Kingdom of Tonga | Asian Development Bank (ADB) 17 March 2017 - Tonga Renewable Energy Project (TREP), under the Pacific Islands Renewable Energy ...
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Tonga Renewable Energy Project (TREP), under the Pacific Islands Renewable Energy Investment Program Kingdom of Tonga | Asian Development Bank (ADB) 17 March 2017
Tonga Renewable Energy Project under the Pacific Islands
Project/Programme Title:
Renewable Energy Investment Program
Country/Region: Kingdom of Tonga
Accredited Entity: Asian Development Bank
Ministry for Meteorology, Energy Information, Disaster
National Designated Authority: Management, Environment, Climate Change and
Communications (MEIDECC)PROJECT / PROGRAMME CONCEPT NOTE
GREEN CLIMATE FUND | PAGE 1 OF 5
Please submit the completed form to fundingproposal@gcfund.org 1
A. Project / Programme Information
Tonga Renewable Energy Project (TREP), under the Pacific Islands Renewable
A.1. Project / programme title
Energy Investment Program
A.2. Project or programme Project
A.3. Country (ies) / region Kingdom of Tonga
A.4. National designated Ministry for Meteorology, Energy Information, Disaster Management, Environment,
authority(ies) Climate Change and Communications (MEIDECC)
A.5. Accredited entity Asian Development Bank (ADB)
Executing Entity: Ministry of Finance and National Planning (MFNP)
A.6. Executing entity / Beneficiary: Ministry for Meteorology, Energy Information, Disaster Management,
beneficiary Environment, Climate Change and Communications (MEIDECC) and Tonga Power
Limited (TPL)
A.7. Access modality Direct ☐ International ☒
A.8. Project size category
(total investment, million Micro (≤10) ☐ Small (10PROJECT / PROGRAMME CONCEPT NOTE
GREEN CLIMATE FUND | PAGE 2 OF 5
A.13. Estimated Start: October 2017
implementation start and end
date End: December 2020
B. Project/Programme Details
The Fund requires the following preliminary information in order to promptly assess the eligibility of
project/programme investment. These requirements may vary depending on the nature of the project/programme.
The Board of the Green Climate Fund (GCF) announced its support for the Pacific Islands
Renewable Energy Program (the Program) in December 2016. The Program will help
seven Pacific island countries transition to a renewable energy future. The Program
Objective is to transform the electricity production sectors across the Pacific to low carbon,
climate resilient pathways, and the Program Outcome will be expanded access to clean,
resilient and affordable energy. Further, the Board approved a $12 million grant for battery
energy storage system (BESS) in the Cook Islands and a $5 million grant for regional
capacity building and sector reform, under the Program.
This proposed Tonga Renewable Energy Project (TREP) take place within the Program,
and is the second project submitted after the Cook Islands. Benefits: TREP: will deliver an
estimated lifetime reduction of 475,750 tCO 2e emissions; and it will contribute greatly to
increasing the contribution of renewables to Tonga electricity production from under 10%
to 50% by 2020. Paradigm shift: TREP will play a central role in carrying renewable energy
use in Tonga to a tipping point – after which renewable energy will become a more default
investment for both private and public sectors.
The Kingdom of Tonga (Tonga) is a small island developing state (SIDS) consisting of 177
islands with a total area of 748 km2 divided into the following four island groups: Tongatapu,
B.1. Project / programme Ha'apai, Vava'u and Niuas. 36 of Tonga’s islands are inhabited and the total population is
description (including estimated at 105,000 (IMF, 2014). The entire country can be considered remote from most
objectives) markets, lying in the Pacific approximately 1,000km from Fiji and over 4,000 km from New
Zealand.
Like many other small Pacific islands, until recently Tonga’s electricity production relied
almost exclusively on diesel generation. All grid-supplied electricity, i.e. over 95% of
electricity used in Tonga, was generated using imported diesel fuel. An estimated 13 million
litres of diesel were consumed annually to only generate electricity, at a cost equivalent to
approximately 10% of total gross domestic product and 15% of national imports. This had
the following negative implications: high greenhouse gas emissions, high electricity
production costs and tariffs, high input price volatility, high dependency on imports, and
localised pollution. As of March 2017, about 11%of electricity demand is met by
renewables.
To respond, the Government of Tonga issued the Renewable Energy Act in 2008.
Transition to renewable energy has been a national priority ever since. In 2009, the Tonga
Energy Road Map, 2010 – 2020 (TERM) established the target of generating 50% of all
electricity from renewables by 2020.
A pillar of efforts to reach the TERM target is the following three-phase plan:PROJECT / PROGRAMME CONCEPT NOTE
GREEN CLIMATE FUND | PAGE 3 OF 5
• Phase 1, 2014 – 2019. The Outer Island Renewable Energy Project (OIREP),
supported by several international partners. OIREP outcomes are: (i) optimized use of
on-grid and off-grid generation systems, and (ii) increased consumer access to
electricity generated by solar power. OIREP outputs include: (i) the construction and
installation of solar power systems with a total capacity of 1.32 MWp on 9 outer islands,
(ii) the transfer of operation and maintenance knowledge, and (iii) rehabilitation of the
existing grid network near the solar power generation systems on the islands of 'Eua
and Vava’u;
• Phase 2: 2017 – 2019. Initial expansion through the most financially attractive projects,
with a total investment of $10 – 15 million. This includes one solar farm to be funded
and built by an independent power producer (IPP), and one wind farm to be funded by
the Japan International Cooperation Agency (JICA);
• Phase 3, 2018 – 2020. This proposed project, TREP is central to Phase 3. Phase 3 is
to help Tonga meet renewable energy targets in its largest demand centre (Tongatapu)
and on the outer islands not covered through OIREP. In parallel, under Phase 3, ADB
support has been requested for a new biomass plant.
Hence GCF support to TREP is part of a strategic package of investments supporting
implementation of TERM.
TREP investments focus on renewable energy generation and BESS. Generation is both
on-grid and on mini-grids. TREP invests on Tongatapu and at least seven outer islands.
TREP also includes the necessary capacity development and training programs to ensure
long-term sustainability of impacts. TREP includes the following sub projects:
Sub-project no., location and Generation Storage capacity No. of
technology capacity beneficiaries
1. Tongatapu: 3 units of BESS - 6.9MW/18.30MWh Indirectly: 75,000
(all island)
2. Tongatapu: grid connected 4MW 1.4MW/0.7MWh Indirectly: 75,000
solar PV (all island)
3. ‘Eua: solar PV and BESS 0.4MW 0.5kWh Indirectly: 5,000 (all
island)
4. Vava’u: solar PV BESS 0.5MW 1.1MW/1.5MWh Indirectly: approx.
10,000 (all island)
5. Tongatapu: grid connected 5.3 MW 1.8MW/0.9MWh Indirectly: 75,000
wind farm (all island)
6. 4 outer islands (Nomuka, 0.32MW 1.68MWh 1-2,000
Ha’afeva, Uiha and Ha’ano):
solar mini-grid and BESS
7. Niuafo’ou: solar mini-grid and 0.122MW 0.52MWh 650
BESS
8. Capacity building n/a n/a n/aPROJECT / PROGRAMME CONCEPT NOTE
GREEN CLIMATE FUND | PAGE 4 OF 5
In total TREP should lead to approximately 10.65 MW of installed RE capacity and almost
24MWh of BESS capacity.
The ADB is a multilateral development bank that provides loans, grants and technical
assistance. ADB is composed of 67 members, 48 of which are from the Asia and Pacific
region. ADB’s clients are its member governments, who are also its shareholders.
Moreover, ADB provides direct assistance to private enterprises of developing member
countries through equity investments and loans. In 2016, loan, grant and technical
assistance approvals to ADB's developing member countries amounted to $17.8 billion,
B.2. Background and total co-financing mobilized, with donor support, amounted to $13.9 billion, bringing
information on total sovereign operations to $31.7 billion in 2016. Non-sovereign operations for the same
project/programme year amounted to $2.5 billion.
sponsor
ADB has the largest energy portfolio amongst development partners in the Pacific, covering
electricity generation, transmission and distribution. Currently, the regional energy portfolio
consists of 14 projects in 8 countries for a total investment of over $350 million.
ADB has been operating in Tonga since 1972 and has provided the country with $168.5
million in loans, grants, and technical assistance.
Not applicable
B.3. Market overview
The following are to play leading roles in the project:
• Tonga Power Limited (TPL), a regulated public enterprise. Its core business is the
generation and distribution of electricity across four grid system in the country;
• MEIDECC Department of Energy, responsible for policy formulation as well as
implementation of rural electrification and demand management projects;
• Electricity Commission, responsible for the establishment of the tariffs;
• Minister for Finance and Planning, supervises the Electricity Commission and reports
to the Legislative Assembly
The implementing partners - MEIDECC and TPL - have the mandate and authority to
B.4. Regulation, taxation implement the activities foreseen under this project. They have significant experience
and insurance executing and implementing energy sector projects.
MEIDECC and TPL will be required to obtain project development permits. In doing so,
they will respect all national laws and regulations, including environmental regulations, and
regulations guiding the need for consultation and stakeholder consent, and all national
procedures for land acquisition. Notably, the Tonga Environmental Impact Act (2003)
requires all major projects to undertake an environmental impact assessment, and this will
be undertaken, if required.
ADB financed projects in Tonga are tax exempt. As per the Electricity Amendment Act
(2010), all plant and machinery required for setting up power plants in Tonga is exempt
from all taxes and duties.
Governance
The Government of Tonga has established a high level Taskforce to implement TERM.
Under the TERM Taskforce, a GCF sub-committee has been established for this TREP
project to support TREP project development and coordination. The sub-committee is
chaired by MEIDECC and its members include TPL, the Ministry of Finance and National
Planning, an OIREP representative, and a representative from the Tonga ADB extended
mission office. It reports directly to the Deputy Prime Minister. After approval, this sub-
Committee will become the Project Steering Committee. With support from a Project
B.5. Implementation
Management Unit (PMU), the Committee will oversee project implementation, facilitate
arrangements
information flows and support coordination.
Implementation
TPL will implement all grid-connected renewable energy and BESS sub-projects (#1, 2, 3,
4, and 5 of Table in B1). MEIDECC will implement mini and off-grids renewable sub-
projects coupled with BESS sub-projects (#6 and 7). The PMU will be established in
MEIDECC and be responsible for all sub-projects.PROJECT / PROGRAMME CONCEPT NOTE
GREEN CLIMATE FUND | PAGE 5 OF 5
Design and supervision consultants will be mobilized through separate contractual
arrangements. These consultants, on behalf of the Government of Tonga and ADB, will
oversee all implementation: procurement, contracting, civil works and maintenance.
Timetable
GCF Board Approval: October 2017
ADB Board Approval: April 2018
Bidding documents and bidding: Q4 2017 – Q4, 2018
Contract award: by Q4, 2018
Construction: Q2 2018 – Q4, 2019
Testing/Commissioning: Q2 2019 – Q3 2020
Training, O&M: Q4 2019 onwards
Evaluation: Q4 2020
C. Financing / Cost Information
Investment Program
The TREP cost is estimated at $84.47 million. The indicative financing plan for TREP is presented in the
following table:
Source Net Amount ($ million) Share (%)
Green Climate Fund 64.37 76
Co-financing from donors 5.00 6
Tonga Power Limited 6.10 7
Government of Tonga (GoT) 9.00 11
Total 84.47 100
Notes
All amounts to be confirmed during full project development stage.
Government contribution includes exemptions from taxes and duties
The estimated cost breakdown by sub-project is presented in the following table:
Cost
Sub-project
($ million)
C.1. 1. Tongatapu: battery storage 18.16
Description of 2. Tongatapu: grid connected solar PV 10.62
financial 3. ‘Eua: solar PV and battery storage 2.51
elements of 4. Vava’u: solar PV and battery storage 2.63
the project / 5. Tongatapu: grid connected wind farm 21.25
programme 6. Four outer islands (Nomuka, Ha’afeva, Uiha and Ha’ano): solar mini-grid and
battery storage 3.54
7. Niuafo’ou: solar mini-grid and battery storage 2.66
8. Capacity Building 3.00
9. Management support 5.00
10. Land acquisitions 6.10
11. Taxes and duties 9.00
Total 84.47
The estimated cost breakdown by input is presented in the following table (details to be discussed and
confirmed during the detailed project design stage):
Item GCF GoT TPL Other Total
Design, Supply and Install for Plants 61.37 61.37
Consulting services 3.00 5.00 8.00
Taxes and duties 9.00 9.00
Land acquisition. 6.10 6.10
Total 64.37 9.00 6.10 5.00 84.47
All figures in US$ million
C. Financial Instrument Amount Currency Tenor Pricing
2.
Pr Total
oj $84.47 million
projectPROJECT / PROGRAMME CONCEPT NOTE
GREEN CLIMATE FUND | PAGE 6 OF 5
ec financin
t g
fin (a) = (b)
an + (c)
cin
g 0 ( ) ( )%
(i) Senior Loans
inf years
0 ( )%
or (ii) Subordinated Loans
( )
m 0 ( ) % IRR
(iii) Equity years
ati
0
on (iv) Guarantees
0
(v) Reimbursable grants *
$64.37 million
(vi) Grants *
As described above, TREP is part of Phase 3 of implementing the TERM.
Phases 1, 2 and 3 have had significant support from many partners, including
ADB. Aside from TREP, the investments in the 3 Phases so far total
approximately $45 million, as follows:
• Phase 1: total investment of $24.72 million, including $11.44 million from
ADB ($7.44 million grant and $4 million loan);
• Phase 2: total investment of $10 – 15 million;
• Phase 3: (i) TREP and (ii) $8 million biomass plant, 50% financed by
concessional loan (currently under consideration by ADB).
Justification for grant financing
SIDS status and vulnerability: Tonga is a small island development state and
(b) is highly vulnerable to external economic and climatic shocks. Tonga is
Request ranked second among the countries considered most at risk from natural
ed GCF disasters (2016 World Risk Report). Further, although not considered to be in
amount a fragile and conflict-affected situation (FCAS), Tonga and other Pacific
island countries do meet some of the criteria for FCAS classification.
Foreign exchange risk: As of end-June 2016, over 90 percent of the total
public debt stock was denominated in foreign currency, and therefore
exposed the country to exchange rate risks.
Need for socially equitable Tariffs: Electricity tariffs are already very high in
Tonga and government social policy precludes increasing them. Analysis
suggests that utilising grant instead of loan for TREP would reduce tariffs to
consumers by up to about 18.6%, thereby helping to meet social objectives.
Debt ceilings: According to the 2016 International Monetary Fund/World
Bank Debt Sustainability Analysis, Tonga is considered at moderate risk of
debt distress. As such, the debt levels must be carefully managed and
monitored.
The GCF ITAP review of the Regional Programme stated “the Cook Islands
and Tonga have reached national debt ceilings. It is not considered
reasonable for the GCF to extend loans to these SIDS” (GCF ITAP,
December 2016) 2.
Finally, in December 2016, GCF approved $12 million grant investment in
renewable energy/battery storage on the Cook Islands – a nation facing
similar conditions to Tonga.
2 GCF/B.15/13/Add.16/Rev.01n (December 2016)PROJECT / PROGRAMME CONCEPT NOTE
GREEN CLIMATE FUND | PAGE 7 OF 5
In line with the above, grant financing is requested in order to meet this
opportunity to support the adoption of renewable energy technology in
Tonga.
Total Requested
$64.37 million
(i+ii+iii+iv+v+vi)
Name
of
Financial Instrument Amount Currency Seniority
Instituti
on
(c) Co- Grant $5 million Options Donor
financin (tbc)
Grant $6.1 million Options
g TPL
Grant $9 million Options
Govern
Options
ment
………
…………
Lead financing institution: Asian Development Bank
(d)
Covena Not applicable
nts
(e) The GCF grant proceeds administered by ADB will be disbursed in accordance with the procedures set
Conditio out in ADB’s Grant Disbursement Handbook (2007, as amended from time to time), and detailed
ns arrangements agreed upon between the Government and ADB. Pursuant to ADB's Safeguard Policy
precede Statement (2009) (SPS), ADB funds may not be applied to the activities described on the ADB
nt to Prohibited Investment Activities List set forth at Appendix 5 of the SPS. All financial institutions will
disburse ensure that their investments are in compliance with applicable national laws and regulations and will
ment apply the prohibited investment activities list to the components financed by ADB.
D. Expected Performance against Investment Criteria
Please explain the potential of the Project/Programme to achieve the Fund’s six investment criteria as listed below.
Mitigation
The TREP will contribute to climate change mitigation by reducing emissions of greenhouse gases.
The reduction estimates for the sub-projects are presented in the following table:
Fuel Saving CO2 Emission
(Liter/ yr) Reduction (ton/yr)
Battery energy storage system (BESS)
1 3 units of BESS in Tongatapu 1,200,000 3,250
Grid-connected solar PV farms
D.1. Climate 2 2 grid-connected solar PV plants in Tongatapu 1,500,000 4,100
impact potential 3 Solar PV Farm with BESS in 'Eua 200,000 570
[Potential to 4 Solar PV Farm with BESS in Vava’u 300,000 800
achieve the Grid-connected wind farms
GCF's 5 Grid-connected wind farms in Tongatapu 3,600,000 9,800
objectives Solar + BESS mini-grid in outer islands
6 80kWp solar mini-grids with 420 kWh battery storage
and results] 141,000 320
each in 4 outer islands of Ha'apai
7 122kWp solar mini-grid with 520kWh battery storage in
86,000 190
Niuafo’ou
8 Capacity Building - -
9 Project Management Support - -
Total 7,027,000 19,030
Source: Based TPL’s estimates and OIREP reports
The total estimated savings are 19,030 tons of CO 2e on an annual basis.PROJECT / PROGRAMME CONCEPT NOTE
GREEN CLIMATE FUND | PAGE 8 OF 5
Adaptation
Tonga is highly vulnerable to climate change induced sea level rise and the increased
frequency/intensity of storms, including tropical cyclones. The infrastructure provided through this
project will be designed to be resilient through all realistic climate change scenarios. This represents
a material improvement over the baseline situation.
The TREP will contribute greatly to energy security on Tonga. There will be less reliance on imported
fuels. The grids and mini-grids will be designed to be more reliable and more resilient. There will be
greater capacity to manage and maintain grids. The more reliable energy supply will support early
warning systems, information systems as well as health care and awareness raising programs. As a
result of these changes, Tonga’s society and economy will be more resilient to climate change.
Paradigm shift
As mentioned earlier, TERM represents a paradigm shift, not only for Tonga, but also for the Pacific.
However, until now, due to financial constraints, TERM implementation has been limited. Tonga, as
for many of the Pacific islands, stands at important cross-roads. It can either continue on the previous
path of fossil fuel dependence with consolidated investments or it can achieve a transition to low carbon
energy sector through renewable energy. The Government of Tonga, through the TERM, has opted
for the latter transition. This will also lead to benefits in terms of energy security, improved balance of
payments, increased energy access for marginalized communities and reduced local pollution.
Tonga already has some experience with a small scale of solar, biomass energies and limited
experience with a large (utility) scale wind power and storage systems. However, to take the sector to
tipping point, after which renewables will be in most cases the default investment for both public and
private sector, the transition require a sizable push in investments and in technology development, to
build momentum on Tongapatu and to demonstrate technical and economic feasibility on the outer
islands and in the mini-grids. The 3-Phase journey described in the previous sections should take
Tonga to that ‘tipping’ point.
This is in line with the findings of the GCF ITAP review of the Regional Program which stated “Most
Pacific countries lack the budget to support rural electrification programmes. Renewable energy for
D.2. Paradigm rural electrification offers a paradigm shift as low cost power generation will allow power utilities to
shift potential extend grids and improve access at lower power generation costs” (GCF ITAP, December 2016).
[Potential to
catalyze Knowledge management and lesson learning
impact
beyond a TREP is the second to be proposed to GCF under the Program, following the Cook Islands project in
one-off December 2016. Further projects are being developed in the Federated States of Micronesia, Nauru,
project or Papua New Guinea, Republic of Marshal Islands and Samoa. Under the Program, a regional
programme coordination and knowledge management mechanism will be established with the support of ADB.
investment] Initially, the following knowledge exchange will be supported:
• Tonga to learn from the Cook Island experience with installing BESS, including the institutional
and capacity support mechanisms;
• All countries to learn from Tonga with regards to BESS, grid-integration of intermittent electricity
generated by solar and wind power, and institutional and capacity support mechanisms.
Enabling Environment and Regulatory Framework
Tonga has already taken steps to strengthen its enabling environment and regulatory framework,
starting in 2008 with the Renewable Energy Act and the preparation of TERM in 2009.
Notably TERM, a ten year action plan covering 2010 – 2020, included comprehensive measures to
update policy, legal, regulatory and institutional arrangements. Much of this has been implemented,
including actions under Phases 1 and 2 described above.
The Government of Tonga is currently preparing a ‘National Energy Bill’. This should set out further
institutional, regulatory and policy reforms and lead to streamlined policy and decision making. It
should also lead to the formal establishment of a Department of Energy. TREP implementation will
be interacting with this process and helping to implement the provisions of the Bill, once approved.
This is in line with the findings of the GCF ITAP review of the regional Program which stated “the first
few projects under the current project/programme intervention will help to establish links withPROJECT / PROGRAMME CONCEPT NOTE
GREEN CLIMATE FUND | PAGE 9 OF 5
international investors, lenders, specialized consultants (engineering, legal, etc.) and equipment
suppliers, and to further develop the capacities of local partners across the supply of the SIDS
region, which will foster the development and implementation of renewable power projects” (GCF
ITAP, December 2016).
Environmental: The anticipated environmental benefits include (i) reduced localized air pollution due
to less use of diesel generators and (ii) reduced risk from diesel spills resulting in less land and water
contamination. These benefits applies to Tongapatu and to all involved islands, affecting a population
of over 70,000.
Social: the anticipated benefits include: (i) improved reliability of electricity supplies, especially on the
outer islands (ii) reduced tariffs for electricity on Tongapatu and all involved islands. These in turn will
lead to many social and cultural benefits such as facilitating educational and health-care activities.
Economic: Increased reliability and reduced tariffs for electricity facilitate local business and economic
D.3. Sustainable
development. The reduced imports of fossil fuel facilitates the reduction of Tonga’s negative balance
development
of payments. A renewable-led electricity sector also makes Tonga more attractive as a tourist
potential
destination.
[Potential to
provide wider
Gender: Experience from the region and across the world suggest that, if well designed and planned,
development
renewable energy use can deliver gender benefits. TREP will ensure that there is equal opportunities
co-benefits]
provided for all females at all stages. TREP impacts will also facilitate income-generating opportunities
for women in rural and isolated communities and enhance women’s social and political status. An
ongoing gender assessment will identify needs and opportunities and set out the required actions
through the Gender Action Plan (GAP).
This is in line with the findings of the GCF ITAP review of the Program which stated “all these co-
benefits will enhance the sustainable development potential of the intervention. These metrics and the
fact that the revenue generation potential of the renewable energy projects in each of the SIDS
countries will enhance the sustainability of the projects” (GCF ITAP, December 2016).
As for all Pacific island states, Tonga is small in size and has limited natural resources. The economy
is not diverse, and Tonga is far from markets, and vulnerable to exogenous shocks. All these factors
affect growth and contribute to economic volatility.
D.4. Needs of
Tonga faces challenges to address economic and social poverty. For example, an estimated 22.5%
recipient
of the population lies below the national poverty line, and this percentage has been increasing in
[Vulnerability
recent years. In addition, approximately 0.14% of children die before their first birthday. (Source:
to climate
ADB website). These figures are worse for rural areas and on outer islands. Sustainable energy can
change and
play a key role in overcoming these poverty challenges.
financing
needs of the
Natural climate disasters and climate change pose a threat to the people of Tonga, its society,
recipients]
livelihoods and its national environment. Despite Tonga’s minute contributions to greenhouse gas
emissions, climate change is already affecting Tonga’s development, livelihood of its people and
future.
Energy policy and interventions in Tonga are partly driven by regional level initiatives and accords.
This project in part responds to the regional Framework for Action on Energy Security in the Pacific
(FAESP) 2010-2020, as endorsed by all Pacific Island leaders in 2010. FAESP assessed the threats
D.5. Country to achieving energy security in the Pacific. It found that the threats arise from the interaction of a
ownership multitude of factors including: fast growing populations without economies to match; remoteness and
[Beneficiary distances from main centres and supply chain pathways; vulnerability of energy infrastructure to natural
country disasters such as cyclones, earthquakes, flooding and tsunamis; inability to take advantage of
ownership of economies of scale due to small populations and limited industrial activity; old and poorly maintained
project or energy infrastructure, etc. The regional Program was set up as a response to FAESP. This is the
programme second project under the Program and the first for Tonga.
and capacity
to implement However, and as mentioned above, Tonga, through TERM, was a key driver of the above regional
the proposed developments.
activities]
Energy security, renewable energy and TREP are all amongst the highest priorities of the Tonga
government and stakeholders. This is stated clearly in TERM, in Tonga’s Second National
Communication to the UNFCCC and in the Tonga (I)NDC to UNFCCC. All of these specify the objectivePROJECT / PROGRAMME CONCEPT NOTE
GREEN CLIMATE FUND | PAGE 10 OF 5
of having 50% of electricity generated from renewable energy sources by 2020. Further, the present
Government, on taking office in December 2014, stated that access to affordable and reliable sources
of energy is crucial to sustainable livelihoods in Tonga’s scattered islands.
Finally, the ITAP review of the Program found “ample evidence .. of a high level of interaction with
relevant stakeholders in all the countries …” and so ranked the country ownership as high. (GCF ITAP,
December 2016).
First, TREP Project takes place within a multi-Phase program, with ongoing activities financed for
approximately $45 million.
The costs and mitigation targets for TREP specifically are summarized as follows:
a) Total project cost: $84.47 million
b) Requested GCF amount: $64.37 million
D.6. Effectiveness c) Expected annual tCO 2eq reductions: 19,030
and d) Estimated lifetime tCO 2eq reductions (25 year): 475,750
efficiency e) Estimated GCF cost per tCO 2eq reduction (b)/(d): $135.3/ton
[Economic
and financial TREP will reduce GHG emissions by an estimated 475,750 tCO 2e for a total GCF investment of
soundness $64.37 million at a rate of $135.3 per tCO 2e . As noted in the ITAP review of the Program (GCF ITAP,
and December 2016), this compares favorably to recent solar power development project in the Solomon
effectiveness Islands that yielded a cost of USD 724 per t CO2 eq. Hence the mitigation impact can be considered
of the as high.
proposed
activities] Previous economic assessments suggest that each individual sub-project within TREP is
economically feasible. However, a full economic and financial analysis is currently being undertaken.
Efficiency in implementing TREP will be optimized by:
• As part of the Pacific Islands Renewable Energy Investment Program, it is expected to
benefit from shared input mobilization and possibly joint procurement;
• ADB’s experience and network of partners in the region;
• ADB and other partners will continually observe the prices of concerned technologies, to
ensure that best available technology is obtained at most affordable prices.
E. Brief Rationale for GCF Involvement and Exit Strategy
Rational for GCF involvement
Tonga has an opportunity to transform to a low carbon, resilient electricity sector and has already made progress, with its
own limited funds and support from international partners. However, without continued and significant support, the way
ahead is uncertain. Tonga cannot access the financial resources necessary to make the investments, and certainly cannot
at the rapid pace required to secure this opportunity. With support from GCF and other partners, it should be possible to
take renewable energy electricity generation (and associated storage) to a ‘tipping point’ beyond which investment in
renewables becomes the automatic course of action.
In addition, GCF support, through the ADB, and as part of the Pacific Islands Renewable Energy Investment Program, will
have the following benefits:
• access to international networks to ensure best possible technologies and practices are adopted;
• support to ensure best prices are negotiated for procured equipment and civil works.
Sustainability
TREP takes place within TERM and is fully supported by the Government of Tonga. MEIDECC and TPL will be the
implementing agencies of TREP. They are committed to the project’s success and sustainability.
In line with TERM, Tonga has already made institutional and financial reforms necessary to support sustainable
development of the electricity sector. These ensure that revenue is sufficient to support operations and maintenance, that
capacity is sufficient to support technology maintenance, and that the institutional responsibilities are clear. Further, key to
sustainability is the Government’s commitment to O&M and asset management.
Other aspects of TREP contribute to its sustainability, notably: the project will help drive the costs of renewable energy
down, and so make electricity more affordable on Tonga; and all project assets will be incorporated into the national power
utility asset base, and operated and managed accordingly.PROJECT / PROGRAMME CONCEPT NOTE
GREEN CLIMATE FUND | PAGE 11 OF 5
F. Risk Analysis
Operational/financial risks
A risk assessment is being undertaken as part of the ongoing feasibility study. Currently, two significant risks have been
identified:
Capacity to operate and manage: Assessment: Previous capacity to operate and maintain energy infrastructure has
exhibited some weaknesses on Tonga. Further, the project does introduce some new technologies that require new
skills to operate and maintain. Hence the risk is medium. Mitigation: Government has committed to taking all necessary
maintenance measures. For instance, on 16 December 2015, the Hon. Cabinet Ministers approved that (i) TPL
undertake the maintenance of both the outer island mini grid component and solar home system component, and (ii)
the Government will cover the annual maintenance estimated costs and any other associated costs. The project
includes a major capacity development component, based on a thorough capacity assessment. As a result, multiple
staff will be trained in the operation and maintenance of the generation and battery storage facilities to ensure that there
is a broad body of technically qualified people.
Price of diesel: Should the price of diesel fall too low, the cost of producing electricity from renewable sources will
become non-competitive. Assessment: It is noted that (a) the price of oil has held up at reasonable levels in recent
years and there is no reason to expect a significant fall (b) the price of renewable energy technologies continue to fall –
and independent of petroleum prices. Hence the risk is low. Mitigation: given low level of current risk, the situation will
be monitored.
Environmental and social risks
The project is being developed in accordance with ADB procedures and rules, notably ADB’s Safeguard Policy
Statement (2009). The project is expected to be categorised as Category B for environment and for involuntary
resettlement and Category C for indigenous people. A team of experts has been mobilized to confirm these categories
and undertake due diligence assessment.
With regards to environment, Category B means “few, if any, potential adverse impacts that are site-specific, and, if
any, are irreversible, and mitigation measures can be designed readily”. To address and mitigate these risks, an Initial
Environmental Evaluation (IEE) and Environmental Management Plan will be prepared. This will set out the potential
adverse environmental impacts of the activities, and the measures to be taken to manage and to mitigate them.
With regards to involuntary resettlement, if Category B, a Land Acquisition and Review Framework (LARF) will be
prepared. This will outline social safeguard procedures to follow. Next, a Resettlement plan will be prepared. This will
describe the population affected by resettlement, and will describe how they are to be assisted.
For indigenous people, Category C means the project is not expected to have impacts on indigenous peoples and no
further action is required.
G. Multi-Stakeholder Engagement
The identification and design of this Project builds on the thorough consultation process that led to the TREM in 2009.
Subsequently, at the national level, detailed consultation has occurred and is ongoing with concerned government
departments (MFNP, MEIDECC and TPL) and with potential partners (JICA and Government of Australia).
On the ground consultations with beneficiaries. Significant consultations have already taken place with many
beneficiaries and many local stakeholders - see details in the pre-feasibility studies provided in Annex. As mentioned
above, a gender assessment is being undertaken and a gender action plan is being prepared.
The ongoing process to finalize the feasibility study and to undertake the due diligence will include the preparation of a
stakeholder participation plan.
H. Status of Project/Programme
Pre-Feasibility study:
Initial, although in some cases detailed, studies have been completed for all project infrastructure components. These
are attached in Annex and include:
Sub-project Study titlePROJECT / PROGRAMME CONCEPT NOTE
GREEN CLIMATE FUND | PAGE 12 OF 5
1. Tongatapu: battery storage Sustainable Utility-Scale Energy Storage on the Four Island Grids
(ITP, 2016)
2. Tongatapu: grid connected solar PV Tonga Renewable Energy Master Plan - 6 MW Roadmap
(AECOM, 2016)
3. ‘Eua: solar PV and battery storage Kingdom Of Tonga - Outer Islands Renewable Energy Project
4. Vava’u: solar PV and battery storage (OIREP) - inception report (STR, 2015)
5. Tongatapu: grid connected wind farm Tongatapu Wind Generation Feasibility Study (Aurecon, 2016)
6. Four outer islands (Nomuka, Ha’afeva, Uiha and Ha’ano):
Tonga “Outer Island Renewable Energy Project” (OIREP) - Phase
solar mini-grid and battery storage
2 Site Visit Report (TPL, 2016).
7. Niuafo’ou: solar mini-grid and battery storage
However, some gaps exist in the above-mentioned analyses. Further, the rapidly evolving nature of the technology
means that some of these studies require updating – particularly the cost and economic analyses. The updating and
gap-filling is now ongoing, together with the due diligence and gender assessment.
1) Please indicate whether a feasibility study and/or environmental and social impact assessment has been
conducted for the proposed project/programme: Yes ☐ No ☒ (It’s currently being conducted)
(If ‘Yes’, please provide them in section J.)
2) Will the proposed project/programme be developed as an extension of a previous project (e.g. subsequent phase),
or based on a previous project/programme (e.g. scale up or replication)? Yes ☒ No ☐
(If yes, please provide an evaluation report of the previous project in section J, if available.)
As described previously, this forms part of Phase 3 of a multi-phase package of activities. As of yet no activities have
been completed – hence evaluation reports are not available.
I. Remarks
J. Supporting Documents for Concept Note
☐ Map indicating the location of the project/programme (To be included in a final proposal)
☐ Financial Model (To be included in a final proposal after completion of the feasibility assessments)
☒ Pre-feasibility Study
• Sustainable Utility-Scale Energy Storage on the Four Island Grids (ITP, 2016);
• Tonga Renewable Energy Master Plan - 6 Mw Roadmap (Aecom, 2016);
• Kingdom Of Tonga - Outer Islands Renewable Energy Project (OIREP) - inception report (STR, 2015)
• Tongatapu Wind Generation Feasibility Study (Aurecon, 2015);
• Tonga “Outer Island Renewable Energy Project” (OIREP) - Phase 2 Site Visit Report (TPL, 2016);
• Upgrade of Grids and Preparing the Utility for Operations with Renewable Energy Plants - Stage 2 -
Modelling of Renewable Energy Penetration Scenarios” (Aecom, 2016).
☐ Feasibility Study (if applicable) (To be included in a final proposal after completion of the feasibility
assessments)
☐ Environmental and Social Impact Assessment (if applicable) (To be included in a final proposal after
completion of the feasibility assessments)
☐ Evaluation Report (if applicable)
☒ GCF-ITAP Report prepared in December 2016You can also read
