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Replacing existing assets with more energy−efficient alternatives results in sustainable reduction of carbon dioxide (CO2) emissions.

Projects designed to achieve loss reductions in electricity networks can yield only temporary reductions in CO2 emissions. Such projects generally achieve their emissions-reduction objective by increasing the capacity of the network to reduce asset utilization. However, any loss reductions produced by such a project will be eroded, and emissions will again increase, if a subsequent reduction in investment results in the additional capacity being utilized to accommodate new load. Energy conservation initiatives, such as the efficient lighting pilot program, are more effective because they are more likely to be sustainable. This is particularly true of interventions involving the replacement of existing assets with more energy-efficient alternatives, as sustainability is less likely to be dependent on human behavior.

Technically sound and measurable outputs, aligned with the intended project outcome and impact, enable effective monitoring of results.

In designing and formulating projects, processing teams should ensure that project outputs are technically sound and well aligned with the overall project impact. In situations where it is not possible to fully align each individual output with the impact, the planned results of the different outputs should be calibrated to ensure that, taken together, they will produce an outcome that is consistent with the envisaged project impact. Risks should be assessed to ensure that this consistency is unlikely to be disrupted during project implementation. Careful alignment of technically sound and measurable outputs with the intended project outcome and impact enable effective monitoring of results that in turn enhance the likelihood of project success.

Allowing adequate time for procurement, equipment delivery, and implementation results in realistic project schedules.

At appraisal, processing teams should ensure that project schedules are realistic and allow adequate time for procurement, equipment delivery, and implementation. The procurement and equipment delivery times typically required in Asian Development Bank−(ADB) assisted projects should be fully considered. When delays arise, ADB should proactively help governments and executing agencies (EAs) take appropriate action to minimize the impact of those delays on project completion. Conversely, when advance procurement or recruitment is approved, milestones should be agreed with the EA, and reviewed, to ensure that the activities occur in accordance with the approved timelines. This is particularly important for the recruitment of international consultants who have have to be mobilized at the beginning of projects to be fully effective.

A results-based financing structure is better suited for projects that support distribution network augmentation.

ADB’s standard project model is not well−suited to distribution network loans where the work involves large numbers of relatively small interventions that cannot be fully defined at the time of appraisal. This is particularly true when such work is to be undertaken in a high-growth environment. Such work has the characteristics of a program rather than a project and needs to be managed accordingly. Therefore, a results-based financing structure, which is likely more suitable for projects that support distribution network augmentation, should be considered.

Background

In 2009, Indonesia’s vertically integrated, state electricity company, Perusahaan Listrik Negara (PLN) had an ambitious plan to invest about $1.2 billion in the electricity distribution sector during 2010−2014 to reduce distribution losses and carbon dioxide (CO2) emissions. PLN intended a large part of this plan to be financed by loans from bilateral and multilateral partners.

The Java–Bali Electricity Distribution Performance Improvement Project—approved by the Asian Development Bank (ADB) in March 2010 for a loan of $50 million and cofinanced by the

Agence Française de Développement for another $50 million—supported this initiative. By financing strategic distribution network augmentations in all the Java–Bali grid distribution areas to reduce losses, the project aimed to contribute in lessening CO2 emissions.

A pilot initiative, funded by a $1 million grant from the ADB−administered Clean Energy Fund, to reduce the peak demand on island networks by promoting energy-efficient lighting solutions to residential consumers was also incorporated into the project. However, this initiative was reformulated to retrofit PLN substation switchyard lighting and municipal street lighting with energy-efficient light-emitting diodes.

The project’s primary intended impact was to reduce CO2 emissions by 330,000 tons per year. Its planned outcomes were the deferral of new distribution network investment by $100 million and reduction of overall distribution loss to 7% from 8.4% in 2008. The targeted outputs included a saving of 400 gigawatt-hour (GWh) from a reduction in losses and additional sales of 635 GWh through the connection of new customers using the additional transformer capacity to be installed by the project.

The project, consisting of widely dispersed multiple small-scale augmentations such as additional and larger conductors, additional transformer capacity, and covered conductors, resembled a program rather than a project. But as these augmentations were undertaken parallel to PLN’s much larger network development program, the project had a relatively small impact on the overall performance of the distribution networks. For example, while the project procured distribution transformer capacity to connect an additional 600,000 residential customers, the PLN connected more than 4.5 million additional customers to Java–Bali distribution networks, during the 2 years of project implementation. As additional sales exceeded loss reductions, and without provisions to install low-emission generation, attainment of targets would indicate a net increase, rather than a reduction, in emissions.

The project outputs defined at appraisal were also intangible as they were measured by PLN only at a network level for each distribution area. The extent to which changes in output at a distribution-area level were directly attributable to the project, rather than an outcome of work undertaken by PLN outside the project, could therefore not be separately measured

Nevertheless, qall the target outputs were comfortably met across the full range of reasonable assumptions concerning project contributions toward the attainment of network outcomes.

ADB’s Southeast Asia Department rated the project successful. PLN was the executing agency. Overall implementation was coordinated by a project management unit. Installation works were delegated to the project implementation unit in each of the grid’s 5 distribution areas.

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