75808 August 2012 PPIAF Assistance in Nicaragua Following decades of instability and several natural disasters, Nicaragua has achieved a remarkable economic turnaround, and is now focused on innovative ways of reducing poverty, particularly in remote rural communities. By the early 1990s, Nicaragua was among the most highly indebted and unstable economies in the world. In 1993 half of all Nicaraguans were living in poverty and one-fifth in extreme poverty. In the mid-1990s, significant gains were made in stabilizing the economy, improving basic infrastructure, and raising private investment. Real GDP growth has averaged 3.2% since 1998, inflation was brought under control, and private investment grew from 15% to 29% of GDP during 1998–2008. A rather modest contraction of 1.5% during the 2009 global crisis and an early improvement of macroeconomic indicators in 2010 are signs that the economy has acquired greater resilience to shocks. Nicaragua now ranks as a lower middle-income country with GNI per capita of US$980 in 2011. Technical Assistance for Nicaragua’s Electricity Sector The majority of Nicaragua’s poor live in rural areas. Improving access to electricity in those areas is key to economic growth and an increased quality of life. In late 1999, three quarters of the country’s rural population (40% of the country’s total population, or 300,000 households) had no access to electricity. It was assumed at the time that in order to provide electricity to 90% of the total population, over US$200 million in investments would be needed. The government aimed at reaching this objective by 2012. About half of the total un-served households could be reached by extending the grid, through existing and new private distribution companies. However, the majority of households in rural areas was too far away from the existing grid and/or too dispersed to allow for economically viable grid extensions. For those households, off-grid electrification emerged as a solution. As an integral part of Nicaragua’s national rural electrification strategy by the Comisión Nacional de Energía, PPIAF support was requested in 1999 to support the design and implementation of innovative, private-sector led off-grid electricity service provision models that would provide sustainable solutions for these off-grid users. To this end, PPIAF financed a study that surveyed selected rural villages in Nicaragua, and designed preliminary business models for these areas as illustrative case studies. The scope of the PPIAF-funded study covered market surveys, stakeholder consultations, the identification of micro-business opportunities, and social applications made possible by electrification. It provided technical project design, an economic analysis, and a financial cash flow analysis to determine the conditions under which the service provision business would be attractive to the private sector. It also provided recommendations regarding the organization of electrification services in two off-grid areas and a general financial sensibility analysis of various technical options, thus providing sound pre-feasibility information. The study “Nicaragua: Sustainable Off-Grid Electricity Service Delivery Mechanisms� was finalized in 2001 and attracted the interest of the World Bank’s Central America Country Management Unit, which eventually led to the inclusion of an off-grid electrification project in their fiscal 2002 pipeline. The comprehensive study played an important role in identifying issues and proposing a first round of solutions on many issues related to providing electricity services in a sustainable manner to rural areas, with an emphasis on the productive uses of electricity. Many of the issues, methodologies, and proposals that were identified in this PPIAF-funded study were incorporated into the design of the World Bank’s Off-Grid Rural Electrification project, part of the Nicaraguan Renewable Energy for Rural Zones Program (PERZA or Proyecto de Electrificación Rural para Zonas Aisladas) initiative. PERZA is a large-scale solar and micro-hydro rural energy initiative that is being implemented by the Nicaraguan National Energy Commission and the World Bank. The PERZA’s main objective is to provide basic electricity services and associated social and economic benefits in selected rural areas of Nicaragua. The PPIAF-funded study provided the foundation for this project, which was supported by World Bank financing of US$12 million through an International Development 1 Association credit, a US$4 million grant through the Global Environment Facility, and contributions from 1 the Government of Nicaragua (US$2.23 million) and the private sector (approximately US$4.46 million). The project components included: i) a rural electrification and renewable energy policy initiative aiming to establish a legal and regulatory framework to allow the sustainability of renewable electrification projects; ii) a solar electrification initiative including the installation of battery charging stations; iii) a hydro electrification component, which includes projects in two of the PPIAF study’s pilot sites (El Ayote and El Cuá Bocay) to develop hydroelectric systems; iv) enterprise development services; and v) social promotion. Through the solar electrification component of the project, photovoltaic battery charging stations were financed to provide energy for approximately 350 homes in various indigenous Miskito communities in the Atlantic zone in 2006. Five companies have sold over 3,200 solar home systems, 50 to 100 Wp each, 2 which exceeded the total project target of 3,000 Wp . Furthermore, through the hydro electrification component of the project, electricity access was expanded to approximately 1,500 homes in El Ayote and 2,300 homes in El Cuá Bocay. Results of PPIAF’s Activities in Nicaragua’s Electricity Sector Category Outputs Enabling environment reform  Nicaragua: Sustainable Off-Grid Electricity Service Delivery Plans/strategies prepared Mechanisms, August 2001 Category Outcomes Enabling environment reform  The World Bank’s Off-Grid Rural Electrification project, part of the Nicaraguan PERZA initiative, incorporated many of the Plans/strategies adopted issues, methodologies, and proposals that were identified in the PPIAF-funded study “Nicaragua: Sustainable Off-Grid Electricity Service Delivery Mechanisms,� May 2003 Category Impacts  Photovoltaic battery charging stations financed to provide energy for approximately 350 homes in various indigenous Miskito communities, through the solar electrification component of the World Bank’s Off-Grid Rural Electrification Increased number of people with project, 2006 infrastructure services  Electricity access expanded to approximately 1,500 homes in El Ayote and 2,300 homes in El Cuá Bocay, through the hydro electrification component of the World Bank’s Off -Grid Rural Electrification project, 2011 1 http://solar.nmsu.edu/publications/A185.pdf 2 “PPIAF Activities Review: 1999-2009 Outcomes and Impacts� (John Flora, May 2010) 2