Peru Brings Electricity to Rural Communities

Challenge

Lack of access to electricity, combined with the scarcity of other infrastructure services, constrains economic development and hampers improvements in living standards in Peru. It limits the quality of medical care, and the availability of educational opportunities. The high poverty levels in rural areas of Peru and the growing gap in quality of life with rapidly developing urban areas highlight the importance of investing in basic rural infrastructure, such as electricity, as part of the national development agenda. Recognizing this, the Peruvian Government has made rural electrification one of its highest priorities.

Solution

The Peru Rural Electrification Project supported the provision of sustainable and efficient rural electrification service by ensuring that the electricity distribution companies prepared, executed, and operated rural electrification subprojects as part of their regular commercial operations. This model encourages efficiency and sustainability by working through the existing electricity distribution companies.

For the first time, renewable energy options were fully integrated into rural electricity services. The regulatory agency, the Organismo Supervisor de la Inversión en Energía y Minería (OSINERGMIN), established a regulated tariff for electricity services for solar photovoltaic (PV) systems and ensured that PV customers were eligible to the existing electricity cross-subsidy.

To promote productive uses of electricity, the project used a business development services approach. It focused on outreach to small businesses through non-governmental organizations (NGOs), and developed a marketing strategy for the electricity supplier, which addressed the lack of information, tariff barriers, and quality of service.

The project’s innovative activities included:

• A more efficient grid extension approach aimed at maximizing the use of project resources and mobilizing additional financing through the active involvement of distribution companies.
• Promotion of productive uses of electricity in rural areas.
• Assistance to distribution companies to provide the first off-grid regulated services using household PV systems.

Results

When the Rural Electrification Project began in mid-2006, more than six million people in the predominantly poor rural areas of Peru did not have access to electricity. At 30 percent cover- age, this was one of the lowest rural electrification rates in Latin America. The project’s key outcomes included:

• More than 105,000 households and small enterprises, representing about 450,000 people, benefited from receiving new electricity connection.
• Schools, health clinics, and community centers benefited from a total of 2,900 new electricity connections.
• The program oversaw the installation of 7,100 solar home systems (SHS) for households (about 31,500 people) in remote rural areas.
• Nine distribution companies in 16 regions participated in co-financing the project.
• A national tariff for regulated service with household off-grid PV system was established.
• More than 21,000 rural producers, including women who comprised more than a third of the beneficiaries, were able to adopt electricity-using equipment, which increased their productivity and incomes.
• The project prepared a Google Earth-based wind map (http;//dger.minem.gob.pe/atlaseolico/PeruViento.html) and a GIS-based inventory of small hydropower sites. 

Bank Group Contribution

The Project was financed by a World Bank loan for US$50 million and a Global Environmental Facility (GEF) grant for US$10 million, approved on March 2006 to cover investments, pilot projects, and technical assistance.

Partners

The Bank and the GEF supported the Ministry of Energy and Mines and its coordinating unit in the design and implementation of the project. During implementation the Bank and the distribution companies built a strong partnership. Nine distribution companies in 16 regions participated in co-financing the project, mobilizing an average of 25 percent of co-investment for a total of US$29 million, surpassing the target of US$23 million.

Moving Forward

Based on the success of this project the Government requested an additional loan to continue the application of the rural electrification model. Because this project had established a positive track record and there was an increasing demand for solar home systems the Bank approved, in 2011, the Second Rural Electrification Loan of US$50 million. This new operation and financing from the Government’s Rural Electrification Fund are continuing the effort to promote productive uses of electricity.

Beneficiaries

The project benefited poor rural households and small enterprises, in particular. More than 105,000 households and small businesses, representing about 450,000 people, benefited from receiving new electricity connections, including around 35,000 indigenous people and around 2,900 schools, health clinics and community centers. Of these, 7,100 households, or about 31,500 people living in isolated areas received solar home systems.

The project’s productive uses component assisted more than 21,000 rural producers, including women, who comprised more than a third of the beneficiaries, to adopt electricity-using equipment that increased their productivity and incomes.