|Project Rationale and Linkage to Country/Regional Strategy
The proposed Energy Access Project (the Project) will increase energy access to households and businesses across Vanuatu. This will be achieved through expansion of existing distribution grids and the development of low cost renewable energy generation from hydropower.
The total population of Vanuatu is approximately 240,000, with around 25% of the population living in urban areas and 75% in rural areas. The overall access rate is estimated at 33%, with relatively high access rates (82%) in urban areas and considerably lower access rates (17%) in rural areas. Provision of electricity services is concentrated on Port Vila where 92% of installed capacity is located. The majority (64%) of rural households with access to electricity is grid-connected and is located in peri-urban areas within the existing concessions f the households without access to electricity, 86% rely on kerosene for lighting.
There is significant scope to expand the existing grids and connect additional households in the areas within or near the existing concessions. Expansion to date has been slow as the cost of connecting additional households is not financially viable given existing tariffs and requires subsidies from the Government of Vanuatu (the Government). It is estimated that a significant number of households could be connected through least cost expansion of the existing power grids to peri-urban areas. The Project will therefore focus on grid extensions to peri-urban areas and will include extensive household surveys to gauge willingness and ability to pay, as well as compare the benefits of grid extension against household-based systems. Support for improving off-grid access to rural areas where it is not feasible to extend the grid is being supported under separate programs. Power generation is generally based on diesel, however in 2010, about 18.6% of national electricity generation was from other renewable energy sources, including wind, coconut oil as a diesel replacement, one small solar plant, and one hydropower plant. There is significant scope to provide additional generation from renewable sources, given the country's resources, particularly of hydropower.
Low cost renewable energy will therefore be developed to support the grid expansion. 7329-REG: Promoting Access to Renewable Energy in the Pacific assessed alternative renewable energy options and concluded that hydropower is the least cost expansion option. Pre-feasibility studies have been prepared for two hydropower sites, one at Brenwe on Malekula and one at Wambu on Espiritu Santo. The PPTA will prepare feasibility studies for these two sites and confirm that they are the least cost alternatives. The PPTA will also assess optimum institutional arrangements for operation and maintenance of the proposed Government owned hydropower infrastructure, including the options of integration into existing concessions and private sector involvement.
Electricity is generated and supplied in Vanuatu under four separate concession contracts. These consist of three concessions in Port Vila, Malekula and Tanna held by UNELCO EDF Suez and one concession in Luganville held by Vanuatu Utilities and Infrastructure Limited (VUI). The Utilities Regulatory Authority (URA) monitors the concession contracts and sets tariffs under the Luganville concession, while tariffs are set contractually for other concessions. The total installed generation capacity is 30.7 MW. Power tariffs in Vanuatu are high with a base tariff of V55.01/kWh ($0.59c/kWh). Residential tariff rates include a significant lifeline cross-subsidy from high consumption consumers to low consumption customers. Current reliance on high cost diesel generation in provincial centers provides a direct disincentive for grid extension as the additional costs are not matched by additional revenues. Renewable energy such as hydropower has significant potential to reduce generating costs and allow cost-effective expansion of the grid, particularly in remoter provinces. Reduced generation costs combined with increased capacity will allow expansion of the distribution grids.
The proposed project is included in the ADB's country operations and business plan (COBP) 2013-2015 for Vanuatu, which prioritizes energy as a key area of support. The project supports the Government's Priority and Action Agenda (PAA) 2006-2015, which aims to (i) reduce the cost of services, (ii) extend the coverage of rural electrification; and (iii) promote the use of renewable energy. The project is also aligned with the Government's action document Planning Long, Acting Short, 2009-2012 which aims to (i) ensure that electricity is more widely available at a fair price; and (ii) invest in renewable electricity. The project supports the National Electricity Policy Framework, 2007, and is integrated with the Vanuatu Energy Road Map. The proposed project also supports the ADB Energy Policy 2007 and ADB Energy for All Initiative.