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Photo: Saul E Gonzalez / World Bank
Despite increases in access to electricity over the last two decades, approximately 1.1 billion people—still lacked access to electricity in 2014. While urban areas tend to be more electrified due to their proximity to grid connections, most of the world’s population without access to electricity lives in rural areas.
The Sustainable Development Goals adopted in 2015, strives to have universal access to affordable, reliable, sustainable and modern energy for all by 2030. The Global Partnership on Output-based Aid (GPOBA) supports this energy access goal using innovative financing solutions that link funding to actual results achieved. Results-based Financing (RBF) approaches provide access to basic services like energy for low-income families and communities that might otherwise go unserved.
Experience from GPOBA work suggests designing subsidies focusing on results encourages efficiency through good targeting of subsidies and creating incentives for Service Providers to deliver in a timely manner and at lowest cost. Therefore, by bringing together public and private sector funders to maximize resources, and designing effective incentives for service providers to reach underserved low-income communities, results-based financing approaches can give people the chance to improve their life.
GPOBA has been supporting projects using renewable energy to expand access to low-income communities since 2005 and has achieved results and lessons that are being used to design similar projects in different countries.
In Bangladesh, GPOBA has partnered with the Government of Bangladesh, the Infrastructure Development Company Limited (IDCOL) and other donors to increase access to clean energy for targeted rural areas through different renewable energy technologies. The project makes clean energy affordable to low-income households through off-grid solutions by buying down the capital cost of solar home systems (SHS) and mini-grid connections and facilitates investments in solar-pumped irrigation to farmers, reducing the negative fiscal and environmental impact of diesel pumps. While the solar-based aspect is the main feature of this project, the grant also helps improve family health by providing clean cooking solutions through biogas plants. The project has already impacted the lives of 3.6 million beneficiaries in Bangladesh and has served as a lesson for many other countries.
In Mali where the rural population remains dispersed, extending the national electricity grid in a financially sustainable manner is a major challenge. GPOBA grant has been used to co-finance Mali’s Rural Electrification Hybrid System Project, which provides incentives to private operators to increase access and make connection packages affordable to the rural and low-income communities using mini-grid and Solar Home System technologies.
Another project in the Philippines supports low-income families in remote and conflict affected areas of the country to have access to solar energy under the Access to Sustainable Energy Project. The project is implemented in partnership with the Department of Energy of the Philippines and the European Union. The project, implemented by the private LGU Guarantee Corporation, in partnership with Electric Cooperatives, selects private contractors to supply and install the solar home systems (SHS) and GPOBA funds disburse upon verification that SHSs have been installed and are functioning.
A recent impact study conducted to analyze the impact of improved access to energy shows that SHS adoption leads to welfare gains, such as: saving money, improving meal preparation conditions, reducing incidence of gastrointestinal and respiratory diseases, expanding study time for children, increasing mobility and security, and allowing more efficient use of time for women.
Related (useful) links
Output-Based Aid for Energy Access (OBApproaches 52)
Bangladesh Rural Electrification and Renewable Energy Development- SHS Project (Lessons Learned 10)
Surge in Solar-Powered Homes Experience in Off-Grid Rural Bangladesh
Output-Based Aid in Bangladesh: Solar Home Systems for Rural Households (OBApproaches 42)
Output-Based Aid in Mali Rural Electrification Hybrid System Project (OBApproaches 45)
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The webinar will discuss the project in detail, examining how OBA is being used to maximize finance for development to address sanitation challenges in Bangladesh.
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Overview
To support the Government of Bangladesh’s commitment to improve sanitation, the World Bank, through GPRBA, partnered with Palli-Karma Sahayak Foundation (PKSF) to provide hygienic sanitation solutions to low-income households. The project combined output-based aid (OBA) with a blended finance approach. GPRBA contributed $3 million in the form of an OBA grant and leveraged an additional $22 million in the form of commercial sanitation loans from microfinance institutions (MFIs). The project modality sought to leverage four main actors, PKSF as the implementing agency and wholesale lender for MFIs, local non-governmental organizations (NGOs) with microfinance experience as retail MFIs, local entrepreneurs or construction firms as the service providers, and low-income households as the customers. The retail MFIs provided sanitation development loans to low-income households. These loans were set at a maximum size of 10,000 BDT ($128) in order to target low income households and were repaid over 55 weekly installments with interest set at a fixed rate of 10 percent. The OBA subsidy covered the cost of interest charged by the MFIs.
Bangladesh OBA Microfinance Sanitation Project - Evaluation Report
In FY19, GPRBA reviewed this project’s impact on market development in rural Bangladesh and assessed how much additional finance was leveraged because of these activities.
A workshop on the findings was held in Dhaka, with local microfinance institutions, non-governmental organizations (NGOs), and other local sanitation actors.
The project successfully supported the construction of 170,679 latrines, surpassing its target of 170,000. Eighty-nine percent of the loan recipients were women. Aside from the direct outputs, a significant contribution of the project was demonstrating a viable and robust market for sanitation loans to both households and businesses. The use of RBF subsidies was a key contributor in creating the right conditions to engage the MFIs and customers. The project also developed a market for new sanitation and financial products.
Since completing this project, PKSF has developed a Sanitation Development Loan policy to extend hygienic sanitation to its retail MFI partner organizations. PKSF also allocated capital finance to support retail MFIs in five sub-districts to reach 100 percent sanitation coverage in their areas, supporting SDG 6: to ensure safely managed water and sanitation for all.
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Webinar organized by the World Bank's Global Partnership on Output-Based Aid (GPOBA) on the use of results-based financing in providing renewable energy as an alternative to fossil fuels to power irrigation water pumps.
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The Swedish International Development Cooperation Agency (Sida) has made a one-time contribution of SEK 65 million (approximately US$8.9 million) to the Global Partnership on Output-Based Aid (GPOBA) to support the program’s efforts to improve delivery of basic services to the poor in developing countries.
Sida has expressed interest in using part of this contribution to invest in a renewable energy scheme in Bangladesh.
The scheme will extend electricity access to more than 140,000 households, mainly in remote areas, through installation of solar home systems.
Sida joined GPOBA in December 2007 with an initial contribution of approximately US$7 million.
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News Release No. 2010/03 Contacts:
In Washington:
Jacqueline Sibanda, tel. (+1) 202 458 2974 jsibanda@worldbank.org
In Dhaka:
Mehrin A. Mahbub, tel. (+880) 2 815 9001 mmahbub@worldbank.org
Dhaka, May 13, 2010 – The World Bank, acting as administrator for the Global Partnership on Output-Based Aid (GPOBA), has approved two grants for a total of US$8.3million to subsidize part of the costs for installation of Solar Home Systems (SHS) and renewable energy mini-grids for poor households in rural areas.
More than 140,000 households (or about 700,000 people) and 5000 small to medium enterprises like timber mills, poultry farms and irrigation pumps in remote rural areas of Bangladesh, are expected to benefit from access to affordable electricity through the SHS and mini-grid projects.
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News Release No. 2011/01
Contacts
In Washington:
Jacqueline Sibanda, tel. (+1) 202 458 2974
jsibanda@worldbank.org
In Dhaka:
Mehrin A. Mahbub, tel. (+880) 2 815 9001
mmahbub@worldbank.org
Dhaka, March 22, 2011 – The World Bank, acting as administrator for the Global Partnership on Output-Based Aid (GPOBA), has approved a grant of US$6.75 million to help more poor households in rural areas of Bangladesh gain access to affordable electricity supply.
The new grant, signed on March 2, 2011, is in addition to a grant of US$7.2 million approved last year, bringing GPOBA’s funding commitment for this project to about US$14 million. The new funds mean an additional 175,000 households in rural areas of Bangladesh will be able to install individual Solar Home Systems (SHS).
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Earlier this spring, the state-owned Infrastructure Development Company Ltd (IDCOL) of Bangladesh announced the installation of a cumulative total of 2 million SHS, a resounding success since the inception of the program in 2002. What began initially as an attempt to install 50,000 SHS units over five years has now expanded into a drive that is installing approximately 60,000-70,000 units a month, and anticipates installing another 4 million units by 2015, and possibly reaching 7.5 million units by 2020.
The two million SHS units installed since 2002 have allowed Bangladeshis in rural areas to enjoy an improved quality of life, increase economic activity levels, save on energy expenses and feel safer at night.
GPOBA (as the administrator of the DFID and Sida funds), along with KfW and the German Development Agency, subsidized the accessibility of the SHS via a microcredit system. The output-based aid (OBA) subsidy was a fixed US$28, although the partner organizations (POs) made available systems between 10 watts to 135 watts. Households that chose a smaller system because of their affordability relative to income thus benefitted more from this subsidy. Households would then make a 10 percent down payment, repaying the remaining 90 percent over three years at market rates to providers of the microcredit, or "partner organizations" (POs). Once the systems were installed, the POs would apply for refinancing from IDCOL (at a lower interest rate and for a longer repayment period). Upon verification, IDCOL would then release the credit and a fixed subsidy to the POs, which would allow them to install more systems with these funds.
The World Bank and other donor agencies (Asian Development Bank, Islamic Development Bank, JICA of Japan, and KfW of Germany), in partnership with private sector and non-governmental organizations (NGOs) also provided financial support for this project. The World Bank contributed approximately US$492 million for the portion of the project that closed in December 2012, but added US$155 million in September 2012 for the Rural Electrification and Renewable Energy Development Project 2 (which goes through 2018) to further scale up the solar home systems and other renewable energy options. The World Bank has designated the Bangladeshi experiment the fastest growing example of solar generated power for homes on the globe, and has been due in large part to the successful partnering between IDCOL and NGOs such as Grameen Shakti and Rural Services Foundation, among others. A World Bank sponsored booth at the IDCOL Green Energy Expo 2013, a three-day alternative energy fair held in Dhaka on May 12-14, 2013, with this project receiving wide coverage and recognition at this event that was inaugurated by Prime Minister Sheikh Hassina herself.
Though less than half the country's population of 151 million has access to the electricity grid, the SHS have proven to be an economically viable solution for providing electricity in rural areas and towns where extension of the electricity grid would be prohibitively expensive. The SHS kit consists of a solar panel, a battery and a charge controller and has been immensely beneficial to users who had previously been dependent on kerosene, a more expensive fuel. It is estimated that 50,000 new jobs have been created from the transition to solar power, and the benefits have allowed children to study longer, merchants to conduct business longer hours and more economically, have replaced diesel as fuel for irrigation, and have contributed to an overall sense of security in communities after dark.
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GPOBA’s April 2 webinar on “Innovative Financing for Solar Irrigation Systems” brought together 40 renewable energy experts and World Bank staff to discuss the financial and technical aspects of transitioning from diesel-powered to solar-powered irrigation pumps in Bangladesh, as well as the effects on the country’s agriculture, environment, and management of water and energy resources. The knowledge exchange, supported by an output-based aid (OBA) approach, makes solar-based irrigation systems more affordable for the poorest of households, targeting hard to reach farming communities in remote areas of the country through the use of performance-based subsidies.
GPOBA has supported solar irrigation technology through a mini-grid grant (US$ 1.1 million) as a vital component of the World Bank’s Rural Electrification and Renewable Energy Development (RERED) program and plans to scale it up under its successor, RERED II (with an additional US$ 15 million).Though RERED is a World Bank initiative, the private sector and the government of Bangladesh play a vital role in this partnership, supporting development of solar energy to power irrigation systems, reducing dependency on fossil fuels.
The Webinar session, moderated by Raluca Golumbeanu, Infrastructure Specialist, GPOBA, included RERED program’s team leader Mr. Zubair K M Sadeque, Senior Energy Specialist at the World Bank and Md. Enamul Karim Pavel, Renewable Energy Team Lead of Bangladesh’s Infrastructure Development Company Limited (IDCOL), the implementing agency of RERED.
This aid has been instrumental, as according to Sadeque, the OBA-supported RERED program aims “to connect the rural farmers who are not connected to diesel pumps….an intervention targeted at rural Bangladeshi farmers means that it’s pro-poor, because the farmers are marginal farmers with very little land ownership.” Furthermore, Pavel indicated that “the cost of diesel is increasing and the government is providing subsidies to reduce the cost, but this is also a burden for the government,” making OBA an effective alternative for augmenting the purchasing power of the poorest of the poor.
The webinar was followed by a discussion among energy, water and agriculture specialists of the World Bank on lessons learned from the design and implementation of solar irrigation pumps in Bangladesh that can be replicated in countries in the African Sahel.
Presentation and other related materials>>
Webinar recording>>
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World Bank/GPOBA grant to provide renewable energy to an additional million beneficiaries
Dhaka, July 23, 2015 – The World Bank, acting as administrator for the Global Partnership on Output-Based Aid (GPOBA), signed a US$15 million grant agreement with the Government of Bangladesh to increase access to clean energy for targeted rural areas through output-based aid (OBA) subsidies. The grant is expected to benefit 1.1 million people living in poor, remote areas of Bangladesh currently lacking grid electricity. This new project will make clean energy affordable to low-income households through off-grid solutions by buying down the capital cost of 225,000 solar home systems (SHS) and 2,500 mini-grid connections. The grant will also facilitate investments in solar-pumped irrigation to 6,600 farmers, reducing the negative fiscal and environmental impact of diesel pumps. While the solar-based aspect is the main feature of this project, the grant will also improve family health by providing clean cooking solutions for over 9,850 households through biogas plants. The Infrastructure Development Company Limited (IDCOL) – the state-owned infrastructure finance company – will implement the project, in partnership with micro-finance institutions, non-governmental organizations, and private sponsors.
“Bangladesh has set a global standard in establishing a successful OBA Facility for renewable energy development. GPOBA is pleased to expand support in the second phase of the Rural Electrification and Renewable Energy Development (RERED II) program by making access to a wider array of clean energy options affordable to poor households,“ said Catherine Commander O’Farrell, newly-appointed Head of GPOBA.
A recent impact study shows that SHS adoption leads to welfare gains, such as: saving money, improving meal preparation conditions, reducing incidence of gastrointestinal and respiratory diseases, expanding study time for children, increasing mobility and security, and allowing more efficient use of time for women. The GPOBA grant contributes to these impacts, as well as continued job creation in green technology, support for the national government’s strategy (Vision 2021) of providing universal access to electricity by 2021 through off-grid solutions, and the goal of transforming Bangladesh into a middle-income country.
“Bangladesh has the fastest-growing solar home system program in the world, bringing electricity to remote households that are off the grid. The program has helped millions of men and women in rural areas to realize increased income and growth opportunities, and it has also helped millions of school children to keep up with their school work,” said Johannes Zutt, World Bank Country Director for Bangladesh, Nepal and Bhutan.
The World Bank has supported RERED since its initial establishment in 2003 through an innovative OBA financing mechanism, with disbursement based on verified outputs. Since 2010, GPOBA has previously granted almost US$14 million in support of the initial RERED program, through subsidies and technical support, providing access to solar-powered electricity to more than 2.2 million beneficiaries.