76128 CASE STUDY 17: SRI LANKA – RENEWABLE ENERGY Barriers Lack of financing Instrument Aggregation Application Development of standard project agreements for small hydro plants and standard conditions for on-lending of project loans to developers Amount n/a PROJECT BACKGROUND AND OBJECTIVES - technical assistance to promote energy efficiency, development of carbon trading mechanisms and Rates of access to electricity are very low in rural areas integration of renewables into government policy, of Sri Lanka, averaging at around 35% of households. provincial council development strategies and sector The RERED project provides support for solar PV reform initiatives. investments with the aim of expanding the market and achieving commercial viability. RERED is funded by INSTRUMENTS USED World Bank and GEF. GEF made available co-financing grant funds for off-grid The Sri Lanka Renewable Energy Program is a World sub-project developers who have signed a sub-loan Bank and Global Environmental Facility (GEF) assisted agreement with a PCI. The grant funds are used to co- program through two investment projects, the Energy finance the initial cost of equipment installed through Services Delivery (ESD) project from 1997 till 2002 and the program and are available to sub-loan beneficiaries. the on-going Renewable Energy for Rural Economic The co-financing grants are released on a Development (RERED) project. reimbursement basis, after the installation of the off- grid system, and are on a reducing basis. Portions of this The principal objective of the program is promoting the grant is also used to provide technical advisory services provision by the private sector, NGOs and cooperatives to assist off-grid project developers with their business of grid-connected and off-grid energy services using plans, project promotion and preparation, compliance environmentally sustainable renewable energy with technical standards and consumer protections. technologies. The program supports the provision of electricity and socioeconomic improvements in rural For the stand-alone SHS, the program provides areas through: consumer credit delivery mechanism, in which the program encourages micro-finance institutions (MFIs) - solar PV, hydro, wind and biomass renewable energy involvements. MFIs are more suitable to provide technologies; consumer credit to rural communities. Initially, the - credit financing through private participating credit program turned to MFIs to access term loans from PCIs institutions; in order to provide the necessary consumer credit. - grant mechanisms for off-grid systems; However, this created another layer of credit delivery process and increased the interest rates. Therefore, the - technical assistance for income generation and social program was modified to allow MFIs to apply to become service delivery improvements based on villages’ access PCIs, and hence will be able to provide consumer credit to electricity; and to SHS vendors or developers, or even end-users. 1 | R E F I N e www.worldbank.org/energy/refine The GEF fund was utilized in several different and at various stages of completion. The cost of disbursement channels, as shown in the flow of funds development has decreased through the experience, diagram below. enabling more project developments. Through the co-financing grants, the program has supported the installation of 810kW village hydro systems serving around 3,800 households. A total of 79 systems were implemented at the end of 2004, with a further 38 projects being approved and at various stages of completion. The SHS industry has grown significantly since the start of the program, from only 2-3 small operations selling 20-30 SHS per month in 1998, to 11 companies and 125 rural outlets with an annual sale of around 1,500 SHS INSTITUTIONAL ARRANGEMENTS per month at the end of 2004. The graph below illustrates the increase in sales of SHS. Private investors or developers are eligible to apply for funding under the program by submitting a private Several factors contributed to the success of this investment proposal. Proposals are evaluated for credit program: worthiness by the Participating Credit Institution (PCI) - Significant technical assistance was provided which lend to qualifying projects on a medium- or long- throughout the program, right from the start. This term basis. The PCI can then apply to RERED to re- includes advice to the Government on policies that finance up to 80% of the sub-loan. would enable and promote renewable energy projects, Under the credit facility of the program, the capacity building for project developers, MFIs and PCIs, Government of Sri Lanka on-lends the proceeds to vendors and in rural communities, advice on technical eligible Participating Credit Institutions (PCIs), which in specifications of the technologies, and on business turn on-lend these proceeds, along with complementary planning and development for project developers. financing from their own resources, to eligible sub- - The technology and new systems where introduced borrowers. These may include commercial banks, through market principles. The structure of the project developers, equipment vendors, community subsidies and grants also allows the market to adjust. electricity cooperatives and end-users. This ensures the sustainability of the industry even after OUTCOMES the program is completed. At the start of the program, there were only 1 mini The program allows some flexibility in project design to hydro developer, 2-3 fledgling solar dealers and 1-2 allow different approaches and changes as and when village hydro developers. By the end of 2004, there required. This allows the program to be tailored to suit were over 40 mini hydro companies backed by about 20 the local context, needs and capabilities. active developers, 10 registered solar companies, 22 registered village hydro developers and 12 village hydro equipment suppliers. The availability of long term financing term contributed to the significant increase in mini hydro installed capacity from about 1MW in 1997 to nearly 70MW in 2004 through 30 sub-projects. A further 38 projects with a total capacity of 39MW has been approved by PCIs 2 | R E F I N e www.worldbank.org/energy/refine 3 | R E F I N e www.worldbank.org/energy/refine