PROJECT EXECUTIVE SUMMARYGEF COUNCIL WORK PROGRAM SUBMISSION

AGENCY’S PROJECT ID: 1858COUNTRY: LesothoPROJECT TITLE: Renewable Energy-Based Rural Electrification in LesothoGEF AGENCY: UNDPDURATION: 5 YearsGEF FOCAL AREA: Climate ChangeGEF OPERATIONAL PROGRAM: OP #6GEF STRATEGIC PRIORITY: CC-2 Increased Access to Local Financing for Renewable energy and Energy Efficiency Estimated Starting Date: Sept. 2004IA Fee: US$382,000

*Details provided under the Financial modality and cost effectiveness section

Contribution to Key Indicators of the Business Plan:1. Estimated reduction of 20,000 tonnes of CO2 in the target areas of the project (Mokhotlong

district and the Semonkong mini-grid) and an additional 16,000 tonnes of CO2 in the other regions of Lesotho due to spin-off effects during the project, over a 20-years’ time horizon. Replication in other areas of Lesotho (after the project) will lead to an additional 70,000 tonnes of CO2 emissions reduction.

2. At least 1135 rural customers in the target area receiving energy services from renewable energy sources (PV, wind or hydro) and an additional 500 customers in the other regions of Lesotho due to spin-off effects. Replication in other areas of Lesotho (after the project) will lead to an additional 3000 rural customers receiving energy services from renewable energy sources.

Record of endorsement on behalf of the Government

Name and Title of Operational Focal PointMr. Stanley Damane, Director of National Environment Secretariat Date: 30 January, 2004

Approval on behalf of UNDP: This proposal has been prepared in accordance with GEF policies and procedures and meets the standards of the GEF Project Review Criteria for work program inclusion.

Name, title, and signature of accountable officerYannick GlemarecDeputy Executive CoordinatorDate: 15 March 2004

Project Contact Person:Martin KrauseUNDP-GEF Climate Change Coordinator+27 12 354 8125martin.krause@undp.org

FINANCING PLAN (US$)GEF PROJECT/ COMPONENT

Project: 2,500,000PDF B: 220,000Subtotal GEF 2,720,000Co-financing GEF Agency 10,000Others 4,245,500Sub-Total Co-financing 4,255,500Total Project Financing 6,975,500Financing for Associated Activities if any

Leveraged resources if any:

1. Project Summary

(a) Project rationale, objectives, outputs and activities

The project aims at reducing Lesotho’s energy-related CO2 emissions by introducing renewable energy technologies as a substitute for fossil fuel (paraffin and diesel) in rural areas remote from the national electricity grid and improving people’s livelihoods by improving their access to and affordability of modern energy services. In addition, the project will decrease the growing number of rural poor, adults and children alike, who contract respiratory and eye problems due to prolonged exposure to paraffin smoke and soot (poor indoor air quality). The activities proposed in the project are designed to remove barriers to the wide-scale utilisation of renewable energy technologies (PV, wind and mini hydro) to meet the basic electricity needs of households, small businesses and of community users like health clinics and schools, initially in the Mokhotlong district, but eventually in the whole country.

The project activities and outputs are designed to achieve six immediate objectives: 1. delivery of renewable energy-based technology packages: To implement

different delivery models for renewable energy-based rural electrification targeting different end-user groups and making use of different technology packages.

2. awareness raising: To increase awareness among the general public, decision-makers and rural customers on the potential role of renewable energy in meeting basic energy needs in rural areas.

3. private and public sector strengthening and training: To strengthen and support the public and private sector working in the renewable energy sector to provide better quality of service to the rural areas.

4. policy support and policy framework: To assist the development of policy and institutional arrangements needed for the widespread adoption of renewable energy sources for off-grid electricity services.

5. financial mechanisms: To assist with the implementation of appropriate financing mechanisms for the larger scale dissemination of renewable energy based technologies to rural customers.

6. learning and replication: To disseminate experience and lessons learned in order to promote replication throughout the country of rural electrification based on renewable energy technologies.

The project activities focus on establishing codes and standards; launching awareness campaigns for decision makers, the general public and end-users; piloting PV systems at community water-pumping facilities and business-centres; demonstrating the viability of wind/PV mini-grids: showing the viability of expanding the use of mini hydro in Lesotho; assisting renewable energy technology companies in business planning and training of technicians; testing end-user and supply-chain financing mechanisms such as dealer credit and partial risk guarantee schemes and providing grants to innovative business ideas for productive uses.

(b) Key indicators, assumptions and risks (from logframe)

Key indicators to the project are the number of PV systems sold in the Mokhotlong district over the lifetime of the project, the number of wind (hybrid) mini-grids installed and the additional installed hydropower capacity, combined with the reduction in the consumption of paraffin in households using renewable energy based systems and the amount of diesel consumption avoided. The project M&E system will make provisions to verify baseline data and track these indicators at regular intervals. Important project assumptions relate to the market price of paraffin, the willingness of the private sector and end-users to engage with the project activities, willingness at the political level to create an enabling environment (including the implementation of

the proposed National Rural Electrification Fund) and the execution as planned of the Electricity Access Pilot Project (EAPP). These assumptions will be closely monitored and the project intervention strategy adapted accordingly.

2. Country Ownership

(a) Country Eligibility

Lesotho ratified the UNFCCC on 7 February 1995

(b) Country Drivenness

The project has been developed in close consultation with various key stakeholders which include private sector, non-governmental organisations and Government departments and is supported at the highest political level. The Government attaches high priority to providing basic energy services to the country’s off-grid rural communities as expressed in the proposed National Rural Electrification Fund. As one of the key strategic objectives for the energy sector in Lesotho reducing the fossil fuel dependency for isolated grids and remote locations and the increased use of renewable energy as a substitute have been identified. Other objectives include promoting private sector participation in the energy sector and studying the potential role of renewable energy, particularly in rural electrification initiatives. The Government of Lesotho has initiated several initiatives in the field of rural electrification, particularly the establishment of a rural electrification unit within the Department of Energy, the Rural Electrification Working Group and the planned World Bank funded Electricity Access Pilot Projects. The proposed GEF supported programme will interlink with these initiatives and complement them.

3. Program & Policy Conformity

(a) Fit to GEF Operational Program and Strategic Priority

The geography of Lesotho, with its mountainous areas with peaks up to 3000 meters, does not lend itself for extensive extension of the national electricity grid. In the process of the privatisation of the Lesotho Electricity Company (LEC), a clear distinction have been made between the LEC concession area, targeted for grid connections and the rural areas. The area outside the LEC concession area is targeted for off-grid electrification. The LEC concession area is broadly limited to the lowlands of the country, with the off-grid areas being the highland.

Lesotho has excellent renewable energy resource base, ranging from extensive mini hydropower potential, small-scale wind potential to abundant solar radiation. The exploration of these energy sources using renewable energy technologies would make it possible to meet the basic energy needs of the rural population. Providing clean energy for basic services will give a tremendous improvement in the quality of life of the rural population. Clean energy resources will mainly replace paraffin currently used for lighting purposes and dry cell batteries for entertainment purposes. Local benefits are a reduction in the exposure of smoke and soot from paraffin and reduced expenditure on dry cell batteries. Local businesses will benefit through the reduced need for diesel generators and the associated cost and noise reduction.

This project fits under SP-CC-2 because it will focus on increasing access to local sources of financing for renewable energy. The financing mechanisms for end-users, dealers and financing institutions will be developed prior to CEO endorsement building upon locally established mechanisms such as dealer credit schemes and experiences with micro-finance institutions. The implementation of these financing

mechanisms will be a central part of the project with substantial budgetary allocations.

During the PDF B phase the project identified the main barriers for the large-scale utilisation of renewable energy technologies in Lesotho.

These barriers are:Institutional barriers

Lack of an effective infrastructure for delivering renewable energy-based energy services on a sustainable basis

Fragmented institutional responsibilities and lack of integrated planning and implementation by various stakeholders including Government, the research institutions, the academic institutions, the NGOs, community based organisations (CBOs) and the private sector with regard to the applications of renewable energy technologies. The involvement of community participation in the promotion of renewable energy technologies is essential.

Economic, financial and market barriers Limited private sector capacity to supply, distribute, install and maintain

renewable energy systems. The situation is severe with maintenance since all the suppliers and installers are in the capital Maseru and not in rural areas where maintenance is required. In addition, ordinary retail shops do not sell PV components. Consequently, the consumers need to travel long distances to get the required maintenance services or even to replace a light. In some cases, the consumers prefer not to pursue the maintenance but rather stop using the PV technology. This is one of the greatest barriers in the utilisation of PV electricity.

Limited business skills, while there are some people with energy expertise the appropriate business skills to start energy enterprises are lacking

Lack of or very limited in-country experience with many of the relevant renewable energy systems options.

Lack of suitable financing arrangements for renewable energy companies and end users, and the need for training of in-country financial institutions to lend for renewable energy enterprises and projects. This is one of the greatest barriers to the development of the market of PV industry in the country.

Technical barriers Poor workmanship in the installation, operation and maintenance of

renewable energy technologies, including PV systems.Information, education and training barriers

Lack of access to necessary information Lack of public awareness of the technologies Lack of trained manpower at all levels and in particular insufficient qualified

personnel for maintenance for renewable energy systems including PV.

Incremental Costs

The proposed project activities would not take place in the absence of UNDP and GEF support, making the project activities largely incremental. The project is not requesting a subsidy per W of renewable energy technology capacity installed. Therefore, the incremental costs associated with this project are considered to be the costs of the activities designed to remove the barriers to renewable energy-based electrification and stimulate the market in the Mokhotlong district and eventually in the whole country.

According to the available information on the current energy consumption, a household uses approximately 7.5 litres of paraffin per month for lighting purposes, costing approximately M 25.50 (US $ 3.65 / month). In addition to this, a household in

rural areas spends approximately M 36.00 (US $ 5.14) on dry cell batteries to power radios and torches. In the case of hi-fi or TV appliances, a monthly battery charging rate of about M 20.00 (US $ 2.86) has to be paid by the household.

For the targeted 1000 PV systems in the Mokhotlong district, the estimated CO2

emissions reduction as a result of substituting paraffin based lighting with electrical lighting, amounts to 4500 tonnes over a 20 years’ period. This is based on an average saving of nearly 6 litres paraffin savings per month per customer. In line with the IPCC guidelines, the CO2 reduction per litre of paraffin has been taken as 3.2 kg. For the hybrid wind/PV mini-grid at Sani Top, 30 households will save the consumption of nearly 6 litres of paraffin per month, while two of the three businesses that will be connected (a general dealer and a tourist accommodation) will each save the use of 3 kW Lister diesel generator for 3 hours every evening. The household customers will reduce their carbon emissions by 130 tonnes of CO2 over a 20 years’ time horizon, while the two businesses will save a similar amount. This total emissions reduction for the Sani Top mini-grid will add to 260 tonnes of CO2.The replacement of one planned diesel generator of 100 kW at the Semonkong mini-grid by expanded hydro capacity will reduce the GHG emissions by 15,000 tonnes of CO2.The project activities as such will eliminate nearly 20,000 tonnes of CO2 over a 20 years’ time horizon.

Direct spin-offs of the project activities are additional sales of PV systems in the Thaba-Tseka and Qacha’s Nek districts and the implementation of the Seforong mini-grid using mini hydropower will contribute to an additional 16,000 tonnes of CO2

emissions reduction.

Replication of the project activities in other areas of Lesotho (after the project) will lead to an additional 70,000 tonnes of CO2 emissions reduction.

(b) Sustainability (including financial sustainability)

The Government of Lesotho considers rural electrification essential to support income generating activities thus contribution to poverty alleviation. In this respect, the establishment of the National Rural Electrification Fund (NREF) is a positive step. According to the draft NREF regulations, NREF will provide early stage funding and enterprise development services to entrepreneurs, helping build successful business that supply clean energy technologies and services to rural and peri-urban areas in the country. The proposed project is viewed as a support initiative to, and an integral part of, the on going sustainable national efforts to effectively promote rural electrification.

(c) Replicability

An entire component (#6) of the project has been designed to replicate models, approaches and lessons both within Lesotho and the SADC region. It is envisaged to design a roll-out programme for renewable energy-based systems based on the experiences in the Mokhotlong district for the districts of Thaba-Tseka and Qacha’s Nek. After a successful demonstration during the project period of a private sector-led model for the delivery of basic electricity services to rural communities, it is expected that companies will expand their business to other regions in the country, thus replicating delivery and financing modalities.

(d) Stakeholder Involvement

The main stakeholders (public, private and civil society) dealing with climate change, (renewable) energy and PV were consulted throughout the implementation of the PDF-B phase and in particularly during the stakeholders’ workshop organised.

Public participation is vital in the whole process of providing electricity services to remote rural areas. The project management unit (PMU) will maintain very close contact with the rural end-users in the local communities. The Project Manager will organise regular meetings with the local inhabitants to secure their concurrence and support to the activities proposed for implementation and to explain to them the benefits that they would derive from such activities. In addition, a Rural Electrification Working Group, which replaces the usual Project Steering Committee, consisting of representatives of the Department of Energy, other ministries, the private sector and the UNDP-Lesotho who represents GEF, will provide a platform for stakeholder input.

(e) Monitoring and Evaluation

Lessons from other GEF supported PV projects, particularly the Zimbabwe and Uganda initiatives have been incorporated into the design of this project. For example the focus of this project on cash sales is a direct result of lessons learned from Zimbabwe and Uganda. Another lesson, which has influenced the design of this project, relates to end-users and supply-chain financing. The limited success with revolving funds in Zimbabwe and Uganda has prompted a more careful, phased approach towards innovative financing instruments as documented in component 6.

The project will be monitored and evaluated according to standard UNDP rules for nationally executed projects. Precise indicators have been identified as presented in the summary and LFA annex. An innovative feature of this project is to incorporate the use of GIS software to capture the monitoring and evaluation data and make it readily and easily available for the other initiatives this project co-operates with.

4. Financing Modality and Cost-Effectiveness

Co-financing SourcesName of Co-financier (source)

Classification Type Amount (US$)

Status

National Rural Electrification Fund

Government Cash 2,500,000 Letter attached

Electrification access pilot project (PV)

Government/ Donor Cash 816,500 Letter attached

Support Rural Electrification Unit

Government/ Donor Cash 546,000 Letter attached

Dept. of Energy (budget renewables)

Government Cash 183,000 Letter attached

Department of Rural Water Supply

Government Cash 73,000

Companies Private Sector Cash 10,000UNDP TRAC Implementing Agency Cash-Grant 10,000

Dept. of Energy Government In-kind 17,000Sub-Total Co-financing 4,255,500

As can be seen on the cover-page of this executive summary, the co-financing ratio is 1:1.7 which means that for every GEF dollar spent, 1.70 dollars will be spent in Lesotho from other sources.

GEF Project Budget by ComponentComponent description Estimate GEF

budget1. delivery of renewable energy based technology packages

US$ 700,000

2. awareness raising US$ 200,0003. private and public sector strengthening and training US$ 300,0004. policy support and policy framework US$ 100,0005. financial mechanisms US$ 800,0006. learning and replication US$ 300,000M&E US$ 100,000Total US$ 2,500,000

5. Institutional Co-ordination & Support(a) Core commitments & Linkages

Energy and Environment has been identified in the UNDP Country Co-operation Framework (CCF) as a practice area.

(b) Consultation, Co-ordination and Collaboration between IAs, and IAs and EAs

One of the co-financiers of the project is the World Bank / African Development Bank led LEC privatisation process. The Electricity Access Pilot Project that will be funded though that process will implement two of their four pilots in the same district as the project is targeting. It is anticipated that synergies between the projects can be achieved through good communication and co-operation. As the Department of Energy implements both projects, no difficulties are expected in this regard.At the moment no other initiatives by the UNEP, World Bank or UNDP have been planned for design and/or implementation in Lesotho in the broad fields of renewable energy and rural electrification. Nevertheless the project will closely follow possible future activities of UNEP and the World Bank and will seek active collaboration in the event that other related activities are being designed and implemented.

(c) Project Implementation Arrangement

The proposed GEF/UNDP supported project will be executed within the guidelines of UNDP National Executing (NEX) modality. The Department of Energy (DOE) of the Ministry of Natural Resources will serve as overall Executing Agency for the project. The proposed project is viewed as a support initiative to the national efforts to effectively promote rural electrification and as such its management, planning and implementation will be part of the activities of the Rural Electrification Unit (REU) whose Chief will report directly to the Department of Energy. In order for this integration to be practically realised, the Chief of REU will be the manager of this project.

Annex A - Incremental cost analysis and matrix

Project activity Baseline Alternative IncrementComponent 1:delivery of renewable energy-based technology packages: To implement different delivery models for renewable energy-based rural electrification targeting different end-user groups and making use of different technology packages

Cash sales of PV systems through the private sector as is currently the case will continue at the current very low levelVery limited applications of PV for productive uses

The community in Sani Top will continue to rely on fossil fuels for their energy services

Three villages will be provided with pumped waterThe mini-grid at Semonkong will be expanded from the current 42 customers to 250 customers by installing additional diesel generation capacity

The mini-grid at Seforong will be implemented without a hydro component

1000 customers will be targeted for purchase of a PV system through cash sales or a credit schemeEstablishment of small-scale productive uses through the provision of “solar-containers”A hybrid wind/PV mini-grid will be established at Sani TopWind energy potential for rural areas assessedThree villages will be provided with PV pumped waterThe mini-grid at Semonkong is expanded from the current 42 customers to 250 customers by installing additional hydro capacity and additional diesel capacityThe hydro-potential at Seforong is identified and a hybrid mini-grid is implemented

Increased application of renewable energy-based rural electrification

Increased application of renewable energy for productive uses.Potential of small-scale wind applications in the rural areas is known

Water pumping in the rural areas is increasingly done using PVThe Semonkong mini-grid will be expanded using both the hydro resource and additional diesel capacity

The Seforong mini-grid is implemented using hydropower.

Cost: US $ 816,500 (EAPP PV) US $ 234,000 (EAPP Semonkong) US $ 73,000 (RWS) ______________total US $ 1,123,500

Cost: US $ 816,500 (EAPP) US $ 234,000 (EAPP Semonkong) US $ 600,000 (GEF) US $ 73,000 (RWS) US $ 2,500,000 (NREF)total US $ 4,223,500

Incremental cost: US $ 600,000 (GEF) US $ 2,500,000 (NREF) ______________total US $ 3,100,000

Project activity Baseline Alternative Increment

Component 2: Consumers are not fully aware of Formulate a programme utilising Renewable energy dissemination

awareness raising: to increase awareness among the general public, decision-makers and rural customers on the potential role of renewable energy in meeting basic energy needs in rural areas

the potential of utilising renewable energy-based technologies as an alternative for paraffin, candles and dry cell batteries to obtain safe, efficient and reliable lighting / electricity services in the rural areas

Decision makers are not fully sensitised with regard to the role that PV and hybrid mini-grids can play in rural electrification

multi-media, organise general awareness campaigns and demonstrations of PV and hybrid mini-grid applications

programme

Cost: US $ 0 Cost: US $ 300,000 (GEF) US $ 50,000 (GOL in kind) ____________total US $ 350,000

Incremental cost: US $ 300.000 (GEF) US $ 50,000 (GOL in kindtotal US $ 350,000

Component 3.to strengthen and support the public and private sector working in the renewable energy sector to provide better quality of service to the rural areas

Local companies have limited capacity for quality interventions regarding PV systems and renewables linked mini-grids

A limited number of companies will be able to expand their operations, but the market growth will be minimal

Develop an appropriate curriculum to increase the capacity of the local companies to deliver quality products

Assist the private sector in developing business skills, prepare business plans and access loans to expand the market

Local companies are able to deliver higher quality products and services

Private sector companies have better business skills and thus able to expand their operations

Cost: US $ 0 Cost: US $ 400,000 (GEF) Incremental cost: US $ 400.000 (GEF)

Project activity Baseline Alternative Increment

Component 4:policy support and policy framework:To assist in the development of policy and institutional arrangements needed for the widespread adoption of

Renewable energy-based rural electrification will not be an integrated activity in the National Rural Electrification FundNo standards for PV and mini-grids are in place and enforced

Assistance to the integration of renewable energy-based rural electrification in the activities of the NREFStandards for PV and mini-grids are in place

Far more attention to the specific role renewable energy-based rural electrification in LesothoHigh standards for the implemented projects on renewable energy-based rural electrification projects

renewable energy sources for off-grid electricity services

implementedCost: US $ 183,000 (GOL in kind) US $ 546,000 (WB) ____________total US $ 729,000

Cost: US $ 183,000 (GOL in kind) US $ 546,000 (WB)) US $ 200,000 (GEF)total US $ 929,000

Incremental cost: US $ 200,000 (GEF)

Component 5. financial mechanisms: To assist with the development of appropriate financing mechanisms for the larger scale dissemination of renewable energy based technologies to rural customers

Despite some interest and previous initiatives, very little actual lending for investments in the PV market occurs. As the market slowly expands, the lack of financing to PV customers and industry will become a major bottleneck to its expansionLong-term financial support schemes for renewable energy-based rural electrification are not attended to in the rural electrification schemes

To design, test and evaluate viable financing options / mechanisms for disseminating renewable energy-based rural energy services

Integration of implementation strategies for subsidy schemes into the National Rural Electrification Master Plan

Valuable experience on setting up appropriate financing schemes for rural energy service provision in Lesotho is obtained

Longer term financing in the form of subsidy schemes for renewable energy-based rural electrification has been designed and integrated into the operations of the National Rural Electrification Fund

Cost: US $ 10,000 (private sector in kind)

Cost: US $ 10,000 (private sector in kind) US $ 400,000 (GEF) US $ 25,000 (GOL in kind)total US $ 435,000

Incremental cost: US $ 400,000 (GEF) US $ 25,000 (GOL in kind)

____________total US $ 425,000

Project activity Baseline Alternative Increment

Component 6. learning and replication: To disseminate experience and lessons learned to promote replication of rural electrification based on renewable energy technologies throughout the country

No structured learning and dissemination of activities in the baseline

Limited ability to learn from projects both within and outside the country

Closely follow the implementation of component 1 and initiate a national programme to replicate the use of PV and hybrid mini-grids to generate and supply electricity to off-grid rural customersEvaluate the impact of the project interventions Closely follow the implementation

Recommendations for the inclusion of renewable energy based rural electrification in the operational activities of the NREF

Improved understanding of the impact of rural electrification on the quality of life of the communities in rural areasLessons learned documented

of similar projects in other SADC countries and learn from their experiences

and a dissemination programme for such is in place

Cost: US $ 10,000 (UNDP PDF B) US $ 17,000 (GOL PDF B)

Cost: US $ 10,000 (UNDP PDF B) US $ 17,000 (GOL PDF B) US $ 500,000 (GEF)total US $ 527,000

Incremental cost: US $ 500,000 (GEF)

Component:Monitoring and evaluation

No monitoring of the impact on CO2 emissions reductions and the impact on the quality of life of the rural population of Lesotho will occur

To design a baseline, indicators and means of verification of the impacts on CO2 emissions reduction, the PV market development, income generating activities and hybrid mini-grids

Impacts of the proposed interventions have been measured, analysed and serve as a management tool for the project management team

Cost: US $ 0 Cost: US $ 100,000 (GEF) US $ 25,000 (GOL in kind)____________total US $ 125,000

Incremental cost: US $ 100,000 (GEF) US $ 25,000 (GOL in kind)total US $ 125,000

TOTAL costs Cost: US $ 1,050,500 (EAPP) US $ 73,000 (RWS) US $ 200,000 (GOL) US $ 10,000 (UNDP) US $ 10,000 (private sector)_____________ total US $ 1,343,500

Cost: US $ 1,050,500 (EAPP) US $ 73,000 (RWS) US $ 2,500,000 (GEF) US $ 2,500,000 (NREF) US $ 300,000 (GOL) US $ 10,000 (UNDP) US $ 10,000 (private sector)_____________total US $ 6,443,500

Incremental cost: US $ 2,500,000 (GEF) US $ 2,500,000 (NREF) US $ 100,000 (GOL)

______________total US $ 5,100,000

Global environmental benefits An estimated 3300 tonnes of CO2 emissions avoided over the 20 years in Lesotho due to anticipated baseline activities

Over 20 years in Mokhotlong district 10,000 tonnes of CO2 emissions avoided

Due to the implementation of microhydro at mini-grids, a CO2 emissions reduction of 30,000 tonnes

Nation-wide approximately 35,000 tonnes of CO2 will be reduced over a 20 years time horizon

Domestic benefits PV market continues to grow very The market for PV will grow at a In the target areas a reduction of

slowly.

The hydro resources of the country are not fully exploited

Most rural households will continue being exposed to smoke and soot due to the use paraffin for lighting,

much faster rate

The hydro potential of the country will be better utilised

Significant reduction of the exposure to paraffin smoke and soot in the project areas and in the country as a whole

the consumption of 1.5 million litres of paraffin achieved

Additionally approximately 280000 litres of paraffin are saved nation-wide

Approximate savings of 8.8 million litres of diesel due to replacement by hydro capacity

Significant reduction in the exposure to indoor air pollution from paraffin

Annex B - Project Planning Matrixstrategy indicators means of verification critical assumptionGlobal objective:To reduce Lesotho’s energy related CO2 emissions by substituting fossil fuel (paraffin and diesel) with renewable energy sources (PV, wind and hydro) for household and productive uses through the provision of basic energy services to rural homes and community users

Consumption of paraffin reduced by 80 % in the households using renewable energy based systems for lighting

Energy use survey

Incidence of paraffin related respiratory and eye diseases reduced by 10 % over 5 years within those households targeted by the project

Medical survey

Small scale renewable energy-based business activities increased by 50 % compared to the baseline

Dealer survey

Consumption of diesel for generating electricity reduced by 80% in the households and businesses targeted by the wind/PV and hydro/diesel mini-grid pilots

Energy use survey

Development objective:to improve people’s livelihoods by promoting the utilisation of renewable energy to provide basic electricity services to the rural areas in Lesotho starting in the Mokhotlong district, thus reducing the country’s dependency on fossil fuels

The number of customers reached by renewable energy-based electricity services in the Mokhotlong district reaches 1760 in year 5 of the project, as compared to 735 in the baseline

Dealer surveyEAPP filesProject files

Paraffin prices will not significantly dropEAPP will be implemented as planned

The hydro component of the Semonkong hydro/diesel mini-grid is expanded

Site visit The feasibility study that will be carried out under the project concludes the expansion of the hydro capacity at Semonkong is feasible

strategy indicators means of verification critical assumptionImmediate objective 1:To implement different delivery models for renewable energy-based rural electrification targeting different end-user groups and making use of different technology packages

The number of household PV systems in the district will be 2035 as compared with 1035 in the baseline scenario

Project implementation and progress report

End-users are able and willing to adopt new technologies

A hybrid mini-grid using PV and wind is established at Sani TopThe Semonkong mini-grid is equipped with additional hydro generation equipment

Output 1.1In Mokhotlong district 1000 customers purchased PV-systems through a credit scheme or through cash sales

1000 PV systems sold in Mokhotlong district

Data from PV dealers Private sector is willing to engage in offering credit schemes to rural customers

Output 1.2At least three businesscentres are established in the Mokhotlong district using PV as their energy source

Three business centres established using PV

Project files Rural households are interested to use the services of the businesscentres

Output 1.3Limited grant financing is provided to a small number of schemes proposed by the private sector to test various productive uses of renewable energy

At least 5 grants provided to companies by the end of the project

Project files Private sector is willing to participate in the development of productive use applications of PV

At least 1 product for productive use applications is commercialised by the end of the project

Dealer survey

Output 1.4An isolated hybrid mini-grid using wind and PV is installed at Sani Top serving at least 25 customers and two businesses

25 domestic customers and two businesses connected to a hybrid mini-grid at Sani Top

Project files End-users are able and willing to adopt new technologies

Output 1.5The wind energy potential for small-scale power generation, in

Capacity built in the Department of Energy and LMS to interpret wind data for assessing the wind

Report on capacity building activities done

Funds for wind measurement equipment will be provided for in the annual budget of LMS

particularly hybrid mini-grids at selected sites that are favourable for hybrid mini-grids using wind is assessed

energy potential Collected data and site evaluation

Output 1.6In Mokhotlong district three villages have been provided with PV water pumping systems

Three systems installed and in operation in line with the PV Code of Practise

Project files

Output 1.7Feasibility study on the potential to increase the hydro component of the Semonkong hydro/diesel mini-grid

Report on the feasibility of increasing the installed hydro capacity

Project files

Output 1.8The capacity of the hydro station at Semonkong is increased

The installed capacity at the Semonkong hydro station is increased with an additional 180 kW

Project files The feasibility study that is carried out under output 2.1 concludes the expansion of the hydro capacity at Semonkong is technically feasible and economical viable

Output 1.9The use of hydropower generation is included in the Seforong mini-grid

The mini-grid at Seforong has a hydropower component

Project files

strategy indicators means of verification critical assumptionImmediate objective 2:To increase awareness among the general public, decision makers and rural customers on the potential role of renewable energy in meeting basic energy needs in rural areas

Doubling of the number of people using renewable energy technologies as compared with the baseline scenario

Energy consumption report

Output 2.1Information and awareness packages have been developed and made available to the general public

Information and awareness packages in the form of brochures, leaflets, demonstrations, road shows, TV/radio announcements

Copies of these packages are readily available

Willingness of market parties, national, district and local government to act as an outlet for the distribution of the packages

Output 2.2Awareness programme for decision makers is developed and implemented

At least 25 key decision makers have visited the target area and have been exposed to the activities of the project

Reports prepared on these visits Willingness of high-level decision makers to undertake multi-day trips to remote rural areas.

Output 3.3A rural customer awareness programme is formulated and implemented

At least 1000 persons attending information meetings in the rural areas

Reports on information meetings Rural customers are interested to participate in information meetings

strategy indicators means of verification critical assumptionImmediate objective 3:To strengthen and support the public and private sector working in the renewable energy sector to provide better quality of service to the rural areas

Number of businesses dealing with renewable energy systems increased by 50% by the end of the project

Dealer survey Market actors are willing to co-operate and businesses are eager to expand and/or include renewable energy technologies in their businessLevel of end-user satisfaction with

installation and after sales increased by 50% by the end of the project

End-user survey

Output 3.1Business development services in the renewable energy sector will be strengthened

At least 50% of all renewable energy dealers/companies active in Lesotho participated in at least one capacity building activity offered by the project

Project files (attendance register capacity building activities)

Willingness of private sector to invest time in training

Output 3.2Technical knowledge of renewable energy technologies is strengthened

Several technical training courses offered to vendors, dealers, technicians, etc. which are completed by 75% of the participants

Project files

Output 3.3The association of PV suppliers in Lesotho is operational (Lesotho Solar Energy Society, LESES)

75% of all PV businesses are member of the association

Membership register of LESES Private sector is willing to co-operate in the PV association

strategy indicators means of verification critical assumptionImmediate objective 4:To assist the development of policy and institutional arrangements needed for the widespread adoption of renewable energy sources for off-grid electricity services

Willingness of NREF to incorporate renewable energy based electricity into their operations

Output 4.1A policy and implementation framework for renewable energy based rural electrification is defined and in place

By the end of the project renewable energy features prominently in the National Rural Electrification Master Plan as an option for meeting energy needs in rural areas

National Rural Electrification Master Plan

Output 4.2Standards for renewable energy technologies and mini-grids are updated and enforced

80% of suppliers of PV committed to the PV code of practice

List of companies that agreed to adhere to the code of practice

Private sector willing to improve quality of services by adhering to PV code of practice

Standards publicly available Project files Industry is willing to co-operate to develop these standards

strategy indicators means of verification critical assumptionImmediate objective 5:To assist with the implementation of appropriate financing mechanisms for the larger scale utilisation of renewable energy based technologies to rural customers

50% of all major PV dealers offer at least one financing option for rural customers

Data from dealers and financial institutions compiled in project documentation

Willingness of financial sector to get involved in financing renewable / PV energy systems

Output 5.1Financing schemes for end-users, dealers and financing institutions implemented

At least two financing schemes are operational in order to deliver PV systems to rural customers

Data from financial sector

Output 5.2Sustainable long-term financial support schemes for renewable energy systems are implemented

Design and implementation strategies for financial support schemes documented and integrated in the National Electrification Master Plan

Fiscal policy

strategy indicators means of verification critical assumptionImmediate objective 6:To disseminate experiences and lessons learned in order to promote replication throughout the country of rural electrification based on renewable energy technologiesOutput 6.1A programme for replication of the activities implemented under immediate objective 1 is prepared

After year 4 of the project, 50 PV systems will be sold annually in the Thaba-Tseka and Qacha’s Nek districts

Sales figures Successful implementation of the activities of component 1Willingness of rural customers in Thaba-Tseka and Qacha’s Nek to use PVAfter year 4 of the project, the

planned mini-grid at Seforong will be implemented using hydropower

Resource assessment completedHydropower included in the tendering documents

Output 6.2Evaluation of the impact of renewable energy technologies on rural livelihoods

Baseline survey and annual data updates provided throughout the project-life

Evaluation report Willingness / ability of rural customers to provide necessary socio-economic information to assess impact

Output 6.3Support has been provided to disseminate the learning and replication experiences in the project area

Experiences from this project will be shared with all actors involved in rural electrification in Lesotho

Project files Actors involved in rural electrification in Lesotho are willing to learn from the project experiences

The experiences from this project will be shared with at least four countries in the SADC region before the end of the project

Project files Willingness of actors in other countries to actively share information on their renewable energy based rural electrification activities.

Annex C: Response to Project Reviews

a) Convention Secretariat

b) Review by expert from STAP Roster

Cb1) STAP review

STAP Technical ReviewRenewable Energy-Based Rural Electrification in Lesotho

Dr. Mark C. Trexler, Trexler Climate + Energy Servicesmtrexler@climateservices.com

OVERALL IMPRESSIONS

This project has worthwhile objectives and is recommended for approval. The project targets a doubling of baseline PV installations in Lesotho and also develops local capacity to integrate hybrid energy systems. These components represent a contribution to global development efforts and can potentially contribute to GEF’s strategies and policies. The project goes one step further by addressing policy issues associated with renewable energy technology (RET) deployment by facilitating the formulation and implementation of Lesotho national standards involving code of practice and minimum requirements for PV systems and mini-grids.

That said, there are several key points I come away with upon reviewing the documentation:

1. The proposed project is broader than a number of other GEF projects, encompassing the promotion and operation of a wider variety of technologies than just SHS. It includes the concept of expanding or creating hydro, diesel, and wind-based mini-grids, but does not address whether the technical resources in Lesotho are up to this task. It would seem that a number of the implementation objectives of the project will be quite a bit harder to achieve in the face of this technological diversity than if focusing on just one technology, and the risks increased, but this not addressed in the document.

2. The proposed project is occurring in the context of many projects and policy initiatives that have come before in Lesotho. This is made clear early in the project document. For example, paragraph 9 states:

“In mid 2003, the DOE established a stakeholder-based Rural Electrification Working Group (REWG), to prepare for the implementation of rural electrification pilot projects and the formulation of NREP. Guided by facilitators, CORE International, the REWG prepared a report entitled “Overall Action Plan for Rural Electrification in Lesotho – Phase I: Preparation and Implementation of RE Pilot Projects”. This report includes a list of major immediate and mid-term milestones and actions for rural electrification in Lesotho, as well as best practices from other parts of the world.

In the rest of the document, however, there is very little sense that this project is part of such a gameplan, or that this project’s developers have given attention to why this project will succeed whether the others did not. For most of the project document you would almost think the project is occurring on a “clean slate,” but that is far from the case. It would be useful to make clearer to the reader at different places in the document that this context exists, that the project is specifically positioned to fill holes level by other projects, and that the project is implementing steps developed and agreed to by national and regional experts in RETs, and by experts with experience in Lesotho.

3. The same point can be made in the context of international efforts. The document makes reference in quite a few places to developing financing tools, information dissemination materials, and other things that one would think have been developed several times before in the context of other projects. As a result the project does not seem to be taking advantage of GEF’s own history in this area. Again, it would be useful to make clearer to the reader through specific examples in the document that this international context exists, and that the project is building upon the analytical and policy foundation other projects (including GEF projects) have put into place.

RELEVANCE AND PRIORITY

This project is consistent with the Vision 2020 and the Poverty Reduction Strategy and is relevant to GEF’s development objectives by promoting the deployment of renewable energy technologies. As the proposal notes, these technologies can improve the livelihoods of users by reducing the amount of time that they devote to securing paraffin or biomass energy sources. The project also supports the GOL objective to increase the proportion of citizens with rural electrification. The project complements the work of the World Bank and its support of the forthcoming GOL Rural Electrification Unit.

PROJECT OBJECTIVES

A key stated objective “to improve people’s livelihoods by promoting the utilisation of renewable energy to provide basic electricity services to the rural areas in Lesotho starting in the Mokhotlong district, thus reducing the country’s dependency on fossil fuels”. In effect, these are two rather different objectives:

The first is to enhance quality of life and rural incomes by providing RET based electricity where power is not likely to be provided through centralized fossil sources.

The second stated objective to reduce dependency on fossil fuels is somewhat tangential to the first objective. If Lesotho has a large trade deficit in petroleum products that is negatively impacting economic growth (and thus quality of life), then this should be delineated in the document as a very useful rationale for the project. Otherwise, this goal should be stated as reducing global GHG emissions.

One specific note. Table 2 argues that as a result of the project’s energy related activities, more dung and agricultural residues will be available to help enhance soil productivity and food production. It is never really argued in the documentat, however, that the electricity production that is the focus of this project will reduce the need for heating and cooking fuels. It seems unlikely that electricity would be used for these purposes.

PROJECT ACTIVITIES

This project proceeds on multiple fronts and is “designed to remove barriers to the wide-scale utilisation of PV, mini hydro-diesel hybrids and wind-PV hybrids”. The project appears to integrate lessons learned both in Lesotho and in other parts of Africa that developing both public and private sector infrastructures for the deployment of PV technologies is essential, although as noted above it’s not always clear how these lessons will be integrated. It is comprised of six components, each designed to address one or more barriers to RET deployment.

Table 4 presents the activities in chronological order over the next five years, but does not indicate the interplay between the activities themselves. Almost all of the six components will occur in year one. But how will the delivery of RET packages in component 1 be

leveraged in the awareness raising activities in component 2, and/or the public and private sector training in component 3? The strategic identification, a priori, of these potential linkages prior to implementation, and their implications for project design and start-up, could enhance the success of the project going forward. To the extent that these different components are handled by different people or through different implementation mechanisms, the lack of such an “larger view” could lead to missed opportunities and false starts.

Generally speaking, the project’s activities are only vaguely specified, and are thus difficult to evaluate from the standpoint of project risks and outcomes. These will presumably be better developed in the next stage of the project.

SCIENTIFIC AND TECHNICAL SOUNDNESS

The international development community has considerable experience in RET deployment and the individual technologies that the project proposes to deploy are each relatively mature. However, there should be some concern about the level of technical expertise that is necessary to operate and maintain the mini-grid systems, particularly when thinking bout PV/wind hybrid mini-grids integrating two intermittent resources under component 1.4.

FUNDING

The level of funding for this project is consistent with comparable GEF projects, although it is certainly modest in the context of the objectives being sought. The activity with the largest cost is component 1. Although Table 5 provides a cursory budget for this component, there remains some uncertainty as to the estimated costs associated with each output. The $3.1m contributed by GEF and NREF is not earmarked for any specific output. While it is difficult to estimate costs prior to implementation, a spending target is appropriate in order to help track implementation, and evaluate each output’s performance in the future.

A significant chunk of GEF funding will go to component 1. The project notes that it will focus on the “cash and credit” market. It’s not clear, however, where the revenues from selling into this market will go. Will they be recycled into the project in some way?

One important omission from the proposal is the estimated costs per tonne of CO2 reductions. Section 6 on Incremental Financing does not provide estimates of the costs of the estimated 40,760 tonnes of CO2 reductions. Delineating the proper boundaries as to which costs should be included for the estimation of CO2 costs can be problematic; should the total budget or only the GEF component be utilized? This issues has come up and been looked at in detail in other GEF PV projects. No matter what methodology is determined appropriate, the estimated costs of the CO2 benefits should be included in the proposal.

Furthermore, the alternative project activity under component 1 in Annex A states that “The mini-grid at Semonkong will be expanded from the current 42 customers to 250 customers by installing additional diesel generation capacity”. This reviewer would like Section 6 on incremental costs to note whether the emissions reductions therein are inclusive of any additional diesel capacity. Section 6 argues that this expansion is part of the baseline, but how likely is it that the resources for this would be available in the absence of this project? If a primary impact of this project were to be the expansion of diesel capacity, that could more than counter the calculated CO2 benefits of the project.

REPLICABILITY

As mentioned previously, one aspect of this project that is relatively innovative is its use of RET hybrid technologies to address rural electrification issues. The low carbon mini-grid

technologies deployed by this project are potentially important for rural electric development and the lessons learned can significantly contribute to future efforts. The project goes one step further towards replicability by addressing policy issues associated with RET deployment by facilitating the formulation and adoption of national standards, including code of practice and minimum requirements for PV systems and mini-grids.

In addition, the activities under output 1.3 should be recognized for its efforts to build cooperation between the energy, agricultural, and rural development sectors. The subsidiary principle, that the lowest level of decision-making is the most appropriate, is one avenue of assisting replicability. If the project can enable citizens to demonstrate their economic successes from RET dissemination to each other, they will see that their interests are best met thru RETs. The best way to do this is to include explicit measures to facilitate the development of businesses using local knowledge, customs and economic needs. This kind of bottom-up, private sector led demonstration effort could also be funded under output 6.2

SUSTAINABILITY

Past donor efforts to disseminate PVs have in some cases distorted the local markets and have resulted in dwindling demand following program termination. Component 3 of this project includes specific efforts to build public and private solutions to RET deployment. Building sectoral infrastructure is arguably the most important variable in building sustainable, long-term demand for RETs in rural environments. Furthermore, Annex C plainly shows that there is significant potential demand for PV systems in Lesotho.

Because of the importance of this component, I’m concerned that it might not be receiving the funding that required to ensure sustainability. The $400,000 budget, entirely supported by GEF, seems minimally suited to the magnitude of the task at hand. It’s likely that the development of the sector infrastructure will encompass a wider scope of activities than is described in output 3. Successful solar system deployment in China and Kenya involved required a widespread distribution network involving all actors in the supply chain from manufacturers, importers and distributors, and dealers supplying products and services to end users. Activities under this component should ensure that this need, to the extent it exists in Lesotho, is addressed.

Furthermore, there exists some contradiction between the lessons learned in Lesotho in section 1.3 and the delivery model that is proposed here. Section 1.3 “the market for RETs, in particular PV industry has not reached maturity and consequently, financial support is essential for PV market infrastructure development.” The concessionaire delivery model doesn’t provide for any subsidies for end-users to purchase systems. It is understandable to want end-users to appropriately value the systems that they receive. This is a trade off with the possibility of the end-user not buying the system because of its high price. It might be possible that there is a need for some form of adaptive management within the project that would enable a change of measures and delivery models if demand was not materializing as forecasted over the course of the project.

STAKEHOLDERS

The proposal indicates that a stakeholders’ workshop was convened on 20th -22nd August 2003 for help “in identifying additional stakeholders and in defining their respective roles in barrier removal.” The importance of stakeholder integration during implementation can be exemplified by a recent study reporting that by 2001, none of the 48 PV systems installed in rural South African schools between 1996-1998 was still operational. Theft and vandalism of

PV systems was sited as the main reason for the failures.1 This points to the importance of integrating local stakeholders in project implementation, especially for the non-residential systems.

SPECIFIC NOTES

Paragraph. 39 (and incremental cost analysis) There is the suggestion that this project will result in the ramping back or the shutdown of existing diesel capacity. In a system with such limited access to electricity, this seems like a very unlikely outcome, and the assertion should be re-evaluated or better documented. Unfortunately, this “diesel displacement” is a major source of anticipated CO2 reductions, so it has a potentially significant impact on the project’s benefits.

Page. 19 The document states “Since the DANCED project on wind generation project has been initiated in the country, as it is perceived as a non-feasible option for Lesotho.” I assume the word “not” should be before the word “initiated?”

Output 1.2. It is not clear exactly what a business centre is, and what will constitute success in terms of the electrification of these centres.

Output 6.2. This is one example of where such a methodology must have been developed before. Can this not be taken advantage of?

Paragraph 51. The discussion of project risks is very vague, particularly the initial discussion of “policy risk.” Simply asserting that certain project elements eliminate risk doesn’t make it so. As previously noted, the history of RET activities in Lesotho should provide a much better indication of what the magnitude of these risks really is, and whether this project is effectively addressing them. But that information is not present in the document. Paragraph 57 suggests that previous experience with these risks will be incorporated during the project. It would be significantly increase the likelihood of project success, however, for this to occur prior to implementation.

Annex C, page 54. There seems to be an assumption that because many households pay the same for kerosene, batteries (and firewood?) that they would for a PV system or other RET, that this means they’ll buy the RET. This isn’t necessarily clear, since they will still be buying firewood, may be reluctant to go into debt, and other reasons. To the extent this assumption is key to the business model used in the project, it should be evaluated before implementation.

Paragraph 78. This paragraph suggests a link between this project and potential CDM methodologies. It’ not really clear what the link would be, and it may make sense to keep the different frameworks quite distinct. The approach to quantifying the CO2 benefits of this project are very rough. That may be fine in the context of the GEF’s objectives, but then CDM procedures may have little relevance. To later try and apply CDM quantification and monitoring procedures to this project may not make any sense given the project’s GEF context.

1 Renewable Energy World (2002). Learning a Lesson: Assessing PV Programs in Rural South Africa. March-April, 83-91.

Cb2) Response to STAP review

UNDP Response to STAP review

UNDP’s response is quoted in italics

STAP Technical ReviewRenewable Energy-Based Rural Electrification in Lesotho

Dr. Mark C. Trexler, Trexler Climate + Energy Servicesmtrexler@climateservices.com

OVERALL IMPRESSIONS

This project has worthwhile objectives and is recommended for approval. The project targets a doubling of baseline PV installations in Lesotho and also develops local capacity to integrate hybrid energy systems. These components represent a contribution to global development efforts and can potentially contribute to GEF’s strategies and policies. The project goes one step further by addressing policy issues associated with renewable energy technology (RET) deployment by facilitating the formulation and implementation of Lesotho national standards involving code of practice and minimum requirements for PV systems and mini-grids.

That said, there are several key points I come away with upon reviewing the documentation:

4. The proposed project is broader than a number of other GEF projects, encompassing the promotion and operation of a wider variety of technologies than just SHS. It includes the concept of expanding or creating hydro, diesel, and wind-based mini-grids, but does not address whether the technical resources in Lesotho are up to this task. It would seem that a number of the implementation objectives of the project will be quite a bit harder to achieve in the face of this technological diversity than if focusing on just one technology, and the risks increased, but this not addressed in the document.

UNDP response: We agree with the STAP reviewer that it might have been easier to focus just on one technology (PV). However, technological diversity to achieve rural electrification with RETs is part of the government strategy which this project is supporting. Furthermore, the variety of natural resources available in Lesotho justify a broader approach. With regard to the concern about the technical capacity in Lesotho please note that the project has earmarked US$ 400k to strengthen the technical capacity in the public and private sector. The training programmes and courses will include training on wind and hydro-diesel mini-grids. Specific reference to this has now been made under output 3.2. The new activity reads as follows: “Develop a variety of courses (short/long-term) for various target groups on financing for small-scale renewable energy systems; the correct sizing, installation, operation, repair and maintenance. The courses will cover all technologies promoted through this project including PV systems, Wind-PV and Hydro-Diesel Minigrids and other relevant topics tailored to the needs of the following groups.”

Furthermore, since Lesotho’s economy is tightly linked to South Africa, South African expertise can be called upon. South Africa has extensive experience with off grid PV

(schools/clinics projects, PV concessions), and has an emerging windpower industry (mainly in the Western Cape region) and does have hydropower design, manufacturing and installation expertise (e.g. Clackson Power in White River). The project will use existing expertise in Lesotho, augmented by regional expertise.

5. The proposed project is occurring in the context of many projects and policy initiatives that have come before in Lesotho. This is made clear early in the project document. For example, paragraph 9 states:

“In mid 2003, the DOE established a stakeholder-based Rural Electrification Working Group (REWG), to prepare for the implementation of rural electrification pilot projects and the formulation of NREP. Guided by facilitators, CORE International, the REWG prepared a report entitled “Overall Action Plan for Rural Electrification in Lesotho – Phase I: Preparation and Implementation of RE Pilot Projects”. This report includes a list of major immediate and mid-term milestones and actions for rural electrification in Lesotho, as well as best practices from other parts of the world.

In the rest of the document, however, there is very little sense that this project is part of such a gameplan, or that this project’s developers have given attention to why this project will succeed whether the others did not. For most of the project document you would almost think the project is occurring on a “clean slate,” but that is far from the case. It would be useful to make clearer to the reader at different places in the document that this context exists, that the project is specifically positioned to fill holes level by other projects, and that the project is implementing steps developed and agreed to by national and regional experts in RETs, and by experts with experience in Lesotho.

UNDP response: The design of this project took 18months and US$ 200k was spent. The project development team was composed of experts from Lesotho (including secondments from DoE), and one international part-time advisor and supervised by DoE. Many of the individuals/ experts who were involved in developing this project have been involved in previous efforts. Furthermore DoE has learnt many lessons through previous initiatives which all have been fed into the design of this project. In fact, this project is the continuation of a long term process of promoting Renewables in Lesotho. The reason why the context is mentioned only in section one “Background and Context” and in paragraph 61-63 and not explicitly throughout the rest of the document has to do with the project brief format. In para. 19 some of the lessons and experiences are summarized. These and also lessons learnt from the international experience have been instrumental in shaping the design of the project. The GEF proposal’s main aim is linking all initiatives in Lesotho and ensuring that renewable energy technologies will be incorporated in the rural electrification plan. It will make use of existing projects and generate synergies between them.

6. The same point can be made in the context of international efforts. The document makes reference in quite a few places to developing financing tools, information dissemination materials, and other things that one would think have been developed several times before in the context of other projects. As a result the project does not seem to be taking advantage of GEF’s own history in this area. Again, it would be useful to make clearer to the reader through specific examples in the document that this international context exists, and that the project is building upon the analytical and policy foundation other projects (including GEF projects) have put into place.

UNDP response: Many lessons have been learnt by GEF and others. These lessons have been systematically integrated in the project design. UNDP-GEF organized a regional workshop

in May 2003 on Solar PV which was attended by the Lesotho PDF B team. This workshop served as a platform to exchange experiences and learn from other PV initiatives. The project itself envisages intensive international information exchange. Although not interwoven in the project document, component 5 explicitly allows for this international learning.

This project does not attempt to develop new financing tools or reinvent information material that exists elsewhere. The focus is rather on choosing and applying in a specific context existing financing tools (there are more than 30!) and modifying them if necessary.

RELEVANCE AND PRIORITY

This project is consistent with the Vision 2020 and the Poverty Reduction Strategy and is relevant to GEF’s development objectives by promoting the deployment of renewable energy technologies. As the proposal notes, these technologies can improve the livelihoods of users by reducing the amount of time that they devote to securing paraffin or biomass energy sources. The project also supports the GOL objective to increase the proportion of citizens with rural electrification. The project complements the work of the World Bank and its support of the forthcoming GOL Rural Electrification Unit.

PROJECT OBJECTIVES

A key stated objective “to improve people’s livelihoods by promoting the utilisation of renewable energy to provide basic electricity services to the rural areas in Lesotho starting in the Mokhotlong district, thus reducing the country’s dependency on fossil fuels”. In effect, these are two rather different objectives:

The first is to enhance quality of life and rural incomes by providing RET based electricity where power is not likely to be provided through centralized fossil sources.

The second stated objective to reduce dependency on fossil fuels is somewhat tangential to the first objective. If Lesotho has a large trade deficit in petroleum products that is negatively impacting economic growth (and thus quality of life), then this should be delineated in the document as a very useful rationale for the project. Otherwise, this goal should be stated as reducing global GHG emissions.

UNDP response: The goal of reducing global GHG emissions is clearly stated in para 40. This goal is called the “global objective”. Separate from this is the “development objective” which is cited here. The last half sentence which relates to the dependency on fossil fuels makes reference to the national, economic interest (saving hard currency by reducing fuel imports). We will try to get some statistics to show how much diesel and paraffin is imported per year and how much that cost. Indeed this could be a powerful argument which we will explicitly mention at CEO endorsement stage.

One specific note. Table 2 argues that as a result of the project’s energy related activities, more dung and agricultural residues will be available to help enhance soil productivity and food production. It is never really argued in the documentat, however, that the electricity production that is the focus of this project will reduce the need for heating and cooking fuels. It seems unlikely that electricity would be used for these purposes.

UNDP response: Table 2 is the result of work done in the context of the PRSP and vision 2020 process. It has been included here to show how the objectives of the project respond to the community need. Dung and agricultural residues are being used mainly for cooking and heating. PV will not substitute for traditional cooking and heating techniques. Therefore we

agree with the STAP reviewer that this bullet in the table is not immediately relevant to this project.

PROJECT ACTIVITIES

This project proceeds on multiple fronts and is “designed to remove barriers to the wide-scale utilisation of PV, mini hydro-diesel hybrids and wind-PV hybrids”. The project appears to integrate lessons learned both in Lesotho and in other parts of Africa that developing both public and private sector infrastructures for the deployment of PV technologies is essential, although as noted above it’s not always clear how these lessons will be integrated. It is comprised of six components, each designed to address one or more barriers to RET deployment.

Table 4 presents the activities in chronological order over the next five years, but does not indicate the interplay between the activities themselves. Almost all of the six components will occur in year one. But how will the delivery of RET packages in component 1 be leveraged in the awareness raising activities in component 2, and/or the public and private sector training in component 3? The strategic identification, a priori, of these potential linkages prior to implementation, and their implications for project design and start-up, could enhance the success of the project going forward. To the extent that these different components are handled by different people or through different implementation mechanisms, the lack of such an “larger view” could lead to missed opportunities and false starts.

UNDP response: The project has to act on multiple fronts simultaneously to address all the barriers. All components will be centrally managed and coordinated by the project manager who is the head of the rural electrification unit (REU). The interplay and linkages between the components will happen at the level of the REU. This project is part of a broader DOE strategy and it falls within the mandate of the DOE as the executing agency of this project to align and coordinate all project activities.

Generally speaking, the project’s activities are only vaguely specified, and are thus difficult to evaluate from the standpoint of project risks and outcomes. These will presumably be better developed in the next stage of the project.

UNDP response: The project proposal presents the level of detail required at work programme entry. At the stage of the inception report (after CEO endorsement) activities will be specified in much greater detail.

SCIENTIFIC AND TECHNICAL SOUNDNESS

The international development community has considerable experience in RET deployment and the individual technologies that the project proposes to deploy are each relatively mature. However, there should be some concern about the level of technical expertise that is necessary to operate and maintain the mini-grid systems, particularly when thinking bout PV/wind hybrid mini-grids integrating two intermittent resources under component 1.4.

UNDP response: The concern about strengthening the level of technical expertise with regard to installing, operating and maintaining the mini-grids is justified. We have amended output 3.2 as mentioned above. The training programmes and courses will include training on wind and hydro-diesel mini-grids. Specific reference to this has now been made under output 3.2. The new section reads as follows: “Develop a variety of courses (short/long) for various target groups on financing for small-scale renewable energy systems; the correct sizing, installation, operation, repair and maintenance. The courses will cover all technologies

promoted through this project including PV systems, Wind-PV and Hydro-Diesel Minigrids and other relevant topics tailored to the needs of the following groups.”

FUNDING

The level of funding for this project is consistent with comparable GEF projects, although it is certainly modest in the context of the objectives being sought. The activity with the largest cost is component 1. Although Table 5 provides a cursory budget for this component, there remains some uncertainty as to the estimated costs associated with each output. The $3.1m contributed by GEF and NREF is not earmarked for any specific output. While it is difficult to estimate costs prior to implementation, a spending target is appropriate in order to help track implementation, and evaluate each output’s performance in the future.

UNDP response: A budget breakdown by activity will be provided at CEO endorsement. At this stage only a rough component t budget is required. The US$ 3.1 for component 1 cover all outputs of this component.

A significant chunk of GEF funding will go to component 1. The project notes that it will focus on the “cash and credit” market. It’s not clear, however, where the revenues from selling into this market will go. Will they be recycled into the project in some way?

UNDP response: The project promotes the private sector as the driver for delivering PV systems to the market. The project itself will not act as an importer and seller of PV systems. Private PV companies will keep their revenues and hopefully invest and expand their businesses.

The project will assist the private sector with the development of appropriate financing schemes. These will be once-off investments by the project. The return will come as higher turn over by the private sector and an increased number of customers in the target area.

One important omission from the proposal is the estimated costs per tonne of CO2 reductions. Section 6 on Incremental Financing does not provide estimates of the costs of the estimated 40,760 tonnes of CO2 reductions. Delineating the proper boundaries as to which costs should be included for the estimation of CO2 costs can be problematic; should the total budget or only the GEF component be utilized? This issues has come up and been looked at in detail in other GEF PV projects. No matter what methodology is determined appropriate, the estimated costs of the CO2 benefits should be included in the proposal.

UNDP response: We are not sure where the number of 40760 tonnes comes from. The executive summary mentions 36000 tonnes as direct result of the project and an additional 70000 tonnes as result of replication. The $/ton of CO2 have now been calculated and included in the brief as follows: 2,500,000/ 36,000 = 69. The reduction of one tonne of CO2

costs 69 USD. The following paragraph has been inserted in the brief (para 71)” “The total CO2 emission reductions that can be directly attributed to the project are 36,000 tonnes of CO2 over the 20 year lifetime of the equipment. This results in a cost of US$ 69/ ton of CO2 (2,500,000/ 36,000).”

Furthermore, the alternative project activity under component 1 in Annex A states that “The mini-grid at Semonkong will be expanded from the current 42 customers to 250 customers by installing additional diesel generation capacity”. This reviewer would like Section 6 on incremental costs to note whether the emissions reductions therein are inclusive of any additional diesel capacity. Section 6 argues that this expansion is part of the baseline, but how likely is it that the resources for this would be available in the absence of this project? If

a primary impact of this project were to be the expansion of diesel capacity, that could more than counter the calculated CO2 benefits of the project.

UNDP response: In the baseline scenario the Worldbank project will finance the expansion of the Semonkong minigrid with diesel generators. In the project case it is assumed that the minigrid will still be expanded to 250 customers, but that that the power generation would be partly hydropower. This means that due to the project activities less additional diesel capacity will be installed. Assumption in this is that the number of 250 customers is the maximum for the location.The funding for the diesel generation capacity is independent from the GEF project.

REPLICABILITY

As mentioned previously, one aspect of this project that is relatively innovative is its use of RET hybrid technologies to address rural electrification issues. The low carbon mini-grid technologies deployed by this project are potentially important for rural electric development and the lessons learned can significantly contribute to future efforts. The project goes one step further towards replicability by addressing policy issues associated with RET deployment by facilitating the formulation and adoption of national standards, including code of practice and minimum requirements for PV systems and mini-grids.

In addition, the activities under output 1.3 should be recognized for its efforts to build cooperation between the energy, agricultural, and rural development sectors. The subsidiary principle, that the lowest level of decision-making is the most appropriate, is one avenue of assisting replicability. If the project can enable citizens to demonstrate their economic successes from RET dissemination to each other, they will see that their interests are best met thru RETs. The best way to do this is to include explicit measures to facilitate the development of businesses using local knowledge, customs and economic needs. This kind of bottom-up, private sector led demonstration effort could also be funded under output 6.2

UNDP response: We appreciate the supportive comments. Output 1.3 includes an award scheme for innovative productive use applications. This will help developing creative local businesses. Output 6.2 is more geared towards monitoring the livelihood impact of PV customers. Therefore we suggest to leave the current structure as is.

SUSTAINABILITY

Past donor efforts to disseminate PVs have in some cases distorted the local markets and have resulted in dwindling demand following program termination. Component 3 of this project includes specific efforts to build public and private solutions to RET deployment. Building sectoral infrastructure is arguably the most important variable in building sustainable, long-term demand for RETs in rural environments. Furthermore, Annex C plainly shows that there is significant potential demand for PV systems in Lesotho.

Because of the importance of this component, I’m concerned that it might not be receiving the funding that required to ensure sustainability. The $400,000 budget, entirely supported by GEF, seems minimally suited to the magnitude of the task at hand. It’s likely that the development of the sector infrastructure will encompass a wider scope of activities than is described in output 3. Successful solar system deployment in China and Kenya involved required a widespread distribution network involving all actors in the supply chain from manufacturers, importers and distributors, and dealers supplying products and services to end users. Activities under this component should ensure that this need, to the extent it exists in Lesotho, is addressed.

UNDP response: Again, UNDP agrees with Dr. Trexler that building sectoral infrastructure for RETs is a key element for success. In our view the entire project is designed to achieve this. Component 3 only deals with training and capacity development. It is a very focussed component. Other components of the project deal with other parts of the sector infrastructure such as the financing (component 5) or awareness raising (component 2). Creating and sustaining a widespread distribution network is indeed a huge task. If more financial resources are needed to achieve this we will reallocate funds accordingly. The current budget is indicative. We have the flexibility to adjust as we go along.

Furthermore, there exists some contradiction between the lessons learned in Lesotho in section 1.3 and the delivery model that is proposed here. Section 1.3 “the market for RETs, in particular PV industry has not reached maturity and consequently, financial support is essential for PV market infrastructure development.” The concessionaire delivery model doesn’t provide for any subsidies for end-users to purchase systems. It is understandable to want end-users to appropriately value the systems that they receive. This is a trade off with the possibility of the end-user not buying the system because of its high price. It might be possible that there is a need for some form of adaptive management within the project that would enable a change of measures and delivery models if demand was not materializing as forecasted over the course of the project.

UNDP response: If demand as projected by the market study is not materializing we will retain the flexibility to adjust the course of the project and try other delivery models. We are grateful for this observation from the STAP reviewer which will help us to adjust the course of the project when it becomes necessary.

STAKEHOLDERS

The proposal indicates that a stakeholders’ workshop was convened on 20th -22nd August 2003 for help “in identifying additional stakeholders and in defining their respective roles in barrier removal.” The importance of stakeholder integration during implementation can be exemplified by a recent study reporting that by 2001, none of the 48 PV systems installed in rural South African schools between 1996-1998 was still operational. Theft and vandalism of PV systems was sited as the main reason for the failures.2 This points to the importance of integrating local stakeholders in project implementation, especially for the non-residential systems.

UNDP response: We fully agree with the STAP reviewer. The Rural Electrification Working Group (REWG) will be the main platform to ensure genuine stakeholder involvement. In this group rural communities are represented through the Ministry of Local Government and NGOs.

SPECIFIC NOTES

Paragraph. 39 (and incremental cost analysis) There is the suggestion that this project will result in the ramping back or the shutdown of existing diesel capacity. In a system with such limited access to electricity, this seems like a very unlikely outcome, and the assertion should be re-evaluated or better documented. Unfortunately, this “diesel displacement” is a major source of anticipated CO2 reductions, so it has a potentially significant impact on the project’s benefits.

2 Renewable Energy World (2002). Learning a Lesson: Assessing PV Programs in Rural South Africa. March-April, 83-91.

UNDP response: The project aims at replacing planned diesel generation capacity with hydropower. It does NOT envisage replacing existing diesel capacity. This has now been clarified in para 69.

Page. 19 The document states “Since the DANCED project on wind generation project has been initiated in the country, as it is perceived as a non-feasible option for Lesotho.” I assume the word “not” should be before the word “initiated?”

UNDP response: The DANCED project looked into large scale grid connected wind generation. As this is only feasible at one specific location, the impression was given that wind energy is not a viable option for Lesotho. The distinction between large and small scale wind generation was not made explicitly in the DANCED project. From the investigations in the DANCED project the Sani Top location came up as a feasible option for small scale wind.This sentence has been reformulated as follows: “The scope of the DANCED project was limited to the technical and economic viability of wind electricity generation..”

Output 1.2. It is not clear exactly what a business centre is, and what will constitute success in terms of the electrification of these centres.

UNDP response: A business center is a building in which small infant industries and local entrepreneurs can start their business. Examples might be a telecommunication shop, a barber etc. The project will assist in the development of such centers and assist in getting finance for the energy comoponent.

Output 6.2. This is one example of where such a methodology must have been developed before. Can this not be taken advantage of?

UNDP response: This is a good point. UNDP will ensure that existing methodologies to assess the impact of RETs on rural livelihoods will be reviewed and adapted. The activities under Output 6.2 have been rephrased as follows: Activities:

Review and adapt existing methodology for the evaluation and measurement of the impact of renewable energy-based energy services on the livelihoods and standards of living of the customers.

Apply the most appropriate methodology to a representative sample of customers in the project area.

Summarise the impact of renewable energy-based systems on customers based upon the project experiences.

A recently published article might be a good starting point: Gustavsson, M., & Ellegard, A. (2004). The impact of solar home systems on rural livelihoods. Experiences from the Nyimba Energy Service Company in Zambia. Renewable Energy, 29(7), 1059-1072.

Paragraph 51. The discussion of project risks is very vague, particularly the initial discussion of “policy risk.” Simply asserting that certain project elements eliminate risk doesn’t make it so. As previously noted, the history of RET activities in Lesotho should provide a much better indication of what the magnitude of these risks really is, and whether this project is effectively addressing them. But that information is not present in the document. Paragraph 57 suggests that previous experience with these risks will be incorporated during the project. It would be significantly increase the likelihood of project success, however, for this to occur prior to implementation.

UNDP response: At CEO endorsement UNDP will provide a more detailed discussion on risks.

Annex C, page 54. There seems to be an assumption that because many households pay the same for kerosene, batteries (and firewood?) that they would for a PV system or other RET, that this means they’ll buy the RET. This isn’t necessarily clear, since they will still be buying firewood, may be reluctant to go into debt, and other reasons. To the extent this assumption is key to the business model used in the project, it should be evaluated before implementation.

UNDP response: We agree with the STAP reviewer that there is no automatism and guarantee that rural customers will buy PV systems simply because it might be cheaper in the long run. Many other factors play a role. The market study however shows that there is a market for small appliances developing in rural areas which need to be powered. PV is one alternative to power these small appliances and provide lighting. Please note that the assumption that there is a cash and credit market has been evaluated in a market study during the PDF B phase. We will however ensure that this is being monitored closely during implementation because – as rightly observed - the business model depends on this assumption to hold. To this effect we have modified the assumption for immediate objective 1 in the logframe matrix. The new assumption reads: “End users are able and willing to adopt new technologies and ready to use the proposed delivery model (cash and credit sales) to purchase PV systems”.

Paragraph 78. This paragraph suggests a link between this project and potential CDM methodologies. It’ not really clear what the link would be, and it may make sense to keep the different frameworks quite distinct. The approach to quantifying the CO2 benefits of this project are very rough. That may be fine in the context of the GEF’s objectives, but then CDM procedures may have little relevance. To later try and apply CDM quantification and monitoring procedures to this project may not make any sense given the project’s GEF context.

UNDP response: GEF is in a process of learning to better document impact such as GHG emission reductions. This project intends to closely monitor indicators and compare them against an established baseline. The quantification of CO2 benefits is very rough in all GEF funded projects because GEF has not developed sophisticated methods and instruments. It is in this context that UNDP suggests to look at the CDM methodologies which could help to refine GEF’s way of measuring CO2 benefits in the context of this project. It is not intended to retroactively apply CDM procedures or to “mix GEF and CDM frameworks”.

c) Response to comments from Secretariat and other Agencies