News Release No. 97/ 1274 SAS

Contact:

Durudee Sirichanya (202) 458-9031 Rebeca Robboy (202) 473-0699 Paul Mitchell (202) 458-1423

SRI LANKA TO IMPROVE ENERGY SERVICES DELIVERY
Project Focuses on Renewable Energy and Demand Side Management

COLOMBO, March 19, 1997—The World Bank today announced the approval of a US$24.2 million IDA credit and a US$5.9 million grant from the Global Environment Facility (GEF) ⁱ for a Sri Lanka Energy Services Delivery Project. The project will encourage the use of environmentally-sound renewable energy technologies; reduce long-term demand for electricity through Demand Side Management (DSM); mitigate carbon emissions, and strengthen institutional capacity to deliver energy services through renewable energy and DSM.

"Presently, only three out of 10 households in Sri Lanka are connected to grid electricity. We know there is a large unmet demand for solar home systems. Over 300,000 households already pay to power their radios and TV with automobile batteries charged from the electricity grid and also are spending money on kerosene for lighting," says Loretta Schaeffer, World Bank Task Manager in the Asia Alternative Energy Unit (ASTAE). "The use of traditional grid-based approaches to meet the rural electricity demand has become increasingly expensive as lines are extended to more dispersed populations. The high grid extension costs have spurred an interest in cost-effective alternatives, such as solar photovoltaics and off-grid micro-hydro plants."

The main components of this project include:

• an energy services delivery credit program, channeled through participating credit institutions and cooperatives for grid-connected mini-hydro sites, solar home system and village hydro pre-grid electrification and other renewable energy investments. GEF grants will be available for solar home system and village hydro subprojects;
  
  
• a pilot grid-connected wind farm component, which is expected to demonstrate the commercial viability and long-run economic potential of wind power in Sri Lanka and catalyze future private sector windfarm development. This pilot project will finance a CEB-executed pilot grid-connected windfarm project of approximately 3 MW; and
  
  
• a capacity-building component that will provide training and technical support for renewable energy and energy efficiency initiatives by both the public and private sector, including CEB’s DSM and Pre-Electrification Units, PCIs, and project developers.

Innovative Features:

• Supports renewable energy investments in mini hydro, village hydro, solar home system and windpower subprojects, and DSM;
  
  
• Highly participatory project preparation involved the power utility, NGOs, private developers, and local energy groups;
  
  
• Project implementation through private sector delivery of energy services;
  
  
• Ceylon Electricity Board (CEB) issued a standardized Purchase Agreement and Non-negotiable Tariff applicable to small power producers to encourage private generation of grid-connected power;
  
  
• The first joint GEF/IDA-assisted operation for Sri Lanka; and
  
  
• Project preparation has catalyzed a parallel UNDP/GEF renewable energy capacity building project.

The Project will have net positive effects on the environment. "Off-grid electrification subprojects will reduce the use of kerosene and lead-acid automotive batteries, thus benefiting the environment and reducing health hazards. Because of their small size and the fact that civil works are already in place in most cases, the grid-connected mini-hydro subprojects are unlikely to cause significant environmental damage or require resettlement," says Schaeffer. The run-of-river village hydro projects are even less likely to have negative environmental impacts. Power generated by grid-connected renewables or saved through DSM will result in corresponding reductions in emissions from the burning of fossil fuels.

The total project costs are estimated at US$55.3 million. The US$24.2 million IDA credit made on standard terms, with 40 years maturity and 10-year grace period, will finance 44 percent of the project costs. The GEF grant will contribute US$5.9 million, and the balance will come from the private sector, participating credit institutions, and the Government of Sri Lanka.

ⁱ The GEF is a financial mechanism which provides grant and concessional funding for recipient countries for projects and activities that address climate change, biological diversity, international waters, and depletion of the ozone layer. Thirty-one countries, 13 of which are recipient countries, have pledged over $2 billion in grant resources to the GEF’s Core Fund over a three-year period (1994-1997). As of February 1997, 160 countries were participating in the GEF. The World Bank shares the responsibility for implementing GEF activities with the United Nations Development Programme (UNDP) and United Nations Environment Programme (UNEP).

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