Lessons

Federated States of Micronesia: Yap Renewable Energy Development Project

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Lessons

Recalculating economic and financial returns to reflect proposed changes in scope will enable sound decisions on the options to take to achieve optimal cost-benefit ratios.

Recommendations from the project preparatory technical assistance provided by ADB and the ones developed by the design and supervision consultant (DSC) during the inception phase differed on the wind and diesel components.  The DSC recommended reducing the total installed wind capacity and increasing the installed capacity and changing the speed of the diesel generators.  It also added a new component, an integration and control system. While the project inception report prepared by the DSC included updated costs and performance, there appears to have been no changes on the calculations made during appraisal of the project’s economic and financial returns. Revised calculations would have allowed the executing agency to make more knowledgeable decisions on the costs and benefits of the options available. 

Project Cycle Stage: 
Implementation

Inaccurate projections about solar irradiation can lead to suboptimal performance of solar systems.

This project’s actual solar output was 20% below target even while the projections were made at a conservative 90% confidence level. The reasons for the shortfall are unclear. However, the fact that a concurrent solar project—with a different designer, contractor, equipment, and mounting arrangement—had the same performance level indicates a common issue, possibly linked to solar irradiation data gathering.  Possible inaccuracies in solar irradiation data collection and projections need to be handled better in future solar projects financed by ADB.  

Project Cycle Stage: 
Preparation

Detailed system modeling during project preparation enables a more reliable forecast of project outcomes.

The issue of medium-speed versus high-speed diesel generators was addressed at a quantitative level in the report prepared by ADB’s project preparation consultants who recommended the use of medium-speed units.  Noting an unreferenced 2010 report by a consultant firm that had recommended high-speed units, the design and supervision consultant (DSC) conducted system modeling and likewise recommended the use of high-speed generators. The project proceeded with high-speed units, which meant that the planned improvement in gross generator efficiencies did not materialize even though net efficiencies, after parasitic load is considered, have improved. The DSC therefore effectively sought to achieve the project objective of increasing energy security by reducing fuel consumption rather than improving efficiency, and the project exceeded fuel reduction targets. Detailed system modelling during project preparation would have identified these issues and enabled a more accurate projection of the outcomes.  (Preparation: energy projects, renewable vs. conventional energy projects, high-speed vs. low-speed diesel generators)

Project Cycle Stage: 
Preparation

Site suitability is crucial to the performance of wind energy systems.

The project preparatory technical assistance report addressed the risks associated with poor wind data by proposing a phased approach to the wind component. During inception, the design and supervision consultant conducted detailed measurements, which firmed up wind data assumptions and revealed the site restrictions in the number of turbines that may be installed.  Only 3 of the planned 5 turbines were consequently put in place because of these restrictions. To avoid changes in scope, future projects should ensure the suitability of the projects sites during the preparation of wind energy projects. 

 

Project Cycle Stage: 
Preparation

Carefully assessing the need for bid prequalification and incorporating it into the project schedule will foster timely procurement and enhance the efficiency of projects.

The design and supervision consultant recommended prequalification for the integration and control system and wind packages. Each took about 5 months, but the wind prequalification failed with no applicant meeting the specified criteria and with procurement proceeding through the post-qualification procedure. To avoid a repeat of the wind prequalification experience, which only delayed procurement, the need for prequalification should be assessed during project preparation and considered in the project schedule. 

Project Cycle Stage: 
Implementation

Splitting contracts can increase the risk of project delays.

Procurement of the wind, diesel, and integration and control system components of this project used a turnkey approach, while the solar component used a split contract approach that included 1 main goods supply package, 2 balance of plant packages, and the executing agency undertaking the construction activities. It is unclear whether the split contract approach reduced overall costs, but it did delay implementation. The idea of using a split contract approach in future projects should consider the increased risk of delays it poses.  

Project Cycle Stage: 
Implementation

Sound gender analysis is vital to the formulation of realistic gender action plans (GAPs) in ADB-financed projects.

The implementation of this project’s GAP was unsuccessful because of unrealistic targets and activities. Limited data were also available on the GAP activities and achievements under the project. Future projects can do better by conducting a gender analysis to inform GAP preparation and ensure that the GAP targets and activities are realistic and feasible.  GAP implementation should be monitored, with support provided to the project teams, to ensure the delivery of planned results.  

Project Cycle Stage: 
Preparation
Implementation

System maintenance needs to be incorporated in the design of wind energy projects.

The project envisaged that the executing agency (EA) would employ a wind turbine maintenance and training contractor for the first 3 years of operation. This was a good feature of the project design, considering the complexity of wind energy system operation and maintenance, and the EA’s lack of experience. While the pertinent covenant was only partially complied with, the experience has highlighted the importance of incorporating system maintenance in the design of future wind projects especially in cases where borrower capacity for this is weak. 

Project Cycle Stage: 
Preparation

Small utilities need to be more creative in ensuring the integrity of their financial and internal control systems.

The Yap State Public Service Corporation (YSPSC), the executing agency for this project, explained that its lack of an internal auditor was due to its small size, and that the role was being performed by the accounting manager. This arrangement does not promote the integrity of internal control processes and points to an inadequacy in YSPSC financial policies.  To address these issues in future projects, small utilities should be encouraged to adopt alternative approaches that will not cause them additional overhead.  Such approaches can include engaging external auditors to conduct periodic internal audits in addition to annual financial audits. 

Project Cycle Stage: 
Implementation
Background

Yap state, with a population of 11,400 during project preparation, is one of the four states of the Federated States of Micronesia. In 2013, it was 100% dependent on imported diesel for power generation on the main island. Due to high diesel costs, power tariffs were high, and the Yap economy was vulnerable to fuel price shocks. To reduce reliance on diesel, the Yap state decided to add renewable energy sources to its energy generation mix.  

Against this backdrop, the Yap power and water utility, the Yap State Public Service Corporation (YSPSC), designed the Yap Renewable Energy Development Project. The project's envisaged impact was improved energy security of the Yap state. Its expected outcome was YSPSC would supply an increased amount of clean, renewable energy. It had two planned outputs (i) installation of wind power generators, and (ii) installation of solar energy sources.

The Asian Development Bank (ADB) provided technical assistance (TA) for project preparation.  Based on a least-cost analysis, the TA consultants recommended that the project add 300 kilowatts (kW) of roof-mounted solar photovoltaics (PV); 1.4 megawatts of (MW) of wind turbines, comprising five 275 kW turbines to be installed in two phases; and a 1.8 MW medium-speed diesel. The recommendations were incorporated into the initial design of the project, approved by ADB for two loans aggregating $9.04 million in June 2013.  Some of the recommendations were revised, following the audit of the initial design by the design and supervision consultant (DSC).  The revisions indicated that the project would support Yap to achieve a 17% renewable energy penetration rate, against the original 22% projection.

At completion, the project constructed 3 wind turbines in a single phase, with a 90% confidence level output of 1.2 gigawatt-hour (GWh) per year. Commissioned in 2018, the smaller number of turbines was recommended by the DSC, which reassessed site conditions, considered permitting issues in further detail, and factored in newly available wind data.  Because of fewer turbines, the project produced only 1.5 GWh of electricity per year against the target of 2.6 GWh.  

Solar energy installed was, as proposed by both the TA and DSC, 300 kW. The installation was completed in 2016; however, with an actual capacity factor of 13% against the projected 17%, solar power produced during the monitoring period was only 0.35 GWh, against the target of 0.44 GWh. To better match varying load and allow for increased renewable energy penetration, two high-speed diesel generators, instead of a single 1.8 MW medium-speed generator, were put in place in 2017.  Against the projected outputs of 9.9 GWh per annum and 15 kilowatt-hour (kWh) per gallon efficiency, actual efficiency of the high-speed generators during the performance period was 13.1 kWh per gallon and actual output was 8.9 GWh.

Despite shortfalls in meeting its outcome targets, the project overall achieved its intended impact of improving Yap’s energy security.  It was able to reduce diesel imports by 25% by December 2019 from a baseline of 980,000 gallons in January 2012. Over the same period, actual diesel usage was 681,153 gallons, representing a 30% decrease. Its wind and solar installations contributed 17% of the 19.3% share of renewable energy in total generation, thus successfully achieving its revised penetration target. Actual reduction in carbon dioxide emissions from the 2012 baseline was 2,975 tons against a target of 3,000. However, allowing for a 5% increase in electricity demand between the base year and 2013, the actual carbon dioxide savings in 2013 amounted to 3,470 tons.  The project was responsible for 88% of this reduction.

YSPSC was the executing agency.  The DSC it engaged evaluated the initial project design, supported procurement, and supervised the contractors during implementation.

Project Information
Project Name: 
Yap Renewable Energy Development Project
Report Date: 
November, 2019
Main Sector: 
Energy
Country: 
Micronesia
Project Number: 
44469-013
Report Type: 
PCR
Project/Modality: 
Project loan
Themes: 
Environmentally Sustainable growth
Inclusive Economic Growth
Gender Equity and Mainstreaming
SDG: 
Goal 9: Industry, Innovation, and Infrastructure
Goal 8: Decent Work and Economic Growth
Goal 13: Climate Action
Sub Sector: 
Conventional Energy Generation
Renewable energy generation - solar
Renewable energy generation - wind
Loan Number: 
3004, 3005
Source of Funding: 
OCR, COL/ADF
Date Approved: 
20 June 2013
Report Rating: 
Successful

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