Nicaragua: Renewable Energy for Rural Zones Program (PERZA)
In Nicaragua 89% of the rural population were without electricity access in 2003 (3). As the economy of the country depends to a large extent on agriculture, rural electrification is significant for economic and social development. While in the past the Nicaraguan electrification strategy was based on grid electricity the government started more and more also to consider off-grid solutions for rural areas. In this context the PERZA program was implemented to provide sustainable electricity service to selected areas and strengthen the government's institutional capacity to implement its national rural electrification strategy. The program was used to pilot some new sustainable delivery mechanisms and a variety of decentralized energy systems that are based in renewable energy technologies. International financial support and technical assistance came from the International Development Association (IDA) and the Global Environmental Facility (GEF).
The objective of the project was the provision of basic electricity services to improve the life quality of the rural population living in remote areas, through the application of environmental-friendly technologies.
The project targeted low-income families in rural areas.
- Implementation of a sustainable national rural electrification strategy by the Ministry of Energy and Mines (MEM). (2)
- New scheme for rural electrification subsidies, including off-grid and solar energy.
- Lessons learned from microfinancing actions as a tool to facilitate off-grid rural electrification strategy.
- Reduce market barriers for RETs implementing lessons learned from the pilot projects.
- Installation of 6,863 solar home systems (SHS), seven battery stations, four mini-hydro systems and completion of three interconnections to the grid. (2)
- Technical support led the Nicaraguan government to implement rural electrification strategies and policies, as well as to set a legal and regulatory framework for renewable energies.
- To increase local development effects, the program combined sustainable electrification with microcredits and business development services.
- The penetration of microfinance institutions could be markedly increased and access for low-income households and small businesses to financial services has significantly improved.
- The access to business development services also improved.
- Pilot projects were implemented to employ new business models that ensure an efficient use of public subsidies and integrate the private sector. A good monitoring and evaluation (M&E) system guaranteed replicability on a national scale.
- Usage of an output-based aid mechanism: 70 to 80 percent of subsidies were disbursed against construction milestones and the remaining 20 to 30 percent against new connections and service quality. (11)
After several failed payment schemes in the past, the PERZA project implemented an innovative self-sustained financing model for rural electrification in Nicaragua. The program paired electricity access with income generation to achieve sustainable long-term operation and gradual independence from public and international financing. Besides the establishment of a traditional model of subsidizing equipment, the project promoted successfully business development and microfinance services. During project lifespan 43 business plans were developed and Nicaragua counts today with 10 microfinance institutions that offer loans for household hookup and productive uses (12). With that Nicaragua has the highest level of green microfinance penetration in Latin America and Caribbean today (2012 Climate scope report). It is expected that the measures taken will raise employment and income in rural poor areas and enable the population to pay electricity fees.
The total project costs of US$ 20.32 million were mainly funded by an International Development Association (IDA) credit and a Global Environmental Facility (GEF) grant, which were fundamental for the significant increase in rural electrification. Further the Nicaraguan government and the private sector contributed to project financing.
The PERZA project was implemented from the Nicaraguan government as part of its national rural electrification strategy with the goal to increase national electrification rate from 60% in 2002 to 90% in 2012 (3). The project, thanks to the incorporation of the World Bank Group, could support the CNE in the sustainable implementation of sector strategies and policies, as well as the National Rural Electrification Program (PLANER).
The project also supported the preparation of the Law 532 of the Promotion of Renewable Energies. In 2005 the law came into force and implemented several incentive mechanisms for REs: exemption from taxes, payment of customs duties and value added taxes (VAT), as well as feed-in tariffs. In addition PERZA also assisted in the design of tax indicatives and the project "Development of Small-Scale Hydropower for Productive Uses in Areas Outside of Network" (SHP).
Following local-based development perspectives, technical and administrative capacity building formed an important component of the project. Activities were carried out for communities, local electric firms and microfinance organizations. Support for local firms were provided in areas of feasibility studies, electromechanical equipment, micro turbines, electrical networks, etc. (5). In October 2005 for example a workshop was carried out by NMSU with CNE for PV system installer with a focus on PV system basics and installation. Altogether more than 3,000 people took part in workshops and trainings organized by PERZA (12). The project also contributed to capacity building in watershed management and institutional coordination. Business development providers, strengthened by PERZA, provided technical assistance and business training to micro and small companies.
Off-grid electrification projects require a high level of beneficiary participation, as they use decentralized systems in locations far away from existing infrastructure. Therefore, rural citizens play a key role in the prevention, detection and solution of problems. Activities were carried out from PERZA to guarantee participation on several levels. Market surveys and interviews assured that sub-projects would address specific community needs. To promote social participation and capacitate people to handle the services, workshops and trainings were carried out. The possibility to own part of the system should contribute to the communities' sense of ownership.
As the pilot projects target also indigenous people the project took into account their special economic, culture and social characteristics. Surveys and discussions for example were translated in local languages.
Project design focused not only on electrification, but also on other factors for local sustainable development like businesses and microfinance. Addressing the gap of adequate business development services (BDS) for local micro and small businesses in the pilot sites the project promoted BDS providers in the region. The support included matching grants to unable providers to experiment with new services and short-term subsidies to decline prices for services. The access to BDS, including skills, trainings and market information, could be increased and 43 clients were served by providers through the project (2).
Other impacts of the project are related to social and environmental benefits. Electrification improved life conditions of the poor population and minority groups, especially indigenous people. Environmental benefits are related to the mitigation of CO2 emissions.
The project combined different mechanisms to ensure affordability of electricity access for the rural population. A demand study showed that willingness to pay (WTP) varies from US$5 to US$13 per month by region in Nicaragua (6). That is often not enough to get service for the whole month. The project tackled the gap between WTP and life cycle costs with subsidies. However, users had to pay monthly fees for maintenance and operation, as well as a connection fees. The developed microfinance system supported thousands of customers to finance the high investment costs of renewable energies. Their services are orientated to low-income borrowers. The idea of the concept was to promote economic activities and productivity of businesses to enable residents to pay for energy.
Project success was a result of the close work of different actors. Beside the government and international donors, communities and local electric firms were important for project implementation. The participation of local firms, which have high percentages of local members, showed the engagement of communities for the project.
Together with the project also a detailed and practical monitoring and evaluation (M&E) plan was developed. It aimed to meet various needs:
- Measuring of performance indicators aimed to control project progress and success.
- The registration of feed-back from phase one and two of the sub-project component, should allow for improvement of the National Electricity Development Fund (FODIEN), attract private actors to participate and facilitate replication in phase three and beyond.
- The output-based aid (OBA) approach utilized required that performance indicators were measured to have a base for subsidy distribution.
- Demonstrate to CNE (MEM) and Nicaraguan Institute of Energy (INE) how to organize the regulation of off-grid providers in remote areas.
M&E was responsibility of the CNE (MEM), which were supported in project management. The prepared quarterly and annual reports, as well as a mid-term external evaluation en 2006 took into consideration Bank and GEF requirements.
Project M&E was assessed from GEF as practicable and sufficient and therefore satisfactory. Defects were identified of the plan implementation. Performance indicators were partly inadequate and have not taken into account the specific dynamic of off-grid small hydroelectric plants. Therefore