Microfinance and Renewable Energy - The Global Development ...

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Revolving Fund for the Implementationof Small Hydro SchemesLocation:PeruProject’s Aim:Improveliving standardsTechnical Answer:Revolving fundfor theimplementationof smallhydro schemesPhoto: Soluciones PracticasThe objective of the project is to improve the livingstandards of the rural population in Peru by implementingSmall Hydro Schemes (SHS), forming sustainableelectricity services and promoting the productiveuse of energy. Its purpose is to promote a financialmodel that combines subsidised credits with technicalassistance and an appropriate management model.The project is aimed at meeting small energy requirementsin isolated rural areas that are impossible toserve with conventional electricity grids.The project is based on two agreements with theInter-American Development Bank. Under the firstagreement for the period between 1992 and 1998,ITDG (Intermediate Technology Development Group),now called Practical Action, received a reimbursablecontribution of USD 400,000 to establish the“Revolving Fund”. A second agreement was signed in2000, increasing the revolving fund by USD 200,000and recommending the establishment of new managementmodels and the promotion of productive andbusiness activities capable of generating employmentand income.The financial model with the "Revolving Fund”combines a soft loan that includes technical assistancewith joint financing by different institutions. Thebeneficiaries are farmers, small rural businessmen,communities, a producers’ association, etc. A loan ofup to USD 50,000 can be obtained for the constructionof a SHS at a 10 per cent interest rate, repayable overa period of up to five years.The management model is based on the efficientmanagement of the service and active participation ofthe local population. The model consists of the ownerof the SHS (the community and/or the municipality)handing it over to a private local enterprise undera detailed medium or long-term contract with clearand specific terms of reference that respect the currentlegal framework. The model therefore requiresthree main agents: the owner, the users and the localenterprise.BENEFITSIn general, the implementation of SHS has bothreplaced and prevented the installation of diesel systems,which is a more affordable technology for ruralpopulations. The CO 2 emissions from burning fossilfuels has, therefore, been reduced. In addition, theuse of electricity has replaced the traditional use ofcandles and kerosene burners that not only contaminatedpeople’s homes but were also health hazards.21 towns now receive electricity from SHS. The
electricity service management was createdand reinforced and the technologyfor manufacturing SHS equipment wasdeveloped and transferred to small localmanufacturers; local technical skills werealso improved.More than 200 new small businesseswere created, which increased the population’sincome by one third. There isa positive impact on the social capital,defined as the capacity to act in anorganised and co-operative manner, particularlyin cases where the managementmodel has been put into practice.SUSTAINABILIT YOut of 28 SHS, 23 are operating and therest have temporarily stopped for maintenancepurposes or to complete theirconstruction. No technical problems havebeen reported; the oldest scheme hasbeen operating for over 10 years.Organisation and training are importantaspects of the management model. In fact,they are just as important as the implementationof the system, if not more so, asthe future of the system largely dependson good organisation and training. Foursuccessful schemes, the oldest of whichhas been operating since 1998, covertheir operating and maintenance costsand keep a reserve fund for equipmentreplacement purposes.TECHNOLOGYMany schemes use existing irrigationfacilities, no reservoirs or large watertanks are required and the turbine-drivenwater flows back into the river downstream.The following technological packagesare ready to be transferred: Pelton andaxial turbines, as well as the use of inductiongenerators.FINANCIAL ISSUE SA value of approximately 2,621 USD/kWwas established, including pre-investmentcosts and working capital. Theinvestment per family is estimated atUSD 1,352. A study of a sample ofprojects implemented by the governmentreveals an investment of more than 5,000USD/kW.The average pre-investment cost perSHS is estimated at USD 14,885, which isa significant percentage of the total costof the SHS.Currently, the revolving fund consistsof about USD 600,000; 31 loans worthUSD 880,000 have been granted for 28SHS and 50 single-family photovoltaicschemes, and more than 2,000 ruralfamilies have benefited from the project.OBSTACLE SThe main barriers encountered bythe project were the limited paymentcapacity, loan guarantee restrictions,changing political aspects and the lack ofan adequate legal framework.In order to overcome these barriers,co-ordinated work was carried out withlocal and regional governments, governmentsocial aid programmes, co-operationinstitutions and the population ingeneral, with a view to joining efforts toraise co-financing funds.Furthermore, rural dwellers haveno legal title deeds to their properties(the main source of loan guarantee);therefore efforts were made to formallyregister their properties so that theycould become credit subjects with accessto the credit of the Revolving Fund or toany other commercial credits.Photo: Soluciones PracticasRE PLIC ABILIT YIt would be possible for this project tobe replicated both within the region andin other parts of the world. However, theexisting legal framework in each country,the rural population’s level of incomeand the expansion plans of the nationalelectricity grid must be taken into consideration.It is important to identify and evaluatethe local technical capacity for manufacturingequipment and providing technicalassistance. If that capacity does not exist,the technology could be transferred tosmall manufacturers and training couldbe provided to technicians and professionals.CONTACTPractical Action PeruSaul Ramireze-mail: Rescobar@solucionespracticas.org.peURL: www.solucionespracticas.org.pe
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