Additional Financing for the Energy Access and Quality Improvement Project

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Rwanda’s power sector has grown rapidly over the past decade, with access to electricity rising from 6 percent in 2009 to an estimated 54 percent in March 2020. Rwanda’s progress in electrification during 2010–2016 ranked 11th globally and 3rd in Africa. Among the 20 least-electrified countries, none made more progress than Rwanda during that period. Investments in grid extension have increased grid connections from 6 percent in 2009 to 39 percent in 2020; while off-grid access has more than doubled since 2016 and is estimated at 15 percent in 2020. Grid access of public institutions is remarkably high, reaching, as of March 2019, 100 percent of hospitals, 93 percent of health centers (compared to only a third on average in Sub-Saharan Africa), and 80 percent of primary and secondary schools (compared to a quarter for Sub-Saharan Africa on average).Rwanda’s power generation capacity tripled from 76 MW in 2010 to 225 MW in 2020 and the country has successfully reduced its reliance on oil-fired generation through investments in zero-carbon resources, halving the GHG emissions intensity of electricity. The share of oil fueled power in Rwanda’s power generation mix has declined from about 45 percent in 2013 to less than 20 percent in 2018 having been replaced by hydropower, lake methane-based power and to a smaller extent by solar power and peat fueled power. As a result, the GHG intensity of power generation, which is largely driven by the share of oil in the fuel mix in Rwanda, has declined from about 308 gCO2 per kWh in the first quarter (Q1) of 2013 to 134 gCO2 per kWh in the final quarter (Q4) of 2018. As most of the future least-cost power generation is expected to be from clean sources of power, the GHG intensity is expected to improve further.Despite the rapid progress in the energy sector in the last decade, the sector still faces several challenges that it has to overcome as it pursues the objectives under the National Strategy For Transformation (NST 1) and the Energy Sector Strategic Plan (ESSP; 2017-2024). Much still needs to be done to reach universal access to electricity and improve the quality and reliability of service. Access to modern energy service in the bottom 40 percent of the income distribution, while growing, is still limited. Only about 5% of the lowest income quintile households have electricity access (compared to 61% of the highest income quintile) and electricity access rate in rural areas is about 15% (compared to about 76% in urban areas). Targeted government interventions will be needed to catalyze private solutions in reaching poorer segments of the population. The affordability of energy services provided by the private sector however remains a major challenge, especially in the remote rural areas where these solutions are most needed. The market for off-grid solar solutions has slowed down markedly in recent years as higher-income and more easily accessible segments have been saturated. Of all the solar lighting products sold in 2018, 8 percent were sold to Ubudehe 1 , 41 percent to Ubudehe 2 and 51 percent to Ubudehe 3. Additionally, only 13 percent of the solar lamps and 5 percent of solar home systems sold in 2018 were bought by Ubudehe 1, displaying only few households in Ubudehe 1 category can afford solar home systems. Very similar challenges are prevalent in the market for clean cooking solutions. Other challenges relate to the cost of electricity supply, affordability of electricity to consumers, and affordability to the government as well as related fiscal risks.The National Strategy for Transformation (NST1, 2017-2024) aims to make Rwanda among the first countries in Africa to achieve universal electrification and the first to achieve less than 50 percent reliance on traditional cooking fuels. Achieving universal access to electricity and transitioning towards cleaner cooking options are important components of the Energy Sector Strategic Plan (ESSP; 2017–2024) which lays out the energy sector strategy for the NST1. The NST1 identifies the importance of universal energy access for achieving the envisioned social transformation and aims at expanding electricity access to 100 percent of households by 2024 (48 percent off-grid and 52 percent grid connections. NST1 envisages expansion of the energy sector based on least-cost principles and competitive procurement to provide quality, reliable, and affordable energy services to consumers. Furthermore, to improve the quality and reliability of electricity services, the ESSP sets out targets for reducing power interruptions and expanding electricity access to productive users. Recognizing the harmful health and economic impacts of using biomass in traditional cookstoves, the ESSP also aims to reduce the number of households using traditional cooking fuels from 79.9 percent in 2016/17 to 66.6 percent by 2020/21 and 42 percent by 2024 by replacing wood and charcoal with clean cooking options. The GoR also intends to expand the reach of improved cooking solutions to 100% of households by 2030. Additional supporting initiatives include the installation of 35,000 domestic biogas digesters and 15 institutional biogas digesters annually, and increasing average charcoal yields up to 50% by 2030. To enhance the use of LPG, tax exemptions have been implemented on imports of LPG and accessories.The proposed EAQIP project forms part of the multi-donor Rwanda Universal Electricity Access Program (RUEAP) and comprises IDA financing of US$ 150 million and US$ 10 million from the World Bank-administered Clean Cooking Trust Fund, as well as co-financing of EUR 80 million from AFD and US$ 40 million from the OPEC Fund and the Saudi Fund for Development (US$ 288 million-equivalent in total). The proposed EAQIP project will form part of a large, multi-donor energy sector investment financing program to support the Government of Rwanda’s energy access objectives during the period of the National Strategy for Transformation (NST1; 2017-2024). The multi-donor ‘Rwanda Universal Energy Access Program’ will have a total volume of an estimated US$ 650 m, with two constituent projects. The first constituent project is EAQIP, led by the World Bank and co-financed by the Agence Francaise de Developpement (AFD) (joint co-financing; EUR 80 million) as well as the OPEC Fund for International Development (OFID) and the Saudi Fund for Development (SFD) (parallel; US$ 40 million in total). The second constituent project is led by the African Development Bank (AfDB) and co-financed by the European Investment Bank (EIB).In support of the NST1 objectives, , will support investments in access to energy and related upstream infrastructure. The financing is spread across four components, namely: (1) Increasing access to grid electricity; (2) Improving power system performance; (3) Results-based financing for off-grid electricity access and clean cooking; and (4) Technical assistance, institutional capacity building, and implementation support.Investments under Component 1 (IDA: US$90 million; AFD: EUR 80 million; OFID/SFD: US$40 million), includes investment in increasing access to grid electricity through grid connections for households, commercial and industrial consumers, and public institutions. The World Bank allocation of US$90 million for this component is expected to connect about 125,000 households and 5,800 connections within trade centers in selected districts of northern Rwanda; namely, Gicumbi, Musanze, Rulindo, Burera, Ngororero, Nyabihu, and Rubavu. No transmission lines will be financed under this component. The AFD is complementing the World Bank allocation of this component by joint co-financing of EUR 80 million for electrification of about 105,000 households and 11,500 connections within trade centers in districts of western Rwanda. Further, the OPEC Fund is providing US$40 million in parallel co-financing to this component for connection of about 63,000 households and 3,000 connect