Sep 17, 2010

Sustainable energy solutions in Indonesia: A learning opportunity for the World Bank Group

The Cinta Mekar Micro-Hydro Power Plant project and the Kulon Progo Improved Cook Stove Project in Indonesia demonstrate the development effectiveness of off-grid renewable energy projects. A best practices study identifies the replicable elements of the two projects.
The Case for Renewable Energy Projects: Lessons from Indonesia
Access to reliable and affordable energy is a prerequisite for economic development and poverty reduction. In addition, modern energy services contribute to social development by helping to fulfill the basic human needs of nutrition, warmth, and lighting.
In Indonesia, the demand for energy rises as the population grows. Currently, Indonesia relies heavily on fossil fuels to meet its energy demands despite the fact that fossil fuel reserves are limited. Electric power plants are powered by diesel-fueled generators that compound the cost of electricity. There is, however, a huge potential for renewable energy to dominate Indonesia’s energy portfolio. For many of Indonesia’s isolated islands and regions, provision of basic energy needs through off-grid renewable energy resources is an economically viable and environmentally sound option.
In Indonesia, the Cinta Mekar Micro-Hydro Power Plant Project and the Kulon Progo Improved Cook-Stove Project demonstrate the development effectiveness of renewable energy projects.
Cinta Mekar Micro-Hydro Power Plant (MHPP) Project
The micro-hydro project not only provides electricity to the surrounding community, but it also generates income for the Cinta Mekar village as villagers sell power to the grid. The village has used the revenue to build a health care clinic, provide scholarships for education, supply villagers with electrical access, and offer seed capital for other income-generating activities. The project is considered a tremendous success by all stakeholders as it is the first community-based MHPP that relies on a public-private partnership.
A key success factor for this project was an emphasis on community involvement in the planning, development, and implementation stages. While similar projects often view the community solely as the beneficiary, Cinta Mekar involved the community as a partial owner and project manager, allowing the villagers to develop and oversee the project.
Kulon Progo Improved Cook Stove (ICS) Project
Coconut sugar is a primary commodity of Kulon Progo and its production makes a significant contribution to the local economy. To harvest coconut sugar, the villagers have traditionally heated liquid sapped from coconut’s young flowers for several hours on a traditional three-hole stove fueled by firewood. This technique produces harmful levels of indoor air pollution. Women in this region spend a majority of their time harvesting coconut sugar and often suffer from acute respiration infection due to the excess smoke produced by the firewood. Children are also exposed to the pollution and thus at high-risk for developing respiratory illness.
The Improved Cook Stove project was initiated by Yayasan Dian Desa, a Jakarta-based NGO that focuses on community development and improving biomass utilization. Since installing the ICSs, the villagers have seen positive changes in their quality of life. The excessive smoke that caused illness has been reduced considerably and cooking time is shorter, which allows villagers to produce coconut sugar more efficiently and earn higher incomes. The use of fuel-wood has been cut by 50 percent, which means women spend less time collecting wood and more time on other productive, income-earning activities.
Developing a Best Practices Model for Renewable Energy Projects
Development experts examined these two Indonesian projects to identify a best practices model for future renewable energy projects. Research led to the conclusion that renewable energy development requires enabling, enforceable and resourced policies and regulations at the national and local levels. Support strategies such as fiscal incentives, feed in-tariffs, soft-loans, grants and technical assistance are also important for developing renewable energy.
The study found that for energy services to be readily and widely accessible, affordable and clean, the following elements of good governance and technical and project management must be considered:
  • Initiation: Non-governmental organizations usually play this role. They bring the idea to the community. NGOs help communities to understand the benefits of a project, promote cooperation, and take part in crafting the initial agreement.
  • Institutional development and community participation: Locally-based institutions must be created to ensure sustainability and community ownership of the project. Local participation from the early stages of a project is of utmost importance. The local community must be involved in the design, planning, and management of the project.
  • Financing: Project financing, including soft loans, grants and community counterpart, must be available. It is important to solicit a contribution from the direct beneficiary of the project (e.g. the local community). This will help to foster a sense of project ownership in the community. If the local community cannot cover the cost, external funding from donor agencies must be available. An option for financial cooperation such as a public-private-partnership should be considered depending upon the nature of the project. Soft loans are an effective tool for villagers. Since this type of loan stresses the importance of repayment, the villagers encourage users to pay and work to collect payments on time.
  • Direct financial benefit for the local community: Renewable energy investments should help community organizations reduce, if not eliminate, their dependence on external sources of funding. Lesser reliance on loans can lead towards greater local ownership of these projects.
Development institutions such as the World Bank will hopefully draw lessons from this research as they draft its new Energy Strategy.  These projects are a testament to the development effectiveness of off-grid renewable energy projects in improving peoples’ lives, as compared with extractive and large hydro-power projects.



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