59249 the world bank Light and Hope: Rural Electrification in Peru IBRD Results SYnoPSIS In Peru, the IBRD is helping the government bring electrical power to rural communities through a program to extend the electricity grid or install solar power systems that to date has reached 105,165 people and will reach almost 500,000 people by end 2011. Challenge through extensions of the electricity grid by end 2011. As of December 2009, 105,165 people had received new electricity service through the extension of the Lack of access to electricity, together with the scarcity of grid and sub-projects were under construction to pro- other infrastructure services, constrains economic devel- vide an additional 255,940 people with electricity by opment and hampers improvements in living standards by the end of 2010. Additionally, sub-projects had been limiting the quality of medical care, and the availability of bid out to extend electricity service from the grid to education opportunities. The high poverty levels in rural 93,825 people. The electricity service is provided on areas of Peru and the growing gap in quality of life with a sustainable basis through the regulated operation of rapidly developing urban areas highlight the importance of electricity distribution companies that have a record of investing in basic rural infrastructure, such as electricity, as good operational performance in rural areas. part of the national development agenda. Recognizing this, the government has made rural electrification one of its [2] Solar photovoltaic (PV) projects have been prepared highest priorities. The International Bank for Reconstruc- to provide electricity to an additional 39,300 people tion and Development (IBRD) Rural Electrification Proj- living in isolated rural areas that are too sparsely pop- ect is helping the government increase access of the rural ulated to be served by the national or local grid by the poor to electricity with assistance from the Global Environ- end of 2010. The government estimates that 300,000 mental Facility (GEF). When the IBRD and GEF-assisted isolated rural households cannot be reached by extend- Rural Electrification Project began in mid 2006, more than ing the electricity grid and will need to be served by six million people in the predominantly poor rural areas of renewable energy. With Project support, distribution Peru did not have access to electricity. At 30 percent cover- companies will soon be providing regulated electricity age, this was one of the lowest rural electrification rates in service in isolated areas for the first time, using individ- Latin America. ual solar PV systems. Distribution companies will own the systems and will be responsible for providing elec- tricity service to their customers who will pay a tariff. Results [3] The Project is helping rural families use electricity to increase productivity and incomes, which also raises [1] Overall, the project will provide new electricity service electricity usage levels and makes its provision more to 100,250 rural households or almost 460,000 people economical. Because most rural households have low March 2010 2 LigHt and HoPE: RuRaL ELECtRifiCation in PERu levels of electricity, for example to only power lights economic and financial criteria and are evaluated both by and a radio or small TV, these households fail to take DCF and by the National System of Public Investment advantage of income-generating opportunities that (SNIP). Renewable energy options are fully integrated could be created based on the availability of modern into the project. MEM has requested that the electricity energy, and make service provision more difficult for regulator, OSINERGMIN, establish a regulated tariff for the companies. In rural areas near Cuzco, non-gov- electricity service for solar PV systems for the first time ernmental organizations (NGOs) contracted by the and ensure that PV customers are eligible for the cross- Project have helped 1,466 families utilize electrical subsidy provided under the electricity law to small users equipment to process cereals, coffee, cocoa, baked by large users. goods, meat products, milk, wood and metal prod- ucts and handicrafts. The local distribution company For the first time in Peru, the project has supported the decided to offer a preferential tariff to these small us- introduction of renewable energy into the regulated elec- ers for off-peak hour consumption of electricity. Even tricity service of distribution companies. Regulated tariffs though this may mean less income, the company will for the renewable energy electricity provision are relatively benefit from a better balance of energy demand. The new. The only other country in Latin America with regu- Project is extending this activity to new areas and scal- lated tariffs for solar PV service is Argentina. ing up this experience in other parts of the country. [4] The Project has prepared a Google Earth-based wind In addition to the Rural Electrification Project, the IBRD map (http://dger.minem.gob.pe/atlaseolico/PeruVi- (with support from the Energy Sector Management As- ento.html) and is preparing a GIS-based inventory sistance Program (ESMAP) has assisted the government of small hydropower sites to be provided to potential with a program of activities to support clean energy devel- investors of clean generation projects. IBRD wind and opment, including: (a) encouragement of the involvement hydro experts assisted by bringing state of the art tech- of small and medium enterprises in the electricity sector, es- nical expertise to both tasks. pecially for renewable energy service provision, where these local agents if trained and contracted can provide dispersed operation and maintenance support; (b) promotion of approach small hydropower development; (c) removal of barriers to development of hydropower in general, to reverse the trend In late 2007, the local team implementing the Project was of growth in thermal power generation; (d) investigation of fully integrated into the Ministry of Energy and Mines the impact of climate change on hydro resources (i.e. avail- (MEM), as the Directorate of Competitive Funds (DCF) ability of water in rivers); and (e) estimation of the market within the Directorate General of Rural Electrification. potential for natural gas in Peru. Full integration of project management into the regular operations of the Ministry has facilitated decision mak- ing, sustainability and impact and is an indication that the Ministry has completely accepted the Project's approach to good Practices developed financing rural electrification. or Replicated Sustainability and efficiency of the rural electrification The project's approach to electricity service provision service are assured by the fact that the electricity dis- through distribution companies using a competitive tribution companies prepare, execute and operate the model is recognized by the government as both efficient rural electrification subprojects as part of their regular and sustainable. The approach, developed jointly, is based commercial operations. Proposals are presented for fi- on experience provided by the World Bank from other nancing in competitions held periodically, according to countries in the regions, such as Chile, Ecuador, and El Sal- project guidelines. The projects need to meet technical, vador. As noted above, the approach has been fully integrat- iBRd RESuLtS 3 SuMMaRY tiMELinE April 2004 to July 2006 Rural Electrification Project Preparation august 2006 to december 2011 rural electrification Project Implementation 2006 to March, 2009 Small and Medium Enterprise Energy Services Delivery Study September 2006 to June 2008 Institutional and Financial Framework for Small Hydropower Development February 2008 to December 2009 Overcoming Barriers to Hydropower Study March 2008 to February 2010 Assessment of Climate Change Impact on Peru's Hydrology: a Methodology June 2008 to March 2010 Downstream Natural Gas Study June 2009 to October 2009 Second Rural Electrification Project Preparation november 2010 to october 2014 Second rural electrification Project Implementation ed into the permanent structure of the Ministry of Energy introduced an official tariff at national level for solar PV and Mines, and will continue after project closing. Seventy service. percent of the almost US$100 million of financing for this component has been committed and all of the funds are ex- Finally, promotion of productive uses is beginning to pected to be committed by mid 2010. show successful results because of the government's commitment, strong NGO partners, a good system of The introduction of a regulated tariff for solar PV sys- rural credit availability and the willingness of distribu- tems is an important innovation that could be replicated tion companies to participate. The availability of a small in other countries. While Argentina has such tariffs in percentage of funds from the government's permanent certain provinces, no other country in Latin America has Rural Electrification Fund provides the opportunity to iBRd ContRiBution total Cost Ibrd activity name (US$ millions) (US$ millions) lending Rural Electrification Project (in implementation) 144.55 50.00 Second Rural Electrification Project (in preparation) 100.00 50.00 Sub-total lending 244.55 100.00 technical assistance Small and Medium Enterprise Energy Services Delivery Study 0.37 -- Institutional and Financial Framework for Small Hydropower 0.13 -- Overcoming Barriers to Hydropower Study 0.42 0.23 Assessment of Climate Change Impact on Peru's Hydrology: a Methodology 0.21 -- Natural Gas Market Study 0.36 0.26 Sub-total TA 1.49 0.49 4 LigHt and HoPE: RuRaL ELECtRifiCation in PERu expand and prolong this effort in Peru. The approach was learn more based on similar activities carried out by the World Bank in Indonesia and could be replicated in areas with similar Links to key related sites: conditions. ­ Project Appraisal Document Rural Electrification Project: next Steps http://imagebank.worldbank.org/servlet/WDS_ IBank_Servlet?pcont=details&menuPK=6415415 The Government has requested an additional loan equal 9&searchMenuPK=64154240&theSitePK=50188 to the original amount of US$50 million to continue the 9&eid=000112742_20060221120152&siteName application of the IBRD sponsored model of rural elec- =IMAGEBANK trification that encourages efficiency and sustainability by ­ Dirección General de Electrificación Rural, Minis- working through the existing electricity distribution com- terio de Energia y Minas: panies, while at the same time encouraging them to provide http://dger.minem.gob.pe/ regulated service through renewable energy technologies ­ Peru IBRD Country Website: such as individual solar home systems. This will be espe- http://intranet.worldbank.org/WBSITE/IN- cially important to achieve the goal of providing electricity TRANET/INTCOUNTRIES/INTLAC/INTP ERU/0,,menuPK:343091~pagePK:145931~piPK :147174~theSitePK:343085,00.html ­ Peru Windmap on Website of Ministry of Energy and Mines: http://dger.minem.gob.pe/atlaseolico/PeruViento. html ­ Maps on Ministry of Energy and Mines website showing location of World Bank supported rural electrification sub-projects (under Direccion choose Direcc. De Fondos Concursables): http://dger.minem.gob.pe/Proyectos_Electrifica- cionRural_Filtros.aspx ­ Peru's Plan Nacional de Electrificacion Rural: http://dger.minem.gob.pe/Proyectos_pner2009. aspx to the estimated 300,000 households living in isolated areas that cannot be reached by grid extension. At the same time, the efforts to promote productive uses of electricity will be sustained and expanded through the new operation and fi- nancing from the government's Rural Electrification Fund.