POWER TO THE PEOPLE : SOLAR ENERGY FOR A BETTER …

Case Study 1

ENVIRONMENT AND ENERGY

POWER TO THE PEOPLE:

A review of good practices and lessons learned from Asia and the PacificTowards an ‘Energy Plus’ approach for the poor:

SOLAR ENERGY FOR A BETTERQUALITY OF LIFE, SOCIALEQUITY AND SOCIO-ECONOMICGROWTH IN THE PHILIPPINES

Empowered lives.Resilient nations.

“UNDP partners with people at all levels of society to help build nations that can withstand crisis, and drive andsustain the kind of growth that improves the quality of life for everyone. On the ground in 177 countries and territories,we offer global perspective and local insight to help empower lives and build resilient nations.”

Cover photo courtesy of UNDP/Energy Access for Poverty Reduction

We would like to take this opportunity to recognize the partners who have made financial and other contributions to the energy sectorproject described in this report. These include the World Bank, the Global Environment Facility and the Government of the Philippines.

Contents

Acronyms iii

Synopsis v

Acknowledgements vi

Preface viii

1. Background and context 11.1 Socio-economic status of the Philippines 11.2 Policies and programmes for expanding energy access 11.3 The structure of the energy sector 21.4 Energy access and status of rural electrification 3

2. Project overview 42.1 Project ACCESS policy framework 42.2 Project ACCESS 5

3. Implementation strategy 53.1 Supply, installation and maintenance of SPV systems by private contractors 63.2 Profiling and clustering of potential SSMP project areas 73.3 Funding: subsidies and financial incentives 73.4 SSMP support for market development 83.5 Ensuring performance: service obligations by SSMP contractors 83.6 Maintenance of community facilities 93.7 Capacity development 93.8 Project costs 9

4. Impacts 104.1 Installations to date 104.2 Impact on households and communities 104.3 Impact on environmental sustainability 10

5. Project sustainability 105.1 Current measures 105.2 Challenges 115.3 Future measures 11

6. Lessons learned for expansion of energy services to the poor 126.1 Strong political commitment is the most important enabler 126.2 Harmonization of various sources of financing for expanding access 126.3 A viable market for private-sector operators 126.4 Service obligations by contractors 126.5 Systematic market assessment 126.6 Well-designed communication strategy 13

7. Conclusions 13

References 14

September 2011

Copyright © United Nations Development Programme. All rights reserved. Articles may be freely reproduced as long ascredit is given to UNDP. Requests for all other uses, e.g. the sale of the materials or their inclusion in products to be sold,should be addressed to [email protected].

Articles in this publication do not necessarily reflect the official views or policies of the United Nations DevelopmentProgramme, nor do the boundaries and names shown on maps imply official endorsement by the United Nations.

ISBN: 978-974-680-304-5

Acronyms

iiiPower to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines

APRC Asia-Pacific Regional Centre

ACCESS Accelerating Community Electrification using Solar

CO2 carbon dioxide

DAR Department of Agrarian Reform

DOE Department of Energy

DU distribution utility

EC electric cooperative

EPIRA Electric Power Industry Reform Act

ER expanded rural electrification

ERC Energy Regulatory Commission

GEF Global Environment Facility

GOP Government of the Philippines

IPP independent power producer

km2 square kilometre

kWh kilowatt hour

kWp kilowatt-peak

LGU local government unit

MTPDP Medium-Term Philippine Development Plan

MW megawatt

NEA National Electrification Administration

NGO non-governmental organization

NPC-SPUG National Power Corporation Small Power Utilities Group

PHP Philippine peso (currency)

PMO Project Management Office

PPP public-private partnership

RE renewable energy

RPP Rural Power Project

RRA rapid rural appraisal

iv Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines

SHS solar home system

SPV solar photovoltaic

SSMP Sustainable Solar Market Package

UNDP United Nations Development Programme

USD United States dollar (currency)

WB-GEF World Bank-Global Environment Facility

Wp watt-peak

vPower to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines

Synopsis

Project title: Accelerating Community Electricity Services using Solar (ACCESS)

Country and region of implementation: Un-electrified off-grid barangays in the Republic ofthe Philippines1

Focus area: Solar photovoltaic electricity for un-electrified barangays and households

Contact details:Mylene C. CapongcolDirector, Electric Power Industry Management BureauDepartment of Energy, 4/F, PNOC Building 6Energy Centre, Merritt Road, Fort Bonifacio, Taguig City, Metro Manila, [email protected]; [email protected]. +632 8402120

Duration: 2006-2011

Cost: USD 11.3 million. This consists of USD 7.9 million from the World Bank and the Global EnvironmentFacility, and USD 3.4 million from the Government of the Philippines.

Project brief: Project ACCESS aims to improve the quality of life of communities living in un-electrifiedbarangays and households by providing electricity using solar photovoltaics (SPVs). Implemented bythe national Department of Energy, the project has adopted a Sustainable Solar Market Package (SSMP)mechanism, an innovative delivery model for electrification of remote rural areas. The projectdemonstrates that leveraging limited public funds through the involvement of the private-sector canenable a commercial model of rural electrification. Key features of the delivery model include (a)clustering of barangays into commercially viable SSMPs, bid out on a competitive basis to privatecontractors; (b) each SSMP ensuring a baseload from community facilities; (c) performance-basedsubsidies and financial incentives improving affordability and helping private contractors to addressmarket barriers; and (d) a strong focus on after-sales service and continued marketing.

The project is well-aligned with government policies on renewable energy and contributes to theachievement of national electrification targets of 100 percent barangay electrification and 90 percenthousehold electrification. As of 31 December 2009, the project had installed 765 communal SPVfacilities and provided electricity to 6,513 households.

1 Barangays are the smallest administrative divisions in the Philippines.

vi Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines

Acknowledgements

Power to the people: Solar energy for a better quality of life, social equity and socio-economicgrowth in the Philippines is one of 17 case studies which, together with a report titled ‘Towards an ‘Energy Plus’ approach for the poor: A review of good practices and lessons learned from Asia and thePacific’ and an Action Agenda Note, comprise a review of good practices and lessons learned in energyservice delivery to the poor. Commissioned and facilitated by the United Nations DevelopmentProgramme Asia-Pacific Regional Centre (UNDP APRC), this case study identifies key characteristicsthat have helped poor households and communities gain access to modern energy services, and toderive valuable lessons for future energy access activities. This case study is the product of an intensivecollaborative process and we wish to acknowledge the many contributors, without whose generoussupport this work would have been impossible.

We express special gratitude to the main researchers and writers of the case study, Vernon Ray N.Vinluan and Mylene C. Capongcol, whose expertise and knowledge established the basis of this report.UNDP is also grateful to the Project Management Office of the Rural Power Project (based in theDepartment of Energy), headed by Jayantha Nagendran, Reynaldo Reynaldo, Fidelpio Ferraris andQuennie Rojo for their inputs on the draft case study, and Cecile Panganiban, Eric Vitug and FreddieBides for administrative support. UNDP also extends its thanks to Alice de Guzman, Joy Panopio andMau Quinamot for their research assistance.

Special thanks to Thiyagarajan Velumail, supported by Soma Dutta, Lara Born and Butchaiah Gadde,for his technical leadership and guidance in the conduct of the 17 case studies.

Felicity Chard, David Galipeau (Chair), Daniela Gasparikova, Arun Kashyap, Faris Khader, MayaNyagolova and Ashley Palmer of the UNDP-APRC Knowledge Products Review Committee (KRC) kindlyprovided a final review and endorsement of this publication.

The case study also benefited from the rich and fruitful interactions of the 9-12 November 2009writeshop participants, including Praveen Arakkal, Expedito Belo, Lara Born, Ivo Besselink, MamtaChander, Karma Chogyal, Beau Damen, Soma Dutta, Butchaiah Gadde, Geraldine Huet, Thomas LyngeJensen, Xin Liu, William Mohns, Wattanee Niyomyath, Sunjita Pradhan, Kamal Rijal, Bhupendra Shakya,Bala Ram Shrestha, Kiran Man Singh, Dean Still, Yusuke Taishi, Pia Treichel, Kapila Subasinghe, VernonRay Vinluan, Veronica Villavicencio, Julien Wallet-Houget and Sirintharat Wannawong. Special thanksto the writeshop moderators Kamal Rijal and Thiyagarajan Velumail. In addition, the case studybenefited greatly from the intensive peer review. Special thanks are due to Kayo Ikeda and Robert G.Bernardo of the Technical Advisory Committee for providing a detailed review that guided thefinalization of the case study. We would also like to acknowledge Soma Dutta’s support to the casewriter in preparing the final case study.

UNDP APRC in Bangkok was responsible for the facilitation and conceptualization of the 17 case studiesand the associated report. We thank the core team, comprising Saana Ahonen, Aalok Awalikar, LaraBorn, Soma Dutta, Butchaiah Gadde, Thomas Lynge Jensen, Pratima Mathews, Wattanee Niyomyath,Thiyagarajan Velumail and Julien Wallet-Houget. Thanks to Sirintharat Wannawong, who has beeninstrumental in supporting the entire process administratively.

viiPower to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines

Finally, UNDP would like to thank Nikolai Beresnev and Collin Piprell for their excellent editorial support,and KEEN Publishing Co. Ltd. (Thailand) for logistical support and graphic design.

Martin KrauseTeam LeaderEnvironment & EnergyUNDP Asia-Pacific

viii Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines

Preface

Asia-Pacific has achieved remarkable economic growth and socio-political progress in the past twodecades, with almost every country in the region experiencing a concomitant decline in poverty.

Despite this progress, 800 million people in the region remain without access to electricity and almost2 billion rely on the traditional use of biomass for cooking. While good progress has been made withthe expansion of electricity, many remote rural areas remain un-electrified, as connecting them to thenational grid remains very expensive. Rural electrification is a particularly strong challenge forarchipelago countries such as the Philippines, which consists of more than 3,000 inhabited islands. ByDecember 2009, 41,740 out of the 41,980 listed barangays in the country (99.4 percent) had beenprovided with electricity, but the share of electrified households stood at 71 percent.

The poor often live in subsistence economies that do not generate cash surpluses, limiting theirpurchasing power and opportunities to shift to modern energy services. As a result, they have toinvest more of their income and time in obtaining energy, and tend to use traditional energy servicesand fuels. Women and children are particularly affected, spending many hours a day collectingfuelwood and preparing meals in the kitchen. Smoke from inefficient stoves in poorly ventilated homeskills 1.6 million people worldwide every year; the majority of victims are women and children youngerthan five years. Indoor air pollution is the fourth-biggest killer in the developing world.

Asia-Pacific countries have applied many cutting-edge practices in providing energy access to thepoor, including innovative financing mechanisms. Apart from satisfying basic needs, energy servicescan act as an instrument to empower women and disadvantaged communities; as an entry point tomobilize communities to take charge of their own development; and, most importantly, as a meansto livelihood enhancement and poverty reduction. However, the scale of expansion of energy accessprojects has been far from sufficient.

UNDP has been working with its country partners to address these energy poverty issues, aiming tomeet user needs, broaden energy supply options and link these efforts in achieving the MillenniumDevelopment Goals. Between 2009 and 2011, the UNDP APRC reviewed 17 energy access programmesand projects implemented by various development agencies and the private sector in the region.These projects were documented as 17 case studies (including this report), a report titled ‘Towardsan ‘Energy Plus’ approach for the poor: A review of good practices and lessons learned from Asia andthe Pacific’ and an Action Agenda Note. Together, these documents provide practical guidance forpolicymakers and development practitioners in designing and implementing future programmesand projects that ensure the delivery of low emission, affordable and reliable energy services forpoverty reduction.

ixPower to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines

This case study documents a government-led energy project in the Philippines that has adopted aninnovative delivery mechanism. Aiming to expand electrification in rural and remote areas, ProjectACCESS seeks to complement limited government resources with private investment. In line with agovernment policy of developing indigenous and renewable energy resources and technologies, theproject promotes the electrification of barangays and households using solar photovoltaics. Thedelivery mechanism consists of barangays being clustered into commercially viable packages, whichare then bid out to private contractors. The contractors, in turn, are obliged to provide installation,servicing and maintenance support of solar photovoltaic systems.

Nicholas RoselliniDeputy Assistant Administrator & Deputy Regional DirectorRegional Bureau for Asia and the Pacific

1Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines

2 UNDP, 2010.3 Annual per capita poverty threshold is PHP 15,057. PHP 1 = USD 0.02279, as of 23 September 2011 (www.xe.com).4 NSCB, 2006.5 Remo, 2009.6 NEDA, 2009.7 Congress of the Philippines, 2001.

1. Background and context

1.1 Socio-economic status of the PhilippinesA democratic republic in South-East Asia, the Philippines is anarchipelago of 7,107 islands with a land area of 300,000 km2. Itis divided into three main geographical areas: Luzon, Visayasand Mindanao. Its population is around 94 million, making itthe 12th most populous country in the world. The 2010 UNDPHuman Development Report listed the Philippines as a ‘mediumhuman development’ country, ranked 97th out of 169 countrieson the Human Development Index. The country’s per capitaGross National Income was around USD 4,000 in 2010.2

Despite the country’s economic growth in recent years, a largenumber of people have slipped below the poverty threshold,making it almost impossible for the country to meet theMillennium Development Goal of halving poverty by 2015. In2006, almost 27 percent of households lived below thenationally defined poverty threshold of USD 3433 (4.68 millionhouseholds, or 27.6 million people)4; this proportion hasincreased to 35 percent by 2009 (32.3 million people).5

1.2 Policies and programmes for expanding energy accessEnergy independence agenda. Following the 1973 energy crisis, the energy policy of the Philippines has been geared towardsattaining energy independence from imported oil, coal and other fossil fuels. Specifically, the Government of the Philippines(GOP) seeks to increase national energy self-sufficiency to provide a buffer against global fuel price shocks.6 Strategies to achievethis objective have included:

� developing indigenous and renewable energy (RE) resources and technologies;

� promoting public-private partnerships (PPPs) to establish robust electric power infrastructure; and

� accelerating electrification of the countryside since the early 1990s.

Rural electrification. Politically, the Philippines is strongly committed to rural electrification. This has been reflected in governmentdevelopment policies since the creation of the National Electrification Administration (NEA) in 1969.

This focus received renewed impetus in 1999 when the GOP established a social compact with the Filipino poor to alleviatepoverty by implementing various development projects, including the provision of electricity services through the AcceleratedBarangay Electrification Program. In April 2003, this programme was continued and enhanced through the Expanded RuralElectrification (ER) Program.

The GOP has publicly stated that providing energy services will enhance quality of life while providing greater access to basicservices and improved infrastructure for rural development.7 Rural electrification is seen as key to promoting social equity andsocio-economic growth, particularly for marginalized sectors such as fisheries and agriculture in remote barangays.

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Typical rural community in the Philippines.

2 Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines

The passage of the Electric Power Industry Reform Act (EPIRA)in 2001 initiated reforms in the Philippines power sector,providing an important thrust towards total electrification ofthe countryside under the GOP’s Medium-Term PhilippineDevelopment Plan 2004-2010 (MTPDP, see Box 1) and thePhilippine Energy Plan.

Renewable energy. Harnessing RE comprises a criticalcomponent of the GOP’s energy strategy. The Department ofEnergy (DOE) projects that RE will provide up to 40 percent ofthe country’s primary energy requirements over the 10-yearperiod beginning in 2003. In an aggressive move to promoteRE development, the DOE has set the following long-term goals:

� to increase RE-based capacity by more than 100percent from 2009 to 2013 (4,449 MW to 9,147 MW);

� to increase the non-power RE contribution to theenergy mix by the equivalent of 10 million barrels offuel oil in the next 10 years;

� to become the biggest geothermal energy producerin the world;

� to become the biggest wind energy producer inSouth-East Asia;

� to double the national hydro capacity between 2002and 2013; and

� to expand the contribution of biomass, solar andocean energy to power generation by about 131 MW.9

These goals provide concrete benchmarks for the vision of a sustainable energy system, with RE taking a prominent role in theenergy mix. To realize these targets, the Renewable Energy Act of 2008 promotes and enhances the development, utilization andcommercialization of RE resources.

The Philippines is a signatory to the Kyoto Protocol, which aims to reduce greenhouse gas emissions to mitigate climate change.It is a Non-Annex 1 country, which permits it to generate income via Clean Development Mechanism projects, in partnership withAnnex 1 (industrialized) countries. This provides the DOE with further impetus to develop RE for power generation.

1.3 The structure of the energy sectorA number of GOP agencies and departments are involved in providing energy services in the Philippines. These are describedbelow.

The DOE is responsible for the overall policy in the energy sector. Through its ER Program, it manages GOP activities relating torural electrification and missionary electrification.10 The departmental mandate is corroborated under EPIRA 2001, which statesthe official policy of ensuring and accelerating “the total electrification of the country”.11

Box 1: Total electrification policy andGOP’s development prioritiesMTPDP 2004-2010 of the GOP aimed to reduce povertyby focusing on strategic measures to increase economicgrowth and build wealth. It included the followingstrategies:

Creating jobs and better livelihoods. This includedpromoting decentralization, agribusiness developmentand investment.

Cross-cutting strategy. In delivering its targets, MTPDP2004-2010 considered infrastructure support (such asrural electrification) as a cross-cutting strategy. ThePlan’s chapter on power-sector reforms declared apriority target of total barangay electrification by 2009through collaborative efforts by the GOP, GOP-ownedand controlled corporations, GOP financing institutions,local government units (LGUs), the private sector andvarious donor agencies.

Alternatives to fossil fuel for electrification of remoteareas. MTPDP 2004-2010 stated that the country’s wind,solar, biomass and hydropower potentials will beharnessed as viable alternatives to fossil fuel for theelectrification of remote areas, thereby countering theprohibitive cost of connecting to the grid and thedifficulty of transporting generators to these areas.8

8 NEDA, 2009.9 DOE, 2011.10 Missionary electrification refers to electrification of areas declared commercially unviable by the DOE.11 Congress of the Philippines, 2001.


12 This refers to electric service providers undertaking missionary electrification.13 Sharma et al., 2004; Toba, 2007.14 NEA, 2009.15 NEA, 2009.

The Energy Regulatory Commission (ERC) is a regulatory agency created under EPIRA 2001. Its mandate includes, among others:

� tariff setting and monitoring of distribution utilities (DUs), electric cooperatives (ECs, classified as private investor-ownedutilities), investment projects and power supply contracts;

� reviewing operating standards for DUs and ECs;

� regulating qualified ‘third parties’;12 and

� licensing and determining universal charges for missionary electrification.

The NEA is mandated with achieving universal electricity access in the country. It manages all ECs, reviews and monitors theirfinancial performance, and provides them with loans and subsidies. It also supports GOP unit-managed utilities by financing therural electrification program for infrastructure facilities and other operations necessary for electrification.

DUs and ECs deliver electric services to end-users, including households, commercial establishments and industries. Missionaryand community-based electrification, on the other hand, lie within the purview of the National Power Corporation and its StrategicPower Utilities Group (NPC-SPUG).

Other GOP agencies, including the Department of Agrarian Reform (DAR) and the Department of Interior and Local Government,finance specific rural electrification projects. In 1991, the Philippines introduced private participation in electricity generationthrough independent power producers (IPPs).13

1.4 Energy access and status of rural electrificationCurrently, all cities and towns in the Philippines have access toelectricity. Key GOP achievements and targets for ruralelectrification include the following:

� by December 2009, 41,740 of the 41,980 barangayslisted in the country had been provided withelectricity (99.4 percent);

� the remaining barangays are to be electrified by theend of 2011; and

� once 100 percent barangay electrification isaccomplished, the GOP will prioritize the secondarytarget of 90 percent household electrification by 2017.As of September 2009, 71 percent of total potentialhouseholds had been electrified.14

Major challenges remain. Due to the country’s archipelagicgeography, and with over 20 million poor Filipinos living in ruralareas, electrification remains a major challenge. An estimated 3.5 million households are yet to be electrified. The NEA database ofSeptember 2009 indicated that around 29 percent of Filipino households still lived in remote areas beyond the electric grid. Thisdatabase, moreover, takes into account only households located within the franchise areas of the 119 rural ECs.15

The GOP has prioritized the provision of energy services to low-income households irrespective of their location, including areasafflicted by civil conflict. For example, Mindanao – a region characterized by a widespread lack of economic opportunities, poorinfrastructure, and high social and political unrest – is home to approximately 8 million poor. Inadequate infrastructure and a lackof access to electricity have been the major stumbling blocks for sustainable development in these areas.

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A rural household with an SPV installation.


The poorest pay more for energy services. A 2000 DOE market assessment indicated that about 80 percent of households inun-electrified barangays had income levels below the poverty threshold. The un-electrified households also paid higher pricesfor energy in comparison to electrified households. As a result, the average monthly expenditure on energy (lighting and power)accounted for about 6-8 percent of total expenses in un-electrified households.

Extra burdens on women and children. The absence of electricity services most seriously affects women and children in ruralareas of the Philippines. Women work long hours performing domestic chores and manual labour, while children have minimaltime to read and study at home. Lack of access to modern energy services can also constrain social interaction in a communityand have an adverse effect on health (by exposing women and children to kerosene fumes and smoke).

2. Project overview

2.1 Project ACCESS policy frameworkThe ER Program seeks to achieve GOP’s targets on barangay and household electrification by integrating rural and missionaryelectrification efforts of its partners. The latter include the DOE, the NEA, the NPC-SPUG, the Philippine National Oil CompanyEnergy Development Corporation, the private sector, non-governmental organizations (NGOs) and several donor-funded projects,including project Accelerating Community Electricity Services using Solar (ACCESS, described below). Funding for the ERProgramme includes private funds (through private-sector corporate social responsibility programmes), Global Environment Facility(GEF) funds and GOP subsidies. The latter include subsidies under the Rural Power Project (RPP, described below) and the DOE’sregular budget for locally funded projects.

Energy Regulations 1-94 (ER 1-94) obliges power generators and energy-resource developers to set aside one centavo (PHP0.01) per kilowatt hour of electricity sales towards providing financial benefits to host communities for electrification, developmentand livelihood, reforestation, watershed management, health or environment enhancement. The ER 1-94 electrification fund(overseen by the DOE) finances the extension of the electrical grid to host communities based on their proximity to power plants.

The Barangay Electrification Program is a DOE-run subsidized programme targetting remote barangays with off-grid electrificationsolutions such as battery charging stations, solar home systems (SHSs), micro-hydro systems and wind-turbine energy systems.The NPC-SPUG is responsible for providing electricity in areas unconnected to the main transmission grid. Its assistance, however,depends on the availability of internal cash generation or share of missionary electrification from the universal charge.

The private sector is involved in the ER Program through IPPs and qualified third parties. IPPs participate through the ER 1-94electrification fund and are involved in the ‘Adopt-a-Barangay’ scheme, where they provide complete funding for the ruralelectrification of chosen barangays. Under this scheme, the IPP may implement the project independently or through the relevantfranchise holder.

EPIRA 2001 opened opportunities for private-sector participation in GOP’s rural electrification. Specifically, Section 59 of EPIRA2001 and Rule 14 of EPIRA Implementing Rules and Regulations state that “the provision of electric service in remote andunviable villages that the franchised utility is unable to service for any reason shall be opened to other qualified third parties.”16

This means that once the concerned franchise holder deems the barangay(s) to be commercially unviable, an energy serviceprovider other than the adjacent DU may be authorized to provide the electricity services, subject to approval by the ERC. Theproject proponent must also secure the recipient community’s endorsement of the project (via a local resolution).

16 Congress of the Philippines, 2001.


17 NSO, 2009.

2.2 Project ACCESSThe RPP (2003-2011). The RPP is implemented by the DOE. Onecomponent of the RPP, funded by the World Bank-GlobalEnvironment Facility (WB-GEF), seeks to provide electricity forproductive uses in remote and unviable barangays.

Project ACCESS (henceforth, ‘the project’) is funded under theabove-mentioned component of the RPP. The project electrifiesoff-grid communities using stand-alone solar photovoltaic(SPV) systems. Implemented by the DOE and overseen by theProject Management Office (PMO) at the DOE, it uses aninnovative service delivery mechanism for rural electrification,leveraging limited GOP resources with private funds (describedin Section 3).

The project targets 283 poor and remote barangays where gridelectricity remains prohibitively expensive (see Box 2).Thereafter, the project will be extended to support the GOPpolicy of 90 percent household electrification by 2017.

Expected outcomes of the project include:

� reduction in diesel and kerosene consumption;

� increased local employment;

� increased private-sector investment in ruralelectrification; and

� productive uses of electricity at the household andbarangay levels, thereby increasing income andreducing poverty.

Box 2: Barriers to energizing remotebarangays through the electric gridAlmost all un-electrified barangays and households inthe Philippines lie in rural areas where people rely onagriculture, fisheries and forestry-related activities.Kerosene is the primary lighting fuel, followed by dry-cell batteries and small diesel-powered generators runby local operators. Fuelwood remains the main fuel forcooking and heating. The average household incomein rural areas is less than half of that in urban areas,and most households have unpredictable monthlyincomes.17 Making regular payments for modern energyservices is a difficult proposition for these households.

Grid electricity remains the people’s choice forelectrification. However, extending the 240V alternatingcurrent distribution lines to these remote locationsinvolves high transmission losses and operating costs,making it unviable for ECs and DUs. Despite EPIRA2001 mandating ECs to provide universal access byelectrifying all barangays within its franchise area, mostof these off-grid communities are considered ‘last mile’barangays by DUs and rural ECs.

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A ceremonial ‘switch-on’ held in a project area.

3. Implementation strategy

The SSMP approach. The project applies the Sustainable Solar Market Package (SSMP) approach, which seeks to improve thecommercial viability of SPV electricity services in remote rural communities. This is achieved by ensuring that the scale of thebusiness operation is large enough to overcome the higher transaction costs of doing business.

The key elements of the SSMP approach are:

� clustering of barangays into commercially viable SSMPs;

� bidding out SSMPs to SPV contractors on a competitive basis;


� having each SSMP comprise a baseload from community facilities;

� extending subsidies to buy down the capital cost and improve affordability of technology;

� offering financial incentives for firms to address market barriers; and

� focusing strongly on after-sales service and marketing to sustain consumer interest.

Building on past experience. The SSMP approach is based on lessons from previous DOE experiences with SPV dissemination inremote areas. In the past, the SPV market in rural areas was mainly restricted to procurements for public facilities and projects.18

Some retail sales were also made to households, but a lack of consumer financing resulted in a slow uptake.

Sales to these two market segments (communities and households) have often been handled by different companies in the samerural area, with little coordination. Consequently, commercial operation of the private-sector run versus donor/public-drivenprojects produced distortions in the SPV market. Project costs proved to be very high and only a few households in the targetbarangay benefited from the SPV projects. Furthermore, due to the low sales of SPV systems, the business remained unviable forSPV companies. Since 2002, around 3,000 SPV systems have been implemented, almost all of them through donor support andproviding little after-sales service.

Promoting SPV electrification. In light of the above, the DOE introduced the following measures to improve its delivery of SPVelectrification:

� enabling suppliers to be more responsive to market demand by offering a range of SPV products and services atcompetitive prices;

� instituting user fees (as opposed to installing SPV systems free of charge) to ensure a greater sense of ownership andlong-term sustainable use of these systems;

� judicious use of grants to leverage funds from other sources;

� encouraging good practices and consumer protection; and

� building capacity in the private sector while facilitating access to financing.

3.1 Supply, installation and maintenance of SPV systems by private contractorsThe SSMP approach requires private contractors to comply withthe following requirements:

� supply and install SPV systems for public facilities,and for at least 25 percent of the households withina given barangay;

� sell and install a minimum number of SHSscommercially;

� maintain the SPV systems for at least two yearsfollowing installation; and

� meet minimum equipment and service standards.

Even though the community facilities provide the initial base-load, the households are expected to represent a major portionof sustainable business operations.

18 Public facilities include barangay halls, health facilities, schools and public streetlights.

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Installation of an SPV street light.


The project strategy in promoting private sector participation, aside from clustering and competitive tendering, is to design aviable package aggregating a sufficient volume of business in each target barangay. This makes the provision of after-sales main-tenance, repairs and spare parts services commercially sustainable for private contractors.

Public facilities to be electrified are selected in consultation with LGUs in the context of the needs, plans and capabilities of thetarget barangays. Aggregate SPV power requirements for the community facilities in the initial SSMP contracts range from 2.6 to11.9 kWp, with each facility requiring 110 to 440 Wp of electrical power capacity. The SHSs are primarily 20-50 Wp, providingsufficient power for two to four lights, radio, television, mobile phone charging and other low-energy applications. Power forhouseholds and other establishments requires more than 70 kWp in aggregate.

Through a competitive tendering process, a single SSMP contractor is selected for each cluster. A contractor may win multipleSSMP contracts and is eligible to bid for additional contracts for supply or maintenance in the same areas.

3.2 Profiling and clustering of potential SSMP project areasIn 2005, preparatory fieldwork in the form of surveys and rapid rural appraisals (RRAs) was undertaken to estimate SHS marketpotential in the barangays under the project. Information was collected regarding household income distribution, energyexpenditures, SHS affordability, availability of electricity in the barangay, ownership of generators, previous experiences withSPV systems and interest among residents in purchasing SPV systems. The findings were used to inform project design.

The project’s clustering methodology applies a two-step process:

� Step 1. clustering of barangays based on geographic location (specifically, on the basis of contiguity); and

� Step 2. clustering of barangays based on commercial viability (sufficient market demand) and sustainability (socialacceptability, appropriateness of SPV in social and cultural environment, and availability of technical and financingsupport for SSMPs).

3.3 Funding: subsidies and financial incentivesOutput-based subsidies and financial incentives. SPV salesto barangay households are supported through a combinationof output-based (installed power capacity) subsidies andfinancial incentives, paid upon verification of installation.Subsidies are provided by the GOP to address affordabilityissues. Financial incentives, made available through GEF grants,are aimed at reducing market development barriers. Subsidyand incentive levels depend on the power capacity of the SPVsystems (see Table 1).

Approved subsidies and incentives are routed through SSMPcontractors to end-users. Companies must be RPP-accreditedto be eligible for subsidies under the GEF grant. Subsidies andGEF grants are also available for other eligible SPV productsthat meet technical standards.

Table 1: Subsidies and incentives provided for SPV sales to householdsU

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A private sector donation to the Department of Energy.

Power capacity Government subsidy Power capacity GEF grant incentives

20–30 Wp PHP 8,000/system 10–50 Wp USD 2.5/Wp

30–50 Wp PHP 4,000/system 50–100 Wp USD 1.5/Wp

Solar lantern PHP 1,500/lantern Community facilities USD 1.5/Wp; up toUSD450 per system


Main funding sources for SPV installation. The main funding sources for community public facilities include private organizations,companies and any government appropriations for this purpose.19 LGUs are expected to contribute from their internal revenueallotment to maintenance costs for community facilities. During the installation of SPV communal facilities in their respectivebarangays, LGUs are expected to make in-kind contributions (such as transport of SPV equipment and materials and assistancewith installation). Once the DOE completes the installation, system operation and maintenance costs are shouldered by LGUs.

Helping to develop partnerships. The project encourages SPV company to visit existing MFIs in their contract area. If the MFI isinterested, the DOE helps develop a partnership between the SPV company and the MFI. The project then enhances MFI technicalcompetencies to design the lending for solar products in terms of pricing strategy, appropriate down payment, affordable paymentand credit collection methods. The project also helps MFIs to develop solar divisions within their institutions.

3.4 SSMP support for market developmentThe PMO has established a Market Development Support Facility, which provides technical assistance and financial support formarket development training in such areas as:

� financial management, contract management, accounting and auditing;

� development of sales and after-service networks;

� product development and quality control;

� market surveys and promotion;

� business development; and

� industry association/accreditation.

This support is provided to RPP-accredited companies as cost-shared grants of a maximum 50 percent.

3.5 Ensuring performance: service obligations by SSMP contractorsThe project has instituted the following measures to ensure that SPV systems function to the satisfaction of users and to ensurecontractor accountability for their performance.

Performance guarantee. Prior to installation, the contractor is required to deposit a performance guarantee of 30 percent of thecontract sum. This guarantee is reduced over the contract period as performance obligations are fulfilled (10 percent aftercompletion of the installation, 5 percent once the household targets are met and 3 percent per annum after installation if themaintenance obligations are met).

Social mobilization. The sustainability of any rural electrification project depends on community preparedness. SSMP contractorsare required to undertake due diligence in their SSMP areas by:

� raising awareness regarding the project;

� ensuring that community members understand their obligations;

� encouraging voluntary participation in the scheme; and

� mobilizing, to the extent possible, community counterpart contributions (at least to provide electricity to thepublic facilities).

Training local technicians. SSMP contractors are required to train local technicians in the maintenance of public facilities andhousehold SPV systems. This is intended to minimize the contractors’ longer-term overhead and maintenance costs during theirstipulated minimum of two years of service in a particular area.

19 For example, the corporate social responsibility arm of the Mirant Foundation (an IPP) has provided funds to support the installation of SPV systems for public facilities of benefit tothe community.


3.6 Maintenance of community facilitiesThe SPV contractor must install systems in public facilities withinsix months of the contract being signed and provide at leasttwo years of subsequent maintenance service. Uponinstallation, the PMO conducts technical verification to ensurethat the systems are installed according to approved projectdesign. Barangay officials are then required to sign a certificateattesting to their acceptance of the communal facilities andtheir commitment to allocate necessary funds from theirinternal revenue allotment for operations and maintenance.

3.7 Capacity developmentFive main project players – the DOE, the ERC, SPV contractors, MFIs and end-users – are provided with capacity-building and othertechnical assistance to support project implementation.

The project builds capacities in policy development and planning among the DOE and the ERC in the following ways:

� providing support through policy studies in subsidy, regulation and tariff with respect to off-grid services;

� implementation support to the DOE in contract design and writing (through the PMO);

� establishment of guidelines and standards;

� due diligence for market packages and SPV businesses; and

� monitoring and evaluation.

Training programmes, study tours and consultation workshops build capacities in SPV business, marketing and credit financingamong SPV contractors and MFIs. At the local level, training is provided to local technicians in SPV operation, maintenance andtroubleshooting.

3.8 Project costsAs of 31 December 2009, GEF grant disbursements for the project amounted to USD 4.3 million (55 percent utilization). Moredetail on project costs is provided in Table 2.

Table 2: Summary of project disbursements as of 31 December 2009

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A barangay hall powered by an SPV system.

Allocation Disbursement Disbursement as shareCategory (USD) (USD) of allocation (%)

Sub-grants (GEF incentives) 1,650,000 406,053 9

Consultancy services (salaries, professional fees and studies) 4,650,000 3,058,057 71

Training, study tours and workshops 725,000 434,613 10

Goods (procurement of equipment) 150,000 75,769 2

Incremental operating costs (operational expenses) 675,000 352,166 8

Unallocated 50,000 0 0

Total 7,900,000 4,326,658 55


20 DOE, 2003.

4. Impacts

4.1 Installations to dateAs of December 2009, 6,513 households were provided with electricity under the project, and the cumulative number of SPVsystems installed in public facilities totalled 765. In total, the project has provided electricity access to 283 remote off-grid barangays.At the time of this analysis, the project has not received any reports of defective or non-operational installed SPV systems fromSPV verification consultants.

4.2 Impact on households and communitiesA systematic impact assessment will be conducted before the next phase of the project is launched. Therefore, making anassessment of user benefits is premature at this point. Nonetheless, a correlation analysis conducted by the DOE for its InterimMissionary Electrification Development Plan has revealed a lower incidence of poverty in provinces and cities with a higher accessto electricity.20 Other expected impacts on the quality of life of end-users include:

� improved health and well-being of household members, given a reduced use of kerosene for lighting and cooking;

� less labour and greater convenience for women performing domestic chores;

� extended study hours available for children after nightfall;

� more time for productive activities in households, given availability of quality lighting at night; and

� augmented social capital and enhanced interaction within communities, since villagers have more time to socialize.

4.3 Impact on environmental sustainabilitySolar electrification reduces the use of kerosene lamps. The average number of kerosene lamps replaced by solar lanterns, SHSsand SPV installations in public facilities are one, two and four lamps, respectively. Thus, an estimated total of 13,372 lamps hadbeen displaced by 31 December 2009. At a kerosene consumption rate of 0.05 litres per hour per lamp, with three hours per dayof average usage and a CO2 emission factor of 2.5 kg per litre of kerosene, an estimated 1,830 tonnes of CO2 emissions are avoidedper year. This can be broken down into 1,040 tonnes of CO2 for installed SHSs, 371 tonnes for solar lanterns and 419 tonnes forpublic installations.

5. Project sustainability

5.1 Current measuresMarket size and high transaction costs are the most important factors affecting the sustainability of SPV systems in remote, isolatedmarkets. As discussed in Section 3, the project has instituted the following measures to ensure sustainability:

� basing market aggregation on systematic market studies;

� clustering barangays and hence ensuring a baseload from community services to make operations viable forprivate contractors;

� providing financing options to consumers (subsidies and grants);

� emphasizing user fees; and

� enforcing stringent service obligations by contractors.


5.2 ChallengesDespite these measures, the project is facing challenges. Most importantly, the project started with 10 accredited SPV companies;this number has been reduced to six, with four companies not being able to meet their contractual obligations, forcing them towithdraw. Since its launch, the project has emphasized quality of implementation, resulting in stringent quality measures. Giventhe current scenario, however, the market development process might take longer than expected.

5.3 Future measuresThe following means of ensuring project sustainability andscale-up of operations are currently being considered.

Strengthening cross-sectoral integration of GOP-fundedsocio-economic infrastructure. Coordination among GOPagencies and programmes in packaging energy services isexpected to attract private service providers, increasing theirmarket scale and prospective revenue generation, andproviding linkages between community development andproductive uses.

Institutionalizing new service delivery models. The projectalready applies a tested business model, but a plannedexpansion of the implementing agency base will includecommunity-based organizations and NGOs. This will improveproject performance in the varying market conditions foundin different parts of the country.

Strengthening the implementation framework throughinstitutional and policy reforms. The GOP is on the verge of achieving 100 percent barangay electrification, and will then proceedto the secondary objective of 90 percent household electrification. Accredited SPV companies will focus on household sales, andthe RPP will focus its marketing efforts on attracting new SPV service providers for the project. Technical evaluation of the RPP willincorporate stronger criteria regarding the market development capacities of SPV companies that wish to enroll in the project,and explore ways to strengthen household marketing through contract negotiations. Currently, the RPP is improving itsimplementation framework by linking the payments to the contractor to household SPV sales.

Ensuring that the local people are capable of sustaining the SPV system after the project’s end. After installation, the DOEvalidates whether or not the community has acquired the basic technical skills for SPV operation. Surveys show that the problemsencountered are typically not linked to the technical capacity of local people, but rather to the acquisition of spare parts. As such,SPV contractors provide two-year maintenance services that meet minimum quality and reliability standards, and these will befurther strengthened.

Leveraging funds from multiple sources. The GOP is planning to access DOE’s budget through the General Appropriation Actand the Universal Charge-Missionary Electrification subsidy to support the project once the GEF funding is concluded.

By undertaking these remedial measures, the project expects to:

� bundle developmental activities within a barangay (SPV for water pumping, telecommunications, etc.), which will helpthe private sector increase its market scale and revenue generation;

� introduce multiple service delivery models to address a range of market situations; and

� ensure a sustainable resource flow for continued market development.

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Local communities being trained in installation of SHSs.


6. Lessons learned for expansion of energy services to the poor

6.1 Strong political commitment is the most important enablerThe most important enabling factor for the project’s success has been the strong political commitment to rural electrificationfrom the GOP.

The project is well-situated within the overall GOP policy on poverty alleviation and rural development. Two complementaryprogrammes (rural electrification and missionary electrification) have been identified as necessary to achieving total electrificationof barangays. The DOE, together with its affiliated agencies, is providing an enabling environment pursuant to these programmes,including support for the SPV industry, judicious design of subsidies and incentives, establishing and enforcing standards, andcapacity development among concerned stakeholders.

6.2 Harmonization of various sources of financing for expanding accessRural electrification is a priority in the Philippines, being a clear component of MTPDP 2004-2010. The GOP is encouraging greaterprivate-sector participation in rural electrification by involving it in the provision of electricity services. As part of IPPs’ corporatesocial responsibility programme, the DOE imposes a levy to direct one centavo per kilowatt hour of electricity sales towards theelectrification of un-electrified missionary and rural areas. These funds complement the GEF grants and GOP subsidies in supportof the project.

6.3 A viable market for private-sector operatorsThe project supports private-sector provision of energy services to remote and poor barangays with the following measures:

� bundling barangays into viable units, hence ensuring a minimum base load for each operator; and

� undertaking a host of market support activities, such as a systematic market assessment by the DOE, SPV technologyawareness-raising campaigns, and building capacities among the private sector and other stakeholders such as MFIs.

6.4 Service obligations by contractorsAs mentioned earlier, private contractors are required to satisfy the following provisions:

� ensure that at least 25 percent of all households are provided with electricity;

� ensure that all installed systems function for a period of at least two years, tied in to a performance-linked paymentpattern;

� engage in social mobilization activities, and create awareness of the SPV systems. While this helps to generate marketdemand, in the long run it also encourages consumers to maintain their systems and helps contractors fulfill theirobligations under the project; and

� set up service centres and train local operators to maintain the SPV systems, which again contributes to a moresuccessful project.

6.5 Systematic market assessmentBefore launching projects in rural areas, it is essential to conduct a well-designed market assessment. The 2005 surveys and RRAsprovided vital insights into consumer behavior and the potential SPV market, informing subsequent project design.

The RRA methodology proved both cost-efficient and adequate for the purpose. Good practices in conducting market assessmentfieldwork include:

� piloting guidelines and questionnaires before using them in the field; and

� ensuring that the field team is well-equipped with skills in participatory research approaches, basic knowledge of SPVtechnology and the use of demonstration material during market assessments.


6.6 Well-designed communication strategyCommunication at two levels has proven to be important in the project:

� communication between various implementation partners to avoid misunderstandings or delays; and

� generic promotion of SPV technology and the project to the general public.

Throughout the project design process, special attention was paid to disseminating information about the project to MFIs andpotential SPV companies. The SSMP approach is relatively new, and it is necessary to ensure that all potential bidders and otherparticipating institutions (e.g. MFIs) fully understand the project provisions, and are trained in preparing proposals and othernecessary documents. The communication package must include information about the approach and must be disseminated inan interactive way (i.e. one that allows for discussion and questions).

The DOE has also worked together with partners – the Mirant Foundation, the corporate social responsibility arms of the IPPs andthe DAR – to inform and sensitize all affected barangays to ensure successful implementation.

Overall, the importance of allocating sufficient time and resources to information distribution cannot be emphasized enough.

7. Conclusions

Project ACCESS demonstrates a market-based approach in expanding access to electricity services for the poor. The project’sbusiness model involves PPPs in the delivery of rural electricity services to off-grid areas. Project strategies include clustering,competitive tendering and aggregating a sufficient volume of investment in target barangays.

Project experience indicates that while the project offers certain good practices which other energy projects can adopt, ‘external’enabling factors are equally important and conducive to the expansion of energy services for the poor. In particular, the GOPpolicy on addressing poverty alleviation and rural development has helped to create a synergy between energy and developmentsectors.

At the present juncture, the current pace of SHS installation must be increased if the goal of 90 percent household electrificationis to be achieved by 2017.

References

Congress of the Philippines. 2001. Republic Act No. 9136. Congress of the Philippines, Manilla. Available at www.doe.gov.ph/Downloads/RA9136.pdf.

DOE (Department of Energy). 2011. ‘Renewable Energy’. Available at www.doe.gov.ph/er/renenergy.htm.

—2003. Draft report – Interim Missionary Electrification Development Plan. Government of the Philippines, Manila.

NEA (National Electrification Administration). 2009. Homepage available at www.nea.gov.ph.

NEDA (National Economic and Development Authority). 2009. Medium-Term Philippine Development Plan 2004-2010.Government of the Philippines, Manilla. Available at www.neda.gov.ph/ads/mtpdp/MTPDP2004-2010/PDF/MTPDP2004-2010.html.

NSCB (National Statistical Coordination Board). 2006. ‘Philippine Poverty Statistics, Table 1: Annual Per Capita PovertyThresholds, Poverty Incidence and Magnitude of Poor Families: 2000, 2003 and 2006’. NSCB, Makati City. Available at http://nscb.gov.ph/poverty/2006_05mar08/table_1.asp.

NSO (National Statistics Office). 2009. Homepage available at www.census.gov.ph. Government of the Philippines, Manila.

Remo, M. 2009. ‘RP gains said to translate to rise in number of poor people’. Philippine Daily Inquirer, 15 November 2009.Available at http://business.inquirer.net/money/topstories/view/20091115-236461/RP-gains-said-to-translate-to-rise-in-number-of-poor-people.

Sharma, D.; Madamba, S.E.; Chan, M.R.L. 2004. ‘Electricity industry reforms in the Philippines’. Energy Policy, 32, pp.1487-1497.

Toba, N. 2007. ‘Welfare impacts of electricity generation sector reform in the Philippines’. Energy Policy, 35, pp. 6145-6162.

UNDP (United Nations Development Programme). 2010. Human Development Report 2010. ‘Table 1: Human Development Indexand its components’. Available at http://hdr.undp.org/en/media/HDR_2010_EN_Table1_reprint.pdf.


For more information: http://asia-pacific.undp.orgUNDP Asia-Pacific Regional Centre | United Nations Service Building, 3rd Floor, Rajdamnern Nok Avenue, Bangkok 10200Tel: +66 (0) 2304 9100 | Fax: +66 (0) 2280 2700 | E-mail: [email protected] | http://asia-pacific.undp.org

United Nations Development ProgrammeAsia-Pacific Regional CentreUnited Nations Service Building3rd Floor, Rajdamnern Nok AvenueBangkok 10200 ThailandE-mail: [email protected]://asia-pacific.undp.org

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