Argentina - Renewable Energy in Rural Market Project

Report No. PID5880 Project Name Argentina-Renewable Energy in Rural (+) Market Project Region Latin America and Caribbean Sector Energy Sector Project ID ARPE6043 Borrower Republic of Argentina Implementation Agency Secretary of Energy (SE) Paseo Colon 171, Piso 8 Buenos Aires, Argentina Ing. Miguel A. Sanmartino Coordinador del Proyecto Phone: (541) 349 8423 Fax: (541) 349 8045 Date this PID Prepared December 12, 1997 Planned Appraisal Date March 1998 Planned Board Presentation July 1998 Country and Sector Background: Project Objectives: The main objectives of the proposed loan are to: (a) provide rural areas with reliable electric supply in a sustainable manner, using renewable sources where feasible; (b) support the consolidation of the power sector reform strategy of the Government of Argentina (GOA); (c) support the Government strategy to expand private sector participation in the provision of electricity in rural areas; and (d) strengthen the regulatory function of provincial governments (PGs) in the power sector. Global GEF objectives are to: (a) promote environmentally sound energy resource development in Argentina and reduce the energy sector's dependence on fossil fuels; (b) remove market barriers to application, implementation, and dissemination of renewable energy sources; and (c) reduce global warming through reducing GHG emissions that would be produced by thermal generation using hydrocarbons. Project Description: The project will consist of the following components: (a) installation and operation in 15 provinces, by private concessionaires of: (i) solar home systems in about 116,000 rural dispersed households; (ii) about 1,000 small decentralized power supply units, range 3 kW to 10 kW each, based on renewable energy systems (RES - photovoltaic, small wind turbines, and mini hydro plants) and diesel units to provide electricity to agglomerated village; and (iii) about 4,400 RES to provide electricity to provincial public institutions (schools, medical centers, police stations); (b) installation of two (2) pilot wind home system; and (c) a capacity building program consisting of a training program to strengthen the capability of the SE and the provincial regulatory agencies, and a technical assistance to  facilitate: (i) the implementation of the program; (ii) the consolidation of the power sector reform in the country; and (iii) the development of the technical and institutional capabilities required for broader adoption of RES. Project Financing: On a preliminary basis, it is estimated that the total cost of the project will be about US$220 million, of which US$60 million would be financed by IBRD, US$13.5 million would be financed by a GEF grant, and the balance (US$146.5 million) by customers, concessionaires, and the provincial governments through existing electrical funds. Project Sustainability: Sustainability of the proposed project would be assured through enabling the strengthening of the provincial regulatory functions and institutions, and appropriate incentives and returns for the concessionaires. Due to the manner by which the financing of individual systems is structured (a mix of GEF grant for incremental costs, GOA lifetime tariffs/connection fee assistance, and consumer payments), the full cost recovery is assured for those customers who sign up services during the project life. In other words, the sustainability of systems installed with project support is assured for the 15 years concession contract period. Beyond the project life, it is expected that new customers could be signed up, even in the absence of the GEF grant, because expansion of the customer base during the project life and achievement of economies of scale would have reduced operational costs by at least the amount of the initial GEF assistance. Project sustainability will be supported through agreed monitoring and implementation actions. Due to the innovative nature of the Project, the Mid-Term Review will be scheduled early (eighteen months after effectiveness) to allow the opportunity for mid-course corrections if necessary. The Bank will also monitor Project Implementation on the basis of quarterly progress reports from the SE, annual independent audits by a panel of experts and by accounting auditors, and through Bank supervision missions. Project Implementation: The SE will be the national government agency responsible for general project coordination. The provincial regulatory agencies will be in charge of the local coordination and project supervision and monitoring, and the concessionaires will implement the project. An Administrative Unit (AU) located within the SE would be responsible for record keeping, reporting functions, and processing disbursement requests for Bank loan and GEF grant. The GOA would transfer the Bank loan and GEF grant to the provincial governments as a grant. The proposed project is at an early stage of preparation by the SE. Studies financed by the National Renewable Energy Laboratory (NREL) are almost completed. Consultants are carrying out the studies financed by GEF. UNDP is assisting the SE in handling the hiring of consultants. The two pilot concessions for the dispersed rural areas of Jujuy and Salta, which were a condition for the Bank to launch a preparation mission, are in place since November 1996. These concessions, which also provide energy to the concentrated market (urban area), has initiated the installation of RES to public agencies located in the rural dispersed area. -2-  Environmental Aspects: The project would reduce environmental impacts by shifting supply from conventional (diesel) fuel sources to non-polluting energy sources. The renewable energy technologies most likely to be used in the project are solar PV, wind turbine, and mini-hydro power units. The project also supports the GEF Climate Change Operational Program "Promoting the adoption of renewable energy by removing barriers and reducing implementation costs". This project is classified as "B" in terms of environmental input. The concessionaire during the installation and operation of the equipment will have to prove compliance of on-going operations with existing national regulations to qualify for Bank and GEF funds disbursements. Contact Point: Public Information Center The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by the World Bank InfoShop week ending December 26, 1997. - 3 -  ANNEX Environmental Aspects The use of renewable energy technologies will yield net positive environmental impacts. However, some minor impacts mainly related to the siting of some technologies and the management of wastes generated by maintenance and repair of equipment have been identified. The use of photovoltaics for electricity generation is fairly benign from an environmental point of view. Depending on the materials used in the solar cells, proper disposal procedures will have to be put in place, as for the disposal of lead acid or nickel cadmium batteries used in solar home systems. The installation of small diesel units (lower than 5 kW) in small villages in the rural area will need careful attention to the storage and handling of diesel fluids and the disposal of spent oils. The mini-hydro plants proposed will be run-of river installations., requiring however specific siting criteria. All of the above minor environmental concerns will be dealt with through specific conditions included in the concessionaire's contracts which will include: a) the procedures for the recycling or proper disposal of lead acid or nickel cadmium batteries used in solar home systems and wind home systems; b) procedures for the proper disposal of solar cells according to the materials used in the manufacture of those cells; c) environmental siting criteria for run-of-river micro-hydro schemes: outside of protected areas, avoiding fish spawning areas, areas of particular ecological or scenic value, protection of riverine vegetation, restrictions of access to hunters and fishermen in sensitive areas; and d) procedures for the storage, handling and disposal of diesel fuel, and the proper recycling and disposal of any batteries used in diesel plants. The above environmental and safety procedures and measures will also be included in community information programs that will be implemented to disseminate the project among the rural population. The concessionaire will also be required to provide one-on-one training to beneficiaries of these technologies. An environmental/economic evaluation of existing energy renewable soures in Argentina is under way as part of project preparation. This study compares conventional sources with renewable sources in rural areas, and estimates global environmental benefits from project implementation. -4-