Project

Mobilizing Finance for Green Energy Projects in Vanuatu

At a Glance

Start Date Q1 2017
Funding Source Core
Approved Budget USD 2 002 000
Status Active
Thematic Area
  • Sustainable Energy

Project Rationale

Vanuatu, a Small Island Developing State (SIDS) consisting of more than 80 remote islands, is highly vulnerable to climate change. The country’s population of about 235,000 is dispersed across 65 of its islands, many of them far from the urban centers of Port Vila and Luganville24. Approximately 73% of Vanuatu’s population does not have access to electricity, with the majority living in rural areas25. While Vanuatu’s economic performance has improved in recent years, its remoteness, small market size and limited institutional capacity remain key barriers to green growth.

Over 2015-16 GGGI, in collaboration with the World Bank, provided technical assistance to the Department of Energy for the revision of the National Energy Road Map (NERM). The revised NERM has identified five strategic areas for policy intervention in the energy sector: accessible energy, affordable energy, secure and reliable energy, sustainable energy, and green growth. In addition, a financing gap of at least $20 million was identified to achieve national energy access targets.

Based on an analysis conducted by GGGI and the Department of Energy, the Government of Vanuatu (GoV) also approved the establishment of a National Green Energy Fund (NGEF) in order to address the issues around financial resources for energy access. The objective of the NGEF is to improve electricity access through renewable energy and to enhance energy efficiency throughout the country, in particular for rural households and business. The NGEF is part of the revised NERM, and will be used as a tool to implement the objectives of the NERM to achieve 100% rural electrification and promote business and income-generating activities in the rural areas through use of renewable energy. In addition, the Department of Energy has prepared a study on rural electrification through solar mini-grids as a means to improve electricity access to households and business, and is also conducting a nationwide hydropower resource assessment. GGGI has also assisted in identifying potential renewable energy projects by developing a pipeline of project ideas on solar mini-grids, renewables for tourism, rural water supply, and biomass for electricity.

Improving access to renewable energy will have a significant impact on poverty reduction and social inclusion, given its contribution to green growth in other sectors, including tourism, agriculture, and water. Ensuring the availability of financing, as well as developing the capacity of the government to deploy resources for the implementation of renewable energy and energy-efficiency projects, will be a critical area for continued GGGI support.

Building on 2015-16 Work

This project builds on GGGI’s achievements in 2015-16 by focusing on mobilization of financial resources for the implementation of the NERM’s renewable energy, energy efficiency and rural electrification targets. This will be carried out through a double-pronged approach.

First, GGGI will build on the study carried out in 2015-16 and the endorsement of the NGEF by the GoV to provide assistance for the operationalization of the NGEF and the creation of an initial pipeline of projects. In particular, the operationalization of the NGEF will play a crucial role in increasing electricity access and renewable energy investments to achieve the NERM targets in the long-run by consolidating and disbursing financing to green energy projects through a transparent and systematic process.

The second approach to mobilizing financing will be to build on the pipeline of project ideas from 2016, and the existing work of the Department of Energy on solar mini-grids and hydropower, to develop a full project proposal for a renewable energy rural electrification project. Therefore, over 2017-18, the focus will be on the implementation of the NERM’s adoption of green energy in the wider economy.

Delivery Strategy

PROJECT OUTPUTS FOR 2017-18:

  • Prepare analysis and recommendations on the legislative and financial arrangements for the National Green Energy Fund (NGEF)
  • Develop guidelines on accessing green energy financing for renewable energy or energy efficiency projects
  • Develop procedures and documents and deliver training to operationalize the National Green Energy Fund • Identify and develop at least one green energy project for financing and submit to financier • Deliver training on scaling up green energy through conducive policy and regulatory settings

PROJECT OUTCOMES FOR 2017-18:

  • Government approves the legislative, financial and operational arrangements for the National Green Energy Fund
  • Financing is mobilized for at least one green energy project

Planned Results

The overall outcome of the project is to support the GoV’s operationalization of the NGEF and to mobilize financing for a green energy project, which will aim to deliver the following results:

Analysis and recommendations on legislative and financial arrangements for the NGEF prepared. GGGI will review the legislative framework of the energy sector in relation to the NGEF and the establishment of ring-fenced funds within the GoV’s financial system managed by the Ministry of Finance. GGGI will also conduct the necessary consultations with government stakeholders required for legislative review and joint planning for financial integration. This work by GGGI will build on previous recommendations by developments partners, such as the IRENA Vanuatu Renewables Readiness Assessment, which prioritized the increase of the availability of finance and investment into renewables and energy efficiency.

Guidelines to access green energy financing developed. GGGI will support energy sector decision-making bodies in developing assessment criteria for energy project prioritization and selecting for the NGEF. GGGI will also develop user specific guidelines to access financing for renewable energy and energy efficiency projects. The guidelines will include considerations for rural and micro-business, social inclusion, and gender aspects.

Documents developed and training delivered to operationalize the NGEF. GGGI will build on the established NGEF concept over 2016 and continue to design the necessary operational manuals and documents in order for the NGEF to offer a mixture of grants and loans. Training of personnel from government implementing agencies and other key stakeholders on energy-specific topics and guidelines will be required in order to ensure smooth operationalization and national ownership of the NGEF.

Green energy project identified and developed for financing. GGGI will provide technical assistance in project proposal development on at least one green energy project to demonstrate financial feasibility. This will entail analysis of funding options and the design of a business case that incorporates gender and environmental considerations. In addition, GGGI will explore collaboration with other multilateral and bilateral development partners to develop a project pipeline in order to access the Green Climate Fund.

Training on scaling up green energy through conducive policy and regulatory settings delivered. GGGI will conduct a needs assessment based on the policy, institutional and incentives environment to scale up energy access and financing. Based on the recommendations resulting from the analysis, GGGI will incorporate the recommendations resulting from the analysis into training materials, and further adapt the energy training module developed in 2016 to suit Vanuatu’s needs.

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