Lao People's Democratic Republic: Northern Cross-Border Power Trade and Distribution Project

Energy / Electricity transmission and distribution

The proposed transaction TA will help the government to identify all project components and prepare the investment project though completion of the project feasibility study, least-cost electrification analysis, front-end engineering design, and preparation of bid documents for the engineering, procurement and construction (EPC) contract for the transmission and distribution systems recommended.

The investment project will help address Lao PDR's need to: (i) expand access to low-cost, reliable power in rural areas and (ii) develop priority power interconnections between Lao PDR and its neighbors to increase power trade. As originally envisaged, the proposed project would support the national electric utility, EDL (the executing agency of the project) to (i) expand distribution lines and provide off-grid alternatives in the select provinces (Originally envisaged as Luang Namtha, Bokeo and Phongsaly. A change in project locations was discussed during the meeting on 30 April 2018 and confirmed during the meeting on 11 July 2018. The distribution component will now focus on Phongsaly, Huaphanh, and Xieng Khuang); (ii) provide at least 8,000 household electricity meters for newly-connected customers; and (iii) construct one or more high-voltage transmission line(s) connecting Lao PDR with regional neighbor(s). The project builds on lessons learned from the GMS Northern Power Transmission Project and previous regional transmission support by the Asian Development Bank (ADB), and it is included in the country operations business plan, 2018 -2020 and the GMS Regional Investment Framework 2022.

In recent years, Lao PDR has seen tremendous growth in economic development, averaging 7.6% from 2010-2016. Poverty has been reduced from 46% in 1992/93 to 23% in 2013. The energy sector has been a major contributor to the country's development. As the _battery of Southeast Asia,_ Lao PDR's hydropower development and electricity exports have been a critical source of revenue for the country. In 2016, electricity accounted for 21% of the country's exports. At the same time, the government's effort to expand access to electricity within its borders has led to the early achievement of its target of 90% electrification by 2020. Currently, 92% of households have access to electricity through an on-grid connection, off-grid system or solar home system (SHS). The government has since reset its objective to 95% electrification by 2020.

Despite the government's achievements, challenges remain in the energy sector. EDL's fragmented transmission and distribution system does not yet cover the entire country. As a result, there is great disparity in electrification rates between urban and rural areas. For example, regional data from 2014 shows that northern provinces of Bokeo, Luang Namtha and Phongsaly had only attained a combined electrification rate of 79% of households, with Phongslay province alone achieving only 46%, while Vientiane had reached over 99%. Poverty remains high in these provinces, with an estimated 24% of households classified as poor in 2013, compared with 5.9% in Vientiane. Unconnected rural households must choose between expensive off-grid electricity (primarily diesel) or none at all. However, the government realizes that expanding access to the few remaining unconnected households via grid connection may not be economically feasible. Therefore, ADB recommends a least-cost electrification approach, whereby alternative options, such as renewable-based mini grids, battery storage, and SHS will be evaluated along with grid extension.

The lack of a unified national electricity grid also contributes to increased system losses and affects reliability of supply. The current grid capacity is insufficient to meet peak demand in urban centers or keep up with growing demand. In addition, Lao PDR's reliance on hydropower leads to seasonal imbalances: during the wet season, hydropower is abundant and EDL has excess capacity; during the dry season, EDL experiences shortages of supply and must import power. Regional power trade can solve these imbalances and support expanded access in neighboring countries, benefiting the GMS as a whole.

The government's objectives are to further reduce poverty and alleviate fiscal sensitivities. In its Eighth National Socio-Economic Development Plan (NSEDP), 2016 -2020, the government targets Lao PDR's graduation from least-developed country status by 2020 through sustainable and inclusive development. Thus, improving electrification to households in rural areas and adding to the hydropower export capacity are two critical governmental objectives.

ADB has provided extensive support to the development of the Lao PDR electricity infrastructure since 1992. The ongoing GMS Northern Power Transmission Project , nearing completion, is extending 115 kV transmission lines and distribution systems in Xaiyabuli, Phongsaly, and Vientiane provinces, and supporting an interconnection with the Electricity Generating Authority of Thailand (EGAT) Provincial Electricity Authority system.