It remains at US$0.16 per kWh (but assuming relatively high fraction of concessional finance. A higher tariff would obviously result in correspondingly lower subsidies). For the off grid, the customer down payment is kept at C$1300. The Low Cost case is sufficiently profitable to make the integration of the project feasible. NB: It must be stressed that at this stage of analysis, the financial results can only be used to illuminate the conditions and policies that must be adopted if the project is to be successful. The analysis of necessity uses quantitative estimates for aspects of the modeled operations that present an image of certainty beyond any that can be attached to the actual ability of projects on the ground to deliver them. Nevertheless, the analysis does provide a road map that can be used to pursue further project definition and precision. 6.6.3 Sensitivity análisis The sensitivity analysis looks at how changes in critical variables can change the financial viability of the project. For this case we look at four variables: hydro system cost, population change, exchange rate fluctuations, and tax changes (particularly tax exemption for off-grid systems.) The measure of sensitivity is taken by noting the change in the net present value of the Working Case 2 results to express changes in variables. 98 SENSITIVITY ANALYSIS Hydro Working Case 2 ANALYSIS AND ASSUMPTIONS O&M Analysis Initial Value +10% Percent Change Monetary -10% Percent Change in NPV of a 10 % Change in NPV of a 10 % increase in parameter decrease in parameter Reference Net Present Value 2,118,030 Investment 1963816.8 Annual Rate for Operations 0 10% -149.21% Estimate of Labor costs 184092 Total O&M 184092 202501 -13.99% $ (296,263) 165683 13.99% Fuel Cost per kWH 2.68 Households 1000 Year 1 - 5 0.05 5.50% 37.15% $ 786,797 4.50% -35.17% Year 6 - 10 0.05 5.50% 37.15% $ 786,797 4.50% -35.17% Year 11 - 25 0.05 5.50% 37.15% $ 786,797 4.50% -35.17% Average Usage per month 60.5 67 -74.97% $ (1,587,978) 54 74.97% Exchange Rate 13.2 14.52 -13.99% $ (296,263) 11.8 -38.42% Hydro System Cost: The El Ayote hydro installation initial cost estimate is substantially higher than the cost for El Cua. Recognizing that much of the cost difference could have to do with the relative costs of the civil works necessary for the construction, this analysis looks at what the impact in El Ayote would be if the hydro cost the same per KW as the El Cua facility. That case is given in some detail in the third scenario. It greatly improves the financial performance because it reduces the fixed cost per kWh for the micro grid. Population Change: The effect of changes in population growth will vary depending upon the scenario analyzed. For the Hydro case, decreasing the population growth to the level expected in El Cua will improve the performance for the same reason it did in El Cua: the fixed investment will provide service to a larger usage base. In the Working Case 2 for the initial hydro case, cutting the population in half will decrease net income from C$2,462,473 to losses of C$1,433,697. Every percent decrease will decrease net income by C$1,686,108. For the Diesel scenario the effect is much more muted. Cutting the population growth in half in the Working Case 2 will reduce net income slightly to negative C$835,351 from C$320,653. In this case the cost per kWh has been increased to C$3.3. This gives a slight net margin to each KWh sold. Every percent decrease in population will decrease net income byC$499,872. Exchange Rates for the Diesel scenario, a devaluation of the Cordoba from 13.2 to 15 will effect the cost of diesel fuel. In Working Case 2 this devaluation will produce a net income loss of C$3,484,071. This is a drop of more than C$3.7 million because of the increased cost of fuel. The change in the exchange will also affect the Dealer model results because it will increase the cost of off grid equipment. The Dealer Model Working Case 2 will have to increase monthly payments from C$112 to C$133. For the Hydro scenario, the devaluation will change the net income of the Off Grid project from C$2,267,260 to C$835,616. Tax Immunity. Removing the VAT and Duty taxes on off grid equipment will improve the financial performance of the Hydro scenario. Net income for the Working Case 2 will increase from C$ 2,267,260 to C$5,119,628. For the Dealer Model Working Case 2 it will decrease the monthly cost from C$112 to C$80. 99 6.6.4 Conclusion The new diesel generators have very high variable running costs which makes it difficult to raise tariff prices to cover costs and still preserve some measure of universal service. The hydro electric facility may be an alternative. However high investment costs per installed KW, combined with a currently relatively small concentrated market served (1,000 clients) make it a less attractive solution than in El Cua where investment costs where lower. As 2/3 of the clients are dispersed (64 %), the impact of cross subsidies from the concentrated market to the dispersed market is much less than it eould be for El Cua where the proportion was the opposite (25% dispersed and 75% concentrated). As a result, bundling the two markets is much less relevant in El Ayote. However, for the hydro plant option, a relatively large fraction of concessional finance may be necessary for a positive NPV if tariff is kept below $0.20/kWh. For Main Case 2, working model 2, the subsidies would be very high for the 1,000 microgrid users, but relatively low in comparison to existing Bank projects for the SHS users (under 30% of life cycle costs, and about 40% of investment costs). The high subsidy for the micro-grid users can obviously be lowered through a higher tariff. Subsidy due to Direct Total Total Total lowering subsidies C$ per per interests rates user user C$ C$ US$ Mini grid 16,962,450 0 16,962,450 16,962 1,285 Off grid 1,575,536 6,156,500 7,732,036 4,395 333 In this case total subsidies need for the concentrated market is US $1,285,000, and total subsidies need for the dispersed market is US$ 585,747. For the concentrated market subsidies will take the form of soft loans (0 % interest rate loans). For the dispersed market subsidies will take the form of a mix of grants and soft loans. Even though more research should be done to confirm investment costs for the Hydro project (Main Case 3 illustrates the strong impact of hydro costs on production costs), the hydro solution may be a more suitable compromise for el Ayote. The main reasons are: · the hydro project enables the use of investment subsidies at the beginning of the project, contrary to the diesel option which requires O&M subsidies, every year. Investment subsidies are easier to allocate, and constitute a better and more sustainable solution when choice exists. · In a fast developing community like El Ayote, where a lot of productive applications should be developed with the arrival of electricity, diesel generators would probably not enable to provide sufficient capacity for the long term, · In addition, the high tariffs necessary to implement the diesel solution would have constituted a deterrent for the development of productive applications. Compared to the current situation the project would: 100 - Reduce tariff considerably, from US$ 0.30/KWh (authorized priced today) to US$ US$ 0.16/KWh (in the case of the low cost hydro this last tariff enables cross subsidies to dispersed market). - Enable to avoid O&M subsidies, by subsidizing the Initial Investment of the mini- hydro plant, - Enable to electrify 1,760 dispersed households with SHS, under a competitive market approach, 7 CONCLUSIONS AND RECOMMENDATIONS This report presents and analyses several private sector led business models that would work in Nicaragua, using the two real sites El Ayote and El Bote for realistic input parameters. It shows that (i) private sector led offgrid service provision is feasible in Nicaragua in general; and (ii) given the WTP estimations from a market survey and the local socio-economic and resource conditions of the two specific sites that have been used for the case study, a future implementation is feasible if public incentives are provided to attract private sector operators.. For the El Cua concession area, the project could bring affordable and reliable electricity to about 2,000 families through new minigrids connections (500 users), new Solar Home Systems (500 users) and improvement of the viability of service provision to 1,000 already connected users (that are currently served by ENEL with loss making diesel generators needing continuous GON subsidies), while potentially improving social fairness through an internal cross subsidy mechanism that could equalize tariff between the dispersed and concentrated households. In El Ayote, a relatively well off rural area 50 km from the grid, 1,750 dispersed families could be offered the possibility to acquire SHS at a discounted price, on a 5 years credit. Given the relatively high average willingness to pay (almost US$ 10) in el Ayote, and the strong interest of existing local retailers, such a simple and market based dealer model is promising for that case. An additional 1,000 households have recently been connected by ENEL, as a direct result of the market survey. However, they are currently run at loss by ENEL and charge a relatively high tariff for Nicaragua. Potential connection to a near by a mini-hydro generator could bring electricity to these existing families and future settlers (El Ayote is currently growing at an annual 7%) at a reasonably low tariff, enabling the economic development of the area by permitting the implementation of numerous productive applications, that have been analyzed in the market study In both cases the proposed public private partnership would improve the base line situation, while minimizing the use of public funds. 101 In the short term, CNE should: · define the modalities of intervention and conditionalities of use of FODIEN; · coordinate with INE and other players to assure maximum efficiency and sustainability in regulation and tariffs when awarding new offgrid concessions, and facilitate the use of least cost technologies for offgrid sites; · suggest sustainable solutions for the stranded offgrid assets of ENEL (diesel plants operating at loss); · contract a site assessment of the El Ayote Hydro plant and do precise costs evaluation of the El Ayote Hydro site; · start the consultation of dealers /installers of SHS for the two sites. At this stage, and with the limited information available on the national offgrid market, it is difficult to determine how representative the two pilot projects really are, for replication in a future large scale offgrid program. Further research should be done to characterize the different markets segments of the off grid market, in terms of the socio economic situation, and availability of natural energy resources. A hydro map and a wind map indicating the availability and quantifying the resources would be an important asset for a future large scale development. However, for the agglomerated segment of the market (villages to be provided by micro- grids), it seems that two main typologies can already be identified: The first type are villages where a natural source of energy such as hydro can be used. In this case, public authorities could decide to finance initial investment with a mix of commercial loans and concessional finance, based on a standard cost of investment per KW. In poor areas where population density allows for it, internal cross subsidy mechanisms might be encouraged between dispersed and concentrated areas, to reduce the need of external subsidies on SHS, euqualize tariffs in one service area, and enable up to 80% of the population to have access to basic electricity service (depending on the location). It should be noted that, if the IVG tax exemption that was in force until April, 2001 (15%), was prorogued, there would probably be no need for additional external SHS subsidies in such cross subsidized schemes. Another incentive could be the cancellation of import duties (5%) on solar equipment (diesel is exempt). The second type are villages where no natural energy resource is available. In this case diesel generators are the only solution for power beyond basis SHS service. High O&M costs make diesel generators difficult to operate without heavy public subsidies that would have to be paid over the whole life span of the equipment. This is the current reality in most offgrid micro-grids in Nicaragua. Technical solutions could contribute to lower the cost of O&M, such as reducing the number of hours of operation per day, or introducing battery- or PV-battery-hybrid-systems (to reduce fuel costs and running hours of diesel). Reducing the hours of operation would have a negative impact on the quality of service. Raising tariffs to the level that would enable sustainability of service could be a deterrent for the development of productive applications, would contribute to reducing electricity consumption and would have a negative impact on quality of life. Further research on the introduction of hybrid systems bundled with diesel is recommended. 102 For dispersed areas, the main solution are Solar Home Systems (SHS). Different business models can be used, adopted to the specific local conditions. In relatively well off areas, vendors models should be encouraged, whereas in poorer areas, concessions bundled with the concentrated market should be favored. For very remote households and in the absence of a concentrated market in the vicinity, direct subsidized sales could be the alternative. The level of subsidy might have to be relatively high in this latter case, to enable direct purchase without credit scheme. It is doubtful that private sector operators would offer credit to clients in very remote areas because of payment collection difficulties. In terms of project management, there is a need for reinforced communication and coordination between the different public entities for the success of the pilot projects but also for the larger scale implementation of the project. As the economics of each off-grid project will vary according to the technical and delivery models chosen and the specifics of each site, close coordination will be needed between INE (for the determination of tariffs and awarding of concessions), CNE (for strategy and financing through FODIEN) and ENEL (for transfer of assets and existing staff with field experience). A unique entry point should be determined for potential private offgrid operators, in order to simplify procedures and avoid parallel discussions and decision making between the different administrations. ENEL is analyzing possible conditions for transferring its assets to the private sector. Different options are being considered, the most probable being a rental of the equipment and mini-grid. When its assets are transferred to private operators, ENEL could become a partner of the privatized diesel mini-grid operators by providing them technical assistance and national purchasing capacity (for gas, oil, filters, components...). To reach its target of electrifying 90% of the population by 2010, CNE estimates a total investment US$ 207 M (or US$ 882 per household, for 234,705 households). The financial modeling of various possible business models for the two case studies shows potential subsidies per offgrid user that vary between US$ 300 and $1,300, depending on market penetration targets and service quality standards. For future projects, market segments will have to be defined and market penetrations will have to be set, before a sustainable and efficient minimum subsidy scheme can be defined on project and national level. Depending on the characteristics of the population and the technology used, cost of project and subsidy requirements per user will vary significantly. A project evaluation methodology will have to be determined to orientate subsidy decisions for the expansion of the project. As access to electricity is an enabling factor for the development of productive applications, a large scale development of the project wuld benefit from the involvement of micro credit organizations to finance not only prepayments and renewal of component for SHS, but also investment in productive applications. Financing solar water pumping systems for agriculture (irrigation and cattle watering) and electric fences (some SHS powered fences are already being used in El Ayote) could be a good application for the introduction of credit in suited rural areas. However, solar energy being a relatively new 103 concept for rural users in Nicaragua, any large scale project will have to award funds for capacity building and diffusion to help overcome entry barriers. An analysis of any pilot cases experience should also be included in the future national project preparation. 104 8 ANNEX ­ FINANCIAL MODELING / CASH FLOW ANALYSIS 8.1 Report INITIAL FINANCIAL ANALYSIS OF RURAL ELECTRIFICATION PROJECTS IN NICARAGUA: MICRO GIRD AND OFF GRID APPLICATIONS BY GEORGE STERZINGER George J. Sterzinger Advanced Renewables 1400 16th St., NW Washignton D.C. 105 8.1.1 EXECUTIVE SUMMARY: Two electrification projects are under consideration in Nicaragua that propose to combine micro-grid and solar home systems to provide affordable, quality, electric service to the villages of El Cua and El Ayote with surrounding villages and dispersed population part of the program. The projects would offer to provide solar home systems to the dispersed population and also undertake on-going O&M responsibility. The solar home systems would be offered under different institutional delivery mechanisms at the two sites. Each site also has a micro-grid operating and has the possibility to adopt new, hydro generation resources to power the micro-grid. El Cua has made substantial progress towards bringing a small hydro generation plant on-line and will use it to replace older diesel gensets. El Ayote has newly installed diesel generation and a hydro site but has done no work to develop the hydro site. At this stage of initial analysis, the prospects for a combined micro and off grid project in El Cua are good. Several factors contribute to this. The hydro electric generating station in El Cua is low cost and sized appropriately for the market. The relative size of the micro and off grid markets favor the joint project. Below market rates for the hydro plant will generate positive net income part of which can be transferred to the off grid systems. TABLE 1: EL CUA CASE SUMMARY CASE CHANGES RESULTS Base Case Off grid and micro grid are not viable. Off grid loses are C$ 2.8 million. Micro grid loses are C$16.5 million Working Case 1 Interest rate is reduced. Off grid Off grid losses drop to C$ 1.3 systems receive C$ 1300 grant million. Micro grid losses are and monthly tariff is raised to C$5.5 million. C$ 100. Working Case 2 Micro grid tariff is raised from Off grid and micro grid are both $.145 to $.20. The net income financially viable. Micro grid transfer from the miro grid to off net revenues are use in part as a grid is 80%. The zero interest transfer to the off-grid. subsidy is extended to the off- grid project. The off grid tariff covers battery and controller replacement for the life of the project. In El Ayote the results are more complex. For El Ayote three scenarios were considered: a Base, Diesel, and Low Cost Hydro. Each scenario The Base Case hydro electric facility is proposed at 700 KW with civil works required for the dam. The cost estimates are from the Nicaraguan participants and reflect their initial interest in hydro. The resulting project is expensive and large for the market size. The 700 KW plant provides .7 KW per household at a cost of US$1,800 per household. In the Working 106 Case 2 for this scenario the subsidized interest rates had to cover 75% of the project investment in order to make tariffs that could recover the level of investment affordable. TABLE 2A: EL AYOTE BASE CASE SUMMARY 700 KW Hydro Development CASE CHANGES RESULTS Base Case Off grid loses are C$8 million. Micro grid loses are C$19 million. Working Case 1 Interest rate for micro grid Off grid loses are C$3.7 is reduce. For off grid, million. Micro grid loses tariff is raised to C$130, are C$6.5 million. down payment is C$1950, and a C$ 1300 system grant is given. Working Case 2 Subsidized interest rates are Off grid has positive net increased to cover 75% of income of over C$2.6 hydro micro grid million. Micro grid has net investment. The income present value of income of transfer to the off grid is C$2.4 million. increased. Off grid interest rates reduced. Battery and controller replacement added to system cost. The new diesel generators have very high variable running costs which makes it difficult to raise tariff prices to cover costs and still preserve some measure of universal service. For the Diesel Case, the recommendation for El Ayote was to proceed with an analysis of the micro grid and off grid projects separately. In this Case, the micro grid uses diesel generating plants. The off-grid is served by a private dealer. The Dealer results are presented for the Diesel Case but since they stand alone, they can be used with any of the proposals for micro grid generation technology. Using the Dealer model the off grid monthly costs are high, relative to the ability to pay. 107 TABLE 2B: DIESEL ONLY with DEALER MODEL Diesel Only with Dealer Model. CASE CHANGES RESULTS Base Case Dealer off grid monthly payments are C$ 261. Micro grid loses are C$ 13.8 million. Working Case 1 Interest rates reduced for Dealer of grid monthly micro grid. Off grid down payments are C$ 190. payment raised to C$1950. Micro grid loses are C$ A grant of C$1300 per 12.0 million. system is given to the off grid installations. Working Case 2 Off grid interest rates are Dealer of grid monthly reduced. Micro grid tariff is payments are C$ 112. The raised to $.25 per kWh to micro grid breaks even. break even. At a tariff rate of $.185 per kWh the project loses C$8.6 million. For the Dealer Model, the subsidy must be increased to C$3,500 per system. The final Case considered proposed a 700 KW Low Cost hydro facility at an installed cost of US $1500 per KW. The results from this case are much more positive although it must be stressed that at this time the results must be seen as initial. Substantial hydrographic and financial work remains to determine the actual costs of the Low Cost installation. Taking the initial estimates and using the same Case scenario approach, the Low Cost hydro shows results similar to El Cua. The micro grid can be profitable. A portion of these profits can be transferred to the off grid project. As a result, it is possible to set them grid and off grid monthly cost of service at roughly the same level and still have the total system be financially viable. It is important to also point out that in the Low Cost case the micro grid tariff is lower in the Working Case 2 than for either of the two previous case. It remains at US$.16 per kWh. For the off grid, the customer down payment is kept at C$1300. The Low Cost case is sufficiently profitable to make the integration of the project feasible. 108 TABLE 2C: LOW COST HYDRO Low Cost Hydro CASE CHANGES RESULTS Base Case Micro grid losses are C$6.5 million. Off grid losses are over C$4.7million. Working Case 1 Interest rates for micro grid Micro grid profits are C$3 are reduced to 8%. Tariff million. An annual transfer for off grid is increased to form the micro grid to the C$ 130 per month. A grant off grid is C$154,000. The of C$1300 per system is off grid is also financially given to the off grid viable. installations. Working Case 2 The micro grid tariff is kept The micro grid net income at US$.16 per kWh. The stays the same. The off grid interest rate subsidy is systems are viable even available for off grid as well with the provisions for as micro grid. The net battery and regulator income transfer from the replacement. The monthly micro grid to the off grid is cost for grid and off grid is increased. The off grid approximately the same. tariff covers battery and regulator replacement for the life of the project. It must be stressed that at this stage of analysis, the financial results can only be used to illuminate the conditions and policies that must be adopted if the project is to be successful. The analysis of necessity uses quantitative estimates for aspects of the modeled operations that present an image of certainty beyond any that can be attached to the actual ability of projects on the ground to deliver them. Nevertheless, the analysis does provide a road map that can be used to pursue further project definition and precision. 109 8.1.2 OVERVIEW OF ANALYSIS The off grid analysis uses a twenty (20) year financial analysis to determine the conditions necessary to produce a financially viable project. The analysis develops a detailed investment and expense analysis. All assumptions are identified. The model produces net income as the measure of financial viability. Because of the unique situation in the Nicaraguan sites under consideration, the model has been expanded to include the operation of a micro grid. As a result of discussions with Nicaraguan officials, assumptions have been made about the operations and economic performance of the micro-grids. The financial analysis incorporates the market size, ability to pay, and alternative delivery mechanisms developed by Pierre Mathieu. Incorporating those recommendations, the financial analysis next develops a Base and two Working Case analyses for each site. The Base Case intends to look at the projects as they would develop without any intervention and uses commercial interest rates and affordable tariffs or monthly payments. At both sites the Base Case is not financially viable. The Working Cases change the effective interest rate for the project, increase customer down payment and monthly tariffs in order to make at least the off-grid system financially viable. For El Ayote, the analysis is extended to look at a hydro development, a diesel only analysis, and a Low Cost hydro case. The analysis also identifies the critical input variables and shows the sensitivity of these inputs and financial results to fundamental project risk and to the variations in project risk that are expected to result. The success and financial viability of the project will ultimately be determined by its ability to simultaneously meet several goals: the systems must be affordable, reliable, and low cost. Affordability measures the monthly cost of the systems against the populations' willingness and ability to make the payments. The systems provided to consumers must be affordable by a majority of the population. In the financial analysis, affordability will be affected by the cost of equipment, the cost and term of the financing, and possibly the regulatory treatment given these systems. Obtaining the best cost through economies of scale and scope influences project size and design. Systems must provide quality service for the life of the project. Off-grid service should be provided as one of a set of alternatives to extend service, and it should be done where it is the lowest cost way to provide service to remote, sparsely settled areas. Financial viability of course requires that the project provide an adequate return on and of all invested capital. This analysis is intended to determine whether and under what conditions such projects can be undertaken with a reasonable expectation of being viable commercial projects. The work to present the commercial potential of these projects proceeds through the steps outlined below. The goals of the project are first determined from the analysis conducted by Pierre Mathieu. That work determined the size of the market. For purposes of this pilot evaluation, market estimates are taken from field surveys of the communities under consideration. In addition, available analyses of the population's ability to pay have been used to set the range of tariffs and to judge the effect of that tariff on the percent of the population able to afford service. For each of the two primary sites considered for an initial project there are micro- grids both functioning and under development. The micro-grids allow for the possibility 110 of integrating the off-grid electrification efforts with the operations of the grid. The financial model has been expanded to include the possibility of combining the operations. The analysis conducted to-date allows for a combination of revenues from the two projects. One desirable aspect of this combination is that for the areas in question it opens the possibility for a more equal cost for electric service. In addition, combining the micro-grid and off-grid projects provides the possibility for some economies of scale and scope, particularly with respect to administrative functions related to the provision of grid and off-grid service. Commercial viability depends upon the project generating on-going revenues that can both recover all expenses and earn a reasonable rate of return on invested capital. The determination of commercial viability is done with a financial model of the project. Financial results are sensitive to initial data estimates which have to be arrived at using best available estimates. Once initial estimates are made, a basic risk and regulatory analysis is performed in order to identify all factors that can be expected to affect initial variables, and to estimate the reasonable range of variables based on that analysis. Project risk adds uncertainty to the cost and operational estimates. Regulatory treatment can reduce risk and lower the variability of cost and operational estimates if certain policies can be obtained. This project has identified two possible delivery mechanisms for undertaking the pilots. It is the aim of this section of the analysis to estimate how the two delivery mechanisms under consideration will affect the range and values that describe the project from an economic and financial perspective. Many other factors will of course go into the final evaluation and selection of the mechanisms best able to undertake the pilots in the communities under consideration. The analysis can be used as the basis for a report presented to project participants with recommendations for proceeding. The Report can be reviewed and revised for eventual action. The goal of this analysis is to undertake the initial financial review and to identify the critical Decision Points that will determine the chances for project success. It is expected that the willingness of private firms to proceed with the venture will be conditioned on obtaining favorable treatment with respect to the Decision Points. 8.1.3 EL CUA: Project Definition 8.1.3.1 Market Determination 8.1.3.1.1 Size of Market i) The market is divided into those served by the micro grid and those served by off-grid solar home systems. The micro-grid market is 1,445 households. Usage is 42 kWh per month per household. Total usage is expected to grow at a rate declining from 7% to 5% to 3% over the twenty year period. The off-grid market is smaller than the micro grid market, totaling only 500 households according to best estimates at the time of this initial analysis. 111 8.1.3.1.2 Product Offered i) Micro-grid service will be metered. A uniform monthly tariff will be set. Off-grid service will be analyzed assuming one system, a 50 watt solar home systems, is offered. ii) Additional options, in sizes and configurations that preserve the basic cost-to-watt ratio, can easily be offered as part of an expanded project. In addition, expanded uses for off-grid solar applications in productive uses can also be added in the future. 8.1.3.1.3 Ability to Pay i) The Base Case analysis uses a combination of a demographic analysis of the ability to pay and the present cost of alternative services to set monthly affordable costs. For universal acceptance of the project the monthly tariff, or the equivalent tariff, must lower the cost of services to the consumer. 8.1.3.2 Business Description and Case Analysis - El Cua and surrounding communities have completed the civil works, arranged for the purchase of a turbine, prepared to string primary distribution lines, and will have a small hydro facility operating and providing electric service to the 1445 households that can be economically connected to the micro-grid. The analysis assumes that the institution operating the micro-grid will also undertake the management of the off-grid solar home system electrification. This integration will provide important scale and scope economies particularly to a small off-grid program anticipated for El Cua. The project analysis allows for a transfer of net income from the grid to the off-grid system. The underlying rationale here is that a generation equalization transfer, one that attempts to provide basic service at a price roughly equal to all consumers regardless of their ocation, has proven its usefulness in much larger electrification programs and can be beneficial in much smaller applications such as the El Cua program. - Summary of Case Analyses: The analysis of the financial viability looks at a number of alternative cases. A Base Case is the initial analysis. It sets the variables for the Micro-grid and them off-grid programs at levels believed to represent a neutral position. For example, the cost of capital, which is critical in determining the monthly cost of hydro and solar systems is set at a commercial rate of 16%. No capital buy-downs or below market financing is used in this initial analysis. Both the micro-grid and off-grid projects have substantial negative net incomes for this case and are not feasible. - The analysis moves on to look at two Working Cases. In Working Case 1, the cost of capital for the project by providing 50% of the financing from subsidized zero interest loans for the micro-grid alone. The zero interest financing for 50% of the project cost improves the financial performance of the project but it still has negative net present value over the life of the project. The off grid projects continue to pay a commercial rate of 16%, however, the analysis allows for the transfer of 50% of the net income from the micro-grid to the off-grid. The 112 monthly tariff for the solar home systems is raised from C$ 80 to C$100. The performance, as measured by the net present value of net income, improves dramatically although the project still loses money. In Working Case 2, the tariff rate per kWh for the micro grid is increased to be equal to what consumers apy at present. This makes the project feasible, yielding a net present value of C$2.5 million. This raises the average monthly cost for micro-grid consumers to approximately the off-grid cost of service. In addition, the income transfer from the micro grid to the off grid is increased to 80%. The off-grid projects are assumed to have access to the same zero cost capital. Finally, Working Case 2 assumes that the monthly tariff pre-collects the replacement costs for batteries and controllers. This adds to the cost but greatly improves the quality of off- grid service. Working Case 2 is barely financially viable. If the values assumed for the analysis can be obtained, the project will have a very small net present value over the life of the project. - Sensitivity Analysis: The analysis looks at how changes in critical variables can change the financial viability of the project. For this case we look at four variables: system cost, population change, exchange rate fluctuations, and tax changes (particularly tax exemption for off-grid systems.) The measure of sensitivity is taken by noting the change in the net present value of the Working Case 2 results to express changes in variables. - System Cost: The off grid system costs, including installation and all taxes is C$10428 per system. If those costs increase by 10%, to C$11471, the net present value becomes negative. It drops from C$17,150 to negative C$363,788. - Population Change: The population growth assumed for the El Cua micro grid plays an important role in the overall viability of the project since it determines the level of micro grid sales and revenues. Since the El Cua micro grid is served by a fixed, low cost hydro generation resource the increase in sales will increase system profitability. If the population grows at half the assumed rate, I,e, 3.5%, 2.5%, and 1.5 % over the twenty year period, the profitability of the micro grid drops from C$2,476,056 to negative C$2,866,316. Every change of 1% in the population growth will decrease net profit for the micro grid by C$2.1 million. - Exchange Rate: This sensitivity is examined for the off grid system installations alone. Exchange rate fluctuations will affect the off grid system costs. A devaluation that increased the exchange rate from C$13.2 to C$15, an increase of about 15% would change the net profitability from the break even level of C$17,150 to negative C$420,017. - Tax Immunity Duty and sales taxes on off grid systems amount to nearly a twenty percent increase in the installed system costs. Tax immunity will increase system profitability by C$540,994. 8.1.3.3 Financial Analysis Details - Net Present Value of Operating Income ­ - The net present value of the net operating income for the life of the project is calculated and used as the single factor to determine financial viability. This analysis will be used because of the variety of institutional delivery mechanisms. 113 8.1.3.4 Critical Variables - This section reviews the variables used in the financial model. First, the variables are defined. For those variables judged to be "at risk" an initial analysis of the range and sensitivity of results to changes in the variables is presented. One measure of risk is to determine the extent to which the variables are likely to fluctuate. The fluctuation can sometimes be controlled by project management and in that case those mitigation actions can become Decision Points for the project. At this stage of the project, the discussion of risk, possible mitigation measure to control or reduce risk, and the likelihood for the success of those mitigation measures can only be assessed preliminarily. Decision Points at this stage involve the identification of important variables and mitigation measures and a description of the actions proposed over the next 6 ­ 12 months to further define project risk. Finally, this section analyses the sensitivity of the results to changes in the values of the assumed inputs. This analysis is done for selected variables and uses the Working Case 2 framework.. It changes these variables by plus or minus 10% and examines the changes in project net present value of income. 8.1.3.5 VARIABLE DEFINITION/RANGE/INITIAL RISK ANALYSIS: 1. Module 50 watts ­ The module includes the PV panel and connections. It does not include controller, battery or support structures. Range: $300 to $200 Risk Analysis: Fluctuations in module cost affect the IRR for the project. Module system specification will be designed and a Request for Proposals prepared in order to obtain the lowest international price. 2. Micro Grid Generation and Distribution Cost. The cost for the turbine is taken from a Bid. The cost for completion of the primary distribution system that will link El Cua to other villages is from estimates given on ­site. Range: Hydro turbine is $522,980. Primary and secondary distribution lines are $758,100. Risk Analysis: The investment cost for the hydro system is low and is assumed to be well documented and not subject to great fluctuation. The cost for completion and extension of the primary system is subject to more variation. 3. Micro Grid Operations and Maintenance: Estimate of O&M costs is taken from cost estimates given in El Cua. It represents only 5.6% of the total investment and is meant to cover replacement equipment and labor costs. Risk Analysis: The level assumed for total O&M is low. Project success will depend upon establishing the reasonableness of this estimate. 4. Income Transfer from Grid to Off Grid: This transfer is very important for the El Cua off grid project in part 114 because the market size for the off-grid is small compared to the micro grid market. Once the micro grid becomes profitable, the net transfer to the off-grid provides an important per system capital cost reduction. Working Case 2 transfers C$286,143 to the off-grid, or C$572 per system. Risk Analysis: The transfer depends upon the ability of the micro grid to be run efficiently. The estimated O&M costs could erode the transfer if the actual costs are above the estimates used in the analysis. 5. Exchange Rate ­ This is set for the base case at the most current Cordoba/dollar exchange. Range: 13.2 to 1 initial estimate. Risk Analysis: Exchange rate fluctuations are important to project success. The rate and all available mechanisms to lock in desirable rates and provide insurance against future variations should be used. 6. Taxes ­ There are two taxes: a Duty tax of 5% and a VAT of 15% that apply only to solar home system purchases. Range: Taxes did not vary between the base case and Working Cases.. Risk Analysis: The level of taxes for solar home systems is high. The cost burden the taxes impose is severe. An analysis for the Base Case shows the taxes place a burden of C$ 1200 per household. Removing the unique tax burden faced by solar home systems would greatly improve the financial performance of the systems. 7. Installation ­ 50 watts ­ Installation costs include the estimated cost of transporting materials as well as the actual material and labor costs. These costs are also roughly based on current commercial installation costs. Range: To be determined. Risk Analysis: Installation costs have the potential for reduction due to economies of scale in a large, pre- committed program. The project will attempt to negotiate with local installers to obtain a low installation cost per household. 8. Installation ­ 100 watts ­ Not used for this analysis. 9. Total Market size and Usage ­ Market size is as stated. Usage is assumed to grow at 7% for years 1 ­ 5, at. 5% for years 6 ­ 10, and at 3% for the remainder of the period. Risk Analysis: Usage is critical because it determines the level of sales from the micro grid. Investment in the grid is largely fixed for this analysis, as a result increasing usage will increase revenues and improve financial results. 10. Percent installation of 100 watt systems ­ This percent is used to also calculate the percent of 50 watt systems. 115 11. Customer down payment ­ Customer down payments are set at C$ 1300. This payment reduces the capital investment, reduces the monthly payment, and provides a strong incentive to consumers to operate and maintain systems properly. Range: N/A Risk Analysis: A down payment is generally considered to increase the likelihood of customers continuing to pay for service. They do not want to lose the down payment as well as the service. However, it has the downside of making the service unaffordable for any consumer unable to make the down payment. 12. Grant: All possible grant sources variables have an identical impact on project finances and so are considered together. The micro grid and off grid analysis uses a composite cost of capital structure to determine the recurring cost of carrying the investment. Grants are used as a zero cost of capital. Range: The capital strucuture ranges from 100% commercial to 50% commercial financing. Risk Analysis: The availability of zero cost capital, at the levels assumed in the two Working Cases is critical in determining project success. 13. Minimum Equity Percent ­ For cases where private ownership is the chosen institutional delivery mechanism, this calculates the portion of investment made as equity. The balance of investment would be provided by debt. 14. Tariff for 50 Watt system ­ This is stated as a monthly tariff. It can be pre-collected in systems that are capable of using cards. In addition, the tariff could be collected in a number of other ways if flexibility for consumers is judged desirable. Risk Analysis: Tariff level will affect affordability. Universal service requires affordability. Tariff will also affect the Probability of Payment. 15. Probability of Payment ­ This figure estimates the amount of unpaid bills as a percent of tariff revenue. This figure will be influenced by regulatory treatment of unpaid bills. (See below.) 16. Transfer Payments ­ If the federal government pays a generation cost equalization to diesel systems in order to assure that consumers on micro-grid systems pay roughly the same cost for generation as those with access to grid connected, lower cost facilities, the extension of this payment would help equalize the cost of off-grid service. 17. O&M Efficiency ­ Total O&M costs are composed of replacement materials and maintenance and billing costs. 116 These costs are analyzed in considerable detail. However, it is also recognized that there can be fluctuation in these costs. The efficiency factor simulates that uncertainty. 18. Battery Cost for 50 Watt ­ Battery cost is estimated for the base case using current experience. Battery life will be based upon warranted life obtained from suppliers. 19. Battery Cost for 100 Watt - Not used. 20. Controller ­ Controller cost and life are calculated similarly to battery costs. 21. Lamps ­ Lamp and fixtures are not included as part of the system costs. It is felt that obtaining and replacing these units are best left to individual consumers, as they are for grid connected service. 22. Fixtures ­ See above. 23. Interest rate for debt ­ The interest rate used to determine the annual repayment on and of capital is a composite cost. It uses the commercial rate for the portion of the project financed with that type of unds and the below market rate and percent of project. The two sources are then used to create a composite cost or interest rate. 8.1.4 EL AYOTE: Project definition 8.1.4.1 Market Determination 8.1.4.1.1 Size of Market ii) The market is divided into those served by the micro grid and those served by off-grid solar home systems. The micro-grid market is 1000 households and small commercial enterprises. Household usage is 106 kWh per month per household. Total usage is expected to grow at a steady rate of 5% over the twenty year period. The off-grid market is larger than the micro grid market, totaling 2300 households according to best estimates at the time of this initial analysis. 8.1.4.1.2 Product Offered iii) Micro-grid service will be metered. A uniform monthly tariff will be set. Off-grid service will be analyzed assuming one system, a 50 watt solar home systems, is offered. iv) Additional options, in sizes and configurations that preserve the basic cost-to-watt ratio, can easily be offered as part of an expanded project. In addition, expanded uses for off-grid solar applications in productive uses can also be added in the future. 117 8.1.4.1.3 Ability to Pay ii) The Base Case analysis uses a combination of a demographic analysis of the ability to pay and the present cost of alternative services to set monthly affordable costs. For universal acceptance of the project the monthly tariff, or the equivalent tariff, must lower the cost of services to the consumer. 8.1.4.2 Business Description and Case Analysis - El Ayote is currently served by a new diesel gen set. The unit includes two generators and the distribution system to connect El Ayote and surrounding communities. In addition, El Ayote has an undeveloped hydro electric site that could be interconnected with the delivery system. The diesel generators are new and run well. However, the high cost of fuel makes this type of generation expensive. Using the estimates provided by plant managers, the running cost is C$2.68 per kWh (or $.20 per kWH). The initial estimate of the cost to develop the hydro site is US$1.8 million (C$ 34.3 million) and will have an installed capacity of 700 KW. The dilemma for El Ayote is that the hydro investment is too large for the size of the market connected to it and the diesel is very expensive to run. The financial analysis first considers a system that uses the diesel generators for two years and then brings the 700 KW hydro facility on- line. This analysis looks at a Base Case, Working Case 1 and Working Case 2. The changes from case to case for El Ayote follow those used for the analysis of El Cua. However, unlike El Cua developing the hydro means that under all the cases considered the micro grid never becomes financially viable. The high per capita investment requires a monthly payment well in excess of the populations ability to pay even with a 50% percent grant to subsidize the cost of capital. It is only by increasing the interest rate subsidy to 75% of the project investment that the monthly tariff can be reduced to an affordable level. - Additional analysis shows that for the small micro grid market and the relatively small kWh usage determines that the diesel generation is more cost effective than the 700 KW hydro. For the Base Case, which is the worst for the hydro electric plant because of the high commercial interest rates, the annual costs to recover capital and cover variable running cost for the hydro option is C$4 million and for the diesel gen set it is C$2.8 million. The hydro costs drop as the composite interest rate drops, however the hydro never became less costly than the operating costs of the diesel. The diesel will cost less per kWh than the 700 KW hydro site but the diesel is still difficult to make financially viable and affordable. As a result, in El Ayote there does not seem to be a reasonable opportunity to transfer income from the micro grid to the off grid. With the recommendation from Pierre Mathieu, the El Ayote analysis proceeds using an institutional delivery mechanism of a private Dealer to undertake the off grid electrification program. The financial analysis has been extended to include a Diesel Only micro grid with Dealer model for the off grid. No income tranfser or O&M efficiency gain is assumed between the two. The greatest distinction between the dealer and the concession model used in El Cua is that the investment is amortized over a much shorter time frame with the Dealer model. In this case, we have used five years to amortize initial system cost reduced by 118 customer down payment and system subsidy. As shown above, if the assumption is made that the monthly costs for the dealer must be equal to the populations ability to pay (approximately C$100 per month) the Dealer Model must receive a substantial per system subsidy of C$3500 before it is viable. - Finally, in El Ayote a Low Cost hydro facility is considered. This system offers two important advantages over the high cost hydro considered in the Base Case. It costs less per KW. This lower investment means that for the same interconnection costs, O&M costs, tariffs and interest cost the Low Cost project will be much more viable. The Low Cost case review shows that the project is viable in Working Case 1. Working Case 2 adds battery and regulator replacement to the quality of service offered for off grid. - Sensitivity Analysis: The analysis looks at how changes in critical variables can change the financial viability of the project. For this case we look at four variables: hydro system cost, population change, exchange rate fluctuations, and tax changes (particularly tax exemption for off-grid systems.) The measure of sensitivity is taken by noting the change in the net present value of the Working Case 2 results to express changes in variables. - Hydro System Cost: The El Ayote hydro installation initial cost estimat is substantially higher than the cost for El Cua. Recognizing that much of the cost difference could have to do with the relative costs of the civil works necessary for the construction, this analysis looks at what the impact in El Ayote would be if the hydro cost the same per KW as the El Cua facility. That case is given in some detail in the third scenario. It greatly improves the financial performance because it reduces the fixed cost per kWh for the micro grid. - Population Change: The effect of changes in population growth will vary depending upon the scenario analyzed. For the Hydro case, decreasing the population growth to the level expected in El Cua will improve the performance for the same reason it did in El Cua: the fixed investment will provide service to a larger usage base. In the Working Case 2 for the initial hydro case, cutting the population in half will decrease net income from C$2,462,473 to loses of C$1,433,697. Every percent decrease will decrease net income by C$1,686,108. For the Diesel scenario the effect is much more muted. Cutting the population growth in half in the Working Case 2 will reduce net income slightly to negative C$835,351 from C$320,653. In this case the cost per kWh has been increase to C$3.3. This gives a slight net margin to each kWh sold. Every percent decrease in population will decrease net income byC$499,872. - Exchange Rates For the Diesel scenario, a devaluation of the Cordoba from 13.2 to 15 will effect the cost of diesel fuel. In Working Case 2 this devaluation will produce a net income loss of C$3,484,071. This is a drop of more than C$3.7 million because of the increased cost of fuel. The change in the exchange will also affect the Dealer model results because it will increase the cost of off grid equipment. The Dealer Model Working Case 2 will have to increase monthly payments from C$112 to C$133. For the Hydro scenario, the devaluation will change the net income of the Off Grid project from C$2,267,260 to C$835,616. - Tax Immunity Removing the VAT and Duty taxes on off grid equipment will improve the financial performance of the Hydro scenario. Net income for the Working Case 2 will increase from C$ 2,267,260 to C$5,119,628. For the 119 Dealer Model Working Case 2 it will decrease the monthly cost from C$112 to C$80. 8.1.4.3 Financial Analysis Details 8.1.4.3.1 Net Present Value of Operating Income ­ i) The net present value of the net operating income for the life of the project is calculated and used as the single factor to determine financial viability. This analysis will be used because of the variety of institutional delivery mechanisms. 8.1.4.4 Critical Variables This section reviews the variables used in the financial model. First, the variables are defined. For those variables judged to be "at risk" an initial analysis of the range and sensitivity of results to changes in the variables is presented. One measure of risk is to determine the extent to which the variables are likely to fluctuate. The fluctuation can sometimes be controlled by project management and in that case those mitigation actions can become Decision Points for the project. At this stage of the project, the discussion of risk, possible mitigation measure to control or reduce risk, and the likelihood for the success of those mitigation measures can only be assessed preliminarily. Decision Points at this stage involve the identification of important variables and mitigation measures and a description of the actions proposed over the next 6 ­ 12 months to further define project risk. Finally, this section analyses the sensitivity of the results to changes in the values of the assumed inputs. This analysis is done for selected variables and uses the Working Case 2 framework.. It changes these variables by plus or minus 10% and examines the changes in project net present value of income. 8.1.4.5 VARIABLE DEFINITION/RANGE/INITIAL RISK ANALYSIS: 1. Module 50 watts ­ The module includes the PV panel and connections. It does not include controller, battery or support structures. Range: $300 to $200 Risk Analysis: Fluctuations in module cost affect the IRR for the project. Module system specification will be designed and a Request for Proposals prepared in order to obtain the lowest international price. 2. Micro Grid 1 MW Hydro Generation and Distribution Cost. All costs are initial estimates.. Range: Hydro site development is $2,600,000. Primary and secondary distribution lines are $148,774. Risk Analysis: The investment cost for the hydro system is too high. The cost for completion and extension of the primary system is established. 3. Micro Grid Diesel ­ The diesel gen set is already installed in El Ayote. The costs are assumed to be accurate. 4. Micro Grid Low Cost Hydro: The cost estimates are very approximate. The study uses US$1500 per KW which is conservative. However, basic hydrographic and economic 120 studies must be done before any certainty can be attached to this Case. 5. Micro Grid Operations and Maintenance: The operations and maintenance of the diesel micro grid depends heavily upon the operating costs for diesel generators. The estimates are taken from Nicaraguan operating statistics. Risk Analysis: Future fuel costs are subject to exchange rate fluctuations. The level assumed for the distribution system O&M is more controllable. Project finances will depend upon controlling fuel costs. 6. Income Transfer from Grid to Off Grid: The micro grid does not produce net income that would allow a transfer. Risk Analysis: N/A 7. Exchange Rate ­ This is set for the base case at the most current Cordoba/dollar exchange. Range: 13.2 to 1 initial estimate. Risk Analysis: Exchange rate fluctuations are important to project success. The rate and all available mechanisms to lock in desirable rates and provide insurance against future variations should be used. 8. Taxes ­ There are two taxes: a Duty tax of 5% and a VAT of 15% that apply only to solar home system purchases. Range: Taxes did not vary between the base case and Working Cases.. Risk Analysis: The level of taxes for solar home systems is high. The cost burden the taxes impose is severe. An analysis for the Base Case shows the taxes place a burden of C$ 1200 per household. Removing the unique tax burden faced by solar home systems would greatly improve the financial performance of the systems. 9. Installation ­ 50 watts ­ Installation costs include the estimated cost of transporting materials as well as the actual material and labor costs. These costs are also roughly based on current commercial installation costs. Range: To be determined. Risk Analysis: Installation costs have the potential for reduction due to economies of scale in a large, pre- committed program. The project will attempt to negotiate with local installers to obtain a low installation cost per household. 10. Installation ­ 100 watts ­ Not used for this analysis. 11. Total Market size and Usage ­ Market size is as stated. Usage is assumed to grow at 5% for the entire project. Risk Analysis: Usage is critical because it determines the level of sales from the micro grid. Investment in the grid is largely fixed for this analysis. However, the high variable 121 cost of diesel generation means that increasing usage will decrease loses and worsen financial results. 12. Percent installation of 100 watt systems ­ This percent is used to also calculate the percent of 50 watt systems. 13. Customer down payment ­ Customer down payments are set at C$ 1300 for the Base Case and raised to C$1950 for the Working Case2 in Diesel and 1 MW Hydro cases. This payment reduces the capital investment, reduces the monthly payment, and provides a strong incentive to consumers to operate and maintain systems properly. The Low Cost Hydro does not raise the down payment above the C$1300 level. Range: N/A Risk Analysis: A down payment is generally considered to increase the likelihood of customers continuing to pay for service. They do not want to lose the down payment as well as the service. However, it has the downside of making the service unaffordable for any consumer unable to make the down payment. 14. Grant: All possible grant sources variables have an identical impact on project finances and so are considered together. The micro grid and off grid analysis uses a composite cost of capital structure to determine the recurring cost of carrying the investment. Grants are used as a zero cost of capital. Range: The capital structure ranges from 100% commercial to 50% commercial financing. Risk Analysis: The availablity of zero cost capital, at the levels assumed in the two Working Cases is critical in determining project success. 15. Minimum Equity Percent ­ For cases where private ownership is the chosen institutional delivery mechanism, this calculates the portion of investment made as equity. The balance of investment would be provided by debt. 16. Tariff for 50 Watt system ­ This is stated as a monthly tariff. It can be pre-collected in systems that are capable of using cards. In addition, the tariff could be collected in a number of other ways if flexibility for consumers is judged desirable. Risk Analysis: Tariff level will affect affordability. Universal service requires affordability. Tariff will also affect the Probability of Payment. 17. Probability of Payment ­ This figure estimates the amount of unpaid bills as a percent of tariff revenue. This figure will be influenced by regulatory treatment of unpaid bills. (See below.) 122 18. Amortization Period for Dealer: The Dealer model used here assumes that the financing period will be of shorter duration than would occur in a concession model. The amortization allows capital recovery by the dealer and will provide ownership to consumers. Risk Analysis: The amortization period effects monthly payments. The short period will result in high monthly payments which in turn will reduce the population able and willing to purchase solar home systems. 19. O&M Efficiency ­ For the Dealer model total O&M costs are higher than for a combined micro grid / off grid operation. Economies of scope that allowed the off grid to avoid labor and office expenses are built into the Dealer O&M costs. These costs are analyzed in the same detail as they are for the concession model. 20. Battery Cost for 50 Watt ­ Battery cost is estimated for the base case using current experience. Battery life will be based upon warranted life obtained from suppliers. 21. Battery Cost for 100 Watt - Not used. 22. Controller ­ Controller cost and life are calculated similarly to battery costs. 23. Lamps ­ Lamp and fixtures are not included as part of the system costs. It is felt that obtaining and replacing these units are best left to individual consumers, as they are for grid connected service. 24. Fixtures ­ See above. 25. Interest rate for debt ­ The interest rate used to determine the annual repayment on and of capital is a composite cost. It uses the commercial rate for the portion of the project financed with that type of unds and the below market rate and percent of project. The two sources are then used to create a composite cost or interest rate. 123 8.2 Examples Cash FlowModeling (XLS samples ­ by George Sterzinger) 124 125 El Ayote Dealer Model - Working Case 2 Installed Cost of System 10,428 $ 790 Per System Subsidy 3,500 $ 265 Customer Downpayment 1,950 $ 148 Net System Cost 4,978 $ 377 Monthly Amortization Payment 103.90 $ 7.87 Replacement Option (Yes=1, No=0) 0 O&M Costs per Month 7.76 $ 0.59 Monthly Customer Payment 112 $ 8.46 Assumptions Amortization Period 5 years Interest Rate 8% e.g. microcredit WTP estimate offgrid market study $ 8.31 126 127 128 129 8.3 Sensitivity Analysis ­ by George Sterzinger 130 8.3.1 El Ayote Case 131 8.3.2 El Bote Case 132 9 ANNEX ­MARKET SURVEY 9.1 Report Market Survey for Off-Grid Pilot Sites in Nicaragua Survey Results from Cuá Bocay, El Ayote and Nueva Guinea By José Eddy Torres Consulting Report to the World Bank May, 2001 133 Market Survey for Off-Grid Pilot Sites in Nicaragua Survey Results from Cuá Bocay, El Ayote and Nueva Guinea 9.1.1 Introduction It has been empirically demonstrated that investment in social services and infrastructure is critical for raising income, reducing poverty, and improving standards of living in developing countries. In line with this awareness, the Government of Nicaragua (GON) and the World Bank have been advancing in the identification of a pilot project for expanding access to off-grid electricity to households and productive uses in remote areas of rural Nicaragua. Because of the distance to the national grid, combined with a relatively low average energy demand and ability to pay, the private sector alone would not enter these areas on a large enough scale to provide a significant social impact. On the other hand, purely public off-grid rural electrification programs have failed in the past, lacking elements for long term sustainability and operation. Emerging evidence shows that a well targeted set of incentives from Government can help to attract private operators to form public/private delivery mechanisms that will allow for sustainable long term operation of off-grid energy systems while minimizing the subsidies needed. As a first step, three potential pilot sites were chosen by the GON with assistance by the World Bank task team, through the ongoing PPIAF study "Nicaragua - Rural Electrification of Off-Grid Areas": · El Ayote, a boisterous municipal seat of approximately 17,000 inhabitants in the Región Autónoma del Atlántico Sur (RAAS). Located 50 km away from the grid, it has become a bustling center with a variety of economic activities (cattle raising, milk production, commercial markets). Electricity for these activities is supplied by small individual gasoline o diesel driven power generators, and there are approximately forty 75-watt photovoltaic systems. · "El Bote­El Cuá", which consist of several communities in the municipality of El Cuá ­ Bocay, in the department of Jinotega. The population of El Cuá ­ Bocay is approximately 16,000 inhabitants, including very disperse settlements. The total population in the town nucleus is around 5,000 (3,500 in El Cuá, the rest in Bocay). El Cuá has a diesel-based mini-grid (two generators of 98 kW and 88 kW installed in 1999, servicing 450 homes). The cost of electricity in 2000 was C$ 2.50/kWh (approx. US$ 0.20/kWh). Near the locality of El Bote (Bocay) the construction of a 900 kW mini-hydropower plant has been proposed, to provide service initially to 700 families and attend nearly 2000 by the year 2020. The investment required is about US $2 million, of which US $60,000 has already been invested in civil works, and the Comisión Nacional de Energía (CNE) informs that the government of Finland has shown interest in possibly financing 50% of the project. · La Unión, a community of about 17,000 inhabitants located 38 km from the town of Nueva Guinea in RAAS. It is less organized than El Ayote, but has also become a commercial center for neighboring communities. It has no gasoline or diesel generators but many households use 134 automobile batteries to watch television. The batteries are taken biweekly to Nueva Guinea to be recharged at a cost of C$ 20 (US $1.55) In all three sites, data collection for a market survey was undertaken in late 2000 by the Instituto Nacional de Estadísticas y Censos (INEC), and complemented with information on commercial electricity use by the CNE, as the second step. The questionnaires for this survey were produced jointly by INEC, CNE and the World Bank. The survey was intended to provide information on: (a) current energy expenditures of households, and public and productive uses; (b) household income and savings; (c) an estimate of ability/willingness to pay for various levels of off-grid energy service; and (d) the potential of the latter to increase the productivity of local productive micro- enterprises. The objective of this report is to analyze the results of the survey and summarize them in a way that can be used directly as the input for the next step. The objectives of the fourth step to follow, which is not the subject of this study, will be: (a) to identify and design locally suited delivery mechanisms based on the market information; (b) to estimate a cash flow for these operators; (c) to select the product line (system types and sizes) to be offered; and (d) to pre-determine the amount of subsidies required. In a broader context, Nicaragua is embarking on an ambitious series of studies and investments aimed at raising the national rural electrification index dramatically over the coming years. These efforts include but are not limited to: · This pilot program and other RE investment activities under preparation with the World Bank; · The formulation of a Rural Electrification Master Plan under cooperation with PREEICA and the Canadian Government through CIDA; · The development and formulation of a national RE strategy and implementation of a group of RE projects under a loan agreement with IDB; · A UNDP-GEF initiative on possible mini-hydro development; · Grid extension projects with Swiss and Canadian government cooperation · The allocation of a considerable portion of the proceeds from the privatization of the distribution business of ENEL to fund a major decade-long RE development plan. Many of these efforts will require undertaking market studies, of which this is a first attempt. In light of this broader context, this report will also discuss some methodological issues and lessons learned from this experience which can prove useful to take into consideration when undertaking future RE market studies in Nicaragua. 9.1.2 Survey Design and Implementation The household survey was conducted with a structured questionnaire that combines an LSMS approach to individual members' socioeconomic characteristics, income and expenditures, with questions on overall household energy use and expenditure patterns. Most questions were presented in a format and phrasing familiar to INEC enumerators and field supervisors from previous household surveys, and the energy specific questions were designed by CNE and World Bank sector experts. 135 The final version of the questionnaire has 273 questions (over 500 variables) divided into 13 sections: · Characteristics of the dwelling · Household characteristics and composition · Household education · Economic activities of household members · Home businesses and self-employed workers · Household agricultural, livestock and forestry activities · Household expenditure, credit and other income sources · Household appliances and equipment · Savings and loans · Energy use by fuel or source · Familiarity with and preferences for renewable energy sources · Attitudes and perceptions towards electrification · Preferences, ability and willingness to pay for electricity The survey sample was designed to cover potentialmarket households for off-grid diesel or mini- hydropower systems and individual photovoltaic systems (PVS), without feasible medium term access to the national grid. In the cases of Cuá ­ Bocay and El Ayote, this means the whole municipalities. The sample designed for Cuá ­ Bocay covered all the 1995 census segments, whereas in the case of El Ayote 9 representative segments out of 19 were chosen (47%), with a total number of 605 dwellings (44%) out of the 1388 in the municipality. In the case of Nueva Guinea, the potential market for off-grid electricity is circumscribed to a radius of 15 to 40 kilometers away from the municipal seat, housing approximately 20% of that municipality's total population, with epicenter in La Unión. The survey sample designed is shown in Table 1, and the actual households interviewed are shown in Table 2. As can be seen in the latter, the sample was distributed over 17 communities representative of each segment. The 344 households surveyed represent a total of 2,916 households and a population estimated at 18,364 people in the survey area, distributed as indicated in Table 3. Table 1 Survey Sample Design Selected Rural Communities ­ Nicaragua 2000 Segments Dwellings Department Municipality 2000 1995 2000 % 1995 Sample % Census Sample Census (Target) Jinotega Cuá ­ Bocay 4 4 100 513 102 20 RAAS El Ayote 19 9 47 1388 90 6 RAAS Nueva Guinea 100 14 14 6000 175 3 Potential project area* 1015 175 17 3 Municipalities 123 23 22 7118 367 5 * Segments located within a 15 to 40 kilometer radius from the municipal seat, too far for feasible grid extension Source: INEC Table 2 Distribution of Households Surveyed by Locality 136 Selected Rural Communities ­ Nicaragua 2000 Number of Percent of Department Municipality Name of Community Households Sample Jinotega Cuá ­ Bocay La Camaleona 38 11.0 Los Cedros 22 6.4 El Bote 33 9.6 3 Communities 93 27.0 RAAS El Ayote La Parra 11 3.2 Nawawas 21 6.1 Nawawasito 10 2.9 El Ayote 37 10.8 La Concha 11 3.2 5 Communities 90 26.2 RAAS Nueva Guinea El Zapote 30 8.7 Naciones Unidas 8 2.3 San Martin 12 3.5 El Areno 12 3.5 San Ramón 12 3.5 Serrano 31 9.0 La Fonseca 19 5.5 Los Laureles 10 2.9 La Unión 27 7.8 9 Communities 161 46.8 Jinotega 1 municipality 3 communities 93 27.0 RAAS 2 municipalities 14 communities 251 73.0 TOTAL 344 100.0 Source: INEC/WB Rural Electrification Survey, November 2000 Table 3 Population and Household Distribution by Family Size Selected Rural Communities ­ Nicaragua 2000 Total Population and Cuá ­ Nueva All Family Size Bocay El Ayote Guinea Households Weighted Sample Households 513 1388 1015 2916 Population 3,144 8,544 6,676 18,364 Members/Household 1 2.2% 3.3% 1.2% 2.4% 2 ­ 3 11.8% 22.2% 9.9% 16.2% 4 ­ 5 32.3% 23.3% 24.8% 25.4% 6 ­ 7 30.1% 25.6% 29.8% 27.8% 8 or more 0.0% 25.6% 34.2% 24.1% Persons per Household 6.13 6.16 6.58 6.30 Source: INEC/WB Rural Electrification Survey, November 2000 At the time of the household survey, qualified respondents to a community survey, which would establish public and productive use more directly, were not available for questioning by INEC 137 surveyor teams. Part of this missing information was later compiled by CNE in early 2001, and is presented in Annex 1. The household survey data were captured by INEC using SPSS (Statistical Package for the Social Sciences). The survey results are presented in the following sections. 9.1.3 Survey Results 9.1.3.1 Socioeconomic Profile · Household and Population Distribution In order to generalize the results of the survey, the characteristics of the households interviewed were weighted according to the populations represented, so the weighted sample approximates the attributes of the whole population in the area. This is a large sample (nearly 12% of all households in the study area), and well distributed in space, so the weighted results are truly representative of the population under study. Table 3 also shows the distribution of family sizes in the area. Of the three potential project areas, El Ayote has the largest number of households (1388) and Cuá ­ Bocay the smallest (513). Nueva Guinea has the largest family size, an average of 6.58 members per household, and over 34% of its households have 8 or more members. Table 4 Distribution of the Population by Age Group Selected Rural Communities ­ Nicaragua 2000 Cuá ­ Nueva Guinea All Age Group by Sex Bocay El Ayote Households Male Up to 5 17.5% 16.9% 20.3% 18.2% 6 to 14 31.5% 30.3% 34.4% 31.9% 15 to 24 22.4% 23.2% 17.3% 21.0% 25 to 34 10.1% 10.1% 9.6% 9.9% 35 to 44 7.7% 8.6% 5.4% 7.3% 45 to 54 3.8% 6.4% 6.1% 5.8% 55 and above 7.0% 4.5% 6.9% 5.8% Weighted sample 1578 4118 3285 8980 Male population (%) 50.7% 49.3% 49.8% 49.7% Female Up to 5 23.7% 18.2% 16.9% 18.7% 6 to 14 23.0% 28.4% 32.5% 28.9% 15 to 24 21.9% 20.4% 19.6% 20.4% 25 to 34 13.7% 14.2% 11.8% 13.3% 35 to 44 6.5% 7.3% 8.4% 7.5% 45 to 54 5.4% 5.5% 6.1% 5.7% 55 and above 5.8% 6.2% 4.8% 5.6% Weighted sample 1533 4241 3316 9091 Female population (%) 49.3% 50.7% 50.2% 50.3% Source: INEC/WB Rural Electrification Survey, November 2000 The population of the three municipalities is relatively young: 71.1% of the male population and 68.0% of the female population is less than 25 years old, and in the three cases the average age is 138 between 20.1 and 20.8 years old. The distribution of the population by age group is provided in Table 4. · Characteristics of Dwellings and Water Supply All dwellings found housed single households. None of the homes has access to paved roads, but primarily to dirt roads (68.5%) and paths (19.1%). Living conditions in the area's dwellings are somewhat crowded, and over 70% of the households in all three municipalities live in one or two room housing, excluding kitchen and toilet facilities (Table 5). On average, there are 3.08 people per room in El Ayote, 3.16 in Nueva Guinea and 3.28 in Cuá ­ Bocay. Table 5 Distribution of Households by Dwelling Size Selected Rural Communities ­ Nicaragua 2000 Number of Rooms Cuá ­ Nueva All Households Bocay El Ayote Guinea 1 40.9% 45.6% 21.7% 36.4% 2 38.7% 25.6% 46.6% 35.2% 3 ­ 4 17.2% 25.6% 28.6% 25.1% 5 ­ 6 3.2% 3.3% 3.3% 3.2% Average size 1.87 2.00 2.08 2.00 Persons/room 3.28 3.08 3.16 3.14 Source: INEC/WB Rural Electrification Survey, November 2000 Table 6 presents other characteristics of the households' dwellings in the area. One can see here that most of the homes are houses with earth floors and zinc roofs. Earth floors, in particular, are indicative of household poverty. Table 6 Characteristics of Dwellings Selected Rural Communities ­ Nicaragua 2000 Cuá ­ Bocay Characeristic El Ayote Nueva Guinea All Households Type of dwelling House 71.0% 81.1% 93.2% 83.5% Hut (Rancho) 29.0% 16.7% 6.2% 15.2% Business Premise - - - 1.1% 0.6% 0.7% Predominant materials · Type of floors Wood 4.3% 3.3% 16.1% 8.0% Tile 17.2% 6.7% 5.6% 8.1% Cement, mosaic 2.2% 5.6% 2.5% 3.9% Earth 76.3% 84.4% 75.8% 80.0% · Type of Roofs Zinc 67.7% 83.3% 93.2% 84.0% Tile 1.1% 1.1% - - - 0.7% Straw 2.2% 15.6% 4.3% 9.3% Debris - - - - - - 1.9% 0.6% Other 29.0% - - - 0.6% 5.3% Source: INEC/WB Rural Electrification Survey, November 2000 To round up the general description of housing conditions, in Tables 7 and 8 we find information on household water supply systems and expenditure. In El Ayote, 71.1 % of households draw their water from manual wells, while most others seek it from rivers and streams. The latter is the 139 prevalent system for Cuá ­ Bocay also (63.4%), followed by water reaching the lot or terrain in which the home is constructed through plastic pipes (21.5%). In Nueva Guinea, manual wells (32.3%) are accompanied by very few mechanical wells (1.2%). The localities surveyed there also have access to public water posts (26.8%) and water pipes to lots or inside their homes (16.1%). Overall, the predominant system in the three municipalities is the manual well (46.4%), whose potential for conversion to energy-using pumps could be further explored. Even in Nueva Guinea, where 46% of the households pay for their water supply, most households in the area do not pay for water. In Cuá ­ Bocay, a fixed monthly rate of C$ 10 is charged per dwelling in 19.4% of households. In El Ayote, a monthly rate of C$ 20 is charged with meter or an average of C$ 17 without. The unmetered charge in Nueva Guinea, currently the largest commercial market for water, is C$7, equivalent to US$0.54 cents per month per household. Table 7 Household Water Supply Systems Selected Rural Communities ­ Nicaragua 2000 Cuá ­ Nueva Guinea All Source of Water Bocay El Ayote Households Pipes to house 2.2% 9.3% 3.6% Pipes to lot 21.5% 1.1% 6.8% 6.7% Public post 3.2% 26.8% 9.9% Manual well 7.5% 71.1% 32.3% 46.4% Mechanical well 1.2% 0.4% River or stream 63.4% 27.8% 21.2% 31.7% From neighbor 2.2% 0.6% 0.6% Other 1.9% 0.6% Source: INEC/WB Rural Electrification Survey, November 2000 Table 8 Household Water Supply Expenditure Selected Rural Communities ­ Nicaragua 2000 Cuá ­ Nueva All Water Expenditure Bocay El Ayote Guinea Households Do not pay (%) 80.6% 93.3% 54.0% 77.4% Pay without meter (%) 19.4% 5.6% 46.0% 22.0% Pay with meter (%) 1.1% 0.5% Expenditure when pay (C$/mo-hh) 10.00 17.50 7.01 8.20 Expenditure when pay (US$/mo-hh) * 0.78 1.36 0.54 0.64 * Exchange rate November 2000: C$12.898 = US $1 Source: INEC/WB Rural Electrification Survey, November 2000 · Educational Attainment The level of education attained by household members in this area is very modest, with 52.3% of the population not having completed one year of formal education (Table 9). No family members were detected to have reached tertiary education in any of the municipalities, and only 4.3% have some secondary education. Overall, 41.5% of the population has some primary education, an average of 3.0 years. Nueva Guinea shows the highest levels of attainment in the area, with 49.7% having some primary education compared to 34.3% in Cuá ­ Bocay and 38.1% in El Ayote. It also has the lowest figures for no formal education (44.1% compared to 55.1% in El Ayote and 60.9% in Cuá ­ Bocay). In terms of gender, the educational indicators in this table show that males have 140 slightly higher education than females in El Ayote and Cuá ­ Bocay, whereas females distinctly outperform males in Nueva Guinea both in terms of educational levels and years of formal schooling. The heads of households are predominantly male, middle aged, and with between 1 and 2 years of primary education (Table 10). On average, the head of the household was 44.9 years old, with about 1.8 years of formal schooling, though as little as 1.3 years in Cuá ­ Bocay (Table 10) The spouse of the household head was on average seven years younger (37.3 years old), with less education in Cuá ­ Bocay but more in the other two municipalities. Males headed 79.7% of households, compared to 20.3% headed by females. There are proportionally more female heads of household in El Ayote (23.3%) and much less in Cuá ­ Bocay (12.9%). Table 9 Educational Attainment of Household Members Selected Rural Communities ­ Nicaragua 2000 Highest Level Cua - Bocay El Ayote Nueva Guinea All Households Approved by Gender Percent average Percent average Percent average Percent average members years members years members years members years Male None 59.1% 0 54.0% 0 47.4% 0 52.6% 0.0 Preschool 1.2% 2.7 0.4% 3.0 0.9% 2.5 0.7% 2.8 Adult Education 1.5% 2.5 0.8% 1.5 1.1% 1.6 1.0% 1.7 Primary 35.9% 2.8 40.2% 3.0 47.2% 3.0 41.9% 2.9 Secondary 2.3% 7.7 4.2% 8.5 3.2% 7.5 3.5% 8.0 Basic Technical 0.4% 8.0 0.2% 8.0 0.3% 6.6 Higher education 0.0% 0.0 Total male 100.0% 1.2 100.0% 1.6 100.0% 1.7 100.0% 1.6 Female None 62.8% 0 56.3% 0 40.7% 0 52.0% 0.0 Preschool 2.1% 2.4 1.2% 3.0 1.3% 2.8 1.4% 2.8 Adult Education 0.4% 2.5 0.8% 1.5 0.9% 1.6 0.8% 1.7 Primary 32.5% 2.7 36.0% 3.1 52.2% 3.1 41.0% 3.0 Secondary 2.1% 8.2 5.7% 8.6 4.7% 8.2 4.7% 8.4 Basic Technical 0.1% 9.0 0.04% 3.1 Higher education 0.0% 0.0 Total female 100.0% 1.1 100.0% 1.6 100.0% 2.1 100.0% 1.7 All None 60.9% 0 55.1% 0 44.1% 0 52.3% 0.0 Preschool 1.6% 2.5 0.8% 3.0 1.1% 2.8 1.1% 2.8 Adult Education 1.0% 2.2 0.8% 1.5 1.0% 1.6 0.9% 1.6 Primary 34.3% 2.7 38.1% 3.0 49.7% 3.0 41.5% 3.0 Secondary 2.2% 7.9 4.9% 8.5 4.0% 7.9 4.1% 8.2 Basic Technical 8.0 0.2% 8.5 0.2% 8.3 0.2% 8.4 Higher education 0.0% 0.0 Total population 100.0% 1.2 100.0% 1.6 100.0% 1.9 100.0% 1.6 Weighted Sample 2719 7495 5882 16208 Source: INEC/WB Rural Electrification Survey, November 2000 Table 10 Sex, Age and Educational Level of Household Head and Spouse Selected Rural Communities ­ Nicaragua 2000 141 Cuá ­ Nueva All Concept Bocay El Ayote Guinea Households Age of Head (years) 43.67 45.49 44.74 44.91 Education of Head (years) 1.32 1.82 1.98 1.79 Age of Spouse (years) 35.60 37.84 37.52 37.34 Education of Spouse (years) 1.10 1.95 2.17 1.88 Female Heads (%) 12.9% 23.3% 19.9% 20.29% Male Heads (%) 87.1% 76.7% 80.1% 79.71% Source: INEC/WB Rural Electrification Survey, November 2000 · Economic Activities The next three tables present an overview of the economic activities of the households in Cuá ­ Bocay, El Ayote and Nueva Guinea. Two thirds of the male population (67.3%) aged 6 or over were employed and 27.7% were minors or students (Table 11). Among the women, 21.2% were employed, 35.0% were housewives and 32.8% were minors or students. Again the female population of Nueva Guinea are distinguished from their peers in the other two municipalities: 27.9% were employed and 26.3% were housewives, compared to 12.8% and 50.7%, respectively, in El Ayote. Table 11 Employment and Economic Activity of Households by Gender Selected Rural Communities ­ Nicaragua 2000 Employment Profile Cua Bocay ElAyote Nueva Guinea AllHouseholds Male Female All Male Female All Male Female All Male Female All Worked last week 69.3% 16.4% 44.5% 64.7% 12.8% 38.6% 67.6% 27.9% 47.4% 66.5% 18.7% 42.7% Did not work but has job 0.4% 0.2% 0.4% 0.2% 0.7% 0.7% 0.7% 0.5% 0.2% 0.4% Sought work 0.4% 0.2% 0.1% 0.0% Unemployed 0.4% 1.9% 0.9% 1.8% 3.1% 2.4% 1.2% 3.2% 4.3% 1.3% 2.9% 2.8% Homemaker/housewife 0.4% 36.2% 17.0% 0.9% 50.7% 25.5% 0.2% 26.3% 13.5% 0.6% 39.6% 19.8% Retired/pensioned 0.4% 0.2% 0.2% 0.1% Minor/student 25.3% 25.4% 25.3% 29.9% 29.5% 29.7% 27.9% 38.2% 33.1% 28.4% 31.8% 30.1% Disabled/elderly 2.1% 1.9% 2.0% 1.8% 2.2% 2.0% 2.4% 3.7% 3.0% 2.0% 2.7% 2.4% Other 2.1% 18.3% 9.7% 0.4% 1.3% 0.9% 0.6% 3.9% 2.1% Source: INEC/WB Rural Electrification Survey, November 2000 Table 12 Occupational Category by Gender Selected Rural Communities ­ Nicaragua 2000 OccupationalCategory CuaBocay El Ayote Nueva Guinea All Households Male Female All Male Female All Male Female All Male Female All Worker/employee 3.2% 12.1% 5.1% 9.1% 16.7% 10.8% 3.5% 17.0% 8.4% 6.1% 16.0% 9.0% Day laborer/farmhand 14.4% 24.2% 16.5% 32.2% 24.8% 21.6% 0.9% 14.1% 25.4% 4.6% 19.6% Self-employed 44.8% 36.4% 43.0% 25.6% 55.6% 32.5% 42.7% 51.8% 46.0% 34.9% 50.9% 39.0% Employer/owner 10.4% 3.0% 8.9% 13.2% 2.8% 10.8% 3.5% 2.3% 9.3% 1.9% 7.5% Member of a cooperative 0.8% 0.6% 0.4% 0.3% Unpaidworker 27.2% 24.2% 26.6% 19.0% 25.0% 20.4% 28.1% 30.4% 28.9% 23.6% 26.7% 24.5% Other 0.5% 0.3% 0.2% 0.1% Source: INEC/WB Rural Electrification Survey, November 2000 142 Within their occupations, 39.0% were self-employed, 24.5% were unpaid family workers, 19.6% were hired laborers or farm hands, 9.0% were employees and 7.5% were employers or business owners (Table 12). El Ayote has proportionally more day laborers (32.2%) and employees (9.1%) among the male population than Cuá ­ Bocay and Nueva Guinea, where self-employed males are proportionally much higher (44.8% and 42.7%, respectively). Nueva Guinea has the highest proportion of unpaid family workers (28.9%), a fact that will lower the average monthly income per economically active household member. The households are predominantly devoted to agricultural and livestock production: 83.5% in Cuá ­ Bocay, 76.8% in Nueva Guinea and 68.8% in El Ayote, for a weighted average of 74.2% in the three areas (Table 13). Tertiary activities follow, employing 23.4% of the economically active population in wholesale and retail commerce; community, social and personal services; the hotel, restaurant and bar sector, and the transport and communications sector. Manufacturing and construction are only marginal activities and there is no mining in the area. The work force is occupied an average of 282 days a year in Cuá ­ Bocay, 281 in Nueva Guinea and a high of 326 days per year in El Ayote. Table 13 Distribution of Economically Active Population and Days Worked per Year by Sector Selected Rural Communities ­ Nicaragua 2000 Cuá ­ Bocay El Ayote Nueva Guinea All Households Sector % Work % Work % Work % Work occupied days/yr occupied days/yr occupied days/yr occupied days/yr Agriculture/livestock 83.5 285 68.8 329 76.8 274 74.2 302 Manufacturing 1.9 260 2.5 338 1.9 121 2.2 249 Construction - - - - - - 0.6 360 0.3 210 0.4 - - - Commerce 7.6 266 13.4 341 8.0 339 10.8 327 Hotels, bars, rests. - - - - - - 6.4 360 0.3 360 3.1 - - - Transp, communics. 0.6 360 2.5 158 0.3 360 1.4 264 Community, personal & social services 6.3 248 5.7 283 12.2 309 8.1 286 Total 282 326 281 302 Source: INEC/WB Rural Electrification Survey, November 2000 9.1.3.2 Agriculture and Livestock Raising The main economic activity in the three municipalities is agriculture and livestock raising, although there are important differences among them in the areas under cultivation, the types of crops cultivated and the importance of cattle raising. One major difference is that in Cuá ­ Bocay practically all households (93.5%) own, rent or otherwise work their own farms, but in relatively smaller land holdings than in RAAS (4.4 hectares versus 6.9 in Nueva Guinea and 20.1 in El Ayote). On these smaller farms, however, they cultivate permanent crops like coffee and sugar cane as well as seasonal crops, which are the staple in RAAS. Table 14 shows the agricultural profile for the area. 143 In El Ayote, only 60% of the households work their own, larger farms; 80.8% of the land under cultivation in the surveyed households was dedicated to growing corn9. In Nueva Guinea, this crop reached 84.0%, whereas in Cuá ­ Bocay only 43.2% of the land is devoted to corn, second to coffee growing (44.2%). Table 14 Agricultural Profile Selected Rural Communities ­ Nicaragua 2000 Cuá ­ Nueva All Concept Bocay El Ayote Guinea Households Households with farms 93.5% 60.0% 80.7% 73.1% Average farm size In manzanas (local measure) 19.1 87.1 29.9 55.2 In hectares 4.4 20.1 6.9 12.8 In acres 10.9 49.7 17.1 31.6 Main use of farms Seasonal crops 72.2% 94.4% 88.2% 88.4% Permanent crops 24.7% 3.7% 8.8% 9.2% Pasture 2.1% 1.9% 2.9% 2.3% Woodlands 1.0% 0.2% Total area in 2 major crops (sample) In manzanas (local measure) 1854 4701 4069 10624 In hectares 429 1087 941 2457 Distribution of area in 2 major crops Manioc 0.1% 0.0% Quequisque 0.1% 0.0% Beans 6.8% 4.3% 12.7% 7.7% Maize 43.2% 80.8% 84.0% 75.3% Sugar cane 2.4% 0.4% Coffee 44.2% 7.8% Plantain 4.3% 2.1% Banana/Jocote 4.3% 2.0% Unspecified/mixed 3.4% 6.4% 3.1% 4.7% Average area per crop (manzanas) Manioc 3 1 Quequisque 3 1 Beans 13 100 37 63 Maize 13 81 29 51 Sugar cane 44 8 Coffee 37 7 Plantain 102 49 Banana/Jocote 100 48 Unspecified/mixed 21 300 146 Source: INEC/WB Rural Electrification Survey, November 2000 9 Households were surveyed on the basis of a demographic sample, which means household characteristics can be expanded to the overall population. However, in order to determine the distribution of land use for crops, cattle, and others, a different sampling technique based on maps or aerial photographs would have to be made. Thus, the discussion in this section refers to the surveyed households only. 144 Cattle raising is an essential occupation, particularly in El Ayote where 81.5% of the households own (or raise in partnership), an average of 40.7 heads of cattle (Table 15). In Nueva Guinea, 58.5% of the households own cattle (an average of 18.5 heads). In Cuá ­ Bocay, dependence on cattle is less but still 27.6% of households raise an average of 11.3 heads. Many also raise pigs and most raise poultry, although not in large quantities. Nueva Guinea's households tend to own more horses and mules (42.3%), almost 4 per family. Table 15 Cattle and Animal Husbandry Selected Rural Communities ­ Nicaragua 2000 Cuá ­ Nueva All Households Concept Bocay El Ayote Guinea Farms raising animals (%)** Cattle 27.6% 81.5% 58.5% 64.0% Pigs 62.1% 70.4% 65.4% 67.2% Poultry 89.7% 87.0% 71.5% 82.1% Horses, mules, burros 12.6% 9.3% 42.3% 21.4% Other 2.3% 3.7% 2.2% Animals/farm when raised Cattle 11.3 40.7 18.5 27.8 Pigs 2.9 5.3 3.0 4.1 Poultry 14.8 16.7 13.5 15.3 Horses, mules, burros 1.8 4.2 3.8 3.6 Other 3.0 10.0 10.1 8.8 ** Does not add up to 100% because farms may have more than one type of animal. Source: INEC/WB Rural Electrification Survey, November 2000 9.1.3.3 Household businesses and credit experience Though the majority of the population is involved in agriculture and animal husbandry, nearly one third of households in the area also undertake non-agricultural business activities, primarily in their own dwellings. An average of 29% of households reported independent commercial, manufacturing, service or other economic activities: 40% in El Ayote, 19.3% in Nueva Guinea and 18.3% in Cuá ­ Bocay (Table 16). Table 16 Distribution of Household Businesses Selected Rural Communities ­ Nicaragua 2000 Type of businesses Cuá ­ Nueva All Households Found in households Bocay El Ayote Guinea · Manufacturing industry 17.6% 16.7% 12.9% 15.5% · Wholesale Commerce 17.6% 38.9% 12.9% 26.1% · Retail Commerce 41.2% 27.8% 58.1% 40.7% · Transportation Services 3.2% 1.1% · Entrepreneurial Activities 2.8% 1.3% · Community, social and Personal services 5.9% 5.6% 12.9% 8.2% · Vehicle maintenance 5.9% 1.0% · Restaurants, bars and other Food selling establishments 11.8% 8.3% 6.0% Weighted number businesses 94 555 195 712 As a % of households 18.3% 40.0% 19.3% 29.0% Source: INEC/WB Rural Electrification Survey, November 2000 145 Reflecting its bustling commercial life, El Ayote has the highest proportion of wholesale commerce (38.9%), whereas retail commerce (primarily "pulperías" or general stores) dominates in the other two. Overall, 40.7% of household businesses are retail stores, 26.1% are wholesale, 15.5% are manufacturing, 8.2% are service related and 6% are restaurants and bars. The vast majority of these businesses are located within the households' homes in Cuá ­ Bocay (88.2%) and Nueva Guinea (75.0%), and less so in El Ayote (48.6%), where 45.9% of the households set up improvised or fixed stands away from home to sell their merchandise (Table 17). Nueva Guinea and El Ayote have the more established businesses, whereas in Cuá ­ Bocay the majority are less than one year old. These figures indicate that new businesses are being established quite dynamically; only 1.9% of all households (not shown) report that they closed a business within the last year. Table 17 Household Business and Credit Profile Selected Rural Communities ­ Nicaragua 2000 Concept Cuá ­ Nueva All Bocay El Ayote Guinea Households Where the business works Inside the house, no special installations 76.5% 40.5% 37.5% 45.8% Inside the house, with sp. Installations 11.8% 8.1% 37.5% 19.0% Goes from door to door 11.8% 5.4% 15.6% 10.1% Improvised stand 27.0% 9.4% 16.1% Fixed stand outside the home 18.9% 9.0% How many of the last 12 months has the business worked? 1 ­ 5 41.2% 16.2% 9.4% 18.2% 6 ­ 11 11.8% 13.5% 12.5% 12.9% All year 47.1% 70.3% 78.1% 68.9% Account keeping Formal accounting 3.1% 1.1% Basic annotations 23.5% 27.0% 15.6% 22.4% No records kept 76.5% 73.0% 81.3% 76.5% Main source of investment financing for household businesses Private bank loans 5.9% 1.0% Loans from NGOs 5.9% 1.0% Loans by relatives/friends 11.8% 13.5% 12.5% 12.9% Loans by customers/suppliers 5.9% 2.7% 9.4% 5.6% Personal savings 52.9% 54.1% 37.5% 48.1% Sale of other assets 5.9% 5.4% 21.9% 11.2% Donations, inheritance 5.9% 16.2% 12.5% 13.1% Others 5.9% 16.2% 12.5% 13.1% Household use of credit for major purchases over the last 12 months None used 96.8% 95.6% 96.9% 96.2% Yes, for agriculture 3.2% 0.6% Yes, for household goods 2.2% 1.1% Yes for other purposes 2.2% 3.1% 2.1% Household use of credit for food during the previous week None used 80.9% 95.6% 70.2% 84.1% Yes, for all the food 3.2% 2.2% 8.7% 4.6% Yes, for most food 5.3% 1.1% 3.1% 2.5% Yes, for half of the food 6.4% 1.1% 12.4% 6.0% Yes, for less than half of the food 4.3% 5.6% 2.7% Source: INEC/WB Rural Electrification Survey, November 2000 146 The majority of these establishments keeps no formal accounting records and depends on personal savings and loans from relatives and friends as their main source of investment finance. Formal bank loans or loans from cooperatives or other NGOs only account for 2% of their seed capital. In fact, finances for home businesses are run pretty much like household finances: there is a reluctance or lack of capacity to access to formal credit for investment purposes of any sort, and over 96% of households reported they did not use credit to purchase any major appliance or equipment for agriculture or household use either. What credit is used, such as to purchase food, is informally provided by relatives, friends or grocers. The lack of experience with formal institutional loans is a factor to be taken into account during the next phase of the project, when designing the institutional mechanisms to finance access to new electricity solutions. Nonetheless, particularly in Cuá ­ Bocay, lack of access to credit or finance is perceived as a major problem for the normal development of household businesses (Table 18). Businesses in Cuá ­ Bocay are very dissatisfied with the current electricity service and 82.4% perceive the lack of electricity as a major obstacle. On the other hand, 91.9% of business households in El Ayote feel no problem at all with their lack of power supply, apparently satisfied with their small private generators and PV systems. In Nueva Guinea, which has no electricity generation or supply at all, 40.6% of household businesses do feel the lack of electricity is a major problem, 37.5% that it is a minor problem and a minority of 21.9% feel the lack of electricity does not affect their business. Most businesses do not face staffing problems nor are concerned with security, but many do face problems with their sales efforts due to low demand or low prices. Table 18 Main Problems Face by Household Businesses Selected Rural Communities ­ Nicaragua 2000 Concept Cuá ­ Nueva All Bocay El Ayote Guinea Households Lack of credit or finance Very much 58.8% 13.5% 25.0% 27.7% Little 23.5% 5.4% 25.0% 15.4% Nothing 17.6% 81.1% 43.8% 56.9% Lack of electricity Very much 82.4% 5.4% 40.6% 31.2% Little 2.7% 37.5% 14.3% Nothing 17.6% 91.9% 21.9% 54.5% Staffing problems Very much 0.0% Little 5.9% 5.4% 28.1% 13.4% Nothing 94.1% 94.6% 71.9% 86.6% Lack of security Very much 29.4% 2.7% 6.5% Little 17.6% 5.4% 43.8% 20.9% Nothing 52.9% 91.9% 56.3% 72.6% Low demand, low prices Very much 64.7% 45.9% 40.6% 47.4% Little 11.8% 18.9% 28.1% 20.9% Nothing 23.5% 35.1% 31.3% 31.7% Source: INEC/WB Rural Electrification Survey, November 2000 147 In El Ayote and Nueva Guinea, business households overwhelmingly plan to continue operating their businesses (91.9% and 93.8%, respectively). Though the majority in Cuá ­ Bocay also wishes to do so, 17.6% are thinking of closing their businesses and another 5.9% are thinking of changing their type of home business (Table 19). El Ayote shows the greatest satisfaction with the current state of affairs, and 73% of businesses plan to continue working as they currently are. In Nueva Guinea, only 12.5% are thinking of going on as usual, but almost 22% wish to purchase new equipment or machinery for their businesses, 28% want to introduce new product lines and nearly 19% wish to expand their size. In Cuá ­ Bocay, there are no plans to purchase equipment or open new shops, and nearly 31% each want to introduce new products or remain as they are, while 15.4% each want to grow in size and do not currently know how to pursue their business growth. Table 19 Current Business Plans Selected Rural Communities ­ Nicaragua 2000 Business Plans Cuá ­ Nueva All Bocay El Ayote Guinea Households Current business plans Go on with the business 70.6% 91.9% 93.8% 88.8% Change the type of business 5.9% 1.0% Close it and get a job 2.7% 1.3% Close it and do something else 17.6% 2.7% 4.5% Does not know 5.9% 2.7% 6.3% 4.5% For those continuing, how many plan: To continue with no changes 30.8% 73.0% 12.5% 44.5% To purchase machines or equipment 5.4% 21.9% 10.2% To increase the size of establishment 15.4% 5.4% 18.8% 11.8% To open new establishments 2.7% 3.1% 2.4% To increase the number of workers 7.7% 2.7% 3.1% 3.7% To work new products 30.8% 10.8% 28.1% 20.3% Does not know 15.4% 12.5% 7.1% Source: INEC/WB Rural Electrification Survey, November 2000 9.1.3.4 Household Income Household incomes are related with all the characteristics of economic activities, agriculture and livestock raising and household businesses we've presented above. The questionnaire, structured along the lines of a Living Standards Measurement Survey (LSMS), includes many questions and variables designed to estimate household incomes from all sources: wages, home businesses, sales of crops and livestock, etc. It also seeks to value the "non-monetary income", equivalent to the opportunity cost of agricultural and animal products left by the households for self-consumption, valued at their market prices had they been sold. Nonetheless, some ambiguities and voids in the questionnaire and subsequent data processing were detected and dealt with in order to determine a few of the values reported forthwith. Due to the importance of household incomes for any market analysis and the possibility of avoiding similar difficulties in future RE market studies, a discussion of the income aspects of the survey is presented in Annex 2. A breakdown of average monthly income per person (worker or entrepreneur) occupied in the different economic sectors shows significant variations among sectors within each 148 municipality and between municipalities (Table 20). El Ayote, which reported the highest number of days worked per year (Table 13), also reports the highest average monthly income per worker (C$ 1056, equivalent to US $53.68 per month). This average results from the relatively high incomes earned by its large and dynamic commercial sector (C$ 2971 or US $230.33). Its average monthly income per person occupied in the agricultural sector is also 5% above the national average agricultural wage of C$66110. Table 20 Average Monthly Income per Person Occupied by Sector Selected Rural Communities ­ Nicaragua 2000 Economic Cuá ­ Nueva All Activity Bocay El Ayote Guinea Households (C$/mo) (C$/mo) (C$/mo) (C$/mo) Agricultural and livestock sector 580 692 301 537 Manufacturing industry 1054 594 268 468 Construction 1200 1600 2130 Wholesale and retail commerce 906 2971 2127 1429 Hotels, bars and restaurants 1447 1200 2130 Transport, communications 2000 900 1680 1429 Community, social & private services 649 1104 688 1224 All sectors 619 1057 421 851 (US$/mo)* (US$/mo)* (US$/mo)* (US$/mo)* Agricultural and livestock sector 44.97 53.68 23.37 41.60 Manufacturing industry 81.72 46.03 20.79 36.29 Construction 93.04 124.05 51.52 Wholesale and retail commerce 70.21 230.33 164.91 165.17 Hotels, bars and restaurants 112.19 93.04 110.80 Transport, communications 155.06 69.78 130.25 92.88 Community, social & private services 50.31 85.59 53.32 94.93 All sectors 48.02 81.95 32.64 66.02 Average income earners/household 2.31 2.13 2.66 2.35 Average work income/household (C$) 1431 2251 1120 1998 Average work income/household (US$) $110.94 $174.55 $86.82 $154.88 * Exchange rate November 2000: C$12.898 = US $1 Source: INEC/WB Rural Electrification Survey, November 2000 The large share of unpaid family workers, compounded by the larger family size already mentioned, is responsible for the relatively lower C$ 301/month earned on average by agricultural workers in Nueva Guinea (US $23.21/month). The overall earnings reported from primary occupations in the region are around C$ 850, or US $66, per income earner. Given the average number of income earners per household, a first estimate of monthly household income from their main occupation ranges from C$ 1120 in Nueva Guinea and C$ 1431 in Cuá ­ Bocay to C$ 2251 in El Ayote, for an overall average of practically C$2000 (US $155). 10 In August 2000. See Banco Central de Nicaragua, Gerencia de Estudios Económicos "Salario Promedio a Partir de Encuesta del MITRAB por Sector de Actividad Económica", www.bcn.gob.ni. 149 A more encompassing estimate of household income must take into account the multiple economic activities of all household members, and is presented in Table 21. The average household income estimated from wages was C$ 1662 per month, complemented with C$ 695 from household businesses and C$ 135 from other recurrent sources, for a total of C$ 2449 (almost US $190) per household without including profits from the sale of agricultural products, dairy products and livestock. Net sales of milk, eggs and other animal produce constitute the largest part of farm income: an average of C$ 1079 (approximately US $84) in the region and a high of C$ 2053 (US $159) in El Ayote. Table 21 Average Monthly Household Income by Source Selected Rural Communities ­ Nicaragua 2000 Income Source Cuá ­ Nueva All or Concept Bocay El Ayote Guinea Households (C$/mo) (C$/mo) (C$/mo) (C$/mo) Economically active members' income Net income from home businesses 207 1 175 285 695 Net wage income 1 072 2 231 1 180 1 662 Rents, remittances, pensions, donations, other 46 79 135 135 Household income excluding agriculture 1 325 3 485 1 600 2 449 Agriculture, livestock and forestry income Net income from milk, eggs, animal products 68 2053 258 1079 Sale of live animals and meat 38 211 62 129 Net income from crop sales 1470 15 137 313 Income from forestry 1 32 4 17 Net farm income 1576 2310 461 1537 Non-monetary income From self-consumed meat products 31 50 38 42 From self-consumed milk, eggs, others 181 312 85 210 From self-consumed food crops 408 264 436 349 Total non-monetary income 619 626 559 601 Total household income (Córdobas) Total monetary income 2 901 5 795 2 061 3986 Total income (monetary & non-monetary) 3 521 6 421 2 620 4 588 Per capita monetary income 473 942 313 633 Per capita total income 574 1 043 398 728 (US$/mo) (US$/mo) (US$/mo) (US$/mo) Total household income (US $ equivalent)* Total monetary income 224.94 449.33 159.79 309.07 Total income (monetary & non-monetary) 272.97 497.84 203.14 355.70 Per capita monetary income 36.70 73.00 24.29 49.08 Per capita total income 44.54 80.88 30.88 56.48 * Exchange rate November 2000: C$12.898 = US $1 Source: INEC/WB Rural Electrification Survey, November 2000 Net income from crop sales reaches a high of C$ 1470 (US$114) in Cuá ­ Bocay, and a weighted average of C$ 313 in the three areas. Nueva Guinea shows the lowest overall household income from agricultural and animal product sales. Households also leave agricultural and animal produce for self-consumption, valued at C$601 in the region, with small differences among households in the three municipalities. This share of "non-monetary" income is normal for rural areas of developing countries, but monetary income constitutes the primary basis for subsistence. 150 Total monthly monetary household income reaches C$ 3986 (US $309), fluctuating from a low of C$ 2061 (US $160) in Nueva Guinea to a high of C$5795 (US $449) in El Ayote. On average, this income is increased by 15% in the region due to non-monetary income (11% in El Ayote, 21% in Cuá ­ Bocay and 27% in Nueva Guinea). To put these figures in the overall context of Nicaragua, Table 21 also includes per capita income estimates. For 1999, statistics from the Central Bank of Nicaragua indicate that the country's per capita income was equivalent to C$ 404 or US $38.27 per month11. In all senses, El Ayote clearly surpasses this performance and Cuá ­ Bocay hovers around the national average, while Nueva Guinea reaches only 63% of the national average (81% considering non-monetary income as well). Income is distributed quite differently in each of the localities. An idea of the dispersion of household incomes can be drawn from the following Figure and table. Considering all households in the region, the lowest income quintile is composed of households making less than C$ 448/month ­ barely 10% above the per capita income in Nicaragua. The second quintile is composed of households with a monetary income of more than C$ 448 but less than C$ 1000/month. The upper quintile is composed of households with a monthly monetary income of more than C$ 4200 (US $325.63). The income ranks of the five quintiles are specified in the table. Figure 1. Distribution of Household Monetary Income by Quintile 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Qunitile I Quintile II C$ Quintile III C$ Quintile IV C$ Quintile V C$0.01-448 448.01 - 1000 1000.01 - 2150 2150.01 - 4200 C$4200.01+ Three Localities 19.6% 19.9% 19.9% 20.5% 20.2% Cua - Bocay 19.1% 14.6% 15.7% 24.7% 25.8% El Ayote 6.7% 18.0% 23.6% 19.1% 32.6% Nueva Guinea 27.3% 24.0% 20.1% 18.8% 9.7% Households in El Ayote show the highest monetary income: less than 7% of households earn less than C$ 448/month, whereas almost 33% earn more than the C$ 4200 in the region's upper quintile. Households in Nueva Guinea show the opposite income composition: over 27% belong to the region's first quintile, while less than 10% belong to 11 Estimated from Banco Central de Nicaragua, Gerencia de Estudios Económicos "Producto Interno Bruto", www.bcn.gob.ni. 151 the region's upper quintile. Cuá ­ Bocay lies in the center although slightly better off than average, with nearly 20% of households in the bottom quintile, but approximately only 15% in the next two quintiles and 25% in the upper two. From another perspective, however, care should be taken when assessing household purchasing power and ability to embark on new investments. Given the average family size, ranging from 6.13 to 6.58 members (Table 3), when these monetary incomes are distributed on a per capita basis, approximately 32.6% of all households in the region lie below the extreme poverty line and 49.4% below the general poverty line12. 9.1.3.5 Energy use and Energy expenditures · Energy use The two main energy uses by households are cooking and lighting, the former predominantly accomplished with firewood and the latter with kerosene (Table 22). Table 22 Distribution of Households by Energy Use Selected Rural Communities ­ Nicaragua 2000 Cuá ­ Nueva All Type of Energy Energy Use Bocay El Ayote Guinea Households Commercial firewood Cooking 5.4% 13.3% 10.6% 11.0% Self-appropriated firewood Cooking 93.5% 76.7% 85.1% 82.6% Total Firewood Cooking 98.9% 90.0% 95.7% 93.5% Firewood/charcoal Ironing 66.7% 22.2% 20.5% 29.4% LPG Cooking 1.1% 10.0% 4.3% 6.5% LPG Refrigeration 1.0% 0.5% Kerosene Lighting 98.9% 73.3% 90.1% 83.7% Dry cell batteries Lighting, radio, 86.0% 93.3% 82.0% 88.1% others Candles Lighting 15.1% 50.0% 3.7% 33.6% Car batteries TV, lighting 2.2% 3.3% 3.7% 3.3% Electric generators TV, radio, others 4.4% 3.7% 3.4% Phovoltaic systems Lighting 3.3% 1.2% 2.0% Photovoltaic systems TV 1.1% 0.5% Local grid electricity All 1.2% 0.4% Does not add to 100%; households use more than one source of energy. Source: INEC/WB Rural Electrification Survey, November 2000 Between 90% and 99% of households use firewood for cooking, and 29.4% of households also use firewood or charcoal embers to heat flat clothes irons, a practice most extensively observed in Cuá ­ 12 In 1998, the general poverty line was established at the equivalent of C$ 355/month per capita, and the extreme poverty line ­ that below which would not allow consumption of minimum daily caloric requirements if all of it were spent on food ­ at the equivalent of C$ 187/mo-pers (World Bank. Nicaragua Poverty Assessment: Challenges and Opportunities for Poverty Reduction. Washington, D.C., 2000). 152 Bocay (two thirds of rural households there use irons, compared to a bit over 20% in the other two). Most firewood is self-appropriated by households at no cash expense, but commercial firewood is used by 11% of all households, higher than the 6.5% which use commercial LPG to prepare their food. Rural households in El Ayote have the highest use of commercial energy for cooking (23.3% versus 14.9% in Nueva Guinea and only 6.5% in Cuá ­ Bocay). LPG is the only fuel used for cooking besides firewood. Kerosene is used strictly for lighting in these rural areas of Nicaragua. In fact, 83.7% of all households in the region use kerosene for lighting, but 88.1% also use dry cell batteries for lighting, radios and other uses. In El Ayote, 50% of households use candles either as a main or a complementary source of lighting, bringing the regional use of this source to 33.6%. Other energy uses are relatively minor, and include car batteries (3.3%), electric generators (3.4%) and photovoltaic systems (2.0%). Kerosene consumers use "candiles" or oil lamps an average of 2.3 hours per night, ranging between 2.11 hours/night in Cuá ­ Bocay to 2.36 hours/night in El Ayote (Table 23). Flashlights are used an average of 1.3 hours daily by their users, although this result might be overestimated due to the way the question was posed in the survey13. Table 23 Number of Hours/Day Consumer Households Use Sources* Selected Rural Communities ­ Nicaragua 2000 Energy Source Cuá ­ Nueva All And Use Bocay El Ayote Guinea Households Lighting Kerosene 2.11 2.36 2.32 2.30 Dry cell batteries 1.24 1.27 1.36 1.30 Other Dry cell batteries ­ radio 3.00 3.71 3.96 3.67 Car batteries ­ TV 1.07 3.75 2.27 2.76 Generators ­ all uses 4.00 4.00 4.00 * Refers to consumers, not all households. The proportion of households using each energy source is shown in Table 22. Source: INEC/WB Rural Electrification Survey, November 2000 Radios and cassette players are used an average of 3.0 hours daily in Cuá ­ Bocay, 3.71 hr/d in El Ayote and 3.96 hr/d in Nueva Guinea, for a weighted average of 3.67 hr/d among all users in the region. The power generators in El Ayote and Nueva Guinea are all used an average of 4 hours daily, 30 days a month. Households which own car battery systems use them between 1.07 hours daily in Cuá ­ Bocay and 3.75 hours a day in El Ayote, for a regional average of 2.76 hours daily. A breakdown of dry cell and car battery use is presented in Table 24. This table confirms the extent to which dry cell batteries, an expensive source of energy, are used widely throughout the region. Roughly 85% of dry cell battery consumers use radios and 83% use flashlights. Car batteries are predominantly used for watching television, though some are also used for lighting. These uses are eminently substitutable with electricity, once available. 13 Questions on lighting referred to full hours/day, not registering minutes or fractions of hours. 153 Table 24 Distribution of Battery Uses by their Consumers* Selected Rural Communities ­ Nicaragua 2000 Type of Battery Cuá ­ Nueva All & use Bocay El Ayote Guinea Households* Dry Cell battery use Flashlights 89.9% 90.6% 68.1% 82.6% Lanterns 0.0% 0.0% 7.2% 2.5% Radios, cassette players 82.3% 85.9% 84.8% 84.9% Clocks 1.3% 1.2% 2.2% 1.5% Toys 0.7% 0.3% Others 1.2% 0.7% 0.8% Car battery use Television (B & W) 100.0% 66.7% 100.0% 84.1% Lamps 33.3% 15.9% * Refers to consumers, not all households. The proportion of households using each type of battery is shown in Table 22. Source: INEC/WB Rural Electrification Survey, November 2000 · Energy expenditure and energy prices Although there are relatively few users of commercial energy sources for cooking, those households that do not gather firewood spend an average of C$ 130 (about US $10) if they purchase LPG or C$ 107 (US $8.27) if they purchase firewood. Commercial firewood is predominantly sold in "Rajas" (82.4%), in the average amounts and prices/unit indicated in Table 25. The other units of measurement found are not widespread and form an insufficient basis for reliable price estimations. Table 25 Commercial Firewood Consumption and Prices Selected Rural Communities ­ Nicaragua 2000 Firewood Units: Cuá ­ Nueva All RAJAS Bocay El Ayote Guinea Households* # Rajas consumed/user-mo 135.00 153.28 92.60 128.95 Average unit price C$/raja 0.71 0.85 1.13 0.92 * Refers to consumers of commercial firewood, not all households. Source: INEC/WB Rural Electrification Survey, November 2000 Average expenditure on commercial energy sources is shown in Table 26, together with the estimated number of households in the region which consume each type of energy. These figures refer to consumers of each type of energy, not to all households, whose expenditure is summarized in Table 27. As could be expected from the information presented, the average composite monthly cash expenditure by households is highest for kerosene and dry cell batteries- Expenditure on batteries is almost C$ 34 for all households, and slightly over C$ 41 in El Ayote. The use of kerosene shows little variation from one area to the next, ranging between C$ 28 and C$ 31. Cooking takes an average of C$ 23 per month, expenditure on candles C$ 8 and recharging car batteries require approximately C$ 2.50. Table 26 Energy Expenditures by Consumer Households 154 Selected Rural Communities ­ Nicaragua 2000 Cuá ­ Nueva All Type of Energy* Concept Bocay El Ayote Guinea Households Commercial firewood Average C$/month 108 118 91 107 Weighted users (HHs) 28 185 107 320 LPG Average C$/month 115 151 109 130 Weighted users (HHs) 6 139 44 188 Kerosene Average C$/month 31 39 33 35 Weighted users (HHs) 507 1018 914 2439 Dry cell batteries Average C$/month 34 48 30 39 Weighted users (HHs) 436 1311 870 2617 Candles Average C$/month 17 27 18 22 Weighted users (HHs) 77 679 214 970 Car batteries Average C$/month 89 80 36 66 Weighted users (HHs) 11 46 69 127 Total Households Weighted sample 513 1388 1015 2916 * Excludes marginal use of other sources (electricity and PVS) Source: INEC/WB Rural Electrification Survey, November 2000 155 Table 27 Average Monthly Expenditure by Type of Energy Selected Rural Communities ­ Nicaragua 2000 Cuá ­ Nueva All Type of Energy Currency Bocay El Ayote Guinea Households Cooking use Commercial firewood (C$/mo) 5.16 12.48 21.25 14.25 LPG (C$/mo) 1.24 15.08 4.75 9.05 Total cooking fuels (C$/mo) 6.40 27.56 26.00 23.30 Other uses Kerosene (C$/mo) 30.97 28.59 28.87 29.11 Dry cell batteries (C$/mo) 27.69 41.22 26.33 33.66 Candles (C$/mo) 2.60 13.28 3.86 8.12 Car batteries (C$/mo) 1.91 2.67 2.46 2.46 Total non ­ cooking (C$/mo) 63.17 85.76 61.52 73.35 Total non ­ cooking (US $/mo) 4.90 6.65 4.77 5.69 Total Expenditure (C$/mo) 69.56 113.52 87.52 96.64 (US $/mo) 5.39 8.79 6.79 7.49 Source: INEC/WB Rural Electrification Survey, November 2000 Total energy expenditure per month for non-cooking uses ranges from C$61.52 (US $4.77) in Nueva Guinea to C$85.76 (US $6.65) in El Ayote. Including cooking fuels, total expenditure for all sources of energy in the region reaches an average of C$ 96.64 (US $7.49) in the total population. 156 Household Non Cooking Energy Expenditure Quintiles 35.0% 30.0% 25.0% Three Localities 20.0% Cua - Bocay 15.0% El Ayote Nueva Guinea 10.0% 5.0% 0.0% 1 2 3 4 5 Three Localities 19.2% 20.9% 20.3% 20.1% 19.5% Cua - Bocay 26.9% 16.1% 22.6% 19.4% 15.1% El Ayote 8.9% 17.8% 18.9% 22.2% 32.2% Nueva Guinea 20.5% 25.5% 19.9% 19.3% 14.9% Quintile 157 Distribution of Household Energy Expenditure by Quintile 35.0% 30.0% 25.0% Three Localities 20.0% Cua-Bocay 15.0% El Ayote Nueva Guinea 10.0% 5.0% 0.0% 1 2 3 4 5 Three Localities 19.8% 21.2% 19.5% 19.8% 19.8% Cua-Bocay 29.0% 20.4% 23.7% 17.2% 9.7% El Ayote 6.7% 17.8% 18.9% 23.3% 33.3% Nueva Guinea 21.7% 23.6% 17.4% 19.3% 18.0% 158 Table 28 Average Energy Prices Selected Rural Communities ­ Nicaragua 2000 Cuá ­ Nueva All Households Type of Energy Unit Bocay El Ayote Guinea Commercial firewood Raja 0.71 0.85 1.13 0.92 Kerosene Liter 8.08 8.35 7.78 8.10 LPG N/R* N/R N/R N/R N/R Dry cell batteries Unit 4.74 4.66 4.62 4.66 Candles N/A** N/A N/A N/A N/A Car batteries Recharge*** 42.00 36.67 17.73 26.55 Car batteries Distance (kms) 21.5 12.0 30.6 20.2 * No responses ** Not available (not requested) *** Includes cost of round trip transportation to recharging station Source: INEC/WB Rural Electrification Survey, November 2000 Average prices of the energy sources discussed are summarized in Table 28. Kerosene costs an average of C$8.10 per liter (US $0.63/lt) and dry cell batteries an average of C$4.66 (US $0.36/unit), with small fluctuations among municipalities. Car batteries are recharged at an average of C$36.67 in El Ayote and C$42.00 in Cuá ­ Bocay, but only C$17.73 in Nueva Guinea, where there are more users. The distance to available recharging centers ranges between 12 to 31 kilometers, with an average of about 20 kilometers for all users A sample of five photovoltaic systems was detected through the household survey (Table 29). The systems, all purchased in cash (no finance) between 1997 and 2000, were on average 15 watts, were used for 4.6 hours a day and cost an equivalent of C$14450, or US $1235. A monthly opportunity cost of C$ 220 (US $18.59) can be attributed to these investments, which is approximately 5.5% of average monthly monetary household income in the region. Table 29 Basic Information on Photovoltaic Systems Found Selected Rural Communities ­ Nicaragua 2000 Watts Hours/ kWh/ Year of Nominal Current Cost* Opportunity cost** Municipality reported day used month purchase Cost 15 yrs @ 12% generated C$ C$2000 US$ eq. C$ / mo US$ / mo El Ayote 9 4 1.08 1999 12500 13754 1165 207 $17.52 El Ayote n/a 6 n/a 1997 7000 9881 837 149 $12.59 El Ayote n/a 3 n/a 2000 17200 17200 1456 259 $21.91 Nueva Guinea 25 6 4.50 1998 12500 15617 1322 235 $19.89 Nueva Guinea 12 4 1.44 2000 16500 16500 1397 248 $21.02 Average 15.3 4.6 2.34 1999 14590 1235 220 $18.59 * Using Consumer Price Index (IPC) to September 2000, Banco Central de Nicaragua (footnote 3). ** Net present monthly value of capital expenditure if it were placed for 15 years at 12% interest per annum. · Household appliances Because electricity is not widespread in the region, there are few electrical appliances, owned by those households that have generators, photovoltaic systems or are connected to Nueva Guinea's local grid. However, most households own several appliances (Table 29). The most numerous ones 159 found are lighting and communications devices, typical of many rural areas around the world, and grinders used for processing maize for tortillas, a Central American staple. Table 30 Appliance Ownership by Households (%) Selected Rural Communities ­ Nicaragua 2000 Cuá ­ Nueva All Appliance Energy source Bocay El Ayote Guinea Households Lighting Flashlights Dry cell batteries 76.3 81.1 70.8 76.7 Coleman lamps Kerosene 4.3 4.4 3.7 4.2 Communications & entertainment Radio Dry cell batteries 69.9 82.2 67.7 75.0 Electricity 0.6 0.2 Radiocassette player Dry cell batteries 12.9 5.6 16.1 10.5 Car batteries 1.1 0.5 Generator 1.1 0.5 Electricity 0.6 0.2 Black & white TV Dry cell batteries 0.6 0.2 Car batteries 1.1 7.5 2.8 PVS 1.1 0.5 Generator 0.6 0.2 Electricity 0.6 0.2 Color TV Generator 1.1 0.5 Other devices Grinder None (manual) 96.8 67.8 47.2 65.7 Iron Firewood/charcoal 66.7 22.2 20.5 29.4 Electricity 1.2 0.4 Other 2.2 1.2 1.5 Sewing machine None (manual) 11.8 7.8 8.1 8.6 Refrigerator Generator 1.1 0.5 LPG 1.1 0.5 Cooking range/stove LPG 3.2 7.8 2.0 6.0 Firewood 1.1 1.1 0.7 Source: INEC/WB Rural Electrification Survey, November 2000 Flashlights are the most abundant devices owned: 76.7% of households possess them. Traditional kerosene lamps, used by over 80% of households, were not accounted for as "appliances," but more sophisticated Coleman lamps are also present in about 4% of households regionally. Next to lighting, the most commonly available appliances are used for communications and entertainment: 75% of households have transistor radios and 11.7% have larger radio-cassette recorders. El Ayote has the highest level of radio ownership, while Nueva Guinea has the greatest presence of larger sound equipment. Television sets still have little presence in the region due to the lack of electricity supplies (3.9% of households own black and white television sets and 0.5% 160 have color TV), but rapidly become one of the most abundant appliances used in rural areas once a steady electricity supply is established. Among the other devices found, the most widespread is the manual maize grinder or mill ­ particularly abundant in Cuá ­ Bocay (96.8% of all households there own them) and less extensively used in Nueva Guinea (47.2%). This is followed by irons in 31.3% of households and sewing machines in 8.6%. In rural areas of Latin America, the concept of "stove" refers to industrially manufactured cooking devices, not traditional open-hearth or other improvised stoves, so only 0.7% of households replied that they owned firewood stoves. Except for radio-cassette recorders and television, households in Nueva Guinea tend to own less appliances than in El Ayote and Cuá ­ Bocay, consistent with its lower incomes. Ownership of recorders and television sets may indicate cultural preferences for entertainment despite low incomes. · Farm equipment Households were also asked to report any agricultural equipment or work animals (horses, mules, oxen) they used for their farms. As mentioned previously, the survey was conducted on a demographic sample, so it is likely that it could have missed more mechanized farms. Nonetheless, this was a rather large sample of households and the information in Table 31 is indicative of the generally low use of mechanical technologies. No tractors, combines, sowing machines, irrigation equipment or milking machines, also included in the questionnaire, were found. Table 31 Ownership of Farm Equipment and Work Animals by Households (%) Selected Rural Communities ­ Nicaragua 2000 Farm equipment / Cuá ­ Nueva All animals Energy source Bocay El Ayote Guinea Households Trucks, jeeps Gasoline 1.1 0.5 Work animals Animal 56.7 46.7 32.2 Oxen/horse carts Animal 28.9 3.3 6.7 Crop sprayers Batteries 1.1 0.2 Kerosene 1.1 0.2 Gasoline 1.1 0.2 Manual 67.8 56.7 38.9 Generators Gasoline 2.2 1.1 Water pumps Manual 2.2 1.1 Source: INEC/WB Rural Electrification Survey, November 2000 Nueva Guinea, which shows a lower level of farm activities than the other two municipalities, registered no equipment at all in this survey. Cuá ­ Bocay, which is more dedicated to agricultural crops, has the greater proportion of households which own equipment and work animals. The most widespread equipment owned by farm households are crop sprayers or pumps, primarily manual (67.8% of all households in Cuá ­ Bocay and 56.7% of those in El Ayote own these devices). Use of work animals and carts is also relatively widespread in Cuá ­ Bocay and, to a lesser degree, in El Ayote. 161 9.1.4 Consumer preferences and ability to pay The survey ended with 40 questions on consumer knowledge, attitudes and preferences for renewable energy systems and electrification. The results of this opinion section are an appropriate setting to discuss the households' ability to pay for future electrification projects, which can be estimated on the basis of the quantitative results presented. 9.1.4.1 Knowledge of and preferences for Renewable Energy Systems Enumerators where asked to explain which type of new and renewable energy systems (NRES) could be used to generate electricity for their communities, and a simplified description of how each one works. After this introduction, the questions in Table 32 were posed. Table 32 Household Familiarity and Preferences Regarding Renewable Energy Systems Selected Rural Communities ­ Nicaragua 2000 Questions Cuá ­ Nueva All and Options Bocay El Ayote Guinea Households Have you heard about NRES? * No 55.9% 64.4% 64.6% 63.0% Yes, through newspapers, magazines 0.0% 2.2% 6.8% 3.4% Yes, on the radio or television 4.3% 18.9% 14.9% 14.9% Yes, through neighbors, friends, relatives 38.7% 7.8% 13.0% 15.1% Yes, at school 0.0% 0.0% 0.6% 0.2% Yes, from other sources 1.1% 6.7% 0.0% 3.4% Which NRES have you heard about? None 41.9% 58.9% 55.3% 54.6% Solar PV Systems 18.3% 33.3% 37.9% 32.3% Wind Energy Systems Microhydropower Generators 39.8% 7.8% 6.8% 13.1% Biomass Systems After knowing of each energy sources' potential, which of the NRES would you prefer for your home? No preference 68.8% 61.1% 31.1% 52.0% Solar PV System 9.7% 24.4% 14.3% 18.3% Wind Energy System 2.2% 4.4% 0.0% 2.5% Microhydropower Generator 19.4% 1.1% 8.7% 7.0% Biomass System 0.0% 0.0% 1.9% 0.6% Other 0.0% 8.9% 44.1% 19.6% * NRES : New and Renewable Energy System Source: INEC/WB Rural Electrification Survey, November 2000 The majority of households had not heard of NRES prior to the survey: 63.0%. Cuá ­ Bocay showed the best informed households, with 38.7% having heard about these systems through word of mouth. This is also the area in which more households had heard of minihydro power generation (39.8%). In the other two municipalities, households were better informed on solar PV systems. The interview provided insufficient information for 52.0% of households to manifest preferences on the different alternatives, which favored minihydro power solutions in Cuá ­ Bocay, PV systems in El Ayote and "other" (unspecified) systems in Nueva Guinea. 9.1.4.2 Household attitudes and perceptions towards electrification 162 An overwhelming 94.2% of households in the region agrees or strongly agrees that electrification is important for children's education, and place corresponding value on the importance of electric lighting for them to be able to study at night (Table 33). Table 33 Household Perception of Benefits from Electrification Selected Rural Communities ­ Nicaragua 2000 Cuá ­ Nueva All Statements and opinions Bocay El Ayote Guinea Households Electricity in a home is important for children's education Strongly agrees 72.0% 38.9% 77.0% 58.0% Agrees 25.8% 58.9% 10.6% 36.2% Disagrees 2.2% 1.1% Strongly disagrees 2.5% 0.9% No option 2.2% 9.9% 3.8% Does not know 0.0% With (electric) lighting, the children can study better at night Strongly agrees 51.6% 46.7% 78.3% 58.5% Agrees 40.9% 47.8% 16.8% 35.8% Disagrees 6.5% 5.6% 3.8% Strongly disagrees 1.2% 0.4% No option 1.9% 0.6% Does not know 1.1% 1.9% 0.8% It is easier to read with electric lamps than with kerosene lamps Strongly agrees 53.8% 58.9% 68.9% 61.5% Agrees 33.3% 28.9% 17.4% 25.7% Disagrees 7.8% 9.9% 7.2% Strongly disagrees 8.6% 1.1% 2.0% No option 1.2% 0.4% Does not know 4.3% 3.3% 2.5% 3.2% Electricity is very beneficial for productive activities Strongly agrees 28.0% 26.7% 50.9% 35.3% Agrees 44.1% 34.4% 13.7% 28.9% Disagrees 15.1% 14.4% 4.3% 11.0% Strongly disagrees 10.8% 1.9% No option 5.6% 1.9% Does not know 2.2% 24.4% 25.5% 20.9% Electricity is very important for our water supply Strongly agrees 8.6% 14.4% 25.5% 17.3% Agrees 41.9% 22.2% 6.2% 20.1% Disagrees 24.7% 27.8% 23.0% 25.6% Strongly disagrees 11.8% 7.8% 1.9% 6.4% No option 2.2% 0.0% 5.0% 2.1% Does not know 10.8% 27.8% 38.5% 28.5% Source: INEC/WB Rural Electrification Survey, November 2000 The strongest feeling on both questions arises in Nueva Guinea, which has the least access to electricity from small-scale private solutions. These households also strongly agree in 68.9% of the cases that reading is easier with electric lighting than with kerosene lamps, in 50.9% that electricity is important for productive or self-supporting activities and in 25.5% of the cases that electricity is beneficial for the water supply systems. The beneficial relationship between electricity and water supply, tenuous at best, draws the least consensus among households, which have split opinions or simply manifest they do not know in 28.5% of the cases. Table 34 Household Perception of Problems Related to Current Energy Supply Selected Rural Communities ­ Nicaragua 2000 163 Statements and opinions Cuá ­ Nueva All Bocay El Ayote Guinea Households Currently, it is difficult for my family to receive news and information Strongly agrees 31.2% 46.7% 46.0% 43.7% Agrees 29.0% 25.6% 21.1% 24.6% Disagrees 26.9% 18.9% 21.1% 21.1% Strongly disagrees 2.2% 5.6% 0.0% 3.0% No option 8.6% 3.3% 8.1% 5.9% Does not know 2.2% 0.0% 3.7% 1.7% It is currently easy to read in my home in the afternoons Strongly agrees 22.6% 3.3% 20.5% 12.7% Agrees 32.3% 20.0% 17.4% 21.2% Disagrees 29.0% 62.2% 42.2% 49.4% Strongly disagrees 7.5% 11.1% 6.8% 9.0% No option 6.5% 0.0% 7.5% 3.7% Does not know 2.2% 3.3% 5.6% 3.9% My family is extremely happy with the lighting provided by our energy source Strongly agrees 10.8% 11.1% 13.7% 11.9% Agrees 29.0% 30.0% 6.8% 21.8% Disagrees 29.0% 41.1% 34.2% 36.6% Strongly disagrees 16.1% 17.8% 31.7% 22.3% No option 6.5% 0.0% 1.9% 1.8% Does not know 8.6% 0.0% 11.8% 5.6% The monthly expenditure on fuels is a financi al burden on my family Strongly agrees 24.7% 58.9% 34.2% 44.3% Agrees 44.1% 22.2% 23.0% 26.3% Disagrees 17.2% 13.3% 39.8% 23.2% Strongly disagrees 8.6% 1.1% 0.0% 2.0% No option 4.3% 0.0% 0.0% 0.8% Does not know 1.1% 4.4% 3.1% 3.4% Kerosene or diesel can cause health problems Strongly agrees 40.9% 42.2% 69.6% 51.5% Agrees 22.6% 28.9% 13.0% 22.3% Disagrees 20.4% 12.2% 5.6% 11.4% Strongly disagrees 2.2% 0.0% 4.3% 1.9% No option 14.0% 16.7% 7.5% 13.0% Does not know 0.0% 0.0% 0.0% 0.0% Source: INEC/WB Rural Electrification Survey, November 2000 Households also lack consensus as to how their current energy supply systems negatively impact their lives. The five questions presented in Table 34 try to discern household perceptions on day­ to­day problems that could arise from using other energy sources instead of electricity. In the first one, 68.3% of households agree or strongly agree that they have more difficulty receiving news and information under current supply patterns than they would have if they counted on electricity (for radios, television, etc.). 58.4% disagree or strongly disagree that it is currently easy to read at home in the afternoons, though 33.9% do not believe it difficult. The majority of households are not pleased with their current lighting sources: 58.9% disagree or strongly disagree that they are happy with them. There is also a strong perception, particularly in El Ayote (58.9%), that the monthly expenditure they incur on fuels for lighting and other purposes place a financial burden on their budgets. Finally, feelings are high that kerosene combustion can cause health problems, particularly in Nueva Guinea, where 69.6% of households strongly agree with that statement. Further analysis of energy preferences indicates a certain degree of non-commitment to invest in individual family solutions: 56.9% of households agree or strongly agree that they would rather 164 wait for the grid to arrive than to invest in stand alone generators, and only 16.4% would agree or strongly agree that purchasing a generator is an investment priority for their households (Table 35). Many preferred to reply that they "do not know" whether unfamiliar technologies ­ be they photovoltaic or conventional car batteries ­ could be a good source of electricity, although there do not seem to be strong opinions against renewables. In fact, more households (48.3%) agree or strongly agree that photovoltaic systems are good sources of household energy than those who believe the same about car batteries (42.9%) But asked pointblank if buying a solar PV system was an investment priority for their family, only 14% agree or strongly agree with it. Such decisions require more market preparation, information and finance mechanisms to increase willingness to invest. 165 Table 35 Household Perception of Problems Related to Current Energy Supply Selected Rural Communities ­ Nicaragua 2000 Statements and opinions Cuá ­ Nueva All Bocay El Ayote Guinea Households Car batteries are a good source of electricity for the household Strongly agrees 23.7% 22.2% 11.2% 18.6% Agrees 20.4% 28.9% 19.9% 24.3% Disagrees 16.1% 10.0% 30.4% 18.2% Strongly disagrees 0.0% 0.0% 3.7% 1.3% No option 12.9% 0.0% 5.0% 4.0% Does not know 26.9% 38.9% 29.8% 33.6% PV Systems are a good source of electricity for the household Strongly agrees 7.5% 23.3% 19.3% 19.1% Agrees 31.2% 38.9% 14.9% 29.2% Disagrees 2.2% 3.3% 8.1% 4.8% Strongly disagrees 2.2% 0.0% 0.0% 0.4% No option 12.9% 0.0% 1.2% 2.7% Does not know 44.1% 34.4% 56.5% 43.8% I would prefer to wait for the grid rather than invest in a power generator Strongly agrees 47.3% 53.3% 42.2% 48.4% Agrees 1.1% 34.4% 5.6% 18.5% Disagrees 11.8% 4.4% 11.2% 8.1% Strongly disagrees 29.0% 1.1% 4.3% 7.1% No option 2.2% 0.0% 0.0% 0.4% Does not know 8.6% 6.7% 36.6% 17.4% I would prefer to wait for the grid rather than invest in a NRE System Strongly agrees 36.6% 34.4% 37.9% 36.0% Agrees 15.1% 21.1% 5.6% 14.6% Disagrees 8.6% 13.3% 12.4% 12.2% Strongly disagrees 20.4% 7.8% 9.9% 10.8% No option 6.5% 0.0% 3.7% 2.4% Does not know 12.9% 23.3% 30.4% 24.0% Buying a generator is one of m y family's investment priorities Strongly agrees 7.5% 6.7% 2.5% 5.4% Agrees 11.8% 15.6% 4.3% 11.0% Disagrees 20.4% 45.6% 37.3% 38.3% Strongly disagrees 54.8% 18.9% 18.6% 25.1% No option 2.2% 0.0% 5.0% 2.1% Does not know 3.2% 13.3% 32.3% 18.2% Buying a domestic solar PVS is one of my family's investment priorities Strongly agrees 0.0% 6.7% 4.3% 4.7% Agrees 3.2% 13.3% 6.8% 9.3% Disagrees 8.6% 42.2% 37.3% 34.6% Strongly disagrees 69.9% 26.7% 16.1% 30.6% No option 8.6% 0.0% 6.8% 3.9% Does not know 9.7% 11.1% 28.6% 16.9% Source: INEC/WB Rural Electrification Survey, November 2000 9.1.4.3 Household preferences, ability and willingness to pay for electricity Table 36 presents household opinions on willingness and ability to invest in electricity options. Foremost, there is strong consensus that if the community itself were involved in providing 166 electricity, households would be strongly inclined (51.4%), and another 26% would also agree, to purchase it. The strongest commitment to community-based electric projects is in El Ayote (60%) and Nueva Guinea (51.6%), whereas in Cuá ­ Bocay 85% do agree but only 28% feel strongly about it. Households in general do not seem to shun whatever costs might be associated with access to electricity: 44.7% strongly disagree and another 9.6% disagree that electricity bills would be a financial burden on the household budget. Again, the households from Nueva Guinea seem to be the most pressed to find a solution to this problem: 52.2% strongly disagree that bills worry them. What they need is electricity. Table 36 Household Willingness to Invest in Electricity Selected Rural Communities ­ Nicaragua 2000 Statements and opinions Cuá ­ Nueva All Bocay El Ayote Guinea Households I would be willing to purchase electricity from the community if it sold it to me Strongly agrees 28.0% 60.0% 51.6% 51.4% Agrees 57.0% 22.2% 15.5% 26.0% Disagrees 0.0% 8.9% 15.5% 9.6% Strongly disagrees 4.3% 0.0% 1.2% 1.2% No option 4.3% 0.0% 0.6% 1.0% Does not know 6.5% 8.9% 15.5% 10.8% If someone/the government/an NGO were willing to lend me money to purchase a PVS, I would consider it seriously Strongly agrees 10.8% 4.4% 29.2% 14.2% Agrees 26.9% 34.4% 17.4% 27.2% Disagrees 11.8% 24.4% 19.3% 20.4% Strongly disagrees 41.9% 25.6% 3.7% 20.8% No option 1.1% 0.0% 0.0% 0.2% Does not know 7.5% 11.1% 30.4% 17.2% If a PVS were widely available on the market, I would seriously consider buying one even if I had to resort to a loan Strongly agrees 14.0% 14.4% 23.6% 17.6% Agrees 19.4% 21.1% 11.8% 17.6% Disagrees 14.0% 20.0% 24.2% 20.4% Strongly disagrees 35.5% 33.3% 8.7% 25.1% No option 5.4% 0.0% 2.5% 1.8% Does not know 11.8% 11.1% 29.2% 17.5% The electricity bill would be a financial burden on my family Strongly agrees 20.4% 20.0% 9.9% 16.6% Agrees 25.8% 22.2% 13.0% 19.7% Disagrees 39.8% 41.1% 52.2% 44.7% Strongly disagrees 4.3% 16.7% 2.5% 9.6% No option 0.0% 0.0% 5.0% 1.7% Does not know 9.7% 0.0% 17.4% 7.8% Source: INEC/WB Rural Electrification Survey, November 2000 While 57.0% of households would prefer to have access to electricity 24 hours a day, 36.9% would be satisfied to receive it 4 hours daily (from 6:00 to 10:00 p.m.; Table 37). Except in Cuá ­ Bocay, where 22.6% would like all night service, households in the region perceive little need for electricity between 10:00 p.m. and 6:00 a.m. The vast majority ­ 89% ­ would prefer to make monthly payments of their electricity bills, strictly in cash (88.4%). There may be no need to explore alternative schemes developed to collect dues for PV systems according to harvest times ­ particularly in El Ayote which relies on daily milk sales. 167 Table 37 Household Preference for Electricity Services, Payments and Appliances Selected Rural Communities ­ Nicaragua 2000 Questions and options Cuá ­ Nueva All Bocay El Ayote Guinea Households How much time of day do you think your household needs electricity? All day (24 hours) 44.1% 68.9% 47.2% 57.0% From 6:00 p.m. to 10:00 p.m. 30.1% 30.0% 49.7% 36.9% From 6:00 p.m. to 6:00 a.m. 22.6% 1.1% 3.1% 5.6% Other 3.2% 0.0% 0.0% 0.6% What frequency would you prefer to make payments (of electricity) Weekly 0.0% 3.3% 3.1% 2.7% Monthly 96.8% 82.2% 94.4% 89.0% Bimonthly 3.2% 7.8% 1.2% 4.7% Quarterly 0.0% 6.7% 1.2% 3.6% Other 0.0% 0.0% 0.0% 0.0% Which form of payment do you wish? Payment in cash 77.4% 86.7% 96.3% 88.4% Other 7.5% 10.0% 0.6% 6.3% No response 15.1% 3.3% 3.1% 5.3% Do you have plans to buy the following electrical appliances? (yes response)* Radio-cassette recorder 33.3% 65.6% 66.5% 60.2% Black & white television 7.5% 54.4% 35.4% 39.6% Color television 31.2% 28.9% 29.8% 29.6% Washing machine 0.0% 7.8% 2.5% 4.6% Fan 6.5% 12.2% 51.6% 24.9% Refrigerator 5.4% 22.2% 45.3% 27.3% Electric iron 17.2% 43.3% 64.6% 46.1% Other 14.0% 6.7% 12.4% 10.0% * Households may wish to purchase more than one device. Source: INEC/WB Rural Electrification Survey, November 2000 Empirical evidence has shown that the purchase of electrical appliances by rural households once they receive electricity is often a slow process, and usually starts ­ after the light bulb, that is ­ with relatively small and less expensive artifacts such as radios or irons, followed by the high priority television set as soon as possible. Heavier appliances, such as refrigerators and freezers, can take several years to appear, unless associated to a household business such as a general store or pulpería. When questioned on their expectations regarding appliances, communications and entertainment devices expectedly received high preferences: 60.2% of households would like to purchase radio- cassette recorders or otherwise substitute their dry cell radios with electrical versions. In El Ayote, over 80% of households wish to purchase television sets, either black and white or color. In Cuá ­ Bocay, preferences are for color TV sets (31.2%), after radio ­ cassette recorders. In this municipality, which had relatively more charcoal flat irons, there is less perceived need for electrical irons ­ but these are desired by 64.6% of households in Nueva Guinea and 43.3% in El Ayote. Technically, this survey did not apply the contingency valuation methodologies associated with estimating the "willingness to pay" for goods and services not yet available to consumers in particular market areas, such as electricity in rural Nicaragua14. Therefore, a robust figure for 14 A contingency valuation methodology was applied in August 1995 by IADB to establish willingness to pay for waste water treatment in Managua by different socioeconomic strata, so there are local precedents to the application of these approaches. 168 willingness to pay cannot be categorically defined here. Nonetheless, on the basis of the information obtained we can reasonably define a range of capacities or abilities to pay for electricity by the households in the region. In Table 38 we compile some of the income and expenditure parameters established through this survey. The lower threshold of household capacity or ability to pay is equivalent to the current expenditure on energy sources susceptible to substitution with electricity ­ kerosene, batteries, candles, all those not used for cooking. This is the minimum amount households are able to pay for lighting, communications and other end uses of an inferior quality to electricity. It has been demonstrated that households are willing to pay more than that minimum threshold for the superior lighting, communications, entertainment and other services provided through electricity. How much more? One rule of thumb is that households should be capable and willing to pay 5% of their average monthly income for electricity. In this case, this would be the upper limit or threshold of the range. Let's look at the results. Table 38 Indicators of Ability to Pay for Electricity Selected Rural Communities ­ Nicaragua 2000 Energy Source Cuá ­ Nueva All And Use Bocay El Ayote Guinea Households In Colones (C$/month) Average work income/household 1431 2251 1120 1998 Total monetary income 2901 5795 2061 3986 Per capita monetary expenditure 473 942 313 633 Total non-cooking energy expenditure 63 86 62 73 Total energy expenditure 70 113 88 97 Ability to pay a) non cooking energy expenditure 63 86 82 73 b) 5% of total monetary income 145 290 103 199 c) 5% of average work income 72 113 56 100 In US $/month Average work income/household 110.94 174.55 86.62 154.88 Total monetary income 224.94 449.33 159.79 309.07 Per capita monetary expenditure 44.54 80.88 30.88 56.48 Total non-cooking energy expenditure 4.90 6.65 4.77 5.69 Total energy expenditure 5.39 8.79 6.79 7.49 Ability to pay a) non cooking energy expenditure 4.90 6.65 4.77 5.69 b) 5% of total monetary income 11.25 22.47 7.99 15.45 c) 5% of average work income 5.55 8.73 4.34 7.74 Source: INEC/WB Rural Electrification Survey, November 2000. At a minimum, households can pay their current expenditure of C$ 73 (US$5.69) per month for electricity ­ ranging from a low of C$ 62 or C$ 63 in Nueva Guinea and Cuá ­ Bocay, respectively, to high of C$ 86 (US $6.65) in El Ayote. Depending on the investment costs of the technologies to be disseminated and the operational and financial mechanisms for delivery of electricity, US 169 $5/month could be adequate to cover household commitments15. Using the criterion of 5% of average monetary income, however, household commitments could be much higher: approximately US $8/month in Nueva Guinea, US $11/month in Cuá ­ Bocay and a high of US $22.50 in El Ayote. Even using primarily wage income, which is much lower than total monetary income but is available on a continuous basis, households devoting 5% of their monthly work income would able to pay US $4.34/month in Nueva Guinea, US $5.55/month in Cuá ­ Bocay, and US $8.73/month in El Ayote. 9.1.5 Conclusions and Recommendations 9.1.5.1 Regarding the Results This survey has established that energy use in this region of Nicaragua centers on cooking, lighting and entertainment or communications (radio/TV). Cooking is primarily done with noncommercial or self-appropriated fuelwood, in second place with commercial fuelwood and, to a lesser degree, with LPG. Most other energy uses ­ lighting, radio, television and others ­ are susceptible to be substituted with electricity were supply available and widespread. Household energy expenditures on non-cooking uses amount to C$ 73.35 or about US $5.70 per month, and is higher (US $6.65/month) in El Ayote, the most prosperous of the three localities studied. This indicates that the average household will have the capacity to pay at least these amounts for electricity solutions on a recurrent basis. There is currently no strong expression of consumer interest in renewable energy alternatives, which at this stage can be attributed to the total lack of information on these options by at least 63% of the households prior to the survey. On the contrary, a slight majority (50.6%) expresses a preference to wait for grid extensions rather than venture into these unknown technologies. A process of information diffusion, technology demonstration and marketing campaigns would have to be implemented in order to capture the attention, interest and willingness to invest in these solutions by households. As manifest in many of the tables presented, the three localities show different levels and potential of economic activity which, in turn, could affect the implementation and sustainability of any electrification program. El Ayote clearly stands out as a locality with a dynamic and growing economy ­ larger land holdings, much cattle, much commercial activity, higher incomes, highest number of household businesses, greatest satisfaction with these enterprises, etc. All indications are that in this community an electrification project would be successful. Cuá ­ Bocay has an economy most heavily dependent on agricultural production (seasonal and permanent crops) and ­ to a much lesser extent ­ cattle raising, with fewer established home businesses and commercial activities than the other two. Its income is relatively well distributed, with around 50% of households pertaining to the two upper income quintiles for the region as a whole. It is likely that here too any well planned and organized electrification program could meet 15 In Bolivia, 5000 PV systems are being rented to households for US$1.50/month, with a 50% subsidy of marginal costs donated by the Government of the Netherlands. Without the subsidy, a full cost recovery scheme would require rentals of US $3/month ­ something which could be feasible in this region of Nicaragua according to these survey results. 170 success, although the low level of commercial and entrepreneurial activity could mean low load factors. Nueva Guinea has well established businesses but depends primarily on seasonal agricultural production (maize) as a source of income. In the different tables presented, it generally lagged behind the other two localities in terms of income and expenditure, and shows the highest proportion of households under the extreme poverty line (61.7%) and the general poverty line (76.6%). On the other hand, it is also a quite large population and by far has the strongest perception of benefits of electricity and the negative impacts of other fuels, as well as the strongest willingness to accept PV Systems and the least reluctance to pay for electricity. Due to the combination of poverty levels, the strong desire for electricity and the large population involved, extra care must be taken in designing, establishing and promoting the delivery mechanisms for sustainable rural electrification solutions to the households of this locality. 9.1.5.2 Regarding the Methodology With respect to the methodology used, it is important to stress that the wealth of information gathered through this survey is what has permitted presenting so many different results and understand the underlying socioeconomic factors that will determine the market potential for electrification in this region of Nicaragua. The sample was extremely representative, robust in size (roughly 12% of the area's population) and well distributed spatially, so there is no question of the reliability of the results. It should be borne in mind, however, that this survey was at least partially designed as a pilot test for a foreseeable future nation-wide rural electrification survey. It was also an attempt to reconcile and integrate the local experience of INEC in household surveys, particularly of the LSMS type, and the international experience of the World Bank in energy surveys. The questionnaire was thus perhaps too lengthy and often elicited very few responses ­ such as the detailed sections on household credit or on farm machinery, which in this region basically were left blank because households do not generally make use of credit or such equipment. Were this questionnaire applied in other regions during a nation-wide survey, perhaps it would elicit more responses in those sections. It is therefore hasty to judge that these items should be removed from all future RE market studies. The greatest problems faced in the data processing ­ and those which DO merit substantial reformulation ­ were with the treatment of household income, the induction of some units of time or quantities from respondents and field enumerators, and the insufficient control of inconsistencies in the data base. In Annex 2 these specific issues are discussed and simple recommended solutions provided. For this section of the report, what is important to stress is that none of these issues impeded a thorough analysis, but that with more careful survey design and implementation future rural electrification market studies will work out even better. Going beyond this particular survey and region, and given the multiple initiatives regarding the rural electrification process in Nicaragua, it would be worthwhile for CNE to lead a concerted effort among all those parties interested, to: · Analyze this pilot experience and its questionnaire to fully comprehend its many strengths and remaining weaknesses as feedback for future questionnaires and surveys of this nature. 171 · Discuss just what each one would like to find out regarding rural household energy use patterns and potential demand for electricity, and also what should be found out about commercial and productive uses not covered in a household survey; · Try to develop a common methodological approach ­ or at least compatible instruments ­ and perhaps integrate or at least coordinate survey implementation efforts. Short of undertaking a single, full-scale national household energy survey ­ which would be ideal were there not so many parallel actions already under way, such interaction and coordination could well allow Nicaragua in the near future to count on a full picture of at least rural household energy use patterns and potential demand for energy services. 172 9.1.6 ANNEX A - Commercial and Public Power Demand in Cuá ­ Bocay, El Ayote and Nueva Guinea During recent months, CNE has compiled and transmitted information on the nature and number of current productive establishments and public service institutions in the region, as well as estimates of current electricity use and indicators of level of economic activity these establishments currently achieve or may achieve within five years. It has also projected the likely increase of establishments and power demand over a five year horizon. The information is based on field visits to local authorities, qualified informants and electricity providers, but merits further inquiries to fill in some gaps. An overview of what was obtained and what is still missing is given in Table A1-1. Table A1-1 Information Obtained on Commercial , Public and Social Service Establishments Type of Information Cuá ­ Bocay El Ayote Nueva Guinea 2001 2006 2001 2006 2001 2006 Number of commercial and productive establishments detected 325 333 156 125 69 n.a. or foreseen Number of these for which electricity consumption is a) Complete 290 155 4 b) a Range is given 51 c) no information is given 35 5 14 n.a d) aggregate projection is given X X X Number of public sector/ social service establishments detected or 19 7 10 foreseen Number of these for which electricity consumption is a) Completely known 15 7 12 b) a Range is given 6 c) no information is given 4 4 n.a. d) aggregate projection is given X X X Electricity consumption identified by DISSUR by establishments not > 9 * * listed by local authorities n.a. not available * * See Table A1-2 Source: CNE In the cases of Cuá ­ Bocay and El Ayote, the number of current and foreseen establishments is complete but today's electricity consumption for 10% of them in the former and 3% in the latter was not available. Also, the electricity consumption is given in point estimates of kwh/month or per year, whereas in the case of Nueva Guinea it is often given as a range per establishment type (e.g., general stores ­ 250-350 khw/mo). The regional distributor DISSUR reported electricity consumption for rural enterprises in Nueva Guinea that were not reported in the community survey (Table A1-2). It should be checked whether they really belong to the area of influence of the project, if they lie outside the project area, or if 173 they are projections16, since they are quite significant within the overall local context. Their aggregate demand is approximately 41% of electricity consumption by the other Nueva Guinea establishments registered in Table A1-1. Table A1-2 Electricity Consumption by some Rural Establishments and Social Services in Nueva Guinea Type of establishment Kwh/month Large milk pasteurizer (45 kw) 7159 Medium milk pasteurizer (10 kw) 850 Small milk pasteurizer (5.5 kw) 492 Cheese factory 750-950 Small school 100 Medium sized school 550-700 Institute 600 University 800 Non Governmental Organizations NGOs 6160 Total 17661 ­ 18011 Source: DISSUR, reported to CNE In the case of Nueva Guinea, other complementary information was also gathered. Table A1-3 indicates production and sales volumes of the most relevant economic activities in this region. Table A1-2 Volume of the Most Relevant Economic Activities in Nueva Guinea Concept Quantity Crops / year Milk 400 gallons / day Cheese 225 sacks (QQ) / week Cattle 50 heads / week Pork 70 hogs / week Beans 25,000 sacks (QQ)/ crop 2 Rice 12,000 sacks (QQ)/ crop 2 Maize 13,000 sacks (QQ)/ crop 2 Manioc 6,000 sacks (QQ)/ crop 2 Source: Municipal government of La Unión, reported to CNE The next three tables present a breakdown of the establishments and the electricity consumption summarized in Table A1-1. It should be noted that commercial refrigeration (showcases and refrigerators) are a major consumption factor in these establishments, constituting 43.88% of electricity consumed for productive purposes in the only locality where this is registered separately, El Ayote. There are also more of these types of equipment (492) than total non-residential establishments (436) in the region as a whole. 16 Other information provided shows that the dairy processing plants are only 174 Table A1 -3 Current Commercial and Public Service Establishments Selected Rural Communities Nicaragua, 2001 El Cuá-Bocay Nueva Total TYPE OF ESTABLISHMENT El Ayote El Cuá Bocay Total Guinea Number % A Commercial and Productive 1 Welding shops 4 2 6 12 2.8% 2 Auto repair shops 3 1 4 6 14 3.2% 3 Tire workshops 2 1 3 6 1.4% 4 Gasoline station 1 1 2 4 0.9% 5 TV/radio repair shops 2 1 3 2 8 1.8% 6 Dressmakers 9 7 16 3 35 8.0% 7 Dentists 3 4 7 3 17 3.9% 8 Photocopy service 1 1 2 4 0.9% 9 Cable TV (satellite dish) 1 1 2 4 0.9% 10 Telephone service (satellite) 1 1 2 1 5 1.1% 11 Radio station 1 1 2 1 5 1.1% 12 General stores/distributors 10 6 16 15 40 87 20.0% 13 Markets 1 1 1 1 4 0.9% 14 Banks 0.0% 15 Shoeshop/ leather shops 2 3 5 3 3 16 3.7% 16 Carpentries 5 7 12 1 4 29 6.7% 17 Regrigerated showcases and com. refrigerators 80 126 206 80 * * * 492 * * * 18 Electric coffee and corn mills 2 4 6 1 3 16 3.7% 19 Bakery 1 1 2 4 0.9% 20 Milk pasteurizer 1 1 2 0.5% 21 Cheese factories 0 0.0% 22 Rice mills 1 1 2 0.5% 23 Drugstores 1 1 2 0.5% 24 Coffee processing plants 0 0.0% 25 Bars and restaurants 4 2 6 18 3 33 7.6% 26 Cafeterias 3 6 9 13 5 36 8.3% 27 Billiard rooms 3 1 4 3 3 14 3.2% 28 Discotheques 1 1 2 1 1 6 1.4% 29 Hostels 4 1 5 4 2 16 3.7% 30 Video cinema 0.0% B Public Sector / Social Services 31 Schools with evening classes 1 1 2 4 0.9% 32 Hospitals 1 1 2 4 0.9% 33 Health centers with night shifts 1 1 1 3 0.7% 34 Town hall 1 1 2 1 1 6 1.4% 35 Police 1 1 2 1 1 6 1.4% 36 Army 1 1 2 1 5 1.1% 37 Churches with evening religious activities 4 4 8 4 5 25 5.7% 38 Others 2 2 0.5% Commercial refrigerators and refrigerated displays 80 126 206 80 * * * 492 Commercial / Productive Establishments 64 54 118 76 69 381 87.4% Public Sector / Social Services 10 9 19 7 10 55 12.6% Total Existing Establishments 154 189 343 163 79 436 * * * Included within commercial establishments Source: CNE 175 Table A1-4 Current Energy Consumption by Commercial and Public Service Establishments Selected Rural Communities Nicaragua, 2001 kWh/month TYPE OF ESTABLISHMENT El Cuá-Bocay El Ayote Nueva Total El Cuá Bocay Total Guinea Number % A Commercial and Productive 1 Welding shops 150 150 300 0.3% 2 Auto repair shops 301 301 602 1204 1.3% 3 Tire workshops 210 210 420 0.4% 4 Gasoline station 700 700 1400 1.5% 5 TV/radio repair shops 100 100 200 400 0.4% 6 Dressmakers 100 100 70 270 0.3% 7 Dentists 125 150 275 600 1150 1.2% 8 Photocopy service 9 Cable TV (satellite dish) 400 400 800 0.9% 10 Telephone service (satellite) 11 Radio station 802 802 1604 1.7% 12 General stores/distributors 164 800 964 2000 12000 15928 17.0% 13 Markets 1500 1500 250 3250 3.5% 14 Banks 130 130 15 Shoeshop/ leather shops 120 120 120 600 960 1.0% 16 Carpentries 213 400 613 800 2026 2.2% 17 Regrigerated showcases and com. refrigerators * * * * * * * * * 9600 * * * 9600 10.3% 18 Electric coffee and corn mills 165 300 465 100 990 2020 2.2% 19 Bakery 300 300 600 1200 1.3% 20 Milk pasteurizer 8501 8501 9.1% 21 Cheese factories 850 850 0.9% 22 Rice mills 23 Drugstores 200 200 0.2% 24 Coffee processing plants 25 Bars and restaurants 280 700 980 6300 2100 10360 11.1% 26 Cafeterias 180 180 390 3250 4000 4.3% 27 Billiard rooms 225 450 675 670 1800 3820 4.1% 28 Discotheques 180 180 180 540 0.6% 29 Hostels 286 350 636 1044 1400 3716 4.0% 30 Video cinema B Public Sector / Services 31 Schools with evening classes 700 700 725 2125 2.3% 32 Hospitals 750 1200 1950 3900 4.2% 33 Health centers with night shifts 150 150 0.2% 34 Town hall 125 250 375 125 875 0.9% 35 Police 149 149 149 447 0.5% 36 Army 250 250 250 750 0.8% 37 Churches with evening religious activities 150 250 400 150 1875 2825 3.0% 38 Others 7710 7710 8.2% Commercial / Productive Sector 4761 5020 9781 21876 33341 74519 79.6% Public Sector / Social Services 1424 2400 3824 674 10460 18782 20.1% Total Existing Establishments 6185 7420 13605 22550 43801 93561 * * * Included within commercial establishments Source: CNE 176 Table A1 -5 Foreseen Commercial and Public Service Establishments Selected Rural Communities Nicaragua, 2006 TYPE OF ESTABLISHMENT El Cuá-Bocay El Ayote Nueva Total** El Cuá Bocay Total Guinea* Number % A Commercial and Productive 1 Welding shops 11 8 19 2 21 5.5% 2 Auto repair shops 11 5 16 8 24 6.3% 3 Tire workshops 9 5 14 2 16 4.2% 4 Gasoline station 1 1 2 1 3 0.8% 5 TV/radio repair shops 11 7 18 4 22 5.8% 6 Dressmakers 23 18 41 8 49 12.9% 7 Dentists 7 6 13 1 14 3.7% 8 Photocopy service 2 2 4 1 5 1.3% 9 Cable TV (satellite dish) 3 3 6 0 6 1.6% 10 Telephone service (satellite) 3 3 6 2 8 2.1% 11 Radio station 1 1 2 1 3 0.8% 12 General stores/distributors 18 12 30 17 47 12.4% 13 Markets 2 1 3 2 5 1.3% 14 Banks 1 1 2 1 3 0.8% 15 Shoeshop/ leather shops 8 6 14 4 18 4.7% 16 Carpentries 16 14 30 6 36 9.5% 17 Regrigerated showcases and com. refrigerators 125 156 281 98 379 100.0% 18 Electric coffee and corn mills 7 7 14 3 17 4.5% 19 Bakery 1 1 2 3 5 1.3% 20 Milk pasteurizer 6 3 9 4 13 3.4% 21 Cheese factories 1 2 3 2 5 1.3% 22 Rice mills 1 1 2 1 3 0.8% 23 Drugstores 0 0 0 0 0 0.0% 24 Coffee processing plants 1 0 1 1 2 0.5% 25 Bars and restaurants 11 8 19 21 40 10.6% 26 Cafeterias 10 13 23 16 39 10.3% 27 Billiard rooms 10 7 17 5 22 5.8% 28 Discotheques 5 5 10 2 12 3.2% 29 Hostels 7 4 11 6 17 4.5% 30 Video cinema 1 1 2 1 3 0.8% B Public Sector / Services 31 Schools with evening classes 4 2 6 3 9 2.4% 32 Hospitals 1 1 2 1 3 0.8% 33 Health centers with night shifts 2 2 4 1 5 1.3% 34 Town hall 1 1 2 1 3 0.8% 35 Police 2 2 4 1 5 1.3% 36 Army 1 1 2 1 3 0.8% 37 Churches with evening religious activities 10 10 20 4 24 6.3% 38 Others Commercial refrigerators and refrigerated displays 125 156 281 98 n.a. 379 Commercial / Productive Establishments 188 145 333 125 n.a 458 89.8% Public Sector / Social Services 21 19 40 12 n.a 52 10.2% Total Foreseen Establishments 209 164 373 137 n.a. 510 * Forecastes for Nueva Guinea are fragmentary. Plans include 3 milk pasteurizers and 1 cheese factory but no growth projections of existing establishments were provided. Thistable should be completed in a future phase. ** Refers to El Ayote and Cua - Bocay Source: CNE 177 9.1.7 ANNEX B - The Estimation of Household Income and Other Issues from the 2000 Nicaragua Rural Electrification Survey 9.1.7.1 Introduction There are many positive aspects of the Rural Electrification Survey implemented for the CNE and World Bank by INEC in Nicaragua in November 2000, which have allowed estimation of numerous valuable parameters on household energy use and needs. This report presents many of such findings. Nonetheless, there are three major methodological issues which should be adjusted in future energy market surveys to improve the quality of the information: a) Treatment of household income b) Treatment of periodicities c) Treatment of inconsistencies. · Household Income Ambiguities arise in the interpretation of household income due to two major factors: (a) Imprecise wording and ambiguities among the many sections of the questionnaire requesting information of income (including non-monetary income), leading to confusion and probable double counting of income sources by respondents; (b) Inadequate distinction between farm revenues and net household incomes from agricultural and livestock production (inadequate treatment of production costs); Because reliable estimates of household income are crucial to the next phases of project preparation and decision-making, these notes will discuss the ambiguities detected, the possible results from alternative interpretations of the data, and the procedures followed to define the suggested income tables in this final report. The economic activities of household members are first requested in section 4, where each individual's current occupation and net income from that occupation is requested. For salaried workers, this net income basically corresponds to wages and salaries. For entrepreneurs or self-employed, net income from the reported occupation may in fact include income later requested in section 5, question 12 (net profit from sales by household businesses or independent activities), or from that derived from agricultural production and animal husbandry (section 6, several questions). There was no specific question on wage income, which is a component of total household income generally presented in World Bank energy survey reports and was estimated here for Table 12. The procedure followed to estimate wage income was to (a) accept income from primary occupation as wage income for all occupations but self-reported business owners and self- 178 employed individuals and (b) filter out net incomes reported by entrepreneurs and self- employed individuals who reported these on a yearly, semester or quarterly basis. Table A2-1 illustrates the differences. 9.1.7.2 Table A2-1 Differences in Net Income from Wages and Main Occupations ­ Section 4 Cuá ­ Nueva All Concept Bocay El Ayote Guinea Households Net income from main occupations 1432 2231 1266 1754 Estimated net wage income (Table 21) 1072 2231 1180 1662 Difference between estimates in C$/mo 360 0 86 93 Difference between estimates in % 25.1% 6.8% 5.3% In El Ayote, which has the highest incomes, there are no differences between the estimation of net income from main occupations as formulated in the questionnaire, and net income from main occupations excluding perceived entrepreneurial profits, or "wage" income. In Cuá ­ Bocay, there is a large difference and in Nueva Guinea a 6.8% difference. Overall, the income identified as coming from wages alone in Table 21 of the main report is 5.3% less than what it would have been if we did not filter out some of the higher incomes registered in the way described. One of the reasons for having filtered income from main occupations to seek to discern wage income is that in the agricultural and animal husbandry section there is also the likelihood of having overestimated net household incomes. In fact, the questionnaire does not focus as much on household income per se from agriculture, livestock and produce such as milk or eggs, but on farm revenue from those sources. These are not identical concepts. Not all farm revenue is disposable household income ­ part could go shareholders or to pay mortgages on the land; only in few instances, where the land is rented, is there a deduction of the cost of land from gross revenues in order to estimate household income. The questionnaire was very detailed in its treatment of all possible sources of gross income from the sale of crops, animals and their produce over the past 12 months. For seasonal crops, which occupy 88.4% of these households' farms (Table 14), the simple question on how much was spent during this period on production inputs such as seeds, fertilizer and labor could suffice to calculate costs and thus be able to obtain net agricultural incomes. However, this oversimplifies and underestimates on-farm production costs for permanent crops and cattle, because it refers to those incurred only over the past 12 months. Permanent crops (especially coffee) are an important part of Cuá ­ Bocay's farm sector, and cattle are very important for El Ayote. The initial plantation costs for coffee, or its annualized equivalent over the production cycle of coffee trees, were not considered, nor the initial cost or prior accumulated investment in the cattle sold over the past year. Unless the farms are huge or very well designed, it does not usually work out that the costs incurred over the past 12 months for crops and cattle not sold compensates for the costs incurred in previous years for those sold. For permanent crops and cattle, estimating net 179 annual farm incomes requires a more detailed assessment of the farm as a production unit ­ something beyond the scope of this survey, too lengthy as it already was. What is the point of this discussion then? There are two points to be made: (a) Net agricultural, cattle and other farm income is likely to be overestimated in Cuá ­ Bocay and El Ayote (less so in Nueva Guinea), although it's impossible to tell by how much. However, given the weight of seasonal crops in this region's farms, it is likely that it is not too far off. (b) If due to length or other considerations a questionnaire can only go into details on sales but not cost structures to derive net income, and this can generate the type of issues discussed here, it could be better not to undertake such a complex approach to income and simplify matters. For example, question 12 in section 5 on household businesses and independent workers simply asks "How much profit (approximately) do you obtain after discounting expenses?" This could suffice for agricultural revenues as well. More simplified but equally meaningful ways to pose household income questions have proven reliable in the past, particularly as measures of relative if not absolute socioeconomic status and financial capacity. One is to request what is the net income from each of a following list of possible sources. Secondly, one could request that the household point out to which income rank they belong from a pre-established list shown to respondents. A third, applicable particularly to the middle to lower income groups which constitute the huge majority of households in rural areas, is to request a breakdown of household expenditures (on housing, food, education, etc.). This last approach generates little resistance on the part of respondents who might feel uncomfortable or suspicious about disclosing "personal" information such as income, and can help the purpose of determining capacity to pay. It does not take into account, however, savings nor credit ­ just recurrent expenditures on household budget items. Another issue arises from the treatment of non-monetary income. In the corresponding sections on crops, livestock and derivative produce, households were asked to say how much of each item produced ­ milk, meat, maize, etc. ­ they left for self-consumption. Although they were not directly asked to value those products at market prices, these can be established at the household level itself when it also sells production, or as an average of other households in the same locality which do sell their production. That would suffice to establish what we define as non-monetary income. Nonetheless, in section 7, questions 2 and 3, it is again asked if during the previous week they consumed self-produced food and what their market value was. This is double counting, and although INEC suggested that it should be added to non-monetary income, in this report it was excluded. What other self- produced foods are there besides crop and animal products already accounted for? · Periodicities Treatment of periods of time throughout the questionnaire was not uniform, but generally tended to refer to predetermined whole units: months, weeks, days, hours. This way of 180 asking induces very avoidable errors. Take, for example, Section 8 of the questionnaire, which establishes a list of appliances and asks four questions about each: 1. Do you have ...(appliance)...? 2. How many do you have? 3. On average, how many hours per day do you use it? 4. With which energy source does it work. If a household has a blender and uses it 15 minutes every two days, the answer would have to be zero hours a day, as if it did not have or use one. If the enumerator approximated to 1 hour daily, just to be consistent with having registered that they do use the blender, this would be eight times the actual amount in use (average of 7.5 minutes/day, not 60). When trying to estimate electricity consumption by end use, the hour per day is not a very appropriate reflection of real consumer behavior. An alternative formulation of question 3 in section 8 would be, in Spanish, as follows: 9.1.7.3 Illustration A2-1 Alternative Periodicity Formulation S8P3¿Cuánto tiempo los utilizan? S8P3a . Hr S8P3b. Mn S8P3c. # S8P3d. Período Horas Mins ¿Cada cuánto? # D S M /____/ /_15_/ /__3_/ X 1 2 3 15 minutos cada 3 días /____/ /_45_/ /__1_/ X 1 2 3 45 minutos diarios /__5_/ /_30_/ /__1_/ 1 X 2 3 5 horas y media a la semana /_12_/ /____/ /__1_/ 1 2 X 3 12 horas al mes /____/ /_45_/ /_20_/ X 1 2 3 45 minutos cada 20 días In the first place, time is measured in hours and/or minutes, which allows greater proximity to real life. In the second, this form abolishes any pre-determined frequency and asks "every how often?" as an open question instead. The illustration shows how to register the following open responses in a systematic manner which is then easily processed by computer: · 15 minutes every 3 days · 45 minutes daily · 5 and one half hours per week · 12 hours a month · 45 minutes every 20 days. Even annual responses are acceptable: every 12 months. In over 20 years of using this approach to frequency formulation in dozens of energy and other surveys, this consultant has found it to be the least likely to produce error of any kind 181 on the part of respondents or enumerators. It avoids them having to figure out how many whole units to fit into predetermined units of measurement or time, which can either slow down the interview process or lead to hasty approximations. It is simple, flexible, quick and effective, and leaves the calculations for office rather than field work, where there are computers and better trained personnel available. Enumerators have no trouble understanding and filling out this type of questions. · Filters for inconsistencies Consistency checks should be made throughout all stages of survey implementation, starting with detecting and correcting faulty responses by field supervisors prior to sending the questionnaires to office. At the office, questionnaires should also be reviewed prior to data entry and filters to check for inconsistent answers ­ not just responses outside of logical limits ­ should be routinely instituted. It is clear that much of this was done by INEC, but within the resulting database of huge size, inconsistencies such as the following remained · Radios using "none" energy sources · Some non-electric irons registered as heated with fuelwood or charcoal and others with no fuel · Several solar irons · 45 cases of negative agricultural income (expenditures surpassing sales) · extreme values in energy purchases when converted to unit costs · switching values registered under wrong variables (selling 80,000 cows instead of C$80,000 worth of cattle). The kinds of inconsistencies found in the data base are those that cannot easily be detected in data entry programs (after all, "none" is a valid response for energy sources ­ but not for all equipment) or which need to compare several different variables in different data sets [the information for all households was split up into 19 different databases!]. It is, of course, up to the analyst to detect and deal with these inconsistencies, many of which cannot be detected by non-specialists in energy matters. The solution to this problem ­ besides insisting on the need for programs capable of filtering out inconsistencies ­ is to have analysts participating throughout the data capture and data cleansing phase, not just after all the data have been processed. In the case of energy surveys, it would be desirable to have an "energy person" involved in reviewing the data processing on site. When analyzing data out of the local context and without access to the physical questionnaires to decipher what was meant by the respondents, one must often simply resort to transforming unlikely responses into "missing values" so they do not affect the estimates of the parameters under study. 182 In future surveys, closer follow-up of all phases should be placed in the hands of a single team of professionals including survey and energy specialists. 183 9.2 Advanced Analysis of monthly substitutable energy expenditures in the municipios of Ayote, Cua-Bocay and Nueva Guinea (Nicaragua). By Christophe de Gouvello Vers.2 - 06/07/01 9.2.1 Introduction The present note presents the results of the analysis of the data regarding substitutable energy expenditure in non-electrified area that can be derived from the field surveys made by INEC in three municipios in Nicaragua. First we present some comments regarding the some small problems met when analysing the consistency of the data and the decisions that have been taken to progress. Second we present a set of curves, which results from the analysis of the monthly substitutable expenditures distribution and the probability density associated to such distribution for each of the three municipios and for the whole sample surveyed. 9.2.2 Comments on the database resulting from INEC field survey in Ayote, Cua-Bocay and Nueva Guinea (energy expenditure section) and on the report entitled " Market Survey for Off-Grid Pilot Sites in Nicaragua" (May 2001) We didn't understand precisely the concept of Weighted Users for Energy Expenditures in the table 26. If the idea is to estimate average expenditures for all the households present in the area surveyed, we are not sure it is very useful in the perspective of preparing project. Segmentation seems more operational, since different systems / fees will be proposed to the different segments, which not necessarily will all participate. Our personal thinking is also that questions regarding thermal energy for cooking and questions regarding incomes are not necessary in a survey that aimed at assessing needs and willingness to pay for rural electricity services. The reason is that some poor landless people may receive more monetary revenue than richer small landowner but the latter not necessary use the intermediary of money to purchase certain goods that are auto produced or exchanged. Thus the correlation between energy expenditure and monetary income is to weak to be used for anticipating correctly ability to pay for electricity services. In addition, questions regarding monetary and monetary incomes are difficult to answer in a confident manner, and are time consuming during the field enquiries. Thus it is better to use directly current substitutable energy expenditures as a preliminary reference for assessing willingness to pay. Thus the useful information contained in the report is presently diluted in the middle of perhaps unnecessary information. 184 9.2.2.1 Regarding the data on kerosene expenditures: There are consistency problems between questions related to Kerosene consumption (Energia seccion 10 ­ II. Hogares que utilizan kerosene para illuminacion, in questionnaire), namely between question 2 (Cuantos litros de Kerosene compra cada vez?), question 6 (Qué cantidad del kerosene que compra para su hogar es usado para illuminacion?) and question 5 (En promedio cuanto gasta por mes en kerosene para su hogar). When trying to crosscheck the data registered in ENERGY_DATA.sav corresponding to the above-mentioned questions, there are a lot of inconsistencies, mainly due, according to me, to inefficient17 and too numerous questions in the corresponding section of questionnaire. Thus we decided to ignore the results of the question 6 and to consider that 100% of kerosene is used for lighting, as stated in the report18 (3.5 Energy Use and Energy Expenditures, p.21). 9.2.2.2 Regarding dry cells expenditures: When cross checking results between question 5 of section III (En promedio ¿Cuánto gasta por mes en baterías para su hogar?) and questions 3 (En promedio ¿Cuánto gasta por comprar baterías? ) and 4(En promedio ¿Cuántos días dura su compra de baterías?), it appears that results are not the same for 41 surveyed households, among 301 using dry cells (that is 13,6 %). Since the sample is quite big, we decided to eliminate the questionnaires for which the difference is higher than 10% (that is 3,5% of the total), for our own assessment of the monthly expenditure. 9.2.2.3 Regarding candles expenditures: When crosschecking results between question 5 of section IV (En promedio ¿Cuánto gasta por mes en baterías?) and questions 3 (En promedio ¿Cuánto gasta por comprar baterías? ) and 4(En promedio ¿Cuántos días dura su compra de baterías?), it appears that results are not consistent for 51 surveyed households, among the 91 using candles (that is 56 %). Since the sample is quite big, we decided to eliminate the questionnaires for which the difference is higher than 10% (that is 14 questionnaires, i.e. 4,1 % of the total), for our assessment of monthly expenditure. 9.2.2.4 Regarding Car batteries expenditures When trying to check the monthly expenditure for using car batteries, it appears that there are a lot of mistakes in the data base (mistake of calculation most probably registered in the questionnaire during the interview). It appears that there are less errors if one doesn't take in account the price of transportation to place where batteries are recharged (10 errors among 18 car battery users19). Since the hypothesis can be done that people don't go there only because of batteries but would have go for other reasons, we decided not to account the cost of transportation as substitutable expenditure. But on the other hand, car battery expenditure may be underestimated since if purchase cost of batteries is not accounted. Generally such car batteries are used without controllers and have a short lifetime. Thus battery purchase cost may be a significant substitutable expenditure. On the basis of data 17For instance: duration of use for the quantity registered in question 6 is not defined. 18 Market Survey for Nicaragua Off Grid - Final.doc, Last saved by José Eddy Torres, 18/05/2001 16:53 19if taking in account transport cost, the number of errors goes to 16 among 18 users 185 available, average battery price is 840 C$, average lifetime is 10 months. Thus levelized monthly cost related to battery purchase is 84 C$, when average monthly cost of battery charging is only 30 C$. 9.2.3 Analysis of substitutable monthly expenditures distribution and probability densities 9.2.4 Substitutable monthly expenditures distribution We have tested the model we have elaborated and tested on other data sets resulting from other field survey regarding the same issue (Brazil: 4 surveys, Argentine: 4 surveys, Bangladesh: one survey). The model obtained by logarithm regression has the following type : y = a.Ln(%) + b where ? % is the cumulative percentage of households when aggregated according to decreasing energy expenditures. We observed once more here that there is a good and simple correlation between the energy expenditure level and the cumulative percentage of households according to decreasing expenditures (see Figures n°1 to 4). The correlation is a bit weaker in the case of Cua- Bocay (R2 =0,74), but is excellent in the cases of Nueva Guinea (R2 = 0,90) and Ayote (R2 = 0,96), and for the global sample (R2 = 0,92). Thus, it can be considered that the model provides a satisfactory estimate of the substitutable monthly expenditure for the whole areas from which the three samples where selected. Such a representation enables a quick observation of the fraction of the population that could pay more than a determined value for good quality energy services substituting the traditional solutions. It appears clearly that the level of substitutable expenditures is lower in Nueava Guinea and is higher in Ayote. In Ayote, more than 50% of the households are paying more than 5 US dollars, when the percentage is only 30% in Nueva Guinea. 9.2.5 Probability densities Then we have built the probability density curves, which help to visualize the different thresholds of expenditures that can be met in these areas (see figure n°5). In all cases the principal peak is around 5 US dollars per month. The variation of the smoothing bandwidth for the calculation of the probability density curve helps to visualize that in the case of Ayote there is a real second peak of expenditure level around 15 US dollars (see figure n°6), that cannot be observed in the cases of Cua-Bocay and Nueva Guinea. 186 Figure n°1: Susbsitutable energy expenditure (without battery cost) - Ayote - USD 40 500 C$ y = -5,0265Ln(x) + 1,8778 USD 35 R2 = 0,9858 400 C$ USD 30 USD 25 300 C$ USD 20 USD 15 200 C$ USD 10 100 C$ USD 5 USD 0 0 C$ 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of households - decreasing monthly expenditure Figure n°2: Susbsitutable energy expenditure (without battery cost) - Cua-Bocay - USD 40 500 C$ USD 35 y = -4,5312Ln(x) + 0,5825 R2 = 0,7442 400 C$ USD 30 USD 25 300 C$ USD 20 USD 15 200 C$ USD 10 100 C$ USD 5 USD 0 0 C$ 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of households - decreasing monthly expenditure Figure n°3: Susbsitutable energy expenditure(without battery cost) - Nueva guinea - USD 40 500 C$ USD 35 y = -3,2083Ln(x) + 1,4018 R2 = 0,9028 400 C$ USD 30 USD 25 300 C$ USD 20 USD 15 200 C$ USD 10 100 C$ USD 5 USD 0 0 C$ 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of households - decreasing monthly expenditure 187 188 10 ANNEX ­ TERMS OF REFERENCE PPIAF STUDIES 189 TERMS OF REFERENCE Nicaragua MARKET ASSESSMENT FOR RURAL ELECTRIFICATION BACKGROUND The National Energy Commission (CNE) is responsible for planning, promoting and assisting in the implementation of rural electrification programs in Nicaragua. In this role, the CNE together with the World Bank are developing a study to assess different institutional options and/or delivery systems that would expand energy access to decentralized rural areas in Nicaragua. As a first step, a pilot market assessment of three targeted areas20 will be carried out by the Nicaraguan Institute of Census and Statistics (INEC). This TOR address this pilot work, subsequently and based on the results of this pilot assessment, a larger survey will be carried out in agreement with the CNE. The larger assessment will assist the Government to fine tune their national rural electrification program, expected to be partially financed by proceeds from the privatization of the electricity sector. The market assessment aims to determine the characteristics of various unelectrified areas by looking at their energy demand patterns, capacity to pay, socio-economic profile, potential for micro-enterprise development and natural resources available in the areas. It is expected that at the end of the study, and based on the results of the market assessment, the CNE, the private sector, other government agencies and local NGOs will have an indication on the viability of grid expansion and/or decentralized systems in unelectrified areas. This Terms of Reference (TOR), therefore, will provide the discussion on the activities that need to be undertaken by INEC. OBJECTIVE: The main objective of the market assessment is to obtain a characterization of the consumers in the selected areas. To attain this objective the surveys will have three main modules: · Household module­ to determine the socio-economic characteristics, ability and willingness to pay, perceived benefits of electricity, etc. of the residential sector and targeted communities. · Energy module­ to assess demand for electricity, availability of energy sources, attitude towards electricity, availability and the competing uses of various energy resources within and/or nearby areas. 20Nueva Segovia, El Ayote and Cua-Bocay. 190 · Micro-enterprise module--to assess ongoing and potential economic activities and micro-enterprises to be demanding electricity. Additionally, the CNE and the steering committee will carry out a resource assessment, to measure the resource potential of a given locality such as stream flow, wind speed, quantity of biomass resources, solar radiation, among others. SCOPEOF WORK INEC is expected to undertake field surveys from July through August, 2000. Once the required information has been collected, a database will be established to merge three levels of information, i.e., household, energy, micro-enterprise modules. Specifically, INEC will undertake the following tasks: · Conduct of market assessment/surveys · Creation of database to be used for market assessment study (i.e., consolidation and integration of information of household surveys and other modules into one database) · Tabulation of survey results · Drafting of preliminary market assessment report It is expected that the following guidelines will be followed by INEC. 1. Sample Size and Sampling Methods At the household level, the sample size is approximately set at 500 households in the three targeted areas. The pilot/pre-testing market assessment will have census tracks of 15 Kms radius, with a sample of about 450-500 households (urban and the census tracks) 2. Survey Instruments The questionnaires that have been developed in Washington on June 5, 2000, will be revised to include the following: a) The questionnaire should be printed in large fonts. The space intended for the answer of the respondents should be large enough so that enumerators will avoid filling up the answers in the wrong space. Even if there are still spaces available in a page, new section should start in another page. b) Minimize open-ended questions by pre-coding all the possible answers in each question. The household-level surveys should follow the same coding numbers for the names of the municipality, province and region c) Questionnaires must be pre-tested and revised accordingly before using in the field. It is logical to combine the pre-testing activity during the training of trainors/field 191 supervisors which will be conducted by INEC. The supervisors in turn will train the enumerators assigned to them. d) It is needed that during the pre-testing, the supervisors/trainors, carefully assess all the aspects of the questionnaires including the questions themselves, sequence of the questions, phrasing of the questions, derivation of data through computations, etc. The pre-testing is intended to: · Ensure that the respondents as well as the interviewers understand each survey question · Allow the supervisor to evaluate the field operation including the time spent in each interview · Allow the enumerators and encoders to check the accuracy of the codes used in the questionnaire as well as the data entry program · Provide the field supervisors hands-on experience in conducting the surveys · Revise and finalize the questionnaire e) Results of the pre-testing should be entered in the data entry program developed for the project to debug any errors on program, data entry, coding, etc. f) The questionnaires must contain questions sufficient to: · Describe and assess the socio-economic status of the household including assets, income (agriculture, non-agriculture, other sources), and expenditures · Determine the monthly expenditures on and quantity consumed for lighting such as kerosene, LPG, drycell batteries, car battery, electric generators, solar PV, candles, · Identify the electric appliances and type of non-electric lighting appliances owned by the households · Determine the levels of awareness preferences and attitudes towards renewable energy, electricity, as well and other lighting energy. 3. Organization of Field Survey Staff A motivated and well-organized field staff or enumerators are critical to the success of the survey. INEC explained during meetings in Washington how they organize their field team. Each team can consist of three staff including the supervisor who will provide the oversight. The number of persons in a team will be derived by INEC from initial training. 4. Training Field Survey Staff The quality of the data will depend on several factors, namely, the survey instrument, the enumerators' understanding of the survey at hand, the enumerators' grasps of the kind of data needed and the use of various data gathering techniques. It is therefore, critical that field interviewers and supervisors receive adequate training prior to the field assignment. The CNE can assist INEC on those training aspects related to energy concepts. 192 It is conceivable that survey staff are unfamiliar with the personal interview approach, therefore training should cover the basic techniques of conducting household interview. In addition, the training that will be conducted should include the following topics: · Specific concepts and operational definitions used in the questionnaires. · Basic understanding of the household energy usage, specifically for lighting and electricity. It is also necessary to understand the energy consumption of rural industries such as cottage industries, furniture making, ricemills, etc. · Basic understanding of the community including the typical energy being used, resources available, community facilities available, existing and potential livelihood activities, among others. · Basic understanding of the characteristics of household electric generating equipment/devices such as electric generator, solar PV, car battery, etc. mentioned in the questionnaires. · Basic understanding of the characteristics of household electric appliances, electric lighting and non-electric lighting equipment. · Type and characteristics of fuels, amount consumed, unit of measurements, etc. · Probing techniques to determine the total amount of energy consumed in a month and the portion spend for lighting purposes and electricity from car batteries, dry cells, and generator sets. 5. Field Implementation and Supervision for Quality Control Based on the recommended arrangement and organization of the field survey team, INEC will make sure that the field supervisor assigned to each group is capable to manage the survey exercise. The supervisors are tasked to ensure that survey team produces accurate and reliable survey results. As such, during the conduct of the field surveys, the supervisors need to exercise the following functions, among others: · help interviewers follow the sampling procedures · assign the enumerators the households that will be interviewed · exercise spot checking and quality control · review the completed questionnaires prior to data entry · check the computations made by the enumerators · check if the codes are properly entered · check inconsistencies. During the field survey, questionnaires must be thoroughly reviewed and checked. Enumerators, who have been found to have committed errors such as unclear or 193 irrelevant answers, inconsistencies, incomplete entries, will be asked to go back to the field to complete the questionnaires. Extra attention should be given to the consistencies of answers particularly in the estimation of consumption and expenditures for fuels, portion dedicated for lighting, and overall household income and expenditures. Cross-checking is therefore necessary. 6. Data Processing INEC is required to use the SPSS software for data entry and analysis. 7. Creating Database INEC will merge the three modules in a database. As such, coding numbers for region, department for these three modules must be the same. 8. Data Analysis and Tabulation of Survey Result INEC will submit to the Bank for review the preliminary findings of the survey (weighted and unweighted) in tabulated form. The following are examples of the output tables that can be generated from the study based on the questionnaires formulated: · Socio-economic indicators · Sources of income · Households experience with credit · Household energy use for lighting (broken down by types of energy and sources of electricity) · Household energy expenditure (broken down by types of energy and sources of electricity and total expenditure) · Household and preference and attitude toward electricity and renewable energy · Percent of households who have heard about NRE technologies, such as PV home systems, small wind, PV/wind hybrid system, pico and micro-hydro · Reasons for purchase and reason for not purchasing the specific electric generating devices · Reasons for obtaining specific electric generating devices · Socio-economic profile of households 194 · Number of cottage industries and businesses such as furniture making, etc. INEC must provide to the CNE and the Bank with the results of the market assessment for approval. TIMETABLE FOR THE PROJECT The total time requires to complete the market assessment is approximately 2 months. As indicated in the attached timetable, field work is expected to start on August 7 and verification of data to be completed by September 7, 2000. PAYMENTS Total budget for this TORs is US$ 25,000 to be paid as follows: 30 % upon signature of project; 50% upon completion of training and field pre-testing; 20% upon submission of final report satisfactory to the Bank. The total amount of US$ 25,000 is broken down as follows: § FieldWork: 20,500 § Materials 2,500 § Contingency 2,000 195 Terms of Reference for Jose Eddy Torres: A) Analysis of Market Survey for Nicaragua Off-Grid Pilot Sites, and B) Review of Linkages between Social Infrastructure and Educational Attainment in Developing Countries pertinent to Nicaragua and Central America BACKGROUND During the past decades several Central American countries have made enormous economic progress; poverty has declined and the standard of living has improved. Unfortunately, some countries have been unable to sustain the progress made; in many cases living standards have remained the same or have even declined. Empirical evidence has shown that investment in social services and infrastructure is critical for raising income, reducing poverty, and improving standards of living. The ongoing PPIAF study "Nicaragua - Rural Electrification of Off-Grid Areas" aims at preparing a pilot project for expanding access to off-grid electricity to households and productive uses in remote areas of rural Nicaragua. Because of the distance to the national grid, combined with a relatively low average energy demand and ability to pay, private sector alone would not enter these areas on a large enough scale to provide a significant social impact. On the other hand, purely public off-grid rural electrification programs have failed in the past, because of lacking incentives for long term maintenance and operation. Emerging evidence from other LCR countries shows that a well targeted set of incentives from Government can help to attract private operators to form public private delivery mechanisms that will allow for sustainable long term operation of off-grid energy systems while minimizing the subsidies needed. In a first step, three potential pilot sites have been chosen by GON with assistance by the World Bank task team: El Ayote, El Cua, and La Unión (details see Annex 1). In all three sites, the data collection for a market survey has been completed by INEC in late 2000, as the second step. The questionnaires for this survey have been produced jointly by INEC, CRE and the World Bank. The survey will provide information on: (a) the current energy expenditures of households, and public and productive uses; (b) household income and savings; (c) an estimate of ability/willingness to pay for various levels of off-grid energy service; and (d) the potential of the latter to increase the productivity of local productive micro-enterprises. The objective A of this TOR is the third step: to analyze the results of the survey, and summarize them in a report that can be used directly as the input for the next step. The objectives of this following fourth step, which is not included in this TOR, will be the following: based on the market information, locally suited delivery mechanisms will be identified and designed; a cash flow for these operators will be estimated; the product line (system types and sizes) to be offered will be chosen; and the amount of subsidies will be pre-determined. In a parallel effort, the World Bank has undertaken a statistical analysis of Nicaragua's 1998 LSMS survey data seeking to establish the impact of social infrastructure on development outcomes in that country. Econometric analysis has produced interesting 196 results that indicate a strong correlation between electrification and educational attainment, controlling for income and other variables in the survey. The data indicate that proximity to roads, distance to schools, availability of electricity in the home ­ all measures of social infrastructure ­ explain literacy and enrollment in school almost as much as educational level of head of household, income, and other more traditional variables. The objective B of these TOR seeks to complement these empirical findings with a background report on the theoretical and empirical literature available regarding educational achievement or output (literacy, household enrollment, etc.) in the developing world in general and Nicaragua in particular, and discern any linkages established between education and social infrastructure. OBJECTIVE The Main objectives of this TOR are to (A) analyze the data from the recently conducted market survey on three potential pilot sites for the Nicaragua off-grid rural electrification project, and (B) to conduct an in-depth study to find the linkages between investment in social infrastructure and development in Nicaragua. Social infrastructure includes schools, roads, and electricity. One of the main outcomes of rural electrification involves an improvement in education. MAINTASKS A) Under the guidance of Douglas Barnes, Ernesto Terrado and Kilian Reiche you will analyze the recently conducted study concerning willingness to pay for electricity services in rural Nicaragua. The market assessment study will be based on the survey data recently collected by INEC. The work will include the following tasks. Cleaning and organization of the data using SPSS; In close coordination with INEC, assure that all necessary data is available, and the quality of the survey is sufficiently high; Characteristics of the three communities; Developing a socioeconomic profile of both households and communities; Analysis of the current lighting sources and expenditures on energy by the households in the survey including productive uses of the households surveyed; Description of local productive micro-enterprises with reference to possible uses of electricity; Potential market for renewable energy and off-grid electrification (including an estimation of ability/willingness to pay for various levels of off-grid energy service) Subject to sufficient data being provided by INEC, CNE or the World Bank on community level, the following additional tasks will be completed and used as additional input for the determination of the potential markets: (a) Availability of energy resources within or nearby the village; (b) Analysis of the current lighting sources and expenditures on energy by public and productive uses in the communities; and (c) More detailed potential of off- grid electrification to increase the productivity of local productive micro-enterprises; B) 197 Under the guidance of Douglas Barnes, you will review the education and infrastructure literature in Nicaragua and more generally in Central America and other developing countries as available. You are also to document the recent evolution and prospective development of the education sector in Nicaragua as a setting for the analysis. DELIVERABLES, SCHEDULE AND LUMPSUM PAYMENT For the first part of the assignment (A), the contractor will produce a report of approximately 30 pages on the potential market, ability, and willingness to pay for electricity services in the surveyed communities. This report will be suited for use as a direct input for the fourth step of the Nicaragua off-grid pilot project preparation study as described above. For the second part of this assignment (B) , the contractor will produce a 15 to 20 page background review of the literature, and will assist in writing the final paper on the social impact of infrastructure, and in particular electricity in Nicaragua. The drafts for A and B will be delivered by February 23, 2001. All tasks will be completed, including incorporation of the World Bank comments, by March 9, 2001. For the first part of the assignment (A), you will be hired for 20 days at a rate of $525 per day, receiving a lump sum of US$10,500. For the second part of the assignment (B), you will be hired for 9.5 days at a rate of $525 per day, receiving a lump sum of US$5,000. The total contract is a lump sum of US$15,500. PAYMENT SCHEDULE: 15% upon signature 30% upon approval of draft report B 30% upon approval of draft report A 25% final payment, upon approval of final report A 198 TERMS OFREFERENCE FOR CHRISTOPHE DE GOUVELLO ANALYSIS OF SUBSTITUTABLE MONTHLY ENERGY EXPENDITURES DISTRIBUTION AND PROBABILITY DENSITIES IN 3 MUNICIPIOS OF NICARAGUA, BASED ON THE NICARAGUA PILOT SITE MARKET SURVEY BACKGROUND The ongoing PPIAF study "Nicaragua - Rural Electrification of Off-Grid Areas" aims at laying the ground for a pilot project for expanding access to off-grid electricity to households and productive uses in remote areas of rural Nicaragua. Because of the distance to the national grid, combined with a relatively low average energy demand and ability to pay, private sector alone would not enter these areas on a large enough scale to provide a significant social impact. On the other hand, purely public off-grid rural electrification programs have failed in the past, because of lacking incentives for long term maintenance and operation. Emerging evidence from other LCR countries shows that a well targeted set of incentives from Government can help to attract private operators to form public private delivery mechanisms that will allow for sustainable long term operation of off-grid energy systems while minimizing the subsidies needed. In a first step, three potential pilot sites have been chosen by GON with assistance by the World Bank task team: El Ayote, El Bote / Cua Bocay, and La Unión. In all three sites, the data collection for a market survey has been completed by INEC in late 2000, as the second step. The questionnaires for this survey had been produced jointly by INEC, CRE and the World Bank. The survey provides information on: (a) the current energy expenditures of households, and public and productive uses; (b) household income and savings; (c) an estimate of ability/willingness to pay for various levels of off-grid energy service; and (d) the potential of the latter to increase the productivity of local productive micro-enterprises. In a third step, the results of the survey have been analyzed and summarized in a report by the individual consultant José Eddy Torres. OBJECTIVE The purpose of this consultancy is to prepare and analyze the (i) distribution and (ii) density curves for energy expenditures substitutable by offgrid electricity for 3 municipios of Nicaragua, based on the results of the Nicaragua Offgrid Pilot Site Market Survey. SCOPEOF WORK The tasks assigned cover the following two tasks: Task 1 - Distribution Curves: Prepare curves for the distribution of households according to their decreasing monthly current substitutable energy expenditures (level of expenditure X % of households), for each of the three pilot sites. To elaborate such curve, I an EXCEL or SPSS file will be 199 provided, containing at least 1 column and X lines (X = the number of questionnaires) containing the monthly expenditure of each of the X households surveyed expressed all in the same unit (registered in a clean way, that is homogeneous number standard, without mixing text and number in the same cell). Depending on the data available, an alternative to this would be to recalculatge monthly expeenditures from the monthly consumptions in kerosene, LGP, dry-cells, battery etc. to the extend that the unitary costs are also provided (price of 1 litre of kerosene, price of each type of dry cells, etc...). Task 2 ­ Density Curves: The same data base will be used to elaborate a gaussian curve of probability density regarding monthly expenditures per household. All work, including the final report will be finalized and presented in a form satisfactory to the Bank by July 30, 2001. PAYMENT ­ LUMPSUM The total amount of this lump sum contract is US$ 2,400, for four days of work at US$ 600. The payment schedule is as follows: 15% upon signature 85% upon submission of final report. 200 TERMS OFREFERENCE FOR A STUDY ON NICARAGUA SUSTAINABLE OFFGRID ELECTRICITY SERVICE DELIVERY MECHANISMS FOR PIERRE MATTHIEU BACKGROUND The ongoing PPIAF study "Nicaragua - Rural Electrification of Off-Grid Areas" aims at laying the ground for a pilot project for expanding access to off-grid electricity to households and productive uses in remote areas of rural Nicaragua. Because of the distance to the national grid, combined with a relatively low average energy demand and ability to pay, private sector alone would not enter these areas on a large enough scale to provide a significant social impact. On the other hand, purely public off-grid rural electrification programs have failed in the past, because of lacking incentives for long term maintenance and operation. Emerging evidence from other LCR countries shows that a well targeted set of incentives from Government can help to attract private operators to form public private delivery mechanisms that will allow for sustainable long term operation of off-grid energy systems while minimizing the subsidies needed. In a first step, three potential pilot sites have been chosen by GON with assistance by the World Bank task team: El Ayote, El Bote / Cua Bocay, and La Unión. In all three sites, the data collection for a market survey has been completed by INEC in late 2000, as the second step. The questionnaires for this survey had been produced jointly by INEC, CRE and the World Bank. The survey provides information on: (a) the current energy expenditures of households, and public and productive uses; (b) household income and savings; (c) an estimate of ability/willingness to pay for various levels of off-grid energy service; and (d) the potential of the latter to increase the productivity of local productive micro-enterprises. In a third step, the results of the survey have been analyzed and summarized in a report by the individual consultant José Eddy Torres. The objectives of this TOR is the fourth and last step of the PPIAF study: based on the market information, locally suited delivery mechanisms will be identified and designed; a cash flow for these operators will be estimated; the product lines (system types and sizes) to be offered will be chosen; and the amount of subsidies will be pre-determined. OBJECTIVE The purpose of this consultancy is to design sustainable delivery mechanisms for electrification of offgrid areas in Nicaragua. These mechanisms will be for the most part private-sector implemented, have appropriate cost-recovery features, provide financing to consumers to hurdle high first cost barriers and combine public sector funds with private equity and consumer down-payments to finance investment requirements. The mechanisms will be patterned after models that have been successfully used in other countries and adapted to suit various types of unserved communities in Nicaragua. Under the guidance of Ernesto Terrado and Kilian Reiche, in close cooperation with George Sterzinger, and based on the pilot site market study, a field visit, and on input from CNE and the Bank task team, the consultant will ­ (A) design and analyze business plans for sustainable private sector led offgrid energy service delivery models for the two 201 Nicaragua pilot sites El Ayote and El Cua Bocay (including suitable schemes for subsidy allocation and tariffs), and (B) summarize the results of market study and service delivery mechanism study in a report of at least 40 pages which will be suited (i) as final report for the PPIAF study (TOR see Annex), and (ii) as a first basis for the preparation of a PCD for a 10 mUS$ IDA loan for an offgrid pilot project. SCOPEOF WORK In detail, this will include the following tasks: (i) Review relevant information, as delivered by the Bank and CNE, including: the pilot site market survey; pilot site maps (for topoloy of villages and isolated HH); current energy consumption data, productive and public use potential, renewable energy ressource availability, and other available data on and the pilot sites; demand patterns of comparable villages with existing electricity service; basic information on the overall Nicaragua offgrid market; Bank Aide Memoires; CNE energy sector strategy papers; relevant data from INE and ENEL; etc. (ii) Identify potential missing elements in the market study and draft a list of missing data to be collected by CNE. (iii) Review the models for offgrid electricity services that have been successfully applied elsewhere. These essentially are of two types: (1) fee-for-service model, and (2) sales/leasing with consumer financing. The first type can be implemented by a private company external to the community, attracted by the size and income characteristics of the market as well as by incentives provided by the GON. Where the size and income structure of the community is not attractive enough, one variation is to assist a local community group (cooperative or other) organize and operate the service provision business. The assistance would include financing and subsidies. (iv) Basic Nicaragua Offgrid Typology: Classify the unserved offgrid communities into 3-5 types depending on population size, load demand and density, potential for minigrid installation, income levels and willingness to pay (WTP) and other characteristics identified and quantified in the market assessment surveys. For example, one type may be a situation where community facilities and households are densely concentrated near a minihydro resource. A second type may be a remote community consisting solely of widely-scattered households and no significant local energy source. A third type may be a mix of these two situations, etc. The electrification solution for each of these types will vary in terms of technology and organizational requirements. The financing arrangements will also vary depending on the income level and WTP structure of the different market types. Produce an overview table listing the village types and giving specific examples for each type (e.g. El Ayote, La Union etc.) (v) During a field visit of about one week, collect missing information, visit the two pilot sites, meet potential private sector operators, and discuss the emerging possible concepts for the energy service delivery models of the two pilot sites with relevant stakeholders in the pilot sites and in Managua (CNE, ENEL). 2. An investigation will be made of the availability in the country and in specific 202 regions of private companies and NGOs that are potential agents for providing basic electricity services or for supplying equipment and/or leasing services, particularly renewable energy equipment. The investigation will also include retailers in rural areas for bicycles, stoves and similar hardware that, with proper training and financial assistance, could possibly expand their business to the sales and installation of solar equipment. (vi) Based on the market study, productive use potential, type of existing potential operators, pilot site situation, regulatory framework, and international experience with offgrid energy service delivery models, draft a first set of specific business delivery mechanisms that would be feasible for the different village types defined under 4 in the near term, including first perceived implementation details, problems and advantages. At this stage, include all reasonable variations of these mechanisms. The list should include, among others: (a) local cooperative operating minigrid, SHS and battery charging facility with one set of tariffs and fixed subsidies, (b) local concessionaire operating minigrid, dealers competing for dispersed SHS users; (c) the potential role of local microfinance institutions as part of these options, etc. (vii) Together with the Bank Team, pick two of the pilot sites for which will serve as examples to detail these models in two case studies. In the following text, it is assumed that these two case studies will be done for (i) El Ayote, and (ii) El Bote / El Cua Bocay ­ in task 7, the final decision on this issue will be taken. (viii) Using the outputs of the cash-flow model provided by George Sterzinger, and first assumptions for subsidy allocation and suited mid-term marketing strategies, prioritize these mechanisms (i) for each of the village types defined under 4, and (ii) in specific for the two case studies - regarding probability of successful provision of access and sustainable energy service, potential private sector interest, subsidy minimization, potential poverty impact, and potential replication in Nicaragua as part of a larger scale program, in a short progress report to the Bank. (ix) Two Draft Case Studies: Together with Bank task team and CNE, select the most promising energy service delivery mechanism for each of the two pilot sites. For each pilot site, using the cash-flow model and sensitivity analysis to be provided by George Sterzinger, design and optimize a detailed business plan, a subsidy allocation and tariff schemes, and elements of the regulation needed. Discuss and improve these two draft case studies together with Sterzinger, Torres, Bank task team and relevant stakeholders. (x) Draft a final report of at least 40 pages, suited as final report for the PPIAF study. This report will include the market characterization as based on the survey results; the list of possible delivery mechanisms; the two detailed case studies; a draft implementation schedule and investment plan for the two pilot projects; and a suggestion for the quick replication of these pilots in a Nicaragua offgrid Bank operation of about US$ 10 million loan size. (xi) The XLS model used for business plan cash-flow modelling will remain in the ownership of George Sterzinger. 203 TIMETABLE All work, including the final report will be finalized and presented in a form satisfactory to the Bank by May 31st , 2001. PAYMENT ­ LUMPSUM The total amount of this lump sum contract is US$ 13,000, for 20 work days at US$ 550, and US$ 2,000 of travel expenses. The payment schedule is as follows: 15% upon signature of project; 40% upon field visit and presentation of progress report; and 45% upon submission of final report satisfactory to the Bank. 204 TERMS OFREFERENCE FOR THE CASH-FLOW MODELLING AND SENSITIVITY ANALYSIS OF TWO OFFGRID ELECTRICITY SERVICE DELIVERY MECHANISMS IN RURAL NICARAGUA FOR GEORGE STERZINGER BACKGROUND The ongoing PPIAF study "Nicaragua - Rural Electrification of Off-Grid Areas" aims at laying the ground for a pilot project for expanding access to off-grid electricity to households and productive uses in remote areas of rural Nicaragua. Because of the distance to the national grid, combined with a relatively low average energy demand and ability to pay, private sector alone would not enter these areas on a large enough scale to provide a significant social impact. On the other hand, purely public off-grid rural electrification programs have failed in the past, because of lacking incentives for long term maintenance and operation. Emerging evidence from other LCR countries shows that a well targeted set of incentives from Government can help to attract private operators to form public private delivery mechanisms that will allow for sustainable long term operation of off-grid energy systems while minimizing the subsidies needed. In a first step, three potential pilot sites have been chosen by GON with assistance by the World Bank task team: El Ayote, El Bote / Cua Bocay, and La Unión. In all three sites, the data collection for a market survey has been completed by INEC in late 2000, as the second step. The questionnaires for this survey had been produced jointly by INEC, CRE and the World Bank. The survey provides information on: (a) the current energy expenditures of households, and public and productive uses; (b) household income and savings; (c) an estimate of ability/willingness to pay for various levels of off-grid energy service; and (d) the potential of the latter to increase the productivity of local productive micro-enterprises. In a third step, the results of the survey have been analyzed and summarized in a report by the individual consultant José Eddy Torres. The objectives of this TOR is the fourth and last step of the PPIAF study: based on the market information, locally suited delivery mechanisms will be identified and designed; a cash flow for these operators will be estimated; the product lines (system types and sizes) to be offered will be chosen; and the amount of subsidies will be pre-determined. OBJECTIVE The purpose of this consultancy is to model the cash-flow for the business plans for the electricity service provision in two off-grid pilot sites in Nicaragua, that will be specified by the Bank Task Team. This will be done in close cooperation with the consultant Pierre Matthieu, who has the parallel task of drafting a more general report on the various options for such service mechanisms in Nicaragua, and who will help to specify the framework for the business model, and the input parameters for the cash-flow analysis. The electricity service provision mechanisms will be for the most part private-sector implemented, have appropriate cost-recovery features, provide financing to consumers to 205 hurdle high first cost barriers and combine public sector funds with private equity and consumer down-payments to finance investment requirements. The mechanisms will be patterned after models that have been successfully used in other countries and adapted to suit various types of unserved communities in Nicaragua. SCOPEOF WORK (i) In detail, this will include the following tasks: (ii) XLS Cash-Flow Model SHS: Develop or adopt a XLS model for the cash-flow modeling of the business plans of SHS providers, and model a first draft Cash- Flow for Basic Business Plan Nicaragua. (iii) Expand the XLS Cash-Flow Model for modeling of rural energy service providers by adding the following modules: a) allow for three SHS sizes; (b) allow for the inclusion of (i) an exclusive minigrid operation, and (ii) a mix of SHS and minigrid service provision; (c) allow for a battery charging service. (iv) Discuss the assumptions regarding the model with the Bank Task Teamand with the consultant Pierre Mathieu and add these comments to: (i) business model, (ii) methodology and (iii) input parameters. (v) Instruct Pierre Mathieu (i) on the input parameters and information on the business plan framework needed for modeling the two pilot sites, and (ii) on the information he needs to collect during the mission to Nicaragua. (vi) Review Pierre Mathieu's interim report on (i) the village typology, (ii) the business plan options, and (iii) the priorization of these for the two pilot sites / case studies. Provide (i) comments on data quality used for cash-flow modeling, and (ii) suggestions on how to further the accuracy of data in order to improve the model. (vii) Model the Cash-Flow for the Business Plans of the two selected pilot sites, including sensitivity analysis and various tariff and subsidy levels; summarize assumptions and findings (including sensitivity ranges) in a short progress report. (viii) Discuss the cash-flow models with the Bank Task Team, adopt changes, and prepare a final report interpreting the results, including a short Annex with suggestions on how the cash-flow model could be used in the future for a participatory process for business plan development during the design of a hypothetical future off-grid project in Nicaragua that could (a) implement the pilot sites, and (b) replicate them on a larger scale. (ix) Coordinate closely with the Bank Task Team and Pierre Mathieu during all tasks. (x) The XLS model used for business plan cash-flow modeling will remain in the ownership of George Sterzinger. 206 TIMETABLE All work, including the final report will be finalized and presented in a form satisfactory to the Bank by May 31st , 2001. PAYMENT ­ LUMPSUM Total budget for this lump sum contract is US$ 7,500 Gross for 10 work days at US$ 750. The payment schedule is as follows: 15% upon signature of project; 45% upon presentation of progress report; and 40% upon submission of final report satisfactory to the Bank. 207 11 ANEX - CNE - EVALUACIÓN ECONÓMICA Y FINANCIERA DEL BOTE CON INTEGRACIÓN DE LAS COMUNIDADES DE LA UNIÓN, LOS CEDROS Y LA CAMALEONA. Introducción En el marco del proyecto "Evaluación de Modelos para el Suministro de Electricidad en el Sector Rural " ejecutado por la CNE y el Banco Mundial, recientemente se recibió la visita del consultor Pierre Matthieu quien fue contratado por el BM para desarrollar los posibles mecanismos para la provisión de servicio eléctrico fuera de la red en Nicaragua, específicamente tomando como sitios específicos El Ayote y El Cua Bocay. Durante la visita, el consultor Matthieu pudo constatar en el caso de El Bote, que la Asociación de Trabajadores Benjamín Linder, con fecha reciente, había recibido una concesión para el área de El Bote en donde se establecía una tarifa de 0.145 US$/Kwh. Lo anterior no le pareció al Consultor debido a que dicha tarifa puede ser la no indicada para considerar el crédito reembolsable con intereses menores a la banca comercial. En lo relacionado al monto solicitado de US$ 875, 680 mil de dólares, si lo relacionamos con el número de usuarios tendríamos un costo unitario de US$ 1250 por usuario y lo que el Banco esta pensando es en una inversión por usuario de US$ 800. Debido a lo anterior se planteo la necesidad de revisar la propuesta original y considerar la alternativa de una sola planta hidroeléctrica en el Bote, interconectada con las comunidades de Los Cedros, La Unión, La Camaleona y San José de Bocay con el propósito de disminuir los costos de inversión por usuario. La alternativa propuesta tendría los siguientes costos según las estimaciones de la CNE: Tabla No 1 Descripción Monto Unidad Observaciones Compra de Equipo Mecánico y 875,679.00 Dólar Electromecánico Línea de Transmisión y Distribución 229,400.00 Dólar (Bote ­Cua) Línea de Transmisión ( Bocay-La Unión) 140,000.00 Dólar Red de Distribución ( Bocay-La Unión) 36,000.00 Dólar Acometidas 14,000.00 Dólar Inversión Realizada 259,016.00 Dólar Inversión Realizada por ATDER-BL en la Presa. Número de Usuarios 1775.00 Dólar Costo /Usuario 875 Dólar Costo Total del Proyecto 1,554,095.00 Dólar Inversión Solicitada 1,295,079.00 208 En la tabla anterior se podrá notar que la inversión solicitada es de US$ 1,295,080.00 correspondiendo al 80% del costo total del proyecto. Evaluación Financiera. Con los datos anteriores se procedió a realizar un análisis desde el punto de vista financiero bajo los siguientes supuestos mostrados en la Tabla No 2: Tabla No 2 COSTOS DE INVERSION (US$) OBRAS CIVILES 581,995 EQUIPO ELECTROMECANICO 972,100 TERRENOS 0 INGENIERIA 4.70% 0 INTERES DURANTE LA CONSTRUCCION 0 INVERSION TOTAL REQUERIDA 1,554,095 COSTOS DE O & M (US$) 39,400 OBRAS CIVILES 0.10% 583 EQUIPO ELECTROMECANICO 1.30% 12,637 MANO DE OBRA 26,180 TASA DE DESCUENTO ANUAL 12.00% VALOR RESIDUAL (US$) 232,798.00 VIDA UTIL (AÑOS) OBRAS CIVILES 50 EQUIPO ELECTROMECANICO 25 CAPACIDAD INSTALADA (KW) 450 FACTOR DE UTILIZACION 16.58% PRODUCCION ANUAL (KWH) 653,535 PRECIO PROMEDIO DE VENTA (US$/KWH) 0.1450 FINANCIAMIENTO PRESTAMO CNE (US$) 83% 1,295,079.16 PLAZO (AÑOS) 30.00 TASA DE INTERES 12.00% PERIODO DE GRACIA (AÑOS) 2.00 Tal como se puede observar, con los supuestos de una tasa de financiamiento del 12%, el plazo a 30 años con 2 de gracia , el monto a financiar de US$ 1,295,079.16 dólares que corresponde al 83.33% del costo total de construcción, la evaluación desde el punto de vista financiero, se obtiene un relación beneficio costo de 0.8 y un valor presente neto negativo de US$ 566,093 dólares, que se puede observar en la Tabla No 3. 209 Tabla No 3 RESULTADOS EVALUACION FINANCIERA VALOR PRESENTE DE LOS BENEFICIOS (US$) 2,600,455.87 VALOR PRESENTE DE LOS COSTOS (US$) 3,166,549.65 VALOR PRESENTE NETO (US$) -566,093.78 TASA INTERNA DE RETORNO #¡DIV/0! RELACION BENEFICIO/COSTO 0.82 COSTO DE PRODUCCION (US$/KWH) 0.8069 Debido que el proyecto en las condiciones de crédito reembolsable con intereses comerciales tiene una relación beneficio costo menor que la unidad se procedió a realizar un análisis de sensibilidad para determinar la tasa máxima que el proyecto puede soportar. El resultado se muestra en la siguiente Tabla No 4. Concepto / Tasa 6% 8% 10% Beneficio- Costo 1.14 1 0.9 TIR % 11.6 8.09 4.88 VAN *1000 490 6 -328 De la tabla anterior se puede concluir lo siguiente: La tasa máxima que el proyecto puede soportar bajo las condiciones antes indicada es la del 6% ya que se obtiene una TIR del 11.6% que es mayor que la tasa de rendimiento esperada del 6%; en cambio con una tasa del 8% se tiene una TIR de apenas del 8.0% lo que nos advierte que los recursos financieros ante cualquier imprevisto no se utilizarían eficientemente. En los cuadro se presentan los resultados para la alternativa de una tasa de Interés del 6%. 210 DATOS DE ENTRADA CUADRO No1 COSTOS DE INVERSION (US$) OBRAS CIVILES 581,995 EQUIPO ELECTROMECANICO 972,100 TERRENOS 0 INGENIERIA 4.70% 0 INTERES DURANTE LA CONSTRUCCION 0 INVERSION TOTAL REQUERIDA 1,554,095 COSTOS DE O & M (US$) 39,400 OBRAS CIVILES 0.10% 583 EQUIPO ELECTROMECANICO 1.30% 12,637 MANO DE OBRA 26,180 TASA DE DESCUENTO ANUAL 6.00% VALOR RESIDUAL (US$) 232,798.00 VIDA UTIL (AÑOS) OBRAS CIVILES 50 EQUIPO ELECTROMECANICO 25 CAPACIDAD INSTALADA (KW) 450 FACTOR DE UTILIZACION 16.58% PRODUCCION ANUAL (KWH) 653,535 PRECIO PROMEDIO DE VENTA (US$/KWH) 0.1450 FINANCIAMIENTO PRESTAMO CNE (US$) 83% 1,295,079.16 PLAZO (AÑOS) 30.00 TASA DE INTERES 6.00% PERIODO DE GRACIA (AÑOS) 2.00 211 CUADRO No 2 FLUJO DE FONDOS DESDE EL PUNTO DE VISTA FINANCIERO (US$) COSTO BENEFICIO POR: COSTO DE COSTO DE SERVICIO BRUTO VENTAS VALOR EXCESO DE BRUTO BENEFICIO PERIODO INVERSION O & M DEUDA TOTAL FINANCIAM.DE ENERGIARESIDUAL ENERGIA TOTAL NETO 0.00 1,554,095.00 $1,554,095 1,295,079.16 0.00 1,295,079.16 -259,016 1.00 39,400.15 77,704.75 $117,105 107,398.01 107,398.01 -9,706.90 2.00 39,400.15 77,704.75 $117,105 112,569.91 112,569.91 -4,534.99 3.00 39,400.15 96,603.26 $136,003 118,213.06 118,213.06 -17,790.35 4.00 39,400.15 96,603.26 $136,003 124,917.27 124,917.27 -11,086.14 5.00 39,400.15 96,603.26 $136,003 132,505.20 0.00 132,505.20 -3,498.21 6.00 39,400.15 96,603.26 $136,003 139,971.01 0.00 139,971.01 3,967.60 7.00 39,400.15 96,603.26 $136,003 147,810.12 0.00 147,810.12 11,806.71 8.00 39,400.15 96,603.26 $136,003 156,041.18 0.00 156,041.18 20,037.77 9.00 39,400.15 96,603.26 $136,003 164,683.80 0.00 164,683.80 28,680.39 10.00 39,400.15 96,603.26 $136,003 173,758.54 0.00 173,758.54 37,755.13 11.00 39,400.15 96,603.26 $136,003 181,573.27 0.00 181,573.27 45,569.85 12.00 39,400.15 96,603.26 $136,003 189,727.31 0.00 189,727.31 53,723.90 13.00 39,400.15 96,603.26 $136,003 198,236.11 0.00 198,236.11 62,232.69 14.00 39,400.15 96,603.26 $136,003 207,115.80 0.00 207,115.80 71,112.38 15.00 39,400.15 96,603.26 $136,003 216,383.29 0.00 216,383.29 80,379.88 16.00 39,400.15 96,603.26 $136,003 226,056.29 0.00 226,056.29 90,052.88 17.00 39,400.15 96,603.26 $136,003 236,153.35 0.00 236,153.35 100,149.93 18.00 39,400.15 96,603.26 $136,003 246,693.86 0.00 246,693.86 110,690.45 19.00 39,400.15 96,603.26 $136,003 257,698.17 0.00 257,698.17 121,694.76 20.00 39,400.15 96,603.26 $136,003 269,187.57 0.00 269,187.57 133,184.15 21.00 39,400.15 96,603.26 $136,003 272,642.29 0.00 272,642.29 136,638.88 22.00 39,400.15 96,603.26 $136,003 276,200.66 0.00 276,200.66 140,197.24 23.00 39,400.15 96,603.26 $136,003 279,865.78 0.00 279,865.78 143,862.36 24.00 39,400.15 96,603.26 $136,003 283,640.85 0.00 283,640.85 147,637.43 25.00 39,400.15 96,603.26 $136,003 287,529.17 0.00 287,529.17 151,525.76 26.00 39,400.15 96,603.26 $136,003 291,512.05 0.00 291,512.05 155,508.64 27.00 39,400.15 96,603.26 $136,003 295,615.08 0.00 295,615.08 159,611.67 28.00 39,400.15 96,603.26 $136,003 299,841.86 0.00 299,841.86 163,838.45 29.00 39,400.15 96,603.26 $136,003 304,196.11 0.00 304,196.11 168,192.70 30.00 39,400.15 96,603.26 $136,003 308,681.66 232,798.00 0.00 541,479.66 405,476.24 212 CUADRO No 3 ALTERNATIVA CON EL 83.33% DEL CREDITO A: RESULTADOS EVALUACION ECONOMICA TASA SOCIAL DE DESCUENTO=TASA DE INTERES: 6.00% VALOR PRESENTE DE LOS BENEFICIOS (US$) 6,553,945.41 VALOR PRESENTE DE LOS COSTOS (US$) 2,096,431.47 VALOR PRESENTE NETO (US$) 4,457,513.95 TASA INTERNA DE RETORNO 20.60% RELACION BENEFICIO/COSTO 3.13 COSTO DE PRODUCCION (US$/KWH) 0.2733 RESULTADOS EVALUACION FINANCIERA VALOR PRESENTE DE LOS BENEFICIOS (US$) 3,881,793.54 VALOR PRESENTE DE LOS COSTOS (US$) 3,391,510.63 VALOR PRESENTE NETO (US$) 490,282.91 TASA INTERNA DE RETORNO 11.62% RELACION BENEFICIO/COSTO 1.14 COSTO DE PRODUCCION (US$/KWH) 0.4421 TABLA DE AMORTIZACION (US$) SERVICIO PERIODO SALDO AMORTIZACION INTERESES DEUDA 0.00 1,295,079 1.00 1,295,079 77,705 77,705 2.00 1,295,079 77,705 77,705 3.00 1,276,181 18,899 77,705 96,603 4.00 1,256,148 20,032 76,571 96,603 5.00 1,234,914 21,234 75,369 96,603 6.00 1,212,405 22,508 74,095 96,603 7.00 1,188,547 23,859 72,744 96,603 8.00 1,163,256 25,290 71,313 96,603 9.00 1,136,448 26,808 69,795 96,603 10.00 1,108,032 28,416 68,187 96,603 11.00 1,077,910 30,121 66,482 96,603 12.00 1,045,982 31,929 64,675 96,603 13.00 1,012,137 33,844 62,759 96,603 14.00 976,262 35,875 60,728 96,603 15.00 938,235 38,028 58,576 96,603 16.00 897,926 40,309 56,294 96,603 17.00 855,198 42,728 53,876 96,603 18.00 809,907 45,291 51,312 96,603 19.00 761,898 48,009 48,594 96,603 20.00 711,008 50,889 45,714 96,603 21.00 657,066 53,943 42,661 96,603 22.00 599,886 57,179 39,424 96,603 23.00 539,276 60,610 35,993 96,603 24.00 475,030 64,247 32,357 96,603 25.00 406,928 68,101 28,502 96,603 26.00 334,740 72,188 24,416 96,603 27.00 258,222 76,519 20,084 96,603 28.00 177,112 81,110 15,493 96,603 213 29.00 91,135 85,977 10,627 96,603 30.00 0 91,135 5,468 96,603 214 12 ANNEX ­ CNE - ESTIMATES PRODUCTIVE USES AND PROJECTIONS ELECTRICITY DEMAND FOR EL BOTE, EL AYOTE AND LA UNIÓN. Prepared by CNE and ATDER-BL 215 cantidades de diferentes negocios que hacen uso productivo de la energía eléctrica existentes actualmente en El Ayote El Ayote nuevos, anexados por año total existentes al final de 0 1 2 3 4 5 5 años A. Sector Productivo y Comercial 1 taller de soldadura 1 1 2 2 taller de mecánica 6 1 1 8 3 vulcanizadora 1 1 2 4 gasolinera 1 1 5 taller reparación radio/televisión 2 1 1 4 6 taller de costura 3 1 1 1 1 1 8 7 dentistas 1 1 8 servicio de fotocopiado 1 1 9 cable televisión (c/ parabólica) 0 10 teléfono (satélite) 1 1 2 11 radio emisora 1 1 12 distribuidoras (tiendas grandes) 15 1 1 17 13 mercados (con coltrán de buses) 1 1 2 14 bancos 0 1 1 15 zapatería 3 1 4 16 carpintería 1 1 1 1 1 1 6 17 mantenedoras y refrigs de uso comercial 80 5 4 3 3 3 98 18 molinos eléctricos de maiz y café 1 1 1 3 19 panadería 2 1 3 20 pasturizadora de leche 0 1 2 1 4 21 fábrica de queso 0 1 1 2 22 trillo de arroz 0 1 1 23 beneficio de café (pequeño) 0 0 24 beneficio de café (mediano) 0 1 1 25 bares y restaurantes 18 1 1 1 21 26 cafeterías(COMEDORES) 13 1 1 1 16 27 billares 3 1 1 5 28 discotecas 1 1 2 29 hospedajes 4 1 1 6 30 cine video 0 1 1 B. Sector Servicio Público 31 Escuelas con clases nocturnas 0 1 2 3 32 Hospitales 0 1 33 Centros de Salud con atención nocturna 0 1 34 Alcaldía 1 1 35 Policia 1 1 36 Ejercito 1 1 37 iglesias con actividades religiosas de noche 4 4 216 EL AYOTE consumo consumo mensual anual A. Sector Productivo y Comercial kw-hras/mes kw-hras/año 1 taller de soldadura 2 taller de mecánica 602 7224 3 vulcanizadora 4 gasolinera 5 taller reparación radio/televisión 200 2400 6 taller de costura 70 840 7 dentistas 8 servicio de fotocopiado 9 cable televisión (c/ parabólica) 10 teléfono (satélite) 11 radio emisora 12 distribuidoras (tiendas grandes) 2000 24000 13 mercados (con coltrán de buses) 14 bancos 15 zapatería 120 1440 16 carpintería 17 mantenedoras y refrigs de uso comercial 9600 115200 18 molinos eléctricos de maiz y café 100 1200 19 panadería 600 7200 20 pasturizadora de leche 21 fábrica de queso 22 trillo de arroz 23 beneficio de café (pequeño) 24 beneficio de café (mediano) 25 bares y restaurantes 6300 75600 26 cafeterías 390 4680 27 billares 670 8040 28 discotecas 180 2160 29 hospedajes 1044 12528 30 cine video B. Sector Servicio Público 31 Escuelas con clases nocturnas 32 Hospitales 33 Centros de Salud con atención nocturna 34 Alcaldía 125 1500 35 Policia 149 1788 36 Ejercito 250 3000 37 iglesias con actividades religiosas de noche 150 1800 38 canchas de basketball c/ iluminación nocturna 217 218 219 EL CUA BOCAY consumo consumo consumo consumo mensual anual mensual anual A. Sector Productivo y Comercial kw-hras/mes kw-hras/año kw-hras/mes kw-hras/año 1 taller de soldadura 150 1800 2 taller de mecánica 301 3612 3 vulcanizadora 210 2520 4 gasolinera 700 8400 5 taller reparación radio/televisión 100 1200 6 taller de costura 100 1200 7 dentistas 125 1500 150 1800 8 servicio de fotocopiado 9 cable televisión (c/ parabólica) 400 4800 10 teléfono (satélite) 11 radio emisora 802 9624 12 distribuidoras (tiendas grandes) 164 1968 800 9600 13 mercados (con coltrán de buses) 1500 18000 14 bancos 130 1560 15 zapatería 120 1440 16 carpintería 213 2556 400 4800 17 mantenedoras y refrigs de uso comercial 18 molinos eléctricos de maiz y café 165 1980 300 3600 19 panadería 300 3600 20 pasturizadora de leche 21 fábrica de queso 22 trillo de arroz 23 beneficio de café (pequeño) 24 beneficio de café (mediano) 25 bares y restaurantes 280 3360 700 8400 26 cafeterías 180 2160 27 billares 225 2700 450 5400 28 discotecas 180 2160 29 hospedajes 286 3432 350 4200 30 cine video B. Sector Servicio Público 31 Escuelas con clases nocturnas 700 8400 32 Hospitales 750 9000 1200 14400 33 Centros de Salud con atención nocturna 34 Alcaldía 125 1500 250 3000 35 Policia 149 1788 36 Ejercito 250 3000 37 iglesias con actividades religiosas de noche 150 1800 250 3000 38 canchas de basketball c/ iluminación nocturna lugar : El Cuá Bocay pico actual : 98.5 kw 105 kw usuarios actuales : 496 410 tarifa actual : C$ 2.50 / kwh C$ 1.00 / kwh 220 221 222 13 ANNEX - CNE ­ MODEL CALCULATION DIESEL EL CUA Descripción El Cua Observaciones: Si tomamos en Usuarios 426 cuenta la cantidad de galones Kwh(Bruto) 22191 consumidos (2494 Galones) y lo Kwh(Venta) 16812 multiplicamos por el precio del Kwh(Perdidas) 0.76 galón de C$ 31/Galón), resulta Colecta C$ 43496 un gasto por concepto de Diesel Galones 2494 combustibles de C$ 77314 Horas de Servicios / día 20 córdobas; que al compararlo Kwh/Cliente 39.46 con la colecta C$ 43496 existe C$/Kwh 2.59 in déficit de C$ -33818 los que Diesel Kwh/Galón 7.02 pueden ser atribuidos al %Cliente 4.69 subsidio (77%) que es lo que %Kw Venta 1.44 se trata de eliminar. %C$/Venta 2.57 NOTA: 1 Galón=3.7854 Litros %Kwh no usado 24.24 El precio del Galón de Diesel en Disponibles Kw 270/100 el Sitio es deC$ 31/Galón o US$ Dem. Max 60 0.645 / Litro 1 Dem Min 20 US$=12.7 Córdobas Diesel Galones /Cliente 0.15 Horas Maquinas 4.93 Diesel Galones / hora 5.05 Fuente:ENEL 223 14 ANNEX ­ CNE ­ MODEL CALCULATION EL BOTE COSTOS DE INVERSION (US$) OBRAS CIVILES 322,979 EQUIPO ELECTROMECANICO 552,700 TERRENOS 0 INGENIERIA 4.70% 0 INTERES DURANTE LA CONSTRUCCION 0 INVERSION TOTAL REQUERIDA $ 875,679 COSTOS DE O & M (US$) 32,033 OBRAS CIVILES 0.10% 323 EQUIPO ELECTROMECANICO 1.00% 5,529 MANO DE OBRA 26,180 TASA DE DESCUENTO ANUAL 6.00% VALOR RESIDUAL (US$) 0.00 VIDA UTIL (AÑOS) OBRAS CIVILES 50 EQUIPO ELECTROMECANICO 30 CAPACIDAD INSTALADA (KW) 450 FACTOR DE UTILIZACION 17.51% PRODUCCION ANUAL (KWH) 690,434 PRECIO PROMEDIO DE VENTA (US$/KWH) 0.145 FINANCIAMIENTO PRESTAMO CNE (US$) 50.00% 437,839.50 PLAZO (AÑOS) 30 TASA DE INTERES 6.00% PERIODO DE GRACIA (AÑOS) 2 224 RESULTADOS EVALUACION ECONOMICA VALOR PRESENTE DE LOS BENEFICIOS (US$) 1,378,037.58 VALOR PRESENTE DE LOS COSTOS (US$) 1,316,602.12 VALOR PRESENTE NETO (US$) 61,435.46 TASA INTERNA DE RETORNO 6.65% RELACION BENEFICIO/COSTO 1.05 COSTO DE PRODUCCION (US$/KWH) $ 0.14 BENEFICIO (US$/KWH) $ 0.15 RESULTADOS EVALUACION FINANCIERA VALOR PRESENTE DE LOS BENEFICIOS (US$) 1,815,877.08 VALOR PRESENTE DE LOS COSTOS (US$) 1,754,441.62 VALOR PRESENTE NETO (US$) 61,435.46 TASA INTERNA DE RETORNO 7.31% RELACION BENEFICIO/COSTO 1.04 COSTO DE PRODUCCION (US$/KWH) $ 0.18 BENEFICIO (US$/KWH) $ 0.19 225 COMPARACION DEL PROYECTO VAN ECONOMICO vs VAN FINANCIERO 1,000,000.00 800,000.00 600,000.00 US$ 400,000.00 VAN 200,000.00 0.00 (200,000.00) (400,000.00) 1% 5% 10% TASAS DE DESCUENTO Van Econ. Van Financ. 226