Expression of Interest to Participate in the Financing of the Scaling-Up Renewable Energy Program (SREP) in Low Income Countries Climate Investment Funds

Expression of Interest to participate in the financing of the Scaling-up Renewable Energy Program (SREP) in Low Income Countries Climate Investment Funds

I. COUNTRY AND GOVERNMENT AGENCY SUBMITTING EXPRESSION OF INTEREST

Plurinational State of Bolivia (Estado Plurinacional de Bolivia)

Ministry of Hydrocarbons and Energy (Ministerio de Hidrocarburos y Energía)

Vice ministry of Electricity and Alternative Energy (Viceministerio de Electricidad y Energías Alternativas)

II. DESCRIPTION OF THE COUNTRY AND ENERGY SECTOR CONTEXT

The Plurinational State of Bolivia is located in South America and has a population of 10,027,254 inhabitants over an area of 1,098,581 km ². Bolivia's geographic location puts the country in the heart of South America, with mountains and plateaus in the west, valleys in the central and southern regions and tropical plains in the east. The Gross Domestic Product (GDP) per capita in Bolivia is one of the lowest in Latin America (US$2,220 in 2012). The economy of Bolivia is based largely in the export of natural resources, mainly gas and mining products.

Figure 1 Map of Bolivia Energy Sector

The Constitution of the Plurinational State of Bolivia establishes the right of access to basic services as one of the basic rights for all Bolivians, among which is the access to electricity. Moreover, the energy sector is he most important in the country’s economy; Bolivia’s natural gas exports to Brazil and Argentina are the most important source of revenue, which is used to generate public investment in health, education, infraestructure and allows Bolivia to move forward in its development.

Bolivia's electrical system is composed of the National Grid (Sistema Interconectado Nacional, SIN acronym in Spanish) and the Isolated Systems (Sistemas Aislados, SA acronym in Spanish). At 2012 there were 24 hydroelectric, 10 natural gas-fired, one biomass and three diesel power plants connected to the SIN, with an effective installed capacity of 1,455 megawatts (MW) and a peak demand of 1,109 MW. Hydroelectric generation in the SIN accounts for 32.4% of the energy generated, biomass for 1.3% and 66.3 % of the energy comes from thermal power plants (mainly from natural gas, and a small fraction from diesel). In the SIN, there is private and public participation in power generation, transmission and distribution, with the National Electricity Company (Empresa Nacional de Electricidad - ENDE), a state owned corporation with subsidiaries in all the electricity supply chain, being the major stakeholder in the development of generation, transmission and distribution infrastructure. The SIN operates based on a competitive market for power generation, with prices set by marginal costs. The system has a tariff structure that guarantees returns on investments for the public and private copmanies participating in transmission and distribution.

Figure 2 shows the arrangement of the electrical infrastructure of the SIN. The SIN covers a fraction of the territory, while part of the country, specially the north and east, is still not connected to the grid. In these areas, electricity is provided by isolated systems (SA), which are small distribution grids connected to one or more generators, usually powered by diesel fuel. The installed capacity of the SA in 2012 was of 221MW, serving around 200,000 users.

Figure 2 Bolivia’s National Grid (SIN)

The operation, management and commercialization of electricity production in the SA is responsibility of public and private companies and cooperatives such as: Rural Electric Cooperative Ltd. (CRE) in Santa Cruz, a cooperative owned by the customers which operates eight isolated systems in Santa Cruz; ENDE in the Pando department (Cobija); Servicios Eléctricos Tarija SA (SETAR), owened by the local government in Tarija, which operates in the localities of Tarija, Bermejo, Yacuiba, Entre Ríos, El Puente and Villamontes; and several small cooperatives in Beni that operate and manage diesel powered SA.

Diesel fuel used for electricity generation in the SA is imported and managed by Yacimientos Petrolíferos Fiscales Bolivianos, (YPFB acronym in Spanish), the state-owned hydrocarbons company. This fuel is provided to operators at a subsidized price of US$0.16 per liter. The market cost for the import of diesel

2 is above US$ 1.30 per liter. Although diesel fuel is subsidized for power generation, electricity tariffs are US$ 0.14 per kWh on average in the SA, and in some cases close to US$ 0.30 per kWh, compared to $US0.08 per kWh for the SIN. The electricity supply in SA, for the most part, is not provided 24 hours a day, and in many cases is limited only to the period between 18:00 to 23:00 hours at night, limiting productive activities and services such as education and health. For this reason, the Government and the operating entities of the SA are very interested in replacing or combining thermal power generation with renewable power generation, including solar, wind and micro hydro.

Access to Energy

In 2001, electricity coverage was of 25% in rural areas and 89% in urban areas. By 2005, electricity coverage decreased to 87% in urban areas and increased to 33% in rural areas. Overall the national electricity coverage shifted from 64% in 2001 to 67% in 2005. This behavior shows the lack of sustainable public policies to foster access to electricity over that period, which resulted in extreme differences between electricity access in rural and urban areas.

Figure 3 Evolution of energy access in Bolivia

Since 2006, the government of Bolivia has been making considerable efforts to increase electricity access in the country, in contrast with previous policies. Firstly, the vision and concept of access was redefined, starting from the definition of electricity access as a fundamental right for every Bolivian, in the Bolivian Constitution approved in 2009. Also, in 2008, the Government created the Electricity Program for Living with Dignity (Programa de Electricidad para Vivir con Dignidad, PEVD), through the Supreme Decree No. 29635, which integrates all electricity access projects, both from conventional energy and alternative energy, to achieve universal service by 2025, articulating the different sources of financing with the autonomous territorial governments and organizations related to this activity. Also, under the "Plan for Universal Energy in Bolivia" prepared in 2010 by the Vice-Ministry of Electricity and Alternative Energy (Viceministerio de Electricidad y Energías Alternativas, VMEEA for its acronym in Spanish) strategies were designed to achieve a gradual increase in electricity coverage. All these policiess have had effective results in the period 2006 – 2012, as access to energy rose to 81% in 2012, according to the National Census, with urban coverage estimated at 96% and rural at 58% (see figure 3).

Despite these efforts, there are still 413,218 households in rural areas without access to electricity. The provision of electrical power to the rural population is a great challenge in Bolivia as a result of geographical conditions, low population density and long distances from remote rural areas to electricity

3 networks. These conditions make the use of renewable energy one of the best options that Bolivia has to achieve universal access by 2025, as it is planned.

Renewable Energy Policy

In 2012, the Government of Bolivia, through the Ministry of Hydrocarbons and Energy (MHE), published its Policy for Alternative Renewable Energy for the power sector1. This Policy promotes and strengthens the development of renewable energy sources for rural access, power generation and other applications, while preserving the environment, with the following strategic goals:

1. Contribute to universal access to basic electricity services, including productive uses of electricity. 2. Develop and promote the applications and the efficient use of renewable energy. 3. Strengthen national institutions involved in renewable energy. 4. Contribute to the diversification of the energy matrix.

The Patriotic Agenda, an official policy document of the Plurinational State of Bolivia, established the goal of reaching full coverage in all basic services throughout the country (including access to electricity) by 2025. To achieve this objective, the Bolivian government is working through the PEVD in different projects, measures and actions, integrating electrification projects (including both, grid extension in the SIN, and alternative energy supply in SA and non-served areas), and involving government institutions, development banks, international cooperation, public sector organizations, and private organizations. These projects are listed in section VI of this document.

Renewable Energy Potential in Bolivia

Because of its geographic location, close to the Equator, Bolivia has an enormous solar energy potential, with high solar irradiation through most of its territory. In particular, the area of the Bolivian Plateau (western region) has one of the highest average annual irradiation in the World (from 5.7 kWh/m2/day to 7 KWh/m2/day). Solar irradiation maps have been developed by the Universidad Mayor de San Simón in Cochabamba. With this high potential, several residential photovoltaic systems have already been installed in the country, with favorable results for the target population. Likewise, private enterprises have installed a large number of solar thermal systems in most of the main cities for hot water supply, yielding savings in energy consumption of beneficiary families. In addition, the government, in cooperation with the GIZ (the German Cooperation Agency) and public/private partnerships has managed to install improved cook stoves, which helped to reduce the use of biomass for cooking.

Wind energy has also promising projections for exploitation in Bolivia. A wind map has already been developed, by 3TIER2, identifying the most promising regions for the development of this resource. In January 2014, the first commercial wind farm (3 MW) began operation in the town of Qollpana in Cochabamba. Currently, the National Electricity Company (ENDE) is measuring the wind potential in nine other sites, and wind capacity is expected to be added in the coming years. This will require strengthening the transmission system, to connect these new wind farms.

1 http://www2.hidrocarburos.gob.bo/phocadownload/politicas_energias_alternativas_2011.pdf 2 http://www.3tier.com/static/ttcms/us/documents/publications/Bolivia_Wind_Atlas.pdf

4

Geothermal resources in Bolivia were studied since the early 70's, with the drilling of six geothermal production wells in the Sol de Mañana field, part of the Laguna Colorada Project, that has an estimated potential of 100-MW. At the moment, this project is in financial closure phase for the first 50-MW and implementation is expected to start during 2014. An IDB loan will finance the construction of the transmission line.

The use of biomass as fuel for electricity generation has been applied in Bolivia through private ventures that harness waste sugarcane bagasse (GUABIRA Energy Company SA) in the department of Santa Cruz and chestnut shell (company Tahuamanu) in the department of Pando. A huge potential exists to expand these initiatives, especially in the Amazon region, mainly by private entities or public/private agreements.

Bolivia has an estimated hydro potential of 40,000 MW, with only a small fraction being currently exploited. While ENDE is concentrated in developing large hydropower plants (>50 MW), micro-hydro development is part of Bolivia´s portfolio of renewable energy projects, having installed small projects with the support of KfW, Olade and others. It is crucial to continue the development of hydroelectric projects in rural areas, mainly small and medium capacity, to provide electricity access.

Incentives to promote the development of renewable energy.

The Bolivian Government is committed to supporting and strengthening the participation of alternative energy in the electricity sector. The Government has developed a Supreme Decree, based on the Policy for Alternative Renewable Energy for the power sector, which is in the process of approval. This Decree has the goal of establishing the technical operational conditions, remuneration and incentives for development of power generation projects using renewable energy. Moreover, the government is also working on a draft Law on Alternative Energy that aims to establish the specific rules to encourage the use of alternative energy sources for electricity generation and make a priority the generation, transmission, distribution and consumption of alternative energy, contributing to universal access and the diversification of the energy matrix of the Bolivian electricity industry, both with public and private participation.

III. RATIONALE FOR SELECTED SECTORS FOR SREP FINANCING

The connection of populations that are isolated and far from existing power systems, and the high geographic dispersion of households in rural areas, present a real challenge to achieve universal access to electricity in Bolivia, due to high electrification costs through conventional networks. Therefore, the use and application of renewable energy, including solar, wind, biomass and hydro in small and medium enterprises is vital to achieve universal access to electricity especially, in rural isolated communities. The estimated amount of investment in rural electrification in the next ten years is US$ 1,2 billion, and will requiere public and private participation.

Another area of intervention is the diversification of the energy mix with renewable energy given the special circumstances of the SIN and SA in Bolivia as they are mainly based on fossil fuel generation (Natural gas - diesel). In the particular case of the SIN, replacing natural gas with renewable generation, will allow more gas to be available for export, increasing the revenues that can be used for public investment. In the SIN it is necessary not only to install new renewable generation capacity, but also to extend and strengthen the transmission system. Likewise, reducing the use of imported diesel for power generation will help to increase public expenditure in other development areas.

5

The main barrier for the deployment of renewable energy in Bolivia is the high investment costs of these technologies, compared with the investment cost of gas and diesel powered generation. In terms of electricity access in communities and rural households the barriers include: (i) lack of financial resources for development of projects; and (ii) low repayment ability of users in rural electric systems. To overcome these barriers, it is necessary to create synergistic mechanisms between various institutions such as governments, municipalities, distribution companies (public and private) and end users to ensure the sustainability of electrification projects. Also, in Bolivia there is a vast potential for the creation of franchises, or private micro franchising, for the supply, operation and maintenance of rural alternative energy systems, something that is currently being explored by a project funded by the Multilateral Investment Fund (MIF) from the Inter-American Development Bank (IDB) that has been approved in 2013, and is starting its execution.

The following are the potentially identified sectors for the development of renewable energy projects in Bolivia: • Rural electrification and access to basic electricity service (domestic energy) • Energy production and rural development (productive use of energy) • Transformation of energy mix in the SIN. • Displacement of fossil fuel generating systems in isolated systems.

Potential specific projects to be developed with SREP resources are the following: • Installation of electrical systems with alternative energy for rural households where the cost of grid extension is too high. This program could be implemented with public and private enterprises (franchises). • Hybridization of SA, by installing renewable energy systems to complement existing generation. • Displacement of fossil fuel generation systems in the SIN, by installing small and medium renewable generation systems connected to the SIN. • Transmission lines to connect renewable generation in the SIN. • Dissemination of improved cook stoves for homes and social institutions (training centers and other institutions) in rural communities, with the aim of contributing to the decrease in the amount of fuel (biomass or animal waste) used for food preparation, reducing exposure to smoke and toxic gases produced when cooking. This type of intervention allows for the establishment of synergies with electricity access projects using renewable energy in order to build local capacity and promote the local market to improve the sustainability of these projects. • Installation of solar thermal systems for the production of hot water for homes and social infrastructure in rural and urban areas, which will generate savings in electricity consumption and improve the quality of life primarily in rural areas.

The technologies designed for access to household electricity, productive uses, diversification of the energy matrix to be deployed in projects include but are not limited to the following: • Photovoltaic Systems for individual users and mini-grids. • Utility scale photovoltaic power plants. • Micro and mini hydropower plants. • Gasification, combustion and pyrolysis for the use of biomass and forestry residues. • Improved cook stoves. • Hybrid Generation Systems. • Wind farms. • Solar thermal systems.

6

SREP intervention would have a high positive impact on increasing electricity access in homes, improving the quality of life low income beneficiary populations. The SREP in Bolivia will prioritize projects using renewable energy, including local communities in the projects, considering the need of these populations, and existing government policies to support renewable energy alternatives. Also, it could further increase the reduction of diesel fuel use in Bolivia, contribute to reducing CO₂ emissions, and promote changes in the energy mix. As part of a SREP program, it will be a key factor to create the necessary synergies between the public and private sector to remove identified barriers for the dissemination of renewable energy.

IV. ENABLING POLICY AND REGULATORY ENVIRONMENT

The country has an Alternative Energy Policy in order to comply with national development objectives which aim to achieve universal electricity access for all Bolivians by 2025. It also has a policy to support lower income sectors reflected on an electric rate discount according to the quantity of energy consumed (Tarifa Dignidad, which gives a 25% discount to users with consumption below 70 kWh per month). Usually electrical energy consumption is lower for low income users especially in rural areas. In 2013, half of residential users in the SIN benefitted from the tariff, particularly those in rural areas.

The Electricity Law (Law 1604) is the standard that is in force for the purpose of regulating the activities of the electricity industry and defining the institutions that govern the Bolivian electricity market. In addition the sector has established norms to define the technical rules and operation of the electricity market. The main institutions that make up the electricity sector are:

1. The Ministry of Hydrocarbons and Energy (MHE) responsible for conducting energy policy, which includes the hydrocarbons, electricity and alternative energy sectors, from policy formulation to monitoring and control of energy production companies and entities involved in the production chain. 2. The Vice ministry of Electricity and Alternative Energy (VMEEA), part of MHE, responsible for proposing policies, programs and projects throughout the production chain of the electricity sector aimed at achieving universal access and equitable basic electricity service. 3. The National Load Dispatch Committee (CNDC) is the institution responsible for coordinating the operation of the National Interconnected System (SIN), the administration of this power system planning and optimal expansion of SIN, following the guidelines and policies of the Ministry of Hydrocarbons and Energy. 4. The Authority of Social Control and Oversight of Electricity (AE) or regulator, which is responsible for monitoring, control, supervise and regulate the provision of services and activities by institutions and operators in the electricity sector. 5. Private and public generation, transmission and distribution companies, which include the National Electricity Company (ENDE), a Bolivian State company which develops generation, transmission and distribution of electricity.

In terms of prices and tariffs, there is a methodology for fixing them in which all companies belonging to the electricity market participate. These rate structures are set by both the AE and by the CNDC. The processes of acquisition of goods and contracting services in the public sector in Bolivia calls for public tenders where the criteria of transparency, fairness and equal opportunity are basic principles. All public institutions conduct accountability processes and access to information is open and transparent.

7

V. INSTITUTIONAL AND TECHNICAL CAPACITY

Rural Electrification

The Electricity Program for Living with Dignity - PEVD was created by the Supreme Decree DS 29635 of July 92008 under the responsibility of VMEEA, with the goal of achieving universal access to electricity, as aforementioned. This Decree promotes the combination of public and private investment, to improve living conditions, reduce poverty, create jobs and build a productive, economic and social structure for all Bolivians. In this context, the PEVD has been implementing various renewable energy projects and densification of grids that have contributed significantly to the increase in electricity supply in the country, with the support of international cooperation and public funds. Currently the PEVD has its own facilities, and has 21 administrative and technical professional staff.

Departmental and municipal governments also provide strong support to rural electrification programs, in coordination with the PEVD, according to the geographical competencies dictated by the constitution. As a result, electricity coverage has increased substantially in rural areas in the last five years, as it was already discussed.

The diverse programs and projects supported by the international cooperation that have been completed, and those that are currently in progress, prove the technical capacity of the Government of Bolivia to execute programs funded by international funds. At present, there is a working structure in the PEVD, which is able to effectively absorb additional funds.

Renewable Energy

ENDE, the main national electricity corporation, has implemented various power generation projects in recent years, including a wind generation project Qollpana executed in 2013 with a generating capacity of 3 MW and an investment of US$7.5 million. The Central Government through ENDE has funded and is funding construction of power plants, transmission lines and electrical infrastructure improvements in the distribution system, investing over $ 400 million in infrastructure projects in the last 5 years. ENDE currently operates 950.4 MW of generation, and the corporation and its subsidiaries have 2,350 staff members.

The renewable energy private sector in Bolivia has also been active by developing ventures for power generation from the use of biomass (bagasse). Guabirá a company that has several sugar mills in Santa Cruz produces electricity for self-supply and feeds the surplus to the SIN (Guaribá uses 14 MW and produces a surplus of 21 MW).

The Bolivian Association of Renewable Energy - ABER represents private companies directly related to the development of renewable energy. Its affiliates include companies that work in the manufacturing of solar thermal and supply of photovoltaic systems. These companies have participated in several infrastructure projects, and in the development of renewable energy studies called by the Bolivian government through the Ministry of Hydrocarbons and Energy.

Rural electrification projects using photovoltaic and micro-hydro systems, some having components of proprietary technology, have been developed using synergies between the public and private sector. These projects included design, manufacturing, installation and operation of renewable energy systems. In addition the Ministry of Hydrocarbons and Energy works through institutional agreements with

8 different universities in research and development issues related to alternative energy as the Universidad Mayor de San Andres in La Paz, San Simon in Cochabamba, Gabriel René Moreno Santa Cruz Sierra and others.

Risks

Implementation risks are related mainly the high cost of implementing renewable energy projects without government support and programs such as the SREP. Improper inter-institutional coordination is another risk to be considered as Bolivia has a high number of instances of coordination (central government, local governments, municipalities, public and private enterprises). To mitigate this risk one of PEVD expected functions is to serve as a coordinating and management body.

VI. PROGRAMS OF MDBS AND DEVELOPMENT PARTNERS

Energy Access Programs.

Decentralized Infrastructure for Rural Transformation (IDTR): Project completed in 2011. The alternative energy component benefited 10,147 households with access to electricity using photovoltaic systems with an investment of more than US$10 million. The project was a loan from the World Bank and was executed under the PEVD.

The IDTR project was developed in partnership with the German Development Agency GIZ - EnDev Bolivia which between 2010 and 2011 carried out the implementation of improved stoves in different regions of the country. The project benefited 7,649 families of 5 departments, 38 municipalities and 522 communities. The government is negotiating with the World Bank an additional loan for the continuation of the second phase of the IDTR.

Decentralized Electricity for Universal Access (EDAU - GPOBA): Project completed in 2013 to benefit 10,567 families and 50 social infrastructures with access to electricity through photovoltaic systems with an investment of US$5.17 million funded by the Partnership Output Based Aid (GPOBA - World Bank) as a donation. This program was executed under the PEVD.

EURO -SOLAR Program: Project completed in 2013 benefiting 59 communities in rural areas with the installation of 59 community telecentres involved the supply and installation of a mixed system of photovoltaic and wind power generation with an investment of 4.7MMUSD Funded by the European Union and own resources from Bolivia. This program was executed under the PEVD.

KfW Renewable Energies Program: Current program that is benefiting 570 families through the construction of three hydroelectric power plants, including distribution power lines. One project is running and 2 are developing of studies to final design. It receives US$7.26 million donation from KfW with US$1.16 million national counterpart. This program was executed under the PEVD.

Rural Electrification Program PER- IDB: Current program that was approved in 2011. Loan agreement with the Inter Inter-American Development Bank (IDB) for US$60 million to finance the Rural Electrification Program. The program consists of three components: i) Extension of Distribution Networks, ii) Extension of Transmission Networks and iii) Pre - investment and Support PEVD. With the extension of transmission and distribution networks is expected to benefit about 30,000 families. Part III will finance pre-investment studies and support to PEVD to finance activities of identification, analysis,

9 evaluation, structuring and implementation of renewable energy projects. This component has approximately US$ 2.5 million funding for pilot projects on alternative energies. The PER is currently executed under the PEVD, and will be concluded in 2016.

Rural Electrification Program in Renewable Energy (PERER) - NDF: This grant , approved in 2013, will provide € 4 million to install 90 kW PV system in SA , 675 solar systems (photovoltaic and thermal) in schools and health posts in rural areas and 3,000 small photovoltaic lamps in rural areas. The program will be executed by the PEVD.

Hybrid Project (solar/diesel) El Espino 65 KW: Project preparing bid documents will benefit 124 families of indigenous communities of El Espino department of Santa Cruz with access to electricity for residential and productive uses. The corresponding PV component of the project is part of the IDB loan.

Micro franchise Development for Access to Clean Energy in Rural Areas: Project execution with the financing of the Multilateral Investment Fund (US$1.478 million). This project will develop a model to provide access to clean energy solutions to families living in poor communities in rural areas of Bolivia, through the creation of a sustainable network of private micro-franchises, which is expected to improve their standard of living and productive opportunities. The MIF will finance the design, validation and implementation of the business model the energy micro franchising concept. The project is expected to support 10,000 families in isolated communities of Bolivia. Also, through the project, 100 private micro entrepreneurs that will support communities will have stable sources of employment and income.

Renewable Energy Projects to Strengthen and Diversify the Energy Matrix

Misicuni Hydroelectric Project: This project involves the construction of a hydroelectric power plant of 80 MW, including the tunnel, pressure pipe, and powerhouse and balancing reservoir. The project is executed by ENDE and includes IDB financing (USD 101 million). Completion is expected in 2015.

There are other similar hydropower projects which are expected to be develop in the next few years such as the San Jose Hydroelectric Project (120 MW), Miguillas (167 MW), Rositas (400 MW), among others, which are in various stages of completion (prefeasibility, developing biding documents, etc.).

Qollpana Wind Farm: On January 2nd 2014, the first wind farm in Bolivia was officially opened in the town of Pocona Cochabamba department, with a generating capacity of 3 MW and an investment of US$7.6 million and benefiting 24,000 people. It is planning a second phase with the installation of 14 additional turbines equivalent to 21 MW. ENDE is also taking measurements of wind potential 9 sites nationwide in order to validate the potential to further develop power generation projects.

Project Construction of a 5 MW Solar Power Plant in Cobija: Project bidding for the displacement of diesel fuel in the Bolivian Amazon with an investment of US$11.37 million funded by the Danish Cooperation and own contributions amounting to US$6 million and US$5.37 million respectively. This project is executed by ENDE.

The financial resources that can be obtained by the Scaling up Renewable Energy Program can be applied in the various programs and projects currently being executed, or in the development of new ventures that contribute to the development of renewable energy in Bolivia. SREP is a great opportunity for Bolivia to continue the path to achieve universal access to electricity in homes, diversify energy sources and support the substitution of fossil fuels.

10