|Project Rationale and Linkage to Country/Regional Strategy
Petroleum dependency makes Tonga highly vulnerable to oil price shocks, affecting the affordability of food, goods, electricity, and transportation. This reliance on fossil fuels exposes the economy to high electricity tariffs linked to volatile oil prices over the last decade, since more than 90% of its overall grid connected electricity demand is supplied by generators fueled by imported diesel. Between 2001 and 2011, the average ex-Singapore-based oil price increased from $25 to $98 per barrel. Linked to these fluctuations, the electricity tariff reached a peak in 2008 at $0.55 per kilowatt hour (kWh), and although the tariff has now dropped to $0.53 per kWh, it is still the most expensive in the region, partly due to an inefficient power distribution system.
The government has been seeking to reduce both the cost of electricity supply and Tonga's vulnerability to oil price increases. In 2008 the government approved The Renewable Energy Act, a regulatory instrument to promote the use of renewable energy technologies. In recognition of the vulnerability of Tonga's electricity sector to oil price rises the government has set a target to generate 50% of Tonga's grid based electricity from renewable energy resources and to achieve a 50% reduction in diesel consumption by 2020 in its National Strategic Planning Framework of 2009. The Tonga Energy Road Map 2010-2020 (TERM) is the government's development, reform and improvement plan for the energy sector, drafted in close coordination with development partners. The TERM pursues (i) enhancement of the petroleum supply chain; (ii) deployment of renewable energy technologies; and (iii) supply and demand-side energy efficiency, recommending especially loss reduction in the electricity distribution network.
The responsibility for provision of electricity services rests solely with Tonga Power Limited (TPL), the power utility, a vertically integrated public enterprise wholly owned by the government under the oversight of the Ministry of Public Enterprises (MPE) and the Cabinet. TPL has concessions to operate four independent grids in Tonga, the largest on the main island of Tongatapu, and three smaller grids on the main islands of the Vava'u, Ha'apai and Eua island groups, where it generates, distributes, and retails electricity, and provides operation and maintenance services.
The total installed grid connected power capacity managed by TPL in 2012 had about 14.3 megawatt (MW), with a yearly demand of about 52.4 gigawatt hour (GWh), and about 700 kilometers of power distribution lines. The total diesel consumption for generation of electricity in 2011 was estimated in 15 million liters to supply 98% of grid connected electricity. It is expected that the peak demand will increase to 17.2 MW by 2020.
The power distribution system is the most visible part of the electricity supply chain, which requires considerable investment, maintenance and operation efforts. According to electrical industry standards power distribution assets represents 20-30% of the required power system investments. Standard losses in rural power distribution networks are around 5 to 6%. However, in Tonga the percentage of power losses (commercial and technical) is around 20%, requiring more fuel for power generation. Therefore it is in the interest of the power utility and consumers to increase the efficiency of the power system as a whole.
The proposed project will capitalize on the results to be achieved under the proposed Outer Island Renewable Energy Development Project, the scope of which is to implement solar power connected to existing power distribution networks in the outer islands of Tonga. To maximize the distribution of the newly installed solar electricity the Government has requested Asian Development Bank's (ADB) assistance to upgrade the existing power distribution grids of (i) Ha'apai, including 'Uiha, Nomuka, Ha'ano and Ha'afeva; (ii) Vava'u; and (iii) Eua. The proposed project will replace grid assets (cable, poles, distribution transformers and switchgear) and existing street lighting with efficient street lighting powered by solar panels. It will minimize power distribution losses and reduce the fuel consumption of the existing diesel power plants, thus avoiding about 2,025 tons of carbon dioxide (CO2) per year. Before project implementation, project preparatory technical assistance (PPTA) will conduct due diligence for each project site including technical feasibility, social and environmental safeguards, and gender action plan.
The added value of the proposed project is to demonstrate that combining deployment of renewable power generation and power distribution loss reduction is an appropriate strategy to optimize existing energy matrixes and reduce their carbon output. Additional electricity will contribute to power security, create sustainable livelihoods and reduce environmental pressure. The proposed project is in line with ADB's Energy Policy 2009 which promotes energy efficiency and renewable energy; maximizing access to energy for all; promoting energy sector reform, building capacity, and improving governance. It is included in Tonga's Country Partnership Strategy (2008-2012) and Country Operations Business Plan 2012-2014