thegef.org · Web viewThe World Bank. Report No: PROJECT BRIEF. ON A. PROPOSED CREDIT. IN THE AMOUNT OF SDR {_______ } MILLION (US$65 MILLION EQUIVALENT) AND. PROPOSED GRANT FROM

$Page 1: thegef.org · Web viewThe World Bank. Report No: PROJECT BRIEF. ON A. PROPOSED CREDIT. IN THE AMOUNT OF SDR {_______ } MILLION (US$65 MILLION EQUIVALENT) AND. PROPOSED GRANT FROM$
Document ofThe World Bank

Report No:

PROJECT BRIEF

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR {_______ } MILLION(US$65 MILLION EQUIVALENT)

AND

PROPOSED GRANT FROM THEGLOBAL ENVIRONMENT FACILITY TRUST FUND

IN THE AMOUNT OF US$5.5 MILLION

TO THE

GOVERNMENT OF GHANA

FOR A

GHANA: ENERGY DEVELOPMENT AND ACCESS PROJECT

May 16, 2006

1

CURRENCY EQUIVALENTS

(Exchange Rate Effective {Date})

Currency Unit == US$1

US$ = SDR 1

FISCAL YEARJanuary 1 – December 31

ABBREVIATIONS AND ACRONYMS

Vice President: Gobind T. NankaniCountry Manager/Director: Mats Karlsson

Sector Manager: S. Vijay Iyer Task Team Leader: S. Vijay Iyer

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GHANAGhana: Energy Development and Access Project

CONTENTS

PageA. STRATEGIC CONTEXT AND RATIONALE 5

1. Country and sector issues....................................................................................................5

2. Rationale for Bank involvement........................................................................................10

3. Higher level objectives to which the project contributes...................................................10B. PROJECT DESCRIPTION 11

1. Lending instrument............................................................................................................11

2. [If Applicable] Program objective and Phases..................................................................11

3. Project development objective and key indicators............................................................11

4. Project components............................................................................................................12

5. Lessons learned and reflected in the project design..........................................................17

6. Alternatives considered and reasons for rejection.............................................................19C. IMPLEMENTATION19

1. Partnership arrangements (if applicable)...........................................................................19

2. Institutional and implementation arrangements.................................................................19

3. Monitoring and evaluation of outcomes/results................................................................21

4. Sustainability and Replicability.........................................................................................22

5. Critical risks and possible controversial aspects...............................................................23

6. Loan/credit conditions and covenants...............................................................................23D. APPRAISAL SUMMARY 23

1. Economic and financial analyses.......................................................................................23

2. Technical............................................................................................................................24

3. Fiduciary............................................................................................................................24

4. Social.................................................................................................................................24

5. Environment......................................................................................................................25

6. Safeguard policies..............................................................................................................25

7. Policy Exceptions and Readiness......................................................................................28

Annex 1: Country and Sector or Program Background………………………………………….29Annex 2: Major Related Projects Financed by the Bank and/or other Agencies………………...36Annex 3: Results Framework and Monitoring…………………………………………………...37Annex 4: Detailed Project Description…………………………………………………………..42

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Annex 5: Project Costs…………………………………………………………………………...57Annex 6: Implementation Arrangements………………………………………………………...58Annex 7: Financial Management and Disbursement Arrangements…………………………….59Annex 8: Procurement Arrangements……………………………………………………………60Annex 9: Economic and Financial Analysis……………………………………………………..63Annex 10: Safeguard Policy Issues………………………………………………………………64Annex 11: Project Preparation and Supervision…………………………………………………65Annex 12: Documents in the Project File………………………………………………………..66Annex 13: Statement of Loans and Credits……………………………………………………...67Annex 14: Country at a Glance…………………………………………………………………..68Annex 15: Incremental Cost Analysis…………………………………………………………...70Annex 16: STAP Roster Review………………………………………………………………...77Annex 17: Maps………………………………………………………………………………….80

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A. STRATEGIC CONTEXT AND RATIONALE

1. Country and sector issues

Ghana is a low-income country with a population of about 20 million and a per capita income of US$380 (2004), which is about one-fifth below the average of US$490 for Sub-Saharan Africa. The Government of Ghana proposes to ensure a reliable supply of high quality energy services to fuel economic growth as well as meet the needs of households. Ghana and the World Bank share a vision of rapidly developing the energy sector to promote greater access in a clean, affordable and efficient manner and fuel the country’s economic growth. To achieve these objectives, the government is keen to continue and sustain the sector reforms and strategies which it has been implementing over the last few years. The government’s focus in the medium term is to ensure (i) improved institutional and transparent financial arrangements for future access expansion; (ii) there is a clear policy framework, viable financing schemes, and robust business models for renewable energy development; (iii) improvements in the management and operations in the generation and distribution sector; and (iv) institution of policies to guide the use of households fuels, including wood fuels and Liquefied Petroleum Gas (LPG) in order to minimize detrimental environmental impacts.

Total Energy Supply and Consumption: In 2003, the total primary energy supply in Ghana reached 9.1 million tons of oil equivalent (TOE), of which 69% from traditional biomass, 21% from petroleum, and 10% from electricity. More than 70% of the energy supply comes from indigenous resources of biomass and hydro, while the rest from import. The total energy consumption was 6.3 million TOE, of which 51.6% from residential, 21.9% from transport, 21.5% from industry, 3.6% form commercial and services, and 1.4% from agriculture and fisheries.

Electricity Sector : The electricity sector is a key driver of economic growth in Ghana, and is therefore accorded prominence in Ghana’s Poverty Reduction Strategy. The total installed capacity of electricity in Ghana was 1903 MW in 2003, of which 1198 MW from hydro, and 705 MW from thermal. Though electric power constitutes only 10% of Ghana’s energy supply mix, it plays an important role in the country’s economy, powering its industrial, commercial and urban development. The industry and services sectors which together account for nearly 75% of Ghana’s GDP, rely critically on electricity. Therefore organized development of the sector, steady improvement in the provision of reliable and affordable electricity services and growing electricity access are all important determinants of Ghana’s economic performance and the quality of life of Ghanaians. Because of its size and resource requirements, the sector also has a significant fiscal and macroeconomic impact.

The Ministry of Energy is responsible for energy policy formulation and implementation, while the Energy Commission, set up under Act 541 in 1997, is responsible for energy policy and strategy advice, planning, licensing, and technical regulations. The Public Utility Regulatory Commission, set up under Act 538 in 1997, regulates the tariff and customer services. The electricity generation and transmission functions lie with Volta River Authority (VRA), while the electricity distribution in Southern part of the country is carried out by Electricity Company of Ghana (ECG) and in the North by Northern Electricity Department (NED). VRA started with the development of the hydro potentials of the Volta River (a total of 1,180 MW are installed) and the construction and maintenance of a nation-wide grid transmission system. Subsequently, it developed the 330 MW

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Takoradi Thermal Power Plant and added on a 220 MW Simple Cycle Plant at the Takoradi plant site. In early 2006, the country’s transmission system is aged and overloaded. The system is overloaded, which results in major outages.

Within Ghana, far-reaching reforms in the electricity sector are underway including the introduction of private management of distribution. A large investment program, to be financed by the private sector and by the government and donor development partners, is contemplated over the next 4-5 years to upgrade infrastructure, install additional generation capacity and expand rural access to energy services.

The reform agenda is well conceived, but its implementation has been slower than expected. The functionally un-bundling of the transmission system business unit of VRA is in line with a government policy directive. In 1999, VRA registered a wholly owned subsidiary company – National Grid Company Ltd. (GRIDCO) and initiated action to transfer national transmission and load dispatch assets to an Electricity Transmission Utility (ETU). In the latest reform phase, the government announced a further decision to separate the ETU function from VRA – through the enactment of the VRA Amendment Bill. The Government plans to engage a performance-based Management Support and Services Provider for ECG.

Recent developments have clearly underlined the need to step-up the reform efforts and investments in the energy sector in order to attain the envisaged higher growth levels. In order to get to these levels, there are a number of challenging issues on sector reforms which require urgent attention if the objectives of the reform and strategies are to be achieved in a timely manner:

While the sector strategy requires of the independent tariff regulator, the Public Utilities Regulatory Commission (PURC) to announce and publish electricity tariffs including quarterly revisions, the regulator has delayed in adjusting tariffs. The last tariff revisions were approved to take effect on May 1, 2005, and regulator, while it has reviewed tariffs on a quarterly basis, it has indicated there’s no need to adjust the current rates. These delays cause uncertainty on several fronts, such as new investments in generation. There’s thus the need to strengthen the tariff setting regime, including the periodic tariff adjustment formulae, which is essential for investor confidence as well as the success of the on-going reforms in the distribution sector.

The commercialization of the sector and proper determination of contractual agreements between the key institutions for two part capacity and energy billing remain unresolved. The mechanisms for prompt settlement of arrears within the public sector system has been revived under the Cross-Debt Clearing House system, however, timely settlement would need to be considerably improved. The advent of West Africa Gas Pipeline gas will require prompt settlement, and so will the determination of incentives for the proposed Management Support Services Arrangement for dealing with public sector receivables. Success of the proposed MSSA will also depend on the institutional restructuring of the sector, specifically the disposition of the Northern Electricity Department (NED). There are difficulties in merging two disparate utilities such as NED and ECG and the Bank is supportive of alternative proposals that are consistent with the government’s overall access expansion strategies.

Another key ingredient in the sector reform agenda is how Volta River Authority‘s (VRA) financial viability is sustained in light of the power sale arrangements reached with the Volta Aluminium

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Company (VALCO). The rates agreed are believed to be at a rate lower than VRA’s average cost of bulk power. This is a concern that needs to be addressed and a clear understanding of the financial impact of the VALCO-VRA power purchase agreement and its implications for generation capacity expansion are essential to achieving sector reform objectives.

The Ministry of Energy and the power utilities continue to tackle generation expansion and asset utilization challenges, however a number of issues remain unresolved. On the Tano Gas barge, it is refreshing to note that all key stakeholders are displaying an openness to explore different options, including moving the barge from its original location. Secondly, while there continues to be some differences of opinion between the World Bank and Government on the proposed Tema 330 MW plant (timing, and uncertainty around VALCO’s future demand), the WB proposes to work with Government upon request, to determine and implement the most feasible option, and also assist VRA with conducting the solicitation for project sponsors in a manner that will enable future Bank Group support for the proposed Tema Thermal project. It is imperative that while these issues are being discussed, actions to finalize the Takoradi 2, combined cycle expansion are expedited.

In recent times, regional energy integration has added a new dimension to the sector’s development. Ghana is one of the key players in the regional push towards energy trade. The Parliament of Ghana ratified the EEP in June 2004 to pave the way for the financial closure for the West African Gas Pipeline (WAGP) and the West African Power Pool (WAPP). Both regional projects are critical to enhance energy security in Ghana, since the WAGP would enable Ghana together with Benin and Togo to gain access to natural gas resources in Nigeria, and the WAPP would facilitate Ghana’s access to, and sharing of the region’s rich hydro and natural gas resources. Ghana will play a prominent role in this market in view of its physical location, its political significance and the large hydropower resource in the form of the Akosombo hydro complex.

Rural Electrification: In 2004, Ghana's rural electrification rate reached 54%, significantly higher than the average of 21% of Sub-Saharan Africa. Since the late nineties Ghana has spearheaded numerous innovative programs to extend reliable energy access to rural areas. The Ministry of Energy instituted a National Electrification Scheme (NES) in 1989 as the principal instrument to achieve its policy of extending the reach of electricity to all parts of the country over a 30-year period. The first phase of the NES entailed the electrification of all district capitals and towns/villages on-route to the district capital under the National Electrification Project (NEP). The other pillar of the NES, the Government's Self-Help Electrification Program (SHEP), supplemented the NEP, commenced in 2001. Under the SHEP, communities located 20 km from the national grid are qualified for fast-track electrification if they procure all the required low voltage poles. As a result of these programs, more than 2000 communities have been electrified, and access increased from 28% in 1989 to 54% of the population in 2004.

Renewable Energy Policies Exploitation of Ghana’s renewable energy resources has been carried out under the Act 541. It established the Energy Commission and an Energy Fund, which among other things mandated the Energy Commission to direct the development and demonstration of renewable energy projects throughout Ghana. The Energy Fund raises about $500,000 a year from the levy of 5 cedi or 0.06 US cent/liter on petroleum products, and is insufficient to support large-scale renewable energy development. The draft National Renewable Energy Strategy, together with the draft Strategic National Energy Plan 2006-2020, set a target to achieve 10% of renewable energy in Ghanaian energy mix by 2020, including wind, mini-hydro, modern biomass resources,

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and solar PV. It aims at creating a “level playing field” for renewable energy and increasing access to energy services with renewable energy resources. In addition, the draft Strategic National Energy Plan 2006-2020 also proposed to promote energy efficiency and conservation as a means towards cleaner production and pollution control measures. Annex 1 described detailed information on renewable energy resources and development status.

Household Fuels: Biomass, mainly woodfuels (firewood and charcoal) is dominant in Ghana’s energy equation. Most of this woodfuel is produced in the Savanna and Transitional Zone. Woodfuels accounted for about 69% of the total national energy consumption in 2000. It is used mainly for cooking and supply about 94% of the total energy consumed in the household sub-sector. Eighty four percent (84%) of rural households use firewood for cooking and 61% of urban households for the same purpose. Besides firewood and charcoal, LPG is the third predominant cooking fuel accounting for about 5.9% of household cooking fuel in Ghana. Kerosene and electricity account for about 2.9% and 1.1% respectively. The production and marketing of woodfuels plays a crucial role in the livelihoods of the people in the Savanna and Traditional Zones, among whom 65% are women.

This heavy reliance on woodfuels is threatening the country forest resources leading to deforestation in all parts of the country, and more severely in the northern zone. Because it is still the cheapest fuels, it will account for a preponderant share of total energy in the next decades.

A traditional energy project which overall goal was sustainable production, marketing, and use of woodfuels has been funded by Danida for two years. Unfortunately, activities have not been pursued when funding ended, similarly to other initiatives in this area. A woodfuels energy policy has been drafted under the DANIDA project but has never been finalized. The woodfuels market is based solely on demand and supply. There is no authority regularizing the price of woodfuels.

In Ghana, woodfuels policy for community-based sustainable forest management, tree plantations, and sustainable production, marketing and efficient use of woodfuels are needed. This should be accompanied by the promotion of other alternative cleaner source of energy such as Liquefied Petroleum Gas (LPG).

The Challenge Ahead: Looking forward, the challenge will be to improve the supply characteristics and efficiency of the power sector, as well as to increase the reach of energy services. These accomplishments will enable the country to (i) serve existing customers better, (ii) ensure financial viability, and (iii) generate the opportunity and means to bring more power to more people. A large investment program, to be financed by Government and donor development partners, is contemplated over the next 5 years to upgrade transmission and distribution infrastructure, and to expand access to modern energy services. Policymakers have to therefore create the right conditions to execute these investments efficiently and ensure economic operation of assets to achieve sustained financial viability in all segments of the energy sector, and to realize socio-economic development goals.

The major challenges before Ghanaian policymakers are in the areas of (i) efficiency, (ii) commercialization, (iii) rapid scale-up of energy access, and (iv) institutional restructuring and capacity enhancement.

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(i) Increasing efficiency of asset use. There is scope to improve efficiency of assets employed in all parts of the sector. With existing take-or-pay capacity costs for private power purchases and similar payments required for WAGP from 2007, there is a compelling urgency to improve the technical, commercial and financial efficiencies of the sector. Robust and transparent initiatives need to be taken, accompanied by measurable performance indicators and clear accountabilities to deliver higher efficiencies. These indicators would include improvements in plant availability of Takoradi 1, reduction in transmission and distribution losses and increase in electricity retail revenues. Efficiencies can also be realized through proper management of system planning and hedging against demand and supply uncertainties. For example, there is continued uncertainty about VALCO, which until recently was buying a third of Ghana’s electricity production. While unfortunate from a country standpoint, the lower demand does provide a window of opportunity to VRA to focus its efforts on rehabilitating and upgrading existing facilities like its Takoradi plant, relocating and commissioning idling assets like the Tano Barge, and deferring investments in costly new capacity by continuing power imports in the short term. Such actions will be facilitated further by the WAPP, which will allow Ghana to optimize its generation mix and hedge its demand and supply risks through power trade in the region.

(ii) Commercialization. To enable a more transparent and efficient power market, it is important to reflect the regional dimensions of power trading within the country. All bulk power entities in Ghana – including VRA and ECG – should execute commercial contracts to ensure transparency in the overall costs and to clearly identify rights and obligations of each entity. This measure would compel investment decisions to be diligent and enable the regulator to pass-through “real” costs to consumers. The commercialization of distribution functions can be significantly enhanced by finalizing the proposed MSSA for ECG. For good results, the contract should have clear criteria for measuring improvements in efficiency and quality of service, with appropriate baseline values of the indicators. A big part of commercialization is monetization of public sector cross-debt and energy receivables and payables. Besides improving the generally poor payment culture of government and public sector institutions, it would generate the cash required to settle regular capacity and energy payments for WAGP, Takoradi and the Tema Oil Refinery. Furthermore, with the imminent MSSA contract for ECG, not having a proper system of public sector billings and collections could jeopardize the discharge of contractual obligations.

(iii) Expanding energy access. To achieve the Government’s goal of universal access by 2020, the task of rural electrification has become more complex as the outreach is now to communities that are more remote and therefore more costly to connect, and concerns related to alternatives and efficiency are becoming more evident. For the next big leap in access, alternative models to focus on off-grid and renewable technologies would become the least-cost and sustainable options. Therefore, it is recognized that there would a need to be a paradigm shift in rural electrification framework in terms of institutional arrangement and strategies, so that the multiple provision options and multiple providers can be developed and implemented over a relatively short period of time. Furthermore, integrated financial mechanisms to level the playing field between various technologies and access alternatives, such as a common rural

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electricity fund to subsidize future access, would offer more rational ways to finance the expansion.

(iv) Institutional restructuring and capacity building. Efficiency gains can be enhanced via

institutional restructuring in all sub-sectors. In transmission, this would take the form of new technical and operating rules and the possibility of private management options for the operations and maintenance functions of the proposed new transmission utility. In the distribution sector, the proposed MSSA for ECG and disposition of the NED would be the key issues to address. In rural access, the floating of technology-neutral financing and subsidy mechanisms and institutional arrangements for executing scale-up investments are at issue. The future development of the sector, with potentially mixed ownership, possibly private operation and the advent of gas-to-power transactions, would require significant economic, technical and corporate oversight capacity in policy making and regulatory bodies. A good example would be creation of core capacity through a partnership of PURC, EC and the ETU1 to perform indicative expansion planning for the national interconnected system. Capacity would be needed to plan and execute a program for retaining and reinvesting the benefits of low-cost hydropower towards future national priorities, including improving reliability and security of supply and increasing electricity access for un-served areas etc. Therefore, technical assistance to strengthen and build institutional capacity would have a high economic payoff.

2. Rationale for Bank involvement

A long history of partnership in the energy sector places the Bank in a unique position to continue to assist Ghana in tackling its energy challenges. Besides strategically complementing investment financing, the Bank is assisting the sector through knowledge transfer and technical assistance. The suggested Project is guided by findings from completed and ongoing AAA work on Energy Policy issues in both urban and rural sectors. The Bank’s involvement with ECOWAS countries to expand regional energy trade provides an additional dimension to its partnership with Ghana. Bank involvement will (i) enable substantial financing support; (ii) introduce cutting-edge knowledge products, especially in the area of distribution and customer services; (iii) strategically complement regional activities in the energy sector, including the WAGP and the WAPP; and (iv) leverage contemporary public-private financing instruments hitherto not commonly used in Africa such as “carbon credit” financing of loss reduction and efficiency improvements.

3. Higher level objectives to which the project contributes

The project is linked to the World Bank Country Assistance Strategy (CAS) 2004-2007, which was endorsed by the Bank’s Board in March 2004. Building on the five pillars of the Ghana Poverty Reduction Strategy (GPRS), the new CAS sets out three major objectives: (i) accelerating growth and employment generation; (ii) achieving the human development Millennium Development Goals (MDGs); and (iii) enhancing governance for empowerment. The CAS identifies the energy sector as a "major bottleneck", and targets it for substantial reform. The Bank Group's engagement in energy has grown to include AAA and PSIA, investment lending to support operational efficiency, IFC investment in generation and the WAGP and WAPP as regional investment programs. The proposed Project will assist to ease bottlenecks and contribute to growth and employment

1 Public Utility Regulation Commission, Energy Commission and Electricity Transmission Utility respectively.

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generation through the provision of more reliable electricity, and the deepening of energy access. The Project follows upon and complements reform efforts undertaken under the recent PRSC/MDBS, which included debt restructuring for the State-owned energy utilities, the automatic tariff adjustment mechanism, and a focus on private sector participation in the industry. The proposed Project also envisages nationwide interventions in the sector to complement regional support delivered through the implementation of the West African RIAS. The major energy project that has been scheduled in the CAS for fiscal year 2006 is presented in this PAD.

B. PROJECT DESCRIPTION

1. Lending instrument

The proposed lending instrument would be a 5-year Sector Investment Loan (SIL). This project will assist the government of Ghana in improving transmission and distribution networks, and increasing access to energy services. The project will provide IDA funds and GEF grants, and will seek to facilitate “carbon finance” for purchases of carbon reduction credits.

2. [If Applicable] Program objective and Phases

3. Project development objective and key indicators

The development objectives for Ghana are to (i) improve the transmission and distribution networks to enhance reliability and efficiency of power to existing customers; (ii) provide increased access to affordable, reliable and adequate electricity; and (iii) improve the efficiency and security of fuels such as LPG, wood, and charcoal.

The global objective of the Project will contribute to mitigating climate change through the reduction of greenhouse gas emissions in line with the United Nations Framework Convention on Climate Change and its Kyoto Protocol, to which Ghana is a Party (GEF OP 5 and 6). The GEF project intends to assist Ghana in establishing an enabling environment of a policy and regulatory framework and providing business support and long-term financing to attract private sector participation in large-scale commercialization of renewable energy (RE) and energy efficiency (EE). Moreover, the efficiency enhancing measures in the transmission and distribution sector are likely to generate additional greenhouse gas emission reductions for which carbon finance may be claimed. The Project will be instrumental in containing carbon dioxide (CO2) emissions by improving energy efficiency of the electricity distribution system through application of new business practices and technology.

Project specific M&E indicators will be employed. Quantitative indicators will include: power availability from generation, voltage level reliability indices for transmission, technical/commercial efficiency indicators for distribution, new consumers added for access, increased installed capacity of renewable energy, increased use of LPG and improved stoves; reduced loss of forest cover and land degradation, and reduced CO2 emission, and standard financial indicators to measure sectoral viability. Qualitative measures will include periodic perception surveys, visual inspections, site visits and feedback from civil society in formal and informal settings.

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4. Project components

The proposed Project targets four key areas in Ghana's energy sector: transmission, distribution, access to electricity, and household fuels. It comprised of four components: 1) transmission, 2) distribution, 3) electricity access and renewable energy; and 4) household fuels including woodfuels and LPG. The aim of interventions in the transmission sector is to increase the reliability of the system. Investments in the distribution sector will reduce system losses, increase overall efficiency of and strengthen the distribution network, and thereby improve ECG's financial position. The electricity access component will provide increased access to electricity from both conventional and renewable energy sources. The household fuel component will improve efficiency and security of household fuels including woodfuels and LPG. The detailed project description of each component is found in Annex 4.

The project would be financed by an IDA credit of US$ 65 million and GEF grants of $5.5 million. The balance would be mainly from the government, donors, and private sources.

GEDAP Project Components

Total Costs

(US$m)

IDA GEF Donors* IFC GoG Project Sponsors and

Banks1. Transmission 702. Distribution 703. Electricity access and renewable energy

184 15 5.5 20 8 134

4. Household Fuels 6Total Project Costs 368 65 5.5

Note: Co-funding from donors is to be sought.

Component 1: Transmission (US$ 70 million). Although overall transmission losses are not high in Ghana (3.4%),2 the transmission system is in need for substantial overhaul and expansion as a result of long delayed rehabilitation measures. To remedy this situation this project suggests a transmission rehabilitation and expansion component, which will comprehensively address the shortcomings of the overall transmission system and could include augmentation of specific transmission lines which are overloaded. VRA estimates that meaningful system rehabilitation and expansion would cost US$ 70 million. This component will be implemented by VRA.

Component 2: Distribution. One of the Project’s principal objectives on distribution is to support the Government’s current effort in improving the operational and commercial efficiency of its power sector and support the planned public private partnership in the distribution sector in the form of Management Support Services Assignment for the Electricity Company of Ghana. The main purpose of the proposed private participation in the distribution sector is to turn around this sector in the medium-term to a reasonable level of performance in terms of improved revenue mobilization and reduced system losses in preparation for a longer-term distribution sector’s contribution to fuel growth in the country. Through critical investment support and capacity building assistance, it is expected that the Project will improve the financial viability of the sector, which in turn would be 2 Note however that Ghana’s operating guidelines for its grid require a loss level of up to 3% or less.

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instrumental in reducing the power sector’s fiscal burden on the economy. The resulting macroeconomic and quality of service improvements are expected to contribute significantly to creating an enabling environment for sustained economic growth and development in Ghana. The medium-term efficiency enhancements in combination with institutional strengthening that come with the MSSA for ECG are necessary steps to create value in the Ghana electricity business, and to facilitate further private sector engagement in the electricity sector in Ghana. The project-term outcomes include operational and commercial distribution efficiency enhancements, customer service improvements, and strengthening of institutional capacity to manage and sustain the efficiency enhancement programs. A baseline of indicators will be established, against which the Project outputs and outcomes will be evaluated.

The Project proposes to support Government of Ghana’s commitment to improving the operational and commercial soundness of the power sector, increase access and service delivery, and support the renewed engagement of the private sector to foster an efficient, stable and growing power sector in the country. In keeping with this objective, the Project will support investments that aim at improving energy efficiency of distribution networks for reliable supply, (ii) commercial character, and (iii) customer interface of the electricity sector. The project will also facilitate the development of capacity in the ECG in terms of technical, commercial and personnel systems by supporting the activities of the MSSA. The project will increase access in terms of grid intensification through (i) conversion of illegal consumers into regular customers of ECG, and (ii) by connecting new customers to the grid.

Implementation of the Project will be structured along the following: Component: CREST- Distribution efficiency improvement: The efficiency improvement program referred to as the Commercial Reorientation of the Electricity Sector Toolkit (CREST), comprising a set of best practice interventions, is designed by the ECG with active support from the Bank’s team. The program reengineers core business processes (with a pronounced focus on the retail MBC3 functions) and deploys innovative technology solutions in order to improve service delivery and stem the utility’s financial losses. The project would support investments in goods and services related to implementation of the following initiatives under the CREST efficiency improvement program:(a) High Voltage Distribution System (HVDS)(b) HT Trivector meters for HV loads(c) LT Trivector meters (CT operated) for LV commercial loads above 20 KW(d) Single phase and three phase meters (whole current) for LV loads below 20 KW with AMR

facility(e) Reactive power compensation by installation of online capacitors(f) Set up of customer care centers(g) Introduction of spot billing(h) Launch of rapid response vehicles, and(i) GIS/GPS systems for AM/FM operations

These investments will strengthen the distribution infrastructure, improve quality of supply and customer satisfaction, and reduce losses. Private sector would be encouraged to take up these

3 MBC: Metering Billing and Collection process

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initiatives individually on a turnkey basis for a pre-specified part of the distribution network or a customer cluster.

Component 3: Electricity Access and Renewable Energy. This component is proposed to be implemented by an Access Support Team, initially under the oversight of the Ministry of Energy, but later to be possibly developed into a proper Rural Electrification Agency, which would administer a Rural Electrification Fund. The component will assist GoG in developing and supporting initial implementation of a commercially-oriented and sustainable framework for increasing access to electricity. It complements the Government's efforts to achieve its electrification goals through intensification of unconnected customers in existing electrified areas, grid extension to new areas, and off-grid renewable energy options. The Access component has four sub-components: 1) rural electrification framework; 2) intensification; 3) grid extension; and 4) renewable energy.

1) Rural Electrification Framework. This component will develop (i) appropriate institutional arrangement, policies, planning, and strategies for access intensification, access expansion, and renewable energy development; (ii) regulatory guidelines and rules for access and renewable energy development: assess whether the tariff levels would ensure commercial viability of rural electrification services, and make recommendations on improved regulatory framework for rural electrification; and (iii) the framework for establishing the Rural Electrification Fund as a longer-term financing mechanism for future access and renewable energy development -- defining funding sources (donors, levy on electricity bills, and government budget allocation), institutional arrangement to administrate the fund, and service providers eligible to receive subsidy, principles to select service providers and determine subsidy levels, etc.

2) Intensification: In areas with low density of connections, intensification of existing grids is a cost-effective way to expand coverage, in comparison to the new grid extension programs. Preparatory studies will coordinate with the AFD study on current status of the density of connection in existing grids, and identify and describe existing barriers to intensification, including financial, technical, institutional, and regulatory/tariff barriers. The sub-component will develop strategies and plans to address these barriers, including policy, regulatory framework, institutional arrangement, investment needs, financing mechanisms, and low-cost solutions. For example, the solutions could be reduction of the connection cost, better matching rural demand patterns, and modification of the regulatory framework accordingly. This sub-component will include the following actions: (i) propose recommendations on changes/improvements to the legal and regulatory framework in order to allow and to promote new connection/tariff alternatives; (ii) propose an efficient and transparent system of subsidy schemes for intensification (coordinated with any other proposed subsidy/incentive mechanisms); and (iii) implement investment projects to test the validity of assumptions and to subsequently evaluate alternatives.

3) Grid Extension: Extension of service from the existing interconnected electricity grid network will continue to be the main means of expanding access to electricity in Ghana. Such extensions will be undertaken on the basis of ‘commercial practices’. This means that once the capital subsidy provided by the rural electrification financing mechanism, to be developed by the Access Support Team, is taken into account, the service providers (e.g. ECG, NED, private sector, etc.) are expected to operate on a commercial basis, with tariff revenue covering the cost of service including bulk

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electricity supply, operation, maintenance, etc. IDA funds will be used to finance the subsidy portion of the investment. The balance of financing will be debt and equity from project sponsors.

This component would support the implementation of about xx grid extension projects, with initial connections of about xx new customers. This will support about xx km of medium and low voltage distribution lines and associated equipment.

4) Renewable Energy: Renewable energy and energy efficiency sub-components include four parts: 1) renewable energy policy framework and RE/EE capacity building; 2) large-scale grid-connected renewable energy; 3) mini-grid renewable energy and ESCOs; and 4) stand-alone renewable energy systems.

Part 1 intends to remove the policy, capacity, and information barriers to accelerate grid-connected renewable energy such as small hydro, wind, and biomass, off-grid renewable energy such as mini-grid hydro, biomass, and solar home systems. This component will assist the government in 1) developing a comprehensive renewable energy policy and regulatory framework; 2) coordinating grid vs. off-grid options for rural electrification; 3) building capacities and increasing awareness for decision makers, utilities, and consumers to promote renewable energy, energy efficiency, and environmental impact assessment for small hydro projects; and 4) conducting resource assessment and providing information needed for the private sector to develop renewable energy projects. GEF will contribute $1.5 million to support TA activities.

Part 2 intends to remove the policy, capacity, and financing barriers to accelerate large-scale grid-connected renewable energy such as small hydro, wind, and biomass above 10 MW. This component will 1) assist the government in developing a bidding package for a pipeline of renewable energy projects, which includes the feasibility studies, well-designed PPAs, tariff levels, etc. for private sector investment in these projects; and 2) hire international technical and financial advisors who can provide transaction advisory services to the government to negotiate the first two pilot projects. As a result, 1-2 pilot large-scale grid-connected 50 MW renewable energy projects would be developed. GEF support of $1.5 million is requested for TA activities, while the private sector and financial institutions will contribute $120 million for the investment.

Part 3 is intended to remove the capacity and financing barriers to accelerate small-scale grid-connected or mini-grid renewable energy such as small hydro, wind, and biomass below 10 MW, as well as ESCOs. This component will 1) provide business support to both local renewable energy developers, ESCOs, and commercial banks; and 2) IDA re-financing through local banks to provide long-term financing to RE developers and risk sharing to ESCOs. As a result, 2 small hydro projects with a total installed capacity of 3 MW, 10 village hydro projects with a total installed capacity of 500 kW, 5 biomass co-generation plants with a total installed capacity of 5 MW, 2 pilot 3-5 MW wind farm, and 5 ESCO projects would be developed. GEF will contribute to $1.8 million for the TA activities, IDA GEDAP and IFC/IDA MSME projects will contribute $2 million and $8 million respectively to provide long-term financing and risk sharing to these projects, and the private sector and local banks will contribute to $10 million for equity and loans.

Part 4 is intended to remove the technical, awareness, market, and financing barriers to accelerate stand-alone renewable energy systems such as solar PV systems and off-grid wind systems (500 W

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– 2 kW). This component will 1) build capacity of the Apex Bank and participating rural banks; 2) support solar industry association to conduct marketing and awareness campaign and provide training; 3) provide incentives to dealers to build a wide distribution network across the country; and 4) provide IDA re-financing to rural banks who can then provide long-term credit to consumers to purchase these systems. As a result, 15,000 solar PV systems with an installed capacity of 450 kW and 500 small-scale wind systems with an installed capacity of 500 kW would be installed. GEF support of $1.8 million is requested for the TA activities, while IDA will provide $3 million in providing long-term consumer credit and local rural banks will provide $4 million of their own resources.

Component 4: Household Fuels. This component would support promotion of efficiency and security of fuels such as LPG, wood, and charcoal. It has six sub-components:

1) Setting up a National Woodfuel Steering Committee composed of representatives from the relevant government ministries, Wood fuels Transporters Associations, National Consumers Associations, National House of Chiefs, Office of the Senior Minister, NGOs, donors, and the private sector. This committee will present discussion papers for national forums on woodfuels development in the country; review and finalize the existing draft woodfuels policy; elaborate a national woodfuels document on programmes and project to be implemented; supervise the establishment of a National Woodfuel Development Authority (WDA)and assist him to initiate the implementation of woodfuels programme.

The WDA will be decentralized at the 10 district levels. Exchange visits will be also organized to see best practices in the woodfuels sub-sector in West Africa. (US $100,000 + US $200,000 for setting up and equipment of 11 WDAs)

2) Setting up a national data base management system (US $150,000 including a computerized system)What is needed is a more comprehensive and better standardized selected sample representative of ecological zones; low, middle, and high income households; and consider both demand and supply sides. The demand side will deal with energy consumption of households, commercial sector (chop bars, fish smoking, street food preparation, etc.) and small scale industries. The supply side will look at production and wood conversion. The output will be to have a reliable data base on woodfules consumption and supply nationwide; a model on projection of woodfuels for projected future demand in Ghana.

3) Community based sustainable natural forest management, establishment woodlots and rehabilitation of degraded lands. This requires aerial photography, inventory of natural forests of the savanna zone and transitional zones; development of a forestry based geographical information system; development of woodfuels market; integrated savanna woodland management; restoration of the degraded savanna landscape; institutional capacity building at the central, district, and community levels. Forestry related income generating activities will be also promoted for poverty alleviation (US $4,500,000)

4) Promotion of LPG as an alternative to woodfuels use (US $ 400,000)

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Scale up the LPG access programme to reach 10,000 households in the Savanna zone. This requires improvement of Bulk Haulage of LPG from refinery to remote destinations, and an additional retail distribution outlets in Tamale, Navrongo, and yendi.In collaboration with UNDP assist the government in the review of the “Safety Standards, Regulations for LPG and Code of Practice document”. A policy on LPG will be gazetted; and extensive awareness campaign/publicity on the promotion of LPG as an alternative cooking fuels will be conducted in Accra and main urban centers.

5) Support the expansion of the Gyapa improved high efficient cookstoves in the northern part of the country (Tamale, Bolga, and Wa). (US $ 400,000) The project will consist of training local artisans in the fabrication of stoves; training of medium scale ceramic enterprises; and identify retailers. A heavy emphasis will be placed on marketing so that potential clients are aware of the products and of where to buy them; and profits from the sale of technologies are significant enough to sustain their production over the long term, beyond the duration of the financial assistance.

6) Feasibility Study on bio-fuels production in Ghana (US $100,000)

5. Lessons learned and reflected in the project design

A recent ESMAP report highlights the main lessons from successful rural electrification programs in the developing world. Broadly speaking these are: (i) rural electrification is a relatively complex business and an effective and dedicated implementing framework and agency is among the most basic of requirements, though the precise institutional structure can and does vary for each country context; (ii) successful programs depend upon a degree of political autonomy accorded to the key institutions involved including use of transparent and use of clearly defined criteria to select areas and projects for rural electrification and any subsidy; (iii) financial viability through cost recovery is probably the single most important factor determine the long term effectiveness of rural electrification programs, and by implication subsidies should not be provided for any recurrent losses; (iv) tariffs set at realistic levels advance both, adequate cost recovery and incentives for end users to switch from high cost substitutes while also receiving vastly improved service’ (v) reducing the connection charge and offering installment payment plans allows larger numbers of low income rural families to obtain supply and its benefits; (vi) community involvement can take various forms, but in general it contributes to the success of rural electrification programs; (viii) the capital costs of rural electrification can be greatly reduced by paying special attention to system design practices and standards and construction as well and several successful programs in countries such as Bangladesh, Tunisia, Costa Rica have utilized proven off the shelf designs and equipment to achieve significant cost savings; (ix) in many areas alternatives to grid supply are a lower cost means of electrification and should be advanced to the extent feasible. The proposed project incorporates these lessons of experience.

This project has incorporated experience and lessons learned from past GEF PV projects in Ghana and elsewhere as the follows:

UNDP/GEF has implemented the Renewable Energy-Based Electrification for Rural Social and Economic Development (RESPRO) project, which intended to pilot a fee-for-service model to

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deliver solar home systems in Northern Ghana as an alternative to the expansion of fossil fuel-based rural electrification. To date, the RESPRO project has installed more than 2000 solar home systems. Based on the recent JICA study and RESPRO project evaluation report, the key lessons learned from this UNDP/GEF project are as the following, which have been incorporated into this project design. The fee-for-service model is not financially sustainable. Currently, RESPRO charge the lifeline

rate of $2/month, which is not sufficient to recover the O&M costs of RESPRO. This proposed GEF project will adopt the dealer model to promote solar PV systems.

There lacks a coordination between grid extension and PV program. The solar home systems were first installed in areas where grid extension arrived soon after. Therefore, integrating renewable energy into rural electrification plan is a key issue to address under this GEF project.

The private sector and utility have not been actively involved in the implantation of the UNDP/GEF project. This proposed GEF project focused the project design on engaging the private sector participation in the RE sector.

The Spanish government provided funding to install more than 2000 solar PV systems in 10 communities including solar home systems, street lights, schools, and community centers, on a fee-for-service basis. Of the ten communities, eight were connected by the grid soon after, and relocation of PV systems were not planned. This project is also not financially sustainable because the monthly charges are too low to recover the O&M costs and battery replacement costs.

DANIDA funded 14 solar battery charging stations in Northern Ghana, where the rural banks provided credit to consumers to purchase batteries and bulbs. However, the repayment rate is quite low, because the consumers were not aware of the obligation to repay back to rural banks. One key lesson learned is that the rural banks should participate in the program from the very beginning, and the consumers should be clearly informed of the loan terms. In addition, the transaction costs to collect repayment are quite high, the banks commissioned the operators to collect the fees, which is not an effective approach. The low level of ability to pay in the Northern regions is another key factor for the low repayment rate. This proposed GEF project will carefully select target areas where rural banks have experienced successful repayment rate and grid extension is not expected to arrive over the next five years. The Apex Bank and rural banks are involved at the project design stage, and the project will well inform the consumers of the loan terms.

Based on these lessons learned in Ghana, this proposed project will adopt dealer model on credit sales to promote solar PV programs, where dealers and rural banks reached an agreement and jointly identify the consumer base who can afford to pay for the systems.

The project design adapted similar model from the successful GEF Sri Lanka Energy Service Delivery program, which also used IDA re-financing to provide long-term financing and credit to renewable energy projects. The project design also incorporated lessons learned from the GEF China Renewable Energy Development Program, where small-scale solar PV systems (10-20 Wp) are the dominant solar products for the dealer model on a cash sale basis, given the low ability to pay in rural areas.

6. Alternatives considered and reasons for rejection

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Worldwide all rural electrification programs have involved some form of subsidy. The key issue is how to design an efficient, effective, and equitable subsidy scheme. In principal, subsidy for rural electrification projects should be applied to capital investment not on-going consumptions.

C. IMPLEMENTATION1. Partnership arrangements (if applicable)

The European Investment Bank (EIB) and the Kuwait Fund for Arab Economic Development (KFAED) are currently cofinancing the construction of a transmission line between Aboadze and Volta together with the World Bank as the first WAPP project. SECO provides funding to support the management contract of ECG.

In the rural energy sector a number of donor activities are ongoing. The Japanese JICA/JBIC and French AFD have recently been active both in the conventional and the rural energy sector. JICA has funded a Master Plan Study on Rural Electrification Using Renewable Energy Resources in the Northern Part of Ghana, and plans to fund a rural electrification master plan study for the whole country. AFD is funding a study on the institutional arrangement of rural electrification in Ghana. Under the Self-Help program for rural electrification continued cooperation has been extended by the Indian Export-Import Bank. UNDP is sponsoring an LPG program and the implementation of Multifunctional Platforms (MFPs) to promote productive uses for energy. A Global Village Partnership (GVEP) initiative is ongoing, which is to identify priority areas for development, including for energy. UNDP and the World Bank are cosponsoring this initiative. In addition, Ghana is also one of the five African countries under the UNEP/UNF Africa Renewable Energy Enterprise Initiative (AREED), which offers rural energy entrepreneurs a combination of enterprise development services with modest amounts of start-up financing.

For renewable energy, the project will coordinate with the ongoing UNEP/NREL Solar and Wind Energy Resource Assessment (SWERA) in Ghana, and the proposed IFC GEF project Lighting the “Bottom of the Pyramid” in Ghana, Kenya, and Tanzania. The Spanish government recently approved 5 million Euro to install solar PV systems in public buildings such as schools, clinics, and police stations in remote rural areas of Ghana, which complements the solar home system component under this proposed GEF project. This project will also tap the resources in the IFC/IDA Micro, Small, and Medium Enterprises Project (MSME), which aims to increase access to local sources of financing for small and medium enterprises. The Apex Bank, a quasi-central bank for the network of 115 rural and community banks established under the IDA Rural Financial Service Project (RFSP) in Ghana, will be responsible for implementing the stand-alone RE part.

An energy donor group exists in Ghana, and the Ministry of Energy takes the lead in coordinating this donor group regularly. For the preparation of this project, at the Bank request, the Ministry of Energy organized a donor group meeting with JICA, AFD, SECO, and US Millennium Challenge Corporation to align donors’ priorities in the energy field and explore co-financing for this project, during the Bank pre-appraisal mission. These donors expressed interests to participate in this project over the next few years.

2. Institutional and implementation arrangements

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The transmission component will be implemented by VRA. VRA has a unit for project implementation. This unit is in early 2006 implementing transmission components under the World Bank APL 1, Phase 1 under the West African Power Pool (WAPP). The project implementation unit at VRA will coordinate internally with VRA’s Transmission Systems Department, which will determine the specific investments that are to be made, and with VRA’s Environment and Sustainable Development Department, which will lead the environmental and social safeguards work for the transmission investments. Any investments at the interface with distribution will be coordinated with ECG and NED.

The main counterpart for the implementation of the distribution component of this project will be the ECG. A team within the ECG has been created to implement this project. Government of Ghana, through the Ministry of Energy will provide policy guidance and also take an active part in implementation of the project. CREST deals with strengthening and rehabilitating the distribution grid, and reengineering the business processes. This component specifically involves distribution investments needed to support the CREST efficiency development program being implemented by the ECG. These investments will introduce efficiencies into several distribution functions. These investments and associated business process improvements will be implemented essentially by the concerned distribution agencies of ECG.

An Access Support Team will be set up, under the oversight of the Ministry of Energy, to be responsible for implementing the electricity access and renewable energy component and household fuels component under the World Bank/IDA project as well as the GEF project for the Ghana Energy Development and Access Project (GEDAP). In addition, this access support team will also develop: appropriate policies, planning, strategies, and incentives (including the financing mechanism)

for access intensification, access expansion, renewable energy development, and household fuels (traditional biomass fules/LPG/efficiency improvement);

regulatory guidelines and rules for access and renewable energy development; and the framework for establishing the Access Development Fund as a longer-term financing

mechanism for future access and renewable energy development. This access support team is expected to be eventually developed into an autonomous Rural Electrification Agency, who would be responsible for rural electrification and renewable energy development.

In parallel, the IDA funds for re-financing and GEF TA for business support will be implemented by the Apex Bank, who will set up an administrative unit to manage these tasks. In April 2006, the Apex Bank and the Ministry of Energy jointly organized a sensitization workshop with more than 60 selected rural banks, together with solar dealers. These rural banks expressed strong interests in participating in this program. The rural banks, solar dealers, and the Ministry of Energy also jointly identified preliminary geographic areas to target for this program. The Apex Bank will: pass the IDA resources from GEDAP to the participating local commercial banks under the

IFC/IDA MSME project, and the participating rural banks to provide longer-term refinancing to RE projects;

hire consultants to provide technical assistance and capacity building to participating rural banks;

disburse funds to the business support group to be determined under the IFC/IDA MSME project, who will provide advisory services to RE/EE developers and the participating banks

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disburse funds to the solar industry association, who will conduct marketing and awareness campaign and manage the dealer incentive program to promote solar PV. In April, 2006, the solar industry association in Ghana was formally registered.

GEF resources are requested to support the Access Support Team and the administrative unit in Apex Bank to implement this GEF project. Annex 6 shows the diagram of the implementation arrangement for the IDA/GEF GEDAP project.

3. Monitoring and evaluation of outcomes/results

Monitoring and evaluation (M&E) reports will be prepared in regular intervals to report on progress on all project components. The key indicators for measuring:

Transmission: Progress towards outcomes will be measured by (i) reduction of unscheduled outages; (ii) reduction of transmission losses; and by deduction from (i) and (ii) increased availability of electricity (in GWh). Annex 3 gives a detailed description of indicators.

Distribution: The CREST program initiatives comprise initiatives to improve the distribution business by (i) improving network reliability, (ii) improving commercial charter by increasing billing and collection, and (iii) improving customer interface. Selected areas under the program will be supported with hardware investments such as high voltage distribution system (HVDS), and better quality and coverage of metering which would reduce system losses, improve system reliability (by increasing tail-end voltage closer to 220V rather than the present ~180V) and increase revenue collections (through increased Cedis billed/kWh). Customer care centers, spot billing and rapid response outage management programs will be introduced to enhance quality of customer service. During implementation, the scheduled hardware investments and customer service initiatives as well as the expected outcomes in terms of system loss reductions, improved system reliability, increased revenue collections and better customer service will be tracked.

Progress toward outcomes will be measured by:(i) Operational and commercial efficiency enhancement results on the distribution front will be

measured by tracking energy loss reductions (technical and non-technical), and increases in metering, billing and collection (MBC). By limiting energy losses and boosting revenue collection, these efficiency gains are expected to improve the financial health and thus the long-term sustainability of ECG. To assess progress, reduction in technical losses, increase in MBC, and the expected increase in revenue base will be tracked. The project outcomes are sought to be measured by the PVI or the Performance Verification Index. PVI is defined as PVI (%) = Total Revenue Collected in the year * 100

(Total GWh bought in the year*Annual Average End User Tariff)

(ii) Service delivery improvements will be measured by improvements in tail end voltage, and by monitoring progress in terms of introducing better customer interface in the form of customer care centers, spot billing, rapid response vehicle systems and other customer-centric services. Periodic customer satisfaction surveys will help to further ascertain progress.

(iii) The development of robust IT, financial and accounting systems is key to measuring and improving the operational and commercial efficiency improvements, and an essential

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platform for effective management of ECG. Installations of and training on relevant technologies and systems will be monitored during the project period.

Electricity Access and Renewable Energy:Indicators include: increased number of connections, increased access to energy service; renewable energy policy framework developed; increased access to local financing for renewable energy and energy efficiency projects; increased number of private entrepreneurs for renewable energy; increased number of ESCOs and energy efficiency projects; 1-2 large-scale grid-connected 50 MW RE projects; 2 small hydro and 10 village hydro projects with a total installed capacity of 3.5 MW; 5 biomass co-generation plants with a total installed capacity of 5 MW; 2 pilot 3-5 MW wind farm; 15,000 solar PV systems with an installed capacity of 450 kW and 500 small wind systems with an installed capacity of 500 kW; 5-10 ESCO projects; and 8 million tons of CO2 emissions avoided over the lifetime of the equipment.

Household Fuels:Indicators include: improved performance of the household energy sub-sector by the establishment of a reliable data base on woodfuels consumption and supply nationwide; establishment of a forestry based geographical information systems; effective enforcement of a sustainable regulatory framework for the sub-sector; establishment of sustainable forest/woodfuels supply management systems in the northern part of the country; charcoal producers trained in efficient charcoal production; local artisans, medium scale ceramic enterprises trained in the fabrication of improved cookstoves; 30,000 cookstoves disseminated in Tamale, Bolga and Wa; A policy on LPG gazetted; LPG use scaled up to reach 10,000 households in the Savanna zone.

4. Sustainability and ReplicabilityThe Project is expected to be institutionally and financially sustainable. The Bank is broadly and deeply engaged in the Ghanaian energy sector and increasing RE/EE is one of the Bank’s energy sector strategy. The promotion of RE/EE is part of the access component of the Ghana Energy Development and Access Project. GEF support is requested only for technical assistance, and the IDA/IFC funding will provide long-term financing to renewable energy projects and co-finance support to ESCOs for energy conservation projects.

This project intends to establish a favorable enabling environment of policy and regulatory framework that provide incentives for private sector to engage in RE development. It will also assist the private sector to develop a RE/EE market in Ghana through providing long-term financing, risk sharing, and business support to RE/EE project developers and consumers. As a result, it is expected that an increasing number of local entrepreneurs would be emerged to provide RE/EE services. This strategy ensures sustainability of the project by enabling greater private sector participation in RE/EE after completion of this project.

This project will strive to deploy renewable energy in those areas where they are economically competitive with conventional energy, which would maximize their financial sustainability as well as development impacts. Financial support from IDA, GEF, carbon financing, and other donors will be sought to promote renewable energy and energy efficiency development in Ghana. Carbon finance will be in line with GEF policy during project implementation.

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To ensure financial sustainability, the renewable energy policy framework will be designed to ensure financial viabilities of the projects, the project risks will be allocated equitably between the public and private sector, the terms of the power purchase agreement will be within accepted international norms, the tendering for renewable projects will be open and competitive and there be a mechanism for the pass through of renewable energy cost. An important factor in the financial sustainability for the program is the continued availability of credit. By engaging the local commercial and rural banks through training and co-financing of the RE/EE projects, the local financial institutions will gain confidence in the creditworthiness of RE/EE clients. Given the favorable development in the financial markets in the Ghana – reduction in interest rates, increase in liquidity and support by donors of the Ghanaian financial sector, once lending to RE/EE has established a profitable track record, RE/EE projects should have continued access to long term commercial debt financing.

This project will deploy a demand-driven approach that develops the enabling environment and financing mechanism to attract greater private participation in the RE/EE sector. It will also empower the communities, cooperatives, local financing institutions and MFIs, to operate and replicate these schemes on their own. It is expected that emerging business models from implementation of this project will serve as templates to design and implement RE/EE projects nationwide.

Furthermore, this project provides hands-on capacity building through learning-by-dong, so that the capacity of local stakeholders will be improved to ensure replication. For example, Component No. 2 plans to provide advisory services to the government in developing bidding packages and negotiating PPAs for the first transactions of large-scale grid-connected renewable energy. Through this process, the government agencies will learn and improve their capacities to handle such projects in the future. For the solar PV market, the consultation with a wide range of local stakeholders particularly the solar dealers identified three top barriers: 1) consumer affordability; 2) difficulties for solar dealers to set up retail outlets across the country; and 3) a lack of consumer awareness. This project proposes to remove these three fundamental barriers to the solar PV market through IDA (addressing affordability barrier) and GEF funding. It is expected that the solar PV market would take off on its own after the project.

The program is also replicable in other sub-Sahara African countries. Many African countries share largely similar conditions, including the roles of renewable energy in rural electrification, rich renewable energy resources, and a lack of long-term financing for renewable investments. The business model and lessons learned from the successful World Bank/GEF renewable energy programs in Sri Lanka and Bangladesh have been adapted to this project design. This program in Ghana provides comprehensive support to renewable projects from development of legal, policy, and regulatory framework for renewable energy to technical and financial support to large-scale grid-connected, mini-grid, and stand-alone renewable energy projects.

5. Critical risks and possible controversial aspects

6. Loan/credit conditions and covenants

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D. APPRAISAL SUMMARY1. Economic and financial analyses

The EIRR of the project is robust at XX%, as compared with the assumed economic opportunity cost of capital of 12%. The table below presents a breakdown of the results. [to be completed]

The primary quantifiable economic benefits of the project by components include: Transmission:

o Increased transmission revenue;o Increased power availability due to reduced outages;o Reduced transmission losses;o Reduced CO2 emissions through reduced transmission losses;

Distributiono Increased income through reduced commercial and technical losses;o Reduced CO2 emissions through reduced losses

Access/Renewableso Guaranteed excess sales during years of drought;o Reduced CO2 emissions through renewables.

The primary quantifiable economic costs are the total investment costs, the O&M costs and various other costs. The investment costs include the investments in transmission and distribution equipment.

Economic Analysis for GEDAP(in US$, NPV at 12%)

Transmission Distribution Access and Renewables TotalCostsBenefitsNet BenefitsEIRR X% X% X% X%Note: A discount rate of 12% is assumed to calculate the present values for the economic analysis. Input data needs to be confirmed at appraisal.

2. Technical

3. Fiduciary

4. SocialOne of the positive social impacts of the project is improved reliability of Ghana’s electric power supply, which will directly benefit current customers and indirectly help to promote additional private investment by industries that are currently less inclined to open or expand operations in the country because of the limitations of the electricity transmission and distribution system. A second social benefit is increased access to electricity in rural areas, through grid extension or on-grid or off-grid generation. The fuel security component has the potential to improve quality of life in a

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number of ways: substitution of LPG for fuelwood in some areas, bringing with it reduced level of effort in obtaining fuel and improved indoor air quality; improved access to fuelwood through managed woodlots, with a resulting reduction in time spent gathering wood; and more efficient use of wood in areas dependent on it for domestic use.

Negative social impacts will be limited. Chief among them will be loss of land and fixed assets, loss of crops (usually only temporary, as VRA generally permit farming to continue in rights-of way except on access roads), and in relatively few cases, displacement of families and businesses because of right-of-way clearing and acquisition of land for towers, substations, and generation sites. A Resettlement Policy Framework (RPF) has being prepared to ensure that subprojects are planned to minimize displacement and to compensate affected persons at replacement cost for lost assets, crops, etc. (see Section 6 below).

5. EnvironmentPositive environmental impacts are expected in several areas. Improved transmission and distribution efficiency will reduce the demand for resources (oil or gas, streamflow, etc.) per unit of power produced. Emphasis on renewable energy sources in contrast to diesel generators in the rural access component will have favorable impacts on local air quality and noise levels and on greenhouse gas emissions. The fuel security component is designed to reduce pressure on natural forest as a source of fuel and will have additional benefits in terms of air quality, both indoor and local ambient quality.

The most common adverse environmental impacts of the project are those associated with the construction and operation of transmission and distribution lines. These are typically modest and relatively easy to manage through good engineering and construction practice. The prohibition on conversion of critical natural habitat in OP 4.04 will apply to this project, but the potential remains for these linear facilities to have impacts on other natural areas as well as on physical cultural property and landscapes (visual impacts). Pesticides are not an issue, since VRA and ECG do not as a matter of policy use herbicides to clear or maintain rights of way.

Potentially more complex though less significant in terms of area affected are the impacts of solar panel and battery systems (disposal of lead-acid batteries), mini-hydro (small-scale changes in hydrologic regime, impacts on downstream water uses and aquatic ecosystems, obstruction of fish passage, inundation of terrestrial habitat), wind-powered generators (visual impact, mortality of birds and bats), and biomass (local air quality, ash disposal).

6. Safeguard policies

Safeguard Policies Triggered by the Project Yes NoEnvironmental Assessment (OP/BP/GP 4.01) [ ] [X ]Natural Habitats (OP/BP 4.04) [ X] [ ]Pest Management (OP 4.09) [ ] [ X]Cultural Property (OPN 11.03, being revised as OP 4.11) [ ] [X ]Involuntary Resettlement (OP/BP 4.12) [ X] [ ]Indigenous Peoples (OD 4.20, being revised as OP 4.10) [ ] [ X]

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http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/bytype/0F7D6F3F04DD70398525672C007D08ED?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/bytype/383197ED73D421A385256B180072D46D?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/bytype/AA37778A8BCF64A585256B1800645AC5?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/tocall/55FA484A98BC2E68852567CC005BCBDB?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/665DA6CA847982168525672C007D07A3?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/BProw/62B0042EF3FBA64D8525672C007D0773?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/71432937FA0B753F8525672C007D07AA?OpenDocument

http://lnweb18.worldbank.org/ESSD/envext.nsf/47ByDocName/EnvironmentalAssessment

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/BProw/C4241D657823FD818525672C007D096E?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/9367A2A9D9DAEED38525672C007D0972?OpenDocument

http://www.worldbank.org/environmentalassessment

Forests (OP/BP 4.36) [ ] [X ]Safety of Dams (OP/BP 4.37) [ X] [ ]Projects in Disputed Areas (OP/BP/GP 7.60)* [ ] [ X]Projects on International Waterways (OP/BP/GP 7.50) [ ] [X ]

The project has been selected as one of the Bank’s “use of country safeguard systems” pilots. The Ghanaian social and environmental safeguard systems have been subjected to a two-stage review to determine, first, which of the safeguards are equivalent in terms of meeting the operational principles of the Bank’s policies as outlined in OP 4.00 Piloting the Use of Borrower Systems to Address Environmental and Social Safeguards Issues in Bank-supported Projects. In the second stage, the acceptability of the systems that were found to be equivalent was assessed by reviewing experience with implementation in both Bank-supported and non-Bank-supported projects. The equivalence analysis and acceptability assessment were conducted jointly with African Development Bank. The full report may be found in Annex 10. The conclusions for the five operational policies that would otherwise have been triggered by the project – OP/BP/GP 4.01, OP/BP 4.04, OPN 11.03, OP/BP 4.12 and OP/BP 4.37 -- are summarized below.

Environmental Assessment under Ghanaian law, regulations, and procedures is equivalent and acceptable, provided the gap-filling measures listed at the end of this section are carried out. OP/BP/GP 4.01 is therefore not triggered for the project; the Ghanaian system will be used instead in accordance with OP 4.00. Subprojects will be screened and environmental studies will be ordered, prepared, reviewed and disclosed according to Ghana EPA’s regulations and VRA, ECG and MOE procedures.

Although Ghana has laws and regulations that deal with most aspects of conservation and protected area management, they do not include the prohibition on conversion of critical habitat or the requirement for analysis of alternatives and benefits versus costs for conversion of other natural habitat that are fundamental to Bank policy. The Ghanaian system was therefore considered not equivalent, and OP/BP 4.04 is therefore triggered for the project.

Ghanaian law and regulations including those for EA provide equivalent protection for physical cultural property and implementation in the field was found to be acceptable. OPN 11.03 is therefore not triggered for the project, and the Ghanaian EA system plus the regulation mandating notification of chance finds of antiquities will be used instead, in accordance with OP 4.00.

Ghanaian law and practice on land acquisition, resettlement and compensation were found not to be equivalent to Bank policy for several reasons, chief among which are limitations on eligibility for compensation for persons that do not hold a proprietary interest in the land being acquired. OP/BP 4.12 is therefore triggered for the project, and the borrower has prepared an RPF which was approved by the Bank and publicly disclosed in-country at _____________ and in the InfoShop.

* By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas

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http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/GPraw/CC209CF484469D2C8525672C007D07EE?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/BProw/47D35C1186367F338525672C007D07AE?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/5F511C57E7F3A3DD8525672C007D07A2?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/GPraw/C6B0F62BE7A10B338525672C007D078B?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/BProw/5DB8B30312AD33108525672C007D0788?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/72CC6840FC533D508525672C007D076B?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/BProw/D3448207C94C92628525672C007D0733?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/C12766B6C9D109548525672C007D07B9?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/GPraw/97FA41A3D754DE318525672C007D07EB?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/C972D5438F4D1FB78525672C007D077A?OpenDocument

While VRA has an enviable record of dam safety, there is nothing in Ghanaian statutes or regulations equivalent to Bank policy. OP/BP 4.37 is therefore triggered for the project, in case any mini-hydro subproject is of sufficient size to necessitate the dam safety procedures.

The analysis of equivalence and assessment of acceptability describes actions to be taken to fill gaps in equivalence and to achieve and sustain acceptability. Some of these were already set in motion before work began on the country system pilot; others were recommended as part of the conclusions of the assessment.

GAP FILLING MEASURES AGREED TO ACHIEVE ACCEPTABILITY

The following actions will be carried out prior to the date of effectiveness of GEDAP (approximately September 1, 2006).

EPA will complete and issue the “Sector Specific Guidelines for EIA” for the energy sector.

VRA management will approve the VRA “Policy Framework for Environmental and Social Management of Bulk Transmission Line Projects in Ghana”.

MOE will prepare and issue an “Environmental Policy Framework for Captive Generation” setting forth MOE policy and procedure for applying Ghana’s EIA system in MOE’s rural electrification and rural access programs by.

ECG (and NED) will prepare and issue an “Environmental Policy Framework for Distribution” setting forth ECG policy and procedure for applying Ghana’s EIA system in ECG and NED electricity distribution projects, by.

ECG’s environmental assessment and management capacity will be strengthened through engagement of an environmental specialist as advisor to the Manager for Environment and Safety.

GAP FILLING MEASURES AGREED TO SUSTAIN ACCEPTABILITY

The following actions will be undertaken to sustain acceptability during and after implementation of GEDAP.

Action to be Taken By Whom By When

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Carry out a review of the quality of EIA instruments prepared under GEDAP: EIAs, PERs, scoping reports/TORs, EMPs, etc. and communicate results to MOE, VRA, and ECG. Provide recommendations for improvement.

Transition from consultant-provided EIA capacity to in-house permanent capacity in MOE “Electricity Group” and ECG, through staffing, training, refinement of environmental frameworks prepared in connection with GEDAP.

EAA Department of Ghana EPA

MOE, ECG, EPA, WB

Sept. 2007 and annually thereafter, continue with these tasks periodically

During 2007 and 2008

7. Policy Exceptions and Readiness

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Annex 1: Country and Sector or Program Background

GHANA: Ghana: Energy Development and Access Project

Ghana is a low-income country with a population of about 20 million and a per capita income of US$380 (2004), which is about one-fifth below the average of US$490 for Sub-Saharan Africa. The Government of Ghana proposes to ensure a reliable supply of high quality energy services to fuel economic growth as well as meet the needs of households. Ghana and the World Bank share a vision of rapidly developing the energy sector to promote greater access in a clean, affordable and efficient manner and fuel the country’s economic growth. To achieve these objectives, the government is keen to continue and sustain the sector reforms and strategies which it has been implementing over the last few years. The government’s focus in the medium term is to ensure (i) improved institutional and transparent financial arrangements for future access expansion; (ii) there is a clear policy framework, viable financing schemes, and robust business models for renewable energy development; (iii) improvements in the management and operations in the generation and distribution sector; and (iv) institution of policies to guide the use of households fuels, including wood fuels and Liquefied Petroleum Gas (LPG) in order to minimize detrimental environmental impacts.

Total Energy Supply and Consumption: In 2003, the total primary energy supply in Ghana reached 9.1 million tons of oil equivalent (TOE), of which 69% from traditional biomass, 21% from petroleum, and 10% from electricity. More than 70% of the energy supply comes from indigenous resources of biomass and hydro, while the rest from import. The total energy consumption was 6.3 million TOE, of which 51.6% from residential, 21.9% from transport, 21.5% from industry, 3.6% form commercial and services, and 1.4% from agriculture and fisheries.

Electricity Sector : The electricity sector is a key driver of economic growth in Ghana, and is therefore accorded prominence in Ghana’s Poverty Reduction Strategy. The total installed capacity of electricity in Ghana was 1903 MW in 2003, of which 1198 MW from hydro, and 705 MW from thermal. Though electric power constitutes only 10% of Ghana’s energy supply mix, it plays an important role in the country’s economy, powering its industrial, commercial and urban development. The industry and services sectors which together account for nearly 75% of Ghana’s GDP, rely critically on electricity. Therefore organized development of the sector, steady improvement in the provision of reliable and affordable electricity services and growing electricity access are all important determinants of Ghana’s economic performance and the quality of life of Ghanaians. Because of its size and resource requirements, the sector also has a significant fiscal and macroeconomic impact.

The Ministry of Energy is responsible for energy policy formulation and implementation, while the Energy Commission, set up under Act 541 in 1997, is responsible for energy policy and strategy advice, planning, licensing, and technical regulations. The Public Utility Regulatory Commission, set up under Act 538 in 1997, regulates the tariff and customer services. The electricity generation and transmission functions lie with Volta River Authority (VRA), while the electricity distribution in Southern part of the country is carried out by Electricity Company of Ghana (ECG) and in the North by Northern Electricity Department (NED). VRA started with the development of the hydro potentials of the Volta River (a total of 1,180 MW are installed) and the construction and maintenance of a nation-wide grid transmission system. Subsequently, it developed the 330 MW

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Takoradi Thermal Power Plant and added on a 220 MW Simple Cycle Plant at the Takoradi plant site. In early 2006, the country’s transmission system is aged and overloaded. The system is overloaded, which results in major outages.

Within Ghana, far-reaching reforms in the electricity sector are underway including the introduction of private management of distribution. A large investment program, to be financed by the private sector and by the government and donor development partners, is contemplated over the next 4-5 years to upgrade infrastructure, install additional generation capacity and expand rural access to energy services.

The reform agenda is well conceived, but its implementation has been slower than expected. The functionally un-bundling of the transmission system business unit of VRA is in line with a government policy directive. In 1999, VRA registered a wholly owned subsidiary company – National Grid Company Ltd. (GRIDCO) and initiated action to transfer national transmission and load dispatch assets to an Electricity Transmission Utility (ETU). In the latest reform phase, the government announced a further decision to separate the ETU function from VRA – through the enactment of the VRA Amendment Bill. The Government plans to engage a performance-based Management Support and Services Provider for ECG.

Recent developments have clearly underlined the need to step-up the reform efforts and investments in the energy sector in order to attain the envisaged higher growth levels. In order to get to these levels, there are a number of challenging issues on sector reforms which require urgent attention if the objectives of the reform and strategies are to be achieved in a timely manner:

While the sector strategy requires of the independent tariff regulator, the Public Utilities Regulatory Commission (PURC) to announce and publish electricity tariffs including quarterly revisions, the regulator has delayed in adjusting tariffs. The last tariff revisions were approved to take effect on May 1, 2005, and regulator, while it has reviewed tariffs on a quarterly basis, it has indicated there’s no need to adjust the current rates. These delays cause uncertainty on several fronts, such as new investments in generation. There’s thus the need to strengthen the tariff setting regime, including the periodic tariff adjustment formulae, which is essential for investor confidence as well as the success of the on-going reforms in the distribution sector.

The commercialization of the sector and proper determination of contractual agreements between the key institutions for two part capacity and energy billing remain unresolved. The mechanisms for prompt settlement of arrears within the public sector system has been revived under the Cross-Debt Clearing House system, however, timely settlement would need to be considerably improved. The advent of West Africa Gas Pipeline gas will require prompt settlement, and so will the determination of incentives for the proposed Management Support Services Arrangement for dealing with public sector receivables. Success of the proposed MSSA will also depend on the institutional restructuring of the sector, specifically the disposition of the Northern Electricity Department (NED). There are difficulties in merging two disparate utilities such as NED and ECG and the Bank is supportive of alternative proposals that are consistent with the government’s overall access expansion strategies.

Another key ingredient in the sector reform agenda is how Volta River Authority‘s (VRA) financial viability is sustained in light of the power sale arrangements reached with the Volta Aluminium

30

Company (VALCO). The rates agreed are believed to be at a rate lower than VRA’s average cost of bulk power. This is a concern that needs to be addressed and a clear understanding of the financial impact of the VALCO-VRA power purchase agreement and its implications for generation capacity expansion are essential to achieving sector reform objectives.

The Ministry of Energy and the power utilities continue to tackle generation expansion and asset utilization challenges, however a number of issues remain unresolved. On the Tano Gas barge, it is refreshing to note that all key stakeholders are displaying an openness to explore different options, including moving the barge from its original location. Secondly, while there continues to be some differences of opinion between the World Bank and Government on the proposed Tema 330 MW plant (timing, and uncertainty around VALCO’s future demand), the WB proposes to work with Government upon request, to determine and implement the most feasible option, and also assist VRA with conducting the solicitation for project sponsors in a manner that will enable future Bank Group support for the proposed Tema Thermal project. It is imperative that while these issues are being discussed, actions to finalize the Takoradi 2, combined cycle expansion are expedited.

In recent times, regional energy integration has added a new dimension to the sector’s development. Ghana is one of the key players in the regional push towards energy trade. The Parliament of Ghana ratified the EEP in June 2004 to pave the way for the financial closure for the West African Gas Pipeline (WAGP) and the West African Power Pool (WAPP). Both regional projects are critical to enhance energy security in Ghana, since the WAGP would enable Ghana together with Benin and Togo to gain access to natural gas resources in Nigeria, and the WAPP would facilitate Ghana’s access to, and sharing of the region’s rich hydro and natural gas resources. Ghana will play a prominent role in this market in view of its physical location, its political significance and the large hydropower resource in the form of the Akosombo hydro complex.

Rural Electrification: In 2004, Ghana's rural electrification rate reached 54%, significantly higher than the average of 21% of Sub-Saharan Africa. Since the late nineties Ghana has spearheaded numerous innovative programs to extend reliable energy access to rural areas. The Ministry of Energy instituted a National Electrification Scheme (NES) in 1989 as the principal instrument to achieve its policy of extending the reach of electricity to all parts of the country over a 30-year period. The first phase of the NES entailed the electrification of all district capitals and towns/villages on-route to the district capital under the National Electrification Project (NEP). The other pillar of the NES, the Government's Self-Help Electrification Program (SHEP), supplemented the NEP, commenced in 2001. Under the SHEP, communities located 20 km from the national grid are qualified for fast-track electrification if they procure all the required low voltage poles. As a result of these programs, more than 2000 communities have been electrified, and access increased from 28% in 1989 to 54% of the population in 2004.

Petroleum and Gas: Ghana imports crude oil resources, but has its own petroleum refining industry to meet its energy demand and export surplus products. Ghana’s petroleum refining sector is also undergoing reform, and GoG’s Accelerated Deregulation Program is expected to be well received by private sector companies. The Government has implemented the difficult task of revising petroleum product prices in line with international movement of prices, and legislation to give effect to the pricing and regulatory reforms, including the establishment of the National Petroleum Authority has been enacted.

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LPG plays an important role in Ghana as the main alternative to the use of fuelwood and charcoal for cooking. The total consumption of LPG in 2000 was about 42,000 MT, of which 76% from the household sector, 14% from the industrial and 10% from the commercial sectors. An average of 8.5% of the households in Ghana use LPG for cooking, with a large disparity in the rural and urban areas – only 1.2% in the rural areas while 29% in Greater Accra. The cost of LPG and the equipment required (cylinder and burners) makes the use of gas prohibitive to most low-income households. The use of LPG is therefore mainly seen in high and middle-income families in urban areas. The widespread use of LPG in urban areas and in institutions is mainly a result of a LPG promotion program initiated in 1990 by the GoG. Unlike other countries, no major petroleum company has taken on the task of distributing and selling LPG. It is unclear why this is the case, but the lack of existing safety regulation has been mentioned. The absence of such an actor amplifies the challenges to extend supply in the rural areas. There is a need for developing an active LPG distribution network and an effective LPG regulatory framework to create the necessary environment for the private sector to participate in the business.

Traditional and Modern Biomass Resources Ghana is well forested with its economy primarily based on agriculture. The annual production of wood residues from logging and sawmills is estimated to be around 1 million tons, and crop residues around 1.1 million tons. Cooking accounts for about 80% of household energy needs in Ghana. Traditional biomass, charcoal and fuelwood, provides cooking fuels to 95% of rural and 70% of urban households. These traditional biomass fuels have resulted in serious indoor air pollution problems, which are responsible for premature deaths of women and children from respiratory diseases. The Ministry of Energy has launched projects to promote biogas and improved charcoal cook-stoves. Despite individual initiatives by the government and donor agencies, there is no comprehensive market-based program for traditional fuels and their substitutes. There is a need to strengthen the programs for improved stoves and alternative fuels for traditional biomass.

There is a large potential for biomass co-generation from wood wastes and agriculture residues. To date, several sawmill and palm oil co-generation projects have been reported, most of which generate electricity and heat for their own consumptions, since there is no regulatory framework for exporting power to the grid. The government plans to develop 100 MW of biomass co-generation over the next five years.

New Renewable Energy Sector Exploitation of Ghana’s renewable energy resources has been carried out under the Act 541. It established the Energy Commission and an Energy Fund, which among other things mandated the Energy Commission to direct the development and demonstration of renewable energy projects throughout Ghana. The Energy Fund raises about $500,000 a year from the levy of 5 cedi or 0.06 US cent/liter on petroleum products, and is insufficient to support large-scale renewable energy development. The draft National Renewable Energy Strategy, together with the draft Strategic National Energy Plan 2006-2020, set a target to achieve 10% of renewable energy in Ghanaian energy mix by 2020, including wind, mini-hydro, modern biomass resources, and solar PV. It aims at creating a “level playing field” for renewable energy and increasing access to energy services with renewable energy resources. In addition, the draft Strategic National Energy Plan 2006-2020 also proposed to promote energy efficiency and conservation as a means towards cleaner production and pollution control measures.

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Ghana is endowed with rich renewable energy resources from small hydro, solar, and wind. It is estimated that Ghana may have the potential for additional 2000 MW of hydropower. Nearly 20 medium to large-hydro sites (20 – 400 MW each) are identified with a total installed capacity of 1,243 MW. VRA and private project developers have conducted feasibility studies for some of these sites. Over 70 small hydro sites (< 10 MW) have been identified, however, none have been developed. Of these potential sites, the Energy Foundation recently reviewed existing reports and conducted surveys in 22 mini-hydro (30 – 500 kW each) sites in Southern Ghana. The study found that river flows have considerably decreased or completely dried out at half of these sites, while the other sites are mostly located in the electrified areas and need to export power to the grids. The preliminary economic analysis demonstrated that these mini-hydro projects can be financially viable at a power purchase tariff of 8 cent/kWh. The Ministry of Energy is planning to build the first mini-hydro demonstration project at Tsatsadu Falls in the Volta Region with an initial installed capacity of 30 kW. Additional resource assessment for small hydro is needed to identify more feasible small hydro sites.

A recent UNEP/NREL Solar and Wind Energy Resource Assessment project (SWERA) estimated more than 2000 MW of wind energy potential in Ghana, mainly along the Togo border. This is part of the global SWERA project starting in 2001, which developed detailed maps of wind and solar resources in 13 developing countries, using satellite and terrestrial measurements, numerical models, and empirical and analytical mapping methods. These maps provide information on a definitive renewable energy resource base in a given country, and the locations of potential wind farm sites where wind resource measurements should be made. Based on the recommendations from the SWERA wind maps, measurements at a few sites are being taken with support from the Netherlands and the Ghana Energy Commission, which will provide essential information to build wind farms in the areas. Before this UNEP/NREL study, there is a perception that Ghana has limited wind resources for power generation. Existing wind measurements in Ghana were mostly concentrated along the coastal areas, and the measurements were usually made at a height of 20-meter. To date, there is no wind farm in Ghana. However, a Swiss wind developer NEK has conducted wind measurement at 40-meter high for more than two years along the Southeast coast of Ghana, where the average wind speed is estimated to be around 6.5 m/s, and plans to build a 50 MW wind farm near Accra. They have conducted pre-feasibility study, which demonstrated that the proposed wind farm can be financially attractive at a power purchase tariff of 8-9 cent/kWh, and approached international financiers. The key building block is to get a PPA with the proposed tariff level from ECG. In addition, a number of local entrepreneurs started to manufacture small-scale wind turbines (500 W – 1 kW), which is popular for households living on islands.

Ghana is also rich in solar resources, receiving an average annual solar radiation of 16-29 MJ/m2, with an annual sunshine duration of 1800-3000 hours. The Ministry of Energy has developed a solar map for the country, with very high solar radiation levels in southern parts of the country while moderate radiation levels in the North. To date, the development of solar PV and solar water heaters has been mostly funded through grants and concessional loans from donors and government programs, mainly DANIDA, Spanish, and UNDP/GEF. As a result, nearly 5000 solar PV systems with an installed capacity of 1 MW, including solar home systems, community solar and hybrid systems, solar water pumps, and PV applications in hospitals and schools, have been installed. Currently, there are 2-3 major market-based solar dealers and suppliers in Ghana, all based in Accra, with an exception of the Deng Limited who has up to five agents across the country. There

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lies the opportunity to develop market-based delivery model and financing mechanism to commercialize solar development. Please see the M&E Section for detailed lessons learned from the past solar PV programs.

The Financial Sector Background: The World Bank’s “Doing Business in 2005” Report highlighted the achievement of IDA investment climate triggers in Ghana. Time of starting business fell from 129 days to 85 days and cost of starting business fell from 131% of GNI/capita to 88% GNI/capita. Public-private policy dialogue has improved both in content and process following the creation of the Ghana Investors Advisory Council. The business environment in Ghana is not hostile to private sector growth. However, regulatory barriers persist in Ghana which inhibits the growth of micro, small and medium enterprises (SMEs) which are the foundation to a viable domestic renewable business. One major barrier is the difficulty of these enterprises to access to medium to long term finances. Although banks face conditions of over liquidity, most funds deposited are of short term nature. Real interest rates, also driven by huge local borrowing by the Government, have hindered individuals and private enterprises access to affordable financing. Private commercial banks have few incentives to significantly expand lending to individuals and SMEs – long considered risky by the formal financial sector because of the history of high default rates. The financing barrier is especially high for private renewable businesses which have no track record in Ghana and the natural of renewable energy infrastructure is that the financing has to be relatively long term and at reasonable cost.

The banking sector in Ghana is well developed. It is made up of 17 major banks and 115 rural/community banks. The Bank of Ghana has issued a provisional license to another bank and there are strong indications that the Bank of Ghana may issue additional banking licenses in the near future. The current major banks comprise of 10 Commercial Banks, 4 Merchant Banks and 3 Development Banks. Table below presents the classification of the banks and their respective market share as of FY 2003.

Classification of Banks and Market Share as of FY 2003

Commercial Banks% of Total

Assets% of Total Deposits

% of Loans and Advance

Ghana Commercial Bank 20.03 19.6 19.8Barclays Bank of Ghana Ltd 14.88 17.1 18.0Standard Chartered Bank Ltd 15.06 17.3 15.9Ecobank Ghana Ltd 7.05 8.3 7.1SG-SSB Bank Ltd 8.22 7.8 8.4The Trust Bank 2.45 2.4 2.0Stanbic Bank Ghana Ltd 1.64 1.9 1.2International Commercial Bank Ltd 0.86 1.0 0.4Unibank (Gh) Ltd 0.38 0.5 0.3Metropolitan and Allied Bank Ltd** 0.00 0.0 0.0

Merchant Banks

Merchant Bank (Gh) Ltd 3.98 4.9 4.0CAL Bank Ltd 2.31 2.1 2.5

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First Atlantic Merchant Bank Ltd 1.62 1.6 1.8Amalgamated Bank 1.18 1.6 0.5

Development Banks

Agricultural Development Bank 11.77 9.3 9.8National Investment Bank 4.10 2.1 4.2Prudential Bank 2.42 1.9 1.6

**. Note: Metropolitan and Allied Bank was insolvent in 2003. It has since been re-capitalized.

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Annex 2: Major Related Projects Financed by the Bank and/or other Agencies


[Guideline: (Recommended length 1 page)

This annex should summarize recent projects supported by the Bank and other international agencies in the country in the same sector or related sectors. For each project listed, indicate which of the sector issues discussed in A.1 have been or would be addressed. For Bank-financed projects completed in the last five years, OED’s rating should be provided. For ongoing Bank-financed projects, the IP and DO ratings from the latest Project Status Report should be shown.]

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Annex 3: Results Framework and Monitoring


Results Framework

Component 1: Transmission

The baseline will be established in year 1. Results will be measured annually during the implementation of the project. Measures will include (a) reduction in system losses (GWh and %); (b) reduction of prolonged system-wide outages; (c) reduction in maximum system overload at peak demand. Measures will be available by appraisal.

Component 2: Distribution

Intermediate Results: The baselines will be established in Year 1. (a) Improvement in tail-end voltage by 10% over the baseline in Year 3; (b) Reduction in system losses to 15% in Year 4 over the baseline; (c) Increase in MBC by 10% over the baseline in Year 3; (d) Increase in revenue collection by 10% over the baseline in Year 3; (e) Set up at least 1 customer care center, launch spot billing and rapid response system by Year 3; and (f) Improvement in customer satisfaction as confirmed by periodic customer surveys.

Project Development Objective Outcome Indicators Use of Outcome InformationImprove sector operational and commercial efficiency, and sustainability

Reduce Green House Gas (GHG) Emissions

Sector-level outcomes

(a) Build technical, human and financial capacity to reduce technical and non-technical losses.

(b) Undertake preparations for achieving increased private participation in the Ghana electricity market.

To evaluate longer-term prospects of the sector and its economic and fiscal impact.

To draw lessons to improve institutional performance in delivering service.

To evaluate progress towards power sector reform.

Intermediate Results One per Component

Results Indicators for Each Component

Use of Results Monitoring

Component One:CREST – Distribution Efficiency Improvements.

Intermediate Results:(a) Reduction in system losses. System losses are a measure of efficiency in distribution operations and reduction in system losses indicates a direct improvement in financial viability.

Component One:(a) Reduction in system losses to 15% over baseline.

(b) Increase in customer metering, billing and collection by 10% over baseline.

(c1) Improvement in tail-end voltage of 10% over baseline.

(c2) Set up customer care center,

Component One:Measured by ECG, and progress will be documented and updated on quarterly reports produced by the ECG.

Assess the progress in improving distribution efficiency and financial sustainability.

Demonstrate the potential for scaling up such efficiency enhancements.

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(b) Reduction in non-technical commercial losses through increased metering, billing and collection (MBC).

© Improvement in quality of service delivery

(d) Improvement in ECG’s financial performance

spot billing and rapid response vehicle systems.

(c3) Improvement in customer satisfaction as measured by customer surveys.

(d) Increase in revenue collection of 10% over baseline.

Disseminate to improve image of sector and strengthen support for reforms.

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Component 3: Electricity Access and Renewable Energy

Project Objective Outcome Indicators Use of Results Monitoring

Global environment objective: Market development for renewable energies

GHG emission reduction

policy and regulatory frameworks for renewable energy developed and operational

Increased investment in renewable energy

1-2 large-scale grid-connected 50 MW RE projects;

2 small hydro and 8-10 village hydro projects with a total installed capacity of 3.5 MW; 3-5 biomass co-generation plants with a total installed capacity of 5 MW; 1-2 pilot 3-5 MW wind farm;

15,000 solar PV systems with an installed capacity of 450 kW and 500 small wind systems with an installed capacity of 500 kW; 5-10 ESCO projects;

avoided over the lifetime of the equipment avoided CO2 emissions: 320,000 tons per year at the end of the project, 8,000,000 tCO2 over the lifetime of equipment

Quarterly project progress reports,Bank Supervision Missions

Project development objective: Establish a framework and support initial implementation to increase access to electricity services

Implementation of the framework to scale up access to rural energy

50,000 new customers served

Immediate Outcomes for each Sub-component

Results Indicators for each Sub-Component

Use of Results Monitoring

RE policy framework:

RE policy framework established and capacity built

(a) RE legal and policy framework developed (b) financially attractive tariff, standardized PPA, financial incentive policies developed;(c) renewable energy incorporation in rural electrification plan; (d) increased capacity of MOE, EC, PURC: 10-15 people trained in RE policy

Quarterly project progress reports

Feedback from MOE and the private sector on impact of the Project

Bank Supervision Missions

Large-scale grid-connected RE: Barriers to acceleration of large-scale grid-connected RE removed.

(a) bidding package prepared(b) Technical and financial advisory services provided to 2 transactions© the first two pilot projects negotiated, PPA signed, and project got financed



Mini-grid RE and ESCOs: Barriers to acceleration of small-scale (a) 10 private developers for mini-grid RE


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grid-connected to mini-grid RE removed systems(b) 5 ESCO projects(c) business support services provided to 15-20 RE/EE developers(d) advisory services provided to 5 commercial banks


Stand-alone RE systems: Barriers to stand-alone RE systems removed

(a) 10 solar PV private dealers with 20 distribution stations across the country (b) increased solar lending in rural banks(c) 30-50 rural banks trained in solar business(d) solar industry association established and fully operational


Feedback from end-users


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Arrangements for results monitoring

Target Values (accumulative) Data Collection and ReportingProject Outcome

Indicators Baseline YR1 YR2 YR3 YR4 YR5 Frequency

& ReportsData Collection

InstrumentsResponsibility for Data Collection

Number of large-scale grid-based RE projects installed (> 10 MW)

0 0 0 1 1 2 Annual Annual Reports Access Support Team

No. of small and village hydro projects installed (< 10 MW)


No. of biomass projects installed (< 10 MW)


No. of small-scale wind projects installed (< 10 MW)


No. of solar home systems


No. of stand-alone wind systems (500 Wp – 1 kW)


Number of project sponsors

4 6 8 12 16 20 Annual Annual Project Reports

Access Support Team

MW of installed RE capacity (small hydro, biomass, and wind)


Access Support Team

KW of solar PV systems installed


Access Support Team

No. of ESCO projects 5 7 9 11 13 15 Access Support Team

Tons of CO2 reduction 0 50,000 160,000 180,000 320,000 Annual Annual Project Reports

Access Support Team

Intermediate Outcome Indicators

RE policy framework and standardized PPAs developed

First Draft Prepared

Annual Annual Project Reports

Access Support Team

Bidding package for pilot large-scale RE prepared

bidding package prepared


Access Support Team

No. of transactions with advisory services

0 1 2

No. of RE/EE developers with advisory services


Access Support Team

No. of staff in rural banks trained in solar PV


Access Support Team

Solar industry association established and operational

Established and

operational


Access Support Team

No. of new distribution outlets

3 5 10 15 20 Annual Annual Project Reports

Access Support Team

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Annex 4: Detailed Project Description


The global objective of this project is to assist Ghana in mitigating climate change through the reduction of greenhouse gas emissions. The development objective is to provide increased access to affordable, clean, and efficient energy services. The Ghana Energy Development and Access Project (GEDAP) aims to (i) improve the transmission and distribution networks to enhance reliability and efficiency of power to existing customers; (ii) provide increased access to affordable, reliable and adequate electricity; and (iii) improve the efficiency and security of fuels such as LPG, wood, and charcoal.

Component 1: Transmission (US$ 70 million)

Although overall transmission losses are not high in Ghana (3.4%),4 the transmission system is in need for substantial overhaul and expansion as a result of long delayed rehabilitation measures. Delays in rehabilitation have occurred due to tariff levels that have been insufficient to cover the costs until recently. In addition, load has grown at levels of 10% per year in the past few years. In early 2006, most transmission lines have reached their maximum load rendering repair difficult. In January/February 2006 Ghana’s entire transmission system went out three times for between 4 to 6 hours when single circuits were closed for maintenance.5 In addition, if a single line between Takoradi power station and the remainder of the system trip, production of electricity has to be reduced by at least 100 MW, or the equivalent of one unit of 110 MW(e) being shut down. Thus the transmission system can be considered to be currently operating in a crisis mode.

To remedy this situation this project suggests a transmission rehabilitation and expansion component, which will comprehensively address the shortcomings of the overall transmission system and could include augmentation of specific transmission lines which are overloaded. VRA estimates that meaningful system rehabilitation and expansion would cost US$ 70 million. Table 1 gives an overview of historic and projected transmission losses.

This component will be implemented by VRA. The transmissions network is currently also benefiting from a number of investments to be undertaken under a new regional World Bank project in the context of the WAPP, which are mainly in the area of transmission. The WAPP program focuses on transmission line above 220 kV, which are capable of supporting regional electricity trade. The transmission investments under GEDAP are complementary to these investments.

Table 1: Transmission Losses and Forced Outages in GhanaYear System

Losses (%)System losses (GWh)

Number of prolonged system-

wide outages

Maximum system overload at peak

demand (%)19952000

4 Note however that Ghana’s operating guidelines for its grid require a loss level of up to 3% or less.5 Presently there is also an additional problem at Akosombo power station where static exciters that were installed during the recent full overhaul of the power plant have shown abnormal behaviour.

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2005 3.420102015Note: Awaiting data from VRA.

Component 2: DistributionThis component aims at improving the commercial and operational efficiency of the distribution network in order to:

Reduce system losses, both technical and commercial Improve revenue billing and collections Improve cash flows through reengineered business processes Improve customer satisfaction through improved utility interface and better outage

management; and Contribute to reduction of greenhouse gas emissions on account of reduced technical losses

in the distribution network

This component will support investments that aim at improving the distribution business in terms of: (i) networks for reliable supply to be measured by better voltage and reduced outage times as well as energy losses; (ii) commercial character of the business as measured by enhanced billing and increased revenues; and (iii) customer interface measured by time required to respond to complaints, customer services, etc. The project will also facilitate development of capacity in ECG in terms of technical, commercial and personnel systems and capabilities. The main rationale of these investments is to create value in Ghana’s electricity business and support public private partnerships.

Ghana has large investment requirements. In view of this, any investment influx would not demonstrate the desired impact unless the same is directed to achieve specific outcomes in identified areas. In order to address this concern, it is proposed to adopt a cluster approach in implementation of the project. Clusters would be a group of customers that are served by an electrically demarcated distribution and sub transmission network. The CREST program and related investments would be implemented in these clusters to create “islands of excellence”. Hence efforts would be made to develop these clusters in such a way that measurable and tangible improvements would be targeted in these clusters in terms of improved distribution sector performance that would lead to improved revenues, reduced losses and enhanced customer satisfaction in terms of quality of supply, reduced fault redressal times, and reduced billing complaints.

Features of a typical cluster: The electrical network that is part of a single 11 KV feeder would be defined as a cluster. Thus a cluster would be a part of the electrical network served by a 33/11 KV substation. Typically, such a substation would have up to six 11 KV feeders. These 11 KV feeders, the distribution transformers (that would step down the voltage from 11 KV to 415/220 V), the LT network along with the metering and related arrangements at the customer points would together constitute the distribution network. The incoming 33 KV feeder would constitute the sub transmission network. These clusters would be serving around 10,000 consumers or a population of

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50,000 each. The clusters are demarcated thus to facilitate measurement of energy input into the network fed from the 33/11 KV substation into each 11 KV feeder.

Typical investments in a cluster

Investments will be made in goods and services related to implementation of the following initiatives:

(a) Improved reliability of supply for customers through reduction of losses by investment in High Voltage Distribution Systems (HVDS).

(b) Enhancing the coverage and quality of metering for HT and LT customers. Better revenue collection by metering for Max Demand (MD) consumer premises and metering non-MD consumer premises.

(c) Improved quality of supply for customers through reactive power compensation by installation of online capacitors.

(d) Addressing customer concerns through set up of customer care centers.(e) Better cash flow management and the MBC process by introduction of spot billing.(f) Improved attention to customer concerns through launch of rapid response outage

management program.

These investments will strengthen the distribution infrastructure, improve quality of supply and customer satisfaction and facilitate realization of potential in the sector to be a net cash generator instead of being the burden that it is currently on the economy. These investments are targeted to improve quality and continuity of supply, curb pilferage of electricity, and raise the standards of customer service.

Sub-componentiled description

(c) (a) Reconfiguration of the LV distribution system into a HV distribution system

Quality of supply (Voltage): Voltage profiles in general are very poor and consumers get 180 volts or even lower at times instead of the standard 220 V. As a result household consumers cannot run appliances at all or are at considerable risk and industrial customers find it very difficult to carry out industrial and commercial activities efficiently. The CREST initiative will address the voltage problem by upgrading the distribution lines to a High Voltage Distribution System (HVDS) to replace the traditional low voltage distribution system. The current system, typically a 500 KVA transformer, transports the electricity from a distance at 400 volts and serves around 400 customers. By the time the customer is served, it is at low voltage through long, sometimes sagging lines that are prone to breakdown or being tapped into by theft.

With a number of smaller capacity transformers replacing such large transformers under the HVDS, voltage is stepped down from 11 Kilo Volts to 220 V at several points along a supply line instead of at one point. As a result the transformation occurs closer to the consumption point limiting voltage drop and dramatically improving the voltage profile. In HVDS projects already implemented in other countries, actual measurements of voltages at consumer points show vast improvement – from 160 volts in some cases to the desired level of 220 volts.

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The higher voltage lines also deter theft, while also dramatically reducing technical losses by reducing the amount of current output in the system6. Technical loss reduction increases energy efficiency and creates reductions of global carbon emissions that can generate revenues.

Pilferage of electricity: A long LT line facilitates theft as it is relatively simple to pilfer electricity from an LT line. It is practically impossible to pilfer electricity from a distribution system that is configured under the HVDS that uses insulated aerial bunched cables to connect the consumption point from the distribution transformer.

(b) Enhancing the coverage and quality of metering for HT and LT customers

It is said that what is not measured cannot be managed. It is important that all the energy flows are appropriately measured at all the interface and network nodes in the grid. A meter is the cash box for the distribution business. These meters should be of appropriate class of accuracy. They should be calibrated and sealed properly to avoid under billing and bypassing the meter and subsequent pilferage. Special precautions also need to be taken in case of different classes of meters. LV meters are used to measure energy consumed by the connected premises, if the connection to the premises is on the downstream side of the LT distribution transformer, i.e. the customer is connected to the grid at 220 V. In the case of LV electro-mechanical meters, it has to be ensured that the jewels of the discs are not worn out and that they are within the prescribed time limit. In case of LV electronic meters it has to be ensured that the counters do not stall or slow down due to the influence of external magnetic fields. LV meters should be sealed and should be housed in an appropriate enclosure to avoid tampering and pilferage of electricity. On the other hand, HV meters are built with tamper proof features. They have an inbuilt RS 232 port that can be used for communication purposes. It is proposed to undertake remote reading of HV customer premises using this facility and interfacing it with a telephone line. HT meters are positioned on the 11KV side of the transformer and the customer is responsible for the step down transformer.

It is observed that 80% of the customers in Kaloum do not have meters and are given estimated bills. This apart from adversely affecting the revenues of ECG, is also facilitating fraud and corruption. It also leads to customer dissatisfaction with the system. Under this component it is proposed to procure HV and LV meters and install them at various locations, giving priority to high revenue yield© customer premises.

(c) Improved quality of supply for customers through reactive power compensation by installation of online capacitors

If the power factor in the distribution grid is below unity, it leads to generation of reactive power in the system. While this causes technical losses, it also causes customer dissatisfaction as it leads to reduction of available voltage at the customer end. This component seeks to rectify this by procuring capacitors and installing them on the distron grid as required.

6 These losses are calculated as the square of the current multiplied by the resistance. Hence with a 500 KVA transformer, the output current is 350 amperes resulting in losses of 350x350x resistance value of the wires. Alternatively with a 25 KVA transformer the output current is 31 amperes. In this case the losses will be 31x31x resistance value of the wires. Hence this system will lead to a dramatic reduction in technical losses.

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(c) (d) Addressing customer concerns through establishment of customer care centers

Improving Customer service: One of the major complaints with ECG is that consumers get bills that do not reflect the actual consumption and that bills do not get delivered on time if at all they are delivered. The CREST interventions in this regard include:

Introducing efficiency in marketing, bill distribution and bill collection network by outsourcing and introduction of new business processes such as spot billing

Segregation of technical and commercial functions and creating exclusive machinery for customer interface

Establishing networked customer service centers Internet based interface mechanisms for bill verification and payment Broad based payment facilities by involving banks, retail outlets, and introduction of

mechanisms such as cash collection cards, and A multi level grievance mechanism to redress.

(e) Better cash flow management and the MBC process by introduction of spot billing

The introduction of customer friendly billing systems such as spot billing using hand held electronic machines would both enhance billing coverage and collection, and improve business process efficiency. In this system, bills are printed and delivered on the spot at the customers’ premises when their meters are read, and ECG customer database is updated electronically. Customers have the additional advantage of staggered payment due dates thus reducing crowding at cash collection centers near the due date. This vastly improves cash flow for the utility as the billing cycle is reduced to ay significant extent.

(c) (f) Improved attention to customer concerns through launch of rapid response outage management program.

Continuity of Supply: One of the major concerns of consumers in Ghana is unreliable supply, caused by a variety of reasons such as the huge shortfall in generation, transmission constraints, and distribution inefficiencies and discontinuities. The HVDS program adopted under Sub-component (a) described above. To supplement this effort at the customer interface level, ECG will press into service a system of Rapid Response Units equipped with uniformed workmen and necessary toolkits/spares, stationed at major areas of Accra on a pilot basis. These units would be available round the clock every day to respond to customer complaints of power failure. The rationale for this initiative is two fold: (i) to reduce outage time and to quickly respond to customer complaints and (ii) to prepare the customer interface system for a GIS based trouble call management system that could be taken up later.

Management Support Services Provider to the ECGTo bring about the necessary enhancement in the management and operations it, the Government has decided that an “incentive-based” Management Support Services Agreement should be provided for ECG for a period of three (3) years with the possibility of extending by two (2) more years.

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The goal of the MSSA is to transform the new ECG into a modern and efficient electricity distribution utility providing high quality of services to its customers. The primary purpose of the Management Support Services Agreement is to take control of ECG and NED, manage and make them work better in cooperation with the Board of Directors of ECG and the Board of Director of VRA respectively. It is intended that the support services to be provided by the MSP7 will cover all aspects of the operations and corporate governance of new ECG and NED.

For the purposes of this project ECG’s regional operations as well as NED would be reconstituted into four (4) Business Units as indicated below:

Business Unit Composition1. Capital Accra East and Accra West2. SEED Tema, Eastern and Volta3. SWED Western ,Central, Ashanti East and Ashanti West4. NED NED

The MSP shall take full control of each of the Business Units. The MSP shall use its experience and best industry practices in undertaking the following activities in the Business Units.

Network Operations and Maintenance Faults Management Customer Billing and Revenue Collection and Protection Connection of Prospective Customers Collection of Outstanding Receivables on Customers Accounts Reduction of Energy Theft and other Forms of Commercial Losses Reduction of Technical Losses

The MSP shall be required to infuse modern business practices in information systems, motivational tools as may be deemed suitable in carrying out these activities.

The specific objectives of this assignment, therefore, are:

(a) To reduce total systems losses to 15% by the end of year four of the MSSA; (b) To increase payment levels to 98% by the end of year four of the MSSA;(c) To improve quality of service, quality of supply and customer satisfaction to

internationally acceptable le48odernizein three years(d) To modernise the governance of the company by applying up-to-date management

practices and information systems;(e) To train management and staff of ECG so that they can continue to operate the company

at the high levels of performance achieved at the end of the Management Support Services Agreement.

(f) To improve staff productivity, motivation, remuneration and general conditions of service;

(g) To demonstrate that the local staff is empowered to manage the company by reducing the MSP management staff numbers progressively in years four and five.

7 MSP: Management Services Provider

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Component 3: Electricity Access and Renewable Energy. This component is proposed to be implemented by an Access Support Team, initially under the oversight of the Ministry of Energy, but later to be possibly developed into a proper Rural Electrification Agency, which would administer a Rural Electrification Fund. The component will assist GoG in developing and supporting initial implementation of a commercially-oriented and sustainable framework for increasing access to electricity. It’complements the Government's efforts to achieve its electrification goals through intensification of unconnected customers in existing electrified areas, grid extension to new areas, and off-grid renewable energy options. The Access component has four sub-components: 1) rural electrification framework; 2) intensification; 3) grid extension; and 4) renewable energy.

1) Rural Electrification Framework. This component will develop (i) appropriate institutional arrangement, policies, planning, and strategies for access intensification, access expansion, and renewable energy development; (ii) regulatory guidelines and rules for access and renewable energy development: assess whether the tariff levels would ensure commercial viability of rural electrification services, and make recommendations on improved regulatory framework for rural electrification; and (iii) the framework for establishing the Rural Electrification Fund as a longer-term financing mechanism for future access and re–wable energy development -- defining funding sources (donors, levy on electricity bills, and government budget allocation), institutional arrangement to administrate the fund, and service providers eligible to receive subsidy, principles to select service providers and determine subsidy levels, etc.

2) Intensification: One of the cost-effective approaches for increasing electrification is intensification of the distribution networks by incorporating new connections to the existing system. Preparatory studies will coordinate with the AFD study on current status of the density of connection in existing grids, and identify and describe existing barriers to intensification, including financial, technical, institutional, and regulatory/tariff barriers. The sub-component will develop strategies and plans to address these barriers, including policy, regulatory framework, institutional arrangement, investment needs, financing mechanisms, and low-cost solutions. For example, the solutions could be reduction of the connection cost, better matching rural demand patterns, and modification of the regulatory framework accordingly. This sub-component will include the following actions: (i) propose recommendations on changes/improvements to the legal and regulatory framework in order to allow and to promote new connection/tariff alternatives; (ii) propose an efficient and transparent system of subsidy schemes for intensification (coordinated with any other proposed subsidy/incentive mechanisms); and (iii) implement investment projects to test the validity of assumptions and to subsequently evaluate alternatives.

3) Grid Extension: Extension of service from the existing interconnected electricity grid network will continue to be the main means of expanding access to electricity in Ghana. Such extensions will be undertaken on the basis of ‘commercial practices’. This means that once the capital subsidy provided by the rural electrification financing mechanism, to be developed by the Access Support Team, is taken into account, the service providers (e.g. ECG, NED, private sector, etc.) are expected to operate on a commercial basis, with tariff revenue covering the cost of service including bulk electricity supply, operation, maintenance, etc. IDA funds will be used to finance the subsidy portion of the investment. The balance of financing will be debt and equity from project sponsors.

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This investment component will provide financing for capital subsidies to qualified service providers including ECG, NED, and others, and to be managed by the Access Support Team. A “smart subsidy” design would be employed, to ensure financial viability of the investments for the service providers, while also ensuring affordability of services to potential end users. Such a subsidy scheme should provide strong business incentives for service providers to use a least cost rollout strategy and reduce unit costs of new connections by linking payment of subsidies to verifiable outputs.

The GEDAP project will adopt a strategy of scale up access starting closer to the existing grid and gradually growing outwards, aiming for the lowest cost and highest return connections first. The project will encouraged maximum number of connections by electrifying the areas with low connection costs, creating a larger future revenue base when reaching further out in the more costly and remote areas.

This component would support the implementation of about xx grid extension projects, with initial connections of about xx new customers. This will support about xx km of medium and low voltage distribution lines and associated equipment.

4) Renewable Energy: Renewable energy and energy efficiency sub-components include four parts: 1) renewable energy policy framework and RE/EE capacity building; 2) large-scale grid-connected renewable energy; 3) mini-grid renewable energy and ESCOs; and 4) stand-alone renewable energy systems.

The GEF project intends to assist Ghana in establishing an enabling environment and facilitating market development to attract private investment in large-scale commercialization of renewable energy and energy efficiency improvement. This project has four components: 1) renewable energy policy framework and RE/EE capacity building; 2) large-scale grid-connected renewable energy; 3) mini-grid renewable energy and ESCOs; and 4) stand-alone renewable energy systems.

Part No. 1: Renewable Energy Policy Framework and Capacity Building This component is intended to remove the policy, capacity, and information barriers to accelerate grid-connected renewable energy such as small hydro, wind, and biomass, off-grid renewable energy such as mini-grid hydro, biomass, and solar home systems. This component will assist the government in 1) developing a comprehensive renewable energy legal, policy and regulatory framework; 2) coordinating grid vs. off-grid options for rural electrification; 3) building capacities and increasing awareness for decision makers, utilities, and consumers to promote renewable energy, energy efficiency and environmental impact assessment; and 4) conducting resource assessment and providing information needed for the private sector to develop RE/EE projects.

To achieve the 10% renewable energy target by 2020, the government needs to put in place a comprehensive renewable energy legal, policy and regulatory framework that provides incentives for greater private participation and public investment in renewable energy. This component will assist the government in developing mandated market policies and legislations that require utilities to mandatory purchase renewable energy, set up a tariff structure for renewable energy projects, and specify how the incremental costs would be paid for. GEF support will also help develop standardized power purchase agreement for small-scale renewable energy projects (< 10 MW) with

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simplified terms that are not subject to negotiation, financial incentive policies such as tax break and duty exemption for renewable energy, and subsidy schemes to pay for the incremental costs of RE compared to conventional energy sources, if any. JICA has just completed a study on rural electrification from renewable energy resources in Northern Ghana, which recommended to increase the levy for the Energy Fund, which could be used to provide capital subsidy or incremental cost subsidy to renewable energy projects.

For renewable energy to play a major role in rural electrification, this component will assist the government in articulating the rural electrification policy to clearly define grid extension plans and off-grid areas, which will allow off-grid project developers to plan ahead. The same JICA study also strongly recommended that government should clearly define a role for off-grid renewable energy and explicitly encourage off-grid renewable energy in lieu of grid extension in areas where they are the most economically viable option. This should be articulated in rural development policies. The GEDAP plans to allocate $10 million to grid extension under the access component.

Thirdly, this component will build capacity for government officials from the Ministry of Energy, Energy Commission, and PURC on renewable energy and rural electrification policy frameworks through training and study tours to learn the international best practices as well as advisory services provided by international consultants. It will also assist the government in developing environmental and social impact assessment for small and mini-hydro projects, as well as conduct promotion campaigns to raise awareness of RE/EE technologies with utilities, communities, and consumers.

Finally, this component will conduct resource assessment and provide useful information on RE technologies, RE project development, opportunities for EE, etc., and make them easily accessible for private developers to conduct RE/EE projects. This is designed to support different segments of the renewable business because of their different needs. There are evidence (based on disparate and incomplete studies) that Ghana has an abundance of renewable energy resources in the form of biomass, solar, wind and hydro. This component will conduct comprehensive renewable resource assessment to provide preliminary analysis of the viable renewable projects and sites that could be available to private development. This assessment will be publicized via renewable workshops, seminars, and website to generate private interests.

Part No. 2: Large-scale Grid-Connected Renewable Energy This component is intended to remove the policy, capacity, and financing barriers to accelerate large-scale grid-connected renewable energy such as small hydro, wind, and biomass above 10 MW. This component will 1) assist the government in developing a bidding package for a pipeline of renewable energy projects, which includes the feasibility studies, well-designed PPAs, tariff levels, etc. for private sector investment in these projects; and 2) hire international technical and financial advisors who can provide transaction advisory services to the government to negotiate the first two pilot projects. As a result, 1-2 pilot large-scale grid-connected 50 MW renewable energy projects would be developed.

At the end of 2005, the Ministry of Energy requested expression of interests from the private sector who have the technical and financial capabilities and experience to develop, construct and operate grid connected renewable energy projects, including small hydro, biomass, and wind. More than 20

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proposals have been submitted from the private sector, which are under review. Some of these local private companies have conducted pre-feasibility studies and approached potential financiers with their own resources, for example, to build a 50 MW wind farm near Accra, a 50 MW municipal solid waste combustion plant, and a 50 MW small hydro on the Pra Rive. The single most important barrier to these projects is that the developers can not negotiate a long-term PPA with ECG at the tariff level that would make these RE projects financially viable.

GEF Technical Assistance. A sampling of the submitted proposals indicates the local companies are poised to enter the renewable business in a significant scale. The proposed GEF technical assistance will assist the Government in developing a bidding package and providing transaction advisors to support implementation of the first 1-2 pilot renewable projects. Technical support is needed for drafting a power purchase agreement with a level of sophistication appropriate for independent power projects of this size. The objective is to invite competitive proposals based on defined power purchase arrangements and to provide the Government with the legal and financial advisors to bring the first two pilot renewable projects to financial close. Given the capital requirements and technical complexities for these larger projects, it is expected that the local companies will have international partners with the necessary capacity to formulate competitive proposal, fine tune the terms of the power purchase agreement during lenders and financial support or political risk coverage from IFIs. Technical assistance to the private sector for the large renewable is not expected to be necessary.

IDA Partial Risk Guarantee Support and IFC investment. The private sector and commercial banks will contribute to the investment of the 2 pilot large-scale grid-connected renewable energy projects with 50 MW each. IDA may consider supporting the private financing for these large renewables via IDA partial risk guarantees. The partial risk guarantee would cover government performance risks on the terms of the power purchase agreement, i.e. the tariff rates and the payment obligations, regulatory risks to cover certain renewable policy risks and political risks such as currency convertibility, political force majeure. A comprehensive IDA partial risk guarantee will mitigate the perceived for international lenders to extending long term credit to a project in Ghana. Based on experience in other countries, the guarantee would significantly improve the availability and terms of the financing and facilitate the implementation of the pilots. The IDA guarantee may be offered at the tendering stage to generate additional interest from bidders and increase competition. IFC also expressed interests in financing renewable energy projects at such a scale.

Part No. 3: Mini-Grid Renewable Energy and ESCOs This component is intended to remove the capacity and financing barriers to accelerate small-scale grid-connected or mini-grid renewable energy such as small hydro, wind, and biomass below 10 MW, as well as ESCOs. This component will 1) provide business support to both local renewable energy developers, ESCOs, and commercial banks; and 2) IDA re-financing through local banks to provide long-term financing to RE developers, and partial risk guarantee to ESCOs. As a result, 2 small hydro projects with a total installed capacity of 3 MW, 10 village hydro projects with a total installed capacity of 500 kW, 5 biomass co-generation plants with a total installed capacity of 5 MW, 2 pilot 3-5 MW wind farm, and 5 ESCO projects would be developed.

GEF Technical Assistance The GEF technical assistance (TA) for small and medium-size renewable developers and ESCOs would be an “add-on” to the IFC/IDA Micro, Small and Medium

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Enterprise Project (MSME) in Ghana (see Box below). Since the MSME project has a technical assistance component to provide business support to small and medium-scale businesses, to be administered by IFC. GEF TA activities will take advantage of the same institutional implementation arrangement of the TA component under the MSME project, and add a window specifically to assist renewable developers and ESCOs. IFC has agreed with this arrangement. GEF support is requested the following areas:

(i) Business support and advisory services to SME RE/EE developers: GEF support would specifically assist renewable energy developers, community-based organizations, and ESCOs conducting energy conservation projects in preparing feasibility studies, business plans, environmental and social impact assessment of small and mini-hydro projects, and bank loan documentations. This component will provide consulting services and support on a cost sharing basis to renewable energy developers and ESCOs.

(ii) Technical assistance to participating banks: GEF would also fund technical assistance to participating banks to finance renewable projects. The TA would introduce banks to renewable technology, energy conservation, and infrastructure finance. The characteristics of RE/EE lending are quite distinct from those of most commercial banks’ regular credit analysis and risk management approaches, which often rely exclusively on collateral. The technical training would introduce project finance concept, allocation of project risks, the credit analysis and legal review of power purchase agreement, renewable energy technologies, energy conservation, and cash flow analysis to support lending.

IDA and IFC Financing Support. One key barrier to renewable energy developers is the lack of long term loans to match the long payback period of such projects, while most ESCOs lack collateral required for most commercial banks even though most energy conservation projects have a short payback period. The financing barrier will not be addressed by GEF but will be addressed via IDA and IFC operations. Small and medium-sized renewable projects and energy conservation projects would be eligible for the IDA/IFC financing facility from the MSME participating banks. Given that most renewable energy projects may require a loan maturity even longer than 7 years, the GEDAP, scheduled for Board submission in June/July 2006, will provide an additional $2 million of IDA resources to co-finance and extend the renewable loans to 10 years or more. Thus, IDA funding from the GEDAP project and IFC/IDA funding from the MSME project can provide long-term financing to small-scale RE projects, and co-financing support for ESCOs.

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IFC/IDA Micro, Small, and Medium Enterprises Project. The IDA/IFC MSME Project for Ghana is to provide joint support to improve financing conditions for small and medium enterprises through a joint partial credit guarantee and a line of credit facility to provide credit risk sharing mechanism and liquidity support to the participating banks, so that these local commercial banks are willing to lend to new MSME market and extend the loan maturity. The US $ 45 million IDA MSME project has already been approved by the IDA Board in December 2005, and an additional US$ 40 million of IFC financing is scheduled for appraisal and IFC Board approval in this fiscal year. The MSME project consists of two main components: 1) technical assistance component that would provide business support to SME clients pre- and post- financial closure, as well as build capacity of participating commercial banks in internal systems, procedures, and a cadre of specialized staff for SME businesses; and 2) a line of credit facility that would extend the loan matu–ity to Ghanaian SMEs to 5 - 7 years range and share risks.

Part No. 4: Stand Alone Renewable Energy Systems This component is intended to remove the technical, awareness, market, and financing barriers to accelerate stand-alone renewable energy systems such as solar PV systems and off-grid wind systems (500 W – 2 kW). This component will 1) build capacity of the Apex Bank and participating rural banks; 2) support a solar industry association that will conduct marketing and awareness campaign and provide training; 3) provide incentives to dealers to build a wide distribution network across the country; and 4) provide IDA re-financing to rural banks who can then provide long-term credit to consumers to purchase these systems. As a result, 15,000 solar PV systems with an installed capacity of 450 kW and 500 small-scale wind systems with an installed capacity of 500 kW would be installed.

Because of the high upfront cost of most RE systems, only a small percentage of rural households can purchase renewable energy systems on a cash basis. To address consumer affordability issues, four approaches have been attempted: 1) offering rural consumers smaller solar home systems such as solar lantern or 10-20 Wp systems on a cash sale basis; 2) providing rural households with consumer credits; 3) leasing; and 4) charging a monthly fee by ESCOs through the fee for service arrangements. The past solar PV programs in Ghana have provided valuable lessons learned for this project design (please see the M&E Section for detailed lessons learned). Based on past experience, this project plans to adopt the dealer model, either sales of small-scale solar PV systems on a cash basis or sales of SHS on a credit basis provided by rural banks, to overcome the high upfront cost barrier of solar PV systems. This is similar to the model used in the Sri Lanka renewable energy projects.

Credit sales make RE systems affordable to a much larger portion of the rural customers. Micro-finance institutions (MFI), the traditional lenders in rural areas, are the logical organizations to provide consumer credit. This component will work with rural banks in Ghana, who have limited prior experience with RE systems. As a result, it is expected that local banks and MFIs will build confidence and increase retail and commercial lending to the RE sector.

GEF Technical Assistance: The support from GEF will be for technical assistance in the following areas:

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(i) Capacity building to Apex Bank and participating rural banks. The Apex Bank is a quasi Central Bank for the network of 115 rural and community banks, which was set up by the IDA “Rural Financial Services Project” in Ghana. Each of these rural banks is independent, and some have their own branches in remote rural areas. The rural banks specialize in micro credit evaluation, delivery and recovery. The Apex Bank and rural banks are not familiar with solar PV systems and loans, and GEF grant will be used to provide technical assistance and training to Apex Bank and participating rural banks on solar and wind products, benefits, costs, and financing arrangements.

(ii) Solar Industry Association for Marketing and Awareness Campaign and Training. The major solar dealers are currently in the process to establish a solar industry association, which will include solar companies that meet certain criteria, rural banks, etc. GEF funding will provide support to this association, which will conduct the marketing and awareness campaign. The solar industry association is also responsible for verifying that solar home systems and off-grid wind systems design meet the IDA-approved specifications, and the installers are certified, which is required for IDA re-financing.

The JICA study found that there is a serious lack of understanding of PV-based electrification in rural communities. The JICA study recommended an active marketing campaign to inform consumers about PV products, its benefits, PV systems with TV sets, radios, and refrigerators. Such campaign can demonstrate solar PV systems in public facilities such as schools and clinics to residents/students, and display posters of the benefits of PV-based electrification. It should also educate consumers on how to distinguish quality products, battery use, and energy conservation, as well as provide a list of licensed dealers and rural banks. The solar PV dealers should offer consumers a buy-back program that when grid reaches the community, the consumers have an option to sell the solar home systems back to dealers.

In addition, Deng Limited is offering solar PV training courses on the basics of solar home systems, proper installation, and maintenance for PV systems. GEF funding will be used to expand the training program which will be all participants.

(iii) Dealer Incentive Program. Right now, all the major solar PV dealers are based in Accra, with an exception of Deng Limited who has up to five agents across the country. To scale up the sales of solar PV systems and provide after-sale maintenance services, it is critical to establish a wide distribution network across the country. This component will provide incentive grants to dealers to set up the distribution agents, local entrepreneurs to set up a shop or solar battery charge station, or any existing distribution channel such as retail stores to add solar PV as a new product line. The objective is to encourage all private players to set up a wide distribution network for solar PV sales and maintenance across the country. To promote the expansion of this sales force, GEF will reimburse eligible agents the set-up costs on a cost-sharing basis. The grants are output-based aid, and released on a reimbursement basis only after a distribution outlet is set up, or a target of installation of solar home systems in a given area is met. There will be a cap for any particular dealer, and the incentive program is open to all dealers including new market entrants, as long as they meet the criteria. The detailed design such as criteria for selection of eligible dealers for this incentive program and the share of the cost reimbursement would be finalized during appraisal.

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IDA Credit Support. Most rural customers in Ghana have a low ability to pay. Based on the JICA study, an average rural household currently pays about $5-6 per month for kerosene, dry cell battery, and candles in un-electrified areas in Northern Ghana. Some rural consumers can afford to purchase low-cost small-scale solar PV systems such as solar lanterns and SHS at 10-20 Wp on a cash basis, while most consumers can only purchase PV systems through credit. Like other segments of the Ghanaian financial markets, consumer credit is limited and is available at a high cost. Most rural banks offer micro-financing loans with an interest rate of 30% per year and a repayment period less than 18-month. This term would not match the low ability to pay of rural consumers to purchase solar PV systems.

The GEDAP Project will provide $3 million IDA credit to provide rural banks with long-term liquidity and co-finance the consumer loans for stand alone renewable systems. The IDA re-financing will be designed to extend the maturity of consumer loan repaymen– period from currently 12 - 18 months to about 3-5 years, which would make the purchase affordable to most rural consumers.

Component 4: Household Fuels. This component would also support promotion of efficiency and security of fuels such as LPG, wood, and charcoal. It has six sub-components:

1) Setting up a National Woodfuel Steering Committee composed of representatives from the relevant government ministries, Wood fuels Transporters Associations, National Consumers Associations, National House of Chiefs, Office of the Senior Minister, NGOs, donors, and the private sector. This committee will present discussion papers for national forums on woodfuels development in the country; review and finalize the existing draft woodfuels policy; elaborate a national woodfuels document on programmes and project to be implemented; supervise the establishment of a National Woodfuel Development Authority (WDA)and assist him to initiate the implementation of woodfuels programme.

The WDA will be decentralized at the 10 district levels. Exchange visits will be also organized to see best practices in the woodfuels sub-sector in West Africa. (US $100,000 + US $200,000 for setting up and equipment of 11 WDAs)

2) Setting up a national data base management system (US $150,000 including a computerized system)What is needed is a more comprehensive and better standardized selected sample representative of ecological zones; low, middle, and high income households; and consider both demand and supply sides. The demand side will deal with energy consumption of households, commercial sector (chop bars, fish smoking, street food preparation, etc.) and small scale industries. The supply side will look at production and wood conversion. The output will be to have a reliable data base on woodfules consumption and supply nationwide; a model on projection of woodfuels for projected future demand in Ghana.

3) Community based sustainable natural forest management, establishment woodlots and rehabilitation of degraded lands. This requires aerial photography, inventory of natural forests of the savanna zone and transitional zones; development of a forestry based geographical information system; development of woodfuels market; integrated savanna woodland management; restoration

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of the degraded savanna landscape; institutional capacity building at the central, district, and community levels. Forestry related income generating activities will be also promoted for poverty alleviation (US $4,500,000)

4) Promotion of LPG as an alternative to woodfuels use (US $ 400,000)Scale up the LPG access programme to reach 10,000 households in the Savanna zone. This requires improvement of Bulk Haulage of LPG from refinery to remote destinations, and an additional retail distribution outlets in Tamale, Navrongo, and yendi.In collaboration with UNDP assist the government in the review of the “Safety Standards, Regulations for LPG and Code of Practice document”. A policy on LPG will be gazetted; and extensive awareness campaign/publicity on the promotion of LPG as an alternative cooking fuels will be conducted in Accra and main urban centers.

5) Support the expansion of the Gyapa improved high efficient cookstoves in the northern part of the country (Tamale, Bolga, and Wa). (US $ 400,000) The project will consist of training local artisans in the fabrication of stoves; training of medium scale ceramic enterprises; and identify retailers. A heavy emphasis will be placed on marketing so that potential clients are aware of the products and of where to buy them; and profits from the sale of technologies are significant enough to sustain their production over the long term, beyond the duration of the financial assistance.

6) Feasibility Study on bio-fuels production in Ghana (US $100,000)

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Annex 5: Project Costs


Project Cost By Component and/or Activity LocalUS $million

ForeignUS $million

TotalUS $million

Total Baseline CostPhysical ContingenciesPrice Contingencies

Total Project Costs1

Interest during constructionFront-end Fee

Total Financing Required

1Identifiable taxes and duties are US$m ___, and the total project cost, net of taxes, is US$m___. Therefore, the share of project cost net of taxes is ___%.

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Annex 6: Implementation Arrangements


Implementation Arrangement of the IDA/GEF GEDAP Project

IDA GEF

VRA ECG Access Support Team

IDA Access + GEF TA Credit funds to RE projects

Access GEF Renewable Household Apex BankComponent Energy TA Fuel Component

GEF TA IDA re-financing

Solar industry Capacity building Business Support Participating ParticipatingAssociation to Rural Banks Group under the Banks Rural Banks

IFC/IDA SME project

Solar PV Business Support Financing/ormarketing to developers and Re-financingcampaign and banks Supportdealer incentiveprogram

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Annex 7: Financial Management and Disbursement Arrangements


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Annex 8: Procurement Arrangements

GHANA: Ghana: Energy Development and Access Project(Recommended length 2-4 pages)

(c) [The following standard text should be used. Insert additional text as needed per the ructions in brackets]

A. General

Procurement for the proposed project would be carried out in accord“nce with the World Bank’s "Guidelines: Procurement Under”IBRD Loans and IDA Cr“dits" dated May 2004; and "Guidelines: Selection and Employment of Consulta”ts by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loan/Credit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

Procurement of Works: Works procured under this project would include: [Describe the types of works]. The procurement will be done using the Bank’s Standard Bidding Documents (SBD) for all ICB and National SBD agreed with or satisfactory to the Bank. [Indicate any special requirements specific to the project.] [If the project involves procurement carried out by communities, indicate where details can be found in the Project Implementation Manual or similar documents.]

Procurement of Goods: Goods procured under this project would include :[ Describe the types of goods]. The procurement will be done using the Bank’s SBD for all ICB and National SBD agreed with or satisfactory to the Bank. [Indicate any special requirements specific to the project.]

Procurement of non-consulting services: [ Provide a general description of non-consulting services to be procured under the project and information on the bidding documents to be used for the procurement.]

Selection of Consultants : [Provide a general description of the consulting services from firms and individuals required for the project.] Short lists of consultants for services estimated to cost less than $_______equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. [If applicable, provide any information regarding engaging universities, government research institutions, public training institutions, NGOs, or any special organizations.]

Operating Costs: [Describe the operating costs which would be financed by the project and procured using the implementing agency’s administrative procedures which were reviewed and found acceptable to the Bank.]

Others: [Describe if any special arrangements for scholarships, grants etc. ]

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The procurement procedures and SBDs to be used for each procurement method, as well as model contracts for works and goods procured, are presented in the [name the Project Implementation Manual or tquivalent document.].

(c) B. Assessment of the agency’s capacity to implement procurement

Procurement activities will be carried out by [name of the Implementing Agency]. The agency is staffed by [describe the key staff positions], and the procurement function is staffed by [describe the staff who will handle procurement].

An assessment of the capacity of the Implementing Agency to implement procurement actions for the project has been carried out by [name of the procurement staff] on [date]. The assessment reviewed the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement Officer and the Ministry’s relevant central unit for administration and finance.

The key issues and risks concerning procurement for implementation of the project have been identified and include [describe the risks/issues]. The corrective measures which have been agreed are [Describe the corrective measures].

The overall project risk for procurement is [give the risk rating].

C. Procurement Plan

The Borrower, at appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team on [date] and is available at [provide the office name and location]. It will also be available in the project’s database and in the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

D. Frequency of Procurement Supervision

In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended [frequency] supervision missions to visit the field to carry out post review of procurement actions.

E. Details of the Procurement Arrangements Involving International Competition

1. Goods, Works, ann Consulting Services

(c) (a) List of contract packages to be procured following ICB and direct contracting:

1 2 3 4 5 6 7 8 9

Ref. Contract Estimated Procurement P-Q Domestic Review Expected Comments

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No. (Description) Cost Method Preference(yes/no)

by Bank(Prior / Post)

Bid-Opening

Date

(b) ICB contracts estimated to cost above [fill in threshold amount] per contract and all direct contracting will be subject to prior review by the Bank. Consulting Services

(c) (a) List of consulting assignments with short-list of international firms.

1 2 3 4 5 6 7

Ref. No. Description of Assignment

EstimatedCost

SelectionMethod

Reviewby Bank(Prior / Post)

ExpectedProposals

SubmissionDate

Comments

(b) Consultancy services estimated to cost above [fill in threshold amount] per contract and single source selection of consultants (firms) for assignments estimated to cost above [fill in threshold amount] will be subject to ©or review by the Bank.

(c) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than [fill in threshold amount] equivalent per contract, may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

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Annex 9: Economic and Financial Analysis


The EIRR of the project is robust at XX%, as compared with the assumed economic opportunity cost of capital of 12%. The table below presents a breakdown of the results. [to be completed].

The primary quantifiable economic benefits of the project by components include: Transmission:

o Increased transmission revenue;o Increased power availability due to reduced outages;o Reduced transmission losses;o Reduced CO2 emissions through reduced transmission losses;

Distributiono Increased income through reduced commercial and technical losses;o Reduced CO2 emissions through reduced losses

Access/Renewableso Guaranteed excess sales during years of drought;o Reduced CO2 emissions through renewables.

The primary quantifiable economic costs are the total investment costs, the O&M costs and various other costs. The investment costs include the investments in transmission and distribution equipment.

Economic Analysis for GEDAP(in US$, NPV at 12%)

Transmission Distribution Access and Renewables TotalCostsBenefitsNet BenefitsEIRR X% X% X% X%Note: A discount rate of 12% is assumed to calculate the present values for the economic analysis. Input data needs to be confirmed at appraisal.

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Annex 10: Safeguard Policy Issues


To be completed when equivalence/acceptability report is ready.

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Annex 11: Project Preparation and Supervision


Planned ActualPCN review June 21, 2005Initial PID to PICInitial ISDS to PICAppraisalNegotiationsBoard/RVP approvalPlanned date of effectivenessPlanned date of mid-term reviewPlanned closing date

Key institutions responsible for preparation of the project:

Bank staff and consultants who worked on the project included:

Name Title UnitS. Vijay Iyer Team Leader AFTEGPrasad Tallapragada Senior Energy Specialist AFTEGFanny Missfeldt-Ringius Energy Economist AFTEGXiaodong Wang Energy Specialist AFTEGAwa Seck Economist AFTEGKoffi Boateng-Agyen Senior Operation Officer AFTPSElizabeth Wang Senior Financial Officer IEFPatience Mensah Senior Agriculture Economist AFTS4Thomas Walton Environmental Specialist AFTSDLily Wong Chun Sen Program Assistant AFTEGSalli Cudjoe Program Assistant AFC10

Bank funds expended to date on project preparation:1. Bank resources:2. Trust funds:3. Total:

Estimated Approval and Supervision costs:1. Remaining costs to approval:2. Estimated annual supervision cost:

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Annex 12: Documents in the Project File


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Annex 13: Statement of Loans and Credits


Original Amount in US$ Millions

Difference between expected and actual

disbursements

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d

P065126 2005 GN-Health Sec Supt SIL (FY05) 0.00 25.00 0.00 0.00 0.00 23.68 0.00 0.00

P065127 2005 GN-Natl Rural Infrastructure (FY05) 0.00 30.30 0.00 0.00 0.00 29.53 5.52 0.00

P042055 2003 GN-GEF Decentr Rural Elec (FY03) 0.00 0.00 0.00 2.00 0.00 2.09 1.77 0.00

P073378 2003 GN-Multi-Secal AIDS SIL (FY03) 0.00 0.00 0.00 0.00 0.00 11.06 1.60 0.00

P074288 2003 GN-Decentr Rural Electrification (FY03) 0.00 5.00 0.00 0.00 0.00 4.18 2.47 0.00

P050046 2002 GN-Education for All APL (FY02) 0.00 70.00 0.00 0.00 0.00 41.94 32.23 -4.07

P050732 1999 GN-Village Com Sup Prgm (APL)- Phase 1 0.00 22.00 0.00 0.00 0.00 0.74 0.95 -2.15

P001075 1997 GN-Water Sply 3 (FY97) 0.00 25.00 0.00 0.00 0.00 2.57 -26.51 1.36

Total: 0.00 177.30 0.00 2.00 0.00 115.79 18.03 - 4.86

GHANASTATEMENT OF IFC’s

Held and Disbursed PortfolioIn Millions of US Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

1993 SGHI 1.81 0.00 0.00 0.00 1.81 0.00 0.00 0.00

Total portfilio: 1.81 0.00 0.00 0.00 1.81 0.00 0.00 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

Total pending committment: 0.00 0.00 0.00 0.00

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Annex 14: Country at a Glance


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Annex 15: Incremental Cost Analysis


Broad Development GoalsThe global objective of this project is to assist Ghana in mitigating climate change through the reduction of greenhouse gas emissions. The development objective is to provide increased access to affordable, clean, and efficient energy services. The GEF project intends to assist Ghana in establishing an enabling environment and facilitating market development to attract private investment in large-scale commercialization of renewable energy and energy efficiency improvement.

The GEDAP aims to (i) improve the transmission and distribution networks to enhance reliability and efficiency of power to existing customers; (ii) provide increased access to affordable, reliable and adequate electricity; and (iii) improve the efficiency and security of fuels such as LPG, wood, and charcoal.

BaselineIn Ghana, rural electrification rate reached 54%, higher than any other Sub-Saharan African countries. To date, however, grid extension has been the main approach to increase energy access. Currently, the Ministry of Energy is responsible for executing the rural electrification program – SHEP 4 program, which exclusively focuses on grid extension. The government has an ambitious plan to achieve universal access by 2020. Ghana’s rural electrification is at a cross-road. The cost of rural electrification will be increasing, with outreach to more remote areas.

Under the baseline, meeting the broad development goals will require high-cost grid extension and/or diesel genset mini-grids in concentrated but remote areas, and kerosene and dry cell batteries in dispersed rural areas.

Increasing access rate from 54% to universal access requires alternative models where off-grid options become more attractive. Renewable energy (RE) can play a major role in providing electricity services in rural areas, and Ghana is endowed with rich renewable energy resources. In addition, many cost-effective energy conservation opportunities exist. To date, however, utilization of RE/EE is quite limited, except large hydro, due to a number of barriers. Without these barriers being removed through this project, renewable energy development such as small hydro, biomass, wind, and solar PV and energy efficiency will continue to be the minimum, and the access to electricity services in remote rural areas will continue to be very low.

Without GEF contribution to the IDA loan, it is likely that the rural electrification and renewable energy efforts will not be well integrated, which will mean that renewable energy will play only a marginal role in the larger rural energy access effort.

Global Environment Objectives

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The global environmental objective of this activity is the reduction of GHG emissions by removing the major barriers to the development of renewable energy in Ghana. This project has been designed to be consistent with GEF Operational Program #6 on “Promoting the Adoption of Renewable Energy by Removing Barriers and Reducing Implementation Costs”. Proposed GEF funding supports OP6 strategic priorities – increased access to local sources of financing for renewable energy and energy efficiency, and promoting power sector policy frameworks supportive of renewable energy.

The project will directly help reduce CO2 emissions through the implementation of larges-scale grid-connected, mini-grid, and stand-alone renewable energy projects, such as small hydro, biomass, wind, and solar PV, as well as energy efficiency projects. For the planned two large-scale grid-connected renewable energy projects with 50 MW each, such as small hydro and wind, the marginal baseline power would be provided through gas-based combined cycle power plants, which have an emission factor of 670 g CO2 per kWh8. An assumed operating time of 5000 hours per year of the hydro scheme and 2000 hours per year of the wind farm would result in annual savings of around 234,500 tons CO2 emissions per year. An assumed lifetime of 25 years results in around 5,862,500 tons CO2 emissions.

For the planned mini-grid renewable energy projects, such as small hydro (3.5 MW), biomass (5 MW), and wind (5 MW), the marginal baseline power would be provided from diesel power plants, which have an emission factor 1330 g CO2 per kWh9. An assumed operating time of 5000 hours per year of the hydro plants, 6000 hours per year of the biomass co-generation plants, and 2000 hours per year of the wind projects, would result in annual savings of around 76,475 tons CO2 emissions per year. An assumed lifetime of 25 years results in around 2,000,000 tons CO2 emissions.

Each solar PV system displaces at least kerosene and candles for lighting, resulting typically in CO2 savings of 120 kg per solar home system for household each year. Assuming the project targets at 15,000 solar home systems, this results in avoided emissions of 1,800 tons per year, or 45,000 tons over an assumed lifetime of the solar PV systems of 25 years. Each off-grid wind turbine (1 kW) could provide electricity to 10 households, which would replace the baseline diesel power generators. An assumed operating time of 2000 hours per year of the 500 kW small-scale wind turbines would result in annual savings of around 1,330 tons of CO2 emissions per year, or 33,250 tons over an assumed lifetime of the wind turbines of 25 years.

In this project, it is expected that some the electricity generated by renewable energy will be used to support productive uses, which would displace more fossil-based electricity and the associated emissions. In addition, the ESCO energy conservation projects would also result in CO2 emissions from improvement in energy efficiency. Based on the experience from the GEF China ESCO project, the average CO2 reduction from an ESCO project is estimated to be around 70 tons CO2 per $1000 investment. Assuming 5 ESCO projects with a total investment cost of $1 million, this would result in 70,000 tons of CO2 emissions. However, Ghana’s energy sector is quite different from that in China, this only serves as an indicative estimate.

8 IEA (2004): CO2 emissions from fuel combustion, CO2 emissions from electricity and heat production from natural gas9 IPCC Guidelines for National Greenhouse Gas Inventories.

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Therefore, total direct benefits from renewable energy projects only would be in the range of about 8,000,000 tons of CO2 emissions avoided over the life of the equipment installed.

Indirect global environmental benefits of the project will be further assessed during project implementation, when the project can demonstrate how much renewable energy is able to replace fossil-based energy services. Given that this project is intended to establish a framework and provide technical assistance and capacity building activities, it is expected that RE/EE would be replicated without further GEF interventions.

The agreed cost of barrier removal for RE/EE is the GEF contribution of US$ 5.5 million. Several additional domestic benefits attributable to the project activities include: meeting the energy needs of presently unserved local communities and quality of life enhancements. For further local benefits please refer to the main project appraisal document. These local benefits justify the IDA, IFC and local co-financing of US$ 157 million.

GEF Alternatives

To date, utilization of RE/EE is quite limited, except large hydro, due to a number of barriers, including a lack of enabling policies and regulations, access to financing, information, know-how and human capacity. Without these barriers being removed through this project, a widespread renewable energy and energy efficiency development is unlikely to take place. This GEF project intends to address these policy, financing, institutional, information, and capacity barriers, and play a catalyzing role to help Ghana tap its renewable energy potentials.

GEF support has four components: 1) renewable energy policy framework and RE/EE capacity building; 2) large-scale grid-connected renewable energy; 3) mini-grid renewable energy and ESCOs; and 4) stand-alone renewable energy systems.

Component 1 intends to remove the policy, capacity, and information barriers to accelerate grid-connected renewable energy such as small hydro, wind, and biomass, off-grid renewable energy such as mini-grid hydro, biomass, and solar home systems. This component will assist the government in 1) developing a comprehensive renewable energy policy and regulatory framework; 2) coordinating grid vs. off-grid options for rural electrification; 3) building capacities and increasing awareness for decision makers, utilities, and consumers to promote renewable energy, energy efficiency, and environmental impact assessment for small hydro projects; and 4) conducting resource assessment and providing information needed for the private sector to develop renewable energy projects. GEF will contribute $1.0 million to this component to support TA activities, while IDA will contribute $10 million baseline cost for rural electrification investment. It would not occur without GEF support.

Component 2 intends to remove the policy, capacity, and financing barriers to accelerate large-scale grid-connected renewable energy such as small hydro, wind, and biomass above 10 MW. This component will 1) assist the government in developing a bidding package for a pipeline of renewable energy projects, which includes the feasibility studies, well-designed PPAs, tariff levels, etc. for private sector investment in these projects; and 2) hire international technical and financial

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advisors who can provide transaction advisory services to the government to negotiate the first two pilot projects. As a result, 1-2 pilot large-scale grid-connected 50 MW renewable energy projects would be developed. GEF support of $1.0 million is requested for TA activities, while the private sector and financial institutions will contribute $120 million for the investment.

Component 3 is intended to remove the capacity and financing barriers to accelerate small-scale grid-connected or mini-grid renewable energy such as small hydro, wind, and biomass below 10 MW, as well as ESCOs. While these mini-grid renewable energy technologies are the least-cost options compared to diesel genset (particularly at current high diesel prices), there is limited development to date due to a number of substantial barriers. First of all, they are new technologies, and developers are usually local small and medium entrepreneurs who require hand holding to get the project operational. Secondly, they are capital intensive, compared to diesel genset, therefore, require long-term financing which local banks can not provide right now. GEF resources are requested to provide TA to address the first barrier, and IDA funding will be provided to address the second barrier. This component will 1) provide business support to both local renewable energy developers, ESCOs, and commercial banks; and 2) IDA re-financing through local banks to provide long-term financing to RE developers and risk sharing to ESCOs. As a result, 2 small hydro projects with a total installed capacity of 3 MW, 8-10 village hydro projects with a total installed capacity of 500 kW, 3-5 biomass co-generation plants with a total installed capacity of 5 MW, 1-2 pilot 3-5 MW wind farm, and 5 ESCO projects would be developed. GEF will contribute to $1.6 million for the TA activities, IDA GEDAP and IFC/IDA MSME projects will contribute $2 million and $8 million respectively to provide long-term financing and risk sharing to these projects, and the private sector and local banks will contribute to $10 million for equity and loans.

Component 4 is intended to remove the technical, awareness, market, and financing barriers to accelerate stand-alone renewable energy systems such as solar PV systems (14-200 Wp) and off-grid wind systems (500 W – 2 kW). In Ghana, a 50-Wp solar home system costs $800 (solar PV prices have increased substantially recently due to a global shortage of supply), accounting for the replacement and O&M costs over 15-year lifetime, the NPV of the lifecycle cost for a 50-Wp solar PV system is estimated to be $18/Wp. Based on a recent willingness to pay survey conducted in a JICA study, an un-electrified household spends about $6.6 as the average monthly expenditure on kerosene, batteries, and candles, and the NPV of baseline costs is estimated to be $15/Wp. Therefore, the incremental cost is $3/Wp. However, this project did not request for GEF resources to pay for the incremental costs. Rather, GEF support is requested to remove barriers. This component will 1) build capacity of the Apex Bank and participating rural banks; 2) support solar industry association to conduct marketing and awareness campaign and provide training; 3) provide incentives to dealers to build a wide distribution network across the country; and 4) provide IDA re-financing to rural banks who can then provide long-term credit to consumers to purchase these systems. As a result, 15,000 solar PV systems with an installed capacity of 450 kW and 500 small-scale wind systems with an installed capacity of 500 kW would be installed. GEF support of $1.6 million is requested for the TA activities, while IDA will provide $3 million in providing long-term consumer credit and local rural banks will provide $4 million of their own resources.

Incremental Cost Matrix

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The incremental costs and benefits of the proposed project are summarized in the following incremental cost matrix. The incremental cost of the project is estimated to be US$154 million, of which $5.5 million is requested from GEF for TA activities only to remove barriers to the widespread deployment of renewable energy in Ghana, $5 million from IDA GEDAP, $8 million from IFC/IDA MSME, $28 million from the private sector equity contribution, $102 million from commercial banks, and $4 million from rural banks. The total project costs are $162.5 million, including US$10 million baseline costs from IDA GEDAP. In addition, IDA GEDAP also provides $50 million IDA contribution as associated funding. Without these barrier removal activities, it is very unlikely that the large-scale national replication of renewable energy and energy efficiency would take place.

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Incremental Cost Matrix

ActivityBaseline Alternative Increment

Component 1: RE policy framework

There exist policy, capacity, and information barriers to renewable energy.

Rural electrification continues to be grid-based.

Cost: $10 M from IDA

Remove these barriers through technical assistance and capacity building.

Grid and off-grid options will be coordinated under rural electrification.

Cost: US$11.0 M GEF: $1.0MIDA: $10 M

Barriers to renewable energy removed, and increased investment in renewable energy.

Off-grid renewable energy plays an important role in rural electrification.

Cost: $1.0 M GEF

Component 2: Large-scale grid-connected RE

No grid-connected renewable energy projects, due to policy barriers.

Cost: 0

1-2 pilot large-scale grid-connected RE projects.

Cost: $121.0 MGEF: $1.0 MPrivate sector: $24 MBanks: $ 96 M

Policy, capacity, and financing barriers removed. Increased investment in large-scale RE development.

Cost: $121.0 MGEF: $1.0 MPrivate sector: $24 MBanks: $ 96 M.

Component 3: Mini-grid RE and ESCOs

Limited mini-grid renewable energy, all for self-consumption.

Limited capacities of local SMEs.

No long-term financing available.

Lack of access to financing for ESCOs

Cost: 0

A number of mini-grid RE projects developed by providing technical and financial support to the private sector.

Long-term financing available.

Increased financing for ESCOs

Cost: $21.6 MGEF: $1.6MIDA GEDAP: $2MIFC/IDA MSME: $8MPrivate sector: $4MLocal banks: $6M

Increased mini-grid RE and EE investment.

Policy, capacity, and financing barriers removed.

Cost: $21.6 MGEF: $1.6MIDA GEDAP: $2MIFC/IDA MSME: $8M Private sector: $4MLocal banks: $6M

Component 4: Stand-alone RE

Limited solar home systems and off-grid wind turbines.

Consumers can not afford the high up-front costs.

Very few distribution

Increased investment in solar home systems and off-grid wind turbines.

Long-term consumer credit available.

Increased dealers and distribution networks.

Increased investments in solar PV

Financing barriers removed.

Improved maintenance services.

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networks exist.

Cost: 0 Cost: $8.6MGEF: $1.6M IDA: $3 M rural banks: $4M

Cost: $8.6MGEF: $1.6M IDA: $3 M rural banks: $4M

Global Environment Benefits

Rural energy access is expanded primarily based on grid extension.

Renewable energy is unlikely to be incorporated in the rural electrification scheme.

Renewable energy remain undeveloped. Barriers not removed.

Baseline carbon emissions from gas, diesel, kerosene, candles, and batteries: 8 million tons of CO2 over a 25-year period

Local air pollution from natural gas and diesel genset.

Renewable energy is integrated in rural electrification efforts.

Renewable energy is widely replicated. Policy, financing, institutional, information, and capacity barriers removed.

Alternative carbon emission: 0 ton of CO2

Significant GHG emissions achieve.

Direct emission reduction of CO2 reached 8 million tons over a 25-year period, and more CO2 emission reductions from potential future replications.

Barrier removal for market development of renewable energy

Domestic Benefits Increased access to electricity in remote rural areas, improved economic activities and incomes, and better local environment from renewable energy use.

Sustainable business models and long-term financing encourage buildup of local RE industry and job creation.

Improved livelihood in remote rural areas.

Increased job opportunities at local community.

Avoided air pollution from diesel genset.

Costs Baseline costs: $10M fromIDA GEDAP

Project costs: $162.5MGEF: $5.5MIDA GEDAP: $15MIFC/IDA MSME: $8MPrivate sector: $28MBanks: $102MRural banks: $4M

Incremental costs: $152.5M:GEF: $5.5MIDA GEDAP: $5MIFC/IDA MSME: $8MPrivate sector: $28MBanks: $102MRural banks: $4M

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Annex 16: STAP Roster Review


STAP Reviewer Comments Team Responses The health improvements from both the municipal waste facility and the use of cleaner burning biofuels (via improved stoves and better kilns), and arguably as well from household use of gas should be reflected in the analysis.

The traditional and modern biomass sector is discussed on page 6. We agree that this is an important area to address in Ghana’s energy sector. However, from the consultations with GEFSEC at the pipeline entry of this project last Fall, using GEF resources for improved biomass projects was discouraged. Therefore, household fuels and biomass issues are now addressed under the IDA GEDAP project. Please see PAD for details, particularly component No. 4 on household fuels.

Long-term refinancing using IDA resources should be expanded to solar.

“The IDA funding will also help extend longer repayment period for local rural banks, which provide credits to consumers of stand-alone renewable energy systems including solar home systems and off-grid wind systems, to match the low ability to pay of most rural consumers.” (This sentence on solar is immediately next to the sentence on small hydro, wind, and biomass quoted by STAP reviewer, on page 5).

STAP Review Comments from Daniel M. Kammen Energy and Resources Group University of California, Berkeley

Overall:

This is an excellent project and should be supported. In fact, this project represents a watershed moment where a real portfolio of individually substantive renewable energy efforts can be supported in a developing nation. The diverse set of project components – several energy service companies (ESCOs), ten village hydro efforts (3.5 MW in total), wind (3 - 5 MW large farm, and > 500 small turbines) and household solar. At a general level the funding, incremental cost analysis for at least 8 x 106 tons of carbon offset, are all very reasonable, as is the private finance/GEF proportions ($134 million private /$7 million GEF). Bravo to the team and the government of Ghana. Finally, this project recognizes and blend energy efficiency and renewable energy in sensible and innovative ways that other projects would do well to emulate.

Major Comments:

The Volta River Authority (VRA) would appear to be well positioned, if they choose, to join Thailand in adopting a renewable energy portfolio standard (such as the 10% goal by 2020). Doing so formally would likely open the door fro even more European investment and aid.

The proposed 50 MW wind-farm near Accra (based on NEK Co. assessments and the earlier international evaluations) appears to both be well studied in term of

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resources, and -- based on what has been published in Ghanaian newspapers a well a in National Renewable Energy Laboratory and European assessments – appears to be an excellent project. The wind resources, at low hub-height, is excellent, and the location as well as the need are great. This should be prioritized for construction.

A stronger case for many of improved biomass projects exists that is even reflected in the PCD. In particular, the health improvements from both the municipal waste facility and the use of cleaner burning biofuels (via improved stoves and better kilns), and arguably as well from household use of gas are not reflected in the analysis. They should be included in the incremental cost assessment. This would not be difficult, as we have effectively done this analysis for improved wood stoves and for fossil fuel-based stoves for Ghana in the paper:

Bailis, R., Ezzati, M. and Kammen, D. M. (2005) “Mortality and greenhouse gas impacts of biomass and petroleum energy futures in Africa”, 308, Science, 98 – 103.

A key conclusion of this work, in fact, is that the health and environmental benefits of improved stove and fuel strategies may outweigh that of switching to fossil fuels for cooking, a finding that would strengthen several of the arguments for renewable energy technologies as solutions in the document.

Page 13: The use of significant IDA and IFC support to make the ESCO projects financially solid is an outstanding use of resources, based on the demonstrated impacts of these projects in the past.

Minor Comments:

Page 4: ‘COUNTRY DRIVENNESS’ . ‘drivenness’ not a word.

Page 5, and in main text:

The IDA funding will provide long-term re-financing to participating local commercial banks, which will lend to local RE project developers, to match the long payback periods of small and medium-size renewable energy projects (0-10 MW) including small and mini-hydro, wind, and biomass projects (emphasis added).

Solar appear to be excluded, which is a significant problem due to the growth of solar PV in Africa, and the potential for solar thermal. This should be expanded to include solar.

Page 12: Pra River, not ‘Pra Rive’.

Pages 29 – 31: blank pages exist in Annex 14, the incremental cost analysis beyond the table.

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Throughout: much of the prose appears to have been written hastily, and warrants careful editing.

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Annex 17: Maps


wb10286/tt/file_convert/5acce2237f8b9ab10a8cfbaa/document.doc

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