World Bank representatives met renewable energy providers recently, to discuss the role of rural energy in the Bank’s poverty-alleviation and environmental programmes. Janet Wood finds a place for mini and micro hydro in the programme

The World Bank now has a twofold role in the energy industries of the developing world. On a country or regional basis it sees its role as encouraging countries to liberalise their energy markets, introduce transparent forms of regulation, and attract private investment. At the same time, the Bank is promoting rural energy growth, particularly local stand-alone power systems. The reason is simple — not only are two billion people worldwide without electricity, but for a good proportion of those people the nearest grid connection is far distant.

From a planning point of view, rural electricity has often been seen as an uneconomic proposition, and one that requires a raft of grants, subsidies and special treatments. According to the Bank, however, the situation has changed, and the best way to move rural energy provision forward is via local energy markets that offer economic, as well as environmental, sustainability. The Bank’s rural energy programme now operates according to five main principles:

•Provide for consumer choice. If consumers are offered affordable energy sources they will choose the most cost-effective solution.

•Ensure cost-effective pricing. Distorting prices through subsidies and taxes creates a disincentive for entrepreneurial solutions, and gives consumers the wrong signals.

•Overcome the high first-cost barrier by using credit mechanisms and low-cost equipment, and offering lower service standards.

•Encourage local participation, using a decentralised approach and systematic local capacity and capability building.

•Implement good sector policies; macroeconomic policy should not discriminate against rural energy.

To implement these policies, an action plan has been developed with actions both in the receiving areas and within the Bank. The Bank acknowledges that micro hydro, along with other technologies such as solar or wind power that have received little attention in the past, is often ideal in rural areas, especially since start-up costs are being reduced.

In the action plan, the Bank will attempt to recruit staff with knowledge of rural energy issues, and train staff already in post. It will also make a systematic effort to address the problem of access to energy; and ensure that its policies for large energy industries also benefit rural areas. In the target areas, the Bank

will conduct regional workshops and seminars and will finance technical assistance and training to develop local policies that promote rural energy. It will help promote best practices in project design and implementation, and develop standard analytical tools for project appraisal.

In financing, it will develop best practice by working with local financial institutions and NGOs and will promote appropriate leasing and credit schemes. It will also promote joint implementation of projects with groups such as bilateral donors, NGOs and grassroots organisations, and will provide technical assistance to make funds available to onlend to such organisations.

Progress report

In February and March consultation meetings were held in London, Amsterdam and Stockholm to assess progress in the Bank’s programmes aimed at increasing rural access to energy. In addition to World Bank representatives, the participants were NGOs, academic institutes, members of the industry and donor agencies.

Speaking at the London meeting, organised by Intermediate Technology, Karl Jechoutek of the World Bank Energy Unit said that the Bank was less familiar with decentralised approaches with many stakeholders involved, and wanted to learn from other’s experiences. He said that as part of its action plan (see left) the Bank wanted to move from the traditional grid-based approach to decentralised electrificatio projects, and accelerate electricity growth.

Arun Sangvi, from the Bank’s Rural Energy Theme Group, warned that population growth is currently faster than the rate of electrification, and the aim should be to ‘think big’, moving from demonstration projects to action. At the same time, however, developers should be selective — concentrating, for example, on countries where there is positive news on sector reform, reduce costs (technical and institutional), and increase the benefits of the new technology. Attendees heard from companies dealing with a variety of renewable energy sources, including hydro systems under 5kW capacity, and a number of policy issues were raised. Among the issues:

•Manufacturers should be able to produce multiple units and create economies of scale, to reduce their risk on entering new markets.

•People in rural areas are willing to pay for energy, as is evidenced by the demand for diesel and petrol generators.

•Small scale entrepreneurs need good cash flow.

•Legal barriers to independent energy production must be removed before decentralised projects can be successful.

•Banks and investors need encouragement to invest in small scale and off-grid energy systems.

•The user should not be subsidised; instead the development of decentralised energy systems should be supported.

•An appropriate environment is necessary to promote investment in off-grid energy.

•Entrepreneurs should be supported in developing small energy systems.

•Small systems cannot support a large bureaucracy.

•Rural people need financial and management, as well as technical, training.

•Renewable technologies must be sold at the right price for rural people.

•Quality and performance is key, but a case-by-case decision is re-quired on whether a costly, best-quality tech-nology is more appropriate than one that is functional and low cost.

•There is as yet no ‘best practice’ for financing rural technologies.

•Information about potential technologies must be made available in rural areas.

Experience from rural areas

Intermediate Technology has been working with local people to provide small hydro plants for many years, and has experience from several countries.

In Bolivia, the ‘La Suerte’ (Good Luck) mining co-operative is celebrating the tenth anniversary of its 130kW small hydro plant. The co-operative, which now numbers around 100 people, had originally bought a diesel generator but found that running costs and fuel were expensive. Instead, the co-operative built a hydro scheme on the local stream, with the help of a loan from the Federation of Mining Co-operatives. This involved building a 1200m-long canal, desilting tank and powerhouse, and installing the pipes that make up the penstock. Although the startup costs were higher than for the diesel plant, reduced operating costs meant that the co-operative could pay off the loan that covered construction within seven years (see table). Running costs after the first ten years of operation and the first major overhaul are expected to drop further, from US$0.08/kWh to around US$0.015/kWh.

In Nepal, the Agricultural Development Bank (ADB) has for many years offered loans to install water turbines for rice hulling, but had found that there were a high number of defaulters. Research showed that defaults were in most cases not due to an inability to pay, but to poor financial planning in response to loans rather larger than the ADB’s usual agricultural loans. The answer was to provide training in finance and business, and use larger organisations as a source for loans.

In Peru, the Inter American Development Bank has funded a rotating loan scheme offering long payback, low interest loans for micro hydro schemes. In administering the scheme, Intermediate Technology has provided training and backup for the local engineering businesses that supply hardware and expertise to implement the schemes, as well as offering the recipients training in business.

Costs at La Suerte compared

Diesel Hydro
Cash invested 35,000 119,000
Value of co-op workers’ time in
installation, construction, transport etc 2000 16,240

Total installed cost 37,000 135,240

Capital repayments over 10 years 3700 13,524
Interest payments on hardware loan @ 9% 1655 5378

Operating costs
Fuel (124,200 litres @30c) 37,260 –
Lubricating oil 860 –
Transport of fuel and oil 11,260 –
Wages, salaries, maintenance time 1900 2,376
Spare parts 3000 1000

Total annual cost 59,635 22,278
kWh per year 294,500 294,500
US$ per kWh 0.20 0.08