ASIAN DEVELOPMENT BANK

TECHNICAL ASSISTANCE FOR ALTERNATIVE ENERGY SUPPLY FOR RURAL POOR IN REMOTE AREAS OF INNER MONGOLIA

June 2007

ASIAN DEVELOPMENT BANK

TA 4649-PRC

TECHNICAL ASSISTANCE FOR ALTERNATIVE ENERGY SUPPLY FOR RURAL POOR IN REMOTE AREAS OF INNER MONGOLIA ______

Final Report

June 2007

ITP/0960

June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report Asian Development Bank (ADB)

Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia

Client contract No.: TA 4649-PRC IT Power reference: ITP/0960

Final Report June 2007

Contractor:

IT Power Grove House, Lutyens Close, Chineham, RG24 8AG, United Kingdom. Tel. +44 1256 392700 Fax. +44 1256 392701 E-mail: [email protected] http://www.itpower.co.uk

Document control File path & name K:\1 Deliverables\Draft Final Report\0960 Draft Final Report v1.7.doc Author Rolf Oldach, Rebecca Gunning, Zhou Wei Project Manager Rebecca Gunning / Rolf Oldach (Team Leader for TA) Approved RG/MD Date 14/06/07 Distribution level Not for distribution / Public Domain

Template: ITP REPORT Form 005 Issue: 02; Date: 27/08/04

ITP/0960 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

TABLE OF CONTENTS

1 Executive Summary ...... 1 2 Introduction ...... 7 3 Background ...... 9 4 Review of Past Electrification Programmes...... 10 4.1 Literature Review and Stakeholder Meetings ...... 10 4.2 Inventory and Evaluation of Household-Based Units ...... 15 4.3 Inventory and Evaluation of Community-Based Systems ...... 20 4.4 Comparison of Household and Community Systems...... 21 5 Socio-Economic Survey ...... 23 5.1 Survey design and methodology ...... 23 5.2 Results of Socio-Economic Survey ...... 25 6 Resource Assessment...... 29 6.1 Wind Energy...... 29 6.2 Solar Energy ...... 29 6.3 Wind-PV Hybrid Systems ...... 29 6.4 Other Technologies ...... 30 7 Analysis of Electrification Using Renewable Energy...... 31 7.1 SWOT Analysis...... 31 7.2 Conclusions ...... 33 8 Recommendations for Rural Electrification in IMAR ...... 35 8.1 Strategy Recommendations ...... 35 8.2 Proposed Delivery Models and Rationale...... 36 8.2.1 Key issues and information for RE Implementation Models...... 37 8.2.2 Relevance of Models to Inner Mongolia Autonomous Region ...... 42 8.3 Suggestions for Policy Initiatives ...... 44 8.4 Suggestions for Regulatory Measures ...... 44 8.5 Suggestions Regarding Technical Aspects ...... 44 8.6 Access to External Funding ...... 46 9 Recommendations for a Pilot Programme ...... 47 9.1 Statistical Analysis of the Banners Surveyed...... 47 9.1.1 General Statistical Data...... 47 9.1.2 Data on Recent Subsidy Programmes ...... 48 9.1.3 Data on Non-Electrified Households...... 50

ITP/0960 i June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

9.1.4 Resource Assessment ...... 51 9.1.5 Prioritisation of Banners by Income ...... 54 9.1.6 Selection of Banners for Pilot Programme ...... 55 9.2 System Configuration and Costs...... 56 9.2.1 System Configuration and Standard System Sizes...... 56 9.2.2 Maintenance and Warranty ...... 59 9.2.3 Refurbishment of Existing Systems...... 60 9.3 Subsidies...... 60 9.4 Suitability of Implementation Models for IMAR ...... 62 9.5 Cash Sales and Credit Sales Models...... 63 9.6 Fee-for-Service (ESCO) Model ...... 64 9.7 Financial Model ...... 66 9.8 Budget for a Pilot Programme ...... 67 9.9 Pilot Programme Implementation ...... 68 9.10 Other Issues Relating to Programme Implementation...... 68 9.11 Monitoring and Evaluation of TA Outcomes...... 69 10 Training and Capacity Building Measures...... 72 10.1 Development of a training programme/existing training material/training requirements...... 72 10.2 Training Programme for Banner Level Technical Personnel ...... 74 10.3 Capacity Building for Personnel at Autonomous Region Level ...... 75 11 Dissemination Activities...... 75 11.1 Dissemination Activities in Inner Mongolia ...... 75 11.2 Dissemination Workshop for Other Western Provinces ...... 76

ANNEXES

Annex 1: Missions of International Experts Annex 2: Documents Reviewed Annex 3: Stakeholders Interviewed Annex 4: Inventory of Programmes Using Household-Based Renewable Energy Systems Annex 5: Inventory of Community-Based Renewable Energy Systems Annex 6: Socio-Economic Survey Report – included as a separate volume Annex 7: Wind Energy Resource in IMAR Annex 8: Solar Energy Resource in IMAR Annex 9: Cost of RE Electrification of 3 Banners

ITP/0960 ii June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Annex 10: Report on Training and Capacity Building Annex 11: Proposal for Study tours Annex 12: Agendas and Participants Lists of the Stakeholder Meetings Held

ITP/0960 iii June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

ABBREVIATIONS

ADB Asian Development Bank CDM Clean Development Mechanism DRC Development and Reform Commission FFAF Farming, Forestry, Animal Husbandry and Fishery GEF Global Environment Facility GIMAR Government of Inner Mongolia Autonomous Region HH Households IM Inner Mongolia IMAR Inner Mongolia Autonomous Region kWh Kilowatt hour NEHH Non-electrified households PAO Poverty Alleviation Office PRC People’s Republic of China RE Renewable energy REHH Households with renewable energy system RMB Chinese Yuan Renmimbi. 1 USD = 7.975 RMB SDDC Song Dian Dao Cun, the name for a future village electrification programme using renewable energy SDDX Song Dian Dao Xiang, the Chinese Government’s township electrification programme SWOT Strengths, weaknesses, opportunities, and threats TA Technical Assistance W Watt WTP Willingness to pay

ADMINISTRATIVE LEVELS IN IMAR

1. Autonomous Region / Province 2. League / Prefecture (pastoral / agricultural or urban areas; also sometimes called City) 3. Banner / County (pastoral / agricultural or urban areas; also sometimes called City) 4. Sumu / Township (pastoral / agricultural or urban areas; also sometimes called City) 5. Gacha / Village (pastoral / agricultural areas)

ITP/0960 iv June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

1 EXECUTIVE SUMMARY

This is the Final Report for the ADB’s Technical Assistance project TA 4649-PRC, Alternative Energy Supply for Rural Poor in Remote Areas in Inner Mongolia. It provides a summary of the activities carried out under this study and makes recommendations for a pilot programme for electrification of the rural poor in Inner Mongolia Autonomous region (IMAR) using renewable energy sources. The scope of the Technical Assistance (TA) was defined as covering electricity supply based on renewable energy sources for the rural poor in remote areas of IMAR. The project focused on the use of wind and solar energy for electrification purposes, whereas biomass/biogas, solar water heating as well as grid extension were outside the scope of this TA. It should be noted that the study is not just about electrification using off-grid renewable energy, but has a specific focus on non-electrified poor households in rural IMAR. Throughout the course of the work stakeholders in Hohhot were consulted at every stage. This included meetings, telephone discussions and a number of stakeholder workshops during which stakeholders were appraised of the progress of the study and results to date, and feedback was sought, which has been incorporated into the work. Background IMAR’s vast area and highly dispersed population present unique challenges to rural electrification and meeting rural energy needs in an efficient, environmentally sustainable manner. Despite the rich energy resources of the province, there are still a large number of households without access to electricity and a significant proportion of the rural inhabitants do not even have near-term prospects of access to grid electricity. The Government of Inner Mongolia Autonomous Region (GIMAR) recognizes the techno- economic limitations of grid extension to electrify remote rural households and has been promoting renewable energy-based decentralized electrification since the 1970s. By 1997, an estimated 140,000 wind turbines had been installed to provide a basic electricity service to about one third of the non grid connected households of IMAR1 and recent figures estimate a further addition of approximately 30,000 or more. By the end of 2005, some 20,000 small-scale hybrid systems and a number of large scale solar systems had also been installed2. However the electrification of IMAR households with renewable energy has, to date, achieved mixed results with many of the systems no longer in operation today. The mixed results are due to a number of technical, financial, institutional and awareness issues and rural electrification with renewable energy in IMAR still faces many of these same challenges. Review of previous electrification programmes Previous electrification activities using renewable energy technologies were analysed. This included a review of relevant literature such as project reports as well as site visits, surveys and interviews with relevant stakeholders. Included in the review was a technical analysis and a study of the contrast of the two approaches -household based versus community based systems. Socio-economic study An extensive socio-economic survey was undertaken, covering a representative part of the different areas of IMAR. A methodology was drawn up for the selection of banners for the

1 Lew et al. 1997 2 Quoted by Mr Wang Li Zhong, Poverty Alleviation Office, GIMAR, Stakeholder workshop, 8th June 2006

ITP/0960 1 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report survey with the final selection of banners agreed with GIMAR. The survey was led by the international social/poverty expert, and was conducted with the aid of the domestic expert and a number of postgraduate students. The survey aimed to conduct two assessments. Firstly, the use of renewable energy (RE) systems, satisfaction with systems, the perception and the impact created on rural households was assessed. Secondly, the energy usage and potential for similar RE installations for households in remote rural areas was assessed, including the ability and willingness to pay. Alltogether, 404 households distributed across 13 banners were surveyed, 193 households without electricity and 211 households with renewable energy systems. The renewable energy systems in use were mostly used for lighting, TV and charging mobile phones. For lighting, some respondents used candles in addition. While most households who owned RE systems used 2-3 CFL lamps, lighting was often found to be lower in preference to watching TV or charging mobile phones. Income was found to be low, health and education costs are high, and herder families find it difficult to buy wind systems, especially those larger than 300W system. This is clearly seen from the non-electrified household respondents who had fewer livestock, lived in remoter areas, and for whom paying an upfront cost for a wind system was a problem. Most respondent households were falling into debt slowly, especially over the past few years because of the combined factor of lowering livestock numbers, decrease of cashmere prices and the increasing cost of health and education. With almost 40% of respondents with a loan of 6,000 RMB or more, the purchasing capacities of these families are fairly restricted. In terms of gender impact, positive reactions especially using TV and cell phones were consistently expressed by all respondents who owned a system. Respondents of non- electrified households also wanted the system mainly for TV and lighting. A high level of education of females particularly in IMAR was evident as women were found to be equally comfortable in answering queries and knew more about the RE systems. However, the men were still responsible for buying and maintaining the systems. Conclusions and Recommendations for Rural Electrification in IMAR Following a review of the findings from the review and socio-economic survey a number of conclusions and recommendations have been proposed for future rural electrification projects in IMAR. A number of different deployment models (cash sales, credit sales and fee-for- service models) were also reviewed and their applicability for IMAR determined. In order to reach the goal of near 100% electrification in IMAR, it is suggested that GIMAR continues the current strategy of a parallel approach of grid extension and electrification using renewable energy. Grid extension should continue, reaching those households where this makes economic sense. Dispersed very remote households should continue to be electrified using renewable energy, as the grid is unlikely to reach these households in the foreseeable future. In order to ensure that even the most remote as well as the poorest people are reached with electricity, a proactive approach is required by GIMAR. Two different approaches could be used to achieve this aim. The first would be a new subsidy programme, along similar lines to the past Brightness Programme, but with a number of improvements including a higher level of subsidy. The other approach would be that the Power Company acts as an energy service company for the areas served by off-grid renewable energy and owns and operates RE systems in these areas. For the first approach, it is recommended that a new programme builds on the positive experience from previous programmes, and addresses the shortcomings identified. It must be noted that RE electrification efforts in IMAR have led to impressive results however previous programmes do have some shortcomings, which are highlighted by this study in

ITP/0960 2 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report order to draw recommendations to allow their elimination in future programmes. The main problems with electrification using RE in the past were found to be the lack of affordability and issues relating to long-term sustainability. Based on these findings recommendations for future programmes include: • User contribution. In order to reach the poorest parts of the population, RE electrification will require a significant level of external subsidy. However, to achieve longer-term sustainability, it is considered essential that end users also make a significant contribution of their own. • Provide appropriate financing. Appropriate financing is required to allow end users to spread payments over a longer period of time. Government policies should be supportive of such financing mechanisms, namely rural micro credit and the fee-for-service/ESCO approach. • Standards and product testing. Existing standards should be updated to require RE system components to be of sufficiently high quality. Component testing should be carried out to new, higher standards, resulting in lists of approved products. Where appropriate, the existing list of approved products from the World Bank’s REDP programme should be used, although this does not cover wind and hybrid systems. • Regulatory framework. A regulatory framework for ESCOs should be established. This is seen as important to give companies an incentive to operate an ESCO. • Battery collection and recycling. This issue should be addressed by GIMAR in order to ensure that disused batteries are disposed of in an environmentally sustainable manner, and that the lead is recycled. • System configuration. The Brightness Programme allowed users to choose their system configuration; however, the additional cost of a higher-specification system had to be borne by the user. This approach is seen as fair and equitable, as users with higher energy demand pay for the resulting higher system cost. RE systems are modular and therefore well suited to upgrading to a higher specification at a later date. A larger system with a higher power output is possible but will come at a cost, and it is unrealistic to expect unlimited amounts of energy to be available. Users with a wind only system experience the seasonal variation of the wind energy resource, which leaves them with a low energy output over the summer months. This can be addressed by using wind-PV hybrid systems, but again this solution significantly increases the system cost. Models using individual household based systems (wind, PV, wind-PV hybrids) are seen as being the most likely models to be successful in IMAR since all evidence from the community- based systems visited suggests strongly that the latter approach is not sustainable as there is typically no provision for repairs or replacement of batteries and other components. • Component and installation quality. The following are recommended to form part of any new rural electrification programme to ensure the technical sustainability of the programme: High quality products (list of approved products); Professional installation; Regular professional maintenance visits and user training. The suitability of three implementation models (cash, credit and fee-for service) for Inner Mongolia was discussed at length during stakeholder consultation meetings. Different stakeholders favoured different models, and no consensus was reached. The consultants’ conclusion was that in principle each of the three models is suitable for IMAR. The fee-for service model is particularly attractive for areas with the poorest population, as there is only a small upfront payment for the user. Middle-income families may benefit from the availability of credit, as they may not be able to pay the full system cost at once, whilst more affluent households will be able to pay the cost of a system upfront. Assessment of training needs and development of training material

ITP/0960 3 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

An assessment of the training required to take the recommendations forward in Inner Mongolia was carried out, as well as a review of previous training and a training needs assessment of the stakeholders to be involved in the provision of services, for the design, installation, operation and maintenance of alternative energy in rural areas. A banner level training programme has been developed and was delivered in March 2007. The feedback from the 30 participants from installation companies was very positive. Update of GIMAR Rural Electrification plans During the project the Government issued new regulations for the rural electrification of western areas of China. This places the responsibility of the electrification on the provincial Power Companies. IMAR Power Company have recently interpreted these regulations and issued their plan for electrification over the next five years. In the near term this includes contracting the Banner level companies responsible for the Brightness programme to install household PV only systems with a 80% subsidy, but only rated at 100Wp. The maintenance of the systems is not clear but is expected to be included for the first three years. The review and research carried out by this project would suggest that these systems will not be large enough for household demands and it is not sustainable if there is no on-going maintenance. Conclusions and Recommendations for a pilot programme It was beyond the scope of this study to develop an electrification programme for the whole of IMAR, it was agreed to concentrate on the 13 banners surveyed, and to develop a pilot programme for the trial of the implementation models suggested. This could then be replicated on a larger scale. The pilot programme could be implemented in all 13 of the banners surveyed; however, due to budget limitations, the programme is only able to focus on a few banners. Banners were therefore prioritised and selected using relative poverty, lack of benefiting from previous programmes and geographical spread as selection criteria. The programme addresses non- electrified households. It should be noted that the proposed pilot programme has a specific focus on non-electrified poor households in rural IMAR, to be electrified using off-grid renewable energy. The banners selected for the pilot programme include Wulatehou, Keerqinyouyizhong and Elunchun under Hulunbeier. These areas cover the western, east-central and north-eastern part of IMAR. It is suggested to trial the fee-for-service model in at least two of these areas. Three standard system sizes are proposed to provide choice to the users. The standard system, available in two configurations, is appropriate for the majority of households, and is able to power lights, a colour TV, a small freezer and various miscellaneous loads. The two configurations include a different quantity of PV and so take into account the differing affordability criteria of the households and allow for upgrading in the future. The basic system is designed for the poorest 10-25% of the population. It is a low-cost system to provide power for lights and colour TV. The deluxe system is designed for the richest 10-20 % of the population, and allows for additional appliances such as computer, refrigerator or washing machine. It is important that any scheme has a similar subsidy as other programmes to ensure uptake. Therefore a similar subsidy as the IMAR power company programme is recommended, i.e. 70% of the cost. The impact of this proposed subsidy on user contribution is shown below. Table 1: User contribution and subsidies for installed system

System Basic size Capital cost Subsidy User Estimated Type (wind/PV) including (RMB) Contribution take-up (% W installation (RMB) of (RMB) population)

ITP/0960 4 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Standard 300/ 50 11,000 7,700 3,300 75% System B Basic 100 / 50 6,800 4,760 2,040 25 % system

Since these systems are larger than those proposed in the Power Company programme, to increase the affordability of the systems credit and fee-for-service models are recommended. For a credit system assuming a local interest rate of 6% and repayments over a three year period, including maintenance payments, the up-front and annual cost to the user for a standard system will be approximately 2,300 RMB and 966 RMB respectively as shown in the following table. If the cost of the system is spread over a longer period with a fee-for-service model then the initial and annual costs can be reduced further as shown below. Table 2: Comparison of user costs for different delivery models (RMB) Delivery model Comparison with proposed Power Cash Credit ESCO Co. programme for one 100 Wp PV Costs (RMB) system Up front or connection cost to Basic owner 2,040 1,040 680 1,040 Up front or connection cost to Standard owner 3,300 2,310 1,100 No. of years of payment 0 3 10 First 3 years Annual fee for basic owner 540 766 558 Annual fee for standard owner 600 966 1,500 3-7 years Annual fee for basic owner 903 903 558 Annual fee for standard owner 1,500 1,500 1,500

Assuming high quality maintenance over 10 year period: PV cost to users (8 years) 11,157,179 11,202,566 9,841,137 PV (8 years) of cost to basic owner @ 6% 7,096 7,123 4,437 PV (8 years) of cost to standard owner @ 6% 10,910 10,953 11,240 FIRR to ESCO 10.7%

Table 3 below summarises the overall cost of a pilot programme in two of the three selected Banners selecting an ESCO model in one of the banners and a credit/sales model in the other banners. Since there is a limited budget available it has been assumed that a total of 2400 households are electrified across the banners. The greater number of households in one banner the better the economics of operating an ESCO. Table 3: Estimated Total Costs of Pilot Programme

Banner 1 Banner 2 HH to be electrified 1,200 1,200 1. Cash/Credit Sales Total cost 18,818,927 18,818,927

ITP/0960 5 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Cost of subsidies 7,661,748 7,661,748 2. ESCO model FIRR to ESCO 11% 11% Cost of subsidies 7,661,748 7,661,748

Total cost 7,661,748 7,661,748 Setup costs for installation co 200,000 200,000 Additional training costs 80,000 80,000 Subtotal 7,941,748 7,941,748 PMU (10%) 794,175 794,175 Total cost (RMB) 8,735,923 8,735,923 Total cost (USD) 1,091,990 1,091,990 Total cost in 2 banners (USD) 2,183,981

In previous programmes, phased introduction has led to good results. It is recommended that the pilot is split into two phases. Under phase 1, twenty or thirty systems would be installed in households in the different target areas. These act as demonstration systems for other householders as well as providing feedback for Phase 2 households, who would then be electrified 3 or 6 months later. A monitoring and evaluation framework has also been prepared for the project outcomes.

ITP/0960 6 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report 2 INTRODUCTION

This is the Final Report for the ADB’s Technical Assistance project TA 4649-PRC, Alternative Energy Supply for Rural Poor in Remote Areas. It provides a summary on the activities carried out under this study and makes recommendations for a pilot programme for electrification of the rural poor in IMAR using renewable energy sources. The Technical Assistance project commenced in February 2006. An Inception Report, which included a work plan and the methodology, was submitted in March 2006. Findings and initial recommendations were provided in the Interim Report, which was issued in July 2006. During the course of the study, a number of stakeholder meetings were held during which stakeholders were appraised of the progress of the study and results to date, and feedback was sought which was then incorporated into the work. Background information on this Technical Assistance project, including the ADB’s Terms of Reference, can be found in the ADB’s report TAR PRC 37633 Technical Assistance to the People’s Republic of China for Alternative Energy Supply for Rural Poor in Remote Areas. The scope of the TA was defined as covering electricity supply based on renewable energy sources for the rural poor in remote areas of IMAR. The use of biomass/biogas, solar water heating as well as grid extension were outside the scope of this TA. It should be noted that the study is not just about electrification using off-grid renewable energy, but has a specific focus on non-electrified poor households in rural IMAR. The key activities of the study were to:3 (i) review the existing GIMAR approach and policies on basic electrification; (ii) short-list villages and households for socioeconomic assessment of basic electrification, (iii) undertake a socioeconomic survey to collect data on decentralized electrification systems; (iv) carry out analysis of the basic electrification approach; (v) analyze the impact of the ongoing subsidy scheme and recommend a mechanism to enhance the sustainability of rural electrification; (vi) compare and contrast community-based centralized systems and household-based decentralized systems to identify a structure for rural community and household electrification; (vii) identify mechanisms to promote community participation in design, and operation and maintenance of decentralized system; (viii) undertake rural energy resource assessment in short-listed villages to identify optimal energy mix for rural needs; (ix) evaluate and identify an appropriate rural energy business model; (x) analyze and recommend a strategic approach to expand and intensify alternative energy-based rural electrification; (xi) develop train-the-trainer program to extend maintenance services to remote dispersed households; (xii) identify a package of policy and regulatory initiatives to create enabling conditions for the proposed strategic approach; (xiii) examine possibilities of leveraging and integrating incentives through a clean development mechanism and global environmental facility mechanism;

3 ADB TAR: PRC 37633 Technical Assistance to the People’s Republic of China for Alternative Energy Supply for Rural Poor in Remote Areas (Financed by the Poverty Reduction Cooperation Fund), September 2005

ITP/0960 7 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

(xiv) develop a monitoring and evaluation framework for TA outcomes; and (xv) conduct workshops and seminars to disseminate TA results.

ITP/0960 8 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report 3 BACKGROUND

Inner Mongolia Autonomous Region’s (IMAR’s) vast area and highly dispersed population present unique challenges to rural electrification and meeting rural energy needs in an efficient, environmentally sustainable manner. As one of China’s 12 western provinces, IMAR has benefited less than China’s East coast from economic growth and reforms. This is reflected in (i) lower incomes; (ii) more widespread poverty; (iii) lower health and education indicators; (iv) serious land degradation problems; and (v) weak physical infrastructure (including roads, railways, power, and telecommunications).3 About 54% of IMAR’s 23.8 million inhabitants live in rural areas4. IMAR is the third largest province in the PRC, covering 1.18 million square kilometers. Most of the province is about 1,000 meters above sea level with low average rainfall and poorly suited to sedentary agriculture with the region including desert, grasslands and forested areas. Many of the sparsely populated households (average distance of 2–5 kilometers apart) rely on herding or semi-agriculture for their livelihoods. The rapid desertification of the grassland areas is adversely affecting the herders particularly over the last two years with livestock numbers diminishing. IMAR has abundant conventional energy resources (coal, oil and gas)5 and exports electricity to neighboring provinces. It is also rich in solar and wind energy resources6. Despite the rich resources of the province, there are still a large number of households without access to electricity. A significant proportion of IMAR’s rural inhabitants do not have near-term prospects of access to grid electricity for a number of reasons including:3 “(i) high cost of building transmission and distribution lines to remote locations, (ii) high service delivery cost because of low population density and dispersion over a large area, (iii) low demand, and (iv) low affordability because of variable income levels, with a large number of people living at or below the national poverty line.” The Government of Inner Mongolia Autonomous Region (GIMAR) recognizes the techno- economic limitations of grid extension to electrify remote rural households and has promoted renewable energy-based decentralized electrification since the 1970s. By 1997, an estimated 140,000 wind turbines had been installed to provide a basic electricity service to about one third of the non grid connected households of IMAR7 and recent figures estimate a further addition of approximately 30,000 or more. By the end of 2005, some 20,000 small-scale hybrid systems and a number of large scale solar systems had also been installed8. It should however be noted that not all of these systems are operational today, as many of the earlier systems would have reached the end of their life and have been discarded or replaced. Nevertheless, what has been achieved in IMAR is very impressive and has had a big impact on the lives of its herding population. The Power Company estimates that a total of around 137,000 households need to be electrified, by either grid extension or using off-grid/mini-grid renewable sources of energy. This figure includes households with only a very small wind turbine which is considered

4 IMAR Statistical Yearbook 2005 (2004 data) 5 These include 223 billion tons (t) of proven coal reserves and 1,200 billion t of prospective reserves; 700 million t of proven oil reserves and 4 billion t of estimated reserves; and 1 trillion cubic meters (m3) of proven natural gas reserves and 4.2 trillion m3 of prospective reserves. 6 Estimates indicate that IMAR has average solar radiation of 4.2 kilowatt-hours per square meter per day for more than 300 days a year and an average wind speed of 6.5 m/second for more than 3,000 hours/year. 7 Lew et al. 1997 8 Quoted by Mr Wang Li Zhong, Poverty Alleviation Office, GIMAR, Stakeholder workshop, 8th June 2006

ITP/0960 9 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report inadequate. Of the total number, 67,000 are designated for electrification with renewable energy.9 It is the ADB’s view that electrification of IMAR households with renewable energy has, to date, achieved mixed results and faces many challenges, which can be classified as follows:3 “(i) Poor system configuration. Current practice for system design is based on a set system configuration with little regard for local resources and unique requirements of specific users. This has led to dissatisfaction among end users who found them restrictive in meeting their energy needs. (ii) Technical. Variable quality of components, and poor system installation and 10 maintenance have led to the development of certification standards and testing facilities but they lack proper coordination. (iii) Financial. Developing innovative financing and marketing approaches to enable low income households to buy decentralized systems. GIMAR’s subsidy scheme for household- owned systems, which ensures ownership by end users, has been successful but 70,000 households in 400 villages are still without basic electrification. (iv) Institutional. The institutional setup for system operation and maintenance is weak. (This was, however, not found to be true during the progress of the study.) Distribution and maintenance infrastructure should be expanded to provide service to remote dispersed households. Poor after-sales service, due to limited access to the remote rural areas, leads to frequent and prolonged breakdown of decentralized systems. (v) Poor user knowledge base. The end user has limited knowledge of how to operate the system properly, leading to frequent failures.“ These results and challenges are reviewed in more detail in the following sections as part of this project.

4 REVIEW OF PAST ELECTRIFICATION PROGRAMMES

Since the 1970s and 1980s, there have been a number of electrification programmes using renewable energy in IMAR. The latest of these, the Brightness Programme, was suspended in 2005. Currently, there is no active programme apart from the World Bank’s REDP Programme; however, the government plans to electrify all unelectrified households in the foreseeable future. The previous funding programmes were reviewed as part of the project.

4.1 Literature Review and Stakeholder Meetings

A number of reports and other documents were reviewed to obtain an overview of past electrification activities using renewable energy technologies. Annex 2 shows a list of documents reviewed. Apart from the stakeholder workshops, during which discussions took place with several stakeholders at once, individual interviews were carried out with a number of stakeholders. Annex 3 shows a list of stakeholders interviewed. The main conclusions of the literature review and the stakeholder interviews are summarised below.

9 Personal interview, January 2007 10 A survey by the US Department of Energy in 2004 found that only about 50% of the systems were in good condition after 5 years of operation, mainly due to poor manufacturing quality and inadequate end-user education.

ITP/0960 10 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Institutional Aspects • A number of different government departments were involved with previous programmes, such as the Ministry of Agriculture and the Ministry of Science and Technology, leading to a wealth of expertise in this area. The Poverty Alleviation Office has so far not had any involvement with renewable energy technologies. • At the banner level, local Energy Technology Promotion Stations were set up to implement the Small Wind Turbine Programme, under the leadership of the IMAR Science and Technology Bureau. With the commencement of the Brightness Programme, some of these Energy Technology Promotion Stations were reformed to become companies under the Brightness Programme whilst others became private equipment suppliers. The ‘Brightness Companies’ carried out installations under the Brightness Programme. Taifeng holds a 51% share in these companies, with the other 49% held either by the Energy Technology Promotion Stations or by private shareholders. Since the suspension of the Brightness Programme in 2005, their main focus has been on after-sales service. These companies offer local expertise, which could be utilised during any future programme. Technical Aspects • Users were offered a total system package, not just individual components. For the earlier programmes, appliances such as DC-powered TV, were included with the package. • Many parts of IMAR have a good wind resource. The wind is usually sufficient all year round except for the months of July and August. To overcome the shortage of energy during the summer months, and particularly to be able to operate a freezer all year round, PV systems or PV-wind hybrid systems are used. • The main disadvantage of PV systems or PV-wind hybrid systems is their high initial cost. Whilst the typical energy output from a PV or wind system in IMAR is similar (around 0.5 kWh/day for a 100W system), the PV system costs around twice as much as the wind energy system; sometimes even higher costs were quoted for a PV system. • The most common wind turbine size is 100 W. Smaller turbines of 50 W were used during the early years of wind turbine development, but none of these seem to be still operational. Wind turbines of 150-300 W have been used in more recent programmes or by people who can afford them. Larger wind turbines of 500-1,000 W exist, but only in small numbers. PV is used much less than wind; maybe around a quarter to a third of all RE systems comprise PV. For PV, smaller systems of 100 W or less are also much more common than larger systems. • Wind-PV hybrid systems are used because the two resources complement each other during the course of the year. The wind resource has a low during the summer months, which is when the solar resource has its peak. Similarly, during winter, when the solar resource is lower due to shorter days, there is more wind. The main disadvantage of hybrid systems is their higher cost. • Many technical problems have occurred in the past. During the early years of wind turbine deployment, effective feedback loops involving the service centres ensured that reliability problems of wind turbines were addressed and rectified. However, some technical problems still persist and are examined further below. • Problems with after-sales service have sometimes occurred due to widely dispersed users of RE systems. However, a very effective service network was set up, covering the majority of banners, providing spares and repairing systems. • Batteries and wind turbine blades are items which are replaced regularly, typically every two to three years. A set of new blades for a 100W wind turbine costs up to RMB 100, for a 300W wind turbine RMB 200-350. A 12V/36Ah battery costs RMB 120-150, a 12V/200Ah battery costs RMB 600-800 (Note that some systems will require two or three

ITP/0960 11 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

12V batteries). Inverters are often of inferior quality and therefore need to be replaced from time to time. • The wind turbines themselves are very robust and last for many years. Bearings need to be greased, but only every few years. Blades can be replaced easily, generally by the users themselves. PV arrays also have long lifetimes and do not present reliability problems. • Battery disposal and recycling is an issue. The high rate of battery replacement results in a large number of disused batteries. Currently, there are no proper facilities to recycle old batteries. Often, they are left with the wind/PV system, and possibly still used occasionally. A way of collecting old batteries and returning them to manufacturers for recycling should be developed. Past and Current Subsidy Schemes • There is a lack of consistency and transparency in subsidy schemes. Approaches and amounts vary in different regions and programmes. Local people lack information on how to apply and how households were selected for a subsidy. Government designated companies or local government agencies are the main bodies to allocate subsidies and operate programmes. Microfinance and Financing of Household-Based Systems • Relevant results of ADB TA 35412, Rural Finance Reforms and Development of Microfinance Institutions for the Inner Mongolia Autonomous Region, were taken into account. Whilst the field work of this study concentrated on certain areas, conditions are similar in other parts of IMAR, which was confirmed by the socio-economic survey. • Rural households are often under a lot of financial pressures. Expenses for education are high. Chronic illness and the need to pay for prolonged medical treatment can also create a major problem. Poor people typically seek loans to meet large lifecycle expenses. Often, loans are sought from friends and relatives rather than from formal finance institutions. Risks resulting from weather conditions or natural disasters generally affects rural households more than urban households. • The rural finance sector is generally underdeveloped, with the larger financial institutions showing little interest in the rural areas. Promotional activities of formal financial institutions in rural areas are often poor, leading to households being unaware of services offered by local financial institutions. • Some dealers give credit to end users, e.g. 50% upfront and 50% six months later. Two of the stakeholders said that herdsmen are credit worthy and would never default on such an arrangement. This suggests that a dealer credit system could possibly be developed further. • Rural Credit Co-operatives (RCC) could act as a conduit for credit delivery. RCCs are the main supplier of formal credit to rural households. RCCs have a very high local presence and would be ideal for re-lending funds provided under an RE programme. However, RCCs have limited funds available, which might become a constraint if a large number of households requests a loan during an RE programme. • To date, there are no leasing companies for RE, but this could also be developed further. • The Post Office and the Agricultural Bank of China could also be used as financial intermediaries for RE. The Agricultural Bank has less local presence in the rural areas than RCCs, but they should still be considered. Tax Incentives • RE Equipment was subject to VAT at 17% and there were no income tax concessions. Discussions are under way to reduce VAT by 50%, but no income tax concessions are planned.

ITP/0960 12 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

NGO Sector • There are some NGOs in IMAR (mostly Women’s Federations) but only in certain areas. The NGO sector is underdeveloped in IMAR. At present, there is no apex body representing NGOs. The concept of a co-operative is largely unknown, and very little experience exists. Community-Based Systems • For community systems implemented under the Township Program, there was either no or only a very small monetary contribution from end users. • Ownership of community systems is a big issue. The DRC wanted Taifeng Company to own and operate the systems. However, Taifeng refused as it was not financially attractive at a tariff of 1.5-3 RMB/kWh. The ownership issue is still not resolved; in the interim, Huade New Energy Company, who installed the systems, is responsible for repairs etc under the system warranty. • Mr Guo Liheng, who had been responsible for the installation of community-based systems at Huade New Energy Company during the implementation of the SDDX programme, reported that apart from some battery problems, the systems worked well. He concluded that community-based systems were a success, and that the electricity tariff covers ongoing maintenance costs such as salary of an operator, diesel costs for a generator, and fuel costs for heating in the winter (the battery must not get too cold). However, replacement costs for batteries or other components are not included in this calculation. He also suggested that affordability is limited to 20 RMB per month (based on a consumption of 10kWh). Whilst this figure is correct for poor households, it should be noted that the results of the socio-economic survey indicate that far more than 20 RMB/month is affordable for the majority of households. • If a service provider were to operate a community system on a commercial basis, the current tariff, which is limited to 3 RMB/kWh, would be inadequate. • In some cases, villages with community-based RE systems were subsequently connected to the grid, or have been abandoned due to resettlement caused by desertification and disappearance of grassland. Sometimes, migration due to desertification led to a significantly reduced population compared to what the RE system had been designed for, resulting in overcapacity. • Most of the villages have no plan or strategy on how the system will be maintained and operated after the end of the installer’s warranty period. The World Bank REDP programme is currently looking into commissioning work to formulate strategies for longer term sustainability of the township electrification program. • Some stakeholders were of the opinion that the community-based systems in IMAR work reasonably well at present because they were only installed a few years ago. However, they would be unlikely to work in the long term, due to maintenance and component replacement requirements. It was also stated that any villages of more than 30 households were likely to be connected to the grid. Rural Electrification Approach in IMAR and Grid Expansion Plans • Section 2.3 of the 11th Five Year Plan deals with infrastructure development for agriculture and pasture areas. It lists the promotion of biogas, small wind turbines and solar energy in the pastoral areas, and states that all gachas or villages will be electrified (the means of electrification is not stated), connected by road, and connected to the telecommunication system. Internet connection will be provided at township level. • Whilst GIMAR’s 11th Five Year Plan covers rural electrification with off-grid RE systems, most activities are carried out through projects and programmes from various channels, such as bilateral and multilateral donor programmes, IMAR or national government programmes.

ITP/0960 13 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

• To date, rural electrification in IMAR has involved different government institutions. The IMAR Power Company was mainly responsible for grid extension in rural areas; and the IMAR Science and Technology Bureau and the IMAR Development and Reform Bureau carried out a series of off-grid rural electrification projects and programmes. • The Power Company has had policies and targets for grid extension in rural areas, however, whether the annual target can be reached very much depends on the annual budget allocation. • The DRC’s rural electrification plan provides for future grid connection by expanding the current grid by 15km. Beyond this, no grid connections are planned in the foreseeable future. Future Village Electrification Programme • The Village Electrification Programme (SDDC or Song Dian Dao Cun) had been seen as the follow-on programme for rural electrification with RE in IMAR. During 2006, the announcement of details of the new Village Electrification Programme had been awaited. In mid-2006, the following funding levels had been expected for the SDDC: 90% subsidy from DRC (50% from National level, 40% from IMAR), with the remaining 10% paid by the end users. This has now been superseded (see below). Over 1,000 unelectrified villages had been identified in 2005. These villages were of various sizes, starting from as small as 3-5 households. For larger villages of at least 20-30 households, community- based systems had been planned. The subsidy was to be distributed through the newly- established Inner Mongolia Green Energy Company.11 • During the implementation of the Brightness Programme, the 11th Five Year Plan was being developed, including the Village Electrification Programme. This hindered the uptake of the Brightness Programme as some people decided to wait for the new programme as it was expected to provide a higher level of government subsidy. • The NDRC Circular Notice of Power Supply Construction Program in the Unelectrified Regions (NDRC Energy [2006] 2312), issued on 26 November 2006, adds a new dimension to electrification using off-grid renewable energy, and may supersede the planned Village Electrification Programme, SDDC. It states that the Power Company will be responsible for all rural electrification in the long-term, including grid extension as well as off-grid renewable energy. This indicates that the Power Company, which to date appeared to have little interest or involvement with non-grid electrification, will play a much more active role in this area in the future. The Power Company expect approximately 50% of non-electrified households IMAR to be supplied with renewable energy systems and subsidies to be available from the Central Government, the provincial government and other funding to come from power company loans. They have recently interpreted these regulations and in May 2007 issued their plan for electrification over the next five years. In the near term this includes contracting the Provincial level company responsible for the Brightness programme to install household PV systems with a 80% subsidy but only rated at 100Wp. The maintenance of the systems is not clear but is expected to be included for the first three years. The review and research carried out by this project would suggest that these systems will not be large enough for household demands and it is not sustainable if there is not an on-going maintenance programme. The Power Company representative was invited to the subsequent stakeholder meeting, but was unable to attend.

11 Personal interview with Mr. Zhang Guangli from the Energy Department of the IMAR Development and Reform Bureau, July 2006

ITP/0960 14 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Social Aspects • Whilst people use electric lighting, this was generally not the prime motivator for getting a wind or hybrid system. The most important factor in making the decision was usually being able to use a TV. For some families, a telephone was the most important appliance. • Many herdsmen are leaving their traditional lifestyle and are seeking employment in the cities, due to drought and desertification. There is general movement from the country to the cities. In some areas, the government has stopped grazing for a number of years to give the grassland the opportunity to recover, paying the herders some compensation for lost income.

4.2 Inventory and Evaluation of Household-Based Units

Programmes Supporting Household-Based RE Systems Most of the electrification programmes using renewable energy in IMAR supported the use of household-based wind and/or PV systems, i.e. individual systems for each household. Annex 4 shows an inventory of all programmes supporting household-based renewable energy systems. Technical Evaluation During field trips, a technical evaluation of a sample of systems was carried out. The general conclusion was that systems work reasonably well. However, the technical survey also indicated that there were problem areas, which should be addressed by future programmes. These are illustrated by the photographs shown below. A total of 21 household-based systems was analysed in detail. These included different RE technologies such as wind only, PV only and PV-wind hybrid systems, as well as systems of various sizes. For household systems, the following problem areas where identified: • The quality of the electrical installation was very variable. Some systems had been installed in a very professional manner, whilst many others were installed to a very low standard, resulting in inefficient and unreliable systems. Problems observed included loose or dangling wires, poor connections to battery terminals, damaged or perished insulation, etc. Perished insulation would be interpreted as a sign that the cable used was not of outdoor specification. Perished insulation could lead to fires as well as increased system losses. Some systems had been installed by professional installers, whilst others had been installed by the users themselves in order to save money. • Another very important observation was that older systems often had been modified as various components had been replaced over the course of the years. Because most of this work was carried out by the users themselves who generally have a limited technical understanding, the resulting system would still work to some extent, but not to its full potential. Changes included wiring which was tangled and of lower specification than required; poor connections leading to additional losses; undersized batteries resulting in lower available energy output; old and new batteries connected in parallel, resulting in discharge currents from one battery to the other; appliances connected directly to the battery, bypassing the controller and potentially leading to over-discharging of the battery; etc. Typically, the older a system was, the lower the quality of the electrical installation as well as the system configuration. The resulting low-quality, low-efficiency system could almost always be attributed to the complete lack of any professional attention for many years, and the lack of technical understanding by the users who maintained the systems. One extreme example seen was a 200Ah battery having been replaced by a 36Ah battery, with the user wondering why the available power was so low, and why the battery had to be replaced twice a year. • The quality of the wind turbine installation was also variable. The tower was usually hinged at the bottom, with four guy ropes or sometimes wires holding it in place. The

ITP/0960 15 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

ropes were anchored into the ground with steel anchors of about 0.5 m length. Only very few of the systems visited had the anchors concreted into the ground. It was reported that these anchors could come loose, especially when the soil is soft after rain. Another problem reported was that the tighteners used to tighten the ropes could come loose, or that the ropes/steel bars/cables would break. The result would be damage to the wind turbine blades and possibly other parts, which was entirely due to poor installation quality. • The mechanical installation of controllers, batteries and inverters ranged from equipment just sitting on the floor of a room to proper steel cabinets accommodating the components (but often not utilising space very efficiently). • Problems with blades were reported. Blades are typically made from laminated wood with a glass fibre/epoxy resin coating, or sometimes from high-strength plastic. Sometimes blades break in strong winds. Blades can also be damaged by the whole wind turbine falling over. It had been stated that chipping of blades can also be caused by strong winds. The underlying cause of this may be manufacturing defects leading to delamination. Blades can be replaced relatively easily, and are replaced routinely similar to batteries. • Corrosion of battery terminals was observed in many cases. This can lead to poor contacts and thus to system inefficiencies. • Whilst shortcomings were observed, it was encouraging to see that many systems were still operational even after ten or more years of operation. Particularly the wind turbines themselves were considered to be well-built and can achieve a long life with very little maintenance. Appliances Used • Most often, TV was the most important appliance, rather than electric lights. Usually, the TV was used in conjunction with a satellite receiver. • For some users, the telephone was the most important appliance. The telephones seen used Fixed Wireless Access (FWA) technology. FWA is a radio-based local exchange service which extends telephone service to rural areas. FWA reduces the cost of conventional landline by replacing a landline local loop with radio communications, employing CDMA (Code Division Multiple Access) access technology. • Another important appliance was a freezer. Often, users reported that the capacity of their system was insufficient to operate both a freezer and a TV; these users were typically forced to share the available power between the two appliances.

The following photographs show the standard systems installed and demonstrate a number of the points above.

ITP/0960 16 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Typical Home with Small Wind Turbine Typical Small Wind Turbine

Household Installation with Proper Typical Household PV System Steel Cabinet

ITP/0960 17 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Typical Household Installation with Typical Household Installation with Battery, Controller/Inverter and TV Battery, Controller/Inverter and TV

Mobile Phone Charger Mobile Phone Charger Connected Directly to Battery

Wind Turbine with Chipped Blades Broken off Wind Turbine Blade

ITP/0960 18 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Less than Professional Battery Cable with Perished Insulation Installation

Corroded Battery Terminals Battery Cell with Acid Spill due to Excessive Gassing

ITP/0960 19 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Community-Based PV System with Grid Battery Bank for Community-Based PV Connection in the Background System

Diesel Generator for Community-Based Inverters for Community-Based PV PV System System

4.3 Inventory and Evaluation of Community-Based Systems

During 1995 and 1998, a total of 17 community-based hybrid systems were installed in IMAR, comprising seven PV-diesel and ten wind-diesel systems. The systems were installed by Huade New Energy Company, with German funding from GTZ and ELDORADO. Under the Township Electrification Programme (Song Dian Dao Xiang, SDDX), a total of 42 community-based systems were installed in 2003. This number includes the 17 systems installed previously, which were upgraded under the Township Electrification Programme. In addition, one community-based system was installed in 2001 in Alashanyou Banner with Japanese funding (NEDO), and another system in 2004 in Suniteyou Banner, with funding from the Italian government under the Chinese-Italian Solar Village project. Annex 6 shows an inventory of community-based renewable energy systems installed in IMAR. A total of eight community-based systems have since been connected to the grid. It is understood that this was due to the respective villages being near to either industrial or military installations which were connected to the grid. To date, reliable information regarding grid extension plans has not become available. Anecdotal evidence suggests that all villages of 30 or more households may be connected to the grid in future. The community systems visited worked well, with no problems reported. The reason for this is probably that the systems were only installed two or three years ago, and are still maintained by the installer. Some users said they preferred the PV community system to the grid, as they did not have to pay for their electricity. The systems visited appeared to be oversized for the needs of the villagers. This was at least partly due to people moving away from the villages to escape the effects of drought and desertification. An undesirable side effect of this is that the income to the operator is reduced when the demand for electricity falls. In one village, street lighting had been installed in an area where houses were yet to be built, illustrating the overcapacity of the system.

ITP/0960 20 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

For the systems visited, accounting procedures used to keep track of income from electricity tariffs and expenditure for system operation appeared not to be very transparent. This made any assessment of the profitability of a scheme very difficult. Provisions for battery replacement were generally not made.

4.4 Comparison of Household and Community Systems

Initial Capital Costs and Level of Grant Funding The end users’ contribution to the capital cost of household systems tended to be relatively high. Usually, only a part of the initial system costs was covered by the respective programme, with the bulk of the costs covered by the user. In contrast, community-based systems tended to have considerably higher subsidy levels with a lower contribution from the users. Installation Quality The community systems visited were found to be of higher and more consistent installation quality than the household-based systems. This is attributed to the fact that they were always installed by a professional installer. Also, all community systems were relatively new and had benefited from professional maintenance by the installer. Maintenance Community-based systems seem to be working well technically during the first few years after installation, when the installers are responsible for the maintenance of the system. Afterwards, maintenance depends on the local community and there is a greater risk of maintenance not being carried out. Household systems are generally reasonably well maintained, but due to lack of technical knowledge or lack of cash to replace the batteries, some systems are not optimally operated. Financial Provisions for Component Replacement One problem with the existing community-based systems was that there were no provisions for replacing major components. Particularly the battery of any system needs to be replaced after a number of years, which requires major capital investment. Initial calculations showed that the income from the electricity tariff less operating costs is likely to be insufficient to cover the full costs of replacing the battery. Generally, there were no provisions for replacing the battery or any other component, which raises serious questions about the longer-term sustainability of these installations. Any future programme installing community-based RE systems should address the issue of financial provisions for replacing major components, in particular the battery. In order to ensure long-term sustainability, it should be clear from the outset who operates and maintains the system, and how replacement batteries and other components will be paid for. For household-based systems, it is easier for the users to pay for the costs of a replacement battery. Level of Service The above differences are probably largely due to the significantly higher level of service provided by community systems, which results in higher costs. A similar level of service could be attained by using larger household-based systems (e.g. 1kW per household), however, this would typically be the prerogative of the wealthiest households. Sometimes it was found that community-based systems were oversized, possibly due to people leaving the village.

ITP/0960 21 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Grid Extension It is still not entirely clear which villages may be electrified by grid extension. Before the installation of any new community-based systems, it should be ascertained that the villages chosen will not be connected to the grid in the foreseeable future. Installing an RE-based village power supply which is disused after a few years because the village is connected to the grid is not an efficient use of available funding. Future grid extension is much less of an issue for the installation of dispersed household-based systems, as there is a market for second-hand systems.

ITP/0960 22 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report 5 SOCIO-ECONOMIC SURVEY

A comprehensive socio-economic household survey was conducted covering the central, eastern and western regions of IMAR. The full socio-economic survey is included in Annex 6, as a separate volume, and includes the methodology and overall results of the survey. A summary of the results is provided here.

5.1 Survey design and methodology The survey aimed to conduct two assessments. Firstly, the use of renewable energy system installations, satisfaction with systems, perception and the impact on rural households was assessed. Secondly, the energy usage and potential for similar RE installations for households in remote rural areas was assessed, including the ability and willingness to pay.

The counties/banners used as survey locations were chosen taking the following criteria into account: • Geographical spread across IMAR (West, centre, east; representation of Leagues) Representation of different topographical areas (e.g. agricultural areas, grassland, desert, forest area) • Availability of both RE installations and non-electrified households • Highest rated counties/banners were given priority The banners surveyed are shown highlighted in the following figure.

Figure 1: Map showing banners surveyed

ITP/0960 23 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Altogether, 404 households distributed across 13 banners were surveyed, 193 households without electricity and 211 households with renewable energy systems. The following table shows the survey sample.

Table 4: Total Survey Sample Geogr League/ Banner RE Households NE Households TOTAL Region City Frequency % Frequency % Frequency % Bayonnoer Wulatehou (back) 9 4.3 4 2.1 13 3.2 Western Bayonnoer Wulatezhong/ 26 12 16 8.3 42 10.4 Wulatehou middle Erdos Etouke 24 11.4 20 10.4 44 10.9 Alashan Alashanzou 12 5.7 15 7.8 27 6.7 Total (Western) 71 33.6 55 28.5 126 31.2 Xilinguole Suniteyou 28 13.3 8 4.1 36 8.9

Wulanchabu Siziwang 13 6.2 11 5.7 24 5.9 Central Wulanchabu Shangdu 5 2.4 14 7.3 19 4.7 Xilinguole Dongu (central) 32 15.2 2 1.0 34 8.4 Xilinguole Dongu (north) 10 4.7 17 8.8 27 6.7 Total (Central) 88 41.7 52 26.9 140 34.7 Hulunbeier Ewenke 8 3.8 2 1.0 10 2.5

Hulunbeier Xinbaerhuyou 8 3.8 5 2.6 13 3.2

Eastern Hulunbeier Elunchun 7 3.3 4 2.1 11 2.7 Xinaman Keerquinyouyizhong 13 11 5.7 24 5.9 Central 6.2 Xinaman Keerquinyouyizhong 11 25 13.0 36 8.9 North 5.2 Tongliao Kezuozhongqi 5 2.4 39 20.2 44 10.9 Total (Eastern) 52 24.6 86 44.6 138 34.2 GRAND TOTAL 211 100.0 193 100.0 404 100.0

* RE HHs – Households with renewable energy systems ** NE HHs – Households without electricity The sample size was distributed in one-thirds for the western, central and eastern region. Individual households were randomly selected at the town or village level. Some of the Banners such as Wulatehou banner in Bayonnoer and the Eastern Cities of Elunchun have low sample sizes because of the rough field conditions and the inability for local government to find houses with renewable energy systems or non electrified households in the field area. The socio-economic survey was designed with two groups of respondents in mind: user households owning renewable energy systems (REHH), and user households without electricity (Non-electrified households - NEHH). While the first set of respondents would provide evidence on the impact of renewable energy systems, the second group of respondents would generate information on energy needs and demand. The survey was conducted using questionnaires translated into Chinese where the following information was requested: basic household/family/ethnic data; economic status/income generation of household; household energy usage; RE system details and impact (only for REHH); and future energy demands. A data entry file using excel was developed, and four students were trained to input the data. The survey was carried out by the international and domestic social development consultants plus the students. IT Power’s consultants also input some of the data and cross checked all data entry files. The data was transferred to the Statistical Package for the Social Sciences (SPSS), a computer program for statistical analysis.

ITP/0960 24 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report 5.2 Results of Socio-Economic Survey

IMAR has a population of approximately 23 million, of which 70 percent are in rural areas. About 10 percent are minorities who live in undeveloped border towns and villages without sufficient infrastructure provision. Most of the respondents were from households whose livelihoods depended on herding or semi agriculture. The paternal nature of these families was obvious as the majority of the main respondents during the survey were males. However, women were also found to have a good grasp of the household financial situation and often, a quick discussion was made in regard to financial queries. A majority of respondents in the eastern and western region were of Mongo ethnic origin (78% in NEHH and 73% in REHH). Nuclear families were very common in IMAR region, instead of large extended families. Regarding education levels both males and females were found to be equally educated. Poverty In relation to the economic status of a household results show a high percentage of poor households in the non-electrified category (73%) and mostly medium income families in the RE electrified category of respondent households (see Figures 1 and 2). Some of the poorer households who own RE systems were of the opinion that they were medium-income households when they had initially bought the systems in the late 80s or early 90s. They have gradually became poorer because of recent downward trends in livestock earnings due to rapid deforestation/desertification, decreases in cashmere prices and the increasing cost of health and education. With such a low income herder families are finding it difficult to buy wind systems, especially larger than 300W system. This is clearly seen from the NEHH respondents who had fewer livestock, lived in remoter areas, and paying an upfront cost for a wind system was a problem. Also the purchasing capacities of these families are fairly restricted with almost 40% of respondents already having a loan of 6,000 RMB. Thus herders, to install a RE system in remoter areas, would need a higher level of subsidy than those in nearby areas due to the above reasons and also to low income earning opportunity.

Fig 1:Economic Status according to Regions (Qualitative) -NEHH Fig 2: Economic Status according to Regions (Qualitative) (REHH) 100.0 100.0 90.0 90.0 80.0 % 80.0 Rich 70.0 Rich 70.0 Mediu Mediu 60.0 60.0 mPoor Poor 50.0 % 50.0 40.0 40.0 30.0 30.0 20.0 20.0 10.0 10.0 0.0 0.0 Total Central Total Eastern Total Western GRAND Total Central Total Eastern Total Western GRAND Regions Regions

Energy Use Regarding the existing energy resources, in the western region where coal was found in abundance, most respondents used coal for heating purposes. Almost all NEHH respondents (97.9%) said that lighting was inadequate and still a very high rate of REHH respondents (67%) feel that lighting is still inadequate with a RE system, particularly with households owning small 50 to 100W wind systems or those who owned the systems for more than 10 years. Energy for heating and cooking was not considered as a major problem because of the

ITP/0960 25 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report use of coal and dung; more than 80% in both REHH and NEHH said that they had adequate energy resources for heating and cooking. RE System use The RE systems were mostly used for lighting, TV and charging cell phones. For lighting, some respondents used candles in addition. While most households who owned RE systems used 2-3 CFL lamps, lighting was often found to be lower in preference compared to watching TV or charging cell phones. Most of the respondents surveyed wanted to buy an RE system and had seen neighbours and friends use it in other areas. While almost 44% of respondents said that the high upfront investment needed was the main reason for not buying an RE System, there were an equally large group of respondents who combined this factor with the expectation of a government programme (35%). About 10% said that they were waiting to be connected to the electricity grid such as the communities in one of the settlements in Keerquinyouyizhong Central, where grid lines have already been installed over the last year. Some of them had already bought second hand wind power systems and were using these temporarily for lighting and TV. From the RE systems already installed in IMAR, there is a predominance of wind home system installations of 300W and below. Only 14 systems (6.6%) of the 211 REHH owned a PV-wind hybrid system and only one 5kW system is a community-based PV installation. Most of the installations were carried out since 1990 in these households. From the installed RE systems about 55% of respondents said that the systems were working well, while 35.8% said they were satisfactory and only about 10% said that the condition was bad. Respondents also pointed out that they had major problems with system performance due to lack of wind resource for about 2 to 3 months in the year. Another common complaint against the technical quality was the low quality of wind blades which they had to replace every one or two years, not because they could not find the pieces but due to lack of formal training to replace them. Training had only been given to 6% of the respondents. Lighting, TV and Cell Phones were seen as the main perceived benefits of RE systems from both the NEHH and REHH respondents, as seen in the figures below. Lighting and TV was the main motivation for buying the RE system. In far flung herding areas, TV was the overall main motivator as these isolated families sought information and entertainment. The main uses of electricity were given as: lighting, TV, VCD, light for animals, satellite receivers, and in a few richer households, fridge and washing machine. The limitation of the small wind or hybrid system was a major deterrent in the creation of a strong impact.

Fig 19: Main perceived benefits of electricity (NEHHs) 6%

17% Lighting 38% TV

Phone

Childrens study hours

39%

ITP/0960 26 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Fig 20: Main Benefits from RE system (REHHs)

8%

Lighting

47% TV Phone 45%

Regarding the knowledge of RE systems a high percentage (93%) of NEHH respondents knew of someone who owned an RE system. Neighbours or family members usually owned a system, or in most areas they knew about the RE system availability from nearby banners and towns. However, the respondents pointed out that all of the RE owners were not happy with the system for reasons such as low resource and capacity, or low quality. Affordability and Willingness to pay In terms of affordability to buy a renewable energy system, most respondents quoted about RMB 1000 for an average a year, preferring a yearly instalment payment system. Most of the respondents who did not own RE systems were ready to pay a bit but did not have enough cash to deposit or buy the RE system. While a majority of respondents of NEHH said they would have to borrow money, the majority of respondents of the REHH category said that they did not. Also the majority of NEHH respondents (60%) responded that the price of RE systems was very high and only 4 percent thought it was affordable. Both NEHH and REHH respondents were asked how much they would be actually willing to pay for a wind or solar system typically in a year. The majority of response was between 300RMB and 1000RMB. However, REHH respondents were willing to pay a lot more than the NEHH respondents. One of the main reasons could be because these households had a higher income and also had received a big subsidy for their current systems. Once they are habituated to the services, especially TV, they are willing to save and buy a system if adequately priced. Most REHH respondents were keen to buy a solar system but the high upfront cost deterred them from buying it. Only a few hybrid systems were bought with their own capital unless otherwise subsidised by the Brightness programme or donor programmes. IMAR represents an interesting market for RE technologies, as the connection of dispersed households in remoter areas to the electricity grid will never be economic. In Elunchun, this was clearly pointed out by the local Government officials. In addition, socially, herder families are mostly nuclear units rather than extended households. Sons leaving their parents have been found to have taken away the wind system leaving their elder parents without electricity. Some families have felt the need of lighting is more important for younger people as they have children who need to study in the night. Thus, the number of families who need the system would increase rather than decrease. Wind systems were also found to be used as a resource that could be re-sold to other families once households were connected to the grid. There were many households who were using second hand systems. Some of the older systems were also provided free to relatives. Old systems were being used mainly to charge cell phones and usually one light bulb.

ITP/0960 27 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

A combination of wind turbines and photovoltaic arrays could prove to be more effective than wind only systems, especially due to the seasonal resource. However, the high cost of PV deters even richer income respondents from buying a system without any subsidy.

ITP/0960 28 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report 6 RESOURCE ASSESSMENT

6.1 Wind Energy

Most parts of IMAR have a very good wind resource. The maps in Annex 10 show the geographical distribution of IMAR’s wind resource. There are seasonal variations for the wind energy resource - the energy output is relatively constant over the course of the year, but has a distinct reduction in the available energy during the months of July and August. The criteria generally used to assess the suitability of a site or area for the use of wind energy are the average annual wind speed and the number of hours with wind speeds above 3m/s. As a rule of thumb, a site is considered suitable for wind energy use if the average annual wind speed is at least 3m/s, and the wind speed is above 3m/s for at least 3,000 hours per year. The wind speeds referred to are measured at 10m height. The maps in Annex 10 show both parameters for the whole of China.

6.2 Solar Energy

Most parts of IMAR have a very good solar resource. The maps in Annex 11 show the geographical distribution of IMAR’s solar resource. The solar energy resource shows seasonal variations, which can be seen on the resource maps. The main indicators used are the solar radiation and the number of sunshine hours per year. As a rule of thumb, a site should have at least 2,600 sunshine hours per year. The map in Annex 11 shows that this is the case for most of IMAR, except some parts of the far north east. The applicability of PV is also often judged by the cost of the electricity generated, which should be below RMB 6/kWh.

6.3 Wind-PV Hybrid Systems

As the wind and solar resource complement each other over the course of the year, wind-PV hybrid systems present the best solution for household-based small-scale RE. Figure 2 shows average wind speeds and solar irradiance over the course of a year. The differences in output from the wind turbine may appear to be not significant, but because wind turbine output power varies with the cube of the wind speed, the seasonal variations of power from a wind turbine are very pronounced.

Figure 2: Example of Wind and Solar Resource Data for one County in IMAR Average wind speeds (m/s) are represented by the thin solid line, average solar irradiance (kW/m2) by the dashed line, and an average load by the thick solid line. Source: Lew et al, 1997

ITP/0960 29 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Note that the wind speeds shown here are at 50m, higher than the height of any proposed small scale wind turbines. Wind speed increases with the height above ground.

6.4 Other Technologies

Biogas Biogas does not appear to be used to any significant extent in IMAR. Only one demonstration system was found during the field trips, and this was not fully operational. Typical biogas systems in rural China are household based, and consist of an underground biogas digester which is fed with animal manure and other organic waste. Biogas is typically used for cooking as well as for lighting, but not for the generation of electricity. The cold climate, particularly in winter, makes biogas a less viable option. The way to overcome this disadvantage at least to some extent is to build the biogas digester underneath the pig sty, and use a simple removable semi transparent plastic cover to utilise solar gains during the colder parts of the year. However, there is likely a period during winter when the gas produced would not be sufficient to meet demand. Large-scale plants for biomass gasification were not investigated further, as these would only be suitable for the electrification of larger villages which are likely to be connected to the grid in the foreseeable future. The institutional issues would be similar as for PV or wind systems.

Biomass heating and energy efficiency Biomass is used for heating and cooking. In farming areas, stalks were used, whereas herders typically used dung. Many of the houses visited had a kang (a raised bed which uses the flue from a stove for heating, which is also used for daytime activities), but very few energy-efficient kangs were seen. The energy efficiency of kangs can be improved by raising the kang off the floor, leaving an air gap, and by blocking the outlet of the flue after the fire has died down to reduce heat loss.

ITP/0960 30 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report 7 ANALYSIS OF ELECTRIFICATION USING RENEWABLE ENERGY

7.1 SWOT Analysis

A SWOT (strengths, weaknesses, opportunities, threats) analysis of past programmes was carried out and is shown in Table 5 overleaf. The objective is defined as electrification of rural households by means of wind turbines and PV systems. Strengths, weaknesses, opportunities and threats are defined as follows: Strengths are attributes of past programmes that are helpful to the achievement of the objective. Weaknesses are attributes of past programmes that are harmful to the achievement of the objective. Opportunities are external conditions that are helpful to the achievement of the objective. Threats are external conditions that are harmful to the achievement of the objective.

ITP/0960 31 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Table 5: SWOT Analysis

Strengths Weaknesses - An institutional framework has been - System costs are too high for the poorest established to some extent in IMAR part of the population - Expertise and know-how are available both - Equipment used was of variable quality, at local (banner/town) level and at provincial resulting in the need for replacement of (IMAR) level components - Some wind power systems still operational - Variable quality of installation work, leading even after 20+ years, demonstrating long- to inefficient and unreliable systems. term sustainability of the programme Installation by users is not ideal - Strong network of market distributors - Modifications to system configuration users especially for wind turbines of all sizes and and lack of professional attention leading to price ranges inefficient systems of poor quality - Awareness of the availability of wind systems - No special policy or regulatory framework for already very strong at the local level implementation of renewable energy programmes exists - Users are willing to pay for the system in instalments (this facility is unavailable to - New programmes did not always build on date) existing experience - Prices of PV systems are very high limiting the use of hybrid systems - Bad examples by donors of free delivery of solar systems, especially to communities - Communities unaware of basic operation and maintenance requirements of systems - Insufficient training, particularly for users - No funding for the continuation of the programme Opportunities Threats - Scattered households or small villages are - Many of the unelectrified households are difficult to electrify by means of grid poor and therefore unable to contribute extension, and therefore present an ideal financially to a RE system. They may be able opportunity for electrification by RE to make a small contribution. - Particularly herding families have some - Unco-ordinated donor programmes continue wealth in form of their animals to provide free systems - Knowledge and experience gained from - Extremely dispersed population makes it previous programmes can be effectively used difficult for far removed communities to be for the implementation of another large reached delivery programme - Presence of trained people at least at the regional level - Possibility to introduce specific government policies with regard to renewable energy development - Well established dealers selling wind and solar systems

ITP/0960 32 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report 7.2 Conclusions

Firstly, it must be noted that RE electrification efforts in IMAR have led to impressive results, with many tens of thousands of systems still in operation in all parts of the province. Previous programmes do however have some shortcomings, which are highlighted by this study in order to allow their elimination in future programmes. The main problems with electrification using RE in the past are the lack of affordability and issues relating to long-term sustainability, as summarised below: Affordability. Due to a lack of affordability, a significant part of the population has been unable to afford a renewable energy power supply system. People who own an old, obsolete renewable energy system may be unable to replace it with a new system. This issue can be addressed by higher subsidies or by suitable financing mechanisms such as the provision of credit. User knowledge base. Little or no user training took place in past programmes, and the users definitely have a lack of knowledge about how systems work, and what they should and shouldn’t do with their systems. It is seen as a high priority to address this problem, as a better understanding of the RE systems by their users could eliminate many of the problems observed. Component quality. Insufficient component quality, particularly for batteries, inverters and wind turbine blades, leads to low component life times. In turn, this leads to premature system failures, increased downtimes (i.e. non-availability of power to the user), and may also result in incorrect system configuration due to replacement components being of the wrong specification. Wind turbines and PV modules are generally of sufficiently high quality and do not present an issue. Inadvertent changes to system configuration by incompetent persons. It was observed that modifications to the system configuration were haphazard and accidental, owing to the fact that they were made by users with very limited technical knowledge. Due to lack of professional maintenance or attention after the initial warranty period, changes were made to many systems which resulted in poor system performance and lower overall system efficiency, leaving users with less available energy. In practical terms, this means that the owner of a 300W system may only get the energy output expected from a fully operational 100 or 150W system. The drop in system efficiency often occurs gradually over a longer period of time, caused by battery degradation, increased wiring and connection losses, etc., and may go unnoticed for some time. By carrying out regular professional maintenance and system checks, this reduction in performance could be much reduced, providing the user with more available energy. Insufficient power output. Users were sometimes not happy with the amount of energy available to them. In many instances, particularly with older systems, this could be attributed to poor system performance, as explained above. Another reason was that users have unrealistic expectations. A larger system with a higher power output is possible but will come at a cost, and it is unrealistic to expect unlimited amounts of energy to be available. Users with a wind only system experience the seasonal variation of the wind energy resource, which leaves them with a low energy output over the summer months. This can be addressed by using wind-PV hybrid systems, but again this solution significantly increases the system cost. Maintenance/service infrastructure. During the socio-economic survey, users were asked about access to spares and responded overwhelmingly that this was not a problem. A maintenance and service infrastructure does exist and seems to work fairly well. The main problem is seen as the accessibility of these services for the more remote households. Generally, people had to travel to the banner town for access to these services, rather than

ITP/0960 33 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report the local township. Long distances make it more difficult for remote households to visit the service company, and also result in higher costs of service callouts by the service company. Initial system configuration. The Brightness Programme did allow users to choose their system configuration; however, the additional cost of a higher-specification system had to be borne by the user. This approach is seen as fair and equitable, as users with higher energy demand pay for the resulting higher system cost. RE systems are modular and therefore well suited to upgrading to a higher specification at a later date.

ITP/0960 34 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report 8 RECOMMENDATIONS FOR RURAL ELECTRIFICATION IN IMAR

8.1 Strategy Recommendations

In order to reach the goal of near 100% electrification in IMAR, it is suggested that GIMAR continues the current strategy of a parallel approach of grid extension and electrification using renewable energy. Grid extension should continue, reaching those households where this makes economic sense. Dispersed very remote households should continue to be electrified using renewable energy, as the grid is unlikely to reach these households in the foreseeable future. In order to ensure that even the most remote as well as the poorest people are reached with electricity, a proactive approach is required by GIMAR. Two different approaches could be used to achieve this aim. The first would be a new subsidy programme, along similar lines to the past Brightness Programme, but with a number of improvements including a higher level of subsidy. The other approach would be that the Power Company acts as an energy service company for the areas served by off-grid renewable energy and owns and operates RE systems in these areas. For the first approach, it is recommended that a new programme builds on the positive experience from previous programmes, and addresses the shortcomings identified. In particular, in order to make electricity available to the poorest people, a significantly high level of subsidy is recommended. In line with this Article 18 of the Renewable Energy Law states that the “People’s government above the county level shall provide financial support for the renewable energy utilization projects in rural areas.” Further recommendations are given below. If this approach is chosen, it is recommended that GIMAR develop and publish a rural electrification plan which determines which areas will be connected to the grid and which are designated for supply by off-grid renewable energy. This would enable future funding/donor programmes to concentrate their efforts much more effectively. Any donor programmes with 100% or near 100% funding should be discouraged, as this distorts the market and is unfair to those people who are bypassed by such a programme. The NDRC Circular No. [2006] 2312 issued in November 2006 states that the Power Company will be responsible for all rural electrification in the long-term, including grid extension as well as off-grid renewable energy. This coincides with part of the second approach suggested above. This approach has a number of advantages. As a large organisation with significant financial resources, the Power Company is in an ideal position to pursue an electrification programme with RE systems, which is characterised by large upfront costs. The Power Company also has experience and the necessary infrastructure to collect fees from dispersed households. The Power Company has related technical expertise which could be utilised to create an effective maintenance network. The Power Company, which to date appears to have had little interest or involvement with non-grid electrification, would need financial or regulatory incentives to play an active role in this area in the future. Viewed in isolation, electrification with off-grid RE systems is unlikely to yield profits to make it economically attractive to a service provider. However, if the Power Company was allowed to use cross-subsidies to distribute the cost to all its customers, a profit could be generated from this activity thus making it economically attractive. Another benefit of cross-subsidy would be that the cost would not have to be borne by the government. This has been discussed with the Power Company and they are not interested in acting as an energy service company and would prefer to sub-contract the installation out to another company including initial maintenance.

ITP/0960 35 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report 8.2 Proposed Delivery Models and Rationale

One of the key requirements for providing electricity to the rural remote households is to carefully plan the implementation model/s specific to Inner Mongolia. Various implementation delivery models have been designed, tried and tested in China and globally through governments, private sector and donor led initiatives. Vital to the success of the various delivery models is the development of appropriate government policies that are favourable to the large percentage of rural population not connected to the national grid. Many of the lessons learnt are common to all programmes. These lessons include system design according to affordability; systems must be robust and simple to operate, targeted information dissemination, training to stakeholders as well as users, institutional support, productive uses, good financing plan and an active stakeholder interest. RE programmes are also successful if regional or local leaders including governments strongly support initiatives and projects. Any successful implementation model for rural electrification is likely to have a number of organisations working together, including dealers, co-operatives, communities, NGOs, Government and the financial sector. This section sets out the key information and issues of a number of delivery models for RE implementation and their applicability for Inner Mongolia. Each of these is seen as a possible business models for widespread use in Inner Mongolia. Models using individual household based systems (wind, PV, wind-PV hybrids) are seen as being the most likely models to be successful in IMAR since all evidence from the community-based systems visited suggests strongly that this approach is not sustainable as there is typically no provision for repairs or replacement of batteries and other components. In addition villages large enough to warrant a community-based system are likely to be connected to the grid. Hence, the focus of the proposed business models is on individual, household-based systems.

ITP/0960 36 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

8.2.1 Key issues and information for RE Implementation Models

Criteria Cash Sales Credit Sales Fee-for-Service (ESCO) ƒ A supplier sells the system directly or ƒ a) The supplier/dealer sells the ƒ ESCO installs system at user’s Description of via a dealer to the end-user. system to the end-user, who obtains household and provides energy model ƒ The end-user immediately becomes consumer credit from a third party services to user owner of the system credit institution. OR ƒ ESCO owns and maintains system. ƒ Limitless number of companies selling ƒ b) The dealer sells the system on own End user never becomes owner systems credit (possibly backed by financial ƒ End user may own institution or the government). appliances/batteries etc. ƒ Low interest loan to user. System can ƒ End-user pays a regular payment to be used as collateral against the loan. ESCO for energy services ƒ Likely to be limited number of ƒ Requires minimum size to be viable companies selling systems. ƒ Only one company operates in one geographical area which is let under a concession ƒ High: Depends on system size, level ƒ Fair: Depends on credit scheme ƒ Low, as cost spread over long Cost to customer of subsidy and retail efficiency followed period. – initial ƒ Customer may have to purchase some appliances/batteries ƒ Customer needs to make provision for ƒ Similar to cash sales. ƒ Customer has defined periodic costs, Cost to customer maintenance and occasional high no unexpected surprises. However – ongoing expenses (battery replacement). maintaining revenue collection and ƒ Also replacement goods may be maintenance infrastructure is distributed through retail agencies- expensive often with high mark ups

ITP/0960 37 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Criteria Cash Sales Credit Sales Fee-for-Service (ESCO) ƒ User takes primary responsibility ƒ Maintenance contract usually set up ƒ ESCO has primary responsibility for Long term ƒ Dealer (if close enough) will support, for finance period long-term maintenance (including maintenance but on cost-recovery basis ƒ User is ultimately responsible battery replacement) ƒ Medium risk of system failure – as if ƒ Higher risk of system failure, since ƒ Maintenance is part of defined bought with cash or dealer credit, battery may be too expensive for user service conditions user can presumably afford to replace to replace with cash and credit may ƒ Important for ESCO to focus on battery be difficult to obtain customer density ƒ Difficult to ensure that dealer ƒ Medium to low risk, provided that maintains technician presence in ESCO stays in business remote areas ƒ Fair – especially while market is ƒ Allows better negotiation ability in ƒ Good cost management, as ESCO Component small. Once market size increases, getting low cost equipment. Need to can order in bulk and do planned roll supply efficiency approach can be good at locating and ensure that benefit passed on to out in region bringing in lower cost products customers ƒ IMAR already has a number of ƒ Ability to scale up depends on ƒ New concept so significant training Ability to scale up certified installers from REDP and whether the selected service required and companies prepared to rapidly SDDX. provider(s) have adequate technical take the risks. (Assuming agreed ƒ Lack of further entrepreneurs: may and financial resources. ƒ Ability to scale up depends on financial support require ongoing training, sharing of ƒ Several companies likely to be financial resources and potential is available) experience and finance support operating in area- all need to ESCO’s ability to recruit and train ƒ If retail uses existing outlets, establish relationship with MFI or staff expansion is easier other credit companies – could slow ƒ Initial roll-out relatively slow, but ƒ Depends on operations being seen as down expansion speeds up significantly once incrementally profitable (sufficient experience gained ƒ Limited experience of MFIs in loans returns to attract investment) for non-productive uses – would need significant training/confidence building. May need guarantees to encourage MFIs to enter market. ƒ Good ƒ Good ƒ Good Ability to supply a range of RE solutions

ITP/0960 38 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Criteria Cash Sales Credit Sales Fee-for-Service (ESCO) • Likely that other role players needed ƒ Likely that other role players needed ƒ Larger company presence in area Ability to supply to fill this gap to fill this gap. Would require may facilitate delivery of other other energy/ agreements with MFIs on a range of energy products- but if required, will thermal services technologies to allow diversification. need to be part of concession terms (LPG, ethanol gel or other) ƒ This model would tend to result in a ƒ Less products likely to be available in ƒ Less products likely to be available in Technical range of different products being target region. target region. innovation marketed/tested. However, lack of ƒ Higher volumes per supplier can lead ƒ Higher volumes per supplier can lead market security unlikely to facilitate to conservatism, although should be to conservatism, although should be significant investment in new product greater resources for product greater resources for product development. sourcing research sourcing research. ƒ Will depend on subsidy arrangements ƒ Strong motivation to reduce lifecycle

costs (ESCO interest) ƒ Less costly because village-level ƒ Village bank or energy agent options ƒ ESCO approach requires significant Financial infrastructure not needed have medium/ low cost. Intermediary scale to justify the different level of efficiency ƒ Retail outlet sustainability requires finance organization will have higher expertise required high mark-ups on goods (unless financial costs ƒ Once lessons shared, smaller product turnover becomes very high) ƒ Need to ensure that range of projects viable ƒ Revenue collection is low cost (cash) stakeholders and participants does ƒ Pre-payment meters, have medium not result in excessive costs for initial costs, but lower revenue liaison and management collection costs and provide detailed transaction records ƒ Paper-based systems have lower initial costs but are more open to fraud ƒ User carries full risk ƒ User legally carries risk, but can ƒ ESCO carries risk Sensitivity to ƒ If users are uncertain they are not default on payments, so finance ƒ Can structure risk-sharing with ESCO uncertainty likely to purchase organization will share risk (compensation if grid arrives in pre- regarding ƒ If system costs are subsidized, ƒ After payments finished, user carries authorized off-grid areas) grid/off-grid subsidy will be ‘lost’ full risk ƒ Can re-deploy equipment, as does planning or other ƒ If system costs subsidized, subsidy not belong to customer RE programmes. will be ‘lost’

ITP/0960 39 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Criteria Cash Sales Credit Sales Fee-for-Service (ESCO) ƒ This approach is likely to result in a ƒ Fewer companies operating in areas – ƒ Only one company in any one area Product broader range of suppliers/equipment makes monitoring/certification easier to monitor/ensure certification choice/certificatio being available in the market. n Certification would thus be more difficult. However, existing programmes (REDP/Brightness/SDDX) have already identified certified products and methodology for certification. ƒ Several different models operating, ƒ Will need to be ƒ Long-term relationship makes Consumer with range of company expertise. monitored/encouraged. education easier. education (has Likely to have variable quality of ƒ If maintenance contract in place- then ƒ ESCO company has strong incentive impact on product consumer education. customer education incentivised. to ensure customers properly trained life) ƒ Incentive to supplier of good user education depends on model ƒ Experience in IMAR to date has not shown good user education • User carries primary responsibility • User carries primary responsibility ƒ ESCO carries main risk Vulnerability to • Low to medium risk since user has ƒ Financier share primary risk with ƒ User carries some risk theft strong sense of ownership consumer. Risk to dealer higher if ƒ Very dependent on ESCO relationship provided finance with community

ƒ Low to medium risk as user has ƒ Medium to high risk, as sense of strong sense of ownership. ownership is not well developed • Entrepreneur development services • More likely to set up rural • Multi-level structure facilitates Potential for /small and medium-sized enterprise infrastructure interaction with stakeholders from broader agents may work in other areas • Financial sector reinforced, which has communities and local council, and development • Little direct engagement in other rural significant development potential at national and even international impact (apart development issues levels from the • Jobs created in installation sales and • Infrastructure can be used for other development maintenance services impact of the RE • ESCO is likely to establish several service offered) jobs in rural communities

ITP/0960 40 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Note: Explanation of criteria used • Component supply efficiency: The ability of the model to rapidly achieve high volume imports/manufacture, keep lead times between purchasing and installation low, allow planned and structured purchasing – i.e. ability of the model to achieve minimum cost of installed RE system. • Cost to Customer - initial: The ability of the model to reduce initial costs of getting service to the customer (i.e. is large up front payment required, access to credit etc.) • Cost to customer – ongoing: The ability of method to make maintenance of the RE system affordable.

ITP/0960 41 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

8.2.2 Relevance of Models to Inner Mongolia Autonomous Region

Criteria Cash Sales Credit Sales Fee-for-Service (ESCO) ƒ The approach to date under REDP ƒ No experience for RE systems ƒ No experience Experience in and Brightness Programme. ƒ Finance institutions have experience IMAR to date ƒ A number of companies are already of lending for productive uses but established. Important to use this little experience for ‘non-productive’ expertise. uses with the exception of loans for ƒ Since subsidies have been available in health needs. IMAR there is limited exposure to ƒ Typical loans are short term (up to users of full costs of systems. one year) and too short to make systems affordable without subsidies ƒ Rural/vulnerable poor (environmental ƒ Aimed at poorer families who cannot ƒ Aimed at poorer families who cannot Relevance to problems, desertification, ill health afford to buy a system outright. afford to buy a system outright IMAR etc) cannot afford systems without ƒ Longer credit terms would be ƒ Would be possible in any area where subsidy. required than currently available there are at least a few thousand un- ƒ However majority of rural households ƒ Anecdotal evidence suggests that electrified households. are herders who have some wealth herders are unlikely to default on ƒ Not relevant in all Banners (in terms of livestock) and are thus payments ƒ Very remote households would be able to pay cash. ƒ Concern that very remote households covered. ƒ Concern that very remote households would not be covered as non- would not be covered as non- economic economic ƒ Current dealers are interested in ƒ Some current dealers would be ƒ A number of existing dealers have Interest of IMAR expanding their sales. interested in expanding their expressed interest in this model if stakeholders ƒ However dealers not interested in networks and offering credit deals. sufficient support is put in place. providing services to remote ƒ However dealers not interested in ƒ ESCO companies would be under households unless hh come to local providing services to remote obligation to provide services to all market. households unless hh come to local households in area ƒ Likely to be very limited maintenance market. services provided to remote ƒ Likely to be very limited maintenance households services provided to remote households ƒ Finance institutions interested only if they receive support/guarantees

ITP/0960 42 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Criteria Cash Sales Credit Sales Fee-for-Service (ESCO) ƒ Build upon existing capacity from ƒ Significant capacity building for ƒ Significant capacity building for Key capacity Brightness programme. Additional dealers and finance institutions dealers and finance institutions building required companies to be trained. ƒ Finance institutions ƒ ƒ Subsidy/grant needs to be high ƒ Subsidy/grant needs to be high enough ƒ Subsidy/grant needs to be high Subsidy enough to make systems affordable, to make credit affordable, but too high enough to make monthly fees but too high as users need to make a as users need to make a meaningful affordable. meaningful contribution of their own. contribution of their own. ƒ Subsidies could be provided as a ƒ On a per-watt basis, a higher grant ƒ Subsidies could be provided in any/all capital subsidy to the ESCO or/and in is recommended for smaller systems the following ways to the finance helping the ESCO to borrow the funds – to support lower-income institution or dealer: to purchase the equipment. This households. Maybe use a similar ƒ Capital subsidy (as with cash could be to the financial institute or approach to the earlier grant sales model) from a government fund and could be programme – fixed sum towards a ƒ Reducing or buying down the through: wind/PV system? This would mean a interest rate (interest rate subsidy) ƒ Reducing or buying down the relatively high subsidy for a small ƒ Loan period extension, to ensure interest rate (interest rate subsidy) or system, and a fairly low subsidy for affordability periods over 2 years are ƒ Loan period extension, to ensure larger systems – those wanting a likely to be needed. affordability periods over 2 years are large systems largely have to pay ƒ Guarantees may be required to likely to be needed. their own way. encourage the finance institutions to ƒ Guarantees may be required to ƒ Subsidies would be provided to the enter the market. encourage the finance institutions to system dealers based on each enter the market. system they install. (or to the end customer?)

ƒ Regulation, certification ƒ Regulation, certification ƒ Letting concessions Role of ƒ Have clear guidance on system ƒ Clear guidance on technology ƒ Regulation, certification Government technology – grants will only be paid applicable under grant scheme for systems which comply with the ƒ Enforce repayments? guidelines. Suggest a range of system sizes ƒ

ITP/0960 43 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

8.3 Suggestions for Policy Initiatives

The following policy initiatives should be considered: • Access to electricity. All people should be able to gain access to electricity. It needs to be decided whether government support should only be sufficient for a basic level of service (e.g. lights and TV), with the costs of a larger system to be borne by the user; or whether government support should allow for a larger system sufficient to operate a freezer and able to provide sufficient power throughout the year. • Support for renewable energy. The government should have a clear policy to support RE for off-grid electrification. Such support should include appropriate subsidies, but also the creation of an enabling environment and appropriate regulatory measures. • Environmental protection. The government should have clear policies to support the environment. This will result in RE technologies being promoted over for instance diesel or petrol generators for off-grid electrification. It should also result in developing a battery collection and recycling scheme for obsolete batteries from RE systems. • User contribution. In order to reach the poorest parts of the population, RE electrification will require a significant level of external subsidy. However, to achieve longer-term sustainability, it is considered essential that end users also make a significant contribution of their own. • Provide appropriate financing. Appropriate financing is required to allow end users to spread payments over a longer period of time. Government policies should be supportive of such financing mechanisms, namely rural micro credit and the fee-for-service/ESCO approach.

8.4 Suggestions for Regulatory Measures

• Standards and product testing. Existing standards should be updated to require RE system components to be of sufficiently high quality. Component testing should be carried out to new, higher standards, resulting in lists of approved products. Where appropriate, the existing list of approved products from the World Bank’s REDP programme should be used, but this does not cover wind and hybrid systems. • Regulatory framework for ESCOs. A regulatory framework for ESCOs should be established. This should allow ESCOs to be operated as commercial organisations but also include ESCOs run on a cooperative basis. Such a framework should include the contractual relationship between the ESCO and the user, and give ESCOs the necessary powers to take action against users in case of non-payment. It should also include tariff regulations which must ensure that ESCOs are not only able to cover their costs but to make a profit. This is seen as important to give companies an incentive to operate an ESCO. The framework should also include the duties of the ESCO (e.g. responsibility for maintenance) to protect the user, and means for users to complain if the service they receive is unsatisfactory. • Battery collection and recycling. This issue should be addressed by GIMAR in order to ensure that disused batteries are disposed of in an environmentally sustainable manner, and that the lead is recycled.

8.5 Suggestions Regarding Technical Aspects

The main problems encountered are either related to component quality or to issues related to maintenance or changes to system configuration by incompetent persons. The issue of insufficient component quality, which leads to low component life times, can be addressed relatively easily, by specifying high-quality components for any future programme.

ITP/0960 44 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

The main drawback here is cost – high-quality components can cost up to twice as much as their lower-quality equivalent. However, in terms of value for money for an electrification programme, the use of cheap low-quality component is seen as a false economy. It will lead to premature system failures, increased downtimes (non-availability of power to the user), and may lead to incorrect system configuration due to replacement components being of the wrong specification. A typical example of this is the use of an undersized replacement battery, which will be cheaper, but will significantly affect system performance. The main components to which this issue applies are batteries, inverters and wind turbine blades. Batteries must be able to withstand regular cycling. The use of maintenance-free batteries (e.g. valve-regulated lead acid or VRLA batteries) should be considered, as this eliminates the need for regular checks of the electrolyte levels and topping up. Inverters should have inbuilt protection features, making them able to withstand overload conditions and even short circuits. Wind turbine blades should be of sufficiently high quality that they will not delaminate in normal operating conditions. Wind turbines and PV modules themselves are generally of sufficiently high quality and do not present an issue. Under the World Bank’s China REDP programme there is an approved product list for use for renewable energy rural electrification.12 This list could be used in the first instance. As this list does not include wind turbines or wind turbine controllers, these components will need to be evaluated. Installation is sometimes carried out by users themselves, which is not recommended as it may not be carried out correctly. This is illustrated well by reports of wind turbines falling over in strong winds, with the underlying cause being guy ropes not anchored in the ground properly or of insufficient strength, or not attached to the turbine tower or the anchors properly. All of these causes could have been eliminated easily by professional installation using sufficiently trained installers, therefore this should be a prerequisite for any new programme. The lack of professional maintenance has been identified as another problem area, with poor wiring and connections, changes to the system configuration by technically not sufficiently competent users, and incorrect specification of replacement components all contributing to reducing the overall system efficiency. The effect tends to be cumulative and get worse as time goes on. Under the fee-for-service/ESCO approach, this should not be an issue as maintenance would be carried out by the ESCO, and the user would not be allowed to interfere with the system. Under a cash or credit sales model, this issue is more difficult to deal with, once the initial warranty period has expired. Ideally, the recommendation would be to have a professional maintenance visit / system check once per year, or at least once every two years. In reality, such maintenance visits are relatively costly, and users cannot be forced to pay for them. Hence, if it is likely that users will continue to carry out maintenance work themselves, they will need to be equipped for this task. Therefore, more in-depth user training is recommended, going significantly beyond the day-to-day system operation. User training should have a focus on maintenance, component replacement, and system configuration, to give users a basic understanding of what they can and cannot do, pointing out potential problems resulting from incorrect actions. Such user training should be supported by suitable documentation, explaining relevant issues in simple language and with plenty of illustrations. In theory, longer-term maintenance (five or even ten years) could be integrated into a programme. However, safeguards would have to be implemented to ensure that fees for maintenance are only paid once maintenance has actually been carried out, otherwise it is

12 Note: this can be downloaded from the REDP website at http://www.ndrcredp.com/english/

ITP/0960 45 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report likely that paid-for maintenance still does not happen. In practice, integration of long-term maintenance into a shorter-term funding programme would be difficult to achieve. In summary the following are recommended to form part of any new rural electrification programme to ensure the technical sustainability of the programme: • High quality products (list of approved products) • Professional installation • Regular professional maintenance visits • User training

8.6 Access to External Funding The NDRC Circular 'Notice of Power Supply Construction Program in the Unelectrified Regions (NDRC Energy [2006] 2312) set out the Chinese Government’s aims for the electrification of non-electrified rural areas. The Circular pointed out that there is funding available from the Government to carry this out. In IMAR funding will be from subsidies likely to be available from the central government (RMB 60 million as indicated in the Circular for on and off-grid electrification) and from the provincial government. The value of the subsidies is likely to equal a 20% grant from Central government and a 10% grant from the local government per system installed. The balance, to make up an 80% subsidy, will be made available from the Power Company, which will need to borrow, and the remaining 20% from user contributions In addition to this funding there are also possibilities of external funding from a number of sources including the Global Environment Facility (GEF), bilateral funds and multilateral organisations. Renewable energy rural electrification is not a direct goal under GEF project areas, but can fit into the "Climate Change Mitigation" category. In addition to meeting a specific environmental goal, projects must meet several clear guidelines to be considered for GEF funding, including: 1) reflecting national or regional priorities and demonstrating the support of the country or countries involved, and 2) improving the global environment or advancing the prospect of reducing risks to it. In addition, host countries need to have ratified any relevant international treaties (such as the UNFCCC) and must be eligible to borrow from the World Bank or receive technical assistance grants from UNDP. Rural electrification in IMAR would meet these criteria. Funding from other agencies may be available, as a good case for a subsidy/funding programme for IMAR can be made. The Italian, US and Spanish governments have all already provided funding for rural electrification in IMAR. A proposal for a smaller pilot programme is put forward here with the aim of attracting a grant from the ADB with the possibility of being followed by a loan for a larger roll-out programme. Additional funding for renewable energy projects in China is possible through the Clean Development Mechanism (CDM). Since each installation for the proposed rural electrification programme is small (household size) it would be necessary to bundle all the systems together to ensure a project of sufficient size. That said CDM funding is still unlikely to be appropriate for future RE electrification programmes in IMAR, as the amount of carbon offset by the programme would be very small (mainly from kerosene and candles used for lighting). The scale of the programme would have to be greater still than that proposed here. The main green house gas (GHG) savings to be made in rural households is off-setting the fuels used for cooking and heating (coal and dung).

ITP/0960 46 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report 9 RECOMMENDATIONS FOR A PILOT PROGRAMME

As it would be beyond the scope of this study to develop an electrification programme for the whole of IMAR, it was agreed to concentrate on the 13 banners surveyed, and to develop a pilot programme for the trial of the implementation models suggested in the previous section. The rationale behind the pilot programme would be to complement the Power Company programme with the aim that the pilot models would lead to better sustainability and rural poor focus which could then be replicated on a larger scale within the Power company programme. The pilot programme could be implemented in all 13 of the banners surveyed; however, due to budget limitations, it is likely that the programme would only be implemented in some of the 13 banners. Banners were therefore prioritised and selected using relative poverty, lack of benefiting from previous programmes and geographical spread as selection criteria. The programme addresses non-electrified households as well as unsatisfactory existing renewable energy systems. In addition it is important that the pilot programme focuses on banners that will not be electrified by the Power Company programme within the next couple of years (2007/2008). Cost data/budget requirements are included in this section. It should be noted that the proposed pilot programme has a specific focus on non-electrified poor households in rural IMAR, to be electrified using off-grid renewable energy.

9.1 Statistical Analysis of the Banners Surveyed

9.1.1 General Statistical Data Table 6 below shows some general statistical data for the 13 banners under consideration. It can be seen that the banner area, rural population and population density vary considerably across the 13 banners. The population density is shown as the rural population per square kilometre, which ranges from 0.6 to 65 persons per square kilometre. This illustrates the scattered settlement pattern and low population density in some banners. Table 6: General Statistical Data (2005)

Popul. Area Rural density Type of Popula- Region League Banner (sq popula- rural Geogr. tion km) tion pop. per Area sq km Western Bayonnoer Wulatehou (back) 24,925 55,121 20,428 0.8 Desert Western Bayonnoer Wulatezhong (middle) 23,096 137,481 98,133 4.2 Grassland Western Erdos Etuoke 20,064 92,838 40,050 2.0 Grassland Western Alashan Alashanzuo (left) 80,412 139,903 45,718 0.6 Desert Central Xilinguole Suniteyou (right) 22,461 68,402 29,805 1.3 Grassland Central Wulanchabu Siziwang 24,016 204,111 163,999 6.8 Grassland Central Wulanchabu Shangdu 4,304 338,332 280,806 65.2 Agricultural Dongwuzhumuqin Central Xilinguole 47,259 70,731 31,001 0.7 Desert (East) Eastern Hulunbeier Ewenke 19,111 142,791 21,089 1.1 Grassland Eastern Hulunbeier Xinbaerhuyou 25,102 33,539 15,415 0.6 Grassland Eastern Hulunbeier Elunchun 59,800 279,718 59,775 1.0 Forest Eastern Xingan Keerquinyouyizhong 15,613 247,167 170,155 10.9 Grassland Eastern Tongliao Keerqingzuoyizhong 9,811 520,816 439,614 44.8 Agricultural

Data received from Mr. Geng Wu, IMAR Statistics Bureau; 2005 Data

ITP/0960 47 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

9.1.2 Data on Recent Subsidy Programmes Table 7 shows the number and type of renewable energy systems installed under recent funding programmes for the 13 banners under consideration.

ITP/0960 48 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Table 7: Data on Renewable Energy Systems Installed (2005)

Sino- Brightness Programme Sino-US Sino-Italy Totals Spanish

PV/wind PV/Wind PV/Wind Total Wind PV hybrid hybrid hybrid PV/Wind PV PV PV/wind PV Wind PV No of Region League Banner turbines systems systems systems systems hybrid systems systems hybrid systems Turbines systems RE (300W) (100W) (300W/ (300W/ (300W/ systems (350W) (500W) systems systems 100WP) 150WP) 114Wp)

Western Bayonnoer Wulatehou (back) 120 56 ------120 56 176 Wulatezhong Western Bayonnoer 282 - 40 - 33 - - - - 282 73 - 355 (middle) Western Erdos Etuoke ------135 205 - 360 Western Alashan Alashanzuo (left) 80 - 50 20 20 - - - - 420 - 160 480 Central Xilinguole Suniteyou (right) 233 25 175 80 92 - 76 75 - 233 176 347 580 Central Wulanchabu Siziwang 100 - - 114 - 5 - - - 100 - 119 219 Central Wulanchabu Shangdu ------Dongwuzhumuqin Central Xilinguole 60 - - 250 - 145 - - 81 60 81 395 536 (East) Eastern Hulunbeier Ewenke 438 - - - 2 - - - - 438 - 2 440 Eastern Hulunbeier Xinbaerhuyou 160 - 30 - 10 - - - - 160 - 40 200 Eastern Hulunbeier Elunchun ------Keerquinyouyi- Eastern Xingan ------zhong Keerqingzuoyi- Eastern Tongliao ------zhong

ITP/0960 49 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

9.1.3 Data on Non-Electrified Households It should be noted that reliable data on the number of non-electrified households does not exist. Figures available are possibly underestimating the actual numbers. Also, some of the existing renewable energy systems will need replacing, adding to the number of systems required. There is however no data regarding the number of unsatisfactory existing renewable energy systems which may need to be replaced under a new programme. The Inner Mongolian Development and Reform Bureau has a data base of non-electrified households in 2002, which was obtained through Professor Liu of Inner Mongolia University of Technology. According to various stakeholders, it is likely that this data was never very accurate, simply because no-one, either at banner, league, or Autonomous Region level, has any accurate data. One person’s comment was that ‘banner-level officials don’t know and don’t care’. Such data also becomes rapidly out of date, due to existing renewable energy systems failing, new systems being installed, the grid being extended, and the migration of people. The data dates from 2002, which was part-way through the Brightness Programme; hence some of the Brightness installations would need to be subtracted from the figures given. Another unknown factor is whether households are suitable for grid extension. Household or villages likely to be connected to the grid should obviously not be electrified by RE. Data on planned extension of the electricity grid could not be obtained. The DRC data distinguishes between dispersed households and households in villages. However, this alone is not sufficient to determine whether or not households are suitable for grid extension, because the local topography makes grid extension very difficult for many villages, designating these households to be electrified using renewable energy. For some banners in western IMAR, data could be obtained from the Power Company which states how many households are designated to be electrified using renewable energy. This data was used as the basis for this analysis. For banners where this data is not available, assumptions were made based on the data from the IM Development and Reform Bureau. The banner level Brightness companies also provided their estimates on un-electrified households. In the first instance, the assumptions were based on the number of dispersed households. Natural or collective villages may be connected to the grid, however, their local topography may mean that they are more suited to electrification by renewable energy. Therefore an allowance was made to electrify some households in villages using renewable energy. Similarly, an allowance was made for people installing a renewable energy system since 2002, and for replacing old, unsatisfactory renewable energy systems.

ITP/0960 50 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Table 8: Data on Non-electrified Households (2002)

Unelec- Unelec- HH for RE Unelec- Total trified trified electri- trified unelec- Region League Banner HHs in HHs in fication disper- trified collective natural (see sed HHs HHs village village Note) Wulatehou Western Bayonnoer - 376 1,000 1,376 1,8501 (back) Wulatezhong Western Bayonnoer - 513 1,000 1,513 4,0741 (middle) Western Erdos Etuoke 732 5,082 7,516 13,330 8,8701 Alashanzuo Western Alashan 1,500 - 2,564 4,064 1,4451 (left) Suniteyou Central Xilinguole 117 - 11,023 11,140 12,000 (right) Central Wulanchabu Siziwang 639 1,064 3,997 5,700 4,500 Central Wulanchabu Shangdu 5,504 5,701 695 11,900 1,000 Dongwuzhumu Central Xilinguole 768 - 4,568 5,336 5,000 qin (East) Eastern Hulunbeier Ewenke 300 - 1,446 1,746 1,800 Eastern Hulunbeier Xinbaerhuyou 102 - 1,108 1,210 1,200 Eastern Hulunbeier Elunchun 5,725 - - 5,725 1,000 Keerquinyou- Eastern Xingan - 6,781 - 6,781 1,200 yizhong Keerqingzuo- Eastern Tongliao 3,118 - - 3,118 500 yizhong Totals 15,387 19,517 34,917 69,821 41,739

Source of Data: Inner Mongolia Development and Reform Bureau; received via Prof Liu Zhizhang (2002 Data) 1 Note: For the four Western Banners, figures for households to be electrified using renewable energy were received from the Power Company; for all other banners, this figure was estimated It is anticipated that renewable energy electrification would be from using household-based systems. Community-based renewable energy system are not recommended, unless it can be clearly demonstrated that the shortcomings of the current approach will be overcome, which would require a radically new institutional approach. Migration will affect the number of systems per banner and therefore needs to be taken into account. Due to lack of data, it was no possible to take migration into account when the above figures were estimated. However, during implementation of the programme, liaison with banner-level government should ensure that renewable energy systems are not installed in areas where resettlment of people is planned. There should also be an agreement that those households selected under the programme will not be resettled in the foreseeable future. The final decision whether or not a household will obtain a new renewable energy power system should rest with the household – if they do not want a system or are unable to pay, they should not be forced to have a system.

9.1.4 Resource Assessment The figures on the following pages show the monthly average wind speeds and the solar irradiance for the 13 banners considered.

ITP/0960 51 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Table 9: Monthly Average Wind Speeds at 50 m Height (m/s) (10-year Average)

Annual League Banner Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec average Western Bayonnoer Wulatehou 3.7 3.7 4.2 4.8 4.6 4.2 3.8 3.6 3.8 3.8 4.1 3.8 4.0 Western Bayonnoer Wulatezhong 4.1 4.0 4.5 5.1 4.8 4.5 4.1 3.9 4.2 4.3 4.6 4.2 4.4 Western Erdos Etouke 4.4 4.3 4.8 5.1 4.8 4.5 4.1 4.1 4.3 4.4 4.7 4.5 4.5 Western Alashan Alashanzou 4.7 4.6 4.9 5.2 4.8 4.6 4.2 4.3 4.5 4.7 5.0 4.9 4.7 Western MEAN 4.2 4.2 4.6 5.1 4.7 4.5 4.1 4.0 4.2 4.3 4.6 4.4 Central Xilinguole Suniteyou 4.9 4.9 5.2 5.8 5.3 5.0 4.4 4.3 4.7 5.1 5.5 5.1 5.0 Central Wulanchabu Siziwang 4.1 4.3 4.6 5.3 4.9 4.5 3.9 3.8 4.1 4.3 4.7 4.3 4.4 Central Wulanchabu Shangdu 4.6 4.6 4.9 5.6 5.0 4.6 4.0 3.8 4.2 4.6 5.0 4.7 4.6 Central Xilinguole Dongwu 5.4 5.3 5.3 6.0 5.6 5.1 4.4 4.4 5.0 5.3 5.8 5.5 5.2 Central MEAN 4.8 4.8 5.0 5.7 5.2 4.8 4.2 4.1 4.5 4.8 5.2 4.94.8 Eastern Hulunbeier Ewenke 3.7 3.8 4.0 4.3 4.2 3.6 3.4 3.3 3.7 3.8 3.8 3.6 3.8 Eastern Hulunbeier Xinbaerhuyou 4.5 4.6 4.7 5.3 5.2 4.4 4.0 4.0 4.5 4.7 4.8 4.5 4.6 Eastern Hulunbeier Elunchun 3.0 3.1 3.1 3.3 3.3 2.9 2.7 2.8 3.0 3.1 3.1 2.9 3.0 Eastern Xingan Keerqinyouyizhong 4.6 4.5 4.8 5.2 5.0 4.2 3.7 3.5 4.1 4.6 4.9 4.7 4.5 Eastern Tongliao Keerqinzuozhongqi 3.9 4.0 4.5 5.1 4.8 3.9 3.5 3.2 3.6 4.2 4.5 4.1 4.1 Eastern MEAN 4.0 4.0 4.2 4.6 4.5 3.8 3.4 3.3 3.8 4.1 4.2 4.0 Note: The criteria generally used to assess the suitability of a site or area for the use of wind energy are the average annual wind speed and the number of hours with wind speeds above 3m/s at 10m height.

ITP/0960 52 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Table 10: Monthly Average Solar Irradiance on a Horizontal Surface (kWh/m2/day) (10-year Average)

Annual Leagues Banners Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec average Western Bayonnoer Wulatehou 2.48 3.38 4.32 5.68 6.56 6.58 6.21 5.34 4.61 3.47 2.68 2.27 4.47 Western Bayonnoer Wulatezhong 2.29 3.15 4.28 5.64 6.51 6.58 6.20 5.40 4.69 3.44 2.56 2.08 4.40 Western Erdos Etouke 2.58 3.42 4.42 5.74 6.46 6.56 6.20 5.34 4.65 3.61 2.90 2.35 4.52 Western Alashan Alashanzou 2.54 3.45 4.44 5.69 6.30 6.46 6.22 5.50 4.59 3.48 2.87 2.38 4.49 Western MEAN 2.47 3.35 4.37 5.69 6. 46 6.55 6.21 5.40 4.64 3.50 2.75 2.27 4.47 Central Xilinguole Suniteyou 2.18 2.94 4.30 5.65 6.53 6.74 6.23 5.28 4.58 3.34 2.43 1.91 4.34 Central Wulanchabu Siziwang 2.24 3.00 4.20 5.60 6.38 6.57 5.97 5.15 4.55 3.35 2.45 1.95 4.28 Central Wulanchabu Shangdu 2.36 3.10 4.24 5.53 6.30 6.43 5.93 5.07 4.46 3.42 2.49 2.09 4.28 Central Xilinguole Dongwu 1.86 2.69 3.97 5.26 6.25 6.21 5.68 5.17 4.21 3.06 2.06 1.63 4.01 Central MEAN 2.16 2.93 4.18 5.51 6. 37 6.49 5.95 5.17 4.45 3.29 2.36 1.90 4.23 Eastern Hulunbeier Ewenke 1.42 2.39 3.86 5.03 6.18 5.95 5.56 4.72 3.68 2.67 1.69 1.17 3.69 Eastern Hulunbeier Xinbaerhuyou 1.54 2.52 3.89 5.11 6.28 6.00 5.66 4.84 3.75 2.76 1.79 1.26 3.79 Eastern Hulunbeier Elunchun 1.47 2.56 3.87 4.70 5.73 5.40 4.78 4.13 3.43 2.49 1.55 1.13 3.44 Eastern Xingan Keerqinyouyizhong 1.98 2.86 4.21 5.20 6.15 5.87 5.31 5.04 4.08 3.15 2.12 1.67 3.97 Eastern Tongliao Keerqinzuozhongqi 2.17 3.14 4.28 5.31 6.20 5.95 5.47 5.13 4.30 3.24 2.22 1.81 4.10 Eastern MEAN 1.72 2.69 4.02 5.07 6. 11 5.83 5.36 4.77 3.85 2.86 1.87 1.41 3.80 Note:

ITP/0960 53 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

9.1.5 Prioritisation of Banners by Income Due to the limited amount of funding available, it will not be possible to electrify within the pilot programme all 13 banners under consideration. It was envisaged that poorer banners should be given priority over richer banners. Banners were therefore prioritised according to their level of poverty. It had been planned to carry out this prioritisation using the designation of National and Autonomous Region Poverty Level County. However, a number of stakeholders advised against the use of these designations, as they are out of date and do not reflect today’s poverty situation. It was considered to use income data from the socio-economic survey for the prioritisation of banners. However, this approach was rejected, because the number of households surveyed in some banners was very small, leading to unreliable results. It was therefore decided to use other statistical indicators for the prioritisation of banners. Based on data available from the Inner Mongolia Statistical Yearbook 2005 and data received from the IMAR Statistics Bureau, three different criteria were considered for the prioritisation of banners. The first was the number of livestock per rural household, as number of livestock is an indicator for the wealth of herders. However, this was rejected because in farming areas this is not a useful criterion. Also, there would be distortions when areas which are predominantly farming areas are compared to herding areas. The second criterion was the GDP per capita. This was rejected as the income in urban areas is not relevant to a programme addressing mainly the rural poor. The criterion chosen for prioritising banners was therefore the average annual net income of farmers and herders, as this most closely reflects the relative wealth of the target group of the electrification programme. Table 11 shows the parameters considered for the 13 banners, as well as the ranking. It should be noted that income and poverty levels can vary significantly within a banner. However, a more detailed analysis at township or even village level was beyond the scope of this study.

ITP/0960 54 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Table 11: Statistical Data on Income, GDP and Number of Livestock

Average No. of annual net GDP Total live- No. of income of per live- stock rural Region League Banner farmer/ capita stock per house- herder (RMB/ (1000 rural holds (RMB/year year) 0's) house- ) hold

Central Xilinguole Suniteyou (right) 1,864 12,430 8,199 77.03 94.0 Eastern Xingan Keerqinyouyizhong 1,890 5,086 39,236 150.70 38.4 Western Bayonnoer Wulatehou (back) 2,097 16,733 5,201 47.21 90.8 Central Wulanchabu Shangdu County 2,398 3,996 53,616 45.98 8.6 Eastern Hulunbeier Elunchun Nat Auton B 2,625 5,001 15,412 51.53 33.4 Central Wulanchabu Siziwang 2,890 6,830 36,775 103.64 28.2 Eastern Tongliao Keerqinzuoyizhong 3,089 5,204 101,713 96.81 9.5 Western Bayonnoer Wulatezhong (middle) 3,387 9,400 24,215 144.53 59.7 Western Alashan Alashanzuo (left) 3,532 24,859 13,627 115.85 85.0 Eastern Hulunbeier Xinbaerhuyou 4,265 25,514 4,137 100.23 242.3 Western Erdos Etuoke 4,609 44,861 11,759 114.23 97.1 Eastern Hulunbeier Ewenke Nat Auton B 4,781 15,996 5,922 52.71 89.0 Dongwuzhumuqin Central Xilinguole 6,880 17,939 7,413 226.96 306.2 (East)

Source: Inner Mongolia Statistical Yearbook 2005 (2004 Data); except for Average annual net income of farmer/ herder – This data was received from Mr. Geng Wu, IMAR Statistics Bureau (2005 Data)

9.1.6 Selection of Banners for Pilot Programme Using a number of criteria, three banners were selected and are recommended for electrification under a pilot programme. It had been suggested that the pilot programme should concentrate on poorer rather than richer areas, which coincides with the poverty alleviation focus of this study. The ranking by income of farmers and herders in Table 11 above was used to prioritise banners. Another criterion used for the selection was the level of activity under previous funding programmes. In order not to disadvantage some areas, electrification efforts should be balanced between different banners. It was therefore decided that this pilot programme should concentrate more on banners which have not or only to a lesser extent benefited from previous programmes. Thirdly, it was planned to select one banner each from the western, east-central and north- eastern part of IMAR. It was also suggested that the banners selected should include more dispersed households rather than villages which are likely to receive electricity in the nearer future. Lastly, the banners chosen should have a sufficient wind as well as solar resource, to make both wind and PV viable options. Suniteyou Banner, the highest-ranking banner in terms of low income, also had the highest number of renewable energy systems installed under the most recent programmes (see Table 7 above). It was therefore decided not to select Suniteyou Banner for this pilot programme. The next three banners in terms of the lowest income are Keerqinyouyizhong Banner, Wulatehou Banner and Shangdu County. All of these had either no or relatively few renewable energy systems installed under the recent programmes. However Shangdu County is mainly comprised of villages which will be electrified soon. The next two poorest banners on the list are Elunchun and Siziwang. Elunchun is selected to be the third pilot

ITP/0960 55 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report banner. The primary reason is that Siziwang is amongst the 3 banners that are included in both this TA’s socio-economic survey and the IMAR Power Company's most up-to-date plan. According to the Power Company’s plan for year 2007, Siziwang will receive a large number of systems from the Power Company (over all other banners listed in the plan). If Siziwang is selected by the proposed pilot programme too, other banners having similar conditions to Siziwang would be disadvantaged. Elunchun under Hulunbeier is ranked higher than Siziwang in terms of income, which is the most significant criterion used. In addition, it has the most un-electrified households of the other 12 banners because it has never benefited from previous funding programmes in IMAR. Moreover, out of the 13 banners surveyed, there are 3 banners under Hulunbeier. Thus, it makes sense that one representative banner under Hulunbeier will be covered by the pilot programme. Although the wind and solar resources in Hulunbeier are slightly less than other regions in the list, the use of wind and PV hybrid systems is able to overcome the marginal disadvantage. Experience shows that the size of 300W wind plus 50-100W PV is sufficient under the local conditions of Hulunbeier. The three selected areas coincidentally cover the western, east-central and northeastern parts of IMAR. Whilst there are some variations between these banners regarding their wind and solar resource, the available resource is sufficient for each of the three banners. The initial Power Company programme for electrification includes a percentage of households in a large number of banners for the first year (2007) rather than full electrification in fewer banners. Plans beyond this are not yet public. Since the number of non-electrified households is high the existence of the pilot programme will not negatively impact on the initial Power Company programme (or vice versa). It is therefore recommended to continue in these two of these three Banners and it is suggested to trial the fee-for-service model.

9.2 System Configuration and Costs

9.2.1 System Configuration and Standard System Sizes When determining the optimum size of a renewable energy system for rural electrification, a number of factors have to be taken into account and weighed up against each other. The most important factor is the energy demand, which is dependent on the appliances to be supplied, both now and in the future. A larger system will have the advantage to provide more energy, thus allowing for future new appliances to be connected. On the other side of the equation is the affordability. A larger system is obviously more expensive, and the additional cost has to be borne either by the end user of by the subsidy provided under a grant programme. With limited overall funding, higher subsidy levels will result in a smaller number of systems a programme can provide. Several stakeholders have advocated the use of ‘high-configuration systems’. Clarification is required whether this refers to the quality of the equipment installed, or to the system size. In order to reduce maintenance requirements and to achieve greater sustainability, it is strongly recommended to use high-quality components for all systems. This will lead to lower maintenance requirements, longer maintenance intervals, better system performance, and thus result in better value for money for the overall programme. However, the idea of oversizing systems in order to meet future energy demand, which had been advocated by some stakeholders, is a completely different issue. As renewable energy systems are modular and can therefore be upgraded relatively easily at a later stage, it is not recommended to install systems larger than what will be required during say the next two to three years. Should demand increase in five or ten years’ time, the renewable energy system could be upgraded at the same time, eliminating the need to install an oversized system today. Installing unnecessary generating capacity which remains unutilised for several years would simply be a waste of limited resources, and would therefore prolong the rate of electrification of the poorest people unnecessarily.

ITP/0960 56 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

The Power Company programme proposes household PV systems of 100 Wp and systems of 600 W /400 Wp wind/PV hybrid and 560 Wp PV for the administration buildings. 100 Wp systems are not considered large enough to meet the demands of households based on the results of the socio-economic survey. Three standard system sizes are proposed for the pilot programme and the customer would be able to choose their configuration of choice. The standard system, available in two configurations, is appropriate for the majority of households, and is able to power lights, a colour TV, a small freezer and various miscellaneous loads. The two configurations include different quantity of PV and so take into account the differing affordability criteria of the households and allow for upgrading in the future. The basic system is designed for the poorest 10-25% of the population. It is a low-cost system to provide power for lights and colour TV. The deluxe system is designed for the richest 10-20 % of the population, and allows for additional appliances such as computer, refrigerator or washing machine. Table 12 shows details of the three systems, together with typical appliances and their usage times. The table details the total costs for high quality equipment and installation. . The Power Company estimates of costs are lower since they have not included for high quality products. The costs here do not include for the costs associated with honouring the warranty or maintenance requirements. The resource availability is a critical parameter for any system configuration and delivery model. Each of the banners considered has sufficient resource to make both wind power and solar PV viable options. Whilst there are significant variations between different banners, it is suggested to use the same basic system sizes for all banners, and accept the fact that users in areas with a higher resource will have more energy available than those in lower-resource areas. The configurations will be subject to minor change depending on actual resources in different areas and on energy demand.

ITP/0960 57 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Table 12: Standard System Configuration and Costs

1. Standard System for Average Households: 300W Wind Turbine / 100W PV Appliances 2 lights of 11 W; average 5 hours/day, giving total daily load 110 Wh/day Colour TV and Satellite Receiver, 75W; average 5 hours/day, giving total daily load 375 Wh/day Video recorder, 80W; average 2 hours/day, giving total daily load 160 Wh/day Freezer, average consumption 650 Wh/day Mobile phone charger, 3 W, 4 hours for every 2 days 6 Wh/day Total energy demand 1300 Wh/day System Configuration A Wind turbine 300 W PV array 100 W Battery 24V / 200Ah Inverter 600 W Available energy 1450 Wh/day Costs Total system cost (using high-quality components, including installation) RMB 14,000 System Configuration B Wind turbine 300 W PV array 50 W Battery 24V / 200Ah Inverter 600 W Available energy 1280 Wh/day Costs Total system cost (using high-quality components, including installation) RMB 11,000 2. Basic System for the Poorest Households: 100W Wind Turbine / 50W PV Appliances 2 lights of 11 W; average 5 hours/day, giving total daily load 110 Wh/day Colour TV and Satellite Receiver, 65W; average 5 hours/day, giving total daily load 325 Wh/day Mobile phone charger, 3 W, 4 hours for every 2 days 6 Wh/day Total energy demand 441 Wh/day System Configuration Wind turbine 100 W PV array 50 W Battery 12V / 150Ah Inverter 200 W Available energy 540 Wh/day Costs Total system cost (using high-quality components, including installation) RMB 6,800 3. Deluxe System for Rich Households: 1,000W Wind Turbine / 300W PV Appliances 3 lights each of 11 and 15 W; average 5 hours/day, giving total daily load 390 Wh/day Colour TV and Satellite Receiver, 105W; average 6 hours/day, giving total daily load 630 Wh/day Video recorder, 80W; average 4 hours/day, giving total daily load 320 Wh/day Freezer, average consumption 650 Wh/day Refrigerator, average consumption 1000 Wh/day Computer, with screen and printer; average 1.5 hours/day 600 Wh/day CDMA telephone, based on 24 hour standby, 1 hour talk time per day 35 Wh/day 2 mobile phone chargers, 3 W each, 4 hours for every 2 days 12 Wh/day Total energy demand 3,600 Wh/day

ITP/0960 58 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

System Configuration Wind turbine 1,000 W PV array 300 W Battery 48V / 300Ah Inverter 1,500 W Available energy 4,500 Wh/day Costs Total system cost (using high-quality components, including installation) RMB 43,000

9.2.2 Maintenance and Warranty The reason for many failures in renewable energy systems is due to a lack of proper maintenance and replacing parts with poor quality equipment. Therefore the provision of both training to the users as well as professional maintenance for all the systems is seen as an important requirement to ensure the sustainability of the systems. Since the cost of maintenance and parts is variable householders often do not know, or buy, the better quality products and will not pay for professional maintenance. Therefore the proposed pilot programme includes some form of maintenance within all the models. If this element is cut back it is extremely likely that the number of failures will increase. The two main components of maintenance costs are costs associated with site visits (essentially labour and transportation) and the cost of replacement components (typically batteries, wind turbine blades and inverters). The cost of maintenance visits to site is estimated to be approximately 500 RMB per system per year. The cost of replacement components is listed in Table 13 below. The use of high-quality components is envisaged, which is reflected in the high cost figures. It would certainly be possible to reduce these costs with the use of lesser quality components. Table 13: Costs of High-Quality Replacement Components

Item Expected Replacement Average annual lifetime cost cost (years) (RMB) (RMB) 1. Standard System for Average Households: 300W Wind Turbine / 100W PV Battery 24V/200Ah 4 2*1,200 600 Wind turbine blades for 300W WT 8 800 100 Inverter 600W 10 3,000 300 Total 1,000 2. Basic System for the Poorest Households: 100W Wind Turbine / 50W PV Battery 12V/150Ah 4 1,000 250 Wind turbine blades for 100W WT 8 250 33 Inverter 200W 10 1,200 120 Total 403 3. Deluxe System for Rich Households: 1,000W Wind Turbine / 300W PV Battery 48V/300Ah 4 4 * 1,700 1,700 Wind turbine blades for 1,000W WT 8 1,600 200 Inverter 1,500W 10 8,000 800 Total 2,700 The main system parts will be covered under a warranty period for one or more years. It is assumed that the supplier/installer will have back-to-back agreements with the equipment supplier to ensure that new parts are supplied. However there will be time and costs associated with honouring the warranty. It has been assumed that this is equal to the annual cost of maintenance shown above.

ITP/0960 59 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

For comparison purposes the Power Company programme does not specify how the maintenance will be carried out but states that subsidiaries at banner level will be responsible and that the Power Company will bear the costs since it does not believe that it is worth collecting the fees. However it is thought that without any regulatory enforcement maintenance will not take place and will end up being the responsibility of the householder.

9.2.3 Refurbishment of Existing Systems Possibilities for upgrading or rehabilitation of unsatisfactory existing systems were considered. Older systems (installed prior to the Brightness Programme) tend to be relatively old and near the end of their lifetime. Also, they use lower-quality components; and are generally small in capacity (maximum 100W). It was therefore concluded that the best approach would be to replace these systems with completely new systems. For systems installed under the Brightness Programme and since then, the following approach is suggested: Replacement of items such as batteries, wind turbine blades and inverters is currently taking place on a commercial basis, which is best not interfered with. The pilot programme could however allow for one free maintenance visit per system, in order to allow a professional installer to sort out any problems which might have occurred since installation. It was noted by the stakeholders that it would be important to keep the older programmes separate from the proposed pilot as it was felt that it could compromise any demonstration benefits. Therefore this has not been included in this proposed pilot.

9.3 Subsidies

To ensure affordability the total cost of ownership of a RE system must be taken into account. This comprises three main elements:

ƒ Capital cost of the installed system (which should include components costs, marketing, distribution and installation costs);

ƒ Costs of maintenance (this has a hardware component – e.g. batteries, and a labour and infrastructure component – technicians located near consumers, transport);

ƒ Costs of distributing capital and maintenance costs over a longer period of time such that they are more affordable (typically expressed as an interest rate, and applicable for both credit and fee-for-service models). The results of the socio-economic study and the cost estimates for the basic and standard systems above show that a subsidy is required in the rural areas of IMAR to ensure affordability. Activities subsidised under the pilot programme Subsidies can be provided in a number of different ways: • Direct grant subsidy on each system. There is already experience of this type of subsidy in IMAR and it is the simplest to administer. This is also what is currently proposed under the Power Company scheme. • Concessional finance for local finance institutions to enable them to on-lend to end customers (for the credit model). Concessional finance could be provided in terms of guarantees as well as buying down the interest rates. Service providers have to take responsibility of maintenance and are reimbursed after installation is complete. It is not recommended in IMAR to buy down the interest rates (interest rates are already low) although it may be necessary to provide some guarantees to encourage the credit co- operatives to enter this market sector.

ITP/0960 60 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

• There will also be a need for a grant or subsidy for the training and capacity development programme, which will cover tuition fees for courses required for technicians, for applying for start-up support and general programme management. Levels of subsidies This question unfortunately has no simple answers. It depends on the consumers who will be targeted and their ability to pay as well as on the size of system to be delivered. In order to assist decision makers to target subsidy levels, it is important to consider: • Capital costs (RMB/Wp) • Staged payments at commercial interest rates • Length of repayments/ fee-for-service contract. It is recommended to ensure that the pilot programme has the same subsidy level as the proposed Power Company programme to ensure the success of the pilot. It has been shown in previous programmes that if the customers expect a different programme to offer a higher subsidy (perceived or real) they will prefer to wait for the other programme than to receive a system now, at a lower subsidy. The Power Company has proposed that there is a subsidy of 80% of the cost, including installation and three years of maintenance for a 100kWp system. The proposed pilot subsidy will be available at the rate of 70% for the basic and standard system, which are significantly larger than the Power company program systems. Where a household can afford more they are able to pay for the additional system size out of their own funds. Estimates based on 70% of the basic system would set the subsidy at about 4 760 RMB. The impact of this proposed subsidy on user contribution is shown below. Table 14: User contribution and subsidies for installed systems (cash only)

System Basic size Capital cost Subsidy User Estimated Type (wind/PV) including (RMB) Contribution take-up (% W installation (RMB) of (RMB) population) Standard 300 / 100 14,000 9,800 4,200 75 % system A Standard 300/ 50 11,000 7,700 3,300 System B Basic 100 / 50 6,800 4,760 2,040 15 % system Deluxe 1000 / 300 42,000 - 10 % system The user contribution for the poorest, for the basic system, would be only 2,040 RMB. There is some concern that this level of contribution is too low to show commitment from the users to look after their systems. However this level of subsidy would result in the standard system not being affordable by the majority of customers if the payment had to be made in a one- off payment and does not take into account the cost of any on-going maintenance. The socio-economic survey showed that general affordability was about 1000 RMB per year whilst the Banner level technicians stated that most could afford 2000-3000 RMB/year. It should also be noted that the users must also purchase the electrical equipment such as TV, lights etc so there will always be a level of commitment. The final level of subsidy should be selected based on the Provincial electrification programme (currently expected to be set at 80%).

ITP/0960 61 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

It is expected that the majority of households will choose Standard B rather than A because the B is sufficient for most demands and considerably cheaper than A. Thus, for the pilot programme financial model presented in the following sections, the basic and standard model B have been used. The credit and fee-for-service models detailed below enable the user contribution to be shared out over a longer period of time thus allowing the systems to become affordable. A comparison of the different models is provided in terms of user contributions. In addition it is important to consider how the subsidy is implemented to ensure that a black- market is not created by it being seen as an easy means for cash flow; being converted to quick cash in the black-market at lower value than the cost. For example subsidised equipment could be marked with non-erasable identification mark to combat their trading in the black-market. Private Sector contribution / Activities not subsidised While the proposed mechanisms provide subsidies for the initial capital for companies to purchase equipment to establish a business, the investment in starting up the business and the daily operation of the company/ESCO is not subsidised. In each area the Company needs to run a business that recovers all the running costs (labour, travel, transport, administration etc) in addition to the requested level of repayment of the credit. In this way the running of the companies is not subsidised, and is not dependent on continued support from the government or donors. This should be a good foundation for a sustainable mechanism in the future.

9.4 Suitability of Implementation Models for IMAR

The suitability of the three implementation models described in the previous section for Inner Mongolia was discussed at length during stakeholder consultation meetings. Different stakeholders favoured different models, and no consensus was reached. The consultants’ conclusion was that in principle each of the three models is suitable for IMAR, and that any delivery model could be implemented in any of the 13 banners. The ESCO model is particularly attractive for areas with the poorest population, as there is a small upfront payment for the user. Middle-income families may benefit from the availability of credit, as they may not be able to pay the full system cost at once, whilst more affluent households will be able to pay the cost of a system upfront. The resource availability is independent of the delivery model used for implementation, and the wind/solar resource needs to be sufficient whichever implementation model is used. Willingness or ability to pay is an important parameter. If the ability to pay is really low, the fee-for-service model offers an advantage, because there is only a small upfront payment. Subsidy levels could vary between different banners, according to the ability to pay. Sparsely populated areas are more difficult to electrify whatever implementation model is used, as installation, maintenance and fee collection all become more difficult and more costly than in more densely populated areas. It would be possible to apply differential maintenance costs to account for higher costs for maintenance and fee collection, However within an ESCO company this would unduly complicate it. For fairness it would be better for any fee-for-service company to have one set fee for a certain size system. In order to gain experience, particularly with the fee-for-service model, it is recommended to implement a combination of all three models in different banners in a pilot programme.

ITP/0960 62 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report 9.5 Cash Sales and Credit Sales Models

A cash sales model with an appropriate subsidy is easiest to implement, as all responsibility passes to the user upon completion of installation or at least at the end of the warranty period. However, this has the disadvantage that maintenance is left to the user who is not necessarily well qualified for this task. Programmes to date have operated like this and have been shown not to be 100% successful in the longer term. The credit model is largely the same as a cash model; however, payments are spread over a longer period of time (2-3 years), rather than being due upfront. This makes the renewable energy system more affordable as each repayment consists of a smaller amount. Payments should be scheduled to become due at the time of income (i.e. in summer for cashmere, winter for meat). The cash sales and credit sales models can be implemented side by side, with rural credit co-operatives (RCCs) providing credit for those households wishing to use this facility. It is really important that training development should also include user training / materials for user training. For the cash and credit model, significant emphasis on empowering the user by very good and detailed training is necessary. Prior to the disbursement of grants the installers should prove that they have sufficient processes in place to provide user training and training material to leave with the users. As discussed above the subsidy needs to be set at such a level that the poorest households can afford a system. At the same time, it is seen as essential that systems are not given away for free, but that even the poorest still pay a contribution towards the cost of their system. The credit model is only recommended for areas with experience of micro credit. The umbrella organisation of the rural credit co-operatives (RCCs), the Rural Credit Co-operative of IMAR, confirmed that all of the banners surveyed have experience with micro credit, and most of them have significant experience. It is strongly recommended that the programme links up with existing RCCs, as they have experience with lending small amounts to individual householders. There is a risk of non-payment associated with the credit model. Therefore, the programme may have to provide a guarantee for the loan amount, although this may not be required due to the relatively small amount of the loan. Non-payment is typically the result of natural disasters affecting the income (e.g. bad weather or diseases leading to loss of livestock), or unforeseen changes in personal circumstances (e.g. family member falling ill). For any credit model, the warranty/maintenance period must be at least as long as the credit term. Therefore a three-year warranty period is included with the system cost. The warranty excludes the cost for a new battery. In order to ensure that the dealers actually honour the warranty, some of the payment should be retained until the end of the warranty period. There should be some flexibility regarding the system configuration. For instance, for people who do not fall into the ‘poor’ category, but are unable to afford the standard system, it would be possible to reduce the system cost by reducing the amount of PV installed. As PV is typically modular, it would be possible to install either no PV or only 50W of PV, resulting in a saving of RMB 4,000 or RMB 2,000 respectively. Due to the modular nature, systems could be upgraded later as the users’ financial circumstances permit. Cost Data The following table shows the system cost, subsidy level and user contribution. Maintenance costs for three years are included, based on a cost of RMB 500 callout costs, plus a small allowance for component replacement. It is assumed that only very few components will

ITP/0960 63 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report need to be replaced during the first three years of operation. Also, components should be covered by the manufacturer’s warranty for at least one year. Hence only 10% of the typical replacement costs is assumed. It is assumed that payment is made in four instalments, one at installation, and the others at annual intervals over a three-year period. Table 15: System Cost, Subsidy and User Contribution

Basic System Standard System (RMB) (RMB)

System cost (incl installation) 6,800 11,000

Maintenance costs for 3 years 1,620 1,800

Total Cost 8,420 12,800

Subsidy 4,760 7,700

User contribution 3,660 5,100 Upfront 1,428 2,310 Annual payment 766 966 Note: This assumes one payment at installation followed by three equal annual (or 6 biannual) payments Interest rate: 6.0% It can be seen that the payment for the basic system is below 800 RMB per year, which makes it affordable to most, if not all households. The up-front and annual payment for the standard system are approximately 2,300 RMB and 1000 RMB respectively. This amount may be too high for some households, who can then opt for a smaller PV system in order to reduce costs. Cash customers would be expected to pay the full balance of the system at installation.

9.6 Fee-for-Service (ESCO) Model

Some stakeholders had been sceptical or negative about the applicability of the fee-for- service model to Inner Mongolia. However, as this model has not been tried in IMAR yet, it is recommended that this approach is tried out in a pilot programme, in order to obtain first- hand experience As stated above, the ESCO model is particularly attractive for areas with the poorest population, as there is a low upfront payment for the user and the user is guaranteed a certain level of service. The user need not worry about additional call-out costs for maintenance since this is included in their annual fee. The largest advantage is that professional maintenance is carried out, leading to better system utilisation and higher long- term sustainability. The user will pay an up-front cost, like a connection fee, and then would pay a regular fee over an eight year period. The fee would be due twice a year (at the time of the cashmere and meat incomes) and would be payable for the period that the system was working. Therefore if the system stopped working the user would contact the ESCO to come and fix it free of charge. The ESCO then has a record of the time that the system is not working and this will be deducted from the six monthly/annual fee.

ITP/0960 64 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Operational costs and income from tariff There needs to be a (financial) incentive for the ESCO operator. Therefore the fees must more than cover the cost of maintenance, the balance of the capital costs after the subsidy and the administration and fee collection costs. This ensures that a sustainable business model is taken forward. It is recognised that the costs of an ESCO can be higher due to additional administration however this is more than compensated for by the ability of this model to focus on the poor. Fee collection is an important issue. It is potentially more expensive to collect fees than what the fees are worth, due to the dispersed settlement pattern and large distances between households although fees could also be collected at the same time as the planned maintenance visits. Also, herders may be out when the fee collector calls, resulting in several attempts being necessary. It is therefore suggested to put the onus for payments on the user, and get the user to pay at regular intervals at the counter in the local banner town. This is also common practice for payment of fees for grid electricity. The concerns regarding the ESCO model relate to the fee collection costs and the feeling that there is no guarantee that the users will pay in their local township. If the penalty is to remove the system there is a fear that the users would sell the system on or hide it to prevent its recovery. Further concerns rest on the basis that if the consumer does not own the system they will not look after it. However it is in the customer’s interest for the system to work so that their own appliances continue to operate. The tariff could be a set fee or based on a kWh rate. However, as mentioned above, it must more than cover the technical and administration costs of the company. It is recommended that there is a set fee based on the system size. The calculation for the fee rate is shown below and the figure is converted to a kWh tariff rate based on average IMAR conditions, for comparison purposes only. Table 16: Calculation of fee for fee-for-service model in one banner

PV Net Costs (@ 10%) 7,230,388 kWh generated over 10 years 2,582,100 kWh tariff (RMB/kWh) 2.88 Annual fee (basic) 567 Annual fee (standard) 1,524 FIRR to ECSO 10.7% The assumptions include providing services to 1200 households in the area with 25% choosing the basic system and 75% choosing the standard system. It is assumed that the ESCO takes a three year bank loan at 6% for the balance of the equipment not paid for by the subsidy and user contribution. The user contribution is assumed as 680 RMB for the basic system and 1,100 RMB for the standard system. The cost of the ESCO is divided by user type according to their system’s energy production. Further assumptions are provided in Annex 9. The table shows that the annual fee for a basic system user is reduced from the credit model but that the cost for a standard system user is slightly increased (for 3-7 years). The reason for this is the fee includes all the maintenance requirements and new parts needed over an eight year period. Few new parts are needed within the first three years and were therefore not included in the costs for the credit model. Potential ESCO operators The following type of organisations could operate an ESCO: - Power Company

ITP/0960 65 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

- Existing Brightness or other renewable energy company at banner level - New company - New (or existing) co-operative An approach whereby the ESCO is operated by a user-owned co-operative was considered. This would replace profit as main motivator for the operator by the obligation to provide an excellent service for the members of the co-operative. Whilst this seems to be a good idea, there is very little or no experience with co-operatives in Inner Mongolia. The concept received little support from any stakeholders at the meetings. People in IMAR, particularly herders, are very individualistic in their whole outlook of life and are therefore less likely to work well as a co-operative. A co-operative approach is therefore not recommended for IMAR. The companies to take the ESCO model forward will be the Banner level Brightness Programme installation companies which are also likely to provide services to the Power Company, as part of its commitment to meeting the NDRC Circular ‘Notice of Power Supply Construction Program in the Unelectrified Regions (NDRC Energy [2006] 2312)’ . Since there is little understanding of the ESCO concept the company will need specific training to take it forward. Technicians from the three banners have all agreed that they are happy to take the ESCO model forward in their banners and initial explanations have been given at a workshop held in Hohhot. Initial Cost to the Programme It is anticipated that the programme would provide the same subsidy for the equipment as in the cash/credit model, i.e. 70% of the system independent of size. It is expected that 25% of the total population will opt for the basic system. It is suggested that households which wish to have a standard system need to pay an initial fee, similar to a connection cost. It is suggested that the deluxe system is not made available under the fee-for-service model, or alternatively that households wishing to obtain this system will have to pay the difference in cost themselves.

9.7 Financial Model

A financial model has been developed to help select the best model for the banners and to estimate the total costs of the programme. For a given banner the cost to the customers and of the overall cost of supply of the systems is provided. The model allows the Present Value (PV) of the different options to be compared to one another and shows the returns that a potential ESCO could make. The output from the model for the pilot banners, as well as the variables for the model, are all included in Annex 9. The following table shows compares the costs to users between the delivery models for a banner with 1200 un-electrified households. The annual fees for the basic and standard system have been revised slightly from the calculation shown in Table 16 to ensure that the ESCO cost is not too high whilst the ESCO retains an IRR over 10% Table 17: Comparison of user costs for different delivery models (RMB) Comparison with proposed Power Co. programme for one 100 Wp Delivery model PV system Cash Credit ESCO Costs (RMB) Up front or connection cost to Basic owner 2,040 1,040 680 1,040

ITP/0960 66 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Up front or connection cost to Standard owner 3,300 2,310 1,100 No. of years of payment 0 3 10 First 3 years Annual fee for basic owner 540 766 558 Annual fee for standard owner 600 966 1,500 3-7 years Annual fee for basic owner 903 903 558 Annual fee for standard owner 1,500 1,500 1,500

Assuming high quality maintenance over 10 year period: PV cost to users (8 years) 11,157,179 11,202,566 9,841,137 PV (8 years) of cost to basic owner @ 6% 7,096 7,123 4,437 PV (8 years) of cost to standard owner @ 6% 10,910 10,953 11,240 FIRR to ESCO 10.7%

The costs were based on the following assumptions: No. of un-electrified households in banner 1200 System costs Cost (RMB) Annual new parts Basic (100W Wind and 50W PV) 6,800 403 Standard (300W Wind and 50W PV) 11,000 1,000 Deluxe (1000W Wind and 300W PV) 43,000 2,700 Annual maintenance call out cost 500 Subsidy per system 6,965 Start-up and annual ESCO costs 193,000

9.8 Budget for a Pilot Programme

The overall costs for a pilot programme have been calculated using the model described above and selecting whether the credit/sales model or ESCO model is taken forward in each of the banners. The assumptions for the budgets are included in Annex 9. Table 18 below summarises the overall cost of a pilot programme in the two of the three selected Banners selecting an ESCO model in one of the banners and a credit/sales model in the other banners. The cost shows the total cost including the user contribution as well as the cost excluding the contributions. Table 18: Estimated Total Costs of Pilot Programme

Banner 1 Banner 2 HH to be electrified 1,200 1,200 1. Cash/Credit Sales Total cost 18,818,927 18,818,927 Cost of subsidies 7,661,748 7,661,748 2. ESCO model FIRR to ESCO 11% 11% Cost of subsidies 7,661,748 7,661,748

Total cost 7,661,748 7,661,748

ITP/0960 67 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Setup costs for installation co 200,000 200,000 Additional training costs 80,000 80,000 Subtotal 7,941,748 7,941,748 PMU (10%) 794,175 794,175 Total cost (RMB) 8,735,923 8,735,923 Total cost (USD) 1,091,990 1,091,990 Total cost (USD) 2,183,981

9.9 Pilot Programme Implementation

Funds may be made available from the ADB’s Poverty Reduction Fund for a pilot programme, assuming that sufficient rationale can be provided to the Fund. If the funds were available they would be channelled to IMAR through the IMAR Finance Bureau. Any proposed ADB pilot programme needs to fit with the Power Company’s responsibilities under the ‘National Circular’. The Power Company has responsibility for the electrification of all households in IMAR. The Power Company is not interested in carrying out this responsibility so it will let tenders to carry out the work. It is likely that the existing Brightness Programme installers will be the companies who will be carrying out the installation and maintenance for the systems with the funds being provided to them by the Power Company. It is therefore proposed that the ADB pilot works with the Banner level installation companies. As mentioned above these companies have agreed to take forward the ESCO model in their three banners. A Project Management Office should be established under the Finance Bureau which includes external expertise including a member from the Poverty Alleviation Office, from DRC and technical staff including Professor Liu Zhizhang from the IMAR Technical University. The FB would be responsible for liaison with the Banner installation companies and for fund disbursement. Professor Liu would be responsible for all the technical aspects of the programme (system configuration, selection of equipment, installation, quality of equipment, training and maintenance issues). The PAO would be responsible for the targeting of poor households. The local Brightness programme companies will trial the different models – an ESCO model in one area and a credit and cash sales in another area. The cash sales will be the same as the Power Company programme but with a key difference in that it will also allow customers choice and to access credit. The ESCO model is likely to demonstrate better sustainability in the programme compared to the power company programme since the maintenance will be guaranteed so the systems are guaranteed to be working in a number of years time.

9.10 Other Issues Relating to Programme Implementation

Focus on Rural Poor Within each banner, typically some areas are poorer whilst others are more affluent. An observation from the socio-economic survey was that generally the remoter households are poorer than the households nearer to the banner town, with the remotest households being poorest. The pilot programme should be directed to reach the poorer, lower-income areas. Conscious efforts should be made to reach the remotest households, which are often disadvantaged by less effective communications. The installation of demonstration systems in remote villages may be an effective method to ensure that villagers know about the programme and its benefits. Phasing

ITP/0960 68 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

In previous programmes, phased introduction has led to good results. It is recommended that the pilot is split into two phases. Under phase 1, twenty or thirty systems would be installed in households in different target areas. These act as demonstration systems for other householders, who would then be electrified 3 or 6 months later under phase 2. The actual time period before commencing Phase 2 should be sufficient to allow for evaluation of the systems in Phase 1 and to ensure sufficient demonstration. A survey of the phase 1 households would be recommended to ensure any feedback is included in the second phase. Electrification efforts can be directed to the desired areas by targeting these during phase 1. Impact of resettlement It is important that any plans take into account any future banner-level government migration or resettlement plans. Due to the desertification in IMAR a number of areas now have bans on herding and therefore these people are being ‘strategically migrated’ to areas where there is grid power. Therefore the programme implementers must reach an agreement that households to be electrified will not be moved in the next three to eight years – depending on the deployment model in that area.

9.11 Monitoring and Evaluation of TA Outcomes

A monitoring and evaluation framework has been developed in line with the pilot recommendations of this study for the electrification of rural poor households in IMAR. It is intended that this framework will be used as an on-going monitoring tool to measure progress against the objectives and anticipated outcomes for any future programme. The framework have been discussed with the GIMAR government to ensure that the indicators are feasible and measurable. Monitoring is the systematic process of observation and collection of information to ascertain the output and impacts of a programme. Through the monitoring process it will be possible to see if the aims and objectives of the programme are being met. Monitoring allows the programme to be evaluated. It is recommended to carry out regular monitoring and to carry out an evaluation after two years. Selection of Indicators To assess the impact of the programme outcomes, the technical, institutional and socio- economic aspects of the intervention should be monitored and evaluated. A set of both quantitative and qualitative performance indicators has been developed for the proposed programme. These indicators are based on the discussion of the aims and objectives of the programme, and will enable measurement of the extent to which these objectives are met.

ITP/0960 69 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

DESIGN OF MONITORING FRAMEWORK Performance Targets / Indicators: Means of Verification Critical Assumptions and risks

PROJECT GOAL: Lower level of poverty in rural areas. - IMAR statistics IMAR Government sustains priority and resources for economic Improved economic development and better Increased electricity supply to households and development of remote rural areas. living standards in remote rural areas in communities – 85% of the remaining households without IMAR. power supply to obtain electricity by 2010*

Outcome: # of households acquiring and using a RE system - IMAR statistics Provision of alternative energy supply to the # of technicians trained and engaging in services rural poor in remote areas of Inner Mongolia (installation and operation and maintenance) in the renewable energy sector

PROJECT OUTPUTS:

Output 1: # of households acquiring and using a RE system in each - IMAR statistics banner To provide alternative energy supply to rural - Program database poor households in remote areas of IMAR in the banners considered. Output 2: # of technicians trained and engaging in services - Training records (installation and operation and maintenance) in the Increased number of technicians trained and - Program database renewable energy sector engaging in installation, operation and maintenance of RE systems Output 3: # households receiving subsidies - Program data base

Disbursement of subsidies targeted at the # households below the ‘non poverty threshold (882 - IMAR statistics rural poor. RMB/ year) receiving subsidies. Output 4 Credit lines for consumer financing of RE systems - MFIs information MFIs do start offering services for RE developed within MFIs regarding services systems To provide sustainable consumer financing offered to households to enable the purchase of # of loans disbursed for RE systems systems in addition to subsidies - Supplier/installer Repayment rates of loans disbursed

ITP/0960 70 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

information - Program database Output 5 Percentage of end users expressing satisfaction with - Socio-economic survey Installers carry out the end-user appliances of target audience / training as part of the installation Increased knowledge and understanding of RE project records services systems within the target population to enable # of failures in technology within five years them to carry out own operation and

maintenance and to make informed purchases - Updated product list for Output 5 Updated product list available for IMAR subsidy. Initially IMAR adopt use of REDP product list IMAR programme products available for subsidy listed under REDP and compile list for wind products Reduced risks of energy product failure from programme - which have been selected, tested and - Socio-economic survey provision of on-going operation and certified of target audience / maintenance services; and by applying project records international best standards to product and Percentage of end users expressing satisfaction with installer selection coupled with product appliances certification. # of failures in technology within five years

Output 6: Percentage change in (sample) target population of - Copies of publicity of RE those aware of RE technologies systems/programme Raised awareness and increased demand amongst the target population for RE Percentage change in (sample) target population of - Socio-economic survey systems those owning RE technologies of target audience / project records Output 7: Change in household expenditure on energy - Socio-economic survey consumption amongst target population of target audience / Improved socio-economic situation due to project records impacts of access to new RE systems. Satisfaction with system Output 8 Energy output (kWh) for each system configuration - Energy meter in limited no. of households Expected energy output from new alternative energy systems

* Note not all 85% in performance target will be included as part of the ADB programme, but will be included in the total IMAR rural electrification programmes.

ITP/0960 71 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

10 TRAINING AND CAPACITY BUILDING MEASURES

10.1 Development of a training programme/existing training material/training requirements

To ensure the sustainable operation of off-grid electrification services it is important that all the relevant stakeholders have sufficient training and capacity to carry out all the activities required. To achieve this, capacity building is required across many sectors, organisations and groups. The type of capacity building activities that could be required depend on the models taken forward but ability to undertake the following activities is needed: awareness raising; evaluation and selection of technology options; preparation of business plans; resource assessments; investment promotion; financial analysis; project finance; technical advisory services, product development; establish community based utilities; set tariff structures and accounting procedures. The consultants have carried out an assessment of the training required to take the proposed deployment models forward in Inner Mongolia as well as carrying out a training needs assessment of the stakeholders to be involved in the provision of services, for the design, installation, operation and maintenance of alternative energy in rural areas. A banner level training programme is currently being developed. A short report is included in Annex 10 of the findings of the assessment. Assessment of Existing Knowledge An initial assessment of existing knowledge was carried out through interviews in Hohhot and from reviewing previous reports. Some training activities have been provided to the workers. Within the Township Electrification Program, 42 village power stations (PV or PV/Wind hybrid) have been installed and the workers, both the operating and the management, have been trained by the IMAR Township Electrification Program contractor, Inner Mongolia Huade New Technology Ltd. Another training activity was also carried out by Jikedian, supported by REDP. In February and March 2006, three seminars were held with the topic of PV System Function Test Technology. Eighty persons from the PV Manufacturers, Township Electrification Program Contractors as well as other participants within the industry joined the four day long seminar. However, as far as is known, there has been no training activities for end users. In 2003 an independent investigation of the end users under the Western China Solar Home System Project was undertaken. The investigation took place in IMAR, Xinjiang and Qinghai province and showed that 62% of the end users hadn’t been trained while of 28.3% end users experienced PV system malfunction. Within the socio-economic study undertaken within this project in IMAR, only 6% of respondents said they had been trained. Training needs The training needs of the different stakeholder groups have been identified. A summary of the needs is included in Table 19.

ITP/0960 72 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

Table 19: Summary of capacity building measures for the main target groups.

riorities p Rural electrification policy policy Rural electrification development and energy to contribution of sector Fiscal policy impacts impacts policy Fiscal Awareness raising, educational and promotional activities and choice of Evaluation technology options Resource assessments services Technical advisory cost Financial and least analysis Co-ordination Impact assessments plan Business development Development of quality standards.

NDRC X X X X X X X X X Poverty Alleviation X X X X Office Ministry of Finance X X X Financiers & Lending X X X X Institutions Training Organisations X X NGOs X X Utilities X X X X X X X Service Delivery Chain X X X X X X In particular there should be an emphasis on user training to ensure the longer term sustainability of the systems. Training of end users should involve the maintenance requirements, in particular of the battery and with wind turbine and any associated costs; matching appliances with the system size and the limitations of the system; availability of energy efficient appliances; standard system sizes for PV and wind; and clear definitions of the ownership of the systems and responsibilities for the different components. The installation technicians should provide the training to the end user and provide some material to be left with the user. Material should be provided to the end user in Mongo or Mandarin depending on the end user. It would also be useful to include the material in pictures. Existing Training Material Only one key set of training material has been published that could be relevant for the IMAR rural electrification project: PV/Wind/Hybrid Village Power Station (teacher/student version). This is the technical training material developed, with the support of NDRC, for these two programmes; Township Electrification Programme (SDDX) and the Western China New Energy Action Plan. Beijing Jikedian Renewable Energy Development Centre conducted the ‘train the trainer’ courses with its teacher version. Then the trained teachers, who were chosen from those involved in these two programmes from the Western China provinces, went back to train the local workers using the student version. Since this training material was designed for SDDX it is designed for the design and installation of township and village sized systems as opposed to home systems. However much of the material is equally relevant for technicians involved in rural renewable energy systems. The material could be edited for use by technicians for home systems. Training Organisations Three organisations were identified that could provide training on RE in IMAR.

ITP/0960 73 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

1) Inner Mongolia Huade New Technology Ltd 2) Inner Mongolia Electricity School (Inner Mongolia Power Grid Training Center) 3) Inner Mongolia University of Technology

10.2 Training Programme for Banner Level Technical Personnel

A training programme for banner level technical personnel has been prepared by the IMAR University of Technology. The table below shows the extent of the course including training on PV and wind elements and a field study. Detailed course material was prepared for the course which can be utilised again beyond this project. The training provides a foundation for future training of technicians. Table 20: Syllabus for Technician Training Subject Time (day) Venue Proposed lecturer PV system fundamentals and 0.5 Hohhot Zhao Mingzhi application Small wind power system 0.5 Hohhot Feng Guoying fundamentals and maintenance Controller and inverter 0.5 Hohhot Dai Wenping fundamentals and maintenance Design calculation on wind/PV 0.5 Hohhot Liu Zhizhang hybrid system Experiment of wind power 1 Hohhot Li Changchun & Dai generator, controller and inverter Wenping Field study on typical RE 2 Suniteyou Liu Zhizhang & Dai application Banner Wenping Total 5 The course took place over a one week period in Hohhot in the week commencing 19th March 2007. The course comprised 3-days on-campus lectures and a 2-day field study in selected banners. The course was very popular and was over-subscribed. In total there were 30 representatives from 13 banners/counties, most of whom are directors of banner-level Brightness Companies/New Energy Promotion Stations. In addition there were 18 representatives from component manufacturers and system integrators from IMAR, Beijing, and Shanghai, who self-financed their trips. Prof. Liu Zhizhang from Inner Mongolia University of Technology acted as the host, with assistance from his PhD students. The 3-day lectures were modular in nature, covering PV system fundamentals and application (Day-1 AM), small wind power system fundamentals (Day-1 PM), design calculations on wind/PV hybrid system (Day-2 AM), controller and inverter fundamentals (Day-2 PM), and experiment of controller and inverter (Day-3). A set of printed teaching materials and stationery was provided to each participant. According to feedback from the participants, the courses were well delivered and the teaching materials were well designed. There had been few previous formal training courses convened in IMAR. The only training activity on a similar scale to the present one was carried out a couple of years ago as part of the Brightness Programme, which was suspended in 2005. This ADB funded training course provided training to a greater number of people than the previous one and was considered to be of a better quality. The participants felt that this training was therefore essentially unprecedented in IMAR.

ITP/0960 74 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report

The training provided a valuable opportunity for the technicians to get together, improve their knowledge of RE, exchange information and ideas and in nature it formed an unofficial ‘Off-Grid RE Association of IMAR’. Prior to this course, many of the technicians had not seen each other for over 10 years and felt that they were not up to date on off-grid RE technology, recent national and provincial laws, rules and regulations on RE. This explains the popularity of the course. Some originally uninvited technicians took 30-hour train journeys to Hohhot to participate in the course, resulting in the fact that the course was 50% over-subscribed with 30 participants. Annex 10 shows the full attendee list, including banner technicians, representatives from manufacturers, project consultant, and IM University of Technology. Photos are also included. Within the training programme some time was set aside to discuss the proposed pilot programme and to receive comments from the banner level staff who have the practical experience of renewable energy system installation, operation, maintenance and, more importantly, know the actual conditions of households in their respective banners. Substantial information was obtained, including first-hand data on number of un-electrified households, comments and suggestions on pilot banner selection, banner-specific system configurations, user’s contribution to system cost, implementation models etc. The technicians' feedback and comments received during the session have been incorporated into the design of the pilot programme. Overall the training course was considered a success by the participants and all 13 banners represented are very keen to be involved in the proposed pilot programme. IT Power has even been contacted by some proactive banners since the training course. Proven track records indicate that each banner’s Brightness Company/New Energy Promotion Station has sufficient resources, capabilities and experience for implementing the pilot programme.

10.3 Capacity Building for Personnel at Autonomous Region Level

A proposal for international study tours was developed to enable capacity building of relevant personnel at Autonomous Region level. This includes representatives from different government departments as well as from the Power Company and from academia. The proposal has been approved by ADB in May 2007. The planned study tours are included in Annex 11.

11 DISSEMINATION ACTIVITIES

11.1 Dissemination Activities in Inner Mongolia

At the project launch on 9 March 2006, an initial stakeholder workshop was held. On 8 June 2006, a second stakeholder workshop was held, at which initial results from the socio- economic survey were presented. The third stakeholder workshop was held on 20 January 2006. The Interim Report and its findings were presented, including the results of the socio- economic survey. A further stakeholder meeting took place on 1 February 2007, mainly to obtain feedback from stakeholders on the results of the study. A further stakeholder workshop took place on 14 March 2007. At this workshop, the Draft Final Report for the study was presented. Following this a smaller workshop was held with the three proposed pilot banner Technician companies to discuss the ESCO model in more detail and the plans for a pilot programme. Annex 12 contains the agendas and participants lists of the stakeholder workshops held to date.

ITP/0960 75 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Final Report 11.2 Dissemination Workshop for Other Western Provinces

GIMAR have signalled interest in holding a wider dissemination event beyond the Autonomous Region, disseminating the results to other provinces in western China. A final national dissemination workshop will be held in Hohhot in June 2007 with representatives from other western provinces, followed by a press conference. This will make the results of this TA Project available to a wider audience.

ITP/0960 76

Annex 1

Past Missions of the International Experts

Past Missions of the International Experts The following missions of the international experts have taken place to date:

Expert Dates Main Activities

Rolf Oldach 27 Feb 06 to - Meetings with individual stakeholders (Alternative Energy Expert) 11 Mar 06 - Organise stakeholder workshop - Tripartite meeting - Inventory of RE systems

Zhu Li 17 Mar 06 to - Meetings with stakeholders (Power Economist) 30 Mar 06 - Inventory of RE systems - Field trip to RE installations - Preparation of survey

Kavita Rai 22 Mar 06 to - Meetings with stakeholders (Social/Poverty Expert) 09 Apr 06 - Field trip to RE installations - Preparation of survey

Rolf Oldach 19 Apr 06 to - Finalise survey locations and questionnaire (Alternative Energy Expert) 29 Apr 06 with GIMAR - Technical survey of RE installations - Update inventory of RE systems

Kavita Rai 10 May 06 to - Carry our survey with local experts and (Social/Poverty Expert) 12 Jun 06 students - Liaison with other team members

Jayath Atokorala 05 Jun 06 to - Investigation of current rural electrification (Financial Analyst) 14 Jun 06 approaches and mechanisms (financial aspects) - Liaison with other team members - Meetings with stakeholders - Field trip to RE installations

Zhu Li 05 Jun 06 to - Investigation of current rural electrification (Power Economist) 23 Jun 06 approaches and mechanisms (social and economic aspects) - Liaison with other team members - Field trip to RE installations

Bernard McNelis 05 Jun 06 to - Investigation of current rural electrification (Institutional Expert) 23 Jun 06 approaches and mechanisms (institutional aspects) - Liaison with other team members - Meetings with stakeholders - Field trip to RE installations

Rolf Oldach 13 Jul 06 to - Technical survey of RE installations (Alternative Energy Expert) 26 Jul 06 - Liaison with GIMAR - Meetings with stakeholders

Rolf Oldach 12 Dec 06 to - Liaison with GIMAR

(Alternative Energy Expert) 20 Dec 06 - Stakeholder interviews - Interim Report Stakeholder Workshop

Rolf Oldach 22 Jan 07 to - Liaison with GIMAR (Alternative Energy Expert) 2 Feb 06 - Stakeholder interviews - Stakeholder Workshop

Rebecca Gunning 13 to 15 Mar - Draft Final Report Stakeholder Workshop (TA Team Leader, 2007 - Stakeholder interviews Alternative Energy Expert) - Liaison with GIMAR

Zhu Li 13 to 15 Mar - Draft Final Report Stakeholder Workshop (Power Economist) 2007 - Stakeholder interviews - Liaison with GIMAR

Rebecca Gunning 21 to 22 May - Stakeholder Workshop: meeting with (TA Team Leader, 2007 representatives from 3 banners selected for Alternative Energy Expert) potential pilot programme - Liaison with GIMAR and discussion on final dissemination workshop and study tour

Rebecca Gunning 27-29 June Final dissemination workshop 2007 (TA Team Leader, Liaison with GIMAR re. study tour Alternative Energy Expert)

Annex 2

Documents Reviewed

Documents Reviewed

1. Ma Shenghong and Li Jie, Beijing Jikedian Renewable Energy Development Center; Ma Yekuan and Su Baozhong, Beijing Daru Market Research Institute. Research on the Promotion of Market-oriented Operational Mechanism of Off-grid household-based Solar/Wind Hybrid Electricity Supply Systems in Inner Mongolia Autonomous Region (IMAR). 2003.

2. Liu Zhizhang, College of Energy and Power Engineering at Inner Mongolia Polytechnic University. Sino-Italian “Solar Village” Project Investigation Report. 2002.

3. Liu Zhizhang, College of Energy and Power Engineering at Inner Mongolia Polytechnic University. Supplementary Introduction to Sino-Italian “Solar Village” Demonstration Project. 2002.

4. Liu Zhizhang, College of Energy and Power Engineering at Inner Mongolia Polytechnic University. Solar Village in Inner Mongolia Autonomous Region (IMAR). 2002.

5. Liu Zhizhang, College of Energy and Power Engineering at Inner Mongolia Polytechnic University. Sino-American Cooperation on Household-based Small Solar/Wind Hybrid Electricity Supply System Inner Mongolia Autonomous Region (IMAR). 1997.

6. Zhang Guangli, Energy Department of IMAR Development and Reform Commission. General Introduction to IMAR and Status Quo of Wind Power Industry. 2005.

7. Zhang Guangli, Energy Department of IMAR Development and Reform Commission. Analysis on the Environment and Advantages of Wind Power Development in Inner Mongolia Autonomous Region (IMAR). 2005.

8. Zhang Guangli, Energy Department of IMAR Development and Reform Commission. Wind Power Development Plan in the “11th Five-year Plan” Period and Long-term Goal by 2020. 2005.

9. Liu Zhizhang, College of Energy and Power Engineering at Inner Mongolia Polytechnic University. The Plan of Electrification with New Energy for Rural and Pastoral Areas in Inner Mongolia Autonomous Region (IMAR). 2000.

10. Guo Liheng, Director of IMAR World Bank Project Office. Survey Report on Straw and Forest Resources of Xing'an League in Inner Mongolia Autonomous Region (IMAR). 2005.

11. GTZ Newsletter. Renewable Energies in Rural Areas. 1/2006

12. GTZ. Final Review of Project “Use of Wind and Solar Energy in Inner Mongolia and Selected Islands of the People’s Republic of China”. 2000

13. Debra J. Lew*, C. Dennis Barley, and Lawrence T. Flowers, National Renewable Energy Laboratory. Hybrid Wind/Photovoltaic Systems for Households in Inner Mongolia, Proceedings of International Conference on Village Electrification through Renewable Energy, New Delhi, 3-5 March 1997.

14. K. K. Stroup, National Renewable Energy Laboratory. DOE/NREL Inner Mongolia PV/Wind Hybrid Systems Pilot Project: A Post-Installation Assessment. 2005

15. C. Dennis Barley, Debra J. Lew, and Lawrence T. Flowers, National Renewable Energy Laboratory. Sizing Wind/Photovoltaic Hybrids for Households in Inner Mongolia, Proceedings of Windpower '97, Austin, Texas, 15-18 June, 1997

16. The Energy Research Institute of NDRC. Research on electrification modes of small-scale community and scattered households: the report on field investigation for typical areas. 2005.

17. The Energy Research Institute of NDRC, Beijing Jikedian Renewable Energy Development Center and REDP PMO of World Bank. Investigation of and suggestions to SDDX project. 2005.

18. PMO of NDRC/GEF/WB/China Renewable Energy Development Project. REDP Progress Report (2001-2004). 2005

19. The Renewable Energy Law of PRC. 2006

20. Mel Brown, Enjiang Cheng and Ingrid Fischer. Rural finance reforms and development of microfinance institutions for the Inner Mongolia Autonomous Region. ADB TA 35412-PRC. 2005

21. He Guangwen and Enjiang Cheng. A Report on the demand for credit from microenterprises in Erdos, Inner Mongolia Autonomous Region. ADB TA 35412-PRC. 2005 22. Joanna Lewis, Energy and Resources Group at the University of California, Berkeley. Learning how to ride the wind: the disappointments and potential of wind power in China. China Environment Series, 6. 2003. 23. Shi Jingli, Center for Renewable Energy Development of Energy Research Institute at NDRC. Economic incentive policy to stimulate market growth for small wind turbines in China. Research on Innovative and Strategic Policy Options (RISPO), Asia-Pacific Environmental Innovation Strategies (APEIS). 2003.

24. GTZ. Producing electricity from renewable energy sources: energy sector framework in 15 countries in Asia, Africa and Latin America. TERNA Wind Energy Programme. 2002.

25. Ma Shenghong, Beijing Jikedian Renewable Energy Development Center. Efforts of electrifying remote villages and households by wind and PV technologies in China and Sino-German cooperation in the field. 2004.

26. P. Lindlein and W. Mostert. Financing instruments for renewable energy. 2005.

27. The 11th 5-year Programme for Inner Mongolia Autonomous Region. 2005.

28. Simon Batchelor and Nigel Scott, Gamos Ltd. (UK); Liu Daoqi and Bagen, Inner Mongolia Electric Power College. Evaluating the impact of wind generators in Inner Mongolia. Technical report of project funded by Knowledge and Research (KAR) programme of the UK Department for International Development (DfID). 1999.

29. Kamal Kapadia. Productive uses of renewable energy: a review of four bank-GEF projects. 2004.

30. An overview of renewable energy options: clean energy options for 21st century cities and communities. Workshop on Deploying Sustainable Technologies, Beijing, China, 2002

31. Zhang Jie. Techno-economic analysis of small PV-Wind hybrid systems in remote areas of Inner Mongolia. Master Thesis, University of Flensburg, Germany. 2002.

32. Zhang Xiliang, Gu Shuhua and Liu Wenqiang, Institute for Techno-Economics and Energy Systems Analysis at Tsinghua University; Lin Gan, CICERO - Center for International Climate and Environmental Research - Oslo. Wind energy technology development and diffusion: a case study of Inner Mongolia, China. CICERO Working Paper 1999:5.

Annex 3

Stakeholders Interviewed List of Stakeholders Interviewed

Contact Name Organisation

Mr. Ren Baoshan IMAR Poverty Alleviation Office Mr. Wang Lizhong

Mr. Wang Fengqi IMAR Finance Bureau Ms. Bao Lanman Ms. Jia Jie

Mr. Zhang Guangli IMAR Development and Reform Bureau (Energy Department) Mr. Qiao Yu

Mr. Guo Liheng IM Renewable Energy Scale-up Programme Management Office (Previously with Huade New Energy Company)

Mr. Guo Xiaojian IMAR Huade New Energy Company

Prof. Liu Zhizhang IM Polytechnic University (IM Natural Energy Institute)

Ms. Chen Fang Department of Agricultural Power, IMAR Power (Group) Company

Mr. Wen Yaohua Credit Union (Credit and Loan Department)

Ms. Gabrielle Harris Planet Finance, Beijing

Mr. Ying Riming IM Taifeng Energy Development Co Ltd

Mr. Jiang Yanbo IM Lenon New Energy Co Ltd

Mr. Guo Xiaojian Huade New Energy Company

Mr. Yang Bin Bo Yang Renewable Energy Co

Prof. Ma Shenghong Institute of China Academy of Sciences, Beijing

Mr. Cai Quan Science and Technology Bureau of Sunite You Banner of IMAR (Director)

Mr. Niu Fubao Science and Technology Bureau of Sunite You Banner of IMAR (Deputy Director)

Mr. Yang Yi Brightness Company of Xisu Banner

Mr. Zhao Chibing Brightness Company of Etuoke Banner Mr. Hu Youcai Brightness Company of Wulatehou Banner

Mr. Yang Tiansheng and Mr. Commerce Bureau of Wulatehou Banner Kang Jianxun

Mr. Zhen Shuzhan New Energy Station of Hulunbeier City

Mr. Qin Shuang’en and Mr. Li Commerce Bureau of Keerqinyouyizhong Banner Qiang

It should be noted that (1) banner level stakeholders met during the socio-economic survey are listed in the survey itinerary; (2) banner level stakeholders met during the training course in Hohhot are listed in Annex 10 Capacity Building.

Annex 4

Inventory of Programmes Using

Household-Based Renewable

Energy Systems

Inventory of Household-Based RE Systems Installed in IMAR

Pilot Project of Wind&PV Hybrid System Hybrid Pilot/Demonstration China-Spain Scientific and for Power Generation and Water Project of Science & US DoE SHS and China-Italy Chinese Solar Technical Co-operation Pumping (part of "Western New Energy Programme Name Small Wind Turbine Programme Technology Bureau Hybrid/Wind Program Village Project Project Action") General Information: Date (from-to) 1980 - 2005 2000 1994 - 1997 2004-2005 2003 2005

Science and Technology Commission, IM Science&Technology Funding Source Ministry of Agriculture and Ministry of Finance Bureau US Dept of Energy (DoE) Italian Government Spanish Government IM Ministry of Science&Techn.

Technology (PV/wind/ villiage power system & SHS PV-wind hybrid for electricity generation hybrid) Initially Wind, later PV-wind hybrid hybrid system systems SHS and water-pumping Before 2000, around 140,000 small wind turbines had been installed. Many of the total 100kW: 20kW village small wind turbines installed have since been power system, 16kW water decommissioned. It is estimated that 82,000 pumping system (8kW & wind turbines were still operational by the end 2*4kW), and SHS (300W, No of Systems Installed of 2005 30+150 240 500W) 81 12 Areas covered by Dongwu (over half of all Dongwu Banner (for more Sunid Right (Xisu) Banner and Dong Wu Programme All of IMAR systems), Xisu, Azuo banner richer hh in pasture area) Banner Funding: hardware is provided by Italian Government provided Spanish government, MOST Science and Technology Bureau of GIMAR, PV, battery, converter etc. all 180,000 co finance for subsidy directly to manufactures. Agriculture Programme paid installation the hardware, IM S&T 700,000 installation, custom fee, Bureau give subsidies to farm household costs only; hardware paid by subsidy for PV arrays, and part for installation and 2 years transportation and 2 years Type of Subsidy directly. beneficiaries. installation cost maintainance maintainance N/A Total Programme Budget IM S&T Bureau 500,000 for US$ 200,000 (US/DOE) PV (RMB) 28,000,000 installation arrays, IM S&T RMB 200,000 village power system full PV: 6,600; (40*165W), 300W subsidy, water pumping 200/100W or 1000/1000W, directly to wind turbine (2000) + battery, system, full subsidy, SHS, Subsidy per system (RMB) manufactures only for installation converter and installation hardware N/A Total system cost (RMB) 1000-3000 10000+installation around 10,000 10,000 Contribution of Beneficiaries SHS: 7000/HH (local HH pay 12,000/system, (local (RMB) 800-2000 10000/system 10,000/system government took 2000) government took 7000) 10,000

Technical Details: IM Science & Technology IM Science & Technology IM Science & Technology IM Science & Technology Project implemented by Bureau Bureau Bureau Bureau IM Natural Energy Inst Wind turbine size (range) 100-1000 W 300/500W 300W 600 W 12*50 W = 600 W for 6 systems; 400 W for PV array size (range) 20/60/120/180/190/320/350W 165W 560W 6 systems no technical requirements, batteries are in Battery size (range) different range, 180 / 2*200 / 3*175 Ah 36V 200Ah 24V*350Ah 400 Ah 24 V Inverter size (range) 500/600/800/1000W 600W 1kW 1kW Lights (3-5 10W), TV (65- 110W), Satellite receiver lights (3 5 10W), colour TV, (20W), Fan for fire (30W), Fridge (100W), satellite Typical loads/appliances lights ( 3-10W). B&W TV 25W Washing mach (80 W ??) receiver, others poor/medium/rich households - Typical energy demand/day >1kWh/day 0.52 / 1/08 / 1.56 kWh/day average 1kWh/day

Inventory of RE Systems Installed in IMAR v2.3.xls 1 of 2 Renewable Energy Development Programme Household Biogas Programme Name NDRC's Brightness Programme (REDP) Programme Improved Stove Programme Solar Energy Programme General Information: Date (from-to) 2001-2005 (now on hold) 2001-2007 1979-2005 1979-2005 1979-2005 Ministry of Agriculture, Ministry Ministry of Agriculture, Ministry Ministry of Agriculture, Ministry Funding Source NDRC GEF of Finance of Finance of Finance Solar Water Heater, Solar Technology (PV/wind/ Energy Conservation on Cooker and Passive Solar hybrid) PV(100-150W)/300W wind PV/Wind Household Biogas Digester Domestic Stove House 116,200 square meters of solar water heater, 1.78 million square meters of solar house and 11,252 sets of solar No of Systems Installed around 8,000 to 10,000 38,706 2.03 million cookers. Areas covered by Programme all IMAR all IMAR all IMAR all IMAR Funding: Sales grants paid to companies based on the Before 2000, around 200 RMB capacity of the systems at the of subsidy from central and rate of $1.50/ Wp. Sales grants local government. Between of $2.00 /Wp are paid for 2001 and 2002, about 600 systems that have panels RMB from the central certified as meeting IEC61215, government. Since 2003, the part of subsidy from part of subsidy from 30% of subsidy from GIMAR NDRC directly to IEC61646 or GB9535-1998 subsidy has been increased to government, the others from government, the others from Type of Subsidy programme management company standards. 1200 RMB for each digester. farmers themselves farmers themselves Total Programme Budget (RMB) 100 million Subsidy per system (RMB) 3,000 200-1200 50-200 Total system cost (RMB) 5,000 - 12,000 1500-3000 300-500 Contribution of Beneficiaries (RMB) 2,000 - 9,000 1300-1800 250-300

Technical Details: IM Huade New Tech. Company; IM Westleader Project implemented by IM Taifeng Company Science and Technology IM Agriculture Bureau IM Agriculture Bureau IM Agriculture Bureau Digester size is about 8 cubic Wind turbine size (range) 300 / … W meters PV array size (range) 0 / 150 / 300 / 450 / 600 Wp Battery size (range) … / 200 / … Ah Inverter size (range) 500 / … W Typical loads/appliances

Typical energy demand/day

Inventory of RE Systems Installed in IMAR v2.3.xls 2 of 2

Annex 5

Inventory of Community-Based

Renewable Energy Systems List of Community-Based RE Systems Installed in IMAR

Year of Popula- No Banner Sumu (Village) Installed Capacity Comple- Remark tion tion

Initial system installed 1 Azuo Wuliji 320 20KW Wind + 14KW PV 2003 in 95; Connected to grid

Initial system installed 2 Azuo Yingen 265 10KW Wind + 5KW PV 2003 in 95

Initial system installed 3 Azuo Tukemu 70 5KW Wind + 5KW PV 2003 in 95

Initial system installed 4 Azuo Bayinhongger 340 25KW PV 2003 in 98

Initial system installed 5 Azuo Haosibuerdu 300 22KW PV 2003 in 98

Chaganbulag Initial system installed 6 Azuo 233 16KW PV 2003 e in 98

Initial system installed 7 Azuo Hashiha 160 12KW PV 2003 in 98

8 Azuo Yuelianghu 200 5KW Wind + 5.2KW PV 2003

Chaganzhuoe 9 Azuo 724 20KW Wind + 15KW PV 2003 r

10 Azuo Gaodi 68 3KW Wind + 4.5KW PV 2003

11 Azuo Xianshuihu 57 3KW Wind + 5.3KW PV 2003

12 Azuo Beiyingen 52 3KW Wind + 5.3KW PV 2003

Bayanzhuoe 13 Baiyinnujia 85 10KW Wind + 2KW PV 2003 r

Bayanzhuoe 14 Mandula 63 5KW Wind + 2KW PV 2003 r

Bayanzhuoe 15 Naren 125 10KW Wind + 2KW PV 2003 r

Initial system installed 16 Ayou Tamusu 358 26KW PV 2003 in 98

Initial system installed 17 Ayou Sunbuer 260 10KW PV 2003 in 98

Initial system installed 18 Ayou Menggen 340 30KW PV 2003 in 98

19 Ayou Mandela 1204 30KW Wind + 27KW PV 2003

20 Ejina Huluchijite 43 3KW Wind + 4.5KW PV 2003

Initial system installed 21 Ejina Yagan 58 3KW Wind + 4.5KW PV 2003 in 98

22 Ejina Guriji 29 10KW PV 2003

Year of Popula- No Banner Sumu (Village) Installed Capacity Comple- Remark tion tion

Initial system installed 23 Ejina Wentugaole 100 5KW Wind + 7KW PV 2003 in 98

24 Ejina Cekekouan 510 10KW Wind + 5KW PV 2003 Connected to grid

Initial system installed 25 Siziwang Chaganaobao 200 20KW Wind + 14KW PV 2003 in 98

Initial system installed 26 Siziwang Jiergelangtu 71 5KW Wind + 5KW PV 2003 in 98

Initial system installed 27 Siziwang Baiyinaobao 218 10KW Wind + 8KW PV 2003 in 95; Connected to grid

Initial system installed 28 Siziwang Weijing 221 10KW Wind + 10KW PV 2003 in 98; Connected to grid

Initial system installed 29 Siziwang Naomugeng 200 10KW Wind + 5KW PV 2003 in 98

Jiangan 30 Siziwang Pasture Deve- 1070 30KW Wind + 20KW PV 2003 Connected to grid lopment Area

Jiangan Feed 31 Siziwang 522 10KW Wind + 10KW PV 2003 Connected to grid Base

32 Siziwang Deli 240 10KW Wind + 3KW PV 2003

33 Siziwang Xiabuge 80 5KW Wind + 5KW PV 2003

Sumochagana 34 Siziwang 430 10KW Wind + 3KW PV 2003 obao

35 Siziwang Bulun 240 10KW Wind + 5KW PV 2003

36 Siziwang Baiyinxili 150 5KW Wind + 3KW PV 2003

37 Hulunbeier Mengsimuke 426 20KW PV 2003

38 Hulunbeier Mengwenkutu 540 30KW PV 2003

39 Hulunbeier Mengyuliang 140 8KW PV 2003

Xingan 40 Zherigeledai 201 10KW Wind + 3KW PV 2003 League

Xingan 41 Manituxincun 250 15KW Wind + 5KW PV 2003 League

Tongliao 42 Baiyinzhaliga 206 10KW Wind + 5KW PV 2003 City

43 Alashan You 400 12KW PV 2001

Xilingol Sunid Right 44 604 19.4kW PV 2005 Connected to grid League Banner

Note: No’s 1-42 were funded under the Township Electrification Project (SDDX), No. 43 was funded by NEDO, No. 44 was funded under the China-Italy Solar Village Project

Annex 6

Socio-Economic Survey Report (Included as a separate volume)

Annex 7

Wind Energy Resource in

IMAR Average Wind Speed at 50 m height (m/s)

Average wind speed in January (m/s)

Average wind speed in July (m/s)

Annex 8

Solar Energy Resource in

IMAR Annual Sunshine Hours (h)

Sunshine Hours in January (h)

Sunshine Hours in April (h)

Sunshine Hours in July (h)

Sunshine Hours in October (h)

Annex 9

Costs of RE Electrification of

3 Banners June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Annex 9

ADB TA 4649 PRC Alternative Energy Supply for the Rural Poor Main Assumptions and Variables

No. of systems No. of Households to be electrified 1,200

System details RMB

Cost Demand Basic (100W Wind and 50W PV) 6,800 25% Standard (300W Wind and 50W PV) 11,000 75% Deluxe (1000W Wind and 300W PV) 43,000 0%

Weighted Average 9,950

Type of subsidy (1 - percentage, 0 - fixed amount) 1 Subsidy (%) 70% Fixed amount subsidy (RMB) 6,500

Subsidy (basic) 4,760 Subsidy (standard) 7,700 Subsidy (deluxe) 30,100 Subsidy (RMB per unit) 6,965

ITP/0960 1 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Annex 9

ADB TA 4649 PRC Alternative Energy Supply for the Rural Poor Main Assumptions and Variables

Calculation of maintenance Maintenance Maintenance - Total - parts for 1st 3 new parts per Annual Maintenance Maintenance years year Call out charges for 1st 3 years every year 40.3 403 500 540 903 100 1000 500 600 1500 270 2700 500 770 3200

585 1351

Credit assumptions ESCO assumptions RMB/kWh Loan Amount 30% Annual fee (basic) 558 2.83 Average Owner's Contribution 70% Annual fee (standard) 1500 2.83 Loan installments (twice yearly 6 Connection fee (%) 10% Interest rate 6%

ITP/0960 2 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Annex 9

Implementation Model Cash Sales with Subsidy

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

Pattern of Demand 50.0% 50.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% No. of Units 600 600 ------Phasing out of Subsidy 100% 100% 100% 100% 90% 80% 80% 70% 60% Subsidy per Unit (RMB) 6,965 6,965 6,965 6,965 6,269 5,572 5,572 4,876 4,179

Cost to Owner (weighted average) 1,791,000 1,791,000 ------Annual Maintenance (weighted average) 351,000 702,000 702,000 1,161,450 1,620,900 1,620,900 1,620,900 1,620,900 1,620,900

2,142,000 2,493,000 702,000 1,161,450 1,620,900 1,620,900 1,620,900 1,620,900 1,620,900

PV (8 years) of cost @ 6%, RMB 11,157,179 Total Subsidy 4,179,000 4,179,000 ------PV (8 years) of Subsidy @ 6%, RMB 7,661,748

PV (8 years) of Cost and Subsidy @ 6%, RMB 18,818,927

Cost to Owner (Basic) 2,040 Annual Maintenance (Basic) 540 540 540 903 903 903 903 903 903 2,580 540 540 903 903 903 903 903 903

Cost to Owner (Standard) 3,300 Annual Maintenance (Standard) 600 600 600 1,500 1,500 1,500 1,500 1,500 1,500 3,900 600 600 1,500 1,500 1,500 1,500 1,500 1,500

Up front cost to Basic owner, RMB 2,040 Up front cost to Standard owner, RMB 3,300 PV (8 years) of cost to basic owner @ 6%, RMB 7,096 PV (8 years) of cost to standard owner @ 6%, RMB 10,910

ITP/0960 3 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Annex 9

Implementation Model Credit Sales

Weighted Standard Basic Subsidy (%) 70% 70% 70% Subsidy (RMB) 6,965 7,700 4,760 Loan Amount (50% of balance) 896 990 612 30% Average Owner's Contribution (50% of balance) 2,090 2,310 1,428 70%

No. of Loan Installments (twice yearly) 6 6 6 Loan Interest, per annum 6% 6% 6%

Loan Installment bi-annual (RMB) 165 183 113

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

Pattern of Demand 50.0% 50.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% No. of Units 600 600 ------

Owner's Contribution 1,253,700 1,253,700 ------Annual Maintenance 351,000 702,000 702,000 1,161,450 1,620,900 1,620,900 1,620,900 1,620,900 1,620,900 Payment of Loan Instalment 198,368 396,737 396,737 198,368 - - - - - 1,803,068 2,352,437 1,098,737 1,359,818 1,620,900 1,620,900 1,620,900 1,620,900 1,620,900

PV (8 years) of cost @ 6%, RMB 11,202,566 Total Subsidy 4,179,000 4,179,000 ------PV (8 years) of Subsidy @ 6%, RMB 7,661,748

PV (8 years) of Cost and Subsidy @ 6%, RMB 18,864,314

Owner's Contribution (Basic System) 1,428 Annual Maintenance (Basic System) 540 540 540 903 903 903 903 903 903 Payment of Loan Instalment (Basic System) 226 226 226 ------2,194 766 766 903 903 903 903 903 903

Owner's Contribution (Standard System) 2,310 Annual Maintenance (Standard System) 600 600 600 1,500 1,500 1,500 1,500 1,500 1,500 Payment of Loan Instalment (Standard System) 366 366 366 - - - - - 3,276 966 966 1,500 1,500 1,500 1,500 1,500 1,500

Upfront cost for basic owner 1,428 Upfront cost for standard owner 2,310 Annual cost of basic owner (maintenance and loan rep 766 Annual cost for standard owner 966 PV (8 years) cost to basic owner @ 6% 7,123 PV (8 years) cost to standard owner @ 6% 10,953

ITP/0960 4 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Annex 9

Implementation Model ESCO Delivery model

Weighted average for Average Daily Household Consumption Watt Hours Demand Annual fee maintenance parts only: Basic (100W Wind and 50W PV) 540 25% 558 2.83 1st 3 yrs Rest years Standard (300W Wind and 50W PV) 1,450 75% 1500 2.83 85 851 Deluxe (1000W Wind and 300W PV) 4,350 0%

Weighted Average Consumption Wh per day 1,223 Annual Consumption per Unit (kWh) 446

Tariff Charged by ESCO (RMB/kWh) 2.83 eq 1,265

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

Pattern of Demand 50.0% 50.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% No. of Units 600 600 ------

User Fee (weighted) 758,700 1,517,400 1,517,400 1,517,400 1,517,400 1,517,400 1,517,400 1,517,400 1,517,400 Cost of Connection (weighted) 597,000597,0000000000 1,355,700 2,114,400 1,517,400 1,517,400 1,517,400 1,517,400 1,517,400 1,517,400 1,517,400

Basic 1,238 558 558 558 558 558 558 558 558 PV 4,437 Standard 2,600 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 PV 11,240

PV of Cost to Consumer 9,841,137 Connection cost for basic customer 680 Connection cost for standard customer 1,100 Annual fee for basic customer 558 Annual fee for standard customer 1,500

ITP/0960 5 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Annex 9

Year 1 Year 2 Year 3 Year 4 ESCO startup Capital Costs RMB RMB RMB RMB Tools 50,000 Office plus equipment 40,000 Stationary 3,000 4WD 100,000 100,000

ESCO Recurrent Cost Staff (for up 240 systems a year) Director (1 @ RMB 4500 per month) 54,000 108,000 108,000 108,000 Technicians (2 @ RMB 1800 per month) 43,200 108,000 43,200 43,200 Support - accounting, sales (2 @ RMB 1400 p.m) 33,600 67,200 67,200 67,200 130,800 283,200 218,400 218,400 Social Security @ 15% 19,620 42,480 32,760 32,760 150,420 325,680 251,160 251,160

Income Tax, other taxes to government (revenue less expen 0% Overheads Rent 15,000 15,000 15,000 15,000 Fuel 5,500 11,000 11,000 11,000 Archive Management 2,000 2,000 2,000 2,000 Communications 12,000 12,000 12,000 12,000 Stationary 500 500 500 500 Water and Electricity 3,600 3,600 3,600 3,600 Tools equipment 2,500 5,000 5,000 5,000 41,100 49,100 49,100 49,100

Bad Debts 10%

Subsidy to ESCO (%) 0.70 Subsidy to ESCO (RMB per Unit) 6,965

Residual Value of Systems in Year 10 (% of original cost) 0%

Borrowings by ESCO 50% of cost less subsidy Interest Rate (per annum) 6%

Connection Fee (upfront cost paid by user) 10% of (system cost )

ITP/0960 6 June 2007 Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia Annex 9

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

ESCO Revenue 1,279,830 1,962,660 1,365,660 1,365,660 1,365,660 1,365,660 1,365,660 1,365,660

ESCO start up Costs 193,000 100,000 0 Purchase of Systems by ESCO 5,970,000 5,970,000 0 0 0 0 0 0 ESCO Recurrent Costs 191,520 374,780 300,260 300,260 300,260 300,260 300,260 300,260 Materials for maintenance of Systems 51,045 102,090 102,090 561,495 1,020,900 1,020,900 1,020,900 1,020,900 Subsidy Received 4,179,000 4,179,000 0 0 0 0 0 0 Taxes 00000 0 00 Borrowings 895,500 895,500 0 0 Loan Repayments 447,750 895,500 447,750 0 0 0 0 0 Loan Interest 13,433 26,865 13,433 0 0 0 0 0 -512,418 -432,075 502,128 503,905 44,500 44,500 44,500 44,500

FIRR to ESCO 10.7%

Calculation of Tariff Net costs 1,195,248 1,797,735 863,533 861,755 1,321,160 1,321,160 1,321,160 1,321,160 PV costs 7,230,388 kWh total 243,389 486,777 486,777 486,777 486,777 486,777 486,777 486,777 PV of kWh consumption 2,582,100

ITP/0960 7

Annex 10

Report on

Training and Capacity Building

ASIAN DEVELOPMENT BANK TA 4649-PRC

Technical Assistance for Alternative Energy Supply for Rural Poor in Remote Areas of Inner Mongolia

Training and Capacity Building ______

Final Report

June 2007 ITP/0960

June 2007 Training and Capacity Building

Client

Client contract No.: IT Power reference: 0960

Report June 07

Contractor:

IT Power Grove House, Lutyens Close, Chineham, RG24 8AG, United Kingdom. Tel. +44 1256 392700 Fax. +44 1256 392701 E-mail: [email protected] http://www.itpower.co.uk

Document control File path & name I:\0WorkITP\0Projects\0960 ADB Inner Mongolia\2 Work\training\Capacity Buildingv1.0.doc Author Rebecca Gunning/Clive Huang/Wayne Zhou Project Manager Rolf Oldach/Rebecca Gunning Approved RG Date 13/06/07 Distribution level Not for distribution / Public Domain

Template: ITP REPORT Form 005 Issue: 02; Date: 27/08/04

ITP/0960 1 June 2007 Training and Capacity Building

TABLE OF CONTENTS

TABLE OF CONTENTS...... 2 1 Introduction...... 3 2 Assessment of Existing Knowledge...... 3 3 Identification of training needs...... 4 3.1 Service Delivery Chain...... 5 3.2 Utility Sector ...... 5 3.3 End-users...... 5 3.4 Financial Community...... 6 3.4.1 Finance for End-users for rural credit institutions ...... 6 3.4.2 Finance for SMEs ...... 7 3.5 Government Departments...... 7 4 Existing Training material ...... 9 5 Training Organisations...... 9 6 Training programme for banner level technical personnel...... 10 7 Capacity building for personnel at autonomous region level ...... 11

ITP/0960 2 June 2007 Training and Capacity Building

1 INTRODUCTION

To ensure the sustainable operation of off-grid electrification services it is important that all the relevant stakeholders have sufficient training and capacity to carry out all the activities required. To achieve this, capacity building is required across many sectors, organisations and groups. The type of capacity building activities that could be required depend on the models taken forward but ability to undertake the following activities is needed: awareness raising; evaluation and selection of technology options; preparation of business plans; resource assessments; investment promotion; financial analysis; project finance; technical advisory services, product development; establish community based utilities; set tariff structures and accounting procedures. The consultants have carried out an assessment of the training required to take the proposed deployment models forward in Inner Mongolia as well as carrying out a training needs assessment of the stakeholders to be involved in the provision of services, for the design, installation, operation and maintenance of alternative energy in rural areas. A train- the-trainers programme is currently being developed. This report summarises the results of the work to date including the training requirements in Inner Mongolia, a review of existing training material, the type of training recommended, an outline of training provided and the organisations which may be able to take it forward.

2 ASSESSMENT OF EXISTING KNOWLEDGE

An initial assessment of existing knowledge was carried out through interviews in Hohhot and from reviewing previous reports. Some training activities have been provided to the workers. Within the Township Electrification Program, 42 village power stations (PV or PV/Wind hybrid) have been installed and the workers, both the operating and the management, have been trained by the IMAR Township Electrification Program contractor, Inner Mongolia Huade New Technology Ltd. Earlier, some technicians from Huade had been trained by Beijing Jikedian Renewable Energy Development Centre during a series of ‘train the trainer’ courses supported by NDRC. Specific training material, which included both teacher and student versions of “PV/Wind/Hybrid Village Power Station” was developed. Another training activity was also carried out by Jikedian, supported by REDP. In February and March 2006, three seminars were held with the topic of PV System Function Test Technology. Eighty persons from the PV Manufacturers, Township Electrification Program Contractors as well as other participants within the industry joined the four day long seminar. Some invited specialists gave presentations on the functioning test of the whole PV system as well as some key parts such as controller, inverter, etc. The system configuring software was also discussed. But no formal training material was published. However, as far as is we know, there has been no training activities for end users. Some introduction handbooks have been developed and distributed in the villages by UNDP/GEF, etc. However, in 2003 Horizon Research Consultancy Group, delegated by REDP, made an independent investigation of the end users under Western China Solar Home System Project. The investigation was undertaken in IMAR, Xinjiang and Qinghai province. The report showed that 62% of the end users hadn’t been trained while 28.3% end users experienced PV system malfunction. Very few government officers have attended the training conducted at Jikedian.

ITP/0960 3 June 2007 Training and Capacity Building

3 IDENTIFICATION OF TRAINING NEEDS

Following an assessment of the existing knowledge within the stakeholder groups the training needs were identified for each of these stakeholder groups. Since some of the stakeholders had better knowledge than others the following list includes all the necessary requirements although in some cases the stakeholder may already have received some training. The training needs are broken down into the following stakeholder groups: • Government departments (DRC, PAO and MOF) • Service Delivery Chain (dealers, installers, technicians, potential ESCOs) • Utilities • End Users • Finance Institutions (small and large) Table 1 summarises which group requires which particular form of training. Table 1: Summary of capacity building measures for the main target groups.

ication policy policy ication Rural electrif development and to energy of contribution priorities sector impacts policy Fiscal raising, Awareness promotional andeducational activities of choice and Evaluation options technology assessments Resource services advisory Technical Financial and least cost analysis Co-ordination assessments Impact development plan Business quality of Development standards.

NDRC X X X X X X X X X

Poverty Alleviation X X X X Office Ministry of Finance X X X

Financiers & Lending X X X X Institutions Training X X Organisations NGOs X X

Utilities X X X X X X X

Service Delivery X X XX X X Chain End Users

ITP/0960 4 June 2007 Training and Capacity Building

3.1 Service Delivery Chain

To ensure the sustainability of the rural electrification market the capacity building activities that are required for all areas of the service delivery chain include: • Awareness raising for potential businesses, technicians and all potential staff about the technology and how the industry is structured. • Sourcing the key components and establishing supply contracts, negotiation • Quality assurance. • Managing supply stores and how to transport products within the country. • How to sell and provide customer service. Marketing, sales skills and selling systems • How to operate a successful business, develop business plans and understand the financial aspects of operating a business, e.g. cash flows. • How to access finance. • How to operate an energy service company (ESCO) and raise finance to supply systems on a ‘fee for service’ basis. • How to design PV/wind and hybrid systems – system wiring, sizing etc • How to install systems – planning installation, installation • How to train end-users. • Introducing continued internal training within the business. • Installation and maintenance of systems. The critical issue with training is that it must be ongoing. One-off training does not lead to a viable sustainable industry.

3.2 Utility Sector

Capacity building needs of the utility sector are the same as for the service delivery chain but will also include: • Awareness raising on the various applications of RE systems and how RE can be used as an alternative to grid extension. This may lead to an unbiased outlook within the utility when designing and implementing rural electrification projects. • Technical training courses for engineers and technicians so they can undertake design and maintenance of systems and therefore appreciate the potential and limitations of RE. • Encourage staff to undertake true life cycle costing of all the alternatives when planning the supply of electricity to rural communities. • Training in socio-economic and environmental impact assessments. • Encourage the investigation by the utility into supplying PV systems to remote communities either as a commercial business section of the utility, via a ‘fee for service’ structure or via a whole new business structure. If this approach was adopted, then the staff involved will require business and possibly sales and marketing training.

3.3 End-users

In order for the implementation programme to be sustainable in the long term, it is important that the technology is seen to be of benefit by the end-users – it must meet their needs. It is important that people are made aware of the benefits that can accrue from the provision of

ITP/0960 5 June 2007 Training and Capacity Building electricity services. This is the responsibility of the installer. As mentioned above, there has been little end user training in previous programmes. Training of end users should involve: • Familiarisation on how their systems can meet their requirements for lighting and small appliances. The education must include explaining the limitations of RE systems in comparison to the grid. An honest appraisal of when, or if, the grid will ever reach their village should be made and if not, the community informed. • Educating end-users about the ongoing costs associated with the system. It is important for them to realise that, though the energy from the sun/wind is free, there are ongoing costs, such as the replacement of batteries and other components. • Training end-users on the operation of their systems and what maintenance they can undertake to ensure the system continues to operate satisfactorily. This will include such things as topping up the batteries with water, replacing fuses, ensuring electrical connections are still tight. • Clear definitions of the ownership of the system and the responsibilities for the system and the different components, especially in hire purchase/leasing agreements and ESCOs. Clear explanations are required on the contracts, on the rights and obligations of the users and service providers respectively. • Educating the end-users about energy management and energy efficient appliances. • Increased awareness of the importance of high quality products (eg batteries) and installation and maintenance. Education on the existence of any quality certifications to ensure that the end-user is less likely to be disappointed and to be a more informed customer.

3.4 Financial Community

The financial community, in particular small rural credit programmes but also larger banks, need some training to see how they can be supportive of RE by providing: • credit facilities for end-users to buy the systems. • savings facilities for rural populations. • finance through business loans for new businesses (e.g. ESCOs, suppliers and installers) to enter the industry. The specific capacity building measures are dependent on the type of financial institutions that can provide the finance and the customer who requires this finance. 3.4.1 Finance for End-users for rural credit institutions The following training is required: • Education of the financial institutions about the market, or potential market, that exists for lending money for the purchase of RE systems. This education will include raising awareness of how RE systems can improve the quality of life for the end-users. • Training in the financial institutions on the opportunities for providing savings facilities for the rural population, using local or international examples. • Providing case studies of successful similar operations in other countries. • An understanding of the rural electrification energy policy and the opportunities for RE systems. • Seminars on the life cycle costs of off-grid power supply systems, including the infrastructure required for proper operation and maintenance.

ITP/0960 6 June 2007 Training and Capacity Building

• Information on risk mitigation - the structure of rural loans and the influence of the quality of the PV system on loan repayments. • Information on the various implementation models for RE in rural areas. • Training staff on how to best structure the repayments based on existing energy expenditure and income, for example in line with the cashmere sales。 • Encouraging the financial institutions to make loans for RE systems a specific product they have available for customers. • Identifying where loans can be tied with other lending products they already offer their rural based customers. • Understanding how a new RE system can offset some of the end-users’ costs, such as reduced kerosene and battery purchasing. It is important to be aware when undertaking the financial analysis and determining repayment levels that not all the use of kerosene, candles or dry cell batteries will be displaced by a PV system. 3.4.2 Finance for SMEs Training needs includes: • Educating the banks on rural electrification and the opportunities for business, in particular the markets served, how these businesses operate and the likely capital demands and cash flows they will generate. • Demonstrating profitable business models from other countries/provinces with similar financial environments. • Information on programmes of off-grid power supply systems implemented by the national government and/or international donors.

3.5 Government Departments

The following skills, knowledge and expertise should be accessible to the personnel at IMAR PAO and DRC: • Understanding of the value of electricity services to rural populations, in particular its role in communities and for income generating activities. • Understanding of the different modes for the deployment of RE in rural areas. • Ability to carry out a survey of the current energy use of different facilities, businesses and households not connected to the grid and to determine the amount they currently spend on energy. • Life cycle cost analysis of RE compared with grid extension and other renewable energy technologies. • Socio-economic and environmental impact assessments of RE and other competing technologies. • Comprehensive knowledge of the costs associated with RE and the various forms of financing available. • Information on any RE programmes carried out in the country and knowledge of the local capacity in RE – from RE suppliers, rural enterprises, financing organisations and NGOs. Access to lessons learned from case studies of RE programmes particularly locally, but also abroad.

ITP/0960 7 June 2007 Training and Capacity Building

• Capacity to undertake promotional and educational activities to promote RE technologies to the community. This could include development of information leaflets and/or booklets, local workshops and demonstrations. • Understanding of the importance of the quality of system components, installation and after sales service. • Training staff on regulatory skills and frameworks to set up an independent regulatory body. • Establishing a national quality scheme comprising standards, quality control and a national supervisory authority.

ITP/0960 8 June 2007 Training and Capacity Building

4 EXISTING TRAINING MATERIAL

Only one key set of training material has been published that could be relevant for the IMAR rural electrification project: (1) PV/Wind/Hybrid Village Power Station (teacher/student version) This is the technical training material developed, with the support of NDRC, for these two programmes; Township Electrification Programme (SDDX) and the Western China New Energy Action Plan. Beijing Jikedian Renewable Energy Development Centre conducted the ‘train the trainer’ courses with its teacher version. Then the trained teachers, who were chosen from those involved in these two programmes from the Western China provinces, went back to train the local workers using the student version. Both the teacher version and the student version have similar chapters which include the fundamentals of PV/Wind power generation, resources, installation/operation/maintenance of power system, village power grid, etc. However there are some difference: the teacher’s version pays more attention to the PV/wind resources evaluation, the system design including the load evaluation, as well as the cabling system etc. Both versions also consisted of a chapter on the installation, operation and maintenance of diesel power generation set. The tables of contents for the two versions are included in the Annex 10.1. Since this training material was designed for SDDX it is designed for the design and installation of township and village sized systems as opposed to home systems. However much of the material is equally relevant for technicians involved in rural renewable energy systems. The material could be edited for use by technicians for home systems. No training material has been found for the more commercial aspects of RE installation nor material targeted at end users, the finance sector or government stakeholders.

5 TRAINING ORGANISATIONS

There are a number of organisations that could provide training in IMAR. 1) Currently the Inner Mongolia Huade New Technology Ltd provides training using the PV/Wind/Hybrid village power station manuals: As the IMAR Township Electrification Program contractor, Huade has held some 2~3 weeks short courses to train those workers who will take the responsibility of the operating, management, maintenance of the built PV/Wind/Hybrid systems. Earlier, some technicians from Huade had been trained by Beijing Jikedian Renewable Energy Development Centre during a series of ‘train the trainer’ courses supported by NDRC. Huade can provide more renewable energy training activities since it has also built up the required capacity during its former projects. 2) An alternative training organisation is the Inner Mongolia Electricity School (Inner Mongolia Power Grid Training Center) which provides 3 year or 5 year electric-related technical programmes. Among these programmes there is one 3 year wind power generation programme (on the basis of complete junior middle school education). One who finished this programme is anticipated to be competent for these works in a wind power generation company: the operation, installation and maintenance. Also, one who finished this programme successfully will get a national certificate. 3) Inner Mongolia University of Technology is also another potential RE training provider.

ITP/0960 9 June 2007 Training and Capacity Building

6 TRAINING PROGRAMME FOR BANNER LEVEL TECHNICAL PERSONNEL

A training programme for banner level technical personnel has been prepared by the IMAR University of Technology together with IT Power. The table below shows the extent of the course including training on PV and wind elements and a field study. Detailed course material was prepared for the course which can be utilised again beyond this project. The training provides a foundation for future training of technicians. Table 2 Syllabus for Technician Training Subject Time (day) Venue Proposed lecturer PV system fundamentals and 0.5 Hohhot Zhao Mingzhi application Small wind power system 0.5 Hohhot Feng Guoying fundamentals and maintenance Controller and inverter 0.5 Hohhot Dai Wenping fundamentals and maintenance Design calculation on wind/PV 0.5 Hohhot Liu Zhizhang hybrid system Experiment of wind power 1 Hohhot Li Changchun & Dai generator, controller and inverter Wenping Field study on typical RE 2 Suniteyou Liu Zhizhang & Dai application Banner Wenping Total 5

The course took place over a one week period in Hohhot in the week commencing 19th March 2007. The course comprised 3-days on-campus lectures and a 2-day field study in selected banners. The course was very popular and was over-subscribed. In total there were 30 representatives from 13 banners/counties, most of whom are directors of banner-level Brightness Companies/New Energy Promotion Stations. In addition there were 18 representatives from component manufacturers and system integrators from IMAR, Beijing, and Shanghai, who self-financed their trips. Prof. Liu Zhizhang from Inner Mongolia University of Technology acted as the host, with assistance from his PhD students. The 3-day lectures were modular in nature, covering PV system fundamentals and application (Day-1 AM), small wind power system fundamentals (Day-1 PM), design calculations on wind/PV hybrid system (Day-2 AM), controller and inverter fundamentals (Day-2 PM), and experiment of controller and inverter (Day-3). A set of printed teaching materials and stationery was provided to each participant. According to feedback from the participants, the courses were well delivered and the teaching materials were well designed. There had been few previous formal training courses convened in IMAR. The only training activity on a similar scale to the present one was carried out a couple of years ago as part of the Brightness Programme, which was suspended in 2005. This ADB funded training course provided training to a greater number of people than the previous one and was considered to be of a better quality. The participants felt that this training was therefore essentially unprecedented in IMAR. The training provided a valuable opportunity for the technicians to get together, improve their knowledge of RE, exchange information and ideas and in nature it formed an unofficial ‘Off- Grid RE Association of IMAR’. Prior to this course, many of the technicians had not seen each other for over 10 years and felt that they were not up to date on off-grid RE technology, recent national and provincial laws, rules and regulations on RE. This explains the popularity of the course. Some originally uninvited technicians took 30-hour train journeys to Hohhot to

ITP/0960 10 June 2007 Training and Capacity Building participate in the course, resulting in the fact that the course was 50% over-subscribed with 30 participants. Annex 10.2 shows the full attendee list, including banner technicians, representatives from manufacturers, project consultant, and IM University of Technology. Photos are also included. Within the training programme some time was set aside to discuss the proposed pilot programme and to receive comments from the banner level staff who have the practical experience of renewable energy system installation, operation, maintenance and, more importantly, know the actual conditions of households in their respective banners. Substantial information was obtained, including first-hand data on number of un-electrified households, comments and suggestions on pilot banner selection, banner-specific system configurations, user’s contribution to system cost, implementation models etc. The technicians' feedback and comments received during the session have been incorporated into the design of the pilot programme. Overall the training course was considered a success by the participants and all 13 banners represented are very keen to be involved in the proposed pilot programme. IT Power has even been contacted by some proactive banners since the training course. Proven track records indicate that each banner’s Brightness Company/New Energy Promotion Station has sufficient resources, capabilities and experience for implementing the pilot programme. A photo taken during training is presented in Annex 10.3.

7 CAPACITY BUILDING FOR PERSONNEL AT AUTONOMOUS REGION LEVEL

A proposal for international study tours was developed to enable capacity building of relevant personnel at Autonomous Region level. This includes representatives from different government departments as well as from the Power Company and from academia. The proposal has been approved by ADB in May 2007. The proposal for study tours are given in Annex 11.

ITP/0960 11 June 2007 Training and Capacity Building

Annex 10.1 - PV/Wind/Hybrid Village Power Station Training Materials Table of Contents Teacher version: Chapter 1: Brief Introduction of PV/Wind/Hybrid system Chapter 2: PV Theory Chapter 3: Solar Battery Chapter 4: Solar Resources and Site Evaluation Chapter 5: Wind Turbine Theory Chapter 6: Stand Alone Wind Power Generation Set Chapter 7: Wind Resources and Site Evaluation Chapter 8: System Load Evaluation Chapter 9: Storage Battery Chapter 10: Controller Chapter 11: Inverter Chapter 12: Cabling System and Village Power Grid Chapter 13: Design of PV/Wind/Hybrid System Chapter 14: Applications of PV/Wind/Hybrid System Chapter 15: Installation PV/Wind/Hybrid System Chapter 16: Maintenance and Malfunction Treatment of PV/Wind/Hybrid System Chapter 17: Maintenance and Malfunction Treatment of Wind Power Generation Set Chapter 18: Installation, Operation and Maintenance of Diesel Power Generation Set Chapter 19: Safety Requirement of PV/Wind/Hybrid System Chapter 20: Management of PV/Wind/Hybrid System

Student version: Chapter 1: Fundamentals of PV/Wind/Hybrid System Power Generation Chapter 2: PV Power System Chapter 3: Wind Power System Chapter 4: Fundamentals of Solar/Wind Resources Chapter 5: Storage Battery Chapter 6: Controller and Inverter Chapter 7: Village Power Grid and AC Power Distribution Chapter 8: Applications of PV/Wind/Hybrid System Chapter 9: Operation of PV/Wind/Hybrid System Chapter 10: Maintenance and Malfunction Treatment of PV/Wind/Hybrid System Chapter 11: Maintenance and Malfunction Treatment of Wind Power Generation Set Chapter 12: Maintenance and Malfunction Treatment of Battery

ITP/0960 12 June 2007 Training and Capacity Building

Chapter 13: Installation, Operation and Maintenance of Diesel Power Generation Set Chapter 14: Safety Requirement of PV/Wind/Hybrid System Chapter 15: Management of PV/Wind/Hybrid System Chapter 16: Economical Operation of PV/Wind System Chapter 17: Electrotechnics Fundamentals for PV/Wind Power Generation Chapter 18: Guide of PV/Wind Power Generation Experiment

ITP/0960 13 June 2007 Training and Capacity Building

Annex 10.2- Training Programme Attendee List

Name Title Affiliation Contact Banner Representatives Agriculture & Husbandry Technology Promotion 13347005866 Bateer Director Service Centre of Chenbaerhu Banner, Hulunbeier City Agriculture & Husbandry Technology Promotion 13848401314 Li Chunliang Service Centre of Chenbaerhu Banner, Hulunbeier City Director Science and Technology Bureau of Xinbaerhuyou 13304701761 Wu Baolong General Banner, Hulunbeier City Agricultural Machinery Research Institute of Tongliao 13019542839 Fu Yun Director City Brightness Company of Agricultural Machinery 13904751010 Ding Baocheng Manager Research Institute of Tongliao City Gao Xiuhe Director New Energy Promotion Station of Dongwu Banner 13654890516 Tai Siqin New Energy Promotion Station of Dongwu Banner 13684797655 Bao Siqin New Energy Promotion Station of Dongwu Banner 13848594828 Wang Boli New Energy Promotion Station of Dongwu Banner 13684799781 Liu Bing Brightness Company of Etuoke Banner 13304773072 Director DRC of Zhengxiangbai Banner (Brightness Company) 13947905361 Ma Chuyi General Sude Siqin Manager Brightness Company of Zhenglan Banner 13604794815 Zhao Chibin Manager Brightness Company of Etuoke Banner 13304773072 Sun Quan Manager Brightness Company of Wulatezhong Banner 13804780028 Liu Jinlin Manager Brightness Company of Hangjin Banner 13947709204 Wu Kaiyu Director New Energy Promotion Station of Alashan League 13948033573 Zhang Lei New Energy Promotion Station of Alashan League 13948011234 Zhang Haijun Director New Energy Promotion Station of Alashanzuo Banner 13947495996 Ma Yan New Energy Promotion Station of Alashanzuo Banner 13948038002 Huang Dafei New Energy Promotion Station of Alashanzuo Banner 13948014000 Yang Yamin Director New Energy Promotion Station of Alashanyou Banner 13804736282 Chun Xi Manager Brightness Company of Abaga Banner 13754196118 Hai Bing Brightness Company of Abaga Banner 13847928538 Yang Yi Manager Brightness Company of Suniteyou Banner 13514790118 Dong Jie Brightness Company of Suniteyou Banner 13874899609 Zhang Jiang Manager Brightness Company of Xiziwang Banner 13664745258 Zhen Shuzhan Director New Energy Promotion Station of Hulunbeier City 13947059664 Pa Mier Director Science and Technology Bureau of Ewenke Banner 13804702216

ITP/0960 14 June 2007 Training and Capacity Building

General Hai bo Science and Technology Bureau of Ewenke Banner 15847048928 Fengfeng Appliance Company of Erlianhaote City 13604799198 Sun Xiangdong Manager 0479-7533558

Representatives from Manufacturers

Production Tianli Wind Power Generator Company of IMAR 13327112091 Wen Yongjun Director Yang Shangdu Husbandry Machinery Company 13190653389 Manager Mingliang Lu Jianbin Sales Manager Shangdu Husbandry Machinery Company 13947469570 Li Xiaohu Shangdu Husbandry Machinery Company 13224748417 Zhao Chao Manager Guofei New Energy Company of Hohhot 13947183524 Wei Xiaoqing Deputy Manager Guofei New Energy Company of Hohhot 13947183557 Zheng Special Battery Company of Hohhot 6927063 Manager Shuming Yang Bin Board Chairman Boyang Renewable Energy Company of Hohhot 13337102495 Wang Ruoyun Manager Boyang Renewable Energy Company of Hohhot 3966770 Gao Yongling Shanghai Green Energy Company 13311815432 Guo Zhiwen IMAR Guofei Company 13948129548 Xiong Zhimin Sales Manager IMAR Huade New Technology Company 13947104873 Zhao Yongtong IMAR Huade New Technology Company 13604716778 Cui Yongliang Shangdu Husbandry Machinery Company 13214749801 Zhao He Sales Manager Shangdu Tianfeng Company 13500644977 Wu Xinmin Sales Manager Mengchen Energy Company of Hohhot 13947183523 Deputy General 13009523622 Dai Wenping Mengchen Energy Company of Hohhot Manager Li Hongliang Project Manager Beijing Hengdian Power Company 13848172766 Baotou North Heavy Industry Autocontrol 13847255012 Zhang Haitao Company Yang Chunde Shuixing Storage Battery Company of Harbin 13904638891

Project Consultant

010-84475848 Zhou Wei Project Manager IT Power Beijing Representative Office 13439624655 Li Dan Project Assistant IT Power Beijing Representative Office 010-84475848

ITP/0960 15 June 2007 Training and Capacity Building

Inner Mongolia University of Technology

Liu Zhizhang Director Inner Mongolia University of Technology 13848198688 Wang Yajun Inner Mongolia University of Technology 13500693534 Zhao Mingzhi Inner Mongolia University of Technology 13704758704 Li Changchun Inner Mongolia University of Technology 13171408058 Feng Guoying Inner Mongolia University of Technology 13684788825

Annex 10.3 - Photo of Training Course

ITP/0960 16

Annex 11

Proposal for Study Tour (Approved by ADB in May 2007) ADB TA 4649-PRC: Capacity Building for Local Stakeholders – Study Tour to European and Asian Countries

Rationale and Background The IMAR PAO and FB officials have identified that personal exposure to foreign countries, where highly mature renewable energy markets have been established and proven track records of successful RE applications exist, is one of the effective approaches for capacity building for rural electrification and renewable energy. Consequently, a proposal for two study tours to selected European and Asian countries has been proposed by IMAR PAO and FB officials. IT Power agrees that there is benefit to carrying out study tours as part of the training included in the TA project. It is proposed that the Asian study tour takes place outside the scope of this TA. The objectives of the European Study tour will be: 1. Increased knowledge on the experience, lessons, and best practices of implementation of rural electrification programmes using off-grid alternative energy systems from European implementers. Such valuable information will enable relevant governmental officials and main stakeholders to better understand the problems and barriers and to learn from their lessons for the pilot programme in IMAR. 2. An overall understanding of the status of renewable energy markets, renewable energy technology research and development, components manufacture, and system integration in Europe, e.g. PV and wind power, e.g. Germany. In particular the team will understand the quality considerations for components for off-grid electrification. 3. A better and in-depth understanding of the general policy framework, rules and regulations stipulated by multilateral development financial institution such as the SDA and DFID with regard to providing funding and carrying out projects to address issues like rural electrification, poverty alleviation, socio-economic sustainable development. 4. In addition the officials will learn more about large scale wind power in Europe. IMAR's "11th 5-year" plan for wind power development sets forth the goal of constructing national-level wind power base in IMAR. 5000MW wind power generation equipments will be manufactured with the installed wind capacity envisaged to reach 5170MW by 2010, accounting for 7.5% of the total installed capacity of power generation in IMAR. IMAR government has decided to promote the localization of wind power equipment by scaling up the construction of power generation facilities in the region in the period of "11th 5-year". Through collaboration with domestic and international companies at leading positions in the industry, 1-2 manufacturer bases will be built so as to achieve the goal of 70% manufacture localization of wind power equipments, a mandatory level required by NDRC. The governmental officials and main stakeholders involved in the on-going ADB project are also involved in the “11th 5-year” plan and overall power construction plan and strategy. 5. Additional information dissemination to the participant’s organizations through report dissemination and information-sharing in each mission member's respective departments/organizations. Considerable capacity building can be achieved in a broader spectrum of local policy-makers and main stakeholders, thus significantly conducive to developing provincial plan for power construction in non-electrified regions in the light of the recently-issued NDRC Energy [2006] No. 2312, facilitating the progress of IMAR's "11th 5-year" programme for wind power development, and implementing future rural electrification programmes involving off-grid RE systems.

Proposed itinerary The proposed European study tour includes the following:

Tour 1: Selected European Countries

Period Day 1 (Sunday) to 12 (Friday), approximately 12 days at the end of May/beginning of June Selected countries include Denmark, Germany, Switzerland and UK Itinerary Itinerary: and 1 Travel from Beijing to Copenhagen, Denmark destinations

2 Visit Vestas, one of world’s biggest companies specialising in development, manufacture, sale, marketing and maintenance of wind power systems. Site visit to large-scale wind farms

3 Meet with Danida (Danish Overseas Aid). Travel to Germany, by train to Kassel.

4 Visit Institute of Solar Energy Technology (ISET) and SMA Technologies for village-type off-grid RE systems.

5 Train to Switzerland (Zurich) Meet with Swiss Development Agency

6 Meet IEA Photovoltaic PV programme representatives, visit off-grid RE systems

7 & 8 Travel to London (flight from Zurich). Weekend (in London, UK)

9 Visit IT Power and RE Power

10 Visit RES Site visit to large-scale wind farms recommended by RES

11 Visit DfID and/or DTI.

12 Travel from London, Copenhagen to Beijing.

Mission The mission proposes to include 7 members. members 1 PAO official 2 FB official 1 IMAR DRC official 1 Senior from IMAR Power Grid/Supply Company 1 Senior Researcher from local university/research institute 1 IT Power Beijing Office Staff

Costs It is anticipated that the tour will be financed from the International Training Budget under the budget of the TA project plus some from the Contingency budget. The estimated total costs will be USD 31,000. The breakdown is shown in the following table.

Note: Final itinerary and visits subject to availability of relevant staff for proposed dates.

Budget Breakdown

European Tour No. USD

Assumptions No of people 7 7 European flights 400 PEK - Europe flight 1000 Mainland Europe per diem 150 UK per diem 200

Denmark No. of days 2 2100 Local transport 200 Train to Kassel 900

Germany No. of days 2 2100 Local transport 300 Flight to Switzerland 2800

Switzerland No. of days 2 2100 Local transport 300 Flight to UK 2800

UK No. of days 5 7000 local transport 500 Flight to Denmark 2800

Intl flight 7000

Total 30900

Annex 12

Agendas and Participants Lists of the Stakeholder Meetings Held

Asian Development Bank

IMAR Finance Bureau IMAR Poverty Reduction Office

ALTERNATIVE ENERGY SUPPLY FOR RURAL POOR IN REMOTE AREAS IN IMAR

Stakeholder Workshop and Project Launch

Date: Thursday, 9 March 2006

Venue: Holiday Inn Hotel, 185 Zhongshan West Road, Hohhot

Chair: Mr Rolf Oldach

AGENDA

09.00 Welcome Speeches IMAR Finance Bureau and other GIMAR Departments

09.30 Introduction of the Project Mr Ashok Bhargava, ADB

10.00 GIMAR’s View of the Project Mr Wang Li Zhong, IMAR Poverty Reduction Office

10.30 Presentation of the Project’s Mr Rolf Oldach, IT Power Aims, Work Plan, and Team

11.15 Comments and Discussion

12:00 End of meeting

12.30 Lunch

The workshop was in Chinese and English.

List of Persons Attending the Initial Stakeholder Workshop

Name Title Organization

Mr. Ashok Bhargava Project Manager ADB

Mr. Rolf Oldach Team Leader IT Power Co.

Mr. Zhou Liqun Vice Director Poverty Reduction Office of Inner Mongolia Autonomous General Region

Mr. Wang Fengqi Division Chief Foreign Affairs Division of Inner Mongolia Autonomous Region Finance Bureau, Ms. Bao Lanman Deputy Division Foreign Affairs Division of Inner Mongolia Autonomous Chief Region Finance Bureau, Ms. Jia Jie Project Official Foreign Affairs Division of Inner Mongolia Autonomous Region Finance Bureau, Mr. Wang Lizhong Project Official Poverty Reduction Office of Inner Mongolia Autonomous Region Ms. Li Wenjuan Project Translator Foreign Affairs Division of Inner Mongolia Autonomous Region Finance Bureau, Ms.Wang Hongmei Project staff Project Implementation Agency

Mr. Wang Huan Project Official Development and Reform Commission of Inner Mongolia Autonomous Region Ms. Pang Shulan Division Chief Science and Technology Department of Inner Mongolia Autonomous Region Ms. SiQin Vice Division Chief Agriculture and Animal Husbandry Department of Inner Mongolia Autonomous Region Ms. Yun Lixia Vice Division Chief Agriculture and Animal Husbandry Department of Inner Mongolia Autonomous Region Mr. Zuo Weiguo Section Chief Women’s Federation of Inner Mongolia Autonomous Region Mr. Wen Yaohua Section Chief Inner Mongolia Autonomous Region Credit Cooperatives Mr. Pan Zhaodong Research fellow Academy of Social Sciences of Inner Mongolia Autonomous Region Mr. Liu Zhizhang Professor Inner Mongolia Polytechnic University

Mr. Fan Xiaobin Translator Inner Mongolia Polytechnic University

Asian Development Bank IMAR Finance Bureau IMAR Poverty Reduction Office

ALTERNATIVE ENERGY SUPPLY FOR RURAL POOR IN REMOTE AREAS IN IMAR

Stakeholder Meeting

Date: Thursday, 8 June 2006

Venue: Nushen Hotel, Hohhot

Chair: Mr Wang Li Zhong

AGENDA

16.30 Welcome Speech Mr Wang Li Zhong, IMAR Poverty Reduction Office

16.45 Introductions All

17:00 Introduction of the Project Mr Bernard McNelis, IT Power UK

17.20 Presentation of the Progress of Dr.Kavita Rai, IT Power, UK the Project

17.40 Comments and Discussion All

18:00 Dinner All

The workshop was in Chinese and English.

Attendee List of Stakeholder Meeting on 8 June 2006

Name Affiliation Contact Mr. Bernard McNelis IT Power UK +44 7802260012 Ms.Zhu Li IT Power Associate 13439711556 Dr.Kavita Rai IT Power UK ---- Mr. J.M.Atukorala IT Power Associate ---- Ms.Miao Hong IT Power Associate ---- Mr. Wayne Zhou IT Power Beijing Representative Office 13439624655

Research Institute of IMAR Bureau of Mr. Geng Wu 13514812229 Statistics IMAR Survey Team of National Bureau of Mr. Guo Song 13947147927 Statistics of China New Energy Engineering Research Centre of Mr. Guo Liheng 13337106849 IMAR Development and Reform Commission of Mr. Wang Huan 0471-6944863 IMAR Mr. Zuo Weiguo Women’s Federation of IMAR 13848134666 Mr. Wang Lizhong Poverty Alleviation Unit of IMAR 13847164652 Mr. Liang Weiguo IMAR Bureau of Statistics 13664745136

Prof. Liu Zhizhang IM Polytechnic University 13848198688 Ms. Feng Guoying IM Polytechnic University 13354718663 Mr. Wang Wenjun IM Polytechnic University 13634711465 Mr. Li Changchun IM Polytechnic University 13171408058 Mr. Long Zhe IM Polytechnic University 13848717876

Ms. Yang Haiying Translator of Project Office 13171066320 Ms.Wang Hongmei Secretary of Project Office 13314874771

Asian Development Bank IMAR Finance Bureau IMAR Poverty Alleviation Office

ALTERNATIVE ENERGY SUPPLY FOR RURAL POOR IN REMOTE AREAS IN IMAR

Stakeholder Meeting

Date: Wednesday, 20 Dec 2006 Venue: Inner Mongolia Hotel, Hohhot Chair: Ms. Bao Lanman AGENDA

09.00 Welcome Speech Ms. Bao Lanman, IMAR Finance Bureau

09.15 Speech Mr. Ashok Bhargava, ADB

09:30 Speech Mr. Ren Baoshan, IMAR PAO

09:45 Presentation of the Progress of Mr. Rolf Oldach, IT Power the Project

10:45 Tea break

11.15 Comments and Discussion All

12:30 Lunch All

The workshop was in Chinese and English.

Attendee List of Stakeholder Meeting on 20 Dec 2006

Name Affiliation Contact Mr. Ashok Bhargava ADB ---- Mr. Rolf Oldach IT Power ---- Mr. Wayne Zhou IT Power Beijing Representative Office 13439624655 Ms. Bao Lanman IMAR Finance Bureau 13304711007 Ms. Jia Jie IMAR Finance Bureau 13704712008 Ms. Li Wenjuan IMAR Finance Bureau 13074746222 Mr. Ren Baoshan IMAR PAO 13304710673 Mr. Wang Lizhong IMAR PAO 13847164652 Research Institute of IMAR Bureau of Mr. Geng Wu 13514812229 Statistics IMAR Survey Team of National Bureau of Mr. Guo Song 13947147927 Statistics of China Mr. Zuo Weiguo Women’s Federation of IMAR 13848134666 Prof. Pan Zhaodong IMAR Inst. of Social Science 13704710505 Prof. Liu Zhizhang IM Polytechnic University 13848198688 Ms. Feng Guoying IM Polytechnic University 13354718663 Mr. Wang Wenjun IM Polytechnic University 13634711465 Ms. Wang Hongmei Secretary of Project Office 13314874771

Asian Development Bank IMAR Finance Bureau IMAR Poverty Alleviation Office

ALTERNATIVE ENERGY SUPPLY FOR RURAL POOR IN REMOTE AREAS IN IMAR

Stakeholder Meeting

Date: Thursday, 1 Feb 2007 Venue: Xincheng Hotel, Hohhot Chair: Mr. Ren Baoshan AGENDA

02.30 Welcome Speech Mr. Ren Baoshan, IMAR PAO

02:45 Presentation Mr. Rolf Oldach, IT Power

04:00 Tea break

04:20 Comments and Discussion All

06:30 Dinner All

The workshop was in Chinese and English.

Attendee List of Stakeholder Meeting on 1 Feb 2007

Name Affiliation Contact Mr. Rolf Oldach IT Power ---- Mr. Wayne Zhou IT Power Beijing Representative Office 13439624655 Ms. Li Wenjuan IMAR Finance Bureau 13074746222 Mr. Ren Baoshan IMAR PAO 13304710673 Mr. Wang Lizhong IMAR PAO 13847164652 Mr. Guo Xiaojian IMAR Huade New Energy Technology Co. ---- Research Institute of IMAR Bureau of Mr. Geng Wu 13514812229 Statistics IMAR Survey Team of National Bureau of Mr. Guo Song 13947147927 Statistics of China Ms. Si Qin Dept. of Agriculture of IMAR ---- Prof. Pan Zhaodong IMAR Inst. of Social Science 13704710505 Prof. Liu Zhizhang IM Polytechnic University 13848198688

Mr. Yang Yi Brightness Project Company, Sunite Banner 13514790118

Mr. Zhao Chibing Brightness Project Company, Etuoke Banner 13304773072 Ms. Feng Guoying IM Polytechnic University 13354718663 Ms. Wang Hongmei Secretary of Project Office 13314874771

Asian Development Bank IMAR Finance Bureau IMAR Poverty Alleviation Office

ALTERNATIVE ENERGY SUPPLY FOR RURAL POOR IN REMOTE AREAS IN IMAR

Draft Final Report Workshop

AGENDA

Date: Wednesday, 14 Mar 2007 Venue: Xincheng Hotel, Hohhot

Chair: Mr.Ren Baoshan

1:30pm Welcome Speech Mr. Ren Baoshan, IMAR PAO

1:45pm Welcome Mr. Ashok Bhargava, ADB

2:00pm Speech Mr. Teruhisa Oi, ADB

2:15pm Speech Ms. Jia Jie, IMAR FB

2:30pm Overview of project and progress Ms. Rebecca Gunning, IT Power

3.00pm Presentation of Social-economic Survey Ms. Zhu Li, IT Power Associate

------3:30pm Tea Break ------

3.45pm Presentation of Draft Final Report and Ms Rebecca Gunning, IT Power proposed pilot programme

4:40pm Comments and Discussion All

6:00pm Dinner All The workshop was held in Chinese and English.

Attendee List of Stakeholder Meeting on 14 Mar 2007

Name Affiliation Contact Mr. Ashok Bhargava ADB ---- Mr. Teruhisa Oi ADB ---- Ms. Rebecca Gunning IT Power ---- Ms. Zhu Li IT Power Associate ---- Ms. Miao Hong IT Power Associate ---- Ms. Li Jingming IT Power Associate ---- Mr. Wayne Zhou IT Power Beijing Representative Office 13439624655 Ms. Jia Jie IMAR Finance Bureau 13704712008 Ms. Li Wenjuan IMAR Finance Bureau 13074746222 Mr. Ren Baoshan IMAR PAO 13304710673 Mr. Wang Lizhong IMAR PAO 13847164652 Mr. Wen Energy Division of IMAR DRC 13304718731 Research Institute of IMAR Bureau of Mr. Geng Wu 13514812229 Statistics Mr. Guo Xiaojian IMAR Huade New Energy Company ---- IMAR Survey Team of National Bureau of Mr. Guo Song 13947147927 Statistics of China IMAR Department of Science and Ms. Pang Shulan Technology Department Mr. Zuo Weiguo Women’s Federation of IMAR 13848134666 Ms. Si Qin IMAR Dept. of Agriculture ---- Prof. Pan Zhaodong IMAR Inst. of Social Science 13704710505 Prof. Liu Zhizhang IM Polytechnic University 13848198688 Ms. Feng Guoying IM Polytechnic University 13354718663

Asian Development Bank IMAR Finance Bureau IMAR Poverty Alleviation Office

ALTERNATIVE ENERGY SUPPLY FOR RURAL POOR IN REMOTE AREAS IN IMAR

Workshop on Pilot Programme

AGENDA

Date: Tuesday, 21 May 2007 Venue: Binyue Hotel, Hohhot

Chair: Ms. Jia Jie

2:30pm Welcome speech Ms. Jia Jie, IMAR FB

2:40pm Welcome speech Mr. Wang Lizhong, IMAR PAO

2:50pm Introduction of TA and the design of pilot Ms. Rebecca Gunning, IT Power programme Mr. Wayne Zhou, IT Power Beijing

3:20pm Introduction of situation of rural electrification Mr. Hu Youcai, Brightness Company of of Wulatehou Banner Wulatehou Banner

3:40pm Introduction of situation of rural electrification Mr. Zhen Shuzhan, New Energy Station of Hulunbeier of Hulunbeier City

4:00pm Introduction of situation of rural electrification Mr. Li Qiang, Commerce Bureau of of Keerqinyouyizhong Banner Keerqinyouyizhong Banner

4:20pm Discussion on implementation models of pilot All programme in the 3 banners

6:30pm Dinner All The workshop was held in Chinese and English.

Attendee List of Workshop on 21 May 2007

Name Affiliation Contact Ms. Rebecca Gunning IT Power ---- Mr. Wayne Zhou IT Power Beijing Representative Office 13439624655 Ms. Jia Jie IMAR Finance Bureau 13704712008 Mr. Wang Lizhong IMAR PAO 13847164652 Mr. Hu Youcai Brightness Company of Wulatehou Banner 13019506186 Mr. Kang Jianxun & Mr. Commerce Bureau of Wulatehou Banner 13214785088 Yang Tiansheng Mr. Zhen Shuzhan New Energy Station of Hulunbeier City 13947059664 Mr. Li Qiang & Mr. Qin Commerce Bureau of Keerqinyouyizhong 13804794868 Shuang’en Banner

Asian Development Bank

TA 4649-PRC ALTERNATIVE ENERGY SUPPLY FOR RURAL POOR

IN REMOTE AREAS IN IMAR

Final Report Workshop

Proposed Objectives and Agenda

Date: Thursday, 28 Jun 2007 Venue: Xincheng Hotel, Hohhot

1. Introduction Inner Mongolia Autonomous Region’s vast area and highly dispersed population present unique challenges to rural electrification and meeting rural energy needs in an efficient, environmentally sustainable manner. Despite the rich energy resources of the province, there are still a large number of households without access to electricity and a significant proportion of the rural inhabitants do not even have near-term prospects of access to grid electricity. The Government of Inner Mongolia Autonomous Region (GIMAR) recognizes the techno-economic limitations of grid extension to electrify remote rural households and has been promoting renewable energy-based decentralized electrification since the 1970s. However the electrification of IMAR households with renewable energy has, to date, achieved mixed results with many of the systems no longer in operation today. The mixed results are due to a number of technical, financial, institutional and awareness issues and rural electrification with renewable energy in IMAR still faces many of these same challenges. Therefore this project, funded by the Asian Development Bank, aimed to evaluate the off-grid rural electrification to date in terms of its socioeconomic impact on households and proposed an appropriate strategy to take forward an electrification pilot programme. GIMAR and ADB will host a one day dissemination seminar in June 2007 to share the project experiences, methodologies and proposed approaches, and to explore how these may be replicated for rural electrification in Inner Mongolia and other Western Provinces. The format of the day will be the presentation of a number of papers describing the socio-economic study and key pilot programme recommendations followed by a facilitated discussion to allow more in-depth exploration of the key themes and their relevance to the workshop participants.

2. Workshop Agenda

9:00am Registration All

9:30am Welcome Address Ms. Jia Jie, FB of IMAR

9:45am ADB’s aspirations of project Mr. Ashok Bhargava, ADB

10:00am Speech Representative from International Dept. of MOF

10:10am Speech Representative from NDRC

10:20am Presentation of project and proposed pilot Ms. Rebecca Gunning, IT Power programme

------11:20am Tea Break and Photo ------

11:40am Presentation of Social-economic Survey Mr. Zhou Wei, IT Power Beijing

------12:15pm Lunch ------

2.30pm Project overview and comments on technical Prof. Liu Zhizhang, IMAR Poly Univ. solutions, socio-economic survey and replicability for other provinces

3.10pm Sharing experiences and lessons of rural Representative from Western provinces electrification

------3:40am Tea Break ------

4:00pm Facilitated discussion, to include: All

Role of RE in other provinces

Applicability of approach in other provinces

Questions on technical solutions and approach

Role of credit for non-productive uses

5:45pm Closing speech Mr. Ashok Bhargava, ADB

------6:00pm Dinner ------

The workshop will be held in Chinese and English.