Bangladesh Rural Electrification and Renewable Energy Development II (RERED II) Project

(IDA Credit 5158-BD and5514-BD, GPOBA TF096552, USAID TF015034, BCCRF TF015077)

Implementation Review Mission

April 12-23, 2015

Aide Memoire

  1. Introduction and Acknowledgements
  1. An Implementation Review Mission for the Rural Electrification and Renewable Energy Development II (RERED II) was carried out from April 12-23, 2015 to review progress of implementation of the project.[1] The mission met with the officials of the Power Division and Power Cell of the Ministry of Power, Energy and Mineral Resources (MPEMR), and Infrastructure Development Company Ltd. (IDCOL). A list of officials met during the mission appears in Annex 1. The team wishes to express its deep appreciation to the Power Division, Power Cell, IDCOL and others for the productive discussions, access to information and excellent cooperation during the review mission. The findings of the aide memoire were discussed and agreed through a virtualwrap-up meeting. The government requested this Aide Memoire to be classified as Public documentunder World Bank’s Access to Information Policy.
  1. Key Project Data

Key Dates / Project Performance Ratings
IDA Cr. 5158 / IDA Cr. 5514
Board Approval / Sept 20, 2012 / June 19, 2014 / Achievement of PDO / MS
Signing / Oct 23, 2012 / June 30, 2014 / Implementation Progress / MS
Effectiveness / Feb 20, 2013 / September 28, 2014 / Financial Management / S
Closing / Dec 31, 2018 / December 31, 2018 / Procurement / S
Allocation / 102.8 millionSDR / 50.585 million SDR / Environment and Social / S
Disbursed / 76.1 million SDR / 9.92 million SDR
Disbursed (%) / 74% / 19.2%

MS = Moderately Satisfactory; S = Satisfactory

Grant Funds [2] / GPOBA Mini-Grid (TF096552) / USAID
(TF015034) / BCCRF (TF015077) / GPOBA (TF019156 and TF019157)[3]
Signing / 05/12/2010 / 07/10/2013 / 09/30/2013 / April 23, 2015
Effectiveness / 08/09/2010 / 07/28/2013 / 12/18/2013
Grant Amount (US$ million) / 1.1 / 3.765 / 10 / 15
Disbursed (US$ million) / 0.57 / 3.061 / 0.644 / 0
Disbursement % / 51.88% / 81% / 6.44% / 0%
Grant Closing / 6/30/2015 / 06/30/2016 / 12/31/2016 / 06/30/2017
  1. Achievement of Development Objectives
  1. The project is on trackto meet the project development objective (PDO) of increasing access to clean energy in rural areas through renewable energy. The project has provided access to electricity to about 716,790households by March 2015 against the target of 935,000 by June 2015. This is due to the slow-down in the solar home systems (SHS) under the access to electricity component as well as the slow initial uptake in the improved cookstoves under the household energy component. The overall rating for achievement of the PDO is downgraded to Moderately Satisfactory. Annex 2 provides the results framework of the project and progress achieved to date.
  1. The mission discussed with IDCOL recent developments affecting the SHS program implementation and agreed to a more in-depth strategic discussion to chart out the future strategy for the SHS program. A technical mission will be conducted jointly with IFC in June 2015 to develop a longer term strategy for the SHS program. The outcome of the technical mission will be useful inputs to the mid-term review (MTR) of the project now scheduled around August 2015. The main objective of the MTR will be to discuss the continued relevance of the project development objective, adequacy and efficacy of the project design and the implementation arrangements, and effectiveness of the implementing agencies in achieving outcomes. The MTR will take stock of the validity and progress on the PDO and results framework of the project and revise indicators as needed. The MTR may include project restructuring to make adjustments to the SHS program and also revisions of targets for the other programs including biogas plants for cooking and solar irrigation.
  1. Current Implementation Status
  1. Implementation progress continues at Moderately Satisfactory. The SHS installation has dropped down to about 46,000 per month(against the above-50,000 per month installationuntil recently). Supplies from outside the program (with concerns about quality), political instability, and grid expansion are believed to be the factors behind the slower growth in the IDCOL SHS program (para 10). 3 mini-grids for a combined capacity of 382kWp are now under operation and 5 more with a combined capacity of 652kWp are under construction. A total of305 solar irrigation pumps have been approved by IDCOL for financing and 142 have been installedwith credit funding from IDA and JICA and with grant funding from BCCRF, USAID, GPOBA, ADB and KfW. Another 164 pumps are in the pipeline for consideration for BCCRF financing. The overall implementation progress of the project continues at Moderately Satisfactorygiven the slow initial uptake in the mini-grids, solar irrigation pumps, and the household energy components.
  1. Disbursement Progress.The project has disbursed 56% of the two IDA creditsoverall (SDR 76 million or 74% of the original credit disbursed, and SDR9.9 million or 19% of the additional financing credit). Disbursements in FY15 are expected to reach US$40 million, which is less than anticipated at the beginning of the year.
  1. Of the grant funds, the project disbursed US$ 4.275 million (28.76%) against the allocation of US$14.865 million in grant funds that are effective (GPOBA mini-grid funds, USAID and BCCRF funds).
    - USAID trust fund (TF05134):Against the first tranche of US$3.765 million for access to electricity component, US$3.06 million has been disbursed providing grant support to 113,858SHS. Total commitment from USAID is US$7.565 million and an amount of US$2.232million in two tranches have been made available from USAID, which are currently being processed for making available to IDCOL through amendments in the Grant Agreement. The amendment will include some re-allocation to SHS from other renewable options and a change in the retroactive financing date.
    - GPOBA trust fund for mini-grid(TF096552): An amount of US$0.57 million has been disbursed against support for 28 irrigation pumps. The remaining amount is under process for disbursement to support one mini-grid (started operation in January 2015). The trust fund is expected to be fully disbursed by the closing date of June 30, 2015.

-BCCRF trust fund(TF015077):After the special account was opened, an initial advance of US$0.644 million was processed in June 2014.A total of 194 pumps have been approved for financing from BCCRF funds and 33have been installed so far and the rest are expected to be installed by September 2015, utilizing a total of US$3.32 million. The allocation of US$10 million from the BCCRF funds is expected to be fully utilized by the closing date of December 2016.

-GPOBA trust fund:An additional US$15 million in grant financing from the Global Partnership for Output Based Aid is awaiting counter-signature from GOB. This amount is expected to meet the remaining capital buy-down requirements for the access to electricity component and the household energy component (biogas).

  1. GAAP Implementation.The major activities under the matrix of actions outlined in the GAAParecontinuing (Annex 3) to mitigate the risk of inadequate competition that could result in poor quality and service to SHS customers. The SHS market competitiveness survey indicated adequate competition by the POs in the market. IDCOL continues to focus on strong inspection and monitoring to ensure quality installations. A follow-up survey under a Bank-administered trust fund (CARTA program) to seek beneficiary feedback has been completed confirming high satisfaction rate of customers. As a follow-up to a Bank-executed activity of conducting IT-based customer surveys, IDCOL is continuing with call center based customer feedback surveys on a regular basis to gauge customer satisfaction, usage status of old SHS, and status of battery recycling etc.

Component-wise Implementation Status

  1. The project hasthree main components: i) access to electricity (total cost US$374 million, IDA US$128 million from original credit and US$78.4 million from additional financing); ii) household energy (total cost US$46 million, IDA US$12 million); and iii) sector technical assistance (total cost US$10 million, IDA US$10 million). The following section summarizes the component-wise implementation issues.

Component 1: Access to Electricity

  1. The access to electricity component is providing continued support to the solar home systems (SHS) program and also supporting other renewable energy options (mini-grids, solar irrigation pumps, captive biogas plants for electricity etc.) implemented by IDCOL.
  1. Slower pace of SHS installation. SHS installation under IDCOL program declined from the peak of 852,388 SHS in 2013 to 724,615 in 2014, representing a decline of about 15% year on year. This decline in growth suggests that a turning point may have been reached. The reasons for the decline are attributed to: i) recent transport blockades and strikes; ii) development of a secondary market for SHS outside the IDCOL program; and iii) accelerated grid expansion. IDCOL has commissioned two studies to explore the expanding secondary market, and preliminary results suggest approximately 20,000-27,000systems are being installed per month in both off-grid and grid areas[4]. The studies suggest that this cash market is for very small systems (<20Wp) and larger systems (>60Wp) primarily, and the quality is highly variable ranging from IDCOL standard compliant to totally non-compliant. With power supply situation improving, grid expansion by the Bangladesh Rural Electrification Board (BREB) has also been accelerated recently with an average of 90,000 household grid connections per month in the rural areas during July 2014 to February 2015 period. The mission discussed with IDCOL these recent developments and agreed to a more in-depth strategic discussion to chart out the future strategy for the SHS program. A technical mission will be conducted jointly with IFC in June 2015 for this purpose. The outcome of the technical mission will be useful input to the mid-term review of the project now scheduled around August 2015, which may include project restructuring to make the needed adjustments in the SHS program support taking into account the new developments.
  1. Collection efficiency of the SHS programis now about 88%[5]against the targeted minimum of 90%, which will affect the sustainability of the program in the longer term. In addition to the recent nation-wide transport blockades that disrupted POs collection efforts and customers’ payment abilities, less focus of the POs on collection efficiency has also contributed to this decline. Elaborate discussions are being held by IDCOL for improving collection efficiencies in monthly meetings with the POs. Detailed analyses have revealed collection issues concentrated in certain geographic regions in the country, and joint collection drives are being undertaken by the POs. Considering the challenges, the Bank has appointed a short term consultant with adequate experience in the IDCOL program to work with IDCOL in identifying the reasons for the decline and provide hand-holding to the weaker POs to strengthen collection efficiency efforts. One-to-one meetings with IDCOL and the POs are being conducted facilitated by the consultant and specific action plans are being developed. IDCOL has decided to open a PO capacity cell that will institutionalize IDCOL’s efforts towards strengthening PO management. Recruitment process for the Head of the PO Capacity Cell has been initiated.
  1. Increased share of smaller SHS. There has been an increased uptake of smaller SHS in IDCOL program (20-40Wp), notably ever since the capital buy-down grants were limited to smaller systems only. Market surveys were undertaken to better understand the market dynamics - (whether it is the result of the demand pull from the poorer households who are only able to afford smaller systems, or the sales push by the POs as only the smaller systems are eligible for subsidies). The market surveys conducted through call centers concluded that customers were fully aware of the different size options and that the choice of smaller system was the result of demand pull (the energy needs are satisfied by the smaller systems). Further surveys are continuing to confirm this.
  1. Pico-solar kits: The characteristics of pico-solar kits are typically: plug & play hence no complex installation requirements, small system components due to ultra-high efficiency LEDs, enabling use of small long life Li-Ion batteries, kits quality tested and certified (usually) to Lighting Global standards with 2 year warrantee. Sizes range from 5-10Wp. Costs are similar to a 15-20Wp locally assembled system under IDCOL program. IDCOL has examined how pico-kits can be introduced into program given the fixed transaction costs for both IDCOL and PO, and determined that kits larger than 7.5Wp can be accommodated in the IDCOL program. The smaller systems are not viable for credit sales. Several models from the Lighting Global program are expected to be introduced under the IDCOL program, which is being coordinated by the Lighting Bangladesh team of the IFC. The technical standards committee of IDCOL has decided that all kits, whether packaged in Bangladesh or approved by Lighting Global, need to be tested before being introduced under the IDCOL program. The mission requested the committee to review the decision for re-testing as Lighting Global products go through rigorous testing of international standards before approval. A re-testing of these products in Bangladesh will act as an entry barrier without any additional value.
  1. Service level of older SHS. Giventhe fact that there are a large number of systems that are already paid off with older CFL light packages, IDCOL initiated customer surveys through call centers to understand to what extent they are still being used or maintained by the customers. A recent survey on 10,286[6] respondents who bought SHS in the last 8-10 years showed that 93% of the systems were still working properly. Surveys are on-going to understand the effectiveness of the battery recycling process.
  1. SHS introduced under the National Social Safety Net programs.As part of a government directive, destitute people under the various social safety nets program (Food for Work, Money for Work etc) were made eligible to get an SHS instead of cash or food. However, poor quality supplies under the program were spreading negative image of SHS in general. GOB has now instituted a system where eligible people will get SHS from IDCOL approved POs, which will address the quality concerns. IDCOL is now coordinating closely with the relevant departments managing the social safety net programs.
  1. Mini-grids. 3 mini-grids for a combined capacity of 382kWp are now under operation and 5 more with a combined capacity of 652kWp are under construction. IDCOL has so far been financing mini-grids once proposals are received from potential sponsors. To scale-up mini-grid implementation, IDCOL has issued a request for Expression of Interest (EOI) for identifying suitable sites for new mini-grids and carrying out feasibility studies for such sites. Once the feasibility studies are completed, the potential sites will be offered through bidding for private sponsors interested in setting up mini-grids.
  1. The mission discussed with IDCOL the challenges faced by the 100kW mini-grid operator at remote Sandwip island. Bangladesh Power Development Board (BPDB) had set up a 2MW diesel plan selling at a highly subsidized grid rate to customers in the vicinity of the mini-grid resulting in the mini-grid customers to stop paying to the private sponsor, as the rates from the mini-grid are much higher. To meet the challenge, it was earlier agreed that the mini-grid operator will match its tariff to its consumers at the BPDB subsidized rate and the operator will be compensated for by BPDB by paying the difference between cost-recovery tariff of the operator and the BPDB subsidized tariff. However, no concrete agreement has been put in place and BPDB is yet to start making payment to the mini-grid operator. The mission reiterated the need to formalize the arrangement as early as possible and ensure payments to the mini-grid operator.
  1. The mission visited the site of one 141 kWp solar Mini Grid at Paratoli Island, RaipuraUpazila, Narshingdi District by Souro Bangla (SBL). This has commenced commercial operation in December 2014 against the target of June 2014. Installation appears to be of very high quality especially with regard to the battery and control room. There have been issues with labelling of components as well as technical issues on array wiring and earthing. User uptake has been marginally slower than anticipated in the first year, and per user electrical consumption is lower too. The project viability will be impacted if these do not pick up as per appraisal estimates. The mission recommended that IDCOL provides as-built wiring diagram for array and combiners for future mini-grid designs. Commissioning procedure for mini-grids need to be developed as well.
  1. Solar irrigation pumps. A total of305 solar irrigation pumps have been approved by IDCOL for financing and 142 have been installed with credit funding from IDA and JICA and grant funding from BCCRF, USAID, GPOBA, ADB and KfW. Another 164 pumps are in the pipeline for consideration for BCCRF financing. A BCCRF donor briefing meeting was held at IDCOL during the mission to update the donors on the progress in the solar irrigation program.