Transforming the Landscape for Off-Grid Electrification in the Project/Programme Title: Philippines Country(ies): Philippines National Designated Climate Change Commission (CCC) Authority(ies) (NDA): Accredited Entity(ies) (AE): Land Bank of the Philippines (LANDBANK) Date of first submission/ version number: Date of current submission/ June 11, 2020 V6 version number Please submit the completed form to [email protected], using the following name convention in the subject line and file name: “CN-[Accredited Entity or Country]-YYYYMMDD” PROJECT / PROGRAMME CONCEPT NOTE Template V.2.2 Notes • The maximum number of pages should not exceed 12 pages, excluding annexes. Proposals exceeding the prescribed length will not be assessed within the indicative service standard time of 30 days. • As per the Information Disclosure Policy, the concept note, and additional documents provided to the Secretariat can be disclosed unless marked by the Accredited Entity(ies) (or NDAs) as confidential. • The relevant National Designated Authority(ies) will be informed by the Secretariat of the concept note upon receipt. • NDA can also submit the concept note directly with or without an identified accredited entity at this stage. In this case, they can leave blank the section related to the accredited entity. The Secretariat will inform the accredited entity(ies) nominated by the NDA, if any. • Accredited Entities and/or NDAs are encouraged to submit a Concept Note before making a request for project preparation support from the Project Preparation Facility (PPF). • Further information on GCF concept note preparation can be found on GCF website Funding Projects Fine Print. PROJECT / PROGRAMME CONCEPT NOTE Template V.2.2 GREEN CLIMATE FUND | PAGE 1 OF 14 A. Project/Programme Summary (max. 1 page) A.1. Project or ☐ Project A.2. Public or ☒ Public sector programme ☒ Programme private sector ☐ Private sector A.3. Is the CN submitted Yes ☐ No ☒ ☐ Confidential in response to an If yes, specify the RFP: A.4. Confidentiality1 ☒ 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 for the ☐ Forestry and land use project/program Adaptation: Increased resilience of: mme ☐ Most vulnerable people and communities ☐ Health and well-being, and food and water security ☐ Infrastructure and built environment ☐ Ecosystem and ecosystem services A.7. Estimated 4,800 HH or 24,000 A.6. Estimated adaptation impact individuals or 1.4% of mitigation impact 185,852 (number of direct 340,000 HH in 1,700 (tCO2eq over lifespan) beneficiaries and % of island barangays population) A.8. Indicative total Amount: USD 28,171,101 A.9. Indicative GCF Amount: USD project cost (GCF + co- funding requested 17,999,290 finance) A.10. Mark the type of financial instrument ☒ Grant ☐ Reimbursable grant ☐ Guarantees ☐ Equity requested for the GCF ☐ Subordinated loan ☒ Senior Loan ☐ Other: specify___________________ funding This refers to the total A.11. Estimated a) disbursement period: 2 years A.12. Estimated period over which the duration of project/ project/ Programme b) repayment period, if applicable: investment is effective. programme: lifespan 20 years 20 years Yes ☐ No ☒ A.13. Is funding from ☐ A or I-1 Other support received ☒ If so, by the Project Preparation A.14. ESS category3 ☒ B or I-2 who: Land Bank of the Philippines Facility requested?2 ☐ C or I-3 (LANDBANK) A.15. Is the CN aligned A.16. Has the CN been with your accreditation Yes ☒ No ☐ Yes ☒ No ☐ shared with the NDA? standard? Yes ☐ No ☒ If no, specify the status of AMA A.18. Is the CN A.17. AMA signed (if negotiations and expected date of included in the Entity Yes ☒ No ☐ submitted by AE) signing: Under review by LBP Legal Work Programme? Department prior to submission of Funding Proposal The project is an expanded pilot for the construction of 7.8MW comprising of 6MW on-grid A.19. solar and 1.8MW of off-grid solar micro-grid. The project will further validate the public- Project/Programme, private partnership model and expand the knowledge base in order to minimize and manage objectives and risk for a nationwide adoption and strategic use of distributed renewable energy technology approach of as a component of the ECs energy mix that will optimize the energy value chain. Landbank programme/project as the accredited entity is the executing entity and will implement the project with co- (max 100 words) executing entities AIEC Island Light and Water Corporation, Inc. and One Renewable Energy Enterprise, Inc. who were selected for their expertise and relationship with the ECs. 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.2.2 GREEN CLIMATE FUND | PAGE 2 OF 14 B. Project/Programme Information (max. 8 pages) B.1. Context and baseline (max. 2 pages) Current State of Philippine Energy Sector Energy is a key component for socio-economic development. The Philippines' energy sector faces the challenges of (1) heavy reliance on fossil fuels and imported energy; (2) high energy demand; and (3) tough regulatory environment. The average annual growth of Philippine gross domestic product (GDP) in the past ten years had been 5.4% and the country plans to increase its GDP growth to 7% by 2040. The planned GDP growth will drive higher energy demand.4 Based on 2018 DOE Report, the energy mix of the Philippines comprise of 70% fossil fuel and 30% renewable, consisting mainly of geothermal and hydro (8.2% and 15.5%, respectively) and only 3.8% solar the country’s most abundant resource. The Philippine Energy Plan (PEP) 2017-2040, the DOE's blueprint to secure the country's energy future highlights the top three strategic directions of the energy sector to: ensure energy security, expand energy access and promote a low carbon future.5 The archipelagic geography of the Philippines with its 7,641 islands poses an enormous challenge to the national goal of total electrification. Of the 24.2M consumers nationwide, 60% are served by ECs, while 39.9% are served by private distribution companies and 0.1% by municipal electricity systems. However, as of March 2019, there are still 2.9 million households or about 12% of total households without access to electricity, more than half of which are in “off-grid” areas.6 The National Electrification Administration (NEA) estimates that there are still some 1,700 remote and isolated island barangays that are either unserved or underserved. Their distance from the mainland makes it expensive, and in many cases impossible to connect to the main grid. The low volume of demand (<1MW) seasonal income from the residents (living off fishing, farming and in some cases local tourism) make them high credit risk. Tedious regulatory process, lack of information on prospective areas for electrification and difficulties in obtaining waivers from incumbent utility franchise holders make it difficult to attract private sector participation in island electrification developments. The lack of / insufficiency of power affects the quality of life and restricts economic development of the island residents. Most of these areas are within the franchise of ECs, whose major challenge is to find an innovative solution to provide 24x7 power to these islands, improve operational efficiencies and at the same time provide assurance to the investor of return of capital. The EPIRA7 mandates the National Power Corporation Small Power Utilities Group (NPC-SPUG) to energize off-grid or missionary areas. Currently, NPC-SPUG operates 285 power plants in 239 areas serving customers in isolated grids/areas consisting of 47 Distribution Utilities (Electric Cooperatives and Local Government Units). Except for 1 hydro facility, all the power plants are serviced by diesel or bunker-fired generators. However, due to the prohibitive cost of delivering power using diesel generator, NPC-SPUG had been unable to serve all off-grid areas, and not all areas served are fully served. Only thirty-one (31) out of the 239 areas (or 13 %) have 24-hour electric service, while 19 (or 8%) have 12-23 hours service and the remaining 189 or 79 % contend with less than 12 hours of electricity per day.8 These “off- grid” power supply represents 2% of the installed capacity and about 1.4% of total gross generation of 1,315 GWh in the Philippines.9 (See Annex I for an illustration of the Philippine Off-Grid Power System.) The demand in small island grids is therefore grossly understated since most of the areas are underserved. Electricity Tariff and Role of Renewable Energy in Off-grid Electrification To address the high cost of power vis-à-vis the capacity to pay of people in remote barangays, government subsidy, through the universal charge for missionary electrification (UCME) was provided for under the EPIRA. This allowed NPC- SPUG to charge consumers only the Subsidized Approved Generation Rat (SAGR) for power generation, while it collects from the UCME the balance of its full generation cost. However, in areas without NPC-SPUG operations, households have to pay the full cost of power, thus, people in the islands pay much higher tariff than their mainland counterpart, resulting in inequity among consumers. In a study conducted by NPC-SPUG and ERC, Diesel Power Plants (DPP) were determined to have higher generation cost compared to renewable energy (RE) sources. 4 The Philippines energy future and low-carbon development strategies, retrieved from https://www.sciencedirect.com/science/article/pii/S0360544218300458 5 Department of Energy, Philippine Energy Plan 2017-2040, https://www.doe.gov.ph/pep?page=1 6 Rivera, D.