Nauru : Solar Power Development Project

Energy / Renewable energy generation - solar

The Solar Power Development Project will finance (i) a grid-connected solar power plant with a capacity of 6 megawatts (MW) of alternating current; and (ii) a 2.5-megawatt-hour, 5 MW battery energy storage system (BESS) to enable smoothing of intermittent solar energy. The system will be fully automated and integrated with the existing diesel generation system (17.9 MW of installed capacity, currently operated manually) to optimize solar energy use, enable optimal BESS charging and discharging, and allow optimal shut-off of the diesel engines. This will reduce Nauru's reliance on diesel for power generation and decrease production costs. The project will also support the institutional strengthening of Nauru Utilities Corporation (NUC). Project preparatory technical assistance was used to carry out project-enabling activities such as a Solar Power Expansion Plan for Nauru, project feasibility study, detailed design, and plant procurement contract bidding documents.

Country background. Nauru is a single isolated island in the South Pacific, with a land area of 21 square kilometers and a population of 13,300 in 2017. It is a small island developing state that is classified by ADB as a fragile and conflict-affected situation. Nauru's economy is narrowly based on revenue from the Nauru Regional Processing Centre and the sale of fishing licenses. In the 1970s, Nauru had one of the world's highest national incomes per capita because of its phosphate industry; however, by the late 1990s, the economy had contracted severely as production slowed. Although broad fiscal management reforms helped improve government finances, the country faces the difficult task of ensuring fiscal sustainability in the medium term.

Energy security. Nauru relies heavily on imported diesel for power generation. In 2018, only about 3% of its total electricity came from solar photovoltaic installations; the rest came from diesel generators. All fuel is imported through Nauru's single commercial port, which is highly vulnerable to severe weather events and the effects of climate change. This dependence on imported fossil fuel exposes the nation to price shocks from fluctuating fuel prices and creates the risk of power outages if diesel supply is interrupted. The Government of Nauru is committed to improving energy security and reducing greenhouse gas emissions, and has set ambitious renewable energy targets for power generation by 2020 in the Nauru Energy Road Map, 2018-2020. Electricity demand is generally flat at about 4 MW. That is expected to increase minimally. Uncertainty surrounds future demand because it depends on whether large power consumers such as Australia's processing center, Republic of Nauru Phosphate Corporation, or the new Nauru Port, are connected to the national grid.

Energy sector development. The cost of power generation in Nauru is high - regularly more than $0.40 per kilowatt-hour (kWh), depending on international fuel prices. Historically, tariffs did not cover the cost of supplying power, so the government had to bear annual subsidy costs of $3-$4 million. However, this situation is rapidly improving, in part because of ADB's recent TA support to developing legislation for NUC, preparing a corporate strategy for NUC, preparing tariff and subsidy policy reforms (including a subsidy for disadvantaged residents), preparing an asset management and maintenance plan, improving NUC's accounting systems, and implementing a revised corporate governance structure. In 2017, ADB financed two high-efficiency diesel generators and a new switchgear through the Electricity Supply Security and Sustainability Project, to help supply baseload, reduce power outages, and improve system reliability and efficiency. This improved revenue, operations, and service reliability. But the legal framework to develop renewable energy is limited; and institutional reforms, tariff revisions, and private sector engagement for renewable energy are needed.

Barriers to sector development. The government and NUC have limited borrowing capacity, and available government funds and revenue from electricity customers are insufficient to finance capital costs. NUC operates a 500-kilowatt (kW) solar plant, funded by the United Arab Emirates, and is constructing a 1.0 MW solar plant, funded by the Government of New Zealand and the European Union. Despite this progress, NUC requires (i) further financial assistance for large solar assets; (ii) support to integrate new assets into the grid; (iii) capacity building in the areas of solar power generation and BESS maintenance to ensure grid stability; and (iv) assistance in financial management, gender mainstreaming, and project implementation.

Reliable, affordable, secure, and sustainable energy supply to meet the socioeconomic development needs of Nauru

The project is aligned with 50% of grid electricity supplied from renewable energy sources (Nauru Energy Road Map 2018-2020)

Viable power-generating capacity, including alternative (renewable) energy sources (Long-term Milestone 2025, National Sustainable Development Strategy 2005-2025)

The use of renewable energy within the grid will have increased and the cost of electricity generation will have decreased.

Solar power plant installed

Battery energy storage system installed

Institutional capacity of NUC strengthened

Procurement of goods and works for the Plant Procurement Contract (PPC) will follow ADB's Procurement Guidelines (2015, as amended from time to time) and will be based on ADB SBD (ICB Plant Procurement Method, and the Stage 1 Envelope Bidding Procedure) for the Procurement of Plant, Design, Supply and Installation. The contract will include final design and engineering, supply and installation of equipment, construction works and commissioning, and an O&M knowledge transfer program.

Advance contracting and retroactive financing will apply for the procurement of civil works and consultancy contracts. The amount to be retroactively financed will not exceed 20% of the ADB grant and can be done prior to grant effectiveness but not later than 12 months before the signing date of the grant agreement.