Bhutan: Preparing the Rural Renewable Energy Development Project (Financed by the Japan Special Fund)
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Technical Assistance Consultant’s Report Project Number: 42252 January 2011 Bhutan: Preparing the Rural Renewable Energy Development Project (Financed by the Japan Special Fund) Prepared by PA Consulting Group Wellington, New Zealand For Department of Energy (DOE) Renewable Energy Division, DOE Bhutan Power Corporation This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design. TA 7318-BHU Preparing the Rural Renewable Energy Development Project Final Report Prepared for: The Asian Development Bank and Royal Government of Bhutan Prepared by: PA Consulting Group Level 13, Allied Nationwide Finance Tower 142 Lambton Quay, Wellington 6011 New Zealand Tel: +64 4 499 9053 January 20, 2011 Please note: On 26 July 2010, the PA practice that prepared this report was acquired by Tetra Tech, Inc., and is now part of Tetra Tech, Inc. FOREWORD The Asian Development Bank (ADB) engaged PA Consulting Group, New Zealand (PA) in association with Empower Consultants Limited of New Zealand, Hydro Tasmania Consulting of Australia, and IDRG Services of India, to provide technical assistance (TA) to the Ministry of Economic Affairs (MOEA) of the Royal Government of Bhutan (RGOB) for TA No. 7318-BHU: Preparing the Rural Renewable Energy Development Project. The objectives of this TA are: . Plan and prepare an investment program to assist the government to achieve its goal of providing electricity for all by 2013 . Develop a sustainable business model for operating and maintaining off- and on-grid rural electrification services . Develop a wind power pilot project and biogas pilot project. This TA has four components: . On-grid rural electrification sourced from hydropower . Off-grid rural electrification sourced from solar power . Pilot wind power generation plant connected to the power grid . Pilot domestic biogas plants. The executing agency (EA) of this TA is the Department of Energy (DOE) under the Ministry of Economic Affairs (MOEA). The implementing agency (IA) for the on-grid rural electrification component is the Bhutan Power Corporation, Limited (BPC). The DOE is the IA for the off-grid rural electrification component. BPC is also the IA for the pilot wind power generation plant. The IA for the pilot biogas plants includes the Department of Livestock (DOL) under the Ministry of Agriculture and Forests (MOA), and the Bhutan Development Finance Corporation (BDFC), Limited. This final report summarizes the project’s design and implementation plan, and includes all the detailed appendices. TA 7318-BHU Preparing the Rural Renewable Energy Development Project, Final Report i GLOSSARY CURRENCY EQUIVALENTS (as of 30 June 2010) Currency Unit – Nu Nu 1.00 = $0.022 $1.00 = Nu 45.0 ABBREVIATIONS AAAC – all-aluminum alloy conductors ADA – Austrian Development Agency ADB – Asian Development Bank ADF – Asian Development Fund AGM – absorbed glass mat (battery) BDFC – Bhutan Development Finance Corporation BEA – Bhutan Electricity Authority BHU – basic health unit BMNP – Blue Mountain National Park (BMNP), and BPC – Bhutan Power Corporation CGI – corrugated galvanized Iron Chhu – river CO – carbon monoxide CSC – customer service center DGPC – Druk Green Power Corporation DOD – depth of discharge (of battery) DOE – Department of Energy DOF – Department of Forestry DOL – Department of Livestock DSCR – debt service coverage ratio DYT – Dzongkhag Yargay Tshogdue (district level government) Dzongkhag – district EA – executing agency EC – environmental clearance EIA – environmental impact assessment EIRR – economic internal rate of return EMP – environmental management plan ERD – Economic Research Division ESCO – energy service company ESD – electricity services division FIRR – financial internal rate of return TA 7318-BHU Preparing the Rural Renewable Energy Development Project, Final Report ii FNCA – Forest and Nature Conservation Act FNCR – Forest and Nature Conservation Rules FYP – Five-Year Plan GDP – gross domestic product Gewog – administrative block, a group of villages within a district Gup – headman/woman of a block GYT – Gewog Yargay Tshogdue (block administrative government) HH – household HSS – higher secondary school IA – implementing agency ICB – international competitive bidding IEE – initial environmental examination JDNP – Jigme Dorjee National Park JFFP – Japan Fund for Poverty Reduction JICA – Japan International Cooperation Agency JSWNP – Jigme Singye Wangchuk National Park LED – light emitting diode LPG – liquefied petroleum gas LSS – lower secondary school LV – low voltage MOA – Ministry of Agriculture and Forests MOEA – Ministry of Economic Affairs MOF – Ministry of Finance MOU – memorandum of understanding MSS – middle secondary school MV – medium voltage NCB – national competitive bidding NCD – Nature Conservation Division NEC – National Environment Commission NFE – non-formal education NGO – non-governmental organization NOC – no objection certificate NOx – nitrous oxide Nu – ngultrum (Bhutan’s currency) O&M – operation and maintenance ORC – outreach clinic PA – PA Consulting Group PAM – project administration manual PIU – project implementation unit PM – particulate matter PP – pre-primary school PPE – personal protective equipment PPP – public-private partnership PPTA – project preparatory technical assistance TA 7318-BHU Preparing the Rural Renewable Energy Development Project, Final Report iii PV – photovoltaic PWLS – Phibsoo Wildlife Sanctuary RE – rural electrification REA – rapid environmental assessment RED – Rural Electrification Division, or Renewable Energy Division REMP – rural electrification master plan RESCON – rural energy service concessionaire RGOB – Royal Government of Bhutan RMNP – Royal Manas National Park RNR – renewable natural resources RRP – report and recommendation of the President to the Board SGIA – Second-generation imprest account SHS – solar home system SNV – Stichting Nederlandse Virijwilligers, Netherlands Development Organization SOE – statement of expenditure SPS – safeguard policy statement TA – technical assistance TSNR – Torsa Strict Nature Reserve μg/m3 – micrograms per cubic meter UNDP – United Nations Development Programme VEC – valued environmental component WLED – white light emitting diode WACC – weighted average cost of capital WTG – wind turbine generator WEIGHTS AND MEASURES MW (megawatt) – 1,000,000 watts GWh (gigawatt-hour) – 109 Wh Km – kilometer kV – Kilo volt M – meter kWh (kilowatt-hour) – 103 Wh NOTE In this report, "$" refers to US dollars TA 7318-BHU Preparing the Rural Renewable Energy Development Project, Final Report iv TABLE OF CONTENTS 1. Introduction and Summary / 1 1.1 Project Rationale / 1 1.2 Project Description / 4 1.3 Impact and Outputs / 12 1.4 Report Organization / 15 2. Implementation Arrangements / 16 2.1 Investment and Financing Plans / 16 2.2 Implementation Institutional Arrangements / 17 2.3 Implementation Period / 19 2.4 Procurement Methods / 19 2.5 Consulting Services / 20 2.6 Disbursement Arrangements / 20 3. Technical Analysis / 21 3.1 On-Grid Rural Electrification / 21 3.2 Off-Grid Rural Electrification / 21 3.3 SHS Operation and Maintenance Business Model / 27 3.4 Pilot Wind Power Project / 33 3.5 Pilot Biogas Project / 39 4. Financial and Economic Analysis / 41 4.1 Financial Analysis of the Project / 41 4.2 Financial and Operational Sustainability / 42 4.3 Financial Management Assessment / 43 4.4 Financial Performance of the Implementing Agencies / 43 4.5 National Electricity Demand Forecast / 45 4.6 Least-Cost Analysis / 45 4.7 Economic Analysis of the Project / 46 TA 7318-BHU Preparing the Rural Renewable Energy Development Project, Final Report v 5. Environmental Impact Assessment / 48 5.1 On-Grid Rural Electrification Component / 48 5.2 Off-Grid Rural Electrification Component / 49 5.3 Pilot Wind Power Component / 49 5.4 Pilot Biogas Component / 50 6. Poverty and Social Analysis / 51 6.1 Rural Electrification / 51 6.2 Pilot Biogas Component / 52 6.3 Socio-Economic Survey / 52 Appendices A Summary Power Sector Assessment B Project Design and Monitoring Framework C Project Administration Manual D On-Grid Rural Electrification Technical Report E Draft Memorandum of Understanding on Solar Home System O&M Services F Financial Analysis G Economic Analysis H Initial Environmental Examination for the Off-grid Solar Home Rural Electrification Component I Initial Environmental Examination for the Wind Power Pilot Project Component J Initial Environmental Examination for the Biogas Pilot Project Component K Summary Poverty Reduction and Social Strategy, and Gender Action Plan L Socio-Economic Survey Report M Financial and Economic Models and Worksheets Developed or Used TA 7318-BHU Preparing the Rural Renewable Energy Development Project, Final Report vi 1 INTRODUCTION AND SUMMARY The proposed Rural Renewable Energy Development Project (Project) has four components: 1) on-grid rural electrification (RE), 2) off-grid rural electrification with solar home systems (SHS), 3) a pilot wind power subproject, and 4) a pilot biogas subproject. The project inception mission was carried out in November to December 2009, followed by two missions, one in January to February and another in March 2010. The loan fact finding mission was conducted in May 2010, and the loan appraisal mission in July to August 2010. 1.1 PROJECT RATIONALE