Lesotho Energy Programme
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Lesotho Energy Programme | Lesotho African Development Bank (AFDB) 29 November 2018 Project/Programme Title: Lesotho Energy Programme Country(ies): Lesotho National Designated Ministry of Tourism and Meteorology: Mabafokeny Mahahabisa Authority(ies) (NDA): Accredited Entity(ies) (AE): African Development Bank (AFDB) Date of first submission/ [2018-07-31] [V.1] version number: Date of current submission/ [2018-07-31] [V.1] version number PROJECT / PROGRAMME CONCEPT NOTE Template V.2.0 GREEN CLIMATE FUND | PAGE 1 OF 12 A. Project / Programme Information (max. 1 page) ☐ Project ☒ Public sector A.1. Project or programme A.2. Public or private sector ☒ Programme ☐ Private sector Yes ☐ No ☒ A.3. Is the CN submitted in Confidential If yes, specify the RFP: A.4. Confidentiality1 ☐ response to an RFP? ☒ Not confidential ______________ Mitigation: Reduced emissions from: ☒ Energy access and power generation ☐ Low emission transport ☐ Buildings, cities and industries and appliances A.5. Indicate the result areas ☐ Forestry and land use for the project/programme Adaptation: Increased resilience of: ☒ Most vulnerable people and communities ☐ Health and well-being, and food and water security ☒ Infrastructure and built environment ☒ Ecosystem and ecosystem services 881,528 direct beneficiaries. 40% A.7. Estimated adaptation A.6. Estimated mitigation of the population will benefit due impact (number of direct impact (tCO2eq over 5,494,052 MT to grid-wide access to renewable beneficiaries and % of lifespan) energy, improved energy security population) and lower pricing. A.8. Indicative total project Amount: USD 202,277,000 A.9. Indicative GCF Amount: USD 32,208,000 cost (GCF + co-finance) funding requested A.10. Mark the type of financial instrument ☒ Grant ☐ Reimbursable grant ☐ Guarantees ☐ Equity requested for the GCF ☐ Subordinated loan ☒ Senior Loan ☐ Other: specify___________________ funding a) disbursement period: A.11. Estimated duration of A.12. Estimated project/ This refers to the total period over b) repayment period, if project/ programme: Programme lifespan which the investment is effective. applicable: A.13. Is funding from the Yes ☐ No ☒ ☐ A or I-1 Project Preparation Facility Other support received ☐ A.14. ESS category3 ☒ B or I-2 requested?2 If so, by who: ☐ C or I-3 A.15. Is the CN aligned with A.16. Has the CN been Yes ☒ No ☐ Yes ☒ No ☐ your accreditation standard? shared with the NDA? Yes ☒ No ☐ A.18. Is the CN included in A.17. AMA signed (if If no, specify the status of the Entity Work Yes ☒ No ☐ submitted by AE) AMA negotiations and Programme? expected date of signing: The Lesotho Energy Programme includes six activities for the electricity sector in Lesotho. A.19. Project/Programme Three will mitigate existing emissions, and three will help “climate-proof” essential rationale, objectives and infrastructure. The programme will enable Lesotho to reduce its carbon footprint by replacing approach of carbon-sourced fuels with low-emission sources in its national energy balance. In addition, it will programme/project (max 100 “climate proof” key infrastructure. Increased frequency and intensity of droughts, frost and words) storms is causing severe erosion and collapse of transmission lines that supply electricity to 1 Concept notes (or sections of) not marked as confidential may be published in accordance with the Information Disclosure Policy (Decision B.12/35) and the Review of the Initial Proposal Approval Process (Decision B.17/18). 2 See here for access to project preparation support request template and guidelines 3 Refer to the Fund’s environmental and social safeguards (Decision B.07/02) PROJECT / PROGRAMME CONCEPT NOTE Template V.2.0 GREEN CLIMATE FUND | PAGE 2 OF 12 economically vulnerable populations. This programme will allow the nation to strengthen its infrastructure to climate impacts and reduce its reliance on fossil fuels. B. Project / Programme details (max. 8 pages) B.1. Context and Baseline (max. 2 pages) The Lesotho Energy Programme contains six ready-to-build projects for the electricity sector in Lesotho. Three will mitigate existing emissions, and three will help “climate-proof” essential infrastructure. The programme will accelerate the nation toward its goal of secure, low-emission, renewable energy production by increasing the supply of domestic, clean renewable sources and extending grid-access electricity to more households. It will also build climate resiliency into threatened infrastructure. In addition to moving the nation toward these important objectives, the economic and environmental co-benefits of the project are significant; they include: strengthening the livelihoods of highly vulnerable households (including women- and child-headed households), creating temporary jobs, and slowing the trend of rapid deforestation. Lesotho is a small nation that it is often overlooked by developers and occasionally by DFIs. Despite this, the nation has taken its role to reduce its level of GHG emissions from the energy sector seriously. Lesotho’s electricity company (LEC) draws predominantly from hydropower and maintains a national grid emission factor of just 0.0038 tCO2/GWh (the rest of the Southern Africa Power Pool’s operating grid emission factor is 0.9958 tCO2/GWh). Still, the share of emission from the energy sector has grown steadily, reaching about 30% of national emissions, and producing an annual total of 1,079 Gg CO2eq. The dominant source of emissions come from residential fuel combustion (51%), emanating from the use of wood, charcoal, LPG, and paraffin and importation of energy from predominantly fossil-based generation systems by Eskom. Lesotho faces a dual problem: Mitigate CO2 emissions from its energy balance and Adapt national infrastructure to existing climate change. To solve the first, mitigation problem, Lesotho must reduce imports from Eskom and the burning of wood and charcoal. To solve the second adaptation problem, Lesotho must rehabilitate key infrastructure in the face of climate change damage. Mitigation Need: reduce Eskom imports and wood / charcoal burning. In order to reduce its carbon emissions from the electricity sector, Lesotho must address two primary objectives: 1. Reduce coal-dominated imports from South Africa. This objective can be met by adding low-emission, renewable generation plants to domestic electricity sources, and through efficiency measures that reduce line losses and peak demand. 2. Reduce the use of traditional household fuels, especially wood, charcoal, and dung. This objective can be addressed through accelerating the delivery of cleaner sources of electricity to remote villages and rural populations through the 4 national grid. According to the Blue-Sky Model, wood fuel emits 1.5 kg of CO2eq per kWh consumed; by contrast Lesotho’s national grid delivers energy at 0.22 kg of CO2eq per kWh. This objective also serves other important goals of reducing deforestation and eliminating negative health effects of smoke inhalation and accidental household fires. The implementation of the proposed programme will reduce emissions by over 70 million kg per year or 5,494,052,114 kg over the useful life of the various assets (5,494,052 MT of CO2-eq). Please see calculations in Financial Model and Pre-Feasibility Study. Three primary features of Lesotho’s energy consumption are important to understand the context of the proposed solutions: 1) Lesotho imports are coal dominated and expensive. Though LEC produces up to 65% of nationally consumed electricity from hydropower, at least 25% is imported from Eskom in South Africa, which produces 90% of its electricity using coal power plants. (An additional 10% is typically purchased from EDM in Mozambique.) One consequence is the 193,418,410 kg of CO2 from coal production. Another is the high cost of imported electricity. During the 2016 fiscal year, LEC purchased electricity domestically for USD 0.009/kWh while the weighted average cost of imported electricity was USD 0.087/kWh, nearly 10 times higher. Table 1: Forecasted bulk energy supply sources for 2018 Source Purchased (kWh) Percentage of Total Total cost (USD) Cost/kWh (USD) Annual CO2 (kg) Domestic Hydro 519,187,043 59% 4,695,083 0.0090 0 Eskom 268,636,680 30% 19,247,541 0.0716 193,418,410 EDM (Imported 97,500,000 11% 11,113,540 0.1140 0 hydro) Total (average) 885,323,723 100% 35,056,165 (0.0407) 193,418,410 5 Source: LEWA 20176 4 See Blue-Sky Model at http://blueskymodel.org/kilowatt-hour. 5 A figure of .800 kg CO2 per kWh of coal-produced electricity was used, per: http://blueskymodel.org/kilowatt-hour. 6 Lesotho Electricity and Water Authority, LEWA’s Determination of LEC’s Tariff Application for 2017/2018, April 2017. PROJECT / PROGRAMME CONCEPT NOTE Template V.2.0 GREEN CLIMATE FUND | PAGE 3 OF 12 Table 2: Eskom's Generation Fuels and Percentages Fuel Coal Nuclear Hydropower Gas Other Mix Percentage 90% 5% 2% 1% 2% Source: CRSES 20167 2) Rural residents rely on wood and charcoal fuel. On-grid vs. off-grid consumers are roughly divided along urban vs. rural population lines. The rural population of Lesotho represents 72% of the total. Correspondingly, access to electricity is 29.7%, reflecting the provision of service to urban populations, but its relative unavailability to rural dwellers. About 10% of the area serviced by the grid is defined as rural, while 47% of urban areas are electrified (UNDP, 2016 energy profile). These realities drive rural use of traditional fuels, especially wood, dung, charcoal, and LPG. The International Energy Agency estimates that Sub-Saharan African countries’ primary fuel mix contains 50% traditional fuels, on average, meaning that Lesotho’s traditional fuels consumption would total approximately 885,000,000 kWh, and produce an 8 additional 1,327,986,000 kg CO2eq. Table 3: Total Annual Emissions (including from wood and charcoal) CO2-eq from Electricity CO2-eq from Traditional Fuels Total Emissions (kg) 193,418,410 1,327,986,000 1,521,404,410 3) Lesotho’s intra-annual temperature variation is large.