Grant Assistance Report
Project Number: 53365-001 October 2020
Proposed Administration of Grant Kingdom of Bhutan: Alternative Renewable Energy Pilot Project Financed by the Japan Fund for Poverty Reduction
This document is being disclosed to the public in accordance with ADB’s Access to Information Policy 2018.
CURRENCY EQUIVALENTS (as of 1 October 2020)
Currency unit = ngultrum (Nu) – Nu1.00 = $0.014 = $1.00 = Nu73.80 =
ABBREVIATIONS
BEA – Bhutan Electricity Authority BPC – Bhutan Power Corporation DRE – Department of Renewable Energy JFPR – Japan Fund for Poverty Reduction JICA – Japan International Cooperation Agency MOF – Ministry of Finance MW – megawatt PMU – project management unit
NOTES
(i) The fiscal year (FY) of the Royal Government of Bhutan ends on 30 June and of its agencies on 31 December. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g. FY2019 ends on 30 June 2019 for the government and on 31 December 2019 for its agencies. (ii) In this report, "$" refers to United States dollars
Vice-President Shixin Chen, Operations 1 Director General Kenichi Yokoyama, South Asia Department (SARD) Director Priyantha Wijayatunga, Energy Division, (SARD)
Team leaders Yoojung Jang, Social Development Specialist, SARD Takayuki Sugimoto, Energy Specialist, SARD Team members Angela Francesca O. Bernaldo, Project Officer, SARD Tashi Lhamo, Associate Project Analyst, SARD Grace Macalisang, Operations Assistant, SARD Karen Grace C. Ochavo, Associate Environment Officer, SARD Nidup Tshering, Senior Social Development Officer (Gender), SARD Melinda Tun, Counsel, Office of General Counsel Jongmi Son, Finance Specialist (Energy), SARD Peer reviewers Susumu Yoneoka, Energy Specialist (Smart Grids), SDSC-ENE
In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area
CONTENTS
Page PROJECT AT A GLANCE I. INTRODUCTION 1 II. The Project 1 A. Rationale 1 B. Impact and Outcome 3 C. Outputs and Key Activities 3 D. Cost Estimates and Financing Plan 4 E. Implementation Arrangements 5 III. PROJECT FEATURES 6 A. Technical 6 B. Economic and Other Impacts, Financial Viability, and Sustainability 7 C. Governance 7 D. Poverty and Social Impacts 8 E. Participatory Approach 8 F. Development Coordination 8 G. Safeguards 8 H. Risks and Mitigating Measures 9 IV. ASSURANCE 10 V. THE PRESIDENT’S DECISION 10
APPENDIXES 1. Design and Monitoring Framework 11 2. List of Linked Documents 14
I. INTRODUCTION
1. The Alternative Renewable Energy Pilot Project aims to demonstrate viability and sustainability of solar power as an alternative energy and income source in Bhutan through: (i) conducting a study on regulatory requirements for alternative renewable energy resources and preparing a tariff structure for residential solar photovoltaic systems; (ii) assessing the adequacy of the national electricity grid and pilot-testing solar photovoltaic systems in rural villages; and (iii) enhancing energy-based livelihood skills through vocational education and energy based livelihood equipment support. The project has strong pro-poor, socially inclusive and gender- sensitive features. The project will directly benefit 300 poor households in rural villages.
II. THE PROJECT
A. Rationale
2. Bhutan is one of the smallest countries by population and geographical area but has one of the fastest-growing economies in the world. Its average annual economic growth of 6.7% between 2008 and 2018 far exceeds the average global growth rate of 3.4%.1 This high growth has contributed to reducing poverty. Poverty rate in Bhutan declined from 12% in 2012 to 8.2% in 2017.2 Despite this significant decrease in the national poverty rate,3 poverty in rural areas (11.9%) is significantly higher than urban areas (0.8%). To continue the economic growth and reduce poverty, the Royal Government of Bhutan has implemented poverty alleviation programs in the poorest villages.
3. A challenge Bhutan faces is that its power generation relies almost exclusively on hydropower. The total installed capacity of existing hydropower plants is 2,326 megawatts (MW). Since all the existing plants are run-of-the-river type, the total generation capacity drastically drops during the dry winter months (December–March) due to low water flows in the rivers. During winter, Bhutan must import power to meet the domestic demands as the peak load is higher than generation,4 but this is becoming increasingly challenging due to India’s own power shortages during the same period. At the same time, solar radiation is at its peak in the winter in Bhutan. The technical potential of solar photovoltaic power generation is estimated to be about 12,000 MW with 4.0 to 5.5 peak sun hours per day. As the prices for solar photovoltaic modules have fallen drastically by more than 87% during the period from 2010 to 2019 and are expected to drop even further,5 the Royal Government of Bhutan is considering the use of solar energy to enhance the energy security by diversifying energy sources and also as a potential solution for the electricity shortage during winter
4. Sustainable and reliable electricity supply is seen as a major element of poverty reduction efforts, as it is needed for productive activities. In addition, energy poverty has gender dimensions as rural women and girls are the primary energy producers for households and they tend to depend on small-scale agriculture and locally available resources to support their livelihoods. An important program of the government’s rural poverty alleviation strategy is provision of a lifeline electricity supply to households with 100% subsidy (Nu5.81/kilowatt hour [kWh], 2017–2019) up
1 International Monetary Fund. October 2020. World Economic Outlook. Washington D. C. 2 National Statistics Bureau of Bhutan. 2017. Bhutan Poverty Analysis Report. Thimphu. 3 The national poverty line is Nu2,195.95 per person per month in 2017. 4 BPC. Annual Transmission System Performance Report for the year 2019. Thimphu. In February 2019, the peak load was 347.64 megawatts (MW) whereas the generation was 320.57 MW. 5 International Renewable Energy Agency. 2019. The Renewable Power Generation Costs in 2019.
2 to 100 kWh of monthly consumption for each household.6 In 2018 alone, Nu104.93 million was spent by the Ministry of Finance (MOF) as subsidy for the rural electricity supply, which is a significant component of the annual budget allocation for the energy sector.7 Although 100% subsidy for electricity is aligned with poverty reduction efforts, it is not sustainable.
5. In this context, the Royal Government of Bhutan requested ADB’s assistance to pilot test the installation of small-scale solar photovoltaic systems to the marginalized rural households and integrate them to the national grid. This will enable rural households to produce energy for their own consumption and the government to reduce electricity subsidies, while also lessening electricity import during winters when solar radiation is at its peak. The solar photovoltaic system will also create income generation opportunities for the households through sale of excess power to the grid and develop energy-based livelihood skills. Further, solar photovoltaic energy supports strong gender equality and social inclusion (GESI) elements by improving income-generating sources through solar photovoltaic power trading and energy-based livelihoods with a focus on women.
6. For the proposed intervention, ADB applied for $3 million grant financing from Japan Fund for Poverty Reduction (JFPR), and it was approved by the Government of Japan on 20 August 2020. The proposed project is aligned with the ADB country partnership strategy 2019–2023 for Bhutan and included in the country operations business plan (COBP) 2020–2022 for Bhutan. It is in line with 5 of the 7 operational priorities of ADB Strategy 2030 for addressing poverty reduction, accelerating gender equality, tackling climate change, promoting rural development, and strengthening governance and institutional capacity. The project also contributes to achieve sustainable development goal 8 7 of ensuring access to affordable, reliable sustainable and modern energy for all. In addition, the intervention is in line with 12th Five-Year Plan of the Gross National Happiness Commission (GNHC), Royal Government of Bhutan regarding reducing poverty and inequality, promoting gender equality, ensuring renewable energy supply, improving efficiency and effectiveness of public service delivery, and strengthening community vitality.
7. ADB has experience in financing renewable energy and gender equality projects in Bhutan. The proposed project will incorporate lessons learnt from ADB Rural Renewable Energy Development Project (Grant 0228-BHU) and JFPR grant, Improving Gender-Inclusive Access to Clean and Renewable Energy in Bhutan, Nepal, and Sri Lanka (Grant 9158-REG). These include effective community mobilization, logistics for solar photovoltaic procurement and installation, and training of Village Electrical Entrepreneur and Electrical Technicians (VEEETs) for solar photovoltaic operations and maintenance. This proposed project and its potential impact will be distinguished from other donor-funded projects as the project targets grassroot poverty reduction with a strong emphasis on women’s economic empowerment. However, the project will be implemented in close consultation and cooperation with other multilateral and bilateral development initiatives particularly Japan International Cooperation Agency (JICA) Bhutan. If this pilot project is found successful, the scheme can be replicated across the country.
8. The project is required despite the coronavirus disease 2019 (COVID-19). It has been observed that the poor without access to adequate resources are severely hit by the pandemic. Sustainable and reliable energy supply and basic livelihood income measures are essential
6 Bhutan Electricity Authority. 2017. Electricity Tariff in Bhutan. Table 2. Royal Government of Bhutan. 7 Royal Government of Bhutan’s statistic in 2017 and 2018. It increased by 28% from the subsidy in 2017 which was Nu81.96 million. 8 The Sustainable Development Goals, also known as the Global Goals, were adopted by all United Nations member states in 2015 as a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity by 2030.
3 resources for poor households to overcome the economic impacts of the pandemic. It is expected that the project implementation will not be affected by the COVID-19 significantly for the first 6 months as most of the work can be done through desktop studies and virtual meetings. Participants in any field tasks including workshops, meetings and consultations will be required to receive an orientation for the prevention and transmission of COVID-19 in accordance with guidelines included in the safeguard checklist for the project.
B. Impact and Outcome
9. The impact is aligned with the energy security of the society enhanced. The outcome will be social and economic benefits of solar power demonstrated in pilot rural villages.
C. Outputs and Key Activities
10. Output 1: Regulatory requirements for alternative renewable energy identified and a tariff structure for residential solar photovoltaic systems prepared. The Royal Government of Bhutan adopted the Alternative Renewable Energy Policy in 20139 which aims to promote the development of alternative renewable energy resources, design appropriate tariffs and facilitate investment in the alternative renewable energy sector. To implement the policy, the government needs to develop guidelines, rules, and regulations to accommodate alternative renewable energy sources in the existing power generation and trading system. The project will support a study on key regulatory and development issues associated with different alternative renewable energy technologies and recommendations on the design and implementation of pricing and other regulatory arrangements consistent with the country’s energy policy and Electricity Act 2001.10 For the pilot testing of the residential solar photovoltaic systems, an indicative tariff structure for electricity purchase from residential households will be prepared considering market price of solar photovoltaic systems, cost of the transportation and installation, economic benefits, and poverty alleviation aspects. Based on the experience in installations and operation under output 2, further recommendations on the tariff structure for residential solar photovoltaic system will be provided.
11. Output 2: Small-scale solar photovoltaic system pilot tested. Technical adequacy of the grid will be assessed, and specifications and requirements for connecting solar photovoltaic systems to the grid will be identified. The grid connection is necessary as part of pilot testing solar photovoltaic systems, and purchase of excess electricity from the households under an indicative tariff structure is proposed. The small-scale solar photovoltaic systems will be procured and installed in 300 households in the rural villages selected based on Multidimensional Poverty Index (MPI), geographical condition, atmospheric conditions, technical viability, and availability of telecommunication 11 and other infrastructures. After installation, the data of generation and consumption profile throughout a year will be collected and analyzed. To mobilize the pilot rural villages, an awareness campaign on benefit of the solar photovoltaic system and safe and efficient use of electricity will be conducted.
12. Output 3: Energy-based livelihood skills enhanced. A curriculum for solar photovoltaic system operation and maintenance (O&M) will be developed. Training programs on solar photovoltaic system O&M will be delivered to selected villagers and/or VEEETs. The number of trainees will be 300, and among them 30% will be women. Further, to maximize poverty reduction
9 https://policy.asiapacificenergy.org/sites/default/files/Alternative%20Renewable%20Energy%20Policy%202013.pdf. 10 https://policy.asiapacificenergy.org/sites/default/files/Electricity%20Act%20of%20Bhutan%202001.pdf. 11 To collect the data automatically from the solar photovoltaic systems and meters, the villages should be connected to either Bhutan Telecommunication Company or Tashicell network.
4 impact, energy-based livelihood equipment will be provided with the required skills training based on needs assessment to the villages benefitted from the solar photovoltaic systems. About 10 to 15 villages are expected to be provided with solar photovoltaic systems and at least 10 units of energy-based livelihood equipment will be installed.
D. Cost Estimates and Financing Plan
13. The project is estimated to cost $3.5 million12 (Table 1).
Table 1: Cost Estimates Amounta Share of Total Item ($ million) (%) A. Base Costb 1. Regulatory requirements for alternative renewable 0.81 23.2 energy identified and a tariff structure for residential solar photovoltaic system prepared 2. Small-scale solar photovoltaic system pilot tested 2.21 63.1 3. Energy-based livelihood skills enhanced 0.28 8.0 Subtotal (A) 3.30 94.4 B. Contingenciesc 0.20 5.7 Total (A+B) 3.50 100.0 Note: Numbers may not add up precisely because of rounding. a The Asian Development Bank will not finance any taxes and duties imposed in Bhutan. Income withholding tax will not be excluded from financing under this grant as guided in the ADB Loan Disbursement Handbook, (2017, as amended from time to time). b in end-2019 prices as of April 2020. c Maximum of 10% of the total project cost. Source: Asian Development Bank estimates.
14. JFPR will provide grant financing equivalent to $3 million to be administered by ADB. Climate mitigation is estimated to cost $3 million, and the grant will finance 100% of the mitigation cost. By increasing export of energy to India during non-dry season and replacing imported energy from India during dry season, the project will contribute to climate change mitigation estimated at 720 tCO2 per annum. The Royal Government of Bhutan communicates its Intended Nationally Determined Contribution (INDC) to remain carbon neutral by ensuring that the emission of greenhouse gas (GHG) does not exceed the carbon sink capacity of its forests.
15. The financing plan is in Table 2. The Department of Renewable Energy (DRE), Ministry of Economic Affairs (MOEA) and Bhutan Power Corporation (BPC) will provide in-kind counterpart support in the form of office space for the project management unit, meeting venues, access to data and information, and staff time for project output review and periodic field visits.
Table 2: Financing Plan Amount Share of Total Source ($ million) (%) Japan Fund for Poverty Reduction a 3.0 85.7 Government 0.5 14.3 Total 3.5 100.0 a Administered by the Asian Development Bank. Source: Asian Development Bank estimates.
12 An additional budget support of $90,000 is to be provided by JFPR for grant implementation, which is exclusive of the grant amount. The administrative budget support is not included in the project cost of $3.5 million.
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E. Implementation Arrangements
16. The implementation arrangements are in Table 3. The project will be implemented over a period of 4 years and 3 months from October 2020 to December 2024. DRE will be the executing agency of the project, and a project management unit (PMU) will be established at DRE. DRE will also be the implementing agency responsible for outputs 1 and 3, while BPC will be the implementing agency for output 2. DRE will be responsible for disbursement of grant proceeds and preparation of audited project financial statement (APFS) covering all interventions. A project steering committee led by DRE will be convened after project approval with members from MOF, MOEA, BPC, and Bhutan Electricity Authority (BEA). A consulting firm will be recruited to support the PMU’s project implementation. In addition, a project implementation analyst will be recruited to provide support in project supervision, review, and monitoring.13 Procurement of goods, works and consulting services shall be governed by the ADB Procurement Policy (2017, as amended from time to time) and Procurement Regulations for ADB Borrowers (2017, as amended from time to time). The strategic procurement plan has been prepared with details of the procurement options.
17. While direct payment will be the main payment method, advance fund procedure will also be used for regular and small amount of expenditures to facilitate project implementation. The advance account will be opened and managed by Department of Macroeconomic Affairs (DMEA), MOF and a project account will be opened and managed by DRE. All withdrawal applications and payments under the project will be initiated by DRE. For expenses under output 2, BPC will verify and forward the invoices from consultants and contractors to DRE for payment. For the entire project, one APFS covering all interventions will be prepared and submitted to ADB.
18. Currently, there are 42 poorest villages identified based on the MPI. To ensure proximity of the target project sites, the 42 villages are categorized into 4 zones based on their locality. During the project implementation, the villages will be further shortlisted and among 4 zones, a maximum of 2 with 10–15 villages will be selected for the solar photovoltaic system installation as per the selection criteria such as geographical and atmospheric condition, technical viability and availability of the telecommunication and other infrastructures. The final selection criteria will be developed based on the site assessments to be carried out during project implementation. In the selected villages, solar photovoltaic systems and energy-based livelihood equipment will be provided. Solar photovoltaic systems will be installed by an engineering, procurement, and construction contractor and ownership will be transferred to households. Bi-directional meters will be purchased, installed, and owned by BPC (para. 19). For implementation of output 3, DRE with support from BPC will develop a curriculum on solar photovoltaic system O&M and deliver the training in consultation with the Department of Technical Education. The selection of trainees will be based on socio-economic survey conducted during project implementation.
Table 3: Implementation Arrangements Aspects Arrangements Implementation period October 2020–December 2024 Estimated completion date December 2024 Estimated grant closing date June 2025 Management (i) Oversight body Project steering committee 1. Director, Department of Renewable Energy, Ministry of Economic Affairs
13 To be funded under the JFPR administrative budget support.
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Aspects Arrangements 2. Director General, Department of Macro Economic Affairs, Ministry of Finance 3. Project Director, Alternative Renewable Energy Pilot Project 4. Chief Executive Officer, Bhutan Power Corporation 5. Chief Executive Officer, Bhutan Electricity Authority (ii) Executing agency Department of Renewable Energy, Ministry of Economic Affairs (iii) Key implementing agencies Department of Renewable Energy Bhutan Power Corporation (iv) Implementation unit PMU at the Department of Renewable Energy, 5 full-time staff Procurement Open competitive bidding 1 contract $1,655,500 for international advertisement for solar photovoltaic system including data collection equipment Direct contracting for 1 contract $99,330 smart meter Direct contracting for 1 contract $25,000 update of metering software Request for quotation for 1 contract $30,000 energy-based livelihood equipment Consulting services Quality-and-cost-based 77.5 person-months $590,000 selection of one (1 contract) consulting firm Retroactive financing and/or Advance contracting, including preparation of bidding documents, advance contracting inviting and receiving bids for contract packages, and retroactive financing up to the equivalent of 20% of the total grant, incurred before grant effectiveness, but not more than 12 months before the signing of the grant agreement. Disbursement The grant proceeds will be disbursed following ADB's Loan Disbursement Handbook (2017, as amended from time to time) and detailed arrangements agreed upon between the government and ADB. ADB=Asian Development Bank, PMU=project management unit. Source: Asian Development Bank estimates.
III. PROJECT FEATURES
A. Technical
19. The small-scale residential solar photovoltaic systems have been widely adopted in many countries. This pilot project will focus on demonstrating the potential of harnessing solar photovoltaic power to help alleviate extreme poverty in rural Bhutan. It will introduce appropriate technologies and equipment that are suitable for the geographical terrain, atmospheric condition and transportation challenges posed by remoteness of the project sites. It is planned to procure solar photovoltaic systems that can be easily maintained. Specifications and requirements for connecting solar photovoltaic systems to the grid will be identified considering the features and conditions of the grid in the rural areas of Bhutan. Data on generation and consumption profile of the households will be collected and analyzed for the purpose of establishing tariff structure. Smart power conditioning system and bi-directional smart meter with modem will be installed along with the solar photovoltaic system to understand hourly profile of generation, self-
7 consumption, and injection to the grid. In addition, BPC’s metering software will need to be upgraded to receive, record, and process the data. The tariff structure for the residential solar photovoltaic system will be drafted taking into consideration the actual data obtained from the pilot project and various aspects of solar power trading including socio economic implications on the rural areas.
B. Economic14 and Other Impacts, Financial Viability, and Sustainability
20. The solar photovoltaic systems will be installed in rural households. After 2 years of warranty period, each household will operate and maintain the solar photovoltaic system with the support of technicians to be trained under the project. The project also supports the development of O&M curriculum and training program for sustainable operation during the project life. The solar photovoltaic system has no fuel cost and relatively low O&M cost. Each household will cover the minimum O&M cost from additional income by selling surplus power to the grid. The project will ensure that asset owner will have the financial and technical capacity to conduct routine and periodic maintenance by project completion.
C. Governance
21. DRE, which is part of the Ministry of Economic Affairs, has been established in December 2011 with the mandate to serve as the central agency on matters related to renewable energy development. BPC, as the sole provider of electricity in Bhutan, has been established in July 2002 with the mandate of distributing electricity and providing transmission access for generating stations for domestic supply as well as export. Financial management assessment of DRE and BPC carried out by ADB showed that the financial management risk is moderate. BPC and DRE have the capacity and knowledge to properly manage the project, and the financial management ability to handle current level of its operations is adequate. Integrity due diligence (IDD) conducted for BPC identified no integrity or governance issues.
22. BPC and DRE have significant experience in managing externally financed projects including ADB projects15 and have qualified personnel who are familiar with the requirements for reporting, financial management and disbursement of ADB loans. BPC has a proper fixed asset and inventory register in enterprise resource planning (ERP) system. The assets have been periodically verified by BPC management and ERP has been fully functional. DRE has qualified and experienced accountants in finance section and robust external audit system exists.
23. DRE and BPC have experience in procuring solar photovoltaic systems and related equipment in other projects and have adequate capacity to undertake the project. Both agencies have been the executing and/or implementing agencies in past ADB-financed projects and have effectively managed investments funded by multilateral and bilateral development partners. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government, DRE, and BPC. The specific policy requirements and supplementary measures are described in the project administration manual (PAM).
14 The proposed project will be sourced by JFPR grant only. As the JFPR grant will be used for activities that are distinctly separable and mutually exclusive of any ADB-financed investment project, it is exempted from the conduct of economic analysis. 15 Rural Renewable Energy Development Project (Grant 0228-BHU, https://www.adb.org/projects/42252-022/main) and JFPR grant, Improving Gender-Inclusive Access to Clean and Renewable Energy in Bhutan, Nepal, and Sri Lanka (Grant 9158 REG, https://www.adb.org/projects/44135-012/main).
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D. Poverty and Social Impacts
24. The expected benefit of the project is providing reliable clean renewable energy and generating additional income by selling excess electricity to the national grid which will promote livelihood enhancement in the poor rural villages. A total of 300 poor households including female-headed households will directly benefit from the project. The livelihood improvement aspect of the project will be further strengthened through trainings on solar photovoltaic system O&M and an energy-based livelihood equipment support.
25. The project is categorized as effective gender mainstreaming and a gender action plan (GAP) has been prepared. The persistent poverty in rural areas is also caused by labor-intensive unpaid work carried out by women and low skill sets due to limitations such as lack of reliable energy supplies and educational opportunities, among others. Women and girls in Bhutan, particularly in rural areas, shoulder the responsibility for many of the household work such as cooking, washing, and cleaning. Having access to clean and reliable energy offers the potential to reduce the time and effort spent by women and girls on household work, which can have positive impacts not only on their health and level of educational attainment but can also enhance their economic opportunities. In outputs 2 and 3, the project will ensure women’s participation in the design and implementation of relevant activities through 50% women participation in awareness raising campaigns and 30% women participation in training programs.
E. Participatory Approach
26. During preparation, ADB consultants and staff specializing in gender and social aspects visited the village communities and consulted with relevant stakeholders, including executing agency staff. The result of this stakeholder consultation has been incorporated in identifying specific grant outputs. In particular, the villagers requested energy-based livelihood equipment along with skills training for the operation of such equipment. Energy-based livelihood equipment will allow them to generate more income from their farm produce by processing value-added products which in turn would bring in better income. The views and opinions of all stakeholders have been reflected in the grant design and will be further considered during a socio-economic survey and needs assessment during implementation. A participatory decision-making process will be adopted to nominate participants for the training program on O&M of solar photovoltaic systems. Focus will be given to mainstreaming gender in implementation of the community-led income generation activities.
F. Development Coordination
27. The coordination arrangements were discussed with JICA representatives. There have been programs undertaken by JICA with Technical Training Institutes (TTIs) and College of Science and Technology (CST) to establish and streamline technical trainings, and collaboration opportunities with JICA for output 3 were observed. Where possible, JICA’s technical experience will be sought as appropriate during the project implementation.
G. Safeguards
28. The project is proposed to be categorized C for environment, involuntary resettlement, and indigenous peoples. The project has only one physical component, which is installation of the solar photovoltaic systems within the existing premises of the households. The project has a minimal or minor environmental impact and does not require any land acquisition. An environmental and social checklist has been developed for screening and selection of the
9 households and sites. For safety, rooftop structures will be examined to check its solidity and presence of asbestos, and necessary measures will be taken by implementing agencies and contractor in accordance with the safeguard checklist. The project activities will not trigger any impact on indigenous people. At the end of the life cycle16 of the solar photovoltaic system, it will be retrieved by DRE and will be handed over to the Department of National Properties (DNP) under MOF for disposal. For grievances redressal, DRE will provide the contact details for any queries and questions regarding the project interventions. DRE will try to solve issues raised at the working level together with BPC engineers and technicians and escalate the issues to management, if required. Guidelines on risks and prevention measures against COVID-19 has been developed and attached to the safeguard checklist.
H. Risks and Mitigating Measures
29. Significant risks and mitigating measures are summarized in Table 4.
Table 4: Summary of Risks and Mitigating Measures Risks Description Mitigating Measures Lack of Development of the DRE will closely coordinate with BEA as per the Electricity intragovernmental regulatory Act 2001 of Bhutan and the Alternative Renewable Energy coordination on framework is Policy 2013. Both agencies will be part of a steering the regulatory delayed due to committee to facilitate continuous dialogue and coordination framework inadequate between them and to discuss the formulation of the intragovernmental regulatory framework. coordination. Lack of BEA’s approval on The indicative tariff for the solar photovoltaic power consensus on the indicative tariff for purchase needs to be adopted by BPC with BEA’s need for indicative the pilot is approval. The next tariff approval is scheduled in July 2022, tariff and required, and the which does not match with solar photovoltaic system unsynchronized timeline for this is installation and generation timeline. timeline uncertain. There should be a consensus on the indicative tariff among DRE, BPC, and BEA. These agencies have been discussing exceptional approval of indicative tariff structure for the pilot project. The consultations will continue with BEA as part of the project steering committee, and a covenant requiring the government to ensure that any necessary tariffs are adopted for the pilot project is included in the grant agreement. Challenges with Rugged The beneficiaries will provide in-kind support to transport solar photovoltaic geographical the solar photovoltaic systems and equipment. In addition, system condition and lack strengthening the house structures will be considered to transportation and of infrastructure ensure enough structural stability. Further, the project installation due to impose challenges implementation period was extended from the originally remoteness expected 3.5 years to 4 years and 3 months considering these challenges. Low participation Impact on The project will provide each participant with a per diem rate in training household income which can cover their income loss and transportation programs and responsibilities expenses for attending the training. To promote female leads to low participation, extra score will be given to female applicants. attendance rate in training programs.
16 The expected life cycle of the system is counted as 20 years for the project.
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Risks Description Mitigating Measures COVID-19 Project timeline The project implementation is not likely to be affected by might be affected COVID-19. Even in case the ongoing travel ban lasts by COVID-19. longer, most of the project activities in the first 6 months can be undertaken without field work. Field work required for the first 1.5 years, such as survey and consultations can be conducted by national consultants without international travel. People involved in any field work will be trained on risks of and prevention measures against COVID-19 as per the guideline attached to the safeguard checklist. BEA=Bhutan Electricity Authority, BPC=Bhutan Power Corporation, COVID-19=coronavirus disease 2019, DRE=Department of Renewable Energy. Source: Asian Development Bank.
IV. ASSURANCE
30. The government and the DRE have assured ADB that implementation of the project shall conform to all applicable ADB policies including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the project administration manual, the grant agreement17 and the project agreement.
31. The government, DRE and BPC have agreed with ADB on certain covenants for the project, which are set forth in the draft grant agreement and project agreement.
V. THE PRESIDENT’S DECISION
32. The President, acting under the authority delegated by the Board, has approved the administration by ADB of the grant not exceeding the equivalent of $3,000,000 to the Kingdom of Bhutan for the Alternative Renewable Energy Pilot Project, to be provided by the Japan Fund for Poverty Reduction.
Masatsugu Asakawa President
21 October 2020
17 Legal document to be signed by the government and ADB.
Appendix 1 11
DESIGN AND MONITORING FRAMEWORK Impact the Project is Aligned with Energy security of the society enhanceda Results Chain Performance Indicators with Targets and Data Sources Risks Baselines and Reporting Mechanisms Outcome By 2024
a-c. DRE Lack of consensus Social and economic a. Improved electricity supply reported reports, and on the indicative benefits of solar power by 80% of the households benefitted project tariff for the pilot demonstrated in pilot with small-scale solar photovoltaic completion test and rural villages systems (2019 baseline: 0) report unsynchronized
b. Average income of the 300 timeline between
benefitted households increased by project
7% in the selected villages of the solar implementation photovoltaic intervention and BEA’s tariff (2019 baseline: 0) approval c. Government subsidy for the 300 benefitted households reduced by 20% (2019 baseline: 0) Outputs By 2024 1. Regulatory 1a. A study report on regulatory 1a. DRE The project result requirements for requirements for alternative renewable report not leading to alternative renewable energy prepared formulating energy identified and a (2019 baseline: NA) regulatory tariff structure for framework due to 1b. A tariff structure for power 1b. DRE residential solar inadequate purchase from residential solar report photovoltaic system intragovernmental photovoltaic systems drafted prepared coordination (2019 baseline: NA)
By 2023 2. Small-scale solar 2a. Technical adequacy of the 2a. BPC Rugged photovoltaic system electricity grid assessed and report geographical pilot-tested specifications/requirements for condition and lack connecting solar photovoltaic systems of infrastructure to the grid identified imposing (2019 baseline: 0) challenges
2b. 300 households in poor rural 2b-2c.
villages provided with small-scale solar Quarterly photovoltaic systems project progress (2019 baseline: 0) reports and 2c. Awareness campaign on benefit of project the solar photovoltaic system and safe completion and efficient use of the electricity report conducted for 600 people from the
benefitted households of which 50%
are women participants (2019 baseline: 0) By 2023 3. Energy-based 3a. A curriculum for solar photovoltaic 3a-3c. Reduced livelihood skills system operation and maintenance Quarterly household income enhanced (O&M) developed project during training (2019 Baseline: 0) progress participation
12 Appendix 1
Results Chain Performance Indicators with Targets and Data Sources Risks Baselines and Reporting Mechanisms 3b. Improved solar photovoltaic O&M reports and leading to low technical skills demonstrated by 300 project attendance rate trainees of which 30% are women completion (2019 baseline:0) report
3c. Energy-based livelihood equipment with skills training provided to at least 10 benefited villages of the solar photovoltaic systems (2019 baseline: 0) Key Activities with Milestones
1. Regulatory requirements for alternative renewable energy identified and a tariff structure for residential solar photovoltaic system prepared 1.1 Advertise recruitment of a consulting firm [Q4 2020] 1.2 Recruit a consulting firm [Q4 2020] 1.3 Draft a study report on regulatory requirements for alternative renewable energy resources [Q2 2021] 1.4 Finalize the study report [Q4 2021] 1.5 Prepare an indicative tariff for pilot-testing solar photovoltaic systems with 300 households [Q4 2021] 1.6 Draft a tariff structure incorporating the pilot-testing result for power purchase from the residential solar photovoltaic systems [Q2 2024]
2. Small-scale solar photovoltaic system pilot tested 2.1 Undertake an assessment and identify specifications and requirements for the grid connection of the solar photovoltaic system [Q3 2020–Q4 2020] 2.2 Prepare selection criteria and select 300 households [Q1 2021] 2.3 Float bidding for solar photovoltaic systems [Q2 2021] 2.4 Award contract for solar photovoltaic systems [Q4 2021] 2.5 Install solar photovoltaic systems [Q1 2022–Q4 2023] 2.6 Conduct an awareness campaign on benefit of the solar photovoltaic system and safe and efficient use of electricity [Q4 2021–Q3 2023] 2.7 Issue RFQ for smart meters [Q4 2020] 2.8 Award contract for the smart meters [Q2 2021] 2.9 Install the smart meters [Q1 2022–Q4 2023] 2.10 Issue RFQ for updating metering software [Q4 2020] 2.11 Contract award for the metering software [Q1 2021] 2.12 Update the metering software [Q2 2021–Q4 2021] 2.13 Data collection on generation and consumption profile [Q1 2022–Q2 2024]
3. Energy based livelihood skills enhanced 3.1 Establish a curriculum for solar photovoltaic system O&M [Q1 2022] 3.2 Prepare selection criteria for training participants and select 300 participants [Q2 2022–Q3 2022] 3.3 Provide solar photovoltaic system O&M training based on the curriculum developed [Q4 2022–Q4 2023] 3.4 Conduct socio economic survey and needs assessment for energy-based livelihood equipment [Q2 2021] 3.5 Issue RFQ for energy-based livelihood equipment [Q3 2021] 3.6 Contract award for the energy-based livelihood equipment [Q1 2022] 3.7 Install the energy-based livelihood equipment [Q2 2022–Q4 2023] 3.8 Undertake end line survey on livelihood enhancement through power purchase, skills training, and equipment support [Q1–Q2 2024]
Appendix 1 13
Inputs Japan Fund for Poverty Reduction (JFPR): $3 million grant (Administered by ADB) Government: $0.5 million Assumptions for Partner Financing Not Applicable ADB=Asian Development Bank, BEA=Bhutan Electricity Authority, BPC=Bhutan Power Corporation, DRE=Department of Renewable Energy, O&M = operation and maintenance, Q = quarter, RFQ = request for quotation. a Gross National Happiness Commission. 2018–2023. 12th Five-Year Plan. Thimphu. Source: Asian Development Bank. Contribution to Strategy 2030 Operational Priorities OP 1.3 Poor and vulnerable people with improved standards of living (300 households) OP 2.2 Women completing training on solar photovoltaic system operation and maintenance (90 people) OP 3.1 Total annual greenhouse gas emissions reduction (720 tons CO2 /year) OP 5.1 People benefiting from increased rural investment (300 households) OP 6.2.1 Service delivery standards adopted and/or supported in implementation by government and/or private entities (1 report for regulatory requirements for alternative renewable energy and 1 report for tariff structure for residential solar photovoltaic system prepared)
14 Appendix 2
LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=53365-001-2
1. Grant Agreement 2. Project Agreement 3. Project Administration Manual 4. Summary Poverty Reduction and Social Strategy 5. Gender Action Plan