POWER TO THE PEOPLE:
SOLAR ENERGY FOR A BETTER
QUALITY OF LIFE, SOCIAL
EQUITY AND SOCIO-ECONOMIC
GROWTH IN THE PHILIPPINES
Empowered lives.
Resilient nations.
Towards an ‘Energy Plus’ approach for the poor:
A review of good practices and lessons learned from Asia and the Pacific
Case Study 1
ENVIRONMENT AND ENERGY
We would like to take this opportunity to recognize the partners who have made financial and other contributions to the energy sector
project described in this report. These include the World Bank, the Global Environment Facility and the Government of the Philippines.
“UNDP partners with people at all levels of society to help build nations that can withstand crisis, and drive and
sustain the kind of growth that improves the quality of life for everyone. On the ground in 177 countries and territories,
we offer global perspective and local insight to help empower lives and build resilient nations.”
Cover photo courtesy of UNDP/Energy Access for Poverty Reduction
Contents
Acronyms
iii
Synopsis
v
Acknowledgements
vi
Preface
viii
1. Background and context
1.1 Socio-economic status of the Philippines
1.2 Policies and programmes for expanding energy access
1.3 The structure of the energy sector
1.4 Energy access and status of rural electrification
1
1
1
2
3
2. Project overview
2.1 Project ACCESS policy framework
2.2 Project ACCESS
4
4
5
3. Implementation strategy
3.1 Supply, installation and maintenance of SPV systems by private contractors
3.2 Profiling and clustering of potential SSMP project areas
3.3 Funding: subsidies and financial incentives
3.4 SSMP support for market development
3.5 Ensuring performance: service obligations by SSMP contractors
3.6 Maintenance of community facilities
3.7 Capacity development
3.8 Project costs
5
6
7
7
8
8
9
9
9
4. Impacts
4.1 Installations to date
4.2 Impact on households and communities
4.3 Impact on environmental sustainability
10
10
10
10
5. Project
5.1
5.2
5.3
10
10
11
11
sustainability
Current measures
Challenges
Future measures
6. Lessons learned for expansion of energy services to the poor
6.1 Strong political commitment is the most important enabler
6.2 Harmonization of various sources of financing for expanding access
6.3 A viable market for private-sector operators
6.4 Service obligations by contractors
6.5 Systematic market assessment
6.6 Well-designed communication strategy
12
12
12
12
12
12
13
7. Conclusions
13
References
14
September 2011
Copyright © United Nations Development Programme. All rights reserved. Articles may be freely reproduced as long as
credit is given to UNDP. Requests for all other uses, e.g. the sale of the materials or their inclusion in products to be sold,
should be addressed to [email protected].
Articles in this publication do not necessarily reflect the official views or policies of the United Nations Development
Programme, nor do the boundaries and names shown on maps imply official endorsement by the United Nations.
ISBN: 978-974-680-304-5
Acronyms
APRC
Asia-Pacific Regional Centre
ACCESS
Accelerating Community Electrification using Solar
CO2
carbon dioxide
DAR
Department of Agrarian Reform
DOE
Department of Energy
DU
distribution utility
EC
electric cooperative
EPIRA
Electric Power Industry Reform Act
ER
expanded rural electrification
ERC
Energy Regulatory Commission
GEF
Global Environment Facility
GOP
Government of the Philippines
IPP
independent power producer
km2
square kilometre
kWh
kilowatt hour
kWp
kilowatt-peak
LGU
local government unit
MTPDP
Medium-Term Philippine Development Plan
MW
megawatt
NEA
National Electrification Administration
NGO
non-governmental organization
NPC-SPUG
National Power Corporation Small Power Utilities Group
PHP
Philippine peso (currency)
PMO
Project Management Office
PPP
public-private partnership
RE
renewable energy
RPP
Rural Power Project
RRA
rapid rural appraisal
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
iii
SHS
solar home system
SPV
solar photovoltaic
SSMP
Sustainable Solar Market Package
UNDP
United Nations Development Programme
USD
United States dollar (currency)
WB-GEF
World Bank-Global Environment Facility
Wp
watt-peak
iv
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
Synopsis
Project title: Accelerating Community Electricity Services using Solar (ACCESS)
Country and region of implementation: Un-electrified off-grid barangays in the Republic of
the Philippines1
Focus area: Solar photovoltaic electricity for un-electrified barangays and households
Contact details:
Mylene C. Capongcol
Director, Electric Power Industry Management Bureau
Department of Energy, 4/F, PNOC Building 6
Energy Centre, Merritt Road, Fort Bonifacio, Taguig City, Metro Manila, Philippines
[email protected]; [email protected]
Tel. +632 8402120
Duration: 2006-2011
Cost: USD 11.3 million. This consists of USD 7.9 million from the World Bank and the Global Environment
Facility, and USD 3.4 million from the Government of the Philippines.
Project brief: Project ACCESS aims to improve the quality of life of communities living in un-electrified
barangays and households by providing electricity using solar photovoltaics (SPVs). Implemented by
the national Department of Energy, the project has adopted a Sustainable Solar Market Package (SSMP)
mechanism, an innovative delivery model for electrification of remote rural areas. The project
demonstrates that leveraging limited public funds through the involvement of the private-sector can
enable a commercial model of rural electrification. Key features of the delivery model include (a)
clustering of barangays into commercially viable SSMPs, bid out on a competitive basis to private
contractors; (b) each SSMP ensuring a baseload from community facilities; (c) performance-based
subsidies and financial incentives improving affordability and helping private contractors to address
market barriers; and (d) a strong focus on after-sales service and continued marketing.
The project is well-aligned with government policies on renewable energy and contributes to the
achievement of national electrification targets of 100 percent barangay electrification and 90 percent
household electrification. As of 31 December 2009, the project had installed 765 communal SPV
facilities and provided electricity to 6,513 households.
1
Barangays are the smallest administrative divisions in the Philippines.
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
v
Acknowledgements
Power to the people: Solar energy for a better quality of life, social equity and socio-economic
growth in the Philippines is one of 17 case studies which, together with a report titled ‘Towards an ‘
Energy Plus’ approach for the poor: A review of good practices and lessons learned from Asia and the
Pacific’ and an Action Agenda Note, comprise a review of good practices and lessons learned in energy
service delivery to the poor. Commissioned and facilitated by the United Nations Development
Programme Asia-Pacific Regional Centre (UNDP APRC), this case study identifies key characteristics
that have helped poor households and communities gain access to modern energy services, and to
derive valuable lessons for future energy access activities. This case study is the product of an intensive
collaborative process and we wish to acknowledge the many contributors, without whose generous
support this work would have been impossible.
We express special gratitude to the main researchers and writers of the case study, Vernon Ray N.
Vinluan and Mylene C. Capongcol, whose expertise and knowledge established the basis of this report.
UNDP is also grateful to the Project Management Office of the Rural Power Project (based in the
Department of Energy), headed by Jayantha Nagendran, Reynaldo Reynaldo, Fidelpio Ferraris and
Quennie Rojo for their inputs on the draft case study, and Cecile Panganiban, Eric Vitug and Freddie
Bides for administrative support. UNDP also extends its thanks to Alice de Guzman, Joy Panopio and
Mau Quinamot for their research assistance.
Special thanks to Thiyagarajan Velumail, supported by Soma Dutta, Lara Born and Butchaiah Gadde,
for his technical leadership and guidance in the conduct of the 17 case studies.
Felicity Chard, David Galipeau (Chair), Daniela Gasparikova, Arun Kashyap, Faris Khader, Maya
Nyagolova and Ashley Palmer of the UNDP-APRC Knowledge Products Review Committee (KRC) kindly
provided a final review and endorsement of this publication.
The case study also benefited from the rich and fruitful interactions of the 9-12 November 2009
writeshop participants, including Praveen Arakkal, Expedito Belo, Lara Born, Ivo Besselink, Mamta
Chander, Karma Chogyal, Beau Damen, Soma Dutta, Butchaiah Gadde, Geraldine Huet, Thomas Lynge
Jensen, Xin Liu, William Mohns, Wattanee Niyomyath, Sunjita Pradhan, Kamal Rijal, Bhupendra Shakya,
Bala Ram Shrestha, Kiran Man Singh, Dean Still, Yusuke Taishi, Pia Treichel, Kapila Subasinghe, Vernon
Ray Vinluan, Veronica Villavicencio, Julien Wallet-Houget and Sirintharat Wannawong. Special thanks
to the writeshop moderators Kamal Rijal and Thiyagarajan Velumail. In addition, the case study
benefited greatly from the intensive peer review. Special thanks are due to Kayo Ikeda and Robert G.
Bernardo of the Technical Advisory Committee for providing a detailed review that guided the
finalization of the case study. We would also like to acknowledge Soma Dutta’s support to the case
writer in preparing the final case study.
UNDP APRC in Bangkok was responsible for the facilitation and conceptualization of the 17 case studies
and the associated report. We thank the core team, comprising Saana Ahonen, Aalok Awalikar, Lara
Born, Soma Dutta, Butchaiah Gadde, Thomas Lynge Jensen, Pratima Mathews, Wattanee Niyomyath,
Thiyagarajan Velumail and Julien Wallet-Houget. Thanks to Sirintharat Wannawong, who has been
instrumental in supporting the entire process administratively.
vi
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
Finally, UNDP would like to thank Nikolai Beresnev and Collin Piprell for their excellent editorial support,
and KEEN Publishing Co. Ltd. (Thailand) for logistical support and graphic design.
Martin Krause
Team Leader
Environment & Energy
UNDP Asia-Pacific
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
vii
Preface
Asia-Pacific has achieved remarkable economic growth and socio-political progress in the past two
decades, with almost every country in the region experiencing a concomitant decline in poverty.
Despite this progress, 800 million people in the region remain without access to electricity and almost
2 billion rely on the traditional use of biomass for cooking. While good progress has been made with
the expansion of electricity, many remote rural areas remain un-electrified, as connecting them to the
national grid remains very expensive. Rural electrification is a particularly strong challenge for
archipelago countries such as the Philippines, which consists of more than 3,000 inhabited islands. By
December 2009, 41,740 out of the 41,980 listed barangays in the country (99.4 percent) had been
provided with electricity, but the share of electrified households stood at 71 percent.
The poor often live in subsistence economies that do not generate cash surpluses, limiting their
purchasing power and opportunities to shift to modern energy services. As a result, they have to
invest more of their income and time in obtaining energy, and tend to use traditional energy services
and fuels. Women and children are particularly affected, spending many hours a day collecting
fuelwood and preparing meals in the kitchen. Smoke from inefficient stoves in poorly ventilated homes
kills 1.6 million people worldwide every year; the majority of victims are women and children younger
than five years. Indoor air pollution is the fourth-biggest killer in the developing world.
Asia-Pacific countries have applied many cutting-edge practices in providing energy access to the
poor, including innovative financing mechanisms. Apart from satisfying basic needs, energy services
can act as an instrument to empower women and disadvantaged communities; as an entry point to
mobilize communities to take charge of their own development; and, most importantly, as a means
to livelihood enhancement and poverty reduction. However, the scale of expansion of energy access
projects has been far from sufficient.
UNDP has been working with its country partners to address these energy poverty issues, aiming to
meet user needs, broaden energy supply options and link these efforts in achieving the Millennium
Development Goals. Between 2009 and 2011, the UNDP APRC reviewed 17 energy access programmes
and projects implemented by various development agencies and the private sector in the region.
These projects were documented as 17 case studies (including this report), a report titled ‘Towards
an ‘Energy Plus’ approach for the poor: A review of good practices and lessons learned from Asia and
the Pacific’ and an Action Agenda Note. Together, these documents provide practical guidance for
policymakers and development practitioners in designing and implementing future programmes
and projects that ensure the delivery of low emission, affordable and reliable energy services for
poverty reduction.
viii
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
This case study documents a government-led energy project in the Philippines that has adopted an
innovative delivery mechanism. Aiming to expand electrification in rural and remote areas, Project
ACCESS seeks to complement limited government resources with private investment. In line with a
government policy of developing indigenous and renewable energy resources and technologies, the
project promotes the electrification of barangays and households using solar photovoltaics. The
delivery mechanism consists of barangays being clustered into commercially viable packages, which
are then bid out to private contractors. The contractors, in turn, are obliged to provide installation,
servicing and maintenance support of solar photovoltaic systems.
Nicholas Rosellini
Deputy Assistant Administrator & Deputy Regional Director
Regional Bureau for Asia and the Pacific
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
ix
1. Background and context
1.1 Socio-economic status of the Philippines
Despite the country’s economic growth in recent years, a large
number of people have slipped below the poverty threshold,
making it almost impossible for the country to meet the
Millennium Development Goal of halving poverty by 2015. In
2006, almost 27 percent of households lived below the
nationally defined poverty threshold of USD 3433 (4.68 million
households, or 27.6 million people)4; this proportion has
increased to 35 percent by 2009 (32.3 million people).5
UNDP/Energy Access for Poverty Reduction
A democratic republic in South-East Asia, the Philippines is an
archipelago of 7,107 islands with a land area of 300,000 km2. It
is divided into three main geographical areas: Luzon, Visayas
and Mindanao. Its population is around 94 million, making it
the 12th most populous country in the world. The 2010 UNDP
Human Development Report listed the Philippines as a ‘medium
human development’ country, ranked 97th out of 169 countries
on the Human Development Index. The country’s per capita
Gross National Income was around USD 4,000 in 2010.2
Typical rural community in the Philippines.
1.2 Policies and programmes for expanding energy access
Energy independence agenda. Following the 1973 energy crisis, the energy policy of the Philippines has been geared towards
attaining energy independence from imported oil, coal and other fossil fuels. Specifically, the Government of the Philippines
(GOP) seeks to increase national energy self-sufficiency to provide a buffer against global fuel price shocks.6 Strategies to achieve
this objective have included:
developing indigenous and renewable energy (RE) resources and technologies;
promoting public-private partnerships (PPPs) to establish robust electric power infrastructure; and
accelerating electrification of the countryside since the early 1990s.
Rural electrification. Politically, the Philippines is strongly committed to rural electrification. This has been reflected in government
development policies since the creation of the National Electrification Administration (NEA) in 1969.
This focus received renewed impetus in 1999 when the GOP established a social compact with the Filipino poor to alleviate
poverty by implementing various development projects, including the provision of electricity services through the Accelerated
Barangay Electrification Program. In April 2003, this programme was continued and enhanced through the Expanded Rural
Electrification (ER) Program.
The GOP has publicly stated that providing energy services will enhance quality of life while providing greater access to basic
services and improved infrastructure for rural development.7 Rural electrification is seen as key to promoting social equity and
socio-economic growth, particularly for marginalized sectors such as fisheries and agriculture in remote barangays.
2
UNDP, 2010.
3
Annual per capita poverty threshold is PHP 15,057. PHP 1 = USD 0.02279, as of 23 September 2011 (www.xe.com).
4
NSCB, 2006.
5
Remo, 2009.
6
NEDA, 2009.
7
Congress of the Philippines, 2001.
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
1
Box 1: Total electrification policy and
GOP’s development priorities
MTPDP 2004-2010 of the GOP aimed to reduce poverty
by focusing on strategic measures to increase economic
growth and build wealth. It included the following
strategies:
Creating jobs and better livelihoods. This included
promoting decentralization, agribusiness development
and investment.
Cross-cutting strategy. In delivering its targets, MTPDP
2004-2010 considered infrastructure support (such as
rural electrification) as a cross-cutting strategy. The
Plan’s chapter on power-sector reforms declared a
priority target of total barangay electrification by 2009
through collaborative efforts by the GOP, GOP-owned
and controlled corporations, GOP financing institutions,
local government units (LGUs), the private sector and
various donor agencies.
Alternatives to fossil fuel for electrification of remote
areas. MTPDP 2004-2010 stated that the country’s wind,
solar, biomass and hydropower potentials will be
harnessed as viable alternatives to fossil fuel for the
electrification of remote areas, thereby countering the
prohibitive cost of connecting to the grid and the
difficulty of transporting generators to these areas.8
The passage of the Electric Power Industry Reform Act (EPIRA)
in 2001 initiated reforms in the Philippines power sector,
providing an important thrust towards total electrification of
the countryside under the GOP’s Medium-Term Philippine
Development Plan 2004-2010 (MTPDP, see Box 1) and the
Philippine Energy Plan.
Renewable energy. Harnessing RE comprises a critical
component of the GOP’s energy strategy. The Department of
Energy (DOE) projects that RE will provide up to 40 percent of
the country’s primary energy requirements over the 10-year
period beginning in 2003. In an aggressive move to promote
RE development, the DOE has set the following long-term goals:
to increase RE-based capacity by more than 100
percent from 2009 to 2013 (4,449 MW to 9,147 MW);
to increase the non-power RE contribution to the
energy mix by the equivalent of 10 million barrels of
fuel oil in the next 10 years;
to become the biggest geothermal energy producer
in the world;
to become the biggest wind energy producer in
South-East Asia;
to double the national hydro capacity between 2002
and 2013; and
to expand the contribution of biomass, solar and
ocean energy to power generation by about 131 MW.9
These goals provide concrete benchmarks for the vision of a sustainable energy system, with RE taking a prominent role in the
energy mix. To realize these targets, the Renewable Energy Act of 2008 promotes and enhances the development, utilization and
commercialization of RE resources.
The Philippines is a signatory to the Kyoto Protocol, which aims to reduce greenhouse gas emissions to mitigate climate change.
It is a Non-Annex 1 country, which permits it to generate income via Clean Development Mechanism projects, in partnership with
Annex 1 (industrialized) countries. This provides the DOE with further impetus to develop RE for power generation.
1.3 The structure of the energy sector
A number of GOP agencies and departments are involved in providing energy services in the Philippines. These are described
below.
The DOE is responsible for the overall policy in the energy sector. Through its ER Program, it manages GOP activities relating to
rural electrification and missionary electrification.10 The departmental mandate is corroborated under EPIRA 2001, which states
the official policy of ensuring and accelerating “the total electrification of the country”.11
8
NEDA, 2009.
9
DOE, 2011.
10
Missionary electrification refers to electrification of areas declared commercially unviable by the DOE.
11
Congress of the Philippines, 2001.
2
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
The Energy Regulatory Commission (ERC) is a regulatory agency created under EPIRA 2001. Its mandate includes, among others:
tariff setting and monitoring of distribution utilities (DUs), electric cooperatives (ECs, classified as private investor-owned
utilities), investment projects and power supply contracts;
reviewing operating standards for DUs and ECs;
regulating qualified ‘third parties’;12 and
licensing and determining universal charges for missionary electrification.
The NEA is mandated with achieving universal electricity access in the country. It manages all ECs, reviews and monitors their
financial performance, and provides them with loans and subsidies. It also supports GOP unit-managed utilities by financing the
rural electrification program for infrastructure facilities and other operations necessary for electrification.
DUs and ECs deliver electric services to end-users, including households, commercial establishments and industries. Missionary
and community-based electrification, on the other hand, lie within the purview of the National Power Corporation and its Strategic
Power Utilities Group (NPC-SPUG).
Other GOP agencies, including the Department of Agrarian Reform (DAR) and the Department of Interior and Local Government,
finance specific rural electrification projects. In 1991, the Philippines introduced private participation in electricity generation
through independent power producers (IPPs).13
1.4 Energy access and status of rural electrification
UNDP/Energy Access for Poverty Reduction
Currently, all cities and towns in the Philippines have access to
electricity. Key GOP achievements and targets for rural
electrification include the following:
by December 2009, 41,740 of the 41,980 barangays
listed in the country had been provided with
electricity (99.4 percent);
the remaining barangays are to be electrified by the
end of 2011; and
once 100 percent barangay electrification is
accomplished, the GOP will prioritize the secondary
target of 90 percent household electrification by 2017.
As of September 2009, 71 percent of total potential
households had been electrified.14
A rural household with an SPV installation.
Major challenges remain. Due to the country’s archipelagic
geography, and with over 20 million poor Filipinos living in rural
areas, electrification remains a major challenge. An estimated 3.5 million households are yet to be electrified. The NEA database of
September 2009 indicated that around 29 percent of Filipino households still lived in remote areas beyond the electric grid. This
database, moreover, takes into account only households located within the franchise areas of the 119 rural ECs.15
The GOP has prioritized the provision of energy services to low-income households irrespective of their location, including areas
afflicted by civil conflict. For example, Mindanao – a region characterized by a widespread lack of economic opportunities, poor
infrastructure, and high social and political unrest – is home to approximately 8 million poor. Inadequate infrastructure and a lack
of access to electricity have been the major stumbling blocks for sustainable development in these areas.
12
This refers to electric service providers undertaking missionary electrification.
13
Sharma et al., 2004; Toba, 2007.
14
NEA, 2009.
15
NEA, 2009.
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
3
The poorest pay more for energy services. A 2000 DOE market assessment indicated that about 80 percent of households in
un-electrified barangays had income levels below the poverty threshold. The un-electrified households also paid higher prices
for energy in comparison to electrified households. As a result, the average monthly expenditure on energy (lighting and power)
accounted for about 6-8 percent of total expenses in un-electrified households.
Extra burdens on women and children. The absence of electricity services most seriously affects women and children in rural
areas of the Philippines. Women work long hours performing domestic chores and manual labour, while children have minimal
time to read and study at home. Lack of access to modern energy services can also constrain social interaction in a community
and have an adverse effect on health (by exposing women and children to kerosene fumes and smoke).
2. Project overview
2.1 Project ACCESS policy framework
The ER Program seeks to achieve GOP’s targets on barangay and household electrification by integrating rural and missionary
electrification efforts of its partners. The latter include the DOE, the NEA, the NPC-SPUG, the Philippine National Oil Company
Energy Development Corporation, the private sector, non-governmental organizations (NGOs) and several donor-funded projects,
including project Accelerating Community Electricity Services using Solar (ACCESS, described below). Funding for the ER
Programme includes private funds (through private-sector corporate social responsibility programmes), Global Environment Facility
(GEF) funds and GOP subsidies. The latter include subsidies under the Rural Power Project (RPP, described below) and the DOE’s
regular budget for locally funded projects.
Energy Regulations 1-94 (ER 1-94) obliges power generators and energy-resource developers to set aside one centavo (PHP
0.01) per kilowatt hour of electricity sales towards providing financial benefits to host communities for electrification, development
and livelihood, reforestation, watershed management, health or environment enhancement. The ER 1-94 electrification fund
(overseen by the DOE) finances the extension of the electrical grid to host communities based on their proximity to power plants.
The Barangay Electrification Program is a DOE-run subsidized programme targetting remote barangays with off-grid electrification
solutions such as battery charging stations, solar home systems (SHSs), micro-hydro systems and wind-turbine energy systems.
The NPC-SPUG is responsible for providing electricity in areas unconnected to the main transmission grid. Its assistance, however,
depends on the availability of internal cash generation or share of missionary electrification from the universal charge.
The private sector is involved in the ER Program through IPPs and qualified third parties. IPPs participate through the ER 1-94
electrification fund and are involved in the ‘Adopt-a-Barangay’ scheme, where they provide complete funding for the rural
electrification of chosen barangays. Under this scheme, the IPP may implement the project independently or through the relevant
franchise holder.
EPIRA 2001 opened opportunities for private-sector participation in GOP’s rural electrification. Specifically, Section 59 of EPIRA
2001 and Rule 14 of EPIRA Implementing Rules and Regulations state that “the provision of electric service in remote and
unviable villages that the franchised utility is unable to service for any reason shall be opened to other qualified third parties.”16
This means that once the concerned franchise holder deems the barangay(s) to be commercially unviable, an energy service
provider other than the adjacent DU may be authorized to provide the electricity services, subject to approval by the ERC. The
project proponent must also secure the recipient community’s endorsement of the project (via a local resolution).
16
Congress of the Philippines, 2001.
4
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
2.2 Project ACCESS
UNDP/Energy Access for Poverty Reduction
The RPP (2003-2011). The RPP is implemented by the DOE. One
component of the RPP, funded by the World Bank-Global
Environment Facility (WB-GEF), seeks to provide electricity for
productive uses in remote and unviable barangays.
Project ACCESS (henceforth, ‘the project’) is funded under the
above-mentioned component of the RPP. The project electrifies
off-grid communities using stand-alone solar photovoltaic
(SPV) systems. Implemented by the DOE and overseen by the
Project Management Office (PMO) at the DOE, it uses an
innovative service delivery mechanism for rural electrification,
leveraging limited GOP resources with private funds (described
in Section 3).
A ceremonial ‘switch-on’ held in a project area.
Box 2: Barriers to energizing remote
barangays through the electric grid
Almost all un-electrified barangays and households in
the Philippines lie in rural areas where people rely on
agriculture, fisheries and forestry-related activities.
Kerosene is the primary lighting fuel, followed by drycell batteries and small diesel-powered generators run
by local operators. Fuelwood remains the main fuel for
cooking and heating. The average household income
in rural areas is less than half of that in urban areas,
and most households have unpredictable monthly
incomes.17 Making regular payments for modern energy
services is a difficult proposition for these households.
The project targets 283 poor and remote barangays where grid
electricity remains prohibitively expensive (see Box 2).
Thereafter, the project will be extended to support the GOP
policy of 90 percent household electrification by 2017.
Expected outcomes of the project include:
Grid electricity remains the people’s choice for
electrification. However, extending the 240V alternating
current distribution lines to these remote locations
involves high transmission losses and operating costs,
making it unviable for ECs and DUs. Despite EPIRA
2001 mandating ECs to provide universal access by
electrifying all barangays within its franchise area, most
of these off-grid communities are considered ‘last mile’
barangays by DUs and rural ECs.
reduction in diesel and kerosene consumption;
increased local employment;
increased private-sector investment in rural
electrification; and
productive uses of electricity at the household and
barangay levels, thereby increasing income and
reducing poverty.
3. Implementation strategy
The SSMP approach. The project applies the Sustainable Solar Market Package (SSMP) approach, which seeks to improve the
commercial viability of SPV electricity services in remote rural communities. This is achieved by ensuring that the scale of the
business operation is large enough to overcome the higher transaction costs of doing business.
The key elements of the SSMP approach are:
clustering of barangays into commercially viable SSMPs;
bidding out SSMPs to SPV contractors on a competitive basis;
17
NSO, 2009.
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
5
having each SSMP comprise a baseload from community facilities;
extending subsidies to buy down the capital cost and improve affordability of technology;
offering financial incentives for firms to address market barriers; and
focusing strongly on after-sales service and marketing to sustain consumer interest.
Building on past experience. The SSMP approach is based on lessons from previous DOE experiences with SPV dissemination in
remote areas. In the past, the SPV market in rural areas was mainly restricted to procurements for public facilities and projects.18
Some retail sales were also made to households, but a lack of consumer financing resulted in a slow uptake.
Sales to these two market segments (communities and households) have often been handled by different companies in the same
rural area, with little coordination. Consequently, commercial operation of the private-sector run versus donor/public-driven
projects produced distortions in the SPV market. Project costs proved to be very high and only a few households in the target
barangay benefited from the SPV projects. Furthermore, due to the low sales of SPV systems, the business remained unviable for
SPV companies. Since 2002, around 3,000 SPV systems have been implemented, almost all of them through donor support and
providing little after-sales service.
Promoting SPV electrification. In light of the above, the DOE introduced the following measures to improve its delivery of SPV
electrification:
enabling suppliers to be more responsive to market demand by offering a range of SPV products and services at
competitive prices;
instituting user fees (as opposed to installing SPV systems free of charge) to ensure a greater sense of ownership and
long-term sustainable use of these systems;
judicious use of grants to leverage funds from other sources;
encouraging good practices and consumer protection; and
building capacity in the private sector while facilitating access to financing.
3.1 Supply, installation and maintenance of SPV systems by private contractors
The SSMP approach requires private contractors to comply with
the following requirements:
supply and install SPV systems for public facilities,
and for at least 25 percent of the households within
a given barangay;
UNDP/Energy Access for Poverty Reduction
sell and install a minimum number of SHSs
commercially;
maintain the SPV systems for at least two years
following installation; and
meet minimum equipment and service standards.
Even though the community facilities provide the initial baseload, the households are expected to represent a major portion
of sustainable business operations.
Installation of an SPV street light.
18
Public facilities include barangay halls, health facilities, schools and public streetlights.
6
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
The project strategy in promoting private sector participation, aside from clustering and competitive tendering, is to design a
viable package aggregating a sufficient volume of business in each target barangay. This makes the provision of after-sales maintenance, repairs and spare parts services commercially sustainable for private contractors.
Public facilities to be electrified are selected in consultation with LGUs in the context of the needs, plans and capabilities of the
target barangays. Aggregate SPV power requirements for the community facilities in the initial SSMP contracts range from 2.6 to
11.9 kWp, with each facility requiring 110 to 440 Wp of electrical power capacity. The SHSs are primarily 20-50 Wp, providing
sufficient power for two to four lights, radio, television, mobile phone charging and other low-energy applications. Power for
households and other establishments requires more than 70 kWp in aggregate.
Through a competitive tendering process, a single SSMP contractor is selected for each cluster. A contractor may win multiple
SSMP contracts and is eligible to bid for additional contracts for supply or maintenance in the same areas.
3.2 Profiling and clustering of potential SSMP project areas
In 2005, preparatory fieldwork in the form of surveys and rapid rural appraisals (RRAs) was undertaken to estimate SHS market
potential in the barangays under the project. Information was collected regarding household income distribution, energy
expenditures, SHS affordability, availability of electricity in the barangay, ownership of generators, previous experiences with
SPV systems and interest among residents in purchasing SPV systems. The findings were used to inform project design.
The project’s clustering methodology applies a two-step process:
Step 1. clustering of barangays based on geographic location (specifically, on the basis of contiguity); and
Step 2. clustering of barangays based on commercial viability (sufficient market demand) and sustainability (social
acceptability, appropriateness of SPV in social and cultural environment, and availability of technical and financing
support for SSMPs).
3.3 Funding: subsidies and financial incentives
UNDP/Energy Access for Poverty Reduction
Output-based subsidies and financial incentives. SPV sales
to barangay households are supported through a combination
of output-based (installed power capacity) subsidies and
financial incentives, paid upon verification of installation.
Subsidies are provided by the GOP to address affordability
issues. Financial incentives, made available through GEF grants,
are aimed at reducing market development barriers. Subsidy
and incentive levels depend on the power capacity of the SPV
systems (see Table 1).
Approved subsidies and incentives are routed through SSMP
contractors to end-users. Companies must be RPP-accredited
to be eligible for subsidies under the GEF grant. Subsidies and
GEF grants are also available for other eligible SPV products
that meet technical standards.
A private sector donation to the Department of Energy.
Table 1: Subsidies and incentives provided for SPV sales to households
Power capacity
Government subsidy
Power capacity
GEF grant incentives
20–30 Wp
PHP 8,000/system
10–50 Wp
USD 2.5/Wp
30–50 Wp
PHP 4,000/system
50–100 Wp
USD 1.5/Wp
Solar lantern
PHP 1,500/lantern
Community facilities
USD 1.5/Wp; up to
USD450 per system
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
7
Main funding sources for SPV installation. The main funding sources for community public facilities include private organizations,
companies and any government appropriations for this purpose.19 LGUs are expected to contribute from their internal revenue
allotment to maintenance costs for community facilities. During the installation of SPV communal facilities in their respective
barangays, LGUs are expected to make in-kind contributions (such as transport of SPV equipment and materials and assistance
with installation). Once the DOE completes the installation, system operation and maintenance costs are shouldered by LGUs.
Helping to develop partnerships. The project encourages SPV company to visit existing MFIs in their contract area. If the MFI is
interested, the DOE helps develop a partnership between the SPV company and the MFI. The project then enhances MFI technical
competencies to design the lending for solar products in terms of pricing strategy, appropriate down payment, affordable payment
and credit collection methods. The project also helps MFIs to develop solar divisions within their institutions.
3.4 SSMP support for market development
The PMO has established a Market Development Support Facility, which provides technical assistance and financial support for
market development training in such areas as:
financial management, contract management, accounting and auditing;
development of sales and after-service networks;
product development and quality control;
market surveys and promotion;
business development; and
industry association/accreditation.
This support is provided to RPP-accredited companies as cost-shared grants of a maximum 50 percent.
3.5 Ensuring performance: service obligations by SSMP contractors
The project has instituted the following measures to ensure that SPV systems function to the satisfaction of users and to ensure
contractor accountability for their performance.
Performance guarantee. Prior to installation, the contractor is required to deposit a performance guarantee of 30 percent of the
contract sum. This guarantee is reduced over the contract period as performance obligations are fulfilled (10 percent after
completion of the installation, 5 percent once the household targets are met and 3 percent per annum after installation if the
maintenance obligations are met).
Social mobilization. The sustainability of any rural electrification project depends on community preparedness. SSMP contractors
are required to undertake due diligence in their SSMP areas by:
raising awareness regarding the project;
ensuring that community members understand their obligations;
encouraging voluntary participation in the scheme; and
mobilizing, to the extent possible, community counterpart contributions (at least to provide electricity to the
public facilities).
Training local technicians. SSMP contractors are required to train local technicians in the maintenance of public facilities and
household SPV systems. This is intended to minimize the contractors’ longer-term overhead and maintenance costs during their
stipulated minimum of two years of service in a particular area.
19
For example, the corporate social responsibility arm of the Mirant Foundation (an IPP) has provided funds to support the installation of SPV systems for public facilities of benefit to
the community.
8
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
UNDP/Energy Access for Poverty Reduction
3.6 Maintenance of community facilities
The SPV contractor must install systems in public facilities within
six months of the contract being signed and provide at least
two years of subsequent maintenance service. Upon
installation, the PMO conducts technical verification to ensure
that the systems are installed according to approved project
design. Barangay officials are then required to sign a certificate
attesting to their acceptance of the communal facilities and
their commitment to allocate necessary funds from their
internal revenue allotment for operations and maintenance.
A barangay hall powered by an SPV system.
3.7 Capacity development
Five main project players – the DOE, the ERC, SPV contractors, MFIs and end-users – are provided with capacity-building and other
technical assistance to support project implementation.
The project builds capacities in policy development and planning among the DOE and the ERC in the following ways:
providing support through policy studies in subsidy, regulation and tariff with respect to off-grid services;
implementation support to the DOE in contract design and writing (through the PMO);
establishment of guidelines and standards;
due diligence for market packages and SPV businesses; and
monitoring and evaluation.
Training programmes, study tours and consultation workshops build capacities in SPV business, marketing and credit financing
among SPV contractors and MFIs. At the local level, training is provided to local technicians in SPV operation, maintenance and
troubleshooting.
3.8 Project costs
As of 31 December 2009, GEF grant disbursements for the project amounted to USD 4.3 million (55 percent utilization). More
detail on project costs is provided in Table 2.
Table 2: Summary of project disbursements as of 31 December 2009
Allocation
(USD)
Disbursement
(USD)
Sub-grants (GEF incentives)
1,650,000
406,053
9
Consultancy services (salaries, professional fees and studies)
4,650,000
3,058,057
71
Training, study tours and workshops
725,000
434,613
10
Goods (procurement of equipment)
150,000
75,769
2
Incremental operating costs (operational expenses)
675,000
352,166
8
50,000
0
0
7,900,000
4,326,658
55
Category
Unallocated
Total
Disbursement as share
of allocation (%)
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
9
4. Impacts
4.1 Installations to date
As of December 2009, 6,513 households were provided with electricity under the project, and the cumulative number of SPV
systems installed in public facilities totalled 765. In total, the project has provided electricity access to 283 remote off-grid barangays.
At the time of this analysis, the project has not received any reports of defective or non-operational installed SPV systems from
SPV verification consultants.
4.2 Impact on households and communities
A systematic impact assessment will be conducted before the next phase of the project is launched. Therefore, making an
assessment of user benefits is premature at this point. Nonetheless, a correlation analysis conducted by the DOE for its Interim
Missionary Electrification Development Plan has revealed a lower incidence of poverty in provinces and cities with a higher access
to electricity.20 Other expected impacts on the quality of life of end-users include:
improved health and well-being of household members, given a reduced use of kerosene for lighting and cooking;
less labour and greater convenience for women performing domestic chores;
extended study hours available for children after nightfall;
more time for productive activities in households, given availability of quality lighting at night; and
augmented social capital and enhanced interaction within communities, since villagers have more time to socialize.
4.3 Impact on environmental sustainability
Solar electrification reduces the use of kerosene lamps. The average number of kerosene lamps replaced by solar lanterns, SHSs
and SPV installations in public facilities are one, two and four lamps, respectively. Thus, an estimated total of 13,372 lamps had
been displaced by 31 December 2009. At a kerosene consumption rate of 0.05 litres per hour per lamp, with three hours per day
of average usage and a CO2 emission factor of 2.5 kg per litre of kerosene, an estimated 1,830 tonnes of CO2 emissions are avoided
per year. This can be broken down into 1,040 tonnes of CO2 for installed SHSs, 371 tonnes for solar lanterns and 419 tonnes for
public installations.
5. Project sustainability
5.1 Current measures
Market size and high transaction costs are the most important factors affecting the sustainability of SPV systems in remote, isolated
markets. As discussed in Section 3, the project has instituted the following measures to ensure sustainability:
basing market aggregation on systematic market studies;
clustering barangays and hence ensuring a baseload from community services to make operations viable for
private contractors;
providing financing options to consumers (subsidies and grants);
emphasizing user fees; and
enforcing stringent service obligations by contractors.
20
DOE, 2003.
10
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
5.2 Challenges
Despite these measures, the project is facing challenges. Most importantly, the project started with 10 accredited SPV companies;
this number has been reduced to six, with four companies not being able to meet their contractual obligations, forcing them to
withdraw. Since its launch, the project has emphasized quality of implementation, resulting in stringent quality measures. Given
the current scenario, however, the market development process might take longer than expected.
5.3 Future measures
The following means of ensuring project sustainability and
scale-up of operations are currently being considered.
Institutionalizing new service delivery models. The project
already applies a tested business model, but a planned
expansion of the implementing agency base will include
community-based organizations and NGOs. This will improve
project performance in the varying market conditions found
in different parts of the country.
UNDP/Energy Access for Poverty Reduction
Strengthening cross-sectoral integration of GOP-funded
socio-economic infrastructure. Coordination among GOP
agencies and programmes in packaging energy services is
expected to attract private service providers, increasing their
market scale and prospective revenue generation, and
providing linkages between community development and
productive uses.
Local communities being trained in installation of SHSs.
Strengthening the implementation framework through
institutional and policy reforms. The GOP is on the verge of achieving 100 percent barangay electrification, and will then proceed
to the secondary objective of 90 percent household electrification. Accredited SPV companies will focus on household sales, and
the RPP will focus its marketing efforts on attracting new SPV service providers for the project. Technical evaluation of the RPP will
incorporate stronger criteria regarding the market development capacities of SPV companies that wish to enroll in the project,
and explore ways to strengthen household marketing through contract negotiations. Currently, the RPP is improving its
implementation framework by linking the payments to the contractor to household SPV sales.
Ensuring that the local people are capable of sustaining the SPV system after the project’s end. After installation, the DOE
validates whether or not the community has acquired the basic technical skills for SPV operation. Surveys show that the problems
encountered are typically not linked to the technical capacity of local people, but rather to the acquisition of spare parts. As such,
SPV contractors provide two-year maintenance services that meet minimum quality and reliability standards, and these will be
further strengthened.
Leveraging funds from multiple sources. The GOP is planning to access DOE’s budget through the General Appropriation Act
and the Universal Charge-Missionary Electrification subsidy to support the project once the GEF funding is concluded.
By undertaking these remedial measures, the project expects to:
bundle developmental activities within a barangay (SPV for water pumping, telecommunications, etc.), which will help
the private sector increase its market scale and revenue generation;
introduce multiple service delivery models to address a range of market situations; and
ensure a sustainable resource flow for continued market development.
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
11
6. Lessons learned for expansion of energy services to the poor
6.1 Strong political commitment is the most important enabler
The most important enabling factor for the project’s success has been the strong political commitment to rural electrification
from the GOP.
The project is well-situated within the overall GOP policy on poverty alleviation and rural development. Two complementary
programmes (rural electrification and missionary electrification) have been identified as necessary to achieving total electrification
of barangays. The DOE, together with its affiliated agencies, is providing an enabling environment pursuant to these programmes,
including support for the SPV industry, judicious design of subsidies and incentives, establishing and enforcing standards, and
capacity development among concerned stakeholders.
6.2 Harmonization of various sources of financing for expanding access
Rural electrification is a priority in the Philippines, being a clear component of MTPDP 2004-2010. The GOP is encouraging greater
private-sector participation in rural electrification by involving it in the provision of electricity services. As part of IPPs’ corporate
social responsibility programme, the DOE imposes a levy to direct one centavo per kilowatt hour of electricity sales towards the
electrification of un-electrified missionary and rural areas. These funds complement the GEF grants and GOP subsidies in support
of the project.
6.3 A viable market for private-sector operators
The project supports private-sector provision of energy services to remote and poor barangays with the following measures:
bundling barangays into viable units, hence ensuring a minimum base load for each operator; and
undertaking a host of market support activities, such as a systematic market assessment by the DOE, SPV technology
awareness-raising campaigns, and building capacities among the private sector and other stakeholders such as MFIs.
6.4 Service obligations by contractors
As mentioned earlier, private contractors are required to satisfy the following provisions:
ensure that at least 25 percent of all households are provided with electricity;
ensure that all installed systems function for a period of at least two years, tied in to a performance-linked payment
pattern;
engage in social mobilization activities, and create awareness of the SPV systems. While this helps to generate market
demand, in the long run it also encourages consumers to maintain their systems and helps contractors fulfill their
obligations under the project; and
set up service centres and train local operators to maintain the SPV systems, which again contributes to a more
successful project.
6.5 Systematic market assessment
Before launching projects in rural areas, it is essential to conduct a well-designed market assessment. The 2005 surveys and RRAs
provided vital insights into consumer behavior and the potential SPV market, informing subsequent project design.
The RRA methodology proved both cost-efficient and adequate for the purpose. Good practices in conducting market assessment
fieldwork include:
piloting guidelines and questionnaires before using them in the field; and
ensuring that the field team is well-equipped with skills in participatory research approaches, basic knowledge of SPV
technology and the use of demonstration material during market assessments.
12
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
6.6 Well-designed communication strategy
Communication at two levels has proven to be important in the project:
communication between various implementation partners to avoid misunderstandings or delays; and
generic promotion of SPV technology and the project to the general public.
Throughout the project design process, special attention was paid to disseminating information about the project to MFIs and
potential SPV companies. The SSMP approach is relatively new, and it is necessary to ensure that all potential bidders and other
participating institutions (e.g. MFIs) fully understand the project provisions, and are trained in preparing proposals and other
necessary documents. The communication package must include information about the approach and must be disseminated in
an interactive way (i.e. one that allows for discussion and questions).
The DOE has also worked together with partners – the Mirant Foundation, the corporate social responsibility arms of the IPPs and
the DAR – to inform and sensitize all affected barangays to ensure successful implementation.
Overall, the importance of allocating sufficient time and resources to information distribution cannot be emphasized enough.
7. Conclusions
Project ACCESS demonstrates a market-based approach in expanding access to electricity services for the poor. The project’s
business model involves PPPs in the delivery of rural electricity services to off-grid areas. Project strategies include clustering,
competitive tendering and aggregating a sufficient volume of investment in target barangays.
Project experience indicates that while the project offers certain good practices which other energy projects can adopt, ‘external’
enabling factors are equally important and conducive to the expansion of energy services for the poor. In particular, the GOP
policy on addressing poverty alleviation and rural development has helped to create a synergy between energy and development
sectors.
At the present juncture, the current pace of SHS installation must be increased if the goal of 90 percent household electrification
is to be achieved by 2017.
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
13
References
Congress of the Philippines. 2001. Republic Act No. 9136. Congress of the Philippines, Manilla. Available at www.doe.gov.ph/
Downloads/RA9136.pdf.
DOE (Department of Energy). 2011. ‘Renewable Energy’. Available at www.doe.gov.ph/er/renenergy.htm.
—2003. Draft report – Interim Missionary Electrification Development Plan. Government of the Philippines, Manila.
NEA (National Electrification Administration). 2009. Homepage available at www.nea.gov.ph.
NEDA (National Economic and Development Authority). 2009. Medium-Term Philippine Development Plan 2004-2010.
Government of the Philippines, Manilla. Available at www.neda.gov.ph/ads/mtpdp/MTPDP2004-2010/PDF/
MTPDP2004-2010.html.
NSCB (National Statistical Coordination Board). 2006. ‘Philippine Poverty Statistics, Table 1: Annual Per Capita Poverty
Thresholds, Poverty Incidence and Magnitude of Poor Families: 2000, 2003 and 2006’. NSCB, Makati City. Available at http://
nscb.gov.ph/poverty/2006_05mar08/table_1.asp.
NSO (National Statistics Office). 2009. Homepage available at www.census.gov.ph. Government of the Philippines, Manila.
Remo, M. 2009. ‘RP gains said to translate to rise in number of poor people’. Philippine Daily Inquirer, 15 November 2009.
Available at http://business.inquirer.net/money/topstories/view/20091115-236461/RP-gains-said-to-translate-to-rise-innumber-of-poor-people.
Sharma, D.; Madamba, S.E.; Chan, M.R.L. 2004. ‘Electricity industry reforms in the Philippines’. Energy Policy, 32, pp.1487-1497.
Toba, N. 2007. ‘Welfare impacts of electricity generation sector reform in the Philippines’. Energy Policy, 35, pp. 6145-6162.
UNDP (United Nations Development Programme). 2010. Human Development Report 2010. ‘Table 1: Human Development Index
and its components’. Available at http://hdr.undp.org/en/media/HDR_2010_EN_Table1_reprint.pdf.
14
Power to the people: Solar energy for a better quality of life, social equity and socio-economic growth in the Philippines
For more information: http://asia-pacific.undp.org
UNDP Asia-Pacific Regional Centre | United Nations Service Building, 3rd Floor, Rajdamnern Nok Avenue, Bangkok 10200
Tel: +66 (0) 2304 9100 | Fax: +66 (0) 2280 2700 | E-mail: [email protected] | http://asia-pacific.undp.org
Empowered lives.
Resilient nations.
United Nations Development Programme
Asia-Pacific Regional Centre
United Nations Service Building
3rd Floor, Rajdamnern Nok Avenue
Bangkok 10200 Thailand
E-mail: [email protected]
http://asia-pacific.undp.org