Financial Assistance

The primary aim of the DKK 72.4 million (NRS 652 million) component is to aid the penetration of micro-hydro power plants and of solar PV systems (SHS) by part-financing consumer and community investments in these. Some of the financial support will be given in the form of direct subsidies to reduce the upfront cost of investment in such systems. Other finance will be provided in the form of loans that are channelled to investors via banks that are active in rural areas or via the District Energy Funds that are being established under UNDP's Rural Energy Development Programme (REDP).

The secondary purpose of the component is to provide a "reserve budget" for funding new initiatives that are identified during the course of implementing the ESAP. A budget reserve for new programmes is needed because AEPC is a new institution, which needs to define its policies and programmes first.

Provided, that the demand for funds for the two primary purposes is insufficient to satisfy the quality criteria for the Fund, mini-hydro projects as well as rural grid extension projects will be financed as well.

The financial incentives for consumer purchases of SHS will decline each year and end being phased out during the five years of the first phase of the ESAP. The provision of subsidies will be made dependent on firm commitments by manufacturers to pass cost savings from economies of scale on to consumers through lower prices.

Financial funding for investments in micro-hydro and SHS is not included under the budget for the two TA components, because the demand for financial support should depend on consumer demand for micro-hydro projects and for SHS. Market demand will decide the use of funds from the "finance component", and only indicative estimates can be made of its use. DKK11 million (NRS99 million) for micro-hydro, DKK21 million (NRS 190 million) for SHS, DKK6 million (NRS54 million) for new programmes and DKK34 million (NRS306 million) for investments in rural grid extensions.The absence of pre-defined breakdowns for the use of funds is a logical consequence of the bottom-up approach to investment identification and preparation of the ESAP.