Maldives : Preparing Outer Islands for Sustainable Energy Development Project - Additional Financing

Project Name

Preparing Outer Islands for Sustainable Energy Development Project - Additional Financing

Project Number

46122-005

Country / Economy

• Maldives

Project Status

Active

Project Type / Modality of Assistance

• Grant
• Loan

Source of Funding / Amount

Grant 0748-MLD: Preparing Outer Islands for Sustainable Energy Development-Additional Financing

Source	Amount
Asian Development Fund	US$ 2.73 million

Loan 3995-MLD: Preparing Outer Islands for Sustainable Energy Development-Additional Financing

Source	Amount
Concessional ordinary capital resources lending	US$ 7.74 million

Operational Priorities

• OP1: Addressing remaining poverty and reducing inequalities
• OP2: Accelerating progress in gender equality
• OP3: Tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability
• OP6: Strengthening governance and institutional capacity

Sector / Subsector

• Energy / Energy efficiency and conservation - Renewable energy generation - solar

Gender

Effective gender mainstreaming

Description

The impact and outcome of the overall project remain the same as defined in the current project design. Following the current project, the additional financing will finance selected subprojects on the basis of eligibility criteria agreed between ADB and the government. The additional financing will scale up and change the scope of outputs 1 and 2 below.

Output 1: Renewable-energy-ready grid systems developed for outer islands and the Greater Mal

region. The additional financing will scale up this output by introducing renewable-energy-based hybrid systems with grid upgrades, energy management systems, and supervisory control and data acquisition (SCADA) systems in an additional 12 outer islands. The output's scope will also be expanded to include (i) installation of solar-photovoltaic-based ice-making machines for four outer islands to support fisheries (the main economic activity in the outer islands), (ii) development of a climate- and disaster-resilient distribution system in identified outer islands, and (iii) pilot testing of a renewable-energy-operated ferry for transport.

Output 2: Capacity of the Ministry of Environment, State Electricity Company, and FENAKA to implement renewable energy grid interventions enhanced. The additional financing will continue to support the project management unit (PMU) within the MOE to ensure close project monitoring and implementation of the overall project. Capacity building support to the MOE will be included for project monitoring and implementation, along with assistance for planning, designing, and implementing disaster-resilient project components.

Project Rationale and Linkage to Country/Regional Strategy

Maldives is one of the world's most geographically dispersed countries with 1,192 islands spread across 800 kilometers of ocean. This dispersion and the small size of most inhabited islands make it extremely challenging to generate electricity centrally and distribute it through a comprehensive grid network to realize economies of scale. The generation costs are estimated at $0.30$0.70 per kilowatt-hour (depending on the island), and this required government subsidies of $58 million or 1% of gross domestic product (GDP) in 2019. Fossil fuel imports account for about 10% of the country's GDP, about half of this is for electricity generation, followed by about 40% for the transport sector. The heavy diesel dependence of Maldives also makes its carbon emissions per unit of electricity among the highest in the region. As a low-lying archipelago, with an average elevation of 1.5 meters above sea level, Maldives is one of the most vulnerable countries globally to climate and disaster risks. Maldives consistently faces risk of small-scale and recurrent hazards, such as excessive precipitation, cyclonic winds, storm surges, saltwater intrusion, and coastal flooding. It is estimated that Maldives may face an annual loss of up to a 2.3% of GDP by 2050 because of the impacts of climate change.

To improve energy security, the government has committed to increase the use of renewable energy and promote energy efficiency. The current project has played a vital role in escalating the penetration of renewable energy in Maldives from less than 0.1 megawatt (MW) in 2008 to more than 21.5 MW in 2020. The project was approved by the Asian Development Bank (ADB) Board of Directors on 29 September 2014, financed through a grant from the ADB Special Funds resources (Asian Development Fund) not exceeding $38.0 million, and a grant from the Strategic Climate Fund, administered by ADB, of $12.0 million. The first additional cofinancing was approved on 19 March 2015 and consisted of a grant of $5 million from the Japan Fund for Joint Crediting Mechanism, administered by ADB. The current project and the first additional financing remain ongoing, with the grants expected for closure in the first quarter of 2021. The objective of the current project is a shift towards clean and cost-effective energy sources. The current project finances the replacement of inefficient diesel-based power generation grids in 160 outer islands of Maldives and in Mal

with hybrid (solar photovoltaicbatterydiesel) generation, energy management systems, and upgraded distribution grids. These interventions will contribute to reducing the cost of electricity, the subsidy burden on the government budget, and emissions, and will diversify the power generation mix. The project has two outputs: (i) renewable-energy-ready grid systems developed for outer islands and the Greater Mal

region; and (ii) capacity of the Ministry of Environment (MOE) and the utilitiesthe State Electricity Company (STELCO) and FENAKA Corporation Limitedto implement renewable energy grid interventions enhanced.

The current project has installed more than 9.5 MW of solar photovoltaic capacity, 5.6 megawatt-hours of battery storage, and 11.6 MW of energy-efficient diesel generators and associated investments covering 70 outer islands across eight atolls. Also, the project supported the government in developing a low-carbon development road map for the energy sector; initiating regulatory reforms; and improving the capacity of the MOE, FENAKA, and STELCO focusing on renewable energy. The additional financing will be prioritized in providing optimal renewable-energy-based solutions targeting islands (i) operating purely on inefficient diesel generators; (ii) with heavy demand for ice to support fisheries; and (iii) pilot testing innovative components which have potential for future replication.

Impact

More sustainable energy sector based on renewable resources (Strategic Action Plan 2019-2023).

Project Outcome

Description of Outcome

Shift towards clean and cost-effective energy sources

Progress Toward Outcome

The Implementation is progressing as envisaged and to meet the project outcome.

Implementation Progress

Description of Project Outputs

Renewable-energy-ready grid systems developed for outer islands and greater Male region

Enhanced capacity of MOE, STELCO and FENAKA to implement renewable energy grid interventions

Status of Implementation Progress (Outputs, Activities, and Issues)

One of the major contracts covering 12 islands in Thaa Atoll was signed in November 2021 and capacity building activities are being provided to PMU and utilities. The bidding is in progress for the remaining 2 packages (solar based ice-making plants and solar-battery hybrid ferry).

Geographical Location

Nation-wide

Safeguard Categories

Environment

C

Involuntary Resettlement

C

Indigenous Peoples

C

Summary of Environmental and Social Aspects

Environmental Aspects

Involuntary Resettlement

Indigenous Peoples

Stakeholder Communication, Participation, and Consultation

During Project Design

The first stakeholder communication was conducted during project processing. The next phase of consultations will start after the contract award of the packages when contractor finalizes the design.

During Project Implementation

This will be conducted as required before site activities.

Business Opportunities

Consulting Services

Individual consultants ( National & International) will be engaged to support the PMU with project monitoring and implementation support, design of climate resilient and innovative components under this project.

Procurement

There are 3 open competitive bidding packages in this additional financing. Advanced procurement cation will be used for procurement of EPC contractors. Ministry of Environment (MOE) will be responsible for all the procurement actions.

Contact

Responsible ADB Officer

Kolantharaj, Jaimes

Responsible ADB Department

Sectors Group

Responsible ADB Division

Energy Sector Office (SG-ENE)

Executing Agencies

Ministry of Finance (formerly Ministry of Finance and Treasury)

Timetable

Concept Clearance

28 Oct 2019

Fact Finding

21 May 2020 to 21 May 2020

MRM

07 Aug 2020

Approval

29 Oct 2020

Last Review Mission

-

Last PDS Update

16 Sep 2022

Funding

Grant 0748-MLD

Loan 3995-MLD