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Background

Nauru is a Pacific island country with about 13,000 people.   It is the world’s smallest island nation, and one of the most remote. The government’s long-term National Sustainable Development Strategy for 2005–2025 envisions “a future where individual, community, business and government partnerships contribute to a sustainable quality of life for all Nauruans.” Based on this development strategy, the Nauru Utilities Corporation (NUC), the country’s sole electricity utility, developed an energy road map to achieve the government’s energy sector goals. One ambitious target is to increase the share of renewable energy generation for the NUC power grid system to 50% by 2020. Nauru, however, has no hydro or geothermal energy resources, making solar its primary potential renewable energy source. Other green options—wind, bioenergy, and ocean energy— need further investigation. As of 2014, renewable energy was contributing only about 1% to its power supply. The other 99% was being supplied by diesel generators.

Given that solar power generation and battery technology remained at an early stage of development, it was clear that base load power in the country would have to remain reliant in the foreseeable future on fossil fuels. However, as of project appraisal in 2014, NUC’s existing generation capacity was not meeting the country’s total electricity demand.  The consequences of a failing power system were extensive. The high cost of power generation imposed a major burden on the government’s annual budget.  The poor service delivery was driving most consumers, especially commercial customers, to disconnect from the grid and instead use high-cost independent generation units. Losing these major power consumers hurt NUC revenues, and government funds had to be diverted to prop up its operations. Expensive independent generation meanwhile was having negative impacts on Nauru’s development and its people’s quality of life.

Against this backdrop, the government requested for development partner support to prevent the situation from further deteriorating. The Asian Development Bank (ADB) responded by approving in November 2014 a $2 million ADB grant for the Electricity Supply Security and Sustainability Project. Cofinanced by €2.0 million ($2.7 million) grant from the European Union, the project’s anticipated impact was increased economic activity in Nauru. Its intended outcome was increased reliability, lower cost, and greater sustainability of power generation in the country.  It had three planned outputs: (i) supply and installation of a new medium-speed 2.6–3.0 MW diesel generator; (ii) repair and/or replacement of the NUC powerhouse; and (iii) efficient project implementation.

In September 2015, ADB approved an additional grant financing of A$6.40 million grant ($4.74 million) from the government of Australia to install a second new medium-speed 2.6–3.0 MW diesel generator and an 11-kilovolt (kV) switchgear.  NUC expected the expanded project scope to lead to uninterrupted 24-hour electricity supply and to resume power supply to more disengaged and unserved commercial and industrial users.

At completion, the project delivered its planned outputs fully and successfully.  The two new generators, together with the switchgear and other related auxiliary equipment, were commissioned in December 2017.  The target of a 50% reduction in the frequency and duration of unplanned generation outages by June 2018 was exceeded. The fuel efficiency of NUC’s generators increased to 4 kWh per liter of consumed diesel from the 2013 baseline of 3.4 kWh per liter. Tariffs were covering 100% of the operation costs, compared with the 2012 baseline of 20%.  Peak load had increased by 41%—more than double the 20% target. NUC’s customer base has expanded from 2,604 in June 2015 to 3,325 in June 2018. The 28% increase helped raise annual electricity sales by 45% between 2015 and 2018.

Because of the project, all the country’s residents now enjoy an uninterrupted, all-day power supply, allowing them to make full use of refrigerators, washing machines, fans, and cooking stoves thereby significantly improving their daily lives.  Business and service sector operations have also benefitted through rising revenues and declining operating costs, including for the unnecessary cost of fueling and operating small generators to produce electricity off the grid. The 16% reduction in Nauru’s fuel imports recorded in the 6 months immediately after project completion can be attributed mainly to widespread abandonment of these highly inefficient small generators by consumers.

The Ministry of Finance was the executing agency, and the NUC the implementing agency.

Project Information
Project Name: 
Electricity Supply Security and Sustainability Project
Report Date: 
October, 2019
Main Sector: 
Country: 
Project Number: 
Report Type: 
Project/Modality: 
Project grant
SDG: 
Goal 9: Industry, Innovation, and Infrastructure
Goal 8: Decent Work and Economic Growth
Loan Number: 
0414, 0424, 0443
Source of Funding: 
COL/ADF, Government of Australia
Date Approved: 
G0414/0424: 7 November 2014, G0443: 16 October 2015
Report Rating: 
Highly successful

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