FINAL REPORT REVIEW OF THE OUTER ISLANDS ELECTRIFICATION PROGRAMMES IN RMI

RFP Reference: SPC 11/14

September 2012

Prepared by Global Sustainable Energy Solutions Pty. Limited

For

NORTH‐REP

North Pacific ACP Renewable Energy and Energy Efficiency Project

Acknowledgments

This report was written by Global Sustainable energy Solutions Pty Ltd (GSES) for the North Pacific ACP Renewable Energy and Energy Efficiency Project (North REP).

The authors wish to acknowledge the following people who provided information wither through meetings or via e‐mail communications in the preparation of the report:

Mr Thomas Kijiner Jnr; Secretary of Resources & Development (At time of interview)

Dr Hilda Heine, Minister for Education

Mr Richard Bruce and Mr Kanchi Hosia Ministry of Education

Ms Angeline Heine National Energy Planner, Energy Planning Division, Ministry of Resources & Development

Mr Steve Wakefield Chief Technical Officer, Marshalls Energy Company

Mr Billy Schultz Solar Engineer Marshalls Energy Company

Mr Charles Abraham Mayor of Mejit:

Ms Rufena Elooki : Mayor of Ailuk:

Mr Walter Myazoe ; Assistant Energy Planner ,Energy Planning Division, Ministry of Resources & Development

Ms Katerina Syngellakis, GIZ Energy Adviser

Mr Rupeni Mario; Team Leader North REP

Ms Arieta Gonelevu: North REP Energy Specialist (RMI)

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI i

Contents Acknowledgments ...... i Abbreviations ...... iv 1. Executive Summary ...... 1 1.1 RMI Outer islands Electrification Program ...... 1 1.2 Financial Analysis ...... 1 1.2.1 Solar Home systems ...... 1 1.2.2 School and Community systems ...... 3 1.3 Key Issues, Findings, Conclusions and Recommendations ...... 4 2.0 Introduction ...... 12 3.0 Overview of the Outer Island Electrification Program ...... 13 3.1 Background ...... 13 3.2 Management of Programme...... 16 3.2.1 Ministry of Resources and Development (R&D) ...... 16 3.2.2 Marshall Energy Company (MEC) ...... 17 3.3 Systems Installed...... 21 3.4 Proposed system Installation ...... 23 3.5 Training ...... 24 4.0 Financial Analysis ...... 24 4.1 Solar Home systems ...... 24 4.1.1 Monthly Fee analysis for ‘Fee for Service’ Model ...... 24 4.1.2 Subsidy Analysis ...... 27 4.1.3 20 Year Expenses...... 28 4.1.4 ‘Rent to Own’ Model ...... 29 4.2 School and Community systems ...... 30 4.2.1 Tariff for replacement and maintenance ...... 30 4.2.2 Ministry of Education‐ Replacement Fund ...... 31 4.2.3 Is the tariff being charged covering maintenance? ...... 31 5.0 Findings and Conclusions ...... 33 5.1 Fee for Service vs Rent to Own ...... 33

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI ii

5.2 Fee Collection rate is Low...... 34 5.2 Policy for non‐payment of fees...... 40 5.3 Fees Must Reflect Actual Costs or Government Must pay subsidy ...... 41 5.4 Are Full Time Technicians required? ...... 43 5.5 School Systems ...... 49 5.6 Replacement of Batteries ...... 51 5.7 Product Quality ...... 51 5.8 List of Equipment ...... 52 5.9 Transport and Communications ...... 52 5.10 Training ...... 53 5.10.1 SHS System Training ...... 53 5.10.2 School systems ...... 54 5.11 Ministry of R & D staffing levels ...... 55 6. Recommendations ...... 55 6.1 Models for System Ownership ...... 55 6.2 Collection of Fees ...... 56 6.3 Fees ...... 57 6.4 Non‐payment Policy ...... 57 6.5 Recovery of outstanding debts ...... 58 6.6 Subsidy ...... 58 6.7 Trust Fund ...... 59 6.8 Number of Technicians ...... 59 6.9 School Systems ...... 60 6.10 Battery replacement is planned ...... 60 6.11 Product Quality ...... 60 6.12 Data base ...... 60 6.13 Transport and Communications ...... 61 6.14 Training ...... 61 6.15 Ministry of R & D Staffing Levels ...... 61 Annex 1: Data on Solar Home Systems ...... 62 Annex 2: Data on School Systems ...... 63

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI iii

Abbreviations

ACP Africa Caribbean Pacific ADMIRE Action for the Development of Marshall Islands Renewable Energy FSM Federated States of Micronesia GEF Global Environment Facility GHG Greenhouse Gas GSES Global Sustainable Energy Solutions (private company) kWh kilowatt‐hour MEC Marshall Energy Company MIMRA Marshall Islands Maritime Resources Authority MOU Memorandum of Understanding North‐REP North Pacific ACP Renewable Energy and Energy Efficiency Project [European Union funded ‐10th EDF] PMU Programme Management Unit PV Photovoltaic R & D Ministry of Resources and Development REP‐5 Support to the Energy Sector in Five ACP Pacific Islands [European Union ‐9th EDF] RMI Republic of Marshall Islands ROC Republic of China (Taiwan) SEIAPI Sustainable Energy Industry Association of Pacific Islands SHS Solar Home system SPC Secretariat of the Pacific Community SSB Single‐sideband (modulation) USAID United States Agency for international Development UNDP United Nations Development Programme USDOI United States Department of Industry

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI iv

1. Executive Summary 1.1 RMI Outer islands Electrification Program The Republic of the Marshall Islands (RMI) Outer Islands’ Solar Electrification Programme is Government‐owned and operated through the Ministry of Resources and Development (R&D). The operation and maintenance of this programme is carried out by the Marshalls Energy Company (MEC) under a Memorandum of Understanding (MOU) between Government (R&D) and MEC.

The existing outer island electrification programme for the Republic of Marshall Islands (RMI) can be summarised as:  The supply and installation of solar home systems to the outer atolls via utility ‘fee for service’ model. The installation of systems has been through numerous funding mechanisms (e.g. REP5, US donors, Taiwan Donors) and will continue under the North‐REP. Currently there are approximately over 1600 systems and a further 1500 systems will be installed through North‐ REP. The number of existing systems is shown in Table 1 with the proposed systems shown in Table 2. It can be seen from Table 1 that there is a discrepancy in the actual number of systems depending on the data source.  The supply and installation of six school systems (including connection to some health clinics) under the REP‐5 programme; with six more schools or clinics) proposed under the North‐REP program. The schools pay the utility for the electricity they use but an MOU between the schools and the Marshall Energy Company (MEC) states that the schools are responsible for replacement of equipment.

1.2 Financial Analysis

1.2.1 Solar Home systems 1. Monthly Fee analysis for ‘Fee for Service’ Model

An analysis of required monthly fees has been undertaken for the scenarios shown in table 1.

Table 1‐ Two Scenarios Used in Analysis

Scenario Equipment Replacement assumptions 1 Batteries replaced 7 years and controller and inverter 5 years.

2 Batteries replaced 10 years and controller and inverter 10 years.

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 1

Table 2 shows the monthly fee and the total equipment costs per system over the 20 years for the different scenarios.

Table 2: Required Monthly Fee for the 2 Scenarios

Scenario Monthly Fee Required per system Total Cost per system over 7 years (scenario as 1) and 10 years Scenario 2 detailed in Table 1 Equipment Technician Service TOTAL Equipment Technician Service TOTAL component Component Fee Cost sub‐ Cost sub‐ Fee total total 1 $16.87 $4.24 $1.00 $22.11 $1524.85 $355.88 $84.00 $1,964.73 2 $10.25 $4.30 $1.00 $15.55 $1411.11 $516.15 $120.00 $2047.26

1. Subsidy Analysis

The subsidy analysis was first undertaken for the worst case scenario where no fees are paid and for each of the 2 scenarios described in Table 1. The annual subsidy required is shown in table 3.

Table 3: Annual Subsidy Required for Worst case Scenario No Fees Paid Scenario Annual Subsidy required 1 $851,570 2 $621,139

On the assumption that the batteries are replaced every 7 years and controllers every 5 years (Scenario 1), then the annual subsidies based on a 40% collection rate are:  $778,754 if the fee remains at $5 per month  $633,122 if the fee is increased to $15 per month.

On the assumption that the batteries are replaced every 10 years and the controllers every 10 years (Scenario 2), then the annual subsidy based on a 40% collection rate reduces to:  $538,324 if the fee remains at $5 per month  $436,179 if the fee is increased to $15 per month.

2. Rent to Own’ Model

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 2

One possible model is that the system’s owners pay a monthly fee, but at the end of the specified period they own the system and it is their responsibility after that. During the rental period, the maintenance technicians are employed by MEC, but then they are dismissed after the rental period is completed

In a true rent to own model the monthly fee could include: all the initial equipment costs; a new controller and inverter after 5 years; a new battery at end of 7 years; MEC service fee of $1 per month and the wages for island technician over the 7 years. It does not include the initial installation labour costs and cabling costs however these will typically be provided through a grant.

The monthly fee for the above ‘rent to own’ model is $53.48 per month for 7 years.

Since the initial equipment installation was funded by a grant and if it was assumed that the rent to own model only included: the replacement cost of the controller and inverters after 5 years ; the batteries after 7 years; MEC service fee of $1 per month and the technicians wages for the 7 years then the monthly fee required would be $19.39.

1.2.2 School and Community systems 1 Tariff for replacement and maintenance

An analysis of the required tariffs was undertaken based on the costs assumed in a spread sheet originally developed by the PMU for REP5.

Table 4 shows the Tariff required for the 10 year and 7 year replacement scenarios based on the percentage of design‐kWh used.

Table 4: Tariff to recover Battery/inverter /controller replacement and Maintenance

% of Design kWh Tariff $/kWh used Batteries replaced 7 years 100% $1.14 90% $1.26 80% $1.42 70% $1.63 60% $1.90 50% $2.28 40% $2.85 30% $3.79

2 Ministry of Education‐ Replacement Fund

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 3

The Ministry is currently paying the same tariffs as in Majuro which was $0.36 per kWh and it was increased to $0.50 per kWh in April 2012. The MOU with MEC states that the Ministry of Education are responsible for the replacement of failed equipment.

If the batteries, inverter and controllers are all replaced at the end of 10 years, then the total cost for the six schools will be approximately $538,910. This represents $3,918 per month (and includes compound interest of 3%) that needs to be allocated for replacement of this equipment in the future.

1.3 Key Issues, Findings, Conclusions and Recommendations Table 5 provides a summary of the key issues; finding and conclusions and recommendations from this study.

Table 5: Summary Key Issues, findings and conclusions and recommendations

Issue Findings and Conclusions Recommendations Utility Model versus The current model of supplying In addition to the utility model Rent to Own solar home systems under a (fee for service), a ‘rent to own’ utility model (‘fee for service’) model should be trialled to helps to achieve technical determine whether people are sustainability for the systems. willing to pay to own their However this model has not systems. been financially sustainable and will require government subsidy if it is to be ongoing.

Non‐payment of Fees Up to 30th April 2012, the total  Either MEC or R& D takes on amount billed to the solar the role of co‐ordinating the systems’ owners has been different methods of $656,817.80 while the amount collection on the different received has been $283,368.36. islands. Therefore MEC is owed  Continue trialling many $378,146.60 from the solar different methods of systems’ owners, which is an collecting payments from average outstanding of $233.57 goods traded and also per system. In summary: through shops in addition to  73.3% of systems’ collecting cash directly from owners still owe above the system’s owners. 60% of their fees  Develop a table listing the  Only 3.8% are up to different methods being date, and used on the different islands.  Only 2% owe less than  R & D and MEC should

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 4

20% of their fees. promote the fact that payment of the fee is only to cover the cost of the replacement equipment and the on‐going maintenance of the system by the technicians; it has never been in place to cover the original capital and installation costs of the system.  A late fee penalty and/or a discount for payment on time is introduced.  Investigate paying a commission to technicians based on fees collected?  MEC develop a plan to recover the monies owed by the existing system owners. This could include specifying a date by which all debts must be paid or the systems will be removed. Systems Not being disconnected The policy on system Utility Model when fees are not paid. disconnections appears to be A strict ‘non‐payment’ penalty varied. The MEC team in Majuro policy must be implemented. It is believe that people should be recommended that a payment disconnected when they are at policy is introduced which is least 2‐3 months behind in based on some form of payment payments. However it appears every 6 months or 12 months that this was not uniform across This would mean that if no effort the islands in its implementation to make any payment is made by the technicians and, since within that 6 or 12 month April 2009, it has not been period, then the system must be enforced at all. disconnected. If for political reasons, this is never enforced, then the minimum outcome should be that no person with outstanding fees should ever have any major equipment (e.g. batteries, controllers) replaced.

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 5

Rent to Own Model A strict non‐payment penalty policy must be implemented. For convenience, a policy similar to that implemented for the utility model should be followed; however as a ‘rent to own’, the householder can never own the system until all payments are made.

Fees have been reduced In the early stages of the project, Utility model a fee of $12 was determined as As a minimum figure, the fees the appropriate monthly fee. In must be increased to $15 per 2006 it was calculated that a month as recommended by R&D monthly fee of $19.24 was in November 2011. required so that there would be IF THIS DOES NOT EVENTUATE, no annual subsidy required, THE GOVERNMENT MUST PAY however the selected fee of $12 AN ANNUAL SUBSIDY TO MEC. was continued. This fee was reduced to $5 in April 2009. Rent to Own Model Therefore the lost revenue since The fee should be set at $53 per April 2009 is $375,795 based on month for full cost recovery the existing systems that have (except initial installation costs) been installed and assuming the and $19.39 to just cover battery, fee collection rate was 100%. inverter and controller replacement in the 7 year period.

Government Subsidy not being Even at $12 per month and 100% Fee for Service Model paid. monthly payment rate, the It is recommended that $0.015 scheme would still have required per kWh is added to the some subsidy funding, electricity Tariff in Majuro, this particularly at the time when will raise an estimated $704,688 batteries require replacement. per annum. However this should With the reduction of monthly be reviewed after a few years fees from $12 to $5, the program depending on the actual amount requires additional subsidy of fees which are collected. The funding from the Government. ‘per kWh’ figure might need to No subsidy has been paid since be increased if it is still not the fees were reduced. sufficient, or hopefully decreased, if the rate of fees

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 6

collected has increased.

Another option for the subsidy is a small tax on diesel or all petroleum products. The project team does not have any figures on the actual usage per year but it would be anticipated that it would be less than US$0.03 per gallon (US$0.01 per litre).

If no subsidy is guaranteed, then the program is not sustainable.

Rent to Own Model Ideally a subsidy should never be required because no replacement batteries and/or controller will be given to a householder with outstanding payments.

The only subsidy required would be if sufficient payments had not been made to cover the technician payments.

Trust Fund required for buying In the early stages of the Annual technicians’ fees total replacement and spares programme, the Government $154,248. All fees collected over was providing MEC with the this amount (representing annual subsidy required to product replacement) must be operate the programme. This deposited in a trust fund jointly has not been paid now for many managed by MEC and R&D and years and, at the moment, the this fund is used only to fund within R&D for the purchase replacement parts. The programme has no money. MEC conditions under which this fund do not have any funds to operates must be transparent. purchase replacement The Government should be equipment. advised that, since there are no funds available at the moment, no batteries or other spare parts are able to be purchased. Due to some systems being installed in

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 7

2004 and 2005, it is expected that major battery replacements will be required in the coming 12 months. If these components are not replaced, the credibility of the program will be damaged and it will discourage people from making their fee payments. Systems are requiring battery MEC has not yet had a major Fee for Service Model replacement problem with batteries failing, It is recommended that the however batteries have started batteries in systems are replaced to fail on Merit and one would 7 (maybe 8) years after they suspect it will occur with some of have been installed. This will the Namdrik Island batteries as allow the purchasing of batteries they were installed in 2004. to be scheduled through a Replacing batteries individually tender process to obtain can be expensive. competitive pricing. The batteries on one island can then be replaced all at the same time, thus making co‐ordination easier. It also facilitates returning the used batteries to Majuro for recycling or proper disposal.

Rent to own model This includes replacement of batteries at end of the 7 years.

Ministry of Education not The Department of Education is MEC approaches the Ministry of allocating funds for equipment only paying the standard Education with a suggested tariff replacement on school systems electricity rate of approximately that reflects the replacement of $0.35 per kWh (increased to batteries and inverters based on $0.50 per kWh). According to the current energy usage. (Refer MEC, the MOU between MEC to section 1.2.2) and the Department of If the ministry does not agree, Education requires the they should be advised that the Department to cover the cost replacement for batteries replacement costs for the and inverters is approximately equipment. At this point of time, $538,910 after 10 years and that no money has been allocated in they begin depositing any fund by the Department. approximately $4000 per month in a fund to cover these

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 8

replacement costs.

Number of systems per MEC has aimed to have 2  Technician to system ratio technician not consistent. technicians per island. The set at 1 technician for average cost for the technicians every 80 to 120 systems. per system per year is $45.49,  Where an island has an but the range of these costs insufficient number of varies from $21.49 to $192.59 systems for two due to the number of systems on technicians, that an some of the islands. alternative technician is trained and only paid when the other technician is off‐ island.  MEC to investigate whether technicians are paid per system serviced instead of a flat rate. The above recommendations are relevant both for the utility model or for rent tow own model. Training of technicians Reports written over the last few R & D and MEC co‐ordinate the years have all identified that the following: technicians need on‐going  Liaise with a training training. This was confirmed in entity to conduct an discussions with MEC. installation and maintenance course for the existing and future island technicians.  This course should follow the task analysis (competency standard) that will be developed by regional Renewable Energy & Energy Efficiency Training Competency Standards Advisory Committee that was formed in October 2011 or a similar task analysis developed by others (e.g. IREC USA).  Develop a program of

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 9

short courses which will help with the technician’s professional development—these could just be short refresher courses.  All course material shall be translated into Marshallese. It is recommended that one of the Majuro technicians should become a trainer.

Poor transport and In all discussions held, the issues There is very little which can be communications of poor transportation between recommended for these the islands and poor problems because they are communications were constantly outside the control of MEC and raised as impacting on the R&D. However it is collection of fees, the despatch recommended that MEC review of spare parts and even on the the communications procedures efforts to train the technicians. to determine how best to make it work. This might include having a payment system for guaranteeing the use of the SSB (Single Side Band) radio network at specified times

Data base on installed There is no data base of all the It is understood that this data equipment required. equipment installed. base is planned under the North‐ REP, however it is recommended that a data base is established which:  Names the system owner.  Provides the GPS co‐ ordinates of the house.  Lists all the equipment: brand, model and capacity/rating.  Shows the date of installation and date of any equipment change, together any with

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 10

equipment update.  Keeps a log of all faults that have occurred on systems and details what the fault was and action taken to rectify the fault.

Product Quality Some products that have been Future equipment purchases installed will not meet the should include due diligence expected life as determined in such that the quality of the the monthly fees and also have product being offered will meet not been installed to suit the the expected product life local; conditions or according to the calculation of manufacturers recommendation. monthly fees. The system shall also be designed so that the matching of components meet standard international practices and the installation of the equipment meets manufacturer’s requirements and follow good installation practices for the hot and humid conditions experienced in Marshall islands Department of R & D Staffing The R & D staff has R & D Management to review Levels Low for required work. responsibilities across all sectors staffing requirements. of energy planning in RMI. It is their responsibility to liaise with communities to facilitate the collection of fees by MEC and also to help plan the new systems going in. Over the next 2 years approximately 1500 systems will be installed which will result in over 3000 systems installed and fees to be collected. During discussion the R & D staff indicated that they were under‐resourced. The issue is whether they are under‐ resourced or require some additional support and training during the phase when the new

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 11

systems being installed.

2.0 Introduction This consultancy had as its outcome a review of the rural areas’ outer islands’ electrification programmes currently undertaken in the Federated States of Micronesia (FSM) and Republic of Marshall Islands (RMI). The objective of the review is to assist the Government of FSM and RMI to make these programs sustainable so that the consultancy’s outcomes will also help North‐REP identify specific interventions to address sustainability issues.

The review’s aims were to:  Identify sustainability issues and/or challenges arising from the rural areas’ /outer islands’ electrification programmes;  Develop user‐pay mechanism(s) to address off‐grid and/or mini‐grid renewable energy systems for rural areas’ /outer islands’ electrification;  Develop an appropriate tariff structure, tariff collection and management system for the rural areas’ /outer islands’ electrification programmes;  Develop a funding mechanism to sustain /subsidize rural /outer islands electrification programmes;  Conduct a ‘training needs’ assessment and develop a modality of training for rural areas’ /outer islands’ technicians, public utilities, final users and other required personnel to sustain such programmes.

The existing outer island electrification program for Republic of Marshall Islands (RMI) can be summarised as:  The supply and installation of solar home systems to the outer atolls via utility ‘fee for service’ model. The installation of systems has been through numerous funding mechanisms (e.g. REP5, US donors, Taiwan Donors) and will continue under the North‐REP program.  The supply and installation of school systems (including connection to some health clinics) under the REP‐5 program; more schools (clinics) could be installed under the North‐REP program. The schools do pay the utility for the electricity generated but an MOU between the schools and the Marshall Electric Company (MEC) states that the schools are responsible for replacement of equipment.

This document is the final report from the review. For RMI in particular this review and, hence, this report addresses the issues of:  How do those people on the outer islands make their monthly payments for their solar home systems?

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 12

 What should the monthly rate be?  Is the current model of using Island technicians to collect the fees sustainable? If not, what other solutions could be implemented?  If the people are not making their payments should a subsidy be introduced to cover the costs of the on‐going maintenance and replacement? Where would this subsidy come from?  If the current fee is not adequate to cover the costs of O&M, where should the additional money come from? Is the current model for management of the program a suitable model or should other models be implemented?  Is the model where the people pay an on‐going fee a sustainable model or should other models be introduced?  What is the fee that is required to cover the on‐going maintenance and replacement costs for the six school systems installed under the REP5 program?

Figure 1 is a map showing the Atolls in Majuro which are referred to throughout this report.

3.0 Overview of the Outer Island Electrification Program 3.1 Background The Republic of the Marshall Islands (RMI) Outer Islands Solar Electrification Programme is Government‐ owned and operated through the Ministry of Resources and Development’s (R&D) Energy Planning Division. The operation and maintenance of this programme is carried out by the Marshalls Energy Company (MEC) under a Memorandum of Understanding (MOU) between Government (R&D) and MEC.

The Outer Islands’ Solar Electrification Programme started in 2001 with the revival of the Energy Planning Division and the implementation of the Namdrik Atoll Solar Energy Rehabilitation Project. RMI had set up a company in 2003 to manage and operate its Alternative Energy Programme which was later absorbed by MEC and became the Alternative Energy Division within MEC.

The development of the outer islands electrification programme has also been supported by the Action for the Development of Marshall Islands Renewable Energies (ADMIRE). ADMIRE is a UNDP‐GEF funded initiative focusing on the promotion of the productive use of renewable energy to reduce GHG emission by removing the major barriers to the widespread and cost‐effective use of feasible renewable energy technologies. Funding from ADMIRE has helped with the planning of system installation through supporting outer island surveys.

Since the start of the programme through a variety of donor funded programs (refer to section 2.3) approximately 1500 household solar home systems and 6 school systems have been installed. Under the North‐REP programme (refer to section 2.4), all the remaining outer island’s households will have a solar home system installed in the next 2 years and 6 more schools will have systems installed.

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Although it is MEC’s responsibility to manage the on‐island solar technicians who undertake the maintenance of the systems, it is the responsibility of R&D to work with the communities and the local mayors (Government) to address issues such as planning new system installations, payments of fees and in particular the sustainability of the programme.

At the start of each funded program for the installation of systems, it is R&D’s responsibility to obtain the commitment from the individuals by collecting a “connection fee” of $100.

The monthly fee was initially set at $12 per month, but in April 2009 the government reduced the fee to $5 per month. Meanwhile the value of repayments received represent only 43% based on the total fees billed, however 73.3% of system owners still owe > 60% of their fees while only 3.8% (61) are up to date. The average debt is $233.57 which at $5 per month (since April 2009) represents an average of more than 3 years per system owner in arrears.

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Figure 1: Map of the Marshall Islands

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3.2 Management of Programme It is the responsibility of the Ministry of Resources and Development (R&D) to manage the planning of the programme. While it is Marshall Energy Company (MEC) that undertakes the installations, trains the island technicians who collect the fees and maintains the systems.

3.2.1 Ministry of Resources and Development (R&D) The secretary of R & D is Mr Tommy Kijiner who is very supportive of the Outer Islands’ Electrification Programme. The programme is managed by the Energy Planning division consisting of the National Energy Planner, Ms Angeline Heine and the assistant Energy Planner, Mr Walter Myazoe.

Although it is the MEC appointed technician’s (refer to section 3.2.2) responsibility to collect the fees, it is the responsibility of R & D to work with the communities and local mayors to overcome the issues associated with fee payment. At the start of each funding cycle for the installation of systems, it is R&D’s responsibility to obtain the commitment from the individuals by collecting the $100 fee.

Although the Energy Planning division is required to manage the program, this is not their only duty. They are required also to be involved with all energy planning which includes all the other fuels (petroleum, biomass) and energy efficiency.

In the last 12 months, R & D have been working with Ms Arieta Gonelevu, energy specialist for North REP based in Majuro, to identify solutions to counter the poor payment of the fees. This is discussed in greater detail in section 2.5.

Under the North‐REP programme, funding will be available for the installation of 1500 solar home systems (SHS) (refer to section 3.4). It is R & D’s responsibility to undertake the planning of these systems and two outer island surveys have been undertaken in the last 8 months. In August/September, a team comprising representatives from Ministry of R & D; MEC; Office of Environment Planning and Policy Coordination (OEPPC) and Marshall Islands Conservation Society; visited the :  The Island of Jabot and the atolls of Namu, which consisted of the community islets of Lo En, Mae, Majkin and Namu, plus the atolls of Lib, Ujae, and Lae.  The seven surrounding islets of Kwajalien Atoll: Mejatto, Elenaak, Ebadon, Santo, Ebelapkan, Enebooj, and Ebjedrik.

While in March/April 2012, a team comprising representatives from: Ministry of R & D; MEC; Marshall Islands Conservation Society and North‐REP visited the following Atolls: Ailuk, Utrik, Maloelap and Aur.

As part of the planning for the dissemination of the 1500 SHS, the surveys identified:  The number of houses that require SHS (refer to section 3.4);  The willingness of the householders to pay and the issues relating to the monthly payments (refer to section 5.2).

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 The logistics in undertaking the proposed installations, e.g. moving the equipment around the atoll/island; storage of the equipment; accommodation for the MEC technicians and ability of local people to help with the installation.

3.2.2 Marshall Energy Company (MEC) The MEC solar team currently comprises staff based in Majuro head office and 25 technicians on the outer islands. Note: 1 more is about to be appointed, to make the number of technicians 26.

The solar team in Majuro comprises:

 Mr Steve Wakefield, MEC Chief Technical Officer,  Mr Billy Schultz, MEC Solar Engineer  Mr David Riklon, Senior Solar Technician (located at MEC’s solar warehouse)  Mr Michael Note, Solar Technician

Mr Wakefield is only meant to spend 10% of his time on the solar program, Mr Schultz and Mr Riklon are full time, and Michael is part‐time because he is still studying full‐time.

The Majuro technicians look after the 30+ systems installed on the various small islands across the Majuro lagoon. They also are busy managing the renewable energy warehouse and sending out supplies to the outer islands’ technicians. Recently they have been training in the operation and maintenance of the Hospital’s grid connected system (officially an MEC Majuro Power system generator); they also install the solar streetlights provided by Republic of China (Taiwan) (ROC) and are involved in the program to replace the 120V ac streetlights with LED lights. So the technicians have ongoing small projects in Majuro which Mr Schultz oversees.

The current technicians are listed in table 6.

Over the years, 2 technicians have been dismissed and 1 has resigned. One was dismissed because of theft; one was dismissed because he left the island and kept being paid but did not tell anyone. The technician who resigned was leaving the Island.

During the installation of the systems, the MEC staff use local people to help with the installation. The MEC identify the best of these workers and they are appointed as technicians and provided basic training in the maintenance of the systems. Typically two are appointed per atoll since at any time one or the other could be off atoll for a period of time.

There is a weekly reporting schedule via the SSB radio system whereby the technicians all call in and report issues to date to the technicians in Majuro. MEC has a SSB radio set up at their warehouse for this purpose. During this reporting, the outer island technicians are supposed to order materials, report payments made and any problems, but many do not come online due to various issues. Some claim they

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 17

are frequently denied access to a radio on their islands and others do not bother. MEC were not really sure of why they do not always report. Some do send messages via boat or plane passengers when available.

The technicians are paid a wage (could be classified as a retainer) of $50 per week and are paid bi‐ weekly like other MEC staff. They are required to:  make monthly visits to each system and do preventative maintenance (check connections, clean components, check battery voltage, check operation of appliances, check for encroaching shade)  make monthly visits to each system and collect the monthly fees (technicians did have receipt books); and  reply to a householder’s call in case of system faults.

The home systems include sealed batteries so there is no need for periodical maintenance to check battery water levels, but the school systems do have open cell batteries which require maintenance and water addition regularly.. When the technician does visit to collect fees, the home systems should be inspected for any visible problem or potential problem, e.g. damaged cables.

The $50 per week fee is based on each technician working 5 hours per day which is 25 hours per week, basically $2 per hour. However the technician is free to do what he wants as long as the systems are visited each month to collect the fees and the preventative maintenance is done. Most of the atolls have only two way radios for outside communications, so direct communication between MEC and the technicians is difficult.

In a few locations, the technicians do require a boat to visit some of the systems. This is organised by the technicians themselves and, if there is any associated cost, this is paid for by the technician, however generally they are able to arrange a ride with someone else already travelling between the islands within the atoll. At one stage, MEC provided fuel to cover these boat trips but this was too expensive; they also considered a project to provide the technicians with their own canoe but this did not proceed.

The technicians had a contract that stated that they must disconnect the system after 60 days if there has been no payment. Discussions with MEC indicated that they still wanted this in place, but anecdotal evidence is that it is not being enforced and a comment made by the technician from Aerok was that instructions were given in April 2009 to stop doing these disconnections.

The only spare parts available are those that were supplied with the original equipment purchased. There has been no purchase of new spare parts and no funds have been made available for this.

During the review, the project team did not interview any island technicians. The short time frame for the onsite visits did not allow for travel to any of the outer islands. Communication is via SSB radio and

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 18

the project team felt that it would be difficult interviewing technicians via this method. However in December 2009 under the REP5 project, the Project Management Unit undertook a review of the Ailinglaplap SHS project which included interviewing some of the technicians. Though only 4 were interviewed which represents a small sample of the 25 currently appointed, some key points from these interviews include:  There was regular communication between the technicians and the MEC staff with one stating that he did this by SSB radio once a week. It should be noted that this was at the time when many solar controllers were failing and having to be replaced which would necessitate more communication.  One technician (from Woja) stated he was disconnecting non payers. Another technician (from Aerok) would call on people after 3 months if they had not paid. Initially he was disconnecting them, but then said he had been instructed to stop doing such disconnections in April 2009 (same time as rate dropped from $12 to $5). He felt that because of the changes it was difficult for the technician to get respect from the system owners.  The technician maintaining the school system was doing battery Specific Gravity checks once a week.  One technician (from Jeh) did not collect any cash; a local business man was doing that and sending the money to MEC in Majuro.  From the four technicians interviewed, only one had a system manual. Note: it is not known whether the others lost them or never had them.

The issue with disconnections was discussed with Mr Wakefield. One problem with the disconnections was that it was difficult to get the payment information from the technicians in the islands back to the accountant in MEC, and this meant that the MEC solar staff at head office did not know who had paid from the island and, vice versa, the island technician did not know if a customer’s relative in Majuro or Ebeye had paid on their behalf. Many of the customers in the outer atoll could tell the technician collecting the fees that their relative in Majuro or Ebeye had paid, but perhaps they had not. So it became very confusing for the technicians and the head office. In Majuro, there were some relatives paying in Majuro and Ebeye on behalf of the customers in the outer islands. So the instruction was sent out for the technicians not to disconnect anyone without authorization from Majuro. Once the accountant received regular payment receipts from the atoll technician and the Ebeye office as well as the Majuro office, then a quarterly statement was to be prepared and sent out to each technician to deliver to each customer. The idea would have worked, but the shipping and planes stopped running to any regular schedule so that plan fell apart.

Table 6: Breakdown of Technicians

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 19

Distance to be Do they Date of Number covered require Atoll/Island Village Names Employment of Houses (miles) Boat?

Namdrik Liton Beasa Note 1 Aug/24/2009 121 3 no Edwin T. Emmius Oct/17/2005 Mejit Anton Atalaia Note 2 Oct/17/2005 80 2 no Wodmej MEC staff in Wotje Jan/ 01/2007 42 2 Yes Mikat Kattil Jan/01/2007 Wotho Lautona Ainrik Jan/01/2007 27 0.25 no Bennik Hazard Nov/05/2007 Likiep Leroy Capelle Nov/05/2007 110 8 yes Anmej James Aug/27/2007 Ebon Johnny Jeban Aug/27/2007 100 16 yes Helbin Botla Jan/14/2008 Ine Roby Kijenmej Jan/14/2008 95 20 no Johnny Binat Mar/01/2008 Rearlaplap Brnadon Jim Jun/25/2008 118 45 yes Ulien Donald Leon Mar/01/2008 45 5 yes James anton Feb/04/2008 Arno Arno Wilton Joream Mar/01/2008 72 15 no Arno Bikarej/ Tutu Willor William Feb/04/2008 39 25 yes Buoj/ Jabwon Lee Horiuchi Sept/01/2008 Enewe/Angkan Carl Belele Note 3 Sept/01/2008 Airok/Jabwon Hervin Timothy Sept/10/2008 223 45 yes Jorkan Tiban Sept/01/2008 Woja Isahmael Rang Sept/01/2008 101 10 no Manneth Horiuchi Sept/01/2008 Ailinglaplap Jeh Ebin Andrike Sept/10/2008 118 60 yes Aur Aimon Saimon Oct/12/2009 40 1 no Aur Tabal Freshman Carland Oct/12/2009 40 1 no Mili All locations Chutaro Note 4 115 50 YES Source: MEC Note 1: There were two technicians for this area, one resigned some years ago and other was dismissed. Liton Beasa is a new hire. 2: dismissed

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 20

3: dismissed 4: Not formally appointed yet

3.3 Systems Installed Approximatley 1500 Solar Home Systems have been installed through various funding sources since the outer island electrification programme commenced.

The number of systems that are installed on the various atolls/islands is shown in table 7. There is a descrepancy in the actual number of systems depending on the information source used. This table has been based on data obtained from: 1. The MEC technicians list 2. The MEC data base for customers 3. A table provided in a Ministry of R & D document titled: Economic Analysis of the Outer Islands Electrification Programme Monthly Tariff.

Table 9 shows who funded the various solar home system programs to‐date and the approximate date they were installed. Annex 1 includes a data base listing the equipment that has been installed in the systems. This data base is incomplete and we have included a recommendation that this data base is completed in the Issues, Findings and Conclusions Section (Section 5) and Recommendations Section (Section 6).

Under the EU‐REP5 programme the systems were installed on six schools. These are listed in Table 9 with details of the equipment listed in Annex 2.

Table 7: Number of Solar Home Systems. Economic Analysis of outer islands Solar electrification Programme Monthly tariff‐ Technicians data Base from MEC Accounts data Base from MEC 2011 Number Number of of Number of Atoll/Island Village Systems Island/Village Systems systems Buoj/ Jabwon Enewe/Angkan Airok/Jabwon 223 Woja 101 Ailinglaplap Jeh 118 Bouj 424Note 1 405

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 21

Ine 95 Rearlaplap 118 Ulien 45 Arno Arno 72 Arno Bikarej/ Tutu 39 Bekarej 400 381 Aur 40 Aur 41 Note 2 Aur Tabal 40 Tabal 45 note 3 134 Ebon 103 Ebon 100 Toka 85 100 Note 4 Likiep 110 Likiep 118 128 Majuro Bikrin/Enemanit/Others 35 19 Mejit 80 Mejit 75 80 Enejet 26 Mili 35 Mili 22 Mili All locations 115 Lukunwor 18 212 Namdrik 121 Namdrik 119 115 Wodmej 42 Wodmej 43 60 Wotho 27 Wotto 30 30 Total 1486 1619 1564 Notes: 1 There is a customer listed as Solar Suspense but they do not have account number 2: April 2012 survey by North‐REP indicated 43 homes with solar home systems but 25 without systems 3: April 2012 survey by North‐REP indicated 32 homes with solar home systems but 12 without systems 4. Document states that the estimate of systems 190 but only 100 installed

Table 8: List of Atolls with systems

Atoll/island Funding for Systems Approx. Date of Installations Ailinglaplap EU REP‐5 Completed September 2008 Arno Republic of China (Taiwan) 2008 AUR Republic of China (Taiwan) 2009 Ebon Republic of China (Taiwan) 2007 Likiep Republic of China (Taiwan) 2007 Majuro (Aenkon) Republic of China (Taiwan) Mejit French/USA 2005

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 22

Mili Republic of China (Taiwan) 2011 Namdrik French Refurbished April 2004 Wotho USA 2006 Wotje(Wodmej) USA 2006

Table 9: School Systems

School Location Size of Array Approximate date of Installation INE Elementary School Arno Atoll 6kWp 2009 Ebon Elementary School Ebon Atoll 10.7kWp 2009 Take Elementary School Ebon Atoll 9kWp 2009 Mejit Elementary Mejit Island 9kWp 2009 School Majkin Elementary Namu Atoll 6kWp 2009 School Namdrik Elementary Namdrik 13.2kWp 2009 School

3.4 Proposed system Installation Through the current European Union funded (EDF10) North‐REP, there will be approximately 1500 solar home systems installed as shown in Table 10. The exact number will be confirmed based on the surveys that have recently been undertaken. However North REP has just completed a tender for the provision of 1500 solar home systems.

Table 10: Estimate of SHS to be installed under North‐REP

Atoll/Islands Estimated Number April 2012 Survey of systems Note 1 Ailuk 137 88 Enewetak 120 jabat 29 Jaluit 228 Kwajalein (Ebadon) 24 Kwajalen (santo) 142 Lae 47

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 23

Lib 29 Maloelap 215 159 Namu 198 Rangelap‐Majetto 41 Ujae 104 Utrik 101 65 with systems already 4 without Note 2 TOTAL 1415 Notes: 1: Source: Ministry of R &D’s paper: economic Analysis of the Outer islands Solar Electrification programme Monthly Tariff‐November 2011 2: USDOI Funded program—Supply and installation by private company‐ island ECO.

Under the North‐REP, it is planned that six more schools will receive solar systems and funds will also be used to refurbish PV systems already installed in health centres.

3.5 Training The island based technicians receive basic training on how to maintain the systems after the installations are completed. There have been no formal training programs offered to these technicians, although MEC does believe it is required. The difficulties with conducting training are covered in section 5.

4.0 Financial Analysis 4.1 Solar Home systems

4.1.1 Monthly Fee analysis for ‘Fee for Service’ Model Monthly fee analyses were undertaken for a number of scenarios.

The original equipment has been provided through grants so hence none of the analysis for the ‘fee for service’ model (utility model) included the actual capital costs.

Life cycle analysis of solar systems often look at a minimum of 20 years, because the life of the modules is 20 years plus and there are actually systems operating throughout the world where the modules were installed in the 1980’s . During this 20 year period, the issue is to predict how long the other equipment will last before needing replacement. The batteries have been originally designed for a 10 year life, but in hotter climates the life cycle of batteries is reduced, so 7 years is a possible scenario. The batteries on Mejit were installed in 2005 and they are beginning to fail, so this is after 7 years. Electronic devices such as controllers and inverters are designed for a minimum of 10 years life and again there are systems around the world where they have lasted more than 10 years. The environment in the Marshall

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 24

Islands is a hot humid salty environment so products, particularly those with microprocessors, might only last 5 years.

If the systems were funded by the government and the objective was to recover all the costs, then a fee structure could be developed that looked at a 20 year life of the system and include the original capital costs and the replacements costs of the equipment as described above. However the original equipment has been provided through grants so hence none of the analysis undertaken included the actual capital costs.

An analysis was first undertaken based on 20 years and included the replacement of: the batteries at both 7 and 10 years; controllers and inverters at 5 and 10 years plus the modules, pole and boxes at 20 years. After doing that analysis it was decided that it was irrelevant for the following reasons:

 The project team only had the prices for the solar modules for the Solar systems installed under the REP5‐project, Modules prices have been steadily reducing over the last few years such that modules costing $1 to $2 per watt are now being quoted in the market place. The modules supplied under REP5 were supplied at $3.80 per watt.  Too many variations, because of allowing for 7 and 10 years for the batteries and 5 and 10 years for the controllers and inverters.  Battery pricing is also difficult to predict. In the last 10 years, batteries have risen in cost greater than standard inflation rates because of the variable of lead pricing.

It was then decided that a monthly fee would be determined under the two scenarios listed in table 11:

This would allow MEC and R & D to see the variation in the fees for the two different lifetimes for the main components that will be replaced.

Whenever batteries are replaced in the future, then the fees should be reviewed. As the systems approach 20 years’ installed life, then consideration should be given to the replacement of some of the other equipment if required. With respect to modules, it might only require the addition of another module to compensate for the loss of performance over time. The module would not necessarily need to be the same wattage rating as the existing modules.

Table 11: Two Scenarios Used in Analysis

Scenario Equipment Replacement assumptions 1 Batteries replaced 7 years and controller and inverter 5 years. 2 Batteries replaced 10 years and controller and inverter 10 years. The analysis was based over the number of years until the first battery replacement, that is 7 years and 10 years, the assumptions used in the analysis are shown in table 12.

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Table 12: Assumptions used in Analysis

Item Size Cost/rate Comment Batteries 185Ah $550 Based on REP5 Tender Costs Controller $250 Based on REP5 Tender Costs Inverter $250 Based on REP5 Tender Costs Technicians $2600 Per year Wages Includes 55 outer island technicians and 2 in Majuro Fee 100% Collection Inflation Products 3% Inflation Wages 1% Low because there has been no change in 7 years Interest on portion 3% of fees required for product replacement MEC Service Per system $1.00 Fee per month

Table 13 shows the monthly fee and the total equipment costs per system over the 20 years for the two scenarios. The initial equipment costs or installation costs are not included in the fee analysis. These figures only include the replacement costs of the equipment at the specified periods and the costs of the technicians in performing the preventive maintenance. Installation of any replacement equipment is assumed to be included in the technician’s wages.

Table 13: Required Monthly Fee for the 2 Scenarios

Scenario Monthly Fee Required per system Total Cost per system over 7 years (scenario 1) as and 10 years Scenario 2 detailed in Table 11 Equipment Technician Service TOTAL Equipment Technician Service TOTAL component Component Fee Cost sub‐ Cost sub‐ Fee total total 1 $16.87 $4.24 $1.00 $22.11 $1524.85 $355.88 $84.00 $1,964.73 2 $10.25 $4.30 $1.00 $15.55 $1411.11 $516.15 $120.00 $2047.26

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 26

In reality the above analysis is very theoretical, because the current fee is only $5 and the current collection rate based on fees paid is 43%. In the financial analysis undertaken last year, it was proposed that the fee should be raised to $15 and that is just below the Scenario 2 fee of $15.55 per month. The analysis has also only assumed all systems are replaced in the time frames listed in the scenarios, however the actual system installation dates will vary from 2004 (Namdrik) until approximately 2014.(North‐REP systems). So the actual replacement costs for each Island will vary from those shown in table 13. Section 4.1.3 does provide a year‐by‐year expenses’ projection over 20 years based on the actual installation dates for the various islands. The main issue is if the fee was set at $15, the collection rate will not be 100%, so a subsidy will be required. The following section analyses the subsidy requirement.

4.1.2 Subsidy Analysis The subsidy analysis was first undertaken for the worst case scenario where no fees are paid and for each of the 2 scenarios described in section 4.1.1. The annual subsidy required is shown in table 14.

Table 14: Annual Subsidy Required for Worst case Scenario: No Fees Paid Scenario Annual Subsidy required 1 $851,570 2 $621,139

The next analysis was undertaken based on the existing $5 per month fee. Table 15 shows the subsidy required for the different scenarios based on the different collection rates shown.

Table 15: Annual subsidy required for $5 per month fee

SCENARIO Annual Subsidy required for specified collection rates as detailed 10% 20% 30% 40% 50% in Table 11 1 $833,366 $815,162 $796,958 $778,754 $760,550 2 $602,936 $584,732 $566,528 $548,324 $530,120 60% 70% 80% 90% 100% 1 $742,346 $724,142 $705,938 $687,734 $668,183 2 $511,916 $439,712 $475,508 $457,074 $435,376

The next analysis was undertaken based on suggested fee of $15 per month. Table 16 shows the subsidy required for the different scenarios based on the different collection rates shown.

Table 16: Annual subsidy required for $15 per month fee

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SCENARIO Annual Subsidy required for specified collection rates as detailed 10% 20% 30% 40% 50% in Table 11 1 $796,958 $743,346 $687,734 $633,122 $578,510 2 $566,528 $511,916 $462,051 $436,179 $397,786 60% 70% 80% 90% 100% 1 $523,898 $469,286 $414,674 $360,062 $286,464 2 $346,871 $283,435 $207,478 $118,999 $17,999

On the assumption that the batteries are replaced every 7 years and the controllers every 5 years (Scenario 1), then the annual subsidy based on a 40% collection rate is:  $778,754 if the fee remains at $5 per month  $633,122 if the fee is increased to $15 per month

On the assumption that the batteries are replaced every 10 years and controllers every 10 years (Scenario 2), then the annual subsidy based on a 40% collection rate reduces to:  $538,324 if the fee remains at $5 per month  $436,179 if the fee is increased to $15 per month

4.1.3 20 Year Expenses Tables 17 and 18 shows the annual expenditure required for the next ten years based on the two scenarios. Table 17 is based on the batteries being replaced every 7 years and controllers and inverters every 5 years. Table 18 is based on the batteries, controllers and inverters being replaced every 10 years. The replacement times are based on the year of installation on the different Atolls/Islands.

Table 17: Potential Total Annual Expenses for Next 10 years‐ batteries replaced every 7 years, controllers, inverter every 5 Years

Year 1 Year 2 year 3 Year 4 Year 5 2013 2014 2015 2016 2017

TOTALS $1,020,393 $375,347 $647,914 $264,292 $155,760 Year 6 Year 7 Year 8 Year 9 Year 10 2018 2019 2020 2021 2022

TOTALS $1,923,380 $211,775 $1,356,754 $447,569 $$772,768

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Table 18: Potential Total Annual Expenses for Next 10 years‐ batteries, controllers and inverters replaced every 10 years

Year 1 Year 2 year 3 Year 4 Year 5 2013 2014 2015 2016 2017

TOTALS $149,682 $283,738 $238,743 $240,488 $528,324 Year 6 Year 7 Year 8 Year 9 Year 10 2018 2019 2020 2021 2022

TOTALS $1,190,411 $269,948 $160,479 $300,455 $163,705

4.1.4 ‘Rent to Own’ Model One possible model is that the system’s owners pay a monthly fee, but at the end of the specified period they own the system and it is their responsibility after that. However how spare parts are sourced will need to be identified. During the rental period, the maintenance technicians are employed by MEC, but then they are dismissed after the rental period is completed (refer Section 5.6).

In ‘rent to own’ models applied in other countries, the monthly fee is based on the total costs of the installed system. Some also include a replacement battery at the end of the period and replacement of other equipment. However in general they have been implemented under some donor program where there is a subsidy component in the initial purchase price.

Since the batteries should be replaced after 7 to 10 years, a suitable period for the ‘rent to own’ model would be 7 years. However since the initial installation was completely subsidised, that is paid for by grant money, should the initial costs be included in the ‘rent to own’ model? If it was where would the money go? Technically if 100% repayments were made, then the government would recover all the costs of the systems but these were all from a grant?

The first analysis assumed the worst case, that is the monthly fee therefore includes: all the initial equipment costs; a new controller and inverter after 5 years; a new battery at end of 7 years; MEC service fee of $1 per month and the wages for island technician over the 7 years. It does not include the initial installation labour costs.

Similar financial assumptions as specified in Section 4.1.1 are used with the exception that the initial module cost is based on the REP5 contract for Ailinglaplap which is $836. It is expected that those modules recently tendered for North‐REP were cheaper and if this model is adopted then the fee should be based on the actual costs of the equipment used on each island.

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The monthly fee for the ‘rent to own’ model is $53.48 per month for 7 years.

Since the initial equipment installation was funded by a grant and if it was assumed that the rent to own model only included: the replacement cost of the controller and inverters after 5 years; the batteries after 7 years; MEC service fee of $1 per month and the technicians wages for the 7 years then the monthly fee required would be $19.39.

4.2 School and Community systems

4.2.1 Tariff for replacement and maintenance An analysis of the required tariffs was undertaken based on the costs assumed in a spread sheet originally developed by the PMU for REP5.

Table 19 shows the assumptions for maintenance hours for the six schools and it was assumed 60 litres of distilled water would be required per year.

Table 19: Maintenance Hours for Schools

Toka Ebon Namorik Mejit Tabal Aur Total Unit Total array size 9180 10710 13260 9180 6120 6120 54570 Wp Monthly maintenance hrs 10 10 10 10 10 10 60 hrs Six month maintenance hours 3.5 3.5 3.5 3.5 3.5 3.5 21 hrs Total yearly maintenance 127 127 127 127 127 127 762 hrs 5 year maintenance hours 15 15 15 15 15 15 90 hrs

The analysis was based over 10 years and assumed that the batteries, inverters and controllers would be replaced every 10 years.

The assumed cost and inflation figures used in the analysis were:  Cost of batteries : $201,000  Removal and replacement work : $20,000  Cost of inverters : $110,000  Cost Charge Controllers : $20,000  Shipping : $50,000  Maintenance labour : $2 per hour  Inflation on labour : 1%

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 Inflation on equipment and other charges: 3%  Interest on tariff received : 3%  Distilled water :$5 per litre

Table 20 shows the Tariff required for the 10 year scenarios based on the percentage of design‐kWh used.

Table 20: Tariff to recover Battery/inverter /controller replacement and Maintenance

% of Design kWh Tariff $/kWh used 100% $1.14 90% $1.26 80% $1.42 70% $1.63 60% $1.90 50% $2.28 40% $2.85 30% $3.79

4.2.2 Ministry of Education‐ Replacement Fund The Ministry is currently applying the same tariffs as in Majuro which was $0.36 per kWh and it was increased to $0.50 per kWh in April 2012. The MOU with MEC states that the Ministry is responsible for the replacement of failed equipment.

Based on the costs of the original equipment and allowing for 3% inflation and 3% interest on funds deposited, if the batteries, inverter and controllers are all replaced at the end of 10 years, then the total cost for the six schools will be approximately $538,910. This represents $3,918 per month that needs to be allocated for replacement of this equipment in the future. No allowances have been made for interest earned if the fund is established.

4.2.3 Is the tariff being charged covering maintenance? The tariff is fixed, as in Majuro, however the maintenance as detailed in Table 19 is fixed and independent to the actual kWh used.

Table 21 details the revenue raised each month compared to maintenance costs based on the percentage of design kWh used. The design kWh used is 118.714 kWh per day (3561 kWh per month) based on original REP‐5 designs. The table 30 shows the revenue raised for the previous rate of $0.36 per kWh while table 22 shows the new rate of $0.50 per kWh

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The cost of the technicians is included under this SHS program, however this table demonstrates to MEC whether they are theoretically recovering costs for the maintenance being undertaken. Assuming the schools are using at least 30% of the output available, MEC is covering the maintenance costs when the rate was $0.36 per kWh. Assuming the schools are using at least 20% of the output available, MEC is covering the maintenance costs with the new rate of $0.50.

Table 21: Comparison of Revenue to maintenance Costs (previous Rate of $0.36 per kWh)

% of Design kwh used Revenue per month Maintenance costs per Profit/loss month 100% $1,282 $344 $938 90% $1,154 $344 $810 80% $1,026 $344 $682 70% $897 $344 $554 60% $769 $344 $425 50% $641 $344 $297 40% $513 $344 $169 30% $385 $344 $41 20% $256 $344 ‐$87 10% $128 $344 ‐$216

Table 22: Comparison of Revenue to maintenance Costs (New Rate of $0.50 per kWh)

% of Design kwh used Revenue per month Maintenance costs per Profit/loss month 100% $1,781 $344 $1,437 90% $1,603 $344 $1,259 80% $1,425 $344 $1,081 70% $1,246 $344 $903 60% $1068 $344 $725 50% $890 $344 $547 40% $712 $344 $368 30% $534 $344 $190 20% $356 $344 $12 10% $178 $344 ‐$166

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 32

5.0 Findings and Conclusions 5.1 Fee for Service vs Rent to Own The existing program is based on a utility model (‘fee for service’ model) for a period of 20 plus years. That is the system owners will continually have to pay a fee to be able to use their system for lights and small appliances. Is this the best long term model or would it better that the people rented the systems so that they paid the system off and then owned the system at the end of a specified period?

Some homeowners might view the disadvantages of the existing program being that they do not own their system and they will pay their fee technically for ever. A problem with the current utility model is that if the fees are not paid, which is what is happening at the moment, the program is not financially sustainable so that government must continue to provide some subsidy for the ongoing operation of the program. Will the householders have a greater incentive to pay if they will own the system?

One advantage of the current utility model, assuming fees were paid, is that the householder only pays the fee in the same way as those on the grid do. However the big advantage of the utility model is that the systems are maintained regularly and maximum life of the system is obtained, unlike many other solar home systems installed throughout the world. The home owner does not need to worry about maintenance and replacement of equipment, again similar to those on the grid. However it must be acknowledged that they do pay more per kWh than those on the grid and they do have a limited energy supply while those on the grid technically do not (financially they might). To overcome the limited system output, larger systems could be offered in the future, but these would require some contributory funding by the system owner for the purchase of the equipment and 100% payments would have to be strictly monitored.

In the ‘rent to own’ model, the householder owns the system at the end of a specified period, often 4 or 5 years. The monthly fee will be higher (refer section 4) because the cost of the whole system must be recovered within that specified period. For some systems, it includes a new battery at the end of the rental period so that the householder knows they will not be up for any major equipment replacement costs for a few years after they fully own the system. Although this could be applied within RMI, the batteries supplied have been assumed to last 10 years, however in real life 7 to 8 years might be more realistic (refer section 4 and also 5.). In the ‘rent to own’ model, the technician’s services would still be included to ensure the systems are maintained during the rental period. At the end of the rental period, the technician would be dismissed from MEC, but could then offer his ongoing services to the householder in a private capacity. The advantage of the ‘rent to own’ model is that the owner takes ownership of the system and hopefully will be more willing to make the fee payments. If the fees are not paid, then they potentially forfeit the right to own the system. From the government’s perspective, the potential need for ongoing subsidy is removed. Indications that this model could financially work is the anecdotal evidence that there already exists privately owned solar systems on the islands which have

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 33

not been obtained through the outer islands electrification program. The exact number is unknown but in the survey undertaken by MEC of Ailinglaplap in 2006, it was found that 179 households out of 395 (45%) had their own solar system. This does indicate a willingness to own a system to meet their lighting and small energy needs.

The main disadvantage of the “rent to own” model is that after the householder owns the system, they tend not to pay for ongoing maintenance such that the system equipment does not last for its potential life. This is the responsibility of the system owner and in some countries systems do continue to operate with people making purchases of replacement equipment, e.g. Bangladesh. However the big difference between these other countries and RMI is that there are a large number of systems which means there is market for the establishment of many solar shops with technicians available. In RMI the small number of systems will never encourage solar businesses to operate on each island. The current utility model does include a technician on each island, a rent to own model would be unlikely to result in technicians always being available on each island.

Some of the MEC solar staff believes the ‘rent to own’ model is the best long‐term solution because of the issue of poor payment and the probable need for ongoing subsidy. Within R & D, the secretary, Mr Tommy Kijiner, does not believe in the ‘rent to own’ model, he believes that some of the people will think they own it from the beginning and possibly sell it before they have even made all their repayments. If a “rent to own’ model was introduced the contract should spell out the ownership issues, that is ownership of the system remains with MEC until the final payment is made.

In conclusion the alternative ‘rent to own’ model has been considered in this review, with the financial analysis of both models being undertaken in Section 4 and the actual recommendations being provided in Section 6.

5.2 Fee Collection rate is Low. Based on the excel file obtained from MEC named: “AR Detail Solar” with data up to 30th April 2012, the total amount billed to the solar systems’ owners has been $656,817.80, while the amount received has been $283,368.36. Therefore MEC is owed $378,146.60 from the solar systems’ owners and this works out at an average of $233.57 outstanding per system.

The breakdown per Atoll is shown in Table 23, while the total percentage payment per Atoll is shown in table 24. Table 25 shows a breakdown of the fees owed by the system owners broken down into 20% segments. 73.3% of systems owners still owe above 60% of their fees while only 3.8% are up to date and only 2% owe less than 20% of their fees. Out of the 61 who are up to date, 56 have actually paid in advance and show a credit. There are 187 system owners who have not made any payment, but 90 of these are on systems in Mili and have been installed in the last 12 to 24 months. Of these, only one system owner appears to have made a partial payment.

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 34

Table 23: Breakdown in Payments and Balances per Atoll

CYCLE (as specified Total Balance in data payments Due at 30 No Average base) Atoll Island/Village Total Billed made April 2012 Systems owed Ailinglaplap 1 Note 1 Bouj $140,375.70 $50,471.08 $90,490.62 424 $213.42 2 Arno Bekarej $188,890.80 $80,748.75 $109,390.09 400 $273.48 3 Aur Aur $5,310.00 $1,670.00 $3,640.00 41 $88.78 4 Ebon Ebon $51,550.00 $26,021.00 $25,699.00 103 $249.50 5 Mili Enejet $1,560.00 $0.00 $1,560.00 26 $60.00 6 Ebon Toka $6,151.50 $1,732.00 $4,419.50 85 $51.99 7 Likiep Likiep $54,622.80 $26,284.19 $29,269.61 118 $248.05 8 Mili Lukunwor $1,080.00 $0.00 $1,080.00 18 $60.00 9 Majuro Bikrin/Enemanit/Others $11,355.00 $3,185.00 $8,170.00 35 $233.43 10 Mejit Mejit $69,585.00 $32,141.90 $37,443.10 75 $499.24 11 Mili Mili $4,130.00 $85.00 $4,045.00 35 $115.57 12 Namdrik Namdrik $65,221.00 $32,720.94 $33,598.68 119 $282.34 13 Mili Mili $1,320.00 $0.00 $1,320.00 22 $60.00 14 Aur Tobal $6,520.00 $2,960.00 $3,630.00 45 $80.67 15 Wotje Wodmej $32,660.00 $15,587.00 $17,349.00 43 $403.47 16 Wotto Wotto $16,486.00 $9,761.50 $7,042.00 30 $234.73 Total $656,817.80 $283,368.36 $378,146.60 1619 $233.57 Note 1: There is a customer called “Solar Suspense” which has a credit of $3622.24

Table 24: Total payments as a % per atoll

% of payments based on billing CYCLE Atoll Island/Village amount 1 Ailinglaplap Bouj 35.95% 2 Arno Bekarej 42.75% 3 Aur Aur 31.45% 4 Ebon Ebon 50.48% 5 Mili Enejet 0.00% 6 Ebon Toka 28.16% 7 Likiep Likiep 48.12% 8 Mili Lukunwor 0.00%

9 Majuro Bikrin/Enemanit/Others 28.05% 10 Mejit Mejit 46.19%

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 35

11 Mili Mili 2.06% 12 Namdrik Namdrik 50.17% 13 Mili Mili 0.00% 14 Aur Tobal 45.40% 15 Wotje Wodmej 47.73% 16 Wotto Wotto 59.21% Average 43.14%

Table 25: Breakdown of Fees Owed

% of Fees still owed broken down into 20% segments and Atolls ≥20% ≥40% ≥60% ≥80% Atoll Island/Village 0% <20% <40% <60% <80% <1000% 100% Ailinglapla p Bouj 9 1 5 21 360 28 0 Arno Bekarej 16 8 11 57 297 4 7 Aur Aur 0 1 3 1 6 20 10 Ebon Ebon 5 2 12 36 46 2 0 Mili Enejet 0 0 0 0 0 0 26 Ebon Toka 3 0 9 6 19 13 35 Likiep Likiep 11 5 4 2 71 13 12 Mili Lukunwor 0 0 0 0 0 0 18 Bikrin/Enemanit/Other Majuro s 0 0 0 1 32 0 2 Mejit Mejit 2 2 1 63 6 1 0 Mili Mili 0 0 1 0 0 0 34 Namdrik Namdrik 9 6 5 42 53 4 0 Mili Mili 0 0 0 0 0 0 22 Aur Tobal 1 4 4 5 9 1 21 Wotje Wodmej 2 2 2 28 9 0 0 Wotto Wotto 3 2 6 13 5 1 0 TOTAL 61 33 63 275 913 87 187

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 36

The surveys undertaken in 2011 and 2012 indicated that the majority of system owners were willing to make the payments, however there were some system owners who felt that since the Government got the systems for nothing—why should they have to pay?

The payment is to be made in cash to the technicians who issue a receipt and they are then required to transfer the money to the MEC office in Majuro when the boat visits the island. Alternatively the system owner can arrange to have a relative pay for their system directly to the MEC office. The issues that make the execution of payments difficult have been written about in many other studies and reports. In summary, the issues with the method of payments on the islands include:  Not all householders have cash when the payments are due.  Not all technicians have been consistent in trying to get the payments.  The boats are infrequent and hence the people do not want to pay the technician each month if the boat is not due for a while. In interviews with the MEC and R & D staff there was anecdotal evidence that in some situations the technician is not trusted with the cash by all system owners and there have been times when the technician has used the cash before the boat has arrived. Note: The technician is supposed to provide a receipt.  When the boat has arrived at the island, the householders still might not have the cash and/or the technician is unable to collect all the fees before the boat leaves again.  Some householders do not trust the government or those on Majuro. If they pay their fees, how do they know spare parts will be available when required?  MEC is not equipped to accept payments other than cash.

Though the field surveys undertaken in the last 12 months have all indicated the willingness of the householders to pay the monthly fee, in reality only 43% of the fees have been paid to date and 73% owe more than 60% of their fees billed to date. The surveys have also shown that there is a willingness on the part of the people to pay through other mechanisms.

MEC’s role is to operate as an electrical utility providing electrical energy services and collecting payments for these services. In Majuro they have also had problems with poor payment and the introduction of user pay meters is addressing this problem. User pay meters have been installed on SHS in other projects but they have had mixed success, and particularly they have had issues in some island climates with salt in the air and high humidity. Although these meters are a possible solution in RMI, they are an added expense and are not considered in this report.

One other method for fee collection could be a commission paid to the technician based on fees received. The technician could be paid a set wage which covers only the actual maintenance based on the number of system serviced and then a commission on the actual fees collected.

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 37

The surveys have also shown that there is a willingness of the people to pay through other mechanisms, but MEC only wants to collect cash. North‐REP has started to look at the different methods of fee collection. In particular a trial in 2011 with Women United Towards Marshall Islands (WUTMI) that collects /buy handicrafts as payment for the monthly electricity fees. The handicrafts are then sold at markets where the money to pay MEC is obtained. During the survey trip in April, a number of the communities were interested in similar alternatives. Historically using copra for payments had been investigated, however at the time the problems of the irregular operation of the boat transport to match the availability of the copra and also the variations in the price of copra had led to this alternative not being actively continued. During the survey mission in April 2012, the community of Auluk (Ailuk Atoll) did suggest paying by copra through the Tobolar Copra Processing Authority and by fish through Marshall Islands Marine Resources Authority (MIMRA).

Since the payment by cash has not resulted in a high payment rate, other avenues should be investigated. The question is though: Who manages this process?

MEC does not want to be a “trader” of different commodities. The technician role to date has been to collect fees and maintain the systems; would they be interested in being a “trader”? If yes, one would suspect that they would need training in small business operations.

It was suggested that the mayors could manage the process and this was discussed in the meeting with the two mayors who naturally thought this was a good suggestion. However when this was raised with MEC, they did point out that a number of mayors have mismanaged their own operations and have been in trouble for misappropriating their own funds.

One obvious choice for acting as the “trader” would be the island shop owners, they are traders. In their day to day operations, they would be providing credit to the people on the island and collecting payment when the household owners have cash from whatever activity they are involved in. In some situations, the people would be “bartering” using handicrafts, copra, fish or other items for goods within the stores.

This discussion does indicate that alternative payment solutions should be investigated. The question is who manages this process? MEC’s role is collecting the fees but this is beyond their normal scope of work. It is R&D’s role to manage the overall program, so technically it would be their responsibility but they might need support in developing the duties of this role as “trader” co‐ordinator. Firm contracts will need to be developed between MEC and the “trader”. These must protect the program from any possible abuse by the “trader”, such as trying to charge more than specified rates. In conclusion R & D should take on the role of being the co‐ordinator of how fees are collected on each island. This would require a data base whereby for each island the different methods of payment for that island are listed and the complete operation detailed.

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 38

The simplest solution would be to co‐ordinate with the local shop owner for each island where one exists. This would just be an additional activity that they undertake in their normal operations. In the long term they could also co‐ordinate the technicians, (refer to section 5.4). The final model could vary depending on whether the “fee for service” model as currently exists continues or whether a “rent to own” model (refer section 5. 8) is introduced.

However for some (or all) islands, the solutions could be a complete mixture of payment options including:  Paying the fee in cash to a specified entity which could be a shop, technician or other suitably identified entity.  Allowing “off‐island” relatives to make payment directly to MEC in Majuro as currently happens.  Local shop collecting payments in a form they negotiate with system owner e.g. commodities, handicrafts or cash.  Having an account with Tobolar and pay by copra with Tobolar passing on payment in cash to MEC.  Having an account with MIMRA and pay by fish with MIMRA passing on payment in cash to MEC.  Establishing a handicraft co‐operative e.g. local women’s association and pay by handicrafts with cooperative passing on payment in cash to MEC.  Other suitable entity that could trade goods and services and then pay cash to MEC.

For all of the suggested payment methods, R & D must specify a maximum charge which the entity can include in the transaction for covering their expenses, but it is critical that this charge is not open to abuse by not being regulated. A 10‐20% charge would seem appropriate. For example, if the monthly fee is $15, then the “trader” charges between $16.50 and $18.

With R & D as the co‐ordinator for collecting the fees, then MEC can just maintain the role of providing the trained technicians who service the systems. The distribution of the fees is described in section 5.5.

The above discussions cover other mechanisms for payments made apart from using cash, but what if people still do not pay? Is not having other mechanisms at the moment the main reason people are not paying? The project team does speculate whether the lack of payment is a combination of two views: 1. That the systems were provided to the Government through a grant and hence why should the villagers pay? 2. The villagers are concerned that the funds will not be available to purchase replacement equipment when required.

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 39

If this is correct, then R & D and MEC need to promote the fact that payment of the fee is to cover only the cost of the replacement equipment and the on‐going maintenance of the system by the technicians and never to recoup the original capital and installation costs of the system.

To overcome the second concern, MEC must have the funds available to undertake equipment replacement when required. Considering that batteries are reaching the end of their life in Mejit and also possibly Namdrik, but funds are currently not available, the villagers concerns that funds will not be available when required could be justified. Further, that part of the fee that has been identified for product replacement must be deposited in a trust fund controlled jointly by R&D and MEC and this money is only to be used to purchase replacement parts. The trust fund must be completely transparent. MEC is paid only the portion of the fee that is allocated to technician maintenance.

MEC must also come up with a plan to recover the monies owed by the existing system owners. This could include stating a date upon which all debts must be paid or the systems will be removed. R&D and MEC must discuss this with the government, if the government does not want MEC to implement this, then the debts must be written off and the government must accept that it will be subsidising the program.

Subject to the fees being raised to a minimum of $15/month, possibly a penalty and/or discount system is imposed. The fee could be increased to a higher amount, e.g. $17 and the system owner gets $2 discount if they pay on time (or within the agreed time if it is by goods at certain periods).

5.2 Policy for non‐payment of fees. The initial cost of the systems has all been covered by grants (e.g. REP5, upcoming North REP program etc.) even though the system owner has contributed $100 as a connection fee. Therefore the only cost burden to the program, until equipment needs replacing, is the technician if the system owner does not pay their fee. It is important for any fee collection method to be successful that there is a strict policy on what happens when the fees are not paid.

Currently this outcome was to disconnect the system after 60 days of non‐payment. This has not been strictly implemented and therefore has not been successful.

With the new payment models proposed, a new policy should be introduced which might vary from Island to Island. The policy should have two parts: either  the disconnection and removal of the system after a specified period of time which should be the preferred option; or

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 40

 If the government does not want MEC to enforce the disconnection and removal of systems, then as a minimum there should never be any battery or other equipment replacement if there are outstanding fees. A policy is also required for the outstanding debts (refer 5.1 above), however if the second one is always imposed, then when someone’s equipment does fail, no new equipment should be installed until all the outstanding debt is recovered. The systems must still be serviced to protect the equipment (and hence investment)

5.3 Fees Must Reflect Actual Costs or Government Must pay subsidy The reduction in fees in 2009 combined with the level of outstanding fees and the ongoing low rate of fee payment result in the programme requiring ongoing subsidy from the government if it is going to be sustainable. This review has: discussed alternative ways which the fees could be collected instead of the current cash method; stated that a strict fee payment policy must be introduced and determined the value of the monthly fee required to make the program sustainable, however if these are not implemented then the Government of Marshall islands will need to provide an ongoing subsidy. Projections of this subsidy are detailed in section 4.

Based on the utility model l (fee for service model) continuing, Section 4.1, showed that a variety of fees that should be charged for different scenarios. As a minimum, a monthly fee of $15.55 must be charged. This fee comprises a maintenance charge of $4.30 and the equipment replacement charge of $10.25 and an MEC service charge of $1.

The fees above are based on 100% fee collection rate so that is why it is critical that a non‐fee payment policy is introduced so no extra costs are incurred that are not covered by fees

If the government does not want to charge these amounts, then they must commit to providing an annual subsidy to ensure that the program is sustainable. In the early stages of the programme, the Government was providing MEC with the annual subsidy required to operate the programme. This has not been paid now for many years and, at the moment, the fund within R&D for the programme has no money.

The question is where will this subsidy originate?

Subsidies are already being applied within MEC. Jaluit (150 customers) and Wotje (116 customers) power systems receive a subsidy to operate at the same tariff level as Majuro. The existing subsidy for these two power systems is up to $900,000 per year; this is greater than the projected subsidy of $778,754 ( fee $5 per month with 40% collection rate: refer section 4.1.2) for the 3000+ SHS which are servicing more people than the $900,000 subsidy in place for Jaluit and Wotje.

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 41

Between October 2010 and September 2011 the total generation in Majuro was 62,639 MWh. Assuming 25% losses between generation and the billed customers, the estimated billed generation is 46,979.25 MWh. If a levy of $0.01 was added to all the accounts this would raise $469,792 per year, while if it was $0.015 it would raise $704,688 per year. (Note this does not take into account the power sold by Ebeye through Kajur).

One possible option would be to introduce a “green power scheme”. In countries such as Australia, customers pay a premium for their electricity on a $ per kWh basis, or an allocated portion of their electricity say 25% or 50%, and the utility undertakes that amount of energy is generated by a renewable source. RMI recently had a 205kW system installed at the hospital, and it likely that more grid‐connect PV systems to be owned by MEC will be installed in the future. The existing system would produce approximately 282,838 kWh per year. If sold for an extra $0.05 per kWh, this system would raise $14,142, which a long way from the dollar total required but, at least it would be some contribution to the subsidy. To raise the amount of $500,000 would require 7.2MW of PV, this is very unlikely to happen in the near future and if that amount of PV was installed, many other issues would need to be addressed. It would also be extremely difficult to sell that much extra green power.

The installed grid connected PV system will save some fuel, but it is too early to estimate the exact saving because the small amount of grid penetration will not lead to generators being turned off during the day.

Thailand funds their renewable energy programs through a small tax being applied to all imported fuel. The quantity of existing fuel imports for RMI is not known by the project team however it is anticipated that it would only need to be a small per litre tax to raise sufficient funds to meet the projected value of the subsidy.

In conclusion there are two methods for raising the subsidy: tax on fuel and a cross subsidy within MEC. The easiest administrative method is the cross subsidy with the existing MEC customers in Majuro. Although it will be politically sensitive to increase the cost of electricity, it does make sense with respect to the fact that MEC would then be servicing all the customers in RMI with either grid power or SHS. Currently the customer base in Majuro is approximately 3000 and once the new SHS are installed the number of customers with SHS will be a similar number of customers. So adding only $0.015 (or more) per kWh to 3000 customers to provide a service to an additional 3000 customers does appear appropriate and fair. However this subsidy would be fair only:‐

 if the system owners were paying the fees specified, and  if the fees paid did not cover the total cost of the program, and  if the subsidy covered the extra costs.

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 42

5.4 Are Full Time Technicians required? The technicians are paid even if they are not collecting fees and/or undertaking any service work and are therefore an ongoing fixed overhead (cost) for the program. Table 26 shows the number of systems per technician and the cost of the technician per system each year. The information was obtained from the Excel spread sheet provided by MEC titled: “Technicians SHS and locations”. As can be seen the average cost for the technicians per system per year is $45.49, but it does vary from $21.49 to $192.59.

Table 26: Annual Technician Cost per System

Total Yearly Annual Cost Per No of No. of Technician system for Atoll Village technicians systems Fee technicians NAMDRIK 1 121 $ 2,600 $ 21.49 MEJIT 1 80 $ 2,600 $ 32.50 Wodmej 1 42 $ 2,600 $ 61.90 Wotho 2 27 $ 5,200 $ 192.59 Likiep 2 110 $ 5,200 $ 47.27 Ebon 2 100 $ 5,200 $ 52.00 Arno Ine 2 95 $ 5,200 $ 54.74 Arno Rearlaplap 2 118 $ 5,200 $ 44.07 Arno Ulien 1 45 $ 2,600 $ 57.78 Arno Arno 2 72 $ 5,200 $ 72.22 Arno Bikarej/ Tutu 1 39 $ 2,600 $ 66.67 Buoj/ Jabwon Enewe/Angkan Ailinglaplap Airok/Jabwon 2 223 $ 5,200 $ 23.32 Woja 2 101 $ 5,200 $ 51.49 Jeh 2 118 $ 5,200 $ 44.07 Aur Aur 1 40 $ 2,600 $ 65.00 Tabal 1 40 $ 2,600 $ 65.00 Mili All locations 1 115 $ 2,600 $ 22.61 TOTALS 26 1486 $ 67,600 $ 45.49

Based on a rate of one technician per 80 to 120 systems, Table 27 provides a predicted estimate of the number of new technicians that will be selected following the installation of new systems in the North‐ REP program. The maximum does allow for the ‘2 technicians per island’ policy to be applied.

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 43

Table 27: Estimated Number of New Technicians

Atoll/Islands Estimated Number Estimated Number of Technicians of systems Minimum Maximum Ailuk 137 2 2 Enewetak 120 1 2 jabat 29 1 2 Jaluit 228 2 3 Kwajalein (Ebadon) 24 1 2 Kwajalein (santo) 142 2 2 Lae 47 1 2 Lib 29 1 2 Maloelap 215 2 3 Namu 198 2 3 Rangelap‐Majetto 41 1 2 Ujae 104 1 2 Utrik 101 1 2 TOTAL 1415 18 29 Note: maximum does allow 2 per Island

Table 28 then provides a prediction of the annual average technician cost per system. This will then be similar to the current situation. So the average will be between $33.07 and $53.29.

Table 28: Annual Technician’s Costs per System for Proposed North‐REP Systems

Estimated Estimated Number of Annual Cost Per system for Atoll/Islands Number of Technicians technicians systems Minimum Maximum Minimum Maximum Ailuk 137 2 2 $ 37.96 $ 37.96 Enewetak 120 1 2 $ 21.67 $ 43.33 jabat 29 1 2 $ 89.66 $ 179.31 Jaluit 228 2 3 $ 22.81 $ 34.21 Kwajalein 24 1 2 (Ebadon) $ 108.33 $ 216.67 Kwajalen (santo) 142 2 2 $ 36.62 $ 36.62 Lae 47 1 2 $ 55.32 $ 110.64

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 44

Lib 29 1 2 $ 89.66 $ 179.31 Maloelap 215 2 3 $ 24.19 $ 36.28 Namu 198 2 3 $ 26.26 $ 39.39 Rangelap‐Majetto 41 1 2 $ 63.41 $ 126.83 Ujae 104 1 2 $ 25.00 $ 50.00 Utrik 101 1 2 $ 25.74 $ 51.49 TOTAL 1415 18 29 $ 33.07 $ 53.29

Table 29 shows an estimate of the total costs for the technicians since the Namdrik Atoll systems were updated in April 2004. Based on the assumptions stated, the total cost estimated is $298,783 which is slightly higher than the $283,368.36 fees paid to date.

Table 29: Estimated Cost of Technicians

Number of date Months rate Per Atoll Village Names Commenced Note 5 Month estimated Cost Tech 1 Note 1 Apr‐04 36 $ 216.67 $ 7,800.00 Tech 1 Note 2 Apr‐04 63 $ 216.67 $ 13,650.00 Liton NAMDRIK Beasa Aug/24/2009 29 $ 216.67 $ 6,283.33 Edwin T. MEJIT Emmius Oct/17/2005 79 $ 216.67 $ 17,116.67 Anton Atalaia Note 3 Oct/17/2005 60 $ 216.67 $ 13,000.00 MEC staff Wodmej in Wotje Jan/ 01/2007 note 6 Mikat Kattil Jan/01/2007 64 $ 216.67 $ 13,866.67 Lautona Wotho Ainrik Jan/01/2007 64 $ 216.67 $ 13,866.67 Bennik Hazard Nov/05/2007 54 $ 216.67 $ 11,700.00 Leroy Likiep Capelle Nov/05/2007 54 $ 216.67 $ 11,700.00 Anmej Ebon James Aug/27/2007 56 $ 216.67 $ 12,133.33

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 45

Johnny Jeban Aug/27/2007 56 $ 216.67 $ 12,133.33 Helbin Botla Jan/14/2008 52 $ 216.67 $ 11,266.67 Roby Ine Kijenmej Jan/14/2008 52 $ 216.67 $ 11,266.67 Johnny Binat Mar/01/2008 50 $ 216.67 $ 10,833.33 Brnadon Rearlaplap Jim Jun/25/2008 46 $ 216.67 $ 9,966.67 Donald Ulien Leon Mar/01/2008 50 $ 216.67 $ 10,833.33 James anton Feb/04/2008 51 $ 216.67 $ 11,050.00 Wilton Arno Joream Mar/01/2008 50 $ 216.67 $ 10,833.33 Willor Arno Bikarej/ Tutu William Feb/04/2008 51 $ 216.67 $ 11,050.00 Lee Buoj/ Jabwon Horiuchi Sept/01/2008 44 $ 216.67 $ 9,533.33 Carl Belele Enewe/Angkan note 4 Sept/01/2008 36 $ 216.67 $ 7,800.00 Hervin Airok/Jabwon Timothy Sept/10/2008 44 $ 216.67 $ 9,533.33 Jorkan Tiban Sept/01/2008 44 $ 216.67 $ 9,533.33 Isahmael Woja Rang Sept/01/2008 44 $ 216.67 $ 9,533.33 Manneth Horiuchi Sept/01/2008 44 $ 216.67 $ 9,533.33 Ebin Ailinglaplap Jeh Andrike Sept/10/2008 44 $ 216.67 $ 9,533.33 Aimon Aur Saimon Oct/12/2009 31 $ 216.67 $ 6,716.67 Freshman Aur Tabal Carland Oct/12/2009 31 $ 216.67 $ 6,716.67 Not formally appointed Mili All locations Chutaro yet. TOTALS $ 298,783.33 Notes: 1: One tech resigned at some stage it is assumed he worked only 36 months (3 years) 2: One tech was dismissed; it is assumed that this person worked until the replacement was selected 3: This tech was dismissed‐from discussion it appeared in recent years so assumed he worked 5 years.

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4: This tech was dismissed so assumed he worked 3 years. 5: The months have been based on including the month started (unless last few days of month) and up to end of April 2012. 6: The costs for the MEC staff have not been included.

The policy of having permanent, paid technicians on the islands is an excellent policy and addresses the issue that has occurred in many failed SHS programs in which the systems have not been maintained and they have subsequently failed. However, as shown above, the technicians are costing an average of $45.49 per year per system and the range for this cost is from from $21.49 to $192.59.

The question must now be asked: is this a fair price which must be paid by the system owner to make the outer islands electrification program financially sustainable? Or should having the technician available to make the program technically successful be partly/wholly paid for by the government as a cross subsidy in the same way as other services might have a cross subsidy?

So firstly, what is a fair price for service? At the moment in addition to maintenance, the technician is expected to collect the fees, so if this function was being successfully achieved, then perhaps it is a fair price. However since the fee collection is not happening successfully, what is the technician doing? The batteries are sealed, so there is no need to check the specific gravity or water (electrolyte) levels in the battery, but a battery that remains in a low state of charge for a long period results in permanent damage to the battery and dramatically reduces its operating life. Checking the battery voltage monthly will allow the technician to determine if the battery is in a low state of charge and, if necessary, implement a strategy to increase the state of charge of the battery. During the visit the technician should be inspect the rest of the system to see: if there is any damaged cables; that the controller is operating correctly ; whether there is dirt on the modules; are there any trees starting to cause shading and arte there any loose connections. This inspection work would only take approximately 1 hour per system. The total time is then 12 hours plus travel per year per system. The technicians are also on‐call if there is any problem with the system and this is a service which is being provided within this “fee for service” model, so the technician must be paid by the program when he attends any call‐out. If it is assumed that there is only one call‐out per system per year, then this would add another say 2 hours per system per year, but in reality with proper maintenance this call‐out should not be required unless it is equipment failure. Therefore the total technician time per system per year would be 14 hours plus travel which represents $28 per year based on the current $2 per hour. A fair price would therefore be a technician’s fee of $28 to $30 per system per year, although one could argue the existing payment of $45 is not too bad.

Therefore it now becomes a management issue. The breakdown by Islands showed the rate varied from $21.49 to $192.59. The $192.59 rate is not acceptable and this rate occurs on an island with two technicians with only 27 systems. So the objective of having 2 technicians on an island in the event one

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is away is a good policy, however it does not make financial sense when the number of systems is so small. In studying table 15, it can be seen that having 1 technician per 80 to 120 systems provides an annual payment rate for the technician of between $21.66 and $32.50 which is adequate. When an island only requires one full time technician, a second person could be trained as a “back‐up” technician who is paid for doing the work when the other technician is not on the island/atoll.

One possible option would be to no longer have the technicians as ‘full time’, and therefore they would not be an ongoing overhead for the program. The technicians would then only be paid when service is undertaken and that system owner pays them directly either in cash or in product (barter system). That is, they therefore become a private business person selling their services to the householder and this does have some merit because it already works in some countries such as India. It also has merit because, in the islands that currently have systems (or did not have systems), the individual householders (refer section 5.8) had bought their own small solar systems and installed them themselves, hence a market for a local service technician has been proven. However in India and those other Islands where systems currently exist, the systems are owned by the householder not a third party such as MEC.

The problem with having the technicians not being contracted and controlled by MEC on a full time basis and only being paid by the system owner when undertaking actual service will result in very little or no maintenance being undertaken. The householders would only call the technician when there is a problem, and will typically not want to pay the technician when he/she comes to undertake the required maintenance. From a program and MEC point of view, the investment in the equipment, particularly the batteries, is being compromised because no maintenance is being undertaken. The end result could be failed systems and therefore this program will become like many other failed SHS programs around the world. The technician not being paid regularly produces no incentive to respond to calls, particularly if the householder does not pay him, which would occur at times, and therefore no incentive to learn more about the systems.

Another option if the technicians did become private businesses, is that they could then work for the entity, e.g. small shop owner or Tobolar, which is collecting the fees for that island. The maintenance and call out to systems could then be coordinated by the entity similar to how private solar companies operate in other countries. The maintenance and service charges are paid directly to the store owner (or other entity) and the technicians work for them on a permanent or casual basis. However the small shop owners or other entity does not have any ownership of the system and will not necessarily have any interest in improving the skills of the technicians. Even with this arrangement where the funds are collected by another entity, not the technician, the technician should still be employed by MEC.

In conclusion, although there is merit in having the technicians as private businesses and not full time employees of MEC, it must be stated that technically the program has been a relative success. Systems

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installed over 7 years ago are still working and this can be credited to having technicians on the islands. The technicians must remain working for and being controlled by MEC.

The schemes should be managed so as to reduce the average technician fee per system, by having a technician to system ratio of 1:80 ‐ 120 systems. Where there is insufficient system numbers to warrant two technicians, then an alternative technician should be selected and trained who is available when the other technician is off‐island. This alternative technician is only paid when the other is off‐island. On smaller islands where the number of systems is less than 80, then one full time technician should be hired and it is then understood that the costs on that island will be proportionally higher than those on some of the other islands.

One other option with respect to the technician’s fees is to have a set fee for every system serviced by the technician. Therefore each technician is paid in accordance to the number of systems they are servicing and not a set fee of $50 per week independent of the number of systems. As calculated above this could be $30 per year per system.

Unfortunately the review team had hoped to interview some of the outer island technicians. The short time frame for the onsite visits did not allow for travel to any of the outer islands. Communications is via SSB radio and the project team felt that it would be difficult interviewing technicians via this method.

5.5 School Systems The kWh charge currently being applied to the schools is the same as that charged in Majuro and only covers the cost of maintenance of the system (refer Section 4). The MOU states that the replacement of equipment is the responsibility of the Department of Education. As calculated in section 4, based on the original purchase price the schools will require at least $538,910 to replace the batteries, inverters and controllers when this is required. This replacement is expected within 7 and 10 years, which represents an annual allocation of $53,891 for replacement in 10 years.

It is easier if the Department allocates the money annually for these equipment costs and puts the money aside in a fund, so that when the new batteries are required the funds are available. However in general this is not undertaken and education department (and similarly with health departments for their systems) need to find the money when the systems fail.

In the meeting with the Department, it appeared that nothing as yet had been put in place for allocating funds for replacement. They had received a bill from MEC with respect to energy used to‐date but the indications were that the bills had not been paid because they had not made an allocation in their budgets. This is unusual as the systems were installed 3 years ago. The review team requested a copy of the MOU and any relevant records, but at the time of writing none was forthcoming.

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During the meeting with the department they did comment that the systems were larger than were currently required. This was mentioned in the REP5 review, however investigation showed that the systems were originally designed based on a list of equipment that the Department staff then provided to the REP5 Project management team. A lot of that equipment has not been installed and this is the reason the systems are underutilised. This is always a problem when a new system is going into a school or any building which currently does not have any electrical appliances. The design can only be undertaken on what equipment/appliances are expected to be there. It should be noted that it is good design practice that systems without any method of charging batteries besides the solar array should be oversized by 30%. This helps provide better charging of the batteries which should result in longer battery life. In conclusion for future school systems, the equipment/appliances should possibly be purchased, or at least prescribed, first and the system then designed (with 30% oversize) based on these actual appliances/equipment purchased plus a provision to allow for some growth.

The discussion with the department highlighted the benefits of the systems to the school and the local community. These included the potential for the schools to become the local internet centre for the island, providing a service to the community. The school could install an internet connection and computers that can be used by the students during the day and then by the island residents during the night and weekends. The schools could charge for these services which would cover the cost of the internet service but also be used to contribute to the equipment replacement fund. However, it is important that this level of computer use does not lead to the power system being overused and damaging the batteries.

Once the internet is established at the schools, they would be eligible for the ‘computers for schools’ program.

Being connected to the internet also allowed the department and the schools to:  Have professional development days and staff meetings online;  Allow the exam papers to be transmitted via e‐mail instead of relying on the boats; and  Have access to more learning material that is available online.

Although the review team did not interview any island technicians, the review of the Ailinglaplap REP5 project undertaken by the Project Management Unit in December 2009 did describe the service being undertaken on the school systems. The technician would take specific gravity readings weekly. Although this is good to be done, once a month is typically what is required with these types of systems. It was estimated that 60 litres of distilled water will be required annually for these systems, which figure will increase as the batteries get older. Also identified was the need for the technician to reset the controllers, so that the controllers will equalise the batteries correctly: this will have to be included in the training described in section 5.13.

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5.6 Replacement of Batteries In the original 20 year Income and Expenditure analysis undertaken in 2006, it was estimated that the batteries would be replaced every 10 years. A study of the batteries used in the Ailinglaplap project found that they had a cycle life of 1000 cycles down to a depth of discharge of 80%. The data sheets did not have information on the cycle life for only 20‐25% depth of discharge per day, but a comparison with other batteries would indicate that the number of cycles for this would be between 2500 (6.8 years) and 3000 (8.2 years) cycles. Note that the number of cycles does decrease in hotter climates such as RMI and therefore should always be installed in the coolest location available with good ventilation.

Some of the batteries in Mejit are starting to fail and they would be between 7 and 8 years old.

Replacing batteries as they fail is a costly procedure because it relies on the continuous purchase of small quantities of batteries as required. The cost of transport to RMI and then onto the outer islands would add to the cost. It would be more cost effective to purchase a quantity of batteries as spare parts that are ready for use as batteries fail. This would mean keeping batteries as a stock item and this would require a program of ‘refresher’ charging because of self‐ discharge.

Better battery management for these types of programs is to plan the replacement of all the batteries on an island after a specified period of time. Although it would be ideal to wait the full ten years as used in the initial cost analysis, perhaps the replacement at 7 or 8 years would be more realistic.

Replacing all the batteries on an island at the one time has the following benefits:

 Allows future planning for when batteries will be replaced and a tender can be organised to obtain the best price at that time.  Helps with budget planning, forward knowledge of these expected costs and when they will be due.  Allows for battery recycling. The new batteries can be taken to island at one time and all the old batteries can then be returned to Majuro for disposal at the one time. This does increase the potential for the batteries to be sold for their scrap lead, however the freight from Majuro to the nearest site might be prohibitive.

5.7 Product Quality The review of the SHS installations in Ailinglaplap under the REP5 programme undertaken in December 2009 indicated that at that time over 60% of the CFL lights had failed and that controllers were failing. It is understood that the controllers were replaced under warranty and new lamps were purchased (from a different supplier) and these were sold/made available to the homeowners for purchase. It is understood that a contributing factor to the controllers failing was that they were not installed in

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accordance with manufacturer’s instructions such that there was no open space above and below the heat sink. In addition the box is mounted on the pole and exposed to the sun and thereby exposed to temperatures above ambient.

The issue of the failed lamps during the REP5 Ailinglaplap SHS projects emphasises the need to ensure any product purchased is a quality product and it is installed in accordance with manufacturer’s requirements. In hot humid locations such as Marshall Islands consideration should be given to the location of the equipment.

Although all tenders have a ‘technical’ and a ‘price’ section, when such tenders are evaluated, it is important to note that quality products might not be selected because it is the cheapest price that is selected. Equipment such as solar modules and batteries has published standards that can be used as a basis to select the most suitable products. However in the case of DC lamps, although work is being done in this area, there are no particular standards which can be applied. The selection of any product must be undertaken only when the vendor can provide references that the equipment has been used for 2‐3 years successfully in other countries and preferably in similar climatic conditions.

Any batteries proposed for selection should be checked against specific information on the actual cycle life of the batteries being offered. In the tendering process, experience has shown that some batteries offered can be cheaper than others, however after a full analysis of the comparative cycle life is done, the cheaper batteries have a much lower cycle life and therefore the replacement time for these batteries would not be the same as that originally estimated. It should be noted that within RMI, the cost of replacing and installing batteries plus removing the existing batteries on the outer islands is very expensive. Batteries should always be selected with the maximum lifetime technically available. The tender for North‐REP systems has completed and the review team has not been able to obtain information on the equipment being offered to allow an analysis of the product life.

5.8 List of Equipment To manage the ongoing maintenance of the systems, it is critical that there is a data base listing all the equipment located at each of the installations. For the sake of spare parts, it would be advantageous if all the systems were identical. However since the systems have been installed under various funding programs via tenders, this is not possible; although it would be good to keep each island’s system equipment as similar as possible so the local technician can service the maximum number of systems with a minimum range of spares.

5.9 Transport and Communications The difficulty with transport between the Islands and the use of SSB radios for communications was identified as a major issue for the outer electrification programme, however there is no easy solution because both of these issues are outside of the control of R & D and MEC.

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The technicians are required to make contact once a week. It is appreciated that in the beginning this was probably formalised by MEC, it is time to review the communications procedures to determine how best to make it work. This might include having a payment system for guaranteeing the use of the SSB radio network at specified times.

It is understood that some of the islands are getting telephones while those with school systems could then incorporate the internet and therefore ‘voice over internet’ (VOIP) solutions to improve the communications between the island technicians and the MEC staff in Majuro. The timeline for this is unknown and unfortunately with respect to communications there is no real solution.

A similar situation exists with the transportation: the current programme of sending spare parts to the technicians will continue to rely on the existing boats and air transport. Since MEC will now have over 3000 customers in the outer islands, having their own boat to service these customers could be considered, but one would expect that it would be cost prohibitive for this program. The boat potentially could be used to transport the MEC technicians regularly to the outer islands, take spare parts and also provide on‐going technical training to the island technicians when onsite.

5.10 Training There are currently 25 Island technicians, with one more about to be appointed, and over the next 2 years an additional number of 18 to 28 are expected to be appointed. Assuming the higher number, there will be approximately 54 island technicians plus the technicians located in Majuro.

5.10.1 SHS System Training The island technicians have all had basic training at the time of installation, but on‐going training is required.

In October 2011 the Pacific Region’s Renewable Energy & Energy Efficiency Training Competency Standards Advisory Committee with associated Technical Committees were formed. These committees are developing task analyses (competency standards) for training programs throughout the Pacific region. The objective is to have consistency in the material being taught in training programs throughout the Pacific region. These task analyses are similar to those adopted by ISPQ and IREC in the USA and have some similarities to the Units of Competency used in the National training framework in Australia/New Zealand.

Once the task analysis for SHS installation and maintenance technicians is completed, then training courses should be organised for these island technicians. The course material will be required to be translated into Marshallese. One of the technicians located in Majuro could then be trained as the trainer or this could be undertaken in partnership with the College of Marshall Islands or any other appropriate training cebntre. The selected trainer must be able to speak Marshallese. In technical colleges the best trainers are those who have field experience in the specific field of training, and this is

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the reason for the suggestion that one of the technicians in Majuro should become the trainer, but the individual must also have an interest in being a trainer. However for the development of long term training capacity, the training should be co‐ordinated with a training institute such as College of Marshall Islands or similar.

These types of training courses typically are 1 to 2 weeks in length and would be conducted either in Majuro or on a number of the islands. Because of the difficulty of transportation, the actual logistics would need to be determined. One would anticipate that a number of courses would need to be conducted to overcome the transportation issues.

Short refresher training courses should be developed. These should then be held at least once every year. It should be the responsibility of the Solar Engineer to co‐ordinate the initial training courses and the on‐going refresher training. A yearly schedule should be developed and implemented. This could be co‐ordinated with the training entity selected to conduct the training..

5.10.2 School systems Under a separate contract which GSES Micronesia developed for North‐REP, a maintenance and operation training course for the school and clinic systems installed in FSM under REP5. The course was conducted in March 2012 and the long term intention is that the College of Micronesia will use the material to conduct future courses. This course should be modified to suit the systems that have been installed in RMI and again the training co‐ordinated with either the College of Marshall Islands or another appropriate training entity.

If required, the course material should be translated into Marshallese. A course should then be organised to be conducted for those technicians currently looking after the existing systems installed under REP5. Once the new school systems are installed under North‐REP, the same course should then be conducted for those technicians who will be maintaining those schools.

Ideally the training courses should be conducted by the Majuro technician nominated to be the trainer; however initially it might be better if the first course was conducted by an experienced trainer and the technician does that course themselves. The initial course could be viewed as a train the trainer course for that technician.

Note: USAID currently has a programme working with Arizona State University to support the development of training centres in the Pacific islands. At this point of time it is anticipated that they will conduct a ‘train the trainer’s course for trainers in the next 6‐9 months. These courses would be based on the task analysis being prepared by the Renewable Energy & Energy Efficiency Training Competency Standards Advisory Committee. The course will possibly be held at USP in Suva but the program will cover the expenses. The trainer selected for the above identified training requirements should possibly attend this proposed ‘train the trainer’ course.

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5.11 Ministry of R & D staffing levels The R & D staff has responsibilities across all sectors of energy planning in RMI. It is their responsibility to liaise with communities to facilitate the collection of fees by MEC and also to help plan the new systems going in. Over the next 2 years, approximately 1500 systems will be installed which will result in over 3000 systems being installed and fees to be collected. Though it will be MEC’s responsibility to maintain the fees and collect the fees, R & D must continue to manage the overall program. During discussion, the R & D staff indicated that they were under‐resourced. The issue is whether they are under‐resourced or require some additional support and training during the phase when the new systems being installed.

6. Recommendations 6.1 Models for System Ownership The current model of supplying solar home systems under a utility model (‘fee for service’ model) helps to achieve technical sustainability for the systems. However this model has not been financially sustainable and will require government subsidy if it is to be sustainable.

During this review, a ‘rent to own’ model has been considered and for this reason, recommendations have been developed for the two possible models:

Option 1: Utility (“Fee for service” Model)

Option 2: ‘Rent to Own’

The utility model has resulted in systems that have lasted over 7 years and is suited to the RMI situation with a small number of systems scattered over numerous islands, which situation is difficult to be serviced by private enterprise in either a ‘rent to own’ or sales model. For these reasons the project team does recommend that it is continued.

However it is appreciated that if the subsidy is not forthcoming from the government, then the whole program is unsustainable and a ‘rent to own’ model might need to be introduced. The ‘rent to own’ model has been recommended because some people might be more willing to pay the monthly fee if they will own the system

For this reason, the recommendation including both models has been developed.

This should be offered as an option to determine how many people would prefer to own their systems in the future. The ‘rent to own’ model should be based on 7 years’ duration, with a new battery installed at the end of the 7 years and either the controller replaced during that period or a new controller

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provided at the end of the 7 years. If this model is preferred by the end‐users than it could be implemented but if there is no interest then the fee for service model should continue.

If the rent to own model is implemented then:

 Supply paths for spare parts will need to be identified either through MEC or private enterprise for the spare parts.  Training of end‐users must be undertaken during the rent to own period.

The project team believes that only one model should be adopted, because it will be administratively difficult to operate both models. However the ‘rent to own’ model could be trialled as an option on one of the new islands receiving systems under NorthREP to determine village’s acceptance of this model.

In the following recommendations, any differences between the utility and rent to own models are listed separately under the specific recommendation.

6.2 Collection of Fees 1. R & D with the support of North‐REP continues to investigate the various methods of island communities making payments through other means apart from cash, but R&D would need to take on a full co‐ordinating role to do this.

The process would be to develop a table which lists each island, and details the various methods for payments being undertaken within each island. This would require visiting every island where systems are installed or planned to be installed to identify the following:

 Is there an island shop which could be used for collecting the fees?  Does Tolobar have a representative on the island and would it be feasible to collect copra as payment?  Would using handicrafts as payments work and how would it be co‐ordinated?  Are there any other commodities that could be used?

For a payment method to work which uses commodities, it would require a lot of communication and co‐ordination. North‐REP and R & D need to determine whether they have the human resources to undertake this role during the currency of North‐REP. If not, it is recommended that a full time person is appointed for a short term contract with the sole task of establishing all the payment mechanisms for each of the islands. Once this summary is established, it can then be handed over to R & D for them to manage but it will have to remain flexible because circumstances will change.

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2. MEC with R&D review whether a commission is paid to the technician based on fees received. The technician could be paid a set wage which covers only the actual maintenance based on the number of system serviced and then a commission on the actual fees collected.

3. A late fee penalty or a discount for payment on time is introduced.

4. R & D and MEC promote the fact that payment of the fee is to cover only the cost of the replacement equipment and the on‐going maintenance of the system by the technicians and never the original capital and installation costs of the system.

6.3 Fees Option 1: Utility Model 1. As a minimum figure, the fees must be increased to $15 per month. However, the figure might need to be increased to include the “traders’ fee”, if payments other than cash are made. 2. MEC and R & D must make a decision on which of the two scenarios they want the fee to cover because a subsidy will probably still be required to cover the replacement of equipment.

The two scenarios are specified in Table 30.

Table 30: Equipment replacement assumptions

Scenario Equipment Replacement assumptions 1 Batteries replaced 7 years and controller and inverter 5 years. 2 Batteries replaced 10 years and controller and inverter 10 years.

Rent to Own Model

The fee should be set at $53.48 per month if it is to cover all the original capital costs of the installation plus battery, controller and inverter replacement.

If the initial capital costs are not to be included because they were provided by a grant, then the fee should be $19.39 per month.

6.4 Non‐payment Policy Utility Model 1. A strict ‘non‐payment’ penalty policy must be implemented. The original policy of allowing 2 months without payment of the fee before the system is disconnected is a good policy, however if the payment structure is to be flexible e.g. payment by commodities, then the non‐payment penalty policy needs to be based on a longer period. Note: if the payments are collected locally

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by a trader in the islands, then the trader knows instantly who is current or not and the disconnection policy is instantly solved. The trader would also have to be advised of any payments received from any off‐atoll sources like MEC or KAJUR in Ebeye. 2. A payment policy is introduced which is based on some form of payment every 6 months or 12 months This would mean that if no effort is made to make any payment within that 6 or 12 month period, then the system must be disconnected and at another specified period actually removed. 3. If for political reasons, this policy is never enforced, the minimum outcome should be that no person with outstanding fees should ever have any major equipment (e.g. batteries, controllers) replaced. 4. The payment and non‐payment conditions must be clearly specified in an enforceable contract with the householder.

Rent to Own Model

1. Points 1, 2 and 4 above apply. 2. The householder can never own the system until all payments are made. 3. The system remains the property of MEC until the final payment.

6.5 Recovery of outstanding debts It is recommended that MEC develop a plan to recover the monies owed by the existing system owners. This could include stating a date by which all debts must be paid or the systems will be removed. R&D and MEC must discuss this with the government, if the government does not want MEC to implement this, then the debts must be written off and the government accept that it will be subsidising the programme. In order to minimise this being a problem in the future, either a late fee penalty or ‘payment on time’ discount is introduced.

6.6 Subsidy Utility Model

The recommended $15 per month is less than what is required, and therefore an on‐going subsidy will be required.

The amount of annual subsidy required varies from $481,909 to $1,210,068 based on the worst case for the two scenarios when no fees are paid at all.

It is recommended that $0.015 per kWh is added to the electricity Tariff in Majuro, this will raise an estimated $704,688 per annum. However this should be reviewed after a few years depending on the actual fees which are collected. The ‘per kWh’ figure might need to be increased if it is still not sufficient

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or hopefully be decreased if the rate of fees collected has increased. (Note this does not take into account the power sold in Ebeye).

Another option for the subsidy is a small tax on diesel or all petroleum products. The project team does not have any figures on the actual usage per year but it would be anticipated that it would be less than US$0.03 per gallon (US$0.01 per litre).

If no subsidy is guaranteed, then the program is not sustainable.

It is recommended that the Government is advised that, since there are no funds available at the moment, no batteries or other spare parts can be purchased. Due to some systems being installed in 2004 and 2005, it is expected that major battery replacements will be required in the coming 12 months. These components not being replaced will damage the credibility of the program and will further discourage people making their fee payments.

It is recommended that the new North‐REP systems should not be installed until the government has guaranteed the funds are available for the battery replacement required.

Rent to own model

Ideally a subsidy should never be required because no replacement batteries and/or controller will be given to a householder with outstanding payments.

The only subsidy required would be if sufficient payments had not been made to cover the technician payment

6.7 Trust Fund It is recommended that a trust fund is established for the future purchase of replacement equipment.

The initial $154,248 per year collected in fees is kept my MEC to cover the technicians’ wages. All fees collected above this amount are then deposited into a trust fund jointly managed by R & D and MEC.

Any funds above this amount must be put into a trust fund to cover the future replacement of equipment.

The system owners must be made aware that this trust fund exists.

6.8 Number of Technicians  Technician ratios of 1 per 80 ‐ 120 systems.

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 Where an island has insufficient numbers of systems for two technicians, an alternative technician is trained and only paid when other is off‐island.  MEC to investigate whether technicians are paid per system serviced instead of flat rate.

6.9 School Systems It is recommended that MEC approaches the Ministry of Education with a suggested tariff that reflects the replacement of batteries and inverters based on the current energy usage. The MOU should be converted to a formal contract specifying the responsibilities of MEC and the Ministry with respect to the system.

If the ministry does not agree, they should be advised that the cost for the replacement batteries and inverters is approximately $538,910 after 10 years and that they begin depositing approximately $4000 per month into a fund to cover the replacement costs.

6.10 Battery replacement is planned It is recommended that the batteries in systems are replaced 7 (maybe 8) years after they have been installed. This will allow the purchasing of batteries to be scheduled through a tender process to obtain competitive pricing. The batteries on one island can then be replaced all at the same time, thus making co‐ordination easier. It also facilitates returning the used batteries to Majuro for recycling or proper disposal.

6.11 Product Quality It is appreciated that the tender for the next 1500 systems is completed, however it is important that future equipment purchases include due diligence such that the quality of the product being offered will meet the expected product life according to the calculation of monthly fees. As a minimum the products’ life should be: batteries at least 7 to 10 years, controller minimum of 5 years but preferably 10 years; inverters minimum of 5 years but preferably 10 years and modules minimum of 20 years (preferably longer). Note: In many countries controllers and inverters last 10 years, the 5 years suggested above is because of the harsh climatic conditions experienced on the islands/atolls.

The system shall also be designed so that the matching of components meet standard international practices and the installation of the equipment meets manufacturer’s requirements and follow good installation practices for the hot and humid conditions experienced in Marshall islands (e.g. batteries located in the coolest location possible with good ventilation).

6.12 Data base It is understood that this data base is planned under the North‐REP however it is recommended that a data base is established which:  Names of the house owner

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 60

 Provides the GPS co‐ordinates of the house.  List all the equipment, brand, model and capacity/rating.  Date of installation and date of any equipment change, along with update in equipment.  Keeps a log of all faults that have occurred on systems and details what the fault was and the action taken to rectify the fault.

6.13 Transport and Communications Poor transportation and communications were identified as major, impacting issues.

There is very little which can be recommended for these because these are outside the control of MEC and R &D.

It is necessary to review the communications procedures to determine how best to make it work. This might include having a payment system for guaranteeing the use of the SSB radio network at specified times.

One suggestion which could be made is the possibility of MEC having their own boat since, once the next 1500 systems are installed, MEC will then have 3000 SHS customers, a similar amount to those on Majuro. This option could be investigated though it is expected that the cost would be prohibitive.

6.14 Training That R & D and MEC co‐ordinate the following:

 Liaise with College of Marshall Islands or other training entity to develop and institutionalize an installation and maintenance course for the existing and future island technicians.  The content should follow a task analysis (competency standard) developed either by the regional Renewable Energy & Energy Efficiency Training Competency Standards Advisory Committee or one similar.  Develop a program of short courses which help with the technician’s professional development— these could just be short refresher courses.

It is recommended that one of the Majuro technicians should become the trainer. 6.15 Ministry of R & D Staffing Levels R & D Management to review staffing requirements with respect to the requirements of this outer island electrification program and other staff duties.

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 61

Annex 1: Data on Solar Home Systems

Atoll/island PV Array Battery size Controller DC-DC Loads Controllers Ailinglaplap 2 x Photowatt 2x Energys Morningstar Steca 3 13W Model PW6-110 Supersafe PROSTART PS- Solsum VC CFL’s and 1 11oWp each 6XP180 batteries 30 Volatge 2white LED -2 x 6V 202Ah Converter nightlights C20 rated 0.25 (also known as Outdoor Hawker) light? Arno AUR Ebon Likiep Majuro (Aenkon) Mejit two panels single 305Ah ?? a multi- 3 indoor producing 150Wp deep cycle battery voltage DC sealed 15W outlet power fluorescent supply for light tubes, a electrical single equipment waterproof 15W exterior fitting and an LED night light. Namdrik Wotho Wotje(Wodmej)

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 62

Annex 2: Data on School Systems

School Location Array Batteries Inverter Controller INE Elementary Arno Atoll School Ebon Elementary Ebon Atoll School Take Elementary Ebon Atoll School Mejit Elementary Mejit Island School Majkin Elementary Namu Atoll School Namdrik Namdrik Elementary School

RFP Ref: 11/14 Review of the Outer Islands Electrification Programmes in RMI and FSM‐Final Report‐RMI 63