|Project Rationale and Linkage to Country/Regional Strategy
Yap (population 11,400) is one of four states within FSM (population 107,000). Yap State is 100% dependent on imported diesel for power generation on the main island (Yap Proper). Power generation is supplied by Yap State Public Service Commission (YSPSC) which is a 100% state owned corporatized utility. Approximately 65% of the population lives on the main island (Yap Proper), while the remainder lives on the outer islands. There is a single power grid on Yap Proper with an installed capacity of 8.3MW (peak load 2.4MW) and about 1,500 residential customers. Access to electricity is high on Yap Proper (estimated 97%). Each state in FSM has a separate utility corporation with separate tariff structures. Due to remoteness and high diesel transportation costs, power tariffs are high and the Yap economy is highly vulnerable to fuel price shocks. In 2010 average power tariff was $0.45/kWh (generation cost $0.32/kWh), however this is anticipated to rise in 2011 due to escalating diesel prices. Power tariffs allow for full cost recovery for YSPSC, however tariff reform is required to ensure YSPSC can continue to operate on a sustainable basis. In Yap, about half of all imported fuel is used for power generation. In 2005 and 2006, the value of diesel imported to Yap for power generation exceeded the total value of exports. In 2008, diesel imported for power generation represented 17.6% of all imports by value to Yap.
The power supply in Yap is relatively stable, with adequate capacity, however oversized diesel generators have resulted in low generation efficiencies. Due to low terrain and small catchments, Yap does not have potential for hydropower, however initial assessments indicate financially viable wind and solar resources . There is currently no wind power generation in Yap, however there are a number of community solar power mini-grids established in the outer islands which are managed by YSPSC. While household consumption is low due to predominance of traditional buildings, power usage by Government offices is relatively high . Through improved supply side energy efficiency and conversion to renewable energy under the Project, it is estimated that Yap can convert 28% of power generation to renewable energy and reduce diesel consumption for power generation by 32%. The Project is proposing to support (i) development of grid-connected wind power generation (about 1.5MW) on Yap Proper, (ii) development of grid-connected solar power (about 0.3MW) on Yap Proper, (iii) improved generation efficiencies of the existing diesel generation through a smaller diesel generator to be operated during low demand periods, and (iv) capacity building within YSPSC, through targeted training and development of required systems, tentatively to include procurement, financial management, fiduciary controls, asset management and system operation management.
The proposed project is in line with the (i) ADB's country operations business plan (COBP) 2011-2013 for FSM, which prioritizes energy as a key area of support, and (ii) FSM's draft National Energy Policy, 2010, which includes the draft Yap State Energy Action Plan. The draft National Energy Policy sets a national renewable energy generation target of 30% by 2020. All components of the Project are listed in the Yap State Energy Action Plan as priority activities.