Public Disclosure Authorized NICARAGUA : SUSTAINABLE OFF-GRID ELECTRICITY SERVICE DELIVERY MECHANISMS A study funded by the Public-Private Infrastructure Assistance Facility (PPIAF) August 2001 Public Disclosure Authorized Public Disclosure Authorized Coordinated by Ernesto Terrado and Kilian Reiche, Energy Cluster, Latin America and Caribbean Region, The World Bank Main report by Pierre Mathieu (service delivery models), Public Disclosure Authorized based on contributions of INEC (Market Survey), Douglas French Barnes (Market Survey), Jose Eddy Torres (Market Survey Analysis), Christophe de Gouvello (Market Survey Analysis) and George Sterzinger (financial modeling) 1 1 PROJECT COMPLETION REPORT – BY ERNESTO TERRADO AND KILIAN REICHE............................................................................................................. 5 1.1 BACKGROUND FOR THIS STUDY............................................................................ 5 1.2 LISTING OF THE ACTIVITIES AND SUB-STUDIES DELIVERED (TORS SEE ANNEX) .. 6 1.3 SUMMARY OF THE OVERALL FINDINGS................................................................. 6 1.3.1 Demand survey............................................................................................ 6 1.3.2 Draft business models for offgrid electrification ........................................ 7 1.3.3 Cash flow analysis for the offgrid energy suppliers ................................... 7 2 PREFACE.................................................................................................................. 8 3 OVERVIEW.............................................................................................................. 9 3.1 NICARAGUA ELECTRIFICATION STATISTICS ........................................................ 10 3.2 PRIVATIZATION PROCESS ................................................................................... 11 3.2.1 Status of the privatization process ............................................................ 11 3.2.2 Electrification law..................................................................................... 13 3.3 CURRENT OFF GRID APPROACHES AND PERSPECTIVES : ...................................... 14 3.3.1 Electrification objectives and costs:......................................................... 14 3.3.2 Cooperation agreements........................................................................... 15 3.3.3 Institutional arrangements........................................................................ 16 3.3.4 Tariffs and capacity to pay ....................................................................... 20 3.3.5 Technical options and base line situation: ............................................... 27 3.3.6 Electricity consumption............................................................................. 30 4 METHODOLOGY ................................................................................................. 32 4.1 INTRODUCTION .................................................................................................. 32 4.2 MARKET SURVEY ............................................................................................... 32 4.2.1 Survey Design and Implementation .......................................................... 32 4.3 DELIVERY MECHANISMS AND ECONOMIC MODELING ......................................... 34 5 MARKET CHARACTERIZATION .................................................................... 35 5.1 PRESENTATION OF PILOT SITES ........................................................................... 35 5.2 SOCIO ECONOMIC PROFILE ................................................................................. 35 5.2.1 Characteristics of Dwellings..................................................................... 36 5.2.2 Educational Attainment............................................................................. 36 5.2.3 Economic Activities................................................................................... 37 5.2.4 Agriculture and Livestock Raising............................................................ 37 5.2.5 Household businesses ............................................................................... 39 5.2.6 Household Income..................................................................................... 40 5.2.7 Energy use and Energy expenditures........................................................ 43 5.2.8 Consumer preferences............................................................................... 48 5.3 WILLINGNESS TO PAY ........................................................................................ 55 5.4 SUBSTITUTABLE MONTHLY EXPENDITURES DISTRIBUTION ................................. 55 5.4.1 Market segmentation................................................................................. 57 6 SERVICE PROVISION OPTIONS: FINANCIAL MODELING OF TWO CASES.............................................................................................................................. 60 2 6.1 SELECTION OF TWO SITES ................................................................................... 60 6.2 DELIVERY MECHANISMS.................................................................................... 61 6.3 FINANCIAL CONSTRAINTS AND MODELING......................................................... 63 6.4 ROLE OF ENEL.................................................................................................. 64 6.5 EL CUA-BOCAY................................................................................................. 65 6.5.1 Financial modeling:.................................................................................. 71 6.5.2 Results and comments............................................................................... 78 6.5.3 Sensitivity analysis:................................................................................... 79 6.5.4 Conclusion: ............................................................................................... 81 6.6 EL AYOTE .......................................................................................................... 81 6.6.1 Financial modeling ................................................................................... 88 6.6.2 Results and comments............................................................................... 93 6.6.3 Sensitivity análisis..................................................................................... 98 6.6.4 Conclusion .............................................................................................. 100 7 CONCLUSIONS AND RECOMMENDATIONS.............................................. 101 8 ANNEX – FINANCIAL MODELING / CASH FLOW ANALYSIS ............... 105 8.1 REPORT ............................................................................................................ 105 8.1.1 EXECUTIVE SUMMARY: ...................................................................... 106 8.1.2 OVERVIEW OF ANALYSIS .................................................................... 110 8.1.3 EL CUA: Project Definition................................................................... 111 8.1.4 EL AYOTE: Project definition ............................................................... 117 8.2 EXAMPLES CASH FLOW MODELING (XLS SAMPLES – BY GEORGE STERZINGER) 124 8.3 SENSITIVITY ANALYSIS – BY GEORGE STERZINGER......................................... 130 8.3.1 El Ayote Case.......................................................................................... 131 8.3.2 El Bote Case............................................................................................ 132 9 ANNEX –MARKET SURVEY............................................................................ 133 9.1 REPORT ............................................................................................................ 133 9.1.1 Introduction............................................................................................. 134 9.1.2 Survey Design and Implementation ........................................................ 135 9.1.3 Survey Results......................................................................................... 138 9.1.4 Consumer preferences and ability to pay ............................................... 162 9.1.5 Conclusions and Recommendations ....................................................... 170 9.1.6 ANNEX A - Commercial and Public Power Demand in Cuá – Bocay, El Ayote and Nueva Guinea......................................................................................... 173 1.1.1........................................................................................................................... 173 9.1.7 ANNEX B - The Estimation of Household Income and Other Issues from the 2000 Nicaragua Rural Electrification Survey .................................................. 178 9.2 ADVANCED ANALYSIS OF MONTHLY SUBSTITUTABLE ENERGY EXPENDITURES IN THE MUNICIPIOS OF AYOTE, CUA-BOCAY AND NUEVA GUINEA (NICARAGUA). .......... 184 9.2.1 Introduction............................................................................................. 184 9.2.2 Comments on the database..................................................................... 184 9.2.3 Analysis of substitutable monthly expenditures distribution and probability densities 186 3 9.2.4 Substitutable monthly expenditures distribution..................................... 186 9.2.5 Probability densities