On track to achieving universal rural electrification-
The Lao People’s Democratic Republic (Lao PDR) has been one of the fastest growing economies in Southeast Asia, recording an average economic growth rate of 7 per cent in the past decade. The expansion and modernisation of the country’s infrastructure, including energy, have thus been high on the agenda of the Laotian government. The country is currently working towards electrification levels of 85 and 90 per cent by 2015 and 2020, respectively.
With almost doubling of rural electrification rations between 2004 and 2012, the country is well on its way towards achieving its 2015 target. With the country’s electrification more than quadrupling over the last 10–15 years, Lao PDR has seen one of the biggest absolute jumps in electrification rates across Southeast Asian economies. Given the low level of development of the country, scarce financial resources, and low population density, analysts have acknowledged these achievements as noteworthy.
Strong financial support from the government, initiatives by the state-owned utility, the promotion of off-grid technologies, and the use of innovative schemes that reduce upfront connection charges for rural households have been pegged as some of the key success factors of the programme.
Southeast Asia Infrastructure takes a look at the country’s experience in enhancing electricity access, along with the key policy instruments and initiatives undertaken to achieve success in this area.
Current situation: Aiming for universal electricity access
Laos has a population of over 6 million with over 1 million households across its 17 provinces. Nearly 80 per cent of the country’s population live in rural areas. Ironically, though the country is among the leading power exporters in the region, the absence of an integrated national grid and a rugged terrain has limited domestic access to electricity. In fact, even though Laos exports a large amount of hydropower to neighbouring countries, it has to reimport electricity to supply provinces that are not connected to the national power grid.
At the end of 2012, the country’s rural household electrification level stood at 82.25 per cent. Between 2002 and 2012, the number of electrified households increased steadily at a compound annual growth rate of over 11 per cent from 340,550 to 876,762. However, there are still variations in the levels of electrification achieved from province to province. Only one of the 17 provinces, in which the capital city of Vientiane is located, has achieved an electrification level of 100 per cent. In total, only five provinces have electrification levels higher than the national average of 82 per cent. At the bottom is Phongsaly province, which has an electrification level of only 32 per cent.
Compared to other Southeast Asian economies, Laos still lags behind the majority of the mature markets that have achieved near-universal electrification. While Singapore has achieved a rural electrification level of 100 per cent, other economies such as Brunei Darussalam, Malaysia, Thailand, and Vietnam have electrification levels of more than 99 per cent. Its performance is, however, significantly better than that of other emerging economies of the region. Myanmar and Cambodia have electrification levels below 30 per cent.
Transformative initiatives: Power for everyone
Electricité du Laos (EdL), the country’s state-owned utility, is the implementing agency responsible for meeting the annual targets for grid-based access expansion. EdL has an installed capacity of about 390 MW from nine hydropower stations, which account for nearly 15 per cent of the country’s installed capacity. Apart from its role in transmitting and distributing power in the country, it also manages Laos’s power imports and exports.
To connect households, EdL utilises its 115 kV transmission network (3,343 km in length), as well as a medium voltage (17,127 km) and a low voltage network (13,813 km). In an endeavour to minimise costs, EdL uses the single wire earth return network design in several areas in the southern region with small and dispersed loads.
When implementing a rural electrification project, the government typically plans and finances the grid extension, with the villagers paying for internal wiring, meters, and connections from their houses to the grid. However, poor households that cannot afford to
pay the entire costs of connection and internal wiring upfront (even though the grid passes right through their villages) can rely on the government’s unique credit support scheme called Power to the Poor (P2P).
Under the P2P scheme, a coupon with a face value of up to 700,000 kip (1 kip = $0.0001) is provided upfront to eligible households for them to pay the contractors for connection charges. If costs exceed 700,000 kip, households pay the additional amount. Contractors are reimbursed by EdL when they submit signed coupons.
The P2P scheme was launched in 2008 as a pilot project in Phosaad village of Champasak province in southern Laos to electrify 63 of the 270 households which were not connected to the grid. Within a month of its launch, all households were electrified. Owing to the programme’s success, the pilot has been extended to other rural electrification projects since 2009. In most villages where the P2P scheme has been offered, connection rates have risen from under 80 per cent to well above 90 per cent, even reaching 98 per cent in several instances. The programme also has a gender-sensitive poverty criterion in determining eligible households: all female-headed households are eligible under the scheme.
To enhance its capabilities to implement electrification projects, Edl has also taken the following measures: several grid strengthening initiatives; IT implementation; computerised billing and accounting systems; replacement of old meters; and manpower building. Through the implementation of some of these measures, it has lowered distribution losses to nearly 10 per cent from over 19 per cent in 2004. Meanwhile, EdL has adjusted its tariff structure to provide subsidies to the residential and irrigation category of consumers, while charging higher tariffs from the industry and government sectors.
Off-grid technologies: Supplementary role
A key aspect of the rural electrification programme has been the off-grid projects. About 3 per cent of rural households have been provided with energy through off-grid technologies. One of the most widely used technologies is the solar home system (SHS) that is promoted under a rent-to-buy scheme: villagers pay a small fee of about 136,000 kip upfront, followed by monthly payments over a 5–10-year period, after which they become owners of the system.
Apart from SHS, micro-hydro projects with capacities of 300 kW to 3 kW have also been set up in the northern provinces to meet energy requirements. However, due to safety and reliability issues reported by users, they have not been widely used. Hybrid technologies, such as solar–wind systems and solar–hydro systems, are other off-grid solutions that have also been piloted in the country. However, their uptake has been slow due to the high costs of such systems.
The marketing, installation, operation, and maintainence of off-grid systems is done at the local level by private companies called provincial electrification service companies (PESCOs). These companies work with the village electricity manager – the head of the village who makes decisions for the village and its residents. The Provincial Department of Energy and Mines regulates PESCOs and inspects the quality of the latter’s installations.
The importance of off-grid systems in the rural electrification programme is expected to increase going forward. As Andy Schroeter, Chief Executive Officer of Sunlabob Renewable Energy Limited, the biggest off-grid player in the country, states, “Off-grid solutions will become even more important for the remaining 20 per cent of the households which are yet to be electrified. These communities are in more remote and mountainous areas, and therefore, are much more difficult to be reached by national grid extension efforts. Sunlabob believes that minigrids are an ideal solution for energy access in these villages, which, when compared to the SHS, are longer lasting, have greater ‘add-on’ flexibility, and can be easily connected once the national grid reaches that community.”
Financing: Revenues and multilateral aid
The operation and construction of grid extension projects that are implemented by EdL are funded from the revenues generated from the country’s 17 hydropower plants through electricity exports to other Asian countries such as Thailand, Vietnam, and China. In 2011, Laos exported almost 678.3 million kWh (nearly 32 per cent of its total generation) that yielded $26.4 million in revenue. This figure should rise significantly in the coming years, as many Independent Power Project hydro power projects (nearly 12 projects under construction and another 15 at an advanced planning stage) are expected to be operationalised over the next few years. Laos has a vast untapped hydro potential of more than 23 GW.
Loans and grants by multilateral agencies have been the major source of funding for rural electrification projects. The Asian Development Bank (ADB) and the World Bank have been the primary lenders to the country’s rural electrification and off-grid programmes. Between 1998 and 2012 ADB extended loans worth $50.51 million, while the World Bank provided loans and grants amounting to nearly $31.8 million. Two of the biggest investments undertaken by these agencies in the country in the past were the Rural Electrification Phase II Project in 2010 (World Bank: $20 million) and the Northern Area Rural Power Distribution programme in 2003 (ADB: $30.5 million).
The Japan International Cooperation Agency (JICA) is also a significant player among the donor agencies. Building on the technical studies for the country’s energy sector that were undertaken in the 1990s (and later implemented by interested investors), it has been providing on-the-job training to provincial officers for construction of small-scale hydropower plants of less than 15 MW since 2011. As Susumu Yuzurio, senior representative of JICA’s Laos office states, “Improving their technical capacity is indispensable for safe and sustainable rural electrification.” JICA is also involved in developing a 450 kW small hydro power plant in Phongsaly province and solar photovoltaic generation facilities in (236 kW) at Wattai Airport and EdL’s headquarters.
Towards a “bright” future
Based on Laos’s past performance in rolling out the rural electrification programme, there is little doubt that the country will achieve its future targets. To ensure that the country achieves the desired objectives of grid expansion and sustainable development, it should continue with its multi-pronged approach on several fronts. These include initiatives to ensure timely implementation of the country’s hydropower and grid expansion projects; proper planning and coordination among the central and state-level agencies; and the development of off-grid technologies.