||The Project proposes to assist the MEM in (i) preparing a policy for implementing sections of the amended Electricity Law related to tariff setting, to encourage development of medium to mini hydroelectric power projects to provide electricity from a clean and renewable source of energy for domestic use, and to allow the Government to approve such development proposals; (ii) after screening and ranking identified projects, prepare a feasibility study of one or two small or mini hydropower (with an installed capacity of up to 5 MW each) projects that would benefit from the work under (i); and (iii) preparing the necessary documentation for Clean Development Mechanism (CDM) registration that would serve as a model for replication by other small-scale hydroelectric power project developments. This is in line with ADB's Strategy 2020 and the country strategy and program for Lao PDR, which encourages the development of environmentally friendly generating facilities to tackle climate change and promote clean energy, and is also consistent with the Government's energy sector plan to provide electricity to 90% of the population by 2020, and EdL's energy strategy and road map on power generation.
|Project Rationale and Linkage to Country/Regional Strategy
Ownership of private or communal pico hydropower-generating sets reflects the importance of electricity in village life. In a 2006 census, provincial authorities reported existence of pico hydropower plants in their province, indicating on average about 22% of villages had installed such devices. Easily available pico-hydro generating sets for about $50-$100 each
provide poor quality electric power, and are generally dangerous to operate. There is therefore a need to continue developing environmentally friendly, affordable, safe and sustainable generating facilities to provide electricity to those in remote areas without electric power and relying on fire wood for their energy needs; or are provided with electricity generated by local diesel generators5 and use kerosene for lightning; or are supplied with electricity imported from neighboring countries6 produced using fossil fuels.7 EdL and private developers have identified about 95-100 small and mini8 environmentally benign hydropower projects totaling about 120 MW to 140 MW in 13 of Lao PDR's 18 provinces. 9 Promoting small-scale hydropower development is a priority to the Government of Lao PDR as (i) solar panels are expensive and more suitable for lighting of houses; (ii) use of biomass is less known in Lao PDR and the technology is not developed locally; (iii) unsuitability of wind power due to absence of all year winds; and (iv) the ability of small and mini hydropower plants to provide electricity also to small industries and enterprises.
Small and mini hydroelectric power plants generally have higher generation costs than large scale hydro, which benefits from economies of scale. Present tariff regulations in Lao PDR
now hinder the development of small hydro. The MEM has prepared an amendment to the Electricity Law to, among other things, encourage small to mini hydropower development for domestic power supply. The amended Energy Law is expected to be discussed and approved by the National Assembly in December 2008. There will thereafter be a need for a policy dealing with development of small hydropower, and identification of what measures need to be taken to encourage interested public and private developers of small hydropower plants. There will also be a need to prepare the necessary implementing guidelines that will allow EdL to purchase electricity at higher cost from such small developers.
Small hydropower plants have a potential to displace carbon emissions from other carbon-based energy sources as mentioned in paragraph 5. Due to the relatively high transaction cost of registering projects under the Clean Development Mechanism, there is a need to standardize the documentation, methodologies, greenhouse emission factors, and procedures within Lao PDR, so that developers of small hydropower plants of similar characteristics prepare similar documentation for submission to the United Nation Framework on Climate Change (UNFCC). This would reduce transaction costs, would make it easier for UNFCC to evaluate proposals coming from Lao PDR, and would reduce transaction costs.